Closed my Tile Shop position

When I originally shorted Tile Shop, I was hoping that some massive Crazy Eddie-type accounting fraud would be uncovered.  (Let me be clear: I really have no idea if accounting fraud is happening.)

Gotham City’s research seemed to have “smoking gun” evidence that pointed towards fraud.  On Jan. 27, the company issued a press release regarding the results of its internal investigation.  My interpretation is that the company is saying that Fumitake Nishi (the CEO’s brother-in-law) was secretly taking kickbacks.  Tile Shop’s version of events is highly plausible.  This kind of thing does happen in the retail world.  For example, an Aeropostale executive was convicted of taking kickbacks according to Reuters.  This is not good for the short thesis.  Short sellers want to see evidence of accounting fraud, not kickback fraud.

In any case, fraud or no fraud, I think that the underlying business is highly profitable.  Currently, I don’t think that it’s a good idea to short the stock even if Nishi was setup to be the fall guy and that there actually is accounting fraud occurring (or if Nishi really did take kickbacks and there is accounting fraud going on at the same time).  The large number of Tile Shop stores suggests that Robert Rucker is a really good retail CEO.  As well, Rucker’s ex-wife won a lawsuit where Rucker was accused of hiding Tile Shop’s profitability.

Tile Shop was a short-term trade that worked out well for me.  I see no reason to continue shorting TTS.

*Disclosure:  No position in TTS.

5 thoughts on “Closed my Tile Shop position

  1. Pingback: Google Trends | Glenn Chan's Random Notes on Investing

  2. I sincerely understand: who can I give information of important detail regarding the internal repeat of passing the buck. With indeed a constant fall back person? Regards

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