The board of Under Armour has approved a previously planned restructuring initiative amid the news the sportswear brand will temporarily lay off staff at its full-price and outlet stores along with about 600 employees that work at its US-based distribution centres.
In a statement, Under Armour said it expects to incur total estimated pre-tax restructuring and related charges in the range of US$475m-$525m during 2020 in connection with the 2020 plan, which was approved on 31 March.
The company first announced in February it was assessing a potential 2020 restructuring initiative to rebalance its cost base to further improve profitability and cash flow generation.
Among the charges is about $290m related to the company’s New York City flagship store, $25m in employee severance and benefit costs, and $95m in contract termination and other restructuring costs.
Under Armour said it anticipates about $300m of restructuring and related charges have been incurred as of 31 March, including the impairment charges related to its New York flagship. The remaining charges are expected to occur by the end of 2020, with Under Armour expecting to realise about $40m-$60m in pre-tax benefits in 2020.
Approval of the plan, which was developed prior to assessing the potential impacts of the Covid-19 pandemic on the company’s business, comes as Under Armour has withdrawn its first quarter and full-year 2020 outlook.
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It has also announced a number of actions to address the financial impact of the pandemic, including temporarily laying off staff that work in its US Brand (full price) and Factory House (outlet) stores, and about 600 employees at its US-based distribution centres.
Under Armour said it will have provided up to four weeks of full pay for these retail store and distribution centre employees since this crisis started and will begin paying premium bonuses to its distribution centre staff that are continuing to work.
Meanwhile, effective immediately, Under Armour’s board will be reducing its compensation by 25% and all of the company’s executive vice presidents and above will be taking a 25% salary cut.
“In these unprecedented and challenging times, the majority of stores where Under Armour is available remain closed, contributing to a significant decline in revenue,” said CEO Patrik Frisk. “While we’re thankful for the meaningful balance sheet improvements we’ve driven over the past two years and we are seeing some early signs of recovery in our APAC region, this unanticipated shock to our business has been acute, forcing us to make difficult decisions to ensure that Under Armour is positioned to participate in the eventual recovery of demand.
“We do not take these decisions lightly and are doing all we can to minimise the impact on our teammates during this time. Because of the strength of our brand and the steps we have taken, we will weather this storm.”
In its most recent quarterly update, Under Armour posted a net loss of US$15.3m for the fourth quarter ended 31 December, compared to net income of $4.2m last year. Revenue, however, was up 4% in the period to $1.44bn from $1.39bn a year ago.
Under Armour is among a number of brands and retailers moving from store closures to worker lay-offs or furloughs, as well as executive pay cuts: Global retail staff and salary reductions amid Covid-19