Kevin Plank; President, Chief Executive Officer, Founder, Director, Brand Chief; Under Armour Inc
David Bergman; Chief Financial Officer; Under Armour Inc
Simeon Siegel; Analyst; BMO Capital Markets
Jay Sole; Analyst; UBS
Robert Drbul; Analyst; Guggenheim Securities
Samuel Poser; Analyst; Williams Trading LLC
James Duffy; Analyst; Stifel Nicolaus
Kelly Crago; Analyst; Citi
Laurent Vasilescu; Analyst; BNP Paribas Exane
Presentation
Operator
Good day, and welcome to the Under Armour third-quarter 2025 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 Investor Relations, Treasury and Corporate Development. Please go ahead.
Lance Allega
Good morning, and welcome to Under Armour's third-quarter fiscal 2025 earnings conference call. Today's event is being recorded for replay. Joining us on today's call are Under Armour President and CEO, Kevin Plank; and CFO, David Bergman. Our remarks today will include certain forward-looking statements that reflect Under Armour management's current view of our business as of February 6, 2025. These statements may include projections for our business in the present and future quarters and fiscal years. Forward-looking statements are not guarantees of future business performance and our actual results may differ materially from those expressed or implied in the views provided. Statements made are subject to risks and other uncertainties detailed in this morning's press release and documents filed regularly with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. Today's discussion may also include non-GAAP references. Under Armour believes these measures give investors a helpful perspective on underlying business trends. When applicable, these measures are reconciled to the most comparable US GAAP measures. Reconciliations, along with other pertinent information can be found in this morning's press release and at about.underarmour.com. With that, I will turn the call over to Kevin.
Kevin Plank
Thank you, Lance, and everyone joining us on this morning's call. Our fiscal third-quarter results exceeded expectations, driven by strong gross margin performance, with revenue also surpassing our forecast. With these results, I'm pleased we were able to raise our full-year outlook again, demonstrating that our strategy is to reposition the Under Armour brand are gaining traction. Much of the credit goes to our actions of reducing promotions and discounts in our e-commerce business, which has contributed nicely to improve gross margin this year. Key metric for our consumers value our brand and a core validation of the pricing power, we intend to increase and leverage over time as we work to improve the quality of our revenue from mostly good level product to more better and best level Under Armour that consumers will choose to buy. As discussed at our investor meeting in December, the idea of balance in our logo structure is fundamental to our ambition for the brand we are building and how we expect to run the business efficiently going forward. This will take time, but our strategy is sound and beginning to take root as each day we get stronger than the one before. Also at our investor meeting, we provided a comprehensive overview of our product, brand, and commercial strategies along with other key initiatives designed to enhance Under Armour's ability to achieve better long-term financial results, focusing on product, story, service and team. We are fully committed to these strategies, including launching an improved product lineup in fall/winter '25, establishing distinctive underdog news in our storytelling and implementing intentional disciplined marketplace management across our regions. Perhaps most importantly, we wanted you to meet our management team and experience their energy and dedication to this exceptional brand, clarifying where we are, where we're headed and how our leadership talent will drive our objectives. As a brand rooted in sports that creates solutions for athletes, our human connection and dedication to achieving challenging goals are in our DNA. Grounded and athletic performance, our sports house identity offers a significant advantage in our mission to reposition Under Armour. It is unique to only a handful of athletic brands which can outfit athletes on any field, court or pitch across virtually any athletic endeavor worldwide. However, sitting in a broader sports industry with multiple competitors, both bigger and smaller, we are fortunate to be bigger than the new trending brands, yet more agile than the [bigs], an aspect we plan to use to our advantage. This position provides us with an exceptional broad-based platform to speak directly to and create amazing products for our athletes. Our product machine is working as the first place I focused on when reassuming the CEO role last April, due to the 18-month lead times we have in our industry to build products for the market, it was imperative to get our product trajectory in the right direction as it takes the longest. Beginning with supporting leadership for Yassine as Chief Product Officer and the entire product organization from innovation through design, we have made significant progress in enhancing our athletic performance and new sportswear offerings, blending those elements of innovation, fabric and trim, thought leadership with aggressive, young, and fearless design. Highlight of the third quarter was the launch of the first signature shoe for Curry brand athlete, De'Aaron Fox, the Fox 1, designed to complement his speed and optimizes performance on the court, De'Aaron quickly showcase them, becoming only the third player in NBA history to score at least 109 points in two consecutive games for the Fox 1 debut. The shoe features some of the best innovations the Curry brand is known for, including our patented flow sold technology and is available exclusively through our DTC channels and at DICK'S Sporting Goods, a key retail partner we plan to win with through this next chapter. More on the footwear front, the spring/summer '25 season which kicks off with floor sets later this month, introduces Echo footwear, the latest version of our SlipSpeed platform. The Echo showcases new technology in an evolved design language from the original versions. After seeding it ahead of the upcoming NBA All-Star weekend, which will include a unique collaboration to be unveiled in limited payers for the launch. The initial buzz has started and we're eager to release the SlipSpeed Echo more broadly in the coming months. Additionally, on the apparel side, new better and best products are coming this season, including elevated offerings from our Unstoppable and Meridian collections, putting to test the underlying pricing power we intend to increasingly establish in the coming seasons. It is encouraging that these more premium level products have continued to perform well over the past several quarters. So we're building confidence that these offerings will help us achieve a better balance in our good, better, best product segmentation. Another solid proof point in our move toward a more meaningful sportswear presence in business is the success we saw with one of our premium fleece offerings, the $120 UA Icon Heavyweight Hoodie which has seen terrific sell-through, particularly traction with young athletes who we are actively reintroducing ourselves to. Our innovation capabilities consistently rank among the best in the industry. Recent examples include Women's Health Magazine naming the UA Infinity 2.0 High as the best high-impact sports bra in December. And Men's Health magazine, selecting the UA Project Rock BSR 4 shoes is the most versatile cross-training shoes for men. Not to mention the new suspension backpack we demonstrated at our investor meeting, which will hit stores this fall, built with our patent pending our atheletic strap and braking system, I got to tell you, it makes you feel like you're carrying half the weight, a great metaphor for the problems we hope to solve with every Under Armour product we build for our athletes to make you better. From an operational perspective, we continue to refine our focus through a streamlined creation, process assortment and merchandising strategy to achieve a more intentional product presentation for athletes and especially our retail partners. Leading this effort are initiatives to reduce SKUs across all assortments by 25%. In addition to the components that make up our products, like cutting footwear foams by about 50% to anchor around consistent underfoot cushioning across our charge HOVR and flow midsoles and narrowing our materials elaborate to those with volumes or multiple end uses that bring the best articulation of our fabric superiority and highest margins, all efforts to allow our designers to enhance efficiency and effectiveness in doing their work, effectively doing more with less. As we've previously discussed, we are transitioning from an apparel, footwear and accessory led operating model to a consumer-focused, category managed model that emphasizes singular accountability leadership in team sports, train, golf, basketball, run, sportswear, outdoor and other key sports that serve as authenticators in specific regions. This change will enable us to better understand and meet athletes' needs by enhancing strategic alignment across our product, marketing and commercial teams, driven by more direct financial accountability and clear definitions of each category's role in our overall go-to-market strategy. The brand operationally has relied on the process of the UA machine that had been built and running for us the past several years, but without enough clear individual accountability, I don't believe we've optimized our performance. So our new category-led operating model addresses this head on. Beginning with our people. This will mostly be a shift in what many of the roles our teammates are already responsible for as we are primarily reassigning existing talent into the category model with their refined responsibility. And as a result, bringing absolute clarity to what is expected of them and their respective teams each and every day as well as a clear definition of success. This, I believe, is the most fundamental key to unlocking the winning culture we expect and are establishing at Under Armour. As we transition to our new operating model this month, led by recently named Brand President, Eric Liedtke, we have a seasoned team ready to hit the ground running as we improve and perfect our processes over the coming seasons. Key to the benefit of what it will deliver for us is in Eric's new role leading for the brand, which now integrates product and story within the same go-to-market leadership and accountability. At Under Armour, our currency is product, and our voice is the compelling story that we tell about those amazing products. With our team now in place and running the 18-month product go-to-market, I am now turning our emphasis to layering excellent story into this machine, meaning exactly how we will market this brand. During our recent investor meeting, Eric outlined our goal of improving all aspects of marketing and brand strategy to foster a stronger connection with young team sport athletes. Put simply, we will stop asking them to buy our product through performance marketing, which has led to the promotions that have plagued our recent history. Instead, we'll focus on showing them why they should love our individual products and our brand. And as we get that right, they will then love to buy our great products. This is in flight. So our mission to capture the hearts and minds of young team sport athletes. We are dedicated to refining our messaging to bring this narrative to life in ways only Under Armour can as we remain fundamentally connected to the underdog mindset. The intense athlete who carries a chip on their shoulder, underwrite athlete eager to prove their worth and demonstrate their extraordinary potential to the world. So as we strive to forge deeper, more meaningful connections with consumers, our UA Next Global Grassroots Program focused on enhancing the next generation of athletes has become an essential platform for us. In November, building on our fall soccer or football brand activation in EMEA, we held a Paris experience, which featured Real Madrid Defender, Toni Rüdiger and Sacha Boey, a promising Defender from Bayern Munich. The event included a defensive master class highlighting our commitment to nurturing young football talent. As a crucial global authenticator, our athlete roster continues to grow, including the recent added Brazilian player, Douglas Costa, who plays for Sydney Football Club and Ferran Torres, a promising young Spanish talent from Barcelona FC. In January, we wrapped up the UA Next All-America Games in Orlando that were broadcast on ESPN. These are more than 130 of the nation's top high school football and volleyball players. To garner social media mind share, we had an impactful time with these alpha athletes introducing and getting reactions to products as well as significantly improving our digital presence with better engagement and views compared to the previous year. The way we communicate with our athletes begins with those at the tip of the spear will inform us as we continue to improve how we show up where our young athletes are already watching. Here are a few examples of just how we're doing that. In American football, (inaudible) walks are our catwalks. And with that, we had three great runway moments during the quarter. Starting with the Naval Academy, showcasing our beautifully designed Jolly Rogers uniforms, and the accompanying story video we made for the series as they beat Army in the 125th Army Navy game, followed by victory in the Armed Forces fall against Oklahoma achieving 10 wins for just a six-time in school history. We also renewed our partnership with the Naval Academy, the official outfitter of their 36 intercollegiate Varsity teams in a multiyear agreement, extending our relationship since 2014. Another longtime UA school Notre Dame had a remarkable journey to the college football playoff championship game, proudly wearing the fantastic ARMOR 037 jerseys, featuring our now iconic center neck logo or as we're calling this the balance UA logo position. Met all the excitement of the CFPs we engage with athletes and fans through a range of electrifying social activations that generate considerable buzz including teaming up with comedian and actor Shane Gillis in a spot called Shane's prayer for a noted an victory in the national championship game, which went viral on the Saturday morning before the game on Monday. This ability, and I should say agility for our team to quickly act within seven days finding the right collaboration for a unique brand expression, a prayer for the underdogs and executing this creative and clever lane for UA to play from. Getting to this moment required a lot of ingredients that needed to go right, like signing Notre Dame and even they're making it to this game. It is a type of energy and hype we expect to bring to the content we make with our $500 million marketing budget. And what you should expect from UA moving forward. This example of thoughtful culturally relevant collaboration will be our bar for marketing excellence. Also at the professional level, several of our NFL atheletes like Justin Jefferson, Zay Flowers, Kyle Hamilton had terrific promo level seasons, and we expect to build on our NFL roster going forward. This past quarter, we also emphasize our commitment to the growing women's basketball scene by partnering with the new unrivaled league as their official and exclusive uniform and Performance Outfitter, coupled with the strong starts to the women's college basketball season for many of our teams, including the University of South Carolina and Notre Dame currently ranked second and third in the AP Top 25, respectively. There's plenty to be excited about for the upcoming season. This brings us to our discussion at the investor meeting about a pivotal new chapter in our marketing strategy. Later this year, we plan to redeploy and centralize a significant amount of our existing marketing budget to fuel our most ambitious brand activation. This dynamic multiyear initiative represents a significant step forward in our marketing approach, specifically designed to resonate with athletes in their environments. Through this program, we'll establish a robust and engaging content platform that highlights our commitment to specialized media, showcases the incredible talents of athletes and teams, collaborates with influential creators and explores new verticals. This is not just an investment. It's our promise to connect authentically and elevate our brand like never before. And while underdog has been our muse to inspire our marketing message, it is not literal. But instead of spirit and grit DNA that makes you a unique amongst the other, we call them podium brands. Next, turning to service. Our strategy for reconstituting the Under Armour brand and strengthening our position has primarily focused on North America, our largest and most influential market. While this effort impacts the region's top line, we're confident that a more disciplined approach to marketplace management, including optimizing our promotional levels, refining our segmentation and enhancing our premium brand presentation will help restore brand strength in the long run. As such, we're now nine months into restoring health to our North American e-commerce business, with another quarter of fewer promotional days in shallower discount depths that reinforce our brand's value. Although this has impacted our top line as athletes embrace our evolving value proposition, and as you've heard me say pricing power, we're encouraged by the early signs of progress. Notably, we saw another quarter of average unit retail and average order value growth and continued improvement in our full price sales mix. In North American owned retail, we've only just started refining and optimizing the promotional strategies of our factory houses focusing on higher contribution margins from our stores, a strategy that will take even greater shape in fiscal year '26. Here, we're focused on changing this business's complexion and profitability, balancing our discounting inventory clearance strategies and adopting a tiered approach to define each store's role within a specific market. We've also reduced SKU assortments to clarify our offerings and increase depth in key products. In our full-price brand houses, we've also reduced SKUs and are making changes to create a more seamless shopping experience and a more premium connection with our athletes. In December, we moved into our impressive new sustainable headquarters and opened our flagship campus store here in Baltimore, and we're gaining valuable insights that will apply across our network of 200 stores here in North America and the nearly 2,000 stores that Under Armour has around the world. Additionally, loyalty is and will continue to be an even more significant driver of our DTC business, and we're excited to see ongoing growth in this area. During the quarter, we gained 4 million new members raising the North American total to 17 million, who consistently demonstrate higher repurchase rates and revenue per consumer than non-members. We believe this sector has immense untapped potential, so we will keep investing in enhancing our loyalty program in every market around the world. Ultimately, shifting the reason that athletes join our program from being primarily about price to a UA loyalty community that offers exclusivity and membership privileges amongst other things. In North American wholesale, we continue to navigate the effects of several years of elevated promotions and inconsistent execution have had on our order books. Nevertheless, our strategy is to reduce promotional activity in our e-commerce business are encouragingly reducing allowances and markdowns. While it's clear that's getting shelf space back, takes time, we're optimistic that as our product and marketing efforts gain momentum in the coming seasons, this channel will experience a really positive shift. As we move into EMEA, our best-performing region this year, we remain committed to maintaining the strength that we've built through disciplined decisions in product marketing and distribution. The environment in the region is somewhat tenuous, and we're focusing on working with the right partners to preserve our premium positioning. While keeping stability front and center, including protecting our market share and positioning in the UK will also carefully sequence our investments to encourage growth in places like Spain and lay the groundwork for future growth in France and Germany through channel and sports marketing investments, particularly in football. In our APAC business, we are addressing demand-related challenges arising from a competitive market, high inventory levels in consistent execution and macroeconomic factors resulting in increased discounting and returns and lower revenue. However, these challenges are similar to those that we face in EMEA and are currently managing in North America. So we will draw from these playbooks accordingly. The good news is that athletes think very highly of Under Armour throughout the region. We expect to maintain this premium perception. Last month during our trip to Tokyo Seoul in Shanghai, Dave, Eric and myself worked with our teams to analyze business dynamics and challenges. As a result, we're working to stabilize our trajectory there, strengthen our brand and restore our pricing power. In addition, we recently appointed a new head of APAC marketing and are focusing on brand investments, reducing promotional activities and enhancing our local-for-local approach. All of this product, story and service leads us to the realization that a well-coordinated team is essential at every level of the organization. With our transition to a centralized campus and the energy of our new sports house buildings, harnessing the strength collaboration and cultural benefits of 1,500-plus teammates working closely together is an energy that has been missing for several years. I truly believe this move will be crucial in revitalizing our culture enabling us to achieve better execution as we implement our strategies. Overall, it's wonderful to be in this new house. In closing, we feel optimistic about our progress on our ambitious journey to elevate the Under Armour brand. This transformation is not just about immediate gains, it's about creating lasting value for our shareholders and all stakeholders involved. We're dedicated to strengthening our brand with the understanding that this journey is not a sprint but a marathon that requires resilient and thoughtful strategy. We practice patients and careful planning with every step, ensuring every action is focused and intentional. Our unwavering commitment to our strategic playbook remains strong as we stay agile and opportunistic. And as someone who has led brand building before, I am excited about the similarities in the journey and equally as curious with that which requires new thinking. We are walking the floors, talking to our teams and our partners, assessing the environment, drawing up immediate action plans with the definitions of success providing the required resources of time, people and money, and then moving on to the next, one opportunity at a time, turning each obstacle into a stepping stone toward greater success. Putting this simply and just like our logo, we are targeting strength, stability and balance in every aspect of our great brand. More to come. And with that, I'll turn it over to Dave for further details on the results and our outlook.
David Bergman
Thanks, Kevin. Moving straight into our results. Our third quarter of fiscal '25 surpassed the outlook we provided in November, making this as the third time we've exceeded expectations this year. Revenue decline of 6% to $1.4 billion was better than our outlook of down approximately 10%. By region, North America experienced an 8% decline mainly due to a decrease in our DTC business. This was affected by lower eCommerce sales due to our proactive efforts to limit promotional activities. In wholesale, we faced reduced sales to the off-price channel, counterbalanced by a slight increase in full price sales. Revenue in EMEA increased by 5% or 3% on a currency-neutral basis, with growth in our DTC and full-price wholesale business, partially offset by a decline in third-party off-price sales. APAC revenue fell by 5% or 6% on a currency-neutral basis. As discussed, the region's highly competitive and promotional landscape contributed to the mounting pressure. In Latin America, revenue declined by 16% or 9% on a currency-neutral basis, mainly due to lower distributor sales. From a channel perspective, wholesale revenue was down 1% as lower sales in the off-price channel were partially offset by growth in our distributor businesses and flat full-price results during the quarter. Direct-to-consumer revenue declined by 9% mainly due to a 20% decrease in e-commerce, which was primarily driven by reduced promotions and discounts as we expanded our premium online presence. Sales at our owned and operated retail stores fell by 1% this quarter. And licensing was down 18%, primarily due to the decision to bring our socks business in-house last March. By product type, apparel revenue was down 5% softness across most categories in the quarter, partially offset by strength in outdoor and golf. Footwear declined by 9%, with most categories decreasing. And our accessories business was up 6% in the quarter, with strength in train and run, partially driven by bringing our socks business in-house. Our third quarter gross margin was up 240 basis points year-over-year to 47.5%. This increase was driven by 100 basis points of supply chain benefits, mainly driven by lower freight and product costs, 100 basis points of pricing benefits from lower discounting and promotions in our DTC business, reduced markdowns in the wholesale channel and slightly more favorable pricing in the off-price channel. 35 basis points gained from favorable foreign currency impacts and about 10 basis points of benefits from a favorable product mix. 3 main factors drove our gross margin beat relative to the outlook we gave back in November. The first and most significant is related to supply chain benefits, led by additional product cost savings compared to our plan and lower freight costs, primarily freight to our customers. Second, we experienced some unplanned benefits from changes in foreign currency. Third, lower than planned sales to the off-price channel gave us a mix benefit. Next, SG&A expenses rose 6% to $638 million in the third quarter. After the complete exit from our previous headquarters campus and the related valuation review, we recorded a $28 million impairment to adjust our carrying value. This amount is not included in our fiscal 2025 restructuring plan. Excluding this $28 million impairment and around $4 million in net transformation expenses from our fiscal 2025 restructuring plan, adjusted SG&A expenses increased 5% to $606 million, consistent with the outlook we provided in November. Higher marketing expenses mainly drove the increase as our brand investments are predominantly focused in the second half of our fiscal year, along with higher incentive compensation and information technology expenses. These increases were partially offset by savings from ongoing cost management efforts, including the effects of earlier headcount reductions. Next, we recognized $14 million in restructuring charges during the third quarter. Along with the $4 million in transformation expenses recorded in SG&A, this brings the total to $18 million in restructuring charges and related expenses for the quarter. Year-to-date, we have recorded $57 million in charges and expenses under our fiscal 2025 restructuring plan. $40 million were cash related while $17 million were noncash related. We still expect total restructuring charges and related expenses to reach $140 million to $160 million, with slightly more than half anticipated to occur in fiscal '25 and the remainder in fiscal '26. Starting profitability. Our operating income for the third quarter was $14 million. Excluding the impairment charge, transformation expenses and restructuring charges, our adjusted operating income reached $60 million. Taking this to the bottom line, our reported diluted earnings per share broke even while our adjusted diluted earnings per share was $0.08 for the quarter. On our balance sheet, inventory was flat at $1.1 billion compared to last year, and our expectation that the March 31 balance will be roughly in line with the end of fiscal '24 remains unchanged. Our cash balance at the end of the third quarter was $727 million, and we did not utilize our $1.1 billion revolving credit facility. Lastly, we repurchased $25 million of our Class C stock during the quarter, retiring 2.8 million shares. Turning next to our fiscal '25 outlook, where we are raising expectations for most line items. Given our slightly better top line performance than our plan, we now expect full year revenue to decline at a approximately 10% instead of the previously expected low double-digit contraction. In addition, our outlook for North American revenue has also improved slightly as we now foresee a decline of 12% to 13% versus the previous expectation of down 14% to 16%. Our expectations for flat revenue in EMEA remain unchanged. However, due to tougher conditions in APAC, we now expect revenue in the region to decrease at a low teen percentage rate compared to our prior expectation of a high single-digit decline. Regarding gross margin, where we've seen the most significant outperformance this year. we have updated our outlook to now reflect an improvement of approximately 160 basis points, an increase from our previous improvement range of 125 to 150 basis points. The key factors contributing to this raise for the full year include supply chain tailwinds such as lower freight and product costs and reduced promotional and discounting activities in our DTC business. For SG&A, excluding this year's litigation reserve expense, litigation-related insurance recoveries, impairment charges and estimated transformational expenses associated with our restructuring plan, adjusted SG&A is expected to decrease at a low single-digit rate. This reflects a modest increase over our previous estimate as we are reinvesting part of our revenue and gross margin overdrive into brand-building initiatives and operational improvements. These updates increase our adjusted operating income outlook for the year by approximately $15 million at the midpoint, bringing our improved outlook to $185 million to $195 million. When factoring this into the bottom line, we expect adjusted diluted earnings per share to be in the range of $0.28 to $0.30, reflecting an increase of $0.03 at the midpoint compared to our previous outlook. Now Keep in mind that when we present our outlook back in November, we mentioned that our fourth quarter would encounter the most headwinds of the year. Primary factors behind the pressure in the fourth quarter include our spring/summer '25 order book, Softness in our APAC business, as we detailed earlier, a more challenging North American factory house comp due to high promotions in last year's fourth quarter and additional foreign currency headwinds. Before concluding, I want to address the potential increase in US tariffs on imported goods from China, Mexico and Canada proposed earlier this week. It's important to note that Under Armour sources approximately 3% of its goods imported into the US from China and even less from Mexico, and we have no manufacturing relationships in Canada. Given these facts, the current tariffs proposals are not expected to impact our business significantly. However, we will stay vigilant. And if these parameters change or additional countries are included in this tariff program, we will promptly reassess accordingly. With that said, in closing, as we enter the final quarter of fiscal '25, a transformative year for our business and our brand, we're pleased to realize some signs of improvement in our P&L, including meaningful gross margin expansion. And while still not quite a year into this journey, with the strong alignment and commitment from our global team, increased prioritization and accountability in our evolving operating model and a focused approach to marketplace management, we see tremendous potential in the strategies we have in place to strengthen Under Armour's brand positioning, and ultimately affords an improved growth trajectory in the long term. Now we'll open the call for questions. Operator?
Question and Answer Session
Operator
(Operator Instructions) Simeon Siegel, BMO Capital Markets.
Simeon Siegel
Congrats on the ongoing progress. So Kevin, as you enter this new chapter of exciting marketing and product, could you just elaborate a little bit on how approach balancing telling the powerful story while still holding on to the intention to achieve more by doing less. And then not sure if this one's for you or for Dave. Great to see the DTC promotional discipline. I guess at this point, any way to help contextualize just frame for us what percent of eCommerce is still on the discounts that you might like to pull back? Any thoughts on time line order of magnitude of the remaining D2C reset that you're aiming for?
Kevin Plank
Thanks, Simeon. I think achieving more by doing less, it's sort of become a broader metric at the company where this growth by constraint model is something where we've found opportunities, as we've mentioned in our materials library as I just mentioned on the call about our footwear foams, but it's really everything. It's a greater reliance as well as empowering the team, which I think speaks to the new operating model that we're putting in place of creating greater individual accountability. And what that means is we're looking for the hands that we can high five. So we have the ability to be agile and react to like what -- I think the way that we reacted in the national championship with one of our games with Notre Dame. So I feel like we've done a good job being able to utilize the resources that we have to figure out how we can do better. So this idea of selling a whole lot a whole lot more of a whole lot less product, means just being a lot more intentional as a brand. I feel like we've had those points where the merchandising strategy we've taken has allowed us to proliferate maybe more than we should. But I believe that bringing great items of products that will blow consumers' minds like the new SlipSpeed Echo, we'll be launching it All-Star weekend in a couple of weeks and some of the other innovations that you've seen from us. So I believe that we're -- it's a mindset as much as anything else is really embracing and leaning into this new operating model, moving into this new building, it feels like the ability for us to start with a really clean canvas of the way that we're approaching the business going forward.
David Bergman
And Simeon, this is Dave. On the e-commerce discounting, I would say that we took some big steps forward with North America in fiscal '25, and we're really excited about the progress there. I would say that, that play isn't completely finished. We don't really disclose the percentage change in mix, but we still have a little further to go. So we still have more work to do, but we made a really good step forward there. EMEA, we've already done a pretty good spot there, but we're even leaning in a little bit further there. And then coming off our trip to APAC, there's some work we want to do there as well kind of on the same front. So big strides forward, but we still have a little bit more work to do on that front, and we're going to keep chipping away at it.
Operator
Jay Sole, UBS.
Jay Sole
Two questions for me. First, Kevin, you mentioned the brand will inflect before the business does. Are you beginning to see results from your brand strengthening strategies? If not, when do you anticipate this change will start? And then secondly, what are you seeing in APAC? What's changed? How much is due to macro factors and how much is specific to Under Armour?
Kevin Plank
Yes. Thanks, Jay. I think as I mentioned at the investor meeting that we had, the first proof point to the brand inflecting before the business does is the mouth that our phone is ringing. It's number one, the team that we're able to attract that you see with the talent that we're being able to bring on board and also the talent that is choosing and saying, I see the future, and I believe in what we're doing. But there's this energy that is building within our walls right now, and there's a sense of what's happening in Baltimore. And that's just -- of course, our own retail partners, and they've been with us for a long time, but frankly, some of the new boutiques that are calling us and some of the specialized products that we're now having the ability to build on. I referenced this term pricing power a few times because I think it's one of the things that we're really ambitious of building toward. And it basically means the consumer stops looking and buying us based off strictly price. There are those commodity-like items that maybe become more mainstream for people that -- it just needs to have that Under Armour edge into it that there is something special. There's something different. There's a superpower inside that makes it UA. And so we want to be able to drive that. The consumer is not looking and it will help us on our margin side as we target continue to grow as we've said in this period of time, gross margin is a great indicator for us, and we're proud of some of the work we've been able to do there. But there's a lot more for us to do and a lot more opportunity for us in that respect. Regarding APAC, I think we had a really solid trip over there with Dave and myself. Being on the ground in a day or two day -- a couple of days in Tokyo a couple of days in Korea, several days in Shanghai. The one thing about this business as we look at right now, it's not that large of a business, meaning it's only about $800 million of what we're doing. And frankly, we've been able to run this play before of what we've I wouldn't say completed, but we're toward the later stages of it in EMEA. And frankly, what we've been implementing here, particularly through some of the e-commerce deliverables that we've had here in North America that have been really one of the best indicators that's driving gross margin for us this time. But there's macro issues or things that lead to traffic and all other things, but there's people that are winning in this market, and we should be winning in that market as well. And maybe I can just lay out the infrastructure, the offices, the people that we have in place, like it's all there. The pipes are laid. We just have to put great product and great story through those pipes. We need to make sure we get really firm with our direction. And I think, again, driving that pricing power there is something that will really help us. So leadership horsepower is one thing were to make sure we're putting the right resources around that time, people and money, but it's all within the budgets that we have now and just running this play that, we've been fortunate to have run before and seen some success. And so that's not a guarantee, but we feel pretty good about it. But APAC has our full attention at this moment.
Operator
Bob Drbul, Guggenheim.
Robert Drbul
Kevin, just on North America, in your view, how is the North America reset working? And do you expect North America to grow in FY26?
Kevin Plank
Thank you, Bob. We're in a better position now than we've been in years. As the turn has begun to start for us with reality like reducing promotions, as you've seen us do in the channels that we can control. But there's plenty of opportunity for us to be able to get after. We're not going to unlock the bottom-line opportunity really with this company until we begin to grow. And so that's where we're putting ourselves and getting ourselves aligned around that. And we're doing the work to make the turn, but it's going to take time. The brand-new product engine that will begin to pay off as we've circled even when I started last April in fall '25 as we've said, it's perfect, but it will be a continuous work in process, and we'll get better and better each season. And as we lay in the category management led approach, that's something that will help us. And I just want to be clear, is that I know there's been dialogue about what we should be doing with the brand and being smaller and being more profitable is that double-digit operating margins are on our mind, and that's probably the definition of success that we would circle and say, that's when we're beginning to win. But I believe that needs to happen from a growth position and putting ourselves in that position. So taking some of this pain right now of reducing revenues and some of that top line that we've taken down, I think it will prove prudent to us and really pay off in the long run because the test that we've had, and again, just controlling that eCommerce channel has been really helpful for us. And so as this turn begins to happen, I want to start with our team believes, we believe and we'll have much more detail on that on the May call as we start thinking about driving one day, one quarter, one year at a time.
Robert Drbul
Great. And Kevin, you talked about the sports marketing, some of your successes, Notre Dame football, South Carolina, women's basketball, you have Juan Soto. And now that he's with the real pain, do you have any plans to focus on him a bit more in the coming months and quarters?
Kevin Plank
Oh my God, I love these softballs. I think when you take the wines, that's where we're just looking at this like it's our own wine seller of these beautiful assets that we have down there. And I feel like we haven't done a good job telling those stories. And that's why being more intentional. And I touched on the Notre Dame thing in my notes in an earlier question, but I've got -- the way that we've looked at marketing because we have a lineup in assets on the sports marketing side that are really unmatched. And whether it's attracting high school football, it's IMG Academy, whether it's just collegiate just Notre Dame. Those two schools alone could authenticate us in both collegiate and high school. But I feel like is a brand we've been guilty of having a $500 million budget that sure doesn't feel like we're spending that much money. So we're going to change that perspective. And it's already started. And I think what we did with Notre Dame with that collaboration involving so many aspects, including the Catholic Church, we had number one, the right asset in Notre Dame. We have the right sports moment in College Football's National Championship of they're even getting to that game. They're culturally relevant talent by bringing in Shane Gillis and frankly, pulling this off in seven days of knowing that they were going to be there, and really kudos to our team of having the agility to create such a clever activation for us. It is the only money that we effectively spent in this thing was the production time is we posted on YouTube a couple of days before the game and allowed the Internet buzz to take over and it went viral for us. So today's marketing is about culturally relevant content, which is where we're focused. And then making sure that there's a bar and a level to the content that we're creating and articulating and talking about then, so does the Bryce Harper, the Bobby Witt Jr. that we have in just our baseball roster who I say that the Zay Flowers, Justin Jefferson, the Jordan speaks, we just have -- we have assets, I think, at every level. And so doing a better job a more articulated job of telling stories about them and taking credit for it is really, really important. And the last thing I'd say about it is making sure that when we are talking about them, we're showing up where they present. I think we've gotten caught up in some of what traditional marketing has been. And we'd rather go start telling our stories of places where our young kid is already watching like YouTube and TikTok and Snapchat, et cetera. So -- we're in the process. We're excited about the ability that Eric has done a really good job of carving a substantial portion of our marketing budget, and we can really begin to tell our story and tell the story about those incredible athletes we have as well. I didn't even mention Curry with that, so.
Operator
Sam Poser, Williams Trading.
Samuel Poser
I have a couple. You mentioned that the -- in the 4Q guide that the part of the headwind was the order book. Can you just go into a little more detail there? And then maybe you can discuss what you're seeing. You also talked about the phone ringing a little more. Can you talk a little bit about that? And then I've got something else as well.
David Bergman
Yes, Sam, this is Dave. Relative to Q4 and kind of what we're talking about there, we had mentioned previously on the last call or two, around a little bit softer order book as we thought about finishing out the year. And that's, again, what we're still seeing. I think some of the newer pressure for Q4 is foreign currency is going to be what we see is going to be a little bit tougher on us in Q4 than we originally expected. And then also coming off our trip to APAC, there are some building pressures there that we need to address, and that's going to pressure Q4 a little bit more. So we're excited about the progress we're making in North America and being able to improve that outlook a little bit. EMEA is holding strong and in a great spot from a brand perspective. APAC needs a little bit more of our attention to Kevin's point, and part of that is kind of factored into that Q4 outlook.
Kevin Plank
Sam, do you want to pile on there?
Samuel Poser
All the way.
Kevin Plank
You got it. So you've seen just celebrated his one-year anniversary at the brand. Barbados is not much further in front of that. You're on less than a year. But I've got to tell you, we've been out with the fall '25 just showing what we have out there. And there's a general sense of excitement the first season, and I just want to emphasize, it's going to be the first season of many that will continue to get better and better. And as we be able to roll in the new category management, which is rolling out this this month and into March. We don't think it's a really sort of high-risk operational push for the company. We think that this is people doing job that they've done before. We're going to build off a fall/winter '25 into '26 and beyond and start getting some momentum. But we've been getting some of the calls from the boutique players and no, we're not going to hand out names there just yet, but there's a lot of general excitement about what we're doing of Under Armour truly getting it. There's a clear difference in the design language style and more and it takes a little time to get back self-space, but I think people are now looking at us in that light is that we're heading in the right direction for that to be the case. And we want to be thoughtful about where we're selling. As I said, we're going to be opening accounts in '25, but primarily boutique accounts. And -- the one thing also I'd emphasize with this is, yes, we've got some great new sportswear and collaborations that you'll hear about and see from us, but also our in-line products, especially our largest volume products. I think it's one of the most important messages of what we've done with things like our assert, which is our highest volume or one of our highest volume shoes that we have, and we've taken our best designers and put them on some of our lower pricing products, and so we can get that consumer because just because it's not $150 shoe doesn't mean it doesn't deserve to look great. And so we're really excited about some of the updates that will come across there. But more to come and excited to show you that the forwarder book starts to take shape.
Samuel Poser
And then I mean, two other things. One, you sound like compared to -- before you took your leave of -- in your last in, you sound a lot more just as energized, but you had a lot more patient now than you did then. And that this is going to take time. You just didn't seem to have that kind of patients in the past? And then secondly, one of your large more moderate accounts may appear to be teetering a bit. In the blesses more category, could that end up being a good thing for you over time?
Kevin Plank
Yes. I think -- well, thank you first on the -- we're trying to -- hopefully, we can apply a little bit of Wizard to this chapter because we do have the benefits of -- we'll celebrate 30 years in this industry in the coming months, and we've just been doing this a long time. So we hope to apply all those lessons learned and battle scars and everything else for the better of this company. But we've got a good shot. As I said, I believe that we want to show up where the consumer wants us. There's an opportunity in the elasticity, I believe that we have in this industry is great, and it doesn't mean that you -- but you have to be in balance. And so that's why, as we've said, we're not looking to compromise the good, better, best level of products or distribution of what we're doing. We think it's important to maintain presence in all three. We just haven't maintained anywhere near enough presence in the better or best categories. And so be looking for accounts that serve that mission. We'll be delivering products that serve that mission and we'll be telling stories that serve that mission on our terrific athletes. And so it needs to be comprehensive and cohesive and we feel like we've got a pretty good plan. So I just wish everything could go faster. So hardest thing about this industry is that 18 months to build products or make sure sort and it should just happen faster. So we're working on our agility there as well. We talked about our faster speed to market programs we have, but it's just going to require a little bit of patience. So we're in the fight.
Samuel Poser
And keep taking deep breath, Kevin.
Kevin Plank
I do that thing with a yoga structure puts the fingers on the back here neck and tells you to relax. So we're working on it. We're working on it.
Operator
Jim Duffy, Stifel.
James Duffy
Dave, I want to start on inventory clearance levels versus your expectations. So we interpret the lift or gross margin guidance as an indication you're better positioned here than you might have anticipated coming into the fourth quarter?
David Bergman
Yeah. I would say that our third-party off-price is obviously a channel that we use to clear out older inventory. We've always done that. We've really done a great job of managing that down into that kind of 3%, 4% range of revenue over the last few years. We're probably running on the lower end of that right now. So we are fairly clean with our inventory, which we're excited about. Q3, we literally just didn't have the ability to get some of that out the door. Some of that will go out in Q4. So it's a little bit of a timing. But in general, we're continuing to really watch that and manage that well in the combined efforts of our outlet stores and also the off-price channel. And then going forward, we're putting a lot of investment into improving our end-to-end planning, which should get our inventory buying even tighter. So hoping that it continues to improve as we step forward.
James Duffy
Okay. And then Kevin, highs in the investment community are on site lines to revenue inflection. And it sounds like you're not really prepared to talk about the order book into next year. I'm curious, what can you say about timing of marketing spend across fiscal '26. Should we expect it to be linear with the prior year? Or do you see the marketing spend more back half weighted as some of the newness begins to flow in? And do you expect to emphasize the market in coincidental with that newness flowing into the marketplace?
Kevin Plank
I think, Jim, we're going to be opportunistic. The best thing about like what happened -- the Notre Dame example, I keep pointing to that metaphor because I think it's just a great example of the amount of time it takes to. We've been in that partnership or 11 years of getting them in this game, but then being -- having the ability to be agile when it comes. So we're going to lay down. We've got a big go-to market. We're just going to make sure that the go-to-market is improved and it's doing a better job articulating like what makes our product different, what makes us special. I think that's something about UA that I don't believe that we've got enough. I think people sort of see us or lump us with a different group of people, which is why we tried to articulating the sports house measures, which is why we talk about the podium brands and it's resigning a naval academy that has 36 intercollegiate sports, there's just not a lot of brands that could do that. And I think what makes us really different is this from a product standpoint is that we have the best thought leaders of fabric innovation in future view. Like we've just been doing it a really long time. And I think that we're head and shoulders above others. The understanding of athletes problems, how we apply them, the expertise at the high school collegian professional level, and then the ability to authenticate that by testing our products out on the best athletes in the world from the curries and specs and have the IMG's Notre Dame, South Carolina women's basketball, et cetera. We've just got this great variety, including our European football players that we have. Like there's just a something that makes this brand different. The way that we'll spend money, though, we'll have a -- we'll have our go to market. We'll have our plans, but we're going to make sure that agility and how we can actually touch, I think, the vein of viral and social media and nonlinear media in all ways, I think it will be a part of the plan, but then the ability for us to react when we get a chance.
David Bergman
And Jim, this is Dave. I'd just add in that Eric, not being here too long. He's obviously digging in deep and looking to reprioritize our marketing in a different way. But also, we've hired incredible new talent in addition to Eric. We've got a new head of marketing in APAC now, we also have a new lead of marketing here in Americas. So Eric, working with them and the rest of our marketing team, there's still work to be done on exactly how we want to run some of these new plays. And so we'll get into more of that detail and also more of the kind of timing aspects of it when we get into our May call, but we're excited about what that team is working on.
Kevin Plank
And youthful, let me just leave that last thing. It's just youthful, I think, is really important and being an expert being the father of a 21-year-old son, an 18-year-old daughter, they don't wear Under Armour because that works there. And so we get this great line of sight, and we use every bit of insights in the smart, but also bringing some of that youthful talent here. So Dave mentioned our new Head of SVP of Brand Marketing here. on the Americas working with Kara Trent. And so we've got talent that's close to the market that knows how this kid is working and shopping and you're going to see us be a lot more on point in the future.
Operator
Paul Lejuez.
Kelly Crago
This is Kelly on for Paul. Great to see that the top line beat in North America seems to have come from the full price wholesale channel. Could you elaborate there on what drove the upside? Was it stronger reorders, solid new product? And then just want to clarify an earlier comment on North America wholesale. Do you still see areas of sort of lower quality distribution where you may be relying too much on promotions that you plan to exit in F '26? And how do you view your shelf space in existing distribution? Could that be another source of pressure in F '26? And I just have one follow-up.
David Bergman
Okay. Yes, Kelly, this is Dave. I would say relative to the North America overdrive, that's really related to a couple of things. Most of it is within our DTC business. And if you think about it, going into Q -- our fiscal Q3, which is holiday, it's a big e-com big DTC quarter, and quite frankly, we were running a very different play than we ran a year ago. We're stepping off a lot of the deeper promotions, et cetera. So we were a little bit more cautious in our planning as we stepped into Q3 in North America, just knowing that we were running a different play and we were testing a little bit. We wanted to make sure that we could stay nimble. And positively, we were able to hold and exceed that top line while still running the decreased promotional play. So that was really what drove a lot of the favorability in North America for Q3. And then when we think about distribution and going forward, as Kevin mentioned earlier, similar to our product where we're going to have good or better, best, we also have account structures that are somewhat that way as well. And we're going to continue to lean in heavily on the better and best in trying to identify new accounts and bringing those to the table that are right for the brand just as we're trying to lean in more on the better and best product. But as Kevin also mentioned, the good level, we have a lot of great accounts. And we got to be able to be there where the consumers are, and there's a lot of consumers there as well. So we're not necessarily looking to decrease where our distribution is but we're definitely looking for opportunities in that better and best area and more boutiques and premium touch points for the consumer.
Kelly Crago
Got it. And then just secondly, on SG&A, it sounds like marketing investments are going to ramp up to support future growth. How should we view the G&A bucket? Are there still more savings to be realized to offset some of these consumer-facing investments?
David Bergman
Yes. I mean, obviously, there's been a lot of focus on our SG&A and our cost structure, and we've kind of worked it down to a pretty reasonable operating level. And as we're working through the restructuring, there's still more of that work to do. And some of those actions, like if you think about consolidating our distribution facilities in the US, and we've announced that before, that takes time to work through. So the benefit of that is going to be more kind of tail end of fiscal '26 and then fiscal '27 full year and beyond. So some of those examples will take a little bit longer to kind of see that SG&A leverage from those. But we're continuing to reprioritize as well to make sure that we're fueling the brand in this kind of reset period that we're working through. We'll keep working with that.
Operator
Laurent Vasilescu.
Laurent Vasilescu
I wanted to ask, Kevin, at the Investor Day, you showcased a lot of great footwear product. I know you're not prepared to comment about order books per se, but can you maybe share what you're hearing from your retailers' reception there? And then following up on Sam's question is talking about teetering of a retailer. Is it fair to assume that Kohl's is maybe a mid- to high single-digit percentage of sales, just so we can kind of pencil that in, that would be very helpful for us. And then I've got a follow-up question.
Kevin Plank
Thank you, Laurent. I believe on the product side, we've really taken some significant strides. You've seen in your own showcased some terrific product at the investor meeting. So for those that have a chance to see I think that's something which is tremendously exciting for us. I'm getting some feedback.
Lance Allega
Laurent, you might have to go on mute.
Kevin Plank
The first thing to launch for us that we pulled forward this is our SlipSpeed Echo. We'll be debuting this at All-Star Weekend. It's got a collaboration tie around it. It's Step Curry hosting All-Star Weekend in San Francisco. So it will be a terrific event for us. And again, it's a platform that we believe is something we can build into and around I mentioned, and with that, we've got some -- the Curry 12 continues to perform for us. But looking at steps business differently. We had a chance to spend some time with Stefan and San Francisco and just talking about this really is an underserved business, meaning that we can just do a lot more with it, especially in Asia, and then we did it right on our way out to Asia. We stop there and have the ability just to think about it and see it through that lens. But he's is a cultural icon that is transcended being just an athlete. That's something I don't believe that we have leverage as hard as we can. So there's a lot of opportunity within the Curry brand and then just the Under Armour brand itself is that you took a look at some of the product that you've seen and team have coming, and it's incredibly exciting. So beginning with Echo, but those will hit this fall. I think our retailers, we've been excited about the receptions from JDs and from DSG and some of our traditional retail, and they want us to bring -- the market has changed and the world is not looking to replace $150 or $160 shoes with $110 or $120 shoes. So that pushes us as well, which really leads into our pricing power. So I believe that price-to-value ratio, that relationship is something that we think is continues to get stronger and stronger for the brand to give the consumer the reason to buy. And again, to be young with that, which is why I spoke about things like that Heavyweight Iconic Hoodie that we've been selling at $120 and just watching the sort of the reaction of the demographic that comes from it. So -- more to come, and we're excited to show you that new products shortly.
David Bergman
And Laurent, I know you had the question on our Kohl's business as well. And again, we enjoy working with Kohl's. It's a lot of great touch points for female consumers and also from a unit consumer perspective. So we're continuing to work well with that business. As a percentage of revenues, we don't really disclose individual accounts, but what I can tell you is none of our accounts get anywhere close to 10% of our revenue mix. So in general, we're not anywhere close to that in any of our account sizes, just to give you a little bit of a feel.
Kevin Plank
Opportunity.
Laurent Vasilescu
And then on gross margins, any limitations to get to 50% over time since you're predominantly an apparel company?
David Bergman
Yes. I think that we've talked about this a good bit. There's certainly nothing that we see stopping us from a road map to a 50% gross margin. To your point, there will be a little bit of a headwind relative to expectations to grow our footwear business over the coming years faster than our apparel business as we lean into that mix a little bit. But as we continue to work on the product costing as we continue to work through removing more of the discounts and driving towards more premium. And as we look towards some of our more profitable regions from a gross margin perspective to start accelerating again. All of those things should help us pave that road, as far as when that's something that we're not really getting into yet, but obviously, it's in our long-term planning and something that we're very focused on.
Operator
This concludes the question-and-answer session as well as this concludes the third quarter fiscal 2025 earnings call for Under Armour. Thank you all for attending today's presentation. You may now disconnect.
