During an earnings call, Under Armour confirmed that it is the subject of a federal investigation into its accounting practices. The retailer said it was prohibited from sharing additional information regarding the probe.
“We have been fully cooperating with these inquiries for nearly two-and-a-half years,” said David Bergman, CFO at Under Armour. “To this effect, we began responding back in July of 2017 to their request for documents and information. We firmly believe that our accounting practices and disclosures were appropriate.”
Both the Justice Department and Securities and Exchange Commission are examining the company’s revenue recognition practices and determining whether it shifted sales from quarter to quarter to strengthen its results, according to The Wall Street Journal. Investigators questioned people in Baltimore, where Under Armour is headquartered, as recently as last week, according to reports.
News of the probe accompanied a mediocre sales report for Q3, with direct-to-consumer revenue down 1% to $463 million and wholesale revenue down 2% to $892 million. Under Armour’s Class A shares dropped 15% to $17.91 in morning trading on Nov. 4.
One of the company’s biggest weak spots was North America, where sales declined 4% while rivals like Nike and Lululemon continue to thrive. Nike saw revenues jump 7.2% to $10.7 billion in its latest quarter, while combined comparable sales at Lululemon were up 17%, led by 35% growth in the men’s category.
Turmoil at Under Armour has included the resignation of several CFOs since 2016. Brad Dickerson left the company to join Blue Apron in February 2016, and his successor Chip Molloy left after a year in February 2017, at which point Bergman was named acting CFO. Under Armour still faces challenging times ahead: CEO and Founder Kevin Plank will step down in January to serve as Executive Chairman and Brand Chief. Patrik Frisk, who is currently President and COO, will succeed Plank as CEO and join the company’s Board of Directors.
The retailer’s streak of 26 straight quarters with a 20% revenue increase ended in February 2017, when the athleticwear brand saw just 12% revenue growth in Q4 2016. Its growth continued to slow and stagnate in 2017, and Under Armour currently expects 2% full-year sales growth for 2019, down from an earlier forecast of 3% to 4%. The poor results were attributed to weak direct-to-consumer sales, less product being available for sale in off-price chains and foreign exchange rates.
Under Armour has been working to reverse its fortunes, including by cutting 400 jobs, or approximately 3% of its workforce, as part of a $200 million restructuring plan announced in September 2018. The company also has shifted its focus to international expansion, where revenue rose 5% to $368 million in Q3 2019.