Tilly's Inc., the Southern California-based action sports
retailer that last summer filed for an initial public offering, reported net
earnings shot up 40.6 percent in its year ended Jan. 28, to $34.3 million from
$24.4 million the prior
year,  according to a filing with the Securities
& Exchange Commission.  Revenues rose
20.5 percent to $400.6 million from $332.6 million.

Key figures from the 10Q follows:

Net Sales

Net sales increased from $332.6 million in fiscal year 2010 to $400.6 million in fiscal year 2011, an increase of $68.0 million, or 20 percent. New stores opened in fiscal year 2011 accounted for $18.8 million of the increase in net sales. Also, $15.2 million of the increase in net sales resulted from the additional portion of the year that stores opened during fiscal year 2010 were operating in fiscal year 2011, as well as fees charged to customers for shipping merchandise sold through our e-commerce store. Net sales also increased due to a comparable store net sales increase of 10.7 percent, or $34.0 million. The comparable store net sales increase stemmed from higher net sales of guys’, juniors’ and girls’ apparel, footwear and accessories, which was partially offset by slightly lower net sales of boys’ apparel. There were 121 comparable stores and 19 non-comparable stores open at January 28, 2012.

Net sales, including shipping and handling fees, from our e-commerce store increased from $32.8 million in fiscal year 2010 to $43.6 million in fiscal year 2011, an increase of $10.8 million, or 33 percent. This increase reflects higher sales in all major product categories (guys’ and juniors’ apparel, footwear and accessories), which was attributable at least partially to the greater marketing efforts that directly supported the e-commerce business. E-commerce sales, excluding shipping and handling fees, are included in our calculation of comparable store sales, as comparable store sales is intended to reflect revenue from the sale of merchandise only.

Gross Profit

Gross profit increased from $102.6 million in fiscal year 2010 to $129.1 million in fiscal year 2011, an increase of $26.5 million, or 26 percent. As a percentage of net sales, gross profit was 30.9 percent and 32.2 percent during fiscal years 2010 and 2011, respectively. Of the 1.3 percent increase, 0.7 percent related to buying, distribution and occupancy costs increasing at a slower rate than the increase in net sales. The remaining 0.6 percent of the increase in gross profit as a percentage of net sales was mostly due to lower promotional markdowns.

Selling, General and Administrative Expenses

SG&A expenses increased from $77.7 million in fiscal year 2010 to $94.2 million in fiscal year 2011, an increase of $16.5 million, or 21 percent. As a percentage of net sales, SG&A expenses were 23.4 percent and 23.5 percent during fiscal years 2010 and 2011, respectively.

Store selling expenses increased from $53.7 million in fiscal year 2010 to $63.8 million in fiscal year 2011, an increase of $10.1 million, or 19 percent. As a percentage of net sales, store selling expenses were 16.1 percent and 15.9 percent during fiscal years 2010 and 2011, respectively.

The following contributed to the decrease in store selling expenses as a percentage of net sales:

  • marketing costs increased $3.0 million, or 0.3 percent as a percentage of net sales, reflecting growth in the size and number of marketing campaigns, including the frequency and distribution of catalog mailings as well as marketing costs incurred to support and drive the growth of our e-commerce business;
  • store and regional payroll, payroll benefits and related personnel costs increased $6.2 million, but decreased 0.4 percent as a percentage of net sales, reflecting cost leverage as these costs increased more slowly than net sales; and
  • supplies and other support costs increased $0.9 million, but decreased 0.1 percent as a percentage of net sales.

General and administrative expenses increased from $24.0 million in fiscal year 2010 to $30.4 million in fiscal year 2011, an increase of $6.4 million, or 27 percent. As a percentage of net sales, general and administrative expenses were 7.2 percent and 7.6 percent during fiscal years 2010 and 2011, respectively.

The following contributed to the increase in general and administrative expenses as a percentage of net sales:

  • payroll, payroll benefits and related costs for corporate office personnel increased $6.6 million, or 0.8 percent as a percentage of net sales. This increase reflects the addition of staff to support company growth and pay increases, and an increase in incentive pay reflecting individual and company-wide performance;
  • depreciation, legal and other office expenses did not change significantly in absolute terms between fiscal years 2010 and 2011, but decreased 0.3 percent as a percentage of net sales; and
  • a charge for the impairment of the fixed assets at one store location of $0.8 million in fiscal year 2010 and one store location of $0.6 million in fiscal year 2011, which represented 0.2 percent and 0.1 percent as a percentage of net sales in each year, respectively.

Operating Income

Operating income increased from $24.9 million in fiscal year 2010 to $34.9 million in fiscal year 2011, an increase of $10.0 million, or 40 percent. As a percentage of net sales, operating income was 7.5 percent and 8.7 percent during fiscal years 2010 and 2011, respectively. Of the 1.2 percent increase in operating income as a percentage of net sales, 0.6 percent was due to lower product costs as a percentage of net sales resulting from lower promotional markdowns, and the remaining 0.6 percent was due to other costs and expenses increasing at a slower rate than net sales.

Interest Income (Expense), Net

Net interest expense was $0.2 million in fiscal year 2010 and fiscal year 2011. Net interest expense reflects interest paid on a capitalized lease of our corporate office and distribution center as well as costs related to maintaining our unused line of credit bank facility, net of interest income earned on cash balances and on tenant construction allowances due from landlords.

Provision for Income Taxes

Income taxes were $0.3 million and $0.4 million in fiscal years 2010 and 2011, respectively. This reflected a slight drop in the effective tax rate, from 1.14 percent of income before provision for income taxes in fiscal year 2010 to 1.12 percent of income before provision for income taxes in fiscal year 2011.