Under Armour fell short of analysts’ expectations in several segments in the first quarter of fiscal 2026, and the situation is expected to deteriorate even further thanks in part to the added costs of tariffs, which the company said will slice profitability in half this year.
In a conference call, chief executive officer Kevin Plank said the company is estimating about $100 million in additional costs from tariffs which, when added to the anticipated soft demand in fiscal 2026, will result in operating income on an adjusted basis coming in at “roughly half of fiscal 2025 levels,” chief financial officer David Bergman added.
Related Articles
“We are actively pursuing mitigation strategies such as cost sharing with suppliers and partners, exploring alternative sourcing options and making selective pricing adjustments,” Bergman said. “However, due to the complexity and lead times involved, we anticipate most of the gross margin offsets to be realized in fiscal 2027 and beyond.”
Even as Plank sought to put a positive spin on the numbers and outlook Friday morning, citing quarterly results that “met or exceeded our expectations as we drive a bold transformation,” the results proved the sports brand still has a way to go to return to its former glory. Wall Street also wasn’t swayed, trading Under Armour’s shares down more than 18 percent.
You May Also Like
The Baltimore-based company reported adjusted earnings per share of 2 cents for the first quarter, slightly below the analyst estimate of 3 cents, with a revenue drop of 4 percent to $1.1 billion. The net loss was $3 million and adjusted net income was $9 million.
North American sales, a sore spot for the company for a while now, also fell more than expected, with revenue down 5 percent to $670 million, more than the 4.4 percent analysts had projected. The company attributed that to a decrease in full-price wholesale and lower e-commerce sales.
International sales dropped 1 percent to $467 million, with Asia-Pacific falling 10 percent and Latin America down 15 percent while the Europe, Middle East and African region posted a 10 percent increase.
Wholesale revenue was down 5 percent and direct-to-consumer sales fell 3 percent, which included a 12 percent drop in e-commerce sales. Sales at the company’s owned and operated stores inched up 1 percent but its factory outlets and licensing revenues were up 12 percent.
By category, apparel sales fell 1 percent to $747 million, with softness in run, outdoor and golf, and strength in training and sportswear product. Footwear sales were particularly weak, dropping 14 percent to $266 million. The one highlight was accessories, which posted an 8 percent increase in sales to $100 million.
The poor showing was exacerbated by a weak second-quarter outlook with earnings per share now projected to be between 1 cent and 2 cents, significantly below analysts’ projection of 26 cents. Revenue is expected to decline 6 to 7 percent, with a low-double-digit decline in North America and a low-teens percent decline in the Asia-Pacific region, partially offset by high-single-digit growth in EMEA.
Adjusted operating income in the second quarter is expected to be in the $30 million to $40 million range.
Under Armour did manage to meet expectations on overall revenue, and beat them on gross margin and operating income, a company spokesman stressed.
Despite the poor results, Plank told analysts Under Armour is sticking to its plan to “undertake a bold reinvention and rebuild with purpose to become a sharper, more focused brand, one that blends sports style and innovation with financial discipline and edge.”
He said over the past eight years, Under Armour has been operating “more like a company than a brand,” but now 16 months into his return as CEO, “we’re in the process of flipping that script where every decision we make is focused through a brand-first lens.”
He added that developing “world-class financials” is not the answer. Instead, he said: “The only way we win is by creating a brand people can’t ignore.”
He asked Wall Street to be patient with the company’s ongoing transformation as it moves to “build deeper, lasting connections with consumers and focus on creating mid- and long-term shareholder value.”
As he has said in the past, Plank acknowledged that Under Armour’s assortment had gotten too broad and its designs “lacked clarity. We’re on track to meet our initial goal of reducing SKUs by 25 percent. We’re discovering more ways to streamline. We’ve already cut our materials by 30 percent for our 2025 products and plan to reduce it further in 2026, lowering costs, improving sourcing and supporting more sustainable, innovation-driven design.”
He said the company is “systematically redesigning our top 10 volume items,” which is expected to result in “better and more average selling price revenue.” He singled out some wins, including the HeatGear OG compression mask, 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.
This focus on upgrading top-selling items also gives the company permission to raise prices, a move that is expected to somewhat mitigate the tariff impact. Even so, in North America, Plank expects to face continued challenges in fiscal 2026 due to higher tariffs and softer demand. But the company is fighting back by working to rebuild cultural relevance, starting with football and expanding into team sports.
“Our priorities are clear: strengthen brand loyalty through top-tier sports culture and emotionally compelling storytelling, stabilize the 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 optimized distribution to achieve more consistent wins, doing less things better,” he said.
Increasing its reach with women is also a priority, Plank said. Although the company has built a $1 billion women’s business, its market share has not increased. “That’s on us and we’re addressing it,” he said, adding that the company is “integrating a women-centered approach” into its business that will encompass not only product design but also storytelling to draw females into the brand.
Turning to the struggling footwear category, he said two years ago, the company streamlined its offering, eliminated underperforming lines and focusing on top performers such as the Velociti and Halo. Although the category will continue to be challenged in the short term, Plank believes results will rebound in the future.
Last May, a month after returning Plank to the CEO post, Under Armour unveiled a restructuring plan to improve its financial and operating efficiencies that was expected to cost from $140 million to $160 million. By the end of the fiscal fourth quarter of 2025, the company had recognized $58 million in restructuring charges and $31 million in other expenses. It expects the remaining charges to be realized during fiscal 2026.
Analysts on Friday had a mixed reaction to the results. Neil Saunders, managing director of GlobalData, said that although sales declines eased in the first quarter, since 2022 they are down 14.2 percent, higher than the sports category as a whole. “This means it has lost share,” he said of Under Armour.
And although the company has improved its product offering and reduced discounting, “the improvement in margins is not yet showing up on the bottom line.” He said the company needs to ramp up its storytelling and product assortment messaging to “cut through in a crowded market.
He said due to its internal repositioning and the macroeconomic challenges, “the fiscal year ahead looks like it will be another write-off as the costs of restructuring will join tariff and supply chain pressures to deplete the bottom line.”
Joseph Civello of Truist Securities said that as a result of “brand-specific issues, a choppy macro, tariff headwinds and steep category competition, we continue to believe that visibility into a turnaround remains limited.” He reiterated his “hold” rating on the stock.
Zachary Warring of CFRA Research maintained his “sell” opinion on the shares as a result of the company’s ongoing challenges and expected shortfall in the second quarter. And John Kernan of TD Cowen said that on top of the tariffs and weak demand, Under Armour is facing a potential cash burn in the spring when $600 million in debt paydown is due that can “bring cash balance abnormally low unless working capital flows improve.”