Brunello Cucinelli Defends Business Practices Amid Short Seller Allegations
In a recent earnings call, Brunello Cucinelli, the renowned Italian luxury cashmere brand, faced scrutiny from short sellers while reaffirming its growth trajectory. The company reported a robust 12% increase in sales for the third quarter, despite allegations that it misled investors regarding its operations in Russia and its discounting practices.
Allegations from Short Sellers
The controversy erupted following a report from Morpheus Research, a short-selling firm, which claimed that Brunello Cucinelli had not fully ceased operations in Russia, contrary to its public statements. The report alleged that the brand was still shipping goods to Russia, potentially violating European sanctions imposed after the country’s invasion of Ukraine in 2022. Additionally, it accused the company of engaging in heavy discounting to clear excess inventory.
These allegations had a significant impact on the market, causing the company’s stock to plummet by 17% in a single day. As of now, shares remain approximately 12% lower than before the report was released.
Reassurance from Leadership
In response to the allegations, Brunello Cucinelli’s executive chairman and creative director, Brunello Cucinelli, expressed confidence in the brand’s performance. “We have the feeling it is going very well both in terms of numbers and product image,” he stated during the call, emphasizing that the scrutiny from short sellers is part of the challenges faced by publicly traded companies.
Co-CEO Luca Lisandroni also addressed the claims regarding the company’s Russian operations, asserting that they are fully compliant with regulations. He clarified that while the brand’s stores in Russia remain closed, sales are still occurring through one-on-one client interactions based on existing inventory. Notably, revenue from Russia accounted for a mere 1.4% of total sales by the end of the third quarter.
Compliance and Investigations
Lisandroni highlighted that the company has undergone over 100 customs checks since 2022, with no violations reported. In light of the recent allegations, Brunello Cucinelli is conducting an internal investigation and has engaged a law firm to validate its findings. This proactive approach aims to reassure investors and stakeholders of the brand’s commitment to compliance and transparency.
Strong Financial Performance
Despite the controversy, Brunello Cucinelli reported impressive financial results. The company’s sales reached €335.5 million (approximately $393.8 million) in the third quarter, driven by strong demand in the Americas and Europe, as well as double-digit growth in Asia. The brand’s sell-through rates for its current collection remain robust, and its recent showcase at Milan Fashion Week received positive feedback.
The company has maintained its guidance for a 10% revenue growth in both 2025 and 2026, indicating a strong outlook despite the broader challenges facing the luxury sector.
Market Resilience
The luxury market has faced a downturn in recent months, with many brands struggling to maintain sales. However, Brunello Cucinelli has managed to stand out as one of the few luxury labels demonstrating resilience. Analysts have noted the brand’s ability to navigate market fluctuations effectively, with Bernstein recently upgrading its rating to “outperform.”
A Metaphor for Market Dynamics
Cucinelli concluded the earnings call with a metaphor that encapsulated the unpredictable nature of the market. He recounted a story about a skilled card player who frequented a café, winning every hand for four days. “These are the rules of the game. There are ups and downs,” he remarked, highlighting the inherent volatility in the business landscape.
Conclusion
Brunello Cucinelli’s recent earnings call served as a platform for the brand to address serious allegations while showcasing its strong financial performance. As the luxury market continues to evolve, the company’s commitment to compliance and transparency will be crucial in maintaining investor confidence. With a solid growth trajectory and a proactive approach to challenges, Brunello Cucinelli remains a significant player in the luxury fashion industry.
