Tile Shop Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 4 speakers on the call.

Operator

Thank you for standing by. My name is Max, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Second Quarter 2024 Tile Shop Holdings, Inc.

Operator

Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I would like to turn the call over to Ken Cooper, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, and good morning to everyone. Welcome to the Tile Shop's Q2 earnings call. Joining me today are Cab Loma, 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 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.

Speaker 1

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. With that, let me turn the call over to Cab.

Speaker 2

Thank you, Ken. Good morning, everyone, and thank you for joining us today for an update on our business. I'm proud of our team's execution during the Q2, which resulted in sequential improvement in 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'm encouraged by the progress we have made in several key initiatives.

Speaker 2

First, we rolled out our enhanced line of private label installation products sold under the Superior brand name during the Q2. This line includes products such as thinsets and levelers that are used by both pro and retail customers in virtually every type of tile project. Over the past 12 months, we have made significant strides advancing the performance of the Superior line. 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. It's important to note that our superior initiative is also part of our strategy to deepen our relationships with our professional customers.

Speaker 2

As I noted earlier, pros use installation products in virtually every tile project they complete. We're looking to get a bigger piece of this business. We believe 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 tile assortment and further strengthen our relationships with our pro customers. We've also made significant headway building our assortment of entry level competitively priced products.

Speaker 2

We believe the expansion of entry level priced products will attract more middle market customers seeking to complete smaller projects on a budget. 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

Speaker 1

the year. Turning our attention to

Speaker 2

our website. The investments made to date in our e commerce capabilities have helped us grow online orders by over 25% during the Q2 of 2024 when compared to the same period in 2023. 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.

Speaker 3

Thanks, Cab. Good morning, everyone. 2nd quarter sales to comparable stores decreased by 6 0.9% compared to the Q2 of 2023 due to lower levels of store traffic. That said, comparable store sales when compared to last quarter saw 3 30 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 Q2 increased to 66%, which represents a 20 basis point improvement from the 1st quarter and a 180 basis point increase when compared to the Q2 of 2023.

Speaker 3

As we've outlined in recent quarters, international freight rates have fallen and we have been able to successfully secure products operating in our assortment at lower price points, which help reduce our inventory costs. 2nd quarter SG and A expenses of $58,500,000 were $2,900,000 higher than our Q2 SG and A expenses in 2023. The increase in SG and A expense was partially due to a $1,300,000 increase in bonus expense that was primarily attributable to a release of certain bonus and long term incentive accruals during the Q2 of 2023 that was not repeated in the Q2 of 2024. 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.

Speaker 3

These increases were partially offset by $900,000 decrease in depreciation expense and a $700,000 decrease in variable compensation expenses. During the quarter, we recorded $900,000 of asset impairment charges related to the write down of certain store assets. Turning our attention to the balance sheet and cash flow information, we ended the quarter with $25,300,000 of cash and no bank debt. We generated $23,500,000 of operating cash flow at June 30, 2024. We believe we're well positioned to navigate the challenges of the current environment with a great team, strong balance sheet and the enhancements we're making to serve

Operator

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

Speaker 1

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

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

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Key Takeaways

  • Comparable store sales declined 6.9% year-over-year in Q2 due to softer store traffic, but sequential performance improved by 330 basis points compared to Q1.
  • The launch of the enhanced private-label installation line under the Superior brand—combined with targeted sales training and pro events—is designed to deepen professional customer relationships and drive cross-selling.
  • An expanded assortment of competitively priced entry-level products is attracting middle-market consumers and cost-conscious pros, with sales tracking in line with management’s goals for the second half of the year.
  • Online orders grew by over 25% year-over-year in Q2, fueled by higher website traffic and conversion rates, positioning e-commerce as a long-term growth driver.
  • The company closed the quarter with $25.3 million in cash, no bank debt and generated $23.5 million of operating cash flow, while lower international freight rates helped reduce inventory costs.
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Earnings Conference Call
Tile Shop Q2 2024
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