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01/10 00:30
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals several concerning factors: anticipated revenue decline, significant gross margin pressure from tariffs, and challenges in North America. While there are positive indicators like improved brand perception and strategic initiatives, the overall financial outlook is weak, with expected declines in North America sales and Q2 being particularly tough. The market may react negatively to the revenue and margin pressures, despite optimistic guidance for the latter part of the year. With a market cap of approximately $2.9 billion, the stock is likely to experience a negative movement of -2% to -8%.
Revenue First quarter revenue declined 4% to $1.1 billion year-over-year. North America revenue declined 5% due to a decrease in full price wholesale business and lower e-commerce sales. EMEA revenue increased 10% (6% after adjusting for foreign currency), driven by growth across all channels, especially full price wholesale. APAC revenue decreased 10% due to weak consumer confidence and a competitive market. Latin America revenue declined 15% (8% on a currency-neutral basis) due to foreign currency headwinds and decreases in full-price wholesale and DTC.
Gross Margin Gross margin increased by 70 basis points year-over-year to 48.2%. This was driven by 55 basis points of favorable foreign currency impacts, 30 basis points of pricing benefits, and 30 basis points of favorable product mix. These were partially offset by 45 basis points of unfavorable channel mix and supply chain headwinds.
SG&A Expenses SG&A expenses decreased 37% to $530 million year-over-year, primarily due to a considerable litigation reserve expense in the prior year. Adjusted SG&A expenses (excluding transformation expenses) were $522 million, reflecting a 6% decline year-over-year. The decrease was driven by lower marketing expenses and savings from restructuring and cost management efforts.
Operating Income Reported operating income was $3 million for the quarter. Adjusted operating income (excluding transformation expenses and restructuring charges) was $24 million.
Diluted Earnings Per Share (EPS) Reported diluted loss per share was $0.01. Adjusted diluted earnings per share was $0.02 for the quarter.
Inventory Inventory at the end of Q1 was $1.1 billion, a 2% increase year-over-year.
Cash Balance Cash balance was $911 million, with no utilization of the revolving credit facility during the quarter. The increase in cash was mainly driven by the issuance of $400 million in senior notes due in 2030.
HeatGear OG compression mock, Velociti Elite 3 running shoe, Magnetico football boot, Halo collection, StealthForm Hat, No Weigh backpack: Under Armour is launching these pinnacle products to redefine its brand identity and reshape operations. These products are designed to blend sports authenticity, cultural style, and innovation, with higher ASPs gaining traction.
Top 10 volume drivers redesign: Systematic redesign of top 10 volume items across apparel, footwear, and accessories to improve performance, design, and ASPs. This strategy aims to elevate the brand and mitigate tariff impacts.
Women's product focus: Structural changes to integrate a women-centered approach into category management, aiming to grow the women's business share of total revenue.
Footwear reset: Streamlined portfolio under new leadership, focusing on Velociti and Halo franchises, with deliberate decisions to sunset underperforming lines like Infinite.
EMEA growth: EMEA is the strongest performing region, achieving profitable growth through sharper execution, local relevance, and financial discipline. Focused on football, sportswear, training, and running in key cities and countries.
APAC stabilization: APAC is emerging from a reset year with a focus on reigniting relevance through local storytelling, disciplined pricing, and premium partnerships. Fiscal '26 is about stabilizing and building momentum.
North America reset: Phased plan to rebuild brand loyalty, improve revenue quality, and stabilize growth. Focus on team sports, creators, and cultural collaborations to regain cultural relevance.
SKU reduction: On track to reduce SKUs by 25%, with a 30% reduction in materials for 2025 products, aiming for cost efficiency and sustainable innovation.
AI integration: Over 80 automations implemented to streamline workflows, reduce time to market, and improve execution in areas like predictive pricing and inventory management.
Category-led teams: Shift from siloed functions to collaborative category-led teams driven by real-time data and shared KPIs for smarter decision-making.
Brand transformation: Under Armour is undergoing a bold reinvention to become a sharper, more focused brand, blending sports, style, and innovation with financial discipline.
Focus on team sports: Shifting from a gym-first approach to team sports, emphasizing football, basketball, baseball, and volleyball to bring new energy and relevance.
Influencer-led network: Expanding athlete roster to include high school stars, college athletes, and creators, moving beyond a professional athlete-only model.
Tariff Costs: The company is facing approximately $100 million in additional tariff-related costs, which is expected to negatively impact gross margins by about 200 basis points. This is a significant financial headwind for fiscal 2026.
Soft Consumer Demand: There is softer-than-expected demand in fiscal 2026, particularly in North America and APAC, which is affecting revenue and profitability.
Footwear Business Challenges: The footwear category has been underperforming, with a 14% decline in revenue for the quarter. This is attributed to deliberate portfolio streamlining, softer demand, and missed opportunities in innovation and storytelling.
APAC Market Weakness: The Asia Pacific region is experiencing a 10% revenue decline due to weak consumer confidence and a highly competitive and promotional market.
North America Revenue Decline: Revenue in North America declined 5%, driven by lower full-price wholesale business and e-commerce sales, as well as higher costs due to tariffs.
Inventory Management: Inventory increased by 2% year-over-year, which could indicate potential inefficiencies or challenges in aligning supply with demand.
Operational Restructuring Costs: The company has incurred $110 million in restructuring charges and transformation expenses to date, with additional costs expected in fiscal 2026.
E-commerce Weakness: E-commerce sales declined 12% due to competitive conditions in APAC and North America, highlighting challenges in digital engagement and online sales.
Women's Business Stagnation: The women's business, despite being over $1 billion, has not increased its share of the total business, indicating a lack of growth in this segment.
Footwear Transition Costs: The decision to sunset the Infinite franchise and focus on new lines like Velociti and Halo has come at a cost, contributing to near-term declines in the footwear category.
Revenue Projections: Revenue is expected to decline modestly in fiscal 2026 due to a focus on strengthening the brand and increasing higher-quality sales. Q2 revenue is projected to decline 6% to 7% year-over-year, with North America seeing a low double-digit decline and APAC down at a low teen rate. EMEA is expected to deliver high single-digit revenue growth.
Gross Margin Outlook: Gross margin is expected to decline by 340 to 360 basis points in Q2 compared to last year, driven by higher product costs (including new tariff costs) and channel mix. Favorable changes in foreign currency and pricing benefits will partially offset these decreases.
Operating Income and EPS: Adjusted operating income for fiscal 2026 is projected to be roughly half of fiscal 2025 levels due to new tariff costs and related demand impacts. Adjusted diluted earnings per share for Q2 is expected to range from $0.01 to $0.02.
Tariff Impact: Approximately $100 million in additional tariff-related costs are expected in fiscal 2026, with mitigation strategies such as cost-sharing, alternative sourcing, and selective pricing adjustments being pursued. Most gross margin offsets are anticipated in fiscal 2027 and beyond.
Regional Performance: North America is expected to face challenges from higher costs and softer demand, while EMEA is projected to achieve profitable growth through sharper execution and local relevance. APAC is focused on stabilizing and building momentum for sustained growth.
Strategic Initiatives for Growth: The company is focusing on premiumizing its brand, launching high-ASP products, and redesigning top volume drivers to improve performance and pricing. Efforts include expanding into team sports, enhancing women's product offerings, and leveraging AI for operational efficiency.
The selected topic was not discussed during the call.
The earnings call summary and Q&A reveal several challenges: declining revenue, gross margins, and operating income projections, along with tariff impacts. Despite some positive developments like product innovation and improved partnerships, the lack of concrete guidance for North American stabilization and unclear pricing strategies weigh heavily. The market cap suggests moderate sensitivity, but the overall negative outlook on financials, especially in key markets, points to a negative stock price reaction in the near term.
The earnings call reveals several concerning factors: anticipated revenue decline, significant gross margin pressure from tariffs, and challenges in North America. While there are positive indicators like improved brand perception and strategic initiatives, the overall financial outlook is weak, with expected declines in North America sales and Q2 being particularly tough. The market may react negatively to the revenue and margin pressures, despite optimistic guidance for the latter part of the year. With a market cap of approximately $2.9 billion, the stock is likely to experience a negative movement of -2% to -8%.
The earnings call presents a mixed outlook. While revenue and operating losses are concerning, improved gross margins, share repurchase, and positive adjustments to guidance offer some optimism. The Q&A reveals positive traction in the DTC business and a focus on premium offerings, but uncertainties about tariffs and e-commerce decline remain. Given the small-cap status, the stock might see some volatility but likely remain within a neutral range of -2% to 2%.
The earnings call presents a mixed picture. Revenue declined, but gross margin improved. The company is facing supply chain and macroeconomic challenges, especially in APAC, but is also focusing on brand strengthening. The Q&A reveals some uncertainties, particularly in eCommerce and regional strategies, but there's cautious optimism in North America. Share repurchase is a positive signal. Given the small-cap nature of the company, the mixed signals suggest a neutral stock price movement within the next two weeks.
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