TLYS Stock: Is the Turnaround Real? Assessing Sales Stabilization and Store Closures Impact

Clyde MorganThursday, Jun 5, 2025 11:43 am ET
14min read

Tilly's Inc. (NASDAQ: TLYS), the teen and young adult apparel retailer, has been in the spotlight following its Q1 2025 earnings report, which claimed stabilization after years of declining sales. The question investors must ask: Is the turnaround real? This analysis dives into TLYS's sequential sales trends, marketing effectiveness, store optimization plans, and tariff risks to evaluate whether the company's near-term guidance is achievable and if its current valuation offers a compelling risk-reward.

1. Sales Stabilization: Signs of Progress or False Dawn?

TLYS reported a 7.1% drop in Q1 2025 net sales to $107.6 million, but the sequential trend is cautiously optimistic. Comparable sales declined 7.0% in Q1, an improvement from the prior quarter's 11.2% decline. Crucially, May 2025 comparable sales dipped just 2.2% year-over-year, signaling a potential bottoming of the sales cycle.

TLYS Net Income YoY

The company attributes this stabilization to:
- TikTok Shop Dominance: Outperforming Amazon since mid-April, leveraging viral trends and influencer partnerships.
- Celebrity Collaborations: Limited-edition drops with figures like Mike Tyson and Travis Barker drove traffic and social media engagement.

However, the Q2 2025 sales guidance of $150–158 million (a 5% decline to flat) hinges on continued momentum. Investors must assess whether these initiatives can offset broader retail challenges, including rising e-commerce competition and shifting teen spending habits.

2. Store Optimization: Closing for Growth?

TLYS has aggressively reduced its store footprint, shrinking from 246 to 232 locations by Q1, with plans for up to 15 more closures by Q2. The rationale is clear: simplify operations, reduce occupancy costs, and improve store-level profitability.

Results so far:
- SG&A Expense Reduction: SG&A fell to 40.9% of sales in Q1 (vs. 42.5% in Q1 2024), driven by lower payroll and asset write-downs.
- Margin Pressure Remains: Gross margins contracted to 19.8% due to inventory valuation reserves and supply chain costs.

The strategy's success hinges on two factors:
1. Execution Risk: Can TLYS close stores without disproportionately hurting sales?
2. Liquidity: The company projects $106–111 million in liquidity, which should support closures, but further store reductions could strain local market presence.

3. Tariff Risks: Minimal Direct Impact, But Supply Chain Costs Loom

TLYS claims tariffs have a “minimal” financial impact, with only one vendor (private label) potentially sharing increased costs. However, broader supply chain dynamics pose risks:

  • Cost Inflation: Trucking rates are up 14% year-over-year, and third-party logistics (3PL) costs are rising as retailers shift to outsourced warehousing.
  • Sourcing Shifts: While TLYS isn't directly exposed to U.S. tariffs on Mexico/Canada, peers are diversifying away from China, which could indirectly pressure TLYS if competitors gain cost advantages.

The company's focus on reducing inventory commitments and renegotiating supplier contracts may mitigate these risks, but execution is key.

4. Valuation and Investment Thesis

At a recent price of $6.50, TLYS trades at just 0.5x EV/EBITDA (estimated), reflecting deep skepticism about its long-term prospects.

Bull Case:
- Sales stabilize or improve in Q2, driven by TikTok momentum and summer events.
- Store closures reduce SG&A to 38–40% of sales, enabling a narrow profit.
- Valuation multiples expand if margin improvements materialize.

Bear Case:
- Q2 sales miss guidance due to weak back-to-school demand or execution issues.
- Margin deleverage persists as inventory reserves and supply chain costs rise.
- Store closures accelerate, shrinking sales faster than costs fall.

TLYS, SPXC Closing Price
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Conclusion: A High-Risk, High-Reward Play

TLYS's turnaround story is plausible but hinges on execution in four areas:
1. Sales Growth: Can TikTok and celebrity drops sustainably drive traffic?
2. Margin Improvement: Will store closures and cost cuts offset gross margin pressures?
3. Supply Chain Management: Can rising logistics costs be contained?
4. Liquidity: Is the balance sheet strong enough to weather near-term volatility?

For investors, the current valuation offers a potential asymmetric opportunity: upside if stabilization and margin gains materialize, but downside risks if the company's issues persist. A cautious “Hold” rating seems prudent until Q2 results prove the turnaround is more than a temporary blip.

Investors should monitor TLYS's Q2 sales performance and margin trends closely. A beat on both could revalue the stock meaningfully.