Tile Shop(TTSH) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Tile Shop Holdings, Inc. reported decreased Q1 2025 profitability with net sales down 4.1% and net income sharply reduced Consolidated Balance Sheets Total assets increased to $324.8 million by March 31, 2025, driven by higher cash and inventories, while liabilities also rose Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $27,059 | $20,957 | | Inventories | $88,145 | $86,267 | | Total Current Assets | $127,699 | $119,822 | | Total Assets | $324,792 | $319,603 | | Liabilities & Equity | | | | Total Current Liabilities | $86,483 | $78,394 | | Total Liabilities | $201,597 | $196,691 | | Total Stockholders' Equity | $123,195 | $122,912 | Consolidated Statements of Income Net sales decreased 4.1% to $88.0 million in Q1 2025, leading to a sharp decline in net income and diluted EPS Q1 2025 vs Q1 2024 Income Statement (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net sales | $88,009 | $91,728 | -4.1% | | Gross profit | $58,070 | $60,319 | -3.7% | | Income from operations | $183 | $2,283 | -92.0% | | Net income | $172 | $1,689 | -89.8% | | Diluted EPS | $0.00 | $0.04 | -100% | Consolidated Statements of Cash Flows Operating cash flow significantly decreased to $10.0 million in Q1 2025, while cash and cash equivalents increased to $27.1 million Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,994 | $18,589 | | Net cash used in investing activities | $(3,625) | $(2,719) | | Net cash used in financing activities | $(267) | $(455) | | Net change in cash | $6,102 | $15,407 | | Cash at end of period | $27,059 | $24,027 | Notes to Consolidated Financial Statements Notes detail the company's specialty tile retail business, revenue sources, liquidity, and post-quarter sublease agreements - The company operates 142 stores in 31 states and is a specialty retailer of man-made and natural stone tiles, luxury vinyl tiles, and related materials[24] Revenue Disaggregation by Product Category | Product Category | Q1 2025 % of Revenue | Q1 2024 % of Revenue | | :--- | :--- | :--- | | Man-made tiles | 55% | 53% | | Natural stone tiles | 20% | 22% | | Setting and maintenance materials | 15% | 15% | | Accessories | 8% | 8% | | Delivery service | 2% | 2% | - As of March 31, 2025, the company had no borrowings outstanding on its $75.0 million revolving line of credit, with $73.8 million available[44][94] - Subsequent to Q1 2025, the company entered into two sublease agreements for its closed New Jersey distribution center, which are expected to generate approximately $1.0 million in sublease income in 2025 and another $1.0 million in 2026[49] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes decreased net sales to lower store traffic, while gross margin improved slightly and liquidity remains strong despite lower Adjusted EBITDA Overview and Recent Trends Comparable store sales declined 4.0% in Q1 2025 due to moderated home sales, while gross margin rate improved to 66.0% - Comparable store sales decreased by 4.0% in Q1 2025 and 10.2% in Q1 2024, attributed to lower store traffic resulting from moderated existing home sales trends[74] - Gross margin rate improved to 66.0% in Q1 2025 from 65.8% in Q1 2024, mainly due to lower levels of inventory write-offs[75] Results of Operations Net sales declined 4.1% in Q1 2025, leading to a 92.0% drop in income from operations despite a slight decrease in SG&A expenses Q1 2025 vs Q1 2024 Operations Summary (in thousands) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $88,009 | $91,728 | -4.1% | | Gross profit | $58,070 | $60,319 | -3.7% | | SG&A expenses | $57,887 | $58,036 | -0.3% | | Income from operations | $183 | $2,283 | -92.0% | - The decrease in SG&A was primarily due to a $0.7 million decrease in depreciation and a $0.4 million decrease from a DC closure, partially offset by a $0.7 million increase in advertising costs[85] Non-GAAP Measures Adjusted EBITDA significantly decreased to $4.6 million in Q1 2025, and trailing twelve months pretax return on capital employed also declined sharply Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income | $172 | $1,689 | | Interest income/(expense), net | $(18) | $166 | | Provision for income taxes | $29 | $428 | | Depreciation and amortization | $4,005 | $4,742 | | Stock based compensation | $378 | $392 | | Adjusted EBITDA | $4,566 | $7,417 | - Pretax Return on Capital Employed (trailing twelve months) decreased to 1.2% at March 31, 2025, compared to 11.3% at March 31, 2024[90] Liquidity and Capital Resources The company maintains strong liquidity with $27.1 million cash and $73.8 million available credit, sufficient for future operations and capital expenditures - Principal sources of liquidity are $27.1 million of cash and cash equivalents and $73.8 million available for borrowing on the revolving line of credit as of March 31, 2025[91][94] - The company was in compliance with all financial covenants of its Credit Agreement as of March 31, 2025[93] - Capital expenditures were $3.6 million in Q1 2025, compared to $2.7 million in Q1 2024, primarily for investments in store remodels, merchandising, and IT[96] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures or their management have occurred since the 2024 Annual Report on Form 10-K - There have been no material changes in the company's primary risk exposures or management of market risks from those disclosed in the 2024 Form 10-K[103] Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during Q1 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[105] - No changes in internal control over financial reporting occurred during Q1 2025 that materially affected or are likely to materially affect the controls[106] PART II. OTHER INFORMATION Legal Proceedings Management anticipates no material adverse effect on financial results from ongoing legal proceedings arising in the normal course of business - In management's opinion, the outcome of pending legal claims and disputes is not expected to have a material adverse effect on the company's financial results or position[107] Risk Factors No material changes have occurred in the company's risk factors since the 2024 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[108] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares, but 227,975 shares were forfeited and 38,534 withheld for tax obligations on vested awards - In Q1 2025, 227,975 shares were forfeited as vesting conditions were not met, and 38,534 shares were withheld to satisfy tax obligations on vested awards. These were not part of a public repurchase program[109][110] Other Information No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans during Q1 2025 - No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the quarter ended March 31, 2025[113]