Under Armour’s Turnaround Gains Momentum: A Buying Opportunity Emerges

Under Armour’s Q4 fiscal 2024 results and revised 2025 guidance have sparked a critical question: Is this athletic apparel giant finally stabilizing after years of turbulence? With narrower sales declines, margin improvements, and a bold restructuring plan, the company is positioning itself for a potential revaluation. For investors, the question is whether the stock’s current valuation—trading at $5.86—offers a compelling entry point for long-term gains.

Q4 Performance: A Step Toward Stabilization

Under Armour reported a 5% revenue decline in Q4 to $1.3 billion, marking a narrowing of its sales contraction compared to earlier quarters. While North America sales fell 10%, international markets proved resilient, with EMEA and Latin America delivering 10% and 20% growth, respectively. This geographic diversification is a key positive signal.

The standout metric was gross margin expansion, which jumped 170 basis points to 45.0%, driven by lower product and freight costs. Management’s focus on inventory discipline also paid off: inventory dropped 19% year-over-year to $958 million, reducing the need for aggressive discounts. This suggests the company is moving past its overstocked past.

2025 Guidance: Margin Gains and Brand Renewal

Under Armour’s 2025 outlook is cautiously optimistic, with margin expansion as the linchpin. The company expects gross margins to rise 75–100 basis points, fueled by reduced promotional activity in its direct-to-consumer (DTC) channels. CEO Kevin Plank emphasized a strategic pivot to “doing less” to focus on core products and elevate brand storytelling—a move that could rebuild premium perception.

The revenue forecast—a low-double-digit decline—acknowledges near-term pain but sets a clear path for stabilization. A $500 million share buyback program further signals confidence in long-term prospects. While restructuring costs of $70–90 million will pressure short-term earnings, the long-term benefits of cost discipline and brand renewal could outweigh these costs.

Valuation: An Undervalued Asset?

Under Armour’s valuation metrics are starkly mixed but ultimately bullish for long-term investors.

• Current Valuation: The stock trades at 5.9x trailing revenue, far below peers like Lululemon (6.5x) and Nike (4.3x), despite Under Armour’s margin turnaround.
• EV/EBITDA: At 50.9x, this metric appears high, but it reflects the company’s recent losses. Once margins improve (as guided), this ratio will normalize.
• Analyst Consensus: A $9.00 price target implies a 55% upside, driven by expectations of margin expansion and execution of its brand strategy.

The company’s $727 million cash balance and no debt under its revolving credit facility provide a safety net, while the $500 million buyback could catalyze shareholder returns as profitability improves.

Risks and Challenges

The path forward is not without hurdles.

• Top-Line Pressures: North America’s projected 15–17% revenue drop in 2025 is a major headwind. A prolonged weakness in the U.S. market could strain investor patience.
• Asia-Pacific Struggles: Q4 saw a 27% revenue decline in the region, which remains critical for long-term growth.
• Margin Volatility: While gross margins are improving, rising SG&A costs (up 7.5% in Q4) could offset gains.

Why Buy Now?

Under Armour’s stock is pricing in a worst-case scenario. The company has stabilized inventory, demonstrated margin resilience, and laid out a clear path to profitability. The restructuring plan and brand renewal strategy—focusing on premium products and reduced promotional clutter—are logical steps to rebuild demand.

Critically, the $500 million buyback reduces shares outstanding (down 4% YoY) and signals management’s confidence. If Under Armour can achieve its margin targets and slow revenue declines in 2025, the stock could rebound sharply.

Conclusion: A High-Reward, Long-Term Play

Under Armour is not a low-risk investment. Near-term revenue declines and execution risks are real. However, the current valuation offers a compelling risk/reward profile. The stock trades at a deep discount to peers, while margin improvements and a disciplined strategy suggest a turnaround is underway. For investors with a 3–5 year horizon, this could be a buy at $5.86—especially if the brand’s premium pivot succeeds.

The next 12 months will test management’s ability to stabilize North America and reignite Asia-Pacific demand. But with a solid balance sheet and a strategy focused on quality over quantity, Under Armour’s revaluation could finally begin in 2025.