Tilly's, Inc. (TLYS) Tops Q3 EPS by 1c, Revenues Miss, Comp. Sales Up 4.3%; Q4 EPS Outlook Below Consensus, Q4 Revenue Mid-Point Guidance Below Consensus

Tilly's, Inc. (NYSE: TLYS) reported Q3 EPS of $0.24, $0.01 better than the analyst estimate of $0.23. Revenue for the quarter came in at $146.8 million versus the consensus estimate of $149.15 million.

“Tillys continued its positive momentum with its tenth consecutive quarter of flat to positive comparable store net sales and its strongest back-to-back quarterly comparable store net sales performance since the first half of fiscal 2012," commented Ed Thomas, President and Chief Executive Officer. "We believe we are well positioned to continue our momentum during the holiday season."

Third Quarter Results Overview

The following comparisons refer to operating results for the third quarter of fiscal 2018 versus the third quarter of fiscal 2017 ended October 28, 2017:

• Comparable store net sales, including e-commerce, increased 4.3%. Comparable store net sales in physical stores increased 1.3% and represented approximately 86% of total net sales. E-commerce net sales increased 26.7% and represented approximately 14% of total net sales. Comparable store net sales, including e-commerce, increased 1.5% in the third quarter last year.
• Total net sales of $146.8 million decreased by $6.0 million, or 3.9%, from $152.8 million last year, due to the calendar shift impact of last year\'s 53rd week in the retail calendar. This retail calendar shift caused a portion of the back-to-school season to shift into the second quarter this year from the third quarter last year, reducing last year\'s comparable net sales base for the third quarter by approximately $14 million. This retail calendar shift impact was partially offset by an aggregate increase of approximately $8 million in comparable store net sales and net sales from seven net new stores.
• Gross profit of $45.8 million decreased by $4.3 million, or 8.6%, from $50.1 million last year, primarily due to the calendar shift impact on net sales described above. Gross margin, or gross profit as a percentage of net sales, decreased to 31.2% from 32.8% last year due to the retail calendar shift impact on net sales. Buying, distribution and occupancy costs deleveraged 200 basis points against lower total net sales. Product margins improved 40 basis points, primarily due to lower total markdowns as a percentage of net sales.
• Selling, general and administrative expenses ("SG&A") were $37.6 million, or 25.6% of net sales, compared to $36.0 million, or 23.5% of net sales, last year. As expected, SG&A deleveraged 210 basis points compared to last year primarily due to the calendar shift impact on net sales described above. The $1.6 million increase in SG&A was primarily attributable to an increase in store payroll of $0.9 million due in part to minimum wage increases, expenses of $0.7 million associated with our secondary offering completed in early September 2018, and increased online marketing costs of $0.6 million associated with e-commerce net sales growth, partially offset by a legal matter accrual of $0.7 million in the prior year.
• Operating income was $8.2 million, or 5.6% of net sales, compared to $14.1 million, or 9.2% of net sales, last year. The $5.9 million reduction in operating income was attributable to the retail calendar shift impact on net sales described above.
• Income tax expense was $2.4 million, or 26.8% of pre-tax income, compared to $5.7 million, or 39.6% of pre-tax income last year. The reduction in this year\'s income tax rate was attributable to the change in corporate tax rates signed into law late last year.
• Net income was $6.4 million, or $0.21 per diluted share, compared to $8.8 million, or $0.30 per diluted share, last year. The $0.09 decrease in earnings per share was attributable to the combination of the retail calendar shift impact on net sales of approximately $0.11 per diluted share and costs associated with the secondary offering completed in early September 2018 of approximately $0.02 per diluted share. The remaining positive variance was primarily due to improved operating results driven by increased comparable store net sales. On a non-GAAP basis, excluding the impact of the secondary offering costs this year and the impact of the legal matter accrual last year, net income was $7.1 million, or $0.24 per diluted share, this year compared to $9.2 million, or $0.31 per diluted share, last year.

GUIDANCE:

Tilly's, Inc. sees Q4 2018 EPS of $0.22-$0.26, versus the consensus of $0.28. Tilly's, Inc. sees Q4 2018 revenue of $163-166 million, versus the consensus of $165.11 million.

For earnings history and earnings-related data on Tilly's, Inc. (TLYS) click here.

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