On Friday, B.Riley adjusted its outlook on Tilly's (NYSE:TLYS) shares, reducing the price target to $7.00 from the previous $8.25. The firm sustained a Neutral stance on the stock, despite Tilly's first-quarter performance that surpassed consensus in gross margin and EBITDA.
The retailer's sales declined 6.3%, with a noted 5.1% drop in physical store sales and a 10.8% decrease in e-commerce. The operating margin also saw a downturn, falling to (17.9%) compared to (14.0%) in the same quarter of the previous year.
Tilly's experienced a sequential and year-over-year decrease in operating margin, alongside a 400 basis point increase in SG&A to 38.9%. This was attributed to a rise in payroll costs and reduced sales, along with a $1.5 million asset impairment.
Gross margin remained stable at 21%, outperforming the consensus of 19.1%, bolstered by improved product margins and markdowns. However, buying, distribution, and occupancy (BDO) costs were less favorable, detracting from the overall financial picture.
The company's quarter-to-date performance as of June 1 showed total comparable sales down by 8.4% year-over-year. However, there were signs of recovery following the resolution of issues with newly implemented distribution software.
Tilly's private label offerings fared well, and although the guidance for second-quarter revenue and earnings per share was mixed, there are expectations for sequential improvements in key metrics.
Tilly's is actively managing lease expenses, with nearly 100 lease decisions anticipated in fiscal year 2024. The company aims to secure favorable lease terms that reflect the high single-digit declines in consumer traffic and conversion.
While B.Riley anticipates that advantageous lease agreements could lead to long-term occupancy leverage, a more significant recovery in sales and merchandise margin is necessary for this improvement to materialize.
In conclusion, Tilly's is navigating through structural challenges and macroeconomic headwinds. The company is adjusting its marketing strategies to strengthen its connection with its target demographic.
B.Riley anticipates that once there is a substantial improvement in sales and merchandise margin trends, Tilly's is well-positioned to expand and enhance its margins, given its efficient inventory management and potential for growth in its small store fleet.
The revised price target reflects a more cautious outlook, with the expectation that the company's initiatives will eventually lead to a turnaround.
In other recent news, Tilly's, Inc. has reported mixed results for its first quarter 2024 earnings. The company experienced a decrease in net sales and pretax operating results, despite an improvement in product margins.
Tilly's is implementing new marketing strategies and operational tools to enhance business performance. Roth/MKM, an analyst firm, has lowered the company's price target to $6 from $7.50, maintaining a neutral rating on the stock.
The firm's decision was influenced by Tilly's first-quarter performance, which met expectations, and an anticipated decline in net sales for the second quarter.
The company is testing new marketing strategies to attract customers and investing in operational efficiencies through new tools and software.
Positive signs in inventory, particularly in the junior section, support optimism for the second half of the year. These recent developments underscore Tilly's commitment to adapt and refine its strategies in a complex retail environment.
InvestingPro Insights
In light of B.Riley's revised outlook on Tilly's (NYSE:TLYS), it's valuable to consider additional insights provided by InvestingPro. The recent data indicates a market capitalization of $174.33 million, suggesting a relatively small-cap company that might be subject to higher volatility, as reflected by an InvestingPro Tip highlighting stock price movements. The company's price-to-earnings (P/E) ratio stands at -5.06, with an adjusted P/E for the last twelve months as of Q4 2024 at -5.22, underscoring the challenges Tilly's faces in achieving profitability, which analysts do not foresee in the near term. Furthermore, the price/book ratio, a measure of market valuation, is at 1.2, which may attract value investors looking for potentially undervalued stocks.
The revenue for the last twelve months as of Q4 2024 is reported at $623.08 million, with a decline of 7.32%, aligning with the sales declines mentioned in the article. Gross profit margin remains a strong point at 40.69%, which could be a positive signal for investors considering the company's ability to manage costs effectively. However, the company's revenue growth and profitability concerns are reinforced by InvestingPro Tips, which note a poor free cash flow yield and the fact that Tilly's has not been profitable over the last twelve months. Additionally, it's worth noting that Tilly's has liquid assets exceeding short-term obligations, providing some financial stability in the short term.
Investors looking for a deeper dive into Tilly's financial health and future outlook can find additional analysis and InvestingPro Tips at Investing.com/pro/TLYS. For those considering an InvestingPro subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 7 additional InvestingPro Tips available, subscribers can gain a more comprehensive understanding of Tilly's potential investment value.
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