Tilly's, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-K

(Mark One)

☒

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

For the fiscal year ended February 3, 2024
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)

Delaware
(State or other jurisdiction of
incorporation or organization)
10 Whatney, Irvine, CA
(Address of principal executive offices)

45-2164791
(I.R.S. Employer
Identification No.)
92618
(Zip Code)

(949) 609-5599
(Registrant’s telephone number, including area code) 

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

Title of Each Class
Class A Common Stock, $0.001 par value per share

Trading Symbol
TLYS

Name of Each Exchange on Which Registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ☐    No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ☐    No  

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      No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     Yes      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,” “small reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange
Act: 

Large accelerated filer:
Nonaccelerated filer:

☐
☐ 

Accelerated filer:
Smaller reporting company:
Emerging growth company:





☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐    
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  ☐    No  

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
As of July 28, 2023, the last trading day of the registrant's most recently completed second quarter, the aggregate market value of voting stock held by non-affiliates of the
registrant was $190,611,503 based on the closing price of the registrant's common stock of $8.56 per share.

As of April 5, 2024, the registrant had 22,747,115 shares of Class A common stock, par value $0.001 per share, outstanding, and 7,306,108 shares of Class B common stock,
par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement (the "Proxy Statement") for its Annual Meeting of Stockholders anticipated to be held June 13, 2024 are incorporated by
reference into Part III of this Annual Report on Form 10-K. Only those portions of the Proxy Statement which are specifically incorporated by reference herein shall
constitute a part of this Annual Report on Form 10-K.

 
 
 
 
 
 
 
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.

PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.

PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

PART IV
Item 15.
Item 16.

Signatures

TABLE OF CONTENTS

Business
Risk Factors
Unresolved Staff Comments
Cyber Security
Properties
Legal Proceedings
Mine Safety Disclosures

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved.]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services

Exhibits, Financial Statement Schedules
Form 10-K Summary

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Forward-Looking Statements

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

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the impacts of inflation on consumer spending generally and on our expense management, operating results and financial condition;
our ability to adapt to declines in consumer confidence and decreases in consumer spending;
the impact of fluctuations in the price and availability of raw materials, labor, and transportation;
our ability to compete effectively in an environment of intense competition in stores, online and via social media marketing platforms;
our ability to adapt to downward trends in traffic for our stores and changes in our customers' purchasing patterns;
our ability to identify and respond to new and changing customer fashion preferences and fashion-related trends;
our ability to successfully open new stores and profitably operate our existing stores;
our ability to secure desirable lease arrangements and other economics to improve our profitability;
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;
our ability to generate adequate cash from our existing stores and e-commerce to support our business;
our ability to generate sufficient undiscounted cash flows to recover our investment in long-lived and right-of-use assets;
our ability to generate sufficient pre-tax income to fully utilize our deferred tax assets;
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 adapt to unseasonable weather impacting sales of our seasonal merchandise;
our dependence on third-party vendors to provide us with sufficient quantities of merchandise at acceptable prices and on time;
our ability to adapt to significant changes in sales due to the seasonality of our business;
our dependence upon key executive management or our inability to hire or retain the talent required for our business;
our ability to establish, maintain and enhance a strong brand image;

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• most of our merchandise is made in foreign countries, making price and availability of our merchandise susceptible to international trade conditions;
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our ability to balance proprietary branded merchandise with the third-party branded merchandise we sell;
our ability to efficiently utilize our e-commerce fulfillment center;
our ability to generate sufficient cash flows to make significant periodic lease payments for our stores, corporate offices and distribution centers;
our ability to attract customers in the various retail venues and geographies in which our stores are located;
our ability to respond to litigation claims we are subject to;
our ability to respond to changes in employment and wage and hour laws;
failure of our vendors and their manufacturing sources to use acceptable labor or other practices;
our ability to effectively respond to disruptions in our supply chain and distribution center;
our ability to adjust to increasing costs of mailing catalogs, paper and printing;
failure of our information technology systems to support our business, before and after our planned upgrades;
our ability to secure our data and comply with privacy laws and the security standards of the credit card industry;
disruptions to our information systems in the ordinary course of business, as a result of systems upgrades or due to intentional attacks;
our ability to protect our trademarks or other intellectual property rights;
our potential liability if we or our vendors unknowingly infringe upon the intellectual property rights of third parties;
natural disasters, unusually adverse weather conditions, port delays, boycotts, epidemics, pandemics, acts of war, terrorism, civil unrest and other
unanticipated events;
the potential effects of unionization and work stoppages or slowdowns by our employees;
continuing costs incurred as a result of being a public company; and

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our ability to respond to risks associated with climate change, environmental, social and governance initiatives, and sustainability initiatives.

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” 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

Item 1. Business

Tillys is a leading destination specialty retailer of casual apparel, footwear, accessories, and hardgoods for young men, young women, boys and girls with
an extensive assortment of iconic global, emerging, and proprietary brands rooted in an active, outdoor and social lifestyle. Tillys is headquartered in
Irvine, California and operated 248 stores in 33 states as of February 3, 2024. Our stores are located in a variety of retail centers, including malls, lifestyle
centers, "power" centers, community centers, outlet centers, and street-front locations. Customers may also shop online, where we feature substantively the
same assortment of products as is 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 ("WOJT"), a California corporation, 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, Inc.

As used in this Report, 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.

Our fiscal year ends on the Saturday closest to January 31. For example, "fiscal 2023" refers to the fiscal year ended February 3, 2024; "fiscal 2022" refers
to the fiscal year ended January 28, 2023; and "fiscal 2021" refers to the fiscal year ended January 29, 2022.

Our Strengths

We believe that the following strengths distinguish us from our competitors:

• Destination retailer with a broad and differentiated assortment. We believe the combined depth and breadth of apparel, footwear and accessories

offered at our stores exceeds the selection offered at many other specialty retailers. We offer an extensive selection of lifestyle and emerging third-
party brands, as well as proprietary brands. Our merchandise includes a wide assortment of relevant brands, styles, colors, sizes, and price points to
ensure our customers have a variety of choices every time they visit our stores. We offer a balanced mix of merchandise across the apparel, footwear
and accessories categories serving young men, young women, boys, and girls. We believe that by combining proven and emerging fashion trends and
core style products with a vibrant blend of carefully selected music and visuals, we provide an in-store experience that is authentic, fun, and engaging
for our core customers. We believe that our differentiated in-store environment, evolving selection of relevant brands, and broader and deeper
assortment positions us as a retail destination that appeals to a larger demographic than many other specialty retailers.

• Dynamic merchandise model. We believe our extensive selection of third-party and proprietary merchandise allows us to identify and offer several

trends simultaneously, offer a greater range of price points, and manage our inventories more dynamically. By closely monitoring trends and shipping
product to our stores multiple times per week, we are able to adjust our merchandise mix based on store size and location. We also keep our
merchandise mix relevant by introducing emerging brands and new merchandise from established brands not available at many other retailers. Our
merchandising capabilities enable us to adjust our merchandise mix with a frequency that promotes a current look to our stores and website.

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Flexible real estate strategy across real estate venues and geographies. Our stores have proven to be successful in a variety of retail centers and
geographies. We operate stores in malls, lifestyle centers, power centers, community centers, outlet centers, and street-front locations across 89
markets in 33 states. We believe our success operating in these different retail venues and geographies demonstrates the portability of the Tillys brand.

• Multi-pronged marketing approach. We utilize a multi-pronged marketing strategy to connect with our customers and drive traffic to our stores and

online platforms. We offer an integrated digital platform for our customers to shop how and when they like, in-store, online and on their mobile device,
to drive meaningful connection with our customers. We regularly collaborate with our brand partners on exclusive, compelling in-store events, new
customer acquisition, and contests to build credibility with our target audience, while actively involving our brand partners, and strengthening the
connection between Tillys and our customers' active lifestyle. We have a customer loyalty program, “Tillys Rewards”, to regularly engage with our
customers, reward our most loyal customers, provide loyalty only events, and gain valuable insights. From time to time, we distribute catalogs and
postcards to potential and existing customers to familiarize them with the Tillys brand, our exclusive brands and products, and to drive traffic to our
stores and website. We use social media to communicate directly with our customers while also encouraging customers to interact and provide
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our events and products. We also partner with influencers to drive brand awareness and create excitement for new products. All of these programs are
complemented by our digital and email marketing, as well as print advertising, to build customer awareness and loyalty, highlight key merchandise
offerings, drive traffic to our stores and online platforms, and promote the Tillys brand. We also seek to maintain a connection with our local
communities through our various community outreach initiatives and events.

Systems and distribution/fulfillment infrastructure to support growth. We believe our existing distribution, fulfillment and allocation infrastructure is
adequate to support continued growth for the next few years. Our distribution center allows us to quickly sort and process merchandise and deliver it to
our stores in a floor-ready format for immediate display. We also have a dedicated e-commerce fulfillment center to support our online growth
potential. Our systems enable us to respond to changing fashion trends, manage inventory in real time, and provide a customized selection of
merchandise at each location. During fiscal 2024, we plan to complete an upgrade of our warehouse management systems to improve efficiency and
position ourselves for longer-term anticipated growth in our business.

Experienced management team. Our senior management team, led by Hezy Shaked and Michael Henry, has extensive experience across a wide range
of disciplines in the specialty retail and direct-to-consumer industries, including store operations, merchandising, distribution, real estate, and finance.
Mr. Shaked, our Co-Founder, Executive Chairman of the Board of Directors, and Interim President and Chief Executive Officer, plays an important
role in developing our long-term growth initiatives, driving planned improvements in our business, and cultivating our unique culture. Mr. Henry, our
Executive Vice-President and Chief Financial Officer, has over 20 years of specialty retail industry experience.

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Growth Strategy

Despite our recent operating challenges, we continue to believe in the following strategies to drive long-term sales and profitability, including:

• Drive Comparable Store Sales Improvement. We seek to maximize our comparable store sales by consistently offering new, on-trend and relevant
merchandise, including exclusive and proprietary branded merchandise, across a broad assortment of categories, increasing our brand awareness
through our multi-pronged marketing approach, providing an authentic in-store and online experience for our core customers, and maintaining a high
level of customer service. We continue to seek new opportunities to enhance our existing loyalty program to further reward our most loyal customers.
We believe the combination of these factors, together with the operating strategies described below, will improve our comparable store sales results
over time.

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Increase Our Operating Margins. We believe we have the opportunity to drive operating margin expansion through net sales growth, store unit growth,
improving product margins off of company lows in fiscal 2023, and continued process improvements. We believe comparable store sales increases
would permit us to generate more favorable buying costs from larger volume purchases, and better leverage largely fixed occupancy costs, labor costs
for store management and corporate overhead, as well as the fixed portion of shipping and handling costs over higher sales volumes. In addition, we
expect to improve operating margins and support growth by leveraging previous investments in infrastructure, including our dedicated fulfillment
center for e-commerce, upgraded e-commerce platform, and in-store point-of-sale system. We also will continue to use established business processes
to identify and execute initiatives focused on lowering our unit costs and improving operational efficiency throughout our organization.

• Continue Growing E-Commerce. Our e-commerce net sales represented approximately 22%, 21% and 21% of our total net sales in fiscal 2023, 2022,
and 2021, respectively. We believe that significant growth opportunities continue to exist within the online portion of our business and, relative to
fiscal 2023, we believe it may continue to grow as a percentage of total net sales in the future. We believe our e-commerce platform is an extension of
our brand and retail stores, offering substantially the same merchandise assortment as offered in our stores but with opportunities to provide extensions
of that same assortment online, whether in terms of sizing or particular styles that may not be available in stores at a particular point in time. Our goal
is to provide our customers with a seamless shopping experience. Our e-commerce platform allows us to reach new customers and build our brand in
markets where we currently do not have stores. For example, we generate e-commerce sales in all 50 states and the District of Columbia although we
have physical stores in only 33 states. Our target customer regularly shops online and via mobile devices in addition to visiting stores, giving us a
continued opportunity to grow our e-commerce platform over time. In recent years, we have invested in a new point-of-sale system and upgraded our
website platform and order management system that have enhanced our omni-channel capabilities, including fulfilling e-commerce orders from stores,
allowing customers to place orders online to pick up in-store, and ordering items in store for fulfillment by e-commerce. Moreover, partnerships with
Afterpay, Apple, Google, Amazon, and Uber have provided our customers greater flexibility in payment options and delivery convenience, including
same-day delivery or next-day delivery within certain areas. We plan to continue to invest in additional customer-facing technologies to improve
customer convenience and engagement over time. Key drivers for future growth include deploying targeted online and mobile marketing efforts,
leveraging customer personalization to cater to individual shopping patterns, and

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expanding our digital capabilities to meet evolving customer needs. We also expect to continue to expand digital marketing efforts through customer
loyalty programs, SMS marketing, push messaging and building brand awareness in the communities surrounding our existing stores to drive growth
across all channels.

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Improve Inventory Allocation and Management. We continue to improve our approach to inventory management over time through more refined
micro-merchandising tactics based on specific store and online characteristics. We regularly update individual store profiles for every store to highlight
the differences in brand performance, gender penetrations, and customer interests that exist within our fleet of stores. We also monitor sell-through
rates online versus stores to identify opportunities for inventory transfers to generate greater sales efficiencies. By adapting allocation strategies to
capitalize on these individual store and online differences, we believe we can continue to improve our net sales results.

• Enhancing Omni-Channel Capabilities. We have a direct-to-consumer program that allows online orders to be fulfilled and shipped directly to our
customers from our brick-and-mortar stores when inventory is otherwise unavailable in our e-commerce fulfillment center. In addition, our omni-
channel capabilities allow customer online orders to be picked up in our stores at our customers' discretion, allowing us to satisfy an order from
existing inventories within our stores, as well as shipping product from our e-commerce fulfillment center to our stores. We also offer buy online pick-
up in store, same-day delivery, and ship-to-store ordering options from a large majority of our stores. We upgraded our website platform to a more
mobile-responsive version in fiscal 2022. We continued to upgrade our mobile app (iOS and Android) in fiscal 2023, to a more loyalty and
personalized focused application, targeted to our most loyal customers. We believe these omni-channel capabilities and investments will drive
additional traffic to our stores, increase sales opportunities with customers who come to the store to pick up their online orders, and improve our online
conversion rates overall.

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Reinvest in Existing Stores. We believe that re-investing in our existing stores is strategically important to enhance customer loyalty, elevate the
customer experience and, in turn, drive additional comparable store sales. We regularly remodel or refresh the appearance of our stores and intend to
continue to do so in the future to keep the shopping experience associated with the Tillys brand updated and compelling for our customers.

Real Estate Opportunities. With 248 total stores at the end of fiscal 2023, we believe there are numerous attractive opportunities for Tillys to continue
to open new stores in the future. We currently expect to open 5 new stores during fiscal 2024 within existing markets. We intend to continue to
maintain a disciplined approach to store growth in the future by targeting existing markets with room for growth and potential new markets with high
population density, and clustering stores within key markets to build brand awareness. With regard to existing stores, we have nearly 100 lease
decisions to make during fiscal 2024, covering a range of stores in a variety of markets. These lease decisions include lease extension options, lease
kick-out options, and lease expirations that require negotiated renewals. In each case, our real estate decisions will be driven by the overarching goal of
improving our profitability. As a result, we may close a limited number of stores from time to time if acceptable potential for profitability cannot be
obtained through lease negotiations with landlords.

Merchandising, Purchasing, and Planning and Allocation

Merchandising

We seek to be viewed by our customers as the destination for the apparel, footwear, accessories and hardgoods that best represent their active, outdoor and
social lifestyles. We believe we offer an unparalleled selection of global, specialty and emerging brands, styles, colors, sizes and price points to ensure our
customers have a variety of choices every time they visit our stores. Our extensive selection of third-party and proprietary merchandise allows us to identify
and address trends more quickly, offer a greater range of price points, and manage our inventories more dynamically. We offer a mix of merchandise for
young men, young women, boys and girls across the apparel, footwear, accessories and hardgoods categories. We believe this category mix contributes to
our broad demographic appeal. Our apparel merchandise includes branded, fashion, and core styles for tops, outerwear, bottoms, swim and dresses.
Accessories merchandise includes backpacks, hydration bottles, hats, sunglasses, small electronics and accessories, handbags, watches, jewelry, and more.
We focus on our merchandise presentation and vary the visual displays in our stores and windows and website throughout the month, presenting new looks
and fashion combinations to our customers.

Our ability to maintain an image consistent with our customers' lifestyles is important to our branded vendors and provides us better access to a wide
assortment of products and styles. Our third-party and proprietary branded merchandise includes a broad selection of lifestyle and emerging brands. We
strive to keep our merchandise mix current by continuously introducing emerging brands and styles not available at many other specialty retailers in order
to identify and respond to the evolving desires of our customers. Our third-party brands represented approximately 68%, 68% and 70% of our total net
sales in fiscal 2023, 2022 and 2021, respectively, with no third-party brand accounting for more than 4% of our total net sales during fiscal 2023.

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Selected third-party brands (in alphabetical order) include:

adidas
Champion
Dr. Martens
Herschel Supply Co.
New Balance
RayBan
RVCA
Thrasher

BDG
Converse
Edikted
HUF
Nike SB
Reebok
Salty Crew
Vans

Billabong
Crocs
Ethika
Hydro Flask
O'Neill
Riot Society
Santa Cruz
Volcom

Birkenstock
Diamond Supply
Free People
Jansport
Obey
Rip Curl
Stance

Brixton
Dickies
G-Shock
Levi's
Primitive
Roxy
The North Face

We supplement our third-party merchandise assortment with our own proprietary brands across many of our product categories. We utilize our own
proprietary, branded merchandise to expand our price point range, identify and respond to changing fashion trends quickly, fill merchandise gaps and
provide a deeper selection of styles and colors for proven fashion items. Our proprietary brands represented approximately 32%, 32% and 30% of our total
net sales in fiscal 2023, 2022 and 2021, respectively. In fiscal 2023, our top two selling brands overall were our proprietary RSQ brand (21% of our total
net sales) and our proprietary Full Tilt brand (6% of our total net sales).

Examples of our proprietary brands, ranked by total net sales generated in fiscal 2023, include:

Denim, apparel, accessories and fragrance brand for young men, young women and kids

Apparel and accessories brand for young women and girls

Apparel brand for young women

Apparel and accessories for young women

Apparel, beauty and fragrance brand for young women

Home accessories and gift brand for young women, men and kids

We believe that our extensive selection of merchandise, from established global, specialty and emerging third-party brands as well as our proprietary
brands, caters to a wide demographic of core customers and enhances our image as a destination for the most sought-after apparel, footwear, accessories
and hardgoods.

Merchandise Purchasing

Our merchandising team is organized by category and product type under the leadership of our Chief Merchandising Officer and our divisional
merchandise managers, a technical design and fashion trend team, buyers, associate buyers and assistant buyers. We believe our team’s ability to identify
and source the proven and emerging fashion trends and core styles that are most relevant to our customers is key to creating opportunities to drive net sales
growth and healthy product margins for our business.

Our purchasing approach focuses on product relevance, quality, fit, availability, cost and speed of production in order to provide timely frequent delivery of
merchandise to our stores. Our purchasing group and planning and allocation team are highly coordinated and maintain a disciplined buying strategy.

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perform comprehensive analysis of sales trends for both stores and e-commerce;

constantly seek out new emerging brands, while maintaining close partnerships with existing brands;

utilize trend and color forecasting services;

attend trade shows and youth culture events;

conduct store visits to gather feedback from our customers and staff; and

• maintain market and consumer insight through shopping trends of leading retailers, direct competitors and relevant social media influencers.

We have developed and maintained strong and, in many cases, long-standing relationships with our third-party vendors and we have a history of identifying
and growing with emerging brands. We believe the Tillys brand, shopping experience and core customer lifestyle is highly consistent with the image and
philosophy of our key vendors. This, in addition to our customer connectivity, facilitates a partnership culture with our key vendors and provides us access
to an extensive variety of products and styles, as well as certain merchandise that is exclusive to our stores and website. Our merchandise purchasing group
also works closely with independent third parties who design and procure merchandise for our proprietary brands. Our proprietary brand capabilities
enhance our ability to rapidly identify and respond to trends and consistently offer proven fashion items that provide a broader demographic appeal. We
work with numerous vendors based in the United States to supply us with our proprietary branded product. These vendors source from both domestic and
international markets and either have their own factories or contract with owners of factories to source finished product. By sourcing merchandise for our
proprietary brands both domestically and internationally, we have the flexibility to benefit from shorter lead times associated with domestic manufacturing
and lower costs associated with international manufacturing.

Planning and Allocation

We have developed inventory planning and allocation processes to support our merchandising strategies. Working closely with our merchandise purchasing
team, the planning and allocation team utilizes a disciplined approach to buying, forecasting, inventory control and allocation. Our planning and allocation
team continually analyzes inventory levels and sell-through data to regularly adjust the assortment at each store and the inventory levels for our company as
a whole. Our broad third-party vendor base allows us to shift merchandise purchases to react quickly to changing consumer preferences and market
conditions. Furthermore, the vendor base for our proprietary products provides us flexibility to develop our own branded products to quickly address
emerging fashion trends and provide a deeper selection of styles, colors, and price points for proven fashion items. We modify our merchandising mix
based upon store size, the season, and consumer preferences in different parts of the country. We are also able to react quickly to changing customer needs
because we ship merchandise to our stores multiple times per week. Finally, we coordinate closely with our visual merchandise managers and marketing
group in order to manage inventory levels in connection with our promotions and seasonality.

Stores

As of February 3, 2024, we operated 248 stores in 33 states averaging approximately 7,300 square feet per store. Our stores are located in regional mall,
off-mall and outlet locations. Our stores generated average net sales of $1.9 million per store, or $267 per square foot, in fiscal 2023.

The table below shows our number of stores by type of retail center as of the end of each of the last three fiscal years:

Regional Mall
Off-Mall (1)
Outlet

2023

2022

2021

138 
92 
18 
248 

140 
91 
18 
249 

137 
90 
14 
241 

(1)

Includes neighborhood and lifestyle centers, "power" centers, and street-front locations.

9

The table below shows the total number of stores by state as of February 3, 2024:

State
Arizona
California
Colorado
Delaware
Florida
Georgia
Illinois
Indiana
Kansas
Maryland
Massachusetts
Michigan
Minnesota
Missouri
Nebraska
New Hampshire
Nevada

Number of
Stores
18
101
5
1
19
2
7
4
1
1
5
1
2
1
1
2
6

State
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
Wisconsin

Number of
Stores
7
1
4
2
3
2
5
4
2
1
3
20
6
2
6
3

Distinctive Store Experience

Tillys is a customer-driven lifestyle brand. We are energized and inspired by our customers’ individuality and passion for an active, outdoor and social
lifestyle. Our stores bring these interests together in a vibrant, stimulating and authentic environment that is an extension of our customers’ multitasking
lifestyles. We do this by blending the most relevant brands and styles with music videos, product-related visuals, and a dedicated team of store associates.
Our associates share the same passion as our customers for the brands that we sell, enabling them to easily engage with our customers and make shopping
at Tillys a fun, social experience. Outside of our stores, we connect with our consumers using the same authentic approach, including social media,
community outreach and sponsorship of contests, demonstrations, and other events. We believe the Tillys experience drives customer awareness, loyalty
and repeat visits while generating excitement for our brand.

Store Openings and Closings

The following table shows the number of stores opened and closed in each of our last five fiscal years:

Fiscal Year
2019
2020
2021
2022
2023

Stores
Opened
14
2
9
11
7
43

Stores
Closed
3
4
6
3
8
24

Total Number
of Stores at
End of Period
240
238
241
249
248

We currently expect to open 5 new stores during fiscal 2024 within existing markets. We intend to continue to maintain a disciplined approach to store
growth in the future by targeting existing markets with room for growth and potential new markets with high population density, clustering our stores to
build better brand awareness in key markets. We focus on opening new stores in locations that have above-average incomes and an ability to draw from a
sufficient population. We may also close certain stores in any given year based on market conditions, under-performance, or lease negotiations with
landlords.

Store Management, Culture and Training

We believe our ability to attract, train, retain and motivate qualified employees at all levels of our organization is an important factor in creating a positive
company culture and driving results over time. Each of our stores typically operates with a three to five member store management team. In addition, each
store typically has 10 or more full time equivalent store associates who reflect our customers' lifestyles and promote the Tillys brand not only inside the
store, but also in their schools and

10

 
 
 
 
 
 
 
communities. The number of store associates we employ generally increases during peak selling seasons, particularly the back-to-school and the winter
holiday seasons, and will increase to the extent that we open new stores.

We have developed a corporate culture that we believe empowers the individual store managers to make store-level business decisions and we reward them
when they exceed sales targets. We are committed to improving the skills and careers of our workforce and providing advancement opportunities for
employees. We evaluate our store associates weekly on measures such as sales per hour, units per transaction and dollars per transaction to ensure
productivity, to recognize top performers and to identify potential training opportunities. We endeavor to design incentive programs for store associates that
promote a competitive, yet fun, culture that is consistent with our image.

We provide our managers with the knowledge and tools to succeed through comprehensive training programs, focusing on both operational expertise and
supervisory skills. Our training programs and workshops are offered at the store, district and regional levels, allowing managers from multiple locations to
interact with each other and exchange ideas to better operate stores. Store associates receive training from their managers to improve their product expertise
and selling skills.

We believe Tillys is a place where people have a voice, will be heard, and have bias-free opportunities. Accordingly, our workplace is built upon the
foundation of equity and inclusion where its people are diverse in their backgrounds, communities, and points of view, yet all share the same core cultural
values of working hard, giving back, and empowering others. In this regard, we aim to be an inclusive reflection of our customers, employees, and business
partners. Pay equity, without regard for race or gender, is a base line component of this focus on equity and inclusion.

E-Commerce

Our online net sales were $137 million during fiscal 2023, or 22.1% of our total net sales. We believe our digital platform is an extension of our brand and
retail stores, offering substantially the same merchandise assortment as offered in our stores but with opportunities to provide extensions of that same
assortment online, whether in terms of sizing or particular styles that may not be available in stores at a particular point in time, providing our customers a
seamless shopping experience. We believe that our target customer regularly shops online through various digital channels and mobile applications in
addition to visiting stores. Our website serves both as a sales channel and a marketing tool to our extended customer base, including those customers in
markets where we do not currently have stores. For example, we sell merchandise to customers in all 50 states and the District of Columbia even though we
have brick-and-mortar stores in only 33 states. We also believe our fully-integrated digital platform reinforces the Tillys brand image and serves as an
advertising vehicle for our retail stores. Similar to the merchandising approach in our stores, we frequently change the look of our website to highlight new
brands and products. We utilize multiple tools to drive traffic online and to our stores, including our marketing materials in our retail stores, search engine
marketing, paid social media marketing, online ad placement, shopping site partnerships, third-party affiliations, email marketing, digital marketing, SMS
marketing, and push notifications. In addition, we utilize the website to offer current information on our upcoming events, promotions and store locations.

Marketing and Advertising

Our marketing approach is designed to create an authentic connection with our customers by consistently generating excitement for our brand and the
active, outdoor and social lifestyle we represent. We utilize an omni-channel marketing strategy to connect with our customers and drive traffic to our
stores and online platform, comprised of the following:

•

•

Loyalty Program. We have a customer loyalty program wherein customers accumulate points based on purchase activity. Once a loyalty member
achieves a certain point level, the member earns awards that may be used towards purchase of merchandise. Once an award is earned, our loyalty
program allows customers to redeem their award instantly towards the purchase of merchandise or to continue to build up to additional awards over
time. We currently expire unredeemed awards and accumulated partial points 365 days after the customer's original purchase date. This program is
designed to interact with our customers in a more direct and targeted manner, and to provide more insight into their shopping behaviors and
preferences. We are actively engaging with customers through Tillys Rewards by offering early access to product launches, events and promotional
deals to loyalty members. We are also using the data and information provided by loyalty members to personalize the experience to the user and
improve the communication and offering.

Social Media. Our customers find new brands and seasonal trends through use of social media. We create engaging and timely content across a variety
of social media platforms to share the latest trends, brands, seasonal collection and trending memes to keep our audience of fans and followers engaged
with our content. Our influencer strategy, in support of driving brand awareness and growth, is designed to connect customers to key categories, trends
and activities that is authentic to the Tillys brand.

• Digital Marketing. We use digital marketing to drive new customers to Tillys.com and our stores. We use multiple forms of digital advertising,

including pay per click, display, retargeting, paid social and affiliate marketing. We continue to invest in digital marketing to grow our overall business.

11

•

•

•

•

Email Marketing. We utilize email marketing to build awareness, drive traffic to our stores and online platform and to promote local in-store
promotions and events. We consistently send emails to the customers in our proprietary database to introduce new brands and products, offer
promotions on select merchandise, highlight key events and announce new store openings. We personalize emails and communications to customers
and audiences.

Brand Partnerships. We partner and collaborate with our vendors around exclusive events like photo opportunities, in-store performances, contests,
demos, online marketing, giveaways, shopping sprees and VIP trips. We organize a variety of events, many involving influencers, musicians, and
athletes. Through brand partnerships such as these, we are able to connect with and engage our customers in an exciting, authentic way. We are also
partnering with brands in co-op marketing to grow awareness and increase brand sales.

Catalog and Postcards. We view our print-format catalog and postcards and our digital-format catalog primarily as sales and marketing tools to drive
online and store traffic from both existing and new customers. We also believe our marketing materials reinforce the Tillys brand and showcase our
comprehensive selection of products in settings designed to reflect our brand’s lifestyle image. We send these marketing materials, which include
coupons that can be redeemed at stores or online, to the customers in our database several times a year, primarily around key shopping periods such as
spring break, back-to-school, and the winter holidays.

Community Outreach. We support the Tilly’s Life Center Foundation ("TLC"), a non-profit charitable organization created by our co-founder, Tilly
Levine, which seeks to empower our youth and improve their self-confidence through a variety of educational programs. We have given our customers
the opportunity to support TLC with point-of-sale donations by allowing them to elect to "round up" their purchases to the nearest dollar and donate
the rounded up portion to TLC. Through our “We Care Program” and in partnership with our vendors, we routinely support and participate in various
academic, art, and athletic programs at local schools and other organizations in communities surrounding our stores.

Distribution

We process and distribute merchandise to our stores through a 126,000 square foot distribution facility co-located with our headquarters in Irvine,
California. Our distribution center infrastructure includes warehouse management systems, material-handling equipment, radio frequency technologies, and
automated sortation systems to enhance our processing speed and support our business needs. We ship merchandise to our stores multiple times per week,
providing them with a steady flow of both new and replenishment products. Merchandise is shipped in a floor-ready condition (having price tickets, sensor
tags and hangers when required), allowing store employees to spend less time with merchandise processing tasks and more time serving our customers. We
use our own fleet of trucks to transport merchandise to our Southern California stores and third-party distributors to transport merchandise to stores outside
of our local area.

We also operate an 81,000 square foot e-commerce fulfillment center in Irvine, California to process e-commerce orders in a highly automated environment
that leverages material-handling equipment, automated systems and other technologies consistent with our current distribution facility in order to support
our e-commerce business.

We believe our distribution and fulfillment infrastructure is adequate to support our current business needs. However, we are in the process of upgrading
our warehouse management systems to allow for more efficient inventory management across our distribution facilities to support future growth. We
currently anticipate this project to be complete during fiscal 2024.

Information Technology

Our information technology systems provide a full range of business process support and information to our store, merchandising, financial, real estate and
other business teams. We selected, customized and integrated our information systems to enable and support our dynamic merchandise model. We believe
our systems provide us with improved operational efficiencies, scalability, management control and timely reporting that allow us to identify and quickly
respond to changes in our business. We believe that our information systems are scalable, flexible and have the capacity to accommodate our current
business plans.

In fiscal 2023, we upgraded our e-commerce platform and mobile application to better serve our customers. We successfully launched our native mobile
app on both Android and iOS platforms, complete with full loyalty integration, Apple Pay, omni-channel functionality, and a personalized user experience.
On our website, we continued to enhance the customer experience by introducing Apple Pay and Google Pay, redesigning the interface, and improving the
return process. Additionally, we upgraded all store point-of-sale hardware, bolstered internet data connectivity to ensure redundancy across all locations,
and integrated new delivery methods for enhanced customer convenience. We believe that these enhancements will improve customer engagement, expand
sales opportunities, improve our real-time inventory visibility and order management, facilitate seamless omni-channel execution, and enhance our ability
to manage customer relationships. During fiscal 2024, we plan to further optimize our warehouse management software that will serve both our stores and
e-commerce operations, and we plan to upgrade our planning and allocation platforms to allow our teams to improve the merchandising mix in our stores
and online.

12

Competition

The teenage and young adult retail apparel, accessories and footwear industry is highly competitive. We compete with various publicly-traded and
privately-held teen-oriented apparel retailers for customers, store locations, store associates and management personnel, including but not limited to
Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, Boot Barn, The Buckle, Forever 21, H&M, Hot Topic, Pacific Sunwear, Urban Outfitters,
and Zumiez. In addition, we compete with independent specialty shops, department stores, off-price retailers, online marketplaces such as Amazon, online
retailers such as Shein and Fashion Nova, stores and websites operated by our third-party brands, and direct marketers that sell similar lines of merchandise
and that target customers through catalogs and e-commerce. Further, we may face new competitors and increased competition from existing competitors as
we potentially expand into new markets and increase our presence in existing markets. Given the extensive number and types of retailers with which Tillys
competes for customers, we believe that our target market is highly fragmented and we do not believe we have a significant share of this market.

Competition in our sector is based, among other things, upon merchandise offerings, store location, price and the ability to identify with the customer. We
believe that we compete effectively with our competitors based on our differentiated merchandising strategy, store environment, flexible real estate strategy
and company culture. However, many of our competitors are larger, have significantly more stores, and have substantially greater financial, marketing and
other resources than we do. Moreover, we recognize that we do not possess exclusive rights to many of the elements that comprise our in-store experience
and product offerings. Our competitors can emulate facets of our business strategy and in-store experience, which could result in a reduction of any
competitive advantage or special appeal that we might possess. For more details, see Item 1A. “Risk Factors—Risks Related to Our Business. We face
intense competition in our industry and we may not be able to compete effectively.”

Trademarks

“Ambitious”, “Blue Crown”, "Destined", “Eldon”, “Full Tilt”, “If it’s not here...it’s not happening”, "Infamous", “RSQ”, "RSQ by Tillys", “RSQ Skate”,
“Sky and Sparrow”, “Tilly's”, “Tilly’s Clothing & Shoes”, "Tilly's Clothing Shoes Accessories, “Vindicated”, “West of Melrose”, and "2/Second
Saturdays" and logos related to some of these names, are among our trademarks registered with the United States Patent and Trademark Office. We regard
our trademarks as valuable and intend to maintain such marks and any related registrations. We are not aware of any claims of infringement or other
challenges to our right to use our marks in the United States. We vigorously protect our trademarks.

Employees

As of February 3, 2024, we employed approximately 1,536 full-time and approximately 4,512 part-time employees, of which approximately 528 were
employed at our corporate office and distribution facilities and approximately 5,520 were employed at our store locations. However, the number of total
employees, especially part-time employees, fluctuates depending upon our seasonal needs and, in fiscal 2023, varied between approximately 5,400 and
7,600 employees. None of our employees are represented by a labor union and we consider our relationship with our employees to be good.

Government Regulation

We are subject to labor and employment laws, laws governing advertising and promotions, privacy laws, safety regulations, consumer protection
regulations, intellectual property laws, accessibility laws, and other laws that regulate retailers and govern the promotion and sale of merchandise and the
operation of stores and warehouse facilities, as well as laws governing public companies. We monitor changes in these laws and believe that we are in
material compliance with applicable laws.

Insurance

We use insurance to address or reduce our exposure to actual or potential enterprise risks, including but not limited to workers’ compensation claims,
property damage or loss, directors' and officers' liability, cyber/data security risks, fiduciary liability, general liability claims, automobile liability,
employment practices liability, and employee-related health care, a portion of which is paid by the employees. We evaluate our insurance requirements on
an ongoing basis to maintain what we believe to be adequate levels of coverage for these risks.

Seasonality

Due to the seasonal nature of the retail industry, we have historically experienced and expect to continue to experience fluctuations in our revenues and net
income. Net revenues are typically smallest in the first quarter and largest during the fourth quarter of a given fiscal year. Our net sales fluctuate
significantly in relation to various holidays and other peak shopping periods, including but not limited to the Thanksgiving and year-end holiday season, the
back-to-school season, spring break periods, and other holidays. If, for any reason, our revenues were below seasonal norms or expectations during these
quarters, particularly during peak selling periods, our annual results of operations could be adversely affected. The level of our working capital reflects the
seasonality of our business. We expect inventory levels, along with an increase in accounts payable and accrued expenses, generally to reach their highest
levels in anticipation of the increased revenues during these periods.

13

Environmental, Social, Governance (ESG) Matters

Environmental Matters

From a merchandising perspective in fiscal 2023, we continued to maintain our sustainability program in partnership with a variety of nationally and
globally recognized third-party brands. We have curated a collection of product choices that use recycled materials, organic cotton, reusable products,
and/or are certified by third-party organizations to specific sustainability standards. Selected brands involved in our sustainability program partnership
include, among others, HydroFlask, Jansport, The North Face, Billabong, adidas, Birkenstock, Teva, Vans, Levi’s, Obey, Vissla, Brixton, Katin, RVCA,
Santa Cruz, and O’Neill, as well as our own RSQ and Full Tilt proprietary brands.

In 2023, we continued our membership in the Better Cotton Initiative ("BCI"), which is a global cotton sustainability organization that helps ensure
clothing manufacturers source cotton with a lower environmental and social impact, including crop protection, water stewardship, soil health, and decent
working conditions. During fiscal 2023, 29% of our cotton used in our proprietary brand products was sourced as Better Cotton, as defined by the Better
Cotton Initiative.

We continue to partner with REPREVE , which produces recycled polyester from plastic water bottles. Repreve is used in select styles by our branded
partners, as well as select styles by our proprietary RSQ and Full Tilt brands. For example, all Men's RSQ twill shorts and Men's RSQ swim contain 20% to
30% Repreve fabric.

®

From a distribution center operations perspective, substantially all purchased corrugated boxes used for shipping products from our distribution center to
Tillys stores are made from previously used corrugated material. During fiscal 2023, we reused approximately 40% of those corrugated boxes for future
shipping needs, and we recycled the remaining 60% of corrugated boxes. We endeavor to recycle all plastic packing material received with merchandise
from our product suppliers. Our distribution centers are equipped with approximately 75% DesignLights Consortium (“DLC”) classified LED lamps.

Social Matters

We support a variety of programs to assist the communities in which we operate, including but not limited to:

• We provide significant financial and other support to the Tilly’s Life Center Foundation ("TLC"), a non-profit charitable organization managed by
our co-founder, Tilly Levine, which seeks to empower our youth and improve their self-confidence through a variety of educational programs. Our
support of TLC includes customer donations at our store registers (round-up for charity), cash donations by the Company, use of a portion of our
e-commerce distribution center office space for their operations, and use of Company staff to aid in event planning.

•

Through our "We Care" program and in partnership with our vendors, we routinely support and participate in various academic, art, and athletic
programs at local schools and other organizations within the communities surrounding our stores.

• We donate end of season products to certain charitable organizations for their use in supporting their respective missions.

Human Capital Management

• We provide a variety of health and wellness programs for our corporate employees to promote healthy lifestyles, including periodic onsite health

fairs, blood drives, breast cancer screenings, flu shots, among other items.

•

In order to help ensure we provide a healthy, respectful and safe working environment for all employees, we provide periodic diversity and anti-
harassment training for all employees to improve workplace sensitivity.

• We distribute monthly health tips and guidelines to encourage healthy living habits, and we provide weekly fruit deliveries to our corporate office

and distribution center break rooms to promote healthier eating choices.

• We provide one paid day off per year to all employees to be utilized for volunteer work of their choosing.

Governance Matters

Although we are a controlled company as a result of the Company stock held by our Co-Founder, Executive Chairman and Interim President and Chief
Executive Officer, Hezy Shaked, five of the six members of our Board of Directors are independent under applicable NYSE rules. Each of our Board
committees (Audit, Compensation, and Nominating/Governance) are chaired by, and comprised of, only the independent members of our Board of
Directors, consistent with NYSE requirements. Our Board of Directors is comprised of three individuals who self-identify as men and three individuals
who self-identify as women.

We maintain a Code of Ethical Business Conduct which can be found on our website at www.tillys.com under the Investor Relations link. We require all
employees to periodically certify their reading, understanding, and compliance with such policy.

14

We maintain a whistleblower hotline wherein employees, customers and/or vendors can confidentially report unethical or illegal behavior by Company
management or other employees.

As a publicly-traded company, we maintain an Insider Trading Policy that limits the time periods during which Company employees may trade in Company
stock to avoid potential insider trading issues. This policy is distributed to all employees in advance of each quarterly trading window. Each trading
window is only allowed to open after two full trading days have taken place following each of our quarterly earnings announcements. Each trading window
is typically closed for the final month of each quarter and until the next quarterly earnings announcement has taken place.

We also maintain a Regulation FD-compliant Investor Relations policy which limits the time periods during which Company management is authorized to
discuss business matters with external stock analysts and stockholders. Company management is precluded from communicating with such external parties
for the final two weeks of each quarter and until the next quarterly earnings release has taken place.

Additional Information

We make available free of charge on our internet website, www.tillys.com, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, or the Exchange Act, as soon as reasonably practicable after filing such material electronically with, or otherwise furnishing it to, the
Securities and Exchange Commission, or the SEC. In addition, these materials may be obtained at the web site maintained by the SEC at www.sec.gov. The
reference to our website address does not constitute incorporation by reference of the information contained on the website, and the information contained
on the website is not part of this document.

Item 1A. Risk Factors

Our business faces significant risks and uncertainties. Certain important factors may have a material adverse effect on our business, prospects, financial
condition and results of operations, any of which could subsequently have an adverse effect on the trading price of our Class A common stock, and you
should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors in its
entirety, in addition to other information contained in or incorporated by reference into this Annual Report on Form 10-K and our other public filings with
the SEC. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial
condition and results of operations in future periods.

Risks Related to our Business

Our net sales could be adversely impacted by decreases in consumer spending.

We depend upon consumers feeling confident to spend discretionary income on our product offerings to drive our sales. Consumer spending may be
adversely impacted by economic conditions such as consumer confidence in future economic conditions, inflation in housing, energy, gasoline and food
costs, interest and tax rates, employment levels, salary and wage levels, general business conditions, and the availability of consumer credit. In addition,
consumer spending can be impacted by non-economic factors, including geopolitical issues, trade restrictions, unseasonable weather, pandemics/epidemics,
and other factors that are outside of our control. These risks may be exacerbated for retailers like us who focus on specialty apparel, footwear and
accessories. Our financial performance is particularly susceptible to economic and other conditions in regions or states where we have a significant number
of stores, such as the southwestern and northeastern United States and Florida. We experienced significant decreases in net sales during fiscal 2023 and
2022, at least partly in light of inflationary pressures on consumers and concerns regarding the economic and geo-political environment, and similar
impacts may occur in the future. If periods of decreased consumer spending persist, our sales could continue to decrease, and our financial condition and
results of operations could be adversely affected.

A rise in the cost of products and services that are necessary for the operation of our business could increase our cost of sales and cause our results of
operations and margins to decline.

Fluctuations in the price, availability and quality of fabrics or other raw materials used to manufacture the products that we sell, as well as the price for
transportation and labor, and other rising costs passed by our vendor partners to us, could have adverse impacts on our cost of sales and our ability to meet
our customers’ demands. In particular, because a key component of our clothing is cotton, increases in the cost of cotton may significantly affect the cost of
the products that we sell and could have an adverse impact on our cost of sales. We may not be able to pass all or a portion of these higher costs on to our
customers, which could have a material adverse effect on our profitability. In addition, our results of operations and financial condition may be materially
adversely impacted by continued heightened levels of inflation and interest rate increases. These economic pressures may result in increased costs for many
products and services that are necessary for the operation of our business (including product costs, labor costs, shipping costs, and digital marketing costs,
among others), as well as decreases in consumer spending or demand for our products, any of which could adversely impact our financial condition and
results of operations.

15

We face intense competition in our industry and we may not be able to compete effectively.

The retail industry is highly competitive. We currently compete with a variety of publicly-traded and privately-held specialty apparel retail chains such as,
but not limited to, Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, Boot Barn, The Buckle, Forever 21, H&M, Hot Topic, Pacific Sunwear,
Urban Outfitters, and Zumiez. In addition, we compete with independent specialty shops, department stores, e-commerce only retailers, off-price retailers,
online marketplaces such as Amazon, stores and websites operated by our third-party brands, and direct marketers that sell similar lines of merchandise and
target customers through catalogs and e-commerce. Moreover, the internet and new technologies facilitate competitive entry and comparison shopping in
our retail market. While we offer a multichannel shopping experience and use social media as a way to interact with our customers and enhance their
shopping experiences, multichannel retailing is rapidly evolving, and we must keep pace with changing customer expectations and new developments by
our competitors. Competition with some or all of these retailers could require us to lower our prices or risk losing customers. In addition, significant or
unusual promotional activities by our competitors and third-party brands may cause us to respond in-kind and adversely impact our operating cash flow.
Because of these factors, current and future competition could have a material adverse effect on our financial condition and results of operations.

Furthermore, many of our competitors have greater financial, marketing and other resources than we currently do, and therefore may be able to devote
greater resources to the marketing and sale of their products, generate national brand recognition or adopt more aggressive pricing policies than we can,
which would put us at a competitive disadvantage. Moreover, we do not possess exclusive rights to many of the elements that comprise our in-store
experience and product offerings. Our competitors may seek to emulate facets of our business strategy and in-store experience, which could result in a
reduction of any competitive advantage or special appeal that we might possess. In addition, most of the third-party branded products we sell are sold to us
on a non-exclusive basis. As a result, our current and future competitors may be able to duplicate or improve on some or all of our in-store experience or
product offerings that we believe are important in differentiating our stores and our customers’ shopping experience. If our competitors were to duplicate or
improve on some or all of our in-store experience or product offerings, our competitive position and our business could suffer.

We may experience comparable store sales or sales per square foot declines, which may cause our results of operations to decline.

The investing public may use comparable store sales or net store sales per square foot projections or results, over a certain period of time, such as on a
quarterly or yearly basis, as an indicator of our profitability growth. Our comparable store sales can vary significantly from period to period for a variety of
reasons, such as the age of stores, changing economic factors, unseasonable weather, continued declines in mall and retail foot traffic, changing fashion
trends, pricing, the timing of the release of new merchandise and promotional events and increased competition. These factors could cause comparable
store sales or net store sales per square foot to decline or fail to grow at expected rates, which could adversely affect our results of operations and stock
price during such periods.

Our business depends upon identifying and responding to changing customer fashion preferences and fashion-related trends. If we cannot identify
trends in advance or we select the wrong fashion trends, our sales could be adversely affected.

Fashion trends in the apparel, footwear and accessories market can change rapidly. We need to anticipate, identify and respond quickly to changing trends
and consumer demands in order to provide the merchandise our customers seek and maintain our brand image. If we cannot identify changing trends in
advance, fail to react to changing trends, misjudge the market for a trend, or fail to timely secure and market then-fashionable inventory, our sales could be
adversely affected, and we may be faced with a substantial amount of unsold inventory, reduced sales, loss of customers or other missed opportunities. As a
result, we may be forced to mark down our merchandise in order to dispose of slow moving inventory, which may result in lower profit margins, negatively
impacting our financial condition and results of operations.

Our continued growth depends upon our ability to successfully open profitable new stores and improve the performance of our existing stores, which is
subject to a variety of risks and uncertainties.

We have grown our store count over time, however, there can be no assurance that we will continue to be able to open new stores that are profitable or to
continue to improve the performance of our existing stores sufficiently to improve our profitability.

Our ability to successfully open and operate new stores is subject to a variety of risks and uncertainties, such as:

•
•
•
•
•
•

identifying suitable store locations, the availability of which is beyond our control;
obtaining acceptable lease terms;
sourcing sufficient levels of inventory;
selecting the appropriate merchandise that appeals to our customers;
hiring and retaining store employees;
assimilating new store employees into our corporate culture;

16

effectively marketing new store locations;
avoiding construction delays and cost overruns in connection with the build-out of new stores;

•
•
• managing and expanding our infrastructure to accommodate growth; and
•

integrating the new stores with our existing buying, distribution and other support operations.

Additionally, some of our new stores may open in locations close enough to our existing stores that a segment of customers will stop shopping at our
existing locations and prefer to shop at the new locations, and therefore sales and profitability at those existing stores may decline. Any failure to continue
to open profitable new stores or improve the performance of existing stores could have a material adverse effect on our financial condition, results of
operations, and stock price.

Our continued growth depends upon our ability to continue to grow our e-commerce business and improve its profitability, which is subject to a variety
of risks and uncertainties.

We sell merchandise over the internet through our e-commerce website, www.tillys.com. The e-commerce retail market continues to rapidly evolve,
creating new competition and increasing cost pressures from shipping charges and online marketing costs. As a result, there can be no guarantee that we
will be able to continue to grow our e-commerce net sales or to improve the profitability of our e-commerce operations. Our e-commerce platform and its
continued growth subjects us to certain risks that could have an adverse effect on our results of operations, including:

•
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diversion of traffic from our stores;
risks related to proper allocation of merchandise between e-commerce and stores;
liability for online content;
government regulation impacting the Internet, including with respect to privacy; and
increased risks related to the computer systems that operate our website and related support systems, including computer viruses, electronic break-
ins, other cyber security breaches, system errors or failures, or similar disruptions.

Our failure to address and respond to these risks successfully could reduce e-commerce net sales, increase costs and damage the reputation of our brand or
our business. Any failure to continue to grow e-commerce net sales or improve the profitability of e-commerce operations could have a material adverse
impact on our financial condition, results of operations, and stock price.

We may not be able to implement our business strategies on the timelines we anticipate, in a cost-effective manner, or at all.

At any point in time, we are in the process of implementing new merchandising strategies, customer-facing technology enhancements, new systems or
upgrades to existing systems, and cost reduction or containment plans. The implementation of these strategies or plans may not be completed or achieve the
anticipated results within the expected timeframe, which may result in declines in net sales or unanticipated cost increases. Even if implemented, we cannot
assure that our strategies or plans will be successful to meet our current and future business needs or that they will operate as designed. If the
implementation of our business strategies and plans are not executed efficiently and effectively, our business, financial condition, and our operating results
could be adversely affected.

Our ability to attract customers to our stores depends significantly on the success of the retail centers where our stores are located.

We have historically depended on the location of our stores to generate a large proportion of traffic to our stores. We try to select well-known and popular
malls, power centers, neighborhood and lifestyle centers, outlet centers and street-front locations, usually near prominent retailers, to generate traffic to our
stores. Traffic at these retail centers, and consequently our stores, could be adversely affected by economic downturns nationally or regionally, competition
from Internet retailers, changes in consumer demographics, the closing or decrease in popularity of other retailers in the retail centers in which our stores
are located, our inability to obtain or maintain desirable store locations within retail centers or the selection by prominent retailers and businesses of other
locations. We, and the retail industry generally, have experienced continued declines in consumer traffic to retail centers as consumer purchasing behaviors
have shifted toward online purchases and we may experience further declines in the future. A continuing reduction in traffic to retail centers may likely
lead to a decrease in our net sales and results of operations, which could have a material adverse effect on our financial condition, results of operations and
stock price.

We are required to make significant lease payments for our store leases, corporate offices, and distribution centers, which may strain our cash flow.

We lease all of our retail store locations as well as our corporate headquarters, warehouses, distribution and e-commerce fulfillment centers. We do not own
any real estate. Leases for our stores are typically for terms of ten years and many can be extended in five-year increments. Many of our leases have early
cancellation clauses which permit us to terminate the lease if certain sales thresholds are not met in certain periods of time. Our costs under these leases are
a significant amount of our expenses and grow rapidly as we expand the number of locations and existing locations experience expense increases. We are
required to pay additional rent under many of our lease agreements based upon achieving certain sales plateaus for each store location. In addition, we must
make significant payments for common area maintenance and real estate taxes. Many of our lease agreements also contain provisions which increase the
rent payments on a set time schedule, causing the cash rent paid for

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a location to escalate over the term of the lease. In addition, rent costs could escalate when multi-year leases are renewed at the expiration of their lease
term. These costs are significant, recurring and increasing, which places a consistent strain on our cash flows.

We depend on cash flows from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash
flows from operating activities, and sufficient funds are not otherwise available to us from borrowings under our available revolving credit facility or from
other sources, we may not be able to service our operating lease expenses, grow our business, respond to competitive challenges or to fund our other
liquidity and capital needs, which would harm our business.

Additional sites that we lease are likely to be subject to similar long-term leases. If an existing or future store is not profitable, and we decide to close it, we
may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of
the lease term. We may also elect, or be required, to take actions with respect to some or all of our existing leases that are in contravention to the existing
terms of those leases in response to adverse pressures, including negotiating with landlords for rent abatement, terminating certain leases, or discontinuing
payment, such as the actions we took in response to the closures of our stores during the COVID-19 pandemic, which may subject us to legal, reputational
and financial risks. In addition, as our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause
us to close stores in desirable locations. If we are unable to enter into new leases or renew existing leases on terms acceptable to us or be released from our
obligations under leases for stores that we close, our business, profitability and results of operations may be harmed.

We buy and stock merchandise based upon seasonal weather patterns and therefore unseasonable weather could negatively impact our sales.

We buy select merchandise for sale based upon expected weather patterns during the seasons of winter, spring, summer and fall. If we encounter untimely
aberrations in weather conditions, such as warmer winters or cooler summers than would be considered typical, these weather variations could cause some
of our merchandise to be inconsistent with what consumers wish to purchase, causing our sales to decline. Furthermore, extended unseasonable weather
conditions in regions such as the southwestern United States, particularly in California, Arizona, Nevada, Florida and the northeastern United States will
likely have a greater impact on our sales because of our store concentration in those regions.

We purchase merchandise in advance of the season in which it will be sold and if we purchase too much inventory or do not receive inventory on time
we may need to reduce prices in order to sell it, which may adversely affect our overall profitability.

We must actively manage our purchase of inventory. Generally, we order merchandise months in advance of it being received and offered for sale. If there
is a significant decrease in demand for our products or if we fail to accurately predict fashion trends or consumer demands, economic trends or
unseasonable weather impacts the anticipated demand for certain product categories, we may be forced to rely on markdowns or promotional sales to
dispose of excess inventory. Due to unanticipated supply chain disruptions, we may fail to receive inventory timely or in line with when we anticipate
customers will be seeking to purchase merchandise for a given season. In addition, seasonal fluctuations also affect our inventory levels, as we usually
order and carry a significant amount of inventory before the back-to-school and winter holiday shopping seasons. If we are not successful in selling our
inventory during these periods, we may be forced to rely on markdowns or promotional sales to dispose of the inventory, or we may not be able to sell the
inventory at all, which could have an adverse effect on our margins and operating income.

Our sales can significantly fluctuate based upon shopping seasons, which may cause our operating results to fluctuate disproportionately on a
quarterly basis.

Because of a traditionally higher level of sales during the back-to-school and winter holiday shopping seasons, our sales are typically higher in the third and
fourth fiscal quarters than they are in the first and second fiscal quarters. Accordingly, the results of a single fiscal quarter, particularly the third and fourth
fiscal quarters, should not be relied on as an indication of our annual results or future performance. In addition, any factors that harm our third and fourth
fiscal quarter operating results could have a disproportionate effect on our results of operations for the entire fiscal year.

If we fail to maintain good relationships with our suppliers or if our suppliers are unable or unwilling to provide us with sufficient quantities of
merchandise at acceptable prices, our business and operations may be adversely affected.

Our business is largely dependent on continued good relations with our suppliers, including vendors for our third-party branded products and manufacturers
for our proprietary branded products. We operate on a purchase order basis for our proprietary branded and third-party branded merchandise and do not
have long-term contractual relationships with our suppliers. Accordingly, our suppliers can refuse to sell us merchandise, limit the type or quantity of
merchandise they sell us or raise prices at any time, which can have an adverse impact on our business. Deterioration in our relationships with our
suppliers, supply chain disruption, or increased demand for their products could have a material adverse impact on our business, and there

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can be no assurance that we will be able to acquire desired merchandise in sufficient quantities on terms acceptable to us in the future. Also, some of our
vendors are vertically integrated, selling products directly from their own retail stores, and therefore are in direct competition with us. These vendors may
decide at some point in the future to reduce or discontinue supplying their merchandise to us, supply us less desirable merchandise or raise prices on the
products they do sell us. Additionally, instances of supply chain disruptions and delays, as well as continued heightened inflation, could lead to
inefficiencies and heightened costs passed to us by our vendors that could negatively impact our performance and our results of operations. Further, if we
lose key vendors or are unable to find alternative vendors to supply us with substitute merchandise for lost products, our business may be adversely
affected.

If we cannot retain or find qualified employees to meet our staffing needs in our stores, our distribution and e-commerce fulfillment centers, or our
corporate offices, our business could be adversely affected.

Our success depends upon the quality of the employees we hire. We seek employees who are motivated, represent our corporate culture and brand image
and, for many positions, have knowledge of our merchandise and the skill necessary to excel in a customer service environment. The turnover rate in the
retail industry is high and finding qualified candidates to fill positions may be difficult. If we cannot attract and retain corporate and distribution center
employees, regional, district and store managers, and store associates with the qualifications we deem necessary at requisite cost, our ability to effectively
operate and expand may be adversely affected. We additionally rely on temporary personnel to staff our distribution and fulfillment centers, as well as
seasonal part-time employees to provide incremental staffing to our stores in busy selling seasons such as the back-to-school and winter holiday seasons.
We cannot guarantee that we will be able to find adequate temporary or seasonal personnel to staff our operations when needed, which may strain our
existing personnel or increase costs, and negatively impact our operations.

Our business largely depends on a strong brand image, and if we are not able to maintain and enhance our brand, particularly in new markets where
we have limited brand recognition, we may be unable to increase or maintain our level of sales.

We believe that our brand image and brand awareness has contributed significantly to the success of our business. We also believe that maintaining and
enhancing our brand image, particularly in new markets where we have limited brand recognition, is important to maintaining and expanding our customer
base. Our ability to maintain the strength and distinctiveness of our brand image in our existing markets, successfully integrate new stores into their
surrounding communities, or to expand into new markets will be adversely impacted if our marketing initiatives are unsuccessful and we fail to connect
with our target customer. Maintaining and enhancing our brand image may require us to make substantial investments in areas such as merchandising,
marketing, store operations, e-commerce, social media, community relations, store graphics, catalog distribution and employee training, which could
adversely affect our cash flow and which may not ultimately be successful. Failure to successfully market our brand in new and existing markets could
harm our business, results of operations and financial condition.

Any inability to balance merchandise bearing our proprietary brands with the third-party branded merchandise we sell may have an adverse effect on
our sales and gross margin.

Our proprietary branded merchandise represents a significant portion of our net sales. Our proprietary branded merchandise generally has a higher gross
margin than the third-party branded merchandise we offer. As a result, we may determine that it is best for us to continue to hold or increase the penetration
of our proprietary brands in the future. However, carrying our proprietary brands limits the amount of third-party branded merchandise we can carry and,
therefore, there is a risk that the customers’ perception that we offer many major brands will decline, and that our third-party branded partners may become
less interested in working with us. By maintaining or increasing the amount of our proprietary branded merchandise, we are also exposed to greater fashion
risk, as we may fail to anticipate fashion trends correctly. These risks, if they occur, could have a material adverse effect on sales and profitability.

Most of our merchandise is produced in foreign countries, making the price and availability of our merchandise susceptible to international trade and
other international conditions.

Although we purchase our merchandise from domestic suppliers, these suppliers have a majority of their merchandise made in foreign countries. Some
foreign countries can be, and have been, affected by political and economic instability and natural disasters, negatively impacting trade, which can result in
material delays in the delivery of certain merchandise to us from foreign manufacturers. The countries in which our merchandise currently is manufactured
or may be manufactured in the future could become subject to new trade restrictions imposed by the United States or other foreign governments. Trade
restrictions, including increased tariffs or quotas, embargoes and customs restrictions, against apparel items, as well as United States or foreign labor
strikes, work stoppages or boycotts, epidemics or pandemics could increase the cost or reduce the supply of apparel available to us and have a material
adverse effect on our business, financial condition and results of operations. In addition, our merchandise supply could be impacted if our suppliers’
imports become subject to existing or future duties and quotas, or if our suppliers face increased competition from other companies for production
facilities, import quota capacity and

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shipping capacity. Any increase in the cost of our merchandise or limitation on the amount of merchandise we are able to purchase could have a material
adverse effect on our financial condition and results of operations.

Our corporate headquarters, distribution and e-commerce fulfillment centers and certain information technology systems are in Irvine, California, and
if their operations are disrupted, we may not be able to fully operate our store support functions, ship merchandise to our stores, or fulfill e-commerce
orders, which would adversely affect our business.

Our corporate headquarters, distribution centers and certain information technology systems are in two locations in Irvine, California. If we encounter any
disruptions to our operations within these buildings or if they were to shut down for any reason, including by fire or other natural disaster, or as a result of
pandemics/epidemics, then we may be prevented from effectively operating our stores, shipping and processing our merchandise and operating our e-
commerce platform. For example, in connection with the COVID-19 pandemic, we discontinued the operations of the distribution center for our stores and
implemented other precautions in our corporate offices and distribution centers that materially disrupted our operations in Irvine, California, and we may
need to do so again in the future. Furthermore, the risk of disruption or shut down at these buildings is greater than it might be if they were located in
another region, as southern California is prone to certain natural disasters such as earthquakes and wildfires. Any disruption or shut down at these locations
could significantly impact our operations and have a material adverse effect on our financial condition and results of operations.

Our stores are mostly located in the southwestern and northeastern United States and in Florida, with a significant number of stores located in
California, putting us at risk of concentration issues and other region-specific disruptions.

The majority of our stores are located in California, Arizona, Nevada, Florida and the northeastern United States. Sales in these states could be more
susceptible to disruptions than other parts of the country, such as from economic and weather conditions, demographic and population changes and changes
in fashion tastes, and consequently, we may be more susceptible to these factors than more geographically diversified competitors. Compared to the country
as a whole, stores in California are exposed to a relatively high risk of damage from a major earthquake or wildfires, while stores in Florida are exposed to
a relatively high risk from hurricane damage. Any negative impact upon or disruption to the operations of stores in these states could have a material
adverse effect on our financial condition and results of operations.

Litigation costs and the outcome of litigation could have a material adverse effect on our business.

From time to time we may be subject to litigation claims through the ordinary course of our business operations regarding, but not limited to, employment
matters, compliance with accessibility laws, apparel, footwear and accessory safety standards, security of customer and employee personal information,
stockholder litigation, contractual relations with vendors, marketing and infringement of trademarks and other intellectual property rights. Litigation to
defend ourselves against claims by third parties, or to enforce any rights that we may have against third parties, may continue to be necessary, which could
result in substantial costs and diversion of our resources, causing a material adverse effect on our business, financial condition, results of operations or cash
flows.

If our vendors and manufacturing sources fail to use acceptable labor or other practices our reputation may be harmed, which could negatively impact
our business.

We purchase merchandise from independent third-party vendors and manufacturers. If any of these suppliers have practices that are not legal or accepted in
the United States, consumers may develop a negative view of us, our brand image could be damaged, and we could become the subject of boycotts by our
customers and/or interest groups. Further, if the suppliers violate labor or other laws of their own country, these violations could cause disruptions or delays
in their shipments of merchandise. For example, much of our merchandise is manufactured in China and Mexico, which have different labor practices than
the United States. We do not independently investigate whether our suppliers are operating in compliance with all applicable laws and therefore we rely
upon the suppliers’ representations set forth in our purchase orders and vendor agreements concerning the suppliers’ compliance with such laws. If our
goods are manufactured using illegal or unacceptable labor practices in these countries, or other countries from which our suppliers source the product we
purchase, our ability to supply merchandise for our stores without interruption, our brand image and, consequently, our sales may be adversely affected.

If we lose key management personnel our operations could be negatively impacted.

Our business and growth depends upon the leadership and experience of our key executive management team, including our co-founder, Hezy Shaked, who
currently serves as our Interim President and Chief Executive Officer and Executive Chairman of our Board of Directors, and Michael Henry, our
Executive Vice-President and Chief Financial Officer. We also may be unable to retain other existing management personnel that are critical to our success,
which could result in harm to our vendor and employee relationships, loss of key information, expertise or know-how and unanticipated recruitment and
training costs. The loss of services of any of our key personnel could have a material adverse effect on our business and prospects, and could be viewed in a
negative light by investors and analysts, which could cause our Class A common stock price to decline. All of our employees are employed at will and are
not contractually bound to stay with the company. If we lose the services of any of our

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key personnel or we are not able to attract additional qualified personnel, we may not be able to successfully manage our business.

We rely on third parties to deliver merchandise to our stores located outside of southern California and to our customers and, therefore, our business
could be negatively impacted by disruptions in the operations of these third-party providers.

We rely on third parties to ship our merchandise from our distribution center in Irvine, California to our stores located across the United States, as well as to
ship e-commerce sales packages directly to our customers. Relying on these third-party delivery services puts us at risk from disruptions in their operations,
such as employee strikes, inclement weather and epidemics/pandemics, and their inability to meet our shipping demands. If we are forced to use other
delivery services, our costs could increase, and we may not be able to meet shipment deadlines. Moreover, we may not be able to obtain delivery terms as
favorable as those received from the transportation providers we currently use, which would further increase our costs. These circumstances may negatively
impact our financial condition and results of operations.

We rely on print and online marketing services.

We use the U.S. Postal Service to mail printed marketing materials several times each year to inform our customers about our products, acquire new
customers, drive customers into our stores, and promote our website and stores.  As a result, postal rates and paper and printing costs affect the cost of our
mailings.  We also use third-party online services to market our website and stores and to distribute promotions to attract new customers and encourage
existing customers to purchase from us. Any significant or unanticipated increase in postage, reduction in postal service, or slow-down in postal delivery,
increases in paper and printing costs, increases in the cost of our online marketing services or any service interruption or failure on the part of such service
providers could impair our ability to deliver printed marketing materials or our online marketing in a timely or economically efficient manner.  This could
also adversely impact our sales and earnings if we are unable to pass such increases on to our customers or are unable to implement more efficient printing,
mailing, delivery and order fulfillment systems or, in the case of our online marketing, to find alternative providers in a timely manner and on terms that are
not significantly more costly to us.

Risks Related to Information Technology, Data Privacy and Intellectual Property

If our information technology fails to operate or is unable to support our business, our operations could be disrupted.

We rely upon our management information systems in almost every aspect of our daily business operations. For example, our management information
systems serve an integral part in enabling us to order merchandise, process merchandise at our distribution center and retail stores, perform and track sales
transactions, manage personnel, pay vendors and employees, operate our e-commerce platform and report financial and accounting information to
management. In addition, we rely on our management information systems to enable us to leverage our costs as we grow. If our management information
systems fail to operate or are unable to support our business, our store and e-commerce operations could be severely disrupted, and we could be required to
make significant additional expenditures to remediate any such failure, which may negatively impact our financial condition.

Our business is subject to a variety of laws, rules, and other obligations regarding data protection and privacy, which could result in additional
compliance costs, subject us to enforcement actions, or cause us to change our platform or business practices.

We are subject to a complex array of laws relating to the collection, use, retention, disclosure, security, and transfer of personal data. Many jurisdictions
have passed laws in this area, including, for example, the California Consumer Privacy Act of 2018 and California Privacy Rights Act, including
amendments thereto, and other jurisdictions are considering imposing and have imposed additional restrictions, including regulating the level of notice and
consent required to collect and process end-user data. The data protection landscape is rapidly evolving, and implementation standards and enforcement
practices are likely to remain uncertain for the foreseeable future. Complying with emerging and changing laws and requirements may cause us to incur
substantial costs or require us to change our business practices.

The cost of compliance with these laws, regulations, policies, legal obligations and industry standards is high and is likely to increase in the future. If our
privacy or data security measures fail or are perceived to fail to comply with current or future laws, regulations, policies, legal obligations or industry
standards, or any changed interpretations of the foregoing, we may be subject to litigation, regulatory investigations, enforcement actions, inquiries,
prosecutions, fines or other liabilities, as well as negative publicity and a potential loss of business. Moreover, if future laws, regulations, industry
standards, or other legal obligations, or any changed interpretations of the foregoing, further limit the ability of our customers, partners or service providers
to use and share personally identifiable information or other data or our ability to store, process and share personally identifiable information or other data,
our costs could increase and our business, financial condition and operating results could be harmed. Even the perception of privacy or data protection
concerns, whether or not valid, may inhibit customer engagement with us and our e-commerce platform. Any failure or perceived failure by us to comply
with federal, state, or foreign laws or self-regulatory

21

standards could result in negative publicity, significant fines and expenses for remediation, diversion of management time and effort and proceedings
against us by governmental entities, individuals or others.

Our internal operations, management information systems and databases containing the personal information of our employees and customers could
be disrupted by system security or operational failures or breached by intentional attacks. These disruptions or attacks could negatively impact our
sales, increase our expenses, and harm our reputation.

Database privacy, network security and identity theft are matters of growing public concern. Hackers, computer programmers and internal users may be
able to penetrate our network security and create system and operational disruptions, cause shutdowns or loss of data, and misappropriate our confidential
information or that of third parties, including those of our employees and customers. We may incur significant costs related to prevention of breaches of our
cyber-security and to comply with laws regarding the unauthorized disclosure of confidential information, including customer payment information, and we
could incur significant expenses addressing problems created by security breaches to our network, including potential remediation efforts, reputational
harm, and litigation. This risk is heightened because we collect and store customer information for marketing purposes, and use credit card information to
process transactions (although tokenized). While we do take various precautions to secure customer information and prevent unauthorized access to our
database of confidential information, if unauthorized parties, including external hackers or computer programmers, gain access to our database, they may
nevertheless be able to steal this confidential information. There can be no assurance that our cybersecurity risk management program and processes,
including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information. Our failure
to secure this information could result in costly litigation, adverse publicity or regulatory action that could have a material adverse effect on our financial
condition and results of operations. In addition, sophisticated hardware and operating system software and applications that we procure from third parties
may contain defects in design or manufacture that could unexpectedly interfere with our operations, including potentially unintentionally sharing personal
information retained by us, or may not remain current with the rapidly-evolving cybersecurity risks. The cost to alleviate security risks, defects in software
and hardware and address any problems that occur could negatively impact our sales, distribution and other critical functions, as well as our financial
results.

If we are unable to protect our intellectual property rights, our financial results may be negatively impacted.

Our success depends in large part on our brand image. Our company’s name, logo, domain name and our proprietary brands and our registered and
unregistered trademarks and copyrights are valuable assets that serve to differentiate us from our competitors. We currently rely on a combination of
copyright, trademark, trade dress and unfair competition laws to establish and protect our intellectual property rights. There can be no assurance that the
steps taken by us to protect our proprietary rights will be adequate to prevent infringement of our trademarks and proprietary rights by others, including
imitation and misappropriation of our brand. There can be no assurance that obstacles will not arise as we expand our product lines and geographic scope.
The unauthorized use or misappropriation of our intellectual property could damage our brand identity and the goodwill we created for our company, which
could cause our sales to decline. Moreover, litigation may be necessary to protect or enforce these intellectual property rights, which could result in
substantial costs and diversion of our resources, causing a material adverse effect on our business, financial condition, results of operations or cash flows. If
we cannot protect our intellectual property rights, our brand identity and the goodwill we created for our company may diminish, causing our sales to
decline.

Most of our intellectual property has not been registered outside of the United States and we cannot prohibit other companies from using our unregistered
trademarks in foreign countries. Use of our trademarks in foreign countries could negatively impact our identity in the United States and cause our sales to
decline.

We may be subject to liability if we, or our vendors, infringe upon the intellectual property rights of third parties.

We may be subject to liability if we infringe upon the intellectual property rights of third parties. If we were to be found liable for any such infringement,
we could be required to pay substantial damages and could be subject to injunctions preventing further infringement. Such infringement claims could harm
our brand image. In addition, any payments we are required to make and any injunction with which we are required to comply as a result of such
infringement actions could adversely affect our financial results.

We purchase merchandise from vendors that may utilize design copyrights, or design patents, or that may otherwise incorporate protected intellectual
property. We are not involved in the manufacture of any of the merchandise we purchase from our vendors for sale to our customers, and we do not
independently investigate whether these vendors legally hold intellectual property rights to merchandise that they are manufacturing or distributing. As a
result, we rely upon vendors’ representations set forth in our purchase orders and vendor agreements concerning their right to sell us the products that we
purchase from them. If a third-party claims to have licensing rights with respect to merchandise we purchased from a vendor, or we acquire unlicensed
merchandise, we could be obligated to remove such merchandise from our stores, incur costs associated with destruction of such merchandise if the
distributor or vendor is unwilling or unable to reimburse us and be subject to liability under various civil and criminal causes of action, including actions to
recover unpaid royalties and other damages and

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injunctions. Although our purchase orders and vendor agreement require the vendor to indemnify us against such claims, a vendor may not have the
financial resources to defend itself or us against such claims, in which case we may have to pay the costs and expenses associated with defending such
claim. Any of these results could harm our brand image and have a material adverse effect on our business and growth.

Risks Related to Our Ownership Structure and Ownership of Our Common Stock

Our founders control a majority of the voting power of our common stock, which may prevent other stockholders from influencing corporate decisions
and may result in conflicts of interest, and a significant portion of our Class A common stock is held by a concentrated group of stockholders, which
may adversely impact other stockholders.

Our common stock consists of two classes: Class A and Class B. Holders of Class A common stock are entitled to one vote per share, and holders of Class
B common stock are entitled to 10 votes per share, on all matters to be voted on by our common stockholders. All of the shares of Class B common stock
are beneficially owned by Hezy Shaked and Tilly Levine. As a result, Mr. Shaked and Ms. Levine own a significant economic interest in the company and
substantial majority of the total voting power of our outstanding common stock. In addition, Mr. Shaked serves as Executive Chairman of the Board of
Directors and Interim President and Chief Executive Officer, and is the voting trustee, pursuant to a voting trust agreement, covering the shares owned by
Ms. Levine. As a result, Mr. Shaked may dictate the outcome of most corporate actions requiring stockholder approval, including the election of directors
and mergers, acquisitions and other significant corporate transactions. Mr. Shaked may delay or prevent a change of control from occurring, even if the
change of control could appear to benefit the stockholders. Mr. Shaked may also have interests that differ from other stockholders and may vote in a way
with which stockholders disagree and which may be adverse to the interests of other stockholders. This ownership concentration may adversely impact the
trading of our Class A common stock because of a perceived conflict of interest that may exist, thereby depressing the value of our Class A common stock.

In addition, certain third-party stockholders have acquired beneficial ownership of over 30% of our outstanding Class A common stock. This concentration
may create risks for other holders of our Class A common stock in addition to those resulting from Mr. Shaked’s and Ms. Levine’s beneficial ownership of
our Class B common stock, including a reduced public float, potential conflicts between the interests of those holders and other holder of our Class A
common stock, and the risks created if such stockholders were to decide to sell a meaningful portion or all of their holdings in a relatively short time
period, among other things, which could each adversely impact the trading value of our Class A common stock. In addition, if the Class B common stock
were to be converted to Class A common stock at any time, these third-party stockholders would represent a significant portion of the total voting power of
our outstanding common stock, and could create similar risks to those resulting from Mr. Shaked’s and Ms. Levine’s beneficial ownership of our Class B
common stock.

We are a controlled company within the meaning of the NYSE rules, and, as a result, we may rely on exemptions from certain corporate governance
requirements that provide protection to stockholders of other companies.

Mr. Shaked controls more than 50% of the total voting power of our common stock and we are considered a controlled company under the NYSE corporate
governance listing standards. As a controlled company, certain exemptions under the NYSE listing standards will exempt us from the obligation to comply
with certain NYSE corporate governance requirements, including the requirements:

•
•

•

that a majority of our Board of Directors consist of independent directors, as defined under the rules of the NYSE;
that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter
addressing the committee’s purpose and responsibilities; and
that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s
purpose and responsibilities.

Although we intend to continue to comply with these listing requirements even though we are a controlled company, there is no guarantee that we will not
take advantage of these exemptions in the future. Accordingly, so long as we are a controlled company, holders of our Class A common stock may not have
the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

If securities or industry analysts publish inaccurate or unfavorable research about our business, the price and trading volume of our Class A common
stock could decline.

The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our
business. If one or more of the analysts who covers us downgrades our Class A common stock or publishes inaccurate or unfavorable research about our
business, the price of our Class A common stock would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on
us regularly, demand for our Class A common stock could decrease, which could cause the price of our Class A common stock and trading volume to
decline.

23

Financial forecasting by us and financial analysts who may publish estimates of our performance may differ materially from actual results.

Given the dynamic nature of our business, the current uncertain economic climate and the inherent limitations in predicting the future, forecasts of our
revenues, comparable sales, margins, net income and other financial and operating forecasts may differ materially from actual results. Such discrepancies
could cause a decline in the trading price of our Class A common stock.

We have a small public float compared to other larger publicly-traded companies, which may result in price swings in our Class A common stock or
make it difficult to acquire or dispose of our Class A common stock.

This small public float can result in large swings in our stock price with relatively low trading volume. In addition, a purchaser that seeks to acquire a
significant number of shares may be unable to do so without increasing our common stock price, and conversely, a seller that seeks to dispose of a
significant number of shares may experience a decreasing stock price.

The price of our Class A common stock has been, and may continue to be, volatile and may decline in value.

The market for retail apparel stocks can be highly volatile. As a result, the market price of our Class A common stock is likely to be volatile and investors
may experience a decrease in the value of the Class A common stock, unrelated to our operations. The price of our Class A common stock has, and could in
the future, fluctuate significantly in response to a number of factors, as discussed in this “Risk Factors” section. Further, securities class action litigation has
often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert
our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation. The threat or
filing of class action litigation lawsuits could cause the price of our Class A common stock to decline.

Future sales of our common stock by us or by existing stockholders could cause the price of our Class A common stock to decline.

Any sales of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, may cause the market
price for our Class A common stock to decline. Most of these are freely tradable without restriction under the Securities Act of 1933, as amended, or
Securities Act. The shares of Class A common stock and Class B common stock held by Mr. Shaked and Ms. Levine, and the shares of Class A common
stock held by our directors, officers and other affiliates, are restricted securities under the Securities Act, and may not be sold in the public market unless
the sale is registered under the Securities Act or an exemption from registration is available. In addition, if our significant third-party stockholders were to
decide to sell a meaningful portion or all of their holdings in a relatively short time period, it could cause the price of our Class A common stock to decline.
See “—Our founders control a majority of the voting power of our common stock, which may prevent other stockholders from influencing corporate
decisions and may result in conflicts of interest, and a significant portion of our Class A common stock is held by a concentrated group of stockholders,
which may adversely impact other stockholders.”

While we have paid special cash dividends in the past, there can be no assurance that we will pay dividends in the future, which may make our Class A
common stock less desirable to investors and decrease its value.

From February 2017 through December 2021 we paid aggregate special cash dividends of $5.70 per share to all holders of record of issued and outstanding
shares of our common stock across six separate special cash dividends, and there can be no assurance that we will pay additional cash dividends on our
common stock in the future. We do not currently have any formal plans for paying any additional cash dividends on our common stock. Therefore, capital
appreciation, if any, of our Class A common stock could be the sole source of gain for our Class A common stockholders for the foreseeable future.

Our corporate organizational documents and Delaware law have anti-takeover provisions that may inhibit or prohibit a takeover of us and the
replacement or removal of our management.

In addition to the concentration of ownership and voting power held by Mr. Shaked and Ms. Levine, the anti-takeover provisions under Delaware law, as
well as the provisions contained in our corporate organizational documents, may make an acquisition of us more difficult. For example:

•

•

•

our certificate of incorporation includes a provision authorizing our Board of Directors to issue blank check preferred stock without stockholder
approval, which, if issued, would increase the number of outstanding shares of our capital stock and could make it more difficult for a stockholder
to acquire us;
our certificate of incorporation provides that if all shares of our Class B common stock are converted into Class A common stock or otherwise
cease to be outstanding, our Board of Directors will be divided into three classes in the manner provided by our certificate of incorporation. After
the directors in each class serve for the initial terms provided in our certificate of incorporation, each class will serve for a staggered three-year
term;
our certificate of incorporation permits removal of a director only for cause by the affirmative vote of the holders of a majority of the voting power
of the company once the Board of Directors is divided into three classes and provides that director vacancies can only be filled by an affirmative
vote of a majority of directors then in office;

24

•
•

our amended and restated bylaws require advance notice of stockholder proposals and director nominations; and
Section 203 of the Delaware General Corporation Law may prevent large stockholders from completing a merger or acquisition of us.

These provisions may prevent a merger or acquisition of us which could limit the price investors would pay for our common stock in the future.

Our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions
and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes
with us or our directors, officers or other employees.

Our amended and restated bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be
the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty
owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the
Delaware General Corporation Law, or (iv) any action asserting a claim that is governed by the internal affairs doctrine. Any person purchasing or
otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended
and restated bylaws. This choice-of-forum provision may limit our stockholders’ ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors, officers or other employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of
our amended and restated bylaws inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur
additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

General Risks

Epidemics, pandemics, war, terrorism, civil unrest or other public disruptions could negatively affect our business.

All of our stores are located in public areas where large numbers of people typically gather. Epidemics or pandemics, terrorist attacks or threats thereof,
civil unrest, and/or acts or threats of violence involving public areas could cause people not to visit areas where our stores are located, and could have other
potential impacts that may adversely affect our results of operations and financial condition. Further, armed conflicts or acts of war throughout the world
may create uncertainty, causing consumers to spend less on discretionary purchases, including on apparel and accessories, and disrupting our ability to
obtain merchandise for our stores. Such decreases in consumer spending or disruptions in our ability to obtain merchandise would likely decrease our sales
and materially adversely affect our financial condition and results of operations. Other types of violence, such as shootings in malls or in public areas,
could lead to lower traffic in shopping malls or centers in which we operate stores. In addition, local authorities or management from the mall or shopping
center could close the mall or shopping center in response to security concerns. Such closures, as well as lower traffic due to security concerns, could result
in decreased sales.

We may be subject to unionization and work stoppages, or slowdowns.

Currently, none of our employees are represented by a union. However, our employees have the right under the National Labor Relations Act to form or
affiliate with a union. If some or all of our workforce were to become unionized and the terms of the collective bargaining agreement were significantly
different from our current compensation arrangements, it could increase our costs and adversely impact our profitability. Moreover, participation in labor
unions could put us at increased risk of labor strikes and disruption of our operations.

Violations of and/or changes in laws, including employment laws and laws related to our merchandise and our e-commerce platform, could make
conducting our business more expensive or change the way we do business.

We are subject to numerous regulations, including labor and employment, customs, truth-in-advertising, consumer protection, health and safety, and zoning
and occupancy laws and ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the operation of
stores and warehouse facilities. If these regulations were violated by our management, employees or vendors, the costs of certain goods could increase, or
we could experience delays in shipments of our goods, be subject to fines or penalties or suffer reputational harm, which could reduce demand for our
merchandise and hurt our business and results of operations. Similarly, changes in laws could make operating our business more expensive or require us to
change the way we do business. For example, changes in laws related to employee health care, hours, wages, job classification and benefits could
significantly increase operating costs and adversely impact our results of operations. Furthermore, changes in product safety or other consumer protection
laws could lead to increased costs for certain merchandise, or additional labor costs associated with readying merchandise for sale. If we fail, or are
perceived to fail, to comply with current or future laws, regulations, policies, legal obligations or industry standards, or any changed interpretations of the
foregoing, we may be subject to litigation, regulatory investigations, enforcement actions, inquiries, prosecutions, fines, expenses for remediation, or other
liabilities, as well as diversion of management time and effort, negative publicity and a potential loss of business. It may be difficult for us to foresee
regulatory changes impacting our business and our actions needed to respond to changes in the law could be costly and may negatively impact our
operations.

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We depend on cash generated from our operations to support our growth, which could strain our cash flow.

We primarily rely on cash flows generated from existing stores to fund our current operations and our growth plans. An increase in our net cash outflow for
new stores or remodels of existing stores could adversely affect our operations by reducing the amount of cash available to address other aspects of our
business. In addition, any expansion of our business would require significant amounts of cash from operations to pay our existing and future lease
obligations, build out new store space, remodel existing stores, purchase inventory, create new marketing and advertising initiatives, fund the expansion of
our e-commerce business, pay personnel, pay for the increased costs associated with operating as a public company, and, if necessary, further invest in our
infrastructure and facilities. If our business does not generate sufficient cash flows from operations to fund these activities and sufficient funds are not
otherwise available from our existing revolving credit facility or future credit facilities, we may need additional equity or debt financing. If such financing
is not available to us on satisfactory terms, our ability to operate and expand our business or to respond to competitive pressures would be limited and we
could be required to delay, curtail or eliminate planned store openings or investment in existing stores. Moreover, if we raise additional capital by issuing
equity securities or securities convertible into equity securities, your ownership may be diluted. Any debt financing we may incur may impose covenants
on us that restrict our operations or require interest payments that would create additional cash demands and financial risk for us.

We may experience fluctuations in our tax obligations and effective tax rate.

We are subject to income taxes in federal and applicable state and local tax jurisdictions in the U.S. We record tax expense based on our estimates of
current and future payments based on the income tax laws currently in effect. At any time, many tax years are subject to audit by various taxing
jurisdictions. The results of these audits and negotiations with taxing authorities may impact the ultimate settlement of these tax positions. As a result, there
could be ongoing variability in our tax rates as taxable events occur and exposures are re-evaluated. Further, our effective tax rate in any financial statement
period may be materially affected by changes in the mix and level of earnings, or changes in tax laws in any relevant jurisdiction.

The impact of climate change could have an adverse impact on our business, and the implementation of environmental, social, and governance
initiatives, as well as sustainability initiatives, could lead to regulatory or structural modifications within the industry. Such changes may necessitate
substantial operational adjustments and expenses, dampen demand for the Company's goods, and have an unfavorable impact on our business,
financial health, marketing strategy and performance.

We are subject to several risks related to climate change that could adversely affect our business. For example, we use natural gas, gasoline, and electricity
in our distribution and retail operations, and increases in costs related to those resources could adversely affect our profitability. Similarly, our third-party
vendors, manufacturers, and distribution providers also use such resources in their operations, and they may pass along increases to such costs to us.
Government regulations limiting carbon dioxide and other greenhouse gas emissions may also increase compliance, shipping, and merchandise costs, and
other regulation affecting energy inputs, could materially affect our profitability. As the economy transitions to lower carbon intensity, we cannot guarantee
that we will make adequate investments or successfully implement strategies that will effectively achieve our climate-related goals, which could lead to
negative perceptions among customers and investors and result in reputational harm. Climate change, extreme weather conditions, wildfires, droughts, and
rising sea levels could affect our ability to procure merchandise at costs and in quantities we currently experience.

Climate change, environmental, social and governance (“ESG”) and sustainability are a growing global movement. The ongoing political and societal
attention on these issues has led to the creation of both current and potential international agreements, as well as national, regional, and local laws,
regulations, reporting requirements, and policy shifts. Additionally, in some of the regions where we conduct business, there is growing social pressure to
limit greenhouse gas emissions, along with other global initiatives. Such agreements and measures may necessitate, or could result in forthcoming
legislation, regulatory measures, litigation or policy shifts that could require operational changes, additional compliance or disclosure obligations, taxes, or
purchases of emission credits to decrease the emission of greenhouse gases from our operations, which could result in significant additional costs or
expenses, cause us reputational harm, and could materially adversely affect our business, financial condition, marketing strategy, and results of operations.

Item 1B. Unresolved Staff Comments

None.

Item 1C. Cybersecurity

We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our
critical systems and information. Our cybersecurity risk management program includes a cybersecurity incident response plan.

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We design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF). This does not
imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess,
and manage cybersecurity risks relevant to our business.

Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies,
reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational,
and financial risk areas.

Our cybersecurity risk management program includes:

•

•

•

•

•

•

risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader
enterprise IT environment;

a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our
response to cybersecurity incidents;

the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls;

cybersecurity awareness training of our employees, incident response personnel, and senior management;

a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and

a third-party risk management process for service providers, suppliers, and vendors.

We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are
reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.

Cybersecurity Governance

Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Nominating and Corporate Governance Committee
(“Committee”) oversight of cybersecurity and other information technology risks. The Committee oversees management’s implementation of our
cybersecurity risk management program.

The Committee receives quarterly reports from management on our cybersecurity risks. In addition, management updates the Committee, as necessary,
regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential.

The Committee reports to the full Board regarding its activities, including those related to cybersecurity. The full Board also receives briefings from
management on our cyber risk management program. Board members receive presentations on cybersecurity topics from our Chief Information Officer
and/or external experts as part of the Board’s continuing education on topics that impact public companies.

Our Chief Information Officer is responsible for assessing and managing our material risks from cybersecurity threats. He has primary responsibility for
our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity
consultants. He also supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may
include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources,
including external consultants engaged by us; and alerts and reports produced by security tools deployed in our information technology environment.

Item 2. Properties

We lease approximately 172,000 square feet for our corporate headquarters and retail support and distribution center located at 10 Whatney and 12
Whatney, Irvine, California. 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 located at 11 Whatney, Irvine, California. The lease began on June 29, 2012 and
terminates on June 30, 2032.

We lease approximately 81,000 square feet for our e-commerce fulfillment center located at 17 Pasteur, Irvine, California. The lease began on November 1,
2011 and terminates on October 31, 2031.

All of our 248 stores, encompassing a total of approximately 1.8 million total square feet as of February 3, 2024, are occupied under operating leases. The
store leases generally have a base lease term of 10 years and many have renewal option periods, and we are generally responsible for payment of property
taxes and utilities, common area maintenance and mall marketing fees.

We consider all of our properties adequate for our present and anticipated future needs.

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Item 3. Legal Proceedings

The information under the subheading "Legal Proceedings" contained in "Note 10: Commitments and Contingencies" to our consolidated financial
statements included in this Report is incorporated by reference into this Item.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Class A common stock is traded on the NYSE under the symbol “TLYS”. There is no established trading market for our Class B common stock. As of
April 5, 2024, we had approximately ten stockholders of record, eight of whom were holders of our Class A common stock and two of whom were holders
of our Class B common stock. The number of stockholders of record is based upon the actual number of stockholders registered at such date and does not
include holders of shares in “street names” or persons, partnerships, associates, corporations or other entities identified in security position listings
maintained by depositories.

Dividends on Common Stock

We did not pay any special cash dividends in 2023 and 2022. We paid special cash dividends of $1.00 per share in each of July and December of 2021 to all
holders of record of issued and outstanding shares of our common stock. There can be no assurance that we will pay additional cash dividends on our
common stock in the future, and we do not currently have any formal plans to issue dividends in the future. In accordance with the terms of our Asset-
Backed Credit Agreement, we are prohibited from declaring or paying any cash dividends to our stockholders prior to April 27, 2024.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this Item is incorporated herein by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders, which will
be filed with the SEC no later than 120 days after the end of the fiscal year ended February 3, 2024 (the "2024 Proxy Statement").

Stock Performance Graph

The following graph compares the cumulative stockholder return on our Class A common stock for the five years ended February 3, 2024 to the cumulative
return of (i) the S&P Midcap 400 Index and (ii) the S&P 400 Apparel Retail Index over the same period. This graph assumes an initial investment of $100
on February 2, 2019 in our Class A common stock, the S&P Midcap 400 Index and the S&P 400 Apparel Retail Index and assumes the reinvestment of
dividends, if any.

Comparison of 5-Year Cumulative Total Return as of February 3, 2024
Among Tilly's, Inc., the S&P Midcap 400 Index and the S&P 400 Apparel Retail Index

Recent Sales of Unregistered Securities

We did not sell any unregistered equity securities during the fiscal year or purchase any of our securities during the three months ended February 3, 2024.

29

 
Item 6. Reserved

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with the consolidated financial statements and the accompanying notes and the information
contained in other sections of this report, particularly under the headings “Risk Factors” and “Business”. This discussion and analysis is based on the
beliefs of our management, as well as assumptions made by, and information currently available to, our management. The statements in this discussion and
analysis concerning expectations regarding our future performance, liquidity and capital resources, as well as other non-historical statements in this
discussion and analysis, are forward-looking statements. See “Forward-Looking Statements”. These forward-looking statements are subject to numerous
risks and uncertainties, including those described under “Risk Factors”. Our actual results could differ materially from those suggested or implied by any
forward-looking statements.

We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the
Saturday closest to January 31 of the following year. References to "fiscal year 2023" or "fiscal 2023" refer to the fiscal year ended February 3, 2024,
references to "fiscal year 2022" or "fiscal 2022" refer to the fiscal year ended January 28, 2023 and references to "fiscal year 2021” or "fiscal 2021” refer
to the fiscal year ended January 29, 2022. Fiscal year 2023 consisted of a 53-week period, and fiscal years 2022, and 2021 each consisted of a 52-week
period.

The discussion and analysis of our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 appears below. As permitted by
SEC rules, we have omitted the discussion and analysis of our financial condition, cash flows and results of operations for fiscal 2022 compared to fiscal
2021. See Item 7,“Management’s Discussions and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the
year ended January 28, 2023, for this discussion.

Overview

Tillys is a leading destination specialty retailer of casual apparel, footwear, accessories and hardgoods for young men, young women, boys and girls. We
believe we bring together an unparalleled selection of iconic global, emerging and proprietary brands rooted in an active and outdoor lifestyle. The Tillys
concept began in 1982 when our co-founders, Hezy Shaked and Tilly Levine, opened our first store in Orange County, California. As of February 3, 2024,
we operated 248 stores in 33 states, averaging approximately 7,300 square feet per store. We also sell our products through our e-commerce website,
www.tillys.com.

Known or Anticipated Trends

Economic Trends

We believe the uncertain and inflationary economic environment, significant levels of credit card debt with much higher interest rates, and a shift in
consumer preferences for experiences over goods following the COVID-19 pandemic has had, and is likely to continue to have, a significant, adverse
impact on our consumers' spending and, by extension, our operating results. Persistent inflation has also resulted in increased costs for many products and
services that are necessary for the operation of our business, such as product costs, labor costs, shipping costs, and digital marketing costs, among others.
For example, store payroll and payroll related expenses represented approximately 47% of our total selling, general and administrative expenses for fiscal
2023. Our average hourly rate for store payroll for fiscal 2023 was 26% higher than in the pre-pandemic year of fiscal 2019 and 7% higher than in fiscal
2022. Minimum wage increases are estimated to cost us an additional $2 million during fiscal 2024 compared to fiscal 2023. These and other cost increases
may continue to have a material adverse impact on our results of operations and financial condition into fiscal 2024, particularly if the broader economy is
negatively impacted by recessionary impacts for an extended period of time.

Preliminary Fiscal 2024 New Store Openings and Capital Expenditure Plans

During fiscal 2024, we currently expect to open five new stores. We currently expect that our total capital expenditures for fiscal 2024 will not exceed $15
million, inclusive of our new store plans and upgrades to certain distribution and information technology infrastructure systems.

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 expenses and operating
(loss) income.

Net Sales

Net sales reflect revenue from the sale of our merchandise at store locations and through e-commerce, net of sales taxes. Store sales are reflected in sales
when the merchandise is received by the customer. For e-commerce sales, we recognize revenue, and the related cost of goods sold at the time the
merchandise is shipped to the customer. Net sales also include shipping and handling fees for e-commerce shipments that have been shipped to the
customer. Net sales are net of returns on sales during the

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period as well as an estimate of returns expected in the future stemming from current period sales. We recognize revenue from gift cards as they are
redeemed for merchandise. Prior to redemption, we maintain a current liability for unredeemed gift card balances. Our gift cards do not have expiration
dates and in most cases there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. Based on actual historical redemption patterns,
we determined that a small percentage of gift cards are unlikely to be redeemed (which we refer to as 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.

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 Sales

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

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•

overall economic trends;
our ability to attract traffic to our stores and online 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;
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.

Our comparable store 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, 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% 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 Report regarding our comparable store sales may not be comparable to similar data made
available by other retailers.

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 store
count grows over time. The components of our reported cost of goods sold may not be comparable to those of other retail companies.

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

Gross profit is also impacted by shifts in the proportion of sales of proprietary branded products compared to third-party branded products, as well as by
sales mix shifts within and between brands and between major product departments such as young men's and women's apparel, 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. This reflects that various costs, including occupancy costs, generally do not increase in proportion to the seasonal sales increase.

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Selling, General and Administrative Expenses

Our selling, general and administrative, or SG&A, expenses are comprised 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 business as our store count grows
over time. SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods.

Operating (Loss) Income

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

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Results of Operations

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales:

Statements of Operations Data:
Net sales
Cost of goods sold
Rent expense, related party
Total cost of goods sold
Gross profit
Selling, general and administrative expenses
Rent expense, related party
Total selling, general and administrative expenses
Operating (loss) income
Other income (expense), net
(Loss) income before income taxes
Income tax expense
Net (loss) income

Percentage of Net Sales:
Net sales
Cost of goods sold
Rent expense, related party
Total cost of goods sold
Gross profit
Selling, general and administrative expenses
Rent expense, related party
Total selling, general and administrative expenses
Operating (loss) income
Other income (expense), net
(Loss) income before income taxes
Income tax expense
Net (loss) income

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

Store Operating Data:
Stores operating at end of period
Comparable store sales change (2)
Total square feet at end of period (in thousands)
Average net sales per brick-and-mortar store (in thousands) (3)
Average net sales per square foot (3)
E-commerce revenues (in thousands) (4)
E-commerce revenues as a percentage of net sales

$

$

February 3,
2024

Fiscal Year Ended (1)

January 28,
2023
(in thousands)

January 29,
2022

623,083 
453,702 
3,724 
457,426 
165,657 
196,106 
533 
196,639 
(30,982)
5,199 
(25,783)
8,709 
(34,492)

$

$

100.0 %
72.8  %
0.6  %
73.4 %
26.6 %
31.5  %
0.1  %
31.6 %
(5.0)%
0.8  %
(4.1)%
1.4  %
(5.5)%

672,280 
465,916 
3,616 
469,532 
202,748 
191,028 
533 
191,561 
11,187 
1,980 
13,167 
3,490 
9,677 

$

$

100.0 %
69.3  %
0.5  %
69.8 %
30.2 %
28.4  %
0.1  %
28.5 %
1.7 %
0.3  %
2.0 %
0.5  %
1.4 %

775,694 
496,083 
2,948 
499,031 
276,663 
188,527 
541 
189,068 
87,595 
(594)
87,001 
22,752 
64,249 

100.0 %
64.0  %
0.3  %
64.3 %
35.7 %
24.3  %
0.1  %
24.4 %
11.3 %
(0.1) %
11.2 %
2.9  %
8.3 %

February 3,
2024

Fiscal Year Ended

January 28,
2023

January 29,
2022

248 
(10.6)%
1,801 
1,944 
267 
137,453 

22.1 %

$
$
$

249 
(14.6)%
1,818 
2,171 
297 
141,130 

21.0 %

$
$
$

241 
16.3 %
1,764 
2,511 
342 
165,950 

21.4 %

$
$
$

(1) The fiscal year ended February 3, 2024 included 53 weeks. The fiscal years ended January 28, 2023, and January 29, 2022 each included 52 weeks.

34

 
 
 
 
 
 
 
 
(2) 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 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. The comparable store sales change for the period ended
February 3, 2024 includes the 53rd week in fiscal year 2023.

(3) 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.

(4) E-commerce net sales include e-commerce sales and e-commerce shipping and handling fee revenue.

Fiscal Year 2023 Compared to Fiscal Year 2022

Net Sales

Total net sales were $623.1 million, a decrease of $49.2 million, or 7.3%, compared to $672.3 million last year.

$ millions
$(70.7)
21.5
$(49.2)

Decrease in comparable net sales of 10.6%, including e-commerce
Increase in non-comparable store sales, primarily from net sales in new stores
Total

Attributable to

◦ Net sales from physical stores were $485.6 million, a decrease of $45.5 million or 8.6%, compared to $531.1 million last year with a comparable

store net sales decrease of 12.2%. Net sales from physical stores represented 77.9% of total net sales compared to 79.0% of total net sales last year.
We ended fiscal 2023 with 248 total stores compared to 249 total stores at the end of fiscal 2022.

◦ Net sales from e-commerce were $137.5 million, a decrease of $3.7 million or 2.6%, compared to $141.1 million last year. E-commerce net sales

represented 22.1% of total net sales compared to 21.0% to total net sales last year.

Gross Profit

Gross profit was $165.7 million, or 26.6% of net sales compared to $202.7 million or 30.2% of net sales, last year. Buying, distribution and occupancy
costs increased by $1.8 million and deleveraged by 210 basis points as a percentage of net sales collectively, primarily due to increased occupancy costs,
partially offset by a decrease in distribution costs arising from reduced freight costs associated with lower net sales. Product margins declined by 150 basis
points primarily due to increased markdowns utilized to manage inventory levels.

Selling, General and Administrative ("SG&A") Expenses

SG&A expenses were $196.6 million, or 31.6% of net sales, compared to $191.6 million or 28.5% of net sales, last year. The primary components of the
SG&A variances, both in terms of percentage of net sales and total dollars, were as follows:

%
0.5%

0.4%

2.2%
3.1%

$ millions
$3.4

2.5

(0.8)
$5.1

Operating (Loss) Income

Primarily Attributable to

Increase in non-cash store asset impairment charges
Increase primarily due to the estimated impact of the 53rd week in fiscal 2023 compared to 52-weeks in fiscal
2022
Net change in all other SG&A expenses
Total

Operating loss was $(31.0) million or (5.0)% of net sales, compared to operating income of $11.2 million or 1.7% of net sales, last year.

Other Income, Net

Other income was $5.2 million compared to $2.0 million last year, primarily attributable to earning significantly higher rates of return on our marketable
securities.

Income Tax Expense

Income tax expense was $8.7 million or 33.8% of pre-tax loss, compared to $3.5 million or 26.5%, of pre-tax income last year. The increase in the effective
income tax rate was primarily attributable to a $15.4 million non-cash deferred tax asset valuation allowance recorded during fiscal 2023.

35

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

Net loss was $(34.5) million or $(1.16) loss per share, compared to net income of $9.7 million or $0.32 per diluted share, 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.

In addition to cash and cash equivalents and marketable securities, the most significant components of our working capital are merchandise inventories,
accounts payable and accrued expenses. We believe that cash flows from operating activities, our cash on hand and marketable securities, and credit facility
availability will be sufficient to cover our working capital requirements and anticipated capital expenditures for the next 12 months from the filing of this
Report. If these sources are not sufficient or available to meet our capital requirements, then we will be required to obtain additional equity or debt
financing in the 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.

Working Capital

Working capital at February 3, 2024, was $71.5 million compared to $94.1 million at January 28, 2023, a decrease of $22.6 million. The changes in our
working capital during fiscal 2023 were as follows:

$ millions
$94.1
(18.2)
(5.9)
(3.3)
2.8
2.5
(0.5)
$71.5

Description

Working capital at January 28, 2023
Decrease in cash, cash equivalents, and marketable securities, primarily due to lower net sales
Decrease in prepaid expenses and other current assets primarily from a reduction in prepaid income taxes
Decrease in receivables primarily from reduced tenant improvement allowances
Increase primarily due to a reduction in accrued expenses
Increase in merchandise inventories, net of accounts payable
Net change from all other changes in current assets and current liabilities

Working capital at February 3, 2024

Cash Flow Analysis
A summary of operating, investing and financing activities is shown in the following table: 

Net cash (used in) provided by operating activities
Net cash (used in) provided by investing activities
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents

Net Cash (Used In) Provided by Operating Activities

February 3,
2024

Fiscal Year Ended

January 28,
2023

(in thousands)

January 29,
2022

$

$

(6,733) $
(19,993)
227 
(26,499) $

(1,415) $
42,805 
(10,065)
31,325  $

63,402 
(45,328)
(52,057)
(33,983)

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

Net cash used in operating activities was $6.7 million this year compared to $1.4 million last year. The $5.3 million increase in net cash used in operating
activities compared to last year was due primarily to lower net sales.

Net Cash (Used In) Provided By Investing Activities

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

Net cash used in investing activities was $20.0 million this year compared to net cash provided of $42.8 million last year. Net cash used in investing
activities in fiscal 2023 consisted of purchases of marketable securities of $121.0 million and capital expenditures totaling $14.0 million, partially offset by
maturities of marketable securities of $115.0 million. Net cash provided

36

 
 
 
 
 
 
by investing activities in fiscal 2022 consisted of maturities of marketable securities of $147.3 million, partially offset by purchases of marketable securities
of $89.3 million and capital expenditures totaling $15.1 million.

Net Cash Provided By (Used In) Financing Activities

Financing activities primarily consist of share repurchases, a short-swing profits disgorgement payment, and proceeds from employee exercises of stock
options.

Net cash provided by financing activities was $0.2 million this year resulting from the proceeds of employee exercises of stock options of $0.4 million,
partially offset by taxes paid on a short swing profits disgorgement payment to us of $0.2 million. Net cash used in financing activities of $10.1 million last
year was attributable to the repurchase of shares of our common stock of $10.9 million, partially offset by a short-swing profits disgorgement payment to us
of $0.7 million and proceeds of employee exercises of stock options of $0.2 million.

Asset-Backed Credit Agreement

On April 27, 2023 (the “Closing Date”), we entered into an asset-backed credit agreement and revolving line of credit note (the "Note" and, collectively,
the “Credit Agreement”) with Wells Fargo Bank, National Association, as lender (the “Bank”). The Credit Agreement provides for an asset-based, senior
secured revolving credit facility (“Revolving Facility”) of up to $65.0 million (“Revolving Commitment”) consisting of revolving loans, letters of credit
and swing line loans, with a sub-limit on letters of credit outstanding at any time of $10.0 million and a sub-limit for swing line loans of $7.5 million,
which replaced our previous senior unsecured credit agreement. The Credit Agreement also includes an uncommitted accordion feature whereby we may
increase the Revolving Commitment by an aggregate amount not to exceed $12.5 million, subject to certain conditions. The Revolving Facility matures on
April 27, 2026. 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 our assets.

The maximum borrowings permitted under the Revolving Facility is equal to the lesser of (x) the Revolving Commitment and (y) the applicable borrowing
base, which is equal to (i) 90% of our eligible credit card receivables, plus (ii) 90% of the cost of certain adjusted eligible inventory, less certain inventory
reserves, plus (iii) 90% of the cost of certain adjusted eligible in-transit inventory, less certain inventory reserves, less (iv) certain other reserves established
by the Bank.

The unused portion of the Revolving Commitment accrues a commitment fee of 0.375% per annum. Borrowings under the Revolving Facility bear interest
at a rate per annum that ranges from the Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment (equal to 10 basis points for one- and
three-month term SOFR) plus 1.50% to 2.00%, or a base rate (as calculated in accordance with the Credit Agreement) (the “Base Rate”) plus 0.50% to
1.00%, based on the average daily borrowing capacity under the Revolving Facility over the applicable fiscal quarter. We are allowed to elect to apply
either SOFR or Base Rate interest to borrowings at our discretion, other than in the case of swing line loans, to which the Base Rate shall apply.

Under the Credit Agreement, we are subject to a variety of affirmative and negative covenants customary in an asset-based lending facility, including a
financial covenant relating to availability (which is required to remain above the greater of: (i) ten percent (10%) of the Loan Cap (as defined in the Credit
Agreement) and (ii) $6.0 million). Prior to the first anniversary of the Closing Date, we are prohibited from declaring or paying any cash dividends to our
stockholders or repurchasing our common stock. Thereafter, we are permitted to declare or pay cash dividends and/or repurchase our 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.

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; actual or asserted invalidity of any the Credit Agreement or related loan
documents; or a change of control.

As of February 3, 2024, we were in compliance with all of our covenants, were eligible to borrow up to a total of $42.4 million, and had no outstanding
borrowings under the Credit Agreement. The only utilization of the letters of credit sub-limit under the Credit Agreement was a $2.025 million irrevocable
standby letter of credit.

Contractual Obligations

We enter into long-term contractual obligations and commitments in the normal course of business, primarily non-cancellable operating leases and software
maintenance agreements.

We lease approximately 172,000 square feet for our corporate headquarters and distribution center from a company that is owned by the co-founders of
Tillys, one of which is currently our Interim President and Chief Executive Officer. These buildings are located at 10 and 12 Whatney, Irvine, California.
The lease is accounted for as an operating lease and expires on December 31, 2027.

37

We lease approximately 26,000 square feet of office and warehouse space from a company that is owned by one of the co-founders of Tillys who is
currently our Interim President and Chief Executive Officer. This building is located at 11 Whatney, Irvine, California. The lease is accounted for as an
operating lease and expires on June 30, 2032.

We lease approximately 81,000 square feet for our e-commerce distribution center from a company that is owned by one of the co-founders of Tillys who is
currently our Interim President and Chief Executive Officer. This building is located at 17 Pasteur, Irvine, California. The lease is accounted for as an
operating lease and expires on October 31, 2031.

Our store leases are generally non-cancellable operating leases expiring at various dates through fiscal year 2034. Certain leases provide for additional rent
based on a percentage of sales and annual rent increases based upon the Consumer Price Index. In addition, 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 such lease.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the appropriate
application of 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.

We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable. Our accounting policies and estimates
are reevaluated on an ongoing basis and adjustments are made when facts and circumstances dictate a change.

The policies and estimates discussed below involve the selection or application of alternative accounting policies that are material to our consolidated
financial statements. With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially
have a materially favorable or unfavorable impact on subsequent results of operations. However, our historical results for the periods presented in the
consolidated financial statements have not been materially impacted by such variances. This summary should be read in conjunction with the more
complete discussion of our accounting policies and procedures included in "Note 2: Summary of Significant Accounting Policies” in the notes to our
consolidated financial statements included in this Annual Report on Form 10-K. Management has discussed the development and selection of these critical
accounting policies and estimates with our Board of Directors.

We have certain accounting policies that require more significant management judgment and estimates than others. These include our accounting policies
with respect to reserves for sales returns, gift cards, loyalty program, inventory reserves, impairment of long-lived assets and accounting for income taxes,
which are more fully described below.

Reserves for Sales Returns

Revenue is recognized net of estimates for sales returns from our customers. We accrue for estimated sales returns from customers based on historical sales
returns results for a given period, taking into account the seasonal nature of our business.

Gift Cards

We estimate and record breakage revenue in proportion to actual redemptions on unredeemed gift cards based on historical and expected customer
redemption trends. Actual customer redemptions may vary from our estimates. Based on actual historical redemption patterns, we determined that a small
percentage of gift cards are unlikely to be redeemed.

Loyalty Program

Based on historical redemption patterns, unredeemed awards and accumulated partial points are accrued as deferred revenue with a corresponding impact
to net sales. A liability is estimated based on estimated redemptions and the standalone selling price of points earned and expected future redemptions.
Actual customer redemptions may vary from our estimates.

Inventory Reserves

Merchandise inventories are stated at the lower of cost or net realizable value using the retail inventory method. Under the retail inventory method,
inventory is stated at its current retail selling value and then is converted to a cost basis by applying a cost-to-retail ratio based on beginning inventory and
the fiscal year purchase activity. The retail inventory method inherently requires management judgments and estimates, such as the amount and timing of
markdowns needed in order to sell through slow-moving inventories. During each accounting period we record adjustments to our inventories, which are
reflected in cost of goods sold, if the cost of specific inventory items on hand exceeds the amount we expect to realize from the ultimate sale or disposal of
the inventory. This adjustment calculation requires us to develop assumptions and estimates, which are based on factors such as merchandise seasonality,
historical trends and inventory levels, including estimated sell-through rates of remaining units.

38

To the extent that management’s estimates differ from actual results, additional markdowns may be required that could reduce our gross margin, operating
income and the carrying value of inventories. Our success is largely dependent upon our ability to anticipate the changing fashion tastes of our customers
and to respond to those changing tastes in a timely manner. If we fail to anticipate, identify or react appropriately to changing styles, trends or brand
preferences of our customers, we may experience lower sales, excessive inventories and more frequent and extensive markdowns, which would adversely
affect our operating results.

We also record an inventory shrinkage reserve calculated as a percentage of net sales for estimated merchandise losses for the period between the last
physical inventory count and the balance sheet date. These estimates are based on historical percentages and can be affected by changes in merchandise
mix and changes in shrinkage trends. We perform physical inventory counts at least once per year for the entire chain of stores and our distribution center
and adjust the inventory shrinkage reserve accordingly. If actual physical inventory losses differ significantly from the estimate, our results of operations
could be adversely impacted. The inventory shrinkage reserve reduces the value of total inventory and is a component of inventories on the Consolidated
Balance Sheets. The inventory shrinkage reserve at both February 3, 2024 and January 28, 2023 was not material.

Impairment of Long-Lived Assets

We evaluate the carrying value of our long-lived assets, consisting largely of leasehold improvements, furniture and fixtures and equipment at store,
distribution center and corporate office locations, for impairment whenever events or changes in circumstances indicate that the carrying value of long-
lived assets and operating lease right-of-use ("ROU") assets may not be recoverable. Factors that are considered important that could result in the necessity
to perform an impairment review include a current-period operating or cash flow loss combined with a history of operating or cash flow losses and a
forecast that indicates continuing losses or insufficient income associated with the realization of a long-lived asset or asset group. Other factors include a
significant change in the manner of the use of the asset or a significant negative industry or economic trend. This evaluation is performed based on
estimated undiscounted future cash flows from operating activities compared with the carrying value of the related long-lived assets and operating lease
ROU assets. 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 assets based on the discounted cash flows of the assets using a rate that approximates the weighted average cost of
capital plus a company specific risk premium determined by management. Impairment losses are allocated between the long-lived assets and ROU assets
on a relative carrying amount basis. The fair values of ROU assets are estimated by an independent third party and represent the highest and best use to a
market participant. The estimation of the fair values of ROU assets requires significant estimates including comparable market rents. Quarterly, we assess
whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets and operating lease ROU assets
may not be recoverable.

The estimation of future cash flows from operating activities requires significant estimates of factors that include future sales and gross margin
performance. Factors used in the valuation of long-lived assets with finite lives include, but are not limited to, discount rates, management's plans for future
operations, recent operating results and projected future cash flows. If our net sales or gross profit performance or other estimated operating results are not
achieved at or above our forecasted level, or inflation exceeds our forecast and we are unable to recover such costs through price increases, the carrying
value of certain of our retail store assets may prove to be unrecoverable and we may incur additional impairment charges in the future.

Accounting for Income Taxes

We account for income taxes and the related accounts in accordance with FASB ASC Topic 740, Income Taxes, or ASC 740. Under this method, we accrue
income taxes payable or refundable and recognize deferred tax assets and liabilities based on differences between accounting principles generally accepted
in the United States and tax bases of assets and liabilities. We measure deferred tax assets and liabilities using enacted tax rates in effect for the years in
which the differences are expected to reverse, and recognize the effect of a change in enacted rates in the period of enactment.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all
available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning
strategies, carry-back potential if permitted under the tax law, and recent financial operations.

We establish assets and liabilities for uncertain positions taken or expected to be taken in income tax returns, using a more-likely-than-not recognition
threshold. We include in income tax expense any interest and penalties related to uncertain tax positions.

Recent Accounting Pronouncements

For a description of recently-issued accounting standards not yet adopted, refer to Note 2 to our consolidated financial statements included in this Annual
Report on Form 10-K.

39

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Risk

We may be subject to interest rate risk in connection with borrowings, if any, under our credit facility, which bears interest at variable rates. As of both
February 3, 2024 and January 28, 2023, we had no outstanding borrowings under our credit facility.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation
due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have
been immaterial as of the date of this filing. However, the impact of inflationary cost pressures on gasoline, food, and other consumables may have a
material adverse impact on consumer behavior at any point in time, which may by extension have a material adverse effect on our results of operations and
financial condition.

Foreign Exchange Rate Risk

We currently source all merchandise through domestic vendors. We source certain fixtures and materials from various suppliers in other countries. All
purchases are denominated in U.S. dollars, and therefore we do not hedge using any derivative instruments. Historically, we have not been impacted by
changes in exchange rates.

40

Item 8. Financial Statements and Supplementary Data

Tilly’s, Inc.
Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (BDO USA, P.C., Costa Mesa, California, PCAOB ID #243)
Consolidated Balance Sheets as of February 3, 2024 and January 28, 2023
Consolidated Statements of Operations for the fiscal years ended February 3, 2024, January 28, 2023 and January 29, 2022
Consolidated Statements of Comprehensive (Loss) Income for the fiscal years ended February 3, 2024, January 28, 2023 and
January 29, 2022
Consolidated Statements of Stockholders’ Equity for the fiscal years ended February 3, 2024, January 28, 2023 and January 29,
2022
Consolidated Statements of Cash Flows for the fiscal years ended February 3, 2024, January 28, 2023 and January 29, 2022
Notes to Consolidated Financial Statements

42
44
45

46

47
48
49

41

 
Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Tilly’s, Inc.
Irvine, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Tilly’s, Inc. (the “Company”) as of February 3, 2024 and January 28, 2023, the related
consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended
February 3, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at February 3, 2024 and January 28, 2023, and the results of its
operations and its cash flows for each of the three years in the period ended February 3, 2024, in conformity with accounting principles generally accepted
in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's
internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated April 11, 2024 expressed an unqualified opinion
thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does
not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Realizability of Deferred Tax Assets

As indicated in Note 14 to the Company’s consolidated financial statements, the Company has recorded gross deferred tax assets and gross deferred tax
liabilities of $74.6 million and $59.2 million, respectively, as of February 3, 2024. The Company has recorded a valuation allowance on the entire balance
of $15.4 million of net deferred income tax assets. In evaluating the realizability of deferred tax assets, the Company considers whether it is more-likely-
than-not that the deferred tax assets will be realized.

We identified the Company’s evaluation of the realizability of deferred tax assets as a critical audit matter. Significant management judgments were
required in evaluating and weighing the collective positive and negative evidence that were used to assess the realizability of deferred tax assets which
included estimating future sources of taxable income. Auditing these elements involved subjective and complex auditor judgment due to the nature of audit
evidence and extent of audit effort required to address these matters, including the use of personnel with specialized knowledge and skill.

42

The primary procedures we performed to address this critical audit matter included: 

•
Testing the design and operating effectiveness of internal controls related to management’s assessment of the realizability of deferred tax assets.
• Utilizing personnel with specialized knowledge and skill in accounting for income taxes to assist in the evaluation of the Company’s assessment of
positive and negative evidence, and whether the estimated future sources of taxable income were sufficient to utilize the deferred tax assets in the
relevant time period.

Impairment of Long-Lived Assets Related to Individual Stores

As indicated in Notes 2, 6, 9 and 11 to the Company’s consolidated financial statements, the Company’s long-lived assets consist of property and
equipment, net, and operating lease right-of-use (ROU) assets with carrying values of $48.1 million and $203.8 million, respectively, as of February 3,
2024. The Company records impairment of long-lived assets used in operations whenever events or changes in circumstances indicate that the net carrying
amounts of long-lived assets may not be recoverable. For the year ended February 3, 2024, the Company recorded an impairment charge of $3.4 million to
write-down the carrying value of certain long-lived assets related to individual stores to their estimated fair values.

The Company’s evaluation of long-lived assets for impairment involves estimating the undiscounted future cash flows and fair value of long-lived assets.
The calculation of the undiscounted future cash flows for individual stores requires management to make significant estimates and assumptions related to
the forecasted revenue growth rates. The calculation of the fair value of long-lived assets for individual stores requires management to make significant
estimates and assumptions related to the forecasted revenue growth rates, discount rates, and comparable market rents.

We identified the long-lived asset impairment assessment related to individual stores as a critical audit matter due to significant management judgment
involved in the determination of the: (i) forecasted revenue growth rates, (ii) discount rates, and (iii) comparable market rents. Auditing these elements
involved especially challenging auditor judgment due to the nature of audit evidence and extent of audit effort required, including the use of personnel with
specialized knowledge and skill.

The primary procedures we performed to address this critical audit matter included: 

•

•

Testing the design and operating effectiveness of internal controls related to: (i) management’s forecasted revenue growth rates used in the
calculation of the undiscounted future cash flows and fair value of long-lived assets for individual stores, (ii) review of the discount rates used in
the calculation of the fair value of long-lived assets for individual stores, and (iii) the determination of the comparable market rents used in the
calculation of the fair value of operating lease ROU assets for individual stores.
Evaluating the reasonableness of management’s forecasted revenue growth rates by: (a) comparing current performance to historical results and
prior period projections, and (b) comparing forecasted revenue growth rates to external market and industry data.

• Utilizing personnel with specialized knowledge and skill to assist in evaluating the reasonableness of: (i) discount rates used in the calculation of
the fair value of long-lived assets for individual stores and (ii) comparable market rents used in the calculation of the fair value of operating lease
ROU assets for individual stores.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2015.

Costa Mesa, California
April 11, 2024

43

Tilly’s, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)

ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Receivables
Merchandise inventories
Prepaid expenses and other current assets

Total current assets

Operating lease assets
Property and equipment, net
Deferred tax assets, net
Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Accrued compensation and benefits
Current portion of operating lease liabilities
Current portion of operating lease liabilities, related party
Other liabilities

Total current liabilities

Noncurrent portion of operating lease liabilities
Noncurrent portion of operating lease liabilities, related party
Other

Total long-term liabilities
Total liabilities

Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock (Class A), $0.001 par value; 100,000 shares authorized; 22,714 and 22,562 shares issued and outstanding,
respectively
Common stock (Class B), $0.001 par value; 35,000 shares authorized; 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
Additional paid-in capital
(Accumulated deficit) Retained earnings
Accumulated other comprehensive income

Total stockholders’ equity
Total liabilities and stockholders’ equity

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

44

February 3,
2024

January 28,
2023

$

$

$

$

47,027  $
48,021 
5,947 
63,159 
11,905 
176,059 
203,825 
48,063 
— 
1,598 
429,545  $

14,506  $
13,063 
14,957 
9,902 
48,672 
3,121 
336 
104,557 
160,531 
19,267 
321 
180,119 
284,676 

73,526 
39,753 
9,240 
62,117 
17,762 
202,398 
212,845 
50,635 
8,497 
1,377 
475,752 

15,956 
15,889 
16,103 
8,183 
48,864 
2,839 
470 
108,304 
167,913 
22,388 
349 
190,650 
298,954 

23 

23 

7 
— 
172,478 
(27,962)
323 
144,869 
429,545  $

7 
— 
170,033 
6,530 
205 
176,798 
475,752 

 
 
 
Tilly’s, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)

Net sales

Cost of goods sold (includes buying, distribution, and occupancy costs)
Rent expense, related party
Total cost of goods sold (includes buying, distribution, and occupancy costs)
Gross profit

Selling, general and administrative expenses
Rent expense, related party
Total selling, general and administrative expenses

Operating (loss) income
Other income (expense), net
(Loss) income before income taxes
Income tax expense
Net (loss) income

Basic (loss) earnings per share of Class A and Class B common stock
Diluted (loss) earnings per share of Class A and Class B common stock
Weighted average basic shares outstanding
Weighted average diluted shares outstanding

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

$

623,083  $

672,280  $

775,694 

453,702 
3,724 
457,426 
165,657 

196,106 
533 
196,639 

(30,982)
5,199 
(25,783)
8,709 
(34,492) $

(1.16) $
(1.16) $

29,848 
29,848 

465,916 
3,616 
469,532 
202,748 

191,028 
533 
191,561 

11,187 
1,980 
13,167 
3,490 
9,677  $

0.32  $
0.32  $

30,115 
30,323 

496,083 
2,948 
499,031 
276,663 

188,527 
541 
189,068 

87,595 
(594)
87,001 
22,752 
64,249 

2.10 
2.06 
30,560 
31,118 

$

$
$

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

45

 
 
 
 
 
 
Tilly’s, Inc.
Consolidated Statements of Comprehensive (Loss) Income
(In thousands)

Net (loss) income
Other comprehensive gain (loss), net of tax:

Net change in unrealized gains (losses) on available-for-sale securities

Other comprehensive gain (loss), net of tax
Comprehensive (loss) income

February 3,
2024

Fiscal Years Ended
January 28,
2023

January 29,
2022

(34,492) $

9,677  $

64,249 

118 
118 
(34,374) $

206 
206 
9,883  $

(21)
(21)
64,228 

$

$

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

46

 
 
 
 
 
 
Tilly’s, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)

Number of Shares

Common
Stock
(Class A)

Common
Stock
(Class B)

Common
Stock

Additional
Paid-in
Capital

(Accumulated
Deficit) Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders’
Equity

Balance at January 30, 2021

Net income
Dividends paid ($2.00 per share)
Share-based compensation expense
Restricted stock
Exercise of stock options
Net change in unrealized losses on available-
for-sale securities
Balance at January 29, 2022

Net income
Share-based compensation expense
Restricted stock
Exercise of stock options
Short swing profits disgorgement payment
Repurchase of common stock
Net change in unrealized gains on available-
for-sale securities
Balance at January 28, 2023

Net loss
Share-based compensation expense
Restricted stock, net of forfeitures
Exercise of stock options
Taxes paid for short swing profits
disgorgement payment
Net change in unrealized gains on available-
for-sale securities
Balance at February 3, 2024

22,477 
— 
— 
— 
20 
1,222 

— 
23,719 
— 
— 
63 
38 
— 
(1,258)

— 
22,562 
— 
— 
57 
95 

— 

— 
22,714 

7,306  $
— 
— 
— 
— 
— 

30  $
— 
— 
— 
— 
1 

155,437  $
— 
— 
1,920 
— 
9,572 

5,135  $
64,249 
(61,630)
— 
— 
— 

— 
7,306 
— 
— 
— 
— 
— 
— 

— 
7,306 
— 
— 
— 
— 

— 

— 
31 
— 
— 
— 
— 
— 
(1)

— 
30 
— 
— 
— 
— 

— 

— 
166,929 
— 
2,267 
— 
176 
661 
— 

— 
170,033 
— 
2,218 
— 
400 

(173)

— 
7,754 
9,677 
— 
— 
— 
— 
(10,901)

— 
6,530 
(34,492)
— 
— 
— 

— 

20  $
— 
— 
— 
— 
— 

(21)
(1)
— 
— 
— 
— 
— 
— 

206 
205 
— 
— 
— 
— 

— 

— 
7,306  $

— 
30  $

— 
172,478  $

— 
(27,962) $

118 
323  $

160,622 
64,249 
(61,630)
1,920 
— 
9,573 

(21)
174,713 
9,677 
2,267 
— 
176 
661 
(10,902)

206 
176,798 
(34,492)
2,218 
— 
400 

(173)

118 
144,869 

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

47

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tilly’s, Inc.
Consolidated Statements of Cash Flows
(In thousands)

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

Cash flows from operating activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

$

(34,492) $

9,677  $

Depreciation and amortization
Insurance proceeds from casualty loss
Share-based compensation expense
Impairment of assets
Loss on disposal of assets
Gain on maturities of marketable securities
Deferred income taxes
Changes in operating assets and liabilities:

Receivables
Merchandise inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Accrued compensation and benefits
Operating lease liabilities
Deferred revenue
Other liabilities

Net cash (used in) provided by operating activities

Cash flows from investing activities
Purchases of marketable securities
Purchases of property and equipment
Proceeds from maturities of marketable securities
Proceeds from sale of property and equipment
Insurance proceeds from casualty loss

Net cash (used in) provided by investing activities

Cash flows from financing activities
Proceeds from exercise of stock options
Taxes paid for short swing profits disgorgement payment
Short swing profits disgorgement payment
Dividends paid
Share repurchases

Net cash provided by (used in) financing activities

Change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period

Supplemental disclosures of cash flow information

Interest paid
Income taxes (refunded) paid

Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment
Operating lease liabilities arising from obtaining operating lease assets
Operating lease liabilities arising from obtaining operating lease assets, related party

$

$
$

$
$
$

12,834 
— 
2,218 
3,431 
38 
(1,966)
8,497 

5,563 
(1,042)
5,561 
(1,474)
(596)
1,719 
(5,323)
(1,146)
(555)
(6,733)

(121,045)
(13,958)
115,000 
10 
— 
(19,993)

400 
(173)
— 
— 
— 
227 
(26,499)
73,526 
47,027  $

—  $
(6,429) $

1,086  $
45,678  $
—  $

14,134 
23 
2,267 
17 
92 
(466)
2,949 

1,710 
3,505 
(1,487)
(12,194)
(5,396)
(8,873)
(5,231)
(993)
(1,149)
(1,415)

(89,349)
(15,123)
147,271 
6 
— 
42,805 

176 
— 
661 
— 
(10,902)
(10,065)
31,325 
42,201 
73,526  $

—  $
1,467  $

3,298  $
46,092  $
4,386  $

64,249 

16,836 
117 
1,920 
136 
74 
(132)
503 

4,023 
(10,064)
(10,275)
3,168 
(10,194)
7,157 
(7,008)
3,604 
(712)
63,402 

(162,321)
(13,425)
130,352 
37 
29 
(45,328)

9,573 
— 
— 
(61,630)
— 
(52,057)
(33,983)
76,184 
42,201 

1 
38,504 

1,080 
22,641 
11,980 

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

48

 
 
Tilly’s, Inc.
Notes to the Consolidated Financial Statements

Note 1: Description of the Company and Basis of Presentation

Tillys is a leading destination specialty retailer of casual apparel, footwear, accessories and hardgoods for young men, young women, boys and girls with
an extensive selection of iconic global, emerging, and proprietary brands rooted in an active, outdoor and social lifestyle. Tillys is headquartered in Irvine,
California and we operated 248 stores in 33 states as of February 3, 2024. 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, 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, 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.

Fiscal Year

Our fiscal year ends on the Saturday closest to January 31. Fiscal years 2023, 2022 and 2021 ended on February 3, 2024, January 28, 2023 and January 29,
2022, respectively. Fiscal year 2023 included 53 weeks and fiscal years 2022 and 2021 each included 52 weeks.

Segment Reporting

Accounting principles generally accepted in the United States (“GAAP”) has established guidance for reporting information about our operating segment,
including disclosures related to our products and services, geographic areas and major customers. We identified one reportable operating segment based on
how our business is managed and evaluated. We determined our operating segment based on the similar nature of products sold, production, merchandising
and distribution processes involved, target customers and economic characteristics. All of our identifiable assets are in the United States.

Note 2: Summary of Significant Accounting Policies

Cash and Cash Equivalents

We consider all short-term investments with an initial maturity of 90 days or less when purchased to be cash equivalents.

Marketable Securities

Marketable debt securities are classified as available-for-sale or held-to-maturity and are carried at fair value or amortized cost plus accrued income,
respectively. Unrealized holding gains and losses, net of income taxes, on available-for-sale debt securities are reflected as a separate component of
stockholders’ equity until realized. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification
basis. We have elected the portfolio approach to eliminate the deferred tax consequences that remain in accumulated other comprehensive income. We
classify all marketable securities within current assets on our accompanying Consolidated Balance Sheets.

Merchandise Inventories

Merchandise inventories are comprised of finished goods offered for sale at our retail stores and online. Inventories are stated at the lower of cost or net
realizable value using the retail inventory method. An initial markup is applied to inventory at cost in order to establish a cost-to-retail ratio. We believe
that the retail inventory method approximates cost. Shipping and handling costs for merchandise shipped to customers of $17.0 million, $19.5 million and
$20.0 million in fiscal years 2023, 2022 and 2021, respectively, are included in cost of goods sold in the accompanying Consolidated Statements of
Operations.

We review our inventory levels to identify slow-moving merchandise and generally use markdowns to clear this merchandise. At any given time,
merchandise inventories include items that have been marked down to management’s best estimate of their fair market value at retail price, with a
proportionate write-down to the cost of the inventory. Our management bases the decision to mark down merchandise primarily upon its current sell-
through rate and the age of the item, among other factors. These markdowns may have an adverse impact on earnings, depending on the extent and amount
of inventory affected.

49

Markdowns are recorded as an increase to cost of goods sold in the accompanying Consolidated Statements of Operations. Total markdowns, including
permanent and promotional markdowns, on a cost basis were $65.0 million, $58.7 million, and $52.5 million in fiscal years 2023, 2022, and 2021,
respectively. As of the end of fiscal 2023 and 2022, total accrued markdowns on the Consolidated Balance Sheets were $2.8 million and $2.3 million,
respectively.

We also record an inventory shrinkage reserve calculated as a percentage of net sales for estimated merchandise losses for the period between the last
physical inventory count and the balance sheet date. These estimates are based on historical percentages and can be affected by changes in merchandise
mix and changes in shrinkage trends. We perform physical inventory counts at least once per year for the entire chain of stores and our distribution and
fulfillment centers, and adjust the inventory shrinkage reserve accordingly. If actual physical inventory losses differ significantly from the estimate, our
results of operations could be adversely impacted. The inventory shrinkage reserve reduces the value of total inventory and is a component of inventories
on the Consolidated Balance Sheets. The inventory shrinkage reserve at February 3, 2024 and January 28, 2023 was not material.

Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful
lives of the assets. Equipment is depreciated over five to seven years. Furniture and fixtures are depreciated over five years. Computer software is
depreciated over three years. Leasehold improvements and the cost of acquiring leasehold rights are amortized over the lesser of the term of the lease or the
estimated useful life of the improvement. The cost of assets sold or retired and the related accumulated depreciation is removed from the accounts with any
resulting gain or loss included in net (loss) income in the accompanying Consolidated Statements of Operations.

Repairs and maintenance costs are charged directly to expense as incurred. Major renewals, replacements and improvements that substantially extend the
useful life of an asset are capitalized and depreciated.

Impairment of Long-Lived Assets

Impairments are recorded on long-lived assets used in operations whenever events or changes in circumstances indicate that the net carrying amounts of
long-lived assets and operating lease right-of-use ("ROU") assets may not be recoverable. With regard to retail store assets, which are comprised of
leasehold improvements, fixtures and computer hardware and software, and operating lease assets, we consider the assets at each individual retail store to
represent an asset group. 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 business strategies. An evaluation
is performed using estimated undiscounted future cash flows from operating activities compared to the carrying value of related long-lived and operating
lease ROU 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 assets based on the discounted cash flows of the assets using a rate that approximates
the weighted average cost of capital plus a company specific risk premium determined by management. Impairment losses are allocated between the long-
lived assets and ROU assets on a relative carrying amount basis. The fair values of ROU assets are estimated by an independent third party and represent
the highest and best use to a market participant. The estimation of the fair values of ROU assets requires significant estimates including comparable market
rents. Quarterly, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets and
operating lease ROU assets may not be recoverable. 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. Refer to "Note 11: Fair Value Measurements", for further information.

Operating Leases

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

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

50

specified levels, is recognized as rent expense when the achievement of the specified sales that triggers the contingent rent is probable.

The incremental borrowing rate impacts the determination of lease classification and the present value of lease payments. Generally, our lease contracts do
not provide a readily determinable implicit rate and, therefore, we use an estimated incremental borrowing rate as of the lease commencement date in
determining the present value of lease payments. The estimated incremental borrowing rate considers various factors, such as Company specific financial
information, synthetic credit rating, credit scores, yield curves, and the lease term.

Refer to "Note 9: Leases" for further information.

Revenue Recognition

Revenue is recognized for store sales when the customer receives and pays for the merchandise at the register, net of estimated returns and taxes collected
from our customers. For e-commerce sales, we recognize revenue, net of sales taxes and estimated sales returns, and the related cost of goods sold at the
time the merchandise is shipped to the customer. 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 accompanying Consolidated Statements of Operations. For fiscal years 2023, 2022 and 2021,
shipping and handling fee revenue included in net sales was $5.6 million, $4.0 million, and $5.8 million, respectively.

We accrue for estimated sales returns by customers based on historical sales return results. As of February 3, 2024 and January 28, 2023, our reserve for
sales returns was $1.3 million and $1.6 million, respectively.

We recognize revenue from gift cards as they are redeemed for merchandise. Prior to redemption, we maintain a current liability for unredeemed gift card
balances. The customer liability balance was $10.2 million as of February 3, 2024 and $11.1 million as of January 28, 2023, and is included in deferred
revenue on the accompanying Consolidated Balance Sheets. Our gift cards do not have expiration dates and in most cases there is no legal obligation to
remit unredeemed gift cards to relevant jurisdictions. Based on actual historical redemption patterns, we determined that a small percentage of gift cards are
unlikely to be redeemed (which we refer to as 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. Revenue recognized from gift cards was $14.5 million, $16.7 million and $17.2 million
for fiscal years 2023, 2022, and 2021, respectively. For fiscal years 2023, 2022, and 2021, the opening gift card balances were $11.1 million, $11.2 million,
and $9.6 million, respectively, of which $5.8 million, $6.1 million, and $5.3 million, respectively, were recognized as revenue during the period.

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

Retail stores
E-commerce

Total net sales

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

Mens
Womens
Accessories
Footwear
Boys
Girls

Total net sales

February 3,
2024

$

$

485,630  $
137,453 
623,083  $

Fiscal Year Ended
January 28,
2023

January 29,
2022

531,150  $
141,130 
672,280  $

609,744 
165,950 
775,694 

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

38  %
27  %
15  %
12  %
4  %
4  %
100 %

38  %
26  %
16  %
12  %
4  %
4  %
100 %

38  %
26  %
16  %
11  %
5  %
4  %
100 %

51

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

Third-party
Proprietary

Total net sales

Loyalty Program

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

68  %
32  %
100 %

68  %
32  %
100 %

70  %
30  %
100 %

We have a customer loyalty program where customers accumulate points based on purchase activity. Once a loyalty member achieves a certain point level,
the member earns an award that may be used towards the purchase of merchandise. Unredeemed awards and accumulated partial points are accrued as
deferred revenue and awards redeemed by the member for merchandise are recorded as an increase to net 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 2022, we modified our expiration policy related
to unredeemed awards and accumulated partial points from expiration at 365 days after the customer's last purchase activity to expiration at 365 days after
the customer's original purchase date. As a result of this modification in expiration policy, the estimated liability was reduced by $0.5 million during the
first quarter of fiscal 2022. A liability is estimated based on the standalone selling price of points earned and expected future redemptions. The deferred
revenue for this program was $4.7 million as of February 3, 2024 and $5.0 million as of January 28, 2023. The value of points redeemed through our
loyalty program was $8.0 million, $8.8 million and $10.5 million during fiscal years 2023, 2022, and 2021, respectively. For fiscal years 2023, 2022 and
2021, the opening loyalty program balances were $5.0 million, $5.9 million, and $3.9 million, respectively, of which $5.0 million, $5.9 million, and $3.5
million, respectively, were recognized as revenue during the period.

Cost of Goods Sold

Cost of goods sold includes product costs and buying, distribution and occupancy costs as follows:

•

Costs of products sold include:

freight expenses associated with merchandise received from our vendors into our distribution centers;
vendor allowances;
cash discounts on payments to merchandise vendors;
physical inventory losses; and

•
•
•
•
• markdowns of inventory.

•

Buying, distribution and occupancy costs include:

•
•
•
•

•

•

payroll, benefit costs, and incentive compensation for merchandising personnel;
temporary employment services
customer shipping and handling expenses;
costs associated with operating our distribution and fulfillment centers, including payroll and benefit costs for our distribution center, occupancy
costs, and depreciation;
freight expenses associated with shipping merchandise inventories to or from our distribution and e-com fulfillment centers and to our e-
commerce customers and between store locations, and;
store occupancy costs, including rent, maintenance, utilities, property taxes, business licenses, security costs and depreciation.

Selling, General and Administrative Expenses

Payroll, benefit costs and incentive compensation for store, regional, e-commerce and corporate employees;

•
• Occupancy and maintenance costs of corporate office facilities;
• Depreciation related to corporate office assets;
• Advertising and marketing costs, net of reimbursement from vendors;
•
•
•
• Other administrative costs such as supplies, consulting, audit and tax preparation fees, travel and lodging; and
•

Tender costs, including costs associated with credit and debit card interchange fees;
Long-lived asset impairment charges;
Legal provisions;

Charitable contributions.

52

Store Pre-opening Costs

Store pre-opening costs consist primarily of occupancy costs, which are included in cost of goods sold, and payroll expenses, which are included in selling,
general and administrative expenses, in the accompanying Consolidated Statements of Operations.

Advertising

We expense advertising costs as incurred, except for direct-mail advertising expenses which are recognized at the time of mailing. Advertising costs include
such things as production and distribution of print and digital catalogs; print, online and mobile advertising costs; radio advertisements; and grand openings
and other events. Advertising expense, which is classified in selling, general and administrative expenses in the accompanying Consolidated Statements of
Operations, was $24.4 million, $23.2 million and $24.5 million in fiscal years 2023, 2022 and 2021, respectively.

Share-Based Compensation

We apply the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation-Stock
Compensation (“ASC 718”), for accounting for equity instruments exchanged for employee services. Under the provisions of this standard, share-based
compensation expense is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis
over the employee’s requisite service period (generally the vesting period of the equity grant). Changes in these inputs and assumptions can materially
affect the measurement of the estimated fair value of award and related share-based compensation expense. Refer to “Note 12: Share-Based
Compensation”, for further information.

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. 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

We accrue income taxes payable or refundable and recognize deferred tax assets and liabilities based on differences between accounting principles
generally accepted in the United States and tax bases of assets and liabilities. We measure deferred tax assets and liabilities using enacted tax rates in effect
for the years in which the differences are expected to reverse, and recognize the effect of a change in enacted rates in the period of enactment.

We recognize deferred tax assets to the extent, and at such time, that we believe that such assets are more likely than not to be realized. In making such a
determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected
future taxable income, tax-planning strategies, carry-back potential if permitted under applicable tax laws, and results of recent operations. If we determine
that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred
tax asset valuation allowance, which would reduce the provision for income taxes.

We establish assets and liabilities for uncertain positions taken or expected to be taken in income tax returns, using a more-likely-than-not recognition
threshold. We include in income tax expense any interest and penalties related to uncertain tax positions.

(Loss) Earnings per Share

Basic (loss) earnings per share is computed using the weighted average number of shares outstanding. Diluted (loss) earnings per share is computed using
the weighted average number of shares outstanding adjusted for the incremental shares attributed to restricted stock and outstanding options to purchase
common stock. Refer to “Note 15: (Loss) Earnings Per Share”, for further information.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and short-term investments. At
February 3, 2024 and January 28, 2023, and at various times throughout these years, we had cash in financial institutions in excess of the $250,000 amount
insured by the Federal Deposit Insurance Corporation. We typically invest our cash in highly rated, short-term commercial paper, interest-bearing money
market funds, municipal bonds and certificates of deposit.

53

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis,
management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Recently Adopted Accounting Standards

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 ("ASU 2019-11") which amends ASU No. 2016-13 Measurement of Credit Losses on
Financial Instruments and 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. We adopted ASU 2019-11 in the first
quarter of fiscal 2023, which applied to our fixed income securities recorded at amortized cost and classified as held-to-maturity and to our trade
receivables. The adoption of this accounting standard did not have a material effect on our consolidated financial statements and related disclosures.

New Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07 "Segment reporting (Topic 280): Improvements to Reportable Segment Disclosures," which amends
Topic 280. The amendments in this update enhance segment reporting by expanding the breadth and frequency of segment disclosures required by public
entities. ASU 2023-07 requires public entities to disclose factors used to identify the entities reportable segments, how the Chief Operating Decision Maker
("CODM") uses the reported measure(s) of a segment's profit or loss to assess segment performance and decide how to allocate resources, significant
expenses regularly provided to the CODM and included within the reported measure(s) of a segment's profit or loss, types of products and services from
which each reportable segment derives its revenues, and the title and position of the CODM. The new standard is effective for public entities with fiscal
years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and is
required to be adopted retrospectively for all prior periods presented in the consolidated financial statements. We are currently evaluating the impact of this
guidance on our consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." ASU 2023-09 requires
disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The new standard is
effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted and should be applied prospectively with
the option of retrospective application. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Note 3: Marketable Securities

Marketable securities as of February 3, 2024 consisted of commercial paper, classified as available-for-sale, and fixed income securities, classified as held-
to-maturity, as we have the intent and ability to hold them to maturity. Our investments in commercial paper and fixed income securities are recorded at fair
value and amortized cost, respectively, which approximates fair value. All of our marketable securities are less than one year from maturity.

54

The following table summarizes investments in marketable securities at February 3, 2024 and January 28, 2023 (in thousands):

Commercial paper
Fixed income securities
Total marketable securities

Commercial paper
Fixed income securities
Total marketable securities

Cost or 
Amortized Cost

February 3, 2024

Gross
Unrealized
Holding
Gains

Gross
Unrealized
Holding
Losses

Estimated Fair
Value

44,072  $
3,511 
47,583  $

438  $
— 
438  $

—  $
— 
—  $

44,510 
3,511 
48,021 

Cost or 
Amortized Cost

January 28, 2023

Gross
Unrealized
Holding
Gains

Gross
Unrealized
Holding
Losses

Estimated Fair
Value

29,570  $
10,003 
39,573  $

180  $
— 
180  $

—  $
— 
—  $

29,750 
10,003 
39,753 

$

$

$

$

For fiscal years 2023, 2022 and 2021, we recognized gains on investments for commercial paper of $1.9 million, $0.4 million and $0.1 million,
respectively, which matured during the period. In determining those gains, we used the actual cost of the securities sold. Upon recognition of the gains, we
reclassified these amounts out of accumulated other comprehensive income (loss) and into other income (expense), net, on the accompanying Consolidated
Statements of Operations.

For fiscal years 2023, 2022, and 2021 we purchased fixed income securities of $3.5 million, $15.1 million, and $33.1 million, respectively.

For fiscal years 2023 and 2022 we recognized maturities of fixed income securities of $10.0 million and $37.4 million, respectively. In fiscal year 2021 we
did not recognize any maturities of fixed income securities.

Note 4: Receivables

At February 3, 2024 and January 28, 2023, receivables consisted of the following (in thousands):

Tenant allowances due from landlords
Credit and debit card receivables
Other
Total receivables

February 3,
2024

January 28,
2023

$

$

2,611  $
2,474 
862 
5,947  $

4,667 
2,555 
2,018 
9,240 

We establish a receivable for amounts we expect to collect. We make estimates for the allowance for credit losses against receivables for any potential
uncollectible amounts.

For fiscal years 2023, 2022 and 2021, the allowance is zero.

Note 5: Prepaid Expenses and Other Current Assets

At February 3, 2024 and January 28, 2023, prepaid expenses and other current assets consisted of the following (in thousands):

Prepaid income taxes
Prepaid rent
Prepaid maintenance
Prepaid insurance
Other
Total prepaid expenses and other current assets

55

February 3,
2024

January 28,
2023

$

$

3,730  $
2,886 
2,589 
1,917 
783 
11,905  $

10,589 
2,023 
2,223 
2,288 
639 
17,762 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note 6: Property and Equipment

At February 3, 2024 and January 28, 2023, property and equipment consisted of the following (in thousands):

Leasehold improvements
Computer hardware and software
Furniture and fixtures
Machinery and equipment
Vehicles
Construction in progress
Property and equipment, gross
Accumulated depreciation
Property and equipment, net

February 3,
2024

January 28,
2023

$

$

160,572  $
47,003 
46,747 
34,693 
2,508 
4,638 
296,161 
(248,098)

48,063  $

158,511 
42,903 
47,571 
34,263 
2,190 
6,214 
291,652 
(241,017)
50,635 

Depreciation and amortization expense related to property and equipment was $12.8 million, $14.1 million and $16.8 million in fiscal years 2023, 2022 and
2021, respectively.

Impairments are recorded on long-lived assets used in operations whenever events or changes in circumstances indicate that the net carrying amounts may
not be recoverable. We recorded non-cash impairment charges of $3.4 million, $17.1 thousand and $0.1 million in selling, general and administrative
expenses in fiscal years 2023, 2022 and 2021, respectively, to write down the carrying value of long-lived assets to their estimated fair values. Refer to
"Note 11: Fair Value Measurements", for further information. If we are not able to achieve our projected key financial metrics, we may incur additional
impairment in the future for long-lived assets.

Note 7: Accrued Expenses

At February 3, 2024 and January 28, 2023, accrued expenses consisted of the following (in thousands):

Accrued rent
Sales and use taxes payable
Merchandise returns
Credit card payable
Accrued construction
Computer services
Accrued freight
Other
Total accrued expenses

February 3,
2024

January 28,
2023

$

$

1,741  $
1,707 
1,343 
1,207 
1,062 
1,025 
682 
4,296 
13,063  $

2,359 
2,219 
1,643 
76 
3,293 
865 
1,091 
4,343 
15,889 

Note 8: Asset-Backed Credit Agreement

On April 27, 2023 (the “Closing Date”), we entered into an asset-backed credit agreement and revolving line of credit note (the "Note" and, collectively,
the “Credit Agreement”) with Wells Fargo Bank, National Association, as lender (the “Bank”). The Credit Agreement provides for an asset-based, senior
secured revolving credit facility (“Revolving Facility”) of up to $65.0 million (“Revolving Commitment”) consisting of revolving loans, letters of credit
and swing line loans, with a sub-limit on letters of credit outstanding at any time of $10.0 million and a sub-limit for swing line loans of $7.5 million,
which replaced our Prior Credit Agreement. The Credit Agreement also includes an uncommitted accordion feature whereby we may increase the
Revolving Commitment by an aggregate amount not to exceed $12.5 million, subject to certain conditions. The Revolving Facility matures on April 27,
2026. 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
our assets.

The maximum borrowings permitted under the Revolving Facility is equal to the lesser of (x) the Revolving Commitment and (y) the applicable borrowing
base, which is equal to (i) 90% of our eligible credit card receivables, plus (ii) 90% of the cost of certain adjusted eligible inventory, less certain inventory
reserves, plus (iii) 90% of the cost of certain adjusted eligible in-transit inventory, less certain inventory reserves, less (iv) certain other reserves established
by the Bank.

56

 
 
 
 
The unused portion of the Revolving Commitment accrues a commitment fee of 0.375% per annum. Borrowings under the Revolving Facility bear interest
at a rate per annum that ranges from the Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment (equal to 10 basis points for one- and
three-month term SOFR) plus 1.50% to 2.00%, or a base rate (as calculated in accordance with the Credit Agreement) (the “Base Rate”) plus 0.50% to
1.00%, based on the average daily borrowing capacity under the Revolving Facility over the applicable fiscal quarter. We are allowed to elect to apply
either SOFR or Base Rate interest to borrowings at our discretion, other than in the case of swing line loans, to which the Base Rate shall apply.

Under the Credit Agreement, we are subject to a variety of affirmative and negative covenants customary in an asset-based lending facility, including a
financial covenant relating to availability (which is required to remain above the greater of: (i) ten percent (10%) of the Loan Cap (as defined in the Credit
Agreement) and (ii) $6.0 million). Prior to the first anniversary of the Closing Date, we are prohibited from declaring or paying any cash dividends to our
stockholders or repurchasing our common stock. Thereafter, we are permitted to declare or pay cash dividends and/or repurchase our 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.

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; actual or asserted invalidity of any the Credit Agreement or related loan
documents; or a change of control.

As of February 3, 2024, we were in compliance with all of our covenants, were eligible to borrow up to a total of $42.4 million, and had no outstanding
borrowings under the Credit Agreement. 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.

Prior Credit Agreement

The Credit Agreement replaced our previously existing senior secured credit agreement (as amended, the "Prior Credit Agreement") and revolving line of
credit note dated as of January 20, 2022 with the Bank, which had revolving commitments of up to $25.0 million consisting of revolving loans, letters of
credit and swing line loans, with a sub-limit on letters of credit outstanding at any time of $15.0 million.

Borrowings under the Prior Credit Agreement bore interest at a rate per annum equal to SOFR plus 0.75%. Amounts available to be drawn under
outstanding letters of credit accrued fees in an amount equal to 1.00% per annum. The unused portion of the Prior Credit Agreement was not subject to a
commitment fee. As of the Closing Date, we had no outstanding borrowings under the Credit Agreement, and the only utilization of the letters of credit
sub-limit under the Prior Credit Agreement was the $2.025 million irrevocable standby letter of credit that was transferred on the Closing Date.

Note 9: Leases

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

Most store leases include tenant allowances from landlords, rent escalation clauses and/or contingent rent provisions. Certain leases provide for additional
rent based on a percentage of sales and annual rent increases generally based upon the Consumer Price Index. In addition, most of our store leases are net
leases, which typically require us to be responsible for certain property operating expenses, including property taxes, insurance, common area maintenance,
in addition to base rent. Many of our store leases contain certain co-tenancy provisions that permit us to pay rent based on a pre-determined percentage of
sales when the occupancy of the retail center falls below minimums established in the lease. For non-cancelable operating lease agreements, operating lease
assets and operating lease liabilities are established for leases with an expected term greater than one year and we recognize a single lease cost, calculated
so that the cost of the lease is allocated over the lease term, on a straight-line basis. We do not record leases with terms of 12 months or less on the
Consolidated Balance Sheets, and are expensed as incurred. Contingent rent, determined based on a percentage of sales in excess of specified levels, is
recognized as rent expense when the achievement of the specified sales that triggers the contingent rent is probable.

Our operating leases typically include non-lease components such as common-area maintenance costs, utilities, and other maintenance costs. We have
elected to include non-lease components with the lease payment for the purpose of calculating the lease right-of-use assets and liabilities to the extent that
they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments.

57

Operating leases

We lease office and warehouse space (10 and 12 Whatney, Irvine, California) from a company that is owned by the co-founders of Tillys. We incurred rent
expense of $2.1 million, in each of the fiscal years 2023, 2022 and 2021, 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 (the "LAARUCPI"), not to exceed 7%. The lease began on January
1, 2003 and terminates on December 31, 2027.

We lease office and warehouse space (11 Whatney, Irvine, California) from a company that is owned by one of the co-founders of Tillys. We incurred rent
expense of $0.6 million, $0.5 million, and $0.4 million in fiscal years 2023, 2022 and 2021, respectively, related to this lease. The lease deposits were
$0.2 million, as of both fiscal years ended February 3, 2024 and January 28, 2023, and are included as a component of other assets on the Consolidated
Balance Sheets. Pursuant to the lease agreement, the lease payment adjusts annually at the greater of 5% or the annual change in the LAARUCPI. The lease
began on June 29, 2012 and terminates on June 30, 2032.

We lease a building (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 fulfillment center. We incurred rent expense of $1.5 million, $1.5 million and $1.0 million in fiscal years 2023, 2022 and 2021, respectively,
related to this lease. The lease deposits were $0.7 million, as of both fiscal years ended February 3, 2024 and January 28, 2023, and are included as a
component of other assets on the Consolidated Balance Sheets. The lease payment adjusts annually based upon the greater of 5% or the annual change in
the LAARUCPI. The lease began on November 1, 2011, and 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. We incurred sublease income of $90.1 thousand and $85.8 thousand in fiscal years 2023 and 2022, respectively,
related to this lease. We did not incur any sublease income in fiscal year 2021, related to this lease. The lease term is for five years and terminates on
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 Operations.

The maturity of operating lease liabilities as of February 3, 2024 were as follows (in thousands):

Fiscal Year
2024
2025
2026
2027
2028
Thereafter

Total minimum lease payments
Less: Amount representing interest

Present value of operating lease liabilities

Related
Party

Other

Total

$

$

4,085  $
4,244 
4,411 
4,167 
2,251 
7,073 
26,231 
3,843 
22,388  $

61,323  $
51,584 
40,233 
32,772 
22,888 
42,331 
251,131 
41,928 
209,203  $

65,408  $
55,828 
44,644 
36,939 
25,139 
49,404 
277,362 
45,771 
231,591  $

Sublease Income
95 
99 
104 
— 
— 
— 
298 
— 
298 

As of February 3, 2024, additional operating lease contracts that have not yet commenced are approximately $2.5 million. Further, additional operating
lease contracts and modifications executed subsequent to the balance sheet date, but prior to the report date, are approximately $10.8 million.

Lease expense for fiscal years 2023, 2022 and 2021 was as follows (in thousands):

February 3, 2024
SG&A

COGS

Total

COGS

Fiscal Year Ended
January 28, 2023
SG&A

Total

COGS

January 29, 2022
SG&A

Total

Fixed operating lease
expense
Variable lease expense
Total lease expense

$

$

64,868  $
19,271 
84,139  $

1,403  $
70 
1,473  $

66,271  $
19,341 
85,612  $

63,252  $
16,605 
79,857  $

1,317  $
44 
1,361  $

64,569  $
16,649 
81,218  $

60,718  $
18,078 
78,796  $

1,285  $
28 
1,313  $

62,003 
18,106 
80,109 

58

 
Supplemental lease information for the fiscal year ended February 3, 2024, January 28, 2023 and January 29, 2022 was as follows:

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

Cash paid for amounts included in the measurement of
operating lease liabilities (in thousands)
Weighted average remaining lease term (in years)
Weighted average interest rate (1)

$

$

71,751 
5.42 years
6.63 %

$

69,839 
5.71 years
6.33 %

69,210 
5.65 years
6.13 %

(1) Since our leases do not provide an implicit rate, we used our incremental borrowing rate ("IBR") at lease inception, or lease modification, in determining the present value of future minimum
payments. In determining an appropriate IBR, our assumptions included using a consistent discount rate for a portfolio of leases entered into at varying dates, using the full 10-year term of the
lease, excluding any options, and using the total minimum lease payments.

Note 10: 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.

Purchase Obligations

At February 3, 2024, our future minimum payments under agreements to purchase services primarily for software maintenance aggregated to $4.2 million,
payable as follows: $2.0 million in fiscal 2024, $1.5 million in fiscal 2025, $0.3 million in fiscal 2026, and $0.2 million in fiscal 2027, and $0.2 million in
fiscal 2028. The amounts purchased, related to these agreements, was as follows: $1.9 million in fiscal 2023, $0.5 million in fiscal 2022, and $0.4 million
in fiscal 2021.

Legal Proceedings

From time to time, we may become involved in lawsuits and other claims arising from our ordinary course of business. We establish loss provisions 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 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 will not have a material adverse effect on our financial condition, results of operations or cash flows. As of the
date of these consolidated financial statements, we were not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on our consolidated results of operations or financial position.

Note 11: 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 available-for-sale
securities, and certain cash equivalents, specifically money market securities, commercial paper, municipal bonds and certificates of deposits. The money
market accounts are valued based on quoted market prices in active markets.

59

 
 
 
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. We
minimize the potential risk of principal loss by investing in highly-rated securities and limiting the amount of credit exposure to any one issuer.

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

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

As of February 3, 2024 and January 28, 2023, 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

In 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):

Cash equivalents (1):

Money market securities
Commercial paper
Marketable securities:
Commercial paper

Level 1

February 3, 2024
Level 2

Level 3

Level 1

January 28, 2023
Level 2

Level 3

$

$

45,672  $
— 

—  $
— 

—  $

44,510  $

—  $
— 

—  $

51,756  $
— 

—  $

19,871 

—  $

29,750  $

— 
— 

— 

(1) Excludes cash of $1.4 million and $1.9 million as of fiscal 2023, and 2022, respectively.

Impairment of Long-Lived Assets

On at least a quarterly basis, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived
assets and operating lease ROU assets may not be recoverable. Based on Level 3 inputs of historical operating performance, including sales trends, gross
margin rates, current cash flows from operations and the projected outlook for each of our stores, we determine if a store would be able to generate
sufficient undiscounted cash flows over the remaining term to recover our investment in long-lived and ROU assets. 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 assets based
on the discounted cash flows of the assets using a rate that approximates the weighted average cost of capital plus a company specific risk premium
determined by management. Impairment losses are allocated between the long-lived assets and ROU assets on a relative carrying amount basis. The fair
values of ROU assets are estimated by an independent third party and represent the highest and best use to a market participant. We determined that certain
stores would not be able to generate sufficient cash flows over the remaining term of the related leases to recover our investment or the ROU in the
respective stores. As a result, we recorded non-recurring, non-cash impairment charges of approximately $3.4 million, $17.1 thousand and $0.1 million in
fiscal years 2023, 2022 and 2021, respectively, to write-down the carrying value of certain long-lived store assets to their estimated fair values.

Carrying value of assets with impairment
Fair value of assets impaired
Number of stores tested for impairment
Number of stores with impairment

February 3,
2024

Fiscal Year Ended
January 28,
2023
($ in thousands)

January 29,
2022

11,203  $
7,772  $
45 
27 

17  $
—  $
14 
4 

136 
— 
13 
1 

$
$

60

 
 
 
 
 
Note 12: Share-Based Compensation

The Tilly's, Inc. Second Amended and Restated 2012 Equity and Incentive Award Plan (the "2012 Plan") authorizes up to 6,613,900 shares for issuance of
options, shares or rights to acquire our Class A common stock and allows for, among other things, operating income and comparable store sales growth
targets as additional performance goals that may be used in connection with performance-based awards granted under the 2012 Plan. As of February 3,
2024, there were 1,125,613 shares available for future issuance under the 2012 Plan.

Options

We grant stock options to certain employees that gives 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 non-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.

The following table summarizes our stock option activity for fiscal year 2023:

Outstanding at January 28, 2023
Granted
Exercised
Forfeited
Expired
Outstanding at February 3, 2024
Exercisable at February 3, 2024

Grant Date
Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Life (in Years)

Aggregate
Intrinsic
Value (1)
($ in thousands)

8.99 
6.47 
4.20 
8.14 
12.08 
8.34 

9.50 

6.3 $

3.5 $

1,908 

733 

Stock
Options

1,873,243  $
773,500  $
(95,309) $
(58,125) $
(46,062) $
2,447,247  $
1,150,397  $

(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 year 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 $7.52 at February 3, 2024.

The total intrinsic value of options exercised in fiscal years 2023, 2022 and 2021 was $0.3 million, $0.2 million and $8.4 million, respectively.

The total fair value of options vested in fiscal years 2023, 2022 and 2021 was $2.5 million, $1.8 million and $1.4 million, respectively.

The total proceeds received from the exercise of stock options in fiscal years 2023, 2022 and 2021 was $0.4 million, $0.2 million and $9.6 million,
respectively. The tax benefit realized from stock options exercised in fiscal years 2023, 2022 and 2021 was $0.1 million, less than $0.1 million and $2.3
million, respectively.

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

The fair values of stock options granted in fiscal years 2023, 2022 and 2021 were estimated on the grant dates using the following assumptions:

Weighted average grant-date fair value per option granted
Expected option term (1)
Expected volatility factor (2)
Risk-free interest rate (3)
Expected annual dividend yield (4)

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

$3.52
5.5 years
56.3 %
4.0 %
— %

$4.94
5.2 years
58.6 %
2.4 %
— %

$5.74
5.4 years
59.9 %
0.9 %
— %

61

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) The expected option term of the awards represents the estimated time that options are expected to be outstanding based upon historical option data.
(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 have a dividend policy and we do not anticipate paying any additional cash dividends on our common stock at this time.

Restricted Stock

Restricted stock awards ("RSAs") represent restricted shares issued upon the date of grant in which the recipient's rights in the stock are restricted until the
shares are vested, whereas restricted stock units represent shares issuable in the future upon vesting. Under the 2012 Plan, we grant RSAs to independent
members of our Board of Directors and restricted stock units to certain employees. RSAs granted to Board members 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 restricted stock units 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 restricted stock units based upon the closing price of our Class A common stock on the date of grant.

A summary of the status of non-vested restricted stock as of February 3, 2024 and changes during fiscal year 2023 are presented below:

Nonvested at January 28, 2023
Granted
Vested
Forfeited
Nonvested at February 3, 2024

Weighted-
Average
Grant-Date
Fair Value

8.71 
6.55 
9.58 
6.86 

6.86 

Shares

73,484  $
73,284  $
(41,738) $
(17,505) $
87,525  $

The weighted-average grant-date fair value of restricted stock granted during the years ended January 28, 2023 and January 29, 2022 was $7.56 and $16.01,
respectively.

The total fair value of restricted stock vested was $0.3 million, $0.3 million and $0.7 million in fiscal years 2023, 2022 and 2021, respectively.

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

Cost of goods sold
Selling, general and administrative expenses
Total share-based compensation
Less: Income tax benefit
Total share-based compensation, net of tax

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

$

$

295  $

1,923 
2,218 
— 
2,218  $

269  $

1,998 
2,267 
(496)
1,771  $

193 
1,727 
1,920 
(239)
1,681 

At February 3, 2024, there was $4.2 million of total unrecognized share-based compensation expense related to unvested stock options and restricted stock
awards. This cost has a weighted average remaining recognition period of 2.6 years.

Note 13: Retirement Savings Plan

The Tillys 401(k) Plan (the “401(k) Plan”) is a qualified plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). The
401(k) Plan covers all employees that have attained age 21 and completed at least three months of employment tenure. Matching contributions to the
401(k) Plan by the Company may be made at the discretion of our Board of Directors. Total employer contributions to the 401(k) Plan totaled, $0.0 million,
$1.2 million, and $0.9 million in fiscal years 2023, 2022 and 2021, respectively.

62

 
 
 
 
 
 
 
 
Note 14: Income Taxes

The components of income tax expense for fiscal years 2023, 2022 and 2021 were as follows (in thousands):

Current:

Federal
State

Deferred:

Federal
State

Total income tax expense

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

$

$

83  $
245 
328 

4,882 
3,499 
8,381 
8,709  $

(8) $

622 
614 

2,308 
568 
2,876 
3,490  $

16,147 
6,094 
22,241 

709 
(198)
511 
22,752 

A reconciliation of income tax expense to the amount computed at the federal statutory rate for fiscal years 2023, 2022 and 2021 is as follows (in
thousands):

Federal taxes at statutory rate
State and local income taxes, net of federal benefit
Tax credits
Enhanced contribution deduction
Nondeductible executive compensation
Share-based compensation discrete items (1)
Return to provision adjustments
Other
Change in valuation allowance
Total income tax expense

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

$

$

(5,414) $
(1,309)
(185)
(177)
103 
54 
9 
233 
15,395 

8,709  $

2,764  $
754 
(231)
(147)
100 
101 
220 
(71)
— 
3,490  $

18,270 
4,480 
(137)
(92)
660 
(828)
208 
191 
— 
22,752 

(1) This amount includes the impact of discrete items related to the expiration of stock options, exercises of stock options and the settlement of restricted stock that are recorded to income
tax expense which represents share-based compensation cost previously recognized by us that was greater than the deduction allowed for income tax purposes based on the price of our
common stock on the date of expiration, exercise or vesting.

Deferred income taxes reflect the net tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes; and (b) operating loss and tax credit carry-forwards. We record net deferred tax assets to the extent
we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence,
including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.

63

 
 
 
 
 
 
Significant components of deferred tax assets and liabilities as of February 3, 2024 and January 28, 2023 were as follows (in thousands):

Deferred tax assets:
Lease liability
Net operating loss carryforwards
Inventories
Accrued expenses
Share-based compensation
Deferred revenue
Compensation and benefits
Other

Total deferred tax assets
Less: valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:

Lease asset
Property and equipment
Prepaid expenses
Marketable securities
Total deferred tax liabilities
Net deferred tax asset

February 3,
2024

January 28,
2023

$

60,821  $
5,305 
2,441 
1,342 
1,324 
1,272 
573 
1,520 
74,598 
(15,395)
59,203 

(51,948)
(5,935)
(1,132)
(188)
(59,203)

$

—  $

63,562 
— 
2,120 
1,307 
984 
1,530 
635 
848 
70,986 
— 
70,986 

(54,200)
(7,014)
(1,202)
(73)
(62,489)
8,497 

Management assesses the available evidence to estimate whether sufficient future taxable income will be generated to permit use of its existing deferred tax
assets. Based on management's current estimates, management believes that our projected future taxable income through the fiscal year ending February 1,
2025 will not be sufficient to substantiate that our net deferred tax assets are realizable at a more-likely-than-not level.

On the basis of this evaluation, as of February 3, 2024 and January 28, 2023, a valuation allowance of $15.4 million and $0.0 million, respectively, has
been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of deferred tax asset considered
realizable, however, could be adjusted if additional objectively verifiable positive evidence materializes in future reporting periods, such as a demonstrated
operating profitability.

As of February 3, 2024 we had federal and state net operating loss ("NOL") carryforwards of $20.6 million and $16.1 million respectively. Federal NOL
carryforwards totaling $20.6 million generated after 2017 may be carried forward indefinitely but can only be utilized to offset 80% of future taxable
income. State NOL carryforwards totaling $16.1 million begin to expire in 2028, unless previously utilized. As of January 28, 2023, there were no material
federal and state NOL's or tax credits carried forward.

Utilization of the Company's NOL carryforwards may be subject to substantial annual limitations in the event a cumulative ownership change has occurred,
or that could occur in the future, as required by Section 382 of the Code. In general, an "ownership change," as defined by Section 382 of the Code, results
from a transaction, or series of transactions over a three-year period, resulting in an ownership change of more than 50% of the outstanding common stock
of a company by certain stockholders or public groups. Such an ownership change may limit the amount of NOL carryforwards that can be utilized
annually to offset future taxable income and tax, respectively. If ownership changes have occurred or occurs in the future, the amount of remaining tax
attribute carryforwards available to offset taxable income and income tax expense in future years may be restricted or eliminated. If eliminated, the related
asset would be removed from deferred tax assets with a corresponding offset to valuation allowance.

Uncertain Tax Positions

As of February 3, 2024 and January 28, 2023, there were no material unrecognized tax positions. We do not anticipate that there will be a material change
in the balance of the unrecognized tax positions in the next 12 months. Any interest and penalties related to uncertain tax positions are recorded in income
tax expense. We did not recognize any interest or penalties related to unrecognized tax positions during fiscal years 2023, 2022 and 2021.

64

We file income tax returns in the United States federal jurisdiction and in various state and local jurisdictions. In the normal course of business, we are
subject to examination by taxing authorities. Fiscal years 2020 through 2022 remain subject to examination for federal tax purposes and fiscal years 2019
through 2022 remain subject to examination in significant state tax jurisdictions.

Note 15: (Loss) Earnings Per Share

Our common stock consists of two classes: Class A and Class B. The Class A and Class B common stock have identical rights, except with respect to
voting and conversion.

Basic net (loss) income per share is computed based on the weighted average number of common shares outstanding during the period. Diluted net (loss)
income per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares
outstanding during the period using the treasury stock method, whereby proceeds from such exercise, and unamortized compensation expense, on share-
based awards are assumed to be used by us to purchase the common shares at the average market price during the period. Potentially dilutive shares of
common stock represent outstanding stock options and restricted stock awards.

The components of basic and diluted (loss) earnings per share of Class A and Class B common stock, in aggregate, for fiscal years 2023, 2022 and 2021 are
as follows (in thousands, except per share amounts):

Net (loss) income

Weighted average basic shares outstanding
Dilutive effect of stock options and restricted stock
Weighted average shares for diluted (loss) earnings per share

Basic (loss) earnings per share of Class A and Class B common stock

Diluted (loss) earnings per share of Class A and Class B common stock

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

$

$

$

(34,492) $

9,677  $

29,848 
— 
29,848 

(1.16) $

(1.16) $

30,115 
208 
30,323 

0.32  $

0.32  $

64,249 

30,560 
558 
31,118 

2.10 

2.06 

The (loss) earnings per share amounts are the same for Class A and Class B common stock, in aggregate, and individually for Class A and Class B common
stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation. Shares of Class A
and Class B common stock vote together as a single class on all matters submitted to a vote of stockholders. Holders of Class A common stock are entitled
to one vote per share and holders of Class B common stock are entitled to 10 votes per share.

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

Stock options
Restricted stock
Total

Note 16: Related Party Transactions

Certain Leases

February 3,
2024

Fiscal Year Ended
January 28,
2023

January 29,
2022

2,110 
— 
2,110 

1,317 
10 
1,327 

684 
— 
684 

As discussed in “Note 9: Leases”, we lease certain facilities from companies that are owned by the co-founders of Tillys.

Tilly's Life Center

Tilly’s Life Center, (“TLC”), is a charitable organization which provides underprivileged youth a healthy and caring environment. The Company’s co-
founder is also the founder and President of TLC. In each of fiscal 2023, 2022 and 2021, our Board of Directors approved annual financial support for TLC
of $200,000.

We sublease a portion of our office space, approximately 5,887 square feet, in the 17 Pasteur Irvine, California facility to TLC, a related party and a
charitable organization.

65

 
 
 
 
 
 
 
 
Note 17: Stockholders' Equity

Our Board of Directors did not declare any special cash dividends either on Class A or Class B common stock for the fiscal years ended February 3, 2024
and January 28, 2023.

On November 19, 2021, our Board of Directors declared a special cash dividend of $1.00 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 December 7, 2021, with payment of $30.9 million made on December 15, 2021.

On June 9, 2021, our Board of Directors declared a special cash dividend of $1.00 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 June 25, 2021, with payment of $30.7 million made on July 9, 2021.

Short Swing Profit Settlement

During fiscal 2022, Fund 1 Investments, LLC ("Fund 1"), on behalf of itself and its affiliated funds, transferred cash proceeds of $0.7 million to the
Company to fulfill obligations deriving from the short swing profit provisions of Section 16(b) of the Securities Exchange Act of 1934. These obligations
related to Fund 1's trading activity in the Company's common stock. The cash proceeds were recorded to additional paid-in capital on the Consolidated
Balance Sheet and the Consolidated Statement of Stockholders' Equity and is reflected in financing activities on the Consolidated Statement of Cash Flows
as of the fiscal year ended January 28, 2023.

Note 18: Share Repurchase Program

On March 14, 2022, our Board of Directors authorized a share repurchase program, pursuant to which we were 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 fiscal year ended January 28, 2023, 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 January 28, 2023, the
remaining repurchase authorization totaled 741,670 shares, which remained unpurchased upon expiration of the program on March 14, 2023.

66

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Not Applicable.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, management has evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file
or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us
in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and
procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and
procedures.

We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on their
evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by
this report, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we
file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the
Exchange Act.

Internal control over financial reporting refers to a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial
Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those
policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management
and members of our Board of Directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on our financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns
resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such
limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce,
though not eliminate, this risk.

Management conducted the above-referenced assessment of the effectiveness of our internal control over financial reporting as of February 3, 2024 using
the framework set forth in the report entitled, “Internal Control — Integrated Framework (2013)", issued by the Committee of Sponsoring Organizations of
the Treadway Commission, or the COSO Report. Based on management’s evaluation and the criteria set forth in the COSO Report, management concluded
that our internal control over financial reporting was effective as of February 3, 2024.

Our internal control over financial reporting as of February 3, 2024 has been audited by BDO USA, P.C., an independent registered public accounting firm,
as stated in their report included herein.

67

Changes in Internal Control over Financial Reporting

Management has determined that, as of February 3, 2024, there were no changes in our internal control over financial reporting that occurred during our
most recent fiscal quarter then ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

68

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Tilly’s, Inc.
Irvine, California

Opinion on Internal Control over Financial Reporting

We have audited Tilly’s, Inc.’s (the “Company’s”) internal control over financial reporting as of February 3, 2024, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2024, based on the COSO
criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated
balance sheets of the Company as of February 3, 2024 and January 28, 2023, the related consolidated statements of operations, comprehensive (loss)
income, stockholders’ equity, and cash flows for each of the three years in the period ended February 3, 2024, and the related notes and our report dated
April 11, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness  to  future  periods  are  subject  to  the  risk  that  controls  may  become  inadequate  because  of  changes  in  conditions,  or  that  the  degree  of
compliance with the policies or procedures may deteriorate.

/s/ BDO USA, P.C.

Costa Mesa, California
April 11, 2024

69

Item 9B. Other Information

Director and Officer Trading Arrangements

During the fiscal quarter ended February 3, 2024, none of our officers or directors adopted or terminated any contract, instruction, or written plan for the
purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading
agreement."

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated herein by reference to the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders,
which will be filed with the SEC no later than 120 days after the close of the fiscal year ended February 3, 2024 (the “2024 Proxy Statement”).

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to the Company’s 2024 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated herein by reference to the Company’s 2024 Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated herein by reference to the Company’s 2024 Proxy Statement.

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated herein by reference to the Company’s 2024 Proxy Statement.

Item 15. Exhibits, Financial Statement Schedules

Financial Statements and Financial Statement Schedules

PART IV

See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K. Financial statement schedules have been omitted
because they are not required or are not applicable or because the information required in those schedules either is not material or is included in the
consolidated financial statements or the accompanying notes.

Exhibits

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.

Item 16. Form 10-K Summary

None.

70

 
 
EXHIBIT INDEX

Exhibit
No.

Description of Exhibit

3.1

3.2

4.1

4.2

10.1

10.2#

10.3#

10.4#

10.5#

10.6#

10.7#

10.8#

Amended and Restated Certificate of Incorporation of Tilly’s, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s
Amendment No. 2 to the Registration Statement on Form S-1 (Registration No. 333-175299), filed on September 7, 2011)

Third Amended and Restated Bylaws of the Company (incorporated by reference to Form 8-K filed by the Company with the Securities
and Exchange Commission on November 22, 2022)

Form of Class A common stock certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Amendment No. 5 to the
Registration Statement on Form S-1 (Registration No. 333-175299), filed on April 23, 2012)

Description of Tilly's, Inc. Securities (incorporated by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the
period ended February 1, 2020)

Form of Indemnification Agreement between Tillys and each of its directors and officers (incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the period ended August 1, 2015)

Amended and Restated Tillys 2007 Stock Option Plan (incorporated by reference to Exhibit 10.11 to the Registrant’s Amendment No. 2
to the Registration Statement on Form S-1 (Registration No. 333-175299), filed on September 7, 2011)

Form of Stock Option Agreement Pursuant to 2007 Plan (Senior Executive Form) (incorporated by reference to Exhibit 10.12 to the
Registrant’s Amendment No. 2 to the Registration Statement on Form S-1 (Registration No. 333-175299), filed on September 7, 2011)

Form of Stock Option Agreement Pursuant to 2007 Plan (Non-Executive Form) (incorporated by reference to Exhibit 10.13 to the
Registrant’s Amendment No. 2 to the Registration Statement on Form S-1 (Registration No. 333-175299), filed on September 7, 2011)

Form of Re-Priced Stock Option Grant Agreement pursuant to the 2007 Plan (incorporated by reference to Exhibit 10.14 to the
Registrant’s Amendment No. 2 to the Registration Statement on Form S-1 (Registration No. 333-175299), filed on September 7, 2011)

Tilly’s, Inc. Second Amended and Restated 2012 Equity and Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on June 11, 2020)

Form of Stock Option Award Agreement Pursuant to 2012 Plan (incorporated by reference to Exhibit 10.16 to the Registrant’s
Amendment No. 3 to the Registration Statement on Form S-1 (Registration No. 333-175299), filed on March 23, 2012)

Form of Restricted Stock Award Agreement Pursuant to 2012 Plan (incorporated by reference to Exhibit 10.17 to the Registrant’s
Amendment No. 3 to the Registration Statement on Form S-1 (Registration No. 333-175299), filed on March 23, 2012)

10.8.1#

Form of Tilly’s, Inc. Amended and Restated 2012 Equity and Incentive Award Plan Restricted Stock Unit Award Agreement Pursuant to
2012 Plan Grant Notice (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 25,
2015)

10.9

10.10

10.11

10.12

Amended and Restated Office and Warehouse Lease between Shaked Holdings, LLC and World of Jeans & Tops, dated as of September
21, 2007 (10 and 12 Whatney, Irvine, California) (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on
Form S-1 (Registration No. 333-175299), filed on July 1, 2011)

First Amendment to Amended and Restated Office and Warehouse Lease between Shaked Holdings, LLC and World of Jeans & Tops,
dated December 21, 2017 (incorporated by reference to Exhibit 10.2.1 to the Registrant's Annual Report on Form 10-K for the period
ended February 3, 2018)

Office and Warehouse Lease between Amnet Holdings, LLC and World of Jeans & Tops, dated September 2, 2011 (11 Whatney, Irvine,
California) (incorporated by reference to Exhibit 10.22 to the Registrant’s Amendment No. 2 to the Registration Statement on Form S-1
(Registration No. 333-175299), filed on September 7, 2011)

First Amendment to Office Lease Between Amnet Holdings, LLC and World of Jeans & Tops, dated June 30, 2022 (11 Whatney. Irvine,
California) (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on September 2, 2022)

71

 
10.13

10.14

10.15#

10.16#

10.17

10.17.1

10.18

10.19

10.20

10.21

10.22#

10.23#

10.24#

10.25

10.26

21.1*

23.1*

24.1+

31.1*

31.2*

32.1*

97.1*

101*

Office and Warehouse Lease between Amnet Holdings, LLC and World of Jeans & Tops, dated November 1, 2011 (17 Pasteur, Irvine,
California) (incorporated by reference to Exhibit 10.23 to the Registrant’s Amendment No. 3 to the Registration Statement on Form S-1
(Registration No. 333-175299), filed on March 23, 2012)

First Amendment to Lease between Amnet Holdings and World of Jeans & Tops, dated as of October 21, 2021 (17 Pasteur, Irvine,
California) (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on December 7, 2021)

Offer Letter between Tilly's, Inc. and Edmond Thomas dated October 7, 2015 (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on October 8, 2015)

Offer Letter between Tilly's, Inc. and Michael Henry dated May 12, 2015 entered into on May 19, 2015 (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the period ended August 1, 2015)

Credit Agreement, dated January 20, 2022, by and among World of Jeans & Tops and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on January 21, 2022)

First Amendment to Credit Agreement, dated as of January 26, 2023, by and between World of Jeans & Tops, a California Corporation,
and Wells Fargo Bank, National Association. (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K
filed on January 26, 2023)

Revolving Line of Credit Note, dated January 20, 2022, of Tilly's Inc. (incorporated by reference to Exhibit 10.2 to the Registrant's
Current Report on Form 8-K filed on January 21, 2022)

Guaranty, dated January 20, 2022, of Tilly's Inc. (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-
K filed on January 21, 2022)

Security Agreement: Business Assets, dated January 20, 2022 of World of Jeans & Tops (incorporated by reference to Exhibit 10.4 to the
Registrant's Current Report on Form 8-K filed on January 21, 2022)

Third Party Pledge Agreement, dated January 20, 2022 of Tilly's, Inc. (incorporated by reference to Exhibit 10.5 to the Registrant's
Current Report on Form 8-K filed on January 21, 2022)

Promotion Letter between Tilly's, Inc. and Robert Goodwin dated February 25, 2021 (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q filed on June 8, 2021)

Offer Letter between Tilly's Inc. and Laura Janney dated April 12, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed by the Company with the Securities and Exchange Commission on April 17, 2023)

Credit Agreement, dated April 27, 2023, by and among World of Jeans & Tops, Tillys, Inc. and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company with the Securities and Exchange
Commission on April 28, 2023)

Security Agreement, dated April 27, 2023, by and among World of Jeans & Tops, Tillys, Inc. and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company with the Securities and
Exchange Commission on April 28, 2023)

Guaranty, dated April 27, 2023, of Tillys, Inc. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by the
Company with the Securities and Exchange Commission on April 28, 2023)

Subsidiaries of Tilly’s, Inc.

Consent of BDO USA, P.C., Independent Registered Public Accounting Firm

Power of Attorney (included on signature page)

Rule 13a-14(a)/15d-4(a) Certification of Chief Executive Officer

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

Section 1350 Certifications

Tilly's, Inc. Policy for Recovery of Erroneously Awarded-Compensation

The following materials from Tilly’s, Inc.’s Annual Report on Form 10-K for the year ended February 3, 2024. formatted in eXtensible
Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of February 3, 2024 and January 28, 2023; (ii) Consolidated
Statements of Operations for the fiscal years ended February 3, 2024, January 28, 2023, and January 29, 2022; (iii) Consolidated
Statements of Comprehensive (Loss) Income for the fiscal years ended February 3, 2024, January 28, 2023, and January 29, 2022;
(iv) Consolidated Statements of Stockholders’ Equity for the fiscal years ended February 3, 2024, January 28, 2023, and January 29,
2022; (v) Consolidated Statements of Cash Flows for the fiscal years ended February 3, 2024, January 28, 2023, and January 29, 2022;
and (vi) the Notes to the Consolidated Financial Statements.

72

104*

The cover page from the Registrant's Annual Report on Form 10-K for the year ended February 3, 2024, formatted in Inline Extensible
Business Reporting Language.

*    Filed herewith
#    Management contract or compensatory plan.
+    Included on signature page

73

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on April 11, 2024.

SIGNATURES

Tilly’s, Inc.

/s/  Hezy Shaked
Hezy Shaked
Executive Chairman, and Interim President, Chief Executive Officer
(Principal Executive Officer)

/s/  Michael L. Henry
Michael L. Henry
Executive Vice President, Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)

74

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Edmond Thomas and Michael L. Henry, and each of them singly, his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and
perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his or her
substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the
capacities and as of the dates indicated on April 11, 2024.

Signature

Title

/s/  Hezy Shaked
Hezy Shaked

/s/  Michael L. Henry
Michael L. Henry

/s/  Teresa Aragones
Teresa Aragones

/s/  Erin Chin
Erin Chin

/s/  Doug Collier
Doug Collier

/s/  Seth Johnson
Seth Johnson

/s/  Janet Kerr
Janet Kerr

Executive Chairman, and Interim President, Chief Executive Officer (Principal Executive
Officer)

Executive Vice President, Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)

Director

Director

Director

Director

Director

75

  
  
  
  
  
  
Tilly’s, Inc.
Subsidiaries

Exhibit 21.1

Subsidiary

World of Jeans & Tops

State of Incorporation/Formation

California

 
Consent of Independent Registered Public Accounting Firm

Exhibit 23.1

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-181148, 333-198676 and 333-
239756) of Tilly’s, Inc. (the Company) of our reports dated April 11, 2024, relating to the consolidated financial statements, and the
effectiveness of the Company's internal control over financial reporting, which appear in this Annual Report on Form 10-K.

/s/ BDO USA, P.C. 
Costa Mesa, California 
April 11, 2024

 
Exhibit 31.1

I, Hezy Shaked, certify that:

CERTIFICATIONS

1.

I have reviewed this annual report on Form 10-K of Tilly’s, Inc. for the fiscal year ended February 3, 2024;

2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the

statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the

financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in

Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

(1) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;

(2) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our

supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

(3) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(4) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the

registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(1) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably

likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(2) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control

over financial reporting.

Date: April 11, 2024

/s/  Hezy Shaked
Hezy Shaked
Executive Chairman, and Interim President, Chief Executive Officer
(Principal Executive Officer)

 
 
Exhibit 31.2

I, Michael L. Henry, certify that:

CERTIFICATIONS

1.

I have reviewed this annual report on Form 10-K of Tilly’s, Inc. for the fiscal year ended February 3, 2024;

2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the

statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the

financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in

Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our

supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the

registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably

likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control

over financial reporting.

Date: April 11, 2024

/s/  Michael L. Henry
Michael L. Henry
Executive Vice President, Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)

 
Certifications Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1

I, Hezy Shaked, the Chief Executive Officer of Tilly’s, Inc, certify that (i) the annual report on Form 10-K for the fiscal year ended February 3, 2024 (the
“Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in the
Report fairly presents, in all material respects, the financial condition and results of operations of Tilly’s, Inc. as of the dates and for the periods set forth
therein.

Date: April 11, 2024

/s/  Hezy Shaked
Hezy Shaked
Executive Chairman, and Interim President, Chief Executive Officer
(Principal Executive Officer)

I, Michael L. Henry, the Chief Financial Officer of Tilly’s, Inc, certify that (i) the annual report on Form 10-K for the fiscal year ended February 3, 2024
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in
the Report fairly presents, in all material respects, the financial condition and results of operations of Tilly’s, Inc. as of the dates and for the periods set forth
therein.

Date: April 11, 2024

/s/  Michael L. Henry
Michael L. Henry
Executive Vice President, Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)

 
 
TILLY’S, INC. POLICY FOR RECOVERY OF ERRONEOUSLY AWARDED -COMPENSATION
Tilly’s, Inc. (the “Company”)  has  adopted  this  Policy  for  Recovery  of  Erroneously  Awarded  Compensation  (the  “Policy”), effective as of
October 2, 2023 (the “Effective Date”). Capitalized terms used in this Policy but not otherwise defined herein are defined in Section 11.

Exhibit 97.1

1.

Persons Subject to Policy

This Policy shall apply to current and former Officers of the Company. Each Officer shall be required to sign an Acknowledgment
Agreement  pursuant  to  which  such  Officer  will  agree  to  be  bound  by  the  terms  of,  and  comply  with,  this  Policy;  however,  any  Officer’s
failure to sign any such Acknowledgment Agreement shall not negate the application of this Policy to the Officer.

2.    Compensation Subject to Policy

This Policy shall apply to Incentive-Based Compensation received on or after the Effective Date. For purposes of this Policy, the date
on  which  Incentive-Based  Compensation  is  “received”  shall  be  determined  under  the  Applicable  Rules,  which  generally  provide  that
Incentive-Based  Compensation  is  “received”  in  the  Company’s  fiscal  period  during  which  the  relevant  Financial  Reporting  Measure  is
attained or satisfied, without regard to whether the grant, vesting or payment of the Incentive-Based Compensation occurs after the end of
that period.

3.    Recovery of Compensation

In the event that the Company is required to prepare a Restatement, the Company shall recover, reasonably promptly, the portion of
any Incentive-Based Compensation that is Erroneously Awarded Compensation, unless the Committee has determined that recovery would
be Impracticable. Recovery shall be required in accordance with the preceding sentence regardless of whether the applicable Officer engaged
in misconduct or otherwise caused or contributed to the requirement for the Restatement and regardless of whether or when restated financial
statements are filed by the Company. For clarity, the recovery of Erroneously Awarded Compensation under this Policy will not give rise to
any person’s right to voluntarily terminate employment for “good reason,” or due to a “constructive termination” (or any similar term of like
effect) under any plan, program or policy of or agreement with the Company or any of its affiliates.

4.    Manner of Recovery; Limitation on Duplicative Recovery

The  Committee  shall,  in  its  sole  discretion,  determine  the  manner  of  recovery  of  any  Erroneously  Awarded  Compensation,  which
may include, without limitation, reduction or cancellation by the Company or an affiliate of the Company of Incentive-Based Compensation,
Erroneously Awarded Compensation or time-vesting equity awards, reimbursement or repayment by any person subject to this Policy of the
Erroneously Awarded Compensation, and, to the extent permitted by law, an offset of the Erroneously Awarded Compensation against other
compensation  payable  by  the  Company  or  an  affiliate  of  the  Company  to  such  person.  Notwithstanding  the  foregoing,  unless  otherwise
prohibited by the

1

Applicable Rules, to the extent this Policy provides for recovery of Erroneously Awarded Compensation already recovered by the Company
pursuant  to  Section  304  of  the  Sarbanes-Oxley  Act  of  2002  or  Other  Recovery  Arrangements,  the  amount  of  Erroneously  Awarded
Compensation  already  recovered  by  the  Company  from  the  recipient  of  such  Erroneously  Awarded  Compensation  may  be  credited  to  the
amount of Erroneously Awarded Compensation required to be recovered pursuant to this Policy from such person.

5.    Administration

This  Policy  shall  be  administered,  interpreted  and  construed  by  the  Committee,  which  is  authorized  to  make  all  determinations
necessary,  appropriate  or  advisable  for  such  purpose.  The  Board  of  Directors  of  the  Company  (the  “Board”)  may  re-vest  in  itself  the
authority  to  administer,  interpret  and  construe  this  Policy  in  accordance  with  applicable  law,  and  in  such  event  references  herein  to  the
“Committee” shall be deemed to be references to the Board. Subject to any permitted review by the applicable national securities exchange or
association  pursuant  to  the  Applicable  Rules,  all  determinations  and  decisions  made  by  the  Committee  pursuant  to  the  provisions  of  this
Policy  shall  be  final,  conclusive  and  binding  on  all  persons,  including  the  Company  and  its  affiliates,  equityholders  and  employees.  The
Committee may delegate administrative duties with respect to this Policy to one or more directors or employees of the Company, as permitted
under applicable law, including any Applicable Rules.

6.    Interpretation

This Policy will be interpreted and applied in a manner that is consistent with the requirements of the Applicable Rules, and to the
extent  this  Policy  is  inconsistent  with  such  Applicable  Rules,  it  shall  be  deemed  amended  to  the  minimum  extent  necessary  to  ensure
compliance therewith.

7.    No Indemnification; No Liability

The Company shall not indemnify or insure any person against the loss of any Erroneously Awarded Compensation pursuant to this
Policy, nor shall the Company directly or indirectly pay or reimburse any person for any premiums for third-party insurance policies that such
person may elect to purchase to fund such person’s potential obligations under this Policy. None of the Company, an affiliate of the Company
or any member of the Committee or the Board shall have any liability to any person as a result of actions taken under this Policy.

8.    Application; Enforceability

Except as otherwise determined by the Committee or the Board, the adoption of this Policy does not limit, and is intended to apply in
addition to, any other clawback, recoupment, forfeiture or similar policies or provisions of the Company or its affiliates, including any such
policies  or  provisions  of  such  effect  contained  in  any  employment  agreement,  bonus  plan,  incentive  plan,  equity-based  plan  or  award
agreement  thereunder  or  similar  plan,  program  or  agreement  of  the  Company  or  an  affiliate  or  required  under  applicable  law  (the  “Other
Recovery Arrangements”). The remedy specified in this Policy shall not be exclusive and shall be in addition to every other right or remedy
at law or in equity that may be available to the Company or an affiliate of the Company.

2

9.    Severability

The  provisions  in  this  Policy  are  intended  to  be  applied  to  the  fullest  extent  of  the  law;  provided,  however,  to  the  extent  that  any
provision of this Policy is found to be unenforceable or invalid under any applicable law, such provision will be applied to the maximum
extent permitted, and shall automatically be deemed amended in a manner consistent with its objectives to the extent necessary to conform to
any limitations required under applicable law.

10.    Amendment and Termination

The Board or the Committee may amend, modify or terminate this Policy in whole or in part at any time and from time to time in its
sole discretion. This Policy will terminate automatically when the Company does not have a class of securities listed on a national securities
exchange or association.

11.    Definitions

        “Applicable  Rules”  means  Section  10D  of  the  Exchange  Act,  Rule  10D-1  promulgated  thereunder,  the  listing  rules  of  the  national
securities  exchange  or  association  on  which  the  Company’s  securities  are  listed,  and  any  applicable  rules,  standards  or  other  guidance
adopted by the Securities and Exchange Commission or any national securities exchange or association on which the Company’s securities
are listed.

“Committee” means the committee of the Board responsible for executive compensation decisions comprised solely of independent
directors (as determined under the Applicable Rules), or in the absence of such a committee, a majority of the independent directors serving
on the Board.

“Erroneously Awarded Compensation” means the amount of Incentive-Based Compensation received by a current or former Officer
that  exceeds  the  amount  of  Incentive-Based  Compensation  that  would  have  been  received  by  such  current  or  former  Officer  based  on  a
restated Financial Reporting Measure, as determined on a pre-tax basis in accordance with the Applicable Rules.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Financial Reporting Measure” means any measure determined and presented in accordance with the accounting principles used in
preparing the Company’s financial statements, and any measures derived wholly or in part from such measures, including GAAP, IFRS and
non-GAAP/IFRS financial measures, as well as stock or share price and total equityholder return.

“GAAP” means United States generally accepted accounting principles.

“IFRS” means international financial reporting standards as adopted by the International Accounting Standards Board.

“Impracticable”  means  (a)  the  direct  costs  paid  to  third  parties  to  assist  in  enforcing  recovery  would  exceed  the  Erroneously
Awarded Compensation; provided that the Company has (i) made reasonable attempts to recover the Erroneously Awarded Compensation,
(ii) documented such attempt(s), and (iii) provided such documentation to the relevant listing exchange or association, (b) to the extent

3

permitted by the Applicable Rules, the recovery would violate the Company’s home country laws pursuant to an opinion of home country
counsel;  provided  that  the  Company  has  (i)  obtained  an  opinion  of  home  country  counsel,  acceptable  to  the  relevant  listing  exchange  or
association, that recovery would result in such violation, and (ii) provided such opinion to the relevant listing exchange or association, or (c)
recovery  would  likely  cause  an  otherwise  tax-qualified  retirement  plan,  under  which  benefits  are  broadly  available  to  employees  of  the
Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and the regulations thereunder.

“Incentive-Based Compensation” means, with respect to a Restatement, any compensation that is granted, earned, or vested based
wholly or in part upon the attainment of one or more Financial Reporting Measures and received by a person: (a) after beginning service as
an Officer; (b) who served as an Officer at any time during the performance period for that compensation; (c) while the Company has a class
of securities listed on a national securities exchange or association; and (d) during the applicable Three-Year Period.

“Officer” means each person who serves as an executive officer of the Company, as defined in Rule 10D-1(d) under the Exchange

Act.

“Restatement”  means  an  accounting  restatement  to  correct  the  Company’s  material  noncompliance  with  any  financial  reporting
requirement under securities laws, including restatements that correct an error in previously issued financial statements (a) that is material to
the previously issued financial statements or (b) that would result in a material misstatement if the error were corrected in the current period
or left uncorrected in the current period.

“Three-Year Period” means, with respect to a Restatement, the three completed fiscal years immediately preceding the date that the
Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not required,
concludes, or reasonably should have concluded, that the Company is required to prepare such Restatement, or, if earlier, the date on which a
court, regulator or other legally authorized body directs the Company to prepare such Restatement. The “Three-Year Period” also includes
any transition period (that results from a change in the Company’s fiscal year) within or immediately following the three completed fiscal
years identified in the preceding sentence. However, a transition period between the last day of the Company’s previous fiscal year end and
the first day of its new fiscal year that comprises a period of nine to 12 months shall be deemed a completed fiscal year.

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ACKNOWLEDGMENT AGREEMENT

PERTAINING TO THE TILLY’S, INC. POLICY FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION

In  consideration  of,  and  as  a  condition  to,  the  receipt  of  future  cash  and  equity  incentive  compensation  from  Tilly’s,  Inc.  (the

“Company”), _________________ (“Executive”) and the Company are entering into this Acknowledgment Agreement.

1. Executive agrees that compensation received by Executive may be subject to reduction, cancellation, forfeiture and/or recoupment to
the extent necessary to comply with the Policy for Recovery of Erroneously Awarded Compensation (as amended from time to time,
the “Policy”). Executive acknowledges that Executive has received and has had an opportunity to review the Policy.

2. Executive  acknowledges  and  agrees  to  the  terms  of  the  Policy,  including  that  any  compensation  received  by  Executive  shall  be

subject to and conditioned upon the provisions of the Policy.

3. Executive further acknowledges and agrees that Executive is not entitled to indemnification in connection with any enforcement of
the Policy and expressly waives any rights to such indemnification under the Company’s organizational documents or otherwise.

4. Executive  agrees  to  take  all  actions  requested  by  the  Company  in  order  to  enable  or  facilitate  the  enforcement  of  the  Policy
(including, without limitation, any reduction, cancellation, forfeiture or recoupment of any compensation that Executive has received
or to which Executive may become entitled).

5. To the extent any recovery right under the Policy conflicts with any other contractual rights Executive may have with the Company
or any affiliate, Executive understands that the terms of the Policy shall supersede any such contractual rights. Executive agrees that
no  recovery  of  compensation  under  the  Policy  will  be  an  event  that  triggers  or  contributes  to  any  right  of  Executive  to  resign  for
“good reason” or “constructive termination” (or similar term) under any agreement with the Company or any affiliate.

EXECUTIVE

TILLY’S INC.

(Signature)

(Print Name)

(Title)
(Date)

(Signature)

(Print Name)

(Title)
(Date)

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