Under Armour shares fall as retailer cuts 2% of its workforce, trims 2017 sales outlook


In conjunction with the restructuring plan, Under Armour expects to incur pretax charges of $110 million to $130 million in fiscal 2017. Most of these charges will show up in the third quarter, the company said.

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.

Sales to wholesale customers — those retailers that sell Under Armour’s apparel and footwear — rose 3 percent to $655 million, while direct-to-consumer sales climbed 20 percent to $386 million.

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 reported a narrower-than-expected loss and initially lowered its forecast for 2017. The retailer had said at the time it expected gross margins to remain under pressure. That point was reiterated Tuesday on the call with analysts and investors.

“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 reorganizations 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.”

While Konik remains opptomistic about Under Armour’s long-term potential, the sporting-goods and athletic apparel landscape is firecly competieve today, especially the lifestyle and athleisure category that CEO Plank discussed Tuesday doing more innovation in. There’s been excessive chatter about the playing field becoming overcroded for retailers.

“The problem with the athleisure market isn’t so much that demand is dropping off a cliff, it’s more that supply is excessive and demand is not quite what it once was,” GlobalData Retail Managing Director Neil Saunders said in an interview.

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.

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