The retail business overall has been struggling, with the athletic wear sector taking some hard hits, not just because of economic uncertainty but also due to consumers' desire to obtain the latest and trendiest garments. This shift has made maintaining brand loyalty an almost impossible task to achieve.
The emergance of newer brands like Skims, Alo Yoga, and Hoka has increased the competition among this retail sector, and rival classic brands like New Balance, Adidas, and Lululemon, have managed to survive by keeping up with the ever-evolving consumer through the constant creation of innovative products.
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Although it's not completely impossible to remain a strong competitor in the game, even Nike, which is considered the number one sportswear company in the U.S., reported revenue declines by 10%.
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Since the first quarter of fiscal 2024, Under Armour has also reported sales declines, with the exception of its second quarter of 2024, when it reported flat sales.
However, the company formulated a turnaround plan that might have just gotten Under Armour back into customers' good graces.
Under Armour embraces turnaround plan to flip sales declines
In its fourth quarter earnings and full-year fiscal results, Under Armour announced it had approved a restructuring plan to reverse declining sales by devising a more profitable business model. The company planned to invest approximately $70 million to $90 million in this plan.
Four months later, Under Armour updated its plan, in which it decided to exit its distribution facilities in California and increase its turnaround spending to around $140 million to $160 million.
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In its latest reported quarter, the company acknowledged it has spent a total of $40 million on its turnaround and will continue funding it until the end of fiscal 2026.
This restructuring plan requires a heavy investment from the company, but it seems to be working despite only being in its early stages given the company delivered better-than-expected results.
Under Armour's sales slide, but it turns a profit
Under Armour's latest earnings report showed negative year-over-year revenue growth, but the company exceeded analysts' expectations, sending shares surging.
According to Under Armour's fiscal second-quarter earnings report for 2025, revenues decreased by nearly 11% to $1.4 billion in the three months ending September 30. That was down 11% from one year ago, but exceeded analysts' expectations of $1.3 billion.
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Although Under Armour managed to outperform analysts' revenue predictions, all of its distribution channels reported negative growth, with wholesale revenue declining by 12% and direct-to-consumer revenue down by 8% compared to the year prior.
E-commerce revenue reported the poorest performance, with a 21% decline. The company blamed this decrease in promotional activities.
It reported a decrease in all its categories, with apparel down 12%, footwear 11%, and accessories 2%.
It was a better story on the bottom line. Under Armour reported adjusted earnings per share (EPS) of $0.30, above analysts' expected $0.20.
The company's gross margin improved by nearly 50%, which it attributed to its 3% reduction in inventory and freight costs. The company also benefited from decreased promotions and discount levels in its direct-to-consumer business.
Under Armour's stock price soars
After Under Armour reported its second quarter earnings, its stock soared by over 30% on November 7.
UBS increased its price target to $16 from $12 and kept a buy rating on the stock, saying in a research report that Under Armour "is just getting started." They also said its a top buy idea for 2025, according to The Fly.
Under Armour's (UAA) guidance is encouraging.
According to its fiscal 2025 outlook, Under Armour still expects revenues to decline at a low double-digit percentage rate, including a 14% to 16% decline in North America.
However, the company expects EPS to be between $0.24 and $0.27, an increase from its previously guidance for EPS of $0.19 to $0.21.
Over the past week, five analysts upped their fiscal 2025 and fiscal 2026 earnings projections, lifting consensus EPS estimates to $0.25 and $0.35 respectively.
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