Troubled surfwear retailer Billabong faces a possible class action from investors hurt by the dramatic decline in the company’s fortunes.

Law firm Slater and Gordon says it is preparing a lawsuit against Billabong on behalf of hundreds of Australian and international investors.

The class action centres on Billabong’s earnings guidance downgrade in December 2011, which caused a sharp decline in its share price.

Just four months earlier, the company had forecast strong earnings growth for the 2011/12 financial year.

Slater and Gordon senior associate Odette McDonald said the firm would argue Billabong engaged in misleading and deceptive conduct and failed to comply with its continuous disclosure obligations.

“Our clients allege that Billabong misrepresented the assumptions on which the FY12 earnings growth guidance was based,” she said.

“They further allege that, had the market been informed of the true dependencies underpinning the earnings forecast, it would have disregarded the guidance as unrealistic, and this would have been reflected in Billabong’s share price.”

In a statement, Billabong said it had not been contacted by Slater and Gordon but would “vigorously defend” any lawsuit.

“However, more importantly for the company and our shareholders, the board and management of Billabong today will continue their focus on the important operational and structural changes necessary to drive our turnaround program,” the company said.

Billabong shares are currently trading at 60.25 cents, down from around $2.60 the day before the December 2011 earnings guidance downgrade.

The company has been struggling financially, making a loss of $276 million in the 2011/12 financial year, a loss of $859 million in 2012/13, and a $126 million loss in the first half of the 2013/14 financial year.

Recently appointed chief executive Neil Fiske has admitted it could take years to turn the business around.