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Tilly's Inc (TLYS 2.70%)
Q3 2019 Earnings Call
Dec 4, 2019, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings and welcome to Tilly's Inc. Third Quarter 2019 Earnings Results Conference Call. [Operator Instructions]
I will now turn the conference over to your host, Gar Jackson, you may begin.
Gar Jackson -- Founder & President
Good afternoon, and welcome to the Tilly's fiscal 2019 third 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 December 4, 2019 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 any forward-looking statements, please see the disclaimer regarding forward-looking statements that is included in our fiscal 2019 third quarter earnings release, which was furnished for 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.
I'll now turn the call over to Ed.
Edmond Thomas -- President and Chief Executive Officer
Thanks, Gar. Good afternoon, everyone and thank you for joining us today. We are very encouraged by our results during the third quarter, as well as during Thanksgiving weekend and Cyber Monday. Our 14th consecutive quarter of flat-to-positive comp sales in the third quarter included positive comps in each month of the quarter, both from stores and e-com and from each of our merchandising departments.
Our graphic tees business was particularly strong across all apparel departments. In women's, we introduced a new young contemporary proprietary brand, West of Melrose in a few targeted stores during the back-to-school season that will soon be introduced to most of our stores based on the positive initial customer response to this collection of both branded and proprietary product. West of Melrose is aimed at capturing the older teen and college-age young women, which we believe, will help extend the reach of our women's business.
Speaking of merchandising, I'd like to publicly welcome Tricia Smith to our Company. Tricia joined us at the end of September as our new Executive Vice President, Chief Merchandising Officer. She enjoyed a successful 25-year career at Nordstrom, most recently as Executive Vice President, General Merchandise Manager of Women's, Young Contemporary, Designer, and Specialized Apparel before deciding to join us. We are very excited to have someone of Tricia experience and background leading our merchandising efforts. We have been very impressed with Tricia's contributions thus far, and she is already beginning to identify opportunities for improvement. Under Tricia's leadership, we expect to see a more targeted and carefully edited assortment over time that will tell a clear and product stories for our customers to better understand what Tilly's stands for in its merchandising offerings.
Turning to real estate, we remain encouraged by the performance of our new store openings and continue to believe we have a meaningful number of opportunities to open profitable new stores in the future. We opened four new full-size Tilly's stores during the third quarter, and we have opened -- just opened seven more stores during the fourth quarter prior to Thanksgiving. We also plan to open a new Tilly's store at Universal City before Christmas, bringing our total new store openings for fiscal 2019 to 14. As planned, we closed our RSQ pop-up store in King of Prussia upon opening of our full-size store there during the third quarter.
In fiscal 2020, our preliminary expectations are to open up 15 new stores, assuming appropriate economics can be obtained. We will continue to prioritize expanding our presence in existing markets, wherein we believe we can achieve greater market penetration and brand awareness. We do not have any confirmed store closures in fiscal 2020 at this time, yet had some may likely occur as we work our way through our continuous lease renewal negotiations.
In closing, I'd like to thank our entire team for continuing to drive positive comps and improvements in our business. Despite a slow start to the fourth quarter as a result of a later Thanksgiving this year, Black Friday weekend met our expectations, leaving us optimistic about our opportunity to deliver positive comps in the fourth quarter.
Mike will now discuss the details of our third quarter operating performance and introduce our fourth quarter earnings outlook. Mike?
Mike Henry -- Executive Vice President & Chief Financial Officer
Thanks, Ed. Our fiscal 2019 third quarter operating results compared to last year's third quarter were as follows. Total net sales of $154.8 million increased by $8 million or 5.4% from $146.8 million last year. Total comparable store net sales, including e-commerce, were up 3.1% on top of last year's 4.3% increase. Comp sales in physical stores were up 2.4% on top of last year's 1.3% increase. Stores represented approximately 85.3% of our total net sales for the quarter compared to approximately 85.5% last year.
E-com net sales increased 7.4% on top of last year's 26.7% increase, and represented approximately 14.7% of our total net sales this year compared to approximately 14.5% of our total net sales last year.
We ended the quarter with 232 total stores, including one RSQ pop-up shop compared to 227 total stores last year, which included four RSQ pop-up shops.
Gross profit, including buying, distribution and occupancy expenses, was $47.2 million or 30.5% of net sales compared to $43.7 million or 29.7% of net sales last year. Product margins improved by 80 basis points compared to last year.
Total buying, distribution and occupancy cost deleveraged by less than 10 basis points as a percentage of net sales, primarily due to severance and other transition costs associated with our change in merchandising leadership during the quarter of approximately $0.7 million, partially offset by improved leverage of distribution costs.
Total SG&A expenses were $39.5 million or 25.5% of net sales compared to $36.9 million or 25.1% of net sales last year. Primary SG&A variances to last year include approximately $1 million of increased marketing and fulfillment expenses, primarily relating to e-com, 0.5% -- $0.5 million asset write-off charge relating to mobile app development, approximately $0.5 million of increased store payroll from minimum wage and store count growth, and approximately $0.5 million of increased temporary labor costs. Despite the increase in store payroll dollars, we are able to improve operating leverage of store payroll cost by 30 basis points on higher total sales. Last year's SG&A includes approximately $0.7 million of secondary offering costs that were not repeated this year.
Operating income improved to $7.7 million or 5% of net sales compared to $6.7 million or 4.6% of net sales last year due to net sales growth. Income tax expense was $2.2 million or 25.9% of pre-tax income compared to $2 million or 26.9% of pre-tax income last year. Net income was $6.4 million or $0.21 per diluted share compared to $5.4 million or $0.18 per diluted share last year.
Weighted average diluted shares for the quarter were 29.8 million compared to 30.1 million last year.
All the results just discussed are reported on a GAAP basis. In our earnings press release issued today, interested parties will also find certain non-GAAP tables comparing third quarter and year-to-date performance for last year, excluding certain infrequently occurring items that are not typically part of our day-to-day operations, namely the severance and other transition costs relating to merchandising leadership from this year's third quarter, secondary offering costs from last year's third quarter, and a legal matter credit from last year's year-to-date results.
Turning to our balance sheet, we ended the quarter with cash and marketable securities totaling $130.1 million and no debt compared to $120.5 million and no debt last year. We ended the quarter with inventories per square foot down 3.8% and more current in terms of aging compared to last year at this time. Total year-to-date capital expenditures through third quarter were $10.6 million compared to $10.4 million last year. We anticipate total capital expenditures for fiscal 2019 to be approximately $19 million. For fiscal 2020, we preliminarily anticipate total capex to be approximately $20 million based on opening 15 new stores and continuing to enhance omnichannel and other customer-facing capabilities.
Now turning to our outlook for the fourth quarter of fiscal 2019. Based on current and historical trends, particularly with respect to years with a later Thanksgiving and short time frame until Christmas, we expect total net sales to range from approximately $179 million to approximately $184 million based on a comparable store net sales increase of 2% to 5% for the quarter. We expect operating income to range from approximately $11 million to approximately $12.5 million and earnings per diluted share to range from $0.29 to $0.32. This outlook assumes no asset impairment charges and effective income tax rate of approximately 27%, and weighted average diluted shares of approximately 29.9 million. We expect inventories per square foot to remain consistent with our comp sales performance.
Operator, we will now go to our Q&A session.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from the line of Mitch Kummetz of Pivotal Research. Please proceed with your questions.
Mitch Kummetz -- Pivotal Research Group -- Analyst
Thanks for taking my questions and congrats on the quarter. I guess, I've got a handful. Ed, could you be a little more specific on your Q4 to-date comp performance? I recognize that Thanksgiving was late, but I was hoping you'd kind of tell us how you're trending for the quarter. And then also can you talk about -- you mentioned -- you highlighted a strong Thanksgiving weekend and Cyber Monday performance, maybe you can give us some numbers on that as well.
Edmond Thomas -- President and Chief Executive Officer
Well, all I can tell you Mitch is that the performance was a little bit better than we expected, on both channels, both stores and e-com. And so, we saw a pretty good momentum. Now the thing that I -- the thing that I want to call out is, unlike a lot of our competitors, we did not give the store away, we didn't promote percentage off the whole store. We did -- we had planned promotions, but it was done at really good merchandised margins.
Mitch Kummetz -- Pivotal Research Group -- Analyst
Okay. And then in the press release and also in your comments, you referenced kind of historical trends given prior years of late Thanksgiving. So I think 2013 was maybe the last time we saw this shift from like the 22th to the 28th. Could you kind of refresh our memory what happened back then, that's instructive in terms of what you might expect this year?
Mike Henry -- Executive Vice President & Chief Financial Officer
Yeah. Mitch, it's Mike. In that 2013 year, what we saw is, very much what's happened so far. And so, we'd like to think that the similar pattern will exist. Obviously, the third week of November was very highly negative because it's going up against last year's Thanksgiving weekend and Black Friday. Then week four was very highly positive going back in the other direction. So you have just a flip of timing within the quarter. But then following Thanksgiving weekend and Cyber Monday, we saw a consistent level of positive business through the month of December and on into January and that's -- if history means anything, a similar pattern would send us in the positive territory in the manner that we've suggested in our guidance.
Mitch Kummetz -- Pivotal Research Group -- Analyst
Can you remind us what you're going up against in December in terms of your comp performance last year?
Mike Henry -- Executive Vice President & Chief Financial Officer
Sure. So December total comps were up 5.5%, in January they were up 10%. The quarter as a whole was up 6.4%.
Mitch Kummetz -- Pivotal Research Group -- Analyst
Got it. How do you think about that tough December compare?
Mike Henry -- Executive Vice President & Chief Financial Officer
Well, the momentum of our business that we just saw coming out of the back-to-school quarter in Q3 and the very strong Thanksgiving weekend and Cyber Monday that we just saw, tells me that our merchandise is right and we're expecting to have continuing positive results in the fourth quarter. We've had 14 quarters in a row of flat-to-positive comps and obviously, we're guiding to a 15th quarter. So prior-year compares are just one data point. Sometimes they mean -- sometimes they don't. It's all about if our product is trend right and close enough to trend with some hot brands as ours is, and so we're expecting to have a successful fourth quarter.
Edmond Thomas -- President and Chief Executive Officer
Yeah, and just to add to that Mitch, one of the things I'm really pleased with is that we ended the quarter with every merchandise department being up, major merchandising department being up. So there is no one category that's driving the business as pretty much across the board.
Mitch Kummetz -- Pivotal Research Group -- Analyst
Okay. And then last question just on product margins. So Mike, you mentioned a 80 bp increase in the quarter. Can you just maybe elaborate on that a little bit? Was that like IMU or was that just fewer markdowns and...?
Mike Henry -- Executive Vice President & Chief Financial Officer
We did have fewer markdowns in the quarter than we had in the year-ago period. As you know [Speech Overlap] -- no, I mean, as you know our -- historically, our product margins do not tend to swing wildly from period to period. They tend to stay neutral to last year to plus or minus 100 basis points either way. They usually don't move a whole heck lot and third quarter was similar. It moved less than 1 full percentage point and has mostly fewer markdowns.
Mitch Kummetz -- Pivotal Research Group -- Analyst
And then what are your thoughts on merch margin in Q4? I know your product margin was up a little bit last year in Q4, and you spoke to kind of the promotional sort of levels of the mall. I know you guys are marketing now like everybody else is. But how do you sort of just review the overall environment for markdowns and your ability to maybe capture some merch -- some product margin in Q4?
Mike Henry -- Executive Vice President & Chief Financial Officer
Yeah. Mitch, we're expecting -- just as we mentioned, historically our product margins don't tend to move around a lot. So long as we keep our strong disciplined management of inventory and addressing things that need addressing in a very timely manner and move through those kinds of things, we expect fourth quarter product margins to be very similar to what they were last year, give or take a bit either way, depending on exactly what happens. We're going to be responsive to what we see we need to do to manage our own inventory level. We're expecting it to be a healthy product margin. We just went through Black Friday weekend with healthy product margins and expecting that to continue through the fourth quarter.
Mitch Kummetz -- Pivotal Research Group -- Analyst
All right, great. Thanks guys, good luck.
Edmond Thomas -- President and Chief Executive Officer
Thank you.
Operator
Our next question comes from the line of Dave King of ROTH Capital Partners. Please proceed with your questions.
David M. King -- ROTH Capital Partners -- Analyst
Hi. Afternoon guys. Maybe a follow-up to the prior line of questioning. On the quarter-to-date trends, what can you share over Black Friday weekend on traffic? Was that still kind of down or did that start to turn positive now? And then, how is conversion order values, things like that? Thank you.
Mike Henry -- Executive Vice President & Chief Financial Officer
I don't have all of those stats just for Black Friday weekend. Our traffic for the third quarter was right about flat. Average transaction was up low-single digits. Conversion was up low-single digits. Those were all third quarter numbers. Traffic through -- stores through Black Friday weekend was just down slightly. I do have that. So although traffic was down slightly, our comps were up quite nicely in both channels. So feeling pretty good about things.
David M. King -- ROTH Capital Partners -- Analyst
Okay. That helps. And then in terms of the EPS guidance for Q4, you touched on product margins. But how should we think about the leverage on rents, payroll, or excuse me, on occupancy payroll etc.? What are some of the puts and takes [Indecipherable]?
Mike Henry -- Executive Vice President & Chief Financial Officer
Sure. So if we're at the higher end of our comp guidance, we'd expect to have leverage on both buying and the distribution portion of costs. Because of the new store openings, the broad [Phonetic] occupancy dollars will be higher for fourth quarter. So if we are on the higher end of the range of occupancy, we may still get a little bit of leverage because of various negotiations that we've been doing for the last two years, three years. If we're on the lower end of our guidance, we might not get a little bit of leverage out of occupancy in particular. But in terms of total gross margin, I'd expect it to be pretty consistent with last year to up a little bit, as you move from the bottom end of the range to the higher end of the range.
David M. King -- ROTH Capital Partners -- Analyst
Okay. That's great color. And then lastly from me, capital management. Ed, what would cause you to maybe take up the special dividend to above $1 a share assuming you were to pay it, of course? Is the goal there to more than cover it with free cash flow or what are some of the factors that go into the decision process?
Edmond Thomas -- President and Chief Executive Officer
No. I'd say, when we take a lot of things into account and we make that decision, then there is no one specific area. So right now, we'll do what we usually do, is the Board discusses this pretty regularly and we'll make a determination of what the amount is or whether we do it or not over the next couple of months.
David M. King -- ROTH Capital Partners -- Analyst
That's perfect and thanks. And good luck for the rest of holiday.
Edmond Thomas -- President and Chief Executive Officer
Thank you.
Mike Henry -- Executive Vice President & Chief Financial Officer
Thank you.
Operator
Our next question comes from the line of Jeff Van Sinderen of B Riley. Please proceed with your question.
Jeff Van Sinderen -- B.Riley & Company, Inc. -- Analyst
Let me add my congratulations on your solid results. Given the slow start to Q4, did that change your promotional plans at all for Black Friday weekend or did you stick to original plan. And then given the compressed time period this year, can you touch on how your marketing plans might be a little bit different this year and maybe a quick update on your enhanced mobile app?
Mike Henry -- Executive Vice President & Chief Financial Officer
Yeah. Jeff, I'll take the margin question first. So we pretty much stayed to the plan that we intended. So we expected the early part of fourth quarter to be slow because of the later timing of Thanksgiving, and the shifts in the weeks pretty much played out exactly as we anticipated than playing out. And as I had mentioned earlier, actually pleasantly surprised with how good business was through Black Friday weekend and Cyber Monday. So we went in with a particular plan and we executed to that plan. We hadn't [Phonetic] changed that plan as we went through that weekend.
And then, if you want to take the marketing...
Edmond Thomas -- President and Chief Executive Officer
Yeah. I mean in terms of marketing plan, we really didn't change anything from what we originally planned, we didn't need to, so -- including the majority of the promotions that we had planned. So we pretty much stuck to the plan that worked. And as we expected, and -- then the second -- I think the other question you had was mobile. So we did not -- we have not put in our new mobile app at this point. And I think it's certainly going to be delayed until the first half of next year, but it really didn't impact us negatively. Mobile app is fine as it works now. What we were going to do is, put in a much improved shopping experience with the new mobile app and we will see that the first part of next year.
Jeff Van Sinderen -- B.Riley & Company, Inc. -- Analyst
Okay. Well, it would seem that if that is successful, that could be a little driver for your next year.
Edmond Thomas -- President and Chief Executive Officer
Yes. For sure. And one other thing, Jeff. We also had planned to put in pay as you go after pay. We're in the final stages of testing that and we elected to not go live with it until after the holiday. So that's another opportunity for us going forward.
Jeff Van Sinderen -- B.Riley & Company, Inc. -- Analyst
Okay. Well, yeah. Maybe good to do. It seems like you're smart to maybe not do these things during holiday, because some times that doesn't go well.
Edmond Thomas -- President and Chief Executive Officer
That's for sure.
Jeff Van Sinderen -- B.Riley & Company, Inc. -- Analyst
So let me ask you this. Latest thoughts on where we are in the branded cycle. Any major shifts you're seeing and then if you could touch on RSQ, how that's performing and then any more you can say about West of Melrose and what Tricia is most focused on in her early days? I know you mentioned sort of focusing and editing the assortment.
Edmond Thomas -- President and Chief Executive Officer
Sure, as far as the top brands go, they really haven't changed. The only brand that's emerged are really in the Top 10 that's new from last year. For the third quarter, it's -- the only big brand is Champion, which we saw starting to trend last year and it's gotten big and the rest of the brands are pretty consistent. They may have moved up or down, but pretty consistent with what we saw last year third quarter.
As far as RSQ, it's a really solid brand for us. It's very good. It continues to be good and quite frankly, I think our results could have been better. I think I've mentioned this before, on turning back-to-school, I thought we were too late in inventory and [Indecipherable] period, but -- particularly the RSQ brand and that's an opportunity for us going forward, and that's part of what Tricia is working on in addition to a lot of other things in terms of bettering the assortment. And I also would expect she's going to bring in some new brands that we haven't carried before. More color on that on the spring. She is working on strategy for next year as we speak, and we'll have more color on that soon.
Jeff Van Sinderen -- B.Riley & Company, Inc. -- Analyst
Okay. And so will we see some of those brands for spring, summer or what's your time frame around that?
Edmond Thomas -- President and Chief Executive Officer
I think you'll see some of them for spring, for sure.
Jeff Van Sinderen -- B.Riley & Company, Inc. -- Analyst
Okay, great. [Speech Overlap]
Edmond Thomas -- President and Chief Executive Officer
The overall -- one other thing Jeff, there was -- majority of the merchandise mix is not going to change drastically from what we've historically have done because most of it works. So this is really more fine-tuning and like we said, editing the assortment. We feel there is a big opportunity there and there might be a merchandise margin opportunity as a result of doing that.
Jeff Van Sinderen -- B.Riley & Company, Inc. -- Analyst
Okay, good. Thanks for taking my questions and continued success.
Edmond Thomas -- President and Chief Executive Officer
All right, thank you.
Operator
The next question comes from the line of Janet Kloppenburg from JJK Research. Please proceed with your question.
Janet Kloppenburg -- JJK Research Associates -- Analyst
Hi, everybody. And congrats on a good quarter and a good Black Friday. Question on Black Friday is, do you think perhaps your business was slower at the beginning of the quarter, because so many retailers got their promos early and maybe you didn't? Do you think that put some pressure on your top line? And then what do you think was the catalyst for the switch that made the business churn like that, because you weren't as promotional as many, many of the team competitors? So I just wondered what your view was there and I think Mike said traffic was down. So, but what was -- what was the trigger? And then I have a couple of more questions. Thank you.
Edmond Thomas -- President and Chief Executive Officer
Janet, there was no real single thing that I can't put my finger on and say OK, it's switched from A to B. But traffic was down very, very slightly. And so I think it really what built the business is, as traffic started to increase, it was not driven again by anything that we did promotionally. We wanted to close [Technical Issue] them. It was just then we felt traffic in the assortment was right. The timing was -- I think we did a better job of getting the assortment right in certain geographic regions and types of things like that, that helped our business as we moved further into the quarter.
Janet Kloppenburg -- JJK Research Associates -- Analyst
Okay. Was there any sort of key items that were better executed this year than last? I know you said all categories were good, but were there any standouts year-over-year that attributed to the performance?
Edmond Thomas -- President and Chief Executive Officer
There really wasn't, Janet. Honestly, there was -- really wasn't any one category or any one particular brand that drove that business. It was across the board. But actually I was very pleased with, because to see it come -- not come from any one particular thing, it certainly bodes well for us in the future.
Janet Kloppenburg -- JJK Research Associates -- Analyst
And what about the branded footwear business? Is that still being led by the two big brands, Nike and Vans?
Edmond Thomas -- President and Chief Executive Officer
The Vans is definitely the best brand for us.
Janet Kloppenburg -- JJK Research Associates -- Analyst
In footwear or in footwear and apparel?
Edmond Thomas -- President and Chief Executive Officer
In footwear.
Janet Kloppenburg -- JJK Research Associates -- Analyst
In footwear. And Nike?
Edmond Thomas -- President and Chief Executive Officer
Nike starting to emerge now. So it's -- I think Nike is starting to begin to turn. So you'll see -- we don't have -- we downplayed our assortment in Nike over the last several months, but now you will see it start to build and I think you'll see that -- the business build there.
Janet Kloppenburg -- JJK Research Associates -- Analyst
And just lastly on the new lines that Tricia is thinking about. Is -- does she have a pricing strategy involved, is she introducing opening price points, is she going to elevate the pricing architecture like what's the -- what's the philosophy there?
Edmond Thomas -- President and Chief Executive Officer
So I don't think you'll see any change strategically in terms of how we price.
Janet Kloppenburg -- JJK Research Associates -- Analyst
Right.
Edmond Thomas -- President and Chief Executive Officer
I think it's just a matter of adding some brands that maybe we might have carried in the past, bringing some of those brands back by adding some new -- bringing some new brands into the mix. That's really what we're thinking. And I think our biggest opportunity in terms of category is, even though we were positive in Q3 with women's, I think our biggest opportunity is probably in the women's business out of all the other categories we carry and you'll probably see some newness there.
Janet Kloppenburg -- JJK Research Associates -- Analyst
Okay, great. Thank you. Good bye
Edmond Thomas -- President and Chief Executive Officer
Thanks, Janet.
Janet Kloppenburg -- JJK Research Associates -- Analyst
And what about cadence on comp in the third quarter? Was August the best and September tough? I missed them. Hello?
Mike Henry -- Executive Vice President & Chief Financial Officer
Yeah, we're there. Sorry, I'm trying to flip to that.
Janet Kloppenburg -- JJK Research Associates -- Analyst
Okay. Sorry. I didn't know if I was done.
Mike Henry -- Executive Vice President & Chief Financial Officer
August and September were very consistent with each other. October who was actually the lightest comp month.
Janet Kloppenburg -- JJK Research Associates -- Analyst
Okay.
Mike Henry -- Executive Vice President & Chief Financial Officer
Comp month of the quarter, but they were all positive.
Janet Kloppenburg -- JJK Research Associates -- Analyst
Thank you.
Edmond Thomas -- President and Chief Executive Officer
Okay. Thanks, Janet.
Operator
Our next question comes from the line of Sharon Zackfia of William Blair. Please proceed with your questions.
Sharon M. Zackfia -- William Blair & Company, L.L.C. -- Analyst
Hi, good afternoon. I also had some questions. I guess, on the opening schedule for next year, I know you were really back-end weighted in 2019. Is that a similar kind of cadence of store openings for 2020?
Edmond Thomas -- President and Chief Executive Officer
No. I think they're going to be spread more evenly throughout the year.
Mike Henry -- Executive Vice President & Chief Financial Officer
Yeah, I think they would be more in the Q2 time frame than a year ago. There'll probably be a -- probably a few more in Q3. It was really back-end weighted this year. I'd expect it to be more in the middle part of the year than it was this year and not so heavily back weighted.
Sharon M. Zackfia -- William Blair & Company, L.L.C. -- Analyst
Okay, that's helpful. And then...
Edmond Thomas -- President and Chief Executive Officer
Ideally, we want to open as many stores as possible before back-to-school.
Sharon M. Zackfia -- William Blair & Company, L.L.C. -- Analyst
Okay. And then on tariffs, I don't think that came up at all on today's call. Have you had to make any changes to the assortment based on what's happened, or are you seeing anything going on with vendor pricing associated with the tariffs that went into effect?
Mike Henry -- Executive Vice President & Chief Financial Officer
Not anything material so far, quite honestly. Still kind of waiting to see how this all shakes out and how much of a balance goes between the three parties, right, the manufacturer, us as the retailer and how much is passed on to the consumer. Have not noticed a material amount of change across the assortment. I think it's more in accessories than anywhere else where we've seen some of it and then also kind of on fixture items in stores that are sourced from overseas. We've definitely seen 10% to 15% cost increases there, but haven't seen anything material happen in apparel yet.
Sharon M. Zackfia -- William Blair & Company, L.L.C. -- Analyst
Okay. And my last question was really on SG&A and the opportunity for leverage there on an ongoing basis. Can you kind of help us think about how you view the rate of SG&A dollar growth versus revenue and if that's a place where you should see more consistent leverage past 2019?
Mike Henry -- Executive Vice President & Chief Financial Officer
SG&A leverage is going to have a lot to do with how sales are balanced between stores and e-com. So if you look at recent quarters compared to the quarter we just finished, you've heard me talk about -- roughly about $1 million of cost pressure from e-com shipping and e-com fulfillment in those quarters where e-com was up 30% or 50% when stores were negative. What you see in the third quarter is a different dynamic when stores are positive and e-com is positive. Stores are still 85% of our business. So when they can be in a positive comp territory, that absolutely helps us leverage, call them relatively fixed costs, a heck of a lot better than when e-com is the sole driver of comp.
So it's incumbent upon us to continue to drive improvement from both of those channels, not just one or the other, because as you've seen in recent quarters, when it's only e-com, those are more expensive sales for us because of the shipping fulfillment and all the marketing affiliate costs that go along with the e-com business. So we had a better balance of that in the third quarter, we are expecting a better balance of that in the fourth quarter.
Overall, generally speaking, it should remain at about a total comp [Technical Issue] to leverage SG&A, give or take a bit and again depending on the balance of sales being driven in stores versus e-com. But at a high level, roughly about a 3 [Phonetic] to leverage SG&A as we look at 2020, there will be another year of minimum wage increase in California at a minimum, another dollar is coming January 1. So that certainly impacts a little over 40% of our store base, as well as our distribution centers. But we're working awfully hard to manage that as we have done each of the last two years, where we've had that. You've not seen a meaningful amount of deleverage coming from store payroll because we were really, really hard on that with our store ops team and in our field leadership and they've done a really good job of responding to the challenges that we've worked together on. So hope that helps to some extent.
Sharon M. Zackfia -- William Blair & Company, L.L.C. -- Analyst
Yes, thank you so much.
Operator
We have reached the end of the question-and-answer session. I will now turn the call back over to Ed Thomas, President and CEO for any closing remarks.
Edmond Thomas -- President and Chief Executive Officer
Thanks again for joining us. We look forward to discussing our fourth quarter results with you in mid-March. Have a good evening everyone.
Operator
[Operator Closing Remarks]
Duration: 34 minutes
Call participants:
Gar Jackson -- Founder & President
Edmond Thomas -- President and Chief Executive Officer
Mike Henry -- Executive Vice President & Chief Financial Officer
Mitch Kummetz -- Pivotal Research Group -- Analyst
David M. King -- ROTH Capital Partners -- Analyst
Jeff Van Sinderen -- B.Riley & Company, Inc. -- Analyst
Janet Kloppenburg -- JJK Research Associates -- Analyst
Sharon M. Zackfia -- William Blair & Company, L.L.C. -- Analyst
