Boston Beer Company’s hard seltzer woes are spilling over into the legal system.
The maker of Truly Hard Seltzer, the second best-selling hard seltzer on the market, is now facing a proposed class action lawsuit for allegedly failing to disclose the deceleration in sales of Truly to investors.
The complaint was filed on September 14 in the U.S. District Court Southern District of New York on behalf of Joseph Siegel and other potential class members who purchased Boston Beer stock (SAM) between April 22 and September 8, 2021. Law360 first reported news of the lawsuit.
The lawsuit alleges that Boston Beer and its executives “made materially false and/or misleading statements, as well as failed to disclose material adverse facts about” its business, operations and prospects. The lawsuit also claims that the company failed to disclose to investors that:
- Boston Beer’s hard seltzer sales were decelerating;
- The company was likely to incur inventory write-offs;
- The company was likely to incur shortfall fees payable to third-party brewers;
- The company’s financial results would be negatively affected;
- The company’s positive statements about its business were “materially misleading and/or lacked a reasonable basis.”
The complaint alleges that due to those “wrongful acts and omissions,” the plaintiff and other potential class members “have suffered significant losses and damages.”
Siegal purchased three shares of Boston Beer stock on May 18 for $1,063 each, and then bought an additional share on July 6 for $927.85 and another share on August 20 for $588.06.
In addition to the company, Boston Beer founder Jim Koch, CEO Dave Burwick and CFO Frank Smalla were named as defendants in the lawsuit. The lawsuit alleges that Boston Beer execs are “liable for the false statements” and “knew that the adverse facts specified herein had not been disclosed to, and were being concealed from, the public, and that the positive representations which were being made were then materially false and/or misleading.”
As such, the lawsuit claims that due to false and misleading statements, Boston Beer’s stock (SAM) “traded at artificially inflated prices” from April 22 to September 8, 2021. As of April 23, Boston Beer’s stock was trading at $1,283.90 per share. As of press time today, Boston Beer stock was trading at $522.85 per share.
The lawsuit alleges that Boston Beer failed to disclose its slowing hard seltzer sales trends during its first-quarter earnings report and thus misled investors. However, according to the lawsuit, “the truth began to emerge on July 22” when Boston Beer reported its second-quarter earnings in which it “slashed its full year guidance due to softer-than-expected sales in the hard seltzer category and overall beer industry.”
Boston Beer reduced its full-year 2021 guidance following the close of trading on July 22, with expected earnings per share of between $18 and $22, down from a previously communicated range of between $22 and $26. Boston Beer did so stating that the company “overestimated the growth of the hard seltzer category in the second quarter.”
Boston Beer stock declined 26%, or $246.54, to $701 per share on July 23.
The lawsuit claims that Boston Beer execs “continued to issue misleading statements” pointing to a comment by Burwick during its investor call saying he was “very confident” in the company’s updated guidance. The complaint also cites Smalla saying the company did not “expect any write-off” related to inventories and Koch stating that Boston Beer would “have to go way below our projections” before shortfall fees would kick in with its contract producers and even if they did, “the shortfall fees are not sizable.”
The lawsuit also cites Boston Beer’s withdrawal of its 2021 financial guidance following trading on September 8, citing volatility in the hard seltzer segment. As part of that announcement, Boston Beer said it expected to “incur hard seltzer-related inventory write-offs, shortfall fees payable to third party brewers, and other costs” for the rest of 2021.
Boston Beer’s stock declined 3.7%, or $21.09, to $538.31 per share on September 9.
The defendants are seeking a jury trial and unspecified damages.
Boston Beer did not return a request for comment as of press time.