Ken Cooper - Investor Relations Bob Rucker - Interim Chief Executive Officer Cabby Lolmaugh - Chief Operating Officer Kirk Geadelmann - Chief Financial Officer

Daniel Moore - CJS Securities Peter Benedict - Baird Peter Keith - Piper Jaffray Joe Feldman - Telsey Advisory Group

Thank you, Chelsea. Good morning to everyone on the call, and welcome to the Tile Shop’s first quarter earnings call.

Joining me on today’s call are Bob Rucker, our Interim CEO; Kirk Geadelmann, CFO; and Cabby Lolmaugh, our Chief Operating Officer and Kirk Geadelmann, our Chief Financial Officer. Following our prepared remarks, the call will be opened for analyst questions.

Certain statements made during the call today 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 our earnings press release issued earlier and in our filings with the SEC.

The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update these forward-looking statements. Today’s call will also include certain non-GAAP measures.

Please see our earnings release for a reconciliation of those non-GAAP financial measures, which is also available on the Investor Relations section of our website. With that, let me turn the call over to our Founder and Interim Chief Executive Officer, Mr.

Bob Rucker.

Thanks, Ken. Good morning and thank you for joining us today to discuss our first quarter results.

We saw some good early signs of our initiatives that are taking hold as we return to The Tile Shop way of doing business and serving our target customers. The highlights of the quarters was our gross margin bouncing back to be at the high end of where we expect the metric to be.

We did this by eliminating advertised price promotions and seeing a higher average sales price due to our product assortment initiatives. We believe this is repeatable; however as a reminder we have expanded our setting and maintenance assortment to include some great new products our Pros are reacting very favorably to which come at the lower gross margin but can deliver more gross profit dollars.

Our elimination of price promotions did impact our revenue and traffic as expected, however we were pleased that we experienced doing only a modest sequential decline in our comps in light of our change in promotional strategy. For Q1, our comps were down 6.8% which compared to down 4.9% in the fourth quarter.

We know one of the common questions on the mind of our investors is do you think this is a bottom of the comps? The short answer is we do not know.

What we do know is that our product assortment is improving quickly and we are winning back our pro customers. Cabby will talk more about our progress here shortly.

It is important for me to communicate that we are seeing traction but we do not expect meaningful improvement in our topline until the second half of the year when our product assortment has stabilized. The good news is that we were successful in substantially improving our profitability, although down year-over-year we sequentially improved during the first quarter.

As you can see from the financials we achieved this improvement by the sequential growth in gross margin rate and dollars I mentioned earlier, we were pleased our gross profit dollars generated in Q1 were only 1% below last year. However, adjusted EBITDA was still down 34% from our first quarter of 2017, the primary reason that our SG&A expenses are substantially higher than last year is the addition of 14 new stores.

As a reminder, we continue to implement a number of key strategic initiatives that make the necessary expense investments that we outlined in our last call. We continue to believe these investments will translate into higher sales and profits in the future; however, this incremental expense will be a drag on profitability while our revenue remains volatile.

Until we begin to grow our total and comparable store sales, we will not see material improvement in our profitability. As I indicated in February a full recovery of our business will take time.

I would now like to turn the call over to Cabby Lolmaugh, our Chief Operating Officer who will take you through our status report on the various initiatives that we outlined for you on our last call. Cabby?

Thanks Bob. Good morning everyone.

Let me begin by providing an update on our key strategic initiatives. First, our top strategic priority to expand our product assortment is well underway.

Our goal is to offer the best product assortment in The Tile Industry. We remain on plan to add over a thousand new skews to our product assortment during 2018.

When this work is complete, we’ll be back to our 2015 skew levels if not a little higher which positions us well. So far in 2018, we’ve added approximately 250 skews to our assortment.

In addition to the 400 skews that were added during the last four months of 2017, therefore we’ll continue to have a very heavy schedule of new product releases throughout the second and third quarters after which we expect the total number of skews in our assortment to stabilize. Of course we’ll continue to aggressively introduce additional new products overtime and discontinue other products to make room but the pace of change will be substantially less in the future than it will be over the next two quarters.

I am pleased to report we are trying to see some good results from our new product efforts. We are beginning to see an increase in average selling prices as we focus on higher priced and more fashion-forward products that appeal to our core, upscale, fashion conscious consumer as well as to our professional channel partners including designers who serve their consumer.

We are focused on developing a good, better and best product assortment strategy across all of our key categories with an emphasis on the higher end offerings. As a result, we expect the trends of increased average selling prices and stronger gross margins will continue.

As we discussed on our last call, we are re-emphasizing higher-priced natural stone products. The Tile Shop is known as the source for such products, but in the last couple of years we had stopped innovating in this category.

Stone products are particularly attractive for us since we carry many of the trim pieces, accessories and setting and maintenance products that they require. Stone products also tend to sell for a higher price point than man made products.

We will also continue to focus on developing our assortment of porcelain products, other key on trend product categories and exclusive product lines which all remain very popular with our Pro and retail customers. Second, our work to remodel roughly 30 stores this year is off to a good start.

We remain on plan both in terms of timing and our investment dollars. As a reminder, we do our best to keep the stores open during the remodel and to do the work outside of our hours of operation, but some of our larger remodel projects will have a greater negative impact on our sales in the period the remodel work is completed.

This does not help our comps new term, but we expect it will produce greater benefit overtime once the project is completed. In addition to the capital investment in store remodels, we are ensuring our in-store merchandising reflects a high end design orientation that is consistent with our website redesign and our brand marketing.

Our goal is to continue to offer the best product presentation in The Tile Industry. Third, both our new sales associate compensation system and our regional sales leadership structure has been fully implemented.

Early signs are these expense investments are having their intended impact, infact our staffing levels at the end of the first quarter was the best on record as we’ve added a number of new sales associates to our team across the country. Our new regional structure, with substantially fewer stores per regional manager will ensure our entire retail team from store managers to the newer sales associates are getting the management resources training and encouragement needed.

We also expect the regional sales structure will provide consistent and regular coaching to our sales force from some of the most successful managers in our company. This should translate into more effective recruiting, improved employee retention and an increased level of customer service.

In addition to good staffing levels, we are also beginning to improve our sale convergent which is the natural by-product of more informed sales team. It is important to note our sales associate turnover remains at the lowest levels we’ve experienced in the last four years.

Finally, our retail customer satisfaction scores have remained at high levels relative to much of the retail industry, but we have plenty of room for improvement and that is our goal. We are committed to sustaining a retail business for the very high quality staff who possess superior product knowledge, provide best-in-class customer service and will have the opportunity to earn a very good income based on their performance.

Fourth, we intend to win back and grow our professional sales channel. Our first step to accomplish this was to eliminate all price promotions to protect the industry leading discount program we provide our Pros.

That has been done. We are now focused on several additional new initiatives designed intimately and at times exclusively to connect us through our professional channel partners.

For example, we are in the process of implementing a new loyalty reward program for our professional channel partners. We believe that this program will translate into greater alignment with these professionals as we work together to serve the upscale consumer who is completing her mid-to-large size bath or kitchen remodel project.

In conjunction with the launch of our new Pro loyalty program we are creating a new position, the Pro market manager in each of our major markets. These managers will be focused on training our sales staff on how to best serve Pro customers and also on the technical aspects of the new installation materials and products that are coming into the industry.

There will also be local efforts to reach out the Pro base of customers by organizing training and marketing events. We anticipate the 2018 investments we are making to develop a more comprehensive customer relationship management system will provide the tools necessary for these Pro market managers to make an immediate impact.

I would now like to turn the call over to Kirk, who will take you through the financial results. Kirk?

Thanks, Cabby. Good morning, everyone.

Cabby provided an update on the primary issues that we believe continue to pressure comparable store traffic and sales, as well as some of the key initiatives that are now in process to help reverse this trend. It is still very early, but we are encouraged by some of the developing trends that have emerged including sequential improvement in profitability, a return to gross margin that is in the 69% to 70% range and strong sales orders for many of the new SKUs we’ve recently introduced.

Certain of our key initiatives are designed to improve our customer service and financial performance in the near-term. Other initiatives are more focused on the long-term health and sustainability of the business.

However, we anticipate all of these initiatives will take some time before we began to see meaningful benefit. We continue to believe we are on track to position our business for sustained improvement and profitable growth.

However, as Bob mentioned, we don't expect to see meaningful topline improvement until the second half of 2018. I'd now like to provide a brief update on our first quarter financial performance and highlight some of the key expense and capital investments we've made to support our strategic initiatives during the quarter.

Net sales were $91.1 million for the first quarter of 2018 which were down 1.1% year-over-year. Comparable store sales declined 6.8% in the quarter.

This was the result of weaker traffic during the shift of our business strategy back to a product and service focus as compared to one on price. It is likely retail traffic will be soft near-term while we replace the more price conscious retail consumer, who we attracted with our increased promotions last year with a traditional higher-end fashion focused customer.

And it will take time for us to reaccelerate Pro customer traffic. Our efforts to expand our product assortment with a particular focus on higher-end product and our commitment to a focus on service rather than price.

Our key elements designed to improve traffic, as well as new Pro loyalty program. These efforts will take time to show up in our financials.

Many of the products we source have traditionally longer lead times that are common in our industry, plus it takes time to rebuild our customers trust and confidence in the Tile Shop brand. Gross profit was $64 million for the first quarter of 2018, a decrease of $0.7 million or 1.1% over gross profit in the same quarter of last year.

Gross margin of 70.3% was equal to last year's gross margin rate for Q1. The sequential improvement of approximately 350 basis points from the fourth quarter of last year was the result of eliminating all advertised price promotions online and in stores as well as improve sales mix due to an increase in sales contribution from some of our newer higher price point products that have recently entered the assortment.

These improvements to gross margin were partially offset by continued sales growth of lower margin rate, installation and setting materials an imported product offering for professional contractors we serve. As Cabby indicated, our goal is to offer the best product assortment in the industry.

Historically, we've been known for the depth and breath of our stone products, our accessories product and our exclusive fashion oriented products that are available in a variety of unique sizes that are not offered by many of our competitors. Our ability to offer full collections of floor and wall tile with matching trim accessory pieces has also been a key point of differentiation in the past.

As we return to focus to higher-end and exclusive products, we expect this work should help us continue to maintain a higher gross margin rate that is closer to our historical 69% to 70% range. Our selling, general and administrative costs for the quarter were $57.9 million as compared to $51.2 million for the first quarter of last year.

The $6.7 million increase was driven by approximately $4.7 million of costs associated with a full quarter of expense for the 15 new stores opened last year, as well as two new store openings in January 2018. In addition, the first quarter of 2018 included approximately $2 million of planned strategic investments in store compensation, store leadership, redesigning our website and build out our customer relationship management capabilities.

Perhaps most important will continue to invest in our people to support our service strategy. Our people are what make the products we sell come to life.

Our goal is to offer the best service in the industry. As Cabby discussed, our staffing levels have increased, our sales associate turnover continues to be low relative to past years and we are committed to improving our customer service for our professional channel partners and other retail consumers.

We are proud of our ability to offer our employees a long-term career path either as a sales associate or in a leadership position in one of our stores, distribution centers or Plymouth, Minnesota office. As we grow the opportunities for our people we’ll continue to grow.

The investments we are making in both storage and distribution center compensation will ensure we can continue to attract and retain high quality people. Income tax expense for the first quarter of 2018 was $1.6 million compared with $5.1 million for the first quarter of 2017.

The decrease in the company's overall tax rate was primarily due to the tax cuts and jobs act of 2017. The company anticipates an annual effective tax rate of approximately 26% to 28% in 2018.

We conclude the first quarter with 140 stores, an 11% increase versus the conclusion of last year's first quarter when our store count was 126. We have one more story open this year which is slated for third quarter of 2018.

Adjusted EBITDA was $13.8 million in the first quarter. Adjusted EBITDA margin was 15.1%.

Net income for the first quarter was $4 million. First quarter 2018 net income per share was $0.08.

Turning to a balance sheet, we ended the quarter with $7.2 million of cash and $25.1 million of long-term debt. Our debt decreased sequentially from the fourth quarter by approximately $1.9 million.

We continue to make additional investments in inventory to support our best product assortment strategy. Inventory at $88.3 million was up slightly from our year-end balance, but as you will notice inventory increased approximately 27% over last year's first quarter.

We plan to continue to make the necessary investments in inventory during 2018 and continue to anticipate the year-over-year increase in inventory to be in the 25% to 35% range over the next couple of quarters. Capital expenditures were approximately $4.8 million in the quarter primarily related to two new stores openings, four store remodels and store merchandising investments.

Given the company’s returned to its historical focus on product, service and presentation rather than price, we expect comparable store traffic and sales will likely continue to be volatile in the near-term. However as discussed earlier, we believe the investments we are making in product assortment, our professional sales channel, merchandising, store remodel, store compensation, regional sales leadership and training will result in increased customer service, increased store traffic and improved financial performance.

We are encouraged by our improved gross margin rate and return to profitability during the first quarter. Each of those represents key milestones as we refine our business strategy.

We also beginning to see early signs of improved sales results in the product subcategories where we've added products to the assortment over the last three or four months. We expect improvement to accelerate as more products are received and merchandised in stores over the next two quarters.

Finally, our entire team from our sales associates to our store managers, to those of us supporting the stores and our distribution centers and our Plymouth, Minnesota offices are energized by our current business strategy, and the opportunity we have in front of us. With that, I'll turn back over to Bob to conclude our prepared remarks.

Thank you, Kirk. As I hope you can tell from this call while we obviously still have a lot of work to do.

We believe we have the company on the right track and are beginning to gain some traction. While our topline and adjusted EBITDA performance in Q1 was significantly behind our performance from a year ago.

We are hoping to reduce that performance gap in each of the remaining quarters this year. One final update is in regards to my replacement and our active CEO search process.

We are currently, vetting our short list of internal candidates. So far this has gone well.

I expect vetting of internal candidates to most likely go on for the next two quarters. We feel that is fine as long as we continue to show progress on our stated strategy.

With that operator, Kirk, Cabby, and I are happy to take your questions.

Good morning. Appreciate color.

Thanks for taking my questions. Focus on the Pro customer, what percentage of revenue did Pros represent in quarter versus perhaps a year ago?

And to the extent that you’re winning back share, who you taking that share away from?

Good morning, Dan. This is Kirk.

Yes. I’ll focus a big part of our strategy and our focus certainly will be to continue to focus on the Pro customer and do some additional things that both Bob and Cabby talked about to continue to grow our business with that customer and to continue to partner with that customer.

The mix of our Pro business in terms of the sales we can directly track is in the high 30s. But I think it's important for us to reinforce with all our stakeholders that the amount of sales that our Pros influence is a much much higher percentage.

We believe is it slightly north of 80%. May Pros will, because they trust us to serve their retail consumers at a higher level, they’ll simply send those folks into one of our sales associates.

And so that will be tracked directly as a pro sale, but again it's -- a lot of our sales are heavily influenced by the Pro. So it’s going to continue to be a very important part of our overall business strategy and our customer focus.

Very helpful. Maybe quick follow-up.

As you increase inventory and change that SKUs, is there possibility or should we expect margins perhaps be impacted over for some as you liquidate older less differentiated product or do you expect to and have the ability to be very patience as it relates to that?

No, Dan. We don’t really expect of any impact.

We’re now pretty comfortable that we should be in that 69% to 70% range over the next couple of quarters. And any impact we’d see from moving any discontinued products out of the assortment, we’d expect to be covered by the shift in to higher ASPs and slightly higher margins.

We weren’t surprised by where we landed from the gross margin rate perspective in quarter. And we’re pretty comfortable that we should be able to continue that.

As always, there’s always puts and takes. We do continue to have very strong sales.

Some of our setting and maintenance products that we’ve introduced over the last six months and that sales growth will continue and likely will accelerate. And so there's some negative impacts due to some of those products, but at the current time we’re more offsetting that with some of the other improvements we've made to our assortment and also our change in promotional strategy.

I think the last think I would add is just -- right now, we’re really not in a phase where we’re taking a lot of product out of the assortment. We’re rightsizing it.

So we’re really adding back in and trying to fill some of the gaps that we believe we likely had in our assortment that Bob and Cabby both talked.

Really helpful. And lastly and I’ll jump out.

How may of the 30 stores that you plan to remodel were actually remodeled in Q1 and maybe just the cadence of that as we look through the last three quarters of the year? Thanks again.

Hi, Daniel. This is Cabby.

We finished about four remodels in the first quarter. Now some were larger than others due to the fact that a lot of our older stores have a larger square footage.

So spending a little bit more on those more significant remodels what it does is it takes little more time, little more effort with the manpower. We also doing our remodels, trying to do overnights which tend to cost a little bit more, but we know we’re going to get the return in the near future.

We expect remodels will continue probably executing a few more in Q2 than we did in Q1. But we’re happy with the progress and we’re on track.

Thank you again.

Hey, guys. Thanks for taking the questions.

Just back to the Pro, can you remind us what the Pro discount program is currently? And you mentioned a new loyalty program that you’re testing.

Any color on kind of how that works with the key components of that, that will be helpful?

Absolutely, Peter, this is Cabby. We’ve historically had a discount program for Pros depending on how much they spend.

It was anywhere from 15% and up. What we’re going to be doing going forward is taking credit and marketing our new loyalty program and giving different discount to Pros that have a little different loyalty to us.

We’re also going to expand lot of our Pro program, different service levels to the clients, to the Pros. We’re going to do a more broad assortment of quality setting installation materials that are going to be, I’d say, more broadly broadcasted and marketed to the Pros.

The Pro market position and the CRM program are going to be released along with our Pro loyalty program. It’s a great time for these to come in conjunction of each other to really tell the Pro we’re back.

And we had a lot of new initiatives for them. So, as we roll this out we’re pretty excited with the early results of a soft launch in a few markets.

And we’re looking at Q2 to broaden that rollout quickly.

Okay. That's helpful.

Thank you. Secondly, just turning to maybe some regional color if you provided, just curious how the quarter played out northern markets versus southern markets and even more recently, even obviously you guys on a seasonal business, but there’s been some crazy weather up north and just not sure how that been impacting your stores if at all?

Good morning, Peter. It’s Kirk.

Hi, Kirk.

I would say that the trends and themes that we provided some color on our prepared remarks are pretty consistent for the most part across our business. I wouldn't call out any specific regions in terms of either weather or competitive trends.

I think generally the things that we’re working on and some of the trends that see are pretty consistent. I know there's some folks in retail that have a lot more stores than we do, certainly in the southern markets that were impacted over the summer with the hurricanes.

We’re still pretty -- we don't have a lot of stores. Those are newer markets for us.

So we certainly didn’t experience any material tailwind from those markets as people continue to work on rebuilding their homes and their businesses. At the same time as you mention the weather in north – in the northeast, we certainly are more heavily stored as you know Peter in the upper Midwest and have now quite a few stores in the Northeast as well.

But I don't think we feel like weather would be in top three or four list for us. It's all the other things that we talked about.

Okay. That's superb.

And then last one Kirk. You mentioned kind of not expecting improved topline or comp trend in kind of the back half of the year.

I mean, do you think there’s that you guys have the ability to generate positive comp in the back half of the year? Or is the thinking here kind of start moderate these declines that’s kind of base case, just curious, your thoughts there?

Thanks, Peter. I don’t want to get too specific.

As you well, it's certainly true that our comparisons are easier in the back half of the year. And you know, so that certainly helps.

We’re trying to do everything we can do obviously to reaccelerate our business. But we’re not doing anything that’s only for the short term.

We’re doing things that we believe certainly can help hopefully in the short term, although we need to be patient. But everything we’re doing is also going to be, we think good for the long-term and we’re really focused on trying to get back to creating a very good and a very sustainable business trend.

And so we’re trying to balance that the patients with the – certainly trying to do the best we can to reaccelerate the business as fast as we can.

Okay. That’s fair.

Thanks so much for that color.

You’re welcome Peter.

Hi. Thanks.

Good morning everyone. I wanted to follow-up on the topic of remodels that was asked earlier.

And I guess the bottom line is I’m having a little bit difficulty getting to your guidance where you're getting full cash and cash return of that the $0.5 million investment. So could you give us the economics around the remodel?

Maybe what you would you expect to see from a comp lift and what the four-wall margins are on a store, so we kind of pieces together?

Yes, absolutely Peter and good morning. Thanks for your question.

Historically when we do the models we skewed a little bit lower than the $0.5 million that Cabby talked about on the February call. It’s typically on average been more in that $200,000 and $300,000 range.

But the remodels were doing this year skew a little bit – not a little bit, actually a lot more to some of our older stores. And it's true that over the last couple of years our CapEx investment has been in that million dollar range on average for new stores.

These stores that we’re remodeling now were the old format which skewed 20,000 feet and over rather than 15,000 feet and under. And the initial investment was $1.4 million on average.

And so going back to remodels some of these bigger, older and typically very successful stores, very profitable stores for us, take a little bit more work. We’re touching more vignettes and because of the success of the stores that we’re remodeling, the long-term success, we’re pretty comfortable we’ll get a pay back.

They’re well-established in their markets. They typically have very solid and tenured sales teams.

Traditionally, if we done remodels on average over the last five to seven years we have seen on average about one to two-year payback. So because of the fact that we’re skewing more towards the big scores we’ll see what the return is, but we would expect to see a pretty good pay back just like we’ve seen in the past.

Okay. So even as to dig into that, I mean, I’m intrigue with this initiatives because if you have older stores which I agree are need of a facelift, you could see a nice rebound in same-store sales, so you in term would have a nice comp driver that we could model out for the next few years.

That said, I mean, if I – even if I’m getting stores of four-wall margin of 30% then comping them up 20% for two years in a row, I'm not getting full $0.5 million return. Where would I be wrong in my math?

Well, I think that the assumptions has to as you said around the revenue lifts that we get. It will be revenue and traffic lift and then hopefully increase conversion as well, because the store looks good and the customers and sales associates are feeling pretty excited about the store experience.

Okay. We’ll definitely talk more of that off-line.

Maybe the next topic I was intrigued with was on Pro market managers. So I'm wondering how many markets we’re talking about?

So in a sense are these going to be new hires or new bodies? How many Pro managers would you have?

And is that expense included in the $5 million to $7 million investment for this year?

Hey, Peter, its Cabby. Right now we’ve identified 15 Pro market managers markets that we can roll this position out.

We’ve already got four which are live. It goes hand-in-hand with our Pro focus and many of our other key strategic initiatives.

Its also – it will be a nice complement to our new Pro loyalty program, as well as all the other training and Pro product introductions we’ve implemented over the last 12 months. We've been discussing this program for quite some time.

Being that was tested in the few markets around the country. We feel the time is right and we’re ready to go and roll it out more broad.

And I believe the funding of it. That’s going to be coming from the elimination of our Pro – I’m sorry, our market manager position.

Now this was active store managers who were running their own individual stores and being those market managers. With the elimination of that position, that frees up some spend that we can redeploy to the Pro market manager program.

Also is important note, and I think with these new position the compensation structure is heavily based upon incentives, so these incentives are largely based upon incremental profit growth.

Okay. So with the market manager positions previously were bit of a hybrid, to your point store managers who also had full market responsibility, Pro market managers at a standalone position or they also hybrid the store managers?

No. that will be a standalone, Peter, so they were to be tasked with running a retail store.

They can completely focus on their initiatives to enhance and grow our Pro sales.

Okay. Last question for me just on the inventory step-up this year as you're bringing in new product.

Will you for 2019 just looking out; is this sort of a new run rate level of inventory? Or should we expect that a step down next year as you start to eliminate maybe older SKUs?

Hey, Peter, now its definitely a step-up. Its – I think what we learned is we are trying to continue to increase the efficiency of our inventory investment over the last couple of years.

We probably took it a little too far, and so we got to get back a more normalize level, more similar to the levels as Cabby mentioned in his prepared remarks to where we were in 2015. Arguably one of the more successful time periods in over the 30-year history of the company, and so we’re trying to optimize the assortment, filling some of the gaps we have and that will leave us with a higher level of inventory going forward.

Okay. Very good.

Thanks a lot and good luck.

Thanks, Peter.

Thanks. Good morning, guys.

Can you share some profit around how you’re marketing some of the changes that you're doing. I know we are reducing the promotional marketing but how are you telling people that there's new stuff in the store and now they’re just where there are, remodels having been done, anything on that front?

Hey, Joe, its great question. With our new business strategy, really targeting specific segment of our customer base.

We drill downward with our marketing team on how to identify these customers both prospects and our local internal customers, and then what’s the best ROI. We rely direct mail.

We also do – we ramped up our events, our in-store events. We've also done some special I’d say hybrid designer events with some also some direct-mail.

We've continued with some variable media spend and some markets as well really targeting these segments of the Pro and the designer segments. So we’re going to continue with increasing our events schedule.

Our direct-mail is going to continue to be enhanced. And with our new product launches we’ve really enhance that as well with different pieces through digital direct-mail events and invites to these customer segments to make sure we’re worth spending wisely.

Got it. Thanks.

And then another question I had. With regard to the promotional cadence I understand shutting it down.

But my question I guess is, I recall in the past the big strength of your store managers and associates was to be able to offer some so-called professional discounts when in the store or and not just to the Pro but even to the average consumer walking in. If I recall correctly was anywhere from 10% to 15% even 20%, is that still being done within the stores, like do the managers still have that that tool in their tool belt?

Hi, Joe. It has been a history to make sure we take care of all of our customers and try to meet all budgets and be fiscally responsible.

Going forward with increased training on conversion and increase training in sales, we’re seeing a decline in our discounting practices in the retail segment. But we are still going to give the autonomy to our store manager to run his business and ensure we’re responsible but yet taking share where we can.

So discounts will not go over a Pros discount, but we will make sure that we can get the customer what they need within their budget.

Got it. Thank you.

And if I could clarify one last thing, I think Bob, near the end when you mentioned the continuing the CEO search and you mention internal candidates. I guess my question was around are you also still considering external or is it exclusively focused on internal?

Joe, all options are on the table. We’re concentrating on internal and right now we see no reason that we’re off on that.

So – but everything is on the table.

Okay. That's helpful.

Thanks guys and good luck with this quarter.

Thank you again. Just on the expense side.

SG&A, the 2 million increase that was not related to new stores. How much of that would you consider sort of discretionary versus a high level of permanent spent?

Well, hello again, Dan. Its part of our investment strategy and our strategic initiatives, and in so its really permanent spent.

It's a high level spend. As we’ve talked about we’ve increased store compensation.

We believe that will drive significant improvements in our ability to attract highly qualified people and keep them, retain them and help them, grow their careers at the Tile Shop. That’s very important for us to be -- to enable us to provide a sustained high level of customer service.

Another investment that we’ve talked about is some of the spent for customer relationship management. They will go hand-in-hand as Cabby said with our Pro initiative and our Pro loyalty initiative.

I noticed there's a few other investments as well. So it's more about an increase in the baseline.

Very helpful. Appreciate it.

And good luck on the continued recovery. Appreciate it.

Thanks Dan.

Thank you for attending our earnings call. We will be participating in several investor conferences in June including Baird, Piper Jaffray and Stifel.

We look forward to our second quarter call in July. Until then thank you for your interest in Tile Shop and have a great day.