Under Armour agrees to pay $9 million to settle SEC probe into accounting practices

Under Armour will pay $9 million to settle federal regulators’ charges that it misled investors about its sales growth in 2015 and 2016 to meet analysts’ revenue targets.

For six consecutive quarters beginning in the third quarter of 2015, the Baltimore-based sports apparel brand “pulled forward” a total of $408 million in existing product orders that customers, such as retailers, had requested be shipped in future quarters, the U.S. Securities and Exchange Commission found in an order released Monday.


Under Armour had confirmed in November 2019 that its accounting methods were being investigated by both the SEC and the U.S. Department of Justice.

The SEC order said Under Armour attributed its revenue growth during those quarters to factors such as growth in training, running, golf and basketball, without disclosing the “pull forward” practices. Increasing reliance on these practices raised uncertainty as to whether the company would meet sales goals for future quarters, the SEC order said.


“When public companies describe how they achieved financial results, they must not misstate any information that is material to investors,” said Kurt Gottschall, director of the SEC’s Denver regional office, in Monday’s announcement. “Under Armour created a misleading picture of the drivers of its financial results and concealed known uncertainties concerning its business.”

Under Armour neither admitted nor denied the SEC’s charges and said in a statement that the settlement resolves all outstanding SEC claims.

“This settlement relates to the company’s disclosures and does not include any allegations from the SEC that sales during these periods did not comply with generally accepted accounting principles,” Under Armour said in a statement.

By the second half of 2015, Under Armour’s internal revenue and revenue growth forecasts for the third and fourth quarters of 2015 began to indicate shortfalls from analysts’ revenue estimates, the SEC said. The order found, for example, that the company was not meeting internal sales projections for North America, and warm winter weather was hurting sales of Under Armour’s higher-priced cold weather apparel. The brand also would have seen its streak of better than 20% revenue growth end in the fourth quarter of 2015 and the third quarter of 2016, the SEC said.

“Concerned about the possible negative impact on the company’s stock price that could result from missing these estimates, Under Armour sought to accelerate, or ‘pull forward,’ existing orders,” to close the gap between its forecasts and analysts estimates, the SEC order said. “Under Armour typically asked customers to accept shipment of certain products in the current quarter that they had already ordered for delivery in the next quarter,” sometimes offering discounts or extended payment terms.

When Under Armour announced Jan 31, 2017, that it missed analysts’ revenue estimates for the fourth quarter and full-year 2016, the company’s stock price dropped by approximately 23%. Under Armour’s year-over-year growth rate for each quarter has remained in the single digits or negative ever since.

Under Armour, as well as founder Kevin Plank, the brand’s executive chairman, and David E. Bergman, its chief financial officer, had been alerted last July that the SEC could file a civil or administrative case alleging unlawful accounting methods.

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At the time, Under Armour said its executives “expect to engage in a dialogue with the SEC Staff to work toward a resolution of this matter.”


The company said Monday that the SEC’s staff will not recommend any enforcement action against Under Armour management, including Plank and Bergman.

The SEC’s order found that Under Armour violated anti-fraud provisions in the Securities Act of 1933 as well as some reporting provisions of the federal securities law.

Under the settlement, Under Armour will pay a civil penalty of $9 million and has agreed to other non-monetary terms, including avoiding further violations.

It’s possible that the SEC chose to file an administrative case rather than filing a lawsuit in federal court because of a lack of evidence that Under Armour failed to follow general accounting principles, said Eric Beste, a former prosecutor with the Department of Justice who worked with the SEC on accounting and fraud cases.

“It’s great for the company, because that means they can put it behind them,” said Beste, a San Diego-based partner in the business law firm Barnes & Thornburg. “By choosing to go through an administrative proceeding and not require admission of liability, there must have been problems with the evidence.”

Under Armour had said previously that it responded to requests for documents and information from the Justice Department. On Monday, the company said it has not received any requests from the Justice Department since the second quarter of last year.