Tilly’s, Inc. Form 10-K Summary
Reporting period: The supplied filing is the fiscal 2020 Annual Report for the year ended January 30, 2021, not a 2019 Q4 filing. Fiscal 2020 comprised 52 weeks and is compared primarily with fiscal 2019, ended February 1, 2020.
Business Context
Tilly’s is a specialty retailer of casual apparel, footwear, accessories and hardgoods for young men, young women, boys and girls. It operated 238 stores in 33 states and an e-commerce platform as of January 30, 2021. The company reports one operating segment. The COVID-19 pandemic materially affected store operations, consumer behavior, supply chains, staffing, inventory management and liquidity during the year.
Financial Performance and Position
| Metric | Fiscal 2020 | Fiscal 2019 | Change |
|---|---|---|---|
| Net sales | $531.3 million | $619.3 million | Down 14.2% |
| Gross profit | $142.2 million | $186.7 million | Down 23.8% |
| Gross margin | 26.8% | 30.1% | Down 330 basis points |
| SG&A | $145.2 million | $158.3 million | Down $13.0 million |
| Operating income | $(3.0) million | $28.5 million | Declined $31.5 million |
| Net income | $(1.1) million | $22.6 million | Declined $23.8 million |
| Diluted EPS | $(0.04) | $0.76 | Declined $0.80 |
| Cash flow from operations | $38.9 million | $36.4 million | Increased $2.5 million |
| Capital expenditures | $8.5 million | $14.3 million | Down $5.8 million |
E-commerce revenue increased 76.2% to $173.4 million and represented 32.6% of total sales, versus 15.9% in fiscal 2019. Physical-store sales were $357.9 million, compared with $520.8 million. Comparable sales increased 3.7% under the company’s pandemic-adjusted definition, which includes e-commerce and excludes periods of store closures; comparable physical-store sales declined 13.5% excluding closure periods.
Cash and cash equivalents were $76.2 million and marketable securities were $65.0 million at year-end, for combined cash and marketable securities of $141.1 million. Working capital was $78.6 million. The company had no borrowings outstanding under its credit facility and reported $35.4 million of borrowing availability at year-end, subject to borrowing-base limitations. Total liabilities were $344.9 million, including $265.8 million of operating lease liabilities.
Material Changes Versus the Prior Comparable Period
- All stores closed beginning March 18, 2020, with closures generally lasting at least two months. Reopened stores operated with reduced hours and customer-traffic restrictions.
- Net sales fell $88.0 million, primarily because of pandemic-related store closures and restrictions.
- Gross margin contracted as distribution and occupancy costs deleveraged against lower sales. E-commerce shipping costs increased by $8.5 million.
- SG&A declined because of lower store payroll, benefits and print advertising, partly offset by $11.5 million of higher e-commerce marketing and fulfillment costs.
- The company recorded approximately $1.0 million of non-cash store asset impairment charges, compared with $0.3 million in fiscal 2019.
- Cash flow from operations increased despite the net loss, primarily because of vendor-payment timing and higher accrued expenses and compensation liabilities.
- The company opened two stores and closed four, reducing the store base from 240 to 238.
- The company did not pay a special cash dividend in February 2021. The new credit facility restricts dividends and share repurchases until November 9, 2021, subject to later conditions.
Guidance, Outlook, Risks and Unusual Items
Management did not provide a conventional numerical full-year sales or earnings forecast. It expected fiscal 2021 first- and second-quarter sales and EPS to improve substantially year over year if stores and e-commerce remained operational, but emphasized that the pandemic made results difficult to predict. Management planned to open seven stores in fiscal 2021 that had originally been planned for fiscal 2020 and expected to evaluate approximately 34 lease decisions.
- Primary risks include renewed store closures, reduced traffic or operating hours, changing consumer spending, supply-chain delays, labor shortages, inventory markdowns and continued pressure on e-commerce fulfillment costs.
- The company withheld approximately $2.2 million of contractual store lease payments during closure periods and was negotiating concessions. Approximately 95% of stores had lease concessions agreed or agreed in principle; an aggregate $1.4 million of withheld payments had not been settled with landlords as of the filing date.
- The company entered into a $65.0 million asset-backed revolving credit facility on November 9, 2020, maturing November 9, 2023. Availability fluctuates with eligible inventory and receivables, and the facility contains financial and operating covenants.
- Long-term lease commitments totaled $319.7 million of minimum payments, with a present value of $265.8 million, excluding certain variable amounts.
- Two California wage-and-hour matters remained pending. Management stated that losses were not probable or estimable and recorded no accrual.
- The founders control a majority of voting power through Class B shares carrying ten votes per share, limiting the influence of Class A stockholders.
- BDO USA, LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Critical audit matters involved store-asset impairment cash-flow projections and incremental borrowing rates for leases.
Investor Verification Checklist
- Verify the reporting-period mismatch: the supplied filing is fiscal 2020, ended January 30, 2021, rather than 2019 Q4.
- Assess whether e-commerce growth can persist as store sales normalize and pandemic-related comparisons become less favorable.
- Review store-level sales, occupancy costs, lease concessions, renewal decisions and potential impairment exposure.
- Confirm borrowing-base availability and covenant compliance under the $65.0 million revolving facility.
- Monitor cash generation after lease payments, inventory purchases, capital expenditures and any future dividends or repurchases.
- Evaluate unresolved wage-and-hour litigation and the $1.4 million of unsettled withheld lease payments.
- Consider the effect of founder voting control and the absence of a current dividend commitment.