Tile Shop(TTSH) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a record revenue of $107.6 million for the quarter, with a 12% increase in comparable store sales, primarily driven by an increase in average ticket prices despite a modest decrease in unit volumes [13][14] - Gross margin rate was 66%, down 310 basis points year-over-year but up 80 basis points sequentially from the first quarter, attributed to pricing actions and inflationary cost pressures [14] - Net income for the quarter was$ 6.9 million, with adjusted EBITDA at $16.8 million, resulting in an adjusted EBITDA margin of 15.6%, a decrease of 40 basis points year-over-year [18] Business Line Data and Key Metrics Changes - The pro sales mix exceeded 65% of total sales, indicating a strong focus on professional customers [10] - In-store execution metrics such as conversion rates and average ticket sizes showed improvement, contributing to overall sales performance [10] Market Data and Key Metrics Changes - The company is observing a slowdown in new orders and consumer traffic, attributed to rising interest rates and changing consumer spending patterns [7][24] - The company expects continued pressure on gross margins due to inflationary cost pressures and a conservative approach to future pricing actions [15] Company Strategy and Development Direction - The company is focused on enhancing employee engagement and training to address labor shortages, with initiatives to improve culture and career paths [8] - Supply chain initiatives have improved, with inventory levels normalized, but the company anticipates ongoing inflationary pressures affecting costs [11][19] - The company is exploring alternative sourcing options to mitigate cost increases and has plans to roll out new technology to improve customer interaction tracking [10][12] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the changing macroeconomic environment and its potential impact on home improvement spending, indicating a cautious outlook for the second half of 2022 [7][15] - Despite the challenges, management remains optimistic about the company's positioning for customers looking to remodel rather than purchase new homes [25] Other Important Information - The company has a cash balance of$ 10.5 million and bank debt of $5 million as of the end of the quarter [19] - The company plans to hold a national sales meeting to reinforce best practices and celebrate milestones, indicating a focus on team cohesion and motivation [9] Q&A Session Summary Question: Update on consumer behavior and spending - Management noted that while ticket averages remain solid, traffic has slowed, indicating a potential impact from the macro environment [23][24] Question: Impact of slowing housing trends - Management indicated that the company typically performs better than existing home sales, but is seeing a slowdown in orders, which aligns with housing market trends [25] Question: Performance of remodeled stores and capital growth plans - Management confirmed ongoing remodeling efforts with positive results and indicated discussions on capital allocation for business investments [26][27] Question: Inflation and gross margin outlook - Management acknowledged that while some costs are decreasing, the benefits will be realized in 2023, and current inventory is cycling through at higher costs [29][30] Question: New product introduction and market opportunity - Management expressed excitement about the introduction of luxury vinyl tile (LVT) and its potential market impact, noting positive early results [31][32] Question: Stock buyback and credit agreements - Management confirmed that the credit agreement allows for share repurchases as long as leverage ratios remain below a certain threshold [33][35]