August Comp Trend Improves to Start Third
Quarter
Tilly’s, Inc. (NYSE: TLYS, the "Company") today announced
financial results for the second quarter of fiscal 2023 ended July
29, 2023.
"After a slow start to the second quarter in May, the trend of
our comp sales improved for the remainder of the quarter and our
prudent expense management drove better than expected results for
the second quarter," commented Ed Thomas, President and Chief
Executive Officer. "We remain cautiously optimistic about the trend
of our business considering the sequential improvement in our comp
sales trend during fiscal August amid the peak of the
back-to-school season to start the third quarter."
Operating Results Overview
Fiscal 2023 Second Quarter Operating
Results Overview
The following comparisons refer to the Company's operating
results for the second quarter of fiscal 2023 ended July 29, 2023
versus the second quarter of fiscal 2022 ended July 30, 2022.
- Total net sales were $160.0 million, a decrease of $8.4 million
or 5.0%, compared to $168.3 million last year. Total comparable net
sales, including both physical stores and e-commerce ("e-com"),
decreased by 8.5%.
- Net sales from physical stores were $129.8 million, a decrease
of $7.3 million or 5.3%, compared to $137.1 million last year, with
a comparable store net sales decrease of 9.3%. Net sales from
physical stores represented 81.1% of total net sales compared to
81.5% of total net sales last year. The Company ended the second
quarter with 246 total stores compared to 242 total stores at the
end of the second quarter last year.
- Net sales from e-com were $30.2 million, a decrease of $1.1
million or 3.4%, compared to $31.2 million last year. E-com net
sales represented 18.9% of total net sales compared to 18.5% of
total net sales last year.
- Gross profit, including buying, distribution, and occupancy
costs, was $44.3 million, or 27.7% of net sales, compared to $52.0
million, or 30.9% of net sales, last year. Buying, distribution,
and occupancy costs deleveraged by 170 basis points and increased
by $0.9 million collectively, predominantly due to occupancy costs,
as a result of operating 4 net additional stores and carrying these
costs against a lower level of net sales this year. Product margins
declined by 150 basis points primarily due to increased markdowns
and estimated inventory valuation reserves.
- Selling, general and administrative ("SG&A") expenses were
$47.0 million, or 29.4% of net sales, compared to $46.8 million, or
27.8% of net sales, last year. Primary SG&A increases were
attributable 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 impact of wage increases associated with
employee retention. These increases were partially offset by
smaller savings across several expense line items.
- Operating loss was $(2.7) million, or (1.7)% of net sales,
compared to operating income of $5.2 million, or 3.1% of net sales,
last year, due to the combined impact of the factors noted
above.
- Other income was $1.2 million compared to $0.2 million last
year, primarily attributable to earning significantly higher rates
of return on our marketable securities compared to last year.
- Income tax benefit was $(0.3) million, or 23.2% of pre-tax
loss, compared to income tax expense of $1.5 million, or 28.4% of
pre-tax income, last year. The decrease in the effective income tax
rate was primarily attributable to decrease in pre-tax income and
discrete income tax items associated with stock-based
compensation.
- Net loss was $(1.1) million, or $(0.04) per share, compared to
net income of $3.8 million, or $0.13 per diluted share, last year.
Weighted average shares were 29.8 million this year compared to
30.2 million diluted shares last year.
Fiscal 2023 First Half Operating Results
Overview
The following comparisons refer to the Company's operating
results for the first half of fiscal 2023 ended July 29, 2023
versus the first half of fiscal 2022 ended July 30, 2022.
- Total net sales were $283.6 million, a decrease of $30.5
million or 9.7%, compared to $314.1 million last year. Total
comparable net sales, including both physical stores and e-com,
decreased by 12.7%.
- Net sales from physical stores were $227.6 million, a decrease
of $27.0 million or 10.6%, compared to $254.6 million last year,
with a comparable store net sales decrease of 14.0%. Net sales from
physical stores represented 80.3% of total net sales compared to
81.1% of total net sales last year.
- Net sales from e-com were $56.0 million, a decrease of $3.5
million or 6.0%, compared to $59.5 million last year. E-com net
sales represented 19.7% of total net sales compared to 18.9% of
total net sales last year.
- Gross profit, including buying, distribution, and occupancy
costs, was $70.3 million, or 24.8% of net sales, compared to $95.8
million, or 30.5% of net sales, last year. Buying, distribution,
and occupancy costs deleveraged by 360 basis points and increased
by $3.3 million collectively, predominantly due to occupancy costs,
as a result of operating 4 net additional stores and carrying these
costs against a lower level of net sales this year. Product margins
declined by 210 basis points primarily due to increased markdowns
and estimated inventory valuation reserves.
- SG&A expenses were $90.2 million, or 31.8% of net sales,
compared to $89.5 million, or 28.5% of net sales, last year. The
$0.7 million increase in SG&A was primarily due to a $1.1
million increase in corporate payroll and related benefits
expenses, primarily due to the impact of wage increases associated
with employee retention and $0.9 million of non-cash store
impairment charges. Partially offsetting this increase was a $0.6
million reduction in store payroll and related benefits through a
reduction in total store payroll hours, despite operating 4 net
additional stores and absorbing an average 7% hourly wage rate
increase compared to last year, and several other smaller expense
reductions across various expense line items.
- Operating loss was $(19.9) million, or (7.0)% of net sales,
compared to operating income of $6.3 million, or 2.0% of net sales,
last year, due to the combined impact of the factors noted
above.
- Other income was $2.3 million compared to $0.2 million last
year, primarily due to earning significantly higher rates of return
on our marketable securities compared to last year.
- Income tax benefit was $(4.6) million, or 25.9% of pre-tax
loss, compared to income tax expense of $1.8 million, or 28.2% of
pre-tax income, last year. The decrease in the effective income tax
rate was primarily attributable to a decrease in pre-tax income and
discrete income tax items associated with stock-based
compensation.
- Net loss was $(13.1) million, or $(0.44) per share, compared to
net income of $4.6 million, or $0.15 per diluted share, last year.
Weighted average shares were 29.8 million this year compared to
30.6 million diluted shares last year.
Balance Sheet and Liquidity
As of July 29, 2023, the Company had $104.3 million of cash and
marketable securities and no debt outstanding compared to $116.4
million and no debt outstanding at the end of the second quarter
last year. The Company ended the second quarter with inventories at
cost up 0.8% per square foot while unit inventories were down 2.9%
per square foot compared to last year.
Total year-to-date capital expenditures at the end of the second
quarter were $6.3 million this year compared to $6.9 million last
year. For fiscal 2023 as a whole, the Company expects its total
capital expenditures to be approximately $15 million to $17
million, inclusive of 7 total new stores and upgrades to certain
distribution and information technology systems.
Fiscal 2023 Third Quarter Outlook
Total comparable net sales through August 29, 2023, including
both physical stores and e-com, decreased by 3.9% relative to the
comparable period of last year. Based on current and historical
trends, including fiscal August historically representing just over
50% of total third quarter net sales volume, the Company currently
estimates that its fiscal 2023 third quarter net sales will be in
the range of approximately $166 million to $171 million,
translating to an estimated comparable net sales decrease in the
range of approximately 5% to 8% for the third quarter of fiscal
2023 compared to last year. The Company anticipates that its
comparable net sales results may decelerate following the
need-based purchasing period during the month of August amid the
peak of the back-to-school season. The Company currently estimates
its SG&A expenses for the third quarter of fiscal 2023 to be
approximately $50 million, pre-tax loss to be in the range of
approximately $(1.8) million to $(4.3) million, and estimated
income tax rate to be approximately 26%. The Company currently
expects its loss per share for the third quarter of fiscal 2023 to
be in the range of $(0.05) to $(0.11) based on estimated weighted
average shares of approximately 29.8 million. The Company expects
to have 249 stores open at the end of the third quarter, a net
increase of two stores from the end of last year's third
quarter.
Conference Call Information
A conference call to discuss these financial results is
scheduled for today, August 31, 2023, 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) 300-8521 (domestic) or (412) 317-6026
(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 7, 2023, by dialing (844) 512-2921
(domestic) or (412) 317-6671 (international) and entering the
conference identification number: 10181176.
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 247 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 our current
operating expectations in light of historical results, the impacts
of inflation and potential recession on us and our customers,
including on our future financial condition or operating results,
expectations regarding customer traffic, our supply chain, 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 impact of inflation on consumer behavior and our
business and operations, supply chain difficulties, 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, or enhance awareness of our brand and
brand image, general consumer spending patterns and levels,
including changes in historical spending patterns, 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 on the SEC’s
website at www.sec.gov and on 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 29,
2023
January 28,
2023
July 30,
2022
ASSETS
Current assets:
Cash and cash equivalents
$
54,578
$
73,526
$
85,510
Marketable securities
49,700
39,753
30,874
Receivables
10,922
9,240
14,635
Merchandise inventories
91,251
62,117
89,295
Prepaid expenses and other current
assets
9,209
17,762
13,775
Total current assets
215,660
202,398
234,089
Operating lease assets
224,537
212,845
221,114
Property and equipment, net
48,353
50,635
49,178
Deferred tax assets
12,973
8,497
11,526
Other assets
1,764
1,377
1,581
TOTAL ASSETS
$
503,287
$
475,752
$
517,488
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
44,763
$
15,956
$
47,942
Accrued expenses
18,972
15,889
23,506
Deferred revenue
14,012
16,103
14,312
Accrued compensation and benefits
8,358
8,183
7,445
Current portion of operating lease
liabilities
51,243
48,864
51,007
Current portion of operating lease
liabilities, related party
2,977
2,839
2,705
Other liabilities
425
470
727
Total current liabilities
140,750
108,304
147,644
Long-term liabilities:
Noncurrent portion of operating lease
liabilities
176,310
167,913
173,916
Noncurrent portion of operating lease
liabilities, related party
20,865
22,388
23,842
Other liabilities
447
349
518
Total long-term liabilities
197,622
190,650
198,276
Total liabilities
338,372
298,954
345,920
Stockholders’ equity:
Common stock (Class A)
23
23
23
Common stock (Class B)
7
7
7
Preferred stock
—
—
—
Additional paid-in capital
171,195
170,033
168,120
(Accumulated deficit) retained
earnings
(6,563
)
6,530
3,372
Accumulated other comprehensive income
253
205
46
Total stockholders’ equity
164,915
176,798
171,568
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
$
503,287
$
475,752
$
517,488
Tilly’s, Inc. Consolidated Statements
of Operations (In thousands, except per share data)
(unaudited)
Thirteen Weeks Ended
Twenty-Six Weeks Ended
July 29,
2023
July 30,
2022
July 29,
2023
July 30,
2022
Net sales
$
159,951
$
168,308
$
283,588
$
314,083
Cost of goods sold (includes buying,
distribution, and occupancy costs)
114,704
115,424
211,472
216,524
Rent expense, related party
931
902
1,862
1,762
Total cost of goods sold (includes
buying, distribution, and occupancy costs)
115,635
116,326
213,334
218,286
Gross profit
44,316
51,982
70,254
95,797
Selling, general and administrative
expenses
46,868
46,697
89,934
89,271
Rent expense, related party
133
133
266
266
Total selling, general and
administrative expenses
47,001
46,830
90,200
89,537
Operating (loss) income
(2,685
)
5,152
(19,946
)
6,260
Other income, net
1,220
183
2,284
187
(Loss) income before income
taxes
(1,465
)
5,335
(17,662
)
6,447
Income tax (benefit) expense
(340
)
1,516
(4,569
)
1,815
Net (loss) income
$
(1,125
)
$
3,819
$
(13,093
)
$
4,632
Basic (loss) earnings per share of Class A
and Class B common stock
$
(0.04
)
$
0.13
$
(0.44
)
$
0.15
Diluted (loss) earnings per share of Class
A and Class B common stock
$
(0.04
)
$
0.13
$
(0.44
)
$
0.15
Weighted average basic shares
outstanding
29,831
30,021
29,815
30,392
Weighted average diluted shares
outstanding
29,831
30,186
29,815
30,619
Tilly’s, Inc. Consolidated Statements
of Cash Flows (In thousands) (unaudited)
Twenty-Six Weeks Ended
July 29,
2023
July 30,
2022
Cash flows from operating
activities
Net (loss) income
$
(13,093
)
$
4,632
Adjustments to reconcile net (loss) income
to net cash used in operating activities:
Depreciation and amortization
6,457
7,003
Stock-based compensation expense
1,078
1,151
Impairment of assets
955
13
Loss on disposal of assets
28
77
Gain on sales and maturities of marketable
securities
(961
)
(94
)
Deferred income taxes
(4,476
)
(79
)
Changes in operating assets and
liabilities:
Receivables
(801
)
(5,203
)
Merchandise inventories
(29,134
)
(23,650
)
Prepaid expenses and other assets
8,230
2,609
Accounts payable
28,768
19,773
Accrued expenses
4,274
2,624
Accrued compensation and benefits
175
(9,611
)
Operating lease liabilities
(2,994
)
(3,082
)
Deferred revenue
(2,091
)
(2,784
)
Other liabilities
(314
)
(494
)
Net cash used in operating
activities
(3,899
)
(7,115
)
Cash flows from investing
activities
Proceeds from maturities of marketable
securities
45,081
96,240
Purchases of marketable securities
(53,904
)
(29,947
)
Purchases of property and equipment
(6,310
)
(6,894
)
Net cash (used in) provided by
investing activities
(15,133
)
59,399
Cash flows from financing
activities
Share repurchases related to share
repurchase program
—
(9,015
)
Proceeds from exercise of stock
options
84
40
Net cash provided by (used in)
financing activities
84
(8,975
)
Change in cash and cash
equivalents
(18,948
)
43,309
Cash and cash equivalents, beginning of
period
73,526
42,201
Cash and cash equivalents, end of
period
$
54,578
$
85,510
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)
2022 Q1
241
—
—
241
1,764
2022 Q2
241
2
1
242
1,767
2022 Q3
242
5
—
247
1,800
2022 Q4
247
4
2
249
1,818
2023 Q1
249
1
2
248
1,809
2023 Q2
248
—
2
246
1,792
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230831184334/en/
Investor Relations: Michael Henry,
Executive Vice President, Chief Financial Officer (949) 609-5599,
ext. 17000 irelations@tillys.com
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