Please ensure Javascript is enabled for purposes of website accessibility

Why Tilly's Stock Dropped 22%

By Rich Smith – Nov 29, 2018 at 4:25PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings "beat" estimates -- but perhaps not for long.

What happened

Shares of teen retailer Tilly's (TLYS -2.75%) dropped deeply on Thursday -- and they remain down 21.4% in the closing 10 minutes of trading -- after reporting a small earnings beat of $0.24 per share (pro forma), versus consensus expectations for $0.23, but a bit of a sales miss. 

Teens shopping for clothes

Stock shoppers may not be finding what they like at Tilly's today. Image source: Getty Images.

So what

Tilly's management tried to put a brave face on the news, with CEO Ed Thomas exulting:

Tillys continued its positive momentum with its tenth consecutive quarter of flat to positive comparable store net sales and its strongest back-to-back quarterly comparable store net sales performance since the first half of fiscal 2012.

And yes, "comparable store net sales" rose a respectable 4.3% in Q3. However, total sales nonetheless declined nearly 4% to just $146.8 million, falling short of Wall Street's expected $150 million. Worse, with operating costs rising, Tilly's operating profit margin earned on those sales that it did make slid 360 basis points to 5.6%.

Thus, even with a smaller tax bite this quarter than in the year-ago quarter, net profits ended up plunging 30% to just $0.21 per diluted share (GAAP).

Now what

Looking ahead, Tilly's guided investors to expect Q4 sales of between $163 million and $168 million -- roughly in line with the $165.1 million that Wall Street is expecting to see. The problem is, it's earnings that are expected to fall short next time around, with Tilly's forecast earnings per diluted share of $0.22 to $0.26 missing Wall Street's mark. (The Street is looking for $0.28, you see.)

The long story short is that guidance was too weak for Wall Street's tastes, and that's why the stock is down despite a Q3 "earnings beat."

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tilly's, Inc. Stock Quote
Tilly's, Inc.
TLYS
$7.06 (-2.75%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.