3:00 PM, Sep 20, 2018 — Under Armour (UAA) said in a statement Thursday that it will cut about 3% of its employees globally as part of a restructuring plan, but Wedbush analysts said demand headwinds will still plague the company.
The company said it expects about $200 million to $220 million pre-tax restructuring and related charges in 2018, up from a prior outlook for $190 million and $210 million in charges. About $10 million in cash severance charges were added to the total after the company decided to trim its workforce.
Job eliminations are expected to be completed by March 31, Under Armour said. The announcement represent the final component of its 2018 restructuring plan. Chief Financial Officer David Bergman said the company must make “difficult” decisions to ensure success.
“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,” Bergman said in the statement.
Shares jumped more than 5% Thursday after the layoffs were announced.
Operating losses are now forecast at $60 million, on the top end of the prior range of $50 million to $60 million, Under Armour said.
The company’s guidance for operating income, however, was raised to $140 million to $160 million versus prior expectations for $130 million to $160 million. Excluding the effect of restructuring, adjusted diluted earnings per share is now seen from $0.16 to $0.19 a share, up from the previous range of $0.14 to $0.19 per share, Under Armour said.
Wedbush analysts Christopher Svezia and Paul Nawalany said in a report that 3% of the company’s global workforce amounts to about 500 people. The analysts said their assessment of Under Armour remains unchanged despite the workforce reduction.
“Clearly the company is looking to rightsize its operating structure (up to $220 million in charges this year alone), with the final phase of the plan announced” on Thursday, Wedbush said. “However, there are still issues around product demand in North America and it remains uncertain how quickly an EBIT margin recapture story can develop. While the narrowing of the adjusted EPS outlook is encouraging, it is not a measured inflection for the brand, in our view. It is also questionable why the upper end of the range was left unchanged, possibly reflecting investments and caution around how the critical fourth quarter will unfold for the company.”
Companies: Under Armour, Inc.
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