Good day, ladies and gentlemen, and welcome to Under Armour Incorporated First Quarter Earnings Webcasting. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference call, Mr.
Tom Shaw. You may begin, sir.
Thanks, and good morning to everyone joining us for today's conference call. During the course of this call, we'll be making projections or other forward looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially. These risks and uncertainties are described in our press release and in the Risk Factors section of our filings with the SEC. The company assumes no obligation to update forward looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
Joining us on today is Carmen, CEO and President and followed by Brad Dickerson, our Chief Financial Officer, who will discuss the company's financial performance for the Q1 followed by an update to our 2012 outlook. After the prepared remarks, Kevin and Brad will be available for a Q and A session that will end at approximately 9:30 a. M. Finally, a replay of this teleconference will be available at our website at approximately 11 am Eastern Time today. And with that, I'll turn it over to Kevin Plank.
Thank you, Tom, and good morning, everyone. We had another quarter of solid revenue growth in Q1 as we continue to lead our industry in bringing true innovation to athletes. All three of our product engines, apparel, footwear and accessories, grew more than 20% with total revenues up 23%. That marks the 8th consecutive quarter where our top line has grown above 20%. Brad will provide more color on our results in a moment, but I want to focus my comments this morning on 2 broad themes that we believe are driving our results and more importantly, setting us up for continued profitable growth in 2013 and beyond.
The first point is a simple equation. When we innovate and add value for the athletes, we win. And importantly, when we do that, we do not see consumer resistance to price, a critical piece for us as we expand distribution while maintaining our premium brand status. 2nd, we've done a very effective job over the past 2 years of balancing the need to in critical areas like supply chain, planning and design, while at the 20 plus percent growth that we have accomplished. While our brand strength continues to drive our connection with consumers, we believe this ability to focus on investments in people and systems while also delivering solid top and bottom line growth is a critical element to the Under Armour story.
Let me cite a few examples of how investments we made in the past 2 years paid off in this quarter and how we continue to make new investments that we believe will help drive results 2 years out. While innovation for athletes will always be at the core of how we build product, over the past 2 years, we've begun to deliver a more underarmour specific design language throughout our assortments. We invested significantly in both our team and tools around design, bringing industry expertise to help bolster this dimension of the Under Armour brand. This focus has specifically helped drive improved results in our women's business, and the introduction in Q1 of the ARMOUR Bra Sports Bra is a great example of the right blend between performance and style. Our team talked extensively with our consumers to understand what was lacking with their existing sports bra.
They also went into the lab to better understand how a sport bra could offer the ultimate support and comfort. From that work, our design team reconstructed the sports bra and the results have been great. We've had a very successful launch with the armor bra with our wholesale partners and early sell through on our e commerce site was as strong as we've seen for a new women's product. By increasing our investment for design over the past 2 years, we're now seeing stronger product across the women's business with new items like the perfect pant with soft breathable fabric that has superior stretch with a great fit. Our sweat wicking moisture transport system accelerates dry time as well.
The true benefit is longer term as we're introducing our brand to a new women's consumer who may have previously seen us as solely focused on team sports. As I mentioned upfront, when we innovate, we win. And we are able to drive higher price points with better product. We saw it last year with the introduction of Charge Cotton that drives faster than your old cotton t shirt. On the women's side, we focused on improving the fit of our Charge Cotton t shirt in year 2 and the early results have been very strong seltzers.
We saw this quarter with the armor bra introduced at that $58 price point. And we also saw strong consumer reaction to our new Tech Tee where we brought a new fabrication making it softer while keeping it extremely lightweight and taking the price up to $23 from just $20 a year ago. We believe these are all great indicators that consumer continues to view us as a premium performance brand and reinforces the thought that as long as we continue to innovate, we will win. The other major apparel story that hit in Q1 was Coldblack. This latest technology and drummer not only blocks the sun's UV rays, the ones that cause a sunburn, but also reflects infrared heat, keeping you more comfortable on a hot and sunny day.
Our success here is enabling us to drive higher price points in our polos and eventually other products as well. Hunter Mahan has been wearing Coal Black to great success from the PGA Tour this year, winning 2 tournaments so far this year and moving up to number 5 in the world, the highest ranking ever. Coldblack is a great example of Under Armour incorporating additive technology to a premium product and we see consumers truly starting to embrace it as the weather heats up. In our footwear business, the impact of our prior investments has been equally important. We've preached patience on our footwear business, and we continue to make the type of progress that will position us long term as a leader in this space.
Our first and most important consumer is on field and our baseball fleet business has been exceptional this spring. We've taken market share at the greatest rate since our introduction of baseball fleets over 5 years ago. We are now the official performance footwear supplier of Major League Baseball. We've got our cleats on many of the game's rising stars like Buster Posey and Ryan Zimmerman, and our premium product is performing extremely well. Next up, our premium product for the football field is coming with of the highlight cleat, the super high and ridiculously light cleat that Cam Newton wore exclusively this past season.
Visually, this $130 cleat will look different from any footwear you'll see in the NFL this season, but it provides additional support that reduces the need for caping ankles. The limited pairs we've made available on our e commerce site were quickly sold out, but will be available next month at Dick's Sporting Goods, Foot Locker's Eastbay catalog and website as well as limited numbers with other select retailers. We've talked about establishing the right cadence in our footwear business, building off our early success in our on field product, improving it each year and taking those learnings to more accessible categories like running. Our recent success with the Charge RC running shoe is evidence that we are establishing the right pace of innovation at the right price in the right distribution. We've seen continued strong sell through on the $120 Charge RC running shoe.
As we bring new colors to the assortment, we are seeing strong results for the Charge RC in both men's and women's in both specialty run and consumer channels. And the Split II running performing very well within our own sporting goods distribution. So while we're in a very strong product cycle entering 2012, we think it's important to understand where that product came from. It came from investments, ones that were made over the past 2 years and ones that were made as we simultaneously delivered 20 plus percent top line growth. We believe this illustrates not only our Under Armour brand, but also the efficiency of our business model in harnessing that brand strength.
We believe this is a critical element in the understanding of the Under Armour investment story. Simply put, this is what you're going to see from us over the next several years. Our growth will be driven by smart and early investment in people, systems and technologies and a high level of execution to ensure the best possible return on those investments. As we have stepped up the pace of innovation on the product development side, we've also been making investments in our supply chain and planning. We're starting to see early benefits from the years of industry experience brought to the organization in our supply chain employees.
While you are now just starting to see early fruits of their labors, we believe more meaningful financial benefits will be seen later this year and into 2013. Equally important is that these business leaders are driving new competencies and improving our cross functional communication that will be essential as our organization grows. We have consistently stressed the importance of building a great team and continue to add experience from outside Under Armour with the recent hires of senior leaders in both supply chain and human resources. As we begin to aggressively execute in places where we've made some initial investments, we're building the teams that will be contributing meaningfully to our growth in 2014 and beyond. This past quarter, we announced the hiring of Charlie Maruth as the new President of Under Armour International.
Charlie has over 20 years of experience with athletic brands internationally, most recently as Head of the Latin America Business for Adidas. We believe that the best time to invest in our international business is when our core U. S. Business is strong so that new markets like China, South America and our business in Europe will bring an entire new population of consumers to the Under Armour brand. So in summary, our business this past quarter was very solid.
We continue to lead the athletic apparel industry in the pace of meaningful innovation and leadership, and we're establishing the right cadence of product flow at premium price points in footwear. New technologies are helping us bring new levels of performance and style to our women's business. In men's apparel, we're reaching new consumers with Charge Cotton and our new underwear program and expanding the definition of performance with Cold Black. We're successfully transitioning from a tight T shirt company to a fully integrated athletic brand capable of servicing the full needs of the athlete, men's and women's, head to toe globally. But more important, we continue to invest to ensure the next armor glove, the next coal black and the next innovation in our footwear already somewhere in our product pipeline.
And we are investing in the team that will be able to execute on these opportunities and continue to drive the type of growth that you've come to expect from Under Armour. With that, I'll turn it over to our CFO, Brad Dickerson. Brad? Thanks, Kevin. I would now like to spend some time discussing our Q1 financial results followed by our updated 2012 outlook.
Our net revenues for the Q1 of 2012 increased 23% to 384,000,000 dollars Apparel grew 23% to $283,000,000 during the quarter. We experienced relatively balanced growth across our men's, women's and youth categories. New product and innovation was well received, including the reinvented tech tee, cold black apparel and our women's studio line and armor bra. Our direct to consumer net revenues increased 49% for the quarter, representing only 25% of net revenues compared to 20% in the prior year period. In our retail business, we opened 4 new factory house stores during the Q1, increasing our factory house store base to 84, up 33% from 63 locations at the end of the Q1 in 2011.
On the e commerce side, we completed our 1st full quarter with our new platform. We will continue to add efficiency and functionality to the site throughout 2012. Footwear net revenues during the Q1 increased 24 percent to $64,000,000 from $51,000,000 the prior year, representing nearly 17% of net revenues. Growth during the period was driven by new introductions in running footwear, including the Split II and Charge RC RC as well as strong performance with our baseball cleats. As we have now fully lapsed last year's transition of our hats and bags business in house, our accessories net revenues during the Q1 increased 26 percent to $30,000,000 from $24,000,000 in the prior year period.
International net revenues increased 32 percent to $22,000,000 in the Q1 and represented approximately 6% of total net revenues. Now looking at margins. 1st quarter gross margins contracted 80 basis points to 45.6% compared with 46.4% in the prior year's quarter. While we had some small puts and takes during the quarter, the primary factor driving results was higher input costs in our North American Apparel and Accessories businesses, which negatively impacted margins by approximately 100 basis points. Selling, general and administrative expenses as a percentage of net revenue is 40 basis points to 39.2% in the Q1 of 2012 from 39.6% in the prior year's period.
Details around our 4 SG and A buckets are as follows. First, marketing costs declined to 11.5 percent of net revenues for the quarter from 13.3% in the prior year period. Expense leverage during the period was a function of strategic decisions to move certain media costs later in the year. I'll provide more details on full year marketing timing shortly. 2nd, selling costs increased to 9.8 percent of net revenues for the quarter from 8.9% in the prior year period, primarily driven by the continued expansion of our factory house stores and e commerce platform.
3rd, product innovation and supply chain costs increased to 9.8 percent of net revenues for the quarter from 9.3% in the prior year period, primarily reflecting higher expenses related to our distribution facilities and accelerated spending around innovation. Finally, corporate services remained unchanged from last year at 8.1% of net revenues. Operating income during the Q1 grew 15 percent to $24,000,000 compared with $21,000,000 in the prior year period. Operating margin contracted 50 basis points during the quarter to 6.3%. Below the operating line, net other expenses increased to $1,300,000 in the first quarter from $1,100,000 in the prior year's period as a result of the debt assumed for our acquisition of our corporate headquarters.
Our first quarter tax rate of 36.6 percent was favorable to the 39.5% rate in last year's period as we received the state tax credit during the quarter benefiting our tax rate by 170 basis points. Our resulting net income in the Q1 increased 21 percent to $15,000,000 compared with $12,000,000 in the prior year period. 1st quarter diluted earnings per share increased 20% to $0.28 compared with $0.23 in the prior year period. Now switching over to the balance sheet. Total cash and cash equivalents at quarter end decreased 3% to $107,000,000 compared with $111,000,000 at March 31, 2011.
We had no borrowings outstanding on our $300,000,000 revolving credit facility at quarter end. Long term debt increased to $76,000,000 from $14,000,000 at March 31, 2011, reflecting the acquisition of our corporate headquarters. Inventory at quarter end increased 30% year over year to $324,000,000 compared to $249,000,000 at March 31, 2011. A portion of this growth in inventory dollars is being driven by higher cost per unit as the growth rate in inventory units approximated our net revenues growth rate during the quarter. Our investment in operating capital expenditures approximately $9,000,000 for the Q1.
We continue to plan for 2012 operating capital expenditures in the range of $60,000,000 to 65,000,000 dollars Now moving on to our updated outlook for 2012. Our prior outlook calls for 20 12 net revenues growth at the low end of our 20% to 25% long term growth target and operating income growth at the higher end of our 20% to 25% long term growth target. Based on current visibility, we are updating our net revenues outlook to a range of 1 point $78,000,000,000 to $1,800,000,000 representing growth of 21% to 22%. Also, we are raising our operating income outlook to a range of $203,000,000 to $205,000,000 representing growth of 25% to 26%. With this updated outlook, I would like to provide additional color on several items for the year.
1st, on gross margins. We continue to see first half margins primarily impacted by higher product costs, offset in the second half by our continued efforts to rationalize our SKU base, add discipline and processes to our planning functions and enhance our sourcing capabilities. We continue to expect our full year gross margins to remain relatively flat with the year ago levels. Switching to SG and A, we continue to see the opportunity for moderate leverage while we sustain investments for our future growth. We now have better visibility on the timing of these investments and how they will impact the remaining quarters in 2012.
In marketing, we are planning a greater weighting of our annual spend primarily related to media and production costs to shift to the 2nd and third quarters to better align and support our brand stories. We now see approximately 100 basis points of marketing deleverage year over year in the second quarter and approximately 200 basis points of marketing deleverage year over year in the Q3. For the full year, we continue to expect a similar marketing spend rate as in 2011. Across our other 3 SG and A buckets, selling, product innovation and supply chain and corporate services, we generally see sequential decelerations in year over year growth rates throughout the year. This deceleration largely reflects the lapping of incremental investments during 2011 in areas such as e commerce, where we relaunched the site last November and sourcing and planning where we enhanced our organizational structures.
In aggregate, we continue to see moderate SG and A leverage as the driver of higher operating margins implied in our updated outlook. Below operating results, we reiterate our prior outlook, including higher year over year interest expense giving a full year of the additional long term debt for our headquarters acquisition, a full year effective tax rate of 37.5% to 38% and fully diluted weighted average shares outstanding in the range of $53,200,000 to $53,400,000 Before opening up to Q and A, we would also like to reiterate our confidence in our inventory trajectory throughout 2012. While we expect the 2nd quarter inventory growth rate to look similar to the 1st quarter growth rate, we anticipate the inventory growth rate will come in below net revenues growth rate starting in the Q3. Our team continues to make great progress with our 3 pronged approach of reducing our SKU count 20% by the end of the year, building discipline and collaboration in our forecasting and planning process and strengthening our global supply chain. We would now like to open the call for your questions.
We ask that you limit your questions to 2 per person so we can get to as many of you as possible. Operator?
Our first question comes from Robbie Ohmes with Bank of America Merrill Lynch.
Thanks. Good morning, guys.
Good morning, Robbie. Hi, Robbie.
Hey, two questions. The first question is just on the apparel business. I thought it was interesting that it was balanced between Men's, Youth and Women's and I would have expected or was expecting Youth and Women's to be outpacing Men's kind of going forward here. And I was hoping that you could sort of remind us or elaborate on what happened in the quarter and if you expect core apparel to grow similarly across those or if we should expect that to change going forward? And then my second question is just under new leadership that you've hired for international, can you give us any more detail on what we expect to see what the steps we should expect to see over the next couple of years in Europe and Asia and Latin America?
Thanks.
Hey, Ravi, it's Kevin. So first and foremost, I started with that big statement in my script that said when we innovate, we win. And I think we're continuing to do that specifically on the apparel side. So start with the basics, these core basics of heat gear, T shirt, cold gear mocs, and you're seeing us come back and reinvent these. Most specifically, this past spring, we're seeing with Detecte.
This isn't a 1,000,000 unit program. This is millions and millions of units of program. And number 1, going back and taking a program that's heritage to us going back 4, 5, 6 years and reinventing it with the consumer, 1st with a better product, softer hand, better fabric, better performance and then also taking the price point up from $20 to $23 It's obviously, it's a value add for our customers, meaning our distribution and then of course a huge value add for us, but especially great for the consumer. So they are voting with increased performance in sell through. And in some cases, 1.5x to 2x of sell through that we saw on the old product.
So it means that number 1, in creating these heritage programs to have these franchises, we need to keep reinventing and bringing them back. We see the ability to continue to augment our existing apparel business and the message that I talked about with Coal Black of bringing technologies to basics like take our performance polo and here's a product that's doing very well for us. But then we add a new technology like coal black, which effectively gives you the feeling of keeping yourself about 10 degrees cooler than wearing a shirt that doesn't have the cold black technology in it. So it's constantly finding ways for us to innovate around that. And I'll get to the footwear answer maybe a little later in the call.
But I think what you're seeing from us is this constant commitment to innovation and having it come through and having it really pour out in everything that we're doing. So on the new side, I agree. We think there's huge opportunity there. 1 of the biggest struggles we have really from a distribution standpoint. We'll continue to find the right stride within our existing distribution.
So we've been talking to our partners, the big guys specifically and everybody wants to use business. Nobody's really sure exactly how to get at it. At the same time though, we are leading the way there. We're the number one youth brand virtually everywhere we're doing business. And I think that we're the ones that are really carrying that lantern and really trying to blaze trails there.
So I don't know if we have it perfected, but we are seeing great growth. We're seeing that youth kit continue to vote for our brand as well. So we think there's a lot of opportunity. So there's more to come, we think, within our existing distribution, but we also think there's some ways for us to be created there. On the leadership front, we're really excited, 1st of all, about the announcement we made with Charlie coming.
This is an executive who's been doing this for 20 plus years. They know the industry. They know the people. They know the players. They know the manufacturers.
It's something which we think we are perfectly positioned to take advantage of. So we're excited for Charlie to get here and get on board and what that's going to mean to our global business. And so speaking about that for just a second, we've been in Europe now for coming up on 6 years. And again, Charlie is a German national. So he'll bring great experience.
He spent time in Europe as well working for the other brand. And so what he brings to the table, we think that there's a ways for us at that tipping point. I think I said on the last call, we believe is getting closer and closer for us. And we're waiting for it to accelerate. But meanwhile, we've got a team of people in Amsterdam that are working for us in our European business just doing an amazing job.
And we continue to look at the examples of some of the things we've done with success that we found in Japan, which this year will close on a $200,000,000 business for us in Japan. So again, it was 7 years to $35,000,000 and then the business began to double. So as we sit here in our European business, we think there's great upside to come. And globally on a leadership standpoint, we made a couple of other really important hires too that will give the human resource and planning and supply chain functions a real kick that will give us a much better global perspective as well. So evolving from a pretty good North American wholesale apparel brand into a truly global brand, I think, is something that you're seeing come from us right now.
Our next question comes from Joseph Parkhill with Morgan Stanley.
Hi, good morning. I was wondering if you could talk a little bit more about the process you're going through from a SKU rationalization, how the retailers are responding to this initiative having any impact at all on your sales growth in 2012? Yes, Joseph. Obviously, we talked about SKU rationalization in our last call, too, and it was all built into our guidance. To be honest with you, it's being in the early stages of this.
A lot of the rationalization we're doing has very, very little impact to the top line and has very little impact relative to our retail partners. So our goal as we've kind of stated was to get to a 20% reduction in SKUs by the end of this year. And I'm happy to especially on the style side, on the color side, be pretty much right on that target, maybe a little bit ahead. So that was a process that was started probably about a year and a half ago and on the product side, led by Henry Stafford, and we've done a great job there. Okay, great.
And then also just operationally speaking, I know last year you had some margin drag from sales allowances due to missing on time deliveries. If you could give us any update on how on time deliveries are trending this year and should you get any gross margin benefit from that? Yes. We always talk about turning that dial pretty slowly on the inventory management side. And as we have talked over the last year or so of inventory management improvements and our planning processes and how we're buying our inventory, always balancing that with the fill rate and how we're servicing our customers.
And to your point, we called some issues out that we had last year. So the good news here is that both of those metrics are heading in the right direction. Obviously, as you've seen, the inventory growth rate coming down, as we mentioned in the last call, from growth rates last year. And our fill rates are pretty much coming in as expected. So they're improving.
They're still not where we want them to be longer term. But the good news is, is they are improving as we expected. So from a benefit to the sales allowances and discounts, a lot of that was built into our original guidance we gave 3 months ago for the year as we anticipated and we had more confidence in our inventory management abilities. We put some of those benefits in our guidance. So a lot of those are already built into our future guidance and margins.
Great. Thank you.
Our next question comes from Pam Quintiliano with Oppenheimer.
Thank you so much for taking my call. I have a few things. Could you just remind us about the cadence of new product introductions for the rest of the year? And then also, and I know this is a very broad question, Kevin, but just what are you most excited about when you're looking ahead over the next year and why in terms of new product that's coming out?
Yes, I think I'd probably put them put those two products together, those two questions together. Cadence is very important. I think what you're seeing from the brand really across all functions is that we're growing up as a company. There's a lot less volatility. The company is becoming much more quiet and delivering a pretty consistent product.
First of all, from an investment story with the 20 plus percent top line growth, something we're very proud of and now have 2 years of running consistency there. And I think you're seeing it on the product side, especially. Again, I keep going back to this idea of when we innovate, we win. And just a couple, again, to underscore some of the points that we've introduced so far this year in the last several months that are working for us. The consumer is telling us that if we put a better product out there, they're willing to pay more money.
It's not a chase to see who is the cheapest price is that that's not where Under Armour plays. But we are a premium brand and I think we bring a lot to our existing distribution with the ability to continue to elevate and raise price points And it's doing it with things like the TEPC example I used before. But we're seeing it with Coldblack. I mean, that's a product of the $60 $70 polo we're bringing out there. We're seeing it with Armor Bra, which is a new technology on the women's side that we have I spoke about in the script and it's a $58 Sport Bra, which is head and shoulders above any other price point.
And frankly, we have some one off examples where we're seeing great success up at Frasani, for instance, in one of their chains, the Sport Chek chain, they're seeing as one of the top selling styles that they're seeing in their entire store. So at $58 we're really breaking new ground with doing that. And again, it just goes back and underscores that message. If we bring great innovation to the table, we have a terrific platform that the consumer is comfortable with exposing. And again, we're the beneficiaries.
We've had some conversation out there about what we're most excited about going forward. And I think footwear probably comes to mind 1st and foremost. We've got a great new Internet we'll have this with a new midsole technology that could be introduced specifically. So more to come on that. But I think that our distribution is very excited about it.
We have terrific buy in from some of our key partners like Hibbett Sports. And obviously, all of our big partners from DICK'S, the Sports Authority and Footlaw of the Board. So we're winning there. We're beginning again. I don't think we're not declaring victory, but we're certainly in a much bigger and better position.
And all that comes back to the team. I've used this 2 year cycle. And so when people see things, they sort of have an immediate reaction to it. It really takes us 2 years to react to that to put it in the market. And so a lot of these things we're butting our lips on a couple of years ago, we're putting the team in place.
We're putting the systems in place. We're putting the design in place for us to be able to have something that comes out and articulates for the consumer in a way that they're voting for. So I think that our performance this quarter is pretty indicative of a lot of those things working. And more excitedly is that we've been constantly doubling down the investments that we've been making since the last 2 years as well. So as I mentioned earlier, our product pipeline is certainly full.
Our next question comes from Kate McShane with
Citigroup.
My two questions today, one focused on inventory. It was really encouraging to see the inventory level this quarter. And I wondered if you could walk us through how you were able to work through some of your inventory over the last quarter. Obviously, you have your built out English Health, but are there any other channels you're using or saw more success over from reducing this inventory? Yes, Kate.
Really Q1 for the most came in a little bit better than we again we were guiding towards the growth rate to come down from growth rates last year. I think when you look at probably the 2 metrics you'd look at is the excess inventory that we created during the Q1 and the excess that we sold during the Q1. And both of those metrics came in a little more positively than we had originally planned. So we created a little bit less excess than we thought, and we sold a little bit more than we thought. But the big driver of the sales of excess really is our factory house store base.
We do use some other channels that we've talked about them in the past. They're relatively minor to our overall mix of our revenues. The factory house base for us is the primary driver of excess sold. So for the rest of this year relative to inventory, even with positive developments in Q1 with the sales of excess, we're going to be leaning a little bit heavier on the factory house in the back half of the year relative to moving excess inventory. So even though we saw some positive developments, more of that is going to be in the back half of the year.
Okay, great. And then my second question that goes back to international discussion and I know it's early days, but with Dick's investment in JJP Sports, I think you already have some representation there. Is there any indication of how this could impact your business over the longer term in the UK?
Yes, let me use this to give you a little more detail on the international business as a whole. So today Under Armour is doing business in 61 countries. So today though, as we think about what's our opportunity as we're looking at growth and I can't not but start this with we're so excited about our new leader that we have in Charlie joining our team and what he's going to be able to bring to us as most importantly to help us evolve our culture from a very U. S. Centric brand and continue to underscore the fact that our opportunity is global.
And so we have a really good person. We think that is again can do a great job for us. But as we think about the way we're prioritizing, we'd like Charlie to do for us, it's 1st and foremost is to help us is continue to build out our operational excellence and expertise. Secondly, we think that e commerce is a huge opportunity for us because if you look at a brand 10 years ago thinking about going international, the opportunities that exist today are far different than the opportunities that a brand had as recent as the last decade. And so we don't think that the book has been written on the way that we have.
So we're going to look at a lot of different opportunities. And of course, we're going to use some of the existing opportunities that others have done before. But I think there's some ways for us to be pretty creative and pretty innovative. The Internet grants or what we're doing in Europe, Dix is our number one partner here in the U. S.
And J. J. B. Is our number one partner in the U. K.
And so obviously it's a natural fit. We think that there is a it's not a great market in the U. K. Today. It's extremely promotional, very discount driven.
The brands are rarely full price. And we think frankly that knowing the mindset of Dick's Sporting Goods and Zickley that the leadership and they will bring to that business is only a major positive. So we're very excited. We're very excited of linking up and partnering with JV and all the entities that that will mean in the future. But they're good people and we think there's a great market that's available there.
It's just not a great market today.
Thank you very much.
Thank you.
Our next question comes from Omar Saad with ISI Group. Thanks. Good morning, guys. Kevin, I wanted to ask you about the Olympics. I haven't heard
you guys say much about it.
I know in the Winter Games, the Under Armour brand has been pretty prominent historically, especially in the last one. Anything up your sleeve for London this summer we should keep our eyes out for?
Well, first of all, the global events are going to continue to become a larger part of our mix as we grow internationally. But think about just 4 years ago when Beijing took place, Under Armour was a $600,000,000 company. Since that time, we've added nearly $900,000,000 in revenues And we did it without an Olympics. So all that being said, we'd love to be in the Olympics, but these are things that take time. And so we've had our team at it.
And as we continue to think about ourselves and project ourselves as a much bigger or broader brand or better brand in the future, the Olympics will continue to become added importance to us. This year though, we of course have great athletes there with Michael Phelps going back to become the all time leading medal winner and Chris McCormack, 2 time Ironman World Champion, will be participating for Australia in the men's triathlon. Natasha Hastings, who won in Beijing as well as American sprinter, Alicia Sacramone on the gymnastics team, Lauren Chaney in soccer. So we have athletes and we'll have presence in London. But I think that we're saying that 3 week span and saying there's other ways for us to invest our money and we are looking forward to Brazil and we're looking forward to the years to come in front of that.
Also, it's timely that it happens to happen in London. The announcement of our Tottenham Hotspur is something that's a big deal. That deal commences July 1 and U. S. Tour amongst other things, but more importantly, they have that huge presence in North London and being in the EPL to be in and be a part of premiership is a big deal.
So think you'll see without tipping our hat too much, you'll see some exciting things about the launch of our own Tottenham and what we're doing of creating some pretty exciting storytelling, utilizing the assets that we have to talk about and explain our technological benefits that we have in our product and in the kit that you'll see there. So we certainly won't be quiet, but we're not a ring sponsor yet either.
Great. That's helpful, Kevin. And then can I also ask about the charged cotton and the cotton programs? Last year was the 1st year. You were into year 2 now.
I think it was mostly there's a lot of basic product out there. How is that evolving? Are you taking that kind of fabric technology to new categories and styles? I know you had some issues on the women's side as well. For those of us who think it could be a big opportunity, really big guys, we've kind of talked about the closet and the T shirt business, especially for youth today and the graphics piece.
But where are we in that evolution? And how far have you come? And how much more is there to do on that cotton business?
Yes. Well, one of the things driven our business, Omar, is these core basic, these franchise programs that we have. Again, a $25 HeatGear full T shirt, a $50 cold year mock. And so Charge Cotton had the exact same intent as that. What we've built with the $20 and now the $23 price point with tekti.
And so launching Charge Cotton at $25 is that we wanted to get into that key item and we wanted to demonstrate that we could build and make it. And so we are very simplistic and very basic in our 1st year out. And we did it on the men's side and it came out and it was a great success. And the women's side, we learned a couple of lessons and I think we were probably a little bit too basic. And so we really we took what I call the rules off.
Rules are very dangerous in a business that's growing. Is that when you start putting rules and as you get bigger, it's hard to have guardrails, important to have the guiding principles of a brand. But you have to be careful that whether it's the length of a shirt or the depth of a V neck or anything else, there's no written rule. It's just a thing that you put on the athlete for the intended end use and you say what looks great. In the women's case, you say what looks great, what looks sexy, what looks cute.
And so we're really taking a much more keen eye to doing that. And I think you saw us recover in year 2 with the relaunch of our women's charge cotton. And frankly, the sell through is proving out that that actually worked. So we're very happy about it. We've taken some of the rules.
It doesn't mean that the women's shirt needs to look like the men's shirt. We also started with it because of it was a new manufacturer for us with getting into cotton is that we didn't have the experience with many of the manufacturers. So now that we're in year 2, heading into year 3 of this product, we can become much more sophisticated. So we're going from just one basic weight into multiple weights, into just from 1 T shirt into multiple styles that you'll see about cotton. So we believe that cotton is a huge platform for our business and one that we can probably have one upside for.
So we share your excitement, your enthusiasm and I think the consumer is demonstrating that too. It just looks great. And when you tell me that it has the Under Armour seal of approval, the Under Armour can't work and it will do something and perform. And as well as most importantly probably, it will look great at the same time we're going to win. Thank you.
Our next question comes from Dan Weier with Raymond James.
Thanks. Okay, my two questions. First, looking at the revenue guidance for 2012 that we're expecting the rate of revenue growth to decelerate during the next three quarters compared to what you achieved in the Q1? And then further digging in, it looks like your wholesale business is flowing to around a 15% rate year over year. Yet I would think that the inventory levels with your key retailers probably a little bit better shape than they were 3 months ago.
So talk about why you would think that the rate of revenue growth would accelerate rather than improve. Yes, Dan. Let's go back a year and look at what year over year some of the chimney talked about 3 months ago too. Obviously, from an accessories perspective, obviously, coming in house last year was part of our growth rate last year. That being the case when you focus more just on the apparel side of the business.
Remember, from a factory house growth perspective, there's a big data point there too. It's the percentage growth in doors year over year. So I believe we grew our doors about 50% last year in 2011, an increase in doors. And this year, our guidance was new doors and 25% growth rate in new factory house doors. So that obviously has a play in the growth rates year over year, especially in the apparel side.
And also, Charged Cotton launched last year, I think. So you had that first input of Charged Cotton into the marketplace last year. And obviously, as Kevin spoke about, we're taking that to a few different places and growing it this year. But there is an impact of putting that in the marketplace as an introduction last year and growing that this year. So those are probably the biggest drivers of the difference in growth year over year, and they were all anticipated and planned for, and we've been talking about those for a while.
In your financial disclosures, you break out the A, B and C and assuming customer B is sports authority, there's been a fairly meaningful deceleration and you'll miss from TSA. Do you think that's actually having a meaningful impact now on your hold? We had talked about, again, prior at the retail level of inventory and so forth. And obviously, you do see some changes with some of our larger customers and how they're managing their business and going forward. And that was built into our guidance again earlier in the year.
So from a sports of ours and they're still obviously a very large partner of ours. And although they're going through some things right now and looking at their business, we are still growing our business with Sports Authority. And then just my follow-up question, if you could, on footwear, talk about gross margin performance. I know that there's an inherently lower margin business than apparel. Margins on footwear, probably even lower where you would hope that they would like to be.
But if you could talk about what kind of trends you're seeing in that category now that the sales trends are beginning to ramp better? Yes. Probably the most positive thing on the footwear side for us, and this is kind of built into I didn't want to get into the little nitpicks of the puts and takes in the quarter and the puts and takes for the rest of the year because the major story around gross margin is really relatively the same So we said before, the positive thing that was unplanned for in Q1 from a margin perspective was inventory with footwear. And that really stems from the fact that our baseball fleet sell through was so strong in the Q1, above our expectations. And cleated footwear has been an area in the past we've had to take inventory reserves on just because of the more they're more challenging to liquidate.
So that strong sell through has enabled us to not have to put reserves on the books that we maybe had planned for relative to base bookings in Q1. So I think probably the most positive story around footwear margins in footwear. As we've said over the years, they will continue to get cleated, they were paid to get what you started to see in our business over the last couple of years is overall growth in the business and non cleated is starting to more and more bigger percentage of the overall. If we keep doing that going forward, the margins will keep heading in the right direction for footwear. Great.
That was very helpful. Hey, Dan. Thanks for asking about footwear actually. If you don't mind, let me jump on that because I'd like to just I'd like to go a little deeper there if we could. So I think as it gets.
Our thing about footwear, again, we have we've preached this patience motto around our footwear business. And as I've said, we're not declaring victory. Our goal that we have is that footwear will match the thought leadership that we continue to demonstrate on the apparel side of our business. 2 years ago, we made a few changes here and I moved some people around and Kipp fallback function as we sat down and we talked about Kipp's my original partner. We said, what do we want to do?
And we said, plain and simple, like, let's put a dollar amount to it. We said, let's sell shoes above $100 which means it's going to be innovative, it will be creative, it will be thoughtful, it will be something that the consumer hasn't seen or can't get from anyone else. I think we're very proud of some of the successes that we've had launching the Charge RC on the running side of our business, what that means. The new midsole Picnal is out this summer. It's $100 plus product as well.
On the cleavage side, as Brad spoke about our baseball business and what's happened there, It's great and it's something which is an indicator and again we grabbed significant market share again this year continue to squeeze competitors out and continue to align ourselves up to make sure that we are going that we're beginning to go head to head and more importantly, we believe we can win when we take that head to head battle. So this fall you'll see us do it. I mentioned the highlight cleat. This is $130 football cleat that we put out this past Tuesday or Wednesday and a couple of hours our website was sold out. You had people blowing up the blogs asking where they could get more, could they pay more money for them.
It's the kind of hype and excitement that frankly we haven't seen around our footwear business. Saying, well, that's just a cleated category or something else. Cleated is a 6 year old football fleet specifically, our 6 year old business for us. As we sit here looking at running, which today is a 3 or 3.5 year old business, what we're telling you is that there are good things to come on the running side too. We're going to continue to create that momentum and create that excitement throughout all of our footwear with things like visible footwear technologies that are important.
But finding that right cadence of product flow is something where we're not putting it all out there at once. What you'll see is when we took that reset back in 2,009 into 2010 that we moved positively forward in 2011. We're moving positively forward throughout 2012 and you'll continue to see us move positively forward into the near future as well. We've had some great partners that have been very supportive of what we're doing. I mentioned Hibbett Sports before.
Academy has been a terrific partner for us, as well as, of course, the big guys have been great from DICK'S and Sports Authority to Foot Locker and Finish Line of course has been a great partner for us. So we have some we really have a great opportunity. It's about us executing, about us putting the right product in the right place and giving the consumer a chance to vote. But this is not just us showing up with a shoe and putting an Under Armour logo on it and hoping the consumer likes it. This is us coming with innovative technology, things like the highlight cleat that Cam Newton and many others in the NFL this year will be featured and will be wearing.
It's going to be a very exciting product for us. So we think there's a lot of good things to come, but we'll do it the right way with the right cadence.
Our next question comes from Jefferies.
Good morning, guys. Kevin, I wanted to ask you a question about Full Price Retail. I know you guys have 4 stores along with Mail and then the one in China. But as you see the brand evolving as you tell more of a story, a story even built more even more on technology, raising that price envelope, catering more to that female customer, do you feel like Under Armour needs a full price retail model at some point to really get to that next level, whether that be with that female customer or internationally? Just wanted to get your thoughts on the vertical model at the full price level.
Sure. Well, our distribution has been terrific to us. And there's no lack of wanting or willingness to program. It's things like E39 that we featured at the NFL conference. You'll see our partners get behind and tell, but we always have is what's the depth of the storytelling that's available.
And so if we translate, but we're focused on utilizing 1st and foremost our existing distribution and leveraging them and allowing them to leverage us into great partnerships that will drive the traffic and for other not quite as big stories. So we've now from a factory outlet standpoint, we've got 84 stores today as we said. We expect 95 to 100 by the end of the year. So we're adding there. And unfortunately, in a lot of cases, that becomes the most comprehensive experience that a consumer has walking into an Under Armour outlet.
And so we are working for our existing distribution to continue to build out these shops. I was shipped in Chicago a few weeks ago in the Dick's Lombard store, which is probably one of the most comprehensive Under Armour brand experiences that you can find, or up at Roosevelt Field in New York. So we are building out shops, but we're doing it at the right pace. We have a great we provide a great experience, consolidated Under Armour brand experience both on our website and what we're doing in stores. And so we have stores today.
We just opened that new concept. And again, the stores are doing very well. The consumer is asking for more from us. But at this time, we'll continue to support and we'll continue to look for places. And frankly, this isn't there's no one hard answer here.
The last thing we want to do is trade dollars. And so if anything we do, we'll always be additive and always be supportive. And so where our distribution will give us the brand storytelling that we require as a company, we think that we're going to win there. So we believe that there's certainly we believe that we have a lot of different options. We have a lot of different leg and pull.
But right now, we're driving 20% growth with the partners that we have, and we're very happy about it. And so are that. Got it. I appreciate that color. And then the second question I had was hearing a lot of focus commentary on the call here on innovation and the customers' willingness to pay for a better product.
So I don't know if you guys care to comment, but within that 23% revenue growth that you had in the quarter, do you care to comment on how much ASP contributed to that? And within that, assuming there's obviously higher priced introductions like cold black and under bra versus just like for like increases from higher product costs, If you can comment on that. Go ahead, Brett. Just to wrap up on that data plan. ASPs, in general, we had talked about raising some prices, MSRPs in spring summer 12 anyway, again, to kind of offset some commodity price pressures that were generated from last year.
So I think in general, the ASPs are up in the low general, which is consistent with what we've been saying for the last 6 or 9 months or so. Okay. Thank you.
Operator, it's time for one more question.
Okay. Our last question comes from Mitch Kummetz with Robert Baird.
Yes. Thank you. Thanks for taking my question.
So I'm hoping just to get
a little more color on just the sales guidance for the year. And then just starting to think about Q2, Q2 is your toughest year over year quarterly comparison, but we've gotten off to a good start to spring season, warm weather. And I'm just wondering, I was hoping you could comment on how important are reorders to you guys in the second quarter? Are you seeing retailers kind of lean on inventory because we've gotten a good start to spring? And kind of what does that mean in terms of the revenue opportunity in Q2 off of a tough comparison to last year?
And Mitch, it's again, in our business, the opportunity for upside comes from our auto replenishment business for the part. So again, as long as we see some positive growth on our auto replenishment product during Q2 or any quarter of that matter going forward, That's where our upside is because our seasonal product is relatively booked and there's a lot less ups there for the most part. So our cadence of revenues changed from our previous guidance relative to how it looks quarter by quarter compared to last year. So there shouldn't really be any surprises there relative to revenue and top line growth. And again, the opportunity really is on auto replenishment sales and sell through.
Now our auto replenishment business is a little more heavily weighted towards back half of the year as we get into the cold year product too. So Q2 and Q3 probably have a little bit less upside opportunity than Q4 does relative to cold gear.
Okay. And then speaking of the back half of the year, I mean, can you talk about how the fall backlog come in? Maybe speak a little bit to the composition of that backlog? Are you seeing any real difference in terms of pre book orders between kind of the more cold weather dependent part of your business versus the part that's less cold weather dependent on fall orders?
That's the one thing we've done a really good job over last year is we've become less basic, less dependent on weather. So even though everybody was talking about some of the challenges in November through February relative to weather and cold weather product. And we obviously saw some of those challenges too relative to our cold gear product. The good news is we're able to offset that with some strong performance in some more versatile products like our fleece products and so forth. So the ability for our fleece to perform very well in the last few months of last year and the early part of this year enabled us to get probably in the back half of this year than we had originally anticipated.
And that was built into our top line coming up a little bit in our guidance.
Okay. Let me squeeze one last one in, if I may. And just curious on the Tottenham opportunity, the partnership there. I mean, it's a great partnership. Is that where you're seeing the Mars bike you threw behind that partnership?
And what do you think of that opportunity just from a revenue standpoint? I mean, is there opportunity there as well in terms of selling jerseys once that kicks in, in July, right?
Yes. That was we're not a licensed jersey selling company. We're seeing that and we had that opportunity, for instance, with the recent NFL deal. And we have a great partnership with the NFL actually. If you check out Sports Illustrated, you'll find out what we are doing with the NFL is outfitting the combine.
And actually, one of our athletes is on the cover. 1 of our combine athletes is on the cover of Sports Illustrated wearing one of the shirts we did for the NFL combine back in February, March. And so finding ways to leverage opportunities that way is that we weren't about the jersey sales, but we're more about how do we tell and you saw great technological stories like our E39 that we use to combine to be a platform for us to help that. So, Tandem won't be very different. Yes, there are jersey sales that come with it, but that wasn't the driver behind why we did the deal.
And so we want to help them optimize and maximize their jersey sales. And we think it's again, they're still staring at