Shares of Under Armour surged 27 percent on Thursday, November 7, after the company reported operating earnings topped guidance by $50 million due to efforts to reduce promotions at its DTC channels, particularly online.

Under Armour President and CEO Kevin Plank expressed confidence that initiatives to elevate product and storytelling will continue to drive the company’s return to growth.

Plank said about one-half of the $50 million operating earnings beat will be used to upwardly revise its EPS guidance for the year while the remainder will be invested in marketing and brand-building.

“Although we are early in our reset, I believe this demonstrates that our strategies to strengthen this brand are beginning to gain traction,” said Plank.

Shares closed at $11.13, up $2.38, on the day.

Revenue was down 11 percent to $1.4 billion in the quarter (down 10 percent currency neutral), in line with expectations.

Regional Performance
By region, North America revenue declined 13 percent to $863 million. CFO Dave Bergman told analysts the drop was due to softer full-price wholesale demand and lower sales in the off-price channel. UA’s North American direct-to-consumer (DTC) business was also down during the quarter, driven by the continued decline in its e-commerce business from efforts the company made to reduce promotional activity and lower retail store sales.

International revenue decreased 6 percent to $538 million (down 5 percent currency neutral). In the International business, revenue in the EMEA was down 1 percent (down 1 percent currency neutral). Sales were down 11 percent in the Asia-Pacific (down 10 percent currency neutral) and down 13 percent in Latin America (down 4 percent currency neutral).

Channel Performance
Wholesale revenue was down 12 percent in the quarter, driven by softer demand in full-price and distributor businesses and lower sales to the off-price channel. DTC revenue declined 8 percent, with a 21 percent decrease in e-commerce as expected, given strategies to drive a more premium online presence through reduced promotions and discounts. Sales from owned and operated retail stores were flat in the quarter. Licensing was down 13 percent, primarily due to a decline in UA’s North American business.

Product Performance
Apparel revenue was down 12 percent in the quarter, with declines across most categories, while outdoor saw a “good performance.” Footwear was down 11 percent, with declines in most categories, although relative strength was seen in golf and team sports, particularly cleated products. Accessories were up 2 percent in the quarter.

Margins
Second quarter gross margin increased 200 basis points to 49.8 percent. The improvement was driven by 120 basis points of supply chain benefits due mainly to lower product costs, 50 basis points from a favorable channel mix driven principally by a reduction in off-price sales and 40 basis points of pricing benefits due to lower discounting and promotions, mainly in DTC business. Margins also benefited from lower markdowns in the wholesale channel.

“The significant gross margin outperformance in the quarter, relative to the outlook we provided in August, was due to three main factors,” said Bergman. “First, we saw increased supply-chain benefits from additional product cost-savings compared to our plan, along with lower-than-expected freight costs. Second, wholesale markdowns and allowances were less than initially anticipated. And third, our channel mix was more favorable due to lower-than-planned sales to the off-price channel.”

SG&A expenses were down 15 percent to $520 million in the second quarter due, in part, to a shift in the timing of marketing expenses. Excluding the impact of litigation-related insurance recovery and net transformation expenses, adjusted SG&A expenses were down 13 percent.

Restructuring Activities
UA’s third quarter reflected $3 million in restructuring charges on top of the $3 million in transformation expenses booked in SG&A. For the half, UA recognized $40 million in charges and expenses under its fiscal 2025 restructuring plan.

In September of this year, Under Armour announced an expansion of its restructuring plan by $70 million, primarily related to the exit of one of its distribution facilities in Rialto, CA. Bergman said, “This change will allow us to utilize capacity better and gain efficiencies in our remaining facilities as we invest in automation over the next several years. These efforts are expected to be completed by the end of fiscal 2026.”

Under Armour now expects between $140 million and $160 million in total restructuring charges and expenses, of which roughly two-thirds will be realized in fiscal 2025 and the remainder in fiscal 2026.

Profitability
Second-quarter operating income was $173 million. Excluding the litigation-related insurance recovery, transformation expenses and restructuring charges, adjusted operating income was $166 million, up from $146 million a year ago.

Net income was $170.4 million, or 39 cents a share, against $104.7 million, or 23 cents, a year ago. On an adjusted basis in the quarter, earnings reached 30 cents, well above analysts’ consensus target of 19 cents.

Inventories declined 3 percent, which aligned with plans, and Under Armour continues to expect fiscal year-end inventory to be roughly flat year over year.

CEO Comments
On the analyst call, Plank highlighted that many of the company’s steps to revive business growth have been aimed at North America, its biggest region.

“We’ve got work to do in this market, but we also have a brand that has great affinity, and I don’t believe the consumer is mad at us,” said Plank. “We just have to give them a reason to want to engage with us again.”

Among the changes Plank highlighted is re-embracing the brand’s “underdog spirit“ both from a product storytelling standpoint as well as in its approach to commercial strategies.

The founder said, “It’s just frankly authentic, and we think we’re the only ones who could hold that position.“

Regarding products, a near-term focus is on reviving its men’s apparel business and footwear. Moves include refocusing and relaunching basics, including base layer compression, with successes that have secured premium distribution with its Heat Gear franchises Unstoppable, particularly with fleece, its Vanish Training collection and a selection of UA Sportswear. Under Armor also succeeded with its StealthForm Uncrushable Hat, which supported a $45 MSRP in a category that, in most cases, sells for under $25.

In footwear, UA is “experiencing challenging results in the near-term, particularly in our “good level product“ that is reducing redundant SKUs to focus on more productive sellers, such as the UA Assert. At the same time, Under Armour saw a “solid“ performance from cleated products in baseball and American football and in basketball with the Curry brand. Plank said, “The response to the Curry-12, shown right, has been solid, so we’re off to a good start ahead of our next launch, which will see the first-ever signature shoe for rising NBA star De’Aaron Fox under the Curry brand.”

Around brand marketing, Plank noted that Stefan Curry received an “overwhelming“ reception to his first tour with the brand in China since 2019, drawing over four billion media impressions and nearly 34 million live stream views. Said Plank, “One thing that is certain is that the opportunity we have with Stefan to build on his celebrity for the benefit of the Curry brand, UA Basketball and Under Armour as a whole, we plan to be much more aggressive with Stefan’s global presence as we scale our business in the upcoming years.“

Plank said the brand’s overall lineup of ambassadors across baseball, American football, and soccer will further Under Armour’s positioning as an authentic “sports house.”

Regarding DTC, Plank discussed the company’s moves to significantly reduce promotional activities, particularly in its e-commerce business in North America.

With lower promotions and markdowns, full-price sales rose again in the second quarter, representing about half of the company’s e-commerce revenue versus around 30 percent just one year ago. Plank said, “It is still early, but this, along with our work to reduce SKUs, creates a more deliberate and premium product assortment, better-curated looks and outfitting presentations for a cleaner, faster consumer experience.”

At its Factory House outlet stores in North America, UA is shifting from a full-store discounting approach to a targeted strategy, which excludes specific programs that will remain full price regardless of broader promotions. The changes are expected to drive higher profitability, store productivity and improved brand affinity. UA wants to establish “a cleaner, better-curated product assortment and presentation” at its more than 1,400 full-price Brand House global locations.

On wholesale, Plank noted that the business is likewise undergoing a reset as it works with partners to recapture shelf space and drive a more premium presentation for the brand.

“Our strategic retail partners are family, and we have significantly revamped our frequency, touchpoints and communication,“ said Plank. “First and foremost, letting them know that they are strategic partners is one of the most foundational elements of a sales relationship, and we have not been doing this well; this means a two-way conversation and openness to incorporating their constructive feedback as we evolve our strategies to unlock UA’s full potential as we know that it will take time to build back shelf-space. Still, we believe we will gain traction with our cadence of new product launches and improved marketing activations over the next several quarters.”

Finally, Plank called out UA’s overhauled management team for their role in repositioning the brand for “sustainable growth,“ citing recent hires, including Yassine Saidi, formerly at Adidas and Puma, as chief product officer, and Eric Liedtke, formerly at Adidas, as EVP of brand strategy.

Plank said, “Our team is on the court with a playbook capable of stabilizing and driving this brand to growth over the long term. With the focus of being an incredibly loud brand and quiet company. Our organization is more aligned and focused than in past years, and we’re ensuring that time and resources are effectively prioritized to strengthen our brand.”

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

  • Revenue remains expected to decline at a low double-digit percentage rate, which includes a 14 percent to 16 percent decline in North America as the region undergoes a reset. The company continues to forecast a low single-digit percent decline for its international business, with flat results in EMEA offset by a high single-digit decline in its Asia-Pacific business due to macroeconomic pressures.
  • Gross margin is expected to increase by 125 to 150 basis points compared to the prior expectation of a 75 to 100 basis point improvement, driven primarily by reduced promotional and discounting activities in Under Armour’s DTC business and product costing benefits.
  • SG&A expenses are expected to increase in the mid- to high-single-digit percent range, primarily due to litigation settlement expenses. Excluding those expenses, related insurance recoveries, and anticipated transformation expenses, adjusted SG&A is expected to decrease at a low- to mid-single-digit percentage rate, which includes approximately $25 million in additional marketing investments following better-than-expected year-to-date profitability performance that UA will use to build the brand over the long term.
  • Operating loss is expected to be $176 million to $196 million, compared to the previous expectation of $220 million to $240 million. Excluding the midpoint of anticipated restructuring charges and transformation expenses, litigation settlement expenses and related insurance recoveries, adjusted operating income is expected to be $165 million to $185 million, compared to the prior expectation of $140 million to $160 million.
  • Diluted loss per share is expected to be between $0.48 and $0.51, compared to the prior expectation of $0.53 to $0.56. Adjusted diluted earnings per share is expected to be between $0.24 and $0.27, compared to the previous expectation of $0.19 to $0.21.
  • Capital expenditures are expected to be between $190 million and $210 million, compared to the previous estimate of $200 million to $220 million.

Images courtesy Under Armour x Stephen Curry