Tilly’s Inc. reported sales in the first quarter fell 41 percent due to COVID-19-related store closures despite a 55 percent hike in online sales.  The action sports retailer also announced certain store reopening plans and provided other business updates, including plans to withhold rent payments for April and May.

Tilly’s also said it intends to release its financial results for the first quarter of fiscal 2020 ended May 2, 2020, after the market close on Wednesday, June 3, 2020.

Store Reopening Plans
In accordance with the latest guidelines from local, state and federal governments and health organizations, and with new health and safety protocols in place, the company currently expects to reopen 26 of its stores to the public on or about May 15, 2020, including certain stores in Arizona, Florida, Texas and Utah.

The company will continue to monitor the guidance from local, state and federal governments and health organizations, as well as announcements made by mall landlords to determine the pace of any future store reopenings, including the anticipated reopenings noted above. The company intends to reopen stores only after the appropriate health and safety protocols applicable to each reopening have been implemented. As part of its reopenings, the company intends to undertake the following actions to help promote a safe and comfortable environment for its employees and customers:

  • Train its employees on the new health and safety protocols,
  • Conduct health screenings and temperature checks for its employees working in stores,
  • Encourage proper social distancing with signs, floor decals, and limiting the number of employees and customers in a store at any one time, as required by government guidelines,
  • Provide face coverings for our employees,
  • Implement regular cleaning and sanitation policies in its stores,
  • Install plexiglass protective barriers at point-of-sale checkout,
  • Keep all fitting rooms closed to the public,
  • Offer buy-online-pickup-in-store and curbside pickup options in select stores, and
  • Operate with reduced hours.

The foregoing policies and procedures remain subject to further evaluation and change. Information about open store locations and hours of operation will be available at www.tillys.com/reopening. The company’s website remains available to customers for online orders.

“The health and well-being of our employees and customers is our top priority as we begin to reopen our stores. We anticipate customer traffic and sales activity will remain well below normal levels following the reopening of stores, which we expect will negatively impact our near-term profitability and cash flows from our reopened stores,” commented Ed Thomas, president and chief executive officer. “We do not yet know when most of our stores will be able to reopen to the public, particularly with respect to the stores in our home state of California, which represent approximately 40 percent of our current total stores and approximately 50 percent of our historical total store sales in fiscal 2019. However, we look forward to beginning the process of reopening stores and resuming some level of normal life in certain markets.”

Balance Sheet and Other Business Updates

As of May 2, 2020, the company’s cash on hand, cash equivalents, and marketable securities totaled approximately $110.7 million, which includes approximately $23.7 million borrowed under the company’s credit facility. In addition, the company has withheld payment of its contractual lease obligations for its stores for the months of April and May 2020, which totaled approximately $13.4 million in the aggregate. Excluding the cash borrowed under its credit facility and withheld store lease payments, the company’s remaining cash on hand, cash equivalents, and marketable securities totaled approximately $73.6 million as of May 2, 2020, compared to approximately $109.8 million with no borrowings under its credit facility and no withheld lease payments as of May 4, 2019, the end of the first quarter of fiscal 2019. The company ended the first quarter of fiscal 2020 with merchandise inventories up approximately 26.2 percent in total retail value before valuation reserves compared to the end of the first quarter of fiscal 2019, primarily due to all stores being closed since March 18, 2020. The company canceled a substantial majority of its originally planned inventory receipts for the months of April through July 2020 and has significantly reduced its future inventory commitments through the remainder of fiscal 2020 in an attempt to limit its inventory level going forward.

Total net sales for the first quarter of fiscal 2020 were approximately $77.3 million, a decrease of 40.7 percent compared to approximately $130.3 million for the first quarter of fiscal 2019. Net sales from physical stores for the first quarter of fiscal 2020 were approximately $47.0 million, a decrease of 57.5 percent compared to approximately $110.4 million for the first quarter of fiscal 2019. Physical stores were open to the public for only the first 45 days of the total 91 days in the fiscal quarter and were closed during what would have been the normal school spring break and Easter periods. Net sales from e-commerce for the first quarter of fiscal 2020 were approximately $30.4 million, an increase of 54.4 percent compared to approximately $19.7 million for the first quarter of fiscal 2019. E-commerce net sales increased significantly following the closure of the company’s stores on March 18, 2020.

The company’s financial results provided herein for the first quarter of fiscal 2020 are preliminary in nature and the company’s actual financial results are subject to finalization pursuant to the company’s normal quarter-end accounting procedures.
Approximately 90 percent of the company’s employee workforce remains on furlough at this time and previously announced management pay cuts remain in place. The combination of furloughs and management pay cuts has reduced the company’s cash payroll costs by approximately $1.4 million per week since the beginning of April 2020. The company anticipates that it will take a phased approach to its store and corporate staffing levels as stores reopen and as store traffic and sales activity continue to evolve. No end date has yet been set for the company’s management pay cuts.

As noted above, in order to protect its liquidity, the company has elected to withhold payment of its store rents for the months of April and May 2020 while it is unable to safely operate its stores for the purpose, or at the sales levels, intended when store leases were originally signed. The company intends to seek to partner with its landlords to explore acceptable solutions for both parties to reflect the impacts of the store closures and anticipated reduced sales activity following the reopening of stores. There can be no guarantee that the company will be able to obtain acceptable solutions to reduce its rent commitments under its store leases during the period of store closures or reduced sales activity upon reopening, which may result in the company having to pay some or all of the withheld store rents noted above, incur additional costs, or close certain stores.