8-K: Tilly's Inc. Reports Disappointing Fourth Quarter and Full Year Fiscal 2024 Results; Announces First Quarter 2025 Outlook

Tilly's Inc. reports a decrease in net sales and an operating loss for both the fourth quarter and full year of fiscal 2024, with a cautious outlook for the first quarter of fiscal 2025.

Summary

• Tilly's Inc. announced its financial results for the fourth quarter and full year of fiscal 2024, which ended on February 1, 2025.
• Total net sales for the fourth quarter were $147.3 million, a 14.9% decrease compared to the previous year, which included an extra week accounting for $5.7 million in sales.
• Comparable net sales, including both physical stores and e-commerce, decreased by 11.2% relative to the comparable 13-week period.
• Net sales from physical stores decreased by 13.7% to $108.3 million, while e-commerce sales decreased by 17.8% to $39.0 million.
• Gross profit was $38.3 million, or 26.0% of net sales, compared to $46.7 million, or 27.0% of net sales, last year.
• The company reported an operating loss of $14.1 million, or 9.6% of net sales, compared to an $8.5 million loss, or 4.9% of net sales, last year.
• Net loss was $13.7 million, or $0.45 net loss per share, compared to a net loss of $20.6 million, or $0.69 net loss per share, last year.
• For the full year, total net sales were $569.5 million, an 8.6% decrease from fiscal 2023, which also included an extra week.
• The company's operating loss for the full year was $49.8 million, or 8.8% of net sales, compared to $31.0 million, or 5.0% of net sales, last year.
• Net loss for the full year 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, last year.
• As of February 1, 2025, Tilly's had $46.7 million in cash, cash equivalents, and marketable securities, and $48.0 million of available borrowing capacity.
• Total inventories increased by 9.5% compared to the end of fiscal 2023, but as of March 1, 2025, inventories were 6.1% below last year's level.
• The company estimates net sales for the first quarter of fiscal 2025 to be in the range of $105 million to $111 million, with a comparable net sales decrease of 8% to 3%.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the disappointing financial results, operating losses, and decreased sales. However, management is taking steps to improve the situation, which provides a slight glimmer of hope.

Positives

• Product margins improved by 190 basis points in the fourth quarter due to improved initial markups.
• Product margins improved by 150 basis points for the full year due to improved initial markups.
• SG&A expenses decreased by $2.8 million in the fourth quarter, primarily due to the impact of the extra week in the previous year.
• Total capital expenditures decreased to $8.2 million in fiscal 2024 compared to $14.0 million in fiscal 2023.
• As of March 1, 2025, total inventories were 6.1% below last year's level.

Negatives

• Total net sales decreased by 14.9% in the fourth quarter and 8.6% for the full year.
• The company experienced an operating loss of $14.1 million in the fourth quarter and $49.8 million for the full year.
• Comparable net sales decreased by 11.2% in the fourth quarter and 8.0% for the full year.
• Net loss was $13.7 million in the fourth quarter and $46.2 million for the full year.
• Total inventories increased by 9.5% compared to the end of fiscal 2023.
• The company anticipates a comparable net sales decrease of 8% to 3% for the first quarter of fiscal 2025.

Risks

• The company faces risks related to changing customer preferences and trends.
• The company faces risks related to its ability to attract customer traffic at its stores and online.
• The company faces risks related to its ability to effectively manage its inventory and costs.
• The company faces risks related to its ability to compete with other retailers.
• The company faces risks related to general consumer spending patterns and levels.
• The company faces risks related to its ability to satisfy its financial obligations.

Future Outlook

The company estimates net sales for the first quarter of fiscal 2025 to be in the range of $105 million to $111 million, translating to an estimated comparable net sales decrease in the range of approximately 8% to 3%. They expect a 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. Per share results are expected to be in the range of a net loss of $0.68 to $0.58.

Management Comments

• 'Our fourth quarter results were a disappointment,' commented Hezy Shaked, President and Chief Executive Officer.
• 'We made a number of changes in our merchandising organization during the fourth quarter to attempt to change our sales trajectory going forward.'
• 'For fiscal 2025, we aim to stabilize and then grow sales with improved inventory efficiencies and reduced expenses compared to fiscal 2024, and we believe our Spring assortment is on trend.'

Industry Context

The retail industry is currently facing challenges due to changing consumer preferences, inflation, and supply chain disruptions, which are impacting companies like Tilly's. The company's focus on improving inventory efficiencies and reducing expenses aligns with industry trends aimed at mitigating these challenges.

Comparison to Industry Standards

• Without specific competitor data, it's difficult to provide a precise comparison.
• However, other retailers such as Abercrombie & Fitch, American Eagle Outfitters, and Urban Outfitters also cater to a similar demographic.
• These companies are facing similar headwinds, including supply chain issues and changing consumer behavior.
• Tilly's performance should be benchmarked against these companies to assess its relative performance in the current market environment.
• For example, Abercrombie & Fitch has focused on brand transformation and digital growth, while American Eagle Outfitters has emphasized its denim and activewear categories.
• Urban Outfitters has focused on unique product offerings and experiential retail.

Stakeholder Impact

• Shareholders will be impacted by the decreased profitability and net losses.
• Employees may be affected by the company's efforts to reduce expenses and improve efficiencies.
• Customers may see changes in the company's merchandising organization and product assortment.
• Suppliers may be impacted by the company's efforts to manage inventory levels.

Next Steps

• The company aims to stabilize and then grow sales with improved inventory efficiencies and reduced expenses in fiscal 2025.
• The company plans to have 238 stores open at the end of the first quarter of fiscal 2025.
• The company will continue to monitor and respond to changing customer preferences and trends.

Key Dates