Q1 2025 Tile Shop Holdings Inc Earnings Call

Mark Davis, Cabell Lolmaugh, Ken Cooper, Tile Shop Holdings Inc

Speaker Change: Good morning and welcome to the quarter one 2025 Tile Shop Holdings Inc. earnings conference call.

Speaker Change: This is Friends, and I'll be the Operator Assisting you today. All lines have been placed on mute to prevent any background noise.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then followed by the number one on your telephone keypad. If you would like to redraw your question, press star one again. Thank you.

Ken Cooper: I would now like to turn the call over to Ken Cooper.

Investor Relations. Please go ahead.

Ken Cooper: Thank you and good morning to everyone. Welcome to the Tile Shop's first quarter earnings call. Joining me today are Cabell Lolmaugh, our chief executive officer and Mark Davis, our chief financial officer. Certain statements made during the call today constitute forward looking statements made pursuant to and within the meaning of the safe harbor provisions of the private securities litigation reform act of 1985 as amended. Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.

Ken Cooper: 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.

Ken Cooper: Today's call will also include certain non-GAAP measurements. Please see our earnings press release for a reconciliation of those non-GAAP financial measures. The press release has also been posted on our company website. With that, let me turn the call over to Cab.

Cab: Thank you, Ken. Good morning, everyone, and thank you for joining us today for an update on our business. We continue to navigate challenges presented by lower housing turnover, market volatility, consumer confidence concerns, and a pair of noise during the first quarter.

Cab: Synthes external factors are largely out of our control. We choose to focus on the things we can influence which central realm providing an exceptional experience to our customers and effectively manage in our expenses.

Cab: Our overall comparable store sales decreased by 4% during the quarter. However, it is worth noting that we've done increase in the volume of Tile that we sold during the first quarter.

Cab: The increase in the Tile volume sold was driven by our recent initiatives, which included the expansion of entry-level, competitively priced products. We also added our Arbor collection of high-quality luxury vinyl tile products last fall that has helped bolster our LVP offerings.

Cab: By direct sourcing this line, we were able to offer this collection to our customers at attractive price points.

Cab: Additionally, we found nice volume increases in large format piles benefited from the addition of engineered hardwood and laminated products to our assortment. Overall, our assortment is in fantastic shape as we move through our spring selling season.

Cab: While our purchasing team has done a great job bringing us to this point, we still have worked ahead of us as chair of policies evolved. It is important to note that we have made significant strides over the last five years and have a much more diversified supplier base that spans across over 25 countries.

Cab: We continuously evaluate alternative sources of supply to ensure we are able to maintain a high quality offering at attractive price points for our customers.

Cab: Additionally, we carry more inventories on the typical foreign retailer, which gives us time to maneuver as tariff policies evolve.

Cab: We've also made inroads building partnerships with how manufacturers face the United States in recent years in our proud, Decurior Robots line of the mentally manufactured Tile.

Cab: We believe our season purchasing team with a deep track record of managing our robust network of suppliers across the globe has us in a good position to help us maintain a competitive advantage in this area.

Cab: Our team continues to collaborate with leading designers who've spanned our assortment of products that cater to the design community. Over the years, we forged partnerships with reputable brands, including Annie Stelke, Nikki Chu, Jeffrey Ellen Marks, Laura Ashley, and Morrison Company.

Cab: These design partnerships help us create unique tile products that are one of a kind and exclusive to the Dile Shop.

Cab: Last month we announced the expansion of our collaboration with Allison Victoria. We've enjoyed working with Allison to develop beautiful design options that feature contemporary covered combinations and distinctive details that embody Allison's design style.

Cab: And closing, I am encouraged that these changes we've made to our assortment contributed to the increase in tile volume still during the first quarter.

Cab: While we continue to navigate the near-term challenges that affect our industry, we're focused on maintaining the best absorbent of tile products in the industry, giving our customers the ability to design a space that differentiates their home and providing exceptional service to all customers who visit our stores.

With that, I'll now hand the call over to Mark.

Thanks, Cabell. Good morning, everyone.

Cab: First quarter sale is a comparable source decreased by 4% due to lower levels of sore traffic. It's important to note that 2024 included an extra day during the first quarter due to it being a leap year. We estimate the additional day resulted in sales of approximately $1 million during the first quarter of 2024 based on our average daily sales throughout the period.

Cab: As Cabell mentioned earlier, our Tile volume sales improved during the 1st quarter of 2025 when Pay a pair to the same period during prior years.

Cab: We've seen an increase in sales driven by the products we've added to our apartment over the last year and many of these products carry a lower average selling price.

Cab: It's noteworthy that we have been able to maintain our average ticket values as we've mixed into products which carry a lower average selling price by increasing our Tile volume sales.

Cab: Our gross margin rate during the first quarter was 66% which represented a 20 basis point increase compared to the first quarter of 2024. The improvement in gross margin rate was largely driven by a decrease in inventory write-offs and partially offset by an increase in customer delivery vex.

Cab: The first quarter SGA expense of $57.9 million was basically in line with the prior year first quarter. However, there were some noteworthy puts and takes.

Cab: This included a $700,000 decrease in depreciation, a $400,000 savings stemming from the closure of our distribution center in New Jersey last fall, and a $400,000 reduction of benefits

Cab: These are partially offset by a $700,000 increase in marketing, but $300,000 increase in training, and the $300,000 increase in IT expenses.

Cab: Following the end of the quarter, we are able to sub-lease the distribution space in New Jersey through the third quarter of 2026, which coincides with the time our lease of the distribution space expires.

Cab: We anticipate receiving $2 million subleasing come during this timeframe and expect approximately half of this benefit will be reflected as a reduction of our SG&A expenses over the balance of 2025 with the remaining balance providing a benefit during the first three quarters of 2026.

Cab: During the first quarter, we generated $10 million of operating cash low and added $6.1 million for a cash balance, which grew to $27.1 million at the end of the quarter. We believe we are well positioned to navigate the challenges of the current environment with a great assortment, strong balance sheet, and a talented team.

Cab: With that, Cabell and I are happy to take any questions.

Thank you

Speaker Change: And we will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.

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

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

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