SAN DIEGO, June 13, 2024 (GLOBE NEWSWIRE) -- A class action lawsuit has been filed on behalf of purchasers or acquirers of The Scotts Miracle-Gro Company (NYSE: SMG) (“Scotts” or the “Company”) common stock between November 3, 2021 and August 1, 2023, inclusive (the “Class Period”), charging the Company and certain current senior executives with violations of the federal securities laws.
Scotts investors have until August 5, 2024 to seek appointment as lead plaintiff of the class action lawsuit.
If you purchased Scotts common stock between November 3, 2021 and August 1, 2023, and suffered substantial losses, and you wish to obtain additional information or serve as lead plaintiff in this lawsuit, you may submit your information and contact us here: https://dicellolevitt.com/securities/scotts/.
You can also contact DiCello Levitt partner Brian O’Mara by calling (888) 287-9005 or at investors@dicellolevitt.com. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased.
No Case Has Been Filed and No Class Has Been Certified. Until a case is filed and a class is certified, you are not represented by counsel unless you retain one. You may select counsel of your choice.
Case Allegations
Scotts is a global marketer of branded consumer products for lawn and garden care. The Company’s main brands are Scotts, Miracle-Gro, and Ortho. Scotts is the exclusive agent of Monsanto for distribution of its consumer Roundup products. Scotts sells a vast majority of its products through third-party distributors. In 2014, Scotts formed The Hawthorne Gardening Company (“Hawthorne”), a wholly owned subsidiary focused on hydroponics for the emerging cannabis growing market. The Company divides its business into three reportable segments: U.S. Consumer, Hawthorne, and Other.
The Scotts lawsuit alleges that, during the Class Period, the Company was highly leveraged, with its senior secured credit facilities containing various restrictive covenants and cross-default provisions that require the Company maintain specific financial ratios, including a key covenant that required Scotts to maintain a debt-to-EBITDA ratio under 6.25x. A breach of any of these covenants could result in a default, causing the Company’s lenders to declare all outstanding indebtedness immediately due and payable.
According to the Scotts lawsuit, in 2020 and 2021, Scotts missed out on millions of dollars in sales due to a lack of inventory as it faced surging demand. In response to this strong demand, Scotts significantly increased its inventory for both its U.S. Consumer and Hawthorne segments to “ensure [it] could service the needs of [its] retail partners.” However, realizing it had too much inventory, Scotts executives engaged in a scheme to saturate the Company’s sales channels with more inventory than could be sold to end users, rather than write down the inventory or otherwise disclose the issue to investors. Consistent with this scheme, Scotts booked as revenue the sales to its distributors and thereby maintained earnings-to-debt ratios that barely exceeded those required by its debt covenants.
The Scotts lawsuit alleges that thereafter, and throughout the Class Period, Scotts pushed product into its sales channels at a pace that outstripped demand while it repeatedly assured investors that (i) its inventory levels were appropriate, (ii) the Company was having peak or record selling, and (iii) the Company was not going to breach its debt covenants. These statements, and similar statements made during the Class Period, were materially false or misleading. And as a result of these misrepresentations, Scotts common stock traded at artificially inflated prices throughout the Class Period.
According to the Scotts lawsuit, the truth began to emerge on June 8, 2022, when the Company admitted that replenishment orders from its U.S. retailers were more than $300 million below target in the month of May alone. The Company told investors that 2022 full-year earnings would be roughly half of its prior guidance. The Company also announced plans to take on additional debt to cover restructuring charges as it attempted to cut costs. In response to these disclosures, the price of Scotts common stock declined by $9.05 per share, or nearly 9%, from a closing price of $102.18 per share on June 7, 2022, to a closing price of $93.13 per share on June 8, 2022. However, throughout the rest of the Class Period, Defendants continued to downplay the Company’s inventory and debt compliance issues.
Then, as alleged in the Scotts lawsuit, on August 2, 2023, Scotts revealed that quarterly sales for its fiscal third quarter had declined by 6%, and that gross margins fell by 420 basis points. The Company also slashed fiscal year EBITDA guidance by a staggering 25% and announced a $20 million write down of “pandemic driven excess inventories.” The Company also disclosed that it had to modify its debt covenants to 7x debt-to-EBITDA ratio, from the former ratio of 6.25x debt-to EBITDA ratio. These disclosures caused the price of Scotts common stock to decline by $13.58 per share, or 19%, from a closing price of $71.44 per share on August 1, 2023, to a closing price of $57.86 per share on August 2, 2023.
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