Harvey Norman shares crash in X-files mystery

Open an X-file:

Gerry Harvey‘s retail operation Harvey Norman has no explanation for why its shares tanked badly on Monday.

The company was responding to a please explain notice from the ASX after its shares dropped more than 8 per cent on Monday – wiping hundreds of millions from its market cap – with no obvious explanation for the rout.

In a statement to the ASX, Harvey Norman said it was not aware of any information which could explain the recent trading.

Gerry himself should be looking for an answer given his personal wealth was down more than $100 million on the day. He even tried to shore up the share price, buying two million shares for $8.7 million and posting a notice to the ASX within hours.

Was it the smoking man? The aliens? The FBI and Amazon in an elaborate cover-up? No, it was some other scam:

It comes after the group’s chairman Gerry Harvey lashed out at short traders in an article published in The Australian this morning.

Mr Harvey claimed the retailer (HVN) had been the victim of a “potential scam” by local fund managers that had seen them work with alleged media allies to push the value of the company lower.

Yesterday’s market activity — which wiped $430 million from the group’s market cap — drew the interest of market regulator the ASX, which sent a “speeding ticket” the way of Harvey Norman following the heavy fall and a lift in volume to 3.2 times above the recent norm.

From yesterday’s Credit Suisse note that triggered the share price rout:

Scenarios for discretionary retail

We examine a number of scenarios for the retailers under coverage. The scenarios are discussed in detail in a subsequent section. We use a somewhat arbitrary five-year timeline for analysing retailer impacts. It is likely that Amazon’s maturity profile will be significantly shorter in Australia than in the US, Canada and UK due to the more advanced stage of online shopping generally and Amazon’s more developed capability. Our ‘Low impact’ scenarios assume that the scenario companies are winners in consolidation of store-based retail activity. Our ‘High impact’ scenarios assume that the scenario company market shares contract in line with the overall store-based channel.

For HVN, the impact of Amazon on group EBIT is mitigated by product range and business outside of Australia. For PMV, the impact of Amazon on group EBIT is mitigated by the growth of Smiggle outside of Australia.

Seems fair enough to me.