TILLY'S, INC.

Previous wording

Tillys is a 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, 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 November 2, 2024, we operated 246 stores in 33 states, averaging approximately 7,236 square feet per store, compared to 249 total stores at the same time last year. We also sell our products through our e-commerce ("e-com") website, www.tillys.com.

Current wording

Tillys is a 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, 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 May 3, 2025, we operated 238 stores in 33 states, averaging approximately 7,174 square feet per store, compared to 246 total stores at the same time last year. We also sell our products through our e-commerce ("e-com") website, www.tillys.com.

Previous wording

We believe inflation, including elevated fuel costs, increased levels of credit card debt with higher interest rates, and multi-year lows in consumer savings has had, and is likely to continue to have, a significant, adverse impact on our consumers' spending and, by extension, our operating results. 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 46% of our total selling, general and administrative expenses in the first nine months of fiscal 2024. Our average hourly rate for store payroll in the first nine months of fiscal 2024 was 31% higher than in the pre-pandemic year of fiscal 2019 and 4% higher than in the first nine months of fiscal 2023. 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 in fiscal 2024 and 2025, particularly if the broader economy is negatively impacted by recessionary impacts for an extended period of time.

Current wording

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 45% of our total selling, general and administrative expense in the first quarter of fiscal 2025. Our average hourly rate for store payroll in fiscal 2025 is estimated to be approximately 35% higher than in pre-pandemic fiscal 2019 and approximately 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, particularly if we are unable to generate net sales growth.

Previous wording

Our selling, general and administrative ("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-com 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 company. SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods.

Current wording

Our selling, general and administrative ("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-com 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 may be expected to increase over time to support the needs of our company. SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods.

Previous wording

Third Quarter (13 Weeks) Ended November 2, 2024 Compared to Third Quarter (13 Weeks) Ended October 28, 2023

Current wording

First Quarter (13 Weeks) Ended May 3, 2025 Compared to First Quarter (13 Weeks) Ended May 4, 2024

Previous wording

Total net sales were $422.2 million, a decrease of 6.2%. Total comparable net sales, including both physical stores and e-com, decreased by 6.8% relative to the comparable 39-week period ended November 4, 2023.

Current wording

Total net sales were $107.6 million, a decrease of 7.1%. Total comparable net sales, including both physical stores and e-com, decreased by 7.0% relative to the comparable 13-week period ended May 4, 2024.

Previous wording

•Net sales from physical stores were $111.3 million, a decrease of 16.0%. Comparable store net sales decreased 5.6% relative to the comparable 13-week period ended November 4, 2023. Net sales from physical stores represented 77.6% of total net sales this year compared to 79.6% total net sales last year. We ended the third quarter with 246 total stores compared to 249 total stores at the end of the third quarter last year.

Current wording

•Net sales from physical stores were $85.9 million, a decrease of 7.4%. Comparable store net sales decreased 7.1% relative to the comparable 13-week period ended May 4, 2024. Net sales from physical stores represented 79.8% of total net sales this year compared to 80.1% total net sales last year. We ended the first quarter with 238 total stores compared to 246 total stores at the end of the first quarter last year.

Previous wording

•E-com net sales were $32.2 million, a decrease of 5.4%. E-com net sales increased 4.9% relative to the comparable 13-week period ended November 4, 2023. E-com net sales represented 22.4% of total net sales this year compared to 20.4% of total net sales last year.

Current wording

•E-com net sales were $21.7 million, a decrease of 5.8%. E-com net sales decreased 6.6% relative to the comparable 13-week period ended May 4, 2024. E-com net sales represented 20.2% of total net sales this year compared to 19.9% of total net sales last year.

Previous wording

Gross profit was $111.4 million, or 26.4% of net sales, compared to $119.0 million, or 26.4% of net sales, last year. Product margins improved by 130 basis points, primarily due to the combination of improved initial markups and lower total markdowns. Buying, distribution, and occupancy costs deleveraged by 140 basis points collectively, despite being $1.3 million lower than last year, primarily due to carrying these costs against a lower level of net sales this year.

Current wording

Gross profit was $21.3 million, or 19.8% of net sales, compared to $24.3 million, or 21.0% of net sales, last year. Product margins improved by 40 basis points primarily due to improved initial markups, partially offset by increased inventory valuation reserves. Buying, distribution, and occupancy costs deleveraged by 160 basis points collectively, despite being $0.8 million lower than last year, primarily due to carrying these costs against a lower level of net sales this year.

Previous wording

SG&A expenses were $51.3 million, or 35.7% of net sales, compared to $51.2 million, or 30.8% of net sales, last year. Primary SG&A variances, both in terms of percentage of net sales and total dollars, were as follows:

Current wording

SG&A expenses were $44.0 million, or 40.9% of net sales, compared to $45.1 million, or 38.9% of net sales, last year. Primary SG&A variances, both in terms of percentage of net sales and total dollars, were as follows:

Previous wording

Operating loss was $14.1 million, or 9.8% of net sales, compared to $2.5 million, or 1.5% of net sales, last year primarily as a result of the combination of the factors noted above.

Current wording

Operating loss was $22.7 million, or 21.1% of net sales, compared to $20.8 million, or 17.9% of net sales, last year primarily as a result of the combination of the factors noted above.

Previous wording

Income tax benefit was $21.8 thousand or 0.1% of pre-tax loss, compared to $4.9 million, or 26.0% of pre-tax loss, last year. The decrease in the effective income tax rate was due to the continuing impact of a full, non-cash deferred tax asset valuation allowance.

Current wording

Income tax benefit was $0.1 million, or 0.6% of pre-tax loss, compared to $13 thousand, or 0.1% of pre-tax loss, last year. Both period's income tax results include the continuing impact of a full, non-cash deferred tax asset valuation allowance. The income tax benefit for the first quarter of fiscal 2025 also includes the refund of certain income tax credit carry forwards and state income tax carry back claims.

Previous wording

Net loss was $12.9 million, or $0.43 net loss per share, compared to $0.8 million, or $0.03 net loss per share, last year.

Current wording

Net loss was $22.2 million, or $0.74 net loss per share, compared to $19.6 million, or $0.65 net loss per share, last year.

Previous wording

Working capital at November 2, 2024, was $41.8 million compared to $71.5 million at February 3, 2024, a decrease of $29.7 million. The primary changes in our working capital during the first three quarters of fiscal 2024 were as follows:

Current wording

Working capital at May 3, 2025, was $10.5 million compared to $31.6 million at February 1, 2025, a decrease of $21.1 million. The primary changes in our working capital during the first quarter of fiscal 2025 were as follows:

Previous wording

A summary of operating, investing and financing activities for the 39 weeks ended November 2, 2024 compared to the 39 weeks ended October 28, 2023 is shown in the following table (in thousands):

Current wording

A summary of operating, investing and financing activities for the thirteen weeks ended May 3, 2025 compared to the thirteen weeks ended May 4, 2024 is shown in the following table (in thousands):

Previous wording

Operating activities consist primarily of net loss 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.

Current wording

Operating activities consist primarily of net 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.

Previous wording

Net cash used in operating activities was $38.2 million this year compared to $10.5 million last year. The $27.7 million increase in net cash used in operating activities compared to last year was primarily due to lower net sales.

Current wording

Net cash used in operating activities was $8.1 million this year compared to $25.7 million last year. The $17.6 million decrease in net cash used in operating activities compared to last year was primarily due to a decrease in merchandise inventory balances and an increase in related accounts payable as a result of efficient management of merchandise inventories and timing of payments, respectively.

Previous wording

$83.5 million, partially offset by purchases of marketable securities of $59.6 million and capital expenditures totaling $6.7 million. Net cash used in investing activities in the first three quarters of fiscal 2023 consisted of purchases of marketable securities of $88.1 million and capital expenditures totaling $10.5 million, partially offset by maturities of marketable securities of $80.0 million.

Current wording

Net cash provided by investing activities was $14.3 million this year compared to net cash used of $1.6 million last year. Net cash provided 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 million. Net cash used in investing activities in the first quarter of fiscal 2024 consisted of purchases of marketable securities of $29.5 million and capital expenditures totaling $2.1 million, partially offset by maturities of marketable securities of $30.0 million.

Previous wording

Financing activities primarily consist of proceeds from employee exercises of stock options. The prior year proceeds from exercise of stock options were partially offset by taxes paid on a short-swing profit disgorgement payment made to us last year.

Current wording

Financing activities primarily consist of proceeds from employee exercises of stock options.

Previous wording

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 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. 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.

Current wording

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 March 25, 2025, we entered into an amendment of the Credit Agreement which extended the maturity date to June 25, 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.

Previous wording

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.

Current wording

The unused portion of the Revolving Commitment accrues a commitment fee of 0.25% or 0.375% per 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.

Previous wording

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). Beginning April 27, 2024, 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.

Current wording

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).

Previous wording

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.

Current wording

In connection with the entry into the Credit Agreement, 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.

Previous wording

As of November 2, 2024, we were in compliance with all of our covenants, were eligible to borrow up to a total of $63.0 million and had no outstanding borrowings under the Credit Agreement. The only utilization of the letters of credit sub-limit under the Credit Agreement was a $2.0 million irrevocable standby letter of credit.

Current wording

As of May 3, 2025, we were in compliance with all of our covenants, were eligible to borrow up to a total of $55.4 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 $2.0 million irrevocable standby letter of credit.