Executive Summary / Key Takeaways

• Under Armour is undergoing a strategic "reinvention" under returning CEO Kevin Plank, shifting to a "brand-first lens" focused on premiumization, streamlined operations, and enhanced storytelling to drive long-term value.
• The company is aggressively reducing SKUs and materials while elevating its product portfolio with differentiated technologies like NEOLAST fiber and innovative designs, aiming to increase average selling prices and gross margins.
• Financial performance in Q2 Fiscal 2026 saw a 4.7% revenue decline, primarily in North America and Asia-Pacific, but EMEA continued strong growth. Gross margin declined 250 basis points, significantly impacted by new U.S. tariffs.
• Fiscal 2026 guidance anticipates a 4-5% revenue decline, a 190-210 basis point gross margin contraction due to tariffs, and adjusted operating income of $90 million to $105 million, reflecting ongoing challenges and strategic investments.
• The recent separation from Stephen Curry's brand, while impacting revenue by $100-$120 million, is framed as a move towards core brand focus and is not expected to significantly affect profitability, aligning with a disciplined competitive strategy.

The Underdog's Next Chapter: Reclaiming Identity in a Competitive Arena

Under Armour, Inc. ($UA), a global developer, marketer, and distributor of athletic performance apparel, footwear, and accessories, is embarking on a pivotal "reinvention" to solidify its position as a "global sports house brand." Incorporated in 1996, the company spent its first two decades building a formidable brand, but in recent years, it acknowledged operating "more like a company than a brand," leading to a diluted product assortment and unclear design language. This introspection has fueled a strategic pivot under returning CEO Kevin Plank, who emphasizes a "brand-first lens" in every decision, aiming to sell "so much more of so much less at a much higher full price."

The athletic apparel and footwear industry is fiercely competitive, dominated by giants like Nike (NKE) and Adidas (ADDYY), alongside agile players such as Puma (PUMSY) and premium lifestyle brands like Lululemon (LULU). Under Armour positions itself as a challenger, leveraging its "underdog" mentality to appeal to dedicated athletes. While Nike boasts superior brand recognition and global distribution, and Adidas excels in marketing reach and product variety, Under Armour differentiates through its focus on specialized performance and innovative material science. The company acknowledges it is "bigger than the new trending brands, yet more agile than the [bigs]," a strategic advantage it intends to exploit.

Technological Edge: NEOLAST and Performance Innovation

Central to Under Armour's strategy is its commitment to technological differentiation, which forms a critical competitive moat. The company's core innovation includes NEOLAST fiber technology, developed over five years in partnership with NC State and Celanese (CE). This groundbreaking material is engineered to replace Lycra stretch, offering a more durable and sustainable option for athletes and the planet. While specific quantitative performance metrics comparing NEOLAST directly to Lycra are not publicly detailed, the strategic intent is to provide superior stretch performance with enhanced durability and environmental benefits, thereby elevating the quality and appeal of core apparel lines like HeatGear Elite base layers. This innovation is expected to contribute to higher average selling prices (ASPs) and improved gross margins by offering a differentiated, premium product.

Beyond NEOLAST, Under Armour continues to push the boundaries of performance. Its Velociti Elite 3 running shoe has demonstrated leadership, highlighted by Sharon Lokedi's podium finish at the New York City Marathon. This pinnacle product, along with the upcoming $160 Velociti distance run shoe, next-generation Shadow and Magnetico football boots, and the Dry Pro clone golf shoe, showcases the company's commitment to high-performance footwear. In accessories, the No Weigh backpack, featuring patent-pending auxetic suspension straps, exemplifies innovation by distributing weight more evenly, creating a lighter feel. This product, priced at $140 in a market typically ranging from $40 to $65, demonstrates Under Armour's ability to introduce premium products and command higher price points when innovation delivers tangible benefits. These technological advancements are crucial for Under Armour to build its competitive moat, enhance financial performance through higher ASPs and potentially lower costs (via material streamlining), and strengthen its market positioning against rivals.

Strategic Initiatives and Operational Transformation

Under Armour's reinvention is multifaceted, encompassing significant operational and strategic shifts. The company has embarked on an aggressive SKU reduction program, aiming to cut 25% of its assortments and streamline its materials library by 30% for 2025 products, with further reductions planned for 2026. This "growth by constraint" model is designed to enhance efficiency, lower costs, and enable a more focused product architecture.

A key operational change is the implementation of a category management operating model in March 2025. This model aligns product, marketing, and regional teams around core categories like training, running, and sportswear, authenticated by key team sports in each region. This structure aims to foster singular accountability, faster execution, and a more disciplined go-to-market approach. The company is also focused on "elevating our top 10 largest unit products," such as the $75 Assert 11 running shoe, by enhancing quality, design, and storytelling to justify higher ASPs and drive profitability.

Storytelling is a critical component of the new strategy. Kevin Plank notes, "We don't have a product issue... and we don't have a brand issue... What we do have is a storytelling opportunity." The "We Are Football" campaign, for instance, significantly increased awareness among 18- to 34-year-olds and drove double-digit sales growth for HeatGear Baselayer. The renewed NFL partnership as an official glove and footwear supplier further reinforces the brand's performance credentials. Under Armour is also integrating AI across its business, with over 80 automations streamlining workflows, enhancing design, planning, and forecasting, from predictive pricing to real-time inventory management.

Financial Performance and Liquidity

Under Armour's financial performance in the second quarter of Fiscal 2026 reflects the ongoing challenges and strategic recalibration. Total net revenues decreased by 4.7% to $1.33 billion, with wholesale revenue down 6.2% and direct-to-consumer revenue down 2.2%. Apparel revenue saw a modest 1.1% decline, while footwear revenue decreased significantly by 15.7%, and accessories revenue fell 2.8%. The decline in footwear is a particular concern, with management acknowledging the results as "unacceptable" but framing it as a deliberate "redirect" to move towards a more premium and performance-oriented offering.

Geographically, North America's revenue decreased by 8.3% for the quarter, primarily due to softness in full-price wholesale and e-commerce. Asia-Pacific revenue also declined by 13.7%, driven by challenging market conditions and lower consumer demand. In contrast, EMEA continued its strong performance, with revenue increasing by 12.2% (7% currency-neutral), driven by robust wholesale and direct-to-consumer growth. Latin America also saw a 14.6% revenue increase.

Gross margin for the quarter decreased by 250 basis points to 47.3%. This contraction was "primarily driven by unfavorable impacts of 275 basis points from supply chain, primarily due to the impact of tariffs," and 100 basis points from channel and regional mix. These headwinds were partially offset by favorable impacts from foreign currency, pricing benefits, and product mix. Selling, general and administrative (SG&A) expenses increased by 11.9%, though adjusted SG&A was down slightly year-over-year on a normalized basis, reflecting ongoing cost management efforts. The company reported an operating income of $17 million, with an adjusted operating income of $53 million, outperforming its internal outlook.

As of September 30, 2025, Under Armour maintained a solid liquidity position with $396 million in cash and cash equivalents.

The company successfully managed its debt, satisfying and discharging its $600 million Senior Notes due 2026 and issuing $400 million in new 7.25% senior unsecured notes due 2030. There were $200 million outstanding under its $1.1 billion revolving credit facility.

Under Armour also continued its share repurchase program, buying back $25 million of Class C Common Stock during the quarter, with approximately $385 million remaining under the authorization. The repatriation of $650 million in foreign earnings further strengthens its capital structure.

Outlook and Risks

Under Armour's Fiscal 2026 outlook reflects a cautious but determined path forward. The company expects full-year revenue to decline by 4% to 5%, an improvement from Fiscal 2025's 9% decline. This guidance anticipates high single-digit revenue decreases in North America and Asia-Pacific, offset by high single-digit growth in EMEA. Gross margin is projected to decline by 190 to 210 basis points, primarily due to an estimated $100 million impact from increased U.S. tariffs, which is expected to affect gross profit by approximately 200 basis points. Adjusted SG&A is expected to decline at a mid-single-digit rate, with a goal of leveraging. This translates to an adjusted operating income of $90 million to $105 million and adjusted diluted earnings per share in the range of $0.03 to $0.05.

For the third quarter of Fiscal 2026, revenue is expected to decline by 6% to 7%, with North America facing a low double-digit decline, EMEA growing at a high single-digit rate, and Asia-Pacific declining by a high single-digit rate. Gross margin is anticipated to decline by 310 to 330 basis points due to the full impact of new U.S. tariff costs.

Several risks could impact this outlook. The company is actively addressing a material weakness in its internal control over financial reporting, with remediation expected by the end of Fiscal 2026. Litigation regarding insurance coverage for a prior settlement also poses a financial risk. Macroeconomic factors, including inflationary pressures and foreign currency fluctuations, continue to create uncertainty. The impact of tariffs is a significant headwind, though Under Armour is pursuing mitigation strategies, with most benefits expected in Fiscal 2027 and beyond. The recent mutual separation from Stephen Curry's brand, while impacting revenue by $100 million to $120 million, is not expected to have a significant effect on profitability, as the company focuses on its core brand comeback.

Conclusion

Under Armour is at a critical juncture, actively transforming its business to align with a "brand-first" philosophy and a premium market position. The company's strategic initiatives, including aggressive SKU rationalization, a new category management operating model, and a renewed focus on compelling storytelling and technological innovation, are foundational to its long-term success. While recent financial performance reflects the challenges of this transition and external headwinds like tariffs, the company's leadership expresses confidence in its ability to stabilize key markets like North America and Asia-Pacific by the end of Fiscal 2027, building on the consistent growth seen in EMEA.

The investment thesis hinges on Under Armour's ability to execute its premiumization strategy, leveraging its differentiated technologies and "sports house" identity to command higher average selling prices and expand gross margins. The qualitative indicators of increasing brand heat and improved customer experience suggest that the brand is beginning to resonate with consumers, even if financial results are still catching up. Investors should closely monitor the effectiveness of tariff mitigation strategies, the progress of the North American wholesale rebuild, and the continued integration of innovation and storytelling across all product categories as key indicators of the company's trajectory towards sustainable, profitable growth.