Ulta facing shareholder lawsuit after reselling used product

By

Cassidy Mantor

Published
Mar 5, 2018

Ulta has been sued again, this time by shareholders, claiming securities violations after the company's stock dropped when it admitted reselling used product that has been returned to the stores and re-shelved.

Ulta was sued in February by consumers who learned the company was violating its return policy and repackaging and reselling used cosmetics. This second lawsuit is brought by a shareholder who claims the company and its lead executives lied to media and other channels about material policies that affected the company's stock value.

Ulta stock holder Barbara Chandler sued the cosmetics company in Illinois last Friday. She named Ulta, its CEO Mary N. Dillon and CFO Scott Settersten, for violating securities laws by "knowingly or recklessly" lying about the company's policies in “SEC filings, press releases, and other materials” relating to the "unsanitary" resale of used cosmetics products.

Chandler's complaint points out that Ulta's return policy states it does not permit the resale of used product, but the "widespread practice of repackaging returned cosmetics and re-shelving them alongside unblemished products to sell at full retail price," was not shared with the stock holders.

Chandler argues that as a result of Ulta's dishonesty about its used cosmetics resale, "reasonable investors [were induced] to misjudge the value of the company." More importantly, Ulta's stock has experienced a series of drops beginning on February 9 when the consumer suit was filed.

According to the complaint, Ulta's stock dropped "$9.07, or 4.15 percent, to close at $209.48 on February 12, 2018" which was the first day of trade following the filing of the first lawsuit. Two weeks later, CBS covered a story where a former Ulta employee tweeted that she was allegedly pressured by her managers to clean and resell used products. Ulta's stock again dropped.

Chandler is seeking class action certification to involve her fellow shareholders who were also affected by the decline in Ulta's stock. The time period covered by the lawsuit is March 2016 through February 2018.

Ulta has not yet responded and the Illinois federal judge has not yet certified the class.