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DATE

  • Wednesday, June 4, 2025 at 4:30 p.m. ET

CALL PARTICIPANTS

  • Chief Financial Officer — Michael Henry
  • Executive Chairman — Hezy Shaked

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RISKS

  • Gross margin (GAAP) declined to 19.8% of net sales from 21% in Q1 FY2024, reflecting deleverage in buying, distribution, and occupancy costs, even as aggregate expenses decreased.
  • The net loss (GAAP) widened to $22.2 million, or $0.74 per share, compared to $19.6 million, or $0.65 per share, in Q1 FY2024.
  • Total store count decreased by eight year over year as of Q1 FY2025, and management expects further closures, including up to fifteen additional stores subject to lease negotiations.

TAKEAWAYS

  • Total Net Sales: $107.6 million, representing a 7.1% year-over-year decline.
  • Physical Store Net Sales: Down 7.4%; E-commerce net sales fell 5.8%.
  • Comparable Net Sales: Decreased 7%, an improvement from an 11.2% decline in Q4 FY2024; in fiscal May, comparable net sales decreased 2.2%.
  • Store Count: 238 total stores at quarter-end, a net decrease of eight from the prior year.
  • SG&A Expenses: $44 million, down $1.1 million; Included $1.2 million in non-cash asset impairment and write-off charges.
  • Pretax Loss: $22.3 million, or 20.7% of net sales.
  • Net Loss: $22.2 million, or $0.74 per share (GAAP).
  • Inventory Levels: Total inventory down 3.8% year over year, and unit inventory down 10.9%.
  • Liquidity: $92.6 million, including $37.2 million in cash and marketable securities and $55.4 million in undrawn credit capacity; no debt outstanding.
  • Guidance for Q2 FY2025: Anticipates net sales of $150 million to $158 million, Comparable net sales change from down 5% to flat, SG&A of $48 million to $49 million, and Net result between a $2.7 million net loss and $2 million net income (GAAP).
  • Store Closures: Plans to operate 232 stores at the end of Q2 FY2025 after seven closures and one opening; additional closures possible pending lease renewal outcomes.
  • TikTok Shop Launch: Management stated that after its March 2025 launch, order volume surpassed daily Amazon orders by mid-April 2025 and has continued to grow.
  • Marketing Initiatives: Recent events featured celebrity influencers, Travis Barker and Mike Tyson, aiming to strengthen customer affinity and improve trends.
  • Tariff Impact: Management noted "[tariffs] have generally become less burdensome in recent weeks," and expects "not seeing a material impact at this time" on margins.
  • Back-to-School Season: Management highlighted the last two to three weeks of Q2 FY2025 as the period with the highest sales volume, describing back-to-school as historically its strongest season even in negative comp years.

SUMMARY

Tilly's (TLYS 12.31%) management emphasized that sequential improvement in comparable sales and enhanced product margins are attributable to active marketing strategies, merchandise adjustments, and customer engagement initiatives. The projected liquidity increase next quarter is expected to reflect effective cash management and a strong, debt-free capital position, with total liquidity projected at approximately $106 million to $111 million for Q2 FY2025. Leaders signaled that closure of underperforming stores and ongoing lease negotiations may further reshape the store base, contingent on renewal outcomes.

  • Physical and e-commerce sales as a proportion of total revenue shifted slightly, with store-based sales at 79.8% and e-commerce at 20.2% in Q1 FY2025.
  • Transaction volume and traffic both decreased by low single digits in Q1 FY2025, while average sale per transaction improved in May of Q2 FY2025.
  • Michael Henry said, "It would take a consistent comparable net sales decrease of approximately 10% over the course of the remainder of FY2025 to require any level of borrowing this year."
  • Hezy Shaked said, "It's the merchandise and the marketing that brings the people to the stores," underscoring management's belief in the effectiveness of current strategies across customer segments.

INDUSTRY GLOSSARY

Comparable Net Sales: Sales comparison metric evaluating the performance of stores and e-commerce platforms open throughout the current and prior periods.

SG&A: Selling, General, and Administrative expenses represent overhead and operational costs unrelated to production.

Asset-backed Credit Facility: Lending arrangement secured by company assets, typically accounts receivable and inventory, providing liquidity with available unused capacity.

Full Conference Call Transcript

Michael Henry: 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 decreased 7%, which 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 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 the sequential improvement in the comparable net sales trend of our business. In early March, we launched our Tilly's TikTok shop, introducing a new source of Tilly's 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 reported 10,000 plus 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 license 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 a goal of building greater customer affinity for Tilly's. 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, 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 190 basis points as a result of carrying these costs against lower total net sales. Pretax 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 pretax loss compared to $13,000 or 0.1% of pretax 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 plan. Net loss was $22.2 million or $0.74 per share compared to $19.6 million or $0.65 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 and historical trends, we estimate the following ranges for the second quarter of fiscal 2025. Net sales of approximately $150 to $158 million translating to a comparable net sales range of a decrease of 5% to flat, respectively.

SG&A of approximately $48 million to $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 fifteen additional store closures, which could occur towards the end of this 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 to $111 million comprised of cash and investments of approximately $43 million to $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 fiscal 2025.

We estimate it would take a consistent comparable net sales decrease of approximately 10% 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 you 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: If at any time your question has been addressed and you would like to withdraw your question, first question comes from Matt Koranda with Roth Capital. Please go ahead.

Matt Koranda: 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? And maybe just if you can provide, like, a transaction versus ticket breakdown of the 7% and negative 7% comp and the improvement sequentially that you saw, that'd be helpful.

Michael Henry: Sure, Matt. So through the first quarter, fiscal February was down 5.7%, March was down 13.8%, and then April was plus 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 one so far in May. And then total transactions are down 5% to 6%.

Matt Koranda: Okay. That's helpful. Thanks for the breakdown, Mike. And then just for the second quarter guidance, I guess, so zero percent to five percent drop. In the quarter. We've seen a negative 2% trend in May. I guess, we're kinda just at the midpoint of that guidance thus far. Anything to call out from last year in terms of calendar shift in June, July, anything we should be mindful of there? And then maybe just for Hezy, if he's on the call, 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: Go ahead. Sorry. Go ahead. Okay. I was gonna say, your first part of your question on the cadence of Q2, each of the months were down single digits last year. So not expecting any difficulty from comparisons per se. As we go through the quarter. Just as a reminder, the bulk of the sales volume, the quarter is right at the end because we start the beginning of the back-to-school season in the back half of July. So the largest sales weeks of the quarter are actually the last two to three weeks of the quarter. So much of the business of the quarter will be done then.

May is typically only about 25% of the second quarter, and I'm looking historically. But a lot of business yet to come kinda there towards the end of July. Going into back-to-school. And I'd point out that each of the last three years, even as we comped negative, the back-to-school season's been our strongest season of performance in each of those years. So that's what gives us some cautious optimism here with starting May 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'll see as those come upon us.

Hezy Shaked: As the seller is the merchant on a chime into. As far as the merchandise, there's no doubt that it's looking better, it's selling better, and proof is that our traffic is up, now we can say consistently in the last several weeks. So and 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: 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. But 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? And then also how to 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, like, the current tariff posture that we're in right now.

Michael Henry: Sure, Matt. So really not seeing a material impact over the remainder of the course of the year at this time. And obviously, the tariff discussion has been quite volatile, but at this stage, we'd expect our product margins to be consistent with last year maybe a little better than last year at the better end of our range, maybe slightly worse than last year on the bottom end of our range. And we expect to deliver improved product margins relative to at this stage with what we know about tariffs. So really not seeing a material impact in any period going forward with what we know as of today.

Matt Koranda: Okay. I appreciate that. I'll leave it there. Thank you.

Operator: And your next question comes from Marni Shapiro with The Retail Tracker. Please go ahead.

Marni Shapiro: Hey, guys. Congrats on the improvement. And in stores, it looks fantastic. 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? And then, also, I'm 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, you know, especially that first table on the junior side. I'm curious where you're seeing the improvements most.

Hezy Shaked: I hope I'm not gonna jinx it. It is I'm knocking wood. Yes. Exactly. It's the merchandise and the marketing that brings the people to the stores. Right? So 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 role was did a different job on that. As anxious to see the next six months as anybody else. But I'm much more encouraged now than it was a year ago.

Marni Shapiro: Alright. So I think And is 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: Across the board. Excellent. The board.

Marni Shapiro: Fantastic. Thank you.

Operator: Again, if you have a question, please press star. Being 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.

Jeff Van Sinderen: Hello. This is Richard Magneson 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: No. We haven't been in any discussion with new investors, and nobody asked for a board seat.

Richard Magneson: Okay. Thank you. And then this is regarding the video. 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 with Al, if he's on that.

Michael Henry: The dollars are gonna continue to be lower than last year. We've obviously closed a number of stores in the past year. And as I noted, we're continuing to close stores. We've already closed four here. 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 Magneson: Alright. Thank you.

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