Bragar Eagel & Squire, P.C., a nationally recognized shareholder rights law firm, is investigating potential claims against Stanley Black & Decker, Inc. (NYSE: SWK) on behalf of long-term stockholders following a class action complaint that was filed against Stanley on March 24, 2023 with a Class Period from October 28, 2021 to July 28, 2022. Our investigation concerns whether the board of directors of Stanley have breached their fiduciary duties to the company.
At the outset of the Class Period, Stanley was undergoing a multi-year simplification of its business units through acquisitions and divestitures to return to the Company’s roots of primarily defining itself as a tool manufacturer. Throughout this transformation, Stanley enjoyed what it described as the strongest consumer demand environment in the Company’s history to finance the Company’s activities.
Specifically, Stanley repeatedly informed investors throughout 2021 and into 2022 that the COVID-19 pandemic environment of stay-at-home orders and remote work had led many consumers to spend more time at home, thus spurring increased home remodeling and do-it-yourself (“DIY”) projects, consequently creating high consumer demand for Stanley’s tools and outdoor products.
Throughout the Class Period, Defendants misrepresented to investors and the public that despite rising inflation and interest rates, and Stanley’s multiple rounds of product price increases, that pandemic-fueled, heightened consumer demand for tools and outdoor products would be sustainable through 2022 due to continuing construction and DIY projects.
Additionally, while Defendants admitted at all relevant times that supply chain management and component sourcing was integral for Stanley to keep production in pace with demand in its core Tools and Outdoor business, Defendants misrepresented to investors throughout the Class Period that they were closely monitoring the effects of inflation and price increases on consumer demand, and that Defendants would react accordingly if the demand environment changed.
Contrary to Defendants’ statements touting the heightened consumer demand and their ability to react accordingly to any effects of inflation or price increases on said demand, Stanley was incapable of nimbly responding to serious headwinds that indicated the pandemic demand bubble was soon to pop. Furthermore, Defendants knew that their statements were false and misleading as they admittedly tracked Stanley’s point-of-sale results to monitor demand.
The truth began to be revealed on April 28, 2022 when Defendants issued a set of partial corrective disclosures stating that Stanley’s Tools and Outdoor net sales had dropped in the Company’s first fiscal quarter of 2022 to $4.4 billion, and that Stanley was accordingly revising its earnings per share guidance down for fiscal year 2022. Defendants also disclosed that Stanley’s gross margin dropped “610 basis points from prior year as price realization was more than offset primarily by commodity inflation, higher supply chain costs to serve demand and lower volumes.”
On this news, Stanley stock fell 8.6% or $12.01 per share, from a close of $139.14 per share on April 27, 2022, to a close of $127.13 on April 28, 2022.
However, Defendants continued to make false and misleading statements regarding the Company’s deteriorating demand. For example, the Company’s April 28, 2022 press release stated that “[v]olume was in line with expectations, but constrained by temporary electronic component supply challenges, which have continued to improve.” On an earnings call held for investors that morning, Stanley’s Chief Executive Officer (“CEO”) James Loree echoed the press release in stating that component supply, rather than falling demand, was the primary headwind for Stanley’s sales volume, noting “[t]he volume could have been higher, but for the supply constrained environment that we continue to make progress on resolving”.
Defendants repeatedly mislead investors about the Company’s core Tools and Outdoor segment, stating that the Tools and Outdoor sales decline was attributable to supply chain issues rather than falling demand. For example, Defendant Loree reassured investors that “while the boom global conditions of 2020 and 2021 have leveled off, the fundamentals and secular drivers remain healthy and are still very much intact”, that “the combination of repair/remodel, new residential construction and commercial construction have plenty of runway to continue to drive enduring demand”, and that “we will monitor and respond accordingly if and when we observe any adverse impact from a higher interest rate environment and/or significant elasticity of demand effects following our pricing actions.” Defendant Allan also reassured investors that “the headline for the first quarter is that demand for our products remains healthy” and, in response to an analyst question, that there “is not an assumption that there’s some significant slowdown related to overall demand.”
On July 28, 2022, the truth was fully revealed when Stanley released its Q2 2022 results in a press release before stock markets opened for trading. In the press release, Defendant Allan stated that “significantly slower demand in late May and June  drove the majority of the challenges we faced this quarter” and that “[a]s the softening of the demand environment accelerated rapidly during the last portion of the quarter … [w]e are now preparing for demand to normalize closer to 2019 levels for the remainder of 2022.” Defendants also contemporaneously held an earnings call for investors and analysts the morning of July 28, 2022. Defendants revealed on the call that, due to a sharp slowdown in consumer demand for power tools in May through June 2022, sales volumes had in fact shrunk by double digits, the Company’s net income for its second quarter had plunged to $87.6M compared to $459.5M in the year-earlier quarter, and that Stanley was cutting its 2022 earnings per share guidance by nearly half.
Upon the news that demand had plummeted, that sales volumes had shrunk, and that Stanley was slashing its earnings guidance for 2022 by nearly half, Stanley’s common stock, which had closed at $117.45 per share the evening prior, fell to a closing price of $98.58 per share on July 28, 2022 on heavy trading volume, representing over a 16% day-over-day drop.
If you are a long-term stockholder of Stanley, have information, would like to learn more about these claims, or have any questions concerning this announcement or your rights or interests with respect to these matters, please contact Brandon Walker or Marion Passmore by email at email@example.com, by telephone at (212) 355-4648, or by filling out this contact form. There is no cost or obligation to you.
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