MILAN – Brunello Cucinelli on Thursday afternoon firmly rejected allegations of irregularities in the company’s business activities in Russia. This, however, was not enough to avoid a sharp decline in its shares on the Italian Stock Exchange.

Trading was suspended earlier in the day and, after resuming, shares closed down 17.28 percent to 85.08 euros.

In a statement, the Solomeo, Italy-based luxury company said it is in full compliance with European Union regulations regarding operations in the Russian market. This was in response to media reports circulating earlier in the day triggered by Morpheus Research, which holds a short position in Brunello Cucinelli.

The hedge fund published a report based on a three-month investigation “involving interviews with former Cucinelli employees and partners, an extensive analysis of trade data, and visits to Cucinelli’s Russian stores.” This led to doubts “on Cucinelli’s claims,” and the fund “reveals that Cucinelli has misled shareholders. We found that Cucinelli continues to operate several stores in Moscow with a wide offering of items priced at thousands of euros.”

In addition, the report highlights “that Cucinelli has resorted to aggressive discounting to manage bloated inventory that dwarfs direct peers, with items ending up in stores like TJ Maxx, risking dilution to the brand’s exclusive positioning.”

In response, in the statement Cucinelli clarified that the share of the Russian market in its turnover “has decreased by more than two-thirds compared to 2021,” and now accounts for about 2 percent.

“The value of exports to our Russian subsidiary has fallen from 16 million euros in 2021 to 5 million euros in 2024, figures that are available annually in our financial statements.”  The figures are seen as providing “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,” it said.

After Russia invaded Ukraine in 2022, the EU prohibited the export of luxury goods over 300 euros to Russia, which led many luxury brands to close their stores in the country.

Cucinelli’s statement went on to underscore that the Italian Customs Agency’s inspections “have confirmed full compliance with procedures, and no reports from foreign customs authorities have been received that could suggest any commercial triangulation.”

Cucinelli’s conscious decision was to maintain its local structure in Russia when the country invaded Ukraine in 2022 to “ensure full salaries for employees and salespeople and honoring lease contracts, as we have always done worldwide, even in extraordinary circumstances.”

A customer assistance service within Cucinelli’s showroom is available upon request and provided by the staff, and the products “are those legally shipped to Russia within the limits set by the European Union, along with the residual inventory delivered prior to the introduction of sanctions. This enables us to locally generate the resources needed to sustain salaries and rents.”

The Morpheus Research report alleges that, “in addition to selling through its own Russian stores, Cucinelli also sells through high-end stores like Tsum, controlled by Russian luxury conglomerate Mercury Group, which appears to be supporting Cucinelli’s growth in the region in spite of EU sanctions.”

Cucinelli’s statement clarified that operations with wholesale multibrand structures remain active, but “in full compliance with EU regulations, supplying them only with the portion of the collection permitted within the established value limits.”

The company is considering legal action to protect its reputation and the interests of its stakeholders, concluded the statement.

Morpheus Research’s allegations follow similar ones reported by Pertento Partners, which also holds a short position in Brunello Cucinelli, during the summer.