Greetings, and welcome to Tilly's Inc. Fourth Quarter 2019 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Gar Jackson, Investor Relations for Tilly's Inc. Thank you. You may begin.

Good afternoon, and welcome to the Tilly's Fiscal 2019 Fourth 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 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 March 12, 2020 and actual results may differ materially from current expectations based on a number of factors affecting Tilly's business, including the current coronavirus situation. 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 2019 fourth quarter earnings release, which is furnished to the SEC today on Form 8-K as well as our other filings with 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. Now, I will turn the call over to Ed.

Thanks Gar. Good afternoon, everyone and thank you for joining us today. As we preannounced in mid-January our fiscal 2019 fourth quarter results were disappointing due to a deeper-than-expected drop in store traffic and comp sales during the second and third weeks of December, ultimately resulting in our first negative comp quarter in over three and half years. Given that several other retailers have since reported similar slowdowns in their businesses during the same period, we believe this drop was primarily due to a shift in consumer behavior in connection with the shorter window between Thanksgiving and Christmas for this past holiday season. Our e-comm business net sales decreased by 1.2% during the fourth quarter, which we believe was due in part to a narrowed online product offering compared to last year which has since been corrected. E-commerce sales have increased by a single-digit percentage thus far in the first quarter of fiscal 2020. By department in the fourth quarter girls and women's comp positive while footwear accessories boys and men's comp negative. We experienced a deceleration in sales from a couple of our top third-party brands. Going forward as we typically do, we are adjusting our assortments by bringing in specific new brands and selectively buying deeper in existing brands that we believe will continue to grow. Some of these new brands have already been introduced into our spring assortments and more will be forthcoming for the back-to-school season. Thus far in the first quarter of fiscal 2020, total comps are up low single digits with girls, women's and men's comping positive, while accessories, footwear in boys are comping negative. Our new young contemporary proprietary brand West of Melrose is now in 100 of our total stores as well as online and continues to receive a positive response. As…

Thanks, Ed. Details of our fiscal 2019 fourth quarter operating performance compared to fiscal 2018's fourth quarter were as follows: total net sales of $172.5 million increased by $1.9 million or 1.1% from $170.6 million last year. Total comparable store net sales including e-commerce declined 2.0% versus last year's increase of 6.4%. Comp sales in physical stores declined 2.2% versus last year's 0.9% decrease. Stores represented approximately 80.7% of our total net sales for the quarter, compared to 80.3% last year. E-comm net sales declined 1.2%, compared to last year's 49.6% increase. E-comm represented approximately 19.3% of our total net sales, compared to approximately 19.7% of our total net sales last year. We ended the quarter with 240 total stores including one RSQ pop-up shop, compared to 229 total stores last year, which included four RSQ pop-up shops. Gross profit including buying distribution and occupancy expenses was $52.1 million, or 30.2% of net sales, compared to $52.2 million, or 30.6% of net sales last year. Product margins declined approximately 20 basis points compared to last year due to increased markdowns. Occupancy costs deleveraged approximately 70 basis points as a percentage of net sales, primarily due to opening 11 net new stores compared to last year and the negative sales. Distribution expenses improved by approximately 50 basis points primarily due to lower e-comm shipping charges compared to last year. Total SG&A expenses were $43.6 million, or 25.3% of net sales, compared to $41.2 million, or 24.2% of net sales last year. Primary SG&A variances to last year include approximately $1.5 million of increased store payroll from store count and minimum wage growth, approximately $0.8 million of increased workers' compensation claim reserves and approximately $0.4 million of increased marketing expenses primarily relating to e-comm, partially offset by a $1.2 million reduction in…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jeff Van Sinderen with B. Riley. Please proceed with your question.

Hello. This is Richard Magnusen in for Jeff Van Sinderen. First off, can you speak more about inventory and supply chain and what you're experiencing so far in terms of timing of receipts and what you expect for Q2 given the manufacturing place in China? And to what extent you might expect Q3 to be normalized in this regard?

Yes. So as we noted in our prepared remarks, we have been notified of a relatively modest percentage of our total receipts being delayed in the March through June time period. And when I say relatively modest, less than 10% in this current month, maybe a little more than 10% in some of those other months, but not expecting that that's going to result in any direct correlation with sales activity. Our teams are working very hard with our brand partners to identify alternative actions and figure out as best we can the timing of deliveries. We're not expecting any major business disruptions solely from the timing of the deliveries themselves. And really it's only through June that we've gotten any specific information of new receipts being delayed. We've been receiving reports that production capacity in China seems to have gotten back to anywhere from 70%, 80%, 85% based on whose report you read. So hopefully, this situation will start moderating at some point and we can get back to some sense of normalcy, but for now we're doing everything we can to stay as informed as we can.

Thank you. And then can you speak about planned promotional levels currently and what you will do to if traffic falls off hard due to the COVID-19 or coronavirus?

Well, we're not really going to -- we're not planning on doing anything that we don't normally do even if we see softness in sales. We've been aggressively managing our inventory as we have done for the past few years, just to adjust inventory levels to what we think the sales levels will fall out to be. So, from a promotional standpoint, I'm not expecting anything unusual from our standpoint.

Okay. And then, one last question is, it's understood that you're not providing guidance, but what is your thinking about generating positive cash flow for this year?

Well, that all depends on exactly how things shake out. As long as comps are anywhere better than minus 20, we should be able to have a positive cash flow for the year. So, it would take a minus 20 and maybe worse for us to get in at any position where we would be dropping cash net-net year-over-year. So -- and we've got a strong balance sheet, so it's going to help us weather this storm depending on what happens. And looking at the environment just these last several days, we have seen store traffic drop off in all markets by at least double digits, so that certainly has given us pause. And then even just today within the past hour the amount of news coming out about sports leagues canceling, their seasons and even Disneyland here closing, those are some pretty shocking and remarkable events that just makes it impossible for us to predict with any certainty what's going to happen. But thankfully, we're a very healthy company from a balance sheet standpoint and should be able to ride this out.

All right. Thank you, very much.

Thank you.

[Operator Instructions] Our next question comes from the line of Mitch Kummetz with Pivotal Research. Please proceed with your question.

Thanks for taking my questions. I guess, first, just to follow-up Mike, you're talking about store traffic dropped off double digits in all markets or at least double digits in some markets. Have you seen any uptick in the e-comm business as the store traffic is falling off? Or is it just that nobody is interested in buying anything?

We've seen -- this is Ed. We've seen a slight improvement in our e-comm business for sure, so we're hoping that that's consistent going forward which we have no reason to believe it won't be consistent. So it's been decent.

And then Ed, you talked about in the quarter, I think you're referencing the quarter that you saw some deceleration in some top third-party brands. Can you maybe elaborate on that? Is this part of a bigger trend shift away from like the whole kind of retro thing? Or is this specific to just a couple of brands that maybe have just sort of run their course? And then, you also talked about maybe shifting to some new brands or buying deeper into some of the ones that are working just kind of fill in those pieces.

Yes. I mean, it's not a shift away from retro that we're seeing. Some of the brands that have been strong during that trend continue to be strong. There's a couple of brands that have tailed off, but really they started to tail off at parts last year and we have adjusted accordingly. And then as we always do, we're always bringing in new brands. And a couple of the most recent new brand we brought in which is not a new brand but new for us is Obey and we're pleased with the initial results of that. We brought back three people as part of the West of Melrose collection. So that's the type of thing that when you carry as many brands as we do, luckily we're not dependent on any one brand and I'm not concerned about any kind of shift in trend at all because we're always dealing with something like that and the team does a great job of managing through that.

And I guess lastly on footwear, I know it was a negative comp in the quarter. I think if I heard correctly it was a negative comp Q1 to date. I know there were some -- maybe some allocation issues in the fourth quarter. Can you sort of speak to the broader trend that you're seeing in footwear? I know you're fairly concentrated in one brand in that category.

Yes. Well honestly we just couldn't get enough of certain styles of a certain brand. And have we had enough inventory in those. Our results would have been quite a bit better.

Is that -- it doesn't sound like that's corrected so far through the first quarter. Are you still in the process of trying to correct that? Or...

It's still -- I would say it's still a work in progress, but we've made pretty substantial progress with it.

Okay. All right. Thanks guys, Good luck.

All right. Thank you.

There are no other questions in queue. I'd like to hand the call back to Mr. Thomas for closing remarks.

Thank you for joining us today and have a good evening everyone.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.