Tilly’s, Inc. Announces Third Quarter Fiscal 2013 Results Third Quarter Net Sales of $123.8 million; Comp Store Sales Decreased 2.4% Third Quarter EPS of $0.22 Revises Full Year 2013 Outlook Business Wire IRVINE, Calif. -- November 26, 2013 Tilly’s, Inc. (NYSE:TLYS) today announced financial results for the third quarter of fiscal 2013 ended November 2, 2013. “During the third quarter we achieved quality earnings that were at the high end of our expectations and I am pleased with how our team continues to execute in a challenging retail environment. We maintained healthy gross margins, controlled our costs and exited the quarter with inventory as planned and well positioned for the holiday season,” commented Daniel Griesemer, President and Chief Executive Officer. “While current trends dictate a cautious approach in the near term, we are confident in the strength of the Tilly’s brand and remain focused on initiatives to advance our long-term growth.” For the third quarter ended November 2, 2013: *Total net sales were $123.8 million, a decrease of 0.9% compared to $124.9 million in the third quarter of 2012, and reflect 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 2.4% compared to the third quarter of 2012. E-commerce sales were $13.3 million, an increase of 3.0% compared to the third quarter of 2012. *Gross profit was $38.2 million compared to $41.8 million in the third quarter of 2012. Gross margin was 30.9% compared to 33.5% in the third quarter of 2012. *Operating income was $10.2 million compared to $13.9 million in the third quarter of 2012. *Net income was $6.1 million, or $0.22 per diluted share, based on a weighted average diluted share count of 28.2 million shares. This compares to net income in the third quarter of 2012 of $9.3 million, or $0.33 per diluted share, based on a weighted average diluted share count of 28.1 million shares. Applying the expected long-term effective tax rate of 40%, adjusted net income in the third quarter of 2012 was $8.3 million, or $0.30 per diluted share. *At the conclusion of this press release is a reconciliation of non-GAAP results to GAAP results. For the thirty-nine weeks ended November 2, 2013: *Total net sales were $355.9 million, an increase of 9.0% compared to the first three quarters of the prior year. *Comparable store sales, which include e-commerce sales, decreased 0.7% compared to the first three quarters of 2012. E-commerce sales were $38.7 million, an increase of 14.9% compared to the first three quarters of 2012. *Gross profit increased 5.0% to $108.5 million. Gross margin was 30.5% compared to 31.7% in the prior year period. *Operating income was $21.3 million. This compares to operating income of $16.6 million in the first three 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 $12.7 million, or $0.45 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 2012 of $14.1 million, or $0.55 per diluted share, based on a weighted average diluted share count of 25.4 million shares. Adjusting for non-cash stock-based compensation charges and applying the expected long-term effective tax rate of 40%, adjusted net income was $14.1 million, or $0.55 per diluted share, in the first three 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 November 2, 2013, the Company had $50.6 million of cash and marketable securities and no borrowings or debt outstanding on its revolving credit facility. Fourth Quarter 2013 Outlook We continue to experience weak traffic trends and a highly promotional environment in teen retail. If these trends continue, we would expect fourth quarter comparable store sales to decline in the mid to high single digits, and net income to be in the range of $4.2 million to $6.0 million, or $0.15 to $0.21 per diluted share. This assumes an anticipated effective tax rate of 40% and a weighted average diluted share count of 28.3 million shares, compared to 28.0 million weighted average diluted shares in the fourth quarter of last year. Fourth quarter 2012 adjusted net income was $8.9 million, or $0.32 per diluted share, 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 Factoring in our assumptions for the fourth quarter, we now expect comparable-store sales to decline in the low single digits for fiscal 2013 on a 52-week versus 52-week basis. Using these assumptions and an anticipated annual effective tax rate of 40%, net income for fiscal year 2013 is expected to be in the range of $16.9 million to $18.7 million, or $0.60 to $0.66 per diluted share, based on a weighted average diluted share count of 28.1 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 a one-time tax benefit resulting from the conversion to a “C“ corporation in the second quarter of 2012. (See reconciliation of non-GAAP results to GAAP results at the end of this release.) Conference Call Information A conference call to discuss the financial results is scheduled for today, November 26, 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) 452-4006 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 10, 2013, by dialing (877) 870-5176 (domestic) or (858) 384-5517 (international) and entering the conference identification number: 8853090. 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 November 2, 2013, operated 189 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 future financial and operating results, including but not limited to future comparable store sales, future net income, anticipated tax rate and long-term 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, attract customer traffic at our stores and online, execute our growth and long-term strategies, expand into new markets, effectively manage our inventory and costs, 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 and in our subsequent Forms 10-Q filed with the SEC. Tilly’s, Inc. Consolidated Balance Sheets (In thousands, except per share data) (Unaudited) November 2, February 2, 2013 2013 ASSETS Current assets: Cash and cash equivalents $ 20,657 $ 17,314 Marketable securities 29,932 39,868 Receivables 5,901 5,934 Merchandise inventories 56,378 46,595 Prepaid expenses and other current assets 13,398 11,387 Total current assets 126,266 121,098 Property and equipment, net 102,411 80,926 Other assets 3,418 3,357 Total assets $ 232,095 $ 205,381 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 26,960 $ 18,261 Deferred revenue 4,118 5,453 Accrued compensation and benefits 3,407 6,094 Accrued expenses 12,114 12,132 Current portion of deferred rent 5,397 4,555 Current portion of capital lease 746 712 obligation/Related party Total current liabilities 52,742 47,207 Long-term portion of deferred rent 41,899 37,620 Long-term portion of capital lease 2,694 3,258 obligation/Related party Total long-term liabilities 44,593 40,878 Total liabilities 97,335 88,085 Commitments and contingencies Stockholders' equity: Common stock (Class A), $0.001 par value; November 2, 2013 - 100,000 shares authorized, 11,361 shares issued and outstanding; February 11 11 2, 2013 - 100,000 shares authorized, 10,772 shares issued and outstanding Common stock (Class B), $0.001 par value; November 2, 2013 - 35,000 shares authorized, 16,642 shares issued and outstanding; February 17 17 2, 2013 - 35,000 shares authorized, 16,920 shares issued and outstanding Preferred stock, $0.001 par value; November 2, 2013 and February 2, 2013 - 10,000 shares - - authorized, no shares issued or outstanding Additional paid-in capital 122,153 117,391 Retained earnings (deficit) 12,581 (140 ) Accumulated other comprehensive (loss) income (2 ) 17 Total stockholders' equity 134,760 117,296 Total liabilities and stockholders' equity $ 232,095 $ 205,381 Tilly’s, Inc. Consolidated Statements of Income (In thousands, except per share data) (Unaudited) Thirteen Weeks Ended Thirty-Nine Weeks Ended November 2, October 27, November October 27, 2, 2013 2012 2012 2013 Net sales $ 123,779 $ 124,895 $ 355,941 $ 326,521 Cost of goods sold (includes buying, 85,587 83,087 247,395 223,150 distribution, and occupancy costs) Gross profit 38,192 41,808 108,546 103,371 Selling, general and 28,042 27,940 87,279 86,795 administrative expenses Operating 10,150 13,868 21,267 16,576 income Other income 116 (42 ) 20 (46 ) (expense), net Income before 10,266 13,826 21,287 16,530 income taxes Income tax 4,121 4,532 8,566 2,478 expense Net income $ 6,145 $ 9,294 $ 12,721 $ 14,052 Basic earnings per share of Class A and $ 0.22 $ 0.34 $ 0.46 $ 0.56 Class B common stock Diluted earnings per share of Class $ 0.22 $ 0.33 $ 0.45 $ 0.55 A and Class B common stock Weighted average basic 27,884 27,658 27,768 24,979 shares outstanding Weighted average diluted 28,166 28,079 28,091 25,403 shares outstanding Tilly’s, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Thirty-Nine Weeks Ended November 2, October 27, 2013 2012 Cash flows from operating activities Net income $ 12,721 $ 14,052 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,470 12,299 Loss on disposal of assets 133 153 (Gain) loss on sales and maturities of (161 ) 28 marketable securities Deferred income taxes 351 6,325 Stock-based compensation expense 2,373 8,893 Excess tax benefit from stock-based (157 ) (94 ) compensation Changes in operating assets and liabilities: Receivables 33 (2,184 ) Merchandise inventories (9,783 ) (13,202 ) Prepaid expenses and other assets (2,410 ) (12,121 ) Accounts payable 8,144 8,477 Accrued expenses 443 (1,048 ) Accrued compensation and benefits (2,687 ) (1,072 ) Deferred rent 5,121 7,435 Deferred revenue (1,335 ) (1,375 ) Net cash provided by operating activities 27,256 26,566 Cash flows from investing activities Purchase of property and equipment (36,015 ) (25,585 ) Proceeds from sale of property and equipment 21 17 Insurance proceeds from casualty loss - 799 Purchases of marketable securities (29,935 ) (60,419 ) Sales and maturities of marketable securities 40,000 35,510 Net cash used in investing activities (25,929 ) (49,678 ) Cash flows from financing activities Payment of capital lease obligation (530 ) (497 ) Net proceeds from initial public offering - 106,789 Proceeds from exercise of stock options 3,025 805 Tax withholding payments related to exercise (636 ) - of stock options Excess tax benefit from stock-based 157 94 compensation Distributions - (84,287 ) Net cash provided by financing activities 2,016 22,904 Change in cash and cash equivalents 3,343 (208 ) Cash and cash equivalents, beginning of period 17,314 25,091 Cash and cash equivalents, end of period $ 20,657 $ 24,883 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. Q3 2012 Q3 2012 YTD (quarter ended October 27, 2012) (nine months ended October 27, 2012) Reported Adjustments Adjusted Reported Adjustments Adjusted (GAAP) (GAAP) Selling, general and (1 ) 27,940 - 27,940 86,795 (6,915 ) 79,880 administrative expenses Operating 13,868 - 13,868 16,576 6,915 23,491 income Income before 13,826 - 13,826 16,530 6,915 23,445 income taxes Income tax (2 ) 4,532 998 5,530 2,478 6,900 9,378 provision Net income $9,294 ($998 ) $8,296 $14,052 $15 $14,067 Basic earnings $0.34 ($0.04 ) $0.30 $0.56 $0.00 $0.56 per share Diluted earnings per $0.33 ($0.03 ) $0.30 $0.55 $0.00 $0.55 share Notes: (1) Adjustment to the nine months ended October 27, 2012 SG&A expenses reflects exclusion of a $7.615 million charge for life-to-date stock-based compensation expense in the second quarter of fiscal 2012 and adds a charge of $0.7 million for stock-based compensation expense for the first quarter similar to the on-going charges in the other three quarters of fiscal year 2012. (2) The tax provision in the third quarter and the nine months ended October 27, 2012 is adjusted to the expected long-term effective tax rate of 40% as a "C" corporation. The GAAP tax provision rate reflects 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. Q4 2012 Full Year 2012 (quarter ended February 2, 2013) (53 week year ended February 2, 2013) Reported Adjustments Adjusted Reported Adjustments Adjusted (GAAP) (GAAP) Selling, general and (1 ) 32,011 - 32,011 118,805 (6,915 ) 111,890 administrative expenses Operating 14,814 - 14,814 31,390 6,915 38,305 income Income before 14,768 - 14,768 31,299 6,915 38,214 income taxes Income tax (2 ) 4,927 980 5,907 7,406 7,880 15,286 provision Net income $9,841 ($980 ) $8,861 $23,893 ($965 ) $22,928 Basic earnings $0.36 ($0.04 ) $0.32 $0.93 ($0.04 ) $0.89 per share Diluted earnings per $0.35 ($0.03 ) $0.32 $0.92 ($0.04 ) $0.88 share Notes: 1) Adjustment to full year 2012 SG&A expenses excludes the life-to-date charge of $7.615 million for stock-based compensation expense in the second quarter and adds a charge of $0.7 million for stock-based compensation expense in the first quarter, similar to the on-going charges 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, of $2.7 million, for all quarters of the year. (2) The tax provision in the fourth 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 Q1 140 5 0 145 1,134 2012 Q2 145 10 0 155 1,215 2012 Q3 155 7 1 161 1,272 2012 Q4 161 7 0 168 1,319 2013 Q1 168 7 0 175 1,371 2013 Q2 175 7 0 182 1,423 2013 Q3 182 7 0 189 1,472 Contact: Investor Relations: ICR, Inc. Anne Rakunas/Joseph Teklits 310-954-1113 firstname.lastname@example.org
Tilly’s, Inc. Announces Third Quarter Fiscal 2013 Results
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