united states district court middle district of florida...

Case 3:12-cv-00954-HES-JRK Document 25 Filed 02/26/13 of 66 PageID 196

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA

JACKSONVILLE DIVISION

NICK MOGENSEN, Individually and on Behalf of All Others Similarly Situated,

Plaintiff,

vs.

BODY CENTRAL CORPORATION, B. ALLEN WEINSTEIN, THOMAS STOLTZ, and BETH R. ANGELO,

Defendants.

No. 3:12-cv-00954-HES-JRK

CLASS ACTION

DEMAND FOR JURY TRIAL

CORRECTED AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS


By and through his undersigned counsel, Lead Plaintiff Nick Mogensen (“Plaintiff”)

alleges the following against Defendants Body Central Corporation (“Body Central” or the

“Company”), former Chief Executive Officer B. Allen Weinstein (“Weinstein”), former

Chief Financial Officer Thomas Stoltz (“Stoltz”), and Chief Merchandizing Officer Beth R.

Angelo (“Angelo”) (collectively, “Defendants”) upon personal knowledge as to those

allegations concerning Plaintiff and, as to all other matters, upon the investigation of counsel,

which included, without limitation: (a) review and analysis of public filings made by Body

Central and other related parties and non-parties with the U.S. Securities and Exchange

Commission (“SEC”); (b) review and analysis of press releases and other publications

disseminated by certain of the Defendants; (c) review of news articles and shareholder

communications; (d) review of other publicly available information concerning Body

Central, the other Defendants, and related non-parties; and (e) interviews with factual

sources, including individuals formerly employed by Body Central and other industry

participants.

SUMMARY OF THE ACTION

1. This is a federal securities class action against Body Central and certain of its

officers and directors for violations of the federal securities laws. Plaintiff brings this action

under §§10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15

U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. §240.10b-5,

on behalf of himself and all other persons or entities who purchased or acquired the publicly

traded common stock of Body Central between November 10, 2011 and June 18, 2012,

inclusive (the “Class Period”).

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2. Body Central is a multi-channel, specialty retailer offering women’s apparel

and accessories at specialty stores under the Body Central and Body Shop banners, as well as

through a direct business. The Company, which went public on October 15, 2010, holds

itself out as the “destination for trendy ladies’ apparel at very affordable prices.” On its

website, www.bodyc.com, the Company stated during the Class Period that to “keep up with

the latest fashion styles for every season,” Body Central is “constantly adding new ladies

apparel to our selection of tops, bottoms, dresses, outerwear, footwear, jewelry, and

accessories.” Continuing, the Company stated it had an “on-trend collection,” and offered

the “latest styles and trends.”

3. Plaintiff alleges that, during the Class Period, Defendants engaged in a

fraudulent scheme to artificially inflate the price of Body Central common stock by

concealing and subsequently minimizing significant, deteriorating merchandise conditions

that negatively impacted sales and Body Central’s financial outlook. To the extent

Defendants ultimately were forced to first recognize the impact of such merchandise issues,

Defendants minimized their effect, ensuring investors the Company’s merchandise woes

would be quickly dispatched and rectified, and would not interfere with the Company’s

future financial performance. Specifically, on March 8, 2012, Weinstein stated during a

conference call with analysts that the Company “underestimated demand for one important

lifestyle category” which “resulted in softer than expected sales quarter-to-date.” Weinstein

assured investors that Body Central had “taken corrective action and expect[ed] this category

to improve as we head into the second quarter.” Although Weinstein stated he would not be

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elaborating on the specifics, he told the market it was “isolated to one thing” and that the

“rest of the business is fine.”

4. In reality, and unbeknownst to the market, Body Central was suffering

extensive problems, including a failure to order new merchandise, instead relying on reorders

of similar styles of clothing, resulting in a significant decrease in sales, and a markdown of

significant amounts of merchandise. As a result of Defendants’ false statements, which

included statements regarding the Company’s 2012 financial outlook, Body Central common

stock traded at artificially inflated prices during the Class Period, reaching an all-time

closing high of $30.69 per share on April 27, 2012.

5. On the eve of Body Central reporting its financial results for the first quarter

of 2012, Angelo, Body Central’s Chief Merchandising Officer, and her father, Jerrold

Rosenbaum (“Rosenbaum”), the founder of Body Central, cashed in on the non-disclosure of

the Company’s true state of affairs and the artificial inflation of its stock price. Between

May 1, 2012 and May 3, 2012, they sold nearly 99,591 shares of Body Central common

stock for insider trading proceeds of approximately $2,923,163. The sales began just two

business days after Body Central hit its all-time high and Class Period-peak closing price on

April 27, 2012.

6. On May 3, 2012 alone, Angelo and Rosenbaum collectively sold $991,210

worth of stock for prices ranging from $29.15 to $30.21. That same day, but after the market

closed, the Company issued a press release and hosted a conference call to report and discuss

Body Central’s first quarter 2012 financial results. Although Defendants did not disclose the

full truth, they revealed declining financial performance, weakening sales trends, and

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lowered expectations for 2012. Among other things, the Company unexpectedly issued a

weak forecast for second quarter and full year earnings, pointing to an expected decrease in

comparable store sales. For the second quarter, the Company forecast earnings between

$0.26 and $0.28, well below market expectations of $0.36. The Company forecast full year

earnings of $1.34 to $1.38, below the average analyst forecast of $1.52.

7. The after-market disclosure on May 3, 2012 signaled to the market that

Weinstein’s “isolated to one thing” and the “rest of the business is fine” statements were

false and misleading when made. The market responded swiftly, decimating the price of

Body Central stock. On May 4, 2012, it fell approximately 48.55% – or $14.04 per share –

to close at $14.88 on abnormal volume of more than 4.3 million shares traded. By contrast,

from the time of the Company’s initial public offering (“IPO”) to May 4, 2012, Body Central

stock averaged just under 158,000 shares traded per day.

8. On May 4, 2012, Reuters published an article titled “Body Central shares

beaten lower on bleak forecast” stating that “a heavy fall in same-store sales would hurt its

second-quarter results.” The article further stated, in part:

“Both topline and margins are affected as the company clears out non-performing product at higher markdown rates,” Jefferies analyst Randal Konik wrote in a note titled, ‘There’s a body in the repair shop.’”

9. Only one month later, on June 18, 2012, the Company again lowered its sales

and earnings guidance for the second quarter and full year 2012. Defendants further revealed

the falsity of their statements announcing that poor sales trends were continuing, that for the

second quarter of fiscal 2012, Body Central expected comparable sales to decrease 7% to

9%, and that the Company expected earnings per share (“EPS”) to range between $0.19 to

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$0.21, down from the recently announced $0.26 and $0.28 range. For the year, Defendants

revealed Body Central’s diluted EPS would range from $1.07 to $1.11, down from $1.34 to

$1.38.

10. On this news, the price of Body Central common stock again lost almost half

of its value, falling 48% – or $7.77 per share – from a closing price of $15.99 on June 15,

2012 to close at $8.22 per share on June 18, 2012, the next trading day. The stock fell on

volume of more than 14.4 million shares traded – the most in the Company’s history – and

more than 80 times its average trading volume from the time of the IPO to the end of the

Class Period of 178,692 shares traded per day. This significant stock price decline, which

occurred as a direct result of Defendants’ revelation of the Company’s true financial

condition, removed the artificial inflation from the price of Body Central common stock and

caused millions in investor losses. As of the date of this Complaint, the price of Body

Central Stock has not recovered.

11. As set forth above, while investors suffered, Angelo and Rosenbaum cashed

in on the fraud. The chart below demonstrates their well-timed trades occurring just before

Body Central’s stock price crashed:

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Body Central $30

$25

a, $20

a.

$15

May - May 3 2012 Angelo and Rosenbaumsell 99,591 shares for $2,923,163.

5/3112 Body Central release announcing 1012 comp store sales and gross margin declines. Comp store sales to decrease by 5 to 7 percent.' Jeffries analyst: There's a body in the repair shop.'

6I1812

Body Central again revis[ed] sales and earnings guidance for 2Q12 and FY12. Sales and gross margins lower than forecast in May 3 release. Now 2012 comp sales to decrease in a range of 7 to percent. FY12 EPS $1.07-$1.11.

$5 I 0510112012 0511712012 06105/2012 06/2112012

05/0912012 05125/2012 06/13(2012

12. As a result of the insider trades, Angelo and Rosenbaum are the subject of a

criminal investigation by the United States Attorney’s Office for the Southern District of

New York, and they are under investigation by the Federal Bureau of Investigation (“FBI”)

and the SEC.

JURISDICTION AND VENUE

13. Jurisdiction is conferred by §27 of the Exchange Act, 15 U.S.C. §§78aa. The

claims asserted herein arise under §§10(b) and 20(a) of the Exchange Act, 15 U.S.C.

§§78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R. §240.10b-5.

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14. Venue is proper in this District pursuant to §27 of the Exchange Act. Many

of the false and misleading statements were made in, or issued from, this District and Body

Central maintains its principal executive offices in this District.

15. In connection with the acts alleged in this Complaint, Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, without

limitation, the mails, interstate telephone communications, and the facilities of the national

securities markets.

PARTIES

Plaintiff

16. Plaintiff Nick Mogensen was appointed to serve as Lead Plaintiff in this

action by Order of this Court dated December 13, 2012 [Dkt. No. 17]. As shown in his

certification filed with the Court on August 27, 2012 [Dkt. No. 1] and incorporated herein,

Mr. Mogensen purchased Body Central common stock at artificially inflated prices during

the Class Period and suffered an economic loss when the true facts about the Company’s

business and financial condition were disclosed and the price of Body Central stock

resultantly declined.

Defendants

17. Defendant Body Central is a Delaware corporation with its principal

executive offices located at 6225 Powers Avenue, Jacksonville, Florida 32217. Body

Central is a multi-channel, specialty retailer offering trendy and affordable women’s apparel

and accessories at specialty stores under the Body Central and Body Shop banners, as well as

through a direct business. The direct business is comprised of a Body Central catalog and an

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e-commerce website. As of May 1, 2012, Body Central had 246 stores located across 23

states in the South, Mid-Atlantic, and Midwest. The Company’s stock is listed on the

NASDAQ and trades under the ticker symbol “BODY.” Body Central was formerly known

as Body Central Acquisition Corp. On October 13, 2010, a 25.40446-for-1 stock split of the

Company’s outstanding common stock was implemented in conjunction with the Company’s

IPO. On October 14, 2010, the Company completed the IPO of its common stock, which

included 3,333,333 new shares sold by the Company and 1,666,667 shares sold by the

Company’s existing stockholders, raising net proceeds of $38.2 million for the Company.

On February 16, 2011, the Company completed a secondary offering of 5,703,764 shares of

common stock priced at $16.50 per share. The Company sold 100,000 new shares of its

common stock in the offering, and selling shareholders sold 5,603,764 shares of common

stock in the offering which included all of the 743,969 shares sold pursuant to the

underwriters’ over-allotment option. The offering raised net proceeds of $1.1 million for the

Company.

18. Defendant Weinstein was, at all relevant times, President, Chief Executive

Officer (“CEO”), and a Director of Body Central. On August 16, 2012, Weinstein resigned

as Body Central’s CEO and from its Board of Directors. While the price of Body Central

stock was artificially inflated, Weinstein sold 35,354 shares of Body Central stock at

artificially inflated prices, generating insider sales proceeds totaling $892,084.

19. Defendant Stoltz was, at all relevant times, Chief Financial Officer, Executive

Vice President, and Treasurer of Body Central. On August 17, 2012, Body Central

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announced Stoltz would become the Company’s Chief Operating Officer (“COO”) and was

named interim CEO to replace Weinstein.

20. Defendant Angelo was, at all relevant times, Chief Merchandising Officer of

Body Central. While the price of Body Central stock was artificially inflated, Angelo sold

148,711 shares of Body Central stock at artificially inflated prices, generating insider sales

proceeds totaling $3,862,581, including the $695,986 she generated on the eve of the

Company’s 48% stock drop on May 4, 2012.

21. Throughout the Class Period, Weinstein, Stoltz, and Angelo (collectively, the

“Individual Defendants”) were responsible for ensuring the accuracy of Body Central’s

public filings and other public statements, and they personally attested to, and certified the

accuracy of, Body Central’s financial statements.

22. The Individual Defendants were privy to confidential and proprietary

information concerning Body Central, its operations, finances, financial condition, and

present and future business prospects. The Individual Defendants also had access to material

adverse non-public information concerning Body Central, as discussed in detail below.

Because of their positions with Body Central, the Individual Defendants had access to non-

public information about its business, finances, merchandise, markets, and present and future

business prospects via access to internal corporate documents, conversations, and

connections with other corporate officers and employees, attendance at management and

Board of Directors meetings and committees thereof, and via reports and other information

provided to them in connection therewith. Because of their possession of such information,

the Individual Defendants knew, or were severely reckless in disregarding, that adverse facts

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specified herein had not been disclosed to, and were being concealed from (in order to

mislead), the investing public. The adverse information about Body Central’s deteriorating

competitive position, its slowing sales, and increasing markdowns was central to the

Company’s business and is the type of information Defendants would have analyzed weekly,

if not daily.

23. Throughout the Class Period, the Individual Defendants were able to, and did,

control the contents of the Company’s SEC filings, reports, press releases, and other public

statements. The Individual Defendants were provided with copies of, reviewed and

approved, and/or signed such filings, reports, releases, and other statements prior to, or

shortly after, their issuance and had the ability and opportunity to prevent their issuance or to

cause them to be corrected. The Individual Defendants were also able to, and did, directly or

indirectly, control the conduct of Body Central’s business, the information contained in its

filings with the SEC, and its public statements. Moreover, the Individual Defendants made

or directed the making of affirmative statements to the investing public, and participated in

meetings, conference calls, and discussions concerning such statements. Each of the

Individual Defendants knew that the adverse facts specified herein had not been disclosed to,

and were being concealed from, the public, and that the positive representations that were

being made were then false and misleading. As a result, each of the Individual Defendants is

responsible for the accuracy of Body Central’s corporate releases detailed herein and is

therefore responsible and liable for the misrepresentations and omissions contained therein.

24. The Individual Defendants are liable as direct participants and co-conspirators

with respect to the wrongs complained of herein. In addition, the Individual Defendants, by

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reason of their status as senior executive officers and/or directors, were “controlling persons”

within the meaning of §20 of the Exchange Act and had the power and influence to cause the

Company to engage in the unlawful conduct complained of herein. Because of their

positions of control, the Individual Defendants were able to, and did, directly or indirectly,

control the conduct of Body Central’s business.

25. The Individual Defendants, because of their positions with the Company,

controlled, and/or possessed the authority to control, the contents of its reports, press

releases, and presentations to the investing public. The Individual Defendants were provided

with copies of the Company’s reports and press releases alleged herein to be misleading,

prior to or shortly after their issuance, and had the ability and opportunity to prevent their

issuance or cause them to be corrected. Thus, the Individual Defendants had the opportunity

to commit the fraudulent acts alleged herein.

26. As senior executive officers and/or directors and controlling persons of a

publicly traded company whose common stock and other securities were, and are, registered

with the SEC pursuant to the Exchange Act, and whose shares traded on the NASDAQ and

governed by the federal securities laws, the Individual Defendants had a duty to disseminate

promptly accurate and truthful information with respect to Body Central’s financial

condition and performance, growth, operations, financial statements, business, products,

markets, management, earnings, and present and future business prospects, to correct any

previously issued statements that had become materially misleading or untrue, so that the

market price of Body Central’s common stock would be based upon truthful and accurate

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information. The Individual Defendants’ misrepresentations and omissions during the Class

Period violated these specific requirements and obligations.

27. The Individual Defendants are liable as primary participants in a fraudulent

scheme and wrongful course of business which operated as a fraud or deceit on purchasers of

Body Central common stock by disseminating materially false and misleading statements

and/or concealing material adverse facts. The fraudulent scheme employed by the Individual

Defendants was a success, as it: (a) deceived the investing public regarding Body Central’s

prospects and business; (b) artificially inflated the price of Body Central common stock; and

(c) caused Plaintiff and other members of the Class, as defined herein, to purchase Body

Central common stock at inflated prices and suffer losses when the relevant truth regarding

Body Central’s true financial condition was revealed and the artificial inflation was removed

from the price of the stock.

SUBSTANTIVE ALLEGATIONS

Background of the Company

28. Founded in 1972, Body Central opened its first Body Shop store in 1973 in

Jacksonville, Florida, where its corporate headquarters is located. The Company was

founded as a specialty retailer offering on-trend, quality apparel and accessories at value

prices and operates specialty apparel stores under the Body Central and Body Shop banners,

as well as a direct business comprised of the Body Central catalog and e-commerce website.

Body Central targets women in their late teens and twenties from diverse cultural

backgrounds who seek the latest fashions and a flattering fit. Currently, Body Central’s

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business is focused on opening Body Central stores and developing the Body Central and

Lipstick brands and on moving away from the use of the Body Shop name for its stores.

29. Body Central holds itself out as a fashion-forward clothing store selling the

latest styles in trendy fashions and represents that the Company “continually updates its

merchandise and floor sets . . . to give its customers a reason to shop its stores frequently.”

According to the Company’s website:

Body Central is your destination for trendy ladies’ apparel at very affordable prices. To keep up with the latest fashion styles for every season, we are constantly adding new ladies apparel to our selection of tops, bottoms, dresses, outerwear, footwear, jewelry, and accessories.

30. During the Class Period, it was critical to Body Central’s financial condition

that the Company stay on-trend and update its merchandise in order to grow its sales and

successfully expand its business. To that end, Body Central had announced, by the start of

the Class Period, plans to expand the Company’s business by at least 15% annually. For

example, the Company operated approximately 226 stores at the start of the Class Period.

Following meetings with management in November 2011, William Blair & Company, LLC

(“William Blair”) issued a report on November 23, 2011 stating:

Body Central remains on track to open 33 new stores this year representing store growth of 15%, and management continues to expect to maintain a 15% rate of expansion over the next several years. Longer term, we believe the opportunity exists for Body Central to grow its store base to roughly 400 locations (from 226 today) in the existing 24 states, with significant additional white space in the West and Northeast.

Body Central’s Reorder System Left the Stores with Stale Merchandise

31. Despite Defendants’ efforts to hold the Company out as a rapidly,

successfully growing seller of trendy women’s fashions, during the Class Period, Body

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Central lagged far behind the latest fashions and was instead repeatedly reordering the same

items, staying with the same products for an extended period of time, reordering

merchandise that had sold on clearance the year before. These facts were corroborated by

the independent accounts of several well-placed former Body Central Employees.

32. A former Regional Vice President 1 explained how Body Central operated its

stores. When an item sold well, Body Central then stocked every variation on the pattern or

style as a pant, shirt, dress, skirt, or even a scarf. But, according to the former Regional Vice

President, Body Central was carrying “boring styles and products” and in the first quarter of

2011, “there was nothing new and exciting coming into stores.” She recalled the Company’s

regional vice presidents and district managers referred to the phenomenon of Body Central

buying the same items over and over as “lazy buyers.”

33. As explained by the former Regional Vice President, Body Central stores

were coming off a bad fourth quarter in 2011. The Company marked down fourth quarter

inventory to clear it out of the stores and then stocked new items for the first quarter of 2012.

But in the first quarter of 2012, there was a problem: the “new” items were not new and

nothing “exciting [was] coming into stores.” After seeing the repetitive products arriving at

Body Central stores, the Regional Vice President “knew it would be a horrible first quarter.”

As anticipated, the nearly 100 stores under the former Regional Vice President’s oversight

1 The former Regional Vice President was employed by Body Central for almost 40 years, until April 2012. As a Regional Vice President, she supervised almost 100 stores in territory that extended from the south, north to Chicago, Illinois and to Pittsburgh, Pennsylvania. The former Regional Vice President reported directly to Weinstein and then to Matt Swartwood (“Swartwood”) after he joined the Company in or around June 2011.

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had a “horrible January and horrible February.” According to the former Regional Vice

President, no action was taken to fix the problem or “rejuvenate[]” the merchandise.

34. The former Regional Vice President further explained that because she had

oversight of stores in the south and Florida, which typically received spring fashions sooner

than stores elsewhere in the nation due to the warmer weather, she saw Body Central’s

spring inventory in February. According to the former Regional Vice President “the

inventory was not exciting.” The former Regional Vice President stated that if Body Central

employees weren’t excited about the merchandise coming in, “why would the customers

be?”

35. Former Senior District Manager I 2 also stated that items that sold well in a

particular season were purchased again in that season the next year. According to the former

Senior District Manager I, “customers did not want it because they had already bought it the

year before.”

36. A former District Manager 3 explained that Body Central’s problems were a

result of the stores “missing out on trend items.” According to the former District Manager,

the stores were not getting “as much fashion and trend [items] in my last year at work.” The

2 Former Senior District Manager I worked for Body Central from 1995 through January 31, 2012, overseeing 12 stores, including locations in Tampa, Clearwater, Orlando, and the Jacksonville area. Former Senior District Manager I reported to a Regional Vice President who, in turn, reported to Weinstein and Swartwood.

3 The former District Manager was employed by Body Central from 1990 until July 22, 2012 supervising a district of ten stores located in Jacksonville, Florida and Southern Georgia. The former District Manager reported to former Regional Manager Lina Vainosky.

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stores were “not getting the best product” and the “buying department was complacent”

about the items they were buying.

37. Former Senior District Manager II 4 acknowledged it was a problem that Body

Central was “re-ordering the same styles” as the same season in prior years, and that this

negatively impacted sales in 2012. Former Senior District Manager II explained that if Body

Central sold something as a top and it sold well, then it would become a long sleeve item,

then a dress, then a sleeveless dress. But it is “essentially the same item.” According to

former Senior District Manager II, Body Central held onto styles “longer than it was

wanted.” Former Senior District Manager II recalled a running joke “that if you left and

returned 10 years later, you wouldn’t miss a step.” In other words, the Company’s

merchandise would look the same. She recalled that Body Central was operating out-of-

focus when it came to addressing the “same styles” problem. Rather than “look at buyers

who’ve been there 25 years,” the Company attempted to focus its efforts on the field, i.e. ,

store level, to fix problems in 2012. Former Senior District Manager II explained that the

repetitive nature of the items being offered for sale really hampered sales. According to

former Senior District Manager II, it was the Company’s buyers who were complacent and

relied too much on re-buying styles that had sold well in the past. The district managers

knew they would “see the same item five times in six years.” Former Senior District

Manager II recalled Body Central was not meeting internal sales goals in the fourth quarter

4 Former Senior District Manager II started with Body Central in 1987 as a store manager, became a district manager in 1995, and later worked as a Senior District Manager until leaving the Company on April 27, 2012, after approximately 25 years of employment. In her higher positions, former Senior District Manager II supervised stores in Louisiana, Miami, and Tennessee.

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of 2011. When former Senior District Manager II left her employment in April 2012, Body

Central sales were “definitely not on track.”

38. Similarly, a former Store Manager 5 stated that she saw repetitive store

purchasing and explained that Body Central sold the same items in the same season in

successive years. For example, the Store Manager stated that in early 2012, Body Central

stores carried “the exact same clothes” that were in the stores in spring 2011. The former

Store Manager recalled customers were “coming in wearing shirts from last year and we

were selling it again.” As a result, sales at her store were 10% below the corporate goals

assigned to the store. The former Store Manager explained that part of the reason the store

failed to meet corporate goals was because of this failure to stock fresh styles. For example,

the former Store Manager explained that in spring 2011, her store carried a type of top that

sold only “okay,” and then was put on clearance and sold through. The following year in

spring 2012, her store received nearly identical tops. Her assistant manager came to work in

spring 2012 wearing one of the tops she had purchased in spring 2011, and it looked just like

the “new” tops Body Central was stocking for 2012. According to the former Store

Manager, “You could almost predict what you are going to see each season” based on what

Body Central had sold in that season the year before.

39. As another example, the former Store Manager recalled a particular type of

tank-top with stripes the store carried every year that was akin to a “value buy.” The tank

5 The former Store Manager was employed by Body Central from March 2011 until June 2012, originally joining the Company as the co-manager of a Body Central store located in Jacksonville, Florida, and later becoming the store manager. The former Store Manager reported to District Manager Melissa Perkins.

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tops had the “same stripes and fit” and some of the same colors. According to the former

Store Manager, her store sold approximately ten of the tops in spring 2011 before they went

on clearance, but the “[n]ext spring, they came back. Same tank top with the same stripes

back on the table.” The former Store Manager, who had previously worked at Wal-Mart and

had experience with their merchandising and selling strategies, stated the tops were “almost

like a Wal-Mart bulk buy.” But, while “Wal-Mart can do that,” i.e ., sell bulk buys on young

women’s fashions, Body Central customers wanted items that were more fashion conscious

and unique. The former Store Manager explained it seemed like the tank tops should have

just been sold out of a big bin. According to the former Store Manager, the tank tops again

failed to sell well in her Body Central store in 2012.

40. The former Regional Vice President explained that the lack of new

merchandise was “a huge concern” for Body Central employees in the field, and that this

concern was “definitely discussed” during meetings that took place via conference calls on

Monday mornings among regional vice presidents, corporate executives, and Body Central’s

buyers who were responsible for ordering the merchandise that was no longer selling. Based

on the corroborating accounts of several former employees contained herein, the corporate

executives on the Monday morning conference calls included Weinstein. The former

Regional Vice President, who participated in the calls, stated that the issue of reordering

items that were no longer selling well was discussed with corporate executives during the

Monday morning calls, but the information was “not well received” by Body Central

executives. She did not understand what Weinstein saw in the numbers that gave him reason

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for optimism, but she knows through the Monday meetings and discussions with Weinstein

that he knew about everything going on at the Company.

41. Former Senior District Manager I confirmed that the Regional Managers

participated in a conference call each Monday with Weinstein, Swartwood, all the buyers,

and the Company attorney. Former Senior District Manager I occasionally participated in

the senior management call when the Regional Manager was unavailable to attend. Former

Senior District Manager I also stated there was also a conference call every Monday morning

that all of the district managers in a region attended, which was led by their regional

manager. According to the former Senior District Manager I, the call was accompanied by a

detailed 40 to 50 page report detailing the previous week’s results, sales, and comparisons to

prior years. The former Senior District Manager I explained that after the call, the district

manager would hold a call with their store managers to relay any instructions from senior

management.

42. The former Store Manager, who sometimes participated in the Monday

morning phone calls with the regional managers and Body Central buyers, also confirmed

that Weinstein participated in the conference calls. According to the former Store Manager,

the only time Weinstein did not participated in the calls was if the Company had done well

the week before because “he wouldn’t want to congratulate everyone,” but Weinstein was

always on a call after a bad week of sales. The former Store Manager also received a weekly

report, in the form of an Excel spreadsheet, via email every Monday detailing sales in her

district the prior week and showing how other districts in the region were performing.

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Excessive Turnover and Short-Staffing Contributed to Body Central’s Loss of Sales During the Class Period

43. During the Class Period, Weinstein and Swartwood instituted many changes

at Body Central, resulting in an extensive turnover of key employees and short-staffing at the

district management level. Because the Company sought to rapidly expand its number of

stores during the Class Period, the short-staffing problem further exacerbated the Company’s

sales and stale merchandise problems during the Class Period.

44. The former Regional Vice President recalled that Swartwood pushed out

several well-liked and knowledgeable district managers, as well as Regional Director Lina

Hettinger, and failed to replace all of them. According to the former Regional Vice

President, “[t]he people they hired were not even half of the people who left.” She further

explained the new employees did not have the ability or experience of the people who were

pushed out.

45. According to the former Regional Vice President, other district managers then

began to leave voluntarily because they did not like the changes in the Company and the way

their colleagues were treated. As a result, several regions lacked sufficient district managers

to cover all the stores. For example, the former Regional Vice President stated that several

district managers had to cover two districts for a full year because Body Central lacked the

staff to handle all the districts. There was no one to replace the district manager in Chicago

when she left in 2012, district managers in North Carolina regularly had to cover two

districts, and this was a “huge” problem in Texas and Oklahoma.

- 20 -


46. The former Store Manager also confirmed there was excessive management

turnover and that during her employment of just over one year, she had four different district

managers.

47. According to former Senior District Manager II, due to a large amount of

management turnover, Body Central was frequently short handed. Her district was changed

often, sometimes with her/him covering too wide an area, and other times having her/him

responsible for one or two stores far from the location of the Senior District Manager II’s

core group of stores, making it hard to manage the outlier. For example, for a time the

former Senior District Manager II had multiple central coast stores, plus one more in

Orlando, Florida.

48. Former Senior District Manager I confirmed that “a lot of management left

with the arrival” of Swartwood, and that the loss of “several great people” who had been

with Body Central a “long time” contributed to decreased sales at Body Central. Employees

in the stores were assigned a lot of new duties and reporting responsibilities as part of

changes instituted under Weinstein and Swartwood’s leadership. According to former

Senior District Manager I, the changes led to “a lack of focus in stores on [both]

merchandising and creating a great store environment.”

49. Simply put, the changes instituted by Weinstein and Swartwood resulted in

lower sales. According to the former Regional Vice President, in the past Body Central “did

really well” because of the good working relationships among management and employees.

“Body Central worked well together as a group. There were very respectful and good

working relationships.” The regional vice presidents and buyers “had input” into decisions.

- 21 -


“People felt like people mattered and everyone loved working there.” The former Regional

Vice President explained that when Weinstein came in, he lost the support and trust of a lot

of people in the Company.

50. According to the former Regional Vice President, Weinstein changed the pay

structure for employees in a way that prevented them from ever getting bonuses. The former

Regional Vice President explained that the year that Weinstein joined Body Central was a

year of good sales and, as a result, the sales organization got very good bonuses that year.

Weinstein, however, told the former Vice President that “you all make too much money” and

that he would “make sure that does not happen again this year.” She recalled Weinstein was

actually mad. Weinstein then set all employees’ goals based on extending that same trend of

growth that had occurred previously and putting everyone “up against . . . unrealistic

numbers.”

51. According to the former Regional Vice President, Weinstein “was always

expecting better sales without information to support it.” She recalled that Weinstein created

two sets of goals, one announced to investors and a higher goal set internally. She described

this practice as “strange.” The corporate goal for sales increases was, for example, 5%, but

the internal goal that Weinstein set for the stores was 15%. As explained by the former

Regional Vice President, Weinstein intentionally set the internal goals too high so he would

not have to pay bonuses. In the last half-year prior to her departure in April 2012, the former

Regional Vice President recalled that “no one made bonus.” Very few people even qualified

for bonus by meeting the extremely high sales goals, and those people saw their bonuses

slashed because of very tight “penalty” provisions in the compensation plan. The penalty

- 22 -


provisions included requirements to keep shrinkage within a very small percentage, and

payroll within a very tight limit, as well as other requirements. According to the former

Regional Vice President, any violation of those requirements resulted in a 25% to 50%

reduction in bonus. She stated it was so bad that the managers at Body Central referred to

the bonus program as “the penalty program.” The former Regional Vice President

recognized that benchmarks are needed for incentive programs and those goals should

require employees to stretch to reach them, “but there is a limit to that.” She stated that

Weinstein pushed past that limit and the result was “demotivating.”

52. The former Regional Vice President recalled that Weinstein restricted payroll

dollars so that managers felt they lacked the resources to accomplish everything they needed

to do. There were morale issues in stores that had a lot to do with the disappointing recent

sales. She also recalled that Weinstein instilled a sense of fear among store managers that

they would be harshly judged for any problems. Before Weinstein joined Body Central,

store managers felt like they had ownership of their stores and felt a lot of goodwill towards

the Company.

53. Former Senior District Manager II also stated there was a big emphasis on

reducing store payroll expenses. But less payroll meant less interaction with customers. The

stores were staffed more leanly and employees were given more paperwork responsibility,

which left them less time with customers. According to Senior District Manager II, Body

Central stores suffered as a result.

54. The former Regional Vice President agreed that the corporate focus had

changed, and explained that rather than concentrating on making the products “sparkle,” the

- 23 -


corporate office was more focused “on how good the stockroom looked” in the back of the

store. The former Regional Vice President stated that corporate “had managers in back

organizing stock” rather than on the floor attending to customers and making sure the store

looked good.

DEFENDANTS’ FALSE AND MISLEADING STATEMENTS ISSUED DURING THE CLASS PERIOD6

The November 10, 2011 Press Release and Subsequent Conference Call

55. On November 10, 2011, the first day of the Class Period, Body Central issued

a press release after the market closed that reported the Company’s financial results for its

third quarter 2011 and year to date 2011. In the press release, Weinstein stated, in part:

Our solid momentum continued in the third quarter as we consistently delivered fashionable merchandise at value prices. Our comparable store sales performance demonstrates the strength of our existing stores while our new stores are also performing ahead of expectations. We are on target to open 33 new stores in 2011 — a record for our Company. In addition, we remain focused on enhancing our infrastructure and have made several strategic additions to our management team that we believe will better position us to execute on our long term growth objectives.

56. The next day, November 11, 2011, before the market opened, Body Central

hosted a conference call to discuss its third quarter 2011 results and operations. Weinstein,

Stoltz, and Angelo participated in the call on behalf of the Company. During the call,

Weinstein discussed the financial condition of the Company, stating in part:

Our third-quarter financial results reflect continued strength in our business. In addition to delivering strong sales growth and more than doubling our net income, we have operational initiatives underway that we believe will enhance our ability to achieve our long-term growth objectives .

6 Plaintiffs have bolded and italicized the statements which they contend are false and misleading.

- 24 -


* * *

In summary, our business remains healthy overall as our assortments are on trend, our merchandise margins are on plan and our operating cost continues to be leveraged. We enter the fourth quarter with our inventory fresh and on plan. We will continue to execute on our goals to expand our services at least 15% annually, drive comparable sales increases, and build our brand. We believe that by doing that we can continue to drive long-term profit growth of 20% or more .

57. During the question-and-answer portion of the call, Weinstein also spoke

about the quality of the Company’s inventory, stating, “ [ijnventories are in very good shape

and they are very fresh now so we feel good about how we are positioned .”

58. In response to Defendants’ false and misleading statements, the price of Body

Central common stock rose $1.22 per share or more than 5%, from a closing price of $20.76

on November 10, 2011, to close at $21.98 per share on November 11, 2011.

59. Market analysts reacted positively as well, with William Blair reporting on

November 10, 2011 that the Company delivered “better-than-expected” results and would

maintain a 15% rate of expansion “over the next several years.” Avondale Partners rated

Body Central “market outperform” with a price target of $26, while Jefferies & Co.

(“Jeffries”) rated it a “buy” with a $31 price target.

60. For the reasons stated above in the Substantive Allegations section, and as

further detailed herein, the highlighted statements above were materially false and

misleading when made because they omitted material facts and because:

(a) Defendants knew Body Central’s existing stores were exhibiting

merchandise problems. Rather than “constantly adding new ladies apparel,” the Company

was recycling tired fashions and re-stocking stores with product lines that not only were not

- 25 -


new, but had not sold well in the past ( see ¶2). Put simply, the Company’s inventories were

not on-trend, fresh, and on-plan, but rather, were stale and duplicative of the assortment of

inventories Body Central had carried in the same seasons in prior years ( see ¶¶31-40);

(b) Defendants knew from weekly Monday morning calls amongst Body

Central’s regional vice presidents and senior district managers, as well as corporate

executives and others, that high-ranking mangers in the field, i.e. , at Body Central’s stores,

were logging internal complaints about the merchandise being delivered to Body Central’s

stores (see ¶¶40-42);

(c) Despite touting Body Central’s expansion plan, Defendants knew, or

were severely reckless in disregarding, that the Company’s store expansion was a misleading

indicator of Body Central’s financial performance and outlook. The Company was

experiencing not only a serious merchandise issue that threatened the Company’s identity as

the “destination for trendy ladies’ apparel” ( see ¶29), but Defendants knew Body Central

was already lacking key management personnel, leaving it short-staffed and ill-equipped to

expand while simultaneously growing sales ( see ¶¶43-49); and

(d) As a result of the foregoing, Defendants lacked a reasonable basis for

their positive statements about the health of Body Central’s business or its future business

prospects and long-term-growth outlook.

The Third Quarter 2011 10-Q

61. On November 15, 2011, Body Central filed its quarterly report on Form 10-Q

for the quarter ended October 1, 2011, which was signed by Weinstein and Stoltz, and

contained required Sarbanes-Oxley certifications (“SOX”) signed by Weinstein and Stoltz

- 26 -


stating that the Form 10-Q did not include any material misrepresentations (the “Third

Quarter 2011 10-Q”). The Third Quarter 2011 10-Q stated, in part:

We continually update our merchandise and floor sets with an emphasis on coordinated outfits presented by lifestyle to give our customers a reason to shop our stores frequently. We believe our multi-channel strategy supports our brand building efforts and provides us with synergistic growth opportunities across all of our sales channels.




(a) It was misleading to state that Body Central was “continually”

updating its merchandise. Quite the opposite, Defendants failed to update Body Central’s

merchandise and, instead, Body Central stores lacked new merchandise, were missing trend

items, and stocked merchandise that was duplicative of prior fashions carried by Body

Central stores in the same season in prior years that was no longer selling ( see ¶¶31-40).

63. On November 23, 2011, William Blair issued a report on its “recently hosted

investor meetings with Body Central’s senior management.” The report stated that we

“came away with reinforced confidence in the company’s near- and long-term prospects.

Management remains committed to its long-term targets of annual new-store growth of

roughly 15%, comps of 3% to 4%, and 30 to 50 basis points of annual operating margin

expansion, yielding earnings growth of 20%-plus annually.” Continuing, the report stated:

Body Central continues to benefit from on-trend merchandise at affordable prices, with low absolute levels of markdowns. Fashion risk is mitigated by the company’s test-and-reorder strategy, which calls for testing new merchandise on a limited basis, with specific sell-through hurdles prior to broader rollout. Body Central is therefore able to quickly respond to changing fashion trends while reducing markdown and inventory risk.

- 27 -


64. Discussing sales trends, the William Blair report stated, “So far in the fourth

quarter, we believe sales trends remain healthy, and we continue to project a 6% comp

against a 14.9% year-ago comparison, at the high end of management’s guidance for a low-

single- to midsingle-digit increase.” Reiterating its “outperform” rating on Body Central

stock, the report increased by $0.04, to $1.47, projected EPS for 2012.

65. As detailed by the former Senior District Manager, however, Body Central

was “not meeting internal sales goals in the fourth quarter of 2011” ( see ¶37). Thus, at the

time of the William Blair investor meetings with Body Central’s senior management,

Defendants knew the Company was not experiencing healthy sales trends.

The January 9, 2012 Press Release

66. On January 9, 2012, Body Central issued a press release announcing its fourth

quarter 2011 sales results. In the press release, Weinstein stated:

Our fourth quarter sales were driven by our continued focus on providing on-trend fashion at value prices . In addition to the solid comparable store sales increase, our new stores and e-commerce business turned in a strong sales performance for the fourth quarter. Due to the unseasonably warm weather, we took timely markdowns on cold weather categories to ensure that we were in a good inventory position to start the new year. We believe that our overall sales results continue to validate our future growth potential .



misleading because they omitted material facts and because:

(a) Defendants knew, or disregarded with severe recklessness, that the

Company was failing to provide “on-trend” fashion merchandise; rather, Body Central was

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suffering from “lazy buyers,” who were repeatedly supplying Company stores with the same

items and reordering merchandise that had sold on clearance the year before ( see ¶¶31-40);

(b) The “timely markdowns” were required to move merchandise that

simply was not selling due to the repetitive nature of the items ( see id.);

(c) Body Central’s “overall sales results” did not validate Body Central’s

future growth potential. Instead, they were a misleading indicator because, in addition to the

Company’s critical merchandise issues, the Company lacked key regional management,

leaving it short-staffed and ill-equipped to grow sales that were, instead, rapidly declining

(see ¶¶43-49); and

(d) As a result of the foregoing, Defendants lacked a reasonable basis for

their positive statements about Body Central, as well as the Company’s future business

prospects and long-term growth outlook.

The March 8, 2012 Press Release and Conference Call

68. On March 8, 2012, Body Central issued a press release announcing its

financial results for the fourth quarter and fiscal year 2011. In the press release, Weinstein

stated:

We closed 2011 with strong sales and earnings growth in the fourth quarter. In addition, we ended the quarter with inventory current and on plan. We are against two consecutive years of mid-teen comp sales increases in the first quarter and have experienced a softening in our sales trend quarter-to-date . Our direct business is ahead of plan. We have taken steps to enhance the merchandise assortment and expect sales trends to improve in the second quarter. Also, we are on track to open at least 35 new stores this year including 4 new stores and 2 store closings in the first quarter of 2012 . We remain confident in our ability to drive positive comp sales and margin improvement for the year.

- 29 -


69. Discussing the Company’s first quarter and fiscal 2012 outlook, the press

release provided, in part:

For the first quarter of fiscal 2012, the Company expects net revenues in the range of $80 million to $82 million and diluted earnings per share in the range of $0.34 to $0.36, based on diluted weighted-average shares outstanding of 16.2 million .

For fiscal 2012, the Company expects net revenues in the range of $343 million to $348 million and diluted earnings per share in the range of$1.46 to $1.50, based on diluted weighted-average shares outstanding of 16.3 million.

70. Also on March 8, 2012, Body Central hosted a conference call to discuss its

fourth quarter and fiscal 2011 results and operations. Weinstein, Stoltz, and Angelo

participated in the call on behalf of the Company, with Stoltz reiterating the Company’s

recently issued financial guidance for the first quarter and fiscal 2012. During the call,

Weinstein discussed the Company’s first quarter 2012 sales, stating, in pertinent part:

As always, our merchandising team follows our test and reorder philosophy. We underestimated demand for one important lifestyle category. This has resulted in softer than expected sales quarter-to-date. We have taken corrective action and expect this category to improve as we head into the second quarter. We do expect margins to be below last year but on our plan.

* * *

Our goal continues to be to expand our store at least 15% per year, drive comparable store sales increases to improve merchandise assortments and allocation, continue to grow the direct channel and to learn more about our customer and in turn, build our brand. We expect to continue[to] deliver 20% earnings growth for the foreseeable future .

71. Despite the Company’s “softer than expected sales,” Weinstein further stated

that Body Central’s “ inventory ended on plan and was current .”

- 30 -


72. During the question-and-answer portion of the call, a Piper Jaffray analyst

asked a question concerning “current business trends,” asking Defendants to elaborate on the

timing of sales softening. In response, Weinstein stated in part:

Late in the fourth quarter, one particular category, it became obvious that we needed to intensify, we had – we needed to – we underestimated our commitment to those goods, and so the merchandising team went to work to build that up. Thankfully it is a category that has relatively short lead times. So we expect to see, toward the very end of this first quarter on into the second quarter, to see improvement there . It had nothing to do with prior season goods.

73. In response to a follow-up question, Weinstein assured investors that it was a

“single category that we’ve had some trouble in .” Declining to offer any more specifics,

Weinstein further stated, “ But we have a policy of not elaborating on the specific

categories. It’s isolated to one thing .”

74. Later in the call, an analyst with William Blair asked for further clarification

regarding “that category,” leading to the following exchange:

Sharon Zackfia, William Blair: I was a little confused when you talked about that category, and I know you don’t want to specify much about it, but was it that you did not - you said you underestimated your commitment. Did you not have enough of some category or some product?

Weinstein: That’s right. We read that it was slowing down, it in fact started to slow down for a little bit, but it took a big spurt and there we were a little - since we react pretty quickly, we wound up - we found ourselves under-prepared, but thankfully it is a category that is a real good chase category for us. And that is what they have been doing - working to move merchandise up, and increase the amount of testing in the category to make sure that when we do buy the bigger purchases, that they are more proven .

75. When asked whether he was seeing sales improve, Weinstein stated, “ Yes .”

- 31 -


76. Weinstein reiterated that the merchandise miss was in only one area of the

Company, stating, “ The category where we are short of goods is where the issue is. That’s

what we are working on. . . .The rest of the business is fine .” Stoltz added that if the

category had “been up to our expectations, we would have been in the low-, mid-single

digits [comps].” Weinstein added, “ That’s right, yes .” Angelo further added, “ That is

correct .”

77. In response to another question requesting clarification of the Company’s

struggles with the “certain classification” of product, Angelo stated:

Yes, in the fourth quarter it was showing as not as important of a trend, and so we, on purpose, planned it a little down because that is what the customer was saying. But it turned on in the first quarter, and we are absolutely responding to these trends. And we let our customers decide what the best course of action is, and they have voted with their dollars. We are chasing it, and we feel confident that we can be in position very shortly .

* * *

Yes, but it takes time to flow in, so it’s a flow, it’s not in one day you get it all in.

* * *

It’s already started, but we want to be in full position in this category .

78. Weinstein followed-up, stating, “I think it was just we underestimated what

the category that they wanted . ”



misleading because they omitted material facts and because:

- 32 -


(a) Defendants did not take steps to enhance Body Central’s merchandise

assortment or do anything to rejuvenate its merchandise assortment so that sales trends

would improve in the second quarter; rather, Body Central’s merchandise was predictable

and repetitive of merchandise that had been carried by Body Central stores in the same

season in prior years ( see ¶¶31-40);

(b) It was misleading for Defendants to state that Body Central was

suffering from an isolated, quickly correctable underestimation of demand “for one

important lifestyle category.” Body Central’s problems were not “isolated to one thing” and

Weinstein lacked a reasonable basis for stating that sales were improving and that the “rest of

the business [was] fine” (see ¶¶ 70, 73). Quite the opposite, the Company was experiencing

a “horrible” January and February 2012 and was failing to take action to correct significant

merchandise problems (see ¶33);

(c) Due to the extensive nature of Body Central’s problems, as well as its

short-staffing, “penalty program” and poor moral, Defendants knew, or were severely

reckless in disregarding, that it was misleading to tout their “expectation” that Body Central

would “continue [to] deliver 20% earnings growth for the foreseeable future” ( see ¶¶31-54,

70); and

(d) As a result of the foregoing, Defendants’ statements about Body

Central’s second quarter and full year 2012 earnings lacked a reasonable basis when made.

80. Simply put, Defendants misrepresented that Body Central’s merchandise miss

was isolated and quickly fixable. Analysts believed Defendants’ representations and rated

- 33 -


the Company’s stock a buy. For example, on March 9, 2012, William Blair issued a report

stating, in pertinent part:

Encouragingly, the unspecified category has short lead times and stores have already begun to receive more inventory, which is bolstering sales. In addition, management indicated that same-store sales would be up in the low-to midsingle-digit range if the category were on plan, enhancing our confidence that the problem is isolated and correctable.

* * *

While we understand investors will likely worry about the current quarter’s sales trends, we would be buyers of Body Central’s stock on weakness, as the Company’s normally cautious management team seemed confident that the category fix was already in place. At 19 times our new 2012 EPS estimate, Body Central’s shares are trading at a modest discount to the company’s long-term growth rate of 20%, and we see room for investors to be rewarded with modest multiple expansion as well as strong earnings growth.

81. On this news, the price of Body Central common stock dropped $1.95 per

share, or 6.8%, to close at $26.75 per share on March 9, 2012, on heavy trading volume.

The 2011 Form 10-K

82. On March 15, 2012, the Company filed its Form 10-K for the fiscal year

ended December 31, 2011, which was signed by Weinstein, Stoltz, and Angelo, and

contained required SOX certifications signed by Weinstein and Stoltz stating that the Form

10-K did not include any material misrepresentations. The Form 10-K stated, in relevant

part:

Our merchandising team seeks to identify current fashion trends and merchandise consistent with our brand image. We do not dictate fashion trends; rather we focus on quickly adapting to the latest trends to provide the right merchandise at value prices every day . Our merchandising team consists of our Chief Merchandising Officer, buyers and assistant buyers organized by product category as well as a team focused on our direct business. Our merchandising team is responsible for selecting and sourcing our product assortments, managing inventory levels and allocating

- 34 -


merchandise to stores. We build our product assortments after careful review and consideration and select products that can be displayed in our stores in a coordinated manner to encourage our customers to purchase complete outfits.

83. The 2011 Form 10-K further described the Company’s ability to stay on the

cutting edge of trends:

Our test-and-reorder strategy enables us to respond rapidly to changing trends. This strategy allows us to minimize our inventory risk by testing small quantities in our stores before placing larger purchase orders for a broader roll out, which minimizes fashion risk and inventory markdowns.




(a) Defendants knew, or disregarded with severe recklessness, that Body

Central was not quickly adapting or responding rapidly to the latest trends. The Company

simply was not executing its “test-and-reorder” strategy. Instead, it continued to utilize “lazy

buyers” that supplied Company stores with repeat merchandise and was “re-ordering the

same styles,” thus negatively impacting sales and resulting in the need for increased

markdowns (see ¶¶32, 37).

85. As a result of Defendants’ fraud, the market believed Body Central’s

problems were truly an isolated event. For example, on April 23, 2012, William Blair issued

a report stating “Body Central underestimated demand for one category, leaving the

company chasing demand in the first quarter and falling short of inventory (without which

comps would have been on plan for a low- to midsingle-digit increase). With short lead

times for the unspecified category, stores were already receiving more inventory toward the

latter half of the first quarter.”

- 35 -


86. While the Company was in the midst of a significant merchandise crisis that

was materially harming its sales, Angelo – the Company’s Chief Merchandising Officer –

and her father, Rosenbaum, took advantage of the artificial inflation in Body Central’s stock

price. Just days after the stock reached its all-time peak closing price of $30.69 per share on

April 27, 2012, Angelo and Rosenbaum unloaded significant amounts of stock and pocketed

$2.9 million in proceeds. The suspiciously timed sales are detailed in the chart below:

Date Shares Price Proceeds Angelo 01-May-2012 1,681 $30.21 $50,783

01-May-2012 3,652 $29.54 $107,880 02-May-2012 10,284 $29.30 $301,321 3-May-2012 8,095 $29.15 $236,002

Total 23,712 $695,987

Rosenbaum 01-May-2012 11,686 $29.54 $345,204 01-May-2012 5,381 $30.21 $162,560

02-May-2012 32,908 $29.30 $964,204 3-May-2012 25,904 $29.15 $755,208

Total 75,879 $2,227,177

THE TRUTH BEGINS TO EMERGE

The May 3, 2012 Press Release and Conference Call

87. After the market closed on May 3, 2012 - the same day that Angelo and

Rosenbaum reaped $991,210 on the sale of 33,999 shares of Body Central stock at prices

exceeding $29 per share - Body Central issued a press release reporting its financial results

for the first quarter 2012. Among other things, the press release revised down the

Company’s recently issued outlook for 2012, providing, in part:

For the second quarter of fiscal 2012, the Company expects net revenues in the range of $80 million to $82 million, comparable sales to decrease in a range of 5 to 7 percent and diluted earnings per share in the range of $0.26 to $0.28, based on diluted weighted-average shares outstanding of 16.4 million.

- 36 -


For the full fiscal year, the Company now expects net revenues in the range of $333 million to $337 million, comparable sales to decrease in a range of 1 to 3 percent and diluted earnings per share in the range of $1.34 to $1.38, based on diluted weighted-average shares outstanding of 16.4 million.

88. The press release included Weinstein’s comments on Body Central’s outlook,

which stated:

First quarter sales and earnings came in as expected. We are on track to open at least 35 stores in 2012 . New stores and direct sales are outperforming our plan for volume and profitability. However, we continue to see softness in overall store sales trends through April. We are closely monitoring our inventory levels and content. In addition, we are expanding the use of our test and reorder process. We believe that our sales performance will improve as we transition into the back-to-school and fall seasons.

89. Following the press release on May 3, 2012, Body Central hosted a

conference call to discuss its first quarter 2012 financial results and operations, with

Weinstein, Stoltz, and Angelo participating on behalf of the Company. During the call,

Weinstein stated, in part:

We mentioned in our last call that we were seeing weakness in one of our four lifestyle categories consisting of active, casual, club and dressy which led to higher markdowns and consequently gross margin pressure. Our sales trends softened in April and, as a result, we’re revising our expectations for 2012. . . . We believe we have identified the cause of our recent slowdown and are working to address the issues.

Now we’ll talk about the steps we are taking to improve results. We’ve adjusted our sales plan, our merchandise receipts and our markdown plans to reflect recent sales trends. As you’ll recall, at the end of quarter one our average store inventory was up 5%. We will closely monitor -- we will continue to closely monitor sales trends and adjust inventory levels accordingly .

We are also expanding our test and reorder strategy to get faster reads on selling trends . As we’ve discussed in the past, we receive hundreds of samples each week from which test styles are selected. We will [expect] to increase the number of styles tested to bring even more newness into our

- 37 -


assortment. We expect to receive a final report from our regionally completed market research and intend to review its recommendations and implement those that we believe will improve our business.

* * *

In conclusion, we continue to have a three-pronged growth strategy -- comparable store sales growth, new store openings and direct business expansion. We’re currently seeing strong performance in two of these three areas and are addressing the slowdown in our [comp] sales and remain confident in our long-term growth outlook .

Our goals remain to expand our store base by at least 15% annually, drive comparable store sales increases through improved merchandise assortments and allocation, expand the direct channel and continue our marketing efforts to build our brand. All of this we believe will lead to 20% annual profit growth in the long term .

90. Stoltz reiterated the Company’s financial outlook for the second quarter of

2012, stating:

Next our outlook for the second quarter of 2012 -- we expect diluted earnings per share in the range of $0.26 to $0.28 using a range of net income between $4.3 million and $4.6 million and diluted shares outstanding of approximately 16.4 million.

Our second-quarter 2012 earnings are based on estimates of total revenue from $80 million to $82 million based on comp store sales of negative 5% to negative 7%. We have opened eight new stores and closed nine in the year to date and expect to open 11 more stores before the end of the second quarter.

For the full year 2012 we expect diluted earnings per share in the range of $1.34 to $1.38 using a range of net income between $22 million and $22.6 million . This assumes a tax rate of approximately 37.5% and shares outstanding of approximately 16.4 million.

Our fiscal year 2012 earnings are based on estimated net revenues in the range of $333 million to $337 million, assuming a low-single-digit comp store sales decrease and at least 35 new store openings . We expect sales from our direct business to increase in the mid- to high-single-digit range for the full year.

- 38 -


91. During the call, Angelo responded to a question regarding the cause of

weakness in the quarter and stated, in pertinent part:

We saw that our best-performing category was the trend casual which really performed well. And some of the other categories that we’re known for were slightly not as important. And so we may have lost a little bit of ground in those categories.

92. When questioned about how long it would take the Company to fix its “miss,”

and whether it would be “more than the four to six week lead time that you guys normally

work with,” Angelo responded by stating, in part:

We hope not. We certainly are doing everything we possibly can in the merchandising and marketing side to improve the trends. But because we can only do the best we can, we think that we want to be conservative in our approach and say that it could take a little longer to fix. But overall we feel optimistic that we will fix it shortly and start seeing increases. We haven’t seen decreases, we’ve had 12 continuing quarters of increasing sales comps.

93. Weinstein then commented on the Company’s trends, stating:

I think what we saw as we entered into April is a more general confidence in our entire business. And because of that and because of trends we’re seeing now, we want to be conservative in our expectations as we move out of the second quarter into the third quarter .

94. In response to a question pointing out the “significant deceleration for 2Q”

guidance, Stoltz stated:

We don’t speak to individual weeks or months, but the guidance of minus 5% to minus 7% for the quarter is what we’re comfortable with . As I mentioned previously, we have seen a further softness in our business as we entered April and got past Easter. So I think we’ll just leave it at that .

95. In response to a question regarding expansion of the Company’s test-and-

reorder process, and whether the “goal there is to. . . add more newness,” Angelo stated:

I can answer that. We are being more diligent than ever on the test and reorder strategy. We are taking only the top-performing items and

- 39 -


reordering those with our -- keeping our inventories in line, we are spending all our money on the best producing products, no doubt, not going beyond what our open to buy or what our sales plans are .

So we are really diligent in trying more testing, we feel confident -- it always made us the success that we’ve had and we’re going to stay true to our system, just be more and more diligent and increase our marketing efforts as well .




(a) By pointing to planned store openings, Defendants misled the market.

The Company’s planned growth had become a grossly misleading indicator of financial

success because the Company was not only in the midst of severe – not limited –

merchandise problems, but also continued to suffer from short-staffing, a lack of critical

management at the district level, and employees were simultaneously operating under a

“bonus” plan that employees knew was a “penalty” plan. As a result, Defendants knew sales

would continue to suffer for an extended period of time ( see ¶¶31-54);

(b) Defendants knew they were failing in their execution of Body

Central’s test-and-reorder strategy and that Defendants were not “taking only the top-

performing items.” Instead, Body Central continued to utilize “lazy buyers” that supplied

Company stores with repeat merchandise, thus negatively impacting sales ( see ¶37); and

(c) As a result of the foregoing, Defendants lacked a reasonable basis for

issuing revised fiscal financial guidance for the second quarter and fiscal 2012.

97. On this news, Body Central common stock plummeted, losing almost half its

value, falling $14.04 per share to close at $14.88 per share on May 4, 2012. The stock

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declined more than 48%, on volume of more than 4.3 million shares traded, as set forth in the

chart below:

5000000

4500000

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

35

30

25

Volume Price

20

15

0 I I I I I I I I 10 24-Apr-12 25-Apr-12 26-Apr-12 27-Apr-12 30-Apr-12 1-May-12 2-May-12 3-May-12 4-May-12 7-May-12

98. Although Defendants failed to reveal the true extent of the Company’s

weakness, analysts took note. On May 3, 2012, analysts at William Blair downgraded Body

Central to “market perform,” noting that “original expectations of an isolated, quickly fixable

merchandise miss in the first quarter may have morphed into an issue that could take several

quarters to remedy.” Similarly, Avondale Partners downgraded Body Central to “market

perform” from “market outperform,” giving the stock at 12-month price target of $24.00 per

share. On May 4, 2012, Piper Jaffray cut Body Central to “neutral” from “overweight.”

99. Responding to the surprisingly negative news, on May 4, 2012, Reuters

published an article entitled “Body Central shares beaten lower on bleak forecast,” which

- 41 -


stated that “a heavy fall in same-store sales would hurt its second-quarter results” and quoted

Jefferies market analyst Randal Konik, who stated, “Both topline and margins are affected as

the company clears out non-performing product at higher markdown rates,” in a note titled,

“There’s a body in the repair shop.”

100. On May 4, 2012, Benzinga published an article titled “Body Central’s Staff

May Need a Facelift,” which pointed to poor sales conversions and questioned whether Body

Central’s poor financial results were “at the hand of sales associates with lacking

motivation?” The article continued, in part:

The outlook for BODY is not so hot at the moment. Guidance did not live up to the expectations set by analysts and investors, but the company may have had no choice when lowering projections for Q2. Customer service has clearly been deprioritized at the retailer, as shoppers continued to walk out of the stores empty handed, and of course – business can’t be expected to be good with motionless inventory.

With service desperately seeking renovation and sales trends underperforming, Body Central may want to rethink the products it offers its customer base.

*

Tops, jewelry and dresses are not the focus of wardrobe revamps currently, or at least not for Body Central shoppers. Additional retail chains have seen great success as of late with fresh spring trends flying off the shelves - inclusive of anything from vibrant jeans to flowery tanks.

As Body Central Reports Weak Financial Results, Retail Sales Rose Across the Country

101. On May 31, 2012, Bloomberg Industries reported, in relevant part, that May

2012 retail sales rose 4.0%, exceeding the consensus estimate of 3.6%, “due to a later

Mother’s Day and warmer weather that increased demand for seasonal merchandise. Twelve

- 42 -


of 18 retailers had positive same-store sales surprises, notably off-price and women’s apparel

stores.”

102. On June 5, 2012, Bloomberg Industries again reported a positive outlook for

retail states, stating, in relevant part:

June retail sales will gain 3.5% to 4% in the U.S., according to ICSC. Apparel stores had a [year-over-year] traffic increase in the first week of June, even with cooler and wetter weather in the Northeast, while business decreased for discounters.

103. Then, on June 15, 2012, Bloomberg Industries reported that apparel stores,

notably women’s, have sales increases when equity markets are strong, stating that

“[c]onsumers’ desire to increase discretionary spending is closely tied to the Dow Jones

Industrial Average, hence the strong correlation between stock prices and apparel sales.

Monthly sales have been positive for apparel and off-price stores since August 2009. The

Dow has risen by roughly one-third since then.”

THE TRUTH IS MORE FULLY REVEALED

The June 18, 2012 Press Release and Conference Call

104. Then, on June 18, 2012, Defendants issued a press release revising sales and

earning guidance for its second quarter and full year 2012, and lowering Body Central’s

guidance for the second quarter and full year 2012. The press release included Weinstein’s

comments on the lowered guidance, stating, in part:

Our second quarter comparable sales remain soft and have not improved since April. We continue to diligently manage inventory and to take aggressive markdowns on slow moving items. As a result, we now expect second quarter sales and gross margin to be lower than contemplated in our May 3rd release. We now believe the recent sales trends will continue into the third quarter with some impact to gross margin. We expect sales to improve in the fourth quarter as we receive new Fall and holiday assortments.

- 43 -


Based on these trends and expectations, we have lowered our second half sales plan and revised guidance down accordingly. We continue to believe that we have a compelling business model and are actively working to address near-term sales challenges and get our business back on track.”

105. The June 18, 2012 press release also lowered Body Central’s recently issued

second quarter 2012 and full year 2012 guidance, stating, in relevant part:

For the second quarter of fiscal 2012, the Company expects net revenues in the range of $77 million to $79 million, comparable sales to decrease in a range of 7 to 9 percent and diluted earnings per share in the range of $0.19 to $0.21, based on diluted weighted-average shares outstanding of 16.4 million.

For the full fiscal year, the Company now expects net revenues in the range of $323 million to $328 million, comparable sales to decrease in a range of 4 to 6 percent and diluted earnings per share in the range of $1.07 to $1.11, based on diluted weighted-average shares outstanding of 16.4 million.

106. The market again reacted swiftly to these disclosures, punishing Body Central

common stock. The share price again lost almost half its value, falling more than 48% , or

$7.77 per share, from a closing price of $15.99 on June 15, 2012 to close at $8.22 per share

on June 18, 2012, the next trading day on extraordinary and unprecedented volume of more

than 14 million shares traded. The steep decline in the Company’s stock price is set forth in

the chart below:

- 44 -


16000000

14000000

12000000

10000000

8000000

6000000

4000000

2000000

18

16

14

12Volume Price

10

8

0 1 I 6 8-Jun-12 11-Jun-12 12-Jun-12 13-Jun-12 14-Jun-12 15-Jun-12 18-Jun-12 19-Jun-12

107. Analysts responded harshly as well. For example, Jefferies cut the stock to

“hold” from “buy,” and Robert Baird cut the stock to “neutral” from “outperform,” giving it

a 12-month price target of only $9.00 per share.

108. Reporting on the steep decline in Body Central’s stock price, Bloomberg

released an article titled, “Body Central Falls After Cutting Second-Quarter Forecast,” which

stated, in part, “Body Central is putting ‘aggressive’ discounts on some items to clear slow-

moving merchandise, hurting profit margins, Weinstein said. The company also said the

weak sale may affect third-quarter profit and that wider profit margins won’t return until fall

and holiday sales in the fourth quarter.”

- 45 -


109. On June 22, 2012, The Street published an article titled, “The Five Dumbest

Things on Wall Street This Week: June 22.” Among other things, the article discussed Body

Central, stating, in relevant part:

Body’s Repeat Performance. Like the TV networks, Wall Street is filling the summer void by programming reruns. And we’re not simply talking about European bailouts and broken internet IPOs perpetually popping up on trading screens either.

Take Body Central’s ridiculous repeat performance for example.

The women’s apparel retailer slashed its second-quarter outlook Monday as a result of weak sales trends and a bloated inventory, causing its stock to collapse by 49% to $8.66. Body Central cut its second-quarter earnings forecast to 19 to 21 cents per share from a range of 26 to 28 cents, and says it now expects second-quarter net revenue of $77 million to $79 million, down from $80 million to $82 million.

“We continue to diligently manage inventory and to take aggressive markdowns on slow moving items,” said CEO Allen Weinstein in a statement.

Wait a second there Weinstein! Didn’t we see this same exact episode not too long ago?

Oh yeah! That’s right. Just last month Body Central lowered its profit and sales guidance, surprising the Street and causing its shares to sink 49% in the process.

Here’s what Weinstein said back in May when the stock took its last shellacking: “We are closely monitoring our inventory levels and content.”

Here’s what we said at the time: “Seriously, not since Rocky broke Apollo Creed’s rib have we seen a crowd favorite suffer such a massive gut-shot.”

Another month, another body blow for Body Central. Time to change the channel folks because, quite sadly, we’ve seen this show before.

110. The revelation of the Company’s true financial condition, which was

previously concealed by Defendants’ false statements, decimated the price of Body Central

common stock. Indeed, the disclosures on May 3, 2012 and June 18, 2012 caused the price

- 46 -


of Body Central stock to drop more than 73% from its Class Period high, as demonstrated in

the chart below:

16000000

14000000

12000000

10000000

8000000

6000000

4000000

2000000

35

30

25

20Volume

—4— Price

15

10

0 11 RPRWAW 5 10-Nov-11 2-Dec-11 23-Dec-11 18-Jan-12 8-Feb-12 1-Mar-12 22-Mar-12 13-Apr-12 4-May-12 25-May-12 18-Jun-12

POST-CLASS PERIOD EVENTS

111. On July 3, 2012, the Company announced that Martin P. Doolan retired as

Chairman of Body Central’s Board of Directors, effective immediately, due to “health

concerns.”

112. On August 2, 2012, the Company again cut its 2012 EPS, revealing that it

anticipated earning $0.80 to $0.83 compared to its June 2012 forecast of $1.07 to $1.11.

113. On August 17, 2012, the Company announced that effective August 16, 2012,

Weinstein would resign as Body Central’s CEO and from its Board of Directors. The

Company also revealed that Stoltz would serve as interim CEO and would be named the

Company’s COO. The Company’s press release announcing Weinstein’s departure stated

- 47 -


that “[t]he Board has initiated a search for a CEO who will bring a strategic approach to

achieving the long-term vision for the business.”

114. Then, on November 27, 2012, The Wall Street Journal (the “ WSJ”) published

an article titled, “Executives’ Good Luck in Trading Own Stock.” The article examined

“20,237 executives who traded their own company’s stock during the week before their

companies made news” and found that:

1,418 executives recorded average stock gains of 10% (or avoided 10% losses) within a week after their trades. This was close to double the 786 who saw the stock they traded move against them that much.

115. Notably, the article began:

A timely share sale by two insiders at retailer Body Central Corp. this spring spared them a nearly $1.4 million drop in the value of their holdings in the chain.

Founder Jerrold Rosenbaum and chief merchandising officer Beth Angelo, his daughter, sold a combined $2.9 million of Body Central stock on May 1, May 2 and May 3. Later on May 3, after the market close, the company cut its 2012 earnings estimate. The next trading day, the stock plunged 48.5%.

A Body Central official said both executives’ trades were part of preordained trading plans. The official said that Ms. Angelo set up a new plan for her father in March, a time when she wasn’t aware of the trend that led to the lower estimate. The company wouldn’t make either one available for an interview. Mr. Rosenbaum, who the company said is ailing, resigned from the board in May.

Corporate executives long have bought and sold shares of their own companies, and outside investors have long tracked such trades, in the belief that insiders have a particularly good feel for how companies are faring.

Executives can trade for entirely legitimate reasons, such as to raise money to meet a tax bill or simply to diversify. But of course they must avoid trading on nonpublic information and that can lead to sticky situations, since executive do possess just such information much of the time.

- 48 -


116. The bombshell WSJ article had a significant impact. On December 10, 2012,

the WSJ published an article titled, “Insider-Trading Probe Widens, U.S. Launches Criminal

Investigation Into Stock Sales by Company Executives.” The article stated, in part:

Federal prosecutors and securities regulators are taking a deeper look into how executives use prearranged trading plans to buy and sell shares of their company stock. The Manhattan U.S. attorney’s office has launched a broad criminal investigation into whether seven corporate executives cited in a recent Wall Street Journal article traded improperly in shares of their own company’s stock, according to a person familiar with the matter. These executives lead companies in industries ranging from retailing to energy to data processing.

* * *

Now, authorities, including the Federal Bureau of Investigation, are turning more attention to trading by corporate executives in their own company’s shares. The probe follows the Nov. 28 Journal article, which focused on highly beneficial sales by executives that occurred before bad news about their companies hit, sparing them declines in the value of their holdings.

* * *

The Manhattan U.S. attorney’s office is investigating the circumstances surrounding seven trades cited by the Journal, according to the person familiar with the criminal probe, most made under trading plans. They include:

• May 2012 trades by Body Central founder Jerrold Rosenbaum and chief merchandising officer Beth Angelo, his daughter, before the retailer cut its earnings estimate, sending the shares down 48.5% the next day. A Body Central spokeswoman declined to comment on the investigation but previously said both executives’ trades were made under a 10b5-1 plan and that Ms. Angelo, who set up a plan for her father in March 2012, wasn’t aware of the trend that led to the stock drop.

117. As of the date of this Complaint, upon information and belief, Angelo remains

under investigation by the U.S. Attorney’s Office for the Southern District of New York, the

FBI, and the SEC.

- 49 -


ADDITIONAL SCIENTER ALLEGATIONS

118. As alleged herein, Defendants acted with scienter in that Defendants knew

that the public documents and statements issued or disseminated in the name of the Company

were materially false and misleading; knew that such statements or documents would be

issued or disseminated to the investing public; and knowingly and substantially participated

or acquiesced in the issuance or dissemination of such statements or documents as primary

violations of the federal securities laws. As set forth elsewhere herein in detail, Defendants,

by virtue of their receipt of information reflecting the true facts regarding Body Central and

their control over, and/or receipt and/or modification of, Body Central’s allegedly materially

misleading misstatements and/or their associations with the Company which made them

privy to confidential proprietary information concerning Body Central, participated in the

fraudulent scheme alleged herein.

119. Defendants knew and/or recklessly disregarded the falsity and misleading

nature of the information that they caused to be disseminated to the investing public. The

ongoing fraudulent scheme described in this Complaint could not have been perpetrated over

a substantial period of time, as has occurred, without the knowledge and complicity of the

personnel at the highest level of the Company, including each of the Individual Defendants.

120. Further, the Individual Defendants were motivated to misrepresent the

Company’s true financial condition and future business prospects so that they could

artificially increase the price of Body Central’s stock. To that end, and not coincidentally,

during the Class Period and in the midst of orchestrating their fraud, Weinstein and Angelo

sold a total of 184,065 shares of Body Central stock generating insider proceeds totaling

- 50 -


$4,754,665. These sales include Angelo’s sale of 14,456 shares of Body Central stock in the

three days prior to Defendants’ May 3, 2012 disclosure, which generated proceeds totaling

$695,986. In addition, during the Class Period, Rosenbaum sold 275,789 shares of Body

Central stock generating proceeds of $7,291,700. Notably, after the Company’s May 3, 2012

partial disclosure, both Weinstein and Angelo stopped their Class Period trading in Body

Central stock.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET DOCTRINE

121. At all relevant times, the market for Body Central common stock was an

efficient market for the following reasons, among other things:

(a) Body Central stock met the requirements for listing, and were listed

and actively traded on the NASDAQ, a highly efficient and automated market;

(b) As a regulated issuer, Body Central filed periodic public reports with

the SEC; and

(c) Body Central regularly communicated with public investors via

established market communication mechanisms, including through regular disseminations of

press releases on the national circuits of major newswire services and through other wide-

ranging public disclosures, such as communications with the financial press and other similar

reporting services.

122. As a result, the market for Body Central common stock promptly digested

current information regarding Body Central from all publicly available sources and reflected

such information in the price of Body Central stock. Under these circumstances, all

purchasers of Body Central common stock during the Class Period suffered similar injury

- 51 -


through their purchase of Body Central common stock at artificially inflated prices and a

presumption of reliance applies.

LOSS CAUSATION/ECONOMIC LOSS

123. During the Class Period, as detailed herein, Defendants engaged in a scheme

to deceive the market through a course of conduct that artificially inflated the value of Body

Central common stock throughout the Class Period. Defendants’ false and misleading

statements operated as a fraud or deceit on Class Period purchasers of Body Central common

stock by misrepresenting the reasons behind the Company’s financials and future business

prospects, including, without limitation, misrepresenting the nature, cause, and scope of the

Company’s so-called merchandise miss. By their conduct, Defendants concealed that Body

Central’s reported financial outlook for 2012 lacked a reasonable basis when made and

served to artificially inflate the price of Body Central stock throughout the Class Period.

124. Defendants’ false and misleading statements had their intended effect and

directly and proximately caused, or were a substantial contributing cause of, Body Central’s

common stock trading at artificially inflated levels, reaching a Class Period high of $30.69

per share on April 27, 2012.

125. As a result of Defendants’ fraudulent conduct as alleged herein, the prices at

which Body Central common stock traded were artificially inflated, at varying levels,

throughout the Class Period. When Plaintiff and other members of the Class purchased their

Body Central common stock, the true value of such common stock was substantially lower

than the prices actually paid by Plaintiff and other members of the Class. As a result of their

purchases of Body Central common stock during the Class Period at artificially inflated

- 52 -


prices, Plaintiff and other members of the Class suffered economic loss, i.e. , damages under

federal securities laws, when such artificial inflation dissipated.

126. In addition, Defendants affirmatively assured investors that Body Central’s

merchandise miss was isolated and that Body Central was already receiving merchandise that

it had been lacking in order to be back on track for its sales. Defendants’ efforts were

nothing more than further attempts to mislead the market’s expectations for the Company.

To that end, Defendants’ false and misleading statements maintained and increased the

artificial inflation in the price of Body Central common stock.

127. As explained herein, these false statements directly or proximately caused, or

were a substantial contributing cause of the damages, and economic loss suffered by Plaintiff

and other members of the Class, and maintained the artificial inflation in the prices of Body

Central common stock throughout the Class Period, until the truth leaked into, and was

partially revealed to, the market, at which time the prior inflation came out of the stock.

128. As a result of Defendants’ materially false and misleading statements, as well

as the adverse, undisclosed information known to the Defendants, Plaintiff and other

members of the Class relied, to their detriment, on such statements and documents, and/or

the integrity of the market, in purchasing their Body Central common stock at artificially

inflated prices during the Class Period. Had Plaintiff and other members of the Class known

the truth, they would not have taken such actions.

129. The first partial disclosure of truth came after the market closed on May 3,

2012, when Defendants revealed Body Central was revising down its recently issued

guidance and that the supposedly isolated, quickly remedied merchandise issues with “one

- 53 -


thing” was far more serious of a concern than Defendants previously let on. At the time of

the May 3, 2012 disclosure, Defendants continued to make false and misleading statements,

including providing second quarter and full year 2012 guidance that lacked a reasonable

basis. As a result, despite the 48% decline in the price of Body Central stock on May 4,

2012, the stock remained artificially inflated.

130. The next disclosure of Body Central’s true financial condition marks the end

of the Class Period, when, on June 18, 2012, Body Central issued a press release revising

Body Central’s recently issued sales and earning guidance for its second quarter and full year

2012. The press release further revealed that the Company’s sales trends remained soft and

would continue impacting the Company during 2012. The significant drop in Body Central

stock came on the same day Bloomberg reported that “[m]ost U.S. stocks advanced, sending

the Standard & Poor’s 500 Index higher for a third day.”

131. As a result of the June 18, 2012 disclosure, the price of Body Central stock

lost almost half of its value, falling $7.77 per share, from a closing price of $15.99 on June

15, 2012 to close at $8.22 per share on June 18, 2012, the next trading day – a one-day

decline of more than 48% – on volume of more than 14 million shares traded.

132. These disclosures were a direct and foreseeable consequence of Defendants’

fraud unraveling. Although Defendants did not affirmatively admit to the particulars of their

fraud, they did not have to. The market, which reacted by punishing the Company’s stock

price by nearly 50% on two separate occasions only a month apart from each other, clearly

understood there had been new revelations – that Body Central’s financial condition was not

as previously (and misleadingly) presented to the market.

- 54 -


133. The timing and magnitude of the decline in Body Central common stock

negates any inference that the loss suffered by Plaintiff and other Class members were

caused by changed market conditions, macroeconomic factors, or Company-specific facts

unrelated to Defendants’ fraudulent conduct. As a result of their purchases of Body Central

common stock during the Class Period, Plaintiff and other members of the Class suffered

economic loss, i.e. , damages, under the federal securities laws when the above-described

revelations reached the market and the artificial inflation was removed.

NO SAFE HARBOR

134. Body Central’s verbal “Safe Harbor” warnings accompanying its oral

forward-looking statements (“FLS”) issued during the Class Period were ineffective to shield

those statements from liability.

135. The Defendants are also liable for any false or misleading FLS pleaded

because, at the time each FLS was made, the speaker knew the FLS was false or misleading

and the FLS was authorized and/or approved by an executive officer of Body Central who

knew that the FLS was false. None of the historic or present tense statements made by

Defendants were assumptions underlying or relating to any plan, projection, or statement of

future economic performance, as they were not stated to be such assumptions underlying or

relating to any projection or statement of future economic performance when made, nor were

any of the projections or forecasts made by Defendants expressly related to, or stated to be

dependent on, those historic or present tense statements when made.

- 55 -


CLASS ACTION ALLEGATIONS

136. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal

Rules of Civil Procedure on behalf of all persons who purchased or otherwise acquired Body

Central common stock during the Class Period (the “Class”). Excluded from the Class are

Defendants and their families, the officers and directors of the Company, at all relevant

times, members of their immediate families and their legal representatives, heirs, successors,

or assigns, and any entity in which Defendants have or had a controlling interest.

137. Members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial

benefits to the parties and the Court. Body Central had more than 16 million shares of stock

outstanding, owned by hundreds, if not thousands, of shareholders.

138. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to members of the Class which

predominate over questions which may affect individual Class members include:

(a) whether Defendants violated the Exchange Act;

(b) whether Defendants omitted and/or misrepresented material facts;

(c) whether Defendants’ statements omitted material facts necessary to

make the statements made, in light of the circumstances under which they were made, not

misleading;

(d) whether Defendants knew or deliberately disregarded that their

statements were false and misleading;

- 56 -


(e) whether the price of Body Central common stock was artificially

inflated; and

(f) the extent of damages sustained by Class members and the appropriate

measure of damages.

139. Plaintiff’s claims are typical of those of the Class because Plaintiff and the

Class sustained damages from Defendants’ wrongful conduct.

140. Plaintiff will adequately protect the interests of the Class and has retained

counsel who are experienced in class action securities litigation. Plaintiff has no interests in

conflict with those of the Class.

141. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy.

COUNT I

FOR VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5 PROMULGATED THEREUNDER AGAINST ALL DEFENDANTS

142. Plaintiff repeats and realleges the allegations set forth above as though fully

set forth herein. This claim is asserted against all Defendants.

143. During the Class Period, Body Central and the Individual Defendants carried

out a plan, scheme, and course of conduct which was intended to and, throughout the Class

Period, did: (a) deceive the investing public, Plaintiff, and other Class members, as alleged

herein; (b) artificially inflate and maintain the market price of Body Central common stock;

and (c) cause Plaintiff and other members of the Class to purchase Body Central common

stock at artificially inflated prices. In furtherance of this unlawful scheme, plan, and course

of conduct, Body Central and the Individual Defendants took the actions set forth herein.

- 57 -


144. These Defendants: (a) employed devices, schemes, and artifices to defraud;

(b) made untrue statements of material fact and/or omitted to state material facts necessary to

make the statements not misleading; and (c) engaged in acts, practices, and a course of

business which operated as a fraud and deceit upon the purchasers of the Company’s

common stock in an effort to maintain artificially high market prices for Body Central’s

common stock in violation of §10(b) of the Exchange Act and Rule 10b-5. These

Defendants are sued as primary participants in the wrongful and illegal conduct charged

herein. The Individual Defendants are also sued as controlling persons of Body Central, as

alleged below.

145. In addition to the duties of full disclosure imposed on Defendants as a result

of their making affirmative statements and reports, or participating in the making of

affirmative statements and reports, to the investing public, each had a duty to promptly

disseminate truthful information that would be material to investors in compliance with the

integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X, (17 C.F.R.

§210.01, et seq .), and S-K, (17 C.F.R. §229.10, et seq .), and other SEC regulations, including

accurate and truthful information with respect to the Company’s operations, financial

condition, future business prospects, and operational performance, so that the market prices

of the Company’s common stock would be based on truthful, complete, and accurate

information.

146. Body Central and each of the Individual Defendants, individually and in

concert, directly and indirectly, by the use, means, or instrumentalities of interstate

commerce and/or of the mails, engaged and participated in a continuous course of conduct to

- 58 -


conceal adverse material information about Body Central’s business, business practices,

performance, operations, and future business prospects as specified herein.

147. These Defendants each employed devices, schemes, and artifices to defraud

while in possession of material adverse non-public information. These Defendants also

engaged in acts, practices, and a course of conduct, as alleged herein, in an effort to assure

investors of Body Central’s value, performance, and financial and operational growth. These

acts included the making of, or the participation in the making of, untrue statements of

material facts and omitting to state necessary facts in order to make the statements made

about Body Central and its business operations and future business prospects, in light of the

circumstances under which they were made, not misleading, as set forth more particularly

herein, and engaged in transactions, practices, and a course of business which operated as a

fraud and deceit upon the purchasers of Body Central common stock during the Class Period.

148. Each of the Individual Defendants’ primary liability and control person

liability arises from the following facts: (a) each of the Individual Defendants was a high-

level executive and/or director at the Company during the Class Period; (b) each of the

Individual Defendants, by virtue of her responsibilities and activities as a senior executive

officer and/or director of the Company, was privy to and participated in the creation,

development, and reporting of the Company’s financial performance, projections, and/or

reports; and (c) each of the Individual Defendants was aware of the Company’s

dissemination of information to the investing public, which each knew, or disregarded with

recklessness, was materially false and misleading.

- 59 -


149. Each of these Defendants had actual knowledge of the misrepresentations and

omissions of material facts set forth herein, or acted with reckless disregard for the truth in

that each failed to ascertain and to disclose such facts, even though such facts were available

to each of them. Such Defendants’ material misrepresentations and/or omissions were done

knowingly or with recklessness and for the purpose and effect of concealing Body Central’s

operating condition and future business prospects from the investing public and supporting

the artificially inflated price of its common stock. As demonstrated by Defendants’

misstatements of the Company’s financial condition and performance throughout the Class

Period, each of the Individual Defendants, if he or she did not have actual knowledge of the

misrepresentations and omissions alleged, was reckless in failing to obtain such knowledge

by deliberately refraining from taking the steps necessary to discover whether those

statements were false and misleading.

150. As a result of the dissemination of the materially false and misleading

information and failure to disclose material facts, as set forth above, the market prices of

Body Central common stock were artificially inflated, at varying levels, throughout the Class

Period. In ignorance of the fact that market prices of Body Central common stock were

artificially inflated, and relying directly or indirectly on the false and misleading statements

made by Defendants, or upon the integrity of the market in which the common stock trades,

and/or in the absence of material adverse information that was known to, or disregarded with

recklessness by, Defendants but not disclosed in public statements by Defendants during the

Class Period, Plaintiff and other members of the Class acquired Body Central common stock

during the Class Period at artificially high prices and were damaged thereby, as evidenced

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by, among other things, the common stock price declines identified herein that released the

artificial inflation from the price of Body Central common stock.

151. At the time of said misrepresentations and omissions, Plaintiff and other

members of the Class were ignorant of their falsity, and believed them to be true. Had

Plaintiff and other members of the Class and the marketplace known of the true performance,

future business prospects, and intrinsic value of Body Central, which were not disclosed by

Defendants, Plaintiff and other members of the Class would not have purchased or otherwise

acquired their Body Central common stock during the Class Period, or they would not have

done so at the artificially inflated prices which they paid.

152. By virtue of the foregoing, Body Central and the Individual Defendants have

each violated §10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder.

153. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff

and other members of the Class suffered damages in connection with their respective

purchases and sales of the Company’s common stock during the Class Period, as evidenced

by, among other things, the common stock price decline on or about May 3, 2012 and June

18, 2012, that released the artificial inflation from Body Central’s common stock.

COUNT II

FOR VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT AGAINST THE INDIVIDUAL DEFENDANTS

154. Plaintiff repeats and realleges the allegations set forth above as though fully

set forth herein. This claim is asserted against the Individual Defendants.

155. Each of the Individual Defendants acted as a controlling person of Body

Central within the meaning of §20(a) of the Exchange Act as alleged herein. By virtue of

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their high-level positions with the Company, participation in and/or awareness of the

Company’s operations, and/or intimate knowledge of the Company’s fraudulent financial

reporting and actual performance, each of the Individual Defendants had the power to

influence and control, and did influence and control, directly or indirectly, the decision-

making of the Company, including the content and dissemination of the various statements

which Plaintiff contends are false and misleading. Each of the Individual Defendants was

provided with, or had unlimited access to, copies of the Company’s reports, press releases,

public filings, and other statements alleged by Plaintiff to be misleading prior to and/or

shortly after these statements were issued and had the ability to prevent the issuance of the

statements or cause the statements to be corrected.

156. In addition, each of the Individual Defendants had direct involvement in the

day-to-day operations of the Company and, therefore, is presumed to have had the power to

control or influence the particular transactions giving rise to the securities violations alleged

herein, and exercised the same.

157. As set forth above, Body Central and the Individual Defendants each violated

§10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of

their controlling positions, each of the Individual Defendants is liable pursuant to §20(a) of

the Exchange Act. As a direct and proximate result of Defendants’ wrongful conduct,

Plaintiff and other members of the Class suffered damages in connection with their

purchases of the Company’s common stock during the Class Period when the artificial

inflation was released from Body Central common stock, as detailed herein.

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WHEREFORE, Plaintiff prays for relief and judgment, as follows:

A. Determining that this action is a proper class action and designating Plaintiff

as Class representatives under Rule 23 of the Federal Rules of Civil Procedure;

B. Awarding compensatory damages in favor of Plaintiff and other Class

members against all Defendants, jointly and severally, for all damages sustained as a result

of Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding Plaintiff and the Class their reasonable costs and expenses incurred

in this action, including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

DATED: February 26, 2013 ROBBINS GELLER RUDMAN & DOWD LLP

DAVID J. GEORGE Florida Bar No. 0898570 [email protected] ROBERT J. ROBBINS Florida Bar No. 0572233 [email protected] HOLLY KIMMEL Florida Bar No. 0970980 [email protected]

/s/ Robert J. Robbins ROBERT J. ROBBINS

120 East Palmetto Park Road, Suite 500 Boca Raton, FL 33432 Telephone: 561/750-3000 561/750-3364 (fax)

Lead Counsel for Plaintiff

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BOTTINI & BOTTINI, INC. FRANK A. BOTTINI 7817 Ivanhoe Avenue, Suite 102 La Jolla, CA 92037 Telephone: 619/241-4810 619/955-5318 (fax)

Additional Counsel for Plaintiff

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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on February 26, 2013, a copy of the foregoing was

electronically filed with the Clerk of the Court by using the CM/ECF system, which will

send notification of such filing to the attorneys denoted on the Court’s electronically

generated Notice of Filing.

/s/ Robert J. Robbins Robert J. Robbins

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