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 trimmed its sales forecast for the year.
Here’s what the company reported 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
Those results compare with a year-earlier loss of 12 cents per share on revenue of $1.001 billion.
Under Armour’s stock tumbled more than 8 percent at one point in premarket trading Tuesday after the news. It later pared some of the initial losses and was recently down about 4 percent. The shares were down 8.9 percent in early trading.
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 revenue is now expected to grow 9 to 11 percent, lower than its previous forecast of 11 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 expand 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.
During the company’s earnings call, Plank said Under Armour’s five focus areas will be men’s training, women’s, running, basketball and lifestyle.
In conjunction with the restructuring plan, the company 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 contract terminations, Under Armour said. 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.
“After 6½ years of more than 20 percent top-line growth that ended in the fourth quarter of last year, we are clearly operating in a different environment, particularly in our largest market [of] North America,” Plank told analysts and investors on Tuesday.
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.
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 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 multichannel, 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.
“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.”
Notably, Nike and Under Armour have both announced reogranizations and job cuts within their businesses this summer, as German rival Adidas earlier this week reported an earnings beat ahead of schedule and upped its financial outlook.
Meantime, Under Armour 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 Randal Konik wrote in a recent note to clients. The results have set many analysts’ expectations lower for Under Armour, he said.
“The company was spending too much money and wasn’t being efficient,” Konik said on Tuesday. “The willingness to get focused on cost discipline is a huge positive in our view and will lead to better long-term margin structure and improved return on capital.”
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.
UAA 12-month performance