Q2 2024 Tile Shop Holdings Inc Earnings Call

Thank you and good morning to everyone and welcome to the tile Shop's second quarter earnings call. Joining me today are <unk>, 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.

<unk> of the private Securities Litigation Reform Act of 1095 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 release for a reconciliation of those non-GAAP financial measures, which has been also posted on our company website.

Operator: Please see our earnings release for a reconciliation of those non-GAAP financial measures, which has also been posted on our company website. With that, I will turn the call over to Cabell.

Unidentified: Please see our earnings release for a reconciliation of those non-GAAP financial measures, which has also been posted on our company website. With that, let me turn

Operator: Please wait; the conference will begin shortly.

cap: Let me turn the call over to cap.

Cabell: Thank you Ken good morning, everyone and thank you for joining us today for an update on our business.

Cabell Lolmaugh: I'm proud of our team's execution during the second quarter, which resulted in sequential improvement and comparable store sales. We did this despite continued softness in existing home sales trends, which has created challenges for many across the home improvement industry and contributed to lower levels of traffic in our stores. While external headwinds persist, I am encouraged by the progress we have made on several key initiatives. This line includes products such as thinsets and levelers that are used by both professional and retail customers in virtually every type of tile project.

Cabell: Proud of our team's execution during the second quarter, which resulted in sequential improvement in comparable store sales.

Cabell Lolmaugh: Did this despite continued softness in existing home sales trends, which has created challenges for many across the home improvement industry and contributed to lower levels of traffic in our stores, while external headwinds persist I am encouraged by the progress we have made on several key initiatives first we rolled out our enhanced line of private label installation.

Cabell Lolmaugh: <unk> sold under the superior brand name during the second quarter. This line includes products such as thin sets levelers that he used by both pro and retail customers in virtually every type of project over.

Cabell Lolmaugh: Over the past 12 months, we've made significant strides advancing the performance of the superior line.

Speaker Change: After completing these steps to improve the product quality, we invested time training our sales teams and holding events for our pros to give everyone the opportunity to work with our new formulas.

Cabell Lolmaugh: It's important to note that our Superior Initiative is also part of our strategy to deepen our relationships with our professional customers. So far, sales of entry-level products are tracking in line with our goals, and we anticipate building on our success in the second half of the year.

Cabell Lolmaugh: It is important to note that our superior initiative is also part of our strategy to deepen our relationships with our professional customers.

Cabell Lolmaugh: As I noted earlier <unk> installation products in virtually every type of project they complete.

Cabell Lolmaugh: We're looking to get a bigger piece of this business.

Cabell Lolmaugh: We believe the steps we have taken to improve product quality combined with our ability to offer. This line at a competitive price point has us in a position to expand our penetration into this important customer segment as it relates to tile installation products over time, we believe this will create additional cross selling opportunities from our title Assortments and further strengthen our relationship.

Cabell Lolmaugh: With our pro customers.

Cabell Lolmaugh: We've also made significant headway building, our assortment of entry level competitively priced products.

Cabell Lolmaugh: We believe the expansion of entry level price products, we will attract more middle market customers seeking to complete smaller projects on a budget.

Cabell Lolmaugh: Additionally, we believe our expanded assortment strengthens our competitive position with pros seeking to complete cost effective projects for their end customers. So far sales of entry level products are tracking in line with our goals and we anticipate building on our success in the second half of the year.

Cabell Lolmaugh: Turning our attention to our website the investments made to date and our E. Commerce capabilities have helped us grow online orders by over 25% during the second quarter of 2024, when compared to the same period in 2023.

Mark: We've continued to see an increase in both traffic and conversion rates on our site and believe we have a long runway for continued growth with that I'll now hand, the call over to Mark.

Cabell Lolmaugh: Okay.

Ken Cooper: Thanks, Cab. Good morning, everyone.

Scott: Thanks, Scott Good morning, everyone second quarter sales in comparable stores decreased by six 9% compared to the second quarter of 2023 due to lower levels of store traffic that said comparable store sales when compared to last quarter.

Ken Cooper: Second quarter sales at comparable stores decreased by 6.9% compared to the second quarter of 2023 due to lower levels of store traffic. That said, comparable store sales when compared to last quarter saw a 330 basis point improvement. While we had an easier comparison and benefited from the timing shift of Easter, this result would not have been possible without the strong execution of our sales teams, given the headwinds facing our industry.

Ken Cooper: 330 basis point improvement, while we had an easier compare and benefited from the timing shift of Easter. This result would not have been possible without the strong execution of our sales teams given the headwinds facing our industry.

Ken Cooper: Our gross margin rate during the second quarter increased to 66%, which represents a 20 basis point improvement from the first quarter and a 180 basis point increase when compared to the second quarter of 2023. The increase in SG&A expense was partially due to a $1.3 million increase in bonus expense that was primarily attributable to a release of certain bonus and long-term incentive accruals during the second quarter of 2023 that was not repeated in the second quarter of 2024.

Ken Cooper: Our gross margin rate during the second quarter increased to 66%, which represents a 20 basis point improvement from the first quarter and a 180 basis point increase when compared to the second quarter of 2023.

Ken Cooper: As we've outlined in recent quarters international freight rates have fallen and we have been able to successfully secure products operating our assortment at lower price points, which help reduce our inventory and costs.

Ken Cooper: Second quarter, SG&A expenses of $58 $5 million were $2 $9 million higher than our second quarter SG&A expenses in 2023.

Ken Cooper: The increase in SG&A expense was partially due to a $1 $3 million increase in bonus expense that was primarily attributable to a release of certain bonus and long term incentive accruals. During the second quarter of 2023 that was not repeated in the second quarter of 2024. Additionally occupancy.

Ken Cooper: Additionally, occupancy costs increased by $700,000 due to an increase in rent expense associated with leases that were extended over the last year, IT-related expenses increased by $700,000 due to an increase in software licensing costs, and marketing expenses increased by $400,000 due to an increase in digital advertising expenses. However, these increases were partially offset by a $900,000 decrease in depreciation expense. During the quarter, we recorded $900,000 in asset impairment charges related to the write-down of certain store assets.

Ken Cooper: <unk> costs increased by $700000 due to an increase in rent expense associated with leases that were extended over the last year <unk> related expenses increased by $700000 due to an increase in software licensing costs and marketing expenses increased by $400000 due to an increase in digital advertising.

Ken Cooper: <unk> expenses. These increases were partially offset by $900000 decrease in depreciation expense and.

Ken Cooper: And a $700000 decrease in variable compensation expenses.

Ken Cooper: During the quarter, we recorded $900000 of asset impairment charges related to the write down of certain star assets.

Ken Cooper: Turning our attention to balance sheet and cash flow information, we ended the quarter with $25.3 million of cash and no bank debt. We generated $23.5 million of operating cash flow as of June 30, 2024. We believe we're well positioned to navigate the challenges of the current environment with a great team, a strong balance sheet, and the enhancements we're making to serve our customers. Thank you. We will now.

Ken Cooper: Turning our attention to the balance sheet and cash flow information, we ended the quarter with $25 $3 million of cash and no bank debt, we generated $23 5 million of operating cash flow as of June 32024, We believe we are well positioned to navigate the challenges of the current environment with the green.

Ken Cooper: <unk> strong balance sheet and the enhancements, we're making to serve our customers.

Cabot: Does that Cabot I are happy to take any questions.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.

Operator: And if you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: And if you are called upon to ask your question and our listening via loud speaker on your device.

Operator: Pick up your handset and ensure that your phone is not on mute when asking your questions.

Operator: There are no questions I will now turn the conference back over to Ken Cooper for closing remarks.

Operator: Thank you for listening to our earnings conference call, we anticipate filing our Form 10-Q later today. Thank you for your interest in the tile shop and have a great day.

Operator: Yeah.

Speaker Change: This concludes today's conference call you may now disconnect.

Operator: This concludes today's conference call. You may now disconnect.

Speaker Change: Please wait the conference will begin shortly.

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