Securities regulators have warned Under Armour Inc., its founder Kevin Plank and its chief financial officer that they could face civil-enforcement action related to the sportswear maker's past accounting practices.
Under Armour said the Securities and Exchange Commission had sent Wells Notices on July 22 to the company, Mr. Plank and finance chief David Bergman. The notices relate to the company's disclosures around its accounting in 2015 and 2016 and "pull forward" sales during those periods.
A Wells Notice is a letter saying the SEC plans to bring an enforcement action against a company or individual and gives the recipients a chance to argue why they shouldn't be filed.
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The Wall Street Journal reported in November 2019 that the SEC and the Justice Department were investigating the company's accounting practices to determine whether the company shifted sales from quarter to quarter to appear healthier, according to people familiar with the matter.
In response to the Journal article, Under Armour disclosed the probe and said it had been cooperating with the Justice Department and the SEC since July 2017. "The company firmly believes that its accounting practices and disclosures were appropriate," Under Armour said in November.
Shares of Under Armour fell nearly 4% in premarket trading Monday.
Former Under Armour executives told the Journal in November that they scrambled to meet aggressive sales targets, borrowing business from future quarters to mask slowing demand in 2016 for the company's athletic apparel.
The Baltimore company frequently leaned on retailers to take products early and redirected goods intended for its factory stores to off-price chains to book sales in the final days of a quarter, according to former executives in sales, logistics, merchandising and finance.
The executives said Under Armour repeatedly used these and other moves to help extend a 26-quarter streak of 20% sales growth, a feat that came to an abrupt end in late 2016. Some of the executives said such end-of-quarter moves are common in the retail industry.
That streak ended abruptly when Under Armour missed its sales targets in the final quarter of 2016. On Jan. 31, 2017, the company's shares plunged after it reported sales growth of 12% in the holiday quarter and cut its growth forecasts for the next year. That day, Under Armour also said its then-finance chief was leaving after a year in the job.
In November 2019, Under Armour said it was confident in its accounting practices, revenue recognition and investor disclosures. It said it operated within standard industry practices and in compliance with generally accepted accounting principles.
Under Armour has been restructuring its operations and struggling with weak sales for much of the past two years. Mr. Plank stepped down as CEO earlier this year though he remains brand chief and executive chairman.