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Tilly's, Inc. Announces Third Quarter Operating Results, Net Loss Beats Prior Outlook

Tilly’s, Inc. (NYSE: TLYS, the "Company") today announced financial results for the third quarter of fiscal 2023 ended October 28, 2023.

"Our third quarter results represent a sequential improvement over the first and second quarters of the fiscal year. We continue to work towards protecting product margins, managing inventories and controlling operating expenses amid a continuing difficult economic environment, particularly for our young customer demographic," commented Ed Thomas, President and Chief Executive Officer. "Although more promotionally driven than in years past, we were pleased to produce comparable net sales growth compared to last year over Black Friday weekend."

Operating Results Overview

Fiscal 2023 Third Quarter Operating Results Overview

The following comparisons refer to the Company's operating results for the third quarter of fiscal 2023 ended October 28, 2023 versus the third quarter of fiscal 2022 ended October 29, 2022.

  • Total net sales were $166.5 million, a decrease of $11.4 million or 6.4%, compared to $177.8 million last year. Total comparable net sales, including both physical stores and e-commerce ("e-com"), decreased by 9.0%.
    • Net sales from physical stores were $132.4 million, a decrease of $9.1 million or 6.4%, compared to $141.5 million last year, with a comparable store net sales decrease of 9.1%. Net sales from physical stores represented 79.6% of total net sales both this year and last year. The Company ended the third quarter with 249 total stores compared to 247 total stores at the end of the third quarter last year.
    • Net sales from e-com were $34.0 million, a decrease of $2.3 million or 6.2%, compared to $36.3 million last year. E-com net sales represented 20.4% of total net sales both this year and last year.
  • Gross profit, including buying, distribution, and occupancy costs, was $48.7 million, or 29.3% of net sales, compared to $54.6 million, or 30.7% of net sales, last year. Buying, distribution, and occupancy costs deleveraged by 90 basis points, despite being $1.0 million lower than last year primarily due to a decrease in distribution costs resulting from reduced freight costs, partially offset by higher occupancy costs as a result of two net additional stores compared to last year. Product margins declined by 50 basis points primarily due to increased markdowns and estimated inventory valuation reserves.
  • Selling, general and administrative ("SG&A") expenses were $51.2 million, or 30.8% of net sales, compared to $48.3 million, or 27.1% of net sales, last year. Primary SG&A increases were attributable to non-cash store impairment charges of $1.7 million, marketing expenses of $0.7 million, and combined store and corporate payroll and related benefits expenses of $0.7 million.
  • Operating loss was $(2.5) million, or (1.5)% of net sales, compared to operating income of $6.3 million, or 3.6% of net sales, last year, due to the combined impact of the factors noted above.
  • Other income was $1.3 million compared to $0.7 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 28.0% of pre-tax loss, compared to income tax expense of $1.8 million, or 26.3% of pre-tax income, last year. The increase 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 $(0.8) million, or $(0.03) per share, compared to net income of $5.1 million, or $0.17 per diluted share, last year. Weighted average shares were 29.9 million this year compared to 30.0 million diluted shares last year.

Fiscal 2023 Year-to-Date Third Quarter Operating Results Overview

The following comparisons refer to the Company's operating results for the first thirty-nine weeks of fiscal 2023 ended October 28, 2023 versus the first thirty-nine weeks of fiscal 2022 ended October 29, 2022.

  • Total net sales were $450.1 million, a decrease of $41.9 million or 8.5%, compared to $491.9 million last year. Total comparable net sales, including both physical stores and e-com, decreased by 11.3%.
    • Net sales from physical stores were $360.0 million, a decrease of $36.1 million or 9.1%, compared to $396.1 million last year, with a comparable store net sales decrease of 12.3%. Net sales from physical stores represented 80.0% of total net sales compared to 80.5% of total net sales last year.
    • Net sales from e-com were $90.0 million, a decrease of $5.8 million or 6.1%, compared to $95.8 million last year. E-com net sales represented 20.0% of total net sales compared to 19.5% of total net sales last year.
  • Gross profit, including buying, distribution, and occupancy costs, was $119.0 million, or 26.4% of net sales, compared to $150.4 million, or 30.6% of net sales, last year. Buying, distribution, and occupancy costs deleveraged by 260 basis points and increased by $2.3 million collectively, predominantly due to occupancy costs, as a result of operating two net additional stores and carrying these costs against a lower level of net sales this year, partially offset by a decrease in distribution costs resulting from reduced freight costs. Product margins declined by 150 basis points primarily due to increased markdowns and estimated inventory valuation reserves.
  • SG&A expenses were $141.4 million, or 31.4% of net sales, compared to $137.8 million, or 28.0% of net sales, last year. Primary SG&A increases were attributable to non-cash store impairment charges of $2.6 million and corporate payroll and related benefits expenses of $1.4 million, primarily due to the impact of wage increases associated with employee retention. These increases were partially offset by smaller reductions in store supplies and store payroll.
  • Operating loss was $(22.5) million, or (5.0)% of net sales, compared to operating income of $12.6 million, or 2.6% of net sales, last year, due to the combined impact of the factors noted above.
  • Other income was $3.6 million compared to $0.9 million last year, primarily due to earning significantly higher rates of return on our marketable securities compared to last year.
  • Income tax benefit was $(4.9) million, or 26.0% of pre-tax loss, compared to income tax expense of $3.7 million, or 27.2% 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 $(13.9) million, or $(0.47) per share, compared to net income of $9.8 million, or $0.32 per diluted share, last year. Weighted average shares were 29.8 million this year compared to 30.4 million diluted shares last year.

Balance Sheet and Liquidity

As of October 28, 2023, the Company had $93.9 million of cash and marketable securities and no debt outstanding compared to $105.8 million and no debt outstanding at the end of the third quarter last year. The Company ended the third quarter with inventories at cost up 0.8% per square foot while unit inventories were down 3.2% per square foot compared to last year.

Total year-to-date capital expenditures at the end of the third quarter were $10.5 million this year compared to $11.9 million last year. The Company currently expects its total capital expenditures for fiscal 2023 will be approximately $13 million, inclusive of 7 total new stores and upgrades to certain distribution and information technology systems.

Fiscal 2023 Fourth Quarter Outlook

This year's fourth quarter includes an additional week, making it a 14-week quarter compared to 13 weeks last year. Total comparable net sales through November 28, 2023, decreased by (6.5)% with a comparable net sales decrease in physical stores of (13.6)% and an increase in e-commerce comparable net sales of 11.0%. Based on current quarter-to-date comparable net sales results and current and historical trends, the Company currently estimates that its fiscal 2023 fourth quarter net sales will be in the range of approximately $172 million to $178 million, translating to an estimated comparable net sales decrease in the range of approximately (6)% to (9)% compared to last year. The Company currently estimates its SG&A expenses for the fourth quarter of fiscal 2023 to be approximately $55 million to $56 million, pre-tax loss to be in the range of approximately $(5.0) million to $(8.0) million, and estimated income tax rate to be approximately 26%. The Company currently expects its loss per share for the fourth quarter of fiscal 2023 to be in the range of $(0.12) to $(0.20) based on estimated weighted average shares of approximately 29.9 million. The Company currently expects to have 248 stores open at the end of the fiscal year, a net decrease of one store from the end of last fiscal year.

Fiscal 2024 New Store and Capital Expenditure Plans

The Company currently expects its total capital expenditures for fiscal 2024 not to exceed $15 million, primarily for the construction of 4 new stores and continued upgrades to certain distribution and information technology systems.

Conference Call Information

A conference call to discuss these financial results is scheduled for today, November 30, 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 December 7, 2023, by dialing (844) 512-2921 (domestic) or (412) 317-6671 (international) and entering the conference identification number: 10183514.

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 252 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)

 

 

 

 

 

 

 

 

 

October 28,

2023

 

January 28,

2023

 

October 29,

2022

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

44,425

 

 

$

73,526

 

$

75,786

Marketable securities

 

49,523

 

 

 

39,753

 

 

29,985

Receivables

 

7,118

 

 

 

9,240

 

 

11,352

Merchandise inventories

 

82,753

 

 

 

62,117

 

 

81,589

Prepaid expenses and other current assets

 

11,816

 

 

 

17,762

 

 

16,036

Total current assets

 

195,635

 

 

 

202,398

 

 

214,748

Operating lease assets

 

216,205

 

 

 

212,845

 

 

222,664

Property and equipment, net

 

49,220

 

 

 

50,635

 

 

51,279

Deferred tax assets

 

13,229

 

 

 

8,497

 

 

10,261

Other assets

 

1,685

 

 

 

1,377

 

 

1,488

TOTAL ASSETS

$

475,974

 

 

$

475,752

 

$

500,440

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

27,025

 

 

$

15,956

 

$

30,225

Accrued expenses

 

14,688

 

 

 

15,889

 

 

17,239

Deferred revenue

 

13,520

 

 

 

16,103

 

 

13,859

Accrued compensation and benefits

 

10,590

 

 

 

8,183

 

 

9,756

Current portion of operating lease liabilities

 

50,063

 

 

 

48,864

 

 

50,047

Current portion of operating lease liabilities, related party

 

3,048

 

 

 

2,839

 

 

2,771

Other liabilities

 

330

 

 

 

470

 

 

806

Total current liabilities

 

119,264

 

 

 

108,304

 

 

124,703

Long-term liabilities:

 

 

 

 

 

Noncurrent portion of operating lease liabilities

 

171,388

 

 

 

167,913

 

 

176,621

Noncurrent portion of operating lease liabilities, related party

 

20,081

 

 

 

22,388

 

 

23,129

Other liabilities

 

391

 

 

 

349

 

 

455

Total long-term liabilities

 

191,860

 

 

 

190,650

 

 

200,205

Total liabilities

 

311,124

 

 

 

298,954

 

 

324,908

Stockholders’ equity:

 

 

 

 

 

Common stock (Class A)

 

23

 

 

 

23

 

 

23

Common stock (Class B)

 

7

 

 

 

7

 

 

7

Preferred stock

 

 

 

 

 

 

Additional paid-in capital

 

171,754

 

 

 

170,033

 

 

168,749

(Accumulated deficit) retained earnings

 

(7,410

)

 

 

6,530

 

 

6,634

Accumulated other comprehensive income

 

476

 

 

 

205

 

 

119

Total stockholders’ equity

 

164,850

 

 

 

176,798

 

 

175,532

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

475,974

 

 

$

475,752

 

$

500,440

Tilly’s, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)

 

 

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

 

October 28,

2023

 

October 29,

2022

October 28,

2023

 

October 29,

2022

Net sales

$

166,475

 

 

$

177,847

$

450,063

 

 

$

491,930

 

 

 

 

 

 

 

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

 

116,825

 

 

 

122,346

 

328,297

 

 

 

338,870

Rent expense, related party

 

931

 

 

 

918

 

2,793

 

 

 

2,680

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

 

117,756

 

 

 

123,264

 

331,090

 

 

 

341,550

Gross profit

 

48,719

 

 

 

54,583

 

118,973

 

 

 

150,380

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

51,101

 

 

 

48,134

 

141,035

 

 

 

137,405

Rent expense, related party

 

134

 

 

 

134

 

400

 

 

 

400

Total selling, general and administrative expenses

 

51,235

 

 

 

48,268

 

141,435

 

 

 

137,805

 

 

 

 

 

 

 

Operating (loss) income

 

(2,516

)

 

 

6,315

 

(22,462

)

 

 

12,575

Other income, net

 

1,341

 

 

 

675

 

3,625

 

 

 

862

(Loss) income before income taxes

 

(1,175

)

 

 

6,990

 

(18,837

)

 

 

13,437

Income tax (benefit) expense

 

(328

)

 

 

1,841

 

(4,897

)

 

 

3,656

Net (loss) income

$

(847

)

 

$

5,149

$

(13,940

)

 

$

9,781

Basic (loss) earnings per share of Class A and Class B common stock

$

(0.03

)

 

$

0.17

$

(0.47

)

 

$

0.32

Diluted (loss) earnings per share of Class A and Class B common stock

$

(0.03

)

 

$

0.17

$

(0.47

)

 

$

0.32

Weighted average basic shares outstanding

 

29,872

 

 

 

29,894

 

29,834

 

 

 

30,226

Weighted average diluted shares outstanding

 

29,872

 

 

 

30,050

 

29,834

 

 

 

30,428

Tilly’s, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

 

 

 

 

Thirty-Nine Weeks Ended

 

 

October 28,

2023

 

October 29,

2022

Cash flows from operating activities

 

 

 

Net (loss) income

$

(13,940

)

 

$

9,781

 

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

 

 

 

Depreciation and amortization

 

9,547

 

 

 

10,515

 

Stock-based compensation expense

 

1,684

 

 

 

1,764

 

Impairment of assets

 

2,631

 

 

 

14

 

Loss on disposal of assets

 

2

 

 

 

64

 

(Gain) interest on maturities of marketable securities

 

(1,156

)

 

 

(230

)

Deferred income taxes

 

(4,732

)

 

 

1,167

 

Changes in operating assets and liabilities:

 

 

 

Receivables

 

4,196

 

 

 

(705

)

Merchandise inventories

 

(20,636

)

 

 

(15,944

)

Prepaid expenses and other assets

 

5,980

 

 

 

557

 

Accounts payable

 

11,033

 

 

 

2,068

 

Accrued expenses

 

106

 

 

 

(4,253

)

Accrued compensation and benefits

 

2,407

 

 

 

(7,300

)

Operating lease liabilities

 

(4,545

)

 

 

(4,637

)

Deferred revenue

 

(2,583

)

 

 

(3,237

)

Other liabilities

 

(452

)

 

 

(706

)

Net cash used in operating activities

 

(10,458

)

 

 

(11,082

)

 

 

 

 

Cash flows from investing activities

 

 

 

Purchases of marketable securities

 

(88,146

)

 

 

(49,779

)

Purchases of property and equipment

 

(10,543

)

 

 

(11,897

)

Proceeds from maturities of marketable securities

 

80,000

 

 

 

117,189

 

Proceeds from sale of property and equipment

 

9

 

 

 

 

Net cash (used in) provided by investing activities

 

(18,680

)

 

 

55,513

 

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds from exercise of stock options

 

210

 

 

 

56

 

Taxes paid on short-swing profits disgorgement payment

 

(173

)

 

 

 

Share repurchases related to share repurchase program

 

 

 

 

(10,902

)

Net cash provided by (used in) financing activities

 

37

 

 

 

(10,846

)

 

 

 

 

Change in cash and cash equivalents

 

(29,101

)

 

 

33,585

 

Cash and cash equivalents, beginning of period

 

73,526

 

 

 

42,201

 

Cash and cash equivalents, end of period

$

44,425

 

 

$

75,786

 

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

2023 Q3

246

 

3

 

 

249

 

1,810

 

Contacts

Investor Relations:

Michael Henry, Executive Vice President, Chief Financial Officer

(949) 609-5599, ext. 17000

irelations@tillys.com

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