Note 4.

Stock-Based Compensation

At February 3, 2018, we had four stock-based compensation plans:

(a)

The 2015 Equity Incentive Plan (EIP) provides that the Board of Directors (Board) may grant equity awards to certain employees of the Company at its discretion. The EIP was adopted effective July 1, 2015 and authorizes grants of equity awards of up to 1,000,000 authorized but unissued shares of common stock. At February 2, 2019, there were 534,918 shares available for grant under the EIP.

(b)

The 2015 Employee Stock Purchase Plan (ESPP) allows for qualified employees to participate in the purchase of up to 300,000 shares of our common stock at a price equal to 85% of the lower of the closing price at the beginning or end of each quarterly stock purchase period. The ESPP was adopted effective July 1, 2015. At February 2, 2019, there were 228,718 shares available for purchase under the ESPP.

(c)

The 2015 Director Deferred Compensation Plan (Deferred Plan) allows non-employee directors an election to defer all or a portion of their fees into stock units or stock options. The Deferred Plan was adopted effective July 1, 2015 and authorizes grants up to 150,000 authorized but unissued shares of common stock. At February 2, 2019, there were 130,465 shares available for grant under the Deferred Plan.

(d)

The 2012 Non-Employee Director Equity Plan (DEP) provides for grants of equity awards to non-employee directors. The DEP was adopted effective May 24, 2012 and authorizes grants of equity awards of up to 500,000 authorized but unissued shares of common stock. At February 2, 2019, there were 262,315 shares available for grant under the DEP.

Our plans allow for a variety of equity awards including stock options, restricted stock awards, stock appreciation rights and performance awards. As of February 2, 2019, we had only granted awards in the form of stock options, restricted stock units (RSUs) and performance-based units (PSUs) to our employees. The annual grants made for Fiscal 2019, Fiscal 2018 and Fiscal 2017 to employees consisted solely of RSUs. We have also awarded PSUs to our Named Executive Officers (NEOs) and expect the Compensation Committee of the Board will continue to grant PSUs to our NEOs in the future.

As of February 2, 2019, we had only granted awards in the form of stock, stock options and deferred stock units (DSUs) to our Board members. Under the DEP, Board members currently receive an annual value of $75,000 worth of equity in the form of stock options or RSUs upon election to the Board and a value of $100,000 worth of equity in any form allowed within the DEP, for each full year of service, pro-rated for Directors who serve less than one full year. The Chairman of the Board receives an annual value of $150,000 of equity in any form allowed within the DEP.

The terms and vesting schedules for stock-based awards vary by type of grant and generally vest upon time-based conditions. Under the DEP, Directors have the option with certain equity forms to set vesting dates. Upon exercise, stock-based compensation awards are settled with authorized but unissued company stock. All of our awards are classified as equity awards.

The compensation cost for these plans was as follows (in thousands):

	Fiscal Year Ended
	February 2, 2019 (52 weeks)		February 3, 2018 (53 weeks)		January 28, 2017 (52 weeks)
Stock-based compensation expense by type:
Stock options	$	185	$	224	$	384
Restricted stock units		3,932		3,536		4,010
Employee stock purchases		105		96		104
Director deferred compensation		94		24		94
Total stock-based compensation expense		4,316		3,880		4,592
Income tax benefit recognized		958		1,363		1,655
Stock-based compensation expense, net of income tax	$	3,358	$	2,517	$	2,937

Stock-based and deferred stock compensation expenses are included in store operating, selling and administrative expenses. There is no capitalized stock-based compensation cost.

The income tax benefit recognized in our consolidated financial statements, as disclosed above, is based on the amount of compensation expense recorded for book purposes. The actual income tax benefit realized in our income tax return is based on the intrinsic value, or the excess of the market value over the exercise or purchase price, of stock options exercised and restricted stock unit awards vested during the period. The actual income tax benefit realized for the deductions considered on our income tax returns for Fiscal 2019, Fiscal 2018 and Fiscal 2017 was from option exercises and restricted stock unit releases and totaled $0.4 million, $0.9 million and $1.2 million, respectively.

Stock Options

Stock options are granted with an exercise price equal to the closing market price of our common stock on the date of grant. Vesting and expiration provisions vary between equity plans, but options granted to employees under the EIP typically vest over a four or five-year period in equal installments beginning on the first anniversary of the grant date and typically expire on the eighth or tenth anniversary of the date of grant. Grants awarded to outside directors under the DEP and Deferred Plan vest immediately upon grant and expire on the tenth anniversary of the date of grant.

During Fiscal 2019, we had two stock option grants dated March 27, 2018 to directors. A total of 19,994 stock options was granted at an exercise price of $22.55. The fair value of the grants was $7.15 which was estimated on the date of grant using the Black-Scholes pricing model assuming an expected life of 3.98 years, expected volatility of 36.09%, a risk-free interest rate of 2.45% with no dividend yield.

We calculate the expected term for our stock options based on the historical exercise behavior of our participants. The volatility used to value stock options is based on historical volatility. We calculate historical volatility using an average calculation methodology based on daily price intervals as measured over the expected term of the option. We have consistently applied this methodology since our adoption of the provisions of ASC Topic 718, Stock Compensation. In accordance with ASC Topic 718, we base the risk-free interest rate on the annual continuously compounded risk-free rate with a term equal to the option’s expected term. The dividend yield is assumed to be zero since we have no current plan to declare dividends.

Activity for our option plans during Fiscal 2019 was as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value ($000’s)
Options outstanding at February 3, 2018		288,150		$	36.15		5.12	$	324
Granted		19,994			22.55
Exercised		(27,625	)		17.46
Forfeited, cancelled or expired		(1,097	)		20.02
Options outstanding at February 2, 2019		279,422		$	37.08		4.91	$	55

Exercisable at February 2, 2019		279,422		$	37.08		4.91	$	55

The weighted average grant-date fair value of options granted during Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $7.15, $6.42 and $10.56, respectively.

The total intrinsic value of stock options exercised during Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $0.2 million, $0.1 million and $0.6 million, respectively. The total cash received from these stock option exercises during Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $0.5 million, $0.3 million and $0.4 million, respectively. For Fiscal 2017, excess income tax benefits from the exercise of stock option are included in cash flows from financing activities as required by ASC Topic 230, Statement of Cash Flows. Beginning in Fiscal 2018, with the adoption of ASU 2016-09, excess tax benefits are included in earnings. As of February 2, 2019, there was no unamortized unrecognized compensation cost related to stock options.

Restricted Stock and Performance-Based Units

RSUs and PSUs are granted with a fair value equal to the closing market price of our common stock on the date of grant. All PSUs have been awarded in the form of restricted stock units. Compensation expense is recorded straight-line over the vesting period and, in the case of PSUs, at the estimated percentage of achievement. Restricted stock unit awards to our employees generally cliff vest in four years from the date of grant for those awards that are not performance-based. If a Director chooses to receive their annual equity award in stock and defers the vesting date, then the form of stock is a DSU. PSUs provide for awards based on achievement of certain predetermined corporate performance goals and cliff vest in three to five years from the date of grant after achievement of stated performance criterion and upon meeting stated service conditions.

The following table summarizes the restricted stock unit awards activity under all our plans during Fiscal 2019:

	RSUs					PSUs					Totals
	Number of Awards			Weighted Average Grant-Date Fair Value		Number of Awards			Weighted Average Grant-Date Fair Value		Number of Awards			Weighted Average Grant-Date Fair Value
Restricted stock unit awards outstanding at February 3, 2018		313,611		$	40.10		132,370		$	37.55		445,981		$	39.34
Granted		174,007			22.55		44,700			22.55		218,707			22.55
PSU adjustment (1)		-			-		(13,725	)		29.30		(13,725	)		40.24
Vested		(60,658	)		51.47		(5,025	)		54.06		(65,683	)		51.67
Forfeited, cancelled or expired		(22,583	)		33.31		(14,650	)		50.48		(37,233	)		40.07
Restricted stock unit awards outstanding at February 2, 2019		404,377		$	31.22		143,670		$	31.78		548,047		$	31.37

(1) PSU adjustment represents the net RSUs awarded to our NEOs above and below their target grants resulting from the achievement of performance goals above or below the performance targets established at grant. One grant goal was achieved at 50% and another grant goal was forfeited for performance equity awards whose final achievement was based on Fiscal 2017 through Fiscal 2019 financial results; therefore, the adjustment was negative.

The weighted average grant date fair value of our RSUs granted was $22.55, $29.60 and $35.12 for Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. There were 218,707, 166,690 and 163,643 RSUs awarded during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.

During Fiscal 2019, 65,683 RSU awards, including 5,025 PSU awards, vested with an intrinsic value of $1.4 million. The total intrinsic value of our RSU awards outstanding and unvested at February 2, 2019, February 3, 2018 and January 28, 2017 was $8.9 million, $9.9 million and $12.9 million, respectively. As of February 2, 2019, there was approximately $5.0 million of total unamortized unrecognized compensation cost related to RSU awards. This cost is expected to be recognized over a weighted average period of 2.8 years.

Employee Stock Purchase Plan

The Company’s ESPP allows eligible employees the right to purchase shares of our common stock, subject to certain limitations, at 85% of the lesser of the market value at the end of each calendar quarter (purchase date) or the beginning of each calendar quarter. Our employee purchases of common stock and the average price per share through the ESPP were as follows:

Fiscal Year Ended	Shares Purchased		Average Price Per Share
February 2, 2019		26,077	$	15.96
February 3, 2018		23,555	$	16.36
January 28, 2017		14,890	$	28.48

The assumptions used in the option pricing model were as follows:

	Fiscal Year Ended
	February 2, 2019	February 3, 2018	January 28, 2017
Weighted average fair value at date of grant	$4.75	$4.06	$6.98
Expected life (years)	0.25	0.25	0.25
Expected volatility	34.8% - 36.1%	30.2% - 36.2%	30.1% - 32.0%
Risk-free interest rate	3.26% - 5.21%	1.19% - 2.48%	0.37% - 0.68%
Dividend yield	None	None	None

The expense related to the ESPP was determined using the Black-Scholes option pricing model and the provisions of ASC Topic 718 as it relates to accounting for certain employee stock purchase plans with a look-back option. The compensation expense included in store operating, selling and administrative expenses and recognized during each of Fiscal 2019, Fiscal 2018 and Fiscal 2017 was $0.1 million.

Director Deferred Compensation

Under the Deferred Plan, non-employee directors can elect to defer all or a portion of their Board and Board Committee fees into cash, stock options or deferred stock units. Those fees deferred into stock options are subject to the same provisions as provided for in the DEP and are expensed and accounted for accordingly. Director fees deferred into stock units are calculated and expensed each calendar quarter by taking deferred fees earned during the calendar quarter and dividing by the closing price of our common stock on the last day of the calendar quarter, rounded to the nearest whole share. The total annual retainer, Board and Board Committee fees for non-employee directors that are not deferred into stock options, but which includes amounts deferred into stock units under the Deferred Plan, are expensed as incurred in all periods presented. A total of 4,888, 1,195 and 2,542 stock units were deferred under this plan in Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Two directors have elected to defer all or a portion of their compensation into stock units in calendar 2019.