TheChek News Flow

Shares in the members’ clubs group plunged after GlassHouse alleged it had ‘terrible accounting’

Members club group Soho House said that its biggest shareholders are considering taking the New York-listed company private, in response to a short seller report that described its 2021 public listing as being “eerily similar” to that of bankrupt co-working company WeWork.

Soho House said on Friday that a special committee of the board had begun to evaluate “certain strategic transactions, some of which may result in the company becoming a private company” in the autumn. The group added that there were “no assurances” that the review would result in a transaction.

The announcement that Soho House — whose controlling shareholder is American retail billionaire Ron Burkle’s Yucaipa investment vehicle — has been considering a return to a private company comes just days after New York-based short seller GlassHouse published research criticising the group.

Soho House’s share price fell by 19 per cent in intraday trading on Wednesday, but after the announcement on Friday morning, the stock bounced back to approaching $6, close to its price before the short report was published.

Soho House — which operates 41 members clubs worldwide with more than 250,000 members, and whose brands also include the Ned — went public in 2021, floating 18 per cent of its stock on the New York Stock Exchange to much fanfare. But the share price has struggled since, tumbling around 60 per cent from its listing price of $14.

In a Securities and Exchange Commission filing, Soho House said that it “fundamentally rejects” the short report, which accused the members’ club group, founded by British hospitality veteran Nick Jones in 1995, of being “a company with a broken business model and terrible accounting”.

The GlassHouse report “contains factual inaccuracies, analytical errors, and false and misleading statements, all designed to adversely impact the company’s stock price for the benefit of the short seller”, Soho House added.

In its report published on Wednesday, GlassHouse criticised Soho House for having a growth strategy reliant on expanding into less affluent cities, such as São Paulo, for failing to turn a profit in its 28-year history and for overcrowding at its venues that hurt customer satisfaction.

The short seller also took issue with Soho House’s “mountain” of debt maturities, with $607mn coming due in 2027 and the company’s “questionable accounting practices”, including a decision to pull forward millions of dollars of revenues by introducing a credits programme for new members.

GlassHouse, which describes itself on its website as “a team of forensic accountants”, began analysing Soho House’s accounts around six months ago, according to a person close to the firm.

Soho House also announced on Friday that it would commence a $50mn share buyback programme. The board — which is led by Burkle and also includes Jones and former majority owner Richard Caring — owned 74 per cent of the stock, the members club group noted. Board members “had been active purchasing shares” at an average price of around $6 a share, the company added.

In response to the announcement, GlassHouse said on X, formerly Twitter, that “Soho House rejects our report, says it has inaccuracies/errors, but does not list anything.”

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Robust results push shares of the Paris-based maker of Birkin bags to an all-time high

Top-end French luxury company Hermès showed resilience amid a slowdown in the luxury sector, carried by high demand for its coveted handbags and strong growth in ready-to-wear fashion.

Hermès said on Friday that sales in the fourth quarter of 2023 grew 13 per cent to €3.36bn — ahead of forecasts from UBS — on top of already rapid growth in its biggest markets in North America and Asia during the same period. 

“In 2023, Hermès has once again cultivated its singularity and achieved an outstanding performance in all métiers and across all regions against a high base,” said executive chair Axel Dumas. 

Shares of the maker of Birkin bags — whose price tags start at about $10,000 and cannot simply be bought by walking into a shop — rose 4.3 per cent to an all-time high on Friday to €2,165.50 per share, giving Hermès a market capitalisation of €228.40bn. Most luxury groups’ shares have pared back from record highs since last spring as investors queried the sector’s future growth prospects after a multiyear boom, but Hermès has defied the trend and reached new peaks.

Sales for the year reached €13.43bn in 2023, up 16 per cent at current exchange rates compared with 2022, while net profit hit €4.31bn, up 28 per cent. The pace of growth for the year was slower than the 23 per cent increase in revenues achieved in 2022 as the luxury sector slowed from a multiyear pandemic era boom. 

The group had strong growth across all geographic regions, defying concerns about economic pressures on US and Chinese buyers. “We are very confident about the Chinese market . . . and see no interruptions in US trends,” Dumas said.

Hermès plans to increase leather goods production, its biggest source of revenue, by between 6 and 7 per cent this year. The company’s limited production capacities mean that demand for its bags outstrips supply — reinforcing their exclusivity but frustrating clients at times.

Dumas also said the company planned to increase prices by as much as 9 per cent in 2024, up from 7 per cent in 2023, reflecting higher production costs and currency fluctuations.

Hermès has established itself as one of the most reliable performers in the luxury industry, with its super high-end positioning and carefully managed production helping it to outperform even in tougher markets.

The company’s 2023 results reinforce the trend that groups with more upscale positioning in the sector — including Brunello Cucinelli and LVMH as well as Hermès — are achieving a soft landing with resilient growth, compared with groups that have a more aspirational clientele, such as Burberry and Kering, which have struggled. 

“Hermès powers on and beats both quarterly and full-year consensus,” said Luca Solca, analyst at Bernstein.

“Importantly leather goods is ahead and double digits in the quarter, defying the usual end of year lull . . . Hermès is yet another company to confirm reviving momentum of the American consumers, on the back of resurgent confidence and lower inflation,” he added.