A spokesperson said Sunday that Under Armour has been cooperating with the Securities and Exchange Commission and the Justice Department since the inquiry began in July 2017, and “firmly believes that its accounting practices and disclosures were appropriate.” The SEC and Justice Department declined to comment on the ongoing investigations.
News of the criminal and civil investigations was first reported Sunday by the Wall Street Journal, which said that authorities are examining “whether the sportswear maker shifted sales from quarter to quarter to appear healthier.”
Executives said little about the investigation during an earnings call with analysts Monday morning, saying they were “prohibited” from sharing additional details. They also declined to comment on why it had taken Under Armour more than two years to disclose the investigations, but reiterated that the company was “fully cooperating” with federal authorities.
The announcement raises “lots of questions that need more answers,” Randal Konik, an analyst for Jefferies, said in a note to clients. “The accounting investigation is a new item for investors to contend with, and we don’t have a lot of clarity of how long this investigation will take and what impact it will have.”
The development also comes less than two weeks after Under Armour announced that its founder, Kevin Plank, would step down as chief executive on Jan. 1, after 23 years at the helm, and become executive chairman and brand chief. He will be replaced by Patrik Frisk, the chief operating officer.
Under Armour got its start in 1996, when Plank began selling athletic apparel from his grandmother’s basement. Sales increased quickly and annual revenue growth routinely topped 20 percent as the company established a niche selling its moisture-wicking uniforms and athletic shoes to big-name sports teams. It also struck sponsorship deals with some of the nation’s most prominent athletes, including Stephen Curry, Tom Brady, Misty Copeland, and Michael Phelps.
But in recent years, it has struggled to stay relevant. Quarterly sales began slipping in 2017, amid mounting competition from rivals such as Nike and Adidas. Under Armour posted a $48 million loss that year.
“This is an abrupt about-turn for a company that, until recently, was on a mission to challenge the might of Nike,” Neil Saunders, managing director of the analytical firm GlobalData Retail, said at the time. “Under Armour has become just another brand in a sea of brands.”
That slump has continued, with North American sales declining 4 percent in the most recent quarter. Shoe sales slipped 12 percent during that period, while licensing revenue fell nearly 6 percent. Despite billions in annual sales, analysts say Under Armour has had trouble keeping its customers coming back. It has also struggled with slumping sales at outlet stores and off-price retailers such as TJ Maxx.
Analysts said the latest disclosures amount to more uncertainty for a company that’s already struggling to find its footing.
“Under Armour was a rocket ship for many, many years,” said Paula Rosenblum, managing partner of retail advisory company RSR Research. “But its growth has been leveling off, and this just adds another layer of bad news for a company that doesn’t want to face the music.”
On Monday, Under Armour reported that quarterly profits rose to $102 million, or 23 cents a share, from $75 million, or 17 cents a share, a year earlier. Sales fell 1 percent, to $1.4 billion.
It also downgraded its full-year revenue outlook and is now looking for 2 percent growth versus a previously expected range of 3 to 4 percent.
Under Armour shares took a beating Monday and were trading near $15.50. Four years ago, by comparison, the stock topped $51.
Correction: A previous version of this article gave an incorrect percentage increase for the quarterly profits Under Armour reported Monday.