US' Under Armour sees revenue drop but margin gains in Q2 FY25

In North America, revenue fell by 13 per cent to $863 million, while international revenue saw a reduction of 6 per cent, totalling $538 million (down 5 per cent currency neutral). The company’s international business faced mixed results: revenue in the EMEA region was down by 1 per cent, Asia-Pacific experienced a significant decline of 11 per cent (down 10 per cent currency neutral), and Latin America’s revenue decreased by 13 per cent (down 4 per cent currency neutral).

Wholesale revenue dropped by 12 per cent, coming in at $826 million, and direct-to-consumer revenue decreased by 8 per cent to $550 million. Notably, revenue from owned and operated stores remained steady, while e-commerce revenue saw a substantial 21 per cent decrease, attributed to planned reductions in promotional activities. Despite these challenges, e-commerce still represented 30 per cent of the total direct-to-consumer business for the quarter.

Product categories also exhibited varied results. Apparel revenue declined by 12 per cent to $947 million, while footwear revenue fell by 11 per cent to $313 million. However, there was a modest 2 per cent increase in accessories revenue, which reached $116 million. On the positive side, the company’s gross margin improved by 200 basis points to 49.8 per cent. This increase was primarily driven by lower product and freight costs, reduced discounting within the direct-to-consumer segment, and a favourable channel mix.

Operationally, Under Armour managed to decrease its selling, general, and administrative expenses by 15 per cent, reducing them to $520 million. Adjusted selling, general, and administrative expenses, excluding certain benefits and transformation expenses, saw a 13 per cent decrease, amounting to $530 million. The quarter included $3 million in restructuring charges, part of the company’s ongoing Fiscal 2025 restructuring programme.

Under Armour reported operating income of $173 million for the quarter. Adjusted for the insurance recovery, transformation expenses, and restructuring charges, the adjusted operating income was $166 million. The company’s net income stood at $170 million, with adjusted net income reported at $131 million. The diluted earnings per share were $0.39, while adjusted diluted earnings per share reached $0.30. Inventory levels saw a 3 per cent decrease, settling at $1.1 billion. By the end of the quarter, Under Armour’s cash and cash equivalents totalled $531 million, with no borrowings against its $1.1 billion revolving credit facility.

In May 2024, Under Armour initiated a comprehensive restructuring plan aimed at enhancing financial and operational efficiency. This plan was expanded in September 2024 with further measures, including the decision to exit its Rialto, California distribution facility, which raised the anticipated restructuring costs to a range of $140 million to $160 million. Of this, up to $75 million is expected to be cash-related, while up to $85 million is projected to be non-cash charges. So far, the company has recorded $28 million in restructuring and impairment charges and $11 million in related transformational expenses. Of the total $40 million incurred, $36 million is cash-related, and $4 million is non-cash-related. The remaining expenses are expected to be realised throughout fiscal 2025 and 2026.

“Our second quarter fiscal 2025 performance demonstrates that our strategy to reconstitute the Under Armour brand and establish a more premium position in the marketplace is gaining traction," said Under Armour president and CEO Kevin Plank. "With better-than-expected results, we are pleased to raise our full-year profitability outlook while simultaneously increasing marketing investments to amplify our brand.”

Looking forward, Under Armour’s fiscal 2025 outlook predicts a low double-digit per cent decline in overall revenue, including a substantial 14 to 16 per cent drop in North American revenue as part of its strategic reset. Internationally, a low single-digit per cent decline is anticipated, with flat performance in the EMEA region counterbalanced by a high single-digit decrease in the Asia-Pacific market due to prevailing macroeconomic pressures. The company expects its gross margin to rise by 125 to 150 basis points, surpassing the prior forecast of a 75 to 100 basis point improvement. This boost is credited to reduced promotional and discounting activities in the direct-to-consumer business and lower product costs.

Selling, general, and administrative expenses are projected to increase by a mid-to-high single-digit per cent, primarily due to litigation settlement costs. When excluding these expenses and related insurance recoveries, adjusted expenses are expected to decrease at a low-to-mid single-digit per cent. This projection includes an additional $25 million investment in marketing aimed at reinforcing the brand’s long-term position following better-than-expected profitability in the year to date.

Under Armour’s operating loss forecast ranges between $176 million and $196 million, improving from the previous estimate of $220 million to $240 million. Adjusted for restructuring charges and other significant expenses, the expected operating income is now between $165 million and $185 million, higher than the previous range of $140 million to $160 million. Diluted loss per share is projected to be between $0.48 and $0.51, a slight improvement from the earlier range of $0.53 to $0.56, with adjusted earnings per share forecasted to be between $0.24 and $0.27, up from the prior expectation of $0.19 to $0.21. Capital expenditure estimates have been revised to between $190 million and $210 million, slightly below the earlier range of $200 million to $220 million.

Fibre2Fashion News Desk (KD)