A renowned class action instigator has taken aim at Myer, claiming the retailer should never have told investors its profit would grow.
Melbourne lawyer Mark Elliott's investment firm is behind a group action launched in the Supreme Court of Victoria, which seeks compensation for shareholders hit by a sharp drop in the department store's share price after it downgraded its profit forecast on March 19.
Melbourne City Investments claims Myer's then chief executive Bernie Brookes misled investors in November 2014 when he said the retailer's annual profit would rise from the previous year's $98.5 million.
Myer had also forecast higher costs for the year, and Melbourne City Investments' writ claims there was insufficient evidence of improving sales to back up Mr Brookes' profit growth forecast.
The company therefore engaged in misleading conduct by not revising its profit forecasts until March 19, it is alleged, when Myer forecast an annual profit of between $75 million and $80 million.
That downgrade caused a 10 per cent slump in the value of Myer shares.
Myer has denied the claims and says it will vigorously defend the litigation.
Its shares fell heavily on news of the legal action, dropping 6.5 cents, or 4.6 per cent, to $1.35.
Myer has already defended the timing of its profit downgrade, telling the share market operator an announcement was made the day after the board decided to revise the outlook, based on an analysis of complicated financial data.
Melbourne City Investments bought just over $700 worth of Myer shares on November 14, 2014, and Mr Elliot's legal action is open to other investors who bought shares between then and March 19.
Mr Elliott has a history of launching class actions against major corporations, including construction giant Leighton Holdings and Penfolds maker Treasury Wine Estates, for allegedly misleading investors with financial forecasts.
The Treasury Wine Estates action ended when The Supreme Court of Victoria ruled Mr Elliott could not act for his own investment fund.
Concerns have been raised about potential conflicts of interests arising from his involvement in class actions as a plaintiff, solicitor and funder.
Comment was being sought from Portfolio Law, the law firm representing Mr Elliott and Melbourne City Investments.
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