Adam Hauser - Director of Finance - Planning, Analysis, Investor Relations Chris R. Homeister - President, Chief Executive Officer & Director Kirk Geadelmann - Chief Financial Officer

Peter Jacob Keith - Piper Jaffray & Co (Broker) Daniel Moore - CJS Securities, Inc. John Baugh - Stifel, Nicolaus & Co., Inc.

Kate McShane - Citigroup Global Markets, Inc. (Broker) Peter S.

Benedict - Robert W. Baird & Co., Inc.

(Broker) Reed A. Anderson - Northland Securities, Inc.

Joseph Isaac Feldman - Telsey Advisory Group LLC

Thank you, operator. Good morning to everyone on the call and welcome to The Tile Shop's second quarter earnings call.

Following our prepared remarks, the call will be open for analysts' 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 second quarter of 2016. The collective efforts of our store leaders, sales associates and operational teams were once again outstanding during the second quarter, allowing us to deliver another excellent quarter.

We've continued to stay focused on building upon our key initiatives and the positive momentum established over the past several quarters and these efforts are clearly paying off when measuring our success across a variety of important metrics. Let me begin with sharing some highlights from our second quarter.

Sales for the quarter were $84.3 million, representing growth of 11.3% versus last year, including comparable store sales growth of 8.2%. The revenue strength was once again broad-based across all vintages and geographical regions and consistently strong throughout the quarter.

Transaction growth and average ticket both positively influenced our comparable store sales growth in Q2. We delivered this top line strength while also delivering a 69.7% gross margin rate for the quarter.

Our adjusted earnings per share in the quarter was $0.14, representing growth of 56%. Adjusted EBITDA grew 22% and adjusted EBITDA margin was 22.5% during the quarter, an improvement from the prior year of 200 basis points.

Our year-to-date free cash flow increased to $29 million at the conclusion of the quarter, which allowed us to pay down an additional $11.3 million of long-term debt. Our ending inventory was $63.1 million, a decrease of 2% in the quarter, with 11% sales growth and 6% store growth.

Regarding our retail talent development efforts, we saw continued improvements in employee turnover and average manager tenure during the quarter. Our turnover levels have been declining each quarter across organization for more than a year.

Turnover from sales associates, assistant managers, warehouse employees and store managers continues to decline significantly. At the same time, stores are being led by managers with increased average tenure.

This combination of a more seasoned leadership team and stable staffs continues to play a strong role in the success we're seeing across the company. As we enter the back half of the year, we feel there's more progress to make on turnover level continues to benefit our operational success.

As we have previously discussed, as part of our efforts to create an improved clear path for our retail associates, we launched a Senior Assistant Store Manager position in 2016. During the second quarter, we promoted nearly 20 candidates to this role.

As we continue to more aggressively open stores in the second half of 2016 and into 2017, our Senior Assistant Managers create a very strong bench of future Store Managers. Our efforts to continue driving strong growth with Pro customers, including direct marketing, store-hosted events and Pro-specific product assortment improvements, again yielded strong results in the second quarter.

Sales growth with Pro customers strongly outpaced overall growth, leading to meaningful increase in Pro mix during Q2. Consistent with overall results, the strength with Pros was broad based, even in mature markets that already have very significant mix of Pro business.

As you may have read in a separate press release this morning, we announced an exciting addition to the shopping experience at The Tile Shop with the launch of our digital Design Studio tool. This capability, which we expect to utilize in a collaborative fashion with our sales associates, homeowners and trade professionals, significantly improves our ability to simplify the design process while also bringing customized ideas to life.

Design Studio is available at all of our stores and online, and we're excited to deliver a seamless power (6:18) design tool that further enhances The Tile Shop customer experience. From a category perspective, there is a particular strength during the quarter for mosaic tiles, subway tile, faux wood, and a variety of floor and wall tiles.

We added several new products into our assortment in Q2. Our new product introductions in 2016, which spanned opening price point offerings to high-end premium SKUs, continued to generate strong response from our customers.

We opened three stores during the second quarter. The first opening of Q2 was our sixth Philadelphia area location, which opened in mid-April in Deptford, New Jersey.

We opened our sixth Dallas area location in the Dallas Design District and our eighth store in New York State, located in Nanuet, New York. Importantly, our last six store openings have averaged approximately 20% less in capital investment from our historic average of $1.4 million.

This was the result of our focused efforts to decrease the capital intensity of our new store openings as we continue to expand our store base. The reductions are multifaceted, but are primarily the result of the type of storefronts we will consider taking and changes to non-essential showroom design elements.

The beauty and appeal of our showrooms is not changing, and we feel we have further enhanced the premium customer experience that The Tile Shop offers. We are excited about the benefits this will have to the long-term cash flow and return on capital for the company.

Since the beginning of 2015, we have been purposeful in reducing the number of our store openings. During this timeframe, we have made significant improvements to our bench of store management talent.

We have greatly improved our ability to reduce turnover levels in the field, and we have achieved a meaningful reduction in the capital outlay expectations for future store openings. All of these efforts position us very well as we prepare to open six to eight stores in the second half of 2016 and execute unit growth of 8% to 12% for the foreseeable future.

We are very pleased with our results through the first half of the year. We continue to make significant progress with all of our focused areas and continue to seek out additional enhancement to strengthen our business model.

We look forward to the remainder of 2016 and taking another step in our journey to becoming the nation's leading specialty tile retailer. And with that, let me now turn the call over to Kirk for further discussion on the quarter and our updated outlook for 2016.

Thanks, Chris. Today, we reported net sales of $84.3 million for the second quarter of 2016, which represents an increase of $8.6 million or 11.3% over sales of $75.7 million in the same quarter of last year.

Comparable store sales growth was 8.2% in the quarter, which represented a fourth straight quarter of high single-digit or greater comparable store sales growth. All vintage classes met or exceeded our expectations in the quarter.

Mature stores delivered strong mid-single-digit comparable store sales growth, while our 2013 and 2014 classes of stores continued to deliver strong growth during the quarter. Gross profit increased $7.4 million in the second quarter or 14.4% over last year.

Gross margin of 69.7% represented an increase of 190 basis points from Q2 of last year. The strong increased gross margin performance during the quarter was driven primarily by two key areas that saw significant improvement from last year, collection of revenue at our stores for customer deliveries and discounting activity.

Our selling, general and administrative costs for the quarter were $47 million as compared to $42.9 million in the second quarter of last year. Second quarter 2016 SG&A included approximately $400,000 of special charges related to litigation expenses.

Compensation, benefit costs and shipping and transportation expenses represented approximately $2.5 million of SG&A growth in the quarter, driven primarily by growth in sales and in employee head count as well as continued investments to reduce turnover and drive retail talent development. We concluded the second quarter with 117 stores, a 6% increase versus the conclusion of last year's second quarter when our store count was 110.

Depreciation and amortization, rent, property taxes, utilities, supplies and other costs primarily related to store growth represented approximately $0.9 million of SG&A growth versus the prior year during the quarter. Pre-opening expenses were approximately $200,000 in the quarter.

Adjusted EBITDA was $19 million in the second quarter, representing growth of 22% versus the prior-year period. Adjusted EBITDA margin was 22.5%, an increase of 200 basis points versus the prior year driven by enhanced operating leverage from a gross margin increase of 190 basis points and sales growth of 11.3%, while SG&A costs grew 9.6%.

The non-GAAP net income presentation in the earnings release adjusts our GAAP quarterly results by eliminating special charges and then applies the tax rate to the result. This presentation results the non-GAAP net income for the quarter of approximately $7.1 million, growth of 49% versus the prior-year period.

Current year non-GAAP net income translates into a basic and fully diluted Q2 earnings per share of $0.14, growth of 56% versus Q2 of last year. Turning to our balance sheet as of June 30.

We ended the quarter with $13 million of cash and $29.8 million of long-term debt. We paid down $11.3 million of debt during the quarter with free cash flow generation of approximately $8 million in the second quarter, bringing year-to-date free cash flow to $29 million.

Since the end of Q2 last year, we have reduced our long-term debt by nearly 60% from strong operating results resulting in significant free cash flow generation. We were once again pleased with our quarter-end inventory of $63.1 million, which represented a 2% decline from last year, during a quarter with a 11.3% sales growth and seven more stores than the prior-year period.

We expect inventory levels to increase during the second half as we open six to eight new stores, and also build appropriate inventory levels in preparation for our peak selling season next spring. Capital expenditures were approximately $5.2 million in the quarter, primarily related to new store openings, store remodel and merchandising activity and store IT investments.

As detailed in our earnings release this morning, we are providing slightly modified expectations for the full year based on where we are through the conclusion of the first half and our current outlook for the remainder of the year. I'll highlight the key items that were updated this morning from our last guidance provided in April.

From a top line perspective, our full-year sales expectation has increased from $320 million to $329 million to $322 million to $329 million, with our outlook for comparable store sales growth unchanged at mid- to high-single-digits. From a bottom line perspective, we now expect non-GAAP earnings per share of $0.41 to $0.45 versus previous guidance of $0.40 to $0.45 and we now expect adjusted EBITDA of $66 million to $69 million versus previous guidance of $65 million to $69 million.

Our expectation for new store openings was updated from nine to 12 openings to 10 to 12 openings. From a capital spending perspective, we are now expecting approximately $30 million of capital expenditures this year at the high end of our previous guidance of $25 million to $30 million.

Although we have a substantial reduction to the expected capital investment related to the average new store opening, a portion of this savings was built into our expectations when the year began. Additionally, we are relocating two locations this year that were not part of our original expectations and we have the potential of concluding the year at the high end of our new store openings guidance.

We are also investing more aggressively into store-related IT projects that are beneficial to operations, our employees and the customer experience. With that, operator, we can now turn the call over for questions.

Hi, thanks. Good morning, guys, and congratulations on the continued success.

I wanted to just talk about the quarterly comp and it's, I guess, not to belittle on 8.2%, because it's one of the better comps in all of retail, but just sort of the disparity between Q1 and Q2, I was wondering if you had any thoughts on why there was a slowdown. It doesn't sound like there was pull-forward into Q1.

Maybe is it a function of comparisons or something with the mature store base? Any color there would certainly be helpful.

Good morning, Peter. This is Kirk.

And thanks for the comments. I would say, the biggest factor is really just the weighted contribution from our newer comp stores is starting to moderate a little bit.

We're now starting to annualize the very strong performance from last year for those newer stores. And so while the performance is still strong and it's exceeding our internal expectations across all vintages as we noted in our opening remarks, it's moderating just a little bit.

That's probably the biggest factor.

Okay. Anything – just following on with the mature stores, just because it seemed like the 5-point decel would be more than a slight moderation in the new store contribution?

Yeah, that's probably factor number two. Again, mature stores continue to perform very well, mid-single-digit comps, but the implied comp for the mature stores in Q1 was upper single-digit comps.

And so, again, those have moderated just a little bit as we start to annualize good performance from last year.

Okay. Fair enough.

And then, just an unrelated question. It looks like you continue to make some really nice improvements with your website, and I was wondering if there's any stats you could share on maybe unique visitor growth and how the Design Studio, you think about that improving your business with regard to maybe sales or your overall ticket?

Good morning, Peter. This is Chris.

And thanks for the comments. And thanks for the question on the website.

We continue to make substantial investments in the websites. We're very pleased with its overall performance.

It had a great quarter of e-commerce performance for the company. Certainly, high-double-digit comp was the performance there.

And then, as you look at the – if you look at the Design Studio and its integration into the website, we feel it's going to be a great traffic driving tool to the website. We feel that the immersive experience that the Design Studio will bring to the website and all of our channels, that the omni-channel experience that we're going to be able to execute upon, we think is going to be best-in-class within our industry, certainly, and we feel, certainly, it will be one of the best-in-class experiences across all of retail.

Okay. Thank you very much.

And good luck with the back half of the year.

Thanks, Peter.

Good morning. Thanks for taking the questions.

Morning.

Good morning, Dan.

Wanted to follow up first on the, I guess, trajectory or pattern of comp store sales. Obviously, given comps get a little tougher in the back half of the year, should we expect some moderation in same-store sales growth toward the mid-single digits or is there enough momentum now that could potentially continue to drive comps similar to what we saw in Q2?

Yeah. Good morning Dan, this is Kirk.

Absolutely, we have a little bit more difficult compare in the back half of the year. In the back half of the year, recall, we did about a nearly a 10% comp, and, again, in the first half of this year, did about a 10% comp.

So we're really pleased with the performance. But the comparisons do get a little tougher.

So the guidance in the back half implies low to mid-single-digit comps, as we start to annualize that very strong performance.

Helpful. And then in terms of gross margin, obviously, it remains very strong in that 70% level.

Ticked down slightly compared to the last two or three quarters, and I realize it's splitting hairs, but what was the delta, if there is any, versus Q2? And is Q2 a better indicator of what we should expect for the next couple of quarters?

Well, we feel really good. We're right in the range where we want to be, right around that 70% margin rate.

And obviously, we feel very good about the year-over-year improvement compared to last year Q2. We're doing a very nice job in our stores collecting freight and pretty consistent with the freight collection between Q2 and Q1, but substantially better than last year.

The other thing, obviously significant improvement from a discounting perspective year-over-year, but we had moderately higher discounting between Q2 and Q1, but again still in the range that we expect. So we feel pretty good.

Excellent. And last one I'll sneak in.

The balance sheet obviously continues to improve rapidly, even with inventory build in the back half, probably be at net cash position sometime the next few quarters. Just maybe talk about other potential uses of capital beyond new store openings and refurbishments that might be contemplated or would you be kind of content to let cash build for the near-term?

Sure. Absolutely, Dan.

It's really sort of the same story that we've talked about the last couple of quarters. You're right.

If all goes well, we'll anticipate paying off our bank debt sometime in 2017, but really if you consider all of our debt, including our lease portfolio, our adjusted debt, the majority of it, really comes from our leases. And if we pay off all of our bank debt, we're still going to be in the range where we optimize our weighted average cost of capital.

In other words, our adjusted leverage ratio will be between that 2.0 to 3.0 range. And it will be really in the sweet spot where our WACC is optimized.

So, we don't really believe in the near-term that it needs to be a big focus of ours, the various alternatives. But we'll continue to have the dialog.

And as we head into 2017, we'll continue to discuss various options, such as share repurchase or potentially a dividend with our internal management team and with our board.

Thank you and congrats on a great quarter, terrific cash flows. A couple, three things, one, could you just update us on the status of the 2013 and 2014 stores in terms of the gap between performance?

It's obviously narrowing nicely and I'm just kind of wondering how much there is left to go there.

Sure, John. Good morning, this is Kirk.

Those groups of stores continue to perform very well. Last year, as you recall, we were fairly conservative with our expectations.

And both groups of stores for the entire year in each and every quarter exceeded those expectations. This year, we had a little higher expectation for those stores, and I'm pleased to report they continue to exceed our expectations.

So as we talked about in the past, the 2013 stores, which was 20 stores that we opened that year, they're performing about where they should. They're mostly caught up on the revenue curve.

They have a nice – as a group, they have a nice profitability profile, very strong EBITDA margins and the 2014 stores still remain a little bit behind from a revenue perspective, which is part of the reason that they continue to comp a little bit more strongly than they normally would at this point in their maturity, but they also had, as a group, a pretty nice revenue profile. For quarter two, their EBITDA margin was north of 20%.

So we're overall very happy with the continued performance of those stores and the improvement. And, again, I think the stabilization of leadership and talent in the stores and some of our other standard operating processes that we've introduced continue to help with store performance.

Great. And then, just a follow-up.

Congrats on knocking down the capital per store. Just curious, are you looking at the exact same square footage, or are you going to – I don't know – on a) as opposed to an A+ real estate location as fixtures within the store, anything granular there?

And then lastly, quickly, do you source a fair bit of product, I believe, from Turkey? And I was just curious whether there are any concerns or issues coming out of the recent turmoil there?

Thank you.

Hey, John, this is Chris. Thanks for the question.

The first item on the types of stores that we're considering, the types of stores that we are looking at hasn't changed significantly. We are looking at types of stores that we want to go into that are averaging between – I'll call it, in the sweet spot of 15,000 square feet.

If you noticed on our most recent store opening in Dallas, it was approximately 10,000 square feet, which actually will be the lowest square footage in the chain. But we'd look at that as more of an outlier, it's an opportunity for us to get into an urban densified area in the Dallas Design Districts, so that was a tremendous opportunity for us on that front.

But on the store build out, we do look at the changes that we've made in the capital expenditures and intensity of opening stores as permanent reductions into how we're looking at building out stores. And just the mechanics of how we build out vignettes, where we place them, you'll see in some of our newer stores that they're actually interspersed throughout the store and located within the area where she is actually shopping for particular type tile or stone, so that you can see the vignette very close by versus maybe on the other side of the store.

So very pleased with our construction, our real estate teams, and the progress that they've made over a fairly long period of time and we do feel that's sustainable and pleased to talk about it here this morning. Pertaining to Turkey, obviously, we're monitoring the situation very closely.

And we've at this point in time seen no disruptions in product. We actually feel that our inventory, in-stock levels in Turkey, even prior to the recent events beginning on Friday, and over the weekend, had no disruptions to our supply chain.

We're very pleased with our vendor partners in Turkey. And thus far, haven't seen any reason for concern pertaining to the very specific happenings and events, happening within Turkey right now, but we'll continue to monitor it.

But at the present time, it's business as usual and how we're doing business with Turkey.

Thank you for taking my question. Good morning.

I just wanted to center my question around the Pro customer versus the DIY customer. I know you haven't given a lot of detail on the difference before, but just wondered if there was a substantial differential between the comp between those two groups, and if you can quantify how big the Pro business is for you now?

Good morning, Kate. This is Kirk.

We're very happy with the performance of both the Pro customer and the retail customer. The Pro customer continues to increase in the mix.

Historically, we've said that the Pro is about a third of our mix, but for well over a year now, we've been increasing the Pro customer in our mix. So I think it's safe to say, it's a little bit higher than a third at this point in time as of Q2, but the retail customer is strong as well.

The other thing is, it's a little bit difficult sometimes to identifying the data, is it really a Pro customer we're serving directly, or is it a retail customer, just because of the way they represent at POS. But I'd say, both are strong and we continue to focus on both customers.

Okay. And just as a one follow-up to that, you made a lot of reference to some of the changes you've made in your employee training.

So, again, has there been more meaningful changes to how you're interacting with the two customers?

Hi, Kate. This is Chris.

The interactions with the Pro and our retail customer haven't meaningfully changed. We train every employee at the store level to talk with both the customer sets, both retail as well as professional.

We feel that we're giving them additional tools in order for them to talk with the professional customer in a much more authoritative manner in the past such as the significantly increased Pro assortment that we have across the board, the meaningful – the My Pro Account that we talked about last quarter was also a significant improvement that we've had. And then just the assortment in general, we think, we feel is really paying significant dividends to our success and performance as well of having some of the most current and most widely sought-after items in our assortment to offer to our customers on a retail basis.

So the training continues to improve and modify. We're looking at some of the biggest things that we're doing is helping them from a leadership standpoint on management, recruiting, interviewing.

So that that we have the right types of folks on to our teams that are committed to delivering our high customer involvement and shopping experience that I think has come to define what The Tile Shop is.

Hi, guys. Thanks.

Kirk, just help us with the EBIT flow through rate in the second half of the year. I think the guidance implies that's going to be a little less than what we saw in the first half.

Clearly, the gross margin gains that you've seen in the first half I don't think you're expecting those, so it's probably around SG&A. But can you help me understand kind of what's – maybe what's changing the SG&A profile for the back half of the year relative to the first half?

Good morning, Peter. It's Kirk.

Yeah. The main thing is, as you know, our business isn't terribly seasonal like some other retailers, but there is some seasonality.

So a lot of it is just lower sales volume in the back half, and it's also annualizing very strong performance from last year, those are probably the biggest factors. We're also ramping up store growth in the back half as well.

I mean, the upper end of our store opening guidance range is 12 stores, plus we're doing a couple of relocations that weren't in our original plan. And so there's a little bit more occupancy expense in the back half as well.

Okay. That makes sense.

And, Chris, maybe one for you, what's driving the two relos? Is it opportunistic?

Are the leases coming up? And should we expect maybe more relos down the road?

Is that something that's going to become part of the story here?

I wouldn't view it as a significant change in how we're looking at things, Peter. Both of those leases came up.

We weren't able to come to terms. We lost one just because of the landlord change, what they wanted to do with the site.

And the other one, we felt that we could be better from a site relocation standpoint based upon the trade area changing slightly within that radius, but still serving that customer base in a very strong fashion. So I would look at them as leases come up in the portfolio, we'll continue to look at all elements of how they're performing economically, how we're serving the customer base, has the trade area moved.

And then, also looking at opportunistic sites where we feel that we can improve the store and the shopping experience to take advantage of the current economics within that particular market.

Yeah. Good morning.

Thanks for taking the question. And just a couple of follow-ups, on the gross margin, just looking back, the two items you called out, Kirk, was it really more of a function of how we compared to last year's second quarter or is it just you've done a lot better job training the sales people not to give away the product or what was it year-over-year that was so different this quarter versus others?

Good morning, Reed. Thanks for the question.

This is Kirk. Yeah, I think it is.

I think there is a whole host of things that we've been doing. Some of them have probably a more indirect on gross margin rate and some, a very direct impact.

And, one of the things that is somewhat indirect, I guess you could argue it's direct, is just our overall set of talent initiatives. I think as we get more tenured across our leadership teams as well as our sales associate teams and even our store warehouse teams and also just get more skilled in terms of how to serve the customer, it has a definite positive impact on gross margin rate.

We don't have to jump right to price being the only thing the customer cares about. Generally, our customers skew a little bit more affluent and price is usually second, third or fourth on their list, in terms of things that are important.

But when you have a newer sales associate that is a little less comfortable what they're doing and maybe they're even new to commission sales, you can get into a situation where they jump to price being the main thing to close the deal. And I don't think that's happening as frequently as it was a year ago or two years ago when we had a lot of very, very new people.

And we're doing a better job training those folks as well. So that's definitely a big factor.

I think other things like the store scorecard that we've talked about, that we introduced last fall, late summer, early fall, that's had a big impact as well. We share very directly with our folks our expectations.

And we measure those expectations. We have 20 or 30 metrics on that scorecard and those metrics are ranked across the chain.

So we know the stores that are really good at certain things, including the level of discounting, and we know the stores that are maybe not as good. And maybe they can be better and model some of the best practices from those top 10 stores.

So, I think that's a great example of a very direct thing that we have rolled out since last year Q2 that's helped improve our margin rate.

That's very helpful. Thank you.

And then just a follow-up, Chris, you're doing a great job. Obviously, you're managing overall inventory, while at the same time kind of tweaking the assortment in areas where you can grab some more customers.

I'm just curious, is the overall either SKU count or assortment actually up the last couple of years or has it been pretty constant (36:40) you're kind of getting rid of stuff that's not selling as well?

Good morning, Reed. Thanks for the question.

The overall SKU number hasn't significantly changed one way or the other. We continue to, I think, have a much more regimented approach pertaining to how we look at SKUs in the assortment, what their sell-through is, and also making sure that we're looking at key trends happening within the industry, and also how we sell through product at the end of life.

I think for us, it's constantly looking at what's the right mix of ceramic tile, porcelain tile, glass, stone, and the related accessories. And we feel that we're really getting into that sweet spot, omni-assortments, where we feel that we've caught up in many cases on maybe some stones that are not as popular as they once were, still always have a place on our assortment, but not as – but we think we're not going to go as deep as maybe we did in the past.

So it allows us inventory opened by dollars and also places within and also planograms sponsored within the store that allows us to showcase those products, those new products are coming in, without having to go up in square footage of store. And quite frankly, we're doing the opposite of being more mindful and also being more strategic about how we view the place and the planogramming of our stores, so that we can have the same type of assortment in a historically larger store that we currently have in the chain of 20,000 square feet.

And still having that same assortment size in a smaller store that we're going with right now, and having no change in the customer shopping experience and also not negating anything that we feel on the power of our assortment and also the authority of our assortment across the country.

Hey, guys. Good morning and congratulations on the quarter.

Wanted to go back. I know you guys talking about sales being pretty strong and consistent across the board, but were there any nuances in terms of regional trends that denote or maybe flow through the quarter that changed the talk about?

Joe, this is Chris. There really wasn't.

We saw consistent comp trend throughout the entire quarter and across all geographies. So we do not have regional weakness in any part of the country, 31 states that we market in.

So we felt very pleased with the overall performance of the chain, consistently through the quarter and across each region.

Got it. Thanks.

And then, also, a similar type of question I would like to ask you guys. Have you noticed any change in what people are buying trend-wise, either leaning towards a little more expensive items, less expensive items, or more stone versus tile, or glass or things like that.

I wouldn't say significant changes; I'd say the trends that I pointed out in my opening remarks around faux products, both faux wood and faux stones continues to advance with the technological changes that are happening across the industry and us bringing those into the assortment. Larger format tiles continue to sell well regardless of it's in a stone or porcelain or ceramic tile.

Glass and glass stone mosaics are a trending item. And those are the items that would have higher average price points for sure, but we're also having great success with – as we talked about several quarters ago, some of the opening price point items that we're selling for less than $2 a square foot that we feel is an incremental customer to the company, and feel that we have great competitiveness on a price standpoint and a price impression standpoint across the chain and on the Web that we didn't have before.

So I wouldn't say significant changes quarter-over-quarter, but I think the trends continue to hold pretty true to what we've seen thus far throughout the course of the year.

Thank you for joining us. Have a great day.