Q4 2025 Under Armour Inc Earnings Call
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Lynn: I would now like turn the conference over to Lynn.
Lagos: Lagos Senior Vice President Finance and capital markets. Please go ahead.
Speaker Change: Good morning, and welcome to under armour, <unk> fourth quarter and fiscal 2025 earnings Conference call. Today's call is being recorded and will be available for replay.
Speaker Change: Joining us on this mornings call are under armour, President and CEO, Kevin Plank, Chief Financial Officer, Dave Bergman before we begin I would like to remind everyone that our remarks. Today will include forward looking statements that reflect under armour management's current views as of May 13th 2025. These.
Speaker Change: These statements may include projections about our future performance. They are not guarantees of future results actual results may differ materially due to several risks and uncertainties, which are described in this morning's press release and in our filings with the SEC, including our most recent annual report on Form 10-K, and quarterly reports on Form 10-Q.
Speaker Change: They discussed May also reference non-GAAP financial measures, which we believe provide useful insight into our underlying business trends.
Kevin Plank: [noise] applicable reconciliations of these non-GAAP measures to their most comparable GAAP counterparts can be found in this morning's press release and on our Investor Relations website at about Dot under armour dot com with that I'll turn the call over to Kevin.
Kevin Plank: Thank you Lance and everyone joining us this morning.
Kevin Plank: I felt confident as we close fiscal 'twenty five and began preparing for this call over the past year, we built greater agility in the organization, while making purposeful and strategic choices elevating the brand through higher quality revenue decisions unlocking meaningful SG&A efficiencies and advancing toward a stronger healthier under armor, all while navigating top.
Kevin Plank: Line pressures.
Kevin Plank: A clear and disciplined strategy tailored to the environment, we face in fiscal year, 'twenty, five and executed with focus and determination.
Kevin Plank: We are energized and optimistic about our tangible progress recognizing of course that there is still much work to be done to arrest, our current trajectory and drive brand affection.
Kevin Plank: As we look externally the business environment is currently evolving.
Kevin Plank: As always evolving, but so are way yes.
Speaker Change: Yes, the landscape is more dynamic and visibility beyond the near term is unclear.
Speaker Change: Precisely why our work over the last 13 months to build the muscle strength of agility and focus matters, we know what it takes to win and we're ready.
Speaker Change: Dave will cover our initial thoughts in the current trade policy environment, a bit but the main takeaway is that we're confident in our ability to manage through whatever lies ahead and stay on offense.
Speaker Change: Well, we're never satisfied with declining revenue our fourth quarter results allowed us to exceed our fiscal 'twenty five outlook demonstrating some of the foundational traction we're gaining as we reposition the under armour brand.
Speaker Change: Furthermore, we either exceeded or met the initial outlook. We provided last may for every line item with gross margin being our most important metric that benefited from our strategy of reducing promotions and our own DTC businesses.
Speaker Change: As we worked to regain pricing power, which is the ability to deliver and maintain a full retail asking price.
Speaker Change: We see a significant long term opportunity to expand gross margin by reshaping the composition of our business through strategic refinement in our go to market process by being more comprehensive ensuring that every detail is considered from product that only <unk> can make this as a reason to exist innovation delivered with current or forward style.
Speaker Change: Salesforce armed with the technical knowledge of how to explain to you a difference to wholesale partners third the right point of purchase expression at retail or online that tells the story and.
Speaker Change: And finally of course, social media collaborator an influencer support that provides a permission for our target consumers to engage with and buy UA.
Speaker Change: We have a great base to build from and we will continue to refine this competency in the coming seasons.
Speaker Change: Reflecting on my first year back as CEO I am proud of the progress we've made sharpening our strategy streamlining operations and establishing a stronger financial foundation.
Speaker Change: Most importantly, we've confirmed our identity as a global sports House brand with undeniable authenticity on any court pitch or field across the world.
Speaker Change: We represent the underdog, those who werent given all God's gift, but had to instead work harder to achieve excellence would apply the rule of 10000 hours to master their craft, we like to say that we don't innovate just so that we can run up the score we innovate just to give our athletes a fighting chance.
Speaker Change: This mindset also means continually striving for improvement.
Speaker Change: And in that spirit, we're becoming leaner and more intentional shrinking the battlefield wherever possible, which makes challenges manageable and creates the ability for small wins to eventually add up to large ones.
Speaker Change: Focusing on high return categories markets and initiatives by simplifying.
Speaker Change: And our portfolio streamlining operations and exiting lower value activities, we're sharpening execution boosting efficiency and directing capital to its highest impact uses.
Speaker Change: Sure things done better will fuel stronger more consistent value creation.
Speaker Change: We're working to turn complexity in the clarity and clarity and action sports.
Speaker Change: Strike capabilities drive brand heat through trend led drops while our 28 million member global loyalty program deepens engagement and drives repeat purchases at.
Speaker Change: At the same time, streamlining materials, reducing skus and efforts to optimize our supply chain will help improve speed lower cost and unlock future growth.
Speaker Change: With sharper planning and Gregg Brody were working to run a more agile demand led model that keeps us aligned with athletes and well positioned to regain market share and expand margins over the long term.
Speaker Change: At our core under armour was built on the belief that athletes deserve better.
Speaker Change: Hey, we're fulfilling that promise with greater discipline and precision.
Speaker Change: As we evolve our move toward category management operating model represents a structural shift and a game changer in how we serve athletes by aligning product marketing and regional teams around key categories like training running team sports basketball sportswear golf and licensing we aim to execute faster and create greater impact.
Speaker Change: This athlete first model gifts category teams clear ownership with a single leader responsible for making decisions and acting with speed at.
Speaker Change: At the same time, it's centralized key functions, while empowering regional strategies to drive a leaner more efficient go to market engine.
Speaker Change: I think the brand and improving returns.
Speaker Change: Disciplined approach is how we believe we will unlock value and succeed in the marketplace.
Speaker Change: Stepping back into my current role and due to the 18 month lead times in our industry the priority was product without.
Speaker Change: Without great product there is nothing else.
Our spring summer twenty-five collections hit retail floors with renewed confidence in the fourth quarter, even in a challenging sales environment key apparel Windsor merch each year basically our outperformed expectations. Our unstoppable collection delivered strong results and sportswear is gaining meaningful traction.
Speaker Change: At the center, we're accelerating innovation to energize athletes and elevate the brand this quarter, we introduced the boldest slip speed, yet echo launch with Stephen Curry at the 2025, NBA All star weekend through a collaboration with luxury car designer Mansouri.
Speaker Change: Looking ahead, our premium apparel collection will debut this fall, adding performance sport and style.
Speaker Change: The brand continues to expand its impact to the steady flow of the new Curry 12, and Drs box, one color ways, along with exclusive athlete designs, keeping the brand and view and culturally relevant.
Speaker Change: On the collaboration front, we've had smaller drops like our UA, United Arrows Co lab in Japan, and our partnership with recently acquired unless they're dealing at the Milan design week.
Speaker Change: Our regenerative plant based sportswear collection of Hoodies T shirts, and shorts, all crafted from natural fibers desire to decompose without leaving toxic residue or micro plastics.
Speaker Change: As we look toward fall winter twenty-five our product direction continues to sharpen and her design language is becoming more cohesive.
Speaker Change: Our priorities are clear winter men's apparel unlock the full potential of footwear and strengthen our connection with women.
Starting with trusted essentials like browse in bottoms, and then building from there to grow her affinity for under armour.
Speaker Change: We are especially energized by the upcoming UA Halo collection Codenamed Ara at our recent Investor meeting, which represents a premium expansion into next generation performance sportswear.
Speaker Change: Hey level debut with three distinct footwear offerings trainer runner and eraser each designed to meet specific athlete needs, while uniquely incorporating the UA logo into the mid sole structure, adding support and just like our logo perfect balance.
Speaker Change: Complementing the footwear is a range of elevated apparel that signals a new era for the brand in both design and innovation.
Speaker Change: At the same time, we are redefining our core base layer category with neo less material fiber breakthrough engineered to revolutionize stretch performance in apparel, while being fully sustainable.
Speaker Change: As we near the completion of our initial 25% SKU reduction over the past year, we're maintaining disciplined inventory management to create space for a stronger and more focused product architecture.
Speaker Change: Together these steps will drive brand momentum enhanced profitability and unlock new growth opportunities.
Speaker Change: Our ambition put simply is to sell so much more of so much less at a much higher full price.
Speaker Change: And there is a Trojan horse product in the mix to a game changer disguised as a backpack the no way that's W. E. I G. H backpack launched this past Thursday, and a short term test format for us with patent pending auxetic suspension straps that flex with your body to help evenly distribute weight, creating a lighter feeling from.
Speaker Change: The bag it's amazing.
Speaker Change: Not only testing the back but also the $140 price point in an otherwise 40 to $65 market.
Speaker Change: Similar to what we did last year with our self for my Crushable hat, bringing innovation to a 13% to $25 market introducing the UA performance lands and placing the opening price point at $45 and that hat is working for us.
Speaker Change: I am providing this level of detail about an accessory item because it's meant to serve as a broader metaphor, but we expect to do with our shirts and shoes going forward with four to six products each season for spring and fall.
Speaker Change: This example is meant to set the edge for what you can expect from our go to market for these key four to six products each season.
Speaker Change: Comprehensive go to market strategy that inspires consumers to want to buy UA at premium price points.
Speaker Change: If you have a chance please visit our investor page now at about under armour Dot com for a more complete visual of our new go to market approach and how we're raising the bar here at <unk>.
Speaker Change: This includes as I described earlier first and foremost an innovative design right product that only you acre built it also encompasses the tools and the story of how our teams are being prescriptive fully trained to sell the product.
Speaker Change: Brand right point of sale execution, and finally, social and Influencer support to drive Buzz and conversion.
Speaker Change: This only happens when the product delivers the magic and we're confident in our pipeline.
Speaker Change: We frankly have always had great innovation, but believe the largest opportunity lies in the way we holistically support the product with a story that both explains why it is special and also makes you feel something this is brand and great companies by commodities and sell brand.
Speaker Change: We've not done a good job enough on the story flat for some time and that changes, but the execution, we just completed and launching but no way last week and our testing protocol.
Speaker Change: This will prepare us for when we come back with this bag in a few months for broad market distribution and the critical back to school period.
Speaker Change: Over the past nine months and the leadership of brand President Eric Litke, We've made substantial progress in reshaping our narrative today, we have a distinct storytelling strategy aligned with our product vision, establishing a cohesive brand voice across all touch points as.
Speaker Change: As our storytelling aligns with the strength of our product innovation in fiscal 'twenty six our objective is to enhance our brand relevance and unlock greater brand differentiation.
Speaker Change: We're particularly focused on young athletes, we're not increasing our marketing spend instead were making it work harder with an annual budget of roughly $500 million in some of the world's top sports athletes in assets.
Speaker Change: We're reallocating resources more intentionally to generate greater brand heat and engagement.
Speaker Change: Big moments drive brand affinity as Stephan Curry continues to break his own three point record.
Speaker Change: Nike was set to make three point or number of 4000 of his career, we created an epic Dave Chappelle narrated campaign that didn't just follow the moment it defined it.
Speaker Change: Campaign, which ran across social media was a cultural splash of brand relevance to put you at the forefront of basketball fans worldwide.
Speaker Change: Sure and locate these recent record breaking Boston marathon when wearing under armour shoe was another decisive moment, but the velocity elite.
Speaker Change: Showcasing its performance on the world stage, we back it with a full funnel campaign celebrating her achievement and firmly position velocity ALLETE as the go to choice for runners chasing greatness.
Speaker Change: Across the lineup now from the $250 elite that Sharon just validated to the $160 pro to the $130 speed and 100 dollar pace velocity meets runners at every level driving brand in energy and commercial opportunity.
Speaker Change: Building on this momentum, we're extending velocities design language in one of our highest volume footwear franchises, the $75 search which will relaunch with its updated design. This fall.
Speaker Change: Further strengthening segmentation and expanding our reach across price points.
Speaker Change: More visual description of this product or a pricing hierarchy. It's also outlined on our investor page and we encourage you to view. This in a few other examples of what is different at UA and how we're raising the bar.
Speaker Change: Our athletes strategy is equally intentional new signing like the Nba's daily on Mitchell Wnba's, Nico meal, and six and I all athletes, who we signed in time for this past March Madness and are part of a disciplined approach to re architected a future facing roster that we will continue to nuance.
Speaker Change: Meanwhile, the impact is clear.
Speaker Change: Seven UA teams made the Ncw tournament with one of our under armour teams from both the women's and men's bracket, reaching the final four.
Speaker Change: Okay.
Speaker Change: And golf, we'd like to extend our heartfelt best wishes to long time under armour athletes and one of the truly great people and sports Jordon speed as he competes this weekend at the PGA championship chasing the elusive career Grand Slam, where all behind you Jordan go get them.
Speaker Change: And also this fault, we're reaffirming our American football routes when under armour is back on field as an official gloves and footwear provider for the NFL strengthening our performance credentials.
Speaker Change: Like just in Jefferson and Kyle Hamilton, along with this year's number one draft pick camborne further enhance our status in a sports central to our identity.
Speaker Change: Additionally.
Speaker Change: We're evolving our marketing mix to meet modern consumer behavior by emphasizing social experiential and digital first branding building.
UA next which is our global youth activation platform utilizes events like the under armour, all American football and volleyball games earlier this year.
Speaker Change: Along with serialized content and grassroots activations that are gaining traction and partnerships with creators and major colleges like Notre Dame, Wisconsin, Maryland, who helped drive scalable story driven campaigns.
Speaker Change: This marks a true shift in our strategy.
Speaker Change: Sure bolder moves amplified by better storytelling and smarter deployment of World class assets. This is how we will build brand energy and win share with athletes partners and shareholders.
Speaker Change: Under armour is moving to lead in a dynamic environment. Among leagues teams co labs, Influencers and of course N I L and we're making steady progress toward that goal.
Speaker Change: Our north American transformation is well underway over the past year, we've been working to redefine our ecommerce channel to become a brand flagship destination that inspires and elevates by reducing promotional days and discounts, we prioritize brand equity and profitability over short term volume.
Speaker Change: The results speak for themselves more than 10 point increase in our full price sales mix double digit AUR growth and a more profitable channel overall.
Speaker Change: As we enter year two of this transformation will move even further beyond the outlet model to build a more dynamic connected and premium digital platform.
Speaker Change: <unk> proven lessons from our success in EMEA to accelerate progress.
Speaker Change: We also see a clear opportunity to strengthen our value proposition in physical retail driving productivity across our formats remains a top priority.
Speaker Change: In factory House stores, our largest north American footprint, we are significantly reducing store wide sales events and offering 365 days a year of full price on some products to.
Speaker Change: Focusing on SKU rationalization to create a more curated premium experience that enhances consumer clarity and operational efficiency.
Speaker Change: Our brand houses represent the pinnacle of UA retail and were investing accordingly.
Speaker Change: Our new campus headquarters flagship store is performing ahead of expectations and then it was static is helping us shape. Our next retail concept to model for the more than 2000 and under armour branded stores around the world.
Speaker Change: For flexibility and store size to fit the specific market.
Speaker Change: Growing our store base as a future ambition as we become more deliberate with our products and the stories seldom.
Speaker Change: Starting in fiscal 'twenty, six will rollout of tiered market specific strategy to enhance merchandising and drive productivity across our network.
Speaker Change: Wholesale remains critical and is evolving we are partners, great product and a compelling story that results in great sell through at full price.
Speaker Change: We know where we want to be and who we want to partner with and we're using this time to strengthen those key relationships with transparency of our brand direction underpinned by our conviction in offering fewer products with more intention that could only come from Yue.
Speaker Change: Our category led model significantly helps there combined with a sharp and go to market discipline that we expect will result in greater demand for both the consumers we have today and the new ones, we are inviting to engage with us.
Speaker Change: In EMEA, our top performing region in fiscal 'twenty, five or maintaining the discipline to protect the brand strength we built.
Speaker Change: Strong partnerships and a clear category focus will drive momentum and.
Speaker Change: In fiscal 'twenty, six will concentrate on key growth markets, like France, Spain, and Germany, while deepening brand advocacy across global football running in sportswear anchored in training.
Speaker Change: In APAC, we're resetting the marketplace now to foster sustainable premium growth.
Speaker Change: Despite a highly promotional environment, our efforts to streamline inventory reduced discounting and enhanced sales quality are laying the groundwork for healthier expansion.
Speaker Change: Just a few months in now no brief early signs indicate that it's working you a strong performance driven brand equity and best in class distribution infrastructure position us to scale with appropriate patients and pace.
Speaker Change: We will continue to apply proven strategies from North America, and EMEA to drive full price demand across key categories.
Speaker Change: At the core of our progress as a high caliber leadership team United by our purpose and built to drive sustained performance.
Speaker Change: We haven't just added talent, we've attracted exceptional proven leaders many of whom you met at our December Investor meeting.
Speaker Change: This represents a structural shift signals a cultural transformation at under armour higher standard of excellence is firmly taking route and I'm committed to ensuring the leadership strength translates into sharper execution improved results, we're quite simply raising the bar at UA.
Speaker Change: The impact is clear and it is a culture that stands to benefit the move to our new headquarters has accelerated the shift infusing the company with fresh energy and new ideas.
Speaker Change: Actual change takes time its foundation is firmly in place and the momentum is unmistakable. We're building a more connected agile and performance driven under armour that seems to be taking hold.
Speaker Change: We also welcomed three new board members, Don Fitzpatrick Gene Smith, and Rob Sweeney.
Speaker Change: Each bringing expertise in finance operations and sports.
Speaker Change: Leadership directly supports our strategic priorities accelerating financial performance shaping our connection with athletes and fueling brand heat.
Speaker Change: There'll be instrumental as we unlock new growth and position us for success.
Speaker Change: As we enter fiscal 'twenty six sustaining momentum across product story service and team is critical for advancing our brand transformation, we move forward with clarity conviction and discipline thoroughly attuned to the shifting global landscape and ready to navigate it with agility and resilience.
Speaker Change: And our ambition goes beyond to come back it's a reinvention under Armours greatest chapters remain in front of us a future driven by sharper focus bolder innovation and deeper connections with athletes, we're operating with urgency. While we may have more time, and we think we do not have as much time as we would like so we're just getting to work.
With the right team in place a clear strategic vision and unwavering commitment to excellence, we're not merely preparing for the future we are determined to dictate it.
Speaker Change: And with that I'll turn it over to Dave Who'll walk us through our fourth quarter fiscal 25 results and provide further insight into our outlook for the first quarter, Dave over to you.
Dave: Thanks, Kevin.
Dave: Straight into our fourth quarter fiscal 25 results, which exceeded expectations and allowed us to surpass our full year fiscal 'twenty five album.
Dave: From a revenue perspective.
Dave: Fourth quarter was down 11% to $1 2 billion the results by region followed.
Dave: North American revenue declined 11%, primarily due to a decrease in our DTC business, which was driven by lower e-commerce sales, resulting from our ongoing efforts limit promotional activities.
Dave: Was accompanied by a decline in revenue from our owned and operated stores.
Dave: Within wholesale we experienced a decrease in full price sales, which was partially offset by an increase in the timing of sales to the third party off price channel.
Dave: Revenue in EMEA decreased 2%, although it remained flat on a currency neutral basis.
Dave: Furthermore, the decline in full price wholesale partially offset by growth in our direct to consumer distributor and off price businesses.
Aligned with our expectations revenue in APAC was down 27%.
Dave: Or 26% when adjusted for currency fluctuations.
Dave: This decrease was primarily due to the highly competitive and promotional environment as well as our efforts to foster a healthier business, including adopting some of the same strategies. We've employed in North America for our E Commerce operations.
Dave: Within Latin America revenue declined 10%, primarily due to unfavorable foreign exchange impacts without FX currency neutral revenue rose by 3% in the quarter driven by our distributor business.
Dave: From a channel perspective wholesale revenue decreased 10% driven by lower full price sales, partially offset by growth in the off price channel and the timing of those sales to third party partners.
Dave: Direct to consumer revenue was down 15%, mainly due to a 27% decrease in E. Commerce sales stemming from ongoing efforts to establish a more premium online presence through fewer promotions and discounts.
Dave: Sales at our owned and operated stores declined by 6% during the quarter.
Dave: Licensing was down 15%, primarily due to the decision to bring our socks business in house.
Dave: The final quarter of comparing business change.
Dave: Finally by product type apparel revenue was down 11% with softness across most categories in the quarter, partially offset by strength in outdoor.
Dave: Footwear declined by 17%, reflecting in part our ongoing proactive portfolio management efforts as we work to optimize segmentation and assortment.
Dave: In our accessories business was up 2% in the quarter with strength and team sports and run.
The category also benefited from our decision to bring stock in house.
Dave: Our fourth quarter gross margin increased 170 basis points year over year to 46, 7%.
Dave: This increase was driven by 150 basis points of supply chain benefits due mainly to lower product and freight costs.
Dave: 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: And roughly 20 basis points were gained from favorable foreign currency impacts and product mix.
These benefits were partially offset by roughly 90 basis points of unfavorable channel and regional mix.
Dave: Moving to SG&A, which increased 1% to $607 million in the fourth quarter.
Dave: Excluding roughly $16 million and transformation expenses related to our fiscal 2025 restructuring plan and around $5 million and litigation settlement expenses, our adjusted SG&A expense was $586 million up 7% versus last year's adjusted number.
Dave: This was driven primarily by higher marketing expenses and incentive compensation.
Dave: Partially offset by savings from ongoing cost management efforts, including lower consulting expenses.
Dave: Next during the fourth quarter, we recognized $16 million in restructuring charges and combined with the 16 million in transformation expenses recorded in SG&A, we had approximately 32 million in restructuring charges and related expenses for the quarter.
Dave: So far under our fiscal 2025 restructuring plan, we have recognized $89 million in restructuring charges and related transformation expenses of which $55 million is cash related and 34 million is noncash.
Dave: Expectations for total charges and expenses under this plan remain within a range of $140 million to $160 million and we had.
Dave: Anticipating the remainder will occur by the end of fiscal 2026.
Dave: Moving down the P&L, we recognized an operating loss of $72 million in the fourth quarter.
Dave: Excluding the transformation expenses litigation settlement expenses and restructuring charges, our adjusted operating loss was $36 million.
Dave: On the bottom line, our reported diluted loss per share was <unk> 16.
Dave: While our adjusted diluted loss per share was <unk> <unk>.
Dave: Shifting to our balance sheet.
Inventory was down 1% year over year to $946 million, which align with our expectations to finished in line with last year's level.
Dave: Our cash balance at the end of the quarter was $501 million and we had no amounts outstanding on our $1 1 billion revolving credit facility.
Dave: Additionally, we repurchased $25 million worth of our class C stock during the fourth quarter retiring $4 1 million shares.
Dave: So far under our three year $500 million share repurchase program, we have repurchased $90 million of our class C stock retiring 12 8 million shares.
Dave: Now I'll briefly into our full year results.
Dave: Fiscal 'twenty five revenue declined 9% to $5 2 billion slightly better than our expected 10% decline.
Dave: North American revenue was down 11% for the year EMEA was flat in APAC revenues declined 13%.
Dave: Our full year gross margin increased by 180 basis points to 47, 9% for passing our outlook.
Dave: This improvement was driven by reduced freight and product cost and the benefits of lower discounting in our DTC channel, especially in E Commerce.
Dave: Full year, SG&A expenses rose, 8% to $2 6 billion.
Dave: Excluding a $266 million litigation settlement expense.
Dave: Approximately $31 million of transformation expenses, and a 28 million impairment related to exiting our previous headquarters.
Dave: Adjusted SG&A expenses decreased by 2% to $2 3 billion.
Dave: This decline was primarily attributed to cost management initiatives, including benefits realized to date from our fiscal 2025 structuring plan.
Dave: Operating loss was $185 million and excluding transformation expenses restructuring impairment charges and litigation settlement expenses.
Dave: Adjusted operating income was $198 million slightly ahead of our prior outlook of $185 million to $195 million.
Dave: Full year diluted loss per share was <unk> 47.
Dave: Our adjusted diluted earnings per share was 31 cents, which was above our previous outlook of 28 to 30 FES.
Speaker Change: Moving into fiscal 'twenty six building on Kevin's remarks, it's.
Speaker Change: It's important to recognize the plan we established before the announcement of recent tariff changes.
Speaker Change: As we entered the second year of our turnaround we've made measured progress across our strategic operational and financial objectives.
Speaker Change: Before the recent changes in trade policy. This translated into an expectation of a modest top line contraction for fiscal 'twenty six as we continue to prioritize higher quality revenue and brand strength.
Speaker Change: While driving further gross margin expansion and getting back to leveraging our SG&A cost structure.
Speaker Change: Altogether driving operating income that was set to be ahead of fiscal 'twenty five levels.
Speaker Change: However, since changes in trade policy are expected to have a significant impact we are proactively evaluating a range of mitigation strategies.
Speaker Change: This includes exploring potential cost sharing initiatives with key partners.
Speaker Change: Our supply and our sourcing footprint to minimize exposure to affected regions, where feasible and examining targeted price adjustments to protect margins in areas with a unique pricing power.
Speaker Change: To provide a clearer view of our global sourcing profile approximately 30% of our volumes sourced from Vietnam 20.
Speaker Change: 20% from Jordan and 15% from Indonesia.
Speaker Change: The remaining third is strategically diversified across a number of other countries each representing a low to mid single digit percentage.
Speaker Change: This deliberate diversification creates a well balanced portfolio, reducing reliance on any single market and enhancing our ability to navigate geopolitical off and supply chain complexities from a position of strength.
Speaker Change: We also remain focused on managing SG&A by enhancing organizational efficiency tightening discretionary spending reducing travel and third party costs and concentrating investments on initiatives directly supporting near term revenue and margin expectations.
Speaker Change: Given the significant uncertainty of tariffs create concerning potential shifts in consumer demand and rising product costs, we believe limiting our outlook to the first quarter of fiscal 'twenty as prudent.
Speaker Change: Measured approach demonstrates our commitment to maintaining flexibility and ensuring transparency as we navigate the evolving environment.
Speaker Change: As such we expect our first quarter revenue did decline by 4% to 5% with North America also experiencing the same rate of decline due to softness in our spring summer 'twenty five wholesale order book, which we detailed in our last few calls.
Speaker Change: We anticipate high single digit revenue growth in EMEA supported by FX tailwind and the Easter shift.
Speaker Change: Along with a mid teen percentage decline in APAC as we continue actions to lay the groundwork towards a healthier business.
Speaker Change: Regarding gross margin, we expect an expansion of 40 to 60 basis points compared to the previous year.
Speaker Change: This includes anticipated benefits from a more favorable product mix reduced product freight costs and favorable foreign exchange rates.
Speaker Change: It is important to highlight however changes in tariff policy are not expected to significantly impact our first quarter.
Speaker Change: For SG&A we.
Speaker Change: We remain focused on cost management in the context of our expected top line decline in the current operating environment.
Speaker Change: Excluding anticipated transformation expenses related to our fiscal 2025 restructuring plan adjusted SG&A expected expenses are expected to leverage slightly compared to the prior year.
Speaker Change: Driven mainly by ongoing savings from actions taken under our restructuring plan and other spending efficiencies.
Speaker Change: Bringing this together we expect adjusted operating income to reach 20 million to $30 million.
Speaker Change: And adjusted diluted earnings per share to be one to three in the first quarter of fiscal 'twenty six.
Speaker Change: In closing, while the environment remains dynamic the sharper agility and stronger processes, we've embedded.
Speaker Change: Confidence in our ability to manage near term challenges, while staying squarely focused on long term value creation.
Speaker Change: Most importantly, we have the right team.
Speaker Change: Energized resilient and relentlessly committed to delivering an authentic brand and business transformation.
Speaker Change: We remain unwavering in our strategic priorities firmly believing they position us to unlock our full potential while maintaining the flexibility to adapt.
Speaker Change: Simply put we are ready and built for what's next.
Speaker Change: Now, we'll open the call to questions operator.
Speaker Change: We will now begin the question and answer session. You ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please.
Speaker Change: Start and then too.
Speaker Change: Please pause momentarily, while we assemble our roster.
Speaker Change: Our first question comes from Jay sole with UBS. Please go ahead.
Jay Sole: Great. Thank you so much I'd love to ask about the North American reset can you just give us a little bit more color and dive a little bit more about how it's working and how it's shaping up in fiscal 'twenty.
Speaker Change: Yeah, Hi, Jay Thank you.
Speaker Change: Well first and foremost as always begins with leadership and we're very fortunate to have care trend.
Speaker Change: Who is my our partner here and she is also the one who ran this play for us in Europe. So.
Speaker Change: She is battle ready and has brought that now in the chair for the last 14 or so months here in North America.
Speaker Change: And so that that being the playbook that we're running here.
Speaker Change: It's great practice for us.
Speaker Change: Half Kara so that kind of leadership is great and I'm happy to say that we build the team is substantially built around care as well we use the same of modeling the behavior that we want to create meaning we've got to work and taking ourselves out of bad situations with some of the constant discounting, but I think for too long, we are leading the conversation with consumers with.
Speaker Change: It was wishful thinking for us to get us positive and that's why we use a metaphor if something like the backpack.
Speaker Change: You know I think it was it was our attempt to just try to demonstrate this is what we think excellence looks like so trying to show you even through something like an accessory when we get it right because I don't believe we've done that I think we've made great product, but I think we've been somewhat limited to walking into a store and frankly, finding close on a hanger. This story for a company like Undrawn.
Speaker Change: That spans years validating our factories are fabrics the products that we build.
Speaker Change: I don't believe that story had come through so.
Speaker Change: This comprehensive I think metaphor of number one you need a great product. That's why we use a backpack because you put it all in you're like Wow, It feels like half the weight and there and number two the ability for us to communicate that to our to.
Speaker Change: Our sales forces and then to understand how to sell that and number three the appropriate in store.
Speaker Change: It's going to look like and then finally again as I said in my prepared remarks, the way that we're engaging with social media and changing away from just traditional.
Speaker Change: Traditional media into things, which are more related to that 6% to 24 youll be looking to go to.
Speaker Change: I'm not sure we have a timeline, but what we would do well have as much better execution the ability for us and I say model. The behavior. If we can do that what we what I described with the backpack and you imagine laying that into something like the halo trainers that releases our unstoppable collection.
Speaker Change: See we are reinventing our base layer building on the base and core that we have but looking forward to what else that can be I think begins to be the opportunity that we have so.
Speaker Change: There's a.
Speaker Change: I think it might be.
Speaker Change: Prior to April 2nd I think we had a really good line of sight. It wasn't perfect as Dave said, we werent ready to grow we were still in our ability of contracting where we were right now but.
Speaker Change: But we feel like we're getting on our front foot I think that begins with the belief that we have from the team.
Speaker Change: And the ability for us to know that we can move this brand is something that's much more infection from the consumer so the.
Speaker Change: The brand momentum it should build ahead of the revenue, but the 18 month reset that we talked about in May of 2024, we're not we're not far from that we're progressing as planned through the year and so we're working with our wholesale partners. We're building confidence from them and it's just one step at a time right now, but where we're basically we're in a fixed band that's in.
Speaker Change: No doubt and a hand to hand, and we know what it takes and Theres a lot of good competitors out there, but we feel like we've got a pretty good story and.
Speaker Change: We've got a compelling brand as well.
Speaker Change: Got it got it that's great. If I can ask one more maybe can you share just some more details about your upcoming major brand activation when will we be able to see it.
Speaker Change: Yeah.
Speaker Change: We told you that was going to be a large full force campaign that we're gonna have but to be clear, it's embracing that underdog DNA that we spoken about I think several times, including our investor meeting back in December.
Speaker Change: Eric is digging into this marketing functions. So just getting our arms around that we've also brought in a new SVP of branded Americas marketing entitled Rutstein, who really has driving a lot of that connection that we want to target consumers. So we're not going to see is just a big campaign with Super Bowl ads. It is going to be smaller breakdowns of content that is.
Speaker Change: Relevant to the channel, where we're marketing you know the idea we have from a branding or marketing standpoint is that you know.
Speaker Change: I think anyone would tell you we made good product what we need though is we need permission from this kid.
Speaker Change: More importantly, the person that that Kid is looking to across social media Influencers. The Nio the athletes the others and so that's where I think we're doing a better job of just telling the story of the product and making sure. They understand that what the brand DNA is all about I can't emphasize enough of a big part of this and what's coming with this campaign is that we're leading with story where.
Speaker Change: Leading with a price.
Speaker Change: The the activation and it will mostly be in the back half of the year to a J, but as I said youre going to feel this and more sort of micro doses. Then you will as one sort of big Splash and we think that's the most effective way for us to deal with our marketing dollars right now.
Speaker Change: I also think that you'll you'll feel the benefits of this as we get probably a little more focused with our category management structure and that's what is going to lead us is that each of those gms. The buyer gms that we have of driving across selecting the right influencers, making sure that we're in the culture, what Nio will do for US and then we're going to lean on some of these.
Speaker Change: Intrinsic.
Speaker Change: Assets, we have and I don't just mean R. R.
Speaker Change: Headliner banner athletes like Stephen Curry's with adjusting Jefferson's, but it's also getting into Nio athletes, it's leaning on our UA next platform, which is we found.
Speaker Change: And just as part of that.
Speaker Change: A kid who's who hasn't engaged with under.
Speaker Change: Under armour or seen us with without UA next.
The NPS score is something that we believe can be significantly improved on the kid has seen us or interacting with us through that our 3000 High school base that we have plus and how that rolls up to our all America or UA next events.
Speaker Change: Consider it Asian goes up considerably up into the high Fifty's and Sixty's and so we're going to continue to build out. These platforms that we've got long term legacy and then you'll continue to see us just spend our money a lot more thoughtfully and appropriately so.
Speaker Change: Product marketing is going to be a part of this as well I think as we're showcasing with the backpack because I think that's the greatest example of what does this brand meaner stand for it gives us ability to do that ensuring that we give them a what it is b what it does and see how it's going to make you better and the whole time, allowing you to feel something that's what brands do and that's I think we're in the and the profit making.
Speaker Change: Kevin.
Speaker Change: Got it sounds great. Thank you so much.
Speaker Change: Thank you Jeff.
Speaker Change: And the next question comes from Simeon Siegel with BMO capital markets. Please go ahead.
Simeon Siegel: Thanks, Hey, guys good morning.
Simeon Siegel: Kevin how are you thinking about the path just normalizing E com, specifically, maybe with the planned reduction in promo activities is there a specific revenue level or just some other way we can think about the timing duration and maybe magnitude of the expected E com revenue declines and stabilization.
Speaker Change: And then Dave I think you noted the costs related to the costs related to the restructuring plan that just how you think about the expected savings from it I guess trying to uncertainty tariffs notwithstanding looking a little bit longer term, how you're thinking about the ability to take SG&A expenses out of the model with this new lower revenue base. Thank you.
Speaker Change: Yes, I mean, I'll kick off with E com.
Speaker Change: Obviously, we've been able to report positive traction after a year in controlling the controllable, which is our own DTC businesses is great and proved positive in the full price sales mix on our website up double digits year over year with promo and clearance down I think what we wanted to do is make sure that this isn't just meant to be a transactional.
Speaker Change: Site, where people go when they find the grids, but theyre actually looking and Theyre being brand inspired I think too many too many sites is theres a lot of efficient ways to order product from a lot of different places, but when it's on our site. They should be required to see the story because I think that is our differentiator that is our moat.
Speaker Change: And I think that for too long we've become frankly.
Speaker Change: Just close on a hanger.
Speaker Change: And also on an ecommerce front point of view is incredibly important.
Speaker Change: Welcome to our website are welcome to our store here's a bunch of stuff what would you like to buy but being very intentional that's why I use that analogy of when we're getting it right what.
Speaker Change: What we're showing that we did with the backpack and trying to use that metaphor, it's more about being able to have four six expressions without a year's imagine what that will look like when it manifest through the new Halo product that we drop later this year as well and so that'll be felt on our website you and ensuring there is other pieces loyalty is also really important for us.
Speaker Change: It's we've got 18 million.
Speaker Change: Rewards members in the U S alone 10 million over in APAC for Us and active members. One thing that we found which is a massive opportunity generate about 50 plus percent more.
Speaker Change: Our revenue and have doubled the repurchase rates and so.
Speaker Change: Hum.
Speaker Change: With loyalty over 50% of the U S. DTC, it's really getting a slot and getting us close to really understanding who our consumer is and how we can speak to them in a better way.
Speaker Change: Also again the way that we showcase online you're not just going to find a grid page with a static picture, but using a lot more video being a lot more dynamic. So we're working on the backend infrastructure of our web site as well and that's been really important for US social commerce is going to play a part and what we're looking to do as well in Tyler and team have been really driving that down.
Speaker Change: Grass roots level, but you know all in on in short a healthier brand right E. Commerce Foundation for sustainable growth is what we're looking to and we're going to have great stories to tell and what better platform that our own channels.
Speaker Change: Damian.
Speaker Change: Restructuring and SG&A side.
Speaker Change: You know as we drove through the restructuring plan and 25.
Speaker Change: We brought about $35 million of savings in fiscal 'twenty five from that.
Speaker Change: Think about the full year run rate of those actions and then layering on the additional actions for fiscal 'twenty six, especially the closure of the Rialto D. H out in California that expected run rate savings on a full year as we get to the end of fiscal 'twenty six is going to be closer to $75 million or so which we're excited about.
Speaker Change: And then you know essentially a little bit higher than that as we step into fiscal 'twenty seven.
Speaker Change: On a full year of all the fiscal 'twenty five 'twenty six activity. So that's definitely helpful and a big step in the right direction for us.
Speaker Change: And as we stepped into planning for fiscal 'twenty six pre tariffs we were looking for slight leverage in our cost structure, which is a great step in the right direction as well.
Speaker Change: We're also seeing that as we plan out just a Q1 that the outlook that we've given.
Speaker Change: We do want to mindful not to cut too deep and when we think about any additional SG&A work that we want to drive depending on what happens from a tariff and you know overall demand scenario.
Speaker Change: Specialty and brand marketing, where you know sustaining investments critical to the long term.
Speaker Change: And helpful for the company.
Speaker Change: But we do manage each of our expenses pretty tightly now we've made a lot of progress there a lot more discipline around consulting around capex spending discretionary spending TNA.
Speaker Change: Again, as Kevin mentioned, optimizing the marketing spending smarter not more.
Speaker Change: And we've been able to reduce the SG&A now for multiple years in a row. So we're definitely getting to a pretty good spot.
Speaker Change: And we're going to continue to manage it tightly as we drive through the year.
Speaker Change: That's great. Thanks, a lot guys best of luck for the year ahead.
Speaker Change: So.
Speaker Change: And the next question comes from Sam Poser with Williams trading. Please go ahead.
Sam Poser: Thanks for taking my questions I guess.
Speaker Change: Can you give us some idea.
Speaker Change: It sounds like you're about the inventory on hand units and dollars and how like are there a lot less units now within the inventory relative to the dollars and how do you look at that moving over time as well as the units in dollars in the revenue flows in.
Speaker Change: Fourth quarter and sort of within the guidance.
Speaker Change: You know relative growth.
Speaker Change: Okay.
Speaker Change: So from a inventory perspective, you know again, we feel pretty good about where we landed the year pretty much right on what we expected obviously were managing this year pretty tightly as we get into fiscal 'twenty, six and a little bit of the uncertainties around demand with the current tariff environment, So we're being pretty tight with that math.
Speaker Change: Managing the pose we do expect that you know wherever demand ultimately develops through the year that we'll be able to manage inventory within a pretty tight range to that.
Speaker Change: Obviously, the cost per unit is going to be going up by how much we're not sure as a obviously with each announcement that seems to change a little bit.
Speaker Change: But we feel confident in our ability to manage it tightly we don't have a large percentage of old or excess inventory a lot of it is current and.
Speaker Change: And we believe that we're going to be able to use our factory houses are in a really positive way to move through a lot of that and then obviously still tapping the off price channel a little bit, but staying within our kind of our operating principle, where we've been keeping that to the 3% to 4% mix of revenue as we did in fiscal 'twenty five.
Speaker Change: And relative to the Q1 guide again, you know, we're not necessarily getting into too many details for full year, but on Q1.
Speaker Change: We feel pretty good about the outlook that we gave.
Speaker Change: Not that much change in price versus unit in the Q1 guide.
Speaker Change: More of that will probably comment as pricing changes come about later in the year.
Speaker Change: Yeah, I don't I think I may have said it wrong.
Speaker Change: Your inventory is up 18% at the end of the quarter in dollars what are the units up and then within the guidance that you provided for the first quarter with revenue down 4.5% to 5% do you expect unit given that you're trying to make.
Speaker Change: Our unit is going to be down less given that you're trying to as you evolve to this more premium goal that you're aiming towards.
Speaker Change: I'm not trying to figure out if your inventories in line or not I really trying to figure out.
Speaker Change: You know are the ASC is gonna steadily worked their way up within the guidance and within the inventory levels. So youre units will be.
Speaker Change: You know if your if your inventory is down 18%. Your units are down 25, which would that mean that youre basically.
Speaker Change: Friedman, making Europe.
Speaker Change: Elevating your brand.
Speaker Change: Okay.
Speaker Change: Yeah, I guess, Sam the way that we're looking at it a little bit more holistically, because there's going to be puts and takes between the different regions. We did take some returns in Q4 of fiscal 'twenty five to help make sure that we were coming into this year healthy.
Speaker Change: More of that was footwear, driven which has a little bit of a higher.
Speaker Change: Unit costs, so theres a lot of mix items going on I don't know that digging into it relative to the unit progression from Q4 into Q1, it's gonna tell them much more of a different story for us.
Speaker Change: Hey, Sam just to be clear inventories down and one on the quarter.
Speaker Change: Down 1%.
Speaker Change: I thought you referenced plus 18% Oh, no I'm, sorry, I'm, sorry down 15, I'm, sorry, I'm looking at something else.
Speaker Change: I apologize for that inventory.
Speaker Change: With it with inventory down with inventory down I mean question is are units down more than the dollars or less.
Speaker Change: Then the dollars as a percent and then do you foresee going forward that as your inventory gets to them.
Speaker Change: At level that you're as you elevate the brand will your dollar inventory grow faster than your units units be less as you get more.
Speaker Change: I Gotcha, well I'm looking for is when I use the selling so much more of so much less at a much much higher full price.
Speaker Change: One of the key metrics that I track Daily is average unit retail and just saying are we.
Speaker Change: Is the price that people are willing to pay for under armour more or less in looking at that across apparel footwear and accessories equally so where we're highly tuned to that but yeah of course our.
Speaker Change: Hopefully, we're driving that margin were driving that what people feel about the brand, but yeah. That's gonna be better more premium product is that we're not looking to take 6% or the like or out of garmin, a b or C and how that will translate into us building more margin that way pricing power is incredibly important for any brand and it's one of the things, which we are keenly focused on and so that means.
Speaker Change: We can't just show up with the Joneses, and 10 and $15 bins.
Speaker Change: <unk> product by the you know by the load so what we're gonna be incredibly intentional and very specific with the products that we bring to market.
Speaker Change: It'll it'll it'll it will cost more money for sure, but we need to prove that we'll take it one step at a time and we've got a great base to build on.
Speaker Change: Thanks very much.
Speaker Change: Thanks Shannon.
Speaker Change: And the next question comes from Laurent <unk> with E M E terrible.
Speaker Change: Yeah.
Speaker Change: Oh good morning, Thanks, very much for taking my question Kevin Dave.
Speaker Change: It makes sense, you're not guiding the full year, but can you, possibly speak to your fall order book.
Speaker Change: It changed over the last few months due to the tariffs and all that noise and should we assume a certain rate like could it be slightly down on a year over year basis. Thank you very much.
Speaker Change: Yeah, I'll jump in on that one.
Speaker Change: Now, we're definitely limiting to Q1 at this point and a lot of that if you think about it what the tariff rates, they're pretty much temporary at this point. They may change significantly. So we don't feel it's prudent to give outlook that will also have to change and be adjusted kind of announcement to announcements. So we're trying to be trying to be prudent there.
Speaker Change: So we're really only looking at Q1 covering spring summer 'twenty five.
Speaker Change: But I would say that the product feedback has been positive and the influence of the new product organization I think is clearly visible.
Speaker Change: And as momentum grows you know fall winter of 'twenty, five we'll build into spring summer 'twenty six.
Speaker Change: At this point you know even with the tariffs and uncertainty we're not seeing any key partners with cancellations I think our partners know that they are valued and we're really focusing on that and we're giving them reasons to believe and Kevin went through a lot of those points in his prepared remarks.
Speaker Change: And I think that there are clear improvements in the design and style that are being noted by our partners.
Speaker Change: You know, we're gaining shelf space takes time as you think about back half of the year.
Speaker Change: But our focus and execution are improving and we're seeing those results.
Speaker Change: That's very helpful and then on the gross margin again, another great quarter. Thank.
Speaker Change: Thank you called out Dave 150 bps of supply chain benefits.
Speaker Change: Due mainly from lower product and freight costs, and then 80 beds from from just lower promotions I would presume that there is the the 80 bps continues to be a positive going forward and then how many more quarters do you have all of the 150 bed some benefits from from just lower.
Speaker Change: <unk> costs.
Speaker Change: Does it end up in <unk> does that continue and then lastly, again a man died at up high single digits, while for first quarter. How should we assume that is that just kind of a wonky first quarter any one time things that we should consider or is that just continued momentum for the brand and not.
Speaker Change: Region for the foreseeable future. Thank you.
Speaker Change: Yeah, I think relative to gross margin.
Speaker Change: Prior to the new tariffs you know we were looking for continued gross margin expansion due to continued product costing improvements you know ongoing work with the.
Speaker Change: Higher quality revenue, including the DTC discounting and promotion reductions and a little bit of slight expected FX headwinds.
Speaker Change: However, the new developing tariffs will create obviously some significant headwind and so we're only providing Q1 at this point the larger benefits. When you think about Q4 of 25 with the favorable supply chain impacts product cost freight cost.
Speaker Change: You know some of that will continue but we've got a lot of that that's been recognized and worked through with our partners through fiscal 'twenty, five, but I wouldnt expect or anticipate that those benefits would be at large in fiscal 'twenty six and then same thing relative to the DTC discounting favorability.
We took such big strides in fiscal 'twenty, five, especially in Americas.
Speaker Change: We wouldn't see as much of that year over year benefit continuing as an incremental benefit in fiscal 'twenty six there's a little bit of benefit there and in APAC. As we started to do more of that is where we're helping to clean up and reset APAC, a little bit, but definitely not to the magnitude that we saw in fiscal 'twenty five.
Speaker Change: And then Kevin I know if you want to touch on a mail yeah. Let me just sort of give a global picture first which as you know we recently made some some leadership moves in APAC that we're into about.
Speaker Change: Four or five months into that that process would have the market's actually reporting into me and you know.
Speaker Change: Heading over there in a few weeks again as it relates to EMEA not unlike we have here in America you heard the affection that the team really has for our leadership and carrier here well, we're fortunate to have a plus leadership.
Speaker Change: In EMEA as well with with Kevin Ross and so that's the kind of momentum that we've had again that began under caris watch over there on that Kevin is really just accelerated over the last 18 months or so it allows us to play offense and it feels great. It's a great.
Speaker Change: Goal that everybody can look around the world and say this is what it feels like when Youre, just winning on a consistent basis and so I think there is they have a really clear proposition for the consumer so authenticated and sport specifically football we've got nearly 30 athletes across all of the European leagues.
Highlighted by Mike Winters like offshore for <unk>, who place for PSG and playing in the Champions League final in Germany, I think just this weekend, so and again that speaks to just what we have or we got a bit of a cultural following now thats coming out of.
Speaker Change: Out of Europe, specifically out of France, and Paris.
Speaker Change: And in the U K also but where we're well positioned with strong fundamentals and I think that you know this.
Speaker Change: This ambition, we have which is people, saying you know under Armours moat, which is it's not just a cool hoodie or a nice top row, great shoe, although people know that if it's the way it's got the performance aspects to it and so we're really building on that and that means routing and authenticating ourselves in sports.
Speaker Change: And in sport, where we I think we just have a great. Following you know that the product that we're putting the football boot. We have we are athletes, calling us agents, calling us clubs, calling us as well, where our positioning there and I think that's what feeds the entire ecosystem. In addition to great relationships with sports.
Speaker Change: Sports direct J D inter sports El Cortes and glasses.
Speaker Change: As well as our distributor shifts that we have in places like Turkey. So I think we're just doing things right. There and then as we continue to just lean on the product as we continue to come more full force with things like.
Speaker Change: Some of our sportswear expressions that we have launching Halo theres, just a lot of energy and excitement for the brand Echo is doing really well for US. There also so we're learning a lot but.
Speaker Change: Again, it's going to be able to look at EMEA and just see what success really looks like and so that ambition. It all fosters from that playbook that we've been running there for quite some time.
Speaker Change: That's great to hear thank you very much for the color.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Peter Mcgoldrick with Stifel. Please go ahead.
Peter Mcgoldrick: Hey, good morning.
Peter Mcgoldrick: With the ongoing.
Thanks for taking my question with ongoing evolution of the good better best product Pyramid I was curious if you could talk about the structural product offering influence on AUR and the underlying gross margin as we look forward.
Peter Mcgoldrick: Yeah Yeah.
Peter Mcgoldrick: Yeah, Let me let me let me just yes, sorry, let me just give you a structure wise so you know.
Peter Mcgoldrick: I think a great example, where a metaphor that we have from a product standpoint of how we're thinking about the business today.
Peter Mcgoldrick: Today, we talked about we make a lot of good we make some better and nowhere near enough best we're.
Peter Mcgoldrick: We're looking to reshape our business with about 25% good 50% better than 25% that we're looking at just ladder up and what we don't want to do is we're not looking to necessarily limit the amount of good product. We have we just want to reshape. This business a great example, that I think is what we use with Sharon locating the Boston Marathon. This is also on our investor page at spells it out.
Peter Mcgoldrick: It really simply but when you can authenticate at the highest level with something like the Boston Marathon to Smash of course record like Sharon did just a couple of weeks ago and the 250 dollar.
Peter Mcgoldrick:
Peter Mcgoldrick: Our lead product that we have at the velocity elite it really sets the pace and what we've done a good job I think where we've lost this as we sort of had a running execution now we're actually taking that higher he all the way down through the ecosystem, meaning you've got the $250 elite shoe that'll be in specialty run. We then have commercialized that with $160 version, you'll find like big box.
Peter Mcgoldrick: Sporting goods.
Peter Mcgoldrick: And some run specialty as well the $130 version 100 dollar version as well that we can open and bring down to the family and then as well is that that design lines roll into our $75 third and building. This it was the same designers that worked on the top of lead from a overall aesthetic standpoint, all the way down to the 75.
Peter Mcgoldrick: Dollar product and so I think that's what we're just getting a lot more synergy with our our product as it relates to one another apparel is no different and we're getting it right I think youll see that from Halo. It is going to be a pinnacle expression from us.
Peter Mcgoldrick: But it is going to be and it also crosses us and pushes us from a it's authentic product that's great performance, but also most importantly, it also looks great as well and of course it has the under armour DNA. So fixing that is something which is really important for us.
Peter Mcgoldrick: And I think Peter when you think about AUR and also even asps to in fiscal 'twenty. Five you know we had a pretty much lower E. Comm mix. We also had a lower APAC mix. We also had a lower footwear mix in all three of those contributed to a little bit lower asp's.
Peter Mcgoldrick: We drive further into fiscal 'twenty, six and back out of fiscal 'twenty six those things will probably change a little bit from a mix perspective, and will help asps in general and as we as we kind of comp the.
Peter Mcgoldrick: Promo and discounting reductions that we've been doing you know that'll start to stabilize and turn more towards a positive for us. So we're definitely focused on that and we're going to keep driving that forward.
Speaker Change: Okay. Thank you and Dave I recognize.
Speaker Change: Forecasting and guidance, but I was curious if you could give us a run rate gross tariff impact to Cogs given current level of visibility.
Speaker Change: Yeah listen I totally appreciate the question and obviously, we're running through a lot of different scenarios at this point and you know every few days it seems like there's new information and new rumors out there. So you know at this point, we're gonna stay prudent and just just speak to Q1.
Speaker Change: And then obviously, we would hope to be able to give a lot more color on that as we get to the next call.
Speaker Change: Totally understand thank you.
Peter Mcgoldrick: Thanks Peter.
Speaker Change: And the next question comes from Paul <unk> with Citi. Please go ahead.
Peter Mcgoldrick: Yeah.
Kelly: Hi, This is Kelly on for Paul Thanks for taking our question.
Speaker Change: You're giving some color on how you were thinking about the business prior Q.
Speaker Change: The tariff announcements could you just help us bridge the gap between kind of down mid.
Speaker Change: Mid single digit one key revenue guide and.
Speaker Change: The expectation again priority task for sales down slightly.
Speaker Change: Maybe talk about that from a T O N E.
Speaker Change: Our spot days thank you.
Speaker Change: Yeah, I mean, I guess, a couple of things there you know, we arent, giving the outlook for Q1 to be down 4% to 5%.
Speaker Change: You know we did mentioned that you know prior to the tariff announcements and a lot of the uncertainty over there we were anticipating a full year modest revenue decline as we continue to kind of work to reset and strengthen the brand and progress on our strategic priorities that decline that we were anticipating for full year was anticipated to be a little smaller than declining.
Speaker Change: Hadn't fiscal 'twenty five.
Speaker Change: To kind of give a little bit of a box around that.
Speaker Change: But then also expecting some gross margin expansion due to the continued costing improvements and also some of the continued reductions in DTC discounting and promos and then with the SG&A.
Speaker Change: Leveraging that we expect to start driving in fiscal 'twenty six as well landing with operating income that was going to exceed fiscal 'twenty. Five so that was a lot of the work that we were driving towards and we're going to keep focused on all of those areas as we learn more about the tariffs and any potential demand impacts but.
Speaker Change: But we feel pretty good about that and you can tell from from the outlook in Q1 that would basically you know back you into a originally thinking our back half was going to be slightly better than our front half again, we'll have to see how things develop now with the tariffs and the uncertainty that are out there, but that's originally what we were seeing.
Speaker Change: Alright, and just one more from us.
Speaker Change: So the North American <unk>.
Speaker Change: DTC channel, where you had been seeing some weakness.
Speaker Change: Pulling back on E com and you're starting to lap those promos I mean should we expect.
Speaker Change: DTC channel growth in in 'twenty, six obviously outside of some of the tariff stuff.
Speaker Change: Or is what's happening with the rationalization in the factory outlets.
Speaker Change: Thanks.
Speaker Change: Yeah again, we're not going to give a lot of detail on full year, but what I would say is that as we move towards the back half of fiscal 'twenty six.
We would have made a lot of those steps and finishing those plays from a DTC and health perspective in North America. So.
Speaker Change: You know the pressures that we've had in DTC North America because of a lot of those strategic decisions should be much more minimized in the back half of fiscal 'twenty six and so we feel pretty good about that and obviously stepping into fiscal 'twenty seven again tracking the demand situation here with with tariff uncertainties, but that was where we were had.
Speaker Change: And Kelly I'll drop a little color on the model that you're working on too because as Dave's talking through some of the technicals that we're working through we're just looking to drive brand affection right now so as we're thinking about fiscal 'twenty six there's always a silver lining and everything and so we are using this moment an opportunity just to make sure that were really clean we're delivering ourselves and shown up at retail with our wholesale partners the way that we own.
Speaker Change: To be seen and we're modeling that behavior by by demonstrating that our own E com and our own stores as well and so it'll it'll be a full funnel approach for us for sure.
Speaker Change: Got it thanks for the color best of luck. Thank.
Speaker Change: Thank you.
Speaker Change: Next question comes from John Kernan with TD Cowen. Please go ahead.
Chris: Good morning. This is Chris on for John two questions for US first in terms of sort.
Speaker Change: So if a broader picture for North America kind of in relation to the broad initiatives that are underway with this reset kind of what do you see as the normalization of our long term opportunity for segment margin recovery in North America, and as you kind of move along this strategic reset.
Chris: Have one follow up thank you.
Speaker Change: Yes, let me just start with some of the basics, there which is to be clear.
Speaker Change: Don't necessarily love, where we are right now, but we certainly love where we're going you know culture is going to be a big part of this and instilling that belief across the organization across our partners at every touch levers level suppliers retailers distributors franchisees and especially our own team.
Speaker Change: This.
Speaker Change: Where we are in this reset and then as I used in my prepared remarks, the reinvention for the brand.
Speaker Change: It starts with our team and so I think that's it for me. The last 13 months had been really constructive and that approach as I said, we don't need any excuses.
Speaker Change: Meaning that it's not just about us transaction or trading on price, which I feel like we've done for a bit too long and we just really need to drive satisfaction from that 16 to 24 year old athlete as well as the consumer that we have today, which includes from 16 to 24, but we think we can drive that more.
Speaker Change: Product story service and team is the foundation that we've talked about often throughout our history of the fundamentals, we need to get right with them and as we say product as our everything and number one the best product, we should make or manufacturer should be our story. The rest of the team is falling and in all those other pieces that we have of making sure. We have the right products the right place at the right time, and so we're really just driving.
Speaker Change: You know down to the fundamentals and as I said.
Speaker Change: When we're getting this right during this reset and we're moving ourselves, especially here in North America from walk in a normal what would you like to buy two here's four very specific ideas that we have for you that we think that you'll love that that's what I think that will be really in stride and so we've got work to do but we're making this manifest across every channel touch points from E com.
Speaker Change: Outlet stores, two or factory houses all the way to our our full price brand houses as well and especially in our retail partners. So they're waiting to see is when there's competition from a lot of different places, but I like our positioning and I know that this team can can pull together and excited about what it means in the short mid and long term.
Speaker Change: Terrific. Thank you for that and then just how should we think about the category mix within the context of <unk>.
Speaker Change: Apparel and footwear in your Q1 revenue guide and is there anything that you can talk to you about the margin differential between those two categories currently and kind of where you see that longer term. Thanks. So much.
Speaker Change: Okay.
Speaker Change: Yeah I'll jump in on that real quick you know when we think about Q1, we do anticipate that footwear will have a little bit more pressure.
Speaker Change: Then apparel and accessories for Q1, and that's something that we've been talking about over the last year as well.
Speaker Change: And from a margin perspective, you know that actually does help us a little bit because footwear is a little bit lower gross margin than our apparel that gap is something that we've been decreasing a little bit each year. As we continue to you know designer footwear differently and continuing to improve relative to price points. There. So.
Speaker Change: It is something that you know, we're cognizant of relative to the mix. We're looking forward to continuing to drive up footwear longer term are we.
Speaker Change: We understand that that can create a little bit of a gross margin headwind for us longer term, but that's something that we can plan for navigate and are looking forward to that.
Speaker Change: Thanks, very much best of luck.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.