Tilly's (TLYS) Loss Narrows in Q2, Comparable Sales Decline Y/Y
Tilly’s, Inc. TLYS reported second-quarter fiscal 2023 results, wherein the top line beat the Zacks Consensus Estimate but declined year over year. The specialty retailer in the action sports industry selling clothing, shoes and accessories reported a narrower-than-expected loss.
After a sluggish beginning to the second quarter in May 2023, Tilly's comparable sales trend improved throughout the rest of the quarter, driven by careful expense management.
The company is cautiously optimistic about its business trend, considering the sequential improvement in comparable sales in August 2023. It expects the peak of the back-to-school season to start in the third quarter of fiscal 2023.
Tilly's, Inc. Price, Consensus and EPS Surprise
Tilly's, Inc. price-consensus-eps-surprise-chart | Tilly's, Inc. Quote
Let’s Delve Deeper
Tilly’s posted a loss of 4 cents per share in the fiscal second quarter, narrower than the Zacks Consensus Estimate of loss of 21 cents. However, it had reported earnings of 13 cents per share in the year-ago period.
Net sales were $160 million, down 5% year over year. However, the top line beat the Zacks Consensus Estimate of $151 million.
Total comparable net sales, including physical stores and e-commerce, decreased by 8.5% year over year. Net sales from physical stores were $129.8 million, down 5.3% year over year, with a comparable store net sales decline of 9.3%. Also, net sales from e-commerce were $30.2 million, down 3.4% year over year.
We estimated e-commerce sales of $28.7 million for the second quarter of fiscal 2023.
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Gross profit amounted to $44.3 million, down 14.8% from the $52 million reported in the year-ago quarter. This was driven by a $0.9-million increase in buying, distribution and occupancy costs, leading to a 170-basis-point (bps) decrease in profitability.
The primary factor behind this cost increase was higher occupancy expenses, driven by the operation of four additional stores and carrying these costs against a lower level of net sales for fiscal 2023.
Additionally, product margins declined 150 bps mainly due to higher markdowns and estimated inventory valuation reserves. Also, the gross margin contracted 320 bps to 27.7% from the prior-year period.
Selling and administrative expenses rose 0.4% to $47 million. As a percentage of net revenues, selling and administrative expenses increased 160 bps to 29.4% in the second quarter of fiscal 2023.
SG&A increases were attributed to non-cash store impairment charges of $0.8 million and increased corporate payroll and related benefits expenses of $0.4 million due to the impacts of wage increases associated with employee retention. This was partially offset by smaller savings across several expense line items.
Other Financial Details
Tilly’s ended the quarter with cash and cash equivalents of $54.6 million, and marketable securities of $49.7 million; no outstanding long-term debt; and total shareholders’ equity of $164.9 million.
Store Update
Tilly’s ended the fiscal second quarter with 246 total stores compared with 242 at the end of the second quarter of fiscal 2022. We estimated 248 total stores at the end of second-quarter fiscal 2023.
Also, the company expects to have 249 stores open at the end of the third quarter of fiscal 2023, a net increase of two stores from the end of the year-ago quarter.
Guidance
For third-quarter fiscal 2023, Tilly’s anticipates net sales of $166-$171 million, translating to an estimated year-over-year comparable net sales decrease of 5-8%.
The company expects a loss per share of 5-11 cents for the third quarter of fiscal 2023 based on estimated weighted average shares of 29.8 million.
Shares of this Zacks Rank #3 (Hold) company have gained 39.4% in the past three months compared with the industry's growth of 13%.
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