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01/10 00:28
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Revenue Declined 5% to $1.3 billion year-over-year. This includes a 1-point benefit from timing shifts that moved some shipments from Q3 into Q2. North America revenue decreased 8%, primarily due to a decline in full-price wholesale business and lower e-commerce sales. EMEA revenue increased 12% (7% on a currency-neutral basis), driven by full-price wholesale business and strong growth in DTC channel. APAC revenue declined 14%, mainly driven by wholesale business, while DTC decreased modestly. Latin America revenue increased 15% (14% on a currency-neutral basis) with strong growth across wholesale and DTC.
Gross Margin Declined 250 basis points year-over-year to 47.3%. This was mainly caused by 275 basis points of supply chain headwinds (higher U.S. tariffs) and 100 basis points of unfavorable channel and regional mix. Partly offset by 50 basis points of foreign currency tailwinds, 50 basis points of pricing benefits, and 25 basis points from favorable product mix.
SG&A Expenses Increased 12% to $582 million. Excluding $4 million of transformation expenses, adjusted SG&A expenses were $577 million, a 9% increase year-over-year. Last year's Q2 SG&A benefited from a $27 million insurance recovery, explaining about 5 points of the increase. The rest reflects higher marketing driven by timing shifts.
Operating Income Reported operating income was $17 million. Excluding transformation expenses and restructuring charges, adjusted operating income was $53 million, outperforming the outlook.
Net Income Reported diluted loss per share was $0.04, while adjusted diluted earnings per share was $0.04.
Inventory Decreased 6% year-over-year to $1 billion.
Cash Balance $396 million at the end of the period.
Streamlined assortments: Cut 25% of SKUs, refocused materials library, and prioritized fabrics for innovation and style.
New product launches: Introduced Velociti Elite 3, SlipSpeed Echo, Nova extensions, and accessories like StealthForm hat and No Weigh backpack.
Upcoming innovations: Spring/Summer '26 to feature Velociti distance run shoe, Shadow and Magnetico football boots, and HeatGear Elite base layer with NEOLAST fiber technology.
Focus on top products: Elevating top 10 largest unit products with better quality and design, aiming for higher price points.
Global reach: Nearly 2,000 UA-branded stores worldwide, with a focus on training, running, and sportswear.
Regional performance: EMEA showing healthy growth, APAC rebuilding, and North America focusing on brand heat and storytelling.
Cultural relevance: Campaigns like 'We Are Football' increased awareness among 18-34-year-olds and boosted sales.
Leadership transition: Dave Bergman transitioning out as CFO, with Reza Taleghani joining in February 2026.
Restructuring plan: Generated $35 million in savings in fiscal 2025 and on track for $45 million in fiscal 2026.
E-commerce improvements: New content management system supports modern tools like TikTok and shoppable reels.
Brand storytelling: Focus on blending creativity with performance to enhance cultural edge and consumer connection.
Marketplace management: Disciplined approach in North America and APAC to stabilize and grow markets.
Long-term strategy: Aiming to reignite Under Armour's potential with sharper products, storytelling, and operational discipline.
Leadership Transition: The transition of CFO Dave Bergman, who has been with the company for over two decades, could pose risks related to continuity and strategic execution during the leadership change. The incoming CFO, Reza Taleghani, will need time to adapt and align with the company's strategic goals.
North America Revenue Decline: North America revenue decreased by 8%, primarily due to a decline in full-price wholesale business and lower e-commerce sales. This indicates challenges in the core market, which could impact overall financial performance.
APAC Revenue Decline: Revenue in the APAC region declined by 14%, driven by structural challenges and wholesale business issues. This region is undergoing a rebuild, but the current decline reflects ongoing difficulties.
Footwear Revenue Decline: Footwear revenue declined by 16%, reflecting challenges in consumer demand and the need to recalibrate the footwear portfolio. This could impact profitability and market share in this segment.
Gross Margin Decline: Gross margin declined by 250 basis points to 47.3%, mainly due to higher U.S. tariffs and unfavorable channel and regional mix. This could pressure profitability if not addressed.
Supply Chain Headwinds: The company faces 275 basis points of supply chain headwinds, primarily due to higher U.S. tariffs. This adds to cost pressures and could impact margins.
Promotional Market Environment: The North American market remains highly promotional, impacting e-commerce sales and pricing discipline. This could affect profitability and brand positioning.
Wholesale Business Challenges: The wholesale business in North America and APAC is facing challenges, with declines in full-price sales and structural issues. This could hinder revenue growth and market penetration.
Inventory Management: Inventory levels decreased by 6%, but tighter inventory management is required to address regional challenges and improve efficiency.
Restructuring Costs: The company incurred $36 million in restructuring charges and transformation expenses in Q2, with total charges expected to reach $160 million by fiscal 2026. These costs could strain financial resources in the short term.
Revenue Expectations: Full year revenue is expected to decline 4% to 5% in fiscal '26, an improvement compared to fiscal '25's 9% decline. North America and APAC revenues are projected to decrease by high single-digit percentages, while EMEA is expected to grow by a high single-digit percentage.
Gross Margin Projections: Full year gross margin is expected to decline by 190 to 210 basis points, mainly due to higher U.S. tariffs. These headwinds are expected to be partly offset by foreign currency gains, a more favorable product mix, and slight pricing benefits.
Adjusted Operating Income: Expected to be between $90 million to $105 million for fiscal '26.
Adjusted Diluted Earnings Per Share: Expected to range between $0.03 to $0.05 for fiscal '26.
Third Quarter Revenue Outlook: Revenue is expected to decline 6% to 7%, including a 1-point impact from shipment timing shifts. North America is anticipated to see a low double-digit decline, EMEA is projected to grow at a high single-digit rate, and APAC is expected to decline by a high single-digit rate.
Third Quarter Gross Margin: Expected to decline by 310 to 330 basis points due to a full quarter impact of new U.S. tariff costs.
Third Quarter Adjusted Operating Income: Expected to range from a $5 million profit to a $5 million loss, translating to approximately $0.02 to $0.03 of adjusted loss per share.
Future Growth and Market Recovery: Momentum is expected to improve toward a potential inflection point in fiscal '27, with stabilization in North American wholesale and growth in EMEA and APAC.
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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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