Good day, ladies and gentlemen, welcome to the Under Armour second quarter earnings webcast and conference call. At this time, all participants are in listen-only mode. If anyone should require assistance during the call, please press star then 0 on your touch-tone telephone to reach an operator. Later, we will conduct the question and answer session, instructions will follow at that time. As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Mr. Lance Allega, Vice President of Investor Relations. Sir, please go ahead.
Thank you, good morning to everyone joining us on today's call to discuss Under Armour's second quarter 2017 results. Participants on the call will make forward-looking statements. These statements are based on current expectations and are subject to certain uncertainties that could cause actual results to differ materially. These uncertainties are detailed in this morning's press release and documents filed regularly with the SEC, all of which can be found on our website at uabiz.com. During our call, we may reference certain non-GAAP financial information, including adjusted and currency-neutral terms, which are defined in this morning's release. We use non-GAAP amounts as the lead in some of our discussions because we feel they more accurately represent the true operational performance and underlying results of our business. You may also hear us refer to amounts in accordance with US GAAP.
Reconciliations of GAAP to non-GAAP measures can be found in supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Joining us on today's call will be Under Armour Chairman and CEO, Kevin Plank; President and COO, Patrik Frisk; and Chief Financial Officer, Dave Bergman. Following our prepared remarks, we will open the call for questions. With that, I'll turn it over to Kevin Plank.
Thanks, Lance. Good morning, everyone, thank you for joining us on today's call. Before we begin, I'd like to take a moment to welcome Patrik Frisk to our team. Patrik joined Under Armour as our President and Chief Operating Officer in July. In this role, he has responsibility for our overall go-to-market strategy and will partner with myself and the rest of the executive team to ensure the successful execution of our long-term growth plan. His experience working with global iconic brands meaningfully strengthens our capabilities as we enter into our next chapter of growth. Nearly a month in, from sales, strategy, and supply chain to product marketing and global operations, he's digging in. Patrik?
Thank you, and good morning, everyone. I would like to take this opportunity to thank Kevin Plank and the board for their partnership and trust that they've given me in taking this role at Under Armour. While understandably, I'm not yet in a position to share my initial observations in great detail, what I will underscore is the absolute single-mindedness of this team, the culture, and the DNA. The relentless pursuit of innovation, the attention to detail, and the outright grit that goes into making all athletes better permeates from every corner of what this company does. Driving it is an infectious, authentic, and entrepreneurial energy unlike anything I've experienced before.
In my first three months as I travel to our offices and distribution centers, meet with our biggest partners, and spend time with industry influencers, I'm learning as much as possible about our brand, our consumers, our customers, and the opportunities before us. Opportunities that capitalize on our strengths, product innovation, connection with our consumers and customers, and our largest growth opportunities, including our direct consumer, our international, our footwear, women's, and lifestyle businesses. Opportunities to improve efficiency and effectiveness, our speed to market, operational processes, and digital capabilities. Putting all of this into better balance will undoubtedly strengthen our ability to execute against our long-term growth strategy and create value for our shareholders. With that, I'm greatly looking forward to the journey ahead. Kevin Plank?
Thanks, Patrik Frisk. At the halfway point of 2017, Under Armour continues to show resilience in the face of a highly competitive retail landscape in a dynamic global environment. Consumer trend lines are accelerating quickly, with consideration, preference, and purchase behavior constantly evolving. In this evolution, consumers remain steadfast in their expectation for a brand's ability to deliver innovation, performance, style, and value with a strong point of view. As the world's third-largest athletic company, we're fiercely proud of the incredibly strong brand that we've built. One fueled by industry-leading innovation and a truly unique intimacy with our athletes and consumers. Our path has included very rapid growth. In fact, over the last three years, we've more than doubled our revenue from $2.3 billion to $4.8 billion and nearly doubled our number of teammates from 8,000 to nearly 15,000 global employees.
To achieve this growth required significant investment in resources across the organization. It's been a fight since day one. It was a fight to get to $1 million and to $1 and $5 billion. There's no letup in our team, and make no mistake, we are squarely in it. We are in this fight. That said, the playbook that got us to $5 billion is only part of what will deliver our next chapter of growth. Like an athlete always striving to do better, Under Armour trains and competes and is constantly searching for ways to become stronger, faster, and smarter. Balance is crucial to success. The mental and strategic plan must be aligned with the physical and tactical execution to ensure consistent, predictable performance. The landscape is evolving quickly. Therefore, we too must evolve quickly. This evolution requires a pivot, and we're doing just that.
We're pivoting from a product company to a consumer-led and category-managed brand. From predominantly men's to distinct collections for men, women, and kids. From U.S., mostly apparel-centric, to a global apparel, footwear, and accessories portfolio. From mainly wholesale to a more balanced direct-to-consumer offering. From a historically top-line-driven P&L to a return-focused, more disciplined financial model. Ultimately, pivoting from good to great operations. Once balanced, these pivots will work together to build a more efficient, thus more effective Under Armour. Let's provide a bit more context, starting with our move to category management. Nearly two years into our realignment around key sport categories, we continue to make solid progress. Using 2017 to further empower our team structurally, we are focused on a sharper, consumer-led approach that will drive authenticity within each sport category.
In this respect, we've identified 5 primary categories that represent the largest and fastest-growing opportunities based on innovation, consumer demand, and market capacity. They are for us men's training, women's, run, basketball, and lifestyle. In direct support of this strategy, we are building a relentless product engine while optimizing our merchandising, demand creation, and distribution capabilities to ensure our overall go-to-market gets sharper and more agile. Specifically, we are re-engineering the UA system to be clearer and more efficient internally, including product design, lead cycle times, samples, procurement processes, cost structures, and the overall use of digital. From a designer's rendering to the consumer's closet, we are addressing redundancies and stall points so we can become stronger, faster, and smarter. We're also streamlining our organizational structure to be more efficient in how we work across the matrix of the category, product, and regional teams.
Working in concert with our shift to category management, are product innovation and consumer connectivity. This trinity, category, product, and consumer, backed by Under Armour's unique DNA and culture, fuels our growth and defines our brand. Delivering great product that's unexpected to our consumers is at the heart of our brand promise. Great product must also be backed by terrific storytelling, and it must happen often, creatively, and inspiringly. To touch on some product highlights, let's start with footwear and a few launches that we expect to help drive our second half. Our customized footwear program, known as Icon, launched in June. With just three initial styles, consumer reception and results have exceeded our expectations and show outstanding potential in the second half as we add new lifestyle and basketball options. Next, we celebrate the launch of the C1N, Cam Newton's first signature training shoe that blends performance and lifestyle.
With positive reaction from consumers, sneakerheads, and sports media, we look forward to building momentum on this great new product. We also recently launched the Harper 2, our latest Bryce Harper signature model, which significantly pushes innovation once again for one of the sport's biggest rising stars. Between Bryce Harper and Aaron Judge getting the top All-Star votes in their respective leagues, we're building great brand heat momentum ahead of hitting the field as the official outfitter of Major League Baseball in 2019. In the fall, our footwear portfolio gets even stronger with the launch of the Bandit 3, Threadborne Push for women, and the Curry 4. Worn in the NBA Finals by Stephen Curry, early reaction to the Curry 4 has been quite positive, so we're excited to bring them to market in a couple of months. On the apparel side, we're focused on staying lighter, longer.
Two key innovation platforms, Threadborne and Reactor, will see expanded offerings this fall. The story around Threadborne continues to evolve with increased comfort and breathability, including a new lightweight fleece option. Reactor, an insulation technology that features temperature and airflow management, as worn by Jordan Spieth just a few Sundays ago, sees a meaningful expansion with additional styles, silhouettes, and price points across key categories. Last year, we learned a lot in the fourth quarter. The pace at which things can change and what consumers value in certain environments. We've seen that movie, reviewed the tape more than a few times, have learned from it, and adapted very quickly. This year, we're in position to be proactive as necessary. Our floor sets are more diversified, less key-item focused, and better balanced between lightweight and heavier-weight products to accommodate changing weather conditions.
Additionally, we've amplified our assortment with more lifestyle silhouettes, including our Unstoppable collection, to drive better product flow and newness in the holiday season. Further strengthening our story is the addition of some new distribution, a diversification that allows us to reach and bring new consumers into the Under Armour brand. We also have stronger capabilities around our pricing strategy, driving much clearer product segmentation and distinction into the mix. Clear segmentation is an absolute priority for us and something we've made meaningful progress against versus last year. We're in a much better position to protect and fight for our brand while serving the changing needs of our consumers going forward. Turning now to consumer connectivity and a few brand highlights.
First off, a huge congratulations to Jordan Spieth for winning the British Open and securing a historic third Grand Slam leg as the second-youngest golfer ever to achieve that milestone. After an incredibly difficult 13 holes in the final round, many thought he was out of it. Yet, with the heart of a champion, he stuck to his playbook and found a way. Phenomenal moment for Jordan Spieth and for the Under Armour brand. On the marketing front, we're also pivoting with respect to approach, construct, and point of view. While the intersection of digital, social, and traditional continues to blur lines, success is now measured in terms of months, weeks, and even days. Engagement and intimacy requires consistency, saturation, and showing up whenever and wherever a consumer engages our brand. Consumers demand authenticity, and our newest women's campaign, Unlike Any, delivers exactly that. This globally integrated 100% digital campaign with more than 300 pieces of content celebrates the unparalleled accomplishments of female athletes that have shattered the status quo in their respective sports.
Through collaboration with spoken word artists, Unlike Any shines a light on the remarkable talents of Under Armour athletes, including Misty Copeland, Alison Désir, Natasha Hastings, and others. As one of the most integrated efforts we've ever constructed, in just a few short weeks, we've seen millions of online views and significant spikes in relevancy and engagement rates. Next, with tours through Asia in just the last few months, featuring two UA athletes, Tom Brady and Stephen Curry, interacting with thousands of fans through training sessions, retail appearances, and product launches, we continue to build an authentic connection with our global consumers. These trips underscore our increasing global brand heat and how we are truly just getting started in Asia.
Shifting gears back to our pivot list. We are in the process of strategically and proactively addressing efficiency and effectiveness to build a stronger UA system. Having grown so quickly over the last 3 years, we developed certain muscle groups really well while underserving others. Starting in January this year, we began a comprehensive formal review of our business to assess how well our resources align strategically, financially, and operationally. As detailed in this morning's release, we've developed a restructuring plan that identifies multiple opportunities to drive toward operational excellence. While Dave will go into the financials of the plan a bit deeper, from an architectural perspective, this was a holistic evaluation that covered product, marketing, supply chain, geographies, our customers, and the broader market landscape.
By identifying specific opportunities to reduce complexity and streamline processes, we are working to position a more responsive organization capable of fueling and self-funding our own growth more effectively. As you've heard me say a few times today, stronger, faster, smarter. That's the goal. That's our objective. What specifically are we focused on? First, driving a stronger go-to-market strategy directly led by Patrik. All aspects, team, process, tactics, execution, digital, and interconnectivity with all relevant internal players from product design to sourcing to marketing and retail. Second, increasing speed around market discipline, better managing supply and demand with an evolving distribution model, ultimately maintaining the highest possible levels of brand presence, health, and desirability. Third, becoming smarter to ensure that resources are aligned and leveraged strategically against our annual and multi-year planning processes with increased accountability to drive the highest return opportunities.
Another pivot, one that is central to our move toward efficiency and effectiveness, is prioritization within our financial model. After six and a half years of more than 20% top-line growth that ended in the fourth quarter of last year, we are clearly operating in a different environment, particularly in our largest market, North America. With our largest growth drivers, including international, footwear, and DTC, continuing to scale, but still not yet large enough to offset the magnitude of North America on our overall business, the terrain has changed, and so must we. As we execute against our restructuring plan, there are three main disciplines we are underscoring across our operations. First, we've restructured the company around category management with the goal of streamlining operations to increase speed across all parts of our business.
Within this, we are building an integrated global model with shared accountabilities between regions, categories, and corporate functions. Second, we are implementing clear and broad-based SG&A savings initiatives and embedding new practices to encourage stronger stewardship of how, when, and where our investments do or don't align with our growth strategies. Third, building into this stewardship are an elevated focus on return on investment and the cost of capital to safeguard that we are seamlessly linking and matching priorities with financial plans and targets. As our model evolves and we establish more flexibility into our P&L, our goal is to be able to invest most heavily against our highest growth, most profitable areas of our business. This will, in turn, drive our top line and ultimately create leverage elsewhere in our expense structure, setting the stage for operating margin improvement. We are not standing still.
In addition to streamlining our organization for greater operational efficiency, we've already taken proactive steps throughout the first half of 2017 to address our short- and long-term opportunities, enhancing, upgrading, restructuring, and leadership. They play out like this. Enhancing merchandising across pricing, style, and assortments. Upgrading our ERP system with SAP's Fashion Management Solution to increase our speed, visibility, and efficiency across the organization, giving ourselves the tools to get even closer to our consumer. Restructuring our organization around category management to maximize our go-to-market strategy, as well as aligning the entire company around digital. Finally, strengthening our leadership team by bringing on a new president and COO. All of this enables and inspires our team to consciously pivot toward becoming a stronger, faster, and smarter brand and company.
We have line of sight and are committed to taking all actions necessary to capitalize on our existing strengths to address opportunities to run an operationally excellent company and position Under Armour to deliver sustainable long-term growth and returns for our shareholders. We are in this fight. Dave?
Thanks, Kevin. Before we get into the quarterly results and our updated outlook for 2017, I'd like to provide a bit of context around the restructuring plan that we announced this morning and the one-time items that will impact our full-year P&L. In conjunction with this plan, we anticipate taking pre-tax restructuring and related charges of approximately $110 million-$130 million in fiscal 2017, including up to $70 million in cash-related charges, consisting of approximately $25 million in facility and lease terminations, $15 million in employee severance and benefit costs, and $30 million in contract termination and other restructuring charges. Up to $60 million in non-cash charges, comprised of approximately $20 million of inventory-related charges and approximately $40 million of intangibles and other asset-related impairments. With respect to timing, we anticipate taking the majority of these charges in the third quarter. Moving to our second quarter review.
Revenue was up 9% to $1.1 billion. This was slightly stronger than our outlook due to timing shifts we cited on our last call associated with upgrading our enterprise resource planning system. To give a quick update on that effort, in early July, we went live with SAP's FMS, or Fashion Management Solution. This system, along with our evolving category management structure and Connected Fitness business, creates a powerful, unique, and data-driven connection with our consumers. One month in, we're pleased with our progress so far. Back to revenue. Let's take a look at how the 9% increase breaks down. By product type, apparel revenue increased 11% to $681 million, driven by strength in men's training, women's training, and golf. Our premium innovation platforms led by Threadborne, combined with our focus on improved assortments and newness, continue to resonate with our consumers around the world.
Revenue for our footwear business was down 2% to $237 million, as we lapped a 58% increase in the second quarter of last year, which had significant strength in basketball sales. Additionally, our efforts to manage inventory appropriate to the North American marketplace negatively impacted us in the quarter. Revenue for accessories increased 22% to $123 million in the quarter, with solid results from men's training, women's training, and youth performance. Looking at revenue by channel, our wholesale business was up 3% to $655 million, reflecting strength in international, partially offset by an uneven North American business. Direct consumer revenue grew 20% to $386 million, with growth in all three concepts: Factory, Brand House, and e-commerce, and in each region around the world. As a percent of total, DTC was 35% of global revenue in the quarter.
Our licensing business grew 20% to $25 million in the second quarter, driven primarily by strength in our sock business. On a regional basis, a dynamic and promotional retail environment in North America tempered results to be in line with last year's same period. As previously noted, we are proactively managing our inventory levels in our largest market while continuing to protect brand health as we navigate the uneven consumer landscape. Our international business delivered strong top-line results, posting a 57% increase in revenue to reach $235 million, or 22% of total revenue in the second quarter. Currency-neutral revenue was up 54%. Clicking down into our international geographies, EMEA revenue was up 57% to $104 million, driven by balanced growth across wholesale and DTC.
Here, we continue to drive strong momentum in our key markets, the U.K. and Germany, while also expanding our presence through newer markets for the brand, including Italy. Asia Pacific revenue increased 89%, driven by strength in China, Taiwan, and Korea, as we continue to see our brand resonate with consumers across key categories like run and basketball. Our Latin American business was up 10%, led by strong growth in our DTC channel. Finally, our Connected Fitness business was down 2% to $23 million. Turning to margins. Second quarter gross margin was down 190 basis points to 45.8% due to continued inventory management efforts, air freight, and foreign currency impacts. These headwinds were partially offset by channel and product mix, which included a lower composition of liquidations. SG&A expenses increased 10% to $503 million as we continue to invest in our long-term growth drivers: DTC, international, and footwear.
This increase was better than planned, due in part to expense management efforts and some timing shifts in demand creation and other expenses. Second quarter operating loss was $5 million. Interest and other income expense was $11 million. Our tax rate was 21% in the quarter compared to 41% last year due to discrete items taken in certain foreign markets. Taking all this to the bottom line, we had a net loss of $12 million in the second quarter, or a loss of $0.03 in diluted earnings per share. Turning to our balance sheet. Cash and cash equivalents was up 37% to $166 million. Inventory was up 8% to $1.2 billion, closely in line with our revenue growth.
Accounts receivable was up 31% due to timing of shipments around the company's ERP implementation and comparisons against last year's same period, which included the bankruptcy of one of our largest wholesale partners. CapEx was down 45% to $82 million. Turning to our full year 2017 outlook, we now expect revenue to be up 9%-11% for the full year, reflecting expectations for our North American business. To provide a bit of color on our quarterly revenue cadence, in the third quarter, given last year's strong growth comparison as well as shifts of revenue into Q2 due to our ERP implementation and into Q4 due to timing of shipments, we expect Q3 revenue to be essentially flat against last year's same period. As a result, in the fourth quarter, we expect revenue to be up at a low to mid-20s percentage rate.
This imbalance between Q3 and Q4 is based on several key factors. Let me take you through them. From a distribution perspective, new North American distribution is extending our ability to reach a segment of consumers not previously serviced. Internationally, we have expanded distribution in both wholesale and DTC, and we are seeing strong sell-through and comps. From a product perspective, we believe new launches, improvements in our assortments, and segmentation position us competitively going into this holiday season. From a channel perspective, the fourth quarter is our largest DTC quarter and is expected to deliver measured growth. Within marketing, our focus and approach is sharper, and our frequency is increasing. Undoubtedly, more spend, more presence, and a stronger, more consistent brand voice will be heard from us in the second half. Finally, we're up against our lowest quarterly comparison from 2016 in this year's fourth quarter.
Moving to gross margin. Due to the higher expected growth of our footwear and international businesses, which carried lower margins than the overall company, we expect mix will be working against us in the second half of 2017. This, combined with our increased actions to manage our inventory, should more than offset benefits from improved product costs. We expect these factors, along with impact from our restructuring activities, should cause our gross margin to be down approximately 160 basis points in 2017. Excluding the restructuring plan, full year adjusted gross margin is expected to be down approximately 120 basis points, with about a point decline in each of the third and fourth quarters.
With respect to SG&A, due to timing shifts in spending around marketing campaigns, international retail investments, and other expenses, on an absolute dollar basis, excluding the restructuring plan, our spend in the third and fourth quarters should be fairly equal. Turning to operating income. Our team remains committed to maintaining the right level of investment to protect the long-term sustainable growth of the brand, with an eye toward streamlining processes and driving towards a leaner and more responsive organization. That said, operating income is expected to be approximately $160 million-$180 million in 2017. Excluding the restructuring plan, adjusted operating income is expected to reach $280 million-$300 million. Interest expense and other expense net combined is expected to approximate $40 million for the full year, with the third quarter being the largest quarter. We're expecting our full year and third quarter tax rate to be approximately 31%-32%.
Taking this to the bottom line, we expect full year diluted earnings per share in the range of $0.18-$0.21. Excluding the impact of the restructuring plan, full year adjusted diluted EPS is expected to reach $0.37-$0.40. Finally, we expect full year CapEx to be approximately $350 million, down from the $400 million we cited in January. In closing, with a restructuring plan and an updated outlook based on moderated expectations for our North American business, we're confident we are taking the right steps in the long run to become stronger, faster, and smarter. With that, I will turn it back to the operator for your questions. Operator?
Ladies and gentlemen, if you'd like to ask a question at this time, please press the star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may do so by pressing the pound key. Again, if you'd like to ask a question at this time, that's star then one. Our next question comes from the line of Bob Drbul with Guggenheim.
Hi. Good morning.
Good morning, Bob.
I have two questions. I think the first one is, when you look at what's happening with the business and some of the trends, especially the top line, can you just give us something where you think the brand health is and the vision for the business today? I think the second question that I'd like to ask is, when you look at the Q4 assumptions, the breakdown between Q3 and Q4, will you have wholesale growth ex the new distribution in that third and fourth quarter?
Yeah. Thanks, Bob. Let me take the first part, and I'll let Dave take the second. As far as what we see for our business and what we let out there, we're incredibly proud, I think, of what's been built. It's a brand and space that's been built on performance. Authenticity has become a bit of a clichéd word, and a lot of people talk about going for authenticity, and there are some companies that are just authentic. We really view that as being a strength of our business and our brand. What we know, though, is that being built on performance, and frankly, we're not going to apologize for our performance heritage and where and who we are, but continue to innovate while bringing more wearing occasions to our business.
We think there's a lot more places that people can wear the Under Armour brand, and it's a matter of us getting the right product to consumer at the right place at the right time. The one thing we know, though, is that it is all about the product. UA is special because we've represented performance, and that gives us permission to go into lifestyle, and we feel that there's a lot of people that are in our space and category right now that don't exactly have the staying power, the ability to be there. We see our performance heritage as a benefit, not a hindrance. Authenticity actually is the hard part. Meanwhile, we're bringing lifestyle into our assortments across the brand.
This isn't a new division or just one line that we have coming out, but style, innovation, lifestyle, things that look like people want to wear are the things that we're driving across our brand to make us a better business. Of course, making products for consumers that especially kids want to wear. When you look at the brand, I think, we've got a lot of products that we're proud of. I mentioned in my script the Threadborne and the Reactor. You have exciting things like the Curry 4 on the footwear side of exciting things to come. When we think about our business as a whole, we absolutely see incredible opportunity, and we're not pleased with where we're positioned right now.
We see that what today's actions are and a lot of things we're doing are putting us in a position for the long term is how we're thinking about 2017. With an international business that's growing more than 50%, with the roster of athletes we have from Jordan Spieth winning the British Open, the Super Bowl MVP in Tom Brady, the former NFL MVP Cam Newton, Misty Copeland, Stephen Curry, two-time NBA MVP, the number one-ranked tennis player in the world, boxing champs, Dwayne The Rock Johnson, and frankly, kids everywhere is probably my favorite MVP. The partnerships we have with more than 40 all-school deals that'll be taking the field this fall across the U.S., including Cal Berkeley and UCLA, that will just kick off a relationship this year, and then setting us up for our new deal with Major League Baseball coming up in 2019.
We have all the pieces in place. It's a matter of our execution. I think what today is about is laying out a plan of how exactly we're going to do that with the confidence that we have to march forward for our business. I can't tell you exactly how people feel, but what I do know is how our athletes, our team, our partners, and I feel about the future and the brand that we've built. We certainly have a lot of work to do, but we have this incredible base. Now today, as we sit here as the world's third-largest athletic brand, it's up to us to execute and deliver on that. Our performance heritage, it's an asset for us, and we need to bring the easy things to bear into the forefront, and that's what we're focused on right now. Dave?
I think, Bob, relative to the question on wholesale growth without new distribution, it's a great question. We don't really give that level of detail on channels, but you can assume that within North America, our wholesale expectations, aside from new distribution, is tempered in our forecast. However, international wholesale growth is still very strong. Hopefully that helps you a little bit.
Great. Thank you very much.
Thanks, Bob.
Our next question comes from Matthew McClintock with Barclays.
Yeah. Good morning, everyone, welcome, Patrik. Kevin, there's a lot going on here. I was curious about the industry backdrop as you execute this restructuring. How do you think about the North American environment as it stands today, particularly given your more moderate outlook? Maybe since you're changing up your game, can you give us your updated thoughts on the ongoing evolution of retail as a whole and how you're positioning yourself to address that shift? Thanks.
Yeah. Thanks, Matt. 2017, it's a unique moment in time for retail, and I think a lot of the things that we've seen and lessons that we've learned so far this year, and really going back over the last nine months or so, have really given us pretty great perspective. We're using 2017, frankly, as the opportunity to position ourselves for the long term. It's the only way for us to think about our business right now, is there's a lot of sort of short-term in this, I think, that is happening. We need to be understanding of that, and we need to react to it, and more importantly, we need to be proactive about what we're doing there. In 2017, though, we're really focused on, I use the word stronger, faster, and smarter.
We're doing all those things to remind people, all the while adding about a half a billion dollars in revenue at the same time. Admittedly, making less money, but we're using that to invest in our business. We want to be a business that has a lot more flexibility, I think, than we've demonstrated in the past. That going from being a North American business to being a global business, an apparel business to being a footwear business, a men's business to being a women's business, a performance business to being a lifestyle business. All these strokes are things that we believe we have developed muscle for them. They just need to get stronger.
When we talk about being a better business as well, we're really focused on that this year, we're going to focus on the executional opportunities that we have in the near term, I think, while building a bigger engine for the long term. I want to just sort of lay out how the first half of this year, we haven't been standing still, and this is nothing that is Hopefully perceiving catching us by surprise is something that we are taking the proactive steps to move forward. Whether it's just on July 1st, having flipped the switch on our new SAP Fashion Management Solution system that just upgraded all of our systems to put us in position to scale for the future.
The new organization structure that we announced, breaking out a go-to-market strategy with a clear digital strategy as well, driving through category management, which will put us to the consumer, which has been going from apparel, footwear, and accessories organization, to truly having leaders that are over top of our running business, our women's business, our training business, our basketball business, et cetera. That's something that, again, puts us in position for the future. Streamlining our organization is one of the things that we outlined on the call today of just how we can get lean to be in position to grow, and do it in the best way, in the most efficient way. I think just from a leadership standpoint and having Patrik join the team and a little less than a month on board, but we feel really good about the direction.
We spent a lot of time going through in the conversations of getting to this point. None of these things I think were reactionary. I think we're ahead of it, but I think we're just seeing some of it come out right now. Finally, if there's one thing I can say just about the current environment of sort of where we are is that, Under Armour is a great brand, we also have an executive team that has certainly been battle-tested. Of course, the ones that you know, but many that you don't know that are behind the lines on this team. I think that we've demonstrated through any undulation in our business, our ability to persevere.
It's been a fight all along as we sit here in our 12th year as a public company and reminding people back to what it was like in 2008, 2009, and 2010. This environment is certainly different, and I want people to know that we're ready and we're emboldened with our new structure, our clarity, and especially our leadership. We're ready to march forward, and as I said in my prepared remarks, we are certainly in this fight.
Thanks for all that color, Kevin.
Our next question comes from Randal Konik with Jefferies.
Yeah, thanks a lot. I really appreciate this added focus on the cost discipline and the efficiency. I guess, Kevin, what I wanted to ask you is, you talked about the word empower, and the leadership bench that you've built here and that you continue to build out with Patrik, et cetera. Can you give us some perspective on how you're thinking about delineating the responsibilities of the different areas of focus? What are the three or four yardage markers that you're going to be looking at on a, I don't know if it's a weekly basis or a monthly basis, or whether it be inventory turns or some other metric.
What are you looking at to try to make sure that the firm is getting into a better place from an execution standpoint so that we can, and the market can get that greater confidence in what you're building there? Thank you.
Yeah. Thanks, Randy. First of all, I'm sitting with two partners that are going to help me do that, so it's nothing I'm going to be doing by myself, I think is the most important thing, is reliance on the engine that's built this company has been team all along. When I look at where we need to go, the operational, I think people would say is, it's probably some of the easier things to do. I think what I highlighted in some of my earlier answers, were more about the difficult thing is having the stable of athletes like we have that we're so proud of. It's having the positioning of being an authentic brand. It's having the list of assets that we have across teams and leagues that we put to place.
At the end of the day, it comes down to one very simple thing, and it just comes down to product. When we think about how we're going to grow and what we're looking for as a company, there's three real important things that matter. It's of course product, the storytelling that we do, and the way and where of where we meet consumers. From a product standpoint, I think it's important to understand that we have always demonstrated one of the strongest points of view in our industry. The product combining innovation with style and things like Unstoppable, a new line that we crash] this year that we'll be rolling out exclusively with Dick's Sporting Goods, for instance. Our Reactor, Threadborne, sleepwear, Bandit, the Curry 4 that's coming out, and so many more in the back half of the year.
The one thing that we need to do is ensure that we are a product engine. That when we look at our business, is that we just have this relentless flow of innovative product. I can tell you, I've been spending the majority of my time inside of that pipeline, and I'm incredibly enthused by what we see and the things that we have coming out. Doing that all with beyond just the performance eye, but doing it with the stylistic eye as well. Ensuring that that happens for us, and then of course, making sure that the consumer just loves what we do. Updating our assortments, particularly, I know a big word for us has been segmentation. I want to be clear, is that we feel really good about the product that we have and that we're putting in the marketplace.
We're excited that it gets better and better every single season. Our job is to take the consumer to a place that they didn't know that they could expect an athletic brand to be for them. I think we've done that throughout our history, and we're excited about what the future looks like for that happening as well. I also wanted to say, in the near term, how we've adjusted the balance of product that we've had, which is decrease many of the core and key items that we've had. We were very much a key item focus, a big logo hoodie and things in store. Now we've had a lot of balance of that around versatility, layering, newness.
Also, frankly, what happened to us in the fourth quarter of last year, and one of the things I'm going to be watching really closely is just how we're proactive with things like our pricing strategy out in the marketplace. It's been a competitive environment and that people have been basically predatory out there, and we feel the ability that we weren't in a position to fight. While we feel good about the product we'll have in the marketplace, we have lots of levers, and we will not be caught off guard, that is for sure. From a storytelling standpoint, I want to overemphasize is that a large part of what we're talking about today is how we will be investing in this brand.
We will be telling our story in the back half of this year. You'll see increased brand heat coming from us, frankly, spending against that. Of course, there's the things that are the obvious of spending against social and digital to create the more always-on experiences like we just did with our Unlike Any campaign for women, featuring Misty Copeland amongst a number of other athletes. It's also going to be the storytelling that we have around some of these moments in time that occur. That with Jordan Spieth going for the career Grand Slam as the youngest golfer to be able to do that, are some of the extraordinary things we have. I mentioned the teams that we have taking the fields this year with the fall sports, and then, of course, some of our new athletes coming on.
I think we feel we are in a position to give you some of what. We can play a little bit of Freebird when you think about Under Armour marketing, that there are things that people come back that they're looking for and they're expecting from us. We also know that our job is delivering them, and part of that, what they expect from us, is delivering them the unexpected. Finally, what I'd say as I look at the back half of the year is just monitoring what we're doing and thinking how successful we are from a segmentation standpoint with our distribution, of just looking and making sure that, I've said for a while that we are officially out of acquisition mode and into activation mode.
That's never been more true than anything around our distribution, particularly our wholesale distribution, and how we are out in the marketplace. We feel really good about it, and our job now is just making every place we do business great. If our customers win, Under Armour is going to do just fine, and that's how we view the world. We also have, I think, this opportunity with our international growth, from EMEA, where we're seeing great growth in Europe right now, and then China continues to be a bit of a juggernaut for us. The North America imbalance that we have of 80% of our business roughly coming from this continent is something that we look to build that diversity, just like we look to build diversity to lifestyle from performance and from men's to women's and from footwear to apparel.
We feel like we're just getting going and really just beginning there.
Our next question comes from Kate McShane with Citi Research.
Good morning. Thanks for taking my question. In your guidance, I was just wondering how we should think about footwear growth in the second half, especially ex the increased distribution, with your new customers. Just a couple of other questions, in terms of better understanding what drove the acceleration in DTC from Q1 to Q2. Finally, with regards to inventory, how should we think about the inventory management effort and where you expect to be by the end of the year?
Hey, Kate, this is Kevin. Let me take the footwear question first. If you don't mind, I am going to give a bit of a broader answer so I can just expand a little bit about where we are and how we see footwear. Footwear remains, frankly, our largest opportunity. We talk about lifestyle being a major opportunity. Obviously, footwear is a part of that. Having our footwear engine intact and having it ready to run for us is where our company has been focused.
What we can tell you as we sit here in what seems like year 11, although we spent the first six of those introducing new categories from football cleats, baseball cleats, training shoes, running shoes, basketball shoes, et cetera. We are now finally in a place that we have position, we have design, we have supply chain, merchandising, style, and influencers. We feel like we are in that position to do it. We just have to execute on it. We have built global innovation centers around the world that we have now, innovation centers where we are making product, as well as innovation centers that we have here in Baltimore, including our new headquarters that we just opened up in Portland, which is something that we are using to really be able to tap into the talent pool that exists there.
We remain, though, as we talk about positioning, a very much performance brand. We continue to build momentum there in some of our on-field, on-court categories like running, basketball, cleated. We have also learned a lot of lessons, particularly in some of those hardcore places like run specialty. We are a business where the majority of our distribution was focused below $100 in price points, $80 to $100. We are more focused on $100 and above. It does not mean we are not going to continue to target to make that best-in-class product. We believe that we have some incredible things in the pipeline that are coming in the fall and frankly, in the spring of 2018. It means we also have to right size, I think, the product that we have and the distribution where we are selling it.
We are still going to be building high-end premium product with, again, those exciting launches, things like Curry and things like Bandit that we have. I think it is important to understand the positioning that we want to do to just be a better footwear company with how we align in the places where we are selling with the best product for that consumer. Blending that true performance with lifestyle is something that we understand. We are not sitting here tone-deaf saying we are just going to make cleats. We understand what the market is asking for, and I think a good answer that we have, especially most recently, is something that was pretty well-received, was the C1N, the Cam Newton new training shoe that we have, with a lifestyle bent to it, but absolutely something that works in the gym.
What we're not going to do is tear up the script on what's made us an authentic brand and allow us to be able to position to move forward. In footwear, let me maybe basically sum it up by there's three things we're focusing on is innovation and building great product, first and foremost. Connected shoe that we launched this year is something that we see has the ability to continue to get better and be able to build a market there. I talked about the UA Icon, the customization, personalization side for the kid who's saying, "I want to be different just like my friends." We think that we can now answer and have a position in that style and that stroke for the consumer. Of course, lifestyle remains this massive opportunity for us.
With styles we have like the 24 Seven, the Street Encounter, the Threadborne Shift, and several others that you'll see coming out from our UAS line as well. At the same time, we've also done a pretty good job of building some franchises and something we think we can build on with that, like Gemini and Slingflex in running, the Highlight and Spotlight in cleated, the Curry and Drive in basketball, things like the C1N, as well as the Dwayne Johnson, Project Rock Delta shoe that we have coming out. We positioned ourselves in footwear. There's one of two decisions, either being a small company or going for it. The reason that we've expanded the distribution that we have, it particularly affects us on the footwear side.
We're going to make a meaningful number of pairs of shoes this year that'll give us the attention and the scale that we need in order to be a long-term player in this space. A lot of what you're hearing today is how Under Armour is positioning for the long term, and I think that plays out in no category more so than footwear.
Kate, this is Dave. Relative to your questions on DTC and inventory, DTC Q2 versus Q1, in North America, some of that growth is from North America Factory House with some new doors and also I think with some more proactive pricing approaches there. Also North America E-com did pretty well in Q2. There's a big push within international. We've got a lot of new doors internationally, especially in Greater China, that are doing phenomenal for us. It's really a combined effort across all of those areas. When you look at inventory growth, obviously in Q2, we're pretty in line with revenue growth for the quarter. As we move forward through the year, Q3 inventory growth will be a little bit higher than revenue growth.
We talked about this three months back around our strategy of taking some more returns, keeping the floors a little bit fresher, and then having to process and move that inventory through brand- right channels for us, and sometimes that means holding it over from a season perspective. Some of that impact you'll see in Q3. As we get into Q4, you'll see a little bit of that as well, but you'll probably see inventory growth a little bit more in line with Q4 revenues as we get to the end of the year.
Thank you.
Our next question comes from Jonathan Komp with Robert W. Baird.
Hi, thank you. Kevin, a bigger picture question on the commentary around shifting to more of a returns-focused and disciplined financial model. I would assume even most growth companies kind of long-term are at least cognizant of returns. Could you maybe just comment more specifically on what that shift means for Under Armour? Maybe beyond 2017, does that mean you're expecting kind of a permanently slower growth rate as you prioritize returns, or how to think about that?
Jon, this is Dave. I'll take that. High level, we talked about this a little bit three months back as well, again, as we look at working with our accounts and really wanting to make sure that we're keeping the floors as clean as possible and renewing with fresh product and making sure it's season- right and weather- right product, we're just being a little bit more proactive in bringing that inventory back. Also looking to move that more through our Factory House stores as we bring it back, a lower percentage of that going to third-party liquidation, again, to continue to protect the brand as much as we can and work down that made-for-outlet percentage in our Factory House stores going forward.
As we move forward into future years, we're going to continue to monitor and make sure that the stores are fresh and we're giving them new product. I wouldn't think that that has any real significant impact on long-term growth rates.
Yeah, sorry, just to clarify, I actually meant more along the lines, one of the six pivot areas you mentioned from a financial returns model, more from kind of a P&L-driven focus to ROIC kind of returns-driven focus. Maybe if you could address that topic.
Yeah, I'm sorry. I apologize. From that perspective, we are definitely evolving. It is a pivot for us. Not that top line is any less important, there's definitely a more significant focus on profitability and on return on investment in every way we look at our business and being much more strategic from that perspective. I think with Patrik and I working together, we're going to continue to drive that with Kevin's partnership, we're pretty excited about what that can mean. We work through this restructuring plan this year and think about the go forward of that and how we move forward, we are pretty excited. I think, whether it's looking at different aspects, even just on our balance sheet relative to working capital improvements, relative to more strategic prioritization of CapEx, and really trying to move that return on invested capital needle back up.
Also, again, looking at how we spend, where we spend, and making sure that we have the ability to reallocate spending to the right places that are really going to support the long-term sustainable growth of the company in areas like digital, in areas like international, women's, lifestyle, our new SAP system, et cetera. Some of it is about getting leaner and focusing on profitability, but some of it is also trying to free up as much funding as possible to reinvest in the right areas for the longer-term growth while maintaining that improved profitability.
That renewed focus, too, Jon, it's not like we were running blind before. None of this was ill-intentioned or some of this being irresponsible. It was just a matter of taking a new lens on, of taking stock of what we have today. I think the assets that we have, the asset lists that we have today, and just saying, how can we run it more efficiently? There's a lot of good reasons as to why we got to sort of how we've been operating in the past.
Frankly, now that you just look and saying our position as the third largest brand, the $5-plus billion in revenue, I think just the cost structure that we've built and the opportunities we have, there's a chance for us just to be a much better company, to be able to create and drive more through the bottom line, I think, while delivering more to our consumers. Because everything for us comes back to one basic thing, and that's the brand. As long as we protect that, as long as we drive that, there'll be a lot of growth in front of us, and we see, I think, delivering back to the kind of growth to consumer that our shareholders would expect from us.
Jonathan, one other thing I would also add to that is, as we continue to grow extremely well internationally- That percentage of our business is increasing significantly each year. With that scale and with that leadership, those regions are becoming much more profitable each year as well. As that mix of business continues to help with our growth rate overall as a company, it's also going to be helping us become more profitable as well, and that's a bigger part of the equation in the future years.
Our next question comes from Michael Binetti with UBS.
Hey, guys. Good morning. Thanks for taking my question.
No problem.
David, just one quick housekeeping question. Could you add some color on the wholesale revenue shifts that you mentioned that impact third quarter, please? I think you mentioned some shifted into 2Q out of 3Q and some into 4Q out of 3Q. Would you mind helping us put some context to the dollars associated with those shifts?
We won't give the exact dollars, as we were approaching the SAP FMS go-live, we were proactively talking with accounts and making sure everybody was comfortable with the transition. Even though the transition has gone very well as planned, some of those accounts obviously had some angst, maybe from other partners that have gone through transitions, and they wanted to get some of that product early in case there would end up being delays in July or August because of the actual conversion. That's what was part of what drove the Q2, Q3 conversation there. Also as we're ramping up processing in our distribution facilities in North America and Europe, which have now gone live on SAP FMS, we're trying to be prudent around processing and making sure we're going through that in the right way with the new system.
That's involved as well in whether or not there's going to be a little bit of that that ekes into Q4 from Q3. Those are a couple different factors that get into that Q3 growth rate that we discussed.
I guess, just to focus on one thing, as we look through the numbers here, the international business is certainly been a bright spot and very resilient. You've talked with us a little bit through the quarter about profitability in that business. It's moving along a little, but it's really hard for us to assess from the outside with all the moving parts. Could you talk to us about how you think the margins in that business scale based on the plan you have in front of you today for the international side?
In general, again, from a top line, we'll talk about bottom line. Top line has been very strong for us. International has grown over 60% the last three years in a row. We're moving to over 20% of our business in 2017. Exceeding a $1 billion mark this year is where we're heading. Growth rate has been great. I think, when you break it down by region, Asia Pacific has been really strong for us. China growing very well. We're adding Korea, Taiwan doing very well. It's also one that's becoming the most profitable for us. The combination of that high growth rate and the higher profitability and fairly decent gross margins there, is really giving us some momentum on the bottom line.
When you look at EMEA, they've had almost a renewed or re-accelerated growth rate as we're going into Q3, Q4 with some of the partnerships and relationships that they have. Really also getting a lot of traction with the right marketing investments there with the EPL teams, as well as offices in Amsterdam, Manchester, Munich, and also getting France online. We're seeing increased brand awareness there and increased profitability. You probably didn't see it as much with EMEA in Q1 and Q2. We had some costs that came through in Q1 relative to moving to a subsidiary in one of the countries from a distributor. In Q2, with their go live of SAP as well, they had a little bit heavier cost of goods sold due to some air freight and timing to be ready for that ERP system implementation.
When you think about full year profitability for EMEA, it will be increasing significantly over 2016. When you look at Latin America, which is our newest international market, it's going to take time. We're going through a lot of great steps there to drive forward. They're gaining momentum, and they are increasing from a bottom-line perspective, but it's going to take a little bit more time there versus Europe and Asia Pacific.
Thanks for all the help, guys.
Thank you.
That concludes today's question and answer session. I'd like to turn the call back to Mr. Plank for any closing remarks.
Yeah, thank you. To close it out, I just wanted to tell you, we enjoyed hyper-growth for several years, and I want to be clear that we still believe we remain a growth company. The restructuring plan that we spoke about is a demonstrative sign that we're not standing still, but acting quickly to evolve Under Armour to become a stronger, faster, and smarter company. The decisions we've spoken of today support our vision of building the best athletic brand in the world. Some of the growing pains that we feel, while difficult, are the ones we believe necessary in securing the infrastructure, systems, processes, leadership, and discipline to realize the full strength and potential of the Under Armour brand. Reinforcing and building the Under Armour brand remains a vision for our company, and we are in this fight.
We've got a couple competitors in front of us, and there's a number behind us, and you'll see us continue to separate ourselves as we move forward in building the brand that we believe is the brand of the future. Thank you all for your time today. Look forward to talking to you next time in 90 days. Bye-bye.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.