Under Armour, Inc.UANYSE
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Operator: Good day, and welcome to the Under Armour Q2 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lance Allega, Senior Vice President of Finance and Capital Markets. Please go ahead.
Lance Allega: Good morning, and welcome to Under Armour's Fiscal 2026 Second Quarter Earnings Call. Today's call is being recorded, and a replay will be available on our investor website shortly after it ends. Joining us this morning are Kevin Plank, Under Armour's President and CEO; and Dave Bergman, our CFO. Before we begin, please note that certain statements made on today's call are forward-looking as defined under federal securities laws. These statements reflect management's current expectations as of November 6, 2025, and are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed discussion of these factors, please refer to this morning's press release, filings with the SEC, including our most recent Form 10-K and Form 10-Q and other public disclosures. In today's call, we may reference non-GAAP financial measures. We believe these metrics offer additional insights into the underlying trends of our business when considered alongside our GAAP results. Reconciliations of these measures to the most comparable GAAP metrics are included in today's press release and can be found on our investor website at about.underarmour.com. With that, thank you for being here and for your interest in Under Armour, and I'll now turn the call over to Kevin.
Kevin Plank: Thanks, Lance, and thank you all for joining us this morning. Before we get started, I want to take a moment to reflect on some important news we shared this morning regarding a leadership transition. To express my deep gratitude to Dave Bergman for more than 2 decades of extraordinary service to Under Armour. For 21 years, Dave has been so much more than our teammate, finance expert and CFO. He's been a true partner, a steady hand and a trusted voice. His discipline, integrity and unwavering commitment to doing what's right for our brand, our teammates and our shareholders have shaped who we are today. His impact can be felt in every corner of the company from the strength of our business to the culture that defines us. His leadership has built a foundation that will support Under Armour for years to come. As Dave transitions from his role and continues with us through the first quarter of fiscal '27 to ensure a seamless handoff, I want to sincerely thank him and not just for what he's accomplished, but for the person he's been to all of us. His legacy here will be lasting and deeply felt. Thank you, Dave. Now at the same time, we're excited to welcome Reza Taleghani as our next Executive Vice President and Chief Financial Officer, who will join in February of 2026. Reza brings more than 25 years of global finance leadership across corporate, operational and investment banking roles. He joins Under Armour from Samsonite Group, where he served as EVP and CFO since 2018, leading financial and operational transformations that significantly improve profitability and efficiency. His prior experience includes senior roles at Brightstar Corp., JPMorgan and Sterling Airlines. I have every confidence that Reza's extensive experience and strategic mindset will help drive our brand and business forward, and we welcome him to the Under Armour team. Now speaking of the team. Over the past few months, I've had the privilege of meeting our closest stakeholders across Shanghai, Hong Kong, Amsterdam, New York and Portland. The energy has been undeniable everywhere I went. The message remained consistent. Under Armour has the strategy, talent and brand power to succeed. Our partners are fully committed. Our teams are focused and our brand continues to inspire athletes worldwide. With nearly 2,000 UA-branded stores showcasing our global reach, the road ahead is vast. Now is the time to harness the momentum, align our priorities, ignite our entrepreneurial spirit and turn potential into tangible results. Like the athletes we serve, we know when to push, when to pivot and when to lock in. This turnaround won't happen through force alone. It's about balance and precision. Staying focused is critical because credibility and trust are lost quickly, but regained slowly. Whereas we say at UA, trust is built in drops and lost in buckets. And we have been busy, depositing one drop, one relationship, one product, one story at a time. Every decision, action and result shapes how our brand is perceived. Our category management model is sharpening our edge, aligning us more closely with athlete needs and boosting precision and speed across the business. We will maintain high standards, staying disciplined, accountable and continue to earn trust through performance. Anchored by our long-term strategy, this model keeps us focused on what matters most, winning with young athletes and making Under Armour the most trusted authentic performance brand everywhere we do business. This strategy is now global, echoed in every region and market around the world with our clear category focus of training, running and sportswear, then authenticated through A or the key team sport in each region from American football, basketball, diamond sports and volleyball here in the U.S. to football in Europe and football, basketball and volleyball in Asia. We deliver performance and build connection wherever athletes play. One of the clear signs our strategy is working is in product, the heartbeat of this brand. When I returned to the CEO role, I made it my priority as product has long 18-month lead times and to reignite the Under Armour edge, that's where we had to start. We streamlined assortments by cutting 25% of our SKUs, refocused our materials library by prioritizing fabrics we can be famous for and constantly raising the bar on design, working to bring innovation and style back to the center of what we do, which are all ingredients that made Under Armour globally famous to begin with. Fall/Winter '25 is when it all starts to show. A bold new design language is evident across training, running, and sportswear, confident, consistent and unmistakably UA. Core apparel collections, including Heat and ColdGear, Unstoppable, Vanish, Meridian and Icon are driving momentum and beginning to drive demand with key specialty and sporting goods partners. In footwear, we've addressed our contraction by refining our strategy and sharpening our aesthetic. We are not accepting the current state of the business. Our plan is straightforward: build on the franchises that are already successful and return to growth in the upcoming seasons. We're leveraging our momentum. The record-breaking Velociti Elite 3 highlighted by Sharon Lokedi's recent New York City Marathon podium this past Sunday demonstrates our performance leadership is resonating. SlipSpeed Echo and Nova extensions, along with our solo sportswear models are creating buzz, increasing sell-through and proving that UA can generate real demand where performance meets style. Accessories, we're gaining renewed energy with breakout hits like the $45 StealthForm hat and $140 No Weigh backpack, driving growth across wholesale and DTC by inventing new products as well as significantly higher price points, validated by UA innovation, which reassures us that where and when we innovate, we will succeed. Spring/Summer '26 only gets stronger and is also filled with innovation. The $160 Velociti distance run shoe, which builds on the Velociti 3 franchise, next-generation Shadow and Magnetico football boots, the Dry Pro clone golf shoe featured on Jordan Spieth and the new No Weigh duffle, all of which build on UA franchises, especially our HeatGear Elite base layer featuring our new UA-built NEOLAST fiber technology, which replaces Lycra stretch with a more durable and groundbreaking sustainable option for athletes and the planet. There will also be another extension of NEOLAST we will launch in the spring that we only tease with the clue of an industry quote that drives us. Whoever invents the next white or black T-shirt wins. Meaning master performance and elegance through something as simple as a T-shirt. It's the best expression of UA and believe we have that coming in the new year. This is what UA does best consumer-relatable innovation where we can drive positive perception and volume. So speaking of volume, we're working to elevate our top 10 largest unit products by enhancing quality and design, aiming to increase price points through innovation and style that help athletes perform better. Every product detail must justify its place by providing confidence, comfort and performance that set us apart. While higher average selling prices over the long term are a fundamental goal, our progress will be about more than just numbers. It's about building trust and instilling pride in athletes when they wear UA as a symbol of performance and purpose. A strong example, the $75 Assert 11 running shoe, which launched just this week, with a complete Velociti run-inspired redesign, it demonstrates how far we've advanced, turning one of our most accessible models into a true performance shoe with a story instead of just price. The Charged+ mid-sole technology and Velociti 3 inspired design lines plus the addition of Los Angeles Dodgers back-to-back World Series champion, Freddie Freeman to support our point-of-sale visuals. Ensure that we can maintain a higher average selling price for this program that pushes millions of units annually, ultimately bringing more profit to the bottom line. We look to do this across our top 10 high-volume styles where each product will reflect our commitment to premium quality at every price point, so every athlete at any level can see and feel the UA difference. These launches embody everything Under Armour represents, athlete-driven innovation, bold design and performance you can truly feel. The difference now is the energy. You can sense it across the teams, fueled by belief and a shared commitment to win. We're not just back in the game. We're now setting our own pace, demonstrating that performance, style and a premium experience can coexist and thrive at every level. The evolution of our products reflects a transformation happening across our business worldwide with focus and disciplined marketplace management in each region driving progress. EMEA is experiencing healthy profitable growth. APAC is rebuilding back to growth over the next 12 months. And North America is a proof point we are decidedly getting behind to redirect our global trajectory and believe we have a positive line of sight. Focusing on North America and recognizing that it's not fully reflected in our financials yet. Our brand heat is increasing, which is an important milestone in our turnaround. As our product strategy accelerates, our storytelling is gaining clarity. By blending creativity with instincts, we're enhancing our cultural edge while staying dedicated to performance. From TikTok to the sidelines, we're showing up where it matters, and it's working. Awareness among 18- to 34-year-olds has increased from the mid-60s just 6 months ago to over 80% today, driven by our, We Are Football campaign and activations, which we have also delivered a significant surge in social engagement for UA. From the Star-powered main film featuring NFL star Justin Jefferson, #1 draft pick Cam Ward, a host of young high school NIL talent, all the way to recording artist Gunna, who also performed at the Video Music Awards. These have all contributed to related base layer sales. We Are Football wasn't just an activation. It's been a revival for us here in the States, redefining how athletes see us not just as a performance brand, but as an inspiring, aspirational one. Returning to the field this year through our NFL partnership as an official supplier of gloves and footwear has been a key part of this reset, reminding the world exactly what UA represents, performance, energy and an authentic cultural connection with the next generation of athletes. And it's delivered big with more than 300 million impressions and 100 million video views, a #2 share of voice among competitors on X, over 90% positive sentiment and awareness among 18- to 34-year-olds at its highest level since 2022, now sitting in the 80s. Besides generating buzz, it also boosted sales. Organic engagement surpassed expectations by promoting our HeatGear Baselayer story and increasing its share of ua.com franchise visits from 6% to 31%. This led to double-digit growth in sales for the category. The VMA's activation with Gunna also caused a fivefold rise in social media mentions and a notable increase in purchase consideration among young athletes. At Under Armour, our currency is product and our voice is amazing story articulated through powerful imagery and film where we bring our brand to life. For a deeper look at the momentum behind our transformation, please visit our Investor Relations page today to explore recent product and storytelling highlights that demonstrate how our brand is growing stronger every day. I think this is incredibly effective and recommended strongly. The combination of sharper products, stronger storytelling and a renewed sense of purpose is revitalizing confidence in Under Armour and redefining how athletes perceive us. We're rebuilding conviction and cultural relevance with the next generation, regaining trust and energy across the marketplace. So what's different? We're connecting more deeply than ever. We're adding attitude and personality to everything we create, applying a brand lens to every product, touch point and story. Our products need to perform and speak, reflecting the mindset of today's athlete relentless, confident and ready to compete. That's what we mean when we say our products personify performance. Every fabric, fit and finish must convey our unique DNA. When athletes put on UA, they're not just wearing gear, they're underscoring belief. That's the connection we're creating between product and emotion, brand and identity. You'll continue to see us get sharper with personifying our product, giving them individual personality and trust with athletes like our ColdGear Mock has done when it gets cold. That builds a relationship with our consumer, become familiar with and recommend as well as repeat purchase from us season after season. This is our industry's version of recurring revenue, and it is top of mind here at UA, consistency and confidence. Within our North American direct-to-consumer business, we continue balancing pricing discipline with a dynamic consumer environment while making further progress in enhancing our shopping experience. Our new content management system for e-commerce improves content flexibility and supports modern tools like TikTok, shoppable reels and product compare. Although sector demand remains tempered due to a very promotional market, our units per transaction are up nicely. And despite traffic headwinds across our sector, in our retail stores, conversion rates are increasing as we improve the shopping experience and boost productivity. Factory House placements of full-price products also continue to exceed expectations. Now our North American wholesale business is undergoing a disciplined rebuild, and we are encouraged. The focus on top-to-top relationship building at our most important retailers has been key and effective. Good news is that we're seeing positive momentum with many of these accounts in some of our core programs as we continue to sharpen our focus on stronger partnerships, more targeted assortments, elevated merchandising and a premium retail brand experience. All of this, of course, is centered on 1 goal: reigniting Under Armour's potential in the marketplace. While this part of our business remains challenged in the near term from an order standpoint, the tone has shifted as we have seen replenishment demand with the brand heat from our -- We Are Football campaign and even more recently with the weather turning cold. Conversations with our major wholesale partners have moved from caution to collaboration and from hesitation to optimism. The message is clear. They see the progress, they feel the energy and they want to be part of our next chapter. In ongoing discussions with these key partners, we're creating multiyear plans to bring U.S. wholesale back to growth, aiming for stabilization during fiscal '27 and paving the way for expansion beyond. That's exactly it. This is a rebuild and reset with purpose, putting UA back on offense in North America as the brand's green shoots are becoming more consistent. So in EMEA, we're driving real momentum and doing so with style. The team continues to deliver strong results quarter after quarter, driven by a clear strategy and effective execution. Our focus on creating culturally relevant brand moments is making a significant impact. Prime example is our collaboration with Mansory, which generated 38 million organic views and strengthened our premium positioning with younger, style-conscious consumers even seeing sellout online. That's brand heat in action. We're carrying that momentum into fall/winter '25 with our new Be The Problem football campaign led by global ambassador and arsenal head coach, Mikel Arteta, along with a roster of top UA athletes. Major activations in London and Paris strengthened our connection with EMEA's most passionate communities, highlighting how our brand and cultural intersect to inspire and create credibility. It's a powerful reminder of the opportunities ahead across run, train and sportswear, validated by regional sport authenticity through football. Behind these results is smart, disciplined growth. We're seeing wholesale strength in key cities and steady gains across direct-to-consumer, all while maintaining full price discipline and tailoring our approach to each local market. Mansory and Team Sports stood out this quarter, boosting both energy and profitability. This consistent performance builds confidence that our focused strategy will keep igniting relevance, fueling continued healthy growth and maintaining the Under Armour brand's momentum through the second half of the year in EMEA. So in APAC, after spending 8 days on the ground with stakeholders just a few weeks ago, the takeaway is clear and today's print of down 14% does not reflect the real progress that's underway. Structural challenges are being addressed. Legacy roadblocks are coming down, and we're rebuilding a premium high-integrity marketplace that aligns with Under Armour's true brand strength. Our priority is to stabilize the business and set a clear path to growth in fiscal '27 and beyond. The plan is in motion with the right leadership in place. We're reducing inventory through tighter buys and faster in-season decisions, strengthening purchasing discipline and managing the marketplace with greater precision to protect price and margin. To support this, we're simplifying assortments, sharpening consumer storytelling and driving full price sell-through with disciplined distribution and premium partners. APAC also holds a structural advantage as our second smallest region with a strong base of mono-branded stores. We can move faster than larger markets. Beginning in the fourth quarter, we'll be testing a new digital retail store concept with a highly immersive experience environment that brings our performance story to life. In short, APAC is on a path to regaining momentum and have every confidence in the team we've built to construct a cleaner, more premium marketplace, positioning the region as a proving ground for what will scale globally. Also, the creative edge we build in APAC won't stay in APAC. It will make Under Armour stronger everywhere we play. In closing, here's my perspective on our progress in this turnaround. We don't have a product issue. Our innovation and design are strong, as you'll see in the coming seasons how we've addressed this and we don't have a brand issue. Consumers aren't mad or rejecting Under Armour. They just haven't heard from us in a while. What we do have is a storytelling opportunity. That's exactly where we're concentrating because consistent, compelling storytelling that personifies our brand turns great products into icons, athletes into advocates and moments into momentum. This month marks 20 years since Under Armour went public, 20 years of grit, lessons, humility and ambition. I want to thank everyone who has contributed to this double-decade journey. Not long ago, our leadership focused solely on stability. That operational discipline was essential for Under Armour to rebuild its foundation. Today, that foundation is solid, and our focus is on finding balance and pursuing growth. We're combining that same operational excellence with a brand-first approach because our next chapter is about unlocking the full potential of what Under Armour can become, making the most of all of our assets and resources with the wisdom gained from 20 years as a public company. We recognize a disconnect between our $5 billion in revenue and our current market cap, and that gap drives our sense of urgency. At the center, we have the right team, the right strategy and a clear focus on strengthening the brand through better storytelling, products, marketplace management and customer experience. True transformation happens when product and story come together. Product fuels story and story elevates product. Together, they build lasting platforms, lead franchises and deepen consumer connection with the brand. And while there's still work to do, the momentum is real. We're seeing progress in North America, early evidence that our balance between performance and purpose, discipline and storytelling is starting to take hold. This is the next chapter of Under Armour, confident, focused and ready to rise. With that, I'll hand it over to Dave to walk through our second quarter results and outlook for fiscal '26. Dave?
David Bergman: Thanks, Kevin. Before I get into the financials, I want to take a moment to share some thoughts about my upcoming transition. After 21 incredible years at Under Armour and nearly 9 as CFO, it feels like the right time for something new, new for me and new for Under Armour. Kevin and I have been discussing this for some time now, and we agreed that if we could identify and secure a great next CFO for Under Armour, I'd step down and pass the baton in a well-planned and thoughtful way. With Reza joining the team, we're now ready to do just that. And to be clear, I absolutely believe in this brand and its future. I'm proud to be Under Armour's second largest internal shareholder. But more than that, I'm proud of the people and the purpose that make this company so special. My main focus now is helping UA and my team onboard Reza and get them fully up to speed to ensure UA can continue to thrive for years to come. Now let's get into our second quarter fiscal '26 results, where we again delivered a quarter that met or exceeded our outlook on every item as we continue to execute our turnaround. Revenue declined 5% to $1.3 billion, slightly better than the outlook we shared in August. This result includes a 1 point benefit from timing shifts that moved some shipments from Q3 into Q2, which will normalize in the back half of the year. Regional results were as follows: North America revenue decreased 8%, primarily due to a decline in our full-price wholesale business and lower e-commerce sales. In EMEA, revenue increased 12% or 7% on a currency-neutral basis, continuing the healthy growth trend in the region, driven primarily by our full-price wholesale business, coupled with strong growth in our DTC channel during the quarter. Revenue in APAC declined 14% on both a reported and currency-neutral basis, mainly driven by our wholesale business, while DTC decreased modestly in the second quarter. And Latin America's revenue increased 15% or 14% on a currency-neutral basis with strong growth across wholesale and DTC. From a channel perspective, wholesale revenue declined 6% due to lower full-price sales, partly offset by growth in the off-price channel driven by the timing of sales to third-party partners as well as an increase in distributor sales. Direct-to-consumer revenue declined 2%, primarily due to an 8% decrease in e-commerce sales, driven in part by efforts to more strategically manage discounts in a more promotional North American environment. Sales within our owned and operated stores remained flat in the quarter. And licensing revenues increased 17%, driven by strength in our international business. Finally, by product type, apparel revenue declined 1% with softness in run, outdoor and golf, partially offset by growth in train and sportswear. Footwear revenue declined 16% this quarter, reflecting ongoing pressure from a challenging consumer demand environment and our deliberate efforts to recalibrate key parts of the footwear portfolio. We believe these steps will help us improve efficiency, strengthen brand value and maximize the impact of several high potential launches planned for upcoming seasons. Accessories revenue declined 3% this quarter with decreases across most categories, partially offset by growth in sportswear, especially in headwear. Our second quarter gross margin declined 250 basis points year-over-year to 47.3%. This decline was mainly caused by 275 basis points of supply chain headwinds, primarily due to higher U.S. tariffs and 100 basis points of combined unfavorable channel and regional mix. This was partly offset by 50 basis points of foreign currency headwinds -- or tailwinds, I'm sorry, 50 basis points of pricing benefits and 25 basis points from a favorable product mix. Gross margin for the second quarter came in better than our expectation, thanks to less supply chain pressures, including slightly better product costs and inventory return impacts. Shifting to SG&A, which increased 12% to $582 million in the second quarter. Excluding approximately $4 million of transformation expenses related to our fiscal 2025 restructuring plan, adjusted SG&A expenses were $577 million, a 9% increase compared to the prior year. Last year's Q2 SG&A benefited from a $27 million insurance recovery, which explains about 5 points of the year-over-year increase. The rest reflects higher marketing driven by timing shifts that occurred in the back half of last year. On a normalized basis, adjusted SG&A was down slightly year-over-year. In the second quarter, we recorded $32 million in restructuring charges, along with $4 million in transformation-related SG&A expenses, totaling approximately $36 million in expenses and charges under our fiscal 2025 restructuring plan. Since the plan's inception, we have incurred $147 million in charges and transformation expenses, of which $82 million are cash related and $65 million are noncash. We expect total charges and expenses for the plan to be up to $160 million, which will be recognized by the end of fiscal 2026. The actions executed under our plan have already delivered approximately $35 million in savings in fiscal 2025 and are on track to generate an additional $45 million in fiscal '26. Moving down the P&L. We reported operating income of $17 million in the second quarter. Excluding transformation expenses and restructuring charges, our adjusted operating income was $53 million, outperforming our outlook. Looking at the bottom line, our reported diluted loss per share was $0.04, while our adjusted diluted earnings per share was also $0.04 in the quarter. Regarding our balance sheet, inventory at the end of Q2 was $1 billion, a 6% decrease compared to the same period last year, and our cash balance was $396 million at the end of the period. Additionally, during the second quarter, we used the net proceeds from the issuance of the senior notes due 2030, along with the borrowings from our revolving credit facility and cash on hand to satisfy and discharge our $600 million in Senior Notes due in June of 2026. Funds were placed in a restricted investment account to cover all remaining principal and interest payments on those notes. At the end of the second quarter, we had $200 million in outstanding borrowings under our $1.1 billion revolving credit facility. Next, looking ahead to outlook. We expect full year revenue to decline 4% to 5% in fiscal '26, an improvement compared to fiscal '25's 9% decline. This incorporates our expectation that North America and APAC revenues will decrease by high single-digit percentages, while business in EMEA is projected to grow by a high single-digit percentage. For gross margin, we expect the full year rate to decline by 190 to 210 basis points, mainly due to higher U.S. tariffs. These headwinds should be partly offset by foreign currency gains, a more favorable product mix and slight pricing benefits. Amid these headwinds, we remain focused on improving SG&A efficiency. For fiscal '26, we expect adjusted SG&A to be down at a mid-single-digit rate with a goal of leveraging. As such, we will continue to reduce discretionary spending and sharpen our marketing investments, ensuring that we protect and build on the brand momentum that is beginning to take hold. This translates to an expected adjusted operating income of $90 million to $105 million. And when taken to the bottom line, we expect adjusted diluted earnings per share for fiscal '26 in the range of $0.03 to $0.05. This outlook accounts for higher projected other expenses below operating income, mainly driven by interest expense from increased debt levels as well as a significantly higher tax rate in fiscal '26, primarily due to the interplay of an unfavorable regional mix and decreased profitability. Next, our outlook for the third quarter of fiscal '26. We expect revenue to decline 6% to 7%. As noted earlier, this includes approximately 1 point of revenue that shifted from Q3 into Q2 due to shipment timing. In North America, we anticipate a low double-digit decline driven by continued wholesale softness, especially in footwear. We expect EMEA to grow at a high single-digit rate, while APAC is projected to decline by a high single-digit rate, an improvement from Q2. It's important to note that our Q3 revenue outlook suggests a moderately smaller revenue decline in Q4 as we regain momentum toward a potential inflection point in fiscal '27, as Kevin noted. Moving on to gross margin. We anticipate a decline of 310 to 330 basis points in the third quarter due to a full quarter impact of new U.S. tariff costs. Adjusted SG&A is expected to decline by a mid-single-digit percentage in the third quarter as it compares against last year when our marketing spend was distorted to the second half of the year. Additionally, we continue to focus on cost management in the current environment, supported by the increasing benefits of restructuring actions we have undertaken. This results in a third quarter adjusted operating income expectation that ranges from a $5 million profit to a $5 million loss, which translates to approximately $0.02 to $0.03 of adjusted loss per share. In closing, we're entering this next phase with focus and discipline, executing a strategic transformation that unites sport, performance and style with the financial and operational rigor required to reignite top line growth. Our innovation pipeline is strong, and our opportunity lies in converting that strength into brand and financial momentum through sharper storytelling, better marketplace execution and disciplined capital deployment. We're grounding every decision in data, optimizing costs and prioritizing investments that drive margin expansion, operating leverage and sustainable returns. With a clear road map and the right team in place, we intend to close the gap between our brand strength and financial performance, resetting UA to deliver consistent profitable growth and long-term shareholder value. Now we'll open the call to questions. Operator?
Operator: [Operator Instructions] The first question comes from Jay Sole from UBS.
Jay Sole: Kevin, a lot of great information and insight in the prepared remarks. I want to ask you about North America. What makes you confident that North America will see stabilization before the end of fiscal '27? And what is your definition of stabilized for North America?
Kevin Plank: Yes. Thank you, Jay. We spent a lot of time thinking about this and the outlook that we provided. So stabilization for us, first of all, it means we see getting the business to where it's a plus 1 or 2 or plus or minus 1 or 2. So in that healthy version. So we're pointing toward that. The way we think about what makes that reality is there's 5 basic points, and I'll start with structural, which is having the right team, the right operating model, business plan and go-to-market in place. It's time for us to let those things cook and let it really play out. And I think that's where our 20 years of public company experience really will begin to shine through. From a product standpoint, I think there has been an incredible overall elevation that we've had in design and the deliverable innovation, meaning innovation that we can actually monetize and drive volume with. It means we've used this term driving pricing power for us. And that means first started by leaning on the winners, the heat and cold gears, Unstoppable pant collection, Vanish and the products that you've heard of. It's also the 2-part approach that we said to premiumize in this brand, which is our Trojan horse new innovations and things like the Velociti Elite 3, the credibility that gives us from Sharon Lokedi just hitting another podium in that shoe. It really opens the door there as well as innovation like a $45 hat or $140 backpack. We're demonstrating that the consumer is open for innovation. More importantly, they're open for innovation and higher price points from Under Armour when we deliver that. At the same time, we've got a lot of legacy programs and things like our top 10 volume drivers that were focused on ASP, the Assert 11 example I get with not just a price point at $75, but assigning an athlete in a face like Freddie Freeman to that as well as talking about the technology with the Charged+ inside. From a -- number three would be storytelling. As I said, we don't have a brand problem. We just haven't -- we haven't talked to the consumer in a while. And we don't believe we have a product problem. You'll see that coming through in the evolution of what the brand and how we show up at retail. But we certainly have a story opportunity. We haven't connected those things. We put a shoe out there like the Assert. We just never told anybody why they should buy it. We simply relied on brand heat, and that's something that can be -- it wanes with the market. But the good news, it's fixable. So when we say that our currency is product and our voice is amazing story, this will be a highlight for us and why I encourage people to check out the website that we put together that just shows the content we've put up since our last call, which is pretty incredible. And that We Are Football is a great example of it that actually takes us from the subjective of, Hey, we believe this is going to happen, into we can drive that through data. As I said, our awareness scores at 18- to 34-year-olds prior to the campaign were down in the 60s about 6 months ago. Since running that and getting the activation, not just 1 major film, but all the 400 or 500 pieces of content we built around it, we drove awareness nearly 20 points from 1 campaign. That is not normal. It just shows that the brand is there. It's just ready to be unleashed for us and gives us an opportunity. Four, I would say, our partner belief from our wholesalers. We've had more top-to-tops in the last 18 months than we probably had in the previous 3 or 4 years. And that means we've been rebuilding relationships. And these conversations we're having from them over the last 18 months have moved from cautious, as I said, to collaborative. And they're doing that because we've been consistently beating plan now as we're moving forward. And plan, in some cases, is not in excess of where we were last year, but it's doing more than we said we were going to do. So we're earning this one drop at a time. Fifth and probably most importantly is just culturally. Our teammates have this renewed sense of energy and the metaphor of moving in this new headquarters of a little less than a year ago is great action toward that. It feels like there's a new chapter for the brand to start. And what that new chapter is, is that, yes, we'll make sure that we double down on the discipline we have as a company, but it's driving it with a brand-first lens on every decision that we make. That is how we'll judge how we're doing and how we're growing as a company is our commitment in making sure that we show up with something that makes somebody want to buy more shirts and shoes from Under Armour and believe that when they do, they're wearing a super power. So I've got the benefit of having been around the world and being able to touch a number of our teammates in the last month or so. And I can tell you the team is hungry, motivated and ready to win.
Jay Sole: Got it. Well, I mean that's super helpful. I mean it's pretty clear that the North America brand heat is increasing. There's a lot of great things happening, product storytelling. I'll pass it on, but I just want to ask one quick one. You mentioned NEOLAST, and it was just a quick mention. But it sounds like you're excited about what you have and what you have coming. Can you just tell us a little bit what it is, what makes it special? I know it's a little bit obscure, but I want to just ask that question before I pass it on.
Kevin Plank: Yes. Thank you. NEOLAST is a fiber we spent more than 5 years in partnership with NC State, Celanese and Under Armour. And the 3-way partnerships are not easy to do. From it, we've built a 3-story machine that from the output of that is a fiber that is completely sustainable that effectively replaces Lycra. So it gives us Lycra stretch, which is a great product, but we've built something that's actually better than it. So it's not just sustainable, but it's actually a better product. And we're showcasing that with some of our upcoming HeatGear Elite and OG, and you'll see us start incorporating NEOLAST as we get the fiber up and running throughout the majority of Under Armour products, and that's going to take a little bit of time. But meanwhile, we'll put it in our compression gear, which, as we all know, to the broader population, probably 5% or 6% or 7% people can walk down the street in a compression T-shirt. But as I mentioned, we also are going to be showing this some products that we think can be incredibly beautiful, including a product a shirt that we have coming out in the spring that will feature NEOLAST and I think really be important for the consumer. So we're excited about what this innovation means.
Operator: The next question comes from Sam Poser from Williams Trading.
Samuel Poser: I have 2. One, I've been hearing a lot of really good things about what's going on, what you guys are doing in track and field, and some of that seems to be manifesting itself in running in the results in New York Marathon and so on. But you're not -- you talk a lot about football, but I would think the track and field/running is a much bigger addressable market. And I'm just wondering when you're increasing your voice, what you're going to do there because from what I understand, you're one of the few brands out there that sort of covers off every sport in track and field. And I would think that the number of long-term athletes more are doing that abundance of those various sports going up than are playing football, while I understand football is in your DNA. So wondering what you're doing there to sort of have the voice match or exceed the products that appear to be out there?
Kevin Plank: Sure, Sam. I think it's a great unlock for us. Run as a category, we talk about the progression that we try to get through in footwear and running is certainly a category that we can win. There's nothing like having the credibility of a Sharon Lokedi, who is a former New York City Marathon winner, the reigning champion of the Boston Marathon and then just pulling another podium in New York this past weekend. The Velociti Elite 3 is something that gives us enormous credibility in running. And again, when we say running, there's a $250 expressions like we have in the Velociti 3. But if you go to the website as well on Investor Relations, you'll see as we've been driving the story is that it's not just the $250, but we've taken that design aesthetic, and we're taking it all the way down to $160, $130, $100 and $75 price points. And so yes, we believe that it drives our credibility. And with the 430 colleges that Under Armour outfits here in the United States, the nearly 3,000 high schools, it's certainly an opportunity for our track-specific product. But all this is about leveraging us into using this as a marketing vehicle to tell the story that when you wear Under Armour, there's a superpower included inside and will allow you to maybe someday if you dream to win the Boston Marathon. But I don't know, it might be a fallen ambition for some of us.
Samuel Poser: Well, okay. I have one more, but I want to follow up on this. I'm really talking about the marketing voice. I know you're doing a lot of stuff, but like you're not running that big We Are Football campaign against that. You're doing -- so how do you let this broader base know? You talked about increasing your voice. So that's number one. And number two, you talked about the improvement in the U.S. business or the North American business. Can you talk a little bit about the sell-through rates and the velocity that you're seeing at full price, let's say, compared to a year ago now, I understand so more on a rate basis where -- and how that's -- why that's giving you confidence or some specific data to that confidence?
Kevin Plank: Yes. So first of all, as we said, our global strategy is clear. It's training, it's running, it's sportswear, but they're authenticated in each market where it gets local. So a recent deal we did here in the U.S., for instance, with BSN Sports, which has more than 1,400 road reps that are covering high schools and things. That's something that allows us to sell, as you say, our full complement we have for track and field from discuss to spike to weight lifting, we do a good job covering that gamut. And again, we want to be authentic there, but the volume is for us is getting to specialty run, authenticating ourselves there and allow that to be the pull that puts us into sporting goods and specialty mall retail as well. So that's the way we're thinking about it in an organized way. The growth that we see is -- let me move to sell-throughs. I think that the great news we have now and why we're pushing people until we don't have orders in hand, and we're saying we're pointing towards stabilization the way that we see fiscal '27. We'll be a lot smarter in February. But meanwhile, we're having really good success at retail right now. And again, that's not showcased in the numbers. We get what that means. But what I mean is we're beating our plans. And in certain categories, we're seeing replenishment orders coming in and a lot more driving from -- a lot more confidence from our key retail partners. The good news about that is that they're thinking about writing their fall '26 orders. They're seeing some of the success we're having in fall '25. So everything that we're just having, unfortunately, to say to you, they get to see that in a little more of a realistic way. So we're driving better gross margins with our accounts. We're not taking as many returns or at all. And we just -- we like the trajectory of the business. So there's nothing hopeful or wishful, I think, about our tone today. I think it's very pragmatic, very thoughtful and something that just gives us great confidence in how we're thinking about the next chapter.
Operator: The next question comes from Bob Drbul from BTIG.
Robert Drbul: And Dave, congratulations, and thanks for all the help over the last 20 years. Best of luck to you.
David Bergman: Thanks, Bob.
Robert Drbul: And 2 questions really. I think the first one is, in terms of the sports marketing portfolio, you got a really good portfolio. You've made some changes to it. Can you just expand a bit just how that can work better in your storytelling approach? And then the second question is just a bit more general. But when you look at the footwear business overall, some of the challenges that you're seeing, can you just expand a bit more how you're approaching the changes that you need to make in that category?
Kevin Plank: Yes. Let me jump on there, Bob. First of all, you're right, is that our sports marketing stable is something that should always be dynamic, and we're constantly evaluating and reevaluating. Today's day of NIL and sort of the hyper focus that we have with even high school NIL kids. I think we did a good job in our campaign that's out and is still running, and we're not even a little more than half of the way through this campaign that you'll continue to see and hear from us. But we didn't just put Justin Jefferson or recording artist Gunna in there is that we had 5 NIL athletes. 3 of them are 5 stars, the #1 player in the country, the #1 quarterback in the country. So we're thinking about how we can access talent like that as well as being thoughtful about the way that we approach anybody in our portfolio. And that's the balance between is it about an athlete? Is it about a team? Is it about a league? So I'd say it's constantly moving. I like our portfolio right now. I think there's always work to be done, and we'll always make sure we're being thoughtful. Let me address footwear because I do. I look at this number, and I realize that the Street is staring at minus 16%. And I want everybody -- I want to make sure we put this in perspective and context is that Under Armour is a footwear brand. We are committed to it. We are incredibly disappointed about where it sits right now, but -- and we find the results unacceptable. But we're moving as a business, I guess, is part of our redirect. We're moving of going from selling just foot coverings below $100 to a forward stance in footwear. And this has come with some pain that you see in that minus 16%. But that meant we've relied on brand heat to sell shoes, and that's not how it works. We need to create the aspiration. We need to do that above $100, understanding that a bulk of the business is going to be done below $100, which is why we talk about things like the Assert 11 as a $75 shoe, but we're going to make sure that we can anchor that and hold that full price or that average selling price closer to the $75 we're asking for. It's incredibly important for us. But we see Under Armour is what's our position because there's a number of good A running brands out there, but there's a number of good footwear brands. But Under Armour, I think, is meant to be the equipment for your feet. This -- we enter, we have the right to play here because of the credible performance apparel that we have. It's our reason to be in footwear. And that starts with us as entering the consumer's mindset with cleated. So on field, on court, on pitch. I'm talking about the Magnetico football boots. I talk about some of the things we have with American football. You look at what we're doing again with Velociti and the franchise that's running there. Cleated gets us in the door and it gets us to training footwear, which is pretty small, but something where we have between our Reign 4 product as well as our new Halo Trainer that we just launched is important. And probably one of the big unlocks is running, where I don't think we've taken enough advantage of the podiums at Sharon Lokedi and the success we've seen with the Velociti 3. It gives us a much bigger business. And that's what leads you into picking up some easier dollars like the slide business where we think we have opportunity to exploit. And if you get all these things right, you'll be able to sell sportswear and footwear, which gets them to and from the field. The good news about this is we're not starting from 0. So we're in more of an edit mode of how do we get clear, how do we get more focused on what we're doing. I think about where we have opportunity, I mean, you can take a category like basketball that's roughly $100 million globally for us all-in. And we think to ourselves, it's incredible for a $5 billion company that can't exploit that in a bigger, better way. So being under-scaled relative to the potential we have and the opportunity that we have to grow it. So we're approaching that positioning as to where do we have the right to play, the right to win, and we think we can just do a little better.
Operator: The next question comes from Laurent Vasilescu from BNP Paribas.
Laurent Vasilescu: Dave, thank you again for all your help over the years, and that leads us to the questions here. I think on the first question here is around pricing elasticity. How do we -- how should we think about pricing for spring/summer 2026 product? Should we assume something like mid-single digits to offset the tariff impact? And what are you seeing in terms of elasticity of demand for your consumers right now? And then the second question, I think, Dave, you were very helpful in parsing out the tariff impact for 2Q. I think you mentioned 275 basis points. Any way we should think about that number for 3Q and for the full year?
David Bergman: Yes, Laurent, this is Dave. Relative to pricing, it is one of the different mitigation strategies that we're driving through relative to the tariff implications. So in the short term, this year, we're really focused a lot more on kind of managing the SG&A and protecting the bottom line that way. There's a little bit of vendor cost sharing we can drive through where reasonable, also working on some production shifts where reasonable. Those can't be done overnight, though. And to your point, we are pursuing some selected price increases. They're partially dependent, though, on competitor actions and consumer sentiment as well based on where we stand. And we're definitely going to be strategic in those. We don't expect much of that to be real visible until fiscal '27 and beyond, to your point, but it will definitely help us as we offset more of a full year impact next year on the tariff side. I don't think it's going to come across as dramatic, and I don't know that we're in a position to be able to go dramatic relative to what other brands might be doing. So -- but we're going to be in there, and we think there's a lot of great product that have the right price to value that could warrant some of those increases, but we're going to be very prudent and strategic in how we do that. But then there's also a couple of other things that we're driving through to help offset as well, being a lot smarter and more data-driven in how we look at SKU by SKU profitability and make tougher decisions about what SKUs we're going to get behind versus what ones we might wane back a little bit based on the profitability of that SKU and just some more diligence around that to be careful as we try and navigate some of those cost pressures. But longer term, I think we're going to be in a really good spot there. Relative to Q3 and Q4, yes, Q3, we're seeing down 310, 330 basis points, and that is almost entirely driven by tariffs. That number in the tariff range is probably around 300, 330 basis points. So there's other minor puts and takes that are going on within that, but that's really the lion's share for Q3. Q4, just based on the mix of product and the sourcing countries that it's coming through, the tariff impact will be a little bit less in Q4, but it's still going to be the primary driver of the Q4 headwind as well.
Operator: The next question comes from Peter McGoldrick from Stifel.
Peter McGoldrick: I was curious on the shape of the guidance. Previously, the commentary pointed to the second quarter as the deepest declines of the year. I recognize there's a 1 percentage point shift. But now with the outlook for the fiscal third quarter, that looks like that could be the deepest decline. And I was curious about the progression. What has changed over the last 90 days? And how should we think of the pathway towards the stabilization in fiscal '27?
David Bergman: Yes. I mean, to be honest, there's not a lot of big developments from 90 days back. There is maybe $10 million to $15 million of movement relative to Q2 and Q3. These are mainly wholesale shipments in North America and EMEA that were originally planned to go out in early Q3, and we actually had the product and the customer wanted it, and we were able to get it out in late Q2. So that was a little bit of a change versus our expectation. But outside of that, no real big changes. I think when you think about Q4, we do see that the Q4 decline will be less versus Q3. And if you look at the math in our outlook, it does back into a pretty broad range for Q4. And one of the points within that range is flat and that stabilization that we've been talking about. So if you drill down into that, we continue to see solid growth in EMEA, which is awesome. APAC is likely to actually be up a little bit with Q4, but that's mainly, to be honest, relative to comping a really challenged Q4 of last fiscal year in APAC. So that's something to keep in mind. And then all the points that Kevin went through on North America coming to fruition and, therefore, less pressure on North America in Q4 than previous quarters. So again, it's the focus on stabilizing and resetting APAC, stabilizing and turning around North America and continuing to fuel the growth in EMEA, and that's what we're driving against.
Peter McGoldrick: Appreciate that. And perhaps just a follow-up on the pricing. You pointed to embedded assumptions for the higher engineered pricing on your largest products. I was curious if you could talk about the -- your approach to the balance of your product portfolio and how you're planning pricing there.
David Bergman: Yes. I mean we are looking at it in a lot of different ways. There are some very specific new launches that we're going to be addressing pricing on a couple of the resets, but then also even on some of our core, we do feel there's an opportunity on the kind of better and best product a little bit more than the good level product. We want to be a little bit more careful with that consumer. But as Kevin can probably touch on, there's also a lot of exciting stuff we're doing relative to some of the new product launches that are in that good and better, best level that could have better prices associated with them.
Kevin Plank: Yes. I think just the overall elevation for the brand, this comes back with aesthetic. This comes from -- just because it's an opening price point doesn't mean it can't be designed beautifully and perform for the consumer. So that's when we talk about things like our tech program and how we're looking to enhance that with a $25 opening price point, and we'll be moving some price there. But more importantly, we're introducing a $35 improved version that we think we'll be able to take some of that volume and walk the consumer up a bit. But innovation is the answer and the way that we're going to win with the athlete. So that perception needs to come across in everything Under Armour does.
Operator: The next question comes from Brooke Roach from Goldman Sachs.
Brooke Roach: Kevin, Dave, I was hoping to dive a little bit deeper into the trends that you're seeing in the APAC business and the drivers and cadence of the path that you see ahead to drive some stabilization there.
Kevin Plank: Yes. Thank you. I know this is a head turner when you look at it and say, what does it mean in the minus 14. It's difficult for us to read. Again, we do not accept it, and I feel like I've said that too many times today, but we're in the midst of turnaround, and this is what it looks like. And so we like where we're going. As I said, I've had the ability to spend 8 days in the market visiting stores and meeting with our teams, franchisees, distributors, manufacturers and doing town halls and getting our point of view and then sitting down one by one and doing an hour with each of the key stakeholders we had, sharing our forward strategy and spending time with our team. Simon Pestridge, who's been awesome, who joined about a year ago, and we named him to this job about 3 or 4 months ago. So we're new in that process. Simon also announced a new head to run specifically China for us, who is a veteran pro who used to run Converse in the region as well in running China. So he is building out a rock-solid team. But not unlike the U.S., we don't believe that we have a brand problem. Under Armour is effectively known as a professional brand in China. It's -- once again, it's a story issue. And this is just where we haven't done a great job of just tying together, a, personifying the product and then just storytelling at retail when it's a T-shirt just standing next to a price tag that says $24 or $30 or whatever the local currency is, it's not very compelling. And that's when you're just relying on brand heat. And so as that has slowed, we felt sort of across the region. The good news is that when we look at a market like China is that it can -- it's one of the fastest retail markets in the world, if not the fastest, and it gives us the ability to move, we think, pretty quickly. So the same formula and some of the lessons learned from EMEA that we implemented here in the U.S., pulling back on promotion, beginning with our own sites, which helps the partner sites as well and then allowing us to just look forward. So the good news is that Simon and team is that we're viewing stabilization as we're talking about. We believe we can point towards stabilization, more specifics to come in the February call, but in fiscal '27 as well. So we think this is a reset year for us to get us back to growth and moving pretty quickly. So we think the worst is behind us, and it's now for us to repurpose. This new store that we're unveiling in January, too, or hopefully, at some point there around is going to be incredibly exciting and will help feed the more than 700 doors we have in China specifically and the 1,000 over in APAC.
Operator: Our last question will come from Paul Lejuez at Citi.
Kelly Crago: This is Kelly on for Paul. I just wanted to follow up on some of the North America wholesale commentary. I guess if you're seeing improving sell-through rates this fall, do you have opportunity to potentially see upside from stronger reorder demand in the holiday quarter? And then just in terms of the order book, you're pointing to more of a stabilization in wholesale in North America in the fourth quarter. Is that reflected in your order books? And then should we think about -- given you've seen improved sell-through this fall that maybe the hope at least is that for fall 2026, you'd see order books up? Any just color there would be great.
Kevin Plank: Thank you. We say stronger demand. So we're coming from -- we haven't had the strongest hand, so we're basically stabilizing. I think probably the best way for me to qualify this is that we now -- we have a stable order book. Where in the past, we've seen a lot more returns. We've seen a lot more cancellations. We're not seeing that right now. This isn't just cold weather either. It's some of the brand heat, I believe, that we've been driving here in the U.S. specifically. The brand inconsistency, I think, is one thing is that we hadn't really come with a story, and that's why I believe the most important thing is the key relationships that we have with the key partners is they're seeing a more consistent Under Armour. They're seeing us now tying story to it. They're seeing us personify product and the premiumization that we're taking at UA is something that is resonating with them. The -- call it success, but I'll say the beating plan the beating plan that we have in fall '25. And again, understanding that we're not thrilled about this math, but it definitely sets us up. And one thing we think we want the core message to be is that the key business that we have today, the $5 billion business we have today, we can see line of sight to the ability for us to stabilize and hold this business and begin to move forward. And that's not just building more good level product. We like the amount of good level product, but we want to focus on better and best. And that's what will help us premiumize the brand and help us, frankly, drive some of the more of the sell-through at all 3 levels wherever the consumer sees us.
David Bergman: And Kelly, I think just pointing out too, that Q3 is a very high mix of direct-to-consumer. It's a little bit lower mix of wholesale. So even though we are seeing some favorability on replenishment orders, which is great and really points towards the future, it doesn't necessarily create a significant upside potential for Q3 or Q4. But obviously, we're going to keep driving and fueling, and we're excited about where those conversations are heading.
Operator: This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.