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Tilly's, Inc. Announces Fiscal 2020 Second Quarter Operating Results, Provides Third Quarter Business Update
"I am very proud of our team's efforts managing through the unanticipated challenges we faced during the quarter," commented
Second Quarter Results Overview
The following comparisons refer to operating results for the second quarter of fiscal 2020 versus the second quarter of fiscal 2019 ended
-
Total net sales were
$135.8 million , a decrease of$25.9 million or 16.0%, compared to$161.7 million last year. As previously announced, the Company began the second quarter with all 239 of its stores closed to the public as a result of the impacts of the COVID-19 pandemic. Beginning onMay 15, 2020 , the Company began reopening its stores in a phased approach. The Company reopened 144 of its stores during the second half of May, 88 more stores throughout the month of June, and 3 additional stores in early July to reach 235, or 98%, of total stores reopened. FollowingCalifornia state direction onJuly 13 to close indoor malls, the Company had 33 of its 98 California stores closed for the remainder of the quarter. Net sales from physical stores for the second quarter of fiscal 2020 were$83.9 million , a decrease of$55.1 million or 39.6%, compared to$138.9 million for the second quarter of fiscal 2019. Net sales from stores represented 61.7% of total net sales for the quarter compared to 85.9% of total net sales last year. Net sales from e-commerce for the second quarter of fiscal 2020 were$52.0 million , an increase of$29.2 million or 127.8%, compared to$22.8 million for the second quarter of fiscal 2019. E-commerce net sales represented 38.3% of total net sales for the quarter compared to 14.1% last year. The Company ended the second quarter of fiscal 2020 with 238 total stores, including one RSQ-branded pop-up store, of which 33 California stores were closed, compared to 229 total stores, including three RSQ-branded pop-up stores, all of which were open to the public without restrictions last year. -
Gross profit was
$41.7 million , or 30.7% of net sales, compared to$51.7 million , or 32.0% of net sales last year. Product margins improved 360 basis points as a percentage of net sales 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. Occupancy costs deleveraged 270 basis points as a percentage of net sales, despite being$0.4 million lower than last year, against lower total net sales. Distribution costs deleveraged 200 basis points as a percentage of net sales primarily due to an increase in e-commerce shipping costs of$3.0 million resulting from a greater volume of e-commerce orders. Buying costs deleveraged 20 basis points as a percentage of net sales. -
Selling, general and administrative expenses ("SG&A") were
$34.0 million , or 25.0% of net sales, compared to$39.6 million , or 24.5% of net sales, last year. The$5.6 million decrease in SG&A was primarily due to reduced store payroll and related benefits expenses of$7.5 million resulting from the various periods of store closures during the quarter and reduced staffing levels upon reopening of stores. Most other expenses were also reduced compared to last year. These expense decreases were partially offset by higher e-commerce marketing and fulfillment expenses of approximately$3.9 million associated with significant growth in e-commerce orders compared to last year. -
Operating income was
$7.7 million , or 5.7% of net sales, compared to operating income of$12.1 million , or 7.5% of net sales, last year. The decrease in operating income was primarily attributable to the impacts of the COVID-19 pandemic on our business as noted above. -
Income tax expense was
$2.8 million , or 34.3% of pre-tax income, compared to$3.4 million , or 26.8% of pre-tax income, last year. Income tax expense for both periods includes certain discrete items associated with employee stock-based award activity. The increase in the effective income tax rate for fiscal 2020 is primarily due to the anticipated benefit from the Coronavirus Aid, Relief, and Economic Security Act enacted onMarch 27, 2020 (the "CARES Act"), which provides for net operating losses in fiscal 2020 to be carried back to earlier tax years with higher tax rates than the current year. -
Net income was
$5.3 million , or$0.18 per diluted share, compared to$9.3 million , or$0.31 per diluted share, last year.
First Half Results Overview
The following comparisons refer to operating results for the first half of fiscal 2020 versus the first half of fiscal 2019 ended
-
Total net sales were
$213.1 million , a decrease of$78.9 million or 27.0%, compared to$292.0 million last year. All 239 of the Company's stores were closed effectiveMarch 18, 2020 , as a result of impacts of the COVID-19 pandemic and remained closed until reopened as noted above. Net sales from physical stores were$130.8 million , a decrease of$118.7 million or 47.6%, compared to$249.6 million last year. Net sales from stores represented 61.4% of total net sales compared to 85.5% of total net sales last year. Net sales from e-commerce were$82.3 million , an increase of$39.8 million or 93.8% compared to approximately$42.5 million last year. E-commerce net sales represented 38.6% of total net sales compared to 14.5% last year. -
Gross profit was
$43.3 million , or 20.3% of net sales, compared to$87.4 million , or 29.9% of net sales last year. Product margins decreased 50 basis points as a percentage of net sales primarily due to increased markdowns. Occupancy costs deleveraged 600 basis points as a percentage of net sales, despite being$0.8 million lower than last year, against lower total net sales. Distribution costs deleveraged 280 basis points as a percentage of net sales primarily due to an increase in e-commerce shipping charges of$3.9 million resulting from a greater volume of e-commerce orders. Buying costs deleveraged 40 basis points as a percentage of net sales despite being flat in dollars compared to last year. -
SG&A expenses were
$64.0 million , or 30.0% of net sales, compared to$75.1 million , or 25.7% of net sales, last year. The$11.2 million decrease in SG&A was primarily due to reduced store payroll and related benefits expenses of$12.4 million resulting from the various periods of store closures during the first half of the year and reduced staffing levels upon reopening of stores. Most other expenses were also reduced compared to last year. These expense reductions were partially offset by higher e-commerce marketing and fulfillment expenses of approximately$5.2 million associated with significant growth in e-commerce orders compared to last year. -
Operating loss was
$(20.7) million , or (9.7)% of net sales, compared to operating income of$12.3 million , or 4.2% of net sales, last year. The decrease in operating results was primarily attributable to the impacts of the COVID-19 pandemic on our business as noted above. -
Income tax benefit was
$7.8 million , or 39.3% of pre-tax loss, compared to income tax expense of$3.7 million , or 27.1% of pre-tax income, last year. Income tax expense for both periods includes certain discrete items associated with employee stock-based award activity. The increase in the effective income tax rate for fiscal 2020 is primarily due to the anticipated benefit from the CARES Act, as previously noted. -
Net loss was
$(12.1) million , or$(0.41) per share, compared to net income of$10.0 million , or$0.33 per diluted share, last year.
Balance Sheet and Liquidity
As of
Fiscal 2020 Third Quarter Business Update
At this time, the Company cannot predict with any certainty what future customer traffic or comparable store net sales results will be in light of continuing uncertainties surrounding the COVID-19 pandemic, including but not limited to its impacts on consumer behavior, the Company's ability to continue to operate some or all of its stores or its e-commerce business at any point in time, and the adverse impacts on the back-to-school season so far this year. As a result, the Company cannot provide any specific sales or earnings guidance. However, the Company is providing the following updates regarding its fiscal 2020 third quarter business:
-
The Company's total net sales for fiscal August ended
August 29, 2020 , were$50.2 million , a decrease of$27.7 million or 35.6%, compared to$77.9 million for fiscal August last year. -
Net sales from physical stores, including all periods of store closures and net sales from new stores not yet open for a full year, were
$36.6 million , a decrease of$31.6 million or 46.3% compared to$68.3 million for the comparable period last year. -
Net sales from e-commerce were
$13.6 million , an increase of$4.0 million or 40.6% compared to$9.6 million for the comparable period last year. -
Net sales during the fiscal month of August have represented approximately 50% of third quarter net sales for each of the past four fiscal years. However, in many school districts across the country this year, there have been significant delays in back-to-school dates and adjustments of some or all of their curriculum to an online or remote format. The first two weeks of fiscal August last year were the two highest net sales volume weeks of the third quarter, during which the Company generated net sales of
$49.1 million last year in a normal, healthy back-to-school season compared to$27.0 million for the same two weeks this year. This led to a highly negative start to the third quarter of fiscal 2020 in terms of comparable net sales for the Company. Although comparable net sales remained highly negative for the rest of the month compared to last year, results improved trend-wise from week to week as the month progressed. -
As noted previously, the Company entered the third quarter of fiscal 2020 with 33 of its
California -based stores closed as a result of government response to the COVID-19 pandemic. These closed stores represent 14% of the Company's current total store count, and accounted for$22 million , or 14%, of total net sales during the third quarter of fiscal 2019. OnAugust 28, 2020 , theState of California issued new guidelines regarding the reopening of businesses in light of the ongoing pandemic, including significant restrictions on customer occupancy. In accordance with these new guidelines, the Company reopened 15 of these stores onAugust 31, 2020 , an additional six stores reopened onSeptember 1, 2020 , and one additional store reopened onSeptember 2, 2020 . At this time, the Company expects to open one additional store onSeptember 4, 2020 . The Company continues to monitor the latest guidelines from local, state and federal governments and health organizations to determine when the remaining 10 stores may be able to reopen, but cannot predict with any certainty at this time when that may be. -
Cumulative comparable store net sales in reopened stores have decreased 25.5% collectively since their respective reopening dates through
September 1, 2020 , compared to the respective comparable fiscal dates of last year. -
As a result of the above factors, the Company currently expects its fiscal 2020 third quarter net sales to be significantly below the net sales of
$154.8 million that the Company reported for the third quarter of fiscal 2019. -
As of
September 2, 2020 , the Company had$161.9 million of cash and marketable securities, including$23.7 million borrowed under its credit facility and an aggregate of$14.0 million of withheld store lease payments. Excluding the cash borrowed under its credit facility and withheld store lease payments, the Company’s remaining cash and marketable securities would have totaled$124.2 million as ofSeptember 2, 2020 , compared to$165.5 million with no credit facility borrowings and no withheld store lease payments as ofSeptember 4, 2019 , which is the comparable fiscal date last year. Based on all available current information, the Company believes the combination of its cash, marketable securities, and credit facility availability will be more than sufficient to support its operations for at least the next twelve months.
Conference Call Information
A conference call to discuss these financial results is scheduled for today,
A telephone replay of the call will be available until
About Tillys
Tillys is a leading, destination specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls with an extensive selection of iconic global, emerging, and proprietary brands rooted in an active, outdoor and social lifestyle. Tillys is headquartered in
Forward-Looking Statements
Certain statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding the overall effect of the novel coronavirus (COVID-19) pandemic, including its impacts on us, our operations, or our future financial condition or operating results, the actions that we may take in the future in response to the COVID-19 pandemic, and the impacts thereof on us, our operations, or our future financial condition or operating results, expectations regarding customer traffic and sales activities once stores have reopened, the effects of guidance from local, state and federal governments and health organizations on our future business operations, the possibility of repaying withheld store rents, our ability to properly manage our inventory levels, and any other statements about our future cash position, financial flexibility, 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, the effects of the COVID-19 pandemic (or other weather, epidemics, pandemics, or other public health issues) on our business and operations, and our ability to respond thereto, 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, attract talented employees, realize anticipated, enhance awareness of our brand and brand image, general consumer spending patterns and levels, the markets generally, our ability to satisfy our financial obligations, including under our credit facility and our leases, and other factors that are detailed in our Annual Report on Form 10-K, filed with the
Tilly’s, Inc. |
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Consolidated Balance Sheets |
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(In thousands, except par value) |
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(unaudited) |
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ASSETS |
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Current assets: |
|
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|
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|
|||||||
Cash and cash equivalents |
$ |
132,955 |
|
|
$ |
70,137 |
|
|
$ |
62,388 |
|
|
Marketable securities |
15,939 |
|
|
69,780 |
|
|
62,413 |
|
||||
Receivables |
13,287 |
|
|
7,485 |
|
|
11,758 |
|
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Merchandise inventories |
68,067 |
|
|
56,901 |
|
|
72,635 |
|
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Prepaid expenses and other current assets |
3,956 |
|
|
4,561 |
|
|
4,845 |
|
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Total current assets |
234,204 |
|
|
208,864 |
|
|
214,039 |
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Operating lease assets |
244,040 |
|
|
263,649 |
|
|
256,048 |
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Property and equipment, net |
56,805 |
|
|
66,176 |
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|
68,010 |
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Other assets |
8,458 |
|
|
7,951 |
|
|
2,194 |
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Total assets |
$ |
543,507 |
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|
$ |
546,640 |
|
|
$ |
540,291 |
|
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
48,710 |
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|
$ |
20,562 |
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|
$ |
39,475 |
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|
Accrued expenses |
19,416 |
|
|
20,755 |
|
|
23,112 |
|
||||
Line of credit |
23,675 |
|
|
— |
|
|
— |
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Deferred revenue |
9,443 |
|
|
11,761 |
|
|
8,330 |
|
||||
Accrued compensation and benefits |
6,891 |
|
|
7,190 |
|
|
6,132 |
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Dividends payable |
— |
|
|
29,677 |
|
|
— |
|
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Current portion of operating lease liabilities |
64,470 |
|
|
55,321 |
|
|
53,744 |
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Total current liabilities |
172,605 |
|
|
145,266 |
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|
130,793 |
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Noncurrent operating lease liabilities |
222,015 |
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|
240,755 |
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|
233,876 |
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Other |
319 |
|
|
718 |
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|
1,182 |
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Total liabilities |
394,939 |
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|
386,739 |
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|
365,851 |
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Stockholders’ equity: |
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Common stock (Class A) |
22 |
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22 |
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22 |
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Common stock (Class B) |
8 |
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8 |
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8 |
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Preferred stock |
— |
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— |
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— |
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Additional paid-in capital |
154,386 |
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|
153,377 |
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|
150,877 |
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(Accumulated deficit) Retained earnings |
(5,849 |
) |
|
6,280 |
|
|
23,296 |
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Accumulated other comprehensive income |
1 |
|
|
214 |
|
|
237 |
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Total stockholders’ equity |
148,568 |
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|
159,901 |
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|
174,440 |
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Total liabilities and stockholders’ equity |
$ |
543,507 |
|
|
$ |
546,640 |
|
|
$ |
540,291 |
|
Tilly’s, Inc. |
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Consolidated Statements of Income (Loss) |
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(In thousands, except per share data) |
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(unaudited) |
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Thirteen Weeks
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Twenty-Six Weeks
|
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Net sales |
$ |
135,845 |
|
|
$ |
161,738 |
|
|
$ |
213,134 |
|
|
$ |
292,041 |
|
|
Cost of goods sold (includes buying, distribution, and occupancy costs) |
94,171 |
|
|
110,019 |
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|
169,866 |
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|
204,638 |
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Gross profit |
41,674 |
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|
51,719 |
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|
43,268 |
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|
87,403 |
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Selling, general and administrative expenses |
33,965 |
|
|
39,609 |
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|
63,960 |
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|
75,147 |
|
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Operating income (loss) |
7,709 |
|
|
12,110 |
|
|
(20,692 |
) |
|
12,256 |
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Other income, net |
311 |
|
|
572 |
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|
720 |
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|
1,401 |
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Income (loss) before income taxes |
8,020 |
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|
12,682 |
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|
(19,972 |
) |
|
13,657 |
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Income tax expense (benefit) |
2,754 |
|
|
3,398 |
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|
(7,843 |
) |
|
3,696 |
|
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Net income (loss) |
$ |
5,266 |
|
|
$ |
9,284 |
|
|
$ |
(12,129 |
) |
|
$ |
9,961 |
|
|
Basic income (loss) per share of Class A and Class B common stock |
$ |
0.18 |
|
|
$ |
0.31 |
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|
$ |
(0.41 |
) |
|
$ |
0.34 |
|
|
Diluted income (loss) per share of Class A and Class B common stock |
$ |
0.18 |
|
|
$ |
0.31 |
|
|
$ |
(0.41 |
) |
|
$ |
0.33 |
|
|
Weighted average basic shares outstanding |
29,694 |
|
|
29,505 |
|
|
29,686 |
|
|
29,487 |
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Weighted average diluted shares outstanding |
29,700 |
|
|
29,678 |
|
|
29,686 |
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|
29,739 |
|
Tilly’s, Inc. |
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Consolidated Statements of Cash Flows |
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(In thousands) |
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(unaudited) |
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Twenty-Six Weeks Ended |
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Cash flows from operating activities |
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Net (loss) income |
$ |
(12,129 |
) |
|
$ |
9,961 |
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Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
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Depreciation and amortization |
9,987 |
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|
10,286 |
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Stock-based compensation expense |
1,009 |
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|
1,075 |
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Impairment of assets |
903 |
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|
— |
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Loss on disposal of assets |
64 |
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|
145 |
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Gain on sales and maturities of marketable securities |
(677 |
) |
|
(848 |
) |
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Deferred income taxes |
(490 |
) |
|
(218 |
) |
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Changes in operating assets and liabilities: |
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Receivables |
(5,802 |
) |
|
(3,605 |
) |
|||
Merchandise inventories |
(11,166 |
) |
|
(16,826 |
) |
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Prepaid expenses and other current assets |
2,107 |
|
|
717 |
|
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Accounts payable |
28,376 |
|
|
15,055 |
|
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Accrued expenses |
701 |
|
|
4,243 |
|
|||
Accrued compensation and benefits |
(299 |
) |
|
(2,798 |
) |
|||
Operating lease liabilities |
8,577 |
|
|
(1,059 |
) |
|||
Deferred revenue |
(2,318 |
) |
|
(2,043 |
) |
|||
Net cash provided by operating activities |
18,843 |
|
|
14,085 |
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Cash flows from investing activities |
|
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Purchases of property and equipment |
(4,250 |
) |
|
(4,848 |
) |
|||
Purchases of marketable securities |
(15,968 |
) |
|
(62,079 |
) |
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Proceeds from marketable securities |
70,195 |
|
|
76,457 |
|
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Net cash provided by investing activities |
49,977 |
|
|
9,530 |
|
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Cash flows from financing activities |
|
|
|
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Line of credit |
23,675 |
|
|
— |
|
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Dividends paid |
(29,677 |
) |
|
(29,453 |
) |
|||
Proceeds from exercise of stock options |
— |
|
|
151 |
|
|||
Taxes paid in lieu of shares issued for stock-based compensation |
— |
|
|
(85 |
) |
|||
Net cash used in financing activities |
(6,002 |
) |
|
(29,387 |
) |
|||
Change in cash and cash equivalents |
62,818 |
|
|
(5,772 |
) |
|||
Cash and cash equivalents, beginning of period |
70,137 |
|
|
68,160 |
|
|||
Cash and cash equivalents, end of period |
$ |
132,955 |
|
|
$ |
62,388 |
|
|
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Store Count and Square Footage |
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Store
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New Stores
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Stores
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Store Count at
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Total Gross
|
|
2019 Q2 |
229 |
|
1 |
|
1 |
|
229 |
|
1,710 |
|
2019 Q3 |
229 |
|
4 |
|
1 |
|
232 |
|
1,732 |
|
2019 Q4 |
232 |
|
8 |
|
— |
|
240 |
|
1,776 |
|
2020 Q1 |
240 |
|
— |
|
1 |
|
239 |
|
1,768 |
|
2020 Q2 |
239 |
|
— |
|
1 |
|
238 |
|
1,760 |
Note: The store counts noted above do not reflect the impact of stores temporarily closed as a result of the COVID-19 pandemic. As of
View source version on businesswire.com: https://www.businesswire.com/news/home/20200903005790/en/
Investor Relations Contact:
(949) 609-5599, ext. 17000
irelations@tillys.com
Source: Tilly’s, Inc.