Ttsh Stock Declines Post Q4 Earnings Amid Lower Sales, Margins Improve

Shares of Tile Shop Holdings, Inc. TTSH have lost 3.1% since the company reported its earnings for the quarter ended Dec. 31, 2024. This compares to the S&P 500 Index’s 0.1% loss over the same time frame. Over the past month, the stock gained 3.8% versus the S&P 500’s 2.2% decline.

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Financial Performance

Tile Shop reported a net sales decline of 7.9% to $347.1 million in 2024 from $377.1 million in 2023. Comparable store sales decreased 7.8%, reflecting softer store traffic. The decline in revenues was attributed to lower consumer spending on home improvement projects, particularly in a weak housing turnover environment.

Despite the sales decline, the company’s gross margin improved to 65.7% in 2024 from 64.4% in 2023. This improvement was driven by stabilizing international freight rates and strategic efforts to lower product procurement costs. However, increased inventory write-offs related to product transitions partially offset these gains.

Net income fell 76.9% to $2.3 million in 2024 from $10.1 million in 2023, resulting in diluted earnings per share of $0.05, down from $0.23 in the prior year. Adjusted EBITDA declined 41.7% to $22.6 million, with the adjusted EBITDA margin contracting from 10.3% in 2023 to 6.5% in 2024.

Key Business Metrics

Selling, general, and administrative (SG&A) expenses decreased 1.1% to $224.4 million in 2024 from $226.9 million in 2023. Cost reductions in depreciation, variable compensation, and marketing expenditures were partially offset by rising occupancy, IT, transportation, and audit costs.

The company ended the year with $20.9 million in cash (compared with $8.6 million at the end of 2023) and no outstanding debt, maintaining financial flexibility amid ongoing industry challenges.

The company generated $27.1 million in operating cash flow at the end of 2024 (compared with $62.1 million at the end of 2023) but reduced capital expenditures, spending $14.5 million on property, plant, and equipment in 2024 from $15.3 million in 2023.

Management Commentary

CEO Cabell Lolmaugh acknowledged the persistent headwinds in the home improvement sector but highlighted the company’s proactive measures, including refining its luxury vinyl tile assortment and expanding lower-priced tile options to attract a broader customer base. He also emphasized the relaunch of the private-label Superior installation product line, which has gained traction among professional customers.

CFO Mark Davis noted that while sales volumes of tile products remained pressured, the company experienced growth in sales of Superior installation products and entry-level priced tile products, which helped mitigate the decline in store traffic.

Factors Influencing Results

The decline in sales was primarily due to lower customer traffic, which the company attributed to the broader slowdown in housing turnover and elevated interest rates impacting home improvement spending.

Meanwhile, improvements in gross margin reflected strategic cost-cutting measures, including shifts to lower-cost suppliers and stabilized international freight expenses. However, inventory write-offs associated with product transitions partially offset these benefits.

Strategic Outlook and Guidance

Looking ahead to 2025, Tile Shop plans to maintain a cautious approach to investments. TTSH does not intend to open new stores and expects to close two unprofitable locations, reducing its store count to 140 by year-end. Management remains focused on cost discipline, operational efficiency and strengthening its product assortment.

Tile Shop also aims to restructure its expense structure while continuing to refine its product assortment. Management expects continued demand for competitively priced products, particularly as it broadens its entry-level tile offerings to appeal to cost-conscious consumers and professional customers.

Other Developments

As part of its cost-cutting efforts, the company closed its distribution center in Dayton, NJ, and its trading company office in Beijing, China. TTSH is actively seeking to sublease the Dayton facility, with lease obligations extending through September 2026. Management anticipates that these actions, along with reductions in corporate staffing, will lead to annualized SG&A savings of $2.8 million to $4.1 million.

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