Under Armour cuts revenue forecast; federal probe weighs on shares

Under Armour Inc on Monday cut its forecast for annual revenue for a second time this year, the latest sign of problems for the sportswear maker that is facing a federal probe into its accounting practices.

Shares of the company fell 14% after a media report that the company was being investigated for shifting sales from quarter to quarter to appear financially healthier.

In a conference call with analysts, Under Armour executives defended the company’s accounting practices and disclosures, and said they were cooperating with the federal investigators.

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The company is facing increasing competition from big players like Nike Inc in the United States, its largest market, and to gain market share it has been trying to sell merchandise directly to customers through its own retail stores and online at full prices.

However, the shift is yet to yield results for the company as most of its customers are used to buying merchandise in department and retail stores at a discounted price.

While the company’s plan to cut its sales through off-price channels has boosted margins, Under Armour said it will impact its growth in annual revenue.

“(We) don’t have much excess product to sell in the off-price channel,” Chief Operating Officer Patrik Frisk told analysts. He will replace long-time Chief Executive Officer Kevin Plank early next year.

The sportswear maker now expects revenue to grow about 2% in fiscal 2019 compared with the prior forecast of a 3% to 4% rise.

Fewer sales at discounted prices boosted margins by 220 basis points in the third quarter, helping its quarterly profit beat market expectations.
The company also forecast annual profit to be at he higher end of its prior range of about 33 cents to 34 cents per share.

“You expect that sometimes a company’s growth will start leveling out... but if they are trying to postpone the inevitable by messing with their accounting practices... That’s bad,” Paula Rosenblum, a retail analyst with RSR Research, said.

Net income rose 40% to $102.3 million or 23 cents per share in the quarter, beating analysts’ estimates of 18 cents, according to IBES data from Refinitiv.

Net revenue fell about 1% to $1.43 billion, but was above analyst expectation of $1.41 billion.