Shares of athletic apparel company Under Armour(NYSE: UA) (NYSE: UAA) raced higher on Thursday after the company pleasantly surprised investors with its financial report for its fiscal first quarter of 2025. As of 11:30 a.m. ET, both share classes of Under Armour stock were up more than 17%.
A plan to turn around the brand
In October 2019, Under Armour founder Kevin Plank stepped down as its CEO. The stock has drifted about 70% lower since then. The company consequently brought Plank back earlier this year, and his turnaround plan is already underway. And investors seem encouraged with early results so far.
Under Armour used to be considered as a premium apparel brand, and Plank wants that reputation back. The company is focusing less on sales volume -- Q1 revenue was down 10% year over year as a result. Rather, it's more concerned about margins. Therefore, Under Armour's gross-margin improvement was a move in the right direction under its new plan.
There are signs that Under Armour's turnaround plan is working, and that's why the stock was racing higher today.
Are investors out of the woods?
Under Armour still expects full-year revenue to drop more than 10% because it's trying to reduce the sale of lower-priced merchandise. There are higher expenses and restructuring charges with its plan, which will contribute to its forecast full-year operating loss of $194 million to $214 million. And management expects at least $200 million in full-year capital expenditures.
In short, Under Armour has a long way to go before its business is sitting on the long-term foundation Plank is hoping for. That said, there are signs that the plan could work, which would set the company up for far better long-term profitability.
On the other hand, consumers have become more accustomed to bargain prices for Under Armour, and it could be hard to restore its premium brand position. Investors can be optimistic. But they should stay cautiously optimistic with the potential of this plan.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends Under Armour. The Motley Fool has a disclosure policy.
