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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.
Mr. Plank became Under Armour’s Executive Chairman and Brand Chief in January 2020, following his role as Founder, Chief Executive Officer and Chairman of the Board of Directors from 1996 to 2019, and President from 1996 to July 2008 and August 2010 to July 2017. Founded in 1996 out of frustration that cotton T-shirts were unable to keep him dry and comfortable while playing football at the University of Maryland, Mr. Plank designed and created a new apparel innovation that efficiently wicked sweat to optimize athletic performance. Nearly a quarter of a century later and Under Armour has grown into one of the world’s leading developer, marketer, and distributor of branded performance apparel, footwear and accessories. Mr. Plank also serves on the Board of Directors of the National Football Foundation and College Hall of Fame, Inc., and is a member of the Board of Trustees of the University of Maryland College Park Foundation.
Mr. Frisk was appointed Chief Executive Officer and President of Under Armour and a member of its Board of Directors in January 2020, after serving as President and Chief Operating Officer since July 2017 when he joined the company. Mr. Frisk has more than 30 years of experience in the apparel, footwear and retail industry. Prior to Under Armour, he was Chief Executive Officer of The ALDO Group, a global footwear and accessories company. Previous to that, he spent more than a decade with VF Corporation where he held numerous leadership positions including Coalition President of Outdoor Americas (The North Face® and Timberland®), President of the Timberland® brand, President of Outdoor & Action Sports (EMEA), and Vice President and General Manager of The North Face®. Before joining VF Corporation, Mr. Frisk ran his own retail business in Scandinavia and held senior positions with Peak Performance and W.L. Gore & Associates.
George W. Bodenheimer has been a director of Under Armour since August 2014. Mr. Bodenheimer served as Executive Chairman of ESPN, Inc., a multimedia, multinational sports entertainment company from January 2012 to June 2014, and served as Acting Chairman of ESPN from December 2017 to March 2018. Prior thereto, he served as Co-Chairman of Disney Media Networks from April 2004 to January 2012, President of ABC Sports from March 2003 to January 2012 and President of ESPN from November 1998 to January 2012. With ESPN since 1981, Mr. Bodenheimer served in a variety of senior sales and marketing positions prior to his appointment as President. Mr. Bodenheimer serves on the Board of Directors of Sirius XM Holdings, Inc. and is a member of its compensation committee.
Douglas E. Coltharp has been a director of Under Armour since December 2004. Since May 2010, Mr. Coltharp has served as Executive Vice President and Chief Financial Officer of Encompass Health Corporation (formerly HealthSouth Corporation). Prior thereto, Mr. Coltharp served as a partner at Arlington Capital Advisors and Arlington Investment Partners, a Birmingham, Alabama based financial advisory and private equity business from May 2007 to April 2010 and as Executive Vice President and Chief Financial Officer of Saks Incorporated and its predecessor organization from November 1996 to May 2007.
Jerri L. DeVard has been a director of Under Armour since May 2017. Ms. DeVard served as Executive Vice President, Chief Customer Officer of Office Depot, Inc. from January 2018 to March 2020, leading their eCommerce and Customer Service functions as well as Marketing and Communications and as Executive Vice President and Chief Marketing Officer from September 2017 to December 2017. Prior thereto, Ms. DeVard served as Senior Vice President and Chief Marketing Officer of The ADT Corporation, a leading provider of home and business security services, from March 2014 through May 2016. From July 2012 to March 2014, she was Principal of DeVard Marketing Group, a firm specializing in advertising, branding, communications and traditional/digital/multicultural marketing strategies, and prior thereto served as Executive Vice President of Marketing for Nokia. Ms. DeVard served in a number of senior marketing roles throughout her career, including as Senior Vice President of Marketing and Senior Vice President, Marketing Communications and Brand Management of Verizon Communications, Inc., Chief Marketing Officer of the e-Consumer business at Citibank N.A. and other senior marketing positions at Revlon Inc., Harrah’s Entertainment, the NFL’s Minnesota Vikings and the Pillsbury Company. Ms. DeVard currently serves on the Board of Directors of Cars.com and is a member of its compensation and nominating and governance committees
Mohamed A. El-Erian has been a director of Under Armour since October 2018 and Lead Director since May 2020. Dr. El-Erian served as CEO and Co-Chief Investment Officer of PIMCO, one of the world’s premier investment management firms, from December 2007 to March 2014. He currently serves as Chief Economic Advisor of Allianz, the corporate parent of PIMCO, a role he has held since March 2014 and is President-Elect of Queens’ College Cambridge, taking office in October 2020. Dr. El-Erian joined PIMCO in 1999 as a senior member of the portfolio management and investment strategy group. In February 2006, he became president and CEO of Harvard Management Company, the entity responsible for managing the university’s endowment, before returning to PIMCO in 2007 to serve as co-CEO and co-CIO. From December 2012 to January 2017, he was chair of the U.S. President’s Global Economic Development Council. Previously, he was a managing director at Salomon Smith Barney/Citigroup in London and worked at the International Monetary Fund for 15 years, rising to the position of Deputy Director. He is a board member of the National Bureau of Economic Research serving on its Executive Committee, and chairs the Microsoft Investment Advisory Committee. Dr. El-Erian also serves as non-executive director of Barclays plc and is also a columnist for Bloomberg and a contributing editor at the Financial Times.
Karen W. Katz has been a director of Under Armour since October 2014. Ms. Katz served as President and CEO of Neiman Marcus Group LTD LLC, one of the world’s leading luxury and fashion retailers, from 2010 to February 2018. Having joined Neiman Marcus in 1985, Ms. Katz served in key executive and leadership roles in the company’s merchant, stores and eCommerce organizations as Executive Vice President—Stores, a member of the Office of the Chairman of Neiman Marcus Group, and President, Neiman Marcus Online, and President and CEO, Neiman Marcus Stores. Ms. Katz serves on the Board of Directors of Humana Inc. and is a member of its Audit Committee and on the Board of Directors of Casper Sleep and is a member of its Compensation Committee and Chair of its Nominating and Governance Committee. Ms. Katz also serves on the Board of Directors of private consumer companies including B8TA and Skylar.
Eric T. Olson has been a director of Under Armour since July 2012. Admiral Olson retired from the United States Navy in 2011 as an Admiral after 38 years of military service. He served in special operations units throughout his career, during which he earned a Master’s Degree in National Security Affairs and was awarded several decorations for leadership and valor including the Defense Distinguished Service Medal and the Silver Star. Admiral Olson’s career culminated as the head of the United States Special Operations Command from July 2007 to August 2011, where he was responsible for the mission readiness of all Army, Navy, Air Force, and Marine Corps special operations forces. In this capacity, he led over 60,000 people and managed an annual budget in excess of ten billion dollars. Since June 2019, Admiral Olson has served as the Chief Executive Officer of HANS Premium Water, a clean water solution for homes. He also serves as President and Managing Member of ETO Group, LLC, since September 2011, supporting a wide range of private and public sector organizations. Admiral Olson serves on the Board of Directors of Iridium Communications, Inc. and is a member of its nominating and corporate governance committee and also serves as Chairman of the non-profit Special Operations Warrior Foundation.
Harvey L. Sanders has been a director of Under Armour since November 2004. Mr. Sanders is the former Chairman of the Board of Directors, Chief Executive Officer and President of Nautica Enterprises, Inc. He served as Chairman from 1993 to 2003 and as Chief Executive Officer and President from 1977 to 2003, until VF Corporation acquired Nautica Enterprises, Inc. in 2003. Mr. Sanders currently serves as a member of the Board of Directors for the Boomer Esiason Foundation for Cystic Fibrosis and the enCourageKids Foundation and as a member of the Board of Trustees of the University of Maryland College Park Foundation.