IRVINE, Calif--(EON: Enhanced Online News)--Tilly’s, Inc. (NYSE:TLYS) today announced financial results for the third quarter (thirteen weeks) and first nine months (39 weeks) of fiscal 2016 ended October 29, 2016.
“A promising Black Friday weekend and Cyber Monday have us off to a decent start to the fourth quarter, and we believe our merchandise assortment is well positioned for the holiday season. We remain focused on improving profitability for the long term.”
“We are encouraged by the 4.4% comp increase we delivered in the third quarter on top of last year's 3.9% increase," stated Ed Thomas, President and Chief Executive Officer. "A promising Black Friday weekend and Cyber Monday have us off to a decent start to the fourth quarter, and we believe our merchandise assortment is well positioned for the holiday season. We remain focused on improving profitability for the long term."
Third Quarter Results Overview
The following comparisons refer to operating results for the third quarter of fiscal 2016 versus the third quarter of fiscal 2015 ended October 31, 2015:
- Total net sales were $152.1 million, a 7.3% increase from $141.7 million last year.
- Comparable store sales, which include e-commerce sales, increased 4.4%. Comparable store sales increased 3.9% in the third quarter last year.
- Gross margin, or gross profit as a percentage of net sales, was flat at 31.5% compared to last year. A 110 basis point increase due to lower buying, distribution and occupancy costs was offset by a 110 basis point decline in product margins from increased markdowns.
- Selling, general and administrative expenses ("SG&A") were $37.3 million, a decrease of $2.0 million from $39.3 million last year. As a percentage of net sales, SG&A improved 320 basis points to 24.5% from 27.7% last year. The combination of more efficient marketing spend, lower non-cash store impairment charges, corporate payroll savings, and several other smaller expense reductions resulted in 240 basis points of this improvement. The remaining 80 basis points of improvement was attributable to severance obligations of $1.1 million recorded in last year's results.
- Operating income was $10.7 million, or 7.0% of net sales, compared to $5.4 million, or 3.8% of net sales, last year. The 320 basis point increase in our operating margin was primarily attributable to the reductions in SG&A noted above.
- Our effective tax rate was 40.4% compared to 48.0% last year. Last year's tax rate was higher primarily due to increased discrete items related to restricted stock and stock option expirations.
- Net income was $6.4 million, or $0.22 per diluted share, compared to $2.8 million, or $0.10 per diluted share, last year.
First Nine Months Results Overview
The following comparisons refer to operating results for the first nine months of fiscal 2016 versus the first nine months of fiscal 2015 ended October 31, 2015:
- Total net sales were $408.7 million, an increase of 4.3% from $391.9 million last year.
- Comparable store sales, which include e-commerce sales, increased 0.7%. Comparable store sales increased 2.1% for the same time period last year.
- Gross margin, or gross profit as a percentage of net sales, was 29.2% compared to 29.9% last year. This 70 basis point decrease was attributable to a decline in product margins as a result of increased markdowns.
- SG&A was $110.5 million, an increase of $1.8 million from $108.7 million last year. As a percentage of net sales, SG&A improved 70 basis points to 27.0% from 27.7% last year. The combination of more efficient marketing spend, lower stock-based compensation, and corporate payroll savings resulted in 40 basis points of this improvement. The remaining 30 basis points of improvement was attributable to severance obligations of $1.1 million recorded in last year's results.
- Operating income was $8.9 million, an increase of $0.3 million from $8.6 million last year. Operating margin was flat at 2.2% of net sales compared to last year.
- Income tax expense was $4.1 million, or 44.5% of pre-tax income, compared to $4.0 million, or 46.2% of pre-tax income, last year.
- Net income was $5.1 million, or $0.18 per diluted share, compared to $4.7 million, or $0.16 per diluted share, last year.
Balance Sheet and Liquidity
As of October 29, 2016, the Company had $105 million of cash and marketable securities and no debt outstanding under its revolving credit facility. This compares to $76 million of cash and marketable securities and no debt outstanding as of October 31, 2015.
Fourth Quarter 2016 Outlook
Based on current trends, the Company expects fourth quarter comparable store sales to be in the range of flat to +2%, operating income to be in the range of $7.5 million to $9.5 million, and earnings per diluted share to be in the range of $0.15 to $0.20 compared to $0.10 for the fourth quarter of fiscal 2015. This assumes an anticipated effective tax rate of approximately 40% and weighted average diluted shares of approximately 28.7 million.
Conference Call Information
A conference call to discuss the financial results is scheduled for today, November 30, 2016, 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 14, 2016, by dialing (844) 512-2921 (domestic) or (412) 317-6671 (international) and entering the conference identification number: 13649242. Please note participants must enter the conference identification number in order to access the replay.
Tillys is a leading destination specialty retailer of West Coast inspired apparel, footwear and accessories with an extensive assortment of the most relevant and sought-after brands rooted in action sports, music, art and fashion. Tillys is headquartered in Irvine, California and, as of October 29, 2016, operated 225 stores 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 sales, future operating income, future net income, future earnings per share, future gross, operating or product margins, anticipated tax rate, future inventory levels, 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”) on March 30, 2016, 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.
Consolidated Balance Sheets
(In thousands, except par value and per share data)
|October 29,||January 30,|
|Cash and cash equivalents||$||43,382||$||51,020|
|Prepaid expenses and other current assets||9,965||9,071|
|Total current assets||186,151||166,777|
|Property and equipment, net||93,206||99,026|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Accrued compensation and benefits||5,480||5,751|
|Current portion of deferred rent||6,146||6,106|
|Current portion of capital lease obligation||899||858|
|Total current liabilities||67,402||55,812|
|Long-term portion of deferred rent||36,940||40,891|
|Long-term portion of capital lease obligation||155||835|
|Total long-term liabilities||37,095||41,726|
|Common stock (Class A), $0.001 par value; October 29, 2016 - 100,000 shares authorized, 12,672 shares issued and outstanding; January 30, 2016 - 100,000 shares authorized, 12,305 shares issued and outstanding||13||12|
|Common stock (Class B), $0.001 par value; October 29, 2016 - 35,000 shares authorized, 15,879 shares issued and outstanding; January 30, 2016 - 35,000 shares authorized, 16,169 shares issued and outstanding||16||16|
|Preferred stock, $0.001 par value; October 29, 2016 and January 30, 2016 - 10,000 shares authorized, no shares issued or outstanding||—||—|
|Additional paid-in capital||135,469||133,550|
|Accumulated other comprehensive income||57||22|
|Total stockholders’ equity||180,274||173,213|
|Total liabilities and stockholders’ equity||$||284,771||$||270,751|
Consolidated Statements of Income
(In thousands, except per share data)
|Three Months Ended||Nine Months Ended|
|Cost of goods sold (includes buying, distribution, and occupancy costs)||104,137||97,051||289,343||274,616|
|Selling, general and administrative expenses||37,302||39,254||110,460||108,669|
|Other income, net||103||21||270||40|
|Income before income taxes||10,770||5,408||9,203||8,660|
|Income tax expense||4,353||2,594||4,097||4,003|
|Basic earnings per share of Class A and Class B common stock||$||0.23||$||0.10||$||0.18||$||0.16|
|Diluted earnings per share of Class A and Class B common stock||$||0.22||$||0.10||$||0.18||$||0.16|
|Weighted average basic shares outstanding||28,482||28,408||28,456||28,305|
|Weighted average diluted shares outstanding||28,527||28,419||28,476||28,403|
Consolidated Statements of Cash Flows
|Nine Months Ended|
|Cash flows from operating activities|
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Depreciation and amortization||17,498||16,991|
|Stock-based compensation expense||1,995||3,313|
|Impairment of assets||1,963||1,721|
|Loss on disposal of assets||6||245|
|Gain on sales and maturities of marketable securities||(164||)||(96||)|
|Deferred income taxes||(298||)||(733||)|
|Excess tax benefit from stock-based compensation||—||(95||)|
|Changes in operating assets and liabilities:|
|Prepaid expenses and other assets||(1,084||)||(932||)|
|Accrued compensation and benefits||(271||)||(1,633||)|
|Net cash provided by operating activities||19,589||6,403|
|Cash flows from investing activities|
|Purchase of property and equipment||(14,794||)||(17,491||)|
|Proceeds from sale of property and equipment||43||7|
|Purchases of marketable securities||(81,762||)||(49,927||)|
|Maturities of marketable securities||70,000||55,000|
|Net cash used in investing activities||(26,513||)||(12,411||)|
|Cash flows from financing activities|
|Proceeds from exercise of stock options||24||3,094|
|Payment of capital lease obligation||(639||)||(600||)|
|Taxes paid in lieu of shares issued for stock-based compensation||(99||)||(35||)|
|Excess tax benefit from stock-based compensation||—||95|
|Net cash (used in) provided by financing activities||(714||)||2,554|
|Change in cash and cash equivalents||(7,638||)||(3,454||)|
|Cash and cash equivalents, beginning of period||51,020||49,789|
|Cash and cash equivalents, end of period||$||43,382||$||46,335|
Store Count and Square Footage
Beg of Quarter
End of Quarter
End of Quarter