8-K: Under Armour Raises Fiscal 2025 Profitability Outlook Despite Revenue Decline

Under Armour reported a revenue decline of 11% for the second quarter of fiscal 2025 but raised its full-year profitability outlook due to better-than-expected results and increased marketing investments.

Summary

• Under Armour's revenue decreased by 11% to $1.4 billion in the second quarter of fiscal year 2025, or 10% on a currency-neutral basis.
• North America revenue declined by 13% to $863 million, while international revenue decreased by 6% to $538 million, or 5% on a currency-neutral basis.
• Wholesale revenue was down 12% to $826 million, and direct-to-consumer revenue decreased by 8% to $550 million.
• E-commerce revenue saw a significant decrease of 21%, now representing 30% of the total direct-to-consumer business.
• Apparel revenue decreased by 12% to $947 million, footwear revenue was down 11% to $313 million, but accessories revenue increased by 2% to $116 million.
• Gross margin improved by 200 basis points to 49.8%, driven by lower product and freight costs and reduced discounting.
• Selling, general, and administrative expenses decreased by 15% to $520 million, or 13% to $530 million on an adjusted basis.
• The company recognized $28 million in restructuring and impairment charges and $11 million in other related transformational expenses under its restructuring plan.
• Under Armour has updated its fiscal 2025 outlook, expecting revenue to decline at a low double-digit percentage rate, including a 14 to 16 percent decline in North America.
• Gross margin is now expected to increase by 125 to 150 basis points, up from the previous estimate of 75 to 100 basis points.
• Adjusted operating income is expected to be between $165 and $185 million, compared to the prior expectation of $140 to $160 million.
• Adjusted diluted earnings per share are expected to be between $0.24 and $0.27, compared to the previous expectation of $0.19 to $0.21.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the improved profitability outlook and gross margin, despite the significant revenue decline. The company is taking steps to improve its brand and operations, but faces challenges in key markets.

Positives

• Gross margin improved significantly by 200 basis points to 49.8%.
• The company is increasing marketing investments by $25 million to build the brand.
• The full-year profitability outlook has been raised.
• Inventory decreased by 3% to $1.1 billion.
• The company has $531 million in cash and no outstanding borrowings on its credit facility.

Negatives

• Revenue decreased by 11% to $1.4 billion.
• North America revenue declined by 13%.
• E-commerce revenue decreased by 21%.
• Apparel and footwear revenue both saw double-digit declines.
• The company expects a low double-digit percentage rate decline in revenue for the full fiscal year.

Risks

• The company faces a significant revenue decline in North America, with a projected 14 to 16 percent decrease for the full year.
• Macroeconomic pressures are expected to cause a high single-digit decline in the Asia-Pacific business.
• The restructuring plan could result in additional charges in fiscal 2025 and 2026.
• The company is exposed to risks related to general economic conditions, competition, and supply chain disruptions.
• The company is exposed to risks related to foreign currency exchange rate fluctuations.

Future Outlook

Under Armour expects revenue to decline at a low double-digit percentage rate for fiscal year 2025, with a 14 to 16 percent decline in North America. Gross margin is expected to increase by 125 to 150 basis points. Adjusted operating income is projected to be between $165 and $185 million, and adjusted diluted earnings per share are expected to be between $0.24 and $0.27.

Management Comments

• Under Armour President and CEO Kevin Plank stated that the company's strategy to reconstitute the brand and establish a more premium position is gaining traction.
• Plank also mentioned that the company is a fundamentally stronger business with better execution across key dimensions.

Industry Context

The results reflect a challenging environment for athletic apparel companies, with Under Armour facing headwinds in North America and Asia-Pacific. The company's focus on improving gross margins and brand positioning aligns with industry trends towards premiumization and direct-to-consumer strategies.

Comparison to Industry Standards

• Nike, a major competitor, has also faced challenges in North America, but has shown stronger growth in international markets.
• Adidas has been focusing on direct-to-consumer sales and brand collaborations to drive growth.
• Lululemon has maintained strong growth and profitability, particularly in the athleisure segment.
• Under Armour's gross margin improvement is a positive sign, but its revenue decline is concerning compared to some competitors.
• The restructuring plan is similar to actions taken by other companies in the industry to improve efficiency and profitability.

Stakeholder Impact

• Shareholders will likely react positively to the improved profitability outlook, but negatively to the revenue decline.
• Employees may be affected by the restructuring plan.
• Customers may see changes in product availability and pricing due to the company's premiumization strategy.
• Suppliers may be impacted by changes in the company's supply chain.

Next Steps

• The company will continue to execute its restructuring plan.
• Under Armour will focus on increasing marketing investments to build the brand.
• The company will work to reset its North America business.
• Under Armour will continue to monitor macroeconomic pressures in Asia-Pacific.

Key Dates

Keywords

Under Armour, Financial Results, Restructuring, Gross Margin, Revenue Decline, Profitability Outlook, Marketing Investments, E-commerce, Apparel, Footwear