The stock of specialty retailer Tilly's (TLYS 10.04), which sells West Coast-inspired apparel, footwear, and accessories for teens and young adults, has started 2017 on a dismal note. At Monday's closing price, it was down 24% year-to-date. Unfortunately, things have gotten worse in pre-market trading.
Shares of TLYS were trading 12% lower following the company's fourth quarter report. That report wasn't the problem for the stock. The real problem was Tilly's first quarter guidance.
Briefly, Tilly's reported net sales of $160.2 million, up 0.7% year-over-year, with comparable store sales, which include e-commerce sales, increasing 0.1%. While its gross margin rate declined 80 basis points to 30.6%, its operating margin rate increased 50 basis points to 6.5% and its net income surged 117% to $6.3 million, or $0.22 per diluted share, helped by a lower tax rate.
The net sales and earnings per share results were both ahead of analysts' average expectations; moreover, Tilly's delivered earnings per share at the high end of a guidance range that was raised in late January. Its comparable store sales increase was also consistent with the increased guidance it provided in late January.
That good news, however, has been overshadowed by its disappointing first quarter guidance.
Tilly's said its quarter-to-date comparable store sales have decreased by a high single-digit percentage. The retailer blamed the weakness on a late Easter this year and significant weather issues in its heritage markets of California, Arizona and Nevada during February.
Based on the trends so far, Tilly's is expecting first quarter comparable store sales, including e-commerce sales, to decrease by a low to mid-single digit percentage. The retailer is also anticipating reporting a loss per share in the range of ($0.07) to ($0.15) versus a loss of ($0.10) in the same period a year ago.
Analysts had been expecting Tilly's to report a smaller loss per share for the first quarter than what the company is now projecting. That understanding has weighed on shareholder sentiment and has added to the list of guidance disappointments that have flowed out of the specialty retail segment for a host of reasons, including weak mall traffic and increased online competition.