In a press release, Gotham City Research LLC issued a report stating, "the Company's largest supplier, Beijing Pingxiu (“BP”), is an undisclosed related company secretly controlled by Fumitake Nishi, the brother-in-law of the Company's CEO and a Tile Shop employee; Tile Shop uses BP to overstate inventories, understate cost of sales and overstate gross profits; BP sells goods to the Tile Shop at or near cost to allow Tile Shop to achieve an artificial cost advantage; and Tile Shop's 2013 LTM earnings are overstated by over 200%."
Peter Keith, Piper analyst, noted that the Tile Shop "confusion and misunderstanding" creates a buying opportunity for investors. Keith added that the Gotham City Research author likely misunderstood Pingxiu's role in the sourcing supply chain, as he does not negotiate prices or hold inventory.
Tile Shop's shares closed at $12.95 yesterday after plunging 39 percent following Gotham City's allegations. The stock is currently trading -14.21 percent.
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