It's been a rough few months for Tile Shop Holdings (NASDAQ:TTS). Since July 2017, shares of the specialty tile retailer have lost more than half of their value. The loss of its CEO, increasing competition, and declining comparable sales all took their toll.

Going into the company's second-quarter 2018 financial report, investors were hoping for the best but fearing the worst, particularly in light of two successive quarters where Tile Shop's performance was quite dismal.

At first glance, the numbers didn't seem like much to celebrate, but the significant improvement over the two previous quarters' results gave investors a much-needed shot of optimism.

Man placing ceramic floor tile in position over adhesive.

Image source: Getty Images.

The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over Year Change

Revenue

$92.9 million

$89.5 million

3.9%

Net income

$4.96 million

$7.72 million

(36%)

Earnings per diluted share

$0.10

$0.15

(33%)

Gross margin

70.3%

69.7%

60 basis points

Comparable-store sales

(1.8%)

0.5%

NA

Data source: Tile Shop Holdings Second-Quarter 2018 Financial Release. Chart by author.

For the quarter, Tile Shop's revenue increased 3.9% year over year to $92.9 million, beating out analysts' consensus estimates of $90.4 million. Net income declined to just under $5 million, producing earnings per share of $0.10, in line with analysts' expectations. The declines in net income and earnings per share were the result of investments the company has made in order to return to growth, and were widely anticipated. 

The biggest development, though, was the improvement in comparable-store sales. While a decline of 1.8% may not seem like anything to write home about, it is a vast improvement from the declines of 6.8% and 4.9% that Tile Shop reported in the previous two quarters.

Since late last year, the company has undertaken a number of steps to improve its results and return to growth. The company has been increasing its product assortment, improving its store presentation, increasing both sales associate compensation and the number of regional managers, and focusing on its professional customers. The company believes that each of these steps has had a positive impact on comp sales over the past two quarters and is accelerating those initiatives across its store base.

Tile Shop also declared a quarterly dividend of $0.05 per share, payable on August 10, 2018, to shareholders of record as of July 30, 2018.

Robert Rucker, founder and interim CEO, had this to say about the results:

During the second quarter, we continued to improve our assortment and grow our pro customer base. We also improved our store experience through the combination of store remodel and store merchandising investments. These all have been strong focus areas for our entire company and are key elements of our differentiation and long-term strategy.

Looking ahead

Tile Shop plans to continue to invest in remodeling store displays to support its product presentation strategy. The company also plans to increase its inventory investments by 10% to 20% by year-end as it builds out its assortment in an effort to increase sales. Finally, the company is increasing compensation for its sales and support staff, which it believes is necessary to achieve its long-term vision.

For the third quarter, analysts are expecting Tile Shop to generate revenue of $87.3 million and earnings per share of $0.04.

Tile Shop has made significant strides in improving its results over the past several quarters, and as I predicted, the stock is making a big move in acknowledgement of those improvements. While two or three quarters does not a trend make, it certainly appears that Tile Shop is on the right track.

Danny Vena owns shares of Tile Shop Holdings. The Motley Fool recommends Tile Shop Holdings. The Motley Fool has a disclosure policy.