Shares of Under Armour, Inc. (UAA Quick QuoteUAA - Free Report) surged 27.2% in yesterday's trading session, fueled by the company’s better-than-expected second-quarter results. The strong performance prompted management to raise the fiscal 2025 outlook. While revenues saw a year-over-year decline, the company’s bottom line showed improvement compared to the same period last year.

Under Armour’s Quarterly Performance: Key Insights

The Baltimore, MD-based company reported adjusted earnings of 30 cents a share, which beat the Zacks Consensus Estimate of 19 cents. This figure increased from 24 cents a share reported in the year-ago period.

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Meanwhile, net revenues of $1,399 million came ahead of the Zacks Consensus Estimate of $1,383 million but decreased 10.7% from the prior-year quarter. The metric declined 10% on a currency-neutral basis.

Wholesale revenues fell 12.1% to $826 million, while direct-to-consumer revenues saw a 7.6% increase, reaching $550.3 million. Revenues from owned and operated stores remained flat, while e-commerce sales declined 21% due to a planned decrease in promotional activities. E-commerce revenues accounted for 30% of the total direct-to-consumer business during the quarter.

Breaking Down Under Armour’s Top Line

By product category, Apparel revenues declined 11.5% year over year to $947.2 million compared to the Zacks Consensus Estimate of $947.6 million. Footwear revenues decreased 10.9% to $312.8 million, exceeding the consensus estimate of $304.1 million. Revenues from the Accessories category rose 2.1% to $116.4 million, outperforming the consensus estimate of $99.6 million. Meanwhile, Licensing revenues dropped 13.4% to $24.8 million, falling short of the consensus estimate of $51 million.

Revenues from North America declined 12.9% to $863.3 million, exceeding the Zacks Consensus Estimate of $830.7 million. Meanwhile, revenues from the international business decreased 6.1% (down 5.2% on a currency-neutral basis) to $538 million. 

Within the international segment, revenues from Europe, the Middle East and Africa ("EMEA") fell 1.4% to $283.2 million, just below the consensus estimate of $283.8 million. Revenues from the Asia-Pacific ("APAC") dropped 10.5% to $207.7 million, slightly below the consensus estimate of $208.4 million, while Latin America saw a 12.5% decline to $46.9 million, underperforming the consensus estimate of $56.4 million.

Focus on UAA’s Margins

The company’s gross margin expanded 200 basis points to 49.8% from the prior-year period. This was driven by the decline in product and freight costs, lower discounting levels in the direct-to-consumer business and a favorable channel mix.

Adjusted selling, general, and administrative (SG&A) expenses declined 13% to $530.1 million, driven by lower marketing expenses. Adjusted operating income came in at $166.1 million, up from $139.5 million reported in the year-ago period.

UAA Financial Snapshot

Under Armour ended the quarter with cash and cash equivalents of $530.7 million, long-term debt (net of current maturities) of $594.6 million and total stockholders' equity of $1,985.2 million. For fiscal 2024, management expects capital expenditures between $190 million and $210 million.

A Sneak Peek Into Under Armour’s FY25 Outlook

Under Armour foresees fiscal 2025 revenues to decline by a low double-digit percentage, with North American sales projected to drop 14-16% as the company undertakes a business reset in the region. Internationally, revenues are anticipated to see a low single-digit decrease, with stable results in the EMEA offset by a high single-digit decline in the APAC due to macroeconomic pressures.

The gross margin is anticipated to expand by 125-150 basis points, up from the prior expectation of a 75-100 basis point improvement, driven by lower promotional activities in direct-to-consumer channels and favorable product costs.

SG&A expenses are expected to rise in the mid-to-high single digits due to litigation settlement costs. Adjusted SG&A expenses are projected to decline by a low-to-mid-single-digit percentage. This includes an additional $25 million in marketing investments to support the brand’s long-term positioning.

Operating loss is now projected between $176 million and $196 million, an improvement from the prior range of $220 million-$240 million. Adjusted operating income, which excludes restructuring charges, transformation costs, litigation expenses and insurance recoveries, is forecasted at $165 million to $185 million, up from the previous estimate of $140 million to $160 million.

Loss per share is expected to range from 48 cents to 51 cents, an improvement from the prior estimate of 53-56 cents. Adjusted earnings per share are now projected between 24 cents and 27 cents compared to the earlier projection of 19 cents to 21 cents.

UAA Expects Q3 Revenues to Decline

For the third quarter, Under Armour anticipates a revenue decline of approximately 10%. This projection reflects ongoing challenges in the North American region and the company's proactive strategies to reduce promotional activities within its direct-to-consumer businesses. The company expects fourth-quarter revenues to face additional pressures due to timing differences between this year's and last year's flows within its North American and APAC wholesale businesses, as well as tougher year-over-year comparisons in North America Factory House.

The strengthening of the U.S. dollar is also creating foreign exchange headwinds. However, the company projects third-quarter gross margin will increase by 150 to 175 basis points, driven by lower product costs from supply-chain efficiencies, favorable foreign exchange impacts, and the benefits of reduced discounting and promotions in the direct-to-consumer business.

Adjusted SG&A expenses are expected to rise in the second half of the fiscal year, particularly in the third quarter, when the metric is expected to increase by a mid-single-digit percentage rate. As a result, Under Armour forecasts the third-quarter adjusted operating income in the range of $20 million-$30 million, with adjusted earnings per share projected between 2 cents and 4 cents.

This Zacks Rank #3 (Hold) stock has advanced 40.6% in the past three months compared with the industry’s rise of 17.5%.

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