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The Tile Shop Reports Third Quarter 2019 Results; Suspends Dividend; Cancels Share Repurchase Program

MINNEAPOLIS, Oct. 22, 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 third quarter ended September 30, 2019.  

Third Quarter Summary

Net Sales Decreased 3.7%
Comparable Store Sales Decreased 3.5%
Gross Margin of 68.8%
Net Loss of $1.4 million; Adjusted EBITDA of $8.3 million

              
              
  Three Months Ended Nine Months Ended 
(unaudited, amounts in thousands, except per September 30, September 30, 
share data) 2019  2018 2019  2018  
Net sales $ 85,944  $ 89,259 $ 261,755  $ 273,307  
Net sales (decline) growth(1)   (3.7)%   5.7%  (4.2)%   2.7 
Comparable store sales (decline) growth(2)   (3.5)%   2.1%  (4.0)%   (2.3)% 
Gross margin rate   68.8   70.6%  69.7   70.4 
(Loss) income from operations as a % of net sales   (0.7)%   4.3%  1.2   6.4 
Net (loss) income $ (1,383) $ 2,553 $ (217) $ 11,522  
Net (loss) income per diluted share $ (0.03) $ 0.05 $ (0.00) $ 0.22  
Adjusted EBITDA $ 8,338  $ 11,857 $ 29,756  $ 40,675  
Adjusted EBITDA as a % of net sales   9.7   13.3%  11.4   14.9 
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) 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 (decline) growth calculation. Comparable store sales (decline) 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.

THIRD QUARTER 2019

Net Sales
Net sales decreased $3.3 million, or 3.7%, from $89.3 million in the third quarter of 2018 to $85.9 million in the third quarter of 2019. Comparable store sales decreased $3.1 million, or 3.5%, for the third quarter of 2019 compared to the third 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 $3.8 million, or 6.1%, from $63.0 million in the third quarter of 2018 to $59.2 million in the third quarter of 2019. The gross margin rate was 68.8% for the third quarter of 2019 and 70.6% for the third quarter of 2018. The decrease in the gross margin rate during the third quarter of 2019 was primarily due to higher levels of shrink and damaged inventory write-offs combined with a lower freight collection rate.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $0.7 million, or 1.1%, from $59.1 million in the third quarter of 2018 to $59.8 million in the third quarter of 2019. The increase in selling, general and administrative expenses was driven primarily by an increase in advertising costs, partially offset by a decrease in legal expense and variable store compensation expense.

Inventory
Inventory decreased 9.1% to $100.1 million at the end of the third quarter of 2019 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 at the end of the third quarter of 2019. The increase reflects additional amounts drawn on the line of credit to fund share repurchases in the second quarter of 2019.

Dividend and Share Repurchase
The Board of Directors decided to suspend the Company’s quarterly cash dividend and cancel the Company’s share repurchase program, each effective immediately, to focus on debt reduction and continued investment in strategic initiatives.

Director Resignation
Christopher T. Cook resigned from the Board of Directors effective October 19, 2019.

NON-GAAP INFORMATION

Adjusted EBITDA

Adjusted EBITDA for the third quarter of 2019 was $8.3 million compared with $11.9 million for the third quarter of 2018.  See the table below for a reconciliation of GAAP net (loss) income to Adjusted EBITDA.

              
              
  Three Months Ended 
($ in thousands) September 30, 
  2019  % of net
sales(1)
 2018 % of net sales 
Net (loss) income $ (1,383)  (1.6)%  $ 2,553  2.9% 
Interest expense   1,027   1.2    715  0.8% 
Income taxes   (274)  (0.3)%    652  0.7% 
Depreciation & amortization   8,308   9.7    7,202  8.1% 
Stock based compensation   660   0.8    735  0.8% 
Adjusted EBITDA $ 8,338   9.7  $ 11,857  13.3% 


              
  Nine Months Ended 
($ in thousands) September 30, 
  2019  % of net
sales(1)
  2018% of net sales 
Net (loss) income $ (217)  (0.1)%  $ 11,522  4.2% 
Interest expense   2,948   1.1    1,866  0.7% 
Income taxes   348   0.1    4,157  1.5% 
Depreciation & amortization   24,508   9.4    21,180  7.7% 
Stock based compensation   2,169   0.8    1,950  0.7% 
Adjusted EBITDA $ 29,756   11.4  $ 40,675  14.9% 

(1) Amounts do not foot due to rounding.

Pretax Return on Capital Employed

Pretax Return on Capital Employed was 1.7% for the trailing twelve months as of the end of the third quarter of 2019 compared to 7.7% for the trailing twelve months as of the end of the third quarter of 2018. See the table below for a calculation of Pretax Return on Capital Employed.

        
        
($ in thousands) September 30, 
  2019(1) 2018(1) 
Income from Operations (trailing twelve months) $ 3,762  $ 13,769  
        
Total Assets   389,561    281,996  
Less: Accounts payable   (25,280)   (29,015) 
Less: Income tax payable   (72)   (71) 
Less: Other accrued liabilities   (26,119)   (26,751) 
Less: Lease liability(2)   (114,490)   (42,401) 
Less: Other long-term liabilities   (3,669)   (4,346) 
Capital Employed   219,931    179,412  
        
Pretax Return on Capital Employed   1.7   7.7 

(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

The Company will not hold its previously scheduled third quarter 2019 earnings call at 9:00 a.m. Eastern Time today, Tuesday, October 22, 2019.

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 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 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 141 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. 

Contacts:
Investors and Media:
Mark Davis
763-852-2978
mark.davis@tileshop.com

Tile Shop Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
($ in thousands, except share data)

       
       
  (Unaudited) (Audited)
  September 30, December 31,
  2019  2018 
Assets      
Current assets:      
Cash and cash equivalents $ 8,371  $ 5,557 
Restricted cash   825    825 
Receivables, net   4,611    3,084 
Inventories   100,080    110,095 
Income tax receivable   3,854    3,548 
Other current assets, net   7,042    7,181 
Total Current Assets   124,783    130,290 
Property, plant and equipment, net   137,151    158,356 
Right of use asset   143,789    - 
Deferred tax assets   5,385    7,225 
Other assets   1,251    1,759 
Total Assets $ 412,359  $ 297,630 
       
Liabilities and Stockholders' Equity      
Current liabilities:      
Accounts payable $ 19,855  $ 25,853 
Income tax payable   13    179 
Current portion of lease liability   26,653    - 
Other accrued liabilities   25,871    24,484 
Total Current Liabilities   72,392    50,516 
Long-term debt   63,000    53,000 
Long-term lease liability, net   138,489    - 
Financing lease obligation, net   317    436 
Deferred rent   -    43,579 
Other long-term liabilities   3,482    3,752 
Total Liabilities   277,680    151,283 
       
Stockholders’ Equity:      
Common stock, par value $0.0001; authorized: 100,000,000 shares; issued and outstanding: 50,812,054 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   156,037    172,255 
Accumulated deficit   (21,272)   (25,857)
Accumulated other comprehensive loss   (91)   (56)
Total Stockholders' Equity   134,679    146,347 
Total Liabilities and Stockholders' Equity $ 412,359  $ 297,630 


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,
  2019  2018  2019  2018 
Net sales $ 85,944  $ 89,259  $ 261,755  $ 273,307 
Cost of sales   26,775    26,248    79,384    80,946 
Gross profit   59,169    63,011    182,371    192,361 
Selling, general and administrative expenses   59,804    59,131    179,314    174,928 
(Loss) income from operations   (635)   3,880    3,057    17,433 
Interest expense   (1,027)   (715)   (2,948)   (1,866)
Other income   5    40    22    112 
(Loss) income before income taxes   (1,657)   3,205    131    15,679 
Benefit from (provision for) income taxes   274    (652)   (348)   (4,157)
Net (loss) income $ (1,383) $ 2,553  $ (217) $ 11,522 
             
(Loss) income per common share:            
Basic $ (0.03) $ 0.05  $ (0.00) $ 0.22 
Diluted $ (0.03) $ 0.05  $ (0.00) $ 0.22 
             
Weighted average shares outstanding:            
Basic   49,769,739    51,920,830    50,901,289    51,896,678 
Diluted   49,769,739    52,303,777    50,901,289    52,056,136 
             
Dividends declared per share $ 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,
  2019 2018 2019 2018
Gross margin rate  68.8   70.6%  69.7%  70.4%
SG&A expense rate  69.6   66.2%  68.5%  64.0%
(Loss) income from operations margin rate  (0.7)%   4.3%  1.2%  6.4%
Adjusted EBITDA margin rate  9.7   13.3%  11.4%  14.9%


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

       
       
  Nine Months Ended
  September 30,
  2019  2018 
Cash Flows From Operating Activities      
Net (loss) income $ (217) $ 11,522 
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation & amortization   24,508    21,180 
Amortization of debt issuance costs   446    607 
Loss on disposals of property, plant and equipment   90    76 
Impairment charges on property, plant and equipment   -    319 
Change in leases   (1,267)   2,345 
Stock based compensation   2,169    1,950 
Deferred income taxes   190    1,415 
Changes in operating assets and liabilities:      
Receivables   (1,527)   (1,342)
Inventories   10,015    (21,051)
Prepaid expenses and other assets   47    (2,374)
Accounts payable   (3,307)   (6,550)
Income tax receivable / payable   (362)   2,520 
Accrued expenses and other liabilities   2,827    5,104 
Net cash provided by operating activities   33,612    15,721 
Cash Flows From Investing Activities      
Purchases of property, plant and equipment   (22,839)   (22,893)
Proceeds from insurance   610    13 
Net cash used in investing activities   (22,229)   (22,880)
Cash Flows From Financing Activities      
Payments of long-term debt and financing lease obligations   (43,153)   (95,235)
Advances on line of credit   53,000    114,095 
Dividends paid   (7,706)   (7,800)
Repurchases of common stock   (10,455)   - 
Employee taxes paid for shares withheld   (226)   (52)
Debt issuance costs   -    (374)
Net cash (used in) provided by financing activities   (8,540)   10,634 
Effect of exchange rate changes on cash   (29)   (11)
Net change in cash   2,814    3,464 
Cash, cash equivalents and restricted cash beginning of period   6,382    7,476 
Cash, cash equivalents and restricted cash end of period $ 9,196  $ 10,940 
       
Cash and cash equivalents $ 8,371  $ 10,105 
Restricted cash   825    835 
Cash, cash equivalents and restricted cash end of period $ 9,196  $ 10,940 
       
Supplemental disclosure of cash flow information      
Purchases of property, plant and equipment included in accounts payable and accrued expenses $ 1,320  $ 2,229 
Cash paid for interest   2,853    1,846 
Cash paid for income taxes, net   471    240 

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