Under Armour Approves Restructuring, Warns Of Collapse In Clothing Demand As Buyback Authorized To Save Plunging Stock

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by Tyler Durden
Thursday, May 16, 2024 - 03:25 PM

Under Armour CEO Kevin Plank needs to spend long weekends at his thoroughbred horse breeding farm in steeplechase country in upper Baltimore County to reflect on what has happened to the sportswear company over the past decade. Once a star of the apparel industry, UA is now undergoing a restructuring as its share price plunged to 2010 levels. 

Let's skip the fourth quarter fiscal 2024 report and focus on the restructuring plan and the dismal outlook for the year. 

UA's Board of Directors approved a restructuring plan estimated to cost about $70 million to $90 million - including employee severance and benefits costs. 

  • Up to $50 million in cash-related charges, consisting of approximately $15 million in employee severance and benefits costs, and $35 million related to various transformational initiatives, and

  • Up to $40 million in non-cash charges comprised of approximately $7 million in employee severance and benefits costs and $33 million in facility, software and other asset-related charges and impairments.

This year's fiscal outlook is beyond bleak and outright horrible, with demand expected to implode across the North American segment.

Here are the highlights of the outlook:

  • Revenue is expected to be down at a low-double-digit percentage rate. This includes an expected 15 to 17 percent decline in North America as the company works to meaningfully reset this business following years of heightened promotional activities, particularly in its DTC business and a low-single-digit percent decline in its international business due to more conservative macro consumer trends and actions to protect the brand strength it has built.

  • Gross margin is expected to be up 75 to 100 basis points compared to the prior year, driven by a material reduction in promotional and discounting activities in the company's direct-to-consumer business and product costing benefits.

  • Selling, general, and administrative expenses are expected to be down 2 to 4 percent.

  • Operating income is expected to be $50 to $70 million. Excluding the mid-point of anticipated restructuring charges, adjusted operating income is expected to be $130 to $150 million.

  • Diluted earnings per share is expected to be between $0.02 and $0.05. Adjusted diluted earnings per share is expected to be between $0.18 and $0.21.

  • Capital expenditures are expected to be between $200 to $220 million.

Plank commented on the outlook: 

"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.

"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: driving demand through better products and storytelling, running smarter plays like simplifying our operating model and elevating our consumer experience. In parallel, we're focused on cost management and implementing the strategies necessary to grow our brand and improve shareholder value as we move forward."

And, of course, to ensure the company's stock doesn't go to zero, the Board of Directors authorized the repurchase of up to $500 million of UA's outstanding Class C common stock. 

Shares initially opened at 2010 lows.

...have since found a panic bid on the buyback announcement. 

Sigh, Plank.