Trading in LPP suspended after Russian claims cause stock to plunge

LPP has denied all the accusations against it.

Following the invasion of Ukraine, LPP announced in spring 2022 that it had sold one of its two Russian businesses, RE Trading, to a Chinese consortium, and that it would shut down the second, RE Development.

Russia was a booming market for the fashion chain. Sales accounted for around 19% of group revenues in the year to 31 January 2022, making it its second biggest market after Poland.

Despite that, LPP said it had decided to quit the country because of the "uncertain situation and inability to predict the course of the armed conflict".

However, in a report published on Friday, Hindenburg cast doubt over the revenue growth LPP saw subsequent to the exit.

Claiming LPP’s core revenue growth of 40.5% excluding Russia was "virtually unheard of in the retail apparel industry", it alleged: "We believe LPP was able to post these remarkable results because its divestment of the Russian business has been a complete sham."

LPP’s Warsaw-listed shares plunged 28% before trading was suspended.

Hindenburg said it had taken a short position on the stock, though it did not specify how big its position was. Short sellers make money by betting share prices will fall.

It concluded: "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."

In response, LPP said: "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.

"We had previously informed the Ministry of Foreign Affairs and the head of the National Revenue Administration about the case.

"We are certain that the intelligence agency acts on behalf of third parties. It cannot be ruled out that this type of action may be attempt to gain influence at LPP.

"The group has full control over the situation."

New York-based Hindenburg was founded in 2017 by Nathan Anderson. It takes short positions in companies if it considers there to be credible evidence of accounting irregularities or mismanagement.