Law­suit: Un­der Ar­mour ex­ec­u­tives mis­led in­vestors

Com­plaint al­leges rev­enue shifted be­tween quar­ters

Baltimore Sun - - BUSINESS - By Lor­raine Mirabella

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.

JERRY JACK­SON/BALTIMORE SUN

Un­der Ar­mour has been head­quar­tered at Tide Point in Baltimore since 2002.

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