Exception Tracking Spreadsheet (TicklerTrax™)
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SEC charges sports apparel manufacturer
Under Armor Inc., a sports apparel manufacturer, has been charged by the SEC. with misleading investors as to the bases of its revenue growth and failing to disclose known uncertainties concerning its future revenue prospects. Under Armour has agreed to pay $9 million to settle the action.
According to the SEC's order instituting cease-and-desist proceedings, by the second half of 2015, Under Armour's internal revenue and revenue growth forecasts for the third and fourth quarters of 2015 began to indicate shortfalls from analysts' revenue estimates. The order finds, for example, that the company was not meeting internal sales projections for North America, and warm winter weather was negatively impacting sales of Under Armour's higher-priced cold weather apparel. The order further alleges that in response, for six consecutive quarters beginning in the third quarter of 2015, Under Armour accelerated, or "pulled forward," a total of $408 million in existing orders that customers had requested be shipped in future quarters. The SEC found that Under Armour misleadingly attributed its revenue growth during this period to various factors without disclosing to investors material information about the impacts of its pull-forward practices. The Commission also found that Under Armour failed to disclose that its increasing reliance on pull-forwards raised significant uncertainty as to whether the company would meet its revenue guidance in future quarters. According to the order, using these undisclosed pull-forwards, Under Armour was able to meet analysts' revenue estimates.
Under Armour has also agreed to cease and desist from committing future violations.