Q4 2024 Tilly's Inc Earnings Call

Gar Jackson: will host a Q&A session. For a copy of Tilly's earnings press release, please visit the investor relations section of the company's website at Tillys.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.

For a copy of Tilly's earnings press release, please visit the Investor Relations section of the company's web site until he's dot com from the same section. Shortly after the conclusion of the call 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 March 14th.

Gar Jackson: Certain forward-looking statements will be made during this call that reflect Tilly's judgment and analysis. However, 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 forward-looking statements, please see the disclaimer regarding forward-looking statements that is included in our fiscal 23 fourth quarter earnings release, which is furnished to the SEC today on Form 8K, as well as our other filings with the SEC referenced in that disclaimer. This column may also contain certain references to certain non-GAAP measures.

24, and actual results may differ materially from current expectations based 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 forward looking statements. Please see the disclaimer regarding forward looking statements that is included in our fiscal 'twenty three fourth quart.

Our earnings release, which was furnished to the SEC today on form 8-K, as well as our other filings with the SEC referenced in that disclaimer.

This call May also contain certain references to certain non-GAAP measures reconciliations of those measures to their most recent directly comparable corresponding GAAP measure can be found in our earnings release on our website today's call will be limited to one hour and will include a Q&A session. After our prepared remarks.

Gar Jackson: Reconciliations of those measures to the most recent directly comparable corresponding GAAP measure can be found in our earnings release on our website. Today's call will be limited to one hour, and I will include a Q&A session after our prepared remarks. Now, I turn the call over to Mike. Thanks, Gar. Good afternoon, everyone, and thank you for joining us today.

I'll turn the call over to Mike.

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

Michael L. Henry: It has been a tough couple of years since our record earnings in fiscal 2021 came out of the pandemic. Our business has been challenged while our young customer demographic has faced persistent inflationary pressures, record levels of credit card debt, and a shift in consumer preferences for experiences over goods following the pandemic. We believe that these factors have had a significant impact on our business, and we are not alone in that within our industry. Yet, there are clothing and lifestyle brand retailers who have performed relatively well over the last two years. We are challenging ourselves to improve despite the headwinds we are facing.

It's been a tough couple of years since our record earnings in fiscal 2021 coming out of the pandemic.

Our business has been challenged while our young customer demographic has faced persistent inflationary pressures record levels of credit card debt and a shift in consumer preferences for experiences over goods following the pandemic.

We believe that these factors have had a significant impact on our business and we are not alone in that within our industry.

Yeah, there are clothing and lifestyle brand retailers, who have performed relatively well over the last two years.

We are challenging ourselves to improve despite the headwinds we are facing we are revisiting everything about our business looking forward and evaluating any opportunity for potential improvement.

Michael L. Henry: We are revisiting everything about our business, looking for and evaluating any opportunity for potential improvement. We have work to do to get our business back on track in terms of regaining ground on sales per square foot productivity in stores and generating stronger product margins. We certainly see opportunities for improvement, and we are actively pursuing those opportunities. First and foremost, we are focused on driving sales increases at healthy product margins. This starts with providing compelling merchandise. Our merchant teams have put in a lot of work in recent months to adjust our assortments, lean into strong brand relationships, and seek new relationships. We expect to be introducing several new brands throughout the year, including during the first quarter, producing new brand collaborations, and continuing to leverage the strength of our own proprietary brands, particularly Rescue, which is our number one selling brand overall, by far.

We have work to do to get our business back on track in terms of regaining ground on sales per square foot productivity in stores and generating stronger product margins, we certainly see opportunities for improvement and we are actively pursuing those opportunities.

First and foremost we are focused on driving sales increases at healthy product margins.

It starts with providing compelling merchandize.

Our merchant teams have put in a lot of work in recent months to adjust our assortments leaning into strong brand relationships.

New relationships.

We expect to be introducing several new brands throughout the year, including during the first quarter.

<unk>, new brand collaborations and continuing to leverage the strength of our own proprietary brands, particularly rescue which is our number one selling brand overall by far.

Michael L. Henry: While we were off to a slow start to the first quarter, following a couple of atmospheric river storms that hit our home state of California particularly hard in the first two weeks of February, the year-over-year comp sales trend of our business has been improving moderately as the weeks have passed. There are pockets of products within each department that are working well for us. Our proprietary brands are performing meaningfully better overall than our third-party brands thus far in the first quarter, but we feel good about the content and quality of our spring assortment overall. We also believe better days are ahead as we transition into warmer weather, spring breaks, and Easter, as a significant portion of our assortment is focused on warm weather categories such as shorts, swim, and sandals, to name just a few.

While we are off to a slow start to the first quarter. Following a couple of atmospheric rivers storms in our home state of California, particularly hard in the first two weeks of February.

The year over year comp sales trend of our business has been improving moderately as the weeks have passed.

There are pockets of products within each department that are working well for us.

Criteria brands are performing meaningfully better overall than our third party brands, thus far in the first quarter, but we feel good about the content and quality of our spring assortment overall.

We also believe better days are ahead as we transition into warmer weather spring breaks and Easter is a significant portion of our assortment is focused in warm weather categories, such as shorts swim and sandals to name just a few.

Michael L. Henry: Beyond product, we are refocusing our marketing efforts to tell better product stories that are aligned with our primary merchandising priorities. We are working on a new brand campaign that we expect to launch in advance of the back-to-school season, which is aimed at building connectivity with our customers in new and different ways. For those of you who follow us closely, you may have noticed some recent changes to our approach to our social media channels and product placements in certain media outlets where we have not been present before. This is just the start of our efforts to reinvigorate our approach to marketing and meet our customers where they are. We'll bring back certain in-store events that were successful for us in pre-pandemic years to help drive store traffic and create direct engagement with our customers. We have other ideas in the planning phase that we are not yet prepared to discuss, but everything we are doing is aimed at opportunities to drive emotional connections between our customers and Tillys.

Beyond products, we are refocusing our marketing efforts to tell better product stories that are aligned with our primary merchandising priorities.

We are working on a new brand campaign that we expect to launch in advance of the back to school season that is aimed at building connectivity.

With our customers in new and different ways.

For those of you who follow US closely you may have noticed some recent changes in our approach to our social media channels and product placements in certain media outlets, where we have not been present before.

This is just the start of our efforts to reinvigorate our approach to marketing and meet our customers where they are.

We will bring back certain in store events that were successful for us in pre pandemic years to help drive store traffic and create direct engagement with our customers.

We have other ideas in the planning phase that we are not yet prepared to discuss but everything we are doing is aimed at opportunities to drive the emotional connections between our customers and tilly's.

Turning to store real estate, we still intend on evaluating opportunities to grow our store count over time.

We are purposefully taking a measured approach to new store openings in the short term, while we work toward improving our business performance, but we continue to believe that there are ample opportunities for <unk>.

Growth in our business over time.

In fiscal 2024, we currently expect to open five new stores within existing markets with two stores scheduled to open in the first quarter and one each during the remaining quarters.

Michael L. Henry: Turning to store real estate, we still intend to evaluate opportunities to grow our store count over time. We are purposely taking a measured approach to new store openings in the short term while we work toward improving our business performance, but we continue to believe that there are ample opportunities for strategic growth in our business over time. In fiscal 2024, we currently expect to open five new stores within existing markets, with two stores scheduled to open in the first quarter and one each during the remaining quarters. For existing stores, we have nearly 100 lease decisions to make this year. We intend to maintain strict discipline in making decisions that we believe will generate improved profitability over time. For example, if we are unable to negotiate what we believe to be acceptable lease costs, we will close stores as necessary.

For existing stores, we have nearly 100 lease decisions to make this year.

We intend to maintain strict discipline in making decisions that we believe will generate improved profitability over time.

If we are unable to negotiate what we believe to be acceptable lease cost, we will close stores as necessary.

At this time, we are aware of five planned store closures that we expect will take place during fiscal 2024.

Three of those will occur during the first quarter and more possible as we worked through our lease decisions.

We do not expect to close a large number of stores at this time, but we'll be very disciplined and conscientious in our decision, making on store renewals and kick out clauses in light of the current environment and our specific performance in each location.

Beyond new stores, our primary capital expenditure priorities for fiscal 2024 include completing the upgrade of our warehouse management systems and investing in new markdown optimization and merchandize allocation tools to improve the efficiency of our inventory management.

Michael L. Henry: At this time, we are aware of five planned store closures that we expect will take place during fiscal 2024. Three of those will occur during the first quarter, and more are possible as we work through our lease decision. We do not expect to close a large number of stores at this time, but we will be very disciplined and conscientious in our decision-making on store renewals and kick-out clauses in light of the current environment and our specific performance in each location. Beyond new stores, our primary capital expenditure priorities for fiscal 2024 include completing the upgrade of our warehouse management systems and investing in new markdown optimization and merchandise allocation tools to improve the efficiency of our inventory management, as well as ongoing IT infrastructure and cyber security investments to protect our business interests.

Ongoing it infrastructure and cyber security investments to protect our business interests.

Altogether, we currently expect our total capital expenditures for fiscal 'twenty, 'twenty, four not to exceed $15 million.

And we do have planned will be very purposefully aimed at improving our performance over time.

I will now turn to our fiscal 2023 fourth quarter operating results, which were shared in the press release earlier this afternoon.

Overall, our results exceeded the updated outlook ranges that we provided in early January in connection with the annual ICR Conference.

As a reminder for comparison purposes. This year's fourth quarter included an extra week, making it a 14 week quarter compared to last year's 13 week quarter.

Specifics of our fiscal 2023 fourth quarter operating results compared to last year's fourth quarter, whereas follows.

Total net sales were $173 million a decrease of four 1%.

The extra week in this year's fourth quarter accounted for $5 $7 million in total net sales.

Total comparable net sales, including both physical stores and ecommerce decreased by eight 8% for the comparable 14 week period.

Michael L. Henry: Altogether, we currently expect our total capital expenditures for fiscal 2024 not to exceed $15 million, but the spend we do have planned will be very purposefully aimed at improving our performance over time. I will now turn to our fiscal 2023 fourth quarter operating results, which were shared in the press release earlier this afternoon. Overall, our results exceeded the updated outlook ranges that we provided in early January in connection with the annual ICR conference.

Total net sales from physical stores decreased by 7% and represented 72, 6% of our total net sales compared to 74, 9% of total net sales last year.

On a comparable 14 week basis net sales from physical stores decreased by 11, 8%.

E Commerce net sales increased by four 7% largely due to the extra week and represented 27, 4% of total net sales compared to 25, 1% of total net sales last year.

On a comparable 14 week basis E Comm net sales increased by <unk>, 3%.

Michael L. Henry: As a reminder, for comparison purposes, this year's fourth quarter included an extra week, making it a 14-week quarter compared to last year's 13-week quarter. Specifics of our fiscal 2023 fourth quarter operating results compared to last year's fourth quarter were as follows. Total net sales were $173 million, a decrease of 4.1%. The extra week in this year's fourth quarter accounted for $5.7 million in total net sales. Total comparable net sales, including both physical stores and e-commerce, decreased by 8.8% for the comparable 14-week period.

We ended the fiscal year with 248 total stores, a net decrease of one store compared to the end of fiscal 2022.

Gross margin, including buying distribution and occupancy expenses was 27% of net sales compared to 29% of net sales last year.

Product margins declined by 140 basis points compared to last year, because it increased markdowns needed to manage inventory levels.

Buying distribution and occupancy costs deleveraged by 70 basis points collectively.

<unk> being half a million dollars below last year due to carrying these costs against lower net sales.

Total SG&A expenses were $55 2 million or 31, 9% of net sales compared to $53 $8 million or 29, 8% of net sales last year.

Michael L. Henry: Total net sales from physical stores decreased by 7% and represented 72.6% of our total net sales compared to 74.9% of total net sales last year. On a comparable 14-week basis, net sales from physical stores decreased by 11.8 percent, eCommerce net sales increased by 4.7% largely due to the extra week, and represented 27.4% of total net sales compared to 25.1% of total net sales last year. On a comparable 14-week basis, Ecom's net sales increased by 0.3%.

The increase in SG&A was primarily due to the extra week in this year's fourth quarter, which added an estimated $2 $6 million to SG&A.

Operating loss was $8 $5 million or four 9% of net sales compared to $1 $4 million or 0.8% of net sales last year as a result of the combination of factors just noted.

As a result of recording a noncash deferred tax asset valuation valuation allowance charge of $15 $4 million income tax.

<unk> expense was $13 $6 million, despite our pretax loss position.

The income tax benefit of <unk> 2 million or 61, 7% of pre tax loss last year.

Michael L. Henry: We ended the fiscal year with 248 total stores, a net decrease of one store compared to the end of fiscal 2022. Gross margin, including buying, distribution, and occupancy expenses, was 27% of net sales compared to 29% of net sales last year. Product margins declined by 140 basis points compared to last year because of increased markdowns needed to manage inventory levels. Buying, distribution, and occupancy costs declined by 70 basis points collectively, despite being half a million dollars below last year due to carrying these costs against lower net sales. Total SG&A expenses were $55.2 million, or 31.9% of net sales, compared to $53.8 million, or 29.8% of net sales last year. The increase in SG&A was primarily due to the extra week in this year's fourth quarter, which added an estimated $2.6 million to SG&A.

On a non-GAAP basis, excluding the impact of the valuation allowance income tax benefit was $1 $8 million or 25, 8% of pretax loss as would naturally be expected.

Net loss, including the impact of the valuation allowance was $26 million or <unk> 69 per share compared to zero point $1 million or breakeven on a per share basis last year.

On a non-GAAP basis, excluding the impact of the valuation allowance our net loss was better than we anticipated based on our revised outlook issued in connection with the annual ICR conference in early January at $5 2 million or <unk> 17 per share.

Turning to our balance sheet, we ended the fiscal year with total cash and marketable securities of $95 million and no debt outstanding compared to $113 million and no debt last year.

Total inventories at cost were up two 6% per square foot at the end of fiscal 2023 ended February three 2024 compared to the end of fiscal 2022 ended January 28 2023.

Michael L. Henry: Operating loss was $8.5 million, or 4.9% of net sales, compared to $1.4 million, or 0.8% of net sales, last year, as a result of the combination of factors just noted. As a result of recording a non-cash deferred tax asset valuation allowance charge of $15.4 million, income tax expense was $13.6 million, despite our pre-tax loss position, compared to an income tax benefit of $0.2 million, or 61 On a non-GAAP basis, excluding the impact of the valuation allowance, the income tax benefit was $1.8 million, or 25.8% of pre-tax loss, as would more naturally be expected.

On a comparable basis total inventories at February three 2024 were down nine 6% per square foot versus February four 2023, due to timing of product deliveries.

Total capital expenditures for fiscal 2023 were $14 million compared to $15 $1 million last year.

Turning to the first quarter of fiscal 2024 total comparable net sales through March 12 decreased by 13, 4% relative to the comparable period of last year, although with some trend improvement as the weeks have progressed as I noted earlier and with healthier product margins than last year.

Based on current and historical trends, we currently estimate that our total net sales for the first quarter will be in the range of approximately $109 million to $119 million translating to a comparable store net sales decrease in the range of approximately 14% to 7% respectively compared to last year.

Michael L. Henry: The net loss, including the impact of the valuation allowance, was $20.6 million, or $0.69 per share, compared to $0.1 million, or breakeven, on a per-share basis last year. On a non-GAAP basis, excluding the impact of the valuation allowance, our net loss was better than we anticipated based on our revised outlook issued in connection with the annual ICR conference in early January, at $5.2 million, or $0.17 per share. Turning to our balance sheet, we ended the fiscal year with total cash and marketable securities of $95 million and no debt outstanding compared to $113 million and no debt last year. Total inventories that cost were up 2.6% per square foot at the end of fiscal 2023, ended February 3, 2024, compared to the end of fiscal 2022, ended January 28, 2023. On a comparable date basis, total inventories at February 3, 2024 were down 9.6% per square foot versus February 4, 2023 due to the timing of product deliveries. Total capital expenditures for fiscal 2023 were $14 million compared to $15.1 million last year.

We expect our SG&A to be in the range of approximately $42 million to $43 million, our pretax loss to be in the range of 17 million to $22 million.

Our estimated loss per share is expected to be in the range of 42 to 54 for the first quarter with an estimated income tax rate of 27% and total shares outstanding of approximately $29 9 million.

We currently expect to have 247 total stores at the end of the first quarter compared to $2 48 at the end of last year's first quarter.

In closing we've endured a lot in recent years, we recognize that we have work to do to improve our business, starting with driving sales and generating improved product margins, which we expect will take time in the current environment.

That said, we have a highly dedicated hard working team that is aiming to get us back on track.

We look forward to sharing our progress with you as we go through fiscal 'twenty 'twenty four and beyond.

Operator, we will now go to our Q&A session.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on you touched on phone if you're using a speakerphone. Please pick up your handset before pressing the keys.

Anytime you question has been addressed and you would like to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.

Michael L. Henry: Turning to the first quarter of fiscal 2024, total comparable net sales through March 12 decreased by 13.4% relative to the comparable period of last year, although with some trend improvement as the weeks have progressed, as I noted earlier, and with healthier product margins than last year. Based on current and historical trends, we currently estimate that our total net sales for the first quarter will be in the range of approximately $109 million to $119 million, translating to a comparable store net sales decrease in the range of approximately 14% to 7%, respectively, compared to last year. We expect our SG&A expenses to be in the range of approximately $42 million to $43 million. Our pre-tax loss is expected to be in the range of $17 million to $22 million. Our estimated loss per share is expected to be in the range of $0.42 to $0.54 for the first quarter, with an estimated income tax rate of 27% and total shares outstanding of approximately $29.9 million.

Yeah.

And the first question will come from Marni Shapiro with retail tracker. Please go ahead.

Hey, guys.

I have a couple of quick questions. If you wouldn't mind just about the upcoming year.

It looks like you ended the year with pretty clean inventories I think you noted that you're seeing some better margin already in this first quarter is there is there a room for margin expansion throughout the year and will you maintain the inventory down at this level and then I have a couple of follow ups as well.

So on the margin, yes, there is room to improve them during the year.

This is one of the initiatives that we're working on right now.

And as far as the inventory. This is something we're looking at very carefully.

As far as the mix that we have.

And who we cater to so this is part of what we're doing right now exploring everything looking at everything we're doing.

We will have conclusions in the next 30 days.

Right and then I wanted to dig in a little bit just on the marketing I think you mentioned some changes in marketing I'm curious.

What youre doing to increase a top of funnel consumer customer acquisition at FERC.

Are you.

What are your thoughts about or are you working with kicked off I know you'll have to take talk page I don't see much activity on it.

I guess I'm curious what the digital spend should look like in 'twenty. Four if you could just dig in a little bit to that part of the pit as part of the story.

Operator: In closing, we've endured a lot in recent years. We recognize that we have work to do to improve our business, starting with driving sales and generating improved product margins, which we expect will take time in the current environment. That said, we have a highly dedicated, hardworking team that is aiming to get us back on track. We look forward to sharing our progress with you as we go through fiscal 2024 and beyond. Operator, we will now go to our Q&A session. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone.

Sure.

So.

We have new head of marketing that just joined US a few months ago.

Really has taken a fresh approach to everything we're doing about marketing it and it is very much top of funnel organized it at this stage, which is a little bit different than what we've been doing.

For a number of years.

You know, we're trying to increase our presence on tick tock.

Our social media channels.

There's different media product placements that we've partnered with a PR agency to help spread the word out there about certain products that we're featuring.

So just a fresh approach for you are working on a brand campaign, we're not going to go into a lot of details about it at this moment.

But expect to have that launched before the back to school season again more of a top of funnel approach to try and build connections emotional connections with our customers.

Really pleased with what we're seeing from from the marketing team overall as you know I've been here almost nine years.

I want to say are our approach to marketing and what the team is doing right. Now is the best I think I've seen in my time here.

Operator: If you're using a speakerphone, please pick up your handset before pressing the... If at any time your question has been addressed, and you would like to withdraw your question, please press star then ta- And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Marni Shapiro with Retail Tracker. Please go ahead. Hey guys, I have a couple quick questions if you wouldn't mind just about the upcoming year. It looks like you ended the year with pretty clean inventories. I think you noted that you're seeing some better margins already in the first quarter. But is there room for margin expansion throughout the year? And will you maintain the inventories down at this level? And then I have a couple of follow-ups.

Wow, that's amazing and then if it's okay. If I can sneak in one more just on the product side. I'm curious you know sales have been under pressure has that been equal across you know guys girls footwear youth our kids I forget what you call. It and then I've noticed some of the new products that have come in.

For spring, so far, especially on the junior side, it's starting to look different and it's starting to look fresh and a little bit right. So are you starting to see the improvements are they coming through first on the junior side. If you could just dig into like where we were and where we are.

Yeah, so on the junior side Dear he's definitely.

Some traction on the new merchandise that came in were seeing some good results.

Marni Shapiro: So, on the margin, yes, there is room to improve them during the year. This is one of the initiatives we're working on right now. And as far as inventory is concerned, this is something we're looking at very carefully as far as the mix that we have and who we cater to. So this is part of what we're doing right now, exploring everything, looking at everything we do. We'll have conclusions in the next 30 days. Great.

Hum.

What was your other question that you wanted to know.

And in the fourth quarter and just you know today has the pressure being equal across mens womens and footwear pressured out yeah. The pressure was you know from week to week it changes, but overall, it's the same all departments, it's more fit Tropic story than a department specific.

Okay that makes sense, but youre seeing that early traction that you're seeing is coming from the junior side, because it looks noticeably different.

Marni Shapiro: And then I wanted to dig in a little bit just on the marketing. I think you mentioned some changes in marketing. I'm curious, you know, what you're doing to increase top of funnel consumer customer acquisition efforts. Are you. What are your thoughts about, are you working with TikTok? I know you have a TikTok page.

What being in the stores.

Yes, it is different and we are seeing in the junior side.

Uh huh.

Good results, let's put it this way.

Excellent. Thank you so much best of luck for the spring season.

Thank you.

The next question will come from Matt Koranda with Roth M. Cam. Please go ahead.

Michael L. Henry: I don't see much activity on it. I guess I'm curious what the digital spend should look like in 24. If you could just dig in a little bit to that part of the story,

Hey, guys good afternoon.

Yeah.

I just wanted to cover that quarter to date comp that you provided the minus 13% and then I guess regarding to comps for the first quarter a bit ahead of that so I assume we're assuming some pickup after the bad weather in February and maybe one just confirm that's the case and sort of where do you see those.

Michael L. Henry: Sure. So, we have a new head of marketing that just joined us a few months ago. He really has taken a fresh approach to everything we're doing in marketing, and it is very much top of funnel organized at this stage, which is a little bit different than what we've been doing for a number of years. You know, we're trying to increase our presence on TikTok, other social media channels; there are different media product placements that we've partnered with a PR agency to help spread the word out there about certain products that we're featuring. So just a fresh approach. We are working on a brand campaign. We're not going to go into a lot of details about it at this moment, but we expect to have that launched before the back-to-school season.

The element of pick up coming from and then any way to unpack the down 13 between traffic conversion and ticket.

Sure.

Absolutely right Matt.

Things started real rough in the first two weeks of February, particularly in California, and with us having such a heavy penetration of stores in California, almost 100 of our total stores or in our home state here.

Both southern and Northern California were down 24% in the first week of February that's tough for us to overcome in the second week was not much better than that.

Socal was still down more than 20%.

In norcal was high teens or that that might have been reversed between those two.

Marni Shapiro: Again, more of a top-of-the-funnel approach to try and build connections, emotional connections with our customers. Really pleased with what we're seeing from the marketing team overall. As you know, Marni, I've been here almost nine years, and I want to say our approach to marketing, what the team's doing right now, is the best I think I've seen in my time here. That's amazing.

And then we started to see better performance in the back half of February relative performance.

To get to just under minus 15 for the month of February and then in the month of March we've gotten into negative single digits.

With California in particular, getting pretty darn close to flat through through yesterday.

And we've started to see intermittent positive days in California, So, it's giving us some sense of hope that we are moving in the right direction and that we will see better results in.

Michael L. Henry: And then, if it's okay, if I could sneak in one more, just on the product side, I'm curious, you know, sales have been under pressure. Has that been equal across, you know, guys, girls, footwear, youth, or kids? I forget what you guys call it. And then I've noticed some of the new products that have come in for spring so far, especially on the junior side; they're starting to look different. They're starting to look fresh and a little bit right. So are you starting to see the improvements? Are they coming through first on the junior side? If you could just dig into where we were and where we are now.

In the remainder of the quarter.

We just haven't seen it long enough yet to be firmly 100% convinced of how far that improvement might take us. So.

That's why you see the range structured the way. It is also with Easter being two weeks earlier. This year, we do expect greater benefit in March and April and we do anticipate that the early part of April could be pretty tough because of that shift in timing of Easter and usually the movement of spring breaks that come with that in attachment to the Easter holiday.

Michael L. Henry: Yes, so on the Jenner side, there is definitely some traction on the new merchandise that came in. We're seeing some good results. What was the other question that you wanted to know?

So that's how we're thinking about the cadence of the quarter.

Okay, all right that sounds fair.

And then just in terms of the product margins, maybe I wanted to drill down on that a bit more.

Yes, they they've been in decline for a couple of years and I think largely it seems like it's probably a product of the environment in a more promotional holiday across a lot of competitors and peers.

Marni Shapiro: In the fourth quarter and just, you know, to date, has the pressure been equal across men's, women's, and footwear? The pressure was, you know, from week to week it changes, but overall it's the same for all departments. It's more of a traffic story than department-specific. Okay, that makes sense. But you're seeing the early traction that you're seeing is coming from the junior side because it looks noticeably different from what is in the stores. Yes, it is different, and we are seeing in the junior side... Good results, let's put it this way. Excellent. Thank you so much.

But what are the what are the levers that.

We can understand that you have at your disposal to sort of improve product margins out of this coming year other than just sort of waiting for a better demand environment.

Well, it's PV basics, we are renegotiating cost.

Lowering our cost quite a bit believe it or not.

And where applicable we increasing retail.

Which we didn't do it for a long time and we've been completely out of whack with the market.

So that's the two reasons and ways, we're gonna change those margins.

Matthew Butler Koranda: Best of luck for the spring semester. Thank you. The next question will come from Matt Koranda with Ross MKM. Please go ahead. Hey, guys. Good afternoon.

Yeah, and Matt I'd just add.

Last year last year, our product margins were at a at a company low so speaks to the nature of the opportunity. That's there if we can execute better as we go through the year, obviously, we need to prove that over the course of all four quarters of the year to continue to move us back in the right direction, but where.

Matthew Butler Koranda: Yeah, I guess I just wanted to cover the quarter day comp that you provided the minus 13%. And I guess we're getting to comps for the first quarter a bit ahead of that. So I assume we're assuming some pickup after the bad weather in February, maybe one just confirm that's the case. And sort of where do you see that, the element of pickup coming from, and then any way to unpack the down 13 between traffic conversion and ticket?

We're reasonably satisfied with what we're seeing so far theres a long long way to go but we are pretty pleased with the improvement that we've seen thus far I will add one more thing is that margins are resolved. So as you know cost retail and.

And level of inventory so the level of inventory was very good throughout the year. So it wasn't a problem of too many mark dose.

Michael L. Henry: Sure, you're absolutely right, Matt. Things started real rough in the first two weeks of February, particularly in California. And with us having such a heavy penetration of stores in California, almost 100 of our total stores are in our home state here. Both southern and northern California were down 24% in the first week of February. That's tough for us to overcome.

But 'twenty was we got our eyes off the ball a little bit.

In the two areas that I mentioned.

Okay, Great color guys I appreciate that one other one if I could sneak one in just on SG&A I noticed that the guy there for the first quarter looks.

Just a touch down year over year. So just wanted to see and maybe give you the chance to call out elements of efficiency that you're generating and SG&A, where maybe where we're getting a little bit of potential for leverage as you start to grow that top line hopefully eventually.

Michael L. Henry: And the second week was not much better than that. SoCal was still down more than 20%, and NorCal was in the high teens, or that might have been reversed between those two.

Yeah, you know the biggest thing in SG&A as you know is store payroll and related benefits. It's it's almost half of total SG&A and.

Michael L. Henry: And then we started to see better performance in the back half of February, relative performance to get to just under minus 15 for the month of February. And then in the month of March, we've gotten into negative single digits, with California in particular getting pretty darn close to flat through yesterday. And we've started to see intermittent positive days in California, so it's giving us some sense of hope that we are moving in the right direction and that we will see better results in the remainder of the quarter. We just haven't seen it long enough yet to be firmly 100% convinced of how far that improvement might take us. So that's why you see the range structured the way it is.

Our store operations teams in my financial planning teams work awful hard on that together trying to be as sharp as we possibly can week after week store by store planning.

What we expect realistic sales expectations to be in and being as tight on the hours as we can those groups have just done a great job.

Being Super sharp.

Despite the conditions that we've been facing from from top line and Theres just at some point, there's a floor with the size of our stores you can't go below two people coverage in a store.

Be safe for our employees and have good customer service. So there are limits to how far we can squeeze that but.

Michael L. Henry: Also, with Easter being two weeks earlier this year, we do expect greater benefit in March than April. And we do anticipate that the early part of April could be pretty tough because of that shift in timing of Easter and usually the movement of spring breaks that come with that in attachment to the Easter holiday. So that's how we're thinking about the cadence of the quarter. Okay, all right, that sounds fair. And then just in terms of the product margins, maybe you wanted to drill down on that a bit more. I guess they've been in decline for a couple of years.

But I'm real proud of the effort that those teams have put in that that's the that's the biggest item in SG&A as store payroll. The rest of it is all call call. It reasonably fixed you know, there's some things that do move with sales like credit card processing fees and minor things like that but it's really about store payroll being managed tightly for us to keep <unk>.

Troll over that SG&A line.

Got it all to grasp on offline guys thinking.

Thank you <unk>.

Question will come from Mitch comments, where the Seaport research. Please go ahead.

Yes, thanks for taking my questions.

Mike can we just housekeeping to start with can you give us comp by month for the fourth quarter.

Yes.

Michael L. Henry: And I think largely, it seems like it's probably a product of the environment and more promotionality across a lot of competitors and peers. But what are the levers that we can understand that you have at your disposal to sort of improve product margins over this coming year, other than just sort of waiting for a better demand environment? Well, it's pretty basic.

Just a moment.

And they were fairly consistent from from month to month November was down eight and a half December was down nine and a half January was down seven two.

Okay.

And on.

On Q1, so you talked about California, and some of the challenge there early in the quarter I know there was some weather challenges in California last year can you remind us.

When were those those issues.

Michael L. Henry: We are renegotiating costs and lowering our costs quite a bit, believe it or not, and where applicable, we increase prices in retail, which we didn't do for a long time, and we've been completely out of whack with the market. So those are the two reasons and ways we're going to change those margins. Yeah, and Matt, I'd just add that last year, our product margins were at a company low. So it speaks to the nature of the opportunity that's there if we can execute better as we go through the year. Obviously, we need to prove that over the course of all four quarters of the year to continue to move us back in the right direction.

I don't have last year's specific dates in front of me I can just tell you as I mentioned earlier.

Obviously with what we faced this year, California was down 23, 24% in the first week and was down.

Between 17, and 22% between northern and Southern California.

In the second week, so that started us and us in a meaningful whole when you think about 100 100 of our stores.

By roughly $2 50 being in here in our home state and then.

The last two weeks of February were a little bit better and then as I mentioned so far in March total company were down single digits, with California, getting very close to flat and showing signs of turning positive. So we're really hopeful that.

Michael L. Henry: But we're reasonably satisfied with what we're seeing so far. There's a long, long way to go, but we are pretty pleased with the improvement that we've seen thus far. I will add one more thing: margins are the result of, as you know, cost, retail, and the level of inventory. So the level of inventory was very good throughout the years. It wasn't a problem of too many markdowns. The opportunity was that we got our eyes off the ball a little bit in the two areas that I mentioned.

That trend line can continue and actually see some growth in California at some at some point we're hopeful.

I guess I was asking the question just to just to try to help understand if maybe some of that improvement is that you're now lapping the bad weather from a year ago, but maybe it doesn't seem that way.

And then maybe a couple a couple last things you know.

Through back to school and holiday last year, there's a lot of talk from a lot of retailers about consumers' shopping events, and then kind of going dark in between.

Michael L. Henry: Okay, great color guys will appreciate that. One other one, if I could sneak one in just on SG&A. I noticed the guy there for the first quarter looks just a touch down year over year, so just wanted to see and maybe give you the chance to call out elements of efficiency that you're generating in SG&A, where maybe we're getting a little bit of potential for leverage as you start to grow that top. Yeah, you know the biggest thing in SG&A, as you know, is store payroll and related benefits. It's almost half of total SG&A, and our store operations teams and my financial planning teams work awful hard on that together, trying to be as sharp as we possibly can week after week, store by store, planning what we expect realistic sales expectations to be and being as tight on the hours as we can. Those groups have just done a great job And there's just, at some point, there's a floor, right?

How do you see like the first half setting up.

From an event standpoint, I know you talked about maybe better weather can help drive some traffic, but do you really see there being any kind of.

Just shopping events between now and back to school.

Well the largest sales weeks of the quarter anticipated to be right around the Easter holiday, that's where most of the spring breaks are.

But the first quarter is the smallest quarter of the year from a revenue standpoint, so there isn't anything anywhere near approaching the back to school season for us or the holiday season, obviously, but we would expect to see.

A little bit of pull forward into March this year because of the earlier Easter and then you know it is.

Likely that April will be tough in the in the early part of April because we're going up against a later Easter.

Beyond that.

Michael L. Henry: With the size of our stores, you can't go below two people in a store and be safe for our employees and have good customer service. So there are limits to how far we can squeeze that. But I'm really proud of the effort that those teams have put in.

We're just in the spring summer season kids get out of school.

It'll really be towards the back half of July where back to school comes into play that.

That we should see some pool of sales into the second quarter because of the impact of the 50 <unk> week at the end of fiscal 'twenty. Three we do anticipate some revenue shift from Q3 into Q2 as a result of that timing shift because of the extra week in fiscal 'twenty three.

Michael L. Henry: That's the biggest item in SG&A is store payroll. The rest of it is, I'll call it reasonably fixed. There are some things that do move with sales, like credit card processing fees and minor things like that. But it's really about store payroll being managed tightly for us to keep control over that SG&A line. Got it.

To the tune of somewhere around $12 million was our was our estimate of shifts between Q3 and Q2, so that would be something a little different than history and because of that corky. Once every six or seven years of that 50 <unk> week. It can create some distortions between the quarters.

Mitchel John Kummetz: I'll take the rest of mine off, I guess. The next question will come from Mitch Kummetz with Seaport Research. Please go ahead.

And then last question just on the Assortments you guys mentioned that.

Mitchel John Kummetz: Yes, thanks for taking my questions. Mike, can we, just housekeeping to start with, can you give us comp by month for the fourth quarter? Yes, hold on just a moment.

Private label is performing better than third party.

Could you maybe elaborate on that or or what are the reasons for that is that really just.

Michael L. Henry: They were fairly consistent from month to month. November was down eight and a half, December was down nine and a half, and January was down 7.2. And Ana.

Maybe maybe a bit of a trade down in terms of price points or and then and then you also talked about on the third party assortment, maybe sort of pivoting on some brands can you talk about maybe I don't know if you want to give specifics on the brands, but what kind of what's the thinking behind the need.

Michael L. Henry: In Q1, you talked about California and some of the challenges there early in the quarter. I know there were some weather challenges in California last year. Can you remind us when those issues were?

To kind of pivot a little bit on that on that 33rd party assortment. So really two questions one.

Michael L. Henry: I don't have last year's specific dates in front of me, but I can just tell you, as I mentioned earlier, obviously with what we faced this year, California was down 23, 24 percent in the first week and was down between 17 and 22 percent between northern and southern California in the second week. So that started us in a meaningful hole when you think about 100 of our stores, 100 of our roughly 250 being here in our home state. And then the last two weeks of February were a little bit better. And then, as I mentioned so far in March, total company was down single digits, with California getting very close to flat and showing signs of turning positive. So we're really hopeful that that trend line can continue and actually see some growth in California at some point.

Go ahead.

So let me answer this a couple of things first we can't talk too much about.

The private label versus the third party. These states because this is something that we're looking very carefully at.

Analyzing it and taking action on it as we speak.

As Mike mentioned, we're going to have some new brands coming in some exciting stuff.

But it's a little too early for us to give you more information than that I hope that by the next call that we have wouldn't be able to look at things and be more clear.

Okay sounds good thanks, guys. Good luck.

Our next question will come from Jeff Van <unk> with B Riley. Please go ahead Sir.

Michael L. Henry: I guess I was asking the question just to try to help understand if maybe some of that improvement is that you're now lapping the bad weather from a year ago, but maybe it doesn't seem that way. And then, maybe, a couple last things. You know, through back to school and the holiday last year, there was a lot of talk from a lot of retailers about consumers, shopping events, and then kind of going dark in between. How do you see, like, the first half setting up from an event standpoint?

Yeah, Hello, This is Richard Magnuson.

Calling in for Jeff Van syndrome. So one of my questions is high.

Hi.

So one of my questions.

No.

You got into the first quarter here with respect to the compared to the fourth quarter.

What more are you seeing.

The buying habits of consumers and their inclination towards promotional merchandise.

Yes.

Yeah.

I wouldn't say that we've seen a distortion towards promotional merchandise per se we're actually.

Michael L. Henry: I know you talked about maybe better weather can help drive some traffic, but do you really see there being any kind of, you know, must-have? shopping events between now and back to school? Well, the largest sales weeks of the quarter are anticipated to be right around the Easter holiday because that's where most spring breaks are, you know, but the first quarter is the smallest quarter of the year from a revenue standpoint. So there isn't anything anywhere near approaching the back to school season for us or the holiday season, obviously, but we would expect to see a little bit of pull forward into March this year because of the earlier Easter. And then, you know, it's likely that April will be tough in the early part of April because we're going up against a later Easter. Beyond that, you know, you're just in the spring-summer season when kids get out of school.

Actually pleasantly surprised at the improvement in product margins that we're seeing so far in the first quarter. So we're not seeing that our relative percentage of what we'll call Reg price business versus clearance has shifted in some meaningful way that tells us there's a completely different.

Consumer.

Demand profile there.

It's clearance has always been a pretty small overall percentage of our total business and it remains so so it hasn't jumped up in a to a huge degree if that's getting at your question.

Right, So I mean.

What you've seen maybe a little different and shift, but nothing really noticeable.

Towards any promotional inclination right.

Not in terms of how it's impacting our business again, our product margins are above where they were at this time last year. So we're seeing stronger performance.

In our in our Reg price business at this stage.

Michael L. Henry: It'll really be towards the back half of July, when back-to-school comes into play, that we should see some pull of sales into the second quarter because of the impact of the 53rd week at the end of Fiscal 23. We do anticipate some revenue shift from Q3 into Q2 as a result of that timing shift because of the extra week in Fiscal 23, to the tune of somewhere around $12 million, our estimate of the shift between Q3 and Q2. So that would be something that's a little different from history, and because of that quirky, you know, once every six or seven years of that 53rd week, it can create some distortions between the quarters.

Okay. Thank you and then.

What.

Mark can you tell us about any particular trends youre seeing for spring and then what areas of inventory. If any do you feel like you can really heavier lighting with regards to your expectations for spring.

The assortment is structured.

Similar to what you would expect from us in the in the spring season.

Swim shorts graphic Tees denim are always key categories for us at this time of year and we're set that way. If you go in view of store right now you'll see we're very much set for warm weather spring spring break type of product categories and that's typical for us. The one thing that we did do a little better.

Michael L. Henry: And then last question, just on the assortments, you guys mentioned that private label is performing better than third party. Um, can you maybe elaborate on that or what are the reasons for that? Is that really just, um...

<unk>, leading into this year that ive seen versus our past experience.

We were a little more thoughtful about how we transition from winter to spring, we intentionally held onto certain long sleeve sweater and jacket options in certain markets.

Michael L. Henry: The opinions rendered herein are those of the guests and not necessarily those of Douglas. Maybe sort of pivoting on some brands, can you talk about maybe I don't know if you want to get specifics on the brands, but kind of what's the thinking behind the need to kind of pivot a little bit on that 30 third-party assortment? There are really two questions. One.

As opposed to shifting so hard 100% to the spring assortment everywhere.

That also helped us carry through some of the difficult parts of February.

But other than that there arent any major categorical shifts in our assortment than what you've seen from us in the spring typically.

Michael L. Henry: Yeah, go ahead. Let me answer this. A couple of things. First, we can't talk too much about the private label versus the third party at this stage because this is something that we're looking very carefully at, analyzing it, and taking action on as we speak.

Alright, thank you.

Okay.

Yes.

And this will conclude our question and answer session I would like to turn the conference back over to Mr. Mike Henry for any closing remarks. Please go ahead.

Thank you Chuck Thank you all for joining us on our call today, we look forward to sharing our first quarter results with you in early June have a good evening.

Michael L. Henry: As Mike mentioned, we're going to have some new brands coming in, some exciting stuff. But it's a little too early for us to give you more information than that. I hope that by the next call that we have, we'll be able to look at things and be more clear. Okay, sounds good.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

[music].

Jeffrey Wallin Van Sinderen: Thanks, guys. Our next question will come from Jeff Sinderen with B Riley. Please go ahead, sir. Yeah, hi, this is Richard Magnuson, calling in for Jeff Van Sinderen.

Richard Frederick Magnusen: So one of my questions is, you know, as you go into the first quarter here, with respect to, compared to the fourth quarter, what more are you seeing in the buying habits of consumers and their inclination toward promotional merchandise? I wouldn't say that we've seen a distortion towards promotional merchandise per se; we're actually...actually pleasantly surprised at the improvement in product margins that we're seeing so far in the first quarter. So we're not seeing that our relative percentage of what we'll call the regular price business versus clearance has shifted in some meaningful way that tells us there's a completely different consumer demand profile there. Clearance has always been Right, so, I mean... What you've seen is maybe a little difference in shift, but nothing really noticeable for more information. Not in terms of how it's impacting our business.

Yeah.

[music].

Yeah.

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Michael L. Henry: Again, our product margins are above where they were at this time last year, so we're seeing stronger performance in our reg price business at this stage. Okay, thank you. And then, you know, what more can you tell us about any particular trends you're seeing for spring? And then what areas of inventory, if any, do you feel like you're really heavy or light in with regards?

Yeah.

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Michael L. Henry: The assortment is structured similar to what you would expect from us in the spring season. Swimwear, shorts, graphic tees, and denim are always key categories for us at this time of year, and we're set that way. If you go and look at a store right now, you'll see we're very much set for warm weather, spring, spring break type of product categories, and that's typical for us. The one thing that we did a little better leading into this year compared to our past experience, we were a little more thoughtful about how we transitioned from winter to spring. We intentionally held on to certain long-sleeve sweater and jacket options in certain markets, as opposed to shifting so hard 100% to the spring assortment everywhere. That also helped us carry through some of the difficult parts of February. But other than that, there aren't any major categorical shifts in our assortment than what you've seen from us in the spring, typically.

Michael L. Henry: All right, thank you. And this will conclude our question and answer session. I would like to turn the conference back over to Mr. Mike Henry for any closing remarks. Please go ahead.

Michael L. Henry: Thank you, Chet. Thank you all for joining us on our call today. We look forward to sharing our first quarter results with you in early June.

Okay.

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Operator: Have a good evening. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. THE END, BF-WATCH TV 2021, Copyright 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. Many thanks for watching, subscribe to my channel, good health, my dear subscribers bye www.globalonenessproject.org BF-WATCH TV 2021, Title: Microsoft Office Word Document MSWordDoc Document.8 BF-WATCH TV 2021, The Ultimate Parody Site!

Yeah.

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