Tile Shop(TTSH) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, income, comprehensive income, stockholders' equity, and cash flow statements, for periods ended June 30, 2025, and December 31, 2024 Consolidated Balance Sheets This table provides a snapshot of the company's assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (unaudited) | December 31, 2024 (audited) | Change (vs. Dec 31, 2024) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Assets (in thousands) | | | | | Cash and cash equivalents | $27,758 | $20,957 | +$6,801 | | Total Current Assets | $126,270 | $119,822 | +$6,448 | | Total Assets | $324,110 | $319,603 | +$4,507 | | Liabilities (in thousands) | | | | | Total Current Liabilities | $82,780 | $78,394 | +$4,386 | | Total Liabilities | $200,233 | $196,691 | +$3,542 | | Stockholders' Equity (in thousands) | | | | | Total Stockholders' Equity | $123,877 | $122,912 | +$965 | Consolidated Statements of Income This table details the company's net sales, gross profit, operating income, and net income for the three and six months ended June 30, 2025 and 2024 | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :-------------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Net sales | $88,260 | $91,384 | -3.4% | $176,269 | $183,112 | -3.7% | | Gross profit | $56,841 | $60,331 | -5.8% | $114,911 | $120,650 | -4.8% | | Income from operations | $440 | $1,851 | -76.2% | $623 | $4,134 | -84.9% | | Net income | $392 | $1,219 | -67.8% | $564 | $2,908 | -80.6% | | Basic EPS | $0.01 | $0.03 | -66.7% | $0.01 | $0.07 | -85.7% | | Diluted EPS | $0.01 | $0.03 | -66.7% | $0.01 | $0.07 | -85.7% | Consolidated Statements of Comprehensive Income This table presents the company's net income and other comprehensive income components for the three and six months ended June 30, 2025 and 2024 | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $392 | $1,219 | $564 | $2,908 | | Currency translation adjustment | - | (3) | - | (12) | | Other comprehensive loss | - | (3) | - | (12) | | Comprehensive income | $392 | $1,216 | $564 | $2,896 | Consolidated Statements of Stockholders' Equity This table outlines changes in the company's stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit, for the six months ended June 30, 2025 | Metric (in thousands) | Balance at Dec 31, 2024 | Net Income (6M 2025) | Stock Based Compensation (6M 2025) | Tax Withholdings (6M 2025) | Balance at June 30, 2025 | | :-------------------- | :---------------------- | :------------------- | :--------------------------------- | :------------------------- | :----------------------- | | Common stock (shares) | 44,657,898 | - | - | - | 44,779,230 | | Common stock (amount) | $4 | - | - | - | $4 | | Additional paid-in capital | $129,696 | - | $685 | $(284) | $130,097 | | Accumulated deficit | $(6,788) | $564 | - | - | $(6,224) | | Total Stockholders' Equity | $122,912 | $564 | $685 | $(284) | $123,877 | Consolidated Statements of Cash Flows This table summarizes the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :-------------------- | :----------------------------- | :----------------------------- | :----------- | | Net cash provided by operating activities | $13,487 | $23,452 | -42.5% | | Net cash used in investing activities | $(6,402) | $(6,257) | +2.3% | | Net cash used in financing activities | $(284) | $(463) | -38.7% | | Net change in cash and cash equivalents | $6,801 | $16,721 | -59.3% | | Cash and cash equivalents end of period | $27,758 | $25,341 | +9.5% | Notes to Consolidated Financial Statements This section provides detailed explanatory notes supporting the consolidated financial statements, offering context on accounting policies and specific financial items Note 1: Background This note provides an overview of Tile Shop Holdings, Inc.'s business as a specialty retailer and its operational footprint - Tile Shop Holdings, Inc. is a specialty retailer of man-made and natural stone tiles, luxury vinyl tiles, setting and maintenance materials, and related accessories in the United States[27] - As of June 30, 2025, the Company operated 141 stores in 31 states and the District of Columbia[27] - The Company is evaluating the impact of new accounting pronouncements: ASU No. 2023-09 (Income Taxes) effective December 31, 2025, and ASU No. 2024-03 (Expense Disaggregation Disclosures) effective for fiscal years beginning after December 15, 2026[30][31] Note 2: Revenues This note details the company's revenue recognition policies and provides a breakdown of net sales by product category | Product Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Man-made tiles | 56 % | 54 % | 55 % | 54 % | | Natural stone tiles | 20 % | 21 % | 20 % | 21 % | | Setting and maintenance materials | 14 % | 15 % | 15 % | 15 % | | Accessories | 7 % | 7 % | 8 % | 8 % | | Delivery service | 3 % | 3 % | 2 % | 2 % | | Total | 100 % | 100 % | 100 % | 100 % | - Revenue recognition occurs when control of goods/services is transferred, either when an order is placed and available, when a customer picks up an order from a distribution center, or when an order is delivered[34][37] - Customer deposit balance was $11.0 million as of June 30, 2025, up from $10.9 million at December 31, 2024, with $10.0 million from beginning-of-period deposits recognized in the first six months of 2025[34] Note 3: Inventories This note outlines the company's inventory valuation methods and provides a breakdown of inventory by category | Inventory Category (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Finished goods | $84,062 | $84,255 | | Raw materials | $1,903 | $2,012 | | Total | $85,965 | $86,267 | - Inventories are stated at the lower of cost (moving average cost method) or net realizable value, with provisions for shrinkage and other losses at $0.9 million at June 30, 2025, down from $1.2 million at December 31, 2024[37][39] Note 4: Income Taxes This note explains the company's effective tax rates and discusses the impact of recent tax legislation | Period | Effective Tax Rate 2025 | Effective Tax Rate 2024 | | :----- | :---------------------- | :---------------------- | | Q2 | 16.4% | 32.1% | | YTD Q2 | 15.8% | 25.6% | - The effective tax rate decreased primarily due to a decrease in pretax earnings and the impact of certain permanent differences[40] - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, making permanent certain Tax Cuts and Jobs Act provisions and changing corporate tax provisions, with the Company assessing its impact but not adjusting its tax provision for changes effective after June 30, 2025[42] Note 5: Earnings Per Share This note presents the calculation of basic and diluted earnings per share for the reported periods | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (in thousands) | $392 | $1,219 | $564 | $2,908 | | Basic EPS | $0.01 | $0.03 | $0.01 | $0.07 | | Diluted EPS | $0.01 | $0.03 | $0.01 | $0.07 | - Basic and diluted EPS decreased significantly year-over-year for both the three and six months ended June 30, 2025, reflecting the decline in net income[43] Note 6: Other Accrued Liabilities This note provides a detailed breakdown of the company's other accrued liabilities as of June 30, 2025, and December 31, 2024 | Liability (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Customer deposits | $10,960 | $10,882 | | Sales returns reserve | $3,284 | $2,886 | | Accrued wages and salaries | $5,187 | $4,585 | | Payroll and sales taxes | $2,262 | $2,107 | | Other current liabilities | $6,162 | $5,184 | | Total other accrued liabilities | $27,855 | $25,644 | Note 7: Long-term Debt This note describes the company's revolving line of credit and its compliance with associated covenants - The Company has a $75.0 million revolving line of credit through September 30, 2027, secured by virtually all assets[46][47] - As of June 30, 2025, there were no borrowings outstanding on the line of credit, with $73.8 million available for borrowing[48] - The Company was in compliance with all financial and other covenants of the Credit Agreement as of June 30, 2025[47] Note 8: Leases This note details the company's lease assets and liabilities, including right-of-use assets and lease costs | Lease Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Right of use asset | $132,332 | $132,861 | | Current portion of lease liability | $29,315 | $28,880 | | Long-term lease liability, net | $112,403 | $113,700 | | Total lease liabilities | $141,718 | $142,580 | | Lease Cost (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $9,451 | $9,378 | $18,947 | $18,915 | | Variable lease cost | $3,922 | $3,791 | $7,801 | $7,549 | | Short term lease cost | $22 | $21 | $82 | $98 | | Net lease cost | $13,395 | $13,190 | $26,830 | $26,562 | - The Company entered into two sublease agreements for its closed New Jersey distribution center, expected to generate approximately $1.0 million of sublease income in 2025 and an additional $1.0 million in 2026[53] Note 9: Fair Value of Financial Instruments This note discusses the fair value measurement of financial instruments and asset impairment charges - Cash and cash equivalents are classified as Level 1 fair value assets, measured using quoted market prices in active markets[59] - The Company recorded $0.1 million in asset impairment charges for property, plant and equipment during the three and six months ended June 30, 2025, down from $0.9 million in the prior year[59] - An adjustment of $0.8 million was recorded to increase the fair value of the asset retirement obligation for leased property, resulting in a $0.8 million increase in other long-term liabilities[60] Note 10: Equity Incentive Plans This note outlines the company's equity compensation plans, including shares available for awards and stock-based compensation expense - The 2021 Omnibus Equity Compensation Plan allows for a maximum of 3,500,000 shares for awards[61] - As of June 30, 2025, the Company had 295,367 fully vested outstanding stock options at a weighted average exercise price of $7.07 per share[63] - Total stock-based compensation expense related to restricted stock was $0.3 million for the three months ended June 30, 2025 and 2024, and $0.7 million for the six months ended June 30, 2025 and 2024[65] Note 11: Segments This note clarifies that the company operates as a single reportable segment, with all operations primarily in the United States - The Company operates as a single reportable segment, with the Chief Executive Officer acting as the Chief Operating Decision Maker (CODM) who evaluates financial performance on a total Company basis[67] - All long-lived assets and the majority of revenue are located/earned in the United States[67] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operational results, highlighting declining sales and profitability due to lower traffic and increased costs, alongside expense management efforts and macroeconomic uncertainties Introduction This introduction outlines the company's strategic responses to cost pressures from tariffs and acknowledges macroeconomic uncertainties - The Company is evaluating strategic options, including sourcing adjustments and pricing strategies, to manage anticipated cost pressures from elevated tariffs on imported goods[75] - There is significant uncertainty regarding macroeconomic factors, with an expectation that these factors will moderate, though timing is uncertain[76] Overview and Recent Trends This section provides an overview of the company's business, recent sales performance, gross margin changes, and expense management initiatives - The Company is a specialty retailer of man-made and natural stone tiles, luxury vinyl tiles, setting and maintenance materials, and related accessories, operating 141 stores in 31 states as of June 30, 2025[77] - Comparable store sales decreased by 3.5% for the three months and 3.8% for the six months ended June 30, 2025, primarily due to lower store traffic, influenced by moderated existing home sales[79] - Gross margin rate decreased by 160 basis points to 64.4% in Q2 2025 (vs. 66.0% in Q2 2024) due to higher discounting and increased product costs[80] - Selling, general and administrative (SG&A) expenses decreased by $2.1 million (3.6%) in Q2 2025, driven by lower asset impairment, reduced SG&A from the New Jersey distribution center closure, decreased marketing costs, and lower depreciation, partially offset by a write-off of display supplies[82] - The Company closed its Spring Valley, WI distribution center in Q2 2025, anticipating an annualized benefit of approximately $1.0 million, and closed two stores at the end of their lease terms in Q2 and Q3 2025[83][84] Key Components of our Consolidated Statements of Income This section defines the key components of the consolidated statements of income, including net sales, cost of sales, and SG&A expenses - Net sales are recognized when customers take control of merchandise or upon final delivery, net of returns and excluding sales taxes[87][88] - Comparable store sales growth is a key metric, calculated for stores operating for at least 13 full months, excluding relocated stores[89] - Cost of sales includes material costs, freight, customs, duties, storage, delivery, inventory losses, and manufacturing costs for setting and maintenance materials[90] - Selling, general, and administrative expenses primarily consist of compensation, occupancy, utilities, maintenance, advertising, shipping, and depreciation/amortization[91] Results of Operations This section provides a detailed comparison of the company's financial performance for the three and six months ended June 30, 2025, versus 2024 Comparison of the three months ended June 30, 2025 to the three months ended June 30, 2024 This section compares the company's net sales, gross profit, SG&A, and net income for the second quarter of 2025 against the same period in 2024 | Metric (in thousands) | Q2 2025 | % of sales 2025 | Q2 2024 | % of sales 2024 | Change (YoY) | | :-------------------- | :----------- | :-------------- | :----------- | :-------------- | :----------- | | Net sales | $88,260 | 100.0 % | $91,384 | 100.0 % | -3.4% | | Gross profit | $56,841 | 64.4 % | $60,331 | 66.0 % | -5.8% | | SG&A expenses | $56,401 | 63.9 % | $58,480 | 64.0 % | -3.6% | | Income from operations | $440 | 0.5 % | $1,851 | 2.0 % | -76.2% | | Net income | $392 | 0.4 % | $1,219 | 1.3 % | -67.8% | | Provision for income taxes | $(77) | (0.1)% | $(575) | (0.6)% | -86.6% | - Net sales decreased by $3.1 million (3.4%) due to a 3.5% decline in comparable store sales, primarily from decreased traffic[92] - Gross margin rate declined by 1.6 percentage points to 64.4% due to higher discounting and increased product costs[93] - The effective tax rate decreased to 16.4% in Q2 2025 from 32.1% in Q2 2024, mainly due to lower pretax income and permanent differences[95] Comparison of the six months ended June 30, 2025 to the six months ended June 30, 2024 This section compares the company's year-to-date net sales, gross profit, SG&A, and net income for the first half of 2025 against the same period in 2024 | Metric (in thousands) | YTD Q2 2025 | % of sales 2025 | YTD Q2 2024 | % of sales 2024 | Change (YoY) | | :-------------------- | :----------- | :-------------- | :----------- | :-------------- | :----------- | | Net sales | $176,269 | 100.0 % | $183,112 | 100.0 % | -3.7% | | Gross profit | $114,911 | 65.2 % | $120,650 | 65.9 % | -4.8% | | SG&A expenses | $114,288 | 64.8 % | $116,516 | 63.6 % | -1.9% | | Income from operations | $623 | 0.4 % | $4,134 | 2.3 % | -84.9% | | Net income | $564 | 0.3 % | $2,908 | 1.6 % | -80.6% | | Provision for income taxes | $(106) | (0.1)% | $(1,003) | (0.5)% | -89.4% | - Net sales decreased by $6.8 million (3.7%) due to a 3.8% decline in comparable store sales, primarily from decreased store traffic[96] - Gross margin rate decreased by 0.7 percentage points to 65.2% due to increased product costs and higher discounting[97] - SG&A expenses decreased by $2.2 million (1.9%), mainly due to the New Jersey distribution center closure, lower depreciation, and reduced asset impairment, partially offset by increased IT costs and display supply write-offs[98] - The effective tax rate for the six months ended June 30, 2025, was 15.8%, down from 25.6% in the prior year, primarily due to decreased pre-tax income and permanent differences[99] Non-GAAP Measures This section presents and reconciles non-GAAP financial measures, including Adjusted EBITDA and Pretax Return on Capital Employed - Adjusted EBITDA is calculated by adjusting net income for interest expense, income taxes, depreciation and amortization, and stock-based compensation expense[100] | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $392 | $1,219 | $564 | $2,908 | | Adjusted EBITDA | $4,937 | $6,733 | $9,503 | $14,150 | | Adjusted EBITDA margin | 5.6 % | 7.4 % | 5.4 % | 7.7 % | - Pretax Return on Capital Employed decreased significantly to 0.0% for the trailing twelve months ended June 30, 2025, from 6.8% for the same period in 2024, reflecting a substantial drop in Income from Operations[104] Liquidity and Capital Resources This section discusses the company's sources of liquidity, capital expenditures, and cash flow activities - Principal liquidity sources include $27.8 million in cash and cash equivalents, cash flow from operations, and a $75.0 million revolving line of credit[105][106] - As of June 30, 2025, the Company had no outstanding borrowings on its line of credit and $73.8 million available for borrowing[109] - Management believes current liquidity sources are sufficient to fund operations and capital expenditures for at least the next twelve months and long-term liquidity requirements[110] Capital Expenditures This section details the company's capital expenditures for the first six months of 2025 and 2024, primarily for store remodels and IT assets | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Capital expenditures | $6,473 | $6,257 | - Capital expenditures in 2025 were primarily directed towards store remodels, merchandising, distribution, and information technology assets[111] Cash Flows This section analyzes the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $13,487 | $23,452 | | Net cash used in investing activities | $(6,402) | $(6,257) | | Net cash used in financing activities | $(284) | $(463) | - Net cash provided by operating activities decreased by $10.0 million (42.5%) year-over-year, primarily due to a decrease in net income and other working capital changes[114] - Net cash used in financing activities decreased due to the impact of employee shares withheld for employee stock award vestings[116] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes in the Company's primary risk exposures or management of market risks compared to those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes in primary risk exposures or market risk management have occurred since the December 31, 2024 Annual Report on Form 10-K[118] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of June 30, 2025, and reports no material changes in internal control over financial reporting during the quarter Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2025 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[119] Changes in Internal Control Over Financial Reporting This section reports no material changes in internal control over financial reporting during the quarter ended June 30, 2025 - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected or are reasonably likely to materially affect internal control over financial reporting[120] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in various lawsuits and claims in the normal course of business, with management assessing potential liabilities and accruing for probable and estimable losses - The Company records liabilities for legal proceedings where a loss is probable and estimable[121] - Management does not expect the ultimate liability from current legal matters to have a material adverse effect on the Company's financial results[121] Item 1A. Risk Factors This section updates risk factors, highlighting the company's vulnerability to political and economic changes, particularly tariffs and international trade policies, which may increase costs and impact profitability - The Company is vulnerable to changes in political and economic conditions, including tariffs and international trade wars, which may increase costs and affect sales and profitability[123] - The Company has historically shifted sourcing away from countries with higher tariffs but acknowledges the difficulty in predicting tariff rates and the potential ineffectiveness of countermeasures[123] - Failure to mitigate tariff-related risks through supply chain adjustments or pricing strategies could negatively impact financial performance[123] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details equity security activities, focusing on shares withheld for tax obligations related to restricted stock grants and shares forfeited due to unfulfilled vesting conditions, with no cash repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :-------------------------- | :--------------------- | :--------------------------- | | May 1, 2025 - May 31, 2025 | 9,692 | $1.01 | | June 1, 2025 - June 30, 2025 | 29,598 | $0.24 | | Total (Q2 2025) | 39,290 | $0.43 | - The shares purchased were primarily due to tax withholdings for restricted stock grants (1,560 shares in April, 1,184 shares in May) and forfeitures when vesting conditions were not met (8,132 shares in April, 28,414 shares in May)[124][125] - No cash was paid to repurchase these shares, and they were not part of a publicly announced plan or program[124][125] Item 3. Defaults Upon Senior Securities This item states that there are no defaults upon senior securities to report Item 4. Mine Safety Disclosures This item indicates that mine safety disclosures are not applicable to the Company Item 5. Other Information This section reports that no directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during Q2 2025 - No Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or executive officers during Q2 2025[128] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and financial statements formatted in iXBRL - Exhibits include Certificate of Incorporation, By-Laws, CEO and CFO certifications (Sarbanes Oxley Act Sections 302 and 906), and iXBRL formatted financial statements[129] Signatures This section contains the official signatures of the Chief Executive Officer and Chief Financial Officer, certifying the filing of the Quarterly Report on Form 10-Q - The report is signed by Cabell H. Lolmaugh, Chief Executive Officer, and Mark B. Davis, Chief Financial Officer, on August 7, 2025[134]