Why Under Armor Collapsed Today

Actions of Under Armour (UA -10.38%) was down 9.6% on Tuesday as of 12:17 a.m. ET.

The athletic apparel and footwear company has had a rough couple of years as growth stalled and profits took a hit, with operating profits swinging toward losses in 2024 for the first time since the pandemic.

But Under Armor would actually have been profitable last quarter if not for the big turnaround and restructuring charges taken, as CEO Kevin Plank tries to reposition the business as a lower-volume, but full-price premium brand.

However, last night Under Armor said those restructuring charges will grow even higher this year and next, killing investors today.

“Upon further evaluation…”

On Monday night, Under Armor provided an update on its outlook for fiscal 2025, which ends next March. The company raised its operating loss projection for the next fiscal year, increasing the company’s projected operating loss to a range of $220 million to $240 million, up from an initial projection of $194 million to $214 million.

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

In the company’s August earnings release, management had estimated restructuring charges of between $70 million and $90 million over the next year, consisting of severance and other capital expenditures and impairments. So these new “savings” will increase the initial restructuring costs to $140 million to $160 million over the next two years.

Investors apparently weren’t happy with the “low” profit outlook. But the reality may not be as dire as today’s stock market action indicates.

The adjusted figures have not changed

While the company’s generally accepted accounting principles (GAAP) loss per share is set to increase, it should be noted that management did not change the outlook for non-GAAP (adjusted) operating income, which excludes these one-time charges, of $140 million up to $160 million in the next fiscal year.

When Under Armor delivered that guidance in its August earnings release, the stock soared. But today they are giving back those gains. Meanwhile, once these restructuring charges are behind the company, Under Armour’s operations should have a lower cost base.

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