Under Armour has had a rough 2017.
First, the company reported a marked decline in revenue growth over the fourth quarter of 2016, missing its targets and causing the company’s stock to plummet. Then Under Armour founder and chief executive Kevin Plank publicly announced his support of President Trump, calling him “bold” and “decisive” only to face a backlash from the company’s major endorsers, including the Golden State Warriors’ Stephen Curry, renowned ballet dancer Misty Copeland and actor and former pro wrestler Dwayne “The Rock” Johnson.
And now this: In a federal class-action lawsuit filed Friday, Plank and Under Armour are accused of intentionally misleading shareholders about the company’s financial health.
“Despite outward votes of confidence and assurances to plaintiff and the rest of the investing public that Under Armour would continue as a force in the sports retail market, defendants, and Plank in particular, were aware of the decreasing growth margins and over surplus of unsold inventory,” says the lawsuit, which was filed in U.S. District Court in Baltimore, home of Under Armour.
In a statement to the Baltimore Sun, the company said the claims are without merit.
“Under Armour will vigorously defend the case,” the statement read.
The lawsuit was filed by an Under Armour stockholder named Brian Breece on behalf of anyone who purchased Under Armour Class A and Class C common shares between April 21, 2016, and Jan. 30, 2017. It alleges that Plank “saw the writing on the wall” about the company’s financial situation and began selling off his personal Under Armour shares starting in April 2016 “to prevent any individual loss, yet maintain control of the Company,” all while continuing to tout the company’s financial health, namely the fact that the company had seen quarterly revenue increases of greater than 20 percent for five straight years.
The lawsuit says Plank began to act after one of its largest retail partners, Sports Authority, filed for bankruptcy in March 2016 and closed its stores for good in August.
“Defendants made false and misleading statements and failed to disclose that Under Armour’s revenue and profit margins would not be able to withstanding the heavy promotions, high inventory levels and ripple effects of numerous department store closures and bankruptcy of The Sports Authority, but nevertheless purported itself as a growth company that would continue to develop and market game-changing products,” the complaint states.
Chip Molloy, Under Armour’s former chief financial officer who announced his resignation for personal reasons after the rocky earnings report was announced last month, also is named as a defendant in the lawsuit.