Under Armour is being investigated by federal authorities over its accounting practices, a blow for the ailing athletic gear company as founder and longtime CEO Kevin Plank prepares to hand over the reins.
In a call on Monday to present the company's latest earnings, Under Armour executives said the company is cooperating with the Securities and Exchange Commission and Justice Department on their respective investigations, which have been under way for two years. Shares of the athletic gear company tumbled 15% in early trading.
The Wall Street Journal first reported on the twin government probes into Under Armour.
"The company continues to believe its accounting practices and related disclosures were appropriate," Under Armour said in a statement late Sunday after the Journal's story was published.
Federal investigators questioned employees at Under Armour's Baltimore headquarters as recently as last week, according to the paper, which cited people familiar with the matter. The investigation is looking at whether the company inflated sales from quarter to quarter, the Journal reported.
Under Armour President and COO Patrik Frisk told analysts when asked about the probe that the company is "prohibited" from elaborating further. Frisk is taking the helm as CEO from founder Kevin Plank on Jan. 1, who is staying on as Under Armour's executive chairman and brand chief, the company announced last month.
Frisk "can be a better CEO at this point of time than I can be," Plank told analysts on Monday.
The federal investigation overshadowed strong quarterly results from Under Armour, with the company lowering its full-year revenue forecast while reporting better-than-expected profit and revenue for the third quarter.
Quarterly profit reached $102.3 million, or 23 cents per share. That tops Wall Street per-share projections of 18 cents, according to Zacks Investment Research. Revenue, at $1.43 billion, just topped expectations.
Under Armour has struggled since its explosive sales growth petered out in 2017. Last year, it announced job cuts as part of a restructuring effort.
CNBC notes that, "Under Armour has struggled on its home turf as of late in the face of stiff competition from Nike, Adidas and Lululemon. Its sales in North America dropped 2% in 2018 to $3.7 billion. Analysts say the retailers' 'performance' focused gear, like sweat-proof shirts, does not resonate with as many shoppers."