Tilly’s Inc. said strong pent-up demand following pandemic-related restrictions and a spike in the graphic T-shirt business helped produce its strongest level of sales and EPS for any quarter since its 2012 IPO.
In the quarter ended August 1, sales jumped 48.7 percent to $202.0 million. Compared to fiscal 2019 second quarter, sales increased 24.9 percent, which was driven by a comparable sales increase of 18.3 percent and operating 15 net additional stores.
The size of the gain in part reflects pandemic-related restrictions that caused led to 65 percent of total store operating days being available in the year-ago period.
“We believe these results were driven by considerable pent-up consumer demand compared to last year, aided by government stimulus payments, compelling merchandising offerings, and excellent execution by our store and corporate teams,” said Ed Thomas, president and CEO, on a call with analysts.
Store comps were positive in all markets and strongest in its two most recent primary expansion areas, New England and Texas, each of which posted comp sales increases over 20 percent compared to 2019.
Among categories, men’s and women’s apparel were “very strong,” led by its proprietary brands, RSQ and Full Tilt, its number one and number two overall brands in both the second quarter and first half of 2021. Proprietary brands have grown to just over 30 percent of Tilly’s mix.
Graphic T-shirts And Newness Drive Q2 Growth Thomas also cited a “strong performance” across its curated mix of iconic, global and niche brands. He added, “Apparel growth has been driven by new trends in bottoms, a surge in the graphic T-shirt business, and a high adoption rate on newness generally.”
Same-store sales of accessories and girls increased by a single-digit percentage relative to 2019, while boys and footwear decreased by a single-digit percentage relative to 2019.
Hard goods, which was a minimal part of its assortment in 2019, produced $2.1 million in sales during the second quarter and is now in nearly two-third of Tilly’s stores. All stores are expected to have at least a portion of hard goods offerings by the holiday selling season.
Among merchandising initiatives, Tilly’s sustainable merchandise program was expanded during the quarter, ending with over 1,000 items from over 40 brands in the sustainability shop on Tilly’s website. The offerings play up features such as the use of certified recycled materials, certified organic cotton, or reusable accessories. Over 40 styles under its RSQ brand featuring similar sustainability attributes were launched in the quarter. A collection of vintage and upcycled products with over 200 pieces were just launched in 25 of its stores to a strong initial response. Overall, these collections currently represent roughly 4 percent of total inventory.
By channel, net sales in the second quarter from physical stores were $164.6 million, a hike of 96.3 percent year over year. E-commerce sales were $37.3 million, a decrease of 28.2 percent as the year-ago period saw triple-digit online gains in May and June as purchases shifted online amid significant store closures.
Net sales from physical stores represented 81.5 percent of total sales for the second quarter compared to 61.7 percent last year and 85.9 percent in the 2019 second quarter. E-commerce represented 18.5 percent of total sales in the latest quarter compared to 38.3 percent last year and 14.1 percent in 2019.
Gross Margins Improve 630 Basis Points|
Gross margins in the latest quarter improved to 37 percent of sales compared to 30.7 percent. Buying, distribution, and occupancy costs improved by 800 basis points due to sales leverage.
Product margins decreased 170 basis points due to going up against last year’s strong full-price selling upon the initial reopening of stores relative to certain valuation reserves taken on idle store inventory at the end of the first quarter last year when all stores were closed. Compared to 2019 second quarter, product margins improved by 190 basis points, primarily due to reduced markdowns.
Total SG&A expenses were reduced to 23.9 percent of sales from 25 percent last year. Operating income improved 13.1 percent to $26.4 million, primarily due to the significant increase in net sales. Net income reached $20.4 million, or 66 cents per share, compared to $5.3 million, or 18 cents per diluted share, last year.
Inventories per square foot were up 25.6 percent over last year’s second quarter and up 14.3 percent over the 2019 second quarter in order to “support the current momentum of our business,” said Mike Henry, CFO
In the first month of the third quarter, comparable sales for August increased 20.4 percent compared to 2019’s comparable period with increases from physical stores of 11.6 percent and from e-commerce of 81 percent.
For the third quarter, sales are expected in the range of $187 million to $193 million and EPS in the range of 30 to 34 cents. In the 2020 third quarter, sales were $140.3 million and EPS was 7 cents.
In the Q&A section, Henry said Tilly’s continues to find ways to mitigate current supply chain challenges, including pulling forward product. He said inventory has been delayed all year from two to six weeks. He said, “There have been particular instances where we might run really low or sell out of an individual style of an individual item here and there. But it hasn’t been so prominent so as to really hinder the performance of the business.”
Thomas said that absent headwinds such as a higher level of disruption tied to the Delta variant, Tilly’s is confident about momentum continuing through the holiday selling period.
He said, “The consumer seems to be hungry for newness, which I’m very positive about. We have a lot of newness coming into the balance of the year. So that’s pretty exciting for our potential. And I think the headwinds will be what we’ve talked about, the port delays to a certain extent and maybe some tail off in customer demand. However, lastly, our conversion rate is up really high. It’s really improved quite a bit so far this year. And I think what we’re finding is, even though traffic is down and is off of prior years, the customer that’s shopping is buying. So that’s a good thing.”
Photo courtesy Tilly’s
