The Market Saw Weakness in Tile Shop's Earnings But May Have Missed Something Important

By the way the market reacted after Tile Shop Holdings, Inc. (NASDAQ: TTS) reported second-quarter earnings on July 18, one would think the company reported awful, bad, horrible news: maybe a big quarterly loss, an unexpected drop in sales, or even more of the problems which plagued the business under founder and former CEO Bob Rucker.

Yet none of these things happened: no scandal, and sales were up 6.2%, while earnings per share increased 15%. So what exactly led to the huge sell-off?

Tile Shop's sales were improved, but they fell short of the expectations set by Wall Street analysts. Furthermore, Tile Shop management also reduced parts of its full-year guidance. This likely produced a compounding effect, leading to the big drop in the stock price post-earnings, particularly if short sellers took the earnings results as a cue to short the stock even further post-announcement; with short interest up in recent weeks, this is a real possibility.

Source: Fool.com