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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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