A specialty retail company that sells clothing and apparel to teens and young adults, Tilly's (NYSE:TLYS) operates 229 stores. It's a rare retail company that's growing stores in an environment where the Amazon (NASDAQ:AMZN) effect has left American malls looking like graveyards of dead hopes and dreams. 

I discovered the company when I noticed its significant drop from around $25 per share down to $8 per share. These are the three primary reasons why I like this retail stock, especially at this new low price.

1. A pristine balance sheet

What I like about Tilly's balance sheet is the numbers it contains but also, and perhaps more so, is the management strategy that led to those numbers. The numbers are good, cash and marketable securities of over $124 million and no debt. But the type of decisions that were made to get those substantial numbers interests me more.

Three young woman shopping together carrying bags

Image Source: Getty Images

For instance, when colder than expected weather this spring caused a slowdown in sales, the company chose to discount merchandise and get it off the shelves rather than hold mismatched inventory into the next season. This conservative approach could propel it through periods of declining sales without risks to its survival, which may be a significant competitive advantage in the current challenging retail environment. This long-term viability and adaptability is a strong positive when looking at a retail stock.

2. A favorable negotiating position with landlords

Tilly's leases all its 229 retail store locations in the U.S. Over the next three years, more than half of its lease agreements will be up for renegotiation. What makes this fact a plus for the stock is that retail store space has been in oversupply in the U.S., putting the company in a favorable position to negotiate terms with landlords. Furthermore, this oversupply situation in retail space is likely to persist for several years. It is potentially providing the company with several years of reductions in rent expense if it can negotiate skillfully.

Another positive point is that it could create more viable options for new store openings as landlords offer incentives to new tenants to occupy vacant spaces. Tilly's operates stores in malls and stand-alone locations with a substantial presence in California where it has nearly 40% of its total footprint. 

3. An ability to grow the number of stores and sales

In its most recent quarterly report, management explained that it expected to open up to 13 new stores in its fiscal year 2019. Some of its competitors in the category have been closing store locations and shrinking in size. In 2016, Macy's (NYSE:M) announced it would be closing 100 stores, and Gap (NYSE:GPS) closed 68 stores in 2018 and plans to close another 230 over the new few years. These closings by competitors offer an opportunity for the rest of the retail industry to capture market share.

Enter Tilly's, with its growing footprint and flexible strategy. Recent investments made in its technology have driven an acceleration in e-commerce sales growth of 15.7% up from 8.1% the year prior. Total sales were up 2.8% and management guided for 1% to 4% growth for the next quarter.

Management shared their outlook on the conference call, 'the third quarter is off to a promising start, leaving us optimistic about our prospects for the third quarter and the back half of 2019.'

Tilly's offers great value at its current price

Let's take a closer look at how Tilly's stacks up to some of its neighbors at the local mall that also cater to young adults and teens.







The Buckle



Abercrombie and Fitch



Source: Yahoo

Tilly's share price has seen a significant drawdown this year, which presents an excellent buying opportunity for long-term value seekers to buy into a responsibly growing company, with a strong balance sheet, and a favorable outlook on expenses. Its P/E ratio is in the middle of two of its competitors, but it has the lowest PEG ratio by a substantial amount.

For investors shopping around for a strong retail stock that will hold up in an uncertain future for brick-and-mortars, Tilly's is a great buy today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.