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Tilly’s, Inc. Announces Revised Fiscal 2018 Third Quarter Results
Comp Store Net Sales Increase 4.3%: EPS of
Non-GAAP EPS of
Confirms Fourth Quarter Outlook
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
- 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
$43.7 million decreased by$6.4 million , or 12.9%, from$50.1 million last year, primarily due to the calendar shift impact on net sales and the impact of the correction described above. Gross margin, or gross profit as a percentage of net sales, decreased to 29.7% from 32.8% last year. As expected, buying, distribution and occupancy costs deleveraged 190 basis points against lower total net sales primarily as a result of the retail calendar shift noted previously. Product margins declined 120 basis points primarily as a result of the correction described above. -
Selling, general and administrative expenses ("SG&A") were
$36.9 million , or 25.1% of net sales, compared to$36.0 million , or 23.5% of net sales, last year. As expected, SG&A deleveraged 160 basis points compared to last year primarily due to the calendar shift impact on net sales described above. The$0.9 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 earlySeptember 2018 , and increased online marketing costs of$0.6 million associated with e-commerce net sales growth. These increases were partially offset by a legal matter accrual of$0.7 million in the prior year, and a net year-over-year reduction in corporate bonus accruals of approximately$0.4 million as a result of the correction described above. -
Operating income was
$6.7 million , or 4.6% of net sales, compared to$14.1 million , or 9.2% of net sales, last year. The$7.4 million reduction in operating income was primarily attributable to the retail calendar shift impact on net sales, in addition to the net correction described above. -
Income tax expense was
$2.0 million , or 26.9% 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
$5.4 million , or$0.18 per diluted share, compared to$8.8 million , or$0.30 per diluted share, last year. The$0.12 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, the impact of the correction described above of approximately$0.03 per diluted share, and costs associated with the secondary offering completed in earlySeptember 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$6.0 million , or$0.20 per diluted share, this year, which was at the low end of our original earnings per share outlook range of$0.20 to $0.24 per diluted share for the third quarter, 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
- 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
$128.7 million increased by$4.8 million , or 3.9%, from$123.9 million last year. Gross margin was 30.1% compared to 30.0% last year, primarily due to leveraging lower total occupancy costs on higher total net sales, offset by lower product margins primarily as a result of lower initial markups associated with increased sales penetration of third-party branded products, and the impact of the correction described above. -
SG&A was
$108.2 million , or 25.3% 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 earlyAugust 2018 , and$0.7 million in expenses associated with our secondary offering completed in earlySeptember 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 online marketing costs of$1.1 million associated with e-commerce net sales growth, and increased corporate bonus provisions of$0.6 million due to improved operating results. 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$108.9 million , or 25.5% of net sales, compared to$104.6 million , or 25.3% of net sales, last year. -
Operating income of
$20.5 million , or 4.8% of net sales, increased by$8.0 million compared to$12.5 million , or 3.0% of net sales, last year. Of this$8.0 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$0.4 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$19.8 million , or 4.6% of net sales, compared to$19.4 million , or 4.7% of net sales, last year. -
Income tax expense was
$5.7 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$5.4 million compared to$8.0 million last year. -
Net income was
$16.3 million , or$0.55 per diluted share, compared to$8.0 million , or$0.28 per diluted share, last year. Of the$0.27 improvement in year-over-year earnings per share, approximately$0.15 per diluted share was attributable to the aggregate legal matter and secondary offering expenses noted above, and approximately$0.12 per diluted share was due to improved operating results driven primarily by increased comparable store net sales and occupancy reductions, partially offset by the impact of the correction described above. 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$15.9 million , or$0.53 per diluted share, compared to$12.1 million , or$0.42 per diluted share, last year.
Balance Sheet and Liquidity
As of
Fiscal 2018 Fourth Quarter Outlook
The Company expects its fourth quarter total net sales to range from
approximately
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
Preliminary Fiscal 2019
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
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.
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
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
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 | 7,633 | 4,352 | 3,647 | |||||||||
Merchandise inventories | 71,488 | 53,216 | 62,242 | |||||||||
Prepaid expenses and other current assets | 10,707 | 9,534 | 9,759 | |||||||||
Total current assets | 210,345 | 203,054 | 197,521 | |||||||||
Property and equipment, net | 78,679 | 83,321 | 87,576 | |||||||||
Other assets | 3,667 | 3,736 | 7,805 | |||||||||
Total assets | $ | 292,691 | $ | 290,111 | $ | 292,902 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 34,352 | $ | 21,615 | $ | 27,329 | ||||||
Accrued expenses | 19,895 | 22,731 | 31,854 | |||||||||
Deferred revenue | 7,172 | 10,879 | 8,335 | |||||||||
Accrued compensation and benefits | 8,690 | 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 | 75,575 | 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 | 109,196 | 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 | 34,111 | 16,398 | 38,765 | |||||||||
Accumulated other comprehensive income | 214 | 14 | 96 | |||||||||
Total stockholders’ equity | 183,495 | 160,425 | 179,130 | |||||||||
Total liabilities and stockholders’ equity | $ | 292,691 | $ | 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) | 103,170 | 102,730 | 299,127 | 288,653 | ||||||||||||||
Gross profit | 43,656 | 50,094 | 128,739 | 123,928 | ||||||||||||||
Selling, general and administrative expenses | 36,919 | 35,982 | 108,193 | 111,384 | ||||||||||||||
Operating income | 6,737 | 14,112 | 20,546 | 12,544 | ||||||||||||||
Other income, net | 585 | 375 | 1,457 | 810 | ||||||||||||||
Income before income taxes | 7,322 | 14,487 | 22,003 | 13,354 | ||||||||||||||
Income tax expense | 1,967 | 5,730 | 5,737 | 5,354 | ||||||||||||||
Net income | $ | 5,355 | $ | 8,757 | $ | 16,266 | $ | 8,000 | ||||||||||
Basic income per share of Class A and Class B common stock | $ | 0.18 | $ | 0.30 | $ | 0.56 | $ | 0.28 | ||||||||||
Diluted income per share of Class A and Class B common stock | $ | 0.18 | $ | 0.30 | $ | 0.55 | $ | 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 | $ | 36,919 | $ | 35,982 | $ | 108,193 | $ | 111,384 | |||||||
Legal settlement | — | (650 | ) | 1,458 | (6,816 | ) | |||||||||
Secondary offering costs | (714 | ) | — | (714 | ) | — | |||||||||
Non-GAAP selling, general and administrative | $ | 36,205 | $ | 35,332 | $ | 108,937 | $ | 104,568 | |||||||
Operating income, as reported | $ | 6,737 | $ | 14,112 | $ | 20,546 | $ | 12,544 | |||||||
Legal settlement | — | 650 | (1,458 | ) | 6,816 | ||||||||||
Secondary offering costs | 714 | — | 714 | — | |||||||||||
Non-GAAP operating income | $ | 7,451 | $ | 14,762 | $ | 19,802 | $ | 19,360 | |||||||
Income tax expense, as reported | $ | 1,967 | $ | 5,730 | $ | 5,737 | $ | 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 | $ | 1,991 | $ | 5,985 | $ | 5,375 | $ | 8,033 | |||||||
Net income, as reported | $ | 5,355 | $ | 8,757 | $ | 16,266 | $ | 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 | $ | 6,045 | $ | 9,152 | $ | 15,884 | $ | 12,137 | |||||||
Diluted income per share, as reported | $ | 0.18 | $ | 0.30 | $ | 0.55 | $ | 0.28 | |||||||
Legal settlement, net of taxes (1) | — | 0.01 | (0.04 | ) | 0.14 | ||||||||||
Secondary offering costs, net of taxes (1) | 0.02 | — | 0.02 | — | |||||||||||
Non-GAAP diluted income per share | $ | 0.20 | $ | 0.31 | $ | 0.53 | $ | 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
The effective tax rate applied for the third quarter and nine months
ended
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 | $ | 16,266 | $ | 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 | (3,281 | ) | 342 | |||||
Merchandise inventories | (18,462 | ) | (14,474 | ) | ||||
Prepaid expenses and other assets | (1,290 | ) | (777 | ) | ||||
Accounts payable | 12,859 | 9,177 | ||||||
Accrued expenses | (6,403 | ) | 4,202 | |||||
Accrued compensation and benefits | 2,571 | (1,254 | ) | |||||
Deferred rent | 530 | (4,394 | ) | |||||
Deferred revenue | (1,534 | ) | (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 |
||||||||||
Stores
Open at Beginning of Quarter |
Stores
Opened During Quarter |
Stores
Closed During Quarter |
Stores
Open at End of Quarter |
Total Gross
Square Footage End 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/20181203006087/en/
Source: Tilly’s, Inc.
Investor Relations:
Michael Henry,
Chief Financial Officer
(949) 609-5599, ext. 17000
irelations@tillys.com