Adjusting for non-cash stock-based compensation charges and applying an expected long-term effective tax rate of 40 percent, adjusted net income was $22.9 million, or 88 cents per diluted share, in the prior year.
“While fourth quarter results were as expected, we are not satisfied with this level of financial performance. I am, however, pleased with how we navigated the challenging retail environment, which reflects the disciplined execution by our team. We controlled costs, appropriately positioned our inventory levels and adhered to a planned promotional strategy in the quarter that delivered better product margins than the prior year,” commented Daniel Griesemer, President and Chief Executive Officer. “In fiscal 2014, we have developed several key initiatives to adapt to the changing teen retail landscape and to capitalize on the long-term opportunities to grow our business.”
For the fourth quarter ended February 1, 2014 (2012 reflects a 14-week period):
- Total net sales were $139.9 million, a decrease of 0.6 percent compared to $140.8 million in the fourth quarter of 2012.
- Comparable store sales, which include e-commerce sales, decreased 4.9 percent compared to the same 13-week period in 2012. E-commerce sales were $19.1 million, an increase of approximately 2 percent compared to the same thirteen-week period in 2012.
- Gross profit was $43.8 million compared to $46.8 million in the fourth quarter of 2012. Gross margin was 31.3 percent compared to 33.3 percent in the fourth quarter of 2012. Product margins increased 40 basis points, offset primarily by deleverage in buying, distribution and occupancy costs as a result of the negative comparable store sales.
- Operating income was $8.5 million and included $1.8 million in store asset impairment charges recorded in the fourth quarter. This compares to operating income of $14.8 million in the fourth quarter of 2012.
- Net income was $5.4 million, or $0.19 per diluted share, based on a weighted average diluted share count of 28.2 million shares and an effective tax rate of approximately 36 percent due to a one-time tax benefit related to return to provision adjustments. This compares to net income in the fourth quarter of 2012 of $9.8 million, or $0.35 per diluted share, based on a weighted average diluted share count of 28.0 million shares. Applying an expected long-term effective tax rate of 40 percent, adjusted net income in the fourth quarter of 2012 was $8.9 million, or $0.32 per diluted share.
- Total net sales were $495.8 million, an increase of 6.1 percent compared to the prior year.
- Comparable store sales, which include e-commerce sales, decreased 1.9 percent compared to the same 52-week period in 2012. E-commerce sales were $57.8 million, an increase of approximately 11 percent compared to the same 52-week period in 2012.
- Gross profit increased 1.4 percent to $152.3 million. Gross margin was 30.7 percent compared to 32.1 percent in the prior year period. Product margins increased 30 basis points, offset primarily by deleverage in buying, distribution and occupancy costs as a result of the negative comparable store sales.
- Operating income was $29.7 million, and included $1.8 million in store asset impairment charges recorded in the fourth quarter. This compares to operating income of $31.4 million in the prior year, during which the company recognized a one-time non-cash SG&A charge of $7.6 million, before tax, related to stock-based compensation expense triggered by the company’s initial public offering.
As of Feb. 1, 2014, the company had $60.4 million of cash and marketable securities and no borrowings or debt outstanding on its revolving credit facility. On March 17, 2014, the company amended its revolving credit facility agreement to adjust certain terms, effective as of February 3, 2014, and extend the maturity date to May 2017.
First Quarter 2014 Outlook
We continue to experience volatile and weak traffic trends and a highly promotional environment in teen retail. If these trends continue, we would expect first quarter comparable store sales to decline in the mid single digits, and net income per diluted share to be in the range of $0.00 to $0.04. This assumes an anticipated effective tax rate of 40 percent and a weighted average diluted share count of 28.2 million shares. First quarter 2013 net income was $2.3 million, or $0.08 per diluted share, based on a weighted average diluted share count of 28.0 million shares.
As of Mar. 19, 2014, Tilly's operated 198 stores and through its website, www.tillys.com.
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