The Tile Shop Reports Third Quarter 2017 Results

7.5% Net Sales Growth 67.1% Gross Margin  Diluted Earnings per Share of $0.05 Non-GAAP Diluted Earnings per Share of $0.05

MINNEAPOLIS, Oct. 17, 2017 (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, 2017.     Net sales grew 7.5% to $84.4 million for the third quarter ended September 30, 2017 compared with $78.6 million for the third quarter ended September 30, 2016. The $5.9 million increase in net sales was due to a comparable store sales increase of 1.1%, or $0.9 million, and incremental net sales of $5.0 million from stores not included in the comparable store base. Comparable store sales growth for the third quarter of 2016 was 5.7%.

"As previously announced, a more competitive environment and increased demand for opening price point offerings led to weaker than expected results in our third quarter," said Chris Homeister, CEO. "In response, we increased our promotions, competitive pricing and advertising in the quarter as we sought the best results possible for both sales and gross profit dollars within the environment. This activity in combination with product mix changes resulted in a lower gross margin percentage during the quarter. Our actions for the remainder of the year include completing our annual product transition, further differentiating our product assortment for 2018 and continued emphasis on delivering an outstanding customer experience at The Tile Shop."  

Gross margin for the third quarter of 2017 was 67.1% compared with 70.2% for the third quarter of 2016. The lower gross margin was primarily a result of increased promotions and competitive pricing activity within a more competitive environment, as well as product mix changes. For the nine months ended September 30, gross margin was 69.1% in 2017 compared with 70.1% in 2016.

Selling, general and administrative costs for the third quarter of 2017 were $52.3 million compared with $47.4 million for the third quarter of 2016. The $4.9 million increase was primarily driven by the costs associated with opening and operating new stores.

Year to date free cash flow in 2017 of $21.3 million enabled an additional $5 million dollar reduction to long-term debt during the third quarter, bringing the company's net debt position to $1.5 million at quarter end. See the "Non-GAAP Information" and the "Non-GAAP Financial Measures" sections of this release for a reconciliation of these Non-GAAP measures to the comparable GAAP measures.

The Company opened four new retail stores in the third quarter of 2017, consisting of its first two Houston area locations in Webster, TX and Sugarland, TX, its fourth location in the Phoenix market in Glendale, AZ and its sixth location in the Detroit market located in Troy, MI. As of September 30, 2017 the Company operates 134 stores in 31 states and the District of Columbia.

For the nine months ended September 30, 2017, net sales grew 7.5% from $247.5 million in 2016 to $266.0 million in 2017. Comparable store sales for the nine-month period ended September 30, 2017 increased 2.2%. For the nine-month period ended September 30, 2016 comparable store sales increased 9.0%.

Non-GAAP Information

The Company presents non-GAAP net income, Adjusted EBITDA, Free Cash Flow and Net Debt to provide useful information to investors regarding the Company's normalized operating performance. 

On a non-GAAP basis, net income for the third quarter of 2017 was $2.7 million compared with $5.0 million for the third quarter of 2016.  Non-GAAP diluted earnings per share for the third quarter of 2017 were $0.05 compared with $0.10 for the third quarter of 2016. See the "Non-GAAP Income Reconciliation" table and the "Non-GAAP Financial Measures" section below for a reconciliation of GAAP to non-GAAP income.  
Non-GAAP Income Reconciliation
     
    Three Months Ended
    September 30, 2017   September 30, 2016
                                     
                Diluted               Diluted
            Per Share           Per Share
($ in thousands, except per share data)   Pretax   Net of Tax   Amounts   Pretax   Net of Tax   Amounts
GAAP income $   3,906   $   2,438   $   0.05   $   7,469   $   4,583   $   0.09
Special Charges: Litigation costs   436       272       0.01       725       445       0.01
Non-GAAP income (1) $   4,342   $   2,709   $   0.05   $   8,194   $   5,028   $   0.10
                                     
                                     
    Nine Months Ended
    September 30, 2017   September 30, 2016
                                     
                Diluted               Diluted
            Per Share           Per Share
($ in thousands, except per share data)   Pretax   Net of Tax   Amounts   Pretax   Net of Tax   Amounts
GAAP income $   28,204   $   18,170   $   0.35   $   29,983   $   18,190   $   0.35
Special Charges: Litigation costs   1,084       699       0.01       1,827       1,108       0.02
Non-GAAP income (1) $   29,288   $   18,868   $   0.36   $   31,810   $   19,298   $   0.37
                                     
(1) Amounts may not foot due to rounding.
 

Adjusted EBITDA for the third quarter of 2017 was $12.6 million compared with $15.3 million for the third quarter of 2016. See the "Adjusted EBITDA Reconciliation" table and the "Non-GAAP Financial Measures" section below for a reconciliation of GAAP net income to Adjusted EBITDA.
Adjusted EBITDA Reconciliation
     
    Three Months Ended
($ in thousands)   September 30,
                         
    2017   % of sales (1)   2016   % of sales (1)
GAAP net income   $   2,438     2.9 %   $   4,583     5.8 %
Interest expense     505     0.6 %       363     0.5 %
Income taxes     1,468     1.7 %       2,886     3.7 %
Depreciation and amortization   6,803     8.1 %       5,770     7.3 %
Special charges: Litigation Costs       436     0.5 %       725     0.9 %
Stock-based compensation   989     1.2 %       930     1.2 %
Adjusted EBITDA (1) $   12,639     15.0 %   $   15,257     19.4 %
                         
                         
    Nine Months Ended
($ in thousands)   September 30,
    2017   % of sales (1)   2016   % of sales (1)
GAAP net income $   18,170     6.8 %   $   18,190     7.3 %
Interest expense     1,438     0.5 %       1,382     0.6 %
Income taxes     10,034     3.8 %       11,793     4.8 %
Depreciation and amortization   19,395     7.3 %       16,954     6.8 %
Special charges: Litigation Costs        1,084     0.4 %       1,827     0.7 %
Stock-based compensation   2,759     1.0 %       3,394     1.4 %
Adjusted EBITDA (1) $   52,880     19.9 %   $   53,540     21.6 %
                         
(1) Amounts may not foot due to rounding.
 

Free Cash Flow Reconciliation
     
    (in thousands)
    Nine Months Ended
    September 30,
    2017     2016  
Net cash provided by operating activities $   49,355     $   50,678  
Purchase of property, plant and equipment        (28,031 )       (19,645 )
Free cash flows $   21,324     $   31,033  
 

Net Debt Reconciliation  
(in thousands)  
         
    September 30,
    2017
Long-term debt, net     $   5,689  
Current portion of long-term debt        8,193  
Cash and cash equivalents       (12,429 )
Net Debt   $   1,453  
       

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 17, 2017. Participants may access the live webcast by visiting the Company's Investor Relations page 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 page at www.tileshop.com.

Additional details can be located at www.tileshop.com under the Financial Information - SEC Filings section of the Company's Investor Relations page.   

About The Tile Shop

The Tile Shop (NASDAQ:TTS) is a leading 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 up to 50 full-room tiled displays which are enhanced by the complimentary Design Studio - a collaborative platform to create customized 3D design renderings to scale, allowing customers to bring their design ideas to life. The Tile Shop currently operates 134 stores in 31 states and the District of Columbia, with an average size of 20,500 square feet and sells products online at  www.tileshop.com.

The Tile Shop is a proud member of the American Society of Interior Designers (ASID), National Association of Homebuilders (NAHB), and the National Tile Contractors Association (NTCA). Visit www.tileshop.com. Join The Tile Shop (#thetileshop) on Facebook, Instagram, Pinterest and Twitter.     

Non-GAAP Financial MeasuresThe 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 special charges related to litigation, including shareholder and other litigation.  Adjusted EBITDA margin is equal to Adjusted EBITDA divided by net sales. Non-GAAP net income excludes special charges related to litigation costs, including shareholder and other litigation, and is net of tax.  Free Cash Flow is calculated by taking net cash provided by operating activities and subtracting cash spent on the purchase of property, plant and equipment. Net debt equals long-term debt, net, plus the current portion of long-term debt, minus cash and cash equivalents.

The Company believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to the Company's financial condition and results of operations.  Company management uses these non-GAAP measures to compare Company 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 the Board of Directors.  The Company believes 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 the Company's financial measures with other specialty retailers, many of which present similar non-GAAP financial measures to investors.

Company 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 the Company's 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.  The Company urges investors to review the reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures and not to rely on any single financial measure to evaluate the business.                                                                                                                                                         FORWARD LOOKING STATEMENTSThis 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
Consolidated Balance Sheets
($ in thousands, except share data)
         
    (Unaudited)   (Audited)
    September 30,   December 31,
    2017     2016  
Assets            
Current assets:            
Cash and cash equivalents   $   12,429     $   6,067  
Restricted cash       855         3,000  
Trade receivables, net       2,663         2,414  
Inventories       70,927         74,295  
Income tax receivable       2,870         1,670  
Other current assets, net       4,675         8,755  
Total Current Assets       94,419         96,201  
Property, plant and equipment, net       151,388         141,037  
Deferred tax assets       17,919         21,391  
Long-term restricted cash   -         3,881  
Other assets       2,223         2,763  
Total Assets   $   265,949     $   265,273  
             
Liabilities and Stockholders' Equity      
Current liabilities:            
Accounts payable   $   28,406     $   20,321  
Current portion of long-term debt       8,193         6,286  
Income tax payable       157         120  
Other accrued liabilities       23,970         33,461  
Total Current Liabilities       60,726         60,188  
Long-term debt, net       5,689         22,126  
Capital lease obligation, net       608         697  
Deferred rent       40,372         37,595  
Other long-term liabilities       5,043         5,768  
Total Liabilities       112,438         126,374  
             
Stockholders' Equity:            
Common stock, par value $0.0001; authorized: 100,000,000 shares; issued and outstanding:                 
52,071,879 and 51,607,143 shares, respectively       5         5  
Preferred stock, par value $0.0001; authorized: 10,000,000 shares; issued and outstanding:                 
0 shares       -         -  
Additional paid-in-capital       182,410         185,998  
Accumulated deficit       (28,888 )       (47,058 )
Accumulated other comprehensive (loss) income       (16 )       (46 )
Total Stockholders' Eq uity     153,511         138,899  
Total Liabilities and St ockholders' Equity $   265,949     $   265,273  
 

Tile Shop Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
($ in thousands, except share, and per share data)
(Unaudited)
         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
                         
    2017     2016     2017     2016  
Net sales   $   84,421     $   78,559     $   266,020     $   247,543  
Cost of sales     27,759         23,400         82,265         73,980  
Gross profit     56,662         55,159         183,755         173,563  
Selling, general and administrative expenses       52,285         47,361         154,245         142,300  
Income from operations     4,377         7,798         29,510         31,263  
Interest expense     (505 )       (363 )       (1,438 )       (1,382 )
Other income     34         34         132         102  
Income before income taxes     3,906         7,469         28,204         29,983  
Provision income taxes     (1,468 )       (2,886 )       (10,034 )       (11,793 )
Net income $   2,438     $   4,583     $   18,170     $   18,190  
                         
Earnings per common share:                    
Basic   $   0.05     $   0.09     $   0.35     $   0.35  
Diluted   $   0.05     $   0.09     $   0.35     $   0.35  
                         
Weighted average shares outstanding:                  
Basic       51,757,248         51,426,104         51,638,864         51,388,058  
Diluted       52,053,655         51,929,226         52,011,208         51,817,588  

         
Tile Shop Holdings, Inc. and Subsidiaries
Rate Analysis
(Unaudited)
         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
                         
    2017   2016   2017   2016
Gross margin rate   67.1 %     70.2 %     69.1 %     70.1 %
SG&A expense rate   61.9 %     60.3 %     58.0 %     57.5 %
Income from operations margin rate    5.2 %     9.9 %     11.1 %     12.6 %
Adjusted EBITDA margin rate   15.0 %     19.4 %     19.9 %     21.6 %

Contacts:Investors and Media: Adam Hauser763-852-2950 investorrelations@tileshop.com

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