Block Extends Attack on Casino's Accounting With Questions

  • Short seller says credit rater S&P understates retailer's debt
  • Casino shares tumble on latest report before recovering

Carson Block stepped up his attack on the accounting of French retailer Casino Guichard-Perrachon SA, saying that Standard & Poor’s understated the company’s net debt.

The credit rater included the entire earnings of Casino’s Via Varejo unit even though the retailer owns 43.3 percent, and it overstated cash by 2.6 billion euros ($2.8 billion) by including cash held at investment partners, Block’s Muddy Waters LLC said in a report on its website Wednesday. S&P rates Casino debt BBB-, its lowest investment-grade level.

Block said last month Casino is using financial engineering to mask a sharply deteriorating core business. The retailer’s debt burden is dangerously high and only being managed for the short term, according to the short seller. Casino rejected the claim, saying it has a solid financial structure and that it may take legal action.

“There is nothing expressly new, but it ups the pressure on Casino,” John Kershaw, an analyst at Exane BNP Paribas, said in a note, speaking of Block’s latest report.

Casino didn’t immediately respond to requests for comment, and S&P declined to comment on the report, which was framed as 10 questions for management. Casino shares rose 0.2 percent to 40.15 euros at 4:45 p.m. in Paris, paring a 4.6 percent gain.

Casino last month forecast profitability will improve this year, predicting domestic earnings before interest and tax of more than 500 million euros in 2016.

“To throw down the gauntlet, we think it highly likely that Casino’s discounting strategy has not generated much of an increase in profitability, and that the company is using property sale gains to cover this up,” Block also said in the report.

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