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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________________________________ 
FORM 10-Q
 __________________________________________________ 
 
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 201729, 2022
OR
¨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)
__________________________________________________ 
Delaware45-2164791
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareTLYSNew 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 anand “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated Filer
Non-accelerated filerSmaller reporting company
Large accelerated filer
¨

Accelerated filer
x



Non-accelerated filer
¨  (do not check if a smaller reporting company)
Smaller reporting company¨
Emerging growth company
x



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, 2017December 2, 2022, the registrant had the following shares of common stock outstanding:
Class A common stock $0.001 par value14,448,29422,537,461 
Class B common stock $0.001 par value14,398,4977,306,108 



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TILLY’S, INC.
FORM 10-Q
For the Quarterly Period Ended October 28, 201729, 2022
Index
 
Page
Item 1.

Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.2
Item 6.




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Forward-Looking Statements
This Quarterly Report on Form 10-Q ("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 inflation on consumer spending generally and on our expense management, operating results and financial condition;
the continued impacts of the COVID-19 pandemic generally and on our operations, future financial or operational results, including with respect to our expense management, our ability to reduce costs, and our ability to effectively manage inventory levels on an ongoing basis relative to net sales performance and changing market conditions;
our ability to adapt to downward trends in traffic 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 and generate acceptable levels of return from our digital marketing efforts and other e-commerce growth initiatives;
increases in costs of energy, transportation or utility costs and in the costs of labor and employment;
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;
our ability to generate adequate cash from our existing stores and e-commerce to support our growth;
our ability to identify and respond to new and changing customer fashion preferences and fashion-related trends;
our ability to compete effectively in an environment of intense competition both in stores and online;
our ability to adjust to increasing costs of mailing catalogs, paper and printing;
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;
our ability to adapt to declines in consumer confidence and decreases in consumer spending;
our ability to adapt to significant changes in sales due to the seasonality of our business;
our ability to compete on social media marketing platforms;
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 and on time;
our ability to balance proprietary branded merchandise with the third-party branded merchandise we sell;
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;
our ability to secure desirable lease arrangements and other economics to support the rate of our planned store growth.
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 contained therein;

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our reliance upon independent third-party transportation providers for certain of our product shipments;
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 privacy laws and 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 29,
2022
January 29,
2022
October 30,
2021
ASSETS     ASSETS
Current assets:     Current assets:
Cash and cash equivalents$38,912
 $78,994
 $43,382
Cash and cash equivalents$75,786 $42,201 $59,392 
Marketable securities82,961
 54,923
 61,915
Marketable securities29,985 97,027 96,237 
Receivables3,647
 3,989
 5,873
Receivables11,352 6,705 8,881 
Merchandise inventories62,242
 47,768
 65,016
Merchandise inventories81,589 65,645 86,692 
Prepaid expenses and other current assets9,759
 9,541
 9,965
Prepaid expenses and other current assets16,036 16,400 9,682 
Total current assets197,521
 195,215
 186,151
Total current assets214,748 227,978 260,884 
Operating lease assetsOperating lease assets222,664 216,508 226,547 
Property and equipment, net87,576
 89,219
 93,206
Property and equipment, net51,279 47,530 49,392 
Deferred tax assetsDeferred tax assets10,261 11,446 11,894 
Other assets7,805
 6,072
 5,414
Other assets1,488 1,361 1,520 
Total assets$292,902
 $290,506
 $284,771
TOTAL ASSETSTOTAL ASSETS$500,440 $504,823 $550,237 
LIABILITIES AND STOCKHOLDERS’ EQUITY     LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:     Current liabilities:
Accounts payable$27,329
 $17,584
 $26,613
Accounts payable$30,225 $28,144 $46,378 
Accrued expenses31,854
 23,872
 20,449
Accrued expenses17,239 19,073 20,084 
Deferred revenue8,335
 10,203
 7,815
Deferred revenue13,859 17,096 13,568 
Accrued compensation and benefits6,005
 7,259
 5,480
Accrued compensation and benefits9,756 17,056 17,106 
Current portion of deferred rent5,762
 5,643
 6,146
Capital lease obligation155
 835
 899
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities50,047 51,504 51,717 
Current portion of operating lease liabilities, related partyCurrent portion of operating lease liabilities, related party2,771 2,533 2,582 
Other liabilitiesOther liabilities806 761 727 
Total current liabilities79,440
 65,396
 67,402
Total current liabilities124,703 136,167 152,162 
Long-term portion of deferred rent31,377
 35,890
 36,940
Other2,955
 
 155
Noncurrent portion of operating lease liabilitiesNoncurrent portion of operating lease liabilities176,621 171,965 182,700 
Noncurrent portion of operating lease liabilities, related partyNoncurrent portion of operating lease liabilities, related party23,129 21,000 21,625 
Other liabilitiesOther liabilities455 978 1,112 
Total long-term liabilitiesTotal long-term liabilities200,205 193,943 205,437 
Total liabilities113,772
 101,286
 104,497
Total liabilities324,908 330,110 357,599 
Commitments and contingencies (Note 5)
 
 
Commitments and contingencies (Notes 2 and 5)Commitments and contingencies (Notes 2 and 5)
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, respectively14
 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, respectively15
 15
 16
Common stock (Class A), $0.001 par value; 100,000 shares authorized; 22,537, 23,719 and 23,658 shares issued and outstanding, respectivelyCommon stock (Class A), $0.001 par value; 100,000 shares authorized; 22,537, 23,719 and 23,658 shares issued and outstanding, respectively23 24 24 
Common stock (Class B), $0.001 par value; 35,000 shares authorized; 7,306, 7,306 and 7,306 shares issued and outstanding, respectivelyCommon stock (Class B), $0.001 par value; 35,000 shares authorized; 7,306, 7,306 and 7,306 shares issued and outstanding, respectively
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 capital140,240
 138,102
 135,469
Additional paid-in capital168,749 166,929 165,983 
Retained earnings38,765
 51,023
 44,719
Retained earnings6,634 7,754 26,616 
Accumulated other comprehensive income96
 66
 57
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)119 (1)
Total stockholders’ equity179,130
 189,220
 180,274
Total stockholders’ equity175,532 174,713 192,638 
Total liabilities and stockholders’ equity$292,902
 $290,506
 $284,771
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITYTOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$500,440 $504,823 $550,237 
The accompanying notes are an integral part of these consolidated financial statements.



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TILLY’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended Nine Months Ended Thirteen Weeks EndedThirty-Nine Weeks Ended
October 28,
2017
 October 29,
2016
 October 28,
2017
 October 29,
2016
October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Net sales$152,824
 $152,106
 $412,581
 $408,736
Net sales$177,847 $206,096 $491,930 $571,205 
Cost of goods sold (includes buying, distribution, and occupancy costs)102,730
 104,137
 288,653
 289,343
Cost of goods sold (includes buying, distribution, and occupancy costs)122,346 128,612 338,870 362,751 
Rent expense, related partyRent expense, related party918 745 2,680 2,149 
Total cost of goods sold (includes buying, distribution, and occupancy costs)Total cost of goods sold (includes buying, distribution, and occupancy costs)123,264 129,357 341,550 364,900 
Gross profit50,094
 47,969
 123,928
 119,393
Gross profit54,583 76,739 150,380 206,305 
Selling, general and administrative expenses35,982
 37,302
 111,384
 110,460
Selling, general and administrative expenses48,134 47,609 137,405 135,607 
Rent expense, related partyRent expense, related party134 133 400 400 
Total selling, general, and administrative expensesTotal selling, general, and administrative expenses48,268 47,742 137,805 136,007 
Operating income14,112
 10,667
 12,544
 8,933
Operating income6,315 28,997 12,575 70,298 
Other income, net375
 103
 810
 270
Other income (expense), netOther income (expense), net675 (1)862 (219)
Income before income taxes14,487
 10,770
 13,354
 9,203
Income before income taxes6,990 28,996 13,437 70,079 
Income tax expense5,730
 4,353
 5,354
 4,097
Income tax expense1,841 8,162 3,656 17,888 
Net income$8,757
 $6,417
 $8,000
 $5,106
Net income$5,149 $20,834 $9,781 $52,191 
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
Basic earnings per share of Class A and Class B common stockBasic earnings per share of Class A and Class B common stock$0.17 $0.67 $0.32 $1.72 
Diluted earnings per share of Class A and Class B common stockDiluted earnings per share of Class A and Class B common stock$0.17 $0.66 $0.32 $1.68 
Weighted average basic shares outstanding28,782
 28,482
 28,746
 28,456
Weighted average basic shares outstanding29,894 30,915 30,226 30,429 
Weighted average diluted shares outstanding29,031
 28,527
 28,954
 28,476
Weighted average diluted shares outstanding30,050 31,352 30,428 31,016 
The accompanying notes are an integral part of these consolidated financial statements.



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TILLY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(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 EndedThirty-Nine Weeks Ended
 October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Net income$5,149 $20,834 $9,781 $52,191 
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) on available-for-sale securities, net of tax73 (4)120 (12)
Other comprehensive income (loss), net of tax73 (4)120 (12)
Comprehensive income$5,222 $20,830 $9,901 $52,179 
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 30, 202222,805 7,306 $30 $168,120 $3,372 $46 $171,568 
Net income— — — — 5,149 — 5,149 
Share-based compensation expense— — — 613 — — 613 
Employee stock option exercises— — 16 — — 16 
Repurchase of common stock(271)— — — (1,887)— (1,887)
Net change in unrealized gain on available-for-sale securities— — — — — 73 73 
Balance at October 29, 202222,537 7,306 $30 $168,749 $6,634 $119 $175,532 




 Number of Shares     
 Common
Stock
(Class A)
Common
Stock
(Class B)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss)/Income
Total
Stockholders’
Equity
Balance at July 31, 202123,651 7,306 $31 $165,407 $5,782 $12 $171,232 
Net income— — — — 20,834 — 20,834 
Share-based compensation expense— — — 521 — — 521 
Employee stock option exercises— — 55 — — 55 
Net change in unrealized loss on available-for-sale securities— — — — — (4)(4)
Balance at October 30, 202123,658 7,306 $31 $165,983 $26,616 $8 $192,638 
























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 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, 201713,434
 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 vesting44
 
 
 
 
 
 
Taxes paid in lieu of shares issued
 
 
 (101) 
 
 (101)
Shares converted by founders841
 (841) 
 
 
 
 
Stock-based compensation expense
 
 
 1,773
 
 
 1,773
Employee exercises of stock options38
 
 
 288
 
 
 288
Change in unrealized gain on available-for-sale securities
 
 
 
 
 30
 30
Balance at October 28, 201714,357
 14,488
 $29
 $140,240
 $38,765
 $96
 $179,130
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
(Loss)/Income
Total
Stockholders’
Equity
Balance at January 29, 202223,719 7,306 $31 $166,929 $7,754 $(1)$174,713 
Net income— — — — 9,781 — 9,781 
Restricted stock63 — — — — — — 
Share-based compensation expense— — — 1,764 — — 1,764 
Employee stock option exercises13 — — 56 — — 56 
Repurchase of common stock(1,258)— (1)— (10,901)— (10,902)
Net change in unrealized gain on available-for-sale securities— — — — — 120 120 
Balance at October 29, 202222,537 7,306 $30 $168,749 $6,634 $119 $175,532 

 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, 202122,477 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 stock20 — — — — — — 
Share-based compensation expense— — — 1,417 — — 1,417 
Employee stock option exercises1,161 — 9,129 — — 9,130 
Net change in unrealized loss on available-for-sale securities— — — — — (12)(12)
Balance at October 30, 202123,658 7,306 $31 $165,983 $26,616 $8 $192,638 
The accompanying notes are an integral part of these consolidated financial statements.











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TILLY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(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 amortization17,644
 17,498
Stock-based compensation expense1,773
 1,995
Impairment of assets848
 1,963
Loss on disposal of assets170
 6
Gain on sales and maturities of marketable securities(510) (164)
Deferred income taxes(1,194) (298)
Changes in operating assets and liabilities:   
Receivables342
 (476)
Merchandise inventories(14,474) (13,659)
Prepaid expenses and other assets(777) (1,084)
Accounts payable9,177
 10,667
Accrued expenses4,202
 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 activities17,685
 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 securities85,134
 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 options288
 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 period78,994
 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
 $
 Thirty-Nine Weeks Ended
 October 29,
2022
October 30,
2021
Cash flows from operating activities:
Net income$9,781 $52,191 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization10,515 13,123 
Insurance proceeds from casualty loss— 117 
Share-based compensation expense1,764 1,417 
Impairment of assets14 136 
Loss on disposal of assets64 52 
Gain on sales and maturities of marketable securities(230)(101)
Deferred income taxes1,167 57 
Changes in operating assets and liabilities:
Receivables(705)1,847 
Merchandise inventories(15,944)(31,111)
Prepaid expenses and other current assets557 (3,698)
Accounts payable2,068 21,402 
Accrued expenses(4,253)(9,804)
Accrued compensation and benefits(7,300)7,207 
Operating lease liabilities(4,637)(5,205)
Deferred revenue(3,237)76 
Other liabilities(706)(856)
Net cash (used in) provided by operating activities(11,082)46,850 
Cash flows from investing activities:
Proceeds from marketable securities117,189 95,224 
Purchases of marketable securities(49,779)(126,420)
Purchases of property and equipment(11,897)(10,911)
Proceeds from sale of property and equipment— 17 
Insurance proceeds from casualty loss— 29 
Net cash provided by (used in) investing activities55,513 (42,061)
Cash flows from financing activities:
Share repurchases(10,902)— 
Proceeds from exercise of stock options56 9,129 
Dividends paid— (30,710)
Net cash used in financing activities(10,846)(21,581)
Change in cash and cash equivalents33,585 (16,792)
Cash and cash equivalents, beginning of period42,201 76,184 
Cash and cash equivalents, end of period$75,786 $59,392 
Supplemental disclosures of cash flow information:
Income taxes paid$1,440 $26,493 
Supplemental disclosure of non-cash activities:
Unpaid purchases of property and equipment$3,511 $1,702 
Operating lease liabilities arising from obtaining operating lease assets$47,092 $32,787 
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, accessories and accessorieshardgoods for young men, young women, boys and girls with an extensive selectionassortment of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle. Tillys is headquartered in Irvine, California and we operated 220247 stores, in 3133 states as of October 28, 2017.29, 2022. 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", "we", "our", "us" and "Tillys" refer to Tilly's, Inc. and its subsidiary, WOJT.
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 quarterthirteen and nine monthsthirty-nine week periods ended October 28, 2017 and October 29, 2016, respectively,2022 are not necessarily indicative of results to be expected for the full fiscal year. 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, 201729, 2022 ("fiscal 2016"2021").

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 20172022 refer to the fiscal year ending February 3, 2018.January 28, 2023. References to the fiscal quarters or first nine months ended October 28, 2017,29, 2022 and October 29, 2016,30, 2021 refer to the threethirteen and nine monthsthirty-nine week periods ended respectively, as of those dates.dates, respectively.
Economic Impacts of the COVID-19 Pandemic on our Business
The economic impacts resulting from the COVID-19 pandemic (the "pandemic") have had, and may continue to have, a material effect on our business, financial condition and results of operations, as well as on the market generally, including its impacts on inflationary cost pressures, supply chain disruptions, competition for and availability of labor, management of our workforce, consumer behavior, store traffic, demands on our information technology and e-commerce capabilities, and inventory and expense management.The scope and nature of these impacts continue to evolve, and we may continue to experience similar or new adverse impacts in the future arising from the pandemic that may have material adverse effects on our future business, financial condition and results of operations.
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, 2017.29, 2022.
Recently Adopted Accounting StandardRevenue 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 to Employee Share-Based Payment Accounting, which simplifiesrecognize revenue, net of sales taxes and estimated sales returns, and the accounting and reporting for share-based compensation, includingrelated cost of goods sold at the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well astime the classification in the statement of cash flows. We elected to account for forfeitures as they occur, rather than 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, relatedmerchandise is shipped 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.

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Amounts related to shipping and handling that are billed to customers are reflected in net sales, and the related costs are reflected in cost of goods sold in the Consolidated Statements of Income.
New Accounting Standards Not Yet AdoptedThe following table summarizes net sales from our retail stores and e-commerce (in thousands):
In May 2014,
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Retail stores$141,539 $165,255 $396,109 $457,557 
E-commerce36,308 40,841 95,821 113,648 
Total net sales$177,847 $206,096 $491,930 $571,205 
The following table summarizes the FASB issued ASU No. 2014-09, Revenuepercentage of net sales by department:
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Mens36 %37 %36 %36 %
Womens25 %25 %26 %27 %
Accessories19 %18 %17 %16 %
Footwear11 %10 %12 %11 %
Boys%%%%
Girls%%%%
Hardgoods/Outdoor%%%%
Total net sales100 %100 %100 %100 %
The following table summarizes the percentage of net sales by third-party and proprietary branded merchandise:
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Third-party69 %68 %69 %70 %
Proprietary31 %32 %31 %30 %
Total net sales100 %100 %100 %100 %
We accrue for estimated sales returns by customers based on historical sales return results. As of October 29, 2022, January 29, 2022 and October 30, 2021, our reserve for sales returns was $1.9 million, $1.9 million and $2.3 million, respectively, and is included in accrued expenses on the accompanying Consolidated Balance Sheets.
We recognize revenue from Contracts with Customers (“ASU 2014-09”), along with amendments issuedgift cards as they are redeemed for merchandise. Prior to redemption, we maintain a current liability for unredeemed gift cards, the balance of which was $8.7 million, $11.2 million and $7.9 million as of October 29, 2022, January 29, 2022 and October 30, 2021, respectively, and is included in 2015deferred revenue on the accompanying Consolidated Balance Sheets. Our gift cards do not have expiration dates and 2016, which amends the existing accounting standards for revenue recognition. ASU 2014-09 outlines principlesin most cases there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. Based on actual historical redemption patterns, we determined that govern revenue recognition at an amount an entity expectsa small percentage of gift cards are unlikely to be entitled when productsredeemed, which we refer to as gift card breakage. Based on our historical gift card breakage rate, we recognize breakage revenue over the redemption period in proportion to actual gift card redemptions. Total revenue recognized from gift cards was $2.6 million and $2.9 million for the thirteen weeks ended October 29, 2022 and October 30, 2021, respectively. For the thirteen weeks ended October 29, 2022 and October 30, 2021, the opening gift card balance was $8.9 million and $7.9 million, respectively, of which $0.7 million and $0.6 million respectively, was recognized as revenue during these periods. Total revenue recognized from gift cards was $9.9 million and $10.1 million for the thirty-nine weeks ended October 29, 2022 and October 30, 2021, respectively. For the thirty-nine weeks ended October 29, 2022 and October 30, 2021, the opening gift card balance was $11.2 million and $9.6 million, respectively, of which $4.6 million and $4.0 million, respectively, was recognized as revenue during these 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 transferredaccrued as deferred revenue, and awards redeemed by the member for merchandise

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are recorded as an increase to customers. ASU 2014-09, which will become effective for us innet sales. Our loyalty program allows customers to redeem their awards instantly or build up to additional awards over time. During the first quarter of fiscal 2018, may be applied retrospectively for each period presented (the "full retrospective method") or retrospectively with2022, we modified our expiration policy related to unredeemed awards and accumulated partial points from expiration at 365 days after the cumulative effect recognized incustomer's last purchase activity to expiration at 365 days after 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 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 the adoptioncustomer's original purchase date. As a result of this update to have a material effect on our consolidated results of operations.
In February 2016,modification in expiration policy, 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 purchaseestimated liability was reduced 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$0.5 million during the first quarter of fiscal 2019, with early adoption permitted, must be adopted using2022. A liability is estimated based on the modified retrospective method.standalone selling price of awards and partial points earned and estimated redemptions. The new standard is expected to impactdeferred revenue for this program was $5.2 million, $5.9 million and $5.7 million as of October 29, 2022, January 29, 2022 and October 30, 2021, respectively. The value of points redeemed through our consolidated financial statementsloyalty program was $2.2 million and $2.8 million for the thirteen weeks ended October 29, 2022 and October 30, 2021, respectively. For the thirteen weeks ended October 29, 2022 and October 30, 2021, the opening loyalty program balance was $5.3 million and $5.1 million, respectively, of which $1.8 million and $1.4 million, respectively, was recognized as werevenue during these periods. The value of points redeemed through our loyalty program was $6.5 million and $7.7 million for the thirty-nine weeks ended October 29, 2022 and October 30, 2021, respectively. For the thirty-nine weeks ended October 29, 2022 and October 30, 2021, the opening loyalty program balance was $5.9 million and $3.9 million, respectively, of which $4.9 million and $3.7 million, respectively, was recognized as revenue during these periods.
Leases
We conduct all of our retail sales and corporate operations in leased facilities. WeLease terms generally range up to ten years in duration (subject to elective extensions) and provide for escalations in base rents. 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 processlease. 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 evaluatingnet sales in excess of specified levels, is recognized as rent expense when the impactachievement of adoptingthose specified net sales is probable.
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 each of the thirteen and thirty-nine week periods ended October 29, 2022 and October 30, 2021 we incurred rent expense of $0.5 million and $1.6 million, respectively, related to this lease. Our lease began on 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 the thirteen and thirty-nine week periods ended October 29, 2022, we incurred rent expense of $0.2 million and $0.4 million, respectively, related to this lease. During the thirteen and thirty-nine week periods ended October 30, 2021, we incurred rent expense of $0.1 million and $0.3 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 June 29, 2012 and was set to terminate on June 30, 2022. During June 2022, this lease was amended to, among other things, extend the term for an additional 10-year term and adjust the annual payment increases. Pursuant to the amended lease agreement, the lease payments adjust annually based upon the greater of 5% or the Consumer Price Index, and the lease now terminates on June 30, 2032.
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 29, 2022, we incurred rent expense of $0.4 million and $1.1 million, respectively, related to this lease. 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. 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, among other things, extend the term for an additional 10-year term and adjust the annual payment increases. Pursuant to the amended lease agreement, the lease payment adjusts annually based upon the greater of 5% or the Consumer Price Index and now terminates on October 31, 2031.
We sublease a portion of our office space, approximately 5,887 square feet, in the 17 Pasteur Irvine, California facility to Tilly's Life Center, ("TLC"), a related party and a charitable organization. The lease term is for 5 years and terminates January 31, 2027. Sublease income is recognized on a straight-line basis over the sublease agreement and is recorded as an offset within the selling, general and administrative section in the Consolidated Statements of Income.

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The maturity of operating lease liabilities and sublease income as of October 29, 2022 were as follows (in thousands):
Fiscal YearRelated PartyOtherTotalSublease Income
2022$966 $17,011 $17,977 $22 
20233,932 60,804 64,736 90 
20244,085 50,941 55,026 95 
20254,244 41,384 45,628 99 
20264,411 30,148 34,559 104 
Thereafter13,491 71,619 85,110 
Total minimum lease payments31,129 271,907 303,036 410 
Less: Amount representing interest5,229 45,239 50,468 — 
Present value of operating lease liabilities$25,900 $226,668 $252,568 $410 

As of October 29, 2022, additional operating lease contracts that have not yet commenced are approximately $2.3 million.

Lease expense for the thirteen and thirty-nine week periods ended October 29, 2022 and October 30, 2021 was as follows (in thousands):
Thirteen Weeks Ended
October 29, 2022
Thirteen Weeks Ended
October 30, 2021
Cost of goods soldSG&ATotalCost of goods soldSG&ATotal
Fixed operating lease expense$16,230 $331 $16,561 $15,092 $321 $15,413 
Variable lease expense4,274104,2844,907 15 4,922 
Total lease expense$20,504 $341 $20,845 $19,999 $336 $20,335 

Thirty-Nine Weeks Ended
October 29, 2022
Thirty-Nine Weeks Ended
October 30, 2021
Cost of goods soldSG&ATotalCost of goods soldSG&ATotal
Fixed operating lease expense$47,221 $972 $48,193 $45,338 $959 $46,297 
Variable lease expense12,285 33 12,318 13,642 16 13,658 
Total lease expense$59,506 $1,005 $60,511 $58,980 $975 $59,955 

For the thirteen and thirty-nine weeks ended October 30, 2021, we corrected an immaterial error of $94 thousand and $283 thousand, respectively, which consisted solely of a reclassification of fixed operating lease expense from SG&A to cost of goods sold, on the table above.
Supplemental lease information for the thirty-nine weeks ended October 29, 2022 and October 30, 2021 was as follows:
Thirty-Nine Weeks Ended October 29, 2022Thirty-Nine Weeks Ended
October 30, 2021
Cash paid for amounts included in the measurement of operating lease liabilities (in thousands)$52,971$51,823
Weighted average remaining lease term (in years)5.8 years5.6 years
Weighted average interest rate (1)
6.32%6.16%
(1) Since our leases do not provide an implicit rate, we use our incremental borrowing rate ("IBR") on date of adoption, at lease inception, or lease modification in determining the present value of future minimum payments.

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Common Stock Share Repurchases
We may repurchase shares of our common stock from time to time pursuant to authorizations approved by our Board of Directors (see Note 9). As permitted under Delaware corporation law, shares repurchased are retired and, accordingly, are not presented separately as treasury stock in the consolidated financial statements. Instead, the value of repurchased shares is deducted from retained earnings.
Income Taxes
Our income tax expense was $3.7 million, or 27.2% of pre-tax income, compared to an income tax expense of $17.9 million, or 25.5% of pre-tax income, for the thirty-nine weeks ended October 29, 2022 and October 30, 2021, respectively. The increase in the effective income tax rate was primarily due to the discrete tax effects of stock-based compensation.
Reclassifications of Prior Year Presentation
Certain prior year amounts on the Consolidated Balance Sheets, have been reclassified to conform with the current year presentation. These reclassifications had no effect on the reported results of operations. A reclassification has been made to last year's Consolidated Balance Sheet as of October 30, 2021 to identify deferred tax assets of $11.9 million and the long-term portion of credit facility costs of $0.2 million. This change in classification does not affect previously reported cash flows from operating activities in the Consolidated Statements of Cash Flows.
New Accounting Standards Not Yet Adopted
In November 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses which amends ("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 2019-11 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 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. This guidance will have no impact on our consolidated financial statements and related disclosures since the Company has no LIBOR based loans.
Note 3: Marketable Securities
Marketable securities as of October 28, 201729, 2022 consisted of commercial paper, classified as available-for-sale, and fixed income securities, thatclassified 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, 2017,29, 2022, January 28, 201729, 2022 and October 29, 201630, 2021 (in thousands):
October 29, 2022
Cost or
Amortized Cost
Gross Unrealized
Holding Gains
Gross
Unrealized
Holding
Losses
Estimated
Fair Value
Commercial paperCommercial paper$24,789 $136 $— $24,925 
Fixed income securitiesFixed income securities5,060 — — 5,060 
Total marketable securitiesTotal marketable securities$29,849 $136 $ $29,985 
October 28, 2017 January 29, 2022
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$64,235 $$(11)$64,233 
Fixed income securities23,193
 
 23,193
Fixed income securities32,794 — — 32,794 
$82,800
 $161
 $82,961
Total marketable securitiesTotal marketable securities$97,029 $9 $(11)$97,027 
     
January 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$44,785
 $107
 $44,892
Commercial paper$64,261 $12 $(1)$64,272 
Fixed income securities10,031
 
 10,031
Fixed income securities31,965 — — 31,965 
$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 securities7,040
 
 7,040
$61,821
 $94
 $61,915
Total marketable securitiesTotal marketable securities$96,226 $12 $(1)$96,237 
We recognized gains on investments for commercial paper that matured during the threethirteen and nine monthsthirty-nine week periods ended October 28, 2017.29, 2022 and October 30, 2021. Upon recognition of the gains, we reclassified these amounts out of accumulated other comprehensive income"Accumulated Other Comprehensive Income" and into “Other income (expense), net” on the Consolidated Statements of Income.
The following table summarizes our gains on investments for commercial paper (in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Gains on investments$109 $19 $174 $91 
 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: LineCredit Agreement
New Credit Agreement
On January 20, 2022, we entered into a senior secured credit agreement (the "Credit Agreement") and revolving line of Credit

Our amended and restated credit agreementnote (the "Note") with Wells Fargo Bank, N.A.National Association (the "Bank"“Bank”). The Credit Agreement provides for a senior secured revolving credit facility (“Revolving Facility”) of up to $25.0 million (“Revolving Commitment”) consisting of revolving line of credit with a maturity date of June 26, 2020. The interest rate charged on 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, 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 dividend was made on February 24, 2017. The line of credit is secured by substantially all of our assets. As a sub-feature under the credit agreement, the Bank may also issue stand-by and/or commercialloans, letters of credit upand swing line loans, with a sub-limit on letters of credit outstanding at any time of $15.0 million. The Revolving Facility matures on January 20, 2024. 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 payment and performance in full of the obligations under the Credit Agreement are guaranteed by the Company pursuant to $15.0 million.a continuing guaranty (the "Guaranty") granted by the Company in favor of the Bank. The payment and performance of the Company’s obligations under the Guaranty are secured by a lien on, and pledge of, all of the equity interests owned by the Company.

Borrowings under the Revolving Facility bear interest at a rate per annum equal to the daily simple Secured Overnight Financing Rate ("SOFR") plus 0.75%. Amounts available to be drawn under outstanding letters of credit accrue fees in an amount equal to 1.00% per annum. The unused portion of the Revolving Commitment is not subject to a commitment fee.
We

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Under the Credit Agreement, we are requiredsubject to maintain certain financiala variety of affirmative and non-financialnegative covenants of types customary in accordance with the line of credit. Thea cash-flow-based lending facility, including financial covenants that require certain levelsmaintenance 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(1) a trailing 12-month basis), (ii) a maximum ratio of 4.00total funded debt 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,earnings before interest, expense, taxes, depreciation, amortization and annual rent expenseexpenses no greater than 4.00 to 1.00 and (2) a fixed charge coverage ratio of not less than 1.25 to 1.00 (calculation of which takes into account dividends, distributions, redemptions and repurchases of the equity interests of the Company only if the Company’s cash on hand, net of any amounts outstanding under the Credit Agreement, is less than $50.0 million after giving effect to such dividends, distributions, redemptions or repurchases).
Events of default under the Credit Agreement include, among other things, failure to pay principal, interest, fees or other amounts; covenant defaults; material inaccuracy of representations and warranties; bankruptcy events with respect to the Company; actual or asserted invalidity of any of the loan documents; or a trailing 12-month basis,change of control of the Company.
In connection with the entry into the Credit Agreement, on January 20, 2022, we entered into certain ancillary agreements, including (i) a security agreement in favor of the Bank (ii) the Guaranty entered into by the Company, and (iii) requires minimum eligible inventory, cash, cash equivalentsa third party pledge agreement entered into by the Company in favor of the Bank. The security agreement, the guaranty and marketable securities totaling $50.0 millionthe pledge agreement replaced (i) the guaranty by the Company in favor of the Bank, dated November 9, 2020, and (ii) the security agreement dated as of November 9, 2020, between the endCompany and the Bank, which were both terminated concurrently with the termination of each quarter. In addition, maximum investment in fixed assets in any fiscal year of $50.0 million.the Prior Credit Agreement (as defined below).



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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, 2017,29, 2022, we were in compliance with all of our covenants and had no outstanding borrowings under the Credit Agreement.
Prior Credit Agreement
The Credit Agreement replaced our previously existing asset-backed credit agreement (the “Prior Credit Agreement”), dated as of November 9, 2020, as amended, with the Bank, which had revolving commitments of up to $65.0 million, a sub-limit on letters of credit facility.of $10.0 million and a sub-limit for swing-line loans of $7.5 million.
The Prior Credit Agreement was terminated concurrently with the entry into the Credit Agreement. The maximum borrowings permitted under the Prior Credit Agreement was equal to the lesser of (x) the revolving commitment and (y) the borrowing base. The borrowing base was 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. As of the date the Prior Credit Agreement was terminated, we had no outstanding borrowings under the Credit Agreement, and the only utilization of the letters of credit sub-limit under the Credit Agreement was a $2.025 million irrevocable standby letter of credit, which was previously issued under the Prior Credit Agreement and was transferred on such date to the Credit Agreement.
The unused portion of the revolving commitment under the Prior Credit Agreement accrued a commitment fee, which ranged 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 Prior Credit Agreement bear interest at a rate per annum that ranged 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 Prior Credit Agreement over the applicable fiscal quarter. We were allowed to 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 Prior Credit Agreement, we were 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 were 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, certain minimum availability and minimum projected availability tests are satisfied.
Note 5: Commitments and Contingencies

Indemnifications, Commitments, and Guarantees
During the normal course of business, we have made certain indemnifications, commitments, and guarantees under which we may be required to make payments for certain transactions. These indemnifications include, but are not limited to, those given to various lessors in connection with facility leases for certain claims arising from such facility or lease and indemnifications to our directors and officers to the maximum extent permitted under the laws of the state of Delaware. The majority of these indemnifications, commitments, and guarantees do not provide for any limitation of the maximum potential future payments we could be obligated to make, and their duration may be indefinite. We have not recorded any liability for these indemnifications, commitments, and guarantees in the accompanying Consolidated Balance Sheets.

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Legal Proceedings
From time to time, we may become involved in lawsuits and other claims arising from our ordinary course of business. We have establishedestablish 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,occurrence, 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 intendIn December 2017, we filed an answer to defend this case vigorously.

Lauren Minniti, on behalfthe complaint, denying all of herselfthe 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 classseparate action lawsuitunder the Private Attorneys General Act ("PAGA") 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,seeking penalties on behalf of herselfhimself and all othersother similarly situated v. Tilly’s, Inc., Superior Court of California, County of Los Angeles, Case No. BC595405.  In September 2015,employees for the plaintiff filed a putative class action lawsuit against us alleging, among other things, varioussame alleged violations of California's wage and hour laws. The complaint soughtWe requested the plaintiff to dismiss the class certification, unspecified damages, unpaid wages, penalties, restitution, and attorneys' fees.action 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 2016, the court granted our demurrer to2018, the plaintiff's class action complaint onwas dismissed. The parties mediated the grounds that the plaintiff failed to statePAGA case with 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 memberswell-respected mediator in March 2020. The case did not "reportsettle during mediation nor during ensuing negotiations. 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 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 causesour losses and expenses incurred in connection with this matter. To reduce our indemnifiable losses and expenses in this matter, we have requested that BaronHR enforce its arbitration agreement in light of action with prejudice.  In January 2017,recent developments in applicable case law, and move to compel the plaintiff filed an appeal ofindividual PAGA claim to arbitration and dismiss 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.representative PAGA claims. We have defended this case vigorously, and will continue to do so. We believe that a loss is currently not probable or estimable under FASB Accounting Standards Codification ("ASC") 450, “Contingencies,” and no accrual has been made with regard to this matter.
Karina Whitten,Allison B. Johnson, on behalf of herself and all others similarly situated, v. World of Jeans & Tops, Inc. dba Tilly’s Inc., et al, Superior Court of California, County of Los Angeles,Fresno, Case No. BC54825222CECG03658. In June 2014,November 2022, the plaintiff filed a putative class action and representative Private Attorney General Act of 2004 lawsuit against us, alleging various violations of California’s wage and hour meal break and rest break rules and regulations, and unfair competition law, among other things.laws. The complaint soughtseeks class certification, unspecified damages, unpaid wages, penalties, restitution,
injunctive relief interest, and attorneys’ fees and costs. The plaintiff filedWe have also been served with a first amended complaintnotice to the California Labor and Workforce Development Agency regarding the plaintiff’s intention to file a representative action pursuant to PAGAagainst us seeking penalties on behalf of herself and other similarly situated employees for the same alleged violations of California's wage and hour laws. We are at the preliminary stages of investigating the allegations made in December 2014. We answered the complaint in January 2015, denying all allegations.and intend to defend this case vigorously. We engaged in mediation in May 2016, and the parties reached a resolutionbelieve 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, weis currently not probable or estimable under ASC 450, “Contingencies,” and one of our vendors entered into a settlement arrangementno accrual has been made 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


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for the remaining maximum exposure loss of $1.4 million relatingregard 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, commercial paper, municipal bonds and bonds.certificates of deposits. The money market accounts are valued based on quoted market prices in active markets. The available-for-sale 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.
From time to time, we measure certain assets at fair value on a non-recurring basis, including evaluation of long-lived assets for impairmentimpairments using Company specificCompany-specific assumptions which would fall within Level 3 of the fair valuefair-value hierarchy.

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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 threethirteen and nine monthsthirty-nine week periods ended October 28, 201729, 2022 and October 29, 2016,30, 2021, we did not make any transfers between Level 1 and Level 2 financial assets. Furthermore, as of October 28, 2017,29, 2022, January 28, 201729, 2022 and October 29, 2016,30, 2021, 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.
Financial Assets
We haveIn accordance with the provisions of ASC 820, Fair Value Measurement, we categorized our financial assets based on the priority of the inputs to the valuation technique for the instruments as follows (in thousands):
 October 29, 2022January 29, 2022October 30, 2021
Level 1Level 2Level 3Level 1Level 2Level 3Level 1Level 2Level 3
Cash equivalents (1):
  Money market securities$62,848 $— $— $32,764$— $— $52,532$— $— 
  Commercial paper$— $9,948$— $— $4,999$— $— $— $— 
Marketable securities:
  Commercial paper$— $24,925 $— $— $64,233 $— $— $64,272 $— 
 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 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, we consider the assetsOn 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.
Onleast 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 ended October 28, 2017, basedBased 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 of ourcertain stores would not be able to generate sufficient cash flows over the remaining term of the related leases to recover our investment in the respective stores. As a result, we recorded non-recurring, non-cash impairment charges duringof less than $0.1 million and $0.1 million in the three and nine monthsthirty-nine weeks ended October 28, 2017 of approximately $0.4 million29, 2022 and $0.8 million,October 30, 2021, respectively, to write-down the carrying value of certain long-lived store assets to their estimated fair values.

Thirteen Weeks EndedThirty-Nine Weeks Ended
October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
($ in thousands)
Carrying value of assets with impairment$$— $14 $176 
Fair value of assets impaired$— $— $— $40 
Number of stores tested for impairment12 
Number of stores with impairment— 
 Three Months Ended Nine Months Ended
 October 28,
2017
 October 29,
2016
 October 28,
2017
 October 29,
2016
 ($ in thousands)
Carrying value of assets with impairment$397 $440 $848 $2,136
Fair value of assets impaired$— $— $— $173
Number of stores tested for impairment7 9 10 15
Number of stores with impairment2 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 20142020 (the "2012 Plan"), authorizes up to 4,413,9006,613,900 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, 2017,29, 2022, there were 1,754,6391,778,595 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 nonqualifiednon-qualified 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.

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The following table summarizes the stock option activity for the nine monthsthirty-nine weeks ended October 28, 201729, 2022 (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 29, 20221,570,211 $9.02 
Granted522,500 $9.37 
Exercised(13,500)$4.13 
Forfeited(35,500)$9.66 
Expired(60,468)$14.63 
Outstanding at October 29, 20221,983,243 $8.96 7.6$2,211 
Exercisable at October 29, 2022759,043 $9.52 5.9$836 
 
Stock
Options
 
Grant Date
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Life (in Years)
 
Aggregate
Intrinsic
Value (1)
Outstanding at January 28, 20171,842,375
 $9.98
    
Granted406,000
 $8.71
    
Exercised(38,125) $7.53
    
Forfeited(59,000) $8.92
    
Expired(17,500) $14.02
    
Outstanding at October 28, 20172,133,750
 $9.78
 7.2 $6,839
Vested and expected to vest at October 28, 20172,133,750
 $9.78
 7.2 $6,839
Exercisable at October 28, 2017989,500
 $12.28
 5.5 $1,395


14

Table(1)Intrinsic value for stock options is defined as the difference between the market price of Contentsour 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 $8.85 at October 29, 2022.

(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 optionsstock option awards are exercised.
The fair values of stock options granted during the threethirteen and nine monthsthirty-nine weeks ended October 28, 201729, 2022 and October 29, 201630, 2021 were estimated on the grant date using the following assumptions:
Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Weighted average grant-date fair value per option granted$3.82$7.96$4.94$5.69
Expected option term (1)
5.2 years5.3 years5.2 years5.4 years
Weighted average expected volatility factor (2)
58.6%59.4%58.6%59.9%
Weighted average risk-free interest rate (3)
3.6%1.0%2.4%0.9%
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 duringover 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, andwhereas restricted stock units ("RSUs") represent a commitment to issue shares of our common stockissuable in the future upon vesting. Under the 2012 Plan, we may grant RSAs to independent members of our Board of Directors and RSUs to certain employees. RSAs granted to our Board of Directorsmembers 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. The 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 stockRSAs changes during the nine monthsthirty-nine weeks ended October 28, 2017 are presented below:29, 2022:
Restricted
Stock
Weighted
Average
Grant-Date
Fair Value
Nonvested at January 29, 202245,464 $10.56 
Granted63,492 $7.56 
Vested(35,472)$9.02 
Nonvested at October 29, 202273,484 $8.71 
 
Restricted
Stock
 
Weighted
Average
Grant-Date
Fair Value
Nonvested at January 28, 2017166,960
 $12.12
Granted23,100
 $10.39
Vested(74,528) $11.09
Forfeited(6,000) $16.07
Nonvested at October 28, 2017109,532
 $12.24


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Stock-basedShare-based compensation expense associated with stock options and restricted stock is recognized on a straight-line basis over the vestingrequisite service period. The following table summarizes stock-basedshare-based compensation expense recorded in the Consolidated Statements of Income (in thousands):
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Cost of goods sold (1)
$100 $75 $280 $119 
Selling, general, and administrative513 446 1,484 1,298 
Total share-based compensation$613 $521 $1,764 $1,417 
 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 expenses432
 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, 2017,29, 2022, there was $4.2$4.9 million of total unrecognized stock-basedshare-based compensation expense related to unvested stock options and restricted stock. This cost has a weighted average remaining recognition period of 2.32.6 years.
Note 8: IncomeEarnings Per Share
IncomeEarnings per share is computed under the provisions of ASC 260, Earnings Per Share. Basic incomeearnings per share is computed based on the weighted average number of shares of common sharesstock outstanding during the period. Diluted incomeearnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential shares of common sharesstock (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 theshares of common sharesstock 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 incomeearnings per share arewere as follows (in thousands, except per share amounts):
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Net income$5,149 $20,834 $9,781 $52,191 
Weighted average basic shares outstanding29,894 30,915 30,226 30,429 
Dilutive effect of in-the-money stock options and RSAs156 437 202 587 
Weighted average shares for diluted earnings per share30,050 31,352 30,428 31,016 
Basic earnings per share of Class A and Class B common stock$0.17 $0.67 $0.32 $1.72 
Diluted earnings per share of Class A and Class B common stock$0.17 $0.66 $0.32 $1.68 


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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 outstanding28,782
 28,482
 28,746
 28,456
Dilutive effect of stock options and restricted stock249
 45
 208
 20
Weighted average shares for diluted income per share29,031
 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 incomeearnings per share as the effect of including these stock options and restricted stock would have been anti-dilutive (in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Stock options1,529 677 1,408 800 
Restricted stock10 — 10 20 
Total1,539 677 1,418 820 
Note 9: Share Repurchase Program
On March 14, 2022, our Board of Directors authorized a share repurchase program, pursuant to which we are authorized to repurchase up to 2,000,000 shares of our Class A common stock through March 14, 2023, in open market transactions through a broker-dealer at prevailing market prices, in block trades or by any other means in accordance with federal securities laws. During the thirty-nine weeks ended October 29, 2022, we repurchased 1,258,330 shares of our Class A common stock at a weighted average price of $8.63 per share for a total of $10.9 million under the program. At October 29, 2022, the remaining repurchase authorization totaled 741,670 shares.
We are not obligated to repurchase any specific number or amount of shares of Class A common stock pursuant to the program, and we may modify, suspend or discontinue the program at any time. We will determine the timing and amount of repurchased shares, if any, in our discretion based on a variety of factors, such as the market price of our Class A common stock, corporate requirements, general market and economic conditions and applicable legal requirements.


23
 Three Months Ended Nine Months Ended
 October 28,
2017
 October 29,
2016
 October 28,
2017
 October 29,
2016
Stock options1,282
 1,529
 1,291
 2,029
Restricted stock56
 102
 56
 102
Total1,338
 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, 2017.29, 2022. 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 accessorieshardgoods for young men, young women, boys and girls. We offerbelieve we bring together an extensive assortmentunparalleled selection of iconic global, emerging, and proprietary brands rooted in an active and socialoutdoor lifestyle. The Tillys started operationsconcept began in 1982, when our co-founders, Hezy Shaked and Tilly Levine, opened our first store in Orange County, California. As of October 28, 2017,29, 2022, we operated 220247 stores in 33 states, averaging 7,600approximately 7,286 square feet in 31 states.per store, compared to 243 total stores last year at this time. We also sell our products through our e-commerce website, www.tillys.com.

Known or Anticipated Trends
Economic and Operational Trends
Economic and Operational Impacts of the COVID-19 Pandemic. The economic impacts resulting from the COVID-19 pandemic (the "pandemic") have had, and may continue to have, a material effect on our business, financial condition and results of operations, as well as on the market generally. We may experience adverse impacts in the future, particularly related to broader economic conditions that result in significant part from pandemic-related factors. Further, we believe our operating results for fiscal 2021 were significantly aided by the considerable pent-up consumer demand exiting 2020 pandemic restrictions and the impact of federal stimulus payments. Additionally, the factors noted below have had, and are expected to continue to have, an adverse impact on our operating results during fiscal 2022. As a result, we expect our fiscal 2022 fourth quarter operating results will remain below fiscal 2021 levels. In addition to the economic impacts on us, the pandemic has had, and may continue to have, far-reaching impacts on many aspects of our operations, directly and indirectly, including on consumer behavior, store traffic, inventory and expense management, and management of our workforce.
Inflationary Cost Pressures. As of the date of this filing, the macro-economic environment arising out of the pandemic, supply chain disruptions and certain geo-political matters have resulted in significant price increases for the merchandise we purchase for sale to our customers as well as for gasoline, food and other consumables across the economy. We believe that these price increases have had, and will likely continue to have, a negative impact on consumer behavior and, by extension, our results of operations and financial condition during fiscal 2022.
Supply Chain Disruptions. We source a significant portion of our merchandise assortment from third parties who manufacture their products in countries that have experienced widespread issues with the pandemic and resulting macro-economic environment, thereby significantly impacting the global supply chain for merchandise inventories. These issues have resulted in, and are continuing to result in, shipping delays and increased shipping costs throughout the retail industry, has experiencedincluding for us, which negatively affects both our ability to meet our customers' expectations timely and our results of operations. As a general downward trend in customer traffic to physical stores for an extended period of time. Conversely, online shopping has generally increased and resulted in sustained online sales growth. We believe these market trends will continue, despite the improvement in store traffic thatresult, we have experienced duringhad to continuously adjust our merchandise planning, allocation and pricing strategies from historical practices, among other impacts, especially in anticipation of this year's holiday season.
Labor Challenges and Wage Inflation.The pandemic and the first nine monthsresulting factors above have also created challenges related to the availability of sufficient labor from time to time, and have caused a significant increase in the competition for labor among consumer facing companies. This competition for labor has driven significant increases in wages beyond government-mandated increases in minimum wages in order to compete for sufficient labor availability and/or to prevent the loss of existing workforce in our stores, distribution centers and corporate offices. We expect these pressures to continue through the end of fiscal 2017. There can be no guarantee that our recent improvement in store traffic will continue given the broader industry trends.2022.
WePreliminary Fiscal 2023 New Store Openings and Capital Expenditure Plans
During fiscal 2023, we currently expect to open two new stores and close three existing stores during the fourth quarter of fiscal 2017. We will continue to focus our efforts on improving our existing stores, 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.
During fiscal 2018, we plan to open 10up to 15 new stores as well as a limited number of RSQ-branded "pop-up" stores. We will leveragewithin existing markets, whereprimarily 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 be enhanced withtotal capital expenditures for fiscal 2023 not to exceed $25 million, inclusive of our new stores that are plannedstore plans and upgrades to drive additional improvement to our operating income.certain distribution and information technology infrastructure systems.

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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.



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Net Sales

Net sales reflect revenue from the sale of our merchandise at store locations as well asand through e-commerce, net of sales of merchandise through our e-commerce platform, which istaxes. 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 deliveredshipped 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. Net salesWe recognize revenue from gift cards as they are adjustedredeemed for themerchandise. Prior to redemption, we maintain a current liability for unredeemed awardsgift card balances. Our gift cards do not have expiration dates and accumulated partial pointsin most cases there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. Based on our customer loyalty program. Revenue from the saleactual historical redemption patterns, we determined that a small percentage of gift cards is deferred and not included in net sales until the gift cards are usedunlikely to purchase merchandise. However, over time, the redemption of some gift cards becomes remote (referredbe redeemed (which we refer to as "giftgift card breakage"“breakage”). Revenue from estimatedBased on our historical gift card breakage is also includedrate, we recognize breakage revenue over the redemption period in net sales.proportion to actual gift card redemptions.
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 (including our e-commerce platform) is performing. Numerous factors affect our comparable store sales, including:
 
overall economic trends;
our ability to attract traffic to our stores and e-commerceonline 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;stores;
our ability to source and distribute products efficiently;
calendar shifts of holiday or seasonal periods;
the number and timing of store openings and the relative proportion of new stores to mature stores; and
the timing and success of promotional and advertising efforts.
ComparableOur comparable store sales are defined as sales from our e-commerce platform and stores open at least 12 fullon a daily basis compared to the same respective fiscal months asdates of the end of the current reporting period.prior year. A remodeled, relocated or refreshed store is included in comparable store 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 more than five days in any fiscal month. We include sales from our e-commerce platform as part of comparable store sales as we manage and analyze our business on a single 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 reportReport regarding our comparable store sales may not be comparable to similar data made available by other retailers.


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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 merchandise and shipping of merchandise to or from our distribution and e-commerce fulfillment centers and to our e-commerce customers and between store locations. Occupancy costs include the rent, common area maintenance, utilities, property taxes, security and 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.

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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 'youngyoung men's and women's apparel',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 of 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,This reflects that various costs, such asincluding 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 composedcomprised 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. 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 volumelower-volume periods and lower in higher volumehigher-volume periods.
Operating Income
Operating income equals gross profit less SG&A expenses. Operating income excludes interest income, interest expense and income taxes. Operating income percentage measures operating income as a percentage of our net sales.

























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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 sold102,730
 104,137

288,653

289,343
Gross profit50,094
 47,969

123,928

119,393
Selling, general and administrative expenses35,982
 37,302

111,384

110,460
Operating income14,112
 10,667

12,544

8,933
Other income, net375
 103

810

270
Income before income taxes14,487
 10,770

13,354

9,203
Income tax expense5,730
 4,353

5,354

4,097
Net income$8,757
 $6,417

$8,000

$5,106
        
Percentage of Net Sales:       
Net sales100.0% 100.0% 100.0% 100.0%
Cost of goods sold67.2% 68.5% 70.0% 70.8%
Gross profit32.8% 31.5% 30.0% 29.2%
Selling, general and administrative expenses23.5% 24.5% 27.0% 27.0%
Operating income9.2% 7.0% 3.0% 2.2%
Other income, net0.2% 0.1% 0.2% 0.1%
Income before income taxes9.5% 7.1% 3.2% 2.3%
Income tax expense3.7% 2.9% 1.3% 1.0%
Net income5.7% 4.2% 1.9% 1.2%
sales:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Statements of Income Data:
Net sales$177,847 $206,096 $491,930 $571,205 
Cost of goods sold122,346 128,612 338,870 362,751 
Rent expense, related party918 745 2,680 2,149 
Total cost of goods sold123,264 129,357 341,550 364,900 
Gross profit54,583 76,739 150,380 206,305 
Selling, general and administrative expenses48,13447,609 137,405 135,607 
Rent expense, related party134133400 400 
Total selling, general and administrative expenses48,268 47,742 137,805 136,007 
Operating income6,315 28,997 12,575 70,298 
Other income (expense), net675 (1)862 (219)
Income before income taxes6,990 28,996 13,437 70,079 
Income tax expense1,841 8,162 3,656 17,888 
Net income$5,149 $20,834 $9,781 $52,191 
Percentage of Net Sales:
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of goods sold68.8 %62.4 %68.9 %63.5 %
Rent expense, related party0.5 %0.4 %0.5 %0.4 %
Total cost of goods sold69.3 %62.8 %69.4 %63.9 %
Gross profit30.7 %37.2 %30.6 %36.1 %
Selling, general and administrative expenses27.1 %23.1 %27.9 %23.7 %
Rent expense, related party0.1 %0.1 %0.1 %0.1 %
Total selling, general and administrative expenses27.1 %23.2 %28.0 %23.8 %
Operating income3.6 %14.1 %2.6 %12.3 %
Other income (expense), net0.4 %0.0 %0.2 %0.0 %
Income before income taxes3.9 %14.1 %2.7 %12.3 %
Income tax expense1.0 %4.0 %0.7 %3.1 %
Net income2.9 %10.1 %2.0 %9.1 %
The following table presents store operating data for the periods indicated:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 29,
2022
October 30,
2021
October 29,
2022
October 30,
2021
Operating Data:
Stores operating at end of period247 243 247 243 
Comparable store net sales change (1)
(14.9)%31.3 %(14.9)%18.2 %
Total square feet at end of period (in '000s)1,800 1,781 1,800 1,781 
Average net sales per physical store (in '000s) (2)
$578 $678 $1,635 $1,892 
Average net sales per square foot (2)
$79 $93 $224 $258 
E-commerce net sales (in '000s) (3)
$36,308 $40,841 $95,821 $113,648 
E-commerce net sales as a percentage of net sales20.4 %19.8 %19.5 %19.9 %
 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 period220
 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 sales12.4% 12.1% 12.6% 12.2%
(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.

(1)Our comparable store net sales are defined as sales from our e-commerce platform and stores open on a daily basis compared to the same respective fiscal dates of the prior 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% 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


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operations for our stores and e-commerce platform to give our customers seamless access and increased ease of shopping. Comparable store net sales exclude gift card breakage income, and e-commerce shipping and handling 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 net sales include e-commerce sales and e-commerce shipping and handling fee revenue.
Third Quarter (13 Weeks) Ended October 28, 201729, 2022 Compared to Third Quarter (13 Weeks) Ended October 29, 2016
30, 2021
Net Sales
Total net sales were $177.8 million, a decrease of $28.2 million, or 13.7%, compared to $206.1 million last year, primarily due to the impacts of last year's pent-up consumer demand and stimulus payments resulting from the pandemic.
Net sales from physical stores were $152.8$141.5 million, ina decrease of $23.7 million or 14.4%, compared to $165.3 million last year. Net sales from physical stores represented 79.6% of total net sales compared to 80.2% of total net sales last year. We ended the third quarter of fiscal 2017with 247 total stores compared to $152.1 million in243 total stores at the end of the third quarter last year.
Net sales from e-commerce were $36.3 million, a decrease of fiscal 2016, an increase of $0.7$4.5 million or 0.5%.
The increases in11.1%, compared to $40.8 million last year. E-commerce net sales were attributed to an increase in comparable store salesrepresented 20.4% 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 quarter19.8% of fiscal 2016. Our comparable storetotal 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$54.6 million, or 4.4%. Gross margin, or gross profit as a percentage30.7% of net sales, was 32.8%compared to $76.7 million, or 37.2% of net sales, last year. Buying, distribution and occupancy costs deleveraged by 360 basis points collectively due to carrying these costs against a significantly lower level of net sales this year. Product margins declined by 300 basis points primarily due to an increased markdown rate compared to last year, during the third quarter of fiscal 2017 and 31.5% during the third quarter of fiscal 2016. The comparable changes 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
which we experienced record full price selling with an abnormally low markdown rate.
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$48.3 million or 3.5%. As a percentage27.1% of net sales, SG&A expenses were 23.5% for the third quarter of fiscal 2017 compared to 24.5% during the third quarter$47.7 million, or 23.2% of fiscal 2016.net sales, last year. The primary components of the SG&A decrease,variances, both in terms of percentage of net sales and total dollars, were as follows:
% $ millionsAttributable 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)% $(1.3)Total
%$ millionsPrimarily Attributable to
2.1%$0.6Increase in store payroll and related benefits as a result of having four net additional stores along with higher hourly wage rates.
0.7%0.5Increase in corporate payroll primarily due to wage inflation.
(0.9)%(1.8)Decrease in corporate bonus expense due to lack of a bonus accrual in fiscal 2022.
0.1%(0.6)Decrease in marketing expenses.
2.0%1.8Net change in all other SG&A expenses.
4.0%$0.5Total
Operating Income
Operating income was $14.1$6.3 million, or 9.2%3.6% of net sales, in the third quarter of fiscal 2017 compared to $10.7$29.0 million, or 7.0%14.1% of net sales, for the third quarter of fiscal 2016.last year.
Income Tax Expense
Income tax expense was $5.7$1.8 million, or 26.3% of pre-tax income, compared to $8.2 million, or 28.1% of pre-tax income, last year. The decrease in the third quartereffective income tax rate was primarily due to the discrete tax effects of fiscal 2017 compared to $4.4 million in the third quarter of fiscal 2016. Our effective tax rates were 39.6% and 40.4% for third quarter of fiscal 2017 and third quarter of fiscal 2016, respectively.stock-based compensation.
Net Income and Income Per Diluted Share
Net income was $8.8$5.1 million, for the third quarter of fiscal 2017or $0.17 per diluted share, compared to $6.4$20.8 million, for the third quarteror $0.66 per diluted share, last year.



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Table of fiscal 2016, representing an increaseContents



Thirty-Nine Weeks Ended October 29, 2022 Compared to Thirty-Nine Weeks Ended October 30, 2021
Net Sales
Total net sales were $491.9 million, a decrease of $2.3$79.3 million or 13.9%, compared to $571.2 million last year, primarily due to the factors discussed above. Diluted income per share was $0.30 forimpacts of last year's pent-up consumer demand and stimulus impacts resulting from the third quarterpandemic.
Net sales from physical stores were $396.1 million, a decrease of fiscal 2017$61.4 million or 13.4%, compared to diluted income per share of $0.22 for the third quarter of fiscal 2016.



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Nine Months Ended October 28, 2017 Compared to Nine Months Ended October 29, 2016
Net Sales
$457.6 million last year. Net sales were $412.6 million in the first nine monthsfrom stores represented 80.5% of fiscal 2017 compared to $408.7 million in the first nine months of fiscal 2016, an increase of $3.8 million, or 0.9%.
The increases in net sales were attributed to an increase in comparable store 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% of our total net sales or $52.1 million, in the first nine months of fiscal 2017 as compared to 12.2%80.1% of total net sales last year.
Net sales from e-commerce were $95.8 million, a decrease of $17.8 million or 15.7%, or $49.9compared to $113.6 million in the first nine monthslast year. E-commerce net sales represented 19.5% of fiscal 2016. Our comparable storetotal 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.compared to 19.9% of total net sales 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$150.4 million, or 3.8%. Gross margin, or gross profit as a percentage30.6% of net sales, was 30.0%compared to $206.3 million, or 36.1% of net sales, last year. Buying, distribution, and 29.2%occupancy costs deleveraged by 300 basis points collectively despite being $0.9 million lower than last year due to carrying these costs against a significantly lower level of net sales this year. Product margins declined by 250 basis points primarily due to an increased markdown rate compared to last year, during the first nine months of fiscal 2017 and fiscal 2016, respectively. The comparable changes 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
which we experienced record full price selling with an abnormally low markdown rate.
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$137.8 million or 0.8%. As a percentage28.0% of net sales, SG&A expenses were 27.0% during the first nine monthscompared to $136.0 million, or 23.8% of fiscal 2017 and fiscal 2016.Thenet sales, last year. The primary components of the SG&A increase,variances, both in terms of percentage of net sales and total dollars, were as follows:
%$ millionsAttributable to
1.2%$5.1Net 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
—%$0.9Total
%$ millionsPrimarily Attributable to
2.4%$3.1Increase in store payroll and related benefits as a result of having four net additional stores along with higher hourly wage rates.
0.3%1.7Credit from the reversal of a disputed California sales tax assessment in last year's first quarter.
0.3%1.0Increase in software as a service costs.
(1.1)%(6.1)Decrease in corporate bonus expense due to lack of a bonus accrual in fiscal 2022.
0.2%(1.0)Decrease in e-commerce marketing expense.
2.1%3.1Net change in all other SG&A expenses.
4.2%$1.8Total
Operating Income

Operating income was $12.5$12.6 million, or 3.0%2.6% of net sales, for the first nine months of fiscal 2017 compared to $8.9$70.3 million, or 2.2%12.3% of net sales, for the first nine months of fiscal 2016.last year.
Income Tax Expense
Income tax expense was $5.4$3.7 million, or 40.1%27.2% of pre-tax income, before taxes, for the first nine months of fiscal 2017 compared to $4.1$17.9 million, or 44.5%25.5% of pre-tax income, before taxes, forlast year. The increase in the first nine months of fiscal 2016. The decrease in our effective income tax rate for the first nine months of fiscal 2017 was primarily due to fewerthe discrete items related to the expirationtax effects of stock options, exercises of stock options and settlement of restricted stock during the first nine months of fiscal 2017.stock-based compensation.
Net Income and Income Per Diluted Share
Net income was $8.0$9.8 million, for the first nine months of fiscal 2017or $0.32 per diluted share, compared to $5.1$52.2 million, for the first nine months of fiscal 2016, due to the factors discussed above. Basic andor $1.68 per 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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last year.
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 primaryIn addition to cash needsand cash equivalents and marketable securities, the most significant components of our working capital are for merchandise inventories, payroll, store rentaccounts payable and capital expenditures.accrued expenses. We have historically provided for these needsbelieve 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 financeoperating activities, our operations from cash and marketable securities on hand, as well asand 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 underare not sufficient or available to meet our revolving credit facility overcapital 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, 2017,29, 2022, was $118.1$90.0 million compared to $129.8$91.8 million at January 28, 2017,29, 2022, a decrease of $11.7$1.8 million. The primary changes in our working capital during the first nine monthsthree quarters of fiscal 20172022 were as follows:
$ millionsDescription
$129.891.8Working capital at January 28, 201729, 2022
(12.0)(22.6)Decrease in cash, cash equivalents, and marketable securities primarily due to thelower net income and payment of a $20.1 million special dividend in February 2017fiscal 2021 corporate bonus.
0.3(10.9)Net increase from changes in all other current assets and liabilitiesRepurchase of shares under our share repurchase program.
$118.113.9Increase in merchandise inventories, net of accounts payable.
7.3Increase primarily due to a decrease in accrued compensation and benefits, including payment of fiscal 2021 corporate bonus.
4.6Increase in receivables, primarily due to timing of credit and debit card receivables.
3.2Increase primarily due to a decrease in gift card liability.
1.8Increase primarily due to a decrease in accrued expenses.
0.9Other net increases.
$90.0Working capital at October 28, 201729, 2022
Cash Flow Analysis

A summary of operating, investing and financing activities for the thirty-nine weeks ended October 29, 2022 compared to the thirty-nine weeks ended October 30, 2021 is shown in the following table (in thousands):
 Nine Months Ended
 October 28,
2017
 October 29,
2016
Net cash provided by operating activities$17,685
 $19,589
Net cash used in investing activities(37,194) (26,513)
Net cash used in financing activities(20,573) (714)
Net decrease in cash and cash equivalents$(40,082) $(7,638)
 Thirty-Nine Weeks Ended
 October 29,
2022
October 30,
2021
Net cash (used in) provided by operating activities$(11,082)$46,850 
Net cash provided by (used in) investing activities55,513 (42,061)
Net cash used in financing activities(10,846)(21,581)
Net change in cash and cash equivalents$33,585 $(16,792)
Net Cash (Used in) Provided Byby Operating Activities
Operating activities consist primarily of net income 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 yearperiod in our assets and liabilities.
Net cash flows provided byused in operating activities were $17.7was $11.1 million during the first nine months of fiscal 2017this year compared to $19.6net cash provided of $46.9 million in the first nine months of fiscal 2016.last year. The $1.9$57.9 million decrease in cash provided by operating activities was primarily due to lower net sales in fiscal 2022 compared to record net sales in fiscal 2021. The net sales decline was primarily due to the timingimpacts of vendor payments.

pent-up customer demand following the winding down of the 2020 pandemic restrictions and the pandemic-related federal stimulus payments on fiscal 2021 operations, coupled with the negative impact of a highly inflationary consumer environment in fiscal 2022.
Net Cash Used InProvided by (Used In) Investing Activities
Cash flows from investing activities consist primarily of capital expenditures and maturities and purchases of marketable securities.
Net cash used inprovided by investing activities was $37.2$55.5 million during the first nine months of fiscal 2017this year compared to $26.5$42.1 million during the first nine months of fiscal 2016.in net cash used last year. Net cash used inprovided by investing activities in the first nine monthsthree quarters of fiscal 20172022 consisted of capital expenditures totaling $9.7maturities of marketable securities of $117.2 million, andpartially offset by the purchases of marketable securities of $112.6$49.8 million partially offset by proceeds from the maturities of marketable securities of $85.1and capital expenditures totaling $11.9 million. Net cash used in investing activities during the first nine monthsthree quarters of fiscal 2016 primarily2021 consisted of capital expenditures totaling $14.8 million and purchases of marketable securities of $81.8$126.4 million and capital expenditures totaling $10.9 million, partially offset by proceeds from the maturities of marketable securities of $70.0$95.2 million.
Net Cash Used in Financing Activities
Cash flows used in financingFinancing activities primarily consist primarily of cash dividend payments, payments onborrowings and repayments of our capital lease obligationline of credit, taxes paid in lieu of shares issued for share based compensation, share repurchases and proceeds from employee exercises of stock options.


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Net cash used in financing activities was $20.6$10.8 million during the first nine months of fiscal 2017this year compared to $0.7net cash used of $21.6 million during the first nine months of fiscal 2016.last year. Financing activities in the first nine monthsthree quarters of fiscal 2017 primarily2022 consisted of cash used to repurchase shares of our common stock of

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$10.9 million, partially offset by proceeds from the exercise of stock options of $56 thousand. Financing activities in the first three quarters of fiscal 2021 consisted of dividends paid of $20.1$30.7 million, and cash payments on our capital lease obligationpartially offset by proceeds from the exercise of $0.7 million. Financing activities in the first nine monthsstock options of fiscal 2016 primarily consisted of cash payments on our capital lease obligation of $0.6$9.1 million.

Credit Agreement
Line ofNew Credit Agreement

Our amended and restatedOn January 20, 2022, we entered into a senior secured credit agreement (the "Credit Agreement") and revolving line of credit note (the "Note") with Wells Fargo Bank, N.A.National Association (the "Bank"“Bank”). The Credit Agreement provides for a senior secured revolving credit facility (“Revolving Facility”) of up to $25.0 million (“Revolving Commitment”) consisting of revolving line of credit with a maturity date of June 26, 2020. The interest rate charged on 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-feature under the credit agreement, the Bank may also issue stand-by and/or commercialloans, letters of credit upand swing line loans, with a sub-limit on letters of credit outstanding at any time of $15.0 million. The Revolving Facility matures on January 20, 2024. 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 payment and performance in full of the obligations under the Credit Agreement are guaranteed by the Company pursuant to $15.0 million.a continuing guaranty (the "Guaranty") granted by the Company in favor of the Bank. The payment and performance of the Company’s obligations under the Guaranty are secured by a lien on, and pledge of, all of the equity interests owned by the Company.

Borrowings under the Revolving Facility bear interest at a rate per annum equal to the daily simple Secured Overnight Financing Rate ("SOFR") plus 0.75%. Amounts available to be drawn under outstanding letters of credit accrue fees in an amount equal to 1.00% per annum. The unused portion of the Revolving Commitment is not subject to a commitment fee.
WeUnder the Credit Agreement, we are requiredsubject to maintain certain financiala variety of affirmative and non-financialnegative covenants of types customary in accordance with the line of credit. Thea cash-flow-based lending facility, including financial covenants that require certain levelsmaintenance 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(1) a trailing 12-month basis), (ii) a maximum ratio of 4.00total funded debt 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,earnings before interest, expense, taxes, depreciation, amortization and annual rent expenseexpenses no greater than 4.00 to 1.00 and (2) a fixed charge coverage ratio of not less than 1.25 to 1.00 (calculation of which takes into account dividends, distributions, redemptions and repurchases of the equity interests of the Company only if the Company’s cash on hand, net of any amounts outstanding under the Credit Agreement, is less than $50.0 million after giving effect to such dividends, distributions, redemptions or repurchases).
Events of default under the Credit Agreement include, among other things, failure to pay principal, interest, fees or other amounts; covenant defaults; material inaccuracy of representations and warranties; bankruptcy events with respect to the Company; actual or asserted invalidity of any of the loan documents; or a trailing 12-month basis,change of control of the Company.
In connection with the entry into the Credit Agreement, on January 20, 2022, we entered into certain ancillary agreements, including (i) a security agreement in favor of the Bank (ii) the Guaranty entered into by the Company and (iii) requires minimum eligible inventory, cash, cash equivalentsa third party pledge agreement entered into by the Company in favor of the Bank. The security agreement, the guaranty and marketable securities totaling $50.0 millionthe pledge agreement replaced (a) the guaranty by the Company in favor of the Bank, dated November 9, 2020, and (b) the security agreement dated as of November 9, 2020, between the endCompany and the Bank, which were both terminated concurrently with the termination of each quarter. In addition, maximum investment in fixed assets in any fiscal year of $50.0 million.the Prior Credit Agreement.

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, 2017,29, 2022, we were in compliance with all of our covenants and had no outstanding borrowings under the Credit Agreement.
Prior Credit Agreement
The Credit Agreement replaced our previously existing asset-backed credit agreement (the “Prior Credit Agreement”), dated as of November 9, 2020, as amended, with the Bank, which had revolving commitments of up to $65.0 million, a sub-limit on letters of credit facility.of $10.0 million and a sub-limit for swing-line loans of $7.5 million.
The Prior Credit Agreement was terminated concurrently with the entry into the Credit Agreement. The maximum borrowings permitted under the Prior Credit Agreement was equal to the lesser of (x) the revolving commitment and (y) the borrowing base. The borrowing base was 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. As of the date the Prior Credit Agreement was terminated, we had no outstanding borrowings under the Credit Agreement and the only utilization of the letters of credit sub-limit under the Credit Agreement was a $2.025 million irrevocable standby letter of credit, which was previously issued under the Prior Credit Agreement and was transferred on such date to the Credit Agreement.

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The unused portion of the revolving commitment under the Prior Credit Agreement accrued a commitment fee, which ranged 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 Prior Credit Agreement bear interest at a rate per annum that ranged 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 Prior Credit Agreement over the applicable fiscal quarter. We were allowed to 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 Prior Credit Agreement, we were 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 were 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.
Contractual Obligations
As of October 28, 2017,29, 2022, 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.

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.

29, 2022.
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, 2017.29, 2022.
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, 2017,29, 2022, there were no material changes in the market risks described in the “Quantitative and Qualitative Disclosure ofAbout Market Risks” section of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.29, 2022.

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, 2017.29, 2022. 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, 2017,29, 2022, 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-Qthirteen weeks ended October 29, 2022 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

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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 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 ofIn addition to the risks that affect our business,other information set forth in this Report, please refer to the section entitledtitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017. There have been no material changes29, 2022 for a detailed discussion of the risks that affect our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents our repurchases of Class A common stock during each of the fiscal months during our first nine months of fiscal 2022:
Fiscal PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs (1)
January 30, 2022 - February 26, 2022— $— — — 
February 27, 2022 - April 2, 2022428,089 9.36 428,089 1,571,911 
April 3, 2022 - April 30, 2022463,944 8.93 892,033 1,107,967 
May 1, 2022 - May 28, 202295,394 8.76 987,427 1,012,573 
May 29, 2022 - July 2, 2022— — 987,427 1,012,573 
July 3, 2022 - July 30, 2022— — 987,427 1,012,573 
July 31, 2022 - August 27, 2022— — 987,427 1,012,573 
August 28, 2022 - October 1, 2022270,903 6.93 1,258,330 741,670 
October 2, 2022 - October 29, 2022— — 1,258,330 741,670 
Total1,258,330 $8.63 1,258,330 741,670 
(1) On March 14, 2022, our Board of Directors authorized a share repurchase program, pursuant to which we are authorized to repurchase up to 2,000,000 shares of our risk factors as previously disclosedClass A common stock through March 14, 2023, in our Annual Report on Form 10-K.




open market transactions through a broker-dealer at prevailing market prices, in block trades or by any other means in accordance with federal securities laws.


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Item 6. Exhibits
Exhibit
No.
Description of Exhibit
Exhibit
No.3.1
Description
101Interactive data files from Tilly’s, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2017,29, 2022, formatted in XBRL (eXtensibleiXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statement of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements.

*104Filed herewithCover 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 reportReport to be signed on its behalf by the undersigned, thereunto duly authorized.
Tilly’s, Inc.
Date:December 7, 2022
/s/ Edmond Thomas
Edmond Thomas
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date:December 7, 2022Tilly’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)





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