Under Armour, Inc. (UAA) Earnings Call Transcript

Good day and welcome to the Under Armour First Quarter 2027 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to Lance Allega, Senior Vice President, Finance and Capital Markets. Please go ahead.

Good morning, and welcome to Under Armour's Fiscal 2027 First Quarter Earnings Call. The dates 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 laws. These statements reflect management's current expectations as of August 7, 2026 and are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of these results and risks and uncertainties, please refer to this morning's press release and 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 and when considered alongside our GAAP results. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in today's press release and 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, everyone, and thank you for joining us. Let me start with the headline. We're lowering our revenue outlook for the year while maintaining our adjusted operating income expectations. That's not outcome we want it on the top line, but it does reflect a business that is more disciplined and flexible than it was just a year ago. Consumer demand remained softer than we expected, particularly in North America and Asia Pacific. Our response isn't to chase that market lower. It's continue simplifying the business, sharpening our product focus, improving marketplace execution, and investing behind the innovation, applicability and storytelling that will strengthen Under Armour over the long term. Few days ago, I said we were entering the next phase of our transformation. The challenge now is to convert internal progress into stronger consumer demand. At store in front of us, and it's what will position Under Armour for healthier growth over time. Last quarter, Sharon Lokedi won the Boston Marathon and our Velociti Elite 3 Racing Shoe, her second consecutive Boston Victory in Under Armour. This quarter, Ferran Torres scored the World Cup winning goal for Spain in our Shadow Elite Full Boot. These are the moments this brand was built for, products performing on the biggest stages under the greatest pressure with the world's best athletes. They show what happens when we build from the athlete back credible performance moments that should, can and will create stronger demand for both the little product worn on pitch or course, especially the commercial expressions we convert into brand demand and wearing beyond sport. They also reinforce why the progress behind the scenes matters. Over the past 2 years, we've simplified the organization by removing excess weight to create greater focus and agility. A great example is our significant SKU reduction all while strengthening the connection between product, marketing and sales, so our teams are moving with greater speed and accountability. We've also become more rigorous in how we allocate capital and manage expenses. For instance, in the first quarter, we consolidated parts of our innovation footprint, including rightsizing our Portland office, while strengthening Baltimore and New York as hubs where decisions can move faster, product decisions sharpen and teams manage with greater intentionality. These actions are about improving the quality of the business over time, and that will be proven by execution, not by what we say today. A few years ago, we're too often managing for quantity, more products, more complexity and volume that did not always strengthen the brand. Today, we're managing for quality. Fewer products with greater purpose, tighter execution and a clear reason to buy. This mandate to the organization is incredibly straightforward. We will sell so much more of so many less products at a much higher full retail price, and this mission is well underway. That focus must apply to every channel. In our DTC business, promotion has too often been the reason for consumers to shop. We're testing more full-priced product in this environment. What we know is that when the product is differentiated and the value proposition is clear, the sell-through follows. In wholesale, we're taking the same approach where stronger relationships remain central to our turnaround. Since returning to the chair, I've made the priority. We're beginning to see it pay off in better alignment and stronger execution. A good example is our back-to-school takeover, but fashion shows at a Dick's House of Sport doors, which puts us front and center as you walk into these elevated presentations with a full expression of UA across men's and women's with our HeatGear Icon Fleece, Tees and Stealthform Hats. The goal is to build more of these executions across the marketplace where differentiated product and strong storytelling can drive healthier full price demand. That brings us to the central question, how do we turn a healthier business into stronger consumer demand. We know the brand has been too reliant on promotion. The marketplace still carries too much complexity. The issues are clear. The work is underway, and our focus is on 4 priorities. First, rationalize the product line so investment goes beyond the highest potential franchises and innovation platforms with a clear role in the portfolio. You can see that in the SKU reductions underway and the priority behind platforms like HeatGear Velociti and Stealthform. Second, we build the market engine around fewer big stories that connect our best products, athletes and cultural moments in a more consistent way. Sharon winning Boston and Ferran scoring on the world stage are the proof points we need to turn into a repeatable system. Third, improved commercialization so consumers can see it, understand it and buy into it across our own channels and wholesale partners, making it easier for the consumer to say yes to the UA brand. That means tighter launch planning and stronger retail and digital execution who our biggest campaigns convert. And fourth, manage inventory in the marketplace. The business operates with greater consistency and less dependency on discounting. That means being willing to walk away from lower quality volume tighten inventory by and reduce the amount of product that ultimately has to be cleared for promotion. We should see progress in those areas before revenue fully reaccelerates. That's the nature of this reset, improve the quality of what we make, how we sell it and how consistently the marketplace reflects the value of the brand. Against that backdrop, let me talk about both sides of what we're seeing, where the environment has become more challenging and where the playbook is beginning to show up. As the first quarter progressed, particularly from late May forward, traffic softened, especially North America and Asia Pacific, while the marketplace became increasingly promotional. Given what we're seeing today, we've taken a more cautious view of revenue for the balance of the year. Still, this does not change our strategy. It reinforces it. Consumers are going to choose Under Armour at a premium, we must earn that through more compelling reasons to buy, the right product choices and a tighter connection between what we make and why athletes should care. One of the biggest lessons for us has been that athletes don't need more choices. They need better ones. Building on the 25% reduction we've already achieved in our Fall/Winter '26 assortment compared to just 2 years ago, we've begun targeting a further 25% SKU reduction over the next 18 months. That is not about doing less about giving our teams room to build products that matter and concentrating investment behind the franchises and innovation platform with the strongest potential to create separation. That focus is helping us concentrate talent and investment in the areas where Under Armour can create meaningful advantages for athletes, training, team sports, running and innovation platforms that define our performance heritage. We're seeing early signs this approach is working. HeatGear base layer has remained strong across regions and channels and Velociti continues to validate our technical innovation with runners. We're also seeing encouraging reads across newer apparel concepts which indicate where the consumer is responding. These are signals we can learn from and scale deliberately. Best example of what this looks like when we get it right is the Bouncy Tee. What can happen when product and culture come together at retail. Launched in May, Bouncy Tee has exceeded expectations, while selling at its full $65 retail price. Alongside innovations like Base Layer, SlipSpeed, Stealthform hats and no way backpack. It shows that we know how to create products with a clear reason to command value, a combination of new upcoming innovation and frankly, the amazing products that we already have, but have not done a good enough job storytelling for yet gives us a robust platform to leverage. Now we just aligned in filing with the coordinated brand right marketing approach. Beyond these proof points, the bigger job is to build a more effective marketing engine, not just put more products in the pipeline. And for us, that starts with the products that matter most. The top 10 volume drivers I've talked about before. Tech Tee is a great example. It's one of our largest volume programs, but candidly, it's discounted too often. So the answer is not to walk away from that business. The answer is to improve the product and reset how it shows up in the marketplace. We are refreshing Tech Tee so it plays a better role at scale. And at the same time, we've created a more premium expression with the Helix Tee. As Helix comes to market later this year, it will launch at $35 with a more complete UA performance story, stretch, recyclable and an outrageously quick dry time and with the marketing and retail support required to earn that premium. That is the playbook, improved the essentials that give us scale and build elevated products with a clear reason to trade up. Product strength also must show up in how we market the brand. As we take the story to our consumer, our industry is certainly taking notice. An example is 2 women are daily covers just this week featuring UA brand ambassadors, Wednesday with Francois Arnaud of Heated Rivalry theme wearing UA HeatGear. Just this morning, another cover showcasing Ferran Torres' World Cup celebrity while wearing our new Bouncy Tee. The opportunity now is to make those stories travel farther and connect more consistently with consumers. Our goal is not to be part of every conversation is to show up where performance matters most and where our product gives us permission to lead. That requires tighter integration between innovation and storytelling, so consumers understand what the product does and why it matters. Our marketing reset is not only about how much we spend, but how effectively we spend it and what the return ultimately is. The point is to make each dollar work harder beyond a brand idea consumers can understand, remember and purchase against. On our last call, we expected marketing investment to move higher as part of rebuilding consumer pool. Since then, we've gone deeper into the plan and identified opportunities to rebalance spend, reduce waste and improve returns. Given this amplified focus, we're taking marketing lower as a percentage of revenue this year. To be clear, this is not a retreat from the brand. It's a reset in how we invest, fewer, bigger activations tighter ties to product in retail, clear measurement and a higher bar for funding. We believe we have the ability for significantly higher efficacy in every marketing dollar we spend and the return it brings to the brand. Underneath all of this, the company is operating better. The structure is simpler, decision making us faster and tighter prioritization is helping us respond to changing market conditions while maintaining our full year profitability outlook. So on closing, Under Armour is at its best when we build products athlete's trust in the moments that matter most. This year marks our 30th anniversary, and I know what this brand can be when performance credibility turns into consumer demand. I'm proud of our history, but I'm not satisfied with where we are today. We will not solve that by chasing unhealthy volume or buying short-term revenue. We'll solve it by editing the line, cleaning up the marketplace, sharpening our storytelling and turning our strongest assets into consistent demand. That's the work in front of us, make the brand sharper, the visits cleaner and the execution more consistent. And with that, let me turn the call over to Reza to walk you through our financial results and outlook in more detail. Reza?

Thanks, Kevin, and good morning to everyone. From a financial perspective, the first quarter showed the benefit of the operating control we've been building into the model. Revenue came under pressure as the period progressed, but adjusted operating income exceeded our outlook. Starting with our first quarter fiscal '27 results, revenue declined 3% to $1.1 billion. By region, North America revenue decreased 9%, with declines in wholesale due to softer spring/summer orders and traffic headwinds that put pressure on our e-commerce and retail store business. EMEA revenue increased 12% and 10% constant currency in the quarter. driven by strength in our distributor business, partially offset by slight declines in our DTC and full price wholesale businesses. Revenue in APAC decreased 7% or 10% constant currency, reflecting greater-than-anticipated softness in China and Southeast Asia. In China, results were also affected by stock outs in key styles and sizes as well as demand cannibalization from certain licensees that discounted aggressively in a promotional market. We are addressing those issues through better inventory availability and closer alignment with licensing partners. And in Latin America, revenue increased 8%, driven by favorable foreign exchange as constant currency revenue was up 1% in the quarter. In short, North America and parts of Asia Pacific drove the pressure versus expectations, while EMEA and Latin America were more resilient in the quarter. Looking at performance by channel. Wholesale revenue decreased 2% due to declines in full price wholesale revenue and in sales to third-party off-price channel versus the prior year. This was partially offset by growth in our distributor business. Direct-to-consumer revenue decreased 6% in the quarter with a 3% decline in our owned and operated stores and a 12% decline in e-com. As mentioned, as the first quarter progressed, we saw increasing traffic challenges, particularly in our North America and China markets. And licensing revenue increased 2%, with growth in our international business, partially offset by lower revenue in North America. By product category, apparel revenue was down 2% with declines across most sport categories. This was partially offset by growth in sportswear. Footwear revenue was down 8% due to the combination of general demand softness and actions we've taken to optimize and edit our product assortment with the largest declines in teams, sportswear and train. Increases in outdoor and golf partially offset this, while our run business was flat in the quarter. In accessories, revenue decreased 4% with softness in train, outdoor and golf while sportswear was an area of growth. Gross margin increased 590 basis points year-over-year to 54.1% in the first quarter. This year-over-year increase was 640 basis points, a benefit from EPA tariff refunds related to cost expense in the P&L in fiscal '26 and 50 basis points of other supply chain benefits, including lower inventory reserves and product costing tailwinds. These benefits were partially offset by 50 basis points of unfavorable foreign currency impacts, 30 basis points from unfavorable regional channel and product mix and 20 basis points of pricing headwinds due to increased discounting in response to the softer more promotional retail environment. SG&A expenses increased 2% to $543 million as we continue to fund priority investments while managing our costs tightly. Excluding $2 million in transformation expenses related to our fiscal 2025 restructuring plan, adjusted SG&A expenses were 4% higher than the prior year. This came in slightly better than our outlook for a high single-digit increase. In Q1, part of the favorability reflected timing of marketing spend. We also began reducing discretionary operating expenses as we balance revenue headwinds with the necessary investments to strengthen the brand. In the first quarter, we recorded $4 million in restructuring charges and along with $2 million in transformation-related SG&A we recognized a total of $6 million under our restructuring plan. To date, we've incurred $266 million in total restructuring and transformation costs, of which $116 million is cash and $150 million is noncash. We continue to expect the total anticipated restructuring plan costs to reach approximately $305 million and for these actions to be substantially complete by December 31 of this year. Below SG&A, first quarter operating income was $47 million. Excluding transformation expenses and restructuring charges, adjusted operating income was $52 million, exceeding our outlook of $30 million to $40 million despite a challenging revenue environment. reflecting the greater agility and cost rigor we continue to build into the operating model. On the bottom line, first quarter diluted earnings per share was breakeven, excluding transformation and restructuring charges, our adjusted diluted earnings per share for the quarter was $0.05, also ahead of the outlook range we provided in May. Importantly, these results demonstrate that we're managing the parts of the business we can control. Even in a softer environment, we delivered adjusted operating income above our outlook through tighter cost management and improved operating execution. Turning to the balance sheet. We ended the quarter with $1.1 billion in inventory, down 3% year-over-year and generally in line with the revenue decline. We also closed the quarter with $396 million in cash and $200 million outstanding under our revolving credit facility. During the quarter, we used restricted investments to settle remaining principal and interest payments on the senior notes due 2026, further improving our debt profile. We also completed an amendment to our revolving credit facility earlier this week. This was a proactive step to modernize legacy definitions in the agreement and better align the covenant package with current market practice. Our global cash management structure and our seasonal operating profile, while keeping the facility size unchanged. We Importantly, the amendment is leverage neutral and not related to near-term funding need. We appreciate the strong partnership from our lenders throughout the process. With that context, let me turn to our updated fiscal '27 outlook, which reflects a softer consumer environment and more promotional marketplace, particularly in North America and parts of Asia Pacific. It also reflects the greater flexibility we now have in the operating model which allows us to take a more cautious view of revenue while continuing to manage profitability. Based on those factors, we now expect this year's revenue to decline at a mid-single-digit rate, but we are maintaining our adjusted operating income outlook of $140 million to $160 million. In North America, we now expect revenue to decline in the mid-single-digit rate. This reflects softer traffic in a more promotional environment than we anticipated entering the year. We are prioritizing healthy revenue, managing inventory tightly and avoiding short-term volume that would pressure margins or weakened brand positioning. In EMEA, we now expect revenue to decline at a low single-digit rate in fiscal '27. The region remains highly competitive and promotional with emerging cut to consumer headwinds in certain markets. Even so, we continue to see resilience in the regions supported by strong marketplace execution and our focus on protecting the brand while keeping products elevated and aligned with our strategy. In Asia Pacific, we now expect revenue to decline at a low single-digit rate. This reflects softer consumer response in China and parts of Southeast Asia, along with a more fragmented marketplace across channels and partners. In China, we are focused on their e-commerce execution, improved inventory availability in key styles and sizes and closer alignment with licensing partners. We are adjusting our outlook accordingly, we opportunity to build the foundation for long-term growth in the region. Across regions, our outlook reflects a more conservative revenue assumption. We are managing expenses and inventory tightly while continuing to fund the priorities to support long-term growth and brand health. On gross margin, we continue to expect expansion of approximately 220 to 270 basis points versus last year. This includes roughly 150 basis points of benefit from EPA tariff refunds related to expenses realized in fiscal '26, excluding that benefit, we still expect gross margin to improve, supported by pricing actions, lower discounting and favorable channel mix, partially offset by supply chain pressure related to the Middle East conflict, which we continue to monitor. Additionally, given the recent tariff announcements and rates effective as of July 24, we still believe our 10% tariff assumption from period from July through the end of our fiscal year remains appropriate at this time. We will continue to monitor tariff policy closely and update our assumptions as the situation evolves. Given soft consumer response and its impact on our top line, we've also updated our outlook for adjusted SG&A which we now expect to decline at a low single-digit rate versus last year. This reflects active cost actions, sharper prioritization and the more focused marketing approach Kevin described. We've already taken actions across nonmarketing expenses, and we'll continue to prioritize spending that supports long-term brand health and profitability. Putting these pieces together and excluding anticipated transformation expenses and restructuring charges, our expectations for full year adjusted operating income and adjusted diluted EPS remains unchanged from our initial outlook given on May 12. We are maintaining this outlook despite lower revenue expectations reflecting the greater operational control we've built into the business. As indicated previously, this includes approximately $70 million of benefit from the refund from IEEPA tariffs expensed through the P&L in fiscal '26, partially offset by approximately $35 million expected negative impacts related to the ongoing Middle East conflict, which we continue to monitor. For the second quarter, we expect a more challenging consumer environment to persist, particularly in North America and parts of Asia Pacific. As such, we expect revenue to decline at a high single-digit rate, reflecting anticipated high single-digit declines in North America and Asia Pacific and low double-digit decline in EMEA. Gross margin is expected to be in line with last year's same period results, driven by favorable product cost and pricing actions, partially offset by unfavorable foreign exchange impacts and the channel mix. Adjusted SG&A is expected to decline to a low single-digit rate, driven by lower marketing spend and continued management of other discretionary SG&A., and we expect second quarter adjusted operating income of $10 million to $20 million and an adjusted diluted loss per share of $0.01 to $0.03. To close, we are taking a more conservative view of revenue, but the cost actions and operating control in the model allow us to maintain our adjusted operating income outlook. We will manage entry tightly, protect revenue quality and continue funding the priorities that matter most to long-term brand health and profitability. With that, we'll open the call for questions.

[Operator Instructions] Our first question comes from Jay Sole of UBS.

Kevin, congratulations on the Bouncy Tee, great product, great response. Talk a little bit about the intentionality behind that product, there's a plan that was in place to make that product come to life and get the response you're getting. Can you tell us about that? And then can you connect it to what you can take from those learnings from that product going forward. and a little bit about your product pipeline going forward, how you can bring more innovation to the market to continue to get the kind of results you've seen with the Bouncy Tee?

Yes. Thanks, Jay. I think the product was meant to be -- the painful thing about our industry is 18- to 24-month go-to-market process. As we sit here just a little beyond a couple of years back in the chair, we wanted something that would really articulate the brand or more importantly, the metaphor that we wanted to create of what we expected from all of our products. Promotion has become just too consistent, I think, out in the marketplace. And so we wanted something that really demonstrate the full price nature of Under Armour, where we put the articulation of great innovation with our NEOLAST fiber that replaced a new version of stretch that replaces like a sustainable version for it. It brings the style design of something that was set that was relevant to the consumer. We've got terrific business in our Heat and ColdGear business, which are our legacy franchises, but also compressions available to about 7% of the buying public. And so we thought it's something that we can put in everybody's drawer that explains Under Armour. And frankly, this would be the way that we look for every product to come to market where we're combining culture with innovation. We're taking Under Armour branded story. We're assessing the details from the forward swap shoulders to the way the logo shows up. to something that can really be different. Everyone's telling don't want a logo on the shirt, we think that's something we can challenge because we actually have a brand. We think that's what makes us unique. I think what you can count on from us is us doing this in a more consistent way. bringing things like Bouncy Tee of having the formula of yes, the right product that speaks to the innovation of the brand, which is unique and cutting to Under Armour. Number 2 is the way that we bring it to market with a very simple what it is, what it does, how it makes you better. then the retail execution. And I'll add in the cultural pieces we've done with Gunna Parker McCullum here in the U.S. over in APAC, where we signed a K-pop band, BOYNEXTDOOR to launch it. So we've just seen good results so far, and it's really consistent in something we think that we can build on. So hopefully, this becomes the metaphor of the plan when any time you see a product come to market, this is going to be our new bar.

Got it. Makes sense. And maybe I can ask you one more. Very interesting that changing the sales guidance, but maintain the gross margin and inventory seems under control despite the macro pressures that are out there. Just talk about the culture change of the company to be able to have that kind of discipline on gross margin on inventory and on expenses to be able to continue to drive the business and create products like Bouncy Tee, but not sort of fall into that trap of trying to chase business or kind of do what the other guys are doing that you know is unhealthy.

Yes. 30 years in business this year and 21 of them public. So we've seen this movie before. And I think we've at least been able to build wisdom when it comes to looking at the way we want to purchase the business. And so I think we're being incredibly thoughtful with the way we're thinking about the business in general. And frankly, in the last 90 days, Reza, myself, our marketing team really got together and we looked at the spend that we had in marketing. And I just want to make sure people understand. The decision to do this has nothing to do with leveraging our future. This is about investing in the brand and investing in the future. . We just believe we can increase the efficacy of the products or the stories that we're putting out there. And this isn't something we're just waiting for our product pipeline to come from, either it's the products that we already have in the pipeline. But I believe that we can be much more efficient with the spend that we have networks across the business. And so we are finding leverage in the business. We are finding opportunities. And this is not easy slugging. It's not like we pick up this money. We have to work for it. So I think you've got a committed team that knows that we're not just picking up dollar bills, but we're looking for nickels and dimes and pennies as well and just understanding what it means to run a great profitable business. So unfortunately, we saw some softening in consumer demand. We wanted to hold the line with how we're thinking about for the consumer. We did not want to push that, make sure that we have a cleaner consumer environment out there in the marketplace. But the ability for us to do that while maintaining a stronger, more putting more rigor into the systems and decisions that we're making. I think you'll see that it starts in marketing that goes across the organization, really proud of this team the way that we've been executing against that.

Our next question comes from Sam Poser of Williams Trading.

Can you define what sportswear is because you called that out as strong, and I've got a bunch of other questions?

Sam, I would say it's a product that were intended to be worn with all the performance attributes of UA, but things in non-playing nonfield, noncore, nonpitch environment.

Does that include the Bouncy Tee and I mean how big a part of your business is that?

Yes. I mean the beauty of things, and I wish I'd include this in my response to Jay. The Bouncy Tee was a product that was clearly made as we say, for Friday night out, you can work under a score coat for Saturday morning in the gym all the performance attributes you're looking for from Under Armour or just laying around on a Sunday on a couch. And so yes, it's something that actually walks the line, which is we're focusing on right now beyond sportswear, it's that balance between brand marketing and product marketing. And frankly, as we get this right, you should not be able to tell the difference, and that's what I think we achieved with Bouncy Tee. And again, I think it set sort of the -- sets the edge of what we expect to do with everything going forward. So we -- even if it's Under Armour sportswear, we call ourselves of what to do brand. We're the brand when you say, "Oh, that's a great look and top. It doesn't need a big blazing Under Armour logo for that to be the case". And someone says, "Wow, that looks great. What is it? You say it's Under Armour. The next question from them should be, "Oh, it's Under Armour, well, what's it do?" So we want to make sure that we maintain that integrity of credibility of always being future first and making sure that innovation defines what we do, but ensuring that we bring great style to it in something a kid can wear on a field, on a gym in a pitch, but they can also wear on a Friday night or the school on a Monday.

And then you talked about the SKU count reduction, the additional 25%. So where does that leave you focused on? Or what's being like where what is -- like how are you targeting the cuts? Are there certain categories that you're stepping away from or product franchises. And then secondly, is your -- is your goal this year basically to cut your inventory down and what your inventory going to look like for the balance of the year? And just have less out there, a better product. So sales are down, that's the improvement in the margins, like, I don't know what promotions were or markdowns were as a percent of sales last year. But like what kind of decrease -- like what kind of full price selling are you anticipating versus the prior year that's built into your guidance?

So I'll start, and I'll let Reza pick up on the inventory and I'll come back. But -- so first of all, the reducing SKUs we're just removing wait from the system. Without being too caloprial, it is like a [indiscernible] making sure we have all the pieces that give us a sound foundation, but it also gives us the ability to remove excess weight and that's what we feel like we've been doing. It's a slow process. When I came back, we had an extraordinary number of SKUs and before even stepping into the chair of the mandate was to cut 25% of SKUs. So we're pleased that we've accomplished that. And as we've gotten into the work, we see that we can go deeper. And that's how we're approaching the business right now. And again, this sort of credo that we've been continuing to say, which is selling so much more of so many less things at much higher full retail price. That's really speaking to what we're looking for. . So there is going to be some near-term trade-off, and that's part of what's reflected in our outlook. But the objective is better productivity for style, cleaner inventory, stronger sell-through and healthier margins over time. So -- and also just reducing the weight from our team. We have an excellent team, but I think we've overburdened them, we've become a bit of a cap request from account sometimes and things where we're just trying to find another few pieces of revenue that can build into it. We want to remove that pressure. We want to make sure that intentionality speaks to everything we do when it comes to the brand. Every product we introduced every story that we tell and ensuring there's a red thread that not only goes to the product itself, but it carries across the globe in each of the 3 regions. And so we think that's where we can build a lot of the leverage that we can find in the business from a Marting storytelling standpoint, and we think it will just get simpler as we increase our global commonality of styles and products that it really feels like one brand instead of small companies wanting on 3 different continents.

And with regards to inventory, let me just start with the quarter. Q1 inventory was down 3% to $1.1 billion. That's in line with the revenue decline year-over-year. we're managing inventory really, really consistently and trying to make sure that we're in concert with whatever the external demand environment is. You'll recall on the last call, we talked about inventory, and we felt that we entered the year with a very clean inventory position. Most of the composition of the inventory we have is card season with active demand on it. So the aging is in really good shape. If you're looking at it as an industry matter, what I would just highlight is that you do have some peers out there that have been clearing some inventory, and so that's leading to the promotional environment that you see in certain markets. For us, we feel really good about where we stand. We have some new product introductions coming in as well in the back half of the year. And so you should generally expect our inventory to trend with revenue. Obviously, there's some seasonality in there as you try to build up for holiday and other selling periods. So just bearing that in mind overall, you should expect as a full year matter for us that could be in line with how the revenues are trending.

Then one last question...

Go ahead.

Well, I mean, the thing is, is that you're cutting your SKU count by 25% over the next 18 months, which means that you're going to have to work your way out of some of this current inventory that you have. And then you're bringing in new stuff, which I would assume at the beginning is less than what you're cutting. So theoretically, you don't want to play in the promotional environment, except to clear that 25% of your inventory that you don't want to go forward with. So wouldn't that inherently bring inventory levels down on a year-over-year basis fairly significantly. Just because you don't want to take too big a bet on the new product going forward as you liquidate the old of, that's that see the change prior to in the productivity of the product before you put too much out there, which theoretically would lead for inventories on a year-over-year basis be down more than sales as -- because of the liquidation, you're going to liquidate more than you're going to bring in initially. So wouldn't that inherently drive the inventories down more than in line with the sales trend?

Yes. Sam, so let me take the first part, and I'll Reza hop on. But I think you're helping us get to what I think one of the broader themes that we really wanted to convey today is that yes, I'm really proud of the innovation pipeline that's been building up over the last couple of years. But I want to be clear is that while we have several new products we're excited to bring to market over the next 4, 6 and 12 months, especially in things we have high confidence in, we're already making a lot of really good product I just don't think we've done a good enough job selling it. So as we cut SKUs, we're talking about cutting a less productive SKUs in going deeper and longer than the products that actually work worse, making sure that we're in stock, making sure that we're in inventory and probably most importantly, ensuring that we actually tell a story about the products that we're building. I think that's where we've fallen down. our drive pan at $80 is a phenomenal product, but I don't know if I've ever seen anybody explain actually what the technical benefits of it are or why someone wear it or how great it looks from a style standpoint.

Yes. I understand the question in terms of how you're looking at it, but you have to realize when we set the target, we were saying over 18 months, the natural sales cycle that we have on these SKUs will allow us to work through that inventory. And if you're looking at it overall, we are saying that we're looking at bringing in more full price product, but we expect volumes to be back. So if you're looking at it in terms of an absolute number, we're expecting that those new full price products that are going to be coming in along with the natural cadence of the other purchasing that we have will offset the nonproductive or less productive SKUs that we have. So there is a tail in terms of the SKUs that we have, where there's just a lot of stuff that we're looking at cutting off that long tail and working through that in a natural course. So it's not that you have to get rid of it all at once, so you can do that in the natural sales cycle. But as the new purchases come in that offset that those will individually kind of build at a bigger level, and then you're selling to Kevin's point, so much more of so much less.

The next question comes from Bob Drbul of BTIG.

Just a couple of questions, if I could. I guess the first one, when you think about the outlook today, versus what you gave us 90 days, specifically on the revenue side. So from like slightly down to down mid-single, can you just give us some buckets around the changes during that period just in the dollars or the percentages or something along those lines would be helpful. I guess the second question, just higher level, Kevin, when you think about marketing overall, like what is the brand focused on today in marketing specifically?

Thanks, Bob. Let me take a cut at this. So number one, I want to be clear that we're not happy about having to modify our top line, but we do think responsible moves. We just look at the brand health and what we're doing is that we're not just building a company, we are building a brand. And as we negotiate the turnaround, we're facing a pretty tough consumer demand backdrop. And in spite of that, we're making good progress in the business and especially the brand. I'm proud of the team and how they -- our ability to be able to demonstrate our management agility right now by maintaining the full year profitability outlook, though, because this is not a sign of leveraging our future. And I've said that a few times because I want to make sure that message is heard we can responsibly maintain our OI while being more surgical with how we deploy the SG&A dollars, specifically within marketing. But what we saw was, as we came out of the beginning of the year, we saw that traffic deteriorated more than expected in the U.S. APAC specifically around mid- to late May. And the traffic trends just precipitously got weaker across retail and e-com. So the outlook reflects that current demand conditions. And I think more importantly, the disciplined marketplace management we're going to take towards it. We also saw some competitive discounting happening and more than some, particularly over in Europe and the U.K. especially. And while not perfect, we did hold the line on broader promotions ourselves. And so making sure that we can do this. We will be changing the tires as we're driving though I want people to understand as we think about that, it's a theme you'll consistently hear from us. What we're doing about it is we're bringing a balanced approach, intentionality, reducing promotions, while creating price product exposure with UA innovation and compelling story. That means, I think, on our web, we've been promotional too often, ensuring that we're highlighting those full-priced products in a new environment for the consumer to be able to see us with trading them out of being a promotion only buyer our existing consumers, while we hunt for new consumers at the same time. So we're not going to chase the market down. We've got great confidence in the product pipeline that we're building, and we're doing a better job articulating by so many of our current products as they are traded at full price. So the bottom line, the revenue change, but the strategy is not. We're balancing near-term revenue opportunities with actions that will strengthen the long-term brand health and focus on that. And yes, we get it. As we say all of this there are brands who are clearly winning in this environment. So some of this is on us, but we believe the work we're doing right now positions us for long-term premium, which our definition of is selling at full price. That's our long and our major target. From a marketing standpoint, I got to tell you is I think that we can improve the size of the red thread that's built at Under Armour, meaning consistency across regions, the way that we show up in the marketplace, the way that we show up amongst across categories, whether it's running training or sportswear, team sports, whatever is important. But I'm really proud of our team. The marketing is stable, and I will call them that, that we've assembled is pretty impressive from Sharon's win back in April for the second time of being a repeat champion in Boston, demonstrates our team can build Formula One race course for underfoot. But now we've got to commercialize that velocity platform to actual price points. Again, on the marketing, and I'm going to combine marketing and sports marketing here, too, but we showed up with 5 starters at MLB All-Star weekend in Philadelphia, wearing UA cleats and gloves with Bryce Harper hosting in Philly. The entertainment side, the Gunna Parker McCollum with Bouncy Tee, the BOYNEXTDOOR coming from K-Pop, we're demonstrating the entertainment side of our business. From a colab front, we had in the last several months, including Paris Fashion Week, we had Marron Shire, Feng Chen WAng as well as we had our collab with 424 when all the global footballers from around the world showed up World Cup. We had our 9 athletes for wearing UA leather. So we're demonstrating we've got some range there. Marina Mabrey and the WMB All-Star game, our Dodge at colab that's all product blowout. And we've got all this on our Investor Relations site well because I do think we're showing up in a very important day. We just want to make sure it's more coordinated. The heated rivalry, Francois Carnaud, wearing HeatGear for when it's hot. The last 2 goals in the World Cup were scored by UA boots. Pedro Porro for Spain and the semifinal over France and then Ferran Torres were the only goal in the final. We followed that up with Ferran starring in a restless campaign that launched in Europe immediately following World Cup with what footballs do in the off season. That was shot months before, anticipating a hype for Ferran. And I think our team deserves an enormous amount of credit there. And then, of course, all that, just as we get ready heading into fall with our college teams, including Notre Dame taking the American football fields, a brand-new collegiate partnership with Georgia Tech, it kicks off in just a few weeks and then background field with the NFL and official cleat and glove suppliers. So continue to be visible and we'll win with this consumer and continue to bring them to Under Armour. But I'm proud of the way our marketing is working. Our marketing isn't broken. We just need to get it more alignment with the product to bring into the market and making sure that these moments of winning on pitch, on orc, on the field, et cetera, they're converting into commercial sales force. So the brand is playing offense. We're excited about the marketing. It's about to kick off in another 3, 4 weeks here. But yes, if you get a chance, please take a look at the Investor Relations site.

The next question comes from Brooke Roach of Goldman Sachs.