Under Armour, Inc. (UA) Earnings

Management highlights

- Business Transformation & Strategic Direction * The company is in a transformation phase focused on quality over quantity of revenue and SKUs, prioritizing healthy long-term growth over short-term volume that would erode brand positioning. * A further 25% SKU reduction is targeted over the next 18 months, on top of the 25% already achieved, to reduce organizational complexity, free up team capacity, and concentrate investment behind high-potential core franchises including HeatGear, Velocity, and StealthForm. * The core strategic credo is: "sell so much more of so many less products at a much higher full retail price", with a focus on reducing reliance on promotions and discounting to rebuild brand value. - Product Innovation & Proof Points * Key high-profile athlete moments validated product performance: Sharon Locati won her second consecutive Boston Marathon in Under Armour's Velocity Elite 3 running shoe, and Ferran Torres scored the 2026 World Cup winning goal for Spain in Under Armour's Shadow Elite 4 football boot. * The newly launched Bouncy Tee exceeded all sales expectations, selling entirely at full $65 retail price, and serves as a model for future product launches combining innovative material technology, consumer-centric design, integrated cultural marketing, and strong retail execution. * Core legacy products are being refreshed and premiumized: the core Tech Tee line is being updated, and a new premium Helix Tee will launch later in 2026 at $35 with enhanced performance features, targeting trade-up consumption. * Early positive demand signals have been seen in new apparel concepts, with core base layer (HeatGear) remaining strong across all regions and channels, and the Velocity running platform continuing to validate technical innovation. - Operational & Organizational Changes * The company has consolidated its innovation footprint, right-sizing the Portland office to strengthen decision-making speed at the Baltimore and New York hubs, and completed a restructuring plan that is substantially on track to be complete by December 2026, with total expected restructuring costs of ~$305 million. * Marketing spend is being rebalanced to improve efficacy: marketing as a percentage of revenue will be lower this year than originally planned, but this is a reallocation and efficiency effort, not a cut to core brand-building investment. The company is focusing on fewer, larger, more product-aligned activations with clearer ROI measurement. * DTC channels are being reset to reduce promotion dependency, with more full-price product testing and improved alignment between product storytelling and consumer access; wholesale partnerships are being strengthened, with key in-store activation examples including the back-to-school takeover at Dick's House of Sport. * Inventory management remains disciplined: Q1 2027 inventory was $1.1 billion, down 3% year-over-year, in line with the revenue decline, and inventory composition is healthy with most stock being current-season with active demand. - Balance Sheet Updates * The company settled all remaining principal and interest on the 2026 senior notes during the quarter, improving the debt profile, and completed an amendment to its revolving credit facility on favorable market terms. It ended the quarter with $396 million in cash and $200 million drawn on the revolver.

Guidance

- Full-Year Fiscal 2027 Guidance: * Revenue: Revised downward from slight year-over-year decline to a mid-single-digit year-over-year decline, reflecting softer-than-anticipated consumer demand and increased promotional competition, particularly in North America and Asia Pacific. * Adjusted Operating Income: Maintained at the prior guidance range of $140 to $160 million, supported by tighter cost management and SG&A efficiency that offsets lower projected revenue. * Gross Margin: Maintained expectation of 220 to 270 basis points of year-over-year expansion, including ~150 basis points of benefit from IEPA tariff refunds, with underlying gross margin improvement still expected from pricing actions and lower discounting, partially offset by supply chain pressures from the Middle East conflict. * Adjusted SG&A: Revised to a low single-digit year-over-year decline, reflecting active cost cutting, sharper investment prioritization, and the more focused marketing efficiency initiative. * Adjusted Diluted EPS: Full-year outlook remains unchanged from May 2026, consistent with the maintained adjusted operating income guidance. * Regional Revenue Guidance: - North America: Now expected a mid-single-digit year-over-year decline. - EMEA: Now expected a low single-digit year-over-year decline, down from prior growth expectations, reflecting increased competitiveness and emerging consumer headwinds. - Asia Pacific: Now expected a low single-digit year-over-year decline, reflecting softer demand in China and Southeast Asia. - Second Quarter Fiscal 2027 Guidance: * Revenue is expected to decline at a high single-digit year-over-year rate, with high single-digit declines in North America and Asia Pacific and a low double-digit decline in EMEA. * Gross margin is expected to be roughly in line with the year-ago second quarter, with favorable product costs and pricing offset by unfavorable foreign exchange and mix. * Adjusted SG&A is expected to decline at a low single-digit rate, driven by lower marketing spend and continued discretionary cost control. * Adjusted operating income is projected to be $10 to $20 million, with an adjusted diluted loss per share of 1 to 3 cents. - Key Back Half Assumptions: * The second half of fiscal 2027 is expected to see an improved revenue run rate compared to the first half, driven by new product launches, key retail partner initiatives, and continued marketplace discipline, with no large hockey-stick acceleration expected.

Segment performance

By Region: - North America: Revenue decreased 9% year-over-year, impacted by softer spring-summer wholesale orders and traffic headwinds across e-commerce and retail. - EMEA: Revenue increased 12% (10% constant currency), driven by distributor business growth, partially offset by slight declines in DTC and full-price wholesale. Revenue contribution for the quarter was not explicitly stated. - Asia Pacific: Revenue decreased 7% (10% constant currency), reflecting greater-than-anticipated softness in China and Southeast Asia; China results were additionally impacted by stockouts in key styles/sizes and aggressive discounting from licensees. Revenue contribution was not explicitly stated. - Latin America: Revenue increased 8% (1% constant currency), driven by favorable foreign exchange. By Channel: - Wholesale: Revenue decreased 2% year-over-year, with declines in full-price wholesale and third-party off-price channel sales, partially offset by distributor growth. Revenue contribution was not explicitly stated. - Direct to Consumer: Revenue decreased 6% year-over-year, with a 3% decline in owned and operated stores and a 12% decline in e-commerce. Revenue contribution was not explicitly stated. - Licensing: Revenue increased 2% year-over-year, with international growth offsetting lower North American revenue. Revenue contribution was not explicitly stated. By Product Category: - Apparel: Revenue down 2% year-over-year, with declines across most sport categories partially offset by growth in sportswear. Makes up the majority of Under Armour's product revenue, with exact percentage not stated. - Footwear: Revenue down 8% year-over-year, driven by general demand softness and assortment optimization actions; largest declines in team sports, sportswear, and training, partially offset by growth in outdoor and golf, with the run business flat. The second largest product segment by revenue, exact percentage not stated. - Accessories: Revenue decreased 4% year-over-year, with softness in train, outdoor, and golf, partially offset by growth in sportswear. The smallest product segment by revenue, exact percentage not stated.

Risks & headwinds

- Softer-than-anticipated consumer demand and traffic declines since mid-May 2026 in North America and Asia Pacific, particularly in middle-income consumer segments, paired with an increasingly promotional retail environment driven by competitors clearing excess inventory, has pressured top-line results. * In China, ongoing demand softness, inventory availability issues for key styles and sizes, and unaligned aggressive discounting by licensees have negatively impacted regional performance. * Supply chain pressures related to the ongoing Middle East conflict create uncertainty for input and logistics costs for the remainder of the fiscal year. * Recent changes to US tariff policy (effective July 24, 2026) create ongoing uncertainty, though management's 10% tariff assumption for the remainder of the year is currently considered appropriate. * The EMEA region, particularly the UK, is facing heightened price sensitivity and aggressive promotional competition from peers, pressuring revenue growth prospects.

Analyst Q&A

• Q: UBS analyst Jay Soule asks about the intentionality behind the successful Bouncy Tee launch, what learnings can be applied to future product pipeline, and how Under Armour achieved the cost discipline needed to maintain operating income guidance despite lower revenue. /

  A: Plank explains the Bouncy Tee was intentionally designed as a proof of concept for Under Armour's new product strategy: it combines proprietary sustainable innovative material (Neolast fiber), consumer-focused design, and integrated cultural marketing across North America and APAC, and was built to demonstrate Under Armour can deliver compelling products that command full price. The formula of clear innovation, simple consumer storytelling, coordinated marketing, and strong retail execution will be the new bar for all future product launches. For cost discipline, management says the team is focused on increasing marketing spend efficacy rather than just increasing spend, finding efficiencies across all expense lines from large marketing allocations to small operational costs. The decision to lower revenue guidance but maintain operating income reflects intentional discipline to protect brand health by avoiding chasing low-margin promotional volume, rather than a retreat from future investment.

• Q: Williams Trading analyst Sam Poser asks where the 25% additional SKU cuts are targeted, and whether inventory will decline more sharply than revenue as the company liquidates cut SKUs. /

  A: Plank explains SKU cuts target the long tail of low-productivity SKUs, reducing organizational complexity and removing excess weight from the business, allowing teams to go deeper on high-performing core products that already have consumer demand. The goal is higher productivity per SKU, cleaner inventory, and stronger full-price sell-through over time, with near-term revenue trade-off reflected in the current guidance. Reza adds that the 25% cut is implemented over 18 months, so excess inventory of cut SKUs will be worked off through the natural sales cycle, rather than a fire sale. New full-price core products will offset the volume from cut SKUs, so overall inventory is expected to trend in line with revenue for the full year, rather than declining sharply.

• Q: BTIG analyst Bob Durbel asks what drove the downward revision to full-year revenue guidance over the past 90 days, and what is the core marketing focus for the brand today. /

  A: Plank confirms the downward revision is a responsible reflection of sharper-than-expected traffic deterioration in North America and Asia Pacific starting in mid-to-late May 2026, paired with increased competitive discounting particularly in Europe. The core strategy remains unchanged: the company is prioritizing long-term brand health over chasing short-term low-quality revenue. For marketing, Under Armour is focused on increasing consistency of messaging and activation across all regions and categories, converting high-profile athlete winning moments (Boston Marathon, World Cup, MLB All-Star Weekend) into commercial sales, coordinating product and marketing around core high-potential products, and maintaining a mix of sports, entertainment, and collaboration activations to reach different consumer segments. The marketing team is already executing strong activations, and the current focus is just better alignment between marketing investment and product commercialization.

• Q: Goldman Sachs analyst Brooke Roach asks how much of the North America second quarter revenue decline is macro-driven versus proactive strategic choice, and what drives expected back half improvement. /

  A: Reza explains the expected improvement in the back half revenue run rate relative to the first half comes from planned new product launches and key retail partner initiatives, paired with continued intentional discipline to not chase low-margin promotional volume that would erode gross margin. Most of the near-term decline reflects macro softness and traffic headwinds, but the proactive decision to avoid chasing discounted volume contributes to the lower revenue guidance, which allows the company to maintain its gross margin and brand positioning targets. Back half improvement is driven by new products rather than an assumed improvement in the macro environment.