Executive Summary / Key Takeaways

• Under Armour is undergoing a strategic "reinvention" to re-establish itself as a premium "sports house" brand rooted in an "underdog" ethos, moving beyond a price-led strategy.
• Recent financial performance reflects this reset, with Fiscal 2025 revenue declining 9.4% to $5.16 billion, primarily due to intentional reductions in promotional activity in DTC and wholesale softness, but gross margin expanded significantly by 180 basis points to 47.9%, driven by supply chain benefits and pricing discipline.
• The company is implementing operational transformations, including a 25% SKU reduction, a shift to a category management model, and supply chain modernization, aimed at improving efficiency, focus, and profitability.
• While near-term revenue faces pressure (Q1 FY26 guidance: down 4-5%), management is reinvesting profitability gains into brand building and expects continued gross margin expansion (Q1 FY26 guidance: up 40-60 bps) and adjusted operating income improvement ($20M-$30M in Q1 FY26).
• Key factors for investors to watch include the success of new product launches (Fall/Winter '25 season), the impact of marketing re-alignment under new leadership, progress on the North America reset and DTC elevation, and the ability to manage external risks like tariffs and competitive pressures.

The Underdog Sports House: A Brand in Reinvention

Under Armour, founded in 1996 by Kevin Plank, built its reputation on developing high-performance athletic apparel engineered to make athletes better. From its origins with moisture-wicking base layers like HEATGEAR and COLDGEAR, the company expanded into footwear and accessories, establishing itself as a global brand capable of outfitting athletes across a wide range of sports. This breadth and authenticity on the field, court, and pitch across high school, collegiate, and professional levels globally define its identity as a "sports house" – a select group of brands with the credibility to compete at the highest echelons of athletic performance.

However, in recent years, Under Armour faced challenges, including intense competition, operational complexities, and a perceived over-reliance on promotional activity that diluted its premium positioning. Recognizing the need for a strategic shift, the company is now undergoing a deliberate "reinvention" under the renewed leadership of Kevin Plank, aiming to strengthen the brand, prioritize higher-quality revenue, and drive sustainable, profitable growth. At the heart of this reset is a return to the brand's core ethos: the underdog. This isn't about being small; it's about the spirit of the athlete who works harder, who has something to prove, and who seeks every possible edge – a mindset Under Armour believes is authentic to its DNA and differentiates it from larger competitors. The strategy is encapsulated in the "Protect This House" framework, focusing on four key dimensions: product, story, service, and team.

Technological Edge: Engineering Performance

Central to Under Armour's identity as a performance brand is its commitment to technological innovation in athletic gear. The company's products are built upon proprietary technologies designed to enhance athlete comfort, mobility, temperature regulation, and overall performance. Core technologies include:

• HEATGEAR: Designed to keep athletes cool and dry in hot conditions.
• COLDGEAR: Engineered to provide breathable warmth in cold conditions.
• HOVR, Flow, Micro G, Charged Cushioning: Differentiated cushioning platforms for footwear, providing plush underfoot feel, responsiveness, and lightweight solutions.
• UA Iso-Chill: Helps the body stay cool in hotter-than-normal conditions.
• UA RUSH: Harnesses the body's energy to help fight fatigue.
• UA SMARTFORM: Adapts to the athlete's body shape for improved fit and comfort.
• UA STORM: Provides protection against rain while maintaining breathability.

These technologies are foundational to UAA's product differentiation. While specific, quantifiable performance metrics for all technologies compared to alternatives are not detailed, the company emphasizes that these innovations are designed to provide tangible performance benefits and are curated to their specifications.

Under Armour continues to invest in R&D and new technological developments. The upcoming NEOLAST material fiber is highlighted as a breakthrough engineered to revolutionize stretch performance in apparel while being fully sustainable, aiming to redefine the core base layer category. The new Halo collection represents a premium expansion into next-generation performance sportswear, featuring footwear (trainer, runner, racer) with integrated UA logo midsole structures for support and complementing elevated apparel. The No Weigh backpack, featuring patent-pending auxetic suspension straps, is presented as a "Trojan horse product" demonstrating the application of performance thinking to accessories, designed to distribute weight and create a lighter feeling. Similarly, the StealthForm Uncrushable Hat showcases innovation in a seemingly ordinary category, incorporating stretch, recovery, and moisture management.

For investors, this focus on technological differentiation is crucial. It forms a core part of Under Armour's competitive moat, justifying a premium positioning and supporting pricing power. While larger competitors like Nike (NKE) and Adidas (ADDYY) also possess significant R&D capabilities and proprietary technologies, UAA's specific focus on performance engineering for the "underdog" athlete provides a distinct angle. The success of new technologies like NEOLAST and the Halo collection, and the ability to translate performance benefits into compelling stories, will be key to driving higher average selling prices (ASPs), improving gross margins, and fueling long-term growth in a competitive market.

Strategic Reset and Operational Transformation

The strategic reset is driving significant operational changes across the organization. A key initiative is the planned 25% SKU reduction over the next 18 months, aimed at simplifying the product offering, improving focus, and enhancing operational efficiency from design to inventory management. This is not a blanket reduction but a surgical effort to distort towards areas of opportunity and over-index towards better and best level products.

The company is also transitioning from a product category-led (apparel, footwear, accessories) to a consumer-focused category management operating model. This structural shift aims to align product, marketing, and regional teams around key sports categories (training, running, team sports, basketball, sportswear, golf, etc.), providing singular accountability and enabling faster execution and greater impact. This is expected to create a leaner, more efficient go-to-market engine.

Modernizing the supply chain is another critical component, led by Chief Supply Chain Officer Shawn Curran. Initiatives include improving end-to-end planning for better forecasting and inventory management across channels and regions, and a multi-year distribution logistics modernization initiative. As part of this, the company approved a restructuring plan in May 2024, expanded in September 2024, which includes the exit of the Rialto, California distribution facility by March 2026. The total estimated pre-tax restructuring and related charges are $140 million to $160 million, expected to be substantially complete by the end of Fiscal 2026. These operational changes are designed to support the strategic ambition of "selling so much more of so much less at a much higher full price," ultimately enhancing profitability and agility.

Financial Performance: A Turn in Profitability

Fiscal 2025 results reflect a business in transition, prioritizing strategic health over short-term top-line growth. Total net revenues decreased 9.4% to $5.16 billion compared to $5.70 billion in Fiscal 2024. This decline was seen across most segments, with North America down 11.4% to $3.11 billion, Asia-Pacific down 13.5% to $755.4 million, and Latin America down 6.1% to $215.4 million. EMEA was a bright spot, showing slight growth of 0.4% to $1.09 billion. By channel, wholesale revenue decreased 8.1% to $2.98 billion, and DTC revenue decreased 10.5% to $2.09 billion. Product categories also saw declines, with apparel down 8.9% to $3.45 billion and footwear down 12.8% to $1.21 billion. Accessories were a notable exception, increasing 1.3% to $410.9 million. Licensing revenue decreased 15.0% to $94.6 million.

Despite the revenue contraction, a key highlight was the significant improvement in profitability metrics, signaling the early impact of strategic adjustments. Gross margin expanded by 180 basis points to 47.9% in Fiscal 2025, up from 46.1% in Fiscal 2024. This was primarily driven by favorable supply chain benefits (lower freight and product costs) and pricing benefits from reduced discounting in the DTC channel.

Selling, general and administrative expenses increased 8.4% to $2.60 billion in Fiscal 2025, largely influenced by higher net litigation expenses related to settlements ($261 million in Corporate Other), a $28.4 million impairment charge for the previous headquarters, and $31.2 million in transformational charges from the restructuring plan. Restructuring charges added another $58.0 million in Fiscal 2025. This led to a decrease in operating income, which fell to $185.2 million in Fiscal 2025 from $229.8 million in Fiscal 2024. Net income decreased to $201.3 million ($0.47 diluted EPS) in Fiscal 2025 from $232.0 million ($0.52 diluted EPS) in Fiscal 2024.

From a liquidity standpoint, the company ended Fiscal 2025 with $501.4 million in cash and cash equivalents. It repaid the $80.9 million Convertible Senior Notes upon maturity in June 2024 using cash on hand and has no amounts outstanding on its $1.1 billion revolving credit facility as of March 31, 2025. Capital expenditures were $168.7 million in Fiscal 2025, including significant investment in the new headquarters. The company also actively repurchased shares under its new $500 million program, buying back $90 million of Class C stock in Fiscal 2025. While cash from operations decreased in Fiscal 2025, the balance sheet remains reasonably healthy, though subject to financial covenants under its credit facility and restrictions under its Senior Notes.

Competitive Landscape: Battling for the Podium

Under Armour operates in a highly competitive global market dominated by larger players like Nike and Adidas, alongside strong niche and regional competitors such as Lululemon (LULU) and Puma (PUM). These rivals possess significant advantages, including greater financial resources, extensive distribution networks, longer operating histories, and stronger global brand recognition.

Comparing key financial metrics (TTM as of mid-2025, based on available data):

• Gross Profit Margin: UAA's TTM Gross Profit Margin of 47.47% is competitive with Nike (45%) and Adidas (51%), but trails Lululemon's significantly higher margin (59%), reflecting Lululemon's premium positioning and DTC focus. Puma's margin (42-44%) appears slightly lower than UAA's.
• Operating Profit Margin: UAA's TTM Operating Profit Margin (-2.25%) lags significantly behind Nike (13%), Adidas (6%), and Lululemon (24%), and likely Puma (8-10%), indicating higher operating costs relative to revenue compared to peers.
• Net Profit Margin: UAA's TTM Net Profit Margin (-2.52%) is also negative, contrasting sharply with profitable peers like Nike (11%), Adidas (3%), and Lululemon (17%).
• Current Ratio: UAA's TTM Current Ratio (2.01) suggests adequate short-term liquidity, comparable to or slightly below some peers.
• Debt/Equity Ratio: UAA's TTM Debt/Equity Ratio (0.66) indicates a moderate level of leverage compared to equity, which is higher than Lululemon (<0.5) but potentially lower than Adidas (1.02) and Puma (~1.8).

UAA's market share (estimated 5-7% in core segments) is considerably smaller than Nike's (35-40%) and Adidas's (15-20%), placing it in a similar tier to Puma. While UAA's technological focus provides a competitive moat, larger rivals also invest heavily in R&D, sometimes achieving greater efficiency or broader appeal (e.g., Nike's material efficiency, Adidas's energy return). Lululemon excels in fabric innovation and community building, commanding premium prices.

UAA's strategic response involves leveraging its "sports house" authenticity and "underdog" ethos to differentiate its brand message. The focus on elevating DTC channels aims to capture higher margins and build direct consumer relationships, similar to Lululemon's successful model. Realigning marketing and investing in influencers and key sports moments (NFL, NBA, Olympics, collegiate) is crucial for regaining brand heat and competing for consumer attention against the marketing powerhouses of Nike and Adidas. Strengthening wholesale relationships is also vital, as retailers often favor brands with higher volume and better sell-through. UAA's ability to execute its strategic reset and improve profitability will be key to gaining ground in this intensely competitive landscape.

Outlook and Path Forward

Under Armour's outlook for Fiscal 2026 begins with caution, reflecting the ongoing strategic reset and external uncertainties. For the first quarter of Fiscal 2026, management expects revenue to decline by 4% to 5% year-over-year. This is attributed to anticipated softness in the spring/summer '25 wholesale order book and continued proactive strategies to reset the APAC business. North America is expected to see a similar decline rate (down 4-5%), while EMEA is projected for high single-digit growth (supported by FX tailwinds and the Easter shift), and APAC is expected to decline by a mid-teen percentage rate.

Despite the top-line pressure, profitability is expected to continue improving in Q1 FY26. Gross margin is anticipated to expand by 40 to 60 basis points, driven by benefits from a more favorable product mix, reduced product and freight costs, and favorable foreign exchange rates. Adjusted SG&A expenses are expected to leverage slightly compared to the prior year, reflecting ongoing savings from restructuring actions and spending efficiencies. This translates to an expected adjusted operating income of $20 million to $30 million and adjusted diluted earnings per share of $0.01 to $0.03 for the first quarter of Fiscal 2026.

The decision to limit guidance to only the first quarter of Fiscal 2026 is explicitly linked to the "significant uncertainty that tariffs create concerning potential shifts in consumer demand and rising product costs." While the immediate impact of recent tariff proposals on UAA's sourcing footprint (approximately 3% from China, less from Mexico/Canada) is not expected to be significant, the broader market implications and potential for future changes warrant a prudent approach.

The updated Fiscal 2025 outlook (as of the Q3 FY25 call) projected full-year revenue to decline at approximately 10%, with North America down 12-13%, EMEA flat, and APAC down low-teens. Gross margin was expected to improve by approximately 160 basis points. Adjusted operating income was projected at $185 million to $195 million, and adjusted diluted EPS at $0.28 to $0.30. The Q4 FY25 results slightly exceeded this outlook, with revenue down 9.4% for the full year and adjusted operating income reaching $198 million.

Management's commentary emphasizes that the near-term revenue declines are a consequence of intentional strategic choices to build a healthier, more premium business. The focus remains on driving gross margin expansion and operational efficiency, reinvesting profitability gains into brand building ahead of pivotal seasons (like Fall/Winter '25), and laying the groundwork for future sustainable growth. The ambition is to achieve double-digit operating margins over time, driven by growth.

Conclusion

Under Armour is actively engaged in a comprehensive strategic reset, aiming to transform itself from a brand perceived as overly promotional into a premium "sports house" rooted in its authentic "underdog" ethos. Fiscal 2025 demonstrated the initial financial impact of this transition, with revenue declines reflecting intentional strategic choices but notable gross margin expansion driven by pricing discipline and supply chain efficiencies.

The path forward involves executing on operational transformations, elevating product and storytelling, strengthening key relationships across distribution channels, and revitalizing the company culture. While the near-term outlook points to continued revenue pressure, particularly in the first quarter of Fiscal 2026, management is focused on improving profitability and reinvesting in the brand to build a stronger foundation. The success of new product introductions, the effectiveness of marketing re-alignment under new leadership, and the ability to navigate intense competition and external risks like tariffs will be critical factors determining Under Armour's ability to achieve its ambition of sustainable, profitable growth and re-establish its position on the global sports podium. Investors should monitor progress on the North America reset, DTC elevation, and the impact of the new category management model as key indicators of the strategy's effectiveness.