Under Armor is the subject of the federal accounting probe
Federal authorities are investigating
Under Armor Inc.
Accounting practices in a probe investigating whether the sportswear manufacturer moved sales from quarter to quarter to appear healthier, according to people familiar with the matter.
As part of the probe, which has not been made public, investigators asked people in Baltimore, where the company is based, as late as last week, one of the people said.
Prosecutors from the Justice Department conduct a criminal case on the case, and coordinate with civilian investigators at the Securities and Exchange Commission, another person said.
Under Armor said it is cooperating with the Department of Justice and the SEC investigation. "In July 201[ads1]7, the company began responding to requests for documents and information that were primarily related to accounting practices and related disclosures," Under Armor said after this article was published on WSJ.com. "The company firmly believes that its accounting practices and disclosures were appropriate."
Prosecutors for the Department of Justice and the SEC declined to comment.
When investigating what is known as revenue recognition practices, the authorities generally focus on whether companies record revenue before it is earned or postponed the expense of making revenue appear stronger, among other potential violations.
The company, which reports results for the third quarter on Monday, has restructured its operations and struggled with weak sales for the past two years. Until then, it had been among the fastest growing clothing manufacturers, riding 26 straight quarters of at least 20% year on year growth.
That stretch ended abruptly when Under Armor missed sales targets in the last quarter of 2016. On January 31, 2017, the company's shares plunged after it reported sales growth of only 12% in the holiday quarter and cut growth forecasts for the next year. That day, Under Armor also said that the then CFO left after a year on the job.
At that time the founder, chairman and CEO
Kevin Plank
attributed the decline to fewer store visits from buyers, the company's product range, and changes in the sportswear industry, including retail bankruptcies such as Sports Authority Inc. Plank moved to restructure operations, cut jobs and hire an outsider,
Patrik Frisk,
as president.
Under Armor had three finance executives from 2016 to 2017.
Brad Dickerson,
who had served as CFO since 2008, left the company in February 2016.
Chip Molloy,
a former manager of PetSmart Inc., took over but stayed a year on the job. Under Armor at that time cited unspecified personal reasons for his departure.
David Bergman
was appointed acting chief financial officer in February 2017 after the company reported its quarterly sales loss and Mr. Molloy's exit. Bergman, who has worked in Under Armor since 2004 in various finance roles, was appointed permanent CFO in December 2017.
Mr. Dickerson, Molloy and Bergman did not immediately respond to requests for comment Sunday.
The slowdown, coupled with some unexpected quarterly earnings declines, raised concerns about Under Armor's ability to continue to gain market share from
Nike Inc.
and
Adidas AG
. Shares of the company, which once traded above $ 40, closed at $ 18.91 on Friday.
Last month, the company said that Plank resigned as CEO on January 1 after more than 20 years in the role. Mr. Plank will be in the company as CEO and brand manager, and Mr. Frisk will take over as CEO and continue to report to Mr. Plank.
Mr. Plank, a former University of Maryland football player, founded Under Armor in Grandma's basement with sweat-dense compression clothing. Over time, he added new products and struck with athletes including the NBA star
Stephen Curry
and golfer
Jordan Spieth,
Build the company into a global brand with around $ 5 billion in annual sales.
In recent years, the company has focused on performance attire, but has continued to struggle in the domestic market. During its second fiscal quarter, Under Armor reported a 3% drop in sales in North America, saying they expect it to fall throughout the year. Analysts expect total sales of $ 1.41 billion in the third quarter, compared to $ 1.44 billion in the same period last year.
Like many companies, Under Armor has faced complaints from current and former employees about its culture, including the cost of strip club visits and inappropriate conduct by managers, The Wall Street Journal has reported. Mr. Plank has talked openly about Under Armor's shortcomings, promised to make improvements and replaced some top executives.
When he announced plans to hand over the CEO, the 47-year-old billionaire said the decision was part of the company's long-term succession planning.
—Dave Michaels contributed to this article.
Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com and Khadeeja Safdar at khadeeja.safdar@wsj.com
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