Under Armour is under investigation by the Securities and Exchange Commission and the Justice Department over its accounting practices, particularly around whether the retailer altered sales to "appear healthier," The Wall Street Journal reported. The investigations began in July 2017, Chief Financial Officer David Bergman said on an analyst call.
The company was breaking from its typical policy to address the piece written by the Journal, Bergman said on the Monday conference call. He noted that they were unable to give further details on the investigations, but that the brand has been cooperating with both for two and a half years and "firmly believe that our accounting practices and disclosures were appropriate."
The sportswear retailer also reported third quarter results Monday morning. Revenue in the quarter was down 1% to $1.4 billion, according to a company press release. Direct-to-consumer (DTC) revenue decreased 1%, wholesale revenue decreased 2% and North America revenue decreased 4%.
While the focus this quarter should have been on outgoing CEO Kevin Plank's resignation, "the large overhang has become the recently announced federal investigation into UAA's accounting practices," analysts with B. Riley FBR said in an emailed client note.
Executives did briefly address the report on a conference call with analysts, but in response to questions for more details, Bergman stated that the company is "prohibited from doing so."
Net income in the quarter was $102 million, up 7.2% from the year prior, while operating income increased 9.7% to $139 million. A few highlights executives pointed to: Total debt decreased 26% to $592 million and inventory decreased by 23%.
The sportswear retailer has struggled financially in recent years, especially in North America, where revenue continued to decline this quarter. The head of that division, Jason LaRose, left the company in April and his duties were handed over in the interim to incoming CEO Patrik Frisk.
"As we think about North America, we haven't changed our thoughts in any way," Frisk said on the call. He noted that the team now has strong leadership and a strong go-to-market strategy, as well as encouraging signs from some full-price stores that opened recently. "There's a time horizon to how we think about those things," Frisk said.
Of course, the biggest change in leadership is that Kevin Plank will be resigning come January. Plank was insistent in the call that his resignation was his decision, "and the culmination of a rigorous approach to succession planning." Among other things, Plank expressed confidence in Frisk's ability to bring Under Armour from a $5 billion brand to a $10 billion brand.
"He can be a better CEO at this point and time than I could be," Plank said.
In his new role, Plank said Under Armour will continue to be his "full-time priority and job," and he'll be involved with pushing the brand story forward and "obsessing on product."
"Our goal is to build an eternal brand and we're not going to stop until that happens," Plank said.
Executives also reaffirmed their commitment to the current turnaround plan, which includes a push out of the off-price channel and further into DTC, as well as repositioning Under Armour as a premium brand, though B. Riley FBR analysts noted that the brand is still struggling on that last goal.
"You're about to see a really harmonized play from this company," Plank said, noting improvements in the basics, as well as the brand's use of data, among other things. An improved marketing message is also on the docket. "You're going to hear about this brand. You're going to hear us tell our story."