Comp Store Net Sales Increase 4.3%: EPS of
$0.18
Non-GAAP EPS of $0.20 Excluding Secondary
Offering Costs
Confirms Fourth Quarter Outlook
Tilly’s, Inc. (NYSE: TLYS) today announced revised financial
results for the fiscal 2018 third quarter and year-to-date period
ended November 3, 2018 in order to correct certain accounting
entries relating to inventory under the retail method, which had
accumulated over several fiscal periods, including the third
quarter of fiscal 2018. This correction resulted in a $2.1 million
charge to cost of goods sold, partially offset by a corresponding
$0.6 million reduction in previously recorded corporate bonus
accruals within selling, general and administrative expenses,
resulting in a net charge of $1.5 million to operating income, and
a $1.1 million reduction in net income, or $0.03 per diluted share,
for the quarter and year-to-date period ended November 3, 2018.
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 $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 early
September 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 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 $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 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 $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 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 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 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.
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 7,633 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 $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 $ 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/
Investor Relations:Michael Henry,
Chief Financial Officer(949) 609-5599, ext.
17000irelations@tillys.com
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