Earnings Labs

Tilly's, Inc. (TLYS)

Q2 2024 Earnings Call· Thu, Sep 5, 2024

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Transcript

Operator

Operator

Good day, and welcome to the Tilly’s, Inc. Second Quarter 2024 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Gar Jackson, Investor Relations. Please go ahead.

Gar Jackson

Analyst

Good afternoon, and welcome to the Tilly’s fiscal 2024 second quarter earnings call. Michael Henry, Executive Vice President and Chief Financial Officer, will discuss the company’s business and operating results. Then he and Hezy Shaked, Executive Chairman and Interim President and Chief Executive Officer, will host a Q&A session with analysts. For a copy of Tilly’s earnings press release, please visit the Investor Relations section of the company’s website at tillys.com. From the same section, shortly after the conclusion of the call, you will also be able to find a recorded replay of this call for the next 30 days. Certain forward-looking statements will be made during this call that reflect Tilly’s judgment and analysis only as of today, September 5, 2024, and actual results may differ materially from current expectations based on various factors affecting Tilly’s business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with any forward-looking statements, please see the disclaimer regarding forward-looking statements that is included in our fiscal 2024 second quarter earnings release, which is furnished to the SEC today on Form 8-K as well as our other filings with the SEC referenced in that disclaimer. Today’s call will be limited to one hour and will include a Q&A Session after our prepared remarks. I now turn the call over to Mike.

Michael Henry

Analyst

Thanks, Gar. Good afternoon, and thanks to all for joining us today. Our second quarter net sales were in the middle of our outlook range provided during our first quarter earnings call in early June, and our breakeven earnings per share beat our outlook range. Although our comparable net sales remained negative, this was our best quarterly comp sales result since the end of fiscal 2021. While the macroeconomic environment remains challenging for our core customer demographic of teens, young adults and young families, we also believe certain merchandising decisions on our part limited us from performing better in the second quarter. We have been working to correct those issues going forward. While sales growth has been elusive for us, we are encouraged by our ability to have produced improved product margins for each of the first two quarters of fiscal 2024 relative to last year’s results, which we believe suggests that our revised pricing strategies and assortment adjustments are beginning to gain traction. As we continue to challenge ourselves to find ways to drive better sales results, we have refocused our marketing efforts with the primary goal of giving consumers a reason to care about and choose Tilly’s. We have established a new brand marketing strategy to redefine our purpose to our target customer. Our team has implemented this strategy across our social media content, curating a roster of micro influencers to help grow our following, and expanding our brand reach into new online media platforms. Additionally, in late July, we launched our first-ever brand campaign with the tagline of Discover Your Style. Through this campaign, we are emphasizing the importance of personal style as a driving force towards confidence and mental wellness. In Tilly’s 42 years of existence, we have always cared deeply about the communities we serve.…

Operator

Operator

[Operator Instructions] The first question comes from Bruce Geller with Geller Ventures. Please go ahead.

Bruce Geller

Analyst

Hey, good afternoon. Looking back at this company pre-COVID, it was a very consistent company, fairly profitable, strong cash flow generation. And there were times where you went through a rough patch like the one you have recently, but you always came out of it strong and got back to normalized levels. That doesn’t seem to have happened this time around. So can you please describe what has changed structurally in the business that is preventing this from happening?

Hezy Shaked

Analyst

I’ll take this call. This is Hezy. Several things. Number one, if you look at the record of the last three years or so, it was declining sales year after year, besides 2021, which was a weird year for everybody. A lot of it – and we are based in Orange County, California. A lot of it had to do with the pandemic and the changes in behavior of employees, et cetera. We addressed all that stuff since I came in, but there’s a lot of work to do in order to get it back on track to where we were.

Bruce Geller

Analyst

But it seems like something more structural has changed, because you guys don’t seem to be able to break out of the funk that you’ve been able to do so historically. And you’re also talking about a very difficult consumer environment, which it is. However, there are plenty of comparable consumer apparel retailers that are doing just fine right now. So it seems like, again, there’s something more structural, which is what I’m really trying to gain a grasp of.

Hezy Shaked

Analyst

Yes. I can say that it’s something specific I can tell you. I can tell you that many decisions we’ve made in the past didn’t work out. Now we have to change them. It’s including systems, et cetera. But it’s not one thing that is broken. There was a lot of things that we had to address, and we are. And like any situation that happened before, it takes time to turn it around.

Michael Henry

Analyst

Yes, the two things I’ll add for you. Pardon me, [indiscernible] coming on to. Pardon my voice. Obviously, our sales per square foot in store have dropped quite significantly since 2019, so that’s the first structural issue, which Hezy has been addressing. And other primary thing is really the cost of labor. So when you compare back to 2019, before the pandemic, our average hourly rate for store payroll is 32% higher than it was in 2019, strictly because of all the minimum wage increases that have taken place all over the country, but predominantly in California, where for several years in a row, it went up $1 per hour per year. This most recent year was $0.50, and almost half of our stores are in the state of California, so a really big hit there when you think about a 32% higher average rate for store payroll with sales that are not higher than they were in 2019. That’s a big disconnect. And we manage store payroll extremely tightly every single week, but those are the facts. The minimum wage impact is tremendous.

Operator

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Henry for any closing remarks.

Michael Henry

Analyst

Well, thank you all for joining us. Have a good evening. We look forward to sharing our third quarter results with you in early December. Thank you very much.

Operator

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.