Under Armour Q3 tops Street but cuts outlook; confirms Federal accounting probe

Under Armour’s better-than-expected third quarter results were overshadowed by news that the company is the subject of a federal probe of its accounting practices. 

The Justice Department is conducting a criminal investigation of the activewear giant’s accounting practices and is coordinating with civil investigators at the SEC, with the news first reported by The Wall Street Journal. Under Armour confirmed the probe and said it is cooperating with both of the investigations and believes its accounting practices and disclosures were appropriate.

Under Armour trimmed its full year revenue outlook amid ongoing challenges in North America. It expects revenue to be up roughly 2% in fiscal 2019, compared to its previous estimate a 3% to 4% gain. Analysts are for annual revenue growth of 3.1%.

For the third quarter, Under Armour’s net income totaled $102.3 million, or 23 cents per share, in the quarter ended Sept. 30, up from $75.3 million, or 17 cents per share, last year. Analysts had expected earnings of 18 cents.

Revenue fell 1.0% to $1.43 billion, topping estimates of $1.41 billion.  Apparel sales were down 1%; footwear revenues fell 12% and accessories sales fell 2%. Sales in North America fell about 4%, to $1.01 billion.

In a surprise announcement, Under Armour in October announced that Kevin Plank, who founded the company in 1996, plans to step down as CEO. He will be replaced by COO Patrik Frist, effective Jan. 1, 2020. The management change comes as the company is working to turn around its sagging performance in North America, where it has come under increased competition from rivals ranging from Nike and Nike to Puma and Lululemon.   

“Building our long-term brand strength remains at the center of everything we do," said Plank. "Our ongoing transformation across the business continues to make us smarter, faster and more operationally excellent. As we make the turn into 2020, we are confident in our ability to deliver our fourth quarter targets while proactively supporting higher levels of strategic marketing investments that will further fuel the Under Armour brand."