Tilly’s Inc. on Wednesday reported comparable store net sales, which include e-commerce net sales, increased 2.4 percent compared to an increase of 0.1 percent during last year’s first quarter. That marked the 12th straight quarter of improved comps for the company.

“Tilly’s continued its positive momentum during the first quarter of fiscal 2019 with its twelfth consecutive quarter of flat to positive comp sales,” said Ed Thomas, president and CEO. “Although the second quarter is off to a slow start, our goal is to continue improving our operating results during fiscal 2019.”

First Quarter Results Overview

The following comparisons refer to operating results for the first quarter of fiscal 2019 versus the first quarter of fiscal 2018 ended May 5, 2018:

  • Total net sales were $130.3 million, an increase of $6.7 million or 5.4 percent, compared to $123.6 million last year. The company ended first quarter of fiscal 2019 with 229 total stores compared to 222 total stores last year, both including three RSQ-branded pop-up stores.
  • Comparable store net sales, which includes e-commerce net sales, increased 2.4 percent compared to an increase of 0.1 percent during last year’s first quarter. E-commerce net sales increased 29.6 percent and represented approximately 15.1 percent of total net sales this year, compared to a decrease of 7.2 percent and a 12.2 percent share of total net sales last year. Comparable store net sales in physical stores decreased 1.4 percent and represented approximately 84.9 percent of total net sales, compared to an increase of 1.2 percent and an 87.8 percent share of total net sales last year.
  • Gross profit was $35.7 million, an increase of $0.7 million or 2.0 percent, compared to $35.0 million last year. Gross margin, or gross profit as a percentage of net sales, decreased to 27.4 percent from 28.3 percent last year. This 90 basis point decrease in gross margin was primarily due to an 80 basis point increase in distribution costs primarily as a result of higher e-commerce shipping costs associated with strong e-commerce net sales growth and a 70 basis point decrease in product margins due to higher total markdowns. These cost increases were partially offset by 60 basis points of improved leverage of occupancy and buying costs as a percentage of net sales.
  • Selling, general and administrative expenses (“SG&A”) were $35.5 million, or 27.3 percent of net sales, compared to $33.6 million, or 27.2 percent of net sales, last year. The $1.9 million increase in SG&A was primarily attributable to an increase in store payroll of approximately $1.0 million due in part to minimum wage and annual merit increases, and an increase in e-commerce marketing and fulfillment expenses of approximately $0.8 million associated with e-commerce net sales growth.
  • Operating income was $0.1 million, or 0.1 percent of net sales, compared to $1.3 million, or 1.1 percent of net sales, last year. The $1.2 million decline in operating results was largely attributable to the increased costs associated with e-commerce net sales growth and the minimum wage impact on store payroll, as explained above, partially offset by the positive impact of improved comp sales results.
  • Other income increased to $0.8 million from $0.4 million last year, primarily due to higher interest rates on our cash and marketable securities investment portfolio compared to last year.
  • Income tax expense was $0.3 million, or 30.6 percent of pre-tax income, compared to $0.5 million, or 28.6 percent of pre-tax income, last year. Income tax expense includes certain discrete items associated with employee stock-based award activity in both periods.
  • Net income was $0.7 million, or $0.02 per diluted share, compared to $1.2 million, or $0.04 per diluted share, last year.

Balance Sheet and Liquidity

As of May 4, 2019, the company had $109.8 million of cash and marketable securities and no debt outstanding under its revolving credit facility. This compares to $105.0 million of cash and marketable securities and no debt outstanding under its revolving credit facility as of May 5, 2018. For the third consecutive year, the company paid a special cash dividend to its stockholders in February. This year’s special cash dividend was approximately $29.5 million in the aggregate, or $1 per share.

Fiscal 2019 Second Quarter Outlook

The company’s quarter-to-date comparable store net sales have decreased 6.6 percent through Memorial Day weekend. The company believes this slow start is largely attributable to unseasonable weather across much of the country, particularly in California where 95 of the company’s 228 total stores reside, resulting in weak sales results across almost all spring/summer product categories. The company believes these results will improve over the remainder of the second quarter, assuming more normal weather patterns occur. Based on current and historical trends, the company expects its second quarter total net sales to range from approximately $154 million to approximately $159 million based on a comparable store net sales decrease of 1 percent to 4 percent for the quarter as a whole. The company expects second quarter operating income to range from approximately $6.5 million to approximately $8.5 million, and earnings per diluted share to range from $0.17 to $0.23. This outlook assumes no non-cash store asset impairment charges, an anticipated effective tax rate of approximately 27 percent, and weighted average shares of approximately 30 million.

Regarding the legal settlement coupons the company issued last September, less than 2 percent have been redeemed to date, resulting in no material impact on its business. All such coupons will expire on September 4, 2019. While there can be no guarantee that redemptions will remain immaterial during the upcoming back-to-school season, the company is not expecting any meaningful impacts on its business during the final three months of the redemption period based on the redemption results thus far.

Photo courtesy Tilly’s