Brunello Cucinelli Faces Scrutiny Amid Allegations of Misleading Investors

Shares of Brunello Cucinelli SpA, a prominent name in luxury cashmere, experienced their most significant decline since the company’s initial public offering in 2012. This downturn follows allegations from Morpheus Research, a short-selling firm, claiming that the Italian brand is misleading investors regarding its operations in Russia and engaging in aggressive discounting practices.

Allegations of Misconduct

Morpheus Research, which includes former members of the well-known Hindenburg Research, conducted a three-month investigation that raised serious questions about Cucinelli’s compliance with European Union sanctions imposed on Russia following its invasion of Ukraine in 2022. The firm asserts that Cucinelli has continued to operate stores in Russia, despite the company’s claims of closure. This contradiction has led to a sharp decline in investor confidence, with shares plummeting by as much as 15% after trading resumed following a near four-hour suspension.

Morpheus’s investigation revealed that Cucinelli boutiques in Russia were still selling high-value items, some tagged with future production dates of 2024 and 2025. Furthermore, the firm reported that Cucinelli products were being sold in Russian department stores, with trade data indicating that intermediaries from countries like Lithuania, Iran, and China were exporting Cucinelli goods to Russia.

Cucinelli’s Response

In response to these allegations, Brunello Cucinelli SpA firmly rejected the claims, asserting that its Russian subsidiary is fully compliant with all regulations. The company stated that its sales in Russia have decreased by over two-thirds compared to 2021, now accounting for only about 2% of total revenue. Cucinelli emphasized that the value of exports to its Russian subsidiary has dropped significantly, from €16 million ($18.7 million) in 2021 to just €5 million in 2024.

The company expressed its intention to consider legal action to protect its reputation, stating, “We believe these figures provide a clear and accurate perspective on this matter and rule out any speculation regarding the use of the Russian market to reduce stock or clear excess inventory.”

Inventory Concerns

Morpheus Research also highlighted concerns regarding Cucinelli’s inventory management. The firm claimed that the company is aggressively discounting its products to manage what it described as “bloated inventory.” According to Morpheus, Cucinelli had an astonishing 404 days of inventory in the 12 months leading up to the first half of 2025, the highest among its luxury peers. This situation has led to increased inventory write-down provisions, which have grown annually since 2020, peaking at nearly €100 million.

Morpheus further argued that Cucinelli’s financial reporting may not accurately reflect its economic reality. The firm suggested that if significant rent costs were fully expensed under International Financial Reporting Standards (IFRS), the company’s earnings before interest, tax, depreciation, and amortization (EBITDA) would be 36% lower than reported. This discrepancy raises questions about the sustainability of Cucinelli’s growth, especially in light of rising competition from brands like Khaite and The Row, which have reported triple-digit growth.

Historical Context and Brand Philosophy

Founded in 1978 by Brunello Cucinelli, the brand has long been associated with a “humanistic” approach to capitalism. Cucinelli has often emphasized the importance of artisanship and ethical business practices, advocating for a work environment that values both productivity and personal well-being. This philosophy has resonated with consumers, positioning the brand as a leader in the luxury market.

However, the current allegations pose a significant challenge to this carefully cultivated image. The juxtaposition of Cucinelli’s ethical branding against the backdrop of potential misconduct raises questions about the integrity of luxury brands in an increasingly scrutinized market.

Market Implications

The fallout from these allegations could have broader implications for the luxury sector, which has been navigating a complex landscape of economic uncertainty and shifting consumer preferences. As brands face increasing pressure to maintain transparency and ethical practices, the scrutiny on Cucinelli may serve as a cautionary tale for others in the industry.

Morpheus’s claims come at a time when luxury brands are grappling with the effects of geopolitical tensions and changing consumer behavior. The European Union’s sanctions on Russia have significantly impacted luxury goods sales, and companies must navigate these challenges while maintaining their brand integrity.

Conclusion

The allegations against Brunello Cucinelli SpA highlight the delicate balance luxury brands must strike between maintaining exclusivity and adhering to ethical business practices. As the company prepares to defend its reputation, the outcome of this situation could have lasting effects not only on Cucinelli but also on the broader luxury market. Investors and consumers alike will be watching closely as the story unfolds, eager to see how one of Italy’s most esteemed brands responds to these serious allegations.