8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ________________________________________________________________________________ 

FORM 8-K

 ________________________________________________________________________________ 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 31, 2013

________________________________________________________________________________  

UNDER ARMOUR, INC.

 ________________________________________________________________________________ 

Maryland	001-33202	52-1990078
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)
1020 Hull Street, Baltimore, Maryland		21230
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (410) 454-6428

(Former name or former address, if changed since last report)

 ________________________________________________ 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On January 31, 2013, Under Armour, Inc. issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2012. A copy of Under Armour’s press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. Under Armour has scheduled a conference call for 8:30 a.m. ET on January 31, 2013 to discuss its financial results, and a portion of the script for that call is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit 99.1: Under Armour, Inc. press release announcing financial results for the fourth quarter and year ended December 31, 2012.

Exhibit 99.2: Portion of conference call script for January 31, 2013 conference call.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	UNDER ARMOUR, INC.
Date: January 31, 2013	By:	/s/ BRAD DICKERSON
		Brad Dickerson
		Chief Financial Officer

EX-99.1

Exhibit 99.1

Under Armour, Inc.
1020 Hull Street
Baltimore, MD 21230
CONTACTS
Investors:
Tom Shaw, CFA
Under Armour, Inc.
Tel: 410.843.7676
Media:
Erin Wendell
Under Armour, Inc.
Tel: 410.454.6570

FOR IMMEDIATE RELEASE

UNDER ARMOUR REPORTS FOURTH QUARTER NET REVENUES GROWTH OF 25% AND FOURTH QUARTER EPS GROWTH OF 51%

• Fourth Quarter Net Revenues Increased 25% to $506 Million; Full Year Net Revenues Increased 25% to $1.835 Billion

• Fourth Quarter Diluted EPS Increased 51% to $0.47 from $0.31; Full Year Diluted EPS Increased 31% to $1.21 from $0.92

• Company Updates 2013 Net Revenues Outlook to a Range of $2.20 Billion to $2.22 Billion (+20% to +21%)

• Company Updates 2013 Operating Income Outlook to a Range of $255 Million to $257 Million (+22% to +23%)

Baltimore, MD (January 31, 2013) - Under Armour, Inc. (NYSE: UA) today announced financial results for the fourth quarter ended December 31, 2012. Net revenues increased 25% in the fourth quarter of 2012 to $506 million compared with net revenues of $403 million in the prior year's period. Net income increased 54% in the fourth quarter of 2012 to $50 million compared with $33 million in the prior year's period. Diluted earnings per share for the fourth quarter of 2012 were $0.47 on weighted average common shares outstanding of 107 million compared with $0.31 per share on weighted average common shares outstanding of 105 million in the prior year's period.

Fourth quarter apparel net revenues increased 25% to $405 million compared with $323 million in the same period of the prior year, driven primarily by Fleece, which included a broader expansion of the Storm platform across the category. Fourth quarter footwear net revenues increased 43% to $45 million from $31 million in the prior year's period, primarily driven by new 2012 running styles, including UA Spine, and strong sell-in of new 2013 baseball cleats. Fourth quarter accessories net revenues increased 16% to $43 million from $37 million in the prior year's period.Direct-to-Consumer net revenues, which represented 39% of total net revenues for the fourth quarter, grew 29% year-over-year.

Kevin Plank, Chairman and CEO of Under Armour, Inc., stated, “We closed 2012 strongly, delivering net revenue growth of at least 20% for the eleventh consecutive quarter in Q4 by building upon key apparel technology platforms like Storm Fleece and Charged Cotton. Our ability to bring practical innovation to our consumer across a broad range of product drove our 25% net revenue growth in 2012 and positions us well for 2013 and beyond. With these strong results in hand, we are well on our way toward delivering on the goal established at our June 2011 Investor Day to more than double our net revenues from 2010 to 2013.”

Gross margin for the fourth quarter of 2012 was 50.3% compared with 51.6% in the prior year's quarter, primarily reflecting less favorable sales mix and higher air freight costs. Selling, general and administrative expenses as a percentage of net revenues were 34.2% in the fourth quarter of 2012 compared with 37.9% in the prior year's period, largely reflecting leverage of corporate services and marketing expenses. Marketing expenses for the fourth quarter of 2012 were 9.7% of net revenues compared with 10.9% in the prior year's quarter. Fourth quarter operating income grew 48% to $82 million compared with $55 million in the prior year's period.

Review of Full Year Operating Results

For the full year 2012, net revenues increased 25% to $1.835 billion compared with $1.473 billion in the prior year and compared with the Company's prior outlook of $1.82 billion. Diluted earnings per share for the full year increased 31% to $1.21 per share on weighted average common shares outstanding of 106 million compared with $0.92 per share on weighted average common shares outstanding of 105 million in the prior year.

Apparel net revenues increased 23% to $1.385 billion compared with $1.122 billion in the prior year, led by the Training category which included the expansions of both the Charged Cotton and Storm platforms. Footwear net revenues increased 32% to $239 million during 2012 compared to $182 million in 2011, reflecting the debut of new running styles, including UA Spine, and strength across our cleated businesses. Accessories net revenues increased 25% to $166 million during 2012 compared to $132 million in 2011, primarily driven by headwear and bags. Direct-to-Consumer net revenues, which represented 29% of total net revenues for the year compared to 27% in 2011, grew 34% over the prior year.

Gross margin for 2012 was 47.9% compared with 48.4% in 2011, largely reflecting less favorable sales mix and higher air freight costs. Selling, general and administrative expenses as a percentage of net revenues were 36.5% for 2012 compared with 37.3% for 2011, reflecting leverage of corporate services and marketing expenses. Marketing expense for 2012 was 11.2% of net revenues compared with 11.4% in the prior year. Operating income grew 28% to $209 million in 2012 compared with $163 million in the prior year and compared with the Company's prior outlook of $207 million.

Balance Sheet Highlights

Cash and cash equivalents increased 95% to $342 million at December 31, 2012 compared with $175 million at December 31, 2011. The Company had no borrowings outstanding under its $300 million revolving credit facility at December 31, 2012. Inventory at December 31, 2012 decreased 2% to $319 million compared with $324 million at December 31, 2011. Long-term debt decreased to $62 million at December 31, 2012 from $78 million at December 31, 2011.

Updated 2013 Outlook

Based on current visibility, the Company expects 2013 net revenues in the range of $2.20 billion to $2.22 billion, representing growth of 20% to 21% over 2012, and 2013 operating income in the range of $255 million to $257 million, representing growth of 22% to 23% over 2012. The

Company expects an effective tax rate of 39.0% to 39.5% for the full year, compared to an effective tax rate of 36.7% for 2012. The Company anticipates fully diluted weighted average shares outstanding of approximately 108 million to 109 million for 2013.

Mr. Plank concluded, “In the year ahead, we will drive growth by re-invigorating core categories like Baselayer, continuing to expand our consumer base in Women's and Youth, and introducing the next wave of Under Armour innovation through product such as Armour39 that will debut in the next month. We will open the next generation of Under Armour specialty retail in mid-February in our home city of Baltimore, while we are prioritizing our growth strategies in key markets in Europe, Asia, and Latin America. We will also continue to invest in the right talent, infrastructure, and processes to ensure that we deliver balanced financial results well into the future.”

Conference Call and Webcast

The Company will provide additional commentary regarding its fourth quarter results as well as its updated 2013 outlook during its earnings conference call today, January 31^st, at 8:30 a.m. ET. The call will be webcast live at http://investor.underarmour.com/events.cfm and will be archived and available for replay approximately three hours after the live event. Additional supporting materials related to the call will also be available at http://investor.underarmour.com. The Company's financial results are also available online at http://investor.underarmour.com/results.cfm.

About Under Armour, Inc.

Under Armour^® (NYSE: UA) is a leading developer, marketer, and distributor of branded performance apparel, footwear, and accessories. The brand's moisture-wicking fabrications are engineered in many different designs and styles for wear in nearly every climate to provide a performance alternative to traditional products.  The Company's products are sold worldwide and worn by athletes at all levels, from youth to professional, on playing fields around the globe.  The Under Armour global headquarters is in Baltimore, Maryland, with European headquarters in Amsterdam's Olympic Stadium, and additional offices in Denver, Hong Kong, Toronto, and Guangzhou, China. For further information, please visit the Company's website at www.ua.com.

Forward Looking Statements

Some of the statements contained in this press release constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “outlook,”  “potential” or the negative of these terms or other comparable terminology.  The forward-looking statements contained in this press release reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to: changes in general economic or market conditions that could affect consumer spending and the financial health of our retail customers; our ability to effectively manage our growth and a more complex business; our ability to effectively develop and launch new, innovative and updated products; our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; increased competition causing us to reduce the prices of our products or to increase significantly our marketing efforts in order to avoid losing market share; fluctuations in the costs of our products; loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner; changes in consumer preferences or the reduction in demand for performance apparel, footwear and other products; our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; our ability to effectively market and maintain a positive brand image; the availability, integration and effective operation of management information systems and other technology; and our ability to attract and maintain the services of our senior management and key employees. The forward-looking statements contained in this press release reflect our views and assumptions only as of the date of

this press release. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

(Tables Follow)

Under Armour, Inc.

For the Quarter and Year Ended December 31, 2012 and 2011

(Unaudited; in thousands, except per share amounts)

CONSOLIDATED STATEMENTS OF INCOME

	Quarter Ended December 31,										Year Ended December 31,
	2012			% of Net Revenues		2011			% of Net Revenues		2012			% of Net Revenues		2011			% of Net Revenues
Net revenues	$	505,863		100.0	%	$	403,126		100.0	%	$	1,834,921		100.0	%	$	1,472,684		100.0	%
Cost of goods sold	251,628			49.7	%	195,221			48.4	%	955,624			52.1	%	759,848			51.6	%
Gross profit	254,235			50.3	%	207,905			51.6	%	879,297			47.9	%	712,836			48.4	%
Selling, general and administrative expenses	172,643			34.2	%	152,603			37.9	%	670,602			36.5	%	550,069			37.3	%
Income from operations	81,592			16.1	%	55,302			13.7	%	208,695			11.4	%	162,767			11.1	%
Interest expense, net	(1,205		)	(0.2	)%	(1,413		)	(0.3	)%	(5,183		)	(0.3	)%	(3,841		)	(0.3	)%
Other income (expense), net	(634		)	(0.1	)%	1			0.0	%	(73		)	0.0	%	(2,064		)	(0.1	)%
Income before income taxes	79,753			15.8	%	53,890			13.4	%	203,439			11.1	%	156,862			10.7	%
Provision for income taxes	29,621			5.9	%	21,338			5.3	%	74,661			4.1	%	59,943			4.1	%
Net income	$	50,132		9.9	%	$	32,552		8.1	%	$	128,778		7.0	%	$	96,919		6.6	%
Net income available per common share
Basic	$	0.48				$	0.31				$	1.23				$	0.94
Diluted	$	0.47				$	0.31				$	1.21				$	0.92
Weighted average common shares outstanding
Basic	104,687					103,385					140,343					103,140
Diluted	107,121					105,384					106,380					105,052

NET REVENUES BY PRODUCT CATEGORY

	Quarter Ended December 31,						Year Ended December 31,
	2012		2011		% Change		2012		2011		% Change
Apparel	$	404,527	$	323,385	25.1	%	$	1,385,350	$	1,122,031	23.5	%
Footwear	44,714		31,329		42.7	%	238,955		181,684		31.5	%
Accessories	42,601		36,798		15.8	%	165,835		132,400		25.3	%
Total net sales	491,842		391,512		25.6	%	1,790,140		1,436,115		24.7	%
Licensing revenues	14,021		11,614		20.7	%	44,781		36,569		22.5	%
Total net revenues	$	505,863	$	403,126	25.5	%	$	1,834,921	$	1,472,684	24.6	%

NET REVENUES BY GEOGRAPHIC SEGMENT

	Quarter Ended December 31,						Year Ended December 31,
	2012		2011		% Change		2012		2011		% Change
North America	$	472,225	$	377,152	25.2	%	$	1,726,733	$	1,383,346	24.8	%
Other foreign countries	33,638		25,974		29.5	%	108,188		89,338		21.1	%
Total net revenues	$	505,863	$	403,126	25.5	%	$	1,834,921	$	1,472,684	24.6	%

Under Armour, Inc.

As of December 31, 2012 and 2011

(Unaudited; in thousands)

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of 12/31/12		As of 12/31/11
Assets
Cash and cash equivalents	$	341,841	$	175,384
Accounts receivable, net	175,524		134,043
Inventories	319,286		324,409
Prepaid expenses and other current assets	43,896		39,643
Deferred income taxes	23,051		16,184
Total current assets	903,598		689,663
Property and equipment, net	180,850		159,135
Intangible assets, net	4,483		5,535
Deferred income taxes	22,606		15,885
Other long term assets	45,546		48,992
Total assets	$	1,157,083	$	919,210
Liabilities and Stockholders’ Equity
Accounts payable	$	143,689	$	100,527
Accrued expenses	85,077		69,285
Current maturities of long term debt	9,132		6,882
Other current liabilities	14,330		6,913
Total current liabilities	252,228		183,607
Long term debt, net of current maturities	52,757		70,842
Other long term liabilities	35,176		28,329
Total liabilities	340,161		282,778
Total stockholders’ equity	816,922		636,432
Total liabilities and stockholders’ equity	$	1,157,083	$	919,210

Under Armour, Inc.

For the Year Ended December 31, 2012 and 2011

(Unaudited; in thousands)

	Year Ended 12/31/12			Year Ended 12/31/11
Cash flows from operating activities
Net income	$	128,778		$	96,919
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization	43,082			36,301
Unrealized foreign currency exchange rate (gains) losses	(2,464		)	4,027
Loss on disposal of property and equipment	524			36
Stock-based compensation	19,845			18,063
Gain on bargain purchase of corporate headquarters (excludes transaction costs of $1.9 million)	—			(3,300		)
Deferred income taxes	(12,973		)	3,620
Changes in reserves and allowances	13,916			5,536
Changes in operating assets and liabilities:
Accounts receivable	(53,433		)	(33,923		)
Inventories	4,699			(114,646		)
Prepaid expenses and other assets	(4,060		)	(42,633		)
Accounts payable	35,370			17,209
Accrued expenses and other liabilities	21,966			23,442
Income taxes payable and receivable	4,511			4,567
Net cash provided by operating activities	199,761			15,218
Cash flows from investing activities
Purchase of property and equipment	(50,650		)	(56,228		)
Purchase of corporate headquarters and related expenditures	—			(23,164		)
Purchase of other long term assets	—			(3,862		)
Purchase of long term investment	(1,310		)	(1,153		)
Change in restricted cash	5,029			(5,029		)
Net cash used in investing activities	(46,931		)	(89,436		)
Cash flows from financing activities
Proceeds from revolving credit facility	—			30,000
Payments on revolving credit facility				(30,000		)
Proceeds from term loan	—			25,000
Payments on term loan	(25,000		)	—
Proceeds from long term debt	50,000			5,644
Payments on long term debt	(44,330		)	(7,418		)
Excess tax benefits from stock-based compensation arrangements	17,868			10,260
Payments of deferred financing costs	14,776			14,645
Proceeds from exercise of stock options and other stock issuances	(1,017		)	(2,324		)
Net cash provided by financing activities	12,297			45,807
Effect of exchange rate changes on cash and cash equivalents	1,330			(75		)
Net decrease in cash and cash equivalents	166,457			(28,486		)
Cash and cash equivalents
Beginning of period	175,384			203,870
End of period	$	341,841		$	175,384
Non-cash investing and financing activities
Debt assumed and property and equipment acquired in connection with purchase of corporate headquarters	$	—		$	38,556
Acquisition of property and equipment through certain obligations	15,216			3,079

EX-99.2

Exhibit 99.2

Under Armour: Fourth Quarter 2012 Earnings Call, January 31, 2013 (Brad Dickerson)

Thanks, Kevin. I would now like to spend some time discussing our fourth quarter and full year 2012 financial results and our updated 2013 outlook.

Our net revenues for the fourth quarter of 2012 increased 25% to $506 million. For the full year, net revenues also increased 25% to $1.835 billion, which compares to our most recent full year guidance of $1.82 billion.

Apparel grew 25% to $405 million during the quarter, representing the 13^th straight quarter of at least 20% growth for our largest product category. Our big stories driving growth across genders were Fleece and Storm. We were able to significantly expand the Storm platform beyond just the Charged Cotton line last year to now encompass the broader Armourfleece line. Adding value to this product for the consumer was key, as consumers look for more versatility from our assortments.

In Women's, we continued to raise our consumer's expectations with new product categories like Studio and ArmourBra. Youth product led the way from a growth rate perspective in Q4, as we gain shelf space with both existing and new distribution and continue to broaden into areas like graphics, which more than tripled during the quarter.

Our Direct-to-Consumer net revenues increased 29% for the quarter, representing approximately 39% of net revenues compared to approximately 38% in the prior year period. For the full year, Direct-to Consumer net revenues increased 34%, representing 29% of net revenues compared to 27% in 2011. In our Retail business, we opened five new Factory House stores during the fourth quarter, increasing our domestic Factory House store base to 101, up 26% from 80 locations at the end of 2011. In Ecommerce, we achieved a growth rate in line with our overall net revenues growth during the fourth quarter.

Fourth quarter Footwear net revenues increased 43% to $45 million from $31 million in the prior year, representing approximately 9% of net revenues. New running product, led by the UA Spine platform, continues to be the largest contributor to category growth, and we also experienced a strong initial sell-in of our 2013 line of baseball cleats.

Our Accessories net revenues during the fourth quarter increased 16% to $43 million from $37 million in the prior year period.

International net revenues increased 30% to $34 million in the fourth quarter and represented approximately 7% of total net revenues, highlighted by solid growth in the Latin America, Asia, and EMEA regions.

Moving on to margins. Fourth quarter gross margins contracted to 50.3% compared with 51.6% in the prior year's quarter. The three primary factors driving this performance were consistent with our expectation outlined last quarter.

• First, our sales mix was adversely impacted by moving through a higher rate of excess inventory at our Factory House stores, as well as a higher mix of Footwear which carries lower margins than other product categories. Combined, these factors negatively impacted gross margins by approximately 80 basis points.

• Second, given our previously outlined supply chain challenges, we had to air freight some product which negatively impacted gross margins by approximately 50 basis points.

• Third, we realized lower North American apparel product costs, partially offset by higher North American Footwear product costs, which benefitted gross margins by approximately 35 basis points.

Selling, general and administrative expenses as a percentage of net revenues leveraged 370 basis points to 34.2% in the fourth quarter of 2012 from 37.9% in the prior year's period. Details around our four SG&A buckets are as follows:

• First, Marketing costs decreased to 9.7% of net revenues for the quarter from 10.9% in the prior year period. As we have previously outlined, our 2012 marketing budget was more weighted to the second and third quarters to better align with Brand initiatives.

• Second, Selling costs decreased to 10.7% of net revenues for the quarter from 10.9% in the prior year period.

• Third, Product Innovation and Supply Chain costs decreased to 7.6% of net revenues from 8.2% in the prior year period driven by overall expense leverage in these areas given our top line growth.

• Finally, Corporate Services decreased to 6.2% of net revenues for the quarter from 7.9% of net revenues, primarily driven by leverage in corporate personnel, incentive compensation, and administrative costs.

Operating income during the fourth quarter grew 48% to $82 million compared with $55 million in the prior year period. For the full year, operating income increased 28% to $209 million, compared to our most recent full year guidance of $207 million. Operating margin expanded 240 basis points during the quarter to 16.1% and 30 basis points for the full year to 11.4%.

Our fourth quarter tax rate of 37.1% was favorable to the 39.6% rate in last year's period.Our full year effective tax rate of 36.7% was below the 38.2% effective tax rate for 2011, primarily due to state tax credits received in 2012.

Our resulting net income in the fourth quarter increased 54% to $50 million compared with $33 million in the prior year period. Fourth quarter diluted earnings per share grew 51% to $0.47 compared to $0.31 in the year ago period. Full year diluted earnings per share increased 31% to $1.21 compared to $0.92 in 2011.

Now moving over to the balance sheet. Total cash and cash equivalents at quarter-end increased 95% to $342 million compared with $175 million at December 31, 2011. Long-term debt, including current maturities, decreased to $62 million at quarter-end from $78 million at the end of 2011.

Inventory at quarter-end decreased 2% year-over-year to $319 million compared to $324 million at December 31, 2011. The modest decrease of our inventory levels relative to our 25% top line growth during the quarter was primarily driven by the ongoing success of our inventory management initiatives.

Our investment in capital expenditures was approximately $23 million for the fourth quarter and approximately $63 million for 2012. We are currently planning 2013 capital expenditures in the range of $80 to $85 million.

Now moving onto our updated outlook for 2013. Based on current visibility, we expect 2013 net revenues of $2.20 billion to $2.22 billion, representing growth of 20% to 21%, and 2013 operating income of $255 million to $257 million, representing growth of 22% to 23%. Below operating results, we anticipate a comparable level of total interest and other expense in 2013, a full year effective tax rate of 39.0% to 39.5%, and fully diluted weighted average shares outstanding in the range of 108 to 109 million. Of note on the expected tax rate in 2013, we have not assumed a benefit from any state tax credits, which we anticipate pursuing.

Looking further into our operating expectations for 2013, I would like to provide additional color on expected quarterly timing throughout the year.

First on net revenues. As Kevin mentioned, our growth drivers in 2013 are consistent with recent years. We anticipate that most of our dollar growth for the year will continue to come from Apparel with strong growth across Men's, Women's, and Youth. Looking at Footwear, the growth is expected to be slightly above our overall net revenues growth for the year. In Direct-to-Consumer, we expect these channels to grow modestly higher than our overall business, as we open 10 Factory House doors and up to 2 Specialty doors, focus on larger footprints within our existing Factory House fleet, and invest in more targeted traffic drivers in Ecommerce. Finally, we expect our International businesses to outpace overall growth, though still off a small base.

Moving on to gross margin. We continue to anticipate stronger gross margin expansion in the first half of the year relative to the second half, primarily driven by favorable year-over-year product costs expected during the first half. However, we expect several factors to limit the overall progress in the first quarter relative to the second quarter.

• First, as we continue to work through recent supply chain challenges, we expect to incur higher year-over-year air freight costs during the period.

• Second, we expect strong growth in our Latin America region, which is currently a distributor-based business carrying a lower gross margin.

• Third, the mix of excess and made-for product in our Factory House outlet channel is expected to remain relatively consistent year-over-year during the first quarter. We anticipate a shift back toward more profitable made-for product commencing in the second quarter.

Given these factors, we foresee year-over-year gross margin rates as relatively unchanged in the first quarter, followed by over 100 basis point expansion during the second quarter.

In the second half of this year, we will be lapping last year's excess disposition strategy at our outlet stores and incremental air freight. These positive factors are expected to be partially offset by certain changes to our supply base, especially in Fleece. While these changes give us better confidence in measures such as delivery performance and future capacity, the moves will ultimately result in higher North American Apparel product costs.

As a result for the full year, we expect modest gross margin expansion from the 47.9% level in 2012, primarily driven by the first half of the year.

Next on SG&A. As Kevin outlined, we are planning to be more targeted in some of our Marketing expenses this year, which we anticipate will create some significant year-over-year timing shifts. The first quarter in particular is expected to see nearly 350 basis points of deleverage, primarily as we launch a major Brand campaign focusing on innovation and incur costs around our Tottenham sponsorship which commenced in July 2012. We would also expect meaningful leverage of Marketing expenses in both the second and third quarter, followed by a more consistent year-over-year rate of spending in the fourth quarter. Despite these expected shifts, we plan to hold total 2013 Marketing spending relatively flat as a percentage of revenues compared to 2012's 11.2% level.

Beyond Marketing, we expect heightened deleverage in our other three SG&A buckets in the first quarter driven in part by incremental expenses tied to the expansion of our California distribution center, the opening of our Harbor East specialty door in Baltimore, and higher year-over-year incentive compensation expenses. These combined factors are expected to drive the total SG&A expense rate for the first quarter to a range of 44.0% to 45.0% of net revenues. During the remainder of the year, we expect meaningful SG&A leverage in the second and third quarters, and a relatively consistent rate of spending in the fourth quarter. With our overall focus on investments in product creation, International, and innovation, we expect a relatively consistent rate of overall SG&A spending for the full year.

In summary, we anticipate the strategic Marketing decisions planned will result in some significant quarter-to-quarter shifts in SG&A. With these shifts, we expect year-over-year operating income growth to be slightly higher in the second half of the year compared to the first half, yielding modest full year operating margin expansion from 11.4% achieved in 2012.

Before Q&A, I would also like to provide some details around our inventory position. We made some solid strides in our inventory management efforts in 2012 with inventory below our plan the past three quarters. During 2013, we expect the inventory growth rate will remain below net revenues growth rate in the first quarter, and then be generally in line with our top line trends for the duration of the year.

Forward Looking Statements

Some of the statements contained in this script constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the development and introduction of new products, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “outlook,”  “potential” or the negative of these terms or other comparable terminology.  The forward-looking statements contained in this script reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to: changes in general economic or market conditions that could affect consumer spending and the financial health of our retail customers; our ability to effectively manage our growth and a more complex, global business; our ability to effectively develop and launch new, innovative and updated products; our ability to accurately forecast consumer demand for our products and manage our inventory in response to changing demands; increased competition causing us to reduce the prices of our products or to increase significantly our marketing efforts in order to avoid losing market share; fluctuations in the costs of our products; loss of key suppliers or manufacturers or failure of our suppliers or manufacturers to produce or deliver our products in a timely or cost-effective manner; our ability to further expand our business globally and to drive brand awareness and consumer acceptance of our products in other countries; our ability to accurately anticipate and respond to seasonal or quarterly fluctuations in our operating results; our ability to effectively market and maintain a positive brand image; the availability, integration and effective operation of management information systems and other technology; and our ability to attract and retain the services of our senior management and key employees. The forward-looking statements contained in this script reflect our views and assumptions only as of the date of this script. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.