Tilly’s, Inc. reported that its third-quarter results included its best quarterly comp sales performance since fiscal 2021, its first month (fiscal August) of positive comp sales since February 2022, and its second consecutive quarter of year-over-year store traffic growth.

Despite those high-value metrics, the company also reported a double-digit decline in net sales for the third quarter and a decline in comps for the period.

Total net sales were $143.4 million in the fiscal third quarter ended November 2, a decrease of 13.8 percent year-over-year (y/y) relative to the comparable 13-week period ended October 28, 2023. This decline was primarily attributable to the calendar shift impact of last year’s 53rd week in the retail calendar, which caused a portion of the back-to-school season’s sales volume to shift into the second quarter this year from the third quarter last year. The shift resulted in a net sales reduction of $18.4 million in this year’s third quarter moving into Q2.

Total comparable net sales, including both physical stores and e-commerce, decreased 3.4 percent y/y relative to the comparable 13-week period ended November 4, 2023.

Physical Store’s net sales amounted to $111.3 million in Q3, a decrease of 16.0 percent y/y. Comparable store net sales decreased 5.6 percent y/y. Net sales from physical stores represented 77.6 percent of total net sales this year compared to 79.6 percent of total net sales last year.

The company ended the third quarter with 246 total stores compared to 249 total stores at the end of the third quarter last year.

E-commerce net sales were $32.2 million in the quarter, a decrease of 5.4 percent y/y. E-commerce net sales increased 4.9 percent y/y on a comparable 13-week basis. E-commerce net sales represented 22.4 percent of total net sales this year compared to 20.4 percent of total net sales last year.

Gross profit, including buying, distribution, and occupancy costs, was $37.2 million, or 25.9 percent of net sales, compared to $48.7 million, or 29.3 percent of net sales, in Q3 last year. Product margins were generally consistent with last year’s third quarter, declining by 10 basis points.

Tilly’s said that buying, distribution and occupancy costs deleveraged by 320 basis points collectively despite being $0.7 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 $51.3 million, or 35.7 percent of net sales, in Q3, compared to $51.2 million, or 30.8 percent of net sales, in Q3 last year. The company said lower store payroll and related benefits as well as lower non-cash store asset impairment charges were largely offset by increased e-commerce fulfillment costs.

Operating loss was $14.1 million, or 9.8 percent of net sales, in the quarter, compared to $2.5 million, or 1.5 percent of net sales, in Q3 last year.

Pre-tax loss was $12.9 million, or 9.0 percent of net sales, in Q3, compared to $1.2 million, or 0.7 percent of net sales, in Q3 last year.

The income tax benefit was $5.0 thousand, or 0.0 percent of the pre-tax loss, in the quarter, compared to $0.3 million, or 28.0 percent of the pre-tax loss, in the year-ago third quarter. The decrease in the effective income tax rate was reportedly due to the continuing impact of the previously disclosed full, non-cash deferred tax asset valuation allowance.

Net loss was $12.9 million, or 43 cents net loss per share, in the third quarter of 2024, compared to $0.8 million, or 3 cents net loss per share, in the year-ago third quarter.

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

Balance Sheet and Liquidity
As of November 2, 2024, the company had $51.7 million of cash, cash equivalents, marketable securities, and no outstanding debt. Total inventories increased 11.8 percent at quarter-end compared to its position on October 28, 2023, mainly due to pulling forward new inventory receipts to improve distribution center efficiencies. At the end of the third quarter, total year-to-date capital expenditures were $6.7 million this year, compared to $10.5 million last year.

Fiscal 2024 Fourth Quarter Outlook
Tilly’s said total comparable net sales through December 3 decreased 15.3 percent relative to the comparable period of last year ended December 5, 2023, with meaningfully improved product margins compared to last year.

“We are disappointed in our net sales performance in the early stages of the fourth quarter, yet somewhat encouraged by our improved product margins thus far in the fourth quarter,” offered company Co-Founder, Executive Chairman, President and CEO Hezy Shaked.

On a shifted basis, lining up the timing of this year’s Thanksgiving holiday with last year’s, total comparable net sales through December 3, decreased by 9.6 percent relative to the comparable period of last year ended November 28, 2023.

Based on current and historical trends, the company currently estimates the following for the fourth quarter of fiscal 2024:

  • Net sales to be in the range of approximately $149 million to $156 million, translating to an estimated comparable net sales decrease in the range of roughly 9 percent to 5 percent, respectively, relative to the comparable 13-week period last year;
  • Product margin improvement of approximately 200 basis points relative to last year’s fourth quarter;
  • SG&A expenses to be approximately $52 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 $13.0 million to $9.5 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 43 cents to 32 cents, respectively, with estimated weighted average shares of approximately 30 million.

The company’s revenue guidance was said to be disappointing, coming in 9.5 percent below analysts’ estimates at its mid-point.

Tilly’s expects to have 239 stores open at the end of the fourth quarter of fiscal 2024. The company opened three new stores in November and expects to close 10 predominantly underperforming stores near the end of the quarter.

Image courtesy Tilly’s, Inc.