(Bloomberg) -- Greek retailer FF Group’s shares slumped 30 percent on Friday after a hedge fund said it was shorting the stock because its Folli Follie chain may only have half the reach outlined in its last annual report. The company refuted the claim.
Quintessential Capital Management told a conference in New York on Thursday that Folli Follie may be operating 289 outlets, compared with a tally of 630 outlined in financial statements to the end of 2016, prompting the shares to slump the next day.
“The findings are staggering," the New York-based fund’s founder Gabriel Grego told delegates at the event. Sales in Asia, which FF Group says accounts for as much as 68 percent of revenue, “are probably a small fraction of what it looks,” he said.
FF Group responded on Friday that QCM’s report is “false, slanderous and misleading” and that it was considering legal action.
"The company has already instructed its legal advisers to proceed with all necessary measures they deem appropriate in order to protect the rights of the company, its shareholders and the public against any civil and/or criminal matters,” it said in a statement on the Athens stock exchange.
Folli Follie was founded by Dimitrios Koutsolioutsos in 1982. He retains a 35 percent stake in the business and chairs the board of directors, while his son George is chief executive officer. The company started a push into Asian markets in 1998 and China’s Fosun International Ltd is its second-largest shareholder with a 13 percent stake, according to data compiled by Bloomberg.
QCM is a long-short equity fund based in New York with less than $50 million under management. In October 2015, it published a report on Globo Plc, a software company based in Athens and listed in London, claiming that at least 60 percent of the company’s sales were fabricated. The report, initially refuted by Globo’s top management, led to the resignation of the chief executive and financial officers and the collapse of the company days later.
QCM’s research on FF Group, based on months of phone calls and site visits, points to a company with “decreasing revenue, network size and cash balances," the fund said in a statement on its website published after the presentation.
Oceanwood Capital Management, a London-based hedge fund, also said on Friday it has been betting against the company for the past two years.
“Our analysis leads us to believe that the working capital is disproportionately high versus sales,” Julian Garcia Woods, a partner at the fund, said in an interview. “During the full-year results last week, we directly questioned the company on details related to these issues but they were not able to address our concerns.”
FF Group didn’t immediately respond to a request for comment about a second fund taking a short position.
Cumulative earnings over the last seven years were about 1.6 billion euros ($1.9 billion) alongside negative free cash flow of 6 million euros, according to data compiled by Bloomberg. Revenue for 2017 was 1.4 billion euros. FF Group has 613 million euros of debt, including 250 million euros of bonds due July 2019 and 150 million Swiss francs ($150 million) of notes due November 2021.
The 2019 bonds fell 41 cents on the euro on Friday to about 54 cents, according to data compiled by Bloomberg.
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