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Under Armour knocked by accounting probe and outlook cut

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Via Financial Times

Under Armour shares fell sharply on Monday after the athletic wear maker said federal regulators were probing its accounting practices and lowered its full-year outlook.

Shares in the Baltimore-based company were down more than 15 per cent to $17.95 shortly after the open after it confirmed that since July 2017 it has been responding to requests for documents and information from both the Securities and Exchange Commission and the Department of Justice relating to its “accounting practices and related disclosures”.

Under Armour said it “continues to believe its accounting practices and related disclosures were appropriate”. The news was first reported by the Wall Street Journal on Sunday, which noted the probe was focused on whether the company inflated its sales figures.

The investigation creates “another dark cloud” for Under Armour, said Rick Patel, an analyst at Needham. The sportswear company’s shareholders are currently contending with a leadership change at the group. Chief executive Kevin Plank, who founded Under Armour in his grandmother’s basement, last month announced he would relinquish his title as chief executive and assume the role of executive chairman and brand chief, tasking chief operating officer Patrik Frisk with turning round the company when he takes the helm.

The news also comes during a tough time for Under Armour, which has seen growth moderate after years of rapid expansion as it has faced stiff competition from the likes of Nike and Adidas. Last year, the company acknowledged it had lost focus and would return to its roots as a sportswear company, breaking away from the “athleisure” trend that has helped fuel growth in workout wear makers in recent years.

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The company now expects 2019 revenue to increase 2 per cent year-on-year, down from its previous outlook for sales growth in the range of 3 to 4 per cent, amid “ongoing traffic and conversion challenges in direct-to-consumer” and negative impacts from foreign currency translation. However, Under Armour expects operating income to come in at the higher of its prior guidance of $230m to $235m and boosted its gross margin outlook.

The accounting probe and downbeat revenue guidance overshadowed better than expected quarterly results. Revenues fell 1 per cent from a year ago to $1.43bn, slightly ahead of Wall Street expectations, according to a Refinitiv survey.

In North America, the company’s largest market, revenues fell 4.1 per cent, in line with forecasts, while overseas revenues grew 5 per cent. Meanwhile, revenues from clothing climbed 1 per cent but footwear sales fell 12 per cent.

Net income climbed to $102.3m, or 23 cents a share, in the three months ended in September. That was up from $72.3m, or 17 cents a share, in the year ago quarter, eclipsing analyst expectations for 18 cents.

Under Armour shares had been up 20 per cent year-to-date as of Friday’s close.

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