Why Under Armour Is Hitting Pause on Its Flagship and Restructuring Its Business

Under Armour’s ongoing turnaround plan needs a turnaround plan.

Under Armour said Tuesday it’s expecting another sizable sales decline this year after reporting sales decreased 2% in its biggest market, North America, in 2019. The rest of the financial picture isn’t pretty either.

• Revenue inched up almost 4% to $1.4 billion in Q4 2019, missing expectations.
• Under Armour swung to a $15.3 million loss in Q4, a far fall from the $4.2 million profit it tallied a year earlier.

Leadership’s shaking in their sneakers. “I’m not satisfied with where we are today,” Under Armour CEO Patrik Frisk said. Neither are investors. Shares fell nearly 17% Tuesday.

Cheaper by the dozen

Under Armour's downturn started in 2017. Up to the end of 2016, it had logged 26 consecutive quarters of at least 20% year-over-year revenue growth.

The turnaround strategies Under Armour pursued only made its problems worse.

• Too many sales squeezed margins. 90% of Under Armour’s North American stores are outlets, and its wholesale partners frequently mark down its merch.
• Not enough yoga pants. Under Armour focused on gear more suited for Olympic athletes than everyday shoppers, so it missed out on the athleisure boom.

Zoom out: Competitors like Nike and Lululemon have focused on direct-to-consumer sales and followed the athleisure trend to enviable results.

“The only way is through”

That’s the slogan from last month’s Under Armour campaign—and a summary of its 2020 plans. Everything’s on the table to reverse its sales slump.

• Under Armour says it’ll enhance its e-comm presence and boost marketing investments to drive direct sales.
• It’s considering hitting pause on plans to open an NYC flagship.
• All in all, pre-tax charges for the restructuring effort could come in between $325 million and $425 million this year. Still, Under Armour says it could save around $50 million.

My takeaway: Nike has Air Jordans. Lululemon has ABC pants. Under Armour has a hole where its full-price hero item should be—and Tuesday’s heap of bad news shows it could use one.