The refocusing is part of a turnaround plan that has many moving parts, cost cuts (which were extended into this year), a dramatic reduction in stockkeeping units and high-level management changes.
Plank, Under Armour’s founder, chairman and chief executive officer, told investors on a conference call, “2017 was a year we reset and reorganized our business at a level and pace unlike anything we’ve ever executed.”
But the effort is starting to show some signs of stability — and Wall Street liked it, with traders sending the company’s shares up 16.2 percent to $15.31 Tuesday, although that’s still well below the stock’s 52-week high of $21.81 from June.
Under Armour’s net losses for the fourth quarter ended Dec. 31 tallied $87.9 million, or 20 cents a diluted share, and compared with year-ago earnings of $103.2 million, or 23 cents. But adjusted losses, factoring out the impact of tax changes and the firm’s restructuring, totaled $1 million, or break even on a per share basis. Revenues increased 4.6 percent to $1.37 billion, coming in ahead of the $1.33 billion analysts had penciled in.
For the full year, the company logged losses of $48 million, or adjusted income of $87 million, and a 3.1 percent rise in revenues, to $4.98 billion. (This year, Under Armour is projecting revenues will grow in the low-single digits with a midsingle-digit decline in North America and growth of better than 25 percent elsewhere).
Under Armour planned to wrap up its restructuring effort last year, but said it would take another $110 million to $130 million in pretax charges to optimize its operations and cut at least $75 million in costs starting in 2019.
“In 2018, we’re anticipating a more stable, operating environment for Under Armour,” Plank said.
On the product front, Under Armour plans to focus on its core message even as active fashion flourishes.
“We’re not ignoring the market,” Plank said. “We’re not tone-deaf. We just understand who we are. And who we are is what’s built this company that we have today…the reason that our team came to work in this brand to begin with is because of the belief they had that we could make athletes just a little bit better.”
Ed Yruma, stock analyst and managing director at KeyBanc Capital Markets, said: “The key phrase is that they are focusing on the performance part of Under Armour’s brand DNA. They want product that looks stylish, but they are at their core a performance brand. Casual and ath-leisure seems to be getting crowded, so I think this strategy makes sense.
“The company is taking the appropriate steps to rebuild the foundation of the business through better process,” Yruma said. “When a company is a growth company, it is easy to make decisions on the fly, this will provide a more sustainable and consistent long-term growth.”
From a product perspective, Under Armour’s foundation, while perhaps stronger, is also getting narrower.
Patrik Frisk, the former Aldo ceo who joined Under Armour as president and chief operating officer in July, said the brand’s fall 2019 assortment would have 30 to 40 percent fewer stockkeeping units than the 2017 offering.
“We’re getting just more pointed, and we’re getting a stronger point of view,” Frisk said on the call. “We’re taking out the noise, if you like, in terms of the sku’s that we believe should be driving our business going forward, ensuring that every product that we put into, every channel has the right price-value equation, has the right style, performance and fit equation. And we just looked honestly at ourselves and said, listen, what do we really need to drive the business in a brand-appropriate way for each channel? And we made those hard decisions. And that’s what you’re going to start seeing from Under Armour going forward as making those really hard decisions.”