Investigation of Mohawk Industries, Inc.
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Mohawk Industries, Inc. (MHK) Accused of Channel-Stuffing
According to the complaint for alleged violations of the Securities Exchange Act of 1934 between April 28, 2017 and July 25, 2019, to address the mounting market demand of Luxury Vinyl Tile (“LVT”) flooring material, in June 2015, Mohawk Industries, Inc. (MHK) acquired IVC Group, an LVT manufacturer, in a deal worth $1.2 billion. However, the market’s emphasis on LVT left Mohawk scrambling to bolster sales in its conventional flooring products, and as a result, Mohawk began channel-stuffing to conceal its dismal sales growth and financial performance. Beginning in April 2017, Mohawk touted its purported “growing demand” for its conventional flooring products and continued to highlight its sales growth throughout the relevant period, allowing its stock to trade at an artificially inflated price. Then, on July 25, 2019, after Mohawk had repeatedly reported financial results that missed analysts’ estimates and the Company’s guidance range, Mohawk reported sales in its Flooring NA segment that were down 7% and finally revealed that “lower demand” for certain conventional flooring products created excess inventory that impacted Mohawk’s sales and margins. On this news, Mohawk’s stock dropped $27.76, nearly 18%, to close at $128.84. The stock has yet to recover.