10-Q: Under Armour Reports Q2 Loss Amid Revenue Decline, Restructuring

Under Armour posted a net loss of $18.8 million in the second quarter of fiscal 2026, as net revenues fell 4.7% due to challenging market conditions and increased restructuring charges.

Summary

• Net revenues decreased 4.7% to $1.33 billion for the three months ended September 30, 2025, and 4.5% to $2.47 billion for the six months ended September 30, 2025, compared to the prior year periods.
• The company reported a net loss of $18.8 million ($0.04 per share) for the three months ended September 30, 2025, a significant decline from a net income of $170.4 million ($0.39 per share) in the same period last year.
• For the six months ended September 30, 2025, the net loss was $21.4 million ($0.05 per share), an improvement from a net loss of $135.0 million ($0.31 per share) in the prior year.
• Gross margin decreased by 250 basis points to 47.3% for the three months, primarily due to unfavorable supply chain impacts (275 bps, mainly tariffs) and channel/regional mix (100 bps).
• Selling, general and administrative expenses increased by 11.9% to $581.6 million for the three months, driven by higher marketing spend and a prior-year recovery of insurance proceeds.
• Restructuring charges surged by 893.3% to $31.9 million for the three months, including a $15.9 million impairment charge related to exiting a distribution facility in Rialto, California.
• Cash used in operating activities significantly improved, decreasing to $21.0 million for the six months ended September 30, 2025, from $168.4 million in the prior year.
• The company issued $400 million in 7.25% Senior Notes due 2030 and borrowed $200 million under its revolving credit facility, using proceeds to defease $600 million of 3.25% Senior Notes due 2026.
• A material weakness in internal control over financial reporting related to balance sheet account reconciliations remains, with remediation efforts ongoing and expected to be complete by the end of Fiscal 2026.

Sentiment

Score: 3

Explanation: The company reported a net loss for the quarter and a significant decline in revenue and gross margin, primarily due to challenging market conditions and increased restructuring costs. While there were improvements in cash flow from operations and successful debt refinancing, the core business performance in key regions like North America and Asia-Pacific remains weak, and a material weakness in internal controls persists.

Positives

• EMEA region net revenues increased by 12.2% for the three months and 11.0% for the six months ended September 30, 2025, positively impacted by foreign exchange rates.
• Latin America region net revenues increased by 14.6% for the three months ended September 30, 2025.
• License revenues increased by 16.9% for the three months and 14.8% for the six months ended September 30, 2025, driven by international and North American partners.
• Cash flows used in operating activities significantly improved, decreasing by $147.4 million to $21.0 million for the six months ended September 30, 2025.
• The company successfully refinanced its debt by issuing $400 million in 7.25% Senior Notes due 2030 and borrowing $200 million from its credit facility to defease the $600 million 3.25% Senior Notes due 2026.
• The company's operating income for the six months ended September 30, 2025, turned positive at $20.4 million, compared to a loss of $126.6 million in the prior year.
• Net loss for the six months ended September 30, 2025, significantly reduced to $21.4 million from $135.0 million in the prior year.

Negatives

• Total net revenues decreased by 4.7% for the three months and 4.5% for the six months ended September 30, 2025, reflecting challenging market conditions.
• North America net revenues decreased by 8.3% for the three months and 7.0% for the six months, driven by declines in both wholesale and direct-to-consumer channels.
• Asia-Pacific net revenues decreased by 13.7% for the three months and 12.1% for the six months, also due to declines in wholesale and direct-to-consumer.
• Footwear revenue decreased significantly by 15.7% for the three months and 15.0% for the six months, primarily due to lower unit sales and average selling prices.
• Apparel revenue decreased by 1.1% for the three months and 1.3% for the six months, mainly due to unfavorable channel mix and lower average selling prices.
• Gross margin declined by 250 basis points for the three months and 100 basis points for the six months, primarily due to tariffs and unfavorable channel/regional mix.
• Selling, general and administrative expenses increased by 11.9% for the three months, impacting profitability.
• Restructuring charges increased substantially by 893.3% for the three months and 58.1% for the six months, including a $15.9 million impairment charge.
• The company reported a net loss of $18.8 million for the three months ended September 30, 2025, a sharp reversal from a net income in the prior year.
• Interest expense, net, increased significantly by $6.9 million for the three months and $13.3 million for the six months, primarily due to the issuance of new Senior Notes.
• A material weakness in internal control over financial reporting persists, indicating ongoing control deficiencies.

Risks

• Changes in general economic or market conditions, including increasing inflation and potential impacts of changes and uncertainties related to government fiscal, monetary, tax and trade policies, could affect overall consumer spending or the industry.
• The impact of global events beyond control, including military conflicts and changes in the global trade environment (e.g., new tariffs and countermeasures), could affect profitability.
• Increased competition could lead to market share loss, price reductions, or increased marketing efforts.
• Fluctuations in the costs of raw materials, commodities, and supply chain (including labor) could negatively affect operating results.
• The company's ability to successfully execute its long-term strategies and effectively drive operational efficiency is a risk.
• Changes to the financial health of customers.
• The ability to effectively develop and launch new, innovative, and updated products.
• The ability to accurately forecast consumer shopping and engagement preferences and consumer demand for products and manage inventory.
• The ability to successfully execute any restructuring plans and realize their expected benefits.
• Loss of key customers, suppliers, or manufacturers.
• The ability to further expand globally and drive brand awareness and consumer acceptance in other countries.
• The ability to manage increasingly complex global business operations.
• The ability to effectively market and maintain a positive brand image.
• The ability to successfully manage or realize expected results from significant transactions and investments.
• The ability to attract and retain key talent, including senior management and other key employees.
• The ability to effectively meet regulatory requirements and stakeholder expectations regarding sustainability and social matters.
• Availability, integration, and effective operation of information systems and other technology, as well as potential interruptions.
• Disruptions, delays, or deficiencies in the design, implementation, or application of the global operating and financial reporting information technology system.
• The ability to access capital and financing required to manage the business on acceptable terms.
• The ability to accurately anticipate and respond to seasonal or quarterly fluctuations in operating results.
• Risks related to foreign currency exchange rate fluctuations.
• The ability to comply with existing trade and other regulations.
• Risks related to data security or privacy breaches.
• The impact of global or regional public health emergencies on the industry and business.
• The material weakness in internal control over financial reporting could result in material misstatements if not remediated.
• Potential exposure to and the financial impact of litigation and other proceedings, including those related to insurance coverage for the Consolidated Securities Action settlement, which could require repayment of $90 million in insurance proceeds.

Future Outlook

The company anticipates a negative impact of approximately $100 million to cost of goods sold in Fiscal 2026 due to increased tariffs, which is expected to impact gross profit by approximately 200 basis points. The 2025 restructuring plan is expected to be substantially complete by the end of Fiscal 2026, with an estimated $13.4 million in remaining charges. Remediation efforts for the material weakness in internal control over financial reporting are ongoing and expected to be remediated by the end of Fiscal 2026. Management will continue to monitor macroeconomic factors, including inflationary pressures and foreign currency exchange rates, and their potential impacts on financial results. The company believes current liquidity sources are adequate for at least the next twelve months, but may consider additional alternatives to preserve liquidity if unexpected material impacts occur from global events.

Management Comments

• 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 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.
• 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 operates in a challenging global market, particularly in North America and Asia-Pacific, experiencing lower consumer demand in both wholesale and direct-to-consumer channels. This aligns with broader trends of cautious consumer spending and supply chain disruptions affecting the apparel and footwear industry. The impact of tariffs and foreign currency fluctuations are also significant industry-wide factors.

Corporate Governance

Legal Proceedings

• Consolidated Kenney Derivative Action: Settled for $8.9 million (insurance-funded) and corporate governance measures. Final approval granted August 18, 2025, case dismissed October 20, 2025.
• Consolidated Paul Derivative Action: Settled under the same agreement as the Kenney action. Appeal dismissed September 19, 2025.
• Contingencies: Ongoing litigation with certain insurance carriers regarding coverage for the previously disclosed settlement of the Consolidated Securities Action. $90 million of insurance proceeds recognized is subject to this litigation. An appeal is pending, with oral argument held on October 22, 2025. If the District Court's decision is reversed, the company may be required to repay the settlement amount and defense costs.

Related Party Transactions

• The Executive Change in Control Severance Plan explicitly states Kevin Plank (founder, President, and CEO) is not eligible to participate.
• The Class B Convertible Common Stock, with 10 votes per share, may only be held by Kevin Plank or a related party, giving Mr. Plank majority voting control.
• The Consolidated Kenney Derivative Litigation included allegations related to the company's 2016 purchase of land from entities controlled by Mr. Plank (Sagamore), which was approved by the Audit Committee. This was part of the settled litigation.

Stakeholder Impact

• Shareholders: Negative impact from net loss, declining revenues, and gross margin. Potential positive from share repurchase program. Uncertainty from ongoing material weakness and insurance litigation.
• Employees: Impacted by restructuring plan (severance and benefits costs). Executive compensation plans (severance, incentive, deferred compensation) are updated.
• Customers: Lower consumer demand noted in North America and Asia-Pacific. Product pricing and mix changes.
• Suppliers: Supply chain impacts, including tariffs, affecting costs. Supply chain finance program available.
• Creditors: Debt refinancing completed, with new Senior Notes issued and existing notes defeased. Compliance with debt covenants maintained.

Next Steps

• Continue remediation efforts for the material weakness in internal control over financial reporting, with expected completion by the end of Fiscal 2026.
• Monitor and implement mitigation strategies for the anticipated $100 million negative impact from increased tariffs on cost of goods sold in Fiscal 2026.
• Complete the 2025 restructuring plan by the end of Fiscal 2026.
• Continue to evaluate the realizability of deferred tax assets, particularly in China, which could lead to a reversal of valuation allowances and a material benefit to income tax expense.
• Ongoing litigation with insurance carriers regarding coverage for the Consolidated Securities Action settlement, with an appeal pending and oral argument having occurred on October 22, 2025.

Key Dates

Recommendation

The company faces significant headwinds, including declining revenues in key markets, reduced gross margins due to tariffs and mix shifts, and a net loss for the quarter. While management is actively addressing these issues through a restructuring plan and has improved cash flow from operations, the persistence of a material weakness in internal controls and ongoing litigation with insurance carriers add uncertainty. The debt refinancing provides some stability, but the overall financial performance suggests a 'hold' recommendation until there is clearer evidence of sustained operational improvement and resolution of internal control and litigation matters. The stock is not a 'buy' given the current performance and risks, but the strategic actions and some positive regional growth prevent a 'sell' recommendation.

Keywords

Under Armour, UAA, UA, SEC Filing, 10-Q, Quarterly Report, Financial Results, Net Revenue, Gross Margin, Net Loss, Restructuring, Tariffs, Supply Chain, North America, EMEA, Asia-Pacific, Latin America, Footwear, Apparel, Accessories, Debt Refinancing, Senior Notes, Credit Facility, Share Repurchase, Internal Controls, Material Weakness, Executive Compensation, Severance Plan, Corporate Governance, Litigation, Foreign Currency