Business Wire | Sep 2, 2021 04:05PM EDT

Tilly's, Inc. Announces Record Quarterly Net Sales and Earnings

Sep. 02, 2021

IRVINE, Calif.--(BUSINESS WIRE)--Sep. 02, 2021--Tilly's, Inc. (NYSE: TLYS, the "Company") today announced record-setting financial results for the second quarter and first half of fiscal 2021 ended July 31, 2021.

"Fiscal 2021 has been a record-setting year for us so far. Our second quarter results included a record level of net sales and earnings per share for any quarter, and our first half earnings per share exceeded the results of any full fiscal year, since we became a public company in 2012," commented Ed Thomas, President and Chief Executive Officer. "The back-to-school season is off to a strong start with double-digit percentage increases in comparable net sales in both physical stores and e-commerce compared to both last year and 2019. Despite ongoing concerns about the current resurgence of COVID-19 cases across the country, supply chain disruptions, labor challenges, and increasing costs generally, we remain cautiously optimistic about our business prospects for the second half of fiscal 2021."

Fiscal 2021 Second Quarter Operating Results Overview

The following comparisons refer to the Company's operating results for the second quarter of fiscal 2021 versus the second quarter of fiscal 2020 ended August 1, 2020:

* Total net sales were $202.0 million, a record for any quarter in the Company's history, and an increase of $66.1 million or 48.7%, compared to $135.8 million last year. Net sales from physical stores were $164.6 million, an increase of $80.8 million or 96.3%, compared to $83.9 million last year, primarily due to a strong product offering and the impact of the various periods of government-mandated store closures during last year's second quarter which resulted in only 65% of total store operating days being available during that period last year. Net sales from stores represented 81.5% of total net sales compared to 61.7% of total net sales last year. The Company ended the second quarter with 244 total stores compared to 238 total stores at the end of the second quarter last year (33 of which were closed to the public at that time). During the second quarter of fiscal 2021, the Company opened six new stores. Net sales from e-commerce were $37.3 million, a decrease of $(14.7) million or (28.2)%, compared to $52.0 million last year, primarily due to the anniversary of last year's triple-digit e-commerce net sales growth during May and June during the period of significant government-mandated store closures. E-commerce net sales represented 18.5% of total net sales compared to 38.3% of total net sales last year. Total comparable net sales for the second quarter of fiscal 2021 compared to the second quarter of fiscal 2019 increased by 18.3%. Comparable net sales from physical stores increased by 11.0%, with increases across all geographic markets, and e-commerce net sales increased by 63.4%. In the second quarter of fiscal 2019, total net sales from physical stores represented 85.9% of total net sales while net sales from e-commerce represented 14.1% of total net sales. * Gross profit was $74.7 million, or 37.0% of net sales, compared to $41.7 million, or 30.7% of net sales, last year. Buying, distribution and occupancy costs improved by 800 basis points collectively, despite increasing by $1.7 million in total, due to leveraging these costs against higher net sales. Product margins decreased 170 basis points as a percentage of net sales due to the anniversary of last year's strong full-price selling upon the initial reopening of stores relative to certain inventory valuation reserves taken on idle store inventory at the end of the first quarter last year when all stores were closed. Compared to fiscal 2019's second quarter, product margins improved by 190 basis points primarily due to reduced markdowns. * Selling, general and administrative expenses ("SG&A") were $48.3 million, or 23.9% of net sales, compared to $34.0 million, or 25.0% of net sales, last year. SG&A improved by 110 basis points as a percentage of net sales, despite increasing by $14.3 million, due to leveraging these costs over higher net sales compared to last year. Primary causes of the SG&A dollar increase included store payroll and related benefits of $10.2 million, primarily due to operating all stores for the entirety of the quarter and serving significantly higher net sales, and corporate bonus accruals of $2.7 million associated with strong operating performance thus far in fiscal 2021. * Operating income increased to $26.4 million, or 13.1% of net sales, compared to $7.7 million, or 5.7% of net sales, primarily due to the significant increase in net sales. * Income tax expense was $5.9 million, or 22.5% of pre-tax income, compared to $2.8 million, or 34.3% of pre-tax income, last year. The decrease in the effective income tax rate was primarily due to deferred income tax benefits of $0.9 million derived from employee stock option exercise activity this year and the prior year impact of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which provided for net operating losses in fiscal 2020 to be carried back to earlier tax years with higher tax rates. * Net income improved to $20.4 million, or $0.66 per diluted share, which are records for any quarter since the Company became publicly-traded in 2012, compared to $5.3 million, or $0.18 per diluted share, last year. Weighted average shares were 31.1 million this year compared to 29.7 million last year.

Fiscal 2021 First Half Operating Results Overview

The following comparisons refer to the Company's operating results for the first half of fiscal 2021 versus the first half of fiscal 2020 ended August 1, 2020:

* Total net sales were $365.1 million, an increase of $152.0 million or 71.3%, compared to $213.1 million last year. Net sales from physical stores were $292.3 million, an increase of $161.5 million or 123.5%, compared to $130.8 million last year, primarily due to the various periods of government-mandated store closures during the first half of last year as a result of the COVID-19 pandemic. Net sales from stores represented 80.1% of total net sales compared to 61.4% of total net sales last year. Net sales from e-commerce were $72.8 million, a decrease of $(9.5) million or (11.6)%, compared to $82.3 million last year, primarily due to the anniversary of last year's substantial increase in e-commerce net sales during the period of government-mandated store closures. E-commerce net sales represented 19.9% of total net sales compared to 38.6% of total net sales last year. Total comparable net sales for the first half of fiscal 2021 compared to the first half of fiscal 2019 increased 19.9% with comparable net sales from physical stores up 11.3% and e-commerce net sales up 71.2%. In the first half of fiscal 2019, total net sales from physical stores represented 85.5% of total net sales while net sales from e-commerce represented 14.5% of total net sales. * Gross profit was $129.6 million, or 35.5% of net sales, compared to $43.3 million, or 20.3% of net sales, last year. Buying, distribution and occupancy costs improved by 1300 basis points collectively, despite increasing by $3.2 million in total, due to leveraging these costs against higher net sales. Product margins improved by 220 basis points primarily due to reduced markdowns. * SG&A was $88.3 million, or 24.2% of net sales, compared to $64.0 million, or 30.0% of net sales, last year. The 580 basis point improvement in SG&A as a percentage of net sales was primarily due to leveraging these expenses against higher net sales as a result of all stores being in operation for the entirety of the first half in the current year. Of the $24.3 million increase in SG&A, $16.4 million was attributable to store payroll and related benefits due to operating all stores for the entirety of the current year and serving significantly higher net sales, $4.2 million was attributable to corporate bonus accruals associated with strong operating performance thus far in fiscal 2021, and $2.2 million was attributable to increased corporate payroll and related benefits due to being more fully staffed this year compared to significant furloughs and temporary management pay reductions during last year's store shutdown period. * Operating income increased to $41.3 million, or 11.3% of net sales, compared to an operating loss of $(20.7) million, or (9.7)% of net sales, last year as a result of the combined impact of the factors described above. * Income tax expense was $9.7 million, or 23.7% of pre-tax income, compared to an income tax benefit of $(7.8) million, or 39.3% of pre-tax loss, last year. The decrease in the effective income tax rate was primarily due to deferred income tax benefits of $1.0 million derived from employee stock option exercise activity this year and the prior year impact of the CARES Act, which provided for net operating losses in fiscal 2020 to be carried back to earlier tax years with higher tax rates. * Net income for the first half of fiscal 2021 improved to $31.4 million, or $1.02 per diluted share, which exceeds the earnings of any full fiscal year since we became a public company in 2012, compared to a net loss of $(12.1) million, or $(0.41) per share, during the first half of last year. Weighted average diluted shares were 30.8 million this year compared to 29.7 million basic shares last year.

Balance Sheet and Liquidity

As of July 31, 2021, the Company had $148.5 million of cash and marketable securities and no debt outstanding. This compared to $148.9 million at the end of the second quarter last year, which included an aggregate of $37.6 million of borrowed cash and withheld store lease payments. On July 9, 2021, the Company paid aggregate special cash dividends of $30.7 million, or $1.00 per share, to all Class A and Class B common stockholders of record as of June 25, 2021. The Company ended the second quarter with inventories per square foot up 25.6% relative to the end of the second quarter of fiscal 2020 and up 14.3% relative to the end of the second quarter of fiscal 2019 as the Company seeks to support the current momentum of its business. Total capital expenditures for the second quarter were $8.5 million compared to $4.3 million last year, the increase being primarily due to a higher number of new store openings this year.

Fiscal 2021 Third Quarter Business Update and Outlook

Total comparable net sales for fiscal August ended August 28, 2021, increased by 20.4% relative to the comparable period of fiscal 2019 with comparable increases from physical stores of 11.6% and from e-commerce of 81.0%. Based on current and historical trends, and assuming that all of the Company's stores and e-commerce will remain in operation throughout the third quarter, the Company would expect its third quarter net sales to be in the range of approximately $187 million to $193 million and earnings per diluted share to be in the range of $0.30 to $0.34. This outlook range is based on an assumed effective income tax rate of 27% and approximately 31.2 million weighted average diluted shares. The Company expects to have 243 total stores open at the end of the third quarter compared to 238 at the end of last year's third quarter and 232 at the end of fiscal 2019's third quarter.

Conference Call Information

A conference call to discuss these financial results is scheduled for today, September 2, 2021, at 4:30 p.m. ET (1:30 p.m. PT). Investors and analysts interested in participating in the call are invited to dial (877) 407-4018 (domestic) or (201) 689-8471 (international). The conference call will also be available to interested parties through a live webcast at www.tillys.com. Please visit the website and select the "Investor Relations" link at least 15 minutes prior to the start of the call to register and download any necessary software. A telephone replay of the call will be available until September 16, 2021, by dialing (844) 512-2921 (domestic) or (412) 317-6671 (international) and entering the conference identification number: 13722026.

About Tillys

Tillys is a leading, destination specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls with an extensive selection of iconic global, emerging, and proprietary brands rooted in an active, outdoor and social lifestyle. Tillys is headquartered in Irvine, California and currently operates 244 total stores across 33 states, as well as its website, www.tillys.com.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding the overall effect of the novel coronavirus (COVID-19) pandemic, including its impacts on the Company, its operations, or its future financial condition or operating results, the actions taken or to be taken in response to the COVID-19 pandemic, and the impacts thereof on the Company, its operations, or its future financial condition or operating results, expectations regarding future customer traffic and sales activities, the effects of guidance from local, state and federal governments and health organizations on its future business operations, the possibility of repaying withheld store rents, its ability to properly manage inventory levels, and any other statements about its future cash position, financial flexibility, 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, the effects of the COVID-19 pandemic (or other weather, epidemics, pandemics, or other public health issues) on the Company's business and operations, and its ability to respond thereto (including any future surges in the number of cases or new strains or variants related thereto and the effects of the emergence from the COVID-19 pandemic on its business), its ability to respond to changing customer preferences and trends, attract customer traffic at its stores and online, execute its growth and long-term strategies, expand into new markets, continue to grow its e-commerce business, effectively manage its inventory and costs, effectively compete with other retailers, attract talented employees, enhance awareness of its brand and brand image, general consumer spending patterns and levels, the markets generally, its ability to satisfy its financial obligations, including under its credit facility and its leases, and other factors that are detailed in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission ("SEC"), including those detailed in the section titled "Risk Factors" and in its other filings with the SEC, which are available from the SEC's website at www.sec.gov and from the Company's 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. The Company does 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 the financial statements and notes thereto contained in the Company's Form 10-K.

Tilly's, Inc.Consolidated Balance Sheets(In thousands, except par value) (unaudited)

July 31, January 30, August 1, 2021 2021 2020

ASSETS

Current assets:

Cash and cash equivalents $ 81,894 $ 76,184 $ 132,955

Marketable securities 66,644 64,955 15,939

Receivables 13,143 8,724 13,287

Merchandise inventories 86,853 55,698 68,067

Prepaid expenses and other current 7,810 6,595 3,956 assets

Total current assets 256,344 212,156 234,204

Operating lease assets 216,046 229,864 245,004

Property and equipment, net 51,172 52,639 56,805

Other assets 11,601 12,797 8,458

Total assets $ 535,163 $ 507,456 $ 544,471

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 59,053 $ 24,983 $ 48,710

Accrued expenses 23,898 30,682 19,416

Line of credit - - 23,675

Deferred revenue 13,040 13,492 9,443

Accrued compensation and benefits 16,567 9,899 6,891

Current portion of operating lease 53,022 54,503 64,470 liabilities

Other 948 632 339

Total current liabilities 166,528 134,191 172,944

Noncurrent operating lease liabilities 196,018 211,292 222,015

Other 1,385 1,351 944

Total liabilities 363,931 346,834 395,903

Stockholders' equity:

Common stock (Class A) 24 22 22

Common stock (Class B) 7 8 8

Preferred stock - - -

Additional paid-in capital 165,407 155,437 154,386

Retained earnings (Accumulated deficit) 5,782 5,135 (5,849 )

Accumulated other comprehensive income 12 20 1

Total stockholders' equity 171,232 160,622 148,568

Total liabilities and stockholders' $ 535,163 $ 507,456 $ 544,471 equity

Tilly's, Inc.Consolidated Statements of Operations(In thousands, except per share data) (unaudited)

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 31, August 1, July 31, August 1, 2021 2020 2021 2020

Net sales $ 201,952 $ 135,845 $ 365,109 $ 213,134

Cost of goods sold(includes buying, 127,225 94,171 235,543 169,866 distribution, andoccupancy costs)

Gross profit 74,727 41,674 129,566 43,268

Selling, general and 48,300 33,965 88,265 63,960 administrative expenses

Operating income (loss) 26,427 7,709 41,301 (20,692 )

Other (expense) income, (102 ) 311 (218 ) 720 net

Income (loss) before 26,325 8,020 41,083 (19,972 )income taxes

Income tax expense 5,927 2,754 9,726 (7,843 )(benefit)

Net income (loss) $ 20,398 $ 5,266 $ 31,357 $ (12,129 )

Basic earnings (loss) pershare of Class A and $ 0.67 $ 0.18 $ 1.04 $ (0.41 )Class B common stock

Diluted earnings (loss)per share of Class A and $ 0.66 $ 0.18 $ 1.02 $ (0.41 )Class B common stock

Weighted average basic 30,500 29,694 30,189 29,686 shares outstanding

Weighted average diluted 31,113 29,700 30,837 29,686 shares outstanding

Tilly's, Inc.Consolidated Statements of Cash Flows(In thousands) (unaudited)

Twenty-Six Weeks Ended

July 31, August 1, 2021 2020

Cash flows from operating activities

Net income (loss) $ 31,357 $ (12,129 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 8,809 9,987

Insurance proceeds from casualty loss 117 -

Stock-based compensation expense 896 1,009

Impairment of long-lived assets 136 903

Loss on disposal of assets 62 64

Gain on sales and maturities of marketable securities (74 ) (677 )

Deferred income taxes 1,462 (490 )

Changes in operating assets and liabilities:

Receivables (2,997 ) (5,802 )

Merchandise inventories (31,272 ) (11,166 )

Prepaid expenses and other current assets (1,483 ) 2,107

Accounts payable 34,077 28,376

Accrued expenses (5,859 ) 701

Accrued compensation and benefits 6,668 (299 )

Operating lease liabilities (3,481 ) 8,802

Deferred revenue (452 ) (2,318 )

Other liabilities (524 ) (225 )

Net cash provided by operating activities 37,442 18,843

Cash flows from investing activities

Purchases of property and equipment (8,511 ) (4,250 )

Proceeds from sale of property and equipment 10 -

Insurance proceeds from casualty loss 29 -

Purchases of marketable securities (66,625 ) (15,968 )

Proceeds from marketable securities 65,000 70,195

Net cash (used in) provided by investing activities (10,097 ) 49,977

Cash flows from financing activities

Proceeds from line of credit - 23,675

Dividends paid (30,710 ) (29,677 )

Proceeds from exercise of stock options 9,075 -

Net cash used in financing activities (21,635 ) (6,002 )

Change in cash and cash equivalents 5,710 62,818

Cash and cash equivalents, beginning of period 76,184 70,137

Cash and cash equivalents, end of period $ 81,894 $ 132,955

Tilly's, Inc.Store Count and Square Footage

Total Gross Store New Stores Stores Store Count Square Count at Opened Permanently at Footage Beginning During Closed End of End of of Quarter During Quarter Quarter Quarter Quarter (in thousands)

2020 240 - 1 239 1,768Q1

2020 239 - 1 238 1,760Q2

2020 238 1 1 238 1,753Q3

2020 238 1 1 238 1,751Q4

2021 238 2 2 238 1,753Q1

2021 238 6 - 244 1,788Q2

Note: The store counts noted above do not reflect the impact of stores temporarily closed as a result of the COVID-19 pandemic.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210902005520/en/

CONTACT: Investor Relations: Michael Henry, Executive Vice President, Chief Financial Officer (949) 609-5599, ext. 17000 irelations@tillys.com