Under Armour, the athletic apparel retailer, has been facing some major challenges with a significant drop in sales in its largest market, North America. Sales plummeted by 10%, leading to a prediction of even worse trends in the current fiscal year. Additionally, the company witnessed a staggering decline in profits, with a more than 96% decrease during its fiscal fourth quarter compared to the previous year. This dismal performance has prompted Under Armour to announce a broad restructuring plan, costing between $70 million and $90 million. The details of the restructuring, including potential layoffs, remain undisclosed. Such developments have caused the company’s shares to drop by more than 2% in morning trading.
In its fiscal fourth quarter, Under Armour reported earnings per share of 11 cents adjusted, surpassing the 8 cents expected by Wall Street analysts. However, revenue remained stagnant at $1.33 billion, in line with market expectations. The company’s net income for the quarter was a mere $6.6 million, a drastic fall from $170.6 million the previous year. Sales also took a hit, dropping to $1.33 billion, down approximately 5% from the preceding year. Particularly concerning was the 10% decline in North American sales, falling short of analyst estimates. The company is bracing for further sales declines of between 15% and 17% in the current fiscal year.
Founder and CEO Kevin Plank acknowledged the challenges faced by Under Armour, attributing them to various factors, such as decreased demand in the wholesale channel and inconsistent business execution. Plank emphasized the need for proactive measures to enhance the brand’s premium positioning, even if it comes at the cost of short-term financial performance. He outlined the company’s strategy to focus on core fundamentals and streamline operations to rebuild the brand’s strength over the next 18 months.
To address the declining performance, Under Armour plans to reduce promotions and discounting, aiming to improve gross margins by 0.75 to 1 percentage point for the fiscal year. The company expects diluted earnings per share to range between 2 cents and 5 cents and adjusted diluted earnings per share to fall between 18 cents and 21 cents for the year. These figures starkly contrast with analyst expectations of 52 cents per share. Furthermore, revenue is anticipated to decline at a low-double-digit rate, contrary to the predicted sales growth of 2.1%. The company’s recent struggles follow the abrupt departure of former CEO Stephanie Linnartz, who had initiated strategic changes in the organization.
Stephanie Linnartz’s exit, just a year after assuming the CEO role, raised concerns among investors and analysts. Despite her efforts to revamp Under Armour’s leadership team and product offerings, Linnartz’s departure led to a negative outlook from market experts. The company’s shares have plummeted by about 23% year to date, underscoring the challenges faced by Under Armour. The swift changes in executive leadership, combined with a tumultuous sales performance, have created uncertainty regarding the company’s future trajectory.
Under Armour’s recent financial woes and organizational restructuring underscore the need for strategic recalibration and operational efficiency. The company must navigate the turbulent market landscape by addressing underlying issues and reestablishing its competitive position in the athletic apparel industry. Through decisive leadership and prudent decision-making, Under Armour can overcome its current challenges and chart a path toward sustainable growth and success.