Under Armour Earnings Call: Progress Amid Persistent Strains

Under Armour Inc – Class A ((UAA)) has held its Q3 earnings call. Read on for the main highlights of the call.

Under Armour Signals Operational Progress Amid Persistent Headwinds

Under Armour’s latest earnings call painted a picture of a brand making measurable operational progress while still wrestling with meaningful structural and macro pressures. Management highlighted better‑than‑expected adjusted results, cleaner inventory, early product wins, and stronger balance sheet flexibility, all of which supported a modestly improved outlook. At the same time, GAAP results were weighed down by hefty litigation, restructuring and tax charges, while margins, North America sales, and footwear remained clear problem areas. The overall tone was one of cautious optimism: execution is improving, but the turnaround is not yet complete.

Adjusted Performance Beats Expectations

On an adjusted basis, Under Armour outperformed its own guidance in the quarter. Adjusted operating income came in at $26 million, ahead of expectations, and adjusted diluted EPS of $0.09 also topped the prior outlook. This performance gave management enough confidence to push its full‑year adjusted operating income forecast to roughly $110 million, the high end of its previous range. For investors, the beat underscores that underlying operations are stabilizing despite the noise in reported GAAP results.

Revenue Decline Narrows, Outlook Slightly Brightens

Quarterly revenue fell 5% to $1.3 billion, but that was marginally better than the company had previously signaled, helped by about one percentage point of timing benefits in wholesale shipments. Reflecting the modest upside, Under Armour tightened and improved its full‑year revenue outlook to an approximately 4% decline, versus a prior range of down 4% to 5%. While the top line is still contracting, management framed the trajectory as one of stabilization rather than deterioration.

International Pockets of Strength in EMEA and Latin America

The quarter showcased clear regional divergence, with Europe and Latin America providing bright spots. EMEA revenue rose 6% on a reported basis (2% currency‑neutral), driven by growth in both wholesale and direct‑to‑consumer channels. Latin America was even stronger, with reported revenue up 20% and currency‑neutral growth of 13%, supported by broad‑based momentum across the region. These markets underscore Under Armour’s potential outside North America and are increasingly important offsets to domestic weakness.

Balance Sheet and Liquidity Provide Cushion

Under Armour emphasized its improved liquidity position as a key support for the turnaround. The company closed the quarter with $465 million in cash and $600 million in restricted investments earmarked for upcoming senior note obligations. Management also repaid roughly $200 million on its credit revolver and ended the quarter with no borrowings against a $1.1 billion facility. This stronger balance sheet and clean borrowing base give the company more room to navigate ongoing restructuring and margin headwinds.

Inventory and SKU Rationalization Streamline Operations

Inventory discipline is becoming a tangible lever in Under Armour’s reset. Inventories declined 2% year over year to just above $1 billion, and the company completed a 25% SKU rationalization initiative that began in fiscal 2025. By simplifying assortments and reducing raw material complexity, management is aiming for more focused product lines, cleaner buys, and fewer markdowns over time. Investors are likely to view these steps as foundational for restoring profitability and brand clarity.

Product Momentum and Early Signs of Pricing Power

Despite a challenging backdrop, some key product categories are gaining traction. Base layer gear—particularly heat and cold offerings—posted strong double‑digit growth while sustaining higher average selling prices. ICON fleece and the women’s Meridian line are resonating with consumers. In footwear and sportswear, early launches such as the Velocity Elite 3, Acerta 11, HP Low, Solo, and ARC 96 have delivered strong sell‑through and higher ASPs. These green shoots suggest that focused innovation and better assortments can support both volume and pricing over the medium term.

DTC and Digital Engagement: Strong Traffic, Soft Sales

Under Armour is seeing healthy digital engagement even as direct sales remain under pressure. Management cited improved e‑commerce conversion rates and stronger digital execution, supported by tools like SMS marketing and emerging channels such as TikTok Shop. However, direct‑to‑consumer revenue still fell 4% in the quarter, and e‑commerce revenue declined 7%, underscoring persistent softness online. The company is working to translate engagement into more profitable, less promotional DTC growth.

Cost Discipline Drives Adjusted SG&A Improvement

Cost control remains a cornerstone of the turnaround story. Adjusted SG&A expenses fell 7% to $563 million, excluding a sizable litigation reserve and transformation‑related charges. The improvement reflects lower marketing spend timing, restructuring benefits, and tighter control of discretionary costs. Under Armour expects adjusted SG&A to decline by a mid‑single‑digit percentage for the full year, supporting margin stabilization even as revenue remains under pressure.

GAAP Results Hit by Litigation, Restructuring, and Tax Charges

Below the adjusted line, reported results looked significantly weaker due to large one‑time and non‑cash items. The company posted a Q3 operating loss of $150 million and a diluted loss per share of $1.01. This was largely driven by a $99 million litigation reserve, $75 million of restructuring charges, and a $247 million non‑cash valuation allowance on certain U.S. federal deferred tax assets. Management stressed that these items distort GAAP comparability and are tied to the ongoing transformation rather than core operations.

Footwear Remains a Structural Drag

Footwear continues to be one of Under Armour’s biggest pain points. Year‑to‑date footwear revenue is down about 14%, with Q3 alone seeing a 12% decline. Management pointed to structural assortment problems as the key culprit, prompting efforts to exit low‑productivity styles and consolidate franchises. While early performance from a handful of new launches looks encouraging, the footwear business still requires substantial work before it can become a consistent growth and profit driver.

North America and APAC Under Pressure

The company’s core North American market remains soft, especially in wholesale. North America revenue dropped 10% in the quarter and is now expected to decline roughly 8% for the full year. APAC, once a faster‑growth region, also slipped, with revenue down 5% in Q3 on both a reported and currency‑neutral basis and an expected 6% full‑year decline. The contrast with EMEA and Latin America highlights the uneven nature of Under Armour’s global performance and the need to fix core North America wholesale relationships.

Gross Margin Squeezed by Tariffs and Promotions

Profitability at the gross margin level deteriorated meaningfully. Third‑quarter gross margin contracted 310 basis points year over year to 44.4%. The bulk of the pressure came from roughly 180 basis points of supply chain headwinds, including about 200 basis points from higher U.S. tariffs, and 140 basis points from pricing and promotional activity, particularly in North America. An additional 40 basis points of drag came from unfavorable channel and regional mix, partially offset by modest positive contributions from FX and product mix. This margin compression underscores why management is so focused on pricing discipline and product mix.

Litigation Reserve and Restructuring Still Have Runway

The quarter’s $99 million litigation reserve, tied to a dispute with an insurance carrier, added to an already heavy transformation bill. Under Armour has now booked $224 million in restructuring and transformation charges for its multi‑year program, $89 million of which is cash, with total expected charges up to $255 million by the end of 2026. These restructuring efforts are planned to generate ongoing cost savings and a leaner operating model, but they will continue to weigh on reported results until the program is complete.

Promotional Environment Weighs on Pricing

Management was candid about the promotional backdrop, especially in North America and certain parts of EMEA. Discounting and pricing pressure were identified as key contributors to the margin decline, eroding some of the benefits from product innovation and mix improvements. Under Armour reiterated the importance of protecting brand pricing integrity, signaling that it may be willing to sacrifice some volume to support healthier long‑term economics.

Complex Tax and Accounting Effects Obscure Underlying Trends

Investors had to navigate a complicated tax and accounting picture this quarter. Beyond the restructuring and litigation expenses, Under Armour recorded a $247 million non‑cash valuation allowance against U.S. deferred tax assets, reflecting cumulative GAAP losses in recent periods. At the same time, a favorable tax method change created a roughly $0.06 benefit to Q3 EPS. These items distort year‑over‑year comparisons and highlight the gap between GAAP losses and more stable adjusted operating performance.

Guidance: Modest Improvement, Continued Caution

Looking ahead, Under Armour nudged guidance higher but kept a cautious tone. For the fiscal year, revenue is now expected to decline about 4%, with North America down roughly 8%, APAC down about 6%, and EMEA up around 9%. Gross margin is projected to fall approximately 190 basis points, reflecting ongoing tariff, supply‑chain, and promotional headwinds. Adjusted SG&A should decline in the mid‑single digits, and adjusted operating income is forecast at roughly $110 million, the top end of the prior range, with adjusted EPS of $0.10 to $0.11. The company has incurred $224 million of restructuring and transformation costs to date and anticipates up to $255 million by 2026, targeting cumulative savings that ramp from $35 million in fiscal 2025 to an additional $55 million in fiscal 2026. Management expects the non‑GAAP tax rate to remain broadly in line with the current year.

In summary, Under Armour’s earnings call reflected a company making genuine operational headway—cleaner inventory, improved cost control, selective product wins, and a stronger balance sheet—while still confronting real challenges in margins, footwear, and key geographies. The modestly improved outlook and better‑than‑expected adjusted results provide some support for the turnaround narrative, but the heavy weight of restructuring, litigation, and macro pressures means the path back to consistent, profitable growth will remain a work in progress for investors to monitor closely.