Department store Myer's then boss Bernie Brookes told investors at its 2014 full year results that the company's profit would grow in the year ahead despite the board deciding a day earlier it could not reliably give such guidance, a court has heard.
Myer is facing a class action launched on behalf of shareholders who say they lost money because the iconic chain breached continuous disclosure obligations by not correcting Mr Brookes' claim, despite knowing it could not be achieved.
On the first day of proceedings in the Federal Court in Melbourne on Wednesday, Norman O'Bryan, QC, outlining the case for the shareholders told the court that draft 2014 full year earnings ASX releases show Myer's board had decided not to include profit forecasts because it did not have confidence in the budget it had in place.
But while handing down its results on September 11, 2014, chief executive Mr Brookes told analysts and then journalists that Myer anticipated profit growth in 2015. The company's profit had fallen 22 per cent to $98.5 million in 2014.
Mr O'Bryan said Myer's trading in the first quarter of 2015 was down by 15 per cent, and that it would have needed a 23 per cent jump in profit in the second quarter, during the busy Christmas trading period, to beat its 2014 result.
He said this was a "cloud cuckoo land" assumption, with the Christmas period being "Atlas holding up the universe" for Myer.
"When a company makes a forecast it has a obligation... to keep looking at the forecast and keep changing if it remains valid or not," Mr O'Bryan said.
"Myer did not do that. Mr Brookes made a profit forecast on September 11, 2014 and Myer pretended it didn't happen."
Instead of comparing Myer's actual performance with Mr Brookes' comments forecasting growth, the board referred to analysts' consensus forecasts complied by Bloomberg when deciding whether or not it needed to update the market on its profit expectations for 2015.
At Myer's half-year results in March 2015, Mr Brookes' replacement Richard Umbers warned its underlying net profit would fall to between $75 million and $80 million in 2015. That downgrade caused heavy falls in Myer's share price, collapsing as much as 12 per cent.
The action has been launched by former Myer shareholder TPT Patrol, acting as a trustee of lead plaintiff Amies Superannuation Fund. It is being funded by Australian Funding Partners Limited, which counts Melbourne lawyer Mark Elliot as a director.
An earlier class action launched by Mr Elliot's Melbourne City Investments was thrown out as an abuse of process because Mr Elliot had bought shares in 165 listed companies with the primary purpose of launching class action claims if their share prices fell.
The claim, heard by Justice Jonathan Beach, will continue. Mr Brookes and other members of Myer's board for the relevant period are expected to give evidence.