TTS Tile Shop Holdings Inc

5.7% Comparable Store Sales Growth17.0% Operating Income Growth21.9% Net Income Growth19.4% Adjusted EBITDA Margin and 9.4% Adjusted EBITDA Growth Diluted Earnings per Share of $0.09, growth of 28.6% Non-GAAP Diluted Earnings per Share of $0.10, growth of 25.0%

Tile Shop Holdings, Inc. (NASDAQ:TTS) (the “Company”), a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories, today announced results for its third quarter ended September 30, 2016.     Net sales grew 8.5% to $78.6 million for the third quarter of 2016 compared with $72.4 million for the third quarter of 2015. The $6.2 million increase in net sales was due to a comparable store sales increase of 5.7%, or $4.1 million in the quarter and incremental net sales of $2.1 million from stores not included in the comparable store base. Comparable store sales growth was 9.7% in the third quarter of 2015.

“We are pleased to report another quarter with strong results and continued momentum for our business,” said Chris Homeister, CEO.  “Our ability to deliver sustained progress across all of our key initiatives resulted in another quarter with outstanding sales performance and significant earnings growth, as well as an increase to our full year outlook. We look forward to building upon our accomplishments as we seek a strong finish to 2016 and the continued delivery of significant growth in sales, operating margins and earnings per share in 2017.”

Gross margin for the third quarter of 2016 was 70.2% compared with 70.0% for the third quarter of 2015.

Selling, general and administrative expenses for the third quarter of 2016 were $47.4 million compared with $44.0 million for the third quarter of 2015. The $3.4 million increase was primarily driven by variable expenses associated with revenue growth and the costs associated with opening and operating new stores.

The Company opened three stores since the conclusion of the second quarter of 2016, consisting of a fourth store in the greater St. Louis, MO market in Brentwood, MO, a sixth store in the greater Twin Cities, MN market in Maple Grove, MN and a Chicago area location in Algonquin, IL, bringing the total store count in the greater Chicago market to eleven. The Maple Grove, MN opening was a relocation. As of today, the Company operates 120 stores in 31 states.

For the nine months ended September 30, 2016, net sales grew 12.0% from $221.1 million in 2015 to $247.5 million in 2016. Comparable store sales for the nine month period increased 9.0%.

Non-GAAP Information

The Company presents non-GAAP net income and Adjusted EBITDA to provide useful information to investors regarding the Company’s normalized operating performance. 

On a non-GAAP basis, net income for the third quarter of 2016 was $5.0 million compared with $3.9 million for the third quarter of 2015.  Non-GAAP diluted earnings per share for the third quarter of 2016 were $0.10 compared with $0.08 for the third quarter of 2015, representing 25.0% growth. See the “Non-GAAP Income Reconciliation” table and the “Non-GAAP Financial Measures” section below for a reconciliation of GAAP to non-GAAP pre-tax and net income.

Non-GAAP Income Reconciliation
		Three Months Ended
		September 30, 2016									September 30, 2015
								Diluted									Diluted
($ in thousands, except per share data)		Pretax			Net of Tax			Per Share Amounts			Pretax			Net of Tax			Per Share Amounts
GAAP income		$	7,469		$	4,583		$	0.09		$	6,197		$	3,761		$	0.07
Special charges(1)			725			445			0.01			162			98			0.00
Non-GAAP income(2)		$	8,194		$	5,028		$	0.10		$	6,359		$	3,859		$	0.08
(1) Shareholder and other litigation costs.
(2) Amounts may not foot due to rounding.
		Nine Months Ended
		September 30, 2016									September 30, 2015
								Diluted									Diluted
($ in thousands, except per share data)		Pretax			Net of Tax			Per Share Amounts			Pretax			Net of Tax			Per Share Amounts
GAAP income		$	29,983		$	18,190		$	0.35		$	20,295		$	11,910		$	0.23
Special charges(1)			1,827			1,108			0.02			952			558			0.01
Write-off of debt issuance costs			-			-			-			194			115			0.00
Non-GAAP income(2)		$	31,810		$	19,298		$	0.37		$	21,441		$	12,583		$	0.25
(1) Shareholder and other litigation costs.
(2) Amounts may not foot due to rounding.

Adjusted EBITDA for the third quarter of 2016 was $15.3 million compared with $13.9 million for the third quarter of 2015, representing 9.4% growth. See the “Adjusted EBITDA Reconciliation” table and the “Non-GAAP Financial Measures” section below for a reconciliation of GAAP net income to Adjusted EBITDA.

Adjusted EBITDA Reconciliation
		Three Months Ended						Nine Months Ended
($ in thousands)		September 30,						September 30,
		2016			2015			2016			2015
GAAP net income		$	4,583		$	3,761		$	18,190		$	11,910
Interest expense			363			503			1,382			2,101
Income taxes			2,886			2,436			11,793			8,385
Depreciation and amortization			5,770			5,504			16,954			16,597
Special charges(1)			725			162			1,827			952
Stock-based compensation			930			1,583			3,394			4,226
Adjusted EBITDA		$	15,257		$	13,949		$	53,540		$	44,171
(1) Shareholder and other litigation costs.

Financial Guidance

The Company is providing updated expectations for full year 2016 based on past performance, anticipated new store openings and current economic conditions.

For the full year ending December 31, 2016 the Company expects:

($ in millions, except per share data)		2016			2015
Net Sales		$324 - $327		$	293.0
Comparable Store Sales Change		mid to high single digits			7.4	%
Gross Margin % of Net Sales		approx. 70%			69.5	%
Depreciation & Amortization		approx. $23		$	22.2
Stock Based Compensation		approx. $4		$	5.5
Effective Tax Rate		approx. 40%			41	%
Special Charges		approx. $2		$	1.3
Non-GAAP Earnings Per Share		$0.45 - $0.47		$	0.32
Adjusted EBITDA		$68 - $70		$	58.4
Fully Diluted Shares Outstanding		approx. 52 million		51.3 million
New stores		approx. 10			7
Capital Expenditures		approx. $30		$	19

See the “Non-GAAP Income Guidance Reconciliation” table and the “Adjusted EBITDA Guidance Reconciliation” table on the final page of this release for a reconciliation of these Non-GAAP measures to the comparable GAAP measures.

Webcast and Conference Call The Company will host a conference call via live webcast for investors and other interested parties beginning at 9:00 a.m. Eastern Time on Tuesday, October 18, 2016. Participants may access the live webcast by visiting the Company’s Investor Relations page at www.tileshop.com. The call can also be accessed by dialing (844) 421-0597, or (716) 247-5787 for international participants. A webcast replay of the call will be available on the Company’s Investor Relations page at www.tileshop.com.

Additional details can be located in the filing at www.tileshop.com under the Financial Information – SEC Filings section of the Company’s Investor Relations page.   

About The Tile Shop

The Tile Shop is a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories in the United States. The Company offers a wide selection of high quality products, exclusive designs, knowledgeable staff and exceptional customer service, in an extensive showroom environment with up to 50 full-room tiled displays. The Tile Shop currently operates 120 stores in 31 states, with an average size of 21,300 square feet and sells products online at www.tileshop.com

Non-GAAP Financial MeasuresThe Company calculates Adjusted EBITDA by taking net income calculated in accordance with GAAP, and adjusting for interest expense, income taxes, depreciation and amortization, stock based compensation and special charges related to litigation, including shareholder and other litigation.  Adjusted EBITDA margin is equal to Adjusted EBITDA divided by net sales. Non-GAAP net income excludes special charges related to litigation costs, including shareholder and other litigation, and losses incurred in connection with the renegotiation of debt, and is net of tax. 

We believe that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations.  Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, for purposes of determining management incentive compensation, and for budgeting and planning purposes.  These measures are used in monthly financial reports prepared for management and our board of directors.  We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with other specialty retailers, many of which present similar non-GAAP financial measures to investors.

Our management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP.  The principal limitations of these non-GAAP financial measures are that they exclude significant expenses and income that are required by GAAP to be recognized in our consolidated financial statements.  In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results.  We urge investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures and not to rely on any single financial measure to evaluate our business.                                                                                                                               

FORWARD LOOKING STATEMENTS

This press release includes “forward looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995.  Forward-looking statements may be identified by the use of words such as “anticipate”, “believe”, “expect”, “estimate”, “plan”, “outlook”, and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters.  These forward looking statements include any statements regarding the Company’s strategic and operational plan and expected financial performance (including the financial performance of new stores).  Forward looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward looking statements, including but not limited to unforeseen events that may affect the retail market or the performance of the Company’s stores.  The Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.  Investors are referred to the most recent reports filed with the SEC by the Company.

Tile Shop Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
($ in thousands, except share data)
(Unaudited)
		September 30,					December 31,
		2016					2015
ASSETS
Current assets:
Cash and cash equivalents		$		9,835			$		10,330
Restricted cash				210					219
Trade receivables, net				2,560					1,966
Inventories				66,379					69,878
Prepaid inventory				415					568
Income tax receivable				1,226					735
Other current assets, net				3,890					3,557
Total Current Assets				84,515					87,253
Property, plant and equipment, net				137,774					135,115
Deferred tax assets				19,781					20,846
Other assets				1,723					1,793
Total Assets		$		243,793			$		245,007
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$		18,008			$		14,584
Current portion of long-term debt				5,600					4,744
Income tax payable				404					1,101
Other accrued liabilities				22,764					19,327
Total Current Liabilities				46,776					39,756
Long-term debt, net				18,469					51,178
Capital lease obligation, net				725					797
Deferred rent				37,028					34,983
Other long-term liabilities				3,400					3,092
Total Liabilities				106,398					129,806
Stockholders’ Equity:
Common stock, par value $0.0001; authorized: 100,000,000 shares; issued and outstanding: 51,575,420 and 51,437,973 shares, respectively				5					5
Preferred stock, par value $0.0001; authorized: 10,000,000 shares; issued and outstanding: 0 shares				-					-
Additional paid-in-capital				184,893					180,879
Accumulated deficit				(47,482	)				(65,672	)
Accumulated other comprehensive (loss) income				(21	)				(11	)
Total Stockholders' Equity				137,395					115,201
Total Liabilities and Stockholders' Equity		$		243,793			$		245,007

 

Tile Shop Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
($ in thousands, except share, and per share data)
(Unaudited)
		Three Months Ended										Nine Months Ended
		September 30,										September 30,
		2016					2015					2016					2015
Net sales		$		78,559			$		72,404			$		247,543			$		221,073
Cost of sales				23,400					21,691					73,980					68,096
Gross profit				55,159					50,713					173,563					152,977
Selling, general and administrative expenses				47,361					44,047					142,300					130,678
Income from operations				7,798					6,666					31,263					22,299
Interest expense				(363	)				(503	)				(1,382	)				(2,101	)
Other income				34					34					102					97
Income before income taxes				7,469					6,197					29,983					20,295
Provision income taxes				(2,886	)				(2,436	)				(11,793	)				(8,385	)
Net income		$		4,583			$		3,761			$		18,190			$		11,910
Earnings per common share:
Basic		$		0.09			$		0.07			$		0.35			$		0.23
Diluted		$		0.09			$		0.07			$		0.35			$		0.23
Weighted average shares outstanding:
Basic				51,426,104					51,161,348					51,388,058					51,137,650
Diluted				51,929,226					51,424,979					51,817,588					51,254,547

Tile Shop Holdings, Inc. and Subsidiaries
Rate Analysis
(Unaudited)
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2016			2015			2016			2015
Gross margin rate		70.2	%		70.0	%		70.1	%		69.2	%
SG&A expense rate		60.3	%		60.8	%		57.5	%		59.1	%
Income from operations margin rate		9.9	%		9.2	%		12.6	%		10.1	%
Adjusted EBITDA margin rate		19.4	%		19.3	%		21.6	%		20.0	%

Non-GAAP Income Guidance Reconciliation
		2016 Guidance
		Low End									High End
								Diluted									Diluted
($ in millions, except per share data)		Pretax			Net of Tax			Per Share Amounts			Pretax			Net of Tax			Per Share Amounts
GAAP income		$	36		$	22		$	0.42		$	38		$	23		$	0.44
Special charges(1)			2			1			0.02			2			1			0.02
Non-GAAP income(2)		$	38		$	23		$	0.45		$	40		$	24		$	0.47
(1) Shareholder and other litigation costs.
(2) Amounts may not foot due to rounding.

Adjusted EBITDA Guidance Reconciliation
		2016 Guidance
($ in millions)		Low End			High End
GAAP Net Income		$	22		$	23
Interest expense			2			2
Income taxes			14			15
Depreciation and amortization			23			23
Special charges(1)			2			2
Stock based compensation			4			4
Adjusted EBITDA(2)		$	68		$	70
(1) Shareholder and other litigation costs.
(2) Amounts may not foot due to rounding.

 

Contacts: 
Investors and Media: 
Adam Hauser
763-852-2950
investorrelations@tileshop.com