0001628280-17-012102.txt : 20171205 0001628280-17-012102.hdr.sgml : 20171205 20171204194600 ACCESSION NUMBER: 0001628280-17-012102 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 50 CONFORMED PERIOD OF REPORT: 20171028 FILED AS OF DATE: 20171205 DATE AS OF CHANGE: 20171204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TILLY'S, INC. CENTRAL INDEX KEY: 0001524025 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-APPAREL & ACCESSORY STORES [5600] IRS NUMBER: 452164791 STATE OF INCORPORATION: DE FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35535 FILM NUMBER: 171238404 BUSINESS ADDRESS: STREET 1: 10 WHATNEY CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: (949) 609-5599 MAIL ADDRESS: STREET 1: 10 WHATNEY CITY: IRVINE STATE: CA ZIP: 92618 10-Q 1 q3201710-q.htm 10-Q Document

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________________________________ 
FORM 10-Q 
 __________________________________________________ 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 2017
OR
¨
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)
 __________________________________________________ 
 
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  x No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” or an “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
¨

  
Accelerated filer
 
x



 
 
 
 
Non-accelerated filer
 
¨  (do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
Emerging growth company
 
x


 
 
 
 
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  x
As of November 30, 2017 the registrant had the following shares of common stock outstanding:
 
Class A common stock $0.001 par value
14,448,294

Class B common stock $0.001 par value
14,398,497

 
 
 
 
 



TILLY’S, INC.
FORM 10-Q
For the Quarterly Period Ended October 28, 2017
Index
 
 
 
Page
 
Item 1.
 
 
 
 
 

 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 6.
 
 
 
 



3


Part I. Financial Information
 
Item 1. Financial Statements (Unaudited)
TILLY’S, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 
 
October 28,
2017
 
January 28,
2017
 
October 29,
2016
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
38,912

 
$
78,994

 
$
43,382

Marketable securities
82,961

 
54,923

 
61,915

Receivables
3,647

 
3,989

 
5,873

Merchandise inventories
62,242

 
47,768

 
65,016

Prepaid expenses and other current assets
9,759

 
9,541

 
9,965

Total current assets
197,521

 
195,215

 
186,151

Property and equipment, net
87,576

 
89,219

 
93,206

Other assets
7,805

 
6,072

 
5,414

Total assets
$
292,902

 
$
290,506

 
$
284,771

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
27,329

 
$
17,584

 
$
26,613

Accrued expenses
31,854

 
23,872

 
20,449

Deferred revenue
8,335

 
10,203

 
7,815

Accrued compensation and benefits
6,005

 
7,259

 
5,480

Current portion of deferred rent
5,762

 
5,643

 
6,146

Capital lease obligation
155

 
835

 
899

Total current liabilities
79,440

 
65,396

 
67,402

Long-term portion of deferred rent
31,377

 
35,890

 
36,940

Other
2,955

 

 
155

Total liabilities
113,772

 
101,286

 
104,497

Commitments and contingencies (Note 5)

 

 

Stockholders’ equity:
 
 
 
 
 
Common stock (Class A), $0.001 par value; 100,000 shares authorized; 14,357, 13,434 and 12,672 shares issued and outstanding, respectively
14

 
14

 
13

Common stock (Class B), $0.001 par value; 35,000 shares authorized; 14,488, 15,329 and 15,879 shares issued and outstanding, respectively
15

 
15

 
16

Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding

 

 

Additional paid-in capital
140,240

 
138,102

 
135,469

Retained earnings
38,765

 
51,023

 
44,719

Accumulated other comprehensive income
96

 
66

 
57

Total stockholders’ equity
179,130

 
189,220

 
180,274

Total liabilities and stockholders’ equity
$
292,902

 
$
290,506

 
$
284,771

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


4


TILLY’S, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29,
2016
Net sales
$
152,824

 
$
152,106

 
$
412,581

 
$
408,736

Cost of goods sold (includes buying, distribution, and occupancy costs)
102,730

 
104,137

 
288,653

 
289,343

Gross profit
50,094

 
47,969

 
123,928

 
119,393

Selling, general and administrative expenses
35,982

 
37,302

 
111,384

 
110,460

Operating income
14,112

 
10,667

 
12,544

 
8,933

Other income, net
375

 
103

 
810

 
270

Income before income taxes
14,487

 
10,770

 
13,354

 
9,203

Income tax expense
5,730

 
4,353

 
5,354

 
4,097

Net income
$
8,757

 
$
6,417

 
$
8,000

 
$
5,106

Basic income per share of Class A and Class B common stock
$
0.30

 
$
0.23

 
$
0.28

 
$
0.18

Diluted income per share of Class A and Class B common stock
$
0.30

 
$
0.22

 
$
0.28

 
$
0.18

Weighted average basic shares outstanding
28,782

 
28,482

 
28,746

 
28,456

Weighted average diluted shares outstanding
29,031

 
28,527

 
28,954

 
28,476

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


5


TILLY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29, 2016
Net income
$
8,757

 
$
6,417

 
$
8,000

 
$
5,106

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Net change in unrealized gain on available-for-sale securities, net of tax
(6
)
 
26

 
30

 
35

Other comprehensive (loss) income
(6
)
 
26

 
30

 
35

Comprehensive income
$
8,751

 
$
6,443

 
$
8,030

 
$
5,141

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


6


TILLY’S, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
 
Number of Shares
 
 
 
 
 
 
 
 
 
 
 
Common
Stock
(Class A)
 
Common
Stock
(Class B)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
Balance at January 28, 2017
13,434

 
15,329

 
$
29

 
$
138,102

 
$
51,023

 
$
66

 
$
189,220

Cumulative-effect adjustment from adoption of ASU 2016-09 (Note 2)

 

 

 
178

 
(178
)
 

 

Net income

 

 

 

 
8,000

 

 
8,000

Dividends paid

 

 

 

 
(20,080
)
 

 
(20,080
)
Restricted stock vesting
44

 

 

 

 

 

 

Taxes paid in lieu of shares issued

 

 

 
(101
)
 

 

 
(101
)
Shares converted by founders
841

 
(841
)
 

 

 

 

 

Stock-based compensation expense

 

 

 
1,773

 

 

 
1,773

Employee exercises of stock options
38

 

 

 
288

 

 

 
288

Change in unrealized gain on available-for-sale securities

 

 

 

 

 
30

 
30

Balance at October 28, 2017
14,357

 
14,488

 
$
29

 
$
140,240

 
$
38,765

 
$
96

 
$
179,130

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


7


TILLY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
Cash flows from operating activities
 
 
 
Net income
$
8,000

 
$
5,106

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
17,644

 
17,498

Stock-based compensation expense
1,773

 
1,995

Impairment of assets
848

 
1,963

Loss on disposal of assets
170

 
6

Gain on sales and maturities of marketable securities
(510
)
 
(164
)
Deferred income taxes
(1,194
)
 
(298
)
Changes in operating assets and liabilities:
 
 
 
Receivables
342

 
(476
)
Merchandise inventories
(14,474
)
 
(13,659
)
Prepaid expenses and other assets
(777
)
 
(1,084
)
Accounts payable
9,177

 
10,667

Accrued expenses
4,202

 
2,576

Accrued compensation and benefits
(1,254
)
 
(271
)
Deferred rent
(4,394
)
 
(3,911
)
Deferred revenue
(1,868
)
 
(359
)
Net cash provided by operating activities
17,685

 
19,589

Cash flows from investing activities
 
 
 
Purchase of property and equipment
(9,716
)
 
(14,794
)
Proceeds from sale of property and equipment

 
43

Purchases of marketable securities
(112,612
)
 
(81,762
)
Maturities of marketable securities
85,134

 
70,000

Net cash used in investing activities
(37,194
)
 
(26,513
)
Cash flows from financing activities
 
 
 
Dividends paid
(20,080
)
 

Proceeds from exercise of stock options
288

 
24

Payment of capital lease obligation
(680
)
 
(639
)
Taxes paid in lieu of shares issued for stock-based compensation
(101
)
 
(99
)
Net cash used in financing activities
(20,573
)
 
(714
)
Change in cash and cash equivalents
(40,082
)
 
(7,638
)
Cash and cash equivalents, beginning of period
78,994

 
51,020

Cash and cash equivalents, end of period
$
38,912

 
$
43,382

Supplemental disclosures of cash flow information
 
 
 
Interest paid
$
25

 
$
67

Income taxes paid
$
4,719

 
$
3,570

Supplemental disclosure of non-cash activities
 
 
 
Unpaid purchases of property and equipment
$
7,303

 
$

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


8



TILLY’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Description of the Company and Basis of Presentation
Tillys is a leading destination specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls with an extensive selection of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle. Tillys is headquartered in Irvine, California and we operated 220 stores in 31 states as of October 28, 2017. 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 ("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.

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 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 third quarter and nine months ended October 28, 2017 and October 29, 2016, respectively, 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 January 28, 2017 ("fiscal 2016").

We have reclassified certain prior period balance sheet amounts within our consolidated balance sheets to conform to our current period presentation.
Fiscal Periods
Our fiscal year ends on the Saturday closest to January 31. References to fiscal 2017 refer to the fiscal year ending February 3, 2018. References to the fiscal quarters or nine months ended October 28, 2017, and October 29, 2016, refer to the three and nine months ended, respectively, as of those dates.
Note 2: Summary of Significant Accounting Policies
Information regarding 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 January 28, 2017.
Recently Adopted Accounting Standard
On January 29, 2017, we adopted Financial Accounting Standards Board (the "FASB") Accounting Standards Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting and reporting for share-based compensation, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as the classification in the statement of cash flows. We elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The adoption of ASU 2016-09 resulted in a cumulative-effect adjustment of $0.2 million decrease to retained earnings and a $0.2 million increase to additional paid-in-capital as of January 29, 2017, related to the recognition of previously estimated expected forfeitures using the modified retrospective method. We adopted the cash flow presentation which requires excess tax benefits to be presented as an operating activity rather than a financing activity. The adoption of this update did not have an effect on our consolidated results of operations.


9


New Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), along with amendments issued in 2015 and 2016, which amends the existing accounting standards for revenue recognition. ASU 2014-09 outlines principles that govern revenue recognition at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09, which will become effective for us in the first quarter of fiscal 2018, may be applied retrospectively for each period presented (the "full retrospective method") or retrospectively with the cumulative effect recognized in the opening retained earnings balance in fiscal year 2018 (the "modified retrospective method"). We currently anticipate adopting the standard using the modified retrospective method. We are in the process of evaluating the overall impact of adopting the new standard on our consolidated financial statements. Based on our preliminary assessment, we have determined that the adoption will change the timing of recognition of gift card breakage income, which is currently recognized when the probability of the redemption is remote and recorded in net sales. The new guidance will require recognition of gift card breakage income proportionately in net sales as redemptions occur. The new guidance also requires enhanced disclosures, such as disaggregation of revenues and revenue recognition policies that require significant judgment and identification of performance obligations to customers. Based on our preliminary assessment, we currently do not expect the adoption of this update to have a material effect on our consolidated results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Accounting Standards Codification 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. ASU 2016-02, which will become effective for us in the first quarter of fiscal 2019, with early adoption permitted, must be adopted using the modified retrospective method. The new standard is expected to impact our consolidated financial statements as we conduct all of our retail sales and corporate operations in leased facilities. We are in the process of evaluating the impact of adopting the new standard on our consolidated financial statements.
Note 3: Marketable Securities
Marketable securities as of October 28, 2017 consisted of commercial paper classified as available-for-sale and fixed income securities, that we have the intent and ability to hold to maturity, are classified as held-to-maturity. Our investments in commercial paper and fixed income securities are recorded at fair value and amortized cost, which approximates fair value, respectively. All of our marketable securities are less than one year from maturity.


10


The following table summarizes our investments in marketable securities at October 28, 2017, January 28, 2017 and October 29, 2016 (in thousands):
 
October 28, 2017
 
Cost or
Amortized Cost
 
Gross Unrealized
Holding Gains
 
Estimated
Fair Value
Commercial paper
$
59,607

 
$
161

 
$
59,768

Fixed income securities
23,193

 

 
23,193

 
$
82,800

 
$
161

 
$
82,961

 
 
 
 
 
 
 
January 28, 2017
 
Cost or
Amortized Cost
 
Gross Unrealized
Holding Gains
 
Estimated
Fair Value
Commercial paper
$
44,785

 
$
107

 
$
44,892

Fixed income securities
10,031

 

 
10,031

 
$
54,816

 
$
107

 
$
54,923

 
 
 
 
 
 
 
October 29, 2016
 
Cost or
Amortized Cost
 
Gross Unrealized
Holding Gains
 
Estimated
Fair Value
Commercial paper
$
54,781

 
$
94

 
$
54,875

Fixed income securities
7,040

 

 
7,040

 
$
61,821

 
$
94

 
$
61,915

We recognized gains on investments for commercial paper that matured during the three and nine months ended October 28, 2017. Upon recognition of the gains, we reclassified these amounts out of accumulated other comprehensive income and into “Other income, net” on the Consolidated Statements of Income.
The following table summarizes our gains on investments for commercial paper (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29,
2016
Gains on investments
$
182

 
$
57

 
$
397

 
$
164


Note 4: Line of Credit

Our amended and restated credit agreement with Wells Fargo Bank, N.A. (the "Bank") provides for a $25.0 million revolving line of credit with a maturity date of June 26, 2020. The interest rate charged on borrowings is selected at our discretion at the time of draw between the London Interbank Offered Rate, plus 0.75%, or at the Bank’s prime rate. The agreement allows for the declaration and payment of dividends or distributions to stockholders, subject to certain limitations. On January 31, 2017, our Board of Directors declared a special cash dividend of $0.70 per share to all holders of record of issued and outstanding shares of both Class A and Class B common stock as of the close of business on February 15, 2017. Payment of the dividend was made on February 24, 2017. The line of credit is secured by substantially all of our assets. As a sub-feature under the credit agreement, the Bank may also issue stand-by and/or commercial letters of credit up to $15.0 million.

We are required to maintain certain financial and non-financial covenants in accordance with the line of credit. The financial covenants require certain levels of leverage and profitability, such as (i) income before income taxes not to be less than $1.0 million (calculated at the end of each fiscal quarter on a trailing 12-month basis), (ii) a maximum ratio of 4.00 to 1.00 as of each quarter end for “Funded Debt to EBITDAR”, defined as the sum of total debt, capital leases and annual rent expense multiplied by six divided by the sum of net income, interest expense, taxes, depreciation, amortization and annual rent expense on a trailing 12-month basis, and (iii) requires minimum eligible inventory, cash, cash equivalents and marketable securities totaling $50.0 million as of the end of each quarter. In addition, maximum investment in fixed assets in any fiscal year of $50.0 million.



11


In September 2016, we established a $750,000 standby letter of credit as security against insurance claims as required by our workers compensation insurance policy.  There has been no activity under this letter of credit since its inception.
As of October 28, 2017, we were in compliance with all of our covenants and had no outstanding borrowings under the revolving credit facility.
Note 5: Commitments and Contingencies

From time to time, we may become involved in lawsuits and other claims arising from our ordinary course of business. We have established loss provisions of approximately $7.5 million 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 incurrence, 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, including those disclosed below, will not have a material adverse effect on our financial condition, results of operations or cash flows.

Juan Carlos Gonzales, on behalf of himself and all others similarly situated, v. Tilly’s Inc. et al, Superior Court of California, County of Orange, Case No. 30-2017-00948710-CU-OE-CXC.  In October 2017, the plaintiff filed a putative class action against us alleging various violations of California’s wage and hour laws.  The complaint seeks class certification, unspecified damages, unpaid wages, penalties, restitution, interest, and attorneys’ fees and costs.  We intend to defend this case vigorously.

Lauren Minniti, on behalf of herself and all others similarly situated, v. Tilly’s, Inc., United States District Court, Southern District of Florida, Case No. 0:17-cv-60237-FAM.  On January 30, 2017, the plaintiff filed a putative class action lawsuit against us, alleging violations of the Telephone Consumer Protection Act of 1991 (the “TCPA”).  Specifically, the complaint asserts a violation of the TCPA for allegedly sending unsolicited automated messages to the cellular telephones of the plaintiff and others.  The complaint seeks class certification and damages of $500 per violation plus treble damages under the TCPA.  We filed our initial response to this matter with the court in March 2017.  The parties attended a mediation in June 2017.  In July 2017, the parties reached an agreement in principle to settle this matter, subject to court approval and the execution of a final settlement agreement.

Skylar Ward, on behalf of herself and all others similarly situated, v. Tilly’s, Inc., Superior Court of California, County of Los Angeles, Case No. BC595405.  In September 2015, the plaintiff filed a putative class action lawsuit against us alleging, among other things, various violations of California's wage and hour laws.  The complaint sought class certification, unspecified damages, unpaid wages, penalties, restitution, and attorneys' fees.  In June 2016, the court granted our demurrer to the plaintiff's complaint on the grounds that the plaintiff failed to state a cause of action against Tilly's and dismissed the complaint.  Specifically, the court agreed with us that the plaintiff's cause of action for reporting-time pay fails as a matter of law as the plaintiff and other putative class members did not "report for work" with respect to certain shifts on which the plaintiff's claims are based.  In November 2016, the court entered a written order sustaining our demurrer to the plaintiff's complaint and dismissing all of plaintiff’s causes of action with prejudice.  In January 2017, the plaintiff filed an appeal of the order to the California Court of Appeal. The plaintiff filed her opening appellate brief on October 2, 2017, and our responding appellate brief is due to be filed in December 2017. We have defended this case vigorously and will continue to do so.
Karina Whitten, on behalf of herself and all others similarly situated, v. Tilly’s Inc., Superior Court of California, County of Los Angeles, Case No. BC548252. In June 2014, the plaintiff filed a putative class action and representative Private Attorney General Act of 2004 lawsuit against us alleging violations of California’s wage and hour, meal break and rest break rules and regulations, and unfair competition law, among other things. The complaint sought class certification, penalties, restitution,
injunctive relief and attorneys’ fees and costs. The plaintiff filed a first amended complaint in December 2014. We answered the complaint in January 2015, denying all allegations. We engaged in mediation in May 2016, and the parties reached a resolution that was presented to the court for preliminary approval in September 2016. The court preliminarily approved the settlement in October 2016, and notice of the settlement was issued to class members. Upon completion of the claims process, the court approved the final settlement in February 2017.  We concluded this matter with the payment of the final settlement in April 2017. The final settlement amount was not materially different from the amount previously accrued when a loss provision was established.     
On June 10, 2015, we and one of our vendors entered into a settlement arrangement with a plaintiff who filed a copyright infringement lawsuit against the vendor and us related to certain vendor products we sell. The settlement required that the vendor pay $2.0 million to the plaintiff over three years, and we agreed to guarantee such payments in exchange for a security interest in the vendor's intellectual property.  As of October 28, 2017, due to updated facts and circumstances, we have accrued


12


for the remaining maximum exposure loss of $1.4 million relating to this matter. We will utilize all available rights of offset to reduce our loss, including the enforcement of the security interest we have in the vendor's intellectual property.
Note 6: 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 either available-for-sale or held-to-maturity securities, and certain cash equivalents, specifically money market securities, commercial paper and bonds. The money market accounts are valued based on quoted market prices in active markets. The 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.
From time to time, we measure certain assets at fair value on a non-recurring basis, including evaluation of long-lived assets for impairment 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.
During the three and nine months ended October 28, 2017 and October 29, 2016, we did not make any transfers between Level 1 and Level 2 financial assets. Furthermore, as of October 28, 2017, January 28, 2017 and October 29, 2016, 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
We have categorized our financial assets based on the priority of the inputs to the valuation technique for the instruments as follows (in thousands): 
 
October 28, 2017
 
January 28, 2017
 
October 29, 2016
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market securities
$
33,960

 
$

 
$

 
$
76,177

 
$

 
$

 
$
42,008

 
$

 
$

Commercial paper

 

 

 

 
4,993

 

 

 

 

Fixed income securities

 

 

 

 

 

 

 
2,005

 

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper
$

 
$
59,768

 
$

 
$

 
$
44,892

 
$

 
$

 
$
54,875

 
$

Fixed income securities

 
23,193

 

 

 
10,031

 

 

 
7,040

 

(1) Excluding cash.

Impairment of Long-Lived Assets
An impairment is recorded on a long-lived asset used in operations whenever events or changes in circumstances indicate that the net carrying amounts for such asset may not be recoverable. 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 our business strategies. An evaluation is performed using


13


estimated undiscounted future cash flows from operating activities compared to the carrying value of related 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 the assets based on the discounted cash flows of the assets using a rate that approximates our weighted average cost of capital. With regard to retail store assets, which are comprised of leasehold improvements, fixtures and computer hardware and software, we consider the assets at each individual retail store to represent an asset group. 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.
On a quarterly basis, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable. During the nine months ended October 28, 2017, 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 determined that four of our stores would not be able to generate sufficient cash flows over the remaining term of the related leases to recover our investment in the respective stores. As a result, we recorded non-cash impairment charges during the three and nine months ended October 28, 2017 of approximately $0.4 million and $0.8 million, respectively, to write-down the carrying value of certain long-lived store assets to their estimated fair values.
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29,
2016
 
($ in thousands)
Carrying value of assets with impairment
$397
 
$440
 
$848
 
$2,136
Fair value of assets impaired
$—
 
$—
 
$—
 
$173
Number of stores tested for impairment
7
 
9
 
10
 
15
Number of stores with impairment
2
 
2
 
4
 
8
Note 7: Share-Based Compensation
The Tilly's, Inc. 2012 Amended and Restated Equity and Incentive Plan, as amended in June 2014 (the "2012 Plan"), authorizes up to 4,413,900 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 October 28, 2017, there were 1,754,639 shares still available for future issuance under the 2012 Plan.
Stock Options
We grant stock options to certain employees that give 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 nonqualified 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 expire ten years from the date of grant.
The following table summarizes the stock option activity for the nine months ended October 28, 2017 (aggregate intrinsic value in thousands):
 
Stock
Options
 
Grant Date
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Life (in Years)
 
Aggregate
Intrinsic
Value (1)
Outstanding at January 28, 2017
1,842,375

 
$
9.98

 
 
 
 
Granted
406,000

 
$
8.71

 
 
 
 
Exercised
(38,125
)
 
$
7.53

 
 
 
 
Forfeited
(59,000
)
 
$
8.92

 
 
 
 
Expired
(17,500
)
 
$
14.02

 
 
 
 
Outstanding at October 28, 2017
2,133,750

 
$
9.78

 
7.2
 
$
6,839

Vested and expected to vest at October 28, 2017
2,133,750

 
$
9.78

 
7.2
 
$
6,839

Exercisable at October 28, 2017
989,500

 
$
12.28

 
5.5
 
$
1,395



14


(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 quarter 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 $12.41 at October 28, 2017.
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 fair values of stock options granted during the three and nine months ended October 28, 2017 and October 29, 2016 were estimated on the grant date using the following assumptions: 
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29,
2016
Weighted average grant-date fair value per option granted
*
 
$4.85
 
$4.02
 
$3.68
Expected option term (1)
*
 
5.0 years

 
5.0 years

 
5.0 years

Weighted average expected volatility factor (2)
*
 
67.3
%
 
51.4
%
 
62.7
%
Weighted average risk-free interest rate (3)
*
 
1.2
%
 
1.9
%
 
1.3
%
Expected annual dividend yield
*
 
%
 
%
 
%
* No stock options were granted during the three months ended October 28, 2017.

(1)
We have limited historical information regarding expected option term. Accordingly, we determine the expected option term of the awards using the latest historical data available from comparable public companies and management’s expectation of exercise behavior.
(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.
Restricted Stock
Restricted stock awards ("RSAs") represent restricted shares of our common stock issued upon the date of grant in which the recipient's rights in the stock are restricted until the shares are vested, and restricted stock units ("RSUs") represent a commitment to issue shares of our common stock in the future upon vesting. Under the 2012 Plan, we may grant RSAs to independent members of our Board of Directors and RSUs to certain employees. RSAs granted to our Board of Directors vest at a rate of 50% on each of the first two 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. RSUs 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 RSUs 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 changes during the nine months ended October 28, 2017 are presented below:
 
Restricted
Stock
 
Weighted
Average
Grant-Date
Fair Value
Nonvested at January 28, 2017
166,960

 
$
12.12

Granted
23,100

 
$
10.39

Vested
(74,528
)
 
$
11.09

Forfeited
(6,000
)
 
$
16.07

Nonvested at October 28, 2017
109,532

 
$
12.24



15


Stock-based compensation expense associated with stock options and restricted stock is recognized on a straight-line basis over the vesting period. The following table summarizes stock-based compensation recorded in the Consolidated Statements of Income (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29,
2016
Cost of goods sold
$
146

 
$
165

 
$
447

 
$
706

Selling, general and administrative expenses
432

 
372

 
1,326

 
1,289

Stock-based compensation
$
578

 
$
537

 
$
1,773

 
$
1,995

At October 28, 2017, there was $4.2 million of total unrecognized stock-based compensation expense related to unvested stock options and restricted stock. This cost has a weighted average remaining recognition of 2.3 years.
Note 8: Income Per Share
Income per share is computed under the provisions of ASC 260, Earnings Per Share. Basic income per share is computed based on the weighted average number of common shares outstanding during the period. Diluted income 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, unamortized compensation and hypothetical excess tax benefits, if any, 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 RSAs.

The components of basic and diluted income per share are as follows (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29,
2016
Net income
$
8,757

 
$
6,417

 
$
8,000

 
$
5,106

Weighted average basic shares outstanding
28,782

 
28,482

 
28,746

 
28,456

Dilutive effect of stock options and restricted stock
249

 
45

 
208

 
20

Weighted average shares for diluted income per share
29,031

 
28,527

 
28,954

 
28,476

Basic income per share of Class A and Class B common stock
$
0.30

 
$
0.23

 
$
0.28

 
$
0.18

Diluted income per share of Class A and Class B common stock
$
0.30

 
$
0.22

 
$
0.28

 
$
0.18


 The following stock options and restricted stock have been excluded from the calculation of diluted income per share as the effect of including these stock options and restricted stock would have been anti-dilutive (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29,
2016
Stock options
1,282

 
1,529

 
1,291

 
2,029

Restricted stock
56

 
102

 
56

 
102

Total
1,338

 
1,631

 
1,347

 
2,131




16


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Tilly’s, Inc. included in Part II Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017. As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “company”, “World of Jeans & Tops”, “we”, “our”, “us”, "Tillys" and “Tilly’s” refer to Tilly’s, Inc. and its subsidiary.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate”, “believe”, “can”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “project”, “seek”, “should”, “target”, “will”, “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. These forward-looking statements are subject to numerous risks and uncertainties, including the risks and uncertainties described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017, those identified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q, and in other filings we may make with the Securities and Exchange Commission from time to time. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.

Overview
Tillys is a destination specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls. We offer an extensive assortment of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle. Tillys started operations in 1982, when Hezy Shaked and Tilly Levine opened our first store in Orange County, California. As of October 28, 2017, we operated 220 stores, averaging 7,600 square feet, in 31 states. We also sell our products through our e-commerce website, www.tillys.com.

Known or Anticipated Trends
The retail industry has experienced a general downward trend in customer traffic to physical stores for an extended period of time. Conversely, online shopping has generally increased and resulted in sustained online sales growth. We believe these market trends will continue, despite the improvement in store traffic that we have experienced during the first nine months of fiscal 2017. There can be no guarantee that our recent improvement in store traffic will continue given the broader industry trends.
We expect to open two new stores and close three existing stores during the fourth quarter of fiscal 2017. We will continue to focus our efforts on improving our existing stores, and expanding our online/digital capabilities through omni-channel initiatives designed to provide a seamless shopping experience for our customers, whether in-store or online.
During fiscal 2018, we plan to open 10 to 15 new stores as well as a limited number of RSQ-branded "pop-up" stores. We will leverage existing markets where we believe our brand recognition can be enhanced with new stores that are planned to drive additional improvement to our operating income.
 
How We Assess the Performance of Our Business

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



17


Net Sales

Net sales reflect revenue from the sale of our merchandise at store locations as well as sales of merchandise through our e-commerce platform, which is reflected in sales when the merchandise is received by the customer. Net sales also include shipping and handling fees for e-commerce shipments that have been delivered to the customer. Net sales are net of returns on sales during the period as well as an estimate of returns expected in the future stemming from current period sales. Net sales are adjusted for the unredeemed awards and accumulated partial points on our customer loyalty program. Revenue from the sale of gift cards is deferred and not included in net sales until the gift cards are used to purchase merchandise. However, over time, the redemption of some gift cards becomes remote (referred to as "gift card breakage"). Revenue from estimated gift card breakage is also included in net sales.
Our business is seasonal and as a result our revenues fluctuate from quarter to quarter. In addition, our revenues in any given quarter can be affected by a number of factors including the timing of holidays and weather patterns. The third and fourth quarters of the fiscal year, which include the back-to-school and holiday sales seasons, have historically produced stronger sales and disproportionately stronger operating results than have the first two quarters of the fiscal year.
Comparable Store Sales
Comparable store sales is a measure that indicates the change in year-over-year comparable store sales which allows us to evaluate how our store base is performing. Numerous factors affect our comparable store sales, including:
 
overall economic trends;
our ability to attract traffic to our stores and e-commerce platform;
our ability to identify and respond effectively to consumer preferences and fashion trends;
competition;
the timing of our releases of new and seasonal styles;
changes in our product mix;
pricing;
the level of customer service that we provide in stores and through our e-commerce platform;
our ability to source and distribute products efficiently;
calendar shifts of holiday or seasonal periods;
the number and timing of store openings and the relative proportion of new stores to mature stores; and
the timing and success of promotional and advertising efforts.
Comparable store sales are sales from our e-commerce platform and stores open at least 12 full fiscal months as of the end of the current reporting period. A remodeled, relocated or refreshed store is included in comparable store sales, both during and after construction, if the square footage of the store was not changed by more than 20% and the store was not closed for more than five days in any fiscal month. We include sales from our e-commerce platform as part of comparable store sales as we manage and analyze our business on a single omni-channel and have substantially integrated our investments and operations for our stores and e-commerce platform to give our customers seamless access and increased ease of shopping. Comparable store sales exclude gift card breakage income and e-commerce shipping and handling fee revenue. Some of our competitors and other retailers may calculate comparable or “same store” sales differently than we do. As a result, data in this report regarding our comparable store sales may not be comparable to similar data made available by other retailers.


18


Gross Profit
Gross profit is equal to our net sales less our cost of goods sold. Cost of goods sold reflects the direct cost of purchased merchandise as well as buying, distribution and occupancy costs. Buying costs include compensation and benefit expense for our internal buying organization. Distribution costs include costs for receiving, processing and warehousing our store merchandise, and shipping of merchandise to or from our distribution and e-commerce fulfillment centers and to our e-commerce customers and between store locations. Occupancy costs include the rent, common area maintenance, utilities, property taxes, security and depreciation costs of all store locations. These costs are significant and can be expected to continue to increase as our company grows. The components of our reported cost of goods sold may not be comparable to those of other retail companies.
We regularly analyze the components of gross profit as well as gross profit as a percentage of net sales. Specifically we look at the initial markup on purchases, markdowns and reserves, shrinkage, buying costs, distribution costs and occupancy costs. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns or a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the buying, distribution and occupancy components of cost of goods sold could have an adverse impact on our gross profit and results of operations.
Gross profit is also impacted by shifts in the proportion of sales of proprietary branded products compared to third-party branded products, as well as by sales mix shifts within and between brands and between major product departments such as 'young men's and women's apparel', footwear or accessories. A substantial shift in the mix of products could have a material impact on our results of operations. In addition, gross profit and gross profit as a percent of sales have historically been higher in the third and fourth quarters of the fiscal year, as these periods include the back-to-school and winter holiday selling seasons. In those periods, various costs, such as occupancy costs, generally do not increase in proportion to the seasonal sales increase.
Selling, General and Administrative Expenses
Our selling, general and administrative, or SG&A, expenses are composed of store selling expenses and corporate-level general and administrative expenses. Store selling expenses include store and regional support costs, including personnel, advertising and debit and credit card processing costs, e-commerce receiving and processing costs and store supplies costs. General and administrative expenses include the payroll and support costs of corporate functions such as executive management, legal, accounting, information systems, human resources, impairment charges and other centralized services. Store selling expenses generally vary proportionately with net sales and store growth. In contrast, general and administrative expenses are generally not directly proportional to net sales and store growth, but will be expected to increase over time to support the needs of our growing company. SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods.
Operating Income
Operating income equals gross profit less SG&A expenses. Operating income excludes interest income, interest expense and income taxes. Operating income percentage measures operating income as a percentage of our net sales.



19


Results of Operations
The following tables summarize key components of our unaudited results of operations for the periods indicated, both in dollars (in thousands) and as a percentage of our net sales.
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29,
2016
 
 
 
 
Statements of Operations Data:
 
 
 
 
 
 
 
Net sales
$
152,824

 
$
152,106


$
412,581


$
408,736

Cost of goods sold
102,730

 
104,137


288,653


289,343

Gross profit
50,094

 
47,969


123,928


119,393

Selling, general and administrative expenses
35,982

 
37,302


111,384


110,460

Operating income
14,112

 
10,667


12,544


8,933

Other income, net
375

 
103


810


270

Income before income taxes
14,487

 
10,770


13,354


9,203

Income tax expense
5,730

 
4,353


5,354


4,097

Net income
$
8,757

 
$
6,417


$
8,000


$
5,106

 
 
 
 
 
 
 
 
Percentage of Net Sales:
 
 
 
 
 
 
 
Net sales
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Cost of goods sold
67.2
%
 
68.5
%
 
70.0
%
 
70.8
%
Gross profit
32.8
%
 
31.5
%
 
30.0
%
 
29.2
%
Selling, general and administrative expenses
23.5
%
 
24.5
%
 
27.0
%
 
27.0
%
Operating income
9.2
%
 
7.0
%
 
3.0
%
 
2.2
%
Other income, net
0.2
%
 
0.1
%
 
0.2
%
 
0.1
%
Income before income taxes
9.5
%
 
7.1
%
 
3.2
%
 
2.3
%
Income tax expense
3.7
%
 
2.9
%
 
1.3
%
 
1.0
%
Net income
5.7
%
 
4.2
%
 
1.9
%
 
1.2
%
The following table presents store operating data for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
 
October 28,
2017
 
October 29,
2016
Operating Data:
 
 
 
 
 
 
 
Stores operating at end of period
220

 
225

 
220

 
225

Comparable store sales change (1)
1.5
%
 
4.4
%
 
1.5
%
 
0.7
%
Total square feet at end of period (in thousands)
1,681

 
1,716

 
1,681

 
1,716

Average net sales per brick-and-mortar store (in thousands) (2)
$
606

 
$
594

 
$
1,625

 
$
1,595

Average net sales per square foot (2)
$
79

 
$
78

 
$
213

 
$
210

E-commerce revenues (in thousands) (3)
$
18,996

 
$
18,408

 
$
52,101

 
$
49,934

E-commerce revenues as a percentage of net sales
12.4
%
 
12.1
%
 
12.6
%
 
12.2
%
(1)
Comparable store sales are net sales from stores that have been open at least 12 full fiscal months as of the end of the current reporting period. A remodeled or relocated store is included in comparable store sales, both during and after construction, if the square footage of the store was not changed by more than 20% and the store was not closed for more than five days in any fiscal month. Comparable store sales include sales through our e-commerce platform but exclude gift card breakage income, deferred revenue on loyalty program and e-commerce shipping and handling fee revenue.
(2)
E-commerce sales, e-commerce shipping and handling fee revenue and gift card breakage are excluded from net sales in deriving average net sales per brick-and-mortar store.
(3)
E-commerce revenues include e-commerce sales and e-commerce shipping fee revenue.


20


Third Quarter Ended October 28, 2017 Compared to Third Quarter Ended October 29, 2016
 
Net Sales
Net sales were $152.8 million in the third quarter of fiscal 2017 compared to $152.1 million in the third quarter of fiscal 2016, an increase of $0.7 million, or 0.5%.
The increases in net sales were attributed to an increase in comparable store sales of 1.5%, driven by an increase in store traffic and e-commerce growth as compared to the third quarter of fiscal 2016. E-commerce revenues represented 12.4% of our total net sales, or $19.0 million, in the third quarter of fiscal 2017 as compared to 12.1%, or $18.4 million, in the third quarter of fiscal 2016. Our comparable store sales growth was characterized by strength in our branded mens and boys merchandise assortments, partially offset by fashion weakness in our girls' assortment.
Gross Profit    
Gross profit was $50.1 million in the third quarter of fiscal 2017 compared to $48.0 million in the third quarter of fiscal 2016, an increase of $2.1 million, or 4.4%. Gross margin, or gross profit as a percentage of net sales, was 32.8% during the third quarter of fiscal 2017 and 31.5% during the third quarter of fiscal 2016. The comparable changes in gross margin were as follows:
%
Attributable to
1.0%
Decrease in buying, distribution and occupancy costs of $1.3 million
0.3%
Increase in product margins primarily due to lower markdowns as a result of more efficient inventory management
1.3%
Total
Selling, General and Administrative Expenses
SG&A expenses were $36.0 million in the third quarter of fiscal 2017 compared to $37.3 million in the third quarter of fiscal 2016, a decrease of $1.3 million, or 3.5%. As a percentage of net sales, SG&A expenses were 23.5% for the third quarter of fiscal 2017 compared to 24.5% during the third quarter of fiscal 2016. The components of the SG&A decrease, both in terms of percentage of net sales and total dollars, were as follows:
%
 
$ millions
Attributable to
(0.6)%
 
$(0.9)
Decrease in marketing spend
(0.3)%
 
(0.4)
Decrease in corporate payroll and benefits
(0.1)%
 
Decrease in all other SG&A expenses as a percentage of sales
(1.0)%
 
$(1.3)
Total
Operating Income
Operating income was $14.1 million, or 9.2% of net sales, in the third quarter of fiscal 2017 compared to $10.7 million, or 7.0% of net sales, for the third quarter of fiscal 2016.
Income Tax Expense
Income tax expense was $5.7 million in the third quarter of fiscal 2017 compared to $4.4 million in the third quarter of fiscal 2016. Our effective tax rates were 39.6% and 40.4% for third quarter of fiscal 2017 and third quarter of fiscal 2016, respectively.
Net Income and Income Per Share
Net income was $8.8 million for the third quarter of fiscal 2017 compared to $6.4 million for the third quarter of fiscal 2016, representing an increase of $2.3 million, due to the factors discussed above. Diluted income per share was $0.30 for the third quarter of fiscal 2017 compared to diluted income per share of $0.22 for the third quarter of fiscal 2016.



21


Nine Months Ended October 28, 2017 Compared to Nine Months Ended October 29, 2016
Net Sales
Net sales were $412.6 million in the first nine months of fiscal 2017 compared to $408.7 million in the first nine months of fiscal 2016, an increase of $3.8 million, or 0.9%.
The increases in net sales were attributed to an increase in comparable store sales of 1.5%, driven by an increase in store traffic and e-commerce growth as compared to the first nine months of fiscal 2016. E-commerce revenues represented 12.6% of our total net sales, or $52.1 million, in the first nine months of fiscal 2017 as compared to 12.2%, or $49.9 million, in the first nine months of fiscal 2016. Our comparable store sales growth was characterized by strength in our branded mens and boys merchandise assortments, partially offset by modest decreases in our womens, girls, footwear and accessories departments.
Gross Profit
Gross profit was $123.9 million in the first nine months of fiscal 2017 compared to $119.4 million in first nine months of fiscal 2016, an increase of $4.5 million, or 3.8%. Gross margin, or gross profit as a percentage of net sales, was 30.0% and 29.2% during the first nine months of fiscal 2017 and fiscal 2016, respectively. The comparable changes in gross margin were as follows:
%
Attributable to
0.7%
Decrease in buying, distribution and occupancy costs of $2.1 million
0.1%
Increase in product margins primarily due to lower markdowns as a result of more efficient inventory management
0.8%
Total
Selling, General and Administrative Expenses
SG&A expenses were $111.4 million in the first nine months of fiscal 2017 compared to $110.5 million in the first nine months of fiscal 2016, an increase of $0.9 million, or 0.8%. As a percentage of net sales, SG&A expenses were 27.0% during the first nine months of fiscal 2017 and fiscal 2016.The components of the SG&A increase, both in terms of percentage of net sales and total dollars, were as follows:
%
$ millions
Attributable to
1.2%
$5.1
Net increase in year over year legal provisions
0.4%
1.6
Increase in expenses associated with several information technology system implementations

(0.9)%
(3.4)
Decrease in marketing spend
(0.3)%
(1.1)
Decrease in non-cash store asset impairment charges
(0.3)%
(1.0)
Decrease in corporate payroll and benefits
(0.1)%
(0.3)
Decrease in all other SG&A expenses
—%
$0.9
Total
Operating Income

Operating income was $12.5 million, or 3.0% of net sales, for the first nine months of fiscal 2017 compared to $8.9 million, or 2.2% of net sales, for the first nine months of fiscal 2016.
Income Tax Expense
Income tax expense was $5.4 million, or 40.1% of income before taxes, for the first nine months of fiscal 2017 compared to $4.1 million, or 44.5% of income before taxes, for the first nine months of fiscal 2016. The decrease in our effective tax rate for the first nine months of fiscal 2017 was primarily due to fewer discrete items related to the expiration of stock options, exercises of stock options and settlement of restricted stock during the first nine months of fiscal 2017.
Net Income and Income Per Share
Net income was $8.0 million for the first nine months of fiscal 2017 compared to $5.1 million for the first nine months of fiscal 2016, due to the factors discussed above. Basic and diluted income per share was $0.28 for the first nine months of fiscal 2017 compared to $0.18 for the first nine months of fiscal 2016.


22



Liquidity and Capital Resources

Our primary cash needs are for merchandise inventories, payroll, store rent and capital expenditures. We have historically provided for these needs from internally generated cash flows. In addition, we have access to additional liquidity through a $25.0 million revolving credit facility with Wells Fargo Bank, NA. We expect to continue to finance our operations from cash and marketable securities on hand as well as cash flows from operations without borrowing under our revolving credit facility over the next twelve months.
Working capital at October 28, 2017, was $118.1 million compared to $129.8 million at January 28, 2017, a decrease of $11.7 million. The changes in our working capital during the first nine months of fiscal 2017 were as follows:
$ millions
Description
$129.8
Working capital at January 28, 2017
(12.0)
Decrease in cash, cash equivalents and marketable securities, primarily due to the payment of a $20.1 million special dividend in February 2017
0.3
Net increase from changes in all other current assets and liabilities
$118.1
Working capital at October 28, 2017
Cash Flow Analysis

A summary of operating, investing and financing activities is shown in the following table (in thousands):
 
Nine Months Ended
 
October 28,
2017
 
October 29,
2016
Net cash provided by operating activities
$
17,685

 
$
19,589

Net cash used in investing activities
(37,194
)
 
(26,513
)
Net cash used in financing activities
(20,573
)
 
(714
)
Net decrease in cash and cash equivalents
$
(40,082
)
 
$
(7,638
)
Net Cash Provided By Operating Activities
Operating activities consist primarily of net income adjusted for non-cash items that include depreciation, asset impairment write-downs, deferred income taxes and share-based compensation expense, plus the effect on cash of changes during the year in our assets and liabilities.
Net cash flows provided by operating activities were $17.7 million during the first nine months of fiscal 2017 compared to $19.6 million in the first nine months of fiscal 2016. The $1.9 million decrease in cash provided by operating activities was primarily due to the timing of vendor payments.

Net Cash Used In Investing Activities
Cash flows from investing activities consist primarily of capital expenditures and maturities and purchases of marketable securities.
Net cash used in investing activities was $37.2 million during the first nine months of fiscal 2017 compared to $26.5 million during the first nine months of fiscal 2016. Net cash used in investing activities in the first nine months of fiscal 2017 consisted of capital expenditures totaling $9.7 million and purchases of marketable securities of $112.6 million, partially offset by proceeds from the maturities of marketable securities of $85.1 million. Net cash used in investing activities during the first nine months of fiscal 2016 primarily consisted of capital expenditures totaling $14.8 million and purchases of marketable securities of $81.8 million, partially offset by proceeds from the maturities of marketable securities of $70.0 million.
Net Cash Used in Financing Activities
Cash flows used in financing activities consist primarily of cash dividend payments, payments on our capital lease obligation and proceeds from employee exercises of stock options.


23


Net cash used in financing activities was $20.6 million during the first nine months of fiscal 2017 compared to $0.7 million during the first nine months of fiscal 2016. Financing activities in the first nine months of fiscal 2017 primarily consisted of dividends paid of $20.1 million and cash payments on our capital lease obligation of $0.7 million. Financing activities in the first nine months of fiscal 2016 primarily consisted of cash payments on our capital lease obligation of $0.6 million.

Line of Credit

Our amended and restated credit agreement with Wells Fargo Bank, N.A. (the "Bank") provides for a $25.0 million revolving line of credit with a maturity date of June 26, 2020. The interest rate charged on borrowings is selected at our discretion at the time of draw between the London Interbank Offered Rate, plus 0.75%, or at the Bank’s prime rate. The agreement allows for the declaration and payment of dividends or distributions to stockholders. On January 31, 2017, our Board of Directors declared a special cash dividend of $0.70 per share to all holders of record of issued and outstanding shares of both Class A and Class B common stock as of the close of business on February 15, 2017. Payment of the dividend was made on February 24, 2017. The line of credit is secured by substantially all of our assets. As a sub-feature under the credit agreement, the Bank may also issue stand-by and/or commercial letters of credit up to $15.0 million.

We are required to maintain certain financial and non-financial covenants in accordance with the line of credit. The financial covenants require certain levels of leverage and profitability, such as (i) income before income taxes not to be less than $1.0 million (calculated at the end of each fiscal quarter on a trailing 12-month basis), (ii) a maximum ratio of 4.00 to 1.00 as of each quarter end for “Funded Debt to EBITDAR”, defined as the sum of total debt, capital leases and annual rent expense multiplied by six divided by the sum of net income, interest expense, taxes, depreciation, amortization and annual rent expense on a trailing 12-month basis, and (iii) requires minimum eligible inventory, cash, cash equivalents and marketable securities totaling $50.0 million as of the end of each quarter. In addition, maximum investment in fixed assets in any fiscal year of $50.0 million.

In September 2016, we established a $750,000 standby letter of credit as security against insurance claims as required by our workers compensation insurance policy.  There has been no activity under this letter of credit since its inception.
As of October 28, 2017, we were in compliance with all of our covenants and had no outstanding borrowings under the revolving credit facility.
Contractual Obligations
As of October 28, 2017, there were no material changes to our contractual obligations as described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, except for operating leases, purchase obligations and our revolving credit facility.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires the appropriate application of certain accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements. Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates. A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.
Recently Adopted Accounting Standard
On January 29, 2017, we adopted Financial Accounting Standards Board (the "FASB") Accounting Standards Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting and reporting for share-based compensation, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as the classification in the statement of cash flows. We elected to account for forfeitures as they occur, rather than


24


estimate expected forfeitures. The adoption of ASU 2016-09 resulted in a cumulative-effect adjustment of $0.2 million decrease to retained earnings and a $0.2 million increase to additional paid-in-capital as of January 29, 2017, related to the recognition of previously estimated expected forfeitures using the modified retrospective method. We adopted the cash flow presentation which requires excess tax benefits to be presented as an operating activity rather than a financing activity. The adoption of this update did not have an effect on our consolidated results of operations.
New Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), along with amendments issued in 2015 and 2016, which amends the existing accounting standards for revenue recognition. ASU 2014-09 outlines principles that govern revenue recognition at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09, which will become effective for us in the first quarter of fiscal 2018, may be applied retrospectively for each period presented (the "full retrospective method") or retrospectively with the cumulative effect recognized in the opening retained earnings balance in fiscal year 2018 (the "modified retrospective method"). We currently anticipate adopting the standard using the modified retrospective method. We are in the process of evaluating the overall impact of adopting the new standard on our consolidated financial statements. Based on our preliminary assessment, we have determined that the adoption will change the timing of recognition of gift card breakage income, which is currently recognized when the probability of the redemption is remote and recorded in net sales. The new guidance will require recognition of gift card breakage income proportionately in net sales as redemptions occur. The new guidance also requires enhanced disclosures, such as disaggregation of revenues, revenue recognition policies that require significant judgment and identification of performance obligations to customers. Based on our preliminary assessment, we currently do not expect the adoption of this update to have a material effect on our consolidated results of operations.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Accounting Standards Codification 842). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. ASU 2016-02, which will become effective for us in the first quarter of fiscal 2019, with early adoption permitted, must be adopted using the modified retrospective method. The new standard is expected to impact our consolidated financial statements as we conduct all of our retail sales and corporate operations in leased facilities. We are in the process of evaluating the impact of adopting the new standard on our consolidated financial statements.


Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of October 28, 2017, there were no material changes in the market risks described in the “Quantitative and Qualitative Disclosure of Market Risks” section of our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Disclosure Committee, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of October 28, 2017. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of October 28, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.


25


Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.


26


Part II. Other Information
 

Item 1. Legal Proceedings

From time to time, we may become involved in lawsuits and other claims arising from our ordinary course of business. We have established loss provisions of approximately $7.5 million 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 incurrence, 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, including those disclosed below, will not have a material adverse effect on our financial condition, results of operations or cash flows.

Juan Carlos Gonzales, on behalf of himself and all others similarly situated, v. Tilly’s Inc. et al, Superior Court of California, County of Orange, Case No. 30-2017-00948710-CU-OE-CXC.  In October 2017, the plaintiff filed a putative class action against us alleging various violations of California’s wage and hour laws.  The complaint seeks class certification, unspecified damages, unpaid wages, penalties, restitution, interest, and attorneys’ fees and costs.  We intend to defend this case vigorously.

Lauren Minniti, on behalf of herself and all others similarly situated, v. Tilly’s, Inc., United States District Court, Southern District of Florida, Case No. 0:17-cv-60237-FAM.  On January 30, 2017, the plaintiff filed a putative class action lawsuit against us, alleging violations of the Telephone Consumer Protection Act of 1991 (the “TCPA”).  Specifically, the complaint asserts a violation of the TCPA for allegedly sending unsolicited automated messages to the cellular telephones of the plaintiff and others.  The complaint seeks class certification and damages of $500 per violation plus treble damages under the TCPA.  We filed our initial response to this matter with the court in March 2017.  The parties attended a mediation in June 2017.  In July 2017, the parties reached an agreement in principle to settle this matter, subject to court approval and the execution of a final settlement agreement.

Skylar Ward, on behalf of herself and all others similarly situated, v. Tilly’s, Inc., Superior Court of California, County of Los Angeles, Case No. BC595405.  In September 2015, the plaintiff filed a putative class action lawsuit against us alleging, among other things, various violations of California's wage and hour laws.  The complaint sought class certification, unspecified damages, unpaid wages, penalties, restitution, and attorneys' fees.  In June 2016, the court granted our demurrer to the plaintiff's complaint on the grounds that the plaintiff failed to state a cause of action against Tilly's and dismissed the complaint.  Specifically, the court agreed with us that the plaintiff's cause of action for reporting-time pay fails as a matter of law as the plaintiff and other putative class members did not "report for work" with respect to certain shifts on which the plaintiff's claims are based.  In November 2016, the court entered a written order sustaining our demurrer to the plaintiff's complaint and dismissing all of plaintiff’s causes of action with prejudice.  In January 2017, the plaintiff filed an appeal of the order to the California Court of Appeal. The plaintiff filed her opening appellate brief on October 2, 2017, and our responding appellate brief is due to be filed in December 2017. We have defended this case vigorously and will continue to do so.
Karina Whitten, on behalf of herself and all others similarly situated, v. Tilly’s Inc., Superior Court of California, County of Los Angeles, Case No. BC548252.  In June 2014, the plaintiff filed a putative class action and representative Private Attorney General Act of 2004 lawsuit against us alleging violations of California’s wage and hour, meal break and rest break rules and regulations, and unfair competition law, among other things. The complaint sought class certification, penalties, restitution,
injunctive relief and attorneys’ fees and costs. The plaintiff filed a first amended complaint in December 2014. We answered the complaint in January 2015, denying all allegations. We engaged in mediation in May 2016, and the parties reached a resolution that was presented to the court for preliminary approval in September 2016. The court preliminarily approved the settlement in October 2016, and notice of the settlement was issued to class members. Upon completion of the claims process, the court approved the final settlement in February 2017.  We concluded this matter with the payment of the final settlement in April 2017. The final settlement amount was not materially different from the amount previously accrued when a loss provision was established.
On June 10, 2015, we and one of our vendors entered into a settlement arrangement with a plaintiff who filed a copyright infringement lawsuit against the vendor and us related to certain vendor products we sell.  The settlement required that the vendor pay $2.0 million to the plaintiff over three years, and we agreed to guarantee such payments in exchange for a security interest in the vendor's intellectual property.  As of October 28, 2017, due to updated facts and circumstances, we have accrued for the remaining maximum exposure loss of $1.4 million relating to this matter. We will utilize all available rights of offset to reduce our loss, including the enforcement of the security interest we have in the vendor's intellectual property.


27


Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. For a detailed discussion of the risks that affect our business, please refer to the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017. There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K.





28



Item 6. Exhibits
 
Exhibit
No.
  
Description of Exhibit
 
 
 
  
 
 
  
 
 
  
 
 
101
  
Interactive data files from Tilly’s, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statement of Stockholders’ Equity; (v) the Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.

*
Filed herewith
**
Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
Tilly’s, Inc.
Date:
December 5, 2017
 
 
 
/s/ Edmond Thomas
 
 
Edmond Thomas
 
 
President, Chief Executive Officer and Director
 
 
(Principal Executive Officer)
 
 
 
Date:
December 5, 2017
 
 
 
/s/ Michael Henry
 
 
Michael Henry
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)



29
EX-31.1 2 q32017ex311.htm EXHIBIT 31.1 Exhibit


Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Edmond Thomas, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Tilly’s, Inc. for the quarter ended October 28, 2017;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: December 5, 2017
 
 
 
 
/s/ Edmond Thomas
 
Edmond Thomas
 
President, Chief Executive Officer and Director


EX-31.2 3 q32017ex312.htm EXHIBIT 31.2 Exhibit


Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Michael Henry, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Tilly’s, Inc. for the quarter ended October 28, 2017;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: December 5, 2017
 
 
 
 
/s/ Michael Henry
 
Michael Henry
 
Chief Financial Officer


EX-32.1 4 q32017ex321.htm EXHIBIT 32.1 Exhibit


Exhibit 32.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended October 28, 2017 of Tilly’s, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edmond Thomas, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(i)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: December 5, 2017
 
 
/s/ Edmond Thomas
 
Edmond Thomas
 
President, Chief Executive Officer and Director
In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended October 28, 2017 of Tilly’s, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Henry, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(i)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: December 5, 2017
 
 
/s/ Michael Henry
 
Michael Henry
 
Chief Financial Officer
The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350 and in accordance with SEC Release No. 33-8238. These certifications shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.


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The financial covenants require certain levels of leverage and profitability, such as (i) income before income taxes not to be less than $1.0 million (calculated at the end of each fiscal quarter on a trailing 12-month basis), (ii) a maximum ratio of 4.00 to 1.00 as of each quarter end for “Funded Debt to EBITDAR”, defined as the sum of total debt, capital leases and annual rent expense multiplied by six divided by the sum of net income, interest expense, taxes, depreciation, amortization and annual rent expense on a trailing 12-month basis, and (iii) requires minimum eligible inventory, cash, cash equivalents and marketable securities totaling $50.0 million as of the end of each quarter. In addition, maximum investment in fixed assets in any fiscal year of $50.0 million. 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These 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.</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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 third quarter and nine months ended </font><font style="font-family:inherit;font-size:10pt;">October&#160;28, 2017</font><font style="font-family:inherit;font-size:10pt;"> and </font><font style="font-family:inherit;font-size:10pt;">October&#160;29, 2016</font><font style="font-family:inherit;font-size:10pt;">, respectively, 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 </font><font style="font-family:inherit;font-size:10pt;">January&#160;28, 2017</font><font style="font-family:inherit;font-size:10pt;"> ("fiscal 2016").</font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Description of the Company and Basis of Presentation</font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Tillys is a leading destination specialty retailer of casual apparel, footwear and accessories for young men, young women, boys and girls with an extensive selection of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle. Tillys is headquartered in Irvine, California and we operated </font><font style="font-family:inherit;font-size:10pt;">220</font><font style="font-family:inherit;font-size:10pt;"> stores in </font><font style="font-family:inherit;font-size:10pt;">31</font><font style="font-family:inherit;font-size:10pt;"> states as of </font><font style="font-family:inherit;font-size:10pt;">October&#160;28, 2017</font><font style="font-family:inherit;font-size:10pt;">. Our stores are located in malls, lifestyle centers, &#8216;power&#8217; 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. </font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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&#160;&amp; Tops, a California corporation ("WOJT"), which operates under the name &#8220;Tillys&#8221;. In May 2011, Tilly&#8217;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&#8217;s, Inc.</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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 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.</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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 third quarter and nine months ended </font><font style="font-family:inherit;font-size:10pt;">October&#160;28, 2017</font><font style="font-family:inherit;font-size:10pt;"> and </font><font style="font-family:inherit;font-size:10pt;">October&#160;29, 2016</font><font style="font-family:inherit;font-size:10pt;">, respectively, 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 </font><font style="font-family:inherit;font-size:10pt;">January&#160;28, 2017</font><font style="font-family:inherit;font-size:10pt;"> ("fiscal 2016").</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We have reclassified certain prior period balance sheet amounts within our consolidated balance sheets to conform to our current period presentation. </font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Fiscal Periods</font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Our fiscal year ends on the Saturday closest to January&#160;31. References to fiscal 2017 refer to the fiscal year ending February 3, 2018. References to the fiscal quarters or nine months ended </font><font style="font-family:inherit;font-size:10pt;">October&#160;28, 2017</font><font style="font-family:inherit;font-size:10pt;">, and </font><font style="font-family:inherit;font-size:10pt;">October&#160;29, 2016</font><font style="font-family:inherit;font-size:10pt;">, refer to the </font><font style="font-family:inherit;font-size:10pt;">three and nine months ended</font><font style="font-family:inherit;font-size:10pt;">, respectively, as of those dates.</font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Commitments and Contingencies </font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">From time to time, we may become involved in lawsuits and other claims arising from our ordinary course of business. We have established loss provisions of approximately </font><font style="font-family:inherit;font-size:10pt;">$7.5 million</font><font style="font-family:inherit;font-size:10pt;"> 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 incurrence, 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, including those disclosed below, will not have a material adverse effect on our financial condition, results of operations or cash flows. </font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Juan Carlos Gonzales, on behalf of himself and all others similarly situated, v. Tilly&#8217;s Inc. et al, Superior Court of California, County of Orange, Case No. 30-2017-00948710-CU-OE-CXC.</font><font style="font-family:inherit;font-size:10pt;">&#160; In October&#160;2017, the plaintiff filed a putative class action against us alleging various violations of California&#8217;s wage and hour laws.&#160; The complaint seeks class certification, unspecified damages, unpaid wages, penalties, restitution, interest, and attorneys&#8217; fees and costs.&#160; We intend to defend this case vigorously.</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Lauren Minniti, on behalf of herself and all others similarly situated, v. Tilly&#8217;s, Inc., United States District Court, Southern District of Florida, Case No. 0:17-cv-60237-FAM</font><font style="font-family:inherit;font-size:10pt;">. &#160;On January 30, 2017, the plaintiff filed a putative class action lawsuit against us, alleging violations of the Telephone Consumer Protection Act of 1991 (the &#8220;TCPA&#8221;).&#160; Specifically, the complaint asserts a violation of the TCPA for allegedly sending unsolicited automated messages to the cellular telephones of the plaintiff and others. &#160;The complaint seeks class certification and damages of $500 per violation plus treble damages under the TCPA.&#160; We filed our initial response to this matter with the court in March 2017.&#160; The parties attended a mediation in June 2017.&#160; In July 2017, the parties reached an agreement in principle to settle this matter, subject to court approval and the execution of a final settlement agreement.</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Skylar Ward, on behalf of herself and all others similarly situated, v. Tilly&#8217;s, Inc., Superior Court of California, County of Los Angeles, Case No. BC595405.</font><font style="font-family:inherit;font-size:10pt;">&#160; In September 2015, the plaintiff filed a putative class action lawsuit against us alleging, among other things, various violations of California's wage and hour laws.&#160; The complaint sought class certification, unspecified damages, unpaid wages, penalties, restitution, and attorneys' fees.&#160; In June 2016, the court granted our demurrer to the plaintiff's complaint on the grounds that the plaintiff failed to state a cause of action against Tilly's and dismissed the complaint.&#160; Specifically, the court agreed with us that the plaintiff's cause of action for reporting-time pay fails as a matter of law as the plaintiff and other putative class members did not "report for work" with respect to certain shifts on which the plaintiff's claims are based.&#160; In November 2016, the court entered a written order sustaining our demurrer to the plaintiff's complaint and dismissing all of plaintiff&#8217;s causes of action with prejudice.&#160;&#160;In January 2017, the plaintiff filed an appeal of the order to the California Court of Appeal. The plaintiff filed her opening appellate brief on October 2, 2017, and our responding appellate brief is due to be filed in December 2017. We have defended this case vigorously and will continue to do so.</font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Karina Whitten, on behalf of herself and all others similarly situated, v. Tilly&#8217;s Inc.</font><font style="font-family:inherit;font-size:10pt;">, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Superior Court of California, County of Los Angeles, Case No. BC548252</font><font style="font-family:inherit;font-size:10pt;">.&#160;In June&#160;2014, the plaintiff filed a putative class action and representative Private Attorney General Act of 2004 lawsuit against us alleging violations of California&#8217;s wage and hour, meal break and rest break rules and regulations, and unfair competition law, among other things. The complaint sought class certification, penalties, restitution,</font></div><div style="line-height:120%;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">injunctive relief and attorneys&#8217; fees and costs. The plaintiff filed a first amended complaint in December 2014. We answered the complaint in January 2015, denying all allegations. We engaged in mediation in May 2016, and the parties reached a resolution that was presented to the court for preliminary approval in September 2016. The court preliminarily approved the settlement in October 2016, and notice of the settlement was issued to class members. Upon completion of the claims process, the court approved the final settlement in February 2017. &#160;We concluded this matter with the payment of the final settlement in April 2017. The final settlement amount was not materially different from the amount previously accrued when a loss provision was established. &#160;&#160;&#160;&#160;</font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On June&#160;10, 2015, we and one of our vendors entered into a settlement arrangement with a plaintiff who filed a copyright infringement lawsuit against the vendor and us related to certain vendor products we sell.&#160;The settlement required that the vendor pay </font><font style="font-family:inherit;font-size:10pt;">$2.0 million</font><font style="font-family:inherit;font-size:10pt;"> to the plaintiff over </font><font style="font-family:inherit;font-size:10pt;">three years</font><font style="font-family:inherit;font-size:10pt;">, and we agreed to guarantee such payments in exchange for a security interest in the vendor's intellectual property.&#160; As of October 28, 2017, due to updated facts and circumstances, we have accrued for the remaining maximum exposure loss of </font><font style="font-family:inherit;font-size:10pt;">$1.4 million</font><font style="font-family:inherit;font-size:10pt;"> relating to this matter. We will utilize all available rights of offset to reduce our loss, including the enforcement of the security interest we have in the vendor's intellectual property.</font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Line of Credit </font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Our amended and restated credit agreement with Wells Fargo Bank, N.A. (the "Bank") provides for a </font><font style="font-family:inherit;font-size:10pt;">$25.0 million</font><font style="font-family:inherit;font-size:10pt;"> revolving line of credit with a maturity date of </font><font style="font-family:inherit;font-size:10pt;">June 26, 2020</font><font style="font-family:inherit;font-size:10pt;">. The interest rate charged on borrowings is selected at our discretion at the time of draw between the London Interbank Offered Rate, plus </font><font style="font-family:inherit;font-size:10pt;">0.75%</font><font style="font-family:inherit;font-size:10pt;">, or at the Bank&#8217;s prime rate. The agreement allows for the declaration and payment of dividends or distributions to stockholders, subject to certain limitations. On January 31, 2017, our Board of Directors declared a special cash dividend of </font><font style="font-family:inherit;font-size:10pt;">$0.70</font><font style="font-family:inherit;font-size:10pt;"> per share to all holders of record of issued and outstanding shares of both Class A and Class B common stock as of the close of business on February 15, 2017. Payment of the dividend was made on February 24, 2017. The line of credit is secured by substantially all of our assets. As a sub-feature under the credit agreement, the Bank may also issue stand-by and/or commercial letters of credit up to </font><font style="font-family:inherit;font-size:10pt;">$15.0 million</font><font style="font-family:inherit;font-size:10pt;">.</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We are required to maintain certain financial and non-financial covenants in accordance with the line of credit. The financial covenants require certain levels of leverage and profitability, such as (i)&#160;income before income taxes not to be less than </font><font style="font-family:inherit;font-size:10pt;">$1.0 million</font><font style="font-family:inherit;font-size:10pt;"> (calculated at the end of each fiscal quarter on a trailing 12-month basis), (ii)&#160;a maximum ratio of&#160;</font><font style="font-family:inherit;font-size:10pt;">4.00</font><font style="font-family:inherit;font-size:10pt;">&#160;to 1.00 as of each quarter end for &#8220;Funded Debt to EBITDAR&#8221;, defined as the sum of total debt, capital leases and annual rent expense multiplied by </font><font style="font-family:inherit;font-size:10pt;">six</font><font style="font-family:inherit;font-size:10pt;"> divided by the sum of net income, interest expense, taxes, depreciation, amortization and annual rent expense on a trailing 12-month basis, and (iii) requires minimum eligible inventory, cash, cash equivalents and marketable securities totaling </font><font style="font-family:inherit;font-size:10pt;">$50.0 million</font><font style="font-family:inherit;font-size:10pt;"> as of the end of each quarter. In addition, maximum investment in fixed assets in any fiscal year of </font><font style="font-family:inherit;font-size:10pt;">$50.0 million</font><font style="font-family:inherit;font-size:10pt;">.</font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In September 2016, we established a </font><font style="font-family:inherit;font-size:10pt;">$750,000</font><font style="font-family:inherit;font-size:10pt;"> standby letter of credit as security against insurance claims as required by our workers compensation insurance policy.&#160; There has been no activity under this letter of credit since its inception.</font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of </font><font style="font-family:inherit;font-size:10pt;">October&#160;28, 2017</font><font style="font-family:inherit;font-size:10pt;">, </font><font style="font-family:inherit;font-size:10pt;">we were in compliance with all of our covenants and had no outstanding borrowings under the revolving credit facility.</font></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:center;padding-left:0px;text-indent:0px;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;margin-left:auto;margin-right:auto;width:99.90243902439025%;border-collapse:collapse;text-align:left;"><tr><td colspan="8" rowspan="1"></td></tr><tr><td style="width:40%;" rowspan="1" colspan="1"></td><td style="width:14%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:15%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:13%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:15%;" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Three Months Ended</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Nine Months Ended</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">October&#160;28, <br clear="none"/>2017</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">October&#160;29, <br clear="none"/>2016</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">October&#160;28, <br clear="none"/>2017</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">October&#160;29, <br clear="none"/>2016</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="7" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">($ in thousands)</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Carrying value of assets with impairment</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$397</font></div></td><td 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style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$848</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$2,136</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Fair value of assets impaired</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$&#8212;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$&#8212;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$&#8212;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$173</font></div></td></tr><tr><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Number of stores tested for impairment</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">7</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">9</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">10</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">15</font></div></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Number of stores with impairment</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">2</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">4</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">8</font></div></td></tr></table></div></div></div> <div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Share-Based Compensation</font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Tilly's, Inc. 2012 Amended and Restated Equity and Incentive Plan, as amended in June 2014 (the "2012 Plan"), authorizes up to </font><font style="font-family:inherit;font-size:10pt;">4,413,900</font><font style="font-family:inherit;font-size:10pt;"> 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 </font><font style="font-family:inherit;font-size:10pt;">October&#160;28, 2017</font><font style="font-family:inherit;font-size:10pt;">, there were </font><font style="font-family:inherit;font-size:10pt;">1,754,639</font><font style="font-family:inherit;font-size:10pt;"> shares still available for future issuance under the 2012 Plan.</font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Stock Options</font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We grant stock options to certain employees that give them the right to acquire our Class&#160;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 nonqualified options vest at a rate of </font><font style="font-family:inherit;font-size:10pt;">25%</font><font style="font-family:inherit;font-size:10pt;"> on each of the first </font><font style="font-family:inherit;font-size:10pt;">four</font><font style="font-family:inherit;font-size:10pt;"> anniversaries of the grant date provided that the award recipient continues to be employed by us through each of those vesting dates, and expire </font><font style="font-family:inherit;font-size:10pt;">ten</font><font style="font-family:inherit;font-size:10pt;"> years from the date of grant.</font></div><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The following table summarizes the stock option activity for the </font><font style="font-family:inherit;font-size:10pt;">nine months ended</font><font style="font-family:inherit;font-size:10pt;"> </font><font style="font-family:inherit;font-size:10pt;">October&#160;28, 2017</font><font style="font-family:inherit;font-size:10pt;"> (aggregate intrinsic value in thousands):</font></div><div style="line-height:120%;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;width:100%;border-collapse:collapse;text-align:left;"><tr><td colspan="13" rowspan="1"></td></tr><tr><td style="width:48%;" rowspan="1" colspan="1"></td><td style="width:9%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:12%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:14%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:9%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Stock</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Options</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Grant Date</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Weighted</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Average</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Exercise&#160;Price</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Weighted</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Average</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Remaining</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Contractual</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Life&#160;(in&#160;Years)</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1"><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Aggregate</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Intrinsic</font></div><div style="text-align:center;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Value (1)</font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Outstanding at January&#160;28, 2017</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">1,842,375</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">9.98</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"&