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This Small-Cap Retailer Has the Money and Flexibility to Ride Out the Pandemic

By Parkev Tatevosian, CFA – Jul 22, 2020 at 11:00AM

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Brick-and-mortar retailers are having an especially difficult time adapting to the coronavirus.

Brick-and-mortar retailers are having a tough time riding out the effects of COVID-19. That was to be expected. It's difficult to run such a business while having to close your doors to customers. So much so that some will not make it to the other side of the pandemic. 

Still, Tilly's (TLYS 1.41%) is one retailer that has strategically put itself into a position to endure the coronavirus outbreak. As cities and states continued their phases of reopening plans, it is continuing to shore up its balance sheet and cautiously moving forward with store reopenings -- aware that it may have to shut its doors again at a moment's notice if there is an increase in coronavirus cases. And with states like Florida, Texas, Arizona, and California experiencing a surge in COVID-19 cases, the likelihood of further shutdowns is increasing. Let's take a closer look at how Tilly's is prepared to ride out the pandemic.

A woman holds up a blouse while shopping.

Tilly's has reopened 85% of its stores. Image source: Getty Images.

Cash is king for Tilly's as it hunkers down

The company updated investors on July 15, showing its balance sheet was strong. Tilly's has $151 million of cash and marketable securities on hand. If you exclude the rent it's withholding from landlords and its short-term borrowing on its credit facility, it has $114 million on hand. That's almost $4 per share in cash, and the stock is trading at a little above $6 per share. For context, net income was negative $17.4 million in its fiscal first-quarter.

Moreover, it has worked its inventory down to 24% lower than prior-year levels. Crucially, lower levels are needed to cope with decreasing sales. This would usually be a time of elevated revenue due to back-to-school shopping. But with so many schools opting to conduct the semester remotely, and people still hesitant to leave their homes, that effect is expected to be muted this year.

Finally, 203 of its 239 stores are open for business, with 28 of the 36 closed stores expected to remain shut for at least three weeks more. Admittedly, with the bulk of its stores located in California and Florida, two states with surging coronavirus cases, it may need to close more of its stores. Still, the company is prepared with lower inventory levels and an e-commerce site that is absorbing sales that would have normally happened at stores. Importantly, digital sales were up 166% compared with the same time last year.

A rack of clothes

Tilly's has $114 million in cash and marketable securities on hand. Image source: Getty Images.

What this means for investors 

The coronavirus pandemic is causing havoc around the world. Brick-and-mortar retailers are some of the businesses most affected by the outbreak. In addition to having to close their doors, retailers are hampered by the uncertainty surrounding the situation, which makes it difficult to adapt. 

Tilly's management has taken steps to ensure it makes it to the other side of this pandemic, aiming to err on the side of caution. Its decisions have put the company in a relatively stable position compared with other retailers. Investors looking to scoop up a beaten-up stock may want to put Tilly's on their radar. 

Parkev Tatevosian owns shares of Tilly's. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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