Tile Shop(TTSH) - 2021 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported fourth quarter revenue of $90.2 million, the highest level of fourth quarter sales in its history, contributing to a full year revenue of $370.7 million, establishing a new annual sales record [5][29] - Comparable store sales increased by 10.3% during the fourth quarter and 13.8% for the year, primarily driven by an increase in the average ticket [23] - Gross margin for the fourth quarter was 66.1%, reflecting a 210 basis point sequential decline from the third quarter due to cost pressures [26][29] - Net income for the fourth quarter increased by $400,000, with diluted earnings per share at $0.04, while net income for the year more than doubled, resulting in diluted earnings per share of $0.29 [29] Business Line Data and Key Metrics Changes - The company plans to focus on improving performance within its existing 143 store footprint and will not open new stores in 2022, instead prioritizing financial improvements in underperforming stores [9][10] - The average sales per store increased from $2.3 million in 2020 to $2.6 million in 2021, indicating a positive trend in store performance [25] Market Data and Key Metrics Changes - The company has made progress in securing inventory delivery from vendors, reducing back orders to levels more in line with historical norms, with an inventory balance of $97 million at year-end [10] - Cost pressures across the supply chain have been noted, with international shipping rates still higher than historical levels, leading to necessary price increases [11][12] Company Strategy and Development Direction - The company is enhancing its IT systems to improve customer experience and operational efficiency, with a focus on retail execution, supply chain management, and team development [7][16] - The strategy includes diversifying suppliers and adjusting prices to mitigate cost pressures while expanding pro installation products and luxury vinyl tile (LVT) offerings, which may have lower gross margins but are expected to generate incremental gross profit [27][59] Management's Comments on Operating Environment and Future Outlook - Management anticipates that inflationary pressures will subside in the long term, and the actions taken will help ease current cost pressures [12] - The company remains optimistic about maintaining strong sales momentum into 2022, with improved inventory levels and reduced back orders [56] Other Important Information - The company declared a special dividend of $0.65, resulting in a cash outflow of $32.9 million during the fourth quarter [31] - Capital expenditures for 2022 are anticipated to be between $13 million and $18 million, focusing on store remodels, technology investments, and maintaining distribution centers [31] Q&A Session Summary Question: Discussion on price increases and their adequacy - Management indicated that price increases in Q4 were made in response to ongoing cost pressures, and they feel comfortable with the adjustments made [35][36] Question: Customer reception to price increases - There has been minimal pushback from customers regarding price increases, as the retail environment is experiencing similar pressures across the board [37] Question: Update on Pro business trends - The Pro business has been strong, with increased accounts driven by the Pro market manager program, reflecting robust demand in the remodeling sector [39] Question: Plans for store remodels and relocations - The company is actively remodeling stores but has no immediate plans for new store openings, focusing instead on improving existing store performance [41] Question: Details on IT initiatives - Management elaborated on the new ERP system and its potential to enhance customer and employee experiences, with a focus on automation and efficiency [45][46] Question: Clarification on asset impairment charges - Asset impairment charges are not added back into adjusted EBITDA [48] Question: CapEx guidance and allocation - CapEx is typically divided into thirds for technology, remodels, and other initiatives, with a focus on achieving a two-year payback on significant remodels [53][55] Question: Sales momentum in Q1 - Management confirmed strong sales momentum has continued into Q1, with improved inventory levels and reduced back orders [56] Question: Impact of lower margin products on traditional tile sales - Management assured that the introduction of lower margin products like LVT has not cannibalized traditional tile sales, as they cater to different customer needs [58][59] Question: Feedback on capital allocation strategy - Management appreciated the feedback regarding potential share buybacks as a means to enhance shareholder value [60][64]