Tilly's NYSE: TLYS reported a sharply narrower first-quarter loss and continued comparable sales growth, as management said the retailer’s turnaround efforts are showing more consistent results across stores and e-commerce.
On the company’s fiscal 2026 first-quarter earnings call, President and Chief Executive Officer Nate Smith said Tilly’s delivered comparable net sales growth for the third consecutive quarter and ninth consecutive month. Total sales reached the top end of the company’s outlook range, while the net loss improved significantly from the prior-year period.
“The turnaround momentum that we began building in fiscal 2025 has carried meaningfully into the new year, and we are pleased with how we have started fiscal 2026,” Smith said.
Comparable Sales Rise 22.9%
Tilly’s reported total net sales of $124.7 million for the first quarter, up $17.1 million, or 15.9%, from the year-ago period, according to Executive Vice President and Chief Financial Officer Michael Henry. Total comparable net sales, including stores and e-commerce, increased 22.9%.
Smith said both stores and e-commerce posted comparable sales gains of more than 20% during the quarter, while all merchandise departments delivered double-digit comparable sales increases. He said performance was strong across both proprietary and third-party brands, with few exceptions.
Henry said physical store net sales rose 12.1% despite a 7.6% reduction in average store count compared with last year’s first quarter. Stores represented 77.2% of total net sales, down from 79.8% a year earlier. E-commerce net sales increased 30.9% and accounted for 22.8% of total net sales, compared with 20.2% last year.
During the Q&A portion of the call, Henry said monthly comparable sales increased 20.1% in February, 39.5% in March and 5.1% in April. He attributed the difference between March and April to the timing of Easter, which shifted business into March and out of April.
Loss Narrows as Margins Improve
The company reported a first-quarter net loss of $8 million, or $0.26 per share, compared with a net loss of $22.2 million, or $0.74 per share, in the year-ago quarter. Henry said the result represented a $14.2 million, or $0.48 per share, year-over-year improvement.
Gross margin improved 910 basis points to 28.9% of net sales, up from 19.8% last year. Product margins improved 400 basis points, which management attributed primarily to improved full-price selling and more current inventory. Buying, distribution and occupancy costs improved 520 basis points, or $0.9 million, due mainly to reduced occupancy costs tied to a lower store count and higher total sales.
Smith said the company has now delivered six consecutive quarters of product margin rate improvement compared with the corresponding prior-year periods.
“We believe the work we have put in to more clearly understand and define our key customer profiles has helped us build and merchandise assortments both in-store and online with clearer strategy and focus than in the past,” Smith said.
SG&A expenses totaled $44.2 million, or 35.4% of net sales, improving by 550 basis points as a percentage of sales. Henry said minor increases in digital marketing spending and payroll were largely offset by lower non-cash asset write-off charges of $1 million.
Cash Position Improves, Inventory Lower
Henry said Tilly’s ended the first quarter with total cash and investments of $41.1 million, up from $37.2 million a year earlier, and no borrowings at any time during the quarter. The company had $50.7 million of available undrawn borrowing capacity under its asset-backed credit facility.
Henry called the result “an important moment” in the company’s turnaround, saying Tilly’s had returned to building cash year-over-year for the first time since the end of the third quarter of fiscal 2021.
Total balance sheet inventory was 6.4% lower than at the end of last year’s first quarter and was “meaningfully more current” in terms of inventory aged within 90 days, Henry said.
In response to an analyst question about inventory discipline, Henry said the company is planning for a successful back-to-school season and has had some instances where key items sold through faster than expected. He said Tilly’s is “chasing as best we can” to support momentum, though some replenishment has not occurred as quickly as management would like.
Management Points to Customer Engagement and Digital Efforts
Smith said customer engagement improved during the quarter, citing store and online traffic growth, a 10% increase in loyalty program customers with activity in the past year, and a doubling of Tilly’s TikTok following since the company launched its TikTok Shop last March.
During the Q&A session, Smith said TikTok is helping both attract new customers and increase purchase frequency among existing customers. He said the platform reduces the company’s long-term dependence on more expensive paid acquisition channels.
“Our job really is to remove that friction between intent and purchase,” Smith said. “TikTok Shop frankly eliminates that steps in that journey for a customer segment that we would otherwise have to acquire at a much higher acquisition cost through paid search or another avenue.”
Smith also said Tilly’s has been reviewing and changing elements of its online business and digital marketing strategy to improve site performance and efficiency. The company also expects to launch an AI-driven merchandise allocation tool before the holiday season to improve allocation accuracy across stores and online.
Second-Quarter Outlook Calls for Profit
Tilly’s said comparable net sales increased 8.3% in fiscal May, marking its 10th consecutive month of comparable sales growth. For the second quarter, management guided for net sales of approximately $154 million to $160 million, representing comparable net sales growth of 6% to 10%.
The company expects product margins to be flat to slightly higher compared with last year’s company-record rate for a fiscal second quarter. SG&A expenses are expected to be approximately $48 million to $49 million, excluding any potential non-cash asset impairment charges.
Tilly’s projected second-quarter net income of approximately $3.8 million to $6 million, or $0.13 to $0.20 per diluted share, based on approximately 30.3 million diluted shares. Henry said those results would represent a fifth consecutive quarter of year-over-year profit improvement.
The company expects to end the second quarter with 221 stores, down 11 stores, or 4.7%, from the end of last year’s second quarter. Smith said Tilly’s opened one store and closed four in the first quarter, and currently expects to open two stores in late July and one more in late October, while closing one store in mid-July and another at fiscal year-end.
Smith said the improvement in the business has management considering the possibility of expanding the net store base in fiscal 2027, although he said the company is not ready to commit to specific numbers or locations.
“Returning to profitability in fiscal 2026 is our foremost priority,” Smith said. “While there is still work ahead of us, the sales trends we have been seeing, assuming they continue, give us genuine confidence that we’re on the right path to potentially get there.”
About Tilly's NYSE: TLYS
Tilly's, Inc is an American specialty retailer of casual apparel, footwear, accessories and hardgoods. Founded in 1982 by Hezy Shaked and Tilly Levine, the company has grown from a single denim and tops store in Garden Grove, California, to a nationwide retail chain. Headquartered in Irvine, California, Tilly's serves a youth-oriented market with an emphasis on surf, skate and streetwear brands.
The company's merchandise assortment includes products from leading lifestyle brands such as Vans, Nike, Billabong and Quiksilver, alongside its own private-label offerings.
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