Under Armour’s turnaround strategy taking shape

Under Armour’s turnaround under its CEO Kevin Plank is beginning to gain traction. Approximately $50 million more in adjusted operating income than was projected in August and a 200-basis point increase in Q2 gross margin are two clear signals of that. Wall Street responded to the improvements and word that the brand is moving back toward its one-time premium brand positioning with more product innovation by sending shares up nearly 33 percent in mid-morning trading. The company intends to invest approximately half of the Q2 adjusted operating income gain into incremental marketing in H2. 

With the Q2 results, the group adjusted its FY25 outlook. The annual revenue forecast of a low-double-digit drop, including a 14 to 16 percent decline in North America, remains. EMEA’s annual sales are expected to be flat year-over-year with APAC down in the high-single digits. But the operating loss outlook has been improved by 18 to 20 percent to $176-$196 million. Annual adjusted operating income, meanwhile, is now pegged at $165-$185 million versus a $140-160 million prior estimate. FY25 gross margin is now forecast to rise by 125-150 basis points year-over-year, up from a prior forecast of 75-100 basis point increase.

Under Armour reported a 24 percent increase in Q2 operating income to $173.1 million from $139.5 million for the period ended Sep. 30. Net income, bolstered by an income tax benefit of more than $2.1 million, rose by 63 percent to $170.4 million from $104.7 million. Gross margin increased by 200 basis points to 49.8 percent with 120 basis points related to supply chain benefits related to lower product costs, 50 basis points from a favorable product mix, and a 40-basis-point benefit related to lower discounting and promotions. Most of the payback in discounting and promotions occurred within the Dtc segment where period sales contracted 8 percent and included a 21 percent drop in e-commerce sales.

Total Q2 sales slipped by 11 percent to $1.4 billion from $1.57 billion, with all geographic regions posting double-digit declines except for EMEA. Home market North American sales fell 13 percent to $863.3 million and dipped by 10.5 percent and 12.5 percent in Asia-Pacific and Latin America, respectively, to $207.7 million and $46.9 million. The company has shifted its North American Dtc business from a full-store discounted approach to a targeted strategy that excludes certain products from special pricing. Under Armour intends to open a new 24,000-sq.ft. flagship stores near its Baltimore headquarters on Nov. 21. EMEA quarterly sales contracted by 1.4 percent to $283.2 million. 

By distribution channel, wholesale revenues slid 12 percent to $826 million and fell by 7.6 percent in Dtc to $550.3 million as licensing revenues came in 13 percent lower year-over-year to $24.8 million. But Under Amour pointed out that the quality of its business improved during the period due to higher full-price sales at 50 percent of total versus 30 percent in the year-ago period. 

By product segment, apparel sales fell 11.5 percent to $947.2 million; footwear sales stepped down by 11 percent to $312.8 million; and accessories revenues grew by 2.1 percent to $116.4 million. With fewer SKUs in the range, the brand is moving toward a better and best segmentation strategy over the next few seasons that will include some $100 styles. Within its Curry collection, Under Armour is launching a signature shoe around NBA rising star Aaron Fox and intends to be more aggressive with Stephen Curry’s global presence in the years ahead.