On March 3, 2025, Barrack, Rodos & Bacine was appointed co-lead counsel in In re The Scotts Miracle-Gro Company Securities Litigation, Case No. 2:24-cv-03132-ALM-CMV, where it represents the Detectives Endowment Association Annuity Fund, one of two Court-appointed lead plaintiffs, and a putative class of investors that purchased common stock of The Scotts Miracle-Gro Company between June 2, 2021, and August 1, 2023, inclusive. The action is pending in the United States District Court for the Southern District of Ohio before the Honorable Algenon L. Marbley.
Based in Marysville, Ohio, Scotts is one of the world’s largest marketers of branded consumer products for lawn and garden care. Scotts produces lawn, garden, and agricultural products for both the consumer and professional markets, selling most of its products through third-party distributors. The Hawthorne Gardening Company, a wholly-owned subsidiary, produces products focused on hydroponics for the emerging cannabis growing market. The initial complaints filed in the action allege that, during the class period, Scotts was highly leveraged, with its senior secured credit facilities containing various restrictive covenants and cross-default provisions that require the company to maintain specific debt-to-earnings ratios. The complaint also alleged that maintenance of these covenants was crucial to Scotts as a breach could trigger a default that allowed lenders to demand immediate repayment of all outstanding indebtedness. The complaints also asserted that, throughout the class period, Scotts’ debt grew from approximately $2.3 billion at the beginning of the class period to $3.1 billion by the end of the class period, and that a lack of inventory at Scotts during the COVID-19 pandemic in 2020 and 2021 caused it to miss out on millions of dollars in sales.
The complaint allege that in response to the perceived lack of inventory, Scotts significantly increased its inventory for both its U.S. Consumer and Hawthorne segments to meet the needs of its customers, but that the company overcorrected and quickly built excess inventory, thus finding itself at risk of violating its debt-to-earnings ratio covenants. To address the situation, the complaints allege that Scotts pushed more inventory than could be sold to end users into its sales channels, recognizing revenues from those sales. The complaints alleged that, during the class period, Scotts and members of its management team misrepresented and/or failed to disclose to investors, among other things, that: (1) Scotts had an oversupply of inventory that far exceeded consumer demand prior to the start of the class period; (2) defendants engaged in a channel-stuffing scheme to saturate the company’s sales channel with more product than those retailers could sell through to consumers; and (3) Scotts was only able to satisfy its debt covenants through its channel-stuffing scheme.
According to the initial complaints, the truth began to emerge on June 8, 2022, when Scotts admitted that orders from its U.S. retailers missed the company’s targets by more than $300 million in the month of May 2022 alone and cutting in half its 2022 full-year earnings guidance for the fiscal year ended September 30, 2022. The June 8, 2022 disclosure came just weeks after the company had assured investors that it was “tracking to do even better” than its guidance. In response to this news, the price of Scotts common stock fell $9.05 per share, or nearly 9%, from a closing price of $102.18 per share on June 7, 2022, to close at $93.13 per share on June 8, 2022. Then, on August 2, 2023, Scotts revealed that quarterly sales for its fiscal third quarter had declined by 6%, and that gross margins had fallen by 420 basis points. The company also slashed fiscal year earnings guidance by 25% and announced a $20 million write down of “pandemic driven excess inventories.” Scotts also disclosed that it had to modify its debt covenants to a 7.00 times debt-to-earnings ratio, from the former ratio of 6.25 times debt-to-earnings ratio. Following these disclosures, the price of Scotts common stock fell $13.58 per share, or 19%, from a closing price of $71.44 per share on August 1, 2023, to close at $57.86 per share on August 2, 2023. As J.P. Morgan analysts reported the following day, in conjunction with the modification, Scotts had to “downsize[] its credit facility by $250[ million].”
A consolidated complaint in this Action is currently scheduled to be filed by the Court-appointed Lead Plaintiffs on May 9, 2025.