Under Armour drops on accounting probe revelation, forecast cut

Under Armour Inc. shares plunged after the company disclosed that federal officials have been probing its accounting practices for more than two years, bringing a fresh headache to investors just as the sports brand prepares for a CEO transition.

The athleticwear company also lowered its full-year revenue forecast on Monday, but it raised some other projections after posting solid third-quarter results. The shares closed down 18%.

Spurred by a report in the Wall Street Journal, the company said that it is cooperating with investigations by the Securities and Exchange Commission and the Department of Justice and doesn't think it's done anything wrong.

"The company began responding in July 2017 to requests for documents and information relating primarily to its accounting practices and related disclosures, and the company firmly believes that its accounting practices and disclosures were appropriate," Under Armour said.

Investigators from the Justice Department and SEC were questioning people at the sports apparel maker's base in Baltimore as recently as last week, the Journal reported, citing people familiar with the matter. The inquiry is focused on whether Under Armour inflated sales from quarter to quarter, the newspaper said.

The investigation comes at a difficult time for the company, which has been wrestling with increased competition and an underperforming share price. It rattled investors in July by warning that full-year revenue would decline in North America. The stock fell 23% since that statement through Friday's close in New York.

Founder Kevin Plank turned the company from a football-focused startup into a global powerhouse that makes men's and women's apparel in dozens of categories — and even spacesuits.

Plank, 47, is stepping aside after more than two decades in charge, though he'll remain executive chairman.

Neither the Justice Department or the SEC responded to requests for comment.

Under Armour went public in 2005 and experienced rapid growth, with sales increasing to $5 billion in 2017 from $1.1 billion in 2010. Recently, though, keeping that momentum going has been a struggle.

Under Armour's best year-over-year revenue growth in the past three years came in the first quarter of 2016, when sales climbed 30%. It reported double-digit growth in each quarter of that year, slowing to single-digit rates thereafter. The first decline, a 4% drop from the year-earlier period, was in the third period of 2017.

Under Armour said its revenue would rise 2% for the year, down from the expectation of a 3% to 4% gain. But it said gross margin would expand and operating income would be at the high end of its previously forecast range.

Though revenue dropped 1% compared with the same period last year, the company's $1.43 billion in third-quarter sales slightly beat analysts' estimates. Under Armour's 4.1% drop in North American revenue also outpaced projections.