Tilly’s (TLYS) Q3 2022 Earnings Name Transcript

Tilly’s (TLYS -6.63%)
Q3 2022 Earnings Name
Dec 01, 2022, 4:30 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Greetings. Welcome to the Tilly’s, Inc. third quarter 2022 earnings outcomes convention name. [Operator instructions] I am going to now flip the convention over to your host, Gar Jackson.

It’s possible you’ll start.

Gar Jackson — Founder and President, World IR Group

Good afternoon, and welcome to the Tilly’s fiscal 2022 third quarter earnings name. Ed Thomas, president and CEO; and Michael Henry, CFO, will focus on the corporate’s outcomes after which host a Q&A session. For a duplicate of Tilly’s earnings launch, please go to the investor relations part of the corporate’s web site at tillys.com. From the identical part, shortly after the conclusion of the decision, you will additionally be capable of discover a recorded replay of this name for the subsequent 30 days.

Sure forward-looking statements will probably be made throughout this name that mirror Tilly’s judgment and evaluation solely as of at the moment, December 1, 2022. And precise outcomes might differ materially from present expectations primarily based on numerous components affecting Tilly’s enterprise. Accordingly, you shouldn’t place undue reliance on these forward-looking statements. For a extra thorough dialogue of the dangers and uncertainties related to any forward-looking statements, please see the disclaimer relating to forward-looking statements that’s included in our fiscal 2022 third quarter earnings launch, which is furnished to the SEC at the moment on Kind 8-Okay, in addition to our different filings with the SEC referenced in that disclaimer.

As we speak’s name will probably be restricted to at least one hour and can embrace a Q&A session after our ready remarks. I’ll now flip the decision over to Ed.

Ed Thomas — President and Chief Govt Officer

Thanks, Gar. Good afternoon, everybody, and thanks for becoming a member of us at the moment. Our third quarter gross sales efficiency was stronger than we anticipated all through the quarter, leading to each top-line and bottom-line outcomes exceeding our outlook and analyst consensus estimates for the third quarter. As anticipated, we noticed a deceleration in gross sales developments from month to month as we anniversary final 12 months’s early vacation purchasing that was pushed by provide chain issues and different pandemic-related components within the later levels of the quarter.

Not surprisingly, as we lap these prior-year situations amid this 12 months’s extremely inflationary surroundings, all geographic markets comp double-digit damaging, and most merchandising departments comp double-digit damaging with the expectations — exceptions of footwear, which was simply barely damaging, and equipment, which was led by energy in backpacks however nonetheless decreased by a single-digit proportion general. Additionally, not surprisingly, buyer retailer site visitors and conversion each declined by excessive single-digit percentages in comparison with final 12 months’s report outcomes. Regardless of present financial challenges related to the inflation, we proceed to imagine that Tilly’s has significant future progress alternatives in lots of our current markets, significantly California, Texas, the North East, and Better Chicago space. With only a few exceptions, our new retailer openings over the previous a number of years have met or exceeded our expectations, and we imagine it’s important for our long-term earnings potential to proceed to develop our retailer base, together with our e-comm enterprise.

Within the third quarter, we opened 5 new shops. Within the fourth quarter, now we have opened two new shops thus far, with two extra will probably be opening in a number of extra days, bringing our whole new retailer openings to 11 for the 12 months. We anticipate closing two shops in mid-January, bringing our fiscal year-end retailer depend to 249. For fiscal 2023, now we have a preliminary expectation to speak in confidence to 15 shops, assuming we are able to negotiate what we imagine to be acceptable lease economics relative to the retail surroundings.

At the moment, two of these potential new shops have absolutely executed leases, and we’re engaged in energetic negotiations on the rest, along with new shops, we proceed to spend money on firm infrastructure throughout fiscal 2023 to assist our future progress plans. We plan to improve our warehouse administration programs to create better efficiencies in managing stock between our shops, e-commerce, and our two distribution facilities, in addition to to enhance distribution labor effectivity. We’re additionally planning to improve our merchandise planning and allocation programs with the objectives of bettering stock effectivity, and lowering the quantity of stock transfers. In whole, together with 15 new shops, we have preliminarily anticipate our whole capital expenditures for fiscal 2023 to not exceed $25 million.

Turning to the fourth quarter of fiscal 2022, we’re off to a softer begin than anticipated. Complete comparable web gross sales by way of November twenty ninth, together with each bodily shops and e-com, decreased by 18.5% versus the report comparable interval of final 12 months. However Thanksgiving weekend, Thursday by way of Cyber Monday, we noticed an improved relative pattern, with whole comparable web gross sales reducing 13.4% in comparison with final 12 months and a excessive single-digit damaging comp on Black Friday particularly. Assuming our fourth quarter gross sales exceed third quarter gross sales, as has been the case all through our historical past, apart from final 12 months, we imagine now we have a chance to provide an improved comp gross sales pattern for the fourth quarter relative to current quarters, though nonetheless under final 12 months because of the way more troublesome financial situations in play this 12 months.

We’ll proceed to handle our enterprise prudently relative to the present surroundings, however stay targeted on our longer-term objectives of continued progress and improved operational efficiency. I would now flip the decision over to Mike to debate our third quarter working outcomes and fourth quarter outlook in additional element. Mike?

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Thanks, Ed. Our third quarter working outcomes in comparison with final 12 months had been as follows. Complete web gross sales had been $177.8 million in comparison with an organization report of $206.1 million final 12 months. Final 12 months’s outcomes had been fueled by unprecedented pandemic-related components, together with provide chain issues in regards to the vacation season, which we imagine pulled gross sales ahead into the third quarter final 12 months.

Complete comparable web gross sales, together with each bodily shops and e-commerce, decreased by 14.9%. Complete web gross sales from bodily shops had been $141.5 million in comparison with $165.3 million final 12 months, with a comparable retailer web gross sales lower of 15.8%. Web gross sales from bodily shops represented 79.6% of our whole web gross sales this 12 months in comparison with 80.2% final 12 months. E-commerce web gross sales had been $36.3 million in comparison with $40.8 million final 12 months.

E-com web gross sales represented 20.4% of whole web gross sales this 12 months in comparison with 19.8% final 12 months. We ended the third quarter with 247 whole shops, a web improve of 4 shops for the reason that finish of final 12 months’s third quarter. For added perspective, our whole comparable web gross sales for the third quarter elevated by 8.7% relative to the pre-pandemic third quarter of fiscal 2019. Gross revenue, together with shopping for, distribution, and occupancy bills, was $54.6 million, or 30.7% of web gross sales, in comparison with an organization report of $76.7 million or 37.2% of web gross sales final 12 months.

Shopping for, distribution, and occupancy prices deleveraged by 360 foundation factors collectively resulting from carrying these prices in opposition to a considerably decrease stage of web gross sales this 12 months in comparison with final 12 months. Product margins declined by 300 foundation factors this 12 months, primarily resulting from a rise in additional normalized markdown fee in comparison with final 12 months when full-price promoting was at report ranges. For added perspective, product margins had been down lower than 100 foundation factors in comparison with the pre-pandemic third quarter of fiscal 2019, primarily resulting from decrease preliminary markups and a better markdown fee. Complete SG&A bills had been $48.3 million, or 27.1% of web gross sales, in comparison with $47.7 million, or 23.2% of web gross sales, final 12 months.

The first will increase in SG&A in comparison with final 12 months had been $0.6 million from retailer payroll resulting from having 4 web extra shops, together with larger hourly wage charges and $0.5 million from company payroll resulting from wage inflation. Partially offsetting these will increase had been a $1.8 million discount in bonus expense because of the lack of any bonus accrual this 12 months and a $0.6 million discount in advertising and marketing prices. Working earnings was $6.3 million, or 3.6% of web gross sales, in comparison with an organization report of $29 million, or 14.1% of web gross sales, final 12 months. Different earnings was $0.7 million in comparison with zero final 12 months, primarily resulting from incomes larger charges of return on our marketable securities investments and the absence of any prices related to our former ABL credit score facility, which had been included in final 12 months’s outcomes.

Earnings tax expense was $1.8 million, or 26.3% of pre-tax earnings, in comparison with $8.2 million, or 28.1% of pre-tax earnings, final 12 months. Web earnings was $5.1 million, or $0.17 per diluted share, in comparison with an organization report of $20.8 million in web earnings and $0.66 per diluted share final 12 months. Weighted common shares had been 30 million this 12 months in comparison with 31.4 million final 12 months. Turning to our stability sheet, we ended the third quarter with whole money and marketable securities of $105.8 million and no debt excellent.

This in comparison with $155.6 million and no debt excellent final 12 months. For the reason that finish of final 12 months’s third quarter, we paid particular money dividends to stockholders of $30.9 million in December 2021 and repurchased 1,258,330 shares of our frequent inventory for a complete of $10.9 million throughout this 12 months. We ended the third quarter with inventories per sq. foot, down 6.9% in comparison with final 12 months, following being up 4.1% to final 12 months on the finish of the second quarter. Complete year-to-date capital expenditures had been $11.9 million this 12 months in comparison with $10.9 million final 12 months.

We anticipate our whole capital expenditures for fiscal 2022 to be roughly $19 million on the finish of the 12 months. Turning to our outlook for the fourth quarter of fiscal 2022, we remind you that final 12 months’s fourth quarter was a historic anomaly for us with fourth quarter gross sales under third quarter gross sales for the primary time ever due primarily to provide chain issues and different pandemic-related components, which we imagine pulled some vacation season gross sales into the third quarter final 12 months. Whereas some stage of comparable buyer habits might have been repeated this 12 months amid the present extremely inflationary surroundings, right now, we assume that our fourth quarter gross sales efficiency will revert to a extra conventional cadence, such that it will be the biggest gross sales quarter of the 12 months. Based mostly on our quarter-to-date web gross sales outcomes by way of November 29, 2022, that Ed shared earlier, in our pre-pandemic historic gross sales construct patterns, we presently anticipate our whole web gross sales for the fourth quarter of fiscal 2022 to be within the vary of roughly $183 million to $188 million, SG&A to be roughly $54 million to $55 million, pre-tax earnings to be within the vary of roughly $0.8 million to $2.6 million, our estimated earnings tax fee to be roughly 27%, and earnings per diluted share to be within the vary of $0.02 to $0.06 primarily based on estimated weighted common delinquent shares of roughly 29.9 million.

This compares to an organization fourth quarter report of $204.5 million in web gross sales and $0.38 in earnings per diluted share for the fourth quarter final 12 months, and whole web gross sales of $172.5 million and earnings per share of $0.21 within the pre-pandemic fourth quarter of fiscal 2019. Operator, we’ll now go to our Q&A session.

Questions & Solutions:

Operator

[Operator instructions] Our first query comes from the road of Jeff Van Sinderen with B. Riley. Please proceed together with your query.

Richard Magnusen — B. Riley Monetary — Analyst

Whats up. That is Richard Magnusen in for Jeff Van Sinderen. Thanks for taking our name. Are you able to present extra perception into how you might be planning incoming stock for spring? And do you anticipate the stock to be up or down on a square-foot foundation on the finish of the fourth quarter?

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Hello, Richard. We anticipate stock to be down on a per sq. foot foundation, ending the fourth quarter. As we take into consideration subsequent 12 months as a complete, you realize, one factor to remember is clearly 2021 was loopy to the great aspect of issues. All 12 months lengthy, we have been going up in opposition to that.

And, you realize, you see the comparisons within the within the damaging double-digit comp that we have seen all 12 months. The final month that we are going to have that’s February. February 2022, we had a plus 15 comp. After that, each month after that will probably be going up in opposition to this 12 months’s damaging double digits.

So, you realize, there’s some optimism there that assuming we are able to keep on pattern with our merchandise assortment the way in which we constantly have. We predict there’s a chance for us to have the ability to flip round again into optimistic comps as soon as we get into 2023 and previous the month of February, particularly, which is a small month. However we’re anticipating to enhance our enterprise in 2023 and do higher enterprise within the spring than we did this 12 months.

Richard Magnusen — B. Riley Monetary — Analyst

All proper. That sounds good. And may you present some element on the totally different developments that you just noticed in Cyber Monday and Black Friday gross sales at e-com.

Ed Thomas — President and Chief Govt Officer

It was fairly erratic. I feel we had been going up in opposition to quite a lot of our opponents, had been way more aggressive promotionally than us. And we elected not, as we constantly do — now we have elected to not play the aggressive promotion marketing campaign. It might have considerably negatively impacted our demand, however, general, it was near what we anticipated.

Richard Magnusen — B. Riley Monetary — Analyst

OK. After which, are you able to remind me, when are the compares get simpler for e-com?

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Properly, as I simply talked about on the — as a complete enterprise, we will be going up in opposition to double-digit whole enterprise energy.

Ed Thomas — President and Chief Govt Officer

Spring.

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Yeah. It will begin proper after the month of February. We had comparable directional efficiency between shops and e-com. I am a chart right here.

E-com was up single digits in February after which down double digits for the subsequent 4 months in a row. Nonetheless damaging in July, August, after which again to double digits September, October and November. So, comparable in nature to how shops evaluate.

Richard Magnusen — B. Riley Monetary — Analyst

OK. After which my final query is, what are you seeing within the brick and mortar this week, when you can converse to that?

Ed Thomas — President and Chief Govt Officer

I would not name it significantly sturdy. So, it isn’t —

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

No, I would say —

Ed Thomas — President and Chief Govt Officer

It is —

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

, up to now, we normally undergo Black Friday weekend, after which there’s a bit of little bit of a lull —

Richard Magnusen — B. Riley Monetary — Analyst

Yeah.

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

After everybody, you realize, form of goes by way of Black Friday promotions and all the thrill of that and Cyber Monday and people sorts of issues. You are likely to undergo a lull, and we’re experiencing that. We do assume that the general patterns for vacation purchasing will probably be later this 12 months than they had been final 12 months. We additionally assume that is a part of why our fourth quarter begin was weaker than anticipated.

As a result of bear in mind, we talked about the truth that we thought some early vacation purchasing pulled into October. Properly, it additionally pulled into early November due to all the availability chain issues final 12 months. So, I do assume we’re anniversarying, you realize, lapping a few of that early vacation purchasing patterns of final 12 months due to the availability chain issues. Come to this 12 months, everybody’s received extra stock than they want and has just about all 12 months lengthy actually promotional surroundings.

We do assume that we’ll see the vacation season come into being. It will simply be a later circulation than it was final 12 months. And now we have contemplated that, and we have thought of our outlook.

Ed Thomas — President and Chief Govt Officer

Simply so as to add to that toe is we’re going into the subsequent few weeks. The standard of our stock, each when it comes to amount and the combo, it is actually in nice form. So, we’re positioned — we really feel like we’re nicely positioned to do the enterprise if it is there.

Richard Magnusen — B. Riley Monetary — Analyst

OK. That is good. Properly, thanks. I am going to get again within the queue.

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Thanks, Richard.

Operator

Our subsequent query comes from the road of Mitch Kummetz with Seaport Analysis. Please proceed together with your query.

Mitch Kummetz — Seaport Analysis Companions — Analyst

Yeah, thanks for taking my questions. Beginning with the This fall at the moment, I feel, Mike, within the press launch, it is down 18.5. Have you learnt what that’s on a gross sales foundation? After which, additionally, do you occur to know what each comp and gross sales are for that interval versus three years in the past?

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

I do not. All I’ve is what we simply reported because the comp quantity. I do not — now we have a closed fiscal November. We’re within the technique of closing fiscal November.

So, I haven’t got all-in gross sales numbers to report at this early date.

Mitch Kummetz — Seaport Analysis Companions — Analyst

OK. After which, you referenced the pull-forward final 12 months due to provide chain and a few COVID. Are you able to remind us how — so, I feel final 12 months you guys did like a 12.5 comp, if I’ve that appropriate. Are you able to remind us form of how that flowed by way of the fourth quarter and possibly on a month-to-month foundation simply so now we have a greater sense of the evaluate?

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Yeah. So, final, final 12 months, ’21 versus ’20, November was the strongest month when it comes to comp at a plus 21. Then December was about half at it, 10.5. After which January was a plus 4.

So, it will get simpler because the quarter goes when it comes to these comparisons, which is one more reason why, you realize, regardless of how slowly November began, we — you have a look at all of the historic relationships of how we simply completed Q3, how we completed Q3 relative to 2019. It simply — all of it factors that if historical past means something in any respect, you realize, now we have to be someplace within the 180 million vary for the fourth quarter. We simply reported 178 for the third quarter. If fourth quarter is bigger than third in any approach, form, or kind, the way in which, it historically was aside from final 12 months.

, you are within the 180. So, it appears to make sense. Once more, if historical past proves to be correct in any respect, if one thing else occurs, there isn’t any approach I can predict it. I’ve to imagine, regardless of our sluggish begin in November, that the vacation season will come and that some sense of a traditional cadence of Q3 to This fall will happen, coupled with the actual fact we did simply do almost a plus 9 comp to 2019 within the third quarter.

, some stage of optimistic comp within the fourth quarter relative to 2019 additionally get you in that one space. Whenever you ponder, now we have 9 extra shops than we did then. So, it appears to line up regardless of the gentle begin. These different metrics appear to level you to a spot that claims, you realize, the enterprise will come it is simply later than what it was final 12 months.

Mitch Kummetz — Seaport Analysis Companions — Analyst

Yeah. And do you will have a way as to how a lot of the quarter is within the books by way of November twenty ninth? I think about the overwhelming majority remains to be in entrance of you.

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

It’s. The biggest weeks are, you realize, proper round Christmas, as you’ll anticipate. Thanksgiving week is without doubt one of the largest weeks. However that final full weekend earlier than Christmas, that final full week earlier than Christmas, these are the hugest weeks of the quarter.

These two. After which, normally the primary week proper after Christmas is fairly, fairly massive earlier than. Then for the remainder of January, the weeks get actually small. So —

Mitch Kummetz — Seaport Analysis Companions — Analyst

Yeah.

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

The nice majority of the quarter will probably be in as soon as December is completed.

Mitch Kummetz — Seaport Analysis Companions — Analyst

OK. After which lastly, Ed, you realize, there’s been quite a lot of discuss on different retail earnings calls about how difficult the attire surroundings is particularly. Are you able to simply elaborate on what you guys are saying?

Ed Thomas — President and Chief Govt Officer

Yeah. , the attire surroundings has been difficult. Actually, I feel a part of it is as a result of there isn’t any dominant pattern, significantly in our — catered to our age group. And for us, what we have seen is one among our greatest performing classes is lengthy bottoms, in order that’s been good.

So, I am not saying denim, different lengthy bottoms.

Mitch Kummetz — Seaport Analysis Companions — Analyst

Mmm hmm.

Ed Thomas — President and Chief Govt Officer

However the different typical classes which might be actually strongest have slowed down. And I feel a part of it’s financial, and a part of it’s lack of actually dominant pattern.

Mitch Kummetz — Seaport Analysis Companions — Analyst

OK. That is useful. Thanks, and good luck for vacation.

Ed Thomas — President and Chief Govt Officer

Thanks.

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Thanks, Mitch.

Operator

Our subsequent query comes from the road of Matt Koranda with ROTH Capital. Please proceed together with your query.

Unknown speaker

Hey, guys. That is Ray on for Matt.

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Hey, Ray.

Unknown speaker

M questions had been — most of my questions had been already requested. However possibly when you guys can discuss a bit of bit about how Black Friday and Cyber Monday, I assume, how a lot of that — sorry, OK, let’s — possibly in like This fall, how a lot of the income really come from Black Friday and Cyber Monday, and form of like understanding that final 12 months was a bit of bit out of the norm?

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

I haven’t got any information factors on Black Friday as a chunk of the quarter. I imply, it is within the high 5 gross sales quantity weeks of the quarter, high 4. However, you realize, the actual bulk of the enterprise comes round Christmas sometimes. And once more, due to the distinction of final 12 months to this 12 months, it is going to come later.

There’s an additional day of purchasing earlier than Christmas Day later this 12 months. So, there’s nonetheless quite a lot of enterprise to be accomplished but. We did see in the course of the Black Friday weekend, as we referenced, you realize, the month as a complete was down 18. We had been down worse than that within the first three weeks of November.

After which, Black Friday weekend was down about 13. And Black Friday itself was solely down 9. So, throughout that exact peak weekend, we noticed a significant enchancment within the pattern of our enterprise. And on condition that we expect a later circulation of the vacation purchasing versus what it was final 12 months, you realize, we might anticipate to see, you realize, comparable types of behaviors throughout these key peak weeks within the mid to latter a part of December, particularly.

Unknown speaker

OK. Thanks. That was useful. Yeah, I feel most of my questions had been answered, so I will hop again within the queue.

Thanks.

Ed Thomas — President and Chief Govt Officer

Thanks.

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Thanks, Ray.

Operator

[Operator instructions] And it seems to be like now we have reached the top of the question-and-answer session. I am going to now flip the decision again over to Michael Henry for closing remarks.

Ed Thomas — President and Chief Govt Officer

Hello. Sadly, it is Ed. However thanks for becoming a member of us on the decision at the moment. We sit up for sharing our fourth quarter outcomes with you in mid-March 2023.

Have an excellent night.

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Thanks, everyone.

Operator

[Operator signoff]

Period: 0 minutes

Name contributors:

Gar Jackson — Founder and President, World IR Group

Ed Thomas — President and Chief Govt Officer

Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary

Richard Magnusen — B. Riley Monetary — Analyst

Mitch Kummetz — Seaport Analysis Companions — Analyst

Unknown speaker

Extra TLYS evaluation

All earnings name transcripts