Under Armour to cut 400 more jobs in turnaround push, shares rise

By Aishwarya Venugopal

(Reuters) – Under Armour Inc (UA.N) (UAA.N) announced 400 job cuts on Thursday and raised its forecast for adjusted profit to the high-end of an earlier range, deepening cost-cuts in the face of rising competition from Nike (NKE.N) and Adidas (ADSGn.DE).

The company’s shares rose over 5 percent to $19.74 in early trading, bringing gains for this year to more than 30 percent.

That rise largely reflects a vote of confidence from investors in the company’s shift to focus more on international expansion than a U.S. market where its bigger rivals have muscled it out over the past two years.

Under Armour sales and share value surged in the three years after 2013 on the back of big sponsorship deals with Scottish tennis star Andy Murray and NBA star Steph Curry, grabbing market share from Adidas, Nike and Puma.

Analysts still place it as the world’s third-biggest sportswear maker but rivals have fought back in the years since and shares in the company fell steadily throughout 2016 and 2017.

“Competition still remains an issue,” said Neil Saunders, managing director of GlobalData Retail.

Initial signs from channel checks and online sales are that Nike is also set to get a boost from a controversial ad campaign, launched earlier this month, featuring former NFL player Colin Kaepernick.

Sales in North America have risen only once in Under Armour’s past four quarters, also due to the bankruptcies of sporting goods retailers.

“[Under Armour] has created a lot of confusion with too many ranges and by widening its distribution channels,” Saunders said.

To compensate for patchy sales in North America, Under Armour has ramped up spending on international expansion and improving its online business. International sales have been growing at a double-digit pace over the past few quarters.

The company now expects annual adjusted earnings of 16 to 19 cents per share, compared with a previous estimate of 14 to 19 cents. Analysts on average are expecting 16 cents per share, according to Thomson Reuters I/B/E/S.

This is the second round of job cuts for the Baltimore-based company, which cut 277 jobs last year.

In February, Under Armour said it expects “at least $75 million in savings annually beginning in 2019 and beyond” from restructuring plans in 2017 and 2018.

Under Armour said it expects between $200 million and $220 million in expenses related to the latest rejig, slightly higher than an earlier estimate. The restructuring would reduce 3 percent of its global workforce and would be the final update to its 2018 plan, the company said.

The job cuts are expected to be completed by March 2019.

“Today’s announcement should squash any doubt surrounding the positive trajectory for sustainable operating margin improvement ahead,” Jefferies analyst Randal Konik said.

(Reporting by Aishwarya Venugopal in Bengaluru; Editing by Sriraj Kalluvila and Patrick Graham)


Author: Prakash Poojary

Business Analyst

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