Under Armour’s restructuring plan
Under Armour (UAA) shares rose 6.6% on September 20, which made it the top gainer in the S&P 500 Index. The company updated its restructuring plan and guidance.
Under Armour announced a 3% cut in its workforce—the second round of job cuts for the company after it cut 277 jobs last year. The company expects annual savings of ~$75 million from the restructuring plan beginning in fiscal 2019.
Under Armour also raised its fiscal adjusted EPS guidance from the previous range of $0.14–$0.19 to the current range of $0.16–$0.19.
The company’s restructuring expenses increased to $200 million–$220 million from the previous guidance of $190 million–$210 million due to additional severance charges related to job cuts.
The operating loss is projected at $60 million—compared to the previous guidance of $50 million–$60 million. The adjusted operating income (excluding restructuring and other charges) is expected to be $140 million–$160 million—compared to the previous projection of $130 million–$160 million.
Analysts responded positively
Lately, profitability has been an issue for Under Armour. The company reported that its gross margin declined for thirteen consecutive quarters when it reported its second-quarter results at the end of July.
However, analysts received the recent announcement well. Analysts expect the company’s margins to improve.
“Today’s announcement should squash any doubt surrounding the positive trajectory for sustainable operating margin improvement ahead,” said Jefferies analyst Randal Konik.
J.P. Morgan upgraded Under Armour from “underweight” to “neutral.” The brokerage house also raised the company’s target price to $20 from $16. Canaccord Genuity also increased the target price to $12 from $11.
Stock price movement
Under Armour shares closed at $20 on September 20—6.6% above the closing price on September 19. Under Armour shares have risen 38.6% year-to-date—well ahead of the S&P 500 Index (+9.6%) and the S&P 500 Apparel and Accessories Index (+16.4%).