Not even a month after Ulta was hit with a damning lawsuit for allegedly repackaging and passing off used makeup as new, the beauty retailer has been slapped with another multi-million dollar lawsuit. Barbara Chandler, an Ulta stock holder, filed suit against Ulta, its CEO Mary N. Dillon and CFO Scott Settersten, alleging that they violated federal securities laws by “knowingly or recklessly” providing false information about the company’s “business, operational and compliance policies” in its “SEC filings, press releases, and other materials” in connection with its deceptive and “unsanitary” sale of used beauty products.
According to Ms. Chandler’s complaint, which was filed in federal court in Illinois on Friday, Ulta “made public misrepresentations or failed to disclose material facts,” including that it was engaged in “the widespread practice of repackaging returned cosmetics and re-shelving them alongside unblemished products to sell at full retail price.” This behavior, Chandler argues, is in violation of the defendants’ duty to “disseminate timely, accurate, and truthful information with respect to [its] businesses, operations, future financial condition and future prospects.”
As a result of these alleged “misrepresentations and omissions,” including Ulta’s representation that its return merchandise policy “does not permit the resale of used, damaged or expired products,” Ulta and its executives “induce[d] reasonable investors to misjudge the value of the company’s [stock].” But that is not all. Chandler claims that these “wrongful acts and omissions” are directly related to a media frenzy that ensued over its reselling of used products and the drop in Ulta’s stock price that followed from widespread media reports.
The complaint states, “On February 9, 2018, at market close, media outlets reported that a consumer class action lawsuit had been filed against Ulta, alleging that the company engaged in the ‘widespread and surreptitious’ practice of repacking returned cosmetics and re-shelving them alongside unblemished products to sell at full price.” As a result of this news, “Ulta’s share price fell $9.07, or 4.15 percent, to close at $209.48 on February 12, 2018, the following trading day.”
Exactly two weeks later, “On February 23, 2018, CBS News published a story on its website entitled ‘Former Ulta Beauty employee says she felt pressured to resell used products,’ reporting on statements, initially made on Twitter by at least one former Ulta employee, to the effect that Ulta store managers frequently pressured the Company’s employees to clean and resell used products.” This news, per Chandler, caused Ulta’s share price to fall “$8.18 or 3.94 percent, to close at $198.93 on February 26, 2018.”
As a result of “the [swift] decline in the market value of the company's securities, [Chandler] and [the other potential plaintiff in this lawsuit] have suffered significant losses and damages,” which which were caused by the behavior of the defendants, who “because of their positions with the company, and their access to material information available to them but not to the public, they knew that the adverse facts [regarding the company’s return policy] had not been disclosed to and were being concealed from the public, and that the positive representations being made were then materially false and misleading.” Ouch.
Chandler’s lawsuit, given its proposed class action status, will give other Ulta stock holders the opportunity to join the suit and share in the damages that she is seeking, should Judge Robert M. Dow, Jr. agree to approve the larger class of plaintiffs. That class of "similarly situated" individuals – potentially “hundreds or thousands” of individuals – includes “all those who purchased or otherwise acquired Ulta securities during the class period [i.e., between March 30, 2016 and February 23, 2018]; and were damaged upon the revelation of the alleged corrective disclosures.”
According to a rep for Ulta, "We are aware of the lawsuit but to date we have not been served. We deny the lawsuit's allegations and intend to defend against this matter vigorously. As with pending legal matters, we are unable to offer additional comment."
Stay tuned …
* The case is Chandler v. Ulta Beauty, Inc. et al., 1:18-cv-01577 (N.D. Ill.).