Declining Digital Positioning And Tariff Pressures Will Impair Future Potential

Key Takeaways

• Limited digital relevance, brand weakness with younger consumers, and insufficient global reach expose Under Armour to declining sales, margin compression, and long-term stagnation.
  
• Heightened competition, costly marketing, and rigid supply chains increase vulnerability, eroding profitability and undermining earnings stability.
  
• Under Armour's renewed focus on premiumization, direct-to-consumer innovation, and operational discipline aims to enhance margins, recover profitability, and drive global brand relevance.

Catalysts

Engages developing, marketing, and distributing performance apparel, footwear, and accessories for men, women, and youth.

• Under Armour's exposure to a rapidly evolving, promotion-heavy digital landscape means its legacy as a traditional performance sportswear brand leaves it increasingly disadvantaged against more culturally relevant, digital-native competitors, risking long-term online sales declines and continued share loss in the growing DTC channel. This is already evident in double-digit e-commerce declines and could cause sustained pressure on both revenue and gross margins.
  
• The company remains overly dependent on the mature and stagnating North American market, lacking sufficient diversification into faster-growing international markets, and thus faces the risk of long-term revenue stagnation relative to global peers like Nike and Adidas whose geographic reach is broader and benefits more from the global rise in health and wellness spending.
  
• Persistent weakness in brand perception and inadequate cultural cachet, especially among Gen Z and younger athletes, continues to cap Under Armour's ability to gain pricing power and premium positioning. Despite recent campaigns, the market's shift toward trend-centric, lifestyle-driven athleisure means Under Armour's functional image will likely impede average selling price growth, compressing gross profits.
  
• Intensifying global competition and accelerating demand for constant product newness and high-profile collaborations place Under Armour at a structural disadvantage, as it struggles to compete on innovative partnerships and rapid product cycles. This will likely force the company into higher marketing spend and discounts, eroding net margins and threatening earnings stability.
  
• Tariff headwinds and ongoing supply chain vulnerabilities will remain acute as Under Armour's manufacturing footprint lacks sufficient diversification and flexibility, resulting in structurally higher sourcing costs. Management has already forecast that gross margin will be hit by 200 basis points for the full year, and with mitigation unlikely in the near term, sustained gross margin compression and lower operating income are expected to persist or worsen over the long term.

Under Armour Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Under Armour compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Under Armour's revenue will decrease by 0.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.0% today to 2.6% in 3 years time.
• The bearish analysts expect earnings to reach $130.3 million (and earnings per share of $0.3) by about August 2028, up from $101.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, down from 21.7x today. This future PE is lower than the current PE for the US Luxury industry at 20.0x.
• Analysts expect the number of shares outstanding to decline by 0.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.58%, as per the Simply Wall St company report.

Under Armour Future Earnings Per Share Growth

Risks

• Under Armour's transformation strategy includes streamlining its product portfolio, simplifying operations, and focusing on premiumization, which, if successful, could lead to higher average selling prices and margin expansion, ultimately improving net margins and earnings over the long term.
  
• The company is seeing improving brand perception and cultural relevance, particularly among younger consumers and in international markets such as EMEA, which could support sustainable revenue growth and greater market share globally if this trend continues.
  
• Direct-to-consumer channels, notably e-commerce and owned stores, are being enhanced with brand storytelling, digital engagement, and data-driven innovation-including AI integration-which have already resulted in a significant increase in Net Promoter Score and could drive higher customer lifetime value and margin improvement.
  
• Footwear, historically a weaker segment for Under Armour, is being reset under experienced leadership, with new product launches that have garnered positive early traction and endorsements from elite athletes, suggesting that a successful turnaround in this category could boost revenue and profitability.
  
• Cost discipline, operational improvements, and mitigation strategies around tariffs and supply chain headwinds, including exploring alternative sourcing and selective pricing adjustments, position the company to recover gross margin and earnings potential as these actions take effect beyond fiscal 2026.

Valuation

• The assumed bearish price target for Under Armour is $4.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Under Armour's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $13.8, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.1 billion, earnings will come to $130.3 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of $5.14, the bearish analyst price target of $4.0 is 28.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.