It has been a bad year for investors in The Tile Shop (TTS 9.70, -3.50, -26.5%), a leading specialty retailer of manufactured and natural stone tiles and related accessories, and it is about to get worse -- much worse. Shares of TTS are indicated nearly 30% lower in pre-market action following a warning from the company after Monday's close that its third quarter results are going to be weaker than expected.
A stock doesn't sell off 30% after an earnings warning unless it was a really bad warning. The numbers don't sound terrible at first blush, yet it is all relative.
Net sales are expected to grow 7% to approximately $84 million, which is below analysts' average expectation; comparable store sales are expected to increase 1%, which is below analysts' average expectation; and its gross margin rate is expected to be approximately 66% to 67% versus 70.2% in the same period a year ago.
The Tile Shop added that its fiscal 2017 guidance is no longer applicable.
Following its second quarter report in July, The Tile Shop said it expected fiscal 2017 earnings per share, excluding non-recurring items, to be between $0.49 and $0.56 and fiscal 2017 revenues to be between $350 million and $365 million. Those ranges were weaker than previous guidance ranges of $0.50 to $0.57 and $350 million to $370 million, respectively.
The shortfall in the third quarter was attributed to a more competitive environment, as well as increased demand for opening price points that contributed to gross margin pressure.
The nettlesome considerations for investors are twofold: (1) this is the second quarter in a row the company has missed expectations and (2) this is a flush period for home renovation activity, which makes the warnings from The Tile Shop all the more disappointing.
Prior to the warning, shares of TTS were down 32.5% in 2017.