Global sportswear maker Under Armour (UAA) is bracing for a turbulent Fiscal year 2025, announcing a revision to its outlook that will double its restructuring costs and intensify belt-tightening measures. Despite forecasting an increased operating loss of $220 million to $240 million, the company stays focused on the restructuring plan it initiated in May, including the closure of a distribution facility and staff layoffs to optimize its supply-chain network and boost financial productivity.
Under Armour’s ongoing restructuring plan is designed to enhance the company’s financial and operational efficiencies, and early results have been promising. For example, the company surprised analysts with earnings per share of $0.01 for its fiscal first quarter of 2025, beating the -$0.08 per share Wall Street expected. Yet, the revised outlook surprised market participants, and the stock has reacted negatively, dropping roughly 14% in the past week.
It trades at a discount to industry peers, suggesting a potential opportunity for contrarian investors looking for an active turnaround situation.
Under Armour’s Restructuring
Under Armour and its subsidiaries specialize in creating and marketing sports apparel, footwear, and accessories for both genders and all age segments.
After a multi-year decline that saw the share price drop over 65%, the company initiated a restructuring plan in May to bolster its financial and operational efficiencies. This plan was initially estimated to cost between $70 million and $90 million. Through the end of Q1 FY2025, $25 million of restructuring and impairment charges and $9 million of transformational expenses had been recognized, totaling $34 million.
However, the company just announced a revision to its Fiscal 2025 restructuring plan, identifying an additional $70 million of costs primarily tied to the closure of its main distribution facility in Rialto, California. This increase now pegs the total pre-tax restructuring and related charges at $140 million to $160 million, which includes up to $75 million in cash-related costs for severance and transformational initiatives, alongside up to $85 million in non-cash expenses for severance, facilities, software, etc.
Under Armour’s Recent Financial Results
The company recently announced results for the first quarter of Fiscal 2025, but the picture wasn’t pretty with declines in almost every department. Revenue has declined by 10% year-over-year to $1.2 billion as sales fell across regions, channels, and products. North American revenue was down by 14% year-over-year to $709 million, while international revenue slightly decreased by 2% to $473 million, though there was an encouraging increase of 16% in Latin America.
Wholesale revenue also declined 8% year-over-year to $681 million, while direct-to-consumer revenue fell 12% to $480 million due to planned cuts in promotional activities. Revenue for apparel fell by 8% to $758 million, footwear by 15% to $310 million, and accessories by 5% to $93 million.
However, the gross margin increased by 110 basis points to 47.5%, attributable to lower discount levels in the direct-to-consumer sector and reduced product costs. Due to litigation reserve, selling, general, and administrative expenses increased by 42% year-over-year to $837 million. The quarter saw an operating loss of $300 million and a net loss of $305 million, while adjusted net income was $4 million. Despite the falloff in revenue across the board, earnings per share surprised to the upside at $0.01, beating analysts’ expectations of -$0.08.
Is UAA Stock a Buy?
UAA stock has been on an extended downward trend, shedding over 80% in the past ten years. It trades at the low end of its 52-week price range of $6.18 – $9.50 while showing mixed technical indicators. The moving average consensus will likely demonstrate negative price momentum if the stock falls much more. The price decline has pushed the stock into relative value territory, with a P/S ratio of 0.55x compared to the Apparel Manufacturing industry average of 1.0x.
Analysts covering the company have taken a cautious stance on UAA stock, and early responses to the announced revised outlook indicate little change. Under Armour is rated Hold overall, based on 19 analysts’ most recent recommendations and price targets. The average price target for UAA stock is $7.40, representing a potential 9.47% change from current levels.
Final Analysis on Under Armour
Amid a challenging environment and declining sales, Under Armour has revised its outlook, doubling its restructuring costs and intensifying cost-saving measures. The stock reacted unfavorably to the revised outlook. Yet, the drop pushed UAA further into a discount compared to industry peers, possibly presenting an opportunity for contrarian investors eyeing a turnaround situation. Positive outcomes in the coming quarters could result in a significant rebound for those willing to weather the storm.
