Amid declining footwear sales and tepid growth in North America, the Baltimore-based brand today announced a restructuring plan that includes laying off two percent of its workforce — or 280 employees — as well as lease terminations.
Overall, the company expects $110-$130 million in restructuring charges in fiscal 2017, including up to $25 million in facility and lease terminations, $15 million in employee severance and benefits costs and $30 million in contract termination and other restructuring charges. Another $60 million in non-cash charges are expected from inventory expenses and other asset-related impairments.
“First, we restructured the company around category management, with the goal of streamlining operations to increase speed across all parts of our business,” CEO Kevin Plank told investors about the plan during a conference call today. “Second, we’re implementing clear and broad-based SG&A savings initiatives and embedding new practice to incur stronger stewardship … And third, [we’ll have] an elevated focus on return of investment in the cost of capital.”
He added, “We are not standing still. In addition to streamlining our organization for greater operational efficiency, we’ve already taken proactive steps throughout the first half of 2017 to address our short and long-term opportunities, enhancing, upgrading, restructuring and leadership.”
Despite Plank’s optimistic posturing, investors — who have been nervous about UA’s tapering growth over the past year — aggressively sold off the stock, sending shares tumbling more than seven percent in early morning trading. As of 11 a.m. EST, UA shares remained down nearly six percent, to $17.04.
For the second quarter, also announced today, the brand experienced revenue growth of nine percent, to $1.09 billion — a modest beat against market watchers’ predictions for revenues of $1.08 billion.
The company said a “dynamic and promotional retail environment in North America” continued to “temper” its results in the region, making growth flat year over year. Meanwhile, the footwear category significantly decelerated, posting a year-over-year decline of two percent, to $237 million. It was a far cry from the comparable period when footwear revenues — boosted by momentum in the Curry sneaker franchise — soared 58 percent.
Despite the slowdown, Plank said he continues to see footwear as UA’s largest opportunity.
“What we can tell you is that we sit here in what seems like year 11 — although we spent the first six of those introducing new categories, from football cleats, baseball cleats, training shoes, running shoes, basketball shoes [and so on] — is that we’re now finally in a place that we have positioned, we have designed, we have supply chain, merchandising, style and influencers … we feel like we are in that position to do it,” Plank said. “We just have to execute on it.”
Overall, the company posted a net loss of $12.3 million, or three cents per share — better than analysts’ expectations for a loss of seven cents per share.
Looking ahead, the firm also downward-adjusted its full-year outlook. UA now expects revenues to grow nine to 11 percent versus its previous forecasts of 11 to 12 percent growth, reflecting moderation in the company’s North American business. On a reported basis, full- year diluted earnings per share is expected to be 18 cents to 21 cents. Excluding the impact of the restructuring plan, full-year adjusted diluted EPS is expected to reach 37 cents to 40 cents.
Under Armour’s layoffs and larger restructuring efforts come at a time when footwear, apparel brands and retailers have been shouldering a slew of challenges, including digital disruption and consumer shifts toward experiential spending. Sneaker behemoth Nike, Inc. also announced on June 15 it plans to cut two percent of its workforce.