Under Armour (NYSE: UA) 1-Year Daily Stock Chart

The Under Armour Fourth Quarter 2009 Earnings Conference Call held this past Thursday expanded on the Baltimore-based brand’s continual retooling and refitting of its footwear business, as stated in previous sessions. While Kevin Plank, Under Armour Chairman and CEO, says the company “sees momentum” and is “absolutely committed to becoming excellent” in the footwear space going forward, Under Armour has no major footwear launches planned for 2010. Basketball fans will have to wait until at least 2011 to get a chance at any of the UA models Brandon Jennings has been wearing in the current NBA season. Continue reading for a more detailed look at the developing footwear story in the Under Armour Q4 2009 Earnings Conference Call.

Notes on the Under Armour Q4 2009 Earnings Conference Call:

Kevin A. Plank – Chairman and CEO of Under Armour:

- We maintained our leadership position in our core compression business even as large competitors heavily discounted their compression product. We grew our share in non-compression which is the key to our long term apparel revenue story and most importantly, we continued to bring new consumers in to the Under Armour brand with new strength in key categories and even greater on field authenticity at every level.

- In 2009 we saw double digit growth in our business units with apparel up 13%, footwear up 61% and accessories up 11%. For the full year our direct to consumer business grew nearly 50%.

- On the investment side we’ve made great strides in building the organization that will deliver long term growth for our company and especially in footwear. If we dive down in to our footwear business for a minute, we think you’ll see an organization that much like Under Armour overall is deep in both execution and investment mode. On the execution side, cleats are a great example of how we use our brand strength and knowledge of athletes to build great footwear for the world’s best football and baseball players.

- We’re entering our fifth year in the cleated business and our success there drives our confidence that we can accomplish that same thing for athletes of all types. But, we know that footwear is a learning process and we learned a lot in 2009. We learned that we need to invest capital both human and financial to fully leverage the Under Armour opportunity in footwear. We have since brought years of footwear industry experience in to Under Armour and added depth throughout the organization.

- We have three goals for our footwear business in 2010. First, strengthen the categories that we’ve already entered and established ourselves, particularly cleats. We expect to take market share in both football and baseball cleats in 2010 and beyond, additional market share. Second, we are repositioning our training and running categories so that we are better organized to develop product that will move us down the path of being a multibillion dollar global brand. Third, we’re developing new footwear categories that will begin to impact our business in 2011 and beyond.

- Being a great footwear company is not just about making a big splash with launch product and we have no major footwear launches planned for 2010. However, we are developing our basketball footwear and positioning for a future launch. While you won’t be able to find Under Armour basketball footwear for sale at retail you will find it being tested and authenticated throughout 2010 on the feet of 10 Division I basketball programs, more than 20 top high school programs as well as on the feet of NBA Rookie of the Year contender Brandon Jennings.

- Our brand communication is also two fold. First we are protecting our core business by expanding our authenticity with several recent deals. Starting this July we’ll be outfitting Boston College’s athletic program. Also beginning this year, we are teaming up with IMG Performance to host athlete combines at regional sites across the country. We’ll host more than 50 combines this year touching thousands of young athletes on a grassroots level showcasing the Under Armour brand as well as new products in categories from us like footwear, building momentum one athlete at a time. As part of this partnership we’re developing a comprehensive athletic training platform that will establish global measurement standards for improved sports performance health and fitness called Combine 360. We believe the Combine 360 score will be as universal for athletic performance as the SAT score is for academics.

- Launch key products for our brand like the upcoming Under Armour core short that we are very excited to introduce to our consumer. It is a patented compression short with an iconic x type design that stretches across the body which stabilizes and supports your muscles and core unlike any product before it. The look of the short is as technical as its performance and we are currently showcasing it on athletes at the highest level but it is a unique product that will be just as relevant for athletes at any level and available at retail beginning this spring.

David W. McCreight – President of Under Armour:

- Footwear is a key part of our mid and long term growth story and 2010 will represent a year of continued investment and concentration for us. With the strong momentum we have in both our apparel and direct to consumer businesses we are not relying on footwear to growth the top line in 2010. We are fully capable of achieving our 2010 target for top and bottom line growth while taking a more conservative approach to footwear revenue.

- We believe strongly that coming out of 2010 with both clean inventories and a markedly improved footwear product line positions us well for growing footwear starting in 2011. Our focus for the team in 2010 will be on delivering excellence in the footwear categories that we’ve already entered and where materially opportunities exist for growth in 2011 and beyond. For instance, cleated footwear which we launched four years ago is a study in how Under Armour successfully entered the market and grew to command a substantial market presence.

- We entered the cleated category several years ago, learned from our marketplace experience, adjusted our game plan, calibrated the offering and the byproduct of those efforts is reflected in the strength in our cleated market share and our double digit growth trajectory for 2010.

- In our newer running and training category, two large segments where we have been recently embraced by our partners and athletes. We are using 2010 to accelerate our learning curve. We are rapidly absorbing the lessons from our recent marketplace experiences, recalibrating the product offering and supply chain and moving quickly to build a world class footwear team. Based on the strength of our brand, the response from our retail footwear partners to our future direction and our progress in building our team, we are confident that we will make material progress in 2011 and beyond in the running and training categories just as we’ve shown the ability to command strong share in the cleated businesses.

- For 2010 our plan is to open 15 factory housed stores which would bring us to a total of 50 stores by yearend. While we believe that’s an appropriate number for a brand that is approaching $1 billion in sales, we also believe that number will continue to grow over time as the channel continues to evolve and our inventory management structure evolves as well.

Brad Dickerson, Chief Financial Officer of Under Armour:

- Our net revenues for the fourth quarter were up 24% year-over-year to $222 million. This success was largely driven by apparel which was up 26% to $192 million. An important part of this apparel growth came from our direct to consumer which continued its strong growth up 53% during the quarter with success primarily in our factory outlet stores and web. Our international business also continues to gain traction and was up 45% for the quarter. Footwear was down approximately $500,000 to $8.7 million in the fourth quarter due to returns and sales reserves.

- Footwear revenues increased 61% for the year with our entrance in to the running category while apparel gained 13% to $652 million with strength in men’s, women’s and youth.

- Our focus in 2010 for footwear is to continue to excel in the cleated category while taking a conservative approach to the running and training categories to better position ourselves for new product in 2011. As a result of this approach, we are planning footwear revenues to be down in 2010 with the most significant dollar impact incurring in the first and third quarters.

We are in the footwear business for the long term. As a business we have many levers for growth and we believe that this prudent strategy best positions us for the future. Driven by the product mix shift towards apparel and the continued anticipated growth in our higher margin sales and direct to consumer, gross margins are planned to be improved in all four quarters of 2010 over 2009.

Question & Answer Session:

Omar Saad, Credit Suisse: Can you elaborate on the comment about repositioning training and footwear, what that means and how we should think about that?

Kevin Plank: Let me spend a minute on footwear if I could and just dive a little deeper there. David and I were pretty clear in speaking through the five growth levers that we have as a company giving us the ability to lean heavier on any one during any particular quarter or phase of our growth. What we did in 2009 I think was evident of our ability to pull on footwear and pull on the direct to consumer and as we mentioned heading forward to 2010 with the reacceleration that we’re seeing in our apparel business and again, as David mentioned around our distribution strategy again leaving us opportunity.

The one thing about footwear is first of all we are absolutely committed to it. We absolutely see momentum in it. The idea about repositioning is just making sure I think that we’re spending time prudently to invest in the right leadership and continue to bring on the right amount of talent. We want to focus I think this year on being excellent in the categories that we are in, taking advantage of momentum that we built and established in things like our cleated business and again, football cleats and baseball cleats we’ll sell more pairs this year. Our market share will grow this year and you’ll see more consumers and more kids on field wearing and participating in that product.

Our training and running programs though, that’s where we want to really reposition and I think you’re really going to see a big coming out party for us in 2011 but again it says that 2010 is that we’ve got good product in the marketplace and our distribution continues to support us. You’re not going to see a drastically different presentation at retail either this year. So we didn’t see any surprises in Q4 that really changed our position in the way that we saw footwear.

We feel really good about where we are and more importantly we feel really great about where we’re heading. The last thing is what we’re doing as we look at some of the new categories too. 2010 for us is a year that we really want to use to become excellent in the categories where we’re doing. Cleated is a great example.

We’ve come back and taken a fresh look at training and really bolster that category as well as the same thing in running. One thing we found in 2009 is that consumers are highly adapt at looking at what the price to value relationship is and we want to make sure that comes through from our supply chain, our sourcing, our development and of course great looking product that actually performs at the retail shelf. We have all hands on deck and absolutely are committed to becoming excellent in this category going forward.

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That concludes our notes on the Under Armour Q4 2009 Earnings Conference Call. Follow Counter Kicks on Twitter @CounterKicks for more in-depth footwear industry coverage and breaking sneaker news.