A class action lawsuit was filed against Scotts Miracle-Gro Company (SMG) by Levi & Korsinsky on June 6, 2024. The plaintiffs (shareholders) alleged that they bought SMG stock at artificially inflated prices between November 3, 2021, and August 1, 2023 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Scotts Miracle-Gro stock during that period can click here to learn about joining the lawsuit.
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Scotts Miracle-Gro Company is a manufacturer and marketer of branded consumer lawn and garden care products. Some of its renowned brands include Scotts, Miracle-Gro, and Ortho. The company also offers indoor and hydroponic growing products through its wholly-owned unit, The Hawthorne Gardening Company.
Scotts’ Misleading Claims
According to the lawsuit, Scotts and five of its current and/or former senior executives (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about inventory, consumer demand, and certain conduct from SEC filings and related material.
The defendants repeatedly reiterated the growing demand for SMG’s branded products during the Class Period. Also, the company kept building and holding more stock to satiate the presumed growing demand for its products.
For instance, during the Q2 FY22 earnings call, the CEO stated that the company was building and holding more inventory to meet the demand and service the needs of its retail partners. SMG was also stocking high inventory to cater to its market expansion plans on the East Coast.
Plaintiffs’ Arguments
The plaintiffs maintain that Scotts Miracle-Gro Co. and the Defendants deceived investors by lying and withholding important information about the Company’s business practices and prospects during the Class Period.
The information became clear in a series of events that took place on June 8, 2022 and August 2, 2023. On June 8, the company slashed its outlook for sales and adjusted earnings per share for the full-year Fiscal 2022. The then CEO noted that replenishment orders for the U.S. Consumer segment had come in $300 million lower than anticipated in May alone. When combined with growing commodity prices and fixed costs, this meant lower profitability and margins. Also, sales from Hawthorne were forecasted to fall by 40% to 45% for the Fiscal Year.
Finally, on August 2, 2023, the company lowered its FY23 sales and adjusted EBITDA (earnings before interest, tax, depreciation and amortization) guidance. The company even noted that it had changed its debt covenant to allow for a 7x debt-to-EBITDA ratio, up from the earlier ratio of 6.25x. This amendment came in as the company undertook more debt for its restructuring measures and cost-cutting initiatives.
Overall, Scotts Miracle-Gro Company failed to adequately forecast demand for its products. Diminishing sales and excess inventory led to declining margins, ultimately hitting SMG’s bottom line. This was in stark contrast to the company’s initial claims about sustained demand for its products.
All these events caused SMG stock to lose over 58% in the past three years, causing massive damages to shareholders’ returns.
