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- In its third-quarter earnings call on Monday, Under Armour executives addressed a Wall Street Journal report that the sports retailer’s accounting practices are at the center of a federal investigation.
- “We have been fully cooperating with these inquiries for nearly two and a half years,” Under Armour’s chief financial officer, David Bergman, said on the call. “We firmly believe that our account practices and disclosures were appropriate.”
- Under Armour reported that revenue decreased by 1% in the third quarter of 2019 as shares dropped by as much as 14% on Monday morning.
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On its third-quarter earnings call on Monday, Under Armour’s chief financial officer, David Bergman, deviated from the numbers to briefly address allegations that the company formerly manipulated sales disclosures. On Sunday, the Wall Street Journal reported that the retailer’s accounting practices have been under federal investigation by the US Securities and Exchange Commission and the US Department of Justice since 2017. Investigators are examining whether the company shifted “sales from quarter to quarter to appear healthier,” the Journal reported.
“We have been fully cooperating with these inquiries for nearly two and a half years,” Bergman said on the call. “We firmly believe that our account practices and disclosures were appropriate. I underscore that we are staying focused, disciplined, and methodical in our practices.”
When asked for further detail on the inquiry by an investor during the question-and-answer portion of the call, Bergman said he was “prohibited” from sharing additional details but said he has continued to ensure the company has been compliant.
“We feel like our foundation is strong and we look forward to igniting the Under Armour brand as we move into the next chapter,” he responded.
An Under Armour spokesperson similarly declined to disclose information about what prompted the investigation when asked by Business Insider’s Rosie Perper on Sunday. According to the Journal, investigators questioned employees in Baltimore “as recently as last week.”
Under Armour faces ongoing sales woes
Despite Under Armour’s focus on revitalization and several mentions of its “next chapter” on Monday’s call, the company reported that revenue decreased by 1% to $1.4 billion in the third quarter of 2019. Executives cited low sales at outlet stores and off-price venues, as well as sluggish e-commerce sales for the decline.
Meanwhile, shares dropped by as much as 14% in the wake of the announcement of the SEC and Justice Department investigation.
Under Armour has experienced significant sales woes in recent years as it has slipped behind competitors Nike and Adidas and failed to capture market share. A series of missteps resulted in $1.3 billion in unsold merchandise in 2018, and the company experienced a reputational hit after the Journal reported that executives had been expensing strip-club outings.
The company has also struggled significantly in North America, and the third quarter of 2019 was no exception: On the call, Under Armour executives reported that revenue in the region decreased 4% to $1 billion.
In October, Under Armour CEO Kevin Plank announced he would step down to assume a new role as executive chairman and brand chief, while Patrik Frisk, president and chief operating officer, would take the helm. Plank underscored several times on the call that the realignment was his decision and a strategic move to improve the brand.
“I want to be clear that I love Under Armour,” Plank said. “It is now today and tomorrow my full-time job. I want to make it clear that it was my decision. The strength of mine and Patrick combined creates a force that’s really unique in our industry.”
Frisk joined the call in advance of assuming his new role on January 1, telling investors he was “humbled and honored” to serve as CEO, noting his focus on “pursuit of innovation, attention to detail, and outright grit to making athletes better.”