By Charlie Lunan
Tillys Inc. (NYSE:TLYS) has seen steadier online back-to-school traffic versus at its 225 physical stores, where traffic and comps are gyrating double digits week to week depending on the timing of tax holidays and other promotions, the company’s CEO reported Wednesday.
“Consistent traffic continues to be a challenge,” Tillys President and CEO Ed Thomas said during the company’s second-quarter earnings call Wednesday. “But our online business has been very solid, and very consistent across all categories.”
Tillys reported that double-digit growth at its profitable e-commerce business enabled it to grow comparable-store sales 0.9 percent year over year in the fiscal second quarter ended July 30. A higher conversion rate and average ticket as well as strong results in the two weeks starting with the Memorial Day weekend drove the improvement, offset by lower traffic and comps at physical stores during the period.
Changing consumer shopping habits seem to be driving the discrepancy given that the Irvine, CA-based action-sports-inspired teen retailer offers largely the same assortments online as it does in its stores. The disparity was particularly pronounced in women’s merchandise, where overall comps fell slightly but rose double digits online. All other departments generated positive comps growth compared with the year-ago quarter.
Tillys sales per square foot approached $300 during the quarter, up from $290 at the end of last year, but below the $350 mark achieved a few years ago.
Still, the retailer stands ready to accelerate store openings to take advantage of rent concessions being offered by malls losing Macy’s and other department store anchors.
“My guess is that in some cases rents are going to come down for us, going forward, in light of the environment, and how difficult it is,” Thomas said. “When we start accelerating our expansion again, we might see some opportunities on the rent side that we had not seen in the last few years.”
Tillys grew net sales 5 percent to $136.4 million in the quarter, thanks primarily to the opening of nine new physical stores. Gross margin grew 40 basis points to 28.5 percent as increased markdowns partially offset lower buying, distribution and occupancy costs. Operating margin doubled to 1.6 percent, but remained well below the high-single-digit performance of a few years ago. Net income grew to $1.4 million, or 5 cents per diluted share, up 133 and 150 percent respectively from the year-earlier quarter.
Tillys expects comparable-store sales to be flat or decline up to 4 percent in the current quarter compared to 3.9-percent growth in the fiscal third quarter ended October 31, 2015. Operating income is forecast to come in at $3.5 million to $6.5 million, compared with $5.4 million a year ago and $8.6 million a year before that.
Photo courtesy Tillys
