Despite the forecasts that Under Armour would only earn $1.077 billion, they still managed to exceed the expectations of analysts by getting $1.088 billion instead. Aside from that, they also managed to only have a loss of 3 cents instead of the expected loss by 6 cents courtesy of Thomson Reuters. However, for the rest of the year, things aren’t looking so good for employees of the brand, as their restructuring plan involves cutting 280 jobs (out of 15,000) from their workforce.
Those 280 jobs make up about 2 percent of their global workforce and cutting it is one of the most shocking announcement they’ve made regarding their business restructuring. While they did exceed expectations, there’s still no denying that Under Armour is operating at a loss, with shares falling while they trimmed their sales forecast for the year.
Just a year ago, the company reported that they had lost 12 cents per share on their total revenue of $1.001 billion. As for 2017, their stocks fell down by more than 8 percent, reaching a low of $18.20 per share. As of the moment, Under Armour is optimistic that their earnings for the whole year will be around 37 cents to 40 cents per share, not including any impacts caused by their restructuring. On the other hand, analysts at Thomson Reuters are saying that they estimate the brand to earn about 42 cents per share for 2017. Furthermore, Under Armous expects their revenue to rise up by 9 to 11 percent, which is quite lower than their previous prediction of 11 to 12 percent growth.
As part of their restructuring plan, the brand’s CEO Kevin Plank mentions that they intend to increase the speed of introducing more of their products to the market and expand the company’s digital endeavours.
“We’ve identified a number of areas to enhance our operational capabilities, drive process improvement and gain greater efficiencies. We’ve represented performance and that gives us permission to go into lifestyle, and we feel that there’s a lot of people that are in our space and category right now that don’t exactly have the staying power — the ability to be there,” says Plank in a statement during the company’s earnings conference call.
Plank also mentioned that moving forward, Under Armour shall have five focus areas in terms of product development: men’s training, women’s, running, basketball and lifestyle. He also put an emphasis on their brands push in lifestyle.
Under Armour also mentioned that they’ll be expecting $110 million to $130 million in pretax charges as a result of their restructuring, with most of these charges popping up by the third quarter of 2017. These charges will include their expenditures for facility and lease terminations, as well as severance pays for employees, benefit costs, and termination of contracts. Other than those, no other details were given in relation to the company’s earnings.
A majority of the job cuts will be done at Under Armour’s headquarters in Baltimore, with the rest being removed in other areas where the company has a presence.
“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 said to analysts and investors on Tuesday.
The company also opened 33 factory outlets and 23 Under Armour stores all over the globe during the course of 12 months ending in June 30th of this year.
“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.
While there’s no denying that Under Armour’s rise in ranks was quite rapid compared to other brands, they’ve finally reached their “transition phase.” “The reality is, the things Under Armour is trying to change … will take some time to recover,” says Camilo Lyon, Canaccord Genuity managing director, to CNBC.
This restructuring is also occuring because of Under Armour’s desire to shift from being lauded for having well-made performance gear into being a “broader lifestyle maker.” They’re also attempting to expand from being mostly sold in sporting good stores to being available at multi-channel mediums. Lyon has also mentioned that Under Armour’s “transition will be a bumpy one.”
Trouble in sports brand paradise?
Recently, athletic companies have been undergoing restructuring in order to reinvent their brands and still remain in the ever-growing competition. Just recently, Nike also announced a reorganization and job cuts (incidentally cutting 2% of their total workforce just like Under Armour). On the other hand, Adidas announced a much better looking earnings and sales forecast for 2017 compared to competitors.
In the meantime, Under Armour is testing the waters with new partnerships. Last March, they struck a deal with department store chain, Kohl’s, and started having their products sold on the shelves of more than a thousand branches. Some analysts are concerned that this deal might end up “softening” Under Armour’s image. The sports brand didn’t provide any updates with the deal as of Tuesday.
“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,” says GlobalData’s Retail Managing Director Neil Saunders during an interview with CNBC last June.
Still, shoes are the main reason why Under Armour’s brand grew so quickly and put them in the same league as more established brands such as Nike and Adidas. However, it’s still unclear if their brand can have the same longevity and prestige as the aforementioned ones. Plank admits that their company’s revenues are mostly fueled by footwear sales, that’s why it’s still their focus.
“We’re not sitting here tone-deaf saying we’re just going to make cleats. Like, we understand what the market’s asking for.”
Stephen Curry still remains as Under Armour’s biggest celebrity endorser, with the brand hoping that the Curry 4 will push the rest of their footwear line to the top of the ranks. While it won’t be available to the public until the fall, the NBA superstar already showed off the shoes during the NBA Finals (to positive feedback) last June. Stephen, along with his brother Seth Curry, is currently on tour in Asia to promote Under Armour with basketball clinics and showing off the brand’s latest sneakers.
While the brand has Stephen Curry on their side, they still can’t surpass the big names in Nike’s arsenal, especially when it comes to basketball. Nike has Kyrie Irving, Kevin Durant, and LeBron James on their list– and who can forget the iconic Jordan franchise of the brand?
On the other hand, Under Armour’s roster has Greivis Vasquez and Kent Bazemore. They also recently signed Josh Jackson (former University of Kansas player and fourth overall draft pick during the NBA Draft 2017) to a multiyear endorsement deal. So far, Stephen Curry is their most bankable star. However, with the Josh Jackson deal, there’s a good chance that Under Armour just scored excellently by choosing a top NBA prospect even before he proves his worth in the court.
Another venture by Under Armour this year is their customizable footwear platform dubbed as Icon, which was introduced this summer. This allows buyers to choose their own colors and patterns on shoes, as well as opt for limited edition prints. More dedicated sneakerheads can even use their own photos or images on the footwear.
“We’re going to make a meaningful number of pairs of shoes this year that’ll give us the attention and the scale that we need in order to be a long-term player in this space. And so a lot of what you’re hearing today is how Under Armour’s positioning for long term and I think that plays out in no category more so than footwear,” says Plank
With so many changes happening in the markets since the year began, there’s no saying what else is going to be announced by sports brands. A handful of them have announced restructing or relocations, so let’s all keep our fingers crossed that all of this would have a positive outcome on the products that they’ll be churning out for consumers.