Tilly's, Inc. TLYS today announced financial results for the second quarter (three months) and first half (six months) of fiscal 2016 ended July 30, 2016.
"Our second quarter comp sales and operating income exceeded our outlook ranges and we ended the quarter with inventory down 7% on a per square foot basis," stated Ed Thomas, President and Chief Executive Officer. "We are focused as a management team on continuing these directional improvements. Our back-to-school results have been mixed, but we believe our merchandise assortment is well positioned for the season."
Second Quarter Results Overview
The following comparisons refer to operating results for the second quarter of fiscal 2016 versus the second quarter of fiscal 2015 ended August 1, 2015:
- Total net sales were $136.4 million, an increase of 5% over last year.
- Comparable store sales, which include e-commerce sales, increased 0.9%.
- Gross profit was $38.8 million, a 6.1% increase from $36.6 million last year. Gross margin, or gross profit as a percentage of net sales, improved 40 basis points to 28.5% compared to 28.1% last year. This 40 basis point increase in gross margin was attributable to a 70 basis point improvement in buying, distribution and occupancy costs, partially offset by a 30 basis point decline in product margins from increased markdowns. Occupancy costs were lower than expected due to a lease assignment and certain other lease negotiations.
- Selling, general and administrative expenses ("SG&A") were $36.6 million, up $1.1 million from $35.5 million last year. This increase was primarily due to increased store payroll dollars associated with 9 net new stores and minimum wage increases, which offset expense reductions in other areas. As a percentage of net sales, total SG&A improved 50 basis points to 26.8% from 27.3% last year. This rate improvement was primarily driven by the combination of more efficient marketing spend and reductions in corporate office payroll, stock compensation, and various other smaller expenses as a percentage of sales.
- Operating income was $2.2 million, or 1.6% of net sales, compared to $1.1 million, or 0.8% of net sales, last year. The 80 basis point increase in our operating results was primarily attributable to higher gross profit and reduced SG&A as a percentage of net sales, as noted above.
- Net income was $1.4 million, or $0.05 per diluted share, compared to $0.6 million, or $0.02 per diluted share, last year. Our effective tax rate was 38.3% compared to 49.7% last year, primarily due to the tax impact of discrete items related to restricted stock and stock option expirations.
First Half Results Overview
The following comparisons refer to operating results for the first half of fiscal 2016 versus the first half of fiscal 2015 ended August 1, 2015:
- Total net sales were $256.6 million, an increase of 2.6% over last year.
- Comparable store sales, which include e-commerce sales, decreased 1.4%.
- Gross profit was $71.4 million, a 1.7% decrease from $72.6 million last year. Gross margin, or gross profit as a percentage of net sales, was 27.8% compared to 29.0% last year. This 120 basis point decrease in gross margin was attributable to two factors: 1) a 60 basis point decline in product margins as a result of increased markdowns: and 2) a 60 basis point increase in occupancy costs due to the negative sales comp and adding 9 net new stores year over year.
- Selling, general and administrative expenses ("SG&A") were $73.2 million, up $3.7 million from $69.4 million last year. Of this increase, $2.4 million was attributable to the combination of a legal provision and non-cash store asset impairment charges. Excluding these items, SG&A increased $1.4 million, primarily due to increased store payroll dollars associated with 9 net new stores and minimum wage increases, which offset expense reductions in other areas.
- Operating loss was $1.7 million, or 0.7% of net sales, compared to operating income of $3.2 million, or 1.3% of net sales, last year. The 200 basis point decrease in our operating results was primarily attributable to lower gross profit and increased SG&A, as noted above.
- Income tax benefit was $0.3 million, or 16.3% of pre-tax loss, compared to income tax expense of $1.4 million, or 43.3% of pre-tax income, last year. This tax benefit was attributable to a $0.4 million discrete income tax impact related to restricted stock and stock option expirations during fiscal 2016.
- Net loss was $1.3 million, or $0.05 per share, compared to net income of $1.8 million, or $0.06 per diluted share, last year.
Balance Sheet and Liquidity
As of July 30, 2016, the Company had $96 million of cash and marketable securities, and no debt outstanding under its revolving credit facility compared to $77 million of cash and marketable securities and no debt, respectively, as of August 1, 2015.
Third Quarter 2016 Outlook
The Company expects third quarter comparable store sales to be in the range of flat to -4%, operating income to be in the range from $3.5 million to $6.5 million, and earnings per share results to be in the range from $0.07 to $0.13. This assumes an anticipated effective tax rate of approximately 40% and weighted average diluted shares of 28.5 million.
Conference Call Information
A conference call to discuss the financial results is scheduled for today, August 24, 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 September 7, 2016, by dialing (877) 870-5176 (domestic) or (858) 384-5517 (international) and entering the conference identification number: 13642630. Please note participants must enter the conference identification number in order to access the replay.
About Tillys
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 Southern California and, as of August 24, 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.
Tilly's, Inc. |
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July 30, |
January 30, |
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ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 56,466 | $ | 51,020 | |||
Marketable securities | 39,926 | 49,932 | |||||
Receivables | 8,940 | 5,397 | |||||
Merchandise inventories | 76,820 | 51,357 | |||||
Prepaid expenses and other current assets | 15,022 | 12,968 | |||||
Total current assets | 197,174 | 170,674 | |||||
Property and equipment, net | 97,424 | 99,026 | |||||
Other assets | 1,367 | 1,051 | |||||
Total assets | $ | 295,965 | $ | 270,751 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 41,408 | $ | 16,022 | |||
Accrued expenses | 22,319 | 18,901 | |||||
Deferred revenue | 6,340 | 8,174 | |||||
Accrued compensation and benefits | 6,755 | 5,751 | |||||
Current portion of deferred rent | 6,237 | 6,106 | |||||
Current portion of capital lease obligation | 885 | 858 | |||||
Total current liabilities | 83,944 | 55,812 | |||||
Long-term portion of deferred rent | 38,365 | 40,891 | |||||
Long-term portion of capital lease obligation | 386 | 835 | |||||
Total long-term liabilities | 38,751 | 41,726 | |||||
Total liabilities | 122,695 | 97,538 | |||||
Stockholders' equity: | |||||||
Common stock (Class A), $0.001 par value; July 30, 2016 - 100,000
shares authorized, |
12 | 12 | |||||
Common stock (Class B), $0.001 par value; July 30, 2016 - 35,000
shares authorized, 16,069 |
16 | 16 | |||||
Preferred stock, $0.001 par value; July 30, 2016 and January 30,
2016 - 10,000 shares |
— | — | |||||
Additional paid-in capital | 134,910 | 133,550 | |||||
Retained earnings | 38,301 | 39,613 | |||||
Accumulated other comprehensive income | 31 | 22 | |||||
Total stockholders' equity | 173,270 | 173,213 | |||||
Total liabilities and stockholders' equity | $ | 295,965 | $ | 270,751 | |||
Tilly's, Inc. |
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Three Months Ended | Six Months Ended | |||||||||||||||
July 30, |
August 1, |
July 30, |
August 1, |
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Net sales | $ | 136,412 | $ | 130,023 | $ | 256,630 | $ | 250,213 | ||||||||
Cost of goods sold (includes buying, distribution, and occupancy costs) | 97,575 | 93,427 | 185,206 | 177,565 | ||||||||||||
Gross profit | 38,837 | 36,596 | 71,424 | 72,648 | ||||||||||||
Selling, general and administrative expenses | 36,605 | 35,492 | 73,159 | 69,415 | ||||||||||||
Operating income (loss) | 2,232 | 1,104 | (1,735 | ) | 3,233 | |||||||||||
Other income, net | 91 | 10 | 167 | 18 | ||||||||||||
Income (Loss) before income taxes | 2,323 | 1,114 | (1,568 | ) | 3,251 | |||||||||||
Income tax expense (benefit) | 890 | 554 | (256 | ) | 1,409 | |||||||||||
Net income (loss) | $ | 1,433 | $ | 560 | $ | (1,312 | ) | $ | 1,842 | |||||||
Basic earnings (loss) per share of Class A and Class B common stock | $ | 0.05 | $ | 0.02 | $ | (0.05 | ) | $ | 0.07 | |||||||
Diluted earnings (loss) per share of Class A and Class B common stock | $ | 0.05 | $ | 0.02 | $ | (0.05 | ) | $ | 0.06 | |||||||
Weighted average basic shares outstanding | 28,462 | 28,333 | 28,443 | 28,253 | ||||||||||||
Weighted average diluted shares outstanding | 28,466 | 28,426 | 28,443 | 28,403 | ||||||||||||
Tilly's, Inc. |
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Six Months Ended | |||||||||
July 30, |
August 1, |
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Cash flows from operating activities | |||||||||
Net (loss) income | $ | (1,312 | ) | $ | 1,842 | ||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 11,650 | 11,260 | |||||||
Stock-based compensation expense | 1,459 | 2,301 | |||||||
Impairment of assets | 1,523 | 367 | |||||||
(Gain) Loss on disposal of assets | (16 | ) | 67 | ||||||
Gain on sales and maturities of marketable securities | (106 | ) | (65 | ) | |||||
Deferred income taxes | (226 | ) | (147 | ) | |||||
Excess tax benefit from stock-based compensation | — | (95 | ) | ||||||
Changes in operating assets and liabilities: | |||||||||
Receivables | (3,543 | ) | (6,702 | ) | |||||
Merchandise inventories | (25,463 | ) | (28,416 | ) | |||||
Prepaid expenses and other assets | (2,150 | ) | (877 | ) | |||||
Accounts payable | 25,100 | 15,928 | |||||||
Accrued expenses | 2,521 | 6,149 | |||||||
Accrued compensation and benefits | 1,004 | 411 | |||||||
Deferred rent | (2,395 | ) | 353 | ||||||
Deferred revenue | (1,834 | ) | (1,769 | ) | |||||
Net cash provided by operating activities | 6,212 | 607 | |||||||
Cash flows from investing activities | |||||||||
Purchase of property and equipment | (10,415 | ) | (11,481 | ) | |||||
Proceeds from sale of property and equipment | 43 | — | |||||||
Purchases of marketable securities | (39,873 | ) | (19,982 | ) | |||||
Maturities of marketable securities | 50,000 | 30,000 | |||||||
Net cash used in investing activities | (245 | ) | (1,463 | ) | |||||
Cash flows from financing activities | |||||||||
Proceeds from exercise of stock options | — | 3,094 | |||||||
Payment of capital lease obligation | (422 | ) | (397 | ) | |||||
Taxes paid in lieu of shares issued for stock-based compensation | (99 | ) | — | ||||||
Excess tax benefit from stock-based compensation | — | 95 | |||||||
Net cash (used in) provided by financing activities | (521 | ) | 2,792 | ||||||
Change in cash and cash equivalents | 5,446 | 1,936 | |||||||
Cash and cash equivalents, beginning of period | 51,020 | 49,789 | |||||||
Cash and cash equivalents, end of period | $ | 56,466 | $ | 51,725 | |||||
Tilly's, Inc. |
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Stores |
Stores |
Stores |
Stores End of Quarter |
Total Gross |
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2015 Q2 | 213 | 3 | — | 216 | 1,655 | ||||||||||
2015 Q3 | 216 | 4 | — | 220 | 1,681 | ||||||||||
2015 Q4 | 220 | 6 | 2 | 224 | 1,704 | ||||||||||
2016 Q1 | 224 | — | — | 224 | 1,704 | ||||||||||
2016 Q2 | 224 | 2 | 1 | 225 | 1,713 | ||||||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20160824006048/en/
Investor Relations:
Tilly's, Inc.
Michael
Henry, 949-609-5599, ext. 17000
Chief Financial Officer
irelations@tillys.com
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