Under Armour, the athletic apparel retailer, recently announced a comprehensive restructuring plan after experiencing a 10% decline in sales in its largest market, North America. The company also reported a drastic 96% drop in profits during the fourth fiscal quarter compared to the same period the previous year. As part of the restructuring, Under Armour is expected to lay off employees, with the plan estimated to cost between $70 million and $90 million. The company’s shares dropped by 10% in premarket trading following the announcement.
In its fourth fiscal quarter, Under Armour’s earnings per share were reported at 11 cents, surpassing analysts’ expectations of 8 cents. However, revenue remained at $1.33 billion, in line with expectations. Net income for the quarter was $6.6 million, or 2 cents per share, compared to $170.6 million, or 38 cents per share, in the same period last year. When excluding one-time items, the company’s earnings per share stood at 11 cents.
Sales for the quarter decreased to $1.33 billion, a 5% drop from $1.4 billion in the previous year. Notably, sales in North America fell by 10% to $772 million, worse than the anticipated $780 million. Under Armour predicts that sales will continue to decline in North America, projecting a drop between 15% and 17% for the current fiscal year.
Under Armour’s founder and CEO, Kevin Plank, acknowledged the challenges facing the company and emphasized the need for proactive decisions to strengthen the brand’s positioning. Plank stated, “Over the next 18 months, there is a significant opportunity to reconstitute Under Armour’s brand strength through achieving more, by doing less and focusing on our core fundamentals.”
To address the decline in sales, Under Armour plans to reduce promotions and discounting. This strategy is expected to lead to a rise in gross margin by 0.75 to 1 percentage point for the fiscal year. However, this approach may result in diluted earnings per share between 2 cents and 5 cents and adjusted diluted earnings per share between 18 cents and 21 cents, which falls short of analysts’ expectations of 52 cents per share.
The challenges faced by Under Armour come shortly after the company announced the departure of former CEO Stephanie Linnartz, who had been in the role for less than a year. Linnartz was brought on board due to her experience in building out Marriott’s renowned Bonvoy loyalty program and driving digital revenue. She aimed to pivot Under Armour’s assortment to a more athleisure-focused offering, particularly for women. However, her departure before implementing these plans led to a downgrade in the company’s ratings by several analysts.
Overall, Under Armour’s restructuring plan and disappointing financial results signal the need for the company to refocus its efforts and strengthen its brand. By prioritizing core fundamentals and reducing promotions, the company aims to build a premium positioning for its brand. However, it remains to be seen how successful these measures will be in reversing the decline in sales and restoring Under Armour’s growth trajectory.
