Tilly’s, Inc. (NYSE:TLYS) today announced financial results for the third quarter of fiscal 2014 ended November 1, 2014.

“We are pleased with the meaningful progress we are making on our initiatives to increase sales and profitability as our third quarter results exceeded expectations. While we recognize there is more work to be done, we are encouraged that our focus on product differentiation and innovation, and improved digital capabilities, in conjunction with a slightly better teen retail environment, are contributing to a general improvement in customer response. These efforts, as well as strong inventory management, resulted in increased product margins in the quarter,” commented Daniel Griesemer, President and Chief Executive Officer. “Our product offering continued to resonate well with our customer through November, giving us confidence that we are well positioned for the remaining holiday selling season.”

For the third quarter ended November 1, 2014:

  • Total net sales were $131.3 million compared to $123.8 million in the third quarter of 2013.
  • Comparable store sales, which include e-commerce sales, decreased 1.2% compared to the same 13-week period in 2013.
  • Gross profit increased 7.1% to $40.5 million compared to $37.8 million in the third quarter of 2013. Gross margin was 30.9% compared to 30.6% in the third quarter of 2013, primarily due to a 30 basis point increase in product margins.
  • Operating income was $8.6 million compared to operating income of $10.2 million in the third quarter of 2013.
  • Net income was $5.1 million, or $0.18 per diluted share, based on a weighted average diluted share count of 28.0 million shares and an effective tax rate of 40.2%. This compares to net income in the third quarter of 2013 of $6.1 million, or $0.22 per diluted share, based on a weighted average diluted share count of 28.2 million shares and an effective tax rate of 40.1%.

For the thirty-nine weeks ended November 1, 2014:

  • Total net sales were $365.5 million compared to $355.9 million for the first three quarters of the prior year.
  • Comparable store sales, which include e-commerce sales, decreased 5.0% compared to the first three quarters of 2013.
  • Gross profit decreased 0.9% to $106.5 million compared to $107.5 million in the first three quarters of 2013. Gross margin was 29.1%, compared to 30.2% in the prior year period. Product margins increased 20 basis points, offset by higher occupancy costs as a percentage of net sales due to the negative comparable store sales.
  • Operating income was $12.0 million compared to $21.3 million in the first three quarters of 2013.
  • Net income was $7.0 million, or $0.25 per diluted share, based on a weighted average diluted share count of 28.1 million shares. This compares to net income in the first three quarters of 2013 of $12.7 million, or $0.45 per diluted share, based on a weighted average diluted share count of 28.1 million shares.

Balance Sheet and Liquidity

As of November 1, 2014, the Company had $61.3 million of cash and marketable securities and no borrowings or debt outstanding on its revolving credit facility.

Fourth Quarter 2014 Outlook

The Company expects fourth quarter comparable store sales to be flat to negative low single digits, and net income per diluted share to be in the range of $0.15 to $0.19. This assumes an anticipated effective tax rate of approximately 40% and a weighted average diluted share count of 28.1 million shares. Fourth quarter 2013 net income per diluted share was $0.19, based on a weighted average diluted share count of 28.2 million shares.

Conference Call Information

A conference call to discuss the financial results is scheduled for today, December 3, 2014, at 4:30 p.m. ET (1:30 p.m. PT). Investors and analysts interested in participating in the call are invited to dial (888) 461-2024 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 17, 2014, by dialing (877) 870-5176 (domestic) or (858) 384-5517 (international) and entering the conference identification number: 8128833. Please note participants must enter the conference identification number in order to access the replay.

About Tilly’s

Tilly's is a fast-growing 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. Tilly’s is headquartered in Southern California and, as of December 3, 2014, operated 212 stores and through 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 net income, future gross, operating or product margins, anticipated tax rate, and market share and our business and strategy, including but not limited to store expansion, expansion of brands and exclusive relationships, development and growth of our ecommerce platform and business, 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, 2014, 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 per share data)

(Unaudited)

   
November 1, February 1,
2014 2014
 
ASSETS
Current assets:
Cash and cash equivalents $ 31,358 $ 25,412
Marketable securities 29,969 34,943
Receivables 5,856 8,545
Merchandise inventories 62,196 46,266
Prepaid expenses and other current assets   12,656   11,772
Total current assets 142,035 126,938
Property and equipment, net 105,607 100,936
Other assets   5,011   4,533
Total assets $ 252,653 $ 232,407
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,948 $ 19,645
Deferred revenue 4,725 6,214
Accrued compensation and benefits 3,837 4,975
Accrued expenses 14,118 9,241
Current portion of deferred rent 6,098 5,395
Current portion of capital lease obligation/Related party   794   758
Total current liabilities 57,520 46,228
Long-term portion of deferred rent 42,574 42,756
Long-term portion of capital lease obligation/Related party   1,900   2,500
Total long-term liabilities   44,474   45,256
Total liabilities 101,994 91,484
 
Commitments and contingencies
 
Stockholders' equity:

Common stock (Class A), $0.001 par value; November 1, 2014 - 100,000 shares authorized, 11,499 shares issued and outstanding; February 1, 2014 - 100,000 shares authorized, 11,361 shares issued and outstanding

11 11

Common stock (Class B), $0.001 par value; November 1, 2014 - 35,000 shares authorized, 16,574 shares issued and outstanding; February 1, 2014 - 35,000 shares authorized, 16,642 shares issued and outstanding

17 17

Preferred stock, $0.001 par value; November 1, 2014 and February 1, 2014 - 10,000 shares authorized, no shares issued or outstanding

- -
Additional paid-in capital 125,652 122,886
Retained earnings 24,967 17,997
Accumulated other comprehensive income   12   12
Total stockholders' equity   150,659   140,923
Total liabilities and stockholders' equity $ 252,653 $ 232,407
 
 

Tilly’s, Inc.

Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

   
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 1,   November 2, November 1,   November 2,
  2014   2013   2014   2013
 
Net sales $ 131,283 $ 123,779 $ 365,477 $ 355,941
Cost of goods sold (includes buying, distribution, and occupancy costs) (1)   90,735     85,936   258,947     248,403
Gross profit (1) 40,548 37,843 106,530 107,538
Selling, general and administrative expenses (1)   31,971     27,693   94,548     86,271
Operating income 8,577 10,150 11,982 21,267
Other (expense) income, net   (22 )   116   (18 )   20
Income before income taxes 8,555 10,266 11,964 21,287
Income tax expense   3,442     4,121   4,994     8,566
Net income $ 5,113   $ 6,145 $ 6,970   $ 12,721
 
Basic earnings per share of Class A and Class B common stock $ 0.18 $ 0.22 $ 0.25 $ 0.46
Diluted earnings per share of Class A and Class B common stock $ 0.18 $ 0.22 $ 0.25 $ 0.45
Weighted average basic shares outstanding 28,024 27,884 28,007 27,768
Weighted average diluted shares outstanding 28,046 28,166 28,082 28,091
 
(1)   Gross profit in the third quarter and the first nine months of fiscal 2013 includes a $0.3 million and a $1.0 million, respectively, reclassification of stock-based compensation expense from selling, general and administrative expenses to cost of goods sold to correct for an immaterial prior period error.
 
 

Tilly’s, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
Thirty-Nine Weeks Ended
November 1,   November 2,
  2014     2013  
 
Cash flows from operating activities
Net income $ 6,970 $ 12,721
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,630 14,470
Loss on disposal of assets 79 133
Gain on sales and maturities of marketable securities (86 ) (161 )
Deferred income taxes 598 351
Stock-based compensation expense 2,710 2,373
Excess tax benefit from stock-based compensation - (157 )
Changes in operating assets and liabilities:
Receivables 2,689 33
Merchandise inventories (15,930 ) (9,783 )
Prepaid expenses and other assets (2,085 ) (2,410 )
Accounts payable 8,155 8,144
Accrued expenses 4,436 443
Accrued compensation and benefits (1,138 ) (2,687 )
Deferred rent 521 5,121
Deferred revenue   (1,489 )   (1,335 )
Net cash provided by operating activities   21,060     27,256  
 
Cash flows from investing activities
Purchase of property and equipment (19,806 ) (36,015 )
Proceeds from sale of property and equipment 14 21
Purchases of marketable securities (34,939 ) (29,935 )
Maturities of marketable securities   40,000     40,000  
Net cash used in investing activities   (14,731 )   (25,929 )
 
Cash flows from financing activities
Payment of capital lease obligation (564 ) (530 )
Proceeds from exercise of stock options 181 3,025
Tax withholding payments related to exercise of stock options - (636 )
Excess tax benefit from stock-based compensation   -     157  
Net cash (used in) provided by financing activities   (383 )   2,016  
 
Change in cash and cash equivalents 5,946 3,343
Cash and cash equivalents, beginning of period   25,412     17,314  
Cash and cash equivalents, end of period $ 31,358   $ 20,657  
 
 
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)
 
2013 Q1 168 7 0 175 1,371
2013 Q2 175 7 0 182 1,423
2013 Q3 182 7 0 189 1,472
2013 Q4 189 7 1 195 1,513
 
2014 Q1 195 3 0 198 1,535
2014 Q2 198 6 1 203 1,563
2014 Q3 203 5 1 207 1,589