Under Armour-C

Under Armour's first-quarter sales fell 3%, with a 9% decrease in North America (55% of sales) and a 5% international increase. Although gross margin increased nearly 6 percentage points to 54.1% and adjusted operating margin rose to 4.8% from 2.2%, these gains were mainly due to a tariff refund.

Why it matters: Under Armour continues to reduce costs while it pursues higher-margin selling through product eliminations, investments in innovation, stronger marketing, and stricter inventory management. Unfortunately, the firm has noticed weakening consumer demand trends of late. Because of lower store traffic and widespread discounting in sportswear, Under Armour missed our forecast for a 2% sales decline in the quarter and lowered its fiscal 2027 sales growth outlook to a mid-single-digit percentage decline from its previous slight decline guidance. More positively, its adjusted EPS beat our $0.03 estimate by $0.02, and it held to its prior adjusted EPS outlook of $0.08-$0.12. We think its ability to remain profitable despite slow demand reflects its progress on cutting costs and inventory control.

The bottom line: With a tepid sales outlook again delaying no-moat Under Armour's recovery, we plan to lower our $12.50 fair value by a low-single-digit percentage. But we think shares are undervalued and do not reflect the firm's long-term opportunity in the attractive sportswear market. We think Under Armour will return to mid-single-digit annual sales growth in about two years as it cycles through older merchandise and improves its offerings and marketing. Long term, with sales leverage and higher prices, we think it can build to high-single-digit operating margins.

Key stats: After retiring its $600 million in maturing debt (as expected), Under Armour closed the quarter with roughly $400 million in cash and $600 million in debt. As such, we do not think it is in any danger of financial distress and has the resources to fund its restructuring and growth initiatives.

We reduce our per-share fair value estimate on Under Armour to $12.00 from $13.60 as its restructuring has proved to be longer-lasting and more costly than expected.

With a 7% sales decline in North America (54% of total), Under Armour had a 1% total sales drop in fiscal 2026’s fourth quarter. Its adjusted gross margin fell 360 basis points to 43.1% (higher tariffs and markdowns), its adjusted operating margin was 0.2%, and its adjusted loss per share was $0.03.

For fiscal 2027, Under Armour expects a much higher tax rate (we estimate 54%) and roughly $45 million in restructuring charges. It is also expected to be another tough year in North America; we project a 7% sales decline. Overall, for fiscal 2027, we estimate a 1% sales decline, down from 1% sales growth previously, and $0.14 in adjusted EPS (down from $0.24). Our forecast includes a tariff refund of about $70 million, which is uncertain.

After years of falling sales, Under Armour is restructuring its domestic operations. The firm has upgraded its supply chain, invested in digital capabilities, improved inventory management, and changed its channel strategy. Even so, its results in North America have been inconsistent. After three years of declines, its sales in the region jumped 22% in fiscal 2022, were basically flat in fiscal 2023, and then dropped 8% in fiscal 2024, 11% in fiscal 2025, and 8% in fiscal 2026. Given plans for pullbacks in production, we do not anticipate a return to consistent sales growth in the region until fiscal 2029.

There is room for Under Armour to achieve significant sales growth outside of North America on account of its low market shares at present. We expect the firm will generate compound average annual sales growth of 8% in Asia-Pacific over the next decade. Under Armour has a limited presence in China, the world’s second-largest athletic apparel market, but it is a priority. Further, we forecast average annual sales growth in EMEA will compound at 7% over the next 10 years.

Under Armour’s gross margins have ranged from the mid-40s to nearly 50% over the past few years. While they have been depressed by weak sales, higher costs, and excessive markdowns recently, we anticipate that they will gradually improve back to 48%-49% over the next decade. Further, selling, general, and administrative expenses as a percentage of revenue are declining through cost cuts. Owing to sales leverage and improvements in its supply chain, we think Under Armour can return to annual operating margins of about 6%-7% by fiscal 2031 from just 4% (adjusted) in the current fiscal year.

We rate Under Armour as a no-moat company, as it has struggled to adapt to competitive pressures over the past several years. A decade ago, the firm was achieving annual sales growth rates above 20%, and its operating margins were 10%-11%. However, sales growth has since stalled, and annual adjusted operating margins have only been in the low to midsingle digits over the past few years. Consequently, the firm’s adjusted returns on invested capital, including goodwill, have averaged 5% over the past five years, below our estimated weighted average cost of capital of 10%. Although CEO Kevin Plank has introduced another restructuring plan, we forecast Under Armour’s adjusted ROICs including goodwill will remain below its WACC through fiscal 2030. We estimate its adjusted ROICs including goodwill will exceed its WACC thereafter, but we think this is partially a function of its low asset base (given that its production is outsourced), and its turnaround is uncertain.

In addition to quantitative factors, we evaluate activewear producers like Under Armour using five criteria: geographic reach, pricing, sponsorships/visibility, product quality/performance, and control over distribution. We rate Under Armour as high in product quality/performance but moderate in the other four categories. In general, the firm lacks the geographic reach and high-profile sponsorships of some competitors and is overly exposed to wholesale and outlet channels in North America. Under Armour had only 1.8% of the global sportswear market in 2025 (per Euromonitor), down from 2.6% in 2016.

Under Armour’s focus remains on performance athletic apparel. Its first product was a moisture-resistant undershirt, and some of its best-known products include compression shirts and pants that improve circulation and regulate body temperature. Its branded clothing continues to be popular with athletes, especially at the high school and college levels in the US. However, there are many competitors with similar products, and individual styles of clothing cannot be patented.

Meanwhile, Under Armour has struggled in the critical sports footwear category. Shoes only account for about one-fourth of the firm’s total sales, and its share of the US sports footwear market was only 1.7% in 2025, down from 3.4% in 2016 (Euromonitor). Indicative of its relative weakness, Under Armour’s shoes sell for lower prices than many competitors and the firm lacks any real presence in the collectible/resale footwear category. We believe its lack of pricing power in athletic footwear is indicative of a brand without a durable competitive advantage.

We do not think Under Armour can match the volume and quality of sponsorships or visibility of primary competitors Nike and Adidas. Teams sponsored by Under Armour include a few college sports programs (including Notre Dame) and professional and club soccer and rugby teams in multiple nations. However, the company recently announced that its highest-profile signee, basketball star Steph Curry, will be separating from the firm even though he signed the equivalent of a lifetime deal in 2023. Although this was a surprise, Curry footwear has had limited success in a very crowded market for signature basketball shoes.

We think Under Armour’s international business is a growth opportunity for the company. In 2008, 96% of its total revenue was generated in North America. Revenue from other regions totaled a mere $33 million. In fiscal 2026, the firm’s international revenue was $2.1 billion but was still a minority (43%) of total sales. International sales for the year included $719 million in sales from Asia-Pacific, $1.2 billion in sales from Europe, the Middle East, and Africa, and $234 million in sales from Latin America. Even so, Under Armour’s sales outside of North America are insignificant in comparison with those of Nike and Adidas. While we anticipate Under Armour’s international revenue will grow faster than its North America base over the next decade, we forecast it will remain less than half its total until fiscal 2034.

One issue is that Under Armour is closely associated with American football and thus has no brand or product advantages in most international sports. For example, although the company markets soccer cleats, it does not sponsor any major international professional or national teams. Similarly, it is only a small player in golf, despite some investments in the sport, and has no real presence in terms of footwear, apparel, or sponsorships in professional tennis.

Apart from its products and marketing, Under Armour’s exposure to discount channels and lack of direct control over a sizable portion of its distribution have affected its pricing and brand strength. Although it has intentionally reduced its exposure to third-party stores, Under Armour still generated 58% of its net sales from wholesale channels in fiscal 2026. The company lacks strong full-price direct selling and is too exposed to discount channels, including its own. At the end of fiscal 2026, the company operated 198 North American stores, 184 of which were outlets, and 245 international stores (188 outlets). The firm’s relative lack of direct control over its selling means that its merchandise is too often subject to markdowns, which affects margins as well as consumers’ perceptions of its brand value.

We do not believe Under Armour has a moat based on its brand intangible asset or any other source. It has no production cost advantage as its apparel is sourced from third-party manufacturers. We do not think it has the power to negotiate lower prices from producers. Under Armour is not popular enough to sign sponsorship deals with top athletes and teams at below-market prices. It has no moat based on efficient scale as its distribution system is like that of competitors. There is no network effect in the athletic apparel business, and switching costs are nonexistent.

CEO Kevin Plank is taking Under Armour back to its roots by focusing on core men’s performance apparel, the North America sportswear market, faster product development, and less discounting.

Under Armour has a healthy balance sheet and sufficient liquidity. As of June 2026, the firm had about $400 million in cash and $900 million in borrowing capacity under its revolver.

The global sportswear market continues to grow as more people move into the middle class and interest in athletics rises. As an established firm in the industry, Under Armour has opportunities.

Under Armour has gone through years of restructuring and strategic plans but continues to struggle with inconsistent sales growth and profitability.

Competition in the sportswear market has intensified. The success of brands like On, Vuori, Alo Yoga, and Hoka complicates Under Armour’s turnaround.

Sales in North America, Under Armour’s largest segment, have declined in each of its four fiscal years. We do not anticipate a return to consistent growth in the region until fiscal 2029.