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Under Armour under investigation for underhand accounting practice

Sportswear manufacturer Under Armour has disclosed that US federal officials have been investigating its accounting practices for more than two years, over suspicions it artificially inflated its share price.

27th Nov 2019
Journalist
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Person Wearing Black Under Armour Lace-up Shoe
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The sports brand, which supplies kits for Southampton FC, the Wales rugby union side and boxer Anthony Joshua, said it is cooperating with investigations by the US Securities and Exchange Commission (SEC) and the US Department of Justice (DoJ).

The firm is being investigated for shifting sales from quarter to quarter to give a rosier financial picture.

The investigation will likely be looking for certain signs of “channel stuffing'', which is the practice of sending retailers more product than they are likely to be able to sell, as seen in the HP-Autonomy fraud case.

Investigators from the DoJ and SEC have questioned employees at the firm’s base in Baltimore as recently as last week, the Wall Street Journal reported, citing people familiar with the case.

The US Justice Department and SEC have declined to offer on the record comment at this stage of the investigation.

In revenue-recognition probes, investigators tend to focus on whether companies record revenue before it is earned or defer the dating of expenses to make earnings appear stronger, among other possible infractions.

Under Armour said in a statement it has done nothing 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,” the firm said in the statement.

Under pressure

The firm’s response came as it posted its third-quarter earnings amid a 16% slump in shares

Under Armour has been restructuring its operations and battling weak sales in the last two years. Until 2019, it had been among the fastest-growing global kit and apparel manufacturers.

In its July earnings results, the company missed revenue forecasts and reported a significant revenue decline in North America throughout 2019. It has also suffered a surplus of unsold merchandise topping £1bn over the last year.

Executive exodus

The turmoil has been compounded by the exit of controversial founder and CEO Kevin Plank, who transformed the company from a small start-up into a global giant that makes men’s and women’s apparel in hundreds of categories, including spacesuits.

Plank resigned from US President Donald Trump’s manufacturing council in 2017 after falling out with the combustible leader, despite their previously close relationship, and the pair have continued to bait each other on Twitter.

In October 2019, Plank said he was resigning as CEO in October, with Patrik Frisk, the company's chief operating officer stepping in to replace him on January 1, 2020.

The founder's reign was soured by a string of financial scandals, including examples of executives visiting strip clubs and expensing the outings on company credit cards.

In December 2018, two executives were fired following a review of expense expenditure.

Between 2015 and 2017, the company went through three chief financial officers. 

Long-term CFO Brad Dickerson served since 2008 until he left early in 2016 to be replaced by Chip Molloy, who lasted a year before leaving for "personal reasons”, and was replaced by David Bergman, a company stalwart.

Under Armour said the CEO transition was planned and a personal choice of Plank’s, however executive staff turnover and now the admission of an ongoing federal probe has cast a new light on some of the exits.

Replies (1)

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By alan.rolfe
28th Nov 2019 08:52

Maybe all these problems explain why the replica kits were not available for Southampton FC fans at the start of this season?

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