10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

FORM 10-Q

_____________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from – to –

Commission file number: 001-35629

_____________________________

TILE SHOP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

_____________________________

Delaware	45-5538095
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

14000 Carlson Parkway
Plymouth, Minnesota	55441
(Address of principal executive offices)	(Zip Code)

(763) 852-2950

(Registrant’s telephone number, including area code)

_____________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. ☒Yes☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).☒Yes☐No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large  accelerated  filer	☐	Accelerated  filer	☒
Non-accelerated filer	☐	Smaller  reporting  company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).☐Yes☒No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value	TTS	The Nasdaq Stock Market LLC

As of May 2, 2019, there were 52,951,217  shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

TILE SHOP HOLDINGS, INC.

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Stockholders’ Equity (Deficit)	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	24
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
Signatures		28

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share and per share data)

	March 31,		December 31,
	2019		2018
	(unaudited)		(audited)
Assets
Current assets:
Cash and cash equivalents	$	7,936	$	5,557
Restricted cash		825		825
Receivables, net		5,942		3,084
Inventories		110,804		110,095
Income tax receivable		3,086		3,548
Other current assets, net		7,904		7,181
Total Current Assets		136,497		130,290
Property, plant and equipment, net		143,785		158,356
Right of use asset		141,791		-
Deferred tax assets		7,249		7,225
Other assets		1,606		1,759
Total Assets	$	430,928	$	297,630
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	31,811	$	25,853
Income tax payable		64		179
Current portion of lease liability		25,236		-
Other accrued liabilities		28,727		24,484
Total Current Liabilities		85,838		50,516
Long-term debt		50,000		53,000
Long-term lease liability, net		138,550		-
Financing lease obligation, net		398		436
Deferred rent		-		43,579
Other long-term liabilities		3,857		3,752
Total Liabilities		278,643		151,283
Stockholders’ Equity:
Common stock, par value $0.0001; authorized: 100,000,000 shares; issued and outstanding:52,901,733 and 52,707,879 shares, respectively		5		5
Preferred stock, par value $0.0001; authorized: 10,000,000 shares; issued and outstanding: 0 shares		-		-
Additional paid-in-capital		170,306		172,255
Accumulated deficit		(17,997)		(25,857)
Accumulated other comprehensive income (loss)		(29)		(56)
Total Stockholders' Equity		152,285		146,347
Total Liabilities and Stockholders' Equity	$	430,928	$	297,630

See accompanying Notes to Consolidated Financial Statements.

3

Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

(unaudited)

	Three Months Ended
	March 31,
	2019		2018
Net sales	$	86,908	$	91,134
Cost of sales		25,066		27,096
Gross profit		61,842		64,038
Selling, general and administrative expenses		58,948		57,927
Income from operations		2,894		6,111
Interest expense		(978)		(554)
Other income		15		35
Income before income taxes		1,931		5,592
Provision for income taxes		(611)		(1,581)
Net income	$	1,320	$	4,011
Income per common share:
Basic	$	0.03	$	0.08
Diluted	$	0.03	$	0.08
Weighted average shares outstanding:
Basic		51,961,780		51,881,681
Diluted		52,037,996		51,899,210
Dividends declared per share	$	0.05	$	0.05

See accompanying Notes to Consolidated Financial Statements.

4

Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(unaudited)

	Three Months Ended
	March 31,
	2019		2018
Net income	$	1,320	$	4,011
Currency translation adjustment		27		30
Other comprehensive income		27		30
Comprehensive income	$	1,347	$	4,041

See accompanying Notes to Consolidated Financial Statements.

5

Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (Deficit)

(dollars in thousands, except share data)

(unaudited)

	Common stock
	Shares	Amount		Additional paid-in capital		Retained earnings (deficit)		Accumulated other comprehensive income (loss)		Total
Balance at December 31, 2017	52,156,850	$	5	$	180,109	$	(36,239)	$	(1)	$	143,874
Adoption of revenue recognition standard	-		-		-		(60)		-		(60)
Balance at January 1, 2018	52,156,850	$	5	$	180,109	$	(36,299)	$	(1)	$	143,814
Issuance of restricted shares	281,945		-		-		-		-		-
Cancellation of restricted shares	(9,638)		-		-		-		-		-
Stock based compensation	-		-		617		-		-		617
Dividends paid	-		-		(2,600)		-		-		(2,600)
Foreign currency translation adjustments	-		-		-		-		30		30
Net income	-		-		-		4,011		-		4,011
Balance at March 31, 2018	52,429,157	$	5	$	178,126	$	(32,288)	$	29	$	145,872
Balance at December 31, 2018	52,707,879	$	5	$	172,255	$	(25,857)	$	(56)	$	146,347
Adoption of lease standard (see Note 1)	-		-		-		6,540		-		6,540
Balance at January 1, 2019	52,707,879	$	5	$	172,255	$	(19,317)	$	(56)	$	152,887
Issuance of restricted shares	281,173		-		-		-		-		-
Cancellation of restricted shares	(87,319)		-		-		-		-		-
Stock based compensation	-		-		739		-		-		739
Tax withholdings related to net share settlements of stock based compensation awards	-		-		(82)		-		-		(82)
Dividends paid	-		-		(2,606)		-		-		(2,606)
Foreign currency translation adjustments	-		-		-		-		27		27
Net income	-		-		-		1,320		-		1,320
Balance at March 31, 2019	52,901,733	$	5	$	170,306	$	(17,997)	$	(29)	$	152,285

See accompanying Notes to Consolidated Financial Statements.

a

6

Tile Shop Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 (dollars in thousands)

(unaudited)

	Three Months Ended
	March 31,
	2019		2018
Cash Flows From Operating Activities
Net income	$	1,320	$	4,011
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization		7,964		7,000
Amortization of debt issuance costs		149		167
Loss on disposals of property, plant and equipment		82		71
Stock based compensation		739		617
Deferred income taxes		64		426
Changes in operating assets and liabilities:
Receivables		(2,858)		(504)
Inventories		(709)		(3,058)
Prepaid expenses and other assets		(806)		(1,771)
Accounts payable		8,429		(6,085)
Income tax receivable / payable		457		1,135
Accrued expenses and other liabilities		4,848		7,849
Net cash provided by operating activities		19,679		9,858
Cash Flows From Investing Activities
Purchases of property, plant and equipment		(12,198)		(4,846)
Proceeds from insurance		610		-
Net cash used in investing activities		(11,588)		(4,846)
Cash Flows From Financing Activities
Payments of long-term debt and financing lease obligations		(18,054)		(16,904)
Advances on line of credit		15,000		15,000
Dividends paid		(2,606)		(2,600)
Employee taxes paid for shares withheld		(82)		-
Net cash used in financing activities		(5,742)		(4,504)
Effect of exchange rate changes on cash		30		3
Net change in cash		2,379		511
Cash, cash equivalents and restricted cash beginning of period		6,382		7,476
Cash, cash equivalents and restricted cash end of period	$	8,761	$	7,987
Cash and cash equivalents	$	7,936	$	7,152
Restricted cash		825		835
Cash, cash equivalents and restricted cash end of period	$	8,761	$	7,987
Supplemental disclosure of cash flow information
Purchases of property, plant and equipment included in accounts payable and accrued expenses	$	1,478	$	1,895
Cash paid for interest		934		558
Cash paid (received) for income taxes, net		-		1

See accompanying Notes to Consolidated Financial Statements.

7

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

Note 1: Background

Tile Shop Holdings, Inc. (“Holdings,” and together with its wholly owned subsidiaries, the “Company”) was incorporated in Delaware in June 2012.

The Company is a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories in the United States.  The Company manufactures its own setting and maintenance materials, such as thinset, grout, and sealers. The Company’s primary market is retail sales to consumers, contractors, designers and home builders. As of March 31, 2019, the Company had 140 stores in 31 states and the District of Columbia, with an average size of approximately 20,200 square feet. The Company has distribution centers located in Michigan, New Jersey, Oklahoma, Virginia and Wisconsin. The Company has a sourcing operation located in China.

The accompanying Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature, including the elimination of all intercompany transactions. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

These statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The accounting policies used in preparing these Consolidated Financial Statements are the same as those described in Note 1 to the Consolidated Financial Statements in such Form 10-K.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued a final standard that primarily requires organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheet.  This standard also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.  The Company adopted this standard effective January 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. 

The Company determines if an arrangement is a lease at inception. Operating leases are included in right of use assets and lease liabilities on the consolidated balance sheets. The right of use assets and lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The right of use asset is also adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease typically at the Company’s own discretion. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.

This standard provides a number of optional practical expedients in transition.  The Company elected the package of three practical expedients permitted under the transition guidance within this standard, which among other things, allows the Company to carryforward the historical lease classification.  The Company did not separate non-lease components from lease components by class of underlying assets and the Company did not apply the recognition requirements of the standard to short-term leases, as allowed by the standard.

The Company also elected to apply the hindsight practical expedient.  Its election of the hindsight practical expedient resulted in the shortening of lease terms for certain existing leases and the useful lives of corresponding leasehold improvements.  In its application of the hindsight practical expedient,  the Company considered recent investments in leased properties and its overall real estate strategy, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.  

Upon adopting this standard, the Company established a right of use asset of $147.2 million and lease liabilities of $169.9 million, reduced deferred rent by $44.6 million, and recorded a cumulative effect adjustment to retained earnings of $22.0 million.This retained earnings impact wasdue to the election of the hindsight practical expedient which resulted in a decrease in the cumulative difference between the straight-line rent expense and rental payments that had been made between the inception of each lease and January 1, 2019. The change in the useful life assigned to certain leasehold improvements resulted in a $15.3 million reduction in

8

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

fixed assets and retained earnings.  The adoption of this standard did not have a material impact on net income or cash flows during the three months ended March 31, 2019. See Note 8 for further details.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued a final standard on accounting for credit losses. The standard is effective for the Company in fiscal 2020 and requires a change in credit loss calculations using the expected loss method. The Company is evaluating the effect of this standard on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued a final standard which provides guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract.The standard requires customers of cloud computing services to recognize an intangible asset for the software license and, to the extent that payments attributable to the software license are made over time, a liability is also recognized. The standard also allows customers of cloud computing services to capitalize certain implementation costs. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The standard will become effective for the Company at the beginning of its 2020 fiscal year, although early adoption is permitted for all entities. The Company is evaluating the effect of the standard on its consolidated financial statements.

Note 2: Revenues

Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration received in exchange for those goods or services. Sales taxes are excluded from revenues. 

The following table presents revenues disaggregated by product category:

	For the three months ended
	March 31,
	2019		2018
Man-made tiles	46	%	45	%
Natural stone tiles	29		29
Setting and maintenance materials	13		13
Accessories	11		11
Delivery service	1		2
Total	100	%	100	%

The Company generates revenues by selling tile products, setting and maintenance materials, accessories, and delivery services to its customers through its store locations.  The timing of revenue recognition coincides with the transfer of control of goods and services ordered by the customer which falls into one of three categories described below:

· Revenue recognized when an order is placed – If a customer places an order in a store and the contents of their order are available, the Company recognizes revenue concurrent with the exchange of goods for consideration from the customer.

· Revenue recognized when an order is picked up – If a customer places an order for items held in a centralized distribution center, the Company requests a deposit from the customer at the time they place the order.  Subsequently when the contents of the customer’s order are delivered to the store, the customer returns to the store and picks up the items that were ordered.  The Company recognizes revenue on this transaction when the customer picks up their order.

· Revenue recognized when an order is delivered – If a customer places an order in a store and requests delivery of their order, the Company prepares the contents of their order, initiates the delivery service, and recognizes revenue once the contents of the customer’s order are delivered.

The Company determines the transaction price of its contracts based on the pricing established at the time a customer places an order.  The transaction price does not include sales tax as the Company is a pass-through conduit for collecting and remitting sales tax.  Any discounts applied to an order are allocated proportionately to the base price of the goods and services ordered.  Deposits made by customers are recorded in other accrued liabilities. Deferred revenues associated with customer deposits are recognized at the time the Company transfers control of the items ordered or renders the delivery service. In the event an order is partially fulfilled as of the end of a reporting period, revenue will be recognized based on the transaction price allocated to the goods delivered and services rendered. The customer deposit balance was $9.8 million and $7.4 million as of March 31, 2019 and December 31, 2018, respectively.  Revenues

9

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

recognized during the three-month period ended March 31, 2019 that were included in the customer deposit balance as of the beginning of the period were $6.6 million.

Accounts receivable include amounts due from qualified professional customers who apply for credit.  Customers who qualify for an account receive 30-day payment terms. The accounts receivable balance was $5.9 million and $3.1 million at March 31, 2019 and December 31, 2018, respectively. The Company expects that the customer will pay for the goods and services ordered within one year from the date the order is placed.  Accordingly, the Company qualifies for the practical expedient outlined in ASC 606-10-32-18 and does not adjust the promised amount of consideration for the effects of the financing component. 

Customers may return purchased items for an exchange or refund.  The Company records a reserve for estimated product returns based on the historical returns trends and the current product sales performance.  Historically, the sales returns reserve was presented net of cost of sales in other current liabilities. The Company presents the sales returns reserve as an other current liability and the estimated value of the inventory that will be returned as an other current asset in the Consolidated Balance Sheet.  The components of the sales returns reserve reflected in the Consolidated Balance Sheet as of March 31, 2019 and December 31, 2018 are as follows:

	(in thousands)
	March 31,		December 31,
	2019		2018
Other current liabilities	$	5,875	$	5,154
Other current assets		1,746		1,498
Sales returns reserve, net	$	4,129	$	3,656

Note 3: Inventories

Inventories are stated at the lower of cost (determined on the weighted-average cost method) or net realizable value. Inventories consist primarily of merchandise held for sale. Inventories were comprised of the following as of March 31, 2019 and December 31, 2018:

	(in thousands)
	March 31,		December 31,
	2019		2018
Finished goods	$	102,501	$	98,776
Raw materials		2,647		2,114
Finished goods in transit		5,656		9,205
Total	$	110,804	$	110,095

The Company provides provisions for losses related to shrinkage and other amounts that are otherwise not expected to be fully recoverable. These provisions are calculated based on historical shrinkage, selling price, margin and current business trends. The provision for losses related to shrinkage and other amounts was $0.9 million and $0.3 million as of March 31, 2019 and December 31, 2018, respectively. 

Note 4: Income taxes

The Company's effective tax rate on net income before income taxes for the three months ended March 31, 2019 and 2018 was 31.6% and 28.3%, respectively. The difference between the Company’s effective rate of 31.6% and the expected federal statutory rate of 21.0% for the three months ended March 31, 2019 is primarily due to state income taxes and stock based compensation tax shortfall charges. For the three months ended March 31, 2019 and 2018, the Company recorded a provision for income taxes of $0.6 million and $1.6 million, respectively. The decrease in the provision for income taxes is due to lower pretax earnings.

The Company records interest and penalties relating to uncertain tax positions in income tax expense. As of March 31, 2019 and 2018, the Company has not recognized any liabilities for uncertain tax positions, nor have interest and penalties related to uncertain tax positions been accrued.

10

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

Note 5: Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after taking into consideration all dilutive potential shares outstanding during the period.

Basic and diluted earnings per share were calculated as follows:

	(all amounts in thousands except share and per share data)
		For the three months ended
		March 31,
		2019		2018
Net income		$	1,320	$	4,011
Weighted average shares outstanding - basic			51,961,780		51,881,681
Effect of dilutive securities attributable to stock based awards			76,216		17,529
Weighted average shares outstanding - diluted			52,037,996		51,899,210
Income per common share:
Basic		$	0.03	$	0.08
Dilutive		$	0.03	$	0.08
Anti-dilutive securities excluded from earnings per share calculation			1,639,659		1,971,066

Note 6: Other Accrued Liabilities

Other accrued liabilities consisted of the following:

	(in thousands)
	March 31,		December 31,
	2019		2018
Customer deposits	$	9,783	$	7,383
Accrued wages and salaries		3,353		3,689
Sales returns reserve		5,875		5,154
Payroll and sales taxes		4,327		2,929
Other current liabilities		5,389		5,329
Total other accrued liabilities	$	28,727	$	24,484

Note 7: Long-term Debt

On September 18, 2018, Holdings and its operating subsidiary, The Tile Shop, LLC, entered into a credit agreement with Bank of America, N.A., Fifth Third Bank and Citizens Bank (the “Credit Agreement”). The Credit Agreement provides the Company with a senior credit facility consisting of a $100.0 million revolving line of credit through September 18, 2023. Borrowings pursuant to the Credit Agreement initially bear interest at a rate of adjusted LIBOR plus 1.75% and may bear interest in a range between adjusted LIBOR plus 1.50% to adjusted LIBOR plus 2.25%, depending on The Tile Shop’s consolidated total rent adjusted leverage ratio. At March 31, 2019 the base interest rate was 6.50% and the LIBOR-based interest rate was 4.49%. Borrowings outstanding consisted of $50.0 million on the revolving line of credit as of March 31, 2019.  In addition, the Company has standby letters of credit outstanding related to its workers compensation and medical insurance policies.  As of March 31, 2019 and 2018, the standby letters of credit totaled $1.2 million and $1.1 million, respectively. There was $48.8 million available for borrowing on the revolving line of credit as of March 31, 2019, which may be used to support the Company’s growth and for working capital purposes.

The Credit Agreement is secured by virtually all of the assets of the Company, including but not limited to, inventory, receivables, equipment and real property. The Credit Agreement contains customary events of default, conditions to borrowings, and restrictive covenants, including restrictions on the Company’s ability to dispose of assets, make acquisitions, incur additional debt, incur liens, or make investments. The Credit Agreement also includes financial and other covenants, including covenants to maintain certain fixed charge coverage ratios and consolidated total rent adjusted leverage ratios.  The Company was in compliance with the covenants as of March 31, 2019.  

11

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

Note 8: Leases

The Company leases its retail stores, certain distribution space, and office space.Leases generally have a term of ten to fifteen years, and contain renewal options. Assets acquired under operating leases are included in the Company’s right of use assets in the accompanying Consolidated Balance Sheet. The Company’s lease agreements do not contain significant residual value guarantees, restrictions or covenants. The depreciable life of assets and leasehold improvements is limited by the expected lease term.

Leases (in thousands)	Classification		March 31, 2019
Assets
Operating lease assets	Right of use asset	$	141,791
Financing lease assets	Property, plant and equipment, net of accumulated depreciation		150
Total leased assets		$	141,941
Liabilities
Current
Operating	Current portion of lease liability	$	25,236
Financing	Other accrued liabilities		145
Noncurrent
Operating	Long-term lease liability, net		138,550
Financing	Other long-term liabilities		398
Total lease liabilities		$	164,329

Lease cost (in thousands)			March 31, 2019
Operating lease cost	SG&A expenses	$	8,013
Financing lease cost
Amortization of leased assets	Depreciation and amortization		12
Interest on lease liabilities	Interest expense		21
Variable lease cost(1)			3,225
Short term lease cost			264
Net lease cost		$	11,535

(1) Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities.

Maturity of Lease Liabilities (in thousands)	Operating Leases		Financing Leases		Total
2019	$	26,177	$	162	$	26,339
2020		34,252		216		34,468
2021		32,677		215		32,892
2022		29,741		90		29,831
2023		24,691		-		24,691
Thereafter		52,125		-		52,125
Total lease payments		199,663		683		200,346
Less: interest		(35,877)		(140)		(36,017)
Present value of lease liabilities	$	163,786	$	543	$	164,329

Other Information (in thousands)		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	8,602
Operating cash flows from financing leases	$	21
Financing cash flows from financing leases	$	33

12

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

Lease Term and Discount Rate	March 31, 2019
Weighted-average remaining term (years)
Operating leases	6.4
Financing leases	3.2
Weighted-average discount rate
Operating leases	6.21	%
Financing leases	14.73	%

Note 9: Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, the Company uses a three-tier valuation hierarchy based upon observable and non-observable inputs:

Level 1 – Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.

Level 2 – Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

· Quoted prices for similar assets or liabilities in active markets;

· Quoted prices for identical or similar assets in non-active markets;

· Inputs other than quoted prices that are observable for the asset or liability; and

· Inputs that are derived principally from or corroborated by other observable market data.

Level 3 – Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment.

The following table sets forth by Level within the fair value hierarchy the Company’s financial assets that were accounted for at fair value on a recurring basis at March 31, 2019 and December 31, 2018 according to the valuation techniques the Company uses to determine their fair values. There have been no transfers of assets among the fair value hierarchies presented.

	Pricing	Fair Value at
	Category	March 31, 2019		December 31, 2018
Assets	(in thousands)
Cash and cash equivalents	Level 1	$	7,936	$	5,557
Restricted cash	Level 1		825		825

The following methods and assumptions were used to estimate the fair value of each class of financial instrument.  There have been no changes in the valuation techniques used by the Company to value the Company’s financial instruments.

· Cash and cash equivalents: Consists of cash on hand and bank deposits.  The value was measured using quoted market prices in active markets.  The carrying amount approximates fair value.

· Restricted cash: Consists of cash and cash equivalents held in bank deposit accounts restricted as to withdrawal or that are under the terms of use for current operations.  The value was measured using quoted market prices in active markets.  The carrying amount approximates fair value.

Fair value measurements also apply to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis.  Property, plant and equipment and right of use assets are measured at fair value when an impairment is recognized and the related

13

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

assets are written down to fair value. The Company did not recognize any significant impairment losses during the three months ended March 31, 2019 and 2018.  

The carrying value of the Company’s borrowings under its Credit Agreement approximate fair value based upon Level 2 inputs of the market interest rates available to the Company for debt obligations with similar risks and maturities.

Note 10: Equity Incentive Plans

Stock options:

The Company measures and recognizes compensation expense for all stock based awards at fair value. The financial statements for the three months ended March 31, 2019 and 2018 include compensation cost for the portion of outstanding awards that vested during those periods. The Company recognizes stock based compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. Total stock based compensation expense related to stock options was $0.3 million for both the three months ended March 31, 2019 and 2018. Stock based compensation expense pertaining to stock options is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income.

As of March 31, 2019, the Company had outstanding stock options to purchase 1,632,585 shares of common stock at a weighted average exercise price of $11.17.

Restricted stock:

The Company awards restricted common shares to selected employees and to non-employee directors. Recipients are not required to provide any consideration upon vesting of the award. Restricted stock awards are subject to certain restrictions on transfer, and all or part of the shares awarded may be subject to forfeiture upon the occurrence of certain events, including employment termination. Certain awards are also subject to forfeiture if the Company fails to attain certain performance targets. The restricted stock is valued at its grant date fair value and expensed over the requisite service period or the vesting term of the awards. The Company adjusts the cumulative expense recognized on awards with performance conditions based on the probability of achieving the performance condition. Total stock based compensation expense related to restricted stock was $0.4 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively. Stock based compensation expense pertaining to restricted stock awards is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income.

As of March 31, 2019, the Company had 916,434 outstanding restricted common shares.

Note 11:New Market Tax Credit

2016 New Market Tax Credit

In December 2016, the Company entered into a financing transaction with U.S. Bank Community, LLC (“U.S. Bank”) related to a $9.2 million expansion of the Company’s facility in Durant, Oklahoma. In this transaction, which was conducted under a qualified New Markets Tax Credit (“NMTC”) program, Tile Shop Lending, Inc. (“Tile Shop Lending”) loaned $6.7 million to Twain Investment Fund 192 LLC (the “Investment Fund”) at an interest rate of 1.37% per year and with a maturity date of December 31, 2046. The Investment Fund then contributed the loan to a community development entity (a “CDE”), which, in turn, loaned the funds on similar terms to Tile Shop of Oklahoma, LLC, an indirect, wholly-owned subsidiary of Holdings.In December 2016, U.S. Bank also contributed $3.2 million to the Investment Fund and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC, while the Company effectively received net loan proceeds equal to U.S. Bank’s contributions to the Investment Fund. This transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase U.S. Bank’s interest. The Company believes that U.S. Bank will exercise the put option in December 2023 at the end of the recapture period. The value attributed to the put/call is de minimis. The NMTC is subject to 100% recapture for a period of seven years as provided in the Internal Revenue Code. The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, could require the Company to indemnify U.S. Bank for any loss or recapture of NMTCs related to the financing until such time as the obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with this arrangement.  

The Company has determined that the financing arrangement with the Investment Fund and CDEs contains a variable interest entity (“VIE”). The ongoing activities of the Investment Fund – collecting and remitting interest and fees and NMTC compliance – were all considered in the initial design and are not expected to significantly affect economic performance throughout the life of the

14

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

Investment Fund. Management considered the contractual arrangements that obligate the Company to deliver tax benefits and provide various other guarantees to the structure; U.S. Bank’s lack of a material interest in the underling economics of the project; and the fact that the Company is obligated to absorb losses of the Investment Fund. The Company concluded that it is the primary beneficiary of the VIE and consolidated the Investment Fund, as a VIE, in accordance with the accounting standards for consolidation. In 2016, U.S. Bank’s contributions of $3.2 million, net of syndications fees, were included in cash, restricted cash, other accrued liabilities and other long-term liabilities in the consolidated balance sheet. The Company incurred $1.3 million of syndication fees in connection with this transaction, which were classified as other current assets and other non-current assets in the consolidated balance sheet. The Company is recognizing the benefit of this net $1.9 million contribution over the seven-year compliance period as it is being earned through the on-going compliance with the conditions of the NMTC program. As of March 31, 2019, the balance of the contribution liability was $2.2 million, of which $0.5 million was classified as other accrued liabilities on the Consolidated Balance Sheet and $1.7 million was classified as other long-term liabilities on the Consolidated Balance Sheet.

The Company is able to request reimbursement for certain expenditures made in connection with the expansion of the distribution center in Durant, Oklahoma from the Investment Fund. Expenditures that qualify for reimbursement include building costs, equipment purchases, and other expenditures tied to the expansion of the facility. As of March 31, 2019, the balance in the Investment Fund available for reimbursement to the Company was $0.8 million.

2013 New Market Tax Credit

In July 2013, the Company entered into a financing transaction with U.S. Bank and Chase Community Equity (“Chase”, and collectively with US. Bank, the “investors”) related to the $19.1 million acquisition, rehabilitation, and construction of the Company’s distribution center and manufacturing facilities in Durant, Oklahoma.  In this transaction, Tile Shop Lending loaned $13.5 million to the Tile Shop Investment Fund LLC.  The investors contributed $5.6 million to the Tile Shop Investment Fund LLC.  The investors are entitled to the tax benefits derived from the NMTC by virtue of their contribution while the Company received the proceeds, net of syndication fees, to apply toward the construction project.  This transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase the investors’ interest. The Company believes that the investors will exercise the put option in September 2020 at the end of the recapture period. The value attributed to the put/call is de minimis. The NMTC is subject to 100% recapture for a period of seven years as provided in the Internal Revenue Code. The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, could require the Company to indemnify the investors for any loss or recapture of NMTCs related to the financing until such time as the obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with this arrangement. 

The Company determined that this financing arrangement contains a VIE.  The ongoing activities of the Tile Shop Investment Fund LLC – collecting and remitting interest and fees and NMTC compliance – were all considered in the initial design and are not expected to significantly affect economic performance throughout the life of the Tile Shop Investment Fund LLC. Management considered the contractual arrangements that obligate the Company to deliver tax benefits and provide various other guarantees to the structure; the investors lack of a material interest in the underling economics of the project; and the fact that the Company is obligated to absorb losses of The Tile Shop Investment Fund LLC. The Company concluded that it is the primary beneficiary of the VIE and consolidated the Tile Shop Investment Fund LLC, as a VIE, in accordance with the accounting standards for consolidation. In 2013, the investors’ contributions, of $5.6 million, net of syndication fees, were included in cash, restricted cash, other accrued liabilities and other long-term liabilities in the consolidated balance sheet. The Company incurred $1.2 million of syndication fees in connection with this transaction which were classified as other current assets and other non-current assets in the consolidated balance sheet.  The Company is recognizing the benefit of this net $4.4 million contribution over the seven-year compliance period as it is being earned through the on-going compliance with the conditions of the NMTC program. As of March 31, 2019, the balance of the contribution liability was $0.9 million, of which $0.7 million was classified as other accrued liabilities on the Consolidated Balance Sheet and $0.2 million was classified as other long-term liabilities on the Consolidated Balance Sheet.

15

Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

Note 12: Related Party Transactions

On July 9, 2018, Fumitake Nishi, the brother-in-law of the Company’s Director Robert Rucker and a former Company employee, informed the Company he had reacquired a majority of the equity of one of its key vendors, Nanyang Helin Stone Co. Ltd (“Nanyang”).  Nanyang supplies the Company with natural stone products including hand-crafted mosaics, listellos and other accessories. During the twelve months ended December 31, 2018, the Company purchased $12.0million of products from Nanyang. During the three months ended March  31, 2019, the Company purchased $1.2 million of products from Nanyang.  Mr. Nishi’s employment with the Company was terminated on January 1, 2014 as a result of several violations of the Company’s code of business conduct and ethics policy.  Certain of those violations involved his undisclosed ownership of Nanyang at that time.  

Management and the Audit Committee have evaluated the relationship and determined that it would be in the Company’s best interests to continue purchasing products from Nanyang.  The Company believes Nanyang provides an important combination of quality, product availability and pricing, and relying solely on other vendors to supply similar product to the Company would not be in the Company’s best interests.  The Company and the Committee has and will continue to review future purchases from Nanyang and compare the pricing for products purchased from Nanyang to the pricing of same or similar products purchased from unrelated vendors.

Note 13: Subsequent Events

On April30, 2019, the Company declared a $0.05 dividend to stockholders of record as of the close of business on May 6, 2019. The dividend will be paid on May  17, 2019.

On April 29, 2019, the Board of Directors of the Company authorized a share repurchase program (the “Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate repurchase price not to exceed  $15,000,000. The Program began on May 2, 2019 and will continue indefinitely until the full repurchase amount has been utilized or the Board of Directors terminates the Program.

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Tile Shop Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 and our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “depend,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “seek,” “should,” “target,” “will,” “will likely result,” “would,” and similar expressions or variations, although some forward-looking statements are expressed differently. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q relate to, among other things, our anticipated new store openings, remodeling plans, and growth opportunities; our business strengths, marketing strategies, competitive advantages and role in our industry and markets; our expectations regarding financing arrangements; our expectations with respect to dividend payments; our expectations with respect to ongoing compliance with the terms of our credit facility; and our expectations with respect to remediation of our identified material weaknesses.

These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from any expected future results, performance, or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the level of demand for our products and our ability to introduce new products that satisfy market demand; our ability to grow and remain profitable in the highly competitive retail tile industry, our ability to access additional capital; our ability to attract and retain qualified personnel; unexpected delays or expenses related to opening new stores and maintaining or renovating existing stores; changes to economic or market conditions and customer preferences; disruptions in our supply chain or inventory management; unanticipated issues with respect to remediation of our identified material weaknesses; and those factors set forth in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 and the additional Risk Factors set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q.

There is no assurance that our expectations will be realized. If one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated, or projected. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview and Recent Trends

We are a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories in the United States. We offer a wide selection of products, attractive prices, and exceptional customer service in an extensive showroom setting. As of March 31, 2019, we operated 140 stores in 31 states and the District of Columbia, with an average size of approximately20,200 square feet.

We purchase our tile products and accessories directly from suppliers and manufacture our own setting and maintenance materials, such as thinset, grout, and sealers. We believe that our long-term supplier relationships, together with our design, manufacturing and distribution capabilities, enable us to offer a broad assortment of high-quality products to our customers, who are primarily homeowners and professionals, at competitive prices. We have invested significant resources to develop our proprietary brands and product sources, and we believe that we are a leading retailer of natural stone and man-made tiles, accessories, and related materials in the United States.

We believe that the highly-fragmented United States retail tile market provides us with a significant opportunity to expand our store base. We opened one new store and closed one store at the end of its lease in the first three months of 2019, and opened two new stores during 2018. Between April 1, 2018 and March 31, 2019, we opened one new store and closed one store. We plan to open an additional five stores in 2019, of which one is a relocation. We believe that there will continue to be additional expansion opportunities in the United States and Canada. We expect store base growth will drive productivity and operational efficiencies. Our growth plans also require us to maintain significant inventory on-hand in order to fulfill transactions at these new locations.

For the three months ended March 31, 2019 and 2018, we reported net sales of $86.9 million and $91.1 million, respectively. The decrease in sales for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 was primarily due

17

to a decline in comparable stores sales of 4.2%, or $3.8 million.In addition, we had one less store in the comparable base during the three months ended March 31, 2019, which resulted in a$0.4 million decrease in net sales. The decrease in sales at comparable stores for the three months ended March 31, 2019 was due to weaker store traffic and customer experience issues following the implementation of a new enterprise resource planning system and the launch of our new website. Poor weather in the Midwest and Northeast as well as a $0.8 million reduction in advertising spend also contributed to the decrease in traffic during the three months ended March 31, 2019.

The table below sets forth information about our comparable store sales decline for the three months ended March 31, 2019 and 2018.  

	For the three months ended
	March 31,
	2019		2018
Comparable store sales decline	(4.2)	%	(6.8)	%

For the three months ended March 31, 2019 and 2018, we reported gross profit of $61.8 million and $64.0 million, respectively. The gross margin rate was 71.2% and 70.3% for the three months ended March 31, 2019 and 2018, respectively. The increase in gross margin rate was primarily driven by higher pricing on new products added to our assortment over the last twelve months.

For the three months ended March 31, 2019 and 2018, we reported income from operations of $2.9 million and $6.1 million, respectively.  The decrease in income from operations was primarily driven by a decrease in net sales and increased selling, general and administrative expenses.

Net cash provided by operating activities was $19.7 million and $9.9 million for the three months ended March 31, 2019 and 2018, respectively, which was used to fund operations, new store construction activities, store remodels, merchandising and information technology investment, dividends and debt repayments. We expect to continue to fund our capital expenditures and daily operations from our operating cash flows.

On April 29, 2019, our Board of Directors authorized a share repurchase program (the “Program”), pursuant to which we may, from time to time, purchase shares of our common stock for an aggregate repurchase price not to exceed $15,000,000. The Program began on May 2, 2019 and will continue indefinitely until the full repurchase amount has been utilized or our Board of Directors terminates the Program.

Key Components of our Consolidated Statements of Income

Net Sales–  Net sales represents total charges to customers, net of returns, and includes freight charged to customers. We recognize sales at the time that the customer takes control of the merchandise or final delivery of the product has occurred. We are required to charge and collect sales and other taxes on sales to our customers and remit these taxes back to government authorities. Total revenues do not include sales tax because we are a pass-through conduit for collecting and remitting sales tax. Sales are reduced by a reserve for anticipated sales returns that we estimate based on historical returns.

Comparable store sales growth is a percentage change in sales of comparable stores period-over-period. A store is considered comparable on the first day of the 13th full month of operation. When a store is relocated, it is excluded from the comparable stores sales growth calculation. Comparable store sales growth amounts include total charges to customers less any actual returns. We include the change in allowance for anticipated sales returns applicable to comparable stores in the comparable store sales calculation.

Cost of Sales–  Cost of sales consists primarily of material costs, freight, customs and duties fees, and storage and delivery of product to the customers, as well as physical inventory losses and costs associated with manufacturing of setting and maintenance materials.

Selling, General, and Administrative Expenses –  Selling, general, and administrative expenses consists primarily of compensation costs, occupancy, utilities, maintenance costs, advertising costs, shipping and transportation expenses to move inventory from our distribution centers to our stores, depreciation and amortization.

Pre-opening Costs–  Our pre-opening costs are those typically associated with the opening of a new store and generally include rent expense, compensation costs and promotional costs. We expense pre-opening costs as incurred and include these costs in selling, general, and administrative expenses.

Income Taxes–  We are subject to income tax in the United States as well as other tax jurisdictions in which we conduct business.

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Non-GAAP Measure

We calculate Adjusted EBITDA by taking net income calculated in accordance with accounting principles generally accepted in the United States (“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.

We believe that this non-GAAP financial measure provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Our management uses this non-GAAP financial measure to compare our performance to that of prior periods for trend analyses, for purposes of determining management incentive compensation, and for budgeting and planning purposes. Thisnon-GAAP financial measure is used in monthly financial reports prepared for management and our Board of Directors. We believe that the use of this non-GAAP financial measure provides an additionaltool for investors to use in evaluating ongoing operating results and trends and in comparing our financial performance with other specialty retailers, many of which present  a similar non-GAAP financial measure to investors.

The reconciliation of Adjusted EBITDA to net income for the three months ended March 31, 2019 and 2018 is as follows:

	(in thousands)
		Three Months Ended
		March 31,
		2019		% of sales(1)		2018		% of sales
Net income		$	1,320	1.5	%	$	4,011	4.4	%
Interest expense			978	1.1	%		554	0.6	%
Income taxes			611	0.7	%		1,581	1.7	%
Depreciation & amortization			7,964	9.2	%		7,000	7.7	%
Stock based compensation			739	0.8	%		617	0.7	%
Adjusted EBITDA		$	11,612	13.4	%	$	13,763	15.1	%

(1) Amounts do not foot due to rounding.

We calculate pretax return on capital employed by taking income from operations divided by capital employed. Capital employed equals total assets less accounts payable, income taxes payable, other accrued liabilities, lease liability, deferred rent and other long-term liabilities.  We believe this non-GAAP financial measure is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate pretax return on capital employed differently, which limits the usefulness of the measure for comparative purposes.

The calculation of pretax return on capital employed is as follows:

($ in thousands)	March 31,
	2019(1)			2018(1)
Income from Operations (trailing twelve months)	$	13,347		$	16,324
Total Assets		328,030			266,994
Less: Accounts payable		(29,242)			(22,020)
Less: Income tax payable		(116)			(150)
Less: Other accrued liabilities		(27,035)			(24,713)
Less: Lease liability(2)		(67,122)			(40,670)
Less: Other long-term liabilities		(3,937)			(4,895)
Capital Employed	$	200,578		$	174,546
Pretax Return on Capital Employed		6.7	%		9.4	%

(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.

(2) Represents the average lease liability and deferred rent account balances for the four quarters ended as of each of the balance sheet dates.

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Our management does not consider these non-GAAP financial measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they excludesignificant expenses and income that are required by GAAP to be recognized in our 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 its non-GAAP financial measures in connection with GAAP results. We urge investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures and not to rely on any single financial measure to evaluate our business.

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Results of Operations

Comparison of the three months ended March 31, 2019 to the three months ended March 31, 2018

	(in thousands)
	2019		% of sales(1)		2018		% of sales
Net sales	$	86,908			$	91,134
Cost of sales		25,066	28.8	%		27,096	29.7	%
Gross profit		61,842	71.2	%		64,038	70.3	%
Selling, general and administrative expenses		58,948	67.8	%		57,927	63.6	%
Income from operations		2,894	3.3	%		6,111	6.7	%
Interest expense		(978)	(1.1)	%		(554)	(0.6)	%
Other income		15	0.0	%		35	0.0	%
Income before income taxes		1,931	2.2	%		5,592	6.1	%
Provision for income taxes		(611)	(0.7)	%		(1,581)	(1.7)	%
Net income	$	1,320	1.5	%	$	4,011	4.4	%

(1) Amounts do not foot due to rounding.

Net Sales Net sales for the first quarter of 2019 decreased $4.2 million, or 4.6%, compared with the first quarter of 2018, primarily due to a $3.8 million decrease in net sales generated by comparable stores. The decrease in sales at comparable stores for the three months ended March 31, 2019 was due to weaker store traffic and customer experience issues following the implementation of a new enterprise resource planning system and the launch of our new website. Poor weather in the Midwest and Northeast as well as a $0.8 million reduction in advertising spend also contributed to the decrease in traffic during the three months ended March 31, 2019. In addition, we had one less store in the comparable store base during the first quarter of 2019, which resulted in a $0.4 million decrease in net sales. 

Gross Profit Gross profit for the first quarter of 2019 decreased $2.2 million, or 3.4%, compared with the first quarter of 2018 primarily due to a decrease in net sales. The gross margin rate was 71.2% and 70.3% for the three months ended March 31, 2019 and 2018, respectively. The increase in gross margin rate was primarily driven by higher pricing on new products added to our assortment over the last twelve months.

Selling, General, and Administrative Expenses Selling, general, and administrative expenses for the first quarter of 2019 increased $1.0 million, or 1.8%, compared with the first quarter of 2018.  Depreciation expense increased $1.0 million in the first quarter of 2019 compared to the first quarter of 2018. First quarter selling, general and administrative expenses also included approximately $2.5 million of expense related to the implementation of our new enterprise resource planning system. The increases in expenses were partially offset by lower variable expenses of approximately $1.0 million, a $0.8 million decrease in advertising expenses and a $0.6 million decrease in transportation expenses.

Pre-opening Costs During both the first quarter of 2019 and 2018, we incurred pre-opening costs of $0.1 million.

Interest Expense Interest expense was $1.0 million and $0.6 million for the first quarter of 2019 and 2018, respectively. The increase was due to higher average debt balances and higher interest rates during the first quarter of 2019.  

Provision for Income Taxes Income tax provision decreased $1.0 million for the first quarter of 2019 compared with the first quarter of 2018 due to a decrease in income before income taxes. Our effective tax rate for the three months ended March 31, 2019 and 2018 was 31.6% and 28.3%, respectively.

Liquidity and Capital Resources

Our principal liquidity requirements have been for working capital and capital expenditures. Our principal sources of liquidity are $7.9 million of cash and cash equivalents at March 31, 2019, our cash flow from operations, and borrowings available under our credit facility. We expect to use this liquidity for opening new stores, purchasing additional merchandise inventory, maintaining our existing stores, executing share repurchases, reducing outstanding debt, and general corporate purposes. We intend to continue our regular quarterly dividend, which will enable us to return excess cash to stockholders. Future dividend payments are subject to the approval of the Board of Directors each quarter.

On September 18, 2018, we and our operating subsidiary, The Tile Shop, LLC, entered into a credit agreement with Bank of America, N.A., Fifth Third Bank and Citizens Bank (the “Credit Agreement”). The Credit Agreement provides us with a senior credit facility consisting of a $100 million revolving line of credit through September 18, 2023. Borrowings pursuant to the Credit Agreement

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initially bear interest at a rate of adjusted LIBOR plus 1.75% and may bear interest in a range between adjusted LIBOR plus 1.50% to adjusted LIBOR plus 2.25%, depending on The Tile Shop’s consolidated total rent adjusted leverage ratio. At March 31, 2019, the base interest rate was 6.50% and the LIBOR-based interest rate was 4.49%.  Borrowings outstanding consisted of$50.0 million on the revolving line of credit as of March 31, 2019.  We also have standby letters of credit outstanding related to our workers compensation and medical insurance policies. As of March 31, 2019 and 2018, the standby letters of credit totaled $1.2 million and $1.1 million, respectively. There was $48.8 million available for borrowing on the revolving line of credit as of March 31, 2019, which may be used to support our growth and for working capital purposes.

The Credit Agreement is secured by virtually all of our assets, including but not limited to, inventory, receivables, equipment and real property. The Credit Agreement contains customary events of default, conditions to borrowings, and restrictive covenants, including restrictions on our ability to dispose of assets, make acquisitions, incur additional debt, incur liens, or make investments. The Credit Agreement also includes financial and other covenants, including covenants to maintain certain fixed charge coverage ratios and consolidated total rent adjusted leverage ratios.  We were in compliance with the covenants as of March 31, 2019.

We believe that our cash flow from operations, together with our existing cash and cash equivalents, and borrowings available under our credit facility, will be sufficient to fund our operations and anticipated capital expenditures over at least the next twelve months.

Capital Expenditures

Capital expenditures were $12.2 million and $4.8 million for the three months ended March 31, 2019 and 2018, respectively. The increase in capital expenditures is primarily due toincreased investments in store remodels, merchandising, and information technology investments.

Cash flows

The following table summarizes our cash flow data for the three months ended March 31, 2019 and 2018.

	(in thousands)
	Three Months Ended
	March 31,
	2019		2018
Net cash provided by operating activities	$	19,679	$	9,858
Net cash used in investing activities		(11,588)		(4,846)
Net cash used in financing activities		(5,742)		(4,504)

Operating activities

Net cash provided by operating activities during the three months ended March 31, 2019 was $19.7 million compared with $9.9 million during the three months ended March 31, 2018. The increase is attributable to improved working capital management.

Investing activities

Net cash used in investing activities totaled $11.6 million for the three months ended March 31, 2019 compared with $4.8 million for the three months ended March 31, 2018. Net cash used in investing activities in each period was primarily for capital purchases of store fixtures, equipment, building improvements and leasehold improvements for stores opened or remodeled, asset additions in our distribution and manufacturing facilities, information technology infrastructure, and general corporate information technology assets.

Financing activities

Net cash used in financing activities was $5.7 million for the three months ended March 31, 2019 compared with$4.5 million for thethree months ended March 31, 2018.  Net cash used in financing activities during the three months ended March 31, 2019 was primarily $18.1 million for the payments of long-term debt and financing lease obligations and $2.6 million in dividends paid to stockholders, offset by advances on the revolving line of credit of $15.0 million.

Cash and cash equivalents totaled $7.9 million at March 31, 2019 compared with $5.6 million at December 31, 2018. Working capital was $50.7 million at March 31, 2019 compared with $79.8 million at December 31, 2018. The decrease in working capital during the first quarter of 2019 was due to the new accounting standard for leases, which added a current portion of lease liability to the Consolidated Balance Sheet.

22

Off-Balance Sheet Arrangements

As of March 31, 2019 and December 31, 2018, we did not have any “off-balance sheet arrangements” (as such term is defined in Item 303 of Regulation S-K) that could have a current or future effect on our financial condition, changes in financial condition, net sales or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Arrangements

As of March 31, 2019, there were no material changes to our contractual obligations outside the ordinary course of business.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued a final standard that primarily requires organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheet.  This standard also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.  We adopted this standard effective January 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. 

We determine if an arrangement is a lease at inception. Operating leases are included in right of use assets and lease liabilities on the consolidated balance sheets. The right of use assets and lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, we usethe incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The right of use asset is also adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease typically at our own discretion. We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in its lease term.

This standard provides a number of optional practical expedients in transition.  We elected the package of three practical expedients permitted under the transition guidance within this standard, which among other things, allows us to carryforward the historical lease classification.  We did not separate non-lease components from lease components by class of underlying assets andwe did not apply the recognition requirements of the standard to short-term leases, as allowed by the standard.

We also elected to apply the hindsight practical expedient.  Our election of the hindsight practical expedient resulted in the shortening of lease terms for certain existing leases and the useful lives of corresponding leasehold improvements.  In our application of the hindsight practical expedient,  we considered recent investments in leased properties and our overall real estate strategy, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.  

Upon adopting this standard, we established a right of use asset of $147.2 million and lease liabilities of $169.9 million, reduced deferred rent by $44.6 million, and recorded a cumulative effect adjustment to retained earnings of $22.0 million. This retained earnings impact was due to the election of the hindsight practical expedient which resulted in a decrease in the cumulative difference between the straight-line rent expense and rental payments that had been made between the inception of each lease and January 1, 2019.We also adjusted the useful life assigned to certain leasehold improvements, which resulted in a $15.3 million reduction in fixed assets and retained earnings.  The adoption of this standard did not have a material impact on net income or cash flows during the three months ended March 31, 2019.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued a final standard on accounting for credit losses. This standard is effective for us in fiscal 2020 and requires a change in credit loss calculations using the expected loss method. We are evaluating the effect of this standard on our consolidated financial statements and related disclosures.  

In August 2018, the FASB issued a final standard which provides guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract.The standard requires customers of cloud computing services to recognize an intangible asset for the software license and, to the extent that payments attributable to the software license are made over time, a liability is also recognized. The standard also allows customers of cloud computing services to capitalize certain implementation costs. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The standard will become effective for us at the beginning of its 2020 fiscal year, although early adoption is permitted for all entities. We are evaluating the effect of the standard on our consolidated financial statements

23

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report onForm 10-K for the fiscal year ended December 31, 2018.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that information relating to the Company is accumulated and communicated to management, including our principal officers as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2019 and have concluded that our disclosure controls and procedures were not effective as of March 31, 2019 due to material weaknesses in our internal control over financial reporting as described below.

On January 1, 2019, we implemented anew enterprise resource planning (“ERP”) system on a company-wide basis.  During the quarter ended March 31, 2019, we identified two material weaknesses in internal control over financial reporting that arose from the new ERP system implementation. The two material weaknesses are:

· The ineffective design and implementation of effective controls with respect to the ERP system conversion.  Specifically, we did not exercise sufficient corporate governance and oversight, design effective controls over the ERP implementation to ensure appropriate data conversion and data integrity, or provide sufficient end user training to our employees to ensure that our employees could effectively operate the system and carry out their responsibilities.

· The ineffective design and implementation of information technology (“IT”) general controls for the ERP system that are relevant to the preparation of our financial statements.  Specifically, we did not (i) maintain adequate control over user access to the ERP system to ensure appropriate segregation of duties and to restrict access to financial applications and data; and (ii) maintain adequate documentation practices surrounding management and control of IT changes affecting financial IT applications.

Management has been actively engaged in developing remediation plans to address the control deficiencies outlined above.  The remediation efforts include the following:

· Corporate Governance and Oversight – We have establisheda plan to help stabilize the ERP system and address the control deficiencies arising from the conversion.  We have shared this plan with our Audit Committee and will provide periodic updates with respect to our progress.  Additionally, we have hired a senior professional overseeing the effort to design, implement, and ensure the ongoing execution of our IT general controls.

· Data Integrity and Data Conversion – We continue to perform validations on data included in the new ERP system.

· End User Training – We are developing and providing additional training to employees to enhance their understanding of the new ERP system.

· User Access – We are addressing segregation of duties by establishing user roles specific to the nature of each job function.  We are also establishing controls to ensure appropriate authorization of new user access requests and we will perform routine reviews of user access.

· Change Management – We are restricting the number of users who have the ability to make changes to the ERP system.  We are also establishing documentation requirements surrounding the testing, approval and implementation of changes that affect financial applications.

We started the remediation steps outlined above prior to March 31, 2019.

Changes in Internal Control over Financial Reporting

On January 1, 2019, we implemented an ERP system on a company-wide basis.  The implementation resulted in the two material weaknesses identified above. We believe we have developed an appropriate plan to remediate and have begun our remediation efforts related to the material weaknesses.

24

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are, from time to time, subject to claims and disputes arising in the normal course of business.  In the opinion of management, while the outcome of such claims and disputes cannot be predicted with certainty, our ultimate liability in connection with these matters is not expected to have a material adverse effect on our results of operations, financial position, or cash flows.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 other than with respect to the risk factors discussed below.

Implementation of our new enterprise resource planning system has adversely impacted and could continue to negatively affect our business.

We rely extensively on our information technology (“IT”) systems to assist us in managing our business and summarizing our operational results.  On January 1, 2019 we deployed a company-wide new enterprise resource planning (“ERP”) system.  The new ERP system was implemented to position the Company for long-term growth, further enhance operating efficiencies and provide more effective management of our business operations, including sales order processing, inventory control, purchasing and supply chain management, and financial reporting.   Implementing the new ERP system has been costly and has required, and may continue to require, the investment of significant personnel and financial resources.  In addition to the risks inherent in the conversion to any new IT system, including the loss of information, disruption to our normal operations, and changes in accounting procedures, the implementation of our new ERP system has resulted in operational and reporting disruptions related to the conversion of existing customer orders, processing of new customer orders and maintaining an effective internal control environment.

Failure to properly or adequately address any issues with our new ERP system could result in increased costs and the diversion of management’s and employees’ attention and resources and could materially adversely affect our operating results, internal control over financial reporting and ability to manage our business effectively.  While the ERP system is intended to further improve and enhance our information management systems, the ongoing implementation of this new ERP system exposes us to the risks of integrating that system with our existing systems and processes, including possible continued disruption of our financial reporting.

We have identified two material weaknesses in our internal control over financial reporting which, if not remediated, could result in material misstatements of our financial statements.

During the quarter ended March 31, 2019, we identified material weaknesses in internal control over financial reporting that pertain to our ERP system conversion that took place on January 1, 2019 involving (1) the ineffective design and implementation of effective controls with respect to the ERP system conversion, and (2) the ineffective design and implementation of IT general controls for information systems that are relevant to the preparation of financial statements. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Although we have developed and are implementing a plan to remediate these material weaknesses and believe, based on our evaluation to date, that these material weaknesses will be remediated in a timely fashion, we cannot ensure that this will occur within a specific timeframe. These material weaknesses will not be remediated until all necessary internal controls have been implemented, tested and determined to be operating effectively. In addition, we may need to take additional measures to address the material weaknesses or modify the planned remediation steps, and we cannot be certain that the measures we have taken, and expect to take, to improve our internal controls will be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that the identified material weaknesses will not result in a material misstatement of our financial statements. Moreover, we cannot ensure that we will not identify additional material weaknesses in our internal control over financial reporting in the future.

If we are unable to remediate the material weaknesses, our ability to record, process and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and forms of the Securities and Exchange Commission, could be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties and materially and adversely impact our business and financial condition.

25

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Program	Maximum Number of Shares that May Yet be Purchased Under Plans or Programs
January 1, 2019 - January 31, 2019	-		$	0.00		-	-
February 1, 2019 - February 28, 2019	20,627	(1)		6.14	(1)	-	-
March 1, 2019 - March 31, 2019	1,534	(2)		0.00	(2)	-	-
	22,161		$	1.45		-	-

⁽¹⁾ These shares were withheldby the Company to satisfy tax withholding obligations due upon the vesting of restricted stock grants, as allowed by the 2012 Omnibus Incentive Plan. The Company did not pay cash to repurchase these shares, nor were these repurchases part of a publicly announced plan or program.

⁽²⁾ These shares were repurchased by the Company pursuant to the terms of the underlying restricted stock agreements, as allowed by the 2012 Omnibus Incentive Plan. The Company paid $0.0001 per share, the par value, to repurchase these shares. These repurchases were not part of a publicly announced plan or program.

On April 29, 2019, our Board of Directors authorized a share repurchase program (the “Program”), pursuant to which we may, from time to time, purchase shares of our common stock for an aggregate repurchase price not to exceed $15,000,000. The Program began on May 2, 2019 and will continue indefinitely until the full repurchase amount has been utilized or the Board of Directors terminates the Program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

26

ITEM 6. EXHIBITS

Exhibits
3.1	Certificate of Incorporation of Tile Shop Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (Reg. No. 333-182482) filed with the Securities and Exchange Commission on July 2, 2012).
3.2	By-Laws of Tile Shop Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-4 (Reg. No. 333-182482) filed with the Securities and Exchange Commission on July 2, 2012).
4.1	Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Amendment No. 1 to the Company’s Registration Statement on Form S-4 (Reg. No. 333-182482) filed with the Securities and Exchange Commission on July 23, 2012).
31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1**	Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
32.2**	Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

*    Filed herewith

**  Furnished herewith

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TILE SHOP HOLDINGS, INC.
Dated: May 9, 2019	By:	/s/ CABELL H. LOLMAUGH
		Cabell H. Lolmaugh
		Chief Executive Officer

Dated: May 9, 2019	By:	/s/ KIRK L. GEADELMANN
		Kirk L. Geadelmann
		Chief Financial Officer

28

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Cabell H. Lolmaugh, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tile Shop Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May9, 2019
	/s/ CABELL H. LOLMAUGH
	Cabell H. Lolmaugh
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Kirk L. Geadelmann, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tile Shop Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May9, 2019
	/s/ KIRK L. GEADELMANN
	Kirk L. Geadelmann
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tile Shop Holdings, Inc. (the “Company”) on Form 10-Q for the period ending March31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Cabell H. Lolmaugh, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ CABELL H. LOLMAUGH

Cabell H. Lolmaugh

Chief Executive Officer

May9, 2019

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Tile Shop Holdings, Inc. (the “Company”) on Form 10-Q for the period ending March31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kirk L. Geadelmann, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ KIRK L. GEADELMANN

Kirk L. Geadelmann

Chief Financial Officer

May9, 2019

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 02, 2019
Document And Entity Information
Entity Registrant Name	TILE SHOP HOLDINGS, INC.
Entity Central Index Key	0001552800
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Fiscal Period Focus	Q1
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Current Fiscal Year End Date	--12-31
Trading Symbol	tts
Amendment Flag	false
Entity Common Stock, Shares Outstanding (in shares)		52,951,217

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 7,936	$ 5,557
Restricted cash	825	825
Receivables, net	5,942	3,084
Inventories	110,804	110,095
Income tax receivable	3,086	3,548
Other current assets, net	7,904	7,181
Total Current Assets	136,497	130,290
Property, plant and equipment, net	143,785	158,356
Right of use asset	141,791
Deferred tax assets	7,249	7,225
Other assets	1,606	1,759
Total Assets	430,928	297,630
Current liabilities:
Accounts payable	31,811	25,853
Income tax payable	64	179
Current portion of lease liability	25,236
Other accrued liabilities	28,727	24,484
Total Current Liabilities	85,838	50,516
Long-term debt	50,000	53,000
Long-term lease liability, net	138,550
Financing lease obligation, net	398	436
Deferred rent		43,579
Other long-term liabilities	3,857	3,752
Total Liabilities	278,643	151,283
Stockholders’ Equity:
Common stock, par value $0.0001; authorized: 100,000,000 shares; issued and outstanding: 52,901,7330 and 52,707,879 shares, respectively	5	5
Preferred stock, par value $0.0001; authorized: 10,000,000 shares; issued and outstanding: 0 shares
Additional paid-in-capital	170,306	172,255
Accumulated deficit	(17,997)	(25,857)
Accumulated other comprehensive income (loss)	(29)	(56)
Total Stockholders' Equity	152,285	146,347
Total Liabilities and Stockholders' Equity	$ 430,928	$ 297,630

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Consolidated Balance Sheets [Abstract]
Common stock, par value (per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	52,901,733	52,707,879
Common stock, shares outstanding	52,901,733	52,707,879
Preferred stock, par value (per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

XML

Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Consolidated Statements of Income [Abstract]
Net sales	$ 86,908	$ 91,134
Cost of sales	25,066	27,096
Gross profit	61,842	64,038
Selling, general and administrative expenses	58,948	57,927
Income from operations	2,894	6,111
Interest expense	(978)	(554)
Other income	15	35
Income before income taxes	1,931	5,592
Provision for income taxes	(611)	(1,581)
Net income	$ 1,320	$ 4,011
Income per common share:
Basic	$ 0.03	$ 0.08
Diluted	$ 0.03	$ 0.08
Weighted average shares outstanding:
Basic	51,961,780	51,881,681
Diluted	52,037,996	51,899,210
Dividends declared per share	$ 0.05	$ 0.05

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 1,320	$ 4,011
Currency translation adjustment	27	30
Other comprehensive income	27	30
Comprehensive income	$ 1,347	$ 4,041

XML

Consolidated Statements of Stockholders' Equity (Deficit) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings (Deficit) [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Adoption of new accounting standards (see Note 1)			$ (60)		$ (60)
Balance at January 1	$ 5	$ 180,109	(36,299)	$ (1)	143,814
Balance at Dec. 31 at Dec. 31, 2017	$ 5	180,109	(36,239)	(1)	143,874
Balance (in shares) at Dec. 31, 2017	52,156,850
Issuance of restricted shares (in shares)	281,945
Cancellation of restricted shares (in shares)	(9,638)
Stock based compensation		617			617
Dividends paid		(2,600)			(2,600)
Foreign currency translation adjustments				30	30
Net income			4,011		4,011
Balance at Mar. 31, 2018	$ 5	178,126	(32,288)	29	145,872
Balance (in shares) at Mar. 31, 2018	52,429,157
Adoption of new accounting standards (see Note 1)			6,540		6,540
Balance at January 1	$ 5	172,255	(19,317)	(56)	152,887
Balance at Dec. 31 at Dec. 31, 2018	$ 5	172,255	(25,857)	(56)	$ 146,347
Balance (in shares) at Dec. 31, 2018	52,707,879				52,707,879
Issuance of restricted shares (in shares)	281,173
Cancellation of restricted shares (in shares)	(87,319)
Stock based compensation		739			$ 739
Tax withholdings related to net share settlements of stock-based compensation awards		(82)			(82)
Dividends paid		(2,606)			(2,606)
Foreign currency translation adjustments				27	27
Net income			1,320		1,320
Balance at Mar. 31, 2019	$ 5	$ 170,306	$ (17,997)	$ (29)	$ 152,285
Balance (in shares) at Mar. 31, 2019	52,901,733				52,901,733

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash Flows From Operating Activities
Net income	$ 1,320	$ 4,011
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization	7,964	7,000
Amortization of debt issuance costs	149	167
Loss on disposals of property, plant and equipment	82	71
Stock based compensation	739	617
Deferred income taxes	64	426
Changes in operating assets and liabilities:
Receivables	(2,858)	(504)
Inventories	(709)	(3,058)
Prepaid expenses and other assets	(806)	(1,771)
Accounts payable	8,429	(6,085)
Income tax receivable / payable	457	1,135
Accrued expenses and other liabilities	4,848	7,849
Net cash provided by operating activities	19,679	9,858
Cash Flows From Investing Activities
Purchases of property, plant and equipment	(12,198)	(4,846)
Proceeds from insurance	610
Net cash used in investing activities	(11,588)	(4,846)
Cash Flows From Financing Activities
Payments of long-term debt and financing lease obligations	(18,054)	(16,904)
Advances on line of credit	15,000	15,000
Dividends paid	(2,606)	(2,600)
Employee taxes paid for shares withheld	(82)
Net cash used in financing activities	(5,742)	(4,504)
Effect of exchange rate changes on cash	30	3
Net change in cash	2,379	511
Cash, cash equivalents and restricted cash beginning of period	6,382	7,476
Cash, cash equivalents and restricted cash end of period	8,761	7,987
Cash, cash equivalents and restricted cash end of period	6,382	7,476
Supplemental disclosure of cash flow information
Purchases of property, plant and equipment included in accounts payable and accrued expenses	1,478	1,895
Cash paid for interest	$ 934	558
Cash paid (received) for income taxes, net		$ 1

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Background

3 Months Ended

Mar. 31, 2019

Background [Abstract]

Background

Note 1: Background

Tile Shop Holdings, Inc. (“Holdings,” and together with its wholly owned subsidiaries, the “Company”) was incorporated in Delaware in June 2012.

The Company is a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories in the United States.  The Company manufactures its own setting and maintenance materials, such as thinset, grout, and sealers. The Company’s primary market is retail sales to consumers, contractors, designers and home builders. As of March 31, 2019, the Company had 140 stores in 31 states and the District of Columbia, with an average size of approximately 20,200 square feet. The Company has distribution centers located in Michigan, New Jersey, Oklahoma, Virginia and Wisconsin. The Company has a sourcing operation located in China.

The accompanying Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include certain information and disclosures required for comprehensive financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature, including the elimination of all intercompany transactions. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

These statements should be read in conjunction with the Consolidated Financial Statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The accounting policies used in preparing these Consolidated Financial Statements are the same as those described in Note 1 to the Consolidated Financial Statements in such Form 10-K.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued a final standard that primarily requires organizations that lease assets to recognize the rights and obligations created by those leases on the consolidated balance sheet.  This standard also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.  The Company adopted this standard effective January 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. 

The Company determines if an arrangement is a lease at inception. Operating leases are included in right of use assets and lease liabilities on the consolidated balance sheets. The right of use assets and lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The right of use asset is also adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease typically at the Company’s own discretion. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term.

This standard provides a number of optional practical expedients in transition.  The Company elected the package of three practical expedients permitted under the transition guidance within this standard, which among other things, allows the Company to carryforward the historical lease classification.  The Company did not separate non-lease components from lease components by class of underlying assets and the Company did not apply the recognition requirements of the standard to short-term leases, as allowed by the standard.

The Company also elected to apply the hindsight practical expedient.  Its election of the hindsight practical expedient resulted in the shortening of lease terms for certain existing leases and the useful lives of corresponding leasehold improvements.  In its application of the hindsight practical expedient,  the Company considered recent investments in leased properties and its overall real estate strategy, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.  

Upon adopting this standard, the Company established a right of use asset of $147.2 million and lease liabilities of $169.9 million, reduced deferred rent by $44.6 million, and recorded a cumulative effect adjustment to retained earnings of $22.0 million.This retained earnings impact wasdue to the election of the hindsight practical expedient which resulted in a decrease in the cumulative difference between the straight-line rent expense and rental payments that had been made between the inception of each lease and January 1, 2019. The change in the useful life assigned to certain leasehold improvements resulted in a $15.3 million reduction in fixed assets and retained earnings.  The adoption of this standard did not have a material impact on net income or cash flows during the three months ended March 31, 2019. See Note 8 for further details.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued a final standard on accounting for credit losses. The standard is effective for the Company in fiscal 2020 and requires a change in credit loss calculations using the expected loss method. The Company is evaluating the effect of this standard on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued a final standard which provides guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract.The standard requires customers of cloud computing services to recognize an intangible asset for the software license and, to the extent that payments attributable to the software license are made over time, a liability is also recognized. The standard also allows customers of cloud computing services to capitalize certain implementation costs. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The standard will become effective for the Company at the beginning of its 2020 fiscal year, although early adoption is permitted for all entities. The Company is evaluating the effect of the standard on its consolidated financial statements.

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Revenues

3 Months Ended

Mar. 31, 2019

Revenues [Abstract]

Revenues

Note 2: Revenues

Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration received in exchange for those goods or services. Sales taxes are excluded from revenues. 

The following table presents revenues disaggregated by product category:

	For the three months ended
	March 31,
	2019		2018
Man-made tiles	46	%	45	%
Natural stone tiles	29		29
Setting and maintenance materials	13		13
Accessories	11		11
Delivery service	1		2
Total	100	%	100	%

The Company generates revenues by selling tile products, setting and maintenance materials, accessories, and delivery services to its customers through its store locations.  The timing of revenue recognition coincides with the transfer of control of goods and services ordered by the customer which falls into one of three categories described below:

· Revenue recognized when an order is placed – If a customer places an order in a store and the contents of their order are available, the Company recognizes revenue concurrent with the exchange of goods for consideration from the customer.

· Revenue recognized when an order is picked up – If a customer places an order for items held in a centralized distribution center, the Company requests a deposit from the customer at the time they place the order.  Subsequently when the contents of the customer’s order are delivered to the store, the customer returns to the store and picks up the items that were ordered.  The Company recognizes revenue on this transaction when the customer picks up their order.

· Revenue recognized when an order is delivered – If a customer places an order in a store and requests delivery of their order, the Company prepares the contents of their order, initiates the delivery service, and recognizes revenue once the contents of the customer’s order are delivered.

The Company determines the transaction price of its contracts based on the pricing established at the time a customer places an order.  The transaction price does not include sales tax as the Company is a pass-through conduit for collecting and remitting sales tax.  Any discounts applied to an order are allocated proportionately to the base price of the goods and services ordered.  Deposits made by customers are recorded in other accrued liabilities. Deferred revenues associated with customer deposits are recognized at the time the Company transfers control of the items ordered or renders the delivery service. In the event an order is partially fulfilled as of the end of a reporting period, revenue will be recognized based on the transaction price allocated to the goods delivered and services rendered. The customer deposit balance was $9.8 million and $7.4 million as of March 31, 2019 and December 31, 2018, respectively.  Revenues recognized during the three-month period ended March 31, 2019 that were included in the customer deposit balance as of the beginning of the period were $6.6 million.

Accounts receivable include amounts due from qualified professional customers who apply for credit.  Customers who qualify for an account receive 30-day payment terms. The accounts receivable balance was $5.9 million and $3.1 million at March 31, 2019 and December 31, 2018, respectively. The Company expects that the customer will pay for the goods and services ordered within one year from the date the order is placed.  Accordingly, the Company qualifies for the practical expedient outlined in ASC 606-10-32-18 and does not adjust the promised amount of consideration for the effects of the financing component. 

Customers may return purchased items for an exchange or refund.  The Company records a reserve for estimated product returns based on the historical returns trends and the current product sales performance.  Historically, the sales returns reserve was presented net of cost of sales in other current liabilities. The Company presents the sales returns reserve as an other current liability and the estimated value of the inventory that will be returned as an other current asset in the Consolidated Balance Sheet.  The components of the sales returns reserve reflected in the Consolidated Balance Sheet as of March 31, 2019 and December 31, 2018 are as follows:

	(in thousands)
	March 31,		December 31,
	2019		2018
Other current liabilities	$	5,875	$	5,154
Other current assets		1,746		1,498
Sales returns reserve, net	$	4,129	$	3,656

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Inventories

3 Months Ended

Mar. 31, 2019

Inventories [Abstract]

Inventories

Note 3: Inventories

Inventories are stated at the lower of cost (determined on the weighted-average cost method) or net realizable value. Inventories consist primarily of merchandise held for sale. Inventories were comprised of the following as of March 31, 2019 and December 31, 2018:

	(in thousands)
	March 31,		December 31,
	2019		2018
Finished goods	$	102,501	$	98,776
Raw materials		2,647		2,114
Finished goods in transit		5,656		9,205
Total	$	110,804	$	110,095

The Company provides provisions for losses related to shrinkage and other amounts that are otherwise not expected to be fully recoverable. These provisions are calculated based on historical shrinkage, selling price, margin and current business trends. The provision for losses related to shrinkage and other amounts was $0.9 million and $0.3 million as of March 31, 2019 and December 31, 2018, respectively. 

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Income Taxes

3 Months Ended

Mar. 31, 2019

Income Taxes [Abstract]

Income Taxes

Note 4: Income taxes

The Company's effective tax rate on net income before income taxes for the three months ended March 31, 2019 and 2018 was 31.6% and 28.3%, respectively. The difference between the Company’s effective rate of 31.6% and the expected federal statutory rate of 21.0% for the three months ended March 31, 2019 is primarily due to state income taxes and stock based compensation tax shortfall charges. For the three months ended March 31, 2019 and 2018, the Company recorded a provision for income taxes of $0.6 million and $1.6 million, respectively. The decrease in the provision for income taxes is due to lower pretax earnings.

The Company records interest and penalties relating to uncertain tax positions in income tax expense. As of March 31, 2019 and 2018, the Company has not recognized any liabilities for uncertain tax positions, nor have interest and penalties related to uncertain tax positions been accrued.

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Earnings Per Share

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Earnings Per Share

Note 5: Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after taking into consideration all dilutive potential shares outstanding during the period.

Basic and diluted earnings per share were calculated as follows:

	(all amounts in thousands except share and per share data)
		For the three months ended
		March 31,
		2019		2018
Net income		$	1,320	$	4,011
Weighted average shares outstanding - basic			51,961,780		51,881,681
Effect of dilutive securities attributable to stock based awards			76,216		17,529
Weighted average shares outstanding - diluted			52,037,996		51,899,210
Income per common share:
Basic		$	0.03	$	0.08
Dilutive		$	0.03	$	0.08
Anti-dilutive securities excluded from earnings per share calculation			1,639,659		1,971,066

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Other Accrued Liabilities

3 Months Ended

Mar. 31, 2019

Other Accrued Liabilities [Abstract]

Other Accrued Liabilities

Note 6: Other Accrued Liabilities

Other accrued liabilities consisted of the following:

	(in thousands)
	March 31,		December 31,
	2019		2018
Customer deposits	$	9,783	$	7,383
Accrued wages and salaries		3,353		3,689
Sales returns reserve		5,875		5,154
Payroll and sales taxes		4,327		2,929
Other current liabilities		5,389		5,329
Total other accrued liabilities	$	28,727	$	24,484

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Long-term Debt

3 Months Ended

Mar. 31, 2019

Long-term Debt [Abstract]

Long-term Debt

Note 7: Long-term Debt

On September 18, 2018, Holdings and its operating subsidiary, The Tile Shop, LLC, entered into a credit agreement with Bank of America, N.A., Fifth Third Bank and Citizens Bank (the “Credit Agreement”). The Credit Agreement provides the Company with a senior credit facility consisting of a $100.0 million revolving line of credit through September 18, 2023. Borrowings pursuant to the Credit Agreement initially bear interest at a rate of adjusted LIBOR plus 1.75% and may bear interest in a range between adjusted LIBOR plus 1.50% to adjusted LIBOR plus 2.25%, depending on The Tile Shop’s consolidated total rent adjusted leverage ratio. At March 31, 2019 the base interest rate was 6.50% and the LIBOR-based interest rate was 4.49%. Borrowings outstanding consisted of $50.0 million on the revolving line of credit as of March 31, 2019.  In addition, the Company has standby letters of credit outstanding related to its workers compensation and medical insurance policies.  As of March 31, 2019 and 2018, the standby letters of credit totaled $1.2 million and $1.1 million, respectively. There was $48.8 million available for borrowing on the revolving line of credit as of March 31, 2019, which may be used to support the Company’s growth and for working capital purposes.

The Credit Agreement is secured by virtually all of the assets of the Company, including but not limited to, inventory, receivables, equipment and real property. The Credit Agreement contains customary events of default, conditions to borrowings, and restrictive covenants, including restrictions on the Company’s ability to dispose of assets, make acquisitions, incur additional debt, incur liens, or make investments. The Credit Agreement also includes financial and other covenants, including covenants to maintain certain fixed charge coverage ratios and consolidated total rent adjusted leverage ratios.  The Company was in compliance with the covenants as of March 31, 2019.  

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Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

Note 8: Leases

The Company leases its retail stores, certain distribution space, and office space.Leases generally have a term of ten to fifteen years, and contain renewal options. Assets acquired under operating leases are included in the Company’s right of use assets in the accompanying Consolidated Balance Sheet. The Company’s lease agreements do not contain significant residual value guarantees, restrictions or covenants. The depreciable life of assets and leasehold improvements is limited by the expected lease term.

Leases (in thousands)	Classification		March 31, 2019
Assets
Operating lease assets	Right of use asset	$	141,791
Financing lease assets	Property, plant and equipment, net of accumulated depreciation		150
Total leased assets		$	141,941
Liabilities
Current
Operating	Current portion of lease liability	$	25,236
Financing	Other accrued liabilities		145
Noncurrent
Operating	Long-term lease liability, net		138,550
Financing	Other long-term liabilities		398
Total lease liabilities		$	164,329

Lease cost (in thousands)			March 31, 2019
Operating lease cost	SG&A expenses	$	8,013
Financing lease cost
Amortization of leased assets	Depreciation and amortization		12
Interest on lease liabilities	Interest expense		21
Variable lease cost(1)			3,225
Short term lease cost			264
Net lease cost		$	11,535

(1) Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities.

Maturity of Lease Liabilities (in thousands)	Operating Leases		Financing Leases		Total
2019	$	26,177	$	162	$	26,339
2020		34,252		216		34,468
2021		32,677		215		32,892
2022		29,741		90		29,831
2023		24,691		-		24,691
Thereafter		52,125		-		52,125
Total lease payments		199,663		683		200,346
Less: interest		(35,877)		(140)		(36,017)
Present value of lease liabilities	$	163,786	$	543	$	164,329

Other Information (in thousands)		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	8,602
Operating cash flows from financing leases	$	21
Financing cash flows from financing leases	$	33

Lease Term and Discount Rate	March 31, 2019
Weighted-average remaining term (years)
Operating leases	6.4
Financing leases	3.2
Weighted-average discount rate
Operating leases	6.21	%
Financing leases	14.73	%

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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2019

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 9: Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, the Company uses a three-tier valuation hierarchy based upon observable and non-observable inputs:

Level 1 – Unadjusted quoted prices that are available in active markets for the identical assets or liabilities at the measurement date.

Level 2 – Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including:

· Quoted prices for similar assets or liabilities in active markets;

· Quoted prices for identical or similar assets in non-active markets;

· Inputs other than quoted prices that are observable for the asset or liability; and

· Inputs that are derived principally from or corroborated by other observable market data.

Level 3 – Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment.

The following table sets forth by Level within the fair value hierarchy the Company’s financial assets that were accounted for at fair value on a recurring basis at March 31, 2019 and December 31, 2018 according to the valuation techniques the Company uses to determine their fair values. There have been no transfers of assets among the fair value hierarchies presented.

	Pricing	Fair Value at
	Category	March 31, 2019		December 31, 2018
Assets	(in thousands)
Cash and cash equivalents	Level 1	$	7,936	$	5,557
Restricted cash	Level 1		825		825

The following methods and assumptions were used to estimate the fair value of each class of financial instrument.  There have been no changes in the valuation techniques used by the Company to value the Company’s financial instruments.

· Cash and cash equivalents: Consists of cash on hand and bank deposits.  The value was measured using quoted market prices in active markets.  The carrying amount approximates fair value.

· Restricted cash: Consists of cash and cash equivalents held in bank deposit accounts restricted as to withdrawal or that are under the terms of use for current operations.  The value was measured using quoted market prices in active markets.  The carrying amount approximates fair value.

Fair value measurements also apply to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis.  Property, plant and equipment and right of use assets are measured at fair value when an impairment is recognized and the related assets are written down to fair value. The Company did not recognize any significant impairment losses during the three months ended March 31, 2019 and 2018.  

The carrying value of the Company’s borrowings under its Credit Agreement approximate fair value based upon Level 2 inputs of the market interest rates available to the Company for debt obligations with similar risks and maturities.

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Equity Incentive Plans

3 Months Ended

Mar. 31, 2019

Equity Incentive Plans [Abstract]

Equity Incentive Plans

Note 10: Equity Incentive Plans

Stock options:

The Company measures and recognizes compensation expense for all stock based awards at fair value. The financial statements for the three months ended March 31, 2019 and 2018 include compensation cost for the portion of outstanding awards that vested during those periods. The Company recognizes stock based compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. Total stock based compensation expense related to stock options was $0.3 million for both the three months ended March 31, 2019 and 2018. Stock based compensation expense pertaining to stock options is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income.

As of March 31, 2019, the Company had outstanding stock options to purchase 1,632,585 shares of common stock at a weighted average exercise price of $11.17.

Restricted stock:

The Company awards restricted common shares to selected employees and to non-employee directors. Recipients are not required to provide any consideration upon vesting of the award. Restricted stock awards are subject to certain restrictions on transfer, and all or part of the shares awarded may be subject to forfeiture upon the occurrence of certain events, including employment termination. Certain awards are also subject to forfeiture if the Company fails to attain certain performance targets. The restricted stock is valued at its grant date fair value and expensed over the requisite service period or the vesting term of the awards. The Company adjusts the cumulative expense recognized on awards with performance conditions based on the probability of achieving the performance condition. Total stock based compensation expense related to restricted stock was $0.4 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively. Stock based compensation expense pertaining to restricted stock awards is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Income.

As of March 31, 2019, the Company had 916,434 outstanding restricted common shares.

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New Market Tax Credit

3 Months Ended

Mar. 31, 2019

New Market Tax Credit [Abstract]

New Market Tax Credit

Note 11:New Market Tax Credit

2016 New Market Tax Credit

In December 2016, the Company entered into a financing transaction with U.S. Bank Community, LLC (“U.S. Bank”) related to a $9.2 million expansion of the Company’s facility in Durant, Oklahoma. In this transaction, which was conducted under a qualified New Markets Tax Credit (“NMTC”) program, Tile Shop Lending, Inc. (“Tile Shop Lending”) loaned $6.7 million to Twain Investment Fund 192 LLC (the “Investment Fund”) at an interest rate of 1.37% per year and with a maturity date of December 31, 2046. The Investment Fund then contributed the loan to a community development entity (a “CDE”), which, in turn, loaned the funds on similar terms to Tile Shop of Oklahoma, LLC, an indirect, wholly-owned subsidiary of Holdings.In December 2016, U.S. Bank also contributed $3.2 million to the Investment Fund and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC, while the Company effectively received net loan proceeds equal to U.S. Bank’s contributions to the Investment Fund. This transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase U.S. Bank’s interest. The Company believes that U.S. Bank will exercise the put option in December 2023 at the end of the recapture period. The value attributed to the put/call is de minimis. The NMTC is subject to 100% recapture for a period of seven years as provided in the Internal Revenue Code. The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, could require the Company to indemnify U.S. Bank for any loss or recapture of NMTCs related to the financing until such time as the obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with this arrangement.  

The Company has determined that the financing arrangement with the Investment Fund and CDEs contains a variable interest entity (“VIE”). The ongoing activities of the Investment Fund – collecting and remitting interest and fees and NMTC compliance – were all considered in the initial design and are not expected to significantly affect economic performance throughout the life of the Investment Fund. Management considered the contractual arrangements that obligate the Company to deliver tax benefits and provide various other guarantees to the structure; U.S. Bank’s lack of a material interest in the underling economics of the project; and the fact that the Company is obligated to absorb losses of the Investment Fund. The Company concluded that it is the primary beneficiary of the VIE and consolidated the Investment Fund, as a VIE, in accordance with the accounting standards for consolidation. In 2016, U.S. Bank’s contributions of $3.2 million, net of syndications fees, were included in cash, restricted cash, other accrued liabilities and other long-term liabilities in the consolidated balance sheet. The Company incurred $1.3 million of syndication fees in connection with this transaction, which were classified as other current assets and other non-current assets in the consolidated balance sheet. The Company is recognizing the benefit of this net $1.9 million contribution over the seven-year compliance period as it is being earned through the on-going compliance with the conditions of the NMTC program. As of March 31, 2019, the balance of the contribution liability was $2.2 million, of which $0.5 million was classified as other accrued liabilities on the Consolidated Balance Sheet and $1.7 million was classified as other long-term liabilities on the Consolidated Balance Sheet.

The Company is able to request reimbursement for certain expenditures made in connection with the expansion of the distribution center in Durant, Oklahoma from the Investment Fund. Expenditures that qualify for reimbursement include building costs, equipment purchases, and other expenditures tied to the expansion of the facility. As of March 31, 2019, the balance in the Investment Fund available for reimbursement to the Company was $0.8 million.

2013 New Market Tax Credit

In July 2013, the Company entered into a financing transaction with U.S. Bank and Chase Community Equity (“Chase”, and collectively with US. Bank, the “investors”) related to the $19.1 million acquisition, rehabilitation, and construction of the Company’s distribution center and manufacturing facilities in Durant, Oklahoma.  In this transaction, Tile Shop Lending loaned $13.5 million to the Tile Shop Investment Fund LLC.  The investors contributed $5.6 million to the Tile Shop Investment Fund LLC.  The investors are entitled to the tax benefits derived from the NMTC by virtue of their contribution while the Company received the proceeds, net of syndication fees, to apply toward the construction project.  This transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase the investors’ interest. The Company believes that the investors will exercise the put option in September 2020 at the end of the recapture period. The value attributed to the put/call is de minimis. The NMTC is subject to 100% recapture for a period of seven years as provided in the Internal Revenue Code. The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, could require the Company to indemnify the investors for any loss or recapture of NMTCs related to the financing until such time as the obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with this arrangement. 

The Company determined that this financing arrangement contains a VIE.  The ongoing activities of the Tile Shop Investment Fund LLC – collecting and remitting interest and fees and NMTC compliance – were all considered in the initial design and are not expected to significantly affect economic performance throughout the life of the Tile Shop Investment Fund LLC. Management considered the contractual arrangements that obligate the Company to deliver tax benefits and provide various other guarantees to the structure; the investors lack of a material interest in the underling economics of the project; and the fact that the Company is obligated to absorb losses of The Tile Shop Investment Fund LLC. The Company concluded that it is the primary beneficiary of the VIE and consolidated the Tile Shop Investment Fund LLC, as a VIE, in accordance with the accounting standards for consolidation. In 2013, the investors’ contributions, of $5.6 million, net of syndication fees, were included in cash, restricted cash, other accrued liabilities and other long-term liabilities in the consolidated balance sheet. The Company incurred $1.2 million of syndication fees in connection with this transaction which were classified as other current assets and other non-current assets in the consolidated balance sheet.  The Company is recognizing the benefit of this net $4.4 million contribution over the seven-year compliance period as it is being earned through the on-going compliance with the conditions of the NMTC program. As of March 31, 2019, the balance of the contribution liability was $0.9 million, of which $0.7 million was classified as other accrued liabilities on the Consolidated Balance Sheet and $0.2 million was classified as other long-term liabilities on the Consolidated Balance Sheet.

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Related Party Transactions

3 Months Ended

Mar. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Note 12: Related Party Transactions

On July 9, 2018, Fumitake Nishi, the brother-in-law of the Company’s Director Robert Rucker and a former Company employee, informed the Company he had reacquired a majority of the equity of one of its key vendors, Nanyang Helin Stone Co. Ltd (“Nanyang”).  Nanyang supplies the Company with natural stone products including hand-crafted mosaics, listellos and other accessories. During the twelve months ended December 31, 2018, the Company purchased $12.0million of products from Nanyang. During the three months ended March  31, 2019, the Company purchased $1.2 million of products from Nanyang.  Mr. Nishi’s employment with the Company was terminated on January 1, 2014 as a result of several violations of the Company’s code of business conduct and ethics policy.  Certain of those violations involved his undisclosed ownership of Nanyang at that time.  

Management and the Audit Committee have evaluated the relationship and determined that it would be in the Company’s best interests to continue purchasing products from Nanyang.  The Company believes Nanyang provides an important combination of quality, product availability and pricing, and relying solely on other vendors to supply similar product to the Company would not be in the Company’s best interests.  The Company and the Committee has and will continue to review future purchases from Nanyang and compare the pricing for products purchased from Nanyang to the pricing of same or similar products purchased from unrelated vendors.

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Subsequent Events

3 Months Ended

Mar. 31, 2019

Subsequent Events [Abstract]

Subsequent Events

Note 13: Subsequent Events

On April 30, 2019, the Company declared a $0.05 dividend to stockholders of record as of the close of business on May 6, 2019. The dividend will be paid on May 17, 2019.

On April 29, 2019, the Board of Directors of the Company authorized a share repurchase program (the “Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate repurchase price not to exceed $15,000,000. The Program began on May 2, 2019 and will continue indefinitely until the full repurchase amount has been utilized or the Board of Directors terminates the Program.

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Revenues (Tables)

3 Months Ended

Mar. 31, 2019

Revenues [Abstract]

Schedule of Revenues Disaggregated by Product Category

	For the three months ended
	March 31,
	2019		2018
Man-made tiles	46	%	45	%
Natural stone tiles	29		29
Setting and maintenance materials	13		13
Accessories	11		11
Delivery service	1		2
Total	100	%	100	%

Schedule of Components of Returns Reserve

	(in thousands)
	March 31,		December 31,
	2019		2018
Other current liabilities	$	5,875	$	5,154
Other current assets		1,746		1,498
Sales returns reserve, net	$	4,129	$	3,656

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Inventories (Tables)

3 Months Ended

Mar. 31, 2019

Inventories [Abstract]

Schedule of Inventories

	(in thousands)
	March 31,		December 31,
	2019		2018
Finished goods	$	102,501	$	98,776
Raw materials		2,647		2,114
Finished goods in transit		5,656		9,205
Total	$	110,804	$	110,095

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Schedule of Earnings Per Share

	(all amounts in thousands except share and per share data)
		For the three months ended
		March 31,
		2019		2018
Net income		$	1,320	$	4,011
Weighted average shares outstanding - basic			51,961,780		51,881,681
Effect of dilutive securities attributable to stock based awards			76,216		17,529
Weighted average shares outstanding - diluted			52,037,996		51,899,210
Income per common share:
Basic		$	0.03	$	0.08
Dilutive		$	0.03	$	0.08
Anti-dilutive securities excluded from earnings per share calculation			1,639,659		1,971,066

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Other Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2019

Other Accrued Liabilities [Abstract]

Schedule of Other Accrued Liabilities

	(in thousands)
	March 31,		December 31,
	2019		2018
Customer deposits	$	9,783	$	7,383
Accrued wages and salaries		3,353		3,689
Sales returns reserve		5,875		5,154
Payroll and sales taxes		4,327		2,929
Other current liabilities		5,389		5,329
Total other accrued liabilities	$	28,727	$	24,484

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Schedule of Lease Assets and Liabilities

Leases (in thousands)	Classification		March 31, 2019
Assets
Operating lease assets	Right of use asset	$	141,791
Financing lease assets	Property, plant and equipment, net of accumulated depreciation		150
Total leased assets		$	141,941
Liabilities
Current
Operating	Current portion of lease liability	$	25,236
Financing	Other accrued liabilities		145
Noncurrent
Operating	Long-term lease liability, net		138,550
Financing	Other long-term liabilities		398
Total lease liabilities		$	164,329

Summary of Lease Cost

Lease cost (in thousands)			March 31, 2019
Operating lease cost	SG&A expenses	$	8,013
Financing lease cost
Amortization of leased assets	Depreciation and amortization		12
Interest on lease liabilities	Interest expense		21
Variable lease cost(1)			3,225
Short term lease cost			264
Net lease cost		$	11,535

(1) Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities.

Maturity Of Lease Liabilities

Maturity of Lease Liabilities (in thousands)	Operating Leases		Financing Leases		Total
2019	$	26,177	$	162	$	26,339
2020		34,252		216		34,468
2021		32,677		215		32,892
2022		29,741		90		29,831
2023		24,691		-		24,691
Thereafter		52,125		-		52,125
Total lease payments		199,663		683		200,346
Less: interest		(35,877)		(140)		(36,017)
Present value of lease liabilities	$	163,786	$	543	$	164,329

Summary of Other Lease Information

Other Information (in thousands)		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	8,602
Operating cash flows from financing leases	$	21
Financing cash flows from financing leases	$	33

Lease Term and Discount Rate

Lease Term and Discount Rate	March 31, 2019
Weighted-average remaining term (years)
Operating leases	6.4
Financing leases	3.2
Weighted-average discount rate
Operating leases	6.21	%
Financing leases	14.73	%

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value of Financial Instruments [Abstract]

Summary of Fair Value of Financial Assets Measured on a Recurring Basis

	Pricing	Fair Value at
	Category	March 31, 2019		December 31, 2018
Assets	(in thousands)
Cash and cash equivalents	Level 1	$	7,936	$	5,557
Restricted cash	Level 1		825		825

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Background (Narrative) (Details) $ in Thousands	Mar. 31, 2019 USD ($) ft² store state	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Number of stores | store	140
Number of states in which entity operates | state	31
Area of stores | ft²	20,200
Lease liabilities	$ 164,329
Deferred rent			$ 43,579
Retained earnings (accumulated deficit)	(17,997)		(25,857)
Property, plant and equipment, net	$ 143,785		$ 158,356
Accounting Standards Update 2016-02 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right of use asset		$ 147,200
Lease liabilities		169,900
Deferred rent		(44,600)
Retained earnings (accumulated deficit)		22,000
Property, plant and equipment, net		$ 15,300

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Revenues (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Revenues [Abstract]
Cumulative impact adjustment to retained earnings	$ (17,997)	$ (25,857)
Customer deposit balance	9,800	7,400
Customer deposit balance, revenues recognized	6,600
Accounts receivable	$ 5,942	$ 3,084

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Revenues (Schedule of Revenues Disaggregated by Product Category) (Details)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Disaggregation of Revenue [Line Items]
Total revenue	100.00%	100.00%
Man-Made Tiles [Member]
Disaggregation of Revenue [Line Items]
Total revenue	46.00%	45.00%
Natural Stone Tiles [Member]
Disaggregation of Revenue [Line Items]
Total revenue	29.00%	29.00%
Setting And Maintenance Materials [Member]
Disaggregation of Revenue [Line Items]
Total revenue	13.00%	13.00%
Accessories [Member]
Disaggregation of Revenue [Line Items]
Total revenue	11.00%	11.00%
Delivery Service [Member]
Disaggregation of Revenue [Line Items]
Total revenue	1.00%	2.00%

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Revenues (Schedule of Components of Returns Reserve) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Revenues [Abstract]
Other current liabilities	$ 5,875	$ 5,154
Other current assets	1,746	1,498
Sales return reserve, net	$ 4,129	$ 3,656

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Inventories (Schedule of Inventories) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Inventories [Abstract]
Finished goods	$ 102,501	$ 98,776
Raw materials	2,647	2,114
Finished goods in transit	5,656	9,205
Total	110,804	110,095
Inventory, provision for shrinkage and other	$ 900	$ 300

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Income Taxes (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Taxes [Abstract]
Effective income tax rate	31.60%	28.30%
Effect of state taxes on effective tax rate	31.60%
Federal statutory rate	21.00%
Provision for income taxes	$ 611,000	$ 1,581,000
Liability for uncertain tax positions	0	0
Income tax interest and penalties related to uncertain tax positions	$ 0	$ 0

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Earnings Per Share (Schedule of Earnings Per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Net income	$ 1,320	$ 4,011
Weighted-average shares outstanding - basic	51,961,780	51,881,681
Effect of dilutive securities attributable to stock-based awards	76,216	17,529
Weighted-average shares outstanding - diluted	52,037,996	51,899,210
Income per common share: Basic	$ 0.03	$ 0.08
Income per common share: Dilutive	$ 0.03	$ 0.08
Anti-dilutive securities excluded from earnings per share calculation	1,639,659	1,971,066

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Other Accrued Liabilities (Schedule of Other Accrued Liabilities) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Other Accrued Liabilities [Abstract]
Customer deposits	$ 9,783	$ 7,383
Accrued wages and salaries	3,353	3,689
Sales return reserve	5,875	5,154
Payroll and sales taxes	4,327	2,929
Other current liabilities	5,389	5,329
Total other accrued liabilities	$ 28,727	$ 24,484

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Long-term Debt (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Rent Adjusted Leverage Ratio [Member]
Debt Instrument [Line Items]
Credit facility, spread on variable interest rate	1.75%
Base Rate [Member]
Debt Instrument [Line Items]
Credit facility effective interest rate	6.50%
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Credit facility effective interest rate	4.49%
Minimum [Member] | Rent Adjusted Leverage Ratio [Member]
Debt Instrument [Line Items]
Credit facility, spread on variable interest rate	1.50%
Maximum [Member] | Rent Adjusted Leverage Ratio [Member]
Debt Instrument [Line Items]
Credit facility, spread on variable interest rate	2.25%
Credit Agreement [Member]
Debt Instrument [Line Items]
Credit facility, initiation date	Sep. 18, 2018
Credit facility, maximum borrowing capacity	$ 100.0
Credit facility, expiration date	Sep. 18, 2023
Credit facility, amount outstanding	$ 50.0
Credit facility, available borrowing capacity	48.8
Credit Agreement [Member] | Letter of Credit [Member]
Debt Instrument [Line Items]
Credit facility, amount outstanding	$ 1.2	$ 1.1

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Leases (Schedule of Lease Assets and Liabilities) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Leases [Abstract]
Operating lease assets	$ 141,791
Financing lease assets	150
Total leased assets	141,941
Current operating lease liabilities	25,236
Current finance lease liabilities	145
Noncurrent operating lease liabilities	138,550
Noncurrent finance lease liabilities	398	$ 436
Total lease liabilities	$ 164,329

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Leases (Summary of Lease Cost) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Leases [Abstract]
Operating lease cost	$ 8,013
Financing lease cost, Amortization of leased assets	12
Financing lease, Interest on lease liabilities	21
Variable lease cost	3,225
Short-term lease cost	264
Net lease cost	$ 11,535

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Leases (Maturity of Lease Liabilities) (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Leases [Abstract]
Operating Leases, 2019	$ 26,177
Operating Leases, 2020	34,252
Operating Leases, 2021	32,677
Operating Leases, 2022	29,741
Operating Leases, 2023	24,691
Operating Leases, Thereafter	52,125
Operating Leases, Total lease payments	199,663
Operating Leases, Less: interest	(35,877)
Operating Leases, Present value of lease liabilities	163,786
Financing Leases, 2019	162
Financing Leases, 2020	216
Financing Leases, 2021	215
Financing Leases, 2022	90
Financing Leases, Total lease payments	683
Financing Leases, Less: interest	(140)
Financing Leases, Present value of lease liabilities	543
Operating and Financing Leases, 2019	26,339
Operating and Financing Leases, 2020	34,468
Operating and Financing Leases, 2021	32,892
Operating and Financing Leases, 2022	29,831
Operating and Financing Leases, 2023	24,691
Operating and Financing Leases, Thereafter	52,125
Operating and Financing Leases, Total lease payments	200,346
Operating and Financing Leases, Less: interest	(36,017)
Total lease liabilities	$ 164,329

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Leases (Summary of Other Lease Information) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Leases [Abstract]
Operating cash flows from operating leases	$ 8,602
Operating cash flows from financing leases	21
Financing cash flows from financing leases	$ (33)

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Leases (Lease Term and Discount Rate) (Details)	3 Months Ended
	Mar. 31, 2019
Leases [Abstract]
Weighted-average remaining term (years), Operating leases	6 years 4 months 24 days
Weighted average remaining lease term for finance lease, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents reported fact of one year, five months, and thirteen days.	3 years 2 months 12 days
Weighted-average discount rate, Operating leases	6.21%
Weighted-average discount rate, Financing leases	14.73%

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Fair Value of Financial Instruments (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Fair Value of Financial Instruments [Abstract]
Asset impairment charges	$ 0	$ 0

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Fair Value of Financial Instruments (Summary of Fair Value of Financial Assets Measured on a Recurring Basis) (Details) - Level 1 [Member] - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	$ 7,936	$ 5,557
Restricted cash	$ 825	$ 825

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Equity Incentive Plans (Narrative) (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 0.3
Stock options outstanding	1,632,585
Stock options outstanding, weighted average exercise price	$ 11.17
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 0.4	$ 0.3
Restricted stock outstanding	916,434

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New Market Tax Credit (Narrative) (Details) - USD ($) $ in Millions	1 Months Ended		3 Months Ended	12 Months Ended
	Dec. 31, 2016	Jul. 31, 2013	Mar. 31, 2019	Dec. 31, 2016
New Market Tax Credit Disclosure [Line Items]
Restricted cash			$ 0.8
Chase and US Bank [Member]
New Market Tax Credit Disclosure [Line Items]
Contribution to affiliate		$ 5.6
Twain Investment Fund 192 [Member]
New Market Tax Credit Disclosure [Line Items]
Net proceeds from contribution				$ 1.9
Contribution liability compliance period			7 years
Contribution liability			$ 2.2
Contribution liability, current			0.5
Contribution liability, noncurrent			$ 1.7
Twain Investment Fund 192 [Member] | U.S. Bank Community [Member]
New Market Tax Credit Disclosure [Line Items]
Contribution to affiliate	$ 3.2
Twain Investment Fund 192 [Member] | Tile Shop Holdings [Member]
New Market Tax Credit Disclosure [Line Items]
Syndicate costs	$ 1.3			$ 1.3
Tile Shop Investment Fund [Member]
New Market Tax Credit Disclosure [Line Items]
Contribution to affiliate		$ 4.4
Contribution liability compliance period		7 years	7 years
Contribution liability			$ 0.9
Contribution liability, current			0.7
Contribution liability, noncurrent			$ 0.2
Tile Shop Investment Fund [Member] | Tile Shop Holdings [Member]
New Market Tax Credit Disclosure [Line Items]
Syndicate costs		$ 1.2
Tile Shop Investment Fund [Member] | Tile Shop Lending [Member]
New Market Tax Credit Disclosure [Line Items]
Loan amount		13.5
Chase and US Bank [Member] | Oklahoma [Member]
New Market Tax Credit Disclosure [Line Items]
Financing agreement project cost		$ 19.1

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Related Party Transactions (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Nanyang Helin Stone Company [Member]
Related Party Transaction [Line Items]
Payments to related party	$ 1.2	$ 12.0

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Subsequent Events (Narrative) (Details) - Subsequent Event [Member]	Apr. 29, 2019 USD ($) $ / shares
Subsequent Event [Line Items]
Dividends payable, date declared	Apr. 30, 2019
Dividends payable, amount per share | $ / shares	$ 0.05
Dividends payable, date of record	May 06, 2019
Dividends payable, date to be paid	May 17, 2019
Share Repurchase Program [Member]
Subsequent Event [Line Items]
Stock repurchase program, authorized amount | $	$ 15,000,000