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Based in Irvine, California, Tilly's (TLYS) scheduled a $100 million IPO with a market capitalization of $245 million at a price range mid-point of $12.5 for Friday, May 4, 2012.

TLYS is one of six IPOs scheduled for the week of April 30th. (Full IPO calendar here).

TLYS plans on selling 41% of the company on the IPO, which is a relatively high percentage, and is a negative. [S-1]

Manager, Joint Managers: Goldman; BofA; Piper Jaffray.

SUMMARY
TLYS is a 'west coast' teen apparel specialty retailer. Almost all of the IPO proceeds are going to stockholders.

OBSERVATIONS & VALUATION COMMENTS
Earnings peaked at $24mm in 2008, then dropped to $21 million for 2011.

TLYS is priced at 12 times 2011 earnings, which is at the bottom of the profitable companies in the sector.

Larger competitors have higher gross margins and higher P/E ratios, probably due to branding economies of scale. TLYS anticipates a 15% internal growth rate mostly from new store openings, which is good not great.

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Mrkt

Price /

Price /

Price /

YTD

Gross

COMPARE

Cap ($mm)

Sales

Earnings

BookValue

Price Chge

Profit %

SORTED By P/E ratio
Hot Topic (HOTT)

$420

0.6

-233

2.3

51%

34%

Pacific Sunwear of California (PSUN)

$100

0.1

-1

0.5

-13%

22%

Tilly's (TLYS)

$245

0.6

12

3.5

32%

The Buckle (BKE)

$2,190

2.1

15

6.0

12%

44%

Wet Seal (WTSLA)

$295

0.5

20

1.2

0%

31%

Urban Outfitters (URBN)

$4,100

1.7

22

3.8

3%

35%

American Eagle Outfitters (AEO)

$3,460

1.1

23

2.4

16%

36%

Aeropostale (ARO)

$1,790

0.8

26

4.4

45%

26%

Zumiez (ZUMZ)

$1,120

2.0

30

4.1

29%

36%

Abercrombie & Fitch (ANF)

$4,150

1.0

32

22.7

0%

61%

CONCLUSION
IPOesktop believes TLYS's range price of $12.50 is on the low side and TLYS should increase on the IPO. IPOdesktop would not chase after TLYS, however, in the after-market.

BUSINESS
TLYS says it is a destination specialty retailer of West Coast inspired apparel, footwear and accessories.

  • TLYS, according to the S-1 filing, brings together an unparalleled selection of the most sought-after brands rooted in action sports, music, art and fashion.
  • TLYS stores are designed to be a seamless extension of teen and young adult consumers' lifestyles with a balance of guys' and juniors' merchandise in a stimulating environment, according to the S-1.
  • As of January 28, 2012, TLYS operated 140 stores in 14 states, averaging 7,800 square feet. TLYS also sells products through an e-commerce website, tillys.com.

RECENT DEVELOPMENTS
Management reported comparable store sales information based upon internal reporting for the 12 weeks ended April 21, 2012. The comparable store sales results are only for 12 weeks and therefore the final results for the full quarter ending April 28, 2012 may be materially different, according to TLYS.

Comparable store sales increased 3.9% in the first 12 weeks of fiscal 2012 first quarter following an increase of 18.1% for the same period in fiscal 2011. As of April 21, 2012, the company operated 145 stores, reflecting five openings year-to-date, with at least 16 net new stores expected to open in the remainder of the year.

GROWTH PLAN
TLYS believes there is a significant opportunity to expand its store base to more than 500 stores over the next 10 years. TLYS plans to add a total of at least 21 net new stores in fiscal year 2012 and to continue opening new stores at an annual rate of 15% for the next several years thereafter.

Unit economics
TLYS's new store model assumes a target store size averaging 7,500 to 8,000 square feet. In the first 12 months after opening, TLYS's new store model targets net sales of $2.2 million and cash flows of $300,000, with cash flows rising to over $400,000 in the second 12 months as the store begins to mature. The target net investment to open stores is between $500,000 and $550,000, reflecting a mild inflationary increase to the range of historical average costs incurred to open stores since the beginning of 2005.

This results in an average pre-tax cash-on-cash payback period on TLYS's investment of about 18 months.

E-commerce
In fiscal 2011, e-commerce sales increased 33% and represented 11% of total net sales. TLYS believes e-commerce sales will continue to outpace total sales growth and reach 15% of net sales over time.

COMPETITION
TLYS currently competes with other retailers such as Abercrombie & Fitch Co., Aeropostale, Inc., American Eagle Outfitters, Inc., The Buckle, Inc., Forever 21, Inc., Hot Topic, Inc., Pacific Sunwear of California, Inc., The Wet Seal, Inc., Urban Outfitters, Inc. and Zumiez, Inc.

USE OF PROCEEDS
TLYS expects to net $86.4 million from the sale of 7.6 million shares. Shareholders intend to sell 400,000 shares.

Proceeds are allocated to pay all undistributed cumulative earnings to date to the current shareholders of World of Jeans & Tops plus interest. World of Jeans & Tops expects to get $84 million plus of the IPO proceeds.

Disclaimer: This TLYS IPO report is based on a reading and analysis of TLYS's S-1 filing which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Tilly's