Why Under Armour Dipped Today

Shares Under Armour (UA -10.79%) It was down 9.6% as of 12:17 p.m. ET on Tuesday.

The sportswear and footwear company has had a tough time in recent years, as growth has slowed and profits have fallen. Operating profits fell in 2024 for the first time since the pandemic.

But Under Armour would have turned a profit in the final quarter if not for the heavy transformation and restructuring expenses that CEO Kevin Plank has undertaken as he tries to transform the company into a premium brand with fewer products but full-priced value.

However, last night, Under Armour said restructuring charges would be even higher this year and next, disappointing investors today.

“Upon further evaluation…”

On Monday evening, Under Armour provided an update to its guidance for fiscal year 2025, which ends next March. The company raised its operating loss forecast for the upcoming fiscal year, bringing the company’s projected operating loss to a range of $220 million to $240 million, up from its original forecast of $194 million to $214 million.

The difference from the previous outlook is solely due to more restructuring opportunities. Management noted that it found additional savings, primarily related to the closure of one of its distribution facilities in Rialto, California. This and other cost-saving measures will cost an additional $70 million in restructuring charges through March 2026.

In the company’s August earnings report, management projected $70 million to $90 million in restructuring costs over the coming year, consisting of severance and other investments and impairments. So these new “savings” will increase the initial restructuring costs to $140 million to $160 million over the next two years.

Investors were clearly not happy with the “lowered” earnings outlook. But the reality may not be as dire as today’s stock market action suggests.

The corrected data has not changed

While the company’s GAAP losses per share are expected to increase, it is important to note that management has not changed its guidance for non-GAAP adjusted operating income, which excludes these one-time charges, of between $140 million and $160 million for the coming fiscal year.

When Under Armour provided that guidance in its August earnings report, the stock soared. But today it’s giving back those gains. In the meantime, once those restructuring charges are behind the company, Under Armour’s operations should have a lower cost base.

So there’s no real reason for a long-term investor to see such a big drop today. With a market cap of $2.8 billion, the stock is currently trading at about 20 times forward adjusted earnings. That’s not particularly cheap or expensive. But if you were a bull or bear on Under Armour’s transformation yesterday, you shouldn’t feel any different today.