Tilly’s, Inc. CFO Mike Henry told the participants on the company’s quarterly conference call that the fourth quarter of fiscal 2024 was disappointing, particularly following what was the beach and street lifestyle retailer’s best comp sales performance since 2021 during the third quarter.

“We made several organizational changes in our merchandising team during the fourth quarter with the goal of beginning to stabilize and then turning our sales trajectory around,” Henry shared.

“We believe in our merchandising team’s abilities,” Henry noted. “Merchandising has not been easy when many of our best traditional brand partners have been facing their own significant operating challenges,” an obvious reference to the demise of Liberated Brands and their licensed portfolio of former Boardriders brands that are now finding new homes. “We are adapting our brand and assortment mixes to attempt to improve sales, and changes will continue as we progress through fiscal 2025. We believe our spring assortment is on trend based on the brief period of positive comps we saw in stores when the weather turned warmer.”

Henry said the company planned meaningfully reduced inventory commitments throughout fiscal 2025 compared to fiscal 2024 to target faster turns and a further improvement in product margins.

“We have reassessed inventory needs by product category and set targets that aim to move us back toward historical norms that this company has been able to produce repeatedly in its past,” Henry said.

“Beyond merchandising adjustments, we’ve targeted significant expense reductions during fiscal 2025 from the combination of continued diligent scrutiny of every store lease decision, strict management of store distribution and corporate payroll and negotiated reductions in contractual commitments across operational departments with the support of many of our business partners,” Henry continued. “At the same time, we plan to continue investing in our business in terms of expanded marketing efforts, carefully selected new store opportunities and pursuit of operating efficiencies, all with the goal of improving our performance.”

On a tariff risks question during the usual Q&A period, Co-Founder, Executive Chairman, President, and CEO Hezy Shaked said the company looked into it on Monday, March 10, and said it will have a minor effect on very few of the vendors the retailer is using for private label.

“Actually, it’s only one at this stage [that has] indicated that they might have to split the increased cost with us,” he said. “And it’s not significant with this particular vendor, but this is the information we have as of right now. I expect it will have some effect. It’s hard to quantify at this stage.”

Fiscal 2024 Fourth Quarter Operating Results Overview
Operating results for the 13-week fourth quarter of fiscal 2024 ended February 1 versus the 14-week fourth quarter of fiscal 2023 ended February 3, 2024.

Total net sales were $147.3 million in the fourth quarter, a decrease of 14.9 percent from the prior-year fourth quarter which included an extra week that accounted for $5.7 million in total net sales. Total comparable net sales, including both physical stores and e-commerce, decreased by 11.2 percent relative to the comparable 13-week period ended February 3, 2024.

Net sales from physical stores were $108.3 million, a decrease of 13.7 percent. Comparable store net sales decreased 9.8 percent relative to the comparable 13-week period ended February 3, 2024. Net sales from physical stores represented 73.5 percent of total net sales in 2024 compared to 72.6 percent of total net sales in 2023.

Net sales from e-commerce were $39.0 million, a decrease of 17.8 percent year-over-year. E-commerce net sales decreased 14.8 percent relative to the comparable 13-week period ended February 3, 2024. E-commerce net sales represented 26.5 percent of total net sales in 2024 compared to 27.4 percent of total net sales in 2023.

Gross profit, including buying, distribution and occupancy costs, was $38.3 million, or 26.0 percent of net sales, compared to $46.7 million, or 27.0 percent of net sales, last year. Product margins improved by 190 basis points primarily due to improved initial markups, partially offset by increased inventory valuation reserves.

Buying, distribution, and occupancy costs deleveraged by 290 basis points collectively, despite being $1.5 million lower than last year, primarily due to carrying these costs against a lower level of net sales this year.

Selling, general and administrative (SG&A) expenses were $52.4 million, or 35.6 percent of net sales, compared to $55.2 million, or 31.9 percent of net sales, last year. The $2.8 million decrease in SG&A was primarily attributable to the impact of the extra week in the prior-year fourth quarter, which added an estimated $2.6 million to the prior-year fourth quarter.

Operating loss was $14.1 million, or 9.6 percent of net sales, compared to $8.5 million, or 4.9 percent of net sales, last year.

Income tax expense was $0.2 million, or 1.8 percent of the pre-tax loss, compared to income tax expense of $13.6 million, or 195.9 percent of the pre-tax loss, last year, which included a full, non-cash deferred tax asset valuation allowance (the “valuation allowance”) charge of $15.4 million. The decrease in the effective income tax rate was due to the continuing impact of the valuation allowance.

Net loss was $13.7 million, or 45 cents net loss per share, in fiscal Q4 2024, compared to a net loss of $20.6 million, or 69 cents net loss per share, in fiscal Q4 2023, which included the valuation allowance.

Weighted average shares were 30.1 million this year compared to 29.9 million shares last year.

Fiscal 2024 Full Year Summary
The following comparisons refer to the company’s operating results for fiscal 2024 (52 weeks), ended February 1, 2025, versus fiscal 2023 (53 weeks) ended February 3, 2024.

Total net sales were $569.5 million, a decrease of 8.6 percent from fiscal 2023, which included an extra week that accounted for $5.7 million in total net sales. Total comparable net sales, including both physical stores and e-commerce, decreased by 8.0 percent relative to the comparable 52-week period ended February 3, 2024.

Net sales from physical stores were $444.7 million, a decrease of 8.4 percent. Comparable store net sales decreased 8.0 percent relative to the comparable 52-week period ended February 3, 2024. Net sales from physical stores represented 78.1 percent of total net sales this year compared to 77.9 percent of total net sales last year.

Net sales from e-commerce were $124.7 million, a decrease of 9.3 percent. E-commerce net sales decreased 8.0 percent relative to the comparable 52-week period ended February 3, 2024. E-commerce net sales represented 21.9 percent of total net sales this year compared to 22.1 percent of total net sales last year.

Gross profit, including buying, distribution, and occupancy costs, was $149.7 million, or 26.3 percent of net sales, compared to $165.7 million, or 26.6 percent of net sales, in the prior year. Product margins improved by 150 basis points, primarily due to improved initial markups, partially offset by increased inventory valuation reserves.

Buying, distribution, and occupancy costs, deleveraged by 180 basis points collectively, despite being $2.8 million lower than last year, were said to be primarily due to carrying these costs against lower net sales in fiscal 2024.

SG&A expenses were $199.5 million, or 35.0 percent of net sales, compared to $196.6 million, or 31.6 percent of net sales, in the prior year. The $2.9 million increase in SG&A was primarily attributable to increases in software as a service expense of $1.7 million, e-commerce fulfillment expenses of $1.0 million, non-cash store asset impairment charges of $0.9 million, and other smaller expense increases. These increases were partially offset the impact of the extra week in fiscal 2023 which added an estimated $2.6 million to SG&A expenses.

Operating loss was $49.8 million, or 8.8 percent of net sales, compared to $31.0 million, or 5.0 percent of net sales, in fiscal 2023.

Income tax expense was $0.2 million or 0.5 percent of the pre-tax loss, compared to income tax expense of $8.7 million, or 33.8 percent of the pre-tax loss, in fiscal 20023, including the previously noted valuation allowance of $15.4 million. The decrease in the effective income tax rate was due to the continuing impact of the previously disclosed valuation allowance.

Net loss was $46.2 million, or $1.54 net loss per share, compared to a net loss of $34.5 million, or $1.16 net loss per share, in the prior year, which included the valuation allowance.

Weighted average shares were 30.0 million this year compared to 29.8 million last year.

Balance Sheet and Liquidity
At year-end, Tilly’s Inc. had $46.7 million of cash, cash equivalents and marketable securities and $48.0 million of available, undrawn borrowing capacity under its asset-backed credit facility.

Total inventories increased 9.5 percent compared to the end of fiscal 2023. However, as of March 1, 2025, total inventories were 6.1 percent below 2023’s level as of the comparable date.

Total capital expenditures were $8.2 million in fiscal 2024 compared to $14.0 million in fiscal 2023.

Fiscal 2025 First Quarter Outlook
Total comparable net sales for fiscal February ended March 1 decreased by 5.7 percent relative to the comparable period of last year, and with stronger performance when the weather has turned warmer.

Based on current and historical trends, Tilly’s, Inc. currently estimates the following for the first quarter of fiscal 2025 ending May 3, 2025:

  • Net sales to be in the range of approximately $105 million to $111 million, translating to an estimated comparable net sales decrease in the range of approximately 8 percent to 3 percent, respectively, relative to the comparable period last year;
  • SG&A expenses to be approximately $42 million to $43 million before factoring in any potential non-cash store asset impairment charges that may arise;
  • Pre-tax loss and net loss to be in the range of approximately $20 million to $17 million, respectively, with a near-zero effective income tax rate due to the continuing impact of a full, non-cash valuation allowance on deferred tax assets; and
  • Per share results to be in the range of a net loss of 68 cents to 58 cents, with estimated weighted average shares of approximately 30 million.

The company expects to have 238 stores open at the end of the first quarter of fiscal 2025 compared to 246 at the end of the prior year first quarter.

Tilly’s, Inc. expects to end the first quarter of fiscal 2025 with total cash, cash equivalents and marketable securities of approximately $25 million to $30 million and no debt outstanding under its asset-backed credit facility.

At its current comparable net sales trend, the company believes it can operate without accessing its credit facility at any time during fiscal 2025.

Stores
The company ended the fourth quarter with 240 total stores compared to 248 total stores at the end of last year’s fourth quarter.

“We did open two stores recently, and they are both very profitable, and I think we will see great results on those two,” said Shaked. “We do have a place marker for additional stores in case we find the right location that makes sense. But, overall, I think my goal will be to probably close more unprofitable stores than open new ones.”

Michael Henry added that one store opened last week, and there’s a second one planned to open in August.

“We know of seven store closures that will take place as of now, three in the first quarter and four in the second quarter,” Henry noted. “That’s what we know as of this moment.”

Henry continued, “It doesn’t mean we’re going to open five; we only have two as we have right now, and we have seven closures. There could be more closures as we go through the year and work through all of our lease decisions, but that’s the latest information we have as of today.”

Image courtesy Tilly’s, Inc.