Under Armour Inc
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
UAA$5.28-5.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-31; filed 2024-02-08.
0001336917-24-000024
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0001336917-24-000117
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 192 previous paragraphs and 155 current paragraphs.
72 unchanged; 55 reworded; 28 added; 52 removed; 13 previous and 0 current paragraphs rearranged.
Tables are not compared: 12 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (28)
Current report
•our ability to successfully execute any potential restructuring plans and realize their expected benefits;
Current report
•our ability to effectively meet regulatory requirements and stakeholder expectations with sustainability and social matters;
Current report
•our ability to remediate the material weaknesses discussed elsewhere in this Quarterly Report on Form 10-Q; and
Current report
•Total net revenues decreased 10.1%.
Current report
•Gross margin increased 110 basis points to 47.5%.
Current report
•Selling, general and administrative expenses increased 42.1% due to a $274 million increase in litigation expense, net of an insurance receivable, related to the settlement of the Class Action Securities litigation.
Current report
2025 Restructuring Plan
Current report
On May 15, 2024, our Board of Directors approved a restructuring plan designed to rebalance our cost base to further improve profitability and cash flow generation. In connection with this plan, we expect to incur total estimated pre-tax restructuring and related charges of approximately $70 million to $90 million during Fiscal 2025, primarily consisting of up to approximately:
Current report
•$50 million in cash-related charges, consisting of approximately $15 million in employee severance and benefits costs, and $35 million related to various transformational initiatives; and
Current report
•$40 million in non-cash charges consisting of approximately $7 million in employee severance and benefits costs and $33 million in facility, software and other asset-related charges and impairments.
Current report
The summary of the costs recorded during the three months ended June 30, 2024 as well as our current estimates of the amount expected to be incurred during the remainder of Fiscal 2025 in connection with the 2025 restructuring plan is as follows:
Current report
(1) Estimated restructuring and related charges to be incurred reflect the high-end of the range of the estimated remaining charges expected to be incurred during Fiscal 2025 in connection with the 2025 restructuring plan.
Current report
Restructuring charges and recoveries require us to make certain judgments and estimates regarding the amount and timing as to when these charges or recoveries occur. The estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revises its assumptions and estimates as appropriate, as new or updated information becomes available.
Current report
During Fiscal 2024, we identified and corrected certain accounting errors, primarily related to cost of goods sold and selling, general and administrative expenses on the Consolidated Statement of Operations, as well as corresponding impacts to our other Consolidated Financial Statements. The impacts of these revisions were not material to our previously filed financial statements. Information presented in the tables below for the three months ended June 30, 2023 has been revised to reflect these corrections. See Note 1 of these Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Current report
(1) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, subscription revenues from MMR and revenue from other digital business opportunities.
Current report
We expect the trends listed above to continue through the remainder of Fiscal 2025, but to a lesser extent.
Current report
•Other costs increased $266.9 million or 59.4%, primarily driven by higher litigation reserve in connection with the recently announced Memorandum of Understanding (the "MOU") with plaintiffs containing the material terms of a settlement resolving the Consolidated Securities Action as discussed in Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Additionally, other costs increased due to transformational charges recorded in connection with the 2025 restructuring plan. See Note 13 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details. As a percentage of net revenues, other costs increased to 60.5% from 34.1%.
Current report
Restructuring Charges
Current report
On May 15, 2024, our Board of Directors approved a restructuring plan designed to rebalance our cost base to further improve profitability and cash flow generation. Restructuring charges within our operating expenses primarily consist of employee severance and benefit costs, various transformational initiatives and facility, software and other asset-related charges and impairments.
Current report
Restructuring charges increased by $25.1 million during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to $10.3 million of employee related charges, $8.0 million of non-cash impairment charges and $6.7 million of other restructuring costs. See Note 13 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.
Current report
Other expense, net decreased by $3.3 million to $2.7 million during the three months ended June 30, 2024, primarily due to a net gain from on foreign currency hedges of $3.0 million.
Current report
(1) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, subscription revenues from MMR and revenue from other digital business opportunities.
Current report
•Net revenues in our EMEA region increased by $0.3 million, or 0.1%, to $226.9 million from $226.6 million. This was driven by an increase in our direct-to-consumer channel offset by a decrease in our wholesale channel. Within our direct-to-consumer channel, net revenues increased in owned and operated retail stores while e-commerce was flat.
Current report
•Net revenues in our Latin America region increased by $8.7 million, or 15.6%, to $64.4 million from $55.7 million. This was driven by an increase in both our wholesale channel and our direct-to-consumer channel. Within our direct-to-consumer channel, net revenues increased in owned and operated retail stores while e-commerce was flat. Net revenues in our Latin America region were also positively impacted by changes in foreign exchange rates.
Current report
•Operating income in our EMEA region decreased by $9.3 million to $20.5 million from $29.8 million. This was primarily due to higher marketing-related expenses, partially offset by an increase in gross profit. The increase in gross profit was primarily driven by lower product input costs.
Current report
•Operating loss in our Corporate Other non-operating segment increased by $303.9 million to $493.2 million from $189.2 million. This was primarily due to higher litigation expense, net of insurance receivable, recorded in connection with the recently announced MOU with plaintiffs containing the material terms of a settlement resolving the Consolidated Securities Action as discussed in Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, restructuring charges increased as a result of charges incurred under the 2025 restructuring plan as discussed above.
Current report
Our Annual Report on Form 10-K for Fiscal 2024 noted that we will continue to permanently reinvest our non-U.S. subsidiaries’ cumulative undistributed earnings of $1.5 billion, as well as future earnings from our foreign subsidiaries, to fund international growth and operations. During the first quarter of Fiscal 2025, we evaluated the undistributed earnings of our foreign subsidiaries and determined to repatriate a portion of these earnings. In connection with this evaluation, we recognized approximately $500 million of prior and current year earnings that are no longer considered to be indefinitely reinvested. We expect to incur approximately $0.4 million of income tax expense, net of valuation allowances, related to the repatriation of these earnings. The remainder of our prior and current year undistributed foreign earnings will continue to be indefinitely reinvested to fund international growth and operations. As the majority of such earnings have been previously subject to U.S. federal tax, additional taxes due including currency gains or losses, capital gains, foreign withholding taxes, and U.S. federal and state taxes are not expected to be material.
Current report
No shares were repurchased during the three months ended June 30, 2023, under our previously approved $500 million share repurchase program, which was completed in December 2023.
Removed paragraphs (52)
Previous report
•failure of our suppliers, manufacturers or logistics providers to produce or deliver our products in a timely or cost-effective manner;
Previous report
•labor or other disruptions at ports or our suppliers or manufacturers;
Previous report
•our ability to effectively meet the expectations of our stakeholders with respect to environmental, social and governance practices;
Previous report
•Total net revenues decreased 6.0%.
Previous report
•Gross margin increased 100 basis points to 45.2%.
Previous report
•Selling, general and administrative expenses decreased 0.3%.
Previous report
Additionally, the COVID-19 pandemic has in prior periods caused, and a resurgence could cause, disruption and volatility in our business and in the businesses of our wholesale customers, licensing partners, suppliers, logistics providers and vendors. For a more complete discussion of the COVID-19 related risks facing our business, refer to our "Risk Factors" section included in Item 1A of our Annual Report on Form 10-K for Fiscal 2023.
Previous report
(1) As previously disclosed, results for the three and nine months ended December 31, 2022, include approximately $10.1 million of revenue that was recognized during the three months ended December 31, 2022 for gift cards not expected to be redeemed ("breakage"). Refer to Note 11 of the Condensed Consolidated Financial Statements for additional details.
Previous report
(2) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities.
Previous report
Net sales decreased by $82.8 million, or 5.4%, to $1,452.2 million during the three months ended December 31, 2023 from $1,535.0 million during the three months ended December 31, 2022. Apparel decreased primarily due to lower unit sales, partially offset by favorable channel and regional mix and the impact of foreign exchange rates. Footwear decreased primarily due to lower unit sales and lower average selling prices, partially offset by favorable channel mix. Accessories decreased primarily due to lower average selling prices, offset by higher unit sales and the impact of foreign exchange rates. From a channel perspective, the decrease in net sales was due to a decrease in wholesale, partially offset by an increase in direct-to-consumer.
Previous report
License revenues decreased by $8.2 million or 9.0%, to $82.8 million during the nine months ended December 31, 2023, from $91.0 million during the nine months ended December 31, 2022. This was primarily due to lower revenues from our Japanese licensee and from our licensing partners in the North America region.
Previous report
•260 basis points from supply chain benefits, mainly due to lower freight costs.
Previous report
•140 basis points from unfavorable pricing due to increased promotional activities within our direct-to-consumer channel and deeper discounts in our sales to the off-price channel; and
Previous report
•330 basis points from supply chain benefits, mainly due to lower freight costs.
Previous report
•190 basis points from unfavorable pricing due to increased promotional activities within our direct-to-consumer channel and deeper discounts in our sales to the off-price channel; and
Previous report
We expect discounting and promotional activities to continue to negatively impact our gross margin in the near term.
Previous report
•Other costs increased $24.3 million or 5.6%, primarily driven by a $22.5 million litigation reserve accrued during the quarter relating to certain ongoing legal proceedings (See Note 10 to our Condensed Consolidated Financial Statements for additional details). Additionally, selling and distribution expenses, non-salaried wages and bad debt expenses were higher, but offset by lower salaried compensation expenses. As a percentage of net revenues, other costs increased to 30.8% from 27.4%.
Previous report
Selling, general and administrative expenses increased by $0.8 million, or 0.0%, during the nine months ended December 31, 2023 as compared to the nine months ended December 31, 2022. Within selling, general and administrative expense:
Previous report
•Other costs increased $29.6 million or 2.2%, primarily driven by higher selling and distribution expenses, facility related expenses, salaried compensation expenses and bad debt expenses, partially offset by lower consulting expenses and legal expenses. As a percentage of net revenues, other costs increased to 31.0% from 29.4%.
Previous report
As a percentage of net revenues, selling, general and administrative expenses increased to 41.1% during the nine months ended December 31, 2023 as compared to 39.8% during the nine months ended December 31, 2022.
Previous report
Interest expense, net decreased by $1.4 million to $0.2 million during the three months ended December 31, 2023. This was primarily due to an increase in interest income of $1.7 million resulting from higher interest rates.
Previous report
Other income, net increased by $2.3 million to $49.6 million during the three months ended December 31, 2023. This was primarily due to a higher earn-out recorded in connection with the sale of the MyFitnessPal platform of $5.0 million, partially offset by a net loss from changes in foreign currency exchange rates of $3.3 million.
Previous report
Other income, net increased by $9.5 million to $36.8 million during the nine months ended December 31, 2023. This was primarily due to a higher earn-out recorded in connection with the sale of the MyFitnessPal platform of $5.0 million and a net gain from changes in foreign currency exchange rates of $2.3 million.
Previous report
Income tax expense decreased $8.3 million to $38.5 million during the nine months ended December 31, 2023 from income tax expense of $46.7 million during the nine months ended December 31, 2022. For the nine months ended December 31, 2023, our effective tax rate was 14.2% compared to 17.7% for the same period in the prior fiscal year. The decrease in our effective tax rate was primarily driven by an increase in valuation allowance release benefits, partially offset by the increase in foreign earnings subject to tax in the United States.
Previous report
(1) As previously disclosed, the results for the three and nine months ended December 31, 2022 include approximately $10.1 million of revenue that was recognized during the three months ended December 31, 2022 for gift cards not expected to be redeemed ("breakage"). Refer to Note 11 of the Condensed Consolidated Financial Statements for additional details.
Previous report
(2) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities.
Previous report
•Net revenues in our North America region decreased by $122.3 million, or 11.8%, to $915.4 million from $1,037.6 million. This was driven by a decrease in both our wholesale channel and our direct-to-consumer channel as well as a decrease in licensing revenues. Within our direct-to-consumer channel, net revenues were lower due to a decrease in both owned and operated retail store and e-commerce sales.
Previous report
•Net revenues in our Asia-Pacific region increased by $14.0 million, or 7.1%, to $212.0 million from $198.0 million. This was driven by an increase in both our direct-to-consumer channel and wholesale channel. Within our direct-to-consumer channel, the increase in net revenues was due to an increase in owned and operated retail store sales, partially offset by a decrease in e-commerce sales. During the three months ended December 31, 2022, our direct-to-consumer channel was negatively impacted by the COVID-19 related restrictions, which included temporary closures of our owned and operated stores and distribution centers in China.
Previous report
•Net revenues in our Latin America region increased by $6.0 million, or 9.4%, to $69.8 million from $63.8 million. This was primarily driven by an increase in both our direct-to-consumer channel and wholesale channel. Within our direct-to-consumer channel, net revenues increased in both owned and operated retail store and e-commerce sales. Net revenues in our Latin America region were also positively impacted by changes in foreign exchange rates.
Previous report
•Operating income in our EMEA region increased by $20.7 million to $51.6 million from $30.9 million. This was primarily due to an increase in gross profit and lower marketing-related expenses, partially offset by higher bad debt expenses and selling and distribution expenses. The increase in gross profit was driven by higher net revenues as discussed above and lower freight costs.
Previous report
•Operating income in our Asia-Pacific region increased by $5.2 million to $16.0 million from $10.8 million. This was primarily due to an increase in gross profit and lower marketing-related expenses. The increase in gross profit was driven by higher revenues as discussed above, partially offset by higher inventory reserves.
Previous report
•Operating loss in our Corporate Other non-operating segment increased by $21.5 million to $173.4 million from $151.8 million. This was primarily driven by a $22.5 million litigation reserve accrued during the quarter relating to certain ongoing legal proceedings (See Note 10 to our Condensed Consolidated Financial Statements for additional details) and net losses arising from foreign currency hedges.
Previous report
Nine Months Ended December 31, 2023 Compared to Nine Months Ended December 31, 2022
Previous report
Net Revenues
Previous report
(1) As previously disclosed, the results for the three and nine months ended December 31, 2022 include approximately $10.1 million of revenue that was recognized during the three months ended December 31, 2022 for gift cards not expected to be redeemed ("breakage"). Refer to Note 11 of the Condensed Consolidated Financial Statements for additional details.
Previous report
(2) Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities.
Previous report
•Net revenues in our EMEA region increased by $64.7 million, or 8.8%, to $797.8 million from $733.1 million. This was primarily driven by an increase in both our direct-to-consumer channel and our wholesale channel. Within our direct-to-consumer channel, net revenues increased in both owned and operated retail store and e-commerce sales. Net revenues in our EMEA region were also positively impacted by changes in foreign exchange rates.
Previous report
•Net revenues in our Asia-Pacific region increased by $45.9 million, or 7.6%, to $646.3 million from $600.4 million. This was driven by an increase in both our direct-to-consumer channel and our wholesale channel. Within our direct-to-consumer channel, net revenues increased in both owned and operated retail store and e-commerce sales. Our direct-to-consumer channel was negatively impacted by the COVID-19 related restrictions during the nine months ended December 31, 2022, which included temporary closures of our owned and operated stores and distribution centers in China. Net revenues in our Asia-Pacific region were also negatively impacted by changes in foreign exchange rates.
Previous report
•Net revenues in our Latin America region increased by $7.8 million, or 4.6%, to $179.2 million from $171.4 million. This was primarily driven by an increase in our direct-to-consumer channel, partially offset by a decrease in our wholesale channel. Within our direct-to-consumer channel, net revenues increased in both owned and operated retail store and e-commerce sales. Net revenues in our Latin America region were also positively impacted by changes in foreign exchange rates.
Previous report
Operating Income (Loss)
Showing the first 40 of 52 passages. Open the source sections for the rest.
Reworded paragraphs (55)
Previous wording
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help readers understand our results of operations and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying Notes to our Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly
Current wording
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help readers understand our results of operations and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying Notes to our Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on Form 10-Q, which include the revisions for the previously disclosed accounting corrections, and in our Annual Report on Form 10-K for Fiscal 2024, filed with the Securities Exchange Commission ("SEC") on May 29, 2024, under the captions "Business" and "Risk Factors".
Previous wording
All dollar and percentage comparisons made herein refer to the three and nine months ended December 31, 2023 compared with the three and nine months ended December 31, 2022, unless otherwise noted.
Current wording
All dollar and percentage comparisons made herein refer to three months ended June 30, 2024 with the three months ended June 30, 2023, unless otherwise noted.
Previous wording
•the impact of global events beyond our control, including military conflict;
Current wording
•the impact of global events beyond our control, including military conflicts;
Previous wording
•the impact of the COVID-19 pandemic on our industry and our business, financial condition and results of operations, including recent impacts on the global supply chain;
Current wording
•the impact of global or regional public health emergencies on our industry and our business, financial condition and results of operations, including impacts on the global supply chain;
Previous wording
•risks related to data security or privacy breaches; and
Current wording
•risks related to data security or privacy breaches;
Previous wording
•our potential exposure to and the financial impact of litigation and other proceedings, including those legal proceedings discussed in this Quarterly Report on Form 10-Q.
Current wording
•our potential exposure to and the financial impact of litigation and other proceedings, including those legal proceedings discussed elsewhere in this Quarterly Report on Form 10-Q.
Previous wording
During the three months ended December 31, 2023, we continued to face a challenging retail environment, particularly in North America, that included higher promotions and discounting as well as lower demand in our wholesale channel.
Current wording
During the three months ended June 30, 2024, we continued to face a challenging retail environment, particularly in North America, that included lower demand in our wholesale channel, in addition to the impacts of proactive strategies to reduce discounting and promotional activity in our direct-to-consumer channel, particularly in e-commerce. We also faced a challenging retail environment in our Asia-Pacific region.
Previous wording
Financial highlights for the three months ended December 31, 2023 as compared to the three months ended December 31, 2022 include:
Current wording
Financial highlights for three months ended June 30, 2024 as compared to three months ended June 30, 2023 include:
Previous wording
•Within our channels, wholesale revenue decreased 13.2% and direct-to-consumer revenue increased 3.5%.
Current wording
•Within our channels, wholesale revenue decreased 8.3% and direct-to-consumer revenue decreased 11.8%.
Previous wording
•Within our product categories, apparel revenue decreased 5.5%, footwear revenue decreased 6.6%, and accessories revenue decreased 0.3%.
Current wording
•Within our product categories, apparel revenue decreased 8.1%, footwear revenue decreased 14.7%, and accessories revenue decreased 5.4%.
Previous wording
•Net revenue decreased 11.8% in North America, increased 7.1% in Europe, Middle East and Africa ("EMEA"), increased 7.1% in Asia-Pacific, and increased 9.4% in Latin America.
Current wording
•Net revenue decreased 14.2% in North America, increased 0.1% in EMEA, decreased 10.1% in Asia-Pacific, and increased 15.6% in Latin America.
Previous wording
See "Risk Factors—Economic and Industry Risks—Our business depends on consumer purchases of discretionary items, which can be negatively impacted during an economic downturn or periods of inflation. This could materially impact our sales, profitability and financial condition"; "—Fluctuations in the cost of raw materials and commodities we use in our products and costs related to our supply chain could negatively affect our operating results"; "—Our financial results and ability to grow our business may be negatively impacted by global events beyond our control"; and "—Financial Risks—Our financial results could be adversely impacted by currency exchange rate fluctuations"included in Item 1A of our Annual Report on Form 10-K for Fiscal 2023.
Current wording
See "Risk Factors—Economic and Industry Risks—Our business depends on consumer purchases of discretionary items, which can be negatively impacted during an economic downturn or periods of inflation. This could materially impact our sales, profitability, results of operations and financial condition"; "—Fluctuations in the cost of raw materials and commodities we use in our products and costs related to our supply chain could negatively affect our operating results"; "—Our financial results and ability to grow our business may be negatively impacted by global events beyond our control"; and "—Financial Risks—Our financial results could be adversely impacted by currency exchange rate fluctuations"included in Item 1A of our Annual Report on Form 10-K for Fiscal 2024.
Previous wording
Net revenues consist of net sales, license revenues, and revenues from digital subscriptions, other digital business opportunities and advertising. Net sales consist of sales from apparel, footwear and accessories products. Our license revenues primarily consist of fees paid to us by licensees in exchange for the use of our trademarks on their products. The following tables summarize net revenues by product category and distribution channel for the periods indicated:
Current wording
Net revenues consist of net sales, license revenues, and revenues from digital subscriptions, digital advertising and other digital business opportunities. Net sales consist of sales from apparel, footwear and accessories products. Our license revenues primarily consist of fees paid to us by licensees in exchange for the use of our trademarks on their products. The following tables summarize net revenues by product category and distribution channel for the periods indicated:
Previous wording
Net sales decreased by $98.8 million, or 2.3%, to $4,274.0 million during the nine months ended December 31, 2023 from $4,372.8 million during the nine months ended December 31, 2022. Apparel decreased primarily due to lower unit sales, partially offset by higher average selling prices and favorable channel and regional mix. Footwear decreased primarily due to lower unit sales, partially offset by higher average selling prices and favorable channel and regional mix. Accessories increased primarily due to higher unit sales and the impact of foreign exchange rates, partially offset by lower average selling prices. From a channel perspective, the decrease in net sales was due to a decrease in wholesale, partially offset by an increase in direct-to-consumer.
Current wording
Net sales decreased by $125.4 million, or 9.8%, to $1,160.7 million during the three months ended June 30, 2024, from $1,286.1 million during the three months ended June 30, 2023. Apparel decreased primarily due to lower unit sales and unfavorable channel mix, partially offset by higher average selling prices. Footwear decreased primarily due to lower unit sales, partially offset by higher average selling prices. Accessories decreased primarily due to lower unit sales, partially offset by higher average selling prices. From a channel perspective, the decrease in net sales was due to a decrease in both wholesale and direct-to-consumer.
Previous wording
License revenues decreased by $0.7 million or 2.2%, to $29.1 million during the three months ended December 31, 2023, from $29.7 million during the three months ended December 31, 2022. This was primarily due to lower revenues from our Japanese licensee and from our licensing partners in the North America region.
Current wording
License revenues decreased by $3.4 million or 13.6%, to $21.7 million during the three months ended June 30, 2024, from $25.1 million during the three months ended June 30, 2023. This was primarily due to lower revenues from our licensing partners in North America and our Japanese licensee.
Previous wording
We include outbound freight costs associated with shipping goods to customers as cost of goods sold; however, we include the majority of outbound handling costs as a component of selling, general and administrative expenses. As a result, our gross profit may not be comparable to that of other companies that include outbound handling costs in their cost of goods sold. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate our distribution facilities. These costs were $19.6 million and $58.7 million for the three and nine months ended December 31, 2023 (three and nine months ended December 31, 2022: $19.6 million and $57.7 million, respectively).
Current wording
We include outbound freight costs associated with shipping goods to customers as cost of goods sold; however, we include the majority of outbound handling costs as a component of selling, general and administrative expenses. As a result, our gross profit may not be comparable to that of other companies that include outbound handling costs in their cost of goods sold. Outbound handling costs include costs associated with preparing goods to ship to customers and certain costs to operate our distribution facilities. These costs were $17.5 million for the three months ended June 30, 2024 (three months ended June 30, 2023: $18.4 million).
Previous wording
Gross profit decreased by $27.2 million to $671.2 million during the three months ended December 31, 2023, as compared to $698.4 million during the three months ended December 31, 2022. Gross profit as a percentage of net revenues, or gross margin, increased to 45.2% from 44.2%. This increase in gross margin of 100 basis points was primarily driven by favorable impacts of approximately:
Current wording
Gross profit decreased by $48.8 million to $562.7 million during the three months ended June 30, 2024, as compared to $611.5 million during the three months ended June 30, 2023. Gross profit as a percentage of net revenues, or gross margin, increased to 47.5% from 46.4%. This increase in gross margin of 110 basis points was primarily driven by favorable impacts of approximately 170 basis points of pricing benefits from lower levels of discounting and promotions within our direct-to-consumer channel and approximately 40 basis points from supply chain benefits related to lower products costs and lower inventory reserves. These benefits were partially offset by unfavorable impacts of approximately 60 basis points from unfavorable regional and channel mix; and 50 basis points from changes in foreign currency.
Previous wording
Selling, general and administrative expenses decreased by $2.1 million, or 0.3%, during the three months ended December 31, 2023 as compared to the three months ended December 31, 2022. Within selling, general and administrative expense:
Current wording
Selling, general and administrative expenses increased by $248.2 million, or 42.1%, during three months ended June 30, 2024 as compared to three months ended June 30, 2023. Within selling, general and administrative expense:
Previous wording
•Marketing costs decreased $26.3 million or 15.5%, due to a reduction in marketing activities during the period. As a percentage of net revenues, marketing costs decreased to 9.7% from 10.8%.
Current wording
•Marketing costs decreased $18.7 million or 13.3%, due to a reduction in marketing activities during the period. As a percentage of net revenues, marketing costs decreased to 10.3% from 10.6%.
Previous wording
As a percentage of net revenues, selling, general and administrative expenses increased to 40.5% during the three months ended December 31, 2023 as compared to 38.2% during the three months ended December 31, 2022.
Current wording
As a percentage of net revenues, selling, general and administrative expenses increased to 70.7% during the three months ended June 30, 2024 as compared to 44.7% in during the three months ended June 30, 2023.
Previous wording
Interest (income) expense, net is primarily comprised of interest incurred on our debt facilities, offset by interest income earned on our cash and cash equivalents. See Note 9 to our Condensed Consolidated Financial Statements for additional details.
Current wording
Interest income (expense), net is primarily comprised of interest income earned on our cash and cash equivalents, offset by interest incurred on our debt facilities. See Note 9 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.
Previous wording
Interest expense, net decreased by $9.0 million to $2.2 million during the nine months ended December 31, 2023. This was primarily due to an increase in interest income of $7.4 million, resulting from higher interest rates, and a decrease in interest expense of $1.6 million.
Current wording
Interest income, net increased by $4.0 million to $2.3 million during the three months ended June 30, 2024. This was primarily due to an increase in interest income of $3.8 million, resulting from higher interest rates, and a decrease in interest expense of $0.2 million.
Previous wording
Income tax expense decreased $13.8 million to $5.0 million during the three months ended December 31, 2023 from income tax expense of $18.8 million during the three months ended December 31, 2022. For the three months ended December 31, 2023, our effective tax rate was 4.2% compared to 13.4% for the same period in the prior fiscal year. The decrease in our effective tax rate was primarily driven by an increase in valuation allowance release benefits, partially offset by an increase in foreign earnings subject to tax in the United States and discrete items in each period.
Current wording
Income tax expense increased $0.8 million to $5.1 million during the three months ended June 30, 2024 from income tax expense of $4.3 million during the three months ended June 30, 2023. For the three months ended June 30, 2024, our effective tax rate was (1.7)% compared to 29.4% for the three months ended June 30, 2023. The decrease in our effective tax rate was primarily driven by the proportion of earnings subject to tax in the U.S. as compared to foreign jurisdictions in each period and the Fiscal Year 2025 impact of U.S. losses on foreign earnings subject to tax in the United States.
Previous wording
We exclude certain corporate items from our segment profitability measures. We report these items within Corporate Other, which is designed to provide increased transparency and comparability of our operating segments' performance. Corporate Other consists primarily of (i) operating results related to our MMR platforms and other digital business opportunities; (ii) general and administrative expenses not allocated to an operating segment, including expenses associated with centrally managed departments which include global marketing, global IT, global supply chain and innovation, and other corporate support functions; (iii) restructuring and restructuring related charges, if any; and (iv) certain foreign currency hedge gains and losses.
Current wording
We exclude certain corporate items from our segment profitability measures. We report these items within Corporate Other, which is designed to provide increased transparency and comparability of our operating segments' performance. Corporate Other consists primarily of (i) operating results related to our MMR platforms and other digital business opportunities; (ii) general and administrative expenses not allocated to an operating segment, including expenses associated with centrally managed departments such as global marketing, global IT, global supply chain and innovation, and other corporate support functions; (iii) restructuring and restructuring related charges, if any; and (iv) certain foreign currency hedge gains and losses.
Previous wording
•Net revenues in our North America region decreased by $225.4 million, or 7.6%, to $2,733.4 million from $2,958.8 million. This was driven by a decrease in both our wholesale channel and our direct-to-consumer channel as well as decrease in licensing revenues. Within our direct-to-consumer channel, net revenues were lower due to a decrease in both owned and operated retail store and e-commerce sales.
Current wording
•Net revenues in our North America region decreased by $117.3 million, or 14.2%, to $709.3 million from $826.6 million. This was driven by a decrease in both our wholesale channel and our direct-to-consumer channel as well as a decrease in licensing revenues. Within our direct-to-consumer channel, net revenues decreased in both e-commerce and owned and operated retail stores.
Previous wording
•Net revenues in our EMEA region increased by $18.8 million, or 7.1%, to $284.0 million from $265.3 million. This was driven by an increase in both our direct-to-consumer channel and wholesale channel. Within our direct-to-consumer channel, net revenues increased in both e-commerce sales and owned and operated retail store sales. Net revenues in our EMEA region were also positively impacted by changes in foreign exchange rates.
Current wording
•Net revenues in our Asia-Pacific region decreased by $20.4 million, or 10.1%, to $181.8 million from $202.2 million. This was driven by a decrease in both our direct-to-consumer channel and our wholesale channel. Within our direct-to-consumer channel, net revenues decreased in both e-commerce and owned and operated retail stores. Net revenues in our Asia-Pacific region were also negatively impacted by changes in foreign exchange rates.
Previous wording
•Net revenues in our Corporate Other non-operating segment decreased by $12.3 million to $4.8 million from $17.1 million. This was primarily driven by lower foreign currency hedge gains related to revenues generated by entities within our operating segments.
Current wording
•Net revenues in our Corporate Other non-operating segment decreased by $4.5 million to $1.3 million from $5.7 million. This was primarily driven by lower foreign currency hedge gains related to revenues generated by entities within our operating segments.
Previous wording
(1)Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities. Corporate Other also includes expenses related to our central supporting functions.
Current wording
(1)Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, subscription revenues from MMR and revenue from other digital business opportunities. Corporate Other also includes expenses related to our central supporting functions.
Previous wording
The decrease in total operating income for three months ended December 31, 2023, compared to the three months ended December 31, 2022, was primarily driven by the following:
Current wording
The decrease in total operating income for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily driven by the following:
Previous wording
•Operating income in our North America region decreased by $62.9 million to $535.2 million from $598.0 million. This was primarily due to a decrease in gross profit and higher facilities-related expenses, partially offset by lower marketing-related expenses. The decline in gross profit was driven by lower net revenues as discussed above, partially offset by lower freight costs and product input costs.
Current wording
•Operating income in our North America region decreased by $12.8 million to $147.9 million from $160.7 million. This was primarily due to a decrease in gross profit, partially offset by lower marketing-related expenses and selling and distribution expenses. The decline in gross profit was primarily driven by lower net revenues as discussed above, partially offset by lower product input costs.
Previous wording
•Operating income in our North America region decreased by $37.3 million to $161.7 million from $198.9 million. This was primarily due a decrease in gross profit, partially offset by lower marketing-related expenses. The decline in gross profit was driven by lower net revenues as discussed above, partially offset by lower product input costs and freight costs.
Current wording
•Operating income in our Asia-Pacific region decreased by $5.5 million to $9.9 million from $15.4 million. This was primarily due to an decrease in gross profit, partially offset by lower marketing-related expenses and lower selling and distribution expenses. The decline in gross profit was primarily driven by lower net revenues as discussed above.
Previous wording
•Operating income in our Latin America region increased by $7.8 million to $13.6 million from $5.8 million. This was primarily due to an increase in gross profit, driven by higher net revenues as discussed above and lower freight costs.
Current wording
•Operating income in our Latin America region increased by $9.4 million to $15.2 million from $5.8 million. This was primarily due to an increase in gross profit. The increase in gross profit was primarily driven by higher net revenues as discussed above.
Previous wording
As of December 31, 2023, we had approximately $1,040.1 million of cash and cash equivalents. We believe our cash and cash equivalents on hand, cash from operations, our ability to reduce our expenditures as needed, borrowings available to us under our amended credit agreement, our ability to access the capital markets, and other financing alternatives are adequate to meet our liquidity needs and capital expenditure requirements for at least the next twelve months. In addition, from time to time, based on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and subject to compliance with applicable laws and regulations, we may seek to utilize cash on hand, borrowings or raise capital to retire, repurchase or redeem our debt securities, repay debt, repurchase shares of our common stock or otherwise enter into similar transactions to support our capital structure and business or utilize excess cash flow on a strategic basis. For example, as described below, in February 2022, our Board of Directors authorized the repurchase of up to $500 million of our Class C Common Stock over the following two years, and, as of December 31, 2023, we have repurchased a total of $500 million of our Class C Common Stock through accelerated share repurchase transactions.
Current wording
As of June 30, 2024, we had approximately $884.6 million of cash and cash equivalents. In August 2024, we utilized a combination of our cash on hand and insurance receivables to fund the settlement of the Class Action litigation into an escrow account in accordance with the terms of the preliminary settlement agreement. See Note 10 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details. We believe our cash and cash equivalents on hand, cash from operations, our ability to reduce our expenditures as needed, borrowings available to us under our amended credit agreement, our ability to access the capital markets, and other financing alternatives are adequate to meet our liquidity needs and capital expenditure requirements for at least the next twelve months. In addition, from time to time, based on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and subject to compliance with applicable laws and regulations, we may seek to utilize cash on hand, borrowings or raise capital to retire, repurchase or redeem our debt securities, repay debt, repurchase shares of our common stock or otherwise enter into similar transactions to support our capital structure and business or utilize excess cash flow on a strategic basis. For example, as further described below, in May 2024, our Board of Directors authorized a new share repurchase program pursuant to which we are authorized to repurchase a total of $500 million of our Class C Common Stock through May 2027.
Previous wording
If there are unexpected material impacts to our business in future periods from COVID-19 or other global macroeconomic factors, or if we are subject to an adverse verdict or enter in to a settlement of our material litigation (see Note 10 to our Condensed Consolidated Financial Statements) that results in a significant cash outlay by us and we need to raise or conserve additional cash to fund our operations, we may consider additional alternatives, including further reducing our expenditures, changing our investment strategies, reducing compensation costs, including through temporary reductions in pay and layoffs, limiting certain marketing and capital expenditures, and negotiating, extending or delaying payment terms with our customers and vendors. In addition, we may seek alternative sources of liquidity, including but not limited to, accessing the capital markets, sale-leaseback transactions or other sales of assets, or other alternative financing measures. However, instability in, or tightening of the capital markets, could adversely affect our ability to access the capital markets on terms acceptable to us or at all. Although we believe we have adequate sources of liquidity over the long term, a prolonged or more severe economic recession, inflationary pressure, or a slow recovery could adversely affect our business and liquidity and could require us to take certain of the liquidity preserving actions described above.
Current wording
If there are unexpected material impacts to our business in future periods from global or regional public health emergencies or other global macroeconomic factors, we may consider additional alternatives, including further reducing our expenditures, changing our investment strategies, reducing compensation costs, including through temporary reductions in pay and layoffs, limiting certain marketing and capital expenditures, and negotiating, extending or delaying payment terms with our customers and vendors. In addition, we may seek alternative sources of liquidity, including but not limited to, accessing the capital markets, sale-leaseback transactions or other sales of assets, or other alternative financing measures. However, instability in, or tightening of the capital markets, could adversely affect our ability to access the capital markets on terms acceptable to us or at all. Although we believe we have adequate sources of liquidity over the long term, a prolonged or more severe economic recession, inflationary pressure, or a slow recovery could adversely affect our business and liquidity and could require us to take certain of the liquidity preserving actions described above.
Previous wording
Refer to our "Risk Factors" section included in Item 1A of our Annual Report on Form 10-K for Fiscal 2023.
Current wording
Refer to our "Risk Factors" section included in Part I, Item 1A of our Annual Report on Form 10-K for Fiscal 2024.
Previous wording
On February 23, 2022, our Board of Directors authorized us to repurchase up to $500 million (exclusive of fees and commissions) of outstanding shares of our Class C Common Stock over the following two years. As of December 31, 2023, we have repurchased a total of $500 million or 45.6 million outstanding shares of our Class C
Current wording
On May 15, 2024, our Board of Directors authorized us to repurchase up to $500 million (exclusive of fees and commissions) of outstanding shares of our Class C Common Stock through May 31, 2027. The Class C Common Stock may be repurchased from time to time at prevailing prices in the open market, through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, via private purchases through forward, derivative, accelerated share repurchase transactions or otherwise, subject to applicable regulatory restrictions on volume, pricing and timing. The timing and amount of any repurchases will depend on market conditions, our financial condition, results of operations, liquidity and other factors.
Previous wording
During the three months ended December 31, 2023, we entered into a supplemental confirmation (the "November 2023 ASR Agreement") of an accelerated share repurchase transaction with HSBC Bank USA, National Association ("HSBC") to repurchase $25.0 million of our Class C Common Stock, and received a total of 3.1 million shares of Class C Common Stock from HSBC, which were immediately retired. As a result, $23.5 million was recorded to retained earnings to reflect the difference between the market price of the Class C Common Stock repurchased and its par value.
Current wording
During the three months ended June 30, 2024, we entered into a supplemental confirmation (the "May 2024 ASR Agreement") of an accelerated share repurchase transaction with Citigroup Global Markets Inc. ("Citigroup") to repurchase $40.0 million of our Class C Common Stock, and received a total of 5.9 million shares of Class C Common Stock from Citigroup, which were immediately retired. As a result, $40.9 million was recorded to retained earnings to reflect the difference between the market price of the Class C Common Stock repurchased and its par value. Additionally, we accrued $0.2 million of excise tax in connection with the share repurchases completed during the three months ended June 30, 2024, which was recorded in other current liabilities in our Condensed Consolidated Balance Sheets as of June 30, 2024.
Previous wording
Cash flows from operating activities increased by $418.7 million, as compared to the nine months ended December 31, 2022, primarily driven by an increase in net income before the impact of non-cash items of $35.2 million and an increase from changes in working capital of $383.6 million.
Current wording
Cash flows from operating activities increased by $159.0 million, as compared to three months ended June 30, 2023, primarily driven by an increase from changes in working capital of $467.0 million, partially offset by a decrease in net income before the impact of non-cash items of $308.0 million.
Previous wording
•$93.5 million from changes in accrued expenses and other liabilities;
Current wording
•$367.1 million from changes in accrued expenses and other liabilities.
Previous wording
•$137.2 million from changes in accounts payable;
Current wording
•$153.4 million from changes in accounts payable;
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Report on Form 10-Q and in our Annual Report on Form 10-K for Fiscal 2023, filed with the Securities Exchange Commission ("SEC") on May 24, 2023, under the captions "Business" and "Risk Factors".
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This was partially offset by unfavorable impacts of approximately:
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•20 basis points from changes in foreign currency.
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Gross profit decreased by $11.5 million to $2,030.9 million during the nine months ended December 31, 2023, as compared to $2,042.4 million during the nine months ended December 31, 2022. Gross profit as a percentage of net revenues, or gross margin, increased to 46.5% from 45.3%. This increase in gross margin of 120 basis points was primarily driven by favorable impacts of approximately:
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This was partially offset by unfavorable impacts of approximately:
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•20 basis points from changes in foreign currency.
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•Marketing costs decreased $28.7 million or 6.1%, due to a reduction in marketing activities during the period. As a percentage of net revenues, marketing costs decreased to 10.0% from 10.4%.
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Three Months Ended December 31, 2023 Compared to Three Months Ended December 31, 2022
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The decrease in total net revenues for the nine months ended December 31, 2023, compared to the nine months ended December 31, 2022, was driven by the following:
Previous report — wording carried elsewhere
•Net revenues in our Corporate Other non-operating segment decreased by $27.9 million to $13.0 million from $41.0 million. This was primarily driven by lower foreign currency hedge gains related to revenues generated by entities within our operating segments.
Previous report — wording carried elsewhere
(1)Corporate Other primarily includes foreign currency hedge gains and losses related to revenues generated by entities within our operating segments but managed through our central foreign exchange risk management program, as well as subscription revenues from MMR and revenue from other digital business opportunities. Corporate Other also includes expenses related to our central supporting functions.
Previous report — wording carried elsewhere
The decrease in total operating income for nine months ended December 31, 2023, compared to the nine months ended December 31, 2022, was primarily driven by the following: