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The Tile Shop Reports Third Quarter 2018 Results; Declares Cash Dividend

MINNEAPOLIS, Oct. 18, 2018 (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 third quarter ended September 30, 2018. 

Third Quarter Summary

Net Sales Increased 5.7%
Comparable Store Sales Increased 2.1%
Gross Margin of 70.6%
Diluted Earnings per Share of $0.05
Net Income of $2.6 million; Adjusted EBITDA of $11.9 million
Completed 3 store remodels in Q3; Completed 10 store remodels year-to-date in 2018

Management Commentary
“We made good progress in the third quarter on our strategy to deliver the best product, the best presentation and the best service in our industry,” said Robert Rucker, interim CEO. “We are nearly complete with our year-long product assortment initiative and we continue to attract pros who share in our focus on serving a higher-end demographic.  With the improvement we are now beginning to see in our sales execution, we continued to make additional investments in inventory, store merchandising, and service during the third quarter.  We are extremely focused on improving our key metrics as we fully restore and further enhance the model which has proven successful for over 30 years.”

                               
    Three Months Ended     Nine Months Ended  
(unaudited, amounts in thousands, except per   September 30,     September 30,  
share data)   2018     2017     2018     2017  
Net sales   $   89,259     $   84,421     $   273,307     $   266,020  
Net sales growth(1)       5.7 %       7.5 %       2.7       7.5 %
Comparable store sales growth (decline)(2)       2.1 %       1.1 %       (2.3 )%       2.2 %
Gross margin rate       70.6 %       67.1 %       70.4       69.1 %
Income from operations as a % of net sales       4.3 %       5.2 %       6.4       11.1 %
Net income   $   2,553     $   2,438     $   11,522     $   18,170  
Net income per diluted share   $   0.05     $   0.05     $   0.22     $   0.35  
Adjusted EBITDA   $   11,857     $   12,203     $   40,675     $   51,796  
Adjusted EBITDA as a % of net sales       13.3 %       14.5 %       14.9       19.5 %
Number of stores open at the end of period       140         134         140         134  

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

/EIN News/ -- THIRD QUARTER 2018

Net Sales
Net sales increased $4.8 million, or 5.7%, from $84.4 million in the third quarter of 2017 to $89.3 million in the third quarter of 2018. The increase was due to $3.0 million in net sales generated by stores not included in the comparable store base and an increase of $1.8 million in net sales generated by comparable store sales. Comparable store sales growth was 2.1% for the third quarter of 2018 versus 1.1% for the third quarter of 2017.

Gross Profit
Gross profit increased $6.3 million, or 11.2%, from $56.7 million in the third quarter of 2017 to $63.0 million in the third quarter of 2018. The gross margin rate was 70.6% for the third quarter of 2018 and 67.1% for the third quarter of 2017. The improvement in the gross margin rate was primarily due to decreased promotional activity.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $6.8 million, or 13.1%, from $52.3 million in the third quarter of 2017 to $59.1 million in the third quarter of 2018.  The $6.8 million increase was due to $2.0 million of costs associated with opening and operating six new stores over the past twelve months and $1.9 million of planned strategic investments in store and distribution center compensation, regional sales leadership and pro market managers. Additionally, the Company incurred approximately $1.0 million of incremental legal expense during the quarter to resolve its derivative securities litigation.

Inventory
Inventory increased to $106.3 million from $100.4 million at the end of the second quarter of 2018, or 5.9%, as the Company continued to expand its product assortment.  The increase was attributable to the continued investment in new products added to the Company’s assortment during the quarter.

Long-Term Debt
Long-term debt increased $16.5 million from $29.5 million in the second quarter of 2018 to $46.0 million in the third quarter of 2018. The increase was attributable to the continued expansion of the Company’s product assortment resulting in an increase in inventory and capital investments associated with store remodels and merchandising fixtures.

As disclosed in a Form 8-K filed on September 19, 2018, the Company entered into a new credit facility to provide greater financial flexibility, increase the line of credit to $100 million, and extend the term to September 18, 2023.

Store Investment
As of September 30, 2018, the Company operated 140 stores in 31 states and the District of Columbia. The Company remodeled three stores during the third quarter of 2018.

DIVIDEND
The Board of Directors has declared a quarterly dividend of $0.05 per common share. The dividend is payable November 9, 2018 to shareholders of record at the close of business on October 29, 2018. 

OUTLOOK
The Company is updating its previously communicated 2018 annual outlook as follows:

  • Capital investment of approximately $35 million, including investments for 12 store remodels, and merchandising and fixture investments for all 140 stores.
  • Inventory at year-end of approximately $106 million to $110 million, reflecting the Company’s year-long product assortment initiative.
  • Selling, general and administrative (“SG&A”) expense increase of approximately $7 million to support the Company’s service strategy, including increased expenses for (1) the addition of regional sales leader positions, (2) sales and warehouse associate compensation, (3) customer relationship management and content management capabilities, and (4) the addition of approximately 20 professional market managers.  The approximate $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 two new stores opened 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

Adjusted EBITDA

Adjusted EBITDA for the third quarter of 2018 was $11.9 million compared with $12.2 million for the third quarter of 2017.  See the table below for a reconciliation of GAAP net income to Adjusted EBITDA.

                           
    Three Months Ended  
($ in thousands)   September 30,  
    2018   % of net sales   2017   % of net sales(1)  
Net income   $   2,553     2.9 %   $   2,438     2.9 %  
Interest expense       715     0.8 %       505     0.6 %  
Income taxes       652     0.7 %       1,468     1.7 %  
Depreciation & amortization       7,202     8.1 %       6,803     8.1 %  
Stock based compensation       735     0.8 %       989     1.2 %  
Adjusted EBITDA   $   11,857     13.3 %   $   12,203     14.5 %  
                           
    Nine Months Ended  
($ in thousands)   September 30,  
    2018   % of net sales     2017 % of net sales(1)(2)  
Net income   $   11,522     4.2 %   $   18,170     6.8 %  
Interest expense       1,866     0.7 %       1,438     0.5 %  
Income taxes       4,157     1.5 %       10,034     3.8 %  
Depreciation & amortization       21,180     7.7 %       19,395     7.3 %  
Stock based compensation       1,950     0.7 %       2,759     1.0 %  
Adjusted EBITDA   $   40,675     14.9 %   $   51,796     19.5 %  
                           

(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 and nine months ended September 30, 2017 to conform to the current presentation.
(2) Amounts do not foot due to rounding.

Pretax Return on Capital Employed

Pretax Return on Capital Employed was calculated based on GAAP information. The Company believes this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate Pretax Return on Capital Employed differently, limiting the usefulness of the measure for comparative purposes.

Pretax Return on Capital Employed was 7.7% for the trailing twelve months as of the end of the third quarter 2018 compared to 18.3% for the trailing twelve months as of the end of the third quarter 2017. See the Pretax Return on Capital Employed calculation in the table below.

             
($ in thousands)   September 30,
    2018(1)   2017(1)
Income from operations (trailing twelve months)   $   13,769     $   31,160  
             
Total Assets       281,996         263,140  
Less: Accounts payable       (29,015 )       (21,669 )
Less: Income tax payable       (71 )       (844 )
Less: Other accrued liabilities       (26,751 )       (26,482 )
Less: Deferred rent       (42,401 )       (38,815 )
Less: Other long-term liabilities       (4,346 )       (5,409 )
Capital Employed       179,412         169,921  
             
Pretax Return on Capital Employed       7.7  %     18.3  %

 (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.

Webcast and Conference Call

As announced on October 3, 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, October 18, 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 Cooper
763-852-2950
ken.cooper@tileshop.com

About The Tile Shop

The Tile Shop is a leading specialty retailer of man-made 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 with up to 50 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, with an average size of 20,200 square feet. For more information, visit 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 and nine months ended September 30, 2017 to conform to the current presentation. 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 and other long-term liabilities.

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 Subsidiaries
Consolidated Balance Sheets
($ in thousands, except share data)

             
    (Unaudited)   (Audited)
    September 30,   December 31,
    2018
  2017
Assets            
Current assets:            
Cash and cash equivalents   $   10,105     $   6,621  
Restricted cash       835         855  
Trade receivables, net       3,723         2,381  
Inventories       106,310         85,259  
Income tax receivable       3,362         5,726  
Other current assets, net       6,921         4,717  
Total Current Assets       131,256         105,559  
Property, plant and equipment, net       153,453         151,405  
Deferred tax assets       10,239         11,654  
Other assets       1,952         2,107  
Total Assets   $   296,900     $   270,725  
             
Liabilities and Stockholders' Equity            
Current liabilities:            
Accounts payable   $   25,725     $   30,771  
Current portion of long-term debt       -         8,833  
Income tax payable       172         17  
Other accrued liabilities       27,790         22,413  
Total Current Liabilities       53,687         62,034  
Long-term debt, net       46,000         18,182  
Capital lease obligation, net       473         576  
Deferred rent        43,419         41,290  
Other long-term liabilities       3,931         4,769  
Total Liabilities       147,510         126,851  
             
Stockholders’ Equity:            
Common stock, par value $0.0001; authorized: 100,000,000 shares; issued and outstanding: 52,678,584 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       174,207         180,109  
Accumulated deficit       (24,777 )       (36,239 )
Accumulated other comprehensive loss       (45 )       (1 )
Total Stockholders' Equity       149,390         143,874  
Total Liabilities and Stockholders' Equity   $   296,900     $   270,725  
             

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,
    2018     2017     2018     2017  
Net sales   $   89,259     $   84,421     $   273,307     $   266,020  
Cost of sales       26,248         27,759         80,946         82,265  
Gross profit        63,011         56,662         192,361         183,755  
Selling, general and administrative expenses       59,131         52,285         174,928         154,245  
Income from operations       3,880         4,377         17,433         29,510  
Interest expense       (715 )       (505 )       (1,866 )       (1,438 )
Other income       40         34         112         132  
Income before income taxes       3,205         3,906         15,679         28,204  
Provision for income taxes       (652 )       (1,468 )       (4,157 )       (10,034 )
Net income   $   2,553     $   2,438     $   11,522     $   18,170  
                         
Income per common share:                        
Basic   $   0.05     $   0.05     $   0.22     $   0.35  
Diluted   $   0.05     $   0.05     $   0.22     $   0.35  
                         
Weighted average shares outstanding:                        
Basic       51,920,830         51,757,248         51,896,678         51,638,864  
Diluted       52,303,777         52,053,655         52,056,136         52,011,208  
                         
Dividends declared   $   0.05     $   0.05     $   0.15     $   0.15  
                                 

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

                         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2018   2017   2018   2017
Gross margin rate     70.6 %     67.1 %     70.4 %     69.1 %
SG&A expense rate     66.2 %     61.9 %     64.0 %     58.0 %
Income from operations margin rate     4.3 %     5.2 %     6.4 %     11.1 %
Adjusted EBITDA margin rate     13.3 %     14.5 %     14.9 %     19.5 %

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

             
    Nine Months Ended
    September 30,
    2018     2017  
Cash Flows From Operating Activities            
Net income   $   11,522     $   18,170  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation & amortization       21,180         19,395  
Amortization of debt issuance costs       607         526  
Loss on disposals of property, plant and equipment       76         205  
Impairment charges on property, plant and equipment       319         -  
Deferred rent        2,345         2,911  
Stock based compensation       1,950         2,759  
Deferred income taxes       1,415         3,472  
Changes in operating assets and liabilities:             -  
    Trade receivables       (1,342 )       (249 )
    Inventories       (21,051 )       3,369  
    Prepaid expenses and other assets       (2,374 )       4,163  
    Accounts payable       (6,550 )       5,421  
    Income tax receivable / payable       2,520         (1,163 )
    Accrued expenses and other liabilities       5,104         (9,624 )
        Net cash provided by operating activities       15,721         49,355  
Cash Flows From Investing Activities            
Purchases of property, plant and equipment       (22,893 )       (28,031 )
Proceeds from the sale of property, plant and equipment       13         -  
Net cash used in investing activities       (22,880 )       (28,031 )
Cash Flows From Financing Activities            
Payments of long-term debt and capital lease obligations       (95,235 )       (44,672 )
Advances on line of credit       114,095         30,000  
Dividends paid       (7,800 )       (7,764 )
Proceeds from exercise of stock options       -         1,635  
Employee taxes paid for shares withheld       (52 )       (217 )
Debt issuance costs       (374 )       -  
Net cash provided by (used in) financing activities       10,634         (21,018 )
Effect of exchange rate changes on cash       (11 )       30  
Net change in cash       3,464         336  
Cash, cash equivalents and restricted cash beginning of period       7,476         12,948  
Cash, cash equivalents and restricted cash end of period   $   10,940     $   13,284  
             
Cash and cash equivalents   $   10,105     $   12,429  
Restricted cash       835         855  
Cash, cash equivalents and restricted cash end of period   $   10,940     $   13,284  
             
Supplemental disclosure of cash flow information            
Purchases of property, plant and equipment included in accounts payable and accrued expenses   $   2,229     $   4,935  
Cash paid for interest       1,846         1,453  
Cash paid (received) for income taxes, net       240         7,575  


 

 

 

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