Tile Shop Holdings Inc (TTSH) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Tile Shop Holdings fourth-quarter 2016 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Adam Hauser, Vice President of Investor Relations. Sir, you may begin.

Thank you, operator. Good morning to everyone on the call and welcome to The Tile Shop's fourth-quarter earnings call. Following our prepared remarks, the call will be open for analyst questions. Questions will be limited to analysts, and we would appreciate if participants would limit themselves to one question with one follow-up.

As a reminder, certain statements made during the call today may constitute forward-looking statements made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended. Words such as, but not limited to, plan, expect, anticipate, believe, estimate, target, and any other similar words may be used to identify forward-looking statements.

Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are described in the earnings press release issued today and in The Tile Shop's filings with the Securities and Exchange Commission. The forward-looking statements made today are as of the date of this call and the Company does not undertake any obligation to update these forward-looking statements.

Today's presentations may also include certain non-GAAP measurements. Please see the Company's earnings release for a reconciliation of those non-GAAP financial measures, also available on the investor relations section of our website at investors.tileshop.com.

With that, let me now turn the call over to our Chief Executive Officer, Mr. Chris Homeister.

Thanks, Adam. Good morning, everyone, and thank you for joining us today. I'm here with Kirk Geadelmann, our CFO, and we appreciate you joining us this morning as we report our results for the fourth quarter and full year of 2016 and to discuss our outlook for 2017.

At the outset of the year, we focused our stores and business teams on a consistent set of key initiatives that we believed were crucial to delivering a tremendous 2016 for The Tile Shop. These initiatives were retail talent development; broaden our business with the professional customer segment; and strong execution of increased unit growth.

Through significant effort and dedication of our employees, we achieved results that were at or above the higher end of our original plans and expectations when the year began. I'm very proud of all of our teams that played a role in achieving the fantastic results for our second straight year while also delivering a high-level experience to our customers on a daily basis. We believe 2016 serves as another testament to the strength of our model, our ability to gain customer and markets in which we compete, and the progress made on positioning The Tile Shop for many years of significant growth ahead.

As we reflect on our retail talent development initiative, 2016 was another significant step forward for the Company. During the year, we continued to make additional investments into our people and recruiting capabilities and further enhance the career path available to our employees.

During the fourth quarter, our sales associate turnover again declined, finishing the year with a turnover reduction of approximately 20% from 2015. Over the past 2 years, we have reduced sales associate turnover by 40% from 2014 levels.

Beyond sales associates, it's important to note that our existent store manager and store warehouse employee turnover levels also improved significantly during 2016. Average store manager tenure increased nearly 20% in 2016 versus 2015 after experiencing a similar increase last year, bringing the increase over the past 2 years to approximately 40% from 2014 levels.

We continue to feel strongly that reducing turnover and increasing store manager tenure have been significant contributors to the financial and operational improvements that we have experienced since 2014. As we enter 2017, we still feel we have additional room for improvement on these metrics.

Turning our attention to our initiative to continue our growth with the professional customer segment, we again saw significant strength in 2016. A combination of direct marketing, employee training, new product offerings, improved in-store merchandising, and store-hosted events delivered strong results throughout the year.

The fourth quarter saw pro sales growth that strongly outpaced overall growth, leading to a meaningful increase in pro mix during the quarter. We concluded the year of 2016 with our mix of pro business increasing over 300 basis points from the prior year, marking the second straight year with this level of mix increase.

Regarding our initiative to deliver strong execution of increased unit growth, we opened nine new stores during 2016 while relocating an additional two retail showrooms, including three new stores and one relocation during the fourth quarter. The early results from the 2016 class of stores have been favorable and we believe they will be very strong locations as we move forward.

Although the number of openings in 2016 were at the low end of our original expectations, we feel that our pipeline of future locations, our talent development initiatives, and our market capabilities will put us in great position to more aggressively increase our unit growth in 2017, which I will address in more detail shortly.

Now let me share a few highlights from the fourth quarter. Sales for the quarter were $76.6 million, representing growth of 6.5% versus last year, including comparable store sales growth of 3.1%. A slowdown in traffic growth played the largest role in the lower comp performance during the quarter.

This seemed to be most prevalent in mature stores, where comps slowed sequentially, with modestly positive growth in Q4. Our newer stores open less than four years drove comps that were consistent with Q2 and Q3 levels.

Our adjusted earnings per share in the quarter was $0.07. Adjusted EBITDA grew 2%, and adjusted EBITDA margin was 18.9% during the quarter.

We also settled the shareholder litigation suit that originated in 2013 during the quarter. And while the settlement is pending final court approval, we're certainly pleased to move forward and eliminate the significant legal costs associated with it that have persisted over the last several years.

There are a number of additional 2016 full-year accomplishments that I'd like to highlight as well today. Our sales were $324 million, representing growth of 11%. Comparable store sales growth was 7.6% following 7.4% growth in 2015, including strong performance across all vintages and all organic drivers, including traffic, close rate, and ticket. Our gross margin was 70%, increasing 50 basis points from the prior year.

Adjusted earnings per share was $0.45, representing growth of 41%. Adjusted EBITDA was $68 million, representing growth of 16.5%. Adjusted EBITDA margin increased 105 basis points to 21%. We generated over $26 million of free cash flow, allowing us to pay down over $27 million of long-term debt, a reduction of approximately 50%.

Our inventory turn improved from approximately 1.4 to 1.5, with the inventory finishing 2016 with only a 6% increase in a year with 11% sales growth and 8% store growth. We improved our supply chain by opening a distribution center in New Jersey to support our stores located in the northeast more efficiently.

We reduced the capital outlay associated with new store openings by more than 20%. We further enhanced the career path available to sales leaders while also forming a strong bench of manager candidates by launching a senior assistant manager program. And we delivered many enhancements to our customer shopping experience, including launching our digital Design Studio, Pro My Account, product specification sheets, and hundreds of exciting additions to our product assortment.

Now let's turn to our plans for 2017. Retail talent development will continue to be a major focus area for the Company. We will strive for additional reductions to turnover levels and increases to average manager tenure in the coming year, as we firmly believe these metrics will continue to serve as catalysts for continued growth.

In order to deliver continued improvements in these areas, we continue to make investments into our recruiting and retention efforts, including the decision to double our Company 401(k) match in 2017, enhancing our paid-time-off benefit, and to continue modifying pay plans as needed. These investments are coupled with a significant ongoing effort to improve and accelerate our sales training programs across all experience levels.

Our retail talent development initiative will again be further reinforced by the tremendous career path available to our employees at The Tile Shop, where the opportunity for senior assistant manager, market manager, and regional manager roles will continue to expand as we accelerate our store growth.

As crucial as it has been the past two years, continuing to grow our business with the professional customers will be key to delivering another successful year in 2017. As we conclude another year of various efforts from 2016, we were able to draw upon these experiences and evolve our strategies to grow our professional customer segment in 2017.

We once again have a thorough and distinct marketing plan for targeting and retaining tile contractors, custom home builders, and interior designers. Our 2017 plans include direct marketing, store-hosted events and partnership with pro associations, and continually adding to our pro-grade product assortment.

After the success of the past two years and the current positioning of our retail talent, we strongly believe that we are in a great position to increase our store growth in 2017 and beyond. We plan to open 12 to 15 stores in 2017 and we hope to be at the higher end of that range when the year concludes. We expect to open three stores in Q1 and potentially as many as seven in the first half.

We have a deeper list of strong locations and a clear line of sight to our potential openings as many as three to four quarters out. The majority of our 2017 openings will be in markets where we already compete, where we will leverage economies of scale in marketing, distribution, and store talent. We still feel 8% to 12% unit growth is the appropriate target for our business over the next several years.

Finally, we are very pleased to announce today that The Tile Shop will begin returning cash to shareholders in the first quarter of 2017 with the initiation of a regular quarterly dividend. We are proud to be in a unique position where the strength of our balance sheet and the significant free cash flow of our business give us the opportunity to begin returning some cash to shareholders while accelerating our store growth and continue investing in our business for significant long-term growth.

We are very pleased with our accomplishments from 2016. We made significant progress in all of our key initiatives, and we are in a better position than ever to continue improving in our effort to become the nation's leading specialty tile retailer. We are proud of what has been achieved the past two years. But more importantly, we are excited about the significant growth that is still in front of us.

And with that, let me now turn the call over to Kirk for further discussion on the quarter and our outlook for 2017.

Thanks, Chris. This morning, we reported net sales of $76.6 million for the fourth quarter of 2016, which represents an increase of $4.7 million or 6.5% over sales of $71.9 million in the same quarter of last year.

Comparable store sales growth was 3.1% in the quarter, which, as Chris mentioned, was driven by our newer stores open less than 4 years. Comparable store sales growth for stores opened less than four years was very consistent with the previous two quarters, while our more mature stores experienced a sequential decline, growing modestly in the quarter.

For the full year, we reported net sales of $324.2 million, which represents an increase of $31.2 million or 10.6% over sales of $293 million last year. Our full-year comparable-store sales growth of 7.6% was driven by improvement on all organic growth drivers. And importantly, all store vintage classes exceeded our original expectations.

Gross profit increased $2.7 million in the fourth quarter or about 5.3% over last year. Gross margin of 69.6% represented a decrease of 80 basis points from Q4 of last year. The decrease during the quarter was largely a result of a heavier mix of promoted sales during the quarter, driven in particular by a very strong Black Friday weekend.

Full-year 2016 gross profit increased $23.3 million or 11.4% over last year. Full-year gross margin of 70% represented an increase of 50 basis points from 2015, driven primarily by improved inventory control processes and better collection of revenue at stores for customer deliveries.

Our selling, general, and administrative costs for the fourth quarter were $51.7 million as compared to $43.7 million in the fourth quarter of last year. Expense control was very strong during the quarter, as the $8 million increase was largely driven by a $5.5 million increase in special charges related to litigation and an increase of over $1.1 million in benefits claims.

The remainder of SG&A growth during the quarter was associated with store growth and variable expenses associated with revenue growth. Preopening expenses were approximately $260,000 in the quarter.

Full-year selling, general, and administrative costs for 2016 were $194 million as compared to $174.4 million in 2015. $6.3 million of the $19.6 million increase was driven by special charges related to litigation, with much of this attributable to the settlement of our shareholder litigation during the fourth quarter.

Compensation, benefits, and shipping and transportation expenses represented approximately $8 million of SG&A growth in 2016, driven primarily by growth in sales and employee headcount as well as continued investments to reduce turnover and drive retail talent development. We concluded the year with 123 stores, an 8% increase versus the conclusion of 2015, when our store count was 114.

Depreciation and amortization, rent, property taxes, utilities, supplies, and other costs primarily related to store growth represented approximately $4.6 million of SG&A growth in 2016 versus 2015.

Adjusted EBITDA was $14.5 million in the fourth quarter, representing growth of 2% versus the prior-year period. Full-year adjusted EBITDA was $68 million, representing growth of 16.5%. Full-year adjusted EBITDA margin was 21%, an increase of 105 basis points.

2016 was our second consecutive year with adjusted EBITDA margin expansion of greater than 100 basis points. This was driven by SG&A leverage from our consistently strong top-line growth and the expansion of our gross margin during the year.

The non-GAAP net income presentation in the earnings release adjusts our GAAP quarterly results by eliminating special charges and then applies a normalized tax rate to the result. This presentation results in non-GAAP net income for the quarter of approximately $3.8 million.

The current-year non-GAAP net income translates into a basic and fully diluted Q4 earnings per share of $0.07, a decline versus $0.08 in Q4 of last year. Full-year non-GAAP net income translates into a basic and fully diluted earnings per share of $0.45, representing growth of 41%.

Turning to our balance sheet as of December 31, we ended the quarter with $6.1 million of cash and $28.4 million of long-term debt. We paid down $27.8 million of debt during 2016, and our free cash flow in 2016 was in excess of $26 million.

As expected and discussed on our last call, our quarter-end inventory increased to $74.3 million, which represented a 6% increase from last year. We were glad to deliver another year with improved inventory turns in 2016, increasing from approximately 1.4 in 2015 to approximately 1.5 in 2016. We feel we are well positioned from an inventory perspective as we enter our peak selling season this spring.

Capital expenditures were approximately $8 million in the quarter, primarily related to new store openings, store IT investments, store remodel and merchandising activity, and DC projects.

Now let's shift gears to discuss our full-year outlook for 2017 in greater detail. From a macro perspective, year-over-year growth in existing home sales is expected to slow slightly from 2016 levels to approximately 2% in 2017. And median existing home price appreciation is also expected to slow slightly to approximately 4% in 2017.

Despite the modest slowdown in these two housing metrics that we feel are important to our business, the home remodel and renovation market is expected to see continued strength in 2017.

For the full year 2017, the Company expects that revenue will range between $350 million and $370 million. Comparable-store sales growth is expected to be in the low- to mid-single digits. We expect stores open at least four years to account for about a third of our comparable-store sales growth, while the maturation of stores less than four years old is expected to drive about two-thirds of our comparable-store sales growth. Gross margin is expected to be approximately 70%.

Non-GAAP earnings per share will range between $0.50 and $0.57 per share, representing year-over-year growth between 11% and 27%. This assumes an effective tax rate of approximately 40% and approximately 52 million fully diluted shares outstanding.

Our expectation for depreciation and amortization is approximately $27 million. Stock-based compensation is expected to be approximately $3.5 million. As Chris discussed, we expect to open 12 to 15 new stores in 2017.

Adjusted EBITDA is expected to range between $74 million and $80 million. This implies a range of adjusted EBITDA margin expansion of approximately 15 basis points to 60 basis points. The impact of increasing new store growth from 9 locations in 2016 to the top end of our range of 15 in 2017 is worth approximately 40 basis points of EBITDA margin drag versus the impact associated with new stores in 2016.

Other key incremental investments being made in 2017 include doubling our 401(k) match, continued adjustments to pay plans, enhanced paid time off, and additional corporate support roles, in addition to a higher baseline expectation on benefit costs.

Capital expenditures are expected to range between $30 million and $35 million. Approximately half of this is attributable to new store buildouts. Store remodels, merchandising projects, and boards to display products account for approximately a quarter of our capital budget. IT and distribution center projects account for approximately the final quarter of our capital budget.

We expect to generate approximately $20 million of free cash flow in 2017. Approximately $10.5 million of cash is planned to be paid as regular quarterly dividends during 2017. We expect to end 2017 with approximately $15 million or less in long-term debt.

From a phasing perspective, it is important to know that in the first quarter, we expect modest growth in adjusted EBITDA dollars and a decline in adjusted EBITDA margin, with strengthening of adjusted EBITDA dollar growth and margin increases thereafter.

The primary reasons for deleverage Q1 include the following. First, a very difficult comparison on sales and gross margin, as the first quarter of 2016 delivered 13.2% comparable-store sales growth and 70.5% gross margin. The sales strength of last year created significant leverage on many expense items, including, for example, advertising, where our expense was significantly less than our typical 2% of sales.

Second, we moved the timing of our national sales meeting to January this year. Third, increased preopening and advertising costs associated with new stores. And finally, the less-significant EBITDA growth expected in Q1 is not related to our current view of sales, as the year has kicked off to a solid start.

With that, operator, we can now turn the call over for questions.

(Operator Instructions) Peter Keith, Piper Jaffray.

I was hoping you could provide just a little more color around Q1, maybe the trends through the quarter or if you happened to see any change in the competitive backdrop. Obviously, you'd mentioned the mature stores slowed sequentially, and it sounds like there may have been a spike in demand post-election around Black Friday. So any color around the sales trend through the quarter would be helpful.

Sure. So as we talked about right at the end of my prepared remarks, we've really kicked off to a pretty solid start here in Q1. As we moved through the quarter in Q4, as Chris talked about, we did experience some general softness in traffic.

But overall, we feel like we executed pretty well, because, as we talked about for the year, for most of the year until we got to Q4, we really had all three primary organic growth drivers working well throughout the year. And each contributing about a third to the overall comp. So for most of the year until Q4, traffic contributed roughly a third of our comp, closure rate improvement year over year contributed about a third of our comp overall in the first three quarters. And then we had continued growth in average ticket.

When we got into Q4, traffic really wasn't contributing much, if at all, of the comp. It was more our execution, continuing to increase close rate, and also average ticket. And really just making the most of what we had in terms of our traffic.

But I would say also that our new stores were really pretty consistent in Q4 with the Q2 and Q3 performance. So we are really happy that that group of stores, stores open less than four years, continued strong performance. It was really the traffic in the mature stores where we were a little bit more challenged. As we head into January and really through six weeks of the quarter, though, pretty solid start overall.

Okay. Thanks, Kirk. That's helpful. Maybe if I can ask a follow-up. I certainly understand that the big-ticket nature of your business, it can be a little bit lumpy. But with the perspective of hindsight, that the challenged traffic trend in Q4, do you have any thought as to what caused those challenges relative to earlier in 2016 and maybe even relative to what sounds like a strengthening trend in Q1?

I certainly look at the traffic trends in the latter part of Q4 as surprising. I look at the things that we've done on marketing effectiveness, and we've talked about that in the past as a key strategic initiative for the Company as our sophistication continues to increase on our marketing approach.

But really saw brought-based demand declines in the latter part of Q4. I don't view it as something that was easily predictable. And I don't really view us spending any more money in the latter part of Q4 to go after sales because the demand had really diminished broadly across the category.

So when I look at hindsights, certainly we look at how we can improve and how we can execute better. I'm very pleased with the execution, as Kirk just mentioned, pertaining to tickets and close rate. But the broad-based measures on traffic I don't feel were easily predictable, and I was very pleased with our execution throughout the quarter.

Okay. Thanks, Chris. And I wanted to get one more question in. Kirk, you provided some measures around Q1 guide around EBITDA. I think most investors would be appreciative if you could help maybe frame up your view on how comps should trend, maybe with a loose range, and if a negative comp is in the realm of possibility.

Well, Peter, as we said, January has really kicked off to a pretty solid start. As you know, we have a very, very difficult comparison: a 13% comp last year in Q1.

So while we have that comparison, at the same time, we feel like we've done a lot of things to improve our business, largely in terms of talent, but also pro and marketing and a host of other things, as you know. So we feel like we are well prepared to go against that comp in Q1, and we're cautiously optimistic.

At the same time, we got phenomenal leverage last year. And so the deleverage we talked about is just mainly due to the difficult comparison. But then we have some timing of expenses as well, and we felt the appropriate time to do our national sales meeting was in January to kick off the year and provide hopefully a good, strong start for the year for our teams. And that comes with some expense, and there's some other things as well. But overall, we feel pretty good about Q1.

Okay. Thanks a lot, guys. Good luck.

Daniel Moore, CJS Securities.

Thanks for taking the question. I wanted to just focus first on gross margin. Just still very strong, but a slight wiggle in the quarter. You mentioned promotion. Was there any change, discernible change, in mix?

And regarding promotion, just how do you feel, how are your feelings about how that went in general coming out of the quarter? Do you expect to use more of that promoting activity around holidays, etc.?

As we said, a big chunk of the sequential rate dilution -- while we are still pretty -- we are pretty happy to be right around that 70%, we did have a little dilution relative to last quarter in Q3. And really that was due to a very strong Black Friday. We had a very well-executed plan over the Black Friday holiday weekend. Basically, the promotions were right about where we thought. The sales exceeded our expectations over the weekend -- very happy with that.

But as traffic softened overall, particularly in mature stores during the quarter, the level of discounting in stores was up a little bit. So that, I think, explains the high 69 rate which we encountered, which, again, overall is pretty close to where we want to be. But the stores had to work just a little bit harder to close out their sales in the quarter.

Got it, very helpful. And then in terms of EBITDA margins, you gave us a good sense for Q1. Should we assume that EBITDA margins, given the ramp-up in new store openings, increase progressively as we go throughout Q2 and the back half of the year?

Yes. The timing of new store opening expense is also a factor in Q1 and contributes to the anticipated EBITDA deleverage. So the phasing of new store openings -- as Chris talked about, we expect to have as many as seven open in the first half of the year -- does put a little bit more expense in terms of preopening costs and also store advertising costs as we open new stores in the first quarter than we've had over the last couple of years.

But again, we are excited about our opportunity to increase our unit growth to the upper end of our 8% to 12% range and feel like we are well prepared to do that.

Perfect. I will jump back in queue. Thank you.

Peter Benedict, Robert W. Baird.

First question, Kirk, just your latest thoughts on the new store maturity curve and how you see that. I know you've got some smaller stores now, but just latest thoughts: year-one revenue and then how you see those comps going in years one, two, and three so we can get a sense for how that has been trending. I think you said that they have been doing in line or better than what you guys have been planning.

Yes, we are very pleased to report again very solid performance in the quarter and for the year from our new store vintages. And historically, we've talked about doing about $1.7 million of revenue in the first 12 months, and for the first 12 months, as we close out that time period, being EBITDA positive as well. And we still feel that that's a very good target. That's what we're shooting for.

Of course, in Q4, that really was the bright spot in our sales performance. Those stores, the newer vintages from 2013, 2014, and 2015 that are part of the comp, really performed well.

So we feel very good about our new-store execution right now, and that target is, we think, a very solid target. And I think when you pair that with our ability now to open up a new store for a CapEx investment that's about 20% less than what it was historically, that's a pretty exciting combination.

Yes, absolutely. Thanks. And the 12 to 15 stores -- is that a net number? Are you guys going to have some relos?

That is a net number, Peter. We certainly feel that we can be at the top end of that range during the course of our normal business evaluation of stores across the country. There may be a relo in there throughout the course of the year.

But stores across all vintages and geographies continue to do well. And we are excited about the upcoming year for our business, including ramping up our new-store pipeline, which we feel very good about sitting here in mid February.

Okay, perfect. And last one, maybe Kirk, the acceleration in D&A in 2017, kind of a midteens kind of growth rate. Is that something that should persist as we move beyond 2017? Or is this a big one-time step-up and then the growth moderates? Just how are we thinking about that longer term?

Yes, Peter, the base is going to continue to get bigger. But there's a pretty big step-up from going from 9 stores this year to hopefully near the top end of our range, which should be 15. So I wouldn't necessarily say you'd see the same increase going forward. But as the base gets bigger, obviously the depreciation number will get bigger.

Sure, absolutely. All right, thanks, guys.

Joseph Feldman, Telsey Group.

Thanks for taking the question. Wanted to follow up, just to be crystal-clear. And I think I get it, but on all the employee expenses, that's the reference you meant in the press release where you said higher-than-normal employee benefit claims? Because I was curious what that meant. I understand the investment in employees, but what was the claims part of it? I may have missed it.

There's really two things. The abnormal or higher-than-normal expense in the quarter was, to be specific, employee medical claims. Like many companies, we're self-insured for medical. And our high-dollar claims in the quarter were significantly higher than our historical trend.

And so we -- to the tune of about over $1 million higher than our expectation in the prior year. Most of that was medical, but workers comp also was a little bit higher than we anticipated.

The other factor that we talked about is more in investments, and that's the continued investments that we have been making and will continue to make in 2017 around people, training, and various tweaking and adjustments of compensation plans that we feel have created some great benefits as well as other benefits like the 401(k) match.

So there's really two separate factors. Both the higher run rate of medical in the 2017 plans has been factored in as well as the investments that Chris talked about.

Got it. That's very helpful, thanks. So we should assume that will be part of it going forward for now. Okay.

Another question, just shifting gears. Back to the older stores -- and not to say that the comps are particularly bad. Obviously, you said they slowed a little bit. But are there things that you can do to improve those?

Do you think it requires any investment in the store itself, like remodel activity, changing vignettes? I know you mentioned better training of employees. Perhaps that's just part of it. But was there something there that we could look to?

While we were certainly disappointed in our mature store comp in the quarter, I would want to point out that on our 2016 mature store comps were very positive. And we are very pleased with them. We actually had an excellent year across the board with our mature stores, as we did for the entire Company.

So I looked at -- we constantly look at, as Kirk went through from a capital standpoint of remodels, continuing to refresh our stores on a continual basis, on a consistent basis, across the chain. We are very pleased with the leadership and stability of that leadership across the chain in our mature stores. Many of our market managers are in mature stores in mature markets.

And so as a whole, the performance of the mature stores in the chain I think had a great year. Unfortunately, they didn't continue that same level of excellence in the quarter as we anticipated, and that's what led to the shortfall.

Got it. That makes sense, thanks. And if I could sneak one more in, and it's sort of related to this. Anything on the competitive environment that you are seeing differently? I know one of the private guys wants to go public soon. And I know that obviously the big-bucks home-improvement stores have continued to emphasize the foreign category. So just curious if there's anything there that you are seeing?

We really didn't see anything materially different in the quarter from a competitive standpoint. As I've talked many times in the past, we feel that the competitive environment in which we compete in each day with big-box players, the regional home centers as well as small foreign shops as well as online continue to be a very robust and dynamic market which we compete in.

I would not view the competitive environment as any less competitive in the quarter. Again, we would go back to the broad-based declined that we saw in traffic, which was broad-based and not unique to any geography.

That's helpful. Thanks, guys, appreciate it. And good luck this quarter.

(Operator Instructions) I am showing no further questions at this time. I'd like to turn the call back over to Adam Hauser for closing remarks.

Thank you, everyone, for joining us on the call today. And we look forward to speaking with many of you soon. Have a great day.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.