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The Tile Shop Hits The Floor (Podcast)


  • Certain types of investors are attracted to bad news like flies to honey.
  • The Tile Shop has had a lot of bad news last year. Can the company turn things around?
  • This week's Behind the Idea looks at Michael Rogus's case for the long story and why retail turnarounds are so tough to get right.

There are two investment strategies:

  1. If a thing goes up, you buy it; if it goes down, you sell it.
  2. If a thing goes up, you sell it; if it goes down, you buy it.

The first is sometimes called "momentum," and the second is sometimes called "value," but you can crudely shove pretty much any investment strategy into one of these buckets, or at least a combination of the two.

Matt Levine made this point in a recent Money Stuff column. It resonates for me. As much as one should pay attention to fundamentals, when time is short it's easier to do the first analysis based on price. "If stock XYZ sells off, maybe the people who sold it are wrong, and with the right time horizon there could be an opportunity here," goes my thinking in these cases. The analysis doesn't stop there, but it's a way to spot an idea. And there are others who say, "if stock XYZ is going higher, that means there's a good reason, better buy it as it keeps going," and start their investment process there.

If you take the "value" logic, then The Tile Shop (TTS) has a lot of value to it these days. The company has shed an average of 35% from its share price in each of the last three earnings seasons, finding a new floor each time. Declining comparable sales, executive turnover, and competitive threats - it's all there for The Tile Shop, marking an ominous pattern for investors.

Source, the 1980s

Michael Rogus stepped into the breach to make a bull case for the company last week. He was measured in his analysis, but he used one of the most enticing and dangerous words in investing, especially for a retail company: turnaround.

Can The Tile Shop achieve a turnaround, and can retail turnarounds turn around? That's the topic of this week's Behind The Idea.

Items covered (with times in the podcast in parentheses)

  • A review of TTS's unhappy 2017 (1:30)
  • Breaking down Rogus's TTS article (4:30)
  • The elephant in the room (Amazon (AMZN)) and a potential fence against it (14:40)
  • Are the gross margins sustainable? (21:45)
  • The limits of what an external investor can know (24:40)
  • Can retail turnarounds turn around? Why are they so hard? (30:15)
  • Our biggest concerns with The Tile Shop (35:45)

We hope you enjoy the podcast. If you have a chance, subscribe on iTunes and rate or leave us a review. We're also available on Soundcloud and Stitcher. If you have any favorite articles you want covered, or any feedback, send me or Mike a direct message or comment below.

Source: Houzz.com - what a finished turnaround can look like.

Any retail turnarounds on your radar? There are plenty of stories to choose from, and as many hidden traps for investors. Let us know how you tell the difference between the two, or what your favorite tile is.

This article was written by

My active contributor account going forward is https://seekingalpha.com/author/daniel-shvartsman#regular_articles. I worked as director of our Marketplace and support in a few other areas on the site. I also co-hosted Behind the Idea, our podcast on single stock analysis, and The Razor's Edge, a podcast dedicated to deep-dive ideas with a focus on the tech space. I'm always happy to hear from readers and contributors, whether to help with questions, hear your feedback, or learn how you're using the site. I've been working at SA since September 2012, and previously focused on our SA PRO+ product.I've been investing since 2011. I used to write articles for Seeking Alpha before becoming an editor  - my work is on this account - and resumed doing so in 2020. I would rate the 2012 pieces well-written and benefiting from bull market timing, but still somewhat of a beginner's work as far as analyzing companies and stocks. I am hoping the 2020 and beyond articles will be a little more grounded :).  I am probably one of SA's most frequent users, and have learned an immense amount from contributors, readers, and SA employees.Beyond the market, I like reading, voyaging, writing, playing/writing/listening to music, and learning languages. Probably most relevant to ask me about SA, but you're welcome to get in touch on anything else as well.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Neither Mike nor I have any positions in any of the stocks named.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given that any particular security, portfolio, transaction or investment strategy is suitable for any specific person. The author is not advising you personally concerning the nature, potential, value or suitability of any particular security or other matter. You alone are solely responsible for determining whether any investment, security or strategy, or any product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. The author is an employee of Seeking Alpha. Any views or opinions expressed herein may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank.

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Comments (10)

Michael Rogus profile picture
Great podcast guys. I thought you had some great comments. You had some really nice points on making an amazon fence and to look for companies that can do that. One point on why I'm looking for GM to improve right away and why it is important. It's not that GM moving from 66% to 70% is super needed from a profit point. The reason I want to see the margin improve is for credibility of management. Their whole premise was that they need to stop discounting - so margins should improve if that was true right? This is supposed to be the quickest and easiest thing to fix - margins. So that's why it's a milestone - credibility for the rest of the story and should be immediate. Great job and thanks for taking it easy on me.
SA Editor Daniel Shvartsman profile picture
Thanks for commenting, Michael! Good point, and that fits in with what we were talking about trusting management and whether one should or not. If they can't get those to go higher, it probably raises questions about how well they control the business, glad you mentioned that. Thanks again for the article.
SA Editor Mike Taylor, CFA profile picture
Always super honored to have a comment from the author himself. Thanks for expanding on your idea, Michael!
Michael Rogus profile picture
Quarter looks like they did what they said they would - GM did rise to over 70%.
Courage & Conviction Investing profile picture
Good podcast. Thanks for sharing!
equitydeepvalue profile picture
interesting podcast, what do you guys think about home depot HD?
SA Editor Daniel Shvartsman profile picture
Thanks for the comment and listening! I won't speak for Mike, but I don't have much to say about HD. Obviously phenomenal same store sales number in Q4. We didn't get a chance to look at their floor exposure closely.

What do you think?
SA Editor Daniel Shvartsman profile picture
An industry expert contacted me and explained that the gross margins relate to how cheap the ceramics are, marketing the romance of the tiles, and the logistics/distribution aspects. Just to fill out the 70% gross margins discussion.
Insiders look like they are doing some accumulating at these prices. I would say its a good thing, but not sure how good of a thing it is.
SA Editor Daniel Shvartsman profile picture
Seems better than not, but it also looks like most of the buying is Peter Kamin, and he's bought most of the way down. Thanks for pointing it out!
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