April 14, 2020
Dear Fellow Shareholders,
Three months into this new year and the world has changed dramatically. Like other companies operating amid the COVID-19 pandemic, we find ourselves working diligently to protect the interests of all our stakeholders during this unprecedented time. And while there is much uncertainty about the future, we are resolute in supporting the health of our teammates, our athletes and our business. What follows is our perspective on the positive strides we have made with our business in the recent past. Given the dynamic landscape, we will continue to evolve our business and strategy as we manage through this crisis.
Fourteen years ago, when Under Armour’s first annual report was written, we spoke about the importance of building a solid foundation for long-term growth and consistently balancing the core elements of our strategic pillars: Product, Story, Service and Team.
In the time since – which has seen a rapid globalization of business within the digital age and the continued growth of sport, fitness and wellness – the world has evolved tremendously. Through it all, Under Armour has embraced the change, evolved with it and created a resilient company capable of battling through numerous shifts in consumer behavior and the relentless pressure of a highly competitive marketplace.
In 2019, our revenue grew 1 percent to $5.3 billion. And while our efforts to return to growth in North America are taking longer than expected, our international business continued to demonstrate strength and its important role in our portfolio of levers. Full year gross margin improved 180 basis points to 46.9%; operating income was $237 million; and, our diluted earnings per share was $0.20.
To be clear, we are not satisfied with these results versus where we thought would be now during our transformation. That said, change of this magnitude takes time and we remain fundamentally committed to returning to growth and improving shareholder returns over the long-term.
In the near-term, we have areas we are proud of including important operational, structural and process improvements that contributed to meaningful balance sheet improvements driven by disciplined inventory management and more thoughtful capital expenditure allocations – all of which we believe sets us up to manage through many of the challenges ahead. Strategically, we are well positioned globally as one of only a few authentic, on-field athletic performance brands. Our innovative, beautifully designed products that make you better also now have a more powerful brand voice to connect even more deeply with our consumers.
As we entered 2020, we significantly began to amplify the use of brand marketing to increase awareness, engagement and consideration around the world. Executing this powerful global brand platform, The Only Way is Through, will remind and inspire consumers why Under Armour is special. We believe this voice will play a crucial role in reigniting and further solidifying our positioning with our target consumer – the focused performer – and will be instrumental in improving our underlying demand to drive our premium brand perception.
From a product perspective, key innovations such as Under Armour Coldgear®, Rush™, Recover™ and UA HOVR™ – along with a loaded pipeline to come – blend style and beauty with the highly technical features that consumers have come to expect from us. Leveraging athlete franchises like Dwyane Johnson’s Project Rock collection and Stephen Curry’s SC business broaden our reach even further. And with partnerships like Virgin Galactic where we are using inline Under Armour innovation to equip the next generation of space travel, we’re helping redefine the boundaries of performance. Additionally, having successfully reduced and streamlined inconsistencies found previously in our go-to-market process, we are laser focused on the cultivation and curation of elevated product franchises that deliver on our style, performance and fit criteria.
Within our direct-to-consumer business, we’re investing in capabilities to become more digitally and physically capable of delivering a premium, seamless experience every time consumers engage with our brand. This includes an improved eCommerce platform in North America to better compete in today’s rapidly evolving digital landscape. In addition, an enhanced customer relationship management program along with 40-50 million monthly active Connected Fitness users will help power personalization, engagement and frequency as we continue to scale our business globally.
From a team perspective – following a lengthy succession planning process, we also transitioned into new roles of Executive Chairman & Brand Chief and President & Chief Executive Officer, respectively. In our new roles, we are focused on evolving our partnership to maximize both of our unique skill sets and putting Under Armour in the best possible position to realize the brand’s full potential.
Our path is clear: we compete in athletic performance, we are the human performance company that gives you the edge to push beyond any limit, and we make you better. When we watch Under Armour athletes train and compete, we are joined in pride, community and in family.
Families love, they fight, they suffer losses but above all else – they are connected, resilient and persevere. This authenticity is earned and a privilege that represents an immense responsibility. A responsibility to our teammates, customers and shareholders to stay focused and play the long game for athletes, and we’re doing exactly that.
We recognize that Under Armour’s long-term transformation continues to ask a lot from our stakeholders. There is undoubtedly hard work and tough decisions that are ahead of us, but we’re encouraged by the progress we’ve made thus far and believe that we are fundamentally running a better company today than just a few years ago.
When it comes to Under Armour, there’s never been a shortage of detractors. But we’re used to that. 24-years used to that. We’re more than our successes. We’re more than our failures. As we emerge from this current environment – on the other side of what the new ‘normal’ may or may not be – sport, fitness and wellness will be tantamount to our global recovery.
Great brands endure. The only way is through.