Under Armour Inc. has agreed to pay $434 million to put a 2017 class action lawsuit to bed.
The case shined a bright — and ultimately costly light — on the practice of “pulling forward” sales from another quarter as well as Under Armour’s disclosures and accounting of sales in 2015 and 2016.
In 2021, Under Armour agreed to a $9 million civil settlement in a separate, but similar, case brought by the Securities and Exchange Commission.
Under Armour has consistently denied the accusations brought by shareholders in the class action and said it entered into the agreement in principle “given the costs and risks inherent in litigation.”
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A judge still needs to approve the deal, under which Under Armour would also agree to keep the roles of chair and chief executive officer separate for three years. Additionally, the company would have the Human Capital and Compensation Committee of its board sign off on any restricted stock given to the CEO, chief financial officer and chief legal officer during the three years.
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Mehri Shadman, Under Armour’s chief legal officer and corporate secretary, said: “We firmly believe that our sales practices, accounting practices, and disclosures were appropriate, and deny any wrongdoing in this case. 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.”
Under Armour plans to pay for the settlement by tapping into its cash on hand, its $1.1 billion revolving credit facility or both. As of March 31, the firm had a kitty of $859 million in cash and equivalents.
While it’s a bill Under Armour can pay, it comes at a difficult time for the company, where founder Kevin Plank returned as CEO in March following a relatively quick turn in the corner office by former Marriott International executive Stephanie Linnartz.
But Plank is clearly looking for a fresh start as he pushes the brand back into fighting shape after lower wholesale sales and inconsistent 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 told 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.”
