It’s always darkest before the dawn, and that’s just what Under Armour is experiencing as it “resets” its business to cut back on promotions and works on returning to more premium brand positioning.
That was the message from Kevin Plank, chief executive officer and founder, during the sports brand’s second-quarter earnings call Thursday morning.
“At the halfway point of fiscal 2025, we’re pleased with another quarter of profitability ahead of our outlook, thanks to gross margin improvement from actions we’ve taken to reduce promotions and discounting in our DTC businesses and ongoing initiatives that improve product costing,” he said. “Although we are early in our reset, I believe this demonstrates that our strategies to strengthen this brand are beginning to gain traction.”
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He revealed that full-price sales in the second quarter accounted for 50 percent of e-commerce revenue versus about 30 percent a year ago. “The goal here is driving higher profitability, store productivity and improved brand affinity,” he said.
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Wall Street clearly liked what it heard, sending shares up 23.3 percent to $9.94 on the Nasdaq on Thursday.
But he acknowledged that this shift won’t happen overnight.
In the period ended Sept. 30, the Baltimore-based sports giant, reported operating income was $173 million. Excluding charges, the adjusted operating income was $166 million. Net income was $170 million and adjusted net income was $131 million.
Overall sales were down 11 percent to $1.4 billion, in line with expectations. North America revenue decreased 13 percent to $863 million, and international revenue decreased 6 percent to $538 million. In the international business, revenue in EMEA was down 1 percent, down 11 percent in Asia-Pacific, and down 13 percent in Latin America.
Wholesale revenue decreased 12 percent to $826 million, and direct-to-consumer revenue was down 8 percent to $550 million. Revenue from owned and operated stores remained flat. As a result of planned decreases in promotional activities, e-commerce revenue — which represented 30 percent of the company’s direct-to-consumer business in the quarter — decreased 21 percent.
In the earnings call, Plank said the company is working to “create an elevated experience with a cleaner, better curated product assortment and presentation” at its 1,400-plus full-price brand houses globally.
He singled out a 24,000-square-foot store that will open on Nov. 21 at Under Armour’s new global headquarters at the Baltimore Peninsula as an example. The store will be “our most premium full-price expression” and will serve as “a living laboratory” for the fleet, Plank said.
By category, apparel revenue decreased 12 percent to $947 million, footwear revenue was down 11 percent to $313 million, but accessories revenue was up 2 percent to $116 million.
As reported in May, shortly after Plank took back the reins of the company he founded, Under Armour unveiled a restructuring plan, one that was updated in September following the announcement of its plan to close a distribution facility in Rialto, Calif. That move increased restructuring charges to $140 million to $160 million. As of the second fiscal quarter of 2025, the company said it has recognized $28 million in restructuring and impairment charges and $11 million in other related transformational expenses. The remainder of the charges are expected to occur during fiscal 2025 and fiscal 2026, the company said.
While the figures reported Thursday morning were not pretty, they were not unexpected and led the company to update its fiscal 2025 outlook. Revenue is expected to decline at a low-double-digit rate — that includes an anticipated 14 to 16 percent decline in North America, a low-single-digit percent decline in its international business, with flat results in EMEA offset by a high-single-digit decline in its Asia-Pacific business. However, the company is expecting an improvement of 125 to 150 basis points in gross margin as promotions continue to decline.
The operating loss is expected to be less, however. Under Armour is now expecting that figure to come in at between $176 million to $196 million, compared to the previous expectation of $220 million to $240 million. Excluding the restructuring charges, adjusted operating income is expected to be $165 million to $185 million, compared to the prior expectation of $140 million to $160 million.
In the third quarter, the company is expecting revenue to be down approximately 10 percent with continued pressure in North America, the company said.
In his remarks, Plank said that because the company beat its projections on adjusted operating income in the quarter by $50 million, Under Armour will allocate half those dollars to the revised adjusted operating income outlook for the year and the other half to “marketing and brand building.”
He said Under Armour will continue to focus on its ability to “credibly outfit athletes head to toe on the field, court or pitch in virtually any sport or athletic endeavor.” But rather than zeroing in on only elite athletes, the company will seek to position itself as the brand for “the underdog,” or the person who is “looking for every edge possible from their training, studying and especially from their gear.”
Plank said this positioning is being “well received” by its wholesale partners as well as its customers, “and we will build on it from here.”
What this translates into is a continued “elevation of our product offering” and “a critical mass of new products…with an immediate focus on our men’s apparel and footwear, as well as a significant evolution in style and innovation offerings as we work toward fall- winter 2025.”
Plank singled out the brand’s long partnership with NBA star Steph Curry as a highlight, thanks in part to the red, white and blue Curry 12 shoe he wore at the Paris Olympics as well as a successful China trip where a four-city tour had to be scaled back to three after 7,000 people swarmed his hotel in Xi’an.
“With historically high brand exposure, including over 4 billion media impressions, nearly 34 million livestream views, and incredible social buzz and engagement,” Plank said, sales of Curry product tripled during his visit. “One thing that is certain…we plan to be much more aggressive with Stephen’s global presence as we scale our business in the upcoming years.”
Plank also addressed the wholesale business and admitted the company’s relationship with its retail customers has not been ideal. But by enhancing communication and listening to constructive feedback, he expects to “build back shelf space.”
Plank said the company will host an investor meeting on Dec. 12 in New York City at which the company will “detail our strategies to strengthen UA’s premium marketplace and underdog positioning and our ability to deliver improved long-term value creation for shareholders.”