Business Overview Under Armour, Inc. (UA) is a leading global athletic performance apparel, footwear, and accessories brand that has faced its fair share of challenges in recent years. However, the brand is now positioning itself for a potential turnaround, as it works to reconnect with its core athletic consumer and streamline its operations.
Under Armour was founded in 1996 by Kevin Plank, a former University of Maryland football player, who sought to create a better t-shirt that could wick sweat away from the body. The company's moisture-wicking athletic apparel quickly gained popularity among professional and amateur athletes alike, and Under Armour grew rapidly, becoming a major force in the sportswear industry.
In the early years, Under Armour focused on expanding its apparel line for athletes, particularly football players. The company experienced rapid growth and went public in 2005. Under Armour then expanded into footwear, accessories, and new apparel categories, solidifying its position as a leading athletic brand.
However, the company faced significant challenges in the late 2010s, including inventory issues, shifting consumer preferences, and increased competition. In 2017, Under Armour became embroiled in a securities fraud lawsuit, which was later settled in 2024 for $434 million. This legal battle was a significant distraction and drain on resources for the company during this period.
To address these issues, Under Armour underwent a major restructuring in 2020, including leadership changes, cost-cutting measures, and a renewed focus on core product categories. This turnaround effort was led by Plank, who returned as CEO in 2024 after previously stepping down from the role. Under Plank's leadership, the company has been working to rebuild its brand image and reconnect with its athletic consumer base.
Through these efforts, Under Armour has sought to regain its footing as a leading athletic apparel and footwear brand. The company remains focused on product innovation, strengthening its direct-to-consumer channels, and cultivating key athlete and team partnerships. While the path has not been without challenges, Under Armour has demonstrated resilience in navigating a dynamic and competitive market.
In the early 2010s, Under Armour experienced tremendous growth, with revenue increasing from $1.1 billion in 2010 to $5.7 billion by the end of fiscal 2023. This expansion was fueled by the brand's successful expansion into footwear and accessories, as well as its growing international presence, particularly in markets like China.
However, the company has faced significant headwinds in recent years. Revenue declined from $5.7 billion in fiscal 2023 to $5.0 billion in fiscal 2024, as the company grappled with a shift in consumer preferences, increased competition, and operational challenges. Gross margins have also come under pressure, declining from 45.0% in fiscal 2023 to 43.6% in fiscal 2024.
Despite these challenges, Under Armour's management team, led by returning CEO Kevin Plank, is working to reposition the brand and return it to sustainable growth. The company's recent financial performance has been mixed, with the second quarter of fiscal 2025 seeing a revenue decline of 10.7% year-over-year to $1.4 billion, but an improvement in profitability, with adjusted operating income reaching $166 million.
Financials For the fiscal year ended March 31, 2024, Under Armour reported revenue of $5.70 billion, a 12.3% decline from the prior year. Net income for the year was $232.04 million, down from $374 million in fiscal 2023. Operating cash flow for the year was $353.97 million, and free cash flow was $203.64 million.
In the second quarter of fiscal 2025, the company reported revenue of $1.40 billion, a 10.7% decline year-over-year. Gross margin improved by 200 basis points to 49.8%, driven by lower product costs and reduced promotions in the direct-to-consumer channel. Adjusted operating income was $166 million, up from $140 million in the prior-year period. However, the company reported a net loss of $170.38 million for the quarter, primarily due to litigation expenses related to the settlement of the Class Action Securities litigation.
The company's performance varied across geographic regions in Q2 FY 2025. North America revenue decreased by 12.90%, EMEA revenue declined by 1.40%, Asia-Pacific revenue fell by 10.50%, and Latin America revenue decreased by 12.50%.
Under Armour's product segments also showed mixed results. The apparel segment, which includes products such as t-shirts, pants, shorts, jackets, and other athletic wear, accounted for $947.19 million in net revenues during Q2 FY 2025, a decrease of 11.5% compared to the prior year period. The footwear segment, which includes athletic shoes and cleats, saw net revenues of $312.76 million, a decrease of 10.9%. The accessories segment, which includes items such as bags, headwear, and other athletic-related accessories, was the only segment to show growth, with net revenues of $116.38 million, an increase of 2.1%.
For the six months ended September 30, 2024, apparel net revenues were $1.70 billion (down 10.0% year-over-year), footwear net revenues were $623.15 million (down 12.8%), and accessories net revenues were $208.93 million (down 1.4%).
Liquidity Under Armour's liquidity position remains stable, with the company maintaining a focus on cash flow generation and prudent capital management. As of the most recent reported quarter, the company had $530.70 million in cash and cash equivalents. The company's debt-to-equity ratio stands at 0.40, indicating a relatively low level of leverage. Under Armour also has access to a $1.1 billion revolving credit facility, of which no amounts were outstanding as of September 30, 2024.
The company's current ratio of 2.18 and quick ratio of 1.08 suggest a healthy short-term liquidity position, with sufficient assets to cover short-term liabilities. Operating cash flow for Q2 FY 2025 was $152.98 million, with free cash flow of $107.29 million, providing additional financial flexibility to navigate ongoing market challenges and invest in strategic initiatives.
Positioned for a Turnaround Under Armour's management team is focused on several key initiatives to position the brand for long-term success. These include:
1. Streamlining Operations: The company has implemented a $140-$160 million restructuring plan to optimize its logistics and distribution network, improve efficiency, and reduce costs.
2. Enhancing Product Offerings: Under Armour is working to elevate its product assortment, particularly in its core apparel and footwear categories, with a focus on innovation, style, and premium positioning.
3. Improving Brand Positioning: The company is refining its marketing and storytelling efforts to better connect with its core athletic consumer and showcase the brand's heritage and performance-driven DNA.
4. Strengthening Direct-to-Consumer: Under Armour is focused on driving growth in its direct-to-consumer channels, particularly e-commerce, by reducing promotions and creating a more premium brand experience.
5. Expanding Globally: The company sees significant opportunities for growth in international markets, particularly in Europe and Asia, where it is working to build brand awareness and strengthen its distribution network.
Risks and Challenges Despite the progress Under Armour is making, the company still faces several significant challenges. These include:
- Intense Competition: The athletic apparel and footwear market is highly competitive, with established players like Nike and Adidas, as well as newer brands like Lululemon and Athleta, vying for market share.
- Shifting Consumer Preferences: Consumer preferences in the athletic apparel and footwear space are constantly evolving, and Under Armour must adapt its product offerings and marketing strategies to remain relevant.
- Macroeconomic Headwinds: The company is navigating a challenging macroeconomic environment, including inflationary pressures, supply chain disruptions, and fluctuating consumer demand.
- Execution Risk: Implementing the company's turnaround plan will require flawless execution across all aspects of the business, from product development to marketing to operations.
Outlook For the full fiscal year 2025, Under Armour is guiding for a low double-digit percentage decline in revenue, with the North American market expected to see a 14-16% decline, EMEA remaining flat, and the Asia-Pacific region declining in the high single digits. The company is targeting a 125-150 basis point improvement in gross margin for the year, driven by reduced promotional activity and lower product costs. This is an improvement from their prior outlook of 75-100 basis point improvement.
Adjusted operating income is expected to reach $165-$185 million, up $25 million from their previous outlook and up from $160 million in fiscal 2024. Adjusted earnings per share are projected to be $0.24-$0.27, up about $0.05 at the midpoint from their prior outlook.
For the third quarter of fiscal 2025, Under Armour expects revenue to be down approximately 10%, with gross margin up 150-175 basis points. Adjusted SG&A expenses are anticipated to increase at a mid-single digit percentage rate, with adjusted operating income of $20-$30 million and adjusted diluted EPS of $0.02-$0.04.
The company noted that the front-half of fiscal 2025 will account for around 90% of the full year's operating income, with the back-half seeing more investment in marketing. This guidance reflects the company's continued focus on improving profitability despite challenging market conditions.
Conclusion Under Armour is navigating a difficult retail environment, but the company's management team is taking the necessary steps to streamline operations, enhance its product offerings, and strengthen its brand positioning. While the road ahead may be bumpy, the company's focus on innovation, premium positioning, and global expansion could ultimately pay dividends for shareholders. Investors will need to closely monitor Under Armour's execution of its turnaround plan in the coming quarters and years.
The company's recent outperformance of its profitability outlook in Q2 2025, with a $50 million adjusted operating income beat compared to their previous guidance, suggests that the turnaround efforts may be gaining traction. However, the continued decline in revenue across most geographic regions and product segments highlights the ongoing challenges Under Armour faces in a highly competitive market.
As Under Armour continues to navigate these choppy waters, its ability to maintain a strong liquidity position, improve gross margins, and execute on its strategic initiatives will be crucial in determining its long-term success and ability to regain its position as a leading athletic brand.