Tilly's (TLYS 0.68%) is scheduled to report fiscal 2022 first-quarter earnings on Thursday, June 2. The specialty retailer has been recovering nicely from store closures caused by the pandemic.

Management has navigated the challenges arising from the pandemic skillfully, which has shown up in the company's record sales and profit margins in several quarters since the outbreak. Let's evaluate whether investors should buy Tilly's stock before reporting earnings on June 2. 

A shopper checking out at the counter.

Image source: Getty Images.

Tilly's had a year for the record books in 2021 

Tilly's fiscal 2021, which ended on Jan. 30, was phenomenal on several fronts. Sales of $776 million were an all-time high and 46% higher than in 2020. Its gross profit margin of 35.7% and operating profit margin of 11.3% were both the best since 2007. Best of all, Tilly's earnings per share of $2.06 was a record for the company.

TLYS Gross Profit Margin Chart

TLYS Gross Profit Margin data by YCharts.

To deliver these results, management did an excellent job of securing enough of the right kind of inventory. Many of Tilly's competitors were not so successful in that feat. That can partly explain why Tilly's profit margins were so incredible; if you're one of the few with products that consumers want, you don't need to discount or offer promotions to make sales. 

Unfortunately, management does not expect these good times to last. It told investors that the unique circumstances that buoyed Tilly's sales and profits in 2021 would moderate in 2022. That was to be expected. After all, last year consisted of a period when stimulus checks boosted consumer purchasing power, competition was limited due to business restrictions, and inflation had not yet reared its ugly head.

As investors already saw with Walmart's first-quarter results, the operating environment will be more difficult in 2022. Tilly's stock has crashed 68% off its highs since making that caution statement for the rest of this year, but investors may be missing the bigger picture

Tilly's is a small, growing retailer that thinks it can add 10 to 20 new locations annually. It caters to teens and young adults, who are arguably seeing a better job market than any other cohort of that age group has seen in decades. Of course, purchasing power will not be as robust as when fueled by stimulus checks, but it could be solid nonetheless.

What this could mean for Tilly's investors

For the quarter, analysts on Wall Street expect Tilly's to report revenue of $145.79 million and earnings per share (EPS) of $0.02. If the company meets those earnings projections, it will mark a steep 94% decrease from the same period the year before. That's probably because of several headwinds. Rising fuel prices will hit outbound and inbound shipping costs. Tilly's also likely had to raise wages to acquire sufficient staff to support a return of in-person shoppers.

Analysts on Wall Street, no doubt, incorporate these expenses when estimating the dramatic decrease in earnings per share. But these rapid changes in costs are difficult to project, and Wall Street may be underestimating their magnitude. 

TLYS PE Ratio Chart

TLYS PE Ratio data by YCharts.

Instead of investing before June, it would be more prudent to wait until after earnings are released to consider investing in Tilly's. That way, you have all the latest information to evaluate before deciding. The stock is already cheap (see chart above). So barring a disaster in the earnings report, if the stock price falls further following the announcement, investors can buy with confidence.