- A day after SA author Mithra Forensic Research asserted Vipshop (NYSE:VIPS) "has manipulated sales, receivables, profit and other asset accounts" (among other things), the Chinese online retailer has responded (in a statement that echoes responses from other firms facing similar accusations) by declaring it believes the allegations "are unfounded and contain numerous errors, unsupported speculation, and a general misunderstanding of the Company's business model."
- Among Mithra's accusations: 1) Vipshop's inventory figures suggest the company improperly accounts for consignment goods (boosting gross margin). 2) Revenue is reported on a gross basis in spite of consignment arrangements. 3) The company "may have grown its 2014 gross profit by $573M by possibly diverting funds to related parties to be used to transact fake sales." 4) Op. cash flow growth is driven "not by earnings, but by significant growth in both accounts payables and accrued expenses as a result of not paying its bills."
- Vipshop argues its gross revenue accounting is proper, that it uses an "appropriate" weighted-average-cost method to account for inventory held on consignment, and that its receivables growth isn't due to related-party transactions, but higher deposits and VAT receivables.
- Shares are rallying ahead of this afternoon's Q1 report. They sold off yesterday following Mithra's report; several other Chinese Internet names were also lower.