United States District Court, D. Minnesota
IBEW Local 98 Pension Fund, Marian Haynes, and Rene LeBlanc, individually and on behalf of all others similarly situated, Plaintiffs,
Best Buy Co., Inc.; Brian J. Dunn; Jim Muehlbauer; and Mike Vitelli, Defendants
[Copyrighted Material Omitted]
Clayton D. Halunen, Esq., Halunen & Associates; Shawn J. Wanta, Esq., Baillon Thome Jozwiak & Wanta LLP; Daniel J. Pfefferbaum, Esq., and Shawn A. Williams, Esq., Robbins Geller Rudman & Dowd LLP; and Vernon J. Vander Weide, Esq., Lockridge Grindal Nauen PLLP, counsel for Plaintiffs IBEW Local 98 Pension Fund and Marion Haynes, Lead Plaintiff.
Clayton D. Halunen, Esq., Halunen & Associates; Shawn J. Wanta, Esq., Baillon Thome Jozwiak & Wanta LLP; D. Seamus Kaskela, Esq., and David M. Promisloff, Esq., Barroway Topaz Kessler Meltzer & Check, LLP; and Garrett D. Blanchfield, Jr., Esq., Reinhardt Wendorf & Blanchfield, counsel for Plaintiff Rene LeBlanc, individually and on behalf of all others similarly situated.
Amelia N. Jadoo, Esq., David W. Beehler, Esq., Michael V. Ciresi, Esq., and Sara A. Poulos, Esq., Robins Kaplan Miller & Ciresi LLP, counsel for Defendants.
DONOVAN W. FRANK, United States District Judge.
MEMORANDUM OPINION AND ORDER
This matter is before the Court on a Motion to Dismiss First Amended Complaint brought by Defendants Best Buy Co., Inc. (" Best Buy" or the " Company" ), Brain J. Dunn (" Dunn" ), Jim Muehlbauer (" Muehlbauer" ), and Mike Vitelli (" Vitelli" ) (Doc. No. 65). For the reasons set forth below, the Court grants the motion in part and denies the motion in part.
This action is a securities class action brought by Plaintiffs on behalf of all persons who purchased or otherwise acquired the common stock of Best Buy between the dates of September 14, 2010 and December 13, 2010 (the " Class Period" ), against Defendants, for violations of the Securities Exchange Act of 1934 (" SEC Act" ). By Order dated March 20, 2012 (the " March 2012 Order" ), the Court granted Defendants' Motion to Dismiss Plaintiffs' Amended Complaint. (Doc. No. 41.) Judgment was entered on March 21, 2012. (Doc.
No. 42.) By Order dated October 22, 2012, the Court vacated the judgment in this case and granted Plaintiffs leave to file their First Amended Complaint. (Doc. No. 60.) Plaintiffs filed their First Amended Class Action Complaint for Violation of the Federal Securities Laws (" FAC" ) on October 29, 2012. (Doc. No. 61 (" FAC" ).) Defendants now move to dismiss the FAC.
The facts of this case were set forth in the Court's March 2012 Order, and the Court will summarize and supplement the relevant facts below. Best Buy is a leading retailer of consumer electronics in the United States, headquartered in Richfield, Minnesota. ( Id. ¶ 2.) At all relevant times during the Class Period, Defendant Dunn was CEO of Best Buy, Defendant Muehlbauer was the Executive Vice President, and Defendant Vitelli was Enterprise Executive Vice President and President of Best Buy for the Americas. ( Id. ¶ ¶ 26-28.) 
Lead Plaintiff Marion Haynes (" Haynes" ) purchased Best Buy stock during the Class Period. ( Id. ¶ 23.)  Plaintiff IBEW Local 98 Pension Fund (" IBEW" ) also purchased or acquired Best Buy common stock. ( Id. ¶ 24.)
On March 25, 2010, Best Buy reported positive fourth quarter 2010 and fiscal year 2010 (" FY10" ) financial results and issued fiscal year 2011 (" FY11" ) revenue guidance: revenues of $52 to $53 billion, same store sales  growth of 1% to 3%, and earnings per share (" EPS" ) of $3.45 to $3.60. ( Id. ¶ ¶ 3, 38-40.) At that time, Best Buy stated that it would engage in share repurchases during FY11, but insisted that its EPS forecast was independent of the impact of share repurchases. ( Id. ¶ 3.) Plaintiffs allege that investors were encouraged by Best Buy's FY10 financial results and Defendants' forecast for FY11; the Company's stock price increased from $41.18 on March 24, 2010 to $42.66 on March 25, 2010. ( Id. ) However, first quarter 2011 (" 1Q11" ) results missed Wall Street expectations: same store sales growth was lower than projected, and sales in gaming, music, movies, and televisions declined. ( Id. ¶ ¶ 4, 49-51.) Selling, General & Administrative Expenses (" SG& A" ) increased 12% year-over-year, and inventories increased 10% year-over-year. ( Id. ¶ 49.) Despite the disappointing 1Q11, Best Buy reiterated its FY11 forecasts in its 1Q11 press release and later investor conference call. ( Id. ¶ ¶ 50-53.) In the Company's June 15, 2010 press release, Best Buy stated that market share growth was continuing and assured investors that the remainder of FY11 would be more profitable--in particular, in the fourth quarter. ( Id. ¶ 51.) Explaining how the Company would make up for disappointing results in 1Q11, Defendants dismissed the 1Q11 results as " just 10% of our year," and said " we have significant opportunity to make it up in Q2, Q3, and especially Q4." ( Id. ¶ ¶ 4, 55.) Plaintiffs allege that, during the Class Period, Defendants explained that they would manipulate certain " levers" to achieve the Company's forecast, including repurchasing outstanding shares. ( Id. ¶ ¶ 33-35.) The Company repurchased $110 million in shares in 1Q11 and $600 million in 2Q11. ( Id. ¶ ¶ 5, 135-137.)
On September 14, 2010, the Company reported: a decline of 0.1% in comparable store sales growth; lower sales across
home theater, and entertainment hardware and software; decreased traffic in stores; and its first decline in market share in eighteen quarters. ( Id. ¶ 6.) As a result, Defendants reduced the FY11 revenue forecast by $1 million. ( Id. ) The Company announced a $0.20 EPS increase over 2Q11 Wall Street EPS expectations, and increased EPS guidance to $3.55-$3.70. ( Id. ) Defendants attributed this increase to $700 million worth of share repurchases, despite previous representations that share repurchases would not impact the Company's forecasts. ( Id. )
Defendants Dunn, Muehlbauer, and Vitelli held a conference call on September 14, 2010, during which Defendant Muehlbauer stated that " our earnings are essentially in line with our original expectations for the year" and that " [o]verall, we are pleased that we are on track to deliver and exceed our annual EPS guidance." ( Id. ¶ ¶ 7, 72.) When asked by analysts on the conference call to explain how " the revenue line specifically [could] accelerate to a pretty significant necessary extent" to make the EPS guidance projections, Defendants stated: " We know during the holiday season that customers over-index their wallet share into CE [consumer electronic] products. We have no reason to believe this holiday season is going to be any different." ( Id. ¶ 76.) After the conference call, the Company's stock price increased from $34.65 on September 13, 2010 to $36.73 on September 14, 2010. ( Id. ¶ 8.) By September 27, 2010, Best Buy stock was trading above $40 a share. ( Id. )
Plaintiffs allege that by September 14, 2010, Defendants knew of multiple significant indicators that the Company was not in fact " on track" to achieve its FY11 targets, but was actually off pace, and that Defendants made statements concerning Best Buy's financial state that were knowingly false or made with no reasonable basis in fact. ( Id. ¶ ¶ 9-13, 97-100.) For example, Plaintiffs allege that Defendants knew that the 2Q11 EPS increase over Wall Street expectations was illusory and driven by manipulation of " levers" such as share repurchases, rather than substantive growth in sales, traffic, or margins. ( Id. ¶ ¶ 12, 90-91.) In addition, Plaintiffs allege that Defendants knew that: (1) comparable store sales missed expectations in 1Q11 and turned negative in 2Q11; (2) store traffic had " been choppy" ; (3) declines in comparable store sales were driven by a decline in customer traffic patterns; (4) the Company reported its first decline in market share in eighteen quarters on September 14, 2010; (5) sales in gaming and televisions were declining; and (6) domestic inventory levels in categories such as televisions were up. ( Id. ¶ ¶ 9-11.) Plaintiffs further allege that, despite all these known facts, Defendants reassured investors that earnings were " in line with . . . original expectations" and that the Company was " on track" to make its new increased FY11 guidance of $3.55 to $3.70. ( Id. ¶ ¶ 7, 66, 72.)
On November 24, 2010, two days before Black Friday, Defendant Vitelli stated that entry-level flat screen television sales were " going really strong." ( Id. ¶ ¶ 14, 105, 106.) Plaintiffs allege that, in fact, sales were declining and that Defendants had access to data that showed--and knew--that sales were declining. ( Id. ¶ ¶ 15, 108-09.)
On December 14, 2010, the Company reported 3Q11 EPS of just $0.54, falling short of 3Q11 estimates. ( Id. ¶ ¶ 16, 114.) The Company also reported a decline in comparable store sales of 5%, and a decline in market share of 110 basis points, with more losses to come. ( Id. ¶ ¶ 16, 114.) At that time, Defendants reduced FY11 EPS guidance to $3.20-$3.40. ( Id. ¶ ¶ 16, 115.) Defendants did not wait for the results of 4Q11 holiday sales to reduce the EPS guidance. ( Id. ¶ 17.) Plaintiffs allege
that Defendants stopped their share buybacks on Black Friday and did not make further purchases at the lower prices. ( Id. ¶ 142.)
On December 14, 2010, Defendants Dunn, Muehlbauer, and Vitelli hosted a conference call, during which they explained the earnings report, claiming that it was a result of lower-than-expected sales in notebooks, gaming, and 3DTV. ( Id. ¶ 18.) Defendants also explained that they had failed to be " sufficiently promotional" in televisions. ( Id. ¶ 117.) Defendants admitted that their " top line growth assumptions earlier in the year turned out to be too aggressive based on the environment ...