TLYS 10-K & 10-Q changes, risk factors and insider trading

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 the past few fiscal 2024 and 2023,years, 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.

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 (including tariffs) passed on to us by our vendor partners to us,partners, could haveadversely adverse impacts onimpact our cost of sales and our ability to meet our customers’ demands. In particular, because a key component of ourthe clothing we sell is cotton, increases in the cost of cotton may significantly affect the cost of theour products that we sellmerchandise 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.

The teen-focused 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, H&M, Hollister, Hot Topic, Pacific Sunwear, Urban Outfitters, and Zumiez. In addition, we compete with independent specialty shops, department stores, e-com only retailers such as Fashion Nova, Revolve, Shein and Temu, 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, e-com and social media. 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 may not be able to 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 respondincrease in-kindour promotional activity and incur higher customer acquisition costs, which could 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 nationalgreater 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.offerings, Ourand 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.basis, As a result,and 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 must actively and effectively 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, if we fail to accurately predict fashion trends ortrends, consumer demands, or economic trendstrends, or if unseasonable weather impacts the anticipated demand for certain product categories, or we are otherwise unable to accurately track inventory at the store level and aggregate daily sales information, communicate customer information and process purchasing card transactions, or process shipments of goods and report financial information, we may hold significant inventory, which can impact our ability to effectively cycle new products, increase storage costs or incur other costs or expenses, and we may be forced to rely on markdowns, promotional sales, or inventory liquidators 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, which can heighten our risks of carrying excess inventory following those periods. If we are not successful in managing our inventory levels or selling our inventory, 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.

We may continue to experience comparable store sales or sales per square foot declines, which maycould 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 profitability. Our comparable store sales have generally been declining for the past three fiscal years and 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 continue to decline or fail to grow at expected rates, which could adversely affect our results of operations and stock price during such periods.

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 further 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 areis not executed efficiently and effectively, our business, financial condition, and our operating results could be adversely affected.

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

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 continuedand may continue to experience 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 maywould 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 lease all of our retail store locations as well as our corporate headquarters, warehouses, distribution and e-com 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 arerepresent a significant amountportion of our operating expenses and can grow rapidly with store count growth and/or increases in lease costs at existing locations over time. 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 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 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 believe that our brand image and brand awareness hashave contributed significantly to the historical 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 or improve our brand image in our existing markets, successfully integrate new stores into their surrounding communities, or to expand into new markets could be adversely impacted if our marketing initiatives are unsuccessful and we fail to connect with our target customers. Maintaining and enhancing our brand image may require us to make substantial investments in areas such as merchandising, marketing, store operations, e-com, social media, community relations, store graphics, and employee training, which could adversely affect our cash flow and which may not ultimately be successful. Failure to successfully market our brand could harm our business, results of operations and financial condition.

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 could have a material adverse effect on sales and profitability.

Although we predominantly 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 have been subject to and could become subject to new trade restrictions imposed by the United States or other foreign governments. Trade restrictions, including new or 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 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.

The majority of our stores are located in California, Texas, 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.

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, wage and hour 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.

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 President and Chief Executive Officer and Executive Chairman of our Board of Directors, and Michael Henry, our Executive Vice-President and Chief Financial Officer.team. 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 key personnel or we are not able to attract additional qualified personnel, we may not be able to successfully manage our business.

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 President and Chief ExecutiveStrategy 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.

The market for retail apparel stocks can be highly volatile. As a result, the market price of our Class A common stock is likely tomay 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.

Although we previously paid aggregate special cash dividends of $5.70 per share to all holders of record of issued and outstanding shares of our common stock between February 2017 and December 2021,stock, we have not issued any cash dividends to stockholders since that date,2021. 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.

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 likelycould 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.

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

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 theour Company's goods, and have an unfavorable impact on our business, financial health, marketing strategy and performance.

Climate change, environmental, social and governance matters, 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.

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 2025" or "fiscal 2025" refer to the fiscal year ended January 31, 2026, references to "fiscal year 2024" or "fiscal 2024" refer to the fiscal year ended February 1, 2025, and references to "fiscal year 2023"” or "fiscal 2023"” refer to the fiscal year ended February 3, 20242024. Fiscal 2025 and references2024 to "fiscal year 2022” or "fiscal 2022” refer to the fiscal year ended January 28, 2023. Fiscal year 2024both consisted of a 52-week period,period while fiscal year 2023 consisted of a 53-week period, and fiscal year 2022 consisted of a 52-week period.

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 FebruaryJanuary 1,31, 2025,2026, we operated 240223 stores in 33 states, averaging approximately 7,2107,145 square feet per store. We also sell our products through our website, www.tillys.com.

We believe the combined impacts of persistent inflation, tariffs, decreases in consumer confidence levelsenacted and concernspotential abouttariffs, aregional conflicts, and potential economic recession in the current economic environment could negatively impact consumer spending generally and our customer base, in particular, which has had and may in the future have a significant, adverse impact on our operating results and financial condition.

Inflation has 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 46% of our total selling, general and administrative expense in fiscal 2024.2025. Our average hourly rate for store payroll in fiscal 2025 is estimated to bewas approximately 35% higher than in pre-pandemic fiscal 2019 and approximately 4%, or $1.7 million,3% higher than in fiscal 2024. These and other cost increases may continue to have a material adverse impact on our results of operations and financial condition in fiscal 2025,2026, particularly if we are unable to generate net sales growth.

We expect our effective income tax rate to be near zero on an annual basis until such time that we are able to return to generating operating profits on a consistent basis,basis due to maintaining a full valuation allowance on all deferred tax assets as a result of our recent operating losses.

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.loss.

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.

•Total net sales were $569.5$553.6 million, a decrease of 8.6%2.8%. fromWe ended fiscal 2023,2025 whichwith included17 anfewer extrastores weekthan inat the end of fiscal calendar2024, thata accounted7.1% for $5.7 millionreduction in total netstore sales in that prior fiscal year.count. Total comparable net sales, including both physical stores and e-com,e-commerce decreased("e-com"), increased by 8.0%0.3% for the year with sequential improvement in our comparable net sales trend in each quarter of the fiscal year, including an accelerating trend of comparable net sales growth for each of the final six fiscal months of fiscal 2025 relative to the comparable 52-weekperiods periodof ended February 3,fiscal 2024.

◦•Net sales from physical stores were $444.7$431.1 million, a decrease of 8.4%.3.1%, primarily due to operating 17 fewer net stores at the end of fiscal 2025 compared to the end of fiscal 2024. Comparable store net sales decreasedfrom 8.0%physical stores increased by 0.9% in fiscal 2025 relative to the comparable 52-week period endedof February 3,fiscal 2024. Net sales from physical stores represented 78.1%77.9% of total net sales this year compared to 77.9%78.1% of total net sales last year.

◦Net sales from e-com were $124.7$122.5 million, a decrease of 9.3%. E-com net sales decreased 8.0% relative to the comparable 52-week period ended February 3, 2024.1.8%. E-com net sales represented 21.9%22.1% of total net sales this year compared to 22.1%21.9% of total net sales last year.

Gross profitprofit, including buying, distribution, and occupancy costs, was $149.7$164.5 million, or 26.3%29.7% of net sales, an improvement of $14.8 million, or 340 basis points as a percentage of net sales, compared to $165.7$149.7 million, or 26.6%26.3% of net sales, last year. Product margins improved by 150290 basis points primarily due to improvedhigher initial markups,markups partiallyand offsetlower bymarkdowns increasedas inventorya valuationresult reserves.of operating with reduced, more current inventory. Buying, distribution, and occupancy costs deleveragedimproved by 18050 basis pointspoints, or $7.1 million, collectively, despite being $2.8 million lower than last year, primarily due to carryingdecreased theseoccupancy costs againstassociated lowerwith operating 17 fewer net salesstores thiscompared to last year.

Income Tax (Benefit) Expense

Income tax expensebenefit was $0.2$137 millionthousand, or 0.5%0.8% of pre-tax loss, compared to income tax expense of $8.7$0.2 million, or 33.8%0.5% of pre-tax loss,loss last year,year. whichBoth includedyears' income tax results include the continuing impact of a full, non-cash deferred tax asset valuation allowance (the "valuation allowance") charge of $15.4 million. The decrease in the effective income tax rate was due to the continuing impact of the valuation allowance.

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. However, if our comparable net sales decrease in fiscal 2025 at a rate equal to or greater than the 8% decrease we produced in fiscal 2024, we may be required to begin borrowing under our asset-backed credit facility to finance our day-to-day operations.

In addition to cash and cash equivalents and marketable securities,equivalents, 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,hand, 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.Report and do not anticipate needing to access our credit facility at any time during the next 12 months. 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 at January 31, 2026, was $25.1 million compared to $31.6 million at February 1, 2025, was $31.6 million compared to $71.5 million at February 3, 2024, a decrease of $39.9$6.5 million. The changes in our working capital during fiscal 20242025 were as follows:

Net Cash Provided By (Used In) Operating Activities

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 usedprovided inby operating activities was $42.0$4.1 million this year compared to $6.7net cash used of $42.0 million last year. The $35.3$46.1 million increase in net cash usedprovided inby operating activities compared to last year was primarily due primarily to lowera decrease in net sales.loss of $28.8 million in fiscal 2025 compared to fiscal 2024, and favorable changes in cash provided by merchandise inventories net of accounts payable compared to last year.

Net cash provided by investing activities was $15.8$21.2 million this year compared to net cash used in investing activities of $20.0$15.8 million last year. Net cash provided by investing activities in fiscal 2025 consisted of maturities of marketable securities of $25.8 million, partially offset by capital expenditures totaling $4.7 million. Net cash provided by investing activities in fiscal 2024 consisted of maturities of marketable securities of $98.5 million, partially offset by purchases of marketable securities of $74.5 million and capital expenditures totaling $8.2 million. 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 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.

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 (as amended, the “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 secured 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. AsOn March 25, 2025, we entered into an amendment of Februarythe 1,Credit 2025,Agreement which extended the Revolvingmaturity Facility was setdate to expireJune on25, April 27, 2026.2027. 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 unused portion of the Revolving Commitment accrues a commitment fee of 0.25% or 0.375% per annum.annum, based on the average daily borrowing capacity under the Revolving Facility under the applicable fiscal quarter. 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). 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 of the Credit Agreement or related loan documents; or a change of control.

In connection with the entry into the Credit Agreement, on April 27, 2023, we entered into certain ancillary agreements including (i) a security agreement in favor of the Bank, and (ii) a guarantee by us in favor of the Bank.

As of FebruaryJanuary 1,31, 2025,2026, we were in compliance with all of our covenants, were eligible to borrow up to a total of $48.0$41.5 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 $2.0$1.7 million irrevocable standby letter of credit.

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 President and Chief Executive Officer.Chairman of the Board of Directors. 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.

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 President and Chief Executive Officer.Chairman of the Board of Directors. 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-com distribution center from a company that is owned by one of the co-founders of Tillys who is currently our President and Chief Executive Officer.Chairman of the Board of Directors. This building is located at 17 Pasteur, Irvine, California. The lease is accounted for as an operating lease and expires on October 31, 2031.

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 January 31, 2026 and February 1, 2025 and February 3, 2024 was not material.

Tillys is a destination specialty retailer of casual apparel, footwear, and accessories 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, outdoor and social 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 MayAugust 2,1, 2026, we operated 220 stores in 32 states, averaging approximately 7,1277,130 square feet per store, compared to 238232 total stores at the same time last year. We also sell our products through our e-commerce ("e-com") website, www.tillys.com.

Inflation more broadly has 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 46% of our total selling, general and administrative expense in the first quarterhalf of fiscal 2026. Our average hourly rate for store payroll in fiscal 2026 was approximately 37%38% higher than in pre-pandemic fiscal 2019 and approximately 1% higher than in fiscal 2025. These and other cost increases may continue to have a material adverse impact on our results of operations and financial condition in fiscal 2026, particularly if we are unable to sustain net sales growth.

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

Operating Income (Loss)

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

FirstSecond Quarter (13 Weeks) Ended MayAugust 2,1, 2026 Compared to FirstSecond Quarter (13 Weeks) Ended MayAugust 3,2, 2025

•Net sales from physical stores were $96.3$129.0 million, an increase of 12.1%.5.1%. The Company ended the firstsecond quarter with 220 total stores, a decrease of 1812 stores or 7.6%,5.2%, compared to 238232 total stores at the end of the firstsecond quarter last year. Comparable net sales from physical stores increased by 20.8%10.3% relative to the comparable 13-week period ended MayAugust 3,2, 2025. Net sales from physical stores represented 77.2%78.9% of total net sales this year compared to 79.8%81.1% total net sales last year.

Gross profit was $36.1$58.1 million, or 28.9%35.5% of net sales, compared to $21.3$49.1 million, or 19.8%32.5% of net sales, last year. Product margins improved toby 56.6%1.4% of net sales from 52.6% of net sales during last year's first quarter,sales, primarily due to improved full-price selling fromassociated with operating with inventories that were more current in terms of aging compared to last year. Buying, distribution, and occupancy costs improved by 520 basis points as a percentage1.6% of net sales, or $0.9 million, collectively, primarily due to decreasedcarrying these costs against higher net sales this year. Lower occupancy costs largely associated with our reduced store count.count were partially offset by higher e-com shipping expenses associated with e-com sales growth.

Operating LossIncome

Operating lossincome was $8.1$8.2 million, or 6.5%5.0% of net sales, compared to $22.7$2.7 million, or 21.1%1.8% of net sales, last year primarily as a result of the combination of the factors noted above.

Income tax expense was $0.1 million, or (1.7%)1.0% of pre-tax loss,income, compared to an income tax benefit of $0.1$41 million,thousand, or 0.6%(1.3%) of pre-tax loss,income, last year. Both period's income tax results include the continuing impact of a full, non-cash deferred tax asset valuation allowance.

Net LossIncome and LossEarnings Per Share

Net lossincome was $8.0$8.4 million, or $0.26 net loss$0.27 per diluted share, compared to $22.2$3.2 million, or $0.74 net loss$0.10 per diluted share, last year.

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 and marketable securities on hand, 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 we are unable to continue to produce comparable net sales growth for an extended period of time, our cash flowsposition frommay be adversely impacted and require borrowing under our credit facility to finance our day to day operations are not sufficient and/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.financing.

Working capital at MayAugust 2,1, 2026, was $13.5$22.2 million compared to $25.1 million at January 31, 2026, a decrease of $11.6$2.9 million. The primary changes in our working capital during the first quarterhalf of fiscal 2026 were as follows:

A summary of operating, investing and financing activities for the thirteentwenty-six weeks ended MayAugust 2,1, 2026 compared to the thirteentwenty-six weeks ended MayAugust 3,2, 2025 is shown in the following table (in thousands):

Net Cash UsedProvided inBy Operating Activities

Operating activities consist primarily of net income (loss) adjusted for non-cash items that include depreciation and amortization, 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 usedprovided inby operating activities was $3.9$18.5 million this year compared to $8.1$5.9 million last year. The $4.2$12.6 million decreaseincrease in net cash usedprovided inby operating activities compared to last year was primarily due to aan decreaseincrease in net lossincome of $14.2$19.4 million this year compared to last year, partially offset by accountsdecrease payablein merchandise inventory balances and aan decreaseincrease in related merchandiseaccounts inventoriespayable as a result of efficient management of merchandise inventories and timing of payments, respectively.

Net cash used in investing activities was $11.2$12.6 million this year compared to net cash provided by of $14.3$23.8 million last year. Net cash used in investing activities in the first quarterhalf of fiscal 2026 consisted of purchases of marketable securities of $9.9$14.8 million, and capital expenditures totaling $1.4$2.8 million.million, Netpartially cash providedoffset by investing activities in the first quarter of fiscal 2025 consisted of maturities of marketable securities of $15.8 million, partially offset by capital expenditures totaling $1.5$5.0 million.

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 (as amended, the “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 secured 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. On MarchJune 25,10, 2025,2026, we entered into anthe second amendment of the Credit Agreement which extended the maturity date to JuneSeptember 25,10, 2027.2028. 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.

As of MayAugust 2,1, 2026, we were in compliance with all of our covenants, were eligible to borrow up to a total of $50.7$63.3 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 $1.7 million irrevocable standby letter of credit.

As of MayAugust 2,1, 2026, there were no material changes to our contractual obligations as described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the fiscal year ended January 31, 2026.