Under Armour (UA) Q4 2025: Gross Margin Expands 170bps Amid 11% Revenue Decline as Brand Reset Deepens
Under Armour’s fourth quarter punctuated a year of disciplined brand and operational reset, with a 170 basis point gross margin expansion despite double-digit revenue contraction. Management’s focus on premiumization, inventory discipline, and channel mix is reshaping the business, but tariff uncertainty clouds near-term guidance. Execution on category management and storytelling will determine whether UA’s foundational changes can translate to sustainable long-term growth and margin recovery.
Summary
- Margin Expansion Outpaces Revenue Pressure: Gross margin improvement signals early traction on premiumization and reduced discounting.
- North America and APAC Remain Drag Anchors: Regional resets and channel rationalization continue to weigh on top-line visibility.
- Tariff Uncertainty Limits Guidance: Management restricts outlook to Q1 as trade policy volatility threatens cost structure and demand.
Performance Analysis
Under Armour delivered a fourth quarter marked by significant top-line contraction, with revenue down 11% to $1.2 billion. North America, the company’s largest region, also declined 11% as ongoing efforts to limit promotions and reset the direct-to-consumer (DTC) channel suppressed e-commerce and owned store sales. Wholesale revenue fell 10%, only partially offset by off-price channel timing, while EMEA was flat on a currency-neutral basis and APAC revenue plunged 27% amid a highly promotional environment and deliberate inventory cleanup.
Despite the revenue headwinds, gross margin expanded by 170 basis points to 46.7%, driven by lower product and freight costs, a reduced promotional stance, and improved product mix. Notably, DTC discounting was sharply curtailed, resulting in a more than 10-point increase in full-price sales mix and double-digit average unit retail (AUR) growth. SG&A (selling, general, and administrative expenses) rose 1%, reflecting higher marketing and incentive costs despite ongoing cost controls. Inventory was tightly managed, down 1% year over year, and the balance sheet remained healthy with $501 million in cash and no revolver borrowings.
- Regional Divergence Persists: EMEA remains the only region with positive momentum, while North America and APAC are in reset mode.
- Product Mix Shift: Accessories grew 2% on team sports and run strength, while footwear fell 17% as UA prunes lower-margin SKUs.
- Cost Discipline Apparent: Restructuring and transformation charges continue, with $89 million recognized to date under the fiscal 2025 plan.
Underlying performance reflects a brand in transition, prioritizing long-term brand equity and margin over short-term sales volume, but still facing a challenging path to demand stabilization.
Executive Commentary
"Our fourth quarter results allowed us to exceed our fiscal 25 outlook, demonstrating some of the foundational traction we're gaining as we reposition the Under Armour brand... We're focusing on high return categories, markets, and initiatives. By simplifying the portfolio, streamlining operations, and exiting lower value activities, we're sharpening execution, boosting efficiency, and directing capital to its highest impact uses."
Kevin Plank, President and Chief Executive Officer
"Our fourth quarter gross margin increased 170 basis points year over year to 46.7%. This increase was driven by 150 basis points of supply chain benefits due mainly to lower product and freight costs, 80 basis points of pricing benefits, primarily from lower discounting and promotions in our DTC business, as well as some impact from more favorable royalty terms."
Dave Bergman, Chief Financial Officer
Strategic Positioning
1. Premiumization and Brand Storytelling
UA is actively shifting its business model from discount-driven volume to premium pricing and brand-led demand. The company’s “sell so much more of so much less at a much higher full price” mantra is evident in reduced SKUs, elevated product architecture, and a category management approach. New launches such as the No Way backpack and the upcoming UA Halo performance collection are positioned as “Trojan horse” products to showcase innovation and pricing power, with storytelling and influencer support at the center of go-to-market.
2. Category Management Model
Under Armour’s organizational overhaul aligns product, marketing, and regional teams around core categories like training, running, basketball, and sportswear. Each category GM owns end-to-end execution, designed to accelerate decision-making and relevance. This structure is intended to drive accountability, faster product cycles, and deeper consumer connection, especially among young athletes.
3. Channel and Regional Reset
North America is undergoing a multi-year reset, with a sharp pullback in promotions and a pivot from outlet-driven volume to a DTC flagship model. EMEA remains a bright spot, delivering steady growth and cultural resonance in football and sportswear, while APAC is in early-stage reset mode, prioritizing healthier business practices over near-term sales. Wholesale relationships are being rebuilt with a focus on fewer, higher-quality products and improved sell-through.
4. Cost Structure and Inventory Discipline
UA’s restructuring plan targets $140 to $160 million in charges and $75 million in annualized SG&A savings by fiscal 2026, with transformation initiatives spanning consulting, T&E, and marketing spend optimization. Inventory is managed tightly, with a focus on minimizing excess and aligning buys to demand signals, especially in the context of tariff-driven cost uncertainty.
5. Innovation Pipeline and Product Hierarchy
Product innovation remains core to UA’s identity, as seen in the Velocity Elite running shoe and the Neolast base layer material. The company is deliberately reshaping its product pyramid to a 25% good, 50% better, 25% best mix, aiming for higher AUR and gross margin. The strategy is to authenticate at the elite level and cascade design language down to accessible price points, driving both brand heat and commercial opportunity.
Key Considerations
Under Armour’s fourth quarter underscores the high-stakes nature of its ongoing transformation, where operational execution and narrative discipline must deliver against a backdrop of revenue pressure and macro volatility.
Key Considerations:
- Margin Gains Rely on Reduced Discounting: The sustainability of gross margin expansion hinges on UA’s ability to maintain lower promotional intensity and grow full-price sell-through.
- North America Recovery Remains Elusive: The region’s reset is necessary but continues to weigh on overall results; wholesale and DTC must both stabilize for broader recovery.
- Tariff Volatility Threatens Cost Structure: New trade policy introduces significant risk to COGS and consumer demand, limiting visibility beyond Q1.
- Category Model Execution is Critical: Success depends on category GMs’ ability to deliver relevant product and drive brand heat in core segments.
- Inventory and SG&A Controls Support Flexibility: Tight inventory and disciplined SG&A provide some buffer against demand shocks and cost inflation.
Risks
Tariff escalation and ongoing macro uncertainty present material downside to both gross margin and revenue visibility, especially as UA is mid-transition to a premium model. Execution risk remains high, particularly in North America and APAC, where brand repositioning is still nascent. Competitive intensity from larger athletic brands and potential consumer trade-down in a weaker economic backdrop could further challenge UA’s pricing power and growth ambitions. Management’s limited guidance reflects prudent caution, but also underscores the fragility of the current recovery.
Forward Outlook
For Q1 fiscal 2026, Under Armour guided to:
- Revenue down 4% to 5% year-over-year, with North America tracking similarly
- High single-digit revenue growth in EMEA, mid-teen decline in APAC
- Gross margin expansion of 40 to 60 basis points
- Adjusted operating income of $20 million to $30 million, and adjusted diluted EPS of $0.01 to $0.03
For full-year 2026, management withheld formal guidance due to tariff uncertainty, but reiterated focus on:
- Continued gross margin expansion via premiumization and cost controls
- SG&A leverage and disciplined capital allocation
- Maintaining inventory flexibility to adjust to evolving demand and cost landscape
Takeaways
Under Armour’s Q4 results reflect a business deeply committed to brand and operational reinvention, but with a long runway before top-line stabilization and sustainable growth are achieved.
- Margin Progress Outpaces Revenue Recovery: Gross margin expansion is a positive signal, but revenue headwinds persist as UA prioritizes brand health over short-term sales.
- Execution on Category and Channel Reset Remains Key: The success of UA’s category management and DTC flagship strategies will determine whether premiumization can drive both growth and profitability.
- Tariff and Macro Risks Demand Caution: Investors should watch for tariff impacts on cost structure and consumer demand, as well as UA’s ability to sustain inventory discipline and SG&A leverage.
Conclusion
Under Armour’s fourth quarter demonstrates early progress on margin and brand reset, but revenue declines and external risks highlight the challenges of transformation. The next phase will test whether operational discipline and product innovation can reignite demand and deliver durable shareholder value.
Industry Read-Through
UA’s experience is a microcosm of the broader athletic and apparel sector, where premiumization, channel rationalization, and inventory discipline are increasingly necessary to offset demand volatility and cost inflation. Competitors with strong DTC platforms and authentic category leadership are best positioned to weather macro and trade headwinds. The sector’s shift toward fewer, higher-impact products and brand storytelling will likely accelerate, while tariff risk and promotional intensity remain key watchpoints for all players in the space. UA’s journey offers a cautionary tale on the complexity and time required for a full brand reset—investors should expect uneven progress industry-wide.