News

Audit gives clean marks to Tile Shop

BY HBSDEALER Staff

After a months-long investigation into allegations over undisclosed relationships and inflated earnings, an independent audit committee has found no evidence suggesting that The Tile Shop misstated its financial records, though ethics policy violations on behalf of the CEO’s brother-in-law has earned him the boot.

The retailer has been subject to scrutiny since November, when shortseller Gotham City Research issued a report stating that Fumitake Nishi, the head of its largest supplier, Beijing Pingxiu, was the brother-in-law of Tile Shop CEO Robert Rucker, as well as a Tile Shop employee. Furthermore, Gotham City alleged that this covert relationship had resulted in earnings reports that were overstated by more than 200%, due in part to an artificial cost advantage.

“I am naturally extremely disappointed to learn of the nature and extent of the previously undisclosed relationships that Mr. Nishi maintained with our vendors," said Rucker in a company statement. "Our senior management team has had direct and pointed conversations with our vendors about this situation. We believe that by working together we will implement better practices to safeguard against any of these situations recurring in the future.”

The committee confirmed that Nishi was related to Rucker and was working for The Tile Shop, having acquired BP in late 2011. It was also found that Nishi had been operating an undisclosed "reseller" model whereby BP would take title to product and resell it to The Tile Shop. There was no evidence that The Tile Shop overpaid or underpaid vendors through its relationship with BP.

Additionally, there was no evidence that The Tile Shop had misstated its inventories or its cost of goods.

However, Nishi was also found to have acquired a majority ownership interest in Nanyang Helin Stone Co., a Tile Shop vendor, in 2010. He also received payments totaling approximately $1.1 million in his personal bank account from representatives of certain vendors in exchange for consulting services.

“The investigation took longer than we anticipated, but because of the diligence of the process, our company will be stronger in the future," added Rucker. "We have reexamined our business practices and have initiated the implementation of new procedures to better manage and control our vendor relationships. With that said, our entire organization can now re-focus its efforts on growing this company as we continue to build out our national network of stores in a profitable manner.”

As a result of the investigation, The Tile Shop is no longer working with BP as of Dec. 1, 2013. Additionally, Nishi’s employment was terminated effective Jan. 1 for multiple violations of the company’s business ethics policy. He will be held liable for any money he earned from third-party sources during his employment. The Tile Shop will continue working with Nanyang provided it end its involvement with Nishi.

New procedures, mentioned above by Rucker, include creating a new export trading company operated by Tile Shop employees to identify and control vendor invoices and relationships, installing multiple points of contact with vendors, rotating primary vendor relationships every 24 months, and reorganizing purchasing oversight responsibilities.

The investigation was conducted by Dorsey & Whitney, an independent counsel to the audit committee.

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

TRENDING STORIES

POLLS

How much credit should be given to the co-op business model for the success of the independent hardware and building supply dealer over the last half century?
News

Consumer confidence back to summer ’13 highs

BY HBSDEALER Staff

Consumer confidence rebounded to 80.7 in January, its highest level since August of last year, according to the Conference Board. Confidence had rebounded in December as well to a downwardly revised figure of 77.5.

“Consumer confidence advanced in January for the second consecutive month,” said Lynn Franco, director of economic indicators at The Conference Board. “Consumers’ assessment of the present situation continues to improve, with both business conditions and the job market rated more favorably. Looking ahead six months, consumers expect the economy and their earnings to improve, but were somewhat mixed regarding the outlook for jobs. All in all, confidence appears to be back on track and rising expectations suggest the economy may pick up some momentum in the months ahead.”

Specifically, the Present Situation Index increased to 79.1 from 75.3. More consumers assessed business conditions as "good," while fewer decried them as "bad." A similar shift in attitudes toward the availability of jobs was also recorded.

Meanwhile, the Expectations Index was up from 79.0 in December to 81.8 in January. Those expecting business conditions to improve over the next six months were virtually unchanged at 17.4%, but those expecting them to worsen decreased to 12.1% from 13.9%. Fewer consumers expected more jobs in the months ahead, but fewer expected a decrease in jobs availability as well. Those expecting their incomes to increase rose to 15.8% from 13.9%.

In the fall, the partial government shutdown had catalyzed a momentary dip in sentiment, but with confidence back in the 80s, the metric is hovering near pre-recession highs.

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

TRENDING STORIES

POLLS

How much credit should be given to the co-op business model for the success of the independent hardware and building supply dealer over the last half century?
News

HCN Stock Watch: Trex goes low

BY HBSDEALER Staff

Trex was down by the greatest percentage on Monday at 4.06%; share prices for the company have dropped roughly $5 since last Thursday.

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

TRENDING STORIES

POLLS

How much credit should be given to the co-op business model for the success of the independent hardware and building supply dealer over the last half century?