Under Armour, Inc. (UAA) Q4 2015 Earnings Report, Transcript and Summary

Welcome to the Under Armour, Inc. Fourth Quarter Earnings Webcast and Conference Call. [Operator Instructions]. I would like to introduce your host for today's conference, Mr. Tom Shaw, Director of Investor Relations. Sir, please begin.

Thanks. Good morning to everyone joining us for today's fourth 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; Chip Molloy, our new CFO; and Brad Dickerson, who just handed over the CFO reigns to Chip and is assisting with the transition before he leaves UA next month. Following Kevin's remarks, Chip will briefly introduce himself and Brad will take us through the Company's financial performance for the fourth quarter and full year 2015, followed by an update to our 2016 outlook. After the prepared remarks, Kevin and Brad will be available for a Q&A session that will end at approximately 9:30AM. Finally, a replay of this teleconference will be available at our website at approximately 11AM Eastern time today. With that, I will turn it over to Kevin Plank.

Thank you, Tom. Good morning, everyone. I want to wish you all a belated Happy New Year and wish those in China an early, Guonian Hao. While this earnings call is to report on our 2015 fourth quarter and the past year as a whole, I want to focus for a moment on the year ahead. This year, 2016, is Under Armour's 20th year in business. It is an incredible milestone for any Company and for us, it means a few things. It means that the next generation entering the workforce doesn't know a world where Under Armour didn't exist. This generation doesn't recognize us as the underdogs but as the always was. It means that we're not a passing fad or a flavor of the month. The interlocking UA logo has become a globally recognized symbol for being aggressive, young and fearless. It means we're a brand that resonates with athletes, all athletes. We will continue to thrive because we remain as humble and hungry as we were 20 years ago with plenty of room left to grow. With that, our scoreboard remains strong. We're entering this milestone positioned for success, capping off the past year with yet another solid finish. Total net revenues for the fourth quarter were up 31%, marking our 23rd consecutive quarter of 20% plus net revenue growth. Since this call is about our most recent fourth quarter, let me throw out a few more numbers to you that are fourth quarter related, 36, 34, 26, 35 and 31. Those are the percentages we have grown in each of the previous five fourth quarters. Each year around this time, weather inevitably plays part of the conversation. Each year, we answer those who doubt us, with extremely strong growth numbers in the fourth quarter. Was it 72 degrees on the East Coast this past Christmas? It was. Did it affect our business in the way some thought it would? No, it did not. Because here in the U.S., where we currently do the majority of our business, we know that football will be played in the fall, basketball will be played in the winter, baseball will be played in the spring and like soccer, personal health and fitness is a year-round all-weather interest. Our business is more diversified than it has ever been, we do not let weather play a decisive role in dictating our success. As we move into 2016, we have become a global brand capable of meeting athletes' needs from head to toe. In the fourth quarter, we posted strong gains across our business, illustrating the broad-based strength and demand for our brand, with, apparel growing 22%; direct consumer growing 25%; international growing 70%; and footwear growing a whopping 95%. While our growth drivers have not changed since we went public more than 10 years ago, these numbers show how diverse our portfolio has become and reinforces the continued success of our largest category, apparel. 10 years ago, we were a $281 million Company, with apparel representing 93% of our revenues and compression representing 64% of the entire business. Today, our apparel business represents 71% of our revenues and compression is less than 10%. We closed 2015 with more balance and breadth of product across our businesses, men's, women's and youth driving our apparel business to over $2.8 billion from just the $260 million it was a decade ago. In the fourth quarter, apparel growth at 22% showcases that our brand has products for all seasons and temperatures and perhaps more importantly that today our athletes have the complete head to toe assortment available to them in more channels globally than ever before, 10 years ago, our direct consumer business represented 6% of our net revenues, consisting of a single website and just four domestic factory house doors. Today, our direct-to-consumer business represents 30% of net revenues, made up of 25 global websites and nearly 400 Under Armour owned and partner retail doors around the world. It is impossible to not talk about the strength of e-commerce when we look at our direct consumer business. This business continues to be on fire, not only in the United States but also around the world. In China, on Singles Day this past November, we had our first $1 million revenue day online. While in the U.S., mobile has grown to almost 50% of the traffic to our site and represented 23% of e-commerce revenues in the fourth quarter. Consumers continue to look for us in multiple places. We will be wherever they are, whether it is on a device or in physical doors. Globally, we continue to drive both awareness and revenue growth as we expand our retail footprint outside the United States, closing out 2015 with almost 3 times as many doors in total from just a year ago. 10 years ago, we had just entered Europe and our international business was $6 million, primarily driven by our partners in Japan. Today, international has become almost a $0.5 billion business, with our brand being sold in more than 60 countries. Last week, I visited our Amsterdam office that has served as our European headquarters for the past 10 years, located in the historic Olympic Stadium, where the energy and enthusiasm has me more confident in our team and their ability than ever before. In 2015, every region, every category and every channel exceeded our plans for our international business, driving 70% growth in the fourth quarter and 69% growth year-over-year. Two years ago, our international business was 6% of revenues. Today it is 11%. By 2018, as we said on our Investor Day, we expect it to be 18%. Our brand certainly translates. 10 years ago, we had not sold a single pair of shoes. Today, footwear represents 17% of our business, closing in on $700 million in revenues. This past quarter, our footwear revenues grew 95%, driven in part by the success of our expanded running line which will feature eight different offerings all over the $100 price point compared to the four lines offered in the previous year. Also driving our growth and more importantly creating an incredible connection with our young consumer is our Stephen Curry signature basketball shoe line that launched almost a year ago today. The sell-through on the Curry Two was like nothing we've ever seen before. The same words that people tend to say after watching Stephan play live. We're just beginning to see what partnering with the right athlete, like Stephen Curry, can do for our business. It is difficult to underestimate the power of having the best sell-through of any signature basketball shoe this past season. It clearly lifted our brand in the mall channel and positioned us for aggressive growth, not only in signature but overall with this most important consumer base. Footwear and to be clear, premium footwear, continues to be an accelerator to our topline and a huge part of our growth story. With our sights set on building $1 billion plus footwear brand, it is becoming a bigger and more important component of our business. The result will be a more balanced blend of apparel and footwear within UA. Posting a 57% growth in footwear for the full year in 2015 is evidence of our ability to resonate with the consumer and provide them with a breadth of products unmatched in years past. The strength of our footwear product, coming from our expanding team of designers and developers, helped us elevate our business above $100 at retail by 1,000% this past year. We're even more excited and proud of the product that is coming out in 2016. We're seeing what Stephen has done for our basketball business, what basketball has done for our footwear business and from there, what footwear has done for our brand. This story is being told in our numbers but is also being told on the courts, fields and pitches around the world. Show up at any Golden State Warriors game, home or away, it doesn't matter and you will see the thousands of people who show up early just to see Stephen Curry's warm-up routine. That, as I have described to you before, is the power of sport. Speaking of our MVP's, we're continuing on last year's theme of UA Ambassadors dominating their respective sport, thanks to our roster of athletes who continue to win on the world's biggest stages. Since the last time we have spoken, in baseball, Bryce Harper of the Washington Nationals was named the Major League Baseball MVP in the National League. In tennis Andy Murray won the Davis Cup for Britain for the first time in 79 years. In boxing, Canelo Alvarez became the WBC Middleweight Champion of the World with his victory over Miguel Cotto. They joined Stephen, Jordan, Misty and others in our Year of Champions, solidifying UA as the home for winners. Now, with the Super Bowl just over a week away, we will see yet another UA MVP, Cam Newton, compete at the highest level his sport while representing our brand. Cam has been a critical driver of our footwear success, with the Highlight Cleat. The Super Bowl will introduce him to a brand new set of consumers. It is a platform where companies pay $5 million to air a simple 30-second TV spot during the broadcast, while our guy will wear his UA cleats throughout the entire three plus hours of the game. Finally, we ended 2015 with a key personnel announcement. Last month, we announced Brad Dickerson's successor as CFO will be Chip Molloy. Chip comes to us with significant financial executive experience in the consumer retail sector, having served as EVP and CFO for PetSmart from 2007 until 2013 and where in 2011, he was named Institutional Investor's CFO of the Year for Specialty Retail. Chip is a Maryland native and a graduate of one of our partners schools, the United States Navel Academy. He also graduated from Navy Fighter Weapons School or Top Gun as it is known, where he served for 15 years in the United States Navy. With my new partner in place, Chip will work together with Brad over the next month to ensure a smooth transition. So that is how we closed 2015. Now, let's talk about how we kicked off 2016. We started this year off with a bang at the Consumer Electronics Show in Las Vegas, unveiling a suite of products that will change the way athletes live. Many of you have heard me talk about Connected Fitness on these calls or at our Investor Day. In the past three weeks, we have seen the vision of this platform truly come to life. First, we announced the launch of UA Record, one of our four mobile app platforms that collectively are earning more than 130,000 new users a day since just the beginning of the year. UA Record is the digital dashboard that displays everything you need to know about your health in four quadrants, sleep, fitness, activity and nutrition. Combined with your body weight in our own cognitive measurement of how do you feel, it collects and displays a complete picture of your health in the easiest, most simple way possible. Second, we introduced the Under Armour Health Box, the world's first complete Connected Fitness system which consists of a band, a heart rate strap and a smart scale, all in one package. Built in partnership with HTC, these tools work together to capture data pertaining to your health and fitness. Again, doing it in the easiest, most simple way possible. Because music is such an important part of how people exercise, we also partner with Harman Kardon JBL to launch bluetooth-enabled wireless headphones, including an updated version to be released later this year that will also read heart rate in lieu of a strap. Finally, we launched our first smart shoe, with the Gemini 2 RE which stands for record equipped. This shoe tracks every step and uploads data including time, date, duration and distance directly into our platforms. This cutting edge footwear provides an untethered experience and allows the athlete to run device free. There is no start or stop button. When the shoes are on your feet, it is ready and tracking. One of the coolest features of this shoe is that it tracks it's own lifespan and will send a notification when it is time for a new pair. All of these products feed into UA Record, as well as more than 400 different connected devices to create the ultimate open platform destination to measure your health and fitness. Additionally, we announced our partnership with IBM and their Watson platform to help build the insights capability for Under Armour Record. Wearables have been effective in telling you how many steps you took or the hours you slept, but they haven't been effective in giving you proactive information on how to utilize that data to make your life better. Put simply, there was no call to action until now. IBM's Watson, a platform that executes cognitive thinking, will provide personalized insights in real-time to the user based on the information we collect through UA Record and will take the experience and service to a whole new level. By adding Watson's insights to UA Record, we deliver directions to help you reach your personal goals, whether you want to lose 10 pounds or simply just feel better. This is what differentiates UA Record from the rest of the fitness tracking apps and what gives us confidence in the consumer experience we're building to help change the way athletes live. Now let me complete the vision for Connected Fitness. Beyond enriching lives, it will propel our business forward. This is not a tech initiative. This is a digital transformation and therefore, a business transformation for Under Armour. Before Connected Fitness, we only had retail transaction information for less than 10 million people, that's stores and e-commerce combined. Now, we have daily activity level data from our community members, who logged nearly 8 billion foods and 2 billion activities last year alone. Not only do we have people going into our stores and visiting our e-commerce sites, but we also have a deeper understanding of our consumer based on information collected using Connected Fitness including sleep, fitness, activity, nutrition, weight and how do you feel. This gives us an unparalleled view of their life and needs. I refer to it as our math house during our last call, but we're also calling it the single view of the consumer. All of this is possible because of the near 10-year partnership we have established with SAP. The single view of the consumer is something we're building with the team at SAP that combines global point of sale, e-commerce and transactional information through a single sign-on capability together with our Connected Fitness business to create an insight engine that will inform and guide our decisions to help grow and scale our brand. This will build on our existing SAP platform as we double down and continue to make big bets with big partners. We believe that this unique technological advancement will position UA as a best-in-class real-time digital enterprise. At Under Armour, we focus on creating products you don't know you need yet; but once you have it, you won't remember how you lived without it, just like our very first t-shirt. Some great examples of this are the types of innovation we will bring to the market that will further elevate and diversify our product and continue to distinguish Under Armour. For example, this year, we will launch microthread, a new cooling technology comprised of elastomeric thread that dries 30% faster and is 70% more breathable than similar LYCRA construction. Then on the heating side, there is Reactor, an insulation that combines warmth and breathability, to keep you comfortable without overheating. This is in addition to many other new innovations, like CoolSwitch and on the footwear side, Slingshot. New innovations like the ones I just mentioned bring new opportunities for growth which lead to revenue driving platforms. Our goal is that these new innovations will develop as strongly as some of our key revenue driving platforms from prior years, like ColdGear Infrared and Armour in apparel and the signature Curry line in footwear. Our relentless pursuit of innovation is just that, relentless. It never stops. When I first began Under Armour 20 years ago, I didn't set out to make just another t-shirt. I set out to make a better t-shirt, one that solves a problem and gives whoever wears it an advantage. With our Connected Fitness business, we're not releasing just another fitness app or tracking device, we're building a complete ecosystem to manage your health and fitness with actual insights to make you better. Finding a better way has been a running theme for us over the past 20 years, whether it is through the products we offer or the way we operate our business. We'll keep finding a better way for another 20 years because we're just getting started. So now, I would like to introduce Chip Molloy before Brad takes us through the numbers. Chip?

Thanks, Kevin. I appreciate the kind words. Although, I've only been on the job for about 10 days now, it is already abundantly clear that this Company has a tremendous runway of growth ahead. I am also extremely privileged to follow a leader like Brad and inherit the great team that he has been instrumental in building over his time with the Company. In the near term, I'll be focused on living and learning the business and look forward to meeting many of you beginning late spring. Now, I will turn it over to Brad to run through the numbers.

Thanks, Kevin and Chip. I would now like to spend some time reviewing our fourth quarter and full-year 2015 financial results followed by our updated outlook for 2016. Our net revenues for the fourth quarter of 2015 increased 31% to $1.17 billion. On a currency neutral basis, fourth quarter net revenues increased 33%. For the full year, net revenues increased 28% to $3.96 billion which compared to our most recent full-year guidance of $3.91 billion. On a currency neutral basis, full-year net revenues increased 31%. Focusing on the fourth quarter, we grew apparel net revenues 22% to $865 million compared to $708 million in the prior-year's quarter. With our efforts to build a more diversified business, we posted impressive growth across channels and categories despite well-documented weather challenges. Our focus on building brand equity around the globe through elevated product and experiences was evident in the strong growth of international and direct-to-consumer in the quarter. We also saw success around our continued expansion in key product categories like training, running, golf, team sports and basketball. Fourth quarter footwear net revenues increased 95% to $167 million from $86 million in the prior year. Broad-based footwear strength has been the consistent theme in 2015, though the exceptional performance of our Curry Two signature basketball line was clearly the fourth quarter standout. Our accessories net revenues during the fourth quarter increased 23% to $97 million from $79 million last year, primarily driven by continued strong demand for our line of bags. Our global direct-to-consumer net revenues increased 25% for the quarter, representing approximately 36% of net revenues. In global retail, we entered the fourth quarter with 191 owned stores, including 161 factory house doors and 30 brand house stores. With our retail business still heavily weighted to North America factory house doors, we did experience some of the similar weather-related challenges as our overall apparel business; however, our strong e-commerce business continues to diversify how we reach global consumers. We continued to capitalize on our investments in mobile and international, where we more than doubled our in-country websites during 2015. Looking at our regions, North American net revenues increased 26% to $1.02 billion in the fourth quarter compared to $808 million in the prior-year's quarter. On a currency neutral basis, North American net revenues increased 27%, accelerating from the growth rate posted last quarter despite the warm weather backdrop. This strength demonstrates the diversity of our product mix including accelerated footwear growth and consistent apparel performance, as well as channel mix between our wholesale partners and our direct-to-consumer businesses. International net revenues increased 70% to $139 million in the fourth quarter and represented 12% of total net revenues. On a currency neutral basis, international net revenues increased 85% for the period. In the EMEA region, our heightened focused on the UK and Germany continues to drive momentum in these two core markets. While growth remains strong across all channels, our e-commerce strategy including nine new in-country sites launched in 2015 is playing a key role in broadening our reach and awareness in the region. In Asia Pacific, we continue to see tremendous demand for the brand, driving triple-digit growth across greater China and our Southeast Asia distributor led by the success and expansion of our brand house stores. In Latin America, we're building momentum with many of our recent country expansions like Chile, more than offsetting the well-documented macro challenges in Brazil. Moving on to margins. Fourth quarter gross margins contracted 190 basis points to 48% compared to 49.9% in the prior-year's period. The following factors were the primary drivers during the quarter. First, sales mix negatively impacted gross margin by approximately 90 basis points in the fourth quarter versus the prior year, primarily driven by the continued strong performance of our footwear business. Second, the continued strength of the U.S. dollar negatively impacted gross margin by approximately 80 basis points versus the prior year. Third, higher inventory liquidations negatively impacted gross margin by approximately 30 basis points. Before I move on with other elements of the quarter, I wanted to provide a quick snapshot of our gross margin performance for the full year. Our full-year rate in 2015 declined 90 basis points to 48.1% compared to 49% in the prior-year's period. Of this 90 basis point decline, 70 basis points resulted from the continued strength of the U.S. dollar. While we also faced additional gross margin headwinds from adverse sales mix impacts given the strong growth of our international and footwear businesses, higher inventory liquidation specifically in the fourth quarter and higher freight expenses from port disruptions in efforts to better service our business, we were able to offset most of the non-currency related pressure through more favorable product margins in both our North America and international businesses. Selling, general and administrative expenses as a percentage of net revenues leveraged 80 basis points to 32.8% in the fourth quarter of 2015 from 33.6% in the prior-year's period. SG&A details from the fourth quarter are as follows. Marketing costs decreased to 7.9% of net revenues for the quarter from 8.4% in the prior-year period, primarily reflecting the timing of our global marketing campaigns. Other SG&A costs decreased to 24.9% of net revenues for the quarter from 25.2% in the prior year, driven primarily by lower incentive compensation expense. Operating income for the fourth quarter increased 21% to $178 million compared with $146 million in the prior-year period. For the full year, operating income increased 15% to $409 million compared to our most recent guidance of $408 million. The two Connected Fitness acquisitions we made in 2015 negatively impacted full-year operating income by approximately $23 million. Interest and other expense in the fourth quarter increased to $6 million compared with $4 million in the prior-year period, primarily reflecting increased interest expense associated with the financing of our Connected Fitness acquisitions. Our fourth quarter tax rate of 38.4% was consistent with the prior year. Our fourth quarter net income increased 21% to $106 million compared to $88 million in the prior-year period, while our diluted earnings per share increased to $0.48 from $0.40 in the prior-year's period. The full-year diluted earnings per share increased 11% to $1.05 compared to $0.95 in 2014. The $1.05 earnings per share in 2015 is inclusive of a $0.10 impact from the two Connected Fitness acquisitions we made in 2015. On the balance sheet, total cash and cash equivalents for the quarter decreased to $130 million compared with $593 million at December 31, 2014. Accounts receivable increased 55% to $434 million compared with $280 million at December 31, 2014, primarily led to the timing of shipments within the quarter. Inventory for the quarter increased 46% to $783 million compared to $537 million at December 31, 2014. Back at our Investor Day in September and again, on our third quarter earnings call, we discussed elevated inventory growth from the 36% rate posted in the third quarter. This growth is largely a result of our strategy to focus on delivering our products to our consumers in a more timely manner and thus drive higher fill rates. This strategy includes flowing product to our customers earlier to meet key seasonal floor set dates, as well as strategic investments in auto replenishment products. While these efforts are driving much of the elevated inventory growth rates in the near term, they are also delivering meaningful improvements in our service levels year-over-year in support of our revenue growth. In addition, the recent weather trends have led to some excess inventory creation which we will continue to work through across our normal liquidation channels during the first half of 2016. Total debt increased to $669 million as compared to $284 million at December 31, 2014, primarily reflecting the financing of our two Connected Fitness acquisitions. Looking at our cash flows. Our investment and capital expenditures was $85 million for the fourth quarter compared to $59 million in the prior-year's period, driven primarily by our investments in our global headquarters in Baltimore and our SAP platform. Full-year capital expenditures were $325 million compared to our prior guidance range of $350 million to $360 million, primarily due to timing of our investments. Now, moving on to 2016. Based on our current visibility, we expect 2016 net revenues of approximately $4.95 billion, representing growth of 25% and 2016 operating income of approximately $503 million representing growth of 23%. These growth rates remain in line with the long term growth rates laid out at our Investor Day last September and are also consistent with our previous guidance on our third quarter earnings call. Below the operating line, we expect interest expense to increase to approximately $35 million in 2016, as we expect to increase debt levels to support our business and look for opportunities to refinance our debt with more long term financing. In addition, we expect the full-year tax rate of approximately 38.5% and fully diluted weighted average shares outstanding of approximately $223 million. Now, I would like to provide more color on our expected results for 2016. First, with net revenues, we currently anticipate the growth rate for the first half of the year to be above our expected full-year growth rate. Specifically looking at the first quarter, we expect the growth rate to be in the high 20%s, led by many of the same factors from our fourth quarter including strength in footwear and international, higher planned inventory liquidations and strategies to better service our customers year-over-year. As is typical at this point in the year, as we gain better visibility on orders, specifically for the fourth quarter, we provide updates on our progress on future calls. Next on gross margin, we expect a relatively consistent year-over-year rate in 2016 as compared to 2015. For the first quarter of 2016, we anticipate similar year-over-year dynamics as our just completed fourth quarter results, including higher liquidations to clear through excess inventory along with continued currency headwinds. Thus, we expect our largest gross margin headwind for the year during the first quarter; we're planning an approximate 150 basis point decline year-over-year. Shifting to SG&A, we expect deleverage expenses in 2016 as our focus remains on making the right investments to drive our long term global success. Looking at the marketing portion of SG&A, we expect to continue to invest across our sports marketing assets, global brand campaigns and retail marketing. In other SG&A, we're focused on key brand enhancing initiatives that we outlined at our Investor Day, such as Connected Fitness and global retail, as well as strategic investments -- strategic business areas including category management and innovation. With a higher topline growth rate currently expected in the front half of the year, we expect modest overall SG&A leverage in the front half of the year and modest deleverage in the second half of the year. Looking at capital expenditures in 2016, we're currently planning to invest at the midpoint of our 8% to 10% of net revenues target range outlined at our Investor Day. Our investments include our global headquarters, as well as our expanding SAP platform that will serve as the architecture for our future growth, while also driving our insights engine to power our single view of the consumer that Kevin spoke about. Finally, inventory. As we previously stated, our focus is on delivering our products to our consumers in a more timely manner and improving our customer service levels. As a result, we continue to expect inventory growth rates to be slightly elevated above the revenue growth rate in the front half of 2016, with growth rates expected to level off and be in line with revenue growth in the back half of 2016. Before we turn it over to Q&A, I wanted to take just a moment to express my thanks to Kevin and the team. It has been a real privilege and honor over the last 11 years plus to work for Kevin in this great brand and have been part of such a strong leadership team and an amazing group of teammates that now tops more than 12,000. In addition, today marks the 37th UA earnings call I have participated in. I would like to thank the analysts and investors on the call today, many of whom, I have spent time with over the years telling the Under Armour story. I'm excited to pass the CFO reigns to Chip, a proven leader. I am confident that Chip and the talented team supporting him will continue the strong growth for this great brand. Now, I like to turn it over to your questions. Operator?

[Operator Instructions].Our first question is from Matt McClintock from Barclays. Your line is open, sir.

My question is, Kevin, there seems to be a lot of debate in the marketplace on several of your strategies. You kind of hit upon some of this in your prepared remarks but, in particular, the competitive positioning of both your footwear and your women's business and then also the potential maturity of the domestic business, I was wondering if you can give us your updated thoughts on those topics? Have there been any strategic changes that we should be thinking about? Thanks.

Matt, this is Brad. I'm going to start that question and let Kevin follow up. But I think one of the things that is important, there's a lot of noise this time of year with the weather and so forth in the fourth quarter. I think it was important especially in Kevin's prepared remarks around the track work that we have had with 23 straight quarters above 20% growth. Then even in the fourth quarter in the last six years, a CAGR in the fourth quarter of about 32% growth. Then planning our business in 2016 at 25%. There was a lot of growth in a multitude of places. I think there's -- we have talked about this in the past too. I think there is a little bit of a danger in looking at some of the data sets that are out there, specifically a data set like SportScan. It can be challenging looking at our business relative to something like SportScan, where that data is only -- is capturing actually less than 40% of our business specifically in the fourth quarter. It is missing key data inputs like our direct-to-consumer business, our international business. It's actually extrapolating some of our key accounts that are pretty large, like the Dick's and the FootLocker. It obviously also includes accounts that we do not service. So utilizing that data as a proxy for our success especially in the fourth quarter, it can be a little bit challenged. As we've seen obviously because we posted another strong quarter, our apparel growing over 20%. So I just wanted to start that answer with, just let's be careful on some of what those data sets set there and understand how they relate to our business in particular.

I think it is important just to put some context. So let me just take a couple of minutes and address your question. So, let me begin with footwear, then I will do North America and then I will close with women's. So, I think the best place for us to start is about growth. It goes without saying, is that any of these questions come down to, what does our growth look like? In the fourth quarter with 31% growth and frankly, marketing our 23nd conservative quarter of 20% plus top-line revenue growth. Our growth story is strong. We remain a growth Company and none of that has wavered. But I also want to give you some context, beginning with footwear about just how our business has changed since really just 2012 and evolving into a true footwear brand. Remember 10 years ago, we celebrated or we went public. We hadn't even launched our first shoe until we launched football cleats in June of 2006. So, we've come a long way from there. So beginning with footwear, just going back to 2012 was 13% of our business. Since then, we have added, I don't know, over just a couple billion dollars of revenue. Today, footwear is nearly 17% of our business, representing a 42% CAGR over the last just few years. The diversity, again back in 2012, our mix of product was 33% of our footwear in 2012 was cleats. Cleats today are down to 22%, with plans of being the number one shoe in the market in football. I will get back to that in just a second. In my prepared remarks, I mentioned us doubling our running styles over $100. I just want to make for context -- I also talked about increasing over 1,000%. Across all of our footwear, we have more than tripled our footwear styles priced over $100, while quadrupling the volume. Like footwear for us couldn't be more in better position to be truly a premium footwear brand. The best way for me to articulate that, let me just talk about basketball for a second. First of all, we have the right athlete in Stephen Curry. He is, without question, the number one basketball player on the planet today. We've got the right product that's led by the Curry Two. To be clear, we launched the Curry One just a year ago at $120 price point. We then came back on a tour that we did with Stephen in the fall, in September and we launched the Curry Two at $130 price point. We've learned a tremendous amount over the last year of what we can do. Primarily, what we can do in signature basketball products and feel incredibly bullish about our ability to continue to raise ASPs going forward. In youth, we've heightened our focus to capture the next athlete, jogging a nearly 50% CAGR just since 2012 in youth footwear. Again, building out these departments, building out the teams has never been more important. Speaking of teams, we've more than doubled the size of our footwear team to nearly 230 people, including the recent addition of a dedicated women's team. I want to be clear, we didn't have a dedicated women's team in 2012, let alone 18 months ago. So we're certainly not done. We continue to build that team out and growing our presence in Portland with our new headquarters that will be opening soon. So these investments in our team, they all mean that these trends are expected to accelerate in 2016. Again, that is off a whopping 95% in the quarter and 57% for the full year. So some of the ways we expect to leverage that success. First, expanding Curry throughout the upcoming All-Star game, the playoffs, hopefully the finals and then the Olympics later this fall. Then ultimately, we will elevate even further when we launch the Curry Three later this year. We're also this year, going to be entering the golf category, with the most exciting player on the planet, as well as the number one player in the world in Jordan Spieth, where we have a new line of footwear that will be debuting around the Masters. In addition, we're going to be doubling our running styles prices over $100, led by Slingshot and Slingride, the net offerings that we have. In 2012, we had just one. Today, we will have more than eight over $100. We're also going to be doing things like debuting our first smart shoe, the Speedform Gemini 2 RE which means record equipped. That's going to be at $150 price point, a $20 premium to the standard $130 Gemini price point. Then as I mentioned a little bit earlier and back to our roots of success of Cam Newton, who will be playing next week in the Super Bowl, wearing the Highlight Cleat that depending on where you look is the number one selling cleat in America, at the highest price point, continuing to drive us toward becoming the number one America football cleat in the market. Again, a goal thought to be impossible back in 2006. So I want to say it's a small category. It's domestic only. Our brand, our presence, our ability to drive ASPs have never been stronger in North America. I believe that footwear is the best example we have of how we're truly just getting started. So let me take a second and just talk about North America. I want to level set the context of how our distribution is aligned. So often, we're compared to our competition. Well, our largest competitor in North America has approximately 24,000 points of distribution just in North America. At Under Armour, we have 11,000. We have the ability to expand that but we haven't. We have stayed committed to our sporting goods, to our mall, to our department stores channel. Again, this doesn't make going anywhere else impossible for us but it certainly makes it an opportunity particularly as we add things like the new merchandising team which just joined and frankly, were just input in Under Armour through 2015. To be clear, prior to 2015, we did not have a merchandising team. So our structure has changed and frankly, it has evolved. We talk about North American growth. In the third quarter in North America, we grew 25%. In the fourth quarter in North America, we grew 26%. I don't know if I would call that accelerating, but I would certainly call it strong. So the way this is happening, one simple word -- one simple phrase. When we innovate, we win. Bringing new technologies and styles in 2016, I mentioned in my prepared remarks, things like CoolSwitch and microthread in cooling. In the heating side, we have products like Reactor, a new price point that's at around $200, that complements our current -- some more current styles that we have. Also new product items like the Swacket which will elevate our fleece assortment. You'll start to see us move away from things like the big logo hoodie that's been very important to us. But again, you will continue to see us learn and you will continue to see us evolve to not just where the market is heading but most importantly, where we're taking the market to. As you think about North America, footwear is such an extraordinary opportunity for us. From the signature Curry products, to running, to kids, we had more styles at higher price points than ever before in 2015. That will absolutely be the case in 2016. We have also become the number one brand in many places. Most recently, where we took that title was at Sport Chek in Canada. So across apparel, footwear and accessories, we're the number one vendor for Sport Chek a very important sporting good accounts. We're closing on that in a majority -- in many of our other distributions. So premium storytelling -- this is not just lip service, that we're committed to our existing distribution, our existing base. So whether it's storytelling in the way we show off at retail in places like the Armory, with our partners at Champs or the blue-ship chip-shops that we're building at Dick's Sporting Goods, we're going to continue to make investments in premium brand statements with our partners. The way we can do this is that very well, the first handshake that we have with that consumer will more than likely be a digital handshake. Because across the Connected Fitness platform that we've implemented over the last 2.5 years, we now have more than 90 million domestic athletes amplifying our message and driving access to the brand. Finally, direct consumer. Unfortunately, this is an area that the market doesn't have purview to until we're able to tell you our numbers. It is the place though that we typically have the ability to tell our pinnacle brand stories. Beginning with e-commerce, meeting the consumer where they want to be met. Capitalizing on investments that we have made to leverage things like mobile trends which now was 50% of our fourth-quarter traffic. In terms of retail, we entered five new brand house stores in 2015. Again, I want to emphasize, we're a wholesale manufacturer, but we do have this direct consumer component that gives us, I think, a great complement to again meet the consumer where they want us. Adding five new brand house stores in 2015, with roughly five to as many as eight planned in 2016, including -- looking back at the year, we launched our 30,000 square foot flagship on the Magnificent Mile in Chicago, that really I think is one of the best examples of our brand we have ever opened anywhere in the world. So to be clear about North America, we still see abundant opportunities across the continent. As we said at our Investor Day in September, we believe that we will double this business by 2018. We say all of this, recognizing and acknowledging, yes, we have poor set places, we can be better. We're certainly not perfect, but we're learning every day. We're putting the team in to make that happen. So we say all of this about our confidence, incredibly humbling as well is that we have work to be done. So finally, let me just addressed women's. This business, I want to be clear, is incredibly important to our accounts and it is important to us. While we believe we have huge opportunity to get better, we delivered yet another quarter of double-digit growth in women's, now approaching $0.75 billion in revenue. So 2014 was the year that we defined and we described as the year of the women. We ignited this conversation on the marketing side with the female consumer, that is really taken the brand to a new level of engagement and expectation. We did that through people, through personalities, personalities like Misty and Gisele. But we also recognized that our product has got to meet that expectation. But what we learned is that she likes us. She wants to have a relationship with the Under Armour brand. So you have seen our product evolve. Just as importantly, in 2015 for us, you watched our team evolve, as we been investing in our foundation, been investing in our team. Not just any one individual but throughout our product creation engine, our merchandising teams and our new category management with our new leader in Pam Catlett that will be heading up our women's management, who brings over 20 years' experience in the business. This will all better enable us to create and deliver a 365 day a year experience for her. 2016 is about execution in both apparel and footwear. To be clear, we didn't even have a women's footwear team just a little more than a year ago. So building out these resources for us to really capitalize on the opportunity where she just like the men want to dress toe to head. So we expect to see improved merchandise assortments across our premium distribution. We also expect to continue to elevate our brand where women want us, in places like e-commerce. To be clear, on e-commerce, women's was our number one in largest selling and fastest-growing category that we had, faster than men's and faster than youth. So when we merchandise correctly, we believe we will win. Listen, we understand that her expectations are incredibly high for us. That is exactly where we want them to be. We firmly believe that our women's business should be, as we've said for a very long time, at least as large if not larger than our men's business. Thanks, Matt.

Our next question is from Jim Duffy of Stifel. Your line is open.

Chip, I look forward to working with you. A couple questions on the footwear business. First, as the business and key platforms gain scale, are you making progress on footwear margins? What does the arc of that curve look like? Then Kevin, can you maybe speak to the traction you're seeing with footwear in international markets?

Perfect. Yes, Jim, on the footwear margins, yes, we're definitely seeing improvements in the footwear margins in general. Now, obviously even with those improvements, footwear margins are well below our apparel margins. We've talked about that consistently over the years. So we do anticipate still a lot of room on the footwear side, a lot of that will come from our ability to sell, again, more at premium pricing points specifically in categories like running and basketball which are historically, more our higher margin products. So as they become a bigger part of our portfolio that will help our margins from a mix perspective. We've put a lot of investment and energy into the sourcing side of our business and the development side of our business in footwear also. So we're seeing some benefit there on the costing side. I think, as Kevin talked about too, the ability to utilize the strength of our brand in these categories too from a pricing perspective. So we do see footwear margins, they have improved from the last few years to today. We see them improving in the next few years also. But again, I just want to caution that they will continue to be a lower than our overall apparel margins. That being said though, as we also talked about in the past, that you've got to keep in mind from an operating margin perspective, with the higher price points in footwear and higher ASPs in footwear compared to apparel, you do have the ability to lever SG&A a little bit better. So we do see in the long run, even though gross margins will improve in footwear, but will be below apparel that our operating margins in the longer run should look pretty similar to our apparel business.

Following up on that, we do see the ability to continue to drive ASPs and improve margin by a true premium product is the way that we will build it out. The one thing we have learned is, Malcolm Gladwell says, 10 years or 10,000 hours to perfect something. So I'm not sure that we've perfected footwear but we really feel strong about our position in the game right now. That begins of course I think with the athletes that make it real and that are winning in our footwear out on field, out on pitch, out on court. Whether it is Cam Newton -- what hopefully he'll do in football in the Super Bowl next week, Jordan Speith in golf or Stephan Curry in basketball, as you talk about international, we have no greater global ambassadors than the ones that we have there today. As recent as this past week, we also launched, Duane, The Rock, Johnson, that will be sporting Under Armour as his official brand of choice. So what we've built in footwear is impressive but again, we think we still have room to grow. But some of the franchises that we built from Highlight to Speedform to Gemini to Gemini Record, to the new Curry product, the Slingshot, the Bandit. I think we've done a great job of building, as I said, franchise businesses across the sports where we want to win. That typically begins in running and it begins in basketball. So we love our positioning there, as I mentioned, eight products above $100. Again, hitting some of those sweet spots for the right distribution that meets again the consumer where they want to be met. So I think we feel very bullish about what we're doing on the international front. Again, some of that evolution too, Jim, has been things like, we'd launch a product in the United States and then it was six months or a year later that we'd launch it on the global basis. So the ability to truly, with Charlie and the team that we have on the international side, of building and launching those things the way we did it, we have done -- I think, we've demonstrated our ability to do, has really evolved our Company. A great example again is last year, when I mentioned going on the Curry tour. The purpose of that tour was launching the Curry Two in China, almost six weeks ahead of when we launched it here in North America. So, I think that truly becoming a global business means not being a North American Company that sells things in other markets, but truly being a global business that has a global presence and a global position, that sells things at the same time equally. So we're evolving toward that, but we really like our progress and incredibly excited about where we're headed with it.

Our next question is from Omar Saad of Evercore ISI. Your line is open.

You kept mentioning premiumization, I think specifically to the footwear. Can you just dig a little bit deeper there and then talk about, does this translate over to apparel at some point and we start to see ASPs going up there? Brad, maybe you could comment on premiumization, maybe how it might flow through gross margin over time, especially if you look at gross margin excluding the mix shift drag and the FX drag? What are the really underlying gross margins going to do over time? Thanks.

So let me start it and then I'll let Brad finish up. So, first of all, on the apparel side is that, again, a majority of our business 70% plus of our business is still in apparel. So it is our focus. It's our largest team here. Frankly, it is where we have built our brand as innovators. So some of the things that I mentioned on the call, Reactors, Swacket, Cool Switch, some of the product that we have in the apparel offerings, all of that continued to support our existing ColdGear business. We effectively built the $25 price point for heat gear and the $50 price point for cold gear. Since then, we have been evolving those. So, as we look, we're a premium brand. One of the other things that I mentioned that, I can maybe go into a little more depth on is just our ability now to have merchandising. You asked about ASPs and price points, again, we didn't have a merchandising team in 2014. It was a category that we started building out for ourselves in 2015. So 2015 for us was about building the team. In 2016, it is about segmenting and playing it out in the market. What that means is, again, having the right product at the right place at the right time. Truly, having a team that isn't just selling the same styles to everyone on an equal basis, but being specific and differentiating between what we do in the mall versus what we do in the sporting goods, let alone what we do at Dick's Sporting Goods versus what we do in one of our other accounts. So we want to be incredibly thoughtful about that in the way we drive. As we look forward into 2017, we really see the ability to drive efficiency, of really looking at pricing, of really looking at the ability for us to maximize and optimize things like margin, but also again, making sure that it is with the right product and that it sells through. Because some of the things that we dealt with this year is bringing product in and having our floors set in time for January. No one can predict things like what happened in this fourth quarter, but I think one of the things we're most proud of is that in spite of what happens with weather, we still have a post of 31% top-line growth. So we would love that to see -- continue to translate and drive margin. It's one of our key barometers that we use here in the Company. I think frankly, as Brad will tell you right now, we're doing a good job and more importantly is the plan going forward, where we continue to drive and demonstrate that premium position in the marketplace.

Yes, Omar, on the second part of your question on margins in general. Yes, you are correct. In 2015, that was probably really evident relative to my prepared remarks. When you look at 2015 gross margins going backwards, 90 basis points. The large majority of that, 70 basis points coming from foreign currency impact. A lot of other things going on in the rest of that 20 basis points, but the fact of the matter is, we had some pretty strong headwinds in 2015 relative to air freight, we were looking at servicing our customers during the year and the port disruption earlier in the year. Mix, we talked about a lot during the year, footwear, international working against us from a gross margin perspective pretty significantly. We were able to offset a lot of that just through our general increase in improvement in product margin specifically on the apparel side. So as you look forward in 2016 and beyond, you should see continued improvement in places like our footwear product margins, like in our apparel product margins, international even to some degree as we go forward should get better as the businesses in countries we do directly, whether it is through our DTC or through wholesale become a larger part of our share versus some of the distributors we do today. So, I think in all aspects of our business, you will see that improve over time. Mix will definitely work against us because these businesses are still footwear international, still lower margin businesses. But to your point, our ability to improve those margins is great. Our ability to improve margins in apparel is not only possible but it is happening right now as we speak.

Our next question is from Kate McShane of Citi Research. Your line is open.

A quick question, not to harp on weather, but I just wondered if you could give a little bit more detail about how you were able to mitigate some of the risk from the warmer weather? How you are going to be liquidating some of the inventory going into the first half? If there are any plans going forward about how to better, again, mitigate inventory risk from adverse one-time type events?

Yes. Kate, this question has come up a lot over the last few years in the fourth quarter specifically on weather. We have had some warm fourth quarters, some colder fourth quarters and so forth. Our answer is pretty consistent. Over the last few years, there's obviously going to be a little bit of an impact in weather, there's no doubt about that. It impacts our business too. We've said in the last few years, there's probably a couple percentage points of growth impact relative to weather specifically, one way or the other whether it is warm or cold. In fact, there is no doubt in the fourth quarter this year we had a little bit of that impact. We talked about the fact of managing our way through that and liquidating some excess inventory and taking care of that also in the front half of next year, specifically in the first quarter. But overall, from a top-line perspective, it is really only a couple percentage points of growth one way or the other probably. That again, when you look at specifically this fourth quarter, that was more of a North America dynamic. Places where you would see it probably impact us the most would be our North America wholesale apparel business and our factory house business. But again, with the diversity of our product lines in apparel, with footwear's strong growth, international's strong growth, there is just much more going on in our business that offset some of those weather impacts which again are probably a couple percentage points of growth one way or the other. So going forward, I think continuously being careful how we plan Q3 and to specifically Q4 in years. Not being overly optimistic on weather but being prudent and putting ourselves in the position to be opportunistic if weather behaves for us, I think is really important. To the same extent, if weather doesn't behave, it will impact us a little bit. We can manage our way through that specifically with the strong factory house channel we have.

Thank you. At this time, I would like to turn the call back to Kevin Plank for any closing comments.

Yes. Thank you all for your questions today and for the opportunity to tell our story. Again, we're incredibly proud of the Company that has been built and most importantly the people that have built it. So first of all, I want to welcome Chip, someone who went to high school less than five miles from here. So I want to welcome him home and college less than 30 miles from here. So, it is great to have Chip back in Maryland. He spent a long time on the other coast. Getting him back to the East is going to be great and what we have going forward. I also want to take a minute and I want to thank Brad for 11 great years together, an incredible run that we've built as a Company and most importantly as a team. So you'll be missed here. Again, we wish you the very best in your next endeavor. So I want to thank the market for all the support of myself, Brad, our team and the future support we're counting on for Chip. We'll still be here running forward. So thank you all very much. We wish you all a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.