Under Armor announced a comprehensive restructuring plan following a significant 10 per cent drop in sales within its largest market, North America, and a forecast predicting further decline throughout the current fiscal year.
The athletic apparel retailer's profits plummeted by over 96 per cent in its fiscal fourth quarter compared to the same period last year. The company has not disclosed how many employees will be laid off as part of the restructuring, which is expected to cost between $70 million and $90 million, partially allocated for employee severance and benefits.
In Q4, FY24, Under Armor’s net income declined to $6.6 million from $170.6 million, a year earlier. Excluding one-time items, earnings were 11 cents per share.
Sales fell by 5 per cent to $1.33 billion from $1.4 billion the previous year. North American sales dropped 10 per cent to $772 million, missing analysts' expectations of $780 million according to StreetAccount.
Under Armor projects North American sales to decline between 15 per cent and 17 per cent in the current fiscal year. Kevin Plank, CEO attributed the decline to lower wholesale demand and inconsistent business execution, emphasising the need for strategic decisions to enhance the brand's premium positioning, despite short-term financial pressures.
The company anticipates a ‘low-double-digit percentage rate’ revenue decline this fiscal year, contrary to analysts' expectations of 2.1 per cent growth according to LSEG. To improve gross margins, Under Armor plans to reduce promotions and discounting, expecting an increase of 0.75 to 1 percentage point for the fiscal year.
This turbulent quarter follows the recent departure of former CEO Stephanie Linnartz, who left after less than a year in the role. Kevin Plank, the company's founder, has resumed the CEO position. Linnartz was the second CEO to leave within two years, having been hired for her success with Marriott's Bonvoy loyalty program and digital revenue growth, despite her lack of retail experience. Before her departure, she revamped the C-suite and expanded the loyalty program, pivoting towards more stylish athleisure options aimed at women.
Plank aims to reverse some of Linnartz's initiatives, refocusing on the core men’s apparel business, which he believes suffered due to a shift in focus. He emphasised that this does not mean deprioritizing footwear or women’s business but highlighted that men’s apparel would be the highest priority.
As part of the reset, Under Armor plans to reduce its style counts by 25 per cent over the next 18 months and shorten product development cycles from 18 months to 6-12 months. This restructuring will streamline operations, reduce silos, and align staff efforts with the primary goal of selling more shirts and shoes.
