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Tile Shop Drops as Much as 30% After Short Seller Issues Report

Tile Shop Holdings Inc. (TTS) shares plunged after short-seller Gotham City Research LLC said the home-improvement company used improper accounting to inflate earnings.

Tile Shop lost 28 percent to $15.22 at 12:07 p.m. in New York after falling as much as 30 percent, the most ever. Shares of the Plymouth, Minnesota-based company are worth as little as $1.54, a 93 percent decline from yesterday’s close, according to the report from Gotham City posted on its website today.

Tile Shop exerts control on its suppliers, which sell goods to the company at or near cost, helping it increase profit margins, the report from Gotham City said. Two phone calls and an e-mail to Tile Shop’s investor relations office seeking comment on the report weren’t immediately returned.

Research firms, such as Gotham City and Muddy Waters LLC, have targeted companies with Chinese operations to profit from accounting investigations that claim to uncover fraud. The companies and their clients borrow shares and sell them with the aim at buying the stock back at a lower price and pocketing the difference. Gotham City said in the report that it will make money from a retreat in Tile Shop.

Short sellers increased bets against Tile Shop to a record high of 13 percent of shares outstanding on Nov. 12. Bearish wagers on the stock rose from a low of 0.1 percent in June, according to data compiled by Markit, a London-based research firm. The average short interest for a company in the Russell 2000 Index is 4 percent.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Matthew Kanterman in New York at mkanterman2@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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