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Under Armour Issues Updates on Coronavirus & Restructuring

Zacks Equity Research

Under Armour, Inc. UAA further detailed actions to cope with challenges tied to the coronavirus pandemic. In view of heightened uncertainty, the company called off first quarter and 2020 view as well as informed that its stores, which have been closed effective Mar 16, will remain shut till further notice. It had earlier issued a cautionary statement that the coronavirus outbreak in China is likely to hurt first-quarter 2020 sales. Additionally, management issued updates on its restructuring efforts to strengthen financial position.

In response to the pandemic, the company's board has chosen to cut down compensation by 25%, while all its Executive Vice Presidents and above have agreed to a 25%-cut in salary, effective immediately. Moreover, Under Armour has decided to temporarily lay off associates in its U.S. Brand (full price) and Factory House (outlet) stores, starting Apr 12. Also, the company will lay off around 600 workers in its U.S. distribution centers. Meanwhile, the company will pay premium bonuses to its distribution centers’ teammates working during such trying times. Meanwhile, the eligible associates are covered under health benefits for about two months during the lay-off period.

Additionally, few other renowned players such as L Brands LB, Macy’s M and G-III Apparel GIII have taken measures in the wake of the alarming spread of the pandemic. Women’s apparel retailer, L Brands suspended quarterly dividend, cut down on capital expenditures and drew $950 million from its revolving credit facility. The renowned omni-channel retailer, Macy’s has suspended second-quarter fiscal 2020 dividend and lowered capital expenditures for the current fiscal year. The company has also chosen to access the $1.5 billion available under the revolving credit facility. Apparel and accessories designer, G-III Apparel has decided to furlough majority of its associates and temporarily reduce annual salary to reinforce its financial position amid the tough times.

Coming back to Under Armour, we note that shares of Baltimore, MD-based company have lost 60.3% wider than the industry’s 47.4% fall in the past three months.

Restructuring Efforts

Speaking of Under Armour’s restructuring initiative, it has been designed to rebalance cost base in order to reinforce profits and cash flow generation, and was approved by the board on Mar 31. Management anticipates pre-tax restructuring and related costs of $475-$525 million in 2020. This includes $350 million of non-cash charges, comprising nearly $290 million associated with its New York City flagship store, and about $60 million of intangibles and other asset impairments. Also, roughly $175 million in cash restructuring costs further breaks into $55 million of facility and lease termination expenses, $25 million in employee severance and benefit costs, and $95 million in contract termination and other restructuring charges.

Management stated that around $300 million of restructuring costs would have incurred as of Mar 31, which also comprise the New York flagship store’s impairment costs. The balance restructuring and related charges are likely to incur by the end of the current year. This Zacks Rank #3 (Hold) company estimates accomplishing roughly $40-$60 million of pre-tax benefits in the current year.

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