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Tilly’s, Inc. Announces Fiscal 2019 Second Quarter Results

IRVINE, Calif.--(BUSINESS WIRE)--

Earnings Exceed Previous Projections; Positive Comps in Back-to-School Season

Introduces Third Quarter Outlook

Tilly’s, Inc. (NYSE: TLYS, the "Company") today announced financial results for the second quarter and first half of fiscal 2019 ended August 3, 2019.

“After a slow start to the second quarter during May, we posted positive comps both in stores and online during each of June and July to finish the quarter with better net sales, product margins, and earnings per share than expected," commented Ed Thomas, President and Chief Executive Officer. "This positive momentum has continued throughout the back-to-school season, giving us optimism about our opportunities for the third quarter and second half of fiscal 2019."

Second Quarter Results Overview

The following comparisons refer to operating results for the second quarter of fiscal 2019 versus the second quarter of fiscal 2018 ended August 4, 2018:

  • Total net sales were $161.7 million, an increase of $4.3 million or 2.8%, compared to $157.4 million last year. The Company ended the second quarter of fiscal 2019 with 229 total stores, including two RSQ-branded pop-up stores, compared to 226 total stores, including three RSQ-branded pop-up stores, last year.
  • Comparable store net sales, which includes e-commerce net sales, increased 0.6% compared to last year's second quarter increase of 4.4%. E-commerce net sales increased 15.7% and represented approximately 14.1% of total net sales this year, compared to an increase of 8.1% and a 12.5% share of total net sales last year. Comparable store net sales in physical stores decreased 1.5% and represented approximately 85.9% of total net sales, compared to an increase of 3.8% and an 87.5% share of total net sales last year. Comparable store net sales in physical stores decreased by a high single-digit percentage in May, but increased by a low single-digit percentage in each of June and July.
  • Gross profit was $51.7 million, an increase of $1.6 million or 3.2%, compared to $50.1 million last year. Gross margin, or gross profit as a percentage of net sales, increased to 32.0% from 31.8% last year. Product margins were flat as a percentage of net sales. Buying, distribution and occupancy costs improved by 10 basis points in total. Improved leverage of buying and occupancy costs as a percentage of net sales more than offset higher e-commerce shipping costs associated with e-commerce net sales growth.
  • Selling, general and administrative expenses ("SG&A") were $39.6 million, or 24.5% of net sales, compared to $37.6 million, or 23.9% of net sales, last year. The $2.0 million increase in SG&A was primarily attributable to a $1.5 million credit in last year's SG&A resulting from the favorable resolution of a previously disclosed legal matter. Additionally, higher e-commerce marketing and fulfillment expenses of approximately $1.0 million associated with e-commerce net sales growth and higher store payroll expenses of approximately $0.9 million due to minimum wage and annual merit increases were partially offset by a $1.2 million reduction in bonus expenses and $0.5 million reduction in non-cash charges.
  • Operating income was $12.1 million, or 7.5% of net sales, compared to $12.5 million, or 7.9% of net sales, last year. This slight decline in operating income was primarily attributable to last year's $1.5 million legal matter credit noted above.
  • Income tax expense was $3.4 million, or 26.8% of pre-tax income, compared to $3.3 million, or 25.3% of pre-tax income, last year.
  • Net income was $9.3 million, or $0.31 per diluted share, compared to $9.7 million, or $0.33 per diluted share, last year. Last year's net income includes $1.1 million after tax, or $0.04 per diluted share, attributable to the favorable resolution of the legal matter noted above.

First Half Results Overview

The following comparisons refer to operating results for the first half of fiscal 2019 versus the first half of fiscal 2018 ended August 4, 2018:

  • Total net sales were $292.0 million, an increase of $11.0 million or 3.9%, from $281.0 million last year.
  • Comparable store net sales, which includes e-commerce net sales, increased 1.4% compared to last year's increase of 2.4%. E-commerce net sales increased 21.7% and represented approximately 14.5% of total net sales compared to an increase of 0.9% and a 12.4% share of total net sales last year. Comparable store net sales in physical stores decreased 1.5% and represented approximately 85.5% of total net sales compared to an increase of 2.7% and a 87.6% share of last year's total net sales.
  • Gross profit was $87.4 million, an increase of $2.3 million or 2.7%, compared to $85.1 million last year. Gross margin was 29.9% compared to 30.3% last year. This 40 basis point decrease in gross margin was primarily attributable to a 30 basis point decline in product margins due to higher total markdowns. Buying, distribution and occupancy costs deleveraged 10 basis points as a percentage of net sales. Higher e-commerce shipping costs associated with e-commerce net sales growth more than offset improved leverage of buying and occupancy costs as a percentage of net sales.
  • SG&A was $75.1 million, or 25.7% of net sales, compared to $71.3 million, or 25.4% of net sales, last year. The $3.9 million increase in SG&A was primarily attributable to higher store payroll expenses of approximately $1.9 million due to minimum wage and annual merit increases, higher e-commerce marketing and fulfillment expenses of approximately $1.9 million associated with e-commerce net sales growth, and a $1.5 million credit in last year's SG&A attributable to the favorable resolution of the legal matter noted above. These expense increases were partially offset by a $1.3 million reduction in bonus expenses and a $0.7 million reduction in non-cash charges.
  • Operating income was $12.2 million, or 4.2% of net sales, compared to $13.8 million, or 4.9% of net sales, last year. The $1.6 million decline in operating income was attributable to last year's $1.5 million legal matter credit noted above.
  • Income tax expense was $3.7 million, or 27.1% of pre-tax income, compared to $3.8 million, or 25.7% of pre-tax income, last year.
  • Net income was $10.0 million, or $0.33 per diluted share, compared to $10.9 million, or $0.37 per share, last year. Last year's net income includes $1.1 million after tax, or $0.04 per diluted share, attributable to the favorable resolution of a legal matter.

Balance Sheet and Liquidity

As of August 3, 2019, the Company had $124.8 million of cash and marketable securities and no debt outstanding under its revolving credit facility. This compares to $124.2 million of cash and marketable securities and no debt outstanding under its revolving credit facility as of August 4, 2018.

Fiscal 2019 Third Quarter Outlook

Total comparable store net sales have increased 4.2% through August 26, 2019. Based on current and historical trends, the Company expects its third quarter total net sales to range from approximately $151 million to approximately $156 million based on a comparable store net sales increase of 1% to 4% for the quarter as a whole. The Company expects its third quarter operating income to range from approximately $6.5 million to approximately $8.5 million, and earnings per diluted share to range from $0.18 to $0.22. This outlook assumes no non-cash store asset impairment charges, an anticipated effective tax rate of approximately 27%, and weighted average shares of approximately 29.8 million.

Regarding the legal settlement coupons the Company issued in early September 2018, approximately 2.1% have been redeemed to date, resulting in no material impact on its business. All such coupons will expire on September 4, 2019.

Conference Call Information

A conference call to discuss these financial results is scheduled for today, August 28, 2019, at 4:30 p.m. ET (1:30 p.m. PT). Investors and analysts interested in participating in the call are invited to dial (877) 407-4018 at 4:25 p.m. ET (1:25 p.m. PT). The conference call will also be available to interested parties through a live webcast at www.tillys.com. Please visit the website and select the “Investor Relations” link at least 15 minutes prior to the start of the call to register and download any necessary software.

A telephone replay of the call will be available until September 11, 2019, by dialing (844) 512-2921 (domestic) or (412) 317-6671 (international) and entering the conference identification number: 13693257. Please note participants must enter the conference identification number in order to access the replay.

About Tillys

Tillys is a leading specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls with an extensive assortment of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle. Tillys is headquartered in Irvine, California and currently operates 230 total stores, including two RSQ pop-up stores, across 33 states and its website, www.tillys.com.

Forward-Looking Statements

Certain statements in this press release and oral statements made from time to time by our representatives are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding our future financial and operating results, including but not limited to future comparable store sales, future operating income, future net income, future earnings per share, future gross, operating or product margins, anticipated tax rate, future inventory levels, and market share and our business and strategy, including but not limited to expected store openings and closings, expansion of brands and exclusive relationships, development and growth of our e-commerce platform and business, promotional strategy, and any other statements about our future expectations, plans, intentions, beliefs or prospects expressed by management are forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs, but they involve a number of risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including, but not limited to, our ability to respond to changing customer preferences and trends, attract customer traffic at our stores and online, execute our growth and long-term strategies, expand into new markets, grow our e-commerce business, effectively manage our inventory and costs, effectively compete with other retailers, enhance awareness of our brand and brand image, general consumer spending patterns and levels, the effect of weather, and other factors that are detailed in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), including those detailed in the section titled “Risk Factors” and in our other filings with the SEC, which are available from the SEC’s website at www.sec.gov and from our website at www.tillys.com under the heading “Investor Relations”. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. This release should be read in conjunction with our financial statements and notes thereto contained in our Form 10-K.

 

Tilly’s, Inc.

Consolidated Balance Sheets

(In thousands, except par value)

(unaudited)

 

 

August 3,
2019

 

February 2,
2019

 

August 4,
2018

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

 

62,388

 

 

$

 

68,160

 

 

$

 

45,638

 

Marketable securities

 

62,413

 

 

 

75,919

 

 

 

78,588

 

Receivables

 

11,758

 

 

 

6,082

 

 

 

11,182

 

Merchandise inventories

 

72,635

 

 

 

55,809

 

 

 

74,815

 

Prepaid expenses and other current assets

 

4,845

 

 

 

11,171

 

 

 

9,062

 

Total current assets

 

214,039

 

 

 

217,141

 

 

 

219,285

 

Operating lease assets

 

251,912

 

 

 

 

 

Property and equipment, net

 

68,010

 

 

 

73,842

 

 

 

78,906

 

Other assets

 

2,194

 

 

 

2,185

 

 

 

3,391

 

Total assets

$

 

536,155

 

 

$

 

293,168

 

 

$

 

301,582

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

 

39,475

 

 

$

 

24,207

 

 

$

 

42,786

 

Accrued expenses

 

23,109

 

 

 

18,756

 

 

 

29,521

 

Deferred revenue

 

8,330

 

 

 

10,373

 

 

 

7,193

 

Accrued compensation and benefits

 

6,132

 

 

 

8,930

 

 

 

7,392

 

Dividends payable

 

 

 

29,453

 

 

 

Current portion of operating lease liabilities

 

53,478

 

 

 

 

 

Current portion of deferred rent

 

 

 

5,540

 

 

 

5,868

 

Total current liabilities

 

130,524

 

 

 

97,259

 

 

 

92,760

 

Noncurrent operating lease liabilities

 

230,015

 

 

 

 

 

Noncurrent deferred rent

 

 

 

30,825

 

 

 

31,239

 

Other

 

1,182

 

 

 

1,757

 

 

 

2,236

 

Total liabilities

 

361,721

 

 

 

129,841

 

 

 

126,235

 

Stockholders’ equity:

 

 

 

 

 

Common stock (Class A), $0.001 par value; 100,000 shares authorized; 21,980, 21,642 and 15,599 shares issued and outstanding, respectively

 

22

 

 

 

21

 

 

 

15

 

Common stock (Class B), $0.001 par value; 35,000 shares authorized; 7,586, 7,844 and 13,708 shares issued and outstanding, respectively

 

8

 

 

 

8

 

 

 

14

 

Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

Additional paid-in capital

 

150,877

 

 

 

149,737

 

 

 

146,476

 

Retained earnings

 

23,290

 

 

 

13,335

 

 

 

28,756

 

Accumulated other comprehensive income

 

237

 

 

 

226

 

 

 

86

 

Total stockholders’ equity

 

174,434

 

 

 

163,327

 

 

 

175,347

 

Total liabilities and stockholders’ equity

$

 

536,155

 

 

$

 

293,168

 

 

$

 

301,582

 

 

Tilly’s, Inc.

Consolidated Statements of Income

(In thousands, except per share data)

(unaudited)

 

 

Thirteen Weeks Ended

 

Twenty-Six Weeks Ended

 

August 3,
2019

 

August 4,
2018

 

August 3,
2019

 

August 4,
2018

Net sales

$

 

161,738

 

 

$

 

157,406

 

 

$

 

292,041

 

 

$

 

281,040

 

Cost of goods sold (includes buying, distribution, and occupancy costs)

 

110,028

 

 

 

107,301

 

 

 

204,647

 

 

 

195,957

 

Gross profit

 

51,710

 

 

 

50,105

 

 

 

87,394

 

 

 

85,083

 

Selling, general and administrative expenses

 

39,609

 

 

 

37,627

 

 

 

75,147

 

 

 

71,275

 

Operating income

 

12,101

 

 

 

12,478

 

 

 

12,247

 

 

 

13,808

 

Other income, net

 

572

 

 

 

490

 

 

 

1,401

 

 

 

873

 

Income before income taxes

 

12,673

 

 

 

12,968

 

 

 

13,648

 

 

 

14,681

 

Income tax expense

 

3,395

 

 

 

3,279

 

 

 

3,693

 

 

 

3,770

 

Net income

$

 

9,278

 

 

$

 

9,689

 

 

$

 

9,955

 

 

$

 

10,911

 

Basic income per share of Class A and Class B common stock

$

 

0.31

 

 

$

 

0.33

 

 

$

 

0.34

 

 

$

 

0.37

 

Diluted income per share of Class A and Class B common stock

$

 

0.31

 

 

$

 

0.33

 

 

$

 

0.33

 

 

$

 

0.37

 

Weighted average basic shares outstanding

 

29,505

 

 

 

29,209

 

 

 

29,487

 

 

 

29,145

 

Weighted average diluted shares outstanding

 

29,678

 

 

 

29,681

 

 

 

29,739

 

 

 

29,567

 

Tilly’s, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

 

Twenty-Six Weeks Ended

 

August 3,
2019

 

August 4,
2018

Cash flows from operating activities

 

 

 

Net income

$

 

9,955

 

 

$

 

10,911

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

10,286

 

 

 

11,503

 

Stock-based compensation expense

 

1,075

 

 

 

1,127

 

Impairment of assets

 

 

 

786

 

Loss on disposal of assets

 

145

 

 

 

17

 

Gain on sales and maturities of marketable securities

 

(848

)

 

 

(599

)

Deferred income taxes

 

(218

)

 

 

(203

)

Changes in operating assets and liabilities:

 

 

 

Receivables

 

(3,605

)

 

 

(6,830

)

Merchandise inventories

 

(16,826

)

 

 

(21,789

)

Prepaid expenses and other assets

 

770

 

 

 

461

 

Accounts payable

 

15,055

 

 

 

21,571

 

Accrued expenses

 

4,240

 

 

 

4,688

 

Accrued compensation and benefits

 

(2,798

)

 

 

1,273

 

Operating lease liabilities and deferred rent

 

(1,103

)

 

 

547

 

Deferred revenue

 

(2,043

)

 

 

(1,513

)

Net cash provided by operating activities

 

14,085

 

 

 

21,950

 

Cash flows from investing activities

 

 

 

Purchase of property and equipment

 

(4,848

)

 

 

(6,668

)

Purchases of marketable securities

 

(62,079

)

 

 

(79,822

)

Proceeds from marketable securities

 

76,457

 

 

 

84,678

 

Net cash provided by (used in) investing activities

 

9,530

 

 

 

(1,812

)

Cash flows from financing activities

 

 

 

Dividends paid

 

(29,453

)

 

 

(29,067

)

Proceeds from exercise of stock options

 

151

 

 

 

1,476

 

Taxes paid in lieu of shares issued for stock-based compensation

 

(85

)

 

 

(111

)

Net cash used in financing activities

 

(29,387

)

 

 

(27,702

)

Change in cash and cash equivalents

 

(5,772

)

 

 

(7,564

)

Cash and cash equivalents, beginning of period

 

68,160

 

 

 

53,202

 

Cash and cash equivalents, end of period

$

 

62,388

 

 

$

 

45,638

 

 

Tilly's, Inc.

Store Count and Square Footage

 

 

Stores
Open at

Beginning of
Quarter

 

Stores
Opened
During Quarter

 

Stores
Closed

During
Quarter

 

Stores
Open at
End of Quarter

 

Total Gross
Square Footage
End of Quarter
(in thousands)

2018 Q3

226

 

5

 

4

 

227

 

1,693

2018 Q4

227

 

3

 

1

 

229

 

1,703

2019 Q1

229

 

1

 

1

 

229

 

1,708

2019 Q2

229

 

1

 

1

 

229

 

1,710

 

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