Under Armour, Inc. (UA) Q4 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the Under Armour, Inc. Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Lance Allega, Senior Vice President, Finance and Capital Markets. Please go ahead.

Thank you. Good morning, and welcome to -- under Armour's Fiscal 2026 Fourth Quarter Earnings Call. Today's call is being recorded, and a replay will be available on our Investor Relations website shortly after the call concludes. Joining us this morning are Kevin Plank, President and CEO; and Reza Pagani, 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 law. . These statements reflect management's current expectations as of May 12, 2026 and are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of these risks and uncertainties, please refer to this morning's press release, 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 the non-GAAP measures to the most directly comparable GAAP measures are included in today's press release and are available on our Investor Relations website at about.underarmour.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. Thank you, Lance, and welcome, everyone. To start, I want to welcome Reza Taleghani to Under Armour. He joined earlier this year as our CFO and an important time for the brand. Reza brings strong total discipline, financial clarity and a sharp strategic lens on decision-making. We are early in this chapter that, that impact is already evident in how we define and evaluate our performance metrics and in the way we prioritize across the business. . As we move into the next phase of our transformation, our operational rigor and financial accountability will become even more critical. We are better positioned with Reza's fresh perspective, driving toward a more intentional brand and business with stronger profitability. As we sharpen the way we operate the business, we're equally focused on elevating the strength and credibility of our product. And with that, a big congratulations to Sharon Locate for securing her second consecutive Boston Marathon Victory in the Under Armour Velocity Lead 3. One of the most demanding stages in support that level of repeat performance is not just impressive, it's definitive. Claiming the podium for UA at the most coveted marathon race in the world is the clearest possible proof point of what Under Armour stands for, delivering at the highest level when it matters most. Under Armour makes Pinnacle performance forward. It's now our job to ensure the world knows that, too, and commercialize that fact. The same innovation, fit, speed and performance DNA that powers a Boston Marathon Champion also power the everyday runner. This includes products like the Velocity Pro and Velocity distance as well as the balance of our increasingly edited line of footwear, where we're consistently applying the concept of less being more. Intentionality will define this chapter for the brand. In that spirit, and as I've shared before, over the past 2 years, we've executed a deliberate reset of the business, making more intentional choices about where and how we compete. Our focus is on elevating product, strengthening brand and reducing complexity through structural changes, not just surface adjustments. That work requires difficult trade-offs. We've walked away from certain nonprofitable parts of our business. We implemented a category management model that helps us focus investment on the categories, products and stories that strengthen the brand and improve the quality of our growth. As a result, under is becoming a more focused, disciplined and intentional company, which is reflected in our execution. That progress is increasingly becoming more visible in how we go to market to the manifestation of marketing excellence, a more modern marketing engine rooted in what has always made Under Armour distinct, credibility earned through the athletes and teams to compete in our product. We are clear in our position as a podium brand built to outfit athletes from head to toe at the highest levels of competition. Our core consumer, the 16- to 24-year-old team sport athlete remains our creative anchor. While we serve all assets. Our mission is to equip them to push beyond their perceived limits as the most authentic and credible brand in sports. Our innovation pipeline will continue to deliver products that become indispensable for Elite by media needs they never knew they had and once they've tried could not imagine living without. That drumbeat of innovation is already beginning to show up in our product. A strong commercial example is the BANT, launching later this month in APAC and exclusively in the U.S. through DICK'S and our own DTC channels. With EMEA coming on line late summer, brings premium performance to the most essential item in the athlete draw, the T-shirt. Historically, for UA, this level of innovation lived in sports-specific year. Now we are elevating everyday essentials with the same engineering in a way that feels natural to consumers. Coming back to UA as a management team, we felt it was important to have a defining product that showcased our ability to move from field courts pitches in the gym into our consumers' daily lives. We wanted a product that would define this versatility for the UA brand. That is the UA Bone cotton T. Now please bear with me as this is not meant to describe a singular silver bullet of success, but instead serve as a larger or broader metaphor, which you can expect for us going forward and not just making another item. In our industry, it's been said that whoever invents the next white or black T-shirt wins. This means that you can master the simplest of items with meaningful effortless innovation, then we can do anything. The $65 bounce CT delivers for Friday night where under a sport coat with the perfect neck line or Saturday morning in the gym. It features full UA innovation, including ultrasmooth Pema Cotton and is built with our UA developed NEOLAST recyclable stretch fiber. It's Friday, Saturday performance translates just as easily to simply chilling on a Sunday and transitions from training to daily life without compromise. This is what we mean by premiumization, delivering greater performance, versatility and value through fewer, more purposeful products. It's also a reflection of where we know we have real strength today. Apparel remains the foundation of under armor, 1 of our greatest competitive advantages. Growing our $1 billion-plus footwear business is central to our midterm strategy. And as we read out footwear to build greater consistency, we're leaning into our leadership in apparel, where innovation, fit and performance ability are already well established. That same discipline is shaping how we manage our broader product portfolio. We're working to strengthen our top 10 volume-driving products across apparel, footwear and accessories with fresh styling, stronger innovation and clear consumer storytelling while also identifying opportunities to improve price to value perception to drive healthier profitability across key Under Armour franchises. The goal is not simply to sell more units. It's to build better products with stronger margins and greater brand impact across the categories and products where consumers already know us or meeting us for the first time. growing new consumers is a priority for us. That mindset extends beyond product that shapes how we operate company-wide. Over the past year, we took a decisive step and shifted to category management. we streamlined into about a dozen sports and activities, competing head to toe. This focus simplifies our workflow and market approach. Expectations are clear roles to find and teams are aligned around one goal, making athletes better. We reinforced this focus with one question before any endeavor. As we deploy the resources of time, people and money, will this help us some more premium shirts and shoes. That answer must be yes, the impact is already evident. Decisions are faster coordination tighter, execution more consistent. Taken together, these changes are creating a stronger, more disciplined foundation for the business as we enter fiscal '27. After a significant revenue rebate since our FIS '25, particularly in North America, we expect the year ahead to see revenue stabilization in our largest region. That means fewer surprises and greater confidence in how decisions translate into results. We're seeing early signs of sell-through, cleaner inventory and stronger partner engagement. That progress gives us more control than we've had in years and positions us to build a model that can scale over time. To support this, we're being precise about where we invest, where we leverage partners and where we make trade-offs, prioritizing what drives value and stepping away from what does not. This is critical to improving the quality of our growth. At the center of this intentionality, making clear choices about where we compete and which products we back, prioritizing those products we want to be famous for. We're removing friction and focusing the organization on what drives the brand forward. Now all that being said, we are not improving our bottom line fast enough. While confident in our strategy, we will continue to work the mix and prioritize near, mid- and long-term profitability, consistency blended with agility. This is essential to seeing our transformation through and there are no sacred cows, just the lens of what is the best decision for the brand. Execution must tighten and we are holding ourselves a capital for accelerating progress. This also includes bringing an even sharper focus on editing and optimizing our product assortment, marketing spend. processes and cost structure to improve UA's profitability. Along those lines, we made strong progress simplifying our product offering, while building a focused pipeline of innovation that you'll begin to see in a much more consistent way in the coming quarters. Over the past 2 years, we've reduced SKUs by 25%. And with Kara now in place in our new role as Chief Merchandising Officer, we expect further reductions as we continue to sharpen the assortment, fewer, better products with concentrated demand and a more succinct consumer proposition with less complexity across the supply chain, resulting in healthier margins for UA as well as our factory and wholesale partners. The focused discipline we've been building into product is now expanding into marketing, with the goal of becoming more product-led and more intentional in how we activate and deploy our resources. I define this as a more focused product to brand marketing mix. And as we really get it right, you shouldn't be able to tell the difference between the two. Every dollar spent see brand elevating rather than trying to say everything at once, we're concentrating investment behind the products, athletes and stories and most clearly communicate our performance credibility and differentiate UA. We believe the strongest way to elevate Under Armour is not through broader messaging alone but by amplifying great product with sharper storytelling and more consistent execution at retail. We're applying greater rigor to how marketing investments are allocated and measured across the organization. We see a meaningful opportunity to operate more precision, more curation and stronger returns on investment. Importantly, unlike product transformation cycles that can take multiple seasons to materialize, we expect elements of the marketing evolution to move faster and improve how the brand connects with consumers in the near term. Pulling all of this together, as we look ahead to fiscal '27, we do expect to stabilize with revenue down slightly. That outlook reflects both continued consumer uncertainty and the deliberate choices we're making to reshape the business. We are prioritizing revenue quality over volume, strengthening the foundation and positioning the company to return to growth with stronger profitability and more consistent brand expression. This is not about stepping back, it's about building a more focused, disciplined and premium Under Armour with a stronger right to win in the marketplace. And while our ambition is to operate as one global brand, the business remains at different stages of evolution across regions today. Importantly, we're supported by strong experienced leadership teams with deep tenure who understand both the brand and the markets we serve. In North America, we expect stabilization in the year ahead and are focused on revenue quality restoring marketplace discipline and rebuilding momentum with both consumers and wholesale partners. What we're seeing gives us great confidence. Inventories cleaner product feedback is positive and engagement with key accounts is strengthening. These are early, but important signs that the foundation is moving in the right direction. In EMEA, the business remains solid and continues to serve a stable anchor for the brand. In an uncertain environment, our priority there is protect and extend that strength by expanding in key markets while maintaining the discipline that's made the region such a consistent contributor to our global performance. In APAC, we're sharpening our focus and driving greater efficiency with a clear emphasis on China. We're tightening the assortment, elevating the consumer experience and ensuring we are positioned to compete effectively in this critically important market. As we do this, we're applying the same principles that guide our broader reset focus, organization and clarity of brand. In fiscal '27, we expect gross margin to expand approximately 220 to 270 basis points, primarily driven by the benefit of a tariff-related refund, along with pricing actions to elevate our brand, better manage promotions, more favorable channel mix. At the same time, our outlook reflects ongoing external pressures, including tariffs and broader geopolitical uncertainty. All in, we expect adjusted operating income to be in the range of $140 million to $160 million. In closing, what you're seeing taking shape is a more intentional and connected Under Armour with focused products, more aligned marketing and improved financial performance, which all reinforce one another. Over the past 2 years, we've rebuilt important parts of the company with greater clarity, discipline and accountability. Now following the progress we've made in reengineering our product organization, we are now applying that same focus and lens with rigor to marketing. With the goal of amplifying our product strengths, deepening consumer connection and driving more consistent demand. Most importantly, strategy is increasingly driving the decisions across the organization. We're becoming more intentional about where we compete, how we invest and where we believe we can create the greatest long-term value. In fiscal '27, we are operating from a position of greater strength. And while we remain a work in progress throughout this transformation, the model is simpler, the strategy is clear, execution is improving. We have a core team that is deeply committed to winning for this brand and our shareholders. We've made significant and important progress over the last 2 years, and I'm excited to see forward momentum translate into disciplined delivery and into building a more predictable and profitable business in the coming quarters and years. And with that, I'll turn it over to Reza.

Thank you, and good morning, everyone. I'll start by thanking Kevin and the Board for the opportunity to join Under Armour at such an important time for the brand. It's a company I have long admired and I'm excited to step into this role as we move into the next phase of the transformation. I also want to take a moment to recognize Dave Bergman for his leadership and partnership during this transition. His 21 years with the company and the foundation he helped build has positioned us well for what comes next. Over the past few months, what has stood out most is the alignment across the organization. The strategy is clear. priorities are well defined and there's a strong sense of ownership and accountability across teams. Just as important, there's a clear connection between the strategic choices we are making and how they translate into performance. As Kevin outlined, we've spent the past 2 years executing a reset, simplifying the model, strengthening the brand and improving execution across the organization. From my perspective, that work is creating a more focused, more controlled and ultimately more predictable company. My role is to build on that foundation by driving greater financial clarity, consistency and accountability as we move forward. This is a brand that has been having tariffs, softer consumer demand and supply chain disruption. At the same time, there's a strong sense of control across the organization, and I'm excited to strengthen that momentum. As Kevin outlined, in fiscal '26, we focused on building structure and discipline and our performance reflects that progress. While we're still early in stabilization, we're beginning to see more consistent execution. And with that context, let me turn to our results. Fiscal '26 brought its share of external pressures, particularly from tariffs. Revenue declined 4% to $5 billion. By region, North America was down 8%, EMEA was up 9%, and APAC declined 5%. Adjusted gross margin declined 220 basis points to 45.7% primarily driven by higher U.S. tariffs along with a more promotional second half, partially offset by favorable FX and product mix. Adjusted SG&A decreased 5% to $2.2 billion. Adjusted operating income was $107 million, and adjusted diluted EPS was $0.12. Turning to our fourth quarter results. revenue was down 1% to $1.2 billion. By region, North America revenue declined 7%, primarily due to a decrease in wholesale with a slight decline in our direct-to-consumer business. In EMEA, revenue increased 7% with about 3 points of negative impact coming from shipment timing that shifted from Q4 into Q1. Quarter's results included growth across both wholesale and direct-to-consumer channels. Revenue in EMEA was down 1% constant currency. APAC revenue increased 13% and 8% constant currency with growth in both DTC and wholesale channels. In Latin America, revenue increased 22% or 8% constant currency with strong double-digit growth across both wholesale and direct-to-consumer businesses. From a channel perspective, wholesale revenue declined 3%, driven by a decrease in full price sales, partially offset by distributor growth. Direct-to-consumer revenue increased 5% in the quarter, with 8% growth in our owned and operated stores and flat e-commerce revenue. And licensing revenue increased 11%, driven by strength in our international business. By product type, apparel revenue was flat, with growth in train, outdoor and sportswear, offset by softness in run, team sports and golf. Footwear revenue was also flat with strength in run in team sports, offset by softness in other categories. Accessories revenues increased 2%, driven largely by strength in sportswear and train. Gross margin declined 470 basis points year-over-year to 42% in the fourth quarter. Excluding restructuring efforts, adjusted gross margin declined 360 basis points to 43.1%. This decline was driven by 315 basis points of supply chain headwinds, including roughly 260 basis points of pressure from U.S. tariffs, 90 basis points from increased promotional pressure, particularly in direct-to-consumer as we manage through softer traffic and took proactive steps on inventory and 20 basis points of unfavorable regional mix. These headwinds were partially offset by 65 basis points of favorable foreign currency and channel mix impact. Moving to SG&A expenses, which decreased 15% to $518 million in the fourth quarter, primarily driven by lower marketing spend due to timing shifts as most of last year's spend was weighted towards the second half. We also saw benefits from lower incentive compensation as well as declines in several other cost areas as we continue to focus on expense management. Excluding $15 million in transformation costs, adjusted SG&A declined 14% to $503 million. Over the past few months, we've conducted a comprehensive review of the business to ensure we are fully capturing the intended benefits. To complete the remaining work, we're initiating a targeted expansion of the plan. This includes incremental costs necessary to deliver the full value of this effort, bringing the total anticipated cost to approximately $305 million. We now expect the plan to be substantially complete by December 31. Moving down the P&L. We reported a fourth quarter operating loss of $34 million excluding transformation expenses and restructuring charges, our adjusted operating income was $3 million. To the bottom line, our diluted loss per share was $0.10 excluding transformation and restructuring charges, our adjusted diluted loss per share in the fourth quarter was $0.03. On the balance sheet, we ended the year with $915 million in inventory down 3% year-over-year, reflecting continued discipline as we reshape the business. This includes deliberate actions in the fourth quarter to further reduce inventory, accelerating the reset and positioning us well for fiscal '27. Importantly, this is not just lower inventory but better inventory with improved quality driven by tighter buys, a more focused assortment and stronger alignment with demand. We closed the year with $309 million in cash and $605 million in restricted investments, which are set aside to fully cover the principal and interest on our senior notes due this June. With that obligation coming off the books by the end of the quarter, this marks a meaningful step forward in strengthening our balance sheet. We also ended the year with $200 million in borrowings under our revolving credit facility. Looking ahead to our fiscal 2017 outlook. We expect revenue to be down slightly. This includes approximately 1 point of impact from the Curry brand exit, meaning we would have been roughly flat absent that. This outlook includes a low single-digit decline in North America partially offset by low single-digit growth in EMEA and APAC. As Kevin mentioned, this reflects both the dynamic retail environment and deliberate choices we are making to strengthen and protect the brand, including tightened assortments and stepping away from lower value opportunities. While some of these actions may impact near-term volume, they are intentional and aligned with our focus on driving a more profitable, higher quality business over time. For gross margin, we expect expansion of approximately 220 to 270 basis points versus last year's gross margin. This outlook assumes a potential refund related to IEEPA tariffs expensed through the P&L in fiscal '26. This positive impact is expected to contribute roughly 150 basis points, with most of the benefit recognized in the first quarter. Excluding this, gross margin improvement reflects pricing actions as we continue to elevate our brand, reduced discounting and a more favorable channel mix, partially offset by supply chain headwinds related to the Middle East conflict. It also includes an assumption that the current 10% incremental tariffs through July remain at the same level for the rest of fiscal '27. We expect our adjusted SG&A expenses to increase at a low single-digit rate versus the prior year. This is driven primarily by about 2 points of higher compensation-related costs as we normalize against actions we took last year to offset tariff pressures, which resulted in reduced incentive compensation, lower merit increases and changes in employee benefits. There's also about 1 point from additional marketing investments that we'll be making this year, but we'll still be within the 10% to 12% of revenue that we've kept to historically. Balance this out as we dig in further on the year ahead, we anticipate that we will find other opportunities for operational improvements. Putting that together and excluding anticipated transformation expenses and restructuring charges, we expect adjusted operating income for fiscal '27 to be in the range of $140 million to $160 million. This assumes approximately $70 million of benefit from the refund of IEEPA tariffs expensed through the P&L in fiscal '26, that tariff benefit absorbs approximately $35 million of headwinds that we're seeing related to the Middle East conflict as well as $30 million in strategic marketing investments to strengthen our brand momentum as we begin to stabilize. Below the operating line, we expect an unusually high GAAP effective tax rate for the year. This was primarily driven by restructuring expenses, which will increase losses in the U.S. and certain international markets where accounting valuation allowances prevent the recognition of related tax benefits. For non-GAAP, we also expect to higher than normal effective tax rate, primarily due to the geographic mix of earnings. We expect taxable profits in most international markets with losses and some others, which are subject to valuation allowances that negate the related tax benefits. Both GAAP and non-GAAP tax rates are also being impacted by our current level of profitability or even a modest tax expense can result in higher effective tax rate. As profitability improves in the U.S., we would expect tax rates to normalize over time. All in, this results in full year adjusted diluted EPS in the range of $0.08 to $0.12. Turning to some color for our first quarter. We expect revenue to decline 2% to 3% driven by an anticipated high single-digit decline in North America reflecting a challenging retail environment and reset and seasonal wholesale ordering. This will be partially offset by a low teen percentage increase in EMEA, which includes a 3-point benefit from a shift in shipment timing from Q4 into Q1. APAC revenue is expected to be roughly flat. Overall, we expect the first quarter to represent the weakest revenue performance of the year, with growth rates improving progressively through the balance of fiscal '27. Gross margin for the first quarter is expected to increase by 610 to 630 basis points, largely due to the assumption of a benefit from our IEEPA tariff refunds associated with the expenses that hit the P&L in fiscal '26, which would contributed about 600 basis points. Excluding this benefit, favorable channel and product mix are expected to offset higher tariff rates currently in effect, supply chain headwinds related to the Middle East conflict and unfavorable FX and regional mix. Adjusted SG&A expenses in the quarter are expected to increase at a high single-digit rate compared to last year's adjusted SG&A driven by higher marketing expenses, which should result in first quarter adjusted operating income of $30 million to $40 million an adjusted diluted EPS of breakeven $0.02. In closing, our focus is on continuing to build a more disciplined and predictable financial model grounded in clear priorities and consistent execution. We are aligning our financial framework tightly with our strategy, focusing on improving the quality of revenue, expanding margins and driving more efficient capital allocation. That includes maintaining strong marketplace discipline, being intentional in where we invest and ensuring that every dollar supports long-term brand strength and profitability. The opportunity before us is ultimately about building a more focused, higher quality business, one where product, marketing and financial performance are aligned and where we are better positioned to translate strategy into repeatable results. We've made meaningful progress strengthening the foundation. And while there is more work ahead, we are moving forward with greater clarity, discipline and control. With that, we'll open the call for questions.

Our first question for today will come from Jay Sole with UBS.

Kevin, a question for you. You called for stabilization in fiscal '27 and your outlook calls for another year of revenue contraction. How are you thinking about a return to top line growth?

Yes. Thanks, jay. Let me let -- maybe Reza jump in and sort of break in a little bit here with some tactics and then let me come on the backside of that. .

Thanks, Kevin and Jay. Fiscal '27 includes a 1 point reduction from the Curie that we talked about. So we're looking at really the underlying being closer to flat. Recall that stabilization for us is roughly defined as plus or minus 1% to 2%. So we are in that range. North America, we are expecting down low single digits. EMEA, we're expecting to be up low single digits, and APAC, up low single digits. So the international markets should be continuing to perform -- if I'm looking at it for the first quarter specifically, North America is down -- expected to be down about 7% to 8%, whereas EMEA is going to be up in the low teens, some of that is that shift that we talked about from Q4 into Q1, but still a strong performance overall for EMEA in the quarter. And APAC is expected to be roughly flat. So overall, for Q1, we're expecting revenues to be down about 2% to 3%. And -- but Kevin, I'll turn it over to you for the color.

Yes. So Jay, thanks for the question. And I think it's important for us to ground ourselves in the numbers. And I do just want to mark the fact that we've been targeting after -- especially in North America, minus 12% in traction 2 years ago to minus 8%. Looking at that roughly stabilization is something that I think our team has worked incredibly hard for and something that we look to build on. But I want to emphasize that we're focusing and prioritizing the quality of our revenue over the volume, making really deliberate decisions, particularly about our growth and our margins. So we expect to accomplish all this by doing much less things, much better. So I've said that a few times, and I hope that theme of intentionality is something that really comes through for the call. But by removing this amount of volume from the system, we're reducing the amount of work that our teams have to deal with, our consumers have to digest. Our customers have to place in their stores. And it's all coming with a very heavy lens of will this deployment of time, people or money, help us sell more shirts and shoes. And so we do believe that the inflection point is upon us in fiscal '27. This is turnaround, but we also recognize consistency matters. So our operating model, our go-to-market None of these things are massively changing. However, we're also keeping our head on a swivel. Sorry for the sports terms, but doing things like implementing a chief merchant and having care there who can edit as aggressively as the business calls for. We're now looking to take that same sort of rigor that we've applied across the 25% reduction, and we're going deeper than that through the seasons and upcoming seasons that we have in front of us and applying that rigor to marketing is the next focus that we have. The good news, we have a large denominator, nearly $0.5 billion of marketing dollars and how we think about deploying that money. But this is something we believe is an important time of inflection for us to invest for greater sales for the brand. And that greater sales will bring greater profitability for us. And so we are certainly again, bottom line focus. But we think it's important we have our storytelling capability and driving behind things because we're not sitting here flat footed. We have a incredible innovation pipeline coming from things like the bounce key, I mentioned in my prepared remarks to what we have coming back with fleece and the support we're getting from our partners there and, of course, base layer compression business that we have. So the good news about all of this is that we're seeing greater buy-in from our key strategic partners across the world, really, in Europe in the JDs and SDIs and El Cortez and glasses to right here at home with the biggest partners that you, of course, know and are aware of. So -- we do believe this is an inflection for us and we look to go forward from here.

The next question comes from Simeon Siegel with Guggenheim.

Can to follow up on that a little bit. So maybe can you help give us some context around the declines in North America revenue that we're seeing now. So just to call out some specific categories, partners, price points broad-based, just maybe framing how much of the current declines are the intentional healthier pullbacks versus external? And then just to the point of what we can see in terms of healthier sales, maybe you guys can quantify the gross margin drivers a bit more for 4Q and the specific drivers for '27 outside of tariffs. Just help us think through cost and pricing, general health metrics that we can see. And then, sorry, if you answered already question. Just any help on what all of that should lead for long-term gross margin levels.

Yes. let me kick off, and then I'll have Reza kick in. So what we're seeing right now is when we talk about stabilization, we recognize Q1 is going to be the trough force and not the trend. And so it's a bit of an outlier. The decline that we see reflects some of the softer carryover we had for Spring/Summer '26 order books and frankly a bit of a cautious retail environment. There is a stronger foundation now in place, I mentioned Cara taking over Smerchant, Adam stepping in and filling your shoes with a long time Under Armour vet. So we've got 0 real transition value with those 2 experts. The partner confidence that we're getting, I just want to emphasize that, and we're beginning to see that show up with better reaction to our fall '26 order books. And so I can't emphasize enough, particularly here in North America, the trend they're on, which again was minus 12%, minus 8%, and now we're calling flattish. And so while we are seeing some modesty there, the quality of that revenue, the way they're expecting us, they're openness to bringing in new innovations from us is something which is really important. So the better products that we have is -- I think we've made this point on a few calls, which is focusing on our top 10 volume drivers, full price sell-throughs, and the good news is that we are seeing the trend. We talk about the trough. I think it's a good way to think about sort of where we've been at this moment. Is that looking for the opportunity for us to grow here because we're watching awareness grow positively, consideration grow positively. So the metrics are also heading in our ways, but we want to see that translate into full price sales. We want to see that into growth. We want to see that into bottom line profitability. So while 27 is a deliberate stabilization year with improving trends beyond just the first quarter, we believe we're positioned really well for sustainable growth in fiscal '20 and beyond.

And let me just step in on the gross margin points that you asked as well. So for fiscal '27, we're expecting -- we're guiding around 220 to 270 basis points increase -- or benefit to gross margin. If you back out the fiscal '26 tariff refund that I talked about, the 150 basis points, that gets you to about plus 70 to plus 120 basis points versus '26 in for Q1, you're really going to see it in Q1, where it's -- we're basically looking at 610 to 630 basis points versus last year. So gross margin going up. And if you back out tariffs, that's about 600 basis points of that as well. I think the message around gross margin really is as we're looking at 2027, we're definitely expecting gross margin to not only stabilize, but to improve. So even if you back out the tariff benefits, we're expecting that the strategy around improving, but taking the products that we have and selling them at a full price, some of the channel mix that we have should lead to a benefit in terms of overall gross margins for the brand.

Your next question will come from Peter McGoldrick with Stifel. .

I was hoping you could give us more clarity on the quality of sales commentary you shared today. Is this an extension of an evergreen process? Or have you stepped away from new business specifically for the coming year? And if so, can you help us think about how that's embedded in the outlook?

Yes. Why don't I take, Kevin then you can add, obviously. So there's a general theme that we're looking at in terms of the quality of sales. So it was 1 of the things that we saw in Q4. We strategically we're looking at basically resetting the year. So we talked about reducing the inventory in Q4 on purpose as we started the balance of fiscal '27. There is a brand elevation strategy that we're pursuing here. So as you look at products, Kevin and the team have spent the last couple of years really resetting on the product side, and we have some good product introductions that are coming. But if you go to any of our stores, you'll see an elevated product offering already. So we are expecting that, that will result in benefits as it relates to just pricing. So it's not pricing for pricing's sake, it's that you have a new product that's coming out that is at an elevated price point. And that also fits into the distribution strategy that we have, be it wholesale or in our own direct-to-consumer channels as well. So there is, as we talk about gross margin improvement, part of that is related to expecting that we're moving more and more to a more elevated product offering that enjoys a higher price point.

And I think we've been talking about this for the last 12 or 14 months. the thing about tariffs that actually fits in line with our premiumization for the brand. And so we'd be doing this anyway where we've been aggressive is in some of our top 10 that we have replacing our #1 apparel item the Tech T with new innovation will be coming out later this year, introducing some Pinnacle NorthStar products like BNCT that can come in and again, emphasizing and building around where we already have permission with the consumer to win, things like our base layer and our compression. And so we're being thoughtful. We don't feel like we're being opportunistic. We feel like we're being prudent with what the business calls for. And frankly, just getting confident with where -- we know that we can win and we can excel and the ability for us to extend from there we're taking baby steps towards that having the right product that moves, of course, locking down on field, on pitch, on court in the gym first and foremost. And then finding natural ways that this brand can extend beyond those places where the consumer sees us today.

Excellent. And then just a follow-up on that. On DTC quality of sales improvement, that's been a focus for some time, finally moving in the right direction. Are we now reaching a more normalized promotional environment? And then on a consolidated basis, how should we think of promotions embedded in the gross margin outlook for fiscal '27?

Yes. I think as it relates to e-com, that's something that we constantly look at. We recently had a marketing summit and one of the proofs we came back with was that if we can improve and grow our e-commerce traffic, it will take care of everything else in the business. And so I do think it's a good canary in the coal mine for what's happening out there. Traffic is certainly not brilliant today, but it's something that we're as I say, work the mix. We're looking at different ways that we can really consolidate our line, the offering that we have and making it more intentional. So the consumer isn't walking into an environment of, welcome to Under Armour, we sell a bunch of stuff. What would you like to buy versus here's 3 great things that you couldn't live without and that only Under Armour could make. And so leaning and driving on that. But it is the consumer is something that we are watching closely and including consumer confidence right now.

Next question will come from Sam Poser with Williams Trading.

I have I have some technical step, and then I have also -- I wanted to first start with your -- the brand direction. You guys are one of the few brands out there that support like every track in field sport. Can you talk about the sports that you're focusing on, especially after the victories -- the two victories at Boston. And how -- and sort of the reach -- how you're thinking about the reach by sport, both individual sport and team sports and what you're doing across all that? .

Yes, Sam. Let me take the first part of that question. So our sports focus, as I said, we've limited and we called things down on the leadership, the decision makers we have in the building so we can be more deliberate, more intentional and I'll probably wear you out with that word, but it's something that we're driving across the business, ensuring that every dollar is driving an ROI return for what we put into it. the 12 categories that we have are the ones that you know, and it's -- we basically listed out training in an sportswear being our major growth opportunities, all of that underpinned and supported by Team Sports. You've seen the initiatives we have from a marketing standpoint around flag football, particularly with women as being the articulation of that voice and it's something that we're driving back towards making sure that authenticity and credibility is something that always creams from Under Armour. You're right, Sharon Lokedi's win is something which is defining for the brand. As I said in my prepared remarks, it's not just a moment, but when you can do that twice, it tells the consumer that the largest market that we have to compete in from a footwear standpoint that Under Armour can not only compete, but we can absolutely win. And doing it back-to-back is significant. Sharing though, is you're not going to sell a lot of $250 running shorts that we have. But we have the greatest opportunity for us to be able to build, I think something more extraordinary for as we bring that out to our Velocity distance, our Velocity Pro and get into commercial price points where we can actually sell and activate with the consumer. So the two largest places where the consumer is participating today is we hear you on track and field, and we do support the majority of those sports, as helping and supporting some of the 3,000 colleges that -- Under Armour -- or sorry, 400-plus colleges we have and 3,000-plus high schools that we have around the country. So these are things that all feed into it. But we believe that running is a place that we have permission to win. We just need to tell the consumer about that and do it in a more articulated way.

And then can you mentioned that the tax rate is going to be elevated. Can you give us an idea of exactly what that looks like -- are you -- what kind of -- what tax rate we're looking at? And then also the interest expense line after you pay down the debt, can you give us some idea of what you're assuming there as well, please? .

Yes, sure. Thanks. So on the tax rate, we're not guiding to a specific ETR number. But I think what you need to know is what we mentioned on the call, it's basically both on a GAAP and non-GAAP basis. It's really the geography of where the earnings are coming from and the ability to use your deductions against that. So while I would tell you, if North America starts to go -- return to growth, we're very well positioned in terms of our tax structure. When you have basically certain jurisdictions like China and other areas where you have to pay taxes. . And then you're not able to basically use the losses to offset what you have because some of the restructuring expenses that we've taken, it results in an elevated effective tax rate. Under normalized instances, we would be in the high 20s -- mid- to high 20s is where we would be, but that's not what we're looking at currently. In terms of the interest expense, think of it as basically our debt once we get past the June pay off and everything. So we have basically $400 million of senior notes, and we have $200 million currently drawn under the revolver. The revolver balances will obviously fluctuate over the course of the year. On a blended basis, you're looking at around 6.5%, 6.6% interest expense against that. So for modeling purposes, that's where we would guide you. Our revolver is priced at SOFR plus 150 basis points. And so that's how it comes out on a blended basis.

And then I mean just -- I mean then we could assume that your tax rate in the -- probably in the first 2 quarters will be the highest because of the -- I mean that's just what it sounds like based on the first quarter, the way you're guiding. .

I think that's a fair assumption. But obviously, as well. So.

Next question will come from Bob Drbul with BTIG.

Congratulations and welcome. I guess the question for you is, what are your first impressions as you settle in at Under Armour. And then I guess the second question I'd like to ask is just can you guys give some more color on the increased spend in marketing and sort of how your strategy is evolving there?

Thank you so much. It's a great question and 1 that Kevin actually asked me last week, and we had a senior leadership meeting that I basically went through this. So I'll just give you some inside base following what I shared with the management team as well. really, the first thing that I'll start with is the management team is really impressive. And I'm not just saying that because my boss is in the room, but honestly, from every layer, whether it's the senior management to the levels below my finance team. I think it's very, very clear in terms of what everybody is focused on. . So I would tell you and everybody on this call, rest assured that things that are controllable are being controlled. So we have a clear strategy. We have a clear way forward. Obviously, I have a partner in Kevin, about 30 years of experience in this industry and those company intimately. But we are mid journey in turning around the company. And just to overly simplify it, I would tell you -- and obviously, you guys know that I come from consumer products background as well, but very simplistically, you got to look at it as revenues driven it's product plus brand times marketing equals revenues. The biggest surprise for me is really on product. The product truly is phenomenal. And I'm just going to share with you an example of my daughter who's literally one of our aspiration/target consumers, who is 23. When I started here, for those of you who haven't been here, we have a phenomenal campus store that's in our headquarters building here in Baltimore. I went down and obviously, I did some shopping for myself and I did some shopping for my family and I bought my daughter a Meridian top. And if you don't know Meridian, I highly recommend buying so -- the Meridian top that I got here and to be fully transparent with you, she was not an Under Armour consumer previously. My son has always been, but she wasn't. She tries the top on and -- and again, she is very honest. And she basically said, this is one of the best tops I've ever had. Why don't you sell this? And that really comes down to the point here is we really have brand and product, and for brand, people want us to win. I can't tell you how many people have reached out and said like, we really liked the Under Armour, we wanted to win. I feel like there's really good affinity towards the brand. The product is great. The issue is marketing. And so I'm looking at that as an example of you have somebody who looks at something, who wouldn't even think to have gone and purchased that product. And so I'll just touch on one other thing, and then I'll segue over to Kevin for more detail on the marketing side. The other thing is as I come into this role, obviously, I bring a fresh perspective. You should just know that we have a huge focus on profitability, like driving profitability. So we're scrubbing the cost structure, we're looking at the revenue realities of where we are. We're rightsizing the company for those revenue realities. And there's a huge focus and clear strategy in terms of navigating this dynamic environment that we're in right now. But let me turn it over to Kevin to talk about the marketing point.

Yes. Thank you, Reza, and absolutely getting your daughter to know that what we make and how great it is, it's critical. So Bob, thank you for the question because this is something that's been highly discussed, talk through contemplated and frankly, deliberately decided on what we believe is the right thing for us to take for our business. And so let me just take a minute here and sort of go through marketing. . We recently -- we did a structural review to identify how we can drive greater marketing spend synergy because we found ourselves really running 3 smaller companies with a $3 billion on in America and $1.2 billion-ish in Europe and south of $1 billion one in APAC that we're looking to grow, and we believe that we can get and drive, I think, just more competency with the way that we're cutting through to our consumer. Under Armour, we like to say that our currency is product, but our voice is overwhelming storytelling. I don't feel like we've been living up to that. I believe that there's more efficiency in our current nearly $0.5 billion marketing budget. We align this year, though, to deploy and spend that additional $30 million, which is we know something that would be highly scrutinized. But to be honest with you, this isn't just us throwing money at something. We believe that this will actually help us drive more efficiency. And we want to better ensure that we can move back to growth in fiscal '28. And so we think it's an important time for us to do it. And there's 2 places that we're looking to deploy those dollars. Number one, this isn't about acquiring new products or new properties, this is about celebrating the product that we already have. As I mentioned, Bounce, our women's bra program, which is something which is extraordinary with new innovations coming out, heat year, cold gear fleece and making sure the products we have are actually selling through. We have several launches coming later this year as well, as I've said, emphasizing that our innovation pipeline is full. And so we want to make sure we're not missing that opportunity. I don't believe that we've been as clear as we could be in the past. Secondly, we also want to make sure that we're paying off the assets where we have spent money, things like our new partnership with the NFL, the Collegiate partnerships and the 9 figures plus that we spend on sports marketing, making sure that we're doing a better job activating that. So where we are now is that we're focused on effectiveness, doing fewer but better impactful activations, clear messaging and things that will help us, frankly, sell more premium shirts and shoes, everything going through that lends that discipline. And then also being more data-driven with the allocation of every marketing dollar spent and that we're going through and driving a serious ROI as to does this investment makes sense to us. And as I said, I like this construct of when we're doing it right, we're mostly talking and describing the benefits of what our brand -- of what our product does, but through a brand lens, it's something that matters. This is going to be a targeted investment to strengthen the brand that will position our business. And as Reza said, it sticks within our current 10% to 11%, but we agree. We want to focus on SG&A. We want to get SG&A down. We're hyper aware of that, and we're a bit at this moment where we do think it's an inflection. So I believe that what you've seen us be able to action so far in -- on the product side, which at this point is mostly just works for you as it begins to come through. But that 25% that we've taken out, the additional cuts that we're making to SKUs, just taking simply volume out of the system, will leave our team in a much, much better place. Maybe I could just leave you as we think about marketing, too, is just how we're thinking about the business and we had recently a 2-week summit, I described loosely earlier. But after that, we brought all of our marketing leaders from APAC from EMEA together, and we spent 3 or 4 days here in Baltimore and in on-site off-site -- and we align on these 4 proofs. The first one, I said is if we can drive more consumer traffic to our website, the overall business will grow. Secondly, it was this heightened focus that we have on new consumers. I mentioned that in my prepared remarks. Third is the need that we have for to focus on that product to brand marketing. And again, when we're doing it right, you should not be able to tell the difference between the two, and that's what's the brilliance or the cleverness that hopefully you'll be seeing is our marketing. And fourth and finally is aligning on the pooling of more of our marketing dollars together that we're leveraging and creating content here from a global basis to say that having to be done exclusively in the regions, of course, allowing them to translate and make it region or mark appropriate but having just a greater strength here from headquarters as well with a stronger point of view. So this brand knows who it is. We know who the consumer that we're hunting for is as well, and we have incredible empathy for the products that they will choose and desire.

Your next question will come from Laurent Vasilescu with BNP Paribas.

This is William Dossett on for Laurent. And also congrats Reza on the new role.

Thank you.

So my 2 questions were with respect to channel and regional performance. So in North America in fiscal '27 guidance were down low single digits. How should we think about the trajectory of wholesale versus BTC, especially considering that the wholesale partnerships have become increasingly collaborative in recent quarters. And then on Asia within the guidance for low single-digit growth, can you give us an update on what you're seeing on the ground there, especially in China. Back in February, it was made that the -- there was a stabilization in Asia expected within 12 months. Is that still the base case or are you ahead of that target?

Why don't I start with that, Kevin, and then you can pick up from maybe the Asia point. But the overall, in terms of North America direct-to-consumer channels that we're looking at, if I'm thinking about DTC really our factory house stores is what's driving a lot of that are expected to continue to outperform. In terms of wholesale, we're seeing decent sell-through currently. And I think as we're in the sell-in for the further seasons, the early indications are that it is an improving trend, which is what you're seeing in the numbers that are coming out. if we're looking at it overall, I gave indications around the overall wholesale, not necessarily broken out by region. But our expectation is that wholesale in this year is going to be up slightly, it will be flat to up slightly. And then if I'm looking at direct-to-consumer specifically, we expect that the factory house will perform. Let me turn that over to Kevin, to talk about the China trends. .

Yes. So Laurent, thank you. Let me just back up a little bit on some of that wholesale because we are seeing incredible partnership where I think some of what wholesale is seeing from us plays out real time. The wholesale gets to see some of the trends of where we're going. So we are exploring right now deeper partnership, deeper collaboration, and when I say collaboration, I mean, literally collabs with things that will help us premiumize and elevate the brand. Our wholesale must grow, though, it's 60% of our business, something that we're focused on. So we know that we have to win there. So this is the total execution from, a, the right product, be the right storytelling for the customer on the sell in to see the way it executes at retail or online in their stores, too. So we are focused on that full end-to-end throughput that we have as our product goes to market. As it relates to China, Under Armour is in a pretty unique place. We've got a terrific leader across APAC and Simon Passage, who is a brand-first leader. Simon took on this commercial role probably 18 or 20 months ago. And what he's done is basically helped us perform a bit of a flip where we were incredibly promotional, incredibly discounted, and we did a really great job so far as we're watching to turn the inflection of that business from down in the teens where we were a little more than a year ago to something we're looking at flattish to a positive there. The market is not great, meaning the consumer is tough everywhere. So you're not having sort of any places where you get a free lunch or an easy ride. But I think what we're doing right now is brand-right marketing. We've exited or exiting performance marketing, reducing it significantly as we can flip that into brand right marketing that's actually driving and selling a product versus selling a price savings or a discount. We also have a terrific pro there named Carol Chen, who runs the business force, who is an industry vet, who knows the partners, who knows our franchisees and is someone who's been critical and a real staple for Simon there as we look in market. For us, we're testing new retail concepts. We're trying new things and working the merchandising mix. I think China, I don't know if I could compare it to the U.S. I guess I could just say broadly that I don't think there's as I said, there's no free rides that you get in any market around the world right now. It's more competitive, especially with some of the local options they have there in China, but Under Armour is certainly holding its own, and we have a great plan for growth there.

The next question will come from Paul Lejuez with Citigroup.

It's Tracy Kogan filling in for Paul. I was hoping you could tell us what your CapEx expectations were for this year and free cash flow? And then secondly, I was wondering if you built any benefit from World Cup into your guidance?

With regards to CapEx, I think it will be similar to what you've seen last year. So we're past building our campus here in Baltimore. So that's kind of a more normalized level going forward, I think. In terms of free cash flow, we're expecting free cash flow generation in the year. the expectations of both the core operations as well as some working capital benefit building in terms of the free cash flow that we'll see this year. We did have some one-timers last year in terms of free cash flow, which you're well aware of in terms of some settlement payments and things like that. And so yes, I mean, I think we expect it to be a good year in terms of overall free cash flow generation even after CapEx investments. What was the second part of the question, sorry?

If you've built any benefit from the World Cup into your guidance?

Not anything that's of particular note. Obviously, we have some assets that we plans to activate during the course of the World Cup, but there isn't anything that would be a onetime that wouldn't be recurring in future years that's outsized. .

Yes. And from a pure market standpoint there, we're going to have, I think, 10 to a dozen players that will be participating in the World Cup here in the U.S. It's going to be a period of time. It's 1 where it's incredibly expensive to get in. And so Basically, the majority, if not all of our marketing in Europe is built around football. And so bringing the beautiful game here to the U.S. is something we're going to celebrate with a number of our players like locates and the range that we have, which is extraordinary. And so we want to make sure we're supporting some of the players we'll have on the Spanish national team and some of the other national teams. But as far as a major play in World Cup, it's something that we want to make sure that we're understood and play in football, but we want to definitely take our time and not try to outspend in some place where we think it may be a bit uphill for us. And so we have a position to win. We're going to continue to do that through our language in Europe, especially.

And we'll take our last question from Rick Patel with Raymond James.

Congrats Reza on the new role.

Thanks, Rick.

You talked about the e-commerce channel and how things can do well there, they bode well for the overall business. Can you double click on the levers you can pull to improve traffic there and what guidance assumes as the year moves forward? And then as a follow-on, with the product assortment evolving towards brand elevation, how are you thinking about segmentation of newness across B2C versus wholesale channels?

Why don't I start with the numbers side of it and then Kevin can talk to some of the macro points as well. E-commerce is stabilizing after 2026. We are expecting it to improve as the year goes on. There is a bit of a reset that's happening in e-commerce. One of the folks that Kevin touched on is how we're trying to basically be much more intentional in the way that we present ourselves in the e-commerce channel because that really is the best reflection of the brand. So there are changes that you're going to be seeing, particularly in North America in terms of how that is. We do expect that to take some time to bear fruit. There is -- you're absolutely right, traffic is challenged in terms of e-commerce overall. What we're cognizant of is not over investing marketing dollars on performance because -- to drive unqualified traffic. I don't think that will have much of a benefit. So we want to make sure that we're executing the brand elevation play we have in e-commerce. And to do that, you're going to start to see from a marketing perspective, a greater mix in terms of what we're doing both at the brand level as well as performance to try to do that. But I think the bigger point is really from a macro perspective, strategically resetting the presence that we have on e-commerce and they get brought more brand elevating and to drive higher price points and ASPs. Kevin, I don't know if you want to add to that?

I think it's good coverage. Coverage. Thank you. .

And this will conclude our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.