|By Tom Daykin, Milwaukee Journal Sentinel
Knight Ridder/Tribune Business News
Nov. 23, 2005--Great Wolf Resorts Inc. of Madison, which had a one-day stock price drop of 31 percent in July after reporting a bigger-than-expected loss, is the subject of a class-action securities fraud suit, a law firm announced Tuesday.
The suit, filed by Scott + Scott LLC of Colchester, Conn., represents people who bought Great Wolf stock from Dec. 14, the day before the company began trading, and July 28, when it reported its second-quarter earnings.
Great Wolf stock, which went public at $17, closed at $13.65, a decline of $6.12, on July 28, when the company reported a loss of $2.5 million, or 8 cents a share. That loss, which Chief Executive Officer John Emery called "embarrassing," was more than twice the expected loss of $1 million, or 3 cents a share, which the company had forecast in June.
The price has declined since then. It closed Tuesday at $8.83, down 7 cents.
The suit, filed in U.S. District Court in Madison, claims that Great Wolf provided misleading earnings guidance based on its unreliable calculation of earnings before interest, taxes, depreciation and amortization. That "defective measure" was used to help sell Great Wolf stock during its initial public offering, Scott + Scott said in a statement.
Company representative Erin Ruppenthal said, "We believe this suit has no merit, and we intend to vigorously defend it."
Emery said in June that a decline in business at Great Wolf resorts in Michigan and Ohio, and lagging business at the Blue Harbor Resort in Sheboygan, caused the second-quarter loss.
The company operates six indoor water-park resorts and has five under development.
Great Wolf on Nov. 2 reported third-quarter net income of $7.2 million, or 24 cents a share. That was within the company's guidance.
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