Fox Factory Holding Corp. Litigation Report

Case Introduction

Marselis v. Fox Factory Holding Corp., et al 1:24-cv-00747-TWT

On February 20, 2024, investors sued Fox Factory Holding Corp. (“Fox Factory” or the “Company”) in United States District Court for the Northern District of Georgia, Atlanta Division.

Plaintiffs in the federal securities class action allege that they acquired Fox Factory stock at artificially inflated prices between May 6, 2021 and November 2, 2023 (the “Class Period”) They are now seeking compensation for financial losses incurred upon public revelation of the Company’s alleged misconduct during that time. To learn whether you may be eligible for a recovery under this class action, go to: https://zlk.com/pslra-1/fox-factory-lawsuit-submission-form?wire=31

Summary of the Allegations

Company Background

Fox Factory (NASDAQ:FOXF) is a self-described “global leader in the design and manufacturing of premium products” for  “specialty sports and on- and off-road vehicles.”

As such, Fox Factory says it directly supplies  shocks, suspension, and components to leading powered vehicle and bicycle original equipment manufacturers (“OEMs”). It also claims that it engages in the provision of products in the aftermarket “through its global network of retailers and distributors and through direct-to-consumer channels.”

The Company says it another part of its business strategy is the acquisition of complementary businesses. Once integrated, these acquisitions purportedly allow Fox Factory  to expand its reach beyond its primary parts business. Fox Factory says that in turn allows it to  diversify its product offerings and increasing its market potential.

Summary of Facts

Fox Factory and five of its current and/or former senior officers (the “Individual Defendants”) are now accused of deceiving investors by lying and withholding important information about the Company’s business, financial condition, and prospects during the Class Period.

Specifically, they are accused of omitting truthful information about product demand and inventory levels from SEC filings and related material. By knowingly or recklessly doing so, they allegedly caused Fox Factory stock to trade at artificially inflated prices during the time in question.

The truth came out after the markets closed on November 2, 2023. That’s when the Company filed a form containing disquieting news with the SEC. It was in this context that the Company revealed that its net sales for the third quarter of fiscal year 2023 decreased 19.1% year-over-year due to “higher levels of inventory across various channels.” To make matters worse, Fox Factory also cut its full-year sales guidance from between $1.67B and $1.70B to between $1.45B and $1.47B, citing continued inventory destocking in its SSG segment.

A closer look…

As alleged, the Company and/or Individual Defendants repeatedly made false and misleading public statements throughout the Class Period.

While reporting financial its financial results for its first quarter fiscal year 2022 on May 5, 2022, for example, Fox Factory stated in relevant part: “the increase in [SSG] sales [was] driven by continued strong demand in both the original equipment manufacturer and aftermarket channels

Then, during an earnings call on February 23, 2023, the Company’s CEO (an Individual Defendant) stated in relevant part: “I believe end customer demand, even though seasonality has finally returned, continues to be generally positive and the largest challenges are a function of supply chain bloat and the corresponding cash flow challenges within our OEM and aftermarket partners.”

On the same earnings call, the Company’s CEO also stated in pertinent part: “It’s really about the speed in which the current inventory growth kind of cleans itself up. So if that happens majority in Q1 and you see it much better in the range. If you see it happen in Q3, it's going to be much worse in the range. So it’s not much of, it’s not really as much about demand.”

Lastly, in a call with analysts on May 4, 2023, the Company’s CEO stated in pertinent part: “[we are] seeing customer demand in certain markets picking back up[,]” which gave “us confidence that the demand is not necessarily gone. As a matter of fact, it hasn’t gone in SSG.”

Actions You May Take

If you have purchased the Company’s stock during the Class Period, you may join the class action as a lead plaintiff, remain a passive class member, or opt out of this litigation and pursue individual claims that may not be available to the class as a whole. To learn more about your options, go to: https://zlk.com/pslra-1/fox-factory-lawsuit-submission-form?wire=31

NOTE: The deadline to file for lead plaintiff in this class action is April 22, 2024. You must file an application to be appointed lead plaintiff prior to this deadline in order to be considered by the Court.