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.

Things were bad enough that there was a press release last night from outside of the company… “Law Offices of Howard G. Smith Announces Investigation On Behalf of Shareholders of Fuqi International, Inc.”  That is generally a prelude to a class action suit, and if what we have seen recently holds up there won’t be just one of those announcements.

Fuqi is not the only jewelry player, and is certainly not the only with recent moves. .  This just happens to come on the same day that Movado Group Inc. (NYSE: MOV) fell 19% to $11.42 on a very weak outlook.

It may be unfair to tie one Asian jeweler to another, but shares of LJ International Inc. (NASDAQ: JADE) were off by about 2.5% at $2.75 in the after-hours session.  LJ or “Jade” as traders call it, is far smaller with a $67 million marker cap, a smaller daily volume and a 52-week range of $0.48 to $3.98.  Zale Corporation (NYSE: ZLC) is still recovering, but its stock was up 16.5% at $3.46 yesterday.

Fuqi is called by a different acronym than its name or ticker by many traders, and that is being demonstrated this morning.  Mr. Dumas heads to Shenzen.  So far in the early hours we have seen shares trading under $13.50 after a $19.00 close on Tuesday.

JON C. OGG