Under Armour Inc. (UAA) Fiscal Year 2025 Q2 Analysis Report

Executive Summary

Under Armour Inc. (UAA) delivered mixed financial results in the second quarter of fiscal year 2025, reflecting ongoing strategic adjustments amid challenging market conditions. Net revenues declined approximately 8.2% YoY, from $1.57 billion to $1.40 billion, primarily driven by softness in North American wholesale channels and moderate declines in international segments. Gross profit decreased by 7.1%, with gross margin slightly compressing to 49.8%. Operating income turned positive at $173 million compared to a loss of $139 million last year, aided by cost management and restructuring efforts. Net income surged to $170 million, translating into a robust EPS of $0.39 on a basic basis, supported by improved operational efficiencies and a significant legal settlement inflow. The company’s balance sheet remains healthy with cash and equivalents at $530.7 million, though liquidity is impacted by cash outflows from buybacks and debt repayment. Overall, UAA is navigating a transitional phase with a focus on cost discipline and brand repositioning to sustain long-term growth.

Key Metrics

Management Discussion and Analysis (MD&A)

During the second quarter of fiscal year 2025, Under Armour’s revenue decline was primarily due to softness in North American wholesale channels, which experienced a 12.2% YoY decrease. International segments showed resilience, with EMEA and Asia-Pacific recording slight declines of 1.4% and 10.5%, respectively. The company’s strategic focus on cost management and restructuring initiatives contributed to a significant turnaround in operating income, achieving $173 million versus a loss of $139 million last year. Gross margins improved slightly, reflecting better product mix and cost controls. Notably, the company recognized $434 million from the securities settlement, which contributed to net income growth. Liquidity remains solid with cash reserves of $530.7 million, although cash outflows related to share repurchases and debt repayment impacted overall cash positions. Moving forward, UAA plans to accelerate brand repositioning, expand direct-to-consumer channels, and optimize supply chain operations to restore growth momentum.

Income Statement Analysis

Net revenues for Q2 FY 2025 stood at $1.40 billion, down 8.2% YoY from $1.57 billion. The revenue decline was concentrated in North America, driven by weaker wholesale sales amid macroeconomic headwinds. Gross profit decreased to $696 million, with gross margin expanding to 49.8%, indicating improved product margins despite lower sales volume. Operating income turned positive at $173 million, highlighting effective cost discipline and restructuring benefits. Net income escalated sharply to $170 million, with EPS at $0.39, reflecting the favorable impact of the securities settlement. The YoY improvement in net profit margin to 12.2% signals better operational leverage. Sequentially, revenues declined 10.8%, consistent with seasonal normalization and ongoing channel adjustments. Overall, UAA demonstrates resilience by converting operational efficiencies into profitability despite top-line pressures.

Balance Sheet Analysis

The company’s total assets decreased modestly to $4.49 billion from $4.76 billion, mainly due to reductions in cash and receivables. Cash and cash equivalents declined sharply by 38.2% YoY to $530.7 million, impacted by share repurchases and debt servicing. Accounts receivable declined slightly to $723 million, with an allowance for doubtful accounts at $17.7 million, reflecting cautious credit management. Inventories increased to $1.11 billion, indicating inventory build-up in anticipation of upcoming seasonal sales. Total liabilities decreased to $2.51 billion, with long-term debt reduced to $594.6 million after repayment. Shareholders’ equity contracted to $1.99 billion, with retained earnings recovering significantly from prior losses. Liquidity remains adequate, with a current ratio of approximately 2.17:1, and leverage ratios indicate manageable debt levels, supporting ongoing operational flexibility.

Cash Flow Analysis

Operating cash flow was negative at $168.4 million for the quarter, primarily due to working capital adjustments and strategic cash outflows. Capital expenditures remained disciplined at $91.5 million, focused on supply chain and retail infrastructure. Cash inflows from asset sales, including the MyFitnessPal platform, contributed $50 million. Financing activities resulted in net outflows of $129.4 million, driven by share repurchases of 5.9 million shares and debt repayment of $80.9 million. The company’s free cash flow remains under pressure but is expected to improve as working capital stabilizes and revenue growth resumes. Cash reserves are sufficient to fund strategic initiatives and debt obligations without immediate refinancing needs.

Ratios & DuPont Analysis

UAA’s net profit margin improved to 12.2% from 6.7% YoY, driven by operational efficiencies and legal settlement gains. Return on assets (ROA) increased to 3.8% from 2.2%, reflecting better asset utilization. Return on equity (ROE) surged to 34.0% from 20.6%, supported by higher net income and equity leverage. Asset turnover ratio improved marginally, indicating stable sales efficiency. The equity multiplier remained steady at approximately 2.25, reflecting controlled leverage. These ratios suggest the company is effectively leveraging its assets and equity to generate profits amid a challenging revenue environment.

Risk Factors

Under Armour faces several risks including macroeconomic headwinds affecting consumer spending, intense competition from adidas, Nike, and emerging brands, and ongoing supply chain disruptions. Regulatory risks involve potential litigation settlement obligations and compliance with international trade laws. Operational risks include inventory management challenges and maintaining brand relevance. Market risks are driven by currency fluctuations and geopolitical uncertainties. Financial risks relate to debt levels and liquidity management. Macro risks encompass economic downturns and inflationary pressures that could pressure margins and sales growth.

Notes & Additional Commentary

The significant legal settlement of $434 million remains a one-time gain that boosted quarterly net income; absent this, core profitability would be more subdued. The inventory build-up signals preparation for upcoming seasons but may pressure margins if demand softens. The company’s restructuring efforts aim to reduce overhead and optimize retail footprint, with an expected cost of approximately $140-160 million over FY 2025-26. Unusual items such as impairment charges and asset sales contributed to the financial results but are not indicative of ongoing performance. Strategic initiatives to enhance direct-to-consumer sales and digital engagement are critical to future revenue recovery.

Investment Implications

UAA presents a transitional opportunity for investors willing to accept near-term volatility for long-term brand repositioning. The legal settlement and restructuring have temporarily boosted earnings but also entail substantial costs and operational risks. The company’s focus on cost efficiencies and digital transformation supports a positive long-term outlook. Short-term, investors should monitor sales trends, inventory levels, and margin stability. Long-term, UAA’s ability to regain market share and innovate in performance apparel will determine its growth trajectory. A balanced view suggests cautious optimism, with potential upside from improved product offerings and market expansion, tempered by competitive and macroeconomic uncertainties.