In my recent write-up about the number of securities class action lawsuit filings in the first half of 2025, I noted that there had been a significant drop off in the number of COVID-19-related securities suit filings in the first six months of 2025 compared to last year. The interesting thing is that though there has been an unmistakable drop off in the number of COVID-related securities suit filings, the fact is that now – even after more than five years since the initial COVID outbreak in the U.S. — new COVID-related securities suits are still being filed. In the latest example, late last month a shareholder filed a securities suit against Petco Health and Wellness, alleging the pet supply company had misleadingly contended that the company’s pandemic-related tailwinds could be sustained post-pandemic. A copy of the new Petco complaint can be found here.
Background
Petco is pet products and services company. As the complaint alleges, “in the wake of the COVID-19 pandemic, Petco consistently touted the benefits of pandemic-related tailwinds on its growth and profitability, including comparable sales growth.” These pandemic-related benefits were largely due to increased rates of pet adoption, coupled with the company’s transformation from a general pet retailer into a more health-focused pet company. The company’s health focus was, according to the complaint, “driven by an increase in younger, more health-conscious consumers becoming pet owners.”
The complaint alleges that notwithstanding the company’s representations that the pandemic tailwinds were sustainable, the company’s sales metrics began to decline. As early is mid-2023, the Company’s financial performance declined. However, the complaint alleges, the defendants contended that the company’s business strategy, build around health and/or premium pet products, was sustainable. Nevertheless, in a stairstep series of disclosures over the course of several quarters, the company reported disappointing financial results, while at the same time, also announcing several key executive departures. In a March 13, 2024 investor conference call, company management acknowledged that Petco’s business model focused on premium products was, in fact, not sustainable as it could not weather ongoing consumer preferences toward cheaper products.
Finally, on June 5, 2025, the company issued a press release disclosing its financial results for 1Q25, reflecting a decline in comparable sales, which, according to the complaint resulted in a decline in Petco’s share price of over 23%.
The Lawsuit
On June 30, 2025, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of California against the company and certain of its current and former executives. The complaint purports to be filed on behalf of investors who purchased the company’s securities between January 14, 2021, and June 5, 2025.
The complaint alleges with respect to the company’s statements about its pandemic-related tailwinds, made between the beginning of the class period and the point in mid-2023 when the company’s metrics began to “plummet,” that the defendants had made false or misleading statements or failed to disclose that: “(i) Petco’s pandemic-related tailwinds were unsustainable, as was its business model of selling primarily premium and/or high-grade pet food; (ii) accordingly, the strength of Petco’s differentiated product strategy was overstated; (iii) Defendants downplayed the true scope and severity of the foregoing issues, the magnitude of the changes needed to rectify those issues, and the likely negative impacts of their mitigation strategy on Petco’s comparable sales metric; (iv) accordingly, Defendants overstated Petco’s ability to deliver sustainable, profitable growth; and (v) as a result, Defendants’ public statements were materially false and misleading at all relevant times.”
The complaint further alleges, with respect to the company’s positive statements between the point in mid-2023 when the company’s financial metrics began to decline and the end of the class period, the company’s statement were false or misleading because “(i) they had downplayed the true scope and severity of the issues with Petco’s business model, the magnitude of the changes needed to rectify those issues, and the likely negative impacts of their mitigation strategy on Petco’s comparable sales metric; (ii) accordingly Defendants overstated Petco’s ability to deliver sustainable, profitable growth; and (iii) as a result, Defendants’ public statements were materially false and misleading at all relevant times.”
The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.
Discussion
The initial pandemic outbreak recedes further and further into the past, yet as pandemic-related lawsuits continue to be filed, the nature of the pandemic-related allegations in the latest lawsuits has changed. Whereas previously many of the pandemic-related lawsuits alleged that the defendant company had misleadingly downplayed or soft-pedaled the pandemic’s impact on company operations or financial results, increasingly in recent months the pattern of allegations has been that the defendant company initially profited from changed conditions relating to the pandemic, but that as conditions returned to normal, the company’s fortunes declined. That is certainly the pattern here, where the company’s business gained due to pandemic-related pet adoptions, but the pandemic tailwinds later proved to be unsustainable.
What is most remarkable to me about this new lawsuit is that now – more than five years after the initial pandemic outbreak in the U.S. – pandemic-related lawsuits continue to be filed. While there is no doubt that the number and pace of pandemic-related filings has declined, the fact is that pandemic-related filings are still continuing to come it. For me, the fact that pandemic-related lawsuits are still coming in underscores just how disruptive the pandemic was for so many businesses, and indeed for the economy as a whole.
Along those same lines, just last week, packaged-food maker Del Monte Foods, the U.S. unit of Del Monte Pacific, filed for bankruptcy. As discussed in a July 2, 2025 Wall Street Journal article about the bankruptcy filing (here), the company’s difficulties follow “after a pullback from a pandemic-drive surge in consumer demand for groceries.” The article said further that the company “had struggled with a decline in demand for its canned fruits and vegetables following galloping demand that continued into 2023.”
Just extrapolating from the allegations in the new complaint against Petco, as well as from Del Monte’s bankruptcy filing, it looks like the businesses that are continuing to struggle with the pandemic’s aftereffects are the ones that profited most from the distorted business conditions the pandemic caused. For those companies that ramped up to meet pandemic distorted demand, particularly those that did so in the hope, belief, or expectation that the favorable conditions would continue, the economy’s return to normal after the pandemic eased is continuing to weigh on operations and financial results.
It does seem likely that as time continues to go by, the impact of the pandemic’s distortions will eventually diminish, and, by the same token, the number of new COVID-19-related securities suit filings, should continue to decline. All of that said, however, it does seem that the long-term effects from the pandemic continue to weigh on at least some companies. In some instances, the pandemic’s continuing effects seem likely to continue to result in securities class action lawsuit filings.
From a D&O insurance underwriting perspective, the takeaways seem to be to keep a watchful eye on companies whose fortunes soared during the pandemic, but for who conditions have changed after conditions returned to normal.
I will say this, I never thought that five years after the initial pandemic outbreak in the U.S., I would still be writing about new pandemic-related securities class action lawsuit filings.