Tilly’s, Inc. Announces Fiscal 2018 Fourth Quarter and Full Year Results

March 14, 2019 4:05 PM

4th Quarter Comp Store Net Sales Increase of 6.4% and EPS of $0.29 Beat Outlook

Introduces Fiscal 2019 First Quarter Outlook

IRVINE, Calif.--(BUSINESS WIRE)-- Tilly’s, Inc. (NYSE: TLYS, the "Company") today announced financial results for the fourth quarter and full year of fiscal 2018 ended February 2, 2019.

“Tillys finished fiscal 2018 with its strongest single-quarter comp sales result since the third quarter of fiscal 2011, and its best consecutive three-quarter run of comp sales results since becoming a public company in 2012," commented Ed Thomas, President and Chief Executive Officer. "We aim to continue our operating momentum during fiscal 2019."

Fourth Quarter Results Overview

The following comparisons refer to operating results for the fourth quarter of fiscal 2018 (13 weeks) versus the fourth quarter of fiscal 2017 (14 weeks) ended February 3, 2018:

Fiscal 2018 Full Year Results Overview

The following comparisons refer to operating results for fiscal 2018 (52 weeks) versus fiscal 2017 (53 weeks) ended February 3, 2018:

Balance Sheet and Liquidity

As of February 2, 2019, the Company had $144.1 million of cash and marketable securities and no debt outstanding under its revolving credit facility. This compares to $136.0 million of cash and marketable securities and no debt outstanding under its revolving credit facility as of February 3, 2018. For the third consecutive year, the Company paid a special cash dividend to its stockholders in February. This year's special cash dividend was approximately $29.5 million in the aggregate, or $1 per share.

Fiscal 2019 First Quarter Outlook

Based on current and historical trends, particularly with respect to years in which Easter occurred later in the year, as in fiscal 2019, the Company expects total net sales for the first quarter of fiscal 2019 to range from approximately $128 million to $130 million based on an assumption of a low single-digit percentage increase in comparable store net sales. The Company's quarter-to-date comparable store net sales, including e-commerce, have decreased by a low single-digit percentage, primarily due to a later Easter versus the comparable prior year period and unseasonably cold and wet weather throughout much of the country, particularly in California where 95 of the Company's stores reside. However, the Company continues to believe it can produce positive comparable store net sales for the quarter. Based on an anticipated continuation of the product mix shift towards branded merchandise, and the e-commerce net sales momentum with attendant costs that we experienced in the fourth quarter of fiscal 2018, we expect pre-tax operating results to range from a loss of approximately $(0.4) million to income of approximately $1.2 million, and earnings per share to range from a loss of $(0.01) to income of $0.03. This compares to a comparable store net sales increase of 0.1%, pre-tax income of $1.7 million, and earnings per diluted share of $0.04 for the first quarter of fiscal 2018. This outlook assumes no non-cash store asset impairment charges, an anticipated effective tax rate of approximately 27%, and weighted average shares of approximately 30 million.

Regarding the legal settlement coupons we issued in early September 2018, less than 1.5% of the total coupons issued have been redeemed to date. Since issuance, redemption transactions have represented less than 0.2% of total transactions and less than 0.5% of total net sales, resulting in no material impact on our comp sales or operating results. While there can be no guarantee that redemption activity will remain immaterial to our total company operating results prior to coupon expiration on September 4 of this year, we are not expecting any meaningful impacts to our business during the final 6 months of the redemption period.

Non-GAAP Financial Measures

In addition to reporting financial measures in accordance with GAAP, the Company is providing certain non-GAAP financial measures including "non-GAAP SG&A," "non-GAAP operating income," "non-GAAP income tax expense," "non-GAAP net income," and "non-GAAP diluted income per 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 insight into 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 Financial Information; Reconciliation of Select GAAP Financial Measures to Non-GAAP Financial Measures” contained in this press release.

Conference Call Information

A conference call to discuss these financial results is scheduled for today, March 14, 2019, 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 March 28, 2019, by dialing (844) 512-2921 (domestic) or (412) 317-6671 (international) and entering the conference identification number: 13688013. Please note participants must enter the conference identification number in order to access the replay.

About Tillys

Tillys is a leading specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls with an extensive assortment of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle. Tillys is headquartered in Irvine, California and currently operates 228 total stores, including three RSQ pop-up store, across 33 states 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 financial 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 e-commerce 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 e-commerce 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”), 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)

(unaudited)

February 2, February 3,
2019 2018
ASSETS
Current assets:
Cash and cash equivalents $ 68,160 $ 53,202
Marketable securities 75,919 82,750
Receivables 6,082 4,352
Merchandise inventories 55,809 53,216
Prepaid expenses and other current assets 11,171 9,534
Total current assets 217,141 203,054
Property and equipment, net 73,842 83,321
Other assets 2,185 3,736
Total assets $ 293,168 $ 290,111
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 24,207 $ 21,615
Accrued expenses 18,756 22,731
Deferred revenue 10,373 10,879
Accrued compensation and benefits 8,930 6,119
Dividends payable 29,453 29,067
Current portion of deferred rent 5,540 5,220
Total current liabilities 97,259 95,631
Long-term portion of deferred rent 30,825 31,340
Other 1,757 2,715
Total liabilities 129,841 129,686
Stockholders’ equity:
Common stock (Class A), $0.001 par value; 100,000 shares authorized; 21,642 and 14,927 shares issued and outstanding, respectively 21 15
Common stock (Class B), $0.001 par value; 35,000 shares authorized; 7,844 and 14,188 shares issued and outstanding, respectively 8 14
Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding
Additional paid-in capital 149,737 143,984
Retained earnings 13,335 16,398
Accumulated other comprehensive income 226 14
Total stockholders’ equity 163,327 160,425
Total liabilities and stockholders’ equity $ 293,168 $ 290,111

Tilly’s, Inc.

Consolidated Statements of Income

(In thousands, except per share data)

(unaudited)

13 Weeks 14 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
February 2, February 3, February 2, February 3,
2019 2018 2019 2018
Net sales $ 170,612 $ 164,317 $ 598,478 $ 576,899
Cost of goods sold (includes buying, distribution, and occupancy costs) 118,455 112,877 417,582 401,529
Gross profit 52,157 51,440 180,896 175,370
Selling, general and administrative expenses 41,223 39,999 149,416 151,384
Operating income 10,934 11,441 31,480 23,986
Other income, net 856 414 2,313 1,223
Income before income taxes 11,790 11,855 33,793 25,209
Income tax expense 3,113 5,156 8,850 10,509
Net income $ 8,677 $ 6,699 $ 24,943 $ 14,700
Basic income per share of Class A and Class B common stock $ 0.29 $ 0.23 $ 0.85 $ 0.51
Diluted income per share of Class A and Class B common stock $ 0.29 $ 0.23 $ 0.84 $ 0.51
Weighted average basic shares outstanding 29,451 28,965 29,278 28,804
Weighted average diluted shares outstanding 29,836 29,471 29,768 29,074

Tilly’s, Inc.

Supplemental Financial Information

Reconciliation of Select GAAP Financial Measures to Non-GAAP Financial Measures

(In thousands, except per share data)

(unaudited)

13 Weeks 14 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
February 2, February 3, February 2, February 3,
2019 2018 2019 2018
Selling, general and administrative, as reported $ 41,223 $ 39,999 $ 149,416 $ 151,384
Legal settlement 1,458 (6,816 )
Negotiated expense reductions 878 878
Secondary offering costs (714 )
Non-GAAP selling, general and administrative $ 42,101 $ 39,999 $ 151,038 $ 144,568
Operating income, as reported $ 10,934 $ 11,441 $ 31,480 $ 23,986
Legal settlement (1,458 ) 6,816
Negotiated expense reductions (878 ) (878 )
Secondary offering costs 714
Non-GAAP operating income $ 10,056 $ 11,441 $ 29,858 $ 30,802
Income tax expense, as reported $ 3,113 $ 5,156 $ 8,850 $ 10,509
Income tax effect of legal settlement (1) (389 ) 2,631
Income tax effect of negotiated expense reductions (1) (234 ) (234 )
Income tax effect of secondary offering costs (1) 191
Income tax effect of non-deductibility of a portion of secondary offering costs (1) (130 )
Non-GAAP income tax expense $ 2,879 $ 5,156 $ 8,288 $ 13,140
Net income, as reported $ 8,677 $ 6,699 $ 24,943 $ 14,700
Legal settlement (1,458 ) 6,816
Negotiated expense reductions (878 ) (878 )
Secondary offering costs 714
Less: Income tax effects (1) 234 562 (2,631 )
Non-GAAP net income $ 8,033 $ 6,699 $ 23,883 $ 18,885
Diluted income per share, as reported $ 0.29 $ 0.23 $ 0.84 $ 0.51
Legal settlement, net of taxes (1) (0.04 ) 0.14
Negotiated expense reductions, net of taxes (1) (0.02 ) (0.02 )
Secondary offering costs, net of taxes (1) 0.02
Non-GAAP diluted income per share $ 0.27 $ 0.23 $ 0.80 $ 0.65
Weighted average basic shares outstanding 29,451 28,965 29,278 28,804
Weighted average diluted shares outstanding 29,836 29,471 29,768 29,074
(1) The effective tax rate applied for the 13 weeks and 52 weeks ended February 2, 2019 was 26.7%. The effective tax rate applied for the 14 weeks and 53 weeks ended February 3, 2018 was 38.6%.

Tilly’s, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

Fiscal Year Ended
February 2, February 3, January 28,
2019 2018 2017
Cash flows from operating activities
Net income $ 24,943 $ 14,700 $ 11,410
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 22,485 23,389 23,266
Stock-based compensation expense 2,212 2,411 2,572
Impairment of assets 786 848 2,352
Loss on disposal of assets 30 192 16
Gain on sales and maturities of marketable securities (1,552 ) (782 ) (251 )
Deferred income taxes 953 2,933 (1,174 )
Changes in operating assets and liabilities:
Receivables (1,730 ) (363 ) 1,395
Merchandise inventories (2,783 ) (5,448 ) 3,589
Prepaid expenses and other assets (1,641 ) (562 ) (449 )
Accounts payable 3,195 3,559 1,623
Accrued expenses (4,438 ) (2,732 ) 6,562
Accrued compensation and benefits 2,811 (1,140 ) 1,508
Deferred rent (195 ) (4,973 ) (5,464 )
Deferred revenue 1,667 676 1,554
Net cash provided by operating activities 46,743 32,708 48,509
Cash flows from investing activities
Purchase of property and equipment (14,923 ) (13,753 ) (17,047 )
Proceeds from sale of property and equipment 3 43
Purchases of marketable securities (136,198 ) (152,389 ) (99,675 )
Proceeds from marketable securities 144,859 125,264 95,021
Net cash used in investing activities (6,259 ) (40,878 ) (21,658 )
Cash flows from financing activities
Dividends paid (29,067 ) (20,080 )
Proceeds from exercise of stock options 3,652 3,394 2,080
Payment of capital lease obligation (835 ) (858 )
Taxes paid in lieu of shares issued for stock-based compensation (111 ) (101 ) (99 )
Net cash (used in) provided by financing activities (25,526 ) (17,622 ) 1,123
Change in cash and cash equivalents 14,958 (25,792 ) 27,974
Cash and cash equivalents, beginning of period 53,202 78,994 51,020
Cash and cash equivalents, end of period $ 68,160 $ 53,202 $ 78,994

Tilly's, Inc.

Store Count and Square Footage

Stores

Open at

Beginning of Quarter

Stores

Opened

During Quarter

Stores

Closed

During Quarter

Stores

Open at

End of Quarter

Total Gross

Square Footage

End of Quarter

(in thousands)

2017 Q4 220 2 3 219 1,668
2018 Q1 219 4 1 222 1,675
2018 Q2 222 4 226 1,698
2018 Q3 226 5 4 227 1,693
2018 Q4 227 2 229 1,703

Note: Total stores opened during fiscal 2018 includes four RSQ-branded, pop-up stores.

Investor Relations:

Michael Henry, Chief Financial Officer

(949) 609-5599, ext. 17000

irelations@tillys.com

Source: Tilly’s, Inc.

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