Tile Shop (TTSH) 2 Mar 232022 Q4 Earnings call transcript

Good day and thank you for standing by. Welcome to the Fourth Quarter 2022 Tile Shop Holdings Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mark Davis, Vice President of Investor Relations and Chief Accounting Officer. Please go ahead.

operator. you, Thank everyone quarter to to Tile the Good full and year fourth and earnings Shop's morning welcome call.

Financial Joining me and Chief Officer; Chief our Officer. today are Karla Cab Lunan, Lolmaugh, Executive our

within today made also statements for statements to earlier the Private our of earnings we during include harbor company has call Securities see statements our Act and the the press Certain reconciliation as constitute and Litigation amended. release a of will The meaning also Reform our the measurements. made as of forward-looking pursuant SEC. date provisions with the do financial forward-looking safe not issued call Please and of XXXX, been from and non-GAAP such to uncertainties are Today's today Those of earnings measures Such subject both release are to known in differ certain unknown our website. results forward-looking uncertainties materially those could statements. update filings that of and risks undertake call the statements. any this cause risks in non-GAAP which are to made actual statements forward-looking to and posted these described obligation

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

today. everyone you and Mark. Thanks, morning, Good for joining thank us

progress. This our milestone significant We've we've XXXX, opening and execution level company our this during highest able in inventory taken levels store any Starting in with the new positive. base XXXX. to In was annual without year. of by we're the accomplish our milestone possible to revenue achieved across the made our improve XX-year and stores made history steps

store headwinds in traffic levels and our in a modest the in macro comparable that to contributed lower fourth of However, we quarter, stores decrease sales. battled

results number positive the for goals, business. are short I'm there quarter a our developments seeing of the the top are in of line While

our launch nice line customers products from our our able of seen and a during associates First, launch. response quarter. fourth expanded We've successfully LVT following we're the to the

As gradually we this been to in LVT LVT have made was needs. option for introduced. higher-end few is observing LVT customers the a accepted flooring know, viable quality past it our first since believe advancements their you as We due years as product for

of in the are Since test tile. purchase full went opportunity LVT choosing in by LVT continued same already customers year cross-selling to we order. the an purchase have We we in see Our that earlier tile to to well. believe in customers to October, launch to the who stores have ticket grow LVT averages our with

of stores. who products LVT to available gives the shop we not in elsewhere new us the addition reach Additionally, customers LVT opportunity believe chose our to were when

reminder, As were industry-wide projected all and the LVT a U.S. surface in resilient in of be XXXX. sales approximately flooring hard flooring to other XX%

our with pleased lines a going, just I'm will and results we're getting in believe XXXX. catalyst key be While LVT initial the for growth

store on new track We're X in new to XXXX. Moving growth. stores to open

in We to of and expect summer half open year. the X the X second this

to opening new actively deliver our openings strong to ensure store are operational Our positioned to teams XXXX our are store working results. refine procedures

The to supply is area third our I'd address chain. like

our elevated implement XXXX. XX last pressures, of pressures Over cost across we in selective in these labor response inflationary cost pricing other energy, to prices months, step first the we've the particularly half adjustments compounded assortment, to pressures. response our from rising increases during were suppliers and by took In freight to seen These rates. international

this stock more increases of second of In by to from year, the ahead our ahead addition, our in tried popular during SKUs levels price stay building of the half we've announced suppliers.

a of positive as during freight costs we On margin XXXX. rates gross come rates second increasing approach, which in help started to contributed the have basis approach to decline XXXX. half sequential note, the conservative more through the prices a inventory down us XXX took to combined point we headwinds, macro conservative the fourth international This Given quarters. raising move between and should third with

Additionally, adding in impressed to identify we products of resourcing late trip sources lower see of at the had with our SKUs number encouraged travel firsthand suppliers to we'll by the of cost. assortment a to effort. we've was a In are examples January, when compared at alternative progress who with our with purchasing products much working XXXX. and price on team similar items lower suppliers for our opportunity be our I on purchased made quality Asia to network inspected our I across of our cost us to the visit to a the of great partnering

products some our the margin profile. retail It I'd initiative. newly resource into maintain the on excellence having believe to take in their area to assortment. to will overall the a time for like success position way moment the this make take strong company a touch we're to I will also

on focus efforts we in delayed focused core distractions X eliminating our so last our teams. We as can the have execution we developing such improving stores. stores, Over years, growing on our initiatives and

inventory and including efforts engagement. inventory customer losses. translated focus discretionary lower to These sales decrease practices Our areas, rates, have pros, training on a conversion best design, into discounting improvement higher our leadership, and in in

customer in our we'll to the details work great continue providing While service through walks never here and progress, is to focus our done every who exceptional on doors. we've made

Tile team. close, like a to the Shop to I I'd Before take thank moment

we record XXXX. As in mentioned an sales set earlier, annual

success build Our you your energy in success on forward possible every look be job to the without bring continuing day. I would and not XXXX. our passion to to

walk hand quarter to fourth full the now through the I'll and for to results year. Karla the over financial Karla? that, us the With call

morning, by partially was our average The unit an quarter sales X.X% volume at stores which due when fourth to revenue quarter decreased Good by decreased Fourth was compared the everyone. value. to decrease Cabby. comparable increase Thanks, sales offset XXXX. in ticket of in

to stores $XXX.X Sales of with partially an offset in comparable was unit sales an by a increase annual volume. that record average revenue. ticket due full year, million at the decrease in For X.X% by we set increased

gross quarter the The during XX.X%. rate margin fourth was

throughout receipts the first of of higher costs. inventory the XXXX, continue price effectively in In points see elevated we used the at some offset quarter. levels increase We to half of inventory fourth increases price to

in nearly adjust the fourth during the costs that did However, half The a the margin use we third point the more inventory was as of XXX with quarter second sequential lever in to to combined much not driver quarter XXXX. from the primary conservative year. approach increase in basis the decrease gross for prices

our The XX.X% gross rate rising XXX during primarily For passed by in rate increases the margin in in from rate points customers to was decrease costs margin of price that decreased XXXX. basis on outpaced XXXX. year, product XX.X% due our were XXXX full to that to the

to selling, in $X.X incentives administrative quarter due decreased compensation million costs by million $X.X largely and levels compensation. XXXX general of Fourth to expenses a decrease annual decrease from variable XXXX. and The attributable lower is

For in the offset full $X.X levels benefits, annual decrease an administrative in wages primarily million increase lower year, a increased was due sales that due due million bonuses. selling, and and partially costs and million $X.X $X.X bonuses to incentives to by general to higher staffing

our IT-related during depreciation the and expense. XXXX. decrease $X.X was XXXX compared marketing our million a when expenses increases quarter million income increased to million adjusted $X.X million. partially These Net was $X.X in by in were fourth by Additionally, XXXX expenses and by of $X.X EBITDA offset increased million $X.X

Our XX gross to quarter during fourth XXXX, points to adjusted a XX.X% decreased in margin rate largely EBITDA by margin. the basis due of decrease

million Adjusted $XX.X year, during the the million. $XX.X increased EBITDA income net XXXX. in to $XX.X was in full $XXX,XXX For EBITDA was adjusted generated million which line with XXXX

by XXXX increased $X.XX to Our adjusted margin year $X.XX for $X.XX in basis EBITDA to XXX Full the in rate XXXX. points XX.X%. per from earnings decreased share by year

more completed shares Moving million during to We repurchase of the total, commissions on our We revolver line retired fourth $XX.X per of about for prudent for average of X.X inclusive share. brokerage repurchase financed share using repurchased shortly. our We I In share share will our of stock felt million, program thoughts capital portion an large drawing our million $X.XX our allocation. by debt price credit. we and given our price. was a quarter. the $XX

the Turning balance to sheet.

end $XX.X increase inventory the the levels was inventory beginning $XXX investment costs the as This the the made higher carrying increase by over as inventory year. well throughout as by year. increased meaningful year. XXXX driven compared a last million of to to inventory million in at Our We of an in

while to work we suppliers. We sufficient lower to believe resource customers our assortment has through us to this serve to well initiatives portions investment our levels of in-stock cost positioned maintain

share the the XXXX during activity third end credit. The in debt $XX.X the of was of our outstanding we line the quarter. million had quarter, increase million of took quarter that sequential due fourth $XX largely on to from the As place of repurchase

in be will quarters. by to able operations cash debt to We use reduce balance generated future we expect our

have look not to we our or of As we adjusted providing revenue, XXXX, EPS EBITDA guidance. policy maintained

X for This CapEx think million. XXXX existing are $XX around for here stores, in store supports which distribution should tax We stores things XXX XXXX; be million. centers be However, our X models. will to for relocation, about XXXX some shares maintenance $XX store The our and rate million CapEx Average diluted be the corporate for portfolio. to around our CapEx includes X XX XX%. should anticipate new

any are I and Cabby questions. that, With take happy to

Street. comes line of question [Operator Instructions] from Lake first Our with Mark Smith the

seasonality of you the here. And during questions reminder how for just kind shifted? demand us give it quick Can a kind couple of of the that built discuss A just quarter, trends saw in? you you of typically that's then

question. quarters is Northeast due in some the winter This Thanks to Seasonality, bit to holidays, the of Cab. typically Mark. Absolutely, lower other our fourth is Midwest. little and for than the quarter due a

that. a we retail -- traffic when expect to traffic we to bit see pro. did So began our slide what is But compared our

we Our that sector. to and well was stores our well. sales low do in the in strong retail noticeably continue and But we pro as saw were pro

going averages quarter the traffic on saw sure. fourth we and that's we execution and ticket stores, and I that in trends rates nature. down But conversion when of the for So things really our saw what on focused in

still what like the good you it's just the term, kind about kind are. detail maybe of but and for expectations on early talk how it's looks boutique long And kind product? -- demand gave too way initially Can just what of of kind that Perfect. gone some and of you

you our have that said, Yes, this Like with becoming just we're launch. our line. infancy now in People absolutely. are aware we here

commercial are It's transitioned We into We're ramp initial deals. in stores falling LVT. initial results with few more pros to wild of line going results. getting a take our solid. We're but our our are a happy into

a up pretty up held still sequentially, quite And year-over-year. just Perfect. then well. looks it's bit like inventory, It

still more you feel comfort talk about that Just timing as then some move you did prebuying your of we about just the level kind this. policy in good kind And inventory normalizable? of of do before to and -- maybe rearview the had this the with increases look you saw to price mirror,

Absolutely. with When increases. DCs we Yes, like we I am time. in of long some takes get happy past the the price to it to inventory a do, avoid to those our import, we did what

to be and will traffic So stocked we to a be know have season for order selling spring for increasing. early when we

So that it's at have we're high we a it's little inventory high point. this important but too --

focused bringing on So it we're down.

service stocked lot We But point, confident did there. and right that the we well inventory. customer We doors. initiatives our to know reduce we are right have the to get through our I thing. walking able I'm place of at to this a decision made every in again,

just going sounds talk you can down $X comp to in of on kind is. Maybe sustainable we've bit G&A or want was about expectations just but here, It look maybe about a it G&A a cost million for the at lower whatever little like $X.X bit that I so lastly then quarter. expected talk was And during million, how than had incentive you Perfect. forward? just

Right. question. Thanks is Mark, the Karla. this for

so that As SG&A, are portion to a is this very far to it and year incentive large we as our is related -- results. variable directly comp did our related structure that of were decreases have and some

do the So do of expect because portion our pay to we we we that do want on improve, that pay performance. results as SG&A,

And so that's closely. something we're watching very

SG&A certain that the are at make investments things our of each not watch but to departments employees sure sense very and making our always within that we're being we like mindful time, actively we the closely in make are of overspending we same that Additionally, rewarding that. very areas

paying meet something when we're watching will year. out we if just what it So those it our our do to XXXX in We closely. is holds performance we incentives want true we because expect be goals, to increase next

flow pay dry and decent for cash you're And on your then maybe last and abilities a just grow XXXX have needed to you same in It bit. or of sheet the balance come here but in up that some And that any pretty powder working just like in at with cash use down just better could of little at can debt? give you the and changes that cash additional a maybe looks operations ability Okay. and kind of us see to CapEx service that seeing about me, are wanted from we to. to the kind capital talk kind insights question if position looking time, Maybe flow. you we

very have that throughout We strong feel we do Yes, sheet we're to we pay down a cash and balance seeing XXXX. expect do debt already. strong Right. flow,

to have do so. We plans

we're the very growth powder left business but that on let far, and this the so appropriately. to year fund those speak for about able our able dry we are to execute that plans. I'll feel And in about plans Cab excited we're

some wanted times to the business. the on We and capital took focus from on in Mark, focus We we want of years to few really Yes, we off execution, back growth. cash have, a especially like this. with

your you are raise you your discounting, we in traffic confident continue conversion, raise right? tough really to your You can These can flourish can If average. can things ticket us your make times. that that lower down,

invest going areas teams to get and of the end that we We've of got some want We've and our signed growth as a to grow; and business of cash some store Now by it's another back running. time build lease already. in do machine X we're so well. that take to other the the year

So phasing we with we're fiscally it we're got being very and in. what responsible

goes but direction as moving as low the she in for right So we're sure.

Kanen question the next line comes [Operator of from private Our Instructions] David investor. [ph],

ramp First expect dollars? year profit that that this grow with you question some to starting is will more but LVT. Do point gross revenue in in regards at to we year-over-year importantly,

still pretty we we're grow housing the seeing that's to We it's environment -- goal, looking in we're dollars levels, When right? right David, traffic the and at early. when now, want talk revenue profit about But this yes. goal, there's and ultimately irons in tough fire now, different but just to it's that's lot LVT a that of back our margin get say right to of one early them. the being

the was of sense traffic was low terms that how traffic And from Can you in us got price? how increases? taking of we single-digit then And decline, Okay. as down percentage-wise versus give comp, price down? much much or a to the lift volume

we increase competitors pretty we we're David. all watch much few our pricing want to to to We better And we a strategic traffic balance watch to as traffic out being the We're of We a We going market. customers declines more out back price market. strategic going Yes. Right. it ourselves It's to being any real industry. our pricing -- the here, traffic, the the the We're there's there is. and than much throughout But know close. XXXX, across few not the again, impact not execution. throw on focus do door. coming very through with if pretty

it's balance day. So it's a we healthy watch something but every

debt what free down? And for was did QX? Okay. cash And much how you pay then flow

out took because -- we so completed that's quarter, in our the actually repurchase -- program. share we We fourth when

debt taking were And so out we in QX.

shares, equipment? free from cash flow though, less QX, operations the What flow cash repurchase CapEx plant, Okay. or was property, excluding for of just

have would. look nor to immediately don't -- number We at Yes. that would need we available

K, more and probably questions for back apologies question, last Okay. you well, And the monopolizing. when X it. could into my actually then I I mean filed

you Could a X-figure costs be talked freight a called out -- year-over-year? You will coming you savings basis? just down. quantify on the transportation amount? quarterly What it Is

that the figure world, will That's freight, cost give be David. a hard looking I significant we receive now, to containers the at in you all international this at quarter I but as with heavily it fourth point. over right from cannot we the structure quantify -- mean

Few in repurchasing applaud really and were I And understand capital you allocation share that. aggressive and shares value the repurchases. of guys Okay. then very companies

comfortable? Is is buyback commend debt know expand current it but that. guys there debt where I now maintaining you a and I we there there no you're So potentially guys for I with in level right could mean, you where comfortable level a is business trends level? where are that

we're the comfortable of working and that We're So with there a we're level managing through. things actively is flow. one the definitely that cash that's

plans sure a We make approach. at are to looking it's carefully and reviewing that growth our balanced it very

take take you -- expand could potentially really what -- at. on That's you could that's more buyback? I'm and comfortably driving on the So debt

We we can. believe Yes.

[Operator in Davis for time. closing at queue Instructions] I'm the to I'd showing no remarks. back like further to this call Mark questions turn

our Thank XX-K Thank anticipate you a have Shop Tile you day. Form We conference for and for to call. in earnings listening filing our your later great the interest today.

This for conference you participating. Thank today's call. concludes

may disconnect. You now