Earnings call transcript Q1 2023

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Operator

Good afternoon, and welcome to the Tilly's First Quarter 2023 Results Conference Call.

[Operator Instructions] I would now like to turn the conference over to Gar Jackson, Investor Relations. Please go ahead.

Gar Jackson

Good afternoon, and welcome to the Tilly's fiscal 2023 first quarter earnings call. Ed Thomas, President and CEO; and Michael Henry, CFO, will discuss the company's results and then host a Q&A session.

earnings the please company's Tilly's Relations the of of section website copy press visit release, Investor For at tillys.com.

section, also a be made same call, XX days. call the shortly this statements conclusion next the From will forward-looking of for you the will replay call able recorded find during Certain factors to of this Accordingly, from after the of actual results Tilly's should and current based undue judgment these XXXX, expectations and reliance business. June forward-looking analysis XX, affecting on not place statements. various only you differ materially Tilly's as on may reflect

For quarter on please after a discussion see prepared earnings furnished the to Today's release, risks that our that in the as hour statements, and regarding a X-K associated disclaimer SEC our will in limited one and well statements disclaimer. which forward-looking the is uncertainties with other more to our thorough Form the include is SEC forward-looking remarks. session first with today filings XXXX referenced any call be will included as Q&A of fiscal

now will the I to call Ed. turn over

Edmond Thomas

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

ranges. Our February terms within were quarter estimated results than our in first less were and negative of outlook sales results net comparable April in March.

of prolonged weather unseasonable in We economic environment and demographic and young combination uncertain believe for the adult, inflationary California. an customer our teen, family young,

in overall. a During February quarter and with March, weak along resulting issues assortment certain

Not in winter challenged than during our quarter. the categories our surprisingly, West, more considering were cold categories spring/summer the wet weather product particular, the product in first

and other comp our weakest stores California, to double-digit percentage sales with XX% last stores area single-digit our online. a with merchandising Footwear results. performed best comp sales was geographic both negative compared year, produced all in departments performing of total while negative

thus second April has earlier decreased less into sales transactions May net XX.X%. the April high although sales comparable the trend negative a our quarter, carried than total quarter. far, in store -- better the quarter percentage through by teens decreased during in The XX Total

categories first have than product positive year. by performed the spring/summer better which last compared girls, women's to did they during comp have led Our quarter, and

basis, all second remain was generally second On last assortment our aging departments and quarter spring/summer comped the negative. in while feel quarter, overall footwear and positive girls our the to other good far entering We thus more an about have compared year. merchandise current inventory

However, term. the the demographic other inflation of negative impacts in customer factors and a on near young concern macroeconomic our remain

joined time. on we over as experience at tremendous In her assortment Bay to been us positive new in see to previously our influence our apparent business, merchandise news, bring senior will having May We're Merchandising merchandise X, hired becomes and her who Laura positions our what Officer, Chief Hudson's excited on Nordstrom. particularly both

over time. with Vice new two a Allocation these at and hired give just to get of delivering sales also experience We Merchandise leaders opportunity new on help us meaningful who week. take business look back President a extensive started to last growth and fresh track do we how a Planning believe We us

long just we in invest We mobile customer-friendly short-term the with relaunched challenges, Despite business features. continue early for in to our app our several May term.

this features new over We couple the app quarters. of to adding next will continue

will distribution in better currently that and inventory progress We also us important system We across expect that Irvine. here it labor continue growth. future to management management completed be early to fiscal new facilities improve of XXXX upgrade make position this for will two efficiencies developing a and in in warehouse our

planned open XXXX. have for in quarter are in in due us. being third two to terms been openings four open to into store and to available seven late delays expected One opened In stores pushed open we store real -- now March -- during fiscal to spaces of estate, timing new to to have originally expected expected expect this made in the during fourth year of Three are the the XXXX quarter. store

complete are XXXX For our lease approximately existing decisions. with XX% fiscal stores, we

environment, reasonable costs conservatism with to Given continue manage approach as all we much these current as the renewals lease possible. to

fiscal At time, to economics now opportunities fiscal three second performance additional close quarter stores quarter which and to additional of to this during our turn XXXX expect provide sense. have Mike to store over We remain operating growth outlook. on I call XXXX, already closed. details the introduce we to where two open our first make Mike?

Michael Henry

Ed. Good afternoon, Thanks, everyone.

were XX.X%. results Net first as XX.X% net quarter to e-commerce follows: sales while physical compared of represented last year, sales net sales total compared year's sales total million, sales fiscal a first net XX.X% net $XXX.X to XX.X% stores to from Our of Total last quarter were year. last XX.X% XXXX of decrease compared represented

including and We ended of decreased net X.X% stores a sales, by XX.X% decrease from decrease stores, stores sales distribution of e-commerce. Gross occupancy to e-commerce, total to XXX last quarter first including net XX.X% last expenses, of Total was the net XX.X% compared XX.X% margin, comparable with sales and an compared from with increase buying, seven a physical year. year. net

predominantly points, Product occupancy occupancy a basis result a net by higher distribution seven to margins and level due operating of XXX inventory levels. utilized Buying, primarily stores. declined increased additional XXX and basis by by costs to deleveraged manage $X.X actively of markdowns points from costs million as

$XX.X new CMO. inflation, or associated hiring Primary or were sales of with compared million of a of the SG&A corporate in Total year. last payroll result expenses sales increases SG&A million wage expenses our $XX.X were Software-as-a-Service recruiting attributable to of net XX.X% and net XX.X% as expenses to

operating reduction and hourly partially to from payroll $X.X compared an teams by benefits These job despite our net related increases hours payroll managing average seven resulting additional in wage store an rate year. and were store offset stores million absorbing a admirable X% store last by increase of

to year X.X% to our $X.X income primarily compared just as noted. result to earnings or factors million breakeven net XX% due Other income a compared to of rates compared combined significantly sales of of the last was return last $XX.X higher operating marketable on of million loss was last securities $X.X year. Operating sales net million or year, of

Income XX.X% or or $X.X XX.X% $X.X million compared $XX.X diluted pretax share shares last average per million share compared were income of of to $XX.X $X.XX was year. benefit million income expense or $X.XX year loss year. pretax of was last this million or last income Weighted to million to tax net million year. tax loss $XX per compared of $X.X Net

per no $XX foot, sheet. first year. debt quarter million X.X% first cost Turning outstanding the total We total marketable million per cash to $XXX square no debt foot last year. compared We with total quarter to in and balance down ended up with compared square and last and ended at but units securities our of to inventories X.X% the

$X.X for expect $X.X last to expenditures be capital $XX new were million we year the first approximately our expenditures for year. seven for total million. million expected the store compared Total openings currently capital now to XXXX, quarter With fiscal

XX% quarter Based Turning XX.X% total to trends, XX that of quarter currently decreased historical our net through last net fiscal million the the range range compared outlook translating for of our to be sales of comparable of the in approximately by XX% Total year. million to fiscal second $XXX we estimate for second to current the year. $XXX of comparable will and on decline to sales quarter fiscal net last sales the approximately XXXX for in compared second store XXXX to May XXXX. a

rate end in of At $XX of to total to have million. the XX.X report of XXX an the million. SG&A these of sales at the of range to the to $XX the year's million tax estimated currently XX.X% range outstanding expect our second per second shares $X.XX quarter expect would share expect $X.XX, to loss income to stores at end of in be and total levels, quarter. we last XXX We with a We compared

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

Operator

[Operator first is from instructions] Koranda with Matt Our Capital. ROTH question

Matt Koranda

Ed, just the Can have the challenges Just kind weakness. general assortment may just caused some weather aside that and of you issues a that? start. to you on quick macro the from some mentioned elaborate inside quarter one

Edmond Thomas

Sure. I as always issues. weather. see no due primarily performing did the because -- was not challenge no category And category major and would like or of But of they categories There's -- normally as well nothing most assortment seasonal major major think swim to some. we any shorts

Matt Koranda

second like Okay. And a quarter guide, sort low what's the hold that of on quarter it. elaborate the guide? the through revenue bit comp in embedded versus steady end how second just sort you looks kind low of assumes low end, Got May just probably the Maybe of of the the the just then can could high end for the the It quarter. maybe just us. unpack of end high on think about to end that of terms on revenue you rest

Michael Henry

Sure, Matt.

end, on based really the So last of year. on is the average XXXX years, the several excluding pandemic low the

Looking to six QX percentage that end. to as usually than you May of over average that looking history around period is last build, would at of right to five XX%. the QX. of years five- QX, QX to The get at It's a average the always is larger slightly QX low high XX%, six-year end

as sitting end we of cumulative and the as the of in years, you Again, high would percentage that looking May at last speak. those range, get QX, two of between a six we're numbers five, average to the

So over like performed was environments based that on how history across documented years. felt our I the range reasonable business very a has of

So either how that's to end. you get

Matt Koranda

be could in And terms you're kind could sort trends you. May some then from you Got you're the just in maybe would what there, of versus of talk comp seeing of latest of that that the the just if And you traffic about unpack seeing helpful. ticket?

Michael Henry

Sure.

speaks overall almost has type XX.X% QX, It's was consistent. which, transactions, in and they've down and Transactions issue. were an QX down traffic in it of XX% XX% down XX% been So to in traffic in to down really me, been May. was May. all Overall, environmental

So consistent there.

less May, it X%. plus X.X%. was In really sale up moved than that QX, it actually in was than average minus down less It's much. back X%. Our been hasn't or And

double-digit X% and people the to Everything It down moved the a that are buying X.X% in Conversion was movement. in is traffic else has buying and just what May. down So consistent. terms that few be consistent transaction is QX call I'd in seem is average value. amount points. transactions really percentage fairly of It a are

Matt Koranda

you dealing number And trends there enough. bit wanted a overall to the product forward, about going just should just about Fair step think I down. then a talk that we're that take of we did on with. margin. the environment maybe promotional Okay. given Could how that just see

Michael Henry

Yes.

a what we to let healthy position headed. We might is at business where look we what move with make sales when much in always, need keep the sure forward. inventoried contemplate we too over the we tell not seasonal us get and As we risk inventory ourselves trends think as

Each first the very quarter February March. March plus. was XX% So during down struggle obviously of were and February clearly a and

And XX.X%. then is April was consistent down that. with also May

X-week if for newness that So below certain an been we'll keep to we a getting keep delivered. little is trend that contemplated we going here XX% And take have our actions have inventory that taking bit comp. to need continue, rate allow negative to has to fresh,

you the the the in get the be July. start end late quarter, As as will know, season of we back-to-school towards mid- earliest to starting, markets second some of

come be back to off to have the half in ample we about need cut that think and the moving into of to So that, to as allow for for forward that make year. we newness we'll not and need room sure newness we ramping up

what our have into contemplated for fresh, to we the thinking quarter. we'll do keep and inventory need So we that do to second

Matt Koranda

it. Got

jump have? lease were you the mentioned coming through, You year, are you of of you for me remainder I'll quarters? costs one occupancy then pressure kind more from occupancy of XX% How like of the the are costs maybe for just thoughts I just queue. approaching guys about negotiations rest on think. sort maybe we back the Okay, any thinking and the But in the how that over

Michael Henry

store total is going the be because count are dollars up up Yes, to year-over-year. year-over-year

net absent additional The some an each generally that dollars. seven speaking, had occupancy on the perspective, it's is of way cost pure lined life over rent from we are the deals. accounting straight stores stores specific So store percent that treated lease,

move from the much quarter-to-quarter. around don't dollars So that

how of matter comps of relatively that relative year-over-year then a stores a dollars. stable base it's your adds and then adding occupancy are And to performing

up occupancy be we've to We've So the bit. been what will reasonably dollars to been continue with a able negotiations. in achieve terms little satisfied of

we to As pretty always, from given on now use expect this take partners, at And to for with to forward. sales our need again agreement we we many stores any store. And afraid again to a able reasonable we darn can't, if move reach be. you've where if look pretty landlord heard us We derive to. have what that we're hard basis close a if years we're assumptions we and over not go-forward we

Edmond Thomas

to we're for not think on of I add going huge what pretty And we've we're the doing that the new a direction pretty satisfied said, to with even though think amount been good. have just overall, But renewals. I our economics stores, Mike new stores, with been

Operator

The Sinderen with is Van Riley. next question from Jeff B.

Jeff Van Sinderen

on here. California. pretty been it's weather the boy, I want horrible Oh, to in harp

weather geographies where wondering, you it's you other Just did was a as in been or have trend big maybe not as better unseasonable see a

Michael Henry

total. were All was was double California though. worst. the in over XX% digits, areas down California down

areas was some there and range. was digits, were and there double like not mix. it's down positive, was Everything a a So

have the best XX%, versus which might been of down XX% was down over only ones Some XX%. California,

weather same thing. broad-based kind that slowing of They're are number with coupled of companies getting And there. from out me a seeing decline, down. generally So things the the says heard we've they're that tougher to

the called In still have seasonal California some our May, a in categories early speak were of at than remarks, categories. other than little trend, does we issues So negative the of but weather gotten performance, that winter/fall than QX a more couple better spring/summer negative which the they're out. areas when things the you quarter. in the worst, mentioned was And prepared as to we the look

tough. still it's So

Jeff Van Sinderen

what And new needs just to we you if impact It and your maybe like her? on to there? with will hire. on Laura. allocation wanted then leader When actually improve from then see a seems a you I question under meaningful terrific planning And could think also touch

Edmond Thomas

Yes.

we'll wherever she she to I -- speak. to some going can start started, obviously, she's or back-to-school be like feel But working major since just think assortment, can -- able that in any we on real affect see tweak merchandise the I to you not mean ways. she's as

you'll that for to through bigger into holiday and start we fall sure. a think I move see impact as a

as share So already, allocation. more something future which we'll she's for share I'm picked she's on us, sure, We'll planning the on and opportunities -- calls really more in merchandise up for position.

stuff. have person in really years, that with was We the the in is more brought just multiple for But basically in that companies the -- that brought types position experienced, previously company somebody that person XX been who we solid apparel. employing of are mostly

see we've for I some to methodologies positive really There change improvements doing years. past. of And some some been place the we've what in in many the to had needs from be

Laura, positive major see for of So company. and he the think, I the combination I -- be a will

Jeff Van Sinderen

ways I a Okay. little are Great. just to And I touch SG&A. guys then on looking bit know always for wanted reduce you expenses. to

we uncovering you're there situation for a just where be sales wondering to to it need where flex is that a you Or really maybe of bit. upward? patient turn little anything Just can kind

needs what do any I experiencing. you to how think to it Is need content more, happen more newness Is about know, drivers? don't around? merchandise for it you Or thoughts tough alone But we've macro really on you think obviously, what got and more not at largely turn -- then mean, you're sales there that? macro? you're think I do a or And out just what we

Edmond Thomas

than not you've other else. And happy think -- I'm there's I anything more reported challenges may our always assortment, but overall, as I the I'm results, definitely think seen alone. it's think macro actually with from pretty I sure we're Well, I go.

Michael Henry

a company. question, virtually every ship on expense pretty We we've this tight here. Yes, SG&A in see Right. run your

frivolous the and that have don't out programs business impact. of have you just we arbitrary can not So an multimillion-dollar

generate we about in store As store in phenomenal to the raw first remarks noted our our dollar job did a save payroll. QX, team quarter

stores. outstanding When continues. having seven you still minimum year. an rate have is increase wage and X% average an result, average was but pressure think year-over-year, inflation The wage about wage additional than higher we last that hourly hourly and X% impacts from That

management. be as teams on of on roughly be SG&A work in any group as store our so possible we're very tight quarter. store is doing ops and hours to to as tight with it closely our our we can. Store XX% can we everything given And payroll We total as

nugget the that that's move can the So dial.

There's not room, other to a lot of wiggle be honest.

thousand hundred bits fingers. few hundred So not it's pieces there. and But several SG&A thousand we couple our just It's of the here there, and realistic. in million by just a couple a like of but think dollars snapping quarter, moved that not can in things out realistic to just of first here,

Jeff Van Sinderen

I would you there's if the anything in be ask I Fair Okay. offline. rest else pick just might We'll enough. thought new uncovering.

Operator

next from The question is Research. with Seaport Kummetz Mitch

Mitch Kummetz

the inventory Given How And you some weather is pent-up there's do around shorts and seasonal difficult? demand that or business, the too any feeling the have? turning is you has are macro or of swim. as the for mentioned the opportunity softness about turned you think just you

Edmond Thomas

feel I pretty content about itself. good the

the many that we've -- years there's consistently, that changes sold think styles that for I no to things those. major we've

in we to will also think shorts but for demand I extremely will and sure. plan price some be I there And pent-up It maybe extremely for swim. expect categories we're be sandals. it certain be it. expecting like that, promotional competitive, But

Mitch Kummetz

tail I think, from Okay. QX, some know And of see back-to-school are that? negative back double-digit you're planning end a that school, how lapping, then you to I at to year. you the for start last

end don't kind of. up the with to you've what much seen don't been where of through lately the inventory adjust back-to-school you've what kind know getting your given just excess in plans, you extent too able season, And I to to macro stuck

your been buys? the to are buys? what have business? So you do? you adjusted If to need adjust again, able mean of feel you I you how that's kind And your planning like you have

Edmond Thomas

every We've adjusted -- hour almost we've reforecast our here. business

adjusting and going on plans road. order think to are buying we constantly accordingly we are So our is happen down from what the

much what did when we haven't was we the we back-to-school happen changed So drastically plans, plans. thought we to going pretty yearly

But be consistently great are which been which backpacks back-to-school, positioned in be for pretty that seasonal and like we've than in for shape for a we're adjustment -- be apparel, very and made well strong usually in great we'll us shoes, adjustments And that. some to for inventory-wise. I better is going shape think has categories we'll

those based what's now. on We right adjust haven't of any numbers to happening had

Michael Henry

Yes. just best think about as but there And is. Mitch, is known are -- known back-to-school this is opinion, having I absolute Tilly's collections backpacks of we own one the of my season, -- backpack as destination the the

next I back-to-school year. need-based think kids a probably they into much school. as is type the The school. need the There's period. since some a go grown back more They've updating going year's of last to of are wardrobe for

of challenges need-based at but cautiously foreseeable that I'm be that it hopeful right optimistic means might that we trend despite future, that could however environment, that least the period, from what the face seems the more now. back-to-school continue season long I'm facing than like challenges the seeing maybe to lasts, that is a a see these for we're we will we better

years to see that's future. about how back-to-school for rate hopefully certainty. some But the difficult exceptionally I soon. potential in run But to the is season try It a heading is better three I and to into the think predict anything running coming predictable with predict now. honestly, opportunity business can't still Nothing having

Operator

any our remarks. concludes Thomas closing conference over the like turn session. back to Ed I for This to question-and-answer would

Edmond Thomas

Have look today. results Thank joining to quarter early a second the in us sharing you with on you good evening. call our all for We September. forward

Operator

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

You may now disconnect

Tilly's (TLYS) 1 Jun 232023 Q1 Earnings call transcript