Q1 2025 Tilly's Inc Earnings Call
Good day and welcome to Tilly's first quarter 2025 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Gar Jackson: 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 'twenty to 'twenty five first quarter earnings call, Michael Henry Executive Vice President and Chief Financial Officer will discuss the company's business and operating results and he and as you said Cat co founder Executive Chairman, President and Chief Executive Officer will host a Q&A session for a copy utilities, earning.
Gar Jackson: Press release, please visit the Investor Relations section of the company's web site until he's dotcom 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.
Speaker Change: Certain forward looking statements will be made during this call that reflect tilly's judgment and analysis as of today June four 2025, and actual results may differ materially from current expectations based on various factors affecting tilly's business accordingly.
Speaker Change: 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.
Speaker Change: As well as our other filings with the SEC referenced in that disclaimer today's call will be limited to one hour and will include a Q&A session. After our prepared remarks, I'll now turn the call over to Mike.
Mike: Thanks, Gar and you all joining us today.
Mike: Our fiscal 2025 first quarter net sales 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 2020 for.
The comparable net sales trend of our business has continued to improve in fiscal may starting the second quarter with a decrease of just two 2%.
Consequently, we believe our merchandise assortment is on trend and moving us in the right direction and we are.
Okay.
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 <unk> branded partners to attempt to mitigate as much tariff impact because as 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.
Yeah.
External uncertainties, we are actively pursuing opportunities to build mindshare 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 ticked up 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 the festival season in Palm Springs, we participated in an event featuring professional surfing talent and popular Djs that your reported 10000 plus attendees in aggregate across the two weekends.
Mike: In late April the legendary boxer, Mike Tyson made an appearance in our Blue Diamond store in Las Vegas, and supported his namesake licensed product line we carry.
In late May we hosted Travis Barker in 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 a 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 seven 1%.
Mike: Net sales from physical stores decreased by seven 4% while E Commerce net sales decreased by five 8%.
Gar Jackson: Net sales from physical stores represented 79, 8% of total net sales compared to 81% last year, while E. Commerce net sales represented 22% of total net sales compared to 19, 9% last year.
Gar Jackson: Total comparable net sales, including both physical stores and e-commerce decreased by 7%.
Gar Jackson: 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.
Gar Jackson: Product margins improved by 40 basis points compared to last year, primarily due to higher initial markups, partially offset by increased inventory evaluation reserves.
Buying distribution and occupancy costs deleveraged by 160 basis points, despite being zero point $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 offs charges of $1 $2 million.
Gar Jackson: The $1 $1 million decrease in total SG&A compared to last year was primarily due to reduced store payroll and related benefits of <unk> $9 million and lower noncash asset write offs charges of zero point $5 million, partially offset by increased marketing expenses of zero point $7 million.
Gar Jackson: SG&A Deleveraged by 190 basis points as a result of carrying these costs against lower total net sales.
Pre tax loss was $22 $3 million or 27% of net sales compared to $19 $6 million or 16, 9% of net sales last year.
Gar Jackson: Income tax benefit was $139000 or 0.6% of pretax loss compared to $13000 or 0.1% of pretax loss last year.
Gar Jackson: Both years income tax results include the continuing impact of a full noncash deferred tax asset valuation allowance.
Gar Jackson: This year's benefit also includes the refund of certain income tax credit carry forwards and state income tax carry back claims.
Gar Jackson: Net loss was $22 $2 million or <unk> 74 per share compared to $19 $6 million or <unk> 65 per share last year.
Gar Jackson: Yeah.
Gar Jackson: 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 three 8% and 10, 9% lower respectively than at the end of last year's first quarter.
Gar Jackson: Looking at the second quarter of fiscal 2025 as noted earlier total comparable net sales for fiscal May ended May 31, 2025 decreased by two 2% compared to last year, continuing our sequential improvement in sales trend that began in the first quarter relative to fiscal 'twenty 'twenty four is fourth quarter.
Gar Jackson: Based on current and historical trends, we estimate the following ranges for the second quarter of fiscal 2025.
Gar Jackson: Net sales of approximately $150 million to $158 million translating to a comparable net sales range, maybe decrease of 5% to flat respectively.
Gar Jackson: SG&A of approximately $48 million to $49 million, excluding any potential noncash asset impairment charges.
Gar Jackson: Our near zero effective income tax rate due to the continuing impact of a full noncash valuation allowance on our deferred tax assets.
Gar Jackson: Earnings in the range of a net loss of approximately $2 $7 million to net income of $2 million respectively.
Gar Jackson: And per share results with a net loss of <unk> to net income of seven cents respectively.
Gar Jackson: We expect to in the second quarter with 232 total stores in operation after closing seven stores and opening one new store during the quarter.
Gar Jackson: This compares to 247 total stores at the end of last year's second quarter.
Gar Jackson: At this time, we expect to close two additional stores in the third quarter and they're 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.
Gar Jackson: We expect to in 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% to $48 million in available undrawn borrowing capacity of approximately $63 million under our credit facility.
Gar Jackson: Based on current projections, we expect to remain a debt free company throughout fiscal 2025.
Gar Jackson: 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.
Gar Jackson: In closing we believe our product assortment is on trend, we are working to drive customer engagement and creative ways and we believe we are controlling what is controllable.
Gar Jackson: We believe are beginning to see signs of stabilization in our business and we're aiming to make further improvements from here over time.
Speaker Change: Operator, we'll now go to our Q&A session.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: Anytime you question has been addressed and you'd like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Matt Koranda with Roth Capital. Please go ahead.
Speaker Change: Hey, guys. Thanks, maybe just curious about the cadence of the first quarter. If you could unpack that 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.
Speaker Change: If you can provide like a transaction versus ticket breakdown of the 7% negative 7% comp and the improvement sequentially that you saw that that'd be helpful.
Speaker Change: Sure Matt so through the first quarter fiscal February was down $5. Seven March was down $13 eight and then April was plus one five.
Speaker Change: In terms of transactions.
Speaker Change: Uh huh.
Speaker Change: Traffic was down low single digits in the first quarter.
Speaker Change: Remains down low single digits slightly better than that in may.
Speaker Change: Uh huh.
Speaker Change: The average sale was down low single digits during the first quarter, it's actually up 1% so far in May.
Speaker Change: And then total transactions are down 5% to 6%.
Speaker Change: Okay, Alright, that's helpful. Thanks for that breakdown Mike.
Speaker Change: And then just for the second quarter guidance, I guess I'm sort of zero to 5% drop in the quarter, we've seen a negative 2% a trend in may I guess worse kind of just at the midpoint of that guidance, thus far or anything to call out from last year in terms.
Speaker Change: The calendar shift in June July and anything we should be mindful of there and then maybe just for housing if he's on the any anything on the Assortments.
Speaker Change: That's working I know you guys called out sort of some more comfort with the inventory.
Speaker Change: The balance in the assortment on what's working there.
Speaker Change: Alright, that's all.
Speaker Change: Oh go ahead go ahead sorry.
Speaker Change: Okay I will answer your first part of your question on the cadence of Q2 each of the months were down single digits last year, so not expecting any difficulty from comparisons per se.
Speaker Change: We go through the quarter.
Speaker Change: Just as a reminder, the bulk of the sales volume in the quarters right at the end because we start the beginning of the back to school season in the back half of July. So are the largest sales weeks of the quarter or actually the last two to three weeks of the quarter. So.
Speaker Change: Hmm.
Speaker Change: Much of the business for the quarter will be done then may is typically only about 25% of the second quarter and I'm looking historically.
Speaker Change: But a lot of business you have to come kind of there towards the end of July.
Speaker Change: Going into back to school and I'd point out that each of the last three years, even as we comped negative factor.
Speaker Change: Back to school season has been our strongest season, our performance in each of those years. So.
Speaker Change: That's what gives us some cautious optimism here was starting made about a minus two and heading into what has been our strongest period of the year.
Speaker Change: Each of the last few years.
Speaker Change: That can lend itself to the possibility to get to flat and heaven forbid a positive hopefully oh, well, we will see as those weeks come upon us.
Speaker Change: That's all right.
Speaker Change: So what I meant to.
Speaker Change: As far as the merchandize.
Speaker Change: There's no doubt that it's.
Speaker Change: Looking better selling better and the proof is that our traffic is up.
Speaker Change: Now we can say consistently.
Speaker Change: The last several weeks, so and that's why you're seeing to get closing between the negative sales.
Speaker Change: I wont be specific about it Brian or anything like that.
Speaker Change: But things are getting better from here as far as the merchandise.
Speaker Change: Okay, and then maybe just last one for me I guess, if we think about I know, it's still a fluid situation with the tariff impacts and how to kind of think about it for the end of the year, but I would assume just given the inventory balance right now that there is no impact.
Speaker Change: Impact to the second quarter on the margin front from tariffs.
Speaker Change: Could you just clarify maybe that and then also how to use it.
Speaker Change: How to think about how we should be reading and the impact for the rest of the year. If we were to be in I guess like the current tariff posture.
Speaker Change: Now that we're in right now.
Speaker Change: 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.
Speaker Change: At this stage we'd.
Speaker Change: We would expect our product margins to be consistent with L y <unk>.
Speaker Change: Maybe a little better than the L Y at the better end of our range, maybe slightly worse than L Y on the bottom end of our range.
Speaker Change: And we expect to deliver improved product margins relative to L y.
Speaker Change: At this stage with what we know about tariffs.
Speaker Change: So really not seeing a material impact in any period going forward with what we know as of today.
Speaker Change: Okay I appreciate that I'll leave it there. Thank you.
Marni Shapiro: And your next question comes from Marni Shapiro with the retail tracker. Please go ahead.
Marni Shapiro: Hey, guys congrats on the improvement and in source it looks fantastic.
Marni Shapiro: We just talk about two things I'm curious on the in person events seem to be working for you guys are just fantastic Kip, we talk a little bit about your plans as we move into the prime back to school period, and then also I'm curious has even more more for you, especially in May was the <unk>.
Marni Shapiro: Teens in sales and traffic.
Marni Shapiro: Are you seeing and is it weather or is it the customer responding to product you know, especially that first table on the junior side and I'm curious, where you're seeing the improvements Smith.
Marni Shapiro: Okay.
Marni Shapiro: We would hope I'm not gonna GNC at ease.
Marni Shapiro: What.
Marni Shapiro: Yeah, it's exactly it's the merchandise and the marketing that brings the people to the stores.
Marni Shapiro: Right. So we still have a lot of work to do.
Marni Shapiro: But it's a more encouraging than we have seen in the last year and a half.
Marni Shapiro: I think if you look at the junior side.
Marni Shapiro: It's becoming really spot on.
Marni Shapiro: The minutes will was did a decent job on that.
Marni Shapiro: Yeah.
Marni Shapiro: Ah is a anxious to see the next six months as anybody else.
Marni Shapiro: But are much more encouraged now than it was a year ago.
Marni Shapiro: Very exciting and it is a cross the junior spectrum that things are selling or is it seasonal product I'm just curious what it looks like a little bit.
Marni Shapiro: The cross across the board.
Marni Shapiro: <unk> across the board.
Marni Shapiro: Fantastic. Thank you.
Marni Shapiro: Yeah.
Marni Shapiro: Again, if you have a question. Please press Star then one.
Marni Shapiro: Okay.
Marni Shapiro: Okay.
Mike Tyson: Seeing no further questions. This concludes our question and answer session I would like to turn the conference back over to Mike.
Speaker Change: And appears do we have one final question from Jeff Van <unk> with B Riley. Please go ahead.
Marni Shapiro: Hello. This is Richard Magnuson for Jeff. Thank you for taking our call.
Speaker Change: First off it appears that some activist investors I've been acquiring shares lately. So have you been in discussions with any activist and have they requested board seats.
Speaker Change: No we havent been any discussion with you.
Speaker Change: Investors and nobody asked for a board seat.
Speaker Change: Okay. Thank you and then.
Speaker Change: This is regarding the BDO.
Speaker Change: Well, what do you expect going forward do you see.
Speaker Change: Any way you can start leveraging their or any movement.
Speaker Change: But there it seems like your product margin continues to leverage I was wondering what the outlook is on that.
Speaker Change: Yeah.
Speaker Change: 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.
Speaker Change: We're continuing to close stores, we've already closed four here.
Speaker Change: For the month of May we will have three more this quarter to more next quarter.
Speaker Change: And with additional stores closing some of the raw dollars of occupancy will come down.
Speaker Change: 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 costs.
Speaker Change: Alright, thank you.
Speaker Change: Okay.
Speaker Change: This will conclude our question and answer session I would like to turn the conference back over to Mike for any closing remarks.
Mike Tyson: Thank you all for joining us on our call today, we look forward to sharing our second quarter results with you in early September have a good evening.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].