Under Armour Fiscal Q2'27 Earnings Conference Call - UNDER ARMOUR INC

Explicit Guidance:

• FY 2027 Revenue: Maintained expectation of mid-single-digit decline; North America potentially declining modestly more than mid-single digits.
• FY 2027 Gross Margin: Revised lower to expansion of 170–220 basis points (down from 220–270 bps); ~150 bps benefit expected from IEBA tariff refunds (Fiscal 26 costs); ~50 bps reduction due to elevated fuel/freight costs and stronger USD.
• FY 2027 Adjusted Operating Income: $140–$160 million range; excludes ~$44M restructuring/transformation expenses, $3M litigation reversal benefit, ~$70M tariff refund benefit, and ~$45M Middle East conflict headwinds.
• FY 2027 Adjusted Diluted EPS: $0.08–$0.12.
• Q3 2027 Revenue: Expected decline of 8–9% (NA: low double-digit; EMEA: high single-digit including 5pp timing shift to Q4; APAC: flat).
• Q3 2027 Gross Margin: Expansion of 30–50 basis points.
• Q3 2027 Adjusted Operating Income: Loss of $5 million to profit of $4 million.
• Q3 2027 Adjusted Diluted EPS: Loss of $0.01 to profit of $0.03.
• FY 2027 SG&A: Low single-digit decline expected; marketing spend reduced but efficiency prioritized.
• FY 2027 Capital Expenditures: Modestly below Fiscal 2026 levels.

Business-Segment Outlook:

• Product Line Rationalization: Targeting ~50% reduction in SKUs from 2024 levels; >60% of materials removed; global product commonality increased to drive volume at full price.
• Youth Apparel: Transition to expanded licensing model with Centric Brands effective Fall 2027; expected to reduce inventory, working capital, and operating complexity; business will continue to grow over coming years.
• Appareal Franchises: "Tech Helix" launching later this month as a multi-million unit program with $35 price point; "Armor Short" launching December in ~500 Dick's Sporting Goods stores ($80 adults/$55 kids) targeting the entire male athlete addressable market.
• Footwear: "Velociti Elite" commercial expressions launching Spring 2027 at accessible price points; "Charge" and "Cert" franchises seeing higher ASPs; team sports cleats maintaining double-digit growth; running segment expected to expand via Velocity platform.
• Retail Expansion: "This Is Your Armor" platform launching monthly product stories; 1 major global product launch per month starting with Tech Helix.
• North America: Priority market; focus on stabilizing revenue via apparel franchises and footwear; expecting 2–3pp revenue benefit in Q4 from youth transition and wholesale inventory reduction initiatives.
• EMEA: Building on growth in France/Spain; distributor shipment timing shifts 5pp from Q3 to Q4; UK execution focus.
• APAC: Prioritizing productivity and product availability in China; optimizing licensing; Carol Chen appointed as new regional leader to drive commercial execution.
• Capacity/Operations: Supplier summit held to establish shorter lead times and faster response; AI implementation focused on supply chain, merchandising, and marketing; 10-month cycle from concept to market (e.g., Armor Short) to be made repeatable.

Market and Competitive Outlook:

• Demand Trends: Facing continued traffic pressure in DTC and softer wholesale sell-through, particularly in North America and UK; industry-wide inventory clearance by competitors (e.g., "large brand out west") creating a challenging environment.
• Pricing & Mix: "Premiumization" strategy defined as selling at full price; 2024-2025 "Good, Better, Best" architecture implemented to eliminate confusion and drive ASPs; high promotional environment expected in Q4.
• Share & Position: UA is the #2 brand in U.S. football cleats with market share gains; targeting #1 in compression shorts via "Shield Form" innovation; aiming to become the "official first layer of sports."
• Supply Chain: Industry-wide slow response to market changes; UA aiming to leverage asset-light models and partner expertise to reduce lead times and complexity.
• Digital/Social: Instagram impressions up 55% YoY; TikTok crossing 1M followers; focus shifting from brand impressions to product consideration and full-price conversion.

Macro / Industry Outlook:

• Tariffs: ~$70M benefit expected from IEBA tariff refunds related to Fiscal 26 expenses; ~$45M headwinds anticipated for Middle East conflict (up from $35M previously), extending through H2.
• Currency: Stronger U.S. dollar expected to create margin headwinds; unfavorable FX impact of ~40 bps in Q2.
• Cost Pressures: Elevated fuel and freight costs expected to persist throughout the year, offsetting some pricing benefits.
• Economic Environment: Soft consumer traffic and sensitivity in "factory house" (outlet) business noted; macroeconomic pressures impacting wholesale sell-through.

Strategic Initiatives:

• Youth Licensing Deal: Expanded licensing with Centric Brands launching Fall 2027; asset-light approach to reduce inventory/capex while retaining brand value and cash contribution via royalties.
• AI Transformation: Focused on supply chain (forecast accuracy, lead times), merchandising (calendar compression), and marketing (content efficiency); "ship everything ordered" goal to improve forecast accuracy.
• Operational Simplification: Reduced leadership competing priorities; clarified accountability; "Test and Learn" approach to new launches to avoid over-buying.
• Product Innovation: "Tech Helix" (new coil-polyester fabric, no spandex); "Armor Short" (patent-pending "Shield Form" groin padding); female compression solutions launching Early Spring 2027.
• Retail Transformation: Development of key city showrooms; reworking "factory house" locations with higher full-price product mix (targeting double-digit impact); aligning inventory with marketing launches.
• Marketing Model: Unified global creative under Simon Pestridge; fewer, bigger campaigns; shift from performance marketing to storytelling; singular product launch per month.

Risks and Headwinds to Outlook:

• Inventory Levels: Current inventory is 4% above plan (~$1.1B total) due to prior revenue guidance cuts; risk of further markdowns or delayed shipments if sell-through does not improve.
• Supply Chain Costs: Elevated fuel/freight costs and geopolitical instability (Middle East conflict) expected to continue into H2, limiting margin expansion.
• Market Volatility: Highly promotional environment and competitor inventory clearance could pressure full-price sales and pricing power.
• Execution Risk: Transformation plan assumes successful rollout of new product stories and retail formats; failure to convert social engagement to sales could delay stabilization.
• Currency Fluctuations: Stronger USD poses ongoing headwinds for reported revenue and gross margins.
• Licensing Transition: Uncertainty regarding the net financial impact of the youth licensing deal (royalties vs. product sales) until full transition in 2027.

Management Tone on the Future:

• Confidence Level: Confident in long-term product capabilities and "embarrassment of riches" in innovation pipeline; acknowledges current disconnect between product quality and consumer communication/storytelling.
• Strategic Focus: Emphasis on "simpler company," "weight reduction," and "asset-light" operations to improve agility and profitability.
• Timeline: Belief that operational model will look significantly different in 18–24 months; Q4 2027 expected to show stronger profitability and inflection.
• Hedges: Guidance reflects downside scenarios (e.g., NA revenue decline, Middle East conflict costs); cautious about over-promising on specific new launch volumes ("time will tell" for Armor Short).
• Priority: Stabilization of North America is the primary regional focus; full-year results expected to be stronger in Q4 as H2 costs normalize and inventory alignment improves.

Miscellaneous:

• Restructuring: $280M incurred to date of $305M projected; plan substantially complete by December 31, 2026.
• Cash Position: Ended quarter with $285M cash and $190M borrowings against $1.1B revolver; focus on maintaining liquidity and working capital discipline.
• Social Metrics: Instagram impressions +55% YoY; TikTok followers >1M; brand perception up 24%, consideration up 19% in Q2.
• Leadership Changes: Simon Pestridge (CMO) overseeing global marketing; Carol Chen appointed APAC leader.