Tilly’s Inc. continues to face a number headwinds from the macro environment, but still believes it is making progress on improving product margins and driving greater customer engagement through marketing efforts. The positive attitude comes despite a 6.3 percent decrease in fiscal first quarter sales year-over-year (YoY) that amounted to net sales of $115.9 million in the quarter ended May 4.

Total comparable net sales, including both physical stores and e-commerce, decreased by 9.4 percent relative to the 13-week period ended May 6, 2023.

Net sales from physical stores were $92.8 million, a decrease of 5.1 percent YoY, compared to $97.8 million last year, with a comparable store net sales decrease of 8.6 percent. Net sales from physical stores represented 80.1 percent of total net sales this year compared to 79.1 percent of total net sales in Q1 last year.

The company ended the first quarter with 246 total stores compared to 248 total stores at the end of the first quarter last year.

Net sales from e-commerce were $23.0 million, a decrease 10.8 percent YoY, compared to $25.8 million last year. E-commerce net sales represented 19.9 percent of total net sales this year compared to 20.9 percent of total net sales in Q1 last year.

Gross profit, including buying, distribution, and occupancy costs, was $24.3 million, or 21.0 percent of net sales, compared to $25.9 million, or 21.0 percent of net sales, in Q1 last year.

Product margins reportedly improved by 130 basis points primarily due to the combination of a lower markdown rate and improved initial markups.

Buying, distribution, and occupancy costs deleveraged by 130 basis points collectively, despite being $0.8 million lower than last year, primarily due to carrying these costs against lower net sales this year.

Selling, general and administrative (SG&A) expenses were $45.1 million, or 38.9 percent of net sales, in Q1, compared to $43.2 million, or 34.9 percent of net sales, in Q1 last year. The $1.9 million increase in SG&A was said to be primarily attributable to an increase in non-cash store asset impairment charges of $1.5 million and an increase in store payroll and related benefits of $1.0 million due primarily to average wage rate increases.

These increases were said to be partially offset by a variety of smaller expense decreases.

The resulting first quarter operating loss was $20.8 million, or negative 17.9 percent of net sales, compared to $17.3 million, or negative 14.0 percent of net sales, in Q1 last year.

Income tax benefit was $13,000, or 0.1 percent of pre-tax loss, compared to $4.2 million, or 26.1 percent of pre-tax loss, in Q1 last year. The decrease in the first quarter’s effective income tax rate was primarily attributable to the continuing impact of a full, non-cash deferred tax asset valuation allowance (the “valuation allowance”). On a non-GAAP basis, excluding the valuation allowance, income tax benefit was $5.2 million, or 26.4 percent of pre-tax loss.

Net loss for the quarter was $19.6 million, or a loss of 65 cents per share, compared to a net loss of $12.0 million, or 40 cents per share, in Q1 last year. On a non-GAAP basis, excluding the valuation allowance, this year’s net loss was $14.5 million, or a loss of 48 cents per share.

Weighted average shares were 30.0 million this year compared to 29.8 million shares last year.

Balance Sheet and Liquidity
As of May 4, 2024, the company had $68.0 million of cash, cash equivalents and marketable securities and no debt outstanding compared to $93.4 million and no debt outstanding as of April 29, 2023.

Total inventories increased 1.8 percent as of May 4, 2024 compared to April 29, 2023.

Total year-to-date capital expenditures at the end of the first quarter were $2.1 million this year compared to $4.3 million last year.

Fiscal 2024 Second Quarter Outlook
Total comparable net sales for fiscal May ended June 1, 2024, decreased by 8.4 percent relative to the comparable four-week period last year. Based on current quarter-to-date comparable net sales results and current and historical trends, the company currently estimates the following for the second quarter of fiscal 2024:

  • Net sales to be in the range of approximately $160 million to $165 million, translating to an estimated comparable net sales decrease in the range of approximately 10 percent to 7 percent, respectively, relative to the comparable 13-week period last year;
  • SG&A expenses to be in the range of $48 million to $49 million in the absence of any non-cash store asset impairment charges;
  • Effective income tax rate of near-zero due to the continuing impact of the valuation allowance;
  • After-tax results to be in the range of a net loss of approximately $3.9 million to $0.9 million, respectively; and
  • Per share results to be in the range of a net loss of 13 cents to 3 cents, respectively, with estimated weighted average shares of approximately 29.9 million.

The company currently expects to have 247 total stores open at the end of the second quarter of fiscal 2024 compared to 246 at the end of last year’s second quarter.

Image courtesy Tilly’s Inc.