10-Q: Under Armour Reports Steep Losses Amid Restructuring, Weak Demand

Under Armour posted a significant net loss for the quarter and nine months ended December 31, 2025, driven by declining revenues, increased restructuring charges, and a major legal setback requiring repayment of $90 million in insurance proceeds.

Summary

• Net revenues decreased by 5.2% to $1.33 billion for the three months ended December 31, 2025, and by 4.7% to $3.80 billion for the nine months.
• The company reported a net loss of $430.8 million for the quarter, a sharp decline from a net income of $1.2 million in the prior year, and a net loss of $452.3 million for the nine months, compared to a $133.8 million loss previously.
• Basic and diluted net loss per share were $1.01 for the quarter and $1.06 for the nine months.
• Gross margin contracted by 310 basis points to 44.4% for the quarter, primarily due to unfavorable supply chain impacts (including tariffs) and a promotional pricing environment in North America.
• Selling, general and administrative expenses increased by 4.2% for the quarter, largely due to a $98.5 million litigation reserve expense related to insurance carrier litigation.
• Restructuring charges surged by 437.7% to $75.0 million for the quarter, mainly driven by $69.7 million in non-cash contract termination costs related to the separation of the Curry Brand.
• The 2025 restructuring plan was increased by $95 million to a total of $255 million, expected to be substantially complete by the end of Fiscal 2026.
• A material weakness in internal control over financial reporting was identified, specifically regarding the review and execution of certain balance sheet account reconciliations, with remediation efforts ongoing and expected to be complete by end of Fiscal 2026.
• The Fourth Circuit Court of Appeals reversed a prior decision, requiring the company to repay $90 million in insurance proceeds for a settled securities class action, with a petition for rehearing filed.

Sentiment

Score: 2

Explanation: StockSavvy.ai views this filing as highly negative due to significant net losses, declining revenues, contracting gross margins, substantial restructuring charges, and a major legal setback requiring a $90 million repayment, compounded by an identified material weakness in internal controls.

Positives

• Operating cash flows increased by $114.2 million to $257.1 million for the nine months ended December 31, 2025, compared to the prior year.
• EMEA region net revenues increased by 6.0% for the quarter and 9.2% for the nine months, positively impacted by foreign exchange rates.
• Latin America net revenues increased by 19.7% for the quarter and 5.1% for the nine months.
• The company successfully refinanced its debt by issuing $400 million in 7.25% Senior Notes due 2030 and using proceeds to satisfy and discharge $600 million in 3.25% Senior Notes due 2026.

Negatives

• Total net revenues decreased by 5.2% for the three months and 4.7% for the nine months ended December 31, 2025.
• Net loss for the three months was $430.8 million, a significant deterioration from a $1.2 million net income in the prior year.
• Net loss for the nine months was $452.3 million, a substantial increase from a $133.8 million loss in the prior year.
• Gross margin decreased by 310 basis points to 44.4% for the quarter, primarily due to unfavorable supply chain costs (including tariffs) and a promotional environment.
• North America net revenues decreased by 10.3% for the quarter and 8.2% for the nine months, driven by lower consumer demand in both wholesale and direct-to-consumer channels.
• Asia-Pacific net revenues decreased by 5.1% for the quarter and 9.7% for the nine months due to lower demand.
• Footwear revenue decreased by 12.0% for the quarter and 14.0% for the nine months, primarily due to lower unit sales and average selling prices.
• Restructuring charges increased significantly by $61.0 million for the quarter and $77.5 million for the nine months, including $69.7 million for the Curry Brand separation.
• A $98.5 million litigation reserve expense was recorded for the quarter related to ongoing litigation with insurance carriers, which now requires repayment of $90 million in previously funded insurance proceeds.

Risks

• The company identified a material weakness in its 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.
• Ongoing litigation with insurance carriers regarding coverage for a previously settled securities class action requires the company to repay $90 million in insurance proceeds, with potential for additional claims for prejudgment interest.
• Challenging market conditions, particularly in North America and Asia-Pacific, are impacting consumer demand across wholesale and direct-to-consumer channels.
• Anticipated negative impact of approximately $80 million to cost of goods sold in Fiscal 2026 due to increased tariffs, expected to impact gross profit by approximately 160 basis points.
• Fluctuations in foreign currency exchange rates and inflationary pressures continue to impact financial results, including product input costs and freight costs.
• The company's business depends on consumer purchases of discretionary items, which can be negatively impacted during economic downturns or periods of inflation.
• Increased competition could lead to loss of market share, price reductions, or increased marketing efforts.
• The ability to successfully execute long-term strategies and drive operational efficiency is crucial for future performance.
• Loss of key customers, suppliers, or manufacturers could adversely affect operations.

Future Outlook

The company anticipates a negative impact of approximately $80 million to its cost of goods sold in Fiscal 2026 due to increased tariffs, which is expected to impact gross profit by approximately 160 basis points. Management expects the 2025 restructuring plan, totaling up to $255 million, to be substantially complete by the end of Fiscal 2026. The company continues to monitor macroeconomic factors such as inflationary pressures, foreign currency exchange rates, and global conflicts, which are expected to impact financial results. Remediation of the material weakness in internal controls is expected by the end of Fiscal 2026.

Management Comments

• Management remains focused on driving premium brand-right growth and delivering improved profitability.
• Management plans to continue to grow the business over the long term through increased sales of apparel, footwear, and accessories; growth in the direct-to-consumer sales channel; and expansion of wholesale distribution.
• Management's digital strategy is designed to enhance consumer engagement and strengthen brand connectivity through multiple digital touchpoints.
• Management believes the measures taken to date will contribute towards the remediation of the previously identified material weakness in internal control over financial reporting and is committed to improving internal controls.

Industry Context

StockSavvy.ai notes that Under Armour's performance reflects broader challenges in the athletic apparel and footwear industry, particularly in North America, where consumer demand has softened and promotional activity has intensified. While some international markets like EMEA and Latin America show resilience, the overall decline in key product categories and channels indicates a struggle to maintain market share and pricing power amidst a competitive landscape. The significant restructuring efforts and the separation of the Curry Brand suggest a strategic pivot to streamline operations and focus on core profitability, a trend seen across several mature brands facing evolving consumer preferences and supply chain complexities.

Comparison to Industry Standards

• Under Armour's gross margin of 44.4% for the quarter is below industry leaders like Nike (typically in the mid-40s to low-50s percent range) and Lululemon (often in the mid-50s percent range), indicating higher cost of goods sold or more aggressive promotional pricing.
• The significant net loss and revenue decline contrast with some competitors who have managed to maintain or grow revenue, albeit often with margin pressures, suggesting Under Armour faces more acute challenges in its core markets.
• The increase in restructuring charges and the material weakness in internal controls highlight operational inefficiencies and governance issues that are not typical for well-established industry benchmarks, which usually prioritize robust internal controls and stable operational structures.

Corporate Governance

Legal Proceedings

• Shareholder Derivative Litigation (Kenney, et al. v. Plank, et al. and Paul, et al. v. Plank, et al.) was settled, resulting in the implementation of corporate governance measures for three years and a payment of $8.9 million to the company from insurance proceeds.
• Ongoing litigation with certain insurance carriers regarding coverage for the Consolidated Securities Action settlement. The Fourth Circuit reversed a District Court decision on January 20, 2026, requiring the company to repay $90 million in insurance proceeds (settlement amount and defense costs). The company has filed a petition for rehearing, and if denied, the case will return to the District Court for further proceedings, including a claim for prejudgment interest.

Related Party Transactions

• Kevin Plank, the Company's founder, President and Chief Executive Officer, holds Class B Convertible Common Stock, which grants him majority voting control over the Company. These shares automatically convert to Class A Common Stock under certain conditions, such as transfer to a non-related party or if his beneficial ownership falls below 15%.

Stakeholder Impact

• Shareholders: Negative impact due to significant net losses, declining revenues, gross margin contraction, increased restructuring costs, and the $90 million repayment obligation from legal proceedings. The material weakness in internal controls also poses a risk to financial reporting reliability.
• Employees: Impacted by restructuring plan, which includes employee severance and benefits costs, though specific numbers for current period are not detailed beyond overall plan costs.
• Customers: May experience a more promotional environment in North America, potentially benefiting from lower prices, but overall lower consumer demand indicates reduced engagement.
• Creditors: The company's debt refinancing and compliance with covenants under the amended credit agreement provide some stability, but the overall financial performance and legal liabilities could raise concerns.
• Suppliers: The supply chain finance program continues, but overall challenging market conditions and restructuring could indirectly affect supplier relationships and payment terms.

Next Steps

• Substantially complete the 2025 restructuring plan by the end of Fiscal 2026.
• 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 evolving global trade environment, including tariffs, and other macroeconomic factors.
• Await the outcome of the petition for rehearing regarding the $90 million insurance proceeds repayment.

Key Dates

Recommendation

The filing reveals a deeply concerning financial picture for Under Armour, marked by substantial net losses, significant revenue declines across key segments (especially North America and footwear), and a sharp contraction in gross margins. The dramatic increase in restructuring charges, coupled with a major legal setback requiring a $90 million repayment, indicates severe operational and financial distress. The identified material weakness in internal controls further erodes confidence in financial reporting. While some international segments show growth, the overall trend is overwhelmingly negative, suggesting fundamental challenges that will likely continue to pressure the stock price. A seasoned investor would view these results as a strong signal to exit positions.

Keywords

Under Armour, UAA, UA, 10-Q, Quarterly Report, Financial Results, Net Loss, Revenue Decline, Gross Margin, Restructuring, Curry Brand, Litigation, Internal Controls, Material Weakness, Tariffs, Consumer Demand, Athletic Apparel, Footwear, Accessories, North America, EMEA, Asia-Pacific, Latin America, Debt Refinancing, Share Repurchase