Executive Summary / Key Takeaways

• The Curry Divorce Signals Strategic Clarity, Not Crisis: Under Armour's mutual separation from Stephen Curry in November 2025—while costing $95 million in additional restructuring charges—eliminates a partnership that analysts questioned for years and frees management to focus exclusively on rebuilding the core UA brand, which Plank believes has suffered from operating "more like a company than a brand" for eight years.

• North America Stabilization Is the Entire Thesis: With 56% of revenue and the majority of operating income historically, North America's 8% decline in Q2 FY26 and projected high-single-digit drops through FY26 represent the central battleground; Plank's goal of achieving "plus or minus 1 or 2" percent growth by FY27 will determine whether this turnaround succeeds or becomes another failed athletic brand revival.

• EMEA Proves the Model Works—Elsewhere: EMEA's consistent 10-12% growth and expanding operating margins demonstrate that Under Armour's "brand-first" strategy can drive profitable growth when executed properly, but the region represents just 23% of revenue, making it a proof-of-concept rather than a driver of overall recovery.

• Tariffs Create a $100M Margin Sinkhole in FY26: New U.S. tariffs are expected to impact cost of goods sold by approximately $100 million in FY26, representing a 200-basis-point headwind to gross margin that management cannot fully offset until FY27 due to product lead times, compressing already thin profitability during the most critical phase of the turnaround.

• Valuation Reflects Turnaround Optionality, Not Fundamentals: Trading at 0.38x sales with a $1.9 billion market cap against $5.2 billion in revenue, the stock prices in a successful turnaround; any failure to stabilize North America and restore brand heat will likely result in further multiple compression, while success could drive significant re-rating as the market cap converges toward revenue scale.

Setting the Scene: From Performance Pioneer to Promotional Prison

Under Armour, incorporated in Maryland in 1996 and headquartered in Baltimore, began as a product innovation story—creating moisture-wicking compression apparel that solved a real athlete problem. This product-first ethos built a $5 billion revenue base over two decades, culminating in a November 2005 IPO that made Kevin Plank a visionary founder-CEO. The company expanded globally, built a direct-to-consumer presence, and signed elite athletes like Stephen Curry in 2013, launching the Curry Brand in 2020. Yet by 2017-2018, something critical had shifted: the company began operating "more like a company than a brand," a corporate malaise that Plank explicitly identified upon his return to the CEO role in April 2024.

This distinction matters because it explains eight years of value destruction. While Nike (NKE) and adidas (ADDYY) built lifestyle ecosystems and lululemon (LULU) created community-driven premium positioning, Under Armour became addicted to promotional pricing, SKU proliferation, and wholesale channel stuffing. The symptoms appeared everywhere: e-commerce discounting eroded brand equity, a 25% SKU reduction became necessary to restore focus, and North America—once the growth engine—became a drag on performance. Plank's diagnosis was simple but profound: world-class financials don't build world-class brands; it's the other way around.

The athletic apparel industry has transformed dramatically since 1996. Nike now struggles against upstarts like On (ONON) and Hoka, adidas has regained momentum through lifestyle collaborations, and the entire sector faces macroeconomic headwinds from inflation and shifting consumer behavior. Under Armour's competitive position reflects this evolution: it remains larger than emerging brands but more agile than the giants, with a self-described moat in performance authenticity—"people know that if it's UA, it's got the performance aspects to it." However, this moat has narrowed as competitors matched technical capabilities while surpassing Under Armour in brand heat and cultural relevance.

Technology, Products, and Strategic Differentiation: Less Is More

Under Armour's turnaround strategy rests on a radical simplification philosophy that directly addresses the root causes of brand dilution. The company is cutting 25% of SKUs and reducing materials by 30% for 2025 products, with further reductions planned for 2026. This isn't just cost-cutting; it's brand restoration. Why does this matter? Because SKU proliferation forced the company into promotional pricing to move excess inventory, trained consumers to wait for discounts, and cluttered the brand message. By selling "so much more of so much less at a much higher full price," Plank aims to rebuild premium positioning and restore gross margins.

The product pipeline reflects this focus. New innovations include the Velociti Elite 3 running shoe, SlipSpeed extensions, and the $45 StealthForm hat—premium-priced items designed to elevate average selling prices. The $75 Assert 11 running shoe, redesigned with Velociti-inspired aesthetics and Charged+ midsole technology, targets the high-volume segment while maintaining price discipline. For Spring/Summer '26, the company will launch the $160 Velociti distance run shoe, next-generation football boots, and NEOLAST fiber technology—a sustainable Lycra replacement in HeatGear Elite base layers. These products share a common thread: they solve specific athlete problems while supporting premium pricing.

The strategic differentiation extends beyond products to storytelling. The "We Are Football" campaign generated over 300 million impressions, 100 million video views, and increased brand awareness among 18-34 year-olds from the mid-60s to the 80s. This matters because it demonstrates that Under Armour can still create cultural moments that drive both brand heat and commercial results—HeatGear Baselayer sales saw double-digit growth following the campaign. The VMA activation with Gunna produced a fivefold rise in social media mentions and increased purchase consideration among young athletes. These aren't vanity metrics; they're leading indicators of brand health that should translate to full-price sell-through.

Financial Performance & Segment Dynamics: A Tale of Three Regions

Under Armour's Q2 FY26 results reveal a company in transition, with performance varying dramatically across geographies. Consolidated revenue declined 6% to $1.40 billion, but the segment breakdown tells the real story. North America, representing 56% of revenue, fell 8% to $791 million, with operating income plunging 36.5% to $138 million. This collapse in profitability—driven by lower revenues, higher tariff-related input costs, and increased marketing spend—demonstrates why stabilization in this region is non-negotiable for the turnaround to succeed.

EMEA shines as the counterexample. Revenue grew 12% (7% currency-neutral) to $318 million, with operating income up 1.9% to $53 million. Management describes this as "healthy profitable growth" driven by a clear strategy and culturally relevant brand moments like the Mansory collaboration, which generated 38 million organic views. The region's success proves that Under Armour's brand-first approach works when executed with discipline. However, at just 23% of total revenue, EMEA cannot offset North American weakness—it can only validate the playbook.

APAC presents the third narrative arc. Revenue declined 14% on both reported and currency-neutral bases to $179 million, with operating income down 17.9% to $28 million. Management acknowledges the "down 14% print does not reflect the real progress underway," citing structural challenges in a highly promotional market. The company is rebuilding a "premium high-integrity marketplace" by reducing inventory, strengthening purchasing discipline, and simplifying assortments. This matters because APAC represents the future growth engine—if Under Armour cannot win in this region, its long-term TAM is constrained.

Corporate Other posted an operating loss of $206 million, a 45% increase year-over-year, driven by higher restructuring charges and the absence of prior-year insurance recoveries. The expanded $255 million restructuring plan—up from the initial $160 million—includes Curry Brand separation costs, contract terminations, and severance. While painful, these charges represent the cost of strategic clarity.

Gross margin compressed 250 basis points to 47.3% in Q2, with supply chain headwinds (primarily tariffs) contributing 275 basis points of pressure. This margin degradation, combined with a 12% increase in SG&A expenses to $582 million, explains why operating income fell to just $17 million on a GAAP basis. The company is spending more to support a smaller revenue base—a classic turnaround dynamic that creates near-term pain for potential long-term gain.

Outlook, Management Guidance, and Execution Risk

Under Armour's FY26 guidance frames the turnaround's trajectory and inherent risks. Management expects revenue to decline 4-5%, an improvement from FY25's 9% drop but still negative. North America and APAC are projected to decrease by high-single-digit percentages, while EMEA grows high-single-digits. This guidance matters because it signals that the bottom is not yet in—Q2's 6% decline will worsen to 6-7% in Q3 before potentially improving in Q4.

The profit outlook is more concerning. Adjusted operating income guidance of $90-105 million represents a dramatic step-down from FY25's $198 million, reflecting tariff headwinds and continued investment in brand building. Gross margin is expected to decline 190-210 basis points for the full year, with Q3 seeing a 310-330 basis point contraction due to a full quarter of new tariff costs. This margin pressure, combined with higher interest expense from the new 7.25% notes and a volatile tax rate, drives adjusted EPS guidance to just $0.03-0.05.

Kevin Plank's commentary on North America stabilization provides the key performance indicator. He defines stabilization as "plus 1 or 2 or plus or minus 1 or 2" percent growth and targets achieving this by the end of FY27. This timeline matters because it sets a two-year clock for the turnaround. The confidence is based on a stable order book, positive momentum with key retail partners, and increasing brand heat from campaigns like "We Are Football." However, wholesale partners remain hesitant, and the Spring/Summer 2025 order book showed softness that will pressure Q1 FY27.

The Curry Brand separation, while costing $95 million in additional restructuring charges, removes a partnership that analysts consistently questioned. Jefferies analysts noted they "always questioned his marketability and believed the Curry shoes and apparel products never resonated with a wide audience." This matters because it eliminates a distraction and allows Plank to focus resources on core UA brand building, though it also removes a potential growth vehicle if Curry Brand had been properly developed.

Risks and Asymmetries: Where the Thesis Lives or Dies

The investment thesis faces three critical asymmetries that will determine outcomes. First, tariff mitigation strategies exist but won't materially impact gross margins until FY27 due to product lead times. If trade policy worsens or mitigation proves less effective than anticipated, the $100 million annual cost impact could increase, further compressing margins during the turnaround's most vulnerable phase. This risk is compounded by the company's geographic concentration—over 50% of revenue from North America—making it uniquely exposed to U.S. trade policy.

Second, the balance sheet provides limited cushion. While the company has $396 million in cash and a $1.1 billion revolving credit facility (with $200 million drawn), it also carries $400 million in new 7.25% senior notes due 2030 and faces ongoing restructuring cash costs. The company repurchased $25 million in stock during Q2, suggesting management believes the stock is undervalued, but this also reduces liquidity at a time when operational cash flow remains negative (-$59 million TTM). If the turnaround takes longer than expected, Under Armour may need to choose between brand investment and financial flexibility.

Third, brand heat is intangible but decisive. The "We Are Football" campaign's success in driving awareness and baselayer sales proves Under Armour can still create cultural resonance. However, the Curry partnership's dissolution raises questions about celebrity endorsement strategy, and competitors like Nike and adidas continue to dominate lifestyle positioning. If Plank's product-first, story-driven approach fails to reconnect with the 18-34 demographic at scale, the company risks becoming a permanent mid-tier player in a market that rewards brand premium.

The competitive landscape intensifies these risks. Nike's scale and DTC capabilities, adidas's momentum in lifestyle and sustainability, and lululemon's community-driven model all create higher bars for Under Armour's comeback. The company's self-described advantage—being "bigger than the new trending brands, yet more agile than the [bigs]"—only matters if it translates to market share gains. So far, the data shows continued share loss in North America, with EMEA gains insufficient to offset declines elsewhere.

Valuation Context: Pricing in a Successful Turnaround

At $4.34 per share, Under Armour trades at a $1.9 billion market capitalization and 0.38x price-to-sales ratio on TTM revenue of $5.16 billion. This valuation multiple reflects a market that has lost confidence in the company's ability to convert revenue into profit, as evidenced by the -1.74% profit margin and -4.56% return on equity. The enterprise value of $3.40 billion represents 0.67x revenue, a discount to even struggling peers like PUMA (PUMSY) (0.65x) and a dramatic gap versus Nike (2.15x) and adidas (1.36x).

The valuation metrics reveal a company in transition. The 1.83 beta indicates high volatility and market sensitivity, appropriate for a turnaround story. The 1.02 debt-to-equity ratio, while manageable, becomes concerning when combined with negative operating cash flow (-$59 million TTM) and the need to fund restructuring costs. The 14.64x EV/EBITDA ratio appears reasonable only because EBITDA is depressed; if the turnaround succeeds, this multiple would compress dramatically as earnings recover.

What matters for investors is the asymmetry. If Plank achieves his FY27 stabilization goal and returns the company to low-single-digit growth with 47%+ gross margins, the stock could re-rate toward 0.8-1.0x sales, implying 100-150% upside from current levels. If the turnaround fails and revenue continues declining while tariffs compress margins further, the stock could trade down to 0.2-0.25x sales, representing 30-40% downside. This risk/reward profile is attractive for turnaround investors but requires conviction in Plank's execution.

Conclusion: A Brand at the Crossroads

Under Armour stands at a critical inflection point where strategic clarity and operational execution will determine whether it reclaims its position as a premium performance brand or settles into permanent mid-tier status. Kevin Plank's return as CEO has brought a "brand-first lens" that correctly diagnoses the problems: SKU proliferation, promotional addiction, and loss of cultural relevance. The evidence from EMEA proves this strategy can work, while North America's continued decline shows how difficult it will be to implement.

The Curry Brand separation, while costly and symbolically significant, removes a distraction and allows full focus on core UA revitalization. However, the timing—mid-turnaround—creates additional execution risk when the company can least afford setbacks. Tariff headwinds of approximately $100 million in FY26 represent a material external challenge that management cannot fully mitigate for at least a year, compressing margins during the most critical phase of brand rebuilding.

For investors, the thesis boils down to one question: Can Plank stabilize North America by FY27 while maintaining EMEA momentum and rebuilding APAC? The valuation at 0.38x sales prices in success, but the company's $5 billion revenue scale and still-recognized brand equity provide the assets for a potential turnaround. The next 12-18 months will reveal whether Under Armour's "brand-first" approach can generate the "strength, stability, and balance" Plank promises, or whether the company will remain a case study in how great brands lose their way.