Tillys Inc (TLYS) 2025 Q1 法說會逐字稿

Good day, and welcome to Tilly's First Quarter 2025 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Gar Jackson, Investor Relations. Please go ahead.

Good afternoon, and welcome to the Tilly's Fiscal 2025 First Quarter Earnings Call. Michael Henry, Executive Vice President and Chief Financial Officer, will discuss the company's business and operating results. Then he and Hezy Shaked, Co-Founder, Executive Chairman, President and Chief Executive Officer, will host the Q&A session. For a copy of Tilly's earnings press release, please visit the Investor Relations section of the company's website at tillys.com. From this section, shortly after the conclusion of the call, you will also be able to find a recorded replay of this call for the next 30 days.

Certain forward-looking statements will be made during this call that reflect Tilly's judgment and analysis as of today, June 4, 2025, and actual results may differ materially from current expectations based on various factors affecting Tilly's business. Accordingly, you should not place undue reliance on these forward-looking statements.

For a more thorough discussion of the risks and uncertainties associated with any forward-looking statements, please see the disclaimer regarding forward-looking statements that is included in our fiscal 2025 first quarter earnings release, which is furnished to the SEC today on Form 8-K as well as our other filings with the SEC referenced in that disclaimer. Today's call will be limited to 1 hour and will include a Q&A session after our prepared remarks. I now turn the call over to Mike.

Thanks, Gar, and to all joining us today. Our fiscal 2025 first quarter net sales were within our outlook range provided during our March earnings call. Our first quarter comparable net sales decrease of 7% was a sequential improvement from our 11.2% comparable net sales decrease in the fourth quarter of fiscal 2024. The comparable net sales trend of our business has continued to improve in fiscal May, starting the second quarter, with a decrease of just 2.2%. Consequently, we believe our merchandise assortment is on trend and moving us in the right direction, and we are encouraged to see signs of potential stabilization in our business.

As we look ahead in fiscal 2025, the potential impact of tariffs on product costs remains a concern, yet the currently known impacts on our product costs appear to be relatively minor. We have worked closely with all of our proprietary and branded partners to attempt to mitigate as much tariff impact as is reasonably possible. While tariffs have generally become less burdensome in recent weeks, we all realize this could change given the evolving nature of the tariff situation.

Despite external uncertainties, we are actively pursuing opportunities to build mind share with current and prospective customers, and we've had a busy last couple of months on the marketing front, which we believe has contributed, to some degree, to the sequential improvement in the comparable net sales trend of our business.

In early March, we launched our Tilly's TikTok shop, introducing a new source of Tilly's content with a digital storefront for today's generation of consumers. We hosted a launch party in West Hollywood attended by various youth culture influencers and celebrities.

Our shop has grown to a level that began outperforming our daily order volume through Amazon in mid-April and continues to grow. During festival season in Palm Springs, we participated in an event featuring professional surfing talent and popular DJs that drew reported 10,000-plus attendees, in aggregate, across the two weekends.

In late April, the legendary boxer, Mike Tyson, made an appearance in our Blue Diamond store in Las Vegas in support of his namesake license product line we carry. In late May, we hosted Travis Barker in our Irvine Spectrum store to promote his product collaboration with our longtime brand partner, Hurley.

These efforts are aimed at solidifying our authentic position at the intersection of youth culture, fashion and music, with the goal of building greater customer affinity for Tilly's, which, in turn, will hopefully aid our efforts toward improving our business results.

Turning to our operating results for the first quarter of fiscal 2025 compared to last year's first quarter. Total net sales were $107.6 million, a decrease of 7.1%. Net sales from physical stores decreased by 7.4%, while e-commerce net sales decreased by 5.8%. Net sales from physical stores represented 79.8% of total net sales compared to 80.1% last year, while e-commerce net sales represented 20.2% of total net sales compared to 19.9% last year.

Total comparable net sales, including both physical stores and e-commerce, decreased by 7%. We ended the first quarter with 238 total stores, a net decrease of eight stores compared to a year ago. Gross margin, including buying, distribution and occupancy expenses, was 19.8% of net sales compared to 21% of net sales last year.

Product margins improved by 40 basis points compared to last year primarily due to higher initial markups, partially offset by increased inventory valuation reserves. Buying, distribution and occupancy costs deleveraged by 160 basis points despite being $0.8 million below last year in the aggregate due to carrying these costs against lower total net sales.

Total SG&A expenses were $44 million, which included noncash store asset impairment and other asset write-off charges of $1.2 million. The $1.1 million decrease in total SG&A compared to last year was primarily due to reduced store payroll and related benefits of $0.9 million and lower noncash asset write-off charges of $0.5 million, partially offset by increased marketing expenses of $0.7 million.

SG&A deleveraged by 190 basis points as a result of carrying these costs against lower total net sales. Pretax loss was $22.3 million or 20.7% of net sales compared to $19.6 million or 16.9% of net sales last year. Income tax benefit was $139,000 or 0.6% of pretax loss compared to $13,000 or 0.1% of pretax loss last year.

Both years' income tax results include the continuing impact of a full noncash deferred tax asset valuation allowance. This year's benefit also includes the refund of certain income tax credit carryforwards and state income tax carryback claims.

Net loss was $22.2 million or $0.74 per share compared to $19.6 million or $0.65 per share last year. On our debt-free balance sheet, we ended the first quarter with total liquidity of $92.6 million comprised of cash and marketable securities of $37.2 million, no borrowings at anytime and undrawn borrowing capacity of $55.4 million under our asset-backed credit facility, which has been extended with Wells Fargo Bank through June 2027. Total balance sheet inventory and unit inventories were 3.8% and 10.9% lower, respectively, than at the end of last year's first quarter.

Looking at the second quarter of fiscal 2025, as noted earlier, total comparable net sales for fiscal May ended May 31, 2025, decreased by 2.2% compared to last year, continuing our sequential improvement in sales trend that began in the first quarter relative to fiscal 2024's fourth quarter.

Based on current and historical trends, we estimate the following ranges for the second quarter of fiscal 2025: net sales of approximately $150 million to $158 million, translating to a comparable net sales range of a decrease of 5% to flat, respectively; SG&A of approximately $48 million to $49 million, excluding any potential noncash asset impairment charges; a near 0 effective income tax rate due to the continuing impact of a full noncash valuation allowance on our deferred tax asset; earnings in the range of a net loss of approximately $2.7 million to net income of $2 million, respectively; and per share results of a net loss of $0.09 to net income of $0.07, respectively. We expect to end the second quarter with 232 total stores in operation after closing seven stores and opening one new store during the quarter.

This compares to 247 total stores at the end of last year's second quarter. At this time, we expect to close two additional stores in the third quarter, and there are up to potentially 15 additional store closures, which could occur towards the end of the fiscal year, depending on the outcome of lease renewal negotiations with landlords.

We expect to end the second quarter with a debt-free balance sheet and total liquidity of approximately $106 million to $111 million, comprised of cash and investments of approximately $43 million to $48 million and available undrawn borrowing capacity of approximately $63 million under our credit facility. Based on current projections, we expect to remain a debt-free company throughout fiscal 2025.

We estimate it would take a consistent comparable net sales decrease of approximately 10% or more over the course of the remainder of the fiscal year to require any level of borrowing this year. In closing, we believe our product assortment is on trend. We are working to drive customer engagement in creative ways, and we believe we are controlling what is controllable.

We believe we are beginning to see signs of stabilization in our business, and we're aiming to make further improvements from here over time. Operator, we'll now go to our Q&A session.

(Operator Instructions) Matt Koranda, ROTH Capital.

Maybe just curious about the cadence of the first quarter, if you could unpack it a little bit more between February, March, April. Any discernible trends sort of coinciding with some of the macro volatility that we saw or weather events? And maybe just if you can provide like a transaction versus ticket breakdown of the 7% -- the negative 7% comp and the improvement sequentially that you saw, that would be helpful.

Sure, Matt. So through the first quarter, fiscal February was down 5.7%, March was down 13.8%, and then April was plus 1.5%. In terms of transactions, traffic was down low single digits in the first quarter. It remains down low single digits, but slightly better than that in May. The average sale was down low single digits during the first quarter.

It's actually up 1% so far in May, and then total transactions are down 5% to 6%.

Okay. All right. That's helpful. And then just for the second quarter guidance, I guess, so 0% to 5% drop in the quarter, we've seen a negative 2% trend in May. I guess we're kind of just at the midpoint of that guidance thus far.

Anything to call out from last year in terms of calendar shift in June, July? Anything we should be mindful of there? And then maybe just for Hezy, if he's on, anything on the assortment that's working? I know you guys called out sort of more comfort with the inventory balance and the assortment, and what's working there?

(inaudible)

(inaudible) last year -- go ahead. Sorry.

Go ahead. Go ahead.

Okay. I was going to say your first part of your question on the cadence in Q2, each of the months were down single digits last year, so not expecting any difficulty from comparisons per se as we go through the quarter. Just as a reminder, the bulk of the sales volume in the quarter is right at the end because we start the beginning of the back-to-school season in the back half of July. So the largest sales weeks of the quarter -- actually the last two to three of the quarter. So much of the business of the quarter will be done then.

May is typically only about 25% of the second quarter looking historically, but a lot of business yet to come kind of there towards the end of July going into back-to-school. And I'd point out that each of the last three years, even as we comped negative, the back-to-school season has been our strongest season of performance in each of those years.

So that's what gives us some cautious optimism here with starting May at about a minus 2% and heading into what has been our strongest period of the year, each of the last few years that can lend itself to the possibility to get to flat and, heaven forbid, positive, hopefully. We'll see as those weeks come upon us.

As far as the merchandise, there's no doubt that it's looking better and it's selling better. And the proof is that our traffic is up now we can say consistently in the last several weeks. So -- and that's why you're seeing the gap closing between the negative sales. I won't be specific about brands or anything like that, but things are getting better from here as far as the merchandise.

Okay. And then maybe just last one for me. I guess if we think about -- I know it's still a fluid situation with tariff impacts and how to kind of think about them for the end of the year, but I would assume just given the inventory balance right now that there is no impact to the second quarter on the margin front from tariffs.

Could you just clarify maybe that? And then also how to -- maybe just how to think about how we should be writing in the impact for the rest of the year if we were to be in, I guess, like the current tariff posture that we're in right now?

Sure, Matt. So really not seeing a material impact over the remainder of the course of the year at this time. And obviously, the tariff discussion has been quite volatile. But at this stage, we'd expect our product margins to be consistent with LY, maybe a little better than LY at the better end of our range, maybe slightly worse than LY on the bottom end of our range. And we expect to deliver improved product margins relative to LY at this stage with what we know about tariffs.

So really not seeing a material impact in any period going forward with what we know as of today.

Marni Shapiro, The Retail Tracker.

Congrats on the improvement. And in stores, it looks fantastic. Can we just talk about two things? I'm curious, the in-person events seem to be working for you guys, which is fantastic. Could we talk a little bit about your plans as we move into the prime back-to-school period?

And then also, I'm curious, Hezy, more for you, especially in May, was the change in sales and traffic -- are you seeing it? Is it weather? Or is it the customer responding to product, especially that first table on the juniors side? I'm curious where you're seeing the improvements most.

Hope I'm not going to jinx it. It is the merchandise --

I'm knocking wood.

Yes, exactly. It's the merchandise and the marketing that brings the people to stores, right? So we still have a lot of work to do, but it's more encouraging than we have seen in the last 1.5 years. I think if you look at the juniors side, it's becoming really spot on. The men's, we always did a decent job on that.

I'm as anxious to see the next six months as anybody else, but I'm much more encouraged now than it was a year ago.

Very exciting. And is it across the juniors spectrum that things are selling? Or is it seasonal products? I'm just curious what it looks like a little bit.

Across the board. Across the board.

(Operator Instructions) Seeing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mike -- and it appears that we have one final question from Jeff Van Sinderen, B. Riley.

This is Richard Magnusen in for Jeff Van Sinderen. First off, it appears that some activist investors acquiring shares lately. So have you been in discussions with any activists? And have they requested Board seats?

No, we haven't been in discussion with new investors, and nobody asked for a Board seat.

Okay. And then this is regarding the BDO. What do you expect going forward? Do you see any way you could start leveraging there or any improvement there? It seems like your product margin continues to leverage.

I was just wondering what the outlook is on that.

The dollars are going to continue to be lower than last year. We've obviously closed a number of stores in the past year. And as I noted, we're continuing to close stores. We've already closed 4 here. We just closed four in the month of May.

We'll have three more this quarter, two more next quarter. And with additional stores closing, some of the raw dollars of occupancy will come down. Whether we leverage or not will depend on our ability to get back to flat and then positive comps in terms of any ability to produce some kind of leverage on that bucket of cost.

This will conclude our question-and-answer session. I would like to turn the conference back over to Mike for any closing remarks.

Thank you all for joining us on the call today. We look forward to sharing our second quarter results with you in early September. Have a good evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.