Picture supply: The Motley Idiot.
Tilly’s (NYSE: TLYS)
This autumn 2022 Earnings Name
Mar 09, 2023, 4:30 p.m. ET
Contents:
- Ready Remarks
- Questions and Solutions
- Name Individuals
Ready Remarks:
Operator
Good afternoon, and welcome to the Tilly’s fiscal fourth quarter 2022 outcomes convention name. [Operator instructions]. Please additionally be aware that this occasion is being recorded as we speak. I might now like to show the convention over to Gar Jackson, investor relations.
Please go forward.
Gar Jackson — Founder and President, International IR Group
Good afternoon, and welcome to the Tilly’s fiscal 2022 fourth quarterearnings name Ed Thomas, president and CEO; and Michael Henry, CFO, will talk about the corporate’s outcomes after which host a Q&A session. For a replica of Tilly’s earnings press 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, additionally, you will have the ability to discover a recorded replay of this name for the subsequent 30 days.
Sure forward-looking statements will likely be made throughout this name that replicate Tilly’s judgment and evaluation solely as of as we speak, March 9, 2023, and precise outcomes might differ materially from present expectations based mostly on numerous elements 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 fourth quarter earnings launch, which is furnished to the SEC as we speak on Type 8-Ok, in addition to our different filings with the SEC referenced in that disclaimer. At the moment’s name will likely be restricted to 1 hour and can embody a Q&A session after our ready remarks.
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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 as we speak. Our fourth quarter outcomes exceeded the revised gross sales and earnings outlook ranges we offered in early January in reference to the annual ICR convention. General, fiscal 2022 was a really difficult 12 months for us and our prospects, significantly in mild of one of many worst inflationary environments over the previous 40 years.
Fiscal 2023 has gotten off to a gradual begin so far as now we have anniversaried final 12 months’s February comparable internet gross sales improve of 15.4% whereas additionally experiencing unseasonably chilly and moist climate during the last a number of weeks, significantly right here in California whereby roughly 40% of our shops reside, and we have seen a significant decline in our enterprise relative to our fourth quarter run charge. From March onward, we’re going up in opposition to detrimental double-digit month-to-month comp outcomes for the rest of the 12 months. Consequently, we consider we’ll see an bettering pattern in our enterprise very quickly. And regardless of a gradual begin to the primary quarter, we’re cautiously optimistic concerning the spring/summer time season general based mostly on the product newness that has simply began to roll out to shops in latest weeks.
In males’s, we anticipate graphic tees will proceed to be a number one product for us, and now we have quite a lot of new materials and silhouettes in short-sleeve button-up shirts. Inside males’s bottoms, we anticipate to see rising curiosity in non-denim shorts and pants with an improved stock place in comparison with final 12 months. In girls’s, we’re optimistic about newness and pattern coloration and silhouettes. We’re investing extra in trend tops in quite a lot of methods, and we anticipate to have compelling choices in bottoms with new silhouettes rising to enhance a powerful cargo pattern.
We even have seen rising curiosity in our swimwear, attire and skirt choices in comparison with final 12 months. In footwear, we consider now we have a powerful model portfolio for each genders. In equipment, we consider now we have improved our girls’s assortment particularly with developments which can be extra female and present. Moreover, we could have an expanded residence assortment in comparison with final 12 months, and we’re optimistic a few new lower-priced designer sun shades — sunglass enterprise.
For girls and boys, we anticipate to be in a a lot better stock place on branded graphic tees than we had final 12 months once we have been experiencing provide chain points. Altogether presently, we be ok with our spring assortment and consider we’ll see extra favorable comparable outcomes for the rest of the quarter and monetary 12 months based mostly on the considerably simpler comparisons we will likely be going up in opposition to from hereon in. By way of retailer actual property, we at present anticipate to open roughly 10 new shops throughout fiscal 2023, with one retailer set to open close to the tip of March, 4 anticipated within the third quarter and the rest anticipated to open between the back-to-school and vacation seasons, topic in every case to finalizing acceptable lease phrases. For present shops, now we have practically 80 lease choices to make this 12 months and are simply over midway by means of these choices.
Given the present surroundings, we proceed to strategy all these renewals with cheap conservatism to comprise lease prices as a lot as attainable. If we’re unable to barter what we consider to be cheap lease prices, we’ll shut shops as crucial to guard our general profitability. Right now, we’re conscious of two deliberate retailer closures in 2023 based mostly on the present standing of negotiations, one in all which closed in late February. Our anticipated capital expenditure priorities in fiscal 2023 past new shops embody an improve to our cellular app, updating our warehouse administration methods to permit for extra environment friendly stock administration throughout amenities and persevering with IT infrastructure in cyber safety investments to higher place ourselves for future progress.
We at present anticipate our complete capital expenditures for the 12 months, inclusive of latest shops, to be throughout the $15 million to $20 million vary. By way of different makes use of of capital, we’re taking a wait-and-see strategy to fiscal 2023 earlier than we take into account any further important capital outlays, together with money dividends or potential repurchase of inventory, and wouldn’t anticipate to incur such outlays till we really feel extra assured that now we have steady financial surroundings beneath us and are capable of generate improved gross sales efficiency. In closing, though potential recessionary impacts on our prospects stay a big concern, we’re cautiously optimistic about our prospects for bettering working outcomes throughout fiscal 2023 relative to 2022, given the considerably decrease comp gross sales comparisons we will likely be going up in opposition to for the rest of the 12 months. I’ll now flip the decision over to Mike to offer further particulars on our fiscal 2022 fourth quarter working efficiency and introduce our fiscal 2023 first quarter outlook.
Mike?
Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary
Thanks, Ed. Good afternoon, everybody. Our fiscal 2022 fourth quarter outcomes in comparison with final 12 months’s fourth quarter have been as follows: Whole internet gross sales have been $180.4 million, a lower of 11.8% in comparison with an organization fourth quarter document of $204.5 million final 12 months; complete internet gross sales from bodily shops have been $135 million, a lower of 11.3% in comparison with $152.2 million final 12 months; internet gross sales from bodily shops represented 74.9% of our complete internet gross sales in comparison with 74.4% of complete internet gross sales final 12 months; e-commerce internet gross sales have been $45.3 million, a lower of 13.4% in comparison with $52.3 million final 12 months. E-com internet gross sales represented 25.1% of complete internet gross sales in comparison with 25.6% of complete internet gross sales final 12 months.
We ended the fiscal 12 months with 249 complete shops, a internet improve of eight shops in comparison with the tip of fiscal 2021. Gross revenue, together with shopping for, distribution and occupancy bills, was $52.4 million or 29.1% of internet gross sales in comparison with a fourth quarter document of $70.4 million or 34.4% of internet gross sales final 12 months. Product margins declined by 290 foundation factors in comparison with final 12 months’s close to historic peak fourth quarter product margins, primarily as a result of larger markdowns wanted to handle stock ranges. Shopping for, distribution and occupancy prices deleveraged by 240 foundation factors collectively regardless of being $0.4 million decrease than final 12 months with eight internet new shops as a result of carrying these prices in opposition to decrease internet gross sales.
Whole SG&A bills have been $53.5 million or 29.7% of internet gross sales, in comparison with $53.1 million or 25.9% of internet gross sales final 12 months. Main greenback will increase in SG&A have been from labor-related bills throughout retailer payroll, company payroll and e-com achievement. These will increase have been partially offset by a $1 million discount in bonus expense as a result of lack of any bonus accrual this 12 months. Working loss was $1.1 million or 0.6% of internet gross sales in comparison with working revenue of $17.3 million or 8.5% of internet gross sales final 12 months on account of the mixed elements simply famous.
Different revenue was $1.1 million in comparison with different expense of $0.4 million final 12 months, primarily as a result of earnings considerably larger charges of return on our marketable securities in comparison with final 12 months, and the write-off of sure unamortized prices related to transitioning our credit score facility final 12 months. Pretax outcomes have been basically breakeven in comparison with pre-tax revenue of $16.9 million or 8.3% of internet gross sales final 12 months. Earnings tax profit was $0.3 million in comparison with revenue tax expense of $4.9 million, or 28.7% of pre-tax revenue final 12 months. This 12 months’s revenue tax profit was primarily as a result of sure allowable deductions and tax credit.
Internet revenue was $0.3 million or $0.01 per diluted share in comparison with internet revenue of $12.1 million or $0.38 per diluted share final 12 months. Weighted common diluted shares have been 30 million this 12 months in comparison with 31.4 million final 12 months. Turning to our stability sheet. We ended the fiscal 12 months with complete money and marketable securities of $113 million and no debt excellent in comparison with $139 million and no debt final 12 months.
We repurchased roughly $11 million value of firm inventory throughout fiscal 2022. We ended the fiscal 12 months with complete inventories at value down 8% per sq. foot and down 15% in complete models in comparison with final 12 months. Whole capital expenditures for fiscal 2022 have been $15.1 million in comparison with $13.4 million final 12 months, the rise being primarily as a result of elevated value of latest retailer openings. Turning to the primary quarter of fiscal 2023.
Whole comparable internet gross sales by means of March 7 decreased by 19.9% in comparison with final 12 months, with a 21% lower in fiscal February and a 17.3% lower so far in fiscal March. Based mostly on present and historic developments, we at present estimate that our complete internet gross sales for the primary quarter of fiscal 2023 will likely be within the vary of roughly $122 million to $133 million, translating to a comparable retailer internet gross sales decline within the vary of roughly 11% to 18.5% for the primary quarter of fiscal 2023 in comparison with final 12 months. We anticipate our SG&A to be within the vary of $43 million to $44 million. At these gross sales ranges, we’d anticipate to report an estimated loss per share within the vary of $0.27 to $0.41 for the primary quarter of fiscal 2023 with an estimated revenue tax charge of 27% and complete shares excellent of 29.9 million.
We at present anticipate to have 249 complete shops on the finish of the primary quarter in comparison with 241 on the finish of final 12 months’s first quarter. Operator, we’ll now go to our Q&A session.
Questions & Solutions:
Operator
[Operator instructions]. And our first query right here will come from Jeff Van Sinderen with B. Riley. Please go forward.
Jeff Van Sinderen — B. Riley Monetary — Analyst
Hello, everybody. Simply wished to observe up on Q1 to date. Simply something you are noticing within the distinction between areas. Clearly, the climate in Southern California hasn’t been spectacularly great.
Perhaps additionally contact on sort of the promotional backdrop, should you would. After which, possibly contact on stock on the market. It looks as if most folk have sort of introduced down their stock ranges. After which, should you might contact on new retailer efficiency that you simply skilled in 2022 and the way that performs into your retailer opening plans.
Ed Thomas — President and Chief Govt Officer
Jeff, it is Ed. By way of efficiency, regionally, we’re down in each area of the nation, so we’re seeing it throughout the board. Clearly, California, the place now we have a large amount of shops, we have seen a much bigger influence within the California shops with the climate being powerful for the final couple of weeks. That is been a problem for positive.
However regionally, site visitors is down throughout the chain and gross sales are down accordingly. By way of stock, our stock may be very clear coming into the quarter. I might have appreciated to have seen a little bit bit extra newness initially of the quarter, however we’re in actually good condition now. And actually, a few of that newness is seasonal classes like swim, extra spring/summer time merchandise that most likely wouldn’t have had a terrific sell-through with the climate being as difficult because it has been.
I feel you requested me like 4 questions — you have requested 4 questions, so I may need missed.
Jeff Van Sinderen — B. Riley Monetary — Analyst
I did. I did.
Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary
He was asking concerning the promotional surroundings.
Ed Thomas — President and Chief Govt Officer
So far as the promotional surroundings, I am not seeing something irregular on the market. I do not suppose promotions are driving prospects into shops. I feel that is extra of a — partially financial, the place I feel a whole lot of prospects are challenged economically. And a part of it’s to just be sure you have a compelling assortment in our merchandise combine.
And I feel, truly, I feel we do. I feel it is simply that our prospects’ most likely a little bit bit extra challenged than some. So promotionally, I do not see it on the — after there’s a whole lot of clear in stock out there, from our value guys to others. There’s much more than what I feel we usually see.
However we anticipated that with so many corporations being over-inventoried being in a troublesome stock place. However I do not consider that is been any — irregular problem to us as an organization.
Jeff Van Sinderen — B. Riley Monetary — Analyst
OK. After which, only one extra in there, I used to be asking about — I had a whole lot of questions wrapped up into one. Simply the brand new retailer efficiency that you simply skilled in 2022, and I suppose how that performs into your retailer opening plans for ’23?
Ed Thomas — President and Chief Govt Officer
The brand new shops general outperformed their plans. And that was in — we opened shops in several elements of the nation. Considered one of our most up-to-date retailer openings is in our yard, in Cerritos. That retailer has been record-breaking for us.
It is a little bit bit greater than the typical retailer. It is about 9,000 sq. toes. However the outcomes there have been phenomenal. So there’s loads of availability of actual property on the market, as you’ll think about.
We’re capitalizing on the place we expect the enlargement is suitable. We’re nonetheless staying with our technique of doing each off-mall and mall, and the economics clearly should be proper. However we’re being very considerate. My guess is, proper now, we’ll most likely do 10 or 11 shops this 12 months.
That might change throughout the course of the 12 months if we see our enterprise begin to flip sooner.
Jeff Van Sinderen — B. Riley Monetary — Analyst
OK. Useful. After which, only one extra fast one to squeeze in. Simply any replace on the seek for a brand new — I feel you are on the lookout for a brand new CMO?
Ed Thomas — President and Chief Govt Officer
It’s actively in course of. So a whole lot of good candidates.
Jeff Van Sinderen — B. Riley Monetary — Analyst
OK. Good to listen to it. Thanks for taking my questions and better of luck for the remainder of the quarter.
Ed Thomas — President and Chief Govt Officer
Thanks, Jeff.
Operator
Our subsequent query will come from Matt Koranda with ROTH MKM. Please go forward.
Matt Koranda — ROTH Capital Companions — Analyst
Hey, guys. Good afternoon. A few of mine have been requested already, however simply — the comp information for the quarter for Q1, it sounds such as you anticipate issues to possibly enhance into March and April. So possibly simply — is that simpler comparisons that you’ve got that you simply’re lapping? Are you assuming some recapture of demand, kind of put up the dangerous climate we have had right here in California? Simply curious should you might give us a number of the assumptions there.
Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary
Positive, Matt, that is Mike. Sure, our compares get meaningfully simpler from right here ahead. So we famous in our ready remarks that we have been going up in opposition to a optimistic 15.4% comp from February. After which, as you go into March week one, final 12 months, we have been down 3%, then down 8%.
Then down 27%, 24%, 38% to complete March with a minus 23%. After which, April was a minus 16% with simply very constant detrimental double digits all month lengthy. After which, that actually carries right through the 12 months. So detrimental double-digit comps each month for the remainder of the 12 months.
We do suppose that the climate out right here within the West had a fairly detrimental influence on us, on prime of going up in opposition to our final month of double-digit comps from final 12 months. California, each Southern and Northern, are our two weakest areas of efficiency to date, they usually had the most important drop off of efficiency from the place they have been in This autumn. As Ed talked about, all areas are detrimental. However within the fourth quarter, Southern California, particularly, was our strongest performing market.
It’s now our weakest. So there’s been a extremely huge swing there of 14 comp factors to the detrimental. Considerably comparable in Northern California, it was our second or third greatest performing space in This autumn. It’s now our second worst, and it has dropped by 7.5 comp factors so removed from the This autumn run charge to now.
So seeing that dynamic and understanding simply the craziness of the climate we have had out right here for the previous a number of weeks, we do consider presently as we begin to go up in opposition to these weaker comparisons and hopefully get some extra normalized spring-ish sort of climate, that we’ll see the enterprise flip. It hasn’t occurred in shops but. We’ve got seen some motion in e-com, I might let you know. E-com has had just a few optimistic days right here and there, not persistently.
However it’s within the detrimental single digits versus shops are nonetheless at minus 20 at this level. So it is one other factor, like we’re beginning to see indicators of life on the e-com facet of the enterprise, it simply hasn’t carried over to shops but. In order that’s how we’re fascinated about issues as we sit right here proper now.
Matt Koranda — ROTH Capital Companions — Analyst
OK. Very useful coloration. After which, simply on stock, I imply, you guys clearly very clear on a sq. footage foundation. However I feel, Ed, you talked about one thing within the Q&A right here about feeling a little bit bit higher about newness and possibly you did not really feel pretty much as good about it within the fourth quarter.
However simply — wherever you’re feeling such as you want extra on stock to sort of serve the wants of your shopper? After which, simply stock developments, possibly for Mike, simply on the — how we must always anticipate that to pattern by means of the 12 months? Is it fairly regular seasonally this 12 months, a return to regular, I suppose, and that we must always anticipate a little bit little bit of stock construct within the first quarter? Any developments you may point out all year long by way of expectations can be useful.
Ed Thomas — President and Chief Govt Officer
Matt, I really feel actually good concerning the content material of our stock proper now. So there’s much more newness within the combine than there was three weeks in the past, or extra present good. So I really feel actually good. There is no class, whether or not it is males’s, girls’s, footwear, equipment, they’re all very present with new items.
And a few early reads on sell-throughs — it is early, have been actually good. So I really feel actually good about that. Mike can speak concerning the ramp-up of the stock and what we anticipate.
Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary
Sure, I feel it is best to anticipate the traditional self-discipline that you simply’re used to seeing from us that we’ll do the whole lot we will to handle stock as carefully to gross sales developments as attainable. We’re — we completed the 12 months at minus 8% per sq. foot on a price foundation. That is in {dollars}. We have been down 15% in models.
So we really feel like a minimum of we did not have an enormous overhang of an excessive amount of stock ending final 12 months and coming into the primary quarter. So we’re actually anticipating higher outcomes for the remainder of the primary quarter. After which, main into the remainder of the 12 months, we’re continually making adjustments to our stock plans each single week. So I will simply say, anticipate a standard self-discipline from us of being as tight to gross sales as we will make it.
Matt Koranda — ROTH Capital Companions — Analyst
OK. Very useful, guys. I will leap again in queue right here.
Operator
Our subsequent query will come from Mitch Kummetz with Seaport Analysis. Please go forward.
Mitch Kummetz — Seaport Analysis Companions — Analyst
Thanks for taking my questions. Simply obtained a pair on the margin. Let me begin with gross margins for Q1. You did not give a quantity or a variety within the press launch, however I feel you gave us sufficient to again into one thing.
However I suppose my query is extra on the places and takes in Q1. Like should you get away gross margin by sort of your greater buckets, whether or not it is kind of product margin, distribution expense, occupancy, are you able to give us a greater sense as to the way you see these enjoying out for the quarter?
Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary
Positive. The variability from the higher finish to the worst finish of our vary may be very largely product margins. If our gross sales are going to be $10 million decrease, we’ll be extra aggressive on markdowns to maintain stock clear and we have contemplated that. At these gross sales ranges, the {dollars} of occupancy and distribution and shopping for actually do not change all that a lot.
Occupancy is comparatively mounted. We’ve got 248 shops as we sit right here proper now. There will be a retailer that can open later this month. However the {dollars} from the highest of our vary to the underside of our vary actually do not transfer that a lot.
So you have obtained about $25 million of occupancy {dollars}. You’ve got obtained a little bit below $10 million of distribution prices, and you have got a little bit below $2 million of shopping for prices, and that is actually not going to maneuver all that a lot. A few hundred thousand right here or there, not by tens of millions. So it actually is not product margins that the variability would exist to be aware of protecting stock clear.
Mitch Kummetz — Seaport Analysis Companions — Analyst
OK. That is useful. Thanks, Mike. After which, on the SG&A, so the greenback vary you gave, $43 million to $44 million, I consider that is up a little bit bit 12 months over 12 months regardless of the gross sales decline.
I imply, once more, I am positive there’s a whole lot of mounted expense in that SG&A quantity. However I suppose I am largely involved in sort of like what are you seeing by way of wage developments, particularly in retailer? And are there another bills you may wish to name out?
Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary
Sure, you are on it, Mitch. The important thing factor is retailer payroll. To date within the first quarter, our common hourly charge is 7% larger than a 12 months in the past. Clearly, that is an issue when your comps are down 19.9%, however your wage charge is up 7%.
So we’re attempting to be as tight on retailer payroll hours utilization as we will, and now we have operated shops with decrease common hours than a 12 months in the past as we did by means of all of the quarters final 12 months. However minimal wages maintain leaping up a lot that it is simply been one thing that also places strain on these {dollars} in a approach that — I do not know what’s regular anymore after the final three years. However over a few years in retail, as gross sales transfer up and down, you are capable of flex your payroll much more successfully. However with minimal wage will increase, it hides the operational efficiencies that you simply’re truly producing by way of hours used, as a result of every hour that you’ve got is costlier than it was earlier than.
So in comparison with final 12 months, it is 7% larger. In comparison with pre-pandemic, it is 24% larger than it was in 2019. I imply, that is simply a rare quantity to consider, percentage-wise. In order that’s why you may not see fairly as a lot motion to the favorable facet on SG&A as you may wish to naturally assume.
Mitch Kummetz — Seaport Analysis Companions — Analyst
All proper. Properly, thanks for all that and good luck this quarter.
Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary
Thanks.
Operator
This concludes our question-and-answer session. I would like to show the convention again over to Ed Thomas for any closing remarks.
Ed Thomas — President and Chief Govt Officer
Thanks all for becoming a member of us on the decision as we speak. We stay up for sharing our first quarter outcomes with you in early June. Have a superb night. Thanks.
Operator
[Operator signoff]
Length: 0 minutes
Name individuals:
Gar Jackson — Founder and President, International IR Group
Ed Thomas — President and Chief Govt Officer
Mike Henry — Govt Vice President, Chief Monetary Officer, Company Secretary
Jeff Van Sinderen — B. Riley Monetary — Analyst
Matt Koranda — ROTH Capital Companions — Analyst
Mitch Kummetz — Seaport Analysis Companions — Analyst
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