Baltimore-based Under Armour is being probed over its accounting practices by the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice, The Wall Street Journal (WSJ) reported on Sunday (Nov. 3).
Justice Department prosecutors are conducting a criminal inquiry into the matter while the SEC supervises a civil probe, a source told the WSJ.
Under Armour said it is cooperating with investigators. “The company began responding in July 2017 to requests for documents and information relating primarily to its accounting practices and related disclosures. The company firmly believes that its accounting practices and disclosures were appropriate,” Under Armour told the WSJ following the paper’s publication of the news.
Under Armour is slated to post its third-quarter earnings on Monday (Nov. 4) and has been in the midst of reorganizing its business. The company had reported 26 consecutive quarters of revenue growth until the bottom fell out in 4Q 2016 when sales targets were missed. The probe is focused on whether sales numbers were inflated.
The company has had three chief financial officers (CFO) from 2016 to 2017. Company veteran David Bergman was appointed CFO in 2017 following the missed sales target.
The company’s 1996 founder Kevin Plank is stepping down in January as chief executive officer (CEO) and will serve as executive chairman and brand chief. Patrik Frisk, appointed two years ago as president, will take over as CEO.
Plank was a University of Maryland football player when he founded Under Armour in his grandmother’s basement. Endorsement deals with athletes helped make the firm into a global brand with about $5 billion in annual sales.
Under Armour has fought an uphill battle to stand out in a space that has been dominated by Adidas AG and Nike Inc. for many years. The company had been spending more to bolster its international market online offerings as well as open stores. Those moves aided it in posting growth in Asia Pacific as well as Europe markets.