Business

Growth spurt slowing at retailer Tilly's

Economy, Business and FinanceFinanceConsumer Goods IndustriesE-Commerce IndustryPacific Sunwear of California IncorporatedUrban Outfitters Incorporated

Any parent with teenagers can tell you how tough it is to keep abreast of their fashion whims. Even more difficult: doing it for a living and making a profit at it.

Tilly's Inc. of Irvine is a specialty retailer that targets teens and young adults with action sports clothing, shoes and accessories.

Tilly's says on its website that it "offers one of the largest assortments of brands and merchandise from the top players in the surf, skate, motocross and lifestyle apparel industries." Company executives declined to discuss Tilly's and its operations.

Tilly's was founded in 1982 by Hezy Shaked and Tilly Levine, opening its first store in Orange County. Shaked is still involved with the company, serving as chairman and chief strategy officer.

The company has expanded across much of the U.S., with retail outlets in 32 states. In the last fiscal year, Tilly's added 27 stores, bringing the total to 198.

The company went public in May 2012, raising $124 million from its initial stock offering.

The latest

Tilly's said Wednesday that sales for the fiscal fourth quarter, which ended Feb. 1, were $139.9 million, down less than 1% from a year earlier. The company noted that the fourth quarter of 2013 had 13 weeks instead of 14 weeks in 2012's fourth quarter.

But same-store sales — revenue from stores open at least a year — fell 4.9%. Same-store sales are considered an important indicator of retail health because they remove the distortions caused by opening and closing stores during the period.

Net income fell 45% to $5.4 million. Earnings of 19 cents a share came in a penny better than the average expectation of Wall Street analysts.

For the full fiscal year, Tilly's sales were $495.8 million, up 6.1% compared with the previous year.

In a conference call with analysts, Chief Executive Daniel Griesemer said: "While our fourth-quarter results were as expected, we're not satisfied with this level of financial performance.... Clearly, the continued challenges in the retail environment have impacted our sales."

Growth will slow in 2014, the company said, with 18 new stores, about 30% of them in discount outlet centers.

Accomplishments

Tilly's has increased its digital focus, and online sales responded, rising 11% to nearly $58 million in fiscal 2013.

"E-commerce remains a critical driver of future sales growth," Griesemer said. The company's "state-of-the-art automated e-commerce fulfillment facility," which Tilly's is building next to its Irvine headquarters, "will also allow us to capitalize on this tremendous growth opportunity and is expected to be operational in the second quarter of this year," he said.

Griesemer also pointed to a focus on basics, including a tight rein on its finances and costs.

"We maintained our strict expense discipline throughout the year," Griesemer said. "While we opened 27 new stores in fiscal 2013, increasing our square footage by approximately 15%, we remain debt free and expect our cash from operations to continue to fund our growth."

Challenges

In the current quarter, Tilly's said that same-store sales could "decline in the mid-single digits" because of "volatile and weak traffic trends and a highly promotional environment in teen retail."

Tilly's is part of a competitive teen apparel industry that includes other well-known California lifestyle image brands such as Pacific Sunwear of California Inc. Tilly's is also jockeying with business giants that include Urban Outfitters Inc. and Abercrombie & Fitch Co.

To boost its fortunes in 2014, Griesemer said, the company plans to increase the number of brands exclusive to Tilly's and to expand the company's home and electronics offerings.

Analyst views

Of nine analysts that regularly follow Tilly's, according to Thomson/First Call, one rates the company a strong buy.

Three analysts rate Tilly's a buy. The other five analysts consider the company a good stock to hold.

ron.white@latimes.com

Twitter: @RonDWhite

Copyright © 2014, Los Angeles Times
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