On Thursday Under Armour (UAA) said that it was looking at weak sales for the year. It also laid out a restructuring plan that included job cuts and decreased SKUs by 25 percent. The sportswear giant’s forecast caused a temporary dip in share price premarket trading but stock rose by almost 2 percent after CEO Kevin Plank detailed turnaround plans to revive the brand. Nike and Lululemon Athletica have also provided weak guidance. CWEB analysts note that discretionary spending in retail is the new economic reality in the US.
Co-founder of Under Armour, Kevin Plank, returned to helm the sportswear giant as CEO in April. In a post-earnings call, he said, “Too many areas of our product strategy have been designated as priorities. This has caused operational inefficiency and a strain on resources, which has diluted our ability to have a consumer-centric point of view.”
Under Armour has not stated the number of jobs it will cut but has said that it would reduce its style count by a quarter over the next one and a half years. The athletic apparel retailer also plans to add more premium price points in its direct sales to web fans.
Although Under Armour’s fourth quarter earnings beat estimates at 11 cents while expected earnings were at 8 cents per share and posted higher revenue at $1.33 billion in the quarter, the weak guidance about fall in sales has affected the share price.
Under Armour says that fiscal 2025 revenue will fall by a “low double-digit percentage” while LSEG had estimated a 2.1 percent rise and earnings of 59 cents but the company’s estimates of its annual adjusted earnings per share to be in the range of 18 to 21 cents.
Under Armour is planning to restructure the company and estimates that such charges would cost between $70 million to $90 million, including layoff payouts. It plans to buy back $500 million of Class C common stock.
CWEB analyses Under Armour stock as neutral in the long term. Discretionary purchases are expected to continue decreasing as the economy recovers slowly, and such purchases could continue to be slow throughout the year and beyond.
There is weak wholesale demand for sportswear as major retail chains are facing their own share of problems with weak demand. Discretionary spending is at an all time low and is prevalent across different industries and sectors including fast dining and more.
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