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Wall Street JournalFORM 10-K
FORM 10-K
TILE SHOP HOLDINGS, INC. (TTSH) filed its annual report for the fiscal year ended December 31, 2024. The company reported total revenue of $196.9 million, with net income of $12.1 million. The company’s gross profit margin was 34.1%, and its operating margin was 6.1%. As of December 31, 2024, the company had cash and cash equivalents of $34.1 million and total debt of $123.4 million. The company’s stock was listed on the Nasdaq Stock Market LLC under the ticker symbol TTSH.
Overview and Recent Trends
Tile Shop Holdings, Inc. is a specialty retailer of man-made and natural stone tiles, luxury vinyl tiles, setting and maintenance materials, and related accessories in the United States. As of December 31, 2024, the company operated 142 stores in 31 states and the District of Columbia.
The company’s net sales decreased by 8.0% in 2024 compared to 2023, primarily due to a 7.8% decrease in comparable store sales. This decline was attributed to lower foot traffic, partially offset by an increase in average ticket value. The decrease in existing home sales over the past few years has led to softer demand for remodel projects, adversely impacting the company’s business.
Financial Performance
The table below summarizes Tile Shop’s key financial metrics from 2022 to 2024:
| Metric | 2024 | 2023 | 2022 |
|---|---|---|---|
| Net Sales ($ thousands) | $347,071 | $377,146 | $394,702 |
| Income from Operations ($ thousands) | $3,517 | $16,158 | $22,609 |
| Net Cash Provided by Operating Activities ($ thousands) | $27,107 | $62,060 | $2,715 |
| New Stores Opened | 0 | 1 | 0 |
Gross profit decreased by 6.2% in 2024 compared to 2023, but the gross margin rate improved from 64.4% to 65.7%. This improvement was due to lower international freight rates and the company’s efforts to work with suppliers to reduce product prices, partially offset by increased inventory write-offs.
Selling, general, and administrative (SG&A) expenses decreased by 1.1% in 2024, driven by reductions in depreciation, variable compensation, and marketing expenses. However, these savings were partially offset by increases in occupancy, IT, transportation, and audit/accounting costs.
Interest expense decreased by $1.9 million in 2024 due to lower average debt levels. The provision for income taxes also decreased by $3.0 million, reflecting the decline in pre-tax income.
Overall, net income decreased from $10.1 million in 2023 to $2.3 million in 2024, primarily due to the lower sales and gross profit.
Strengths and Weaknesses
Strengths:
- Long-term supplier relationships and in-house design and manufacturing capabilities enable the company to offer a broad assortment of high-quality products at competitive prices.
- Proprietary brands and product sources position the company as a leading retailer of natural stone, man-made, and luxury vinyl tiles, as well as setting and maintenance materials.
- Ability to maintain pricing and improve gross margins despite inflationary pressures, through supplier negotiations and cost management.
- Reduction in SG&A expenses through operational efficiency initiatives, such as closing the distribution center and corporate office reductions.
Weaknesses:
- Significant decline in comparable store sales, driven by lower foot traffic and softening demand for remodel projects due to the decrease in existing home sales.
- Reliance on the health of the housing and remodeling markets, which have been adversely impacted by macroeconomic factors like high inflation and rising interest rates.
- Inability to open new stores, with plans to close two unprofitable locations in 2025, limiting growth opportunities.
- Declining profitability, with operating income margin decreasing from 4.3% in 2023 to 1.0% in 2024.
Outlook and Future Considerations
Going forward, Tile Shop faces several challenges and uncertainties:
Economic Conditions: The company’s performance is heavily dependent on the overall health of the economy, consumer confidence and spending, and the housing market. Continued high inflation, rising interest rates, and potential economic downturn or recession could further dampen demand for remodel projects and tile products.
Supply Chain and Costs: The company has been able to manage inflationary pressures on product costs and freight, but any resurgence in supply chain disruptions or further increases in material, labor, energy, and transportation costs could squeeze margins.
Competitive Landscape: The tile retail industry is highly competitive, and the company must continue to differentiate itself through product selection, pricing, and customer service to maintain its market position.
Digital Transformation: As consumer shopping habits evolve, the company will need to effectively manage its online sales and digital initiatives to remain relevant and competitive.
Operational Efficiency: The company’s recent actions to close the distribution center and corporate office positions are intended to improve efficiency and reduce costs. Successful implementation and realization of the anticipated benefits will be crucial.
Capital Allocation: The company has a strong balance sheet, with no outstanding debt and $21.0 million in cash as of December 31, 2024. Prudent allocation of capital for store maintenance, inventory management, and potential strategic investments will be important.
Overall, Tile Shop faces a challenging operating environment, but the company’s focus on cost control, supplier relationships, and product differentiation may help it weather the current market conditions. Successful execution of its strategic initiatives and adaptation to evolving consumer preferences will be key to the company’s future performance and profitability.