According to a press release date January 13, 2012, the complaint charges the Company and certain of its officers and directors with violations of the Securities Exchange Act of 1934.
The complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company’s business and financial results. Defendants represented that the Company’s initiatives to grow the business were working, that it was well positioned for growth and that its stock was a “good investment” when it was trading at $22 per share. As a result of defendants’ false statements, the plaintiffs claim that stock prices traded at artificially inflated prices during the Class Period, reaching a high of $31.91 per share on May 12, 2010.
On December 22, 2011, the Company announced its financial results for its third fiscal quarter ended November 12, 2011. The Company reported a net loss of ($7.25) million or ($1.03) diluted earnings per share for the third quarter and that net sales declined 11% to $95.0 million, due in significant part to the Company’s comparable store sales declines. The results also meant that the Company had failed its leverage ratio test for its revolving credit facility. The Company had to obtain an amendment to its credit agreement. As a result, the Company will have to stop its dividend. On this news, stock dropped $3.30 per share to close at $1.98 per share on December 22, 2011, a one-day decline of nearly 63%.
According to the complaint, the true facts, which were known by defendants but concealed from the investing public during the Class Period, were as follows: (a) the Company’s business was performing much worse than defendants acknowledged and was deteriorating; (b) the Company’s initiatives to grow the business were not working at the levels represented by defendants; (c) the Company’s stock was not a “good investment” and the Company’s stock buy-back was intended solely to project false confidence in the Company’s prospects; and (d) the Company’s cash flows would continue to deteriorate due to poor revenue growth such that the Company’s capital structure was not as strong as defendants represented.
On August 3, 2012, the Court issued an order appointing lead plaintiffs and approving the selection of lead counsel.
On November 6, 2012, the Plaintiffs entered a Stipulation of Voluntary Dismissal into the Court's docket. On November 9, the Court granted the Stipulation.