After years of rapid growth, Under Armour reported its second straight quarterly loss Tuesday and said it was cutting about 280 jobs — 2 percent of its global workforce — as part of a restructuring to adapt to changes in the market.
About half the layoffs — some 140 — were effective immediately at the sports brand’s Baltimore headquarters, a distribution center in Curtis Bay, an outlet store near the warehouse and a Brand House store in Harbor East. Under Armour employs about 2,100 at its Locust Point corporate offices.
“As we execute against these difficult and necessary steps to evolve from good to great operations, our vision remains the same — making all athletes better through passion, design and the relentless pursuit of innovation,” the company said in a statement.
The job cuts represent a departure for a rapidly growing and still-evolving Under Armour, which — at 21 years old — is much younger and smaller than rivals Nike and Adidas. Before the end of last year, Under Armour had reported quarterly sales gains of 20 percent or more for nearly seven years.
“It’s the end of an era for Under Armour,” said Neil Saunders, an analyst with the research firm GlobalData Retail. “Under Armour has been kind of a darling of the industry. It was growth upon growth. It really couldn’t put a foot wrong.
“This is now about consolidation and much more conservative growth and becoming more efficient.”
Under Armour has long had ambitious plans. Founder and CEO Kevin Plank’s Sagamore Development is building a new corporate campus on the waterfront in Port Covington that could support as many as 10,000 employees, nearly five times the number at its current base. Baltimore has committed to borrowing up to $660 million to help finance infrastructure around the development. New property tax revenue generated by the project would go to repay those bonds.
The Baltimore Sun has a long-term lease on a building on the property that houses the newspaper’s printing presses
Under Armour “remains committed to Baltimore and the future expansion in Port Covington,” a spokeswoman said. “The expansion contemplated in the master plan will be based on the pace of the company’s growth. Phase I design will progress as required to accommodate this pace.”
The sports apparel maker reported a net loss of $12 million, or a loss of 3 cents per share, for the three months that ended June 30. That beat Wall Street estimates of a loss of 6 cents per share. Sales rose 9 percent to $1.1 billion, also beating analysts’ estimates.
In April, Under Armour reported its first quarterly loss since it became a public company in 2005.
Shares fell more than 8.5 percent to $18.30 each Tuesday.
Under Armour on Tuesday also revised its full year sales forecast. Because of a slowdown in business in the U.S. and Canada, sales are expected to grow 9 percent to 11 percent instead of as much as 12 percent as previously anticipated.
The company promised an overhaul of its operations to build a faster, more flexible organization and meet the demands of a changing consumer landscape. The brand has more than doubled sales over the last three years to $4.8 billion and grown to 15,000 employees.
The overhaul is intended to let a company of its size increase the speed with which it brings new products to consumers, boost its digital and online business, and operate more efficiently. In a conference call with analysts Tuesday, Plank said the company took a holistic approach to its road map for growth, re-evaluating how it develops products and where, when and how it reaches consumers.
“The playbook that got us to $5 billion is only part of what will deliver our next chapter of growth,” Plank said. “Stronger, faster, smarter: That’s the goal. That’s our objective.”
He said the brand has had to make “significant investments” as the business has more than doubled over the last three years.
Tuna Amobi, an analyst with CFRA Research, said Under Armour “is in a reset mode.”
“The expectations are dramatically reduced in terms of the growth outlook,” he said. “Under Armour was perceived to be getting share at the expense of Nike. That’s no longer the case.”
Under Armour has been hit by industry headwinds that have hurt other sports brands, such as more competition from lower-priced apparel manufacturers, a slower pace of sales in both the performance apparel and footwear categories, and changes in buying habits amid the rise of online shopping. But analysts say the brand also has begun to fall out of favor with younger consumers, losing some of its cool factor, and some recent product launches have registered only a lukewarm reception.
Often, that has more to do with the emotional connection between a brand and its customers or how much a star endorser influences consumer decisions than with the product itself, said Sam Poser, a senior footwear and apparel analyst for Susquehanna Financial Group.
Poser said the company has been challenged as it tries to evolve from a brand that sells apparel — which still accounts for most of its sales — to an apparel and footwear brand, and from a performance gear-based brand catering to athletes to a lifestyle brand selling clothing people want to wear on and off the court and field.
“If they create that emotion, it can evolve into a lifestyle item, regardless of what it is,” Poser said. “Jordan Spieth influences positive purchasing decisions within the golf community, but they’ve got to get to the kids.”
Plank devoted much of his time in the conference call outlining how the company plans to become stronger, in part with the launch of new products and lifestyle collections. He pointed to new lifestyle and basketball footwear, a Cam Newton signature training shoe, a Bryce Harper signature shoe and the coming Curry 4 basketball shoe, worn in the NBA finals by Stephen Curry.
Saunders, the GlobalData analyst, said Tuesday’s developments shouldn’t have a significant impact on the company’s ability to recruit.
“If you want to get senior-level executives, it’s very important to sell the story of growth,” he said. “But it’s still a successful brand. It’s still a brand a lot of people would like to work for.”
Under Armour says it plans key changes in focus, shifting from being known as a company of products to a consumer-led and category-managed brand, and pivoting from a predominantly men’s brand to one that sells distinct collections for men, women and children. A brand with roots in the U.S. apparel market, it will focus on a global portfolio of apparel and footwear and on online selling.
The company expects restructuring charges of about $110 million to $130 million in fiscal 2017, including for facility and lease terminations and employee severance and benefits costs.
Estimated pre-tax costs include up to $70 million in cash charges, including up to $25 million in facility and lease terminations and $15 million in employee severance and benefit costs and $30 million in contract termination and other charges. Noncash charges include about $20 million related to inventory. The company offered no details about which leases would be shed or whether any Under Armour-branded stores are to close.
Sales to wholesale customers, retailers that sell the sports apparel and footwear, rose 3 percent to $655 million, while sales through websites and company-branded stores were up 20 percent to $386 million.
Online shopping has radically shifted buying habits and this year alone dozens of retail chains have closed hundreds of stores or gone out of business altogether.
Nike recently partnered with Amazon to sell some products on the online giant. Under Armour is building a new distribution warehouse at Sparrows Point to be devoted solely to fast-growing Internet sales.
The company said earlier this year it was laying off about two dozen employees in its Connected Fitness unit. The affected employees were located mostly in Copenhagen, where the Baltimore-based company purchased the fitness app Endomondo in 2015.
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