Report: Under Armour’s Accounting Practices Are Under Federal Probe

Update: UA Says It Is Cooperating With SEC Investigation

In an emailed statement provided to FN, a spokesperson for Under Armour said the brand is working with authorities regarding a probe into its accounting practices.

“Under Armour is cooperating with the U.S. Securities and Exchange Commission and the U.S. Department of Justice investigations,” the spokesperson said. “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.”

What We Reported Earlier (Nov. 3. 6:30 p.m. ET)

Under Armour is the subject of a federal investigation surrounding its accounting procedures, according to a Wall Street Journal report published today.

The probe is to determine whether the sports company manipulated sales figures by shifting them from quarter to quarter to appear healthier, WSJ reports. Prosecutors from the Justice Department and officials from the Securities and Exchange Commission are working jointly to investigate the matter, the report adds, with investigators questioning people in the Baltimore area — where UA is based — as recently as last week.

Just two weeks ago, UA founder and CEO Kevin Plank announced he would depart his post, with president and COO Patrik Frisk to take the CEO role in January. Plank, who launched the brand in 1996 as a college student, will remain at the company as executive chairman and brand chief.

The report comes as the brand readies for the release of its third-quarter earnings report on Monday. Analysts expect earnings of 25 cents per share on sales of $1.41 billion.

After a period of meteoric growth, the athletic giant started to stumble around 2017 and is in the midst of a restructuring plan, aimed at getting it back on track for growth. Even as it tries to new tactics — including a plan, unveiled last year, focused on performance products — things have remained uneven on the earnings front. In Q2, the firm posted a loss of $17 million, or an adjusted loss of 4 cents per share, compared with Wall Street’s expectations of a 5-cent loss. Sales rose 1% to $1.19 billion, narrowly missing analysts’ forecasts of a 2% gain to $1.2 billion.

Amid competition from Nike, Adidas and rising Gen Z favorites Vans and Supreme, UA’s struggles on its home turf have been particularly difficult. The brand’s Q2 sales in the market showed ongoing weakness, decreasing by 3% to $816 million. Its international business, on the other hand, gained 12% to $339 million, representing 28% of the brand’s total revenue.

Over the past year, Under Armour has also been plagued by claims of work culture problems. A November 2018 WSJ report alleged that UA staffers engaged in a yearslong practice of expensing strip club visits and that women were invited to company events based on perceived attractiveness. Around the same time the article surfaced, several former Under Armour employees and insiders recounted incidents to FN in which they or their peers felt disenfranchised by Plank and the brand’s leadership. In some cases, sources believed they’d possibly been overlooked for advancement based on their race or gender.

“I always want to understand how people feel, [but] I reject that,” Plank said of the accusations in a January FN interview. “I don’t know how to be more clear: I pride myself [on] challenging my children to think first and foremost about being global citizens. I’d like to be a global citizen. I’ve been striving for it my entire life. Diversity of thought is something I welcome more than anything I can imagine. It’s what I want this company to be; it’s the constituency we sell to.”

Under Armour shares ended the trading day Friday up 2.4% to $21.14.

FN has reached out to Under Armour for comment.

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