Under Armour, Inc. (UAA) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Under Armour Inc. Fourth Quarter Earnings Webcast and Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Tom Shaw. Sir, you may begin.

Thanks, Anne, and good morning to everyone joining us for today's conference call. During the course of this call, we'll be making projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially. These risks and uncertainties are described in our press release and in the Risk Factors section of our filings with the SEC. The company assumes no obligation to update forward-looking statements to reflect events or circumstances after the day on which the statement is made or to reflect the occurrence of unanticipated events. Joining us on today's call will be Kevin Plank, Chairman, CEO and President; followed by Brad Dickerson, our Chief Financial Officer, who will discuss the company's financial performance for the fourth quarter and full year 2011, followed by an update to our 2012 outlook. After their prepared remarks, Kevin and Brad will be available for a Q&A session that will end at approximately 9:30 a.m. Finally, a replay of this teleconference will be available at our website at approximately 11 a.m. Eastern Time today. And with that, I'll turn it over to Kevin Plank.

Thanks, Tom, and good morning, everyone. At Under Armour, we don't spend a great deal of time looking in the rearview mirror. We are the athletic brand of this generation and the next. Our consumer, like at no other point in our lifetime, is focused on the next great product, the next great athlete and the next great story from our brand. And to better understand how we will deliver our story to this generation of athletes, we think our 2011 results illustrate how we continue to resonate with our consumers through product, communication and relentless innovation that makes all athletes better. So this morning, I want to cover 2 specific objectives for Under Armour in 2012. First, how we will continue to move beyond our core compression heritage, while maintaining the most authentic and profitable position in that space. And secondly, how we are leveraging that premium brand position to greatly expand our addressable markets. So first, a quick look at the 2011 scoreboard. We saw revenue growth for the year of 38%, our strongest growth since 2007. We added over $400 million in revenue in 2011, essentially doubling the size of our business since just 2007. And importantly, we leveraged that strong revenue growth despite gross margin pressure to deliver operating profit growth of 45%. Our apparel business remains a key growth driver for our brand. And 2011 is a shining example of our ability to consistently expand our reach in this most critical piece of our business. We grew apparel revenues 31% this past year after growing it 31% in 2010. But my focus this morning is not as much on those impressive numbers as much as it is on the makeup of that growth. We are a brand that was founded on compression, and we are the market leader there. Equally important is that we continue to maintain our premium position in compression, both from a performance and a pricing-integrity platform. But as we laid out in our Investor Day last June, we are now in a strong position to also focus our resources beyond the compression category. And I'm very proud to say that 2011 was a great illustration of our team taking a strong step outside the compression category and bringing our brand of innovation to a much broader audience of athletes. Our biggest and most successful initiatives in 2011 were not about tight-fitting baselayer products. Instead, they are about our ability to bring Under Armour's brand of innovation, the one that changes the way an athlete views a product, to that broader audience we've discussed. Charged Cotton. No question, the compression market is our heritage. A category that we originated in '96 and has now become a staple in the athletic apparel business. It's not that we didn't like cotton, we just didn't like the way that it performed. So we did something about it. And in 2011, we redefined what athletes have come to expect from their apparel. We see Charged Cotton as a path to nearly quadrupling our addressable market to include the entire $12 billion active use market and help grow the lines of a much larger $58 billion activewear market over time. So while we have built a $1 billion apparel brand largely on synthetic compression products, the path forward will have a materially different feel to it. So knowing that our consumer is keenly focused on next, we quickly brought the next innovation in cotton to market with the introduction of our Storm product. Storm is truly the next generation of casual outerwear. We've taken the classic cotton sweatshirt with its heavyweight feel and made it water resistant, so water rolls right off. By reinventing the hoody, we again make our brand more accessible to a broader audience of athletes. A few more examples of us taking Under Armour innovation to new levels, like E39, the true star of the 2011 and upcoming 2012 NFL Combine. Yes, it's a compression garment, but the story was not just the fabric but how the electronics in the shirt measure your body in a new way, including horsepower and g-force, as well as heart and breathing rates, a product we will be bringing to market shortly. And Charge RC, a lightweight running shoe with the true Under Armour DNA and a great statement about who we are as a footwear brand, with both its materials, fit and $120 price point. In each of these examples, we are taking the Under Armour DNA and creating new avenues for growth and new access points for our brand. When we started Under Armour, it was with the simple goal of keeping athletes cool in the summer and warm in the winter. We are now building another level of foundation for our brand through initiatives like redefining the hoody and making cotton more functional for the athlete. This broadening of our reach not only enables us to round out our portfolio from the standpoint of both materials and silhouettes, but it puts us in position to consistently take a greater share of the athletes' closet. So our results speak for themselves in 2011. We successfully leveraged the heritage of our compression product to enter new markets and bring the brand to new consumers. In 2012, our innovation agenda will be equally robust, and we will continue to widen our access with continued investment in our direct consumer business and appropriate expansion of new channels that aligns with our broader assortment. On the apparel innovation front. We will be launching in March our revolutionary ColdBlack technology that reflects the heat of the sun, so athletes feel cooler when they are training, competing or on the go. ColdBlack effectively moderates heat to make it feel like you're wearing a white tee even though it's a black tee. Its deepest impacts will be felt in our golf and run businesses in 2012 and will expand from there moving forward. You will also see an accelerated cadence around newness and innovation on both our Men's and Women's baselayer businesses, leveraging new fabrication, technology and design to drive this category to the next level. In footwear, we will maintain the momentum we saw in 2011, with the debut of a new midsole technology that targets the lightweight category with an Under Armour point of view on structure. While the Charge RC was designed for faster, lighter athletes, this new shoe was built to support every athlete, at every size and at every level. It will incorporate visible, structural technology that makes our point of view clear and resonates with the consumer. We have yet to build our defining product. And we feel that there is good reason to believe that it may very well be this shoe. As we indicated on our Investor Day, growing our Underwear business is a major 2012 initiative for us. We will add over 500 Underwear doors throughout select department stores during the year, starting with 250 doors in Macy's this spring. We're focusing our initial distribution around metro centers. And to build brand awareness through this channel, the face of our campaign will be Heisman Trophy winner, NFL #1 draft pick, and now Pro Bowler, and my vote for Rookie of the Year, Mr. Cam Newton. Combined with our expanded product assortment and the growth we see in our existing channels, we believe this program will help bring new consumers into the brand and accelerate our growth in this category. And while we remain focused on bringing new innovations to market, we have other 2012 initiatives, including a bigger push into graphic tees through our cotton product, new cap [ph] fabrication for our entry-level tech tees and generally stepping up the cadence in innovation across our core apparel line. But as I mentioned in discussing our Underwear initiative, we'll expand into appropriate new channels that align with this broader assortment and meet our consumer where they shop for that product. In 2011, we added greatly to the presentation of our brand at retail through the expansion and improvements in our Direct Consumer business. And we'll continue to grow this channel in 2012. Both our e-commerce platform and our Factory House stores saw outstanding growth in 2011. We initiated a major upgrade to ua.com in the fourth quarter, and we'll see ongoing improvements to the site this year. We're able to merchandise the full breadth of the UA product line through our site, and we believe that it is critical as new consumers are introduced to the brand every day. With our expanding brand presentation at key retail partners in our sporting goods, mall and specialty channels, we are able to tell a rich product story and communicate our performance position. So before I pass it over to Brad, I want to reiterate how we remain focused on what our consumer wants next and continue to bring it to them in unexpected ways. We did that in 2011 with the football uniforms we built for the University of Maryland. Our consumer wants what they've never seen before. And these uniforms are a great example of how our product and design innovation can bring attention to our brand beyond the football field and create awareness, not just on ESPN, but across the wide spectrum of medium where our consumer lives. Through social media and PR, we were able to amplify the original story and create that high level of awareness without spending huge advertising dollars. We also began our dialogue with the basketball community through our "Are You From Here?" campaign, the one that basketball -- one basketball publication called the best ad campaign of 2011. Starring athletes like Brandon Jennings and rising NBA rookies Derrick Williams and Kemba Walker, we were able to tell the story of Under Armour basketball in a surgical and a viable way, and begin to build the authenticity that has helped power us in football and baseball. We have built tremendous brand equity with the athlete and have truly begun building a foundation with new consumers and new technologies. That focus on new in 2011 resulted in top line growth of 38%. We are fortunate to be in position to control our own destiny as a brand. The categories and geographies that we enter, the distribution in which we choose to expand, the partnerships we form with great teams like Tottenham Hotspur in the English Premier League, and elite athletes like my vote for Super Bowl MVP, Mr. Tom Brady. These are all decisions we may make based on protecting and growing the premium nature of the Under Armour brand. We made great progress in 2011 in expanding our reach, and we're confident in taking that next step outside our core to drive growth in 2012. And with that, I'll pass it over to our CFO, Brad Dickerson. Brad?

Thanks, Kevin. I would now like to spend some time discussing our fourth quarter and full year 2011 financial results, followed by our updated 2012 guidance. Our net revenues for the fourth quarter of 2011 increased 34% to $403 million. For the full year, net revenues increased 38% to $1,473,000,000, which compares to our most recent full year guidance of $1.46 billion to $1.47 billion. Apparel grew 27% to $323 million during the quarter. Similar to last quarter, our Fleece business led the way with strength across Men's, Women's and Youth. Our Charged Cotton platform also continued to drive growth during the quarter and contributed approximately $65 million in net revenue growth during the full year. Our Direct-to-Consumer net revenues increased 50% for the quarter, representing approximately 38% of net revenues compared to 33% in the prior year period. For the full year, Direct-to-Consumer net revenues increased 62%, representing 27% of net revenues compared to 23% in 2010. On the retail side, we opened 4 new Factory House stores during the fourth quarter, increasing our Factory House store base to 80, up nearly 50% from 54 locations at the end of 2010. We also opened our first mountain specialty store in Vail, Colorado, in November. And we'll look to test additional full-price concepts going forward. On the e-commerce side, we launched our new website in November and registered our first $2 million day on this platform during the quarter. We will focus on optimizing our site during 2012 and expect e-commerce to grow at a faster rate than our Factory House business in 2012. Footwear net revenues during the fourth quarter increased 43% to $31 million from $22 million in the prior year, representing 8% of net revenues. This growth was primarily driven by the performance of our new 2011 running styles, including the Assert, the Split and the recently introduced Charge RC, which has performed well across Men's and Women's at a premium $120 price point. Accessories net revenues during the fourth quarter increased nearly 150% to $37 million from $15 million in the prior year period, reflecting the addition of our Hats and Bags business, which we brought in-house in January 2011. International net revenues increased 16% to $26 million in the fourth quarter and represented approximately 6% of total net revenues, driven by strong growth with our Japanese licensing partner, Dome. Fourth quarter gross margins contracted 10 basis points to 51.6% compared with 51.7% in the prior year's quarter. These results drove our full year gross margins down 160 basis points to 48.4%, which compares to our previous guidance of 2011 gross margins down 160 to 180 basis points. Three factors primarily contribute to our fourth quarter gross margin performance. First, in North American wholesale apparel, less favorable product mix and higher input costs negatively impacted margins by 70 basis points. Second, a lower mix of licensing net revenues negatively impacted margins by approximately 30 basis points. And third, these factors were largely offset by favorable year-over-year impacts related to sales, returns and allowances. Selling, general and administrative expenses as a percentage of net revenues leveraged 210 basis points to 37.9% in the fourth quarter of 2011 from 40% in the prior year's period. Details around our 4 SG&A buckets are as follows: First, marketing costs declined to 10.9% of net revenues for the quarter from 11.1% in the prior year period. For the full year, marketing spend was 11.4% of net revenues, slightly above our previous 11.2% to 11.3% guidance and compared to 12% in 2010. Even with this leverage, we spent $40 million more in marketing year-over-year. Second, selling costs increased to 10.9% of net revenues for the quarter from 10.1% in the prior year period, primarily driven by the continued expansion of our Factory House stores and investments in our e-commerce business. Third, product innovation and supply-chain costs declined to 8.2% of net revenues for the quarter from 9.1% in the prior year period, partially driven by leverage in personnel costs. And finally, corporate services decreased to 7.9% of net revenues compared to 9.7% in the prior year period, primarily as we leveraged corporate personnel and facility costs. Operating income during the fourth quarter grew 57% to $55 million compared with $35 million in the prior year period. For the full year, operating income increased 45% to $163 million compared to our most recent full year guidance of $159 million to $162 million. Operating margin expanded to 200 basis points during the quarter to 13.7% and 50 basis points for the full year to 11.1%. Below the operating line, net other expenses increased to $1.4 million in the fourth quarter from $700,000 in the prior year's period as a result of interest expense on the debt assumed for our acquisition of our corporate headquarters. Our fourth quarter tax rate of 39.6% was unfavorable to the 33.4% rate in last year's period, which included positive impacts from tax credits and tax claim strategies. For similar reasons, our full year effective rate of 38.2% was above the 37.1% effective rate in 2010. Our resulting net income in the fourth quarter increased 42% to $33 million compared with $23 million in the prior year period. Fourth quarter diluted earnings per share increased 40% to $0.62 compared with $0.44 in the prior year period. Full year diluted earnings per share increased 38% to $1.85 compared to $1.34 in 2010. Now switching over to the balance sheet. Total cash and cash equivalents at quarter end decreased 14% to $175 million compared with $204 million at December 31, 2010. We had no borrowings outstanding on our $300 million revolving credit facility at quarter end. Long-term debt increased to $78 million at quarter end from $60 million at the end of 2010, reflecting debt on the acquisition of our corporate headquarters. Inventory at quarter end increased 51% year-over-year to $324 million compared to $215 million at December 31, 2010. A portion of this growth in inventory dollars is being driven by higher costs per unit, as the growth in inventory units at approximately 35% is more in line with our Q4 top line growth. This higher cost per unit is heightened in the current quarter as we flow products into our inventory to service our Spring/Summer 2012 season, which is the peak of our current input cost pressures. I will provide additional color around this and our anticipated 2012 gross margin and inventory position shortly. Our investment in operating capital expenditures was approximately $8 million for the fourth quarter and approximately $54 million for 2011. We are currently planning 2012 operating capital expenditures in the range of $60 million to $65 million. As a reminder, in 2011, we also invested nearly $62 million related to the purchase of our corporate headquarters. Now moving on to our updated outlook for 2012. Our prior preliminary outlook called for 2012 net revenues and operating income growth to be at the higher end of our long-term growth target of 20% to 25%. We are now taking a more prudent view on our wholesale apparel revenue growth heading into 2012. The impact of unseasonably warm weather has led to elevated inventory levels at retail to start 2012. When we combine this with the overall, more conservative approach our retail partners are taking to manage their own inventories, we believe a more conservative expectation around revenue growth within our wholesale business is appropriate. Given these factors, we are now planning for 2012 net revenues to come in at the low end of our long-term growth target of 20% to 25%. Looking at gross margins. We continue to see different first half and second half stories for the year. Our product costs for the first half of 2012 were locked in last spring when synthetic and cotton inflation hit peak levels. As a result, we continue to expect the net impact of product margins during the first half of 2012 to approximate the 2011 full year product margin impact of 110 basis points. We expect that dynamic to be the primary gross margin story during the first half of 2012. In the second half of 2012, while we expect raw material headwinds to abate, we are still much more dependent on synthetic prices, which have not shown the same level of declines as cotton prices. We believe margin improvements in the second half of 2012 will be more dependent on the continued efforts of our improving sourcing and planning functions, as well as our efforts to rationalize our SKU base. We believe these efforts should yield second half gross margin improvement that will generally offset the pressure expected during the first half of 2012. Looking at SG&A. We see the opportunity for moderate leverage, even while sustaining investments for our future growth. We currently expect to see a similar marketing spend rate in 2012 as in 2011 and expect the quarterly spending cadence to look comparable to 2011. Selling expenses should continue to deleverage throughout the year as we expect our Direct-to-Consumer growth rates to outpace our overall growth rate. We anticipate adding 15 to 20 new outlet doors in 2012, a growth rate of 20% to 25% over the 80 doors at the end of 2011. Additionally, we will continue our ongoing enhancements around our e-commerce business. The product innovation and supply-chain expense rate is expected to be at a relatively flat percentage of revenue compared to 2011, as we continue to make the right investments to support our future growth. Finally, corporate expenses are expected to leverage, though to a much lesser degree than in 2011. Rolling gross margin and SG&A factors together, we continue to expect 2012 operating income growth to be at the higher end of our long-term growth target of 20% to 25%. Below operating results, we anticipate higher year-over-year interest expense, given a full year of the additional long-term debt for our headquarters acquisition. In addition, we expect a full year effective tax rate of 37.5% to 38% given our ongoing tax planning strategies. We expect our fully diluted weighted average shares outstanding to be in the range of 53.2 million to 53.4 million. Before opening up to Q&A, we would also like to provide some additional color on inventory. As we mentioned, inventory ended 2011 up 51% year-over-year, a rate that was down 12% sequentially from the prior quarter. In 2012, we remain laser-focused on improving our inventory management, and we will build upon several initiatives developed in 2011. SKU rationalization has been a big focus for us, and we anticipate a reduction of our total assortment by 20% during 2012. This creates a filter to assist our forecasting and planning processes. But we are much more focused and disciplined, not only on how we will buy, but also how we will flow products into our warehouses. Our planning strategy also means that we will lean more on our Factory House outlet channels in 2012 to support these processes and ultimately optimize our inventory positioning. Finally, we are seeing some encouraging signs with our sourcing strategy as we focus on supplementing our current supplier base and shortening our lead times. Combining these factors, we expect the inventory growth rates to contract further in the first half of 2012, though the gap with the net revenues growth rate will still exist. In the second half of 2012, we anticipate the inventory growth rate will come in below the net revenues growth rate. We'd now like to open the call to your questions, but we ask that you limit your questions to 2 per person so we can get to as many of you as possible. Operator?

[Operator Instructions] Our first question comes from Michelle Tan with Goldman Sachs.

So I've got one for you, Brad, and one for Kevin. Brad, maybe you can give us some rough kind of perspective on how much of your change to the outlook reflects the impact of weather carrying into Q1 versus a more conservative approach to the business given the broader environment? And then, is there any impact at all from SKU rationalization on your top line plans? And then I have a follow-up for Kevin.

Sure, Michelle. I think the impact of weather, it's kind of hard to clearly identify that, but you could probably say the impact is maybe a couple of percentage points of growth coming out of Q4 into 2012. So that's -- that obviously gave us kind of a look into 2012, of an impact there. From a SKU rationalization perspective, it's -- there's not really any kind of impact to top line revenue. That was really looking at unproductive SKUs and more unprofitable SKUs. So eliminating those really was not part of the equation of revenue. Because we were really looking actually to trade those lower productive SKUs into higher productive SKUs.

Okay, great. And then -- and Kevin, there's skeptics out there who will clearly worry that this is indicative of more limited long-term growth opportunity in the core business for you going forward. I was wondering if you could give us your perspective on that and maybe any specifics that can give comfort to people who are going to worry about that angle on the outlook?

Well, I think we've been pretty consistent since we went public now more than 6 years. And I think we continue to deliver quarter after quarter. And it begins with the 5 growth drivers that we have: Men's apparel, Women's apparel, footwear, international and direct consumer, and our ability to lean on each or any one of those levers at any given time. So our growth strategy of -- we were pretty clear in 2011, 2012, what we were going to do to lean on our apparel, which is up 31% again for the full year basis and our direct consumer channel, which is up 50% in the fourth quarter. And we see a lot of activity that's happening in the marketplace, as Brad was speaking to, that maybe gives us -- just taking a little bit more of a cautionary approach to where we see top line. One thing is certain is that we're not willing to buy our top line, is that we are building a premium brand. And I think that, that's evident in the fact that we're showing leverage as the way that we're -- our outlook for 2012. And that we're becoming a bigger or a better company as we mature, and we can start refining ourselves a little bit, too. So I think the goal that we have -- and I think we did walk the market. Because you didn't find -- Under Armour wasn't one of the brands that was 30 off. And so, in doing so, we still have a consumer out there that is willing to pay full price for our brand. And the fact and the reason for that, is because we continue to bring them innovation. And so what I can tell you is that there's an unbelievable commitment to innovation from our company. The line of "we have yet to build our defining product" of the brand is something that we think, and we have our product teams battling over each and every day, from an apparel and accessory, and yes, absolutely a footwear standpoint, too. So we've got some very exciting technologies we'll be bringing out in 2012. From an apparel standpoint, things like ColdBlack that I mentioned, as well as the new technology we'll have in the back half of the year around a new footwear technology also. So we've got unbelievable support from our wholesale partners out there, both in sporting goods and in the mall, that are really counting on us and really looking for us, in fact expecting us to deliver something great. So we have the team in place. I think that the brand has never been stronger, and we feel very good about our ability to accelerate this company and continue to drive and build that premium brand.

Our next question comes from Christian Buss with Crédit Suisse. Our next question comes from Kate McShane with Citigroup.

I was wondering if you could give any more detail around the Women's business, specifically during the fourth quarter and for your outlook for 2012. Did you see the same degree of success with your Storm Cotton product for Women's as you did with Men's? And any other things that you have planned for the year that may be game-changing versus last year.

Yes, well, I think, first of all, I think we get a deservedly probably unfavorable view that people have on our Women's business. And just to get people in perspective on where we sit as a brand, when we did go public in 2005, Women's was less than 15% of our total mix. Since that time, we've added over $1 billion of revenue, and Women's today is over 28% of our total mix. So nearly 1/3 of our product offering is actually coming from Women's. Now a lot of this is basics, a lot of it's compression, a lot of it is our sport bras and compression shorts, and we've got some unbelievable new technologies coming out, like Armour Bra is a very big launch that we have coming this spring that we'll have on the Women's side. At the same time, I know that as I'm sitting here and I'm talking the talk, we, without question, need to continue to walk the walk. And that means that there is work for us to do. And more importantly, there's opportunity in the Women's business as we've seen it. Is that we have not found a reluctance to the Under Armour brand from female consumers. In fact, it's the exact opposite. They're waiting for us to have the right colors, the right fit, the right styling. And what I can tell you is that this doesn't happen at once, it doesn't happen with one hire, but it happens across the building. It's building out our product -- our teams across product, design, marketing, and yes, especially product distribution. We've been -- we've really taken very clear lines of trying to figure out what we can do to get to where women shop. And so I think we've done a good job of driving and creating a compelling product offering in our existing distribution. But now you are starting to see bigger presence at Nordstrom's and bigger presence in Bloomingdale's and places like that where I think we can really do some brand-defining things that -- frankly, it pushes us. As we think about our opportunities as a company, we have unbelievable thought in our upside of what our Footwear business can be. We have unbelievable thought that down the road our International business can be great for us. But probably the nearest, lowest-hanging fruit that this company has, is excelling our Women's product. And so you'll continue to see that effort. You'll continue to see us come back. And you'll continue, frankly, to see, our Women's growth outpace the growth of -- across the company.

Okay, great. And then my next question's just on the supply chain and the search for the Head of the supply chain for Under Armour. I wondered if you could update us on how that search is going? Sounds like you are making some supply-chain decisions with some of the changes you've made to that management over the last 12 months. So I wondered if you just could give us a little bit more detail behind how it's going for the search of the Head of that part of your business?

Kate, this is Brad. Yes, obviously, the search is ongoing, and obviously, we have many candidates that have come through here. So we're looking for that right candidate and that right fit for us, which is going to be very important. This is a very, very important decision for us. But to your point, a lot of good things have been happening over the last 12 to 18 months in our supply chain. A lot of good leadership additions onboard. Last year, with Janet Fox coming onboard to run our Sourcing group. And also with Rich Rapuano coming in to run the Planning and Inventory Management group. So a lot of the things that we're talking about here around SKU rationalization, which is from the product team's perspective, and around looking at how we plan our business, and with a more disciplined fashion around forecasting and also how we buy our inventory and flow it in, along with just our ability to work with our outlet teams and our liquidation strategies, and upfront the season in planning also, really it's coming through the leadership that's come on board in the last 12 to 18 months. So a lot, a lot of good things going on there, which obviously, will show in the back half of '12 relative to margins and inventory, as I stated.

And one thing, Kate, just -- I think globally, in a growth company especially, we grew at 38% last year. And as we look at this year being in line with our long-term growth objective of a 20-plus percent grower, it really -- it sets the field that number one, any new position, anything we're doing, it's never about one person. And so while we've got an opening out there, I definitely want to make sure people are clear. The additions that we've had are a new Head and Lead in Sourcing, and the opportunities in gross margin that they've found for our brand as we look at the back half of 2012 as we professionalize the organization, what's happening in planning is that, winning is a culture. It's not a person. And it's not one person that you hire. And I think that's something that really is evident and come through at Under Armour especially, that we are building something great here, and there's a lot of foundational pieces. And so, what Brad and his team have done, what our supply chain has done, they've done a lot of heavy lifting, and there's certainly a lot more to do, which is -- it frankly just screams to opportunity. So we feel very good about the way that we're working and finding the right partners, bringing the right partners on board. And more importantly, beyond just $1 billion or $2 billion foundation but setting up for a multi-billion global platform.

Our next question comes from Christian Buss with Crédit Suisse. Christian Buss - Crédit Suisse AG, Research Division: I was wondering if you could provide some color on what kind of conservatism is embedded in your guidance for the top line for 2012?

Sure, Christian. I think going back to the comments around the drivers of our revenue outlook, obviously, coming out of Q4, we are still in the middle of the winter season. So the impact of the unseasonably warm weather in Q4 is -- it's kind of still here with us in Q1, as it's still relatively warm for a winter season. So there'll be a definite impact in the beginning part of this year relative to that. I think again to my comments, in my prepared remarks, definitely seeing a much more conservative approach from our retail partners out there and how they look at managing inventory in their order banks and so forth. But just taking a look at that and just saying, "We -- to be prudent, let's make sure we look at where we are today and how that will impact the rest of this year." So I can't really quantify to you how much conservatism. I think what we're doing is taking a snapshot of where we are today and kind of putting that forward for the rest of 2012.

Our next question comes from Omar Saad with ISI Group.

I wanted to dive into the cotton piece a little bit. And I know it's a really good start to that program, and maybe you could talk about the progression, what you learned from running that business this year and how it's going to -- how we should look for it to progress going forward, areas that were better than expected, areas that were worse than expected, given the -- ultimately, what you guys have defined as a very large opportunity.

Yes, so, I think we learned a lot. First of all, as we've said repeatedly going from a $3 billion market to opening ourselves up to that $12 billion market, and more importantly, expanding ourselves to the -- the $58 billion market that sits out there as we move into different categories. Our brand, we're in an evolution where we've gone from on field, we've gone from, okay, in the gym, to and from the gym, and I think we're finding more places where the consumer wants to take us. And one of the things that you'll see, as we've been moving for quite some time, is being -- moving beyond just being a climate-based company into giving the consumer other reasons to buy. And so some of the success that we saw in the fourth quarter, even beyond cotton, was like our hooded Fleece program and some of our big logo hoodies, and things that have a little more detail to them than just this shirt will keep you warm and this shirt will keep you cool. So there's a, without question, a desire from the customer to have Under Armour take them to a different place. So the category that we have around Charged Cotton, is -- it was a medium-size category that we see will continue to be outpacing for us as we head into 2012. Men's performed very well on the T-shirt side. I think we did a really good job with the launch of Charged Cotton in the T-shirt side for Men. I don't think we did a great job in the launch of Charged Cotton for Women. So there's an enormous opportunity there. And it's because presenting a basic and reinventing basics in the Women's side is a much more difficult task. And so what you'll see is us come back with a new approach and with a new line, and frankly, a lot of variety, a lot of selection that we'll have in Women's, a lot of great colors, and most importantly, focusing on fit. So the fabrications, I think, is something that is almost a given when it comes to Under Armour and the consumers' expectation. But as we've learned and as we've grown, every single year we get better. And so what we need to continue to train, and hopefully retrain our account base and even sometimes our customers, is that it's not the same old Under Armour. Is that there is this constant look and belief that we can grow and that we can be more. So around the Storm Fleece that we had, I think, the reinvention we had in the fall, the sell-through that we saw, we were very pleased with it when it came out of the box. And I think that we were prudent with the way that we approached our business around the Storm Fleece. And also, as we looked in our Direct-Consumer, which is the place where we've got the best and the most visibility, we had great success there. But there are other places, I think, where -- our first year in cotton, I think, we're very pleased. I think it's a new category for us and something that we think has great upside long term.

And then just a quick question on International. Could you just address the change and the rate of growth there? Is there anything going on? Is there any transitioning happening?

You know what, let me take a second and sort of give you our approach as we look at International. As I mentioned, when Kate asked earlier, the growth drivers that we have for underwear -- for Under Armour, Apparel, Footwear, Direct-Consumer and International, and as we've talked about our growth being -- 2011 and 2012 really leaning on Apparel and Direct-Consumer, and that Footwear, we expect to kick in, in 2013, is something that will be important as it is today, but continue to grow in the level of importance for us. And then, International really becoming important for us in 2014, 2015. We're currently doing business in 61 countries. And our goal is to be a global company, which we define as more than half our revenues coming from outside of our home country. So our understanding of different cultures and translating the underlying message and our ability to attract great people that'll help us make that translation, is the key. We currently have a search going for a new Head of International. And I can tell definitively, we'll have a new Head of International in place in 2012. We believe that Under Armour translates, and we look for examples of what happened in Japan. As I mentioned, these things, though, they take time. And we've planted a lot of seeds, and those 61 countries, some of them have been in there as long as 5 and 6 years, and some of them as recent as the last 12 and 24 months. But Japan was -- from 1999 to 2007 was 0 to USD $35 million. From '07 to '08 something clicked and the tipping point occurred. And they went to $70-plus million. Then $84 million in 2009. $106 million in 2010. And most recently, this past year, in a tsunami year, Dome -- our Japanese partner there has grown to USD $147 million. When you look at that growth and that trajectory, it just takes time. It takes taking the time with the brand, to explain the brand, to getting the consumer acclimated with it and allowing it to build. The fact of the matter, though, is that our brand does translate. We believe that we have the ability to be global. And there's a lot of places that we can grow the brand in the future beyond just the United States.

Our next question comes from Camilo Lyon with Canaccord Genuity.

Kevin or Brad, what scenario do you think -- or what scenario would need to unfold where you would feel comfortable taking your revenue guidance back up to that higher end of the 20% to 25% growth rate? Is this purely weather that needs to turn in the first quarter that would give you that confidence?

Yes, Camilo. I think there's a couple of things, I think -- again, weather is part of the impact, but Kevin talked a lot about this in his prepared remarks around the environment that's out there right now and the promotional environment, too. And looking at that today, is that a reflection of the weather? Or is that more the environment as it's going to be through 2012? And we're looking at that and just saying, "Let's make sure we take a conservative and prudent approach on how we view the rest of 2012." So I would say if that environment changes a little bit as we get into Spring/Summer and Fall/Winter that, that could potentially be a positive for us. But right now, again, we're looking at where that environment is today. Obviously, weather always plays an important part to us. But I think our business over time as we evolve and look at broadening our SKU base on the Fall/Winter product line, we're becoming less and less dependent on that, hopefully. So obviously, our Fleece products are much more versatile than a ColdGear kind of more specific end-use product that we have that's more dependent on weather. So our goal is to be less dependent on weather. But obviously, with Q4, especially ColdGear product, if it is cold at the end of this year, colder than it has been, there is some potential upside. But I would look at that and temper that a little bit and say we are definitely being much more disciplined on the supply chain side on how we forecast, plan and buy inventory to our business. So -- and we've talked a lot about this in the past, about being less disciplined in the past had caused us to chase a lot more top line and buy a lot more inventory. With our more prudent approach right now, more disciplined approach on our inventory management, although we still want to put ourselves in a position to capture top line, it would be a little bit more tempered how we can do that compared to last year.

Got it. And then my next question relates actually to the supply-chain investments that you've been making in personnel. If you could give us an update on how that progress is coming along and if the efficiencies that you are expecting to see are happening at a quicker pace.

Yes, no, that's the interesting thing, is we feel really good about where we are, but unfortunately, it's just a little hard for you guys to see it yet because it's data points that we see internally that will end up showing for you probably more towards the back half of 2012. So should [ph] kind of walk through a couple of components of this. First and foremost, on the product side, really being led by Henry Stafford is really the SKU rationalization, which has been a very positive impact for us across the board, not only from a margin perspective but from a cost perspective, too, and eliminating unproductive, unprofitable SKUs. And as I said in my remarks, as we end 2012, we'll have 20 less -- 20% less SKUs than we started the year with. And that's a big factor in not only helping margins to some degree as we get in the back half of the year, but also as part of how we can leverage our SG&A a little bit. Beyond SKU productivity, when you get into the forecasting and planning process, again, with Rich on board, really focused on the disciplines around, let's make sure we forecast our business appropriately, demand, forecast demand, but also how we manage our supply chain and how we flow product in and how we control and be disciplined around our buys. Again, a lot of what Rich has been doing has really set ourselves up to be much more confident in the back half of '12. But him just being on board for the last 7 or 8 months, you wouldn't expect that impact to show until the back half of '12. On top of all that, much more disciplined in planning around and the coordinating with, not only the front end of our supply chain with the planning teams, but the back end, with our outlet teams and how we liquidate product, too. And being much coordinated with our wholesale business and our outlet business and how we liquidate product, will help tremendously, too, especially again, as we get into the back half of '12. So a lot of the things that we see here and we -- that give us much more confidence, just can't show visibly to all of you yet, but we feel really good about some small incremental steps that'll start to show in Spring/Summer '12 a little bit. But really, as we get back to the back half of 2012 with Janet Fox and the Sourcing team's ability to work on gross margins, and Rich's team to be more disciplined around how we grow inventory in and liquidate inventory, you'll start to see that impact positively to margins and inventory in the back half of the year.

Our next question comes from Sam Poser with Sterne Agee. Sam Poser - Sterne Agee & Leach Inc., Research Division: I wanted to follow up on the guidance and how inventories were. Are you saying that the retailers are sitting on excess Under Armour inventory right now? Or is it a total situation with, I would say, brands that, let's say, are more seasonal than you are, that is affecting the way they're thinking about purchasing for later in the year?

Sam, yes. It's clearly -- it's a total situation coming out of obviously, in the warm kind of winter season we're having. It's a total situation for the retailers, including some of our inventory, too. Sam Poser - Sterne Agee & Leach Inc., Research Division: And you've made the -- I think, the comment was made regarding that every -- that things are regular price. You did hit some of your more seasonal product. We've seen it on sale. But is this over and above right now? Is that part of the reasons for the margin issues with the reduction in the gross margins in the first half of the year? Part of that will be more clearance? Or is that all a mix issue and costing issues?

Yes, the big driver in the front half of the year is the input cost pressures. Again, going back to -- we locked in our commodity prices with our suppliers for Spring/Summer '12 back in the spring when we were kind of at the peak of that commodity price pressure last year. So that'll flow through here in Spring/Summer '12. Most of our margin pressure is going to be from input costs. From a clearance perspective, again, going to Kevin's comments, our job is to protect that premium price position for us in our brand, and we're -- we very much hold that near and dear to our hearts. Where that -- we don't want that to be margin pressure for us. From a liquidation of our product perspective, and how we flow excess inventory and discontinued inventory through our outlet channels? I think what you will see is more of that, more towards the back half of 2012. We'll definitely be doing more of that in 2012 than we did in '11, as a ratio of the total sales for the outlet business, but more so on the back half of '12. That'll impact margins a little bit as we flow through more excess to our outlet channel. But again, that's a fractional part of the overall impact to the year. Sam Poser - Sterne Agee & Leach Inc., Research Division: And just one last follow-up on this. I was just out at a one of the -- at the Outdoor Retailer Show, and a good number of people from factories, and so on, were basically saying, "The retailers are all waiting. They're writing their orders much later than they did a year ago because of the weather." Is that part -- is that also affecting the guidance right now? That a year ago, you had more orders looking forward in-hand that you do at this time this year?

Okay, Sam. Let me -- I'd like to sort of just give our thoughts right now as what we're seeing in the marketplace in a broader way. What we've seen in our own Direct-Consumer channels and with the growth that we've had there, our full price Direct-Consumer channels, is that we are not seeing the need or we're not promoting. And I think what we're finding is that being and building a premium brand in a growing promotional environment is becoming sort of a tale of the day. And so, we want to be clear that Under Armour remains a full-price brand. And we're allowed to do that because of our innovation, because of our thought leadership. But things like Charged Cotton and Storm Cotton, and new technologies we're bringing out like ColdBlack, it gives us, frankly, it gives us pricing power. And it gives us pricing power to consumer, and our job, number one, is to respect it and also appreciate just exactly how fragile that pricing power is. And so we need to protect it. But we do -- we like -- we'll get in line and we will promote from time to time as well. But we feel in a much more prudent way, and it is without question the exception for the Under Armour brand, much more than the rule for us. And it feels like it's becoming a rule in a broader way at retail. We are not willing to pay for that, we're not willing to buy that, which is why we want to be very prudent in the way that they're thinking about 2012. And if something turns in the market, or there's cold snaps or if there's just a general sense where people are not being trained in understanding [ph] for having 20% or 30% sales, to give them reason to go to retail. Because of our pricing power, we have great relationships with our retailers. And because of that, we do, for the most part, remain the full price brand in their stores. And we are the ones that are delivering premium gross margins and higher ASPs to our retailers. So we're very proud of that. And I think it makes us a little bit different, but it still has us -- we are still subject to some of the things where some of the caution that we're seeing or feeling out there from our broader wholesale distribution. And there's a lot of success and a lot of wins, and I don't if this wholesale commentary. But without question, it definitely characterizes what we're sensing and what we're feeling from our seat.

Our next question comes from Michael Binetti with UBS.

So just back on the -- I want to make sure I'm crystal clear on what -- how we should be thinking about our models for gross margin in the first quarter, which seems to be the point of turmoil that you guys want to be a little bit more conservative on considering the weather, considering a bit more inventory than you expected to have heading into the quarter. Maybe Brad, if you could clear up where you think we should be, how we should be thinking about our models on gross margins? And then what you're seeing right now as far as how trends are going as you're clearing through some of that inventory. Has that -- have things improved lately with the weather getting colder? Or is it still kind of coming in below what you were thinking in the quarter?

Sure, Michael. Look, again, to go through gross margin and kind of the seasonality of that in 2012. If you look at the impact -- if you go back to 2011 and kind of pull forward the 2011 story to the front half of 2012, is that the real story in 2011 for the most part was the impact of input costs going up year-over-year. And if you look at the full year impact of 2011, that item, it's going to be about 110 basis points for 2011. Now there were some others things in '11 like bringing hats and bags in-house and so forth, which will comp in '12. So the real story there from a trend perspective is that 110 basis-point negative impact for us in 2011. If you pull that 2011 story forward in '12, in my comments and what I'm saying, is you'll probably see a similar impact in the front half of '12 with that 110 basis points. And the reason being that we've been talking is that, that the commodity price pressures, the input pressures have been kind of building during the course of '11 and into '12 and continue into '12, where we start to see that abate more in the back half of '12. So front half of '12, input cost pressures lead to a gross margin impact in the front half similar to what you saw on that 110 basis-points product input cost in 2011. When you get to the back half of the year, again in my prepared remarks, through a lot of the sourcing efforts that have been put in place and a lot of the disciplines we have around inventory management, will help us offset that downfall in the front half of the year in gross margins in the back half. So you're talking about a relatively flat gross margin year-over-year. As far as some of the trends in clearing, I think the interesting thing is that you do look at our business and you look at parts of our business in categories that were very, very successful in the fourth quarter and continue to be successful, like our Fleece business. Going back to our comments around some of our products which are -- have a little bit more a versatile end use versus a more specific end use that ColdGear and baselayer may have, performed very, very well for us in the fourth quarter and continue to perform well. So it goes back to the comments, we do have products -- our expanding product offerings do help us even regardless of the weather. And obviously, weather itself will help us with our more end-use products around ColdGear and baselayer.

Okay. So -- and I have a follow-up but just to make sure that I'm clear, as we look at the first quarter, what you're telling me is that the majority of what we're talking about with gross margin here is related to some input costing. And not to really to be hyperanalyzing things we see go on sale in the middle of quarter or looking at weather and making guesses about your trends through the quarter. That's not really what you think would change your view on how we should be looking at gross margins in the very near [indiscernible]

Input cost, input cost, input cost. Yes, Michael. It's all input cost. I mean, we're -- again, from a -- if you break wholesale and Direct-to-Consumer out on the wholesale side, again, we've talked about this a lot. It's protecting that premium price position. So do not expect any kind of negative impact from a promotional environment for our brand in the front half of this year. And you're saying first quarter. I'd say look at it from the whole front-half perspective. Where we will lean a little bit more on our outlet team, from an excess inventory liquidation perspective, is really more in the back half of the year, as we kind of plan ahead. And again, that -- does that impact gross margin negatively? If we lean a little bit more on them, yes. But again, I think the impact is pretty fractional in the total of all the gross margin puts and takes.

Okay. Let me ask Kevin a quick question then. Kevin, as we headed into the holiday, I think one thing that we all learned was that it ended up being a little bit more of a promotional holiday for retail, in general, than what most investors were thinking. And I think you guys went in planning on it being more of a full-priced holiday for you. You saw some of your big competitors get very competitive on pricing in some of your core categories. And there's probably some market share trade that we'll see as the NPD data comes out, or whatever, in those key categories. So I'm just -- with that in mind, I'm just thinking about how you're looking at price increases, that you guys have talked about that you have planned for the year and how you're thinking about navigating price-to-volume equation going forward based on what we learned in the fourth quarter?

Yes, well, I mean, I don't think there was a little bit of a promotion. I think it was like global promotion is that -- what we saw at retail. And everybody you looked at was 20- and 30-off. And the retail environment is really -- I don't know if there's a solution out there, but we can control what we can control. So let me take a core category for us and when you bring up things like market share, baselayer is a great place for me to use it as an example. We remain the market leader in baselayer, but it's still -- it's a category that we used when we got here to help launch ourselves as a full-line sporting goods athletic brand. And there's ways, I think, that we're looking what the consumer counts on us that create what I said before about pricing power. The focus that we have on product leadership, it's what makes us #1 in the category and it's why the consumer chooses us. Because our product flat out is just better. Now there's a lot of things that now are coming on the market, and frankly, challenging us with pricing. When we're selling a $25 T-shirt at Dick's Sporting Goods, and you've got other versions that are $12 or $11 or $10 at Walmart, it creates some channel conflicts, but it means that the consumer is still is going to be driving and going to our key sporting goods partners because of the brand. And because of not only the product that we did last year but more importantly, it's the new innovation that's coming out. We're maintaining our premium pricing platform. Our average selling price is significantly higher when you look at the Under Armour brand than even our closest competitor. And it's because we're not promoting, because we are still driving in this area. And that we leave the discounting to, frankly, others in the category. And because of -- they have a different platform, they have a different model, others can do that. For ourselves, the discounting is not something that we're willing to get into. And that's why, I think, we're being very clear of -- we're fortunate to have the top line that we do. And so, we can have the ability to be much more selective about where do we want to be and how are we building this brand for the next 5, 10 and 20 years versus building it for the next 12 months. And our, frankly, our consumer has consistently showed a willingness to pay for that quality. And then most importantly, is just our ability to innovate. Just constant innovation within the category. Not unlike what we did with Storm, not unlike what we're doing with ColdBlack, not unlike what you'll see in Footwear, but really across the board is we want to create that mentality with the consumer of building just, Under Armour is a place of innovation, it's for the latest and for the greatest. And it's important to remember that our long-term goal is to be the #1 athletic brand in the world. And so in doing that, again, it's not going to happen overnight and it is going to take time. But as we've said before, things like categories like baselayer, are not pushing the panic button, not seeing how fast can we get sales or revs or top line out the door, but how are we constantly re-instilling the faith and the confidence in that consumer that the Under Armour brand is the destination for the premium consumer. We've used this, our entrée with baselayer into the broader markets. So now we're here, and what are we going to do about it? With 38% growth in 2012, I feel like we're making the right decisions about where we're going as a 20-plus percent grower in 2011 and the 20-plus percent grower as we look to 2012. I think we're leveraging our brand in the right ways to, number one, protect what we've built, protect the market share where we've been, and grow and drive that as well, but most importantly, use it to leverage ourselves into the appropriate additional category that someday will help us realize that goal of being the #1 athletic brand in the world.

Okay. So no planned changes to the price increases that you guys had been mentioning to us last quarter, it sounds like.

We're innovating. If everybody else is discounting, I think it's -- somebody -- I don't believe in that. We are the contrarians. And so I think that there is an opportunity out there for full price, and I think that frankly, Under Armour is the perfect brand to deliver it.

All right, thanks. Operator, we'll now conclude. Thanks, everybody, for joining us on the call today. We look forward to reporting to you our first quarter 2012 results, which tentatively has been scheduled for Friday, April 20 at 8:30 a.m. Eastern Time. Thanks again, and goodbye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.