Tilly’s - Earnings Call - Q1 2026

Executive Summary

• Q1 2026 net sales were $107.6M (-7.1% YoY), with comparable net sales down 7.0% but improving sequentially from Q4’s -11.2%; gross margin was 19.8% and diluted EPS was -$0.74.
• Against S&P Global consensus, revenue slightly missed ($107.6M vs $108.2M*) and EPS missed (-$0.74 vs -$0.66*); EBITDA was below consensus (-$18.9M actual vs -$17.4M*) — a result of SG&A and occupancy deleverage despite modest product margin improvement.
• Q2 2026 guidance targets net sales of $150–$158M and EPS of -$0.09 to $0.07, suggesting pathway to near break-even; fiscal May comps were -2.2%, with back-to-school positioned as the quarter’s key volume driver.
• Liquidity remains solid and debt-free: $37.2M in cash/marketable securities and $55.4M undrawn ABL capacity at Q1; company expects liquidity of ~$106–$111M at Q2 end and no borrowing needs absent a sustained ~10% comp decline.
• Strategic catalysts: sequential comp improvement, disciplined store closures, targeted marketing (TikTok shop, influencer activations), and RFID deployment (Nedap iD Cloud) to improve inventory accuracy and omnichannel execution.

What Went Well and What Went Wrong

What Went Well

• Sequential comp trend improved: Q1 comps -7.0% vs Q4 -11.2%; fiscal May started Q2 at -2.2%, and management highlighted better traffic and early signs of stabilization.
• Product margins improved by 40 bps YoY in Q1 due to higher initial markups, partially offset by inventory reserves; gross margin held at 19.8% despite top-line pressure.
• Liquidity strong and debt-free: $92.6M total liquidity at Q1 (cash/marketable $37.2M + $55.4M undrawn ABL), extended ABL with Wells Fargo to 2027, and expectation to avoid borrowing throughout fiscal 2025.
• Quote: “We believe our merchandise assortment is on trend… encouraged by signs that our business may be starting to stabilize.” — Hezy Shaked, CEO.

What Went Wrong

• SG&A and occupancy deleveraged: SG&A was $44.0M (40.9% of sales), up 190 bps YoY as a percentage; buying/distribution/occupancy deleveraged 160 bps, worsening operating loss to $22.7M (21.1% of sales).
• EPS and EBITDA missed consensus, reflecting scale challenges with lower sales and fixed-cost structure; net loss widened to -$22.2M (-$0.74 EPS) from -$19.6M (-$0.65 EPS) YoY.
• Store footprint rationalization continues: Q1 ended with 238 stores (-8 YoY), plans for 7 closures and 1 opening in Q2, plus potentially up to 15 more closures near year-end subject to leases — emphasizing ongoing pressure on occupancy leverage.

Transcript

Operator (participant)

Today, and welcome to Tillys First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. 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 (Founder and President)

Good afternoon, and welcome to the Tillys Fiscal 2025 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 Hezy Shaked, Co-founder, Executive Chairman, President, and Chief Executive Officer, will host a Q&A session. For a copy of Tillys earnings press release, please visit the Investor Relations section of the company's website at tillys.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 30 days. Certain forward-looking statements will be made during this call that reflect Tillys judgment and analysis as of today, June 4, 2025, and actual results may differ materially from current expectations based on various factors affecting Tillys 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 2025 First 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. I now turn the call over to Mike.

Michael Henry (EVP and CFO)

Thanks, Gar, and to all joining us today. Our Fiscal 2025 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 2024. 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 2025, 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 mind share 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 Tillys TikTok shop, introducing a new source of Tillys 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+ 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 Tillys, which in turn will hopefully aid our efforts toward improving our business results.

Turning to our operating results for the first quarter of fiscal 2025 compared to last year's first quarter, total net sales were $107.6 million, 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% 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 238 total stores and 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 $0.8 million below last year in the aggregate, due to carrying these costs against lower total net sales. Total SG&A expenses were $44 million, which included non-cash store asset impairment and other asset write-off charges of $1.2 million. The $1.1 million decrease in total SG&A compared to last year was primarily due to reduced store payroll and related benefits of $0.9 million and lower non-cash asset write-off charges of $0.5 million, partially offset by increased marketing expenses of $0.7 million. SG&A deleveraged by 190 basis points as a result of carrying these costs against lower total net sales.

Pre-tax loss was $22.3 million, or 20.7% of net sales, compared to $19.6 million, or 16.9% of net sales last year. Income tax benefit was $139,000, or 0.6% of pre-tax loss, compared to $13,000, or 0.1% of pre-tax 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 carryforwards and state income tax carryback claims. Net loss was $22.2 million, or 74 cents per share, compared to $19.6 million, or 65 cents per share last year.

On our debt-free balance sheet, we ended the first quarter with total liquidity of $92.6 million, comprised of cash and marketable securities of $37.2 million, no borrowings at any time, and undrawn borrowing capacity of $55.4 million 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 3.8% and 10.9% lower, respectively, than at the end of last year's first quarter. Looking at the second quarter of fiscal 2025, as noted earlier, total comparable net sales for Fiscal May ended May 31, 2025, decreased by 2.2% compared to last year, continuing our sequential improvement in sales trend that began in the first quarter relative to fiscal 2024's fourth quarter.

Based on current historical trends, we estimate the following ranges for the second quarter of fiscal 2025: net sales of approximately $150 million-$158 million, translating to a comparable net sales range of a decrease of 5% to flat, respectively, SG&A of approximately $48 million-$49 million, 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 $2.7 million to net income of $2 million, respectively, and per-share results of a net loss of $0.09 to net income of $0.07, respectively. We expect to end the second quarter with 232 total stores in operation after closing seven stores and opening one new store during the quarter.

This compares to 247 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 million-$111 million, comprised of cash and investments of approximately $43 million-$48 million, and available undrawn borrowing capacity of approximately $63 million under our credit facility. Based on current projections, we expect to remain a debt-free company throughout fFiscal 2025.

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&A session.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Matt Koranda with Roth Capital. Please go ahead.

Matt Koranda (Managing Director and Senior Research Analyst)

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. Maybe just if you can provide a transaction versus ticket breakdown of the 7%, the -7% comp, and the improvement sequentially that you saw, that'd be helpful.

Michael Henry (EVP and CFO)

Sure, Matt. So through the first quarter, fiscal February was down 5.7%, March was down 13.8%, and then April was +1.5%. In terms of transactions, traffic was down low single digits in the first quarter. It 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%-6%.

Matt Koranda (Managing Director and Senior Research Analyst)

Okay. All right. That's helpful. Thanks for the breakdown, Mike. And then just for the second quarter guidance, I guess, so 0%-5% drop in the quarter. We've seen a -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 and July? Anything we should be mindful of there? And then maybe just for Hezy, if he's on, anything on the assortment 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 (EVP and CFO)

That's all, just your. Oh, go ahead.

Hezy Shaked (Co-founder, Executive Chairman, President, and CEO)

Go ahead.

Michael Henry (EVP and CFO)

Sorry. Okay. I was going to say your first part of your question on the cadence of Q2, each of the months were down single digits last year. 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, the back half of July. The largest sales weeks of the quarter are actually the last two to three weeks of the quarter. Much of the business of the quarter will be done then. May is typically only about 25% of the second quarter, looking historically. A lot of business yet to come kind of there towards the end of July going into back-to-school.

I would 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. That is 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 will see as those weeks come upon us.

Hezy Shaked (Co-founder, Executive Chairman, President, and CEO)

As far as the merchandise— As far as the merchandise, there's no doubt that it's looking better, selling better, and the proof is that our traffic is up. Now we can say consistently in the last several weeks. 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 (Managing Director and Senior Research Analyst)

Okay. 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. 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? Also 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, the current tariff posture that we're in right now?

Michael Henry (EVP and CFO)

Sure, Matt. Really not seeing a material impact over the remainder of the course of the year at this time. 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. We expect to deliver improved product margins relative to LY at this stage with what we know about tariffs. Really not seeing a material impact in any period going forward with what we know as of today.

Matt Koranda (Managing Director and Senior Research Analyst)

Okay. Appreciate that. I'll leave it there. Thank you.

Operator (participant)

Your next question comes from Marni Shapiro with The Retail Tracker. Please go ahead.

Marni Shapiro (Managing Partner)

Hey, guys. Congrats on the improvement. 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. Can we talk a little bit about your plans as we move into the prime back-to-school period? I'm also curious, Hezy, 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 curious where you're seeing the improvements most.

Hezy Shaked (Co-founder, Executive Chairman, President, and CEO)

With the hope I'm not going to jinx it, it is the merchandise.

Marni Shapiro (Managing Partner)

I'm knocking wood.

Hezy Shaked (Co-founder, Executive Chairman, President, and CEO)

Yes, exactly. It's the merchandise and the marketing that brings the people to the stores, right? 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 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 (Managing Partner)

Very exciting. Is it across the junior spectrum that things are selling, or is it seasonal product? I'm just curious what it looks like a little bit.

Hezy Shaked (Co-founder, Executive Chairman, President, and CEO)

Across the board.

Marni Shapiro (Managing Partner)

Fantastic. Thank you.

Operator (participant)

Again, if you have a question, please press star, then one. Seeing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mike. Oh, and it appears we have one final question from Jeff Van Sinderen with B. Riley. Please go ahead.

Richard Magnusen (Senior Research Associate)

Hello. This is Richard Magnusen 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?

Hezy Shaked (Co-founder, Executive Chairman, President, and CEO)

No, we haven't been in any discussion with new investors, and nobody asked for a board seat.

Richard Magnusen (Senior Research Associate)

Okay. Thank you. And then just 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 (EVP and CFO)

The dollars are going to continue to be lower than last year. We've obviously closed a number of stores in the past year. 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. 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 Magnusen (Senior Research Associate)

All right. Thank you.

Operator (participant)

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 (EVP and CFO)

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.

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.