Tile Shop Hldgs Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Negative Sentiment: Comparable store sales fell 3.5% in Q2 as weak housing turnover and lower store traffic pressured results.
  • Positive Sentiment: Unit volume sales improved modestly thanks to assortment expansions, including LVT Arbor, laminate, engineered wood, large-format tile and the new Signature line.
  • Negative Sentiment: Gross margin rate declined by 160 basis points to 64.4%, driven by increased discounting and higher product costs.
  • Positive Sentiment: Operational actions—closing two distribution centers, reducing the corporate workforce and cutting expenses—are expected to lower annual SG&A by about $1 million.
  • Positive Sentiment: The company generated $13.5 million of operating cash flow in the quarter and ended with a cash balance of $27.8 million.
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Earnings Conference Call
Tile Shop Hldgs Q2 2025
00:00 / 00:00

There are 4 speakers on the call.

Operator

Good day, everyone, and thank you for standing by. My name is Argy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 twenty twenty five Tile Shop Holdings, Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Thank you. I would now like to turn the call over to Ken Cooper, Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning to everyone. Welcome to the Tile Shop's second quarter earnings call. Joining me today are Cav 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 press release for a reconciliation of those non GAAP financial measures. The press release also has been posted on our company website.

Speaker 1

With that, let

Speaker 2

me turn the call over to Cap.

Speaker 3

Thank you, Ken. Good morning, everyone, and thank you for joining us today for an update on our business. During the second quarter, we continued to navigate a very challenging housing market. While housing turnover remains at historically low levels and presents a headwind for our entire industry, we were encouraged by a modest improvement in unit volume sales driven by the ongoing refinements we've been making to our assortment. Unfortunately, the unit volume increases were offset by greater use of discounting in the quarter and greater sales of products at the low end of our recently expanded product assortment, which put pressure on our average ticket.

Speaker 3

While challenging conditions persist, we believe the steps we've taken have us well positioned to appeal to a broader base of customers considering a home remodeling project. Further, we are seeing more examples where we've been able to grow tickets by picking up mudroom or basement flooring when we sell tile for a bathroom or kitchen. The refinements we've made to our assortment over the last year include the expansion of our LVT offerings, such as our exclusive Arbor line, which was released last fall. Additionally, we've added laminate and engineered wood flooring options over the last year, which are contributing to the increase in square footage volumes that I referenced earlier. We've also expanded our assortment of large format tile offerings over the last year, which positioned us to serve customers seeking options in this growing flooring category.

Speaker 3

On deck, we have our Signature line, which just launched over the last quarter. The Signature line includes a robust offering of over two fifty different wall tile and matching trim products with many color options available to complement a variety of styles. Our sales team is excited to have this new offering and I'm looking forward to see how it performs in the 2025 and into 2026. While we've made a number of nice additions to our assortment over the last year, we recognize the uncertainty and volatility tariffs have presented to our industry. However, it is important to remind you that we believe we are well positioned to handle tariff policy as it evolves.

Speaker 3

For instance, we currently source products from well over 20 countries across the world, which means we're not overly reliant on a single country outside of The U. S. As we've evaluated this risk, we've noted the proposed tariffs continue to change rapidly and we continue to monitor this closely. Additionally, we carry more inventory than the typical retailer. We believe this gives us even more time to pivot if needed as tariffs take effect.

Speaker 3

Further, we have a seasoned purchasing team with deep experience working with vendors across the world to identify alternative sources of supply should costs go up in one part of the world and it becomes advantageous to source similar products from another part of the world. In short, time is on our side. Before I turn the call over to Mark, I'd like to address one more topic. Although our team has and will continue to fight valiantly, this extended difficult housing market has had an adverse effect on our profitability. Over the last nine months, we've closed two of our distribution centers, reduced our corporate workforce by about onethree and aggressively cut expense budgets across departments.

Speaker 3

We also closed one store at the end of its lease in the 2025 and a second store in the third quarter. The actions we've taken have been the tough decisions, but they have been the right decisions to help curtail spending given the contraction we've seen in our business. We intend to place further emphasis near term on continued efforts to reduce expense, limit capital spending and identify efficiencies across our business while we navigate this challenging period. With that, I'll now hand the call over to Mark.

Speaker 2

Thanks, Cap. Good morning, everyone. Second quarter sales comparable stores decreased by 3.5% due to lower levels of store traffic. As Cap mentioned, our tile volume sales improved during the 2025 when compared to the same period during the prior year. While the modest improvement in unit volumes is encouraging, the volume tailwind was offset as we mixed into products carrying lower average selling prices.

Speaker 2

Our gross margin rate during the second quarter was 64.4%, which represents a 160 basis point decrease compared to the 2024. The decrease in gross margin was driven by an increase in discounting as well as an increase in product costs. Second quarter SG and A expense of $56,400,000 was $2,100,000 lower than the second quarter SG and A expenses in 2024. The decrease was primarily due to an $800,000 decrease in asset impairment, dollars 700,000 related to the closure of our New Jersey distribution center in the 2024, a $700,000 decrease in marketing, and a $400,000 decrease in depreciation. Together, these were partially offset by a $400,000 write off of merchandising supplies.

Speaker 2

During the second quarter, we closed our distribution center in Spring Valley, Wisconsin. We did not incur any material asset impairment or severance charges in connection with the DC closure and anticipate this action will reduce our annual SG and A expense by approximately $1,000,000 As Kat mentioned earlier, we intend to continue to evaluate options to reduce expenses, curtail capital spending, and identify efficiencies across our business while the housing backdrop remains challenged. During the 2025, we generated $13,500,000 of operating cash flow and added $6,800,000 to our cash balance, which grew to $27,800,000 at the end of the quarter. With that, Cab and I are happy to take any questions.

Operator

At this time, I would like to remind everyone that in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q and A roster. That ends our Q and A session. And I will now turn the call back over to Ken Cooper, Investor Relations. Please go ahead.

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

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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