Grocery giant Woolworths (ASX: WOW) is staring down a class action potentially worth $100 million launched by law firm Maurice Blackburn.
Maurice Blackburn is alleging that Woolworths mislead shareholders in 2015 by affirming a profit guidance that could not be met without adversely affecting its competitiveness.
The listed grocery giant then shocked the market with a significant profit downgrade and subsequent admissions about the flawed metrics that underpinned the original guidance.
Maurice Blackburn has filed the case in the Federal Court, with estimates that the claim could exceed $100 million for aggrieved investors.
Class Actions Principal at Maurice Blackburn Andrew Watson says the case will hopefully exemplify the requirement for listed companies to be transparent.
"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," says Watson.
The case is funded by ILFP, which has previously funded successful suits against QBE, NAB and Multiplex.
The law suit seems to have caught Woolworths off guard, saying it had not heard anything about the class action since IMF Bentham dropped it in April 2017.
"Woolworths has received no further correspondence from Maurice Blackburn following IMF Bentham's announcement prior to today's media reports. Woolworths will consider any proceedings once served, but otherwise anticipates that they will be thoroughly defended," says Woolworths in an ASX announcement.
Shares in Woolworths are down 0.03 per cent to $28.23 at 10.39am AEST.
Maurice Blackburn's class action has been commenced on behalf of shareholders who suffered losses following the announcement by Woolworths on 27 February 2015 that its sales profit growth would be below guidance that had previously been given and reaffirmed, as well as the announcement 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.
Following the two announcements, Woolworth's share price dropped by almost 10 per cent and continued to drop with an overall decline of almost 14 per cent from 27 February to 2 March 2015.
Woolworths subsequently spent around $1 billion cutting prices and improving service at its chain of supermarket.
Business News Australia