Tile Shop(US:TTSH)2019-05-01 03:51Financial Data and Key Metrics Changes - Net sales for Q1 2019 were $86.9 million, a decrease of 4.6% year-over-year, with comparable store sales down 4.2% due to weak traffic trends [29][25]. - Gross profit was $61.8 million, reflecting a 3.3% decrease from the previous year, while gross margin improved to 71.2%, up approximately 90 basis points year-over-year [30][29]. - Adjusted EBITDA was $11.6 million, with an adjusted EBITDA margin of 13.4%, a decline of 170 basis points compared to the previous year [31][29]. - Net income for the quarter was $1.3 million, translating to earnings per share of $0.03 [31]. Business Line Data and Key Metrics Changes - The introduction of 2,500 new products over the last 15 months has positively impacted sales, particularly in the stone category, which typically has higher average selling prices [11][10]. - The company experienced challenges with traffic due to the new ERP system and poor weather, which accounted for approximately one-third of the traffic decline [13][14]. Market Data and Key Metrics Changes - Southern store markets showed positive comparable sales growth, while Midwest and Northeast markets experienced negative growth due to adverse weather conditions [14][29]. - The open sales order balance at the end of March was approximately 20% higher than the previous year, indicating potential sales that were not realized due to project delays [15][29]. Company Strategy and Development Direction - The company aims to enhance product assortment, presentation, and service as key differentiators in the industry [10][23]. - Plans to open six new stores in 2019, focusing on existing markets, with a long-term goal of expanding to 400 stores [24][29]. - The company is investing in marketing strategies targeted at both affluent and moderately affluent customers to drive traffic [19][20]. Management's Comments on Operating Environment and Future Outlook - Management acknowledged that traffic trends were negatively impacted by the ERP system and weather, but expressed optimism about recovery as systems improve [43][44]. - The company remains focused on achieving mid-single-digit comparable sales growth and believes it is well-positioned to bounce back [26][38]. - Management highlighted the importance of improving pro customer traffic and sales, which had previously shown positive growth [28][84]. Other Important Information - The company has authorized a $15 million share repurchase program to enhance shareholder returns [39]. - There are expected material weaknesses in internal controls over financial reporting due to the ERP implementation, with remediation planned before the end of fiscal 2019 [37][66]. Q&A Session Summary Question: How has traffic evolved through Q1 and what are the expectations for Q2? - Management noted that traffic improved sequentially through Q1 and expressed confidence in continued improvement into Q2 as systems are enhanced [43][44]. Question: Why was a share buyback authorized instead of focusing on debt paydown? - The company believes it has a solid strategy in place and sees the share repurchase as a good investment opportunity given the work done over the past 15 months [46]. Question: How is the effectiveness of store refurbishments and new SKUs being measured? - Management monitors new SKU performance closely and has seen positive contributions to sales, indicating that store updates are effective [50]. Question: What were the checkout time issues and how have they been addressed? - Checkout times for pro customers were significantly impacted initially but have improved as system issues have been resolved [51][52]. Question: What factors contributed to the traffic decline? - The decline was attributed to weather, ERP system challenges, and changes in customer mix, with management focusing on improving retail customer segments [81][84]. Question: How does the company plan to address the material weaknesses in internal controls? - Management is working with auditors to improve controls and aims to have remediation completed soon [66][67]. Question: Why was there a decision to pull back on advertising spending? - The company shifted its strategy towards brand marketing and felt that advertising spending would not yield the expected return during a chaotic quarter [87].