Executive Summary / Key Takeaways

• Under Armour is undergoing a strategic reinvention under renewed leadership, shifting focus from promotional volume to building a premium "sports house" brand rooted in performance innovation and an "underdog" ethos.
• Early progress is evident in financial results, particularly a significant increase in gross margin to 47.9% in Fiscal 2025, driven by strategic reductions in direct-to-consumer discounting and supply chain efficiencies.
• Key strategic initiatives like a 25% SKU reduction, transition to a category management model, and targeted marketing investments aim to streamline operations, elevate product offerings, and deepen consumer connection, despite contributing to a 9.4% revenue decline in Fiscal 2025.
• While North America revenue declined 11.4% in FY2025 due to the strategic reset, EMEA showed resilience with 0.4% growth, and APAC faced significant pressure, highlighting regional disparities in the turnaround journey.
• The company faces risks from intense competition, macroeconomic uncertainty, potential tariff impacts, and the need for successful execution of its complex restructuring and strategic plans, alongside addressing a material weakness in internal controls over financial reporting.

The Underdog's Ambition: Reconstituting a Sports House

Under Armour, founded in 1996, emerged as a disruptor in the athletic apparel market by focusing on performance-enhancing base layers designed to manage moisture and regulate body temperature. This foundational emphasis on technical innovation quickly established the brand's credibility with athletes and set it apart from traditional sportswear companies. Over nearly three decades, Under Armour expanded its offerings into footwear and accessories and grew into a global presence, earning its place as one of a handful of brands capable of credibly outfitting athletes head-to-toe across diverse sports – a position the company now defines as a "sports house."

The company's journey has been marked by periods of rapid growth fueled by product innovation and strategic athlete endorsements, but also by challenges related to operational complexity, market saturation, and intense competition from larger, well-established rivals like Nike (NKE) and Adidas (ADDYY), as well as agile players like Puma (PUM) and premium brands like Lululemon (LULU). These competitive forces, coupled with evolving consumer preferences and shopping behaviors, highlighted the need for a strategic recalibration.

Under the renewed leadership of founder Kevin Plank, who returned as President and CEO in April 2024, Under Armour has embarked on a comprehensive "reinvention" strategy. This strategy centers on reconstituting brand strength by embracing an "underdog" persona – representing athletes who achieve excellence through grit and hard work – and translating this ethos into elevated products, compelling storytelling, and a more disciplined business model. The ambition is to shift from a reliance on promotional volume to building a premium brand that commands pricing power and fosters deeper consumer affection, ultimately driving sustainable, profitable growth.

Central to Under Armour's identity and competitive positioning is its technological differentiation. The brand was built on performance fabrics like HEATGEAR and COLDGEAR, engineered to provide tangible benefits such as moisture-wicking and temperature regulation. While specific, quantifiable performance metrics for all technologies compared to alternatives are not consistently detailed, the company emphasizes that its products are designed to provide a competitive edge. Newer innovations like the patent-pending Auxetic suspension strap in the "No Weigh" backpack are highlighted for their ability to distribute weight and create a lighter feel, demonstrating a focus on applying performance thinking even to accessories, aiming to justify a premium price point ($140 for the backpack in a market typically $40-$65). In footwear, technologies like HOVR, Flow, Charged Cushioning, and Micro G are core to its offerings, providing differentiated cushioning and responsiveness. The upcoming UA Halo collection integrates the UA logo into the midsole for support, and the new NEOLAST material fiber aims to revolutionize stretch performance sustainably. This continuous focus on performance technology is intended to be a key differentiator against competitors, providing a foundation for the brand's premium aspirations and justifying higher average selling prices.

In the competitive landscape, Under Armour operates against giants with significantly greater financial resources and market share. Nike and Adidas dominate globally, leveraging massive scale, extensive distribution, and deep marketing budgets. Lululemon leads in the premium athleisure segment with high margins and a strong DTC model. Puma competes effectively on price and trendy designs. Under Armour's strategic positioning as a "sports house" for the "underdog" aims to carve out a distinct identity. While UA's gross margin of 47.9% in FY2025 is competitive with Nike (43% in FY2025) and Adidas (51% in FY2024), it significantly trails Lululemon (59% in FY2025). UA's operating margin (-2.25% TTM) and net margin (-2.52% TTM) reflect current challenges and lag behind profitable peers. The company's focus on operational efficiency, SKU reduction, and DTC elevation are direct responses to improve these metrics and compete more effectively for market share and profitability against rivals who often benefit from greater scale or more streamlined models. Regaining shelf space and mindshare against these formidable competitors requires consistent execution and compelling product/storytelling.

Strategic Reset Underway: Operational Shifts and Financial Implications

Under Armour's strategic reset is manifesting through several key operational and financial shifts. A core initiative is the targeted 25% reduction in SKU/style count over 18 months. This is not a blanket cut but a surgical approach designed to eliminate complexity, streamline the product offering, and allow for greater focus on key franchises and higher-return opportunities, particularly distorting towards "better and best" level products. This is complemented by efforts to simplify the materials library, such as reducing footwear foams, to enhance efficiency in product creation and supply chain.

The company is also transitioning to a consumer-focused category management operating model. This structural shift aims to align product, marketing, and regional teams around core sports categories like training, running, and basketball, assigning singular accountability to drive faster execution and greater impact. This is expected to improve strategic alignment and operational efficiency, contributing to SG&A leverage over time.

Financial performance in Fiscal 2025 reflects the early stages of this reset. Total net revenues decreased 9.4% to $5.16 billion, primarily due to declines in the wholesale (-8.1%) and direct-to-consumer (-10.5%) channels. This revenue contraction is, in part, an intentional outcome of strategic decisions to reduce promotional activities, particularly in the North American e-commerce business. This strategic pullback, while impacting top-line volume, has been a key driver behind the significant 180 basis point increase in gross margin to 47.9% in Fiscal 2025. This margin expansion was also supported by favorable supply chain benefits from lower freight and product costs. Management views this improvement in gross margin and average unit retail as validation of its strategy to restore pricing power and brand value.

However, the strategic investments and operational changes have impacted other areas of the income statement. Selling, general and administrative expenses increased 8.4% in Fiscal 2025 to $2.60 billion. This increase was primarily driven by higher net litigation expenses related to legal settlements, an impairment charge related to vacating the previous global headquarters, and transformational charges associated with the 2025 restructuring plan. The restructuring plan, expanded in September 2024, is expected to result in approximately $140 million to $160 million of pre-tax charges and related expenses by the end of Fiscal 2026, including costs related to workforce reductions and the exit of the Rialto, California distribution facility. These actions are intended to drive future operational efficiencies and SG&A savings, with approximately $40 million in annual savings anticipated in Fiscal 2025 from restructuring actions.

Regional performance in Fiscal 2025 showed divergence. North America, the largest segment (60% of revenue), saw an 11.4% revenue decline, reflecting the impact of the strategic reset on wholesale demand and DTC promotional pullbacks. EMEA, however, demonstrated resilience with a 0.4% revenue increase, driven by DTC growth, highlighting the potential for growth when strategies are effectively executed in a receptive market. Asia-Pacific experienced a significant 13.5% revenue decrease, impacted by a challenging competitive and promotional environment and macroeconomic softness, requiring a similar reset approach to North America. Latin America revenue decreased 6.1%, primarily due to unfavorable foreign exchange impacts.

Liquidity remains adequate to support these initiatives. As of March 31, 2025, the company held $501.4 million in cash and cash equivalents and had no outstanding borrowings on its $1.1 billion revolving credit facility.

The company successfully repaid its $80.9 million Convertible Senior Notes upon maturity in June 2024 using cash on hand. It also initiated a $500 million share repurchase program in May 2024, repurchasing $90 million in Fiscal 2025, signaling confidence in future cash flow generation and a commitment to returning capital to shareholders when prudent. The company believes its current liquidity position and access to capital markets are sufficient for its needs over the next twelve months, although it is proactively evaluating potential financing, such as the recently announced intention to offer $400 million in Senior Notes due 2030.

Outlook and Risks: A Path Forward Amid Uncertainty

Under Armour's outlook for Fiscal 2025, as of May 13, 2025, reflects the continuation of its strategic reset and the anticipated impacts of the current operating environment. The company expects full-year revenue to decline by approximately 10%, with North America projected to be down 12-13%, EMEA flat, and APAC decreasing at a low-teen percentage rate. This guidance incorporates the ongoing strategic decisions to prioritize higher-quality revenue over volume, particularly in North America and APAC.

Despite the revenue decline, the company forecasts a significant gross margin improvement of approximately 160 basis points for the full year, driven by reduced DTC discounting and product cost benefits. However, management anticipates that second-half gross margin expansion will be at a lower rate than the first half due to tougher prior-year comparisons, emerging ocean freight cost headwinds, unfavorable foreign currency impacts, and a less favorable channel mix.

Adjusted SG&A expenses are expected to decrease at a low-single-digit rate for the full year, reflecting initial savings from restructuring actions and ongoing cost management, partially offset by planned reinvestments in marketing and brand building in the second half. This leads to an adjusted operating income outlook of $185 million to $195 million and adjusted diluted earnings per share of $0.28 to $0.30 for Fiscal 2025.

For the first quarter of Fiscal 2026, the company provided limited guidance due to significant uncertainty related to potential changes in trade policy (tariffs) and rising product costs. The outlook anticipates a total revenue decline of 4% to 5%, with North America also down 4% to 5%, EMEA growing high single-digits, and APAC declining mid-teens. Gross margin is expected to expand by 40 to 60 basis points, primarily from product mix, lower product/freight costs, and favorable FX, with tariff impacts not expected to be significant in Q1 FY26. Adjusted operating income is projected at $20 million to $30 million, with adjusted diluted EPS of $0.01 to $0.03.

The investment thesis for Under Armour hinges on the successful execution of this strategic reinvention. Key risks to this thesis include the potential for macroeconomic headwinds (inflation, economic downturns) to further dampen consumer discretionary spending and wholesale demand. Intense competition from larger, better-resourced rivals could make it challenging to regain market share and command premium pricing. Fluctuations in raw material and supply chain costs, exacerbated by global events and potential tariffs, could pressure gross margins. The complex restructuring plan carries execution risk, and failure to realize anticipated efficiencies could impact profitability. The company also faces risks related to forecasting demand, managing inventory, potential data security breaches, and ongoing litigation. Furthermore, a material weakness in internal control over financial reporting related to balance sheet account reconciliations, identified as of March 31, 2025, needs successful remediation to ensure the reliability of financial reporting. Kevin Plank's majority voting control also presents a risk related to corporate governance and strategic direction alignment with all shareholders.

Conclusion

Under Armour is at a pivotal juncture, actively engaged in a strategic reinvention aimed at transforming into a more premium, disciplined "sports house" brand. The early financial results, particularly the notable improvement in gross margin driven by strategic DTC promotional pullbacks, offer initial validation of this direction. While the near-term outlook reflects continued revenue pressure as the company prioritizes brand health over volume and navigates challenging market conditions, the focus on operational efficiency, SKU reduction, category management, and targeted marketing investments lays the groundwork for potential future growth and profitability.

The success of this turnaround will depend on the company's ability to consistently execute its strategic playbook, elevate its product offering through continued technological innovation, effectively tell its brand story to resonate with target consumers, and navigate the complex competitive landscape and macroeconomic uncertainties. Investors should closely monitor the trajectory of gross margin expansion, progress in regaining market share (particularly in North America wholesale), the impact of new product launches and marketing campaigns, the successful realization of restructuring benefits, and the remediation of internal control weaknesses as key indicators of whether Under Armour can successfully build a sustainable, profitable future from its underdog roots.