On September 5, 2024, Tilly's Inc (TLYS, Financial) released its 8-K filing for the second quarter of fiscal 2024, ending August 3, 2024. The specialty retailer of casual apparel, footwear, and accessories reported mixed results, with revenue slightly surpassing analyst estimates but earnings falling short.
Company Overview
Tilly's Inc works as a specialty retailer of casual apparel, footwear, and accessories for young men, young women, boys, and girls. It offers an unparalleled selection of relevant brands, styles, colors, sizes, and price points. It delivers branded fashion and core styles for tops, outerwear, bottoms, and dresses. It also provides backpacks, hats, sunglasses, headphones, handbags, watches, and jewelry. It markets its products under the brand names of Vans, RVCA, Adidas, Nike SB, and Hurley among others. It operates its stores in malls, lifestyle centers, power centers, community centers, outlet centers, street-front locations, and also through e-commerce.
Performance and Challenges
Tilly's Inc reported total net sales of $162.9 million for Q2 2024, a 1.8% increase from $160.0 million in the same period last year. This slight increase was primarily due to the calendar shift impact of last year's 53rd week in the retail calendar. However, total comparable net sales, including both physical stores and e-commerce, decreased by 7.8% relative to the shifted 13-week period ended August 5, 2023.
Despite the challenging macro environment, Tilly's Inc has seen improved product margins for the second consecutive quarter, driven by new pricing strategies. However, the company remains cautious about its third-quarter outlook due to a slowdown following the peak of the back-to-school season.
Financial Achievements
Gross profit for the quarter was $49.9 million, or 30.7% of net sales, compared to $44.3 million, or 27.7% of net sales, last year. The improvement in product margins by 300 basis points was primarily due to better initial markups and lower total markdowns. However, selling, general, and administrative (SG&A) expenses increased to $50.8 million, or 31.2% of net sales, up from $47.0 million, or 29.4% of net sales, last year.
Income Statement Highlights
| Metric | Q2 2024 | Q2 2023 |
|---|---|---|
| Total Net Sales | $162.9 million | $160.0 million |
| Gross Profit | $49.9 million | $44.3 million |
| SG&A Expenses | $50.8 million | $47.0 million |
| Operating Loss | $0.9 million | $2.7 million |
| Net Loss | $0.1 million | $1.1 million |
Balance Sheet and Cash Flow
As of August 3, 2024, Tilly's Inc had $76.7 million in cash, cash equivalents, and marketable securities, with no debt outstanding. This compares to $104.3 million and no debt outstanding as of July 29, 2023. Total inventories increased by 4.1% compared to the same period last year. Year-to-date capital expenditures were $4.6 million, down from $6.3 million last year.
Analysis and Outlook
While Tilly's Inc has shown resilience in a challenging retail environment, the company faces ongoing challenges, including a decrease in comparable net sales and increased SG&A expenses. The company's focus on improving product margins and customer engagement through refocused marketing efforts is a positive sign. However, the cautious outlook for the third quarter indicates potential headwinds ahead.
For the third quarter of fiscal 2024, Tilly's Inc estimates net sales to be in the range of $140 million to $146 million, translating to an estimated comparable net sales decrease of approximately 2% to 6%. The company also expects SG&A expenses to be around $49 million and a pre-tax loss and net loss in the range of $8.7 million to $11.6 million.
While the macro environment remains challenging for our customer demographic, we believe that our new pricing strategies are gaining traction as evidenced by our second consecutive quarter of improved product margins, and that we are beginning to drive improved customer engagement through our refocused marketing efforts," commented Hezy Shaked, Co-Founder and Interim President and Chief Executive Officer.
For more detailed information, please refer to the 8-K filing.
Explore the complete 8-K earnings release (here) from Tilly's Inc for further details.
