Tilly’s the Latest to Test the Public Markets

Over the last year, the market has seen GSI Commerce, Sport Supply Group and most recently, Volcom, disappear from the list of publicly-traded companies while VF Corp.s pending acquisition of The Timberland Company and Canadian Tires deal to acquire Forzani Group will pare the list a couple more major players.  In contrast, the market, despite Freedom Groups failure to get their IPO to the finish line, has welcomed new offerings from action sports and outdoor electronics player Skullcandy, the recently announced IPO for bicycle component SRAM International and a reverse IPO that will enable Black Diamond Equipment to fund incremental expansion and acquisitions (see page 10).

This latest filing by Tillys Inc. comes despite recent lessons learned that the fickle teen consumer can wreak havoc on the performance of retailers serving this end of the market.  While Pacific Sunwear struggles to right its ship, the fortunes of Zumiez, Inc. have turned positive again.  Looking at the broader mall market that serves as the base for this business, retailers competing for teen dollars have found the market to be a feast or famine scenario as the market swings with the ever-changing tastes and trends of the consumer group. 

In SEC documents obtained by Sports Executive Weekly, Tillys described itself in the S-1 filing last week as a fast-growing destination specialty retailer of West Coast inspired apparel, footwear and accessories with stores that are designed to be a seamless extension of our teen and young adult consumers lifestyles with a balance of guys and juniors merchandise in a stimulating environment.

Tillys, which operated 126 stores across 11 states at the end of the fiscal quarter ended April 30, is operated as a holding company, and all of business operations are conducted through World of Jeans & Tops, a California corporation, which, following the IPO and reorganization transaction, will be a wholly-owned subsidiary. 

The founders of Tillys, Hezy Shaked and Tilly Levine, opened their first store in 1982 and formed World of Jeans & Tops in 1984. Tillys, Inc. was incorporated in Delaware in May 2011.

The IPO is expected to raise up to $100 million in the IPO.  The proposed stock symbol on the New York Stock Exchange is TLYS.  The companys common stock will consist of two classes, with purchasers in the offering receiving Class A common stock, which have one vote per share on all matters to be voted on by the common stockholders. Holders of Class B common stock, which includes the founders of the company and trusts controlled by them or their families, are entitled to 10 votes per share.  Prior to the offering, Shaked owns or controls 58 percent of company shares while Levine owns or controls 39 percent of outstanding shares.
Tillys opened 16 stores in 2010, 13 stores in 2009 and had opened one store in the fiscal 2011 first quarter.  The retailer plans to open 13 stores for the remainder of the year and plan to open approximately 20 net stores in 2012.  The retailer believes there is a significant opportunity to expand the store base to more than 500 stores over time.

In fiscal 2010, TLYS increased net sales 17.6 percent to $332.6 million from $282.8 million in fiscal 2009.  Comparable store sales increased 6.7 percent for the fiscal year period ended January 29, 2011, compared to a 3.1 percent decrease in comps in fiscal 2009.  Tillys reported that the comp store sales increase came from higher net sales of accessories and guys apparel, which was partially offset by lower net sales of footwear and girls apparel. There were 109 comparable stores and 16 non-comparable stores open at year-end.

Fiscal 2010 e-commerce net sales increased 46 percent versus fiscal 2009 and represented approximately 10 percent of total net sales, up from 2 percent of net sales in fiscal 2006.  The retailer is forecasting that e-commerce can represent as much as 15 percent of net sales over time.  Net DotCom sales, including shipping and handling fees, from the e-commerce business increased 45.8 percent to $32.8 million in fiscal 2010, compared to $22.5 million in fiscal 2009. The increase was said to reflect 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.

Gross margins were flat at 30.9 percent of sales in both fiscal 2010 and 2009.  SG&A, as a percent of sales increased 10 basis points to 23.4 percent of sales in fiscal 2010.  Resulting operating income grew 16.4 percent to $24.9 million from $21.4 million in fiscal 2009.  Net income rose 17.0 percent to $24.4 million, or $1.21 per diluted share, compared to net income of $20.9 million, or $1.04 per diluted share, in fiscal 2009. 
Stores generated, on average, $326 per square foot in net sales in fiscal 2010, compared to $318 per square foot in fiscal 2009. 

The company operated 125 stores at fiscal year-end after opening 16 stores and closing two others.  Tillys, which had 51 stores in operation at the end of 2006, opened 13 stores in fiscal 2009 and closed one for a net gain of 12 stores.
The retailer generated 19.3 percent of fiscal 2010 sales in the first quarter, 21.1 percent in Q2, 27.5 percent in Q3 and 32.1 percent of the total years sales in the fourth quarter. 

Nearly 91 percent of net income in fiscal 2010 was generated in the second half of the year.

Inventories at fiscal year-end were up 39.4 percent to $33.5 million.
For the fiscal 2011 first quarter ended April 30, Tillys increased net sales 29.2 percent $83.1 million from $64.3 million in the thirteen weeks ended May 1, 2010.  Comparable store sales increased 18.2 percent in fiscal Q1 on top of a 2.2 percent increase in the prior-year first quarter.  TLYS said the comp store net sales increase reflected the general improvement in the economy, and stemmed mostly from increased net sales of accessories and guys apparel and, to a lesser extent, footwear and juniors and girls apparel.  The increases were partially offset by lower net sales of boys apparel. There were 108 comparable brick-and-mortar stores and 18 non-comparable brick-and-mortar stores open at April 30, 2011.

Net sales, including shipping and handling fees, from the e-commerce business increased 45.6 percent to 8.3 million in fiscal Q1 from $5.7 million in the prior-year period.

As of April 30, Tillys operated 72 stores in California, 17 stores in Arizona, six stores in Nevada and 16 stores in Florida.  Store size averages 7,800 square feet.  Total square footage at April 30 was 9,771,164 square feet.

At quarter-end, Tillys employed approximately 900 full-time and approximately 2,200 part-time employees.