Comp Store Net Sales Increase 4.3%: EPS of
$0.21
Non-GAAP EPS of $0.24 Excluding Secondary
Offering Costs
Introduces Fourth Quarter Outlook
Tilly’s, Inc. (NYSE: TLYS) today announced financial results for
the third quarter and first three quarters of fiscal 2018 ended
November 3, 2018.
“Tillys continued its positive momentum with its tenth
consecutive quarter of flat to positive comparable store net sales
and its strongest back-to-back quarterly comparable store net sales
performance since the first half of fiscal 2012," commented Ed
Thomas, President and Chief Executive Officer. "We believe we are
well positioned to continue our momentum during the holiday
season."
Third Quarter Results Overview
The following comparisons refer to operating results for the
third quarter of fiscal 2018 versus the third quarter of fiscal
2017 ended October 28, 2017:
- Comparable store net sales, including
e-commerce, increased 4.3%. Comparable store net sales in physical
stores increased 1.3% and represented approximately 86% of total
net sales. E-commerce net sales increased 26.7% and represented
approximately 14% of total net sales. Comparable store net sales,
including e-commerce, increased 1.5% in the third quarter last
year.
- Total net sales of $146.8 million
decreased by $6.0 million, or 3.9%, from $152.8 million last year,
due to the calendar shift impact of last year's 53rd week in the
retail calendar. This retail calendar shift caused a portion of the
back-to-school season to shift into the second quarter this year
from the third quarter last year, reducing last year's comparable
net sales base for the third quarter by approximately $14 million.
This retail calendar shift impact was partially offset by an
aggregate increase of approximately $8 million in comparable store
net sales and net sales from seven net new stores.
- Gross profit of $45.8 million decreased
by $4.3 million, or 8.6%, from $50.1 million last year, primarily
due to the calendar shift impact on net sales described above.
Gross margin, or gross profit as a percentage of net sales,
decreased to 31.2% from 32.8% last year due to the retail calendar
shift impact on net sales. Buying, distribution and occupancy costs
deleveraged 200 basis points against lower total net sales. Product
margins improved 40 basis points, primarily due to lower total
markdowns as a percentage of net sales.
- Selling, general and administrative
expenses ("SG&A") were $37.6 million, or 25.6% of net sales,
compared to $36.0 million, or 23.5% of net sales, last year. As
expected, SG&A deleveraged 210 basis points compared to last
year primarily due to the calendar shift impact on net sales
described above. The $1.6 million increase in SG&A was
primarily attributable to an increase in store payroll of $0.9
million due in part to minimum wage increases, expenses of $0.7
million associated with our secondary offering completed in early
September 2018, and increased online marketing costs of $0.6
million associated with e-commerce net sales growth, partially
offset by a legal matter accrual of $0.7 million in the prior
year.
- Operating income was $8.2 million, or
5.6% of net sales, compared to $14.1 million, or 9.2% of net sales,
last year. The $5.9 million reduction in operating income was
attributable to the retail calendar shift impact on net sales
described above.
- Income tax expense was $2.4 million, or
26.8% of pre-tax income, compared to $5.7 million, or 39.6% of
pre-tax income last year. The reduction in this year's income tax
rate was attributable to the change in corporate tax rates signed
into law late last year.
- Net income was $6.4 million, or $0.21
per diluted share, compared to $8.8 million, or $0.30 per diluted
share, last year. The $0.09 decrease in earnings per share was
attributable to the combination of the retail calendar shift impact
on net sales of approximately $0.11 per diluted share and costs
associated with the secondary offering completed in early September
2018 of approximately $0.02 per diluted share. The remaining
positive variance was primarily due to improved operating results
driven by increased comparable store net sales. On a non-GAAP
basis, excluding the impact of the secondary offering costs this
year and the impact of the legal matter accrual last year, net
income was $7.1 million, or $0.24 per diluted share, this year
compared to $9.2 million, or $0.31 per diluted share, last
year.
Year-to-Date Results Overview
The following comparisons refer to operating results for the
first three quarters of fiscal 2018 versus the first three quarters
of fiscal 2017 ended October 28, 2017:
- Comparable store net sales, including
e-commerce, increased 3.1%. Comparable store net sales in physical
stores increased 2.2% and represented approximately 87% of total
net sales. E-commerce net sales increased 9.2% and represented
approximately 13% of total net sales. Comparable store net sales,
including e-commerce, increased 1.5% in the first three quarters
last year.
- Total net sales of $427.9 million
increased by $15.3 million, or 3.7%, from $412.6 million last year,
primarily due to increased comparable store net sales and net sales
from seven net new stores.
- Gross profit of $130.9 million
increased by $6.9 million, or 5.6%, from $123.9 million last year.
Gross margin increased to 30.6% from 30.0% last year primarily due
to leveraging lower total occupancy costs on higher total net
sales. Product margins improved by 10 basis points due to lower
markdowns as a percentage of net sales.
- SG&A was $108.8 million, or 25.4%
of net sales, compared to $111.4 million, or 27.0% of net sales,
last year. Last year's SG&A included an estimated $6.8 million
in provisions related to legal matters. This year's SG&A
includes a $1.5 million reduction to such provisions as a result of
the final settlement of the related legal matter in early August
2018, and $0.7 million in expenses associated with our secondary
offering completed in early September 2018. The net year-over-year
impact of these legal matter provisions, partially offset by our
secondary offering expenses, accounted for the improvement in
SG&A as a percentage of net sales. After consideration of the
legal matter impacts and secondary offering costs, primary dollar
increases in SG&A were attributable to an increase in store
payroll of $2.1 million primarily due to minimum wage increases and
higher comparable store net sales, increased corporate bonus
provisions of $1.2 million due to improved operating results, and
increased online marketing costs of $1.1 million associated with
e-commerce net sales growth. On a non-GAAP basis, excluding the
impact of legal provisions from both years and the secondary
offering costs from this year, SG&A was $109.6 million, or
25.6% of net sales, compared to $104.6 million, or 25.3% of net
sales, last year.
- Operating income of $22.0 million, or
5.2% of net sales, increased by $9.5 million compared to $12.5
million, or 3.0% of net sales, last year. Of this $9.5 million
improvement in year-over-year operating income, approximately $7.6
million was attributable to the net aggregate year-over-year impact
of the legal matters and secondary offering expenses noted above,
and approximately $1.9 million was attributable to increased
comparable store net sales results and occupancy reductions. On a
non-GAAP basis, excluding the impact of legal provisions from both
years and the secondary offering costs from this year, operating
income was $21.3 million, or 5.0% of net sales, compared to $19.4
million, or 4.7% of net sales, last year.
- Income tax expense was $6.1 million, or
26.1% of pre-tax income, compared to $5.4 million, or 40.1% of
pre-tax income, last year. The reduction in this year's income tax
rate was primarily attributable to the change in corporate tax
rates signed into law late last year. On a non-GAAP basis,
excluding the impact of legal provisions from both years and the
secondary offering costs from this year, income tax expense was
$5.8 million compared to $8.0 million last year.
- Net income was $17.4 million, or $0.58
per diluted share, compared to $8.0 million, or $0.28 per diluted
share, last year. Of the $0.30 improvement in year-over-year
earnings per share, approximately half was attributable to the
aggregate legal matter and secondary offering expenses noted above,
and the other half was due to improved operating results driven by
increased comparable store net sales and occupancy reductions. On a
non-GAAP basis, excluding the impact of the legal provisions from
both years and the secondary offering costs from this year, net
income was $17.0 million, or $0.57 per diluted share, compared to
$12.1 million, or $0.42 per diluted share, last year.
Balance Sheet and Liquidity
As of November 3, 2018, the Company had $120.5 million of cash
and marketable securities and no debt outstanding. This compares to
$121.9 million of cash and marketable securities and no debt
outstanding as of October 28, 2017. The Company paid special cash
dividends to its stockholders of approximately $29.1 million and
$20.1 million in the aggregate during February of 2018 and 2017,
respectively.
Fiscal 2018 Fourth Quarter Outlook
The Company expects its fourth quarter total net sales to range
from approximately $163 million to $168 million based on an assumed
2% to 5% increase in comparable store net sales. Last year's fourth
quarter included an extra week as a result of the 53rd week in last
year's retail calendar, which accounted for approximately $7.1
million in added sales for such quarter versus the comparable
13-week period this year. The Company expects fourth quarter
operating income to range from approximately $8.5 million to $10.0
million, and earnings per diluted share to range from $0.22 to
$0.26. This outlook assumes an anticipated effective tax rate of
approximately 26% and weighted average shares of approximately 30.1
million.
Pursuant to the settlement terms of the previously noted legal
matter, the Company issued non-transferable discount coupons to
approximately 612,000 existing Tillys customers in early September
2018 which allows for a one-time 50% discount on a single, future
purchase transaction of up to $1,000. Any unused coupons will
expire on September 4, 2019. To date, less than 1% of these coupons
have been redeemed, resulting in no material impact to the
Company's comparable store net sales or operating results as a
whole. Although redemptions have been very low in number thus far,
there can be no assurance that the impact of any future coupon
redemptions during the 2018 holiday season, or during fiscal 2019,
will remain immaterial. Our fourth quarter outlook does not
contemplate any specific impacts from future usage of these
coupons.
Preliminary Fiscal 2019 New Store, Capital Expenditure and
Expense Expectations
The Company expects to open up to 15 to 20 new, full-size stores
and an as-yet undetermined number of RSQ-branded pop-up shops
during fiscal 2019, in each case assuming appropriate lease
economics are obtained. The specific timing of any new store
openings is not yet known. The Company expects total capital
expenditures for fiscal 2019 not to exceed $25 million, comprised
primarily of new store costs supplemented by continuing technology
investments. Finally, the Company expects the impact of legislated
minimum wage increases, merit increases, new systems costs, and the
new lease accounting standard to result in an aggregate increase of
approximately $6 million in its annualized operating costs before
consideration of any comparable store net sales assumption. The
Company estimates that its fiscal 2019 comparable store net sales
would need to increase by approximately 3% in order to absorb these
anticipated cost increases without creating any deleverage of
expenses as a percentage of net sales.
Non-GAAP Financial Measures
In addition to reporting financial measures in accordance with
GAAP, the Company is providing certain non-GAAP financial measures
including "non-GAAP SG&A," "non-GAAP operating income,"
"non-GAAP income tax expense," "non-GAAP net income," and "non-GAAP
income per diluted share." These amounts are not in accordance
with, or an alternative to, GAAP. The Company’s management believes
that these measures help provide investors with insight into the
underlying comparable financial results, excluding items that may
not be indicative of, or are unrelated to, the Company’s core
day-to-day operating results.
For a description of these non-GAAP financial measures and
reconciliations of these non-GAAP financial measures to the most
directly comparable financial measures prepared in accordance with
GAAP, please see the accompanying table titled “Supplemental
Financial Information; Reconciliation of Select GAAP Financial
Measures to Non-GAAP Financial Measures” contained in this press
release.
Conference Call Information
A conference call to discuss these financial results is
scheduled for today, November 28, 2018, 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 at 4:25 p.m. ET (1:25 p.m. PT).
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
12, 2018, by dialing (844) 512-2921 (domestic) or (412) 317-6671
(international) and entering the conference identification number:
13684938. Please note participants must enter the conference
identification number in order to access the replay.
About Tillys
Tillys is a leading specialty retailer of casual apparel,
footwear and accessories for young men, young women, boys and girls
with an extensive assortment of iconic global, emerging, and
proprietary brands rooted in an active and social lifestyle. Tillys
is headquartered in Irvine, California and currently operates 229
total stores, including four RSQ pop-up stores, across 33 states
and its website, www.tillys.com.
Forward-Looking Statements
Certain statements in this press release and oral statements
made from time to time by our representatives are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. In particular, statements regarding our future
financial and operating results, including but not limited to
future comparable store net sales, future operating income, future
net income, future earnings per share, future gross, operating or
product margins, anticipated tax rate, future impacts of legal
settlements, future inventory levels, future capital expenditures,
and market share and our business and strategy, including but not
limited to expected store openings and closings, expansion of
brands and exclusive relationships, development and growth of our
e-commerce platform and business, promotional strategy, and any
other statements about our future 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, 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, enhance awareness of our
brand and brand image, general consumer spending patterns and
levels, the effect of weather, 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)
November 3,2018 February
3,2018
October 28,2017
ASSETS Current assets: Cash and cash equivalents $ 24,751 $
53,202 $ 38,912 Marketable securities 95,766 82,750 82,961
Receivables 7,608 4,352 3,647 Merchandise inventories 73,772 53,216
62,242 Prepaid expenses and other current assets 10,707
9,534 9,759 Total current assets 212,604 203,054 197,521
Property and equipment, net 78,679 83,321 87,576 Other assets 3,667
3,736 7,805 Total assets $ 294,950 $ 290,111
$ 292,902
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: Accounts payable $ 34,352 $ 21,615 $ 27,329
Accrued expenses 20,292 22,731 31,854 Deferred revenue 7,144 10,879
8,335 Accrued compensation and benefits 9,487 6,119 6,005 Dividends
payable — 29,067 — Current portion of deferred rent 5,466 5,220
5,762 Current portion of capital lease obligation — —
155 Total current liabilities 76,741 95,631 79,440 Long-term
portion of deferred rent 31,624 31,340 31,377 Other 1,997
2,715 2,955 Total liabilities 110,362 129,686 113,772
Stockholders’ equity: Common stock (Class A), $0.001 par value;
100,000 shares authorized; 21,536, 14,927 and 14,357 shares issued
and outstanding, respectively 21 15 14 Common stock (Class B),
$0.001 par value; 35,000 shares authorized; 7,944, 14,188 and
14,488 shares issued and outstanding, respectively 8 14 15
Preferred stock, $0.001 par value; 10,000 shares authorized; no
shares issued or outstanding — — — Additional paid-in capital
149,141 143,984 140,240 Retained earnings 35,204 16,398 38,765
Accumulated other comprehensive income 214 14 96
Total stockholders’ equity 184,588 160,425 179,130
Total liabilities and stockholders’ equity $ 294,950 $
290,111 $ 292,902
Tilly’s, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
November 3,2018 October 28,2017
November 3,2018 October 28,2017
Net sales $ 146,826 $ 152,824 $ 427,866 $ 412,581 Cost of goods
sold (includes buying, distribution, and occupancy costs) 101,041
102,730 296,999 288,653 Gross profit 45,785
50,094 130,867 123,928 Selling, general and administrative expenses
37,558 35,982 108,831 111,384 Operating income
8,227 14,112 22,036 12,544 Other income, net 585 375
1,457 810 Income before income taxes 8,812 14,487 23,493
13,354 Income tax expense 2,364 5,730 6,134
5,354 Net income $ 6,448 $ 8,757 $ 17,359 $
8,000 Basic income per share of Class A and Class B common stock $
0.22 $ 0.30 $ 0.59 $ 0.28 Diluted income per share of Class A and
Class B common stock $ 0.21 $ 0.30 $ 0.58 $ 0.28 Weighted average
basic shares outstanding 29,373 28,782 29,221 28,746 Weighted
average diluted shares outstanding 30,075 29,031 29,746 28,954
Tilly’s, Inc. Supplemental Financial
Information Reconciliation of Select GAAP Financial Measures
to Non-GAAP Financial Measures
(In thousands, except per share data)
(unaudited)
Third Quarter Ended Nine Months Ended
November 3,2018 October 28,2017
November 3,2018 October 28,2017
Selling, general and administrative, as reported $ 37,558 $ 35,982
$ 108,831 $ 111,384 Legal settlement — (650 ) 1,458 (6,816 )
Secondary offering costs (714 ) — (714 ) — Non-GAAP
selling, general and administrative $ 36,844 $ 35,332
$ 109,575 $ 104,568 Operating income, as
reported $ 8,227 $ 14,112 $ 22,036 $ 12,544 Legal settlement — 650
(1,458 ) 6,816 Secondary offering costs 714 — 714
— Non-GAAP operating income $ 8,941 $ 14,762
$ 21,292 $ 19,360 Income tax expense,
as reported $ 2,364 $ 5,730 $ 6,134 $ 5,354 Income tax effect of
legal settlement (1) — 255 (386 ) 2,679 Income tax effect of
secondary offering costs (1) 189 — 189 — Income tax effect of
non-deductibility of a portion of secondary offering costs (1) (165
) — (165 ) — Non-GAAP income tax expense $ 2,388
$ 5,985 $ 5,772 $ 8,033 Net
income, as reported $ 6,448 $ 8,757 $ 17,359 $ 8,000 Legal
settlement — 650 (1,458 ) 6,816 Secondary offering costs 714 — 714
— Less: Income tax effects (1) (24 ) (255 ) 362 (2,679 )
Non-GAAP net income $ 7,138 $ 9,152 $ 16,977 $
12,137 Diluted income per share, as reported $ 0.214
$ 0.30 $ 0.584 $ 0.28 Legal settlement, net of taxes (1) — 0.01
(0.036 ) 0.14 Secondary offering costs, net of taxes (1) 0.023
— 0.023 — Non-GAAP diluted income per
share $ 0.237 $ 0.31 $ 0.571 $ 0.42
Weighted average basic shares outstanding 29,373 28,782
29,221 28,746 Weighted average diluted shares outstanding 30,075
29,031 29,746 28,954 (1) The effective tax rate
applied to the $0.7 million of secondary offering costs for the
third quarter and nine months ended November 3, 2018 was 26.5%.
Additionally, this year's income tax expense includes approximately
$0.2 million due to the non-deductibility of a portion of the
secondary offering costs. The effective tax rate applied for
the third quarter and nine months ended October 28, 2017 was 39.3%.
Tilly’s, Inc. Consolidated Statements of
Cash Flows
(In thousands)
(unaudited)
Nine Months Ended November 3,2018
October 28,2017 Cash flows from operating
activities Net income $ 17,359 $ 8,000 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,966 17,644 Stock-based
compensation expense 1,662 1,773 Impairment of assets 786 848 Loss
on disposal of assets 11 170 Gain on marketable securities (983 )
(510 ) Deferred income taxes (419 ) (1,194 ) Changes in operating
assets and liabilities: Receivables (3,256 ) 342 Merchandise
inventories (20,746 ) (14,474 ) Prepaid expenses and other assets
(1,290 ) (777 ) Accounts payable 12,859 9,177 Accrued expenses
(6,006 ) 4,202 Accrued compensation and benefits 3,368 (1,254 )
Deferred rent 530 (4,394 ) Deferred revenue (1,562 ) (1,868 ) Net
cash provided by operating activities 19,279 17,685
Cash flows from investing activities Purchase of property
and equipment (10,394 ) (9,716 ) Purchases of marketable securities
(116,442 ) (112,612 ) Proceeds from marketable securities 104,678
85,134 Net cash used in investing activities (22,158
) (37,194 )
Cash flows from financing activities Dividends
paid (29,067 ) (20,080 ) Proceeds from exercise of stock options
3,606 288 Taxes paid in lieu of shares issued for stock-based
compensation (111 ) (101 ) Payment of capital lease obligation —
(680 ) Net cash used in financing activities (25,572 )
(20,573 ) Change in cash and cash equivalents (28,451 ) (40,082 )
Cash and cash equivalents, beginning of period 53,202 78,994
Cash and cash equivalents, end of period $ 24,751 $
38,912
Tilly's, Inc. Store Count and
Square Footage
StoresOpen atBeginning
ofQuarter
StoresOpenedDuring
Quarter
StoresClosedDuringQuarter
StoresOpen atEnd of
Quarter
Total GrossSquare
FootageEnd of Quarter(in thousands)
2017 Q3 221 — 1 220 1,681
2017 Q4 220 2 3 219 1,668
2018 Q1 219 4 1 222 1,675
2018 Q2 222 4 — 226 1,698
2018 Q3 226 5 4 227 1,693
Note:
Total stores opened during fiscal 2018 includes four RSQ-branded,
pop-up stores.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181128005695/en/
Investor Relations Contact:Michael
Henry, Chief Financial Officer(949) 609-5599, ext.
17000irelations@tillys.com
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