TTS - The Tile Shop Reports Second Quarter 2019 Results

July, 23 2019 06:00 AM Tile Shop Hldgs Inc.

MINNEAPOLIS, July 23, 2019 (GLOBE NEWSWIRE) -- 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 second quarter ended June 30, 2019.

Second Quarter Summary

Net Sales Decreased 4.3%
Comparable Store Sales Decreased 4.2%
Gross Margin of 69.0%
Net Loss of $0.2 million; Adjusted EBITDA of $9.8 million
Share repurchases of $10.5 million
Dividend of $0.05 per Common Share Declared

Management Commentary – Cabell Lolmaugh, CEO
“During the quarter, we continued to experience lower traffic resulting in comparable sales performance that was flat sequentially from the first quarter of 2019. We are disappointed that our investments over the last twelve months have not yet generated the level of return we expected. We believe the primary opportunity in the near term is to drive higher awareness of our core value propositions with prospective retail customers. We remain confident in the investments made to date and our core strategy to deliver the best product assortment, best presentation and best service.”



Three Months Ended

Six Months Ended

(unaudited, amounts in thousands, except per

June 30,

June 30,

share data)

2019

2018

2019

2018

Net sales

$
88,903


$
92,914


$
175,811


$
184,048


Net sales (decline) growth⁽¹⁾


(4.3
)%

3.9
%


(4.5
)%

1.3
%

Comparable store sales decline⁽²⁾


(4.2
)%

(1.8
)%


(4.2
)%

(4.4
)%

Gross margin rate


69.0
%

70.3
%


70.1
%

70.3
%

Income from operations as a % of net sales


0.9
%

8.0
%


2.1
%

7.4
%

Net (loss) income

$
(154
)%

$
4,958


$
1,166


$
8,969


Net (loss) income per diluted share

$
0.00


$
0.10


$
0.02


$
0.17


Adjusted EBITDA

$
9,806


$
15,055


$
21,418


$
28,818


Adjusted EBITDA as a % of net sales


11.0
%

16.2
%


12.2
%

15.7
%

Number of stores open at the end of period


140



140



140



140

⁽¹⁾As compared to the prior year period.
⁽²⁾Comparable store sales decline 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 decline calculation. Comparable store sales decline 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.

SECOND QUARTER 2019

Net Sales
Net sales decreased $4.0 million, or 4.3%, from $92.9 million in the second quarter of 2018 to $88.9 million in the second quarter of 2019. Comparable store sales decreased $3.8 million, or 4.2%, for the second quarter of 2019 compared to the second quarter of 2018 primarily due to lower customer traffic. Net sales generated by stores not included in the comparable store base decreased $0.2 million.

Gross Profit
Gross profit decreased $4.0 million, or 6.1%, from $65.3 million in the second quarter of 2018 to $61.4 million in the second quarter of 2019. The gross margin rate was 69.0% for the second quarter of 2019 and 70.3% for the second quarter of 2018. The decrease in the gross margin rate was primarily due to increased shrink expense and damaged inventory recognized upon completion of physical inventory counts at all stores and distribution centers during the second quarter of 2019.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2.7 million, or 4.7%, from $57.9 million in the second quarter of 2018 to $60.6 million in the second quarter of 2019. The increase in selling, general and administrative expenses was due to $1.1 million of investments in store and distribution center compensation, regional sales leadership and pro market managers, which reflect a full-quarter of activity in the second quarter of 2019 as compared to only a partial quarter in second quarter of 2018. Selling, general and administrative expenses in the second quarter of 2019 also included approximately $1.3 million of expense related to our new enterprise resource planning system which went live on January 1, 2019.

Inventory
Inventory decreased 3.1% to $106.7 million from $110.1 million at the end of the fourth quarter of 2018.

Long-Term Debt
Long-term debt increased $10.0 million from $53.0 million in the fourth quarter of 2018 to $63.0 million in the second quarter of 2019. The increase reflects additional amounts drawn on the line of credit to fund share repurchases.

SHARE REPURCHASE
The Company repurchased 2.3 million shares for $10.5 million during the second quarter of 2019. The Board of Directors had previously authorized a $15.0 million share repurchase program, to commence on May 2, 2019, and $4.5 million remains available under this program.

DIVIDEND
The Board of Directors declared a quarterly dividend of $0.05 per common share. The dividend is payable August 9, 2019 to shareholders of record at the close of business on July 29, 2019.

NON-GAAP INFORMATION

Adjusted EBITDA

Adjusted EBITDA for the second quarter of 2019 was $9.8 million compared with $15.1 million for the second quarter of 2018. See the table below for a reconciliation of GAAP net (loss) income to Adjusted EBITDA.



Three Months Ended
($ in thousands)

June 30,


2019

% of net sales⁽¹⁾

2018

% of net sales⁽¹⁾
Net (loss) income

$
(154
)

(0.2
)%

$
4,958

5.3
%
Interest expense


943


1.1
%


597

0.6
%
Income taxes


11


0.0
%


1,924

2.1
%
Depreciation & amortization


8,236


9.3
%


6,978

7.5
%
Stock based compensation


770


0.9
%


598

0.6
%
Adjusted EBITDA

$
9,806


11.0
%

$
15,055

16.2
%



Six Months Ended
($ in thousands)

June 30,


2019

% of net sales⁽¹⁾


2018
% of net sales
Net income

$
1,166

0.7
%

$
8,969

4.9
%
Interest expense


1,921

1.1
%


1,151

0.6
%
Income taxes


622

0.4
%


3,505

1.9
%
Depreciation & amortization


16,200

9.2
%


13,978

7.6
%
Stock based compensation


1,509

0.9
%


1,215

0.7
%
Adjusted EBITDA

$
21,418

12.2
%

$
28,818

15.7
%

⁽¹⁾ Amounts do not foot due to rounding.

Pretax Return on Capital Employed

Pretax Return on Capital Employed was 3.9% for the trailing twelve months as of the end of the second quarter of 2019 compared to 8.3% for the trailing twelve months as of the end of the second quarter of 2018. See the table below for a calculation of Pretax Return on Capital Employed.

($ in thousands)

June 30,



2019⁽¹⁾

2018⁽¹⁾

Income from Operations (trailing twelve months)

$
8,277


$
14,266










Total Assets


360,696



274,258


Less: Accounts payable


(26,747
)


(29,685
)

Less: Income tax payable


(111
)


(67
)

Less: Other accrued liabilities


(26,599
)


(25,796
)

Less: Lease liability⁽²⁾


(90,722
)


(41,640
)

Less: Other long-term liabilities


(3,781
)


(4,624
)

Capital Employed


212,736



172,446










Pretax Return on Capital Employed


3.9
%

8.3
%

⁽¹⁾ Income statement accounts represent the activity for the trailing twelve months ended as of each of the balance sheet dates. Balance sheet accounts represent the average account balance for the four quarters ended as of each of the balance sheet dates.
⁽²⁾ Represents the average lease liability and deferred rent account balances for the four quarters ended as of each of the balance sheet dates.

Webcast and Conference Call

As announced on July 5, 2019, 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, July 23, 2019. The call will be hosted by Cabell Lolmaugh, CEO, Kirk Geadelmann, CFO, and Mark Davis, 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:
Mark Davis
763-852-2978
mark.davis@tileshop.com

About The Tile Shop

The Tile Shop (Nasdaq:TTS) is a leading specialty retailer of natural stone and man-made 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. Each store is outfitted with full-room tiled displays which are enhanced by the complimentary Design Studio, a collaborative platform to create customized 3D 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.

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. Adjusted EBITDA margin is equal to Adjusted EBITDA divided by net sales. The Company calculates Pretax Return on Capital Employed by taking income from operations divided by capital employed. Capital employed equals total assets less accounts payable, income taxes payable, other accrued liabilities, deferred rent, lease liability and other long-term liabilities. Other companies may calculate both Adjusted EBITDA and Pretax Return on Capital Employed differently, limiting the usefulness of these measures for comparative purposes.

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, for budgeting and planning purposes, and for assessing the effectiveness of capital allocation over time. 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. 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
Consolidated Balance Sheets
($ in thousands, except share data)



(Unaudited)

(Audited)


June 30,

December 31,


2019

2018
Assets






Current assets:






Cash and cash equivalents

$
4,403


$
5,557

Restricted cash


825



825

Receivables, net


4,961



3,084

Inventories


106,657



110,095

Income tax receivable


3,646



3,548

Other current assets, net


7,412



7,181

Total Current Assets


127,904



130,290

Property, plant and equipment, net


140,636



158,356

Right of use asset


142,087



-

Deferred tax assets


5,290



7,225

Other assets


1,408



1,759

Total Assets

$
417,325


$
297,630








Liabilities and Stockholders' Equity






Current liabilities:






Accounts payable

$
23,600


$
25,853

Income tax payable


30



179

Current portion of lease liability


25,997



-

Other accrued liabilities


25,395



24,484

Total Current Liabilities


75,022



50,516

Long-term debt


63,000



53,000

Long-term lease liability, net


137,340



-

Financing lease obligation, net


358



436

Deferred rent


-



43,579

Other long-term liabilities


3,582



3,752

Total Liabilities


279,302



151,283








Stockholders’ Equity:






Common stock, par value $0.0001; authorized: 100,000,000 shares; issued and outstanding: 50,615,489 and 52,707,879 shares, respectively


5



5

Preferred stock, par value $0.0001; authorized: 10,000,000 shares; issued and outstanding: 0 shares


-



-

Additional paid-in-capital


157,961



172,255

Accumulated deficit


(19,889
)


(25,857
)
Accumulated other comprehensive loss


(54
)


(56
)
Total Stockholders' Equity


138,023



146,347

Total Liabilities and Stockholders' Equity

$
417,325


$
297,630

Tile Shop Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
($ in thousands, except share, and per share data)
(Unaudited)



Three Months Ended

Six Months Ended


June 30,

June 30,


2019


2018


2019


2018

Net sales

$
88,903


$
92,914


$
175,811


$
184,048

Cost of sales


27,543



27,602



52,609



54,698

Gross profit


61,360



65,312



123,202



129,350

Selling, general and administrative expenses


60,562



57,870



119,510



115,797

Income from operations


798



7,442



3,692



13,553

Interest expense


(943
)


(597
)


(1,921
)


(1,151
)
Other income


2



37



17



72

(Loss) income before income taxes


(143
)


6,882



1,788



12,474

Provision for income taxes


(11
)


(1,924
)


(622
)


(3,505
)
Net (loss) income

$
(154
)

$
4,958


$
1,166


$
8,969














(Loss) income per common share:












Basic

$
0.00


$
0.10


$
0.02


$
0.17

Diluted

$
0.00


$
0.10


$
0.02


$
0.17














Weighted average shares outstanding:












Basic


50,999,341



51,887,094



51,476,442



51,884,402

Diluted


50,999,341



52,019,881



51,573,410



51,996,263














Dividends declared per share

$
0.05


$
0.05


$
0.10


$
0.10

Tile Shop Holdings, Inc. and Subsidiaries
Rate Analysis
(Unaudited)



Three Months Ended

Six Months Ended


June 30,

June 30,


2019

2018

2019

2018
Gross margin rate

69.0
%

70.3
%

70.1
%

70.3
%
SG&A expense rate

68.1
%

62.3
%

68.0
%

62.9
%
Income from operations margin rate

0.9
%

8.0
%

2.1
%

7.4
%
Adjusted EBITDA margin rate

11.0
%

16.2
%

12.2
%

15.7
%

Tile Shop Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)



Six Months Ended


June 30,


2019


2018

Cash Flows From Operating Activities






Net income

$
1,166


$
8,969

Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation & amortization


16,200



13,978

Amortization of debt issuance costs


298



338

Loss on disposals of property, plant and equipment


85



344

Stock based compensation


1,509



1,215

Deferred income taxes


285



1,019

Changes in operating assets and liabilities:






Receivables


(1,878
)


(836
)
Inventories


3,438



(15,167
)
Prepaid expenses and other assets


(290
)


(1,217
)
Accounts payable


496



2,016

Income tax receivable / payable


(136
)


2,281

Accrued expenses and other liabilities


786



6,336

Net cash provided by operating activities


21,959



19,276

Cash Flows From Investing Activities






Purchases of property, plant and equipment


(17,823
)


(13,149
)
Proceeds from insurance


610



15

Net cash used in investing activities


(17,213
)


(13,134
)
Cash Flows From Financing Activities






Payments of long-term debt and financing lease obligations


(33,102
)


(32,638
)
Advances on line of credit


43,000



35,000

Dividends paid


(5,212
)


(5,200
)
Repurchases of common stock


(10,455
)


-

Employee taxes paid for shares withheld


(136
)


(30
)
Net cash used in financing activities


(5,905
)


(2,868
)
Effect of exchange rate changes on cash


5



(8
)
Net change in cash


(1,154
)


3,266

Cash, cash equivalents and restricted cash beginning of period


6,382



7,476

Cash, cash equivalents and restricted cash end of period

$
5,228


$
10,742








Cash and cash equivalents

$
4,403


$
9,907

Restricted cash


825



835

Cash, cash equivalents and restricted cash end of period

$
5,228


$
10,742








Supplemental disclosure of cash flow information






Purchases of property, plant and equipment included in accounts payable and accrued expenses

$
1,225


$
1,488

Cash paid for interest


1,828



1,124

Cash paid for income taxes, net


471



186

Company Name:	Tile Shop Hldgs Inc.
Stock Symbol:	TTS
Market:	NASDAQ