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CHICAGO – Shares of Tommy Hilfiger Corp. (TOM) fell as much as 26 percent on Monday after a federal grand jury subpoenaed documents on commissions paid to a foreign subsidiary of the clothing maker.
The investigation focuses on whether the commission rate was appropriate, the company said in a news release late on Friday.
“We expect Tommy Hilfiger shares to … remain under pressure until more clarity on the investigation is available,” Noelle Grainger, analyst atJ.P. Morgan Securities (search), said in a research note. Grainger rates the stock “underweight.”
Analysts said that since the investigation focuses on payments between a U.S. and non-U.S. subsidiary, the focus may be whether Tommy Hilfiger was reaping an unfair tax benefit.
A Tommy Hilfiger spokeswoman declined comment.
“In our view, the most obvious reason the federal government would care about how much the U.S. parent is paying to a foreign (subsidiary) is tax,” Prudential said in a research report on Sunday. Prudential lowered its earnings estimates to reflect a 35 percent tax rate in fiscal-year 2005 and 2006 and cut its rating to “underweight” from “overweight.”
Tommy Hilfiger shares were down $2.75 or 21 percent at $10.42 on theNew York Stock Exchange (search). The stock, which was the biggest loser in percentage terms on the NYSE, hit a 14-month low of $9.75 earlier in the session.