Tilly's, Inc. Q2 FY2026 earnings call

• Sales Momentum: Delivered third consecutive quarter of double-digit comparable net sales growth (12.1% in Q2). Achieved 13 consecutive months of YoY comp sales growth, with fiscal August comps accelerating to 14.6%.
• Profitability Turnaround: Returned to profitability on a trailing four-quarter basis ($2 million profit) and year-to-date basis ($400,000 profit). Reported five consecutive quarters of YoY bottom-line improvement.
• Margin Expansion: Gross margin improved 300 basis points to 35.5%, driven by a 140 bps increase in product margins due to better full-price sell-through and AI-driven price optimization on clearance items. SG&A improved by 20 bps as a percentage of sales.
• Inventory Management: Sales grew 8% while inventory decreased by 1.3%. Inventory is now significantly more current, with several percentage points more stock aged within 90 days compared to last year.
• Digital & Brand Growth: E-commerce sales grew 20.9%. TikTok followers nearly doubled to over 325,000, and loyalty program members grew 20% to 4.6 million.
• Store Portfolio: Net store count decreased slightly; opened two new stores and closed one in Q2. Expects to end the year with 218 stores. Targeting 5-8 new openings in FY2027.
• Technology Investments: Launched AI price optimization (Oct 2025); upcoming launch of AI-driven smart inventory allocation tool; implementing RFID in footwear stores in early 2027.

The transcript does not provide a breakdown of financial performance by specific product segment (e.g., Apparel, Footwear). However, it notes that all departments except footwear posted double-digit percentage comp sales gains in the second quarter. In terms of channel performance, physical stores generated $129.0 million in net sales (78.9% of total revenue), while e-commerce generated $34.5 million (21.1% of total revenue). Total net sales were $163.5 million.

• Q3 FY2026 Comparable Sales: Estimated range of 10% to 14% growth, representing potential fourth consecutive quarter of double-digit comp growth.
• Q3 FY2026 Net Sales: Approximately $150 million to $155 million.
• Q3 FY2026 Product Margins: Expected to be slightly improved relative to the prior year period.
• Q3 FY2026 SG&A: Approximately $47 million to $49 million, excluding potential non-cash asset impairment charges.
• Q3 FY2026 Net Income: Approximately $2.2 million to $3.7 million ($0.07 to $0.12 per diluted share).
• Q3 FY2026 Store Count: Expects to end with 240 stores (net decrease of 10 stores from prior year).
• Liquidity: Expects ending liquidity of approximately $125 million or more.

• Seasonal Deceleration: Historical trends show comp deceleration in September/October after back-to-school; three of the last four years saw ~8 point drops in comp post-back-to-school.
• Lease Renewals: Approximately 60-65 lease decisions are pending for FY2027, creating operational risk regarding renewal terms and potential closures.
• E-commerce Cost Structure: Higher e-commerce shipping expenses partially offset lower occupancy costs from reduced store count, impacting overall distribution/occupancy leverage.
• Bonus Accruals: Increased SG&A includes $1.5 million in bonus accruals due to outperformance, which may recur if targets continue to be beaten, affecting operating leverage discussions.

Q: Analyst asked about drivers behind Q3 comp acceleration (14.6%) vs Q2 (12.1%), specifically regarding assortment and TikTok impact. / A: CFO Mike Henry stated the growth was broad-based across almost all departments (except footwear) and geographies. He attributed the momentum to strong execution through the back-to-school season rather than isolating specific tactical drivers like TikTok shops.

Q: Analyst asked if inventory positioning is adequate for the holiday season or if the company is in "chase mode." / A: CEO Nate Smith indicated the team feels well-positioned entering fall and holiday, having managed inventories effectively. While there was minor chasing in footwear during back-to-school, overall sales grew 8% on 1.3% lower inventory. The merchandising team continues to sharpen assortments weekly.

Q: Analyst questioned why SG&A guidance for Q3 doesn't show significant operating leverage despite strong comp growth, asking what holds it back. / A: CFO Henry explained that SG&A as a % of sales should improve slightly (like Q2's 20 bps gain). However, this quarter includes $1.5 million in bonus accruals due to exceeding budget targets—a non-comparable expense absent for four years—which offsets some expected leverage.

Q: Analyst asked if the company can sustain double-digit comps in Q4 given a tough 10.1% comp base from last year. / A: CFO Henry noted they haven't issued Q4 guidance yet but believe the two-year stack suggests ability to match the previous year's 10% comp. While they aim for double-digit growth again, they cannot predict specifics yet, though they expect positive comp.

Q: Analyst asked about lease renewal exposure in the next 12-18 months and potential closure risks. / A: CFO Henry revealed 20 lease decisions remain for FY2026 (expecting to keep all), and 60-65 for FY2027. Most renewals are 15-16 months away. No additional closures are currently anticipated beyond normal portfolio management.