Tilly's (TLYS, Financial) is a leading specialty retailer in the action sports industry selling clothing, shoes and accessories. It opened its first store in Southern California in 1982 and has grown to 211 stores in 33 states. It offers one of the largest assortments of brands and merchandise from the top players in the surf, skate and motocross and lifestyle apparel industries available both in stores and online at tillys.com.
It reported strong third-quarter results and a good comparable store sales performance. Over the last few years, it had demonstrated an ability to grow rapidly, having more than doubled store count while entering many new markets. During this time it made significant investments in infrastructure and systems to support the recent and long-term growth. The company’s passion for the West Coast-inspired action sports lifestyle, sense of urgency and pursuit of excellence enables it to consistently deliver a superior customer experience and positions it to successfully execute the long-term growth strategy.
Strong third quarter
Total net sales increased by 7.9% and were $142 million ($131 million in the prior year quarter).
Comparable store sales, which include ecommerce sales, increased by 3.9%.
Gross profit increased by 10.1% and was $44.6 million (which was $40.5 million in the prior year quarter). Gross margin, or gross profit as a percentage of net sales, increased to 31.5% (it was 30.9% in the prior year quarter). The 60-basis point increase was primarily due to a 40-basis point improvement in buying, distribution and occupancy costs and a 20-basis point increase in merchandise margins.
Operating income was $5.4 million ($8.6 million in the prior year quarter).
The company’s effective tax rate was 48.0% (40.2% in the prior year quarter).
Net income was $2.8 million, or 10 cents per diluted share, which was $5.1 million, or 18 cents per diluted share, in the prior year quarter. Excluding the noncomparable charges and tax rate impact noted above, non-GAAP net income was $4.5 million, or 16 cents per diluted share.
As of Oct. 31 the company had $76 million of cash and marketable securities and no debt outstanding under its revolving credit facility (which was $61 million and no debt during the prior year quarter).
First nine months results overview
Total net sales increased by 7.2% and were $392 million (which was $365 million in the prior year period).
Comparable store sales, which include ecommerce sales, increased by 2.1% from the prior year period.
Gross profit increased by 10.1% and was $117 million (which was $107 million in the prior year period). Gross margin increased to 29.9% from 29.1%.
Operating income was $8.6 million (which was $12.0 million in the prior year period).
The company’s effective tax rate was 46.2% (which was 41.7% in the prior year period).
Net income was $4.7 million, or 16 cents per diluted share, which was $7.0 million, or 25 cents per diluted share, in the prior year period.
Fourth-quarter 2015 outlook
The company expects the following:
- Comparable store sales to be in the range of -2% to -4%.
- Operating income to be in the range of $7 million to $9 million.
- Net income per diluted share to be in the range of 10 cents to 12 cents.
- Effective tax rate of approximately 60% due to the discrete impact of additional stock option expirations expected to occur during the fourth quarter.
- Weighted average diluted share count is assumed at 28.5 million shares.
- The company expects to end the fiscal year with 224 total stores.
Management
The company announced that Edmond Thomas had been appointed as the company’s president and chief executive officer and as a member of the company’s board of directors, effective Oct. 12. Daniel Griesemer was stepping down from his position as president and chief executive officer and as a director of the company, effective Oct. 7.
Thomas served as the company’s president and co-chief executive officer from September 2005 to October 2007.
Positive attributes of the company
- Knowledge of ever-evolving trends.
- Unparalleled assortment of merchandise.
- Tilly’s differentiates itself by offering an extensive assortment of relevant merchandise in a larger store format.
- Geographic portability.
- Real estate flexibility.
- Differentiated concept and significant potential for improvement and growth.
On a concluding note
It is a fast-growing destination specialty retailer of West Coast-inspired apparel, footwear and accessories. It brings together an unparalleled selection of the most sought-after brands rooted in action sports, music, art and fashion. Their motto, “If it’s not here, it’s not happening,” exemplifies its goal to serve as a destination for the latest, most relevant merchandise and brands important to the customers.
Disclosure: I do not hold any position in the company.
