Harvey Norman Holdings Ltd (ASX: HVN) shares are in the red on Tuesday, currently 1% lower at $4.53 apiece.
Investors have sold Harvey Norman shares today after the company posted an update on the Federal Court case brought against it by the Australian Securities and Investments Commission (ASIC).
Here's what the company posted.
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Harvey Norman shares slide on ASIC update
ASIC's case against Harvey Norman and its financing partner, Latitude Finance, has been in situ since 2022.
The case stems from advertising the pair completed between January 2020 and August 2021.
According to ASIC, the advertisements promoted a "60 equal monthly payments, interest-free" offer that, in reality, required customers to sign up for a credit card contract with additional fees.
ASIC alleges this misled consumers about the terms and costs of the financing.
[I]n fact an essential precondition for acquiring goods pursuant to the advertised payment method was that the consumer enter into a continuing credit contract that was linked to a credit card…
In October, the court ruled in favour of ASIC's claim, declaring Harvey Norman and Latitude's advertising misleading and deceptive.
ASIC said the "financial obligations under a credit card are different to what was advertised" and that consumers "deserve to be fully informed".
Today's update provides a copy of the declaration sought by ASIC from the Federal Court's decision. It also outlines some of the court's reasoning.
From 1 January 2020 to 11 August 2021, the Defendants together advertised in newspapers and on the radio and television that a consumer taking up the advertised payment method would only be liable to pay the price of the goods by way of 60 equal monthly payments, when in fact a consumer would also be required to pay an establishment fee (during the period 1 January 2020 to 15 March 2021) and ongoing monthly account service fees…
…the Defendants…engaged in conduct which was misleading or deceptive or likely to mislead or deceive, in contravention of s 12DA(1) of the ASIC Act.
A penalty hearing will be set for after 19 May 2025, which could result in fines or other consequences for the retailer. This could impact Harvey Norman shares.
Brokers are still bullish
While the legal outcome is significant, it's important to realise that it doesn't alter Harvey Norman's core operations.
Speaking of the underlying business, retail conditions were tough in FY24. The company reported a 30% drop in profit before tax for the year due to weaker consumer spending and rising costs.
Despite these hurdles, some analysts remain optimistic on the retailing giant.
Evans & Partners recently upgraded its outlook on Harvey Norman shares, citing a potential recovery in the broader retail sector and a likelihood of resilient earnings.
Meanwhile, according to CommSec, six out of fourteen brokers still rate the stock as a buy. They likely see the long-term value.
Foolish takeout
For investors looking at Harvey Norman shares, the ASIC case presents both caution and opportunity.
On the one hand, it reminds us of compliance risks and the potential downside costs of marketing tactics.
On the other, many analysts believe the current share price may offer a buying opportunity, especially if the retail sector bounces back in the coming quarters.
Time will tell what side of the fence is correct. In the last 12 months, the stock is up 8%.
