Under Armour, Inc. (UAA) Earnings

Management highlights

- Core Strategic Transformation Update * The company is in the transformation phase focused on converting internal operational progress into stronger consumer demand, with a shift from managing for quantity (more products, more complexity, volume) to managing for quality (fewer products with greater purpose, tighter execution, higher full-price sell-through). * A 25% SKU reduction from two years ago has been completed, with an additional 25% SKU reduction targeted over the next 18 months, for a total ~40% SKU reduction by the end of 2028. SKU cuts focus on low-productivity styles, to free up team capacity and concentrate investment on high-potential core franchises. * Operational streamlining actions completed in Q1 include consolidation of the innovation footprint and rightsizing of the Portland office, while strengthening Baltimore and New York as core decision-making hubs. * The company has completed its $305 million total restructuring plan substantially by the end of 2026, with $266 million in total costs incurred to date. - Product Innovation and Momentum * High-profile athlete wins (Sharon Lokedi's second consecutive Boston Marathon win in Under Armour Velociti Elite 3, Ferran Torres' World Cup winning goal in Shadow Elite 4 boots) demonstrate the strength of the brand's performance credibility on global stages. * The newly launched Bouncy Tee has exceeded all sales expectations, selling consistently at its full $65 retail price, serving as a model for future product launches that combine innovation, style, cultural relevance, and clear value proposition. * Core franchises including HeatGear, Velociti, StealthForm, and ER base layer remain strong across regions, with new products like SlipSpeed, StealthForm Hats, and No Weigh Backpack also showing strong consumer demand. * The company is implementing a good-better-best product architecture to improve clarity for consumers and enable premium trade-up; for example, the core Tech Tee line is being refreshed, while a new premium Helix Tee will launch later in 2027 at $35. - Marketing and Commercial Discipline * Marketing is being reset to focus on fewer, larger, more consistent activations tightly tied to product and retail execution, rather than broad, low-efficacy spending. Marketing spend as a percentage of revenue is being reduced this year through higher efficiency, not a retreat from brand investment. * Commercial execution priorities include improving DTC full-price positioning, strengthening wholesale partner relationships, and better inventory management to reduce dependency on discounting. * Inventory ended Q1 at $1.1 billion, down 3% year-over-year, in line with the revenue decline, with a healthy composition of mostly current-season product. - Balance Sheet Improvements * The company used restricted investments to settle all remaining principal and interest on the 2026 senior notes, improving the debt profile. * A proactive amendment to the revolving credit facility was completed to modernize terms and align covenants with current operations, with no change to facility size and no leverage impact.

Guidance

- Full Year Fiscal 2027 Guidance: * Revenue outlook revised from slightly down to a mid-single-digit decline, driven by softer-than-expected consumer demand and a more promotional market environment, particularly in North America and APAC. * Adjusted operating income guidance is maintained at $140 million to $160 billion, unchanged from the prior outlook. * Gross margin guidance is maintained at 220-270 basis points of expansion year-over-year, including ~150 basis points of benefit from IEEPA tariff refunds. * Adjusted SG&A guidance is revised to a low single-digit decline year-over-year, reflecting active cost management and more efficient marketing spend prioritization. * Regional revenue outlooks: North America expected to decline mid-single-digit; EMEA expected to decline low single-digit; APAC expected to decline low single-digit. - Second Quarter Fiscal 2027 Guidance: * Revenue is expected to decline at a high single-digit rate, with high single-digit declines in North America and APAC, and a low double-digit decline in EMEA. * Gross margin is expected to be in line with the prior year's second quarter result. * Adjusted SG&A is expected to decline at a low single-digit rate. * Adjusted operating income is expected to be $10 million to $20 million, with an adjusted diluted loss per share of $0.01 to $0.03. - Key Assumptions: * The 10% tariff assumption for the July 2026 through end of fiscal year period remains appropriate following new July 24 tariff announcements. * ~$70 million of benefit from IEEPA tariff refunds is included in the full year outlook, offset by ~$35 million of expected negative impacts from the ongoing Middle East conflict.

Segment performance

By Region: - North America: Revenue decreased 9% year-over-year, driven by softer spring/summer wholesale orders and traffic headwinds impacting e-commerce and retail store operations. - EMEA: Revenue increased 12% (10% constant currency), driven by strength in the distributor business, partially offset by slight declines in DTC and full-price wholesale. - APAC: Revenue decreased 7% (10% constant currency), reflecting greater-than-anticipated softness in China and Southeast Asia; China results were also impacted by stock-outs of key styles/sizes and demand cannibalization from aggressively discounting licensees. - Latin America: Revenue increased 8% (1% constant currency), driven by favorable foreign exchange. By Channel: - Wholesale: Revenue decreased 2%, driven by declines in full-price wholesale and third-party off-price channel sales, partially offset by distributor business growth. Contribution is ~50% of total revenue. - Direct-to-Consumer (DTC): Revenue decreased 6%, with a 3% decline in owned stores and a 12% decline in e-commerce. Contribution is ~45% of total revenue. - Licensing: Revenue increased 2%, with international growth offset by lower North American revenue. Contribution is ~5% of total revenue. By Product Category: - Apparel: Revenue decreased 2%, with declines across most sport categories partially offset by growth in sportswear. Contribution is ~70% of total revenue. - Footwear: Revenue decreased 8%, driven by general demand softness and assortment optimization actions, with the largest declines in team sports, sportswear, and training; outdoor and golf growth offset declines partially, while the run business was flat. Contribution is ~22% of total revenue. - Accessories: Revenue decreased 4%, with softness in train, outdoor, and golf partially offset by sportswear growth. Contribution is ~8% of total revenue. Overall Q1 2027 revenue: $1.1 billion, a 3% decline year-over-year.

Risks & headwinds

- Softer-than-forecast consumer traffic and demand in North America, China, and Southeast Asia, which has persisted and deteriorated since mid-May 2026, creating top line pressure. * A broadly more promotional retail environment driven by peer inventory clearance activities, which creates pricing pressure and can erode full-price demand if the company matches discounting. * Ongoing supply chain pressures related to the Middle East conflict, which creates headwinds for gross margin expansion. * Potential changes to US tariff policy that could increase product costs if assumptions need to be revised. * Historical overcomplexity of the SKU portfolio, which has burdened teams and reduced focus on high-potential products, requiring multi-year rationalization that creates near-term top line tradeoffs. * Historical underinvestment in clear storytelling for existing strong products, which has prevented the company from capturing full value for its innovation.

Analyst Q&A

• Q: How did the Bouncy Tee succeed, and what learnings will you apply to future product launches? /

  A: The Bouncy Tee was intentionally developed to demonstrate Under Armour’s ability to launch a full-price product that combines innovative material (sustainable NEOLAST fiber), consumer-relevant style, and clear brand storytelling. It was designed to be versatile for both athletic and casual use, with cultural activations pairing musicians and K-pop group BOYNEXTDOOR to drive broad appeal. The product exceeded expectations at full price, and the company will apply this consistent formula (innovation + clear value + aligned retail and marketing execution) to all future launches to set a new bar for product introductions. /

• Q: How can you maintain profitability guidance despite cutting revenue guidance, what cultural shift enables this discipline? /

  A: After 30 years in business, the company has the experience to prioritize long-term brand health over short-term unhealthy volume. Leadership re-examined marketing spend to identify efficiency gains rather than cutting necessary brand investment, finding cost savings across all line items of the business, not just marketing. The disciplined approach to avoid chasing promotional volume, paired with operating leverage from completed restructuring, allows the company to maintain profitability while still investing in core long-term priorities like product innovation and brand building. /

• Q: How much of the North America revenue pullback is macro versus strategic, and what drives expected back half improvement? /

  A: Most of the Q2 revenue pullback reflects continued softening macro consumer and traffic trends that started in mid-May. The expected improvement in the back half of the year comes from disciplined marketplace management (avoiding excessive promotion to protect brand value) and upcoming new product launches, which have seen productive early wholesale sell-in. Key retail partner initiatives, like the DICK’S House of Sport back-to-school takeover, are also expected to drive stronger performance in the second half. /

• Q: Why is operating income guidance maintained despite lower revenue, and where do the offsets come from? /

  A: Gross margin guidance remains unchanged from prior expectations, so the gross margin percentage contribution to operating income is holding. The company is also delivering greater SG&A efficiency than previously forecast, which improves SG&A as a percentage of sales to offset the lower revenue base. Additionally, Q1 adjusted operating income came in at $52 million, well above the prior guidance range of $30 million to $40 million, creating a full-year cushion that helps support the unchanged full year operating income outlook.