Polish fashion group LPP says it won't return to Russia; shares bounce back
Reuters
Published Mar 18, 2024 08:50
Updated Mar 18, 2024 14:22
(Reuters) -Polish fashion group LPP will not return to Russia, its CEO said on Monday, detailing the company's exit from the country and seeking to reassure investors after a Hindenburg Research report questioned the sale of its business there.
The company's shares surged as much as 35.6% and were 24.8% higher by 1408 GMT, recovering most of their 36% fall on Friday after Hindenburg Research's report.
"LPP left the Russian market definitely and is not going to come back there," Marek Piechocki, who is also the company's founder and biggest shareholder said on a call.
He said LPP would consider a share buyback, though shareholders would have the final say.
"Positive share reaction shows it was a good decision to address the allegations in a call," Erste Group analyst Krzysztof Kawa said.
"For example revealing how the transition period related to Russia exit looks like and showing that the process of exiting Russia is phased over time, and that Hindenburg report doesn't change the company's approach to operating in Russia," Kawa said.
He added that the communication was "reassuring" to a large extent after Friday's sell-off, mitigating reputational risks for the company, such as the reaction of its creditors and consumers.
LPP sold the Russian business in June 2022 to a Chinese consortium and a former CEO of Russian company Re Trading. The price for the stores was set at $135.5 million paid over four years until 2026, and at 1.2 billion zlotys ($303 million) for the inventory, it said in a presentation.
SINSAY BRAND EXPANSION
LPP reiterated that it had no operating or trading activities in Russia.
"LPP, contrary to what the report claims, has no operations in Russia. It does not sell, manage, own directly or indirectly any of the companies mentioned in the Hindenburg Research report," Piechocki said.
It recorded a 600-million zloty loss on the sale of the Russian company, it said.
LPP said that as per the 2022 sale agreement, the Russian company, "as a completely independent entity, acting on its own behalf", sells goods in Russia including those acquired during the transition period which was set to last until the end of 2026. LPP said it intended to shorten this period.
Responding to another allegation made by Hindenburg, Piechocki said the company's revenue growth after its exit from Russia was due to the expansion of its Sinsay brand.
The company plans in 2024 to open 620 Sinsay stores, a brand which competes with fast-fashion e-commerce retailers Shein and Temu, and over 850 stores in 2025.
LPP confirmed its guidance for 2024 revenue of about 21 billion zlotys, though Piechocki said he believed the figure could be higher. Its preliminary 2023 revenue rose 9.3% to 17.4 billion zlotys.
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The company's finance chief Przemyslaw Lutkiewicz said the company had made a mistake in the English version of the 2022 full year report and the 3 billion zlotys reported as "other" segment did not refer to the Russian market.
He added LPP's board would discuss bringing in an independent forensic auditor.
($1 = 3.9496 zlotys)
Written By: Reuters
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