Participants

Gar Jackson; Investor Relations; Global IR Group

Michael Henry; Chief Financial Officer, Executive Vice President; Tillys Inc

Hezy Shaked; Executive Chairman of the Board, Interim President, Chief Executive Officer, Chief Strategy Officer; Tillys Inc

Jeff Van Sinderen; Analyst; B. Riley Securities, Inc.

Matt Koranda; Analyst; Roth Capital Partners

Presentation

Operator

Good day and welcome to the Tilly's fourth-quarter and full year 2024 earnings conference call. (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

Good afternoon and welcome to the Tilly's fiscal 2024 fourth-quarter earnings call. Michael Henry, Executive Vice President, Chief Financial Officer, will discuss the company's business and operating results. Then he and Hezy Shaked, Co-Founder, Executive Chairman, President, and Chief Executive Officer, will host a Q&A session.
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, March 12, 2025, 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 fourth-quarter earnings release, which is furnished to the SEC today on Form 8-K, as well as our other filings of 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 will now turn the call over to Mike.

Michael Henry

Thank you, Gar, and everyone on the call for joining us today.
The fourth quarter of fiscal 2024 was disappointing, particularly following what was our best comp sales performance since 2021 during the third quarter. We made several organizational changes in our merchandizing team during the 4th quarter, with the goal of beginning to stabilize and then turning our sales trajectory around.
We believe in our merchandizing team's abilities. Merchandizing has not been easy when many of our best traditional brand partners have been facing their own significant operating challenges. We are adapting our brand and assortment mixes to attempt to improve sales, and changes will continue as we progress through fiscal 2025.
We believe our spring assortment is on trend based on the brief period of positive costs we saw in stores when weather turned warmer. We have planned meaningfully reduced inventory commitments throughout fiscal 2025 compared to fiscal 2024 to target faster returns and further improvement in product margins.
We have reassessed inventory needs by product category and set targets that aim to move us back to historical norms that this company has been able to produce repeatedly in its past. Beyond merchandizing adjustments, we've targeted significant expense reductions during fiscal 2025 from the combination of continued diligent scrutiny of every store lease decision, strict management of store, distribution and corporate payroll, and negotiated reductions in contractual commitments across operational departments with the support of many of our business partners.
At the same time, we plan to continue investing in our business in terms of expanded marketing efforts, carefully selected new store opportunities, and pursuit of operating efficiencies, all with the goal of improving our performance.
Now. I will turn to the specifics of our fiscal 2024 fourth-quarter operating performance compared to fiscal 2023's fourth quarter before sharing our fiscal 2025 first-quarter outlook.
Total net sales of $147.3 million decreased by 14.9% compared to the fourth quarter of fiscal 2023. Last year's fourth quarter contained an extra week which accounted for $5.7 million in total net sales. Total comparable net sales, including both physical stores and e-commerce for the comparable 13-week period ended February 1, 2025, decreased by 11.2%. Total net sales from physical stores decreased by 13.7% and represented 73.5% of our total net sales compared to 72.6% of our total net sales last year.
On a comparable 13-week basis, net sales from physical stores decreased by 9.8%. E-commerce net sales decreased by 17.8% and represented 26.5% of total net sales compared to 27.4% of total net sales last year. We ended the fiscal year with 240 total stores, a net decrease of 8 stores compared to the end of fiscal 2023 after having closed 10 stores during the fourth quarter.
Gross margin, including buying, distribution, and occupancy expenses was 26% of net sales compared to 27% of net sales last year. Despite our sales miss and significantly increased inventory evaluation reserves, product margins still improved by 190 basis points compared to last year, primarily due to higher initial markups.
Buying, distribution, and occupancy costs de leveraged by 290 basis points collectively, despite being $1.5 million below last year due to carrying these costs against lower net sales. Total SG&A expenses were $52.4 million or 35.6% of net sales compared to $55.2 million or 31.9% of net sales last year. The decrease in SG&A was primarily due to the extra week in last year's fourth quarter, which added an estimated $2.6 million to last year's SG&A.
Pre-tax loss was $[13.4 million] or 9.1% of net sales compared to $6.9 million or 4% of net sales last year as a result of the combination of factors just noted. Income tax expense was $0.2 million despite our pre-tax loss position due to the continuing impact of a full non-cash deferred tax asset valuation allowance.
Last year's fourth quarter included the original non-cash deferred tax asset valuation allowance charge of $15.4 million resulting in income tax expense of $13.6 million despite our pre-tax loss position. Net loss was $13.7 million or $0.45 per share compared to $20.6 million or $0.69 per share during last year's fourth quarter, which included the previously mentioned valuation allowance charge.
Turning to our balance sheet, we ended the fiscal year with total cash and marketable securities of $47 million and available undrawn borrowing capacity of $48 million under our asset-backed credit facility. Total inventories were 9.5% higher than at the end of fiscal 2023. However, as of March 1, 2025, total inventories were 6.1% below last year's level as of the comparable date due to specific actions taken to address this issue. Total capital expenditures in fiscal 2024 were $8.2 million compared to $14 million in fiscal 2023.
Turning to the first quarter of fiscal 2025, the trend of our business has improved from our fourth quarter performance, with total comparable net sales for fiscal February ended March 1, 2025, decreasing by 5.7% relative to the comparable period of last year and with stronger performance when the weather has turned warmer.
As a result, and based on current historical trends, we currently estimate that our total net sales for the first quarter will be in the range of approximately $105 million to $111 million translating to a comparable store net sales decrease in the range of approximately 8% to 3% respectively compared to last year.
We expect our SG&A expenses to be approximately $42 million to $43 million in the absence of any non-cash asset impairment charges which may arise and a pre-tax loss to be in the range of $20 million to $17 million respectively. Our estimated loss per share is expected to be in the range of $0.68 to $0.58 for the first quarter, with a near zero% income tax rate due to the continuing impact of the previously noted valuation allowance on deferred tax assets.
We currently expect to have 238 total stores operating at the end of the first quarter compared to 246 at the end of last year's first quarter.
As our cash naturally ebbs and flows with the cadence of the fiscal year, we expect to end the first quarter with total cash and marketable securities of approximately $25 million to $30 million before it moves back higher at the end of the second quarter amid the early stages of the back to school season.
At our fiscal February comparable net sales trend, we believe we can operate without accessing our credit facility at any time during fiscal 2025. We expect to operate with lower unit inventories than last year throughout fiscal 2025, as I noted earlier. Additionally, we expect to finalize an extension of our asset-backed credit facility with Wells Fargo Bank through July 2028 before the end of the first quarter.
In closing, our goals for fiscal 2025 are to deliver improved sales and inventory efficiency with reduced expenses. It may prove difficult to achieve amid current economic concerns, but we believe we have the plans and teams in place that can deliver results. We look forward to sharing our progress with you as we go through the year.
Operator, we will now go to our Q&A session.

Question and Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions)
Jeff Van Sinderen, B. Riley Securities.

Jeff Van Sinderen

Okay, thanks for taking my question. I guess the first one I had was just around tariff impact or potential tariff impact. Maybe you can just lay out for us. I know you do have some private label products, but I don't think there's a tariff impact on that. Can you just refresh our memories around potential tariff impact?

Hezy Shaked

Let me take it. So we looked into it by the way, Monday. And it will be a minor effect. About very few of the vendors we're using for private label. Actually it's only one at this stage indicated that they might have to split the increased cost with us, and it's not significant with this particular vendor, but this is the information we have as of right now. I expect it will have some effect. It's hard to quantify at this stage.

Jeff Van Sinderen

Okay, and then as you're sort of thinking about the doge backdrop that we're in and the potential impact to the consumer overall, the recession world is sort of being talked about I guess how are you thinking about that? Do you feel like the changes you're making to the merchandise assortment can offset that, I guess just any thoughts around that.

Hezy Shaked

Yeah, that is the hope, right? I mean, the headwinds we're going to have like everybody else does, we'll be there and the hope is that by the time we get our merchandizing everything in line, we should be able to mitigate that, but there's no guarantee.

Jeff Van Sinderen

Okay, and then I just kind of have a more strategic or structural question for you. I'm just kind of looking at, your cash balance and CapEx.
How are you thinking about store openings this year? Are you planning to open any or are we in more closure mode at this point? What should we anticipate for CapEx this year? And then I also wanted to ask you, and this is something that has been done a little bit more, but I apologize for the multi-part question here, but on e-commerce, I just wonder if it might make sense for you to fulfill e-commerce out of your stores and not have a separate e-commerce fulfillment center.

Hezy Shaked

Sure, we'll start from the last one. We do a hybrid with steal from the stores as well as we do from e-com in the event that we don't have it at e-com building, it comes from the closest store to the customer. So at this stage it's not something we are considering, doing complete, shipping from the stores. On the first question on the CapEx, we are still opportunists. Any situation that we believe the ROI is going to be short, we capitalize on that.
We did open two stores recently and they're both very profitable, and I think we will see great results from those two. We do have a kind of a place marker for additional stores in case we find the right location that makes sense. But overall, I think my goal would be to probably close more unprofitable stores than open new ones.

Michael Henry

Yeah, Jeff, I'll add some details of that one store opened already, about just last week actually. There'll be there's a second one that's planned to open in August currently. We know of seven store closures that will take place as of now, three in the first quarter and four in the second quarter. That's what we know as of this moment.
And as Hezy referenced, the placeholder that we have in our budget is just five stores, so it's a limited number, and as you noted, we'll be very opportunistic about that. It doesn't mean we're going to open five. We only have two as we have right now, and we have seven closures. There could be more closures as we go through the year and work through all of our lease decisions, but that's the latest information we have as of today.

Jeff Van Sinderen

And sorry, Mike, and that how many lease decisions do you have this year?

Michael Henry

Well, just like every other recent year, we've been renegotiating leases for several years, and as we do these things they tend to go one to two to three years at a time. So every year there's roughly about 80 lease decisions to make, it seems, and that's right in the neighborhood of how many we'll have to deal with this year.

Jeff Van Sinderen

Okay, fair enough, thanks for taking my questions I'll let someone else jump in.

Operator

Matt Koranda, Roth Capital.

Matt Koranda

I guess just backing up to the fourth-quarter results and the comp, just wanted to see sort of if you could maybe just give a little commentary on the down 11% comp for the fourth quarter. It's a little below the range you gave and just wanted to see kind of what might have fallen short kind of later in the quarter.

Michael Henry

Yeah, we started off really. Go ahead, Hezy.

Hezy Shaked

No, you can take that.

Michael Henry

Obviously, when we released Q3 earnings and gave our outlook, we acknowledged what our comps were through the early stage of the quarter. So November was the weakest month of the quarter by far. We were down 21% in fiscal November and then we were down 6% to 7% in each of December and January just to give you the cadence of the quarter.

Matt Koranda

Okay, all right, got you. And then just in terms of the trends quarter date, I know you did the release says sort of 6% roughly in terms of comp in February we're expecting 8% to 3%. Maybe just can you talk about the sensitivities in the range in terms of what brings us to the bottom and the top end of that range, and then just any way you can unpack sort of.
Any of the trends at all that you saw in February, I know a lot have been kind of calling out some softness in the month of February, progressively as we went through the month, but just wanted to see if you could note any kind of changes that you were seeing in your business.

Michael Henry

Sure, so in fiscal February, week three was the softest of the month, and then in week 4 is when we got, a nice little heat wave, especially here in California. And so I noted in our prepared remarks that we did see positive comps in our stores. That was a four-day period when we had really nice seasonal weather and saw a pretty significant change in the trajectory of our business.
And with a lot of parts of our spring assortment really popping during that period. So in the aggregate fiscal February finished at 5.7, and that was inclusive of that short window of time where we saw positive comps in our stores. It gives us some cautious optimism that as we get into better, more warmer weather as we get deeper into the quarter that our assortment seems to be on trend, and we should see some response from it as we get into more spring seasonal weather.
We do have a later Easter this year, so it is going to get a little worse before it gets better because of the shift out of Easter. Easter was March 31, last year versus April 20, this year. So our outlook range kind of encapsulates right where we are. The cautious optimism I mentioned of seeing some warmer weather and better performance can lead us towards the upper end, and kind of nothing really got better than what we're anticipating and knowing that things are going to get tougher in March because of the later Easter.
The typical Easter shift that happens every year in one way or the other, that could lead us towards the bottom end. 2022 was the last fiscal year where Easter is in the precise location that it is this year, so that's what we're using to model kind of how the cadence of the quarter goes.

Matt Koranda

Okay, all right, very helpful, Mike, thanks. And then maybe just, for hey, can you just talk higher level about sort of what inning we are in in terms of the merchandizing and assortment change? When will the new team sort of fully have their fingerprints on all products that are in the stores? Maybe just level set everybody on sort of when we should expect that come into play.

Hezy Shaked

Absolutely. Yeah, absolutely. Let me take you back a little bit. By the way, as we missed the merchandise for Christmas, fourth quarter, and that was the reason I changed the top merchant. We realigned the merchant team. We have a lot of good talent there, but the direction was wrong, and I think by July we should see the results of the merchant team effort.
I also got to remind you, what happening here is we had to mark down a lot of the merchandise because it was just the wrong direction and due to that affects everything, including your cars because you can't pick dollars. And we are going to this merchandise, we're clearing it as you can see our merch our inventory is down, and we expect to clear all that by the same time. We should see some results in July.

Matt Koranda

Okay, that makes sense. Appreciate that. And then we just last one from Mike, just, could you just comment on what's embedded in the cash balance guide at the end of the quarter in terms of inventory? Are we assuming, that the inventory balance is down year over year at the end of the quarter?
Maybe just talk about sort of where you see inventory normalizing and then, I guess the other kind of higher level question on the balance sheet is just like what would cause you to tap the credit facility at what point will we see you drawing on that, if and when.

Michael Henry

Sure. So as I noted in our prepared remarks, we're planning to operate with lower unit inventories all year long. We took a really hard look at our inventory needs by product category. Being a lot more strict about how we're viewing that.
We've simply been buying too much in recent years and so worked real hard with the teams to realign our inventory plans kind of from a bottoms up perspective byproduct category. And feel confident that we have a good plan in place to have inventory very well managed as we go throughout the year. So we should be below last year's levels all year long at the end of each quarter, and that's been, planned into our merch plan budget for the year.
So long as we don't have something approaching about a 10 comp consistently all year long, we should not have to access our credit facility. As I mentioned, based on our February comp run rate of 5.7, we could run that all year long and we would not have to touch our credit facility at all. So we have a borrowing free balance sheet and so long as we don't have a deterioration in our con trend from where we are. And closer to about that 10 level, we shouldn't have to access our credit facility at any point in time.

Matt Koranda

Okay, super clear. I appreciate it guys. I'll leave it there.

Operator

Jeff Van Sinderen, B. Riley Securities.

Jeff Van Sinderen

Just wanted to sort of follow up around the thinking on the credit line and the cash balance and just wondering if there are other areas you feel you can reduce SGNA given kind of the rate run rate of the business.

Michael Henry

So we have that was in our prepared remarks as well. We've renegotiated a lot of contractual commitments with the assistance of several of our business partners. We had to absorb another year of minimum wage increases that for the first quarter, all things being equal, cost us about $400,000 but with another swing at trying to be super tight on our payroll metrics, we actually expect our payroll dollars to be down in the first quarter.
Despite that minimum wage increase, Hezy and I ran every single department head over the coals with their departmental budgets. We have looked at literally everything, so we expect to see some favorability as we go through our lease decisions. We expect to see some favorability out of payroll in all facets, as I mentioned, whether it's store payroll, distribution.
Or corporate office because of the changes we've made and plans we have in place and we've looked at every major contractual commitment that we have looking for anywhere that we can squeeze expense and those things are factored in and also have an impact on our ability to manage our way through the year without accessing our credit facility because of it.

Jeff Van Sinderen

Okay, so is it, would it be fair to say, Mike, that if your business starts to turn up, which, it's you sound cautiously optimistic that it can, and hopefully around the summertime, it will. And let's just if we assume for a second that you are copping positive in third quarter, let's say, or second quarter. Would it be fair to think that with the reductions you've made so far, that the SG&A dollars can be down year over year? I just want to kind of clarify the thinking on that.

Michael Henry

That would be our expectation, yes, that we could manage through this year with a lower total dollar value of SG&A than what we had in '24.

Jeff Van Sinderen

Okay, great to hear. Thank you.

Operator

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

Michael Henry

Thank you all for joining us on the call today, and we look forward to sharing our results with you as we go through the year. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.