Shares of Under Armour are trading down about 22 percent in early-afternoon trading Friday after the company warned that the current quarter results would arrive well below Wall Street expectations and indicated it now expects the tariffs and “related demand impacts” to cause adjusted operating income in the current fiscal year to shrink to about half of year-ago levels.
The forecasts were announced alongside the company’s fiscal first-quarter results, which ended June 30, and came in largely as expected. Like last quarter, the company did not provide a full-year outlook.
On an analyst call, CEO Kevin Plank highlighted the “increased pressures” Under Armour will face this year from the incremental tariffs announced by President Donald Trump on July 31. The company estimates approximately $100 million in additional tariff-related costs, along with softer-than-expected demand tied to tariff concerns, which will impact its current fiscal year.
“When combined, even with mitigation efforts and disciplined SG&A [selling, general, and administrative] management, our profitability is projected to be about half of what it was last year,” the CEO added. “None of this is ideal. We don’t like this, but also it won’t define our year as there’s just too much good happening with the overall shape and energy of our business.”
Plank said that Under Armour has faced bigger headwinds before. “This is simply the next one we’ll get through,” he added.
He also spent much of his time trying to assure analysts that Under Armour is making progress in its pursuit of returning to profitable growth.
“Brand health is starting to gain traction. Cultural relevance is returning, and our phone is ringing from talent that wants to join us,” said Plank. “EMEA is outperforming, North America, and APAC are on the path towards better stability, and team sports are heating up, while digital engagement is increasing. We’re stronger than we were six months ago and will be even stronger six months from now. This transformation isn’t easy and requires a lot of patience, more than any of us would like, but we’re taking the right steps to build deeper lasting connections with consumers and focused on creating mid and long-term shareholder value.”
Downbeat Second Quarter Forecast
Revenue for the current fiscal second quarter is expected to decline by 6 percent to 7 percent compared to the same period last year. Analysts on average were expecting a 2.9 percent decline.
The outlook includes an anticipated low-double-digit percentage decrease in North America, worsening from the 5 percent decline seen in the fiscal first quarter. Dave Bergman, CFO, stated that the steeper decline is primarily due to continued weakness in its wholesale business. A low-teens percent decline is expected in APAC, a region experiencing a broader pullback in consumer spending. Bergman added, “That said, in both of these regions, we’re staying focused on improving sales quality and creating a healthier, more premium marketplace.”
In EMEA, high-single-digit percent growth is projected with a “strong performance” expected across both wholesale and DTC channels.
Gross margin in the fiscal second quarter is expected to decline 340 to 360 basis points, driven by approximately 300 basis points of decline from higher product costs, of which about two-thirds relate to new tariff costs, and approximately 100 basis points of decline from channel mix. These headwinds are expected to be partially offset by favorable changes in foreign currency and pricing benefits.
SG&A expenses are expected to increase at a low double-digit percentage rate. Excluding transformation expenses related to the company’s Fiscal 2025 Restructuring Plan, adjusted SG&A is expected to grow at a high-single-digit rate, primarily driven by higher marketing investments as Under Armour laps a timing shift that pushed most of last year’s spend into the fiscal second half.
Operating income is expected to range from a $10 million loss to breakeven, compared to $173 million in operating income a year ago. Excluding projected restructuring charges and transformation expenses, adjusted operating income is expected to be between $30 million and $40 million, representing a decrease of approximately 80 percent from $166 million in the same period last year.
The company expects a second-quarter loss of $0.07 to $0.08 per share against a profit of $0.38 a year ago. On an adjusted basis, earnings are projected to be between $0.01 and $0.02 a share, well below the analysts’ consensus estimate of $0.26 a share and down from $0.30 on an adjusted basis a year ago.
Fiscal First Quarter Results Largely on Plan
Fiscal first-quarter results met or slightly exceeded Under Armour’s guidance on every line item.
For the fiscal first quarter to June 30, revenue declined 4 percent to $1.134 billion, in line with analysts’ consensus target of $1.132 billion. Company guidance had called for a decline of 4 percent to 5 percent.
North American revenue declined 5.5 percent to $670 million, primarily due to a decrease in full-price wholesale business and lower e-commerce sales.
International revenue declined 1 percent (down 2 percent currency-neutral) to $467 million. Within the international business, revenue in EMEA climbed 9.6 percent (up 6 percent currency-neutral) to $248.6 million. EMEA saw growth across all channels during the quarter, led by full-price wholesale.
In the Asia-Pacific region, sales decreased 10.1 percent (down 10 percent currency-neutral) to $163.4 million with declines in wholesale and DTC. Bergman told analysts that consumer confidence in the APAC region “remains weak amid a highly competitive and promotional environment.”
In Latin America, sales declined 15.3 percent to $54.6 million, reflecting foreign currency headwinds. On a currency-neutral basis, revenue declined 8 percent with decreases in full-price wholesale and DTC partially offset by growth in its distributor business.
By channel, Wholesale revenue decreased 4.6 percent to $649.1 million as lower full price and distributor sales were partially offset by growth in the off-price channel, driven by the timing of sales to third-party partners.
Direct-to-consumer (DTC) revenue fell 3.5 percent to $463.5 million. Revenue from owned and operated stores increased 1 percent, led by the Factory House business. E-commerce revenue fell 12 percent and accounted for 31 percent of the total DTC business for the quarter. Bergman blamed the e-commerce decline on “highly competitive conditions” in the APAC and North America regions.
By product category, apparel revenue decreased 1.5 percent to $746.6 million with softness in run, outdoor and golf, partially offset by strength in training and sportswear. Footwear revenue declined 14.3 percent to $265.9 million, with decreases across all categories. Accessories revenue increased 8.1 percent to $100.1 million, driven by strength in train and sportswear, along with accelerated inventory management actions.
Gross margin increased 70 basis points to 48.2 percent. The improvement was driven by 55 basis points of favorable foreign currency impacts, 30 basis points of pricing benefits and 30 basis points of favorable product mix. These benefits were partially offset by 45 basis points of unfavorable channel mix and supply chain headwinds. Guidance had called for gross margins to increase 40 to 60 basis points.
SG&A expenses decreased 37 percent to $530 million as the prior year included a significant legal reserve expense. Excluding $8 million in expenses related to its restructuring efforts, adjusted SG&A expenses decreased 6 percent to $522 million. Guidance had called for net SG&A to decrease approximately 40 percent and adjusted SG&A expenses to “leverage slightly” versus the year-ago quarter.
Operating income was $3 million compared to an operating loss of $300 million. Excluding transformation expenses and restructuring charges, adjusted operating income was $24 million, compared to $8 million a year ago. Guidance had called for operating income in the range of $5 million to $15 million and between $20 million and $30 million on an adjusted basis.
Under Armour posted a net loss of $2.6 million, or $0.01 a share, after a loss of $305.4 million, or $0.70, in the prior year’s quarter. On an adjusted basis, earnings were $0.02 a share, compared with $0.01 in the prior year’s quarter and just below analysts’ $0.03 cents a share.
Fiscal 2025 Restructuring Plan
Restructuring charges as part of its Fiscal 2025 Restructuring Plan, first announced in May 2024, were $13 million in the latest quarter. The plan, aimed at improving the company’s financial and operational efficiencies, is estimated to cost between $140 million and $160 million, with up to $90 million expected to be cash-related and as much as $70 million projected as non-cash charges. By the end of the first fiscal quarter of 2026, the plan had resulted in the company recording $71 million in restructuring and impairment charges, as well as $39 million in other related transformational expenses.
Tariffs Update
Bergman said the tariffs are expected to cause a cost of goods headwind of approximately $100 million, or 200 basis points, in the current year, resulting in about 200 basis points of negative gross margin impact. He said, “We are actively pursuing mitigation strategies such as cost sharing with suppliers and partners, exploring alternative sourcing options, and making selective pricing adjustments. However, due to the complexity and lead times involved, we anticipate most of the gross margin offsets to be realized in fiscal 2027 and beyond.”
Images courtesy Under Armour
