Business Overview

Under Armour's origins trace back to 1996 when Plank, frustrated with the performance of traditional cotton T-shirts during football practice, created a moisture-wicking shirt designed to keep athletes drier and more comfortable during their workouts. This innovative fabric technology became the foundation of the Under Armour brand. In the early years, Plank operated the business out of his grandmother's basement, selling the shirts directly to athletes. As word spread about the innovative product, demand grew rapidly.

Throughout the 2000s, Under Armour experienced tremendous growth, expanding its product line beyond T-shirts into a full range of moisture-wicking performance apparel, footwear, and accessories engineered for athletes. The company went public in 2005, raising capital to fuel its rapid expansion. Under Armour opened its first retail stores and built a strong consumer brand through innovative marketing campaigns featuring high-profile athletes.

However, the company faced significant challenges in recent years. In 2017, Under Armour became embroiled in a securities class action lawsuit alleging misleading disclosures related to the company's growth and consumer demand. The company ultimately settled the lawsuit in 2024 for $434 million. Additionally, Under Armour grappled with inventory and promotional challenges as it navigated a more competitive and promotional athletic apparel landscape, leading to pressure on the company's financial performance and brand positioning.

Financials

In the latest fiscal year, Under Armour reported annual revenue of $3.98 billion, a decrease of 8.8% compared to the previous year. Despite the topline decline, the company's gross profit margin improved by 180 basis points to 48.3%, driven by supply chain efficiencies and reduced promotional activity. The company's net loss for the year stood at $133.81 million, with an adjusted diluted earnings per share of $0.31.

Quarterly Performance

Under Armour's most recent quarterly results, reported in February 2025, exceeded market expectations. The company's revenue for the third quarter of fiscal 2025 declined by 6% year-over-year to $1.4 billion, outperforming the expected 10% decrease. Gross margin expanded by 240 basis points to 47.5%, reflecting the success of the company's efforts to limit promotions and discounts, particularly in its direct-to-consumer channels.

The company reported net income of $1,234,000 for the quarter. Operating cash flow for the quarter was $311,289,000, while free cash flow stood at $262,932,000.

Product Segments

Under Armour operates in three primary product categories: apparel, footwear, and accessories.

The Apparel segment, the largest contributor to Under Armour's net revenues, generated $966.07 million in the third quarter of fiscal year 2024, a decrease of 5% compared to the prior year period. This decline was driven by lower unit sales and unfavorable channel mix, partially offset by higher average selling prices. For the first nine months of fiscal 2024, apparel net revenues decreased 8.3% to $2.67 billion.

The Footwear segment generated $301.21 million in the third quarter, a 9% decrease compared to the prior year. This decline was due to lower unit sales and lower average selling prices. For the first nine months of fiscal 2024, footwear net revenues decreased 11.6% to $924.36 million.

The Accessories segment contributed $110.43 million in the third quarter, an increase of 5.7% year-over-year. This growth was driven by higher average selling prices and increased unit sales, partially offset by unfavorable channel mix. For the first nine months, accessories net revenues increased 1% to $319.36 million.

In addition to its product categories, Under Armour also generates revenue from licensing agreements, which totaled $23.9 million in the third quarter, a decrease of 17.8% compared to the prior year period. For the first nine months of fiscal 2024, licensing revenues decreased 15% to $70.37 million.

Distribution Channels

From a distribution channel perspective, Under Armour's wholesale channel accounted for $704.76 million, or 51.1%, of net revenues in the third quarter, a 1% decrease year-over-year. The direct-to-consumer channel generated $672.95 million, or 48.9% of net revenues, a 9.1% decline compared to the prior year period. For the first nine months, the wholesale channel decreased 7.6% to $2.21 billion, while the direct-to-consumer channel decreased 9.4% to $1.70 billion.

Liquidity

Under Armour's financial position remains solid with a debt-to-equity ratio of 0.66. The company had $726,880,000 in cash as of the most recent quarter. Under Armour has access to a $1.1 billion revolving credit facility, of which there were no amounts outstanding as of the most recent quarter. The company's current ratio stands at 2.01, while its quick ratio is 1.19, indicating a strong ability to meet short-term obligations.

Operational Transformation

To drive its turnaround, Under Armour has implemented a comprehensive operational transformation strategy. Key initiatives include:

1. Refined Product Strategy: The company has placed a stronger emphasis on its innovation and design capabilities, focusing on developing premium, performance-driven products that resonate with athletes and fitness enthusiasts.

2. Disciplined Marketplace Management: Under Armour has taken a more strategic approach to its distribution, reducing promotional activity and strengthening its brand presentation in both owned and wholesale channels.

3. Category-Led Operating Model: The company has transitioned to a centralized, category-focused operating structure, aligning its product, marketing, and commercial teams to better serve the needs of its target consumer segments.

4. Brand Storytelling: Under Armour is investing in more authentic and engaging brand storytelling, leveraging its strong ties to the athletic community and highlighting the innovative solutions it provides for its consumers.

Outlook and Potential Catalysts

For the full fiscal year 2025, Under Armour has raised its guidance, now expecting a revenue decline of approximately 10% (previously low-double-digit decline) and an adjusted operating income of $185 million to $195 million (previously $170 million to $180 million). The company also expects gross margin to improve by approximately 160 basis points, adjusted SG&A expenses to decrease at a low-single-digit rate, and adjusted diluted EPS to be in the range of $0.28 to $0.30.

Several factors suggest a promising outlook for Under Armour:

1. Improved Pricing Power: The company's success in reducing promotions and discounts, particularly in its direct-to-consumer channels, has demonstrated its ability to command higher prices and strengthen its brand positioning.

2. Product Innovation Pipeline: Under Armour's focus on developing cutting-edge, performance-driven products, such as the new SlipSpeed Echo and Curry 12 lines, is expected to drive increased consumer demand and loyalty.

3. Strengthened Operational Efficiency: The company's transition to a category-led operating model and ongoing cost optimization efforts are expected to enhance its operational agility and profitability.

4. Renewed Brand Engagement: Under Armour's enhanced brand storytelling and marketing initiatives are aimed at forging deeper connections with its target consumers, particularly younger athletes and fitness enthusiasts.

Risks and Challenges

Despite the company's promising turnaround efforts, Under Armour still faces several risks and challenges:

1. Macroeconomic Headwinds: Ongoing global economic uncertainties, inflationary pressures, and potential consumer spending slowdowns could impact the company's revenue and profitability.

2. Competitive Landscape: Under Armour operates in a highly competitive market, with established players like Nike and Adidas, as well as emerging brands, vying for market share.

3. Supply Chain Disruptions: Potential supply chain challenges, such as material shortages or logistics bottlenecks, could disrupt the company's ability to meet consumer demand.

4. Brand Reputation: Any missteps in product quality, sustainability efforts, or brand messaging could negatively impact Under Armour's reputation and consumer perception.

Conclusion

Under Armour's transformation journey has been marked by strategic pivots, operational refinements, and a renewed focus on innovation and brand storytelling. The company's recent financial performance, coupled with its ambitious plans for the future, suggest that Under Armour is well-positioned to reclaim its position as a dominant force in the athletic apparel industry. As the brand continues to evolve and adapt to the changing market landscape, investors and consumers alike will be closely watching Under Armour's progress in the years to come.