Market Overview

Tilly's, Inc. Announces Fiscal 2017 Fourth Quarter and Full Year Results

Share:

Year-Over-Year Operating Income Up 10% for 4th Quarter, Up 24% for
Full Year

4th Quarter EPS of $0.23, Including Tax Reform Charge of $0.01, In
Line with Outlook

Tilly's, Inc. (NYSE:TLYS) today announced financial results for the
fourth quarter and full year of fiscal 2017 ended February 3, 2018.

"Tillys delivered an improvement in year-over-year operating income of
10% for the fourth quarter and 24% for the 2017 fiscal year as a whole,"
commented Ed Thomas, President and Chief Executive Officer. "We aim to
continue our operating momentum during fiscal 2018, and are off to a
good start in the first quarter thus far."

Fourth Quarter Results Overview

The following comparisons refer to operating results for the fourth
quarter of fiscal 2017 (14 weeks) versus the fourth quarter of fiscal
2016 (13 weeks) ended January 28, 2017:

  • Total net sales were $164.3 million, an increase of 2.6% from $160.2
    million last year, despite ending the quarter with four fewer stores
    than a year ago (219 total stores vs. 223 last year).
  • Comparable store sales, which includes e-commerce sales, were flat.
    Comparable store sales increased 0.1% in the fourth quarter last year.
  • Gross profit was $51.4 million, an increase of 4.8% from $49.1 million
    last year. Gross margin, or gross profit as a percentage of net sales,
    increased to 31.3% from 30.6% last year. This 70 basis point increase
    in gross margin was attributable to a 90 basis point reduction in
    occupancy costs, partially offset by a 20 basis point decrease in
    product margins.
  • Selling, general and administrative expenses ("SG&A") were $40.0
    million, or 24.3% of net sales, compared to $38.7 million, or 24.1% of
    net sales, last year. This 20 basis point increase was primarily
    attributable to increased store payroll as a result of minimum wage
    increases.
  • Operating income was $11.4 million, or 7.0% of net sales, an increase
    of 10.0% from $10.4 million, or 6.5% of net sales, last year. This 50
    basis point increase in our operating margin was attributable to
    improved occupancy costs, as explained above.
  • Income tax expense was $5.2 million, or 43.5% of pre-tax income,
    compared to $4.2 million, or 40.2% of pre-tax income, last year. This
    year's income tax expense includes a net charge of $0.2 million due to
    the impact of the Tax Cuts and Jobs Act (the "Act") signed into law
    during December 2017.
  • Net income was $6.7 million, or $0.23 per diluted share, compared to
    $6.3 million, or $0.22 per diluted share, last year.

Fiscal 2017 Full Year Results Overview

The following comparisons refer to operating results for fiscal 2017 (53
weeks) versus fiscal 2016 (52 weeks) ended January 28, 2017:

  • Total net sales were $576.9 million, an increase of 1.4% from $569.0
    million last year.
  • Comparable store sales, which includes e-commerce sales, increased
    1.0%. Comparable store sales increased 0.5% in fiscal 2016.
  • Gross profit was $175.4 million, an increase of 4.1% from $168.5
    million last year. Gross margin was 30.4% compared to 29.6% last year.
    This 80 basis point increase in gross margin was attributable to
    reductions in total buying, distribution and occupancy costs. Product
    margins were flat.
  • SG&A was $151.4 million compared to $149.1 million, or 26.2% of net
    sales in both years. SG&A includes legal provisions of $6.8 million
    this year compared to $2.4 million last year. After consideration of
    legal provisions, the remainder of SG&A decreased by $2.1 million for
    the year. Primary expense reductions were from marketing, non-cash
    store impairment charges, corporate payroll costs, and several other
    smaller expenses. Increases in store payroll and system implementation
    expenses partially offset these decreases.
  • Operating income was $24.0 million, or 4.2% of net sales, a 24.1%
    increase compared to $19.3 million, or 3.4% of net sales, last year.
    This 80 basis point improvement in operating income was primarily
    driven by increased comparable store sales and reductions in buying,
    distribution and occupancy costs.
  • Income tax expense was $10.5 million, or 41.7% of pre-tax income,
    compared to $8.3 million, or 42.2% of pre-tax income, last year. This
    year's income tax expense includes the previously noted $0.2 million
    impact of the Act.
  • Net income was $14.7 million, or $0.51 per diluted share, an increase
    of 28.8% from $11.4 million, or $0.40 per diluted share, last year.

Balance Sheet and Liquidity

As of February 3, 2018, the Company had $136.0 million of cash and
marketable securities and no debt outstanding under its revolving credit
facility. This compares to $133.9 million of cash and marketable
securities and no debt outstanding under its revolving credit facility
as of January 28, 2017. In February 2018, the Company paid a special
cash dividend to its stockholders of approximately $29.1 million in the
aggregate. The Company also paid a special cash dividend to its
stockholders of approximately $20.1 million in the aggregate during
February 2017.

Fiscal 2018 First Quarter Outlook

Based on current and historical trends, the Company expects its first
quarter comparable store sales to range from flat to a low single-digit
percentage increase, operating results to range from a loss of
approximately $0.5 million to income of approximately $1.0 million, and
per share results to range from a loss of $(0.01) to income per diluted
share of $0.03. This compares to a comparable store sales increase of
0.6%, an operating loss of $(0.2) million, and loss per share of $(0.01)
for the first quarter of fiscal 2017. This outlook assumes an
anticipated effective tax rate of approximately 27% and weighted average
shares of approximately 29.5 million.

Conference Call Information

A conference call to discuss these financial results is scheduled for
today, March 12, 2018, 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 March 26, 2018,
by dialing (844) 512-2921 (domestic) or (412) 317-6671 (international)
and entering the conference identification number: 13676526. Please note
participants must enter the conference identification number in order to
access the replay.

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 220 total stores, including one RSQ
pop-up store, across 32 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
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"), 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)

     
February 3,
2018
January 28,
2017
ASSETS
Current assets:
Cash and cash equivalents $ 53,202 $ 78,994
Marketable securities 82,750 54,923
Receivables 4,352 3,989
Merchandise inventories 53,216 47,768
Prepaid expenses and other current assets 9,534   9,541
Total current assets 203,054 195,215
Property and equipment, net 83,321 89,219
Other assets 3,736   6,072
Total assets $ 290,111   $ 290,506
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,615 $ 17,584
Accrued expenses 22,731 23,872
Deferred revenue 10,879 10,203
Accrued compensation and benefits 6,119 7,259
Dividends payable 29,067
Current portion of deferred rent 5,220 5,643
Current portion of capital lease obligation   835
Total current liabilities 95,631 65,396
Long-term portion of deferred rent 31,340 35,890
Other 2,715  
Total liabilities 129,686 101,286
Stockholders' equity:

Common stock (Class A), $0.001 par value; 100,000 shares
authorized;

14,927 and 13,434 shares issued and outstanding, respectively

15 14

Common stock (Class B), $0.001 par value; 35,000 shares authorized;

14,188 and 15,329 shares issued and outstanding, respectively

14 15

Preferred stock, $0.001 par value; 10,000 shares authorized; no
shares

issued or outstanding

Additional paid-in capital 143,984 138,102
Retained earnings 16,398 51,023
Accumulated other comprehensive income 14   66
Total stockholders' equity 160,425   189,220
Total liabilities and stockholders' equity $ 290,111   $ 290,506

Tilly's, Inc.

Consolidated Statements of Income

(In thousands, except per share data)

(unaudited)

             

14 Weeks

Ended

 

13 Weeks

Ended

53 Weeks

Ended

 

52 Weeks

Ended

February 3,
2018
January 28,
2017
February 3,
2018
January 28,
2017
Net sales $ 164,317 $ 160,215 $ 576,899 $ 568,952
Cost of goods sold (includes buying, distribution, and occupancy
costs)
112,877   111,151   401,529   400,493
Gross profit 51,440 49,064 175,370 168,459
Selling, general and administrative expenses 39,999   38,667   151,384   149,129
Operating income 11,441 10,397 23,986 19,330
Other income, net 414   147   1,223   418
Income before income taxes 11,855 10,544 25,209 19,748
Income tax expense 5,156   4,240   10,509   8,338
Net income $ 6,699   $ 6,304   $ 14,700   $ 11,410
Basic income per share of Class A and Class B common stock $ 0.23 $ 0.22 $ 0.51 $ 0.40
Diluted income per share of Class A and Class B common stock $ 0.23 $ 0.22 $ 0.51 $ 0.40
Weighted average basic shares outstanding 28,965 28,613 28,804 28,496
Weighted average diluted shares outstanding 29,471 28,927 29,074 28,529

Tilly's, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 
Fiscal Ended
February 3,
2018
    January 28,
2017
    January 30,
2016
Cash flows from operating activities    
Net income $ 14,700 $ 11,410 $ 7,541
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 23,389 23,266 22,808
Stock-based compensation expense 2,411 2,572 3,926
Impairment of assets 848 2,352 2,593
Loss on disposal of assets 192 16 304
Gain on sales and maturities of marketable securities (782 ) (251 ) (100 )
Deferred income taxes 2,933 (1,174 ) 1,554
Changes in operating assets and liabilities:
Receivables (363 ) 1,395 (715 )
Merchandise inventories (5,448 ) 3,589 150
Prepaid expenses and other assets (562 ) (449 ) (293 )
Accounts payable 3,559 1,623 (6,993 )
Accrued expenses (2,732 ) 6,562 6,199
Accrued compensation and benefits (1,140 ) 1,508 (160 )
Deferred rent (4,973 ) (5,464 ) (948 )
Deferred revenue 676   1,554     1,079  
Net cash provided by operating activities 32,708     48,509     36,945  
Cash flows from investing activities
Purchase of property and equipment (13,753 ) (17,047 ) (23,100 )
Proceeds from sale of property and equipment 43 7
Purchases of marketable securities (152,389 ) (99,675 ) (74,873 )
Proceeds from marketable securities 125,264   95,021     60,000  
Net cash used in investing activities (40,878 ) (21,658 )   (37,966 )
Cash flows from financing activities
Dividends paid (20,080 )
Proceeds from exercise of stock options 3,394 2,080 3,094
Payment of capital lease obligation (835 ) (858 ) (807 )
Taxes paid in lieu of shares issued for stock-based compensation (101 ) (99 )   (35 )
Net cash (used in) provided by financing activities (17,622 ) 1,123     2,252  
Change in cash and cash equivalents (25,792 ) 27,974 1,231
Cash and cash equivalents, beginning of period 78,994   51,020     49,789  
Cash and cash equivalents, end of period $ 53,202   $ 78,994     $ 51,020  

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)

2016 Q4 225 2 223 1,703
2017 Q1 223 1 222 1,697
2017 Q2 222 1 221 1,690
2017 Q3 221 1 220 1,681
2017 Q4 220 2 3 219 1,668

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