The Tile Shop Reports Third Quarter 2015 Results

9.7% Comparable Store Sales Growth

79.8% Operating Income Growth

19.3% Adjusted EBITDA Margin, 40.0% Adjusted EBITDA Growth

Diluted Earnings per Share of $0.07, growth of 133.3%

Non-GAAP Diluted Earnings per Share of $0.08, growth of 166.7%

MINNEAPOLIS, Oct. 20, 2015 (GLOBE NEWSWIRE) — Tile Shop Holdings, Inc. (NASDAQ:TTS) (the “Company”), a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories, today announced results for its third quarter ended September 30, 2015. 

Net sales grew 15.3% to $72.4 million for the quarter ended September 30, 2015 compared with $62.8 million for the third quarter of 2014. The $9.6 million increase in sales was due to a comparable store sales increase of 9.7%, or $6.1 million in the quarter and incremental net sales of $3.5 million from stores not included in the comparable store base.

“We are pleased to report a very strong third quarter,” said Chris Homeister, CEO.  “The progress made on our key initiatives continues to yield positive returns, and our third quarter represented an important milestone in delivering improved operating leverage and significant earnings growth versus last year. Meaningful sequential improvements in both comparable store sales growth and gross margin were key to our results.” 

Gross margin was 70.0% for the quarter compared with 69.2% for the third quarter of 2014. The gross margin rate improvement in the third quarter was primarily driven by reduced discounting and improved margin on customer delivery revenue. Gross margin for the nine months ended September 30, 2015 was 69.2%.

Selling, general and administrative costs for the third quarter were $44.0 million compared with $39.8 million for the third quarter of 2014. The $4.2 million increase was primarily driven by the costs associated with opening and operating new stores and variable expenses associated with revenue growth.

The Company opened one new store in the third quarter of 2015 in Haltom City, Texas, in the existing Dallas, Texas market.  As of the end of the quarter, the Company operates 111 stores in 31 states.

For the nine months ended September 30, 2015, net sales grew 14.0% from $193.9 million in 2014 to $221.1 million in 2015. Comparable store sales for the nine month period increased 6.6%.

Non-GAAP Information

The Company presents non-GAAP net income and Adjusted EBITDA to provide useful information to investors regarding the Company’s normalized operating performance. 

On a non-GAAP basis, net income for the quarter was $3.9 million, compared to $1.6 million in the comparable prior year period.  Non-GAAP diluted earnings per share for the quarter ended September 30, 2015 were $0.08. Non-GAAP diluted earnings per share for the quarter ended September 30, 2014 were $0.03. 

See the “Non-GAAP Net Income” table and the “Non-GAAP Financial Measures” section below for a reconciliation of non-GAAP to GAAP net income.

Non-GAAP Net Income
($ in thousands, except share and per share data)
  Three months ended 
September 30, 
    Nine months ended 
September 30, 
      2015       2014       2015       2014
                       
Reported income before income taxes $   6,197   $   2,510   $   20,295   $   15,072
Loss on extinguishment of debt       –          –       194         –
Special charges     162       191       952       1,544
Non-GAAP net income before taxes     6,359       2,701       21,441       16,616
Provision for income taxes     2,500       1,083       8,858       6,646
Non-GAAP net income $   3,859   $   1,618   $   12,583   $   9,970
                       
Weighted average basic shares outstanding       51,161,348         51,016,487         51,137,650         51,006,610
Weighted average diluted shares outstanding       51,424,979         51,066,497         51,254,547         51,103,216
Basic earnings per share    $   0.08     $   0.03     $   0.25     $   0.20
Diluted earnings per share   $   0.08     $   0.03     $   0.25     $   0.20

For the third quarter of 2015, Adjusted EBITDA was $13.9 million compared with $10.0 million for the third quarter of 2014, representing 40.0% growth. See the “Adjusted EBITDA” table and the “Non-GAAP Financial Measures” section below for a reconciliation of net income to Adjusted EBITDA.

Adjusted EBITDA 
($ in thousands)
  Three months ended
September 30, 
    Nine months ended
September 30, 
    2015     2014     2015     2014
                       
Net income $ 3,761   $ 1,504   $ 11,910   $ 9,041
Interest expense    503     906     2,101     2,352
Income taxes    2,436     1,006     8,385     6,031
Depreciation and amortization    5,504     5,076     16,597     14,302
Special charges   162     191     952     1,544
Stock-based compensation    1,583     1,284     4,226     3,910
Adjusted EBITDA  $ 13,949   $ 9,967   $ 44,171   $ 37,180


Financial Guidance                                                                                                                                   

The Company is providing updated expectations for full year 2015 based on past performance, anticipated new store openings and current economic conditions.

For the full year ending December 31, 2015 the Company expects:

($ in millions, except per share data) 2015       2014  
Net sales $289 – $292     $ 257.2  
Comparable store sales change mid single digits       (0.4 %)
Gross Margin % of Net Sales approx. 69%       69.6 %
Depreciation & Amortization approx. $23     $ 19.9  
Stock Based Compensation approx. $5     $ 4.6  
Effective Tax Rate approx. 41%       41 %
Non-GAAP Earnings Per Share $0.31 to $0.33     $ 0.23  
Adjusted EBITDA $57 – $60     $ 47.5  
Fully diluted shares outstanding approx. 51 million 51 million
New stores 7 to 8       19  
Capital Expenditures $18 to $20     $ 41.2  

Webcast and Conference Call

The Company will host a conference call via live webcast for investors and other interested parties beginning at 9:00 a.m. Eastern Time on Tuesday, October 20, 2015. Participants may access the live webcast by visiting the Company’s investor relations website at www.tileshop.com. The call can also be accessed by dialing (844) 421-0597, or (716) 247-5787 for international participants. A webcast replay of the call will be available on the Company’s Investor Relations website at www.tileshop.com.

Additional details can be located in the filing at www.tileshop.com under the Financial Information – SEC Filings section of its Investor Relations page.   

About Tile Shop Holdings and Tile Shop

The Tile Shop is a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories in the United States. The Company offers a wide selection of high quality products, exclusive designs, knowledgeable staff and exceptional customer service, in an extensive showroom environment with more than 50 full-room tiled displays. The Company currently operates 111 stores in 31 states, with an average size of 22,000 square feet. The Tile Shop also sells products online at www.tileshop.com

Non-GAAP Financial Measures

The Company calculates Adjusted EBITDA by taking net income calculated in accordance with GAAP, and adjusting for interest expense, income taxes, depreciation and amortization, stock based compensation and other special, non-recurring charges including investigation and litigation costs.  Adjusted EBITDA margin is equal to Adjusted EBITDA divided by net sales.   Non-GAAP net income excludes loss on extinguishment of debt and special, non-recurring charges including investigation and litigation costs, and is net of tax.

We believe that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations.  Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, for purposes of determining management incentive compensation, and for budgeting and planning purposes.  These measures are used in monthly financial reports prepared for management and our board of directors.  We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with other specialty retailers, many of which present similar non-GAAP financial measures to investors.

Our management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP.  The principal limitations of these non-GAAP financial measures are that they exclude significant expenses and income that are required by GAAP to be recognized in our consolidated financial statements.  In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results.  We urge investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures and not to rely on any single financial measure to evaluate our business.

FORWARD LOOKING STATEMENTS

This press release includes “forward looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995.  Forward-looking statements may be identified by the use of words such as “anticipate”, “believe”, “expect”, “estimate”, “plan”, “outlook”, and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters.  These forward looking statements include any statements regarding the Company’s strategic and operational plan and expected financial performance (including the financial performance of new stores).  Forward looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved.  Forward looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward looking statements, including but not limited to unforeseen events that may affect the retail market or the performance of the Company’s stores.  The Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.  Investors are referred to the most recent reports filed with the SEC by the Company.

Tile Shop Holdings, Inc. and Subsidiaries          
Condensed Consolidated Balance Sheets          
($ in thousands, except share data)          
           
     (Unaudited)       (Audited) 
    September 30,
2015
    December 31,
2014
           
ASSETS          
Current assets:          
Cash and cash equivalents $     14,644     $     5,759  
Trade receivables, net       2,248           1,712  
Inventories       63,195           68,857  
Income tax receivable       820           4,937  
Deferred taxes and other current assets, net       8,281           7,268  
Total current assets       89,188           88,533  
Property, plant and equipment, net       134,789           139,294  
Deferred taxes and other assets, net       24,169           24,363  
TOTAL ASSETS $     248,146     $     252,190  
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable $     15,621     $     13,759  
Income tax payable       3,252           –   
Other accrued liabilities       22,414           18,393  
Total current liabilities       41,287           32,152  
Long-term debt, net       57,555           88,525  
Capital lease obligation, net       818           890  
Deferred rent        35,320           33,163  
Other long-term liabilities       3,260           3,765  
TOTAL LIABILITIES       138,240           158,495  
           
           
           
Stockholders’ equity:          
Common stock, par value $0.0001; authorized: 100,000,000 shares; issued and outstanding: 51,376,166 and 51,314,005 shares, respectively       5           5  
Preferred stock, par value $0.0001; authorized 10,000,000 shares; issued and outstanding: 0 shares         –              –   
Additional paid-in-capital       178,678           174,371  
Accumulated deficit       (68,771 )         (80,681 )
Accumulated other comprehensive income       (6 )           –   
Total stockholders’ equity       109,906           93,695  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $     248,146     $     252,190  

Tile Shop Holdings, Inc. and Subsidiaries                        
Condensed Consolidated Statements of Income                        
($ in thousands, except share, and per share data)                        
(Unaudited)                        
($ in thousands, except per share data)   Three months ended 
September 30, 
    Nine months ended 
September 30, 
 
      2015         2014         2015         2014    
Net sales $   72,404     $   62,806     $   221,073     $   193,850    
Cost of sales     21,691         19,348         68,096         58,957    
Gross profit      50,713         43,458         152,977         134,893    
Selling, general and administrative expenses     44,047         39,752         130,678         117,106    
Income from operations     6,666         3,706         22,299         17,787    
Interest expense     503         906         2,101         2,352    
Other income (expense)     34         (290 )       97         (363 )  
Income before income taxes     6,197         2,510         20,295         15,072    
Provision income taxes     2,436         1,006         8,385         6,031    
Net income $   3,761     $   1,504     $   11,910     $   9,041    
                         
Earnings per common share:                        
Basic   $   0.07       $   0.03       $   0.23       $   0.18    
Diluted   $   0.07       $   0.03       $   0.23       $   0.18    
                         
Weighted average shares outstanding:                        
Basic       51,161,348           51,016,487           51,137,650           51,006,610    
Diluted       51,424,979           51,066,497           51,254,547           51,103,216    
                         
Rate Analysis               
                         
Tile Shop Holdings, Inc. and Subsidiaries                        
Rate Analysis                        
(Unaudited)                        
    Three Months ended 
June 30,
    Nine Months ended 
June 30,
 
      2015         2014         2015         2014    
Gross margin rate       70.0   %       69.2   %       69.2   %       69.6   %
SG&A expense rate       60.8   %       63.3   %       59.1   %       60.4   %
Income from operations margin rate       9.2   %       5.9   %       10.1   %       9.2   %
Adjusted EBITDA margin rate       19.3   %       15.9   %       20.0   %       19.2   %

CONTACT: Investors and Media: 
Adam Hauser
763-852-2950
investorrelations@tileshop.com