Tilly's (TLYS)

Young adult apparel retailer Tilly’s (NYSE:TLYS) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 7.1% year on year to $151.3 million. Next quarter’s revenue guidance of $137 million underwhelmed, coming in 2.9% below analysts’ estimates. Its GAAP profit of $0.10 per share was significantly above 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 performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $549.6 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 struggled to generate demand over the last six years (we compare to 2019 to normalize for COVID-19 impacts). Its sales dropped by 1.7% annually as it closed stores and observed lower sales at existing, established locations.

This quarter, Tilly's missed Wall Street’s estimates and reported a rather uninspiring 7.1% year-on-year revenue decline, generating $151.3 million of revenue. Company management is currently guiding for a 4.5% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months. This projection is underwhelming and indicates its newer products will not lead to better top-line performance yet.

Number of Stores

Tilly's operated 232 locations in the latest quarter. Over the last two years, the company has generally closed its stores, averaging 1.8% annual declines.

When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve 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 is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Tilly’s demand has been shrinking over the last two years as its same-store sales have averaged 6.5% annual declines. This performance isn’t ideal, and Tilly's is attempting to boost same-store sales by closing stores (fewer locations sometimes lead to higher same-store sales).

In the latest quarter, Tilly’s same-store sales fell by 4.5% year on year. This decrease represents a further deceleration from its historical levels. We hope the business can get back on track.

Gross profit margins are an important measure of a retailer’s pricing power, product differentiation, and negotiating leverage.

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 40% gross margin over the last two years. That means for every $100 in revenue, $60.03 went towards paying for inventory, transportation, and distribution.

In Q2, Tilly's produced a 33.1% gross profit margin, down 10.7 percentage points year on year but still exceeding analysts’ estimates by 8.1%. 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).

Although Tilly's was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 6.4% over the last two years. Despite the consumer retail industry’s secular decline, unprofitable public companies are few and far between. It’s unfortunate that Tilly's was one of them.

Looking at the trend in its profitability, Tilly’s operating margin decreased by 5.7 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.

This quarter, Tilly's generated an operating margin profit margin of 1.8%, down 1.2 percentage points year on year. Since Tilly’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Tilly's, its EPS declined by 25.5% annually over the last six 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 Q2, Tilly's reported EPS of $0.10, up from $0 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

While Tilly's posted positive free cash flow this quarter, the broader story hasn’t been so clean. Tilly’s demanding reinvestments have consumed many resources over the last two years, contributing to an average free cash flow margin of negative 4.9%. This means it lit $4.87 of cash on fire for every $100 in revenue.

Tilly’s free cash flow clocked in at $13.44 million in Q2, equivalent to a 8.9% margin. This result was good as its margin was 4 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

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 8.5%, 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 $26.62 million of cash over the last year, and its $178.6 million of debt exceeds the $50.68 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.

Despite a revenue miss, EPS beat. We were also impressed by Tilly’s optimistic EPS guidance for next quarter, which blew past analysts’ expectations. On the other hand, its revenue guidance for next quarter missed. Investor seems to have lower expectations, and Tilly's is getting a pass on the revenue guidance miss. The stock traded up 20.1% to $2.45 immediately after reporting.

Updated: November 8, 2025 at 9:26 PM EST

Are you wondering whether to buy Tilly's or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We see the value of companies helping consumers, but in the case of Tilly's, we’re out. To begin with, its revenue has declined over the last six years, and analysts don’t see anything changing over the next 12 months. 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 six 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 $2.25 on the company (compared to the current share price of $1.41).

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.