Tilly's, Inc.

Good day and welcome to TILI's third quarter 2023 results conference call. All participants will be in a listen-only mode. If you need assistance during today's conference, please press star, then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you can press star, then one on your touchtone phone. To withdraw yourself from the question queue, press star, then two. Please also note this event is being recorded. And I'd now like to turn the conference over to Gar Jackson, Investor Relations. Please go ahead.

Good afternoon, and welcome to the Tilly's Fiscal 2023 Third Quarter Earnings Call. Ed Thomas, President and CEO, and Michael Henry, EVP and CFO, will discuss the company's results and then host a 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'll 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, November 30, 2023, and actual results may differ materially from current expectations based on various factors affecting Tilly's business. Accordingly, you should not place any 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 2023 third quarter earnings release, which is furnished to the SEC today on Form 8K, as well as our other filings 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 now turn the call over to Ed.

Thanks, Gar. Good afternoon, everyone, and thank you for joining us today. We continue to believe that inflation remains a significant headwind on discretionary spending for our young family, young adult, teen, and preteen demographic. Despite what remains a challenging sales environment for us, I am proud of our team's efforts towards protecting product margins, managing inventory, and controlling expenses. Our third quarter results represent a sequential improvement from our first and second quarter earnings results and exceeded our expectations primarily due to achieving stronger product margins and lowering operating expenses more than we anticipated. After starting the quarter with a negative result, 3.7% comp store sales declined in August amid the peak of the need-driven back-to-school period. Our comp sales decelerated sequentially in the post-back-to-school period to negative double digits in each of September and October. For the quarter, all geographic markets comp negative within a five-point range, with reduced customer traffic across all store formats compared to last year. Total transaction volume was down high single digits, while the average transaction value was slightly higher than in last year's third quarter. From a merchandising perspective, girls apparel and footwear comp positive, while all other departments comp negative during the third quarter. While acknowledging that the environment remains challenging for our customer demographic, we believe that we have some product content issues on our part that we are working to fix as quickly as we can. Graphic keys has been an area of weakness for us within both men's and women's apparel, and we have been lacking sufficient fashion newness in women's overall. Within accessories, a strong backpack business wasn't enough to overcome declines in other areas. We believe we have identified certain opportunities to improve our performance across departments as we finish fiscal 2023 and look into 2024. In terms of store real estate, we opened three new stores during the third quarter, in an additional three stores just ahead of Thanksgiving. We currently expect to close four stores near the end of the fiscal year upon natural lease expiration. For fiscal 2024, we currently anticipate opening four new stores and have only one known store closure at this time. We have nearly 100 lease actions to consider for fiscal 2024 affecting almost 40% of our store portfolio. Given where our current operating margins are, we plan to be aggressive in exiting stores that are not acceptably productive under current conditions and lease terms. Our preliminary expectation for total fiscal 2024 capital expenditures is approximately $15 million inclusive of new stores and ongoing distribution and technology enhancements. Turning to the fourth quarter for fiscal 2023, total comparables net sales, including both physical stores and e-com, decreased by 6.5% through November 28, 2023, with store comps down 13.6%, while e-com was up 11%. relative to last year's comparable period. The double-digit negative comps we saw in the post-bac to school period over the final seven weeks of the third quarter continued into the first two weeks of the fourth quarter. However, the trend of our business began to improve during the final two weeks of fiscal November, including 2.6% comp sales growth for Black Friday weekend the five-day period from Thanksgiving Day through Cyber Monday. We believe this recent positive turn in our business is driven in part by a more aggressive promotional stance than we have historically taken to this period. Based on recent holiday seasons, we expect that our comp sales may slow down again in the early part of December, before improving trend-wise in the final days leading into Christmas. We are encouraged by the overall sequential improvement in our business trends over the last two quarters and are working diligently to attempt to accelerate that improvement going forward. I now turn the call over to Mike to discuss our third quarter operating results and our fourth quarter outlook in more detail. Mike?