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Under Armour Shares Are Plunging After Disclosure of U.S. Accounting Probe

November 4, 2019, 10:01 AM UTC

Under Armour Inc. shares plunged after the company disclosed that federal officials have been probing its accounting practices for more than two years, bringing a fresh headache to investors just as the sports brand prepares for a CEO transition.

The company said on Sunday that it’s cooperating with investigations by the U.S. Securities and Exchange Commission and the U.S. Department of Justice and doesn’t think it’s done anything wrong. The remarks, spurred by a report in the Wall Street Journal, came the day before Under Armour is slated to post its third-quarter earnings. The shares dropped as much as 16% to $17.86 pre-market in New York.

“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% since that statement through Friday’s close in New York.

Founder Kevin Plank, currently chief executive officer, turned the company from a football-focused startup 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 multiyear 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%. It reported double-digit growth in each quarter of that year, slowing to single-digit rates thereafter. The first decline, a 4% drop from the year-earlier period, was in the third period of 2017.

The latest quarter isn’t expected to mark much of a comeback on the sales front. Analysts are expecting the company to report a 2% decline in third-quarter revenue, according to data compiled by Bloomberg.

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