What happened
Shares of Tilly's (TLYS 2.21%) are falling 7.2% at 10:38 a.m. on Friday after the apparel retailer missed analyst earnings expectations for the second quarter.
Tilly's earned $0.13 per share for the period on $168.3 million in revenue, short on both counts of Wall Street estimates of $0.16 per share in profits on $170.8 million in sales.
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So what
Tilly's had been the beneficiary of a strong rebound in consumer spending last year after the lockdown period of the pandemic, which led the retailer of apparel for young boys and girls to post record results. However, as normalcy returned to consumer habits, along with rising fears of a recession, the retailer is now scrambling to make sales.
Net sales fell nearly 11% in the first quarter, and they're down another 16.7% in the second, indicating the decline is accelerating as shoppers become more leery of opening their wallets. With energy prices still elevated and the Federal Reserve aggressively raising interest rates, which could throw the economy into a tailspin, consumers are being much more cautious about spending.
Now what
Tilly's is not alone in feeling the effects of a worried customer, as Walmart has also been hit hard, with a much more dour outlook for the year. Now the apparel retailer is seeing inventories widen, as it can't move product.
It notes inventory costs are up only 4% per square foot compared to nearly 13% per square foot in the first quarter. That still may lead to discounting by the retailer, which could erode profit margins even more.
