Under Armour, Inc. (UA) Earnings

Management highlights

### Transformation and Strategic Focus - The company is two years into a deliberate business reset, focused on elevating product quality, strengthening the brand, and reducing complexity through structural (not just surface-level) changes - Shifted to a category management model organized into ~12 core sports/activities, aligned around the core priority of making athletes better; all resource allocation is filtered through the question of whether it will help sell more premium products - SKU count has been reduced by 25% over two years, with further reductions planned under the new Chief Merchandising Officer to create a more focused, less complex assortment that benefits both Under Armour and retail/wholesale partners - Core strategic pillars: intentionality, revenue quality over volume, premiumization, and focus on products the brand wants to be famous for ### Product Innovation and Premiumization - Pinnacle performance running footwear has received proof of concept via back-to-back Boston Marathon wins by Sharon Locati in Under Armour's Velocity Elite 3; the brand is now commercializing this credibility across accessible running models including Velocity Pro and Velocity Distance - The new Bounce CT premium t-shirt, launching in late May 2026, is a flagship example of the brand's new premiumization strategy: it brings performance innovation (Pima cotton, Neolast recyclable stretch fiber) to everyday essentials, transitioning seamlessly from training to daily wear - The brand is leaning into its core strength in apparel, the foundational segment of the business, while systematically building its scaled footwear business; focus is on strengthening the top 10 volume-driving products across all categories with better innovation, clearer storytelling, and improved price-to-value positioning to drive healthier margins ### Operational and Organizational Updates - New CFO Reza Taleghani joined earlier in 2026, bringing added focus to capital discipline, financial clarity, and strategic decision-making - A targeted expansion of the company's transformation plan was announced, bringing total expected transformation costs to ~$305 million, with the plan expected to be substantially complete by December 31, 2027 - Inventory is not only lower but higher quality, with improved alignment to consumer demand after deliberate assortment tightening; the balance sheet has been strengthened, with cash and restricted investments on hand to fully cover the senior notes due in June 2026 - Marketing is the next area of focused transformation: the brand is shifting to a more product-led, intentional global marketing strategy, consolidating spend to focus on core products, athlete partnerships, and existing marketing assets, with a focus on improving marketing ROI ### Regional Progress - North America: After significant revenue rebasement in fiscal 2025, early signs of stabilization are emerging, with cleaner inventory, positive product feedback, and strengthening partner engagement - EMEA: Remains a stable, solid contributor to global results, with consistent performance and discipline - APAC: Focused on sharpening operations and efficiency, with a core emphasis on the Chinese market, where the brand has worked to reduce promotional activity and refocus on brand-driven growth

Guidance

• Fiscal 2027 overall guidance: Total revenue is expected to decline slightly (down ~1 percentage point specifically from the Curry brand exit, so underlying revenue is roughly flat excluding that impact). This meets the company's definition of stabilization (+/- 1% to 2%). By region: low single-digit decline in North America, offset by low single-digit growth in EMEA and APAC. Q1 2027 will be the trough for revenue, with growth rates improving progressively through the rest of the year. • Fiscal 2027 gross margin guidance: Expected to expand 220 to 270 basis points versus fiscal 2026. Approximately 150 basis points of this expansion comes from an expected IEPA tariff refund (with $70 million total operating income benefit, most recognized in Q1 2027). Excluding the refund, expansion comes from pricing actions, reduced discounting, and more favorable channel mix, partially offset by ongoing supply chain headwinds. • Fiscal 2027 adjusted SG&A: Expected to increase at a low single-digit rate, driven by ~2 points of higher normalized compensation costs and ~1 point of incremental strategic marketing investment; marketing spend will remain within the historical 10% to 12% of revenue range. • Fiscal 2027 adjusted operating income: Expected to be in the range of $140 to $160 million; adjusted diluted EPS is expected to be $0.08 to $0.12. • Q1 2027 specific guidance: Revenue expected to decline 2% to 3% (high single-digit decline in North America, low double-digit increase in EMEA, flat APAC revenue); gross margin expected to increase 610 to 630 basis points, with ~600 basis points of that from the tariff refund; adjusted operating income expected to be $30 to $40 million, adjusted diluted EPS expected to be break-even to $0.02. • Long-term expectation: Stabilization in fiscal 2027 will position the company to return to sustainable top-line growth in fiscal 2028 and beyond, with expanding gross margins.

Segment performance

Overall full year fiscal 2026: Revenue declined 4% year-over-year to $5.0 billion. By region: North America revenue down 8%, EMEA up 9%, APAC down 5%. Full year adjusted gross margin was 45.7% (down 220 bps YoY), adjusted SG&A decreased 5% to $2.2 billion, adjusted operating income was $107 million, adjusted diluted EPS was $0.12. Fourth quarter fiscal 2026: Total revenue declined 1% YoY to $1.2 billion. By region: - North America: Revenue declined 7% YoY, driven by lower wholesale and a slight DTC decline - EMEA: Revenue increased 7% YoY (down 1% constant currency), with growth across both wholesale and DTC - APAC: Revenue increased 13% YoY (8% constant currency), with growth across both DTC and wholesale - Latin America: Revenue increased 22% YoY (8% constant currency), with strong double-digit growth across both channels By channel: - Wholesale: Revenue declined 3% YoY, offset partially by distributor growth - Direct-to-consumer: Revenue increased 5% YoY, with 8% growth in owned-and-operated stores and flat e-commerce revenue - Licensing: Revenue increased 11% YoY, driven by international strength By product segment: - Apparel: Revenue flat YoY, with growth in train, outdoor, and sportswear offset by softness in run, team sports, and golf; contributes roughly 50-60% of total revenue as the brand's foundational segment - Footwear: Revenue flat YoY, with strength in run and team sports offset by softness in other categories; is a $1 billion+ annual business - Accessories: Revenue increased 2% YoY, driven by strength in sportswear and train Fourth quarter gross margin declined 470 bps YoY to 42% (adjusted gross margin declined 360 bps to 43.1%), SG&A decreased 15% YoY to $518 million (adjusted SG&A declined 14% to $503 million), adjusted operating income was $3 million, adjusted diluted loss per share was $0.03. End-of-year inventory was $915 million, down 3% YoY.

Risks & headwinds

• Ongoing external macro pressures include continued consumer demand uncertainty, challenging retail traffic, particularly for e-commerce, and broader geopolitical uncertainty • U.S. tariffs, including the 10% incremental tariffs related to the Middle East conflict expected to remain in place for the full fiscal 2027, create ongoing supply chain and gross margin headwinds • Elevated effective tax rates for both GAAP and non-GAAP results in fiscal 2027 are expected due to geographic earnings mix, valuation allowances on losses from restructuring, and the current low base of profitability; tax rates are expected to normalize as U.S. profitability improves • Intense competition in all key markets, including competition from local brands in the Chinese market, creates headwinds for growth • The transformation is still mid-journey, and profitability improvement has not progressed as fast as management targeted, requiring continued cost and operational adjustments

Analyst Q&A

• Q: Management guides for continued revenue contraction in fiscal 2027 despite targeting stabilization. When does the company expect to return to top-line growth, and what is the strategic reasoning for continued contraction? /

  A: Excluding the 1% impact from the Curry brand exit, underlying revenue is roughly flat, which meets the company's definition of stabilization. After two years of double-digit declines in North America, reaching stabilization is a meaningful milestone for the team. Management is prioritizing revenue quality over volume, intentionally exiting lower-margin, non-strategic volume to simplify the business and strengthen margins. Management believes fiscal 2027 is the inflection point of the turnaround, with revenue growth expected to resume in fiscal 2028 after stabilization is complete, driven by the simplified product assortment and more focused marketing strategy.

• Q: How much of North America's revenue decline is intentional pullback versus external headwinds, and what is the expected long-term gross margin target after fiscal 2027's expansion? /

  A: Q1 2027 will be the trough for North America revenue, and the decline reflects softer carryover from prior year order books and a cautious retail environment, not just intentional pullback. Partner confidence is improving, with better early trends in fall 2026 order books and growing consumer awareness and consideration for the brand. After the 220-270 bps expansion in fiscal 2027, even excluding the 150 bps tariff benefit, gross margins will continue to improve driven by full-price selling, better product mix, and premiumization, with stabilization and consistent expansion expected going forward.

• Q: What have been new CFO Reza Taleghani's first impressions, and what is the strategy behind the planned increase in marketing spend? /

  A: Reza noted the management team is highly aligned and focused, and the quality of Under Armour's current product lineup is stronger than external perception, with a high level of latent consumer affinity for the brand. The biggest opportunity for improvement is in marketing: the company is allocating an incremental $30 million in marketing spend (still within historical 10-12% of revenue ranges) focused on two core areas: highlighting existing innovative products (like the Bounce CT t-shirt and new women's bra lines) and better activating existing sports marketing assets (like the NFL partnership and collegiate deals). The company is shifting to a global, consolidated marketing strategy focused on fewer, higher-impact activations with clearer ROI measurement, to position the brand for growth in 2028.

• Q: Within APAC's low single-digit growth guidance, what is the current outlook for the Chinese market, compared to prior expectations for 12-month stabilization? /

  A: Under Armour has made meaningful progress in China over the past 18 months, flipping the business from steep double-digit declines to flattish/modest positive growth by intentionally reducing promotional discounting and shifting to brand-focused marketing rather than price-driven performance marketing. While the overall Chinese consumer market remains weak and competitive with strong local brands, Under Armour is holding its own, testing new retail concepts, adjusting its merchandising mix, and on track to meet prior stabilization targets.

• Q: What levers is the company pulling to improve e-commerce traffic, which management flagged as a key leading indicator for overall business performance? /

  A: E-commerce traffic is currently challenged industry-wide, and the company is intentionally avoiding over-investing in performance marketing to drive low-quality unqualified traffic. Instead, the company is resetting the e-commerce brand experience to be more intentional, aligned with the overall brand elevation strategy, to drive higher average selling prices and conversion. Marketing investment will shift toward a mix of brand and performance marketing to grow qualified traffic over time, with improvements expected to ramp through fiscal 2027.