Kevin A. Plank
President and Chief Executive Officer at Under Armour
Thank you, Lance, and to everyone joining us this morning. We've got a lot to get through on today's call, including some extended prepared remarks, so let's dive right in.
Four plus years removed [Phonetic] from the President and COO [Phonetic] role at Under Armour, I am bringing a clear sense of purpose and 100% commitment with zero distractions from making UA excellent. I've gained a unique perspective from the executive chair board seat. And while I've maintained a presence in the business throughout, that role was very different from the responsibility and opportunity I now have as CEO to affect the day to day decisions of this brand. I look forward to applying these lessons with renewed approach to leadership.
During this time, our industry has undergone significant changes, including a global pandemic that tested the resilience on the consumer value chain, and increased competition with many new capable entrants that have altered shopping behavior and preferences. However, our aspiration to build the world's best athletic performance brand has not changed. Our goal has always been to be a premium brand of choice, driven by industry-leading athletic performance products, inspirational storytelling and elevated consumer experiences. Yet, we have not consistently nor holistically delivered on this ambition. A lack of continuity and increased complexity have challenged our execution. With several CEOs and Heads of Products Marketing in North America over the past half decade ongoing turnover of critical leadership has been central to our inability to stay agile and decisive. From uneven execution across product and marketing, the suboptimal segmentation, wholesale relationships and DTC performance, there remains a significant opportunity to activate more effectively across the dimensions that matter to drive improved brand affinity and therefore demand.
With several of our executive team being new to their roles, my top priority is bring clarity and stability to our business. Said better, we must make the complex simple, and the simple compelling. To address this, we will reconstitute Under Armour's brand strength over the next 18 months by focusing on brand building fundamentals, like making great products, telling the best story about those products, and servicing every aspect of delivering our business while building the best team.
As a podium brand, meaning one of just three or four global brands that have the credibility of being recognized worldwide as an authentic, on field, court and pitch athletic performance brand, we have an incredible foundation from which to reconstitute a winning culture. And while I have no delusions that this is to be a repeat of how this brand was built the first time, there are certainly parts that will rhyme, and I plan to use every tool of resource or experience available to me and UA to make us successful.
That said, I do not arrive at the next part of the call easily, but it is where we are today. Amid a confluence of factors including lower wholesale orders, proactive decisions to restore brand health to our e-commerce business and lead times to bring new products to market, we are at crossroads of defensive necessity and offensive opportunity. Therefore, before driving forward, we'll be taking a larger step back in fiscal '25 with an expectation that our revenue will be down at a low double-digit rate. This includes an approximate 15% to 17% decline in North America driven by three factors that I will go into later in the call as we work to meaningfully reset this business while navigating an environment made more challenging by our execution in the past.
In our international regions, we expect revenue to be down at a low single-digit rate due to some conservative macro-consumer trends we see, as well as applying lessons learned here in North America to ensure that we protect the brand strength that we've built in EMEA, APAC and Latin America. From a channel perspective, we see our wholesale business to be down at a low double digit rate and direct-to-consumer to be down approximately 10% due to proactive actions to significantly reduce the discounting level within our own e-commerce business. This reflects some of the foundational steps in our ambition to create a more premium stance for our brand.
By product, we expect apparel and footwear sales to be down on a low double digit rate and our Accessories business to remain essentially flat year-over-year. Even with this revenue contraction, we expect a gross margin improvement of 75 basis points to 100 basis points due to the material reduction in promotional and discounting activities through our DTC business and proactive product and costing initiatives.
Turning to SG&A, as we work to streamline our business further, we anticipate our expenses to be down 2% to 4% in fiscal '25. This includes a Board approved restructuring plan to help strengthen and support additional financial and operational efficiencies. While Dave will provide more detail, we expect to incur a total estimated pretax restructuring and related charges of approximately $70 million to $90 million. Excluding the midpoint of this restructuring range, we expect $130 million to $150 million in adjusted operating income, representing $0.18 to $0.21 of adjusted diluted earnings per share. This is not where I envisioned Under Armour playing at this point in our journey. That said, we'll use this turbulence to reconstitute our brand and business giving athletes, retail customers and shareholders bigger and better reasons to care about and believe in Under Armour's potential. A potential backed by nearly 1900 retail stores and a worldwide presence in almost 100 countries, respected by athletes as a podium brand with a distinctive positioning of innovation and performance that is truly unique.
From a product perspective, we're not just chasing the low hanging fruit of sportswear. We're reinvigorating our culture of blowing athletes' minds with a consistent drum beat of innovation. We must become a brand of launches, creating products that solve athlete problems while communicating the story of how and why our products deliver. The good news is that we're already doing this. For example, we delivered six new footwear drops in February alone. Infinite Pro and Infinite Elite, SlipSpeed Mega, curly -- Curry Color Drops at the NBA All Star game, the apparition from the UA Sportswear, and the Drive Pro and Golf. The larger problem is that you've probably never heard about any or most of them. We'll make sure that if a product is important enough for us to make and release, it's also important enough to celebrate with storytelling. Or plainly, we just won't make it.
So, giving stakeholders reasons to believe begs the question, how do we plan to strengthen the Under Armour brand. That starts by reminding everyone, ourselves included, why we're here. Under Armour is a sports house. This is our reason for being. It's our DNA and identity. Under Armour is about athletes and innovation. Leading with team sports, we equip those athletes to push the boundaries of what is possible by inspiring them with performance solutions they never knew they needed, and once they've tried them, cannot imagine living without.
At the backbone of all this is an authentic passion with an identity of grit. Under Armour was not born on that podium, but of an underdog spirit, the long shot, the athlete without all the gifts who someway, somehow finds a way to persevere. That underdog grit is our differentiator, and we will embrace this mentality in this chapter as a brand. With this brand positioning re-centered and solidified, we're narrowing and simplifying our Protect This House strategy to rebuild our core through three main priorities. First is delivering better products and storytelling to amplify demand and loyalty. Second is running smarter plays by simplifying, modernizing, and optimizing our system's structure and processes so we harness efficiency for effectiveness. And third is elevating consumer experiences, mandating excellence, where, when and how athletes choose to engage with our brand and transact.
So, starting with delivering better products and storytelling. This is about the constant and the [Indecipherable] of troika of athlete, product and story, particularly in our North American business. This balance of this triad has been underserved for quite some time.
In our largest market, we have become a brand that, well, competes primarily on price versus our core competency, which is performance and technical innovation, an aspect of UA that has frankly gone untold for too long. To correct this, we must reprioritize our innovation agenda by reminding athletes that our products perform like no other in the industry, a flawless balance of science, function and style made to empower them to be the best at whatever they do from Monday to Sunday.
We are eliminating products that do not meet our standard to sell much more of much fewer products accomplished by editing more intentionally. Led by our Chief Product Officer, Yassine Saidi, we are committed to this vision, but it requires having one point of view with considerably improved design language, a reduced but more intentional fabric library that includes a clear good, better, best segmentation for our distribution, trend-right colorways and standardized fits across all the athletes we serve.
Dissecting our execution further, too many areas of our product strategy have been designated as priorities. This has caused operational inefficiency and a strain on resources, which has diluted our ability to have a consumer-centric point of view, consistent storytelling and an effective go-to-market process.
Over the past few years, it's also evident that we've taken our eyes off of our core men's apparel business, which, particularly in North America, has permitted this business to become more promotional and commoditized. That has significantly impacted our brand's perception. We will rectify this. This focus does not mean that we are de-prioritizing our footwear or women's business per se. But from a sequencing perspective, men's apparel will be our highest priority.
We're also reorganizing our product and marketing teams around our largest revenue sports categories of training, running, sportswear, golf and basketball while ensuring that the authenticator of team sports is still our front porch in every region where we compete. Here in North America, in the United States, that means our presence in American football, soccer, baseball, softball, volleyball, lacrosse as the core sports we'll speak to and solve problems for with our amazing performance innovation. The specific core sport authenticators will, of course, vary by region.
So given the newness of our leadership and product lead times, the critical mass of elevated offerings don't fully come to market until our fall/winter '25 collection, which is the second half of our fiscal '26. However, as we work through this in-between period, I challenge the team to adjust our operating and go-to-market models in three actionable ways. First, refine our product assortment and reduce our SKU or style count by roughly 25% over the next 18 months, intentionally decreasing our good discounted level mix while scaling our better and best offerings to drive balance into our segmentation. This will significantly reduce workloads for our teams and allow them to focus and prioritize on making any product that comes from our engine excellent with a product and story that we will be proud of.
Secondly, our current go-to-market has only one gear with an 18-month process to get a product from an idea to the selling floor. This is just plain uncompetitive in the 2024 landscape. That said, we'll be pursuing a faster six-month and 12-month go-to-market capability, which was recently demonstrated with the release of the world's first true performance headwear that immediately sold out, the StealthForm Uncrushable Hat, which debuted on Jordan Spieth at this year's Masters Golf Tournament that delivered in just six months and is now on pre-order for athletes at a $45 price point.
The StealthForm Uncrushable is also a good metaphor for who we expect to be in our industry: innovative, premium, stylish, and nothing else like it in the market, a product that truly helps you perform better with its comfortable fit, technical material cooling and stretch that feels like a secure hub for your head and deliver to the market with speed.
And finally, building out a direct-to-consumer line of exclusive products for our own stores and e-Commerce. Wholesale is about 60% of our business and will be hypercritical for our success and how we will achieve the elevated position and vision of the UA brand I'm describing. Yet, it has been far too long since we've shown retailers our vision.
So using our own physical and digital stores as a proving ground, we will demonstrate what excellence can look like for the Under Armour brand, whether that is through a more premium price point or meaningfully amplified storytelling to drive success. We want our partners to call us because they're inspired by the innovation they see us building and not just what they sold from us before.
While delivering better products and segmentation is central to our ability to drive greater future demand, our products must be married with authentic inspirational storytelling and technical education about how Under Armour makes athletes better. Our DNA, reason to buy and storytelling must permeate all consumer touch points.
With some of the highest performing material sciences in our industry, including temperature management, moisture wicking, sustainable fabrics, cushioning, compression-based support, to be candid, we've done a poor job consistently communicating our product advantages to athletes. This must be fixed as it's hard to sell something that is the best kept secret.
In this respect, we are working to dramatically overhaul our product descriptions and hang tags and how our DTC and wholesale sales forces are equipped to tout our product attributes. When athletes research Under Armour online or choose our products in a store, it should be clear to them by answering three simple questions, what it is, what it does and how it will make them better. Going forward, a simplistic three-point description of every UA product will be found consistently on our hang tags, point of purchase and website and conveyed by our associates on the floor. Brands are built with consistency. So make no mistake, we'll be strengthening our brand in this chapter.
That's not to say we haven't succeeded in marrying these efforts well in our recent past. When our product and marketing engines are aligned, showcasing product innovations with relevant storytelling, we've seen success in driving positive demand. A recent example can be seen at this year's Boston Marathon where UA athlete, Sharon Lokedi, took her third podium wearing our $250 Velociti Elite 2 Running Shoe, a trend we think will continue.
In preparation for the race, we immersed media and influencers and run experience and flooded our social media channels. Of course, there are other examples where we've been running this consistent play and have shown up proudly like our SlipSpeed launch and ongoing business there, our Unstoppable Pants and the surrounding collections that make Unstoppable a force for UA and our women's Meridian products where we are building trust with her. We are at our best when we're on offense. We must harness and homogenize this approach more effectively across all consumer connections.
Strong product team also requires strategic and operational collaboration with marketing to bring it all together. As mentioned on our last call, we've consolidated our global and North American marketing teams to bring a cleaner, more creative, integrated approach for faster decision-making and improved oversight into our spending and the returns we get for our investments there. Concerning our search for a new Chief Marketing Officer, I pressed pause while assuming the CEO role, and we'll be re-engaging that search immediately as we have a strong candidate pool and expect to have this chair filled soon.
Over the past four plus years, the company has become overly siloed and bureaucratic with competing internal agendas. We now have just one agenda as I'm describing it to you today. And communicating that to internal and external stakeholders is my immediate priority to build complete alignment.
Given these changes and iterative evolutions, we are working quickly to disband these silos and drive a more productive, collaborative culture. And this brings us to the second priority within our refined Protect This House strategy, running smarter plays, where we will simplify our operating model, modernize our supply chain and planning process and optimize our cost base to drive greater efficiencies.
To begin with, on a broad basis, we are simply doing too much stuff. There are too many products, too many initiatives, too much of too much. To reconstitute this brand, we must be highly focused and prioritize what needs to get done so that our teams know exactly what to do with a clear definition of success for them. As such, we are going to streamline across the organization. We will reduce the number of agencies, consultants and outside experts across the brand, which has reached unacceptable levels, especially in functions like marketing. We are building the talent, and they will now be empowered to run with their expertise and ability to drive our vision. We are also working to reduce the number of reports generated, unnecessary meetings and even the number of fabrics for our designers to choose from. In the overall bureaucracy that occurs when the business scales for being small to midsize to large, in short, we will be much more intentional everywhere. This includes activities that may have had a reason to exist at one time or another but no longer serve the brand. We're now prioritizing to ensure that anything we do or have our teams doing are only the activities that directly contribute in one way or another to our simplest of job descriptions, selling more shirts and shoes.
We've talked about being consumer focused for years but never entirely organized our business as such. To enable consistency, we're employing a category portfolio structure designed to unlock the team's full potential, particularly how the work aligns with our talent, speed of delivery and the execution required to put us on a growth path. Under this structure, our product, marketing and sales organizations will work as a collective to develop singular go-to-market strategy that allow each category to obsess the needs of our athletes throughout their journey under the broader UA innovation brand umbrella. We'll be driven by technology and design, enabling us to lead our categories with clear intent and a sharper point of view. This structure will also provide greater visibility in the category and product performance, which is critical to developing greater agility and adaptation.
On the product side, there was a critical piece of the puzzle that have been missing to power up this strategy. So a few weeks back, we announced that Yuron White, a 25-year sports industry veteran, had joined UA as our Senior Vice President of Sportswear, Running, Basketball, Curry and Collaborations. Complementing our legacy world-class experts already here, Yuron brings decades of game-changing product strategies, operational excellence and talent development. So we're excited to have him joining Yassine's team to lead those critical categories for the brand.
As an important companion to our changes in product and marketing, we'll also improve our supply chain, end-to-end planning capabilities, both of which offer significant opportunity to drive operating efficiencies within our cost of goods sold line. These initiatives, along with proactive moves to reduce discounting and promotions and a reduction in SKUs gives us great confidence in our ability to improve ASPs and gross margin in the years ahead. Being a better, more responsive organization is a big part of our strategy. The natural question is, can we improve our cost structure while continuing to make the investments necessary to reconstitute our brand?
Last year, we told you that we expected SG&A to be flat to up slightly. And with today's print, we came in better, even though our revenue was lower than our original expectation. To get there, we pushed hard on headcount and marketing, reduced travel and meeting cost and tightened our overall SG&A. This prudence will certainly continue as we move forward.
In fiscal '25, we will optimize our SG&A cost base to ensure efficient and effective spending that supports the long-term health of the Under Armour brand. Of course, it's more than just cost cutting. This year, we will be even more intentional, identifying ways to streamline and re-align the entire organization globally to set us up for an even more productive P&L once revenue inflects more positively.
Now we move to our third priority, elevating consumer experiences, which is critical to becoming more premium in building better connections with athletes. In this case, we must drive excellence in our retail, e-commerce and wholesale businesses, aligning with our Protect This House strategy. We must ensure that our efforts to deliver better products and storytelling enabled by a simplified operating model will manifest through deliberate merchandising strategies and thoughtful distribution choices, particularly here in North America.
And this brings me to probably our most important question to answer. So what is happening in North America? The anticipated North America decline in fiscal '25 is driven by three factors. The first is sector-specific. We're expecting lower wholesale revenue due to retailer cautiousness amid softer consumer demand in an intensely competitive environment. The second is specific to Under Armour as our softened brand and inconsistent execution were worsened by the impacts of the challenging retail environment over the past few years. The third is our proactive action to reset our business in our largest market by significantly reducing the discounting occurring with the brand, starting with our own DTC business. This reset begins through new leadership here in the Americas. Kara Trent, who is just a couple of months into the role, is a nine-year Under Armour veteran who most recently led our EMEA region, where she built an accretive brand and business strength over the last few years. She's a leader with a point of view and knows what winning looks like.
To arrest the slide in North America, Kara is bringing a strategy to simplify the business by focusing on three key areas: digital, team sports and our premium wholesale partners. Our e-commerce business has been overly dependent on promotions and is yet to be a flagship representation of a premium athletic brand. That said, our fiscal '25 outlook contemplates, among other actions, more than 50% fewer site-wide promotional days than last year and a reduction in the depth of discounts on the days that we do choose to promote. As consumers adjust to our new value proposition, these actions will weigh on our top line.
The digital goal is to transform our eCommerce business into a significantly more premium platform over the next 18 months. This includes improving our online merchandising, creating a more engaging brand-building environment that encourages our consumers through compelling products with a clear story of why it will make them better. This means more DTC exclusive products and utilizing our new six-month or 12-month speed-to-market process to deliver limited volume products that drive brand heat and help create more brand demand moments.
Further, we intend to reduce the number of made-for-outlet products on our website to drive a more premium assortment as well overall. So these actions will benefit us in creating a more elevated product offering and shopping experience for athletes over the long term. It also means harnessing the growing power of our U.S. loyalty program, UA Rewards, where we continue to see strong enrollment trends. With nearly 4 million members, we've engaged members with exclusive programs like a trip to the NBA All-Star game, an exclusive members-only product, including collabs with Logic and Justin Jefferson which sold out in just hours. Our members also continue to show a higher premium purchase frequency and revenue per member, so we're encouraged about what this can mean over time.
As a companion piece of this, as we improve our operating model and supply chain, we'll increase the awareness and velocity when we release new products, ensuring that newness is consistently associated with the brand, underscoring this concept of becoming a brand of launches, products that you never expected but could only be built by UA, telling a better story with fewer, more impactful products.
Shifting to our owned doors. Though a very small portion of North America's revenue today, our brand houses must become a premium showcase for the Under Armour brand. There is a significant opportunity to improve these stores, and we're working to create a more homogenous look and feel, curated with less product and more storytelling. We're piloting a new store concept now that we expect to test and learn from throughout fiscal '25. Our Factory House business must elevate the consumer experience by reducing unnecessary complexity. For example, in our 183 outlet doors in North America, we're over sorted across categories and have too many different floor sets. This compromises the clarity of experience for consumers when they walk through the door. And from an operational efficiency perspective, it's unacceptable, and we're correcting it with the right leadership now in place.
We'll also enact greater discipline and balance between our promotional activities and inventory management needs in our outlet stores. Discounting can drive revenue in the short term, but it's not good for gross margin, balancing market price algorithms and clearly can negatively impact brand perception. In tandem with optimizing our operations and logistics, we believe these actions should lead to higher store profitability, which will have a meaningful impact on our nearly $1 billion Factory House business.
Turning to North American wholesale. In my first month on the job, while I still have a few to meet with, I've had [Indecipherable] with several of our largest U.S. accounts, including DICK'S Sporting Goods, Academy Shields and more. And as a note, I'll be meeting with key franchise, retail and manufacturing partners when I travel to Europe and China before month's end. These interactions with our U.S. partners have been productive as to where we've been and where we are and encouraging as to where we expect to be once our product and marketing engines are re-optimized and firing on all cylinders.
Given product lead times, the critical mass of this renewed product vision will not be coming until fall/winter '25 with a build into subsequent seasons from there. So it will take some time for our North American wholesale business to inflect positively. We will be making meaningful progress until then. In the meantime, we're focusing on rebuilding high-quality relationships with our key retail partners. We are confident we'll represent Under Armour in a brand-right manner, especially in sporting goods and mall accounts. But this will only occur for us as long as we stay committed to being authentic in the team sports arena, which is critical for our success. And so we'll continue this focus through team outfitting on the field, court and pitch. This is our differentiator and reason for having a relationship with our targeted 16-year-old to 24-year-old varsity athlete.
Elevating our product offering from mostly good and distorting toward better and best level products are also critical enablers combined with inspirational storytelling and more joint marketing with our wholesale partners. We have opportunity to do much more with key accounts. But to do so, we need to drive our aligned product and marketing engines to differentiate our business and convince athletes and our customers to covet Under Armour. Simply put, we haven't been as consistent in giving athletes or retail customers a reason to buy our brand as robustly as possible.
As we execute our Protect This House strategy over the next 18 months, I'm confident this will set us on a path towards returning to growth in our critical North American market. We have the right formula for success and are driving forward with clarity and continuity of purpose. With our priority of reconstituting the brand in North America, it's important to explain the role that the international business plays in our go-forward strategy. The attention we are placing in the U.S. business is underscored by our 28 years of learning and understanding of brand management. Then in order to be strong abroad, we must be our strongest at home.
EMEA and APAC remain vital markets for Under Armour. And our brand is better positioned in these regions than in the U.S. today due to a history of channel discipline across our DTC and wholesale businesses. With consistently optimized brand activations, our expectation for a low single-digit revenue decline in our international business is partly due to more conservative consumer trends and ensuring that we don't erode brand equity by chasing lower-quality revenue.
In EMEA, there are signs of retail caution, particularly in the U.K., which is our largest market there, including softer wholesale outlooks and increasingly cautious consumer sentiment and macroeconomic uncertainty. Sensing that trend and maintaining discipline, we expect to grow faster in our DTC channels in the region, and we'll invest in eCommerce, processes and systems to support this growth.
In wholesale, we'll continue to focus our business on the right partners, working to manage the environment appropriately. There's even more significant long-term growth potential in APAC. Still in the near term, the environment remains materially promotional in China, Southeast Asia and Japan. So our focus is to grow carefully and productively while investing in key markets, balancing short-term performance with long-term brand affinity.
So we're not taking our eye off the ball in our international markets. We will focus on maintaining high-quality sales across all channels and protecting our premium brand positioning. Significantly, once we start to see a positive inflection in our largest and most profitable region of North America, more resources will be available to invest outside our home market to drive sustainable growth and profitability over the long term.
And with that, I'll hand it over to Dave to review our fourth quarter and fiscal '24 results, provide more color on our fiscal '25 outlook, and then I'm going to come back to close out our prepared remarks. Dave?
