Woolworths (WOW) shares hardly budged yesterday after a possible class action was announced against the retailing giant over alleged breaches of the Corporations Act following the shock 2015 profit downgrade.
The class action, to be led by Maurice Blackburn, could exceed $100 million, the law firm claimed on Tuesday. The shares eased 0.6% to $26.40 yesterday as investors went, ‘ho-hum’. The action isn’t on foot, it is possible and at the moment has no credibility because it has no lead plaintiff, unlike the Maurice Blackburn class action against Radio Rentals which was launched late in March with a lead complainant.
The law firm says upset shareholders will claim Woolworths breached its continuous disclosure obligations ahead of the profit downgrade in 2015, which triggered a 13.7% dive in its share price.
Woolworths told shareholders in August 2014 that it expected its full-year 2014-15 profit to increase by between 4% and 7%.
The profit guidance was reaffirmed at the Woolworths annual general meeting in November 2014 by then chairman Ralph Waters.
But in February 2015 the company downgraded its guidance to the surprise of investors.
Former CEO, Grant O’Brien cut the retailer’s full-year profit growth guidance from between 4% and 7% to around 1.8%. Mr O’Brien revealed plans to invest more than $500 million of cost savings into reducing food and grocery prices and improving service in its 900-odd supermarkets.
Maurice Blackburn said while an investigation into the case was ongoing, it was clear Woolworths knew that it was significantly behind its profit projections as early as October 2014 but continued to maintain its profit guidance until the publication of its half-year accounts in February 2015.
"When corporations don’t abide by the laws requiring they make timely and accurate market disclosures, these aren’t mere technical breaches – it causes loss to shareholders, undermines the integrity of the market and distorts the efficient allocation of capital that could go to more deserving companies," Maurice Blackburn principal Andrew Watson said.
"The end result is that shareholders, both individual everyday Australians and large institutional investors entrusted with members’ savings such as large superannuation funds, unwittingly suffer the consequences and lose out in a major way."
The class action is being funded by IMF Bentham.
In a statement to the stock exchange, IMF said the claims related to misleading or deceptive conduct and breaches by Woolworths of its continuous disclosure obligations between November 27, 2014 and February 26, 2015.
Maurice Blackburn says it has opened an online portal where shareholders in Woolies can register their interest. Woolworths was informed of the potential class action on Tuesday morning and in a statement to the ASX, said it had not been served with proceedings and considered that it had, at all times, complied with its continuous disclosure obligations. “If proceedings are commenced they will be defended on this basis," Woolworths said.
A spokesman for Maurice Blackburn said there was no currently no lead plaintiff.
“We have a funder, we’ve done an investigation and this is the opening of registrations,” the spokesman told Fairfax Media yesterday.
Maurice Blackburn needs not only a group of seven retail or institutional shareholders to form a class, but would need many more shareholders to sign up to make the claim, which could cost between $8 million and $10 million, commercially attractive.
Woolworths is the fifth major retailer to face a shareholder class action in the last five or so years.
In March Maurice Blackburn launched a class action against Radio Rentals, seeking compensation for more than 200,000 consumers who entered into ‘Rent Try $1 Buy’ leases with the company between March 28, 2011 and March 29, 2017. Radio Rentals is owned by the Thorn Group (the suit doesn’t apply to radio Rentals in South Australia).
In December, department store retailer Myer was hit with a second class action just weeks after a court found a separate class action against it was an abuse of the legal process. The second claim was filed in the Federal Court by former Myer shareholder TPT Patrol Pty Ltd, the trustee for the Amies Superannuation Fund.
In April last year hundreds of investors who lost money in the collapse of retailer Dick Smith registered interest in joining a class action suit led by Bannister Law. Bannister Law is investigating whether there was sufficient information to investors in Dick Smith’s prospectus and is looking at disclosures and declarations by directors and auditors in Dick Smith’s 2015 annual report.
And Slater and Gordon (ha) launched a class action against Billabong International in March 2015 over market disclosures the retailer made in 2011. Billabong settled the claim last October, saying the settlement had no material impact on its results.”
Maurice Blackburn launched a class action against Slater and Gordon last October over Slater’s disastrous billion dollar expansion to the UK that has brought the company to the edge of collapse. This has a potential value of $250 million.
