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Tilly's, Inc. Second Quarter Results Beat Expectations

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

 

Contacts

Investor Relations:

Michael Henry, Executive Vice President, Chief Financial Officer

(949) 609-5599, ext. 17000

irelations@tillys.com

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