Financial Data and Key Metrics Changes - For Q3 2024, net sales were $143.4 million, a decrease of 13.8% compared to the previous year, primarily due to the impact of a 53rd week in last year's retail calendar, which shifted $18.4 million in net sales from Q3 to Q2 [11] - Comparable net sales for the 13-week period ended November 2, 2024, decreased by 3.4%, with a decline in store sales of 5.6% and an increase in e-commerce sales of 4.9% [11] - The net loss was $12.9 million or $0.43 per share, compared to a net loss of $0.8 million or $0.03 per share in the previous year [15] Business Line Data and Key Metrics Changes - Net sales from physical stores decreased by 16% and represented 77.6% of total net sales, while e-commerce net sales decreased by 5.4% and represented 22.4% of total net sales [11] - Gross margin was 25.9% of net sales, down from 29.3% last year, with buying, distribution, and occupancy costs deleveraging by 320 basis points [12] Market Data and Key Metrics Changes - Store traffic increased for the second consecutive quarter, although comparable sales in stores remained negative [9] - Comparable net sales through December 3, 2024, decreased by 15.3% relative to the same period last year, attributed to the timing shift of Thanksgiving and Black Friday [17] Company Strategy and Development Direction - The company is focusing on improving sales growth and profitability, with renewed marketing efforts and a new sponsorship with the Los Angeles Chargers aimed at mental health awareness [9] - A new price optimization tool is expected to launch in early 2025 to enhance pricing decisions and merchandise management efficiency [10] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges in generating consistent sales growth and profitability but noted positive highlights in Q3 performance [7] - The company expects total net sales for Q4 to be in the range of approximately $149 million to $156 million, with a comparable net sales decline of 9% to 5% [18] Other Important Information - The company ended Q3 with total cash and marketable securities of $52 million and no debt [15] - Inventory levels were up 11.8% compared to the previous year, due to a strategic decision to pull forward inventory receipts [16] Q&A Session Summary Question: Is Hezy on the call today? - Hezy confirmed his presence on the call [23] Question: Can you clarify the merchandise margin situation? - Management discussed changes in merchandise strategy and the impact of markdowns on gross margins, indicating a roadmap for improvement [27][28] Question: What is the status of inventory levels? - Management explained the increase in inventory was a conscious decision to ensure timely delivery for Black Friday, with a temporary timing blip noted [33][36] Question: Can you clarify the Thanksgiving holiday sales figures? - Management clarified that the minus 10% figure was a quarter-to-date comparison, with a shifted basis providing a better perspective on sales performance [42][44] Question: What promotional strategies are in place? - Management indicated that typical holiday promotions would be utilized, focusing on profitability and productivity in gross margin dollars [60] Question: Any surprises in SG&A costs? - Management stated there were no unexpected costs, with careful planning of temporary labor needs based on expected volumes [62]

Company Performance - Tilly's reported a quarterly loss of $0.43 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.32, and compared to a loss of $0.03 per share a year ago, indicating a significant decline in performance [1] - The company posted revenues of $143.44 million for the quarter ended October 2024, surpassing the Zacks Consensus Estimate by 1.85%, but down from $166.48 million in the same quarter last year [2] - Over the last four quarters, Tilly's has surpassed consensus EPS estimates two times and topped consensus revenue estimates three times [2] Stock Performance - Tilly's shares have lost approximately 40.2% since the beginning of the year, contrasting with the S&P 500's gain of 27.6% [4] - The current Zacks Rank for Tilly's is 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [7] Earnings Outlook - The current consensus EPS estimate for the coming quarter is -$0.13 on revenues of $170.92 million, and for the current fiscal year, it is -$0.92 on revenues of $590.52 million [8] - The estimate revisions trend for Tilly's is mixed, and future earnings expectations will depend on management's commentary during the earnings call [3][5] Industry Context - The Retail - Apparel and Shoes industry, to which Tilly's belongs, is currently in the top 31% of the Zacks industries, suggesting a favorable outlook compared to the bottom 50% [9]

Sales Performance - Total net sales for Q3 fiscal 2024 were $143.4 million, a decrease of 13.8% compared to the same period last year, primarily due to a calendar shift impacting back-to-school sales [6]. - Comparable net sales, including both physical stores and e-commerce, decreased by 3.4% relative to the comparable 13-week period ended November 4, 2023 [6]. - Net sales from physical stores were $111.3 million, a decrease of 16.0%, while e-commerce net sales were $32.2 million, a decrease of 5.4% [7][8]. - Year-to-date total net sales were $422.2 million, a decrease of 6.2%, with comparable net sales down by 6.8% [14]. - The company expects Q4 net sales to be in the range of approximately $149 million to $156 million, translating to an estimated comparable net sales decrease of approximately 9% to 5% [23]. - Net sales for the thirteen weeks ended November 2, 2024, were $143,442, a decrease of 13.8% compared to $166,475 for the same period last year [33]. Profitability - Gross profit was $37.2 million, or 25.9% of net sales, down from 29.3% last year, with product margins declining by 10 basis points [9]. - Gross profit for the thirteen weeks ended November 2, 2024, was $37,197, representing a gross margin of 25.9%, down from $48,719 and a gross margin of 29.2% in the prior year [33]. - The operating loss for Q3 was $14.1 million, or 9.8% of net sales, compared to a loss of $2.5 million, or 1.5% of net sales, last year [10]. - Operating loss for the thirteen weeks ended November 2, 2024, was $(14,054), compared to an operating loss of $(2,516) for the same period last year [33]. - Net loss for the thirty-nine weeks ended November 2, 2024, was $(32,565), compared to a net loss of $(13,940) for the same period last year [33]. Expenses - SG&A expenses were $51.3 million, or 35.7% of net sales, compared to 30.8% last year, largely due to increased e-commerce fulfillment costs [10]. Store Operations - The company plans to close 10 underperforming stores by the end of Q4, expecting to have 239 total stores open [24]. - The company opened 2 new stores during the quarter, bringing the total store count to 246 [38]. - The total gross square footage at the end of the quarter was 1,780,000 square feet [38]. Financial Position - As of November 2, 2024, the company had $51.7 million in cash and no debt, with total inventories increasing by 11.8% compared to the previous year [21]. - Total current assets decreased to $162,126 as of November 2, 2024, down from $176,059 in the previous quarter [31]. - Total liabilities decreased to $272,959 as of November 2, 2024, compared to $284,676 in the previous quarter [31]. - Cash and cash equivalents decreased to $26,407 as of November 2, 2024, from $47,027 in the previous quarter [31]. - The company reported a net cash used in operating activities of $(38,203) for the thirty-nine weeks ended November 2, 2024 [35].

Core Viewpoint - Tilly's reported 2Q24 results that met company guidance but showed significant challenges with an 8% decline in comparable sales, indicating ongoing issues with the business model and macroeconomic factors [1][2][4]. Financial Performance - Tilly's 2Q24 revenues increased by 2%, with a slight improvement in gross margins of 300 basis points, resulting in a break-even net income of a small loss of $70 thousand [4][5]. - The company has not experienced a positive comparable sales quarter since the 2021 fiscal year, with 2Q24 being the best comparable since then [4]. Future Outlook - The company anticipates more challenging results in 3Q24, expecting operating income losses of approximately $11 million due to the loss of an extra back-to-school week that contributed positively in 2Q24 [6]. - Comparable sales are projected to improve slightly, with a decline expected between 2% and 6%, as the company anniversaries a significant drop in sales from late 2022 and early 2023 [7]. Operational Challenges - Tilly's management has acknowledged issues with merchandising practices, which have hindered performance, and is working on addressing these problems [8]. - The company has launched a new brand campaign targeting micro-influencers to enhance brand awareness, although such efforts may take time to yield results [8]. Valuation Considerations - Tilly's current market capitalization is $145 million, with $75 million in cash and no debt, leading to an enterprise value of approximately $70 million [9]. - The company needs to achieve revenues of $675 million to break even, which represents an 8.5% increase from current levels, and $692 million to generate net profits of $7 million [11]. Business Model Viability - Tilly's is facing challenges beyond the macroeconomic environment, struggling to provide products that meet customer demands at acceptable price points, raising concerns about its long-term viability [10][12]. - The gap between a nonviable business model and a healthy return is minimal in terms of sales, suggesting potential speculative opportunities, but the lack of effective reforms and a challenging outlook make such speculation unattractive [12].

Financial Performance - Net sales for the thirteen weeks ended August 3, 2024, were $162.867 million, compared to $159.951 million for the same period in 2023[75] - Gross profit for the thirteen weeks ended August 3, 2024, was $49.920 million, representing 30.7% of net sales, up from 27.7% in the same period in 2023[75] - Operating loss for the thirteen weeks ended August 3, 2024, was $859,000, an improvement from the $2.685 million loss in the same period in 2023[75] - Net loss for the thirteen weeks ended August 3, 2024, was $69,000, compared to a net loss of $1.125 million in the same period in 2023[75] - Total cost of goods sold for the thirteen weeks ended August 3, 2024, was $112.947 million, representing 69.3% of net sales, down from 72.3% in the same period in 2023[75] - Selling, general and administrative expenses for the thirteen weeks ended August 3, 2024, were $50.779 million, representing 31.2% of net sales, up from 29.4% in the same period in 2023[75] - Total net sales for Q2 2024 were $162.9 million, a 1.8% increase compared to $160.0 million in Q2 2023, driven by a calendar shift impact[78] - Comparable store net sales decreased by 7.8% in Q2 2024, with physical store sales at $132.3 million (81.3% of total sales) and e-com sales at $30.5 million (18.7% of total sales)[78] - Gross profit for Q2 2024 was $49.9 million, or 30.7% of net sales, up from 27.7% in Q2 2023, due to improved product margins and lower markdowns[79] - SG&A expenses for Q2 2024 were $50.8 million, or 31.2% of net sales, up from 29.4% in Q2 2023, primarily due to increased store payroll and digital marketing expenses[80] - Operating loss for Q2 2024 was $0.9 million, or 0.5% of net sales, compared to $2.7 million, or 1.7% of net sales, in Q2 2023[81] - Total net sales for the first half of 2024 were $278.7 million, a 1.7% decrease compared to $283.6 million in the same period last year, with a comparable store net sales decline of 8.4%[81] - Gross profit for the first half of 2024 was $74.2 million, or 26.6% of net sales, up from 24.8% in the same period last year, driven by improved product margins[82] - SG&A expenses for the first half of 2024 were $95.9 million, or 34.4% of net sales, up from 31.8% in the same period last year, primarily due to increased store payroll and non-cash store asset impairment charges[83] - Net loss for the first half of 2024 was $19.7 million, or $0.66 per share, compared to a net loss of $13.1 million, or $0.44 per share, in the same period last year[85] Store Operations - The company operated 247 stores as of August 3, 2024, compared to 246 stores at the same time last year[65] - Store payroll and related expenses represented approximately 47% of total selling, general and administrative expenses in the first half of fiscal 2024[66] - The average hourly rate for store payroll in the first half of fiscal 2024 was 32% higher than in fiscal 2019 and 4% higher than in the first half of fiscal 2023[66] - Minimum wage increases are estimated to cost the company an additional $2 million during fiscal 2024 compared to fiscal 2023[66] Cash Flow and Capital - Working capital decreased by $20.1 million to $51.4 million at August 3, 2024, primarily due to lower cash and cash equivalents and an increase in accrued expenses[86][87] - Net cash provided by investing activities was $4.6 million this year compared to net cash used of $15.1 million last year[91] - Maturities of marketable securities in the first half of fiscal 2024 were $48.5 million, partially offset by purchases of $39.3 million and capital expenditures of $4.6 million[91] Credit Agreement - The company entered into a Credit Agreement with Wells Fargo Bank, providing a Revolving Facility of up to $65.0 million, with an uncommitted accordion feature allowing an increase of up to $12.5 million[91] - The Revolving Facility matures on April 27, 2026, and is secured by a lien on all company assets[91] - Borrowings under the Revolving Facility bear interest ranging from SOFR plus 1.50% to 2.00% or Base Rate plus 0.50% to 1.00%[91] - As of August 3, 2024, the company was eligible to borrow up to $63.0 million under the Credit Agreement with no outstanding borrowings[91] - The company utilized a $2.0 million irrevocable standby letter of credit under the Credit Agreement[91] Contractual Obligations and Market Risks - No material changes to contractual obligations as of August 3, 2024[92] - No material changes in market risks as of August 3, 2024[94]

Financial Data and Key Metrics Changes - The second quarter net sales were $162.9 million, an increase of 1.8% compared to the previous year, primarily due to a timing shift of back-to-school sales volume [7][8] - Gross margin improved by 300 basis points to 30.7% of net sales from 27.7% last year, with product margins improving by 270 basis points [8] - Total SG&A expenses were $50.8 million or 31.2% of net sales, compared to $47 million or 29.4% last year [9] - The net loss was $69,000 or breakeven on a per share basis compared to last year's net loss of $1.1 million or $0.04 per share [9] Business Line Data and Key Metrics Changes - Net sales from physical stores increased by 2% and represented 81.3% of total net sales, while e-commerce net sales increased by 1.3% and represented 18.7% of total net sales [8] - Comparable net sales for the 13-week period ended August 3, 2024, decreased by 7.8% compared to the same period last year [8] Market Data and Key Metrics Changes - The company ended the second quarter with 247 total stores compared to 246 total stores at the end of the second quarter last year [8] - Comparable net sales for fiscal August increased by 1%, marking the first positive monthly comp since February 2022 [10] Company Strategy and Development Direction - The company has established a new brand marketing strategy aimed at redefining its purpose to its target customers, focusing on personal style and mental wellness [6][7] - The company plans to introduce new product collaborations and brands in the latter half of the fiscal year to create new customer interest and sales opportunities [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging macroeconomic environment for their core customer demographic and noted that certain merchandising decisions limited performance in the second quarter [4][5] - The company expects total net sales for the third quarter to be in the range of approximately $140 million to $146 million, translating to a comparable net sales decline of 6% to 2% [12] Other Important Information - The company ended the second quarter with total cash and marketable securities of approximately $77 million and no borrowings under its asset-backed credit facility [10] - The company is facing structural challenges, including a significant drop in sales per square foot and increased labor costs due to minimum wage increases [18] Q&A Session Summary Question: What has changed structurally in the business that is preventing recovery? - Management indicated that declining sales over the past three years, influenced by the pandemic and changes in employee behavior, have created structural challenges [15][16] Question: Are there structural issues preventing recovery compared to peers? - Management acknowledged that multiple decisions made in the past did not yield positive results, and they are working to address these issues [17] Question: What are the main structural issues affecting the business? - Management highlighted a significant drop in sales per square foot and a 32% increase in average hourly rates for store payroll since 2019 as key structural issues [18]

Group 1 - Tilly's reported break-even quarterly earnings per share, surprising the market as the consensus estimate was a loss of $0.06, compared to a loss of $0.04 per share a year ago, indicating a 100% earnings surprise [1] - The company posted revenues of $162.87 million for the quarter ended July 2024, missing the Zacks Consensus Estimate by 0.57%, but showing an increase from $159.95 million year-over-year [2] - Tilly's shares have underperformed the market, losing about 34.5% since the beginning of the year, while the S&P 500 gained 15.7% [3] Group 2 - The current consensus EPS estimate for the coming quarter is -$0.17 on revenues of $146.69 million, and for the current fiscal year, it is -$0.83 on revenues of $597.25 million [7] - The Zacks Industry Rank for Retail - Apparel and Shoes is in the top 39% of over 250 Zacks industries, indicating that the industry outlook can significantly impact stock performance [8] Group 3 - Tilly's has surpassed consensus EPS estimates three times over the last four quarters and topped consensus revenue estimates two times in the same period [2] - The estimate revisions trend for Tilly's is currently mixed, resulting in a Zacks Rank 3 (Hold), suggesting the stock is expected to perform in line with the market in the near future [6]

Financial Performance - Total net sales for Q2 FY2024 were $162.9 million, an increase of $2.9 million or 1.8% compared to $160.0 million in Q2 FY2023[3] - Comparable net sales decreased by 7.8% relative to the shifted 13-week period ended August 5, 2023[3] - Gross profit was $49.9 million, or 30.7% of net sales, compared to $44.3 million, or 27.7% of net sales, last year, reflecting a 270 basis point improvement in product margins[4] - Total net sales for the first half of FY2024 were $278.7 million, a decrease of $4.9 million or 1.7% compared to $283.6 million last year[7] - Net sales for the thirteen weeks ended August 3, 2024, were $162,867,000, compared to $159,951,000 for the same period last year, representing a 1.3% increase[21] Expenses and Losses - SG&A expenses increased to $50.8 million, or 31.2% of net sales, compared to $47.0 million, or 29.4% of net sales, last year[5] - Operating loss was $0.9 million, or 0.5% of net sales, an improvement from an operating loss of $2.7 million, or 1.7% of net sales, last year[5] - Net loss for Q2 FY2024 was $0.1 million, or $0.00 net loss per share, compared to a net loss of $1.1 million, or $0.04 net loss per share, last year[6] - The net loss for the twenty-six weeks ended August 3, 2024, was $19,690,000, compared to a net loss of $13,093,000 for the same period last year[22] Future Projections - The company expects Q3 FY2024 net sales to be in the range of approximately $140 million to $146 million, translating to an estimated comparable net sales decrease of approximately (6)% to (2)%[13] Store Operations - The company plans to maintain 246 total stores at the end of Q3 FY2024, compared to 249 at the end of the previous year's third quarter[14] - The company opened 1 new store during the second quarter of 2024, bringing the total store count to 247[23] Cash and Assets - As of August 3, 2024, the company had $76.7 million in cash and cash equivalents, down from $104.3 million a year ago[11] - Total current assets increased to $194,422,000 as of August 3, 2024, from $176,059,000 as of February 3, 2024, reflecting a 10.7% increase[20] - Total liabilities increased to $302,424,000 as of August 3, 2024, compared to $284,676,000 as of February 3, 2024, indicating a 6.1% rise[20] - The company had cash and cash equivalents of $36,749,000 as of August 3, 2024, down from $47,027,000 as of February 3, 2024, representing a decrease of 22.0%[22] - Merchandise inventories increased to $95,011,000 as of August 3, 2024, compared to $63,159,000 as of February 3, 2024, a significant increase of 50.4%[20] Share Information - Selling, general and administrative expenses for the thirteen weeks ended August 3, 2024, were $50,779,000, compared to $47,001,000 for the same period last year, reflecting an increase of 5.9%[21] - The weighted average basic shares outstanding increased to 30,029,000 for the thirteen weeks ended August 3, 2024, compared to 29,831,000 for the same period last year[21]

Tilly's is an apparel retailer from the US. I started covering the company in February 2024 with a Hold rating. The rating was based on the company's consistently negative comparable sales and operational losses. The company trades at a low valuation if we assume it can return to pre-pandemic profitability levels, but that is uncertain. The 1Q24 results did not change the thesis above. The company posted negative revenue comparables of 9.4%, with negative operating margins of almost 18% and close to $20.8 m ...

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 4, 2024 OR Table of Contents ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Commission file number: 001-35535 __________________________________________________ Washington, DC 20549 __________________________________________________ FORM 10-Q __________________________________________________ ...