Under Armour has announced plans for an extensive restructuring, which will result in significant layoffs this year as its sales continue to plummet on its most profitable continent.
The apparel company’s decision comes as sales in the U.S., Canada and Mexico fell by a staggering 10%, and experts predict this could worsen by the end of the fiscal year.
Under Armour’s Sales Continue to Drop
Under Armour, an American sportswear company that manufactures apparel and footwear is one of the nation’s most popular clothing brands. Yet, this year, the company has experienced a significant drop in sales.
During its fiscal fourth quarter this year, the athletic retailer witnessed its profits sink by 96% when compared to the same period last year, according to CNBC. This has caused alarm bells to ring throughout the company.
Under Armour’s Plans to Restructure
Due to the significant drop in profits and the 10% decrease in North American sales, Under Armour announced restructuring plans, which aim to get the company back on track.
The extensive plan will unfortunately lead to many layoffs, yet the exact amount has not yet been specified. As things stand, the company has declined to share any information on the cuts. However, it’s expected to cost around $80 million, some of which will be used for employee severances.
How Under Armour Did in the Fourth Quarter
According to data sourced from analysts at LSEG, the apparel company’s net income was $6.6 million, or 2 cents per share, in the fiscal quarter that ended on March 31.
The company’s net income has significantly dropped compared to the $170.6 million or 38 cents per share it earned a year earlier. Sales from the same year-on-year period are down by around 5%, from $1.4 billion to $1.33 billion.
Sales Expected to Drop Further
During the three-month period, Under Armour’s sales in North America experienced a 10% drop to $772 million. This is slightly worse than the $780 million that was initially projected by analysts.
A spokesperson for Under Armour said they expect their sales to continue to decline in North America. Their own estimations suggest that by the end of the current fiscal year, their sales will have dropped between 15% and 17%.
Under Armour CEO Speak on Plummeting Sales
Founder and CEO of Under Armour, Kevin Plank, released a statement on the recent drop in sales and income.
“Due to a confluence of factors, including lower wholesale channel demand and inconsistent execution across our business, we are seizing this critical moment to make proactive decisions to build a premium positioning for our brand, which will pressure our top and bottom line in the near term,” he said.
Under Armour Plans to Return to Core Fundamentals
According to Plank, the company will attempt to reconstitute the brand by returning to its core fundamentals over the next year and a half during the restructuring.
“Over the next 18 months, there is a significant opportunity to reconstitute Under Armour’s brand strength through achieving more, by doing less and focusing on our core fundamentals,” he added.
Revenue Down to a Low Percentage Rate
Under Armour’s financial experts expect revenue to be down “at a low-double-digit percentage rate” across the entire business in the current fiscal year. However, analysts have projected that sales could grow by around 2.1%.
In an attempt to increase its gross margin by one percentage point this fiscal year, the company is planning to cut back on discounting and promotions.
A Lack of Leadership
Plank returned to the role of CEO just two months ago after former Marriott executive Stephanie Linnartz stepped down from the role after just a year in charge. Plank admitted during a call with analysts that a lack of leadership was one of the company’s primary issues.
“With several CEOs and heads of products, marketing, and North America over the past half-decade, ongoing turnover of critical leadership has been central to our inability to stay agile and decisive,” said Plank.
Under Armour CEO Claims Companies Problems Will Be Rectified
Speaking with the analysts, Plank claims the company had “taken our eyes off” the core of the business, which is men’s apparel. This has “significantly impacted” the brand and, unfortunately, led it to become “more promotional and commoditized.”
“We will rectify this,” said Plank. “This focus does not mean that we are deprioritizing our footwear or women’s business per se, but from a sequencing perspective, men’s apparel will be our highest priority.”
Major Reductions at the Company
Over the next 18 months, Plank reveals the company has plans to reduce its style count by a staggering 25%. Under Armour is also aiming to cut down the amount of time it takes to get new products from the showroom to retail stores.
The restructuring set to occur over the next year and a half will focus on streamlining Under Armour’s business and effectively returning to its primary goal of “Selling more shirts and shoes.”
We Are Doing Too Much, Says CEO
“We are simply doing too much stuff. There are too many products, too many initiatives, too much of too much,” said Plank.
“To reconstitute this brand, we must be highly focused and prioritize what needs to get done so that our teams know exactly what to do with a clear definition of success.”
