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Under Armour on Thursday became the latest athletic brand to announce a business restructuring plan as its chief executive officer Kevin Plank looks to rebuild heat at the struggling brand.
In its fourth quarter earnings announcement on Thursday, which included a forecast of sales in North America falling by 17 percent in fiscal year 2025, Under Armour said it approved a restructuring plan which is expected to cost between $70 and $90 million. Part of these costs will be related to employee severance and benefits costs, suggesting impending layoffs at the struggling sportswear maker. Under Armour declined to comment further on the scope of the layoffs.
Under Armour’s fourth-quarter net income tallied $6.5 million in the fourth quarter, down from earnings of $170.6 million a year earlier. Still, adjusted earnings per share of 11 cents came in better than the 7 cents analysts were projecting, according to Yahoo Finance. Revenues for the three months ended March 31 slipped 4.7 percent to $1.33 billion from $1.4 billion.
Looking ahead, the 18-month reinvention is meant to help Under Armour achieve a premium brand position, especially in North America. It kicks off during an already turbulent time for the company, which in March saw the sudden departure of its CEO Stephanie Linnartz after just a year on the job. Now, brand founder Kevin Plank is back in the CEO role as the company undergoes a broader identity reinvention and a renewed focus on sportstyle and footwear.
Plank said in a Thursday call with investors that he is coming back into the top seat with a “renewed approach” to leadership and “a clear sense of purpose and 100 percent commitment with zero distractions from making Under Armour excellent.” He also called out several recent high-profile hires he helped bring onto the team, including John Varvatos as chief design officer, Yassine Saidi as chief product officer and Yuron White as head of footwear.
Analysts, however, were cautious about the potential for a quick turnaround, given the brand’s lagging presence in the crucial North American market, wholesale declines and an uninspiring product lineup.
“The return of Kevin Plank as CEO will not provide an automatic resolution to any of these issues,” said managing director of GlobalData Neil Saunders in a Thursday note to investors, following the earnings announcement. “However, there are some early signs that management intends to get to grips with the problems of ubiquity and a lack of focus.”
Saunders added that the journey to getting better at storytelling, product and distribution will not be simple, but it is potentially doable in the long-term.
“It will take time to reposition the brand, and successful execution will require some painful decisions that will negatively impact the numbers,” Saunders said. “As such, the year ahead is going to be a very painful one for Under Armour.”
William Blair analyst Sharon Zackfia also said it will take time for Plank’s new efforts to demonstrate results.
“While the goal of resetting the brand to a more premium positioning while narrowing the focus to core fundamentals could very well prove to be a meaningful catalyst over the longer term, the reality is that this will take time to unfold,” Zackfia wrote in a Thursday note to investors.
When Plank reclaimed the CEO role in March, the move was met with muted confidence from investors and analysts. In a mid-April note, Stifel analyst Jim Duffy said Plank’s return represented “a veritable revolving door of CEOs” which included Patrick Frisk, interim CEO Colin Browne, Stephanie Linnartz and now Plank, all in the role since April of 2022.
“Reclaiming the president and CEO role, founder Kevin Plank inherits a strategy he helped shape but a lagging turnaround,” Duffy wrote in the note. “Public market investors are thirsty for North America inflection.”
Wedbush analyst Tom Nikic also noted in a March note that the frequent CEO shifts at Under Armour brought “a layer of inconsistency and uncertainty to the story that investors don’t really want to see.”
However, he noted that while the outlook for 2025 is weak, there is little risk to results falling short of expectations. And according to UBS analyst Jay Sole, there is a tendency for new CEOs to take a more cautious approach to guidance in the beginnning.
“Our view is new CEOs tend to take the opportunity to set guidance low when the market doesn’t yet have an expectation around what the new CEO will do,” Sole write in a May 1 note about Under Armour.
Plank himself admitted to his challenging position, but remained determined to see the transformation through.
“I don’t have a crystal ball beyond fiscal 2025 right now,” he said to analysts. “But we do know that this brand deserves to establish our go-forward voice. I think we have a really clear point of view of how to do that and what success looks like. Now it’s up to execution.”
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