Under Armour looking for tighter fit amid weak sales
Clothing retailer expects to take big financial hit following China outbreak
Under Armour’s shares plummeted Tuesday with the company anticipating a big financial hit from the viral outbreak in China, and it said separately that it may need to restructure this year at a cost of hundreds of millions of dollars.
The athletic gear maker expects the outbreak in China to drag first-quarter sales down by $50 million (U.S.) to $60 million. It’s also looking at pre-tax charges this year of between $325 million to $425 million related to restructuring. Included in those charges would be $225 million to $250 million related to the flagship store, which was slated to open in the famed former location of FAO Schwarz, another retailer that fell on hard times.
The Baltimore company, after years of unbridled success, is now facing significant headwinds. It must contend with intensifying competition from Nike and Lululemon, both of which have created trendier athletic clothes that cater to younger shoppers. Under Armour executives also acknowledged on a conference call Tuesday that the heavy discounting it has used to generate sales may have eroded the willingness of customers to pay full price for its brand.
CEO Patrik Frisk said the company is facing weak demand in North America for goods that are not being put on sale at the same time that its substantial cost structure has prevented the company from spending aggressively to market its brand.
The company swung to a loss of $15.3 million in the final quarter of 2019, or three cents per share. Its adjusted profit was 10 cents per share, meeting the expectations of analysts polled by Zacks Investment Research. But its revenue of $1.44 billion was just short of Wall Street projections.
The company said Tuesday that as important as a New York flagship store might be, its focus must remain with smaller, more profitable stores and online sales.
Numerous global companies have reported supply line and staffing problems because of the outbreak of the coronavirus in China, and Under Armour was no exception. The company anticipates shipping delays and challenges in getting fabric, packaging and other raw materials.
“We think it’s reasonable to expect industry-wide delays in terms of delivery around the world including potentially missed shipment and service windows and the need for increased air freight and additional measures at ports that could create unforeseen congestion,” Frisk told industry analysts Tuesday.
Under Armour Inc. expects fiscal full-year revenue to be down at a low single-digit per cent compared with a year ago. Earnings are forecast between 10 cents and 13 cents per share. Under Armour had been an unparalleled success story in its early years and gone head-tohead with Nike, which had dominated the sports gear market for years.