24 Aug Tilly’s Q2 Earnings Jump Two-Fold
Tilly’s Inc. reported profits jumped 121 percent on an adjusted basis in the second quarter as expenses were reduced sharply, margins improved slightly and comps grew 2.1 percent.
“We believe the combination of our merchandising, marketing and operating initiatives is gaining traction, as evidenced by our positive comps and improved store traffic,” commented Ed Thomas, President and Chief Executive Officer. “Our early back-to-school results are encouraging, and we believe we are well positioned to continue the momentum we have been building over recent quarters.”
Second Quarter Results Overview
The following comparisons refer to operating results for the second quarter of fiscal 2017 versus the second quarter of fiscal 2016 ended July 30, 2016:
- Total net sales were $138.8 million, an increase of 1.8 percent from $136.4 million last year.
- Comparable store sales, which includes e-commerce sales, increased 2.1 percent. Comparable store sales increased 0.9 percent in the second quarter last year.
- Gross profit was $40.9 million, an increase of 5.4 percent from $38.8 million last year. Gross margin, or gross profit as a percentage of net sales, increased to 29.5 percent from 28.5 percent last year. The 100 basis point increase in gross margin was attributable to a 60 basis point increase in product margins as a result of reduced markdowns, and a 40 basis point improvement in buying, distribution and occupancy costs due to leveraging these costs against higher total sales.
- Measured in accordance with accounting principles generally accepted in the United States (GAAP), selling, general and administrative expenses (SG&A) were $42.2 million, or 30.4 percent of net sales, compared to $36.6 million, or 26.8 percent of net sales, last year. This increase was attributable to a previously disclosed $6.2 million legal provision.
- On a non-GAAP basis, excluding the legal provision, SG&A decreased to $36 million, or 25.9 percent of net sales, primarily due to reduced marketing spend and lower non-cash store impairment charges, partially offset by expenses related to ongoing system implementations and increased store payroll as a result of minimum wage increases.
- On a GAAP basis, operating loss was $(1.2) million, or (0.9) percent of net sales, compared to operating income of $2.2 million, or 1.6 percent of net sales, last year. The decline in operating results was attributable to the previously noted $6.2 million legal provision, offset by the combination of our comparable store sales growth, gross margin increase, and other SG&A reductions noted above. On a non-GAAP basis, excluding the legal provision, operating income was $4.9 million, or 3.5 percent of net sales.
- On a GAAP basis, income tax benefit was $(0.4) million, or 42.8 percent of pre-tax loss, compared to income tax expense of $0.9 million, or 38.3 percent of pre-tax income last year. On a non-GAAP basis, excluding the impact of the legal provision, income tax expense was $2 million, or 39.1 percent of pre-tax income.
- On a GAAP basis, net loss was $(0.6) million, or (2 cents) per share, compared to net income of $1.4 million, or 5 cents per diluted share, last year. On a non-GAAP basis, excluding the impact of the legal provision, net income was $3.1 million, or 11 cents per diluted share.
When it reported first-quarter results on May 23, Tilly’s expected its second quarter comparable store sales to be in the range of flat to up low single-digits, operating income to be in the range of $1.2 million to $3.5 million, and income per diluted share to be in the range of 3 cents to 7 cents.
First Half Results Overview
The following comparisons refer to operating results for the first half of fiscal 2017 versus the first half of fiscal 2016 ended July 30, 2016:
- Total net sales were $259.8 million, an increase of 1.2 percent from $256.6 million last year.
- Comparable store sales, which includes e-commerce sales, increased 1.4 percent. Comparable store sales decreased 1.4 percent in the first half of last year.
- Gross profit was $73.8 million, a 3.4 percent increase from $71.4 million last year. Gross margin was 28.4 percent compared to 27.8 percent last year. This 60 basis point increase in gross margin was primarily attributable to a $0.7 million reduction in total buying, distribution and occupancy costs. Product margins were flat to last year.
- On a GAAP basis, SG&A was $75.4 million, or 29 percent of net sales, compared to $73.2 million, or 28.5 percent of net sales, last year. SG&A includes legal provisions of $6.2 million in the second quarter of this year compared to $1.7 million in the first quarter of last year. On a non-GAAP basis, excluding these legal provisions from both years, SG&A decreased to $69.2 million, or 26.6 percent of net sales, from $71.5 million, or 27.8 percent of net sales, last year. This $2.3 million decrease in non-GAAP SG&A was primarily due to reduced marketing and non-cash store impairment charges.
- On a GAAP basis, operating loss was $(1.6) million, or (0.6) percent of net sales, compared to $(1.7) million, or (0.7) percent of net sales, last year. On a non-GAAP basis, excluding the impact of legal provisions from both years, operating income was $4.6 million, or 1.8 percent of net sales, compared to $(0) million last year.
- On a GAAP basis, income tax benefit was $0.4 million, or 33.2 percent of pre-tax loss, compared to $0.3 million, or 16.3 percent of pre-tax loss, last year. These tax rates were attributable to discrete income tax impacts related to restricted stock and stock option expirations. On a non-GAAP basis, excluding the impact of legal provisions from both years, income tax expense was $2.1 million, or 41.2 percent of pre-tax income, compared to $0.4 million last year.
- On a GAAP basis, net loss was $(0.8) million, or (3 cents) per share, compared to $(1.3) million, or (5 cents) per share, last year. On a non-GAAP basis, excluding the impact of legal provisions from both years, net income was $3 million, or 10 cents per diluted share, compared to net loss of $(0.3) million, or (1 cent) per share, last year.
Balance Sheet And Liquidity
As of July 29, 2017, the company had $109.6 million of cash and marketable securities and no debt outstanding under its revolving credit facility. In February 2017, the company paid a first-ever special cash dividend to its stockholders of approximately $20.1 million in the aggregate. This compares to $96.4 million of cash and marketable securities and no debt outstanding as of July 30, 2016.
Fiscal 2017 Third Quarter Outlook
Based on current and historical trends, the company expects its third quarter comparable store sales to be in the range of flat to up low single-digits on a percentage basis, operating income to be in the range of approximately $9 million to $11.5 million, and income per diluted share to be in the range of 19 cents to 24 cents. This compares to operating income of $10.7 million and income per diluted share of 22 cents for the third quarter of fiscal 2016. This assumes an anticipated effective tax rate of approximately 40 percent and weighted average shares of approximately 29 million.