Under Armor allegedly hid demand in 2016 by shifting sales
A storefront in front of Under Armor is seen November 4, 2019 in Sunrise, Florida.
Joe Raedle | Getty Images
Under Armor borrowed business from future quarters to hide declining demand in 2016, the Wall Street Journal reported Thursday.
The Department of Justice and Securities and Exchange Commission has investigated the Baltimore-based company over its accounting practices. The two investigations were confirmed by Under Armor in early November, but the company has said it has been cooperating with investigators since July 201[ads1]7.
In 2016, Under Armor leaned on retailers to take goods early, former managers in sales, logistics , told merchandising and finance to the Journal. Sportswear intended for factory stores would be sent to price chains to book sales in the last few days of a neighborhood, according to the Journal.
Some of the leaders told the Journal that such features were common in retail.
A person familiar with the case told the Journal that federal investigators are investigating emails showing that Under Armour founder and CEO Kevin Plank knew about the effort. Plank retires as CEO on January 1, but will remain in the company as CEO. President and CEO Patrik Frisk will replace him as CEO.
Under Armor said in a statement that the ongoing investigation is preventing the company from addressing any allegations in the media. Under Armour's management and board stands the financial reporting, the company said.
The statement said in part: "In this regard, our process for recognizing revenue and recording returns and other quotas has not changed and has always been in accordance with generally accepted accounting principles."
Under Armor the shares were less than 1 % in premarket trading Friday. The share has fallen 3% since the start of the year. It has a market value of $ 7.7 billion.
Here is the full statement from Under Armor:
We are aware of recent media coverage of Under Armor's business practices. As we have said before, we are convinced that our disclosures and our accounting practices have been perfectly appropriate. Our management and board of directors have reviewed this matter extensively for the past two and a half years and are responsible for the company's financial reporting. Because the investigation is ongoing, we are limited in our response and cannot address all claims made in the media or by anonymous sources cited in the news.
When Under Armor talks, we always communicate our best understanding of the market and the market prospects of the Company. For many years, quarterly changes in wholesale revenue have related to the timing of shipments based on financial goals; customer requests; annual seasonal variance; various fiscal calendar adjustments; product availability; logistics; and a number of other dynamics have been, and continue to be, part of the normal course of business practices in clothing, footwear and retail. In this regard, our process for recognizing revenue and recording returns and other quotas has not changed and has always been in accordance with the accounting principles. As reported by some media, analysts and accounting experts agree that such practices from the end of the quarter are generally permitted in accordance with accounting rules.
Under Armor has become one of the world's largest athletic performance brands through industry-defining innovation, ambitious and driven leadership, and a culture that adheres to the highest standards of integrity, including operating within standard industry business practices and always in accordance with accepted accounting principles.
Read the full story of the Wall Street Journals here.
– CNBC's Lauren Thomas contributed to this report.
