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The Tile Shop Reports Second Quarter 2020 Results
Second Quarter Summary
Net Sales Decreased 23.8%
Management Commentary –
(1) As compared to the prior year period.
SECOND QUARTER 2020
Selling, General and Administrative Expenses
Adjusted EBITDA for the second quarter of 2020 was
(1) Amounts do not foot due to rounding.
Pretax Return on Capital Employed
Pretax Return on Capital Employed was (2.3%) for the trailing twelve months as of the end of the second quarter in 2020 compared to 3.9% for the trailing twelve months as of the end of the second quarter in 2019. See the Pretax Return on Capital Employed calculation in the table below.
(1) Income statement accounts represent the activity for the trailing twelve months ended as of each of the balance sheet dates. Balance sheet accounts represent the average account balance for the four quarters ended as of each of the balance sheet dates.
Net Debt decreased
Non-GAAP Financial Measures
The Company calculates Adjusted EBITDA by taking net (loss) income calculated in accordance with GAAP, and adjusting for interest expense, income taxes, depreciation and amortization, and stock-based compensation expense. Adjusted EBITDA margin is equal to Adjusted EBITDA divided by net sales. The Company calculates Pretax Return on Capital Employed by taking (loss) income from operations divided by capital employed. Capital employed equals total assets less accounts payable, income taxes payable, other accrued liabilities, deferred rent, lease liability and other long-term liabilities. The Company calculates Net Debt by taking long term debt, net and subtracting cash and cash equivalents. Other companies may calculate Adjusted EBITDA, Pretax Return on Capital Employed and Net Debt differently, limiting the usefulness of these measures for comparative purposes.
The Company believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and results of operations. Company management uses these non-GAAP measures to compare Company performance to that of prior periods for trend analyses, for purposes of determining management incentive compensation, for budgeting and planning purposes, for assessing the effectiveness of capital allocation over time and understanding total indebtedness of the Company after consideration of liquidity available from cash balances on-hand. These measures are used in monthly financial reports prepared for management and the Board of Directors. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with other specialty retailers, many of which present similar non-GAAP financial measures to investors.
Company management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitations of these non-GAAP financial measures are that they exclude significant expenses and income that are required by GAAP to be recognized in the Company’s consolidated financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. The Company urges investors to review the reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures and not to rely on any single financial measure to evaluate the business.
IMPACT OF THE COVID-19 PANDEMIC
The COVID-19 pandemic has impacted, and is likely to continue impacting, the Company’s operations. As previously announced, the Company’s sales and traffic decreased by approximately 50% during the weeks immediately following the end of the first quarter of 2020 when compared to the same period in 2019. As shelter in place orders started to ease throughout the quarter, the Company’s traffic and sales started to recover. The proliferation of COVID-19 across the world has also resulted in supply chain disruptions, as a number of the Company’s suppliers have been adversely impacted by restrictions placed on their operations.
Following the onset of COVID-19, the Company took immediate steps to curtail operating expenses. These activities included workforce reductions, the suspension of incentive compensation programs, salaried employee wage reductions, and adjustments to the number of replenishment trucks sent from the Company’s distribution centers to its stores. These cost savings measures, combined with a lower level of variable selling expenses, resulted in a
Additionally, the Company took actions to conserve cash by limiting inventory purchases, cutting anticipated spending on capital projects, and negotiating rent deferrals with the Company’s landlords. These actions contributed to the cash generating activities that made it possible for the Company to reduce its debt balance by
While the Company is cautiously optimistic that it will continue to benefit from improved traffic and sales trends, the recent escalation of COVID-19 cases across many of the markets the Company serves could have a negative impact on the Company. Specifically, the Company could be adversely impacted by limitations on the Company’s employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring the Company’s stores to close or employees to remain at home; limitation of carriers to deliver the Company’s product to customers; limitations on the ability of the Company’s customers to conduct their business and purchase the Company’s products and services; and limitations on the ability of the Company’s customers to pay the Company in a timely manner. These events could have a material, adverse effect on the Company’s results of operations, cash flows and liquidity. In addition, even after the COVID-19 pandemic has subsided, the Company may continue to experience adverse impacts to its business as a result of the economic impact of the pandemic, including any recession that has occurred or may occur in the future.
The Company’s Credit Agreement with
Prior to the outbreak of the COVID-19 pandemic in
WEBCAST AND CONFERENCE CALL
The Company will not hold an earnings conference call for its second quarter 2020 financial results.
FORWARD LOOKING STATEMENTS
This press release includes “forward looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward looking statements may be identified by the use of words such as “anticipate”, “believe”, “expect”, “estimate”, “plan”, “outlook”, and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward looking statements include any statements regarding the Company’s strategic and operational plan and expected financial performance. Forward looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward looking statements are based on information available at the time such statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward looking statements, including but not limited to unforeseen events that may affect the retail market or the performance of the Company’s stores. Many of the Company’s risks have been, and may further be, exacerbated by the COVID-19 pandemic. The Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances. Investors are referred to the most recent reports filed with the
Source: Tile Shop Holdings, Inc.