Tilly's (TLYS 2.63%) is a little-known retailer headquartered in Irvine, California. Like many other non-essential businesses, it was devastated at the pandemic onset when it had to shut its doors to in-person shoppers. 

That being said, Tilly's is rebounding from the setback stronger than ever, reporting record sales and profits. Management expects that momentum to continue through this year. Here's why Tilly's could be a surprise growth pick in 2022. 

Two people looking at a shirt in a store.

Image source: Getty Images.

Tilly's is thriving 

In the nine months ended Oct. 30, net sales at Tilly's were 22.5% higher than during the same time in 2019. That's impressive, considering the pandemic is still raging on. Tilly's is a brick-and-mortar apparel and accessories retailer with 243 stores open across the U.S. but primarily concentrated in California, Texas, and Florida. Its products are geared toward pre-teens and young adults.

Management can be commended for an excellent job managing the pandemic and ensuing supply chain disruptions that have followed. Businesses worldwide are reporting difficulty securing enough supply to meet existing consumer demand. Those like Tilly's that have secured enough inventory reap the benefits of supply shortages at competitors. For instance, if the industry is short on inventory, there will be fewer promotional activities such as discounting. 

Indeed, in its most recent quarter ended Oct. 30, Tilly's reported a gross profit margin of 37.2%, the highest in its history as a public company. The highest gross profit margin reached in the last decade for Tilly's was 32.2% in 2012. Tilly's is on pace to surpass that mark with a gross profit margin over 36% in the first three quarters of the fiscal year 2021.

Another benefit of having inventory when your competitors are short is attracting disappointed customers. That could have played a crucial advantage for Tilly's during the recent holiday season. While Tilly's holiday quarter figures are not out yet, there is reason to believe sales were robust. As of Oct. 30, Tilly's had inventories of $87 million, up from the $66 million it had at the same time last year. What's more, management gave an update on comparable net sales through Nov. 30, saying it grew by 19.6% compared to the previous year.

Tilly's is in expansion mode

To capitalize on its business momentum and the positive macro-environment, Tilly's plans to open between 15 and 20 new stores in 2022. That's an accelerated pace of openings from 2021 when the company opened a net five new stores. Tilly's certainly has the balance sheet to fund expansion, with $155.6 million in cash and securities with no debt. Coupled with increasing sales from existing stores, adding more locations could boost sales even further for Tilly's in 2022 and beyond.

Interestingly, investors can buy this excellently performing retailer at a relative bargain. Tilly's is trading at a price-to-earnings ratio of 7.25, near the lowest in the last 12 months. Tilly's also boasts the lowest price-to-earnings ratio among a group of its peers. All in all, Tilly's could be a surprise growth stock for 2022.