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Under Armour, Inc. (UAA): Reconstituting the Brand for Long-Term Success
Published on September 24, 2024 | Ticker: UAA

Under Armour, Inc. (UAA) is a leading developer, marketer, and distributor of branded performance apparel, footwear, and accessories. The company reported annual revenue of $5,903,636,000 and net income of $386,769,000 in its latest fiscal year. However, the company's operating cash flow was -$9,914,000, and free cash flow was -$197,710,000, indicating some liquidity challenges.

Recent Developments

In the fourth quarter of fiscal 2024, Under Armour reported revenue of $1.3 billion, down 5% year-over-year. This decline was driven by a 10% drop in North America, partially offset by 10% growth in EMEA and 1% growth in Asia-Pacific. By channel, wholesale revenue declined 7%, while direct-to-consumer was flat, with a 7% increase in retail stores offset by a 7% decline in e-commerce. Gross margin improved 170 basis points to 45%, and the company reported an operating loss of $4 million, or adjusted operating income of $54 million.

Financials

For the full fiscal year 2024, Under Armour reported revenue of $5.7 billion, a 3% decline, with North America down and international regions growing. Gross margin increased 130 basis points to 46.1%, while SG&A expenses were up 1% to $2.4 billion. Excluding a $80 million litigation reserve, adjusted SG&A was down 2% to $2.3 billion. Operating income was $230 million, or $310 million on an adjusted basis.

Outlook

Looking ahead to fiscal 2025, Under Armour is guiding for a low double-digit revenue decline, including a 15-17% drop in North America. This is driven by lower wholesale orders, proactive actions to restore brand health in e-commerce, and longer lead times for new products. Internationally, the company expects a low single-digit revenue decline.

By channel, wholesale is expected to be down low double digits, and direct-to-consumer down around 10% due to reduced discounting. Apparel and footwear sales are projected to decline low double digits, while accessories are expected to be flat. Despite the revenue contraction, Under Armour expects gross margin improvement of 75-100 basis points, driven by lower promotions and discounting. SG&A is expected to decline 2-4%, including $70-90 million in restructuring and related charges.

Business Overview

Under Armour's new CEO, Kevin Plank, is focused on reconstituting the brand and business through a refined "Protect This House" strategy. This involves three key priorities: 1) delivering better products and storytelling to amplify demand and loyalty, 2) running smarter operations by simplifying, modernizing, and optimizing systems and processes, and 3) elevating consumer experiences across retail, e-commerce, and wholesale channels.

On the product front, Under Armour is editing its assortment, reducing SKUs by 25%, and focusing on a clear good-better-best segmentation. The company is also pursuing faster 6-12 month go-to-market capabilities, as demonstrated by the recent launch of the StealthForm Uncrushable performance hat. Improved product storytelling and technical education will be critical to driving brand affinity.

Operationally, Under Armour is streamlining its organization, reducing agency and consultant usage, and aligning its product, marketing, and sales teams around key categories. Supply chain and planning enhancements are also expected to drive gross margin improvement.

In North America, the company is focused on transforming its e-commerce business into a more premium platform, reducing promotional days and depth. The brand's own retail stores will also become a stronger showcase for the Under Armour brand. In wholesale, the company is rebuilding relationships with key partners while maintaining a focus on team sports.

Internationally, Under Armour sees signs of retail caution, particularly in the UK, its largest EMEA market. The company will balance short-term performance with long-term brand building, growing carefully in APAC while protecting its premium positioning.

Conclusion

While the next 12-18 months will involve a step back in revenue as Under Armour reconstitutes its brand and business, the company is confident in its ability to improve gross margins and drive greater operating efficiencies. With a strengthened leadership team, refined strategy, and commitment to authentic athletic performance, Under Armour is positioning itself for long-term success as a premium global brand.

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