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Compass Diversified (NYSE: CODI), parent of Newport Beach-based Lugano, announced it would be restricting investment in the local company following an internal probe into the luxury jeweler’s financing, accounting, and inventory practices.
Shares of Compass dropped over 17% to around $6.20 apiece during after-hours trading.
The Westport, Connecticut-based operator also said it has “suspended the quarterly cash distribution historically paid to common shareholders in order to preserve cash and protect long-term value” among efforts to enhance liquidity and reduce costs.
“Our structure and diversified business model give us the flexibility to help isolate and ring fence the challenges at Lugano while continuing to support the growth and execution of our healthy businesses,” Compass Chief Executive Elias Sabo said in a statement.
Lugano reported a 53% jump in sales to $470.7 million in 2024. Compass said it has “preliminarily identified irregularities” in the jeweler’s financials.
Compass Diversified, with a market cap of $566 million, said its eight other subsidiaries should be “positioned to grow in their respective markets.” One of those units is Costa Mesa-based 5.11, an apparel maker with more than 120 stores.
Lugano co-founder and CEO Moti Ferder resigned on May 7 amid the investigation. His wife and co-founder Idit Ferder also exited the company.