Lawsuit: Under Armour executives misled investors
Complaint alleges revenue shifted between quarters
An Under Armour shareholder has filed a lawsuit alleging executives of the sports apparel brand misled investors by shifting sales between quarters to appear healthier and by failing to disclose a federal accounting probe.
The class action complaint, filed Wednesday in U.S. District Court in Baltimore, names the Baltimorebased company, its CEO and founder, Kevin A. Plank, and three other executives and alleges violations of federal securities laws.
The filing comes three days after the company confirmed that federal authorities are investigating its accounting practices, prompting some to question why the probe wasn’t disclosed before.
Under Armour’s chief financial officer, David Bergman, said Monday the company has been cooperating with inquires for almost two and a half years and believes its accounting practices and disclosures were appropriate.
Word of the investigation sent Under Armour shares plummeting nearly 19% Monday, to close at $17.14 each.
The lawsuit alleges that in financial statements filed between Aug. 3, 2016 and Feb. 25, the company failed to disclose that “Under Armour shifted sales from quarter to quarter to appear healthier, including to keep pace with their long-running year-over-year 20% net revenue growth.”
The lawsuit was filed by Kirtan Patel, an Under Armour stockholder, on behalf of investors who purchased the company’s stock between Aug. 3, 2016, and Nov. 1. Named along with Plank as defendants are Patrik Frisk, Under Armour’s president and chief operating officer; Bergman and former chief financial officer Lawrence “Chip” Molloy.
The company also failed to disclose investigations by the U.S. Securities and Exchange Commission and the Department of Justice, the lawsuit said. The Wall Street Journal reported Sunday that the company’s accounting practices are under investigation. Officials are looking into whether t he athletic footwear and apparel company manipulated its sales numbers to make them appear stronger, the Journal reported.
In its quarterly reports, the lawsuit noted, the company said it recognized a majority of net sales and most of its income from the last two quarters of the year, driven by increased volume in the fall and the sale of higher priced cold weather products.
The lawsuit said the company issued false and misleading statements beginning with a quarterly report filed Aug. 3, 2016. In October 2016, Under Armour said sales rose 22% to $1.47 billion for the third quarter, when Plank highlighted the company’s streak of more than 20 quarters in which revenue grew at least 20 percent. On Jan. 31, 2017, Under Armour reported another quarter of 22% sales growth, to $4.8 billion.
The company and its executives, “disseminated or approved the false statements … which they knew or deliberately disregarded were misleading,” the lawsuit said.
Defendants “intended to deceive plaintiff and the other members of the class or in the alternative acted with reckless disregard for the truth.”
The lawsuit said Under
Armour’s stock price was artificially inflated as a result and that investors have suffered “significant losses and damages.”
“Had plaintiff and the other members of the class been aware that the market price of Under Armour securities had been artificially and falsely inflated by defendants misleading statements … they would not have purchased Under Armour securities at the artificially inflated prices that they did, or at all,” the lawsuit said.
Under Armour did not reply Thursday to a request for comment.
Under Armour has been headquartered at Tide Point in Baltimore since 2002.