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

  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
anne.rakunas@icrinc.com