In armor announced a sweeping restructuring plan on Thursday, saying sales in its largest market, North America, were down 10% and predicting the trend would worsen in the current fiscal year.
The sportswear retailer also saw profits decline by more than 96% in its fiscal fourth quarter compared to the year-ago period.
It is unclear how many employees Under Armor will lay off as part of the so-called restructuring, but the plan is expected to cost between $70 million and $90 million, some of which will go to employee severance and benefits costs. The company declined to share more information about its restructuring with CNBC.
The company’s shares initially fell in pre-market trading after the earnings report, but later rebounded after an earnings call with Wall Street analysts. Shares closed down more than 1%.
Here are the sportswear retailer’s fiscal fourth-quarter results compared to Wall Street forecasts, based on a survey of analysts conducted by LSEG:
- Earnings per share: 11 cents adjusted against the expected 8 cents
- Income: $1.33 billion against the expected $1.33 billion
The company’s reported net income for the three months 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 a year earlier.
North American sales for the quarter fell 10% to $772 million, less than the $780 million expected by analysts, according to StreetAccount.
Under Armor said it expects sales to continue to deteriorate in North America. The company expects them to decline by 15% to 17% in the current fiscal year.
“Due to a confluence of factors, including lower demand in the wholesale channel and inconsistent execution of our business, we are taking advantage of this critical moment to make proactive decisions to build premium positioning for our brand, which will put pressure on our revenues and profits in the near future term,” founder and CEO Kevin Plank said in a statement.
“Over the next 18 months, there will be a significant opportunity to rebuild the strength of the Under Armor brand by achieving more, doing less and focusing on our core fundamentals,” he added.
The company expects revenue across Under Armor’s business to decline “at a double-digit rate” in the current fiscal year, while analysts expected sales to grow 2.1%, according to LSEG.
The company plans to reduce promotions and discounts, which it expects will result in a 0.75 to 1 percentage point raise in gross margin for the fiscal year.
It expects diluted earnings per share to be 2 cents to 5 cents and adjusted diluted earnings per share to be 18 cents to 21 cents for the year. Analysts expected earnings per share of 52 cents, according to LSEG.
The arduous quarter for Under Armor came about two months after the retailer announced that former Marriott executive Stephanie Linnartz would step down as CEO after just a year on the job, and Plank would return to the helm of the company he founded in 1996.
Linnartz was the second CEO the company had gone through in less than two years.
During the call with analysts, Plank was blunt about what went wrong with Under Armour. He cited inconsistent leadership as one of the main problems.
“For several CEOs and heads of product, marketing and North America over the past six months, the continued turnover of key leadership has been critical to our inability to remain agile and decisive,” Plank said.
Linnartz was hired on the bet that her experience building Marriott’s celebrated Bonvoy loyalty program and generating digital revenue for the hotel giant would make up for her lack of retail experience. Before leaving, she managed to overhaul Under Armor’s management and expand its loyalty program. She tried to change the brand’s assortment to a more sports-oriented one, offering more stylish options for women, who spend more on clothes and shoes than men.
Now Plank wants to undo some of that work. He told analysts that the company had “shifted its gaze” away from its core menswear business, which had “significantly impacted” perception of the brand and made it “more promotional and commoditized.”
“We’ll fix it,” Plank said. “This focus does not mean we are de-prioritizing our footwear or women’s business as such, but from a sequencing perspective, men’s apparel will be our top priority.”
Plank, in an attempt to reset the business, said Under Armor plans to reduce the number of styles by about 25% over the next 18 months and reduce the time it takes to get a product from idea to showroom. He intends to streamline the process to take 6 to 12 months instead of the current 18 months – a system he called “simply uncompetitive in the context of 2024.”
The full restructuring will focus on streamlining Under Armor’s overall business, reducing silos and ensuring that each employee’s work directly contributes to its core goal: “Sell more shirts and shoes.”
“We just do too many things. There are too many products, too many initiatives, too much or too much,” Plank said. “To rebuild this brand, we need to be very focused and prioritize what needs to be done so that our teams know exactly what to do with a clear definition of success.”
Read the full results announcement Here.
