Tillys Inc (TLYS) 2013 Q2 法說會逐字稿

Well, good day, ladies and gentlemen, and welcome to the Tilly's Inc. second-quarter fiscal 2013 results conference call. Today's conference is being recorded, and now I will turn the conference over to Ms. Anne Rakunas of ICR. Please go ahead, Anne.

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Tilly's second-quarter fiscal 2013 earnings results. On today's call are Daniel Griesemer, President and CEO; Bill Langsdorf, Senior Vice President and outgoing CFO; and Jennifer Ehrhardt, the Company's incoming CFO. A copy of today's press release is available in the Investor Relations section of Tilly's website at tillys.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days in the Investor Relations section of the Company's website.

I'd like to remind you that certain statements that we will make in this presentation are forward-looking statements. These forward-looking statements reflect Tilly's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of 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 the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our second-quarter 2013 earnings release which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in that disclaimer.

We also note that this call contains non-GAAP financial information. We are providing that information as a supplement to information prepared in accordance with accounting principles generally accepted in the United States, or GAAP. And you can find a reconciliation of these metrics to our reported GAAP results in the reconciliation table provided in today's earnings release.

Also for today's call, we have a limit of one hour, so when we get to the Q&A portion, please limit yourself to one question at a time to give others the opportunity to also have their questions addressed. And with that, I will turn the call over to Daniel Griesemer, Tilly's President and Chief Executive Officer. Dan?

Thank you, Anne, and good afternoon, everyone. Thank you for joining us today. On our call, I will be providing you with an overview of our second-quarter performance and the key factors that drove our results. Bill will then review our financial results in more detail and provide our outlook for the third quarter and outlook for the full-year 2013. I will provide a few closing comments, and then we will open up the call for your questions.

Before I begin, however, I want to welcome Jennifer Ehrhardt, who will soon be our new Chief Financial Officer. Jennifer will officially become CFO on September 14, 2013. Jennifer brings to her new role the right talents and great experience in both teen retail apparel and public company finance and accounting. Since joining us this spring, Jennifer has become an important member of our senior team and, as I said in our release today, has been a great fit for Tilly's.

We also say goodbye to Bill Langsdorf, who will be leaving the Company for a well-earned retirement, and we wish him all the best. Among Bill's many contributions, his talents and dedication were instrumental to our growth and our successful transition to a public company. Bill established a solid financial foundation for Tilly's future with a capable finance and accounting team and strong financial controls and systems. Thank you, Bill.

Turning now to our results for the second quarter. We exceeded our earnings expectations for the quarter, even as we faced variable traffic trends as a result of an inconsistent retail environment that has clearly affected teen retailers. We achieved record second-quarter sales, expanded our gross margin rate, and increased net income compared to the prior-year quarter. We also achieved diluted earnings per share above our expectations at $0.15. These results are a testament to the relevance of our merchandise offering, the strength of our business model, and the focused execution of our team.

We achieved strong growth in our eCommerce sales, which were up 30% on a year-over-year basis as we engaged our customer with an even more dominant assortment of merchandise and a rich shopping experience, resulting in a strong increase in sales online of both full price and clearance merchandise. eCommerce is a critical driver of growth for us, and I'm pleased with the success we're having in this channel.

While our comparable-store sales did not meet our expectations, we maintained our historic pricing discipline and brand integrity, while at the same time taking the appropriate steps to ensure that our inventory was properly positioned for the upcoming back-to-school period. As a result, we're pleased that we ended the quarter with both higher gross margins and with inventory that was 3.9% less on a per-square-foot basis compared to the same date last year.

Equally important, we've lowered our SG&A rate by 30 basis points, further demonstrating the efficiency of our operations and the ability to tightly manage our costs as we open new stores and continue to invest in the long-term growth of our business.

The depth and relevance of our action sports-inspired brands and merchandise are driving a positive response to date by our customers during the back-to-school selling period. The breadth of merchandise selection we offer allows us to quickly identify emerging fashion trends, and the frequency with which we flow new items into our stores ensures that our customers see constant newness. Our store environment is full of energy and activity, staffed with associates that are able to relate to and engage with our customer. These unique elements have made Tilly's the destination for back to school and other key selling periods for more than 30 years and prove the continued relevance of the Tilly's concept.

During the second quarter, we opened seven new stores, bringing our store total count to 182. We introduced the Tilly's brand into six new markets and one new state. We're pleased with the high caliber real estate opportunities we are being presented with, as well as our pipeline of new stores. We continue to be on track to open at least 25 new stores in fiscal 2013 and expand the Tilly's concept to both new and existing markets.

I'd now like to turn the call over to Bill for more detail on our financial performance in the quarter. Bill?

Thank you, Dan, and good afternoon, everyone. Before I begin, I would also like to welcome Jennifer to the team. I've been following Jennifer's successful career over the years, keeping in the back of my mind that she would be a great fit for Tilly's. Her financial acumen, clear strategic thinking, and approachable manner make her a valuable asset to our Company.

We have been working closely together for the last several months, and I will work to support Jennifer as she transitions to her new role as CFO. I will really miss the very capable and hard-working team here, and I'm confident that Jennifer will provide great leadership for the team in the years ahead. The Company has a bright future, and I wish Jennifer and the rest of the Tilly's team much success.

So now I will begin reviewing the details of our second-quarter results and then provide our outlook for the third-quarter and full-year 2013.

For the second quarter, net sales increased 17.1% to $123 million, driven by 27 net new stores opened since the second quarter of 2012. Comparable-store sales decreased by 0.5% with flattish comps in apparel for men's, juniors, and kids and in accessories and a slightly negative comp in footwear.

Our eCommerce sales, which are included in our comparable-store sales, grew 30%. Our second-quarter comps reflect lower traffic, largely offset by an increase in both conversion and the average transaction value.

Gross profit increased to 22.5% to $38.2 million, or 31% of net sales, which is 140 basis point increase over the second quarter of 2012. Due to the fiscal calendar shift, about $8 million in sales shifted from the third quarter into the second quarter as expected. After even removing the benefit to margin rate of that sales shift into the quarter, we achieved a 70 basis point increase in product margins compared to the second quarter of last year.

Selling, general and administrative expenses were well-controlled as they totaled $31 million or 25.2% of net sales. This is a 30 basis point improvement over an SG&A rate of 25.5% of net sales in the same quarter last year after adjusting last year to remove a one-time charge.

As a reminder, the second quarter of fiscal 2012 included a one-time, noncash SG&A charge of $7.6 million before tax related to stock-based compensation expense triggered by the Company's initial public offering.

Our operating margin was 5.8% compared to an adjusted operating margin of 4.1% in the second quarter of 2012, reflecting the higher product margin and leverage on buying, distribution and occupancy costs. When adjusting for the extra week of back-to-school sales that fell in the second quarter of this year, operating margins were similar to the prior-year quarter.

Net income was $4.3 million, or $0.15 per diluted share, based on a weighted average diluted share count of 28.1 million shares. This compared to a GAAP net loss in the second quarter of 2012 of $1.2 million, or $0.04 per share, and adjusted second-quarter 2012 net income of $2.6 million, or $0.09 per diluted share, excluding last year's noncash SG&A charge and after applying a pro forma 40% C corporation tax rate.

Turning to the balance sheet, we ended the quarter with cash and marketable securities of about $50.8 million with no borrowings and no debt outstanding under our revolving credit facility. Cash used for capital expenditures during the quarter totaled $12.4 million compared to $8.9 million in the second quarter of 2012 and were primarily related to new stores opened during the quarter, new stores under construction during the quarter that are scheduled to open in the third quarter of 2013, as well as our new eCommerce distribution center.

Inventory totaled $63.4 million at the end of the quarter, and as Dan mentioned, compared to the same week 52 weeks ago, inventory declined 33.9% on a per-square-foot basis.

Now I'd like to turn to our outlook for the third-quarter and full-year 2013. For the third-quarter 2013, we expect comparable-store sales to be flat to last year compared to a 1.9% comparable-store sales increase in the third quarter of 2012. Net income in the third quarter is expected to be in the range of $5.4 million to $6.3 million, or $0.19 to $0.22 per diluted share, which assumes a 40% tax rate and a weighted average diluted share count of 28.3 million shares compared to 28.1 million weighted average diluted shares in the third quarter of last year. This expectation reflects the unfavorable impact of the third quarter as a result of this year's retail calendar shift to the benefit of the second quarter. This compares to net income in the third quarter of 2012 of $9.3 million, or $0.33 per share, and adjusted net income in the third quarter of 2012 of $8.3 million, or $0.30 per diluted share, which includes a 40% effective tax rate to make that quarter comparable.

Now looking ahead to Q3 inventory expectations, in the second half of the year, we remain focused on delivering healthy product margins at or above last year and keeping inventory fresh and current. This year we will be cycling against an inventory build that occurred last year as sales slowed after back to school. Therefore, we have strategically planned third quarter ending inventory per square foot to be down by low to mid-teens on a shifted calendar basis and believe this positions us well with the right level and composition of inventory for the fourth quarter.

Now moving on to the full year, we continue to expect comparable-store sales growth in the low single-digit range for fiscal 2013 on a 52-week versus 52-week basis. As discussed on our first-quarter call, this reflects gradually improving trends in the third and fourth quarter as we cycle easier comparisons in the second half of the year. Using an anticipated annual effective tax rate of 40%, net income for fiscal year 2013 is expected to be in the range of $21.5 million to $23.3 million, or $0.76 to $0.82 per diluted share and assumes a weighted average diluted share count of 28.2 million shares compared to 26.1 million weighted average diluted shares for the full-year 2012.

This projection for fiscal 2013 compares to net income for fiscal 2012 of $23.9 million, or $0.92 per diluted share, and adjusted net income for fiscal 2012 of $22.9 million, or $0.88 per diluted share.

Adjusted 2012 net income included four quarters of ongoing stock-based compensation expense totaling $2.7 million and a 40% effective tax rate for the entire year. Adjusted 2012 net income excluded the one-time charge of $7.6 million to recognize life-to-date stock-based compensation and the one-time tax benefit of $3 million, both of those recorded in the second quarter of 2012.

We continue to expect capital expenditures for fiscal year 2013 to be in the range of $40 million to $45 million with the majority, approximately $23 million, related to the opening of our new stores, as well as for remodels and refreshes of our existing stores.

Our projection also includes approximately $14 million for the completion of our new eCommerce distribution center. The balance of our expected capital spending in 2013 is related to expenditure on IT and other infrastructure improvements.

In keeping with our fiscal discipline, we remain focused on tightly controlling our expenses to capitalize on margin expansion opportunities.

Now I'd like to turn the call back over to Dan for some closing remarks. Dan?

Thanks, Bill. I'm pleased with the profitability we achieved during the second quarter given the traffic and sales variability and the continuation of a very promotional teen retail environment. Our positive back-to-school results to date continue to validate that our merchandise is relevant to our target customer. We have had a good start to the quarter, but remain cautious for the months ahead given the pattern in recent quarters of consumers focusing their shopping into compressed peak periods and pulling back during non-peak periods.

Despite these consumer behavior patterns seen over the last four quarters, we have complete confidence in our ability to deliver on our long-term growth potential.

We remain focused in many ways on the controllable elements of our business in order to achieve our objectives of long-term, sustainable growth. We are building upon the strength of our brand partnerships to ensure that we deliver a broad and deep assortment of action sports-inspired merchandise from both established and emerging third-party brands that embody our customers' lifestyles and attitudes. We are adhering to our pricing and inventory strategies to ensure that our merchandise is current and maintains the integrity of the brands we carry. We are supporting our new and existing stores with targeted and effective marketing and envisioning new and dynamic ways to engage our customer, and we are prudently managing our costs to maximize profitability while we expand our store base into new and existing markets.

Tilly's is a great brand with a strong connection to our customer. We have seasoned teams throughout our organization and a compelling business model that we believe will drive growth for years to come.

I'd now like to open up the call for your questions. Operator?

(Operator Instructions). Alex Pham, Wedbush Securities.

It is Alex on for Betty Chen. Welcome, Jennifer, and congratulations, Bill.

My question is, how are you guys viewing the current competitive landscape? What are you seeing given that a lot of the other teen retailers are definitely seeing weakness so far? And then can you guys provide any additional color on guidance? It almost seems like you guys are assuming a slowdown in current trends, but have mentioned that back to school is off to a great start. Thanks.

Yes, so our view of the competition, Alex, remains fairly consistent. We recognize that the breadth of the demographic that we target; the broad, dominant assortment; the combination of pure action sports brands and lifestyle brands, have us relevant to a pretty broad-based customer. And so, therefore, we know we take share from a lot of different places as we are growing.

There is clearly something going on in the teen space. It is also obvious beyond the teen space in the general retail sector. And our view is that we're going to remain focused on the things that are right for the Tilly's customer and the Tilly's brand and the Tilly's shareholder for the long-term. And competitors will do what they need to do, and we're going to remain focused on what is right for us and for the long-term.

And so it is clear that a lot of people are having some challenges. We are pleased at the results that we were able to deliver, and we're pleased with the response to date of the customer during the back-to-school season.

It is really our concern about this pattern that we've seen in a non-need to buy time period that has us being a little bit more conservative about what might happen post back to school. But we remain as bullish about the full year as we have been now for several quarters.

So we haven't changed the full year. It's more of a shuffle between second and third quarter that you are seeing, but we think it is prudent to be cautious given what we are seeing in a lot of different places about what might go on in September and October and early November.

Got it. Thanks.

Thank you.

Lorraine Hutchinson, Bank of America Merrill Lynch.

It is Paul Alexander for Lorraine. Dan, could you just talk a little bit more about that deceleration that you are expecting or maybe preparing contingency plans for after peak back to school? What kind of magnitude of a slowdown are you expecting? How much worse you are expecting that slowdown after peak to be than last year? And does that mean that you are letting inventory get a little lean right now in anticipation of that slowdown? And if you don't see that slowdown, what can you do to chase product? Thanks.

Yes, that was a lot in there, so let me try to take that. We don't have a crystal ball here to know what is actually going to happen. We are reading -- and the beauty of the Tilly's business model is that we are able to react very quickly. We have a very dynamic merchandise model that allows us to keep our inventory both in challenging times and in strong times, current and relevant and appropriate to the level of sales.

The inventory that we are talking about at the end of the third quarter is more a reflection of a comparison to LY's inventory, which we recognize had a little bit more carryover from September and October than we had hoped or had planned for, and we're now just not buying into that. So you will find the Tilly's stores filled with compelling and relevant merchandise, vibrant breadth and newness flowing constantly. Nothing has changed about our model there. We are just thinking that given what we're seeing in our own trends of concentrated sales during peak time periods and what a lot of people are talking about, some concerns out there and cautious numbers, we think it's prudent to just be nimble and be reflective of -- we are reading the business very near term.

We can react very quickly, and the customer will not notice the inventory decrease that we're talking about at the end of Q3 because it is really taking out what we believe was residual inventory last year.

That's great. If I may ask one follow-up, how would you contrast what happened in first quarter and second quarter? It seems like in both periods traffic was weaker than you expected, but in first quarter you were forced to be more promotional, whereas in second quarter you were able to maintain this pricing discipline. How did those pan out differently? Thank you.

Yes. Well, again, it is a testament to the great job that the team does here in managing the inventory across the board. Inventory is more reflective of the environment right now. We remain committed to keeping our inventory clean and current and solving problems in season and not carrying them into future seasons because of how critical newness and freshness is to our customer. So that is a marching beacon that we have here in the business. And we -- the promotional activity you saw in Q1 was really -- and we talked about this -- clearing things that we did not want to carry into Q2. So we began Q2 clean and current, and we began Q3 clean and current, and we will do the same thing for Q4.

All right. Thank you very much.

Lindsay Drucker Mann, Goldman Sachs.

I was hoping actually, Dan, if you could be more specific about what your quarter-to-date comp trend is.

We haven't made a habit of doing that, and we will continue that practice. What I can say is that we are encouraged by the positive response to date. It is positive, and it is more positive than the numbers we just delivered. But in terms of any other specifics, we're going to just stick with our flattish, which is a real testament to the concern we have about what we're seeing in the space and in the overall environment, not a reflection of how we feel about the potential for Tilly's or the relevance of the concept. So we will leave it at that.

Okay, thanks. And Bill or maybe Jennifer, hi. I was hoping, your guidance seems to embed a decent amount of margin pressure or incremental spending in the back half of the year, at least back of the envelope based on your comp guidance. That is how we understood it. So I am assuming that is mostly on the SG&A line given your approach and what you commented on as far as product margins are concerned. Can you just talk in a little bit more detail about what your expectations are as far as SG&A is concerned?

Yes, Lindsay. The third quarter it would also be more pressure on the gross profit line, not on the product margin part of it, but on the deleverage on the buying, distribution, and occupancy costs. As you will remember, we mentioned about $8 million in sales shifted between third quarter and second quarter. And it is the buying, distribution, and occupancy costs, of course, didn't shift for -- we still have 13 weeks in the third quarter of that. And so they will deleverage more, all other things being equal, than they would have otherwise. So in the third quarter, it is gross profit pressure as well but not product margin pressure.

And when you look at SG&A, there will be mild deleverage in the third quarter for that same reason, because of the sales shift.

When you look at the fourth quarter, it will be a little bit closer to LY but probably still some deleverage with these very mild comp assumptions that we have.

Okay. And then, how should we think about the SG&A, the stuff that you already -- knowing that you haven't given fiscal 2014 guidance, but things that are in the works as far as incremental areas to spend for 2014 beyond store openings?

The increment is going to be -- there's just very mild increases in a variety of areas just with the normal course of the business expanding more stores and things. So it is store payroll and other things you'd expect when we open more stores. It's not a large chunk of SG&A that would be added. What we would be adding this next year is a full cost related to our new DC for eCommerce. But that will be built into our projections as we -- after we give them to you for -- and that's really under distribution and occupancy costs, not under SG&A.

Okay. Thank you.

Thanks, Lindsay.

Dave King, ROTH Capital Partners.

So I guess since Lindsay asked some of my questions on the SG&A and gross margin, I won't get a chance to ask you one last question, Bill. So disappointed about that.

But Dan, just generally speaking more of a theoretical question. If I back out eComm, the eComm sales this quarter and I back into what the core comp is just on a retail store basis, knowing that you don't necessarily like to look at it that way, I come up with it being down about 3.5%-plus. Understanding that a lot of that is due to the tough environment out there, I'm just wondering if you could comment on how you think about that on a store-level basis in the context of your buildout plans for more stores, and at what point would you start to think about reevaluating your store opening plans if at all, if these challenges, even if they are industry-related entirely, do persist?

Sure. Good. Thanks, Dave. The impact or the result there, your numbers are just a little high in terms of what you are saying the negative comp would be there in the stores. But you are close enough to get the gist of what you are getting at, and we recognize that there is extraordinary opportunity all over this country for the Tilly's brand. There is no race; there is no rush; there is no got to deliver a certain number every quarter or every year to get there. We're going to continue to do what we've been doing, which is looking at the overall climate; looking at our own execution; looking at the real estate pipeline and making the best decisions out multiple years, as well as intra-year.

We may make course corrections next year if we see the things persist. We will be very agile, and we don't have a fixed number that we have to deliver. So we see huge opportunity. We see a lot of potential in eCommerce. I am so pleased that we're investing the way we are in that business going forward. It is definitely paying off and will pay off long-term and tremendous potential. But like I said, there is no race here.

No, fair enough. And maybe just along those lines then, how do you think about then building out stores and the ability to have that help with the eComm business? And is that a necessary requirement in a certain new market for you to get that eComm business and maybe just help understanding that? Appreciate it.

Sure. Yes, we have talked before about the supportive nature of the combination of stores and eCommerce. We know a large percentage of our business comes from places that don't have stores. We also know that once we put a store in one of those places, we see both the eCommerce business grow and the store business grow.

So we look at the business and the brand and the customer experience holistically. I have termed it omnibrands, not omnichannel because that is simply a transaction-based view. This is more brand and customer experience view across the entire enterprise, and we see them closely related and lots of opportunity to create a great experience both online and in store and both and using technology and all kinds of things to exchange the brand message across various touchpoints.

Okay. Thanks so much.

Thank you.

Richard Jaffe, Stifel.

Looking at the store growth and a variety of stores you are opening in a variety of markets, wondering if you are seeing any pattern either in terms of real estate or geographic location that has been stronger for you? And then broadly speaking, how the new stores are performing compared to the mature California market stores.

And then lastly, you commented on traffic versus transaction and just wondering how you are defining traffic. Thanks.

Okay, a few questions there. There have been no meaningful differences in the performance by venue type, region, anything. There is nothing new there. I'd almost liken it to a river analogy. All the relationships and relativities and fundamentals of the business models that we have had and talked about now for quite some time all remain intact. We see great vibrance and reception to the brand in primary and in secondary markets, in off-mall and in mall venues. It is pretty exciting, and we recognize significant opportunity nationally.

The performance of new stores is as you would expect and as we've expected given what the total business has done. So you've got some of the numbers that we're talking about here with slightly negative total comps with a strong eCommerce business indicate a negative -- a low negative store comp, and that is a river kind of thing. So the new stores, their relationship to the rest of the chain is performing exactly as they have. And in fact, the stores that we've opened are on our expectations year to date.

So there is nothing fundamental. We feel just as confident about the potential as we always have.

Traffic?

Traffic, yes, yes. On the traffic, we have counters in our stores. We track traffic by hour so that traffic number is a store traffic count that we are referring to.

Great. Thank you.

Okay, thank you.

Pamela Quintiliano, SunTrust.

Congrats, Jennifer and Bill. Actually, a few questions for you guys.

Can you give us an idea about the progression of comps throughout the quarter and also how to think about performance of branded products versus unbranded product and where the teen's hunger really is and then just guys versus girls?

Sure, Pam. I will take that first one, and maybe Dan can take that second one.

On the progression of comps, what we saw was it looks like something similar to what so many others have been talking about, which was a dip when you got to late June and early July. We did see -- and so that was the trough of the quarter for comps. And then we saw it starting to come back nicely at the end of July as it got close to back to school peak periods again. So there's really -- doing well and then it troughed, and then it came back late in the quarter.

And I will take the branded. Branded -- so we have always believed that Tilly's is a destination of brands, a house of brands, and so, therefore, a strong branded business is critical to our success. We have seen that in the second quarter, and we recognize that the mix that we have of branded product is compelling and relevant, and we're seeing a positive response to the back-to-school offering as a result.

It remains around the 70%-30% split -- 70% branded, 30% proprietary brands. We don't manage to that, and you may see minor variations from quarter to quarter, season to season. But it's a good strong mix, and we think that model works for the long-term.

As we said in I think it was the release, we said it was a pretty balanced business with all businesses being flattish, except for the footwear business, which was only slightly flat.

So the way we are looking at this, there wasn't any significant weakness. There was general relative strength across all the businesses. That balance is something that I think is really important and an important takeaway about the Tilly's business model is how important the balance is to deliver the profit that we are able to deliver. So no big standouts one way or another there on the mix between guidance in juniors.

And can I just ask one follow-up question? You had mentioned caution because right now you are in a peak shopping period with back to school and how non-peak there may be a bit of a trail off of trends. Are you adjusting how you are marketing or how you are messaging to your core customer, reflecting just the challenges that are out there in the teen environment and that we're about to enter more of a non-peak period?

Let me -- because to give a full and complete answer to that would give you a roadmap to everything you are going to see us do over the next several months. So what I will say is we are completely aware of it. We are tailoring in our dynamic model and in our omnibrand and vibrant marketing environment. We're tailoring our marketing message to reflect what we believe needs to be done to create the most engaging brand experience across all the channels. So we recognize the environment and are customizing our offering as a result.

Great. Well, I look forward to seeing it. Best of luck.

Okay. Thank you, Pamela.

Steph Wissink, Piper Jaffray.

Dan and Bill, if I could just ask a couple of questions. I think most of my questions have been answered, but no one has asked yet about the prototypes of the new stores. If you could just share with us any changes that we should be watching for as you roll out these next 20 to 25 units.

And then separately, Dan, just stepping back, if you think about the comp rate trend that has been more normalized and established here over the last, call it, 18 months on the lower end of that low single-digit range, if that is the new normal, how does that change how you think about net income growth? Are there changes that you would or could make to potentially lower the leverage threshold in the business at that rate of comp? Thank you.

Yes, I think I will answer the second question first, and I think you are asking a good question that we're looking at and will continue to look at and read both the macro environment and our own performance, recognizing that as a public company we have a responsibility to grow our earnings. And if this is the new permanent normal, then there are many things that we can do and will do to make sure that we improve our earnings.

So yes, totally understand, and we remain as bullish about the future and whatever future that -- whatever that external environment is we will make sure that we are delivering the greatest results possible.

On the prototype, we have always done iterations. The overall financial model remains the same. So there is nothing that we have to talk about here in terms of the economic model of new stores. If you are talking about the physical execution of that space, we are constantly tweaking and doing little things to keep the store as relevant an experience as possible. And so we remain looking at how the concept can be tweaked in little ways but not ones that are tollhouses. So the concept works, and the brand experience and the physical environment works extremely well all over the country in a variety of venues. So this is more about being very judicious about the real estate decisions rather than looking for tweaks on store design.

All right. Thank you. Best of luck, guys.

Sharon Zackfia, William Blair.

Not to beat a dead horse on the comp guidance for the quarter, but obviously your comparisons get a lot easier in the second half of the quarter versus the first. I think last year you had the weather in California, and then that gas spike really hurt you in the back half. So those things would be separate from these peaks and valleys that you were referring to in terms of customer traffic. So just trying to really get my hands around why it sounds like you have a positive comp right now, why we would expect things to get worse against some of those easier comparisons.

I mean is there actually anything you are seeing in the business, specific to your business, rather than broader retail that makes you concerned about those easier comparisons?

Yes, Sharon. It is Bill. It is not something we're seeing in the business. However, it is something that we are hearing in broader retail, a lot of expectations and concern out there. So perhaps you would call us cautiously optimistic that we will see better than these numbers, but we do not know that. We are looking at a pattern in the past of falloff in non-peak periods. And so although we are positive now, we are, well, building that in. And if we start to see this diverge, that will be just -- that will be gravy for us.

But you are quite correct. Last year we saw the pattern -- there were a variety of things going on here in the macro environment, and one of them was traffic fell off after Labor Day and for the rest of the quarter. And so we will be cycling against that weaker traffic. But we won't really know until we get past Labor Day and the rest of September, at least, how our customer is behaving in that period.

I guess just a follow-up to that. Philosophically did you think about just giving a broader range to encompass that uncertainty rather than give a lower comp estimate than you are actually experiencing right now?

We thought about -- quite a bit actually about the -- we wanted to make sure that we were prudent here, and we thought, well, given what we are hearing in the macro world that we would be better off being a little bit more conservative on this. But yes, we certainly thought about a variety of purchases.

Okay. And given where your stores are -- I'm sorry, go ahead.

I was just going to say, I think, Sharon, we're using our best judgment looking at all of the things that we can read about the business to make the best recommendation as to what we believe the quarter is going to deliver. There are many, many variables, and you've seen a lot of people just in the last week or so communicating that variability that was not expected.

So it's our best judgment. You could put the word -ish next to the word flat, and maybe would you feel better about that?

Everything makes me feel better, Dan.

Just one follow-up. Given the markets you are in, because you are not a national player per se, what inning are you in in the back-to-school season across your markets? Are you in the seventh inning? Are you earlier or later? I'm not really as familiar with where California starts versus the rest of the country.

They are singing, Take Me Out to the Ballgame. It is the seventh inning stretch.

Okay. Thank you.

Yes, sure.

Jeff Van Sinderen, B. Riley & Co.

Dan, maybe you can give us a little more color on the juniors segment performance, and then also maybe you could speak to denim in Q2, and then also what you're seeing in those two segments in Q3 so far.

And then also your overall promotional levels, in Q2 was it up or down versus last year and then as far as your overall promotional level expected for Q3 versus last year, given the promotional environment?

Yes, okay. So, let's see, so no real standouts as we said in relatively flat numbers, flattish comps for the guys, juniors, kids, and accessories with only slight negative in the footwear. So that gives you the benchmark. There's nothing to talk about there junior-wise, one way or the other.

Denim, we haven't really broken out or talked about that detail in the business. I think everybody knows colored denim was a big thing last year. It has shifted to more blue-look denim, and then there is a variety of other alternatives that seem to be out there and appropriate for the customer to wear, be it on the guys or the juniors side.

So I don't really have a whole lot of color that I can share there yet and certainly not on Q3. We are not prepared to share that level of detail on the Q3 numbers.

The promotion levels for Q2 were basically flat to LY, and we look for similar sort of execution in Q3. So we have planned promotions, anything you see going on in our business right now or that you saw in back to school or that you see in September and October are all things that we've planned or done last year. So we're really focused on making sure the product is relevant and new and compelling and that we are flowing newness and that we are executing on all the things that we can control to deliver the best results.

Okay. And then would you mind sharing what the actual bricks and mortar comp was for Q2 and then what your approximate comp expectation for bricks and mortars is for Q3? In other words, what you have built into guidance there?

So historically the bricks and mortar comp has been giving us anywhere from, when I look back by quarter for the last few years, anywhere from 1.8% to 2.8% of our comp. And -- I am sorry, eCommerce has been giving us 1.8% to 2.8% of our comp. And so this last quarter was no exception to that. It was about 2.5% of our comp.

So the bricks and mortar was minus 3%, while the overall was minus 0.5%. So when we're looking at flattish in Q3, it is going to be a similar kind of contribution by eComm, somewhere in that 2%-ish range that it has been revolving around for the last couple of years, at least.

Okay, got it. Thanks and good luck for the rest of the quarter.

Lindsay Drucker Mann.

Bill, I just had a quick reminder, if you could, what the maturity curve, as far as your new stores, looks like. And then also if you guys could comment on, if there was something specific in your eCommerce business where you saw -- and I'm sorry if I missed this before -- but where you saw the improvement and the increased mix shift toward eComm, whereas last quarter it was more or less equal between the two channels? What happened in the second quarter versus first? Thanks.

Maybe I will take that first one, and Dan, do you want to --?

Okay. The maturity curve, from everything we can see, the maturity curve is still relevant of what we've been talking about for a while. If we open in a market that has been well-established for many years, people know us. It's a shorter maturity curve than the approximate five-year maturity curve that we've seen in new markets.

And in fact, when we look back at our -- when we started in these new markets outside the western United States, the first markets we went into were in Florida, and these stores -- the first few stores have just passed into their five-year period, and they are right on track for where they need to be. So we believe the maturity curve is still appropriate that we've been talking about.

And on the eCommerce, Lindsay, that weak shift had some impact into the total eComm growth, and so that has to be accounted for. Aside from that, we saw the eCommerce business has a very positive response from the customer to the things that we have been doing to provide a more dominant, broader assortment, more brands and more styles from those brands, as well as lots of tweaks we continue to do to the website in terms of search and navigation and product features and grouping of various products and messages and all those kind of things.

So it just continues to be a confirmation that our belief in the importance of eCommerce as a component and a meaningful component of our growth in the future, as well as the investments that we're making, this is just another sign that we are on the right track and that the Tilly's brand has incredible relevance nationally.

Ms. Drucker Mann, did you have anything else?

Mr. Griesemer, we have no further questions. I will turn the conference back to you for closing or additional remarks.

Okay, great. Thanks, again, everybody, for joining us. We look forward to speaking with many of you at the Goldman Sachs Annual Global Retailing Conference in New York on September 11 and discussing our third-quarter results in late November. Have a good evening.

And, again, ladies and gentlemen, that does conclude our conference for today. We thank you all for your participation.