Tilly’s, Inc. Announces Third Quarter Fiscal 2015 Results

December 2, 2015 4:05 PM

Introduces Fourth Quarter Fiscal 2015 Outlook

IRVINE, Calif.--(BUSINESS WIRE)-- Tilly’s, Inc. (NYSE: TLYS) today announced financial results for the third quarter (13 weeks) and first nine months (39 weeks) of fiscal 2015 ended October 31, 2015.

Ed Thomas, President and Chief Executive Officer, stated, “I came back to Tillys because I was excited about its differentiated concept and significant potential for improvement and growth. In my first 50 days as CEO, I have become reacquainted with the Company and I am even more excited about the opportunities I see to improve this business. We will make decisions with a long-term view, but with a sense of urgency to begin driving better results as soon as possible.

“I am pleased with the comparable store sales performance we achieved in the third quarter. We expect to end the fiscal year with appropriate inventory levels while maintaining healthy product margins in the fourth quarter.”

Third Quarter Results Overview

The following comparisons refer to operating results for the third quarter of fiscal 2015 versus the third quarter of fiscal 2014 ended November 1, 2014:

First Nine Months Results Overview

The following comparisons refer to operating results for the first nine months of fiscal 2015 versus the first nine months of fiscal 2014 ended November 1, 2014:

Balance Sheet and Liquidity

As of October 31, 2015, the Company had $76 million of cash and marketable securities and no debt outstanding under its revolving credit facility compared to $61 million and no debt, respectively, as of November 1, 2014.

Fourth Quarter 2015 Outlook

The Company expects fourth quarter comparable store sales to be in the range of -2% to -4%, operating income to be in the range of $7 million to $9 million, and net income per diluted share to be in the range of $0.10 to $0.12. This assumes an anticipated effective tax rate of approximately 60% due to the discrete impact of additional stock option expirations expected to occur during the fourth quarter. Weighted average diluted share count is assumed at 28.5 million shares. The Company expects to end the fiscal year with 224 total stores.

Non-GAAP Financial Measures

In addition to reporting financial measures in accordance with accounting principles generally accepted in the United States (“GAAP”), the Company is providing certain non-GAAP financial measures including “non-GAAP net income” and “non-GAAP earnings per diluted share”. These amounts are not in accordance with, or an alternative to, GAAP. The Company’s management believes that these measures help provide investors with transparency to the underlying comparable financial results excluding items that may not be indicative of, or are unrelated to, the Company’s core day-to-day operating results.

For a description of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP, please see the accompanying table titled “Supplemental Information - Consolidated Statements of Income; Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures” contained in this press release.

Conference Call Information

A conference call to discuss the financial results is scheduled for today, December 2, 2015, at 4:30 p.m. ET (1:30 p.m. PT). Investors and analysts interested in participating in the call are invited to dial (877) 407-4018 at 4:25 p.m. ET (1:25 p.m. PT). The conference call will also be available to interested parties through a live webcast at www.tillys.com. Please visit the website and select the “Investor Relations” link at least 15 minutes prior to the start of the call to register and download any necessary software.

A telephone replay of the call will be available until December 16, 2015, by dialing (877) 870-5176 (domestic) or (858) 384-5517 (international) and entering the conference identification number: 13626115. Please note participants must enter the conference identification number in order to access the replay.

About Tillys

Tillys is a leading destination specialty retailer of West Coast inspired apparel, footwear and accessories with an extensive assortment of the most relevant and sought-after brands rooted in action sports, music, art and fashion. Tillys is headquartered in Southern California and, as of December 2, 2015, operated 226 stores and its website, www.tillys.com.

Forward Looking Statements

Certain statements in this press release and oral statements made from time to time by our representatives are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding our future financials and operating results, including but not limited to future comparable store sales, future operating income, future net income, future earnings per share, future gross, operating or product margins, anticipated tax rate, future inventory levels, and market share and our business and strategy, including but not limited to expected store openings and closings, expansion of brands and exclusive relationships, development and growth of our ecommerce platform and business, promotional strategy, and any other statements about our future expectations, plans, intentions, beliefs or prospects expressed by management are forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs, but they involve a number of risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including, but not limited to, our ability to respond to changing customer preferences and trends, attract customer traffic at our stores and online, execute our growth and long-term strategies, expand into new markets, grow our ecommerce business, effectively manage our inventory and costs, effectively compete with other retailers, enhance awareness of our brand and brand image, general consumer spending patterns and levels, the effect of weather, and other factors that are detailed in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on April 1, 2015, including those detailed in the section titled “Risk Factors” and in our other filings with the SEC, which are available from the SEC’s website at www.sec.gov and from our website at www.tillys.com under the heading “Investor Relations”. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. This release should be read in conjunction with our financial statements and notes thereto contained in our Form 10-K.

Tilly’s, Inc.
Consolidated Balance Sheets

(In thousands, except par value and per share data)

(unaudited)

October 31, 2015

January 31, 2015

ASSETS
Current assets:
Cash and cash equivalents $ 46,335 $ 49,789
Marketable securities 29,951 34,957
Receivables 6,491 4,682
Merchandise inventories 70,110 51,507
Prepaid expenses and other current assets 13,255 12,349
Total current assets 166,142 153,284
Property and equipment, net 102,547 101,335
Other assets 3,703 2,932
Total assets $ 272,392 $ 257,551
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,770 $ 23,109
Accrued expenses 17,860 12,325
Deferred revenue 5,212 7,075
Accrued compensation and benefits 4,278 5,911
Current portion of deferred rent 6,533 6,070
Current portion of capital lease obligation 845 806
Total current liabilities 59,498 55,296
Long-term portion of deferred rent 42,141 41,875
Long-term portion of capital lease obligation 1,055 1,694
Total long-term liabilities 43,196 43,569
Total liabilities 102,694 98,865
Stockholders' equity:

Common stock (Class A), $0.001 par value; October 31, 2015 - 100,000 shares authorized, 12,305

shares issued and outstanding; January 31, 2015 - 100,000 shares authorized, 11,546 shares issued and outstanding

12 11
Common stock (Class B), $0.001 par value; October 31, 2015 - 35,000 shares authorized, 16,169 shares

issued and outstanding; January 31, 2015 - 35,000 shares authorized, 16,544 shares issued and outstanding

16 17
Preferred stock, $0.001 par value; October 31, 2015 and January 31, 2015 - 10,000 shares authorized,
no shares issued or outstanding - -
Additional paid-in capital 132,937 126,565
Retained earnings 36,729 32,072
Accumulated other comprehensive income 4 21
Total stockholders' equity 169,698 158,686
Total liabilities and stockholders' equity $ 272,392 $ 257,551
Tilly’s, Inc.
Consolidated Statements of Income

(In thousands, except per share data)

(unaudited)

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 31, 2015

November 1, 2014

October 31, 2015

November 1, 2014

Net sales $ 141,692 $ 131,283 $ 391,905 $ 365,477
Cost of goods sold (includes buying, distribution, and occupancy costs) 97,051 90,735 274,616 258,947
Gross profit 44,641 40,548 117,289 106,530
Selling, general and administrative expenses 39,254 31,971 108,669 94,548
Operating income 5,387 8,577 8,620 11,982
Other income (expense), net 21 (22 ) 40 (18 )
Income before income taxes 5,408 8,555 8,660 11,964
Income tax expense 2,594 3,442 4,003 4,994
Net income $ 2,814 $ 5,113 $ 4,657 $ 6,970
Basic earnings per share of Class A and Class B common stock $ 0.10 $ 0.18 $ 0.16 $ 0.25
Diluted earnings per share of Class A and Class B common stock $ 0.10 $ 0.18 $ 0.16 $ 0.25
Weighted average basic shares outstanding 28,408 28,024 28,305 28,007
Weighted average diluted shares outstanding 28,419 28,046 28,403 28,082
Tilly's, Inc.
Supplemental Information - Consolidated Statements of Income
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
(unaudited)

Thirteen Weeks Ended October 31, 2015:

Net Income (in $000s)

Earnings per Diluted Share

As reported $ 2,814 $ 0.099
Add back:
Non-cash store asset impairment charges, tax effected at 48.0% 705 0.025
Former CEO separation obligations, tax effected at 48.0% 569 0.020
Income tax difference due to stock option expirations 418 0.015
As adjusted for non-GAAP items $ 4,506 $ 0.159
Thirty-Nine Weeks Ended October 31, 2015:

Net Income (in $000s)

Earnings per Diluted Share

As reported $ 4,657 $ 0.164
Add back:
Legal Settlement, tax effected at 46.2% 263 0.009
Non-cash store asset impairment charges, tax effected at 46.2% 926 0.033
Former CEO separation obligations, tax effected at 46.2% 588 0.021
Income tax difference due to stock option expirations 388 0.014
As adjusted for non-GAAP items $ 6,822 $ 0.240
Tilly’s, Inc.
Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

Thirty-Nine Weeks Ended

October 31, 2015

November 1, 2014

Cash flows from operating activities
Net income $ 4,657 $ 6,970
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,991 15,630
Stock-based compensation expense 3,313 2,710
Impairment of assets 1,721 -
Loss on disposal of assets 245 79
Gain on sales and maturities of marketable securities (96 ) (86 )
Deferred income taxes 733 598
Excess tax benefit from stock-based compensation (95 ) -
Changes in operating assets and liabilities:
Receivables (1,809 ) 2,689
Merchandise inventories (18,603 ) (15,930 )
Prepaid expenses and other assets (2,398 ) (2,085 )
Accounts payable 1,401 8,155
Accrued expenses 3,110 4,436
Accrued compensation and benefits (1,633 ) (1,138 )
Deferred rent 729 521
Deferred revenue (1,863 ) (1,489 )
Net cash provided by operating activities 6,403 21,060
Cash flows from investing activities
Purchase of property and equipment (17,491 ) (19,806 )
Proceeds from sale of property and equipment 7 14
Purchases of marketable securities (49,927 ) (34,939 )
Maturities of marketable securities 55,000 40,000
Net cash used in investing activities (12,411 ) (14,731 )
Cash flows from financing activities
Proceeds from exercise of stock options 3,094 181
Payment of capital lease obligation (600 ) (564 )
Taxes paid in lieu of shares issued for share based compensation (35 ) -
Excess tax benefit from stock-based compensation 95 -
Net cash provided by (used in) financing activities 2,554 (383 )
Change in cash and cash equivalents (3,454 ) 5,946
Cash and cash equivalents, beginning of period 49,789 25,412
Cash and cash equivalents, end of period $ 46,335 $ 31,358

Tilly's, Inc.

Store Count and Square Footage

Total Gross
Stores Stores Stores Stores Square Footage
Open at Opened Closed Open at End of Qtr
Beg of Qtr During Qtr During Qtr End of Qtr (in thousands)
2014 Q1 195 3 0 198 1,535
2014 Q2 198 6 1 203 1,563
2014 Q3 203 5 1 207 1,589
2014 Q4 207 5 0 212 1,622
2015 Q1 212 2 1 213 1,630
2015 Q2 213 3 0 216 1,655
2015 Q3 216 4 0 220 1,681

Investor Relations:

ICR, Inc.

Anne Rakunas/Joseph Teklits

310-954-1113

anne.rakunas@icrinc.com

Source: Tilly’s, Inc.

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