Good afternoon, everyone, and welcome to the Tilly's, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. At this time, I would like to turn the floor over to Gar Jackson with Investor Relations. Please go ahead.

Good afternoon, and welcome to the Tilly's, Inc. fiscal 2025 fourth quarter earnings call. Nate Smith, President and Chief Executive Officer, and Michael Henry, Executive Vice President and Chief Financial Officer, will discuss the company's business and operating results and then host a Q&A session. A copy of Tilly's, Inc. 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 the call for the next 30 days. Certain forward-looking statements will be made during this call that reflect 2026; actual results may differ materially from current expectations based on various factors affecting Tilly's, Inc. business. Accordingly, you should not place undue reliance on these forward-looking statements. 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 2025 fourth 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. We will include a Q&A session after our prepared remarks. I will now turn the call over to Nate Smith.

Thank you, Gar, and good afternoon to everyone joining us today. We finished fiscal 2025 surpassing our expectations on both the top line and bottom line for the fourth quarter relative to our outlook provided in early December. We ended the fiscal year with six consecutive months of accelerating positive comp momentum and 18 consecutive positive comp weeks. That momentum drove our first profitable fourth quarter and first positive comp sales fiscal year since fiscal 2021. Our momentum has continued to start fiscal 2026 with a 20% comparable net sales result in February. We have meaningfully improved our merchandise assortments and evolved our brand and digital marketing efforts to improve our customer engagement. Additionally, we have closed underperforming stores and sustained solid operational execution, delivering significantly improved results compared to last year. From a merchandising perspective, we began fiscal 2025 looking to reinvigorate our brand mix and to clean up excess aged inventory. With each passing quarter, our comparable net sales results and product margins improved as these changes were being made, ultimately leading to comp sales growth throughout 2025, which is momentum we are carrying into early fiscal 2026. Our merchandising teams put in a lot of effort to make the necessary changes to drive these improved results, and I am confident in their abilities to drive further improvements in fiscal 2026. I would especially like to acknowledge Michael Singulani, who we just promoted to Chief Merchandising Officer, for his leadership and tireless efforts in turning our sales trajectory around over the past year and setting us up for such a strong start to fiscal 2026. Good product offerings need to be supported by effective marketing strategies and tactics to help new customers realize who we are and what we have to offer, to update existing customers on changes…

Thanks, Nate. We finished fiscal 2025 with stronger sales and product margins than we anticipated, along with lower expenses, to achieve our first profitable fourth quarter since fiscal 2021. Details of our fourth quarter operating results compared to last year's fourth quarter were as follows: Total net sales of $155,100,000 increased by 5.3% despite finishing fiscal 2025 with 17 fewer stores than a year ago. Comparable net sales for the 13-week period ended January 31, 2026, including both physical stores and e-commerce, increased by 10.1% with increases from both physical stores and e-commerce of 10.3% and 9.8%, respectively. That strong fourth quarter comp performance was enough to pull full-year comp sales slightly positive for the first time since fiscal 2021 at plus 0.3%. Total net sales from physical stores increased by 3.6% despite our 7.1% reduction in year-over-year store count. Net sales from physical stores represented 72.3% of total net sales compared to 73.5% last year. E-commerce net sales represented 27.7% of total net sales compared to 26.5% last year. Gross margin, including buying, distribution, and occupancy expenses, increased to 33.2% of net sales, an improvement of 720 basis points compared to 26% of net sales last year. Product margins improved by 470 basis points as a result of higher initial markups and lower total markdowns associated with operating with reduced and more current inventories than a year ago. Buying, distribution, and occupancy costs improved by 250 basis points, or $1,900,000 in the aggregate, primarily due to lower occupancy costs associated with our reduced store count and partially offset by increased shipping costs associated with our online net sales growth. Total SG&A expenses were $48,900,000, or 31.5% of net sales, a reduction of $3,500,000 or 410 basis points as a percentage of net sales, compared to $52,400,000 or 35.6% of…

At this time, we will begin the question-and-answer session. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Again, that is star and then one to ask a question. Our first question today comes from Matt Koranda from Roth Capital. Please go ahead with your question.

Hey, guys. Nice work in the quarter. I guess, first off, curious about the composition of the strong comp. The fourth quarter in particular? It looks like, based on the comments from the last time you guys gave public commentary, it probably accelerated in December and January, so I wanted to hear about the acceleration in comp, but also, if you can break down traffic versus ticket for that period, that would be helpful as well.

Sure, Matt. So, going back to the beginning of the third quarter, we did a plus one in August, plus one in September, plus six in October, then a plus eight in November, plus 10.6 in December, plus 12.4 in January, and, as we just said, a plus 20.1 in February, and March is off to an even stronger start than that so far. So really significant acceleration in our comp sales trend from month to month, on top of the quarter-to-quarter performance we were achieving throughout fiscal 2025 from Q1 through Q4. So just really excited to see this kind of performance. Our conversion rate has been super strong. It has been a high-teens, double-digit percentage increase compared to last year. Traffic has been improving, both stores and e-commerce performing, all departments positive. So, pretty much everything is moving in a favorable direction.

Got it. Okay. Good to hear. And then I guess just wanted to hear a little bit about what you think is working in the assortment. Obviously, really strong acceleration all the way through the February commentary you gave, and it sounds like March sounds pretty good. What is working? What do you think is driving higher traffic? And is there something in the assortment in particular? Is it a better marketing posture? Maybe just help us identify the big levers you pulled.

Thanks, Matt. This is Nate. Mike and I were talking last night about this, and, you know, we were constructing what we figured this question would come. It really is across every category. We are not seeing any spike in any particular category. We are seeing strength across the board, both genders, and kids. So, I think, obviously, our private label is working as well. So I think when we think about what was causing some of our struggles, it started with the assortment. We feel very strongly now our assortment across the board, across all categories, is where it needs to be, and we mentioned Michael Singulani coming in and taking charge of that and now being promoted to the CMO role. So I think that was a huge component of it. Let us also note the inventory situation was addressed too. So now we are selling far more full price than we were, say, a year ago, when we were selling a lot of off-price with aged and obsolete inventory. So our inventory levels are healthier. Our assortment is stronger. We have obviously rationalized some of our underperforming stores, and the consequence of all that is now really healthy margins.

Okay. Alright. That is helpful. Thanks, Nate. On the store openings, it sounds like you are telegraphing net opener of stores this year considering the four to six you mentioned in terms of opens and only a handful of closures near term. What determines the path forward on further expansion, I guess? Maybe just help us understand your head at on store expansion over maybe a medium to longer term? And then what are we factoring in, maybe for Mike, on CapEx for the store expansion this year?

So, to your first question, Matt, I think we feel good about our unit economics. We feel good about our ability to execute. For me, it is more the consumer spending environment in the long term. If the macro does turn against discretionary retail spending, certainly double-digit comps will become harder to sustain, no matter how well we execute. But, largely speaking, I would say we are leaning into it this year and can only expect to be more aggressive in 2027, the way we are viewing our business.

Yeah. In terms of total CapEx, we do not expect our CapEx to reach $10,000,000 in the aggregate. It has been less than that each of the last two years, as we noted in our prepared remarks. It should be in a similar neighborhood; I would say not more than $8,000,000 to $9,000,000 would be our expectation as we sit here today. And, you know, look, we are still on the path of recovery. We struggled for a lot of 2025. So we have lost productivity in terms of sales per square foot. Finishing fiscal 2025, we are—

Ladies and gentlemen, we seem to be having a technical difficulty with the main speaker line. Please stay on the line. We will be reconnecting here momentarily, and, again, we do apologize for the audio break. We are reconnecting Mr. Henry's line. One more moment. We should have him back on the line for you. Thank you. This is the conference operator once again. We have reconnected Michael's line into the conference. Michael, we still have Matt on the line for you if you would like to continue with the Q&A.

Yes. Sorry about that, everybody. We had some sort of technical glitch happen here that booted us out of the line. So apologies for that little hiccup. We are back. Hey. Can you guys hear me, by the way?

Yes. We can hear you. Can you hear us? Yes, sir. We can hear you.

Alright. Got it. Just want to make sure. I think, Mike, you may have, you kind of dropped off when you were talking about CapEx for stores—probably no greater than $8,000,000 to $9,000,000—and then it started getting a little choppy. So maybe if you want to finish commentary around that, that would be helpful.

Yeah. I started talking about our sales per square foot—that we are ending fiscal 2025 at roughly about $260 per square foot, which is still well below where we have been as a business in the past—and we would expect ourselves to continue to improve on that metric. And, as we do, it will continue to give us greater confidence in even expanding the rate of store expansion that we have noted for this year to even higher levels in future years, is what we would expect to be able to do. So lots of room yet to continue to improve this business. We struggled a lot through fiscal 2022, 2023, 2024, 2025, and we are just beginning to regain that lost ground that we struggled with for that three-to-four-year period. So we will walk before we run. We will continue to be reasonably conservative in our expectations for new stores. They have to be at the right economics, but it is nice to reach this inflection point where we are starting to look ahead and feel confident about our ability to reinitiate growth.

Okay. Great. Maybe just last one from me. It was helpful to hear commentary on the zone in which you would be profitable from a comp perspective. Just curious if there are any other assumptions that we should be embedding in that profitability outlook, or hypothetical, I guess, profitability outlook? Is there more gross margin leverage embedded in that assumption with an 8% to 9% comp? Is there more you can do on SG&A expense that gets you to the breakeven line, or is it just a simple, sort of comp assumption you are making?

No. So, good question. So Mike talked about the sales per square foot. We have targets we want to hit. But on the other side of that, we are really on the efficiency journey now—what we are calling it. And we see a clear path with things like our price optimization tool, where we will continue to see margin upside. We have our AI solution to planning allocation rolling out here later part of the latter part of this year with Impact Analytics. We will be launching RFID latter part of this year, which will give us, obviously, better inventory accuracy resulting in a reduction of stockouts, and it will also cut our manual inventory counting time by probably 80% to 90%. And then we have a series of back-end efficiency projects as it relates to all of our product handling and fulfillment processes, to include store labor efficiency is another workstream we have underway. So we are approaching this from both sides—not only sales per square foot, but what we would consider to be efficiency on the back end.

Yeah, and just to add on to that, an 8% to 9% comp increase does not correlate to a proportionate increase in SG&A. To the efficiency comments that Nate is making from a variety of angles, the aggregate increase in SG&A, despite continuing minimum wage increases and other cost pressures, would not cause SG&A in the aggregate to go up as much as you might expect with an 8% to 9% comp. We do also expect to continue to improve product margins this year—more in the front half of the year than in the back half of the year. If you follow the cadence of our product margin improvement that we achieved each quarter through fiscal 2025, we are still going to have a meaningful amount in Q1. It will start to moderate, but still be triple digits in Q2, if all goes as planned, and then it would more moderate in Q3 and Q4.

That makes sense. Thanks, Mike, and I appreciate it, Nate.

Ladies and gentlemen, at this time, I am showing no additional questions. I would like to turn the floor back over to management for any closing remarks.

I would just like to say thank you for joining us today, and we look forward to sharing our fiscal 2026 first quarter results with you in early June. Have a good afternoon. Have a good evening.

With that, everyone, we will be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.