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Will Under Armour Restructuring Raise Investors’ Spirits?

Paul Ausick

Under Armour Inc. (UAA) reported second-quarter 2017 results before markets opened Tuesday. The sports gear maker reported a diluted loss per Class A and Class B share of $0.03 on revenues of $1.1 billion. In the same period a year ago, the company reported a net loss per share of $0.12 on revenues of $1 billion. Second-quarter results also compare to consensus estimates for a loss of $0.06 per share and $1.08 billion in revenues.

The company's class C common stock (UA) also posted a net loss per share of $0.03. Class C shares have no voting rights. The company's founder and CEO Kevin Plank owns all class B shares.

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Under Armour announced a restructuring plan that is expected to cost up to 280 employees (about 2% of global employment) their jobs. The company expects to incur pretax charges of about $110 million to $130 million related to the restructuring, with up to $70 million in cash charges and up to $60 million in noncash charges.

In its outlook statement, the company said it expects net revenues to rise by 9% to 11% in fiscal 2017, a cut to the prior estimate for revenue gains of 11% to 12%. Gross margins for the year are now forecast to dip by 160 basis points from the 2016 level of 46.4%. On a GAAP basis, diluted earnings per share (EPS) are expected to fall in a range of $0.18 to $0.21. On an adjusted basis, EPS is now estimated at $0.37 to $0.40.

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Analysts had estimated EPS of $0.43 and revenues of $5.35 billion for the full year and EPS of $0.26 on revenues of $1.64 billion for the third quarter.

Referring to the restructuring, CEO Kevin Plank said:

As we stand up our category management structure within a consumer-led approach, we intend to meaningfully increase our go-to-market speed and amplify our digital capabilities. We've identified a number of areas to enhance our operational capabilities, drive process improvement and gain greater efficiencies. We remain steadfast in driving and building our brand while shifting our operational focus to become more return-on-investment and cost of capital centric - institutionalizing discipline to deliver more consistent, long-term shareholder value.

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The message is not warming investors' hearts. Shares traded down about 0.1% in Tuesday's premarket at $20.00 after closing at $20.02 on Monday. The stock's 52-week range is $18.35 to $43.85 and the consensus 12-month price target before the earnings announcement was $21.50.

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