Under Armour's Q2 revenue falls 7% and gross margin outlook is cut as store traffic, markdowns, and freight costs bite

What happened

Under Armour reported a 7% year-over-year decline in fiscal second-quarter revenue, extending the contraction seen in prior quarters. The company lowered its full-year gross margin outlook, citing weaker store traffic, inventory markdowns, and higher freight costs. This follows the December quarter where gross margin had already fallen to 44.4% and North America revenue declined 10% year-over-year. Management now faces persistent promotional pressure and cost headwinds that are eroding profitability faster than previously expected. The update signals that the stabilization narrative from earlier in the year is stalling, with no clear improvement in pricing power or demand.

Implication

The lowered gross margin guidance suggests that tariffs and promotional intensity are compounding rather than offsetting. Investors should monitor the next two quarters for whether North America revenue decline remains near -10% and gross margin stays below 45%. If deterioration persists, the stock may reprice toward the bear scenario value of around $5.00. While liquidity remains adequate with pre-funded debt maturities, earnings quality stays poor due to ongoing restructuring charges. Until management demonstrates sequential gross margin improvement and a deceleration in North America decline, a wait-and-see approach is prudent.

Thesis delta

The latest earnings call reveals that the turnaround is not gaining traction; revenue decline widened to 7% and gross margin expectations were cut further. This directly challenges the base case which assumed gross margin rebound to ~45.5% and North America decline improving to -6%. The thesis shifts toward the bear scenario, with increased probability of margin staying near 44% and promotional activity persisting.