Tile Shop Holdings, Inc. (Nasdaq:TTS) (the “Company”), a specialty
retailer of natural stone and man-made tiles, setting and
maintenance materials, and related accessories, today announced
results for its first quarter ended March 31, 2018.
First Quarter Summary
Comparable Store Sales Declined
6.8% 70.3% Gross MarginDiluted
Earnings per Share of $0.08GAAP Net Income of $4.0
million; Adjusted EBITDA of $13.8 millionOpened 2
new stores in Q1 – 140 stores open at end of
Q1Completed 4 store remodels in Q1
Management Commentary“During
the first quarter, we eliminated advertised price promotions which
contributed to an increase in our gross margin rate back to the
high-end of where we typically expect. This was a great early
sign that our key initiatives are taking hold as we return to what
Tile Shop is known for,” said Robert Rucker, interim CEO.
“Without using the promotional lever in the quarter we did
experience the volatility in traffic and sales at comparable stores
relative to last year that we expected. However, we are
getting our new tile product on the floors of our showrooms fast
and I am encouraged by the initial sales results from the new
products we’ve recently added to our assortment. We are also
making strides with winning back our pros, as pro feedback
continues to be positive and pro sales metrics are starting to
reflect this fact. In addition, our investments in remodels,
store compensation and training are helping us build on our
commitment to provide exceptional service to all of our
customers. Although much work remains, we are confident we
are on the right path.”
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
(unaudited,
amounts in thousands, except per |
|
March 31, |
|
share
data) |
|
2018 |
|
|
2017 |
|
Net sales |
|
$ |
91,134 |
|
|
$ |
92,135 |
|
Net sales (decline)
growth(1) |
|
|
(1.1 |
)% |
|
8.8 |
% |
Comparable store sales
(decline) growth(2) |
|
|
(6.8 |
)% |
|
4.9 |
% |
Gross margin rate |
|
|
70.3 |
% |
|
70.3 |
% |
Income from operations
as a % of net sales |
|
|
6.7 |
% |
|
14.7 |
% |
Net income |
|
$ |
4,011 |
|
|
$ |
8,009 |
|
Net income per diluted
share |
|
$ |
0.08 |
|
|
$ |
0.15 |
|
Adjusted EBITDA |
|
$ |
13,763 |
|
|
$ |
20,747 |
|
Adjusted EBITDA as a %
of net sales |
|
|
15.1 |
% |
|
22.5 |
% |
Number of stores open
at the end of period |
|
|
140 |
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
(1) As compared to the prior year
period.(2) Comparable store sales growth is the percentage
change in sales of comparable stores period over period. A store is
considered comparable on the first day of the 13th full month of
operation. When a store is relocated, it is excluded from the
comparable store sales growth calculation. Comparable store sales
growth amounts include total charges to customers less any actual
returns. Comparable store sales data reported by other companies
may be prepared on a different basis and therefore may not be
useful for purposes of comparing the Company’s results to those of
other businesses.
HIGHLIGHTS FOR THE FIRST QUARTER
2018
Net SalesNet sales decreased $1.0 million, or
1.1%, from $92.1 million in the first quarter of 2017 to $91.1
million in the first quarter of 2018. The decrease was due to a
comparable store sales decrease of 6.8%, or $6.3 million, offset by
net sales of $5.3 million from stores not included in the
comparable store base. The decrease in comparable store sales in
the first quarter was traffic-related due in part to the Company’s
elimination of advertised price promotions.
Gross ProfitGross profit decreased $0.7
million, or 1.1%, from $64.7 million in the first quarter of 2017
to $64.0 million in the first quarter of 2018. Gross margin rate
was 70.3% for the first quarter of both 2017 and 2018. The gross
margin rate improved sequentially from the 66.8% reported for the
fourth quarter of 2017 primarily due to decreased promotional
activity.
Selling, General and Administrative
ExpensesSelling, general and administrative expenses
increased $6.7 million, or 13.1%, from $51.2 million in the first
quarter of 2017 to $57.9 million in the first quarter of
2018. The $6.7 million increase was driven primarily by costs
associated with opening and operating fourteen new stores over the
past twelve months.
InventoryInventory increased
$19.0 million, or 27.5%, from $69.3 million at March 31, 2017 to
$88.3 million at March 31, 2018. The increase was the result
of the Company’s strategy to expand its product assortment and
improve its product presentation.
Long-Term DebtDuring the
quarter, the Company reduced its long-term debt by approximately
$1.9 million. As part of its ongoing efforts to enhance its capital
structure, the Company amended its credit agreement to reduce the
minimum fixed charge ratio to 1.35 and to increase the maximum rent
adjusted leverage ratio to 4.0.
Store Expansion and
InvestmentThe Company opened two new retail stores in the
first quarter of 2018, consisting of its second Connecticut
location in Hartford, CT and its third location in the Austin, TX
area in Round Rock, TX. As of March 31, 2018, the Company
operates 140 stores in 31 states and the District of Columbia. The
Company also remodeled four stores during the first quarter of
2018.
DIVIDENDThe Board of Directors
has declared a quarterly dividend of $0.05 per common
share. The dividend is payable May 11, 2018 to
shareholders of record at the close of business on April 30,
2018.
OUTLOOKThe Company reiterates
its previously communicated annual outlook:
- Capital investment of approximately $27 to $32 million,
including remodeling approximately 30 stores to support its product
presentation strategy.
- Inventory investment of approximately 25% to 35% year over
year, over the next several quarters, to support our product
assortment strategy.
- Selling, general and administrative (“SG&A”) expense
increase of approximately $5 to $7 million to support its service
strategy, including increased expenses for (1) the addition of
regional sales leader positions, (2) sales and warehouse staff
compensation, and (3) customer relationship management and content
management capabilities. The $5 to $7 million increase in
SG&A expense is incremental to the expected SG&A expense
increases associated with a full year of operations for the fifteen
stores opened in 2017 and the three new stores opening in
2018.
Longer term, the Company remains committed to achieving both
Adjusted EBITDA margin and pretax return on capital employed of
greater than 20%.
NON-GAAP INFORMATION
The Company presents Adjusted EBITDA to provide useful
information to investors regarding the Company’s performance.
Adjusted EBITDA for the first quarter of 2018
was $13.8 million compared with $20.7 million for the first quarter
of 2017. See the “Adjusted EBITDA Reconciliation” table below
for a reconciliation of GAAP net income to Adjusted EBITDA.
Adjusted EBITDA Reconciliation
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
($ in
thousands) |
|
March 31, |
|
|
2018 |
|
2017 |
|
GAAP net income |
|
$ |
4,011 |
|
$ |
8,009 |
|
Interest expense |
|
|
554 |
|
|
485 |
|
Income taxes |
|
|
1,581 |
|
|
5,075 |
|
Depreciation and
amortization |
|
|
7,000 |
|
|
6,336 |
|
Stock-based
compensation |
|
|
617 |
|
|
842 |
|
Adjusted EBITDA |
|
$ |
13,763 |
|
$ |
20,747 |
(1) |
|
|
|
|
|
|
|
|
(1) In prior periods, the Company also adjusted for special
charges, including shareholder and other litigation costs. The
Company has recast the Adjusted EBITDA presentation for the three
months ended March 31, 2017 to conform to the current
presentation.
Webcast and Conference Call
As announced on April 6, 2018, 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 Thursday, April 19,
2018. The call will be hosted by Bob Rucker, interim CEO,
Kirk Geadelmann, CFO, Cabell Lolmaugh, Senior Vice President and
COO, and Ken Cooper, Investor Relations.
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 at www.tileshop.com under
the Financial Information – SEC Filings section of the Company’s
Investor Relations page.
Contacts:Investors and Media:Ken
Cooper763-852-2950ken.cooper@tileshop.com
About The Tile Shop
The Tile Shop (Nasdaq:TTS) is a leading
specialty retailer of manufactured and natural stone tiles, setting
and maintenance materials, and related accessories in the United
States. The Tile Shop offers a wide selection of high quality
products, exclusive designs, knowledgeable staff and exceptional
customer service in an extensive showroom environment. Each store
is outfitted with up to 50 full-room tiled displays which are
enhanced by the complimentary Design Studio, a collaborative
platform to create customized 3-D design renderings to scale,
allowing customers to bring their design ideas to life. The Tile
Shop currently operates 140 stores in 31 states and the District of
Columbia, with an average size of 20,200 square feet and sells
products online at www.tileshop.com.
The Tile Shop is a proud member of the American
Society of Interior Designers (ASID), National Association of
Homebuilders (NAHB), National Kitchen and Bath Association (NKBA),
and the National Tile Contractors Association (NTCA). Visit
www.tileshop.com. Join The Tile Shop (#thetileshop) on Facebook,
Instagram, Pinterest and Twitter. Non-GAAP
Financial Measures
The Company calculates Adjusted EBITDA by taking
net income calculated in accordance with GAAP, and adjusting for
interest expense, income taxes, depreciation and amortization, and
stock based compensation. In prior periods, the Company also
adjusted for special charges, including shareholder and other
litigation costs. The Company has recast the Adjusted EBITDA
presentation for the three months ended March 31, 2017 to conform
to the current presentation. Adjusted EBITDA margin is equal to
Adjusted EBITDA divided by net sales.
The Company believes that these non-GAAP
measures of financial results provide useful information to
management and investors regarding certain financial and business
trends relating to the Company’s financial condition and results of
operations. Company management uses these non-GAAP measures
to compare Company 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 the Board of Directors. The Company believes
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 the Company’s
financial measures with other specialty retailers, many of which
present similar non-GAAP financial measures to investors.
Company 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 the Company’s 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. The
Company urges investors to review the reconciliation of these
non-GAAP financial measures to the comparable GAAP financial
measures and not to rely on any single financial measure to
evaluate the
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
SubsidiariesConsolidated Balance
Sheets($ in thousands, except share
data)
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Audited) |
|
|
|
March 31, |
|
December 31, |
|
|
|
2018 |
|
|
2017 |
|
|
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
7,152 |
|
|
$ |
6,621 |
|
|
Restricted cash |
|
|
835 |
|
|
|
855 |
|
|
Trade receivables,
net |
|
|
2,885 |
|
|
|
2,381 |
|
|
Inventories |
|
|
88,317 |
|
|
|
85,259 |
|
|
Income tax
receivable |
|
|
4,616 |
|
|
|
5,726 |
|
|
Other current assets,
net |
|
|
6,559 |
|
|
|
4,717 |
|
|
Total Current
Assets |
|
|
110,364 |
|
|
|
105,559 |
|
|
Property, plant and
equipment, net |
|
|
150,156 |
|
|
|
151,405 |
|
|
Deferred tax
assets |
|
|
11,228 |
|
|
|
11,654 |
|
|
Other assets |
|
|
1,947 |
|
|
|
2,107 |
|
|
Total
Assets |
|
$ |
273,695 |
|
|
$ |
270,725 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity |
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
25,986 |
|
|
$ |
30,771 |
|
|
Current portion of
long-term debt |
|
|
9,459 |
|
|
|
8,833 |
|
|
Income tax payable |
|
|
43 |
|
|
|
17 |
|
|
Other accrued
liabilities |
|
|
29,665 |
|
|
|
22,413 |
|
|
Total Current
Liabilities |
|
|
65,153 |
|
|
|
62,034 |
|
|
Long-term debt,
net |
|
|
15,692 |
|
|
|
18,182 |
|
|
Capital lease
obligation, net |
|
|
543 |
|
|
|
576 |
|
|
Deferred
rent |
|
|
41,958 |
|
|
|
41,290 |
|
|
Other long-term
liabilities |
|
|
4,477 |
|
|
|
4,769 |
|
|
Total
Liabilities |
|
|
127,823 |
|
|
|
126,851 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity: |
|
|
|
|
|
|
|
Common stock, par value
$0.0001; authorized: 100,000,000 shares; issued and outstanding:
52,429,157 and 52,156,850 shares, respectively |
|
|
5 |
|
|
|
5 |
|
|
Preferred stock, par
value $0.0001; authorized: 10,000,000 shares; issued and
outstanding: 0 shares |
|
|
- |
|
|
|
- |
|
|
Additional
paid-in-capital |
|
|
178,126 |
|
|
|
180,109 |
|
|
Accumulated
deficit |
|
|
(32,288 |
) |
|
|
(36,239 |
) |
|
Accumulated other
comprehensive loss |
|
|
29 |
|
|
|
(1 |
) |
|
Total
Stockholders' Equity |
|
|
145,872 |
|
|
|
143,874 |
|
|
Total
Liabilities and Stockholders' Equity |
|
$ |
273,695 |
|
|
$ |
270,725 |
|
|
|
|
|
|
|
|
|
|
Tile Shop Holdings, Inc. and
SubsidiariesConsolidated Statements of
Operations($ in thousands, except share, and per
share data)(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2018 |
|
|
2017 |
|
Net sales |
|
$ |
91,134 |
|
|
$ |
92,135 |
|
Cost of sales |
|
|
27,096 |
|
|
|
27,390 |
|
Gross profit |
|
|
64,038 |
|
|
|
64,745 |
|
Selling, general and
administrative expenses |
|
|
57,927 |
|
|
|
51,212 |
|
Income from
operations |
|
|
6,111 |
|
|
|
13,533 |
|
Interest expense |
|
|
(554 |
) |
|
|
(485 |
) |
Other income |
|
|
35 |
|
|
|
36 |
|
Income before income
taxes |
|
|
5,592 |
|
|
|
13,084 |
|
Provision for income
taxes |
|
|
(1,581 |
) |
|
|
(5,075 |
) |
Net
income |
|
$ |
4,011 |
|
|
$ |
8,009 |
|
|
|
|
|
|
|
|
Tile Shop Holdings, Inc. and
SubsidiariesRate
Analysis(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2018 |
|
2017 |
Gross margin rate |
|
70.3 |
% |
|
70.3 |
% |
SG&A expense
rate |
|
63.6 |
% |
|
55.6 |
% |
Income from operations
margin rate |
|
6.7 |
% |
|
14.7 |
% |
Adjusted EBITDA margin
rate |
|
15.1 |
% |
|
22.5 |
% |
|
|
|
|
|
|
|
Tile Shop Holdings, Inc. and
SubsidiariesConsolidated Statements of Cash
Flows($ in
thousands)(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2018 |
|
|
2017 |
|
|
Cash Flows From
Operating Activities |
|
|
|
|
|
|
|
Net
income |
|
$ |
4,011 |
|
|
$ |
8,009 |
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
|
Depreciation & amortization |
|
|
7,000 |
|
|
|
6,336 |
|
|
Amortization of debt issuance costs |
|
|
167 |
|
|
|
174 |
|
|
Loss on
disposals of property, plant and equipment |
|
|
71 |
|
|
|
75 |
|
|
Deferred
rent |
|
|
1,039 |
|
|
|
710 |
|
|
Stock
based compensation |
|
|
617 |
|
|
|
842 |
|
|
Deferred
income taxes |
|
|
426 |
|
|
|
1,223 |
|
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
Trade
receivables |
|
|
(504 |
) |
|
|
(559 |
) |
|
Inventories |
|
|
(3,058 |
) |
|
|
5,016 |
|
|
Prepaid
expenses and other assets |
|
|
(1,771 |
) |
|
|
4,589 |
|
|
Accounts
payable |
|
|
(6,085 |
) |
|
|
(2,413 |
) |
|
Income
tax receivable / payable |
|
|
1,135 |
|
|
|
3,888 |
|
|
Accrued
expenses and other liabilities |
|
|
6,810 |
|
|
|
(7,836 |
) |
|
Net cash provided by operating activities |
|
|
9,858 |
|
|
|
20,054 |
|
|
Cash Flows From
Investing Activities |
|
|
|
|
|
|
|
Purchases
of property, plant and equipment |
|
|
(4,846 |
) |
|
|
(9,963 |
) |
|
Net cash used in investing activities |
|
|
(4,846 |
) |
|
|
(9,963 |
) |
|
Cash Flows From
Financing Activities |
|
|
|
|
|
|
|
Payments
of long-term debt and capital lease obligations |
|
|
(16,904 |
) |
|
|
(16,272 |
) |
|
Advances
on line of credit |
|
|
15,000 |
|
|
|
15,000 |
|
|
Dividends
paid |
|
|
(2,600 |
) |
|
|
(2,581 |
) |
|
Proceeds
from exercise of stock options |
|
|
- |
|
|
|
42 |
|
|
Employee
taxes paid for shares withheld |
|
|
- |
|
|
|
(32 |
) |
|
Net cash used in financing activities |
|
|
(4,504 |
) |
|
|
(3,843 |
) |
|
Effect of exchange rate
changes on cash |
|
|
3 |
|
|
|
5 |
|
|
Net
change in cash |
|
|
511 |
|
|
|
6,253 |
|
|
Cash,
cash equivalents and restricted cash beginning of period |
|
|
7,476 |
|
|
|
10,336 |
|
|
Cash, cash equivalents
and restricted cash end of period |
|
$ |
7,987 |
|
|
$ |
16,589 |
|
|
Supplemental disclosure
of cash flow information |
|
|
|
|
|
|
|
Purchases
of property, plant and equipment included in accounts payable and
accrued expenses |
|
$ |
1,895 |
|
|
$ |
2,867 |
|
|
Cash paid
for interest |
|
|
558 |
|
|
|
481 |
|
|
Cash paid
(received) for income taxes, net |
|
|
1 |
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
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