Dive Brief:
- Under Armour is moving to settle a class action lawsuit from 2017 that accused CEO Kevin Plank and former Chief Financial Officer Chip Molloy of misleading investors, according to a company press release. If approved, Under Armour would pay $434 million to buyers of its stock between Sept. 16, 2015, and Nov. 1, 2019, to resolve the claims.
- As part of the deal, which admits no wrongdoing, Under Armour agrees to keep separate the roles of CEO and chair of the board for “at least” three years, per an SEC filing. All stock benefits granted to its CEO, CFO and chief legal officer during that time will also include a performance-based vesting condition set by the board of directors.
- Under Armour will pay the settlement with cash on hand, as well as potentially drawing on its $1.1 billion revolving credit facility, the retailer said. As a result, its cash and cash equivalents are expected to decline from roughly $860 million to $500 million by the end of the fiscal year.
Dive Insight:
Under Armour is looking to settle a seven-year-old lawsuit that targeted the company’s accounting practices and accused the company’s executives of making “false and misleading statements” about the retailer’s financial health.
The original lawsuit, which was filed in February of 2017, said Under Armour executives also continued to pitch the retailer as a growth company rather than warning shareholders that its revenue and profit margins would be unable to withstand “the heavy promotions, high inventory levels and ripple effects of numerous department store closures and bankruptcy of The Sports Authority.” Plank was also accused of selling off some of his own stake in the company to prevent personal losses, while continuing to tout the retailer's strength. The settlement, which is still awaiting court approval, does not acknowledge any guilt on Under Armour’s part.
"We firmly believe that our sales practices, accounting practices, and disclosures were appropriate, and deny any wrongdoing in this case," Mehri Shadman, Under Armour's chief legal officer and corporate secretary, said in a statement. "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."
Indeed, Under Armour’s priorities are numerous, as the retailer executes a wide-ranging turnaround. Within the past year, Under Armour has revamped its marketing approach, launched its first loyalty program, laid off employees — twice, announced plans to reduce SKUs by 25% and brought on new designers to boost its product offerings. The retailer in late 2022 acknowledged athleisure as a category, and since then has worked to introduce more stylish, everyday products into its assortment while staying true to its performance roots.
The company’s turnaround efforts are also complicated by a turbulent C-suite, which saw sweeping changes under former CEO Stephanie Linnartz before she was abruptly replaced by founder Plank in March. Just a month before her exit, Linnartz highlighted that two-thirds of her executive team was new compared to the prior year, including big appointments like a new product chief, head of the Americas and chief design officer. The changes continued in April, when Chief People and Administrative Officer Tchernavia Rocker announced she was leaving the company, effective June 1.
