tlys-20250503

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

__________________________________________________

FORM 10-Q

__________________________________________________


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

For the quarterly period ended May 3, 2025


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

Commission file number: 001-35535

__________________________________________________

TILLY’S, INC.

(Exact name of Registrant as specified in its charter)

__________________________________________________


Delaware						45-2164791
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

10 Whatney

Irvine, CA 92618

(Address of principal executive offices)

(949) 609-5599

(Registrant’s telephone number, including area code)

__________________________________________________

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share	TLYS	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes ☐ No ☒

As of June 3, 2025, the registrant had the following shares of common stock outstanding:


Class A common stock $0.001 par value			22,845,799
Class B common stock $0.001 par value			7,306,108

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TILLY’S, INC.

FORM 10-Q

For the Quarterly Period Ended May 3, 2025

Index


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	6
	Consolidated Balance Sheets as of May 3, 2025, February 1, 2025 and May 4, 2024	6
	Consolidated Statements of Operations for the Thirteen Weeks Ended May 3, 2025 and May 4, 2024	7
	Consolidated Statements of Comprehensive Loss for the Thirteen Weeks Ended May 3, 2025 and May 4, 2024	8
	Consolidated Statements of Stockholders’ Equity as of May 3, 2025 and May 4, 2024	9
	Consolidated Statements of Cash Flows for the Thirteen Weeks Ended May 3, 2025 and May 4, 2024	10
	Notes to the Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 5.	Other Information	29

Item 6.	Exhibits	29

	Signatures	30

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Forward-Looking Statements

This Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical or current fact included in this Report are forward-looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenues, comparable store sales, operating income, earnings per share, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

•Our recent history of operating losses, and our potential need to commence borrowing under our credit facility and/or to acquire additional liquidity;

•the impacts of inflation on consumer spending generally and on our expense management, operating results and financial condition;

•our ability to adapt to declines in consumer confidence and decreases in consumer spending;

•the impact of fluctuations in the price and availability of raw materials, labor, and transportation;

•our ability to compete effectively in an environment of intense competition in stores, online and via social media marketing platforms;

•our ability to effectively manage inventory levels;

•most of our merchandise is made in foreign countries, making price and availability of our merchandise susceptible to international trade conditions, including tariffs;

•our ability to adapt to changing trends in traffic for our stores and changes in our customers' purchasing patterns;

•our ability to identify and respond to new and changing customer fashion preferences and fashion-related trends;

•our ability to secure desirable lease arrangements and other economics to improve our profitability;

•our ability to successfully open new stores, profitably operate our existing stores, and/or to cost-effectively close unprofitable stores ahead of natural lease expirations;

•our ability to attract customers to our website and generate acceptable levels of return from our digital marketing efforts and other e-com growth initiatives;

•our ability to generate adequate cash from our existing stores and e-com to support our business;

•our ability to generate sufficient undiscounted cash flows to recover our investment in long-lived and right-of-use assets;

•our ability to generate sufficient pre-tax income to fully utilize our deferred tax assets;

•the success of the malls, power centers, neighborhood and lifestyle centers, outlet centers and street-front locations in which our stores are located;

•our ability to adapt to unseasonable weather impacting sales of our seasonal merchandise;

•our dependence on third-party vendors to provide us with sufficient quantities of merchandise at acceptable prices and on time;

•our ability to adapt to significant changes in sales due to the seasonality of our business;

•our dependence upon key executive management or our inability to hire or retain the talent required for our business;

•our ability to establish, maintain and enhance a strong brand image;

•our ability to balance proprietary branded merchandise with the third-party branded merchandise we sell;

•our ability to efficiently utilize our e-com fulfillment center;

•our ability to generate sufficient cash flows to make significant periodic lease payments for our stores, corporate offices and distribution centers;

•our ability to attract customers in the various retail venues and geographies in which our stores are located;

•our ability to respond to litigation claims we are subject to;

•our ability to respond to changes in employment and wage and hour laws;

•failure of our vendors and their manufacturing sources to use acceptable labor or other practices;

•our ability to effectively respond to disruptions in our supply chain and distribution center;

•our ability to adjust to increasing costs of mailing catalogs, paper and printing;

•failure of our information technology systems to support our business, before and after our planned upgrades;

•our ability to secure our data and comply with privacy laws and the security standards of the credit card industry;

•disruptions to our information systems in the ordinary course of business, as a result of systems upgrades or due to intentional attacks;

•our ability to protect our trademarks or other intellectual property rights;

•our potential liability if we or our vendors unknowingly infringe upon the intellectual property rights of third parties;

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•natural disasters, unusually adverse weather conditions, port delays, boycotts, epidemics, pandemics, acts of war, terrorism, civil unrest and other unanticipated events;

•the potential effects of unionization and work stoppages or slowdowns by our employees;

•continuing costs incurred as a result of being a public company; and

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

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

See “Risk Factors” within our most recent Annual Report on Form 10-K for a more complete discussion of the risks and uncertainties mentioned above and for discussion of other risks and uncertainties. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this Report and hereafter in our other SEC filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the disclosures and forward-looking statements included in this Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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Part I. Financial Information

Item 1. Financial Statements (Unaudited)

TILLY’S, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)


	May 3, 2025		February 1, 2025		May 4, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	27,231	$	21,056	$	19,880
Marketable securities	9,973		25,653		48,142
Receivables	4,914		4,094		7,135
Merchandise inventories	75,572		69,178		78,535
Prepaid expenses and other current assets	9,297		10,979		9,742
Total current assets	126,987		130,960		163,434
Operating lease assets	167,369		169,805		199,613
Property and equipment, net	37,876		40,139		45,442

Other assets	1,919		1,559		1,522
TOTAL ASSETS	$	334,151	$	342,463	$	410,011

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	31,778	$	11,120	$	22,013
Accrued expenses	12,317		12,750		12,712

Deferred revenue	13,305		14,116		14,127
Accrued compensation and benefits	7,537		9,418		8,457

Current portion of operating lease liabilities	47,931		48,384		52,662
Current portion of operating lease liabilities, related party	3,501		3,423		3,194
Other liabilities	141		172		253
Total current liabilities	116,510		99,383		113,418
Noncurrent portion of operating lease liabilities	123,452		126,216		151,875
Noncurrent portion of operating lease liabilities, related party	14,937		15,844		18,438
Other liabilities	137		149		278
Total long-term liabilities	138,526		142,209		170,591
Total liabilities	255,036		241,592		284,009
Commitments and contingencies (Notes 2 and 5)
Stockholders’ equity:
Common stock (Class A), $0.001 par value; 100,000 shares authorized; 22,846, 22,846 and 22,751 shares issued and outstanding, respectively	23		23		23
Common stock (Class B), $0.001 par value; 35,000 shares authorized; 7,306, 7,306 and 7,306 shares issued and outstanding, respectively	7		7		7
Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding	—		—		—
Additional paid-in capital	175,269		174,829		173,197
Accumulated deficit	(96,343)		(74,191)		(47,583)
Accumulated other comprehensive income	159		203		358
Total stockholders’ equity	79,115		100,871		126,002
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	334,151	$	342,463	$	410,011

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

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TILLY’S, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Thirteen Weeks Ended
	May 3, 2025		May 4, 2024
Net sales	$	107,611	$	115,856

Cost of goods sold (includes buying, distribution, and occupancy costs)	85,394		90,612
Rent expense, related party	932		931
Total cost of goods sold (includes buying, distribution, and occupancy costs)	86,326		91,543
Gross profit	21,285		24,313

Selling, general and administrative expenses	43,841		44,968
Rent expense, related party	133		133
Total selling, general, and administrative expenses	43,974		45,101

Operating loss	(22,689)		(20,788)
Other income, net	398		1,154
Loss before income taxes	(22,291)		(19,634)
Income tax benefit	(139)		(13)
Net loss	$	(22,152)	$	(19,621)
Basic net loss per share of Class A and Class B common stock	$	(0.74)	$	(0.65)
Diluted net loss per share of Class A and Class B common stock	$	(0.74)	$	(0.65)
Weighted average basic shares outstanding	30,060		29,962
Weighted average diluted shares outstanding	30,060		29,962

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

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TILLY’S, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Thirteen Weeks Ended
	May 3, 2025		May 4, 2024
Net loss	$	(22,152)	$	(19,621)
Other comprehensive (loss) income, net of tax:
Net change in unrealized (loss) gain on available-for-sale securities, net of tax	(44)		35
Other comprehensive (loss) income, net of tax	(44)		35
Comprehensive loss	$	(22,196)	$	(19,586)

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

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TILLY’S, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Number of Shares
	Common Stock (Class A)	Common Stock (Class B)	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
Balance at February 1, 2025	22,846	7,306	$	30	$	174,829	$	(74,191)	$	203	$	100,871
Net loss	—	—	—		—		(22,152)		—		(22,152)




Share-based compensation expense	—	—	—		440		—		—		440


Net change in unrealized loss on available-for-sale securities	—	—	—		—		—		(44)		(44)
Balance at May 3, 2025	22,846	7,306	$	30	$	175,269	$	(96,343)	$	159	$	79,115


	Number of Shares
	Common Stock (Class A)	Common Stock (Class B)	Common Stock		Additional Paid-in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance at February 3, 2024	22,714	7,306	$	30	$	172,478	$	(27,962)	$	323	$	144,869
Net loss	—	—	—		—		(19,621)		—		(19,621)

Share-based compensation expense	—	—	—		566		—		—		566
Employee stock option exercises	37	—	—		153		—		—		153

Net change in unrealized gain on available-for-sale securities	—	—	—		—		—		35		35
Balance at May 4, 2024	22,751	7,306	$	30	$	173,197	$	(47,583)	$	358	$	126,002

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

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TILLY’S, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Thirteen Weeks Ended
	May 3, 2025		May 4, 2024
Cash flows from operating activities:
Net loss	$	(22,152)	$	(19,621)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,828		3,095

Share-based compensation expense	440		566
Impairment of assets	1,008		1,663
(Gain) loss on disposal of assets	15		(16)
Gain on maturities of marketable securities	(180)		(708)

Changes in operating assets and liabilities:
Receivables	(740)		(822)
Merchandise inventories	(6,394)		(15,376)
Prepaid expenses and other assets	1,559		2,690
Accounts payable	20,658		7,480
Accrued expenses	176		14
Accrued compensation and benefits	(1,881)		(1,445)
Operating lease liabilities	(2,602)		(2,254)
Deferred revenue	(811)		(830)
Other liabilities	(43)		(126)
Net cash used in operating activities	(8,119)		(25,690)

Cash flows from investing activities:
Purchases of marketable securities	—		(29,496)
Purchases of property and equipment	(1,522)		(2,137)


Proceeds from maturities of marketable securities	15,816		30,000
Proceeds from sale of property and equipment	—		23

Net cash provided by (used in) investing activities	14,294		(1,610)

Cash flows from financing activities:


Proceeds from exercise of stock options	—		153
Net cash provided by financing activities	—		153

Change in cash and cash equivalents	6,175		(27,147)
Cash and cash equivalents, beginning of period	21,056		47,027
Cash and cash equivalents, end of period	$	27,231	$	19,880

Supplemental disclosures of cash flow information:

Income taxes refunded	$	(92)	$	(14)
Supplemental disclosure of non-cash activities:
Unpaid purchases of property and equipment	$	67	$	724
Operating lease liabilities arising from obtaining operating lease assets	$	11,756	$	9,886

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

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TILLY’S, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Description of the Company and Basis of Presentation

Tillys is a destination specialty retailer of casual apparel, footwear, accessories and hardgoods for young men, young women, boys and girls with an extensive assortment of iconic global, emerging, and proprietary brands rooted in an active, outdoor and social lifestyle. Tillys is headquartered in Irvine, California and operated 238 stores, in 33 states as of May 3, 2025. Our stores are located in malls, lifestyle centers, ‘power’ centers, community centers, outlet centers and street-front locations. Customers may also shop online at www.tillys.com, 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.

We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial reporting. These unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted from this Quarterly Report on Form 10-Q as is permitted by SEC rules and regulations.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows for the interim periods presented. The results of operations for the thirteen-week period ended May 3, 2025 are not necessarily indicative of results to be expected for the full fiscal year. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025 ("fiscal 2024").

Fiscal Periods

Our fiscal year ends on the Saturday closest to January 31. References to fiscal 2025 refer to the fiscal year ending January 31, 2026. References to the fiscal quarters or first three months ended May 3, 2025 and May 4, 2024 refer to the thirteen week periods ended as of those dates, respectively.

Note 2: Summary of Significant Accounting Policies

Information regarding our significant accounting policies is contained in Note 2, “Summary of Significant Accounting Policies”, of the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025.

Revenue Recognition

Revenue is recognized for store sales when the customer receives and pays for the merchandise at the register, net of estimated returns and taxes collected from our customers. For e-commerce ("e-com") net 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 Consolidated Statements of Operations.

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


	Thirteen Weeks Ended
	May 3, 2025		May 4, 2024
Retail stores	$	85,912	$	92,822
E-com	21,699		23,034
Total net sales	$	107,611	$	115,856

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


	Thirteen Weeks Ended
	May 3, 2025		May 4, 2024
Mens	36	%	36	%
Womens	31	%	31	%
Footwear	13	%	13	%
Accessories	12	%	12	%
Boys	4	%	4	%
Girls	4	%	4	%
Total net sales	100	%	100	%

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


	Thirteen Weeks Ended
	May 3, 2025		May 4, 2024
Third-party	63	%	66	%
Proprietary	37	%	34	%
Total net sales	100	%	100	%

We accrue for estimated sales returns by customers based on historical sales return results. As of May 3, 2025, February 1, 2025 and May 4, 2024, our reserve for sales returns was $1.3 million, $1.2 million and $1.5 million, respectively, and is included in accrued expenses on the accompanying Consolidated Balance Sheets.

We recognize revenue from gift cards as they are redeemed for merchandise. Prior to redemption, we maintain a current liability for unredeemed gift card balances. The customer liability balance was $8.8 million, $9.5 million and $9.4 million as of May 3, 2025, February 1, 2025 and May 4, 2024, respectively, 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 $2.3 million and $2.6 million for the thirteen weeks ended May 3, 2025 and May 4, 2024, respectively. For the thirteen weeks ended May 3, 2025 and May 4, 2024, the opening gift card balance was $9.5 million and $10.2 million, respectively, of which $1.4 million and $1.7 million, respectively, were recognized as revenue during these periods.

We have a customer loyalty program where customers accumulate points based on purchase activity. Once a loyalty member achieves a certain point level, the member earns an award that may be used towards the purchase of merchandise. Unredeemed awards and accumulated partial points are 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, $4.6 million, and $4.8 million as of May 3, 2025, February 1, 2025 and May 4, 2024, respectively. The value of points redeemed through our loyalty program was $1.3 million and $1.6 million for the thirteen-weeks ended May 3, 2025 and May 4, 2024, respectively. For the thirteen weeks ended May 3, 2025 and May 4, 2024,

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the opening loyalty program balance was $4.6 million and $4.7 million, respectively, of which $1.2 million was recognized as revenue during each of these periods.

Property and Equipment, net

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

At May 3, 2025, February 1, 2025 and May 4, 2024, property and equipment consisted of the following (in thousands):


	May 3, 2025		February 1, 2025		May 4, 2024
Leasehold improvements	$	156,839	$	156,461	$	159,933
Computer hardware and software	48,992		48,807		47,817
Furniture and fixtures	44,517		44,493		46,432
Machinery and equipment	34,068		34,029		34,662
Vehicles	2,222		2,222		2,307
Construction in progress	2,796		2,945		4,388
Property and equipment, gross	289,434		288,957		295,539
Accumulated depreciation	(251,558)		(248,818)		(250,097)
Property and equipment, net	$	37,876	$	40,139	$	45,442

Depreciation expense related to property and equipment was $2.8 million and $3.1 million for the thirteen-weeks ended May 3, 2025 and May 4, 2024, respectively.

Leases

We conduct all of our retail sales and corporate operations in leased facilities. Lease terms generally range up to 10 years in duration (subject to elective extensions) and provide for escalations in base rents. Many of our store leases contain one or more options to renew the lease at our sole discretion. Generally, we do not consider any additional renewal periods to be reasonably certain of being exercised.

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

We lease approximately 172,000 square feet of office and warehouse space (10 and 12 Whatney, Irvine, California) from a company that is owned by the co-founders of Tillys. During each of the thirteen-week periods ended May 3, 2025 and May 4, 2024, we incurred rent expense of $0.5 million 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.

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We lease approximately 26,000 square feet of office and warehouse space (11 Whatney, Irvine, California) from a company that is owned by one of the co-founders of Tillys. During each of the thirteen-week periods ended May 3, 2025 and May 4, 2024 we incurred rent expense of $0.2 million related to this lease. Pursuant to the lease agreement, the lease payment adjusts annually at the greater of 5% or the change in the LAARUCPI. The lease began on June 29, 2012 and terminates on June 30, 2032.

We lease approximately 81,000 square feet of office and warehouse space (17 Pasteur, Irvine, California) from a company that is owned by one of the co-founders of Tillys. We use this property as our e-com distribution center. During each of the thirteen-week periods ended May 3, 2025 and May 4, 2024 we incurred rent expense of $0.4 million related to this lease. The lease payment adjusts annually based upon the greater of 5% or the 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. During the thirteen-week periods ended May 3, 2025 and May 4, 2024 we recorded sublease income of $24.5 thousand and $23.4 thousand, respectively, related to this lease. The lease term is for five years and terminates on January 31, 2027. Sublease income is recognized on a straight-line basis over the sublease agreement and is recorded as an offset within the selling, general and administrative section in the Consolidated Statements of Operations.

The maturity of operating lease liabilities and sublease income as of May 3, 2025 were as follows (in thousands):


Fiscal Year	Related Party		Other		Total		Sublease Income
2025	$	3,196	$	46,101	$	49,297	$	75
2026	4,411		45,018		49,429		105
2027	4,167		34,903		39,070		—
2028	2,251		25,230		27,481		—
2029	2,363		18,382		20,745		—
Thereafter	4,710		34,240		38,950		—
Total minimum lease payments	21,098		203,874		224,972		180
Less: Amount representing interest	2,660		32,491		35,151		—
Present value of operating lease liabilities	$	18,438	$	171,383	$	189,821	$	180

As of May 3, 2025, additional operating lease liabilities that had not yet commenced were $0.9 million.

Lease expense for the thirteen-week periods ended May 3, 2025 and May 4, 2024 was as follows (in thousands):


	Thirteen Weeks Ended
	May 3, 2025						May 4, 2024
	Cost of goods sold		SG&A		Total		Cost of goods sold		SG&A		Total
Fixed operating lease expense	$	16,497	$	341	$	16,838	$	16,779	$	361	$	17,140
Variable lease expense	3,574		12		3,586		3,706		8		3,714
Total lease expense	$	20,071	$	353	$	20,424	$	20,485	$	369	$	20,854

Supplemental lease information for the thirteen weeks ended May 3, 2025 and May 4, 2024 was as follows:

Thirteen Weeks Ended

May 3, 2025

May 4, 2024

Cash paid for amounts included in the measurement of operating lease liabilities (in thousands)

$17,614

$18,360

Weighted average remaining lease term (in years)

4.9 years

5.1 years

Weighted average interest rate (1)

6.82%

6.64%

(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 the use of a consistent discount rate for a portfolio of leases entered into at varying dates, the full 10-year term of the lease, excluding any options, and the total minimum lease payments.

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Income Taxes

Our effective income tax rate was 0.6% of pre-tax loss, compared to 0.1% of pre-tax loss, for the thirteen weeks ended May 3, 2025 and May 4, 2024, respectively. Both years' income tax rates include the continuing impact of a full, non-cash deferred tax asset valuation allowance. The income tax rate for fiscal 2025 also includes the refund of certain income tax credit carry forwards and state income tax carry back claims.

Recently Adopted Accounting Standards

In November 2023, the FASB issued Accounting Standards Update, Segment reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which amended Topic 280. The amendments in this update enhance segment reporting by expanding the breadth and frequency of segment disclosures required by public entities. ASU 2023-07 requires public entities to disclose factors used to identify the entities' reportable segments, how the Chief Operating Decision Maker (“CODM”) uses the reported measure(s) of a segment's profit or loss to assess segment performance and decide how to allocate resources, significant expenses regularly provided to the CODM and included within the reported measure(s) of a segment's profit or loss, types of products and services from which each reportable segment derives its revenues, and the title and position of the CODM. The new standard is effective for public entities with fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and is required to be adopted retrospectively for all prior periods presented in the consolidated financial statements. This guidance was effective for us for the annual report for fiscal 2024 and subsequent interim periods and we have adopted the guidance as of the effective date on a retrospective 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 9: Segment Information" for further information.

New Accounting Standards Not Yet Adopted

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. Once adopted, we expect to include additional income tax disclosures as required by the new guidance. The standard will not have an impact on our consolidated financial position, results of operations and cash flows.

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.

Note 3: Marketable Securities

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

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The following table summarizes our investments in marketable securities at May 3, 2025, February 1, 2025 and May 4, 2024 (in thousands):


	May 3, 2025
	Cost or Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Estimated Fair Value
Commercial paper	$	9,817	$	156	$	—	$	9,973

Total marketable securities	$	9,817	$	156	$	—	$	9,973

	February 1, 2025
	Cost or Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Estimated Fair Value
Commercial paper	$	19,868	$

SEC Form 10-Q filed by Tilly's Inc.