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The Tile Shop Shot Up 19.7% in April: Here's Why

By Asit Sharma - May 16, 2016 at 11:00AM

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The tile flooring specialist begins the year with an energetic quarter and improvements to its balance sheet.

What: Shares of tile retailer Tile Shop Holdings Inc (TTSH 4.89%) surged nearly 20% during the month of April, according to data from S&P Global Market Intelligence.

So what: The flooring retailer delivered a stellar first-quarter 2016 earnings report on April 19th, causing investors to drive up TTS stock 13% by the end of the trading day. Enthusiasm over the report buoyed the stock for the rest of the month. The Tile Shop reported a vigorous revenue increase of 16.1% in the first quarter, which was supported by a powerful 13.2% rise in comparable-store sales. Surprisingly, management indicated the "comps" gain was primarily driven by an uptick in the more mature locations in the company's 31-state store base rather than stores opened in the last two years. 

Operating income margin grew at a rate of 63%, which was perhaps the most impressive statistic in the report, as the revenue increase outpaced a rise in selling, general, and administrative services expenses.

Adding to the positive sentiment, CEO Chris Homeister observed that the company enjoyed "increases in traffic and average ticket across all vintages and geographies." Management also indicated that growth in trade or "Pro" customers outpaced the overall growth rate of customers during the quarter.

The Tile Shop announced that it had taken advantage of strong operating results during the quarter to pay down $15.0 million in long-term debt, effectively reducing its debt burden by nearly 30%, to $36.2 million. Even after this, the company actually added about $6 million in cash to its coffers versus the prior sequential quarter thanks to free cash flow of $21 million.

Now what:  During The Tile Shop's first-quarter conference call, CEO Homeister noted that despite the 16% ramp-up in sales, ending inventory grew only 1%. This efficient and quick inventory movement backs the company's claim that it's seeing broad-based growth along nearly every product line.

Investors also responded in kind to The Tile Shop's improved 2016 outlook. Management raised full-year guidance on sales from a previous range of $312-$325 million to a revised band of $320-$329 million. The company also boosted comparable-store sales growth guidance from the "low to mid single digits" to the "mid to high single digits."

Perhaps the quite solid start to 2016, combined with an even brighter outlook, will ease some of the recent volatility in The Tile Shop stock. Year to date, shares have plunged as low as 23%, climbed as much as 13%, and are currently up 6% since January 1. Producing another quarter like Q1 2016 is one way for management to smooth out the ascent of the TTS symbol, but that very success has already set a high bar for the second quarter. Stay tuned.

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Tile Shop Holdings, Inc. Stock Quote
Tile Shop Holdings, Inc.
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