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Under Armour To Close Factory And Cut Staff As Struggles Continue
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By Nagasunder in US business news, posted September 10, 2024
Under Armour will close a factory in California and will cut more staff as it battles ongoing financial issues.
The sportswear giant has also doubled its earlier forecast as it grapples with declining sales and ongoing operational changes. The company also lowered its financial outlook for fiscal year 2025. This marks another challenging phase in its efforts to reposition itself as a premium brand.
Doubling Down on Restructuring
The company now anticipates pre-tax charges between $140 million and $160 million for the fiscal years ending in March 2025 and 2026. This figure is up from the previously estimated $70 million to $90 million.
As part of this restructuring, Under Armour will close its distribution facility in Rialto, California, and lay off additional employees, a move aimed at optimizing its supply chain.
According to Chief Financial Officer David Bergman, exiting the Rialto facility is expected to boost financial productivity in the long term.
He said:
“This decision will allow us to streamline our supply chain and improve efficiency, which will ultimately enhance our financial performance."
Increased Losses Forecast for 2025
With the new restructuring measures in place, Under Armour also adjusted its earnings outlook.
The company now expects a loss of 58 to 61 cents per share in fiscal year 2025. This is a larger loss than its previous guidance of 53 to 56 cents.
The company also forecasts an operating loss of $220 million to $240 million, compared to its prior projection of $194 million to $214 million.
Severance-related costs have also risen. The company had initially planned for $15 million in severance expenses, but that number has now doubled to $30 million. These additional costs reflect the deeper cuts necessary to reshape the company’s operations and align them with its long-term strategy.
CEO’s Vision for Long-Term Growth
Under Armour’s restructuring efforts come as part of CEO Kevin Plank’s broader plan to transform the brand.
Plank, who returned to the role of CEO earlier this year, has repeatedly stated that the company is not finished with making changes.
In a recent earnings call, he announced that Under Armour would reduce the number of product units it offers by 25 percent, focusing instead on more exclusive, higher-priced products.
He recently said:
“We are repositioning Under Armour to be a premium brand.
“This means cutting back on discounted merchandise and shifting our focus to delivering quality, high-end products that resonate with our core customers.”
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A Tough Road Ahead
The financial challenges facing Under Armour are not new. Earlier this year, the company warned that there would be no quick fix to its ongoing sales slump.
Despite posting a surprise quarterly adjusted profit, sales have continued to decline as consumer spending weakens and competition intensifies in the global sportswear market.
Under Armour’s struggle is part of a broader trend impacting the retail sector, particularly in the wake of inflation and strained consumer spending. The company’s pivot toward a premium brand strategy is seen as a necessary move, but one that requires significant short-term sacrifices, including cost-cutting measures and a leaner product line.
The Bigger Picture: Impact on the Retail Sector
Under Armour’s restructuring is another sign of the difficulties facing retail companies. They are trying to adapt to evolving consumer preferences and economic pressures.
This means brands like Under Armour are being forced to rethink their product offerings and overall business strategies.
Under Armour will need to balance its new, high-end focus with the realities of consumer spending trends.
Looking Ahead: Will Restructuring Lead to a Turnaround?
The question remains whether Under Armour’s aggressive restructuring and repositioning will pay off in the long run.
By reducing operational costs, optimizing its supply chain, and narrowing its product line, the company hopes to regain profitability and compete with industry giants like Nike and Adidas.
However, these changes come at a cost—both financial and operational. Under Armour will need to carefully manage customer expectations and market perception to ensure its brand remains strong.
The road to recovery for Under Armour will likely be long and filled with challenges, but the company’s leadership is committed to pushing forward with its transformation plan.
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