(CN) – Investors claim in a class action that Skechers USA’s stock price was artificially inflated for the personal gain of the company’s founding family before releasing disappointing financial results.
Filed in the U.S. District Court for Southern New York, the suit names CEO and founder Robert Greenberg, CFO John Vandemore and COO David Weinberg as defendants. The suit is on behalf of any individual or entity that purchased shares of the footwear and apparel company between Oct. 20, 2017 and July 19, 2018.
Although Skechers experienced rapid sales growth in recent years, it was fueled by unsustainable increases in the company’s selling, general and administrative expenses (SG&A), the class claims. In order to artificially inflate Skechers stock price, the defendants allegedly continued to tout the company’s sales growth while assuring investors that the company was “focused on bringing expenses in line with expected sales and that the company’s disproportionate SG&A expense growth was slowing down.”
According to the complaint, the defendants knew that Skechers lacked the infrastructure necessary to manage demand and sustain growth internationally while relying on costly third-party operational solutions to propel quarterly sales figures, “creating illusory growth that was not sustainable.”
Members of the company’s founding family allegedly used their inside knowledge to sell $32 million in shares during the class period, the lawsuit alleges, but investors began to learn of the company’s financial state with the release of second quarter 2018 results that revealed a drop in net earnings.
“While sales grew 10.6% from the same quarter the prior year, SG&A expenses grew by nearly twice that, or 19.7%, causing earnings from operations to decrease by 5.7%, and net earnings to decline by almost 24%,” the complaint states.
The news caused Skechers stock to decline by more than 20 percent to close at $26.27 per share on April 20, 2018, one day after results were announced for the second quarter, decimating $947 million in market cap.
Investors says they’ve “suffered significant losses and damages” in an amount to be proven at trial.
The class is represented by Steven B. Singer and Rhona Cavagnaro of Saxena White PA in White Plains, N.Y., with Joseph E. White III and Kenneth M. Rehns in Boca Raton, Fla.