The complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company’s business and financial results. As a result of defendants’ false statements, the Company’s stock traded at artificially inflated prices during the Class Period, reaching a high of $23.44 per share on February 18, 2011.
On May 24, 2011, after the market closed, the Company announced its financial results for its first fiscal quarter ended April 30, 2011. The Company reported earnings of $26.4 million or $0.42 diluted earnings per share for the first quarter, which was nearly 50% less than the $0.82 diluted earnings per share expected by analysts. The Company further reported that net sales declined 1.1% to $869.0 million, due in substantial part to the Company’s 7.4% comparable store sales decline in its Payless domestic segment, offset by sales growth of 22.5% in one of its subsidiary companies. On this news, the Company’s stock dropped $3.06 per share to close at $15.31 per share on May 25, 2011, a one-day decline of nearly 17%.
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 inventory level remained at excessively high levels and aging inventory for its discount shoe chain segment was a concern; (b) sales at the Company’s flagship stores were significantly worse than expected due to deteriorating customer demand; and (c) the Company was forced to mark down bloated inventory at significant discounts, which adversely affected the Company’s margins and financial results for its first quarter.
On July 26, 2012, the plaintiff voluntarily dismissed the Complaint without prejudice.