Shares of Tilly’s Inc. jumped $1.12, or 13.1 percent, on Wednesday to $9.70 after the action-sports themed retailer narrowed its Q1 loss while exceeding internal guidance for earnings and sales.
The net loss came to $161,000, or 1 cent a share, compared to a loss of $2.7 million, or 10 cents, last year. Tilly’s had projected a loss per share in the range of 7 to 15 cents a share.
The operating loss was $329,000 against a loss of $3.97 million a year ago. Guidance had called for an operating loss to be in the range of $3 million to $7 million.
Comparable-store sales, which include e-commerce sales, increased 0.6 percent. Tilly’s had expected same-store sales in the first quarter to decline in the low- to mid-single-digit percentage rate. Total net sales were $120.9 million, an increase of 0.6 percent versus the same period a year ago.
Store comps were just shy of flat on store traffic that was up 1 percent. E-commerce sales increased 6 percent and represented 13.4 percent of our total sales versus 12.7 percent a year ago. The store count dropped to 222 from 224 a year ago.
Gross margins increased to 27.2 percent from 27.1 percent last year. An 80 basis point reduction in buying, distribution and occupancy costs offset a 70 basis point decline in product margins due to increased markdowns.
SG&A expenses were reduced 9.3 percent to 33.2 million. As a percent of sales, SG&A expenses were reduced to 27.5 percent from 30.4 percent last year. Last year’s SG&A included $2.4 million for the combination of a legal provision and non-cash store asset impairment charges that were not repeated this year, which accounted for 200 of the 290 basis point improvement in SG&A this year. The remaining $900,000, or 90 basis points, of improvement in SG&A was primarily attributable to reduced marketing expenses.
On a conference call with analysts, Ed Thomas, president and CEO, noted that the period marked Tilly’s fourth consecutive quarter of year-over-year operating income improvement. After starting the quarter with a negative double-digit February comp, comps bounced back with a nearly flat March comp and a positive low-teens April comp, due to the Easter shift. Comps were up 5.3 percent for the combined March-April period.
“Over the past year, we have been working hard to better engage with our customers and improve the performance of the business,” said Thomas. “We believe our merchandising and traffic-driving initiatives have had a positive impact. Our spring assortment, which includes a variety of new styles and brands, is performing well overall based on our combined March-April comp, in the positive momentum we have seen carry into May.”
On a total company basis, positive comps in its men’s and boy’s departments offset low single-digit negative comps in other departments for the quarter.
Thomas noted that while men’s and boys were the comp drivers, Tilly’s didn’t see “big decreases” in any of the other major categories. He added, “As a matter of fact, subsequent to quarter end, we have seen some improvement in some of those categories that may have been running a little softer than we would have liked. I think in the women’s category, I think the biggest callout there is, there really was no dominant trend. So, I am encouraged by what I’ve been seeing, but still it’s a little volatile out there as you know and we’re going to walk before we run.”
Beyond the improved assortments, successful in-store events and contests also helped support a modest improvement in in-store traffic for the quarter despite an overall continuing negative mall traffic environment. One example was the strong reception to an in-store virtual reality event for the movie Kong.
“We will continue creating what we hope are compelling in-store events and provide support to local schools and sports programs in order to engage more directly with our target customers and drive traffic to stores more frequently,” said Thomas. Discussions are ongoing around bringing other potential co-branded events to the stores.
Thomas said Tilly’s continues to focus on improving sales productivity in its underperforming stores. Zumiez had identified over 40 stores that were seen as underperforming based on the “quality of the real estate involved.” Assortments have been adjusted to help the stores improve productivity. Added Thomas, “As a whole, they have generally continued to outperform the rest of the chain from week to week and we believe there is still additional room for improvement. We meet on this every week as a senior team and we will continue to refine our efforts with these stores to drive better sales productivity.”
Inventory decreased 6.8 percent on a per-square-foot basis on top of last year’s 7.4 percent inventory decrease.
Based on current trends, second-quarter comparable-store sales are expected to be in the range of flat to up low single digits, operating income to be in the range of $1.2 million to $3.5 million and income per diluted share to be in the range of 3 to 7 cents. The earnings guidance compares to EPS of 5 cents a year ago.
Photo courtesy Tilly’s
