Tilly’s Inc. reported its first profitable quarter since late 2022, signaling an improvement in operations after three years of struggles.
The Irvine-based retailer reported second-quarter net sales fell 7.1% to $151.3 million and net income of 10 cents a share on Sept. 3. The next day, shares rose as much as 20% to $2.44 apiece. The stock (NYSE: TLYS) ended the trading session at $2.10 per share and was down to $1.90 by Friday. The shares are still up three-fold since hitting their lowest ever price of 57 cents in May.
Co-founder Hezy Shaked, who was previously serving as chief executive until the board appointed Nate Smith as CEO in August, noted that there were sequential improvements in Tilly’s comparable net sales—a key metric in the retail industry.
“We believe we are beginning to see the positive impacts of our efforts to stabilize our business,” Executive Chairman Shaked said in a statement. “Our comparable net sales trend has improved each quarter since the end of fiscal 2024, including through fiscal August to begin the third quarter.”
Total comparable net sales decreased by 11% in the fiscal fourth quarter ended Feb. 1. By fiscal Q1, Tilly’s reported comparable sales fell by 7% and in fiscal Q2, sales were down 4.5%.
The company reported that so far in August, comparable sales increased by 0.9% for the month compared to a year ago. Second quarter earnings per share of 10 cents beat its earnings outlook range for the quarter and represented the firm’s first profitable quarter since Q3 of fiscal 2022, nearly three years ago, CFO Michael Henry told investors on the Sept. 3 call.
The results indicate the tide might be turning for the retailer.
“We had some significant achievements during the quarter, including meaningfully improved product margins, significantly reduced inventory levels, improved inventory aging and reduced SG&A expenses compared to last year’s second quarter,” Henry said. “We believe these facts indicate that we are making progress toward improving our business, but there remains much more to do to return to profitability consistently over longer periods of time.”
In July, B. Riley Securities signaled a different story for the brand.
“Following a year of recovery from COVID in FY21 in which the company delivered the highest operating margin in recent history, TLYS has delivered over three years of consistently negative comps with nearly all Qs either (high-single digit) or (double-digit) negative,” B. Riley analyst Jeff Van Sinderen wrote in a July note.
B. Riley Securities then discontinued coverage of Tilly’s due to a reallocation of resources. Its final price target was $2.
Sustained Improvements Could Be Ahead
Tilly’s is forecasting third-quarter sales of approximately $134 million to $140 million and a per share loss of 23 cents to 35 cents—the company said this translates “to an estimated comparable net sales range of a decrease of 2% to an increase of 2%.”
The general analyst consensus is revenue of $141.1 million and a 37-cent loss.
Roth Capital’s Managing Director and Sr. Research Analyst Matt Koranda wrote that the second quarter “was much better than expected on profitability.”
The firm raised its price target on Tilly’s from $1.30 to $2.25.
On the appointment of Smith as CEO, the analyst said: “Smith should bring a unique perspective on the Tilly’s business, in our view, given a background with Boardriders, a key historical vendor.”
Koranda was also optimistic about the positive comparable sales for August. It included an increase of 4.5% in comparable net sales from stores, CFO Henry said on the earnings call.
“We’re still looking for visibility into sustained profitability before assigning a more constructive rating (3FQ guide still suggests losses), but we note significant operational progress that may enable sustained improvements ahead,” Koranda added.
