Tilly’s(TLYS) - 2023 Q1 - Quarterly Report

Form 10-Q Filing Information This section provides details on Tilly's, Inc.'s Quarterly Report on Form 10-Q filing and its common stock information - Tilly's, Inc. filed its Quarterly Report on Form 10-Q for the period ended April 30, 2022[2] | Class of Stock | Symbol | Exchange | | :--------------- | :----- | :------- | | Class A Common Stock, $0.001 par value | TLYS | New York Stock Exchange | | Common Stock Class | Shares Outstanding (as of June 3, 2022) | | :----------------- | :------------------------------------ | | Class A common stock $0.001 par value | 22,736,122 | | Class B common stock $0.001 par value | 7,306,108 | Forward-Looking Statements This section outlines risks and uncertainties associated with forward-looking statements, covering economic and operational factors - The report contains forward-looking statements subject to risks and uncertainties, including impacts from the COVID-19 pandemic, inflation, supply chain disruptions, and changes in consumer spending[10][11] - Key risks include the ability to adapt to downward trends in store traffic, successfully open new stores, attract e-commerce customers, manage inventory, and respond to fashion preferences[11] - The company cautions that actual results may differ materially from expectations due to various factors and undertakes no obligation to update these statements[13][15] PART I. FINANCIAL INFORMATION This part presents Tilly's, Inc.'s unaudited consolidated financial statements and management's analysis Item 1. Financial Statements (Unaudited) Presents Tilly's, Inc.'s unaudited consolidated financial statements, encompassing balance sheets, income statements, cash flows, and related accounting notes Consolidated Balance Sheets Presents Tilly's, Inc.'s consolidated financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric (in thousands) | April 30, 2022 | January 29, 2022 | May 1, 2021 | | :-------------------- | :------------- | :--------------- | :---------- | | Total Current Assets | $208,041 | $227,978 | $237,281 | | Total Assets | $485,657 | $504,823 | $526,524 | | Total Current Liabilities | $122,185 | $136,167 | $146,768 | | Total Liabilities | $317,722 | $330,110 | $351,923 | | Total Stockholders' Equity | $167,935 | $174,713 | $174,601 | - Total current assets decreased from $227.98 million at January 29, 2022, to $208.04 million at April 30, 2022, primarily due to decreases in marketable securities and cash and cash equivalents[19] - Total stockholders' equity decreased from $174.71 million at January 29, 2022, to $167.94 million at April 30, 2022[19] Consolidated Statements of Operations Reports Tilly's, Inc.'s financial performance, including net sales, gross profit, operating income, and net income for the specified periods | Metric (in thousands) | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :-------------------- | :---------------------------------- | :------------------------------- | | Net sales | $145,775 | $163,157 | | Gross profit | $43,815 | $54,839 | | Operating income | $1,108 | $14,874 | | Net income | $813 | $10,959 | | Basic EPS | $0.03 | $0.37 | | Diluted EPS | $0.03 | $0.36 | - Net sales decreased by 10.7% from $163.16 million in Q1 2021 to $145.78 million in Q1 2022[21] - Net income significantly declined from $10.96 million in Q1 2021 to $0.81 million in Q1 2022, resulting in a diluted EPS decrease from $0.36 to $0.03[21] Consolidated Statements of Comprehensive Income Presents Tilly's, Inc.'s comprehensive income, reflecting net income and other comprehensive income components for the specified periods | Metric (in thousands) | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :-------------------- | :---------------------------------- | :------------------------------- | | Net income | $813 | $10,959 | | Other comprehensive income, net of tax | $3 | $3 | | Comprehensive income | $816 | $10,962 | - Comprehensive income decreased significantly from $10.96 million in Q1 2021 to $0.82 million in Q1 2022, mirroring the net income trend[24] Consolidated Statement of Stockholders' Equity Details changes in Tilly's, Inc.'s stockholders' equity, including net income, share repurchases, and share-based compensation - Stockholders' equity decreased from $174.71 million at January 29, 2022, to $167.94 million at April 30, 2022[27] - The decrease was primarily driven by $8.18 million in share repurchases, partially offset by net income of $0.81 million and share-based compensation of $0.56 million[27] Consolidated Statements of Cash Flows Summarizes Tilly's, Inc.'s cash inflows and outflows from operating, investing, and financing activities for the specified periods | Cash Flow Activity (in thousands) | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :-------------------------------- | :---------------------------------- | :------------------------------- | | Net cash (used in) provided by operating activities | $(17,553) | $19,277 | | Net cash provided by (used in) investing activities | $43,463 | $(17,097) | | Net cash (used in) provided by financing activities | $(8,157) | $2,651 | | Net increase in cash and cash equivalents | $17,753 | $4,831 | | Cash and cash equivalents, end of period | $59,954 | $81,015 | - Operating activities shifted from providing $19.28 million in cash in Q1 2021 to using $17.55 million in Q1 2022[30] - Investing activities provided $43.46 million in Q1 2022, a significant change from using $17.10 million in Q1 2021, primarily due to marketable securities maturities[30] Notes to the Consolidated Financial Statements Provides detailed explanations and disclosures supporting the consolidated financial statements Note 1: Description of the Company and Basis of Presentation Describes Tillys as a specialty retailer operating 241 stores and an e-commerce site, with financial statements prepared under GAAP, noting ongoing COVID-19 impacts - Tillys operates 241 stores across 33 states and an e-commerce platform, offering a wide assortment of global, emerging, and proprietary brands[32] - The COVID-19 pandemic continues to adversely impact the business, affecting consumer behavior, store traffic, operational capabilities, supply chains, and inventory management[38] Note 2: Summary of Significant Accounting Policies Details Tillys' significant accounting policies, including revenue recognition, lease accounting, stock repurchases, income taxes, and evaluation of new accounting standards | Net Sales Source (in thousands) | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :------------------------------ | :---------------------------------- | :------------------------------- | | Retail stores | $117,482 | $127,675 | | E-commerce | $28,293 | $35,482 | | Total net sales | $145,775 | $163,157 | | Net Sales by Brand Type | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :---------------------- | :---------------------------------- | :------------------------------- | | Third-party | 68 % | 71 % | | Proprietary | 32 % | 29 % | | Total net sales | 100 % | 100 % | - Revenue from gift cards was $4.0 million for the thirteen weeks ended April 30, 2022, up from $3.8 million in the prior year[42] - The company modified its loyalty program expiration policy, reducing the estimated liability by $0.5 million during the thirteen weeks ended April 30, 2022[44] - Income tax expense for the thirteen weeks ended April 30, 2022, was $0.3 million (26.9% of pre-tax income), compared to $3.8 million (25.7%) in the prior year[55] Note 3: Marketable Securities Describes Tillys' marketable securities, comprising commercial paper and fixed income securities, noting a decrease in fair value during the period | Marketable Securities (in thousands) | April 30, 2022 | January 29, 2022 | May 1, 2021 | | :--------------------------------- | :------------- | :--------------- | :---------- | | Commercial paper | $39,921 | $64,233 | $69,969 | | Fixed income securities | $11,076 | $32,794 | $6,664 | | Total marketable securities | $50,997 | $97,027 | $76,633 | - Gains on investments from commercial paper were $25 thousand for the thirteen weeks ended April 30, 2022, compared to $29 thousand in the prior year[61] Note 4: Credit Agreement Details Tillys' new $25.0 million senior secured revolving credit facility, replacing a prior agreement, with no outstanding borrowings as of April 30, 2022 - A new senior secured revolving credit facility of up to $25.0 million was entered into on January 20, 2022, maturing on January 20, 2024[62] - The new facility replaced a prior $65.0 million asset-backed credit agreement[69] - As of April 30, 2022, Tillys was in compliance with all covenants and had no outstanding borrowings under the new Credit Agreement[68] Note 5: Commitments and Contingencies Outlines Tillys' indemnifications, commitments, and guarantees, along with ongoing legal proceedings, including a class action lawsuit - The company has not recorded any liability for indemnifications, commitments, and guarantees, as their maximum potential future payments are often unlimited and duration indefinite[73] - In the Juan Carlos Gonzales case, a PAGA action alleging wage and hour violations, a loss is currently not probable or estimable, and BaronHR is required to indemnify Tillys[75] - The Skylar Ward class action lawsuit was dismissed with prejudice in May 2022 after the parties executed a settlement agreement in March 2022[76] Note 6: Fair Value Measurements Explains Tillys' fair value measurement hierarchy for financial assets and reports non-recurring impairment charges for long-lived store assets - The company categorizes financial assets based on a three-level fair value hierarchy, with money market securities in Level 1 and commercial paper in Level 2[77][79][82] - Non-recurring impairment charges of $13.4 thousand were recorded for one store's long-lived assets during the thirteen weeks ended April 30, 2022, compared to no impairment charges in the prior year[83][84] Note 7: Share-Based Compensation Details Tillys' share-based compensation plan, including stock options and restricted stock awards, and reports related expenses and unrecognized amounts - As of April 30, 2022, 1,797,665 shares were available for future issuance under the 2012 Plan[85] | Stock Option Activity | Outstanding at Jan 29, 2022 | Granted | Exercised | Forfeited | Outstanding at Apr 30, 2022 | | :-------------------- | :-------------------------- | :------ | :-------- | :-------- | :-------------------------- | | Number of Options | 1,570,211 | 502,500 | (4,750) | (2,000) | 2,065,961 | | Weighted Average Exercise Price | $9.02 | $9.45 | $4.13 | $9.45 | $9.14 | | Share-Based Compensation Expense (in thousands) | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :---------------------------------------------- | :---------------------------------- | :------------------------------- | | Cost of goods sold | $89 | $(38) | | Selling, general, and administrative | $474 | $404 | | Total share-based compensation | $563 | $366 | - Total unrecognized share-based compensation expense was $5.7 million at April 30, 2022, with a weighted average remaining recognition period of 3.0 years[94] Note 8: Earnings Per Share Explains basic and diluted earnings per share calculations, noting a significant decrease in EPS for the thirteen weeks ended April 30, 2022 | EPS Metric (in thousands, except per share) | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :------------------------------------------ | :---------------------------------- | :------------------------------- | | Net income | $813 | $10,959 | | Weighted average basic shares outstanding | 30,762 | 29,878 | | Dilutive effect of in-the-money stock options and RSAs | 284 | 651 | | Weighted average shares for diluted EPS | 31,046 | 30,529 | | Basic earnings per share | $0.03 | $0.37 | | Diluted earnings per share | $0.03 | $0.36 | - 1.45 million stock options were excluded from diluted EPS calculation for the thirteen weeks ended April 30, 2022, as their effect would have been anti-dilutive[96] Note 9: Share Repurchase Program Details Tillys' share repurchase program, authorized for up to 2,000,000 shares, and reports repurchases made as of April 30, 2022 - The Board authorized a share repurchase program for up to 2.0 million shares of Class A common stock through March 14, 2023[97] - For the quarter ended April 30, 2022, 892,033 shares were repurchased at a weighted average price of $9.14 per share, totaling $8.2 million[97] - As of the filing date, 987,427 shares have been repurchased for $9.0 million, with 1,012,573 shares remaining under authorization[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on Tillys' financial condition and operational results, including business overview, market trends, key performance indicators, and liquidity Overview Describes Tillys as a specialty retailer of apparel, footwear, and accessories, operating 241 stores and an e-commerce platform with diverse brands - Tillys operates 241 stores in 33 states, averaging approximately 7,300 square feet per store, and an e-commerce website[101] - The company offers a selection of iconic global, emerging, and proprietary brands rooted in an active and outdoor lifestyle[101] Known or Anticipated Trends Outlines anticipated adverse trends, including COVID-19 impacts, inflationary pressures, supply chain disruptions, and labor challenges affecting Tillys' operations - Operating results for fiscal 2022 are expected to remain well below fiscal 2021 levels due to the winding down of pandemic-related stimulus and the current inflationary environment[102] - Significant price increases for merchandise, gasoline, food, and other consumables are negatively impacting consumer behavior and the company's financial results[103] - Ongoing supply chain disruptions, particularly in Southern California ports, are causing shipping delays and increased costs, requiring adjustments to merchandise planning and pricing strategies[104] - Labor challenges and wage inflation are expected to continue throughout fiscal 2022, driven by increased competition for employees[105] Fiscal 2022 New Store Openings and Capital Expenditure Plans Details Tillys' fiscal 2022 plans for 9 to 12 new store openings and projected capital expenditures of $23 million to $25 million for various investments - Tillys plans to open approximately 9 to 12 new stores in fiscal 2022, mainly in California, Texas, and the Northeast[108] - Total capital expenditures for fiscal 2022 are estimated to be $23 million to $25 million, covering new stores, website/mobile app upgrades, distribution, and IT infrastructure[108] How We Assess the Performance of Our Business Explains how Tillys assesses business performance using key indicators like net sales, comparable store sales, gross profit, SG&A, and operating income, noting business seasonality - Key performance indicators include net sales, comparable store sales, gross profit, SG&A expenses, and operating income[109] - Comparable store net sales include sales from both e-commerce and physical stores, reflecting an omni-channel business approach, but exclude gift card breakage and e-commerce shipping fees[112][113] - Gross profit is impacted by initial markups, markdowns, shrinkage, and shifts in sales mix between proprietary and third-party brands[115][116] - The business is seasonal, with the third and fourth fiscal quarters typically generating stronger sales and operating results[111] Results of Operations Reports a significant decline in Tillys' net sales, gross profit, operating income, and net income for the thirteen weeks ended April 30, 2022, compared to the prior year | Metric | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :---------------------------------- | :------------------------------- | :--------- | :--------- | | Net sales (in thousands) | $145,775 | $163,157 | $(17,382) | (10.7)% | | Gross profit (in thousands) | $43,815 | $54,839 | $(11,024) | (20.1)% | | Gross profit as % of net sales | 30.1 % | 33.6 % | (3.5)% | | | Selling, general and administrative expenses (in thousands) | $42,707 | $39,965 | $2,742 | 6.9% | | SG&A as % of net sales | 29.3 % | 24.5 % | 4.8% | | | Operating income (in thousands) | $1,108 | $14,874 | $(13,766) | (92.6)% | | Operating income as % of net sales | 0.8 % | 9.1 % | (8.3)% | | | Net income (in thousands) | $813 | $10,959 | $(10,146) | (92.6)% | | Diluted EPS | $0.03 | $0.36 | $(0.33) | (91.7)% | | Operating Data | Thirteen Weeks Ended April 30, 2022 | Thirteen Weeks Ended May 1, 2021 | | :-------------------------------- | :---------------------------------- | :------------------------------- | | Stores operating at end of period | 241 | 238 | | Comparable store net sales change | (13.0)% | 7.5 % | | E-commerce revenues (in thousands) | $28,293 | $35,482 | | E-commerce revenues as % of net sales | 19.4 % | 21.7 % | - The decline in net sales was primarily attributed to the impacts of pent-up customer demand and federal stimulus payments in the prior year, combined with the current highly inflationary environment[122] - SG&A expenses increased by $2.0 million due to wage inflation (average store payroll hour rate increased by 6.5%) and a $1.6 million credit reversal from a prior year sales tax assessment, partially offset by a decrease in corporate bonus expense[124] Liquidity and Capital Resources Discusses Tillys' liquidity and capital resources, highlighting cash flow from operations, working capital changes, and cash movements from investing and financing activities - The company expects existing cash, marketable securities, and credit facility availability to cover working capital and capital expenditures for the next 12 months[128][130] - Working capital decreased by $6.0 million from $91.8 million at January 29, 2022, to $85.9 million at April 30, 2022, primarily due to increased merchandise inventories and share repurchases[131] - Net cash used in operating activities was $(17.6) million for the thirteen weeks ended April 30, 2022, a $(36.8) million decrease compared to the prior year, driven by lower net sales[134] - Net cash provided by investing activities was $43.5 million, primarily from $51.0 million in marketable securities maturities, offset by $5.0 million in purchases and $2.6 million in capital expenditures[136] - Net cash used in financing activities was $(8.2) million, mainly due to $8.2 million in share repurchases[138] Critical Accounting Policies and Estimates Addresses the critical accounting policies and estimates, emphasizing the challenges posed by the COVID-19 pandemic on financial statement preparation - Estimates and assumptions about future events are critical for financial statement preparation, with the COVID-19 pandemic making these particularly difficult[152] Item 3. Quantitative and Qualitative Disclosures About Market Risk States no material changes in market risks were identified as of April 30, 2022, compared to the prior Annual Report on Form 10-K - No material changes in market risks were identified as of April 30, 2022, compared to the previous Annual Report on Form 10-K[153] Item 4. Controls and Procedures Details management's evaluation of Tillys' disclosure controls and procedures, confirming their effectiveness and noting no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Management, including the CEO and CFO, concluded that Tillys' disclosure controls and procedures were effective as of April 30, 2022 - The CEO and CFO concluded that Tillys' disclosure controls and procedures were effective at the reasonable assurance level as of April 30, 2022[154] Changes in Internal Control Over Financial Reporting Reports no material changes in internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q - No material changes in internal control over financial reporting were identified during the period covered by this Quarterly Report on Form 10-Q[155] Inherent Limitations on Effectiveness of Controls Acknowledges the inherent limitations of control systems, which provide reasonable but not absolute assurance against errors or fraud - Management acknowledges that control systems provide only reasonable assurance and cannot prevent all errors or fraud due to inherent limitations like faulty judgments, human error, circumvention by individuals, or management override[156][157][158] PART II. OTHER INFORMATION This part includes information on legal proceedings, risk factors, exhibits, and signatures related to the Form 10-Q filing Item 1. Legal Proceedings Incorporates legal proceedings information by reference from Note 5: Commitments and Contingencies to the consolidated financial statements - Legal proceedings information is incorporated by reference from Note 5: Commitments and Contingencies[160] Item 1A. Risk Factors Refers to the 'Risk Factors' section in the Annual Report on Form 10-K for a detailed discussion of risks affecting the company's business - For a detailed discussion of risks affecting the business, refer to the 'Risk Factors' section in the Annual Report on Form 10-K for fiscal year ended January 29, 2022[161] Item 6. Exhibits Lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and interactive data files in iXBRL format - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1) and interactive data files (101, 104) in iXBRL format[162] Signatures Confirms the report's signing by Edmond Thomas, President, CEO, and Director, and Michael Henry, Executive Vice President, CFO, on June 8, 2022 - The report was signed by Edmond Thomas (President, CEO, and Director) and Michael Henry (EVP, CFO) on June 8, 2022[165]