What All Retailers Are Doing: A Short Note on Tilly’s July 30 Quarter

Tilly’s has the same issues all retailers are facing, and their response isn’t really different.  But at least they grew their sales and net income a bit.

Revenue in the quarter ended July 30 rose 4.9% to $136.4 million from $130.0 million in last year’s quarter that ended August 1, 2015.  They also managed to increase their gross profit margin from 28.1% to 28.5%.  Product margin fell by 0.3% due to higher markdowns.  The increase in gross margin was due to a 0.7% “Decrease in distribution, buying and occupancy costs as a percentage of net sales primarily due to a lease assignment and certain other favorable lease negotiations.”

It sounds like the gross margin would not have risen without the lease assignment.  It was a one-time occurrence and was worth about $300,000.    I would be interested to hear what the gross margin on just brick and mortar was.

And while SG & A expenses rose a bit to $36.6 million, they fell as a percentage of revenue from 27.3% to 26.8%.  Net income rose from $560,000 to $1.43 million.

Comparable store sales rose 0.9% compared to a 0.5% increase in last year’s quarter.  That includes ecommerce sales.  In fact, brick and mortar comparable store sales were “slightly” negative and ecommerce grew at a double digit rate.  That makes sense as average net sales in each brick and mortar store fell from $540,000 to $533,000 and average net sales per square foot was down a bit from $71 to $70.

At the end of the quarter Tilly’s was operating 225 stores, up from 216 at the end of last year’s quarter.  CEO Ed Thomas notes in the conference call, “Regarding real estate, for the time being we remain focused on improving the performance of our existing stores rather than opening a significant number of new stores. We believe that remaining cautious about new store growth is prudent in the current retail environment. We are carefully evaluating each store opportunity with the objective of improving company profitability.”

Here’s another comment he made:

“We continue to bring in new brands with limited distribution and work with our existing branded partners to emphasize uniqueness to Tilly’s, which we know our customers expect from us. We continue to evaluate micro merchandising and product allocation practices in certain underperforming stores with the goal of improving our operating performance in these locations.”

That sounds a lot like what other retailers are saying.  It particularly reminds me of the Zumiez’s results I just reviewed.

In fact, a lot of what Tilly’s said reminded me of what other retailers are saying, and that’s a pretty good stopping point.  Caution in store openings, negotiations with landlords for better deals, growth of ecommerce, searching for distinctive brands, and careful inventory management are things all retailers are dealing with as they watch retail consolidation work its way through the economy.