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Tilly's (TLYS) Earnings Beat, Sales Miss Estimates in Q3

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Shares of Tilly’s, Inc. (TLYS - Free Report) declined 11.5% in the after-market trading session on Nov 28, following its third-quarter fiscal 2018 results. Although the bottom line beat the Zacks Consensus Estimate for the third straight quarter, top line fell short of the consensus mark after surpassing the same in the preceding two quarters. Further, both the metrics decreased year over year. Moreover, the company’s fourth-quarter earnings projection came below the Zacks Consensus Estimate.

We note that this Zacks Rank #4 (Sell) stock has plunged 13.2% in the past three months compared with the industry’s decline of 0.1%.

Q3 Highlights

The company reported adjusted earnings of 24 cents per share in the quarter, which came a penny ahead of the Zacks Consensus Estimate but declined substantially from 31 cents in the year-ago quarter.

Sales came in at $146.8 million in the reported quarter, declining 3.9% year over year and missing the Zacks Consensus Estimate of $150 million. Comparable store net sales (comps), including e-commerce, rose 4.3%. The company has also recorded strongest comps since the first half of 2012. Moreover, e-commerce net sales increased 26.7% year over year, accounting for 14% of total sales in the quarter.

Gross margin came in at 31.2%, contracting 160 basis points (bps) year over year. Additionally, SG&A expenses increased 4.3% to $36.8 million. As a percentage of sales, Adjusted SG&A costs went up 25.1% year over year from 23.1%, due to the impact of calendar shift on net sales

Adjusted operating profit declined 39.4% year over year to $8.9 million, whereas adjusted operating margin expanded 358 bps to 6.1%.

Moving on, the company has opened four new stores in the quarter with two in New Hampshire, one in Houston and the other in Christiana Mall, Delaware. At the end of the quarter, Tilly’s has 227 total stores, up from 220 stores in the prior-year quarter.

Tilly's, Inc. Price, Consensus and EPS Surprise

Other Financial Updates

The company concluded the quarter with cash and cash equivalents of $24.8 million and shareholders’ equity of $184.6 million. Net cash from operating activities for nine months ending Nov 3, 2018 was $19.3 million.


Management issued a guidance for the fourth quarter of fiscal 2018. It anticipates sales to be in $163-$168 million, driven by expected comps growth of 2-5%. Adjusted earnings per share is expected to be 22-26 cents. The current Zacks Consensus Estimate for the quarter is 31 cents, which could witness a downward revision in the coming days.

The company projects operating income to be $8.5-$10 million. It also expects effective tax rate for the fourth quarter to be approximately 26%.

For fiscal 2019, management intends to open 15-20 new stores. Capital expenditures for the fiscal year is expected to be nearly $25 million.

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