Management suspends relationship with Chinese supplier after report by Gotham City Research.
Tile Shop Holdings Inc., a low-profile Plymouth company thrust into Wall Street controversy, regained on Friday some of the 40 percent in market value it lost Thursday after a short-seller’s report crashed the stock.
Tile Shop share rose 12 percent Friday to $14.50 per share on volume of 20.1 million shares — 25 times average daily volume.
Friday’s volume was slightly higher than that of Thursday, when investors dumped Tile Shop shares after institutional short-seller Gotham City Research accused Tile Shop management of cooking its books and suggested too cozy a relationship with a Chinese supplier who is the brother-in-law of the wife of Tile Shop CEO Robert Rucker.
Tile Shop, which is using a New York communications firm to address questions, said it has suspended its relationship with the Chinese supplier and commenced a board-level investigation.
On Friday, analyst Kate McShane at Citi cut her opinion of the company and called for more transparency about the alleged conflicts surfaced by Gotham City.
Tile Shop has admitted that Rucker is the brother-in-law of Fumitake Nishi, owner of a Chinese export-promotion firm called Beijing Pingxiu.
Gotham City Research said Nishi is also a Tile Shop employee and his name appears on invoices of orders by Tile Shop to the Chinese firm.
Piper Jaffray analyst Peter Keith said in a note to investors that the flap had created a buying opportunity because Gotham City misunderstood the situation with Tile Shop’s Chinese-export partner and that Tile Shop is “one of the “better growth stories in all of retail,” according to Bloomberg News.
Gotham City noted Thursday that Tile Shop had not disclosed the supplier, which it found by examining government trade data. The short-seller, which makes money when the stock of a target company declines, speculated that the cozy relationship may be contributing to a rise in the company’s inventories, which have grown faster than sales.
Tile Shop said it was not aware of some of the information revealed by Gotham’s report and had suspended relations with Beijing Pingxiu.
Tile Shop’s market capitalization was valued at about $740 million at the close of trading on Friday.
Neal St. Anthony • 612-673-7144