10-Q: Under Armour Q1 2026: Revenue Dip, Profit Rebound

Under Armour reported a 4.2% revenue decrease in the first quarter of fiscal 2026, but significantly narrowed its net loss and improved gross margin, while addressing debt maturity and ongoing litigation.

Summary

• Net revenues decreased 4.2% to $1.13 billion for the three months ended June 30, 2025, compared to $1.18 billion in the prior year.
• The company reported a net loss of $2.6 million, a substantial improvement from a $305.4 million net loss in the same period last year.
• Gross margin increased by 70 basis points to 48.2%, driven by favorable foreign exchange, product mix, and pricing benefits.
• Selling, general, and administrative expenses decreased by 36.7% to $530.3 million, primarily due to lower litigation reserve expense compared to the prior year.
• Operating income improved significantly to $3.3 million from an operating loss of $299.7 million in the prior year.
• Issued $400 million in 7.25% Senior Notes due 2030 and plans to use proceeds to retire $600 million 3.25% Senior Notes due 2026.
• Cash and cash equivalents increased to $911.0 million as of June 30, 2025, from $501.4 million as of March 31, 2025.

Sentiment

Score: 4

Explanation: While the company significantly reduced its net loss and improved gross margin, the overall revenue decline across major markets, particularly North America and footwear, indicates ongoing operational challenges. The anticipated negative impact from tariffs and the persistent material weakness in internal controls add to the cautious outlook, despite proactive debt management and restructuring efforts.

Positives

• Net loss significantly reduced to $2.6 million from $305.4 million in the prior year.
• Gross margin improved by 70 basis points to 48.2%, driven by favorable foreign exchange, product mix, and pricing.
• Selling, general, and administrative expenses decreased by 36.7%, primarily due to lower litigation reserve expenses.
• Operating income turned positive at $3.3 million, a substantial improvement from a $299.7 million operating loss in the prior year.
• EMEA region net revenues increased by 9.6%.
• Accessories revenue increased by 8.1%.
• License revenues increased by 12.4% to $24.4 million.
• Strong cash position with cash and cash equivalents increasing to $911.0 million.

Negatives

• Total net revenues decreased by 4.2% to $1.13 billion.
• North America net revenues decreased by 5.5%, Asia-Pacific by 10.1%, and Latin America by 15.3%.
• Footwear revenue decreased significantly by 14.3%.
• Wholesale revenue decreased by 4.6% and direct-to-consumer revenue decreased by 3.5%.
• Cash flows from operating activities decreased by $104.1 million compared to the prior year.
• Interest income (expense), net, shifted to a net expense of $4.1 million from a net income of $2.3 million in the prior year, primarily due to lower interest rates on cash balances and new debt issuance.
• Other expense, net, increased by $2.0 million to $4.7 million, primarily due to net losses from foreign currency hedges.

Risks

• Ongoing material weakness in internal control over financial reporting related to the review and execution of certain balance sheet account reconciliations, which could lead to material misstatements if not remediated.
• Anticipated negative impact of approximately $100 million to cost of goods sold in Fiscal 2026 due to incremental tariff rates, expected to impact gross profit by approximately 200 basis points.
• Exposure to global market risks, including foreign currency and interest rate fluctuations.
• Potential adverse effects on business and liquidity from a prolonged or more severe economic recession, inflationary pressure, or a slow recovery.
• Litigation with certain insurance carriers regarding coverage for a $90 million settlement, which if reversed, could require the company to repay the settlement amount and defense costs.
• Dependence on consumer purchases of discretionary items, which can be negatively impacted during economic downturns or periods of inflation.
• Increased competition, fluctuations in raw material costs, and challenges in executing long-term strategies.

Future Outlook

The company anticipates a negative impact of approximately $100 million to its cost of goods sold in Fiscal 2026 due to incremental tariff rates, which is expected to impact gross profit by approximately 200 basis points. The 2025 restructuring plan, designed to strengthen financial and operational efficiencies, is expected to be substantially complete by the end of Fiscal 2026. The company intends to use proceeds from the newly issued 7.25% Senior Notes due 2030, along with credit facility borrowings and cash on hand, to redeem or retire the 3.25% Senior Notes due 2026 during the second quarter of Fiscal 2026. Management continues to monitor macroeconomic factors like inflation and foreign currency fluctuations and their potential impacts on financial results and consumer demand.

Management Comments

• We remain focused on driving premium brand-right growth and delivering improved profitability.
• We plan to continue to grow our business over the long term through increased sales of our apparel, footwear and accessories; growth in our direct-to-consumer sales channel; and expansion of our wholesale distribution.
• Achieving these long-term growth objectives depends, in part, on our ability to successfully execute strategic initiatives across key areas of the business, including within our North America region.
• Our digital strategy is designed to enhance consumer engagement and strengthen brand connectivity through multiple digital touchpoints.
• During the three months ended June 30, 2025, challenging market conditions persisted, particularly in North America and Asia-Pacific, driven by lower consumer demand across both our wholesale and direct-to-consumer channels.
• We believe our cash and cash equivalents on hand, cash from operations, our ability to reduce our expenditures as needed, borrowings available to us under our amended credit agreement, our ability to access the capital markets, and other financing alternatives are adequate to meet our liquidity needs and capital expenditure requirements for at least the next twelve months.

Industry Context

The company's performance reflects persistent challenging market conditions, particularly in North America and Asia-Pacific, characterized by lower consumer demand across both wholesale and direct-to-consumer channels. This aligns with broader industry trends where discretionary consumer spending is impacted by global economic conditions, including inflation and evolving trade policies. While some regions like EMEA showed growth, the overall decline in key markets suggests a challenging environment for athletic apparel and footwear brands, necessitating strategic adjustments like restructuring and debt management to maintain financial health.

Corporate Governance

Legal Proceedings

• Consolidated Kenney Derivative Litigation & Consolidated Paul Derivative Litigation: A proposed settlement has been reached, involving the implementation of corporate governance measures for three years and an $8.9 million payment to the company (funded by insurance proceeds). A Settlement Hearing is scheduled for August 14, 2025.
• Insurance Coverage Litigation: The company is in litigation with certain insurance carriers regarding coverage for a previously disclosed $90 million settlement. An appeal is pending, with oral argument tentatively scheduled for the week of October 21, 2025. If the District Court's decision is reversed, the company may be required to repay the settlement amount and defense costs.

Stakeholder Impact

• Shareholders: Potential positive impact from reduced net loss and improved gross margin, but negative impact from revenue decline and ongoing litigation risks. The share repurchase program could benefit shareholders.
• Employees: Impacted by the 2025 restructuring plan, which includes employee severance and benefits costs.
• Customers: Lower consumer demand noted in North America and Asia-Pacific, indicating potential challenges in customer engagement or product appeal.
• Creditors: The company is proactively managing its debt maturity by issuing new notes to retire existing ones, and remains in compliance with credit facility covenants, which is positive for creditors.
• Suppliers: The supply chain finance program provides suppliers with an option to finance payments, potentially improving their liquidity.

Next Steps

• Substantially complete the 2025 restructuring plan by the end of Fiscal 2026.
• Redeem, repurchase, or retire the 3.25% Senior Notes due 2026 during the second quarter of Fiscal 2026 using proceeds from new notes, credit facility, and cash.
• Continue remediation efforts for the material weakness in internal control over financial reporting throughout Fiscal 2026.
• Implement corporate governance measures for three years as part of the legal settlement.
• Monitor global trade environment, macroeconomic factors, and potential impacts on financial results.
• Attend Settlement Hearing on August 14, 2025, for derivative actions.
• Oral argument for insurance carriers' appeal tentatively scheduled for the week of October 21, 2025.
• Adopt annual disclosure requirements of ASU 2023-09 in Fiscal 2026 Annual Report on Form 10-K.

Key Dates

Recommendation

While Under Armour demonstrated significant improvement in profitability by narrowing its net loss and improving gross margin, the underlying revenue decline across key markets and product categories, particularly footwear and North America, remains a concern. The proactive debt refinancing is a positive step for liquidity management, but the anticipated negative impact from tariffs in Fiscal 2026 and the ongoing material weakness in internal controls present headwinds. The legal settlement, while positive, still has an appeal pending regarding insurance coverage. Given these mixed signals—improved efficiency and debt management against persistent revenue challenges and external risks—a 'hold' recommendation is appropriate as investors await clearer signs of sustainable top-line growth and full remediation of internal control issues.

Keywords

Under Armour, UAA, UA, Athletic Apparel, Footwear, Accessories, SEC Filing, 10-Q, Quarterly Report, Financial Results, Revenue, Gross Margin, Net Loss, Restructuring, Debt, Capital Raise, Litigation, Corporate Governance, Tariffs, Supply Chain, North America, EMEA, Asia-Pacific, Latin America, Direct-to-Consumer, Wholesale