Under Armour, Inc., reported a loss of $305 million in the second quarter after absorbing charges related to the settlement of a shareholder lawsuit. However, the company posted a surprise profit, excluding the charges, and slightly raised its adjusted earnings guidance for the year.

Sales declined 10 percent, dragged down by a 14 percent slide in North America.

Earnings on an adjusted basis were 1 cent a share compared to Wall Street’s consensus target, calling for a loss of 8 cents. Sales of $1.2 billion compared with analysts’ consensus estimate of $1.15 billion.

“We are encouraged by early progress in our efforts to reconstitute a premium positioning for the Under Armour brand and pleased with our first quarter fiscal 2025 results that were ahead of expectations,” said Under Armour President and CEO Kevin Plank. “Our renewed energy and alignment are proving to be critical enablers as we work to deliver superior products and storytelling while driving efficiencies, reducing promotional activity and complexity.”

Plank continued, “With the strongest product organization we’ve had in many years and strengthened brand leadership, we’re confident in our ability to elevate our design and innovation over the coming seasons and amplify our unique connection with athletes as their brand of choice.”

First Quarter Fiscal 2025 Review

  • Revenue was down 10 percent to $1.2 billion (down 10 percent currency neutral).
    • North America revenue decreased 14 percent to $709 million, and International revenue decreased 2 percent to $473 million (down 2 percent currency neutral). In the International business, revenue in EMEA was flat (flat currency-neutral), down 10 percent in Asia-Pacific (down 7 percent currency-neutral), and up 16 percent in Latin America (up 12 percent currency-neutral).
    • Wholesale revenue decreased 8 percent to $681 million, and DTC revenue was down 12 percent to $480 million. Owned and operated store revenue declined 3 percent. Because of planned decreases in promotional activities, eCommerce revenue decreased 25 percent, representing 34 percent of the total DTC business for the quarter.
    • Apparel revenue decreased 8 percent to $758 million, Footwear revenue was down 15 percent to $310 million, and Accessories revenue was down 5 percent to $93 million.
  • Gross margin increased 110 basis points to 47.5 percent, driven primarily by lower levels of discounting in the DTC business and lower product costs. This was partially offset by unfavorable foreign currency impacts, channel and regional mix and headwinds due to the timing of prior-year supply chain benefits.
  • Due to a litigation reserve, SG&A expenses were up 42 percent to $837 million. Adjusted SG&A expenses were down 6 percent to $555 million, which excludes $274 million of litigation reserve expense, net of a related $60 million insurance receivable and approximately $9 million of transformation expenses related to the company’s Fiscal 2025 restructuring program.
  • Restructuring charges were $25 million.
  • Operating loss was $300 million. Excluding transformation expenses and other charges totaling $308 million, adjusted operating income was $8 million.
  • Net loss was $305 million. Adjusted net income was $4 million.
  • Diluted loss per share was $0.70. Adjusted diluted earnings per share was $0.01.
  • Inventory was down 15 percent to $1.1 billion.
  • At the end of the quarter, cash and cash equivalents were $885 million, and no borrowings were outstanding under the company’s $1.1 billion revolving credit facility.

On June 21, Under Armour announced that it had agreed to pay $434 million to settle a 2017 class action lawsuit accusing the sports apparel maker of defrauding shareholders about its revenue growth to meet Wall Street forecasts.

Share Buyback Program
In May 2024, Under Armour announced that its Board of Directors authorized a $500 million stock repurchase plan. In the first quarter, the company repurchased $40 million of its Class C common stock, reflecting 5.9 million shares retired, leaving approximately $460 million under the authorization.

Fiscal 2025 Restructuring Plan
In May 2024, Under Armour announced a restructuring plan designed to strengthen and support the company’s financial and operational efficiencies. Of the estimated $70 million to $90 million restructuring plan range, Under Armour recognized $25 million of restructuring and impairment charges and $9 million of other related transformational expenses. Of the total $34 million incurred to date, $19 million has been cash, and $15 million has been non-cash charges. The company anticipates the remainder of the charges under the existing restructuring plan to occur during fiscal 2025.

Updated Fiscal 2025 Outlook
Key points related to Under Armour’s fiscal 2025 outlook include:

  • Revenue is still expected to be down at a low double-digit percentage rate, which includes an expected 14 percent to 16 percent decline (previously a 15 percent to 17 percent decline) in North America as the company works to reset the business and a low-single-digit percent decline in its International business, including flat results in EMEA offset by a high-single-digit decline in its Asia-Pacific business due to developing macroeconomic pressures.
  • Gross margin is still expected to be up 75 to 100 basis points compared to the prior year, driven by a material reduction in promotional and discounting activities in the company’s direct-to-consumer business and product costing benefits. This is expected to be partially offset by emerging headwinds from higher ocean freight costs, unfavorable impacts from changes in foreign currency and an unfavorable channel mix.
  • SG&A expenses are expected to be up at a mid-to-high-single-digit percent rate due to litigation expenses. Adjusted SG&A expenses are still expected to be down at a low-to-mid-single-digit rate.
  • Operating loss is expected to be $194 million to $214 million. Excluding the mid-point of anticipated restructuring charges and the litigation reserve expense, adjusted operating income is expected to be $140 million to $160 million versus the previous expectation of $130 million to $150 million.
  • Diluted loss per share is expected to be between 53 cents and 56 cents, and adjusted diluted earnings per share are expected to be between 19 cents and 22 cents. Under its previous guidance, EPS was expected to be between 2 cents and 5 cents on a reported basis and between 18 cents and 21 cents on an adjusted basis.
  • Capital expenditures are expected to be between $200 million to $220 million.

Image courtesy Under Armour