Under Armour drops on accounting probe revelation, forecast cut

On Sunday, Under Armour disclosed that federal officials have been probing its accounting practices for more than two years. Spurred by a report in the Wall Street Journal, the company said on Sunday that it’s cooperating with investigations by the US. Securities and Exchange Commission and the US. Department of Justice and doesn’t think it’s done anything wrong.

“The company began responding in July 2017 to requests for documents and information relating primarily to its accounting practices and related disclosures, and the company firmly believes that its accounting practices and disclosures were appropriate,” Under Armour said in the statement Sunday.

Investigators from the Justice Department and SEC were questioning people at the sports apparel’s base in Baltimore as recently as last week, the Journal reported, citing people familiar with the matter. The probe is focused on whether Under Armour inflated sales from quarter to quarter, the newspaper said.

The investigation comes at a difficult time for the company, which has been wrestling with increased competition at home and an underperforming share price. It rattled investors in July by warning that full-year revenue would decline in North America. The stock fell 23 per cent since that statement through Friday’s close in New York.

Founder Kevin Plank, currently chief executive officer, turned the company from a football-focused start-up into a global powerhouse that makes men’s and women’s apparel in dozens of categories — and even spacesuits.

New CEO

But sputtering growth prompted it to embark on a multi-year restructuring plan aimed at regaining its edge. A new CEO, tapped last month from within Under Armour’s ranks, is meant to help get the company back on a growth trajectory. Patrik Frisk, Under Armour’s president since 2017, will take the reins on Jan. 1.

Plank, 47, is stepping aside after more than two decades in charge, though he’ll remain on as executive chairman.

No one at the Justice Department or the SEC immediately responded to requests for comment.

Under Armour went public in 2005 and experienced rapid growth, with sales increasing to $5 billion in 2017 from $1.1 billion in 2010. Recently, though, keeping that momentum going has been a struggle.

Under Armour’s best year-over-year revenue growth in the past three years came in the first quarter of 2016, when sales climbed 30 per cent. It reported double-digit growth in each quarter of that year, slowing to single-digit rates thereafter. The first decline, a 4 per cent drop from the year-earlier period, was in the third period of 2017.

Revenue Forecast

Under Armour said its revenue would rise 2 per cent for the year, down from the previous expectation of a 3 per cent to 4 per cent gain. But it said gross margin would expand and operating income would be at the high end of its previously forecast range.

With Monday’s third-quarter results, the company has now beaten earnings expectations in six straight quarters.

Though revenue dropped 1 per cent compared with the same period last year, the company’s $1.43 billion in third-quarter sales slightly beat analysts’ estimates. Under Armour’s 4.1 per cent drop in North American revenue also outpaced projections.

That said, Under Armour’s performance in its local market has consistently been a thorn in its side. Unlike Nike Inc and Adidas AG, Under Armour does more than 70 per cent of its business in North America. The company’s domestic struggles have become a bellwether for investors trying to gauge the success of its transformation efforts.

Under Armour attributed the lowered full-year revenue forecast to foreign-currency impact and less excess inventory to sell off-price.