Tilly's (TLYS)

Young adult apparel retailer Tilly’s (NYSE:TLYS) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 14.9% year on year to $147.3 million. Next quarter’s revenue guidance of $108 million underwhelmed, coming in 9.5% below analysts’ estimates. Its GAAP loss of $0.45 per share was 52.5% below analysts’ consensus estimates.

Company Overview

With an emphasis on skate and surf culture, Tilly’s (NYSE:TLYS) is a specialty retailer that sells clothing, footwear, and accessories geared towards fashion-forward teens and young adults.

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Competitors that sell edgy or skate-inspired young adult clothing include Urban Outfitters (NASDAQ:URBN), Zumiez (NASDAQ:ZUMZ), and Genesco’s (NYSE:GCO) Journeys banner.

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $569.5 million in revenue over the past 12 months, Tilly's is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

As you can see below, Tilly’s demand was weak over the last five years (we compare to 2019 to normalize for COVID-19 impacts). Its sales fell by 1.7% annually as it didn’t open many new stores and observed lower sales at existing, established locations.

This quarter, Tilly's missed Wall Street’s estimates and reported a rather uninspiring 14.9% year-on-year revenue decline, generating $147.3 million of revenue. Company management is currently guiding for a 6.8% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 6.2% over the next 12 months, an acceleration versus the last five years. This projection is healthy and suggests its newer products will spur better top-line performance.

Number of Stores

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Tilly's operated 240 locations in the latest quarter, and over the last two years, has kept its store count flat while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.

Tilly’s demand has been shrinking over the last two years as its same-store sales have averaged 8.6% annual declines. This performance isn’t ideal, and we’d be concerned if Tilly's starts opening new stores to artificially boost revenue growth.

In the latest quarter, Tilly’s same-store sales fell by 9.8% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Tilly's has good unit economics for a retailer, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 39.2% gross margin over the last two years. Said differently, Tilly's paid its suppliers $60.82 for every $100 in revenue.

This quarter, Tilly’s gross profit margin was 26%, down 13.6 percentage points year on year and missing analysts’ estimates by 2%. Tilly’s full-year margin has also been trending down over the past 12 months, decreasing by 3.2 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to discount products and higher input costs (such as labor and freight expenses to transport goods).

Despite the consumer retail industry’s secular decline, unprofitable public companies are few and far between. Unfortunately, Tilly's was one of them over the last two years as its high expenses contributed to an average operating margin of negative 5%.

Analyzing the trend in its profitability, Tilly’s operating margin decreased by 2.1 percentage points over the last year. Tilly’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q4, Tilly's generated a negative 9.6% operating margin. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Tilly's, its EPS declined by 32.2% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q4, Tilly's reported EPS at negative $0.45, up from negative $0.69 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Tilly's to improve its earnings losses. Analysts forecast its full-year EPS of negative $1.53 will advance to negative $0.75.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Tilly’s demanding reinvestments have consumed many resources over the last two years, contributing to an average free cash flow margin of negative 5.9%. This means it lit $5.95 of cash on fire for every $100 in revenue.

Taking a step back, we can see that Tilly’s margin dropped by 5.5 percentage points over the last year. This decrease warrants extra caution because Tilly's failed to grow its same-store sales. Its cash profitability could decay further if it tries to reignite growth by opening new stores.

Tilly's burned through $5.36 million of cash in Q4, equivalent to a negative 3.6% margin. The company’s cash burn increased meaningfully year on year while its cash conversion fell 3.8 percentage points. This relationship shows Tilly’s management team spent more cash this quarter but was less efficient at generating sales with that cash.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Tilly’s five-year average ROIC was negative 3.4%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer retail sector.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Tilly's burned through $50.24 million of cash over the last year, and its $193.9 million of debt exceeds the $46.71 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Tilly’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Tilly's until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by how significantly Tilly's blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EPS guidance exceeded Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed significantly. Overall, this quarter could have been better. The stock traded up 1.2% to $3.30 immediately following the results.

Updated: May 11, 2025 at 10:40 PM EDT

Before deciding whether to buy Tilly's or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Tilly's doesn’t pass our quality test. First off, its revenue has declined over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its brand caters to a niche market. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Tilly’s forward price-to-sales ratio is 0.1x. The market typically values companies like Tilly's based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy.

Wall Street analysts have a consensus one-year price target of $2.50 on the company (compared to the current share price of $1.11).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.