UAA 9.11.25

I think the overall assumption is that at a certain point, they have to hit their overall flat base, their overall base. Like you said, the brand has been shrinking for nearly a decade and has seen materially lower sales every year. So I think there's an expectation that they hit some sort of base level where they've hit a trough in their sales, and then some of their turnaround strategies begin to come into effect. They can grow on this troughed base, whether that is a new product, in new channels, or an expanded product and expanded channels. International is also very important for them. So, they can reignite Asia, which would typically be their biggest market most beneficial for them to reignite. So I think that would also be a goal there, as we need to reignite the Asian market that could potentially help them grow off a low base.

I do understand that it's hard to rationalize, given that you're looking at the sales numbers over a decade. I would say that a 2.5% growth rate in 2027 on a negative 18% three-year comp, negative 20% three-year comp, doesn't seem too crazy, just given the fact that I think this does have a trough level of sales. There is a base level of sales that this brand can produce regardless of whether they're good, profitable sales or not. So that's what would drive any sort of growth. A lot of it will have to do with their ability to grow DTC and get North America stable. It doesn't necessarily have to grow, but they need to stabilize it. Then they need to regrow Asia and EMEA. EMEA grew in Q1, but it was all offset by the same level of growth decrease in Asia Pacific. That's something that they need to sort out because a pretty major part of their business is the international growth.

I would say it's definitely an issue across the brands as you alluded to. I think their brand equity is relatively low in Asia across all the brands. It's definitely athlete-reliant. So this will be an ongoing issue as Steph Curry gets older in his career, and he's a main proponent of their initial growth in Asia with the basketball program they do there. So that will be an ongoing issue for Asia, but it's definitely important for them to still try to capitalize on the opportunity and reinvent their brand.

I do think that they’re still working through some of their core game plan stuff. I think that they came out with it back in 2024, which is reducing SKU count and resetting the expectations. Also, as I alluded to, which I think is important, is having this faster go-to-market speed. Like I said, they were running at an 18 to 24-month go-to-market for a new product. They want to get that down to under a year. I think their goal was nine months. But even if they could get to 12 months, that would help them. They could be faster to react to trends, which I think would also be important for them as they think about the things that you're doing, as they’re delving into Asian markets and seeing what is working there, especially with the growth of the domestic brands. They could then try to capitalize on that and pump things through their R&D pipeline to get it faster into the market to capitalize on it. But it's definitely uncertain.

Then, coupled with the tariffs, there's a lot of uncertainty, which is why the stock has done so poorly, not only this year, but for the past three years. So all that does is come into play. For me, it's just a matter of how much this will continue to go down. It's found somewhat of a base right now, with its 52-week low being at $4.78, which is its all-time low. So I think that's also a factor. The stock has never really traded this low, maybe back when it first IPO'd, and it's gotten pretty low, but not as low as it currently is. So this is potentially its base level. Despite everything that we've mentioned, from a valuation perspective relative to peers on a P/E and on an EBITDA/sales, it's not really expensive by any means. I think that could also lead them to explore some strategic opportunities, like I said, whether that's going private or doing something else. I think there is an opportunity for that.

I would say the main difference between the turnarounds that they've tried to do versus what they're trying to do now is I think they've realized that they really can't compete with the "do everything" strategy of Nike, which is to compete in all sports across all categories and have athletes in all categories, whether it's run, whether it's team sports, singular sports. I think they've realized, hence, by their SKU reduction, that they need to do more strategic opportunities around where their expansion lies. So they need to focus on areas where they feel they can excel rather than trying to focus on the "do everything" strategy at Nike. I think that's one of the main differences.

The other thing is, two of the former CEOs, as I alluded to in my opening remarks, were very focused on expanding their technical performance capabilities, trying to compete with Nike and Adidas on being a more technical shoe, and with apparel as well. But that's inherently one, R&D intensive, so that's margin net negative because you're not going to be able to get the price to offset that increase in R&D. Secondly, because their brand position is the way it is, I just do not think that they were ever going to be able to compete there. I think now they're starting to realize that. So they're trying to reshape and reshift their focus on SKU cuts and other things that have done well. A lot of these are in accessories. Under Armour backpacks and hats are still very prominent and popular. So I think they've also realized that they have a real opportunity to capitalize on random category accessories like that, where they can compete more directly rather than saying, "We're going to come out with a more technically advanced running shoe than a running company," and no one really bought into that. So that's probably one of the key differences between their historical turnaround plans. In addition, I think there is probably an opportunity and more of a shift to focus now for them on margin and growing earnings versus just trying to get the top line to stabilize. Historically, a large part of the turnaround opportunity for them was always, "Let's try to expand into as many categories as possible because that will help us with our sales decline, and we'll be able to get sales back even if they're not the most profitable by just being and doing as many things as possible." I think that's a strategy they've realized doesn't work either. They need to focus on stabilizing sales versus trying to get them to grow again, and then hopefully get some margin leverage by doing all the cost-cutting and SKU rationalization they're doing. So I think those are some key things. Again, product innovation has always been a focal point of their turnaround strategies. I think now it's just focused on different things. I cannot really say for sure that they're the right things, because we haven't seen them work yet. But if they're not focused on technical run categories and technical fitness categories, it's likely a better path forward than trying to be the hyper-technical sports brand.