Tilly's, Inc. Q2 FY2025 earnings call

• Hezy Shaked thanked the team for their hard work since reassuming CEO in 2024 and introduced Nate Smith as the new President and CEO.
• Second quarter results showed stabilization with comparable net sales decrease within outlook range, improved product margins, reduced inventory levels, and lower SG&A expenses.
• Achievements included Travis Barker in-store appearance, collaboration with Mike Tyson Foundation, quadrupling TikTok following, and improved inventory aging.
• Discussed tariff impact as volatile, with modest impact expected for remainder of fiscal 2025, but larger impact likely in 2026.

In the second quarter of fiscal 2025, total net sales were $151.3 million, a decrease of 7.1%. Comparable net sales, including physical stores and e-commerce, decreased by 4.5%. Physical store net sales decreased by 7.3% and accounted for 81.1% of total net sales, while e-commerce net sales decreased by 6.6% and accounted for 18.9% of total net sales. Gross margin improved by 180 basis points to 32.5% of net sales compared to 30.7% last year. Product margins improved by 210 basis points. Total SG&A expenses were $46.4 million, a decrease of $4.4 million. Pretax income was $3.1 million or 2.1% of net sales, compared to a pretax loss last year. Net income was $3.2 million or $0.10 per diluted share.

• Third quarter 2025 net sales estimated at approximately $134 million to $140 million, comparable net sales range -2% to +2%.
• SG&A expected at approximately $47 million, excluding potential noncash asset impairment charges.
• Net loss estimated at approximately $10.5 million to $6.9 million, per share loss $0.35 to $0.23.
• Expect to end third quarter with 230 stores, close 4 stores and open 2 new, with potential additional closures in fourth quarter.
• Expected debt-free balance sheet with total liquidity $83 million to $86 million.

• Tariffs remain volatile with uncertain impact, especially in future years.
• Potential additional store closures based on remaining lease decisions, which are not yet confirmed.

Q: Maybe just to start with Nate. Congrats. And I wanted to see if maybe you would be willing to discuss sort of the broader opportunity that you see at Tilly's sort of primary early priorities after joining.

A: Nate Smith said he just started 2 weeks ago, met the team, and initially, emphasis should be on doubling down on things working well and finding course corrections.

Q: Maybe just, first of all, really encouraging to see the sequential improvement in comp and the positive comp in August. Maybe just wanted to see, Mike, if you could talk about the progression during the second quarter of the comps that you saw and into August. Did things improve each month? And then just anything to call out in terms of the drivers of the August positive comp between traffic and ticket.

A: Michael Henry said Q2 cadence was fiscal May minus 2%, June minus 7.6%, July minus 3%, then August was slightly positive with all apparel departments positive.

Q: And then just on the call, you mentioned in terms of the e-commerce vendor category that, that was in as well.

A: Michael Henry said it was a distribution decision by a vendor that took business away, not unique to Tilly's.

Q: The outlook, I guess, for the third quarter, it looks like it's factoring in kind of a flattish comp despite the growth you saw in August. Maybe can we talk a little bit about sort of why we're embedding the assumption of a little bit of sequential erosion?

A: Michael Henry said historically, after August (best performance), there's a slowdown in September and October, and they're contemplating that in the outlook.

Q: And then just on the gross margin and the product margin improvement that you saw in the quarter. It sounds like a fair bit of that is just being cleaner on inventory. We got higher IMU, lower markdowns. But maybe if you could just talk about health of the current inventory and assortment where it stands now.

A: Michael Henry said they purposefully reduced inventories, saw inventory down 14.5% with store count down 6%, and expecting similar product margin movement in Q3.

Q: With respect to tariffs and any vendor pricing requests or pressure that we've seen, maybe could you guys talk about, are you seeing any sort of pricing changes from vendors in response to tariffs? If so, kind of what is that looking like? And what does that sort of start to filter through the P&L?

A: Michael Henry said it's complex with various moving pieces, including vendors adjusting price and cost, and sources changing, making it hard to give a simple answer.

Q: And then just last one, I guess, on SG&A, good cost containment there. And it looks like, I guess, the bulk of the savings on a year-over-year basis were from store labor. Is there more to come there?

A: Michael Henry said they expect continued store labor savings, with minimum wage impacts in California driving scrutiny and opportunities for further cost containment.