Shares of Polish retailer LPP, trading in Warsaw, are down more than 30% in mid-day trading after activist short seller Hindenburg Research claimed the company "masked a fake Russia 'sell-off' using front entities and encrypted barcodes".
LPP is a fashion retailer based in Poland that lays claim to being the largest fashion company in Central and Eastern Europe, the report says. Until Russia invaded Ukraine in February 2022, Russia was LPP’s biggest international market, generating ~19.2% of revenue from 553 stores, it added.
But then Hindenburg alleged a sell off of the company's Russia division - prompted by sanctions related to the Russia/Ukraine conflict - was a "sham".
"On April 28 2022, LPP announced plans to distance itself from Russia by divesting its Russia division. A deal progressed rapidly: Weeks later, on May 19, 2022, it announced it had concluded negotiations with an unnamed buyer, finalizing a sale on June 30, 2022," the short seller wrote. "Despite saying it lost ~20% of revenues from divesting its Russian operations, LPPs total revenue still remarkably grew 13% overall in FY 2022/23. Reported revenue across markets excluding Russia was up 40.5% year-on-year."
"We believe LPP was able to post these remarkable results because its divestment of its Russia business has been a complete sham," the report says, detailing a trail of shell companies and suspect transactions.
Hindenburg wrote that a former manager described LPP CEO's approach as he "didn't give a f*ck about some war between Russia and Ukraine. This [war] is just temporary.”
Among other things, Hindenburg used secret shoppers in Russia, interviews and decoded barcodes as ways to investigate the company.
"Russian in-house product codes were an exact match for the product codes in LPP´s Polish catalogue," the short seller wrote. "Overall, we believe LPP devised an elaborate sham ‘divestment’ to continue making money in Russia despite the devastating war, while trying to deceive investors and consumers in Poland, Ukraine, and its other key markets."
Shares were briefly suspended in Poland down almost 30% before re-opening and plunging further, falling close to 35% at one point.
LPP responded by denying the accusations. "The group has full control over the situation," it said in its response. It told Reuters: "The report prepared by Hindenburg Research is part of an organised disinformation attack that has been prepared for five months and is aimed at reducing the share price of the LPP Group."
