Tilly's: What To Do Now

Tillys (TLYS) is a leading specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls with an extensive assortment of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle.

We have seen a lot of volatility on this name is recent weeks. Currently it has slowed its growth, and now operates 220 total stores, including one RSQ pop-up store, across 32 states. There is room for more growth, but the company has done a strong job at managing the retail storm that has ensued in recent years. In this column, we discuss the most recent quarter and our outlook for the stock.

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Sales review

Total net sales were $164.3 million, an increase of 2.6% from $160.2 million last year, despite ending the quarter with four fewer stores than a year ago (219 total stores vs. 223 last year).

Comparable store sales, which includes e-commerce sales, were flat. Comparable store sales increased 0.1% in the fourth quarter last year.

Profit margin and expense items

Gross profit was $51.4 million, an increase of 4.8% from $49.1 million last year. Gross margin, or gross profit as a percentage of net sales, increased to 31.3% from 30.6% last year. This 70 basis point increase in gross margin was attributable to a 90 basis point reduction in occupancy costs, partially offset by a 20 basis point decrease in product margins.

Selling, general and administrative expenses were $40.0 million, or 24.3% of net sales, compared to $38.7 million, or 24.1% of net sales, last year. This 20 basis point increase was primarily attributable to increased store payroll as a result of minimum wage increases.

Operating income

Operating income was $11.4 million, or 7.0% of net sales, an increase of 10.0% from $10.4 million, or 6.5% of net sales, last year. This 50 basis point increase in our operating margin was attributable to improved occupancy costs, as explained above.

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