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Good day, and welcome to the Under Armour, Inc. fourth quarter 2026 earnings conference call. I would now like to turn the conference over to Mr. Lance Allega, Senior Vice President, Finance and Capital Markets. Please go ahead.

Thank you. Good morning, and welcome to Under Armour's fiscal 2026 fourth quarter earnings call. Today's call is being recorded and a replay will be available on our investor relations website shortly after the call concludes. Joining us this morning are Kevin Plank, President and CEO, and Reza Taleghani, Chief Financial Officer. Before we begin, please note that certain statements made on today's call are forward-looking statements within the meaning of federal securities law. These statements reflect management's current expectations as of May 12th, 2026, and are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of these risks and uncertainties, please refer to this morning's press release, our filings with the SEC, including our most recent forms 10-K and 10-Q, and other public disclosures. During today's call, we may reference certain non-GAAP financial measures.

We believe these measures provide additional insight into the underlying trends of our business when considered alongside our GAAP results. Reconciliations of the non-GAAP measures to the most directly comparable GAAP measures are included in today's press release and are available on our investor relations website at about.underarmour.com. With that, thank you for joining us this morning and for your continued interest in Under Armour. I'll now turn the call over to Kevin.

Good morning. Thank you, Lance, welcome everyone. To start, I want to welcome Reza Taleghani to Under Armour. He joined earlier this year as our CFO at an important time for the brand. Reza brings strong capital discipline, financial clarity, and a sharp strategic lens on decision-making. We are early in this chapter, that impact is already evident in how we define and evaluate our performance metrics and in the way we prioritize across the business. As we move into the next phase of our transformation, our operational rigor and financial accountability will become even more critical. We are better positioned with Reza's fresh perspective, driving toward a more intentional brand and business with stronger profitability. As we sharpen the way we operate the business, we're equally focused on elevating the strength and credibility of our product.

With that, a big congratulations to Sharon Lokedi for securing her second consecutive Boston Marathon victory in the Under Armour Velociti Elite 3. On one of the most demanding stages in sport, that level of repeat performance is not just impressive, it's definitive. Claiming the podium for UA at the most coveted marathon race in the world is the clearest possible proof point of what Under Armour stands for, delivering at the highest level when it matters most. Under Armour makes pinnacle performance footwear. It's now our job to ensure the world knows that too and commercialize that fact. The same innovation, fit, speed, and performance DNA that powers a Boston Marathon champion will also power the everyday runner.

This includes products like the Velociti Pro and Velociti Distance, as well as the balance of our increasingly elevated line of footwear, where we're consistently applying the concept of less being more. Intentionality will define this chapter for the brand. In that spirit, and as I've shared before, over the past 2 years, we've executed a deliberate reset of the business, making more intentional choices about where and how we compete. Our focus is on elevating product, strengthening the brand, and reducing complexity through structural changes, not just surface adjustments. That work requires difficult trade-offs. We've walked away from certain non-profitable parts of our business. We implemented a category management model that helps us focus investment on the categories, products, and stories that strengthen the brand and improve the quality of our growth.

As a result, Under Armour is becoming a more focused, disciplined, and intentional company, which is reflected in our execution. That progress is increasingly becoming more visible in how we go to market through the manifestation of marketing excellence, a more modern marketing engine rooted in what has always made Under Armour distinct, credibility earned through the athletes and teams who compete in our product. We are clearer in our position as a podium brand built to outfit athletes from head to toe at the highest levels of competition. Our core consumer, the 16-24-year-old team sport athlete, remains our creative anchor while we serve all athletes. Our mission is to equip them to push beyond their perceived limits as the most authentic and credible brand in sports.

Our innovation pipeline will continue to deliver products that become indispensable for athletes by meeting needs they never knew they had, and once they've tried, could not imagine living without. That drumbeat of innovation is already beginning to show up in our product. A strong commercial example is the Bounce ET, launching later this month in APAC and exclusively in the U.S. through Dick's and our own DTC channels, with a major coming online late summer. It brings premium performance to the most essential item in the athlete's draw, the T-shirt. Historically for UA, this level of innovation lived in sports-specific gear. Now we are elevating everyday essentials with the same engineering in a way that feels natural to consumers.

Coming back to UA as a management team, we felt it was important to have a defining product that showcased our ability to move from fields, courts, pitches in the gym into our consumers' daily lives. We wanted a product that would define this versatility for the UA brand. That is the UA Bouncy Cotton Tee. Now please bear with me as this is not meant to describe a singular silver bullet of success, but instead serve as a larger, broader metaphor for what you can expect from us going forward and not just making another item. In our industry, it's been said that whoever invents the next white or black T-shirt wins. This means if you can master the simplest of items with meaningful, effortless innovation, then we can do anything.

The $65 Bouncy T delivers for Friday night wear under a sport coat with the perfect neckline or Saturday morning in the gym. It features full UA innovation, including ultra-smooth Pima cotton, and is built with our UA-developed NEOLAST recyclable stretch fiber. Its Friday, Saturday performance translates just as easily to simply chilling on a Sunday and transitions from training to daily life without compromise. This is what we mean by premiumization, delivering greater performance, versatility, and value through fewer, more purposeful products. It's also a reflection of where we know we have real strength today. Apparel remains the foundation of Under Armour and one of our greatest competitive advantages. Growing our $1 billion-plus footwear business is central to our midterm strategy. As we reset footwear to build greater consistency, we're leaning into our leadership in apparel, where innovation, fit, and performance credibility are already well established.

That same discipline is shaping how we manage our broader product portfolio. We're working to strengthen our top 10 volume-driving products across apparel, footwear, and accessories with fresh styling, stronger innovation, and clearer consumer storytelling, while also identifying opportunities to improve price-to-value perception to drive healthier profitability across key Under Armour franchises. The goal is not simply to sell more units. It's to build better products with stronger margins and greater brand impact across the categories and products where consumers already know us or are meeting us for the first time. Growing new consumers is a priority for us. That mindset extends beyond product and shapes how we operate company-wide. Over the past year, we took a decisive step and shifted to category management. We streamlined into about 12 sports and activities, competing head to toe. This focus simplifies our workflow and market approach.

Expectations are clear, roles defined, and teams are aligned around one goal, making athletes better. We reinforce this focus with one question before any endeavor. As we deploy the resources of time, people, and money, will this help us sell more premium shirts and shoes? That answer must be yes, and the impact is already evident. Decisions are faster, coordination tighter, execution more consistent. Taken together, these changes are creating a stronger, more disciplined foundation for the business as we enter fiscal 2027. After a significant revenue rebase since our fiscal 2025, particularly in North America, we expect the year ahead to see revenue stabilization in our largest region. That means fewer surprises and greater confidence in how decisions translate into results. We're seeing early signs of improved sell-through, cleaner inventory, and stronger partner engagement.

That progress gives us more control than we've had in years and positions us to build a model that can scale over time. To support this, we're being precise about where we invest, where we leverage partners, and where we make trade-offs, prioritizing what drives value and stepping away from what does not. This is critical to improving the quality of our growth. At the center of this intentionality, making clear choices about where we compete and which products we back, prioritizing those products we want to be famous for. We're removing friction and focusing the organization on what drives the brand forward. All that being said, we are not improving our bottom line fast enough. While confident in our strategy, we will continue to work the mix and prioritize near, mid, and long-term profitability. Consistency blended with agility.

This is essential to seeing our transformation through. There are no sacred cows, just the lens of what is the best decision for the brand. Execution must tighten. We are holding ourselves accountable for accelerating progress. This also includes bringing an even sharper focus on editing and optimizing our product assortment, marketing spend, processes, and cost structure to improve UA's profitability. Along those lines, we've made strong progress simplifying our product offering while building a focused pipeline of innovation that you'll begin to see in a much more consistent way in the coming quarters. Over the past 2 years, we've reduced SKUs by 25%. With Kara now in place in her new role as Chief Merchandising Officer, we expect further reductions as we continue to sharpen the assortment.

Fewer, better products with concentrated demand and a more succinct consumer proposition with less complexity across the supply chain, resulting in healthier margins for UA as well as our factory and wholesale partners. The focused discipline we've been building into product is now expanding into marketing, with the goal of becoming more product-led and more intentional in how we activate and deploy our resources. I define this as a more focused product-to-brand marketing mix. As we really get it right, you shouldn't be able to tell the difference between the two. Every dollar spent should be brand elevating rather than trying to say everything at once. We're concentrating investment behind the products, athletes, and stories that most clearly communicate our performance credibility and differentiate UA.

We believe the strongest way to elevate Under Armour is not through broader messaging alone, but by amplifying great product with sharper storytelling and more consistent execution at retail. We're applying greater rigor to how marketing investments are allocated and measured across the organization. We see a meaningful opportunity to operate with more precision, more curation, and stronger returns on investment. Importantly, unlike product transformation cycles that can take multiple seasons to materialize, we expect elements of this marketing evolution to move faster and improve how the brand connects with consumers in the near term. Pulling all of this together as we look ahead to fiscal 2027, we do expect to stabilize with revenue down slightly. That outlook reflects both continued consumer uncertainty and the deliberate choices we're making to reshape the business.

We are prioritizing revenue quality over volume, strengthening the foundation and positioning the company to return to growth with stronger profitability and a more consistent brand expression. This is not about stepping back. It's about building a more focused, disciplined, and premium Under Armour with a stronger right to win in the marketplace. While our ambition is to operate as one global brand, the business remains at different stages of evolution across regions today. Importantly, we're supported by strong, experienced leadership teams with deep tenure who understand both the brand and the markets we serve. In North America, we expect stabilization in the year ahead and are focused on revenue quality, restoring marketplace discipline, and rebuilding momentum with both consumers and wholesale partners. What we're seeing gives us great confidence. Inventory is cleaner, product feedback is positive, and engagement with key accounts is strengthening.

These are early but important signs that the foundation is moving in the right direction. In EMEA, the business remains solid and continues to serve as a stable anchor for the brand. In an uncertain environment, our priority there is protect and extend that strength by expanding in key markets while maintaining the discipline that's made the region such a consistent contributor to our global performance. In APAC, we're sharpening our focus and driving greater efficiency with a clear emphasis on China. We're tightening the assortment, elevating the consumer experience, and ensuring we are positioned to compete effectively in this critically important market. As we do this, we're applying the same principles that guide our broader reset: focus, organization, and clarity of brand.

In fiscal 2027, we expect gross margin to expand approximately 220 to 270 basis points, primarily driven by the assumed benefit of a tariff-related refund, along with pricing actions to elevate our brand, better managed promotions, and a more favorable channel mix. At the same time, our outlook reflects ongoing external pressures, including tariffs and broader geopolitical uncertainty. All in, we expect adjusted operating income to be in the range of $140 million-$160 million. In closing, what you're seeing taking shape is a more intentional and connected Under Armour with focused products, more aligned marketing, and improved financial performance, which all reinforce one another. Over the past two years, we've rebuilt important parts of the company with greater clarity, discipline, and accountability.

Following the progress we've made in re-engineering our product organization, we are now applying that same focus and lens with rigor to marketing, with the goal of amplifying our product strengths, deepening consumer connection, and driving more consistent demand. Most importantly, strategy is increasingly driving the decisions across the organization. We're becoming more intentional about where we compete, how we invest, and where we believe we can create the greatest long-term value. In fiscal 2027, we are operating from a position of greater strength. While we remain a work in progress throughout this transformation, the model is simpler, the strategy is clear, execution is improving, we have a core team that is deeply committed to winning for this brand and our shareholders.

We've made significant and important progress over the last two years, I'm excited to see forward momentum translate into disciplined delivery and into building a more predictable and profitable business in the coming quarters and years. With that, I'll turn it over to Reza. Thank you.

Thank you. Good morning, everyone. I'll start by thanking Kevin and the board for the opportunity to join Under Armour at such an important time for the brand. It's a company I've long admired. I'm excited to step into this role as we move into the next phase of the transformation. I also want to take a moment to recognize Dave Bergman for his leadership and partnership during this transition. His 21 years with the company and the foundation he's helped build have positioned us well for what comes next. Over the past few months, what has stood out most is the alignment across the organization. The strategy is clear. Priorities are well-defined. There's a strong sense of ownership and accountability across teams. Just as important, there's a clear connection between the strategic choices we are making and how they translate into performance.

As Kevin outlined, we've spent the past two years executing a reset, simplifying the model, strengthening the brand, and improving execution across the organization. From my perspective, that work is creating a more focused, more controlled, and ultimately more predictable company. My role is to build on that foundation by driving greater financial clarity, consistency, and accountability as we move forward. This is a brand that has been navigating tariffs, softer consumer demand, and supply chain disruption. At the same time, there's a strong sense of control across the organization. I'm excited to strengthen that momentum. As Kevin outlined, in fiscal 2026, we focused on building structure and discipline, and our performance reflects that progress. While we're still early in stabilization, we're beginning to see more consistent execution. With that context, let me turn to our results. Fiscal 2026 brought its share of external pressures, particularly from tariffs.

Revenue declined 4% to $5 billion. By region, North America was down 8%, EMEA was up 9%, and APAC declined 5%. Adjusted gross margin declined 220 basis points to 45.7%, primarily driven by higher U.S. tariffs, along with a more promotional second half, partially offset by favorable FX and product mix. Adjusted SG&A decreased 5% to $2.2 billion. Adjusted operating income was $107 million. Adjusted diluted EPS was $0.12. Turning to our fourth quarter results, revenue was down 1% to $1.2 billion. By region, North America revenue declined 7%, primarily due to a decrease in wholesale with a slight decline in our direct-to-consumer business.

In EMEA, revenue increased 7% with about 3 points of negative impact coming from shipment timing that shifted from Q4 into Q1. Quarter's results included growth across both wholesale and direct-to-consumer channels. Revenue in EMEA was down 1% constant currency. APAC revenue increased 13% and 8% constant currency with growth in both DTC and wholesale channels. In Latin America, revenue increased 22% or 8% constant currency with strong double-digit growth across both wholesale and direct-to-consumer businesses. From a channel perspective, wholesale revenue declined 3%, driven by a decrease in full price sales, partially offset by distributor growth. Direct-to-consumer revenue increased 5% in the quarter, with 8% growth in our owned and operated stores and flat e-commerce revenue. Licensing revenue increased 11%, driven by strength in our international business.

By product type, apparel revenue was flat with growth in train, outdoor, and sportswear, offset by softness in run, team sports, and golf. Footwear revenue was also flat with strength in run and team sports, offset by softness in other categories. Accessories revenues increased 2%, driven largely by strength in sportswear and train. Gross margin declined 470 basis points year-over-year to 42% in the fourth quarter. Excluding restructuring efforts, adjusted gross margin declined 360 basis points to 43.1%. This decline was driven by 315 basis points of supply chain headwinds, including roughly 260 basis points of pressure from U.S. tariffs. 90 basis points from increased promotional pressure, particularly in direct-to-consumer as we managed through softer traffic and took proactive steps on inventory. 20 basis points of unfavorable regional mix.

These headwinds were partially offset by 65 basis points of favorable foreign currency and channel mix impact. Moving to SG&A expenses, which decreased 15% to $518 million in the fourth quarter, primarily driven by lower marketing spend due to timing shifts, as most of last year's spend was weighted towards the second half. We also saw benefits from lower incentive compensation as well as declines in several other cost areas as we continue to focus on expense management. Excluding $15 million in transformation costs, adjusted SG&A declined 14% to $503 million. Over the past few months, we've conducted a comprehensive review of the business to ensure we are fully capturing the intended benefits. To complete the remaining work, we're initiating a targeted expansion of the plan.

This includes incremental costs necessary to deliver the full value of this effort, bringing the total anticipated cost to approximately $305 million. We now expect the plan to be substantially complete by December 31st. Moving down the P&L, we reported a fourth quarter operating loss of $34 million. Excluding transformation expenses and restructuring charges, our adjusted operating income was $3 million. To the bottom line, our diluted loss per share was $0.10. Excluding transformation and restructuring charges, our adjusted diluted loss per share in the fourth quarter was $0.03. On the balance sheet, we ended the year with $915 million in inventory, down 3% year-over-year, reflecting continued discipline as we reshape the business. This includes deliberate actions in the fourth quarter to further reduce inventory, accelerating the reset and positioning us well for fiscal 2027.

Importantly, this is not just lower inventory, but better inventory with improved quality driven by tighter buys, a more focused assortment, and stronger alignment with demand. We closed the year with $309 million in cash and $605 million in restricted investments, which are set aside to fully cover the principal and interest on our senior notes due this June. With that obligation coming off the books by the end of the quarter, this marks a meaningful step forward in strengthening our balance sheet. We also ended the year with $200 million in borrowings under our revolving credit facility. Looking ahead to our fiscal 2027 outlook, we expect revenue to be down slightly. This includes approximately 1 point of impact from the Curry Brand exit, meaning we would have been roughly flat absent that.

This outlook includes a low single-digit decline in North America, partially offset by low single-digit growth in EMEA and APAC. As Kevin mentioned, this reflects both the dynamic retail environment and deliberate choices we are making to strengthen and protect the brand, including tightening assortments and stepping away from lower value opportunities. Some of these actions may impact near-term volume, they are intentional and aligned with our focus on driving a more profitable, higher quality business over time. For gross margin, we expect expansion of approximately 220 to 270 basis points versus last year's gross margin. This outlook assumes a potential refund related to IEEPA tariffs expensed through the P&L in fiscal 2026. This positive impact is expected to contribute roughly 150 basis points, with most of the benefit recognized in the first quarter.

Excluding this gross margin improvement reflects pricing actions as we continue to elevate our brand, reduce discounting, and a more favorable channel mix, partially offset by supply chain headwinds related to the Middle East conflict. It also includes an assumption that the current 10% incremental tariffs through July remain at the same level for the rest of fiscal 2027. We expect our adjusted SG&A expenses to increase at a low single-digit rate versus the prior year. This is driven primarily by about 2 points of higher compensation related costs. We normalize against actions we took last year to offset tariff pressures, which resulted in reduced incentive compensation, lower merit increases, and changes in employee benefits. There's also about 1 point from additional marketing investments that we'll be making this year. We'll still be within the 10%-12% of revenue that we've kept to historically.

Balance this out as we dig in further on the year ahead, we anticipate that we will find other opportunities for operational improvements. Putting that together and excluding anticipated transformation expenses and restructuring charges, we expect adjusted operating income for fiscal 2027 to be in the range of $140 million-$160 million. This assumes approximately $70 million of benefit from the refund of IEEPA tariffs expensed through the P&L in fiscal 2026. That tariff benefit absorbs approximately $35 million of headwinds that we're seeing related to the Middle East conflict, as well as $30 million in strategic marketing investments to strengthen our brand momentum as we begin to stabilize. Below the operating line, we expect an unusually high GAAP effective tax rate for the year.

This is primarily driven by restructuring expenses, which will increase losses in the U.S. and certain international markets where accounting valuation allowances prevent the recognition of related tax benefits. For non-GAAP, we also expect a higher than normal effective tax rate, primarily due to the geographic mix of earnings. We expect taxable profits in most international markets, with losses in some others, which are subject to valuation allowances that negate the related tax benefits. Both GAAP and non-GAAP tax rates are also being impacted by our current level of profitability, where even a modest tax expense can result in higher effective tax rate. As profitability improves in the U.S., we would expect tax rates to normalize over time. All in, this results in full-year adjusted diluted EPS in the range of $0.08-$0.12.

Turning to some co-color for our first quarter, we expect revenue to decline 2% to 3%, driven by an anticipated high single-digit decline in North America, reflecting a challenging retail environment and recent and reset in seasonal wholesale ordering. This will be partially offset by a low teen percentage increase in EMEA, which includes a 3-point benefit from a shift in shipment timing from Q4 into Q1. APAC revenue is expected to be roughly flat. Overall, we expect the first quarter to represent the weakest revenue performance of the year, with growth rates improving progressively through the balance of fiscal 2027.

Gross margin for the first quarter is expected to increase by 610 to 630 basis points, largely due to the assumption of a benefit from IEEPA tariff refunds associated with the expenses that hit the P&L in fiscal 2026, which should contribute about 600 basis points. Excluding this benefit, favorable channel and product mix are expected to offset higher tariff rates currently in effect, supply chain headwinds related to the Middle East conflict, and unfavorable FX and regional mix. Adjusted SG&A expenses in the quarter are expected to increase at a high single-digit rate compared to last year's adjusted SG&A, driven by higher marketing expenses, which should result in first quarter adjusted operating income of $30 million to $40 million on an adjusted diluted EPS of breakeven $0.02.

In closing, our focus is on continuing to build a more disciplined and predictable financial model grounded in clear priorities and consistent execution. We are aligning our financial framework tightly with our strategy, focusing on improving the quality of revenue, expanding margins, and driving more efficient capital allocation. That includes maintaining strong marketplace discipline, being intentional in where we invest, and ensuring that every dollar supports long-term brand strength and profitability. The opportunity before us is ultimately about building a more focused, higher quality business, one where product, marketing, and financial performance are aligned and where we are better positioned to translate strategy into repeatable results. We've made meaningful progress strengthening the foundation, and while there is more work ahead, we are moving forward with greater clarity, discipline, and control. With that, we'll open the call for questions.

We will now begin the question and answer session.

Our first question for today will come from Jay Sole with UBS. Please go ahead.

Great. Thank you so much. Kevin, a question for you. You called for stabilization in fiscal 2027, and your outlook calls for another year of revenue contraction. How are you thinking about a return to top-line growth?

Thanks, Jay. Let me let Reza jump in and sort of break in a little bit here with some tactics, and then let me come on the backside of that.

Thanks, Kevin and Jay. Fiscal 2027, it includes a 1-point reduction from the Curry exit that we talked about. We're looking at really the underlying being closer to flat. Recall that stabilization for us is roughly defined as ±1%-2%. We are in that range. North America, we are expecting down low single digits. EMEA, we're expecting to be up low single digits, and APAC up low single digits. The international markets should be continuing to perform.

If I'm looking at it for the 1st quarter specifically, North America is expected to be down about 7%-8%, whereas EMEA is going to be up in the low teens. Some of that is that shift that we talked about from Q4 into Q1, still strong performance overall for EMEA in the quarter. APAC is expected to be roughly flat. Overall for Q1, we're expecting revenues to be down about 2%-3%. Kevin, I'll turn it over to you for the color.

Yeah. Jay, thanks for the question, and I think it's important for us to ground ourselves in the numbers. I do just wanna mark the fact that we've been targeting after, especially North America, -12% traction and then two years ago to -8%. Looking at that roughly stabilization is something that I think our team has worked incredibly hard for and something that we look to build on. I wanna emphasize that we're focusing and prioritizing the quality of our revenue over the volume, making really deliberate decisions, particularly about our growth and our margins. We expect to accomplish all this by doing Much less things, much better. I've said that a few times, and I hope that theme of intentionality is something that really comes through for the call. By removing this amount of volume from the system, we're reducing the amount of work that our teams have to deal with, our consumers have to digest, our customers have to place in their stores. It's all coming with a very heavy lens of, will this deployment of time, people, or money help us sell more shirts and shoes? We do believe that the inflection point is upon us in fiscal 2027. This is turnaround. We also recognize consistency matters. Our operating model, our go-to-market, none of these things are massively changing. We're also keeping our head on a swivel.

Sorry for the sports terms, you know, doing things like implementing a chief merchant and having Kara there who can edit as aggressively as the business calls for. We're now looking to take that same sort of rigor that we've applied across the 25% reduction. We're going deeper than that through the seasons and upcoming seasons that we have in front of us. Applying that rigor to marketing is the next focus that we have. The good news, we have a large nominator, nearly $0.5 billion of marketing dollars in how we think about deploying that money. This is something we believe is an important time of inflection for us to invest for greater sales for the brand. That greater sales will bring greater profitability for us.

We, we are certainly, again, we are bottom-line focused, but we think it's important we have our storytelling capability and driving behind things 'cause we're not sitting here flat-footed. We have a incredible innovation pipeline coming from things like the Bouncy tee I mentioned in my prepared remarks to what we have coming back with fleece and the support we're getting from our partners there, and of course, base layer compression business that we have. The good news about all of this is that we're seeing greater buy-in from our key strategic partners across the world really, in Europe and the JDs and SDIs and El Corte Inglés and Glasses to right here at home with, you know, the biggest partners that you of course know and are aware of.

We do believe this is a inflection for us, and we look to grow forward from here.

Got it. Sounds great. Thank you so much.

Thank you, Jay.

Your next question will come from Simeon Siegel with Guggenheim. Please go ahead.

Thanks. Hey, guys. Morning. Kevin, just to follow up on that a little bit. Maybe can you help give us some context around the declines in North America revenue that we're seeing now? Just any call outs in specific categories, partners, price points, broad base, just maybe framing how much of the current declines are the intentional healthier pullbacks versus external. Then just to the point of what we can see in terms of healthier sales, maybe you guys can quantify the gross margin drivers a bit more for 4Q and the specific drivers for 2027 outside of tariffs. Just help us think through costing, pricing, general health metrics that we can see. Then, sorry for wrapping up the already long question, just any help on what all of that should lead for long-term gross margin levels. Thank you.

Thank you. Let me kick off and then I'll have Reza kick in. What we're seeing right now is when we talk about stabilization, we recognize Q1 is gonna be the trough force and not the trend, it's a bit of an outlier. The decline that we see reflects some of the softer carryover we had from spring, summer 2026 order books and frankly, a bit of a cautious retail environment. There is a stronger foundation now in place. I mentioned Kara taking over as Chief Merchant and Adam stepping in and filling her shoes with a long time Under Armour vet. We've got 0 real transition value with those two experts.

The partner confidence that we're getting, I just wanna emphasize that. We're beginning to see that show up with better reaction in our fall 2026 order books. I can't emphasize enough, particularly here in North America, the trend that we're on, which again was -12, -8, and now we're calling flattish. While we are seeing some modesty there, the quality of that revenue, the way they're expecting us, their openness to bringing in new innovations from us is something which is really important. The better products that we have, I think we've made this point on a few calls, which is focusing on our top 10 volume drivers, full price sell-throughs. The good news is we are seeing the trend.

We talk about the trough, I think it's a good way to think about sort of where we've been at this moment, is that looking for the opportunity for us to grow up from here because we're watching awareness grow positively, consideration grow positively. The metrics are also heading in our ways, but we wanna see that translate into full price sales. We wanna see that into growth. We wanna see that into bottom line profitability. While 2027 is a deliberate stabilization year with improving trends beyond just the first quarter, we believe we're positioned really well for sustainable growth in fiscal 2028 and beyond.

Let me just step in on the gross margin points that you asked as well. For fiscal 2027, we're guiding around 220-270 basis points increase or benefit to gross margin. If you back out the fiscal 2026 tariff refund that I talked about, the 150 basis points, that gets you to about +70 to +120 basis points versus 2026. For Q1, you're really gonna see it in Q1, where we're basically looking at 610-630 basis points versus last year. Gross margin going up. If you back out tariff, that's about 600 basis points of that as well.

I think the message around gross margin really is as we're looking at 2027, we're definitely expecting gross margins to not only stabilize, but to improve. Even if you back out the tariff benefits, we're expecting that the strategy around improving, but taking the products that we have and selling them at a full price, some of the channel mix that we have should lead to a benefit in terms of overall gross margins for the brand.

Great. Thanks a lot, guys. Best of luck for the year.

Thank you.

Your next question will come from Peter McGoldrick with Stifel. Please go ahead.

Hey, thanks, guys. I was hoping you could give us more clarity in the quality of sales commentary you shared today. Is this an extension of an evergreen process or have you stepped away from new business specifically for the coming year? If so, can you help us think about how that's embedded in the outlook?

Obviously, there's a general theme that we're looking at in terms of the quality of sales. It's one of the things that we saw in Q4. We strategically were looking at basically resetting the year. We talked about reducing the inventory in Q4 on purpose as we started the balance of fiscal 2027. There is a brand elevation strategy that we're pursuing here. As you look at product, you know, Kevin and the team have spent the last couple of years really resetting on the product side, and we have some good product introductions that are coming. If you go to any of our stores, you'll see an elevated product offering already. We are expecting that that will result in benefits as it relates to just pricing.

It's not pricing for pricing's sake. It's that you have new product that's coming out that is at an elevated price point. That also fits into the distribution strategy that we have, be it wholesale or in our own direct-to-consumer channels as well. There is, as we talk about gross margin improvement, part of that is related to expecting that we're moving more and more to a more elevated product offering that enjoys a higher price point.

I think we've been talking about this for the last 12 or 14 months, that the thing about tariffs, it actually fits in line with our premiumization for the brand. We'd be doing this anyway. Where we've been aggressive is in some of our top tens that we have replacing, you know, our number 1 apparel item, the Tech T, with new innovation will be coming out later this year. Introducing some pinnacle North Star products like Bouncy T that can come in. Again, emphasizing and building around where we already have permission with the consumer to win, things like our base layer and our compression. We're being thoughtful. We don't feel like we're being opportunistic.

We feel like we're being prudent with what the business calls for, and frankly, just getting confident with where we know that we can win and we can excel, and the ability for us to extend from there. We're taking baby steps towards that of having the right product that moves, of course, locking down on field, on pitch, on court, in the gym, first and foremost, and then finding natural ways that this brand can extend beyond those places where the consumer sees us today.

Excellent. Just a follow-up on that. On DTC quality of sales improvement, that's been a focus for some time. Finally moving in the right direction. Are we now reaching a more normalized promotional environment? On a consolidated basis, how should we think of promotions embedded in the gross margin outlook for fiscal 2027?

Yeah, I think as it relates to e-com, that's something that we constantly look at. You know, we recently had a marketing summit, one of the proofs we came back with was that if we can improve and grow our e-commerce traffic, it'll take care of everything else in the business. I do think it's a good canary in the coal mine for what's happening out there. Traffic is certainly not brilliant today, it's something that we're, as I say, work the mix. We're looking at different ways that we can really consolidate our line, the offering that we have, and make it get more intentional so the consumer isn't walking into an environment of, "Welcome to Under Armour. We sell a bunch of stuff.

What would you like to buy?" Versus, "Here's three great things that you couldn't live without and that only Under Armour could make." Leaning and driving on that. It is the consumer is something that we're watching closely including consumer confidence right now.

Thank you.

The next question will come from Sam Poser with Williams Trading. Please go ahead.

Thank you for taking my questions. I have some technical stuff, and then I have also, I wanted to first start with the brand direction. Like, you guys are one of the few brands out there that support, like, every track and field sport. Can you talk about the sports that you're focusing on, especially after, you know, the victories, the two victories at Boston, and how sort of the reach, you know, how you're thinking about the reach by sport, both individual sport and team sports, and what you're doing across all that?

Sam, let me take the first part of that question. Our sports focus, as I said, we've limited and really culled things down, focusing on the leadership, the decision makers we have in the building so we can be more deliberate, more intentional. I'll probably wear you out with that word, but it's something that we're driving across the business, ensuring that every dollar is driving an ROI return for what we put into it. The 12 categories that we have are the ones that you know, it's, we basically list them out as training, running, and sportswear being our major growth opportunities, all of that underpinned and supported by team sports.

You've seen the initiatives we have from a marketing standpoint around flag football, particularly with women as being the articulation of that voice and something that we're driving back toward making sure that authenticity and credibility is something that always screams from Under Armour. You're right, Sharon Lokedi's win is something which is defining for the brand. As I said in my prepared remarks, it's not just a moment, but when you can do that twice, it tells the consumer that in the largest market that we have to compete in from a footwear standpoint, that Under Armour can not only compete, but we can absolutely win. Doing it back-to-back is significant. Sharon, though, is you're not gonna sell a lot of $250 running shorts that we have.

We have the greatest opportunity for us to be able to build, I think, something more extraordinary for as we bring that out to our Velociti Distance, our Velociti Pro, and get into commercial price points, where we can actually sell and activate with the consumer. The two largest places where the consumer is participating today is we hear you on track and field, and we do support the majority of those sports as helping and supporting some of the 3,000 colleges that Under Armour or sorry, 400 plus colleges we have and 3,000 plus high schools that we have around the country. These are things that all feed into it. We believe that running is a place that we have permission to win.

We just need to tell the consumer about that and do it in a more articulated way.

Thank you. You mentioned that the tax rate is gonna be elevated. Can you give us idea of exactly, you know, what that looks like? You know, what tax rate we're looking at? Also, the interest expense line after you pay down the debt, can you give us some idea of what you're assuming there as well, please?

Yep, sure thing. On the tax rate, we're not guiding to a specific ETR number, but I think what you need to know is and what we mentioned on the call, it's basically both on a GAAP and non-GAAP basis. It's really the geography of where the earnings are coming from and the ability to use your deductions against that. While I would tell you if North America starts to return to growth, we're very well positioned in terms of our tax structure.

When you have basically certain jurisdictions like China and other areas where you have to pay taxes, you're not able to basically use the losses to offset what you have because some of the restructuring expenses that we've taken, it results in a elevated effective tax rate. You know, in under normalized instances, we would be in the high twenties. You know, mid to high twenties is where we would be, but that's not what we're looking at currently. In terms of the interest expense, think of it as basically our debt, once we get past the June payoff and everything. We have basically $400 million of senior notes, and we have $200 million currently drawn under the revolver.

The revolver balances will obviously fluctuate over the course of the year. On a blended basis, you're looking at around 6.6% interest expense against that. For modeling purposes, that's where we would guide you. You know, our revolver is priced at SOFR plus 150 basis points. So that's how it comes out on a blended basis.

Thanks. I mean, just I mean, then we could assume that your tax rate in the probably in the first two quarters will be the highest because of the I mean, that's just what it sounds like based on the way.

I think that's.

especially in the first quarter, the way you're guiding.

I think that's a fair assumption.

Okay.

it can be lumpy over the as well. yep.

All right. Thank you very much.

Thank you, Sam.

The next question will come from Bob Drbul with BTIG. Please go ahead.

Good morning. You know, Reza, congratulations and welcome. I guess the question for you is what are your first impressions as you settle in at Under Armour? I guess the second question I'd like to ask is just, can you guys give some more color on the increased spend in marketing and sort of how your strategy is evolving there? Thanks.

Thank you so much. It's a great question and one that Kevin actually asked me last week when we had a senior leadership meeting that I basically went through this. I'll just give you some inside baseball and what I shared with the management team as well. The first thing that I'll start with is the management team is really impressive. I'm not just saying that because my boss is in the room, but honestly from every layer, whether it's the senior management to the levels below my finance team, I think it's very, very clear in terms of what everybody is focused on. I would tell you and everybody on this call, rest assured that things that are controllable are being controlled.

We have a clear strategy. We have a clear way forward. Obviously, I have a partner in Kevin who has 30 years of experience in this industry and knows this company intimately. We are mid-journey in turning around the company. Just to overly simplify it, I would tell you guys know that I come from a consumer products background as well, very simplistically, you gotta look at it as revenues are driven. It's product plus brand times marketing equals revenues. The biggest surprise for me is really on product. The product truly is phenomenal. I'm just gonna share with you an example of my daughter, who's literally one of our, you know, aspirational/target consumers, who's 23.

When I started here, for those of you who haven't been here, we have a phenomenal campus store that's in our headquarters building here in Baltimore. I went down, and obviously I did some shopping for myself, and I did some shopping for my family, and I bought my daughter a Meridian top. If you don't know Meridian, I highly recommend buying some. The Meridian top that I got her, to be fully transparent with you, she was not an Under Armour consumer previously. My son has always been, she wasn't. She tries this top on, again, she is very honest. She basically said, "This is one of the best tops I've ever had.

Like, why don't you sell this?" That really comes down to the point here is we really have brand and product. For brand, people want us to win. I can't tell you how many people have reached out and said like, you know, "We really liked Under Armour. We want it to win." Like they I feel like there's really good affinity towards the brand. The product is great. The issue is marketing. I'm looking at that as an example of, you know, you have somebody who looks at something, it wouldn't even think to have gone and purchased that product. I'll just touch on one other thing, and then I'll segue over to Kevin for more detail on the marketing side.

The other thing is, as I come into this role, obviously I bring a fresh perspective. You should just know that we have a huge focus on profitability, like driving profitability. We're scrubbing the cost structure. We're looking at the revenue realities of where we are. We're right-sizing the company for those revenue realities. There's a huge focus and clear strategy in terms of navigating this dynamic environment that we're in right now. Let me turn it over to Kevin to talk about the marketing point.

Yeah. Thank you, Reza. Absolutely, getting your daughter to know that what we make and how great it is critical. Bob, thank you for the question 'cause this is something's been Highly discussed, talked through, contemplated, frankly deliberately decided of what we believe is the right thing for us to take for our business. Let me just take a minute here and sort of go through marketing. We recently did a structural review to identify, you know, how we can drive greater marketing spend synergy because we found ourselves really running three smaller companies with a $3 billion-ish one in America and a $1.2 billion-ish one in Europe and a south of a $1 billion one in APAC that we're looking to grow. We believe that we can get and drive, I think just more competency with the way that we're cutting through to our consumer.

At Under Armour, we like to say that our currency is product, but our voice is overwhelming storytelling, and I don't feel like we've been living up to that. I believe that there's more efficiency in our current, you know, nearly half a billion dollar marketing budget. We align this year though to deploy and spend that additional $30 million, which is, we know something that would be highly scrutinized. To be honest with you, this isn't just us throwing money at something. We believe that this will actually help us drive more efficiency. We wanna better ensure that we can move back to growth in fiscal 2028, and so we think it's an important time for us to do it. There's two places that we're looking to deploy those dollars.

Number one, this isn't about acquiring, you know, new products or new properties. This is about celebrating the product that we already have. As I mentioned Bouncy, our women's bra program, which is something which is extraordinary with new innovations coming out. HeatGear, ColdGear, fleece, and making sure the products we have are actually selling through. We have several launches coming later this year as well, as I've said, emphasizing that our innovation pipeline is full, so we wanna make sure that we're not missing that opportunity. I don't believe that we've been as clear as we could be in the past. Secondly, we also wanna make sure that we're paying off the assets where we have spent money.

Things like our new partnership with the NFL, the collegiate partnerships and the, you know, 9 figures plus that we spend on sports marketing, making sure that we're doing a better job activating that. Where we are now is that we're focused on effectiveness. Doing fewer but better impactful activations, clearer messaging, things that'll help us, frankly, sell more premium shirts and shoes. Everything going through that lens, that discipline. Also being more data-driven with the allocation of every marketing dollar spent and that we're going through and driving a serious ROI as to does this investment make sense to us.

As I said, I like this construct of, you know, when we're doing it right, we're mostly talking and describing the benefits of what our brand, of what our product does, but through a brand lens of something that matters. This is going to be a targeted investment to strengthen the brand. It'll position our business. As Reza said, it sticks within our current 10%-11%. We agree. We want to focus on SG&A. We want to get SG&A down. We're hyper-aware of that. We're a bit at this moment where we do think it's an inflection. I believe that what you've seen us be able to action so far on the product side, which at this point is mostly just words for you as it begins to come through.

That 25% that we've taken out, the additional cuts that we're making to SKUs, just taking simply volume out of the system, will leave our team in a much, much better place. Maybe I could just leave you as we think about marketing too, is just how we're thinking about the business and, you know, we had recently a two-week summit I described loosely earlier. After that, we brought all of our marketing leaders from APAC, from EMEA, together, and we spent, you know, three or four days here in Baltimore in an on-site, off-site, and we aligned on these four proofs. The first one I've said is, you know, if we can drive more consumer traffic to our website, the overall business will grow. Secondly was this heightened focus that we have on new consumers.

I mentioned that in my prepared remarks. Third is the need that we have for the focus on that product to brand marketing. Again, when we're doing it right, you should not be able to tell the difference between the two, and that's what's the brilliance or the cleverness that hopefully you'll be seeing as our marketing. Fourth and finally is aligning on the pooling of more of our marketing dollars together that we're leveraging and creating content here from a global base to say that having to be done exclusively in the regions. Of course, allowing them to translate and make it region or market appropriate, but having just a greater strength here from headquarters as well with a stronger point of view. This brand knows who it is.

We know who a consumer that we're hunting for is as well, and we have incredible empathy for the products that they will choose and desire.

Thank you very much, Kevin and Reza.

Thank you.

Thank you.

Your next question will come from Laurent Vasilescu with BNP Paribas. Please go ahead.

Hi, good morning. This is William Dawson on for Laurent. Thanks for taking our question and also congrats, Reza, on the new role.

Thank you.

My two questions were with respect to channel and regional performance. In North America, in fiscal 2027, guidance for down low single digits, how should we think about the trajectory of wholesale versus DTC, especially considering that the wholesale partnerships have become increasingly collaborative in recent quarters? On Asia, within the guidance for low single digit growth, can you give us an update on what you're seeing on the ground there, especially in China? Back in February, it was mentioned that there was a stabilization in Asia expected within 12 months. Is that still the base case or are you ahead of that target?

Why don't I start with that, Kevin, and then you can pick up from maybe the Asia point. The overall in terms of North America, the direct to consumer channels that we're looking at, if I'm thinking about DTC, and really our factory house stores is what's driving a lot of that, are expected to continue to outperform. In terms of wholesale, we're seeing decent sell-through currently. I think as we're in the sell-in for the further seasons, the early indications are that it is an improving trend. Which is what you're seeing in the numbers that are coming out. If we're looking at it overall, you know, I gave indications around the overall wholesale, not necessarily broken out by region.

Our expectation is that wholesale in this year is going to be up, slightly. It'll be flat to up slightly. If I'm looking at direct to consumer specifically, we expect that the factory house will perform. Let me turn that over to Kevin to talk about the China trends.

Yeah. Laurent, thank you. Let me just back up a little bit on some of that wholesale because we are seeing incredible partnership, where I think some of what, you know, wholesale is seeing from us. DTC plays out real time. Wholesale gets to see some of the trends of where we're going. We are exploring right now deeper partnership, deeper collaboration. And I say collaboration, I mean, literally collabs, with things that will help us premiumize and elevate the brand. Our wholesale must grow, though. It's 60% of our business, something that we're focused on. We know that we have to win there.

This is a total execution from A, the right product, B, the right storytelling for the customer on the sell-in to see the way it executes at retail or online in their stores too. We are focused on that full end-to-end throughput that we have as our product goes to market. As it relates to China, Under Armour is in a pretty unique place. We've got a terrific leader across APAC in Simon Pestridge, who is a brand first leader. Simon took on this commercial role probably 18 or 20 months ago.

What he's done is basically helped us perform a bit of a flip, where we were incredibly promotional, incredibly discounted, and we did a really great job, so far as we're watching to turn the inflection of that business from, you know, down in the teens where we were a little more than a year ago, to something where we're looking at flattish to, you know, even positive there. The market is not great, meaning the consumer is tough everywhere. You're not having sort of any places where you get a free lunch or an easy ride. I think what we're doing right now is brand right marketing. We've exited or exiting performance marketing, reducing it significantly as we can flip that into brand right marketing.

That's actually driving and selling a product versus selling a price savings or a discount. We also have a terrific pro there named Carol Chen, who runs the business for us, who is an industry vet, who knows the partners, who knows our franchisees, and is someone who's been critical and a real staple for Simon there as we look in market. For us, you know, we're testing new retail concepts. We're trying new things and working the merchandising mix. I think, you know, China, I don't know if I could compare it to the U.S. I guess I could just say broadly that I don't think there's, as I said, there's no free rides that you get in any market around the world right now.

It's more competitive, especially with some of the local options they have there in China. Under Armour is certainly holding its own, and we have a great plan for growth there.

Thank you very much. Best of luck.

The next question will come from Paul Lejuez with Citigroup. Please go ahead.

Thank you. It's Tracy Cogan filling in for Paul. I was hoping you could tell us what your CapEx expectations were for this year, and free cash flow. Then secondly, I was wondering if you've built any benefit from the World Cup into your guidance. Thank you.

With regards to CapEx, I think it'll, it will be similar to what you've seen last year. We're, we're past building our campus here in Baltimore, so that's kind of a more normalized level going forward, I think. In terms of free cash flow, we're expecting free cash flow generation in the year. The expectations are both the core operations as well, as well as some working capital benefit, building in terms of the free cash flow that we'll see this year. We did have some one-timers last year in terms of free cash flow, which you're well aware of in terms of some settlement payments and things like that. Yeah, I mean, I think we expect it to be a good year in terms of overall free cash flow generation, even after CapEx investments.

What was the second part of the question? Sorry.

If you've built any benefit from the World Cup into your guidance.

Not anything that's of particular note. Obviously, we have some assets that we plan to activate during the course of the World Cup, but there isn't anything that would be a one-time that wouldn't be recurring in future years that's outsized.

Yeah. From a pure market standpoint there, we're gonna have, I think 10 to a dozen players that'll be participating in the World Cup here in the U.S. You know, it's gonna be a period of time. It's one where it's incredibly expensive to get in. Basically, the majority, if not all of our marketing in Europe is built around football. Bringing the beautiful game here to the U.S. is something we're gonna celebrate with a number of our players, like Fermín López and the range that we have, which is extraordinary. We wanna make sure we're supporting some of the players we'll have on the Spanish national team and some of the other national teams.

As far as a major play in World Cup, it's something that we wanna make sure that we're understood and played in football, but we wanna definitely take our time and not try to outspend in some place where we think it may be a bit uphill for us. We have a position to win. We're gonna continue to do that through our language in Europe, especially.

Great. Thank you.

We'll take our last question from Rick Patel with Raymond James. Please go ahead.

Thanks. Good morning. Congrats, Reza, on the new role.

Thanks, Rick.

You talked about the e-commerce channel and how if things can do well there, they bode well for the overall business. Can you double-click on the levers you can pull to improve traffic there and what guidance assumes as the year moves forward? As a follow-on, you know, with product, with the product assortment evolving towards brand elevation, how are you thinking about segmentation of newness across D2C versus wholesale channels?

Why don't I start with the numbers side of it, and then Kevin can talk to some of the macro points as well. Look, e-commerce is stabilizing after 2026. We are expecting it to improve as the year goes on. There is a bit of a reset that's happening in e-commerce. One of the focuses that Kevin touched on is how we're trying to basically be much more intentional in the way that we present ourselves in the e-commerce channel because that really is the best reflection of the brand. There are changes that you're gonna be seeing, particularly in North America, in terms of how that is. We do expect that to take some time to bear fruit. There is. You're absolutely right. Traffic is challenged in terms of e-commerce overall.

What we're cognizant of is not over-investing marketing dollars on performance because to drive unqualified traffic. I don't think that'll have much of a benefit. We wanna make sure that we're executing the brand elevation play we have in e-commerce. To do that, you're gonna start to see from a marketing perspective, a greater mix in terms of what we're doing, both at the brand level, as well as performance to try to do that. I think the bigger point is really from a macro perspective, strategically resetting the presence that we have on e-commerce to make it more brand elevating and to drive higher price points and ASPs. Kevin, I don't know if you wanna add to that.

I think it's good coverage.

Good coverage. Thank you.

Thanks very much.

Thanks, Rick.

This will conclude our question and answer session, as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.