Tilly's, Inc. Q4 FY2025 earnings call

1. Overall performance

• Finished fiscal 2025 surpassing top - line and bottom - line expectations for the fourth quarter relative to early December outlook. Ended the fiscal year with six consecutive months of accelerating positive comp momentum and 18 consecutive positive comp weeks. Had first profitable fourth quarter and first positive comp sales fiscal year since 2021. February 2026 had a + 20% comparable net sales result.
• Meaningfully improved merchandise assortments, evolved brand and digital marketing efforts to improve customer engagement. Closed underperforming stores and sustained solid operational execution.

2. Merchandising

• Began fiscal 2025 to reinvigorate brand mix and clean up excess aged inventory. Comparable net sales results and product margins improved throughout fiscal 2025, carrying momentum into early fiscal 2026. Merchandising teams put in effort to drive improved results, and Michael Singalani was promoted for his role in turning around sales trajectory.

3. Marketing

• Believes marketing team's efforts to drive consumer awareness and consideration for Tilly's through engaging campaigns, refreshed content, and exciting events have made an impact, as seen in growing TikTok following and reversing declines in active customer loyalty program membership.

4. Store real estate

• Pivoting from store closure posture to disciplined new store openings in fiscal 2026 with plan to open 4 - 6 new stores. Fiscal 2025 had 21 total store closures. Currently, four known store closures in first quarter, and not currently expecting significant additional store closures this year.

5. Infrastructure investments

• Price optimization tool contributed meaningfully to improved fourth quarter product margins. New warehouse system drives labor efficiencies in store and e - comm distribution centers. Further investments expected in fiscal 2026, including an AI - driven merchandise allocation tool.

Total net sales for the fourth quarter of fiscal 2025 were $155.1 million, an increase of 5.3%. Comparable net sales for the 13 - week period ending January 31, 2026, including both physical stores and e - comm, increased by 10.1%, with physical stores up 10.3% and e - comm up 9.8%. Total net sales from physical stores increased by 3.6% despite a 7.1% reduction in year - over - year store count, representing 72.3% of total net sales compared to 73.5% last year. E - comm net sales represented 27.7% of total net sales compared to 26.5% last year. Gross margin, including buying, distribution, and occupancy expenses, increased to 33.2% of net sales, an improvement of 720 basis points from 26% last year. Product margins improved by 470 basis points. Total SG&A expenses were $48.9 million, or 31.5% of net sales, a reduction of $3.5 million or 410 basis points compared to last year. Operating income improved to $2.6 million or 1.7% of net sales from an operating loss last year. Net income improved to $2.9 million or 10 cents per diluted share from a net loss last year.

1. First quarter 2026

• Comparable net sales for the first month of fiscal 2026 ended February 28, 2026, increased by 20.1% relative to the comparable period of 2025.
• Currently expect total net sales for fiscal 2026 first quarter to be in the range of approximately $119 million to $125 million, translating to a comparable net sales increase of 16% to 22% respectively.
• Expect to generate product margin improvements of approximately 310 to 330 basis points compared to last year's first quarter.
• SG&A to be approximately $44 to $45 million before factoring in potential non - cash store asset impairment charges.
• Pre - tax loss and net loss to be in the range of approximately $10.1 million to $8 million respectively with a near zero effective income tax rate. Loss per share to be in the range of $0.34 to $0.27 compared to last year's first quarter loss per share of $0.74.
• Expect to end first quarter with 220 total stores, a net decrease of 18 stores or 7.6% from the end of fiscal 2025 first quarter.

2. Annual guidance

• Not in a position to provide annual guidance as cannot predict comparable net sales performance for the balance of the fiscal year with certainty. However, estimate that an annualized comparable net sales increase of approximately 8% to 9% would be needed to begin generating profitability for fiscal 2026 as a whole, subject to various assumptions with respect to product margins, inventory levels, and expenses.

1. Macro economic impact

• The consumer spending environment in the long term, especially if it turns against discretionary retail spending, could make it harder to sustain double - digit comps no matter how well the company executes.

1.

Q: Hey, guys. Nice work in the quarter. I guess first off, just curious about the composition of the strong comp. For the fourth quarter in particular, it looks like it, you know, based on the comments from the last time you guys gave public commentary, it probably accelerated in December and January. So wanted to hear about sort of the acceleration in comp, but also if you can break down traffic versus ticket for that period, that'd be helpful as well.

A: So, you know, going back to the beginning of the third quarter, we did a + one in August, + one in September, + six in October. then a + 8 in November, + 10.6 in December, + 12.4 in January, and as we just said, a + 20.1 in February, and March is off to an even stronger start than that so far. So really significant acceleration in our comp sales trend from month to month, on top of the quarter - to - quarter performance we were achieving throughout fiscal 2025 from Q1 through Q4. Just really, really excited to see this kind of performance. Our conversion rate has been super strong. It's been high teams, double - digit percentage increase compared to last year. Traffic has been improving. Both stores and e - comm performing. All departments positive, so pretty much everything is moving in a favorable direction.

2.

Q: And then I guess just wanted to hear a little bit about what you think is working in the assortment. Obviously, really strong acceleration all the way through the February commentary you gave, and it sounds like March sounds pretty good. What's working? What do you think is kind of driving higher traffic? And, you know, is there something in the assortment in particular? Is it a better marketing posture? Maybe just help us identify kind of the big A: This is Nate. Mike and I were talking last night about this, and we were constructing what we figured this question would come. It really is across every category. We're not seeing any spike in any particular category. We're seeing strength across the board, both genders and kids. So I think obviously our private label is working as well. So I think when we think about what was causing this, some of our struggles, it started with the assortment. We feel very strongly now our assortment across the board, across all categories, is where it needs to be. And we mentioned Michael Singelani coming in and taking charge of that and now being promoted to the CMO role. So I think that was a huge component of it. But it's also, you know, the inventory situation was addressed too. So now we're selling far more full price than we were, you know, say a year ago that we were selling a lot off price with aged and obsolete inventory. So Our inventory levels are healthier, our assortment is stronger, we've obviously rationalized some of our underperforming store, and the consequence of all that is now really healthy margins.

3.

Q: On the store openings, it sounds like you're telegraphing net opener of stores this year, considering the four to six you mentioned in terms of opens and only a handful of closures near term. What determines the path forward on further expansion, I guess? Maybe just help us understand where your head's at on store expansion over maybe the medium to longer term. And then what are we factoring in maybe from Mike on CapEx for the store expansion this year?

A: To your first question, Matt, you know, I think what we feel good about our unit economics, we feel good about our ability to execute. You know, for me, it's more the consumer spending environment in the long term. You know, if the macro does turn against discretionary retail spending, certainly double - digit comps will become harder to sustain no matter how well we execute. But Largely speaking, I'd say we're leaning into it this year and can only expect to be more aggressive in 27 the way we're viewing our business today. In terms of total CapEx, we don't expect our CapEx to reach $10 million in the aggregate. It's been less than that each of the last two years, as we noted in our prepared remarks. It should be a similar neighborhood. I'd say not more than $8 million to $9 million would be our expectation as we sit here today. And, you know, look, we're still on the path of recovery. We struggled for a lot in the first half of 25. So we've lost a lot of productivity in terms of sales per square foot, finishing fiscal 25. And ladies and gentlemen, we seem to be having a technical difficulty with the main speaker line. Please stay on the line. We'll be reconnecting here momentarily. And again, we do apologize for the audio break. We are reconnecting Michael's line into the conference.