Tilly’s Inc. reported earnings fell 27.8 percent in the fourth quarter as same-store sales retreated 2 percent.

“A deeper than expected drop in store traffic and comparable store net sales during the second and third weeks of December resulted in a disappointing fourth-quarter overall which was our first negative comp quarter in over three and a half years,” commented Ed Thomas, president and CEO. “Comparable store net sales are off to a positive start thus far in the first quarter of fiscal 2020. However, due to the uncertainty of the potential near-term impacts of the coronavirus situation, we are unable to provide specific earnings guidance at this time.”

Fourth Quarter Results Overview
The following comparisons refer to operating results for the fourth quarter of fiscal 2019 versus the fourth quarter of fiscal 2018 ended February 2, 2019:

  • Total net sales were $172.5 million, an increase of $1.9 million or 1.1 percent, compared to $170.6 million last year;
  • The company ended the quarter with 240 total stores, including one RSQ-branded pop-up store, compared to 229 total stores, including four RSQ-branded pop-up stores, last year;
  • Comparable store net sales, which includes e-commerce net sales, decreased 2.0 percent compared to last year’s increase of 6.4 percent. Comparable store net sales in physical stores decreased 2.2 percent and represented approximately 80.7 percent of total net sales compared to a decrease of 0.9 percent and an 80.3 percent share of total net sales last year. E-commerce net sales decreased 1.2 percent and represented approximately 19.3 percent of total net sales compared to an increase of 49.6 percent and a 19.7 percent share of total net sales last year;
  • Gross profit was $52.1 million, or 30.2 percent of net sales, compared to $52.2 million, or 30.6 percent of net sales last year;
  • Product margins decreased 20 basis points as a percentage of net sales due to increased markdowns;
  • Occupancy costs deleveraged 70 basis points as a percentage of net sales, primarily due to opening 11 net new stores compared to last year and the negative comparable store net sales result;
  • Distribution costs improved 50 basis points primarily due to lower e-commerce shipping charges compared to last year;
  • Selling, general and administrative expenses (“SG&A”) were $43.6 million, or 25.3 percent of net sales, compared to $41.2 million, or 24.2 percent of net sales, last year. The $2.4 million increase in SG&A was primarily due to higher store payroll expenses of approximately $1.5 million resulting from minimum wage increases and store count growth, higher worker’s compensation claims reserves of $0.8 million and higher marketing expenses of approximately $0.4 million primarily relating to e-commerce. These expense increases were partially offset by lower corporate bonus provisions of $1.2 million compared to last year. Last year’s SG&A also included $0.9 million in expense reductions related to negotiated resolutions of certain vendor disputes;
  • Operating income was $8.5 million, or 4.9 percent of net sales, compared to $10.9 million, or 6.4 percent of net sales, last year. The $2.4 million decrease in operating income was primarily due to the net SG&A increase noted above relative to net sales growth noted above;
  • Income tax expense was $2.8 million, or 30.9 percent of pre-tax income, compared to $3.1 million, or 26.4 percent of pre-tax income, last year. Income tax expense for fiscal 2019 includes approximately $0.5 million of discrete items related to the acceleration and expiration of certain employee stock options; and
  • Net income was $6.3 million, or $0.21 per diluted share, compared to $8.7 million, or $0.29 per diluted share, last year.

On January 13, Tilly’s lowered its fourth-quarter guidance based on holiday sales. The company expected comparable stores to decrease by 2 percent to 3 percent with EPS in the range of 18 cents to 20 cents. Previously, comps were expected to climb 2 percent to 5 percent for the quarter with EPS in the range of 29 cents to 32 cents.

Year-to-Date Results Overview
The following comparisons refer to operating results for the fifty-two weeks of fiscal 2019 versus the fifty-two weeks of fiscal 2018:

  • Total net sales were $619.3 million, an increase of $20.8 million or 3.5 percent, compared to $598.5 million last year;
  • Comparable store net sales, which includes e-commerce net sales, increased 0.8 percent compared to last year’s increase of 4.0 percent. E-commerce net sales increased 9.7 percent and represented approximately 15.9 percent of total net sales compared to an increase of 21.7 percent and a 15 percent share of total net sales last year. Comparable store net sales in physical stores decreased 0.7 percent and represented approximately 84.1 percent of total net sales compared to an increase of 1.4 percent and an 85 percent share of last year’s total net sales;
  • Gross profit was $186.7 million, an increase of $5.8 million or 3.2 percent, compared to $180.9 million last year;
  • Gross margin, or gross profit as a percentage of net sales, slightly decreased to 30.1 percent from 30.2 percent last year. Product margins were flat compared to last year. Occupancy costs deleveraged 10 basis points primarily due to opening 11 net new stores;
  • SG&A was $158.3 million, or 25.6 percent of net sales, compared to $149.4 million, or 25.0 percent of net sales, last year. The $8.8 million increase in SG&A was primarily due to higher store payroll expenses of approximately $3.7 million resulting from minimum wage increases and store count growth, higher marketing expenses of approximately $2.6 million primarily due to e-commerce net sales growth, increased temporary labor expenses of approximately $1.5 million, and higher worker’s compensation claims reserves of approximately $0.9 million. These increases were partially offset by a $2.4 million reduction in bonus expenses. Last year’s SG&A also included a $1.5 million credit for the favorable resolution of a legal matter and $0.9 million in expense reductions related to negotiated resolutions of certain vendor disputes which were partially offset by $0.7 million in secondary offering expenses;
  • Operating income was $28.5 million, or 4.6 percent of net sales, compared to $31.5 million, or 5.3 percent of net sales, last year. The $3.0 million decrease in operating income was primarily due to the net SG&A increase relative to the net sales increase noted above;
  • Income tax expense was $8.7 million, or 27.9 percent of pre-tax income, compared to $8.9 million, or 26.2 percent of pre-tax income, last year. Income tax expense for fiscal 2019 includes approximately $0.5 million of discrete items related to the acceleration and expiration of certain employee stock options; and
  • Net income was $22.6 million, or $0.76 per diluted share, compared to $24.9 million, or $0.84 per diluted share, last year. Of the $0.08 decline in year-over-year earnings per diluted share, approximately $0.04 was attributable to the aggregate non-recurring impact of last year’s favorable legal matter resolution, negotiated expense reductions and secondary offering costs, in each case noted above. The remaining $0.04 was attributable to the net SG&A increase noted above relative to net sales growth during fiscal 2019.

Balance Sheet and Liquidity
As of February 1, 2020, the company had $139.9 million of cash and marketable securities and no debt outstanding under its revolving credit facility. This compares to $144.1 million of cash and marketable securities and no debt outstanding under its revolving credit facility as of February 2, 2019. For the fourth consecutive year, the company paid a special cash dividend to its stockholders in February 2020. This year’s special cash dividend was approximately $29.7 million in the aggregate or $1 per share.

Fiscal 2020 First Quarter Outlook
Through March 10, 2020, total comparable store net sales, including e-commerce, have increased by a low single-digit percentage with comparable store net sales in stores slightly negative and e-commerce net sales up high-single-digits on a percentage basis. Tilly’s added, “Given the unpredictability of the effects of the coronavirus on, among other things, consumer behavior, store traffic, production capabilities, the timing of deliveries, our people, economic activity, and the market generally in the coming weeks and months, the company is unable to provide specific earnings guidance at this time.”

Photos courtesy Tilly’s/Nike SB