Cettire’s stock rockets as auditor signs off on financial accounts, revenue treatment

The luxury online retailer’s shares surged 71 per cent after auditor Grant Thornton signed off on its 2024 financial accounts following a detailed review.

Cettire runs a drop-shipping model where products are dispatched from suppliers directly to customers.

Cettire’s shares have surged to almost four-month highs after auditor Grant Thornton signed off on its 2024 financial accounts, following a detailed reassessment of the luxury online retailer’s revenue treatment.

Grant Thornton declined to green-light Cettire’s full-year accounts last month, given the audit firm was conducting a more granular review of how the company books revenue.

The auditor provided an unqualified audit opinion on Tuesday, however, signing off on the accounts after taking more than three extra weeks to thoroughly reassess how Cettire recognises revenue.

Cettire’s shares surged almost 79 per cent to $2.38 on Tuesday, the highest close since late May, as investors cheered the audited accounts. But the stock remains among the top 10 shorted ASX names, according to the Shortman website, reflecting concerns about Cettire’s financial accounts and its opaque wholesale supplier model.

The audit report said Grant Thornton assessed the “design and implementation” of relevant controls relating to how Cettire recognised revenue, and also challenged management and an external expert on the practice.  The Australian this month revealed a second accounting firm was drafted in to provide advice on how Cettire recognised ­revenue.

Cettire relies on a drop-shipping model where goods are delivered directly by the supplier to the customer, meaning the company doesn’t typically hold inventory. Cettire recognises revenue as a principal rather than agent, an aspect of the accounts the auditor wanted to test.

Even as it signed off on the accounts, Grant Thornton’s report noted the drop-shipping model was a “key audit matter” due to the judgments involved in Cettire’s assessments, the number of daily online transactions and arrangements with suppliers.

Other key audit matters highlighted by Grant Thornton were Cettire’s reporting of more than $27m in intangible assets as at June 30, and the company’s treatment of customs duties and import taxes. The auditor said it engaged “internal and external experts” to review the complexities of customs and duties laws and spot-check a sample of Cettire’s transactions.

That followed controversy around how Cettire was applying duties to transactions and classifying items, and whether the levies were equal to what a customer was charged through its website. Cettire has since changed its disclosures to customers around the levying of customs and duties charges.

In Cettire’s annual report, chairman Bob East acknowledged “significant volatility” in the company’s shares, particularly in the latter half of the fiscal year. “While the potential reasons for this volatility are varied and in many instances out of our control, I want to reassure shareholders that the management team is wholly committed to executing its strategy to drive increasing value,” he said.

Mr East also noted that as Cettire grew its business its “for-for-purpose” governance practices would evolve, adding that board composition and size had been a focus area.

Cettire’s profit fell to $10.47m in the 12 months to June 30, compared to $15.97m in the prior corresponding period, reflecting challenging retail conditions and higher marketing expenses. Last month, the company noted sales in July and August were tracking about 20 per cent above the same months a year earlier, but that still left investors jittery given the trajectory fell short of expectations.

After the softer annual results, Cettire founder Dean Mintz early this month took advantage of the sharp decline in the company’s share price to scoop up $15.8m of stock in on-market trades.

Mr Mintz’s buying of Cettire’s stock came after he sold about $127m worth of his holding in early March at a price of $4.63. This followed him offloading about $207m worth of his stake in three transactions between March 2022 and August 2023, raising questions among some fund managers about the outlook for the stock.

Cettire also gave an update on its board on Tuesday. The company announced it had appointed Caroline Elliott – former chief executive of retail group Propel and former KOOKAI Australia operating boss – as a non-executive director.

Ms Elliott is also on the board of ASX-listed Kelsian Group and is chair of the National Film and Sound Archive of Australia. Her appointment takes the tally of non-executive directors on Cettire’s board to five, and follows investment banking stalwart Jon Gidney joining in July. Cettire employs about 70 staff.