Tilly’s More Than Doubles Earnings on Reduced Costs

Retailer’s net income doubles to $6.4 million, or $0.22 per diluted share, in Q3 FY16

t1Clothing and accessories retailer Tilly’s Inc. (NYSE: TLYS) announced its Q3 FY16 financial results on November 30th, 2016.

The Irvine, California-based Company is a leading specialty retailer of West Coast-inspired apparel, footwear and accessories for young men, young women, boys, and girls. The company also provides third-party merchandise assortment in its apparel, accessory, and footwear product categories. As of October 29th, 2016, Tilly’s operated 225 stores in 32 states. The Company also sells its products through its website, tillys.com. Read more about Tilly’s financial results below.

Q3 FY16 financial highlights

t2During Q3 FY16, Tilly’s net sales grew 7.3% Y-o-Y to $152.1 million from $141.7 million in the year-ago quarter. Comparable store sales, which include online sales, grew 4.4% versus a 3.9% growth in the year-ago period. Gross margin was flat at 31.5% compared to last year, as a 110-basis point increase due to lower buying, distribution and occupancy costs was offset by a 110 basis point decline in product margins from increased markdowns.

During Q3 FY16, selling, general, and administrative (SG&A) expenses decreased by $2 million to $37.3 million versus $39.3 million last year. As a percentage of net sales, SG&A improved 320 basis points to 24.5% from 27.7% last year, due to a combination of factors such as efficient marketing spend, lower non-cash store impairment charges, corporate payroll savings, and several other smaller expense reductions that resulted in 240 basis points of this increase. The remaining 80 basis points of improvement were attributed to severance obligations of $1.1 million recorded in last year’s results.

As a result of lower expenses, Tilly’s operating income, during the reporting quarter, rose to $10.7 million, or 7% of net sales, compared to $5.4 million, or 3.8% of net sales, in the year-ago same period, primarily due to reductions in SG&A costs.

In all, Tilly’s better merchandise assortment and product mix helped more than double net income to $6.4 million, or $0.22 per diluted share, in Q3 FY16, compared to $2.8 million, or $0.10 per diluted share, in the year-ago quarter.

Other highlights

Balance sheet and liquidity: As of October 29th, 2016, the Company had $105 million of cash and marketable securities and no debt outstanding under its revolving credit facility. This compares to $76 million of cash and marketable securities and no debt outstanding as of October 31st, 2015.

Inventory: Tilly’s ended Q3 FY16 with inventory down 9.2% per square foot.

Store count and square footage: Tilly’s ended Q3 FY16 with 225 stores and 1,716 of total gross square footage.

Appointment of new Chief Digital Officer: Tilly’s announced on August 15th, 2016, that Jon Kubo has been appointed as the Chief Digital Officer effective immediately. Mr. Kubo will oversee e-commerce and digital marketing as part of the Company’s digital commerce efforts and create consistency in digital consumer experiences across all interaction points.

Guidance for Q4 FY16

After having made a decent start to Q4 FY16 with a promising Black Friday weekend and Cyber Monday, the Company expects Q4 FY16 comparable store sales to be in the range of flat to +2%, operating income to be in the range of $7.5 million to $9.5 million, and diluted EPS to be in the range of $0.15 to $0.20 compared to $0.10 in the year-ago comparable period. This assumes an anticipated effective tax rate of approximately 40% and weighted average diluted shares of approximately 28.7 million.

Stock Performance

t3Tilly’s splendid quarterly performance sent the stock soaring as it ended the day at $14.00, with a gain of 41.84%, at the close on Thursday, December 1st, 2016, having vacillated between an intraday high of $14.09 and a low of $11.78 during the session. The stock’s trading volume was at 2,317,078 for the day. The Company’s market cap was at $399.56 million as of Thursday’s close.

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