LPP's stock rebounds 30% after Polish clothes seller denies faking its exit from Russia

By Louis Goss

Shares in Polish clothes-seller LPP rebounded by 30% on Monday, after plunging 38% last week on claims from a short-seller that it made a "sham divestment" from Russia following the start of the Ukraine war.

The Gdansk-headquartered company, part of the Stoxx Europe 600 index, published a statement on Monday denying the allegations made by short-seller Hindenburg Research last Friday that it faked its exit from Russia.

Analysts at Citi, led by Rafal Wiat, subsequently upgraded LPP stock to Buy, writing, "regardless of the outcome of the Russia operation allegations, the current share price represents attractive value based on broader business fundamentals."

LPP's (PL:LPP) Warsaw-listed shares increased 30% on Monday, having increased in value by 60% over the previous 12 months.

Hindenburg's report claims LPP manufactured a fake sale of its Russian business to a Dubai-based shell company, Far East Services, which continues to be directly controlled by LPP's board and HQ.

The short seller's report says Far East Services was incorporated just one day before LPP announced its plans to sell its Russian assets, with no disclosure of its owners or directors.

LPP's shares previously fell more than 45% at the start of the Ukraine war in February 2022, as investors showed concerns about the loss of business from Russia, which previously accounted for around 20% of LPP's revenue.

The company's share price, however, recovered to pre-war all-time highs after LPP posted a 13% increase in its revenues throughout 2022/23, despite its exit from Russia, which the firm said was driven by a 40.5% increase in sales across all markets excluding Russia.

Hindenburg's report instead claims that LPP's sales were bolstered in 2022/23 by $732 million in revenue from an "unexplained 'Other' segment" - equivalent to 20% of its overall sales last year having previously accounted for just 2% of the company's sales.

The report says LPP uses Kazakhstan as a back door to supply the Russian market while noting the company shipped $775 million worth of goods to the country, even though it only accounts for 1% of its brick-and-mortar stores.

The short seller also noted that LPP's auditor Ernst & Young previously gave a qualified opinion on the Polish company's 2021/22 results over accounting issues relating to its Russian assets. Five days later, LPP switched to second-tier audit firm Grant Thornton.

In its statement published on Monday, LPP denied Hindenburg's allegations, saying it had continued to supply goods at cost-price to buying agents controlled by Far East Services, in line with a transition period agreement that lasts until 2026.

LPP said it makes no profit on the supply of goods to the two buying agents, which it said operated completely independently from LPP.

Instead the company said its sales were bolstered by its efforts to strengthen its position in central and southern Europe, by tapping into the "value-for-money" market and also boosting its online sales.

"I perceive the false claims published against LPP as a manipulative attempt and act to the detriment not only of the company and our employees, but also of investors and business partners, dictated only by the desire to achieve profits at this cost," LPP Chief Executive Marek Piechocki said.

-Louis Goss

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03-18-24 0802ET

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