[Management View]
Tilly's management highlighted a return to quarterly profitability after nearly three years, driven by cost controls, improved margins, and reduced inventory. The transition to new CEO Nate Smith was noted as a strategic evolution, with no major operational shifts announced.

[Outlook]
Management projects net sales between $134 million and $140 million for fiscal Q3 2025, with comparable sales ranging from -2% to +2%. SG&A is expected around $47 million, with a projected net loss between $10.5 million and $6.9 million. The company aims to maintain a debt-free balance sheet and liquidity between $83 million and $86 million.

[Financial Performance]
- Total net sales: $151.3 million, a 7.1% decrease YoY.
- Comparable net sales: Decreased 4.5%.
- Physical store net sales: Declined 7.3%.
- E-commerce net sales: Decreased 6.6%.
- Gross margin: Improved by 180 basis points to 32.5%.
- SG&A expenses: Reduced by $4.4 million to $46.4 million.
- Earnings per share: $0.10, marking the first profitable quarter since 2022.
- Pretax income: $3.1 million compared to a pre-tax loss of $73,000 last year.
- Total liquidity: $114 million with no debt.

[Q&A Highlights]
Question 1: Congrats, Nate. What are your primary early priorities after joining Tilly's?
Answer: Nate Smith emphasized doubling down on successful strategies and identifying areas for course correction, noting it is still early in his tenure.

Question 2: Can you discuss the progression of comps during Q2 and into August?
Answer: Michael Henry detailed the monthly comp progression, noting improvements in July and positive comps in August, driven by all apparel departments moving positively.

Question 3: Can you provide more clarity on the e-commerce vendor issue?
Answer: Michael Henry explained that a vendor's distribution decision impacted e-commerce sales, a broader system-wide change affecting multiple businesses, not just Tilly's.

Question 4: Why is the Q3 outlook conservative despite August growth?
Answer: Michael Henry cited historical slowdowns in September and October post-back-to-school, emphasizing cautious optimism due to better product assortment and inventory management.

Question 5: Can you discuss the health of current inventory and assortment?
Answer: Michael Henry highlighted purposeful inventory reduction, improved product margins, and a shift to a chase mode for high-performing items, resulting in healthier inventory levels.

Question 6: Are there any pricing changes from vendors due to tariffs?
Answer: Michael Henry noted that vendor pricing changes are factored into the outlook, with some brands adjusting both cost and consumer prices, resulting in minimal net impact.

Question 7: Is there more opportunity for SG&A cost containment?
Answer: Michael Henry indicated continued store labor savings and other expense reductions, particularly in response to minimum wage increases in California.

[Sentiment Analysis]
The tone of the analysts was cautiously optimistic, with a focus on understanding the drivers behind the recent improvements and the conservative outlook. Management maintained a confident yet cautious stance, emphasizing ongoing efforts to stabilize and improve the business.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 |
|-------------------------|---------------|---------------|
| Total Net Sales | $151.3 million| $162.9 million|
| Comparable Net Sales | -4.5% | -6.0% |
| Physical Store Net Sales| -7.3% | -8.0% |
| E-commerce Net Sales | -6.6% | -7.0% |
| Gross Margin | 32.5% | 30.7% |
| SG&A Expenses | $46.4 million | $50.8 million |
| Earnings per Share | $0.10 | $0.00 |
| Pretax Income | $3.1 million | -$73,000 |
| Total Liquidity | $114 million | $100 million |

[Risks and Concerns]
- Tariff exposure: Estimated net impact on fiscal 2025 product margins is limited to $500,000, with fiscal 2026 impact uncertain.
- Seasonal sales normalization: Historical slowdowns in September and October post-back-to-school.
- Market volatility: Ongoing mitigation efforts required to manage tariff impacts and inventory levels.

[Final Takeaway]
Tilly's demonstrated a significant turnaround in Q2 2025, achieving profitability for the first time in nearly three years. Strategic inventory management and cost controls were key drivers of this improvement. The outlook for Q3 remains cautious, with management emphasizing historical sales patterns and ongoing efforts to stabilize the business. Investors should monitor the company's ability to sustain these improvements and navigate potential risks such as tariff impacts and seasonal sales fluctuations.