Under Armour, Inc. Q1 FY2026 Earnings Call

Good day, and welcome to the Under Armour Q1 2026 Earnings Conference Call. Please note that today's event is being recorded. I would now like to turn the conference over to Lance Allega, Senior Vice President, Finance and Capital Markets. Please proceed.

Thank you. Good morning, and welcome to Under Armour's First Quarter Fiscal 2026 Earnings Conference Call. Today's call is being recorded and will be available for replay. Joining us on the call this morning are Under Armour's President and CEO, Kevin Plank; and Chief Financial Officer, Dave Bergman. Before we begin, I'd like to remind everyone that our remarks today will include forward-looking statements that reflect Under Armour management's current views as of August 8, 2025. These statements may include projections about our future performance and are not guarantees of future results. Actual results may differ materially due to several risks and uncertainties, which are described in this morning's press release and in our filings with the SEC, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. Today's discussion may also reference non-GAAP financial measures, which we believe provide useful insight into our underlying business trends. And applicable reconciliations of these non-GAAP measures to their most comparable GAAP counterparts can be found in this morning's press release and on our Investor Relations website at about.underarmour.com. With that, I'll turn the call over to Kevin.

Thanks, Lance, and thank you all for joining us this morning. With the first quarter complete, this is an important moment to evaluate our position and importantly, our direction. We're undertaking a bold reinvention and rebuilding with purpose to become a sharper, more focused brand one that blends sports, style and innovation with financial discipline and edge. This isn't about fixing the past, it's about unlocking our full potential. Under Armour started as a product in 1996 and became a brand over the following two decades and, quite frankly, has spent the last 8 years operating more like a company than a brand. 16 months back into the CEO role, my hands are firmly on the wheel. We're in the process of flipping that script, where every decision we make is focused through a brand-first lens. This in no way means retreating on operational discipline. In fact, it means being a better company with rigor and process, capital allocation and execution, but simply requiring that every decision we do make contemplates, is this the best decision for our brand because if it's the best decision for the brand, then it's the best decision to create long-term shareholder value. World-class financials don't build world-class brands. It's actually the other way around. The only way we win is by creating a brand people can't ignore. Our current numbers don't yet tell the whole story, but the signs are there. Brand health is starting to gain traction. Cultural relevance is returning, and our phone is ringing from talent that wants to join us. EMEA is outperforming. North America, APAC are on path towards better stability and team sports are heating up, while digital engagement is increasing. We're stronger than we were 6 months ago and will be even stronger 6 months from now. This transformation isn't easy and requires a lot of patience, more than any of us would like, but we're taking the right steps to build deeper, lasting connections with consumers and focused on creating mid- and long-term shareholder value. The good news, we're not starting from scratch. We have the essentials with presence in nearly 150 countries, 2,000 mono-branded stores, 15,000 teammates, a new headquarters, almost 30 years of sports credibility. Our strength is authenticity, which I don't believe we've fully embraced, and that's now changing. And yes, the environment is challenging, limited spending, higher promotions and a dynamic domestic tariff policy. Independent of that, our mission is clear: Stop the decline and rebuild stronger. I understand what's at stake and intend to apply a lifetime of brand-building experience, 20 years of it with the same public company and creating our best work driving this transformation. At the heart of this are bold from two shifts, deliberate moves that redefine our brand identity and reshape our operations. Let me walk you through how we're turning that vision into reality. Over the past year, we've achieved significant progress in realigning our product engine, simplifying operations and positioning Under Armour to better serve athletes, customers and shareholders in the long run. We faced some tough truths. Our assortment had been too broad, our material library has been too complicated, and our design language lacked clarity. So we're simplifying. We're consolidating. We're editing and we're laying the foundation for sharper execution and better pricing, cutting down the product range of materials is already making us faster, leaner and more focused. We're on track to meet our initial goal of reducing SKUs by 25%. We're discovering more ways to streamline. This focus sharpens execution and strengthens our product lineup. We've already cut our materials by 30% for our 2025 products and plan to reduce it further in 2026, lowering costs, improving sourcing and supporting more sustainable innovation-driven design. In effect, as our old saying goes, we plan to spend much more time writing a much shorter letter. We certainly made progress and now aim to push even harder, especially with underperforming and low-margin products, leading with math like any basic 80/20 rule, but ensuring that we are also brand informed as we make decisions. In March, we introduced a new category management operating model and go-to-market process, both are now active and continuously being refined. Along the way, we've combined experienced UA talent with fresh leadership to inject energy and expertise where it counts most. Just last week, Eric Liedtke and I guided our corporate team through our 5-year strategic road map, effectively the final and third leg of the brand foundation to complement our operating model that rolled out in February and the go-to-market we described during our last call using the No Weigh backpack as our example. These three brand foundational pillars are essential to any transformation and what I'm most excited about from a progress standpoint since April of '24. A key component of any strong culture is ensuring that every teammate knows exactly what's expected of them and what the definition of success is. This structure is now in place. Our team is aligned, we're set up to run. To try to simplify the broader strategic goal for the organization, in the one statement of what we aim to achieve, it is selling so much more of so much less at a much higher full retail price. That means tighter assortments, more key items safety stock, netting better order fulfillment, straightforward storytelling of intentional, personified products that we make famous, like our HeatGear base layer, realizing the full retail value for our product all the way out the door. It's what's essential for us to make this brand transformation happen. This is underway, and we're driving through two key levers. First, we'll continue to launch pinnacle defining products like our HeatGear OG compression mock, the Velociti Elite 3 running shoe, the Magnetico football boot and Halo collection, along with accessories such as the StealthForm Hat and the No Weigh backpack, products that only UA could make informed from our unique brand intersection of sports authenticity, cultural style and distinct innovation, all with higher ASPs that we are inviting the market to stretch to, and they're gaining real traction. Secondly, we're working to apply those lessons of premiumizing our brand to our top 10 volume drivers across apparel, footwear and accessories. We're systematically redesigning our top 10 volume items for better performance, bolder designs leading to better and more full average selling price revenue. We're elevating the reason to buy UA. Updated industry-leading innovative products with richer storytelling and brand confidence for our consumers. These top 10 styles represent tens of millions of units that once driving higher average selling prices will fall straight to our bottom line. This two-lever strategy also has the benefit of being the same play we are and would run to help mitigate tariff impacts. While we cannot affect holistically in the short term, we should see this benefit coming through our P&L in coming seasons. Pulling this example all the way through where prior to April 2, we'd already been planning to improve product quality for our consumers with an item like our $25 tech tee, moving that to a higher price point justified by enhancing fabric material design and story. Now we're considering pushing that price point a bit further to an embedded consumer who we do have pricing power with. Effectively, we're running a very similar play to elevate the brand that we're now incorporating to mitigate tariffs. We're not, however, walking away from value-driven consumers. Sports gives us room to compete at every level, good, better and best. We're expanding our top tiers while keeping the right products at entry price points, but moving those price points and the products quality themselves up. That balance is what built Under Armour, and it's how we will continue to succeed by creating performance gear that is desired by consumers regardless of the price point. We're also changing how we connect with athletes, a realignment of our presence and who we serve. We're shifting from a gym-first approach to a focus on team sports, emphasizing both American and global football, basketball, baseball and volleyball. It's a deliberate move back to performance, bringing new energy and relevance to today's game. At the same time, we're expanding beyond our GenX Foundation to connect with Gen Z and Alpha purpose-driven athletes who value transparency, authenticity and daily relevance. We're also shifting from primarily a professional athlete-only model to an influencer-led network, broadening our athlete roster to include high school stars, college athletes, creators and their communities. Through NIL partnerships, grassroots efforts and authentic storytelling, we're building momentum from the ground up and the energy will continue to grow. This transformation cuts across every category. We're expanding beyond just the locker room, building real sports for our credibility, while continuing to deliver high-performance gear for athletes both on and off the field. We're also working to close a gap we've let sit for too long, the needs of women. Yes, we built a $1 billion plus women's business, but its share of our total hasn't increased. That's on us, and we're addressing it. We're integrating a women's centered approach directly into our category management model, led by long-time UA veteran, Jeanette Robertson. It's a structural change, and we're working hard to get it right, not only in product but also in how we design, market and bring her into our brand. Next, let's talk about footwear. We know it's not where it should be. For too long, we lacked focus and consistency in a category that defines our industry. We pursued too many ideas, adopted franchise architecture late and missed opportunities in innovation, design and storytelling that athletes expect from Under Armour. Two years ago, we reset our footwear business under the leadership of industry veteran, Yassine Saidi. We made a very intentional decision to take a step back to move forward, streamlining the portfolio, eliminating underperforming lines and rebuilding with a sharper more focused foundation deeply connected to the athlete in all aspects of how they live. Running footwear is a great example where we now have two very clear pinnacle vertical silos of product, Velociti and the recently launched Halo. We've made the decision to sunset our previous Infinite franchise, which we believe is a long-term brand right decision, but it's come at a price, which you're seeing affect our near-term footwear declines and replaced it with a broader aperture and more sports casual vertical of Halo, while doubling down on our Velociti franchise in high-performance run. These deliberate decisions, combined with softer demand, are weighing on our results, and we own them. However, we believe this to be near term. And over the mid to long term, we anticipate harnessing our Velociti and Halo Foundation to drive greater intention across our running category and a blueprint for the broader footwear business. Our immediate numbers reflect the transition but believe that our long-term results will reflect the transformation. The goal is simple, sharper design, stronger storytelling, reliable performance on and off the field. Early signs are promising, and we're moving in the right direction. And in running, the Velociti Elite 3 is delivering 6 major wins this year, American records in the half in Mile and Sharon Lokedi's course record in Boston just this past year. This is exactly the kind of pinnacle moment we're building for from the $250 Elite 3 with design continuity that stretches across 6 price points all the way down to the $75 redesigned Assert, our largest volume program. Our running collection connects with runners at every level, boosting brand momentum, earning credibility with athletes and turning that momentum into real commercial success. In American football, the Spotlight Pro Suede sold out at launch. In baseball, our King of Diamonds and Juice Drops are driving momentum. In global football, Achraf Hakimi wears Magnetico Elite on the world's biggest stage. And in basketball, Flow continues to drive our iconic franchises. These wins are restoring our credibility and fueling performance growth with new sports style $120-plus franchises like Slipspeed, Echo and Apparition, along with fresh launches like Sola and Halo, we're confidently moving into the premium space. The goal isn't just to compete but to lead with ASPs that reflect the strength of our brand and the quality of our products. From a channel perspective, we're shifting from transactional selling to a story-driven brand that consumers seek out and support. In the U.S., this involves replacing a long-standing focus on discounts with premium athlete-centered narratives brought to life through elevated DTC experiences. These stories generate demand and improve full-price sell-through while strengthening our loyalty memberships and driving wholesale interest. From an operational perspective, we're transforming how we work by moving from siloed functions to collaborative category-led teams, driven by real-time data and shared KPIs. This modern system is built for speed, scale and smarter decision-making, utilizing AI to help us. We're also shifting seasonal drops to an ongoing cycle of brand-led storytelling, fostering emotional connections and lasting loyalty through culturally relevant moments and timely innovation. Additionally, AI is becoming more integrated across the business, enhancing design, planning and forecasting. After 2 years of data and platform development, we have over 80 automations that are streamlining workflows, reducing time to market and improving execution from predictive pricing to real-time inventory management. Next, let's talk about the regions, starting with North America, where we expect fiscal '26 to see challenges from higher costs due to tariffs and you have softer demand. Yet we see this as an inflection point, not a ceiling. Despite the environment, we're executing a phased plan to rebuild brand loyalty, improve revenue quality and lay the groundwork for sustainable growth. In our largest market, we're regaining cultural relevance, beginning with American football and expanding into team sports, creators, and cultural collaborations that connect Under Armour to the core of the athlete and culture. Our priorities are clear: strengthen brand loyalty through top-tier sports culture and emotionally compelling storytelling, stabilize to growth by increasing full-price e-commerce, boosting Factory House profitability, and rebuilding wholesale partnerships, and shrink the battlefield by concentrating on key product franchises and optimizing distribution to achieve more consistent wins, doing less things better. Amid this reset, we're seeing early signs of progress. In digital, we're recreating a more connected experience driven platform. Although results are still modest, the momentum is evident, Spotlight Suede became our top full-price footwear style driven by organic TikTok buzz. Our SMS program launched in June, has already gained over 100,000 subscribers, and our Instagram shop has been seeing strong growth since its relaunch this past month. Our e-commerce Net Promoter Score has increased by 18 points year-over-year to nearly 70, a strong signal that our customer experience is improving and our efforts are resonating. Traffic and sell-through still have room to grow, we're tackling that with faster site performance, richer storytelling and smarter merchandising. In our Factory House business, innovation is fueling sales growth, even with this value channel. We're seeing success testing new key items at full price, including our $45 StealthForm hat and our HeatGear collection are both strong examples. Although traffic remains slower, improved execution is boosting conversion rates. Factory House continues to serve as a proving ground for mixed experimentation, raising ASPs and protecting margins through smarter promotions and targeted merchandising. Wholesale remains our biggest North American growth opportunity. Reclaiming shelf space takes time, but we're approaching with discipline and optimism, and our partners are listening. Leading with innovative products like HeatGear and a strong cleated footwear performance, we're reengaging customers and building trust. Each season brings new opportunities and we're laying the groundwork now for future success. In our storytelling, we're making one thing clear. Under Armour is back. We're beginning to see it in the numbers. Brand health is improving, and our renewed narrative and full funnel media investments are connecting with the athletes we want to reach. Our renewed NFL partnership and signings like the #1 draft to Cam Ward and Luther Burden III show our long-term commitment to performance. That momentum drives our We Are football campaign that will be debuting in early September, lending sports, music and culture with athletes, creators and stars like Justin Jefferson, recording artist Gunna and top 7 on 7 talent. With the rapid rise of flag football especially among youth and women, based on our gridiron credibility, we see a clear path to lead here. All in, cultural energy continues to grow. Justin Jefferson's UA Next Flight School content reached over 7 million views even before launching on YouTube. Spotlight Suede, TikTok buzz demonstrates how product and storytelling can create demand. Activations like the No Weigh Backpack blend performance and lifestyle in a way that feels fresh and uniquely UA, especially to the 16- to 24-year-old team sports athlete. Excitement is also growing for this year's Curry tour in China, which is a multi-day single-city immersion that unites 30 of the top APAC basketball athletes for Curry Camp, creates one-on-one moments with Steph and his training team, engages regional media and culminates in Curry On, a fan-driven celebration where supporters from across APAC share memorabilia and connect deeply with Stephen, delivering a powerful brand and business opportunity through a meaningful, high-impact interaction. In EMEA, our strongest performing region, we're achieving profitable brand-driven growth through sharper execution, local relevance and financial discipline. We're not trying to be everywhere. We're focused on winning where it matters most, guided by a high-return 1,2,3,4 strategy. Let me explain. One sport, football being on pitch with elite athletes like Achraf Hakimi, Toni Rüdiger, and Pedro Porro and so many more is how we're establishing brand authenticity in Europe. Through targeted marketing, credible athletes and franchise-led storytelling, we're building trust from grassroots to the elite levels. Two, cities, London and Paris are driving our growth. Three countries, the U.K., France and Spain. This brings us to 4 categories of focus: football, sportswear, training and running. Momentum is building, and we're unlocking EMEA's full potential. And importantly, we're applying the lessons from the success in North America and APAC. This strengthens our confidence in the path toward greater stability and eventual return to growth in these markets. In Asia Pacific, we've emerged from a reset year stronger, more focused and positioned to advance with discipline, starting with the appointment of Simon Pestridge, a 25-year industry veteran to lead the region. With structural challenges addressed and key roadblocks removed, we're now building a premium high-integrity marketplace that reflects Under Armour's true brand strength. Our APAC strategy is clear: reignite relevance through local storytelling and innovation, drive full-price growth and elevate the marketplace through sharper distribution, disciplined pricing and premium partnerships. Combined with tighter inventory management, these efforts will strengthen both retail and wholesale execution. That said, fiscal '26 is about stabilizing APAC and building momentum for sustained growth. Now before I finish, I want to address the incremental tariffs announced on July 31 and increased pressures our business is facing this year. Following those updates, we estimate approximately $100 million in additional tariff-related costs, along with softer-than-expected demand in fiscal '26. When combined, even with mitigation efforts and disciplined SG&A management, our profitability is projected to be about half of what it was last year. None of this is ideal. We don't like this. But also, it won't define a year. There's just too much good happening with the overall shape and energy of our business. We faced bigger headwinds before, and this is simply the next one we'll get through because no matter the environment, our mission remains unchanged to execute the strategy, strengthen our brand, increased average selling prices and succeed with athletes, we're running our play and that's exactly what we're doing. With a world-class team and a clear strategy aligned across the organization, we're advancing with clarity, agility and accountability. Even now before this transformation is fully realized, Under Armour is a $5 billion brand. That's a testament to our enduring relevance, strength of the brand and a clear signal of the massive potential ahead. At our core, we're not reinventing who we are. We're reclaiming it, bold, original and unapologetically UA. I appreciate your attention and trust this morning. And with that, I'll turn it over to Dave to discuss first quarter fiscal '26 results and the outlook we have for Q2.

Okay. Thanks, Kevin. Moving directly into our first quarter fiscal 2016 results. We're pleased to have delivered another quarter that met or slightly exceeded our outlook on every line item. First quarter revenue declined 4% to $1.1 billion, with regional results as follows: In North America, revenue declined 5%, primarily due to a decrease in our full-price wholesale business and lower e-commerce sales. Revenue in EMEA increased 10% or 6% after adjusting for foreign currency fluctuations, indicating steady growth in the region. Furthermore, EMEA saw growth across all channels during the quarter, led by our full-price wholesale business. APAC revenue decreased 10% on both a reported and currency-neutral basis, with declines in wholesale and DTC as consumer confidence remains weak amid a highly competitive and promotional market. And within Latin America, revenue declined 15%, partially due to foreign currency headwinds. On a currency-neutral basis, revenue declined 8% for the quarter, with decreases in full-price wholesale and DTC partially offset by growth in our distributor business. From a channel perspective, wholesale revenue declined 5% as lower full-price and distributor sales were partially offset by growth in our off-price channel, driven by timing of sales to third-party partners. Direct-to-consumer revenue declined 3%, including a 12% decline in e-commerce sales caused by highly competitive conditions in APAC and in North America. Sales at our owned and operated stores increased by 1% this quarter, led by our Factory House business. And licensing revenues increased 12% with growth in both North American and international licensees. Finally, by product type, apparel revenue declined 1%, with softness in run, outdoor and golf, partially offset by strength and training sportswear. Footwear revenue was down 14% in the quarter with declines across all categories. This reflects a challenging consumer demand environment and our deliberate work to optimize the business as we prepare for stronger, more impactful launches in the seasons ahead. Our first quarter gross margin increased by 70 basis points year-over-year to 48.2%. This growth was driven by 55 basis points of favorable foreign currency impacts, 30 basis points of pricing benefits and 30 basis points of favorable product mix. These benefits were partially offset by 45 basis points of unfavorable channel mix and supply chain headwinds. Now moving to SG&A expenses, which decreased 37% to $530 million in the first quarter as last year's first quarter included a considerable litigation reserve expense. Excluding approximately $8 million in the transformation expenses related to our fiscal 2025 restructuring plan, our first quarter adjusted SG&A expenses were $522 million, reflecting a 6% decline compared to last year's adjusted figure. The decrease was primarily driven by lower marketing and savings across various areas resulting from our restructuring plan and ongoing cost management efforts. In the first quarter, we recorded $13 million in restructuring charges and $8 million in transformation-related SG&A expenses, totaling approximately $21 million. Since launching our fiscal '25 restructuring plan, we've recognized $110 million in charges and transformation expenses to date, $65 million of which are cash related and $45 million in noncash. We now expect total planned charges to finish towards the high end of our previously disclosed $140 million to $160 million range, with the remaining costs primarily tied to the planned closure of our Rialto distribution center recognized by the end of fiscal 2026. As a result of these actions, we delivered approximately $35 million in savings in fiscal '25 and expect approximately $45 million more in fiscal '26. With the emergence of significant new tariff pressures, we are actively reviewing our cost structure to find additional efficiencies, always with a brand-first approach to ensure we can offset headwinds while reinvesting in this product, storytelling and experiences that drive our growth. Continuing through the P&L, we reported operating income of $3 million in the first quarter. Excluding transformation expenses and restructuring charges, our adjusted operating income was $24 million. Looking at the bottom line, our reported diluted loss per share was $0.01, while our adjusted diluted earnings per share was $0.02 for the quarter. Now moving to the balance sheet. Inventory at the end of Q1 was $1.1 billion, a 2% increase year-over-year. Our cash balance was $911 million and we did not utilize our revolving credit facility during the quarter. The sequential increase in cash was mainly driven by our June issuance of $400 million in senior notes due in 2030. We plan to use the proceeds along with borrowings under our revolver to redeem the $600 million of senior notes that are due in June of 2026. Looking ahead to our outlook for the year and building on Kevin's opening remarks. Last quarter, we noted that before any global trade policy changes, we expected a modest revenue decline in fiscal '26 as we focused on strengthening the brand and increasing higher-quality sales. Since then, changing trade policies have created additional headwinds, including on the demand side, making it more difficult to predict the future environment, but also highlighting the importance of our disciplined brand-first strategy. Considering our expected fiscal '26 cost of goods sold headwind of approximately $100 million or about 200 basis points of negative gross margin impact, we are actively pursuing mitigation strategies such as cost sharing with suppliers and partners, exploring alternative sourcing options and making selective pricing adjustments. However, due to the complexity and lead times involved, we anticipate most of the gross margin offsets to be realized in fiscal '27 and beyond. Amid these headwinds, we are also maintaining cost discipline and SG&A, reducing discretionary spending and continue to expect to leverage against revenue as we stated on our last call. That said, we are working to protect the brand and preserve strategic investments that are critical to unlocking long-term value. Given the new tariff costs this year and related demand impacts, partially offset by our mitigation actions, we expect operating income on an adjusted basis to be roughly half of fiscal '25 levels. Additionally, we also expect fiscal '26 EPS to be pressured by higher other expenses, primarily interest expense from increased debt and an adjusted effective tax rate more than double fiscal 2025, driven primarily by unfavorable regional mix and profitability. Now turning to our outlook for the second quarter of fiscal '26. We expect revenue will decline 6% to 7% year-over-year, which we believe will be our toughest quarterly top line results of this year. In North America, we anticipate a low double-digit decline due primarily to continued weakness in our wholesale business. APAC is expected to be down at a low teen rate as we continue to navigate soft consumer sentiment in a highly promotional environment. That said, in both of these regions, we're staying focused on improving sales quality and creating a healthier, more premium marketplace. On the upside, we expect EMEA to deliver high single-digit revenue growth, strong performance across both wholesale and DTC channels. Regarding gross margin, we expect a decline of 340 to 360 basis points compared to last year, driven by approximately 300 basis points of decline from higher product costs, of which about two-thirds relates to new tariff costs and approximately 100 basis points of decline from channel mix. We expect these decreases will be partially offset by favorable changes in foreign currency and pricing benefits. Excluding transformation expenses from our fiscal 2025 restructuring plan, second quarter adjusted SG&A is projected to grow at a high single-digit rate year-over-year. Recall that last year's second quarter was not adjusted for a $27 million insurance recovery benefit tied to prior year legal fees. Excluding the insurance recovery, adjusted SG&A is expected to grow at a low single-digit rate, driven primarily by higher marketing investments as we lap a timing shift that pushed most of last year's spend into the second half of the year. Bringing this together, we expect adjusted operating income for the quarter of $30 million to $40 million. Incorporating the previously mentioned other expense and tax headwinds, we anticipate adjusted diluted earnings per share will range from $0.01 to $0.02 for the second quarter. So to close, while the environment remains dynamic, we're staying focused with financial discipline, confidence and a clear sense of direction. We are shaping Under Armour into a brand that stands apart where sports, performance and style converge in a way only we can deliver. This transformation will take time and requires patience, as we take the deliberate steps needed to get it right. Our team is making bolder decisions, streamlining operations and moving with greater speed and precision. In the near term, we'll remain agile and disciplined through this building phase. Over time, these actions will deliver what matters most: stronger results, deeper consumer loyalty and a brand that's more resilient, more distinctive and positioned for lasting success. Now we'll open the call to questions.

And today's first question comes from Jay Sole with UBS.

Kevin, 2-part question. First, can you just talk a little bit about how tariffs are impacting demand from your wholesale channel partners and kind of what you've seen and what those conversations have been like? And then secondly, maybe on North America. You mentioned in the prepared remarks that brand has been inflecting maybe before the business. But can you maybe dive in a little bit more and share with us some of the green shoots you're seeing of improving brand health?

Yes, thanks, Jay. First of all, I think the tariff situation is challenging for everyone, and it seems to impact our industry significantly. While every sector feels the effects, ours is particularly affected. However, I believe our response to tariffs aligns with what we have already begun implementing. I laid out our two-part strategy focused on tariffs, acknowledging that we are not satisfied with the current circumstances. We are addressing this through initiatives we've been pursuing in an industry characterized by an 18-month go-to-market cycle, and with my return to this role 16 months ago. There were many positive developments before I returned, but we have concentrated on key products that consumers recognize as unique to Under Armour. For instance, the StealthForm cap, priced at $45, stands out from the usual $25 price point in our industry, which often sees items leaving the shelves closer to $13 or $14 for most brands. We are shifting the pricing structure similarly for the No Weigh backpack, which is positioned between $40 and $65, by introducing products priced at $140. Our aim is to keep launching appealing new products that consumers desire. Additionally, we are taking a closer look at our broader product portfolio, starting with our top-selling items in apparel, footwear, and accessories. We've recognized that some products, like the Tech Tee, need updates as we've seen their selling prices drift away from the suggested retail prices. We are actively working to address discounting by relaunching that product, which not only reinvents it but also allows us to increase the price point. We mentioned before our capability to add pricing power to our overall ecosystem, and while we are cautious about it now, we believe that our reinvention process will allow us to return to consumers effectively, ensuring they expect and appreciate our products, facilitating movement closer to full retail prices. Regarding your question about the brand's growth preceding business performance, there are three aspects I would highlight. First, it's factual. I've noticed positive trends in our base layers, particularly with our campaign in North America. In September, we will launch UA's football campaign, and the products we are marketing are resonating well, showing strong sell-through rates in our compression base layers, which bolsters the overall brand. Our NPS score has improved significantly, and we have seen brand metrics increase, particularly within the 18- to 34-year-old demographic, demonstrating growth in brand perception. Second, I've been actively engaging with our retail partners, rekindling those relationships, and there's a noticeable belief in our direction. While the immediate financial metrics may not reflect the positivity I've witnessed, there are encouraging trends with some of our largest retail partners in men's and women's apparel. We're having strategic conversations about regaining shelf space, which typically requires a 6- to 9-month effort, and there's optimism surrounding this. Thirdly, on a subjective level, I feel a shift in sentiment. After nearly 30 years in this business, I sense a change. Our brand appears to be attracting interest. We are feeling positive momentum within our company and from our partners. While challenges remain, including tariffs, I believe that if we stay focused on making incremental progress, we will move in the right direction. I can confidently state that, compared to where we were a year ago or even six months ago, we have improved and I am optimistic about where we will be in another six months. The overall trajectory feels promising.

Our next question comes from Sam Poser with Williams Trading.

Okay. We can go to the next question, and we will get back in the queue.

All right. The next question comes from Peter McGoldrick with Stifel.

Dave, a question for you. As we think about the SKU cleanup and pull back on promotion and pricing, can you help us think about within the 2Q revenue guide in terms of AUR and units, how should we be expecting this to develop moving forward?

Yes, I would say Q2, as we mentioned, is probably going to be our toughest quarter as we think through the year as we're making a lot of progress relative to product and hopefully, we'll see some of that coming through when we get forward towards Q4. But in Q2, I think North America is going to be a tougher decline for us. We talked about low double-digit there. We're still seeing the impact of the trailing spring/summer '25 order book challenges that we spoke to before, also some traffic challenges within retail. So we're doing our best to navigate through that. As we think about promotions and discounting, we made a lot of improvements and progress last year, and we talked about that a lot. We saw that come through the gross profit last year. We intended to make more progress on that this year. I think with the tariff environment and how that's impacting demand in the overall market, it's going to be tougher to make more progress this year, but I think we do have that increased discipline. So we're going to make sure that we're sharper in how we do that and we don't want to go backwards for sure. So it is going to be tough as we navigate and some of that is what's assumed in our Q2, which is knowing that it's going to be a promotional environment, knowing that we don't want to play in it as much and we don't want to take steps backward. So that does pressure revenue a little bit in our Q2 outlook, but then also the pressure that we're seeing in APAC. So those are really the puts and takes there. And then obviously, we spoke a lot about the EMEA progress and the continued momentum there, which is great to see.

And then I'm curious on marketing investment direction. As you work to engage the 16- to 24-year-old team sports athlete, is there anything you can point to substantiate improved consideration with this younger demographic?

Yes, Peter, as I mentioned in response to Jay's question, brand perception is increasing in the mid-single digits, particularly among the 18 to 34 age group, and brand awareness is also rising. We are seeing measurable progress in the right direction. However, I believe this objective carries additional significance. There is a sense of energy and excitement reflected in our e-commerce site, where we observe how customers are interacting with our products. These are items that customers would usually associate with other brands, and we are beginning to see a shift. This includes everything from on-field cleated products to the new sportswear styles we have recently launched. Products like the Apparition Tech and the new Sola are ones that consumers may not have previously considered buying from us, but now they seem willing to give Under Armour a chance. We are optimistic about this trend. Additionally, we are encouraged by the athletes who are aligning with us and our partnerships with influencers who can help us connect with young consumers.

And the next question is from Sam Poser with Williams Trading.

Yes. Sorry about that, folks. Could you hear me now?

Yes, we can.

I have a few questions. First, Kevin, you seem more cautious now compared to before 2019. I would appreciate your insights on that. Second, could you explain how you expect to see brand improvements manifest? Third, what is the tax rate? Lastly, can you share any information about the order book for the holiday season or even into spring 2026? Are you seeing any trends there? You mentioned it might take longer due to tariffs, but could you provide more details about the outlook?

I'll begin, Sam, and then I'll let Dave discuss the tax rate. I want to share how I'm viewing the business. After years of experience, I’m now in a position to leverage that knowledge along with humility and a genuine understanding and empathy for our consumers and the team. It's an honor to be in this role, and I approach it with that mindset every day. We often say "model the behavior," which means participating in activities like our early morning fitness classes, being present for our team consistently, and working to improve our operations. I’m very proud of the team we've built. It's clear we have made significant progress, and the focus now is on execution. With a strong addition like Eric Liedtke to our brand partnership and various other key hires, we have been diligently developing our product infrastructure, and we are now transitioning into marketing. We have clearly articulated our operating model, go-to-market strategy, and business plan, so it’s all about execution from here. As I mentioned, this is an 18-month journey in our industry, and we will keep executing. I hope you sense a renewed confidence in where the business is headed. The improvements in our brand are reflected in metrics like our NPS scores and increased brand awareness and perception. There’s a tangible difference emerging, notably from the younger consumers. It feels like we are progressing positively, and I’m eager to leverage my experience in this context. Let me briefly touch on the order book before handing it over to Dave for more details. As we move towards the end of March for our fiscal year, we are seeing a greater impact from tariffs, which is affecting some of our orders as we navigate these challenges to maintain our bottom line. We’ve witnessed energy and momentum, particularly with our sportswear products. Buyers and retailers are committing to items we’ve previously succeeded with, such as our compression base layer and performance on-field products. The innovation pipeline is robust, and customer engagement is strong. In footwear alone, we’ve launched 7 or 8 products over the past 12 weeks, including SlipSpeed, Echo, Sportswear, and Halo collections. They’re actively engaging, but they’re also cautious, so we’re strategizing to ensure we can meet demand while also allowing for a bit of scarcity. I'll let Dave provide further details on our order book.

We are currently focused on providing details for Q2, and we're pleased with the positive feedback we're receiving about our product. Looking ahead, we anticipate strong performance as we approach late fall and winter 2025, particularly in spring and summer 2026, which corresponds to Q4. We're enthusiastic about the conversations with our accounts and their favorable reception of our newly developed product team and partnerships. However, we are not ready to share more specific details at this moment. From a tax perspective, we are incurring taxes in foreign jurisdictions where we're generating income, which is expected. However, due to additional tariff costs this year, we do not expect to turn a profit in the U.S. Consequently, we cannot benefit from our U.S. losses due to U.S. GILTI tax regulations, which mandate that we use our domestic losses to offset earnings first. This presents a bit of a challenge for us, but it's all related to the lower profitability this year, which we expect to improve as we move forward.

And just one last thing. I heard about the great fund that you all are looking at different channels. Are you getting a good response in various distribution channels? I heard you signed the rapper Gunna, and there might be another more prominent rapper on the horizon. Can you provide any details on that?

Yes, we have a lot of initiatives underway, which is positive. Our phone is busy, and I want to clarify where we stand. I usually present us as a North American brand, but the momentum in EMEA demonstrates our strong positioning, particularly as we are likely the leading brand in France and have established a solid foundation in the U.K. through our European strategy. The brand is performing well, which boosts our confidence as we pursue a strategy similar to what EMEA adopted four or five years ago. Good things are on the way, and we just need to stay focused and keep making progress. The team is feeling confident about our direction.

The next question is from Brian Nagel with Oppenheimer.

So Kevin, the question I want to ask, and I guess bigger picture. But clearly, you're executing this reposition against a very fluid macro competitive backdrop. But as you and the team have been pushing this forward, dealing with some of these challenges, are there any key course corrections that you've made so far and you've started to see results from those?

I believe that the main theme is selling a lot more for much less, but at a significantly higher retail price. Our goal is to do this with the right partners, taking measured steps rather than trying to tackle everything at once. We recognize that we are in a constantly changing environment, but regardless of tariffs or other factors, we would be making these adjustments. Looking at previous turnarounds and strategic transformations, we believe it's essential to slow down, refocus on our core operations, and improve our performance. We are currently reducing SKUs and materials to streamline our processes and minimize confusion as we build this next phase. Our focus is on what we can control, and while it's not a quick fix, we are in month 16 of an 18-month market transition. We are making progress, and although we can't present concrete results just yet, we are committed to moving forward steadily.

That's helpful. And then the follow-up question to that for me is you talked a lot about today about really focusing on the brand and reestablishing the brand. Is the operational structure of Under Armour correct right now? Or should we expect some additional operational changes as well?

No, that's what has been established. As I mentioned in February, we put our operating model into action, which is based on category management, followed by a commercial version of our go-to-market approach, using the No Weigh backpack as a key product. We've focused on clear storytelling to effectively communicate with our sales team about how to sell this into accounts, ensuring that the point of purchase aligns with our sales strategy. Additionally, we are executing a brand-building approach, which many are inquiring about, namely the consumers' willingness to engage with our offerings. We're seeing positive results with some of the premium-priced products we've released. Strategically, our focus now revolves primarily around execution, which has become a central theme for us. Furthermore, our strategic business plan is in place, and we are currently working that through the model. The general managers are enthusiastic; we have four excellent leaders managing our business who report to Eric. They bring a wealth of experience from Under Armour as well as external expertise. We are driving this ourselves with industry experience guiding our efforts.

Our next question comes from Paul Lejuez with Citi.

I wanted to understand the second quarter North America sales decline a little bit better? And how we got to that down low double digits? Was that always what the order book looked like? Did you see some cancellations? If so, you see more on the apparel side or footwear? And also curious if any of those cancellations, if you did see them, were tied to price increases that you tried to take that the retailer sort of pulled back from?

Yes, Paul, this is Dave. I'd say a couple of things there. We did speak before about the harder Spring/Summer '25 order book that we've been dealing with, and that's definitely out there. On the Factory House side and also on the Brand House side, we've seen traffic definitely trail off. And we think a lot of that has been tied to the timing of the developments and the tariff environment and some of the uncertainty that's out there in the market. And then from an e-commerce perspective, it's been pretty promotional, and we're trying not to play into that as much as we took so many good steps forward last year. So there's a lot of different pieces to that, I would say that's coming into play. And that's something that we're continuing to kind of navigate, and we want to stay true to the strategy. We don't want to divert from that. We understand that creates some extra pressure as we step through Q2, but we're going to navigate through that. And I think when you look at the product breakdown, there are more headwinds in footwear than in apparel, and we saw that in Q1, and we expect that will continue in Q2. Again, as we go further into the back half of the year, we see that starting to turn the other way as we get more of the new product out there, and there's a lot of new excitement around that product. So we think that, that should be more of a temporary situation as far as the lag on footwear more than apparel.

Got it. And then just with the elevation strategy, have you already started to take prices up on like-for-like items? And what has been your wholesale partner response to that?

So I'd say a couple of things there. We have worked through some specific and targeted price increases. More of that's going to be around some of our new product launches or relaunches. And then as we think about further down the road, and this is why we talked about more of it being a benefit in fiscal '27 is where we might be able to drive through some more holistic price increases more from a brand perspective on price levels. As we see a lot of our competitors in the space moving into that as well. We believe there will be an opportunity to do that. Again, that's not something that we can move through as quickly as far as how it could benefit fiscal '26. So there'll be some benefits in fiscal '26 that are more targeted and specific. And I think the accounts are okay with that. As we step into fiscal '27, there will be some broader benefits from the pricing changes. And based on what we're seeing in the market from other brands, we're believing that that's going to be fairly accepted.

Next question is from Brooke Roach with Goldman Sachs.

Kevin, as you think about the execution of the North America transformation, has anything changed in this current macro backdrop that shakes your confidence in your ability to deliver that on a medium-term basis? And then for Dave, can you just parse the comments on the DTC a little bit more in North America specifically? What actions do you have in place that can help move the needle with your customers in both e-com and brick-and-mortar post moving through some of this pressure that you're seeing in the second quarter?

Yes, thanks, Brooke. I believe we are fairly confident in what we are observing. This confidence is reflected in our retailers and the performance we're experiencing. The recent decline in traffic is impacting all channels, particularly in North America. However, as I mentioned earlier, we are seeing momentum with some of our products, especially in our core areas like base layer. We also have some promising glimpses of success in our new sportswear offerings, which are new territory for our consumers who haven’t really seen us there before. We are launching initiatives like the new Sola collection, Halo, and the Apparition Tech designed for urban settings, and they are performing well in select city stores. Additionally, we showcased our collaboration with the car manufacturer MANSORY in Global Football, highlighting aspects of the brand that are new to the audience. This is supported by our strengthening core and we believe it will have positive implications moving forward. While we are not ready to specify how this will impact business immediately, we are performing well. We are committed to our strategy and progressing steadily. I want to emphasize this confidence with certainty rather than uncertainty. We are observing positive trends in some NPS scores and other indicators related to brand awareness and perception. We can feel that momentum, and we are beginning to see it translate into sales. Our approach is steady, advancing one step at a time as we focus on North America.

And Brooke, I think when you think about the DTC front, the 2 big pieces are really Factory House and e-com for us. Brand House is pretty small, as you know. And the bigger pressure that we're seeing is really going to be more on the e-com side, and that has to do with the level of promotions in the market right now. And we'll have to play in that to a degree, but we're really trying to hold the line and not really lose the ground and the improvements that we drove through strategically last year, and that is creating some of that extra pressure on e-com. I think some of the additional marketing efforts that are coming through and some of the campaigns that Kevin mentioned are going to help us better in the back half of the year relative to e-com, but Q2 is still going to be pretty tough there. On Factory House, we've seen the decreased traffic, and that's been really retail in total for us, Brand House and Factory House. We've been combating that with some of the assortments that we have. We've been adding some of our full-price product to draw consumers in a little bit more as well just because there's not as many access points for them to get to the brand since we don't have many Brand House stores. And so we've been able to actually combat a good bit of that through better conversion. So the Factory House impact on Q2 is less really than the e-com impact, but we're going to keep driving against that and improving as we go through the back half of the year.

And today's last question will be from Laurent Vasilescu with BNP Paribas.

Kevin, Dave, thanks for all the color this morning. I know, Kevin, you talked about a lowered expectation on FY '26, largely driven by tariffs and North American demand. And I know you're not prepared to guide for 2H revenues, can we assume North America's 2Q guide of down low double-digit continues into 2H? Or could we see further pressure on consumers in North America as they start to see a broad-based inflation across the marketplace?

Yes, I think that there could be a little bit of that, and we've built that into our expectations internally. But again, I think that with a lot of the relationships that Kevin and the sales teams have been driving, a lot of the new product that's being shown and the excitement around that new product, we feel that we're going to be able to kind of drive against that as best we can. So I don't know that you should expect a bigger deterioration in North America in the back half. If anything, as we get further into Q4, we would expect a little bit of improvement there, mainly driven by product and some of the impacts of the improved and prioritized marketing that we're doing.

Very helpful. And it's good to hear about the NPS scores. I wanted to ask the second question. Gross margin guide for 2Q to down $340 million to $360 million. Can you unpack that a little bit more for the audience? Like how much is tariffs embedded in that? I think that's one of the two drivers of the pressure. And should we assume that kind of pressure rate overall on gross margins for the second half to get to the commentary around profitability being half of what it was last year?

The main factor influencing our performance is certainly the challenges related to the supply chain, which we estimate to impact us by about 300 basis points. Approximately 200 of those basis points, or two-thirds, are attributed to direct tariff costs. There are also additional factors such as product costs and inventory returns that play a role. We anticipate slightly higher liquidation with third parties this year compared to last year, while still aiming to remain within the 3% to 4% operating mix, leaning towards the higher end of that range. This poses a slight headwind for the quarter. On the positive side, we're seeing some benefits from foreign exchange and favorable pricing changes that we'll be implementing. Even with the higher channel mix, we expect the quality of our products to support better pricing. However, the primary concern remains the tariff costs. For the full year, the 200 basis point estimate remains consistent. Additionally, although we may experience minor challenges in certain regions like APAC and North America, which are higher margin areas for us, the growth in footwear alongside the struggles in apparel helps slightly improve our gross margin. Overall, the main takeaway is the significant year-over-year impact of 200 basis points from tariff costs that we are currently projecting.

And this does conclude our question-and-answer session as well as today's conference. Thank you for attending today's presentation, and you may now disconnect your lines.