Tilly's Q2 2026 Earnings Call Transcript

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September 3, 2025

Key Takeaways

  • Neutral Sentiment: Appointment of Nate Smith as President and CEO, with Executive Chairman Ezvi Shekhed remaining highly engaged to support the leadership transition.
  • Positive Sentiment: Reported first profitable quarter since 2022 with EPS of $0.10, beating the company’s outlook.
  • Negative Sentiment: Comparable net sales fell 4.5% year-over-year, although this represented a sequential trend improvement from earlier quarters.
  • Positive Sentiment: Gross margin rose by 180 bps to 32.5%, driven by a 210 bps improvement in product margins.
  • Negative Sentiment: Third-quarter outlook forecasts a net loss of $6.9 million to $10.5 million and comparable sales guidance of –2% to +2%.
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Earnings Conference Call
Tilly's Q2 2026
00:00 / 00:00

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Operator

Good day, and welcome to the Tilly's Second Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Gar Jackson. Please go ahead.

Gar Jackson
Founder & President at Global IR Group

Good afternoon, and welcome to the Tilly's fiscal twenty twenty five second quarter earnings call. Ezvi Shekhed, Co Founder and Executive Chairman Nate Smith, President and Chief Executive Officer and Michael Henry, Executive Vice President and Chief Financial Officer, will provide some prepared remarks and then host the Q and A session. For a copy of Tilly's earnings press release, please visit the Investor Relations section of the company's website at tilly's.com. From the same section, shortly after the conclusion of the call, you will also be able to find a recorded replay of this call for the next thirty days. Certain forward looking statements will be made during this call that reflect Tilly's judgment and analysis only as of today, 09/03/2025, and actual results may differ materially from current expectations based on various factors affecting Tilly's business.

Gar Jackson
Founder & President at Global IR Group

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 twenty twenty five second quarter earnings release, which is furnished to the SEC today on Form eight ks 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 and A session after our prepared remarks. I now turn the call over to Hezi.

Hezy Shaked
Hezy Shaked
Co-Founder & Executive Chairman at Tilly’s

Thanks, Gar, and to all who are joining us today. First, I'd like to start by thanking the entire team for all their hard work since I reassumed the CEO position at the 2024. We believe we are just beginning to see the impact of those effective efforts and it is encouraging to see. Next, I'm excited to welcome Nate Smith as Quilli's new President and CEO. He brings extensive apparel and consumer product industry experience to Thillys, and I'm excited for this next chapter of the Thillys story under his leadership.

Hezy Shaked
Hezy Shaked
Co-Founder & Executive Chairman at Tilly’s

I remained highly engaged with a company assisting Nate as he transitioned into our company and thereafter. Nate, would you like to say a few words to introduce yourself?

Nate Smith
President, CEO & Director at Tilly’s

Thanks, Ezzy. Yes, I'm excited to be here at Tilly's and I'm excited about the prospects I believe this business has. I just arrived two weeks ago and I'm getting settled in getting to know the team and our processes here. I look forward to leveraging my industry experience to continue to improve and build upon the progress being made. I'll have more to say during our next earnings call once I've had a chance to get more familiar with things, but I'm excited to be here and work with the team as we aim to drive further improvements over time.

Nate Smith
President, CEO & Director at Tilly’s

I'll now turn the call over to Mike to share the details about our second quarter results and third quarter outlook.

Mike Henry
EVP & CFO at Tilly’s

Thanks, Nate. We're excited that you're here with us and we look forward to working with you. Now on to the details of our call today. We believe our second quarter results and start to the third quarter demonstrate that we are continuing to build incremental forward momentum as stabilization of our business continues. Our quarter comparable net sales decrease of 4.5% was within our outlook range and represented a second consecutive quarter of sequential trend improvement from the 2024.

Mike Henry
EVP & CFO at Tilly’s

We had some significant achievements during the quarter, including meaningfully improved product margins, significantly reduced inventory levels, improved inventory aging and reduced SG and A expenses compared to last year's second quarter. Our earnings per share of $0.10 beat our earnings outlook range for the quarter and represented our first profitable quarter since the 2022 nearly three years ago. We believe these facts indicate that we are making progress toward improving our business, but there remains much more to do to return to profitability consistently over longer periods of time. On the marketing front, we continue to seek fun ways to build customer awareness and consideration for Tilly's, something that we were doing pretty well prior to COVID. We mentioned Travis Barker's in store appearance at Orion Spectrum in late May in partnership with Hurley during our last earnings call.

Mike Henry
EVP & CFO at Tilly’s

In late July, we collaborated with the Mike Tyson Foundation, the Passion Project and Tilly's Life Center to provide underprivileged kids with some life skill education and an opportunity to meet Mike in our Cerritos store along with some of our loyalty members and other customers. We've quadrupled our TikTok following to over 169,000 followers since the start the second quarter last year. Our content creation efforts have evolved and improved and have been aided by the launch of our TikTok shop just a few months ago. As we improve our product assortment, our social, digital in store marketing and engagement efforts are just as important to drive interest and consideration among our customer demographic and we continue to prioritize resources here. Moving on to the impact of tariffs, which remain volatile, we continue to expect a relatively modest impact on our product costs for the remainder of fiscal twenty twenty five at this time.

Mike Henry
EVP & CFO at Tilly’s

Our merchandising team has worked closely with all of our proprietary and branded partners to attempt to mitigate as much tariff impact on us as is reasonably possible. Currently known net impacts on our product margins for the 2025 are limited to just $05,000,000 The impact on fiscal twenty twenty six is likely to be larger, but is not clearly determinable due to the frequent change in tariff declarations and both our and our partners' continuous mitigation efforts. The impact of tariffs remains a fluid situation that can change at any moment, but this is what we know as of today. Turning to our operating results for the 2025 compared to last year's second quarter. Total net sales were $151,300,000 a decrease of 7.1%.

Mike Henry
EVP & CFO at Tilly’s

We ended the second quarter with two thirty two total stores, a net decrease of 15 stores or 6.1% compared to a year ago. Total comparable net sales including both physical stores and e commerce decreased by 4.5%. Net sales from physical stores decreased by 7.3 and represented 81.1% of total net sales compared to 81.3% last year, while e commerce net sales decreased by 6.6% and represented 18.9% of total net sales compared to 18.7% last year. Gross margin including buying, distribution and occupancy expenses improved by 180 basis points to 32.5% of net sales compared to 30.7% last year. Product margins improved by two ten basis points compared to last year, primarily due to the combination of higher initial markups and lower markdowns as a result of operating with reduced more current inventory.

Mike Henry
EVP & CFO at Tilly’s

Buying distribution and occupancy costs deleveraged by 30 basis points despite being $2,400,000 below last year in the aggregate due to carrying these costs against lower total net sales. With 15 fewer stores than a year ago, occupancy costs decreased by $1,700,000 Distribution costs decreased by $600,000 primarily due to reduced temporary labor expenses. Total SG and A expenses were $46,400,000 a decrease of 4,400,000 and 50 basis points as a percentage of net sales compared to last year's second quarter. Primary expense reductions were attributable to reduced store payroll and related benefits of $1,900,000 lower non cash asset write off charges of $700,000 reduced e com fulfillment labor of $500,000 and lower corporate payroll and related benefits of $400,000 among other smaller items. Pretax income was $3,100,000 or 2.1% of net sales compared to a pretax loss of $73,000 or breakeven as percentage of net sales last year.

Mike Henry
EVP & CFO at Tilly’s

Income tax benefit was $41,000 or 1.3% of pre tax income compared to $4,000 or 6.2% of pre tax loss last year. Both year's income tax results include the continuing impact of a full non cash deferred tax asset valuation allowance. This year's income tax benefit includes the refund of certain income tax credit carry forwards and state income tax carry back claims. Net income was $3,200,000 or $0.10 per diluted share compared to net loss of $69,000 or breakeven on a per share basis last year. On our debt free balance sheet, we ended the second quarter with total liquidity of $114,000,000 and no borrowings at any time comprised of cash of $51,000,000 and undrawn borrowing capacity of $63,000,000 under our asset backed credit facility.

Mike Henry
EVP & CFO at Tilly’s

Total balance sheet inventory was 14.5% lower than at the end of last year's second quarter. Additionally, our unit inventory aging was more current than at the end of last year's second quarter. Looking at our start to the 2025, total comparable net sales for fiscal August ended 08/30/2025 increased by 0.9% compared to last year, continuing our sequential improvement in sales trend from quarter to quarter that we have seen in fiscal twenty twenty five so far. Comparable net sales from stores increased by 4.5%, while ecom net sales decreased by 12.1%. The decrease in ecom net sales during fiscal August was primarily attributable to a distribution decision by one of our third party brands that removed what was $1,800,000 in net sales for us during August.

Mike Henry
EVP & CFO at Tilly’s

Absent this issue, our ecom net sales were otherwise just shy of flat for fiscal August. Based on current historical trends, we estimate the following ranges for the 2025. Net sales of approximately $134,000,000 to $140,000,000 translating to a comparable net sales range of a decrease of 2% to an increase of 2% respectively. SG and A of approximately $47,000,000 excluding any potential non cash asset impairment charges. A near zero effective income tax rate due to the continuing impact of a full non cash valuation allowance on our deferred tax assets, net loss of approximately $10,500,000 to $6,900,000 respectively and per share results of a net loss of $0.35 to $0.23 respectively, an improvement compared to last year's loss per share of $0.43 We expect to end the third quarter with two thirty total stores in operation after closing four stores and opening two new stores during the quarter.

Mike Henry
EVP & CFO at Tilly’s

This compares to two forty six total stores at the end of last year's third quarter. At this time, we expect to close two additional stores in the fourth quarter. We have 45 lease decisions remaining to be made by the end of the fiscal year, which may result in a few additional store closures, which are not yet confirmed. We expect to end the third quarter with a debt free balance sheet and total liquidity of approximately $83,000,000 to $86,000,000 comprised of cash and investments of approximately 20,000,000 to $25,000,000 and available undrawn borrowing capacity of approximately $61,000,000 to $63,000,000 under our credit facility, reflecting the natural ebb and flow of our liquidity following the back to school season and the buildup of inventory in advance of the holiday season, which is consistent with historical patterns. We expect to remain a debt free company throughout fiscal twenty twenty five.

Mike Henry
EVP & CFO at Tilly’s

In closing, we believe our product assortment remains on trend and we're building forward momentum toward improved business performance. We believe we are stabilizing our business and with Nate's leadership just beginning, we're cautiously optimistic that a continuation of improved performance remains ahead. Operator, we'll now go to our Q and A session.

Operator

Thank And the first question will come from Matt Koranda with ROTH Capital. Please go ahead.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

Hey, guys. Thanks for taking the questions. Maybe just to start with Nate. Congrats and wanted to see if maybe you'd be willing to discuss sort of the broader opportunity that you see at Tilly's sort of primary early priorities after joining.

Nate Smith
President, CEO & Director at Tilly’s

Thanks, Matt. So just started really week two here and had a great first week and dove in quickly as I met the team, spent a lot of time with the executive team. I think my initial impressions are the team has made great strides. And as he came back and with Mike Henry and the executive team, they've made great strides. And so initially, the emphasis should be on doubling down on those things that are working well.

Nate Smith
President, CEO & Director at Tilly’s

And then, of course, find those areas that we think we can make some course corrections. But again, it's pretty early. But I look forward to working with the team and over the course of the next few months, setting a path.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

Okay, great. And maybe just turning to the results and the outlook questions that I had. Maybe just first of all, really encouraging to see the sequential improvement in comp and the positive comp in August. Maybe just wanted to see, Mike, if you could talk about the progression during the second quarter of the comps that you saw and into August, did things improve each month? And then just anything to call out in terms of the drivers of the August positive comp between traffic and ticket?

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

I know you already mentioned there's a little bit of a dynamic going on in the e commerce channel. Any more clarity you can provide also on that in terms of product category that that was in?

Mike Henry
EVP & CFO at Tilly’s

All right. Pardon me, I'm writing notes as you're asking all those various questions. So I hopefully remember to address all of them. Let me know if I miss anything in particular. So the Q2 cadence, we did our last earnings call, we mentioned that fiscal May was a minus 2%.

Mike Henry
EVP & CFO at Tilly’s

June actually slowed down to a minus 7.6 and then July bounced back to about a minus 3% to finish off the quarter. And then as we transitioned into August, we were just below flat in the first week, flat in the second week and then we've been positive for each of the last two weeks to finish off the month at slightly positive overall. All of our apparel departments moved positively in August. That's what's really leading our business, the apparel side of things, and all elements of apparel being positive.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

Got it. And then, just on the callout you mentioned in terms of the e commerce spender category that that was in as well?

Mike Henry
EVP & CFO at Tilly’s

Yes. So not going to name names there given the relationships that involved. But it was something that was peculiar to the e com business and a distribution decision made by a vendor of ours that essentially took a little bit of business away from us, and gave the metrics there of the impact of that. Me add the that

Hezy Shaked
Hezy Shaked
Co-Founder & Executive Chairman at Tilly’s

it's not only us, it's everybody else too. Only our business is Got very, very

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

it. Okay. So this is a broader system wide sort of change made by the vendor not necessarily something individual for Tilly's. Okay.

Mike Henry
EVP & CFO at Tilly’s

All right. Yes. That's a very good point, Henry. It was not just to Tilly's. All right.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

All right, great. The outlook, I guess, the third quarter, it looks like it's factoring in kind of a flattish comp despite the growth you saw in August. Maybe can we talk a little bit about sort of why we're embedding the assumption of a little bit of sequential erosion? Is it just some conservatism given the consumer? What are we seeing, I guess?

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

Or how do we expect the rest of the quarter to play out? And maybe it's just a consolidation of kind of back to school stopping that we've seen. But just wanted to see if you could unpack the dynamics there?

Mike Henry
EVP & CFO at Tilly’s

Sure, Matt. So for each of the last three years, August fiscal August has been our best performance of each of those years. And then we have seen a significant slowdown once you get past what I'll refer to as the need based period of back to school. We've seen a slowdown in our business during September and October relative to August in each of the last three years. So the bottom end of our range is really contemplating if a similar sort of pattern occurs again for a fourth year in a row and is more aligned with what our year to date comp of about minus five percent, that's how you get to the bottom end of minus 2%.

Mike Henry
EVP & CFO at Tilly’s

We do believe our product assortment is definitely better and more current than it was at this time a year ago. We're operating with a lower level of inventory overall and a more current inventory than we were at this time last year. So we're cautiously optimistic that maybe we wouldn't see quite the size of fall off in September and October as we have seen in prior years, but want to be conscious that that behavior has definitely been there and we better contemplate that in terms of how we look at things going forward.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

Yes. Okay. Makes sense. Wanted to see if you guys could talk a little bit about the gross margin and the product margin improvement that you saw in the quarter. It sounds like a fair bit of that is just being cleaner on inventory.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

We got higher IMU, lower markdowns. But maybe if you could just talk about alpha the current inventory and assortment where it stands now, it looks like efficiency is looking better down, inventories down on a per store basis as well as being down on a gross dollar basis. But wanted to see if you could talk about the health of inventory there.

Mike Henry
EVP & CFO at Tilly’s

Right. So the inventory definitely is healthier and you just noted all the headlines about it. We purposely planned this year as I said, I might have said it two quarters ago that we were going to run through this year with significantly reduced inventories all year long. That was a purposeful plan. We all put our minds together and believe that we had just been buying too much to say it as plainly as I can across all product areas and, took a really hard look at our past behaviors and tried to be a lot sharper in terms of our commitments for this year and try to push ourselves more into a chase mode on things that are working really well and not to be so overbought and things that are turning very slowly.

Mike Henry
EVP & CFO at Tilly’s

So, we think we're seeing the benefits of that. When you see inventory down 14.5%, that's with a store count that's down 6%. So as you noted, it is lower on an overall store by store basis and yet we're still able to produce a positive comp in August, meaningfully improved product margins in the second quarter. We'd expect a similar type of behavior in terms of basis point movement in product margins in the third quarter. So pleased to see the fruits of that labor to try to be more efficient in our inventory management this year.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

Okay. Maybe just one other one on gross margins, if I could. With respect to tariffs and any vendor pricing requests or pressure that we've seen, Maybe could you guys talk about, are you seeing any sort of pricing changes from vendors in response to tariffs? If so, kind of what is that looking like? And what does that sort of start to filter through the P and L?

Mike Henry
EVP & CFO at Tilly’s

Well, everything is filtered into the outlook that we gave based on what we currently know. And all we can really tell you is what we're seeing in our go forward purchase orders and the net differences in costs as well as retail prices. There are some instances where our third party brands are moving price to consumer as well as cost to us, so then the net difference doesn't end up being much at all. That's why you might be surprised at how low we're seeing that net impact of $500,000 that I mentioned, and it not being something higher. It's because there's a whole bunch of things going on.

Mike Henry
EVP & CFO at Tilly’s

Certain brands adjust price while they adjust cost. We've changed sources for certain programs, with sharper cost than what we might have had a year ago. So there's a lot of different moving pieces to this. It's not a simple answer.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

Yes. Okay. All right. Fair enough. And then just last one, I guess, on SG and A.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

Good cost containment there. And it looks like, I guess, the bulk of the savings on a year over year basis were from store labor. Is there more to come there? I guess I've always gotten the sense that that's a hard line item to move, but you guys moved it successfully. Maybe just talk a little bit about where you see opportunity for further cost containment there?

Mike Henry
EVP & CFO at Tilly’s

Sure. We'll continue to see some store labor savings, we believe in both Q3 and Q4. We should see a similar dollar movement in SG and A below LY in the third quarter. Again, you've been around us for a number of years. You've heard us talk about this over the years.

Mike Henry
EVP & CFO at Tilly’s

With all the constant increases in minimum wage, particularly here in California where almost half of our stores reside and all our distribution operations reside, those minimum wage impacts, have an outsized impact on us relative to others that maybe aren't so heavily penetrated in California. So it has forced us to take a really hard look at our payroll matrix each and every year. I'll never claim that we're perfect at it or can't continue to refine it. And believe me, there's a lot of scrutiny on this. And we believe there still will be opportunity for us to improve upon that and you'll continue to see lower store payroll dollars and some other expense savings in each quarter as we go forward for the rest of the year.

Matthew Koranda
MD & Senior Research Analyst at Roth Capital Partners, LLC

Okay, great. I'll leave it there guys. I appreciate all the answers.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mike Henry for any closing remarks. Please go ahead, sir.

Mike Henry
EVP & CFO at Tilly’s

Thank you, everyone, for joining us today. I will look forward to sharing our third quarter results with you in early December. Have a good evening.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
Analysts
    • Gar Jackson
      Founder & President at Global IR Group
    • Nate Smith
      President, CEO & Director at Tilly’s
    • Mike Henry
      EVP & CFO at Tilly’s
    • Matthew Koranda
      MD & Senior Research Analyst at Roth Capital Partners, LLC
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