8-K: Under Armour Reports Q1 2025 Results Ahead of Expectations, Updates Fiscal 2025 Outlook

Under Armour's first quarter fiscal 2025 results exceeded expectations, despite a 10% revenue decrease, with the company updating its full-year outlook.

Summary

• Under Armour announced its first quarter fiscal 2025 results, which ended June 30, 2024, reporting a 10% decrease in revenue to $1.2 billion.
• North America revenue declined by 14% to $709 million, while international revenue decreased by 2% to $473 million.
• Wholesale revenue decreased by 8% to $681 million, and direct-to-consumer revenue was down 12% to $480 million.
• E-commerce revenue saw a significant decrease of 25%, now representing 34% of the total direct-to-consumer business.
• Apparel revenue decreased by 8% to $758 million, footwear revenue was down 15% to $310 million, and accessories revenue decreased by 5% to $93 million.
• Gross margin increased by 110 basis points to 47.5%, primarily due to reduced discounting and lower product costs.
• Selling, general, and administrative expenses increased by 42% to $837 million due to a litigation reserve, but adjusted expenses decreased by 6% to $555 million.
• The company reported an operating loss of $300 million, but adjusted operating income was $8 million after excluding certain charges.
• Net loss was $305 million, while adjusted net income was $4 million.
• Diluted loss per share was $0.70, and adjusted diluted earnings per share was $0.01.
• Inventory decreased by 15% to $1.1 billion, and the company had $885 million in cash and cash equivalents with no outstanding borrowings on its $1.1 billion credit facility.
• Under Armour repurchased $40 million of its Class C common stock in the first quarter as part of a $500 million share buyback program.
• The company incurred $25 million in restructuring charges and $9 million in other related transformational expenses as part of its fiscal 2025 restructuring plan.
• The company expects full-year revenue to be down at a low double-digit percentage rate, with a 14-16% decline in North America and a low-single-digit decline internationally.
• Gross margin is expected to increase by 75 to 100 basis points, while operating loss is projected to be between $194 and $214 million.
• Adjusted operating income is expected to be $140 to $160 million, and adjusted diluted earnings per share are expected to be between $0.19 and $0.22.
• Capital expenditures are expected to be between $200 to $220 million.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the better-than-expected results and improved gross margin, but tempered by the revenue decline, net loss, and restructuring charges. The updated outlook is mixed, with some improvements but also continued challenges.

Positives

• The company's first quarter results were ahead of expectations.
• Gross margin improved due to reduced discounting and lower product costs.
• Adjusted selling, general, and administrative expenses decreased, indicating improved cost management.
• Inventory levels were reduced by 15%, which is a positive sign for inventory management.
• The company has a strong cash position with $885 million in cash and no outstanding borrowings on its credit facility.
• The share buyback program is returning capital to shareholders.
• The company is making progress in its efforts to reconstitute a premium positioning for the Under Armour brand.
• The company has a strong product organization and strengthened brand leadership.
• The company is confident in its ability to elevate design and innovation.
• The company is reducing promotional activity and complexity.

Negatives

• Revenue decreased by 10% to $1.2 billion.
• North America revenue declined by 14%.
• Direct-to-consumer revenue was down 12%.
• E-commerce revenue decreased by 25%.
• The company reported a net loss of $305 million.
• Diluted loss per share was $0.70.
• Selling, general, and administrative expenses increased by 42% due to a litigation reserve.
• The company is expecting a low double-digit percentage rate decline in revenue for the full year.
• The company is expecting an operating loss of $194 to $214 million for the full year.

Risks

• The company faces challenges in North America, with an expected 14-16% revenue decline.
• The international business is expected to see a low-single-digit decline, with a high-single-digit decline in Asia-Pacific due to macroeconomic pressures.
• The company is facing headwinds from higher ocean freight costs and unfavorable foreign currency impacts.
• The company is incurring significant litigation expenses, which are impacting profitability.
• The company is undergoing a restructuring plan, which may involve further charges and uncertainties.
• The company is exposed to risks related to general economic conditions, competition, supply chain disruptions, and foreign currency fluctuations.
• The company is exposed to risks related to data security or privacy breaches.
• The company is exposed to risks related to litigation and other proceedings.

Future Outlook

Under Armour expects full-year revenue to be down at a low double-digit percentage rate, with a 14-16% decline in North America and a low-single-digit decline internationally. Gross margin is expected to increase by 75 to 100 basis points. Adjusted operating income is expected to be $140 to $160 million, and adjusted diluted earnings per share are expected to be between $0.19 and $0.22.

Management Comments

• We are encouraged by early progress in our efforts to reconstitute a premium positioning for the Under Armour brand and pleased with our first quarter fiscal 2025 results that were ahead of expectations, said Under Armour President and CEO Kevin Plank.
• Our renewed energy and alignment are proving to be critical enablers as we work to deliver superior products and storytelling while driving efficiencies, reducing promotional activity and complexity.
• With the strongest product organization we've had in many years and strengthened brand leadership, we're confident in our ability to elevate our design and innovation over the coming seasons and amplify our unique connection with athletes as their brand of choice.

Industry Context

The results reflect a challenging environment for athletic apparel companies, with Under Armour facing headwinds in North America and a competitive global market. The company's focus on premium positioning and operational efficiencies aligns with broader industry trends of brand elevation and cost management.

Comparison to Industry Standards

• Nike, a major competitor, has also faced challenges in North America, but has shown stronger international growth in recent quarters, suggesting Under Armour's international performance is lagging.
• Adidas has been focusing on direct-to-consumer sales and has seen some success, while Under Armour's direct-to-consumer business declined, indicating a need for strategic adjustments.
• Lululemon, while in a different segment, has demonstrated strong gross margin performance, highlighting the potential for Under Armour to further improve its profitability.
• The restructuring plan is similar to actions taken by other companies in the sector to streamline operations and improve financial performance.
• The litigation reserve is a significant factor impacting Under Armour's results, which is not a common issue for most of its peers.

Legal Proceedings

• The company incurred a significant litigation reserve expense, which impacted its selling, general, and administrative expenses.

Stakeholder Impact

• Shareholders will be impacted by the share buyback program and the company's financial performance.
• Employees may be affected by the restructuring plan.
• Customers may see changes in product offerings and promotional activities.
• Suppliers may be impacted by changes in the company's supply chain.
• Creditors will be impacted by the company's financial performance and debt levels.

Next Steps

• The company will continue to execute its restructuring plan.
• The company will focus on improving its North American business.
• The company will work to elevate its design and innovation.
• The company will continue to manage its inventory levels.
• The company will hold a conference call to discuss its financial results.

Key Dates

Keywords

Under Armour, Financial Results, Revenue, Gross Margin, Restructuring, Share Buyback, Apparel, Footwear, E-commerce, Operating Income, Net Loss, Earnings Per Share, Inventory, Litigation, Outlook