Under Armour (UAA) has long-term potential for a brand turnaround, however, near-term concerns such as margin pressure from tariffs and uncertainty in the wholesale channel weigh on the outlook, BofA Securities said in a note Monday.

The sportswear maker reported fiscal Q1 results Friday. For fiscal Q2, it expects adjusted earnings of between $0.01 and $0.02 per share, revenue is projected to decrease by 6% to 7%, and gross margin is set to decline by 340 to 360 basis points year-over-year.

Analysts said that the management estimates that tariffs will reduce gross margin by around $100 million this year. In Q2 alone, about 300 basis points of the expected gross margin decline is due to product costs, 200 basis points of which are specifically from tariffs. An additional 100 basis points of pressure comes from a less favorable mix of sales channels.

They added that some of this impact will be offset by foreign exchange and pricing adjustments. Gross margin is expected to remain under pressure throughout the year, with most benefits from mitigation strategies not materializing until next year. The forecast for fiscal 2026 gross margin is now down 230 basis points year-over-year, at 45.6%.

"Management noted both the consumer and wholesale partners have been slightly more hesitant in purchasing behavior, but Q2 should mark the weakest sales growth quarter of the year," the analysts said, adding that e-commerce activity in North America has been highly promotional, but Under Armour has limited its discounting to preserve its brand image.

The analysts said they are reducing their earnings per share estimates for fiscal years 2026 and 2027 by $0.32 and $0.20, bringing them down to $0.05 and $0.23, respectively. This change reflects a combination of weaker expected sales and lower profit margins, mainly due to the impact of tariffs.

BofA Securities adjusted its price target on Under Armour to $6.50 from $8 while maintaining its neutral rating.

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