Global athletic apparel and footwear brand Under Armour Inc. (NYSE: UAA) is steadily gaining ground on its turnaround plan. The company had a setback when former CEO Stephanie Linnartz abruptly resigned on April 1, 2024, after serving just a year as the CEO. Founder and Chairman of the Board Kevin Plank resumed the CEO role to spearhead its turnaround on the same day. Since then, shares fell to a low of $6.17 but have been on a comeback after turning a surprise profit with upbeat forecasts. Investors may still find value despite the relatively bearish short interest of 12.89%. 

The consumer discretionary sector company continues to face pressure from a tough macroeconomic environment that is taking its toll on consumer spending and industry competitors like Nike Inc. (NYSE: NKE), Lululemon Athletica Inc. (NASDAQ: LULU), and Skechers U.S.A. Inc. (NYSE: SKX).

Leadership Changes at Under Armour: The Impact of CEO Turnover

Under Armour has undergone three CEO changes in the past two years. The C-suite underwent numerous changes at that time, which caused stability issues for the company’s turnaround plan, which gained traction. With the return of Kevin Plank, the assumption that he will stay on board for at least the next several years is a given. The return of stability at the head of the table may have put a floor on the stock. Evidently, the stabilization efforts have been paying off. Plank wants to dig in with the brilliant and iconic motif that put Under Armour on the map early on, “Protect This House.”

Under Armour has had a costly litigation cloud hanging since 2017, when a class action lawsuit was filed against Plank and Under Armour, alleging they had concealed the waning consumer demand from 2015 through 2016. The company finally settled for $434 million in June 2024. While there is still more minor litigation pending, the largest cloud has been lifted. This, combined with improving fundamentals, has helped revive investor sentiment. Litigation expense likely peaked in its fiscal Q1 2025 at $274 million, which swelled its selling, general and administrative (SG) expense to $837 million.

The Dark Before the Dawn: Under Armour's Turnaround Gains Traction

Under Armour posted a fiscal first-quarter 2025 EPS of a penny profit, beating analyst estimates for a loss of 8 cents by 9 cents. Revenues still sank 10.1% YoY to $1.18 billion but beat $1.14 billion consensus analyst estimates. Inventories fell 15% year-over-year (YoY) to $1.1 billion. North American sales fell 14% to $709 million, while international revenues fell 2% to $473 million. Wholesale revenue fell 8% to $681 million, and direct-to-consumer (DTC) revenue dropped 12% YoY to $480 million. The negative results point towards the dark before the dawn scenario as the turnaround gains traction and sentiment improves.

Gross Margin Improvement Expected in 2025: Less Discounting and Inventory Control

Gross margin increased 110 bps to 47.5%. This was driven by lower promotional discounts in its DTC channel and lower product costs. The company closed the quarter with $885 million in cash and cash equivalents and no borrowings under its $1.1 billion revolver. The company also bought back 5.9 million shares in the first quarter, leaving $460 million remaining on its stock buyback program initiated in May 2024.

Under Armour expects revenues to drop low double-digit percentages in fiscal 2025 but improve to 14% to 16% from the previous forecast of 15% to 17%. The gross margin is expected to improve by 75 to 100 bps due to fewer discounting and promotion activities and lower inventories. Adjusted EPS is expected to be between 19 cents and 22 cents.

Under Armour CEO Kevin Plank commented, "We are encouraged by early progress in our efforts to reconstitute a premium positioning for the Under Armour brand and pleased with our first quarter fiscal 2025 results that were ahead of expectations." 

UAA Stock Sets Up a Potential Bull Flag Pattern or Failure

A bull flag pattern is comprised of a sharp and steep run-up known as a flagpole followed by a sell-off with parallel lower highs and lower lows to form the flag. If the stock surges through the upper descending trendline resistance, it can form a bull flag. However, a potential V-Top can form if it continues to fall lower.

UAA’s flagpole at $9.65 commencing the flag pattern comprised of lower highs as an upper descending trendline and lower lows depicted by the descending lower trendline. The bull flag can trigger a breakout through $8.27. The gap fill sits at $7.32. If UAA sinks below there, the potential for a V-Top pattern looms. The daily relative strength index (RSI) has slipped to the 50-band. Fibonacci (Fib) pullback support levels are at $7.31, $6.86, $6.59, and $6.29.

Under Armour’s average consensus price target is $7.50, and its highest analyst price target sits at $10.00.  

Actionable Options Strategies: Bullish investors can wait for a pullback using cash-secured puts at the fib pullback support levels. Upon getting assigned shares, covered calls can be written to execute a wheel strategy to collect income and growth using fib extensions for strike levels.   

Source MarketBeat