Tilly’s Inc. reported its best first quarter of any quarter since becoming a public company in May 2012. Sales grew 111.1 percent in the quarter year-over-year and gained 21.9 percent on a two-year basis.

“Fiscal 2021 is off to a record-setting start with our best first-quarter net sales and best earnings per share of any quarter since becoming a public company in May 2012,” commented Ed Thomas, President and CEO. “The second quarter is also off to a great start with a 30 percent increase in comparable net sales compared to fiscal 2019’s pre-pandemic second quarter. We believe these results are being driven by a compelling merchandise offering and excellent execution by our corporate and store teams, as well as several favorable environmental factors, including increased consumer activity generally, the impact of federal stimulus checks on consumer spending, a return to in-person learning in many schools, and the reopening of public venues.”

First Quarter Results Overview
The following comparisons refer to operating results for the first quarter of fiscal 2021 versus the first quarter of fiscal 2020 ended May 2, 2020:

  • Total net sales were $163.2 million, a record for its first quarter, which represented an increase of $85.9 million or 111.1 percent, compared to $77.3 million last year. Wall Street’s consensus estimate had been $124.2 million.
  • Net sales from physical stores were $127.7 million, an increase of $80.7 million or 171.9 percent, compared to $47.0 million last year, primarily due to the closure of all its stores during the latter half of the first quarter last year as a result of the pandemic. Net sales from stores represented 78.3 percent of total net sales compared to 60.8 percent of total net sales last year. The company ended the first quarter with 238 total stores compared to 239 total stores at the end of the first quarter last year. During the first quarter of fiscal 2021, the company opened two new stores and permanently closed two stores.
  • Net sales from e-commerce were $35.5 million, an increase of $5.1 million or 17.0 percent, compared to $30.3 million last year. E-commerce net sales represented 21.7 percent of total net sales compared to 39.2 percent of total net sales last year.
  • For further context as to how the company’s fiscal 2021 first-quarter business performance compared to pre-pandemic levels during which it was not subject to mandatory store closures, total comparable net sales for the first quarter of fiscal 2021 compared to the first quarter of fiscal 2019 increased 21.9 percent with comparable net sales from physical stores up 11.7 percent and e-commerce net sales up 80.4 percent. In the first quarter of fiscal 2019, total net sales from physical stores represented 84.9 percent of total net sales while net sales from e-commerce represented 15.1 percent of total net sales.
  • Gross profit was $54.8 million, or 33.6 percent of net sales, compared to $1.6 million, or 2.1 percent of net sales, last year. Product margins improved 930 basis points as a percentage of net sales primarily due to the prior year impact of an estimated inventory reserve of $4.7 million recorded during last year’s store shutdown period which represented 600 basis points of the comparative increase. Setting aside the prior year inventory reserve impact, the remaining product margin improvement of 330 basis points was primarily attributable to a lower total markdown rate. Buying, distribution and occupancy costs improved by 2220 basis points collectively, despite increasing by $1.5 million in total, due to leveraging these costs against a much higher level of net sales this year compared to last year’s store shutdown period. Occupancy costs improved by 1700 basis points as a percentage of net sales and were reduced by $0.5 million compared to last year. Distribution expenses improved by 450 basis points as a percentage of net sales despite increasing by $1.6 million. Buying costs improved by 70 basis points as a percentage of net sales despite increasing by $0.5 million.
  • Selling, general and administrative expenses (“SG&A”) were $40.0 million or 24.5 percent of net sales, compared to $30.0 million, or 38.8 percent of net sales, last year. The 1430 basis point improvement in SG&A as a percentage of net sales was primarily due to leveraging the higher level of expenses against a much higher level of net sales as a result of all stores being in operation for the entirety of the first quarter compared to only half of last year’s first quarter. Of the $10.0 million increase in SG&A, $6.2 million was attributable to store payroll and related benefits due to operating all stores for the entirety of this year’s first quarter, $1.5 million was attributable to corporate bonus accruals due to exceeding budgeted targets thus far in fiscal 2021, $1.2 million was attributable to increased e-commerce marketing costs, $1.2 million was attributable to increased corporate payroll and related benefits due to being fully staffed this year compared to significant furloughs and temporary management pay reductions during last year’s store shutdown period, $0.8 million was attributable to increased credit card fees associated with significantly higher net sales, and $0.5 million was due to increased insurance premiums. These increases were partially offset by a $1.6 million reversal of a disputed California sales tax assessment originally recorded during the third quarter of fiscal 2020 which the company was able to successfully resolve in its favor.
  • Operating income improved to $14.9 million, or 9.1 percent of net sales, compared to an operating loss of $(28.4) million, or (36.7) percent of net sales, last year as a result of the combined impact of the factors described above.
  • Other expense was $0.1 million compared to other income of $0.4 million last year, primarily due to earning lower interest rates on investments and approximately $0.2 million in costs associated with the ABL credit facility.
  • Income tax expense was $3.8 million, or 25.7 percent of pre-tax income, compared to an income tax benefit of $(10.6) million, or 37.9 percent of the pre-tax loss, last year.
  • Net income improved to $11.0 million, or $0.36 per diluted share, records for a first-quarter since the company became publicly traded, compared to a net loss of $(17.4) million, or $(0.59) per share, last year. Weighted average shares were 30.5 million this year compared to 29.7 million last year. Wall Street’s consensus estimate had been a loss of 4 cents.

Balance Sheet and Liquidity
As of May 1, 2021, the company had $157.6 million of cash and marketable securities, including $0.8 million of withheld store lease payments and no debt outstanding. This compared to $111.1 million at the end of the first quarter last year, which included $13.3 million in withheld store lease payments and $23.7 million of borrowed cash under the company’s then-existing credit facility. The company ended the first quarter with inventories per square foot down 2.6 percent relative to last year, but up 8.0 percent relative to fiscal 2019, which the company believes is a reasonable position relative to the current performance of its business. Total capital expenditures for the first quarter were $5.5 million compared to $3.5 million last year, the increase is primarily due to new store openings this year.

Fiscal 2021 Second Quarter Business Update
At this time, the company cannot predict with any certainty what future customer traffic or comparable store net sales results will be. However, based on current trends, the company believes that its fiscal 2021 second-quarter net sales and earnings per share will be improved compared to the second quarters of both fiscal 2020 and fiscal 2019 as long as its stores and e-commerce can remain in full operation throughout the quarter. The company expects to end the second quarter of fiscal 2021 with 244 total stores compared to 238 and 229 total stores at the end of the second quarter of fiscal 2020 and 2019, respectively.

The company is providing the following updates regarding its fiscal 2021 second-quarter business in comparison to fiscal 2020 and fiscal 2019:

  • The company’s total net sales for the second quarter of fiscal 2021 through May 31, 2021, were $58.0 million, an increase of $29.7 million, or 104.7 percent, compared to the comparable period of fiscal 2020 ended June 1, 2020, and an increase of $15.9 million, or 37.7 percent, compared to the comparable period of fiscal 2019 ended June 3, 2019.
  • Net sales from physical stores for the second quarter of fiscal 2021 through May 31, 2021, were $47.1 million, an increase of $38.7 million, or 462.6 percent compared to the comparable period of fiscal 2020 ended June 1, 2020, and an increase of $10.9 million, or 30.0 percent, compared to the comparable period of fiscal 2019 ended June 3, 2019.”
  • Net sales from e-commerce for the second quarter of fiscal 2021 through May 31, 2021, were $11.0 million, a decrease of $9.0 million, or 45.2 percent, compared to the comparable period of fiscal 2020 ended June 1, 2020, and an increase of $5.0 million, or 84.6 percent, compared to the comparable period of fiscal 2019 ended June 3, 2019.

As of June 1, 2021, the company had $166.2 million of cash and marketable securities, including $0.5 million of withheld store lease payments and no debt outstanding. This compares to $115.2 million of total cash and marketable securities with $15.0 million of withheld store lease payments and $23.7 million borrowed under its then existing credit facility as of June 2, 2020, the comparable fiscal date last year. As of June 4, 2019, the comparable fiscal date of fiscal 2019, the company had $114.6 million of cash and marketable securities with no withheld store lease payments and no debt outstanding. In February each of 2020 and 2019, the company paid aggregate cash dividends to its stockholders of $29.7 million and $29.5 million, respectively. Based on all currently available information, the company believes the combination of its cash, marketable securities, and credit facility availability will be sufficient to support its operations for at least the next twelve months.

Photo courtesy Tillys