Why Tile Shop Holdings Inc. Shares Soared Today

Is Tile Shop's jump meaningful or just another movement?

Steve Symington
Steve Symington
Feb 17, 2015 at 4:11PM
Consumer Goods

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Tile Shop Holdings (NASDAQ:TTS) rose 20% Tuesday after the company announced weaker-than-expected fourth-quarter results, but followed with encouraging guidance.

So what: Quarterly sales grew 9.5% year over year to $63.3 million. The performance was driven by incremental net sales of $5.5 million from stores that were not previously included in the comparable-store base. Comparable-store sales were flat from the year-ago period. The company reported adjusted earnings of $0.03 per diluted share. Analysts, on average, were looking for earnings of $0.04 per share on sales of $64.68 million.

Now what: Going into this report, shares of Tile Shop Holdings were down more than 50% from their 52-week high set last April. And though its fourth-quarter results were underwhelming, CEO Chris Homeister stated, "While the specialty flooring industry remained challenged throughout the fourth quarter and for much of 2014, we have been encouraged with noticeably improved customer traffic and sales performance since the beginning of December."

Homeister added that Tile Shop is "actively executing numerous initiatives focused on returning the company to higher levels of growth an profitability."

Tile Shop also provided guidance for full-year 2015 sales of $275 million to $290 million, driven by a modest eight to 10 new stores and comparable-store sales growth in the "low single digits." That should result in earnings per share of $0.27 to $0.33. Wall Street was modeling roughly the same earnings with revenue at the high end of that range.

While that guidance is by no means extraordinary, it's hard to blame beaten-down investors for bidding shares up today given the company's optimism. I'm personally content keeping Tile Shop on my watch list to see how its initiatives progress in the coming quarters. But if its plans start to bear fruit, today's pop could be just the beginning for patient, long-term investors.