Under Armour, Inc. (UAA) Q1 2015 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the Under Armour First Quarter Earnings Webcast and Conference Call. At this time, all participants are in a listen-only mode. Later, there we will be a question-and-answer session and instructions will follow. [Operator Instructions]. As a reminder, today's call is being recorded. I would now like to turn the conference over to Tom Shaw, Director of Investor Relations. Sir, you may begin.

Thanks. Good morning to everyone joining us today's first quarter 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 date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, as required by Regulation G, we need to make you aware that during the call we will reference certain non-GAAP financial information specifically currency neutral net revenue growth. We provide a reconciliation of this non-GAAP financial information in our earnings release a copy of which is available on our website at uabiz.com. Joining us on today's call will be Kevin Plank, Chairman and CEO; followed by Brad Dickerson, our Chief Operating Officer and CFO, who will discuss the company's financial performance for the first quarter and provide an update to our 2015 outlook. After the 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 11:00 a.m. Eastern Time today. And with that I'll turn it over to Kevin Plank.

Thanks, Tom and good morning everyone. I want to start this morning with some math. There are 1,696 players in the NFL and there is only one Super Bowl MVP. There have been hundreds of skiers in the Women's Alpine Circuit since 2004 but just one has won 67 times. There are 450 players in the NBA and there is at least in my mind just one MVP. There are 125 players on the PGA Tour and there is only one Masters Champion. The numbers associated with the recent performances of Under Armour athletes like Tom Brady, Lindsey Vonn, Stephen Curry, and most recently Jordan Spieth, are compelling and true evidence that we are just getting started. Three months ago we talked to you about some of the important numbers Under Armour achieved in 2014. So far in 2015, we put some equally impressive numbers on the scoreboard. First, there were acquisitions of MyFitnessPal and Endomando, which combines our existing MapMyFitness and UA record platforms, creates the world's largest digital health and fitness community now with over 130 million unique users. We opened our Chicago Brand House, 30,000 square feet of Magnificent Mile with the best presentation of the Under Armour brand experience anywhere in the world. We opened a store in the Mall of America, bringing the Under Armour brand to more than 40 million shoppers annually. We signed São Paulo Futebol Clube, Brazil's most successful club with 18 overall titles and more than 17 million supporters in that market. And with the results from our first quarter, we've now recorded 20 consecutive quarters of 20-plus-percent revenue growth, that's five years since our last quarter with less than 20% revenue growth or to put it more topically back before Jordan Spieth had his driver's license. Bur without question, the most impressive performances were put together by the Under Armour athletes I mentioned earlier. So indulge me for a minute while I talk about these record setting performances from Under Armour athletes so far in 2015. Tom Brady won his fourth Super Bowl Ring and his third Super Bowl MVP Award. Lindsey Vonn broke the record for most carrier Alpine Skiing Women's World Cup wins. Stephen Curry the league's most unguardable player led his team to the best record in the NBA and is my choice to win the NBA's MVP Award when it's announced shortly, as well as having been the leading vote getter at the MVP All Start Game. Jordan Spieth a record setting performance at the Masters where he became the first player to win wire-to-wire since 1976. He reached 19 under, which no one had ever done in the history of the tournament. Set the record for most birdies at one Masters with 28 and became only the second man in a hundred years to win a major wire-to-wire at 21 years or younger. Equally important, Jordan dominated those four days at the Masters, with the sense of purpose and will that define both him and Under Armour. Part of the formula for success in our business is making a big bet and we did so when we signed Jordan as a teenager, a few years ago. To quote the great Dodger's Executive, Branch Rickey, luck is the residue of design and knowing that we have Jordan Spieth as the face of Under Armour Golf into the future, solidifies our presence in the category, and aligns us with a new face of Golf in the United States. We're proud to be associated with athletes like Tom, Lindsey, Stephen, and Jordan, not just because of their accomplishments, but especially, because the people that they are. The great performances of these athletes are driving sales force too. We had a great launch at the Curry One at the All Star Game in February and there is tremendous buzz in the sneaker community about that shoe as well as great anticipation already around the Curry Two. So while it feels good to be viewed as a growing presence in the signature shoe market, it's important to recognize that we are just getting started. In golf apparel, our team did a great job of outfitting Jordan for the Masters and it provided terrific visibility for our golf apparel and footwear. When we signed him, we knew he had the ability to help drive our brand, beyond just golf, and that we needed to align our product stories with his aggressive, young, and fearless personality. We come a long way in the category in the last two years, and because we know that every detail matters. It was nice to be able to put him in that blue polo on Sunday, knowing how great it would look wearing a Green Jacket. Moving on other areas of our business that continue to shine, we saw 41% growth in our footwear business this past quarter. In addition to the heat being generated in basketball by the Curry One, our SpeedForm Gemini running shoe at $130 continued to collect great reviews in check at retail. Building off the success of our SpeedForm platform, we're introducing cleated models in both American and global football, including the boot worn by one of our newest athlete, Memphis Depay, the top scorer in the Dutch League who helped his team clinch first place, Saturday, with a spectacular free kick, and who at only 21-years-old may soon become one of the most exciting players in the beautiful game. We continue to see strength in our core apparel business, with revenues up 21% in the quarter, the 22nd consecutive quarter of 20-plus-percent apparel revenue growth, our largest category. In addition to our strength in golf, we are off to a strong start with the introduction of Armour, our reengineered base layer featuring enhanced ventilation. As we grow our presence in key footwear categories, like running and basketball, it's helping drive our business in those key growth categories across all men's and women's apparel. Our growing strength in footwear is also helping to drive apparel sales with kids, as we understand how critically important the footwear piece is to how our young male and female consumers dress. Our financial results are great evidence of the growing power of the Under Armour brand and our ability to execute against this tremendous opportunity. But operationally, we believe we have yet to play our best game. We believe there is a great opportunity to improve both how our supply chain gets product to market, and how our product looks once we get there. On the latter, our growing pipeline of innovation in footwear, apparel, accessories, and Connected Fitness, provides us with the opportunity to evolve our model by providing better merchandizing to our wholesale partners, as well as in our own direct consumer businesses. We are adding human capital to our global merchandizing function, starting with Kevin Eskridge, who will run our global merchandizing team after two and plus years successfully establishing our brand in China. The Under Armour brand will continue to grow by ensuring we show up in a premium way whenever our consumer interacts with our brand, whether that's in a wholesale partner store, our own doors, and e-commerce environment or anywhere our brand is available. Our ability to stratify our presentation at retail with multiple end use categories is an asset we have yet to fully maximize, and we believe these types of surgical improvements in our merchandising will help ensure our continued growth with our wholesale partners. In our DTC business, we are laser focused on using our Brand House stores to provide that elite presentation of the Under Armour brand. That presentation is on display at our newest 30,000 square foot Brand House store on the Magnificent Mile in Chicago, where we've dedicated space for men's and women's, running, golf, basketball, hunt, studio, and use, as well as the presentations of local assets like Notre Dame, Northwestern, The Cubs and White Sox. It's also our first opportunity to bring our Connected Fitness story to our consumer and we will evolve that experience as we continue to develop our Brand House presence. Our Connected Fitness community added over 10 million unique users since our last call in February and now totals more than 130 million combined. We average more than a 130,000 people in the first quarter downloading one of our four apps. We are focused on integrating the core companies and continued development of the individual apps as we build out the Under Armour record platform. To build on this, we are expanding our partnership with SAP for the infrastructure that will help us create a single integrated view of our consumer. We believe the brand that can build true communities among our consumers by improving their health and fitness will be best positioned and we are focused on the competitive advantage we enjoy by having the world's largest digital health and fitness community. The final piece I want to cover today is our fastest growing business, international, where we grew 74% this past quarter. We continue to show great strength as the Under Armour brand establishes itself as an authentic athletic brand in new markets. We will add over 100 total stores outside the United States in 2015, and this past quarter we opened our first stores in Abu Dhabi and Brazil. Next month, we will be in Brazil to unveil the kit for our newest team, São Paulo Futebol Clube, the most successful club in the country's history. Adding key assets like São Paulo accelerates our presence in these new markets and helps us deliver authenticity as we establish ourselves in global football. And finally on international, we are most excited about the fact that we are just getting started. I mentioned earlier that we are bringing our former GM in China back to run our global merchandising team. Taking over as our new GM in China is Eric Haskell, who brings extensive industry expensive in the country as he leads what will be one of our largest countries in revenue outside North America by the end of 2015. So, whether it was football cleats and we entered that market, Golf with Jordan Spieth, for Basketball with Stephen Curry, we consistently proven our ability to go hard and disrupt key categories which we believe positions us as the next grade global athletic brand. And with the additional asset of our Connected Fitness platform, we believe, we can do so in a way that connects us to our consumer like no other brand in the planet. We are truly just getting started. And with that, I'll turn it over to Brad.

Thanks, Kevin. And I'll just spend some time discussing our first quarter results, followed by updated outlook for 2015. Our net revenues for the first quarter of 2015 increased 25% to $805 million. As Kevin highlighted our results represented 20th straight quarter achieving above 20% top-line growth. We are proud of this consistency particularly in a period where several external headwinds, including the strong U.S. dollar negatively impacted our business. On a currency neutral basis net revenues increased 27% for the period. In addition, our North American business experienced some disruptions from the West Coast port delays and weather-related store closures during the period which we estimate had a 1% to 2% cumulative impact on overall net revenues. Looking at our product categories we grew apparel net revenues 21% to $555 million compared to $459 million in the prior year's quarter. Despite the impact of some of the headwinds I just outlined, we were able to post strong results in our largest product category, led by the introductions of Armour Base Layer and our updated training platform, as well as continued growth in Golf and running. First quarter footwear net revenues increased 41% to $161 million from a $114 million in the prior year representing 20% of our total business for the first time since our initial running shoe launch in early 2009. As the centerpieces of our first brand holiday of 2015, our new SpeedForm Gemini and Apollo Event running shoes, as well as Stephen Curry's first signature basketball shoe, the Curry One, drove tremendous excitement for the category in the marketplace. Our accessories net revenues during the first quarter increased 23% to $63 million from $52 million last year with particular strength within our bags line. Our global direct-to-consumer net revenues increased 21% for the quarter representing approximately 25% of net revenues. The e-commerce growth rate exceeded our retail growth rate during the quarter with weather driving store closures for several of our domestic doors during the quarter. Nevertheless, we were excited with the retail progress we made during the quarter, including strong new Brand House openings in Chicago on the Magnificent Mile, and in Minneapolis at the Mall of America, as well as our first Brand House store in Brazil. From a global standpoint we ended the first quarter with 153 owned stores, including a 134 factory house stores and 19 brand house stores compared to a 134 owned stores in the year-ago period comprised of a 123 factory house stores and a 11 brand house stores. In our e-commerce channel we continue to see strong overall trends as our consumer continues to shift to mobile which represented over 40% of our traffic and nearly 20% of our e-commerce sales during the period. At the same time, we are seeing a strong response to our new local e-commerce sites including the first quarter launches in the Philippines and the Netherlands, which we believe is indicative of some of the untapped demand in these markets. Looking at our regions, North America net revenues increased 20% to $700 million in the first quarter compared to $538 million in the prior year's quarter. On a currency neutral basis North America net revenues increased 21% for the period primarily by growth in the apparel and footwear categories and in our direct-to-consumer channel as I just outlined. International net revenues increased 74% to $96 million in the first quarter and represent 12% of total net revenues. On a currency neutral basis international net revenues increased 86% for the period. This was the first quarter in Under Armour's history where the international mix surpassed 10%. In the EMEA region in addition to our strong launch of our new Dutch website, we celebrate the opening our new office in Germany, which puts us closer to our customers at a time when we are beginning to see strong traction within the market. We were also just beginning our new distributor agreement in the Middle-East which included the January opening of our first regional Brand House store in Abu Dhabi. In Asia-Pacific we more than tripled our business in China, as we began to accelerate our partner store expansion efforts and experience significant traction across e-commerce. We also remain in the early stages of our expansion efforts in Southeast Asia, Taiwan, and Hong Kong. Finally, in Latin America, we are still less than a year into our market entry in Brazil, and we are seeing success building brand awareness with efforts such as our recent signing of São Paulo Futebol Clube, the opening of our first Brand House store in São Paulo, and a local marketing push in conjunction with our SpeedForm Gemini launch. Moving on to margins. First quarter gross margins held steady year-over-year at 46.9% with three primary factors contributing to this performance during the quarter. First, favorable product margins in both North American and international apparel and footwear benefited gross margins by approximately 110 basis points for the period. Second, higher airfreight cost primarily tied to our efforts to mitigate the impacts of the West Coast port disruptions negatively impacted gross margins by approximately 60 basis points in the period. Finally, the strengthening of the U.S. dollar negatively impacted gross margins by approximately 50 basis points for the period as we purchased the majority of our inventory for international businesses in U.S. dollars. Selling general administrative expenses as a percentage of net revenues deleveraged 80 basis points to 43.5% in the first quarter of 2015, from 42.7% in the prior year's period. Starting this quarter in an effort to simplify and streamline our conversation we are consolidating our SG&A detail into two primary buckets: marketing and other SG&A. Other SG&A is the sum of our previously outlined selling, product innovation and supply chain, and corporate services buckets. SG&A details for the first quarter are as follows: Marketing cost decreased to 13.4% of net revenues for the quarter from 13.7% in the prior-year period driven primarily by the shift of certain planned expenditures to later in 2015. Other SG&A costs increased to 30.1% of net revenues for the quarter from 29% in the prior year, driven primarily by our Connected Fitness acquisitions and investments in Brand House and e-commerce. The one-time deal closing cost of $6.3 million for the Connected Fitness acquisitions negatively impacted the quarter by approximately 80 basis points. Operating income for the first quarter increased 3% to $28 million, compared with $27 million in the prior-year period. Interest and other expense for the first quarter increased to $4 million, compared with $2 million in the prior-year period, primarily reflecting increased interest expense associated with the financing of our Connected Fitness acquisitions. Our first quarter tax rate of 50.3% was unfavorable to the 46.1% rate last year, primarily driven by increased losses in our newer Latin American businesses. Discrete tax items such as international losses are particularly impactful to our effective tax rate in period such as first quarter with lower consolidated pretax income levels. Given these factors below the operating line, our first quarter net income decreased 13% to $12 million, compared to $14 million in the prior-year period, while our diluted earnings per share decreased to $0.05 from $0.06 in the prior year's period. On the balance sheet, total cash and cash equivalents for the quarter increased 29% to $232 million, compared with $180 million at March 31, 2014. Inventory for the quarter increased 22% to $578 million, compared to $472 million at March 31, 2014. Total debt increased to $677 million as compared to $152 million at March 31, 2014, and $284 million at December 31, 2014. The first quarter increase reflects the financing of our Connected Fitness acquisitions, including $250 million on our revolving line of credit and additional $150 of term debt. Looking at our cash flows, our investment and capital expenditures was $68 million for the first quarter compared to $31 million in the prior year's period, driven primarily by our investments in our new North American distribution center, our corporate headquarters in Baltimore, and our global fixturing and retail strategies. Now moving on to our updated 2015 guidance. Based on current visibility, we expect 2015 net revenues of approximately $3.78 billion representing growth of 23%, and 2015 operating income in the range of $400 million to $408 million representing growth of 13% to 15%. Our operating income guidance includes the dilutive impact of the Connected Fitness acquisitions consisting of $6.3 million of one-time transaction cost incurred in the first quarter, as well as full-year operating losses from these businesses, and non-cash amortization charges of the intangible assets generated from the acquisitions. Below operating results, we estimate $9 million increase year-over-year in interest expense, primarily due to incremental borrowings under our credit agreement to fund the Connected Fitness acquisition. We currently expect a full-year effective tax rate of approximately 41%, which is higher than previously anticipated given the continued strengthening of the U.S. dollar, which negatively impacts our international profitability, which in turn negatively impacts our consolidated tax rate. As this impact is more pronounced in quarters with lower consolidated pretax profits, our guidance assumed a second quarter tax rate similar to our first quarter rate followed by a more normalized effective tax rate expected in the back half of the year. I'd also like to add some color on several items, starting with revenues. As we indicated last quarter, and as reflected in our first quarter results, international and footwear are areas that are planned to outperform in 2015, as we continue to enter and expand in new markets and see successes across our footwear line. From a macro standpoint the strengthening of the U.S. dollar is expected to impact our 2015 net revenues by approximately 2 percentage points to 3 percentage points given current exchange rates, and we have factored this into our updated guidance. Now looking at gross margins. Given the continued strengthening of the U.S. dollar along with anticipated higher ongoing airfreight needed to service to our customers, we now expect full-year gross margin will be roughly in line with last year's 49% rate. This compares to our prior guidance of a modest year-over-year improvement. Specifically, we expect our second quarter and third quarter margins will be down approximately 50 basis points compared to last year. We continue to plan for higher airfreight expenses in the second quarter as we continue our efforts to mitigate the impact of the West Coast port disruptions, while the negative impact of the stronger U.S. dollar is expected to have the most pronounced margin impact in the second and third quarters. In SG&A, the timing of certain expenses has resulted in some changes to our quarterly cadence. Given our current visibility, we now expect SG&A expense deleverage of approximately 200 basis points during the second quarter, including higher costs associated with our Brand House strategy, given the timing of store openings, as well as the timing of certain marketing and innovation expenditures. We anticipate SG&A will continue to deleverage albeit to a lesser degree during the third quarter before showing modest leverage during the fourth quarter. From an operating income standpoint, while the gross margin headwinds have increased since our previous guidance, we have seen some offsetting impacts from our Connected Fitness acquisitions, primarily related to lower amortization expense than previously anticipated. In addition, we continue to expect to mitigate some of the overall margin pressures through targeted improvements in gross margin and SG&A, with the largest offset emerging in the fourth quarter. Finally some updates on our planned capital expenditures. We had previously indicated planned 2015 capital expenditures in the range of $280 million to $290 million inclusive of approximately $90 million for our new domestic distribution center and the expansion of our corporate headquarters in Baltimore. Following our recent acquisitions in the Connected Fitness space we began looking into areas of integration tied to our overall business. An important first step is our technology platform. As such, we've decided to invest in our systems with SAP to enhance, expand, and integrate our core apparel and footwear systems, along with our Connected Fitness platforms. This project will occur over the next few years with the initial phases occurring in 2015. As a result we now expect 2015 capital expenditures in the range of $330 million to $340 million. We would now like to open the call for your questions. We ask that you limit your question to two per person so we can get to as many of you as possible. Operator?

Thank you. [Operator Instructions]. Our first question is from Matt McClintock of Barclays. You may begin.

Kevin, in your prepared remarks you talked about merchandising improvements and supply chain improvements. I wondered if you could focus a little bit more on the supply chain improvements. What are you doing in regards to working with your supply chain to make it more efficient going forward?

Well I think a couple of things we've done is just from an organization standpoint the way we structure it. So Brad, as you know, has taken on additional responsibilities in making shuffling some things around. Well we prioritize footwear and I've moved Kip and have him exclusively focused on footwear and innovation, and I think it's really going to be a driver for the company with what you'll see coming out as we see this massive opportunity in footwear. At the same time, the supply chain particularly as you get more complex particularly as you look to grow globally it's incredibly complex. And frankly for us much further beyond what we were just making, we used to sell tight T-shirts and we'd put them in sporting good stores and they would sell and now it's a much more complex and diverse line and you have things like women's that includes fashion and flow and all these other pieces that come to bear. Doing business with other markets is incredibly sophisticated and difficult as well. We just opened or just broke around rather a few months ago, a new distribution facility down in Tennessee, and things like that that are happening and taking place for us. When I wanted us to come across frankly a bit deprecating for the company in terms of we just think we can do better. We're incredibly proud I think of the results that we put on the paper and what we've done particularly from an apparel standpoint with 22 consecutive quarters and approaching the growth that we have. But as I said, we had yet to play our best game. So I don't think that what Brad is building out with our team and Jim Hardy who has been our Chief Supply Chain Officer here for the last several years, and bringing to bear the expertise. I can tell you what we're doing physically with warehouses and some of the other components but also systems are going to play a massive role in where we're heading. One of the things I also mentioned was our new partnership with SAP, who Bill McDermott has been on our board for last nine or nearly 10 years. And so we've had a lot of insight into what running what best -- best run companies do and what they look like. And I think we're now in a position that we're big enough to be able to implement that but not too big where it will actually be a hindrance to the company. So I think there is a renewed figure is that what we've done to-date is -- has been good. And we've done well. But we're just looking and saying from a company that now has a focus on things like women's wear, we're looking to turn product every three and four weeks versus having two seasons a year. Doing business and truly having distribution facilities in Europe, in Asia, in Southeast Asia, in Latin America, around the world, and figuring out those complicated supply chains that include things like duty and tariff and all that -- those other issues, it's just -- it's becoming a much more complicated world and we're elevating ourselves. And so Brad is moving away from the CFO which of course will continue to report to him is part of the challenge with closing on $4 billion or close to $2 billion in FOB this year, gross margin moving few bps let alone percentage point or two has a massive impact in the company. And so we think that we've done well, we think that we've been probably a little fat in getting to this point, and we're just looking and recognizing the fact that if we begin to tighten the belt and bring in professionals, this is not like finding a new designer where you're hoping someone can do the job, there is lots of people that have this expertise and experience from some of the fast fashion people that are great to learn from as well as we can implement ourselves. And so I think what you're seeing is the company growing up. And the last thing I'll just say is around the merchandizing function. We did not have a merchandising function in the organization. And I say that from, we had product people that build product, and we had sales people that sold it in, and then the buyers would select what they wanted, but truly curating and articulating exactly the voice that we want depending on the distribution is not a function that we had as a company. And so what you're seeing I believe is a more sophisticated Under Armour, and at the end of the day I think we're going to have a better end result for our consumer first and foremost that continue to drive the kind of results that I think we've made everyone accustomed to over the last five years.

Sounds great. Thanks a lot, Kevin.

Thank you. Our next question is from Kate McShane of Citigroup. You may begin.

Hi, thanks good morning. I was wondering if we could hear a little more about your women's business. Can you update us on the performance of the category and have some of the expansion that we've seen within just women's in general and the department store and some of the supporting goods stores helps the overall brand?

Well, Kate, I think first of all we see that general trend toward athletic in women's fashion as a whole is something that we don't see it slowing any time soon and we're very fortune for that, I think being the heart and soul of it. Beginning going back to 2014, we are incredibly proud, I believe the conversation that we kicked off with our will what I want campaign that began with Misty Copeland and that aspirational commercial that we had with Misty and then following up with Gisele. That -- the momentum from that is something that we're still feeling today, and capping off last week with Misty being named one of Time Magazine's 100 most influential people on the planet. So I think we are having a bigger conversation than even what is the style color that's in the store. At the end of the day though that is what we do for a living and we are looking at how the style color hits in the store. I am not sure that we have taken full advantage of the conversation we started from a product merchandising standpoint, and we believe that there is a greater opportunity for us in women's to have a conversation with her that is meeting her where she is versus asking her to come to us. And we articulated that last year with this idea of the athletics, the female athlete versus the athletic female. And so I think you'll continue to see styles and silhouettes and speaking about Under Armour, we basically build our women's business on the back of compression shorts and sports bras. And where we are trying to show up in more places for and be more relevant beyond just strictly in the gym or what she is wearing beneath, I think its part of where we're going. And I say all that in the context of, we've got the $600 million women's business by the end of 2014. So there is no signs of this slowing. I think you're just seeing us continue to sophisticate but we feel great I believe about the team that we put in place, momentum we have, and the direction that we're going. A couple of things to play with that as well and I think it's worth mentioning is our Connected Fitness platform which you know and bringing that on and assembling that community of now over $130 million, more than 60% of which are women. And so you know, as we really get our arms around what we have there, we believe that continuing that conversation with her and having finding ways to have meaningful conversations, number one, of how we can communicate to her, but also how we can listen to her. And so I think you'll see Under Armour continue to take those steps towards being more relevant in more aspects of her life and I guess if there's one message that I wanted to get across today and whether it's sort of may be a bit masked in the merchandising is that we don't believe we played our best game yet. We don't think when you walk into a store you're getting the best version of Under Armour yet, and it's where we were and we're proud of it but we believe that there is people out there that are doing it well. We believe we are one of those people. We just think we can do a lot better. So more to come in that and if I end it with anything, may be just quickly on distribution, talking about meeting her where she is, our sporting goods partners have been incredibly aggressive in this space as well, with ourselves, with our merchandisers the way we set up. There is actually a lot of competition in sporting goods and I feel we are answering that well. But we also see that number one in winning in our core distribution and number two, the ability for us to move to other places where she is shopping is something that you'll continue to see happening from us with people like our department store partners and a few other places. But answer it in one felt swoop, Kate, is we believe our women's business can be as large if not bigger than our men's business and we will stick to that and we are pretty proud of our men's business as well.

That's very helpful. Thank you. And then if I could ask one follow-up question on international, specifically Europe. Can you give us any more detail on where you are today in terms of distribution versus where you were last year at this time whether it would be types of retailers or countries that you're in versus last year?

Let me take a crack and may be Brad can help on the back of that too. So we're -- we really had breakthrough year in 2014 and again like most things that came down to leadership. We struggled for a longtime in Europe beginning back in 2006, when we launched and finding our way and finding local partners that would spoke six languages and then finding Americans to send over and kind of back and forth. And I think we settled on some of that a) had a greater understanding and relationship with the brand and guy named Matt Shearer who is running our Canadian business for us and took it from basically $0 million to over $100 million and walked into $50 million or $60 million U.S. dollar business and we crossed $100 million for the first time in 2014. So the momentum continues in Europe and we are incredibly excited about that. And it is not as much today about a distribution expansion game but it is about getting better in the places where we are doing business because when we say we were distributed in most of the stores it was a few racks at best of a couple compression T-shirts in typically men's only. And so we're looking to I think modify that conversation as well and take our positioning to be first of all a full resource brand meaning men's, women's, and kids. To show up and where we show up, to show up in presence, sporting goods particularly in a place like the UK has been a pretty challenged place from a discount environment and so we are also looking to be able to offset that of may be creating a unique experience for people in wholesale distribution. And then not like you're seeing us do here in America, we want to augment that with our own full price stores. The Brand House concept is something we're incredibly proud of and is really been working for us. In entering us back to America for just a second, the 30,000 square feet we just opened up in Chicago, we could only dream about what that would do from a brand elevation standpoint in celebrating some of the stories that we have in the area, but I can tell you as a company as we look to move forward we will continue to have wholesale being incredibly important part of what we do but where we look for statement retail through our Brand House concepts whether that means 2,000 to 3,000 square feet in some of the smaller markets like we mentioned Abu Dhabi or 30,000 square feet in Chicago. I think it's important that people understand the full expression of what our brand can be and frankly it's not appropriate that it's always interpreted. So we'll continue to build on that and I think you'll see more of that coming from us particularly in a place like Europe.

And Kate, I'll just add on to that like if you look at the three spots where we had the most increase in revenues year-over-year in Europe the UK, Germany, and the Middle East were the three places that you'd see that. The UK, we talked about opening up an office in Manchester back in probably 2014, and seen some benefits getting closer to the customer and the consumer there. Germany again putting some focus in market over the course of the last 12 months to 18 months and just recently now opening up an office in Munich in Germany again getting close to the customer there. And in the Middle East, we opened up our distributor in the Middle East in Q4 of last year so seeing obviously some benefit we're comping that in Q1.

Thank you. Our next question is from Jay Sole of Morgan Stanley. You may begin.

Kevin, can you talk about Connected Fitness strategy for a moment? Just from the big picture perspective how will you define success in Connected Fitness?

Yes, we spent a lot of time thinking about that and looking at what we bought and what it means in the positioning. So a couple of things, just some updates, since we've been to -- we left in New York and gave you a last real deep dive on what's happening with Connected Fitness. So first of all it's still very, it's very new. The MyFitnessPal deal just closed on March 17. So we are less than 30 days roughly into our partnership in getting to know one another. As we said, the first year was all going to be about integration and the integration begins with culture, culture of four different companies really coming together and we've been doing that with MapMyFitness from Austin, couple -- five to six weeks ago we just opened our new 35,000 square feet office in Austin which is -- it's an incredibly hot tech market and the Under Armour Connected Fitness office there anchored with Robin and his team is no exception to it. So I think that we're beginning sort of putting a flag in the ground of what that Under Armour attitude looks like. And it's evolving with taking the best things I believe of the culture that were like MapMyFitness and evolving that together to really help shape Under Armour. And it's no different with Endomando and MyFitnessPal and the way that we are going to approach that. The first thing we realized in the integration effort though is that this need for alignment from a systems perspective. So now between our own e-commerce, the number of people we have 40 somewhat odd close to 50 million people walking into our retail stores in North America this year, the 130 million unique users that we have on the platform. Finding a way to synthesize all this information is where the SAP integration really comes from. So we're looking for this single view of the consumer that will give us a much better picture and easier understanding of our consumer. I think it's going to make us a lot smarter ultimately in the long run and we will anticipate the needs of our athletes and of our consumers. The second thing that we're really focused on is building out the communities. So within all of the apps; I mentioned some of the stats in my written comments. But building the world's largest 24X7 365 day digital health and fitness community. In the first quarter alone we added over 10 million. And I want to be clear; we expect to update you on the growth numbers in our Connected Fitness in 10 million unit increment. So when we cross the 120 million, we crossed the 130 million, we crossed the 140 million that's how we will be articulating that. And you just look at the sheer scale where we don't want to compromise MyFitnessPal, Endomando, or MapMyFitness those -- their individual apps and their downloads, we want to continue to encourage that. But we want to continue to focus on them all helping us with Under Armour record sort of a collaborative product that we're going to build that we think will then be able to aggregate those disparate communities into one place in time by satisfying them, and so using all of the mind power that we have from Mette, Mike Lee, and Robin, of the founders of the three sites. We think that we have the capacity and capability to do that. And showing that we're not slowing down any of that growth, I mean, we average over 130,000 people were downloading one of the four apps every single day in the first quarter. And we're not really seeing any signs of that slowing any time soon. So we have a bit of concern and trepidation in our part speaking about how we define victory is that our people going to say they've -- now they've have been bought by a company, I’m not going to use it anymore, so we haven't seen any signs of that. We just see them now having a higher expectation I think of the product that we're going to deliver. And I can tell you that everyone now with our closing on 500 people working in our Connected Fitness and digital spaces are focused on working toward that. So what I'd tell you is that, I'm going to hold back before I truly define victory. I'm just going to start with; we think we've grabbed something that was incredibly unique that's really large in size and scale. And that -- with that there is the monetization things that we've talked about, that we can look at from, a) the brand halo effect, subscription services, products and bundles, pretty new product services that we can showcase. But at the end of the day, we're still finding out exactly what we have. Meanwhile, we're going to continue to grow what we have, we're going to be thoughtful about the investments that we make there, and we're going to continue to encourage things as they come to us, I mean the Apple Watch is a great example of that. I mean, three of our four apps are now completely compatible with the Apple Watch and we encourage it. We think it's another conversation around tracking and wearable's and in health and fitness and so it's actually the best thing that can happen to us. And so those are the good things that I think are happening. So we're also working on building great new products and what I can tell you, is if I would give you -- put one flag in the stand, we want a little more time to reflect, we want a little more time to get used to the flight that we're getting used to between Baltimore to Austin to San Francisco to Copenhagen, and get them comfortable with us and us comfortable with them, and we anticipate to have some very large news for you around Under Armour's Investor Day in September.

Well, that's sounds great. I mean, I can follow-up with one on that. Can you talk about the number of users in which the growth has been tremendous? Are there other metrics that you're using to measure progress? Is it sales? Is it on your engagement? I'm a user on the website? Any other detail you can share with us how to measure going forward, would be really helpful?

Well, I'm not really ready to give the new one, but another stat that I like a lot is the number of workouts that we log in a given month. And when we made the announcement, in the month of January alone, more than a 100 million workouts were logged in the month of January. And we're frankly, we're seeing that number increase and obviously, January is a big month where we all make big promises to ourselves that what's about to happen. It's like getting ready for the new school here. Well how we follow through with that in February and March, when it's cold and rainy and it's not quite as easy, but we'll be updating you with that in the future going forward. But I think we want to make sure we've got all the data synthesized and have it completely perfect. So we'll be updating you on the next call and again at the Investor Day.

Got it. Thanks so much.

Thank you. Our next question is from Omar Saad of Evercore ISI. You may begin.

I wanted to ask about DTC actually, it slowed a little bit. I know some of it was the -- some of the storms in the quarter. We've been hearing kind of generally outlet trends; traffic outlets have been slower in general to outlet centers. Why don't you give an update specifically on your outlet business, and then also the e-commerce side as well?

Yes, Omar, I'll take this one. On the DTC side, maybe it's kind of reconcile; some of the impact of some of these things that we talked about in my prepared remarks. Again, on the total revenue side, we talked about growing at 25%, but obviously at a constant currency we're at 27% and then we -- estimated impact of due to port delays and weather 1% to 2%. I will be honest with you I think we're being pretty conservative there. The thing that we can really measure and define accurately there is the retail piece, our own retail, and we know that our own retail was at least at one percentage point due to store closures for two different weekends during the first quarter where the storms hit on a weekend and we literally had dozens of stores closed down. It's a little more difficult to estimate exact impact of ports on our businesses both in DTC and wholesale, and a little more difficult to impact -- the weather impact on our wholesale business due to some degree. So we think that 1% to 2% is pretty conservative. So again total revenue going from 25% to 29% I get the use upper end of that at port and weather impact. On the DTC side, again I think if you look at weather and port we'd probably be more we say in the upper 20s as a percentage growth which would be similar to our growth rate in the fourth quarter for DTC. The biggest driver of DTC growth change year-over-year as we've talked about is the fact that we're opening up less factory house stores so we planned our DTC growth down year-over-year because of the slower growth in factory house for us and again that was as planned. On the e-commerce side in DTC, we've seen consistent strong growth in e-commerce. There's not really when you look at Q1's growth rate versus last year's growth rate pretty consistent growth rate overall in e-commerce. So, most of that decline in DTC growth rate was coming from the retail side, a lot of -- some of it being planned and some of it being because of the impact of weather. If we also just to take that a little bit further into the impact of North America obviously we put North America at 20% growth. Again we take into effect FX which is more on our Canadian business and again the port and weather challenges we probably are closer to probably a 24% or so growth rate in North America normalized taking into those items. So DTC going forward I think obviously what we would expect not really any impact going forward for port and weather obviously in the next few quarters. However, again just to -- again to make you aware that we have planned slower growth specifically around factory house new doors.

Thanks, Brad, and that's really helpful. And then Kevin, you talked about it upfront and you got these really hot properties right now in Stephen Curry. May be you guys can talk about some of the initiatives to keep the momentum going with these guys and how you monetize this, keep the momentum going to the summer and to the fall? I don't know if there's product and issues out there or maybe you start to tie it into the digital piece as well, I'm not sure if it's advanced enough to leverage that yet. But just thinking about these two incredibly hot properties right now, how you turn that into dollars and cents or maybe it's just brand halo, help us understand how you're thinking about it?

Let me expand to the conversation from just those two for a second. But Clayton Kershaw 2014 national MVP and Cy Young Award Winner; Tom Brady 2014 Super Bowl MVP, third time being named the MVP; Memphis Depay, the 20-year-old footballer that we've just signed and somebody that we have great expectation I think what he is going to be as we move into the beautiful game in a bigger way. Jordon obviously Andy Murray the number three ranked tennis player in the world; Misty Copeland, one of the top -- one of the most influential people by Time magazine, Lindsey Vonn, I think another maven just on the women's side and defining what a beautiful athlete is. And then Steph Curry, so without question, Jordon and Steph are two that incredibly relevant right now and make a lot of sense. With Jordon, I think we're letting it come to us. I mean incredibly proud I think of the styling and the way that we dress Jordon. It was incredibly athletic, it was incredibly Under Armour, it was incredibly bold, and it was incredibly American, and we that story is something that's going to translate as Under Armour continues to move itself from just being a product that seen and perceived about being on court, on field, on pitch, on the course whatever that may be as we continue to move to other places. Now this doesn't mean that we begin to compromise who we are the fact that ever Under Armour product does something for you but I just think that people are finding and seeing more ways that they can utilize and interact with our brand. And so having someone like Jordon will be able to showcase those look for us over the next decade and frankly throughout the rest of his career. It's something we're incredibly excited about. I mean, you look at sports where, over the last 30 years, where transformational athletes have lived and been successful its golf and basketball. And sitting on Jordon that we think has that type of upside and potential is pretty remarkable. So he's having a lot more career to play, it's one tournament but I can tell you when you sit down at Jordon speed there is every belief that he's going to win every golf tournament every time he heads out and takes the Tee box. And I can just tell you that not every golfer things like that. He is different, he is special, and we're continuing to evolve that. So from a PR standpoint I think we had a great pop. We had four great days of celebrating him and they will be more to come and those will be spoke through this play. As far as Steph goes, it's certainly not guaranteed nothing is guaranteed. But no matter of what happens with the MVP though we couldn't be more proud to just have someone like Stephen Curry. I said this before is that the crew he rolls with us is his wife, his kid, his mom, and his dad. And right down to his agent, his entire organization, just really some of the best people that we deal with. And so I'm as proud I think of quality of people we have and then of course what they're doing on court. But Steph from the Curry One to the Curry Two, we've been modifying and chasing that a little bit, where we had pretty limited expectations of what we really wanted to do with that product to begin with. And looking and saying the places we have coming from places like China are really just extraordinary. And so I think there's probably been some books written about how you're supposed to limit and allocate and tighten things up and so don't get me wrong, we're not going to open the floodgates, but we definitely see this as a watershed moment for us, with several of our athletes who take advantage of things that you just don't get these opportunities in life. And so the train is going by, we're going to hop on the train, and we will exploit that to the sense where it makes the best sense for athlete in continuing their performance first and foremost, as well as things that will celebrate the brand and help drive a great business. So the Curry One, the Curry Two, like I've seen the Curry Three and the Curry Four. So this is a -- being in the signature basketball business, we've sort of been around it before but now we're really in the game and it's something that we like very much and at the same time it's going to elevate what was a hundred-ish or little less than $100 million-ish dollar of basketball business and our goal is building a billion dollar basketball brand.

Thank you. Our next question is from Dave Weiner of Deutsche Bank. You may begin.

Great. Good morning. So I had two questions, Brad, first on your gross margin guidance. I think you said the 2Q and 3Q gross margin would be down in part because of West Coast airfreight and then FX. Is the expectation then in 4Qs those impacts or at least the first one regarding airfreight will fade and you'll get better -- you get a better expectation in 4Q. And then regarding China, Kevin, I think you said that by 2017 China, could be the second largest market behind North America, if you could just kind of confirm that and may be talk a little bit about what you're seeing there? Thanks.

Hi, Dave, I'll take the first gross margin question first and yes, if you just look at the nuances here, I think that the big stories are the foreign currency impact and airfreight. And if you look at just how the timing of those works out, the biggest pressure for airfreight which again is mostly run mitigating the West Coast port delays is going to be in the front half of the year, we talked about it in Q1. We will also have some of it, some residual going into Q2 also. And then when you look at FX, your biggest impact, we're going to have impacts every quarter for FX but your biggest impacts are going to be Q2 and Q3 kind of right in the middle of the year. When you kind of allowing those two things up together, your second quarter probably is your biggest challenge because you have both FX and airfreight. In Q3, you end up just with kind of more of an FX impact. And as you get to Q4, the FX impact is still there in Q4, just a little bit lesser because as you recall the strengthening of dollar started to happen in Q4 last year. So your comp gets a little bit easier but you still do have some challenging FX in Q4 also.

Okay. Thanks.

And Dave, as far as we think about China yes, I made that statement. So I want to be clear that our Japanese business continues to be our largest business outside the United States and closing around $300 million business for us. But that shows up as a licensing partnership that we have there. But without question, I think even considering Europe and the great growth that we're seeing there in the 30% and 40% type of growth range that we're experiencing there, China is one of those, it seems like an abundantly limitless place. And so we're just experiencing feeling a bit of that. We finished 2014 with 50 -- roughly 57 stores by the end of the year. We made mention that we're going to be opening a 100 stores outside of North America today. The majority of those are actually going to be in China. So probably come close to doubling the number of stores we have in China and these are partner stores that we show up and lot of it going to be a learning process. I mentioned Eric Haskell will begin with us April 1. He was previously the CFO and COO of Adidas, China, and he was before we brought him on is the MD of Adidas India. So he is somebody that we look at and say that somebody who has sort of been there and done it, they've seen the movie and really while it's not as easy to find him a place our brand as incredibly unique and different. The partnerships and relationships that are there is something that we really just need to tap into. We feel like we've established, I think, done a lot of the hard work in China as we have been there now. Really we opened our first store there in 2010. So we've done a lot of slugging to put the hard work in. And frankly with some of these relevant global assets we have and whether that is Stephen Curry that we're working on a tour of China with Stephen at some point later this year, or whether that is the relevance of a Jordon showing up, or the EPL, whether it's Tottenham Hotspur, we're now having Memphis Depay showing up as well. So we think that we're doing things to interact and be relevant in that market and China is almost its own world. And so we believe that when we focused and we now we have the foundations in place that we're really going to be able to number one, bring something to China and give something to China and in turn we think that's going to have a -- reap a great award for Under Armour and ultimately shareholders too.

Operator, we have time for one more question.

Our next question is from Lindsay Drucker Mann of Goldman Sachs. You may begin.

I wanted to follow up, Brad, at the Connected Fitness day you talked about disclosing core operating income, core operating margin going forward just because of some of the noise related to your acquisitions. I was hoping you could talk a little bit about your outlook for the full year, whether your view on core had changed, given some of the differences in amortization expense that you're expecting. And then, may be it sounds as if maybe there's opportunity to talk about some more specific cost savings. And, Kevin, you talked about perhaps being a little bit fat getting to where you are in terms of inventory purchases and how we should think about some of the opportunity for more belt-tightening, more efficiencies going forward? Thanks.

Sure Lindsay. And I think as you talked about yes, there are some changes here in some of the impacts. So obviously with FX working against that's a little bit more from our last time we spoke and airfreight also, we do see some offset to those impact. One, in the Connected Fitness space, the acquisitions themselves back in February, we talked about a 90 basis point impact to 2015 just from the acquisitions. We see that probably being closer to about 70 basis points or so. The biggest change being the amount of amortization that we were anticipating back in February and the intangibles and the acquisition came in a little bit different as far as value and the useful life's that are a little bit longer. So we had a little bit of benefit in amortization there for Connected Fitness offsetting some of those headwinds we had in FX and airfreight. In addition, in our core business, we do see some other opportunities again for some additional savings to help offset some of the other headwinds we talked about earlier. So overall, Connected Fitness acquisition with probably 90 basis point impact for the year is looking more like about 70 basis points now.

All right. Thanks, everyone for joining us on the call today. We look forward to reporting you our second quarter 2015 results which tentatively have been scheduled Thursday, July 23, at 8:30 a.m. Easter Time. Thanks again and goodbye.

Thanks everyone.