Why Tilly's Shares Surged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of teen-fashion retailer Tilly's (Nasdaq: TLYS  ) were catching mad air today, jumping as much as 14% in intraday trading, after the company reported killer second-quarter earnings.

So what: Peep these numbers, yo: Tilly's revenue rose 20% year over year, and adjusted net income soared 49%. Comp-store sales growth was pretty sweet, too, increasing 5.1%.

Teen lingo aside (man I feel old), it was a really good quarter for Tilly's. The quarter had some one-time expenses to deal with, thanks to the company's May initial public offering but, after backing those out, earnings per share of $0.09 topped the $0.07 that Wall Street was expecting.

Now what: Though Tilly's dates itself back to 1982, the big growth has been happening recently. In its IPO prospectus, the company says that it doubled its store count, and entered 29 new markets over the past five years. On the plus side, the numbers seem to say that Tilly's is succeeding in its expansion efforts. On the other hand, teen retail is a fickle beast, and it can be particularly tough for a counter-culture theme to maintain its identity during a rapid growth phase. Shares are trading at roughly 20 times the midpoint of management's full-year earnings forecast, which means that investors are definitely paying for continued strong growth.

This quarter notwithstanding, the valuation on Tilly's stock seems to assume more growth than the company has historically delivered. However, it still could be worth a closer look -- a fashion retailer with the wind at its back and a lot of untapped markets can pick up steam pretty quickly. (For those of you with kids, think about the power of "the new thing.")

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.

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