UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

__________________________________________________

FORM 10-Q

__________________________________________________



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October ~~28, 2017~~30, 2021



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-35535

__________________________________________________

TILLY’S, INC.

(Exact name of Registrant as specified in its charter)

__________________________________________________



Delaware						45-2164791
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

10 Whatney

Irvine, CA 92618

(Address of principal executive offices)

(949) 609-5599

(Registrant’s telephone number, including area code)

__________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share	TLYS	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x ☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” ~~or an~~and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~

¨ ~~(do not check if a smaller reporting company)~~

~~Smaller reporting company~~

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes ¨☐ No x☒

As of ~~November 30, 2017~~December 6, 2021, the registrant had the following shares of common stock outstanding:



Class A common stock $0.001 par value			~~14,448,294~~23,659,523
Class B common stock $0.001 par value			~~14,398,497~~7,306,108

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TILLY’S, INC.

FORM 10-Q

For the Quarterly Period Ended October ~~28, 2017~~30, 2021

Index



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	46
	Consolidated Balance Sheets as of October 3 0 , 2021, January 30, 2021 and October ~~28, 2017, January 28, 2017 and October 29, 2016~~31 , 2020	46
	Consolidated Statements of ~~Income~~Operations for the ~~Three~~Thirteen and ~~Nine Months~~Thirty-Nine Weeks Ended October ~~28, 2017~~3 0 , 2021 and October ~~29, 2016~~3 1, 2020	57
	Consolidated Statements of Comprehensive Income (Loss) for the ~~Three~~Thirteen and ~~Nine Months~~Th irty-Nine Weeks Ended October ~~28, 2017~~30, 2021 and October ~~29, 2016~~3 1, 2020	68
	Consolidated Statement of Stockholders’ Equity as of October ~~28, 2017~~30 , 2021 and October 3 1, 2020	79
	Consolidated Statements of Cash Flows for the ~~Nine Months~~ Thirty-Nine Weeks Ended October ~~28, 2017~~30 , 2021 and October ~~29, 2016~~ 3 1, 2020	811
	Notes to the Consolidated Financial Statements	912

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1724

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2532

Item 4.	Controls and Procedures	2532

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2733

Item 1A.	Risk Factors	2833

Item 6.	Exhibits	2933

	Signatures	2934

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Forward-Looking Statements

This Report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical or current fact included in this Report are forward-looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenues, comparable store sales, operating income, earnings per share, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

•the impacts of the COVID-19 pandemic generally (including any future surges in the number of cases or new variants or strains related thereto) on our operations, future financial or operational results;

•our ability to produce acceptable levels of net sales amid the ongoing global supply chain delays that are, and have been, negatively impacting the timing of receiving new product deliveries;

•our ability to adapt to changes in foot traffic trends for our stores and changes in our customers' purchasing patterns;

•our ability to successfully open new stores and profitably operate our existing stores;

•our ability to attract customers to our e-commerce website;

•our ability to efficiently utilize our e-commerce fulfillment center;

•effectively adapting to new challenges associated with our expansion into new geographic markets;

•our ability to establish, maintain and enhance a strong brand image;

•generating adequate cash from our existing stores to support our growth;

•identifying and responding to new and changing customer fashion preferences and fashion-related trends;

•competing effectively in an environment of intense competition both in stores and online;

•the success of the malls, power centers, neighborhood and lifestyle centers, outlet centers and street-front locations in which our stores are located;

•our ability to attract customers in the various retail venues and geographies in which our stores are located;

•adapting to periods of decline in consumer confidence and consumer spending;

•our ability to adapt to significant changes in sales due to the seasonality of our business;

•our ability to compete in social media marketing platforms;

•price reductions or inventory shortages resulting from failure to purchase the appropriate amount of inventory in advance of the season in which it will be sold;

•natural disasters, unusually adverse weather conditions, port delays, boycotts, epidemics, pandemics, acts of war, terrorism, civil unrest, and other unanticipated events;

•our dependence on third-party vendors to provide us with sufficient quantities of merchandise at acceptable prices;

•increases in costs of energy, transportation or utility costs and in the costs of labor and employment;

•our ability to balance proprietary branded merchandise with the third-party branded merchandise we sell;

•adjusting to increasing costs of mailing catalogs, paper and printing;

•most of our merchandise is made in foreign countries, making price and availability of our merchandise susceptible to international trade conditions;

•failure of our vendors and their manufacturing sources to use acceptable labor or other practices;

•our dependence upon key executive management or our inability to hire or retain the talent required for our business;

•our ability to effectively adapt to our planned expansion;

•failure of our information technology systems to support our current and growing business, before and after our planned upgrades;

•disruptions in our supply chain and distribution center;

•our indebtedness and lease obligations, including restrictions on our operations contained therein;

•our reliance upon independent third-party transportation providers for certain of our product shipments;

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•our ability to increase comparable store sales or sales per square foot, which may cause our operations and stock price to be volatile;

•disruptions to our information systems in the ordinary course of business or as a result of systems upgrades;

•our inability to protect our trademarks or other intellectual property rights;

•the impact of governmental laws and regulations and the outcomes of legal proceedings;

•our ability to secure our data and comply with the security standards for the credit card industry;

•our failure to maintain adequate internal controls over our financial and management systems; and

•continuing costs incurred as a result of being a public company.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

See “Risk Factors” within our most recent Annual Report on Form 10-K for a more complete discussion of the risks and uncertainties mentioned above and for discussion of other risks and uncertainties. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this Report and hereafter in our other SEC filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the disclosures and forward-looking statements included in this Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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Part I. Financial Information

Item 1. Financial Statements (Unaudited)

TILLY’S, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)


	October 28, 2017		January 28, 2017		October 29, 2016			October 30, 2021		January 30, 2021		October 31, 2020
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	38,912	$	78,994	$	43,382	Cash and cash equivalents	$	59,392	$	76,184	$	99,309
Marketable securities	82,961		54,923		61,915		Marketable securities	96,237		64,955		25,987
Receivables	3,647		3,989		5,873		Receivables	8,881		8,724		11,397
Merchandise inventories	62,242		47,768		65,016		Merchandise inventories	86,692		55,698		65,936
Prepaid expenses and other current assets	9,759		9,541		9,965		Prepaid expenses and other current assets	9,926		6,595		5,557
Total current assets	197,521		195,215		186,151		Total current assets	261,128		212,156		208,186
Operating lease assets							Operating lease assets	226,547		229,864		236,443
Property and equipment, net	87,576		89,219		93,206		Property and equipment, net	49,392		52,639		54,756
Other assets	7,805		6,072		5,414		Other assets	13,170		12,797		9,150
Total assets	$	292,902	$	290,506	$	284,771	Total assets	$	550,237	$	507,456	$	508,535
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	27,329	$	17,584	$	26,613	Accounts payable	$	46,378	$	24,983	$	36,245
Accrued expenses	31,854		23,872		20,449		Accrued expenses	20,084		30,682		21,984

Deferred revenue	8,335		10,203		7,815		Deferred revenue	13,568		13,492		11,051
Accrued compensation and benefits	6,005		7,259		5,480		Accrued compensation and benefits	17,106		9,899		10,096
Current portion of deferred rent	5,762		5,643		6,146
Capital lease obligation	155		835		899

Current portion of operating lease liabilities							Current portion of operating lease liabilities	54,299		54,503		62,747
Other							Other	727		632		316
Total current liabilities	79,440		65,396		67,402		Total current liabilities	152,162		134,191		142,439
Long-term portion of deferred rent	31,377		35,890		36,940
Noncurrent operating lease liabilities							Noncurrent operating lease liabilities	204,325		211,292		214,052
Other	2,955		—		155		Other	1,112		1,351		838
Total liabilities	113,772		101,286		104,497		Total liabilities	357,599		346,834		357,329
Commitments and contingencies (Note 5)
Commitments and contingencies (Notes 2 and 5)							Commitments and contingencies (Notes 2 and 5)	0		0		0
Stockholders’ equity:							Stockholders’ equity:
Common stock (Class A), $0.001 par value; 100,000 shares authorized; 14,357, 13,434 and 12,672 shares issued and outstanding, respectively	14		14		13
Common stock (Class B), $0.001 par value; 35,000 shares authorized; 14,488, 15,329 and 15,879 shares issued and outstanding, respectively	15		15		16
Common stock (Class A), $0.001 par value; 100,000 shares authorized; 23,658, 22,477 and 22,474 shares issued and outstanding, respectively							Common stock (Class A), $0.001 par value; 100,000 shares authorized; 23,658, 22,477 and 22,474 shares issued and outstanding, respectively	24		22		22
Common stock (Class B), $0.001 par value; 35,000 shares authorized; 7,306, 7,306 and 7,306 shares issued and outstanding, respectively							Common stock (Class B), $0.001 par value; 35,000 shares authorized; 7,306, 7,306 and 7,306 shares issued and outstanding, respectively	7		8		8
Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding	—		—		—		Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding	—		—		—
Additional paid-in capital	140,240		138,102		135,469		Additional paid-in capital	165,983		155,437		154,894
Retained earnings	38,765		51,023		44,719
Retained earnings (Accumulated deficit)							Retained earnings (Accumulated deficit)	26,616		5,135		(3,736)
Accumulated other comprehensive income	96		66		57		Accumulated other comprehensive income	8		20		18
Total stockholders’ equity	179,130		189,220		180,274		Total stockholders’ equity	192,638		160,622		151,206
Total liabilities and stockholders’ equity	$	292,902	$	290,506	$	284,771	Total liabilities and stockholders’ equity	$	550,237	$	507,456	$	508,535

The accompanying notes are an integral part of these consolidated financial statements.

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TILLY’S, INC.

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
Net sales $ 152,824
$ 152,106
$ 412,581
$ 408,736
Cost of goods sold (includes buying, distribution, and occupancy costs) 102,730
104,137
288,653
289,343
Gross profit 50,094
47,969
123,928
119,393
Selling, general and administrative expenses 35,982
37,302
111,384
110,460
Operating income 14,112
10,667
12,544
8,933
Other income, net 375
103
810
270
Income before income taxes 14,487
10,770
13,354
9,203
Income tax expense 5,730
4,353
5,354
4,097
Net income $ 8,757
$ 6,417
$ 8,000
$ 5,106
Basic income per share of Class A and Class B common stock $ 0.30
$ 0.23
$ 0.28
$ 0.18
Diluted income per share of Class A and Class B common stock $ 0.30
$ 0.22
$ 0.28
$ 0.18
Weighted average basic shares outstanding 28,782
28,482
28,746
28,456
Weighted average diluted shares outstanding 29,031
28,527
28,954
28,476


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Net sales	$	206,096	$	140,275	$	571,205	$	353,409
Cost of goods sold (includes buying, distribution, and occupancy costs)	129,357		99,615		364,900		269,481
Gross profit	76,739		40,660		206,305		83,928
Selling, general and administrative expenses	47,742		37,122		136,007		101,082
Operating income (loss)	28,997		3,538		70,298		(17,154)
Other (expense) income, net	(1)		(28)		(219)		692
Income (loss) before income taxes	28,996		3,510		70,079		(16,462)
Income tax expense (benefit)	8,162		1,397		17,888		(6,446)
Net income (loss)	$	20,834	$	2,113	$	52,191	$	(10,016)
Basic earnings (loss) per share of Class A and Class B common stock	$	0.67	$	0.07	$	1.72	$	(0.34)
Diluted earnings (loss) per share of Class A and Class B common stock	$	0.66	$	0.07	$	1.68	$	(0.34)
Weighted average basic shares outstanding	30,915		29,708		30,429		29,693
Weighted average diluted shares outstanding	31,352		29,810		31,016		29,693

The accompanying notes are an integral part of these consolidated financial statements.

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TILLY’S, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29, 2016
Net income $ 8,757
$ 6,417
$ 8,000
$ 5,106
Other comprehensive (loss) income:
Net change in unrealized gain on available-for-sale securities, net of tax (6 ) 26
30
35
Other comprehensive (loss) income (6 ) 26
30
35
Comprehensive income $ 8,751
$ 6,443
$ 8,030
$ 5,141


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Net income (loss)	$	20,834	$	2,113	$	52,191	$	(10,016)
Other comprehensive income (loss), net of tax:
Net change in unrealized (loss) gain on available-for-sale securities, net of tax	(4)		17		(12)		(196)
Other comprehensive (loss) income, net of tax	(4)		17		(12)		(196)
Comprehensive income (loss)	$	20,830	$	2,130	$	52,179	$	(10,212)

The accompanying notes are an integral part of these consolidated financial statements.

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TILLY’S, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Number of Shares
	Common Stock (Class A)	Common Stock (Class B)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance at July 31, 2021	23,651	7,306	$	31	$	165,407	$	5,782	$	12	$	171,232
Net income	—	—	—		—		20,834		—		20,834





Share-based compensation expense	—	—	—		521		—		—		521
Exercises of stock options	7	—	—		55		—		—		55
Net change in unrealized gain on available-for-sale securities	—	—	—		—		—		(4)		(4)
Balance at October 30, 2021	23,658	7,306	$	31	$	165,983	$	26,616	$	8	$	192,638

Number of Shares

Common
Stock
(Class A)

Common
Stock
(Class B)

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Stockholders’
Equity
Balance at January 28, 2017 13,434
15,329
$ 29
$ 138,102
$ 51,023
$ 66
$ 189,220
Cumulative-effect adjustment from adoption of ASU 2016-09 (Note 2) —
—
—
178
(178 ) —
—
Net income —
—
—
—
8,000
—
8,000
Dividends paid —
—
—
—
(20,080 ) —
(20,080 )
Restricted stock vesting 44
—
—
—
—
—
—
Taxes paid in lieu of shares issued —
—
—
(101 ) —
—
(101 )
Shares converted by founders 841
(841 ) —
—
—
—
—
Stock-based compensation expense —
—
—
1,773
—
—
1,773
Employee exercises of stock options 38
—
—
288
—
—
288
Change in unrealized gain on available-for-sale securities —
—
—
—
—
30
30
Balance at October 28, 2017 14,357
14,488
$ 29
$ 140,240
$ 38,765
$ 96
$ 179,130


	Number of Shares
	Common Stock (Class A)	Common Stock (Class B)	Common Stock		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance at August 1, 2020	22,414	7,366	$	30	$	154,386	$	(5,849)	$	1	$	148,568
Net income	—	—	—		—		2,113		—		2,113

Class B common stock converted to Class A common stock	60	(60)	—		—		—		—		—
Share-based compensation expense	—	—	—		508		—		—		508

Net change in unrealized gain on available-for-sale securities	—	—	—		—		—		17		17
Balance at October 31, 2020	22,474	7,306	$	30	$	154,894	$	(3,736)	$	18	$	151,206

The accompanying notes are an integral part of these consolidated financial statements.

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TILLY’S, INC.

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

Nine Months Ended
October 28,
2017 October 29,
2016
Cash flows from operating activities
Net income $ 8,000
$ 5,106
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 17,644
17,498
Stock-based compensation expense 1,773
1,995
Impairment of assets 848
1,963
Loss on disposal of assets 170
6
Gain on sales and maturities of marketable securities (510 ) (164 )
Deferred income taxes (1,194 ) (298 )
Changes in operating assets and liabilities:
Receivables 342
(476 )
Merchandise inventories (14,474 ) (13,659 )
Prepaid expenses and other assets (777 ) (1,084 )
Accounts payable 9,177
10,667
Accrued expenses 4,202
2,576
Accrued compensation and benefits (1,254 ) (271 )
Deferred rent (4,394 ) (3,911 )
Deferred revenue (1,868 ) (359 )
Net cash provided by operating activities 17,685
19,589
Cash flows from investing activities
Purchase of property and equipment (9,716 ) (14,794 )
Proceeds from sale of property and equipment —
43
Purchases of marketable securities (112,612 ) (81,762 )
Maturities of marketable securities 85,134
70,000
Net cash used in investing activities (37,194 ) (26,513 )
Cash flows from financing activities
Dividends paid (20,080 ) —
Proceeds from exercise of stock options 288
24
Payment of capital lease obligation (680 ) (639 )
Taxes paid in lieu of shares issued for stock-based compensation (101 ) (99 )
Net cash used in financing activities (20,573 ) (714 )
Change in cash and cash equivalents (40,082 ) (7,638 )
Cash and cash equivalents, beginning of period 78,994
51,020
Cash and cash equivalents, end of period $ 38,912
$ 43,382
Supplemental disclosures of cash flow information
Interest paid $ 25
$ 67
Income taxes paid $ 4,719
$ 3,570
Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment $ 7,303
$ —


	Number of Shares
	Common Stock (Class A)	Common Stock (Class B)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance at January 30, 2021	22,477	7,306	$	30	$	155,437	$	5,135	$	20	$	160,622
Net income	—	—	—		—		52,191		—		52,191
Dividends paid ($1.00 per share)	—	—	—		—		(30,710)		—		(30,710)
Restricted stock	20	—	—		—		—		—		—


Share-based compensation expense	—	—	—		1,417		—		—		1,417
Exercises of stock options	1,161	—	1		9,129		—		—		9,130
Net change in unrealized gain on available-for-sale securities	—	—	—		—		—		(12)		(12)
Balance at October 30, 2021	23,658	7,306	$	31	$	165,983	$	26,616	$	8	$	192,638


	Number of Shares
	Common Stock (Class A)	Common Stock (Class B)	Common Stock		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance at February 1, 2020	22,323	7,406	$	30	$	153,377	$	6,280	$	214	$	159,901
Net loss	—	—	—		—		(10,016)		—		(10,016)
Restricted stock	51	—	—		—		—		—		—
Class B common stock converted to Class A common stock	100	(100)	—		—		—		—		—
Share-based compensation expense	—	—	—		1,517		—		—		1,517

Net change in unrealized gain on available-for-sale securities	—	—	—		—		—		(196)		(196)
Balance at October 31, 2020	22,474	7,306	$	30	$	154,894	$	(3,736)	$	18	$	151,206

The accompanying notes are an integral part of these consolidated financial statements.

810

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TILLY’S, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Thirty-Nine Weeks Ended
	October 30, 2021		October 31, 2020
Cash flows from operating activities
Net income (loss)	$	52,191	$	(10,016)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	13,123		14,571
Insurance proceeds from casualty loss	117		—
Share-based compensation expense	1,417		1,517
Impairment of long-lived assets	136		929
Loss on disposal of assets	52		67
Gain on sales and maturities of marketable securities	(101)		(685)
Deferred income taxes	57		(1,142)
Changes in operating assets and liabilities:
Receivables	1,847		(3,912)
Merchandise inventories	(31,111)		(9,035)
Prepaid expenses and other current assets	(3,698)		1,912
Accounts payable	21,402		16,130
Accrued expenses	(9,804)		2,392
Deferred revenue	76		(710)
Accrued compensation and benefits	7,207		2,906
Operating lease liabilities	(5,205)		6,224
Other liabilities	(856)		(115)
Net cash provided by operating activities	46,850		21,033
Cash flows from investing activities
Purchases of property and equipment	(10,911)		(6,395)
Proceeds from sale of property and equipment	17		—
Insurance proceeds from casualty loss	29		—
Purchases of marketable securities	(126,420)		(30,946)
Maturities of marketable securities	95,224		75,157
Net cash (used in) provided by investing activities	(42,061)		37,816
Cash flows from financing activities
Proceeds from line of credit	—		23,675
Repayment of line of credit	—		(23,675)
Dividends paid	(30,710)		(29,677)
Proceeds from exercise of stock options	9,129		—
Net cash used in financing activities	(21,581)		(29,677)
Change in cash and cash equivalents	(16,792)		29,172
Cash and cash equivalents, beginning of period	76,184		70,137
Cash and cash equivalents, end of period	$	59,392	$	99,309
Supplemental disclosures of cash flow information
Interest paid	$	—	$	182
Income taxes paid	$	26,493	$	857
Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment	$	1,702	$	2,246
Leased assets obtained in exchange for new operating lease liabilities	$	32,787	$	11,999

The accompanying notes are an integral part of these consolidated financial statements.

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TILLY’S, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Description of the Company and Basis of Presentation

Tillys is a leading destination specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls with an extensive ~~selection~~assortment of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle. Tillys is headquartered in Irvine, California and we operated ~~220~~243 stores, in 3133 states as of October ~~28, 2017.~~30, 2021. Our stores are located in malls, lifestyle centers, ‘power’ centers, community centers, outlet centers and street-front locations. Customers may also shop online, where we feature the same assortment of products as carried in our brick-and-mortar stores, supplemented by additional online-only styles. Our goal is to serve as a destination for the latest, most relevant merchandise and brands important to our customers.

The Tillys concept began in 1982, when our co-founders, Hezy Shaked and Tilly Levine, opened their first store in Orange County, California. Since 1984, the business has been conducted through World of Jeans & Tops, a California corporation, ~~("WOJT")~~or “WOJT”, which operates under the name “Tillys”. In May 2011, Tilly’s, Inc., a Delaware corporation, was formed solely for the purpose of reorganizing the corporate structure of WOJT in preparation for an initial public offering. As part of the initial public offering in May 2012, WOJT became a wholly owned subsidiary of ~~Tilly’s,~~Tilly's, Inc.

The consolidated financial statements include the accounts of Tilly's Inc. and WOJT. All intercompany accounts and transactions have been eliminated in consolidation.

As used in these Notes to the Consolidated Financial Statements, except where the context otherwise requires or where otherwise indicated, the terms "the Company", "World of Jeans and Tops", "WOJT", "we", "our", "us" and "Tillys" refer to WOJT before our initial public offering, and to Tilly's, Inc. and its subsidiary after our initial public offering.

We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"), for interim financial reporting. These unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted from this Quarterly Report on Form 10-Q as is permitted by SEC rules and regulations.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows for the interim periods presented. The results of operations for the ~~third quarter~~thirteen and ~~nine months~~thirty-nine week periods ended October ~~28, 2017 and October 29, 2016, respectively,~~30, 2021 are not necessarily indicative of results to be expected for the full fiscal ~~year.~~year, especially in light of the favorable impact of federal stimulus checks on consumer spending earlier in fiscal 2021 and the atypical back-to-school timing that occurred amid the pandemic during fiscal 2020 and early fiscal 2021. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended January ~~28, 2017~~30, 2021 ("fiscal ~~2016"~~2020").

~~We have reclassified certain prior period balance sheet amounts within our consolidated balance sheets to conform to our current period presentation.~~

Fiscal Periods

Our fiscal year ends on the Saturday closest to January 31. References to fiscal ~~2017~~2021 refer to the fiscal year ending ~~February 3, 2018.~~January 29,
2022. References to the fiscal quarters or first nine months ended October ~~28, 2017,~~30, 2021 and October ~~29, 2016,~~31, 2020 refer to the ~~three~~thirteen and ~~nine months~~thirty-nine week periods ended ~~respectively,~~ as of those ~~dates.~~dates, respectively.

Impact of the COVID-19 Pandemic on our Business

As of the date of filing this Quarterly Report on Form 10-Q (this "Report"), there remain many uncertainties regarding the ongoing COVID-19 pandemic (the "pandemic"), including the anticipated duration and severity of the pandemic, particularly in light of ongoing vaccination efforts and emerging variant strains of the virus. To date, the pandemic has had far-reaching impacts on many aspects of the operations of the Company, directly and indirectly, including on consumer behavior, store traffic, operational capabilities and our operations generally, timing of deliveries, demands on our information technology and e-commerce capabilities, inventory and expense management, managing our workforce, our storefront configurations and operations upon reopening, and our people, which have materially disrupted our business and the market generally. The scope and nature of these impacts continue to evolve. With the current resurgence of COVID-19, we may experience adverse impacts in the future, including similar impacts we have previously experienced during the pandemic, such as regional quarantines, labor stoppages and shortages, changes in consumer purchasing patterns, mandatory or elective shut-downs of retail locations, disruptions to supply chains, including the inability of our suppliers and service providers to deliver materials and services on a timely basis, or at all, severe market volatility, liquidity disruptions, and overall economic instability, which, in many cases, had, and may in the future continue to have, material adverse impacts on our business, financial condition and results of

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operations. This situation is continually evolving, and additional impacts may arise that we are not aware of currently, or current impacts may become magnified.

Note 2: Summary of Significant Accounting Policies

Information regarding our significant accounting policies is contained in Note 2, “Summary of Significant Accounting Policies”, of the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January ~~28, 2017.~~30, 2021.

~~Recently Adopted Accounting Standard~~Revenue Recognition

~~On January 29, 2017,~~Revenue is recognized for store sales when the customer receives and pays for the merchandise at the register, net of estimated returns. Taxes collected from our customers are recorded on a net basis. For e-commerce sales, we ~~adopted Financial Accounting Standards Board (the "FASB") Accounting Standards Update ("ASU") No. 2016-09,~~ ~~Improvements~~recognize revenue, net of sales taxes and estimated sales returns, and the related cost of goods sold at the time the merchandise is shipped to ~~Employee Share-Based Payment Accounting, which simplifies~~ the ~~accounting~~customer. Amounts related to shipping and ~~reporting for share-based compensation, including~~handling that are billed to customers are reflected in net sales, and the ~~accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as the classification~~related costs are reflected in cost of goods sold in the ~~statement~~Consolidated Statements of ~~cash flows.~~ Operations.

The following table summarizes net sales from our retail stores and e-commerce (in thousands):


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Retail stores	$	165,255	$	104,546	$	457,557	$	235,358
E-commerce	40,841		35,729		113,648		118,051
Total net sales	$	206,096	$	140,275	$	571,205	$	353,409

The following table summarizes the percentage of net sales by department:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Mens	37	%	36	%	36	%	35	%
Womens	25	%	26	%	27	%	27	%
Accessories	18	%	16	%	16	%	16	%
Footwear	10	%	12	%	11	%	13	%
Boys	5	%	5	%	5	%	5	%
Girls	4	%	4	%	4	%	4	%
Hardgoods	1	%	1	%	1	%	—	%
Total net sales	100	%	100	%	100	%	100	%

The following table summarizes the percentage of net sales by third-party and proprietary branded merchandise:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Third-party	68	%	73	%	70	%	75	%
Proprietary	32	%	27	%	30	%	25	%
Total net sales	100	%	100	%	100	%	100	%

We ~~elected to account~~accrue for ~~forfeitures~~estimated sales returns by customers based on historical sales return results. As of October 30, 2021, January 30, 2021 and October 31, 2020, our reserve for sales returns was $2.3 million, $1.4 million and $1.5 million, respectively.

We recognize revenue from gift cards as they ~~occur, rather than estimate expected forfeitures.~~are redeemed for merchandise. Prior to redemption, we maintain a current liability for unredeemed gift card balances. The ~~adoption of ASU 2016-09 resulted in a cumulative-effect adjustment of $0.2~~customer liability balance was $7.9 million, ~~decrease to retained earnings~~$9.6 million and ~~a $0.2~~$7.4 million ~~increase to additional paid-in-capital~~ as of October 30, 2021, January ~~29, 2017, related~~30, 2021 and October 31, 2020, respectively, and is included in deferred revenue on the accompanying Consolidated Balance Sheets. Our gift cards do not have expiration dates and in most cases there is no legal obligation to ~~the recognition~~remit unredeemed gift cards to relevant jurisdictions. Based on actual historical redemption patterns, we determined that a small percentage of ~~previously estimated expected forfeitures using the modified retrospective method. We adopted the cash flow presentation which requires excess tax benefits~~gift cards are unlikely to be ~~presented~~redeemed (which we refer to as ~~an operating activity rather than a financing activity. The adoption of this update did not have an effect on our consolidated results of operations.~~

gift card “breakage”). Based

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~~New Accounting Standards Not Yet Adopted~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ (“ASU 2014-09”), along with amendments issued in 2015 and 2016, which amends the existing accounting standards for revenue recognition. ASU 2014-09 outlines principles that govern revenue recognition at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09, which will become effective for us in the first quarter of fiscal 2018, may be applied retrospectively for each period presented (the "full retrospective method") or retrospectively with the cumulative effect recognized in the opening retained earnings balance in fiscal year 2018 (the "modified retrospective method"). We currently anticipate adopting the standard using the modified retrospective method. We are in the process of evaluating the overall impact of adopting the new standard on our ~~consolidated financial statements. Based on our preliminary assessment, we have determined that the adoption will change the timing of recognition of~~historical gift card breakage ~~income, which is currently recognized when the probability of~~rate, we recognize breakage revenue over the redemption ~~is remote~~period in proportion to actual gift card redemptions. Revenue recognized from gift cards was $2.9 million and $2.7 million for the thirteen weeks ended October 30, 2021 and October 31, 2020, respectively. For the thirteen weeks ended October 30, 2021 and October 31, 2020, the opening gift card balance was $7.9 million and $7.7 million, respectively, of which $0.6 million and $1.2 million respectively, was recognized as revenue during the respective periods. Revenue recognized from gift cards was $10.1 million and $8.1 million for the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively. For the thirty-nine weeks ended October 30, 2021 and October 31, 2020, the opening gift card balance was $9.6 million and $9.3 million, respectively, of which $4.0 million and $3.7 million, respectively, was recognized as revenue during the respective periods.

We have a customer loyalty program where customers accumulate points based on purchase activity. Once a loyalty member achieves a certain point level, the member earns an award that may be used towards the purchase of merchandise. Unredeemed awards and accumulated partial points are accrued as deferred revenue and awards redeemed by the member for merchandise are recorded inas an increase to net sales. The new guidance will require recognition of gift card breakage income proportionately in net sales as redemptions occur. The new guidance also requires enhanced disclosures, such as disaggregation of revenuesOur loyalty program allows customers to redeem their awards instantly or build up to additional awards over time. We currently expire unredeemed awards and ~~revenue recognition policies that require significant judgment and identification of performance obligations to customers. Based on our preliminary assessment, we currently do not expect~~accumulated partial points 365 days after the ~~adoption of this update to have a material effect on our consolidated results of operations.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ ~~(Accounting Standards Codification 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases~~last purchase activity. A liability is estimated based on the ~~principle~~standalone selling price of ~~whether or not~~awards and partial points earned and estimated redemptions. The deferred revenue for this program was $5.7 million, $3.9 million and $3.6 million as of October 30, 2021, January 30, 2021 and October 31, 2020, respectively. The value of points redeemed through our loyalty program was $2.8 million and $1.9 million for the ~~lease is effectively a financed purchase by~~thirteen weeks ended October 30, 2021 and October 31, 2020, respectively. For the ~~lessee. This classification will determine whether lease expense is~~thirteen weeks ended October 30, 2021 and October 31, 2020, the opening loyalty program balance was $5.1 million and $1.7 million, respectively, of which $1.4 million and $0.5 million, respectively, was recognized ~~based on an effective interest method or on a straight-line basis over~~as revenue during the ~~term~~respective periods. The value of points redeemed through our loyalty program was $7.7 million and $4.2 million for the ~~lease. A lessee is also required to record a right-of-use asset~~thirty-nine weeks ended October 30, 2021 and ~~a lease liability for all leases with a term~~October 31, 2020, respectively. For the thirty-nine weeks ended October 30, 2021 and October 31, 2020, the opening loyalty program balance was $3.9 million and $2.4 million, respectively, of ~~greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. ASU 2016-02,~~ which ~~will become effective for us in~~$3.7 million and $1.6 million, respectively, was recognized as revenue during the ~~first quarter of fiscal 2019, with early adoption permitted, must be adopted using the modified retrospective method. The new standard is expected to impact our consolidated financial statements as we~~respective periods.

Leases

We conduct all of our retail sales and corporate operations in leased facilities. WeLease terms for our stores are generally for ten years (subject to elective extensions) and provide for escalations in base rents. Many of our store leases contain one or more options to renew the lease at our sole discretion. Generally, we do not consider any additional renewal periods to be reasonably certain of being exercised.

Most store leases include tenant allowances from landlords, rent escalation clauses and/or contingent rent provisions. Certain leases provide for additional rent based on a percentage of sales and annual rent increases generally based upon the Consumer Price Index. In addition, most of our store leases are net leases, which typically require us to be responsible for certain property operating expenses, including property taxes, insurance, common area maintenance, in addition to base rent. Many of our store leases contain certain co-tenancy provisions that permit us to pay rent based on a pre-determined percentage of sales when the occupancy of the retail center falls below minimums established in the ~~process~~lease. For non-cancelable operating lease agreements, operating lease assets and operating lease liabilities are established for leases with an expected term greater than one year and we recognize lease expense on a straight-line basis. Contingent rent, determined based on a percentage of ~~evaluating~~sales in excess of specified levels, is recognized as rent expense when the achievement of the specified sales that triggers the contingent rent is probable.

In response to stores being closed to the public as a result of the COVID-19 pandemic, we elected to withhold payment of our contractual lease obligations with respect to certain stores for the periods we were unable to operate such stores. We have substantially completed negotiating COVID-19 related lease concessions for most of our stores, with less than 10 stores and $0.4 million of withheld rents remaining unresolved as of October 30, 2021. These agreements have generally resulted in a combination of rent abatements and/or rent deferrals. With respect to all of our stores, we continue to have ongoing conversations with our landlords generally regarding what we believe to be commercially reasonable lease concessions given the current environment. We have considered the Financial Accounting Standards Board's (“FASB”) guidance regarding COVID-19 lease concessions and have elected to account for the lease concessions that have been granted as lease modifications.

We lease approximately 172,000 square feet of office and warehouse space (10 and 12 Whatney, Irvine, California) from a company that is owned by the co-founders of Tillys. During the thirteen and thirty-nine week periods ended October 30, 2021, we incurred rent expense of $0.5 million and $1.5 million, respectively, related to this lease. During the thirteen and thirty-nine week periods ended October 31, 2020, we incurred rent expense of $0.5 million and $1.6 million, respectively, related to this lease. Our lease began in January 1, 2003 and terminates on December 31, 2027.

We lease approximately 26,000 square feet of office and warehouse space (11 Whatney, Irvine, California) from a company that is owned by one of the co-founders of Tillys. During each of the thirteen and thirty-nine week periods ended October 30, 2021 and October 31, 2020, we incurred rent expense of $0.1 million and $0.3 million, respectively, related to this lease.

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Pursuant to the lease agreement, the lease payment adjusts annually based upon the Los Angeles/Anaheim/Riverside Urban Consumer Price Index, with the adjustment not to be below 3% nor exceed 7% in any one annual increase. The lease began on June 29, 2012 and terminates on June 30, 2022.

We lease approximately 81,000 square feet of office and warehouse space (17 Pasteur, Irvine, California) from a company that is owned by one of the co-founders of Tillys. We use this property as our e-commerce distribution center. During the thirteen and thirty-nine week periods ended October 30, 2021, we incurred rent expense of $0.3 million and $0.7 million, respectively, related to this lease. During the thirteen and thirty-nine week periods ended October 31, 2020, we incurred rent expense of $0.2 million and $0.7 million, respectively, related to this lease. Pursuant to the lease agreement, the lease payment adjusts annually based upon the Los Angeles/Anaheim/Riverside Urban Consumer Price Index, with the adjustment not to be below 3% nor exceed 7% in any one annual increase. The lease began on November 1, 2011 with a 10-year term ending on October 31, 2021. During October 2021, this lease was amended to extend the term for an additional period of 10 years and now terminates on October 31, 2031. Pursuant to the amended lease agreement, the lease payment adjusts annually based upon the greater of 5% or the Consumer Price Index.

The maturity of operating lease liabilities as of October 30, 2021 were as follows (in thousands):


Fiscal Year	Related Party		Other		Total
2021	$	917	$	16,786	$	17,703
2022	3,434		63,734		67,168
2023	3,416		53,211		56,627
2024	3,543		42,667		46,210
2025	3,676		33,484		37,160
Thereafter	13,582		69,115		82,697
LeaseAndRentalExpense	28,568		278,997		307,565
Less: Amount representing interest	4,361		44,580		48,941
Present value of operating lease liabilities	$	24,207	$	234,417	$	258,624

As of October 30, 2021, additional operating lease contract modifications executed subsequent to the balance sheet date, but prior to the filing date, are approximately $2.3 million.

Lease expense for the thirteen and thirty-nine week periods ended October 30, 2021 and October 31, 2020 was as follows (in thousands):


	Thirteen Weeks Ended October 30, 2021						Thirteen Weeks Ended October 31, 2020
	Cost of goods sold		SG&A		Total		Cost of goods sold		SG&A		Total
Fixed operating lease expense	$	14,998	$	415	$	15,413	$	14,829	$	409	$	15,238
Variable lease expense	4,907		15		$	4,922	4,663		12		4,675
Total lease expense	$	19,905	$	430	$	20,335	$	19,492	$	421	$	19,913


	Thirty-Nine Weeks Ended October 30, 2021						Thirty-Nine Weeks Ended October 31, 2020
	Cost of goods sold		SG&A		Total		Cost of goods sold		SG&A		Total
Fixed operating lease expense	$	45,055	$	1,240	$	46,295	$	45,229	$	1,212	$	46,441
Variable lease expense	13,642		16		13,658		12,907		62		12,969
Total lease expense	$	58,697	$	1,256	$	59,953	$	58,136	$	1,274	$	59,410

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Supplemental lease information for the thirty-nine weeks ended October 30, 2021 and October 31, 2020 was as follows:


	Thirty-Nine Weeks Ended October 30, 2021	Thirty-Nine Weeks Ended October 31, 2020
Cash paid for amounts included in the measurement of operating lease liabilities (in thousands)	$51,823	$36,694
Weighted average remaining lease term (in years)	5.6 years	5.8 years
Weighted average interest rate (1)	6.16%	4.64%

(1) Since our leases do not provide an implicit rate, we used our incremental borrowing rate ("IBR") on date of adoption, at lease inception, or lease modification in determining the present value of future minimum payments.

During the second quarter of fiscal 2021, we identified and corrected an immaterial error in our balance sheets whereby we previously presented our operating lease assets on a net basis rather than presenting any negative operating lease asset balances as a separate operating lease liability. As such, during the third quarter of fiscal 2021, we have presented the corrected balances herein as of January 30, 2021 and October 31, 2020, for which there was a $2.0 million and $1.1 million gross-up of both operating lease assets and operating lease liabilities as of the respective dates. Further, we have presented the corrected Statement of Cash Flows for the thirty-nine weeks ended October 31, 2020 for which there was no net impact on net cash provided by operating activities.

Income Taxes

Our income tax expense was $17.9 million, or 25.5% of pre-tax income, compared to an income tax benefit of $(6.4) million, or 39.2% of pre-tax loss, for the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively. The decrease in the effective income tax rate was primarily due to deferred income tax benefits of $1.0 million derived from employee stock option exercise activity in fiscal 2021, and the prior year impact of ~~adopting~~the CARES Act which provided for net operating losses in fiscal 2020 to be carried back to earlier tax years with higher tax rates.

New Accounting Standards Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which modifies or replaces existing models for impairment of trade and other receivables, debt securities, loans, beneficial interests held as assets, purchased-credit impaired financial assets and other instruments. The new standard requires entities to measure expected losses over the life of the asset and recognize an allowance for estimated credit losses upon recognition of the financial instrument. ASU 2016-13 will become effective for us in the first quarter of fiscal 2023, with early adoption permitted and must be adopted using the modified retrospective method. We expect the new rules to apply to our fixed income securities recorded at amortized cost and classified as held-to-maturity and our trade receivables. We do not expect the adoption of this new standard to have a material impact on our consolidated financial ~~statements.~~statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting of Income Taxes ("ASU 2019-12"), which enhances and simplifies various aspects of income tax accounting guidance. The guidance is effective for annual periods after December 15, 2020. The Company adopted ASU 2019-12 in the first quarter of fiscal 2021. The impact this guidance has on our consolidated financial statements and related disclosures is immaterial.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact this guidance may have on our consolidated financial statements and related disclosures.

Note 3: Marketable Securities

Marketable securities as of October ~~28, 2017~~30, 2021 consisted of commercial paper, classified as available-for-sale, and fixed income securities, ~~that~~classified as held-to-maturity, as we have the intent and ability to hold them to ~~maturity, are classified as held-to-maturity.~~maturity. Our investments in commercial paper and fixed income securities are recorded at fair value and amortized cost, respectively, which approximates fair ~~value, respectively.~~value. All of our marketable securities are less than one year from maturity.

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The following table summarizes our investments in marketable securities at October ~~28, 2017,~~30, 2021, January ~~28, 2017~~30, 2021 and October ~~29, 2016~~31, 2020 (in thousands):


	October 28, 2017							October 30, 2021
	Cost or Amortized Cost		Gross Unrealized Holding Gains		Estimated Fair Value			Cost or Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Estimated Fair Value
Commercial paper	$	59,607	$	161	$	59,768	Commercial paper	$	64,261	$	12	$	(1)	$	64,272
Fixed income securities	23,193		—		23,193		Fixed income securities	31,965		—		—		31,965
Total marketable securities							Total marketable securities	$	96,226	$	12	$	(1)	$	96,237
	$	82,800	$	161	$	82,961
								January 30, 2021
								Cost or Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Estimated Fair Value
Commercial paper							Commercial paper	$	64,928	$	28	$	(1)	$	64,955

Total marketable securities							Total marketable securities	$	64,928	$	28	$	(1)	$	64,955

	January 28, 2017							October 31, 2020
	Cost or Amortized Cost		Gross Unrealized Holding Gains		Estimated Fair Value			Cost or Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Estimated Fair Value
Commercial paper	$	44,785	$	107	$	44,892	Commercial paper	$	24,950	$	25	$	—	$	24,975
Fixed income securities	10,031		—		10,031		Fixed income securities	1,012		—		—		1,012
	$	54,816	$	107	$	54,923

	October 29, 2016
	Cost or Amortized Cost		Gross Unrealized Holding Gains		Estimated Fair Value
Commercial paper	$	54,781	$	94	$	54,875
Fixed income securities	7,040		—		7,040
	$	61,821	$	94	$	61,915
Total marketable securities							Total marketable securities	$	25,962	$	25	$	—	$	25,987

We recognized gains on investments for commercial paper that matured during the ~~three~~thirteen and ~~nine months~~thirty-nine week periods ended October ~~28, 2017.~~30, 2021 and October 31, 2020. Upon recognition of the gains, we reclassified these amounts out of ~~accumulated other comprehensive income~~Accumulated Other Comprehensive Income and into “Other (expense) income, net” on the Consolidated Statements of ~~Income.~~Operations.

The following table summarizes our gains on investments for commercial paper (in thousands):


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Gains on investments	$	19	$	—	$	91	$	554

Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
Gains on investments $ 182
$ 57
$ 397
$ 164

Note 4: ~~Line of~~Asset-Backed Credit Facility

~~Our~~On November 9, 2020 (the “Closing Date”), we entered into an asset-backed credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association ("Bank"), as lender, administrative agent and collateral agent (the “Agent”). The Credit Agreement replaced our then-existing amended and restated credit agreement (the “Prior Credit Agreement”), dated as of May 3, 2012, as amended, with ~~Wells Fargo Bank, N.A. (the "Bank")~~the Agent.

The Credit Agreement provides for ~~a $25.0~~an asset-based, senior secured revolving credit facility of up to $65.0 million consisting of revolving ~~line~~loans, letters of credit and swing line loans provided by lenders, with a ~~maturity~~sub limit on credit outstanding at any time of $10.0 million and a sub limit for swing line loans of $7.5 million.The Credit Agreement also includes an uncommitted accordion feature whereby we may increase the revolving commitment by an aggregate amount not to exceed $12.5 million, subject to certain conditions.The revolving facility matures on November 9, 2023. The payment and performance in full of the secured obligations under the revolving facility are secured by a lien on and security interest in all of the assets of our Company.

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established by the Agent, and adjusted by the appraised value of such eligible in-transit inventory (not to exceed 10% of the total amount of all eligible inventory included in the borrowing base) less (d) reserves established by the Agent.

The unused portion of the revolving commitment accrues a commitment fee, which ranges from 0.375% to 0.50% per annum, based on the average daily borrowing capacity under the revolving facility over the applicable fiscal quarter. Borrowings under the revolving facility bear interest at a rate per annum that ranges from the LIBOR rate plus 2.0% to the LIBOR rate plus 2.25%, or the base rate plus 1.0% to the base rate plus 1.25%, based on the average daily borrowing capacity under the revolving facility over the applicable fiscal quarter. We may elect to apply either the LIBOR rate or base rate interest to borrowings at our discretion, other than in the case of swing line loans, to which the base rate shall apply.

Under the Credit Agreement, we are subject to a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including a financial covenant relating to availability, and customary events of default. Prior to the first anniversary of the Closing Date, we were prohibited from declaring or paying any cash dividends to our respective stockholders or repurchasing of our own common stock. After the first anniversary of the Closing Date, we are allowed to declare and pay cash dividends to our respective stockholders and repurchase our own common stock, provided, among other things, no default or event of default exists as of the date of any such payment and after giving effect thereto and certain minimum availability and minimum projected availability tests are satisfied.

On June ~~26, 2020.~~8, 2021, we entered into a Consent Agreement authorizing us to declare and pay cash dividends to our shareholders of up to $31 million in the aggregate on or before July 31, 2021. We paid a one-time special cash dividend of $1.00 per share on July 9, 2021, to all holders of record of issued and outstanding common stock in the aggregate of $30.7 million.

In connection with the entry into the Credit Agreement, on November 9, 2020, we entered into certain ancillary agreements, including (i) a security agreement in favor of the Agent, and (ii) a guaranty by us in favor of the Agent. The security agreement and the guaranty replaced (i) the general pledge agreement, dated as of May 3, 2012, by us in favor of the bank, (ii) the continuing guaranty by us in favor of the Agent, dated May 3, 2012, and (iii) the amended and restated security agreement with respect to equipment and the amended and restated security agreement with respect to rights to payment and inventory, in each case, dated as of May 3, 2012.

As of October 30, 2021, we were in compliance with all of our covenants, were eligible to borrow up to a total of $63.0 million, and had no outstanding borrowings under the Credit Agreement.

The Prior Credit Agreement was terminated concurrently with the entry into the Credit Agreement. The interest rate charged on borrowings isunder the Prior Credit Agreement was selected at our discretion at the time of draw between ~~the London Interbank Offered Rate,~~LIBOR plus 0.75%, or at the Bank’s prime rate. The agreement allows for the declaration and payment of dividends or distributions to stockholders, subject to certain limitations. On January 31, 2017, our Board of Directors declared a special cash dividend of $0.70 per share to all holders of record of issued and outstanding shares of both Class A and Class B common stock as of the close of business on February 15, 2017. Payment of the dividendPrior Credit Agreement was ~~made on February 24, 2017. The line of credit is~~ secured by substantially all of our assets. ~~As a sub-feature~~In March 2020, we borrowed $23.7 million under our Prior Credit Agreement, which represented the ~~credit agreement, the Bank may also issue stand-by and/or commercial letters of credit up to $15.0 million.~~maximum borrowings permitted thereunder, and which were subsequently repaid in September 2020.

We are required to maintain certain financial and non-financial covenants in accordance with the line of credit. The financial covenants require certain levels of leverage and profitability, such as (i) income before income taxes not to be less than $1.0 million (calculated at the end of each fiscal quarter on a trailing 12-month basis), (ii) a maximum ratio of 4.00 to 1.00 as of each quarter end for “Funded Debt to EBITDAR”, defined as the sum of total debt, capital leases and annual rent expense multiplied by six divided by the sum of net income, interest expense, taxes, depreciation, amortization and annual rent expense on a trailing 12-month basis, and (iii) requires minimum eligible inventory, cash, cash equivalents and marketable securities totaling $50.0 million as of the end of each quarter. In addition, maximum investment in fixed assets in any fiscal year of $50.0 million.

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In September 2016, we established a $750,000 standby letter of credit as security against insurance claims as required by our workers compensation insurance policy. There has been no activity under this letter of credit since its inception.

~~As of October 28, 2017, we were in compliance with all of our covenants and had no outstanding borrowings under the revolving credit facility.~~

Note 5: Commitments and Contingencies

From time to time, we may become involved in lawsuits and other claims arising from our ordinary course of business. We ~~have established loss provisions of approximately $7.5 million for matters in which losses are probable and can be reasonably estimated. For some matters, we~~ are currently unable to predict the ultimate outcome, determine whether a liability has been incurred or make an estimate of the reasonably possible liability that could result from an unfavorable outcome because of the uncertainties related to the incurrence, amount and range of loss on any pending litigation or claim. Because of the unpredictable nature of these matters, we cannot provide any assurances regarding the outcome of any litigation or claim to which we are a party or that the ultimate outcome of any of the matters threatened or pending against us, including those disclosed below, will not have a material adverse effect on our financial condition, results of operations or cash flows.

Juan Carlos Gonzales, on behalf of himself and all others similarly situated, v. Tilly’s Inc. et al, Superior Court of California, County of Orange, Case No. ~~30-2017-00948710-CU-OE-CXC.~~30-2017-00948710-CU-OE-CXC. In October 2017, the plaintiff filed a putative class action against us, alleging various violations of California’s wage and hour laws. The complaint seeks class certification, unspecified damages, unpaid wages, penalties, restitution, interest, and attorneys’ fees and costs. ~~We intend~~In December 2017, we filed an answer to ~~defend this case vigorously.~~

~~Lauren Minniti, on behalf~~the complaint, denying all of ~~herself~~the claims and ~~all others similarly situated, v. Tilly’s, Inc., United States District Court, Southern District of Florida, Case No. 0:17-cv-60237-FAM. On January 30, 2017,~~asserting various defenses. In April 2018, the plaintiff filed a ~~putative~~separate action under the Private Attorneys General Act ("PAGA") against us seeking penalties on behalf of himself and other similarly situated employees for the same alleged violations of California's wage and hour laws. We requested the plaintiff to dismiss the class action ~~lawsuit against us, alleging violations~~claims based on an existing class action waiver in an arbitration agreement which plaintiff signed with our co-defendant, BaronHR, the staffing company that employed plaintiff to work at the Company. In June 2018, the plaintiff's class action complaint was dismissed. The parties mediated the PAGA case with a well-respected mediator in March 2020. Although the case did not settle at the mediation, the parties have agreed to continue their settlement discussions with the assistance of the ~~Telephone Consumer Protection Act~~mediator. The court has not yet issued a trial date. By agreement between co-defendant BaronHR and Tilly's, BaronHR is required to indemnify us for all of ~~1991 (the “TCPA”). Specifically, the complaint asserts~~our losses and expenses incurred in connection with this matter. We have defended this case vigorously, and will continue to do so. We believe that a ~~violation of the TCPA for allegedly sending unsolicited automated messages~~loss is currently not probable or estimable under ASC 450, “Contingencies,” and no accrual has been made with regard to the ~~cellular telephones~~verdict.

Table of the plaintiff and others. The complaint seeks class certification and damages of $500 per violation plus treble damages under the TCPA. We filed our initial response to this matter with the court in March 2017. The parties attended a mediation in June 2017. In July 2017, the parties reached an agreement in principle to settle this matter, subject to court approval and the execution of a final settlement agreement.Contents

Skylar Ward, on behalf of herself and all others similarly situated, v. Tilly’s, Inc., Superior Court of California, County of Los Angeles, Case No. BC595405.In September 2015, the plaintiff filed a putative class action lawsuit against us alleging, among other things, various violations of California's wage and hour laws. The complaint sought class certification, unspecified damages, unpaid wages, penalties, restitution, and attorneys' fees. In June 2016, the court granted our demurrer to the plaintiff's complaint on the grounds that the plaintiff failed to state a cause of action against ~~Tilly's~~us and dismissed the complaint. Specifically, the court agreed with us that the plaintiff's cause of action for reporting-time pay fails as a matter of law as the plaintiff and other putative class members did not "report for work" with respect to certain shifts on which the plaintiff's claims are based. In November 2016, the court entered a written order sustaining our demurrer to the plaintiff's complaint and dismissing all of plaintiff’s causes of action with prejudice. In January 2017, the plaintiff filed an appeal of the order to the California Court of Appeal. In February 2019, the Court of Appeal issued an opinion overturning the trial court’s decision, holding that the plaintiff’s allegations stated a claim. In March 2019, we filed a petition for review with the California Supreme Court seeking its discretionary review of the Court of Appeal’s decision. The California Supreme Court declined to review the Court of Appeal’s decision. Since the case was remanded back to the trial court, the parties have been engaged in discovery. In March 2020, the plaintiff filed a motion for class certification. In July 2020, we filed our opposition to the motion for class certification. In September 2020, the plaintiff filed her ~~opening appellate~~reply brief onin support of the motion for class certification. In October ~~2, 2017,~~2020, the court denied plaintiff's motion for class certification. In December 2020, the plaintiff filed a notice of appeal of the court's order denying her motion for class certification. On October 15, 2021, the plaintiff filed a request for dismissal of her appeal. On October 20, 2021, the Court of Appeal dismissed plaintiff’s appeal and ~~our responding appellate brief is due~~issued a remittitur to ~~be filed in December 2017.~~return the case to the trial court. As a result, the case currently consists solely of the plaintiff’s individual claims. We have defended this case vigorously, and will continue to do so.

~~Karina Whitten, on behalf of herself~~ We believe that a loss is currently not probable or estimable under ASC 450, “Contingencies,” and ~~all others similarly situated, v. Tilly’s Inc.~~, ~~Superior Court of California, County of Los Angeles, Case No. BC548252~~. In June 2014, the plaintiff filed a putative class action and representative Private Attorney General Act of 2004 lawsuit against us alleging violations of California’s wage and hour, meal break and rest break rules and regulations, and unfair competition law, among other things. The complaint sought class certification, penalties, restitution,

injunctive relief and attorneys’ fees and costs. The plaintiff filed a first amended complaint in December 2014. We answered the complaint in January 2015, denying all allegations. We engaged in mediation in May 2016, and the parties reached a resolution that was presentedno accrual has been made with regard to the court for preliminary approval in September 2016. The court preliminarily approved the settlement in October 2016, and notice of the settlement was issued to class members. Upon completion of the claims process, the court approved the final settlement in February 2017. We concluded this matter with the payment of the final settlement in April 2017. The final settlement amount was not materially different from the amount previously accrued when a loss provision was established. verdict.

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for the remaining maximum exposure loss of $1.4 million relating to this matter. We will utilize all available rights of offset to reduce our loss, including the enforcement of the security interest we have in the vendor's intellectual property.

Note 6: Fair Value Measurements

We determine fair value based on a three-level valuation hierarchy as described below. Fair value is defined as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. The three-level hierarchy of inputs used to determine fair value is as follows:

•Level 1 – Quoted prices in active markets for identical assets and liabilities.

•Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 – Unobservable inputs (i.e., projections, estimates, interpretations, etc.) that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure certain financial assets at fair value on a recurring basis, including our marketable securities, which are classified as ~~either~~ available-for-sale, ~~or held-to-maturity securities,~~ and certain cash equivalents, specifically money market securities, and commercial ~~paper and bonds.~~paper. The money market accounts are valued based on quoted market prices in active ~~markets.~~markets (Level 1). The marketable securities are valued based on other observable inputs for those securities (including market corroborated pricing or other models that utilize observable inputs such as interest rates and yield curves) based on information provided by independent ~~third party entities.~~third-party entities (Level 2).

From time to time, we measure certain assets at fair value on a non-recurring basis, including evaluation of long-lived assets for impairment using Company specific assumptions which would fall within Level 3 of the fair value hierarchy.

Fair value calculations contain significant judgments and estimates, which may differ from actual results due to, among other things, economic conditions, changes to the business model or changes in operating performance.

During the ~~three~~thirteen and ~~nine months~~thirty-nine week periods ended October ~~28, 2017~~30, 2021 and October ~~29, 2016,~~31, 2020, we did not make any transfers between Level 1 and Level 2 financial assets. Furthermore, as of October ~~28, 2017,~~30, 2021, January ~~28, 2017~~30, 2021 and October ~~29, 2016,~~31, 2020, we did not have any Level 3 financial assets. We conduct reviews on a quarterly basis to verify pricing, assess liquidity and determine if significant inputs have changed that would impact the fair value hierarchy disclosure.

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Financial Assets

We have categorized our financial assets based on the priority of the inputs to the valuation technique for the instruments as follows (in thousands):


	October 30, 2021						January 30, 2021						October 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Cash equivalents (1):
Money market securities	$	52,532	$	—	$	—	$	67,115	$	—	$	—	$	93,045	$	—	$	—

Marketable securities:
Commercial paper	$	—	$	64,272	$	—	$	—	$	64,955	$	—	$	—	$	24,975	$	—

October 28, 2017 January 28, 2017 October 29, 2016
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Cash equivalents (1):

Money market securities $ 33,960
$ —
$ —
$ 76,177
$ —
$ —
$ 42,008
$ —
$ —
Commercial paper —
—
—
—
4,993
—
—
—
—
Fixed income securities —
—
—
—
—
—
—
2,005
—
Marketable securities:
Commercial paper $ —
$ 59,768
$ —
$ —
$ 44,892
$ —
$ —
$ 54,875
$ —
Fixed income securities —
23,193
—
—
10,031
—
—
7,040
—

(1) Excluding cash.

Impairment of Long-Lived Assets

An impairment is recorded on a long-lived asset used in operations whenever events or changes in circumstances indicate that the net carrying amounts for such asset may not be recoverable. Important factors that could result in an impairment review include, but are not limited to, significant under-performance relative to historical or planned operating results, significant changes in the manner of use of the assets, a decision to relocate or permanently close a store, or significant changes in our business strategies.

An evaluation is performed using

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estimated undiscounted future cash flows from operating activities compared to the carrying value of related assets for the individual stores. If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized for the difference between the carrying value and the estimated fair value of the assets based on the discounted cash flows of the assets using a rate that approximates our weighted average cost of capital. With regard to retail store assets, which are comprised of leasehold improvements, fixtures, ~~and~~ computer hardware and software, and operating lease assets, we consider the assets at each individual retail store to represent an asset group. In addition, we have considered the relevant valuation techniques that could be applied without undue cost and effort and have determined that the discounted estimated future cash flow approach provides the most relevant and reliable means by which to determine fair value in this circumstance.

On a quarterly basis, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable. During the ~~nine months~~thirty-nine weeks ended October ~~28, 2017,~~30, 2021, based on Level 3 inputs of historical operating performance, including sales trends, gross margin rates, current cash flows from operations and the projected outlook for each of our stores, we determined that ~~four~~1 of our stores would not be able to generate sufficient cash flows over the remaining term of the related ~~leases~~lease to recover our investment in the respective ~~stores.~~store. As a result, we recorded ~~non-cash~~$0.1 million impairment charges ~~during the three and nine months ended October 28, 2017 of approximately $0.4 million and $0.8 million, respectively,~~ to write-down the carrying value of certain long-lived store assets to their estimated fair values.


	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	October 30, 2021	October 31, 2020	October 30, 2021	October 31, 2020
	($ in thousands)

Carrying value of assets with impairment	$—	$26	$176	$929
Fair value of assets impaired	$—	$—	$40	$—
Number of stores tested for impairment	1	34	12	52
Number of stores with impairment	—	2	1	12

Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
($ in thousands)
Carrying value of assets with impairment $397 $440 $848 $2,136
Fair value of assets impaired $— $— $— $173
Number of stores tested for impairment 7 9 10 15
Number of stores with impairment 2 2 4 8

Note 7: Share-Based Compensation

The Tilly's, Inc. 2012 Second Amended and Restated Equity and Incentive Plan, as amended in June ~~2014~~2020 (the "2012 Plan"), authorizes up to ~~4,413,900~~6,613,900 shares for issuance of options, shares or rights to acquire our Class A common stock and allows for, among other things, operating income and comparable store sales growth targets as additional performance goals that may be used in connection with performance-based awards granted under the 2012 Plan. As of October ~~28, 2017,~~30, 2021, there were ~~1,754,639~~2,282,115 shares ~~still~~ available for future issuance under the 2012 Plan.

Stock Options

We grant stock options to certain employees that give them the right to acquire our Class A common stock under the 2012 Plan. The exercise price of options granted is equal to the closing price per share of our stock at the date of grant. The ~~nonqualified~~ non qualified

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options vest at a rate of 25% on each of the first four anniversaries of the grant date provided that the award recipient continues to be employed by us through each of those vesting dates, and expire ten years from the date of grant.

The following table summarizes ~~the~~ stock option activity for the ~~nine months~~thirty-nine weeks ended October ~~28, 2017~~30, 2021 (aggregate intrinsic value in thousands):


	Stock Options	Grant Date Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value (1)
Outstanding at January 31, 2021	2,602,212	$	8.19
Granted	513,700	$	10.84
Exercised	(1,161,571)	$	7.86
Forfeited	(273,479)	$	9.24
Expired	(32,000)	$	16.26
Outstanding at October 30, 2021	1,648,862	$	8.91	7.6	$	8,383
Exercisable at October 30, 2021	486,792	$	10.50	4.8	$	1,844

Stock
Options

Grant Date
Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Life (in Years)

Aggregate
Intrinsic
Value (1)
Outstanding at January 28, 2017 1,842,375
$ 9.98

Granted 406,000
$ 8.71

Exercised (38,125 ) $ 7.53

Forfeited (59,000 ) $ 8.92

Expired (17,500 ) $ 14.02

Outstanding at October 28, 2017 2,133,750
$ 9.78
7.2 $ 6,839
Vested and expected to vest at October 28, 2017 2,133,750
$ 9.78
7.2 $ 6,839
Exercisable at October 28, 2017 989,500
$ 12.28
5.5 $ 1,395

~~Table~~(1)Intrinsic value for stock options is defined as the difference between the market price of ~~Contents~~our Class A common stock on the last business day of the fiscal period and the weighted average exercise price of in-the-money stock options outstanding at the end of the fiscal period. The market value per share was $13.88 at October 30, 2021.


~~(1)~~	Intrinsic value for stock options is defined as the difference between the market price of our Class A common stock on the last business day of the fiscal quarter and the weighted average exercise price of in-the-money stock options outstanding at the end of each fiscal period. The market value per share was $12.41 at October 28, 2017.

The stock option awards were measured at fair value on the grant date using the Black-Scholes option valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, expected volatility of our stock over the option’s expected term, the risk-free interest rate over the option’s expected term and our expected annual dividend yield, if any. We account for forfeitures as they occur. We ~~will~~ issue shares of Class A common stock when ~~the options~~stock option awards are exercised.

The fair values of stock options granted during the ~~three~~thirteen and ~~nine months~~thirty-nine weeks ended October ~~28, 2017~~30, 2021 and October ~~29, 2016~~31, 2020 were estimated on the grant date using the following assumptions:


	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	October 30, 2021	October 31, 2020	October 30, 2021	October 31, 2020
Weighted average grant-date fair value per option granted	$7.96	$4.04	$5.69	$2.19
Expected option term (1)	5.3 years	5.7 years	5.4 years	5.3 years
Weighted average expected volatility factor (2)	59.4%	59.9%	59.9%	57.5%
Weighted average risk-free interest rate (3)	1.0%	0.3%	0.9%	0.4%
Expected annual dividend yield (4)	—%	—%	—%	—%

Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
Weighted average grant-date fair value per option granted * $4.85 $4.02 $3.68
Expected option term (1) * 5.0 years
5.0 years
5.0 years
Weighted average expected volatility factor (2) * 67.3 % 51.4 % 62.7 %
Weighted average risk-free interest rate (3) * 1.2 % 1.9 % 1.3 %
Expected annual dividend yield * — % — % — %
(1)The expected option term of the awards represents the estimated time that options are expected to be outstanding based upon historical option data.

* No(2)Stock volatility for each grant is measured using the historical daily price changes of our common stock ~~options were granted during~~over the ~~three months ended October 28, 2017.~~most recent period equal to the expected option term of the awards.

(3)The risk-free interest rate is determined using the rate on treasury securities with the same term as the expected life of the stock option as of the grant date.


~~(1)~~	We have limited historical information regarding expected option term. Accordingly, we determine the expected option term of the awards using the latest historical data available from comparable public companies and management’s expectation of exercise behavior.


~~(2)~~	Stock volatility for each grant is measured using the weighted average of historical daily price changes of our common stock over the most recent period equal to the expected option term of the awards.


~~(3)~~	~~The risk-free interest rate is determined using the rate on treasury securities with the same term as the expected life of the stock option as of the grant date.~~

(4)We do not currently have a dividend policy.

Restricted Stock Awards

Restricted stock awards ("RSAs") represent restricted shares of our common stock issued upon the date of grant in which the recipient's rights in the stock are restricted until the shares are ~~vested, and restricted stock units ("RSUs") represent a commitment to issue shares of our common stock in the future upon vesting.~~vested. Under the 2012 Plan, we ~~may~~ grant RSAs to independent members of our Board of ~~Directors and RSUs to certain employees.~~Directors. RSAs granted to our Board of Directors vest at a rate of 50% on each of the first two anniversaries of the grant date provided that the respective award recipient continues to serve on our Board of Directors through each of those vesting dates. RSUs granted to certain employees vest at a rate of 25% on each of the first four anniversaries of the grant date provided that the respective recipient continues to be employed by us through each of those vesting dates. We determine the fair value of ~~restricted stock underlying the~~ RSAs ~~and RSUs~~ based upon the closing price of our Class A common stock on the date of grant.

~~A summary~~

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The following table summarizes the status of ~~non-vested restricted stock changes~~RSAs during the ~~nine months~~thirty-nine weeks ended October ~~28, 2017 are presented below:~~30, 2021:


	Restricted Stock	Weighted Average Grant-Date Fair Value
Nonvested at January 30, 2021	71,548	$	6.71
Granted	19,988	$	16.01
Vested	(46,072)	$	6.95
Nonvested at October 30, 2021	45,464	$	10.56

Restricted
Stock

Weighted
Average
Grant-Date
Fair Value
Nonvested at January 28, 2017 166,960
$ 12.12
Granted 23,100
$ 10.39
Vested (74,528 ) $ 11.09
Forfeited (6,000 ) $ 16.07
Nonvested at October 28, 2017 109,532
$ 12.24

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~~Stock-based~~Share-based compensation expense associated with stock options and restricted stock is recognized on a straight-line basis over the ~~vesting~~requisite service period. The following table summarizes ~~stock-based~~share-based compensation expense recorded in the Consolidated Statements of ~~Income~~Operations (in thousands):


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Cost of goods sold (1)	$	75	$	147	$	119	$	434
Selling, general and administrative expenses	446		361		1,298		1,083
Total share-based compensation expense	$	521	$	508	$	1,417	$	1,517

Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
Cost of goods sold $ 146
$ 165
$ 447
$ 706
Selling, general and administrative expenses 432
372
1,326
1,289
Stock-based compensation $ 578
$ 537
$ 1,773
$ 1,995
(1)Share-based compensation expense for the thirty-nine weeks ended October 30, 2021 includes forfeiture credits due to the departure of the Company's prior Chief Merchandising Officer effective March 19, 2021.

At October ~~28, 2017,~~30, 2021, there was ~~$4.2~~$4.4 million of total unrecognized ~~stock-based~~share-based compensation expense related to unvested stock options and restricted stock. This cost has a weighted average remaining recognition period of ~~2.3~~2.7 years.

Note 8: ~~Income~~Earnings (Loss) Per Share

~~Income~~Earnings (loss) per share is computed under the provisions of ASC 260, Earnings Per Share. Basic income (loss) per share is computed based on the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares (i.e., in-the-money outstanding stock options as well as RSAs) outstanding during the period using the treasury stock method, whereby proceeds from such exercise, unamortized compensation and hypothetical excess tax benefits, if any, on share-based awards are assumed to be used by us to purchase the common shares at the average market price during the period. ~~Potentially dilutive shares of common stock represent outstanding stock options and RSAs.~~

The components of basic and diluted ~~income~~earnings (loss) per share ~~are~~were as follows (in thousands, except per share amounts):


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Net income (loss)	$	20,834	$	2,113	$	52,191	$	(10,016)
Weighted average basic shares outstanding	30,915		29,708		30,429		29,693
Dilutive effect of stock options and restricted stock	437		102		587		—
Weighted average shares for diluted earnings per share	31,352		29,810		31,016		29,693
Basic earnings (loss) per share of Class A and Class B common stock	$	0.67	$	0.07	$	1.72	$	(0.34)
Diluted earnings (loss) per share of Class A and Class B common stock	$	0.66	$	0.07	$	1.68	$	(0.34)

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Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
Net income $ 8,757
$ 6,417
$ 8,000
$ 5,106
Weighted average basic shares outstanding 28,782
28,482
28,746
28,456
Dilutive effect of stock options and restricted stock 249
45
208
20
Weighted average shares for diluted income per share 29,031
28,527
28,954
28,476
Basic income per share of Class A and Class B common stock $ 0.30
$ 0.23
$ 0.28
$ 0.18
Diluted income per share of Class A and Class B common stock $ 0.30
$ 0.22
$ 0.28
$ 0.18

The following stock options ~~and restricted stock~~ have been excluded from the calculation of diluted ~~income~~earnings (loss) per share as the effect of including these stock options ~~and restricted stock~~ would have been anti-dilutive (in thousands):


	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	October 30, 2021	October 31, 2020	October 30, 2021	October 31, 2020
Stock options	677	1,503	800	2,597
Restricted stock	—	—	20	72
Total	677	1,503	820	2,669

Note 9: Subsequent Events

On November 18, 2021, our Board of Directors declared a special cash dividend of $1.00 per share to all holders of issued and outstanding shares of both Class A and Class B common stock as of the close of business on December 7, 2021. Payment of the dividend will be made on December 15, 2021.

Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
Stock options 1,282
1,529
1,291
2,029
Restricted stock 56
102
56
102
Total 1,338
1,631
1,347
2,131

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Tilly’s, Inc. included in Part III Item 1 of this Quarterly Report on Form 10-Q (this "Report") and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended January ~~28, 2017.~~30, 2021. As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms ~~“company”~~“the Company”, “World of Jeans & Tops”, “we”, “our”, “us”, "Tillys" and “Tilly’s” refer to Tilly’s, Inc. and its subsidiary.

~~Cautionary Statement Regarding Forward-Looking Statements~~

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate”, “believe”, “can”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “project”, “seek”, “should”, “target”, “will”, “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. These forward-looking statements are subject to numerous risks and uncertainties, including the risks and uncertainties described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017, those identified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q, and in other filings we may make with the Securities and Exchange Commission from time to time. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.

Overview

Tillys is a destination specialty retailer of casual apparel, footwear, accessories and ~~accessories~~hardgoods for ~~young~~ men, ~~young~~ women, boys and girls. We ~~offer~~believe we bring together an ~~extensive assortment~~unparalleled selection of iconic global, emerging, and proprietary brands rooted in an active and ~~social~~outdoor lifestyle. The Tillys ~~started operations~~concept began in 1982, when our co-founders, Hezy Shaked and Tilly Levine, opened our first store in Orange County, California. As of October ~~28, 2017,~~30, 2021, we operated ~~220~~243 stores in 33 states, averaging ~~7,600~~approximately 7,300 square feet ~~in 31 states.~~per store, compared to 238 total stores last year at this time. We also sell our products through our e-commerce website, www.tillys.com.

Known or Anticipated Trends

~~The retail industry~~COVID-19 Pandemic

As of the date of filing this Report, there remain many uncertainties regarding the ongoing COVID-19 pandemic (the "pandemic"), including the anticipated duration and severity of the pandemic, particularly in light of ongoing vaccination efforts and emerging variant strains of the virus. To date, the pandemic has ~~experienced a general downward trend in customer traffic to physical stores for an extended period~~had far-reaching impacts on many aspects of ~~time. Conversely, online shopping has generally increased~~the operations of the Company, directly and ~~resulted in sustained online sales growth. We believe these market trends will continue, despite the improvement in~~indirectly, including on consumer behavior, store traffic, ~~that~~operational capabilities and our operations generally, timing of deliveries, demands on our information technology and e-commerce capabilities, inventory and expense management, managing our workforce, our storefront configurations and operations upon reopening, and our people, which have materially disrupted our business and the market generally. The scope and nature of these impacts continue to evolve. With the continued challenges posed by the pandemic, we may experience adverse impacts in the future, including similar impacts we have previously experienced during the ~~first nine months~~pandemic, such as regional quarantines, labor stoppages and shortages, changes in consumer purchasing patterns, mandatory or elective shut-downs of ~~fiscal 2017. There can be no guarantee~~retail locations, disruptions to supply chains, including the inability of our suppliers and service providers to deliver materials and services on a timely basis, or at all, severe market volatility, liquidity disruptions, and overall economic instability, which, in many cases, had, and may in the future continue to have, material adverse impacts on our business, financial condition and results of operations. This situation is continually evolving, and additional impacts may arise that ~~our recent improvement in store traffic will continue given the broader industry trends.~~we are not aware of currently, or current impacts may become magnified. As a result, we cannot reliably predict future business trends with any certainty at this time.

Supply Chain Disruptions

We ~~expect~~source a significant portion of our merchandise assortment from third parties who manufacture their products in countries that have experienced widespread issues with the COVID-19 pandemic, thereby significantly impacting the global supply chain for merchandise inventories. Additionally, disruptions in the global transportation network have intensified recently, particularly in certain Southern California receiving ports which handle a significant portion of United States merchandise imports. These issues are resulting in shipping delays and increased shipping costs throughout the retail industry, including for us. Any untimely delivery of merchandise could have a negative impact on our ability to ~~open two new stores~~serve our customers with the specific merchandise they want in the quantities they wish to purchase in a timely manner, including for the 2021 holiday season, thereby potentially resulting in lost sales. These supply chain issues, and ~~close three existing stores during~~ the media attention surrounding them, appear to be changing consumer shopping patterns to some extent, and are causing us to adjust our merchandise planning, allocation and pricing strategies from historical practices, among other impacts. We have been monitoring the situation very closely and have been in frequent contact with our key brand partners to acquire as much priority inventory as we can in anticipation of the holiday season and potential additional delivery delays. However, we are unable to predict the specific effects these factors will have on our fiscal 2021 fourth quarter net sales, results of operations, and our inventory position ending fiscal ~~2017. We will continue to focus our efforts on improving our existing stores,~~2021.

Preliminary Fiscal 2022 New Store Openings and ~~expanding our online/digital capabilities through omni-channel initiatives designed to provide a seamless shopping experience for our customers, whether in-store or online.~~Capital Expenditure Plans

During fiscal ~~2018,~~2022, we currently plan to open 10approximately 15 to 1520 new stores ~~as well as a limited number of RSQ-branded "pop-up" stores. We will leverage~~within existing markets, ~~where~~primarily in California, Texas and the Northeast, assuming we are able to negotiate what we believe to be acceptable lease economics. We expect our ~~brand recognition can~~total capital expenditures for fiscal 2022 to be ~~enhanced with~~in the range of approximately $25 million to $30 million, inclusive of our new ~~stores that are planned to drive additional improvement to our operating income.~~store plans, investments in website and mobile app upgrades, distribution efficiencies, and other information technology infrastructure investments.

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How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are net sales, comparable store sales, gross profit, selling, general and administrative ("SG&A") expenses and operating income.

~~Table of Contents~~

Net Sales

Net sales reflect revenue from the sale of our merchandise at store locations ~~as well as~~and through e-commerce, net of sales ~~of merchandise through our e-commerce platform, which is~~taxes. Store sales are reflected in sales when the merchandise is received by the customer. For e-commerce sales, we recognize revenue, and the related cost of goods sold at the time the merchandise is shipped to the customer. Net sales also include shipping and handling fees for e-commerce shipments that have been ~~delivered~~shipped to the customer. Net sales are net of returns on sales during the period as well as an estimate of returns expected in the future stemming from current period sales. We recognize revenue from gift cards as they are redeemed for merchandise. Prior to redemption, we maintain a current liability for unredeemed gift card balances. Our gift cards do not have expiration dates and in most cases there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. Based on actual historical redemption patterns, we determined that a small percentage of gift cards are unlikely to be redeemed (which we refer to as "breakage"). Based on our historical gift card breakage rate, we recognize breakage revenue over the redemption period in proportion to actual gift card redemptions. Net sales are also adjusted for the unredeemed awards and accumulated partial points on our customer loyalty program. Revenue from the sale of gift cards is deferred and not included in net sales until the gift cards are used to purchase merchandise. However, over time, the redemption of some gift cards becomes remote (referred to as "gift card breakage"). Revenue from estimated gift card breakage is also included in net sales.

Our business is seasonal and as a result our revenues fluctuate from quarter to quarter. In addition, our revenues in any given quarter can be affected by a number of factors including the timing of holidays and weather patterns. The third and fourth quarters of the fiscal year, which include the back-to-school and holiday sales seasons, have historically produced stronger sales and disproportionately stronger operating results than have the first two quarters of the fiscal year.

Comparable Store Net Sales

Comparable store net sales is a measure that indicates the change in year-over-year comparable store net sales which allows us to evaluate how our store base is performing. Numerous factors affect our comparable store sales, including:

•overall economic trends;

•our ability to attract traffic to our stores and e-commerce platform;

•our ability to identify and respond effectively to consumer preferences and fashion trends;

•competition;

•the timing of our releases of new and seasonal styles;

•changes in our product mix;

•pricing;

•the level of customer service that we provide in stores and through our e-commerce platform;

•our ability to source and distribute products efficiently;

•calendar shifts of holiday or seasonal periods;

•the number and timing of new store openings and the relative proportion of new stores to mature stores; and

•the timing and success of promotional and advertising efforts.

~~Comparable~~Historically, our comparable store net sales are sales have included net sales from our e-commerce platform and stores open at least 12 full fiscal months as of the end of the current reporting period. However, as a result of the COVID-19 pandemic, our comparable store net sales for fiscal 2021 are defined as net sales from our e-commerce platform and stores open on a daily basis compared to the same respective fiscal dates of last year. A remodeled ~~relocated~~ or ~~refreshed~~relocated store is included in comparable store net sales, both during and after construction, if the square footage of the store used to sell merchandise was not changed by more than 20% and the store was not closed for remodel for more than five days in any fiscal month. We include net sales from our e-commerce platform as part of comparable store net sales as we manage and analyze our business on ~~a single~~an omni-channel basis and have substantially integrated our investments and operations for our stores and e-commerce platform to give our customers seamless access and increased ease of shopping. Comparable store sales exclude gift card breakage income and e-commerce shipping and handling fee revenue. Some of our competitors and other retailers may calculate comparable or “same store” sales differently than we do. As a result, data in this report regarding our comparable store sales may not be comparable to similar data made available by other retailers.

~~Table of Contents~~

Gross Profit

Gross profit is equal to our net sales less our cost of goods sold. Cost of goods sold reflects the direct cost of purchased merchandise as well as buying, distribution and occupancy costs. Buying costs include compensation and benefit expense for our internal buying organization. Distribution costs include costs for receiving, processing and warehousing our store and e-commerce merchandise, and shipping of merchandise to our stores, customers, or ~~from~~between our distribution and e-commerce fulfillment ~~centers and to our e-commerce customers and between store locations.~~centers. Occupancy costs include the rent, common area maintenance, utilities, property taxes, security and

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depreciation costs of all store locations. These costs are significant and can be expected to continue to increase as our company grows. The components of our reported cost of goods sold may not be comparable to those of other retail companies.

We regularly analyze the components of gross profit as well as gross profit as a percentage of net sales. Specifically we look at the initial markup on purchases, markdowns and reserves, shrinkage, buying costs, distribution costs and occupancy costs. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns or a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the buying, distribution and occupancy components of cost of goods sold could have an adverse impact on our gross profit and results of operations.

Gross profit is also impacted by shifts in the proportion of sales of proprietary branded products compared to third-party branded products, as well as by sales mix shifts within and between brands and between major product departments such as ~~'young men's and women's apparel',~~mens apparel, womens apparel, footwear or accessories. A substantial shift in the mix of products could have a material impact on our results of operations. In addition, gross profit and gross profit as a ~~percent~~percentage of net sales have historically been higher in the third and fourth quarters of the fiscal year, as these periods include the back-to-school and winter holiday selling seasons. In those periods, various costs, such as occupancy costs, generally do not increase in proportion to the seasonal sales increase.

Selling, General and Administrative Expenses

Our ~~selling, general and administrative, or~~ SG&A expenses are composed of store selling expenses and corporate-level general and administrative expenses. Store selling expenses include store and regional support costs, including personnel, advertising and debit and credit card processing costs, e-commerce receiving and processing costs and store supplies costs. General and administrative expenses include the payroll and support costs of corporate functions such as executive management, legal, accounting, information systems, human resources, ~~impairment charges and~~ other centralized ~~services.~~services, and impairment charges. Store selling expenses generally vary proportionately with net sales and store growth. In contrast, general and administrative expenses are generally not directly proportional to net sales and store growth, but will be expected to increase over time to support the needs of our growing company. SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods.

Operating Income (Loss)

Operating income (loss) equals gross profit less SG&A expenses. Operating income (loss) excludes interest income, interest expense and income taxes. Operating income (loss) percentage measures operating income (loss) as a percentage of our net sales.

We believe that drawing specific conclusions from comparative financial performance against fiscal 2020 results may be misleading given the various impacts of the COVID-19 pandemic. Further, it is challenging to predict future performance trends with any certainty due to many continuing unknowable factors in the current environment. These factors include but are not limited to:

•how the pandemic may continue to impact consumer habits and global supply chains;

•how the continuation or cessation of federal or state/local stimulus payments may continue to impact consumer spending;

•how store performance will continue to evolve over a longer period of time, particularly against the strong operating results from stores during fiscal 2021; and

•how our e-commerce business will perform relative to the significant increases in store net sales we have experienced during fiscal 2021.

The extent to which the COVID-19 pandemic and our response thereto may impact our business, financial condition, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this time. For more details, see Item 1A. “Risk Factors - Risks Related to Our Business” within our most recently filed Annual Report on Form 10-K and the discussions elsewhere in this Report.

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Results of Operations

The following tables summarize key components of our unaudited results of operations for the periods indicated, both in dollars (in thousands) and as a percentage of our net ~~sales.~~

Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016

Statements of Operations Data:
Net sales $ 152,824
$ 152,106

$ 412,581

$ 408,736
Cost of goods sold 102,730
104,137

288,653

289,343
Gross profit 50,094
47,969

123,928

119,393
Selling, general and administrative expenses 35,982
37,302

111,384

110,460
Operating income 14,112
10,667

12,544

8,933
Other income, net 375
103

810

270
Income before income taxes 14,487
10,770

13,354

9,203
Income tax expense 5,730
4,353

5,354

4,097
Net income $ 8,757
$ 6,417

$ 8,000

$ 5,106

Percentage of Net Sales:
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 67.2 % 68.5 % 70.0 % 70.8 %
Gross profit 32.8 % 31.5 % 30.0 % 29.2 %
Selling, general and administrative expenses 23.5 % 24.5 % 27.0 % 27.0 %
Operating income 9.2 % 7.0 % 3.0 % 2.2 %
Other income, net 0.2 % 0.1 % 0.2 % 0.1 %
Income before income taxes 9.5 % 7.1 % 3.2 % 2.3 %
Income tax expense 3.7 % 2.9 % 1.3 % 1.0 %
Net income 5.7 % 4.2 % 1.9 % 1.2 %
sales:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 30, 2021			October 31, 2020			October 30, 2021			October 31, 2020
Statements of Operations Data:
Net sales	$	206,096		$	140,275		$	571,205		$	353,409
Cost of goods sold	129,357			99,615			364,900			269,481
Gross profit	76,739			40,660			206,305			83,928
Selling, general and administrative expenses	47,742			37,122			136,007			101,082
Operating income (loss)	28,997			3,538			70,298			(17,154)
Other (expense) income, net	(1)			(28)			(219)			692
Income (loss) before income taxes	28,996			3,510			70,079			(16,462)
Income tax expense (benefit)	8,162			1,397			17,888			(6,446)
Net income (loss)	$	20,834		$	2,113		$	52,191		$	(10,016)

Percentage of Net Sales:
Net sales	100.0		%	100.0		%	100.0		%	100.0		%
Cost of goods sold	62.8		%	71.0		%	63.9		%	76.3		%
Gross profit	37.2		%	29.0		%	36.1		%	23.7		%
Selling, general and administrative expenses	23.2		%	26.5		%	23.8		%	28.6		%
Operating income (loss)	14.1		%	2.5		%	12.3		%	(4.9)		%
Other (expense) income, net	0.0		%	0.0		%	0.0		%	0.2		%
Income (loss) before income taxes	14.1		%	2.5		%	12.3		%	(4.7)		%
Income tax expense (benefit)	4.0		%	1.0		%	3.1		%	(1.8)		%
Net income (loss)	10.1		%	1.5		%	9.1		%	(2.8)		%

The following table presents store operating data for the periods indicated:


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	October 30, 2021			October 31, 2020			October 30, 2021			October 31, 2020
Operating Data:
Stores operating at end of period	243			238			243			238
Comparable store net sales change (1)	31.3		%	(1.4)		%	18.2		%	4.3		%
Total square feet at end of period (in '000s)	1,781			1,753			1,781			1,753
Average net sales per physical store (in '000s) (2)	$	678		$	439		$	1,892		$	987
Average net sales per square foot (2)	$	93		$	60		$	258		$	134
E-commerce revenues (in '000s) (3)	$	40,841		$	35,729		$	113,648		$	118,051
E-commerce revenues as a percentage of net sales	19.8		%	25.5		%	19.9		%	33.4		%

Three Months Ended Nine Months Ended
October 28,
2017 October 29,
2016 October 28,
2017 October 29,
2016
Operating Data:
Stores operating at end of period 220
225
220
225
Comparable store sales change (1)
1.5 % 4.4 % 1.5 % 0.7 %
Total square feet at end of period (in thousands) 1,681
1,716
1,681
1,716
Average net sales per brick-and-mortar store (in thousands) (2)
$ 606
$ 594
$ 1,625
$ 1,595
Average net sales per square foot (2)
$ 79
$ 78
$ 213
$ 210
E-commerce revenues (in thousands) (3)
$ 18,996
$ 18,408
$ 52,101
$ 49,934
E-commerce revenues as a percentage of net sales 12.4 % 12.1 % 12.6 % 12.2 %
(1)Historically, comparable store net sales have included net sales from our e-commerce platform and stores open at least 12 full fiscal months as of the end of the current reporting period. However, as a result of the COVID-19 pandemic, our comparable store net sales for fiscal 2021 are defined as sales from our e-commerce platform and stores open on a daily basis compared to the same respective fiscal dates last year. A remodeled or relocated store is included in comparable store net sales, both during and after construction, if the square footage of the store used to sell merchandise was not changed by more than 20% and the store was not closed for remodel for more than five days in any fiscal month. We include sales from our e-commerce platform as part of our comparable store net sales as we manage and analyze our business on an omni-channel basis and have substantially integrated our investments and operations for our stores and e-commerce platform to give our customers seamless access and increased ease or shopping. Comparable store net sales exclude gift card breakage income, and e-commerce shipping and handling fee revenue.

~~(1)~~

Comparable store sales are net sales from stores that have been open at least 12 full fiscal months as of the end of the current reporting period. A remodeled or relocated store is included in comparable store sales, both during and after construction, if the square footage of the store was not changed by more than 20% and the store was not closed for more than five days in any fiscal month. Comparable store sales include sales through our e-commerce platform but exclude gift card breakage income, deferred revenue on loyalty program and e-commerce shipping and handling fee revenue.


~~(2)~~	~~E-commerce sales, e-commerce shipping and handling fee revenue and gift card breakage are excluded from net sales in deriving average net sales per brick-and-mortar store.~~


~~(3)~~	~~E-commerce revenues include e-commerce sales and e-commerce shipping fee revenue.~~

(2)The number of stores and the amount of square footage reflect the number of days during the period that stores were open. E-commerce sales, e-commerce shipping and handling fee revenue and gift card breakage income are excluded from net sales in deriving average net sales per retail store and average net sales per square foot.

(3)E-commerce revenues include e-commerce sales and e-commerce shipping and handling fee revenue.

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Third Quarter (13 Weeks) Ended October ~~28, 2017~~30, 2021 Compared to Third Quarter (13 Weeks) Ended October ~~29, 2016~~

31, 2020

Net Sales

Total net sales were $206.1 million, an increase of $65.8 million, or 46.9%, compared to $140.3 million for the corresponding period last year.

•Net sales from physical stores were ~~$152.8~~$165.3 million, inan increase of $60.7 million or 58.1%, compared to $104.6 million last year with a much more normalized back-to-school season this year and no pandemic-forced store closures during the quarter. Net sales from stores represented 80.2% of total net sales compared to 74.5% of total net sales last year. The Company ended the third quarter ~~of fiscal 2017~~with 243 total stores compared to ~~$152.1 million in~~238 total stores at the end of the third quarter ~~of fiscal 2016,~~last year.

•Net sales from e-commerce were $40.8 million, an increase of ~~$0.7~~$5.1 million or ~~0.5%.~~

~~The increases in~~14.3%, compared to $35.7 million last year. E-commerce net sales ~~were attributed to an increase in comparable store sales~~represented 19.8% of ~~1.5%, driven by an increase in store traffic and e-commerce growth as compared to the third quarter of fiscal 2016. E-commerce revenues represented 12.4% of our~~ total net sales ~~or $19.0 million, in the third quarter of fiscal 2017 as~~ compared to ~~12.1%, or $18.4 million, in the third quarter~~25.5% of ~~fiscal 2016. Our comparable store~~total net sales ~~growth was characterized by strength in our branded mens and boys merchandise assortments, partially offset by fashion weakness in our girls' assortment.~~last year.

Gross Profit

Gross profit was ~~$50.1 million in the third quarter of fiscal 2017 compared to $48.0 million in the third quarter of fiscal 2016, an increase of $2.1~~$76.7 million, or ~~4.4%. Gross margin, or gross profit as a percentage~~37.2% of net sales, ~~was 32.8% during the third quarter~~compared to $40.7 million, or 29.0% of ~~fiscal 2017~~net sales, last year. Buying, distribution and ~~31.5% during the third quarter of fiscal 2016. The comparable changes~~occupancy costs improved by 690 basis points collectively, despite increasing by $2.7 million in ~~gross margin were as follows:~~



%	~~Attributable to~~
~~1.0%~~	~~Decrease in buying, distribution and occupancy costs of $1.3 million~~
~~0.3%~~	~~Increase in product margins primarily due to lower markdowns as a result of more efficient inventory management~~
~~1.3%~~	~~Total~~

total, due to leveraging these costs against higher net sales. Occupancy costs improved by 540 basis points despite increasing by $0.5 million with 5 net new stores. Distribution costs improved by 110 basis points despite increasing by $2.1 million. Buying costs improved by 40 basis points despite increasing by $0.1 million. Product margins improved by 130 basis points versus last year due to lower markdowns.

Selling, General and Administrative Expenses

SG&A expenses were ~~$36.0 million in the third quarter of fiscal 2017 compared to $37.3 million in the third quarter of fiscal 2016, a decrease of $1.3~~$47.7 million, or ~~3.5%. As a percentage~~23.2% of net sales, ~~SG&A expenses were 23.5% for the third quarter of fiscal 2017~~ compared to ~~24.5% during the third quarter~~$37.1 million, or 26.5% of ~~fiscal 2016.~~net sales, last year. The components of the SG&A ~~decrease,~~variances, both in terms of percentage of net sales and total dollars, were as follows:

% $ millions Attributable to
(0.6)% $(0.9) Decrease in marketing spend
(0.3)% (0.4) Decrease in corporate payroll and benefits
(0.1)% — Decrease in all other SG&A expenses as a percentage of sales
(1.0)% $(1.3) Total


%	$ millions	Primarily Attributable to
0.3%	$7.6	Increase in store payroll and related benefits due to operating all stores for the entirety of this year’s third quarter and serving higher net sales.
0.9%	1.8	Corporate bonus accruals due to strong operating performance to date in fiscal 2021.
(0.5)%	1.2	Increase in marketing expenses.
(4.0)%	—	Net change in all other SG&A expenses.
(3.3)%	$10.6	Total

Operating Income

Operating income ~~was $14.1~~improved to $29.0 million, or ~~9.2%~~14.1% of net sales, ~~in the third quarter of fiscal 2017~~ compared to ~~$10.7~~$3.5 million, or ~~7.0%~~2.5% of net sales, for the ~~third quarter of fiscal 2016.~~corresponding period last year. The increase in operating income was primarily due to the factors noted above.

Income Tax Expense

Income tax expense was ~~$5.7~~$8.2 million, or 28.1% of pre-tax income, compared to $1.4 million, or 39.8% of pre-tax income, last year. The decrease in the ~~third quarter~~effective income tax rate was primarily due to the prior year impact of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which provided for net operating losses in fiscal ~~2017 compared~~2020 to ~~$4.4 million in the third quarter of fiscal 2016. Our effective~~be carried back to earlier tax ~~rates were 39.6% and 40.4% for third quarter of fiscal 2017 and third quarter of fiscal 2016, respectively.~~years with higher tax rates.

Net Income and Income Per Diluted Share

Net income ~~was $8.8~~improved to $20.8 million, ~~for the third quarter of fiscal 2017~~or $0.66 per diluted share, compared to ~~$6.4~~$2.1 million, ~~for~~or $0.07 per diluted share, last year as a result of the ~~third quarter of fiscal 2016, representing~~factors noted above.

Thirty-Nine Weeks Ended October 30, 2021 Compared to Thirty-Nine Weeks Ended October 31, 2020

Net Sales

Total net sales were $571.2 million, an increase of ~~$2.3~~$217.8 million or 61.6%, compared to $353.4 million last year.

•Net sales from physical stores were $457.6 million, an increase of $222.2 million or 94.4%, compared to $235.4 million last year, primarily due to the ~~factors discussed above. Diluted income per share was $0.30 for~~various periods of pandemic-forced store closures during the ~~third quarter~~first thirty-nine weeks of ~~fiscal 2017~~last year. Net sales from stores represented 80.1% of total net sales compared to ~~diluted income per share~~66.6% of ~~$0.22 for the third quarter of fiscal 2016.~~

total net sales last year.

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~~Nine Months Ended October 28, 2017 Compared to Nine Months Ended October 29, 2016~~

~~Net Sales~~

•Net sales from e-commerce were ~~$412.6~~$113.6 million, ~~in the first nine months~~a decrease of ~~fiscal 2017~~$(4.4) million or (3.7)%, compared to ~~$408.7~~$118.1 million last year, primarily due to the anniversary of last year's substantial increase in ~~the first nine months of fiscal 2016, an increase of $3.8 million, or 0.9%.~~

~~The increases in~~e-commerce net sales ~~were attributed to an increase in comparable~~during the period of pandemic-forced store closures. E-commerce net sales ~~of 1.5%, driven by an increase in store traffic and e-commerce growth as compared to the first nine months of fiscal 2016. E-commerce revenues~~ represented ~~12.6%~~19.9% of ~~our~~ total net sales ~~or $52.1 million, in the first nine months of fiscal 2017 as~~ compared to ~~12.2%, or $49.9 million, in the first nine months~~33.4% of ~~fiscal 2016. Our comparable store~~total net sales ~~growth was characterized by strength in our branded mens and boys merchandise assortments, partially offset by modest decreases in our womens, girls, footwear and accessories departments.~~last year.

Gross Profit

Gross profit was ~~$123.9 million in the first nine months of fiscal 2017 compared to $119.4 million in first nine months of fiscal 2016, an increase of $4.5~~$206.3 million, or ~~3.8%. Gross margin, or gross profit as a percentage~~36.1% of net sales, ~~was 30.0%~~compared to $83.9 million, or 23.7% of net sales, last year. Buying, distribution and ~~29.2% during the first nine months of fiscal 2017 and fiscal 2016, respectively. The comparable changes~~occupancy costs improved by 1050 basis points collectively, despite increasing by $5.9 million in ~~gross margin were as follows:~~



%	~~Attributable to~~
~~0.7%~~	~~Decrease in buying, distribution and occupancy costs of $2.1 million~~
~~0.1%~~	~~Increase in product margins primarily due to lower markdowns as a result of more efficient inventory management~~
~~0.8%~~	~~Total~~

total, due to leveraging these costs against higher net sales. Product margins improved by 190 basis points versus last year due to lower markdowns.

Selling, General and Administrative Expenses

SG&A expenses were ~~$111.4 million in the first nine months of fiscal 2017 compared to $110.5 million in the first nine months of fiscal 2016, an increase of $0.9~~$136.0 million or ~~0.8%. As a percentage~~23.8% of net sales, ~~SG&A expenses were 27.0% during the first nine months~~compared to $101.1 million, or 28.6% of ~~fiscal 2017 and fiscal 2016.The~~net sales, last year. The components of the SG&A ~~increase,~~variances, both in terms of percentage of net sales and total dollars, were as follows:

% $ millions Attributable to
1.2% $5.1 Net increase in year over year legal provisions
0.4% 1.6
Increase in expenses associated with several information technology system implementations

(0.9)% (3.4) Decrease in marketing spend
(0.3)% (1.1) Decrease in non-cash store asset impairment charges
(0.3)% (1.0) Decrease in corporate payroll and benefits
(0.1)% (0.3) Decrease in all other SG&A expenses
—% $0.9 Total


%	$ millions	Primarily Attributable to
(0.1)%	$24.0	Increase in store payroll and related benefits due to operating all stores for the entirety of fiscal 2021 and serving higher net sales.
1.0%	6.0	Corporate bonus accruals due to strong operating performance to date in fiscal 2021.
—%	2.4	Increase in credit card fees associated with higher net sales.
(1.2)%	2.2	Increase in marketing expenses.
(1.2)%	2.2	Increase in corporate payroll and related benefits due to being more fully staffed this year compared to significant furloughs and temporary management pay reductions last year.
(0.8)%	(3.4)	Net year-to-year decrease attributable to a $1.7 million disputed California sales tax assessment originally recorded in the third quarter of fiscal 2020 which was subsequently resolved in the company's favor and reversed in the first quarter of fiscal 2021.
(2.5)%	1.5	Net change in all other SG&A expenses.
(4.8)%	$34.9	Total

Operating Income

(Loss)

Operating income ~~was $12.5~~improved to $70.3 million, or ~~3.0%~~12.3% of net sales, compared to an operating loss of $(17.2) million, or (4.9)% of net sales, for the ~~first nine months of fiscal 2017 compared~~corresponding period last year. The increase in operating income was due to ~~$8.9 million, or 2.2% of net sales, for~~ the ~~first nine months of fiscal 2016.~~factors noted above.

Income Tax Expense (Benefit)

Income tax expense was ~~$5.4~~$17.9 million, or ~~40.1%~~25.5% of pre-tax income, ~~before taxes, for the first nine months of fiscal 2017~~ compared to ~~$4.1~~an income tax benefit of $(6.4) million, or ~~44.5%~~39.2% of ~~income before taxes, for the first nine months of fiscal 2016.~~pre-tax loss, last year. The decrease in ~~our~~the effective income tax rate ~~for the first nine months of fiscal 2017~~ was primarily due to ~~fewer discrete items related~~deferred income tax benefits of $1.0 million derived from employee stock option exercise activity in fiscal 2021, and the prior year impact of the CARES Act, which provided for net operating losses in fiscal 2020 to ~~the expiration of stock options, exercises of stock options and settlement of restricted stock during the first nine months of fiscal 2017.~~be carried back to earlier tax years with higher tax rates.

Net Income (Loss) and Income (Loss) Per Diluted Share

Net income ~~was $8.0~~improved to $52.2 million, ~~for the first nine months of fiscal 2017~~or $1.68 per diluted share, compared to ~~$5.1~~a net loss of $(10.0) million, ~~for the first nine months~~or $(0.34) per share, last year as a result of ~~fiscal 2016, due to~~ the factors ~~discussed~~noted above. ~~Basic and diluted income per share was $0.28 for the first nine months of fiscal 2017 compared to $0.18 for the first nine months of fiscal 2016.~~

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Liquidity and Capital Resources

Our business relies on cash flows from operating activities as well as cash on hand as our primary sources of liquidity. We currently expect to finance company operations, store growth and remodels, and all of our planned capital expenditures with existing cash on hand, marketable securities and cash flows from operations.

~~Our primary~~In addition to cash ~~needs~~and cash equivalents and marketable securities, the most significant components of our working capital are ~~for~~ merchandise inventories, ~~payroll, store rent~~accounts payable and ~~capital expenditures.~~accrued expenses. We ~~have historically provided for these needs~~believe that cash flows from ~~internally generated cash flows. In addition, we have access to additional liquidity through a $25.0 million revolving credit facility with Wells Fargo Bank, NA. We expect to continue to finance~~operating activities, our ~~operations from~~ cash and marketable securities on hand, ~~as well as~~and credit facility availability will be sufficient to cover our working capital requirements and anticipated capital expenditures for the next 12 months from the filing of this Report. If cash flows from operations ~~without borrowing under~~are not sufficient or available to meet our ~~revolving credit facility over~~capital requirements, then we will be required to obtain additional equity or debt financing in the ~~next twelve months.~~future. There can be no assurance that equity or debt financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our stockholders.

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Working Capital

Working capital at October ~~28, 2017,~~30, 2021, was ~~$118.1~~$109.0 million compared to ~~$129.8~~$78.0 million at January ~~28, 2017, a decrease~~30, 2021, an increase of ~~$11.7~~$31.0 million. The changes in our working capital during the first ~~nine months~~three quarters of fiscal ~~2017~~2021 were as follows:



$ millions			Description
$~~129.8~~78.0			Working capital at January ~~28, 2017~~30, 2021
~~(12.0)~~45.2			~~Decrease~~Increase in cash, cash equivalents, and marketable securities, primarily due to ~~the payment of a $20.1 million special dividend in February 2017~~higher net income.
~~0.3~~9.6			~~Net increase from changes~~Increase in ~~all other current assets and liabilities~~merchandise inventories, net of accounts payable.
~~$118.1~~8.6			Increase primarily due to timing of income tax payments.
(30.7)			Payment of special cash dividend.
(7.2)			Decrease primarily due to corporate bonus accruals and timing of accrued compensation and benefits.

5.5			Other net increases.
$109.0			Working capital at October ~~28, 2017~~30, 2021

Asset-Backed Credit Facility

On November 9, 2020 (the “Closing Date”), we entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association ("Bank"), as lender, administrative agent and collateral agent (the “Agent”). The Credit Agreement replaced our existing amended and restated credit agreement (the “Prior Credit Agreement”), dated as of May 3, 2012, as amended, with the Agent.

The Credit Agreement provides for an asset-based, senior secured revolving credit facility of up to $65.0 million consisting of revolving loans, letters of credit and swing line loans provided by lenders, with a sub limit on credit outstanding at any time of $10.0 million and a sub limit for swing line loans of $7.5 million.The Credit Agreement also includes an uncommitted accordion feature whereby we may increase the revolving commitment by an aggregate amount not to exceed $12.5 million, subject to certain conditions.The revolving facility matures on November 9, 2023. The payment and performance in full of the secured obligations under the revolving facility are secured by a lien on and security interest in all of the assets of our Company.

The maximum borrowings permitted under the revolving facility is equal to the lesser of (x) the revolving commitment and (y) the borrowing base. The borrowing base is equal to (a) 90% of the borrower's eligible credit card receivables, plus (b) 90% of the cost of the borrower's eligible inventory, less inventory reserves established by the Agent, and adjusted by the appraised value of such eligible inventory, plus (c) 90% of the cost of the borrower's eligible in-transit inventory, less inventory reserves established by the Agent, and adjusted by the appraised value of such eligible in-transit inventory (not to exceed 10% of the total amount of all eligible inventory included in the borrowing base) less (d) reserves established by the Agent.

Under the Credit Agreement, we are subject to a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including a financial covenant relating to availability, and customary events of default. Prior to the first anniversary of the Closing Date, we were prohibited from declaring or paying any cash dividends to our respective stockholders or repurchasing our own common stock. After the first anniversary of the Closing Date, we are allowed to declare and pay cash dividends to our respective stockholders and repurchase our own common stock, provided, among other things, no default or event of default exists as of the date of any such payment and after giving effect thereto and certain minimum availability and minimum projected availability tests are satisfied.

On June 8, 2021, we entered into a Consent Agreement authorizing us to declare and pay cash dividends to our shareholders of up to $31 million in the aggregate on or before July 31, 2021. We paid a one-time special cash dividend of $1.00 per share on July 9, 2021, to all holders of record of issued and outstanding common stock in the aggregate of $30.7 million.

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respect to equipment and the amended and restated security agreement with respect to rights to payment and inventory, in each case, dated as of May 3, 2012.

The Prior Credit Agreement was terminated concurrently with the entry into the Credit Agreement. No borrowings were outstanding under the Prior Credit Agreement as of the Closing Date. The interest rate charged on borrowings under the Prior Credit Agreement was selected at our discretion at the time of draw between LIBOR plus 0.75%, or at the Bank’s prime rate. The Prior Credit Agreement was secured by substantially all of our assets. In March 2020, we borrowed $23.7 million under our Prior Credit Agreement, which represented the maximum borrowings permitted thereunder, and which were subsequently repaid in September 2020.

As of October 30, 2021, we were in compliance with all of our covenants, were eligible to borrow up to a total of $63.0 million and had no outstanding borrowings under the Credit Agreement.

Impact of CARES Act on Company Liquidity

On March 27, 2020, the CARES Act was signed into law. The CARES Act includes tax provisions applicable to businesses, such as net operating losses, enhanced interest deductibility, optional deferral of deposits of payroll taxes, a refundable employee retention payroll tax credit and changes to the depreciation rules for qualified improvement property. As of October 30, 2021, pursuant to the CARES Act, we have deferred the deposit of certain payroll taxes, applied for certain tax credits and accelerated depreciation on qualified improvement property.

Cash Flow Analysis

A summary of operating, investing and financing activities for the thirty-nine weeks of fiscal 2021 compared to the thirty-nine weeks of fiscal 2020 is shown in the following table (in thousands):


	Nine Months Ended							Thirty-Nine Weeks Ended
	October 28, 2017			October 29, 2016				October 30, 2021		October 31, 2020
Net cash provided by operating activities	$	17,685		$	19,589		Net cash provided by operating activities	$	46,850	$	21,033
Net cash used in investing activities	(37,194		)	(26,513		)
Net cash (used in) provided by investing activities							Net cash (used in) provided by investing activities	(42,061)		37,816
Net cash used in financing activities	(20,573		)	(714		)	Net cash used in financing activities	(21,581)		(29,677)
Net decrease in cash and cash equivalents	$	(40,082	)	$	(7,638	)
Net (decrease) increase in cash and cash equivalents							Net (decrease) increase in cash and cash equivalents	$	(16,792)	$	29,172

Net Cash Provided Byby Operating Activities

Operating activities consist primarily of net income (loss) adjusted for non-cash items, ~~that include depreciation, asset impairment write-downs, deferred income taxes and share-based compensation expense,~~ plus the effect on cash of changes during the ~~year~~period in our assets and liabilities.

Net cash flows provided by operating activities were ~~$17.7~~$46.9 million ~~during the first nine months of fiscal 2017~~this year compared to ~~$19.6~~$21.0 million ~~in the first nine months of fiscal 2016.~~last year. The ~~$1.9~~$25.8 million ~~decrease~~increase in cash provided by operating activities was ~~primarily~~ due to higher net sales in fiscal 2021, which was primarily attributable to the ~~timing~~closure of ~~vendor payments.~~

all stores from mid-March to mid-May in fiscal 2020 as a result of the COVID-19 pandemic and the varying periods of ongoing store closures for certain stores that continued into October 2020.

Net Cash ~~Used In~~(Used In) Provided By Investing Activities

Cash flows from investing activities consist primarily of capital expenditures and maturities and purchases of marketable securities.

Net cash used in investing activities was ~~$37.2~~$42.1 million ~~during the first nine months of fiscal 2017~~this year compared to ~~$26.5~~$37.8 million ~~during the first nine months of fiscal 2016.~~provided by investing activities last year. Net cash used in investing activities in the first ~~nine months~~three quarters of fiscal ~~2017~~2021 consisted of ~~capital expenditures totaling $9.7 million and~~ purchases of marketable securities of ~~$112.6~~$126.4 million and capital expenditures totaling $10.9 million, partially offset by the maturities of marketable securities of $95.2 million. Net cash provided by investing activities during the first three quarters of fiscal 2020 consisted of proceeds from the maturities of marketable securities of ~~$85.1 million. Net cash used in investing activities during the first nine months of fiscal 2016 primarily consisted of capital expenditures totaling $14.8~~$75.2 million, ~~and~~partially offset by purchases of marketable securities of ~~$81.8~~$30.9 million ~~partially offset by proceeds from the maturities of marketable securities of $70.0~~and capital expenditures totaling $6.4 million.

Net Cash Used in Financing Activities

~~Cash flows used in financing~~Financing activities primarily consist ~~primarily~~ of cash dividend payments, ~~payments on~~borrowings and repayments of our ~~capital lease obligation~~line of credit, taxes paid in lieu of shares issued for share based compensation and proceeds from employee exercises of stock options.

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Net cash used in financing activities was ~~$20.6~~$21.6 million ~~during the first nine months of fiscal 2017~~this year compared to ~~$0.7~~$29.7 million ~~during the first nine months of fiscal 2016.~~last year. Financing activities in the first ~~nine months~~three quarters of fiscal ~~2017 primarily~~2021 consisted of dividends paid of ~~$20.1~~$30.7 million, ~~and cash payments on our capital lease obligation~~partially offset by proceeds from the exercise of ~~$0.7~~stock options of $9.1 million. Financing activities in the first ~~nine months~~three quarters of fiscal ~~2016 primarily~~2020 consisted of ~~cash payments on our capital lease obligation~~dividends paid of ~~$0.6 million.~~

~~Line of Credit~~

~~Our amended~~$29.7 million and ~~restated credit agreement with Wells Fargo Bank, N.A. (the "Bank") provides for a $25.0~~$23.7 million ~~revolving line of credit with a maturity date of June 26, 2020. The interest rate charged on~~in both borrowings ~~is selected at our discretion at the time of draw between the London Interbank Offered Rate, plus 0.75%, or at the Bank’s prime rate. The agreement allows for the declaration~~ and payment of dividends or distributions to stockholders. On January 31, 2017, our Board of Directors declared a special cash dividend of $0.70 per share to all holders of record of issued and outstanding shares of both Class A and Class B common stock as of the close of business on February 15, 2017. Payment of the dividend was made on February 24, 2017. The line of credit is secured by substantially all of our assets. As a sub-featurerepayments under the ~~credit agreement, the Bank may also issue stand-by and/or commercial letters~~Prior Credit Agreement.

Table of ~~credit up to $15.0 million.~~Contents

~~As of October 28, 2017, we were in compliance with all of our covenants and had no outstanding borrowings under the revolving credit facility.~~

Contractual Obligations

As of October ~~28, 2017,~~30, 2021, there were no material changes to our contractual obligations as described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the fiscal year ended January ~~28, 2017.~~

30, 2021.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, except for ~~operating leases,~~ purchase obligations and our revolving credit facility.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires the appropriate application of certain accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements. Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates. As noted elsewhere in this Report, the COVID-19 pandemic has had significant impacts on our business and the economy generally, making estimates and assumptions about future events far more difficult, if not impossible. A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January ~~28, 2017.~~30, 2021.

~~Recently Adopted Accounting Standard~~

~~On January 29, 2017, we adopted Financial Accounting Standards Board (the "FASB") Accounting Standards Update ("ASU") No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~, which simplifies the accounting and reporting for share-based compensation, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as the classification in the statement of cash flows. We elected to account for forfeitures as they occur, rather than

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estimate expected forfeitures. The adoption of ASU 2016-09 resulted in a cumulative-effect adjustment of $0.2 million decrease to retained earnings and a $0.2 million increase to additional paid-in-capital as of January 29, 2017, related to the recognition of previously estimated expected forfeitures using the modified retrospective method. We adopted the cash flow presentation which requires excess tax benefits to be presented as an operating activity rather than a financing activity. The adoption of this update did not have an effect on our consolidated results of operations.

~~New Accounting Standards Not Yet Adopted~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ (“ASU 2014-09”), along with amendments issued in 2015 and 2016, which amends the existing accounting standards for revenue recognition. ASU 2014-09 outlines principles that govern revenue recognition at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09, which will become effective for us in the first quarter of fiscal 2018, may be applied retrospectively for each period presented (the "full retrospective method") or retrospectively with the cumulative effect recognized in the opening retained earnings balance in fiscal year 2018 (the "modified retrospective method"). We currently anticipate adopting the standard using the modified retrospective method. We are in the process of evaluating the overall impact of adopting the new standard on our consolidated financial statements. Based on our preliminary assessment, we have determined that the adoption will change the timing of recognition of gift card breakage income, which is currently recognized when the probability of the redemption is remote and recorded in net sales. The new guidance will require recognition of gift card breakage income proportionately in net sales as redemptions occur. The new guidance also requires enhanced disclosures, such as disaggregation of revenues, revenue recognition policies that require significant judgment and identification of performance obligations to customers. Based on our preliminary assessment, we currently do not expect the adoption of this update to have a material effect on our consolidated results of operations.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (Accounting Standards Codification 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. ASU 2016-02, which will become effective for us in the first quarter of fiscal 2019, with early adoption permitted, must be adopted using the modified retrospective method. The new standard is expected to impact our consolidated financial statements as we conduct all of our retail sales and corporate operations in leased facilities. We are in the process of evaluating the impact of adopting the new standard on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of October ~~28, 2017,~~30, 2021, there were no material changes in the market risks described in the “Quantitative and Qualitative Disclosure of Market Risks” section of our Annual Report on Form 10-K for the fiscal year ended January ~~28, 2017.~~30, 2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, ~~with the participation of our Disclosure Committee,~~ including our Chief Executive Officer and our Chief Financial Officer, with the participation of our Disclosure Committee, evaluated the effectiveness of our disclosure controls and procedures as of October ~~28, 2017.~~30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of October ~~28, 2017,~~30, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

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Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because

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of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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Part II. Other Information

Item 1. Legal Proceedings

The information contained in “Note 5: Commitments and Contingencies” to our consolidated financial statements included in this Report is incorporated by reference into this Item.

From time to time, we may become involved in lawsuits and other claims arising from our ordinary course of business. We have established loss provisions of approximately $7.5 million for matters in which losses are probable and can be reasonably estimated. For some matters, we are currently unable to predict the ultimate outcome, determine whether a liability has been incurred or make an estimate of the reasonably possible liability that could result from an unfavorable outcome because of the uncertainties related to the incurrence, amount and range of loss on any pending litigation or claim. Because of the unpredictable nature of these matters, we cannot provide any assurances regarding the outcome of any litigation or claim to which we are a party or that the ultimate outcome of any of the matters threatened or pending against us, including those disclosed below, will not have a material adverse effect on our financial condition, results of operations or cash flows.

~~Juan Carlos Gonzales, on behalf of himself and all others similarly situated, v. Tilly’s Inc. et al, Superior Court of California, County of Orange, Case No. 30-2017-00948710-CU-OE-CXC.~~ In October 2017, the plaintiff filed a putative class action against us alleging various violations of California’s wage and hour laws. The complaint seeks class certification, unspecified damages, unpaid wages, penalties, restitution, interest, and attorneys’ fees and costs. We intend to defend this case vigorously.

~~Lauren Minniti, on behalf of herself and all others similarly situated, v. Tilly’s, Inc., United States District Court, Southern District of Florida, Case No. 0:17-cv-60237-FAM~~. On January 30, 2017, the plaintiff filed a putative class action lawsuit against us, alleging violations of the Telephone Consumer Protection Act of 1991 (the “TCPA”). Specifically, the complaint asserts a violation of the TCPA for allegedly sending unsolicited automated messages to the cellular telephones of the plaintiff and others. The complaint seeks class certification and damages of $500 per violation plus treble damages under the TCPA. We filed our initial response to this matter with the court in March 2017. The parties attended a mediation in June 2017. In July 2017, the parties reached an agreement in principle to settle this matter, subject to court approval and the execution of a final settlement agreement.

~~Skylar Ward, on behalf of herself and all others similarly situated, v. Tilly’s, Inc., Superior Court of California, County of Los Angeles, Case No. BC595405.~~ In September 2015, the plaintiff filed a putative class action lawsuit against us alleging, among other things, various violations of California's wage and hour laws. The complaint sought class certification, unspecified damages, unpaid wages, penalties, restitution, and attorneys' fees. In June 2016, the court granted our demurrer to the plaintiff's complaint on the grounds that the plaintiff failed to state a cause of action against Tilly's and dismissed the complaint. Specifically, the court agreed with us that the plaintiff's cause of action for reporting-time pay fails as a matter of law as the plaintiff and other putative class members did not "report for work" with respect to certain shifts on which the plaintiff's claims are based. In November 2016, the court entered a written order sustaining our demurrer to the plaintiff's complaint and dismissing all of plaintiff’s causes of action with prejudice. In January 2017, the plaintiff filed an appeal of the order to the California Court of Appeal. The plaintiff filed her opening appellate brief on October 2, 2017, and our responding appellate brief is due to be filed in December 2017. We have defended this case vigorously and will continue to do so.

~~Karina Whitten, on behalf of herself and all others similarly situated, v. Tilly’s Inc.~~, ~~Superior Court of California, County of Los Angeles, Case No. BC548252~~. In June 2014, the plaintiff filed a putative class action and representative Private Attorney General Act of 2004 lawsuit against us alleging violations of California’s wage and hour, meal break and rest break rules and regulations, and unfair competition law, among other things. The complaint sought class certification, penalties, restitution,

injunctive relief and attorneys’ fees and costs. The plaintiff filed a first amended complaint in December 2014. We answered the complaint in January 2015, denying all allegations. We engaged in mediation in May 2016, and the parties reached a resolution that was presented to the court for preliminary approval in September 2016. The court preliminarily approved the settlement in October 2016, and notice of the settlement was issued to class members. Upon completion of the claims process, the court approved the final settlement in February 2017. We concluded this matter with the payment of the final settlement in April 2017. The final settlement amount was not materially different from the amount previously accrued when a loss provision was established.

On June 10, 2015, we and one of our vendors entered into a settlement arrangement with a plaintiff who filed a copyright infringement lawsuit against the vendor and us related to certain vendor products we sell. The settlement required that the vendor pay $2.0 million to the plaintiff over three years, and we agreed to guarantee such payments in exchange for a security interest in the vendor's intellectual property. As of October 28, 2017, due to updated facts and circumstances, we have accrued for the remaining maximum exposure loss of $1.4 million relating to this matter. We will utilize all available rights of offset to reduce our loss, including the enforcement of the security interest we have in the vendor's intellectual property.

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Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. ~~For a detailed discussion of~~In addition to the ~~risks that affect our business,~~other information set forth in this Quarterly Report on Form 10-Q, please refer to the section ~~entitled~~titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January ~~28, 2017. There have been no material changes to~~30, 2021 for a detailed discussion of the risks that affect our ~~risk factors as previously disclosed in our Annual Report on Form 10-K.~~business.

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Item 6. Exhibits


Exhibit No.						Description of Exhibit



~~Exhibit~~ ~~No.~~10.1						~~Description~~ First Amendment to Lease between Amnet Holdings and World of ~~Exhibit~~Jeans & Tops, dated as of October 2 1 , 2021 (17 Pasteur, Irvine, California) *

31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1**						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101						Interactive data files from Tilly’s, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October ~~28, 2017,~~30, 2021, formatted in ~~XBRL (eXtensible~~iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of ~~Income;~~Operations; (iii) the Consolidated Statements of Comprehensive ~~Income;~~Income (Loss); (iv) the Consolidated Statement of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements.



*104	~~Filed herewith~~	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



*			Filed herewith.


**			Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


				Tilly’s, Inc.
Date:			December 7, 2021
				/s/ Edmond Thomas
				Edmond Thomas
				President, Chief Executive Officer and Director
				(Principal Executive Officer)

Date:			December 7, 2021	~~Tilly’s, Inc.~~
~~Date:~~			~~December 5, 2017~~
		~~/s/ Edmond Thomas~~
		~~Edmond Thomas~~
		~~President, Chief Executive Officer and Director~~
		~~(Principal Executive Officer)~~

~~Date:~~	~~December 5, 2017~~
		/s/ Michael Henry
				Michael Henry
				Executive Vice President, Chief Financial Officer
				(Principal Financial Officer)

2934



	Three Months Ended				Nine Months Ended
	October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
Net sales	$	152,824	$	152,106	$	412,581	$	408,736
Cost of goods sold (includes buying, distribution, and occupancy costs)	102,730		104,137		288,653		289,343
Gross profit	50,094		47,969		123,928		119,393
Selling, general and administrative expenses	35,982		37,302		111,384		110,460
Operating income	14,112		10,667		12,544		8,933
Other income, net	375		103		810		270
Income before income taxes	14,487		10,770		13,354		9,203
Income tax expense	5,730		4,353		5,354		4,097
Net income	$	8,757	$	6,417	$	8,000	$	5,106
Basic income per share of Class A and Class B common stock	$	0.30	$	0.23	$	0.28	$	0.18
Diluted income per share of Class A and Class B common stock	$	0.30	$	0.22	$	0.28	$	0.18
Weighted average basic shares outstanding	28,782		28,482		28,746		28,456
Weighted average diluted shares outstanding	29,031		28,527		28,954		28,476



	Restricted Stock		Weighted Average Grant-Date Fair Value
Nonvested at January 28, 2017	166,960		$	12.12
Granted	23,100		$	10.39
Vested	(74,528	)	$	11.09
Forfeited	(6,000	)	$	16.07
Nonvested at October 28, 2017	109,532		$	12.24



%	$ millions	Attributable to
(0.6)%	$(0.9)	Decrease in marketing spend
(0.3)%	(0.4)	Decrease in corporate payroll and benefits
(0.1)%	—	Decrease in all other SG&A expenses as a percentage of sales
(1.0)%	$(1.3)	Total



%	$ millions	Attributable to
1.2%	$5.1	Net increase in year over year legal provisions
0.4%	1.6	Increase in expenses associated with several information technology system implementations
(0.9)%	(3.4)	Decrease in marketing spend
(0.3)%	(1.1)	Decrease in non-cash store asset impairment charges
(0.3)%	(1.0)	Decrease in corporate payroll and benefits
(0.1)%	(0.3)	Decrease in all other SG&A expenses
—%	$0.9	Total