Q3 2022 Tillys Inc Earnings Call

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follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Garth Jackson. You may be good.

Good afternoon and welcome to the Tilly's fiscal 2022 third quarter earnings call. Ed Thomas, President and CEO and Michael Henry, CFO will discuss the company's results and then host the Q&A session. For a copy of Tilly's earnings release, please visit the investor relations section of the company's website at tilly's.com. From the same section, shortly after the conclusion of the call, you will also be able to find a recorded replay of this call for the next 30 days.

Certain forward-looking statements will be made during this call that reflect Tilly's judgment and analysis only as of today, December 1, 2022, and actual results may differ materially from current expectations based on various factors affecting Tilly's business.

Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with any forward-looking statements, please see the disclaimer regarding forward-looking statements that is included in our fiscal 2022 third-quarter earnings release, which was furnished to the SEC today on Form 8K, as well as our other filings that the SEC referenced in that disclaimer.

Today's call will be limited to one hour and will include a Q&A session after our prepared remarks. I will now turn the call over to Ed.

Thanks, Gar. Good afternoon, everyone, and thank you for joining us today.

Our third quarter sales performance was stronger than we anticipated throughout the quarter, resulting in both top line and bottom line results exceeding our outlook and analyst consensus estimates for the third quarter.

As expected, we saw a deceleration in sales trends from month to month as we anniversary of last year's.

early holiday shopping that was driven by supply chain concerns and other pandemic related factors in the later stages of the quarter. Thanks for joining us today, I'm Don La Tournamentale I go check out Superapple duck roast Channel. Good morning everyone, please, welcome to Superapple Duck

Not surprisingly...

As we lap those prior year conditions, amid this year's highly inflationary environment, all geographic markets comped double-digit negative and most merchandising departments comped double-digit negative with the expectations, exceptions of

footwear.

which was just slightly negative, and accessories, which was led by strength and backpacks.

but still decreased by a single digit percentage overall.

Also, not surprisingly,

Customer store traffic and conversion both declined by high single-digit percentages compared to last year's record results.

SG&A to be approximately $54 million to $55 million.

Pre tax income to be in the range of approximately zero point $8 million to $2 $6 million, our estimated income tax rate to be approximately 27%.

And earnings per diluted share to be in the range of two cents to six cents based on estimated weighted average diluted shares of approximately $29 9 million.

This compares to a company fourth quarter record of $204 $5 million in net sales and 38 cents in earnings per diluted share for the fourth quarter last year and total net sales of $172 $5 million and earnings per share of 21 cents in the pre pandemic fourth quarter of fiscal 2019.

Operator, well now go to our Q&A session.

Okay.

At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue.

You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

And one moment, please while we poll for questions.

Yes.

Yeah.

Our first question comes from the line of Jeff Van <unk> with B Riley. Please proceed with your question.

Hello. This is Richard Magnuson in for Jeff Van syndrome. Thank you for taking our call.

Can you provide more insight into how you are planning incoming inventory for spring and do you expect inventory to be up or down on a square foot basis at the end of the fourth quarter.

Hi, Richard.

We expect inventory to be down on a per square foot basis, finishing the fourth quarter.

As we think about next year as a whole.

You know one thing to keep in mind is obviously 2021 was crazy to the good side of things all year long, we've been going up against that.

You see the comparisons in the negative double digit comp that we've seen all year. The last month that we will have that is February .

In February 2022, we had a plus 15 comp after that.

Every month after that will be going up against this year's negative double digits. So you.

Theres some optimism there that assuming we can stay on trend with our merchandise assortment the way we consistently have.

We think theres, an opportunity for us to be able to turnaround back into positive comps once we get into 2023 and passed the month of February in particular, which is a small month, but.

We're expecting to improve our business in 2023.

And do better business than in the spring than we did this year.

Alright that sounds good.

Can you provide some detail on the different trends that you saw on cyber Monday, and Black Friday sales in E com.

Okay.

It was pretty erratic.

Thank God, we were going up against.

A lot of our competitors, who are much more aggressive promotion Ali.

Then all of a sudden we elected not as we can definitely do we are we elected to not play the aggressive promotion campaign and.

He may have a somewhat negatively impacted our demand but overall.

It was close to what we expected.

Okay, and then can you remind me what are the compares get easier for Ito.

Yeah.

Well as I just mentioned on the Dove as a total business, we're going to be going up against double digit total business.

Spring, Yeah, it'll start right after the month of.

February .

We had.

Similar directional performance between stores and E com.

I'm looking at a chart here.

<unk> was up single digits in February and then down double digits. The next four months in a row.

Still negative in July August and then back to double digits September October and November so similar in nature to that house stores compare.

Okay.

My last question is what are you seeing you know brick and mortar. This week, if you can speak to that.

I wouldn't call it particularly strong.

So it's not no I'd say, it's a you know.

In the past, we you usually go through Black Friday weekend, and then Theres a little bit of a lull.

After everyone you know kind of go through Black Friday promotions, and all the buzz of that and cyber Monday and those kinds of things you tend to go through a lull and we're experiencing that and we do think that the overall patterns for holiday shopping will be later this year than they were last year.

We also think that's part of why our fourth quarter start was weaker than anticipated. So remember we talked about the fact that we thought some.

Early holiday shopping pulled into October while it also pulled into early November .

Because of all the supply chain concerns last year. So I do think we are anniversarying.

Lapping some of that early holiday shopping patterns of last year because of the supply chain concerns come to this year everyone's got more inventory than they need and has pretty much all year long.

Really promotional environment.

We do think that.

Well, we will see the holiday season come into being it'll just be a later flow than it was last year and we have contemplated that in how we've we've thought about our outlook.

Just to add to that too is we're going into the next few weeks.

The quality of our inventory both in terms of quantity and the mix is really in great shape. So we're.

We're positioned we felt like we're well positioned.

To do the business if it's there.

Oh, okay.

Well, thank you I'll get back into queue.

Thanks Richard.

Our next question comes from the line of Mitch <unk> with Seaport Research. Please proceed with your question.

Yeah. Thanks for taking my questions, starting with the Q4 to date comp.

Cobb I think Mike in the press release, and it's down 18, five do you know what that is on a sales basis and then also do you happen to know what both comp and sales are for that period versus three years ago.

I don't all I have is what we just reported as a comp to comp number I I don't we haven't closed fiscal November who are in the process of closing fiscal November . So I don't have all in sales numbers to report at this early date.

Okay, and then you you referenced the pull forward last year because of supply chain and some COVID-19 can you remind us how so I think last year you guys did.

I think a 12 and a half comp if I have that correct can you remind us kind of how that flowed through the fourth quarter or maybe on a monthly basis. Just so we have a good a better sense of the compare.

Yeah, So last last year.

'twenty one versus 'twenty November was the strongest month in terms of comp at a plus 21, and then December was about half that at 10 and a half and then January was a plus four so it gets easier as the quarter goes in terms of the.

Of those comparisons.

This is another reason why despite how slowly November started we.

Yeah.

If you look at all the historical relationships of how we just finished Q3, how we finished Q3 relative to 2019 it just.

It all points that have history means anything at all.

You know we have to be somewhere in the $180 million range for <unk> for the fourth quarter. We just reported 178 for the third quarter.

Fourth quarter is larger than third and any.

Any way shape or form the way it traditionally was other than last year.

Youre in the 180, so it seems to make sense again, if history proves to be accurate at all if something else happens there's no way I can predict it I have to believe despite our slow start in November that the holiday season will come and that some sense of normal.

Cadence of Q3 to Q4, it will take place.

Coupled with the fact, we did just do nearly a plus nine comp to 2019 in the third quarter.

Yeah, you know some level of positive comp in the in the fourth quarter relative to 2019 also gets you in that 180 <unk>.

Area. When you contemplate we have nine additional stores than we did then so it seems to line up.

Despite the soft start those other metrics seem to point you to a place that says you know the business will come. It's just later than what it was last year.

Yeah, and do you have a sense as to how much of the quarter is in the books through November 29, I imagine the vast majority is still in front of you.

It is the largest week sort of right around Christmas as you would expect Thanksgiving week as one of the largest weeks.

Weeks, but that last full weekend before Christmas that last for a week before Christmas. Those are those are the hugest weeks of the quarter those too.

And then usually the first week right after Christmas is pretty.

Pretty big before then for the rest of the January the weeks get really small so yeah.

The great majority of the quarter it'll be in once December is done.

Okay, and then lastly, Ed you know Theres been a lot of talk one other retail earnings calls about how challenging the apparel environment as in particular can you just elaborate on what you guys are saying.

Yeah.

You know that's how the apparel environment has been challenging.

Honestly I think part of it because there's no.

Dominic trends.

Particularly in our.

Came into our age group.

And for US what we've seen is.

One of our best performing categories, there's long bottoms. So that's been good.

I'm, not saying denim other long bottoms.

But the other Tampa called categories that are really strong and have slowed down.

And I think part of it.

Economic and part of it is lack of really dominant trend.

Okay. That's helpful. Thanks, and good luck for holiday.

Thank you thanks Mitch.

Yeah.

Our next question comes from the line of Matt Koranda with Roth Capital. Please proceed with your question.

Hey, guys. This is ray on for Matt.

Most of my questions were most of my questions were already asked but maybe if you guys can.

Talk a little bit about how.

Black Friday, cyber Monday, I guess how.

How much of that.

Alright, okay.

Maybe like Q4, how much of the revenue actually coming from Black Friday, and cyber Monday, and kind of like understanding that last year was a little bit out of the norm.

I don't have any data points on Black Friday is.

Piece of the quarter I mean.

It's in the top five.

Sales volume weeks of the quarter tough for them, but you know the real bulk of the business comes around Christmas typically and again because of the difference of last year to this year.

It's going to come later, there is an extra day.

Shopping before Christmas stay later this year.

So there's.

Still a lot of business to be done yet we did see during the Black Friday weekend as we referenced you know the month as a whole was down 18, we were down worse than that in the first three weeks of November and then Black Friday weekend was down about 13, and Black Friday itself was only down nine so during that particular peak weekend, we saw a.

A meaningful improvements in the trend of our business and given that we are expecting a later flow of the holiday shopping versus what it was last year, we'd expect to see you soon.

Other sorts of behaviours during during those key peak weeks in the in the mid to latter part of December in particular.

Okay. Thank you that was helpful.

Yes, I think most of my questions were answered so I'll go and I'll hop back in the queue. Thanks.

Thank you Rick.

And again as a quick reminder, if anyone has any questions you May press star one on your telephone keypad to.

To join the question and execute them.

And it looks like we have reached the end of the question and answer session I'll now turn the call back over to Michael Henry for closing remarks.

Hi, Unfortunately, it's Adam.

Goodbye.

Thank you for all for joining us on the call today.

We look forward to sharing our fourth quarter results with you in mid March 2023 have a good evening. Thanks everybody.

And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

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