Tilly’s Inc. reported flat sales for the fiscal first quarter ended May 2 and said comparable store sales, including e-commerce sales, fell 4.1 percent.

“Our first quarter results were at the better end of our outlook range before taking a legal provision into account, and we managed inventory well with a 7 percent decrease on a per square foot basis,” stated President and CEO Ed Thomas.

Gross profit declined 9.6 percent to $32.6 million, or 27.1 percent of sales compared to 30.0 percent in the year earlier quarter. The 290-basis-point decrease in gross margin was attributable to three factors:

  1. negative sales comps and addition of 11 net new stores year over year (-170 basis points);
  2. increased markdowns and lower product margins (-90 basis points); and
  3. higher distribution costs primarily due to increased shipping costs associated with the growth of e-commerce (-30 basis points).

The retailer sells apparel, footwear and hardgoods inspired by Southern California’s action sports-inspired lifestyle from 226 mall-based stores.

Excluding non-recurring items, SG&A increased less than $0.3 million, primarily due to increased store payroll dollars associated with 11 net new stores and minimum wage increases, which offset expense reductions in other areas.

Operating loss was $4.0 million, or 3.3 percent of net sales, compared to operating income of $2.1 million, or 1.8 percent of net sales, last year. The 510 basis point decrease in our operating results was primarily attributable to lower gross profit and increased SG&A as noted above.

Net loss was $2.7 million, or $0.10 per share, compared to net income of $1.3 million, or $0.05 per share, last year. On a non-GAAP basis, excluding a tax-effected $1.0 million legal provision, net loss was $1.7 million, or $0.06 per share.

Balance Sheet and Liquidity
As of April 30, Tilly’s had $88 million of cash and marketable securities, and no debt outstanding under its revolving credit facility compared to $79 million of cash and marketable securities and no debt, respectively, as of May 2, 2015.

Second Quarter 2016 Outlook

The retailer expects second quarter comparable store sales to be in the range of flat to -4 percent, operating results to be in the range from break-even to a net loss of $3 million, and earnings per share results to be in the range from break-even to a loss of $(0.06).

“Looking ahead, we expect to launch some important initiatives during the second quarter that we believe will improve the business for the long term, despite the current challenges affecting retail in general.”