Release Date: December 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tilly's Inc (TLYS, Financial) reported its first month of comparable net sales growth since February 2022 in fiscal August.
- E-commerce net sales increased by 4.9% for the comparable 13-week period, marking the best quarterly e-commerce comp sales result since the end of fiscal 2021.
- Store traffic increased for the second consecutive quarter, indicating positive effects from renewed marketing efforts and a new brand campaign.
- The company launched a new marketing sponsorship with the Los Angeles Chargers, focusing on community outreach and mental health awareness.
- Investments in business improvements, such as upgrading the website's search engine and relaunching the mobile app, are underway to enhance customer experience.
Negative Points
- Overall net sales decreased by 13.8% compared to the previous year, primarily due to the impact of the 53rd week in last year's retail calendar.
- Physical store net sales decreased by 16%, and comparable net sales for the 13-week period declined by 3.4%.
- Gross margin decreased to 25.9% from 29.3% last year, with buying, distribution, and occupancy costs deleveraging by 320 basis points.
- The company reported a pre-tax loss of $12.9 million, significantly higher than last year's pre-tax loss of $1.2 million.
- Net inventories increased by 11.8%, partly due to the decision to pull forward inventory receipts, which could pose a risk if sales do not improve.
Q & A Highlights
Q: Can you explain the factors affecting merchandise margins and how you plan to leverage fixed expenses?
A: Hezy Shaked, Executive Chairman and CEO, mentioned a recent change in the CMO position to address merchandise challenges. They aim to improve initial markups (IMU) and expect Q4 to show progress. However, markdowns due to lower sales impact gross margins. Michael Henry, CFO, added that leveraging fixed costs requires sales increases, as many costs are relatively fixed. They are actively seeking expense reductions and renegotiating contracts to improve financials.
Q: Could you clarify the inventory increase of 11.8% and its implications?
A: Michael Henry explained that the inventory increase was a conscious decision to smooth out receipt flows and improve operational efficiency. This was done to maintain consistent labor levels in distribution centers and ensure timely delivery for Black Friday. The increase is temporary, and inventory levels are expected to stabilize.
Q: How did the timing shift of Thanksgiving affect sales comparisons, and what trends are you seeing?
A: Michael Henry noted that the timing shift of Thanksgiving affected sales comparisons, with early November being tough. However, recent days showed positive store comps on a shifted basis. They are cautiously optimistic about better business trends, despite initial negative comps.
Q: What are the expectations for product margin improvements in Q4, and how do they compare to last year?
A: Michael Henry stated that product margins improved by over 400 basis points in fiscal November due to not repeating last year's store-wide promotion. They expect approximately 200 basis points improvement for Q4, considering potential markdowns and clearance activities. The goal is to improve gross margin dollars compared to last year's weak performance.
Q: What promotional strategies are planned for the holiday season, and how will they impact margins?
A: Michael Henry mentioned that Tilly's has targeted promotions planned for the holiday season, focusing on improving gross margin dollars. They aim to avoid deep discounts that eroded margins last year and have specific plans to enhance profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
