Two publicly traded Irvine-based companies in the retail industry hit their lowest share prices ever after announcing their fourth quarter results.
Structural Problems
Xponential Fitness Inc. on March 13 reported fourth-quarter revenue fell 7% to $83 million with an adjusted net loss of $7.1 million.
The company also restated its 2023 financial statements to correct “accounting errors primarily related to accrued inventory, 401(k) compliance, purchase accounting, and vendor rebates.”
While Xponential said the restatement is “not a result of any substantive change to the company’s operations,” investors appear to still be skittish after a short trader last year questioned the franchisor’s model. There were 225 total studio closures in 2024, representing approximately 7% of global open studios, higher than the previously communicated 3% to 5%.
In the trading session after the results, Xponential shares dropped 40% to $7.22 apiece, their lowest price since becoming a publicly traded company in 2021 (NYSE: XPOF).
Chief Executive Mark King, who joined the company last June, hinted that there might be more problems.
“We have found and may continue to find legacy operational issues that need to be addressed,” King said on an earnings call. “Some of these are and might continue to be reflected in our financial results. Our hope is that they won’t be material. But to the extent we do uncover issues that need to be addressed, we will address them.
“On the one hand, it’s not surprising to me that we are encountering some of these issues. They represent a combination of rapid scaling and lack of organizational maturity,” King added, citing “a lack of the right structure, capabilities and process.
“On the other hand, we need to be clear that the goal here is to, from ground up, build a culture and infrastructure with corresponding structure and processes that will ensure Xponential scales in a long-term, sustainable manner.”
King’s improvement plans include hiring executives “who know how to profitably scale companies,” forming field operations teams for franchises, finding more companywide data and expanding its international footprint. 2025 will be “a year of foundation building, allowing for growth to reaccelerate,” he said.
At press time, the stock recovered to $8.53 per share and a $412 million market cap.
“The Wrong Direction”
Tilly’s Inc. on March 12 reported fourth quarter sales fell 15% to $147.3 million and a loss of 45 cents a share. The Irvine-based apparel retailer for teenagers forecasts that first quarter sales will decline anywhere from 3% to 8% to $105 million to $111 million. All three data points missed analysts’ expectations.
“Our fourth quarter results were a disappointment,” Hezy Shaked, the company’s founder who last year returned as CEO, said in the quarterly statement.
In the subsequent trading session, shares of Tilly’s declined as much as 31% to $2.25, hitting their lowest price since going public in 2012. At press time, the shares traded at $2.23 each and a $67 million market cap (NYSE: TLYS).
Shaked said the company must mark down a lot of inventory “because it was just the wrong direction.”
“We’ve simply been buying too much in recent years,” Shaked told analysts on a conference call. Tilly’s management “worked hard with the teams to realign our inventory plans from a bottoms-up perspective, by product category, and feel confident that we have a good plan in place to have inventory very well managed as we go throughout the year.”
Tilly’s ended the fiscal year with 240 locations after having closed 10 stores during the fourth quarter.
“I think my goal would be to probably close more unprofitable stores than open new stores,” Shaked said.
