Tilly’s Inc. reported earnings nearly quadrupled in the second quarter ended August 1 as sales gained 49 percent.

“Fiscal 2021 has been a record-setting year for us so far. Our second-quarter results included a record level of net sales and earnings per share for any quarter, and our first-half earnings per share exceeded the results of any full fiscal year since we became a public company in 2012,” commented Ed Thomas, President and CEO. “The back-to-school season is off to a strong start with double-digit percentage increases in comparable net sales in both physical stores and e-commerce compared to both last year and 2019. Despite ongoing concerns about the current resurgence of COVID-19 cases across the country, supply chain disruptions, labor challenges, and increasing costs generally, we remain cautiously optimistic about our business prospects for the second half of fiscal 2021.”

Fiscal 2021 Second Quarter Operating Results Overview
The following comparisons refer to the company’s operating results for the second quarter of fiscal 2021 versus the second quarter of fiscal 2020 ended August 1, 2020:

  • Total net sales were $202.0 million, a record for any quarter in the company’s history, and an increase of $66.1 million or 48.7 percent, compared to $135.8 million last year.
  • Net sales from physical stores were $164.6 million, an increase of $80.8 million or 96.3 percent, compared to $83.9 million last year, primarily due to a strong product offering and the impact of the various periods of government-mandated store closures during last year’s second quarter which resulted in only 65 percent of total store operating days being available during that period last year. Net sales from stores represented 81.5 percent of total net sales compared to 61.7 percent of total net sales last year. The company ended the second quarter with 244 total stores compared to 238 total stores at the end of the second quarter last year (33 of which were closed to the public at that time). During the second quarter of fiscal 2021, the company opened six new stores.
  • Net sales from e-commerce were $37.3 million, a decrease of $(14.7) million or (28.2) percent, compared to $52.0 million last year, primarily due to the anniversary of last year’s triple-digit e-commerce net sales growth during May and June during the period of significant government-mandated store closures. E-commerce net sales represented 18.5 percent of total net sales compared to 38.3 percent of total net sales last year.
  • Total comparable net sales for the second quarter of fiscal 2021 compared to the second quarter of fiscal 2019 increased by 18.3 percent. Comparable net sales from physical stores increased by 11.0 percent, with increases across all geographic markets, and e-commerce net sales increased by 63.4 percent. In the second quarter of fiscal 2019, total net sales from physical stores represented 85.9 percent of total net sales while net sales from e-commerce represented 14.1 percent of total net sales.
  • Gross profit was $74.7 million, or 37.0 percent of net sales, compared to $41.7 million, or 30.7 percent of net sales, last year. Buying, distribution and occupancy cost improved by 800 basis points collectively, despite increasing by $1.7 million in total, due to leveraging these costs against higher net sales. Product margins decreased 170 basis points as a percentage of net sales due to the anniversary of last year’s strong full-price selling upon the initial reopening of stores relative to certain inventory valuation reserves taken on idle store inventory at the end of the first quarter last year when all stores were closed. Compared to fiscal 2019’s second quarter, product margins improved by 190 basis points primarily due to reduced markdowns.
  • Selling, general and administrative expenses (“SG&A”) were $48.3 million, or 23.9 percent of net sales, compared to $34.0 million, or 25.0 percent of net sales, last year. SG&A improved by 110 basis points as a percentage of net sales, despite increasing by $14.3 million, due to leveraging these costs over higher net sales compared to last year. Primary causes of the SG&A dollar increase included store payroll and related benefits of $10.2 million, primarily due to operating all stores for the entirety of the quarter and serving significantly higher net sales, and corporate bonus accruals of $2.7 million associated with its strong operating performance thus far in fiscal 2021.
  • Operating income increased to $26.4 million, or 13.1 percent of net sales, compared to $7.7 million, or 5.7 percent of net sales, primarily due to the significant increase in net sales.
  • Income tax expense was $5.9 million, or 22.5 percent of pre-tax income, compared to $2.8 million, or 34.3 percent of pre-tax income, last year. The decrease in the effective income tax rate was primarily due to deferred income tax benefits of $0.9 million derived from employee stock option exercise activity this year and the prior year impact of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provided for net operating losses in fiscal 2020 to be carried back to earlier tax years with higher tax rates.
  • Net income improved to $20.4 million, or $0.66 per diluted share, which are records for any quarter since the company became publicly traded in 2012, compared to $5.3 million, or $0.18 per diluted share, last year. Weighted average shares were 31.1 million this year compared to 29.7 million last year.

Fiscal 2021 First Half Operating Results Overview
The following comparisons refer to the company’s operating results for the first half of fiscal 2021 versus the first half of fiscal 2020 ended August 1, 2020:

  • Total net sales were $365.1 million, an increase of $152.0 million or 71.3 percent, compared to $213.1 million last year.
  • Net sales from physical stores were $292.3 million, an increase of $161.5 million or 123.5 percent, compared to $130.8 million last year, primarily due to the various periods of government-mandated store closures during the first half of last year as a result of the pandemic. Net sales from stores represented 80.1 percent of total net sales compared to 61.4 percent of total net sales last year.
  • Net sales from e-commerce were $72.8 million, a decrease of $(9.5) million or (11.6) percent, compared to $82.3 million last year, primarily due to the anniversary of last year’s substantial increase in e-commerce net sales during the period of government-mandated store closures. E-commerce net sales represented 19.9 percent of total net sales compared to 38.6 percent of total net sales last year.
  • Total comparable net sales for the first half of fiscal 2021 compared to the first half of fiscal 2019 increased 19.9 percent with comparable net sales from physical stores up 11.3 percent and e-commerce net sales up 71.2 percent. In the first half of fiscal 2019, total net sales from physical stores represented 85.5 percent of total net sales while net sales from e-commerce represented 14.5 percent of total net sales.
  • Gross profit was $129.6 million, or 35.5 percent of net sales, compared to $43.3 million, or 20.3 percent of net sales, last year. Buying, distribution and occupancy cost improved by 1300 basis points collectively, despite increasing by $3.2 million in total, due to leveraging these costs against higher net sales. Product margins improved by 220 basis points primarily due to reduced markdowns.
  • SG&A was $88.3 million, or 24.2 percent of net sales, compared to $64.0 million, or 30.0 percent of net sales, last year. The 580 basis point improvement in SG&A as a percentage of net sales was primarily due to leveraging these expenses against higher net sales as a result of all stores being in operation for the entirety of the first half of the current year. Of the $24.3 million increase in SG&A, $16.4 million was attributable to store payroll and related benefits due to operating all stores for the entirety of the current year and serving significantly higher net sales, $4.2 million was attributable to corporate bonus accruals associated with its strong operating performance thus far in fiscal 2021, and $2.2 million was attributable to increased corporate payroll and related benefits due to being more fully staffed this year compared to significant furloughs and temporary management pay reductions during last year’s store shutdown period.
  • Operating income increased to $41.3 million, or 11.3 percent of net sales, compared to an operating loss of $(20.7) million, or (9.7) percent of net sales, last year as a result of the combined impact of the factors described above.
  • Income tax expense was $9.7 million, or 23.7 percent of pre-tax income, compared to an income tax benefit of $(7.8) million, or 39.3 percent of the pre-tax loss last year. The decrease in the effective income tax rate was primarily due to deferred income tax benefits of $1.0 million derived from employee stock option exercise activity this year and the prior year impact of the CARES Act, which provided for net operating losses in fiscal 2020 to be carried back to earlier tax years with higher tax rates.
  • Net income for the first half of fiscal 2021 improved to $31.4 million, or $1.02 per diluted share, which exceeds the earnings of any full fiscal year since we became a public company in 2012, compared to a net loss of $(12.1) million, or $(0.41) per share, during the first half of last year. Weighted average diluted shares were 30.8 million this year compared to 29.7 million basic shares last year.

Balance Sheet and Liquidity
As of July 31, 2021, the company had $148.5 million of cash and marketable securities and no debt outstanding. This compared to $148.9 million at the end of the second quarter last year, which included an aggregate of $37.6 million of borrowed cash and withheld store lease payments. On July 9, 2021, the company paid aggregate special cash dividends of $30.7 million, or $1.00 per share, to all Class A and Class B common stockholders of record as of June 25, 2021. The company ended the second quarter with inventories per square foot up 25.6 percent relative to the end of the second quarter of fiscal 2020 and up 14.3 percent relative to the end of the second quarter of fiscal 2019 as the company seeks to support the current momentum of its business. Total capital expenditures for the second quarter were $8.5 million compared to $4.3 million last year, the increase is primarily due to a higher number of new store openings this year.

Fiscal 2021 Third Quarter Business Update and Outlook
Total comparable net sales for fiscal August ended August 28, 2021, increased by 20.4 percent relative to the comparable period of fiscal 2019 with comparable increases from physical stores of 11.6 percent and from e-commerce of 81.0 percent. Based on current and historical trends, and assuming that all of the company’s stores and e-commerce will remain in operation throughout the third quarter, the company would expect its third-quarter net sales to be in the range of approximately $187 million to $193 million and earnings per diluted share to be in the range of $0.30 to $0.34. This outlook range is based on an assumed effective income tax rate of 27 percent and approximately 31.2 million weighted average diluted shares. The company expects to have 243 total stores open at the end of the third quarter compared to 238 at the end of last year’s third quarter and 232 at the end of fiscal 2019’s third quarter.