Introduces Fiscal 2022 Third Quarter Outlook

Tilly’s, Inc. (NYSE: TLYS, the "Company") today announced financial results for the second quarter of fiscal 2022 ended July 30, 2022.

"We believe our second quarter operating results were negatively affected by the impact on our customers of the highest inflationary environment in 40 years, which we expect will also adversely impact our third quarter results," commented Ed Thomas, President and Chief Executive Officer. "At its peak, the back-to-school season produced an improved comparative trend in late July and early August. However, this trend has since declined and we believe the remainder of the third quarter will be challenging as we anniversary last year's early holiday shopping patterns, though this may give us an opportunity to have a better performance trend in the fourth quarter if the holiday season follows more traditional patterns."

Operating Results Overview

For greater context relating to the following comparisons, it should be noted that the Company's operating results for the comparative periods last year were fueled by unprecedented pent-up consumer demand and the impact of stimulus payments resulting from the pandemic, producing Company-record results for net sales, gross margin, operating income and earnings per share for the second quarter and first half of fiscal 2021.

Fiscal 2022 Second Quarter Operating Results Overview

The following comparisons refer to the Company's operating results for the second quarter of fiscal 2022 ended July 30, 2022 versus the second quarter of fiscal 2021 ended July 31, 2021.

  • Total net sales were $168.3 million, a decrease of $33.6 million or 16.7%, compared to $202.0 million last year. Total comparable net sales, including both physical stores and e-commerce ("e-com"), decreased by 16.4%.
    • Net sales from physical stores were $137.1 million, a decrease of $27.5 million or 16.7%, compared to $164.6 million last year with a comparable store net sales decrease of 16.5%. Net sales from physical stores represented 81.5% of total net sales both this year and last year. The Company ended the second quarter with 242 total stores compared to 244 total stores at the end of the second quarter last year.
    • Net sales from e-com were $31.2 million, a decrease of $6.1 million or 16.4%, compared to $37.3 million last year. E-com net sales represented 18.5% of total net sales both this year and last year.
  • Gross profit, including buying, distribution, and occupancy expenses, was $52.0 million, or 30.9% of net sales, compared to $74.7 million, or 37.0% of net sales, last year. Buying, distribution and occupancy costs deleveraged by 330 basis points collectively despite being reduced by $0.9 million due to carrying these costs against a significantly lower level of net sales this year. Product margins declined by 280 basis points primarily due to an increased and more normalized markdown rate compared to last year when full price selling was at record levels.
  • Selling, general and administrative ("SG&A") expenses were $46.8 million, or 27.8% of net sales, compared to $48.3 million, or 23.9% of net sales, last year. The $1.5 million reduction in SG&A dollars was primarily attributable to the absence of any corporate bonus accrual this year compared to $2.8 million included in last year's SG&A and a $0.7 million reduction in e-com marketing expenses. Partially offsetting these expense reductions were less significant increases in each of store payroll and related benefits, technology services, e-com fulfillment, and insurance expenses. Store payroll hours were managed to a lower average number of hours per store compared to last year, but this was more than offset by wage rate increases.
  • Operating income was $5.2 million, or 3.1% of net sales, compared to $26.4 million, or 13.1% of net sales, last year.
  • Income tax expense was $1.5 million, or 28.4% of pre-tax income, compared to $5.9 million, or 22.5% of pre-tax income, last year. The increase in the effective income tax rate was primarily due to discrete tax impacts related to stock-based compensation.
  • Net income was $3.8 million, or $0.13 per diluted share, compared to $20.4 million, or $0.66 per diluted share, last year. Weighted average diluted shares were 30.2 million this year compared to 31.1 million last year.

Fiscal 2022 First Half Operating Results Overview

The following comparisons refer to the Company's operating results for the first half of fiscal 2022 ended July 30, 2022 versus the first half of fiscal 2021 ended July 31, 2021.

  • Total net sales were $314.1 million, a decrease of $51.0 million or 14.0%, compared to $365.1 million last year. Total comparable net sales, including both physical stores and e-com, decreased by 14.9%.
    • Net sales from physical stores were $254.6 million, a decrease of $37.7 million or 12.9%, compared to $292.3 million last year with a comparable store net sales decrease of 14.1%. Net sales from stores represented 81.1% of total net sales compared to 80.1% of total net sales last year.
    • Net sales from e-com were $59.5 million, a decrease of $13.3 million or 18.3%, compared to $72.8 million last year. E-com net sales represented 18.9% of total net sales compared to 19.9% of total net sales last year.
  • Gross profit including buying, distribution, and occupancy expenses, was $95.8 million, or 30.5% of net sales, compared to $129.6 million, or 35.5% of net sales, last year. Buying, distribution and occupancy costs deleveraged by 270 basis points collectively despite being reduced by $1.9 million due to carrying these costs against a significantly lower level of net sales this year. Product margins declined by 230 basis points primarily due to an increased and more normalized markdown rate compared to last year when full price selling was at record levels.
  • SG&A expenses were $89.5 million, or 28.5% of net sales, compared to $88.3 million, or 24.2% of net sales, last year. Of the $1.3 million increase in SG&A dollars, $2.5 million was attributable to higher store payroll and related benefits. Additionally, $1.6 million was attributable to a credit from the reversal of a disputed California sales tax assessment in last year's first quarter. Other expense increases included $0.6 million from technology services and $0.5 million from higher insurance premiums. Partially offsetting these increases was the absence of any corporate bonus accrual this year compared to $4.3 million included in last year's SG&A.
  • Operating income was $6.3 million, or 2.0% of net sales, compared to $41.3 million, or 11.3% of net sales, last year.
  • Income tax expense was $1.8 million, or 28.2% of pre-tax income, compared to $9.7 million, or 23.7% of pre-tax income, last year. The increase in the effective income tax rate was primarily due to discrete tax impacts related to stock-based compensation.
  • Net income was $4.6 million, or $0.15 per diluted share, compared to $31.4 million, or $1.02 per diluted share, last year. Weighted average diluted shares were 30.6 million this year compared to 30.8 million last year.

Balance Sheet and Liquidity

As of July 30, 2022, the Company had $116.4 million of cash and marketable securities and no debt outstanding. This compared to $148.5 million at the end of the second quarter last year, and no debt outstanding. Since the end of last year's second quarter, the Company paid aggregate cash dividends to stockholders of $30.9 million in December 2021 and repurchased 987,427 shares of its common stock for a total of $9.0 million pursuant to its previously announced stock repurchase program. The Company is authorized to repurchase up to an additional 1,012,573 shares by mid-March 2023 at its discretion based on market characteristics.

The Company ended the second quarter with inventories at cost up 4.1% per square foot, a significant improvement from being up 12.7% at the end of the first quarter, as the Company continues to contend with inconsistent product flows as a result of ongoing supply chain challenges. Unit inventories were down 1.1% per square foot relative to last year.

Total capital expenditures for the first half were $6.9 million compared to $8.5 million last year, the decrease being primarily due to earlier new store openings last year. For fiscal 2022 as a whole, the Company expects its total capital expenditures to be in the range of $22 million to $24 million, inclusive of 11 new store openings.

Fiscal 2022 Third Quarter Outlook

Total comparable net sales through August 30, 2022, including both physical stores and e-com, decreased by 10.6% relative to the comparable period last year. Based on this result, current and historical trends, and anticipating a significant decline in the post back-to-school period of the quarter, the Company currently estimates that its fiscal 2022 third quarter net sales will be in the range of approximately $165 million to $170 million with a comparable net sales decrease of 18% to 21%, SG&A expenses to be in the range of approximately $46 million to $47 million, operating income to be in the range of approximately $1.9 million to $4.6 million, and earnings per diluted share to be in the range of $0.05 to $0.11. The Company expects its estimated income tax rate to be approximately 27% and estimated weighted average diluted shares to be approximately 30.2 million. This compares to a Company quarterly record of $206.1 million in net sales and record earnings per diluted share of $0.66 for the third quarter of last year. The Company expects to have 247 total stores open at the end of the third quarter, a net increase of 4 from 243 total stores at the end of last year's third quarter.

The current business environment remains subject to many unpredictable risks and uncertainties including with respect to, among others, the current inflationary environment, continuing supply chain difficulties, labor challenges, the COVID-19 pandemic, geopolitical concerns, and how consumer behavior may change relative to any of these factors as well as last year's historic anomalies of pent-up demand coming out of pandemic-related restrictions and federal stimulus payments. As a result, the Company's estimates concerning its projected business performance may change at any time and there can be no guarantee that the Company's current estimates will be accurate.

Conference Call Information

A conference call to discuss these financial results is scheduled for today, September 1, 2022, 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 (domestic) or (201) 689-8471 (international). 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 8, 2022, by dialing (844) 512-2921 (domestic) or (412) 317-6671 (international) and entering the conference identification number: 13731711.

About Tillys

Tillys is a leading, destination specialty retailer of casual apparel, footwear, accessories and hardgoods for young men, young women, boys and girls with an extensive selection of iconic global, emerging, and proprietary brands rooted in an active, outdoor and social lifestyle. Tillys is headquartered in Irvine, California and currently operates 243 total stores across 33 states, as well as its website, www.tillys.com.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding the overall effect of the novel coronavirus (COVID-19) pandemic, including its impacts on us, our operations, or our future financial condition or operating results, our current operating expectations in light of historical results, expectations regarding customer traffic, our supply chain, and inflation, our ability to properly manage our inventory levels, and any other statements about our future cash position, financial flexibility, 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, the effects of the COVID-19 pandemic (including any surges in the number of cases related thereto, or other weather, epidemics, pandemics, or other public health issues), supply chain difficulties, and inflation on our business and operations, and our ability to respond thereto, 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, attract talented employees, realize anticipated, enhance awareness of our brand and brand image, general consumer spending patterns and levels, the markets generally, our ability to satisfy our financial obligations, including under our credit facility and our leases, 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)

 

 

July 30, 2022

 

January 29, 2022

 

July 31, 2021

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

85,510

 

$

42,201

 

 

$

81,894

Marketable securities

 

30,874

 

 

97,027

 

 

 

66,644

Receivables

 

14,635

 

 

6,705

 

 

 

13,143

Merchandise inventories

 

89,295

 

 

65,645

 

 

 

86,853

Prepaid expenses and other current assets

 

13,775

 

 

16,400

 

 

 

7,506

Total current assets

 

234,089

 

 

227,978

 

 

 

256,040

Operating lease assets

 

221,114

 

 

216,508

 

 

 

216,046

Property and equipment, net

 

49,178

 

 

47,530

 

 

 

51,172

Deferred tax assets

 

11,526

 

 

11,446

 

 

 

10,487

Other assets

 

1,581

 

 

1,361

 

 

 

1,418

TOTAL ASSETS

$

517,488

 

$

504,823

 

 

$

535,163

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

47,942

 

$

28,144

 

 

$

59,053

Accrued expenses

 

23,506

 

 

19,073

 

 

 

23,898

Deferred revenue

 

14,312

 

 

17,096

 

 

 

13,040

Accrued compensation and benefits

 

7,445

 

 

17,056

 

 

 

16,567

Current portion of operating lease liabilities

 

51,007

 

 

51,504

 

 

 

50,916

Current portion of operating lease liabilities, related party

 

2,705

 

 

2,533

 

 

 

2,106

Other liabilities

 

727

 

 

761

 

 

 

948

Total current liabilities

 

147,644

 

 

136,167

 

 

 

166,528

Long-term liabilities:

 

 

 

 

 

Noncurrent portion of operating lease liabilities

 

173,916

 

 

171,965

 

 

 

185,179

Noncurrent portion of operating lease liabilities, related party

 

23,842

 

 

21,000

 

 

 

10,839

Other liabilities

 

518

 

 

978

 

 

 

1,385

Total long-term liabilities

 

198,276

 

 

193,943

 

 

 

197,403

Total liabilities

 

345,920

 

 

330,110

 

 

 

363,931

Stockholders’ equity:

 

 

 

 

 

Common stock (Class A)

 

23

 

 

24

 

 

 

24

Common stock (Class B)

 

7

 

 

7

 

 

 

7

Preferred stock

 

 

 

 

 

 

Additional paid-in capital

 

168,120

 

 

166,929

 

 

 

165,407

Retained earnings

 

3,372

 

 

7,754

 

 

 

5,782

Accumulated other comprehensive income (loss)

 

46

 

 

(1

)

 

 

12

Total stockholders’ equity

 

171,568

 

 

174,713

 

 

 

171,232

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

517,488

 

$

504,823

 

 

$

535,163

 

Tilly’s, Inc.

Consolidated Statements of Income

(In thousands, except per share data)

(unaudited)

 

 

Thirteen Weeks Ended

Twenty-Six Weeks Ended

 

July 30, 2022

 

July 31, 2021

July 30, 2022

 

July 31, 2021

Net sales

$

168,308

 

$

201,952

 

$

314,083

 

$

365,109

 

 

 

 

 

 

 

 

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

 

115,424

 

 

126,523

 

 

216,524

 

 

234,139

 

Rent expense, related party

 

902

 

 

702

 

 

1,762

 

 

1,404

 

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

 

116,326

 

 

127,225

 

 

218,286

 

 

235,543

 

Gross profit

 

51,982

 

 

74,727

 

 

95,797

 

 

129,566

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

46,697

 

 

48,167

 

 

89,271

 

 

87,998

 

Rent expense, related party

 

133

 

 

133

 

 

266

 

 

267

 

Total selling, general and administrative expenses

 

46,830

 

 

48,300

 

 

89,537

 

 

88,265

 

 

 

 

 

 

 

 

Operating income

 

5,152

 

 

26,427

 

 

6,260

 

 

41,301

 

Other income (expense), net

 

183

 

 

(102

)

 

187

 

 

(218

)

Income before income taxes

 

5,335

 

 

26,325

 

 

6,447

 

 

41,083

 

Income tax expense

 

1,516

 

 

5,927

 

 

1,815

 

 

9,726

 

Net income

$

3,819

 

$

20,398

 

$

4,632

 

$

31,357

 

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

$

0.13

 

$

0.67

 

$

0.15

 

$

1.04

 

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

$

0.13

 

$

0.66

 

$

0.15

 

$

1.02

 

Weighted average basic shares outstanding

 

30,021

 

 

30,500

 

 

30,392

 

 

30,189

 

Weighted average diluted shares outstanding

 

30,186

 

 

31,113

 

 

30,619

 

 

30,837

 

 

Tilly’s, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

 

Twenty-Six Weeks Ended

 

July 30, 2022

 

July 31, 2021

Cash flows from operating activities

 

 

 

Net income

$

4,632

 

 

$

31,357

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

Depreciation and amortization

 

7,003

 

 

 

8,809

 

Insurance proceeds from casualty loss

 

 

 

 

117

 

Stock-based compensation expense

 

1,151

 

 

 

896

 

Impairment of assets

 

13

 

 

 

136

 

Loss on disposal of assets

 

77

 

 

 

62

 

Gain on sales and maturities of marketable securities

 

(94

)

 

 

(74

)

Deferred income taxes

 

(79

)

 

 

1,462

 

Changes in operating assets and liabilities:

 

 

 

Receivables

 

(5,203

)

 

 

(2,997

)

Merchandise inventories

 

(23,650

)

 

 

(31,272

)

Prepaid expenses and other assets

 

2,609

 

 

 

(1,483

)

Accounts payable

 

19,773

 

 

 

34,077

 

Accrued expenses

 

2,624

 

 

 

(5,859

)

Accrued compensation and benefits

 

(9,611

)

 

 

6,668

 

Operating lease liabilities

 

(3,082

)

 

 

(3,481

)

Deferred revenue

 

(2,784

)

 

 

(452

)

Other liabilities

 

(494

)

 

 

(524

)

Net cash (used in) provided by operating activities

 

(7,115

)

 

 

37,442

 

 

 

 

 

Cash flows from investing activities

 

 

 

Purchases of property and equipment

 

(6,894

)

 

 

(8,511

)

Proceeds from sale of property and equipment

 

 

 

 

10

 

Insurance proceeds from casualty loss

 

 

 

 

29

 

Purchases of marketable securities

 

(29,947

)

 

 

(66,625

)

Proceeds from maturities of marketable securities

 

96,240

 

 

 

65,000

 

Net cash provided by (used in) investing activities

 

59,399

 

 

 

(10,097

)

 

 

 

 

Cash flows from financing activities

 

 

 

Dividends paid

 

 

 

 

(30,710

)

Proceeds from exercise of stock options

 

40

 

 

 

9,075

 

Share repurchases related to share repurchase program

 

(9,015

)

 

 

 

Net cash used in financing activities

 

(8,975

)

 

 

(21,635

)

 

 

 

 

Increase in cash and cash equivalents

 

43,309

 

 

 

5,710

 

Cash and cash equivalents, beginning of period

 

42,201

 

 

 

76,184

 

Cash and cash equivalents, end of period

$

85,510

 

 

$

81,894

 

 

Tilly's, Inc.

Store Count and Square Footage

 

 

Store Count at Beginning of Quarter

 

New Stores Opened During Quarter

 

Stores Permanently Closed During Quarter

 

Store Count at End of Quarter

 

Total Gross Square Footage End of Quarter (in thousands)

2021 Q1

238

 

2

 

2

 

238

 

1,753

2021 Q2

238

 

6

 

 

244

 

1,788

2021 Q3

244

 

 

1

 

243

 

1,781

2021 Q4

243

 

1

 

3

 

241

 

1,764

2022 Q1

241

 

 

 

241

 

1,764

2022 Q2

241

 

2

 

1

 

242

 

1,767

 

Investor Relations Contact: Michael Henry, Executive Vice President, Chief Financial Officer (949) 609-5599, ext. 17000 irelations@tillys.com

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