Tilly’s, Inc. Announces Fourth Quarter Fiscal 2013 Results and Introduces First Quarter Fiscal 2014 Outlook

  Tilly’s, Inc. Announces Fourth Quarter Fiscal 2013 Results and Introduces   First Quarter Fiscal 2014 Outlook    *Fourth Quarter Net Sales of $139.9 million; Comp Store Sales Decreased                                        4.9%   *Fourth Quarter EPS of $0.19; Fiscal Year EPS of $0.65  Business Wire  IRVINE, Calif. -- March 19, 2014  Tilly’s, Inc. (NYSE:TLYS) today announced financial results for the fourth quarter of fiscal 2013 ended February 1, 2014.  “While fourth quarter results were as expected, we are not satisfied with this level of financial performance. I am, however, pleased with how we navigated the challenging retail environment, which reflects the disciplined execution by our team. We controlled costs, appropriately positioned our inventory levels and adhered to a planned promotional strategy in the quarter that delivered better product margins than the prior year,” commented Daniel Griesemer, President and Chief Executive Officer. “In fiscal 2014, we have developed several key initiatives to adapt to the changing teen retail landscape and to capitalize on the long-term opportunities to grow our business.”  For the fourth quarter ended February 1, 2014 (2012 reflects a 14-week period):    *Total net sales were $139.9 million, a decrease of 0.6% compared to $140.8     million in the fourth quarter of 2012.   *Comparable store sales, which include e-commerce sales, decreased 4.9%     compared to the same 13-week period in 2012. E-commerce sales were $19.1     million, an increase of approximately 2% compared to the same     thirteen-week period in 2012.   *Gross profit was $43.8 million compared to $46.8 million in the fourth     quarter of 2012. Gross margin was 31.3% compared to 33.3% in the fourth     quarter of 2012. Product margins increased 40 basis points, offset     primarily by deleverage in buying, distribution and occupancy costs as a     result of the negative comparable store sales.   *Operating income was $8.5 million and included $1.8 million in store asset     impairment charges recorded in the fourth quarter. This compares to     operating income of $14.8 million in the fourth quarter of 2012.   *Net income was $5.4 million, or $0.19 per diluted share, based on a     weighted average diluted share count of 28.2 million shares and an     effective tax rate of approximately 36% due to a one-time tax benefit     related to return to provision adjustments. This compares to net income in     the fourth quarter of 2012 of $9.8 million, or $0.35 per diluted share,     based on a weighted average diluted share count of 28.0 million shares.     Applying an expected long-term effective tax rate of 40%, adjusted net     income in the fourth quarter of 2012 was $8.9 million, or $0.32 per     diluted share.   *At the conclusion of this press release is a reconciliation of non-GAAP     results to GAAP results.  For the 52-weeks ended February 1, 2014 (2012 reflects a 53-week period):    *Total net sales were $495.8 million, an increase of 6.1% compared to the     prior year.   *Comparable store sales, which include e-commerce sales, decreased 1.9%     compared to the same 52-week period in 2012. E-commerce sales were $57.8     million, an increase of approximately 11% compared to the same 52-week     period in 2012.   *Gross profit increased 1.4% to $152.3 million. Gross margin was 30.7%     compared to 32.1% in the prior year period. Product margins increased 30     basis points, offset primarily by deleverage in buying, distribution and     occupancy costs as a result of the negative comparable store sales.   *Operating income was $29.7 million, and included $1.8 million in store     asset impairment charges recorded in the fourth quarter. This compares to     operating income of $31.4 million in the prior year, 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 $18.1 million, or $0.65 per diluted share, based on a     weighted average diluted share count of 28.1 million shares and an     effective tax rate of approximately 39% due to a one-time tax benefit     related to return to provision adjustments. This compares to net income in     the prior year of $23.9 million, or $0.92 per diluted share, based on a     weighted average diluted share count of 26.1 million shares. Adjusting for     non-cash stock-based compensation charges and applying an expected     long-term effective tax rate of 40%, adjusted net income was $22.9     million, or $0.88 per diluted share, in the prior year.   *At the conclusion of this press release is a reconciliation of non-GAAP     results to GAAP results.  Balance Sheet and Liquidity  As of February 1, 2014, the Company had $60.4 million of cash and marketable securities and no borrowings or debt outstanding on its revolving credit facility. On March 17, 2014, the Company amended its revolving credit facility agreement to adjust certain terms, effective as of February 3, 2014, and extend the maturity date to May 2017.  First Quarter 2014 Outlook  We continue to experience volatile and weak traffic trends and a highly promotional environment in teen retail. If these trends continue, we would expect first quarter comparable store sales to decline in the mid single digits, and net income per diluted share to be in the range of $0.00 to $0.04. This assumes an anticipated effective tax rate of 40% and a weighted average diluted share count of 28.2 million shares. First quarter 2013 net income was $2.3 million, or $0.08 per diluted share, based on a weighted average diluted share count of 28.0 million shares.  Conference Call Information  A conference call to discuss the financial results is scheduled for today, March 19, 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) 466-4587 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 April 2, 2014, by dialing (877) 870-5176 (domestic) or (858) 384-5517 (international) and entering the conference identification number: 6661259. 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 March 19, 2014, operated 198 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, future gross, operating or product margins, and anticipated tax rate 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 completion of our new distribution facility, 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, timely complete our new distribution facility, 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)                                                                                                                      February 1,   February 2,                                                      2014          2013                                                                     ASSETS Current assets: Cash and cash equivalents                            $ 25,412      $ 17,314 Marketable securities                                  34,943        39,868 Receivables                                            8,545         5,934 Merchandise inventories                                46,266        46,595 Prepaid expenses and other current assets             11,772      11,387       Total current assets                               126,938       121,098 Property and equipment, net                            100,936       80,926 Other assets                                          4,533       3,357        Total assets                                     $ 232,407    $ 205,381                                                                      LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable                                     $ 19,645      $ 18,261 Deferred revenue                                       6,214         5,453 Accrued compensation and benefits                      4,975         6,094 Accrued expenses                                       9,241         12,132 Current portion of deferred rent                       5,395         4,555 Current portion of capital lease                      758         712      obligation/Related party     Total current liabilities                          46,228        47,207 Long-term portion of deferred rent                     42,756        37,620 Long-term portion of capital lease                    2,500       3,258    obligation/Related party     Total long-term liabilities                       45,256      40,878       Total liabilities                                  91,484        88,085                                                                     Commitments and contingencies                                                                     Stockholders' equity: Common stock (Class A), $0.001 par value; February 1, 2014 - 100,000 shares authorized,     11,361 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; February 1, 2014 - 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; February 1, 2014 and February 2, 2013 - 10,000 shares     authorized, no shares issued or outstanding        -             - Additional paid-in capital                             122,886       117,391 Retained earnings (deficit)                            17,997        (140    ) Accumulated other comprehensive income                12          17           Total stockholders' equity                        140,923     117,296      Total liabilities and stockholders' equity       $ 232,407    $ 205,381                                                                                 Tilly’s, Inc. Consolidated Statements of Income (In thousands, except per share data) (Unaudited)                                                                                          13 Weeks      14 Weeks      52 Weeks      53 Weeks                            Ended         Ended         Ended         Ended                            February      February      February      February                            1,            2,            1,            2,                            2014          2013          2014          2013                                                                       Net sales                  $ 139,896     $ 140,771     $ 495,837     $ 467,291 Cost of goods sold (includes buying,           96,146       93,946       343,542      317,096 distribution, and occupancy costs) Gross profit                 43,750        46,825        152,295       150,195 Selling, general and        35,279       32,011       122,558      118,805 administrative expenses Operating income             8,471         14,814        29,737        31,390 Other expense, net          29           46           9            91 Income before income         8,442         14,768        29,728        31,299 taxes Income tax expense          3,025        4,927        11,591       7,406 Net income                 $ 5,417       $ 9,841       $ 18,137      $ 23,893                                                                       Basic earnings per share of Class A and Class B     $ 0.19        $ 0.36        $ 0.65        $ 0.93 common stock Diluted earnings per share of Class A and       $ 0.19        $ 0.35        $ 0.65        $ 0.92 Class B common stock Weighted average basic       27,983        27,686        27,822        25,656 shares outstanding Weighted average diluted     28,190        28,033        28,116        26,076 shares outstanding                                                                          Tilly’s, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited)                                                                   Fiscal Year Ended                                    February 1,   February 2,   January 28,                                    2014            2013            2012 Cash flows from operating activities Net income                         $ 18,137        $ 23,893        $ 34,340 Adjustments to reconcile net income to net cash provided by operating activities:     Depreciation and                 19,367          16,679          15,129     amortization     Loss on disposal of assets       140             111             232     Impairment of assets             1,840           -               554     (Gain) loss on sales and     maturities of marketable         (176    )       28              -     securities     Deferred income taxes            304             6,689           -     Stock-based compensation         3,106           9,570           -     expense     Excess tax benefit from          (157    )       (95     )       -     stock-based compensation     Changes in operating assets     and liabilities:           Receivables                (2,611  )       21              (2,304  )           Merchandise                329             (9,927  )       (3,028  )           inventories           Prepaid expenses and       (1,861  )       (12,930 )       (2,868  )           other assets           Accounts payable           1,554           1,431           2,113           Accrued expenses           (1,796  )       (1,470  )       155           Accrued compensation       (1,119  )       (1,442  )       3,362           and benefits           Deferred rent              5,976           8,584           4,159           Deferred revenue          761           588           740                    Net cash provided               by operating          43,794        41,730        52,584                 activities                                                                     Cash flows from investing activities Purchase of property and             (42,701 )       (33,298 )       (20,223 ) equipment Proceeds from sale of property       79              17              28 and equipment Insurance proceeds from casualty     -               822             - loss                                                                               Purchases of marketable              (44,908 )       (75,377 )       - securities Sales and maturities of             50,000        35,510        -        marketable securities                                                                                             Net cash used in               investing             (37,530 )      (72,326 )      (20,195 )               activities                                                                     Cash flows from financing activities Payment of capital lease             (712    )       (668    )       (628    ) obligation Net proceeds from initial public     -               106,789         - offering Proceeds from exercise of stock      3,025           1,169           - options Tax withholding payments related     (636    )       (279    )       - to exercise of stock options Excess tax benefit from              157             95              - stock-based compensation                                                                               Distributions                       -             (84,287 )      (36,008 )               Net cash provided               by (used in)          1,834         22,819        (36,636 )               financing               activities                                                                     Change in cash and cash              8,098           (7,777  )       (4,247  ) equivalents Cash and cash equivalents,          17,314        25,091        29,338   beginning of period Cash and cash equivalents, end     $ 25,412       $ 17,314       $ 25,091   of period                                                                                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.                       Q4 2012                                    Full Year 2012                      (Fourteen weeks 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         Opened       Closed       Open         End of Qtr              at                                     at             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   2013       182          7            0            189          1,472   Q3   2013       189          7            1            195          1,513   Q4                                                                                Contact:  Investor Relations Contact: ICR, Inc. Anne Rakunas/Joseph Teklits 310-954-1113 anne.rakunas@icrinc.com  
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