California-based Tilly’s reported a net sales loss of more than 40 percent in Q1 after closing its entire store fleet in March.
In a Nutshell: All of the specialty retailer’s 239 stores were out of commission during the Easter holiday and spring breaks, one of the retailer’s peak periods, said Tilly’s, which sells casual apparel, accessories and footwear for young men and women.
As of June 2, the company has reopened 160 stores and is working to reduce occupancy costs, which were deleveraged by 1,250 basis points in the first quarter.
Tilly’s paid June rent for stores that were permitted to reopen in the quarter.
“We intend to continue to work with our landlords to attempt to find acceptable solutions to address the impacts of the pandemic on our respective businesses,” the company said. “We view these solutions as critical to our long-term well-being of the business as they have a direct impact upon the preservation of our liquidity in this uncertain environment, which in turn impacts our landlords.”
Tilly’s said store traffic in reopened locations through June 1 is 34 percent lower than the year-ago period while comparable store sales ticked up 1.2 percent, indicating that customers willing to brave the new in-store experience are motivated to buy versus browse.
First-quarter merchandise inventory per square foot was up 10.8 percent over the comparable period and Tilly’s canceled a “substantial majority” of its planned inventory receipts starting in April and through June. The company said it also significantly limited its future inventory commitments, reducing June inventories by 10.5 percent as a result.
“The only exceptions to this were for items that we considered to be essential to maintain our e-commerce business and key programs for the potential back-to-school season,” Tilly’s president and CEO Edmond Thomas said. “We have from time-to-time been able to access certain stores to ship small portions of product back to our distribution centers and serve certain e-commerce orders to help supplement our e-commerce business.”
Sales: Tilly’s first-quarter net sales totaled $77.3 million, down by 40.7 percent, or $53 million, year over year versus $130.3 million in the comparable period.
Net sales for physical stores fell 57.5 percent to $47 million while e-commerce sales improved by 54.2 percent to $19.7 million in the first quarter.
So far in the second quarter, in-store sales are 77.1 percent lower versus the comparable period while e-commerce sales are up 236.8 percent, indicating the Gen Z and millennial affinity for seamless digital shopping.
Product margins fell by 770 basis points in the quarter as a percentage of net sales due to increased markdowns and an estimated inventory valuation of $4.7 million.
“We have been very pleased with the results so far,” Thomas said.
Tilly’s declined to provide an outlook for the next quarter, stating it cannot predict “with any certainty” how consumers will respond to reopening.
Earnings: Tilly’s reported a net loss of $17.4 million, or a loss of 59 cents per share, below the 35-cent loss Wall Street expected.
Gross profit fell to $1.6 million in the quarter, or 2.1 percent of net sales, and Tilly’s reported an operating loss of $28.4 million, 36.7 percent of net sales, compared to operating income of $0.1 million in the comparable period.
CEO’s Take: “So much remains unpredictable at this time, but we are thankful that we have recently been able to bring some of our people back to work with the reopening of 160 of our stores thus far,” Thomas said. “We remain committed to the health and safety of our employees, customers and communities as we resume operating our stores.”