Tilly’s Inc. reported net income for the fiscal first quarter ended May 5 of $1.2 million, or 4 cents per diluted share, compared to a net loss of $(0.2) million, or (1) cent per share, a year ago, beating analysts’ estimates by 3 cents.
The company also reported sales of $123.6 million, up 2.2 percent and ahead of analysts’ estimates by $1.8 million.
“Tillys continues to drive increased store traffic, positive store comps and improved profitability,” said Ed Thomas, president and CEO. “Although corrective efforts continue, we believe we have addressed the most significant technical issues related to our e-com business and results are beginning to improve. E-com sales remain inconsistent, but we are off to a good start to the second quarter with positive comps both in stores and online thus far.”
First Quarter Results Overview
The following comparisons refer to operating results for the first quarter of fiscal 2018 versus the first quarter of fiscal 2017 ended April 29, 2017:
Total net sales were $123.6 million, an increase of 2.2 percent, from $120.9 million last year, primarily due to the calendar shift impact of last year’s 53rd week in the retail calendar.
Comparable store sales, which include e-commerce sales, increased 0.1 percent in total. Comparable store sales in physical stores were up 1.2 percent. E-commerce sales were down 7.2 percent for the quarter, yet improved incrementally in each month of the quarter. Comparable store sales increased 0.6 percent in the first quarter last year.
Gross profit was $35 million, an increase of 6.3 percent from $32.9 million last year. Gross margin, or gross profit as a percentage of net sales, increased to 28.3 percent from 27.2 percent last year. This 110 basis point increase in gross margin was attributable to a 120 basis point reduction in buying, distribution and occupancy costs as a result of distribution savings and occupancy reductions. Product margins declined 10 basis points as a result of lower initial markups.
Selling, general and administrative expenses (“SG&A”) were $33.6 million, or 27.2 percent of net sales, compared to $33.2 million, or 27.5 percent of net sales, last year. This 30 basis point decrease in SG&A was primarily driven by corporate payroll savings and disciplined store payroll management, despite minimum wage increases in certain markets. The $0.4 million increase in SG&A was primarily due to costs associated with new order management, website and point-of-sale systems.
Operating income was $1.3 million, or 1.1 percent of net sales, compared to an operating loss of $(0.3) million, or (0.3) percent of net sales, last year. This 140 basis point increase in our operating margin was primarily attributable to reduced distribution and occupancy costs, and improved leverage of SG&A on higher total sales, as explained above.
Income tax expense was $0.5 million, or 28.6 percent of pre-tax income, compared to $0.1 million last year. Income tax expense includes certain discrete items associated with employee stock-based award activity in both periods.
Net income was $1.2 million, or $04 per diluted share, compared to a net loss of $(0.2) million, or $(01) per share, last year.
Balance Sheet and Liquidity
As of May 5, 2018, the company had $105 million of cash and marketable securities and no debt outstanding under its revolving credit facility. This compares to $105.6 million of cash and marketable securities and no debt outstanding under its revolving credit facility as of April 29, 2017. The company paid special cash dividends to its stockholders of approximately $29.1 million and $20.1 million in the aggregate during February of 2018 and 2017, respectively.
Fiscal 2018 Second Quarter Outlook
As a result of the calendar shift impact of last year’s 53rd week in the retail calendar, the company expects its second quarter total net sales to range from $153 million to $157 million based on an assumed increase in comparable stores sales of one to four percent. This calendar shift results in an increase of approximately $12.3 million in last year’s comparable sales base and approximately $0.10of diluted earnings per share for second quarter comparability. This is due to the first several days of August, which are in the back-to-school season, shifting into the second quarter this year versus being in the third quarter last year.
The company expects that this same calendar shift will have an opposite impact on the third quarter, with a net reduction of approximately $13.9 million in last year’s comparable store sales base and approximately $0.12 of diluted earnings per share for third quarter comparability. The company expects second quarter operating income to range from $9.5 million to $11 million, and earnings per diluted share to range from $0.24 to $0.28. This outlook assumes an anticipated effective tax rate of approximately 27 percent and weighted average shares of approximately 29.5 million.
Photo courtesy Tilly’s