On October 11, 2002, Wolf Haldenstein Adler Freeman & Herz LLP filed a class action lawsuit in the United States District Court for the Southern District of New York, on behalf of purchasers of the common stock of Duane Reade, Inc. ('Duane' or the 'Company') [NYSE:DRD] between April 25, 2002 and July 24, 2002, inclusive, (the 'Class Period'), against defendants Duane and certain of its officers and directors. The case name and index number are Arnos v. Duane Reade, Inc., et al and 02-CV-8135.
If you wish to read a copy of the complaint, please click the Complaint link.
The complaint charges Duane Reade, Inc. and certain of its officers and directors with issuing false and misleading statements concerning its business and financial condition. Specifically, the complaint alleges that on April 25, 2002, the start of the Class Period, defendants issued Duane's First Quarter 2002 earnings news release for the quarter ending March 31, 2002. Duane reported recorded first quarter sales and earnings results as follows: net sales increased 12.5% to $305.8 million and net income was $5.3 million, or $0.22 per diluted share, before a previously disclosed one-time non-cash charge, compared to net income of $2.6 million, or $0.14 per diluted share, in the prior year period. With respect to the slight decline in gross profit margin for the quarter, defendants stated in the news release that it was 'primarily attributable to the temporary dampening of front-end sales in the post September 11 period and also due to a $0.4 million LIFO provision in the period." Additionally, defendants misled the public by presenting a very positive outlook for the second quarter projecting that Duane Reade would earn between $0.40 to $0.44 cents per share.
Suddenly, on July 25, 2002, defendants issued a news release announcing that Duane's second quarter profits had plummeted by more than half because Duane had failed to disclose previously that a) in connection with the '$218 convertible notes offering,' which was completed in April 2002, had incurred expenses of $7.7 million, after tax, which expenses would sharply reduce Duane's profits in the second quarter of 2002 and cause Duane to report earnings significantly lower than the level defendants told the market to expect; b) had sharply lowered prices in their stores commencing in April 2002 and planned to continue such program throughout the second quarter in an effort to increase revenues, knowing that this would cause reduced profit margins in the second quarter; c) was experiencing increased 'shrink,' primarily due to increased theft and vendor errors, which would further erode profits in the second quarter of 2002; d) was experiencing an increase in sales of generic drugs as a percentage of total drug sales, which sales were at lower prices than sales of branded equivalents; e) was experiencing a fall-off in higher margin items, including cosmetics, snacks, jewelry and toys; f) had embarked on a program, beginning in April 2002 when defendants learned that they would receive $9 million in business interruption insurance proceeds from the claims submitted in the aftermath of September 11, to spend approximately $5.0 million in the second quarter on product promotions due to lost vendor promotional allowances; and g) had embarked on a program, beginning in April 2002 when defendants learned that they would receive $9 million in business interruption insurance proceeds from the claims submitted in the aftermath of September 11, to open in the second quarter five additional stores to the number of new stores originally planned to be opened during the second quarter which, together with the three additional unplanned stores opened in the first quarter of 2002, would cause Duane to incur additional costs of $1.5 million, including $800,000 in store pre-opening expenses, in the second quarter of 2002.
In response to the surprise negative announcement on July 25, 2002, the price of Duane common stock dropped precipitously, falling from a closing price of $23.55 per share on July 24, 2002 to a closing price of $14.60 per share on July 25, 2002, a decline of approximately 38%, on volume of 5.4 million shares traded, compared to average trading volume of 321,000 shares for the previous five trading days.
Additional cases were filed on behalf on investors. On October 15, 2002, motions were made to consolidate the various cases and appoint lead plaintiff and counsel. Lead Plaintiff and Counsel were appointed and plaintiffs filed an amended consolidated complaint. Defendants moved to dismiss this complaint. The court granted defendants' motion to dismiss. Plaintiffs have taken an appeal from the order granting defendants' motion to dismiss the consolidated complaint.
Wolf Haldenstein has extensive experience in the prosecution of securities class actions and derivative litigation in state and federal trial and appellate courts across the country. The firm has approximately 60 attorneys in various practice areas; and offices in Chicago, New Jersey, New York City, San Diego, and West Palm Beach. The reputation and expertise of this firm in shareholder and other class litigation has been repeatedly recognized by the courts, which have appointed it to major positions in complex securities multi-district and consolidated litigation.
If you wish to discuss this action or have any questions, please contact Wolf Haldenstein Adler Freeman & Herz LLP at 270 Madison Avenue, New York, New York 10016, or by telephone at (800) 575-0735 (Fred Isquith, Esq., Gustavo Bruckner, Esq., Michael Miske, George Peters, or Derek Behnke).