Woolworths settles class action for $44.5m over previous supermarket woes

The move to settle the case, albeit without admissions, was an about-face by Woolworths.

Wooloworths CEO Brad Banducci at their Sydney offices. Picture: John Feder/The Australian.

Retail giant Woolworths Group has agreed to settle a $100m shareholder class action that it was hit with on behalf of investors aggrieved over a shock profit downgrade handed down in 2015 when its now firing supermarket unit was struggling.

The long-running case relating to a series of earnings disappointments six years ago was filed by Maurice Blackburn in September 2018 and has just been settled for $44.5m, which Woolworths said would not have any financial impact.

The move to settle the case, albeit without admissions, was an about-face by Woolworths which had said it would thoroughly defend itself against the action filed by the high-profile law firm and funder International Litigation Funding Partners.

The case raised the spectre of companies becoming more reluctant to issue detailed earnings guidance and the government has recently clamped down on the lucrative class action funding industry and sought to toughen regulatory scrutiny of the area.

Maurice Blackburn declined to spell out the returns to investors on Friday and Woolworths declined to comment further on the case that was based on not meeting forecasts made prior to it issuing three profit downgrades between February 2015 and November 2015 under former chief executive Grant O’Brien.

The issues came just ahead of the reign of Woolworths’ current chief executive Brad Banducci, who was appointed in 2016. He has since locked in a recovery at the retailer and its core supermarket operations have also surged during the coronavirus pandemic.

The company has overhauled its store network and is also developing a decentralised network of smaller supermarkets that can also dominate as e-commerce spreads.

It is also benefiting from the performance of its PFD food service business and Cartology digital advertising unit. Australian supermarkets accounted for $2.2bn in earnings before interest and tax out of the $3.2bn for the group last year, including the profitable Big W.

Filings in the case alleged Woolworths breached its continuous disclosure obligations and engaged in misleading conduct by earlier issuing and then reaffirming profit guidance that could not be met without adversely affecting Woolworths’ competitiveness.

Woolworths shocked investors by making a significant profit downgrades in 2015 and it later emerged flawed metrics had underpinned its guidance.

The class action covered investors who suffered losses following the announcement by Woolworths in late February 2015 that its sales and profit growth would be below guidance that had previously been given and reaffirmed.

The action also focused on the subsequent revelation in May 2015 that it had been using the wrong metrics in relation to price competitiveness and stock availability in the second half of 2014 and until January 2015.

Shares in Woolworths dropped by almost 10 per cent in late February 2015 and dived again in the next day of trading, with an overall decline of almost 14 per cent over the period.

In 2014, Woolworths had told shareholders that fiscal 2014 profit growth demonstrated it was delivering strong and sustainable profit growth in established parts of the business and that it expected the next year to follow suit.

But Woolworths announced in 2015 that guidance for net profit after tax growth of between 4 per cent and 7 per cent for fiscal 2015 would not be met, and that net profit growth was expected to be at the lower range of analyst forecasts of between 1.8 per cent and 6.6 per cent.

It also announced it would be making investments into its Australian supermarkets business which would impact its second half fiscal 2015 results as it sought to regain customers from rivals Coles and Aldi.