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 223 stores in 33 states as of January 31, 2026. 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 2025, 2024 and 2023 ended on January 31, 2026, February 1, 2025 and February 3, 2024, respectively. Fiscal years 2025 and 2024 included 52 weeks. Fiscal year 2023 included 53 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 identifiedone 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. Refer to "Note 17: Segment Information", for further information.

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 $16.9 million, $14.7 million and $17.0 million in fiscal years 2025, 2024 and 2023, 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. 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 $49.2 million, $54.6 million, and $65.0 million in fiscal years 2025, 2024, and 2023, respectively. As of the end of fiscal 2025 and 2024, total accrued markdowns on the Consolidated Balance Sheets were $1.8 million and $5.7 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 January 31, 2026 and February 1, 2025 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 toseven 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 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.

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 generallyten 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 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-com 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 2025, 2024 and 2023, shipping and handling fee revenue included in net sales was $4.8 million, $5.0 million, and $5.6 million, respectively.

We accrue for estimated sales returns by customers based on historical sales return results. Our reserve for sales returns was $1.2 million as of both fiscal years ended January 31, 2026 and February 1, 2025.

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 gift card liability balance was $8.7 million as of January 31, 2026 and $9.5 million as of February 1, 2025, 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 $11.8 million, $12.4 million and $14.5 million for fiscal years 2025, 2024 and 2023, respectively. For fiscal years 2025, 2024, and 2023, the opening gift card balances were $9.5 million, $10.2 million, and $11.1 million, respectively, of which $4.7 million, $4.9 million, and $5.8 million, respectively, were recognized as revenue during each period.

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

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

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

Loyalty Program

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. Unredeemed awards and accumulated partial points expire 365 days after the customer's original purchase date. A liability is estimated based on the standalone selling price of points earned and expected future redemptions. The deferred revenue for this program was $4.6 million as of both fiscal years ended January 31, 2026 and February 1, 2025. The value of points redeemed through our loyalty program was $6.3 million, $6.9 million and $8.0 million during fiscal years 2025, 2024, and 2023, respectively. For fiscal years 2025, 2024 and 2023, the opening loyalty program balances were $4.6 million, $4.7 million, and $5.0 million, respectively, of which $4.6 million, $4.7 million, and $5.0 million, respectively, were recognized as revenue during each 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-com 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-com 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;

•Tender costs, including costs associated with credit and debit card interchange fees;

•Long-lived asset impairment charges;

•Legal provisions;

•Other administrative costs such as supplies, consulting, audit and tax preparation fees, travel and lodging; and

•Charitable contributions.

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 print, online and mobile advertising costs, store grand openings and other events. Advertising expense, which is classified in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations, was $25.3 million, $24.0 million and $24.4 million in fiscal years 2025, 2024 and 2023, 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.

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 per Share

Basic loss per share is computed using the weighted average number of shares outstanding. Diluted loss 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 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 January 31, 2026 and February 1, 2025, 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.

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 December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures,(“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid and other disclosures. 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. This guidance was effective for us for the annual report for fiscal 2025 and we have adopted the guidance as of the effective date on a prospective basis. Other than the new disclosure requirements, the adoption of this guidance did not have a significant impact on our consolidated financial statements. Refer to "Note 14: Income Taxes" for further information.

New Accounting Standards Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement (Subtopic 220-40): Reporting Comprehensive Income - Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses, ("ASU 2024-03"). ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory, employee compensation, and depreciation and amortization. This new standard is effective for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, 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.

In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other - Internal-Use Software: Targeted Improvements to the Accounting for Internal-Use Software, ("ASU 2025-06"). ASU 2025-06 requires entities to begin capitalizing internal-use software when management has authorized and committed to funding the project and it is probable that the project will be completed and the software will be used to perform the function intended. This new standard is effective for fiscal years beginning after December 15, 2027 and interim reporting periods within those annual reporting periods. Early adoption is permitted. This new standard can be adopted using any of: (i) a prospective transition approach (ii) a modified transition approach that is based on the status of the project and whether software costs were capitalized before the date of adoption; or (iii) a retrospective transition approach. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Note 3: Marketable Securities

Marketable securities consisted of commercial paper, classified as available-for-sale, and fixed income securities, classified as held-to-maturity, as we had the intent and ability to hold them to maturity. Our investments in commercial paper and fixed income securities were recorded at fair value and amortized cost, respectively, which approximated fair value.

The following table summarizes investments in marketable securities as of February 1, 2025 (in thousands). We did not have any marketable securities as of January 31, 2026.

For fiscal years 2025, 2024 and 2023, we recognized gains on investments for commercial paper of $0.4 million, $1.8 million and $1.9 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 and into other income, net, on the accompanying Consolidated Statements of Operations.

We didnot purchase any fixed income securities during fiscal year 2025. For fiscal years 2024, and 2023 we purchased fixed income securities of $15.6 million, and $3.5 million, respectively.

For fiscal years 2025, 2024, and 2023 we recognized maturities of fixed income securities of $5.5 million, $13.5 million and $10.0 million, respectively.

Note 4: Receivables

At January 31, 2026 and February 1, 2025, receivables consisted of the following (in thousands):

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 2025, 2024 and 2023, the allowance iszero.

Note 5: Prepaid Expenses and Other Current Assets

At January 31, 2026 and February 1, 2025, prepaid expenses and other current assets consisted of the following (in thousands):

Note 6: Property and Equipment

At January 31, 2026 and February 1, 2025, property and equipment consisted of the following (in thousands):

Depreciation and amortization expense related to property and equipment was $10.6 million, $12.8 million and $12.8 million in fiscal years 2025, 2024 and 2023, 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 $1.2 million, $4.4 million and $3.4 million inselling, general and administrative expenses in fiscal years 2025, 2024 and 2023, 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 January 31, 2026 and February 1, 2025, accrued expenses consisted of the following (in thousands):

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 (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.

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 0.25% 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.

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).

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, 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 January 31, 2026, we were in compliance with all of our covenants, were eligible to borrow up to a total of $41.5 million and hadno 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.

Note 9: Leases

We conduct all of our retail sales and corporate operations in leased facilities. Lease terms generally range up toten years in duration (subject to elective extensions) and provide for escalations in base rents. Many of our store leases containone 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. Leases with terms of 12 months or less are expensed as incurred and not reported on the Consolidated Balance Sheets. 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.

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 2025, 2024 and 2023, 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 in each of the fiscal years 2025, 2024 and 2023, related to this lease. The lease deposits were $0.2 million, as of both fiscal years ended January 31, 2026 and February 1, 2025, 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-com fulfillment center. We incurred rent expense of $1.5 million in each of the fiscal years 2025, 2024 and 2023, related to this lease. The lease deposits were $0.7 million, as of both fiscal years ended January 31, 2026 and February 1, 2025, 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 received sublease income of $99.4 thousand, $94.6 thousand, and $90.1 thousand in fiscal years 2025, 2024, and 2023, respectively, related to this lease. The lease term is forfive 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 January 31, 2026 were as follows (in thousands):

Lease expense for fiscal years 2025, 2024 and 2023 was as follows (in thousands):

As of January 31, 2026, additional operating lease contracts that have not yet commenced are approximately $1.3 million.

Supplemental lease information for the fiscal year ended January 31, 2026, February 1, 2025 and February 3, 2024 was as follows:

(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 January 31, 2026, our future minimum payments under agreements to purchase services primarily for software maintenance aggregated to $5.5 million, payable as follows: $2.0 million in fiscal 2026, $1.8 million in fiscal 2027, and $1.7 million in fiscal 2028. The amounts purchased, related to these agreements, was as follows: $2.2 million in fiscal 2025, $2.0 million in fiscal 2024, and $1.2 million in fiscal 2023.

From time to time, we may become involved in lawsuits and other claims arising in 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. 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 January 31, 2026 and February 1, 2025, 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):

(1) Excludes cash of $0.2 million and $0.4 million as of fiscal 2025, and 2024, respectively.

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 $1.2 million, $4.4 million, and $3.4 million in fiscal years 2025, 2024 and 2023, respectively, to write-down the carrying value of certain long-lived store assets to their estimated fair values.

Note 12: Share-Based Compensation

The Tilly's, Inc. 2012 Third Amended and Restated Equity and Incentive Plan (the "2012 Plan"), authorizes up to 8,613,900 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 January 31, 2026, there were 786,915 shares available for future issuance under the 2012 Plan.

Stock 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 expireten years from the date of grant.

Performance-Based Stock Options

In fiscal year 2025, in conjunction with the hiring of our President and Chief Executive Officer, we granted 900,000 time-based stock options and 900,000 performance-based stock options pursuant to the 2012 Plan. Vesting of these performance-based stock options is dependent upon the achievement of certain stock price targets based on the 30 consecutive trading day trailing average market closing price of the Company's stock.

The following table summarizes our stock option activity for fiscal year 2025:

(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 $1.47 at January 31, 2026.

No stock options were exercised in fiscal year 2025. The total intrinsic value of stock options exercised in fiscal years 2024 and 2023 was $0.2 million and $0.3 million, respectively.

The total fair value of stock options vested in fiscal years 2025, 2024 and 2023 was $1.6 million, $1.8 million and $2.5 million, respectively.

The total proceeds received from the exercise of stock options in fiscal years 2024 and 2023 was $0.3 million and $0.4 million, respectively. The tax benefit realized from stock options exercised in fiscal years 2024 and 2023 was $0.2 million and $0.1 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 performance-based stock options were measured at fair value on the grant date using the Monte-Carlo valuation model. The Monte-Carlo valuation model uses multiple simulations to evaluate the probability of achieving various stock price levels in relation to the market condition. We expense compensation cost over the vesting period regardless of whether the market condition is ultimately achieved. Based on the Monte-Carlo valuation model, the total fair value as of the grant date of performance-based stock options that vest based on market conditions was $1.2 million in fiscal year 2025. We did not award any performance-based stock options in fiscal years 2024 and 2023.

The fair values of stock options granted in fiscal years 2025, 2024 and 2023 were estimated on the grant dates using the following assumptions:

(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 firsttwo 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 January 31, 2026 and changes during fiscal year 2025 are presented below:

The weighted-average grant-date fair value of restricted stock granted during the years ended February 1, 2025 and February 3, 2024 was $5.23 and $6.55, respectively.

The total fair value of restricted stock vested in fiscal years 2025, 2024 and 2023 was $0.1 million, $0.3 million, and $0.3 million, 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):

At January 31, 2026, 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. The Company didnot make any matching contributions to the 401(k) Plan in fiscal 2025, 2024 or 2023.

Note 14: Income Taxes

For the year ended January 31, 2026 the pre-tax loss from operations was entirely from domestic operations. The components of income tax (benefit) expense for fiscal years 2025, 2024 and 2023 were as follows (in thousands):

A reconciliation of income tax benefit to the amount computed at the federal statutory rate for fiscal year 2025 is as follows (in thousands):

(1)The states that contribute to the majority (greater than 50%) of the tax effect in this category include California and Texas for fiscal year 2025.

A reconciliation of income tax expense to the amount computed at the federal statutory rate for fiscal years 2024 and 2023 is as follows (in thousands):

(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.

The amount of cash taxes paid (refunded) are shown below (in thousands). Jurisdictions whose income taxes paid (net of refunds) exceeded 5% of total income taxes paid (net of refunds) are separately disclosed.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. This new legislation has multiple effective dates, with certain provisions becoming effective in 2025 and others implemented through 2027. The net effect of OBBBA did not have a material impact on the Company’s effective tax rate for the period due to the full valuation allowance the Company maintains. The Company continues to evaluate the impact of OBBBA on its consolidated financial statements, as the legislation has various future effective dates, and will update its estimates as additional guidance becomes available.

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.

Significant components of deferred tax assets and liabilities as of January 31, 2026 and February 1, 2025 were as follows (in thousands):

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 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 January 31, 2026 and February 1, 2025, a valuation allowance of $31.4 million and $27.5 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 January 31, 2026 we had federal and state net operating loss ("NOL") carryforwards of $68.6 million and $63.2 million respectively. Federal NOL carryforwards totaling $68.6 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 $63.2 million begin to expire in 2028, unless previously utilized.

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 occur 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. The Company has not completed an IRC Section 382/383 analysis regarding the limitation of net operating loss carryforwards and does not expect this analysis to be completed within the next twelve months.

Uncertain Tax Positions

As of January 31, 2026 and February 1, 2025, there wereno material unrecognized tax positions. Any interest and penalties related to uncertain tax positions are recorded in income tax expense. We didnot recognize any interest or penalties related to unrecognized tax positions during fiscal years 2025, 2024 and 2023.

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 2022 through 2024 remain subject to examination for federal tax purposes and fiscal years 2021 through 2024 remain subject to examination in significant state tax jurisdictions.

Note 15: Loss 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 (loss) earnings per share is computed based on the weighted average number of common shares outstanding during the period. Diluted (loss) earnings 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 per share of Class A and Class B common stock, in aggregate, for fiscal years 2025, 2024 and 2023 are as follows (in thousands, except per share amounts):

The loss 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 toone 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 per share as the effect of including these stock options and restricted stock would have been anti-dilutive (in thousands):

Note 16: Related Party Transactions

Certain Leases

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. One of the Company’s co-founders is also the founder and President of TLC. In fiscal 2025, 2024 and 2023, our Board of Directors approved annual financial support for TLC of $0.1 million, $0.2 million and $0.2 million, respectively.

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.

Note 17: Segment Information

Tillys operates inone, consolidated operating and reportable segment, which is as a retailer of casual apparel, footwear, accessories, and hardgoods (the "retail segment"). Our chief operating decision maker ("CODM") for the periods presented is our President and Chief Executive Officer. Our CODM reviews financial information on a consolidated basis for the purposes of evaluating financial performance, allocating resources and making operational decisions.

The retail segment derives revenues from our stores located in a variety of retail centers in the United States and via our website. We identifiedone reportable segment based on the similar nature of products sold, production, merchandising and distribution processes involved, target customers, and economic characteristics.

The CODM measures performance for the segment primarily based on operating (loss) income. The CODM uses operating (loss) income to evaluate operating performance and determine allocation of resources to attempt to drive improved performance.

The measure of segment assets is reported as total assets on the Consolidated Balance Sheet. The accounting policies of the retail segment are the same as those described in "Note 2: Summary of Significant Accounting Policies".

Financial information, including segment revenue, significant expenses, and operating loss for fiscal years 2025, 2024 and 2023 were as follows (in thousands):

(1) Product COGS consists of branded and private label merchandise costs, including design, sourcing, and inbound freight costs.

(2) Occupancy consists of store operating lease charges and depreciation.

(3) Other COGS consists of buying, and distribution costs, including but not limited to outbound shipping costs, buying and distribution payroll and related benefits, depreciation, and temporary labor.

(4) Other selling costs consists primarily of e-com fulfillment labor, credit card processing fees, store supplies and equipment, and other store services.

(5) Office costs consists primarily of corporate office payroll and related benefits, computer services, non-cash asset impairment charges, consulting and professional services, and insurance.

(6)During the first quarter of fiscal 2025, the Company updated its CODM reporting package to include related benefits within store payroll. Prior period amounts have been reclassified to conform to the current presentation, including $14.1 million and $14.4 million reclassified to store payroll for fiscal years 2024 and 2023, respectively. These reclassifications had no impact on total operating expenses or net loss.

Note 18: Subsequent Event

On February 26, 2026, the Board of Directors (the "Board") of the Company approved, and the Company executed, an amendment to the Company's Third Amended and Restated Tilly's 2012 Equity and Incentive Award Plan ("Amended 2012 Plan") to increase the maximum aggregate number of shares of the Company's Class A common stock that may be subject to one or more awards granted to any person pursuant to the 2012 Plan during any calendar year to 2,500,000 shares.