Under Armour recently announced a broad restructuring plan after reporting a 10% decline in sales in its largest market, North America, and a more than 96% drop in profits during its fourth fiscal quarter. The company did not provide specific details on the number of employees to be laid off as part of the restructuring, but it is expected to cost between $70 million and $90 million, with a portion allocated for employee severance and benefits. Shares of the company dropped about 10% in premarket trading following the news. The company’s reported net income for the quarter was $6.6 million, or 2 cents per share, compared with $170.6 million, or 38 cents per share, a year earlier. Sales declined to $1.33 billion, down 5% from the previous year.
Sales in North America dropped 10% during the quarter to $772 million, worse than the $780 million that analysts had expected. Under Armour is anticipating further sales declines in North America, projecting a 15% to 17% drop in the current fiscal year. Founder and CEO Kevin Plank explained that proactive decisions are being made to build a premium positioning for the brand, despite the expected short-term negative impact on revenue and profit. The company is expecting revenue to decrease at a low-double-digit percentage rate for the current fiscal year, compared to analyst expectations for sales growth of 2.1%.
Under Armour plans to reduce promotions and discounting, which it believes will lead to a rise in gross margin for the fiscal year. The company is expecting diluted earnings per share to be between 2 cents and 5 cents, and adjusted diluted earnings per share to be between 18 cents and 21 cents for the year. This is below analyst expectations of 52 cents per share. The restructuring plan comes after former Marriott executive Stephanie Linnartz stepped down as CEO after barely a year on the job, with Plank once again taking over as CEO. Linnartz was the second CEO to depart from the company in less than two years, and her departure led to a series of downgrades and lowered price targets from analysts.
Prior to her departure, Linnartz had overhauled Under Armour’s C-suite and was working on expanding the brand’s loyalty program and shifting its assortment towards a more athleisure focus. However, these plans did not come to fruition before she left the company. Since the announcement of Linnartz’s departure, shares of Under Armour have dropped about 23% year to date. The company’s rough quarter, along with the leadership changes, have raised concerns among investors and analysts about the future prospects of the brand. Under Armour is facing challenges in the competitive athleisure market, particularly in North America, and will need to navigate these difficulties in order to regain growth and profitability.
