Tilly's Valuation Keeps Decreasing, But The Stock Is Not An Opportunity Without Signs Of A Turnaround

Core Viewpoint - Tilly's continues to face significant operational challenges, with negative comparable sales and operating losses, leading to a Hold rating due to uncertainty in recovery to pre-pandemic profitability levels [1][8]. Financial Performance - In 1Q24, Tilly's reported a 9.4% decline in comparable sales year-over-year, with an operating loss of approximately $20.8 million and negative operating margins of nearly 18% [1][8]. - The company's revenue for the quarter was $115.86 million, reflecting a continued downward trend in sales performance [2][8]. - The gross margin improved by 130 basis points year-over-year, attributed to reduced markdowns and higher initial prices [8]. Management and Strategy - The new CEO has initiated operational changes, focusing on innovative marketing and improved order and warehouse management systems, while also reducing promotions and increasing prices [3][9]. - The company is attempting to shift its promotional strategy after previously offering merchandise at significantly reduced prices [8]. Valuation Considerations - With trailing twelve months (TTM) revenues of $615 million, even a further 5% decline in sales could yield an operating income of $12 million, resulting in an EV/NOPAT multiple of 10x against an enterprise value of $90 million [5]. - The current valuation may only be attractive if a recovery to pre-pandemic profitability can be forecasted, which remains uncertain [1][16]. Market Context - Tilly's has experienced a more than 30% decline in stock price since the last analysis, indicating market skepticism regarding its recovery potential [1][15]. - Comparatively, other retailers targeting similar demographics, such as Zumiez, have shown positive comparable sales, highlighting Tilly's struggles within the broader retail environment [14].