Consumer Products

The Mr. Dumas Accounting Award: Fuqi International (FUQI, MOV, JADE, ZLC)

Fuqi International Inc. (NASDAQ: FUQI) got killed last night and things are not looking bright this morning.  The Chinese jewelry designer found “accounting errors” which led to overstated profits for the first three quarters in 2009.  And for the quarter, its revenue and earnings were short of estimates.  The good news is that the range taken off earnings for the three quarters was listed as a range of $0.15 to $0.19 off of the $1.66 for that combined period.  The bad news is that the bad news looks more recent than farther back: fourth quarter earnings range was put at $0.24 to $0.28 EPS versus a prior range of $0.55 to $0.60; revenue was put in a range of $175 to $180 million versus a previous range of $182 to $191 million.

This came on the same day that Movado Group Inc. (NYSE: MOV) was hit on a poor outlook and it also seemed to at least have some after-hours impact on LJ International Inc. (NASDAQ: JADE).  Too bad that Zale Corporation (NYSE: ZLC) didn’t help lift any of these companies as its stock continued to recover with big additional gains yesterday.

The company noted that an internal investigation showed the cost of sales had been artificially low in the first three quarters last year.  That means that its profits and its net income for the three quarters were artificially higher as well.  The problem is that the accounting errors were not clarified, and to boot the company had to delay its annual report filing.

Even the Chinese are buying cheaper products, it is up to you if you want to believe the CEO comments that some customers were delaying orders for the Chinese New Year.  It seems like the delays and slowdown in China is much more than a brief period.  Lower margins were brought on by lower-priced and less profitable products, go figure.

Fuqi shares were down almost 30% last night to under $14.00 versus an already volatile 52-week trading range of $3.65 to $32.68 and versus a $19.00 closing price Tuesday.  Its market cap before factoring in the drop in value on Wednesday was about $524 million.