Tile Shop Holdings, Inc. (NASDAQ:TTSH) reported its first-quarter earnings, revealing a challenging macroeconomic environment that impacted the company's top-line results. The home improvement retailer experienced a 10.2% decrease in comparable store sales due to reduced store traffic.
Despite the decline, the company highlighted the strength of its cash flow and the successful relaunch of its private label backshelf products. Tile Shop's e-commerce sales saw a significant increase, rising over 25% compared to the same period last year.
The company remains focused on its strategy to enhance relationships with professional customers and expand its product assortment for middle-market consumers.
Key Takeaways
- Comparable store sales fell by 10.2% due to decreased store traffic.
- Gross margin rate improved to 65.8%, a 160 basis point increase year-over-year.
- E-commerce sales increased by over 25% from the previous year.
- The company relaunched its private label backshelf products with improved formulas and competitive pricing.
- Tile Shop ended the quarter with $24 million in cash and no debt, generating $18.6 million in operating cash flow.
Company Outlook
- Tile Shop aims to maintain focus on its professional customer relationships and product expansion.
- The company plans to grow its e-commerce capabilities further.
- Despite current challenges, Tile Shop is positioned for growth as macro pressures ease.
Bearish Highlights
- The decrease in existing home sales has presented headwinds across the home improvement industry.
- Traffic restrictions in the Panama Canal and hostilities in the Red Sea (NYSE:SE) could potentially pressure gross margin rates in the coming quarters.
Bullish Highlights
- Tile Shop's pro loyalty program and competitive pricing for private label products provide a strong market differentiation.
- The company's strategy includes expanding offerings of high-quality, competitively priced products, such as LVT.
- Strong e-commerce growth indicates a significant opportunity for revenue expansion.
Misses
- The company missed top-line sales expectations due to lower store traffic and external macroeconomic factors.
Q&A Highlights
- The management team addressed concerns about gross margin pressures and reiterated their focus on expense management initiatives.
- Discussions about inventory management and balance sheet strength highlighted the company's solid financial position with no debt.
In summary, Tile Shop's first-quarter results reflect the resilience of its business model in the face of industry-wide challenges. The company's strategic focus on professional customer relationships, product expansion, and e-commerce growth positions it well for future success. However, the potential impact of increased international freight rates and other macroeconomic factors will be closely monitored in the coming quarters.
InvestingPro Insights
Tile Shop Holdings, Inc. (TTS) has demonstrated a mix of challenges and resilience in its recent financial performance. Here are some key metrics from InvestingPro that provide a deeper understanding of the company's current situation:
- The company's market cap stands at 297.43M USD, reflecting its valuation in the market.
- Tile Shop's P/E ratio, adjusted for the last twelve months as of Q4 2023, is 27.38, which may indicate investor expectations for future earnings growth compared to its current earnings level.
- With a revenue of 377.15M USD over the last twelve months as of Q4 2023, the company has shown a slight decline in revenue growth at -4.45%, which aligns with the reported decrease in comparable store sales.
InvestingPro Tips suggest that investors should consider the company's strong gross profit margin of 64.45% for the same period, which exceeds the gross margin rate improvement mentioned in the article. Moreover, the significant year-over-year e-commerce sales increase resonates with the observed trend of consumers shifting towards online shopping, a positive sign for the company's e-commerce strategy.
Investors looking for more in-depth analysis can find an additional 15 InvestingPro Tips by subscribing to InvestingPro. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which could provide valuable insights for making informed investment decisions.
Full transcript - Tile Shop Holdings Inc (TTSH) Q1 2024:
Operator: Good day and thank you for standing by. Welcome to the Tile Shop Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Ken Cooper, Head of Investor Relations.
Ken Cooper: Thank you, and good morning to everyone. Welcome to the Tile Shop’s first quarter earnings call. Joining me today are Cab Lolmaugh, Chief Executive Officer; and Mark Davis, Chief Financial Officer. Certain statements made during the call today constitute forward-looking statements made pursuant to and within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in our earnings press release issued earlier and in our filings with the SEC. The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update these forward-looking statements. Today’s call will also include certain non-GAAP measurements. Please see our earnings release for a reconciliation of those non-GAAP financial measures, which has also been posted on our company website. With that, let me turn the call over to Cab.
Cab Lolmaugh: Thank you, Ken. Good morning, everyone, and thank you for joining us today for an update on our business. Our first quarter results showcased the cash flow-generating power of our business model despite challenging macro conditions, which had an adverse impact on our top line results. Throughout the first quarter, we observed weakness in existing home sales, which continues to present headwinds across the home improvement industry. These challenges extend to the hard surface flooring category and contributed to a decrease in traffic in our stores during the first quarter of 2024 when compared to the same period in the prior year. The decrease in traffic and the impact this had on our comparable store sales was tempered, in part, due to the strong relationships we have with our network of professional customers. Our pro loyalty program, which includes pure discounts for our pros and cash rebates for referred sales has proven to be a powerful benefit to pros who choose to grow their business with us. We believe we have the most robust discount rebate program for pros in the industry, and it is a significant differentiator for us. We also carry products that are curated specifically with our professional customer in mind. During the second quarter, we were excited to relaunch our private label superior line of backshelf products. This includes products such as thinsets and levelers that we manufacture in-house. Over the last year, we have enhanced our formulas and made significant improvements in product quality and performance. We believe our new lines perform at levels that are competitive with some of the top brands in the industry, and the best part is that we’ll be able to offer these products to our pros at exceptional price points. In addition to the enhancements we’re making to our backshelf products, we’re also focused on introducing competitively priced tile products to appeal to customers seeking to complete a smaller remodel project on a budget. A number of the tile products we have sourced recently are targeted to this type of middle market customer. These products are just starting to land on our distribution centers and work their way into our showrooms. Additionally, we plan to expand our offering of high-quality, competitively priced LVT products. Our e-commerce sales increased by over 25% during the first quarter of 2024 when compared to the same period in 2023. Now to give some context of size, sales through our e-commerce channel are now about the size of one of our larger stores. We continue to invest in our e-commerce capabilities and believe we have a long runway for growth. In closing, we intend to maintain our focus on executing our strategy to enhance our relationship with professional customers, expand our assortment of products that cater to middle market customers and invest in our e-commerce capabilities. We believe that this positions us well in the near term to navigate the challenges that affect our industry and for continued growth as macro pressures start to ease. Before turning it over to Mark, I’d like to thank Karla for all that she did in her tenure with the Tile Shop. She was a great partner to me and our organization on the back end of the pandemic. We wish her and her family wealth. I’m excited to partner with Mark Davis, as he assumes the role of CFO for our company. He has been fantastic to work with over the past decade, but especially over the past 5 years while I’ve been CEO. Mark’s knowledge of our business, attention to detail and command of our finance organization has made for a smooth transition. With that, I’ll now hand the call over to Mark.
Mark Davis: Thanks, Cab. Good morning to everyone. First, I’d like to thank Cab and our Board of Directors, the opportunity to be appointed to this role for our organization. Over the last 10 years, I’ve been fortunate to work with some incredible people, not only in our finance organization, but throughout our company. I look forward to this opportunity in helping bring the Tile Shop to new levels of success. Let me now take you through our financial highlights. First quarter sales in comparable stores decreased by 10.2% due to lower levels of store traffic. Given that this was a leap year, we had an extra day in the first quarter in 2024. We estimate the additional day resulted in an increase in sales of approximately $1 million during the first quarter of 2024 based on our average daily sales throughout the period. At the same time, we believe that the benefit of this additional day was offset by the timing of Easter, which occurred during April in 2023 and fell at the end of the first quarter in 2024. Our gross margin rate during the first quarter was 65.8%, which represented a 160 basis point increase compared to the first quarter of 2023. As we’ve outlined in recent quarters, international freight rates have decreased, and we have been able to successfully secure products offered in our assortment at lower price points, which helped reduce our inventory costs. It’s important to note that reduced water levels in the Panama Canal that has restricted traffic flow and hostilities in the Red Sea that have deterred shipping lines from using Suez Canal have recently driven international freight rates higher, particularly on inbound containers from Asia. If this trend continues for an extended period of time, this may put pressure at our gross margin rate through the next few quarters. Further, we are pursuing strategy to grow sales of LVT and backshelf products, which carry a lower gross margin rate profile than our tile assortment. If we outperform our goals with respect to LVT and backshelf sales, we may see contraction of gross margin rate. However, it would increase gross profit dollars, which ultimately improves our leverage on fixed SG&A expenses. First quarter SG&A expenses of $58 million were $3.4 million lower than our first quarter SG&A expenses in 2023. The decrease is due to a $2.9 million decrease in variable expenses and a $1 million decrease in depreciation expenses that was partially offset by a $600,000 increase in rent costs. Looking ahead, we continue to actively pursue a number of expense management initiatives focused on reducing controllable expenses. Turning our attention to the balance sheet. We ended the quarter with $88.8 million of inventory and continue to carry no debt. As Cab mentioned in his remarks, despite the challenging top line results for the first quarter, we generated $18.6 million of operating cash flow and ended the quarter with a $24 million cash balance. With that, Cab and I are happy to take any questions.
Operator:
Ken Cooper: Great. Thank you for joining us today for our earnings conference call. We anticipate filing our Form 10-Q later today. Thank you for your interest in the Tile Shop and have a great day.
Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
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