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Bear of the Day: Tile Shop Holdings (TTS)

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Tile Shop Hldgs, Inc. (TTS - Free Report) , a Zacks Rank #5 (Strong Sell), is the parent company of The Tile Shop. The Tile Shop is a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories in the United States. It offers floor, wall, natural stone, ceramic, porcelain, glass, and metal tile products; tile patterns; basins; fixtures; listellos/borders; and profiles. Tile Shop Holdings, Inc. is based in Plymouth, Minnesota.

Recent Earnings Results

On February 21st, the company announced Q4 17 results where they missed both the Zacks consensus earnings and revenue estimates.  Earnings came in at -$0.05, well below the year ago EPS of $0.07, and revenues fell by -2.3%.  But this was not the only downside of the report, comps dropped by 5%, and gross margins declined by 310 basis points.  

Issues Ahead

In December the company stopped its promotional pricing strategy as management believed that it was hurting traffic specifically with professional customers.  Going into 2018, management has shifted its focus on product differentiation, and less on promotional pricing.  While the shift seems appropriate, there is no true way to gauge the potential success of this move. Adding to the uncertainty surrounding future earnings, management has provided very limited guidance for 2018 with zero EPS, sales or gross margin expectations.  

Management’s Take

According to Robert Rucker, interim CEO, “During the fourth quarter, we focused on improving our product assortment, identifying opportunities to better serve our professional customers, and de-emphasizing price promotions.  We have acted swiftly and decisively and we are confident in our long-term strategy. Company performance in the second half of the year was not reflective of our position within the flooring industry as the preeminent place to romance your home with unique and premium tile.  We are committed to providing the best product assortment, best service, and best presentation in the tile industry.  We believe we are taking the right steps to deliver better financial results and best position the Company for long-term success.”

Price and Earnings Consensus Graph

As you can see in the graph below the company’s stock price has been falling since the summer of 2017, and future earnings estimates have been downwardly revised as well.

Tile Shop Hldgs, Inc. Price and Consensus

Tile Shop Hldgs, Inc. Price and Consensus | Tile Shop Hldgs, Inc. Quote

Declining Earnings Estimates

Over the past seven days, earnings estimates for Q1 18, Q2 18, FY 18 and FY 19 have all seen significant reductions; Q1 18 was cut from $0.15 to $0.08, Q2 18 fell from $0.13 to $0.09, FY 18 was slashed from $0.43 to $0.19, and FY 19 was halved from $0.50 to $0.25.  

If you are inclined to invest in the Building Products/Retail segment, you would be best served by looking into Beacon
(BECN - Free Report) , Lowe’s Companies (LOW - Free Report) , and or Fastenal Company (FAST - Free Report) , all of which currently carry a Zacks Rank #2 (Buy) rating.

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