Summary
ASC 606 has thrown up some interesting questions around UA's inventory-demand mismatch.
I examine the $303m question on UA's balance sheet.
UA may be resorting to channel stuffing through excessive discounts.
Mass international closures are not helping.
This growth miracle isn't sustainable.
“Thank God we don’t design bridges and airplanes the way we do accounting” – Charlie Munger
A month ago, I wrote a piece detailing my thoughts on the various red flags and shenanigans going on within UA (more coverage here, here, here and here). In this note, I want to dig a little bit deeper into Under Armour’s (UAA) (UA) accounting - in particular, the $303m “customer refund liability”.
We know UA’s official explanation is this:
“On the second part of your question relative to the customer refund liability, you are correct. That's just an accounting standard changethat we had to implement in Q1 of 2018 that's ASC 606, so not really any business change of any kind there. It's just a reclassification in 2018 and going forward. So we adopted that prospectively, so that used to be an amount relative to returns reserve, et cetera, that used to net down gross accounts receivable.”
But if there’s one rule any good investor should abide by, it’s to never trust management’s word – least of all UA’s.
