Under Armor Agrees to Pay $434 Million to Settle Lawsuit Alleging Sales Manipulation

Under Armour shoes are displayed at a Dick's Sporting Goods store on May 16, 2024 in Petaluma, California. (Photo by Justin Sullivan/Getty Images)

Sports apparel manufacturer Under Armour has agreed to pay $434 million to settle a class action lawsuit alleging the company manipulated sales data.

The lawsuit, originally filed in 2017, accused Under Armour of “falsely claiming that consumer demand for the Company’s products was strong between the third quarter of 2015 and the fourth quarter of 2016 when in reality demand was in decline,” according to the court notice.

The U.S. Securities and Exchange Commission (SEC) investigated the matter, and in 2021, found the company had engaged in a “pull forward” practice through which future orders were added to earlier quarters to boost sales numbers. This inflated the revenue numbers for those quarters, thus deceiving investors.

The SEC claimed that Under Armour engaged in this tactic for six consecutive quarters starting from Q3, 2015. In the class action lawsuit, plaintiffs alleged that the pull forward scheme masked a declining demand for the company’s products.

On Friday, Under Armour announced it had entered into an agreement to resolve the lawsuit pending in the U.S. District Court of Maryland.

Under the terms of the settlement, the company will pay $434 million to plaintiffs who had bought the firm’s shares between Sept. 16, 2015, and Nov. 1, 2019, according to a June 20 SEC filing. In addition, Under Armour also agreed to two governance changes.

First, the firm will continue to separate the roles of the Chair and Chief Executive Officer at the company for a period of three years after the court approves the settlement. Second, all stocks granted by the firm to its Chief Executive Officer, Chief Financial Officer, and Chief Legal Officer during this three-year period will include a performance-based vesting condition, meaning the executives have to meet certain performance targets in order to earn shares.

In its settlement announcement, Under Armour denied fault on its part. “We firmly believe that our sales practices, accounting practices, and disclosures were appropriate, and deny any wrongdoing in this case,” said Mehri Shadman, Under Armour’s Chief Legal Officer.

“Today’s announcement allows us to move past this more than seven-year-old matter so we can avoid the ongoing distraction of litigation and provide certainty to the business at a time when we are executing on important strategic priorities.”

The parties in the case now have to prepare a formal agreement that describes the settlement terms and present it to the court for preliminary approval. Once approved, the class members of the lawsuit will be granted time to review the deal. It will then be presented for final approval from the court.

Inflated Sales

According to the SEC, by the second half of 2015, Under Armour’s revenue growth forecasts for the third and fourth quarters of the year were running short of analysts’ expectations. Beginning Q3, 2015, for six consecutive quarters, the firm allegedly added a total of $408 million in existing orders that customers had requested for future quarters.

This resulted in the six quarters between Q3, 2015, and Q4, 2016, showing inflated revenues. “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 SEC alleged.

“Using these undisclosed pull forwards, Under Armour was able to meet analysts’ revenue estimates.”

The practice also created a situation where there was “significant uncertainty” as to whether the company could meet its revenue guidance for the future, the agency stated. In 2021, Under Armour agreed to pay the SEC $9 million to settle the charges.

As for the class action lawsuit, Under Armour said it plans to pay the $434 million settlement using cash and its $1.1 billion credit facility. The company had around $859 million in cash and equivalents as of March 31.

“Following this settlement, the company expects to end fiscal 2025 with approximately $500 million in cash and cash equivalents and no borrowings outstanding under its $1.1 billion revolving credit facility,” Under Armour stated.

The settlement comes just weeks before a jury trial on the case was scheduled to take place on July 15. If approved by the court, the settlement will be one of the 50 largest class action recoveries in American history, according to a post by Robbins Geller Rudman & Dowd, the law firm representing investors in the case. 

The North East Scotland Pension Fund is the lead plaintiff in the class action lawsuit. “This is an important win for investors and a strong message to the directors and officers of public companies,” said Mark Solomon, a partner at the law firm.

“Prior government enforcement efforts yielded a modest $9 million penalty. Obtaining a recovery almost 50 times greater underscores the critical role pension funds can play in holding companies accountable.”