Tilly’s Takes a Shifting Calendar Hit to Second Quarter Sales; Improves EPS Loss to Zero

Tilly’s, Inc. reported second quarter total net sales were $162.9 million, an increase of 1.8 percent year-over-year (y/y), compared to $160.0 million in Q2 last year, said to be primarily due to the calendar shift impact of last year’s 53rd week in the retail calendar, which caused a portion of the back-to-school season’s sales volume to shift into the latter stages of the second quarter from the beginning of the third quarter last year.

Total comparable net sales, including both physical stores and e-commerce , decreased 7.8 percent relative to the shifted 13-week period ended August 5, 2023.

Net sales from physical stores were $132.3 million, an increase of 2.0 percent y/y, compared to $129.8 million last year, with a comparable store net sales decrease of 7.9 percent y/y. Net sales from physical stores represented 81.3 percent of total net sales this year compared to 81.1 percent of total net sales last year.

The company ended the second quarter with 247 total stores compared to 246 total stores at the end of the second quarter last year.

Net sales from e-commerce were $30.5 million, an increase of 1.3 percent y/y, compared to $30.2 million in Q2 last year. E-commerce net sales represented 18.7 percent of total net sales this year compared to 18.9 percent of total net sales last year.

Income Statement Summary

Gross profit, including buying, distribution, and occupancy costs, was $49.9 million, or 30.7 percent of net sales, compared to $44.3 million, or 27.7 percent of net sales, in Q2 last year. Product margins improved by 270 basis points y/y, said to be primarily due to the combination of improved initial markups and lower total markdowns. Buying, distribution, and occupancy costs improved by 30 basis points y/y collectively, said to be primarily due to carrying these costs against a higher level of net sales this year.

Selling, general and administrative (SG&A) expenses were $50.8 million, or 31.2 percent of net sales, compared to $47.0 million, or 29.4 percent of net sales, in Q2 last year. The $3.8 million increase in SG&A was primarily attributable to increases in store payroll and related benefits of $1.5 million due primarily to average wage rate increases, digital marketing expenses of $0.7 million, software as a service expense of $0.6 million, and corporate payroll and related benefits of $0.5 million.

Operating loss was $0.9 million, or 0.5 percent of net sales, compared to an operating loss of $2.7 million, or 1.7 percent of net sales, in Q2 last year.

Pre-tax loss was $0.1 million, or break-even as a percentage of net sales, compared to a pre-tax loss of $1.5 million, or negative 0.9 percent of net sales, in Q2 last year.

Income tax benefit was $4.5 thousand or 6.2 percent of pre-tax loss, compared to an income tax benefit of $0.3 million, or 23.2 percent of pre-tax loss, last year. The decrease in the effective income tax rate was due to an immaterial state tax benefit arising in a quarter with a nearly break-even pre-tax loss.

Net loss was $0.1 million, or $0.00 net loss per share, compared to a net loss of $1.1 million, or 4 cents net loss per share, last year.

Balance Sheet and Liquidity

As of August 3, 2024, the company had $76.7 million of cash, cash equivalents and marketable securities and no debt outstanding, compared to $104.3 million and no debt outstanding as of July 29, 2023.

Total inventories increased 4.1 percent year-over-year as of August 3, 2024 compared to July 29, 2023.

Total year-to-date capital expenditures at the end of the second quarter were $4.6 million this year compared to $6.3 million last year.

Fiscal 2024 Third Quarter Outlook

Total comparable net sales for fiscal August ended August 31, 2024, increased by 1.0 percent relative to the comparable four-week period last year. Due to the impact of the 53rd week in last year’s retail calendar, total net sales for this year’s third quarter will start with an $18.4 million deficit in net sales compared to last year’s third quarter as a result of a large back-to-school net sales week shifting into the end of the second quarter this year from what was in the beginning of the third quarter last year. Based on this timing shift, current quarter-to-date comparable net sales results and current and historical trends, the company currently estimates the following for the third quarter of fiscal 2024:

Net sales to be in the range of approximately $140 million to $146 million, translating to an estimated comparable net sales decrease in the range of approximately (6) percent to (2) percent, respectively, relative to the comparable 13-week period last year;

SG&A expenses to be approximately $49 million before factoring in any potential non-cash store asset impairment charges which may arise;

Pre-tax loss and net loss to be in the range of approximately $(11.6) million to $(8.7) million, respectively, with a near-zero effective income tax rate due to the continuing impact of a full, non-cash valuation allowance on deferred tax assets; and

Per share results to be in the range of a net loss of $(0.39) to $(0.29), respectively, with estimated weighted average shares of approximately 30 million.

The company currently expects to have 246 total stores open at the end of the third quarter of fiscal 2024 compared to 249 at the end of last year’s third quarter.

Image courtesy Tilly’s Inc.