Tile Shop Responds to Allegation of Inflated Earnings

Tile Shop Responds to Allegation of Inflated Earnings

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Tile Shop was one of the market's biggest losers on Thursday, dropping nearly 39% to close at $12.95 a share. The stock sank after news broke that the specialty tile retailer allegedly inflated its fiscal 2013 earnings. Investment company Gotham Research publicly released a report today that claims Tile Shop pumped up earnings by as much as 200% this year by buying goods at cost from one of its largest suppliers.

The company in question is China-based Beijing Pingxiu, which according to reports is controlled by Fumitake Nishi, the brother-in-law of Tile Shop CEO Robert Rucker. If the family affair is true, Tile Shop would likely be forced to restate historical earnings results.

Tile Shop responded to the allegation after the market closed on Thursday, saying in a press release that the company "adamantly denies these allegations and believes that the financial statements are properly stated and its business practices are appropriate." However, the Tile Shop also specified that it has since "suspended its relationship" with Beijing Pingxiu, and will continue to investigate this situation going forward. Shares of Tile Shop current have a short interest of more than 8%, according to Finviz.

The article Tile Shop Responds to Allegation of Inflated Earnings originally appeared on Fool.com.

Fool contributor Tamara Rutter has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Tile Shop Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.