Tilly’s ((TLYS)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Tilly’s reflected a cautiously optimistic outlook, highlighting both achievements and challenges. While the company reported improvements in profitability and product margins, as well as increased social media engagement, it also faced declining net sales, store closures, and setbacks in e-commerce. The sentiment during the call was balanced, acknowledging positive progress alongside significant hurdles.
Improved Product Margins and Reduced Inventory Levels
Tilly’s has successfully improved its product margins by 210 basis points, thanks to higher initial markups and fewer markdowns. Additionally, the company has managed to reduce its inventory levels by 14.5% compared to the previous year’s second quarter, indicating a more efficient inventory management strategy.
First Profitable Quarter Since 2022
The company reported earnings per share of $0.10, surpassing the earnings outlook range and marking its first profitable quarter in nearly three years. This milestone reflects Tilly’s efforts to enhance its financial performance and return to profitability.
Positive Start to Fiscal August
Tilly’s experienced a positive start to fiscal August, with total comparable net sales increasing by 0.9%. Notably, store sales rose by 4.5%, suggesting a potential recovery in brick-and-mortar performance.
Debt-Free Balance Sheet
Ending the second quarter with $114 million in total liquidity and no borrowings, Tilly’s maintains a strong financial position. This includes $51 million in cash and $63 million in undrawn borrowing capacity, providing the company with flexibility for future investments.
Increased Social Media Presence
Tilly’s has significantly enhanced its social media presence, quadrupling its TikTok following to 169,000 followers. The company has also launched a TikTok shop, aiming to boost engagement and reach a broader audience through innovative content creation.
Decrease in Total Net Sales
Despite some positive developments, Tilly’s faced a 7.1% decrease in total net sales, amounting to $151.3 million compared to the previous year. This decline highlights ongoing challenges in the retail environment.
Decline in E-commerce Sales
E-commerce net sales decreased by 6.6%, with a notable 12.1% decline in fiscal August due to a distribution decision by a third-party brand. This setback underscores the volatility and competitive nature of online retail.
Store Closures
Tilly’s ended the second quarter with 232 total stores, a net decrease of 15 stores (6.1%) compared to last year. More closures are anticipated, reflecting the company’s strategic adjustments in its physical retail footprint.
Volatile Tariff Impact
Tariffs continue to affect Tilly’s product costs, with a net impact of $500,000 expected for fiscal 2025. The uncertainty surrounding fiscal 2026 further complicates the company’s cost management efforts.
Forward-Looking Guidance
Looking ahead, Tilly’s provided guidance for the third quarter of fiscal 2025. The company expects net sales to range from $134 million to $140 million, with comparable net sales potentially decreasing by 2% or increasing by 2%. SG&A expenses are projected at approximately $47 million, excluding non-cash asset impairment charges, with an anticipated near-zero effective income tax rate. Tilly’s forecasts a net loss between $10.5 million and $6.9 million, translating to a loss per share of $0.35 to $0.23, an improvement from last year’s $0.43 loss per share. The company plans to conclude the quarter with 230 total stores and expects to maintain a debt-free status with liquidity between $83 million and $86 million.
In conclusion, Tilly’s earnings call highlighted a cautiously optimistic outlook, with notable achievements in profitability and social media engagement. However, challenges such as declining net sales, e-commerce setbacks, and store closures persist. The company’s forward-looking guidance suggests a focus on maintaining financial stability and navigating the evolving retail landscape.