Tilly’s Is Still Going Public

In July of 2011, Tilly’s filed an S-1 with the Securities Exchange Commission as a first step towards going public. I read through the filing back then and wrote about it in some detail. On March 23rd, they filed a third amendment to their S-1, so I think we can conclude they are still trying to get Tilly’s public.

The amended S-1 is about 269 pages long, so you will have to excuse me if I don’t compare it page by page with the initial filing. I reviewed it briefly, then went back and reread my original article. If this interests you at all, I suggest you do the same.  As far as I can tell, the points I highlighted about Tilly’s offering in my original article really haven’t changed. However, we do some more current financial data and a bit of other information. I thought I might share that with you and get us all up to date.

We still don’t know what the total net proceeds from the offering are expected to be, but we do know that “$ 84.0 million of the net proceeds from this offering [will be used] to pay in full the principal amount of the undistributed earnings notes held by our existing shareholders in connection with World of Jeans & Tops’ final “S” Corporation distribution.” In other words only the proceeds in excess of $84 million will be available to the company to run and grow the business. And after the offering, the company will still be controlled by the founders as I noted last July.
 
I really suggest you use the link above to read my original article before you continue.
 
Back in July, we had numbers for the January 29, 2011 year end. Now, we’ve got the results for the January 28 2012 year, so let’s start by looking at those.
 
Sales rose 20.5% from $333 to $401 million. Their own proprietary brands account for about 30% of their revenue. Gross profit percentage was up from 30.9% to 32.2%. It had declined for a couple of years and it’s nice to see that reversed. Of the 1.3% increase in gross margin percent, they say that 0.7% was the result of leveraging their costs over more stores. The rest was due to smaller promotional markdown. That’s good to hear. As you know, other brands and retailers have been pointing to a highly promotional environment and markdowns as a problem.
 
Selling, general and administrative expenses rose, but were basically constant as a percent of sales. There’s a little interest expense, but no other strange or unusual expenses below the operating income line. That’s refreshing to see. New income was up 40.6% from $24.4 to $34.3 million.
 
Remember the net income numbers I’ve just given you are effectively without any tax provision because Tilly’s is a subchapter S corporation where all the earnings pass through to the owners. They are converting to a C corporation as part of going public. If they were a C corporation now, the earnings for those two years, after a normal tax provision, would have been $14.8 and $20.8 million respectively.
 
During the year, the number of stores grew from 125 to 140. They plan to open 21 stores in 2012 and expect to grow stores at the rate of 15% for the next several years. They think they can grow to 500 stores over the next ten years. They say they need to invest between $500,000 and $550,000 to open a new store, and that they expect a new store to have revenue of $2.2 million in its first 12 months and cash flow of $300,000. Comparable store sales rose 10.7% compared to 6.7% the prior year. Ecommerce sales increases 33% over the prior year and represent 11% of total net sales (almost $44 million).
 
The balance sheet is pretty solid, and cash provided by operating activities has grown from $35 million two years ago, to $42 million last year, and to $53 million in the year ended January 30, 2011. They have a $15 million line of credit, but no drawings under it at the end of the year. They do have a long term liability of $30 million for deferred rent, and a capital lease obligation to a related party of $4.0 million. The company leases a facility from a company owned by the cofounders of Tilly’s, and I suspect that’s what it refers to.
 
Tilly’s had a strong year, and I would expect their financial performance would make it easier to take the company public. Yet, the first filing was last July and it isn’t done yet. As far as I can tell, Tilly’s owners don’t have any immediate requirement to get the company public, so maybe they were just waiting for better market conditions or to negotiate better terms. But as I said last July a big chunk of the proceeds are going to the owners and it will remain very much a family controlled business.
 
I’ll keep watching for further updates.   

 

 

3 replies
  1. Sam
    Sam says:

    Can you please tell me what are going to be the advantages for the employees at Tillys if they do become a C corporation?

    • jeff
      jeff says:

      Hi Sam,
      I assume you work for Tilly’s. I guess the biggest potential advantage is that the company can, if it chooses, issue stock options to employees that might grow in value with the success of the company. There’s also the potential to raise money in the future to fund the growth of the company, though that’s not what the proceeds from this offering are being used for. Disadvantages? There’s some not insignificant expense associated with doing the work required as a public company. There’s also a tendency to focus on quarterly earnings more than in a private company. But I don’t really see those things impacting most employees.

      Hope that’s helpful. Thanks for the question.

      J.

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