Tilly’s, Inc. reported earnings jumped 36 percent in the fourth quarter ended January 29 on a 14.9 percent revenue gain and improved gross margins. The action sports chain closed out a record year that saw revenues jump 46.0 percent.
“Each quarter of fiscal 2021 set company records for net sales and operating income. Our fourth quarter comparable net sales grew by 12.5 percent and our earnings per share of $0.38 represented our best fourth-quarter earnings in our public company history. I am very proud of the dedication and hard work put in by our store, distribution and corporate office teams,” commented Ed Thomas, President and Chief Executive Officer. “Fiscal 2022 is off to a good start, but our comparisons to last year will get much tougher as we begin to anniversary last year’s pent-up demand and federal stimulus payments.”
Fiscal 2021 Fourth Quarter Results Overview
The following comparisons refer to operating results for the fourth quarter of fiscal 2021 versus the fourth quarter of fiscal 2020 ended January 30, 2021:
- Total net sales were $204.5 million, an increase of $26.6 million or 14.9 percent, compared to $177.9 million last year. Total comparable net sales, including both physical stores and e-commerce, increased by 12.5 percent compared to last year.
- Net sales from physical stores were $152.2 million, an increase of $29.6 million or 24.2 percent, compared to $122.5 million last year. Comparable net sales from physical stores increased by 20.7 percent. Net sales from stores represented 74.4 percent of total net sales compared to 68.9 percent of total net sales last year. The company ended fiscal 2021 with 241 total stores compared to 238 total stores at the end of fiscal 2020.
- Net sales from e-commerce were $52.3 million, a decrease of $(3.1) million or (5.6) percent compared to $55.4 million last year. E-commerce net sales represented 25.6 percent of total net sales compared to 31.1 percent of total net sales last year. Consumer behavior in 2021 favored stores over e-commerce relative to last year during which stores were more constricted in operating hours and customer occupancy limits than this year.
- Net sales from physical stores were $152.2 million, an increase of $29.6 million or 24.2 percent, compared to $122.5 million last year. Comparable net sales from physical stores increased by 20.7 percent. Net sales from stores represented 74.4 percent of total net sales compared to 68.9 percent of total net sales last year. The company ended fiscal 2021 with 241 total stores compared to 238 total stores at the end of fiscal 2020.
- Gross profit was $70.4 million, an increase of $12.1 million or 20.8 percent, compared to $58.3 million last year. Gross margin, or gross profit as a percentage of net sales, was 34.4 percent, an improvement of 170 basis points compared to 32.7 percent last year. Total buying, distribution and occupancy cost improved by 190 basis points collectively, despite increasing by $1.9 million in total, due to leveraging these costs against higher net sales. Product margins decreased by 20 basis points as a percentage of net sales primarily due to an increase in sales return reserves and less favorable inventory shrink results than last year, the combination of which more than offset a lower markdown rate compared to last year.
- Selling, general and administrative expenses (SG&A) were $53.1 million, or 25.9 percent of net sales, compared to $44.1 million, or 24.8 percent of net sales, last year. SG&A deleveraged 110 basis points as a percentage of net sales and increased by $8.9 million compared to last year. Of the $8.9 million increase in SG&A, $4.5 million was attributable to store payroll and related benefits primarily due to serving significantly higher sales, $1.7 million was attributable to marketing expenses primarily due to increased e-commerce marketing, and corporate bonus accruals of $0.6 million due to the company’s strong operating performance in fiscal 2021.
- Operating income was $17.3 million, or 8.5 percent of net sales, compared to $14.1 million, or 7.9 percent of net sales, last year. The $3.2 million increase in operating income was primarily due to the combined impact of the factors noted above.
- Income tax expense was $4.9 million, or 28.7 percent of pre-tax income, compared to $5.1 million, or 36.6 percent of pre-tax income, last year. The decrease in the effective income tax rate was primarily due to a normalization of the tax rate after last year’s effective tax rate was distorted by low pre-tax losses for the year.
- Net income was $12.1 million, or $0.38 per diluted share, compared to $8.9 million, or $0.29 per diluted share, last year. Weighted average shares were 31.4 million this year compared to 30.1 million last year.
Fiscal 2021 Full Year Results Overview
The following comparisons refer to operating results for the fifty-two weeks of fiscal 2021 versus the fifty-two weeks of fiscal 2020:
- Total net sales were $775.7 million, an increase of $244.4 million or 46.0 percent, compared to $531.3 million last year primarily due to the various periods of government-mandated store closures, reduced store operating hours, and restrictions on customer traffic into physical stores last year resulting from the pandemic.
- Net sales from physical stores were $609.7 million, an increase of $251.8 million or 70.4 percent, compared to $357.9 million last year. Net sales from stores represented 78.6 percent of total net sales compared to 67.4 percent of total net sales last year.
- Net sales from e-commerce were $165.9 million, a decrease of $(7.5) million or (4.3) percent, compared to $173.4 million last year. E-commerce net sales represented 21.4 percent of total net sales compared to 32.6 percent of total net sales last year.
- Net sales from physical stores were $609.7 million, an increase of $251.8 million or 70.4 percent, compared to $357.9 million last year. Net sales from stores represented 78.6 percent of total net sales compared to 67.4 percent of total net sales last year.
- Gross profit was $276.7 million, an increase of $134.5 million or 94.6 percent, compared to $142.2 million last year. Gross margin was 35.7 percent, an improvement of 890 basis points as a percentage of net sales, compared to 26.8 percent last year. Total buying, distribution and occupancy cost improved by 760 basis points collectively, despite increasing by $7.8 million in total, due to leveraging these costs against higher net sales. Product margins improved 130 basis points as a percentage of net sales primarily due to reduced total markdowns.
- SG&A expenses were $189.1 million, or 24.4 percent of net sales, compared to $145.2 million, or 27.3 percent of net sales, last year. SG&A improved by 290 basis points as a percentage of net sales compared to last year, despite increasing by $43.8 million, due to leveraging these expenses on higher total net sales. Of the $43.8 million increase in SG&A, $28.5 million was attributable to store payroll and related benefits primarily due to operating all stores for the entirety of the current year and serving significantly higher sales, $6.6 million was attributable to corporate bonus accruals associated with strong operating performance in fiscal 2021, $3.9 million was attributable to marketing expenses primarily due to increased e-commerce marketing, $2.7 million was attributable to increased credit card fees on higher sales volume, and $2.5 million was attributable to increased corporate payroll and related benefits due to being more fully staffed this year compared to significant furloughs during last year’s store shutdown period. Partially offsetting these SG&A increases is a net year-to-date decrease of $3.4 million attributable to a $1.7 million disputed California sales tax assessment originally recorded in the third quarter of fiscal 2020, which was subsequently resolved in the company’s favor and reversed in the first quarter of fiscal 2021.
- Operating income was $87.6 million, or 11.3 percent of net sales, compared to an operating loss of $(3.0) million, or (0.6) percent of net sales, last year, as a result of the combined impact of the factors described above.
- Income tax expense was $22.8 million, or 26.2 percent of pre-tax income, compared to the income tax benefit of $(1.3) million, or 53.5 percent of pre-tax loss, last year. The decrease in the effective income tax rate was primarily due to a normalization of the tax rate after last year’s effective tax rate was distorted by low pre-tax losses for the year.
- Net income was $64.2 million, or $2.06 per diluted share, compared to a net loss of $(1.1) million, or $(0.04) per basic share, last year. Weighted average diluted shares were 31.1 million this year compared to 29.7 million basic shares last year.
Balance Sheet and Liquidity
As of January 29, 2022, the company had $139.2 million of cash and marketable securities and no debt outstanding. This compares to $141.1 million in cash and marketable securities with no debt outstanding as of January 30, 2021. On December 15, 2021, the company paid aggregate special cash dividends of $30.9 million, or $1.00 per share, to all Class A and Class B common stockholders of record as of December 7, 2021. The company ended fiscal 2021 with merchandise inventories per square foot up 17.0 percent compared to last year as the company seeks to support the current momentum of its business and position itself for the Spring season amid the ongoing supply chain challenges. As of March 6, 2022, merchandise inventories were up 7.3 percent in total compared to last year.
Fiscal 2022 First Quarter Outlook
Through March 6, 2022, the company’s fiscal 2022 first-quarter total comparable net sales, including both physical stores and e-commerce, increased by 10.4 percent compared to the comparable period of 2021 with an increase in net sales from physical stores of 14.0 percent and a decrease from e-commerce net sales of (1.3) percent. Comparable net sales for fiscal February 2022 increased by a double-digit percentage, but have been negative through March 6.
During March 2021, our net sales accelerated significantly primarily as a result of considerable pent-up demand coming out of 2020’s pandemic-related restrictions and significant federal stimulus payments injected into the economy, both of which were historic anomalies. As a result, the company anticipates a further deceleration in its comparable net sales results as the first quarter of fiscal 2022 progresses compared to fiscal 2021, particularly as the company begins to anniversary last year’s peak performance in the latter half of the first quarter which was driven by the unique environment at that time.
Based on current and historical trends, the company currently estimates that its total net sales will be in the range of $143 million to $148 million for the first quarter of fiscal 2022, which translates to a comparable net sales decrease of 10 percent to 13 percent relative to the first quarter of fiscal 2021. The company anticipates its earnings per diluted share for the first quarter of fiscal 2022 will be in the range of break-even to $0.05, assuming an estimated income tax rate of 27 percent and estimated weighted average diluted shares of 31.6 million.
The current business environment remains subject to many unpredictable risks and uncertainties including with respect to, among others, the pandemic, the current inflationary environment, continuing supply chain difficulties, labor challenges, geopolitical concerns, and how consumer behavior may change relative to any of these factors as well as last year’s historic anomalies of pent-up demand coming out of pandemic-related restrictions and federal stimulus payments. As a result, the company’s estimates concerning its projected business performance may change at any time and there can be no guarantee that the company’s current estimates will be accurate.
For the first quarter of fiscal 2021, the company reported total net sales of $163 million and earnings per diluted share of $0.36, both of which were first-quarter records for the company by a considerable margin. For the pre-pandemic first quarter of fiscal 2019, the company reported total net sales of $130 million and earnings per diluted share of $0.02.
Fiscal 2022 New Store and Capital Expenditure Plans
During fiscal 2022, the company currently plans to open approximately 15-to-20 new stores within existing markets, primarily in California, Texas and the Northeast, assuming it is able to negotiate what the company believes to be acceptable lease economics. The company will also make investments in its website and mobile app upgrades, IT infrastructure investments, and distribution efficiencies, and lso presently evaluating potential investment options for expanding its distribution capacity to support long-term growth.