Under Armour is right to 'rip the band-aid off' with restructuring, but turnaround is still elusive, analysts say

By Ciara Linnane

Stock slides 8% after company says losses will be greater than expected

Under Armour Inc.'s stock tumbled 8% Tuesday, after the sporting goods and apparel maker warned its fiscal 2025 losses would be bigger than expected, prompting analysts to take a more cautious tone on the business.

The Baltimore-based company (UAA) said it now expects to incur higher restructuring costs because of the decision to exit a distribution facility in Rialto, California, by March of 2026. It now expects $140 million to $160 million of pretax restructuring and related charges, which will be booked in fiscal 2025 and 2026.

That's expected to lead to a loss per share ranging from 58 cents to 61 cents for fiscal 2025, wider than the prior guidance for a loss of 53 cents to 56 cents a share. Adjusted EPS is still expected to range from 19 cents to 22 cents.

"We applaud management for continuing to rightsize and restructure, but it's clear that a turn remains elusive," said Jefferies analysts led by Randal J. Konik.

"Brand heat is low, product architecture remains a work in progress, wholesale distribution still needs to be improved, DTC (direct-to-consumer) has yet to become a significant growth driver, and competitive pressures persist. As a result, we continue to see shares range-bound."

Jefferies rates the stock a hold and lowered it's price target by 6% to $7.

Truist analysts Joseph Civello and Scot Ciccarelli also welcomed the company's willingness to "rip the band-aid off', but reiterated a hold rating, "until we have more visibility into brand improvements that can sustainably drive sales growth/margin improvements."

Under Armour has been in restructuring mode ever since Founder Kevin Plank returned to the helm earlier this year, and promptly ripped up the playbook put in place by his female predecessor Stephanie Linnartz.

The executive founded the company in his grandmother's basement while he was still in college and ran it until 2019 when he stepped down amid reports that the U.S. Securities and Exchange Commission and the Justice Department were investigating the company's accounting practices.

Linnartz only had one year to lead the company, although her appointment made history, as she was the first woman to lead a major U.S. sports brand. She brought in talent, including a chief commercial officer, chief communications officer, chief product officer, chief design officer, chief supply-chain officer, president of Americas, president of Europe, the Middle East and Africa, and chief marketing officer.

On a call with analysts after fiscal fourth-quarter earnings in May, Plank said that missteps in the past have made Under Armour a brand that chiefly competes on price and vowed to refresh its assortment and limit discounts.

Stifel took a more bullish tone on Tuesday, welcoming the backing of adjusted EPS guidance and noting the charges are one-offs.

"The cash impact is minimal and, big picture, we continue to viewrisk/reward favorably on a multi-year basis, as the established global brand has capacity to grow inline with the overall market and increase margins, and valuation is undemanding," wrote a team of analysts led by Jim Duffy.

Stifel has a buy rating on the stock. The 28 analysts that offer coverage of Under Armour on FactSet have an average hold rating, although three have sell ratings.

The stock has fallen 22% in the year to date, while the S&P 500 SPX has gained 15%.

-Ciara Linnane

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09-10-24 1144ET

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