Tile Shop (TTSH) Q2 Revenue Drops 3.4%

Tile Shop (TTSH -4.55%), a specialty retailer focused on tile and flooring products, released its results for the second quarter of fiscal 2025 on August 7, 2025. The most important news from the release was a continued decline in both sales and profitability, as measured by GAAP net sales and income from operations over fiscal 2022, fiscal 2023, and fiscal 2024. For the period, Revenue (GAAP) was $88.3 million, a drop of 3.4% in net sales compared to Q2 2024. Earnings per diluted share (GAAP) were $0.01, a sharp fall from $0.03 (GAAP, Q2 2024) a year earlier. Gross margin was 64.4%, while Adjusted EBITDA fell to $4.9 million from $6.7 million versus Q2 2024. Comparable store sales decreased 3.5%, reflecting ongoing softness in store traffic. The company did not provide any direct comparison to analyst expectations, as no estimates were published for the quarter. Overall, the period reflected a challenging retail environment and ongoing pressure on the company's financial metrics.

Business Overview and Key Success Factors

Tile Shop operates as a specialty retailer of tile, natural stone, and related installation materials, with over 140 stores across the United States. It offers more than 6,000 products, including man-made tiles, luxury vinyl tile (LVT), and natural stones, often sold under proprietary brands like Rush River and Fired Earth. The company aims to appeal to a broad range of customers, including do-it-yourself buyers and professional contractors.

Recent company strategy has focused on several areas: expanding its assortment of competitively priced products, improving supply chain efficiency, and maintaining strong customer service. A broad product lineup is intended to meet shifting trends and changing consumer budgets. Key success factors include differentiation through exclusive and proprietary products, efficient global sourcing, and an in-store experience built around trained staff and extensive showroom displays. Keeping costs in check while adapting to market demand is also a central focus, particularly in an environment with volatile consumer demand.

Quarter Highlights: Financial, Operational, and Strategic Developments

During the quarter, Tile Shop faced several persistent challenges that shaped its results. Sales continued to slip, with GAAP revenue down 3.4% and comparable store sales also declining by 3.5%, albeit at a slower rate than the prior year. Despite signs of modest improvement in unit volumes, management noted that growth in entry-level and lower-priced goods shifted the average selling price downward. Increased discounting further hurt profitability, as the gross margin shrank 1.6 percentage points year-on-year. Income from operations and adjusted EBITDA margins both deteriorated, with the latter (non-GAAP) falling from 7.4% to 5.6%.

The company achieved savings in selling, general, and administrative (SG&A) expenses, which fell by $2.1 million compared to the prior year period. These savings were driven largely by cost-control measures such as asset impairment reductions, the closure of a distribution center in New Jersey, lower marketing expenses, and depreciation. This closure is expected to yield annualized benefits of $1.0 million. Additionally, a previous distribution hub closure in New Jersey provided further expense reduction and ongoing sublease income. These efficiency efforts highlight a focus on cost control amid weaker top-line results.

On the product front, management reaffirmed its strategy of building out a broad assortment across both premium and entry-level categories. Large format tiles and luxury vinyl tile—types of resilient and visually appealing flooring products—remain in focus, alongside exclusive designer collections. Past quarters saw new design partnerships and proprietary launches to deepen category leadership. However, no specific product family results were broken out in the release for this quarter. The strategy of expanding lower-priced options succeeded in boosting tile volume but did not generate enough sales growth to offset price compression and discounting pressures.

In terms of store presence, Tile Shop closed one underperforming location, reducing its total store count to 141. The company also strengthened its balance sheet, growing cash by $6.8 million in the first half of 2025 (Q1–Q2 2025, GAAP) while keeping debt at zero. Despite this, the return on capital employed fell to 0.0% for the trailing twelve months as of Q2 2025, compared to 6.8% for the trailing twelve months as of Q2 2024. This points to ongoing challenges in turning existing assets into acceptable profit levels, despite operating and strategic adjustments.

Outlook and What to Watch Ahead

Looking ahead, management did not provide guidance for sales or earnings for upcoming quarters or the full fiscal year. The release contained no new quantitative targets, strategy pivots, or initiatives related to digital channels or store expansion. Management's commentary remained cautious, with a focus on adjusting assortment and managing costs to position the company to "more effectively navigate the challenges of the current environment."

Investors should monitor trends in store traffic and comparable sales, mix of products sold, margin development, and progress from recent cost-control actions in the quarters ahead.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.