Under Armour Aktie

Good day, and welcome to the Under Armour First Quarter 2027 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would like now to turn the conference over to Lance Allega, Senior Vice President, Finance and Capital Markets. Please go ahead.

Good morning, and welcome to Under Armour's Fiscal 2027 First 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 Taleghani, 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 laws. These statements reflect management's current expectations as of August 7, 2026, and are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of these results and risks and uncertainties, please refer to this morning's press release and our 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 and when considered alongside our GAAP results. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in today's press release and 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, everyone, and thank you for joining us. Let me start with the headline. We're lowering our revenue outlook for the year while maintaining our adjusted operating income expectation. That's not the outcome we wanted on the top line, but it does reflect a business that is more disciplined and flexible than it was just a year ago.

Consumer demand remains softer than we expected, particularly in North America and Asia Pacific. Our response isn't to chase that market lower. It's to continue simplifying the business, sharpening our product focus, improving marketplace execution and investing behind the innovation, athlete credibility and storytelling that will strengthen Under Armour over the long term.

90 days ago, I said we were entering the next phase of our transformation. The challenge now is convert internal progress into stronger consumer demand. That's the work in front of us, and it's what will position Under Armour for healthier growth over time. Last quarter, Sharon Lokedi won the Boston Marathon in our Velociti Elite 3 racing shoe, her second consecutive Boston victory in Under Armour. This quarter, Ferran Torres scored the World Cup winning goal for Spain in our Shadow Elite 4 boot. These are the moments this brand was built for, products performing on the biggest stages under the greatest pressure with the world's best athletes.

They show what happens when we build from the athlete back, credible performance moments that should, can and will create stronger demand for both the literal product worn on pitch or course, but especially the commercial expressions we convert into brand demand and wearing beyond sport. They also reinforce why the progress behind the scenes matters.

Over the past 2 years, we simplified the organization by removing excess weight to create greater focus and agility. Great example is our significant SKU reduction, all while strengthening the connection between product, marketing and sales, so our teams are moving with greater speed and accountability. We've also become more rigorous in how we allocate capital and manage expenses.

For instance, in the first quarter, we consolidated parts of our innovation footprint, including rightsizing our Portland office, while strengthening Baltimore and New York as hubs where decisions can move faster, product decisions sharpen and teams manage with greater intentionality. These actions are about improving the quality of the business over time, and that will be proven by execution, not by what we say today. A few years ago, we're too often managing for quantity, more products, more complexity and volume that did not always strengthen the brand.

Today, we're managing for quality, fewer products with greater purpose, tighter execution and a clear reason to buy. This mandate to the organization is incredibly straightforward. We will sell so much more of so many less products at a much higher full retail price. And this mission is well underway. That focus must apply to every channel. In our DTC business, promotion has too often been the reason for consumers to shop.

We're testing more full-price product in this environment. What we know is that when the product is differentiated and the value proposition is clear, the sell-through follows. In wholesale, we're taking the same approach where stronger relationships remain central to our turnaround. Since returning to the chair, I've made this a priority, and we're beginning to see it pay off in better alignment and stronger execution.

A good example is our back-to-school takeover of the fashion show set at DICK'S House of Sport Doors, which puts us front and center as you walk into these elevated presentations with a full expression of UA across men's and women's with our heat gear, icon fleece, tees and Stealth-form hats. The goal is to build more of these executions across the marketplace where differentiated product and strong storytelling can drive healthier full price demand. That brings us to the central question.

How do we turn a healthier business into stronger consumer demand? We know the brand has been too reliant on promotion. The marketplace still carries too much complexity. The issues are clear. The work is underway, and our focus is on 4 priorities. First, rationalize the product line so investment goes beyond the highest potential franchises and innovation platforms with a clear role in the portfolio. You can see that in the SKU reductions underway and the priority behind platforms like HeatGear, Velociti and StealthForm.

Second, rebuild the market engine around fewer, bigger stories that connect our best products, athletes and cultural moments in a more consistent way. Sharon winning Boston and Ferran scoring on the world stage are the proof points we need to turn into a repeatable system. Third, improve commercialization so consumers can see it, understand it and buy into it across our own channels and wholesale partners, making it easier for the consumer to say yes to the UA brand. That means tighter launch planning and stronger retail and digital execution to our biggest campaigns convert.

And fourth, manage inventory in the marketplace. The business operates with greater consistency and less dependency on discounting. That means being willing to walk away from lower quality volume, tighten inventory buys and reduce the amount of product that ultimately has to be cleared for promotion. We should see progress in those areas before revenue fully reaccelerates. That's the nature of this reset, improve the quality of what we make, how we sell it and how consistently the marketplace reflects the value of the brand.

Against that backdrop, let me talk about both sides of what we're seeing, where the environment has become more challenging and where the playbook is beginning to show up. As the first quarter progressed, particularly from late May forward, traffic softened, especially in North America and Asia Pacific, while the marketplace became increasingly promotional. Given what we're seeing today, we've taken a more cautious view of revenue for the balance of the year. Still, this does not change our strategy. It reinforces it.

Consumers are going to choose Under Armour at a premium, we must earn that through more compelling reasons to buy, the right product choices and a tighter connection between what we make and why athletes should care. One of the biggest lessons for us has been that athletes don't need more choices. They need better ones. Building on the 25% reduction we've already achieved in our fall/winter '26 assortment compared to just 2 years ago, we've begun targeting a further 25% SKU reduction over the next 18 months.

That is not about doing less, it's about giving our teams room to build products that matter and concentrating investment behind the franchises and innovation platforms with the strongest potential to create separation. That focus is helping us concentrate talent and investment in the areas where Under Armour can create meaningful advantages for athletes, training, team sports, running and the innovation platforms that define our performance heritage. We're seeing early signs this approach is working. ER base layer has remained strong across regions and channels, and velocity continues to validate our technical innovation with runners.

We're also seeing encouraging reads across newer apparel concepts, which indicate where the consumer is responding. These are signals we can learn from and scale deliberately. Best example of what this looks like when we get it right is the Bouncy Tee. What can happen when product and culture come together at retail. Launched in May, Bouncy has exceeded expectations while selling at its full $65 retail price. Alongside innovations like base layers, SlipSpeed, StealthForm Hats and the No Weigh Backpack, it shows that we know how to create products with a clear reason to command value.

The combination of new upcoming innovation and frankly, the amazing products that we already have but have not done a good enough job storytelling for yet gives us a robust platform to leverage. Now we just need to align in firing with a coordinated brand right marketing approach. Beyond these proof points, the bigger job is to build a more effective marketing engine, not just put more products in the pipeline. And for us, that starts with the products that matter most, the top 10 volume drivers I've talked about before.

Tech Tee is a great example. It's one of our largest volume programs, but candidly, it's discounted too often. So the answer is not to walk away from that business. The answer is to improve the product and reset how it shows up in the marketplace. We are refreshing Tech Tee, so it plays a better role at scale. And at the same time, we've created a more premium expression with the Helix Tee.

As Helix comes to market later this year, it will launch at $35 with a more complete UA performance story, stretch, recyclable and an outrageously quick dry time and with the marketing and retail support required to earn that premium. That is the playbook, improve the essentials that give us scale and build elevated products with a clear reason to trade up. Product strength also must show up in how we market the brand. As we take this story to our consumer, our industry is certainly taking notice.

An example is 2 womenswear daily covers just this week featuring UA brand ambassadors, Wednesday with Francois Arnaud of Heated Rivalry theme wearing UA HeatGear. And just this morning, another cover showcasing Fern T's World Cup celebrity while wearing our new Bouncy Tee. The opportunity now is to make those stories travel farther and connect more consistently with consumers. Our goal is not to be part of every conversation. It's to show up where performance matters most and where our product gives us permission to lead. That requires tighter integration between innovation and storytelling, so consumers understand what the product does and why it matters.

Our marketing reset is not only about how much we spend, but how effectively we spend it and what the return ultimately is. The point is to make each dollar work harder behind a brand idea consumers can understand, remember and purchase against. On our last call, we expected marketing investment to move higher as part of rebuilding consumer pull. Since then, we've gone deeper into the plan and identified opportunities to rebalance spend, reduce waste and improve returns.

Given this amplified focus, we're taking marketing lower as a percentage of revenue this year. To be clear, this is not a retreat from the brand. It's a reset in how we invest, fewer, bigger activations, tighter ties to product and retail, clear measurement and a higher bar for funding. We believe we have the ability for significantly higher efficacy in every marketing dollar we spend and the return it brings to the brand.

Underneath all of this, the company is operating better. The structure is simpler, decision-making is faster and tighter prioritization is helping us respond to changing market conditions while maintaining our full year profitability outlook.

So in closing, Under Armour is at its best when we build products, athletes trust in the moments that matter most. This year marks our 30th anniversary, and I know what this brand can be when performance credibility turns into consumer demand. I'm proud of our history, but I'm not satisfied with where we are today. We will not solve that by chasing unhealthy volume or buying short-term revenue. We'll solve it by editing the line, cleaning up the marketplace, sharpening our storytelling and turning our strongest assets into consistent demand. That's the work in front of us, make the brand sharper, the business cleaner and the execution more consistent.

And with that, let me turn the call over to Reza to walk you through our financial results and outlook in more detail. Reza?

Thanks, Kevin, and good morning to everyone. From a financial perspective, the first quarter showed the benefit of the operating control we've been building into the model. Revenue came under pressure as the period progressed, but adjusted operating income exceeded our outlook.

Starting with our first quarter fiscal '27 results, revenue declined 3% to $1.1 billion. By region, North America revenue decreased 9% with declines in wholesale due to softer spring/summer orders and traffic headwinds that put pressure on our e-commerce and retail store business. EMEA revenue increased 12% and 10% constant currency in the quarter, driven by strength in our distributor business, partially offset by slight declines in our DTC and full-price wholesale businesses. Revenue in APAC decreased 7% or 10% constant currency, reflecting greater-than-anticipated softness in China and Southeast Asia.

In China, results were also affected by stock-outs in key styles and sizes as well as demand cannibalization from certain licensees that discounted aggressively in a promotional market. We are addressing those issues through better inventory availability and closer alignment with licensing partners. And in Latin America, revenue increased 8%, driven by favorable foreign exchange as constant currency revenue was up 1% in the quarter. In short, North America and parts of Asia Pacific drove the pressure versus expectations, while EMEA and Latin America were more resilient in the quarter.

Looking at performance by channel. Wholesale revenue decreased 2% due to declines in full-price wholesale revenue and in sales to third-party off-price channel versus the prior year. This was partially offset by growth in our distributor business. Direct-to-consumer revenue decreased 6% in the quarter with a 3% decline in our owned and operated stores and a 12% decline in e-com. As mentioned, as the first quarter progressed, we saw increasing traffic challenges, particularly in our North America and China markets. And licensing revenue increased 2% with growth in our international business, partially offset by lower revenue in North America.

By product category, apparel revenue was down 2% with declines across most sport categories. This was partially offset by growth in sportswear. Footwear revenue was down 8% due to the combination of general demand softness and actions we've taken to optimize and edit our product assortment with the largest declines in team sports, sportswear and train. Increases in outdoor and golf partially offset this, while our run business was flat in the quarter. In accessories, revenue decreased 4% with softness in train, outdoor and golf, while sportswear was an area of growth.

Gross margin increased 590 basis points year-over-year to 54.1% in the first quarter. This year-over-year increase was due to 640 basis points of benefit from IEEPA tariff refunds related to cost expense in the P&L in fiscal '26 and 50 basis points of other supply chain benefits, including lower inventory reserves and product costing tailwinds. These benefits were partially offset by 50 basis points of unfavorable foreign currency impacts, 30 basis points from unfavorable regional channel and product mix and 20 basis points of pricing headwinds due to increased discounting in response to a softer, more promotional retail environment.

SG&A expenses increased 2% to $543 million as we continue to fund priority investments while managing our costs tightly. Excluding $2 million in transformation expenses related to our fiscal 2025 restructuring plan, adjusted SG&A expenses were 4% higher than the prior year. This came in slightly better than our outlook for a high single-digit increase. In Q1, part of the favorability reflected timing of marketing spend. We also began reducing discretionary operating expenses as we balance revenue headwinds with the necessary investments to strengthen the brand.

In the first quarter, we recorded $4 million in restructuring charges and along with $2 million in transformation-related SG&A, we recognized a total of $6 million under our restructuring plan. To date, we've incurred $266 million in total restructuring and transformation costs, of which $116 million is cash and $150 million is noncash. We continue to expect the total anticipated restructuring plan cost to reach approximately $305 million and for these actions to be substantially complete by December 31 of this year.

Below SG&A, first quarter operating income was $47 million. Excluding transformation expenses and restructuring charges, adjusted operating income was $52 million, exceeding our outlook of $30 million to $40 million despite a challenging revenue environment, reflecting the greater agility and cost rigor we continue to build into the operating model.

On the bottom line, first quarter diluted earnings per share was breakeven. Excluding transformation and restructuring charges, our adjusted diluted earnings per share for the quarter was $0.05, also ahead of the outlook range we provided in May. Importantly, these results demonstrate that we're managing the parts of the business we can control. Even in a softer environment, we delivered adjusted operating income above our outlook through tighter cost management and improved operating execution.

Turning to the balance sheet. We ended the quarter with $1.1 billion in inventory, down 3% year-over-year and generally in line with the revenue decline. We also closed the quarter with $396 million in cash and $200 million outstanding under our revolving credit facility. During the quarter, we used restricted investments to settle the remaining principal and interest payments on the senior notes due 2026, further improving our debt profile.

We also completed an amendment to our revolving credit facility earlier this week. This was a proactive step to modernize legacy definitions in the agreement and better align the covenant package with current market practice, our global cash management structure and our seasonal operating profile while keeping the facility size unchanged. Importantly, the amendment is leverage neutral and not related to near-term funding need. We appreciate the strong partnership from our lenders throughout the process.

With that context, let me turn to our updated fiscal '27 outlook, which reflects a softer consumer environment and more promotional marketplace, particularly in North America and parts of Asia Pacific. It also reflects the greater flexibility we now have in the operating model, which allows us to take a more cautious view of revenue while continuing to manage profitability. Based on those factors, we now expect this year's revenue to decline at a mid-single-digit rate, but we are maintaining our adjusted operating income outlook of $140 million to $160 million.

In North America, we now expect revenue to decline at a mid-single-digit rate. This reflects softer traffic in a more promotional environment than we anticipated entering the year. We are prioritizing healthier revenue, managing inventory tightly and avoiding short-term volume that would pressure margins or weaken brand positioning. In EMEA, we now expect revenue to decline at a low single-digit rate in fiscal '27. The region remains highly competitive and promotional with emerging consumer headwinds in certain markets.

Even so, we continue to see resilience in the region, supported by strong marketplace execution and our focus on protecting the brand while keeping product elevated and aligned with our strategy. In Asia Pacific, we now expect revenue to decline at a low single-digit rate. This reflects softer consumer response in China and parts of Southeast Asia, along with a more fragmented marketplace across channels and partners. In China, we are focused on better e-commerce execution, improved inventory availability in key styles and sizes and closer alignment with licensing partners.

We are adjusting our outlook accordingly while continuing to build the foundation for long-term growth in the region. Across regions, our outlook reflects a more conservative revenue assumption. We are managing expenses and inventory tightly while continuing to fund the priorities to support long-term growth and brand health. On gross margin, we continue to expect expansion of approximately 220 to 270 basis points versus last year. This includes roughly 150 basis points of benefit from IEEPA tariff refunds related to expenses realized in fiscal '26.

Excluding that benefit, we still expect gross margin to improve, supported by pricing actions, lower discounting and favorable channel mix, partially offset by supply chain pressure related to the Middle East conflict, which we continue to monitor. Additionally, given the recent tariff announcements and the rates effective as of July 24, we still believe our 10% tariff assumption from the period from July through the end of our fiscal year remains appropriate at this time. We will continue to monitor tariff policy closely and update our assumptions as the situation evolves.

Given softer consumer response and its impact on our top line, we've also updated our outlook for adjusted SG&A, which we now expect to decline at a low single-digit rate versus last year. This reflects active cost actions, sharper prioritization and the more focused marketing approach Kevin described. We've already taken actions across nonmarketing expenses, and we'll continue to prioritize spending that supports long-term brand health and profitability.

Putting these pieces together and excluding anticipated transformation expenses and restructuring charges, our expectations for full year adjusted operating income and adjusted diluted EPS remain unchanged from our initial outlook given on May 12. We are maintaining this outlook despite lower revenue expectations, reflecting the greater operational control we've built into the business.

As indicated previously, this includes approximately $70 million of benefit from the refund of IEEPA tariffs expense through the P&L in fiscal '26, partially offset by approximately $35 million of expected negative impacts related to the ongoing Middle East conflict, which we continue to monitor. For the second quarter, we expect a more challenging consumer environment to persist, particularly in North America and parts of Asia Pacific. As such, we expect revenue to decline at a high single-digit rate, reflecting anticipated high single-digit declines in North America and Asia Pacific and low double-digit decline in EMEA.

Gross margin is expected to be in line with last year's same period result, driven by favorable product cost and pricing actions, partially offset by unfavorable foreign exchange impacts and channel mix. Adjusted SG&A is expected to decline at a low single-digit rate, driven by lower marketing spend and continued management of other discretionary SG&A. And we expect second quarter adjusted operating income of $10 million to $20 million and an adjusted diluted loss per share of $0.01 to $0.03.

To close, we are taking a more conservative view of revenue, but the cost actions and operating control in the model allow us to maintain our adjusted operating income outlook. We will manage inventory tightly, protect revenue quality and continue funding the priorities that matter most to long-term brand health and profitability.

With that, we'll open the call for questions.

[Operator Instructions] Our first question comes from Jay Sole of UBS.

Kevin, congratulations on the Bouncy Tee. Great product, great response. Can you just talk a little bit about the intentionality behind that product because there's a plan that was in place to make that product come to life and get the response you're getting. Can you tell us about that?

And then can you connect it to what you can take from those learnings from that product going forward and a little bit about your product pipeline going forward, how you can bring more innovation to the market to continue to get the kind of results you've seen with the Bouncy Tee.

Yes. Thanks, Jay. I think the product was meant to be -- the painful thing about our industry is an 18- to 24-month go-to-market process. And as we sit here just a little beyond a couple of years back in the chair, we wanted something that would really articulate the brand and more importantly, the metaphor that we wanted to create of what we expected from all of our products. Promotion has become just too consistent, I think, out in the marketplace.

And so we wanted something that could really demonstrate the full price nature of Under Armour, where we put the articulation of great innovation with our NEOLAST fiber that replaces a new version of stretch that replaces liker a sustainable version for it. It brings the style and design is something that we obsessed that was relevant to the consumer. We've got a terrific business in our Heat and ColdGear business, which are our legacy franchises, but also compressions available to about 7% of the buying public. And so we thought what's something that we can put in everybody's draw that explains Under Armour.

And frankly, this would be the way that we'd look for every product to come to market, where we're combining culture with innovation. We're telling an Under Armour branded story. We're assessing the details from the forward swept shoulders to the way the logo shows up to something that can really be different. Everyone is telling us we don't want a logo on the shirt. We think that's something we can challenge because we actually have a brand. We think that's what makes us unique.

I think what you can count on from us is us doing this in a more consistent way, bringing things like Bouncy Tea of having the formula of, yes, the right product that speaks to the innovation of the brand, which is unique and cutting to Under Armour. Number two is the way that we bring it to market with a very simple what it is, what it does, how it makes you better, and then the retail execution. And I'll add in the cultural pieces we've done with Gunna and Parker McCollum here in the U.S. over in APAC, where we signed the K-pop band, BOYNEXTDOOR to launch it. So we've just seen good results so far, and it's really consistent and something we think that we can build on. So hopefully, this becomes the metaphor of the plan when any time you see a product come to market, this is going to be our new bar.

Got it. Makes sense. And maybe if I can ask you one more. Very interesting that changing the sales guidance, but maintaining the gross margin guidance and inventory seems under control despite the macro pressures that are out there.

Just talk about the culture change of the company to be able to have that kind of discipline on gross margin, on inventory and on expenses to be able to continue to drive the business and create products like Bouncy Tee, but not sort of fall into that trap of trying to chase business or kind of do what the other guys are doing that you know is unhealthy.

Yes, 30 years in business this year and 21 of them public. So we've seen this movie before. And I think we've at least been able to build a little bit of wisdom when it comes to looking at the way we want to approach the business. And so I think we're being incredibly thoughtful with the way we're thinking about the business in general.

And frankly, in the last 90 days, Reza, myself, our marketing team really got together and we looked at the spend that we had in marketing. And I just want to make sure people understand the decision to do this has nothing to do with leveraging our future. This is about investing in the brand, investing in the future. We just believe we can increase the efficacy of the products or the stories that we're putting out there. And this isn't something we're just waiting for our product pipeline to come from either. It's that the products that we already have in the pipeline, but I believe that we can be much more efficient with the spend that we have, and that works across the business. And so we are finding leverage in the business.

We are finding opportunities. And this is not easy slugging. It's not like we just pick up this money. We have to work for it. And so I think you've got a committed team that knows that we're not just picking up dollar bills, but we're looking for nickels and dimes and pennies as well and just understanding what it means to run a great profitable business. So unfortunately, we saw some softening in consumer demand.

We wanted to hold the line with how we're thinking about for the consumer. We did not want to push that, make sure that we have a cleaner consumer environment out there in the marketplace. But the ability for us to do that while maintaining a stronger, more -- putting more rigor into the systems and decisions that we're making. I think you'll see that it starts in marketing. It goes across the organization. And really proud of this team and the way that we've been executing against that.

Our next question comes from Sam Poser of Williams Trading.

Can you define what sportswear is because you called that out as strong, and I've got a bunch of other questions.

Sam, I would say it's a product that were intended to be worn with all the performance attributes of UA, but things in a non-playing, nonfield, noncourt, non-pitch environment.

Does that include the Bouncy Tee? And I mean how big a part of your business is that?

Yes. I mean the beauty of things, and I wish I'd include this in my response to Jay, the Bouncy Tee was a product that was clearly made, as we say, for Friday night out, you can wear it under a sport coat for Saturday morning in the gym, all the performance attributes you're looking for from Under Armour or just laying around on a Sunday on a couch. And so yes, it's something that actually walks the line, which is what we're focusing on right now beyond sportswear. It's that balance between brand marketing and product marketing.

And frankly, as we get this right, you should not be able to tell the difference. And that's what I think we achieved with Bouncy Tee. And again, I think it sort of the -- sets the edge of what we expect to do with everything going forward. So when it's -- even if it's Under Armour Sportswear, we call ourselves the what to do brand. We're the brand when you say, that's a great looking top. It doesn't need a big blazing Under Armour logo for that to be the case. And someone says, "Wow, that looks great, what is it?" You say it's Under Armour.

The next question from them should be, "Oh, it's Under Armour, well, what's it do?" So we want to make sure that we maintain that integrity of credibility of always being future first and making sure that innovation defines what we do, but ensuring that we bring great style to it and something that a kid can wear on a field, on a gym in a pitch, but they can also wear it out on a Friday night or to school on a Monday.

And then you talked about the SKU count reduction, the additional 25%. So where does that leave you focused on? Or what's being -- like where -- what is -- like how are you targeting the cuts? Are there certain categories that you're stepping away from or product franchises?

And then secondly, is your -- is your goal this year basically to cut your inventory down and what your inventory is going to look like for the balance of the year and just have less out there of better product. So sales are down, that's the improvement in the margins. Like I don't know what promotions were or markdowns were as a percent of sales last year. But like what kind of decrease -- like what kind of full price selling are you anticipating versus the prior year that's built into your guidance?

So I'll start. I'll let Reza pick up on the inventory, and I'll come back. But -- so first of all, the reducing SKUs we're just removing weight from the system. Without being too colloquial, it is like a jenga house is making sure we have all the pieces that give us a sound foundation, but it also gives us the ability to remove excess weight. And that's what we feel like we're doing. It's a slow process.

When I came back, we had an extraordinary number of SKUs. And before even stepping into the chair, the mandate was to cut 25% of SKUs. So we're pleased that we've accomplished that. And as we've gotten into the work, we see that we can go deeper. And that's how we're approaching the business right now. And again, this sort of credo that we've been continuing to say, which is selling so much more of so many less things at a much higher full retail price, that's really speaking to what we're looking for.

So there is going to be some near-term trade-off, and that's part of what's reflected in our outlook. But the objective is better productivity per style, cleaner inventory, stronger sell-through and healthier margins over time. So -- and also just reducing the weight from our team. We have an excellent team, but I think we've overburdened them and we've become a bit of a cap request from accounts sometimes and things where we're just trying to find another few pieces of revenue that can build into it.

So we want to remove that pressure. We want to make sure that intentionality speaks to everything we do when it comes to the brand, every product we introduced, every story that we tell and ensuring there's a red thread that not only goes to the product itself, but it carries across the globe in each of the 3 regions. And so we think that's where we can build a lot of the leverage that we can find in the business from a marketing storytelling standpoint.

And we think it will just get simpler as we increase our global commonality of styles and products that it really feels like one brand instead of 3 small companies running on 3 different continents.

And with regards to inventory, let me just start with the quarter. Q1 inventory was down 3% to $1.1 billion. That's in line with the revenue decline year-over-year. We're managing inventory really, really consistently and trying to make sure that we're in concert with whatever the external demand environment is. You'll recall on the last call, we talked about inventory, and we felt that we entered the year with a very clean inventory position.

Most of the composition of the inventory we have is current season with active demand on it. So the aging is in really good shape. If you're looking at it as an industry matter, what I would just highlight is that you do have some peers out there that have been clearing some inventory, and so that's leading to the promotional environment that you see in certain markets.

For us, we feel really good about where we stand. We have some new product introductions coming in as well in the back half of the year. And so you should generally expect our inventory to trend with revenue. Obviously, there's some seasonality in there as you try to build up for holiday and other selling periods. So just bearing that in mind overall, you should expect as a full year matter for us to be in line with how the revenues are trending.

Then one last question...

Go ahead.

Well, I mean, the thing is that you're cutting your SKU count by 25% over the next 18 months, which means that you're going to have to work your way out of some of this current inventory that you have. And then you're bringing in new stuff, which I would assume at the beginning is less than what you're cutting. So theoretically, you don't want to play in the promotional environment, except for to clear that 25% of your inventory that you don't want to go forward with.

So wouldn't that inherently bring the inventory levels down on a year-over-year basis fairly significantly just because you don't want to take too big a bet on the new product going forward as you liquidate the old stuff, that's the that's that see the change prior to in the productivity of the product before you put too much out there, which theoretically would lead for inventories on a year-over-year basis to be down more than sales as -- because of the liquidation and you're going to liquidate more than you're going to bring in initially. So wouldn't that inherently drive the inventories down more than in line with the sales trend?

Yes. Sam, so let me take the first part, and I'll let Reza hop on. But I think you're helping us get to what -- I think one of the broader themes that we really wanted to convey today is that, yes, I'm really proud of the innovation pipeline that's been building up over the last couple of years. But I want to be clear is that while we have several new products we're excited to bring to market over the next 6 and 12 months, especially in things we have high confidence in, we're already making a lot of really good product. I just don't think we've done a good enough job selling it.

And so as we cut SKUs, we're talking about cutting the less productive SKUs and going deeper and longer in the products that actually work for us, making sure that we're in stock, making sure that we're in inventory and probably most importantly, ensuring that we actually tell a story about the products that we're building. I think that's where we've fallen down. Our dry pant at $80 is a phenomenal product, but I don't know if I've ever seen anybody explain actually what the technical benefits of it are or why someone aware or how great it looks from a style standpoint.

Yes. I understand the question in terms of how you're looking at it, but you have to realize when we set the target, we were saying over 18 months. The natural sales cycle that we have on these SKUs will allow us to work through that inventory. And if you're looking at it overall, we are saying that we're looking at bringing in more full-price product, but we expect volumes to be backing that.

So if you're looking at it in terms of an absolute number, we're expecting that those new full-price products that are going to be coming in, along with the natural cadence of the other purchasing that we have will offset the nonproductive or less productive SKUs that we have. So there is a tail in terms of the SKUs that we have, where there's just a lot of stuff that we're looking at cutting off that long tail and working through that in a natural course.

So it's not that you have to get rid of it all at once. You can do that in the natural sales cycle. But as the new purchases come in that offset that, those will individually kind of build at a bigger level and then you're selling to Kevin's point, so much more, so much less.

The next question comes from Bob Drbul of BTIG.

Just a couple of questions, if I could. I guess the first one, when you think about the outlook today versus what you gave us 90 days, specifically on the revenue side, so from like slightly down to down mid-single, can you just give us some buckets around the changes during that period just in the dollars or the percentages or something along those lines would be helpful. I guess the second question, just higher level, Kevin, when you think about marketing overall, like what is the brand focused on today in marketing specifically?

Thanks, Bob. Let me take a cut at this. So number one, I want to be clear that we're not happy about having to modify our top line, but we do think it's a responsible move as we just look at the brand health and what we're doing is that we're not just building a company, we are building a brand. And as we negotiate through the turnaround, we're facing a pretty tough consumer demand backdrop.

And in spite of that, we're making good progress in the business and especially the brand. I'm proud of the team and how our ability to be able to demonstrate our management agility right now by maintaining the full year profitability outlook, though, because this is not a sign of leveraging our future. And I've said that a few times because I want to make sure that message is heard. We can responsibly maintain our OI while being more surgical with how we deploy the SG&A dollars, specifically within marketing.

But what we saw was as we came out of the beginning of the year, we saw that traffic deteriorated more than expected in the U.S. and APAC, specifically around mid- to late May, and the traffic trends just precipitously got weaker across retail and e-com. So the outlook reflects that current demand conditions and I think more importantly, the disciplined marketplace management we're going to take toward it. We also saw some competitive discounting happening and more than some, particularly over in Europe and the U.K., especially.

And while not perfect, we did hold the line on broader promotions ourselves. And so making sure that we can do this, we will be changing the tires as we're driving. And so I want people to understand as we think about that. It's a theme you'll consistently hear from us. What we're doing about it is we're bringing a balanced approach, intentionality, reducing promotions while increasing full price product exposure with UA innovation and compelling story.

That means, I think on our web, we've been promotional too often, ensuring that we're highlighting those full-price products, creating a new environment for the consumer to be able to see us with trading them out of being a promotion-only buyer for our existing consumers, while we hunt for new consumers at the same time. So we're not going to chase the market down. We've got great confidence in the product pipeline that we're building, and we're doing a better job articulating why so many of our current products deserve to trade at full price.

So the bottom line, the outlook revenue change, but the strategy is not. We're balancing near-term revenue opportunities with actions that will strengthen the long-term brand health and focus on that. And yes, we get it. As we say all of this, there are brands who are clearly winning in this environment. So some of this sits on us, but we believe the work we're doing right now positions us for long-term premium, which our definition of is selling at full price. That's our launch and our major target.

From a marketing standpoint, I got to tell you is I think that we can improve the size of the red thread that's built at Under Armour, meaning consistency across the regions, the way that we show up in the marketplace, the way that we show up amongst -- across categories, whether it's running training or sportswear, team sports, whatever is important. But I am really proud of our team. The marketing stable, and I will call them that, that we've assembled is pretty impressive from Sharon's win back in April for the second time of being a repeat champion in Boston, demonstrates our team can build Formula 1 race cars for underfoot. But now we've got to commercialize that velocity platform to actual price points.

Again, on the marketing, and I'm going to combine marketing and sports marketing here, too, but we showed up with 5 starters at MLB All-Star weekend in Philadelphia, wearing UA cleats and gloves with Bryce Harper hosting in Philly. The entertainment side, the Gunna Parker McCollum and Bouncy Tee, the BOYNEXTDOOR coming from K-Pop. we're demonstrating the entertainment side of our business. From a collab front, we had in the last several months, including Paris Fashion Week, we had Marine Serre, Feng Chen Wang as well as we had our collab with 424 when all the global footballers from around the world showed up for World Cup.

We had our 9 athletes were wearing UA Leather. So we're demonstrating we've got some range there. Marina Mabrey and the WMB All-Star game, our Dodge Hellcat collab that saw product blow out. And we've got all this on our Investor Relations side as well because I do think we're showing up in a very important way. We just want to make sure it's more coordinated. The rivalry, Francois Carnaud, wearing HeatGear for when it's hot. The last 2 goals in the World Cup were scored by UA boots.

Pedro Porro for Spain and the semifinal over France and then Ferran Torres scoring the only goal in the final. We followed that up with Fern starring in our restless campaign that launched in Europe immediately following World Cup with what footballers do in the off-season. That was shopped months before, anticipating the hype for Ferra, and I think our team deserves an enormous amount of credit there. And then, of course, all that, just as we get ready heading into fall with our college teams, including Notre Dame, taking the American Football Field, a brand-new collegiate partnership with Georgia Tech that kicks off in just a few weeks and then back on field with the NFL at official gleet and glove supplier.

So we'll continue to be visible and we'll win with this consumer and continue to bring them to Under Armour. But I'm proud of the way our marketing is working. It's not -- our marketing isn't broken. We just need to get it more alignment with the product that we're bringing to market and making sure that these moments of winning on pitch, on court, on the field, et cetera, they're converting into commercial sales force. So the brand is playing offense. We're excited about the marketing is about to kick off in another 3, 4 weeks here. But yes, if you get a chance, please take a look at the Investor Relations site.

The next question comes from Brooke Roach of Goldman Sachs.

I was hoping to get a little bit more color on your updated outlook in North America. How much of the pullback in revenues in the second quarter is strategic and proactive? And how much of this is a reflection of the macro and traffic trend that you're seeing quarter-to-date? Have you seen any cancellations in wholesale orders? And then maybe stepping back, is that back half improvement that you're forecasting a function of a change in the proactive and strategic pullbacks? Is it a function of stronger confidence in new product launches? Or are you assuming a change in macro trend in the back half?

Why don't I take that one, Kevin. So in terms of where North America is right now and if you look at the numbers that we're forecasting for Q2, the trends that we're seeing from the macro level consumer are working their way into Q2 specifically. So that sort of trend is continuing right now. So that's where we set the expectation for the next quarter. As we look at the back half of the year, we do have some product launches that we've alluded to that are coming.

The -- from a wholesale standpoint, those -- the early sell-in for that is productive in terms of what we're seeing. So we are expecting improvement versus the first half run rate in North America because of these product launches, some key retail partner initiatives that we have, which Kevin talked about as well with DICK'S and others on the script and continued marketplace discipline. I do want to re-highlight that as we look at the revenue environment, we're being very disciplined around not chasing the market down in an overly promotional environment.

So we are maintaining our gross margin outlook for that reason. We want to make sure that we're continuing to elevate the brand as the year goes on. And so as we look at the back half, we have to balance that. And we do expect that the new product launches that we have will bear fruit in terms of helping us premiumize as well. But that's how we look at it in terms of Q2 versus the back half of the year.

Great. And then just one follow-up on the SG&A spend. That control is really nice to see. Can you quantify some of those buckets of savings versus your prior outlook? How much is from marketing? And how much needs to be reintroduced into the cost structure as we look into next year, such as incentive comp or other drivers?

Yes, we are managing SG&A very, very tightly. But -- and this is a very big but, we are making the investments we need to do to continue to premiumize the brand. So when you're seeing the savings coming through, it's just showing a lot greater operational discipline. Let's start with the fact that we've had a restructuring plan, which is bearing fruit. So you have run rate savings that work their way into this year because of that.

We've taken additional actions in Q1 as well. We talked about Portland rationalization on the call just now. So as I think about the different buckets of SG&A, if I'm working my way down to operating income, the first thing that I'll start with is, obviously, there's a revenue decline that we're talking about, but we are maintaining our view on gross margin. And then when you get over to SG&A, we're looking at the different -- there's a variable component of it that will obviously naturally flex that will come down.

And then in terms of the fixed SG&A components of it, there's compensation expense, which we're managing very, very tightly right now coming into the year as well as -- and that will bear fruit into next year as well. And then the marketing component of it, it will still be within the range that we indicated on the previous call of 10% to 11%. But as you're looking at it, because you're looking at the revenue environment coming down as well as you apply that against that, that will naturally flex down as well, even if you're on the lower end of that range.

But as Kevin said, and I do want to just reemphasize this point, even the marketing spend, as we've gone through it, if we're looking at what is actually reaching ultimate consumers and eyeballs, we are being very disciplined around making sure that we don't end up cutting that portion of it. There are other line items in marketing that we're looking at in terms of some of the commissions that we're paying in terms of other things that we could just simply be a lot smarter around, and that's where we're focused.

The next question comes from Simeon Siegel of Guggenheim Partners.

This is John Elias on for Simeon. I'm actually wearing the HBO right now, so please don't cut that SKU out. My question is on your outlook, which holds the operating income steady even with revenue being revised down. Can you just help us understand what's driving that?

Yes. I mean we just talked about the SG&A component of it, which obviously, as you're looking at the outlook, again, just to go through the different line items of it. Gross margin is remaining the same as what we said previously. So that line item in terms of the percentage, we're maintaining the guidance on that.

As I look at SG&A, we are basically saying that we're going to do better than what we said on the last call in terms of SG&A as a percentage of sales. So that helps offset some of it. The other thing is, bear in mind, we overdelivered on Q1. And so if you bake that into the fact that you're looking at the rest of the year, we delivered 52% versus a range when we were saying it was 30% to 40%. And so that overdeliverance obviously helps us in terms of building some cushion for the remainder of the year as well.

Our next question comes from Laurent Vasilescu of BNP Paribas.

Kevin, I wanted to follow up. I thought it was very helpful color that you provided on traffic softening since May. I think you called out to Bob and the audience that you really called out Europe. But I wanted to follow up on North America and China commentary. Curious to know what you're seeing in those 2 markets. Obviously, North America is easier to tell what's happening here. But are the traffic trends getting worse over the last 2 months? And if that's the case, how would you unpack it for both North America and China?

Yes. Thank you, Laurent. Yes, the promotional environment in North America, first of all, traffic, the backdrop, as I talked about earlier, we have seen it. I don't know if we're ready to call stabilize. It's -- we're working through the environment right now. And so I think we have a pretty good understanding of what that's going to look like going forward, but we're just leaving ourselves the optionality to make sure that we can be reactive.

The marketplace has become increasingly promotional, especially where our peers are clearing inventory, et cetera. We still think there's a bit of consumer uncertainty, especially at some of the lower ends where we sort of find the middle income places, that's where the traffic challenges have really been picking up. In DTC, we participated somewhat more than planned early in Q1 to address the soft traffic, but we pulled back because buying short-term traffic through deeper discounts, it wasn't going to help us build sustainable demand.

So we want to be really thoughtful, but that's why we're putting the emphasis on marketing. And when I say that, it's not a wishful hope. It's really a belief that we can be thoughtful by not just performance marketing, but making sure it's something that will ring true for us. In APAC, for us, it remains early in the recovery.

And again, I talk about global continuity or commonality amongst the products and the SKUs we're selling so we can start leveraging some of the overall storytelling that we're putting together with them. But we've seen some softness in coming out of particularly China and Southeast Asia have been the 2 places between the U.S., APAC or China and Southeast Asia is where we've seen a lot of the sort of hesitation from consumers.

So the e-commerce with less promotions, better visuals and content, we're focused on retail elevation, inventory management is something that you want to be smart about right now. but we're really shifting from chasing revenue to real disciplined marketplace execution and stronger long-term brand health. So we've had great leadership in China between Simon and our Head of China as well is Carol Chen. She's an industry pro and just gets it. So I think we've got the right eyes on the business right now.

We think we can -- we think we're doing a pretty good job managing through any of the headwinds or the backdrop that we're seeing. But there's work to be done. We think we can impact that a bit with our doing better storytelling.

Very helpful, Kevin. And then, Reza, I just wanted to follow up on the revised annual guide with regards to revenues and gross margins. I recognize you're not ready to guide for 3Q. But for the audience, any way you can kind of shape the second half of the year in terms of revenues and gross margins? Should we assume that they're kind of somewhat equal? Or are there dynamics at play with the order books that would make it more 3Q or 4Q weighted? Any color there would be very helpful for the audience.

Thanks, Laurent. If you do the math, obviously, we're not giving guidance for Q3 and Q4 at this stage. But if you just do the math based on what you're seeing in the first half of the year versus the second half, there is a slight difference between the 2. So they're not completely equally weighted, but it's not like you have a massive hockey stick or anything like that, that's happening on the back half on the revenue line. In terms of gross margins, I'm just going to repeat it again that we are trying to basically maintain discipline.

On the last call, we talked about price increases that are going in. That should have some offset and improvement on the back half of the year in terms of gross margins as we look at that. And then the SG&A, we're just managing it super, super tight. And so some of it is marketing, as we talked about, but it's every line item. I mean we really are -- you have to bear in mind when we're looking at a $305 million restructuring plan, that does have run rate benefits that work their way into it. So that's what's allowing us to maintain our view on operating income.

The next question comes from Brian Nagel of Oppenheimer.

First, it's definitely a follow-up. But as you just look at the sales -- the weaker demand trajectory that you're telegraphing here, are you seeing that across products? I mean the point I'm trying to -- you've been introducing new products. I mean is the demand for those newer products also weaker in this environment? Or is it the weakness more relegated to the kind of legacy type products?

Yes. Let me start, Brian. Thank you. we're just beginning to roll out some of the product innovations. I think if we want to talk about progress, a year, let alone 6 months ago, we were talking about a hat and a backpack, the ability for us to add apparel to that narrative. And what you'll hear in the coming quarters too is where we start talking about footwear that can be premium. The way we want to think about it, though, is it's not just we need more reasons for the consumer to want to shop Under Armour.

We need more reasons for them to want to walk in our store, walk to our section of a retail store. And so that's going to come from new innovation. But again, this isn't just us waiting for the pipeline. I believe that we do have great product right now. I believe that in more cases than not, we've been transacting with product and product quality that is significantly in a product-to-value ratio, significantly favoring the product that we're building. So I believe we can command higher prices. We just have to explain that to the consumer.

And so that's why you continue to hear this emphasis on storytelling and what we're doing to articulate that. We're going to do a better job, again, using Bouncy Tee as sort of setting the edge for us as a metaphor of the way that we see bringing a product to market with that kind of intentionality. And that will drive traffic. It's driving traffic to our site. It's bringing people to like things like the Bouncy continue to be our #1 most repeatable products. So someone comes and buys one, they come back a week later and buy 3 more. So we want to make sure that we're creating that kind of environment. The world doesn't need another capable apparel and footwear manufacturer. The world needs a hope and a dream to feel something from the products, and that's where the Under Armour brand comes in. So we're going to deliver more of that.

That's helpful. And then a follow-up to that. So I just want to make sure I understand this correctly. So with regard to marketing spend through the, I guess, the balance of the current year, are you pulling back on marketing spend? Is it a reallocation? How should we think about just that, I guess, that spend dynamic?

So what we are looking at is we have said that we're going to be within a range of 10% to 11% for the year. So that range still holds, but you should expect to be at the lower end of that range by the time we get to the end of the year. So -- and then we're also looking at the revenue guidance coming down. So basically, if you apply those 2 metrics together, it does mean that it's a reduction in absolute dollars of marketing that are going to be working their way into SG&A.

So yes. But the component parts of that, if you look at marketing, it includes things like sports marketing assets, it includes production costs, includes commissions that you're paying to agencies and then you have performance marketing, et cetera. We're very, very focused on that reduction coming from those activities that just get us to be much more efficient. And there is a lot of room with a $0.5 billion budget to be able to do that. And so we're looking at it and saying, what are those initiatives that are going to drive full price sales?

What are those brand-enhancing initiatives, and we're going to continue to invest behind those. And there's a lot of campaigns that are coming in the back half of the year. So we feel very confident that we're not impacting the marketing spend that's really driving revenues, but we're just being much more efficient in terms of how we go to market.

Brian, I was just going to add, if you just think about it colloquially, if we ask you how much you thought we spent in marketing, I'm not sure the number you would come up with would be $0.5 billion. So we want to reconcile that feeling with the reality of how we show up at retail in the marketplace, et cetera. So our teams have done great jobs. We're just a 30-year-old business. We're making sure that we're looking at everything.

And so that's why we feel that we have the opportunity. We're going to go in deeper and make sure that it's not just a click down, but it's going 2 and 3 clicks down, zero-based budgeting, all that, the usual things. But we can get sharper on our -- what we're taking with production and a few other things we can leverage that across the regions. And so we don't feel like this is a step back in marketing. We think like it's just sharpening our pencil.

Our next question comes from Peter McGoldrick of Stifel.

I wanted to ask on the capital structure. You're now clean of the $600 million notes. Can you share your plans for cash generation of the business to fund operations and planned reliance on the updated revolver? And then also, have you banked the IEEPA refund already?

Why don't I take that, Kevin. So the IEEPA refunds have come in. So if you're looking at what we reported in Q1, the majority of those have come in, and you'll see there's a little bit more that's going to work its way into Q2, but most of the IEEPA refunds have already been received. You'll see it on the cash on the balance sheet when you look at the Q.

As we're thinking about the capital structure overall, we feel really, really good about our liquidity position. We talked about the recent amendment that we did with the banks as well. That's just basically taking advantage of better market terms. So I think overall, in terms of balance sheet liquidity, we feel that we're in a very strong position to run the business. We continue to be very focused on net working capital as well. We've already talked about inventory, et cetera.

On the last call, we talked about just general CapEx. So if you're thinking about kind of free cash flow generation of the business, we feel very good about the continued progress we're doing there. We're forecasting that we're going to be free cash flow positive this year. Obviously, the IEEPA tariff refunds helped that. And then it comes to the question of really capital allocation going forward. I would tell you that our primary focus is investing behind the business.

We've talked a lot about marketing. That's probably the #1 area we want to make sure that we're investing behind. Innovation has always been a focus, so nothing has really changed there, but just the efficacy of marketing is probably the biggest one. There's no M&A on the horizon. That's just not in the DNA of where we need to be, et cetera. So if that was kind of the follow-up question, I'll just proactively take that off the table as well.

I appreciate that. I'll go in a different direction on the follow-up. I wanted to ask about the environment in EMEA and Europe. As we think about that being promotional, but improving as the year progresses, can you share how you're servicing the marketplace at wholesale and then your promotional stance in your own DTC?

Yes. There's a lot happening in Europe, and it's been a real stalwart for us is that we've actually taken a lot of lessons of success that we've taken from Europe and applied across the globe is how we're thinking about it right now. Our strategy has been clear. And so I think that's led to some of the positive growth that we've had there. But what we're seeing is we're definitely seeing a challenged consumer, particularly in the U.K. right now. It's a very price-sensitive consumer that we're finding and how we show up in the product that we're building for them. We feel like we can just be a bit sharper. So we don't want to chase that bottom, which is somewhat reflected in the revenue outlook caution that we have. But Europe is a very complicated place. We've got terrific partners there between the Sports Direct, the JDs, the El Corte Inglés and glasses.

Our wholesale partnerships are critical for us there. But it's been a tough sled the last 6 months as competitors are very aggressive, which has increased the promotional environment. So we're playing the long game. We're not chasing, speaks into why we're being cautious with the revenue, but we're protecting and growing the brand as a priority. So it's things where we think we can be better. The market is just a bit tough. So that's what's giving and again, pushing towards some of the caution.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kevin Plank for any closing remarks.

Thank you, operator. So just to be clear, this is a turnaround, and there's never a straight line, but I just want to make sure that there's no mistake. We are making progress. It starts with product, and we know how to do this. But frankly, as you've heard us emphasize about marketing, a T-shirt or a shoe without a story, it's just a T-shirt or a shoe. So we're focusing on our storytelling.

The success that we've seen with things like Bouncy, that gives us great positive that the consumer is ready to return to Under Armour to make sure that they will pay full price for us and we give them that proposition and tell them the story, give them the innovation and give them great style that has the versatility that I think only an Under Armour can bring. So I'm proud of the way that our teams are showing up in moments that matter, winning marathons and World Cups, but we need to translate that into more commercial success, especially as it relates to footwear. The removing SKUs is something we're really proud of.

The additional SKUs, we believe will add weight. It's not an easy thing to do. It gives our sales team some pause for sure. But we just think we can be more clear. We can be more intentional with the products that we're selling, and that's what we plan on doing. And that SKU reduction, it leads us to putting this architecture of good, better, best of being clear about it. And that doesn't always mean just taking SKUs out, too. We're just thinking about the business. We're building a brand, not just a company.

And so the architecture of how we show up through good, better and best products, it's not always eliminating. In some instances, we'll have 9 or 10 or 12 products for one particular category. In other instance, we see opportunity in making better and best for things that are really close to us. So I think you'll see us fill this architecture out that isn't just about cutting, but we will be adding in things that can be meaningful for the business.

But from the day I walked into by the end of '28, we're forecasting roughly a 40% overall plus overall drop in SKUs, which is something we're really proud of. If I had to end it just for our team listening as well, execution is our opportunity. It's our #1 priority, creating a leaner company and ensuring accountability. We're getting our footing. We're ready to play offense. And we understand today isn't ideal. We're exactly where we want to be, but we really like the direction where we're going. So with that, thank you, operator, and everyone, have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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.

Good day, and welcome to the Under Armour Third Quarter 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.

Good morning, and welcome to Under Armour's Fiscal 2026 Third 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 February 6, 2026, 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 the earnings press release, our filings with the SEC, including our most recently filed 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 along our GAAP results. Reconciliations of these measures to their 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.

Thanks, Lance, and good morning to everyone taking the time to join us today. Under Armour is a global performance brand with opportunity and relevance that is both present today and capable to significantly scale as we find our operating rhythm. Entering the next phase of our turnaround, the focus is on execution. We're not declaring all the work finished yet, but are making real progress with a disciplined strategy, structure and team now in place. That progress is becoming more consistent.

For too long, the organization carried unnecessary complexity, too many handoffs, too many approvals, too much focus on one's individual job versus a broader brand objective we're trying to solve for: having athletes fall in love and know why they need Under Armour. Since coming back to the CEO chair nearly 2 years ago, we have narrowed our focus, moved decisions earlier and reduced friction across the system.

That work has simplified the operating system. Inventory is down year-over-year. Assortments are tighter. Planning is more precise. And we have additional opportunity to continue to improve. The structure of the company has been addressed and is enhancing our speed to market. SKU productivity, athlete insight and, especially, accountability for all of the above.

In the third quarter, although we had a few nonrecurring impacts in our GAAP results that are frustrating, our adjusted results came in ahead of expectations across most line items. We modestly raised our full year adjusted operating income outlook. This is a good proof point that our underlying business is becoming steadier, and we're seeing fewer surprises and greater predictability, which is where we believe we should be at this stage of our turnaround.

Looking at our journey, fiscal '25 was about assessing our greatest needs, to address our operating infrastructure and stand up the expertise necessary for a reset. With a few additions from outside, but primarily from within the organization, for Under Armour, by Under Armour. Years of consulting and rented input took us on a path that was not the unique brand position engine that allowed UA to cut through in the first place.

Fiscal '26 was about implementing that structure, including the foundation [ for category managed operating ] model, our renewed go-to-market and a clearly articulated strategic business plan. We're now building on that infrastructure by changing nothing, running that same play again in fiscal '27 and beyond, becoming sharper as the kinks work through, which we are still feeling some of but moving forward.

What is new has been layering in the how, how we are running the business, the operating principles that will manifest the thematic of selling so much more of so much less at a much higher full retail price. I spent the month of January presenting these holistic principles called Unleashing Intentionality in dozens of individual and group settings to teammates and partners, taking this message directly to key stakeholders, ensuring our entire offense and defense know exactly who we are, what we are building and how we plan to execute to achieve our mid and long-term ambitious goals.

To support this next phase, we recently made targeted leadership changes to accelerate speed. Kara Trent is now Chief Merchandising Officer with end-to-end responsibility for product mix, pricing and margin performance. Adam Peak has been named President of the Americas. Eric Liedtke is now Chief Marketing Officer and EVP Strategy. And Yassine Sadi has transitioned to an external senior adviser role to ensure design continuity. These changes reflect exactly we're on transformation, moving with tighter alignment and a more decisive operating cadence.

This work is not done on a spreadsheet, but by bringing our teams together, removing slow process barriers and facilitating conversations to create a much more intentional line of products across apparel, footwear and accessories, products that we can be famous for while highlighting the areas we already are, like UA Heat and ColdGear. The recent org changes now have all product teams in one conversation, including physically in one room sharing information to remove redundancy and increase speed.

In addition to the 25% of SKUs we began eliminating in fiscal '25, that is now complete, we have additional opportunity to be even more efficient, not only with SKUs and styles, but the raw materials that support the products we make. More to come on this in the future calls, but the new structure is actively digging into this work and the early reads are incredibly positive.

Looking ahead, key indicators are moving in the right direction. Brand health in the U.S. continues to improve. Awareness, consideration and engagement are trending higher, particularly among younger athletes. Digital engagement remains strong. And when product storytelling and distribution align, we see a positive consumer response.

So let's talk about products, because product is everything. And at Under Armour, we say that product is our currency. It always has been and the engine that will ultimately drive this turnaround. This is also the hardest part of the transformation. There was no switch to flip. We are rebuilding capability, discipline and credibility inside the organization and in the market. That work takes time. And importantly, we're now seeing real evidence that it is working.

Across apparel and accessories, the proof points are starting to stack up. Base layer remains a steady engine for the business with Heat and ColdGear standing out. New styles or refresh design language and modern colorways are driving higher ASPs and strong double-digit growth in these products. That matters because it's an early signal that intentional product thought leadership can help us rebuild pricing power.

We're seeing similar momentum elsewhere. Icon Fleece is performing well, and our women's Meridian franchise continues to gain traction as new silhouettes and colors attract a broader, more engaged consumer base. These products reflect a stronger point of view and improved execution across categories.

Bring Summer '26 is another meaningful step forward. You'll see more elevated products entering the market with a more consistent, cohesive design language. We're introducing improved women's Vanish Elite collection, alongside continued evolutions across Icon, sportswear and footwear.

In accessories, our Stealth Form hat and Norway backpack continue to push the price ceiling, supported by premium performance attributes in a clean, focused product story. When design intent is strong and segmentation is disciplined, consumers respond.

Sell-through for newer franchises is improving year-over-year. Full price realization is trending higher even from a lower base. Wholesale partners are engaging more positively with upcoming assortments and buying.

So shifting to footwear, which has been on a long challenging recovery path. I want to be very direct about it. Year-to-date sales are down about 14%, reflecting structural issues we are actively unwinding. For multiple seasons, we tried to grow by expanding the assortment, more styles, more price points, more incremental updates, without consistent demand or the scale to support it. That diluted volume pressured margins and increased inventory risk.

We are addressing each of these. We're exiting low productivity styles, reducing redundant SKUs and eliminating launches that lack a defined role, a strong margin profile or a scalable growth opportunity, with the primary criteria being every product must have a reason to be built by Under Armour. It must have a story.

In parallel, we're tightening our price tier architecture and concentrating investment behind fewer, higher-impact franchises that can win consistently. This disciplined approach sharpens our focus areas across training, running in sportswear, while building momentum in team sports where we are increasingly confident in both our product and our growth trajectory, all of which should drive improved returns over time.

We're already seeing proof points. In run, the Velociti Lead 3 delivered strong sell-through at launch and run specialty. And sharper segmentation across the franchise is driving healthier performance at more excess price points with Velociti Distance and Pro 2. The Assert 11, which launched in November, we talked about on the last call, continues to perform really well and is delivering a meaningfully higher ASP versus the ASSERT10 as we predicted. And as we outlined last quarter, we positioned this Velociti run inspired redesign and the Charged+ midsole as an outstanding $75 accessible price point offering. [ Brought in ] Los Angeles Dodgers' back-to-back World Series champion, Freddie Freeman, as a product ambassador, we're starting to drive increased demand in a millions of annual units program. This reflects our strategy in action, simplifying the line, strengthening franchises and reinforcing Under Armour's running credibility.

In sportswear, just this week, we launched the HB-LO, a $100 basketball-inspired silhouette built for all-day comfort, carrying a premium leather upper with a cushioned court-to-street ride and a bold expression of the UA logo. The price to value of this shoe is off the charts and believe that it can be a gateway product for Under Armour to take share in court shoes and sportswear.

Coming off our fall launch, the $120 Sola model continues to build momentum. Additionally, we introduced the ARC 96 at $125, a modernized run inspired silhouette that blends premium materials with elevated cushioning and distinctive design language. With social response and sell-through as key indicators, we're very encouraged by the evolution of the sportswear styles, all excellent examples of what's to come.

While the reset of our footwear business is still underway, the actions we're taking combined with strong early signals for our innovation and design-led product give us growing confidence that we can stabilize the footwear category next year and rebuild momentum with consumers and wholesale partners.

Overall, our products are becoming stronger assets, not just something we sell, but a primary driver of demand and value creation. We're building a more intentional product segmentation across innovation levels, price points and usage models. Every product is gaining a defined consumer role and will have a distinct identity. Over time, this approach will deepen consumer understanding of the brand and support more consistent pricing discipline as a way to improve demand and margin contribution.

Our storytelling is also getting sharper. We're moving up with greater purpose, connecting the right products to real sports moments, meeting athletes where they are and driving higher engagement per dollar. Social is leading that effort, particularly on TikTok.

Our influencer strategy continues to expand reach and reinforce credibility. While [ activations ] like We Are Football, Run Club events with [indiscernible] are evolving into community-led platforms that generate authentic energy and momentum for the brand.

Team Sports remain a core driver of momentum and brand authority. In American football, we continue to deepen our presence through authentic on-field storytelling and partnerships, including the launch of the first overtime national high school Championship at our UA Stadium here in Baltimore and expanded collegiate relationships with Georgia Tech, the first Under Armour school to wear Under Armour in 1996. And the University of Wisconsin, a long-standing partner.

This week, we launched our Spring '26 activation spotlighting women's flag football, the next era of the game. Debuting just this past Wednesday on National Girls and Women in Sports Day, Click Clack: Next Era reimagines our iconic original 2006 ad in a fresh Gen Z forward way.

With the sport exploding and the '28 Summer Olympics on the not so distant horizon, UA athletes, Ashlea Klam, Diana Flores, Laneah Bryan and Isabella Geraci help set the pace for the sport. The message is clear, flag football is here to stay.

At the highest level of the sport, our on-field credibility in the NFL continues to build, spanning established athletes like Philadelphia Eagles' DeVonta Smith and rising stars such as Seattle Seahawks' rookie, Nick Emmanwori. In his first year in the league, Nick will take the Super Bowl stage Sunday, a powerful and energizing milestone that underscores the momentum of our athlete roster and the growing relevance of our brand at the very top of the game.

We're also investing in the next generation of athletes. Our UA Next All-America Game Week showcase top high school talent across football and volleyball, broadcast on ESPN and where we sold out the product capsule. We signed our first Click Clack NIL class and continue to build our presence in track and field as we prepare to host the inaugural UA Track and Field Nationals this spring at IMG Academy in Florida.

This month, UA is on the world stage. In Italy, Lindsey Vonn our longest-serving athlete, will compete for Team USA, and Cale Makar will take the ice for Team Canada at the Winter Olympics. Then next month, that momentum carries at the World Baseball Classic, where many of our iconic UA Major League Baseball players will compete at the highest level on yet another global stage.

In EMEA, momentum continues to build across global football. Activations, including the UA-Mansory collab delivered strong engagement and sell-through. In our full-funnel Be The Problem football and Unapologetic women's campaigns are outperforming benchmarks and strengthening our brand's cultural relevance. We don't see these as isolated moments.

We see them as repeatable proof points that our brand is regaining momentum at scale. This authenticity enables UA to meet approximately $5 billion in annual consumer demand while rebuilding trust and deepening durable connections with athletes around the world. This is a foundation for sustained relevance, demand stability and long-term value creation.

Switching next to the regions. North America is beginning to turn the corner. We believe the December quarter marks the bottom of the reset. [indiscernible] remains soft, but underlying indicators are improving. We continue efforts to strengthen our premium online position even in a promotional environment. eCommerce conversion is up and Factory House performance is improving. Digital engagement tools such as SMS and TikTok shop are delivering strong growth.

And in wholesale, our focus remains on rebuilding the right partner relationships, and we're making real progress. A Q3 product campaign led by ColdGear compression with Dick's Sporting Goods [ turned ] solid results. And as partners gain confidence in our product and storytelling, collaboration is growing. And we are encouraged by how our fall order book is shaping up.

In EMEA, the business remains solid and continues to be the clearest expression of our premium strategy in action. Performance is being driven by disciplined execution across the region with a more intentional approach to promotions that protects brand equity and pricing integrity. At the same time, solid wholesale performance is reinforcing the quality of our partnerships and the strength of demand in key markets. Together, these factors are delivering consistent, reliable results and underscoring the resilience of the business in the region.

In APAC, where I spent 7 days in January visiting 5 key cities with our teams and partners, we continue to make progress on our reset, and the region remains a critical long-term growth opportunity. There we're taking decisive actions to manage inventory, sharpen assortments and elevate the retail experience. Together, these efforts are positioning APAC for stabilization over the next 12 months and more sustainable growth beyond.

So to close, there are no shortcuts in a turnaround like this. Progress is earned through discipline and consistent execution. The business is simpler. Revenue volatility is stabilizing. The margin trajectory is improving. Inventory is cleaner. And Under Armour remains a brand athletes actively choose with authenticity and a competitive edge that would be difficult, if not impossible, to replicate. Under Armour is unique. It just is.

Now if there's one thing to take away from today's call, we believe that the most disruptive phase of our reset is now behind us. We're past the period of structural change and operating noise and the organization is now focused squarely on execution and stabilization.

When we look at the fundamentals, they are where we expected them to be at this point in the reset. Our operating model is in a much better place. Our business plan is well defined and increasingly repeatable. And our go-to-market approach is more focused and disciplined. Each is making progress and each is reinforcing the other. The strategies we're executing are strengthening our foundation and positioning Under Armour to deliver more consistent performance and long-term value creation going forward.

With that, I'll turn it over to Dave to review the quarter and our outlook. Thank you.

Thanks, Kevin. Turning to our third quarter performance. We met or exceeded our outlook across all major line items. This performance reflects the discipline, focus and growing consistency in execution as the turnaround continues to progress. While there was some nonrecurring noise in the reported numbers for the period, the underlying performance of the business remains solid and consistent. With that context, I'll start at the top of the P&L, walk through the details.

Revenue declined 5% to $1.3 billion, slightly better than the outlook shared in November. The outperformance relative to our plan was partially due to approximately 1 percentage point of growth from a timing shift of some wholesale deliveries from Q4 into Q3.

Digging into the results by region, north America revenue climbed 10%, primarily due to a decrease in wholesale with a slightly smaller decline in our direct-to-consumer business. In EMEA, revenue increased 6% on a reported basis and 2% on a currency-neutral basis, with growth in both wholesale and direct-to-consumer during the quarter. APAC revenue decreased 5% on both the reported and currency-neutral basis, marking a sequential improvement from the year-over-year declines we saw in the first half of the fiscal year. The Q3 decline was driven primarily by our full price wholesale business while DTC revenue was down only slightly, partially offset by positive licensing growth. And in Latin America, revenue increased 20% or 13% on a currency-neutral basis, driven by balanced growth throughout the business.

From a channel perspective, wholesale revenue decreased 6% due to lower full price and third-party off-price sales, partially offset by growth in our distributor business. Direct-to-consumer revenue decreased 4%, primarily due to a 7% decline in eCommerce revenue. Sales in our owned and operated stores were down 2% in the quarter. And licensing revenue increased 14%, driven by the strength of our international licensees and modest growth in North America.

Finally, by product type, apparel revenue decreased 3% due largely to softness in train, golf and run, while sportswear was flat for the quarter. Footwear revenue decreased 12%, reflecting declines across most categories, partially offset by growth in outdoor. And accessories revenue decreased 3%, driven largely by declines in golf, outdoor and team sports, with a partial offset from growth in sportswear.

Third quarter gross margin declined 310 basis points year-over-year to 44.4%, in line with our outlook. This decline was primarily driven by 180 basis points of supply chain headwinds, including 200 basis points of pressure from higher U.S. tariffs, 140 basis points from pricing amid a more promotional environment in North America and a combined 40 basis points from unfavorable channel and regional mix. These headwinds were partially offset by 30 basis points of foreign currency impacts and 20 basis points from a more favorable product mix.

Turning to SG&A. Third quarter expenses increased 4% to $665 million, driven primarily by a $99 million litigation reserve expense related to a previously disclosed insurance carrier dispute. Within SG&A, we also recorded approximately $3 million in transformation costs related to our fiscal 2025 restructuring plan. Excluding these items, adjusted SG&A was down 7% to $563 million, mainly due to lower marketing spend driven by timing with a greater share of our fiscal 2025 marketing investment recognized in the second half, along with continued benefits from restructuring actions and disciplined management of discretionary costs.

In the third quarter, we recorded $75 million in restructuring charges and $3 million in transformation-related SG&A expenses, totaling $78 million under our fiscal 2025 restructuring plan. Since the plan's inception, we have incurred $224 million in charges and transformation expenses, of which $89 million are cash related and $135 million are noncash.

We continue to expect total charges and expenses under the plan to be up to $255 million, with any remaining amounts expected to be incurred by the end of fiscal 2026. Thus far, the actions we've taken under the plan to streamline our business have resulted in approximately $35 million in savings in fiscal '25 and are on track to deliver an additional $55 million in fiscal '26.

Moving down the P&L. We reported a third quarter operating loss of $150 million. Excluding the litigation reserve expense transformation expenses and restructuring charges, our adjusted operating income was $26 million, again exceeding our outlook.

The bottom line, our reported diluted loss per share was $1.01. This result includes the impact of the insurance appeal decision, transformation expenses, restructuring charges and a $247 million noncash valuation allowance against certain U.S. federal deferred tax assets. Regarding this valuation allowance, accounting rules required us to reduce the value of our U.S. federal deferred tax assets and record a noncash tax expense due to cumulative GAAP U.S. losses over the past 3 years. These losses have been driven largely by restructuring and impairment charges, litigation reserve expenses and other nonoperating items. Importantly, this valuation allowance has no impact on current cash flow, does not signal a deterioration in the underlying business and should reverse over the next few years as U.S. profitability improves. Excluding the items discussed earlier and the U.S. federal deferred tax asset valuation allowance, our adjusted diluted earnings per share for the quarter was $0.09.

Separately, part of our Q3 adjusted EPS overdrive relative to our outlook, was due to a favorable tax development from the IRS's approval of a tax method change that mitigated the use of our U.S. losses to offset foreign earnings under the U.S. GILTI provisions. As a result, our full year fiscal '26 non-GAAP estimated effective tax rate is lower than originally anticipated and more reasonable. So with that, we recorded a cumulative 3-quarter catch-up tax benefit in the third quarter. This tax update accounted for approximately $0.06 of our EPS in the quarter.

Now turning to the balance sheet. Third quarter inventory was down 2% year-over-year to just over $1 billion. We ended the quarter with $465 million in cash and cash equivalents and $600 million in restricted investments. As a reminder, that $600 million is fully set aside and dedicated to covering all remaining principal and interest on our senior notes due in June this year. These restricted investments are not available for general use and should not be viewed as part of our operating liquidity or discretionary debt profile.

Furthermore, we continued to prioritize balance sheet strength during the quarter, including repaying approximately $200 million of revolver borrowings and ending the period with no amounts outstanding under our $1.1 billion revolving credit facility. As a result, we entered the final quarter of this fiscal year with a strong liquidity position and meaningful financial flexibility with more than sufficient resources to meet all expected obligations.

Now moving to our fiscal '26 outlook. With 1 quarter left in the fiscal year, we've updated our expectations, largely toward the high end of our previous ranges. Breaking that down further, we now expect full year revenue to decline approximately 4%, compared with our prior expectation of a 4% to 5% decline. This reflects our expectation that North America revenue will decline approximately 8% and APAC revenue will decline approximately 6%, partially offset by growth of approximately 9% in EMEA. This implies a meaningful improvement in fourth quarter revenue trends as we continue executing our strategies and move toward the stabilization we expect in fiscal '27.

Turning to gross margin. We now expect the full year rate to decline by approximately 190 basis points, compared with our prior outlook of 190 to 210 basis point decline. Drilling down further, U.S. tariffs will drive most of the decline, along with unfavorable channel and regional mix and pricing headwinds. These pressures are partially offset by foreign currency tailwinds and a more favorable product mix.

We remain highly focused on controlling costs, and expect adjusted SG&A expenses to decline at a mid-single-digit rate, unchanged from our prior outlook, with even greater confidence in our ability to leverage given the slight improvement in the revenue outlook. This implies a considerable decline in fourth quarter SG&A expenses, driven primarily by year-over-year marketing timing and lower compensation-related costs.

This translates to an expected adjusted operating income of approximately $110 million, at the high end of the $95 million to $110 million outlook we provided in mid-November. The bottom line, we now expect adjusted diluted earnings per share of $0.10 to $0.11, driven in part by the favorable tax planning developments I noted earlier. These updates are expected to yield a full year fiscal '26 effective tax rate roughly in line with the fiscal '25 rate.

In closing, we are operating with focus, discipline and growing confidence as we complete a pivotal year in Under Armour's transformation. Our third quarter performance reflects meaningful progress in simplifying the business and driving more disciplined execution, supported by a leaner or agile operating model. Foundation continues to give us flexibility to manage near-term challenges while positioning the company for improved financial performance over time. While work remains, we believe the most disruptive phase of this reset is behind us and, with a clear strategy, disciplined capital deployment and continued focus on cost optimization and margin expansion, we are confident these actions will better position us to drive sustainable, profitable growth and shareholder value over the long term.

Finally, before we close out today's prepared remarks, this being my last call in this role, I want to pause and say thank you, with a special thanks to Kevin, our entire Board and to all my teammates around the world. After 21 years at Under Armour, including 9 as CFO, I've had the privilege of working alongside extraordinary teammates to bring passion, resilience and an unwavering commitment to this brand every day. Together, we have navigated periods of growth, transformation and real challenges. And we have done so with locked arms in the humble and hungry mentality that makes this place so special.

As we work through the coming CFO transition, with Reza joining the brand, I do so with complete confidence in our teams and in the strength of the foundation we have now established together. We are reaching that crucial turning point. And thus, I believe Under Armour's best days are still ahead.

With that, we'll open the call to questions. Operator?

[Operator Instructions] Our first question comes from Simeon Siegel with Guggenheim.

Dave, just want to say it's been great working with you. Best of luck on your next chapter. Kevin, your December quarter comment is interesting and encouraging. Can you speak to what makes you confident about that the quarter was the lowest revenue decline for North America? And just that the region and Under Armour overall will see stabilization in FY '27? And then along those lines, just as you think about the path forward, I think you mentioned stabilization in footwear in '27. Can you elaborate a little bit on that part?

Yes. Thank you, Simeon. And let me just start with leadership. First of all, becoming more and more proud, I think, of the ecosystem that we've built here at UA to be able to have internal talents like Kara Trend be able to move from a merchandising into Americas to a similar one in Europe, to heading up Europe and then having the ability to bring her back here a little more than 2 years ago. And I think stabilization was something that was her #1 goal. And we did a -- Kara delivered and along with an amazing team of people that just made that happen. And then I also just want to make note the credit of a 14 or 15-year Under Armour vet in Adam Peak, who we brought back to the brand about 11 months ago and have the ability to create that kind of clarity in role and succession. I think it starts with the confidence we have in giving the stability to our partners.

Within that, structurally, I believe that we now have the right model in place. I think that we're attacking the right issues. And that, of course, begins with product. We clearly have done a really solid job in laying out our design ethos in a language that consumers can look to, expect and begin to make more and more repeatable. As I said, we started with our concept of winning with the winners, and that's getting behind Heat and ColdGear. And then meanwhile, we're introducing new styles and silhouettes that, again, we're just becoming more consistent with.

From a storytelling standpoint, I think it's -- you're just starting to feel the brand more. And that goes to the launch we did with the women's flag football campaign on Wednesday, and please take a chance to look at our Investor Relations page and see the recent spot that we just put out, which is pretty impressive.

Probably the most telling thing though is going to be, no matter what I say, Kara walked into a pretty tough situation, and we were just looking at declines, especially from a wholesale level, which is always a great indicator of how a year is going to turn out. And I can say definitively for the first time in quite some time, we're no longer looking at significant declines. And obviously, I'm hedging my statements there, but we're at a place that we like the way the order book is shaping up right now. And that also just goes back to just pure relationships with partners because, hopefully, you can hear it in our voice, and if you're watching, you could see it in our eyes, but there's just a different level of confidence, swagger or whatever you want to call it, which I think leads to the most important indicator, which is just culturally.

This business is feeling it. That's exuding out. It's exuding through the desire of the number of phone calls we get of people that want to be here. And it's just a trend. It's hard to put into words. And after 20 years public and celebrating 30 years this year as a business, I've just seen a lot. So we feel very good about what the North America position looks like.

Moving on to footwear. As I said, we're not trying to hide anything here. Footwear is a $1 billion-plus business for us that we believe has the opportunity to be much larger. And as we compare ourselves to others in our space, we're seeing other partners or other brands do a lot more with a lot fewer items. That's pretty narrative to the way that I'm driving across the organization right now, is how can we just skinny up -- I think it did a pretty good job covering it in my prepared remarks, of let's just stop trying to chase volume through additional units. Let's get behind, let's get clarity with the way it works from the product to the story to the distribution.

And I think that our new operating model, what we spent majority of calendar year 2025 doing, implementing and then running now for a year, I think we're going to start seeing those benefits. So I can talk about the authenticity on field, and I think we made -- did a good job making the statement that Under Armour's authentic athletic credibility is something which is nearly impossible to recreate. And so we're going to lean there. We're going to leverage.

And you're going to see really clear ideas like when we talk about things like running, we have a really clear point of view of who we are and run. We build running shoes for athletes that are running to train for their sport. In addition to that, we also have the ability to make Formula One race cars like the Velociti 3 $250 with Sharon Lokedi. But a part of it is some of the work that our team has been digging into where we just took the Velociti family that had shoes in its franchise ranging from $110 to $250, we just went from 6 shoes in that franchise to 4. Being more targeted, being more deliberate with the storytelling that we're going to do and put behind it, which makes it easier for, A, our teams to be able to build, B, our sales team, be able to sell, C, the wholesale partners be able to write orders for, and most importantly, the consumer to be able to make an easy purchase decision with a really clear point of view from the brand.

So in some instances and maybe just the last point here, when I think about -- I mentioned sportswear and talked about 3 price points from $100, $120 to $125 with the sole of HB-LO and the footwear that we now have in place there. we're just -- we're getting very intentional. That word is no accident on this call. You'll hear it over and over. Basically it's tattooed into anyone who walks through this building. So we're doing a good job doing that. So thank you for that question, Simeon.

Our next question comes from Jay Sole with UBS.

Kevin, you mentioned that North America is beginning to turn the corner and the wholesale partners are engaging. You're seeing the fall order book shaping up nicely. I'm wondering if all that progress, that operational progress in North America is also transferable to Europe and the APAC regions. Are you seeing progress in those regions as well? Do you expect sequential improvement as we go through calendar '26? That's the question.

Yes. Jay, EMEA has been a strong suit for the company for quite some time, and delivering no less this year with about 9% growth there. So we really like the team. Again, it's a -- the consistency that we have, A, on the team on the ground, the leadership of, again, being able to move another Under Armour legacy athlete like Kevin Ross into the leadership position following Kara has been a real asset. Our relationships there have really never been stronger, and calling out specifically JD Sports and Sports Direct, the buy-in, the partnership is something that they're really getting behind the brand. Because we've been delivering and we've been consistent. And in places like France, where we're probably the #1 underground brand in the country, we're seeing that begin to translate out.

At the same time, EMEA is becoming more and more promotional, particularly in the U.K., which is our largest market. So it's something we have our eye on. And what we're seeing, frankly, from the other brands is there's a lot of people that are out there buying business.

So we know that that does not work. And so we're really holding the line. I think we're being opportunistic where can or, more importantly, maybe we have to in some instances. But we like what EMEA is doing. We believe it will continue to grow for us. We're not sure at what level right now as we think and look out into the new year. But it's certainly an area of strength for us. And again, I guess I get to sit here like a bit of an old hat now, 30 years doing this, where I just look at things of progress. But that feeling from the team. I'm going to be over in Europe next week and get to see Lindsey Vonn hopefully ski and win and compete and win some gold. And I'll be visiting our office in Amsterdam too and delivering the Unleashing Intentionality directly to our team too.

So we like what's happening in Europe. Again, we're not declaring victory anywhere, but what you see is you feel a brand that it's I think we're right where we're supposed to be at this moment in our turnaround.

Our next question comes from Bob Drbul with BTIG.

I guess just, Kevin, when you think about the go forward, especially in footwear, how are you thinking about segmentation in a pretty competitive market? Has increased penetration and success of better and best to -- is that the key to stabilization here? Or will it be good level driven?

Yes. We've used a vernacular good, better, best of really just thinking about the line. That's been critical as we've been working through this reset. As I said in the past, we've made a lot of good. We've made some better, and nowhere near enough best. Now if you ask me for our druthers, we sit with a $5 billion-ish in revenue, we'd love to maintain good, of course, be opportunistic where we can. But we really like to concentrate our growth at the better and best level.

And frankly, those clear lines of segmentation have not been there. And as we said, going through this premiumization as we're really focusing. And so even with things I gave the example about our Velociti fresh eyes earlier, clear segmentation is there. And what I'll get into maybe a little bit later is as we're thinking about the way that we're approaching this is becoming more consistent for the consumer. I think one thing that I'm driving very much so is our global continuity. And what's ironic is that in a brand that was founded effectively on 2 products, if not 2 fabrics, HeatGear and ColdGear, that if you ask today what are our 2 most important franchises that we have, it's HeatGear and ColdGear. And then we make a lot of other stuff.

So number one, we want to go where the money is. We want to leverage those places where we're already currently winning, and so establishing clear good, better, best in that compression category, that base layer category, make sure that we continue to win there. And then we're looking where we can create extensions.

What we don't want to be is we're not interested in being a fashion company. We'll be fashionable, but we're looking for more continuity where, today, we're carrying a global commonality of a number that's somewhere in the 20s, meaning that each year or if you went to each region between APAC, EMEA and the States, you find about 20% commonality in stores. We're looking to drive that much higher with a much more consistent brand voice and making sure that we're lining up with the distribution that we have because I think it's a unique position of our industry, is that sports brands, especially, we've got the ability to sell at good. And as long as we have the quality and we have the product that can compete, we can do better and best very well.

So you'll see a much better and broader offering, but not unlike the example I laid out in our footwear with some of our sportswear styles, including the ARC 96, the HB-LO and the Sola, we're looking to get into that business, and we're not coming in at $160. We're being very thoughtful about the way we're approaching it because our footwear ASP, which as you've heard, is my #1 driver, I'm thinking about how we can grow the business and how we have the organization thinking about it, it's been a number that hasn't been carrying 3 digits. And so we're looking to start building a much stronger platform with $100-plus in footwear, which may be a good carryover from the last question too.

Our next question comes from Sam Poser with Williams Trading.

I have a handful. But one, Kevin, you talked a lot about the product. You talked a bit about the storytelling. Can you discuss sort of what you're doing to create, and I just watched the ad very quickly, but what you're doing to create more of an emotional connection both with your performance product and then with your product like the HB and Sola and some of that better -- those better kinds of introductions both in footwear and apparel?

Yes. Sam, one thing is certain is that the world does not need another capable apparel and footwear manufacturer. The world needs a hope and they need a dream. And that means that it's our job to make them feel something when they participate with our brand. And whether it's that little girl, a little boy that maybe strapping on their first Under Armour compression shirt and like they just put on a super power, or sliding a shoe on their foot, we've got opportunity. And I don't think that we've maximized that opportunity.

I was talking about in the sportswear categories, you can see the price to value and things like that new HB-LO shoe at $100, it is extraordinary. And so that is incredibly intentional from the brand and saying we need to get them to look. And if you check the site and say there's nobody better at you than doing that, and find out what people are saying about it, it's what do you think of this UA shoe, and then there's sort of eye-popping and saying, "Wow, that's $100." So I think people have been critical of us, and we've been critical of ourselves, of improving the price-to-value relationship of the products that we put out there. So A, the product has to be there.

Then we have to give them a reason to wear the product. Our authenticity with athletes and teams and leagues all over the planet are something that give us a global presence. But as you know, it's about winning here in the States, and so finding that credibility. So we're taking a very deliberate city attach strategy, making sure we get things like sportswear in there.

Not to be lost on that and the reason that we'll buy our sportswear is because we are authentic, because we are on field and we have a great positioning. I think when you look at the levers that will drive that, it's athlete credibility, it's clever and inspirational imaging. And it's confidence, Sam. It's just confidence from us. I think that's the one thing that you see of us being the first ones to really drive and get behind women's flag football and show it in such an aspirational way. We think, A, we can invite new young women and inspire them and give them the conference to participate in the game that we think will help their overall self, which is the thing that helps us show up here and go to work every day and be so passionate about what it is that we do.

So brands need to make you feel something. I certainly feel that that commercial with some of the feedback we've had in just a few days from young women that are just setting thank-yous. And watching the handles of some of the incredible young stars that we have featured in the commercial, like Ashley, there are just these letters that are saying, "Thank you so much for doing this. You've inspired me. I'm going to go take a chance and I want to be an athlete now." So you'll see more and more of that where product attributes are important, having our naming architecture, et cetera, in place matter, but making consumers feel something is where we're focused for the brand.

I just want to follow up. In your flagship store in Baltimore, you have all those high school -- local high school teams share their helmets up. When I was there, you had the 2 high schools that, I forgot what it was called, but the 2 high schools that are like the rivalry, I think it was. And I'm wondering if you're thinking of applying that both in other full-line stores, but as well as the outlet stores?

And then second -- and then the other question is if somebody can break down sort of APAC by country. And three, the management realignment, especially with Yassine taking an external role, if you could talk a little bit about that, that would be great.

Sam, in North America alone with 16,000 football playing high schools in the country, and that just means they have a large enough budget if you sort of want to simplify it, Under Armour has about 3,000 of those high schools right now. So our presence is significant. The opportunity that we have to grow in team sports, which has been a real bright spot for the brand consistently for us, double-digit growth that we continue to see, outfitting teams, sidelines, coaches, et cetera. So that's our anchor.

The other thing is -- the other stuff is, frankly, the easy things that we're supposed to be able to sell as a result of being authentic on field. I don't think we've done a good enough job of setting the consumer up for that, giving them products that will get them to and from the field, to and from the court, but we have all the credibility in the world when it happens actually on field or on court. And so opening that up, which is things like buying into the sportswear business by offering such great value with some of those new sport shoe offerings we have is something that hopefully will help translate a little more in driving more top and bottom line for us.

And I think, Sam, on APAC, we don't normally break down by country, but obviously, it's a super critical region for us. We've got some new leadership there that's really focused on brand and rebuilding the brand, which is great. We've also got a new country leader in China who's very seasoned, and she's digging in really, really quickly, which is awesome.

So we've talked about that APAC is a little bit behind as far as North America on the turnaround efforts, but that we feel like we can turn it around more quickly. It is a challenging environment there. A little bit of softening consumer sentiment. It's pretty promotional environment. But I think we've got the right leadership there now, the right intention and the right focus. And we keep rebuilding kind of the brand voice and driving full price sales, and that's where the focus is there.

I think we could probably say the worst declines for APAC are behind us at this point and we really start to drive forward again. So we're excited.

Sam, what was your last question?

About Yassine and his changed role?

Yes. So Yassine has been an incredible partner for us and just really helping drive a consistent brand aesthetic across the organization. So that red thread is now beginning to pull across. It's -- when structure follows strategy and the people follow the structure, as Yassine and I started talking about his role where he could be most helpful to the brand, it was a really easy decision for both of us.

And so Yassine is going back to this agency world and Under Armour's first client. And this is all in a very positive way as he begins a new chapter with getting remarried, et cetera. So we're excited for Yassine and what he's going to be doing going forward.

As it relates to Under Armour, this aesthetic is something that we're driving. The Unleashing Intentionality presentation that I talked about that we've been rolling out, it's about getting consistent. It's about establishing clear good, better, best. And in categories where we have multiple styles, and you could take something as our woven pants or our Unstoppable pants are classically called, we've just been editing. We've just been going through and just cleaning the brand up. We're going from 10 different pants and multiple styles with, frankly, 10 different fabrics and 10 different draw strings or waist bands or closures or buttons and logo applications, and reducing it down to 3: good, better and best. And that simplification that we're going to do on the raw material side of really thinking about how we can be a better supply chain company is a lot of what's driving the thinking that we're doing right now.

And when we just made the shift February 2 to the new structure and having Kara sit in as our maestro as the Chief Merchandising Officer, getting those 5 different category managers that are running 10 different categories vertically, we all sat in the same room and we've had -- we've got the planners in there. And we have 15, 20 people that are just really driving cross-functional communication and what that means. And as a part of that, we need the red thread of design.

And so now that we have a Chief Merchandising Officer that's setting the tempo, they're setting the music for us, they're writing the sheet music, then you have the category managers that are driving and really implementing what is the consumer insights that we can do. Marketing is driving ensuring that every product we build has a story and ensuring that that design comes across in a horizontal way to drive the red thread of what actually makes it Under Armour, what makes it consistent, and what makes this Under Armour good level, Under Armour better level, Under Armour best level. But you should find a much more consistent, deliver it and get ready for it. Intentional Under Armour going forward. So we're excited about working with Yassine, Kara and all the other leaders that we have in place now.

Our next question comes from Peter McGoldrick with Stifel.

Dave, all the best in the future. I want to dig on the complexity reduction and opportunities for greater progress in the future. It seems like much -- or some of the heavy lifting from SKU rationalization and organization have been made already. I was curious if you can help us think about the improvements that we should expect in the coming quarters and how that would manifest in the cost structure of the business, whether it be raw materials or other items.

Yes. Peter, let me give this in 2 parts. I'll take the first and Dave will take the back end of it. I've used this analogy of coming back in the CEO chair in April of 2024, walking and seeing our innovation head, Kyle Blakely, and having a conversation, we were talking about we might need more resources because of the number of fabrics that we're having to go to market with every season. And the number came out as we were making more than 300 fabrics. And we just came down and said, why are we making so many? Can we run the 80/20 on that? And the 80/20 is that there's actually 30 fabrics that are driving 80% of our volume, yet we're spending all that time driving nearly another 300 fabrics in development.

So we're just looking at it holistically, like how do we get rid of all this stuff, become more simple, become more narrowed and more deliberate? Applying a good, better, best structure, which is what Kara's job is doing, setting the margin targets of where it sits for apparel, where it sits for footwear, setting the profitability targets, SKU targets, et cetera, being really clear at the top, and then making sure that there's products that will fall out of that line.

So we've actually spent the last 2 weeks since getting into this new cadence with, as I said in the last question, with our GMs and just going through line by line, product by product, finding out where we can maybe have 15 or 16 or 17 training shirts, and with a business like training shirts, where Under Armour has 5 products that sit in the NPD top 10, 9 products that sit in the NPD top 25, as I've mentioned, our focus here is how do we drive ASP. Because while we may be listed in the top 10 and top 25, we're certainly not driving anywhere near the highest ASP.

So we see there's opportunity, A, to be able to drive more volume, B, more consistent with our messaging to the consumer, and then as well be able to get more consistent by having less fabrics, having less basically inventory. So we have fewer things with clearer stories for the consumer that hopefully will manifest to a much clearer brand with a much brighter bottom line.

Yes, Peter, and I think as far as when you think about the go forward, there's some different pieces. What Kevin is getting at absolutely should be able to drive a little bit better margin as far as pricing on raw materials and actual production-based volumes and less SKUs. That's clear and that's what we're going to be driving for. And that will probably benefit more, when you think about like back half of fiscal '27, more into fiscal '28 and beyond.

But I think also, keep in mind, right now, fiscal '27 would have a full year of tariff costs, assuming tariff rates don't change, versus a partial year in fiscal '26. So the actions that Kevin's speaking to will help offset that, in addition to some of the pricing changes that we're driving through that you'll start to see in the market more in back half of fiscal '27 as well. So there's kind of a balance there, is the best way I would put it.

Our final question comes from Brooke Roach with Goldman Sachs.

Can you elaborate on the channel and product category puts and takes you expect in the North America business as you drive stabilization into fiscal year '27? Are there any businesses that you expect to drive faster or slower stabilization? And are you seeing the same level of wholesale order book improvement across accounts and product lines that might over-index to premium versus the value segments of your business?

Brooke, definitely appreciate the question. But getting into details on fiscal '27 is not something we're really at this point going to do. We're going to do that more when we get to the early May call. But I would say that we've talked a lot about all of the deliberate actions that we've been taking over the last year or so, and Kara is definitely driving a lot of that in her new role. And then obviously, now she's transitioning in the product, which is going to be awesome with the Chief Merchandising Officer, and we've got Adam Peak stepping, seasoned veteran, and he's going to take the reins to keep driving forward with those relationships in North America.

So the wholesale discussions have been positive. I think a lot of the newer product is really resonating. So we should see that come through as we think about the full price wholesale business next year and beyond. But it does still take some time. We've talked about that. The orders that you're placing now are definitely further out in the future as far as when it comes through on the revenue side.

So it is a journey. We've talked a lot about being excited about reaching that stabilization period as we drive into fiscal '27. And that's exactly what we're going to do. I think there's opportunities in each of the channels as we go forward, but we're going to be deliberate. We're going to continue to be smart about how we deploy promotions and discounting and continue to try and step off that journey more and more and reach the sweet spot there as we continue to double down on our big partnerships with our -- on the wholesale side.

So a lot of different moving pieces, and we are excited about the momentum on the product, on the brand, on the relationships. And we're excited to talk more about that when we get to the early May call.

And Brooke, maybe I'll just give you the sort of high-end version from that answer as well, which is I said earlier about winning with the winners. Today on Armor is famous for base layer, we're famous for he HeatGear and ColdGear. Getting a really clear segmentation within both of those categories is a massive opportunity for us, ensuring that we can be present in distribution at the appropriate price and making sure there's a real reason for a consumer to spend more for it too.

So that's been a lot of the work that Kara and the team are really attacking right now, and then extrapolating that out to multiple categories and as it relates to appropriate distribution. So we're definitely in this fight. But we got a really good strong base to build [ off of and ] you'll see better and better from us with that.

This concludes our question-and-answer session. I'd like to turn the conference back over to Kevin Plank for any closing remarks.

Thank you, operator and the listeners out there. I'd like to close with one final thought. We're thrilled to welcome Reza to UA, who's going to be filling some very big UA shoes as CFO for the next chapter with this brand. But I just want to start and say, Dave, thank you. 21 years at Under Armour means you joined just before the IPO in November 2005. We've been through a lot. Your alma mater James Madison made it to the college football playoffs, which is just another proof point that you can do anything. And you have here, not even close to my Terps.

Joining from a great run at PwC, you're an accountant who became our controller, to our CFO for the last 9 years, but always the best teammate, partner, CFO. And even more importantly, an amazing husband, father and friend. You and I have been through a lot of stuff, thick and thin. We've had amazing times together and we've also been tested. Yet here we are still standing.

Moving forward, you'll remain a major shareholder. Know you'll always be a part of this team, to honor and do a great job for you and all of our stakeholders. I give you my highest compliment. You're a true professional. Thank you. And on behalf of the brand, a heartfelt overwhelming "Thank you, Dave Bergen."

We appreciate everyone joining us on today's call and ask you to have a great day. Thank you, operator.

Thank you, Kevin. Thank you, UA.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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.

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.

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?

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 Instructions] The first question comes from Jay Sole from UBS.

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?

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.

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.

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.

The next question comes from Sam Poser from Williams Trading.

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?

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.

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?

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.

The next question comes from Bob Drbul from BTIG.

And Dave, congratulations, and thanks for all the help over the last 20 years. Best of luck to you.

Thanks, Bob.

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?

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.

The next question comes from Laurent Vasilescu from BNP Paribas.

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?

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.

The next question comes from Peter McGoldrick from Stifel.

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?

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.

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.

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.

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.

The next question comes from Brooke Roach from Goldman Sachs.

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.

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.

Our last question will come from Paul Lejuez at Citi.

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.

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.

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.

This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.