NYSE:TLYS Tilly's Q1 2025 Earnings Report $1.61 -0.09 (-5.29%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$1.58 -0.03 (-1.55%) As of 04/25/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Tilly's EPS ResultsActual EPS-$0.48Consensus EPS -$0.46Beat/MissMissed by -$0.02One Year Ago EPSN/ATilly's Revenue ResultsActual Revenue$115.86 millionExpected Revenue$115.57 millionBeat/MissBeat by +$290.00 thousandYoY Revenue GrowthN/ATilly's Announcement DetailsQuarterQ1 2025Date6/6/2024TimeN/AConference Call DateThursday, June 6, 2024Conference Call Time4:30PM ETUpcoming EarningsTilly's' Q1 2026 earnings is scheduled for Thursday, June 5, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Tilly's Q1 2025 Earnings Call TranscriptProvided by QuartrJune 6, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:02Good day, and welcome to the Tilly's, Inc. First Quarter 20 24 Earnings Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Mr. Operator00:00:34Gar Jackson, IR. Please go ahead. Speaker 100:00:38Good afternoon, and welcome to the Tilly's fiscal 2024 First Quarter Earnings Call. Michael Henry, Executive Vice President and Chief Financial Officer, will discuss the company's business and operating results. Then he and Hezi Shekead, Executive Chairman and Interim President and Chief Executive Officer, will host a Q and A session. For a copy of Tilly's earnings press release, please visit the Investor Relations section of the company's website at tilice.com. From the same section shortly after the conclusion of the call, you will also be able to find a re recorded replay of this call for the next 30 days. Speaker 100:01:10Certain forward looking statements will be made during this call that reflect Tilly's judgment and analysis only as of today, June 6, 2024, and actual results may differ materially from current expectations based on various factors affecting Tilly's business. Accordingly, you should not place undue reliance on these forward looking statements. For a more thorough discussion of the risks and uncertainties associated with any forward looking statements, please see the disclaimer regarding forward looking statements that is included in our fiscal 2024 Q1 earnings release, which is furnished to the SEC today on Form 8 ks, as well as our other filings with the SEC referenced in that disclaimer. This call may also contain certain references to certain non GAAP measures. Reconciliations of those measures to their most directly comparable corresponding GAAP measure can be found in our earnings press release on our website. Speaker 100:02:00Today's call will be limited to 1 hour and will include a Q and A session after our prepared remarks. I will now turn the call over to Mike. Speaker 200:02:09Thanks, Garth. Good afternoon, everyone, and thank you for joining us today. Our first quarter net sales and pre tax operating results were both within our estimated outlook ranges provided during our March earnings call. After a tough start to the Q1, our comp sales results remain negative each month, but improved on a relative basis in both March April, with March being the stronger of the 2 benefiting from the earlier Easter this year. Like certain others in our competitive space, we continue to face headwinds from macro consumer environment, yet we are able to generate 130 basis points of product margin improvement relative to last year's Q1 despite our decline in net sales. Speaker 200:02:48As we discussed during our last earnings call, we've been challenging every aspect of our business as we work toward improving our operating results. For example, we continue to evaluate internal initial pricing decisions to better align ourselves with our competition in certain product categories. We have reconsidered certain of our promotional pricing and mark down practices to drive improved average unit retail values. We believe that we are beginning to see the impact of these efforts based on the improvement in our first quarter product margins compared to last year's Q1. However, while we believe our efforts have the right focus to lead us toward making more meaningful improvements over the longer term, in light of the current environment, we caution that there can be no guarantee that we can continue to produce this kind of improvement in the short term. Speaker 200:03:34From a marketing perspective, we've been testing new ideas to focus on creating greater connectivity with our existing customer base and to attract new customers. We believe these new efforts give us a chance to build greater customer following and generate a positive business impact over time. We believe that it may take 6 to 9 months before we were able to truly see and understand how these new efforts are impacting our business, but we believe they are the right efforts to help us improve over the longer term. Despite short term challenges, we continue to invest in our business for the longer term. We implemented a new merchandise planning and allocation tool in early April, followed by the implementation of our new warehouse management software for our stores distribution center in early May. Speaker 200:04:18We experienced some complications in the immediate aftermath of these implementations that slowed product replenishment to stores during May, but we believe we are now starting to get back towards a normal level of distribution productivity for our stores. We plan to complete the implementation of the same warehouse management software in our e com distribution center this month. Additionally, we plan to implement new markdown optimization software and improve search engine optimization capabilities ahead of the holiday season. We believe these new tools are important to help generate greater operational efficiencies and improve our business over time. Over the short term, we continue to believe it will be challenging for us to improve our sales results amid the reported weakening consumer environment. Speaker 200:04:59It will likely take time for this cycle to pass before we see a bounce back in consumer activity among our core customer demographic. In the meantime, we continue to make every effort to seek improvements in our business and make changes that we believe can lead to better results. Focus remains steadfast on improving our business for the long term. Now turning to our operating results for the Q1 of fiscal 2024 compared to last year's Q1. Results were as follows. Speaker 200:05:26Total net sales were $115,900,000 a decrease of 6.3%. Total comparable net sales including e commerce decreased by 9.4% with an 8.6% decrease from physical stores and a 10.8% decrease from e commerce relative to the comparable 13 week period last year. Net sales from physical stores represented 80.1 percent of total net sales compared to 79.1% last year, while e commerce net sales represented 19.9 percent of total net sales compared to 20.9% last year. We ended the Q1 with 246 total stores, a net decrease of 2 stores compared to last year. Gross margin including buying, distribution and occupancy expenses was flat to last year at 21% of net sales. Speaker 200:06:16Product margins improved by 130 basis points compared to last year, primarily due to the combination of a lower total markdown rate and improved initial markups. This improvement was offset by deleverage of buying distribution and occupancy costs despite these costs being $800,000 below last year in the aggregate due to carrying these costs against lower total net sales. Total SG and A expenses were $45,100,000 an increase $1,900,000 primarily due to increased non cash store asset impairment charges of $1,500,000 and increased store payroll and related benefits costs of $1,000,000 Our average hourly rate for store payroll rose 5% over last year and was 31% higher than in pre pandemic 2019. A variety of smaller expense reductions partially offset these 2 primary expense increases. SG and A deleveraged by 400 basis points as a result of carrying these costs against lower total net sales. Speaker 200:07:16Pretax loss was $19,600,000 or 16.9 percent of net sales compared to $16,200,000 or 13.1 percent of net sales last year as a result of the combined factors just noted. Income tax benefit was negligible at $13,000 essentially a zero tax rate due to the continuing impact of a full non cash deferred tax asset valuation allowance. This compares to income benefit of $4,200,000 or 26.1 percent of pre tax loss last year. On a non GAAP basis, in the absence of the valuation allowance, our income tax benefit would otherwise have been approximately $5,200,000 Net loss was $19,600,000 or $0.65 per share compared to $12,000,000 or $0.40 per share last year. On a non GAAP basis, assuming a normalized effective income tax rate of 26 0.3% in the absence of a valuation allowance, net loss would have been $14,500,000 or $0.48 per share, the exact middle of our original outlook range for the Q1. Speaker 200:08:20Turning to our balance sheet. We ended the 1st quarter with total cash and marketable securities of $68,000,000 and no debt outstanding under our $65,000,000 asset backed credit facility compared to $93,000,000 and no debt at the end of the Q1 last year. Total inventories were up 1.8% at the end of the Q1 this year compared to the end of the Q1 last year. We entered this week with total inventories down 3% versus the comparable week last year. Turning to our outlook for the Q2 of fiscal 2024, total comparable net sales for fiscal May ended June 1, 2024 decreased by 8.4% relative to the comparable 4 week period last year. Speaker 200:09:01Based on current and historical trends, we currently estimate that our total net sales for the Q2 of fiscal 2024 will be in the range of approximately $160,000,000 to $165,000,000 translating to a comparable net sales decline in the range of approximately 10% to 7%, respectively, for the comparable 13 week period last year. We expect our SG and A to be in the range of approximately $48,000,000 to $49,000,000 in the absence of any non cash store asset impairment charges and our effective income tax rate to be near 0 due to the continuing impact of a full non cash valuation allowance on our deferred tax assets. We estimate our after tax results to be in the range of a net loss of approximately $3,900,000 to $900,000 respectively, and per share results to be in the range of a net loss of $0.13 to $0.03 respectively. We currently expect to have 2 47 total stores at the end of the 2nd quarter compared to 246 at the end of last year's Q2. One additional note, while we are not providing any specific outlook for the Q3 today, it should be noted, as I mentioned during our last earnings call, that due to the impact of the 53rd week in fiscal 2023, there will be a meaningful shift in net sales into the Q2 from the Q3 when comparing to last year. Speaker 200:10:19Using last year's weekly net sales results, what was a $26,200,000 back to school net sales week for the 1st week of last year's Q3 will now become the comparable week for the final week of this year's Q2. The 1st week of last year's Q4, which was a $7,800,000 net sales week becomes the final comparable week of the Q3 this year, creating a $18,400,000 net sales decline for the Q3 this year relative to last year's Q3 before consideration of any comp sales assumption. Operator, we'll now go to our Q and A session. Operator00:10:57Thank The first question comes from Marni Shapiro with The Retail Tracker. Please go ahead. Speaker 300:11:32Hey, guys. Thanks for taking my question. I'm curious, I know sales are going to be challenged and you had some issues with the distribution centers in this quarter. But if somebody spent a lot of time in your stores, there are definitely some noticeable changes in the front of the store, particularly on the junior side. And I'm curious if you are seeing any green shoots at this point? Speaker 300:11:53And how because what I'm seeing is selling quickly, it's very on trend, it is a small part of the inventory. But I'm curious if you were able to impact a more significant percentage of the inventory for the back half of the year and what this can look like? I'm not getting ahead of myself, but just trying to see where this is going. Speaker 400:12:15It's fine. Short of telling you exactly what's going on, I'll try to address that. So what you're seeing is part of the initiatives that we started back in the beginning of February. It's going to get more and more meaningful obviously as some of the decisions are already filtered in. I can tell you that we see positive signs, but we cannot expand too much on it because we don't want to get ahead of ourselves. Speaker 400:12:45Overall, you'll see more and more of the right trend in our inventory. Speaker 300:12:53Thank you. I mean, it feels great. And can we just also talk about as things begin to improve, because you guys have a long history, your customer, when they're in the fold, they're very loyal to you. How are you thinking about sort of bringing in lapsed shoppers or more importantly, bringing in younger shoppers? Have you will you start to drive marketing as things improve, kind of hold back until you can drive traffic into something that you feel really proud of? Speaker 300:13:22Is that how we should think about marketing? Speaker 400:13:25No, not at all. We started our new campaign the way we believe we should be presenting ourselves a couple of months ago. As we go, it's going to be more and more meaningful and more and more things will be seen in the public. We are still at the exploration stage of exactly what is the age of our customer, what the age of the customer we want to have is remember, we started all this process February Speaker 200:13:59and Speaker 400:13:59we're in June now. So we're getting toward the end of figuring out what we need to do and we start implementing a lot of it. But you'll see the results 3rd Q4. Speaker 300:14:12Fantastic. I'm telling you the front of your stores already looks so much better. The merchandise is turning so fast. I wish I could just bring it in myself. It looks great. Speaker 300:14:21So best of luck, guys. Speaker 400:14:22You actually I don't know how you know that, but you're absolutely spot on. We increased several categories and we're chasing it constantly. Speaker 300:14:32Yes. It looks fantastic. Speaker 400:14:35Thank you. Speaker 300:14:36Thank you. Speaker 200:14:37Thanks, Marty. Operator00:14:41The next question comes from Jeff Van Sinderen with B. Riley FBR. Please go ahead. Speaker 500:14:49Hi, everyone. So I guess my first question just to follow-up on the line of thinking on merchandise and performance there. I don't know if you gave the relative or spoke to the relative performance of the guys' side of the business versus the girls' side of the business, men's and women's. Any color you can add there? Just wondering kind of relative performance between the 2 genders. Speaker 400:15:15Yes. I can give you a little bit. So one of the questions that we faced, right, is what is the balance between men and women, male and female? What it is today? What it is we want to have? Speaker 400:15:31I think we're in the right spot right now. So the balance we have today, which I'm not going to quote exactly how much it is, is where we're going to go forward for the remainder of the year. There's always a discussion internally, do you lead with men, do you lead with ladies? Obviously, there's many different opinions. I believe that we lead with men's and my line is always the same, get guys don't shop in girls store, but girls will shop in guys store. Speaker 400:16:05Now granted in the last 5 years, it's changing a little bit, but this is where our head is. Speaker 600:16:15Okay. Speaker 500:16:17And then any update you can give us on the plans for the CEO surge, where that stands and then any changes to the merchant team? Speaker 400:16:28No changes of plan in either positions. Okay. Speaker 500:16:34And just one more, if I could squeeze it in. Just wondering where you stand on lease negotiations for 2024 and how many stores you might end up closing this year? Speaker 400:16:49I don't think we have an update that we can give you right now. As you know, we're both renegotiating leases and hoping to shut down any losing locations. We don't have a lot of them, but we still have some. There is no update on that yet. Speaker 200:17:10Okay. Yes, Jeff, it's hard to pin down to a specific number when we have so much still in play to negotiate. But what I can tell you at the moment is we have 2 remaining new stores to open, 1 in July, 1 in mid November, and then we have 4 to 5 known store closures at this point that will happen towards the end of the year. But those numbers can change obviously as a result of we have dozens and dozens of of leases left to deal with for this year. So that's the best we can tell you at this moment. Speaker 500:17:44Okay. And I'm sorry, the total that you still have to deal with is roughly what? Speaker 200:17:50I don't have a specific number in front of me. Speaker 500:17:54Okay. All right. Thanks for taking my questions. Speaker 600:17:57Thank you. Operator00:18:00The next question comes from Mitch Kummetz with Seaport Research. Please go ahead. Speaker 500:18:07Yes. Excuse me. Thanks for Speaker 700:18:08taking my questions. Mike, you mentioned the $18,400,000 hit to the 3rd quarter on sales. Can you say or maybe what you think that might translate from an earnings standpoint? Speaker 200:18:24I can't until we figure out how back to school starts and what comp assumption I might think we're headed for in 3Q. I don't know what that's going to look like. The start of the back to school season is going to be in the last 3 weeks of July. The last 3 weeks of the second quarter is when we're going to start to see the early reads on the back to school season. The 3 largest sales weeks of the Q2, actually the final 3 weeks of the Q2 for that reason. Speaker 200:18:54And as I mentioned that very final week, last year was the start of the Q3 and shifted forward because of the impact of that 53rd week in fiscal 2023. So until I have a prelim read on what back to school means certainly is going to create something of an earnings hit when you're starting from $18,000,000 hole compared to last year's fiscal Q3. Speaker 700:19:27And how much of the sales benefit are you anticipating in the second quarter given that shift? Speaker 200:19:34It's approximately a $15,000,000 benefit to the Q2 because just as I noted for the Q3, you have the same dynamic from last year's start of 2nd quarter, end of 2nd quarter shifting. So on the one hand, when you look at our outlook of a total sales number of $160,000,000 to $165,000,000 last year's Q2 was $160,000,000 So in raw numbers you say, oh, that's growth isn't that positive comp, but as we noted, it's actually not. It's a negative comp in our outlook range of 7% to 10%. But because of the impact of that back to school week shifting into the 2nd quarter, it adds a significant amount of sales. Speaker 700:20:21Yes. And then I noticed that your quarter to date comp minus A. 4% is pretty much right in the middle of your quarterly range. And I'm just curious how you think about back to school. It seems like over the last, I don't know, maybe a year that the consumer is showing up for events more than they are in between events and obviously back to school is an event. Speaker 700:20:51Are you essentially assuming that your comp on back to school is kind of within that down 7% to 10% range? Or is there reason to believe that it could be better than that given that that's an event period? Speaker 200:21:05It could end up being better than what we're suggesting. Sitting here, I have no visibility to what back to school behavior is going to be like. So we're not counting on something that we can't see. What we have is May is down 8.4. That's consistent with our comp run rate of the last 4 quarters. Speaker 200:21:25If you look back, our comp has been in this minus 8% to 9% range. This is now starting the 5th quarter in that realm. So our range contemplated, it could get a little better, particularly towards the end. I do not expect it to deteriorate back into negative double digits. I do think there's opportunities for us to potentially outperform this negative 7% to negative 10% range, but that would require back to school getting off to a good start. Speaker 200:21:52And I just don't know what that's going to look like. As I sit here, I'd love to think that I can predict the future, but I darn sure cannot. Speaker 700:22:00Okay. All right. Thanks guys. Good luck. Operator00:22:06The next question comes from Matt Koranda with Roth Capital. Please go ahead. Speaker 600:22:13Hey, guys. Maybe just following up on the second quarter outlook and the May to date comps. Anything you can call out, Mike, in terms of weekly cadence that you saw that was notable? Any help there in terms of just anything you saw around the Memorial Day holiday, if that was notable at all? Speaker 200:22:35Sure. So I noted in our prepared remarks that upon the implementation of our new merge allocation tool and the new warehouse management system, we did have some complications in the immediate aftermath of that. So May bounced around quite a bit. The 1st week and the last week of May were both negative single digits and the in between weeks were negative low double digits as we are having some complications with replenishment to stores with the new systems communicating with each other properly. So we did experience some slowdown in the middle 2 weeks of the month, but believe we're back on track. Speaker 200:23:13We did see better results in the final week of fiscal May and have seen a little bit better results this week starting off June. Now that product has started to reflow back out to stores and get out there. So we'd like to think the worst of it's behind us in terms of any of the implementation impacts and that if anything we should stay consistent to potentially having an opportunity to see some better results going forward. But again, with those large 3 weeks at the end of the quarter, basically a third of the quarter sales volume is going to be in those last 3 weeks of the quarter. So really difficult to know sitting here as far away from that as we are what exactly that's going to look like. Speaker 200:23:53But we're cautiously optimistic as he noted earlier that we'll continue to see better and better things out of our assortment as we go forward. Speaker 600:24:03Okay. That seems fair. But I guess we're also not counting on necessarily a pickup to what we saw in aggregate in May in terms of the comps not much at one at least. Okay. And then in terms of inventory, I'm curious, was the warehouse management system one of the reasons for the slightly heavier inventory per store that we're seeing on a year over year basis? Speaker 600:24:24Or is there something else going on in terms of inventory that you can call out? And then maybe just HESI, where are we heavier than we want to be? I was curious based on one of the earlier questions, just what are you chasing in particular that's really moving for you that's working? It would be helpful to get a little bit more Speaker 400:24:44Yes, we're chasing the best sellers. Yes. So let me also address the inventory for a second. There's 2 things here. As far as the merchandise, we change a little bit on how we look at things and how we do it. Speaker 400:25:04I can give you a little bit. We are bringing inventory a little earlier and instead of spreading it, let's say, over 3 or 4 months, we're bringing a larger portion earlier, so we're never out of sizes. That's one of the things we do and that's maybe part of the reason you see more inventory in the store. The inventory thing will actually be something that we're focusing on this coming week, which is as we changed the way we look at gross margins, looked at 2 things or 3 things as I told you guys before. We looked at the initial cost and the negotiation there, we looked at the initial IMUs and then how we do markdowns. Speaker 400:25:51In the past, unfortunately, we gave the merchandise away, it's way under cost. There was no reason for that, but it happened. We're looking at differently today. It's not necessary at all times to sell things at a fire sale. Due to that, there'll be some changes and some fluctuation in the inventory until we fine tune it, but that will produce better margins. Speaker 600:26:19Okay. That's helpful. Yes. And the other thing I'd Speaker 200:26:24add to that Matt is some of it was a little bit of timing difference too because when you're looking purely at the balance sheet, again because of that weird 53rd week that happens every 6 to 7 years, you're comparing 2 offset weeks. They're not comparable weeks. So it was a temporary timing difference. It's why I added the notation that as we entered this week, our inventories were actually down 3% on a like for like week. So it's just a little bit of a timing difference there, especially ahead of the implementations that we knew were coming. Speaker 200:26:57We did consciously try to help offset any potential risk as we went through those. So it's just a temporary condition, nothing of significant concern. Speaker 600:27:07Okay, fair enough. Maybe if I could just ask one more on what I guess I'm imputing in the outlook from a gross margin standpoint. It almost seems like we might see flat to up gross margins in the Q2 based on my math at least. Maybe just talk about what you're seeing on sort of the margin front and product markdowns. It sounds like maybe we got a little bit better there. Speaker 600:27:31So that's a good guy offsetting the BD and O deleverage that we may still experience, but maybe just if you could unpack Speaker 400:27:38a little bit more about that. Yes. Mike, let me answer that. So we do expect gross margin improvement. This is exactly what we're working on. Speaker 400:27:49We can't estimate yet what it will be for Q2 and everything is up in the air right now. We are working on so many different things that it will be very hard to predict and tell the future. So you can expect that it will be flat to up. I just can't tell you much how much it will be up. Speaker 600:28:10Okay, great. Appreciate it guys. Thanks. Operator00:28:16This concludes our question and answer session. I would like to turn the conference back over to Mike Henry for any closing remarks. Speaker 200:28:24Thank you all for joining us today. We appreciate your interest and we look forward to sharing our Q2 results with you in early September. Thanks and have a good evening. Operator00:28:34The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallTilly's Q1 202500:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Tilly's Earnings HeadlinesHydro Flask limited-edition water bottles are on sale for 50% off at TillysApril 18, 2025 | nj.comTilly's (NYSE:TLYS) shareholders have endured a 78% loss from investing in the stock three years agoApril 14, 2025 | finance.yahoo.comGold Alert: The Truth About Fort Knox Is ComingOwning physical gold isn’t the best way to profit. I’ve found a better way to invest in gold—one that’s already performing nearly twice as well as gold this year and looks ready to go much higher. If you wait for the news to hit, you’ll already be too late.April 26, 2025 | Golden Portfolio (Ad)Tilly’s price target lowered to $2.50 from $5 at Roth MKMMarch 14, 2025 | markets.businessinsider.comTilly’s (TLYS) Receives a Hold from Roth MKMMarch 14, 2025 | markets.businessinsider.comTilly’s, Inc. (NYSE:TLYS) Q4 2024 Earnings Call TranscriptMarch 13, 2025 | msn.comSee More Tilly's Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Tilly's? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Tilly's and other key companies, straight to your email. Email Address About Tilly'sTilly's (NYSE:TLYS) engages in the retail of casual apparel, footwear, and accessories. Its stores are located in retail centers, including malls, lifestyle centers, power centers, community centers, outlet centers, and street-front locations. 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There are 8 speakers on the call. Operator00:00:02Good day, and welcome to the Tilly's, Inc. First Quarter 20 24 Earnings Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Mr. Operator00:00:34Gar Jackson, IR. Please go ahead. Speaker 100:00:38Good afternoon, and welcome to the Tilly's fiscal 2024 First Quarter Earnings Call. Michael Henry, Executive Vice President and Chief Financial Officer, will discuss the company's business and operating results. Then he and Hezi Shekead, Executive Chairman and Interim President and Chief Executive Officer, will host a Q and A session. For a copy of Tilly's earnings press release, please visit the Investor Relations section of the company's website at tilice.com. From the same section shortly after the conclusion of the call, you will also be able to find a re recorded replay of this call for the next 30 days. Speaker 100:01:10Certain forward looking statements will be made during this call that reflect Tilly's judgment and analysis only as of today, June 6, 2024, and actual results may differ materially from current expectations based on various factors affecting Tilly's business. Accordingly, you should not place undue reliance on these forward looking statements. For a more thorough discussion of the risks and uncertainties associated with any forward looking statements, please see the disclaimer regarding forward looking statements that is included in our fiscal 2024 Q1 earnings release, which is furnished to the SEC today on Form 8 ks, as well as our other filings with the SEC referenced in that disclaimer. This call may also contain certain references to certain non GAAP measures. Reconciliations of those measures to their most directly comparable corresponding GAAP measure can be found in our earnings press release on our website. Speaker 100:02:00Today's call will be limited to 1 hour and will include a Q and A session after our prepared remarks. I will now turn the call over to Mike. Speaker 200:02:09Thanks, Garth. Good afternoon, everyone, and thank you for joining us today. Our first quarter net sales and pre tax operating results were both within our estimated outlook ranges provided during our March earnings call. After a tough start to the Q1, our comp sales results remain negative each month, but improved on a relative basis in both March April, with March being the stronger of the 2 benefiting from the earlier Easter this year. Like certain others in our competitive space, we continue to face headwinds from macro consumer environment, yet we are able to generate 130 basis points of product margin improvement relative to last year's Q1 despite our decline in net sales. Speaker 200:02:48As we discussed during our last earnings call, we've been challenging every aspect of our business as we work toward improving our operating results. For example, we continue to evaluate internal initial pricing decisions to better align ourselves with our competition in certain product categories. We have reconsidered certain of our promotional pricing and mark down practices to drive improved average unit retail values. We believe that we are beginning to see the impact of these efforts based on the improvement in our first quarter product margins compared to last year's Q1. However, while we believe our efforts have the right focus to lead us toward making more meaningful improvements over the longer term, in light of the current environment, we caution that there can be no guarantee that we can continue to produce this kind of improvement in the short term. Speaker 200:03:34From a marketing perspective, we've been testing new ideas to focus on creating greater connectivity with our existing customer base and to attract new customers. We believe these new efforts give us a chance to build greater customer following and generate a positive business impact over time. We believe that it may take 6 to 9 months before we were able to truly see and understand how these new efforts are impacting our business, but we believe they are the right efforts to help us improve over the longer term. Despite short term challenges, we continue to invest in our business for the longer term. We implemented a new merchandise planning and allocation tool in early April, followed by the implementation of our new warehouse management software for our stores distribution center in early May. Speaker 200:04:18We experienced some complications in the immediate aftermath of these implementations that slowed product replenishment to stores during May, but we believe we are now starting to get back towards a normal level of distribution productivity for our stores. We plan to complete the implementation of the same warehouse management software in our e com distribution center this month. Additionally, we plan to implement new markdown optimization software and improve search engine optimization capabilities ahead of the holiday season. We believe these new tools are important to help generate greater operational efficiencies and improve our business over time. Over the short term, we continue to believe it will be challenging for us to improve our sales results amid the reported weakening consumer environment. Speaker 200:04:59It will likely take time for this cycle to pass before we see a bounce back in consumer activity among our core customer demographic. In the meantime, we continue to make every effort to seek improvements in our business and make changes that we believe can lead to better results. Focus remains steadfast on improving our business for the long term. Now turning to our operating results for the Q1 of fiscal 2024 compared to last year's Q1. Results were as follows. Speaker 200:05:26Total net sales were $115,900,000 a decrease of 6.3%. Total comparable net sales including e commerce decreased by 9.4% with an 8.6% decrease from physical stores and a 10.8% decrease from e commerce relative to the comparable 13 week period last year. Net sales from physical stores represented 80.1 percent of total net sales compared to 79.1% last year, while e commerce net sales represented 19.9 percent of total net sales compared to 20.9% last year. We ended the Q1 with 246 total stores, a net decrease of 2 stores compared to last year. Gross margin including buying, distribution and occupancy expenses was flat to last year at 21% of net sales. Speaker 200:06:16Product margins improved by 130 basis points compared to last year, primarily due to the combination of a lower total markdown rate and improved initial markups. This improvement was offset by deleverage of buying distribution and occupancy costs despite these costs being $800,000 below last year in the aggregate due to carrying these costs against lower total net sales. Total SG and A expenses were $45,100,000 an increase $1,900,000 primarily due to increased non cash store asset impairment charges of $1,500,000 and increased store payroll and related benefits costs of $1,000,000 Our average hourly rate for store payroll rose 5% over last year and was 31% higher than in pre pandemic 2019. A variety of smaller expense reductions partially offset these 2 primary expense increases. SG and A deleveraged by 400 basis points as a result of carrying these costs against lower total net sales. Speaker 200:07:16Pretax loss was $19,600,000 or 16.9 percent of net sales compared to $16,200,000 or 13.1 percent of net sales last year as a result of the combined factors just noted. Income tax benefit was negligible at $13,000 essentially a zero tax rate due to the continuing impact of a full non cash deferred tax asset valuation allowance. This compares to income benefit of $4,200,000 or 26.1 percent of pre tax loss last year. On a non GAAP basis, in the absence of the valuation allowance, our income tax benefit would otherwise have been approximately $5,200,000 Net loss was $19,600,000 or $0.65 per share compared to $12,000,000 or $0.40 per share last year. On a non GAAP basis, assuming a normalized effective income tax rate of 26 0.3% in the absence of a valuation allowance, net loss would have been $14,500,000 or $0.48 per share, the exact middle of our original outlook range for the Q1. Speaker 200:08:20Turning to our balance sheet. We ended the 1st quarter with total cash and marketable securities of $68,000,000 and no debt outstanding under our $65,000,000 asset backed credit facility compared to $93,000,000 and no debt at the end of the Q1 last year. Total inventories were up 1.8% at the end of the Q1 this year compared to the end of the Q1 last year. We entered this week with total inventories down 3% versus the comparable week last year. Turning to our outlook for the Q2 of fiscal 2024, total comparable net sales for fiscal May ended June 1, 2024 decreased by 8.4% relative to the comparable 4 week period last year. Speaker 200:09:01Based on current and historical trends, we currently estimate that our total net sales for the Q2 of fiscal 2024 will be in the range of approximately $160,000,000 to $165,000,000 translating to a comparable net sales decline in the range of approximately 10% to 7%, respectively, for the comparable 13 week period last year. We expect our SG and A to be in the range of approximately $48,000,000 to $49,000,000 in the absence of any non cash store asset impairment charges and our effective income tax rate to be near 0 due to the continuing impact of a full non cash valuation allowance on our deferred tax assets. We estimate our after tax results to be in the range of a net loss of approximately $3,900,000 to $900,000 respectively, and per share results to be in the range of a net loss of $0.13 to $0.03 respectively. We currently expect to have 2 47 total stores at the end of the 2nd quarter compared to 246 at the end of last year's Q2. One additional note, while we are not providing any specific outlook for the Q3 today, it should be noted, as I mentioned during our last earnings call, that due to the impact of the 53rd week in fiscal 2023, there will be a meaningful shift in net sales into the Q2 from the Q3 when comparing to last year. Speaker 200:10:19Using last year's weekly net sales results, what was a $26,200,000 back to school net sales week for the 1st week of last year's Q3 will now become the comparable week for the final week of this year's Q2. The 1st week of last year's Q4, which was a $7,800,000 net sales week becomes the final comparable week of the Q3 this year, creating a $18,400,000 net sales decline for the Q3 this year relative to last year's Q3 before consideration of any comp sales assumption. Operator, we'll now go to our Q and A session. Operator00:10:57Thank The first question comes from Marni Shapiro with The Retail Tracker. Please go ahead. Speaker 300:11:32Hey, guys. Thanks for taking my question. I'm curious, I know sales are going to be challenged and you had some issues with the distribution centers in this quarter. But if somebody spent a lot of time in your stores, there are definitely some noticeable changes in the front of the store, particularly on the junior side. And I'm curious if you are seeing any green shoots at this point? Speaker 300:11:53And how because what I'm seeing is selling quickly, it's very on trend, it is a small part of the inventory. But I'm curious if you were able to impact a more significant percentage of the inventory for the back half of the year and what this can look like? I'm not getting ahead of myself, but just trying to see where this is going. Speaker 400:12:15It's fine. Short of telling you exactly what's going on, I'll try to address that. So what you're seeing is part of the initiatives that we started back in the beginning of February. It's going to get more and more meaningful obviously as some of the decisions are already filtered in. I can tell you that we see positive signs, but we cannot expand too much on it because we don't want to get ahead of ourselves. Speaker 400:12:45Overall, you'll see more and more of the right trend in our inventory. Speaker 300:12:53Thank you. I mean, it feels great. And can we just also talk about as things begin to improve, because you guys have a long history, your customer, when they're in the fold, they're very loyal to you. How are you thinking about sort of bringing in lapsed shoppers or more importantly, bringing in younger shoppers? Have you will you start to drive marketing as things improve, kind of hold back until you can drive traffic into something that you feel really proud of? Speaker 300:13:22Is that how we should think about marketing? Speaker 400:13:25No, not at all. We started our new campaign the way we believe we should be presenting ourselves a couple of months ago. As we go, it's going to be more and more meaningful and more and more things will be seen in the public. We are still at the exploration stage of exactly what is the age of our customer, what the age of the customer we want to have is remember, we started all this process February Speaker 200:13:59and Speaker 400:13:59we're in June now. So we're getting toward the end of figuring out what we need to do and we start implementing a lot of it. But you'll see the results 3rd Q4. Speaker 300:14:12Fantastic. I'm telling you the front of your stores already looks so much better. The merchandise is turning so fast. I wish I could just bring it in myself. It looks great. Speaker 300:14:21So best of luck, guys. Speaker 400:14:22You actually I don't know how you know that, but you're absolutely spot on. We increased several categories and we're chasing it constantly. Speaker 300:14:32Yes. It looks fantastic. Speaker 400:14:35Thank you. Speaker 300:14:36Thank you. Speaker 200:14:37Thanks, Marty. Operator00:14:41The next question comes from Jeff Van Sinderen with B. Riley FBR. Please go ahead. Speaker 500:14:49Hi, everyone. So I guess my first question just to follow-up on the line of thinking on merchandise and performance there. I don't know if you gave the relative or spoke to the relative performance of the guys' side of the business versus the girls' side of the business, men's and women's. Any color you can add there? Just wondering kind of relative performance between the 2 genders. Speaker 400:15:15Yes. I can give you a little bit. So one of the questions that we faced, right, is what is the balance between men and women, male and female? What it is today? What it is we want to have? Speaker 400:15:31I think we're in the right spot right now. So the balance we have today, which I'm not going to quote exactly how much it is, is where we're going to go forward for the remainder of the year. There's always a discussion internally, do you lead with men, do you lead with ladies? Obviously, there's many different opinions. I believe that we lead with men's and my line is always the same, get guys don't shop in girls store, but girls will shop in guys store. Speaker 400:16:05Now granted in the last 5 years, it's changing a little bit, but this is where our head is. Speaker 600:16:15Okay. Speaker 500:16:17And then any update you can give us on the plans for the CEO surge, where that stands and then any changes to the merchant team? Speaker 400:16:28No changes of plan in either positions. Okay. Speaker 500:16:34And just one more, if I could squeeze it in. Just wondering where you stand on lease negotiations for 2024 and how many stores you might end up closing this year? Speaker 400:16:49I don't think we have an update that we can give you right now. As you know, we're both renegotiating leases and hoping to shut down any losing locations. We don't have a lot of them, but we still have some. There is no update on that yet. Speaker 200:17:10Okay. Yes, Jeff, it's hard to pin down to a specific number when we have so much still in play to negotiate. But what I can tell you at the moment is we have 2 remaining new stores to open, 1 in July, 1 in mid November, and then we have 4 to 5 known store closures at this point that will happen towards the end of the year. But those numbers can change obviously as a result of we have dozens and dozens of of leases left to deal with for this year. So that's the best we can tell you at this moment. Speaker 500:17:44Okay. And I'm sorry, the total that you still have to deal with is roughly what? Speaker 200:17:50I don't have a specific number in front of me. Speaker 500:17:54Okay. All right. Thanks for taking my questions. Speaker 600:17:57Thank you. Operator00:18:00The next question comes from Mitch Kummetz with Seaport Research. Please go ahead. Speaker 500:18:07Yes. Excuse me. Thanks for Speaker 700:18:08taking my questions. Mike, you mentioned the $18,400,000 hit to the 3rd quarter on sales. Can you say or maybe what you think that might translate from an earnings standpoint? Speaker 200:18:24I can't until we figure out how back to school starts and what comp assumption I might think we're headed for in 3Q. I don't know what that's going to look like. The start of the back to school season is going to be in the last 3 weeks of July. The last 3 weeks of the second quarter is when we're going to start to see the early reads on the back to school season. The 3 largest sales weeks of the Q2, actually the final 3 weeks of the Q2 for that reason. Speaker 200:18:54And as I mentioned that very final week, last year was the start of the Q3 and shifted forward because of the impact of that 53rd week in fiscal 2023. So until I have a prelim read on what back to school means certainly is going to create something of an earnings hit when you're starting from $18,000,000 hole compared to last year's fiscal Q3. Speaker 700:19:27And how much of the sales benefit are you anticipating in the second quarter given that shift? Speaker 200:19:34It's approximately a $15,000,000 benefit to the Q2 because just as I noted for the Q3, you have the same dynamic from last year's start of 2nd quarter, end of 2nd quarter shifting. So on the one hand, when you look at our outlook of a total sales number of $160,000,000 to $165,000,000 last year's Q2 was $160,000,000 So in raw numbers you say, oh, that's growth isn't that positive comp, but as we noted, it's actually not. It's a negative comp in our outlook range of 7% to 10%. But because of the impact of that back to school week shifting into the 2nd quarter, it adds a significant amount of sales. Speaker 700:20:21Yes. And then I noticed that your quarter to date comp minus A. 4% is pretty much right in the middle of your quarterly range. And I'm just curious how you think about back to school. It seems like over the last, I don't know, maybe a year that the consumer is showing up for events more than they are in between events and obviously back to school is an event. Speaker 700:20:51Are you essentially assuming that your comp on back to school is kind of within that down 7% to 10% range? Or is there reason to believe that it could be better than that given that that's an event period? Speaker 200:21:05It could end up being better than what we're suggesting. Sitting here, I have no visibility to what back to school behavior is going to be like. So we're not counting on something that we can't see. What we have is May is down 8.4. That's consistent with our comp run rate of the last 4 quarters. Speaker 200:21:25If you look back, our comp has been in this minus 8% to 9% range. This is now starting the 5th quarter in that realm. So our range contemplated, it could get a little better, particularly towards the end. I do not expect it to deteriorate back into negative double digits. I do think there's opportunities for us to potentially outperform this negative 7% to negative 10% range, but that would require back to school getting off to a good start. Speaker 200:21:52And I just don't know what that's going to look like. As I sit here, I'd love to think that I can predict the future, but I darn sure cannot. Speaker 700:22:00Okay. All right. Thanks guys. Good luck. Operator00:22:06The next question comes from Matt Koranda with Roth Capital. Please go ahead. Speaker 600:22:13Hey, guys. Maybe just following up on the second quarter outlook and the May to date comps. Anything you can call out, Mike, in terms of weekly cadence that you saw that was notable? Any help there in terms of just anything you saw around the Memorial Day holiday, if that was notable at all? Speaker 200:22:35Sure. So I noted in our prepared remarks that upon the implementation of our new merge allocation tool and the new warehouse management system, we did have some complications in the immediate aftermath of that. So May bounced around quite a bit. The 1st week and the last week of May were both negative single digits and the in between weeks were negative low double digits as we are having some complications with replenishment to stores with the new systems communicating with each other properly. So we did experience some slowdown in the middle 2 weeks of the month, but believe we're back on track. Speaker 200:23:13We did see better results in the final week of fiscal May and have seen a little bit better results this week starting off June. Now that product has started to reflow back out to stores and get out there. So we'd like to think the worst of it's behind us in terms of any of the implementation impacts and that if anything we should stay consistent to potentially having an opportunity to see some better results going forward. But again, with those large 3 weeks at the end of the quarter, basically a third of the quarter sales volume is going to be in those last 3 weeks of the quarter. So really difficult to know sitting here as far away from that as we are what exactly that's going to look like. Speaker 200:23:53But we're cautiously optimistic as he noted earlier that we'll continue to see better and better things out of our assortment as we go forward. Speaker 600:24:03Okay. That seems fair. But I guess we're also not counting on necessarily a pickup to what we saw in aggregate in May in terms of the comps not much at one at least. Okay. And then in terms of inventory, I'm curious, was the warehouse management system one of the reasons for the slightly heavier inventory per store that we're seeing on a year over year basis? Speaker 600:24:24Or is there something else going on in terms of inventory that you can call out? And then maybe just HESI, where are we heavier than we want to be? I was curious based on one of the earlier questions, just what are you chasing in particular that's really moving for you that's working? It would be helpful to get a little bit more Speaker 400:24:44Yes, we're chasing the best sellers. Yes. So let me also address the inventory for a second. There's 2 things here. As far as the merchandise, we change a little bit on how we look at things and how we do it. Speaker 400:25:04I can give you a little bit. We are bringing inventory a little earlier and instead of spreading it, let's say, over 3 or 4 months, we're bringing a larger portion earlier, so we're never out of sizes. That's one of the things we do and that's maybe part of the reason you see more inventory in the store. The inventory thing will actually be something that we're focusing on this coming week, which is as we changed the way we look at gross margins, looked at 2 things or 3 things as I told you guys before. We looked at the initial cost and the negotiation there, we looked at the initial IMUs and then how we do markdowns. Speaker 400:25:51In the past, unfortunately, we gave the merchandise away, it's way under cost. There was no reason for that, but it happened. We're looking at differently today. It's not necessary at all times to sell things at a fire sale. Due to that, there'll be some changes and some fluctuation in the inventory until we fine tune it, but that will produce better margins. Speaker 600:26:19Okay. That's helpful. Yes. And the other thing I'd Speaker 200:26:24add to that Matt is some of it was a little bit of timing difference too because when you're looking purely at the balance sheet, again because of that weird 53rd week that happens every 6 to 7 years, you're comparing 2 offset weeks. They're not comparable weeks. So it was a temporary timing difference. It's why I added the notation that as we entered this week, our inventories were actually down 3% on a like for like week. So it's just a little bit of a timing difference there, especially ahead of the implementations that we knew were coming. Speaker 200:26:57We did consciously try to help offset any potential risk as we went through those. So it's just a temporary condition, nothing of significant concern. Speaker 600:27:07Okay, fair enough. Maybe if I could just ask one more on what I guess I'm imputing in the outlook from a gross margin standpoint. It almost seems like we might see flat to up gross margins in the Q2 based on my math at least. Maybe just talk about what you're seeing on sort of the margin front and product markdowns. It sounds like maybe we got a little bit better there. Speaker 600:27:31So that's a good guy offsetting the BD and O deleverage that we may still experience, but maybe just if you could unpack Speaker 400:27:38a little bit more about that. Yes. Mike, let me answer that. So we do expect gross margin improvement. This is exactly what we're working on. Speaker 400:27:49We can't estimate yet what it will be for Q2 and everything is up in the air right now. We are working on so many different things that it will be very hard to predict and tell the future. So you can expect that it will be flat to up. I just can't tell you much how much it will be up. Speaker 600:28:10Okay, great. Appreciate it guys. Thanks. Operator00:28:16This concludes our question and answer session. I would like to turn the conference back over to Mike Henry for any closing remarks. Speaker 200:28:24Thank you all for joining us today. We appreciate your interest and we look forward to sharing our Q2 results with you in early September. Thanks and have a good evening. Operator00:28:34The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by