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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________________________________ 
FORM 10-Q 
 __________________________________________________ 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 2021
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)
 __________________________________________________ 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareTLYSNew York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer 
  Accelerated Filer 
Non-accelerated filer   Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2)    Yes      No  
As of December 6, 2021, the registrant had the following shares of common stock outstanding:
Class A common stock $0.001 par value23,659,523 
Class B common stock $0.001 par value7,306,108 


TILLY’S, INC.
FORM 10-Q
For the Quarterly Period Ended October 30, 2021
Index
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.

3

Forward-Looking Statements
This Report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical or current fact included in this Report are forward-looking statements. Forward-looking statements refer to our current expectations and projections relating to our financial condition, results of operations, plans, objectives, strategies, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate”, “estimate”, “expect”, “project”, “plan”, “intend”, “believe”, “may”, “might”, “will”, “should”, “can have”, “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected earnings, revenues, comparable store sales, operating income, earnings per share, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including: 
the impacts of the COVID-19 pandemic generally (including any future surges in the number of cases or new variants or strains related thereto) on our operations, future financial or operational results;
our ability to produce acceptable levels of net sales amid the ongoing global supply chain delays that are, and have been, negatively impacting the timing of receiving new product deliveries;
our ability to adapt to changes in foot traffic trends for our stores and changes in our customers' purchasing patterns;
our ability to successfully open new stores and profitably operate our existing stores;
our ability to attract customers to our e-commerce website;
our ability to efficiently utilize our e-commerce fulfillment center;
effectively adapting to new challenges associated with our expansion into new geographic markets;
our ability to establish, maintain and enhance a strong brand image;
generating adequate cash from our existing stores to support our growth;
identifying and responding to new and changing customer fashion preferences and fashion-related trends;
competing effectively in an environment of intense competition both in stores and online;
the success of the malls, power centers, neighborhood and lifestyle centers, outlet centers and street-front locations in which our stores are located;
our ability to attract customers in the various retail venues and geographies in which our stores are located;
adapting to periods of decline in consumer confidence and consumer spending;
our ability to adapt to significant changes in sales due to the seasonality of our business;
our ability to compete in social media marketing platforms;
price reductions or inventory shortages resulting from failure to purchase the appropriate amount of inventory in advance of the season in which it will be sold;
natural disasters, unusually adverse weather conditions, port delays, boycotts, epidemics, pandemics, acts of war, terrorism, civil unrest, and other unanticipated events;
our dependence on third-party vendors to provide us with sufficient quantities of merchandise at acceptable prices;
increases in costs of energy, transportation or utility costs and in the costs of labor and employment;
our ability to balance proprietary branded merchandise with the third-party branded merchandise we sell;
adjusting to increasing costs of mailing catalogs, paper and printing;
most of our merchandise is made in foreign countries, making price and availability of our merchandise susceptible to international trade conditions;
failure of our vendors and their manufacturing sources to use acceptable labor or other practices;
our dependence upon key executive management or our inability to hire or retain the talent required for our business;
our ability to effectively adapt to our planned expansion;
failure of our information technology systems to support our current and growing business, before and after our planned upgrades;
disruptions in our supply chain and distribution center;
our indebtedness and lease obligations, including restrictions on our operations contained therein;
our reliance upon independent third-party transportation providers for certain of our product shipments;

4

our ability to increase comparable store sales or sales per square foot, which may cause our operations and stock price to be volatile;
disruptions to our information systems in the ordinary course of business or as a result of systems upgrades;
our inability to protect our trademarks or other intellectual property rights;
the impact of governmental laws and regulations and the outcomes of legal proceedings;
our ability to secure our data and comply with the security standards for the credit card industry;
our failure to maintain adequate internal controls over our financial and management systems; and
continuing costs incurred as a result of being a public company.
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.
See “Risk Factors” within our most recent Annual Report on Form 10-K for a more complete discussion of the risks and uncertainties mentioned above and for discussion of other risks and uncertainties. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this Report and hereafter in our other SEC filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.
We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the disclosures and forward-looking statements included in this Report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

5

Part I. Financial Information
 
Item 1. Financial Statements (Unaudited)
TILLY’S, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 
October 30,
2021
January 30,
2021
October 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$59,392 $76,184 $99,309 
Marketable securities96,237 64,955 25,987 
Receivables8,881 8,724 11,397 
Merchandise inventories86,692 55,698 65,936 
Prepaid expenses and other current assets9,926 6,595 5,557 
Total current assets261,128 212,156 208,186 
Operating lease assets226,547 229,864 236,443 
Property and equipment, net49,392 52,639 54,756 
Other assets13,170 12,797 9,150 
Total assets$550,237 $507,456 $508,535 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$46,378 $24,983 $36,245 
Accrued expenses20,084 30,682 21,984 
Deferred revenue13,568 13,492 11,051 
Accrued compensation and benefits17,106 9,899 10,096 
Current portion of operating lease liabilities54,299 54,503 62,747 
Other727 632 316 
Total current liabilities152,162 134,191 142,439 
Noncurrent operating lease liabilities204,325 211,292 214,052 
Other1,112 1,351 838 
Total liabilities357,599 346,834 357,329 
Commitments and contingencies (Notes 2 and 5)
Stockholders’ equity:
Common stock (Class A), $0.001 par value; 100,000 shares authorized; 23,658, 22,477 and 22,474 shares issued and outstanding, respectively
24 22 22 
Common stock (Class B), $0.001 par value; 35,000 shares authorized; 7,306, 7,306 and 7,306 shares issued and outstanding, respectively
7 8 8 
Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding
   
Additional paid-in capital165,983 155,437 154,894 
Retained earnings (Accumulated deficit)26,616 5,135 (3,736)
Accumulated other comprehensive income8 20 18 
Total stockholders’ equity192,638 160,622 151,206 
Total liabilities and stockholders’ equity$550,237 $507,456 $508,535 
The accompanying notes are an integral part of these consolidated financial statements.

6

TILLY’S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 30,
2021
October 31,
2020
October 30,
2021
October 31,
2020
Net sales$206,096 $140,275 $571,205 $353,409 
Cost of goods sold (includes buying, distribution, and occupancy costs)129,357 99,615 364,900 269,481 
Gross profit76,739 40,660 206,305 83,928 
Selling, general and administrative expenses47,742 37,122 136,007 101,082 
Operating income (loss)28,997 3,538 70,298 (17,154)
Other (expense) income, net(1)(28)(219)692 
Income (loss) before income taxes28,996 3,510 70,079 (16,462)
Income tax expense (benefit)8,162 1,397 17,888 (6,446)
Net income (loss)$20,834 $2,113 $52,191 $(10,016)
Basic earnings (loss) per share of Class A and Class B common stock$0.67 $0.07 $1.72 $(0.34)
Diluted earnings (loss) per share of Class A and Class B common stock$0.66 $0.07 $1.68 $(0.34)
Weighted average basic shares outstanding30,915 29,708 30,429 29,693 
Weighted average diluted shares outstanding31,352 29,810 31,016 29,693 
The accompanying notes are an integral part of these consolidated financial statements.

7

TILLY’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 30,
2021
October 31,
2020
October 30,
2021
October 31,
2020
Net income (loss)$20,834 $2,113 $52,191 $(10,016)
Other comprehensive income (loss), net of tax:
Net change in unrealized (loss) gain on available-for-sale securities, net of tax(4)17 (12)(196)
Other comprehensive (loss) income, net of tax(4)17 (12)(196)
Comprehensive income (loss)$20,830 $2,130 $52,179 $(10,212)
The accompanying notes are an integral part of these consolidated financial statements.

8

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 July 31, 202123,651 7,306 $31 $165,407 $5,782 $12 $171,232 
Net income— — — — 20,834 — 20,834 
Share-based compensation expense— — — 521 — — 521 
Exercises of stock options7 —  55 — — 55 
Net change in unrealized gain on available-for-sale securities— — — — — (4)(4)
Balance at October 30, 202123,658 7,306 $31 $165,983 $26,616 $8 $192,638 

 Number of Shares     
 Common
Stock
(Class A)
Common
Stock
(Class B)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
Balance at August 1, 202022,414 7,366 $30 $154,386 $(5,849)$1 $148,568 
Net income— — — — 2,113 — 2,113 
Class B common stock converted to Class A common stock60 (60)— — — — — 
Share-based compensation expense— — — 508 — — 508 
Net change in unrealized gain on available-for-sale securities— — — — — 17 17 
Balance at October 31, 202022,474 7,306 $30 $154,894 $(3,736)$18 $151,206 

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



















9


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 30, 202122,477 7,306 $30 $155,437 $5,135 $20 $160,622 
Net income— — — — 52,191 — 52,191 
Dividends paid ($1.00 per share)— — — — (30,710)— (30,710)
Restricted stock20 — — — — — — 
Share-based compensation expense— — — 1,417 — — 1,417 
Exercises of stock options1,161 — 1 9,129 — — 9,130 
Net change in unrealized gain on available-for-sale securities— — — — — (12)(12)
Balance at October 30, 202123,658 7,306 $31 $165,983 $26,616 $8 $192,638 

 Number of Shares     
 Common
Stock
(Class A)
Common
Stock
(Class B)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings (Accumulated Deficit)
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
Balance at February 1, 202022,323 7,406 $30 $153,377 $6,280 $214 $159,901 
Net loss— — — — (10,016)— (10,016)
Restricted stock51 — — — — — — 
Class B common stock converted to Class A common stock100 (100)— — — — — 
Share-based compensation expense— — — 1,517 — — 1,517 
Net change in unrealized gain on available-for-sale securities— — — — — (196)(196)
Balance at October 31, 202022,474 7,306 $30 $154,894 $(3,736)$18 $151,206 

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









10

TILLY’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Thirty-Nine Weeks Ended
 October 30,
2021
October 31,
2020
Cash flows from operating activities
Net income (loss)$52,191 $(10,016)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization13,123 14,571 
Insurance proceeds from casualty loss117  
Share-based compensation expense1,417 1,517 
Impairment of long-lived assets136 929 
Loss on disposal of assets52 67 
Gain on sales and maturities of marketable securities(101)(685)
Deferred income taxes57 (1,142)
Changes in operating assets and liabilities:
Receivables1,847 (3,912)
Merchandise inventories(31,111)(9,035)
Prepaid expenses and other current assets(3,698)1,912 
Accounts payable21,402 16,130 
Accrued expenses(9,804)2,392 
Deferred revenue76 (710)
Accrued compensation and benefits7,207 2,906 
Operating lease liabilities(5,205)6,224 
Other liabilities(856)(115)
Net cash provided by operating activities46,850 21,033 
Cash flows from investing activities
Purchases of property and equipment(10,911)(6,395)
Proceeds from sale of property and equipment17  
Insurance proceeds from casualty loss29  
Purchases of marketable securities(126,420)(30,946)
Maturities of marketable securities95,224 75,157 
Net cash (used in) provided by investing activities(42,061)37,816 
Cash flows from financing activities
Proceeds from line of credit 23,675 
Repayment of line of credit (23,675)
Dividends paid(30,710)(29,677)
Proceeds from exercise of stock options9,129  
Net cash used in financing activities(21,581)(29,677)
Change in cash and cash equivalents(16,792)29,172 
Cash and cash equivalents, beginning of period76,184 70,137 
Cash and cash equivalents, end of period$59,392 $99,309 
Supplemental disclosures of cash flow information
Interest paid$ $182 
Income taxes paid$26,493 $857 
Supplemental disclosure of non-cash activities
Unpaid purchases of property and equipment$1,702 $2,246 
Leased assets obtained in exchange for new operating lease liabilities$32,787 $11,999 
The accompanying notes are an integral part of these consolidated financial statements.

11


TILLY’S, INC.
NOTES TO THE 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 assortment of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle. Tillys is headquartered in Irvine, California and operated 243 stores, in 33 states as of October 30, 2021. Our stores are located in malls, lifestyle centers, ‘power’ centers, community centers, outlet centers and street-front locations. Customers may also shop online, where we feature the same assortment of products as carried in our brick-and-mortar stores, supplemented by additional online-only styles. Our goal is to serve as a destination for the latest, most relevant merchandise and brands important to our customers.
The Tillys concept began in 1982, when our co-founders, Hezy Shaked and Tilly Levine, opened their first store in Orange County, California. Since 1984, the business has been conducted through World of Jeans & Tops, a California corporation, or “WOJT”, which operates under the name “Tillys”. In May 2011, Tilly’s, Inc., a Delaware corporation, was formed solely for the purpose of reorganizing the corporate structure of WOJT in preparation for an initial public offering. As part of the initial public offering in May 2012, WOJT became a wholly owned subsidiary of Tilly's, Inc.
The consolidated financial statements include the accounts of Tilly's Inc. and WOJT. All intercompany accounts and transactions have been eliminated in consolidation.
As used in these Notes to the Consolidated Financial Statements, except where the context otherwise requires or where otherwise indicated, the terms "the Company", "World of Jeans and Tops", "WOJT", "we", "our", "us" and "Tillys" refer to WOJT before our initial public offering, and to Tilly's, Inc. and its subsidiary after our initial public offering.
We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial reporting. These unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted from this Quarterly Report on Form 10-Q as is permitted by SEC rules and regulations.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows for the interim periods presented. The results of operations for the thirteen and thirty-nine week periods ended October 30, 2021 are not necessarily indicative of results to be expected for the full fiscal year, especially in light of the favorable impact of federal stimulus checks on consumer spending earlier in fiscal 2021 and the atypical back-to-school timing that occurred amid the pandemic during fiscal 2020 and early fiscal 2021. 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 30, 2021 ("fiscal 2020").
Fiscal Periods
Our fiscal year ends on the Saturday closest to January 31. References to fiscal 2021 refer to the fiscal year ending January 29,
2022. References to the fiscal quarters or first nine months ended October 30, 2021 and October 31, 2020 refer to the thirteen and thirty-nine week periods ended as of those dates, respectively.
Impact of the COVID-19 Pandemic on our Business
As of the date of filing this Quarterly Report on Form 10-Q (this "Report"), there remain many uncertainties regarding the ongoing COVID-19 pandemic (the "pandemic"), including the anticipated duration and severity of the pandemic, particularly in light of ongoing vaccination efforts and emerging variant strains of the virus. To date, the pandemic has had far-reaching impacts on many aspects of the operations of the Company, directly and indirectly, including on consumer behavior, store traffic, operational capabilities and our operations generally, timing of deliveries, demands on our information technology and e-commerce capabilities, inventory and expense management, managing our workforce, our storefront configurations and operations upon reopening, and our people, which have materially disrupted our business and the market generally. The scope and nature of these impacts continue to evolve. With the current resurgence of COVID-19, we may experience adverse impacts in the future, including similar impacts we have previously experienced during the pandemic, such as regional quarantines, labor stoppages and shortages, changes in consumer purchasing patterns, mandatory or elective shut-downs of retail locations, disruptions to supply chains, including the inability of our suppliers and service providers to deliver materials and services on a timely basis, or at all, severe market volatility, liquidity disruptions, and overall economic instability, which, in many cases, had, and may in the future continue to have, material adverse impacts on our business, financial condition and results of

12

operations. This situation is continually evolving, and additional impacts may arise that we are not aware of currently, or current impacts may become magnified.
Note 2: Summary of Significant Accounting Policies
Information regarding our significant accounting policies is contained in Note 2, “Summary of Significant Accounting Policies”, of the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.
Revenue Recognition
Revenue is recognized for store sales when the customer receives and pays for the merchandise at the register, net of estimated returns. Taxes collected from our customers are recorded on a net basis. For e-commerce sales, we recognize revenue, net of sales taxes and estimated sales returns, and the related cost of goods sold at the time the merchandise is shipped to the customer. Amounts related to shipping and handling that are billed to customers are reflected in net sales, and the related costs are reflected in cost of goods sold in the Consolidated Statements of Operations.
The following table summarizes net sales from our retail stores and e-commerce (in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 30,
2021
October 31,
2020
October 30,
2021
October 31,
2020
Retail stores$165,255 $104,546 $457,557 $235,358 
E-commerce40,841 35,729 113,648 118,051 
Total net sales$206,096 $140,275 $571,205 $353,409 
The following table summarizes the percentage of net sales by department:
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 30,
2021
October 31,
2020
October 30,
2021
October 31,
2020
Mens37 %36 %36 %35 %
Womens25 %26 %27 %27 %
Accessories18 %16 %16 %16 %
Footwear10 %12 %11 %13 %
Boys5 %5 %5 %5 %
Girls4 %4 %4 %4 %
Hardgoods1 %1 %1 % %
Total net sales100 %100 %100 %100 %
The following table summarizes the percentage of net sales by third-party and proprietary branded merchandise:
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 30,
2021
October 31,
2020
October 30,
2021
October 31,
2020
Third-party68 %73 %70 %75 %
Proprietary32 %27 %30 %25 %
Total net sales100 %100 %100 %100 %
We accrue for estimated sales returns by customers based on historical sales return results. As of October 30, 2021, January 30, 2021 and October 31, 2020, our reserve for sales returns was $2.3 million, $1.4 million and $1.5 million, respectively.
We recognize revenue from gift cards as they are redeemed for merchandise. Prior to redemption, we maintain a current liability for unredeemed gift card balances. The customer liability balance was $7.9 million, $9.6 million and $7.4 million as of October 30, 2021, January 30, 2021 and October 31, 2020, respectively, and is included in deferred revenue on the accompanying Consolidated Balance Sheets. Our gift cards do not have expiration dates and in most cases there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. Based on actual historical redemption patterns, we determined that a small percentage of gift cards are unlikely to be redeemed (which we refer to as gift card “breakage”). Based

13

on our historical gift card breakage rate, we recognize breakage revenue over the redemption period in proportion to actual gift card redemptions. Revenue recognized from gift cards was $2.9 million and $2.7 million for the thirteen weeks ended October 30, 2021 and October 31, 2020, respectively. For the thirteen weeks ended October 30, 2021 and October 31, 2020, the opening gift card balance was $7.9 million and $7.7 million, respectively, of which $0.6 million and $1.2 million respectively, was recognized as revenue during the respective periods. Revenue recognized from gift cards was $10.1 million and $8.1 million for the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively. For the thirty-nine weeks ended October 30, 2021 and October 31, 2020, the opening gift card balance was $9.6 million and $9.3 million, respectively, of which $4.0 million and $3.7 million, respectively, was recognized as revenue during the respective periods.
We have a customer loyalty program where customers accumulate points based on purchase activity. Once a loyalty member achieves a certain point level, the member earns an award that may be used towards the purchase of merchandise. Unredeemed awards and accumulated partial points are accrued as deferred revenue and awards redeemed by the member for merchandise are recorded as an increase to net sales. Our loyalty program allows customers to redeem their awards instantly or build up to additional awards over time. We currently expire unredeemed awards and accumulated partial points 365 days after the last purchase activity. A liability is estimated based on the standalone selling price of awards and partial points earned and estimated redemptions. The deferred revenue for this program was $5.7 million, $3.9 million and $3.6 million as of October 30, 2021, January 30, 2021 and October 31, 2020, respectively. The value of points redeemed through our loyalty program was $2.8 million and $1.9 million for the thirteen weeks ended October 30, 2021 and October 31, 2020, respectively. For the thirteen weeks ended October 30, 2021 and October 31, 2020, the opening loyalty program balance was $5.1 million and $1.7 million, respectively, of which $1.4 million and $0.5 million, respectively, was recognized as revenue during the respective periods. The value of points redeemed through our loyalty program was $7.7 million and $4.2 million for the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively. For the thirty-nine weeks ended October 30, 2021 and October 31, 2020, the opening loyalty program balance was $3.9 million and $2.4 million, respectively, of which $3.7 million and $1.6 million, respectively, was recognized as revenue during the respective periods.
Leases
We conduct all of our retail sales and corporate operations in leased facilities. Lease terms for our stores are generally for ten years (subject to elective extensions) and provide for escalations in base rents. Many of our store leases contain one or more options to renew the lease at our sole discretion. Generally, we do not consider any additional renewal periods to be reasonably certain of being exercised.
Most store leases include tenant allowances from landlords, rent escalation clauses and/or contingent rent provisions. Certain leases provide for additional rent based on a percentage of sales and annual rent increases generally based upon the Consumer Price Index. In addition, most of our store leases are net leases, which typically require us to be responsible for certain property operating expenses, including property taxes, insurance, common area maintenance, in addition to base rent. Many of our store leases contain certain co-tenancy provisions that permit us to pay rent based on a pre-determined percentage of sales when the occupancy of the retail center falls below minimums established in the lease. For non-cancelable operating lease agreements, operating lease assets and operating lease liabilities are established for leases with an expected term greater than one year and we recognize lease expense on a straight-line basis. Contingent rent, determined based on a percentage of sales in excess of specified levels, is recognized as rent expense when the achievement of the specified sales that triggers the contingent rent is probable.
In response to stores being closed to the public as a result of the COVID-19 pandemic, we elected to withhold payment of our contractual lease obligations with respect to certain stores for the periods we were unable to operate such stores. We have substantially completed negotiating COVID-19 related lease concessions for most of our stores, with less than 10 stores and $0.4 million of withheld rents remaining unresolved as of October 30, 2021. These agreements have generally resulted in a combination of rent abatements and/or rent deferrals. With respect to all of our stores, we continue to have ongoing conversations with our landlords generally regarding what we believe to be commercially reasonable lease concessions given the current environment. We have considered the Financial Accounting Standards Board's (“FASB”) guidance regarding COVID-19 lease concessions and have elected to account for the lease concessions that have been granted as lease modifications.
We lease approximately 172,000 square feet of office and warehouse space (10 and 12 Whatney, Irvine, California) from a company that is owned by the co-founders of Tillys. During the thirteen and thirty-nine week periods ended October 30, 2021, we incurred rent expense of $0.5 million and $1.5 million, respectively, related to this lease. During the thirteen and thirty-nine week periods ended October 31, 2020, we incurred rent expense of $0.5 million and $1.6 million, respectively, related to this lease. Our lease began in January 1, 2003 and terminates on December 31, 2027.
We lease approximately 26,000 square feet of office and warehouse space (11 Whatney, Irvine, California) from a company that is owned by one of the co-founders of Tillys. During each of the thirteen and thirty-nine week periods ended October 30, 2021 and October 31, 2020, we incurred rent expense of $0.1 million and $0.3 million, respectively, related to this lease.

14

Pursuant to the lease agreement, the lease payment adjusts annually based upon the Los Angeles/Anaheim/Riverside Urban Consumer Price Index, with the adjustment not to be below 3% nor exceed 7% in any one annual increase. The lease began on June 29, 2012 and terminates on June 30, 2022.
We lease approximately 81,000 square feet of office and warehouse space (17 Pasteur, Irvine, California) from a company that is owned by one of the co-founders of Tillys. We use this property as our e-commerce distribution center. During the thirteen and thirty-nine week periods ended October 30, 2021, we incurred rent expense of $0.3 million and $0.7 million, respectively, related to this lease. During the thirteen and thirty-nine week periods ended October 31, 2020, we incurred rent expense of $0.2 million and $0.7 million, respectively, related to this lease. Pursuant to the lease agreement, the lease payment adjusts annually based upon the Los Angeles/Anaheim/Riverside Urban Consumer Price Index, with the adjustment not to be below 3% nor exceed 7% in any one annual increase. The lease began on November 1, 2011 with a 10-year term ending on October 31, 2021. During October 2021, this lease was amended to extend the term for an additional period of 10 years and now terminates on October 31, 2031. Pursuant to the amended lease agreement, the lease payment adjusts annually based upon the greater of 5% or the Consumer Price Index.
The maturity of operating lease liabilities as of October 30, 2021 were as follows (in thousands):
Fiscal YearRelated PartyOtherTotal
2021$917 $16,786 $17,703 
20223,434 63,734 67,168 
20233,416 53,211 56,627 
20243,543 42,667 46,210 
20253,676 33,484 37,160 
Thereafter13,582 69,115 82,697 
LeaseAndRentalExpense28,568 278,997 307,565 
Less: Amount representing interest4,361 44,580 48,941 
Present value of operating lease liabilities$24,207 $234,417 $258,624 

As of October 30, 2021, additional operating lease contract modifications executed subsequent to the balance sheet date, but prior to the filing date, are approximately $2.3 million.

Lease expense for the thirteen and thirty-nine week periods ended October 30, 2021 and October 31, 2020 was as follows (in thousands):
Thirteen Weeks Ended
October 30, 2021
Thirteen Weeks Ended
October 31, 2020
Cost of goods soldSG&ATotalCost of goods soldSG&ATotal
Fixed operating lease expense$14,998 $415 $15,413 $14,829 $409 $15,238 
Variable lease expense4,907 15 $4,922 4,663 12 4,675 
Total lease expense$19,905 $430 $20,335 $19,492 $421 $19,913 

Thirty-Nine Weeks Ended
October 30, 2021
Thirty-Nine Weeks Ended
October 31, 2020
Cost of goods soldSG&ATotalCost of goods soldSG&ATotal
Fixed operating lease expense$45,055 $1,240 $46,295 $45,229 $1,212 $46,441 
Variable lease expense13,642 16 13,658 12,907 62 12,969 
Total lease expense$58,697 $1,256 $59,953 $58,136 $1,274 $59,410 


15

Supplemental lease information for the thirty-nine weeks ended October 30, 2021 and October 31, 2020 was as follows:
Thirty-Nine Weeks Ended
October 30, 2021
Thirty-Nine Weeks Ended
October 31, 2020
Cash paid for amounts included in the measurement of operating lease liabilities (in thousands)$51,823$36,694
Weighted average remaining lease term (in years)5.6 years5.8 years
Weighted average interest rate (1)
6.16%4.64%
(1) Since our leases do not provide an implicit rate, we used our incremental borrowing rate ("IBR") on date of adoption, at lease inception, or lease modification in determining the present value of future minimum payments.

During the second quarter of fiscal 2021, we identified and corrected an immaterial error in our balance sheets whereby we previously presented our operating lease assets on a net basis rather than presenting any negative operating lease asset balances as a separate operating lease liability. As such, during the third quarter of fiscal 2021, we have presented the corrected balances herein as of January 30, 2021 and October 31, 2020, for which there was a $2.0 million and $1.1 million gross-up of both operating lease assets and operating lease liabilities as of the respective dates. Further, we have presented the corrected Statement of Cash Flows for the thirty-nine weeks ended October 31, 2020 for which there was no net impact on net cash provided by operating activities.
Income Taxes
Our income tax expense was $17.9 million, or 25.5% of pre-tax income, compared to an income tax benefit of $(6.4) million, or 39.2% of pre-tax loss, for the thirty-nine weeks ended October 30, 2021 and October 31, 2020, respectively. The decrease in the effective income tax rate was primarily due to deferred income tax benefits of $1.0 million derived from employee stock option exercise activity in fiscal 2021, and the prior year impact of the CARES Act which provided for net operating losses in fiscal 2020 to be carried back to earlier tax years with higher tax rates.
New Accounting Standards Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which modifies or replaces existing models for impairment of trade and other receivables, debt securities, loans, beneficial interests held as assets, purchased-credit impaired financial assets and other instruments. The new standard requires entities to measure expected losses over the life of the asset and recognize an allowance for estimated credit losses upon recognition of the financial instrument. ASU 2016-13 will become effective for us in the first quarter of fiscal 2023, with early adoption permitted and must be adopted using the modified retrospective method. We expect the new rules to apply to our fixed income securities recorded at amortized cost and classified as held-to-maturity and our trade receivables. We do not expect the adoption of this new standard to have a material impact on our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting of Income Taxes ("ASU 2019-12"), which enhances and simplifies various aspects of income tax accounting guidance. The guidance is effective for annual periods after December 15, 2020. The Company adopted ASU 2019-12 in the first quarter of fiscal 2021. The impact this guidance has on our consolidated financial statements and related disclosures is immaterial.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact this guidance may have on our consolidated financial statements and related disclosures.
Note 3: Marketable Securities
Marketable securities as of October 30, 2021 consisted of commercial paper, classified as available-for-sale, and fixed income securities, classified as held-to-maturity, as we have the intent and ability to hold them to maturity. Our investments in commercial paper and fixed income securities are recorded at fair value and amortized cost, respectively, which approximates fair value. All of our marketable securities are less than one year from maturity.

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The following table summarizes our investments in marketable securities at October 30, 2021, January 30, 2021 and October 31, 2020 (in thousands):
 October 30, 2021
 Cost or
Amortized Cost
Gross Unrealized
Holding Gains
Gross
Unrealized
Holding
Losses
Estimated
Fair Value
Commercial paper$64,261 $12 $(1)$64,272 
Fixed income securities31,965   31,965 
Total marketable securities$96,226 $12 $(1)$96,237 
 January 30, 2021
 Cost or
Amortized Cost
Gross Unrealized
Holding Gains
Gross
Unrealized
Holding
Losses
Estimated
Fair Value
Commercial paper$64,928 $28 $(1)$64,955 
Total marketable securities$64,928 $28 $(1)$64,955 
 October 31, 2020
 Cost or
Amortized Cost
Gross Unrealized
Holding Gains
Gross
Unrealized
Holding
Losses
Estimated
Fair Value
Commercial paper$24,950 $25 $ $24,975 
Fixed income securities1,012   1,012 
Total marketable securities$25,962 $25 $ $25,987 
We recognized gains on investments for commercial paper that matured during the thirteen and thirty-nine week periods ended October 30, 2021 and October 31, 2020. Upon recognition of the gains, we reclassified these amounts out of Accumulated Other Comprehensive Income and into “Other (expense) income, net” on the Consolidated Statements of Operations.
The following table summarizes our gains on investments for commercial paper (in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 30,
2021
October 31,
2020
October 30,
2021
October 31,
2020
Gains on investments$19 $ $91 $554 
Note 4: Asset-Backed Credit Facility
On November 9, 2020 (the “Closing Date”), we entered into an asset-backed credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association ("Bank"), as lender, administrative agent and collateral agent (the “Agent”). The Credit Agreement replaced our then-existing amended and restated credit agreement (the “Prior Credit Agreement”), dated as of May 3, 2012, as amended, with the Agent.
The Credit Agreement provides for an asset-based, senior secured revolving credit facility of up to $65.0 million consisting of revolving loans, letters of credit and swing line loans provided by lenders, with a sub limit on credit outstanding at any time of $10.0 million and a sub limit for swing line loans of $7.5 million. The Credit Agreement also includes an uncommitted accordion feature whereby we may increase the revolving commitment by an aggregate amount not to exceed $12.5 million, subject to certain conditions. The revolving facility matures on November 9, 2023. The payment and performance in full of the secured obligations under the revolving facility are secured by a lien on and security interest in all of the assets of our Company.
The maximum borrowings permitted under the revolving facility is equal to the lesser of (x) the revolving commitment and (y) the borrowing base. The borrowing base is equal to (a) 90% of the borrower's eligible credit card receivables, plus (b) 90% of the cost of the borrower's eligible inventory, less inventory reserves established by the Agent, and adjusted by the appraised value of such eligible inventory, plus (c) 90% of the cost of the borrower's eligible in-transit inventory, less inventory reserves

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established by the Agent, and adjusted by the appraised value of such eligible in-transit inventory (not to exceed 10% of the total amount of all eligible inventory included in the borrowing base) less (d) reserves established by the Agent.
The unused portion of the revolving commitment accrues a commitment fee, which ranges from 0.375% to 0.50% per annum, based on the average daily borrowing capacity under the revolving facility over the applicable fiscal quarter. Borrowings under the revolving facility bear interest at a rate per annum that ranges from the LIBOR rate plus 2.0% to the LIBOR rate plus 2.25%, or the base rate plus 1.0% to the base rate plus 1.25%, based on the average daily borrowing capacity under the revolving facility over the applicable fiscal quarter. We may elect to apply either the LIBOR rate or base rate interest to borrowings at our discretion, other than in the case of swing line loans, to which the base rate shall apply.
Under the Credit Agreement, we are subject to a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including a financial covenant relating to availability, and customary events of default. Prior to the first anniversary of the Closing Date, we were prohibited from declaring or paying any cash dividends to our respective stockholders or repurchasing of our own common stock. After the first anniversary of the Closing Date, we are allowed to declare and pay cash dividends to our respective stockholders and repurchase our own common stock, provided, among other things, no default or event of default exists as of the date of any such payment and after giving effect thereto and certain minimum availability and minimum projected availability tests are satisfied.
On June 8, 2021, we entered into a Consent Agreement authorizing us to declare and pay cash dividends to our shareholders of up to $31 million in the aggregate on or before July 31, 2021. We paid a one-time special cash dividend of $1.00 per share on July 9, 2021, to all holders of record of issued and outstanding common stock in the aggregate of $30.7 million.
In connection with the entry into the Credit Agreement, on November 9, 2020, we entered into certain ancillary agreements, including (i) a security agreement in favor of the Agent, and (ii) a guaranty by us in favor of the Agent. The security agreement and the guaranty replaced (i) the general pledge agreement, dated as of May 3, 2012, by us in favor of the bank, (ii) the continuing guaranty by us in favor of the Agent, dated May 3, 2012, and (iii) the amended and restated security agreement with respect to equipment and the amended and restated security agreement with respect to rights to payment and inventory, in each case, dated as of May 3, 2012.
As of October 30, 2021, we were in compliance with all of our covenants, were eligible to borrow up to a total of $63.0 million, and had no outstanding borrowings under the Credit Agreement.
The Prior Credit Agreement was terminated concurrently with the entry into the Credit Agreement. The interest rate charged on borrowings under the Prior Credit Agreement was selected at our discretion at the time of draw between LIBOR plus 0.75%, or at the Bank’s prime rate. The Prior Credit Agreement was secured by substantially all of our assets. In March 2020, we borrowed $23.7 million under our Prior Credit Agreement, which represented the maximum borrowings permitted thereunder, and which were subsequently repaid in September 2020.
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 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. In December 2017, we filed an answer to the complaint, denying all of the claims and asserting various defenses. In April 2018, the plaintiff filed a separate action under the Private Attorneys General Act ("PAGA") against us seeking penalties on behalf of himself and other similarly situated employees for the same alleged violations of California's wage and hour laws. We requested the plaintiff to dismiss the class action claims based on an existing class action waiver in an arbitration agreement which plaintiff signed with our co-defendant, BaronHR, the staffing company that employed plaintiff to work at the Company. In June 2018, the plaintiff's class action complaint was dismissed. The parties mediated the PAGA case with a well-respected mediator in March 2020. Although the case did not settle at the mediation, the parties have agreed to continue their settlement discussions with the assistance of the mediator. The court has not yet issued a trial date. By agreement between co-defendant BaronHR and Tilly's, BaronHR is required to indemnify us for all of our losses and expenses incurred in connection with this matter. We have defended this case vigorously, and will continue to do so. We believe that a loss is currently not probable or estimable under ASC 450, “Contingencies,” and no accrual has been made with regard to the verdict.

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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 us 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. In February 2019, the Court of Appeal issued an opinion overturning the trial court’s decision, holding that the plaintiff’s allegations stated a claim. In March 2019, we filed a petition for review with the California Supreme Court seeking its discretionary review of the Court of Appeal’s decision. The California Supreme Court declined to review the Court of Appeal’s decision. Since the case was remanded back to the trial court, the parties have been engaged in discovery. In March 2020, the plaintiff filed a motion for class certification. In July 2020, we filed our opposition to the motion for class certification. In September 2020, the plaintiff filed her reply brief in support of the motion for class certification. In October 2020, the court denied plaintiff's motion for class certification. In December 2020, the plaintiff filed a notice of appeal of the court's order denying her motion for class certification. On October 15, 2021, the plaintiff filed a request for dismissal of her appeal. On October 20, 2021, the Court of Appeal dismissed plaintiff’s appeal and issued a remittitur to return the case to the trial court. As a result, the case currently consists solely of the plaintiff’s individual claims. We have defended this case vigorously, and will continue to do so. We believe that a loss is currently not probable or estimable under ASC 450, “Contingencies,” and no accrual has been made with regard to the verdict.
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 available-for-sale, and certain cash equivalents, specifically money market securities, and commercial paper. The money market accounts are valued based on quoted market prices in active markets (Level 1). 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 (Level 2).
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 thirteen and thirty-nine week periods ended October 30, 2021 and October 31, 2020, we did not make any transfers between Level 1 and Level 2 financial assets. Furthermore, as of October 30, 2021, January 30, 2021 and October 31, 2020, 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.

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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 30, 2021January 30, 2021October 31, 2020
Level 1Level 2Level 3Level 1Level 2Level 3Level 1Level 2Level 3
Cash equivalents (1):
Money market securities$52,532 $ $ $67,115 $ $ $93,045 $