Retail store business news :Tilly's Q2 Comps Improve 5.1 Percent

Tilly's Inc. reported a loss in the second quarter after a one-time charge, but said earnings would have grown 49.3 percent on an adjusted basis. Total net sales for the quarter were $105.1 million, an increase of 20.4 percent compared to the second quarter in the prior year. Comparable store sales, which include e-commerce sales, increased 5.1 percent.

E-commerce sales were $9.8 million, an increase of 22 percent compared to the second quarter in the prior year.

Gross profit increased 21.1 percent to $31.1 million. Gross margin was 29.6 percent, a 10 basis point increase over the second quarter of fiscal 2011.

Operating loss on a GAAP basis was $3.3 million, including a one-time, non-cash charge to SG&A expense of $7.6 million, before tax, to recognize life to date compensation expense for stock options which was triggered by the consummation of the Company’s initial public offering in the second quarter.

The annual tax rate for the second quarter was 33.6 percent. The quarter also included, as expected, a one-time net tax benefit of $1.0 million resulting from the Company’s conversion from an “S” Corporation to a “C” Corporation, the result of a $3.0 million deferred tax benefit and a nearly $2.0 million tax provision charge.

On a GAAP basis, net loss was $1.2 million, or $0.04 per share, based on a weighted average share count of 27.3 million shares, which includes the non-cash charge to SG&A and the one-time net tax provision benefit mentioned above. This compares to net income of $3.5 million or $0.17 per diluted share based upon 20.5 million weighted average diluted shares in the second quarter of fiscal 2011.

Adjusted net income for the quarter increased 49.3 percent to $2.6 million, or $0.09 per weighted average diluted share, compared to an adjusted net income of $1.7 million or $0.09 per weighted average diluted share in the second quarter of 2011. These results adjust GAAP net income for the one-time, non-cash compensation charge to SG&A, assume an expected long-term effective tax rate of 40 percent for both this year and last year periods, and add back a charge for on-going non-cash compensation expense for stock options of $0.6 million, before tax, to the second quarter of 2011, which equals the charge for on-going non-cash compensation expense in the second quarter of 2012.

Daniel Griesemer, President and Chief Executive Officer, commented, “Our second quarter results were ahead of plan and reflected our continued focus on achieving sustainable, long-term, quality growth. Solid comp store sales gains along with prudent fiscal and inventory management resulted in a 49 percent increase in adjusted net income during the quarter. The strong performance was broad based across geographies and real estate venues. We are particularly pleased that the new stores opened this year are performing well above our expectations, demonstrating the strength of the Tilly’s concept on a national basis. We believe our progress also continues to validate the relevance of the Tilly’s brand and our unique business model that focuses on offering relevant brands and styles to our customers, and we believe we are well positioned for continued success in the second half of 2012 and over the longer term.”

For the twenty-six weeks ended July 28, 2012:
Total net sales for the first two quarters were $201.6 million, an increase of 18.3 percent compared to the first two quarters of the prior year. Comparable store sales, which include e-commerce sales, increased 4.7 percent. E-commerce sales were $20.7 million, an increase of 26 percent compared to the first two quarters of the prior year.

Gross profit increased 18.6 percent to $61.6 million. Gross margin was 30.5 percent, similar to the prior year period.

Operating income on a GAAP basis was $2.7 million, including the non-cash compensation charge triggered by the Company’s consummation in the second quarter of its initial public offering.

On a GAAP basis, net income was $4.8 million, or $0.20 per diluted share, based on a weighted average diluted share count of 24.1 million shares, which included the one-time, non-cash compensation charge to SG&A as well as a one-time net tax provision benefit which totaled $3.0 million for the two quarters year to date. This compares to net income of $8.3 million or $0.41 per diluted share based upon 20.4 million weighted average diluted shares in the prior year period.

Adjusted net income increased 31.9 percent to $6.2 million, or $0.26 per weighted average diluted share, compared to an adjusted net income of $4.7 million or $0.23 per weighted average diluted share in the prior year period. These results adjust GAAP net income for the one-time, non-cash compensation charge to SG&A incurred in the second quarter of 2012, assume an expected long-term effective tax rate of 40 percent for both this year and last year periods, and add a charge for on-going non-cash compensation expense for stock options of $0.6 million, before tax, to the second quarter of 2011, which equals the charge for on-going non-cash compensation expense in the second quarter of 2012.

Balance Sheet and Liquidity
As of July 28, 2012, the company had $47.7 million of cash and marketable securities as compared to $25.1 million as of January 28, 2012 and $31.0 million as of July 30, 2011. The company ended the quarter with no long-term borrowings and no debt outstanding on its revolving credit facility.

Third Quarter 2012 Outlook
For the third quarter, comparable store sales growth is expected to be in the range of 4 percent to 5 percent, on top of an 8.5 percent comparable store sales increase in the third quarter of 2011. On a GAAP basis, and using the anticipated effective tax rate of 33.6 percent, GAAP net income for the third quarter is expected to be in the range of $8.8 million to $9.3 million, or $0.31 to $0.33 per diluted share, and assumes a diluted share count of 28.2 million shares, compared to 20.5 million diluted shares in the third quarter of last year.

On an adjusted basis, using an anticipated on-going effective tax rate of 40 percent, adjusted net income in the third quarter is expected to be in the range of $7.9 million to $8.4 million, or $0.28 to $0.30 per diluted share.

Fiscal Year 2012 Outlook
The Company has revised its earnings per diluted share outlook upward to reflect the better than expected results achieved in the second quarter of 2012. Additionally, for fiscal year 2012, the company’s retail calendar includes a fifty-third week compared to a fifty-two week year in fiscal year 2011.

The Company continues to expect comparable store sales growth in the range of 4 percent to 5 percent for fiscal 2012, on a 52-week vs. a 52-week basis. On a GAAP basis, and using an anticipated full year effective tax rate of 33.6 percent, net income for fiscal year 2012 is expected to be in the range of $0.90 to $0.96 per diluted share, and assumes a diluted share count of 26.1 million shares, compared to 20.5 million diluted shares for the full year 2011.

On an adjusted basis, excluding the one-time charge in recognition of life-to-date stock-based compensation and excluding the one-time tax benefit stemming from the S-corporation to C-corporation conversion recorded in the second quarter of 2012, adjusted net income, using a 40 percent adjusted on-going effective tax rate for the full year, is expected to be in the range of $0.88 to $0.94 per diluted share. 

(SportsOneSource Media)