Under Armour announced a broad restructuring plan on Thursday as it said sales in its largest market, North America, plunged 10% and predicted the trend will get worse throughout its current fiscal year.
The athletic apparel retailer also saw profits plunge by more than 96% during its fourth fiscal quarter, compared with the year ago period.
It’s unclear how many employees Under Armour will lay off as part of the restructuring, but the plan is expected to cost between $70 million and $90 million, a portion of which will be used for employee severance and benefits costs. The company declined to share more information with CNBC about its restructuring.
Shares dropped about 10% in premarket trading.
Here’s how the athletic apparel retailer did in its fourth fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: 11 cents adjusted vs. 8 cents expected
- Revenue: $1.33 billion vs. $1.33 billion expected
The company’s reported net income for the three-month period that ended March 31 was $6.6 million, or 2 cents per share, compared with $170.6 million, or 38 cents per share, a year earlier. Excluding one-time items, the company reported earnings of 11 cents per share.
Sales dropped to $1.33 billion, down about 5% from $1.4 billion a year earlier.
During the quarter, sales in North America dropped 10% to $772 million, worse than the $780 million that analysts had expected, according to StreetAccount.
The company said it expects sales to continue to worsen in North America. The company anticipates they will drop between 15% and 17% in its current fiscal year.
“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,” founder and CEO Kevin Plank said in a statement.
“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.
Across Under Armour’s business, the company is expecting revenue to be down “at a low-double-digit percentage rate” in its current fiscal year, while analysts had expected sales to grow by 2.1%, according to LSEG.
The company is planning to cut down on promotions and discounting, which it expecting will lead its gross margin to rise between 0.75 and 1 percentage point for the fiscal year.
It’s expecting diluted earnings per share to be between 2 cents and 5 cents and adjusted diluted earnings per share to be between 18 cents and 21 cents for the year. Analysts had expected earnings per share of 52 cents, according to LSEG.
Under Armour’s rough quarter comes about two months after the retailer announced former Marriott executive Stephanie Linnartz would be stepping down from her role as CEO after barely a year on the job and Plank would once again take the helm of the company he founded in 1996.
Linnartz was the second CEO the company has cycled through in less than two years.
She was hired on a bet that her experience building out Marriott’s renowned Bonvoy loyalty program and driving digital revenue for the hotel giant would offset her lack of experience in the retail industry. Prior to her departure, she managed to overhaul Under Armour’s C-suite, build out its loyalty program. She was attempting to pivot the brand’s assortment to a more athleisure-focused offering that had more stylish options for women.
Ultimately, she was ousted before those plans could become a reality. Following the announcement of Linnartz’s departure, a number of analysts downgraded Under Armour and lowered their price targets. Shares of the company were down about 23% year to date, as of Wednesday’s close.
Read the full earnings release here.