Shares of Tile Shop Holdings, Inc. (NASDAQ:TTS) were down more than 27.5% at 11:30 a.m. EST today after the release of the specialty retailer's fourth-quarter and full-year financial and operating results before market open. The short version is that investors were stunned when the company reported a $7.4 million GAAP loss in the fourth quarter.
Even when adjusting for the one-time negative impact of the recently passed federal tax legislation and other nonrecurring expenses related to resolved litigation, Tile Shop reported an adjusted loss of $0.05 per share. This was far short of investors' expectations, which were for Tile Shop to report an adjusted profit of $0.05 per share.
Tile Shop's big unexpected loss was only part of what has investors stirred up today. The company also missed expectations on sales, with revenue of $78.6 million, versus expectations for $83.8 million. While getting too caught up in the "miss" versus analyst estimates can sometimes overlook the point, the underlying reasons why Tile Shop came up so short of expectations are a big deal.
Tile Shop reported comparable sales results -- sales at stores open for more than one year -- that fell 4.9% in the quarter, as the company continued to deal with competitive pressure and product assortment challenges. The company has struggled to get more low-cost products in its stores for several quarters now, after being caught flat-footed by increased customer demand for more entry-level choices in 2017.
Frankly, Tile Shop investors should probably be concerned right now. The company looked like it had made a solid turnaround over the past few years under CEO Chris Homeister before the aforementioned low-price product issues started taking a bite out of sales. However, there's been significant turmoil at the top since the third-quarter earnings announcement, with Homeister abruptly resigning less than two weeks following the Q3 earnings call and founder and former CEO Bob Rucker taking control as interim CEO.
To put it bluntly, the company, which had been executing strongly under several key initiatives under Homeister, now seems rudderless without a permanent CEO and a clear strategy in place. Today's share price could turn out to be a real bargain down the road, but with increased competition and a lack of strong leadership, I think it's probably best to let things play out a bit more before making any decisions about buying or selling shares.