Mohawk Industries, Inc. Class Action Lawsuit
- Company Name
- Mohawk Industries, Inc.
- Stock Symbol
- Class Period
- April 28, 2017 to July 25, 2019
- Northern District of Georgia
On January 3, 2020, the Mohawk Industries, Inc. class action lawsuit was filed charging Mohawk and certain of its officers with violations of the Securities Exchange Act of 1934. The Mohawk class action lawsuit was commenced in the Northern District of Georgia on behalf of purchasers of Mohawk common stock between April 28, 2017 and July 25, 2019 (the “Class Period”) and is captioned Public Employees’ Retirement System of Mississippi v. Mohawk Industries, Inc., et al., No. 20-cv-00005.
Mohawk is a global manufacturer of flooring products, including ceramic and porcelain tile, natural stone products, carpets, rugs, laminates, hardwood flooring, sheet vinyl, and luxury vinyl tile, or “LVT.” During the past several years, the flooring industry has seen a rapid and significant increase in demand for LVT – an alternative to conventional flooring products designed to look like traditional wood, stone, or ceramic tile – which is predominantly manufactured in China.
While Mohawk’s competitors entered into distribution deals directly with Chinese manufacturers to capitalize on the growing LVT trend, Mohawk took a different approach, investing in LVT production plants and looking to grow its LVT business through acquisitions. The growing consumer demand for LVT siphoned growth away from Mohawk’s conventional flooring products – a market in which Mohawk had historically dominated the industry.
The Mohawk class action lawsuit alleges that faced with slowing demand for Mohawk’s conventional flooring products, defendants engaged in a scheme to inflate Mohawk’s revenues and earnings by booking fictitious sales of those products. This practice – known as channel stuffing – was used by defendants to mask severely declining demand for Mohawk’s conventional flooring products. Defendants also reassured investors about Mohawk’s increasing accounts receivable and inventory levels during the Class Period by falsely attributing those increases to external factors like rising raw material costs and inflation. As a result of these misrepresentations, Mohawk common stock traded at artificially inflated prices of more than $275 per share during the Class Period.
The truth was revealed through a series of corrective disclosures beginning on July 26, 2018, when Mohawk issued what would be the first of a series of disappointing financial results, with earnings for the quarter well below both Wall Street estimates and Mohawk’s previous guidance range. Mohawk also announced that it would be reducing production, signaling that its sales channels were filled with more product than it was able to sell through. The price of Mohawk stock fell more than 17% on this news. On October 26, 2018, Mohawk reported sales and earnings for the third quarter of 2018 that substantially missed analyst estimates, with sales growth in all segments lower than expected, causing the price of Mohawk stock to fall nearly 24%. Company executives attributed Mohawk’s poor financial results for the quarter, in part, to further manufacturing reductions that were required to control inventory buildup. Then, on July 26, 2019, Mohawk reported that it was again reducing production to control inventory levels and match its supply with customer demand. These disclosures caused the price of Mohawk stock to fall nearly 18%, from $156.36 per share to $128.84 per share.
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