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

Good morning and welcome to the Under Armour, Inc. Second Quarter 2027 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Lance Alega, Senior Vice President of Finance and Capital Markets. Please go ahead. Thank you. Good morning and welcome to Under Armour's fiscal 2027 second quarter earnings call. Today's call is being recorded, and a replay will be available at our investor relations website shortly after the call concludes. Joining us this morning are Kevin Plank, President and CEO, and Reza Taleghani, Chief Financial Officer. Before we begin, please note that certain statements made on today's call are forward-looking statements within the meaning of federal securities laws. These statements reflect management's current expectations as of November 6, 2026, and are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of these results and risks and uncertainties, please refer to this morning's press release, our filings with the SEC, including our most recent forms 10-K and 10-Q and other public disclosures. During today's call, we may reference certain non-GAAP financial measures. We believe these measures provide additional insight into the underlying trends of our business when considered alongside our GAAP results. Reconciliations of these non-GAP measures to the most directly comparable GAAP measures are included in today's press release. They are also available on our investor relations website at about.underarmor.com. With that, thank you for joining us this morning, and for your continued interest in Under Armour, I'll now turn the call over to Kevin. Good morning, everyone, and thank you. Thank you for joing us. Our focus at Under Armor is to build a stronger brand through compelling products and more consistent execution. This quarter, we delivered against our revenue expectation and exceeded our adjusted operating income outlook. We remain focused on revenue quality and profitability, putting our resources behind innovative products, aspirational storytelling, and elite execution while maintaining expense discipline. Our cleated business in American football is a good example of this. It grew double digits in the quarter, with higher average selling prices and market share gains. In fact, Under Armour is now the number two brand in football cleats in the U.S. Heatgear and CoreVanish also grew double digits, and France and Spain continue to grow. These results give us confidence to back proven franchises and bring that same execution to upcoming launches. This starts with a simpler company. We have deliberately evolved our leadership, structure, clarified accountability, and reduced competing priorities. We're concentrating resources where our performance credibility gives us the strongest opportunity to win. Our leaders are then responsible for translating those actions into product athletes' choose, stronger partner relationships, and improved financial performance. Our industry is changing, and how we operate 18 to 24 months from now will look different from today. But we're acting now. Last week, we held our supplier summit, where we worked with key manufacturing partners on shorter lead times, more efficient use of materials, and faster response. Scale alone can no longer provide the advantage it once did. I believe, though, we are big enough to work with the best partners in the world, yet small enough to move quickly with them, drawing on their expertise and challenging familiar ways of working. We're building a stronger operational foundation, improving the systems and processes behind our products and how we bring them to market. Our initial work with AI is focused on supply chain, product merchandising, and marketing. A priority is calendar compression, shortening the time from an athlete insight to a product in the market supported by a complete launch plan. We see opportunities for AI to speed decisions and reduce repetitive work so our teams can spend more time developing products and serving athletes. We're also evaluating where asset light models can bring in expertise and scale. We will judge those opportunities by the earnings and cash we retain and the complexity and capital requirements we can reduce. An early example of this work is our decision to transition our youth apparel business to an expanded licensing model with Centric Brands, a long-standing partner with deep children's product and retail expertise. Beginning in fall 27, the model should reduce inventory, working capital, and operating complexity while delivering a consistent Under Armour product experience for young athletes. As a key entry point for consumers discovering Under Armours, this category plays an important role in building our community. We're confident that this decision will help grow this business over the coming years. This partnership should give our teams more time to concentrate on the products and categories where Under Armour's capabilities can create the greatest value. We're simplifying our product line as well, targeting a reduction of nearly 50% in SKUs from the level when I returned in 2024. We've also removed more than 60% of materials while increasing global product commonality. A smaller assortment lets us invest more deeply in our strongest products, simplify decisions, focus our storytelling, and make the offer clearer for our teams, partners, and consumers. This is about taking weight out of the system so we can amplify the products we make with volume and demand. That means selling so much more of so much less at full retail price. Within that focus line, we're sharpening our good, better, best offerings across price points and channels to elevate Under Armour. That means strengthening product performance and presentation at every level, giving athletes a compelling reason to choose UA at full price. Our essentials must deliver performance and value. Our established franchises must offer differentiated benefits, and our most advanced innovation must set a higher standard for performance. All the while, we're communicating a much clearer story to the consumer as to why UA is different and better. We're being more deliberate about design, features, pricing, and distribution, so each level strengthens the brand and earns its place in the athlete's closet. That opportunity reaches into our highest volume programs, including Tech Tea, a staple that we sell in the tens of millions, but not often enough at full price. We're building on that work with Tech Helix, an upgrade launching later this month, with the ambition to become one of our top 10 volume drivers over time. See, the Under Armour innovation team developed a completely new fabric by taking two separate polyester fibers and wrapping them into a coil construction that creates an actual helix shape. This allows the fabric to lift off the skin and provide stretch without spandex, enhancing airflow and helping the fabric dry at amazing rates. It addresses a need central to Under Armours from the beginning, helping athletes feel better and perform in the heat. At $35, that innovation can reach a broad athlete base and with focused marketing supporting its story, this should be a multi-million unit program for us at full price. Our focused assortment lets us invest more behind products with performance value and potential to become meaningful business contributors. Innovation is there. Our job is to explain the science clearly and connect it to what athletes feel and how they perform earning pricing power by taking credit for the innovation we build into every ua product we've seen what that combination could deliver with our 65 bouncy t its launch sell through and growing volumes across geographies are an encouraging example of consumers choosing under armor at full price when they understand and value the product difference that response gives us confidence in the opportunity ahead we're applying those lessons to tech helix and future launches with the goal of making that success more consistent across our business another example comes next month with the armor short based on our goal to build the best compression short an athlete can wear compression shorts are already one of our largest volume programs but we've traditionally served that athlete with only a 35 good level option applying our 50 skew reduction across categories the discipline good better best architecture is not just about cutting but also about highlighting on brand opportunities and leaving room to create something better. During team sports competition, less than 10 percent of male athletes wear a hard plastic cup because of the bulk and restriction. We saw an opportunity to address that trade-off. Our brand new shield form technology brings targeted groin padding into a compression short without sacrificing mobility. It does not replace the protection of a hard cup, but it gives athletes who otherwise go without one an added layer of confidence the armor shorts patent pending design launches in december at eighty dollars for adults and fifty five dollars for kids on ua.com and in 500 dick's sporting goods stores in the u.s and yes we believe the opportunity is significant over the long term as the addressable market is virtually every male athlete who plays almost any sport we're building on the trust athletes already place in us for their first layer with the benefit they understand immediately in one single item. Early next spring, we plan to expand the Under Armour collection with a different enhanced solution for female athletes as well. This is where Under Armours plays best, bringing differentiated innovation to a real athlete need. That is our DNA. All in, the Armour short made it from concept to market inside of 10 months with the product, athlete storytelling, and full marketing and retail support all developed together. That is the speed and coordination we aim to make repeatable as we compress our calendar, earn a place in athletes' everyday routines, and strengthen our position as the official first layer of sports. That focus on athletes' needs is guiding our footwear reset as well. We're building on strength in team sports while improving design and value across the portfolio. Running offers an opportunity to expand on the performance credentials we've established with our Velocity franchise. Our task is to translate that expertise into a broader segmented assortment that meets the needs of more athletes and earns its place at retail. Sharon Locati demonstrated those credentials at the Chicago Marathon in October. She finished second in the Velociti Elite 3, improving her personal best by over three minutes and becoming the eighth fastest female marathoner in history. It was an exceptional achievement for Sharon and another demonstration of Under Armour footwear at the highest level. Her work with our product teams brings elite athlete insight into the continued evolution of our running footwear. More commercial-based execution of this $250 elite shoe will build on this momentum with upcoming expressions at more accessible price points this coming spring. Across apparel and footwear, each introduction must address a specific athlete need and have a defined place in the line with enough depth to become a business we can build over multiple seasons building demand is central to this phase of the transformation over the past several months we've established a more unified marketing model bringing global creative direction content and campaign priorities together under simon pestridge simon became chief marketing officer in june after overseeing our asia pacific business he brings more than 30 years of global brand marketing and leadership experience together with a direct understanding of our consumers and commercial operations Our investments moving forward will support fewer, bigger campaigns, giving our strongest products and athlete stories more reach and a more recognizable Under Armour voice. Regional teams will bring those stories to life through local media, our own DTC channels, and wholesale partners. We are aligning product inventory and retail plans earlier so athletes can find what they see in our marketing. We will assess that work through product discovery and full-price sell-through alongside reach and engagement. We're also introducing a globally consistent creative platform built on the concept of this is your armor. It connects an athlete's ambition with product performance, giving our stories a recognizable Under Armour identity across sports and markets. Also in marketing, starting with this month's Tech Helix launch, followed by the Armor Short in December, we plan to introduce one major product story each month throughout the calendar year. The approach is deliberately simple. One global product priority in coordinated execution across regions and markets. Local teams will adopt their story for their consumers while reinforcing the same technical product benefit. Support across social, digital, and retail will continue beyond launch to build recognition and demand. This coordinated execution will come to life with athletes demonstrating the product's benefit through science, of course, but also through personality and, yes, humor. And social content and digital education will further support that connection. Dedicated retail presentations will bring that story into stores with select UK retailers joining our U.S. launch. Our product and athlete stories are generating encouraging social engagement. From July through September, our Instagram brand account generated approximately 43 million impressions, up 55% year over year, and 27 million video views, up 126%. Our TikTok account just crossed a million followers. That engagement gives us useful direction for our creative work. Our focus now is converting that attention into product consideration and purchase. Alongside marketing, evolving our retail concepts is a priority. Our stores must strengthen the brand and improve the productivity of our business. We're developing key city showrooms that highlight our strongest products, refining our full-price stores around a clearer performance assortment, and reworking our factory house locations with a more deliberate mix of full-priced products. Each format has a distinct role, with assortments tailored to local athletes and shopping behavior. Execution means connecting product presentation, launch support, and availability so consumers can understand the benefit and find what they came to buy. These lessons will help guide investment with an emphasis on conversion, full-price selling, and store profitability. Our regional teams are translating these product marketing and retail priorities into focused commercial plans. In North America, we're concentrating support behind the apparel franchises, including footwear that are performing, while addressing traffic and broader sell-through pressure. That means coordinating launches more closely with wholesale partners and our own channels, aligning inventory with demand, and making our product benefits more visible at retail. Our priority is to turn strength in these businesses into more consistent performance across our largest market right here in North America. In EMEA, we're building on momentum in France and Spain while improving e-commerce execution. We're connecting marketing more closely with locally relevant assortments and product availability so consumer interest has a clearer path to purchase. In the U.K., we're focused on execution with existing partners and aligning inventory and investment with current demand. Across the region, we'RE backing the markets and channels where we see opportunity while maintaining discipline where conditions remain dynamic. In Asia Pacific, our priorities are improving productivity and product availability in China and optimizing our licensing business. We're refining assortments in each channel, so our strongest products are supported by a better shopping experience. Carol Chen, who succeeded Simon as APAC's regional leader, brings more than 30 years of brand and commercial leadership experience across greater China, Asia, and the United States. Her mandate is to bring those priorities together into stronger marketplace execution. drawing on our understanding of local consumers and retail partners to improve the performance of the business. Altogether, we're challenging ourselves to improve how we operate every day, from the products we build, how we create demand and serve athletes. We're setting clear priorities, acting on what we learn and directing resources toward the work that can make the greatest difference. Under Armour has a long track record of solving problems for athletes. Our responsibility is to bring that same discipline to the business, follow through on our decisions, and turn product strength into stronger results. Our ambition remains high. We'll measure progress by the results we deliver. And with that, thank you. Reza, over to you. Thanks, Kevin, and good morning, everyone. Turning to our second quarter fiscal 27 results, revenue declined 7% to $1.2 billion. By region, North America revenue declined 6%. Revenue declined 7%, reflecting continued traffic pressure in our direct-to-consumer business and softer wholesale sell-through. Growth in select apparel franchises helped, but did not fully offset broader demand pressure. EMEA revenue declined 9%. Retail traffic remains challenged in the U.K., partly offset by growth in France and Spain. Shipment timing also remains a factor in quarterly progression, particularly in our distributor business. APAC revenue declined nine percent, reflecting pressure in China and our licensing business. Pockets of improvement in e-commerce and areas of wholesale resilience provided some offset. Latin America revenue increased 3%, largely due to favorable foreign exchange, as revenue in the region declined 4% on a constant currency basis. Looking at performance by channel, wholesale revenue decreased 6% to $725 million, reflecting the impact of softer full-price sell-through and pressure in parts of the distributor business, partly offset by select accounts and markets. Direct-to-consumer revenue decreased 8% to 494 million, including a 7% decline in owned and operated stores, and a 12 percent decline in e-commerce. Traffic remained the primary challenge, particularly in North America, with better conversion and targeted digital initiatives providing some offset. Licensing revenue decreased 4 percent to $28 million, driven by a decline in North American. By product category, apparel revenue decreased 6 percent to 880 million. Heat gear and core vanish were areas of strength, while fleece and women's bottoms were challenged. We saw declines across most categories, partially offset by growth in outdoor and sportswear. Footwear revenue decreased 11% to $234 million, with most categories down, although selected cleated businesses and run grew, providing some offset to the broader weakness in the footwear portfolio. Accessories revenue decreased 7% to $105 million, with differentiated products such as Stealthform providing encouraging signals within a softer overall environment. Gross margin was 47%, down 30 basis points. The year-over-year decline was due to 40 basis points of unfavorable foreign currency impacts, 35 basis points of combined unfavorble channel and regional mix, and 20 basis points of unfavored pricing, a slightly higher discounting than in the prior year, more than offset the benefit of our pricing actions. These headwinds were partially offset by 55 basis points of supply chain benefits, including more favorable product costs, and 10 basis points of favorable product mix. SG&A decreased 4% to $557 million, driven by lower marketing expenses and continued cost discipline across other expense categories. Adjusted SG&a decreased 3% to 559 million, excluding $2 million in transformation expenses related to the fiscal 2025 restructuring plan and a $3 million benefit from the reversal of certain previously accrued litigation reserve expense. Within the quarter, we recorded $13 million under the fiscal 2025 restructuring plan, including $11 million in restructurings charges and $2 million in transformation-related SG&A. Costs incurred to date total $280 million against the projected $305 million, with the plan expected to be substantially complete by December 31, 2026. Second quarter operating income was $15 million or $25 million adjusted for restructing and transformation costs and the reversal of certain previously accrued litigation reserve expense reported and adjusted diluted loss per share were both approximately breakeven the end of the quarter with 1.1 billion in inventory up 4% year-over-year the approximate 200 million reduction in our revenue outlook in August left inventory above our plan sales needs we are reducing future buys and taking targeted sell-through actions to release working capital and strengthen liquidity, with the anticipated margin impact reflected in our outlook. We ended the quarter with $285 million in cash and $190 million of borrowings under our $1.1 billion revolving credit facility. We remain focused on liquidity, working capital discipline, and investments supporting our transformation. Fiscal 27 capital expenditures are expected to be modestly below last year's level. Turning to our fiscal 27 outlook, we are maintaining the expectation that revenue will decline at a mid-single-digit rate. And while current traffic and macroeconomic pressures could result in North America being down modestly more than the mid- single-digits decline we previously anticipated in that region, that potential downside is reflected within our unchanged full-year outlook. For fiscal 27 gross margin, we now expect expansion of 170 to 220 basis points compared compared with our previous expectation of 220 to 270 basis points. This includes roughly 150 basis points of benefit from IEBA tariff refunds related to cost expense in fiscal 26. Excluding that benefit, we expect gross margin improvement of approximately 20 to 70 basis points supported by pricing actions, lower discounting, and favorable channel and product mix. A 50 basis point reduction in our gross margin outlook reflects ongoing elevated fuel and freight costs. down to improve inventory alignment and a stronger U.S. dollar. Keep in mind, our previous outlook assumed disruption from the Middle East conflict through September 30th. Those pressures have now extended into the second half. We reiterate our expectation for adjusted SG&A to decline at a low single-digit rate, reflecting lower marketing spend and active expense management while preserving priority investments. Our focus is not simply on spending less, but on making our marketing dollars work harder. reducing waste and duplicated content production, and deploying resources more efficiently behind priority franchises and launches to improve marketing efficacy. Across the business, we are simplifying operations to strengthen profitability by protecting investments essential to the transformation. The additional second half costs and planned inventory actions more than offset our second quarter operating income upside. As such, we continue to expect full-year adjusted operating income in the $140 to $160 million range. This excludes anticipated restructuring and transformation expenses of approximately $44 million and the $3 million benefit from the litigation reserve accrual reversal and includes about $70 million of benefit from IEPA tariff refunds related to fiscal 26 expenses. This also assumes about $45 million of headwinds related to the ongoing Middle East conflict, up from the $35 million we cited previously. All in, we continue to expect full-year adjusted diluted earnings per share of $0.08 to $012. Turning to our third quarter, we expect revenue to decline approximately 8% to 9%. In North America, we suspect a low double-digit decline, which includes about a point of wholesale shipments that were recognized in the second quarter. In EMEA, we inspect a high single-digits decline which includes about five percentage points of distributor shipment timing moving into the fourth quarter and in a pack we anticipate roughly flat revenue as the business continues to stabilize third quarter gross margin is expected to increase 30 to 50 basis points with pricing and mix benefits partly offset by higher supply chain costs and foreign currency headwinds adjusted SG&A is expected the decline at a low single-digit rate as we continue to manage marketing towards greater productivity and discretionary expenses. For the third quarter, we expect adjusted operating income to range from a loss of $5 million to a profit of $4 million, with an adjusted diluted loss per share of $0.01 to $0,03. With third quarter adjusted operating income expected anywhere around break-even at the midpoint, our full-year outlook includes a stronger fourth quarter. In North America, we expect a couple of percentage points of revenue benefit from the youth transition and a few additional points from wholesale initiatives to reduce excess inventory. In EMEA, distributor shipments shifting into the fourth quarter account for about five percentage points of improvement. That timing supports fourth quarter revenue without changing our full year demand assumption. We are expecting stronger year-over-year profitability in the fourth quarter, supported by pricing and favorable channel and product mix, alongside continued expense discipline, partly offset by the external cost pressures and inventory actions mentioned earlier. In closing, our second half priorities are clear. Improve inventory alignment, maintain expense discipline and preserve liquidity while supporting key launches. With that, we will open the call for questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Simeon Siegel with Guggenheim. please go ahead. Thanks. Hey, guys. Morning. And if I forget, I hope you and your families have a happy holiday season ahead. Kevin, I think your excitement around the existing and upcoming product innovation definitely shines through. Could you speak to us, maybe help us understand where you think the customer might not be seeing? If we were to just take a step back, look at the overall revenues, and maybe right now, more importantly, the margins, just how do you translate that excitement into the price people are willing to pay, maybe the gross and operating margins the company is going to capture, and just any help you can share with us on how thing about the timeline of the revenue reset and stabilization in north america and then maybe can you just elaborate on that last piece you were talking about the drivers of the confidence in the fourth the stronger fourth quarter embedded within the full year guide thank you hi simeon thank you um yeah there's absolutely a passion for the product here um we know that that's everything but i think um the good news is that we have a almost embarrassment of riches when it comes to product i feel like the biggest place we've fallen down has just been in our competent storytelling That reflects and needs to come through first and foremost, and we want to be clear that our priority is stabilizing and getting North America going. It's obviously a bit complicated out there, and where we use the map differs from the terrain. That is certainly something we've been dealing with, and мы've been seeing some softer consumer traffic and a bit of a promotional marketplace out there. We're also seeing some of the sensitivity when we look at things like our factory house business. let me maybe characterize this in three ways of where and how i think we're going to do this and i think it's it's going to be product it's gonna be marketing it's to be distribution followed with how we execute on that first of all on the on the product side we've got a force of nature and care Trent who's been simplifying assortments and reducing skews to help us just emphasize and make us focus we're leaning in into our famous franchises things like heat and cold gear that The consumer already knows this that we can build on. We've got great appetite from training, and it's something where we're looking to lean on and make sure that those products like Helix, again, at a $35 accessible price point, really begin to come through for us, and things like the Armor Short, which I'm happy to report just in case I'm wearing one this morning. Footwear is also, you know, it's a billion-dollar business that we believe can be much larger for us as a whole, And we think you're going to see a lot more of that proof coming through in spring 27, especially the way that we storytell. And I'll say that and I'll maybe emphasize here because I think there is that disconnect between the consumer to your question and where we are. I believe, as I say, North America is our regional priority without question to make sure we get it going. Marketing remains our largest opportunity as a brand to turn the trajectory of our business because we have what we need. We've got leadership. We've Got Budget. And we absolutely have desire. But frankly, as we found, just putting things out there and putting an Under Armour logo don't do it. Meaning a shirt or a shoe without a story, it's just a shirt or a shoes. So we have the riches we have from innovation. I don't think there's another brand that is close. We just need to make sure that people actually see that because every Under Armours product actually does something. We're just going to make sure that we tell you exactly what that something is. The other thing I think is we're just applying this globally is I mentioned this idea of singular product launches per month, which may sound pretty unsophisticated because it's meant to be that, so we can coordinate this global pitch and story that we have to making sure it comes through because we've been running basically smaller regional plays versus leveraging this incredible global brand that we Have. Distribution, let me just – because I think I want to be comprehensive here. We've been working really diligently on the partnerships, especially of some of the elite partners that we have around the world. And it's the DSGs, and it's The Sports Directs, and JDs, and El Cortez and Glez's as we go globally with it, with that focus on rebuilding our e-com approach for full-price selling. I mean, that is it. We talk about premiumizing the brand, and it means our definition of that is making sure that we sell at full price. And finally, I guess I'd just say execution. You know, we talked, and I touched lightly on, you know, our own AI transformation that we're in, and I think that our industry actually lines and maps up perfectly for the advantage of what AI brings for us. And it's a matter of us focusing, as I said, on supply chain, merchandising, and marketing, of course, but this outsized focus that we have, just making sure. And one of the best things I ever heard is, you Know, how can we increase or grow our business? And the answer is, ship us everything that we ordered. So forecast accuracy and delivering on time and full is also a priority. So that's a long way to say it, but I guess I wanted to be comprehensive because, to be clear, we have everything that we need, and I want you to know that our job, and with myself, Rez, our entire executive team, is ensuring that we've got nothing that we don't. just just just to pick up on the point on gross margin specifically obviously we're in an environment that's very promotional if you're looking at the u.s and uk but as we've said uh just in the script that we just went through overall we are looking at gross margin improvement over the course of the year and so in an highly promotional environment the premiumization that we're looking out of selling more at full price i think is something that should ladder as we continue to build on these franchises over time. That's great. Thanks, guys. Again, happy holidays. Thank you. The next question is from Jay Soul with UBS. Please go ahead. Great. Thank you so much. Kevin, I'd love to follow up on your point about the marketing opportunity. What are some of the metrics that you're using to sort of establish how the brand is trending with consumers over the last 90 days. You talked about some social media. But I thought the We Love Football campaign, great campaign. I love football. It was exciting. Can you talk about that and just kind of how you're seeing the plans that you put for marketing play out the way you expect when you actually launch them and put them out there into the world? If you could give us a little update there, that would be great. And then, Reza, maybe if we talk about the incremental 50 base points of margin change and the guidance, if you could talk about what the biggest driver was. Was it fuel? Was it promotions, effects? If you could kind of break it down for us a little bit more, that would be really appreciated. Thank you. Thanks, Jay. Yeah, number one, we measure marketing by how we're doing with our selling, and so I don't think that we've been doing what we need to. Metrics that we're measuring with are some of the things where we've seen really great positivity. In Q2, we saw consideration rise over 19% year over year and brand perception up over 24%. You're right. The campaigns we have are things that just underscore what our center is. And so as you're thinking about marketing for the brand as a whole, everything is changing in marketing. We want to make our story much simpler to understand and, again, establishing that one global brand voice as I talked about. The innovation pipeline that we have, it's extreme. It just needs to be spoken. We have not gotten there. The opportunity is telling our story more clearly and more consistently. And what we'll see from us is probably, as I said, moving to the singular product launch per month when we go through it. It's making sure that we're not just doing brand storytelling, but we're really focusing on product storytelling. And as we say, you shouldn't be able to tell the difference when we do that. So the This Is Your Armor is something that's going to anchor us globally and supporting what we're doing. I also just want to make sure as we think about the way that we measure what we'RE doing, it's significantly reducing things like performance marketing. You're still going to see discounts as we work on inventory and we work through getting out in the market, but traffic's being replaced by spending on our story versus just spending on getting people here. So what you'll see around things like the upcoming Helix and the Armor Short is us really emphasizing the product benefits and how that will translate to consumers. Great. And with regards to the gross margin, pricing is a benefit. So pricing and favorable channel mix are on the positive side, as well as some product and regional mix, but that's being more than offset by supply chain headwinds. So that would say the greatest negative for us is logistics, freight, impacts that we're looking at for the balance of the year. And there is some unfavorable effects from translation that's playing into that as well. But I would say if I had to characterize the single biggest negative, it would be the supply chain head winds that we have. Got it. Thank you so much. Thank you. Thanks, Jay. The next question is from Sam Poser with Williams Trading. Please go ahead. Thanks for taking my question. Kevin, can you talk a little bit about, you know, sort of the evolution, these, I guess, these new franchise launches you're going to be doing on a monthly basis? and you talked about how many stores the new shorts were going to with Dick's. Can you talk about the Helix, you know, how big that is? Like, how does that build into fiscal 28? And do you anticipate revenue growth in 28 with all the actions you're taking? And I have another question, more near-term question as well. Yeah, we're not getting to 28 right now, Sam, but we're just taking this thing one quarter at a time. So the franchises that we're built on, it's wide-ranging. So Helix in particular, as I said, that's a multimillion-unit program that we think can be a top-ten driver force over time, so something we're really focused on. And as far as things like the Armour Short, we believe we may have invented a new category there. Time will tell. But more importantly, this isn't about just the new innovation pipeline we're very excited about. And if we said there's going to be 12 product launches over the next 12 months, I'd say probably five or six of them would be existing products that we already have in our pipeline. We're just not getting good enough credit for. So I think we want to make sure that we're amplifying that, number one, to our customers that we can, meaning our retail partners, to get out there and get placement in store. Because we need to create this premium profile for the consumer to really see and be able to believe in the brand that consumers will then have access to it. Because you can see these great ideas sometimes can be more difficult to getting it at retail. So we have great partners. We just need to make sure we're doing a good job giving them the story and then giving them the tools to actually sell when it shows up at retail." And that leads to my second sort of all-related for both you and Reza. Your inventories are a bit high. You're working them down. How do you make sure when you're doing these new launches such as the armor short that you're not being too aggressive out of the gate and then run into potential inventory problems down the road? I mean, how do you do this in a meaningful, measured way to sort of optimize the business but not put too much risk on it if it doesn't work? Why don't I start on that one? So if you're talking about the new launches specifically, obviously we look at what the demand is coming in from the regions when we put in the buys for these different products. The other thing is these products, if the inventory comes in and the sell-through is slower than we anticipate, it's not like it spoils out of the gate. I mean, it is going to be high-quality inventory anyway, so we can manage the inventory levels through watching the sell through and adjusting the future buys that we have for those categories. So when we are talking about kind of inventory and looking at the plus 4% that we had in this quarter, that is largely because of the revenue decline that we forecast on the last call where we took out $200 million of revenues. And because of that, all of that inventory was already in flight. And so we're managing through that by working through our factory partners in terms of trying to delay some shipments, looking at basically what we can do in terms OF some other wholesale strategies that we have for the back half of the year and to try to manage that as best as we can. And, Sam, building on that is, you know, we spoke about with AI, hopefully it will get us a lot smarter with getting closer to what the demand actually forecasts for us. But, you know, coming out of a couple weeks ago of having all of our key manufacturing partners here and working on what we can do to streamline our go-to-market is that our industry, and I think a clear message from the market is our industry just moves too slowly. And as I said in my prepared remarks, the 18 to 24 month from now, I think that we'll have a much better evolved model that is something that can be more streamlined to deal with getting closer to market, being closer to the consumer, and frankly, the ability to react. And we do see opportunity in certain products. Well, I'm sorry. One more. I mean, retail buyers buy. That's what they do. they tend to go, oh, that looks cool. I'm going to buy it. And they tend, their eyes often end up being bigger than their stomach is relative to the actual consumer demand. So with this potential, with this increase of speed, this 10 months to market that you talked about, is there an opportunity for you to put, I'll just use the armor short, for example, on your website into some stores to really see consumer demand prior to counting on buyers who tend to like anything shiny new and then buy too much of it. And really use your, you know, given your increased speed to use your own data to then really be able to measure the demand and put a check on what some of these retail buyers tend to do. I feel like you answered the question in that ask, Sam, because it's exactly what we want to be doing. We want to make sure that we can just get early reads. And so that's why we're testing things out like the athlete wear testing. I mean, when I say storytelling, I think there are so many steps that Under Armour includes in our go-to market that other brands don't contemplate. And what we don't want to do is eliminate that, which is the athlete testing, the certifying the product, make sure it lives up to what we wanted to do. And then, of course, how's it going to be received by the market? Is it something which is a runaway hit? Is this something that we maybe want to hedge on? Is that something that we want to wait and see is it something that we're going to build scarcity around it so all that builds into everything we do but um yeah we're not being crazy with the buys um we just want to make sure that we have more intentional product that's required or necessary from the consumer the world doesn't need more stuff the world does it need another capable apparel of footwear manufacturing it needs a hope and a dream it needs something that translates through that with something like the Under Armour brand which should be an aspirational um as our mission statement says, providing solutions that athletes never knew they needed. And once they try them, they can't imagine living without. And so making sure that we test the commercial viability of these things as they get to market and building a demand beneath of that, that's what's required from us. So yes, test and learn before we make too big of bets is the way that we're thinking about the future. Thank you very much. Good luck. The next question is from Bob Durble with B-T-I-G. Please go ahead. Hi. Good morning. You mentioned asset light. Can you give more color on what that means, how you're thinking about it, and what other areas could be up for consideration? Thanks, Bob. I think it's a unique phrase, and I think it's something in which our industry is screaming for because we have been built big and heavy. And I think that there's just opportunities for other partners to help us there. So the shift to asset light is about building bottom line, about building brand value for us and finding where we can evoke the most value or the most bottom line from what we're doing. As I said, as we think about how we'll evolve in the next 18 to 24 months, it's the way that we do business. So as a brand, we effectively do three things. We make products in factories, we market and make them compelling to consumers to want to buy them, and then we sell them at retail. It's roughly a third, a third of our time. But we prefer to focus more than 50% of our time on the managing and the marketing and the brand building, creating the feeling that people have for this, because we have incredible partners at both the factory and at the retail level, and it's what they're really good at. We believe our real value it lies in the brand and so the brand lens is that every dollar resource spent it must help us sell more shirts and shoes we think we can be the drivers of that while putting more of this opportunity into our factory partners more of what we've had in our traditional go-to-market in our factory partners and into our retailers and so that's an ongoing work in process as our operating model and the strategic partnerships as they as they evolve so 30 years of doing this we have incredible relationships that both ends that with is the manufacturers and the retailers so we want to work on shortening lead times we want work on better execution at retail and what we're doing is we're testing I mean this move that we had with our our youth business for instance it's a the the idea of that is what is this like if we were a bit more asset light there we think agility is going to be the key to this next chapter for any brand and we want to make sure that we're demonstrating that in every way shape or form. Thanks Kevin and I guess a question on the footwear business so the the footwork business you know continues to be challenging what do you believe is missing the mark there and how how do you think how long do you think it'll take to stabilize and even return to growth? Yeah but we have a we have a brand that is much bigger than our business and especially when it comes to to footwear but it's still a billion-dollar business for us to build on. We've got authentic equity to build from, though, that our job is to extract the value from that, that I don't think we've done a good enough job, obviously, of making that come through. So delivering a clear point of view on what we want consumers to buy and then telling them why to buy it. As I said, we have an overwhelming amount of innovation. I think as we sharpen our design and get better, as we make a clearer and better, good, better, best segmentation for products, it's something that can come through, Meanwhile, we are seeing some signs of things that we can work on. Our run business did actually grow in Q2 for us as well. As we build out and looking at our collegiate business, we mentioned becoming the number two collegiate brand in American football. It's a small category, but it's an important sign, especially as we're driving higher ASPs. So that on-field credibility, the on-race course performance we're seeing from things like our Velocity platform, you know, we need to make that authenticity translate into commercial success. So focusing on team sports, focusing on running, focusing in on training. And again, it's not just waiting for the next thing in the innovation pipeline. We have plenty to work with. We need to do a better job packaging those stories into a reason that consumers need to buy it. So making these franchises actually matter for us better. Thanks, Kevin. The next question is from Laurence Vasilescu with BNP Parabas. Please go ahead. Oh, good morning. Thank you very much for taking my question. Kevin, I wanted to follow up on your comment about the 50% skew reduction initiative. Half of it's been completed. Curious to know if you can quantify in any way for the audience how much this pullback represents in value dollars so that we can understand the underlying trajectory of the business? And then from a gross margin perspective, when should we start to see this initiative pick in as a benefit to the gross margin? Thank you. So Reza and I will take that in two parts, and I'll just start with the first. Seeing the benefit of this is the first thing is we can start to feel the weight coming out out of the line, but from our industry of working with this traditional 18 to 24-month go-to-market, you're not exactly seeing it come through just yet. What we're feeling is we have our teams now working on less products, less weight in the system, and getting more streamlined with putting our best people against the best products. That doesn't mean just $140 or $150 plus footwear, but we're putting our best people on taking probably an overcrowded market of where our family channel or value footwear in that 70 to 90 dollar range making sure we've got real design there so in the past that's what this good better best exercise has really been able to give for us is making sure that we can be clear with the product proposition we have for the consumer and that as we say premium izing means selling at full price regardless of the good better or best level and that's what we want to create so getting that out of the system and more importantly just creating that architecture of a clear proposition at good a clear proposition at better and a clear proposition at best is much better than having you know six or seven styles between 70 or 80 dollars and so we need to make sure that we make that product proposition for the consumer just much clearer so it's it will run through and is there a revenue impact to it the goal is that we are putting ourselves behind and focusing on these key styles and storytelling about them for instance our cert 11 that we launched over our cert 10 which is our highest volume shoe is something that we're now we're driving hire ASPs. We're getting what we want. We are putting athlete storytelling behind it and make sure it's not just a shoe or a foot covering on the wall, but it actually has a reason to exist, talking about the Charge Plus that we have in the midsole and talking about the innovation and the athletes who support and wear it. And just to add to that, Kevin, and to get to the gross margin point, I think part of it, Laurence, is also looking at just the quality of revenues that come from these changes as well. There is some benefit as you start to rationalize from a gross margin perspective the different materials that you use, et cetera. But I just finished saying that gross margin, the reduction that we just talked about on gross margin is largely due to supply chain. So what's essentially happening is there's some benefit that comes from the rationalization that you do over the 18-month cycle that you have or 24-month circle that you has. But then also we're in an environment right now that's clouded by higher freight costs and other things as well. But if you were looking at it and drilling down at that level in terms of the product costing that's coming in, there are definitely improvements that come as you rationalize on the back end. Very helpful. And then, Kevin, there's one particularly large brand out west that sold a lot of product into the North American marketplace. You know, curious to know what you're hearing from your key retail partners when they think the North African marketplace will be clean. Are you hearing something like spring 2027, or is it going to be later into fall of 27? Any comments there would be very helpful. Thank you very much. Yeah, I can't speak to what they're doing, but we certainly feel the impact of a lot of brands are clearing inventory right now. And they're not doing it to keep in the marketplace not as healthy as we would like or prefer to be, which means that we just need to focus on ourselves. And I think that's where we are of staying in the pocket, delivering, doing what we said we're going to do, making sure that we you know do that really clear for our teams to know how to execute but yeah that that applies some of the pressure and that I think speaks to the where the consumer sitting right now and a bit of a challenging macro it makes it complicated but it doesn't make it impossible and so it's our job to make sure that were cutting through from a brand lens and giving them a reason to purchase us so the sheer volume of what that means and some of the the clearance places where you're finding product right now it's where we don't want to be, but we are going to be mindful of our inventory as well. It's something which is always a hyper-focus for us in this industry. Thank you very much and best of luck. Thank you. Thanks. The next question is from Brooke Roach with Goldman Sachs. Please go ahead. Good morning and thank you for taking our question. Kevin, I was hoping you could speak to the changes you're implementing in your North America stores to improve consumer engagement and traffic. What are you seeing in the factory stores where you've added full-price product, and where can that initiative go from here? How do you expect that to impact traffic, both near and medium term? Yeah, thanks, Brooke. It's absolutely an initiative. We've got a lot of touch points when it comes to our factory house business here in the U.S., and it's a place where we don't want that experience just to be the product proposition or the buying proposition is not just there's a discount associated to it, but actually applying story there. So the first way we started with what were previously pure outlet experiences of putting some of our premium products in there, putting our stealth form caps into our stores at a full $45 price point. And that consumer, it's not unattainable, and it allows them to start getting used to what we're trying to do to premiumize the brand, which means getting consumers to pay full price for Underwork. But they need to see and understand the innovation. I think the opportunity we have in our factory stores is to go deeper on the technology that sits there. Sometimes that's left for just our full-price distribution, and I think we have a great opportunity to increase that. As I said, we're targeting double digits of what that impact will be of selling full-priced product in that mix at factory stores, meaning brand-new innovations that we can take advantage of the distribution footprint that we have. But, yeah, we're looking – driving ASPs is one of the key metrics that we're using to evaluate our business on a daily, weekly, monthly, quarterly basis. Great. And then, Reza, as a follow-up, can you unpack the fourth quarter inflection and operating margins in a little bit more detail? It looks like you'll see improvements in both the gross and the SG&A line. Could you potentially quantify the magnitude of improvement that's coming from the youth business, the proportion that's happening from timing shifts, and your assumptions on the underlying base business profit improvement? Yeah, absolutely. So if you're looking at the Q4 numbers specifically, if you basically do the math around it, you'll see that there's a fair bit of moving parts, especially in our North America business. So we have traffic and promotion that are being offset by some future product launches that we have where we anticipate that we're going to be gaining traction. There is a couple points that are coming from the youth transition specifically in Q4 in North America, and then there's also a few points from wholesale initiatives that we have specifically in terms of trying to make sure that we manage our inventory levels in the final quarter of the year. I also mentioned on the call that with EMEA specifically, there's a shift of about five points from Q3 to Q4 for EMEIA. So that's working its way into those numbers as well. As you look at gross margin and if you're looking at just the overall SG&A, we've been taking a lot of SG&A actions over the course of the year. And so some of those are really bearing fruit on the back half of the ear and going into next year. So as you start to see the improvement in operating margin, it's a combination of those factors basically coming and working their way through the P&L as well. Great. Thanks so much. I'll pass it on. Thank you. We'll take our last question from Peter McGoldrick with Stifel. Please go ahead. Hey, guys. Thanks for taking my question. I just wanted to get some clarity around the kids licensing. Can you illuminate the economics on the new business model? So what's the existing run rate for revenue? How had that been contributing to the operating income line? And then what should we be thinking of like the net contribution when that has been fully transitioned? And as you pointed out, that does have an impact on the fourth quarter. I'd be interested on the influence of the transition and how long that takes. Yeah, well, why don't I take that one? So first of all, let's start with the fact that youth absolutely remains strategic to what we're doing. It's an entry point to our brand, and this is an existing longstanding partner with us that we're looking at basically expanding the relationship with. You should know that we will still be selling youth in our own DTC channels. So in terms of what we're looking at, our DTC business around youth continues to go forward as well, and youth is focused on specifically this transaction is looking at North America and EMEA, and so our APAC business would be on the outside of that as well. We're not going to be giving you the revenue or profit we break out today. Obviously, as we basically come forward with our May outlook, our May 2020, our may call with our fiscal 28 outlook, we'll basically go through and give you a sense in terms of royalties, transferred costs, inventory commitments, et cetera, that we'll do. But overall, our objective is to retain earnings and cash contribution as the royalties basically replace the product sales that we have coming in. and obviously it's a specialized provider in the space so we think that they'll have a net benefit to us overall and not piling on too much for that but you know we're really in a test and learn we want to know what we can do to have a more nimble organization making sure that agility is something that defines this brand we've been doing this a long time as we're closing out 30 years and that means that we just need to be more thoughtful about what this next chapter looks like for so we're also looking for other areas where what makes sense for us for places that don't matter and they're not strategic to the brand of what it means. But youth is certainly a strategic place, and so that's why we think this is a really healthy balance for us and with a partner that we know and understand in some place where we can leverage and optimize to drive a better bottom line. Appreciate that. And then last one for me, thinking about pricing as a driver in the fiscal fourth quarter and perhaps dovetailing with the earlier commentary around the marketplace health, can you help us think about the contribution from pricing, embedded mix, full price, and like-for-like pricing considerations? Yeah. So overall, we're expecting gross margin to improve as we get into the quarter. We have taken pricing actions, but obviously we're also in a highly competitive environment. We're talking about looking at some of our competitors that are trying to move a lot of inventory right now. So we're selling into a market right now that's very promotional if you look at North America, and especially the U.K. as well. So while we have taken pricing actions and we do expect some gross margin benefit to come from that on a net basis, some of that is being offset by greater promotional activity that's happening in the market. And, you know, it's across both wholesale and DTC, frankly. So we're seeing it just as an overall market dynamic. Thank you. Thank you, everyone. This concludes Under Armour's Second Quarter Fiscal 2027 Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.