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Operator
Good day and thank you for standing by. Welcome to Under Armour's Q1 2024 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question and answer session. To enter a question at that time, please press star 11 on your telephone. Please be advised that today's call is being recorded. I will now turn the call over to Lance Olega, Senior Vice President of Investment Relations and Corporate Development. Please go ahead.
Armour
Thank you. Good morning and welcome to Under Armour's first quarter fiscal 2024 earnings conference call. Today's event is being recorded for replay. Joining us on today's call will be Under Armour President and CEO Stephanie Linares and CFO Dave Bergman. Our remarks today will include certain forward-looking statements that reflect Under Armour Management's current view of our business as of August 8, 2023. 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. Statements made are subject to risks and other uncertainties detailed this morning's press release and documents filed regularly with the SEC, including our annual report on Form 10-K or quarterly reports on Form 10-Q. Today's discussion may also include the use of non-GAAP references. Fresh Release, and at aboutunderarmor.com. With that, I'll turn the call over to Stephanie.
Armour
Thank you, Lance, and welcome to everyone joining today's call. Having finished my first full quarter at Under Armour, I am pleased that our results were broadly in line with our expectations and that we are on track to deliver our fiscal 24 outlook. Digging further into the business and gaining a better understanding of our strengths, strategies, and opportunities for improvement, I am even more inspired about the power of the Under Armour brand and our ability to unlock our full potential over the long term. During the quarter, I met with athletes, customers, and teammates across the US, Italy, France, Spain, Turkey, the Netherlands, and the UK, and I have seen firsthand the enthusiasm and passion for our brand and products. From athletes that thank us for helping them push the boundaries of what is possible in the field of sports, to our retail partners who are energized for what's to come. Our mission to make you better is front and center. On our last earnings call, I laid out our Protective Health 3, or PTH3, strategy, which is centered on delivering three significant initiatives over the next three years. First is driving global brand heat with an emphasis on the U.S. Second is delivering elevated design and products with a focus on footwear, sports style, and women. And third is driving US sales while harnessing momentum in our international business. Although these initiatives will take time to gain traction, with one quarter behind us, I am pleased by the team's increased execution, accountability, and unification around these pillars. Using fiscal 24 as a building here to focus on cost management and profitability, we are making progress across each of the PTH3 priorities. So I'd like to spend a few minutes reviewing some highlights. We'll start with driving global brand T. Crucial to this execution is strong leadership to strike an appropriate balance between top-line growth, improving our strategic capabilities, and maintaining cost discipline to ensure we generate the highest returns possible as we grow the Under Armour brand. In this respect, we're happy to have recently welcomed two new additions to our executive team. First is our Chief Consumer Officer, Jim Dausch, whom I had the pleasure of working with for over 20 years at Marriott International. Jim is a seasoned executive with experience leading transformational strategic initiatives across product, marketing, and sales, and driving significant brand and consumer loyalty improvement. As a crucial operator in our effort to drive global brand heat, He's hit the ground running, and I'm looking forward to the horsepower that I know he can add to our team. Second, we welcome Amanda Miller as Under Armour's Chief Communications Officer. With over 20 years of experience, Amanda joins us from PayPal, where she served as VP of Corporate Affairs, leading the company's multi-tiered global communication strategy. In conjunction with Jim's role in linking all of our commercial elements together, Evolving how we tell our brand and product story to our athletes, consumers, the media, and other stakeholders will be critical to driving global brand heat. Welcome, Jim and Amanda. You have a fantastic team at Under Armour to lean on, and we're excited about the journey ahead. Last month, we also announced that Lisa Collier and Colin Brown are leaving Under Armour to pursue other opportunities. Accordingly, Comprehensive searches for a new chief product officer and a new chief supply chain officer are underway. I want to thank Lisa and Colin for their contributions and leadership throughout their time at Under Armour. Switching gears to marketing, we saw positive results with the return of Protect This House earlier this year and continue to build on this momentum with recent activations around the Women's World Cup. The campaign has a digital emphasis and showcases two of Under Armour's top female footballers, Kelly O'Hara from the U.S. and Alex Greenwood from England. Paying respect to music's massive impact on sports culture and the athlete's mindset, their stories and motivations come together to armor up with a common goal to protect this house. Working in Parallel is our premium women's Magnetico Elite 3 soccer boots. Under Armour's first cleat made with a specific last for a woman's foot, an outstanding example of our commitment to serving female athletes from the world's most elite football stage to the local pitch. Further showcasing our female athletes, Under Armour held a series of events coinciding with the WNBA All-Star Weekend in July, including our newest basketball athlete, Diamond Miller, along with Kelsey Plum of the Las Vegas Aces, who hosted a youth basketball camp powered by UA Next, Under Armour's youth-focused sports development camps. We also debuted Kelsey's new Earth, Wind & Fire UA Flow Breakthrough 4 sneaker at the Las Vegas Brand House. UA Next continues to be an excellent connection vehicle with the 16- to 24-year-old varsity athletes. In fact, we wrapped up its eighth iteration in June, the Future 50. where 50 of the best high school American football juniors and seniors gathered for an intense two-day experience. This included training, practice, competition, and mental exercises, along with engagements with Justin Jefferson of the Vikings and Kyle Hamilton of the Ravens. And speaking of football, we also recently announced that we have extended our long-term relationship with Notre Dame, which is a tremendous point of pride for Under Armour. In the decade ahead, we look forward to supporting the next generation of athletes as we co-create customized Fighting Irish uniforms, footwear, and apparel for the university's 26 varsity teams. An essential theme and underlying support of these Brand Heat moments is the importance of social media and an always-on digital presence to connect with young athletes more deeply. I am encouraged by the progress we're making here, with a considerable evolution in our overall social media approach, which has led to increasingly positive results over the past six to eight months. We've also been refining the content on our category-specific social handles, allowing us to target athlete groups better, and increasing efforts to directly connect product marketing and technical attributes to their everyday moments. I am also pleased that we continue to improve the shopping experience for Under Armour products featured in posts on Instagram and TikTok and working towards direct purchase and checkout on their platforms, another step in enhancing our omnichannel capabilities. Of course, driving brand heat must coincide with having innovative and stylish gear that athletes desire, which brings me to our second priority of delivering elevated design and products focusing on footwear, sports style, and women. Over the past three months, we've begun to simplify our product lines around fewer collection groups to optimize our ability to engage and convert consumers as we continue to scale our brand. To enable this, we plan to distort investments towards a strategic handful of specific apparel and footwear collections. that we will activate through improved inspirational storytelling to drive more consistent demand for key franchises. Following a few quarters of pressure in our apparel business, our first quarter performance saw an impact from the persistent promotional environment in the challenging North American retail environment. To combat this, using our key franchise approach, we are launching a substantial update to our original heat-cured compression base layer t-shirt this fall. Featured on the field of play when two UA teams, Notre Dame and Navy, face off during college football's opening weekend in Dublin, Ireland on August 26th, there is no better demonstration of the power that our innovation brings to sport. This fall, we are also introducing an elevated meridian legging collection with improved materials in our stores in Dick's Sporting Goods' new House of Sport concept. So the next round of evolution for one of our best loved women's products. Both Heat Gear and Meridian will be priced to attack better and best level products, helping to advance one of our broader goals, which is to drive higher ASPs to leverage gross margin and P&L productivity better. There is certainly much work to be done, and it will take a few seasons to get to where we want to be. But meanwhile, this team is not standing still. In our footwear business, we continue building momentum with our versatile UA Slip Speed platform. Following the initial training shoe launch in February, we recently dropped Slip Speed Mesh, a highly breathable version for your toughest summer workouts. As one of our highest rated sneakers, Slip Speed features a unique lightweight upper with an isochill padded interior, BOA lacing system, and flow cushioning. along with the quick flip heel that puts you right into recovery mode. This fall, we have two launches to look forward to, a Slip Speed collection in collaboration with Justin Jefferson, and then on Halloween, we'll do a limited launch of our new UA Slip Speed running shoe with a Valentine's Day 2024 launch, which mirrors last year's Slip Speed rollout. From the next chapter of Slip Speed to the next chapter of our best-in-class basketball shoes, The launch of Curry 11 is also expected in October. With a new futuristic design language that translates to an elevated aesthetic and vibrant color palette, this is the first time you'll see dual density UA flow cushioning for even more comfort and traction, along with an improved upper chassis for better step-in comfort. Hands down, the 11 is the most innovative standout shoe thus far in the Curry portfolio. and we are so excited to get it to market. In addition, we are continuing to amplify the Curry brand platform more meaningfully with new footwear, apparel, and accessories across basketball, golf, and sports style in the works. This expansion will also unlock new distribution opportunities at our existing retail partners and provide better consideration into places who are not well-represented. Activating this part of Under Armour's business is a key unlock to driving future growth. Another apparel example is in our sports style business, where this fall we are elevating our fleece offerings with premium products that amplify style and performance. Our unstoppable and essential fleece warm-ups aren't just about being comfy before the big game, though it's easily the plushest fleece you've ever felt. It's about lightweight, world-class temperature management that performs above your expectations. These products will be highlighted on Justin Jefferson in North America's upcoming back-to-school Protect This House campaign and will be available in our direct-to-consumer channels and premium wholesale locations. This brings me to our third strategic priority, which is to drive U.S. sales. Over the long run, we are confident that driving brand heat and delivering better design and products will reinvigorate growth in our home market. Athletes are at the center of everything we do, and they are asking for better access to Under Armour products wherever and whenever they shop. That said, we're focused on determining where the best expansion opportunities exist across our wholesale and direct-to-consumer channels. while at the same time assessing ways to optimize SKU productivity with improved segmentation to drive meaningful ASP expansion as we grow our better-level products. Despite a tempered U.S. wholesale environment, we are focused on strengthening our retail partner relationships across our sports specialty business and being deliberate in the opportunities we pursue across malls and department stores. As we work into spring-summer 24, we have plans to open new doors across these channels, so much of that work in relationship building is underway. Back to our PTH3 strategy. When we execute well on the first two priorities of driving global brand heat and delivering better products, we expect to enable growth in our U.S. business. Shifting to our direct-to-consumer business, we're happy to report that we launched our U.S. loyalty program, UA Rewards, on July 31st. Early points on the board that draws from my experience driving higher revenue per customer, repeat business, increased direct channel engagement, and brand love and loyalty. This diverse program extends our brand experience, providing consumers with early access to product drops, wellness content, and athlete experiences. including one lucky sweepstake winner who will meet Stephen Curry this month in Baltimore. Initially launched on our digital platforms, we expect to roll this out more broadly into our retail stores this fall. This is a fantastic step forward for us, and I am confident UA Rewards will be an excellent asset in deepening connection with athletes and inspiring better sales conversion as we scale the program. As our most profitable region, we have to win in our home market of North America. Growing faster here means more future dollars to invest in products, marketing, and our international business, as well as increasing returns to shareholders. Now, to be sure, we're not taking our eyes off our international business and are encouraged by the positive momentum we continue to see in the EMEA and Asia Pacific businesses, which each saw a double-digit revenue growth during the first quarter. So balance is key in the near term as we set up for the long term. In closing, we're making initial progress on our PTH3 priorities, and I'm encouraged by the team's efforts in these early days. From leadership changes and amplifying our storytelling to driving global brand heat and optimizing our product engine to deliver groundbreaking innovations that athletes covet, I am confident that we will continue to methodically place ourselves into a stronger position to achieve the improved growth and profitability that I know Under Armour is capable of. Now, I will hand the call over to Dave to go into more detail about our first quarter results.
Armour
Thanks, Stephanie. With that, let's review the results for our first quarter of fiscal 2024, which ended June 30th. Our first quarter revenue was down 2% to $1.3 billion, which was in line with our outlook. Excluding the negative impact of foreign currency due to the strength of the U.S. dollar, revenue was down 1%. Clicking down into our region, revenue in North America was down 9%, which was roughly in line with our expectations and a result of challenges in the U.S. wholesale channel due to elevated sector-wide inventories and ongoing promotional activities, a factor we expect will ease as the year progresses. As a result, the first quarter should be the largest decline in North America this year. Revenue in EMEA grew 10% during the quarter, with a solid performance in our wholesale business and strong growth in our TTC business. Currency neutral growth in EMEA was 11%. Our Asian Pacific business was up 14% during the quarter, a 21% increase on a currency-neutral basis, fueled by steady improvements in retail traffic and post-COVID normalization. Like EMEA, we also saw a solid performance in our wholesale business and strength in our DTC business. And rounding it out, due to favorable wholesale and DTC channel results, Latin America revenue was up 13%, or up 5% on a currency-neutral basis during the quarter. On a global basis, by channel, wholesale revenue was down 6% to $742 million. Increases in our distributor and off-price businesses were more than offset by lower sales to the full price channel amid U.S. wholesale challenges. Direct consumer revenue increased 4% to $544 million, driven by solid performances in our e-commerce and retail channels. Licensing revenue was down 11% in the quarter to $25 million, driven by softness in our Japanese licensee and North American business. By product type, apparel revenue was down 5%, driven primarily by softer sales in our training business due to the ongoing pressure in the North American wholesale environment we spoke to earlier. Boatware was up 5%, driven primarily by strength in our run business. And revenue in accessories was up 1%. Our first quarter gross margin declined 60 basis points year-over-year to 46.1%. This was driven by 300 basis points related primarily to higher promotional activity within our DTC business as we managed through prior season products, as well as unfavorable pricing related to sales to the off-price channel. 70 basis points of negative impacts from changes in foreign currency and a combined 30 basis points from less favorable product and regional mix. These headwinds were partially offset by 320 basis points of supply chain benefits related to inbound ocean and air freight tailwinds, and 20 basis points from a more favorable channel mix. Moving further down the P&L, in the first quarter, SG&A expenses were down 1% to $587 million. Operating income was $21 million in the quarter. And after tax, we realized a net income of $9 million, or two cents of diluted earnings per share. Next, our two first quarter balance sheet call-outs, starting with inventory, which was up 38% to $1.3 billion. This was in line with our outlook. And as a reminder, we ran leaner inventory levels through the summer of 2022 due to our constraint model and proactive cancellations of orders due to COVID-related supply challenges, so this comp is elevated accordingly. Finally, our quarter-end cash and cash equivalents were $704 million, and we had no borrowings under our $1.1 billion revolving credit facility. Now, let's turn to our fiscal 24 outlook, which remains fundamentally unchanged from the outlook we provided on May 9th. But to reiterate, there is no change to our expectation that revenue should be flat to up slightly versus fiscal 23. However, we do see the regional color shaping up a little differently, with North America expected to be down 3% to 4% given the challenging environment we spoke to earlier, and our international business to be up at a low double-digit rate as momentum continues in EMEA and APAC. Next. there is no change to our gross margin outlook, which is an expected 25 to 75 basis point improvement from last year's rate of 44.9%. And we also continue to expect SG&A to be flat to up slightly, operating income to reach 310 to 330 million, and diluted earnings per share of 47 to 51 cents. Next, I'd like to give some color on our second quarter, and the second half of fiscal 24. We expect second quarter revenue to be flat to down slightly versus the prior year, including a low single-digit decline in our North American business, partially offset by mid-single-digit growth in our international business. In addition, we expect the year's highest revenue growth rate to be in our fourth quarter. Next, we expect gross margin to be up approximately 100%, to 150 basis points in the second quarter due to tailwinds from lower freight costs partially offset by persistent promotional activity. We expect the third quarter to have the year's smallest quarterly gross margin improvement due to anticipated actions to manage our inventory down further. All of which gets us to an expected second quarter operating income of 115 to 135 million. which translates to 18 to 21 cents of diluted earnings per share. And finally, in line with our previous outlook, we expect inventory to be up at a mid to high single-digit percentage rate at the end of our second quarter before declining in the third quarter and being down at a mid-teen percentage rate to end fiscal 24 at approximately $1 billion. To wrap up today's prepared remarks, I'd underscore the confidence we have in our strategy and our improving ability to execute against our PTH3 initiatives, which are engineered to drive revenue growth over the long term. In the near term, we are identifying additional areas of cost improvement, such as supply chain efficiencies, skew rationalization, and improved segmentation opportunities to drive ASP expansion. We are also continuing to prioritize investments, particularly around our demand creation efforts to ensure that where we do choose to invest, we're providing the highest possible returns to our top line. And we are managing costs more aggressively to set us up for an even more productive P&M once revenue begins to inflect more significantly in the future. This balance of bottom line profitability in the near term with top-line productivity and improved profitability in the long term is what we are relentlessly focused on driving with a sense of urgency. With our first quarter in the books, the changes we are implementing and our execution against our PTH3 strategy give me confidence that we are on the right path to creating improved value for our shareholders over the long term. With that, we'll turn it over to the operator for questions. Operator?
Operator
Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1. One moment, please, for our first question. Our first question comes from Simon Siegel of BMO. Your line is open.
Simon Siegel
Great. Thanks. Hey, everyone. Good morning. Hope you're having a nice summer. Stephanie I know it still might be early, but would love to just get your broader thoughts on the wholesale environment in North America, maybe just your thoughts on looking further out the need for promos versus as inventory gets cleaner. That's both for you and also the competitive landscape. And then, Dave, any way to quantify any of the puts and takes you just mentioned for the second quarter gross margin, but also how it flows through into the full year? Thank you.
Armour
Sure. Well, good morning, Simeon, and happy summer to you as well. As it relates to the wholesale environment, as we mentioned in our prepared remarks, there's a couple things going on. There's still inflated levels of inventory that are leading to more promotional activity. But as we see the year going on and as we head into next year, anticipate that things will get better and there will be less need for so much promotional activity. I think from a bigger perspective, though, and much longer term, we're very confident that our protective health three pillars, which are, again, around driving global brand heat with a focus on the U.S., delivering elevated design and product with a focus on footwear, sports style, and women, and then really driving U.S. sales while leveraging our international momentum. This is all going to come together to much better business, more business with our wholesale partners. And it's also going to allow us to expand our distribution. As we focus on better product, we're going to be more disciplined about segmentation. We're going to open new doors, new partners, including in the wholesale arena. So we're excited about the long-term strategy and where we're headed with our partners.
Armour
And relative to inventory and gross margin, I mean, first of all, I just would kind of remind us that our inventories is in a very healthy position. You know, we don't have a lot of older products that's making up our inventory, and we are normalizing against leaner days last year. So I think we're balancing, you know, the promotions and the need to move some of our inventory very well, and also kind of keeping that third-party off-price liquidation channel in that 3% to 4% range of revenue, which we feel is a reasonable level. And kind of how that translates to your point to Q2 and back half first margin, You know, in Q2, we see the 100 to 150 basis point expansion, and it's really just the two things mainly. You know, the lowering freight costs we continue to see, and then partially offset by the promotional environment continuing to be a little bit pressured. There's some other smaller puts and takes for Q2, but those are the big ones. And then when you think about kind of the back half of the year, again, some of the similar puts and takes, but I think in the third quarter, We call this out as being one of the smaller year-over-year gross margin improvement quarters. And that's really just because from a timing perspective, we're planning to do a little bit more with a third-party off-channel in that quarter versus the prior year third quarter for us. And then also, you know, we're still being a little cautious in how we plan, you know, holiday and fiscal Q3 or calendar Q4 for us. So you see some of that coming to play as well. And then you would see better improvement year over year in Q4 because we get past that quarter, but then also a lot of the different costing initiatives we've been working on with our vendor base, they start to come into play more in Q4 and then further as we go into next year.
Simon Siegel
Great. That's really helpful. Just a quick follow-up to your point about the inventory health. Did you say what percent is pack and hold this quarter?
Armour
I mean, generally speaking, you know, we've been starting to work that down. Probably about, I would say, a third of the increase in inventory year over year is due to pack and hold. And then we'll continue to work that down as we use that through, you know, some of our outlet stores, but also some of our inline accounts because there's a you know, core product that is more seasonless nature.
Simon Siegel
Great. Thanks a lot, guys. Best of luck for the rest of the year. Thanks.
Operator
Thank you. Thank you. One moment, please. Our next question comes from the line of Jay Soul of UBS. Your line is open.
Q3
Great. Thank you so much. I just want to follow up on the last question a little bit first. And Can you just talk about how your order book in the U.S. wholesale business firmed up as you went through the quarter and, you know, got those orders for the holiday season? Can you talk about, you know, how it trended versus your expectation and then relative to maybe the mid-tier channel versus the more premium channel, how things developed there? That would be helpful. Thank you.
Armour
You know, as we embarked on this year, you know, we knew coming in that there was going to be some pressure on the buys with some of the retail partners just because of the building inventory from a lot of the brands. last year, and so we saw that coming through in the orders. As we embarked on this year, I would say, though, that Q4 of this year, Q3, Q4, those orders and the visibility around that did come in slightly less than what we had expected, and that's partly what's going into kind of the revision we made within revenues. So, yes, we're definitely maintaining our revenues, and we feel very comfortable with that. But with that order visibility for kind of Q3, Q4 on the wholesale in North America, you know, we are tempering that a tiny bit. You see that in our update. But international, we're continuing to drive very well. And so that is coming up a tiny bit, but net-net still back to the same answer on full net revenue for us for the year.
Q3
Got it. And then maybe, Stephanie, just as you talk about the Protect This House 3 plan and driving global brand heat and really working on product, you know, as over the last three months, as you've been, you know, getting more into the role, what have you seen as sort of potential of Under Armour from a gross margin perspective? You know, as you connect the strategy to the financials, you know, I think the gross margin should be for the business. Thank you.
Armour
Yeah, I think that, I think we've got a lot of opportunity ahead. I think that there's both the protected South three pillars that I went through are really about driving growth. And much of that, this, Fiscal year 24 is a building year. I think the growth really began in 25 and beyond, fiscal year 25 and beyond. But in the short to medium term, we really are focused on driving profitability. I mentioned in my remarks that we're looking to drive higher ASPs. There's a lot of work being done on SKU productivity, cost of goods sold improvement. We are looking to manage costs very aggressively so we can set the P&L up for more success in the years ahead. And there's really no reason over time that we can't get back to the high 40s. So when I look out in the future, that's what I see.
Armour
And I'll just add a couple thoughts to that as well. You know, a couple things that will continue to be in play for us is overdriving on DTC growth versus wholesales. which from a mix helps the gross margin rate as we go into the next couple of years. But then also as we continue to grow and scale footwear, there's a little bit of pressure from that because our footwear gross margins are lower. But as we're growing faster there and building scale and getting smarter in how we approach our product, the gross margin is starting to improve within footwear. So that disparity is a little bit less. So it kind of starts to normalize there. And one of the bigger things that we've really jumped back into is working hard with our vendors on the product costing side and really increasing the visibility of the build-out of those costs in comparison with different vendors. And that work has been underway, and we do anticipate some of that benefit starting to come in to our fiscal Q4 of this year, and then even more so as we get into full year for fiscal 25. Got it.
Q3
That's super helpful. Thank you so much.
Operator
Thank you. One moment, please. Our next question comes from the line of Bob Durable of Guggenheim. Your line is open.
Bob Durable
Hi. Good morning. Two questions that I have. The first one is around the pipeline, the product pipeline. Stephanie, can you just talk a lot around, you know, where you're focused on and sort of, you know, improvements that you're making and the team that's in place to drive the new product development, new product pipeline since you joined. And the second question is, you talked about driving higher AURs or ASPs. Can you just talk like how you think the brand is priced, you know, competitively versus your peer group and sort of where those opportunities might be? Thanks.
Armour
Sure, absolutely. On the first part of your question as it relates to product, Our focus is on building out more in the better and best part of the product pyramid. A big focus, as we've discussed, is around footwear, women, and sports style. And that is just going to help build out those parts of the product pyramid, again, better and best. And we're excited. We're excited about the team that we have in place to be driving the innovation on the product side. And as I mentioned, we have a search underway for a new chief product officer. We're continuing to look at opportunity to bring in new talent. We brought on some new designers to help us, particularly on footwear and sports style. So again, it's really going to be about driving that better and best part of the product pyramid, which I think leads to the second part of your question, which is how we're going to drive higher ASPs. I think we're going to drive higher ASPs by better product more very disciplined segmentation. We're going to continue to, on our digital sites, look at opportunities to reduce overall promotional activity. So I think when you kind of put everything in the blender, better product, more disciplined segmentation, We're going to drive higher ASPs. And, again, it doesn't take much, you know, $5, $10, $15 per unit to really drive some significant top-line revenue and profitability for the company. So we're very focused on that.
Bob Durable
Thank you.
Operator
Thank you. One moment, please. Our next question comes from the line of Lauren Vasilis. BNP, your line is open.
Dave
Hi, thanks for the question. It's Dion Ceylon for Laurent. Within the North America lowered outlook, it sounds like most of the change is on the wholesale side. Maybe could you comment on the expectations for DTC? Is that change at all or is that the same as 90 days ago?
Armour
Yeah, this is Dave. I would say the expectations between DTC and wholesale are haven't changed very much. We haven't really updated that in the outlet that we've provided. But I would say that knowing that we adjusted North America a little bit with our expectations around Q3 and Q4 orders, that is a little bit more wholesale skewed. So from that perspective, you could probably back into DTC performing slightly better net-net for the full year that we expect. and wholesale slightly worse on the full year than we expected 90 days back, but not a real big inflection there.
Dave
Okay, got it. Helpful. And then maybe could you talk a bit more about the strategy around team sports? You've been exiting some contracts with UCLA, and now it's nice to see you renew the Notre Dame, but just how you're thinking about that overall, and maybe within that, how you think about marketing as a percent of sales going forward. Thanks.
Armour
Yeah, sure, absolutely. Well, we are absolutely thrilled about our deal with Notre Dame and looking forward to a spectacular decade with the school in terms of outfitting their athletes for their 26th varsity sports. But what I'm particularly excited about, in addition, is the fact that we're going to be able to co-create with our athletes as we head more into sports style, more access to the media assets of Notre Dame. So Under Armour is one of only a few brands in the world that has real authenticity on the field of play, the pitch, the court, you name it. So we have this authenticity, and it's authenticated through great relationships with schools like Notre Dame. And you're going to see us also leaning into that relationship for co-labs. We have an exciting co-lab coming up soon. with when Notre Dame plays USC basketball on the women's side in Paris later this year. No better place for a co-lab than Paris. I mentioned in my prepared remarks we're going to, you know, relaunch our renewed and improved version of heat gear compression when Notre Dame plays Navy, another great UA school in Dublin later this summer. So, you know, relationships with top sports programs at top universities is a big part of our strategy. As it relates to marketing more broadly, you know, our goal in marketing is to really hit that 16 to 24-year-old varsity team sport athlete. So from a marketing perspective, that means continuing to double down in terms of digital and social. It means more storytelling. It means better use of not just our teams but our athletes in our marketing. It means doing a better job of product marketing, so connecting brand marketing and product storytelling. So it's really being with an always-on, highly digital marketing approach is really the key to how we're going to relate to that 16- to 24-year-old varsity team sport athlete.
Dave
Great. Thank you.
Operator
Thank you. One moment, please. Our next question comes from the line of Sharon Zafia of William Blair. Your line is open.
Sharon Zafia
Hi, thanks for taking the question. Can you hear me?
Armour
Yes, we can, Sharon.
Sharon Zafia
Awesome. Thanks for taking the question. I guess a follow-on on the marketing side of the equation. I know women is a huge opportunity for you, and I'm wondering, from a marketing and a door standpoint, how you can kind of better get in contact with that female consumer to show the elevated product that you've been putting out and get more traction there?
Armour
Absolutely. Good morning, Sharon. Yeah, driving our women's business is a very big focus for me and for the team. And it does start with product. It starts with product. That's always at the core of everything. On the women's side, and as we lean again into sports style more broadly, it's about better design. It's about better fit. It's about better finishes and more in that better and best part of the product pyramid. But you point out something very important. It's equally about how we market to the female consumer. And so we're thinking about our marketing approach a bit differently, how we speak to the female consumer, which athletes and or social influencers, et cetera, that we use. And then last but not least, you also highlighted distribution. Getting more into sports style, women, better and best product is going to open up new doors of distribution. So whether that's in the mall, specialty run, boutiques, we're going to have more product on more shelves. I think that will appeal to women and to men as well for that matter. But we definitely... are focusing harder on women than we ever had before and are excited about some of the things underway. I mentioned just a moment ago the CoLab we're going to do in Paris later this year with the women's basketball event of Notre Dame and USC. But we've got some other really exciting things underway that we're going to be launching later into this year and into next year.
Operator
Thank you. One moment, please. Our next question comes from the line of Jeff Lowry of Redburn. Your line is open.
Jeff Lowry
Yeah, hi. Just one question, please, team. Could you talk a bit more about the international performance and, in particular, what's working between apparel and footwear together with your inventories in any of the major markets? And I guess actually maybe just a small part B, which is, is there a plan to take the rewards program international, or does the scale of the individual countries not justify it at this point? Any color you could add around that would be great. Thank you very much.
Armour
Sure, and good morning. Yeah, we're very pleased with the momentum we're seeing in our international business. You think about, I'll start with EMEA, where the team is just doing a fantastic job in both our own retail and with our wholesale partners. A lot of discipline around segmentation, terrific relationship with the wholesale partners. The brand in EMEA, particularly in the UK and Germany, the Under Armour brand is in a very elevated place, both with apparel and with footwear. But particularly, you know, in apparel, we're doing very well in international markets. As I move to APAC, I think about we're also very strong in APAC. We're seen as the athlete's brand, kind of our brand positioning in APAC. Again, very premium, as we mentioned in our remarks, growing both in EMEA and in APAC in DTC and with our wholesale partners. So we're excited about our growth in Asia and really see over the long term China a big growth driver for us. On the UA rewards point, first of all, I am so excited that we launched UA rewards about a little over a week ago here in the U.S. It's going to be the cornerstone of our consumer strategy. No loyalty program means anything if you don't have great products, so it goes back to product. But we're going to be investing in product, and our rewards program is going to allow us to, and I know this from my past life, drive higher revenue per product. customer, more repeat business, and higher direct channel engagement. So more stickiness to our website, our app, and our own stores. We actually launched the loyalty program originally in Asia, and the program is off to a great start there, in China specifically. And that's where we saw some of these early wins as it relates to higher revenue per customer, more repeat business, more direct channel engagement. We saw that with our program in China. So we're bringing it here to the U.S. We're off to a great start. Our digital channels were out of the gate first. Our retail stores later this summer, as I mentioned. And as it relates to expanding the rewards program over time, that is absolutely something that we'll look to because, again, it's A rewards program done well with product at the center and terrific marketing around it is going to be a growth driver for us. So more to come, but we're excited that we've got a great start here in the U.S. and, as I mentioned, already in China.
Jeff Lowry
Great. Thank you very much.
Armour
See you next time. Anything?
Jeff Lowry
No, I think you covered it.
spk05
Next question, please. Operator? Operator, we can't hear you. Operator, are you there? Not sure if you guys can hear us or not.
Armour
But we cannot hear the operator, so we must be experiencing technical difficulties. If you can give us one minute, we'll try to sort this.
Q3
She's thinking on and announcing, so.
Operator
Pardon me, this is the operator. Can you hear me? And now, yes. Okay. Our next question comes from Brian Nagel of Oppenheimer. Your line is open.
Brian Nagel
Hi, good morning. Thank you. Thanks for taking my question. So the question I want to ask, just with respect to supply chain and shipping costs, you mentioned here as a positive for gross margins in the fiscal Q1. But how should we think about that dynamic over the next few quarters? I mean, kind of like a headwind to tailwind type shift, if you will. And then to the extent that you do benefit, like others will, from lower shipping costs, less supply chain disruption. Is it the mindset of Under Armour that you'll let that flow through, or would those savings be reinvested elsewhere?
Armour
So a couple things, Brian. This is Dave. You know, obviously, you know, a lot of us experienced some pretty challenged freight costs last year and even a little bit prior to that. So it's great to see those costs coming back in check and kind of getting to those pre-COVID levels again. And so we are seeing that as a tailwind. We expect to continue seeing that as a tailwind through the rest of this year. And then again, what's being added to that as we go further into the year, especially our Q4, is some of the product costing negotiations with the vendors in addition to that. So kind of a two-part benefit that we're expecting to start to see coming through even more so in our Q4. Relative to how we deploy that, quite frankly, we are continuing to drive and focus on profitability. So whether it be in improving our gross margin, which we will continue to drive forward next year and beyond, or whether it be continuing to move forward leveraging our SG&A next year, the majority of that we're going to be driving to the bottom line to profitability. to our shareholders, but also strategically reinvesting in certain areas to make sure we're supporting our PTH3 strategic priorities. So it's a little bit of both. Hopefully that helps you a little bit.
Brian Nagel
No, that's very helpful. And then a follow-up question. I realize that this may be a bit repetitive, but we talked a lot about, you know, in this call and other calls about, you know, this improving product innovation at Under Armour. So I guess a two-part question. I mean, first, to what What innovation has been introduced now? How has that been performing? But then as we're watching, you know, sort of say the product set of Under Armour continue to evolve, are there key points in where we should be looking for more significant innovation coming from the brand?
Armour
Yeah, I'll start there. And good morning, Brian. So I think, you know, some of the areas where we continue to innovate would be with, you I mentioned that we're going to be relaunching our heat gear compression this fall at the Notre Dame Navy game. We will continue to have materials and fabrics in our apparel that make our athletes more productive. So much of our work and product is around technology. I mentioned, too, around hover and flow that you see in our shoes. So we'll continue to do that. As it relates to new innovation in the pipeline, we've got an amazing innovation team that's focused on what's next in footwear and apparel. So more to come on that front. But it's really about making products that athletes never knew that they needed and makes them much better at their sports. I think flip speed, you know, one more thing to point out, I think flip speed is a great innovation and it was really insightful. It was looking at something that athletes really needed, you know, a training shoe that they could use while they were in the gym and working out and that they could convert very easily to a live moment by flipping the heel down. So I think flip speed is an example of a recent innovation that has been quite successful and that we're going to continue to build upon as a franchise. With the running shoe coming out later this year, the MASH shoe that we already launched, it's terrific for that tough summer workout. So I think Slip Speed is another great example of product innovation. So that's what the brand's really all about.
Brian Nagel
I appreciate the color. Thank you.
Operator
Thanks, Brian. Thank you. One moment, please. Our next question comes from the line of Samuel Poser of Williams Trading. Your line is open.
Brian
Good morning. Thank you for taking my questions. I have a handful here. Will Jim, the new CMO, Will he take his knowledge of defining banners, let's say the St. Regis versus the Courtyard, to help define businesses within the organization? And how long will it take for that really to start manifesting itself, if that is the correct way to think about it?
Armour
Sure. Well, Jim, first of all, is going to be an absolutely fantastic asset for the company. He comes with – I've worked with Jim for over 20 years, deep experience in sales, marketing, technology, operations, finance, you name it. He's worked across the whole business. And he actually spent a lot of time in brand, too, to your question about building brands. And I think what Jim's going to bring to us is experience at knowing how brands, or in the case of Under Armour, underneath our umbrella of Under Armour, we've got Curry, we've got different franchises, how to really position them with consumers in a very clear, crisp way so you know what the value is. Lance touched on this a minute ago in his remarks, like really, really being able to do great product franchise marketing and make each franchise very distinct with a distinct value proposition. He's going to pull that experience from Marriott International into this role. I think where Jim is going to add a ton of expertise also is with UA Digital. I mean, I have a real vision for our digital assets, our website, our app. They need to become the premium showcase for the brand. I mentioned earlier reducing overall promotional activity on the site, lifting ASPs. Jim really, in his last role, was responsible for, amongst other things, Marriott.com and the Marriott app, which, of course, are best in class. There's also a lot of tactical things on the digital front you need to do to have a world-class website and shop app. And we're doing those things, and Jim's going to drive hard after more, but improving mobile site speed, better product descriptions. We're improving our cancel rates on our site by having improvements to our order management system. This is kind of the guts and maybe a little bit of the behind-the-scenes work that needs to be done to have a world-class website and app. And Jim is so steeped and has so much experience in this area. Yeah. So I'm really, really thrilled that he started. He's only two weeks in and he's already hit the ground running. But building out those brands and those franchises for us, absolutely. Digital, marketing, and beyond. So couldn't be more thrilled to have Jim with us.
Brian
Thank you. With the U.S. business, are you looking to narrow? I mean, is part of what's going on with the U.S. business this year sort of an activity of getting the allocations and your points of distribution more narrow in order to set a base to grow it? And then lastly, you talked a lot about some of the stuff you're doing with large, big teams, but I've noticed you've done some grassroots stuff in basketball with high school athletes and HBCU athletes as well. Can you talk a little bit about, you know, what you're doing sort of the stabilized U.S. and then to grow it sort of in your own control versus not getting the orders you thought you were getting in wholesale for the back half?
Armour
Yeah. Let me start with the first part of the question about our U.S. business. I think we really have an end strategy, meaning we have a strong $6 billion base of business. We want to continue to grow. But we want to be much more consistent and disciplined about segmentation, so where we sell our product. And as we, again, build out more of that better and best part of the product pyramid, we're going to continue to be more and more disciplined. So we're going to continue to grow our base. We're always going to be very, very mindful about what percentage of our business ends up in lower-end channels, but continue to build the higher-end part of the product pyramid. On the large team versus grassroots question, I talked about Notre Dame, which would be an example on the big team front, but grassroots is simultaneously at the heart of what we're doing at Under Armour. I spoke in my prepared remarks about UANech, That's our youth-focused sports camp. And we are doing a lot with, for example, we just wrapped up Curry Camp out west. We're going to have our Elite 24 basketball camp coming up in Atlanta. And connecting with youth athletes through these events is really, really critical. And we do, you also mentioned HVSUs, we continue to invest there as well. in terms of hitting that 16- to 24-year-old team sport athlete. So I think our approach is twofold. It is, of course, we're going to focus on big athletes like Steph Curry and Jordan Spieth and Justin Jefferson and big teams like Notre Dame and Navy, to name just a few. But then we're also going to focus on that youth athlete at school or grassroots. So I'm super excited about that. But, Dave, anything to add on the U.S. business front?
Armour
No, I mean, I think that, you know, you've highlighted it fairly well. I mean, we're pretty comfortable with our distribution other than the fact that we know that there are some expansion opportunities in the better and best categories. There are some expansion opportunities relative to sports style, relative to women's. And all of those should be a little bit more premium as well. So when you think about where our focus is and where a lot of the bigger opportunities are for growth in the U.S., whether it be on the DTC front or whether it be on some of the more premium wholesale distribution that will come along for the ride with our expansion in the sports style and pushing more on the women's front and the footwear front, all of that should play well together. And I think it's more about returning to growth and doing so in those stronger areas for us that are more premium for the brand.
Brian
Thank you very much.
Armour
Thank you.
Operator
Thank you. And now we'll take our last question from Matthew boss of JP Morgan. Your line is open.
Matthew
Um, so Stephanie, as we consider the three pillars of protect this house, maybe relative to the more challenging North America backdrop today, I guess, can you just elaborate on the potential timeline that you see to return the brand to sustainable growth in North America? And then how best to judge sequential progress of the actions along the way?
Armour
Sure, absolutely. And good morning, Matt. You know, as I mentioned today in our last call, we're really looking at 2000 fiscal year 24 as a building year for the brand. We are absolutely certain that the PPH3 pillars are what we need to do to drive growth for the company, but they are not going to happen overnight. They're going to take some time. It's a three-year plan, so we're one quarter into a 12-quarter game here, and I think we need to just stay focused on making progress every week, every month, every quarter. I am really excited. We've had some big wins in the first quarter. I mentioned, you know, we signed Notre Dame. We launched UA Rewards. We had two terrific new executives start. We have some really exciting things on the product front. New Slip Speed, CoLab's coming with Justin Jefferson, and we actually have a CoLab coming with Stephen Curry. I didn't mention relaunch of compression. So we have a lot of wins in the first quarter, and you're going to see us keep building quarter after quarter with wins, with fiscal year 24 being a year of building, and then fiscal year 25 and beyond being where you start to see the growth happen. But I can't underscore enough how focused we are on while we push on our pillars and these big product items which have the most lead time, as an example, we're going to be very, very focused on profitability, driving higher ASPs, skewed productivity, COGS improvement, et cetera. So I think we're going to march on quarter by quarter as we return under armor to growth in our home market here in the U.S.
Matthew
Great. And then maybe a follow-up for Dave. Could you just elaborate on the state of active and sportswear inventory in the channel today? more so relative to three months ago, exactly where we stand. And then just touch on the composition and quality of your owned inventory as well.
Armour
Sure, Matt. You know, we have seen destocking from the retailers, and their inventory levels appear to be getting healthier, which is good. So we do feel better going into future seasons. And so they are getting better. But I would say that, you know, not necessarily as fast as we thought, which means we do expect to see some of the promotional environments sticking around a little bit longer. And I think if you think about that from a timing perspective, you know, we remain cautious around, you know, calendar Q4 or holiday, but we generally expect inventory levels coming more in balance towards the end of this calendar year. Still a little bit of uncertainty there, but, you know, obviously something that we're watching. Relative to Under Armour's own inventory and where we sit, we feel very comfortable with what we have. We have generally very healthy product. We don't have a lot of aged inventory within our warehouses. We've been normalizing against a really lean base, and that's why you see these higher growth rates in the beginning of the year. But if you look at inventory turns, we're still very healthy. When you look at mix of inventory, we're still very healthy. And with the pack and hold strategy, you're going to start to see the inventory growth turn around, and that's where we were expecting to be able to land the end of the year at a high team's decrease year over year. So I think we're doing a good job of balancing the promotional environment and discounting with moving through our inventory and making sure that we're buying the right inventory as we finish out this year and go into next year. So I think we're in a good spot to work from here as we go forward.
Matthew
That's great, Collin. Best of luck.
Armour
Thanks, Matt.
Operator
Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.
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