10-Q: Under Armour Q1 Revenue Dips, Gross Margin Soars on Tariff Refunds

Under Armour reported a 3.2% decrease in net revenues for the first quarter ended June 30, 2026, yet achieved a substantial 590 basis point increase in gross margin, largely due to the recovery of previously paid tariffs.

Summary

• Under Armour's net revenues for the first quarter ended June 30, 2026, decreased by 3.2% to $1.098 billion compared to the same period in 2025.
• Gross margin significantly improved, increasing by 590 basis points to 54.1%, primarily driven by a 640 basis point benefit from the recovery of U.S. tariffs.
• Selling, general and administrative (SG&A) expenses increased by 2.4% to $543.1 million, with marketing and advertising costs rising by 17.5%.
• North America revenue saw a notable decline of 9.0%, while EMEA experienced a 12.1% increase.
• The company recorded $5.7 million in restructuring charges during the quarter, a significant decrease from $21.1 million in the prior year.
• Net income for the quarter was $0.5 million, a substantial improvement from a net loss of $2.6 million in the prior year.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a cautiously optimistic report, with significant gross margin improvements driven by tariff refunds, but tempered by declining revenues and increased SG&A expenses.

Positives

• Gross margin improved significantly by 590 basis points to 54.1%, largely due to a $70 million net benefit from the recovery of IEEPA tariffs.
• Net income turned positive at $0.5 million, a significant improvement from a net loss of $2.6 million in the prior year's quarter.
• EMEA revenue increased by 12.1% to $278.7 million, and Latin America revenue grew by 7.7% to $58.8 million.
• The company repaid its $600 million Senior Notes due 2026, strengthening its debt profile.
• Cash flow from operating activities increased by $60.3 million to $109.1 million.

Negatives

• Total net revenues decreased by 3.2% to $1.098 billion, reflecting challenging market conditions.
• North America revenue declined by 9.0% to $609.8 million, and Asia-Pacific revenue decreased by 6.6% to $152.6 million.
• Direct-to-consumer revenue decreased by 5.8%, and wholesale revenue saw a 1.6% decline.
• SG&A expenses increased by 2.4% to $543.1 million, with marketing and advertising costs rising by 17.5% as a percentage of net revenues.
• Inventory levels increased by $194.5 million to $1.109 billion compared to the previous quarter.

Risks

• Continued volatility in global trade policy and potential for elevated tariff environments create uncertainty for Fiscal 2027 results.
• Increased Section 301 tariffs are increasing product costs and negatively impacting gross margin.
• Geopolitical instability and ongoing conflicts may continue to impact global energy and transportation markets, increasing costs.
• Inflationary pressures and potential economic downturns could negatively impact consumer discretionary spending and demand for products.
• The company faces increased competition, which could lead to market share loss or price reductions.
• Fluctuations in the cost of raw materials and commodities used in products and supply chain costs could negatively affect operating results.
• Risks related to foreign currency exchange rate fluctuations persist.
• Potential disruptions, delays, or deficiencies in the implementation of global operating and financial reporting IT systems.

Future Outlook

The company faces uncertainty regarding the impact of evolving global trade policies and potential for continued elevated tariffs on Fiscal 2027 results. Macroeconomic factors like inflation and geopolitical instability are also being monitored for their potential impact on product costs, freight, and consumer demand.

Management Comments

• Challenging market conditions persisted, particularly in North America and Asia-Pacific, as consumer demand softened and promotional activity increased across the marketplace.
• These conditions, together with our continued efforts to optimize product assortments and improve marketplace quality, contributed to lower revenue across both our wholesale and direct-to-consumer channels.
• Our strategic priorities are focused on elevating brand positioning, simplifying and scaling our operating model, accelerating innovation and enhancing global go-to-market execution.
• 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

StockSavvy.ai notes that Under Armour's performance reflects broader challenges in the athletic apparel and footwear sector, including softening consumer demand and increased promotional activity. The significant gross margin improvement due to tariff refunds is a notable positive, but the revenue decline highlights ongoing competitive pressures and macroeconomic headwinds impacting the industry.

Comparison to Industry Standards

• Under Armour's gross margin of 54.1% is a strong improvement, but direct comparison to competitors like Nike (typically in the low 40s) and Adidas (historically in the low 50s) requires careful consideration of their reporting methodologies and product mix.
• The revenue decline in North America is a concern, as this is a key market for many athletic brands, and competitors may be experiencing similar or different trends based on their specific market strategies and product offerings.
• The increase in SG&A, particularly marketing spend, is a common strategy for athletic brands to maintain brand visibility and drive demand in a competitive landscape, though the effectiveness varies.
• The company's focus on simplifying its operating model and accelerating innovation aligns with industry trends aimed at improving efficiency and responsiveness to consumer preferences.

Legal Proceedings

• The company is in litigation with certain insurance carriers regarding coverage for a prior securities class action settlement and defense costs, following a court decision requiring repayment of $90 million in insurance proceeds.
• The company has accrued $8.5 million for potential prejudgment interest in the insurance coverage litigation.

Stakeholder Impact

• Shareholders may see a positive impact from improved profitability and gross margins, but revenue declines and increased SG&A could temper enthusiasm.
• Employees may be impacted by ongoing restructuring efforts, though specific details on severance are not provided in this section.
• Customers may benefit from optimized product assortments and potentially more competitive pricing in the future, though current market conditions suggest caution.
• Suppliers may face continued pressure due to inventory management strategies and potential shifts in demand.
• Creditors are likely reassured by the repayment of the Senior Notes due 2026 and the company's stated liquidity position.

Next Steps

• Continue to monitor and mitigate impacts of evolving global trade policy and tariffs.
• Focus on elevating brand positioning, simplifying operating model, accelerating innovation, and enhancing global go-to-market execution.
• Manage inventory through disciplined purchasing, reduced lead times, and effective liquidation channels.
• Evaluate and potentially adjust expenditures, investment strategies, and capital expenditures in response to macroeconomic conditions.
• Continue to monitor the financial health of lenders and credit markets.

Key Dates

Recommendation

The report shows a significant improvement in gross margin driven by one-time tariff refunds, which masks underlying revenue weakness and increased operating expenses. While profitability has improved, the declining top-line and ongoing macroeconomic and trade policy uncertainties warrant a cautious 'hold' stance until a more sustainable growth trajectory is evident.

Keywords

apparel, footwear, athletic performance, athletic wear, sportswear, accessories, brand positioning, global brand