It was delivering on the story of soaring – and profitable – growth as cashed-up pandemic consumers grew comfortable buying luxury fashion online.

But its Cinderella story contrasted starkly with failing rivals such as FarFetch in a sector surviving on low profit margins.

The success story came under significant pressure early this year when reports started questioning how Cettire was actually making money.

Duty arbitrage was nominated as a culprit for its success. Selling online – and mostly outside the European Union – means Cettire can exploit loopholes in trade regulations that would otherwise require it to pay value-added tax (VAT) in the EU, or duty on goods delivered to the US, which is its largest source of business.

But controversy raged over reported discrepancies in what duties it charged customers and how much of this was actually paid to the authorities – especially in the US, its major market.

Was Cettire making money by charging customers duties that were then pocketed?

In its response to the allegations, Cettire said: “All applicable duties and other import charges are paid to the relevant authorities at the point of customs clearance.” It denied it was overcharging customers.

But Cettire made a key change in no longer separating out what it charged customers for duties.

A shock downgrade in June, which halved Cettire’s share price, confirmed that the retailer was no longer defying gravity in a market flooded with discounting by the group’s rivals on one side – and softening consumer demand on the other.

It didn’t help that this coincided with scrutiny of its duty payments, raising doubts as to which was to blame.

Then came last month’s financial results.

Its shares plunged back to multi-year lows after it failed to get its financial accounts audited due to revenue recognition issues. It barely made money for the June quarter and conditions were expected to remain tough into the current quarter.

Shares that were worth $4.90 as recently as February plunged to a low of $1.01 within days, with tough market conditions forecast to continue into this financial year.

Reclusive founder and chief executive Dean Mintz wants investors to believe that its worst financial crime is one of fashion victim – as luxury brands such as Acne Studio and Victoria Beckham discount directly to customers – the latter offering discounts of up to 60 per cent.

“Some of the particularly unusual things that we saw in spring/summer ’24 was brands themselves doing heavy discounting on their own websites,” Mintz told analysts and investors on the group’s conference call.

But he held out the potential for the brutal end of the spring/summer sales season would give way to a more sober winter – a hint that this is temporary and Cettire’s normal trajectory will resume with a balance of significant profitable growth.

But as twitchy investors are aware, the truth could be far worse. Let’s get back to the unaudited accounts.

Cettire said last month that the audit was “progressing”, with accounting firm Grant Thornton reviewing whether the company should not recognise all the money it received from customers as revenue. The argument is that it acts as an agent for the fashion distributors – who do the physical handling of the sale – and Cettire should not include their cut of the proceeds.

It would mean its reported revenue would drop, but no other significant financial indicators, it told the ASX.

“It would not impact reported earnings nor cash flows nor represent a change in the legal basis for the Group’s contractual relationships with suppliers and customers,” Cettire said.

It invites the obvious question: if it makes no substantive difference, why hold up the audit on this point?

Cettire did not provide an explanation, but others have.

Critics like the blogger, known as TaxLoss, have speculated that it could mean Cettire will have to offer more detail in its financial accounts - like how much money it generates from product returns and more importantly, duties.

This would clarify whether Cettire is reliant on duties arbitrage, and returns fees, for its bottom line, as claimed by short sellers and other critics.

Cettire certainly did nothing to clarify the issue when RBC analyst Wei-Weng Chen tried to address the “elephant in the room” and asked about the duties issue directly with Cettire at its earnings conference call.

His query was simple: did Cettire automatically passed on all duties charges it raised from customers to the relevant authorities.

Cettire’s chief financial officer Tim Hume made the distinction between charges like GST and VAT - where there is an obligation to remit the money raised to the relevant authorities.

“Duty, by nature, is a bit different,” he responded.

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It created a field day for the short sellers who profit from any fall in a company’s share price. They were well prepared for a disastrous financial result with around 10 per cent of Cettire’s shares sold short in the lead up to the announcement.

To give an idea of how much this has enraged Cettire’s management, the retailer revealed in its accounts that it had spent more than $900,000 on “short campaign costs” in a matter of months to combat the short sellers.

While the effectiveness of this campaign is questionable, Mintz played his own trump card as the stock threatened to drop below $1.

Mintz, who has quickly extracted more than $330 million from the business via share sales - including as recently as February this year when he sold $172 million worth of stock at $4.63 - started buying shares.

He ended up spending just $15.8 million, but sent the stock soaring as he paid as much as $1.66 a share.

It was a classic short squeeze. Any short sellers would have been forced to buy the soaring stock to cover their positions or risk making a loss on the trade thanks to the share price spike.

It might be keeping Cettire’s shares buoyant in the near-term, but it will do little to convince the sceptics like Ron Shamgar, head of Australian Equity Strategies at TAMIM, who sees so many red flags with its business model, auditor issues and massive insider selling.

He has no financial interest in Cettire, but he posted a tweet last week putting Cettire in the same basket as stock market failures like Big Un and iSignthis.

“My gut feel is Cettire $CTT is eventually a zero,” he tweeted. “My prediction is ASX suspends stock next 12 months or much sooner.”

LHC Capital, a former fan of Cettire - also took Mintz’s recent sale as a warning signal and sold all their shares at a massive profit before the signs of trouble sent its shares plunging.

“It is difficult to view this as anything other than a red flag,” LHC said in April of Mintz’s share sale in March which quickly prompted its exit from the stock.

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