Q4 2022 Tile Shop Holdings Inc Earnings Call
Speaker 2: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 11.
Speaker 3: Good day and thank you for standing by. Welcome to the fourth quarter 2022 Title Shop Holdings earnings conference call.
Speaker 3: At this time, all participants are in a listen-only mode. After this figure's presentation, there will be a question and answer session.
Speaker 3: To ask a question during the session, you'll need to press star 1-1 on your telephone.
Speaker 3: You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded.
Speaker 3: I would now like to hand the conference over to your speaker today, Mark Davis, Vice President of Investor Relations and Chief Accounting Officer. Please go ahead. Thank you, operator. Good morning to everyone and welcome to the Tileshabs 4th quarter and full year earnings call.
Speaker 3: Joining me today are Cab Loma, our Chief Executive Officer, and Carly Loonon, our Chief Financial Officer. Certain statements made during the call today constitute forward-looking statements made pursuant to and within the meaning of the Save Harbor provisions of the Private Security's litigation reform act from 1995 as amended. Such forward-looking statements are subject to both known and unknown risks in the-
Speaker 3: Today's call will also include certain non-GAP measurements. Please see our earnings release for a reconciliation of those non- GAAP financial measures.
Speaker 3: which has also been posted to our company website. With that, let me now turn the call over to Cam.
Speaker 4: Thanks Mark. Good morning everyone and thank you for joining us today.
Speaker 4: Starting with the positive in 2022.
Speaker 4: Our company achieved our highest level of annual revenue in our 37-year history, and we're able to accomplish this milestone without opening any new stores during the year.
Speaker 4: This milestone was made possible by the steps we've taken to improve inventory levels and execution across our store base in 2022.
Speaker 4: We've made the picking progress, however, in the fourth quarter, we've battled macrohead winds that contributed to lower levels of traffic in our stores and a modest decrease in comparable store sales.
Speaker 4: While the top line results for the quarter fell short of our goals, there are a number of positive developments I'm seeing in the business. First, we're able to successfully launch our expanded line of LVT products during the fourth quarter. We've seen a nice response from our associates and our customers following the launch.
Speaker 4: As you know, we have been observing LVT for the past few years as our higher-end customers gradually accepted LVT as a viable option for their flooring needs.
Speaker 4: We believe this is due to advancements made in LVT product quality since it was first introduced.
Speaker 4: Our test of LVT earlier in the year went well. Since the full launch in October , we've continued to see customers choosing to purchase tile with LVT on the same order.
Speaker 4: We believe that we have an opportunity to grow ticket averages by cross-selling LVT to customers who are already in our stores to purchase tile. Additionally, we believe the addition of LVT gives us the opportunity to reach new customers who chose to shop elsewhere when LVT products were not available in our stores.
Speaker 4: As a reminder, LVT and other resilient flooring were projected to be approximately 30% of all industry-wide hard-surface flooring sales in the US in 2022. While we're just getting going, I'm pleased with the initial results and believe our LVT lines will be a key catalyst for growth in 2023.
Speaker 4: Moving to New Stort growth. Vermont tracked the open two new stores in 2023. We expect one to open this summer and one in the second half of the year. Our operational teams are actively working to refine our new store opening procedures to ensure our 2023 store openings are positioned to deliver strong results.
Speaker 4: The third area I'd like to address is our supply chain.
Speaker 4: Over the last 18 months, we've seen increases in prices from our suppliers in response to rising energy, labor, and other inflationary cost pressures.
Speaker 4: These pressures were compounded by elevated international freight rates.
Speaker 4: In response to these cost pressures, we took steps to implement selective pricing adjustments across our assortment, particularly during the first half of 2022.
Speaker 4: In addition, during the second half of the year, we've tried to stay ahead of this by building stock levels in our more popular skews ahead of a known price increases from our suppliers.
Speaker 4: Given the macro headwinds, we took a more conservative approach to raising prices during the second half of 2022.
Speaker 4: This conservative approach, combined with increasing inventory costs, contributed to the 200 basis points to the Quential Decline and gross margin rates between the third and fourth quarters.
Speaker 4: On a positive note, international freight rates have started to come down, which should help us as we move through 2023.
Speaker 4: Additionally, we've made great progress working with our network of suppliers to identify alternative sources for a number of our products that will cost. In January , I had the opportunity to travel with our purchasing teams and visit suppliers across Asia, who are partnering with us on our resource and effort.
Speaker 4: I was impressed by the quality of the products we expected on our trip and encouraged to see first-hand examples of SKUs will be added to our assortment at a much lower cost when compared to the price of similar items purchased in late 2022.
Speaker 4: So we'll take some time for the newly resourced products to make their way into the assortment. I believe the success we're having this area will position the company to maintain a strong overall margin profile.
Speaker 4: I'd also like to take a moment, touch on our Retail Excellence Initiative.
Speaker 4: Over the last two years, we have focused on eliminating distractions and improving core execution in our stores.
Speaker 4: We delayed initiatives such as growing stores so we could focus our efforts on developing our teams.
Speaker 4: Our focus areas including training on design, leadership, inventory best practices, and customer engagement.
Speaker 4: These efforts have translated into improvement in sales to our pros, higher conversion rates, lower discretionary discounting, and a decrease in inventory losses.
Speaker 4: While we've made great progress, our work here is never done, and we'll continue to focus on the details and provide the exceptional service to every customer who walks through our doors.
Speaker 4: Before I close, I'd like to take a moment to thank the Towshop team.
Speaker 4: As mentioned earlier, we set an annual sales record in 2022.
Speaker 4: Our success would not be possible with healthy energy and passion. You bring your job every day.
Speaker 4: I look forward to continuing to build on our success in 2023. With that, I'll now hand the call over to Carla to walk us through the financial results for the fourth quarter and the full year.
Speaker 4: 2023. With that, I'll now hand the call over to Carla to walk us through the financial results for the fourth quarter and the full year. Carla?
Speaker 5: Thanks, Cabby. Good morning, everyone. Fourth-quarter sales at comparable stores decreased by 2.8% when compared to the fourth quarter of 2021. The decrease in sales revenue was due to decreased unit volume, which was partially offset by an increase in our average ticket value.
Speaker 5: For the full year, we set an annual sales record with $394.7 million of revenue.
Speaker 5: Sales at comparable stores increased by 6.5% due to an increase in average ticket that was partially offset by a decrease in unit volume. The gross margin rate during the fourth quarter was 64.5%. We continue to see elevated levels of inventory receipts at higher price points throughout the fourth quarter. We continue to see elevated levels of inventory receipts at higher price points throughout the fourth quarter.
Speaker 5: In the first half of 2022, we effectively used price increases to offset some of the increase in inventory costs.
Speaker 5: However, we did not use that lever nearly as much during the second half of the year. The increase in inventory costs combined with a more conservative approach to adjust prices was the primary driver for the 200 basis points sequential decrease in gross margin from the third quarter to the fourth quarter in 2022.
Speaker 5: For the full year, our gross margin rate decreased by 270 basis points from 68.3% in 2021 to 65.6% in 2022.
Speaker 5: The decrease in margin rate was primarily due to rising product costs that outpaced the rate of price increases that were passed on to our customers during 2022.
Speaker 5: Fourth quarter, 2022, selling, general, and administrative expenses decreased by $2.8 million from 2021. The decrease was largely attributable to a $3.7 million decrease in compensation costs due to lower levels of annual incentives and variable compensation. For the full year, selling, general, and administrative costs.
Speaker 5: increased $3.8 million due to an $8.2 million increase in wages and benefits, primarily due to higher staffing levels that was partially offset by $6.5 million decrease in bonuses due to lower annual incentives and sales bonuses.
Speaker 5: Additionally, our marketing expenses increased by $2.1 million and our IT-related expenses increased by $1.4 million in 2022 when compared to 2021.
Speaker 5: These increases were partially upset by a $2.2 million decrease in depreciation expense.
Speaker 5: Net income was $1.5 million during the fourth quarter of 2022 and adjusted EBIDA with $8.9 million.
Speaker 5: Our adjusted EBITDA margin rate decreased by 60 basis points to 10.2% during the fourth quarter of 2022, largely due to a decrease in gross margin.
Speaker 5: For the full year, net income increased $900,000 to $15.7 million.
Speaker 5: Adjusted EBITDA during 2022 was $49.6 million, which was in line with the $50.3 million of adjusted EBITDA generated in 2021.
Speaker 5: All right, just to even out margin rate, decreased by 100 basis points for the year to 12.6%.
Speaker 5: Full year earnings per share increased by 3 cents from 29 cents in 2021 to 32 cents in 2022.
Speaker 5: Moving to our capital allocation, we completed our $30 million share repurchase program during the fourth quarter. In total, we repurchased and retired 7.8 million shares for $30.2 million, inclusive of brokerage commissions for an average share price of $3.87 per share.
Speaker 5: We financed a large portion of the share repurchase by drawing on our line of credit. We felt using our revolver was prudent given our stock price. I will share more thoughts about our debt shortly.
Speaker 5: Turning to the balance sheet are inventory increased by $23.8 million to $121 million at the end of 2022, as compared to the beginning of the year.
Speaker 5: This increase was driven by carrying higher inventory levels as well as an increase in inventory costs throughout the year.
Speaker 5: We made a meaningful investment in inventory over the last year.
Speaker 5: We believe that this investment has us well-positioned to maintain sufficient in-stock levels to serve our customers while we work through initiatives to resource portions of our sortment to lower cost suppliers. As at the end of the quarter, we had $45.4 million outstanding on our line of credit.
Speaker 5: The $15 million sequential increase in debt from the third quarter of 2022 was largely due to the share repurchase activity that took place during the fourth quarter. We expect we will be able to use cash generated by operations to reduce our debt balance in future quarters. As we look to 2023,
Speaker 5: We have maintained our policy of not providing revenue, adjusted EBITDA or EPS guidance. However, here are some things to think about for models.
Speaker 5: Average distributed shares should be around 45 million.
Speaker 5: The tax rate for 2023 should be around 26%.
Speaker 5: We anticipate CAPEX for 2023 will be $15 to $20 million. This includes the two new stores in 2023, one store relocation, maintenance CAPEX for our existing 142 stores, five distribution centers.
Speaker 5: and our corporate CAFX which supports our store portfolio.
Speaker 5: With that, Kathy and I are happy to take any questions. As a reminder to ask a question, please press star 1-1 on your telephone.
Speaker 6: Our first question comes from a line of Mark Smith with Lake Street.
Speaker 6: Mark your line is now open.
Speaker 7: Hey guys, a couple of quick questions for you here.
Speaker 7: Can you discuss just the demand trends that you saw during quarter, kind of how it shifted, and then just give us a reminder of kind of seasonality that's typically built in?
Absolutely, Mark, this is CAB. Thanks for the question. You'll see the analogy, fourth quarter is typically a little bit lower than some of our other quarters due to the holidays, due to the winter in the north, northeast, and Midwest. We expect that, but what we did see is our retail traffic.
and our conversion rates and ticket averages and things of that nature, but that's what I saw in the trends in the fourth quarter for sure.
Perfect. And you gave me some good detail on kind of LVT, kind of long term, what the expectations are. Can you talk about just, and maybe it's still way too early, but just kind of how it's gone initially and what kind of demand looks like for that product.
Yeah, absolutely. Like you said, we're in our infancy here with our launch. You know, people are now just becoming aware that we have this line. We are happy with our initial results. You know, we're falling into a few commercial deals. We're getting more pros transitioned into our stores and our line of LVT.
It's going to take a while to ramp, but initial results are solid. Perfect. And then just inventory. You know, up quite a bit year over year looks like sequentially. It's still held up pretty well. Just talk about your comfort level with this. And you know, as you look in the rearview mirror.
You know, you still feel good about the policy that you had of kind of pre-bying before you saw some price increases And then just kind of the time in to to move this inventory to maybe a more normalize level
Absolutely. Yeah, I am happy with what we did in the past to get the inventory to our DC to avoid some of those price increases.
When we import like we do it takes a long time so we have to you know order early for spring selling season and to be stocked for you know when when
when we know traffic will be increasing. So it's important that we have high inventory, but we're a little too high at this point. So we're focused on bringing it down. We have a lot of initiatives in place to reduce our inventory. But again, I know we did the right thing. We made the right decision to get it there. I'm confident that we are well stocked and able to service every customer at this point.
three, three and a half million or so in GenComp that was down, but maybe talk about whatever you can for, expectations on G&A going forward.
Right. Good morning, Mark. This is Carla.
Thanks for the question. As far as as GNA, you know, we did have some decreases this year that were related to our incentive comp structure and our very large portion of it is variable and so that is directly related to our results. So as our results improved...
We do expect that portion of the SGNA, we do want to pay that because we do pay on performance. And so that's something we're watching very closely. Additionally, we always watch our SGNA very closely within each of the departments to make sure that we are actively making investments that make sense that we...
are rewarding our employees, but at the same time we're being very mindful of not over spending in certain areas and things like that. So it is something we're watching closely. We do expect it to increase just because if our performance holds true to what we want in 2023 and we meet our goals, we will be paying out those incentives next year.
Okay, and the last question for me, just looking at cash flow. It looks like you're in a pretty decent position that we could see some maybe better cash room operations, just with changes in looking capital here in 2023, but we are seeing catbacks come up a little bit. You know, maybe, you know, any additional insights you could get us into cash flow and then abilities to kind of service and pay down that debt.
2023. We have plans to do so and so far we're able to execute on those plans. I'll let cab speak about the dry powder left and left in the business but we are very excited about our plans for growth this year and feel that we're able to fund that appropriately.
Yeah, Mark, with some of the cash and capital we have, we want to focus back on the business. We took a few years off from growth. We wanted to really focus on execution, especially in times like this. If you're a traffic down, but you can raise your conversion, you can lower your discounting, you can raise your ticket average.
These are things that make us confident that we can really continue to flourish in tough times. Now it's time to grow. So we're going to take some of that cash and build back some teams and get our store growth machine running. We signed a lease already. We've got another one that we want to do by the end of the year. And invest in other areas of the business as well. So we're being...
very responsible physically with what we got and we're phasing it in.
Flo is she goes, but we're moving in the right direction for sure. Excellent. Thank you, guys.
but we're moving in the right direction for sure. Excellent. Thank you, Guest. Yeah, thanks, Mark.
As a reminder to ask a question that is star 111.
Our next question comes from a line of David Canaan, private investor.
David, your line is now open.
David, your line is now open.
Good morning. Thanks for taking my questions. First question is in regards to LVT. Do you expect with that starting to ramp that we will grow at some point this year or year in revenue but more importantly?
gross profit dollars.
David, it's still pretty early. When we talk about, you know, we're looking at traffic levels, the environment we're seeing and housing right now, that's the goal, right? We want to grow revenue and profit dollars, and there's a lot of different irons in that fire to get our margin back right now. LVT just being one of them. But it's tough to say this early, but that's ultimately the goal, yes. ...
us to the lift we got from taking price increases and how much percentage-wise traffic was down for volume down.
Right, yeah. It's pretty much all traffic, David. We balance our pricing real close. We watch the market, we watch the competitors, and we're not going to price ourselves out of the market. But we know there is traffic declines pretty much across the industry. And again, back to the focus on execution. We're going to do better with the customers coming through our door. We're being very strategic.
as we increase pricing, you know, throughout, if we want to, throughout 2023, a few here, a few there being strategic, not to impact traffic any more than it is.
So it's a healthy balance, but it's something we watch every day.
Okay, and then what was free cash flow for Q4 and how much debt did you pay down? So in the fourth quarter we actually took out because that's when we completed our share we purchased program.
What was free cash flow for Q4 and how much debt did you pay down? So in the fourth quarter we actually took out because that's when we completed our share repurchase program and...
So we were taking out debt in Q4. Okay. What was pre-cash flow for Q4 though? Excluding the repurchase of shares, just casual from operations, excuse me, less capex or property, you know, plant equipment.
include
Yeah. We'll have to die. Yeah.
We would need to look at that we don't have that number immediately available nor would.
Okay, I mean, when you file the K, I could probably back into it. And then last question, well actually two more questions, my apologies from monopolizing. You talk, you call out free transportation costs coming down.
Could you just quantify on a quarterly basis what the savings will be over your, is it a seven figure amount?
That's hard to quantify right now, David. As we received containers heavily in the fourth quarter from all over the world looking at that cost structure with international freight, it will be significant, but I cannot give you a figure at this point. Thank you.
Okay, and then you guys were very aggressive in reproducing shares, and I applaud that. A few companies really understand the value of capital allocation and...
share repurchases. So I commend you guys for that. Is there a level in debt where you're comfortable? I mean, I know right now there is no buyback, but is there a level where we could potentially expand it? And where you guys are comfortable with current business trends maintaining that debt level?
So there definitely is a level that we're comfortable with and that's one of the things that we're working through. We're actively managing the cash flow. We are reviewing it and looking at our growth plans very carefully to make sure that it's a balanced approach. So could you take on comfortably.
As a reminder, if you'd like to ask a question at this time, that is star 11.
I'm showing over the questions in queue at this time. I'd like to turn the call back to Mark Davis for closing remarks.
Thank you for listening to our earnings conference call. We anticipate filing our form 10K later today. Thank you for your interest in the title shop and have a great day.
This concludes today's conference call. Thank you for participating. You may now disconnect. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial Star 11.
I.
Good day and thank you for standing by. Welcome to the fourth quarter 2022 Title Shop Holdings earnings conference call.
At this time, all participants are in a listen-only mode. After this figures presentation, there will be a question and answer session.
To ask a question during the session, you'll need to press star 1-1 on your telephone.
You'll then hear an automated message advising your hand is raised.
To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Davis, Vice President of Investor Relations and Chief Accounting Officer. Please go ahead.
Thank you, operator. Good morning to everyone and welcome to the tile shops fourth quarter and full year earnings call. Joining me today are Cab Loma, our Chief Executive Officer, and Carly Loonon, 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 Security's litigation reform act from 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 of the SEC.
The forward-looking statements made today are asked the data to recall, and we do not undertake any obligation to update these forward-looking statements.
Today's call will also include certain non-GAP measurements. Police here earnings release for a reconciliation of those non- GAAP financial measures, which has also been posted to our company website. With that, let me now turn the call over to KAM. Thanks Mark. Good morning everyone and thank you for joining us today. Thank you.
Starting with the positive, in 2022, our company achieved our highest level of annual revenue in our 37-year history, and we're able to accomplish this milestone without opening any new stores during the year. We're going to be able to achieve our highest level of annual revenue in our 37-year history.
This milestone was made possible by the steps we've taken to improve inventory levels and execution across our store base in 2022. We've made the pick-in progress, however, in the fourth quarter, we've battled macro headwinds that contributed to lower levels of traffic in our stores and a modest decrease in comparable store sales.
While the top line results for the quarter fell short of our goals, there are a number of positive developments I'm seeing in the business.
First, we're able to successfully launch our expanded line of LVT products during the fourth quarter. We've seen a nice response from our associates and our customers following the launch.
As you know, we have been observing LVT for the past few years as our higher-end customers gradually accepted LVT as a viable option for their flooring needs. We believe this is due to advancements made in LVT product quality since it was first introduced.
Our test of LVT earlier in the year went well. Since the full launch in October , we have continued to see customers choosing to purchase tile with LVT on the same order.
We believe that we have an opportunity to grow ticket averages by cross-selling LVT to customers who are already in our source to purchase tile.
Additionally, we believe the addition of LVT gives us the opportunity to reach new customers who chose to shop elsewhere when LVT products were not available in our stores. As a reminder, LVT and other resilient flooring were projected to be approximately 30% of all industry-wide hard-surface flooring sales in the US in 2022. While we're just getting going, I'm pleased with the initial results.
and believe our LVT lines will be a key catalyst for growth in 2023. Moving to New Stort Growth. Vermont tracked the open two new stores in 2023. We expect one to open this summer and one in the second half of the year. Our operational teams are actively working to refine our new store opening procedures to ensure our 2023 store openings are positioned to deliver strong results.
Response to these cost pressures, we took steps to implement selective pricing adjustments across our assortment, particularly during the first half of 2022. In addition, during the second half of the year, we've tried to stay ahead of this by building stock levels in our more popular skews ahead of a known price increases from our suppliers.
Given the macro headwinds, we took a more conservative approach to raising prices during the second half of 2022. This conservative approach, combined with increasing inventory costs, contributed to the 200 basis points to the financial decline in gross margin rates between the third and fourth quarters.
On a positive note, international freight rates have started to come down, which should help us as we move through 2023.
Additionally, we've made great progress working with our network of suppliers to identify alternative sources for a number of our products that are lower cost. In January , I had the opportunity to travel with our purchasing teams and visit suppliers across Asia, who are partnering with us on our resource and effort.
I was impressed by the quality of the products we expected on our trip and encouraged to see first-hand examples of SKUs will be added to our assortment at a much lower cost when compared to the price of similar items purchased in late 2022.
So we'll take some time for the newly resourced products to make their way into the assortment. I believe the success we're having this area will position the company to maintain a strong overall margin profile. I'd also like to take a moment and touch on our Retail Excellence Initiative.
Over the last two years, we have focused on eliminating distractions and improving core execution in our stores. We delayed initiatives such as growing stores so we could focus our efforts on developing our teams.
Our focus areas including training on design, leadership, inventory best practices, and customer engagement.
These efforts have translated into improvement in sales to our pros, higher conversion rates, lower discretionary discounting, and a decrease in inventory losses.
While we've made great progress, our work here is never done and we'll continue to focus on the details and provide the exceptional service to every customer who watched through our doors.
Before I close, I'd like to take a moment to thank the Towshop team.
As mentioned earlier, we set an annual sales record in 2022. Our success would not be possible with healthy energy and passion you bring to your job every day.
I look forward to continuing to build on our success in 2023. With that, I'll now hand the call over to Carla to walk us through the financial results for the fourth quarter and the full year.
success in 2023. With that, I'll now hand the call over to Carla to walk us through the financial results for the fourth quarter and the full year. Carla?
Thanks, Gabby. Good morning, everyone. Fourth quarter sales at comparable stores decreased by 2.8% when compared to the fourth quarter of 2021. The decrease in sales revenue was due to decreased unit volume, which was partially offset by an increase in our average ticket value.
For the full year, we set an annual sales record with $394.7 million of revenue. Sales at comparable stores increased by 6.5 percent due to an increase in average ticket that was partially offset by a decrease in unit volume.
The gross margin rate during the fourth quarter was 64.5%. We continue to see elevated levels of inventory receipts at higher price points throughout the fourth quarter. In the first half of 2022, we effectively used price increases to offset some of the increase in inventory costs. However, we did not use that lever nearly as much during the second half of the year.
The increase in inventory costs combined with a more conservative approach to adjust prices with the primary driver for the 200 basis points sequential decrease in gross margin from the third quarter to the fourth quarter in 2022. For the full year, our gross margin rate decreased by 270 basis points.
from 68.3% in 2021 to 65.6% in 2022. The decrease in margin rate was primarily due to rising product costs that outpaced the rate of price increases that were passed on to our customers during 2022. In 2022.
Fourth quarter, 2022, Felling, General and Administrative Expenses decreased by $2.8 million from 2021.
The decrease was largely attributable to a $3.7 million decrease in compensation costs due to lower levels of annual incentives and variable compensation.
For the full year, selling general and administrative costs increased $3.8 million due to an $8.2 million increase in wages and benefits, primarily due to higher staffing levels that was partially offset by $6.5 million decrease in bonuses due to lower annual incentives and sales bonuses.
Additionally, our marketing expenses increased by $2.1 million at our IT-related expenses increased by $1.4 million in 2022 when compared to 2021. These increases were partially upset by a $2.2 million decrease in depreciation expense.
Net income was $1.5 million during the fourth quarter of 2022 and adjusted EBITDA with $8.9 million. Our adjusted EBITDA margin rate decreased by 60 basis points to 10.2% during the fourth quarter of 2022 largely due to a decrease in gross margin.
For the full year, net income increased $900,000 to $15.7 million. Adjusted EBITDA during 2022 was $49.6 million, which was in line with the $50.3 million of adjusted EBITDA generated in 2021.
Our adjusted EBITL margin rate decreased by 100 basis points for the year to 12.6%. Full year earnings per share increased by 3 cents from 29 cents in 2021 to 32 cents in 2022.
Moving to our capital allocation, we completed our $30 million share repurchase program during the fourth quarter. In total, we repurchased and retired $7.8 million shares for $30.2 million, inclusive of brokerage commission, silent
for an average share price of $3.87 per share. We financed a large portion of the share repurchase by drawing on our line of credit. We felt using our revolver was proven given our stock price. I will share more thoughts about our debt shortly. Thank you.
Turning to the balance sheet are inventory increased by $23.8 million to $121 million at the end of 2022 as compared to the beginning of the year.
This increase was driven by carrying higher inventory levels as well as an increase in inventory costs throughout the year.
We made a meaningful investment in inventory over the last year.
We believe that this investment has us well-positioned to maintain sufficient in-stock levels to serve our customers while we work through initiatives to resource portions of our sortment to lower cost suppliers. As at the end of the quarter, we had $45.4 million outstanding on our line of credit.
The $15 million sequential increase in debt from the third quarter of 2022 was largely due to the share repurchase activity that took place during the fourth quarter. We expect we will be able to use cash generated by operations to reduce our debt balance in future quarters.
As we look to 2023, we have maintained our policy of not providing revenue, adjusted EBITDA or EPS guidance. However, here are some things to think about for models. Average distributed shares should be around 45 million.
The tax rate for 2023 should be around 26%. We anticipate CAPEX for 2023 will be $15 to $20 million. This includes the two new stores in 2023, one store relocation, maintenance CAPEX for our existing 142 stores, five distribution centers.
and our corporate CAPEX which supports our store portfolio. With that, Kathy and I are happy to take any questions. As a reminder to ask a question, please press star 1-1 on your telephone. Silence from the back. Silence from the back.
Our first question comes from a line of Mark Smith with Lake Street.
Our first question comes from a line of Mark Smith with Lake Street. Mark, your line is now open.
Hey guys, a couple of quick questions for you here. Can you discuss just the demand trends that you saw during the quarter, kind of how it shifted, and then just give us a reminder of kind of seasonality that's to be built in?
Absolutely, Mark, this is CAB. Thanks for the question. See, the analogy, fourth quarter is typically a little bit lower than some of our other quarters due to the holidays, due to the winter in the north, northeast, and Midwest. So we expect that, but what we did see is our retail traffic began to slide.
and take it out of the things of that nature, but that's what I saw in the trends in the fourth quarter, for sure.
Perfect. And you give some good detail on kind of LVT, kind of long term, what the expectations are. Can you talk about just, and maybe it's still way too early, but just kind of how it's gone initially and what kind of demand looks like for that product?
Yeah, absolutely. Like you said, we're in our infancy here with our launch. You know, people are now just becoming aware that we have this line. We are happy with our initial results. You know, we're falling into a few commercial deals. We're getting more pros transitioned into our stores and our line of LVT.
It's going to take a while to ramp, but initial results are solid. Perfect. And then just inventory. You know, quite a bit year over year looks like sequentially. It's still held up pretty well. Just talk about your comfort level with this. And you know, as you look in the rearview mirror.
You know, you still feel good about the policy that you had of kind of pre-bying before you saw some price increases. And then just kind of the timing to move this inventory to a maybe more normalized level.
Absolutely. Yeah, I am happy with what we did in the past to get the inventory to our DC to avoid some of those price increases. When we import like we do, it takes a long time. So we have to, you know, order early for spring selling season and to be stocked for, you know, when, when we know traffic will be increasing.
It's important that we have high inventory, but we're a little too high at this point. So we're focused on bringing it down. We have a lot of initiatives in place to reduce our inventory. But again, I know we did the right thing. We made the right decision to get it there. I'm confident that we are well stocked and able to service every customer at this point walking through our doors. So, but then I...
expectations on G&A going forward. Right. Good morning Mark. This is Carla.
Thanks for the question. As far as S-GNA, we did have some decreases this year that were related to our incentive comp structure and our very large portion of it is variable and so that is directly related to our results. So as our results improve,
We do expect that portion of the SGNA, we do want to pay that because we do pay on performance. And so that's something we're watching very closely. Additionally, we always watch our SGNA very closely within each of the departments to make sure that we are actively making investments that make sense that we...
are rewarding our employees, but at the same time we're being very mindful of not over spending in certain areas and things like that. So it is something we're watching closely. We do expect it to increase just because if our performance holds true to what we want in 2023 and we meet our goals.
we will be paying out those incentives next year. Okay, and the last question for me, just looking at cash flow. It looks like you're in a pretty decent position that we could see some maybe better cash room operations just with changes in looking capital here in 2023, but we are seeing the catbacks come up a little bit. You know, maybe.
You know, any additional insight you could give us a cash flow and then abilities to kind of service and pay down that debt. And at the same time, just talk about kind of dry powder that you have in your ability to kind of grow and maybe use that balance sheet if you needed to or want to do. Right. Yeah, we do feel we have a strong balance sheet and cash flow we're seeing.
very strong already. We do expect to pay down that debt throughout in 2023. We have plans to do so, and so far we're able to execute on those plans. I'll let Cab speak about the dry powder left in the business, but we are very excited about our plans for growth this year and feel that we're able to fund that appropriately.
Yeah, Mark, with some of the cash and capital we have, we want to focus back on the business. We took a few years off from growth. We wanted to really focus on execution, especially in times like this. If you're a traffic down, but you can raise your conversion, you can lower your discounting, you can raise your ticket average. These are things that make us confident that we can really continue to...
flourish and tough times. Now it's time to grow. So we're going to take some of that cash and build back some teams and get our store growth machine running. We signed a lease already. We've got another one that we want to do by the end of the year. Invest another area of the business as well. We're being very responsible, fiscally, with what we got and we're phasing it in.
as she goes, but we're moving in the right direction for sure. Excellent. Thank you, guys. Yeah, thanks, Mark. As a reminder, to ask a question that is star 111.
Our next question comes from a line of David Canaan, private investor. David, your line is now open.
line of David Canaan, private investor. David, your line is now open.
Good morning. Thanks for taking my questions.
First question is in regards to LVT. Do you expect with that certain ramp that we will grow at some point this year or year over year in revenue but more importantly gross profit dollars?
The first question is in regards to LVT. Do you expect with that certain ramp that we will grow at some point this year, year over year in revenue, but more importantly, gross profit dollars?
David, it's still pretty early. When we talk about, you know, we're looking at traffic levels, the environment we're seeing and housing right now, that's the goal, right? We want to grow revenue and profit dollars, and there's a lot of different irons in that fire to get our margin back right now. LVT just being one of them. But it's tough to say this early, but that's ultimately the goal, yes. Well, let's see what we're taking about. OK, I'd rather leave some of its
Okay, and then in terms of the comp, you know, low single digit decline, how much of that was traffic versus price? Can you give us a centess to the lift we got from taking price increases and how much percentage wise traffic was down or volume down?
Right, yeah. It's pretty much all traffic, David. We balance our pricing real close. We watch the market, we watch the competitors, and we're not going to price ourselves out of the market. But we know there's traffic declines pretty much across the industry. And again, back to the focus on execution. We're going to do better with the customers coming through our door. We're being very strategic.
as we increase pricing, you know, if we want to throw up 2023, a few here, a few there being strategic not to impact traffic any more than it is. So it's a healthy balance, but it's something we watch every day.
Okay, and then what was free cash flow for Q4 and how much debt did you pay down? So in the fourth quarter we actually took out because that's when we completed our share we purchased program.
And so we were taking out that in Q4.
Okay, what was free cash flow for Q4 though? Excluding the repurchase of shares, just cash flow from operations, excuse me, less capex or property, you know, plant equipment.
We'll have to, we would need to look at that. We don't have that number immediately available in order.
Okay, I mean, when you filed the K, I could probably back into it. And then last question, actually two more questions, my apologies from monopolizing. You talk, you call about free transportation costs coming down. Could you just quantify on a quarterly basis?
what the savings will be over year. Is it a seven figure amount? That's hard to quantify right now, David. As we received containers heavily in the fourth quarter, you know, from all over the world, looking at that cost structure with international freight, it will be significant, but I cannot give you a figure at this point.
Okay, and then you guys were very aggressive in reproducing shares, and I applaud that. A few companies really understand the value of capital allocation and...
share repurchases. So I commend you guys for that. Is there a level in debt where you're comfortable? I mean, I know right now there is no buyback, but is there a level where we could potentially expand it? And where you guys are comfortable with current business trends maintaining that debt level?
So there definitely is a level that we're comfortable with and that's one of the things that we're working through. We're actively managing the cash flow. We are reviewing it and looking at our growth plans very carefully to make sure that it's a balanced approach. So could you take on comfortably, could you take on more?
If you'd like to ask a question at this time, that is star 11.
I'm showing over the questions in queue at this time. I'd like to turn the call back to Mark Davis for closing remarks. Thank you for listening to our earnings conference call. We anticipate filing our form 10K later today.
Thank you for your interest in the title shop and have a great day. This concludes today's conference call.
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