<span style="color: #a1a1a1;">Tilly’s reported sales declined 16 percent in the second quarter ended August 1 and warned that third-quarter sales would decline sharply due to soft traffic as stores have reopened as well as delayed back-to-school (BTS) selling.
August’s net sales decreased 35.6 percent in total, with net sales from stores down 46.3 percent and e-commerce up 40.6 percent.
On a conference call with analysts, Ed Thomas, president and CEO, said the BTS season is typically Tilly’s second most important period behind the holiday season for generating sales and the third-quarter saw “a very tough start” as the retailer faced its two largest sales weeks of last year’s third quarter while having 33 California stores closed and facing delayed school starts in many markets.
The comp trend, while still negative, has been improving every week following the first week of August, and Thomas said the company is “encouraged to have seen a recent uptick in business in certain markets” that have reopened schools. The chain also said the typical BTS business may shift to later in the quarter versus prior years. However, given the uncertainty around school starts, sluggish traffic trends and COVID-19’s unknown course, Tilly’s is planning third-quarter inventory receipts for stores “well below” last year’s levels in anticipation of a significantly reduced BTS period.
Mike Henry, EVP and CFO, also said the third-quarter guidance takes into account continued weak in-store comp trends. Collective comparable sales from reopened stores since their respective reopening dates and through September 1 have declined 25.5 percent. Henry said, “Taken together, we believe these factors make it appear more likely than not that our third-quarter net sales will be meaningfully below last year’s $154.8 million.”
Q2 Sales Decline 16 Percent
The 16 percent decline in second-quarter sales was better than Tilly’s expectations as the retailer began the quarter with all 239 of its stores closed for the first two weeks of the quarter. Beginning on May 15 and continuing through early July, all but four stores opened with reduced operating hours. On July 13, however, California ordered the closure of indoor malls, and 33 of its 98 California stores were closed for the remainder of the quarter. About two-thirds of the 33 locations have reopened since the end of August.
Sales from physical stores in the second quarter decreased 39.6 percent with comps from reopened stores down 18 percent following their respective reopening dates year over year. Customer traffic in reopened stores decreased by more than 30 percent collectively.
A bright spot was e-commerce, which surged 128 percent in the quarter to represent 38.3 percent of total sales against 14.1 percent last year. The online gains were aided by a heightened focus on online inventories and overall execution that led to “significant e-com top-line growth, improved product margins and operational efficiency and profitability from e-comm.”
Ship-from-store capabilities were expanded, curbside pickup was introduced and six stores were recently positioned as hub stores supporting e-commerce fulfillment.
Nike Women, Fjällräven Added To Tilly’s Mix
Thomas said while all departments comped negative due to the store closures, women’s, men’s and footwear were better performers. Accessories and boys were weaker. Under the direction of Tricia Smith, a former Nordstrom buyer who was appointed chief merchant last September, shown right, Tilly’s launched several new brands during the quarter, including BDG by Urban Outfitters, Nike Women, Free People Movement, RVCA Sport, Fjällräven and several new skate brands. Said Thomas, “We are excited about the prospects for these new brands, and we continue to evolve the Tilly’s merchandise assortment.”
Gross margins in the quarter eroded to 30.7 percent from 32.0 percent. Product margins improved 360 basis points primarily due to strong regular-priced selling upon the reopening of stores. Buying, distribution and occupancy costs deleveraged by 490 basis points collectively against lower total sales. Distribution expenses grew due to the significant increase in online orders.
SG&A expenses were reduced 14.1 percent but increased slightly as a percent of sales, to 25.0 percent from 24.5 percent. Reductions in payroll and benefits expenses due to store closures and reduced staffing upon reopening offset higher e-commerce marketing and fulfillment expenses.
Inventories on a per-square-foot basis at the quarter’s close were down 8.9 percent.
Tilly’s continues to negotiate with landlords on adjustments for rent withheld during the store closures. To date, agreements have been reached in principle to address approximately 70 percent of its store base.
Asked in the Q&A session whether Tilly’s could build on the improved momentum recently, Thomas said, “I’d like to think that August was overly depressed because of the push out of back-to-school days,” citing the improvement seen in recent weeks. The chain had seen positive comps, excluding online, over the last two days. He added, “So that’s a good sign, too. Again, we don’t know if that’s going to sustain. We don’t know if it’s just a temporary blip. It’s hard to know anything these days, but at least there are some positive signs that maybe we could recover a little ground in the remainder of the quarter.”
Photos courtesy Tilly’s
