Cucinelli shares plummet to -17% after allegations of Russian activities

Brunello Cucinelli's 'black' day ended with a share value thud of 17.28%, to just over €85. Sales were encouraged by the release of a report by Morpheus Research, which accuses the Solomeo-based fashion house of 'lying about its business in Russia', of selling both directly and through trading partners (such as the Tsum department) pieces worth thousands of euro in violation of what the European Union imposed after the start of the conflict with Ukraine. The report also criticises the practice of applying aggressive discounting - allegedly done through other sites - to manage excess stock.

In the early afternoon, after registering an initial drop of 5%, the Italian stock exchange had suspended trading, only to resume trading after the back-and-forth between the American company, founded only a few months ago, and the Umbrian company, listed since 2012, which took place around 4pm.

The company responded by confirming 'with firmness its full compliance with EU rules regarding activity in the Russian market. The incidence of the Russian market on our turnover,' Cucinelli emphasised in a note, 'has been reduced by more than two-thirds compared to 2021, currently standing at around 2 per cent. The value of exports to our Russian subsidiary has gone from Euro 16 million in 2021 to Euro 5 million in 2024; this data is available every year in our balance sheet'. Data that the Umbrian company has released because it believes that 'these values can be exhaustive in correctly dimensioning this argument and also in excluding any hypothesis on the use of the Russian market for inventory reduction and disposal'. The company also announced that it is 'considering legal action to protect its reputation and the interests of all its stakeholders'. Cucinelli also referred to 'inspections carried out by the Customs Agency that have ascertained full compliance with procedures'.

Morpheus, which drew up the report after an investigation that lasted more than three months "in the field" and after speaking with some of Cucinelli's employees, disputes the figures on exports to Moscow communicated by Cucinelli a few days ago, when the Financial Times had reported similar accusations made, however, by the hedge fund Pertento Partners, according to which Cucinelli continues to operate in Russia in violation of EU sanctions on luxury goods: "The trade data indicate that Cucinelli has increased its exports since the imposition of sanctions. From 2021 to 2023, Cucinelli's exports to its Russian subsidiary increased dramatically by approximately 715% in terms of volume. Although part of this increase may be due to a higher volume of low-priced items, such a significant increase is unusual in the context of apparent Cucinelli shop closures in Russia,' argued Morpheus, who also pointed out that 'in addition to selling through its own Russian shops, Cucinelli also sells through high-end shops such as Tsum, controlled by Russian luxury conglomerate Mercury Group, which appears to be supporting the brand's growth in the region despite the EU sanctions'.

According to Radiocor, four investors currently hold significant short positions in Brunello and have shown some activism in shorting the company over the summer. According to Consob's update (as of yesterday, 24 September) on net short positions, Jp Morgan Asset Management Uk Limited (with 0.78%), Aqr Capital Management (0.72%), Kintbury Capital (0.71%) and Pertento Partners (0.58%), i.e. the hedge from which the storm seems to have started with a report that began circulating among operators last week, are above the 0.5% threshold.