Under Armour Reaches $434 Million Settlement in Class Action Lawsuit Over Sales Disclosure Issues

Under Armour Inc. will pay $434 million to settle a class action lawsuit, addressing allegations about its sales disclosures and accounting practices.

Under Armour's Accounting Practices Scrutinized

A class action lawsuit that began in 2017 has been settled with a $434 million payment from Under Armour Inc.

The case brought Under Armour's 2015 and 2016 sales declarations and accounting practices into sharp, and ultimately expensive, focus, as well as the practice of "pulling forward" sales from another quarter.

In a distinct but related complaint filed by the SEC in 2021, Under Armour reached a $9 million civil settlement.

The class action shareholders have accused Under Armour of wrongdoing, but the company has maintained its innocence, stating that it agreed to the terms "given the costs and risks inherent in litigation."

Implications for Under Armour's Leadership​

WWD reports that Under Armour has agreed to divide the responsibilities of chair and chief executive officer for a period of three years, and the accord is contingent upon a judge approving it. In addition, before the chief executive officer, chief financial officer, or chief legal officer could get restricted stock during the three years, the firm would have to get approval from the board's Human Capital and Compensation Committee.

Our sales procedures, accounting practices, and disclosures were appropriate, and we deny any misconduct in this instance," stated Mehri Shadman, chief legal officer and corporate secretary of Under Armour. In light of today's announcement, we are able to put this matter—which dates back over seven years—beyond our control, allowing us to focus on executing our strategic priorities without being sidetracked by litigation.

Financial Strategy for Settlement Payment

Under Armour intends to use its existing cash reserves, its $1.1 billion revolving credit facility, or maybe both to cover the payment. The company's cash and equivalents balance was $859 million as of March 31.

Yahoo Finance UK shares that Under Armour is able to pay the cost, but it comes at a bad moment for the firm. In March, creator Kevin Plank was back as CEO after Stephanie Linnartz, a former executive at Marriott International, left quite quickly.

Plank, however, is obviously seeking a new beginning as he gets the brand back on its feet following decreased wholesale sales and erratic execution.

"We are seizing this critical moment to make proactive decisions to build a premium positioning for our brand, which will pressure our top and bottom line in the near term," Plank informed investors in May. "Over the next 18 months, there is a significant opportunity to reconstitute Under Armour's brand strength through achieving more by doing less and focusing on our core fundamentals: driving demand through better products and storytelling, running smarter plays like simplifying our operating model, and elevating our consumer experience. In parallel, we're focused on cost management and implementing the strategies necessary to grow our brand and improve shareholder value as we move forward."

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