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Tilly’s, Inc. Announces Second Quarter Fiscal 2013 Results

  Tilly’s, Inc. Announces Second Quarter Fiscal 2013 Results

  *Second Quarter Net Sales Increased 17.1%; Comp Store Sales Decreased 0.5%
                         *Second Quarter EPS of $0.15
                       *Maintains Full Year 2013 Outlook
  *Announces Appointment of New CFO

Business Wire

IRVINE, Calif. -- August 28, 2013

Tilly’s, Inc. (NYSE:TLYS) today announced financial results for the second
quarter of fiscal 2013 ended August 3, 2013.

“Our unique offering of the most sought-after brands coupled with disciplined
adherence to our pricing strategy led to quality earnings that were above our
expectations. During the quarter we grew net sales, expanded gross margin, and
increased net income compared to the prior year quarter on a comparable
basis,” commented Daniel Griesemer, President and Chief Executive Officer. “We
are encouraged by our customers’ positive response to date to our
back-to-school merchandise, which reaffirms the continued relevance of our
assortment and the Tilly’s concept during this important shopping period. We
believe our inventory is well positioned to drive sales in our stores and on
our website.”

For the second quarter ended August 3, 2013:

  *Total net sales were $123 million, an increase of 17.1% compared to the
    second quarter of 2012. This included incremental sales that shifted into
    the second quarter from the third quarter when compared to the 2012 fiscal
    calendar.
  *Comparable store sales, which include e-commerce sales, decreased 0.5%
    compared to the second quarter of 2012. E-commerce sales were $12.8
    million, an increase of 30% compared to the second quarter of 2012.
  *Gross profit increased 22.5% to $38.2 million compared to the second
    quarter of 2012. Gross margin was 31.0%, a 140 basis point increase over
    the second quarter of 2012.
  *Operating income was $7.2 million. This compares to a GAAP operating loss
    of $(3.3) million in the second quarter of 2012, during which the Company
    recognized a one-time non-cash SG&A charge of $7.6 million, before tax,
    related to stock-based compensation expense triggered by the company’s
    initial public offering.
  *Net income was $4.3 million, or $0.15 per diluted share, based on a
    weighted average diluted share count of 28.1 million shares. This compares
    to a GAAP net loss in the second quarter of 2012 of $(1.2) million, or
    $(0.04) per share, based on a weighted average share count of 27.3 million
    shares. Excluding the non-cash SG&A charge and applying the expected
    long-term effective tax rate of 40% as a “C” corporation, adjusted net
    income in the second quarter of 2012 was $2.6 million, or $0.09 per
    diluted share.
  *At the conclusion of this press release is a reconciliation of non-GAAP
    results to GAAP results.

For the twenty-six weeks ended August 3, 2013:

  *Total net sales were $232.2 million, an increase of 15.1% compared to the
    first two quarters of the prior year.
  *Comparable store sales, which include e-commerce sales, increased 0.2%
    compared to the first two quarters of 2012. E-commerce sales were $25.4
    million, an increase of 22% compared to the first two quarters of 2012.
  *Gross profit increased 14.3% to $70.4 million. Gross margin was 30.3%,
    slightly lower than the prior year period.
  *Operating income was $11.1 million. This compares to a GAAP operating
    income of $2.7 million in the first two quarters of 2012, during which the
    Company recognized a one-time non-cash SG&A charge of $7.6 million, before
    tax, related to stock–based compensation expense triggered by the
    company’s initial public offering.
  *Net income was $6.6 million, or $0.23 per diluted share, based on a
    weighted average diluted share count of 28.1 million shares. This compares
    to a GAAP net income in the first two quarters of 2012 of $4.8 million, or
    $0.20 per diluted share, based on a weighted average diluted share count
    of 24.1 million shares. Adjusting for non-cash stock-based compensation
    charges and applying the expected long-term effective tax rate of 40% as a
    “C” corporation, adjusted net income was $5.8 million, or $0.24 per
    diluted share, in the first two quarters of 2012.
  *At the conclusion of this press release is a reconciliation of non-GAAP
    results to GAAP results.

Balance Sheet and Liquidity

As of August 3, 2013, the Company had $50.8 million of cash and marketable
securities and no borrowings or debt outstanding on its revolving credit
facility.

Third Quarter 2013 Outlook

We expect comparable store sales to be flat compared to a 1.9% comparable
store sales increase in the third quarter of 2012. Using an anticipated
effective tax rate of 40%, net income for the third quarter is expected to be
in the range of $5.4 million to $6.3 million, or $0.19 to $0.22 per diluted
share, and assumes a weighted average diluted share count of 28.3 million
shares, compared to 28.1 million weighted average diluted shares in the third
quarter of last year.

Third quarter 2012 adjusted net income was $8.3 million, which includes a 40%
effective tax rate to make that quarter comparable. (See reconciliation of
non-GAAP results to GAAP results at the end of this release.)

Fiscal Year 2013 Outlook

The Company continues to expect comparable store sales growth in the
low-single digit range for fiscal 2013, on a 52-week vs. 52-week basis. Using
an anticipated full year effective tax rate of 40%, net income for fiscal year
2013 is expected to be in the range of $21.5 million to $23.3 million, or
$0.76 to $0.82 per diluted share, and assumes a weighted average diluted share
count of 28.2 million shares, compared to 26.1 million weighted average
diluted shares for the full year 2012.

Full year 2012 adjusted net income was $22.9 million, which includes four
quarters of ongoing stock-based compensation expense totaling $2.7 million and
a 40% effective tax rate for the entire year, and excludes the one-time SG&A
charge and the one-time tax benefit resulting from the conversion to a “C”
corporation described above. (See reconciliation of non-GAAP results to GAAP
results at the end of this release.)

Chief Financial Officer Appointment

Tilly’s, Inc. announced today that it has appointed Jennifer Ehrhardt as the
Company’s Chief Financial Officer, effective September 14, 2013. Ms. Ehrhardt
will replace Bill Langsdorf, who announced his intended retirement earlier
this year. Ms. Ehrhardt previously served as Vice President of Finance for
Tilly’s.

“We are very pleased that our Board of Directors has appointed Jennifer as
Chief Financial Officer,” said Daniel Griesemer, President and Chief Executive
Officer. “Jennifer brings the right talents and her great experience in retail
apparel and accounting to the role. Since joining us, Jennifer has become an
integral member of our senior management team and a great fit for Tilly’s. We
are confident Jennifer will continue to make strong contributions in her new
role as we execute on our long-term strategy.” Prior to joining the Company,
Ms. Ehrhardt was Vice President and Corporate Controller at The Wet Seal, Inc.
Ms. Ehrhardt spent over 12 years with Deloitte & Touche LLP, most recently as
Senior Manager. Ms.Ehrhardt holds an M.B.A. from Xavier University and a B.S.
in business administration from Northern Kentucky University.

“I would also like to thank Bill Langsdorf for his years of service to the
company. Among Bill’s many contributions, his talent and dedication have been
instrumental to Tilly’s growth and successful transition to a public company,
and his financial stewardship has helped position us for the long term. We
wish him the very best in his retirement.”

Conference Call Information

A conference call to discuss the financial results is scheduled for today,
August 28, 2013, 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) 297-0357 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 September 11, 2013, by
dialing (877) 870-5176 (domestic) or (858) 384-5517 (international) and
entering the conference identification number: 1039087. 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 August 3,
2013, operated 182 stores and through its website, www.tillys.com.

Non-GAAP Financial Measures

In addition to reporting financial measures in accordance with accounting
principles generally accepted in the United States (“GAAP”), the Company
provides certain non-GAAP financial measures including “adjusted selling,
general and administrative expenses”, “adjusted operating income”, “adjusted
income before income taxes”, “adjusted income tax provision”, “adjusted net
income”, “adjusted basic earnings per share” and “adjusted diluted earnings
per share”. These amounts are not in accordance with, or an alternative to,
GAAP. The Company’s management believes that these measures provide investors
with transparency by helping illustrate the financial results: (i) as if the
Company had been a publicly traded “C” Corporation during the relevant time
periods, in order to provide a better comparison of past periods to current
periods as a “C” Corporation; and (ii) to exclude items that may not be
indicative of, or are unrelated to, the Company’s core operating results,
providing a better baseline for analyzing trends in the underlying business.

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.

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 guidance, future financial and operating results 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, execute our growth strategy, expand
into new markets, effectively compete with other retailers, enhance our 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 3, 2013,
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)
                                                              
                                                   August 3,     February 2,
                                                   2013            2013
                                                                   
ASSETS
Current assets:
Cash and cash equivalents                          $ 20,883        $ 17,314
Marketable securities                                29,935          39,868
Receivables                                          10,913          5,934
Merchandise inventories                              63,399          46,595
Prepaid expenses and other current assets           12,230        11,387  
Total current assets                                 137,360         121,098
Property and equipment, net                          94,568          80,926
Other assets                                        3,804         3,357   
Total assets                                       $ 235,732      $ 205,381 
                                                                   
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                   $ 34,825        $ 18,261
Deferred revenue                                     4,164           5,453
Accrued compensation and benefits                    5,255           6,094
Accrued expenses                                     15,918          12,132
Current portion of deferred rent                     5,053           4,555
Current portion of capital lease                    734           712     
obligation/Related party
Total current liabilities                            65,949          47,207
Long-term portion of deferred rent                   40,927          37,620
Long-term portion of capital lease                  2,885         3,258   
obligation/Related party
Total long-term liabilities                         43,812        40,878  
Total liabilities                                    109,761         88,085
                                                                   
Commitments and contingencies
                                                                   
Stockholders' equity:
Common stock (Class A), $0.001 par value;
August 3, 2013 - 100,000 shares authorized,
11,129 shares issued and outstanding; February
2, 2013 - 100,000 shares authorized,
10,772 shares issued and outstanding                 11              11
Common stock (Class B), $0.001 par value;
August 3, 2013 - 35,000 shares authorized,
16,642 shares issued and outstanding; February
2, 2013 - 35,000 shares authorized,
16,920 shares issued and outstanding                 17              17
Preferred stock, $0.001 par value; August 3,
2013 and February 2, 2013 - 10,000 shares
authorized, no shares issued or outstanding          -               -
Additional paid-in capital                           119,498         117,391
Retained earnings (deficit)                          6,435           (140    )
Accumulated other comprehensive income              10            17      
Total stockholders' equity                          125,971       117,296 
Total liabilities and stockholders' equity         $ 235,732      $ 205,381 
                                                                             

Tilly’s, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
                                                              
                         Thirteen Weeks Ended        Twenty-Six Weeks Ended
                         August 3,     July 28,      August 3,     July 28,
                         2013          2012          2013          2012
                                                                   
Net sales                $ 123,043     $ 105,101     $ 232,161     $ 201,625
Cost of goods sold
(includes buying,         84,888      73,957      161,808     140,063 
distribution, and
occupancy costs)
Gross profit               38,155        31,144        70,353        61,562
Selling, general and
administrative            30,956      34,462      59,237      58,854  
expenses
Operating income           7,199         (3,318  )     11,116        2,708
(loss)
Interest income           (47     )    40          (96     )    (4      )
(expense), net
Income (loss) before       7,152         (3,278  )     11,020        2,704
income taxes
Income tax expense        2,885       (2,122  )    4,445       (2,053  )
(benefit)
Net income (loss)        $ 4,267      $ (1,156  )   $ 6,575      $ 4,757   
                                                                   
Basic earnings (loss)    $ 0.15        $ (0.04   )   $ 0.24        $ 0.20
per share
Diluted earnings         $ 0.15        $ (0.04   )   $ 0.23        $ 0.20
(loss) per share
Weighted average basic     27,727        27,280        27,710        23,640
shares outstanding
Weighted average
diluted shares             28,080        27,280        28,053        24,097
outstanding
                                                                             

Tilly’s, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                                              
                                                   Twenty-Six Weeks Ended
                                                   August 3,       July 28,
                                                   2013           2012
                                                                   
Cash flows from operating activities
Net income                                         $ 6,575         $ 4,757
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization                        9,425           8,029
Loss on disposal of assets                           111             38
Gain on maturities of marketable securities          (119    )       -
Deferred income taxes                                558             6,148
Stock-based compensation expense                     1,655           8,220
Excess tax benefit from stock-based                  (40     )       (9      )
compensation
Changes in operating assets and liabilities:
Receivables                                          (4,979  )       (3,570  )
Merchandise inventories                              (16,804 )       (18,019 )
Prepaid expenses and other assets                    (1,843  )       (12,149 )
Accounts payable                                     16,564          15,143
Accrued expenses                                     4,378           5,530
Accrued compensation and benefits                    (839    )       (2,428  )
Deferred rent                                        3,805           5,263
Deferred revenue                                    (1,289  )      (1,275  )
Net cash provided by operating activities           17,158        15,678  
                                                                   
Cash flows from investing activities
Purchase of property and equipment                   (23,789 )       (16,449 )
Proceeds from sale of property and equipment         19              17
Insurance proceeds from casualty loss                -               799
Purchases of marketable securities                   (14,960 )       (35,539 )
Maturities of marketable securities                 25,000        9,455   
Net cash used in investing activities               (13,730 )      (41,717 )
                                                                   
Cash flows from financing activities
Payment of capital lease obligation                  (351    )       (329    )
Net proceeds from initial public offering            -               106,783
Proceeds from exercise of stock options              452             267
Excess tax benefit from stock-based                  40              9
compensation
Distributions                                       -             (84,287 )
Net cash provided by financing activities           141           22,443  
                                                                   
Change in cash and cash equivalents                  3,569           (3,596  )
Cash and cash equivalents, beginning of period      17,314        25,091  
Cash and cash equivalents, end of period           $ 20,883       $ 21,495  
                                                                             

Tilly’s, Inc.
Supplemental Information - Consolidated Statements of Income
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
(In thousands, except per share amounts)
(Unaudited)

The tables below reconcile the non-GAAP financial measures of adjusted selling, general and
administrative expenses (“SG&A”), adjusted operating income, adjusted income before income taxes,
adjusted income tax provision, adjusted net income, and adjusted basic and diluted earnings per share,
with the most directly comparable GAAP financial measures of actual SG&A, actual operating income,
actual income before income taxes, actual income tax provision, actual net income, and actual basic
and diluted earnings per share.


                    Q2 2012                                 Q2 2012 YTD
                     (quarter ended July 28, 2012)            (six months ended July 28, 2012)
                                                                                      
                     Reported      Adjustments  Adjusted    Reported      Adjustments  Adjusted
                     (GAAP)                                   (GAAP)
                                                                                                     
Selling,
general and      (1)   34,462         (7,615 )      26,847      58,854         (6,915 )      51,939
administrative
expenses
Operating              (3,318  )      7,615         4,297       2,708          6,915         9,623
income
Income before          (3,278  )      7,615         4,337       2,704          6,915         9,619
income taxes
Income tax       (2)   (2,122  )      3,857         1,735       (2,053  )      5,902         3,848
provision
Net income             ($1,156 )    $ 3,759       $ 2,602     $ 4,757        $ 1,014       $ 5,771
                                                                                                     
Basic earnings         ($0.04  )    $ 0.14        $ 0.10      $ 0.20         $ 0.04        $ 0.24
per share
Diluted
earnings per           ($0.04  )    $ 0.13        $ 0.09      $ 0.20         $ 0.04        $ 0.24
share
                                                                                                     
Diluted shares   (3)   27,280         403           27,683      24,097         -             24,097
outstanding
                                                                                                     

Notes:
(1) Adjustment to fiscal year 2012 second quarter SG&A expenses reflects exclusion of a $7.615
million charge for life-to-date stock-based compensation expense covering periods up to the May 2012
IPO date. Adjustment to six months ended July 28, 2012 SG&A expenses also reflects adding a charge
for on-going stock-based compensation expense for the first quarter similar to the charge in the
other three quarters of fiscal year 2012. These on-going charges commenced following the Company's
IPO at the beginning of the second quarter of fiscal 2012.
(2) The tax provision rate for fiscal year 2012 is adjusted to the expected long-term effective tax
rate of 40% as a "C" corporation. The GAAP tax provision rate in 2012 reflected the Company being
taxed as an "S" corporation until early in the second quarter of fiscal 2012 when it began being taxed
as a "C" corporation.
(3) Due to a GAAP net loss in the second quarter of fiscal 2012 there was no dilution of the basic
shares outstanding. As a result of the adjustments described in notes 1 and 2 above, there was
adjusted net income (rather than a GAAP net loss) for the fiscal 2012 second quarter and therefore
incremental shares to calculate diluted earnings per share. No adjustment was made to the reported
diluted shares outstanding for the six month period ended July 28, 2012.


                     Q3 2012                                  Full Year 2012
                     (quarter ended October 27, 2012)        (53 week year ended February 2, 2013)
                                                                                           
                     Reported      Adjustments  Adjusted    Reported      Adjustments  Adjusted
                     (GAAP)                                   (GAAP)
                                                                                                     
Selling,
general and      (1)   27,940         -             27,940      118,805        (6,915 )      111,890
administrative
expenses
Operating              13,868         -             13,868      31,390         6,915         38,305
income
Income before          13,826         -             13,826      31,299         6,915         38,214
income taxes
Income tax       (2)   4,532          998           5,530       7,406          7,880         15,286
provision
Net income           $ 9,294          ($998  )    $ 8,296     $ 23,893         ($965  )    $ 22,928
                                                                                                     
Basic earnings       $ 0.34           ($0.04 )    $ 0.30      $ 0.93           ($0.04 )    $ 0.89
per share
Diluted
earnings per         $ 0.33           ($0.04 )    $ 0.30      $ 0.92           ($0.04 )    $ 0.88
share
                                                                                                     

Notes:
(1) Adjustment to full year 2012 SG&A expenses excludes the life-to-date charge in the second quarter
but adds a charge of $0.7 million in the first quarter, similar to the on-going charges for
stock-based compensation expense in the other three quarters of 2012. The result of these adjustments
to 2012 is to reflect only an on-going stock-based compensation expense for all quarters of the year.
(2) The tax provision in the third quarter and full year 2012 is adjusted to the expected long-term
effective tax rate of 40% as a "C" corporation. The GAAP tax provision rate in 2012 reflected the
Company being taxed as an "S" corporation for a portion of the year, after which it was taxed as a "C"
corporation.


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        During       During       End of       (in
             Qtr           Qtr          Qtr          Qtr          thousands)
2012         140           5            0            145          1,134
Q1
2012         145           10           0            155          1,215
Q2
2012         155           7            1            161          1,272
Q3
2012         161           7            0            168          1,319
Q4
                                                                  
2013         168           7            0            175          1,371
Q1
2013         175           7            0            182          1,423
Q2
                                                                  

Contact:

Investor Relations Contact:
ICR, Inc.
Anne Rakunas/Joseph Teklits
310-954-1113
anne.rakunas@icrinc.com