Under Armour Inc. is temporarily shrinking its workforce in reaction to pandemic-induced store closures and operational upheaval.
On Friday, the Baltimore-based athletic powerhouse laid out its action plan to cope with the growing coronavirus outbreak in the U.S., which is battling more than 261,000 cases and rising.
The company’s stores will remain temporarily closed until further notice, with reopening decisions made on a country-by-country basis. Beginning April 12, Under Armour also will begin furloughing staff at its U.S. full price stores and at factory outlet doors, plus about 600 employees that work in the company’s U.S.-based distribution centers. Furloughed employees will continue to receive health benefits, and those who continue working at distribution centers will receive “premium bonuses,” the company said. Under Armour estimated that its coverage of full health benefits will be for a two-month period, which means it now expects to close stores through the end of May.
“The company will have provided up to four weeks of full pay for these retail store and distribution center teammates since this crisis started,” Under Armour said.
Board members are taking a 25 percent compensation cut, too, and all of Under Armour’s executive vice presidents and above will see their salaries trimmed by the same percentage for the duration of the crisis.
Prior to the coronavirus crisis and its bottom-line impact, Under Armour had conceived a restructuring plan first reported in February, which the board just approved as part of the company’s effort to rebalance its cost base.
Under the restructuring plan, Under Armour expects to incur $475 million to $525 million in pre-tax restructuring and related charges during 2020. The charges will include $175 million of cash-related costs, such as $55 million in facility and lease termination costs and $95 million in contract termination and other restructuring costs. Another $25 million is earmarked for employee severance and benefit costs.
Non-cash charges of $350 million also feature in the restructuring deal, including $290 million related to Under Armour‘s New York City flagship store and $60 million of intangibles and other asset-related impairments. Back in February, Under Armour said it would likely forego the opening of its Manhattan flagship store on Fifth Avenue at the former site of the famous FAO Schwartz toy store.
“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 [Asia Pacific] 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,” president and CEO Patrik Frisk said.
Under Armour is the latest among fashion firms and retailers to furlough employees in a bid to build liquidity and preserve cash on their balance sheets. Last week, H&M Group said it was furloughing “tens of thousands” of workers, while Macy’s Inc. on Monday said it will furlough nearly 130,000 employees. J.C. Penney Co. Inc. followed, disclosing it too will furlough most of its staff, or close to 90,000 workers.
More furloughs are expected to continue as retailers determine that they will need to keep stores closed longer than anticipated as the COVID-19 outbreak has yet to reach its apex.
On Thursday, American Eagle Outfitters Inc. said it would begin furloughing store, field and corporate associates beginning on Sunday, on top of scaling back inventory receipts and slashing capital expenditures across stores, IT and other projects for both its American Eagle and Aerie chains.
“This is not business as usual and we are preparing to emerge from this crisis stronger, more nimble and ready to grow,” Jay Schottenstein, executive chairman of the board and CEO, said.
Ross Stores Inc. said on Thursday that it too will begin furloughing the majority of its staff beginning on Sunday. “Our decision to furlough associates was difficult, but necessary as we navigate through this unprecedented situation,” CEO Barbara Rentler said.
Rentler added that she and chairman Michael Balmuth will not receives salaries while the public health crisis is ongoing and that its senior executive team has agreed to take substantial salary cuts as well. Smaller salary reductions will cascade down to all associates “through a certain level,” the CEO said, adding that outside board members have agreed to forego their cash retainer.