Tillys Posts Profit Gain in Fiscal Q2

Key Points

• Revenue declined 7.1% year over year in the fiscal 2025 second quarter, but was slightly above the low end of guidance and indicated sequential stabilization in comparable sales during Q1 FY2025.

• Gross margin (GAAP) increased by 2.1 percentage points year over year in Q2 FY2025, reflecting better inventory control and fewer markdowns.

• Tilly's returned to a GAAP profit of $0.10 per share for Q2 FY2025, reversing a GAAP net loss in the prior-year period.

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Tilly's (NYSE:TLYS), a specialty retailer known for its mix of apparel, footwear, and accessories aimed at young shoppers, reported fiscal 2025 second-quarter earnings on Sept. 3, 2025. Management announced revenue of $151.3 million, down 7.1% from the prior-year period but above the low end of its earlier guidance range of $150 million–$158 million. Diluted earnings per share (GAAP) were $0.10, swinging to profit from breakeven last year, while gross margin (GAAP) improved to 32.5%.

The quarter signaled some operational progress, including margin improvement and cost control. However, store and e-commerce sales both declined, and total revenue (GAAP) continued trending down, meaning structural challenges for the business remain.

Source: Tilly's. Note: Fiscal 2025 second-quarter ended on Aug. 2, 2025. Fiscal 2024's Q2 ended on Aug. 3, 2024.

About Tilly's: Business Model and Recent Focus

Tilly's operates as a specialty retailer targeting teens and young adults. It sells a mix of clothing, shoes, and accessories, with its stores mainly located in malls and lifestyle centers across 33 states. The company focuses on both third-party brands and in-house labels, like RSQ for denim and Full Tilt for dresses and basics. It also operates an online business, allowing it to reach shoppers outside its physical footprint.

Key to Tilly's business is staying on top of young consumer trends, adjusting its product mix quickly to reflect what customers want. Its success depends on having the right assortment in both stores and online, leveraging technology for a seamless customer experience, and carefully managing inventory. Tilly's also puts strategic emphasis on marketing via social media and influencer partnerships to engage its core demographic.

Operational and Financial Highlights for the Quarter

During Q2 FY2025, GAAP revenue dropped year over year, reaching $151.3 million compared to $162.9 million in the prior-year period. This figure was still slightly above the low end of Tilly's guidance. Comparable sales, a metric measuring revenue growth across stores and e-commerce open at least a year, declined 4.5%. While still negative, the comparable sales decline in the fiscal 2025 second quarter was an improvement from Q1 FY2025’s minus 7% and the fourth quarter of fiscal 2024's minus 11.2%, representing a trend toward stabilization, though not yet growth.

Store-based sales made up most of total revenue, but dropped 7.3% compared to the prior year. At the end of Q2 FY2025, Tilly's operated 232 stores, down from 247 a year earlier. E-commerce sales fell 6.6%, making up 18.9% of total revenue, essentially unchanged as a portion compared to last year. Both channels, then, moved downward, but physical stores were slightly weaker due to the shrinking footprint.

Gross margin, a critical retail metric showing the percentage of sales left after taking out the direct cost of goods sold and occupancy costs, rose to 32.5% from 30.7% (GAAP). The improvement came mainly from better merchandise margins, helped by selling inventory more quickly and by reducing markdowns. Management noted, “Product margins improved by 210 basis points primarily due to the combination of higher initial markups and lower markdowns as a result of operating with reduced, more current inventory.” This inventory discipline was reflected in a 14.5% reduction in merchandise on hand compared to the prior year.

Selling, general, and administrative expenses (SG&A) -- covering payroll, corporate overhead, and marketing -- were down $4.4 million, at $46.4 million. Payroll and related benefit costs, asset write-downs, and temporary warehouse labor all declined year over year, supporting overall operating improvement. Operating income swung to a positive 1.8% margin, compared to a 0.5% loss last year, and net income (GAAP) landed at $3.2 million, or $0.10 per diluted share, reversing the small loss of the same period last year. This profit was aided by cost savings, as well as by ongoing reductions in real estate and labor costs resulting from the company’s store closure strategy.

Key Initiatives and Business Drivers

Tilly's core strength is its ability to rapidly adjust its product mix. Its merchandise assortment includes apparel, shoes, and accessories from well-known external brands, which made up roughly 67% of sales in FY2024. Proprietary brands like RSQ and Full Tilt also form a significant part of the mix, accounting for about 23% and 6% of sales, respectively, for FY2024. The variety and fast refresh cycles keep customers -- particularly those looking for new fashion trends -- engaged.

Investments in omni-channel capabilities remain important for Tilly's. The company sells both in stores and online, with its e-commerce platform enabling it to reach all 50 states. About 19% of sales came from e-commerce. However, online sales volumes declined year over year, just like in-store sales, indicating that growth is not currently coming from digital channels.

Real estate remains a focus. Tilly’s continues to reduce its physical store count, with 232 stores at quarter-end, having closed 15 net stores over the prior 12 months. This reduction is part of a careful approach to managing leases and controlling store-level costs; as leases come up, management selectively opts not to renew underperforming locations. This cautious stance toward real estate contains expenses but also reduces top-line potential, and further closures are possible.

Operational efficiency and careful spending have been central. Capital expenditures -- funds spent to keep stores and distribution facilities up to date -- were markedly lower at $2.1 million for the first half of FY2025, compared to $4.6 million for the first half of FY2024. SG&A costs were cut in areas like payroll and temporary fulfillment staff, while inventory levels were intentionally reduced. All of this discipline supported margin improvement and returned the company to profitability in the fiscal 2025 second quarter, but also signals a defensive position rather than aggressive investment or expansion. Marketing activity appears to have stabilized or been deprioritized, with the company not calling out specific high-profile events as it had in the prior quarter.

Outlook and What to Watch Next

For Q3 FY2025, management projects revenue of $134 million–$140 million and earnings per share (GAAP) in a range from a loss of $0.35 to $0.23, signaling that the business expects to return to a loss in the next period. Comparable sales for August, the first month of Q3 FY2025, increased by 0.9%, suggesting tentative stabilization, but guidance for the full quarter allows for comparable sales anywhere from a 2% decline to a 2% increase. Liquidity is expected to remain healthy, with anticipated quarter-end cash and facility availability between $83 million–$86 million, and Tilly’s expects to continue operating without debt.

Management cautions that store numbers will decrease slightly further to 230 by quarter-end, and SG&A expenses are projected to hold around $47 million. With no clear return to top-line growth yet in sight, the company’s focus on controlling costs, managing inventory tightly, and optimizing the store base will remain in place.

Revenue and net income are presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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