Earnings call transcript: Tilly’s Q1 2025 sees net loss amid sales decline

Tilly’s reported a net loss of $22.2 million, or $0.74 per share, in Q1 2025, missing analysts’ expectations of a $0.68 loss per share. The company’s revenue matched forecasts at $107.6 million, reflecting a 7.1% decline from the previous year. Following the earnings announcement, Tilly’s stock experienced a 2.99% drop in regular trading, closing at $1.34, but rebounded in after-hours trading, gaining 2.99% to reach $1.38. According to InvestingPro data, the company’s market capitalization stands at just $39.8 million, with the stock trading at a notably low Price/Book ratio of 0.39.

Key Takeaways

• Tilly’s Q1 2025 net sales decreased by 7.1% year-over-year.
• The company reported a higher-than-expected net loss per share.
• Stock rebounded in after-hours trading despite regular session losses.
• Tilly’s plans to close 7 stores in Q2 and potentially 15 more by year-end.
• The company is optimistic about the back-to-school season performance.

Company Performance

Tilly’s faced a challenging Q1 2025, with net sales dropping by 7.1% compared to the previous year. Both physical and e-commerce sales declined, with physical store sales down 7.4% and e-commerce sales falling 5.8%. The company attributed these declines to changing consumer behaviors and competitive pressures in the retail sector. Despite these challenges, Tilly’s remains focused on its youth culture positioning and plans to enhance its merchandise assortment and marketing efforts.

Financial Highlights

• Revenue: $107.6 million, down 7.1% year-over-year
• Earnings per share: -$0.74, missing forecast of -$0.68
• Gross margin: 19.8%, down from 21% last year
• Total liquidity: $92.6 million
• Inventory levels: 3.8% lower than the previous year

Earnings vs. Forecast

Tilly’s reported an EPS of -$0.74, missing the forecasted -$0.68 by approximately 8.8%. This miss reflects ongoing challenges in the retail environment and suggests a need for strategic adjustments. However, the revenue aligned with expectations at $107.6 million, indicating stable sales despite the earnings miss.

Market Reaction

Tilly’s stock closed at $1.34, down 2.99% during regular trading hours, but saw a 2.99% increase in after-hours trading, reaching $1.38. This rebound suggests investor optimism about the company’s future prospects, potentially driven by positive guidance for the upcoming quarters. InvestingPro data shows the stock has experienced significant volatility, with a 76% decline over the past year, though it has shown a remarkable 40.59% return over the last week. The stock currently trades well below its 52-week high of $6.28.

Outlook & Guidance

For Q2 2025, Tilly’s projects net sales between $150 million and $158 million, with comparable net sales ranging from a 5% decline to flat. The company expects to maintain a debt-free status throughout fiscal 2025 and is optimistic about the upcoming back-to-school season, historically a strong period for Tilly’s. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading near its Fair Value, with analysts setting a consensus price target that suggests potential upside. Get access to the full Pro Research Report, part of InvestingPro’s coverage of over 1,400 US stocks, for detailed valuation analysis and growth prospects.

Executive Commentary

Michael Henry, CFO, noted, "We believe we are beginning to see signs of stabilization in our business," highlighting potential recovery. CEO Hazy Shaked emphasized the importance of merchandise and marketing, stating, "It is the merchandise and the marketing that brings the people to the stores."

Risks and Challenges

• Continued sales decline: Persistent drops in sales could impact profitability.
• Store closures: Planned closures may affect revenue and market presence.
• Competitive pressures: Increasing competition in the retail sector poses challenges.
• Consumer behavior shifts: Changes in shopping habits could affect sales.
• Economic conditions: Broader economic factors may impact consumer spending.

Q&A

During the earnings call, analysts inquired about monthly sales trends, noting February’s 5.7% decline and March’s 13.8% drop, followed by a 1.5% increase in April. Executives addressed concerns about merchandise improvements, particularly in junior categories, and confirmed no material tariff impacts are expected.

Full transcript - Tillys (TLYS) Q1 2026:

Conference Operator: Good day, and welcome to Tilly’s First Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Gar Jackson, Investor Relations. Please go ahead.

Gar Jackson, Investor Relations, Tilly’s: Good afternoon, and welcome to the Tilly’s fiscal twenty twenty five first quarter earnings call. Michael Henry, Executive Vice President and Chief Financial Officer, will discuss the company’s business and operating results. Then he and Hazy Shaked, Co Founder, Executive Chairman, President and Chief Executive Officer, will host a Q and A session. For a copy of Tilly’s earnings press release, please visit the Investor Relations section of the company’s website at tilly’s.com. From this section, shortly after the conclusion of the call, you will also be able to find a recorded replay of this call for the next thirty days.

Certain forward looking statements will be made during this call that reflect Tillys’ judgment and analysis as of today, 06/04/2025, and actual results may differ materially from current expectations based on various factors affecting Philly’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 twenty twenty five first quarter earnings release, which is furnished to the SEC today on Form eight ks 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 and A session after our prepared remarks. I’ll now turn the call over to Mike.

Michael Henry, Executive Vice President and Chief Financial Officer, Tilly’s: Thanks, Gar, and to all joining us today. Our fiscal twenty twenty five first quarter net sales were within our outlook range provided during our March earnings call. Our first quarter comparable net sales decrease of 7% was a sequential improvement from our 11.2% comparable net sales decrease in the fourth quarter of fiscal twenty twenty four. The comparable net sales trend of our business has continued to improve in fiscal May starting the second quarter with a decrease of just 2.2%. Consequently, we believe our merchandise assortment is on trend and moving us in the right direction, and we are encouraged to see signs of potential stabilization in our business.

As we look ahead in fiscal twenty twenty five, the potential impact of tariffs on product costs remains a concern, yet the currently known impacts on our product costs appear to be relatively minor. We have worked closely with all of our proprietary and branded partners to attempt to mitigate as much tariff impact as is reasonably possible. While tariffs have generally become less burdensome in recent weeks, we all realize this could change given the evolving nature of the tariff situation. Despite external uncertainties, we are actively pursuing opportunities to build mindshare with current and prospective customers, and we’ve had a busy last couple of months on the marketing front, which we believe has contributed to some degree to the sequential improvement in the comparable net sales trend of our business. In early March, we launched our Tilly’s TikTok shop, introducing a new source of Tilly’s content with a digital storefront for today’s generation of consumers.

We hosted a launch party in West Hollywood attended by various youth culture influencers and celebrities. Our shop has grown to a level that began outperforming our daily order volume through Amazon in mid April and continues to grow. During festival season in Palm Springs, we participated in an event featuring professional surfing talent and popular DJs that drew a reported 10,000 plus attendees in aggregate across the two weekends. In late April, the legendary boxer Mike Tyson made an appearance in our Blue Diamond store in Las Vegas in support of his namesake licensed product line we carry. In late May, we hosted Travis Barker in our Irvine Spectrum store to promote his product collaboration with our longtime brand partner Hurley.

These efforts are aimed at solidifying our authentic position at the intersection of youth culture, fashion, and music with the goal of building greater customer affinity for Tilly’s, which in turn will hopefully aid our efforts toward improving our business results. Turning to our operating results for the first quarter of fiscal twenty twenty five compared to last year’s first quarter. Total net sales were $107,600,000 a decrease of 7.1%. Net sales from physical stores decreased by 7.4%, while e commerce net sales decreased by 5.8%. Net sales from physical stores represented 79.8 percent of total net sales compared to 80.1% last year, while e commerce net sales represented 20.2% of total net sales compared to 19.9% last year.

Total comparable net sales, including both physical stores and e commerce, decreased by 7%. We ended the first quarter with two thirty eight total stores, a net decrease of eight stores compared to a year ago. Gross margin, including buying, distribution, and occupancy expenses, was 19.8% of net sales compared to 21% of net sales last year. Product margins improved by 40 basis points compared to last year, primarily due to higher initial markups, partially offset by increased inventory valuation reserves. Buying, distribution, and occupancy costs deleveraged by 160 basis points despite being $800,000 below last year in the aggregate due to carrying these costs against lower total net sales.

Total SG and A expenses were $44,000,000 which included non cash store asset impairment and other asset write off charges of $1,200,000 The $1,100,000 decrease in total SG and A compared to last year was primarily due to reduced store payroll and related benefits of $900,000 and lower non cash asset write off charges of $500,000 partially offset by increased marketing expenses of $700,000 SG and A deleveraged by 190 basis points as a result of carrying these costs against lower total net sales. Pretax loss was $22,300,000 or 20.7% of net sales, compared to $19,600,000 or 16.9% of net sales last year. Income tax benefit was $139,000 or 0.6% of pretax loss, compared to $13,000 or 0.1% of pretax loss last year. Both years’ income tax results include the continuing impact of a full non cash deferred tax asset valuation allowance. This year’s benefit also includes the refund of certain income tax credit carry forwards and state income tax carry back claims.

Net loss was $22,200,000 or $0.74 per share compared to $19,600,000 or $0.65 per share last year. On our debt free balance sheet, we ended the first quarter with total liquidity of $92,600,000 comprised of cash and marketable securities of $37,200,000 no borrowings at any time, and undrawn borrowing capacity of $55,400,000 under our asset backed credit facility, which has been extended with Wells Fargo Bank through June 2027. Total balance sheet inventory and unit inventories were 3.810.9% lower, respectively, than at the end of last year’s first quarter. Looking at the second quarter of fiscal twenty twenty five, as noted earlier, total comparable net sales for fiscal May ended 05/31/2025 decreased by 2.2% compared to last year, continuing our sequential improvement in sales trends that began in the first quarter relative to fiscal twenty twenty four’s fourth quarter. Based on current and historical trends, we estimate the following ranges for the second quarter of fiscal twenty twenty five.

Net sales of approximately 150,000,000 to $158,000,000 translating to a comparable net sales range of a decrease of 5% to flat, respectively. SG and A of approximately $48,000,000 to $49,000,000 excluding any potential non cash asset impairment charges. A near zero effective income tax rate due to the continuing impact of a full non cash valuation allowance on our deferred tax asset. Earnings in the range of a net loss of approximately $2,700,000 to net income of $2,000,000 respectively, and per share results of a net loss of $09 to net income of $07 respectively. We expect to end the second quarter with two thirty two total stores in operation after closing seven stores and opening one new store during the quarter.

This compares to two forty seven total stores at the end of last year’s second quarter. At this time, we expect to close two additional stores in the third quarter, and there are up to potentially 15 additional store closures which could occur towards the end of the fiscal year, depending on the outcome of lease renewal negotiations with landlords. We expect to end the second quarter with a debt free balance sheet and total liquidity of approximately 106,000,000 to $111,000,000 comprised of cash and investments of approximately $43,000,000 to $48,000,000 and available undrawn borrowing capacity of approximately $63,000,000 under our credit facility. Based on current projections, we expect to remain a debt free company throughout fiscal twenty twenty five. We estimate it would take a consistent comparable net sales decrease of approximately 10% or more over the course of the remainder of the fiscal year to require any level of borrowing this year.

In closing, we believe our product assortment is on trend. We are working to drive customer engagement in creative ways, and we believe we are controlling what is controllable. We believe we are beginning to see signs of stabilization in our business, and we’re aiming to make further improvements from here over time. Operator, we’ll now go to our Q and A session.

Conference Operator: We will now begin the question and answer session. The first question comes from Matt Koranda with ROTH Capital. Please go ahead.

Matt Koranda, Analyst, ROTH Capital: Hey, guys. Thanks. Maybe just curious about the cadence of the first quarter, if you could unpack it a little bit more between February, March, April, any discernible trends sort of coinciding with some of the macro volatility that we saw or weather events? And maybe just if you can provide like transaction versus ticket breakdown of the 7%, the negative 7% comp and the improvement sequentially that you saw, that’d be helpful.

Michael Henry, Executive Vice President and Chief Financial Officer, Tilly’s: Sure, Matt. So through the first quarter, fiscal February was down 5.7, March was down 13.8, and then April was plus 1.5. In terms of transactions, traffic was down low single digits in the first quarter. Remains down low single digits, but slightly better than that in May. The average sale was down low single digits during the first quarter.

It’s actually up 1% so far in May. And then total transactions are down 5% to six percent.

Matt Koranda, Analyst, ROTH Capital: Okay. All right. That’s helpful. Thanks for the breakdown, Mike. And then just for the second quarter guidance, I guess, so 0% to 5% drop in the quarter.

We’ve seen a negative 2% trend in May. I guess, we’re kind of just at the midpoint of that guidance thus far. Anything to call out from last year in terms of calendar shift in June, July? Anything we should be mindful of there? And then maybe just for Hesse, if he’s on the anything on the assortments that’s working?

I know you guys called out sort of more comfort with the inventory balance and the assortment and what’s working there.

Michael Henry, Executive Vice President and Chief Financial Officer, Tilly’s: I was going say your first part of your question on the cadence of Q2. Each of the months were down single digits last year. So not expecting any difficulty from comparisons per se as we go through the quarter. Just as a reminder, the bulk of the sales volume of the quarter is right at the end because we start the beginning of the back to school season in the July. The largest sales weeks of the quarter are actually the last two to three weeks of the quarter.

So much of the business of the quarter will be done then. May is typically only about 25% of the second quarter, looking historically, but a lot of business yet to come kind of there towards the July going into back to school. And I’d point out that each of the last three years, even as we comped negative, the back to school season has been our strongest season of performance in each of those years. So that’s what gives us some cautious optimism here with starting May at about a minus two and heading into what has been our strongest period of the year, each of the last few years, that can lend itself to the possibility to get to flat and, heaven forbid, positive. Hopefully, we’ll see as those weeks come upon us.

As far as the merchandise,

Hazy Shaked, Co-Founder, Executive Chairman, President and Chief Executive Officer, Tilly’s: there’s no doubt that it’s looking better, it’s selling better, and the proof is that our traffic is up. Now we can say consistently in the last several weeks, so and that’s why you’re seeing the gap closing between the negative sales. I won’t be specific about brands or anything like that. But things are getting better from here, as far as the merchandise.

Matt Koranda, Analyst, ROTH Capital: Okay. And then maybe just last one for me. I guess if we think about I know it’s still a fluid situation with tariff impacts and how to kind of think about them for the end of the year. But I would assume just given the inventory balance right now that there is no impact to the second quarter on the margin front from tariffs. Could you just clarify maybe that?

And then also how to maybe just how to think about how we should be reading in the impact for the rest of the year if we were to be in, I guess, like the current tariff posture we’re in right now?

Michael Henry, Executive Vice President and Chief Financial Officer, Tilly’s: Sure, Matt. So really not seeing a material impact over the remainder of the course of the year at this time. And obviously, the tariff discussion has been quite volatile. But at this stage, we’d expect our product margins to be consistent with LY, maybe a little better than LY at the better end of our range, maybe slightly worse than LY on the bottom end of our range. And we expect to deliver improved product margins relative to LY at this stage with what we know about tariffs.

So really not seeing a material impact in any period going forward with what we know as of today.

Matt Koranda, Analyst, ROTH Capital: Okay. I appreciate that. I’ll leave it there. Thank you.

Conference Operator: And your next question comes from Marni Shapiro with The Retail Tracker. Please go ahead.

Marni Shapiro, Analyst, The Retail Tracker: Hey guys, congrats on the improvement and in stores it looks fantastic. Can we just talk about two things? I’m curious, the in person events seem to be working for you guys, which is fantastic. Could we talk a little bit about your plans as we move into the prime back to school period? And then also, I’m I’m curious, Tessie, more more for you.

Especially in May, was the change in sales and traffic, are you seeing it is it weather or is it the customer responding to product, especially that first table on the junior side? I’m I’m curious where you’re seeing the improvements most.

Hazy Shaked, Co-Founder, Executive Chairman, President and Chief Executive Officer, Tilly’s: With the hope I’m not gonna jinx it, it is

Marni Shapiro, Analyst, The Retail Tracker: the merchandise. Wood.

Hazy Shaked, Co-Founder, Executive Chairman, President and Chief Executive Officer, Tilly’s: Yes, exactly. It’s the merchandise and the marketing that brings the people to the stores. Right? So we still have a lot of work to do. But it’s more encouraging than we have seen in the last year and a half.

I think if you look at the junior side, it’s becoming really spot on. The men’s were always did a decent job on that. I’m as anxious to see the next six months as anybody else, but I’m much more encouraged now than I was a year ago.

Marni Shapiro, Analyst, The Retail Tracker: Very exciting. And is it across the junior spectrum that things are selling? Or is it seasonal products? I’m just curious what it looks like a little bit.

Hazy Shaked, Co-Founder, Executive Chairman, President and Chief Executive Officer, Tilly’s: Across the board.

Michael Henry, Executive Vice President and Chief Financial Officer, Tilly’s: Excellent.

Hazy Shaked, Co-Founder, Executive Chairman, President and Chief Executive Officer, Tilly’s: Fantastic.

Marni Shapiro, Analyst, The Retail Tracker: Thank you.

Conference Operator: Seeing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Mike. And it appears that we have one final question from Jeff Van Sinderen with B. Riley. Please go ahead.

Richard Magnuson, Analyst, B. Riley: Hello. This is Richard Magnuson in for Jeff Van Sinderen. Thank you for taking our call. First off, it appears that some activist investors have been acquiring shares lately. So have you been in discussions with any activists?

And have they requested board seats?

Hazy Shaked, Co-Founder, Executive Chairman, President and Chief Executive Officer, Tilly’s: No. We haven’t been in any discussion with new investors and nobody asked for a board seat.

Richard Magnuson, Analyst, B. Riley: Okay. Thank you. And then this is regarding the BDO. What do you expect going forward? Do you see any way you could start leveraging there or any improvement there?

It seems like your product margin continues to leverage. I was wondering what the outlook is on that.

Michael Henry, Executive Vice President and Chief Financial Officer, Tilly’s: The dollars are going to continue to be lower than last year. We’ve obviously closed a number of stores in the past year. And as I noted, we’re continuing to close stores. We’ve already closed four here. We just closed four in the month of May.

We’ll have three more this quarter, two more next quarter. And with additional stores closing, some of the raw dollars of occupancy will come down. Whether we leverage or not will depend on our ability to get back to flat and then positive comps in terms of any ability to produce some kind of leverage on that bucket of cost.

Richard Magnuson, Analyst, B. Riley: All right. Thank you.

Conference Operator: This will conclude our question and answer session. I would like to turn the conference back over to Mike for any closing remarks.

Michael Henry, Executive Vice President and Chief Financial Officer, Tilly’s: Thank you all for joining us on the call today. We look forward to sharing our second quarter results with you in early September. Have a good evening.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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