Now in its second year, Under Armour’s campaign to regain its swagger will end up costing 680 employees, nearly 5 percent of its global workforce, their jobs.
Cutting jobs, however, isn’t necessarily a bad sign for the company. Brands like Under Armour that experience explosive growth often need to reassess their operations, make sure they’re streamlined, and that often includes a series of layoffs.
“This isn’t uncommon. When you see companies that have very rapid growth you see they’ll spend time right-sizing,” said Karyl B. Leggio, a professor of finance at Loyola University Maryland’s Sellinger School of Business.
Under Armour said Thursday it is cutting 3 percent of its overall workforce, or about 400 employees. The firm’s operating loss for the year is now expected to be approximately $160 million. Previously, the company projected those loses to be in the range of $130 million to $160 million.
The job reductions will take place by March 31, the company said. An Under Armour spokesman declined to discuss details about the number of jobs to be eliminated in Baltimore.
“Baltimore has been the bedrock of our winning brand and we are deeply committed to the city we call home. This community is a key to the innovation that will allow us to reimagine the future. Through this transition, we will be approaching every teammate with the utmost care and respect, but these are necessary steps to become a more operationally excellent company,” according to the emailed statement.
Under Armour previously expected the costs associated with its 2018 restructuring plan to be in the range of $190 million to $210 million. Diluted earnings per share, excluding restructuring impacts, were anticipated to be between 16 and 19 cents. That’s been reduced to between 14 and 19 cents.
“In our relentless pursuit of running a more operationally excellent company, we continue to make difficult decisions to ensure we are best positioned to succeed,” Under Armour Chief Financial Officer David Bergman said in a statement announcing the cuts. “This redesign will help simplify the organization for smarter, faster execution, capture additional cost efficiencies, and shift resources to drive greater operating leverage as we move into 2019 and beyond.”
In response to recent struggles, the company has cut jobs, reshuffled management and restructured operations. Under Armour has reduced the number of products it sells, streamlined distribution and backed off pursuit of high-profile endorsement deals.
In August 2017, amid the company’s first prolonged slump after years of growth, CEO Kevin Plank announced a restructuring plan to get the brand he founded back on track. That included slashing 280 jobs, roughly 2 percent of its workforce at the time.
The company showed momentum in the second quarter after its two-year downturn. Under Armour beat investor expectations by posting a $95.5 million loss in the second part of 2018. The brand’s first increase in North American sales in a year, according to Bloomberg, drove the better-than-expected performance.
Companies that cut jobs are often rewarded by stockholders. From a shareholder perspective, Leggio said, firings are viewed as a company staying focused on results.
Investors, generally, liked the news from the company on Thursday. Its stock started the day trading at $19 a share, and increased to $21.10 in the afternoon. The stock price dipped before finishing at $20 a share at the end of trading.
That’s still way off the company’s all-time high stock price of $53.78 posted in 2015. But it’s an improvement on the $16.54-a-share price a year ago.
Under Armour’s stock value steadily increased through the late winter and early summer of 2018. It trended up from $16 a share on March 20 to a recent high of $24.31 on June 6. The price then declined through July, eventually falling to $19.09 a share on Aug. 1.
The price increased again at the start of last month, but took a dive after Dick’s Sporting Goods partly blamed the athletic apparel and footwear maker for weak second-quarter sales. The sporting goods retailer faulted Under Armour for expanding the sale of its products at discount retailers, such as Kohls.
“In addition, we experienced continued significant declines in Under Armour sales as a result of their decision to expand distribution. We are very confident our sales trajectory will improve next year as these headwinds are expected to subside” Edward W. Stack, Dick’s chairman and CEO, said in a second-quarter news release.
While the news about layoffs aren’t a particular worry, Leggio said, that doesn’t mean Under Armour is out of the woods.
Third-quarter earnings are reported next month and will be an important indicator of how the company is faring. The brand also must show strength in the all-important fourth quarter, which includes the holiday season spending surge.
“I think the next earnings call will be pretty key for Under Armour,” Leggio said.