Philadelphia, Pennsylvania--(Newsfile Corp. - July 17, 2024) - Grabar Law Office is investigating whether officers and directors of The Scotts Miracle-Gro Company (NYSE: SMG) breached their fiduciary duties owed to the company.
If you have held Scotts shares since prior to November 1, 2021, and would like to learn more about the investigation and your rights and potential for recovery, please visit https://grabarlaw.com/the-latest/Scotts-Shareholder-Investigation/, contact Joshua Grabar at jgrabar@grabarlaw.com or call 267-507-6085.
WHY: A recently filed federal securities fraud class action complaint alleges that Scotts, via certain of its officers and directors, made materially false and/or misleading statements and/or failed to disclose the extent to which the Company was highly leveraged, with its senior secured credit facilities containing various restrictive covenants and cross-default provisions that required the Company maintain specific financial ratios, and the channel stuffing scheme in which Scotts engaged, to avoid a breach and default of any of those covenants, which would enable the Company's lenders to declare all outstanding indebtedness immediately due and payable.
As alleged in the complaint, Scotts missed out on millions of dollars in sales in 2020 and 2021 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, the Company quickly realized that it had purchased too much inventory. Rather than write down the inventory or otherwise disclose the issue to investors, Scotts executives engaged in a scheme to saturate the Company's sales channels with more inventory than could be sold to end users. Through this scheme, Scotts booked as revenue the sales to its distributors and thereby maintained earnings to debt ratios that just barely exceeded those required by its debt covenants.
Scotts pushed product into its sales channels at a pace that outstripped demand while it repeatedly assured investors that its inventory levels were appropriate, that the Company was having peak or record selling, and that the Company was not going to breach its debt covenants. In reality, by November 2021, Scotts had an oversupply of inventory that far exceeded consumer demand. Recognizing that problem, Scotts executives engaged in a scheme to saturate the Company's sales channel with more product than those retailers could sell through to end users, a practice that required Scotts sales personnel to pressure retailers to purchase more inventory than they wanted or needed. Further, as Scotts later admitted, the Company was critically close to violating its debt covenants and would have required an "exceptional year" to remain in compliance with its covenants. Ultimately, Scotts was only able to satisfy the covenants through the channel stuffing scheme.
WHAT YOU CAN DO NOW: Current Scotts shareholders who have held Scotts shares since on or before November 1, 2021, can seek corporate reforms, the return of funds spent defending litigation back to the company, and a court approved incentive award, at no cost to them whatsoever.
If you would like to learn more about this matter, you are encouraged to visit https://grabarlaw.com/the-latest/Scotts-Shareholder-Investigation/, contact Joshua Grabar at jgrabar@grabarlaw.com or call 267-507-6085.
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