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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220901005732/en/
Investor Relations Contact: Michael
Henry, Executive Vice President, Chief Financial Officer (949)
609-5599, ext. 17000 irelations@tillys.com
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