Whirly lollipop on orange background.

Tilly’s (TLYS) was a pretty hot IPO in the speciality retail sector back in May of 2012. The deal was led by Goldman Sachs and was priced well above the $11.50 to $13.50 range at $15.50.

Recently the shares are down sharply on inline (but down YoY) earnings and a tepid outlook suggesting that the end markets and/or the competitive environment are not as friendly as investors once believed.

Tilly’s is focused on “action sports inspired customers” which also translates to a younger (14yo to 24yo) demographic. Generally speaking this is a fairly sought after demo and one that is brand and lifestyle aware. Tillys_TLYS_Store

After the weak quarterly report most of the banking analysts, including Goldman, downgraded the stock. Stifel was the only we noticed as out claiming that the current price of $12 was probably a good entry point.

Estimates for the current fiscal year 2014 are now adjusting to just below $500M with EPS of 60-65c. Estimates for 2015 are in the 80-90c range on revenues up 13% to $560M.

At $12 the shares on a TEV/sales of 0.8x and TEV/EBITDA of 6.3x which makes it fairly attractive if the company can improve growth and margins longer term. At 20x earnings the shares are not dirt cheap yet so there could still be some additional weakness.

The real question is to what extent Tilly’s is really a brand versus just another retail outlet for the younger, more active segment of consumers. Do customers go for names like Converse, Quiksilver, UGG, Nike, GoPro, REEF and Ray Ban more than they care about Tilly’s in general or the proprietary brands like RSQ?

Management is a little colorful and has done well thusfar but it’s not at all clear that Tilly’s can become a “breakout” retailer like American Eagle (AEO) or will remain mired in kind of a mid-market tug of war between growth, inventory levels and margins.

For those wanting a closer look we include the link to the original Tilly’s TLYS IPO Roadshow Slides.

Happy Thanksgiving and investing to all!

Sign Up!

Get pure IPO Goodness - no ads, no fluff, no SPAM.

Powered by ConvertKit

Leave a Reply