Tommy Hilfiger Shares Tumble on News of U.S. Probe

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 at J.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 the New 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.