Tilly's, Inc.

Greetings. Welcome to the TILES, Inc. Second Quarter 2022 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded. I would now like to turn the conference over to Gar Jackson with Investor Relations. Thank you, sir. You may begin.

Good afternoon and welcome to the Tilly's fiscal 2022 second quarter earnings call. Ed Thomas, president and CEO, and Michael Henry, CFO, will discuss the company's results and then host the Q&A session. For a copy of Tilly's earnings press release, please visit the investor relations section of the company's website at tillys.com. From the same section, shortly after the conclusion of the call, you will also be able to find a recorded replay of this call for the next 30 days. Certain forward-looking statements will be made during this call that reflect Tilly's judgment and analysis only as of today, September 1, 2022, 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 2022 second quarter earnings release, which is furnished to the SEC today on Form 8K, as well as our other funds that the SEC referenced in that disclaimer. Today's call will be limited to one hour and will include a Q&A session after our prepared remarks. I will now turn the call over to Ed.

Thanks, Gar. Good afternoon, everyone, and thank you for joining us today. As our customers continue to face the highest inflationary environment of the past 40 years, Our second quarter results fell just short of our estimated outlook ranges for both net sales and earnings per share. Our comp sales performance, which began with a minus 17 comp in May, declined further throughout June before starting to moderate to less negative comps in the final two weeks of the quarter once the early stages of the season began. All geographic markets comp double-digit negative for the quarter. All merchandise departments comp double-digit negative except for footwear, which decreased by a high single-digit percentage. SWIM was particularly weak for us across departments and geographies. Customer store traffic and conversion both declined by high single-digit percentages compared to last year. We believe seeing both traffic and conversion decline to this extent at the same time is indicative of the impact of inflation on our customers, particularly as we lap last year's record-setting results that were fueled by stimulus payments and other pandemic-related factors. Supply chain issues have been getting somewhat better by continue to cause disruptions to typical product flows, most significantly in footwear and branded women's and children's apparel. We believe that we have managed through these challenges fairly well under the circumstances. Despite the challenges of the current environment, we continue working towards improving our business and generating long-term growth. Our sustainable product offerings continue to grow and represent 7% of our total net sales for the second quarter. We recently added a home category to serve teens and college students, which is off to a good start. We believe these offerings can bring incremental business to us over time. We also expect to launch our upgraded mobile app ahead of the holiday season, which we believe will improve customer engagement through an improved mobile shopping experience compared to what has been a simple wrap of our website previously. In terms of real estate, we now expect to open a total of 11 new stores this year, four of which have already been opened. Two are scheduled to open in mid-September, one in mid-October, and four in November, just ahead of Thanksgiving. We continue to believe that we have ample opportunities to grow our total store count by 10 or more stores per year over the next several years, despite current challenges with rising construction costs and inflation in general. However, as we've said in the past, we intend to be disciplined in our approach to new store openings and will only open new stores that reflect what we believe is to be appropriate lease economics relative to the environment we expect. Turning to the third quarter of fiscal 2022, which includes the peak of back-to-school season total comparable net sales through August 30th, including both physical stores and e-com decreased by 10.6% versus the comparable period of last year. The less negative comp trend that began in the later half of July carried through the first half of August before returning to negative double digits in the later half of August. For additional perspective, relative to the comparable period of the pre-pandemic third quarter of fiscal 2019, comparable net sales through August 30th increased by 7.5%. While these August comp results represent an improvement compared to our second quarter comp performance, We are expecting the latter half of the third quarter to decrease significantly compared to last year once the traditional back-to-school shopping period concludes, particularly given the impacts of inflation this year and the early holiday shopping that took place last year. We feel good about our merchandise assortment for the holiday season, and if the holiday season follows more traditional patterns, We believe we have an opportunity to have a better performance trend in the fourth quarter. We will continue to manage our business thoughtfully relative to the environment with improved long-term performance in mind. I now turn the call over to Mike to discuss our second quarter operating results and third quarter outlook in more detail.