Under Armour plans to cut about 2 percent of its workforce as it restructures its business in the face of slumping sales.
On Tuesday, the sports apparel company reported a narrower-than-expected second-quarter loss but shares fell as the company slashed its sales forecast for the year.
Here’s what the company reported Tuesday vs. what Wall Street was expecting:
- Earnings per share: a loss of 3 cents, adjusted, vs. an expected loss of 6 cents, according to Thomson Reuters
- Revenue: $1.088 billion vs. a forecast for $1.077 billion, analysts said
Under Armour’s stock tumbled more than 8 percent at one point in premarket trading after the news. The stock later pared some of its initial losses, and was recently down nearly 5 percent.
Under Armour said it now expects adjusted earnings for the full year to fall within 37 cents and 40 cents per share, excluding any impacts from restructuring. Analysts had been forecasting Under Armour to earn 42 cents a share in 2017, according to Thomson Reuters estimates.
Further, Under Armour said revenues are now expected to grow 9 percent to 11 percent, lower than its previous forecast of 11 percent to 12 percent growth.
Regarding the newly unveiled restructuring plan, CEO Kevin Plank said that Under Armour intends to increase its speed in getting products to market and grow the retailer’s digital capabilities.
“We’ve identified a number of areas to enhance our operational capabilities, drive process improvement and gain greater efficiencies,” Plank said in a statement. In conjunction with the plan, Under Armour expects to incur pretax charges of $110 million to $130 million in fiscal 2017.
The charges include expenses related to facility and lease terminations, employee severance and benefit costs and contact terminations, Under Armour said. Though, no other details were provided in the company’s earnings release.
A spokeswoman from Under Armour told CNBC that the restructuring will result in about 280 job cuts, or about 2 percent of the company’s global workforce. Half of the cuts will occur at its Baltimore headquarters.
Under Armour said it closed 33 factory outlets and 23 Under Armour-branded stores over the course of the 12 months ended June 30.
“We are utilizing 2017 to ensure that operations across our diverse portfolio of sport categories, distribution channels and geographies are optimized as we are building a stronger, faster and smarter company,” Plank added in a statement.
During the company’s earnings call, Plank said the company’s five focus areas will be men’s training, women’s, running, baseball and lifestyle.
While the company has been growing rapidly compared to some of its peers, Under Armour has finally reached a “transition phase,” Canaccord Genuity Managing Director Camilo Lyon told CNBC. “The reality is, the things Under Armour is trying to change … will take some time to recover.”
Second-quarter revenue rose a mere 8.7 percent to $1.09 billion, with a promotional sales environment in North America continuing to “temper” results, the company said. Within the apparel segment of its business, though, Under Armour said it saw strength in men’s and women’s training and golf items.
Total footwear revenue fell 2 percent in the second quarter.
Under Armour is in the midst or transitioning from a performance retailer to a “broader lifestyle maker,” and from a reliance on sporting goods to a more multi-channel, many-products approach, Lyon told CNBC. “In the interim, the transition will be a bumpy one.”
Earlier this year, Under Armour posted its first loss and initially lowered its forecast for 2017. The retailer had said at the time it expected gross margins to remain under pressure.
During the first quarter, Under Armour’s North American revenue fell 1 percent, “as new distribution was more than offset by the absence of business lost to bankruptcies in 2017,” the company said.
Bankruptcies in the sporting-goods space have posed headwinds for many specialty retailers, including Under Armour and peers Nike and Adidas. Though, some brand names have managed to weather the storm better than others.
“While the overall [Under Armour] brand remains visible, there is evidence to suggest that it does not have the clarity or a sense of purpose in the way that Lululemon or even Nike does,” GlobalData Retail analyst Anthony Riva wrote in a note to clients. “Our consumer data indicate that many people are increasingly uncertain of what Under Armour stands for, or which parts of the sports market it specializes in.”
Meantime, the retailer is testing new partnerships. Starting in March, for example, department store operator Kohl’s began selling Under Armour products in its more than 1,000 stores. But some analysts remain concerned the Kohl’s deal could dilute Under Armour’s brand image in the long run.
Recent earnings results from Dick’s Sporting Goods and Hibbett Sports have been “tough” for investors to digest, Jefferies analyst Radal Konik wrote in a recent note to clients. The results have set many analysts’ expectations lower for Under Armour, he said.
As of Monday’s close, shares of Under Armour have tanked about 49 percent over the past 12 months. The stock is down more than 30 percent for the year-to-date.