Under the armor The company announced a broad restructuring plan on Thursday as it said sales in its largest market, North America, fell 10% and it expected the trend to worsen throughout the current fiscal year.
The sportswear retailer also saw its profits fall more than 96% during its fiscal fourth quarter, compared to the same period last year.
It's unclear how many employees will be laid off from Under Armor as part of the restructuring, but the plan is expected to cost between $70 million and $90 million, a portion of which will be used to cover employee benefits and compensation costs. The company declined to share more information with CNBC about its restructuring.
The company's shares initially fell by double digits in pre-market trading after its earnings report, but later rebounded after its earnings call with Wall Street analysts. Shares closed down more than 1%.
Here's how the sports apparel retailer fared in its fiscal fourth quarter compared to what Wall Street expected, based on a survey of analysts conducted by LSEG:
Earnings per share: 11 cents adjusted vs. 8 cents expected Revenue: $1.33 billion vs. $1.33 billion expected
The company's reported net income for the three-month period ended March 31 was $6.6 million, or 2 cents per share, compared with $170.6 million, or 38 cents per share, a year earlier. Excluding one-time items, the company reported earnings of 11 cents per share.
Sales fell to $1.33 billion, down about 5% from $1.4 billion the previous year.
During the quarter, sales in North America fell 10% to $772 million, worse than the $780 million analysts had expected, according to StreetAccount.
Under Armor said it expects sales to continue to decline in North America. The company expects it to decline by between 15% and 17% in its current fiscal year.
“Due to a combination of factors, including lower demand on our wholesale channels and inconsistent execution across our business, we are seizing this critical moment to make proactive decisions to build a premium position for our brand, which will put pressure on our top and bottom lines very soon,” said Founder and CEO Kevin Plank in a statement.
“Over the next 18 months, there is significant opportunity to rebuild Under Armor's brand strength by achieving more, by doing less and focusing on our core fundamentals,” he added.
Across Under Armour's businesses, the company expects revenue to decline “by a low double-digit percentage” in its current fiscal year, while analysts expect sales to grow by 2.1%, according to LSEG.
The company plans to reduce promotions and discounts, which it expects to result in gross margin rising between 0.75 and 1 percentage point for the fiscal year.
Diluted EPS is expected to be between 2 cents and 5 cents and adjusted diluted EPS is expected to be between 18 cents and 21 cents for the year. Analysts had expected earnings per share of 52 cents, according to LSEG.
Under Armour's rough quarter comes about two months after the retailer announced that former Marriott executive Stephanie Lennartz would step down as CEO after roughly one year on the job and Plank would once again take the helm of the company he founded in 1996.
Lennartz was the second CEO the company has had in less than two years.
During a call with analysts, Plank was frank about what went wrong at Under Armour. He cited inconsistent leadership as one of the key issues.
“With so many CEOs and heads of product, marketing and North America over the past half-decade, the constant turnover of decisive leadership has been fundamental to our inability to remain agile and decisive,” Blank said.
Lennartz was hired on her bet that her experience building Marriott's popular Bonvoy loyalty program and growing the hotel giant's digital revenues would make up for her lack of experience in the retail industry. Before leaving, she was able to overhaul Under Armor's C-suite and build its loyalty program. It has been trying to shift the brand's assortment into a more sports- and leisure-focused offering that includes more stylish options for women, who tend to spend more on clothing and shoes than men.
Now Plank is looking to undo some of that work. He told analysts that the company had “taken our eyes off” its core menswear business, which had “significantly impacted” the perception of the brand and led it to become “more merchandising and commoditized”.
“We will correct this,” Plank said. “This focus does not mean we are abandoning our priorities in footwear or the women's business per se, but from a sequencing perspective, men's apparel will be our top priority.”
As Blank tries to reset the business, he said Under Armor plans to reduce the number of its styles by about 25% over the next 18 months and reduce the amount of time it takes to take a product from concept to showroom. He aims to simplify the process so that it takes just 6 to 12 months instead of the 18 months it currently takes – a system he describes as “uncompetitive in the 2024 landscape.”
The complete restructuring will focus on streamlining Under Armour's overall business, reducing silos and ensuring that every employee's work directly contributes to its core goal: “to sell more shirts and shoes.”
“We simply do too many things. Too many products, too many initiatives, too many,” Blank said. “To reshape this brand, we must be hyper-focused and prioritize what needs to be done so that our team knows exactly what to do with a clear definition of success.”
Read the full earnings release here.
