Under Armour, Inc. (UAA) Earnings Call Transcript

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

Thank you. Good morning, and welcome to Under Armour's Fiscal 2027 Second Quarter Earnings Call. Today's call is being recorded, and a replay will be available at 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 November 6, 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, 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 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. They are also 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. Our focus at Under Armour is to build a stronger brand through compelling products and more consistent execution. This quarter, we delivered against our revenue expectation and exceeded our adjusted operating income outlook. We remain focused on revenue quality and profitability, putting our resources behind innovative products, aspirational storytelling and a lead execution while maintaining expense discipline. Our cleated business in American football is a good example of this. It grew double digits in the quarter with higher average selling prices and market share gains. In fact, Under Armour is now the #2 brand in football cleats in the U.S. [indiscernible] also grew double digits. France and Spain continue to grow. These results give us confidence to back proven franchises and bring that same execution to upcoming launches. This starts with a simpler company. We have deliberately evolved our leadership structure, clarified accountability and reduced competing priorities. We're concentrating resources where our performance credibility gives us the strongest opportunity to win. Our leaders are then responsible for translating those actions and the product athletes choose stronger partner relationships and improved financial performance. Our industry is changing in how we operate 18 to 24 months from now will look different from today, but we're acting now. Last week, we held our supplier summit, where we worked with key manufacturing partners on shorter lead times, more efficient use of materials and faster response. Scale alone can no longer provide the advantage that once did. I believe, though, we are big enough to work with the best partners in the world yet small enough to move quickly with them. drawing on their expertise and challenging familiar ways of working. We're building a stronger operational foundation, improving the systems and processes behind our products and how we bring them to market. Our initial work with AI is focused on supply chain, product merchandising and marketing. Our priority is calendar compression, shorten the time from an athlete insight to a product in the market supported by a complete launch plan. We see opportunities for AI to speed decisions and reduce repetitive work, so our teams can spend more time developing products and serving athletes. We're also evaluating where asset-light models can bring in expertise and scale. We will judge those opportunities by the earnings and cash we retain and the complexity and capital requirements we can reduce. An early example of this work is our decision to transition our youth apparel business to an expanded licensing model with Centric Brands, a long-standing partner with deep children's product and retail expertise. Beginning in fall '27, the model should reduce inventory, working capital and operating complexity while delivering a consistent Under Armour product experience for young athletes. As a key entry point for consumers discovering Under Armour, this category plays an important role in building our community. We're confident that this decision will help grow this business over the coming years. This partnership should give our teams more time to concentrate on the products and categories where Under Armour's capabilities can create the greatest value. We're simplifying our product line as well, targeting a reduction of nearly 50% in SKUs from the level when I returned in 2024. We've also removed more than 60% of materials while increasing global product commonality. Smaller assortment lets us invest more deeply in our strongest products, simplify decisions, focus our storytelling and make the offer clearer for our teams, partners and consumers. This is about taking away of the systems so we can amplify the products we make with volume and demand. That means selling so much more of so much less at full retail price. Within that focus line, we're sharpening our good, better, best offerings across price points and channels to elevate Under Armour. That means strengthening product performance and presentation at every level, giving athletes a compelling reason to choose UA at full price. Our essentials must deliver performance and value. Our established franchises must offer differentiated benefits and our most advanced innovation must set a higher standard for performance. All the while, we're communicating a much clearer story to the consumer as to why UA is different and better. We're being more deliberate about design, features, pricing and distribution. So each level strengthens the brand and earns its place in the athletes closet. That opportunity reaches into our highest volume programs, including Tech T, a staple that we sell in the tens of millions, but not often enough at full price. We're building on that work with tech Helix and upgrade launching later this month with the ambition to become one of our top 10 volume drivers over time. The Under Armour innovation team developed a completely new fabric by taking 2 separate polyester fibers and wrapping them into a coil construction that creates an actual Helix shape. This allows the fabric to lift off the skin and provide stretch without spandex enhancing airflow and helping the fabric dry at amazing rates. It addresses the need central to Under Armour from the beginning, helping athletes feel better and perform in the heat. At $35, that innovation can reach a broad athlete base and with focused marketing supporting its story, this should be a multimillion unit program for us at full price. Our focused assortment lets us invest more behind products with performance value and potential to become meaningful business contributors. Innovation is there. Our job is to explain the science clearly and connect it to what athletes feel and how they perform, earning pricing power by taking credit for the innovation we build into every UA product. We've seen what that combination could deliver with our $65 Bouncy Tee. Its launch sell-through and growing volumes across geographies are an encouraging example of consumers choosing Under Armour at full price when they understand and value the product difference. That response gives us confidence in the opportunity ahead. We're applying those lessons to tech Helix and future launches with the goal of making that success more consistent across our business. Another example comes next month with the Armour short based on our goal to build the best compression short an athlete can wear. Compression shorts are already one of our largest volume programs, but we've traditionally served that [indiscernible] with only a $35 good-level option. Applying our 50% SKU reduction across categories, the disciplined good, better, best architectures, not just about cutting but also about highlighting on brand opportunities and leaving room to create something better. During team sports competition, less than 10% of male athletes were a hard plastic cup because of the bulk and restriction. We saw an opportunity to address that trade-off. Our brand-new Shield form technology brings targeted growing padding into a compression short without sacrificing mobility. Does not replace the protection of a hard cup but it gives athletes who otherwise go without one, an added layer of confidence. Armour shorts patent-pending design launches in December at $80 per adult and $55 per kids on ua.com and 500 DICK'S Sporting Goods stores in the U.S. And yes, we believe the opportunity is significant over the long term as the addressable market is virtually every male athlete who plays almost any sport. We're building on the trust athletes already placing us for their first layer with the benefit they understand immediately in one single item. Early next spring, we plan to expand the Under Armour collection with a different enhanced solution for female athletes as well. This is where Under Armour plays best, bringing differentiated innovation to a real athlete need. That is our DNA. All in, the Armour short made it from concept to market inside of 10 months with the product, athlete storytelling and full marketing and retail support all developed together. That is the speed and coordination we aim to make repeatable as we compress our calendar, earn a place in athletes everyday routines and strengthen our position as the official first layer of sports. That focus on athlete needs is guiding our footwear reset as well. We're building on strength in team sports while improving design and value across the portfolio. Running offers an opportunity to expand on the performance credentials we've established with our Velocity franchise. Our task is to translate that expertise into a broader segmented assortment that meets the needs of more athletes and earns its place at retail. Sharon Lokedi demonstrated those credentials with [indiscernible] Marathon in October. She finished second in the Velocity Lead 3, improving her personal best by over 3 minutes in becoming the eighth fastest female marathoner in history. It is an exceptional achievement for Sharon and another demonstration of Under Armour footwear at the highest level. Our work with our product teams, brings elite athlete insight into the continued evolution of our running footwear. More commercial-based execution of this $250 lead shoe will build on this momentum with upcoming expressions at more accessible price points this coming spring. Across apparel and footwear, each introduction must address a specific athlete need and have defined place in line with enough depth to become a business we can build over multiple seasons. Building demand is central to this stage of the transformation. Over the past several months, we've established a more unified marketing model, being global creative direction, content and campaign priorities together under Simon Pestridge. Simon became Chief Marketing Officer in June after overseeing our Asia Pacific business. He brings more than 30 years of global brand marketing and leadership experience, together with a direct understanding of our consumers and commercial operations. Our investments moving forward will support fewer bigger campaigns, giving our strongest products in athlete stores more reach and a more recognizable Under Armour voice. Regional teams will bring those stories to life through local media, our own DTC channels and wholesale partners. We are aligning product inventory and retail plans earlier, so athletes can find what they see in our marketing. We will assess that work through product discovery and full price sell-through alongside reach and engagement. We're also introducing a globally consistent creative platform built on the concept of this is your armor. It connects an athlete's ambition with product performance, giving our stories a recognizable Under Armour identity across sports and markets. Also in marketing, starting with this month's tech Helix launch followed by the Armour short in December. We plan to introduce one major product story each month throughout the calendar year. The approach is deliberately simple, one global product priority and coordinated execution across regions and markets. Local teams will adopt their story for their consumers while reinforcing the same technical product benefit. Support across social, digital and retail will continue beyond launch to build recognition and demand. This coordinated execution will come to life with athletes demonstrating the product's benefit through science, of course, also through personality and yes humor. And social content and digital education will further support that connection. Dedicated retail presentations will bring that story into stores with select U.K. retailers joining our U.S. launch. Our product and athlete stories are generating encouraging social engagement. From July through September, our Instagram brand account generated approximately 43 million impressions, up 55% year-over-year and 27 million video views, up 126%. Our TikTok account just crossed 1 million followers. That engagement gives us useful direction for our creative work. Our focus now is converting that attention in a product consideration and purchase. Alongside marketing evolving our retail concepts is a priority. Our stores most strengthen the brand and improve the productivity of our business. We're developing key city showrooms that highlight our strongest products, refining our full price stores around a clearer performance assortment. And reworking our factory house locations with a more deliberate mix of full-priced product. Each format has a distinct role with assortments tailored to local athletes and shopping behavior. Execution means connecting product presentation, launch support and availability, so consumers can understand the benefit and find what they came to buy. These lessons will help guide investment with an emphasis on conversion full price selling and store profitability. Our regional teams are translating these product, marketing and retail priorities into focused commercial plans. In North America, we're concentrating support behind the apparel franchises, included footwear that are performing while addressing traffic and broader sell-through pressure. That means coordinating launches more closely with wholesale partners in our own channels, aligning inventory with demand and making our product benefits more visible at retail. Our priority is to turn strength in these businesses into more consistent performance across our largest market right here in North America. In EMEA, we're building our momentum in France and Spain, while improving e-commerce execution. We're connecting marketing more closely with locally relevant assortments and product availability. So consumer interest has a clearer path to purchase. In the U.K., we're focused on execution with existing partners and aligning inventory and investment with current demand. Across the region, we're backing the markets and channels where we see opportunity, while maintaining discipline where conditions remain dynamic. In Asia Pacific, our priorities are improving productivity and product availability in China in optimizing our licensing business. We're refining assortments in each channel. So our strongest products are supported by a better shopping experience. Carol Chen, who succeeded Simon as APAC's regional leader brings more than 30 years of brand and commercial leadership experience across Greater China, Asia and the United States. Our mandate is to bring those priorities together into stronger marketplace execution, drawing on our understanding of local consumers and retail partners to improve the performance of the business. Altogether, we're challenging ourselves to improve how we operate every day. from the products we build, how we create demand and serve athletes. We're setting clear priorities, acting on what we learn and directing resources to the work that can make the greatest difference. Under Armour has a long track record of solving problems for athletes. Our responsibility is to bring that same discipline to the business, follow through on the decisions and turn product strength and stronger results. Our ambition remains high, and we'll measure progress by the results we deliver. And with that, thank you, Reza, over to you.

Thanks, Kevin, and good morning, everyone. Turning to our second quarter fiscal '27 results. Revenue declined 7% to $1.2 billion. By region, North America revenue declined 7%, reflecting continued traffic pressure in our direct-to-consumer business and softer wholesale sell-through. Growth in select apparel franchises helped but did not fully offset broader demand pressure. EMEA revenue declined 9%, retail traffic remains challenged in the U.K., partly offset by growth in France and Spain. Shipment timing also remains a factor in quarterly progression, particularly in our distributor business. APAC revenue declined 9%, reflecting pressure in China in our licensing business, pockets of improvement in e-commerce and areas of wholesale resilience provided some offset. Latin America revenue increased 3%, largely due to favorable foreign exchange as revenue in the region declined 4% on a constant currency basis. Looking at performance by channel. Wholesale revenue decreased 6% to $725 million, reflecting the impact of softer full price sell-through and pressure in parts of the distributor business, partly offset by select accounts and markets. Direct-to-consumer revenue decreased 8% to $494 million, including a 7% decline in owned and operated stores and a 12% decline in e-commerce. Traffic remained the primary challenge, particularly in North America, with better conversion and targeted digital initiatives providing some offset. Licensing revenue decreased 4% to $28 million, driven by a decline in North America. By product category, apparel revenue decreased 6% to $880 million HeatGear and core Vantage were areas of strength while fleece and women's bottoms were challenged. We saw declines across most categories, partially offset by growth in outdoor and sportswear. Where revenue decreased 11% to $234 million, with most categories down, although selected cleated businesses and run grew, providing some offset to the broader weakness in the footwear portfolio. [indiscernible] revenue decreased 7% to $105 million with differentiated products such as Stealth form providing encouraging signals within a softer overall environment. Gross margin was 47%, down 30 basis points. The year-over-year decline was due to 40 basis points of unfavorable foreign currency impacts, 35 basis points of combined unfavorable channel and regional mix and 20 basis points of unfavorable pricing, a slightly higher discounting than in the prior year more than offset the benefit of our pricing actions. These headwinds were partially offset by 55 basis points of supply chain benefits, including more favorable product costs and 10 basis points of favorable product mix. SG&A decreased 4% to $557 million, driven by lower marketing expenses and continued cost discipline across other expense categories. Adjusted SG&A decreased 3% to $559 million, excluding $2 million in transformation expenses related to the fiscal 2025 restructuring plan and a $3 million benefit from the reversal of certain previously accrued litigation reserve expense. In the quarter, we recorded $13 million under the fiscal 2025 restructuring plan, including $11 million in restructuring charges and $2 million in transformation-related SG&A. Costs incurred to date totaled $280 million against the projected $305 million, with the plan expected to be substantially complete by December 31, 2026. Second quarter operating income was $15 million or $25 million adjusted for restructuring and transformation costs and the reversal of certain previously accrued litigation reserve expense. Reported and adjusted diluted loss per share were both approximately breakeven. We ended the quarter with $1.1 billion in inventory, up 4% year-over-year. The approximate $200 million reduction in our revenue outlook in August left inventory above our plan sales needs. We are reducing future buys and taking targeted sell-through actions to release working capital and strengthen liquidity with the anticipated margin impact reflected in our outlook. We ended the quarter with $285 million in cash and $190 million of borrowings under our $1.1 billion revolving credit facility. We remain focused on liquidity, working capital discipline and investments supporting our transformation. Fiscal '27 capital expenditures are expected to be modestly below last year's level. Turning to our fiscal '27 outlook. We are maintaining the expectation that revenue will decline at a mid-single-digit rate. And while current traffic and macroeconomic pressures could result in North America being down modestly more than the mid-single-digit decline we previously anticipated in that region. That potential downside is reflected within our unchanged full year outlook. For fiscal '27 gross margin, we now expect expansion of 170 to 220 basis points compared with our previous expectation of 220 to 270 basis points. This includes roughly 150 basis points of benefit from IEEPA tariff refunds related to cost expense in fiscal '26. Excluding that benefit, we expect gross margin improvement of approximately 20 to 70 basis points, supported by pricing actions lower discounting and favorable channel and product mix. A 50 basis point reduction in our gross margin outlook reflects ongoing elevated fuel and freight costs, land markdowns to improve inventory alignment and a stronger U.S. dollar. Keep in mind, our previous outlook assumed disruption from the Middle East conflict through September 30. Those pressures have now extended into the second half. We reiterate our expectation for adjusted SG&A to decline at a low single-digit rate, reflecting lower marketing spend and active expense management by preserving priority investments. Our focus is not simply on spending less, but on making our marketing dollars work harder, reducing waste and duplicated content production and deploying resources more efficiently behind priority franchises and launches to improve marketing efficacy. Across the business, we are simplifying operations to strengthen profitability by protecting investments essential to the transformation. The additional second half costs and planned inventory actions more than offset our second quarter operating income upside. As such, we continue to expect full year adjusted operating income in the $140 million to $160 million range. This excludes anticipated restructuring and transformation expenses of approximately $44 million and the $3 million benefit from the litigation reserve accrual reversal and includes about $70 million of benefit from IEEAPA tariff refunds related to fiscal '26 expenses. This also assumes about $45 million of headwinds related to the ongoing Middle East conflict up from the $35 million we cited previously. All in, we continue to expect full year adjusted diluted earnings per share of $0.08 to $0.12. Turning to our third quarter. We expect revenue to decline approximately 8% to 9%. In North America, we expect a low double-digit decline, which includes about 1 point of total sale shipments that were recognized in the second quarter. In EMEA, we expect a high single-digit decline, which includes about 5 percentage points of distributor shipment timing moving into the fourth quarter. And in APAC, we anticipate roughly flat revenue as the business continues to stabilize. Third quarter gross margin is expected to increase 30 to 50 basis points with pricing and mix benefits partly offset by higher supply chain costs and foreign currency headwinds. Adjusted SG&A is expected to decline at a low single-digit rate as we continue to manage marketing towards greater productivity and discretionary expenses. For the third quarter, we expect adjusted operating income to range from a loss of $5 million to a profit of $5 million with an adjusted diluted loss per share of $0.01 to $0.03. The third quarter adjusted operating income expected anywhere around breakeven at the midpoint, our full year outlook includes a stronger fourth quarter. In North America, we expect a couple of percentage points of revenue benefit from the youth transition and a few additional points from wholesale initiatives to reduce excess inventory. In EMEA, distributor shipments shifting into the fourth quarter, account for about 5 percentage points of improvement. That timing supports fourth quarter revenue without changing our full year demand assumption. We are expecting stronger year-over-year profitability in the fourth quarter, supported by pricing and favorable channel and product mix. alongside continued expense discipline, partly offset by the external cost pressures and inventory actions mentioned earlier. In closing, our second half priorities are clear, improve inventory alignment, maintain expense discipline and preserve liquidity while supporting key launches. With that, we will open the call for questions.

[Operator Instructions] The first question comes from Simeon Siegel with Guggenheim.

Kevin, I think your excitement around the existing and upcoming product innovation definitely shines through. Could you speak to us, maybe help us understand where you think the customer might not be seeing. If we were to just take a step back, look at the overall revenues and maybe right now, more evenly, the margins, just how do you translate that excitement into the price people are willing to pay maybe the gross and operating margins the company is going to capture. And just any help you can share with us on how you're thinking about the time line of the revenue reset and stabilization in North America? And then maybe can you just elaborate on that last piece, you were talking about the drivers of the confidence in the fourth -- the stronger fourth quarter embedded within the full year guide?

Simeon, thank you. Yes, there's absolutely a passion for the product here. We know that that's everything. But I think the good news is that we have a almost embarrassment of riches when it comes to product. I feel like the biggest place we've fallen out has just been in our competent storytelling. That reflects and needs to come through, first and foremost, and we want to be clear that our priority is stabilizing and getting North America going. It's obviously -- it's a bit complicated out there, and we have where we use the map differs from the terrain. That is certainly something we've been dealing with. And we've been seeing some softer consumer traffic and a bit of a promotional marketplace out there. We're also seeing some of the sensitivity when we look at things like our Factory House business. Let me maybe characterize this in 3 ways of where and how I think we're going to do this. And I think it's going to be product, it's going to be marketing, it's going to be distribution followed with how we execute on that. First of all, on the -- on the product side, we've got a force of nature in [indiscernible] who's been simplifying assortments and reducing SKUs to help us just emphasize and make this focus. We're leaning in into our famous franchises, things like heat and cold gear that the consumer already knows us that we can build on. We've got great appetite from training, and it's something where we're looking to lean on and make sure that those products like Helix, again, at a $35 accessible price point really begin to come through for us and things like the Armour Short, which I'm happy to report just in case I'm wearing one this morning. Footwear is also it's something for us. It's a $1 billion business that we believe can be much larger for us as a whole. And we think you're going to see a lot more of that proof coming through in spring '27, especially the way that we storytell. And I'll say that, and I'll maybe emphasize here because I think there is that disconnect between the consumer to your question and where we are. I believe, as I say, North America is our regional priority without question to make sure we get it going. Marketing remains our largest opportunity as a brand to turn the trajectory of our business because we have what we need. We've got leadership, we've got budget, and we absolutely have desire. But frankly, as we found just putting things out there and putting it Under Armour logo don't do it, meaning a shirt or a shoe without a story, it's just a shorter shoe. So we have the richest we have from innovation. I don't think there's another brand that is close. We just need to make sure that people actually see that because every Under Armour product actually does something, we're just going to make sure that we tell you exactly what that something is. The other thing, I think, as you -- we're just applying this globally is I mentioned this idea of singular product launches per month, which may sound pretty unsophisticated because it's meant to be that so we can coordinate this global pitch and story that we have to making sure it comes through because we've been running basically smaller regional plays versus leveraging this incredible global brand that we have. Distribution, let me just -- because I think I want to be comprehensive here. We've been working really diligently on the partnerships, especially with some of the Elite partners that we have around the world, and it's the DSG and it's the sports directs and JDs and El Corte Ingles as we go globally with it. With that focus on rebuilding our e-com approach for full price selling. I mean that is that -- we talk about premiumizing the brand. And it means our definition of that is making sure that we sell at full price. And finally, I guess I'd just say execution. We talked and I touch lightly on our own AI transformation that we're in. And I think that our industry actually lines and maps up perfectly for the advantage of what AI brings for us. And it's a matter of us focusing, as I said, on supply chain, merchandising and marketing, of course, but this outsized focus that we have, just making sure and one of the best things I ever heard is how can we increase or grow our business. And the answer is ship us everything that we ordered. So forecast accuracy and delivering on time in full is also a priority. So that's a long way to say it, but I guess I wanted to get -- be comprehensive because to be clear, we have everything that we need, and we're just -- I want you to know that our job and with myself, Reza, entire executive team, is ensuring that we've got nothing that we don't.

Just to pick up on the point on gross margin specifically. Obviously, we're in an environment that's very promotional if you're looking at the U.S. and U.K. But as we've said just in the script that we just went through, overall, we are looking at gross margin improvement over the course of the year. And so in a highly promotional environment, the premiumization that we're looking at is selling more at full price, I think, is something that should ladder as we continue to build on these franchises over time.

The next question is from Jay Sole with UBS.

Great. Kevin, I'd love to follow up on your point about the marketing opportunity. What are some of the metrics that you're using to sort of establish how the brand is trending with consumers over the last 90 days, you talked about in social media. But I thought we love football campaign, great campaign. I love football, that was exciting. Kevin, you talk about that and just kind of how you're seeing the plans that you put for marketing play out the way you expect when you actually launch them and put them out there into the world. If you could give us a little update there, that would be great. And then, Reza, maybe if we talk about the incremental 50 basis points of margin change in the guidance. If you could talk about what the biggest driver was? Was it fuel? Was it promotions, FX? If you could kind of break it down for us a little bit more, that would be really appreciated.

Thanks, Jay. Yes. Number one, we measure marketing by how we're doing with our selling. And so I don't think that we've been doing what we need to. Metrics that we're measuring with are some of the things where we've seen great positivity is in Q2, we saw a consideration is over 19% year-over-year and brand perception up over 24%. You're right, the campaigns we have are things that just underscore what our center is. And so as you're thinking about marketing for the brand as a whole, everything is changing in marketing. We want to make our story much simpler to understand and again, establishing that one global brand voice, as I talked about. The innovation pipeline that we have is it's extreme. It just needs to be spoken. We have not gotten there. The opportunity is telling our story more clearly and more consistently. And what we'll see from us is probably, as I said, moving to the singular product launch per month when we go through it. It's making sure that we're not just doing brand storytelling, but we're really focusing on product storytelling. And as we say, you shouldn't be able to tell the difference when we do that. So this is your armor is something that's going to anchor us globally and supporting what we're doing. I also just want to make sure as we think about the way that we measure we're doing, it's significantly reducing things like performance marketing. You're still going to see discounts as we work on inventory, and we work through getting out in the market, but traffics being replaced by spending on our story versus just spending on getting people here. So what you'll see around things like the upcoming Helix and the Armour short is thus really emphasizing the product benefits and how that will translate to consumers.

Great. And with regards to the gross margin, pricing is a benefit. So pricing a favorable channel mix are on the positive side as well as some product and regional mix, but that's being more than offset by supply chain headwinds. So I would say the greatest negative for us is logistics freight impacts that we're looking at for the balance of the year. And there is some unfavorable FX from translation that's playing into that as well. But I would say if I had to characterize the single biggest negative would be the supply chain headwinds that we have.

The next question is from Sam Poser with Williams Trading.

Kevin, can you talk a little bit about sort of the evolution of these, I guess, the new franchise launches you're going to do it on a monthly basis. And you talked about how many stores the new shorts were going to with DICK'S. Can you talk about Helix, how big that is? Like how is that build into fiscal '28? And do you anticipate revenue growth in '28 with all the actions you're taking? And I have another question, more near-term question as well.

Yes, we're not getting to '28 right now, Sam, but we're just taking this thing 1 quarter at a time. So the franchises that we're built on it's wide ranging. So Helix, in particular, as I said, that's a multimillion unit program that we think can be a top 10 driver for us over time. So something we're really focused on. And as far as things like the Armour short, we believe we may have invented a new category there. Time will tell. But more importantly, this isn't about just the new innovation pipeline we're really excited about. And if we said there's going to be 12 product launches over the next 12 months. I'd say probably 5 or 6 of them would be existing products that we already have in our pipeline. We're just not getting good enough credit for. So I think we want to make sure that we're amplifying that, number one, to our customers that we can meaning our retail partners to get out there and get placed in store because we need to create this premium profile for the consumer to really see and be able to believe in the brand that consumers will then have access to it because you can see these great ideas, sometimes it can be more difficult to getting it at retail. So we have great partners. We just need to make sure we're doing a good job giving them the story and then giving them the tools to actually sell when it shows up at retail.

And that leads to my second sort of all related for both you and Reza. Your inventories are a bit high. You're working them down. How do you make sure when you're doing these new launches such as the Armour short that you're not being too aggressive out of the gate and don't and then run into potential inventory problems down the road. I mean how do you do this in a meaningful measured way to sort of optimize the business, but not put too much risk on it if it doesn't work.

Why don't I start on that one? So if you're talking about the new launches specifically, obviously, we look at what the demand is coming in from the regions when we put in the buys for these different products. The other thing is these products. If the inventory comes in and the sell-through is slower than we anticipated, it's not like it spoils out of the gate. I mean it's going to be high-quality inventory anyway, so we can manage the inventory levels through watching the sell-through and adjusting the future buys that we have for those categories. So when we're talking about kind of inventory and looking at the plus 4% that we had in this quarter, that's largely because of the revenue decline that we forecast on the last call where we took out $200 million of revenues. And because of that, all of that inventory was already in flight. And so we're managing through that by working through our factory partners in terms of trying to delay some shipments. Looking at basically what we can do in terms of some other wholesale strategies that we have for the back half of the year and to try to manage that as best as we can.

And Sam, building on that is we spoke about with AI, hope will get us a lot smarter with getting closer to what the demand actually forecast for us. But coming out of a couple of weeks ago of having all of our key manufacturing partners here and working on what we can do to streamline our go-to-market is that our industry, and I think a clear message from the market is our industry just moves too slowly. And as I said in my prepared remarks, the 18- to 24-month from now, I think that we'll have a much better evolved model that is something which can be more streamlined to deal with getting closer to market, being closer to the consumer and frankly, the ability to react, and we do see opportunity in certain products.

Well, I'm sorry, one more. I mean retail buyers buy, that's their -- that's what they do. They tend to go, "Oh, that looks cool. I'm going to buy it". And they tend -- their eyes often end up being bigger than their stomach is relative to the actual consumer demand. So with this potential -- with this increase of speed, this 10 months to market that you talked about, is there an opportunity for you to put -- but I'll just use the Armour short, for example, on your website into some stores to really see consumer demand prior to counting on buyers who tend to like anything shiny new and then buy too much of it and really use your -- given your increased speed, to use your own data to then really be able to measure the demand and put a check on what some of these retail buyers tend to do.

I feel like you answered the question and then ask Sam because it's exactly what we want to be doing. We want to make sure that we can just get early reads. And so that's why we're testing things out like the athlete we're testing. I mean, when I say storytelling, I think there are so many steps that Under Armour includes in our go-to-market that other brands don't contemplate. What we don't want to do is eliminate that, which is the athlete testing, the certifying the product, make sure it lives up to what we wanted to do. And then, of course, how is it going to be received by the market? Is it something which is a runaway hit. Is it something that we maybe want to hedge on? Is it something that we want to wait and see? Is it something that we're going to build scarcity around it. So all that builds into everything we do. But yes, we're not being crazy with the buys. We just want to make sure that we have more intentional product that's required or necessary from the consumer. The world doesn't need more stuff. The world doesn't need another capable apparel or footwear manufacturing. It needs a hope and a dream and it needs something that translates through that with something like the Under Armour brand, which should be an aspirational [indiscernible] statements as providing solutions that athletes never knew they needed and once they try them, they can't imagine living without them. So making sure that we test the commercial viability of these things as they get to market and building a demand beneath that, that's what's required from us. So yes, test and learn, before we make too big a bet is the way that we're thinking about the future.

The next question is from Bob Drbul with BTIG.

You mentioned asset light. Can you give more color on what that means, how you're thinking about it? And what other areas could be up for consideration?