Under Armour begins rebuilding its ‘House’ amid Q1 loss

With former, longtime Adidas senior executive Eric Liedtke in the fold as EVP of Brand Strategy and the beginnings of $70 to $90 million restructuring underway, Under Armour reported a net loss of $305 million against a profit of $10 million in Q1 ended June 30. Some $274 million in litigation reserve expense and $25 million in restructuring charges impacted the bottom line. The operating loss was $299.7 million, up 25 percent year-over-year. But gross margin improved by 110 basis points to 47.5 percent on less discounting and promotional selling plus a 40-basis point contribution from supply chain benefits. 

Group Q1 total revenues of $1.18 billion, down from $1.32 billion, exceeded guidance. EMEA operating profit fell by 31 percent to $20.5 million on flat revenues of $226.9 million with strength in the Dtc channel offset by a slight drop in wholesale. Under Armour’s quarterly operating profit contracted by 8 percent to $147.9 million in its home North American market on a 14 percent sales drop to $709.3 million. In Asia-Pacific, operating profit slipped by 35 percent to $9.9 million on a 10 percent drop in quarterly sales to $181.8 million. In Latin America, operating profit soared 163 percent to $15.2 million on 16 percent sales expansion to $64.4 million. 

“EMEA (headed by Kevin Ross) is probably our strongest region from a momentum standpoint, particularly in the UK, and timely enough in France where we are sort on an underground favorite at the Olympics,” commented President and CEO Kevin Plank. “But there’s work to be done. I think we’re doing a good job playing to the size of the business. We crossed $1 billion in the past year…I think we’re being patient with the business, which is why you’re not seeing maybe a bigger accelerator there, is that we’re going to be a little more cautious and make sure, number one, aware of the macro environment, but also really looking for quality for a long-term standpoint.”

It’s unclear at this juncture how much Liedtke will contribute to the brand’s strategy going forward. But as the brand’s restructuring process proceeds, the company will likely look to emulate European fashion house brands in sporting goods industry prestige. 

Elsewhere in Q1, Under Armour realized declines in all segments of its business. Apparel sales slipped by 8 percent to $757.8 million; footwear sales fell back by 15 percent to $310.4 million; and accessories revenues declined by 5 percent to $92.5 million. Wholesale revenues dipped by 8 percent to $680.5 million due to softer demand in the full-price and distributor business and contracted by nearly 12 percent in the Dtc channel to $480.2 million on a 25 percent drop in e-commerce where a premium brand repositioning is underway. 

The group’s updated FY25 outlook maintains the forecast for a low double-digit drop in revenues, which includes a 14 to 16 percent decline in North America. International sales are predicted to decline by a low-single-digit percentage with the EMEA flat as the company aims to protect its brand strength in the region despite an uncertain macro environment. APAC annual sales are forecast to decline by a high single-digit percentage rate on lower consumer demand and traffic trends. Meanwhile, a full-year growth rate of 75 to 100 basis points for gross margin remains. The annual adjusted operating income outlook has been revised upward by $10 million to $140 to $160 million.