Polish

Shoe Retailer CCC Faces Scrutiny After​ Short Seller Report, Shares Dip

Shares of CCC, a major European shoe retailer, fell 15 percent following a‍ report by Ningi, ⁢a research‌ firm, alleging artificially‌ inflated sales. The ​report claims CCC boosted sales by approximately 330 million zlotys ($91 million) through transactions with related parties, masking “deep operational and strategic ‌weaknesses.” Ningi ‌also disclosed it had taken a short position‍ in CCC shares, meaning it profits if‍ the stock price declines.

Short selling carries notable risk; unlike conventional investing where losses are limited to the initial deposit, short sellers can ⁣face perhaps unlimited losses if⁤ the stock price rises. for⁣ example,if a short seller is forced to ‍buy back shares at a higher price than they initially⁣ sold them for,substantial ‍losses ⁢can occur. The text illustrates ‌this with a hypothetical example: buying back 1000 shares for $150 million after initially selling them, resulting in a $50 million loss.

According ⁣to the Polish⁤ financial regulator’s registry,short positions in CCC shares represented 5.8 percent ⁣of shares outstanding. These “shorting”⁢ activists investigate companies and‌ aim to profit from negative news ‍impacting stock prices.

However, some analysts downplayed the significance of Ningi’s findings. Lukasz Wachelko of Wood & Co.⁤ told Bloomberg that the⁣ disputed sales represent a small fraction of CCC’s total ⁢sales of⁤ 10.7 billion zlotys in‌ the ‌12 months ⁢ending⁤ July 31st.‍ He believes⁢ the report is “too alarmist” and that the market should stabilize ⁤if CCC provides a comprehensive description.

This isn’t the first time a Polish-listed company has been targeted by a short seller. In 2023, shares of clothing company LPP (owner of brands like Reserved and ​Sinsay) fell 36 percent after Hindenburg Research accused the ⁢company of⁤ “fraud”⁤ regarding its⁤ withdrawal from​ Russia. It took until the following month for LPP’s share price to recover to pre-report ‍levels, despite the company strongly denying the allegations.

CCC ⁤was founded ‌by Dariusz Milek in ⁢1996 and has grown into​ one of Europe’s largest shoe retailers, operating approximately 1,200 stores across 23 countries. Milek stepped down as executive director in 2019, joining the supervisory board before​ returning to ⁣lead the company⁣ in mid-2023. He inherited a business struggling with an overextended⁤ expansion into Germany⁤ and the lingering‌ effects of the COVID-19 pandemic. ⁤Instead of⁣ cost-cutting, Milek focused on capitalizing on demand from price-sensitive consumers in Eastern Europe for branded goods with higher ⁤margins.

This strategy appears to ⁢have been accomplished, with CCC shares rising⁢ 201 percent in 2024 and rejoining Warsaw’s WIG20 benchmark stock ⁢index in March after a two-year absence.