Under Armour, Inc. (UAA) Q4 2008 Earnings Report, Transcript and Summary

We're currently on hold for today's Under Armour's fourth quarter 2008 conference call. Please stand by as we are admitting additional participants and we will be underway shortly. Thank you for your patience and please continue to hold. Please standby. Good day and welcome to the Under Armour Fourth Quarter 2008 Earnings Results conference call and Webcast. This call is being recorded today and at this time I would like to turn the conference over to Director of Investor Relations, Ms. Alex Pettitt. Please go ahead, ma'am.

Thank you and good morning to everyone participating in this morning's conference call. During the course of this conference call we'll be making projections or other forward looking statements regarding future events or the future financial performance of the company. The words estimates, intent, expect, plan, outlook or similar expressions are intended to identify forward looking statements. We wish to caution that such statements are subject to risk uncertainties that could cause actual events or results to differ materially. Important factors relating to our business including factors that could cause actual results to differ from our forward looking are described in our press release and in the risk factor section of the filings with the SEC. The company assumes no obligation to update forward looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Before we continue I would like to direct you to our Website investor.underarmour.com. There you will find this morning's press release and on our Webcast page images of a number of products and initiatives we will address on the call. Joining us on today's call will be Kevin Plank, Chairman and CEO, followed by David McCreight, our President, and finally Brad Dickerson, our Chief Financial Officer, who will discuss the company's financial performance for the fourth quarter and provide some commentary on our outlook for 2009. After the prepared remarks Kevin, David, Brad and Wayne Marino, our Chief Operating Officer, will be available for a Q&A session that will end by 9:30. And with that I'll turn it over to Kevin Plank.

Thank you, Alex, and good morning, everyone. It's a very exciting time for Under Armour as we launch Running Footwear at retail this Saturday. It illustrates not only our ability to continue bringing newness to our consumers and retailers but the opportunities that lie ahead and the potential for our brand. It's also a great opportunity to reflect on the progress we made in 2008 and while our excitement about the long-term opportunities for the brand remains so strong. But I want to be clear that we are focused on the short-term as well. Our success in 2010 and beyond will be significantly impacted by the decisions we make in '09 and we are not taking our eye off of the long-term growth strategy. Our five growth engines all remain very much intact; men's apparel, women's apparel, footwear, international and direct consumer. In large part 2008 was another very successful year for Under Armour. We grew revenues 20%, successfully launched Training Footwear and significantly strengthened our management team and our balance sheet. For the long-term health of our brand the most important development was that our consumer continues to pay a premium for our product and our retailers view us more so than ever as an essential brand that consistently drives traffic for them. In a context of a very difficult retail environment what happened at retail for Under Armour for the back half of 2008 was very positive from a brand perspective. There's been a lot of discussion about where the consumer is heading and where – we are very aware of the challenges facing all brands in this environment. Even the strongest of brands face significant obstacles in 2009. The strong brands in our business will position themselves for consistent growth in the out years. We like our long-term prospects for a number of reasons. But the primary one is the strength of the Under Armour brand. We believe there will always be an appetite for the companies that deliver on their brand promise particularly those that are built on a foundation of performance. It's exciting to think about the running room we have just in our current domestic apparel distribution especially in the categories of women's and youth's where we haven't really scratched the surface yet. Within our stage we believe we are operating from a position of strength and beyond that we have more long-term levers to pull than any other brand in our space, new categories, new distribution and new geographies. On the product front we've been building that infrastructure for growth over the past few years where our revenue growth has been explosive. Because we invested and built the teams during those years of high growth we are now in position to pull the levers such as Running Footwear. This will not only drive growth in the short-term but will also position us to continue scaling our footwear business. Beyond Running Footwear there are growth opportunities for us long-term in soccer boots and eventually once the product is ready, basketball. From a distribution standpoint our entry into Running Footwear provides a great opportunity to expand our brand presence into the mall specialty channel, places like Foot Locker, another logical step in the Under Armour brand story where we haven't sold our first pair of shoes yet. Through the constant evolution of our company our strategy of generating excitement among Under Armour's core consumers will not change, innovative new product, new categories, marketing that breaks through the clutter and a continued focus on connecting with our consumers. Under Armour's Running Footwear hits the market this Saturday and as many of you have seen on some of our communication already whether in print, in store or on TV the products in the campaign speak directly to our core consumer, the athlete. The campaign itself is our most inclusive ever. All athletes run. The buzz has been great on the running shoes with major media outlets and men's running publications reporting high anticipation of release of our very first pairs. We'll continue to invest in the business that will fuel our long-term growth but we're not blind to the realities of the current state of the consumer. We will prioritize those investments to insure that we are delivering both short-term and long-term value for our shareholders. For example we've talked consistently about using our existing specialty retail stores as a test. We believe the inside information we get in our four stores about how our consumer likes to shop for our brand will help guide our decision-making around developing additional specialty stores. For 2009 though we are not planning to open any additional UA specialty stores. In Europe we've invested in sports marketing assets such as the Welsh Rugby Union, the Hanover 96 Football Club in Germany to help authenticate the brand on-field. In 2009 we are using those assets to help the brand take root and build our presence. We have been and remain a growth company and have a heightened sense of managing the profitability in 2009. We are becoming better operators, better footwear developers and apparel designers, better at managing our inventory and our sports marketing relationships, better at managing our supply chain and better at understanding our consumer. The slower consumer environment affords us the opportunity to re-look at the operating structure we have developed over the past two years and identify areas where we can do things better and more profitably. As COO Wayne Marino is driving our key initiatives from the operational side and David McCreight, our President, who brings experience in maximizing profit at multi-billion dollar brands is now charged with aligning our long-term growth strategy while fueling our near-term profitability. To take you through that opportunity I'd like to pass it over to David so he can talk about some specific areas we're looking to impact in 2009 and beyond. David?

Thank you, Kevin, and good morning, everyone. Kevin spoke earlier about Under Armour operating from a position of strength. For me the power of the Under Armour brand is really defined by the equity resident in the brand and the breadth of growth opportunities available to us unlike any other companies. Having worked successfully with brands where the business and company were more mature and the growth potential was less clear I have a strong appreciation for where and how to help UA grow and grow profitably. Some of the opportunities for growth were apparent before joining. Yet further opportunities for growth and improvement were identified during my first few months with Team UA. One of the more, one of the more apparent opportunities before joining was the footwear category Kevin mentioned. Credit for the existence of this growth vehicle lies in the wisdom of some of the investments the team made in building platforms around the brand, several years ago amidst rapid top line expansion with the clear and deliberate plan, investment in infrastructure was deployed which enabled us to entry the multi-billion dollar run foot wear business which will begin to bear fruit this Saturday. Our entrance into the footwear business started on-field. The source of Under Armour's innovation and the heart of our brand equity and our experience to date in building high-performance footwear for elite athletes, in cleated, training and now running footwear, has materially informed how we bring product to market. And while we are in the early stages of building a great footwear culture and business model at UA it will be my role to insure that the construction of our platform remains true to our original spirit of authenticity and innovation but is also executed in a strategic and profitable manner. We will focus on insuring that we have the right team, supply chain, distribution plans and innovation pipeline to fuel what could be our largest near to mid-term growth platform. On the other hand, an example of the opportunities that were perhaps less apparent and were somewhat surprising to me, is the amount of untapped potential remaining in the Under Armour apparel platform. While already viewed as the leader in the performance category, and currently the largest source of our revenue, when reviewing the apparel business it became clear that material growth potential remains for men's, women's and youth's. With more aggressive merchandising capabilities and analytics, further developing product flow and assortment innovation, growing floor space with existing distribution points as well as targeting under-penetrated markets points to the opportunity for us to introduce even more athletes to Under Armour apparel. As Kevin discussed we are acutely aware of the need to manage appropriately in the current economic environment. However we are confident that the tremendous power of the Under Armour brand and the untapped potential of our growth platforms when combined with more rigorous operating and investment disciplines will deliver a dynamic combination of market share and operating margin growth in the future. Thank you and with this I'd like to turn it over to our Chief Financial Officer, Brad Dickerson.

Thank you, David. With Kevin and David having taken you through some highlights and some strategies for our business I would now like to spend some time on our fourth quarter to full year financial results. As you will recall on January 14 we announced preliminary financial results for the fourth quarter of 2008 of $179 million to $180 million for net revenues and diluted earnings per share in the range of $0.16 to $0.18. Our net revenues for the fourth quarter were up 3% year-over-year to $179.3 million. The growth is largely driven by our footwear business which was up 36% to $9.2 million and our licensing revenues which were up 33% to $8.4 million. Our apparel business was essentially flat in the quarter. The U.S. wholesale apparel business was impacted by a lower level of at-once orders and increased cancellations and returns on a year-over-year basis. This was offset by growth in our direct-to-consumer channel which was up 47% for the quarter. For the full year net revenues increased 20% to $725.2 million. Our apparel revenues increased 13% for the year while our footwear business more than doubled to $84.8 million with our successful launch in the performance training category. Fourth quarter gross margins were 50.7% compared with 52% in the prior year's quarter. There were several puts and takes that impacted the gross margin for the quarter. The largest impact came from the higher proportion of footwear sales in the quarter which had lower gross margins than apparel. The natural offset to this was the positive impact to gross margins from our growth in direct-to-consumer channel. Two other factors contributed to the gross margin decline. First although our core apparel sales continued to sell through at full price in a top retail environment we initiated markdowns on some seasonal styles towards the end of the quarter. Additionally apparel margins were impacted by a less favorable product mix. For the full year gross margins were 48.9% compared to 50.3% in 2007 and our previous outlook of 49.5%. The biggest impact to our gross margin on a year-over-year basis was the growth in the footwear business which was partially offset by growth in our higher margin direct-to-consumer channel. Selling, general and administrative expenses were $68.1 million in the fourth quarter of 2008 or 37.9% of net revenues compared to $62.6 million or 35.8% of net revenues in the prior year. For the full year selling, general and administrative expenses were $278 million or 38.3% of net revenues compared with $218.8 million or 36.1% of net revenues in the prior year. Marketing expenses increased to $23.7 million in 2008 and were 13.1% of net revenues compared with 11.7% in 2007. We had previously anticipated marketing expenses to be at the high end of the range of 12% to 13% of net revenues for 2008. Also impacting our SG&A for the quarter and the year was an increase in our bad debt reserves. Although there are no specific items of concern we believe the current economic environment increases the risks in general for some of our customers. As such we increased our bad debt reserves from $1.1 million to $4.2 million during the year. Operating income during the fourth quarter was $22.9 million compared with $28.3 million in the prior year. Operating margin was 12.8% compared with 16.2% in the prior year quarter. Operating income for the full year was $76.9 million or 10.6% of net revenues compared with $86.3 million or 14.2% of net revenues in the prior year. Our operating margin for the year was impacted by the year-over-year decline in gross margin as well as SG&A to leverage. Based on the [time given] investments in our business including the greater front-loading of marketing expenses to support our Performance Training launch we had planned for substantial operating margins leverage in the third and fourth quarters. Although we managed costs tightly in the fourth quarter the slowdown in sales occurred late in the quarter and we were limited in our ability to adjust spending at that point. Below the operating income line there are a couple of key items to address. Net other income and expense is comprised of net interest expense and the impact of foreign currency. We had previously estimated net other expense to be approximately $3 million for 2008 based on projected interest expense for the year as well as foreign currency impact through the third quarter. As we noted during our third quarter earnings call although we had hedged a portion of our foreign currency exchange risk for the fourth quarter we remained exposed to some levels of currency risk. As a result net other expense was $5 million during the fourth quarter versus $90 thousand in the same period of the prior year. For the full year net other expense was $7 million versus net other income of $2.8 million in 2007. For 2009 we have expanded our hedging strategy to help us mitigate currency risk and anticipate less exposure to foreign currency exchange risks in the upcoming year. Our effective income tax rate for 2008 was 45.3% compared with 41% in 2007 and our previous outlook of 42.7%. The increase in our tax rate for 2008 came as a result of two factors. First a higher proportion of our consolidated taxable income was earned in the U.S. Second beginning in January 2008 the state income rate for Maryland, our home based state, increased from 7% to 8.25%. Our effective tax rate is expected to be lower in 2009 as a result of certain tax strategies that will be implemented beginning this year. Our resulting net income in the fourth quarter was $8.3 million compared with $16.9 million in the prior year period. Fourth quarter diluted earnings per share was $0.17 compared with $0.34 in the prior year. Net income for the full year was $38.2 million compared with $52.6 million in 2007. Diluted earnings per share for 2008 was $0.77 compared with $1.05 in the prior year. Now a few moments on the balance sheet, total cash and cash equivalents at year-end were $102 million compared with $40.6 million as of December 31, 2007. Cash net of debt increased $30.2 million at year-end to $56.5 million compared with cash net of debt of $26.3 million as of December 31, 2007. At the end of the year we had $25 million drawn on a revolving credit facility. We had previously anticipated cash net of debt to remain relatively flat from 2007 year-end balance. The increase was driven by the higher proportion of direct-to-consumer sales in the fourth quarter as well as more focused management of our receivables. Net accounts receivable decreased 13% on a year-over-year basis which was below our net revenue growth for the quarter. Part of this was impacted by the increase in allowance for doubtful accounts which was mentioned earlier. Inventory at year-end which included approximately $15 million of running footwear to support this Saturday's product launch increased 9.7% to $182.2 million compared with $166.1 million as of December 31, 2007. Without running footwear which began shipping in January inventory growth would have been flat at year-end. While we did not deliver inventory growth at rate below sales growth for the fourth quarter due to the slowdown in sales we purchased over $50 million less of inventory in a year where we grew the top line 20%. We made progress in systems and process development around inventory management in 2008. And in 2009 we are aiming for improved inventory churns. As Kevin mentioned earlier brand integrity is top of the mind for us and we understand the important role inventory management plays here. Our investment in capital expenditures for the year was $40 million below our previous estimate of $44 million. We had previously stated that we expected future CapEx to grow in line with our top line but we are taking a more conservative approach with CapEx as we look forward to 2009. Although we are growing our business in 2009 we are currently planning our CapEx spending down year-over-year. In this environment the balance sheet is a critical focus to us and an area we continue to look to strengthen. I'm pleased to announce that we've entered in to a new three-year revolving credit facility. The new facility provides for an initial commitment of $180 million and replaces the existing $100 million facility. Our new credit facility strengthens our banking syndicate and increases our access to capital. Our ability to secure this facility in the current environment is a testament to the strength of our brand and our balance sheet. With the uncertainty around the current environment we believe it is prudent at this time to limit any specific financial details around 2009. Although we cannot comment on how 2009 will stack up against the long-term goals we provided investors yesterday we would like to provide some color around what we see. We remain confident about our business and the growth opportunities we have this year and in future years. Our excitement about this Saturday's launch is matched with excitement from both our consumer and our retail partners. In its first year running footwear is anticipated to be significantly larger than performance training and the product remains allocated for 2009. Our direct to consumer business has been as strong in 2008 and remains a growth [inaudible] for 2009. As David spoke to you earlier we continue to believe in a long term opportunity of our apparel business. However, based on the trends in the fourth quarter and the limited visibility we have in the current environment we are taking a conservative view on our U.S. wholesale apparel business in 2009. As a growth company we are committed to driving short-term and long-term value for our shareholders. Financial strength is critical and as CFO for a growth company in 2009 I am focused on two things, first the balance sheet and second cost controls. From a balance sheet perspective our liquidity is strengthened with our current cash position as well as the new credit facility now in place. We are planning our CapEx down in the year with anticipated top line growth and we are focused on improving inventory turns in 2009. As far as cost controls, our goal is to protect our operating margin in 2009. Our investments will be prioritized and when we do invest those costs we manage tightly. We have always said that we are a cultural growth balanced with a cultural profitability and this year will be no exception. At this time we would now like to open the call to your questions. We ask that you limit your questions to one or two per person so we can get to as many of you as possible, operator?

(Operator Instructions) Your first question comes from Robbie Ohmes – BOA Merrill Lynch. Robert Ohmes – BOA Merrill Lynch: Thank you very much, good morning everybody. Actually two quick questions the first question you know I understand that you want to limit the details on ’09. But can you just speak when you talk about conservative on ’09 view for apparel, can you sort of speak to you know what that means in terms of approaching the category. Does that mean that you will not be pushing to expand, you know the number of doors that carry Under Armor apparel or does that mean that you’ll, you know be careful about launching new styles or programs in the apparel business or that you won’t be you know pushing to grow women’s or kids? Just sort of maybe a little bit around what that means in terms of how you operate that business. And then the second question you know I guess maybe for Brad trying to understand the magnitude of the foreign currency, you know sort of expense, other expense stuff that hits you in the fourth quarter and then how that lines up with the percent of your business that you do internationally or can you just walk us through how that works, either from a sourcing or the size of your international business and then we can get our arms around what happened there. Thanks.

Robbie, let me start off and then I’m going to pass it onto Brad and let him actually pile it on the first, your first question as well and then get to question two. But I think you know we’re pretty evident in the scripts is that you know we remain very optimistic about there’s growth left in our apparel business, very much so. Not only I think the way we highlighted the women’s and youth but even in our men’s business and that the levers that we still have to pull there, obviously with geographies but we also believe with distribution and even more importantly we believe within our existing doors. So I think the conservative approach that I think the market as a whole has taken toward apparel is one of the things where our selves being and continue in being the largest the number one performing brand everywhere, virtually everywhere we’re doing business today. We continue on that trend, we continue to outperform, but I think we’re just being you know from some of the things we saw in Q4 and basically without the visibility in 2009 I think we’re just, we’re going to pace ourselves. We’ve got again a great number of growth levers that we can pull and with apparel it’s one of the things we’re just managing on a more of a go forward basis. So I’m going to let Brad take it to a little bit sort of the inventory component to that as well as getting into FX with you.

Robbie, yes just on the conservatism on the top line I think as Kevin was saying, you know the impact on Q4 happened pretty late in the quarter, so we’re trying to get our arms around you know what the consumer’s spending behavior is in this environment. So it’s not just a matter of looking at the end of Q4 but how does that look in Q1 of ’09 too. So we’ll be getting back to you guys obviously in 90 days, in 90 days from now we’re going to have a lot more data and information around you know the behavior of that consumer in this environment. So we think it’s prudent this time to kind of be conservative and hold off on any specific guidance there. Secondly you know as it relates to the top line conservatism that flows through the rest of our, a lot of our numbers, not only on the income statement but on the balance sheet as well as inventory also. So you know as far as managing SG&A going forward, you know that matches our conservatism we’re looking at the top, as far as the top line goes and also in our inventory management going forward. On the second question you have Robbie on FX just to kind of give you some more flavor around that. If you look at the whole year of 2008 we had foreign currency exposure, losses of about $6.2 million for the full year and that’s compared to about a $2 million gain last year in foreign currency for the whole year. If you look at foreign currency I break it up into two components. First would be our exposure to intercompany balances, owed by our foreign entities which right now for the most part are Canada and Europe. And in the second part would be the transactional foreign currencies, so I’ll take the first one first here which is the inter company piece. As we talked about in the past we had some hedging, done back in the end of 2007 and through 2008 and that was really on our Canadian currency. In 2008 towards the end of the quarter Q4 we implemented some European currency hedging relative to our intercompany balances. The inter company piece was the biggest exposure by far we had in Q4 and it was the Euro piece that was the biggest exposure since we didn’t really hedge that until the end of the quarter. So as you look into 2009, you have the inter company Canadian dollar and intercompany Euro dollar hedged which should reduce our exposure in those areas and currently right now in Q1 of 2009 we’re working on hedging strategies around transactions in Canadian and Euro dollars which is less of an impact right now in the inter company. Robert Ohmes – BOA Merrill Lynch: Great thanks very much and just one last question can you just remind us so for 2008 what percent of your revenues was international?

For 2008 for the year 5% of our revenues were international.

Your next question comes from Kate McShane – Citigroup. Kate McShane – Citigroup: I was wondering if you could address how your manufacturing plans may have changed in order to address customers ordering more at once.

Kate, I might [inaudible] on that.

We’ve been fortunate where we’ve had two types of models in our business very early on. One has been the affluence ordering and the other one has been the futures program. And for us the At Once position has been a pretty substantial part of our business and a very successful part. What we’ve done in at-once is we’ve been able to shorten lead times, take safety stocks and use a much more statistical information to work with I would say a quick return to the floor. There’s other things we’ve done too and I have to call out a credit here to the logistics group, who has been able to utilize the shipments from our factories pretty much to the floor or to the doors of our customers. That’s cut lead time, its cut transportation time, so we’ve been quicker in terms of responding to at-once. The other component which is the seasonal orders, based on our lead times we’ve been able to get a read from our customers and using that read to put the orders in. So I think we’ve got a good balance and unlike I think other companies we’ve always had a substantial part of our business in the at-once or replenishment so we’ve developed that skill set and we feel like we’re on target for 2009 with that. Kate McShane – Citigroup: Okay, thank you and an unrelated question that I know you’re not giving guidance for 2009 but can you give any more color around the marketing spend associated with the running footwear launch?

Kate McShane, let me, let me just give you a little more color if I could just on sort of the way that we’re viewing the market, we view in ’09, it may help add a little more context. But you know when we last talked to you guys 90 days ago, you know we felt pretty good about the year and where we were standing and what we saw was again the year, basically began to get progressively slowed down for us. And that’s one of the things that has us again cautious, cautiously, cautiously optimistic about where we’re viewing ’09, so we basically we’re in a position to making decisions about how we’re going to treat our business. And there were two things we decided we were going to do, number one is protect our brand, number two is protect our pricing integrity. And within that what you see I think if you were out at retail you saw that Under Armor for the most part was virtually full price and more importantly than that we still maintained our number one position in the market place. And you know we of course one thing we didn’t do was we didn’t make speeches, we didn’t say we’re not going to mark anything down, we didn’t say we’re going to put everything on sale. We found ways to be I think prudent about the way we approached inventory in the product that we had out in the market. One of the things that we’re going to through as a company right now is very much we’re adjusting our model, we’re adjusting our model from being growth company to learning how to manage our business at the same time. And I think some of the ways that we demonstrated out ability to manage that is through I think the inventory sheet, not only as clean as we are in inventory out in the market but we believe is clean as our inventory is here as well. We’re – we – there’s one thing that we took away from 2008 is that we’ve maintained the integrity of the growth leverage that we have in the business. Men’s apparel, women’s apparel, footwear and international are still very much in place in things that we look at and say will very much be an opportunity for us in ’09, let me let Brad jump in.

Yes I just on top of that Kate obviously if top line visibility is a little tough it makes seasonality of expenses a little tough to talk about too, but in general you know what we can point to is the similarity of ’09 to ’08 relative to a major footwear launch in the first half of 2009 just like a major footwear launch in the first half of 2008, albeit the launch in 2009 is coming in Q1 versus Q2 of 2008. In order, obviously in order to in order to support that launch we need to have you know marking dollars behind that support just like we had in 2008. Overall for the year though we still anticipate marketing for the whole year of 2009 to continue to be in that 12% to 13% range. Kate McShane – Citigroup: Okay that’s very helpful and just in the context of one of your comments with the lack of visibility have you seen any cancelations in running footwear yet or do you expect that or is it more an issue with apparel?

No we haven’t, again you know we’ve been through the numbers, we’ve been over the numbers and you know we feel that we have as, as best we can today we feel pretty good about the way that we’re planning for our business internally and externally for 2009. But again there’s been tremendous excitement around the running footwear, just a lot of hype I think A from our retailers in looking at this as this is the launch of the year and again this isn’t just an Under Armor investment in driving consumer traffic at retail, you know this is our consumers and these are you know a lot of co-branded TV, lot of co-branded print you know you’ll see Under Armor brand on you know trucks at Sports Authority. You’ll see outdoor billboards with many of our partners and Dicks and Modell’s and we really have between Finish Line and Footlocker and the way that we’re in-store now so again there’s tremendous excitement, I think there’s a lot, a lot of people that are looking for I think our normal running footwear to A drive a new consumer to them as well as create excitement. But again if I’m going to stress anything and sort of temper anything it’s the fact that you know you’re not going to be able to find the success of our running footwear launch by you know Monday or next Monday or in the opening weekend. So we’re going to learn a lot and I think more importantly we’re entering a category for the first time that has wind at its back versus explaining to a consumer why the heck they should ever need to buy a training shoe. The consumer typically is going to buy a running shoe, how we’re giving them the opportunity that athlete the opportunity to buy an Under Armor running shoe.

Your next question comes from Omar Saad – Credit Suisse. Omar Saad – Credit Suisse: Thanks wanted to follow up on the inventory question, you know when you guys last talked to us at the end of October you’d kind of put out a, your guidance implied, I don’t know to somewhere around 17% to 18%, 24%, 25% revenue growth at the end of October. And then two months later [inaudible] things deteriorated and decelerated significantly and you ended up with a pretty big shortfall from where you had been planning. But inventory still looked pretty clean, especially if you back out the footwear piece. Help us understand where, you know what happened to those inventories, were you just able to really push back on your supply chain and get them to hold stuff longer, how should we think about where those inventories wound up?

We’re going to let Wayne [inaudible] on that.

Omar, good morning. You know frankly we were a little disappointed that our inventory growth was higher than our top line growth at year-end but the results would have been that much better had the top line not slowed. The team has done a good job and I think there’s several things I want to point out. One inventory remains a very key focus for this company for myself and we’ve made great strides. You know the first strategy we had was to minimize our excess inventory and that really comes about through buying a little bit tighter, managing the at-once business tighter and buying closer to bookings. We’ve also made some progress with our lead times, so the first part of that is progress has been made with how we bought inventory and an example of that is you look at our full year and our top line increased by 20%, we actually purchased in the year $50 million less so great strides, great call out for the team. The second one I want to point out is that we talk about inventory and taking care of the excess or overage inventory, we have a very, very strong outlet division who has operated profitably at the same time has controlled our excess, and with the growth in stores last year and the ability to move it through the outlet stores we’ve actually started to reduce some of that excess inventory. And third really is the fact that our company is finally putting in the systems and processes that I would expect of a large scalable company in managing inventory. So I’m very happy with the progress it was probably a little bit ahead of where we thought it would be, but we’re going to continue to see improvement, we’re not finished, we have a long way to go as you can probably tell and as Brad called out in the prepared remarks we’ll see improvements in our inventory turns. And with our systems in place and processes I would expect us to continue to improve our balance sheet by managing the inventory. Omar Saad – Credit Suisse: Okay thanks and then actually want to ask David a question, you know you’ve been there a little longer stretch now than last quarter and is certainly an interesting time to be joining a growth company. You know you talked a little bit about you know other revenue opportunities in different categories for this brand, you know what, what do you see from a profitability standpoint, are there opportunities in the margin line on the cost side or you know how do you think about helping the position, you know put in place some of the you know learning you’ve had from your prior experiences and perhaps you know make Under Armor as a profitable brand as it could be?

Good morning, Omar. As you know there’s several components with building profitability and Under Armor has such a unique position with its being a growth company, and there’ve been so many investments made that we think we can begin to harvest many of them. Primarily the three components will be developing very strong and thoughtful business plans in the New Years out and that will help us control our costs in investments and sequence them in a very sort of predictable manner. Number two we’ll be able to leverage scale accordingly and the third big component will be how we harvest and partner with our sourcing partners worldwide and pricing structures to capture margin and I’d like to turn that over to Wayne Marino to take you through margins.

Yes, Omar, when David joined it was great first thing he really said is how are you looking at your costing and the opportunity because we had fairly consistent and growing volumes in a market where other people were pretty much flat or cutting back. And he’s been a great advocate and consistent with having us look at the costing and with our supply chain team there’s more opportunity in the apparel markets than we have today. We’re going to be looking at costing on a more detailed level with them. We offer to our contractors the ability to put volume through. As a matter of fact what we’ve done over the last year or so actually consolidated our base a little bit went from 24 suppliers down to 17 so we’re meaningful within our factories. But I have to point out some of the savings that we’ll receive from being more efficient and focused on costing we’re certainly going to want to reinvest some of that back into the product. So there’s many factors that go into gross margin. But from the cost side of it, we’ll see improvements and we’ll also see some improvements in the back half of ’09 and ‘010 just from the raw materials and the price of oil will also help us with that. But again other factors I want to caution go into gross margin and so it’s not just the costing itself.

Your next question comes from Jim Duffy – Thomas Weisel Partners Jim Duffy – Thomas Weisel Partners: Thanks good morning, couple of questions for you guys, first on the apparel side have you changed, have you seen a change in the mix of the pre-book versus replenishment and how you expect that mix to play out in ’09 any meaningful changes there?

Jim we’ve been in close contact with our partners and who have been through the Q4 time lines and we don’t see any material, we’ve not seen any material change and we’re not expecting any material change that we haven’t discussed with them already. Jim Duffy – Thomas Weisel Partners: Okay and then Brad, recognizing that visibility is really [inaudible] top line, [inaudible] a little bit of perspective on seasonality particularly the first quarter, can you talk a little bit to inventory levels in the channel on the apparel side and then your footwear, you’re doing that all on allocation can you give us a little bit of perspective on how much we should expect in the first quarter?

Yes if you look at Jim if you look at footwear, again this is top, when you look at our overall business, the visibility challenge as far as the top line goes and the portion of footwear or any of our businesses relative to that top line it’s a little tough to give flavor on that. So I would expect that you know our total footwear launch it will be more heavily weighted to the front half of the year and then the back half of the year in general and obviously from a seasonality perspective when you look at that, you look at the impact other parts of the business gross margins we call out you know footwear being a lower gross margin business than our overall business. So that will obviously impact margins on the front half of the year and also when we talk about SG&A again although it’s tough to talk about seasonality of SG&A when you can’t really get seasonality revenues you know same as 2008 we have to support that footwear launch which is in the first half of the year and obviously earlier in the first half of the year this year versus last year. Jim Duffy – Thomas Weisel Partners: Okay, and it seems just from being in the stores, there’s inventory in the channel despite the slowdown in volumes is pretty clean, is that a fair assessment?

I’d say inventory is very clean right now and you know that’s something we look at as a tremendous opportunity towards the end of 2009 again you know the two things we probably we made the best decisions of as we were looking at the you know environment change around as in Q4 was you know A protecting brand integrity and also protecting our pricing integrity. So I think we’re very proud of the approach that we took at the end of the year last year and you know how that’s positioned us for ’09 so you know we’re not, there’s no hangovers going into 2009. We’re great from a apparel standpoint I think with you know the advent of something as large as that you know a completely allocated running footwear launch and the halo effect that will come from that especially in the running side as well as what we can do on the I think what it’s going to mean to our women’s business is a real, real positive. Jim Duffy – Thomas Weisel Partners: One more question if I might sneak another one in, do you expect to make progress on the gross margins on the footwear in 2009?

Yes we are making we are making steady material progress though there’s still there still is a big gap between footwear and apparel and we believe we have more opportunity in the future in both, in all our categories as Wayne mentioned earlier.

Your next question comes from Robert Samuels – Oppenheimer. Robert Samuels – Oppenheimer: Hello, good morning guys, I know you’re not giving it real any guidance for the year but just how you’re thinking about the first half versus the second half, I mean internally are you expecting to see any improvement in things in the latter half of the year?

Brad?

Yes Robert if you look again as far as seasonality goes, not that we can give any specifics on top line, but look at the two biggest growth drivers that we called out in my prepared remarks. Footwear again first half of the year launch of footwear, obviously impact of that we talked about with gross margin also. Our direct to consumer channel being a very strong growth driver for us too as it was in ’08 we see it continue to grow in ’09. That channel obviously is much stronger in the back half of the year than it is in the front half of the year specifically in Q4 with our web business and our stores. So I think you know if you take that in the context of seasonality without being able to talk about numbers, you can kind of see how those two different business kind of flow in the year.

Your next question comes from Tom Shaw – Stifel Nicolaus Tom Shaw – Stifel Nicolaus: First question for David you talked about under-penetrated markets what are you seeing for opportunities in terms of you know just further expanding to the mall with some of your partners like Footlocker and Finish Line and even on the big buck side where we’re obviously seeing a pretty major pull back in terms of the you know put its growth first this year.

Tom the Under Armor distribution has been you know beautifully managed with a very tight distribution and that provides us both in apparel and many other categories as well. Footwear is no exception while we’re entering the mall and we have some very strong partners in the mall we still will remain in a minority of their doors, which gives us plenty of potential in the future as we continue to evolve and grow the business. Tom Shaw – Stifel Nicolaus: Are those, you know with the relationship with Footlocker and Finish Line are those areas where you would expect to expand this year or is it still kind of a testing phase as the running shoes start hitting the some new outlets?

Hey Tom this is Kevin. You know first of all, A, we see a great opportunity there it’s important for us just to reiterate the fact that you know these are all door launches with our existing distribution at the same time. And we’re going to see really big impacts in you know some of our key big buck sporting goods guys as well as I think the upside that we have within the mall, so if there’s two things that you know matter and that we are really focused on, hyper focused on as a brand its relationship performance. You know first of all I think we managed it very well through the end of 2008 and with the positioning and the decisions that we made around inventory, with our partners at the end of 2008. And I think that number one, I can tell you our relationships remain very strong with our existing partners and the excitement that we have with our new partners is really I think everybody has done exactly what they promised they would do and we’re really pleased I think with the future relationship we have. And of course all that hinges on performance we know that, we get it and I think everybody has pretty good expectations of what the running footwear is going to mean but I will reiterate the fact that you know this is a really an 11 or 12 month launch in 2009 that will be defined at the end of 2009 again not defined at you know the end of the week or the end of January. Tom Shaw – Stifel Nicolaus: Okay and Kevin just one more, beyond the running which you just illustrated as a longer term initiative. How do you look at the cadence for further trainer launches next year and we even saw a recent article that said you’d come out with the soccer boots in May, any further detail on those categories?

Well again you know we view our brand as a story and we view the products that we introduce as chapters and that in the book of that story. And you know the thought process is every chapter needs to make sense to the one in front of it needs to make sense to the one after it. So first and foremost you know we’re very proud of the fact that we’ve been able to take ourselves from you know cleated footwear just three or four years ago and now have the ability and the expertise from the team side too to be able to launch what we believe is you know the very best quality product. We’re looking at and one thing is important is we’re not forgetting about our training our training footwear platform either. Remember our cadence so far has been football cleats in 2006, baseball cleats in ’07, our training shoes in ’08 and our running shoes in ’09. Now we definitely recognize that there’s a consumer out there who is probably looking for Under Armor footwear in any stretch in 2008. So the fact that we now have a variety for them we’re not worried about any large cannibalization. We are very aware though that you know I think we are trying to position ourselves as a bigger footwear brand than that. So now as we’re looking and saying there’s great opportunity for us, A, with running footwear because again you’re going from an $800 million market to a $5 billion market we are committed – hyper committed to our training footwear [inaudible] force, so I think that’s probably highlighted by our recent sponsorship around the NFL combines. And a good example of that, we’re down at the Super Bowl this year in the NFL experience. We’ve got really highlighting because of our sponsorship and outfitting of NFL combine in Indianapolis this year. Just training for us as a whole is a real platform for this business that we’re not going to forget about. So, you’ll see us come back and be very proud of the training footwear but again recognizing the fact that running force while it’s going to be a challenge, the specialty market we feel good about the technology and that there’s growth and opportunity for us there as well.

Your next question comes from Jeff Mintz – Wedbush Morgan Jeff Mintz – Wedbush Morgan: Thanks very much. Can you give us some sense of X, the trainers, how the cleated footwear did in 2008? Was there growth in that part of the footwear business?

Jeff, this is Kevin, so you know, when we talk about commitment to, you know, year two and year three of a product beyond just a launch, our football cleats and our baseball cleats are not exception to that. You know, we stormed into the football cleat business, for instance, in our first year and took greater than a 20% market share. You know, we raised ASPs. We took market share and we did it all profitably. You know, we’re very proud I think of that accomplishment and we understand as well that this isn’t, you know, what we’ve never done is just sold someone a logo. You know, we say our product is Under Armour long before we put a logo on it. And so, the approach that we’ve taken with that is consistently getting better. There’s one thing that’s certain when you launch product is that year two will always be better than year one and year three will be better than year two. As we head into our fourth year of football cleats, you know, I think the response that we’ve had – and baseball cleats from not only the consumer but particularly the athlete consumer, which we’re seeing on field. Again, we’ve been testing our ‘09 product on, you know, our nine division one football programs on more than, you know, 30 high school programs that we have out there wearing it, and I think the performance and the feedback has been terrific. From a performance standpoint, we continue to look to grow market share. We’re not looking to go backwards and we’re looking to take a larger market share in 2009 than we had in 2008. So we’ll continue to move forward there and I think the performance that you’ll see and you’ll hear about us at retail will validate that at the same time. Jeff Mintz – Wedbush Morgan: Okay, and then on the outlet channel, how many outlet stores did you finish 2008 with and are there opening plans for new outlet stores in 2009?

We finished 2008 with 25 stores and we’re planning to open a range of at least five and up to possibly 10. We’re going to try to be opportunistic in this environment and see what the market place has for it. But it’s growing in commence, yeah. Jeff Mintz – Wedbush Morgan: Okay, great. Thanks so much and good luck.

Operator, we have time for one more question.

Your last question comes from Jeff Klinefelter – Piper Jaffray Jeff Klinefelter – Piper Jaffray: Yes, thank you. The question is really in your directed consumer business. When you look at that in isolation if you do and if you can, can you give us a sense of for the profitability of that business? Where it is relative to your expectations, and, you know, how much more scale in specialty stores will be required to get to your desired level of profitability, and then Kevin, I’m not opening anymore specialty stores. Is that – I’m guessing a combination of factors but does it way anymore on capital preservation versus an unproven retail model or fluctuating leasing prices at this point?

Jeff, let me just start with, you know, the direct consumer channel obviously with 47% growth there, we continue to see that we’ve got, you know, big legs and availability there. But it’s about prioritizing the investments, which I think sort of lays into the second part of your question. You know, it’s one thing that we’ve done is – at Under Armour we’ve always had, you know, 13 items in our top 10 list as Wayne likes to say. So, the one thing that 2009 has made us do as a company I think, is limit that down to the top four or five where we’re going to spend money. And the question that we ask when we sit around this table is simply, where are we going to deploy the resources? Where are we going to spend the time, the money and the resources of our people to be great? And we definitely see that there is tremendous upside in our direct consumer channel but, you know, as we look at that specialty model, we’ve got four great stores out there. We’ve got four great tests that are taking place right now and we’re still learning a ton. We’re interacting with our consumer and a great thing that we have just from an insight is that we’re rolling out our goals for 2009 as a company. You know, we had more than a million people throughout all of our stores in just December alone of 2009, and the question from the information that we can learn – because again, we’re not building this company for, you know, just today or even tomorrow as much as this is very much long term the approach that we’re taking. We’re building a broad foundation in multibillion dollar platform for a large global brand, and all those steps, you know, begins one at a time, it begins with our insights, and it begins with our commitment to innovation. But I think you’ll see, you know, prudent investments around that and that’s why we didn’t feel that we had to stand on a soap box and demand that four stores would turn into 20. But we’re going to learn a lot and we’re going to listen to our partners and we’re going to make great decisions that make best sense for our brand. Brad – yeah, let me let Brad jump on the end there.

Yeah, Jeff on the margin question, you take a look at the three components of our direct-to-consumer business, outlet specialty, retail and the web business. I’ll work my way up as far as the positive impact in margins starting with outlet. Our outlet channel has positive margins compared to our wholesale channel and obviously the outlet plays more of a brand, you know, brand equity, brand integrity play relative to the liquidation of inventory. But we do that profitably, we do that at margins greater than our wholesale apparel margins actually. On the specialty store side obviously margins there would be greater than our outlet channel with four stores, though, obviously the impact of the overall business is relatively minor compared to the overall direct-to-consumer channel. At the top end of that would be a our web business, you know, pretty much selling through at full retail price in our web business as you can anticipate that would probably bring the best gross margins to our business overall. If you look at operating margins though, it’s a little bit of a different take. You know, again the web probably has the best operating margins of those three and then when you look at the specialty and outlet stores you do bring in a little bit more SG&A infrastructure into those, so from an operating margins perspective they’re relatively comparable to our overall business. Jeff Klinefelter – Piper Jaffray: This – one other question, last question for I think David on distribution. You mentioned in your prepared comments that, you know, there are opportunities where you’re underpenetrated and I’m just curious if you get a little more color on that, particularly in light of the current environment. You know, is this 2009 where you prune unproductive distribution? Do you net ad, net neutral? And where are those under penetrated pockets? I’d imagine domestically is what you’re referring to.

Yeah, we’re starting as you look at it – the opportunities for distribution are pretty broad for us but again, we are focused first and most intently on growing within our existing partners and continuing to grow where we already have terrific partnerships in sporting goods and the specialty stores, as well as the launch, as Kevin mentioned earlier of a tremendous new channel to access many more people in the malls as well. The net we’re going to continue to look at and view this as a multiyear approach and we’ll be very structured and continue to be very planned as we continue to look for places where the Under Armour brand currently is reached and where there are pockets of customers who have yet to have been contacted by our direct channel or existing distribution. Jeff Klinefelter – Piper Jaffray: David, just to clarify on your existing distribution when you talk about your sporting goods distribution domestically, where do you feel like you have – because you guys have pretty strong presence, floor presence obviously at Dick’s and at TSA and Hibbett – I mean, where do you see – do you mean more product categories represented on those floors? More floor space? Where do you see that expansion coming from?

As you start to look at it if you were, you know, to walk our stores today you’d see a very strong men’s presence but you’d still see a very young and growing women’s business and a very early step into the youth category as well. Jeff Klinefelter – Piper Jaffray: Okay.

And you just heard earlier Kevin talk about the footwear channel, I mean the footwear business that we have on the wall. We’re in training, we’re in cleated footwear and we have other categories to expand within existing partners there.

If our answers sounded anymore certain or deliberate today it’s probably because we’re all sitting here wearing Under Armour running footwear which I would encourage all of you to go get a pair this weekend and try them. Now, I would like to leave you with three critical things that we would like you to take away from today’s call though. First, it’s that our growth drivers remain intact. Secondly, that we’re approaching 2009 with the appropriate degree of conservatism and third and most importantly, we are focus on protecting our strong brand equity. We remain intently focused on our consumer. That relationship is what the Under Armour brand was built upon and will ultimately determine our ability to execute our long term growth. We’ve invested in and protected brand equity since day one and that continued focus will drive growth in 2009 and lay the foundation for long term profitable growth in 2010 and beyond. And with that, we thank all of you and again encourage you to go out and see Under Armour at retail this weekend. Thank you very much.