Maurice Blackburn files class action against Woolworths
11 September 2018
Australia’s leading class action law firm Maurice Blackburn Lawyers, together with litigation funder International Litigation Funding Partners (ILFP), have filed a case against supermarket and retail giant Woolworths (ASX: WOW) in the Federal Court, with estimates the claim could exceed $100 million for aggrieved investors.
The case is funded by ILFP, which has a strong track record in Australia including funding previous successful major shareholder class actions against QBE, NAB and Multiplex.
Maurice Blackburn Class Actions Principal Andrew Watson said the case alleges Woolworths breached its continuous disclosure obligations and engaged in misleading conduct by issuing and reaffirming a profit guidance that could not be met without adversely affecting Woolworths’ competitiveness. Woolworths then shocked the market with a significant profit downgrade in 2015 and subsequent admissions about the flawed metrics that underpinned the original guidance.
“Cases such as this reinforce the need to increase and enhance transparency and proper disclosures from large listed companies, and to ensure they are held to account if they fail to provide the market with accurate information,” Mr Watson said.
Lead plaintiff Norman Wills, said that while he was well aware of the natural volatility of the share market, he had been shocked to learn about the disclosure issues of a company he once considered to be a well-run operation.
“It turns out that what I thought was one of the most reliable companies on the ASX with good businesses at its core, looks like it has failed to inform the market of what was going on within the company. I’m really disappointed in the way the company behaved and Woolworths needs to be held to account,” Mr Wills said.
Background to the allegations
The class action will be commenced on behalf of aggrieved Woolworths investors who suffered losses following the announcement by Woolworths on 27 February 2015 that its sales and profit growth would be below guidance that had previously been given and reaffirmed, as well as the revelation on 6 May 2015 that it had been using the wrong metrics in relation to price competitiveness and stock availability in the second half of 2014 and until January 2015.
This led to two significant price drops within the relevant period:
Following Woolworths’ announcement on 27 February 2015 that it’s guidance for NPAT growth of between 4% and 7% for FY2015 would not be met, and that NPAT growth was expected to be at the lower range of analyst forecasts of between 1.8% and 6.6%, Woolworths announced it would be making investments into its Australian supermarkets business which would impact its second half FY2015 results.
Woolworths’ share price dropped by almost 10% on 27 February 2015 and continued to drop the next day of trading, 2 March 2015, with an overall decline of almost 14% from 27 February to 2 March 2015.
Subsequently, at an Investor Strategy Day on 6 May 2015, Woolworths revealed that it had been using the wrong metrics in relation to price competitiveness and stock availability in the second half of 2014 and until January 2015.
Woolworths advised that with revised metrics in place, investment in price and service was necessary to reverse the trend of poor sales performance. The price of Woolworths shares dropped 5% on 6 May 2015 and continued to fall on the next day of trading, resulting in an overall decline of 7% between 6 and 7 May 2015.