Investors were surprised to hear that one of the worst-performing large-cap stocks in the markets on Monday was Under Armour (NYSE: UAA). Shares of the $7.3 billion company fell by almost 20% when it announced not only that its sales for the quarter weren’t all that impressive, but more significantly, that the company had been on the receiving end of an accounting probe by regulators.
The company’s management team refused to provide additional details regarding the probe, as well as why Under Armour had kept the affair quiet for so long despite the fact they were providing documents to regulators for over two years. Specifically, the Justice Department and the SEC are looking into Under Armour’s revenue figures and whether it shifted some of its sales from quarter to quarter to help improve its financial results. After the story first broke over the weekend, the company confirmed this in its earnings call on Monday.
“Before we turn over the call to the operator for Q&A, I’d like to break from our typical company policy of not discussing any regulatory or litigation matters and briefly address an article published yesterday regarding an investigation by the SEC and the US Department of Justice,” said CFO David Bergman in a conference call with analysts. “We have been fully cooperating with these inquiries for nearly two-and-a-half years. To this effect, we began responding back in July of 2017 to their request for documents and information. We firmly believe that our accounting practices and disclosures were appropriate.”
To make matters worse, Under Armour has seen its sales by around 1% for Q3 2019 while also lowering its revenue expectations for the rest of the year. Sales have fallen by 4% in North America specifically, which is the company’s biggest market, whereas competitors like Lululemon and Nike have seen growth in the continent. Weak sales have been an ongoing issue for Under Armour for the past couple of years, as before 2017 the company had enjoyed 26 consecutive quarters of at least 20% increases in yearly revenue. Now the company has to figure out how to handle a future with little to no growth.
Shares of Under Armour fell by 19 percent in response to the news, with many analysts suspending their coverage of the stock in light of this development. Now that the stock has hit a new low for 2019, investors need to be careful in regards to how this probe turns out, as that will have a big influence on whether this recent decline makes the stock a good buy or if it’s too risky right now.
Under Armour Company Profile
Under Armour develops, markets, and distributes athletic apparel, footwear, and accessories in North America and other territories. Consumers of its apparel include professional and amateur athletes, sponsored college and professional teams, and people with active lifestyles. The company sells merchandise through wholesale and direct-to-consumer channels, including e-commerce and nearly 350 total factory house and brand house stores. Under Armour also operates digital fitness apps with more than 200 million users. The Baltimore-based company was founded in 1996. – Warrior Trading News
