Tilly’s Inc. reported earnings improved modestly in the fourth quarter ended February 3 and came in the lower end of its projections. Same-store sale were flat, also slightly below guidance.

“Tillys delivered an improvement in year-over-year operating income of 10 percent for the fourth quarter and 24 percent 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 percent 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 percent in the fourth quarter last year.
  • Gross profit was $51.4 million, an increase of 4.8 percent from $49.1 million last year. Gross margin, or gross profit as a percentage of net sales, increased to 31.3 percent from 30.6 percent 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 percent of net sales, compared to $38.7 million, or 24.1 percent 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 percent of net sales, an increase of 10.0 percent from $10.4 million, or 6.5 percent of net sales, last year. This 50 basis point increase in operating margin was attributable to improved occupancy costs, as explained above.
  • Income tax expense was $5.2 million, or 43.5 percent of pre-tax income, compared to $4.2 million, or 40.2 percent 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.

When it reported third-quarter results on November 29, Tilly’s said it expected fourth quarter comparable store sales to increase by a low single-digit percentage, operating income to be in the range of approximately $10.5 million to $13.0 million, EPS to land in the range of 22 cents to 26 cents.

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 percent from $569.0 million last year.
    Comparable store sales, which includes e-commerce sales, increased 1.0 percent. Comparable store sales increased 0.5 percent in fiscal 2016.
  • Gross profit was $175.4 million, an increase of 4.1 percent from $168.5 million last year. Gross margin was 30.4 percent compared to 29.6 percent 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 percent 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 percent of net sales, a 24.1 percent increase compared to $19.3 million, or 3.4 percent 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 percent of pre-tax income, compared to $8.3 million, or 42.2 percent 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 51 cents per diluted share, an increase of 28.8 percent from $11.4 million, or 40 cents 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 percent, 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 percent and weighted average shares of approximately 29.5 million.

Photo courtesy Tilly’s