Under Armour (UAA) Q1 2026 earnings review
Tariffs Overshadow Transformation: Q2 Guidance Signals Major Profit Squeeze
Under Armour's Q1 results met expectations, with revenue declining 4% to $1.1B and adjusted EPS at $0.02. While CEO Kevin Plank's brand transformation shows early signs of progress in gross margin and brand health metrics, this was completely overshadowed by a grim outlook. The company anticipates a new ~$100M headwind from trade tariffs in FY26, which is expected to cause a severe 340-360 basis point drop in Q2 gross margin and cut full-year adjusted operating income by roughly half. The looming profit collapse suggests external pressures will overwhelm internal turnaround efforts in the near term.
🐂 Bull Case
The strategy to premiumize the brand is showing early results. Q1 gross margin rose 70 bps on favorable pricing and mix, and key brand health metrics like e-commerce NPS have improved by 18 points YoY.
The EMEA region continues to be a standout performer, growing 10% YoY. Its focused strategy on key sports (football), cities, and countries is delivering results and serves as a model for the larger North American turnaround.
🐻 Bear Case
The guidance for Q2 gross margin to collapse by 340-360 bps due to tariffs is a major red flag. This external shock is projected to wipe out roughly half of the company's annual adjusted operating profit, derailing the recovery story.
The critical Footwear category remains in a deep slump, declining 14% YoY. The core North America market is also guided to worsen, with an expected low-double-digit decline in Q2 after a 5% drop in Q1.
⚖️ Verdict: 🔴🔴
Very Bearish. While the long-term brand transformation strategy is logical, the severe and immediate impact of tariffs on profitability cannot be ignored. The guided collapse in gross margin for Q2 signals a significant earnings recession is imminent, overwhelming any incremental progress from the turnaround.
Key Themes
Tariff Tsunami Wipes Out Profit Outlook
The most significant development is a new, estimated $100 million annual cost from trade tariffs, equivalent to a ~200 basis point full-year gross margin headwind. The impact is front-loaded, with Q2 guidance calling for a staggering 340-360 bps gross margin decline. Management stated that mitigation efforts (sourcing changes, pricing) will not be realized until FY27, leaving the P&L exposed for the remainder of this fiscal year and effectively halving the company's expected annual profit.
Footwear Remains in Freefall
The Footwear division continues to be a major drag, with revenue plummeting 14% YoY, far worse than Apparel (-1%). Management attributes this to a deliberate product reset, sunsetting older franchises like 'Infinite' to make way for new platforms like 'Halo' and 'Velociti'. While strategic, this transition is causing significant near-term revenue damage and carries considerable execution risk.
North American Decline Accelerates
The core North American market is not stabilizing. After a 5% decline in Q1, management guided for a worse 'low-double-digit' decline in Q2. This indicates continued weakness in wholesale and challenges in the DTC channel, even as the company tries to reduce promotions. A turnaround is not credible until the home market shows signs of bottoming out.
Brand Reinvention Strategy is Underway
CEO Kevin Plank is executing a clear strategy to 'sell so much more of so much less at a much higher full retail price.' The company is on track to reduce SKUs by 25% and has already cut materials by 30% for 2025 products. The focus is on elevating the brand through premium, innovative products like the Velociti Elite 3 running shoe and the $45 StealthForm hat, aiming to restore pricing power.
EMEA Continues to Outperform
EMEA remains the brightest spot, with revenue up 10% (6% currency-neutral). The region's success is built on a focused '1,2,3,4' strategy: one sport (football), two cities (London, Paris), three countries (UK, France, Spain), and four categories. This disciplined approach serves as a potential playbook for stabilizing the larger North American and APAC businesses.
Pivoting Marketing to Youth and Team Sports
The company is shifting its marketing approach from a 'gym first' and pro-athlete focus to team sports like football and basketball. The target demographic is the 16-to-24-year-old athlete, aiming to connect through a broader network of high school stars, college NIL athletes, and cultural creators, rather than relying solely on professional endorsements. A new 'We Are Football' campaign will launch in September.
Other KPIs
The DTC decline was driven by a sharp 12% drop in eCommerce, which management attributes to a strategic pullback from promotions to improve brand health. While this hurts the top line, it is a necessary step in the premiumization strategy. The improvement in customer experience is reflected in an 18-point YoY increase in the e-commerce Net Promoter Score (NPS) to nearly 70.
Inventory grew slightly faster than the sales decline (-4%), indicating reasonable management. However, any increase in a declining sales environment requires monitoring to avoid future margin pressure from liquidations.
The company maintains a strong liquidity position. In June, it issued $400 million in senior notes, with proceeds intended to refinance $600 million in notes due in June 2026. This proactive capital management provides financial stability during the operational turnaround.
Guidance
Decelerating. This implies a worsening of the top-line trend compared to the 4.2% decline in Q1. The deterioration is led by North America, which is expected to fall by a low-double-digit rate.
Reversing sharply. This is a dramatic reversal from the 70 bps of expansion in Q1 and is the primary concern in the outlook. The decline is almost entirely attributed to the impact of new trade tariffs.
Decelerating. While not formal guidance, this commentary implies a drop from $198M in FY25 to approximately $99M in FY26. This ~50% decline in profitability highlights the severity of the tariff headwinds on the company's earnings power.
Stable sequentially, but down significantly YoY. This compares to a reported adjusted EPS of $0.30 in Q2 FY25, though that quarter benefited from a one-time insurance recovery. The guidance reflects the severe margin and profit pressure.