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Why Tillys Stock Plunged as Much as 25% in Early Trading Today

What happened

Shares of Tillys (NYSE: TLYS), which describes itself as a retailer of West Coast fashions, fell sharply on March 11, losing as much as 25% of their value at one point in morning trading. Roughly 90 minutes into the trading day, the stock was still sitting near its worst levels.

It was the company's fiscal fourth-quarter 2021 earnings update that precipitated the decline, despite the fact that Tillys put up another record quarter. Here's a quick look at why investors were so downbeat.

So what

On the top line, fiscal fourth-quarter 2021 sales were $204.5 million, up 14.9% compared to the year-ago period. For the full fiscal year, sales increased 46% to $775.7 million, largely because of pandemic restrictions in 2020. Both of these sales figures were company records.

Fiscal fourth-quarter earnings came in at $0.38 per share, up from $0.29 in the prior year. For the full year, fiscal 2021 earnings totaled $2.06 per share compared to a loss of $0.04 in fiscal 2020. Although it's hard to complain too much about results like this, Wall Street was expecting $0.41 per share on the bottom line in the fiscal fourth quarter. Investors don't like it when a company falls short of analyst consensus, so that helped the negative mood along here. But that really wasn't the biggest problem.

Image source: Getty Images.

The most pressing commentary from the quarterly update was about the future. Tillys noted that sales in early March had been weak compared to the same month in the previous year. It highlighted that 2021 benefited from government stimulus payments, which it says boosted sales in a way that won't likely be repeated. At this point, management expects first-quarter 2022 comparable-store sales to decline between 10% and 13%, which is a sizable drop.

In fairness, the company is lapping some pretty good quarters in the previous year, so it isn't shocking that performance would wane. But the benefits from stimulus payments in 2021 weren't isolated to a single quarter, suggesting that Tillys could be in for a string of weak year-over-year results. That is what likely has investors worried.

Now what

This story, however, has to be looked at within the context of Tillys stock price, which at one point was up more than 300% from its lows during the 2020 pandemic-driven bear market. The stock has been steadily declining in 2022, as investors appear worried that too much good news has been priced into the shares.

This earnings announcement fortified that position, with the stock now down more than 40% this year, including today's declines. If the next few quarters are as weak as Tillys seems to be suggesting, the negative sentiment around the stock could linger for a little longer.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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