Justice Department Scrutinizes Under Armour’s Quarterly Reports

By Victor Westerkamp

The Baltimore based sportswear company Under Armour is currently under criminal investigation by the Department of Justice (DOJ) for alleged improper accounting practices, The Wall Street Journal reported.

The company says it has been responding to investigation requests since July and that it is fully cooperating with the probe.

“The company began responding in July 2017 to requests for documents and information relating primarily to its accounting practices and related disclosures,” Under Armour said in a statement according to the Journal. “The company firmly believes that its accounting practices and disclosures were appropriate,” it said on Sunday.

The DOJ is working in coordination with the Securities and Exchange Commission. The focus is on how the brand had reported and administered its revenues in the past year. The concern is whether or not the company shifted costs and revenues between different quarters to make them look better.

People walk by an Under Armour store in Manhattan on Feb. 15, 2017. (Spencer Platt/Getty Images)

Revenue-recognition practices, as they are called, mostly entail moving costs forward to the next booking period to make the profit margin look bigger or of predating revenues to make the previous quarter revenues look healthier.

Up to the last quarter of 2016, Under Armour rode a 26-month surf of consecutive growth figures of at least 20 percent compared to the results of one year earlier.

However, since 2017, the company has been dealing with steady declining revenues. The company has also been plagued by internal problems with the CFO position turnover.

Stock rates have plunged, the Journal reported. Class A shares went down 44 percent in three years from over $40 to $18.70, Forbes reported. Moreover, it lost 15 percent in premarket trading on Monday.

There have also been complaints about inappropriate behavior toward female personnel, and a prevalence of men over women in the company’s senior roles. Furthermore, there were alleged strip-club visits by executives. CEO Kevin Plank said he would address these problems and had some executives removed—promising he would build a diverse and inclusive environment.

Plank announced last month he will be stepping down come January after having served as CEO for more than 20 years. He will take a role in the back-seat as executive chairman and brand chief, while Patrik Frisk, an outsider, will be hired as president.

According to Plank, the 47-year-old billionaire, the handing-over of the CEO position is part of a long-term succession plan.