The primary factor contributing to this slump is attributed to the timing of the back-to-school season, which was affected by the previous year’s 53rd week in the retail calendar.
This shift resulted in an $18.4m shortfall in net sales for the current year’s third quarter as early sales were recorded in the second quarter instead.
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The company noted that there were notable aspects of its performance in the third quarter. In August, it experienced its first month of comparable net sales growth since February 2022.
Tilly’s co-founder executive chairman, president and chief executive officer Hezy Shaked said: “Our third quarter results included our best quarterly comp sales performance since fiscal 2021, our first month of positive comp sales since February 2022 during fiscal August, and our second consecutive quarter of year-over-year store traffic growth.”
Key fiscal 2024 third quarter operational performance highlights
The retailer’s aggregate comparable net sales, encompassing both brick-and-mortar and online channels, contracted by 3.4% against the corresponding 13-week period that concluded on 4 November 2023.
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By GlobalDataRevenue from physical storefronts fell sharply by 16.0% to $111.3m , with comparable store net sales experiencing a 5.6% decrease year-over-year. Physical store transactions accounted for 77.6% of total net sales, a slight dip from last year’s 79.6%. Tilly’s operated three fewer stores than at the same point last year, with a total of 246.
For the second quarter in a row, the company saw an increase in store traffic compared to the previous year, despite the fact that comparable sales in stores remain negative.
It attributed the rise in store visits over the past two quarters to the impact of its updated marketing strategies through social media and the introduction of its new brand campaign, noted Michael Henry, executive vice president, chief financial officer in the earnings call.
Tilly’s e-commerce net sales dipped by 5.4% to $32.2m but saw a relative increase of 4.9% from the comparable period last year, now representing 22.4% of total net sales.
The company reported a substantial net loss of $12.87m, escalating from a loss of $0.84m in the prior year, with a loss per share of $0.43 compared to last year’s $0.03.
Operating losses widened to $14.05m, or 9.8% of net sales, exacerbated by various contributing factors and marking a steep increase from last year’s operating loss margin of 1.5%.
Its gross profit also took a hit, standing at $37.2m or 25.9% of net sales, down from last year’s $48.7m or 29.3%.
Selling, general and administrative expenses remained relatively flat at $51.3m but rose as a percentage of net sales due to increased e-commerce fulfilment costs.
The pre-tax loss deepened to $12.9m or 9.0% of net sales compared to the previous year’s more modest margin of 0.7%.
Fiscal 2024 fourth quarter forecast:
Early indicators point to a continued decline in total comparable net sales by 15.3%, although product margins have shown improvement.
The retailer projects net sales to be in the range between approximately $149m and $156m.
Pre-tax and net losses are expected to fall between approximately $13.0m and $9.5m respectively, with negligible tax impact due to full non-cash valuation allowance on deferred tax assets.
“However, we still have a long way to go to return to generating consistent sales growth and profitability. We are disappointed in our net sales performance in the early stages of the fourth quarter, yet somewhat encouraged by our improved product margins thus far in the fourth quarter,” Hezy Shaked added.
The retailer anticipates having 239 stores operational by the conclusion of the Q4 FY24. In November, Tilly’s inaugurated three new locations and currently plans to shut down 10 stores, mainly those with subpar performance, towards the close of the quarter.
