Earnings call transcript: Tile Shop Holdings reports Q1 2025 results

Tile Shop Holdings Inc. (TTSH) reported a mixed performance for the first quarter of 2025. The company saw a decline in comparable store sales but achieved a slight increase in gross margin. Despite challenges in store traffic and market volatility, Tile Shop Holdings continues to expand its product line and strengthen its financial position. According to InvestingPro data, the stock is currently trading above its Fair Value, with shares down 22.86% over the past six months. The stock showed a minor decline of 0.37% in pre-market trading, reflecting investor concerns over sales performance.

Key Takeaways

• Comparable store sales decreased by 4% in Q1 2025.
• Gross margin improved by 20 basis points to 66%.
• Operating cash flow reached $10 million, boosting cash reserves to $27.1 million.
• Expanded product offerings with new luxury vinyl tile and engineered hardwood collections.
• Closed a New Jersey distribution center, subleasing space to generate $2 million in income.

Company Performance

Tile Shop Holdings faced a challenging first quarter with a 4% drop in comparable store sales, primarily due to reduced store traffic. However, the company capitalized on the leap year, which contributed an additional $1 million in sales. Despite these challenges, the company managed to increase its gross margin to 66% and generated significant operating cash flow, indicating a robust financial strategy.

Financial Highlights

• Revenue: $88.01 million
• Gross margin: Increased by 20 basis points to 66%
• Operating cash flow: $10 million
• Cash balance: Increased by $6.1 million to $27.1 million
• SG&A expenses: $57.9 million, consistent with the previous year

Outlook & Guidance

Tile Shop Holdings remains focused on enhancing customer experience and managing expenses efficiently. The company plans to maintain a competitive product assortment while closely monitoring tariff policies and supply chain dynamics. Future revenue forecasts for FY2025 and FY2026 are set at $347.07 million.

Executive Commentary

CEO Cab Loma emphasized the company’s focus on customer experience and cost management, stating, "We choose to focus on the things we can influence, which center around providing an exceptional experience to our customers and effectively managing our expenses." CFO Mark Davis added confidence in the company’s position, noting, "We believe we are well positioned to navigate the challenges of the current environment with a great assortment, strong balance sheet, and a talented team."

Risks and Challenges

• Lower housing turnover affecting store traffic
• Market volatility impacting consumer spending
• Tariff uncertainties potentially affecting supply chain costs
• Consumer confidence concerns amid economic fluctuations

Tile Shop Holdings continues to navigate a complex market landscape with strategic initiatives and a focus on financial resilience. The company’s efforts to diversify its product offerings and manage expenses are critical as it adapts to evolving market conditions.

Full transcript - Tile Shop Holdings Inc (TTSH) Q1 2025:

Operator: Good morning, and welcome to the Quarter One twenty twenty five Tile Shop Holdings Incorporated Earnings Conference Call. This is Franz, and I’ll be the operator assisting you today. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then followed by the number one on your telephone keypad.

If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Ken Cooper, Investor Relations. Please go ahead.

Ken Cooper, Investor Relations, Tile Shop Holdings: Thank you, and good morning to everyone. Welcome to the Tile Shop’s first quarter earnings call. Joining me today are Cab Loma, our Chief Executive Officer and Mark Davis, our 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 1985 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 press release for a reconciliation of those non GAAP financial measures. The press release has also been posted on our company website.

With that, let me turn the call over to Cab.

Cab Loma, Chief Executive Officer, Tile Shop Holdings: Thank you, Ken. Good morning, everyone, and thank you for joining us today for an update on our business. We continue to navigate challenges presented by lower housing turnover, market volatility, consumer confidence concerns and tariff noise during the first quarter. Since these external factors are largely out of our control, we choose to focus on the things we can influence, which center around providing an exceptional experience to our customers and effectively managing our expenses. Our overall comparable store sales decreased by 4% during the quarter.

However, it is worth noting that

Ken Cooper, Investor Relations, Tile Shop Holdings: we saw an increase in

Cab Loma, Chief Executive Officer, Tile Shop Holdings: the volume of tile that

Ken Cooper, Investor Relations, Tile Shop Holdings: we sold during the first quarter. The increase in

Cab Loma, Chief Executive Officer, Tile Shop Holdings: the tile volume sold was driven by our recent initiatives, which included the expansion of entry level competitively priced products. We also added our Arbor collection of high quality luxury vinyl tile products last fall that has helped bolster our LVT offering. By direct sourcing this line, we were able to offer this collection to our customers at attractive price points. Additionally, we saw nice volume increases in large format tiles benefited from the addition of engineered hardwood and laminate products to our assortment. Overall, our assortment is in fantastic shape as we move through our spring selling season.

While our purchasing team has done a great job bringing us to this point, we still have work ahead of us as tariff policies evolve. It is important to note that we have made significant strides over the last five years and have a much more diversified supplier base that spans across over 25 countries. We continuously evaluate alternative sources of supply to ensure we’re able to maintain a high quality offering at attractive price points for our customers. Additionally, we carry more inventory than the typical flooring retailer, which gives us time to maneuver as tariff policies evolve. We’ve also made inroads building partnerships with tile manufacturers based in The United States in recent years and are proud to carry a robust line of domestically manufactured tile.

We believe our seasoned purchasing team with a deep track record of managing our robust network of suppliers across the globe has us in a good position to help us maintain a competitive advantage in this area. Our team continues to collaborate with leading designers to expand our assortment of products that cater to the design community. Over the years, we forged partnerships with reputable brands, including Annie Stelke, Nikki Chew, Jeffrey Allen Marks, Laura Ashley and Morrison Company. These design partnerships help us create unique tile products that are one of a kind and exclusive to the dial shop. Last month, we announced the expansion of our collaboration with Allison Victoria.

We’ve enjoyed working with Allison to develop beautiful design options that feature contemporary color combinations and distinctive details that embody Allison’s design style. In closing, I am encouraged that these changes we’ve made to

Ken Cooper, Investor Relations, Tile Shop Holdings: our assortment contributed to the increase in tile volume sold during the first quarter. While we continue to navigate the near term challenges that affect our industry, we’re focused on maintaining the best assortment of tile products in the industry, giving our customers the ability to design a space that differentiates their home and providing exceptional service to all customers who visit our stores. With that, I’ll now hand the call over to Mark. Thanks, Gab. Good morning, everyone.

First quarter sales to comparable stores decreased by 4% due to lower levels of store traffic. It’s important to note that 2024 included an extra day during the first quarter due to it being a leap year. We estimate the additional day resulted in sales of approximately $1,000,000 during the first quarter of twenty twenty four based on our average daily sales throughout the period. As Cath mentioned earlier, our tile volume sales improved during the first quarter of twenty twenty five when compared to the same period during the prior year. We’ve seen an increase in sales driven by the products we’ve added to our department over the last year, and many of these products carry a lower average selling price.

It’s noteworthy that we have been able to maintain our average ticket values as we’ve mixed into products which carry a lower average selling price by increasing our tile volume sales. Our gross margin rate during the first quarter was 66%, which represented a 20 basis point increase compared to the first quarter of twenty twenty four. The improvement in gross margin rate was largely driven by a decrease in inventory write offs and partially offset by an increase in customer delivery mix. First quarter SG and A expense of 57,900,000.0 was basically in line with prior year first quarter. However, there were some noteworthy puts and takes.

This included a $700,000 decrease in depreciation, a $400,000 savings stemming from the closure of our distribution center in New Jersey last fall, and a $400,000 reduction of benefits costs. These were partially offset by a $700,000 increase in marketing, a $300,000 increase in training, and a $300,000 increase in IT expenses. Following the end of the quarter, we are able to sublease the distribution space in New Jersey through the third quarter of twenty twenty six, which coincides with the time our lease of the distribution phase expires. We anticipate receiving $2,000,000 of sublease income during this time frame and expect approximately half of this benefit will be reflected as a reduction of our SG and A expenses over the balance of 2025 with the remaining balance providing the benefit during the first three quarters of twenty twenty six. During the first quarter, we generated $10,000,000 of operating cash flow and added $6,100,000 to our cash balance, which grew to $27,100,000 at the end of the quarter.

We believe we are well positioned to navigate the challenges of the current environment with a great assortment, strong balance sheet and a talented team. With that, Kevin and I are happy to take any questions.

Operator: Thank you. And we will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loud speaker on your device, please pick up your handset and ensure that your phone is not on mute while asking your question.

There are no questions at this time. I would now like to turn the call back over to Ken Cooper. Please go ahead.

Ken Cooper, Investor Relations, Tile Shop Holdings: Thank you for listening to our earnings conference call. We anticipate filing our Form 10 Q later today. If you have any needs or questions after this call, please feel free to contact our IR team at any time. Thank you for your interest in The Tile Shop and your investment in The Tile Shop, and we and have a great day.

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