Under Armour's Stock Tumbles Over 10% Amid Escalating Restructuring Costs
Under Armour Inc. experienced a significant stock decline of over 10% following the announcement that its fiscal 2025 restructuring costs would surpass initial estimates. The athletic apparel maker revised its projected pre-tax restructuring charges, leading to a downward adjustment in its earnings outlook.
By
Sep 10, 2024
Escalating Restructuring Costs
Initially, Under Armour estimated its restructuring charges for fiscal 2025 to be between $70 million and $90 million. However, recent evaluations have led the company to increase this estimate to a range of $140 million to $160 million. This substantial revision is primarily attributed to the decision to close a distribution facility in Rialto, California, by March 2026, which added approximately $70 million in expenses to the restructuring plan.
Impact on Earnings Outlook
The increased restructuring costs have prompted Under Armour to adjust its earnings projections for fiscal 2025. The company now anticipates a net loss per share between 58 cents and 61 cents, compared to the prior forecast of a 53 cents to 56 cents loss per share. Additionally, the operating loss is expected to range from $220 million to $240 million, up from the previous estimate of $194 million to $214 million.
Market Reaction
Following the announcement, Under Armour's shares fell by approximately 10% to $6.74, marking a nearly 24% decline year-to-date. citeturn0search4 This sharp drop reflects investor concerns over the escalating costs and the company's ability to navigate its restructuring effectively.
Strategic Restructuring Initiatives
Under Armour's restructuring plan, initiated under the leadership of returning CEO Kevin Plank, aims to streamline operations and refocus on core competencies. The strategy includes reducing promotions, trimming inventory, cutting workforce, and emphasizing higher-margin products such as men's apparel. Plank, who reassumed the CEO role earlier this year after stepping down in 2019, is steering the company through this transformative phase to address past inefficiencies and revitalize the brand.
Analyst Perspectives
Analysts have expressed mixed reactions to Under Armour's revised outlook. Some view the proactive approach to restructuring as a necessary step to address underlying issues, even if it entails higher short-term costs. However, concerns persist regarding the company's ability to achieve a successful turnaround amid a competitive market landscape. The increased restructuring charges and the broader challenges faced by the brand have led to a cautious stance among investors and analysts alike.
Broader Industry Context
Under Armour's challenges are not isolated; the broader apparel and retail industry has been grappling with shifting consumer preferences, supply chain disruptions, and economic uncertainties. Competitors like Nike and Lululemon Athletica have also faced market pressures, reflecting the sector's volatility. Under Armour's intensified restructuring efforts underscore the brand's endeavor to adapt and remain competitive in this evolving landscape.
Looking Ahead
As Under Armour progresses with its restructuring initiatives, the focus will be on executing strategic changes effectively to restore profitability and market confidence. The company's ability to navigate these challenges and deliver on its revised outlook will be pivotal in determining its trajectory in the highly competitive athletic apparel market.
