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What changed in TILLY'S, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TILLY'S, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+294 added−353 removedSource: 10-K (2023-04-13) vs 10-K (2022-04-14)

Top changes in TILLY'S, INC.'s 2023 10-K

294 paragraphs added · 353 removed · 248 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

87 edited+16 added−11 removed76 unchanged
Biggest changeOur support of TLC includes customer donations at our store registers (round-up for charity), cash donations by the Company, use of a portion of our e-commerce distribution center office space for their operations, and use of Company staff to aid in event planning. • We are members of the Orange County Racial Justice Group, an organization comprised of several leading employers in Orange County, CA committed to education and awareness to combat unconscious bias and racism, and drive respect and empathy for everyone in our local community. • We provide direct financial support to a variety of school-based programs in the communities within which we operate our stores. • We donate end of season products to certain charitable organizations for their use in supporting their respective missions.
Biggest changeOur support of TLC includes customer donations at our store registers (round-up for charity), cash donations by the Company, use of a portion of our e-commerce distribution center office space for their operations, and use of Company staff to aid in event planning. • Through our "We Care" program and in partnership with our vendors, we routinely support and participate in various academic, art, and athletic programs at local schools and other organizations within the communities surrounding our stores. • We donate end of season products to certain charitable organizations for their use in supporting their respective missions.
Insurance We use insurance to address or reduce our exposure to actual or potential enterprise risks, including but not limited to workers’ compensation claims, property damage or loss, directors' and officers' liability, cyber/data security risks, fiduciary liability, general liability claims, automobile liability, employment practices liability, and employee-related health care, a portion of 14 which is paid by the employees.
Insurance We use insurance to address or reduce our exposure to actual or potential enterprise risks, including but not limited to workers’ compensation claims, property damage or loss, directors' and officers' liability, cyber/data security risks, fiduciary liability, general liability claims, automobile liability, employment practices liability, and employee-related health care, a portion of which is paid by the employees.
We utilize multiple tools to drive traffic online, including our catalog, postcards, marketing materials in our retail stores, search engine marketing, paid social media marketing, online ad placement, shopping site partnerships, third-party affiliations, email marketing, digital marketing and direct mail. In addition, we utilize the website to offer current information on our upcoming events, promotions and store locations.
We utilize multiple tools to drive traffic online, including our catalog, postcards, marketing materials in our retail stores, search engine marketing, paid social media marketing, online ad placement, shopping site partnerships, third-party affiliations, email marketing, digital marketing, SMS marketing, and direct mail. In addition, we utilize the website to offer current information on our upcoming events, promotions and store locations.
We maintain a whistleblower hotline wherein employees, customers and/or vendors can confidentially report unethical or illegal behavior by Company management or other employees. As a publicly-traded company, we maintain an Insider Trading Policy that limits the time periods during which Company employees may trade in Company stock to avoid potential insider trading issues.
We maintain a whistleblower hotline wherein employees, customers and/or vendors can confidentially report unethical or illegal behavior by Company management or other employees. 15 As a publicly-traded company, we maintain an Insider Trading Policy that limits the time periods during which Company employees may trade in Company stock to avoid potential insider trading issues.
Net revenues are typically smallest in the first quarter and largest during the fourth quarter of a given fiscal year. Our net sales fluctuate significantly in relation to various holidays and other peak shopping periods, including but not limited to the Thanksgiving and year-end holiday season, the back-to-school season, spring break periods, and other holidays.
Net revenues are typically smallest in the first quarter and largest during the fourth quarter of a given fiscal year. Our net sales fluctuate significantly in relation to various holidays and other peak shopping periods, including but not limited to the Thanksgiving and year-end holiday season, the back-to-school season, spring break 13 periods, and other holidays.
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".
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 ("WOJT"), a California corporation, which operates under the name "Tillys".
Our third-party and proprietary branded merchandise includes a broad selection of lifestyle and emerging brands. We strive to keep our merchandise mix current by continuously introducing emerging brands and styles not available at many other specialty retailers in order to identify and respond to the evolving desires of our customers.
Our third-party and proprietary branded merchandise includes a broad selection of lifestyle and emerging brands. We strive to keep our merchandise mix current by continuously introducing emerging brands and styles not available at many other specialty retailers in order to identify and respond to the evolving 7 desires of our customers.
Item 1. Business Tillys is a leading destination specialty retailer of casual apparel, footwear, accessories, and hardgoods for young men, young women, boys and girls with an extensive assortment of iconic global, emerging, and proprietary brands rooted in an active and social lifestyle.
Item 1. Business Tillys is a leading destination specialty retailer of casual apparel, footwear, accessories, and hardgoods for young men, young women, boys and girls with an extensive assortment of iconic global, emerging, and proprietary brands rooted in an active, outdoor and social lifestyle.
We also seek to maintain a connection with our local communities through our various community outreach initiatives. • Systems and distribution/fulfillment infrastructure to support growth. We believe our existing distribution, fulfillment and allocation infrastructure is adequate to support continued growth for the next few years.
We also seek to maintain a connection with our local communities through our various community outreach initiatives and events. • Systems and distribution/fulfillment infrastructure to support growth. We believe our existing distribution, fulfillment and allocation infrastructure is adequate to support continued growth for the next few years.
In addition, we compete with independent specialty shops, department stores, off-price retailers, online marketplaces such as Amazon, online retailers such as Sheen and Fashion Nova, stores and websites operated by our third-party brands, and direct marketers that sell similar lines of merchandise and that target customers through catalogs and e-commerce.
In addition, we compete with independent specialty shops, department stores, off-price retailers, online marketplaces such as Amazon, online retailers such as Shein and Fashion Nova, stores and websites operated by our third-party brands, and direct marketers that sell similar lines of merchandise and that target customers through catalogs and e-commerce.
We also will continue to use established business processes to identify and execute initiatives focused on lowering our unit costs and improving operational efficiency throughout our organization. • Continue Growing E-Commerce. Our e-commerce net sales represented approximately 21% of our total net sales for fiscal 2021.
We also will continue to use established business processes to identify and execute initiatives focused on lowering our unit costs and improving operational efficiency throughout our organization. • Continue Growing E-Commerce. Our e-commerce net sales represented approximately 21% of our total net sales for each of fiscal 2022 and 2021.
Notwithstanding the impacts of the pandemic, we believe that significant growth opportunities continue to exist for our e-commerce business and, relative to fiscal 2021, we believe it may continue to grow as a percentage of total net sales in the future.
Notwithstanding the impacts of the pandemic, we believe that significant growth opportunities continue to exist for our e-commerce business and, relative to fiscal 2022, we believe it may continue to grow as a percentage of total net sales in the future.
We have also partnered with Afterpay and Uber Eats to offer our customers greater flexibility in payment options and delivery convenience. We plan to continue to invest in additional customer-facing technologies to improve customer 7 convenience and engagement over time.
We have also partnered with Afterpay and Uber Eats to offer our customers greater flexibility in payment options and delivery convenience. We plan to continue to invest in additional customer-facing 6 technologies to improve customer convenience and engagement over time.
Our stores have proven to be successful in a variety of retail centers and geographies. We operate stores in malls, lifestyle centers, power centers, community centers, outlet centers, and street-front locations across 87 markets in 33 states.
Our stores have proven to be successful in a variety of retail centers and geographies. We operate stores in malls, lifestyle centers, power centers, community centers, outlet centers, and street-front locations across 86 markets in 33 states.
In each case, our real estate decisions will be driven by the overarching goal of improving our profitability. As a result, we may close a limited number of stores from time to time if acceptable levels of profitability cannot be obtained through lease negotiations with landlords.
In each case, our real estate decisions will be driven by the overarching goal of improving our profitability. As a result, we may close a limited number of stores from time to time if acceptable potential for profitability cannot be obtained through lease negotiations with landlords.
Selected brands involved in our sustainability program partnership include, among others, HydroFlask, Jansport, The North Face, Billabong, adidas, Birkenstock, Teva, Columbia, Vans, Levi’s, Obey, Vissla, Brixton, Katin, RVCA, Santa Cruz, and O’Neill , as well as our own RSQ proprietary brand.
Selected brands involved in our sustainability program partnership include, among others, HydroFlask, Jansport, The North Face, Billabong, adidas, Birkenstock, Teva, Columbia, Vans, Levi’s, Obey, Vissla, Brixton, Katin, RVCA, Santa Cruz, and O’Neill, as well as our own RSQ and Blue Crown proprietary brands.
We have a growing customer loyalty program, “Tilly’s Rewards”, to further engage with our customers, reward our most loyal customers, provide loyalty only events, and gain valuable customer insights.
We have a growing customer loyalty program, “Tilly’s Rewards”, to regularly engage with our customers, reward our most loyal customers, provide loyalty only events, and gain valuable insights.
We utilize our own proprietary, branded merchandise to expand our price point range, identify and respond to changing fashion trends quickly, fill merchandise gaps and provide a deeper selection of styles and colors for proven fashion items. Our proprietary brands represented approximately 30%, 26% and 25% of our total net sales in fiscal 2021, 2020 and 2019, respectively.
We utilize our own proprietary, branded merchandise to expand our price point range, identify and respond to changing fashion trends quickly, fill merchandise gaps and provide a deeper selection of styles and colors for proven fashion items. Our proprietary brands represented approximately 32%, 30% and 26% of our total net sales in fiscal 2022, 2021 and 2020, respectively.
We also operate a 81,000 square foot e-commerce fulfillment center in Irvine, California to handle all e-commerce orders in a highly automated environment that leverages material-handling equipment, automated systems and other technologies consistent with our current distribution facility in order to support our e-commerce growth initiatives.
We also operate an 81,000 square foot e-commerce fulfillment center in Irvine, California to process e-commerce orders in a highly automated environment that leverages material-handling equipment, automated systems and other technologies consistent with our current distribution facility in order to support our e-commerce growth initiatives.
In early 2022, we joined the Better Cotton Initiative ("BCI"), which is a global cotton sustainability organization that helps ensure clothing manufacturers are sourcing more sustainable cotton that has a lower environmental and social impact, including crop protection, water stewardship, soil health, and decent working conditions.
In early 2022, we joined the Better Cotton Initiative ("BCI"), a global cotton sustainability organization that helps ensure clothing manufacturers are sourcing more sustainable cotton with a lower environmental and social impact, including crop protection, water stewardship, soil health, and decent working conditions.
We also offer buy online pick-up in store, same-day delivery, curbside pickup and ship-to-store ordering options from a large majority of our stores. We plan to upgrade our mobile application and our website platform to a more mobile-responsive version in fiscal 2022.
We also offer buy online pick-up in store, same-day delivery, curbside pickup and ship-to-store ordering options from a large majority of our stores. We upgraded our website platform to a more mobile-responsive version in fiscal 2022.
We require the use of zero or low volatile organic compounds materials in our new store construction, which includes adhesives, primers, paints, sealers, caulks and other coatings. All stores are provided with biodegradable cleaning solvents for cleaning and disinfection.
We require the use of zero or low volatile organic compounds materials in our new store construction, which includes adhesives, 14 primers, paints, sealers, caulks and other coatings. All stores use biodegradable cleaning solvents for cleaning and disinfection.
In fiscal 2020, our e-commerce net sales grew to 33% of our total net sales, which was significantly accelerated as a result of pandemic-related store shutdowns, restrictions on store operating hours and customer occupancy limits, and pandemic-related changes in consumer behaviors.
In fiscal 2020, our e-commerce net sales represented 33% of our total net sales, which was significantly accelerated as a result of pandemic-related store shutdowns, restrictions on store operating hours and customer occupancy limits in stores, and pandemic-related changes in consumer behaviors.
Through our “We Care Program” and in partnership with our vendors, we routinely support and participate in various academic, art, and athletic programs at local schools and other organizations in communities surrounding our stores. Distribution We distribute all of our store merchandise through a 126,000 square foot distribution facility co-located with our headquarters in Irvine, California.
Through our “We Care Program” and in partnership with our vendors, we routinely support and participate in various academic, art, and athletic programs at local schools and other organizations in communities surrounding our stores. Distribution We process and distribute merchandise to our stores through a 126,000 square foot distribution facility co-located with our headquarters in Irvine, California.
With regard to existing stores, we have approximately 70 lease decisions to make during fiscal 2022, covering a range of stores in a variety of markets. These lease decisions include lease extension options, lease kick-out options, and lease expirations that require negotiated renewals.
With regard to existing stores, we have approximately 78 lease decisions to make during fiscal 2023, covering a range of stores in a variety of markets. These lease decisions include lease extension options, lease kick-out options, and lease expirations that require negotiated renewals.
From time to time, we distribute catalogs and postcards to potential and existing customers to familiarize them with the Tillys brand, our products, and to drive traffic to our stores and website. We use social media to communicate directly with our customers while also encouraging customers to interact with one another and provide feedback on our events and products.
From time to time, we distribute catalogs and postcards to potential and existing customers to familiarize them with the Tillys brand, our exclusive brands and products, and to drive traffic to our stores and website. We use social media to communicate directly with our customers while also encouraging customers to interact and provide feedback on 5 our events and products.
We believe we offer an unparalleled selection of relevant brands, styles, colors, sizes and price points to ensure our customers have a variety of choices every time they visit our stores.
We believe we offer an unparalleled selection of global, specialty and emerging brands, styles, colors, sizes and price points to ensure our customers have a variety of choices every time they visit our stores.
The table below shows our number of stores by type of retail center as of the end of each of the last three fiscal years: 2021 2020 2019 Regional Mall 137 136 139 Off-Mall (1) 90 87 86 Outlet 14 15 15 241 238 240 (1) Includes lifestyle centers, "power" centers, community centers, and street-front locations. 10 The table below shows the total number of stores by state as of January 29, 2022: State Number of Stores State Number of Stores Arizona 18 New Jersey 7 California 97 New Mexico 1 Colorado 5 New York 4 Delaware 1 North Carolina 2 Florida 19 Ohio 3 Georgia 2 Oklahoma 2 Illinois 7 Oregon 3 Indiana 5 Pennsylvania 4 Kansas 1 Rhode Island 2 Maryland 1 South Dakota 1 Massachusetts 4 Tennessee 3 Michigan 3 Texas 16 Minnesota 2 Utah 5 Missouri 1 Virginia 3 Nebraska 1 Washington 6 New Hampshire 2 Wisconsin 3 Nevada 7 Distinctive Store Experience Tillys is a customer-driven lifestyle brand.
The table below shows our number of stores by type of retail center as of the end of each of the last three fiscal years: 2022 2021 2020 Regional Mall 140 137 136 Off-Mall (1) 91 90 87 Outlet 18 14 15 249 241 238 (1) Includes lifestyle centers, "power" centers, community centers, and street-front locations. 9 The table below shows the total number of stores by state as of January 28, 2023: State Number of Stores State Number of Stores Arizona 17 New Jersey 7 California 101 New Mexico 1 Colorado 5 New York 4 Delaware 1 North Carolina 2 Florida 19 Ohio 3 Georgia 2 Oklahoma 2 Illinois 7 Oregon 4 Indiana 4 Pennsylvania 4 Kansas 1 Rhode Island 2 Maryland 1 South Dakota 1 Massachusetts 5 Tennessee 3 Michigan 3 Texas 19 Minnesota 2 Utah 6 Missouri 1 Virginia 3 Nebraska 1 Washington 6 New Hampshire 2 Wisconsin 3 Nevada 7 Distinctive Store Experience Tillys is a customer-driven lifestyle brand.
However, the number of total employees, especially part-time employees, fluctuates depending upon our seasonal needs and, in fiscal 2021, varied between approximately 4,800 and 7,400 employees. None of our employees are represented by a labor union and we consider our relationship with our employees to be good.
However, the number of total employees, especially part-time employees, fluctuates depending upon our seasonal needs and, in fiscal 2022, varied between approximately 5,400 and 7,300 employees. None of our employees are represented by a labor union and we consider our relationship with our employees to be good.
Examples of our proprietary brands, ranked by total net sales generated in fiscal 2021, include: Denim, apparel and fragrance brand for young men, young women and kids Apparel and accessories brand for young women and girls Apparel, beauty and fragrance brand for young women Apparel for young women Apparel and accessories for young women Apparel for girls Apparel and accessories brand for young men and boys Fragrance brand for young men We believe that our extensive selection of merchandise, from established global, specialty and emerging third-party brands as well as our proprietary brands, caters to a wide demographic of core customers and enhances our image as a destination for the most sought-after apparel, footwear, accessories and hardgoods. 9 Merchandise Purchasing Our merchandising team is organized by category and product type under our Senior Vice President, General Merchandise Manager and includes divisional merchandise managers, a technical design and fashion trend team, buyers, associate buyers and assistant buyers.
Examples of our proprietary brands, ranked by total net sales generated in fiscal 2022, include: Denim, apparel and fragrance brand for young men, young women and kids Apparel and accessories brand for young women and girls Apparel for young women Apparel, beauty and fragrance brand for young women Apparel and accessories brand for young men and boys Apparel and accessories for young women Apparel for young men Apparel brand for young women We believe that our extensive selection of merchandise, from established global, specialty and emerging third-party brands as well as our proprietary brands, caters to a wide demographic of core customers and enhances our image as a destination for the most sought-after apparel, footwear, accessories and hardgoods. 8 Merchandise Purchasing Our merchandising team is organized by category and product type under the leadership of our lead merchandising executive and our divisional merchandise managers, a technical design and fashion trend team, buyers, associate buyers and assistant buyers.
Tillys is headquartered in Irvine, California and operated 241 stores in 33 states as of January 29, 2022. Our stores are located in a variety of retail centers, including malls, lifestyle centers, "power" centers, community centers, outlet centers, and street-front locations.
Tillys is headquartered in Irvine, California and operated 249 stores in 33 states as of January 28, 2023. Our stores are located in a variety of retail centers, including malls, lifestyle centers, "power" centers, community centers, outlet centers, and street-front locations.
In constructing our stores, we utilize reclaimed wood in various design elements that is 100% certified by the Forest Stewardship Council as coming from responsibly managed forests. All wall coverings utilized in our stores are manufactured with FSC-certified recycled fiber.
All stores are equipped with UN-tested and approved lighting recycling boxes. In constructing our stores, we utilize reclaimed wood in various design elements that is 100% certified by the Forest Stewardship Council as coming from responsibly managed forests. All wall coverings utilized in our stores are manufactured with FSC-certified recycled fiber.
We believe this category mix contributes to our broad demographic appeal. Our apparel merchandise includes branded, fashion, and core styles for tops, outerwear, bottoms, and dresses. Accessories merchandise includes backpacks, hydration bottles, hats, sunglasses, small electronics and accessories, handbags, watches, jewelry, and more. Hardgoods includes skateboards, longboards, bikes, roller-skates and equipment for snowboarding and surfing.
We believe this category mix contributes to our broad demographic appeal. Our apparel merchandise includes branded, fashion, and core styles for tops, outerwear, bottoms, swim and dresses. Accessories merchandise includes backpacks, hydration bottles, hats, sunglasses, small electronics and accessories, handbags, watches, jewelry, and more. Hardgoods includes items such as skateboards, longboards, and related equipment for skateboarding, surfing or snowboarding.
HUF Hurley Hydro Flask Jansport Levi's New Balance Nike SB O'Neill Obey Primitive RayBan Riot Society Rip Curl Roxy RVCA Salty Crew Santa Cruz Spy Stance The North Face Vans Volcom We supplement our third-party merchandise assortment with our own proprietary brands across many of our product categories.
Martens Ethika Free People G-Shock Herschel Supply Co. HUF Hydro Flask Jansport Levi's New Balance Nike SB O'Neill Obey Primitive RayBan Reebok Riot Society Rip Curl Roxy RVCA Salty Crew Santa Cruz Spy Stance The North Face Vans Volcom We supplement our third-party merchandise assortment with our own proprietary brands across many of our product categories.
Stores As of January 29, 2022, we operated 241 stores in 33 states averaging approximately 7,300 square feet per store. Our stores are located in regional mall, off-mall and outlet locations. Our stores generated average net sales of $2.5 million per store, or $342 per square foot, in fiscal 2021.
Stores As of January 28, 2023, we operated 249 stores in 33 states averaging approximately 7,300 square feet per store. Our stores are located in regional mall, off-mall and outlet locations. Our stores generated average net sales of $2.2 million per store, or $297 per square foot, in fiscal 2022.
We organize a variety of events, many involving musicians, celebrities and athletes in the entertainment, music and action sports industries. Through brand partnerships such as these, we are able to connect with and engage our customers in an exciting, authentic way. • Catalog and Postcards.
We organize a variety of events, many involving influencers, musicians, and athletes. Through brand partnerships such as these, we are able to connect with and engage our customers in an exciting, authentic way. • Catalog and Postcards.
We also look to partner with 6 social media stars and influencers to drive brand awareness. All of these programs are complemented by digital and email marketing, as well as print advertising, to build customer awareness and loyalty, highlight key merchandise offerings, drive traffic to our stores and online platforms, and promote the Tillys brand.
We also partner with influencers to drive brand awareness and create excitement for new products. All of these programs are complemented by our digital and email marketing, as well as print advertising, to build customer awareness and loyalty, highlight key merchandise offerings, drive traffic to our stores and online platforms, and promote the Tillys brand.
Over 80% of all lighting utilized in our stores are LED lamps, which reduce energy consumption both in terms of watts per lumen and reduced air conditioning usage as a result of the lower heat produced by LEDs compared to other lighting sources. All stores are equipped with UN-tested and approved lighting recycling boxes.
As of the end of fiscal 2022, over 80% of all lighting utilized in our stores are LED lamps, which reduce energy consumption both in terms of watts per lumen and reduced air conditioning usage as a result of the lower heat produced by LEDs compared to other lighting sources.
Our lease expires in December 2027. Our distribution center infrastructure includes material-handling equipment, radio frequency technologies, and automated sorters in order to enhance our processing speed and support our business needs. We ship merchandise to our stores multiple times per week, providing them with a steady flow of both new and replenishment products.
Our distribution center infrastructure includes warehouse management systems, material-handling equipment, radio frequency technologies, and automated sortation systems to enhance our processing speed and support our business needs. We ship merchandise to our stores multiple times per week, providing them with a steady flow of both new and replenishment products.
Store Expansion Opportunities and Site Selection The following table shows the number of stores opened and closed in each of our last five fiscal years: Fiscal Year Stores Opened Stores Closed Total Number of Stores at End of Period 2017 2 6 219 2018 16 6 229 2019 14 3 240 2020 2 4 238 2021 9 6 241 43 25 We currently expect to open approximately 15 to 20 new stores during fiscal 2022 within existing markets, primarily in California, Texas and the Northeast, assuming we are able to negotiate what we believe to be acceptable lease economics.
Store Expansion Opportunities and Site Selection The following table shows the number of stores opened and closed in each of our last five fiscal years: Fiscal Year Stores Opened Stores Closed Total Number of Stores at End of Period 2018 16 6 229 2019 14 3 240 2020 2 4 238 2021 9 6 241 2022 11 3 249 52 22 We currently expect to open up to 10 new stores during fiscal 2023 within existing markets, assuming we are able to negotiate what we believe to be acceptable lease economics.
For example, "fiscal 2021" refers to the fiscal year ended January 29, 2022; "fiscal 2020" refers to the fiscal year ended January 30, 2021; and "fiscal 2019" refers to the fiscal year ended February 1, 2020.
For example, "fiscal 2022" refers to the fiscal year ended January 28, 2023; "fiscal 2021" refers to the fiscal year ended January 29, 2022; and "fiscal 2020" refers to the fiscal year ended January 30, 2021.
Our influencer strategy, in support of driving brand awareness and growth, is designed to connect customers to key categories, trends, and activities in an authentic way. • Brand Partnerships. We partner and collaborate with our vendors for exclusive events such as autograph signings, in-store performances, contests, demos, online marketing, giveaways, shopping sprees and VIP trips.
Our influencer strategy, in support of driving brand awareness and growth, is designed to connect customers to key categories, trends and activities that is authentic to the Tillys brand. • Brand Partnerships. We partner and collaborate with our vendors around exclusive events like photo opportunities, in-store performances, contests, demos, online marketing, giveaways, shopping sprees and VIP trips.
Each of our stores typically operates with a three to five member store management team. In addition, each store typically has 10 or more full time equivalent store associates who reflect our customers' lifestyles and promote the Tillys brand not only inside the store, but also in their schools and communities.
In addition, each store 10 typically has 10 or more full time equivalent store associates who reflect our customers' lifestyles and promote the Tillys brand not only inside the store, but also in their schools and communities.
Competition The teenage and young adult retail apparel, accessories and footwear industry is highly competitive. We compete with various publicly-traded and privately-held teen-oriented apparel retailers for customers, store locations, store associates and management personnel, including but not limited to Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, The Buckle, Forever 21, Hot Topic, Pacific Sunwear, Urban Outfitters, and Zumiez.
We compete with various publicly-traded and privately-held teen-oriented apparel retailers for customers, store locations, store associates and management personnel, including but not limited to Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, Boot Barn, The Buckle, Forever 21, H&M, Hot Topic, Pacific Sunwear, Urban Outfitters, and Zumiez.
Company management is precluded from communicating with such external parties for the final two weeks of each quarter and until the next quarterly earnings release has taken place. 16 Additional Information We make available free of charge on our internet website, www.tillys.com, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after filing such material electronically with, or otherwise furnishing it to, the Securities and Exchange Commission, or the SEC.
Additional Information We make available free of charge on our internet website, www.tillys.com, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after filing such material electronically with, or otherwise furnishing it to, the Securities and Exchange Commission, or the SEC.
Information Technology Our information technology systems provide a full range of business process support and information to our store, merchandising, financial, real estate and other business teams. We selected, customized and integrated our information systems 13 to enable and support our dynamic merchandise model.
We currently anticipate this project to be complete in early fiscal 2024. Information Technology Our information technology systems provide a full range of business process support and information to our store, merchandising, financial, real estate and other business teams. We selected, customized and integrated our information systems to enable and support our dynamic merchandise model.
Our systems enable us to respond to changing fashion trends, manage inventory in real time, and provide a customized selection of merchandise at each location. We have begun to explore potential additional investment options in our distribution function to improve efficiency and position ourselves for longer-term anticipated growth in our business. • Experienced management team.
Our systems enable us to respond to changing fashion trends, manage inventory in real time, and provide a customized selection of merchandise at each location. During fiscal 2023, we plan to update our warehouse management systems to improve efficiency and position ourselves for longer-term anticipated growth in our business. • Experienced management team.
Two of our Board members have self-identified as underrepresented minorities, as such term is defined under the California board diversity rules. We maintain a Code of Ethical Business Conduct which can be found on our website at www.tillys.com under the Investor Relations link. We require all employees to periodically certify their reading, understanding, and compliance with such policy.
We maintain a Code of Ethical Business Conduct which can be found on our website at www.tillys.com under the Investor Relations link. We require all employees to periodically certify their reading, understanding, and compliance with such policy.
We also expect to continue to expand digital marketing efforts, customer loyalty, and build brand awareness in the communities surrounding our existing stores to drive growth in net sales from both brick-and-mortar stores and e-commerce. • Improve Inventory Allocation and Management. We continue to improve our operating results through more refined micro-merchandising tactics based on specific store and online characteristics.
We also expect to continue to expand digital marketing efforts, customer loyalty, SMS marketing, and build brand awareness in the communities surrounding our existing stores to drive growth in net sales from both brick-and-mortar stores and e-commerce. • Improve Inventory Allocation and Management.
Employees As of January 29, 2022, we employed approximately 1,450 full-time and approximately 4,250 part-time employees, of which approximately 475 were employed at our corporate office and distribution facilities and approximately 5,225 were employed at our store locations.
Employees As of January 28, 2023, we employed approximately 1,525 full-time and approximately 4,650 part-time employees, of which approximately 525 were employed at our corporate office and distribution facilities and approximately 5,650 were employed at our store locations.
Biodegradable cleaning solvents are used throughout our facilities for cleaning and disinfecting purposes. We also currently sponsor 26 adopt-a-highway locations in Southern California and Arizona to help fund trash removal from the local highways in the markets within which we operate our stores.
We also currently sponsor 31 adopt-a-highway locations in California and Arizona to help fund trash removal from the local highways in the markets within which we operate our stores.
We offer an integrated digital platform for our customers to shop how and when they like, and to drive further connection with them.
We offer an integrated digital platform for our customers to shop how and when they like, in-store, online and on their mobile device, to drive meaningful connection with our customers.
In our restrooms at all locations, we use toilets that are certified as water-efficient by Watersense and comply with the California Green Building Code, utilizing less water than standard toilets.
In our restrooms at all locations, we use toilets that are certified as water-efficient by Watersense and comply with the California Green Building Code, utilizing less water than standard toilets. In certain locations, we also use water-conserving metering faucets that prevent excess water usage and/or on-demand water heaters to reduce energy consumption.
We partner and collaborate with our vendors on exclusive, compelling in-store events, digital new customer acquisition, and contests to build credibility with our target customers, actively involve them in our brands, and enhance the connection between Tillys and our customers' active lifestyle.
We regularly collaborate with our brand partners on exclusive, compelling in-store events, new customer acquisition, and contests to build credibility with our target audience, while actively involving our brand partners, and strengthening the connection between Tillys and our customers' active lifestyle.
We utilize email marketing to build awareness, drive traffic to our stores and online platform and to promote local in-store promotions and events. We periodically send emails to the customers in our proprietary database to introduce new brands and products, offer promotions on select merchandise, highlight key events and announce new store openings.
We periodically send emails to the customers in our proprietary database to introduce new brands and products, offer promotions on select merchandise, highlight key events and announce new store openings. We personalize emails and communications to customers and audiences. 11 • Digital Marketing . We use digital marketing to drive new customers to Tillys.com and the Tillys stores.
Merchandise is shipped in a floor-ready format (carrying price tickets, sensor tags and with hangers where appropriate) which allows store employees to spend less time processing the merchandise and more time with our customers.
Merchandise is shipped in a floor-ready condition (having price tickets, sensor tags and hangers when required), allowing store employees to spend less time with merchandise processing tasks and more time serving our customers.
Environmental, Social, Governance (ESG) Matters Environmental Matters From a merchandising perspective in fiscal 2021, we launched an online sustainability program in partnership with a variety of nationally and globally recognized third-party brands to curate a collection of what is now over 1,600 product choices that have a reduced impact on the environment as a result of the use of recycled or reusable materials, organic cotton, and/or are certified by third-party organizations to specific sustainability standards.
We have curated a collection of over 1,800 product choices, an increase from 1,600 in fiscal 2021, that have a reduced impact on the environment as a result of the use of recycled or reusable materials, organic cotton, and/or are certified by third-party organizations to specific sustainability standards.
We believe our e-commerce platform is an extension of our brand and retail stores, and we seek to maintain an extensive selection of our newest and best merchandise assortment online, providing our customers with a seamless shopping experience. Our e-commerce platform allows us to reach new customers, and build our brand in markets where we currently do not have stores.
We believe our e-commerce platform is an extension of our brand and retail stores, and we seek to maintain an extensive selection of our newest and best merchandise assortment online, including an extended product assortment. Our goal is to provide our customers with a seamless shopping experience.
For example, we generate e-commerce sales in all 50 states and the District of Columbia although we have physical stores in only 33 states. Our target customer regularly shops online and via mobile devices in addition to visiting stores, giving us a continued opportunity to grow our e-commerce platform over time.
Our target customer regularly shops online and via mobile devices in addition to visiting stores, giving us a continued opportunity to grow our e-commerce platform over time.
By adapting allocation strategies to capitalize on these individual store and online differences, we believe we can continue to improve our net sales results. • Enhancing Omni-Channel Capabilities. We have a direct-to-consumer program that allows online orders to be fulfilled and shipped directly to our customers from our brick-and-mortar stores when inventory is otherwise unavailable in our e-commerce fulfillment center.
We have a direct-to-consumer program that allows online orders to be fulfilled and shipped directly to our customers from our brick-and-mortar stores when inventory is otherwise unavailable in our e-commerce fulfillment center.
In this regard, the Company aims to be an inclusive reflection of its customers, employees, and business partners. Pay equity, without regard for race or gender, is a base line component of this focus on equity and inclusion.
In this regard, we aim to be an inclusive reflection of our customers, employees, and business partners. Pay equity, without regard for race or gender, is a base line component of this focus on equity and inclusion. E-Commerce Our e-commerce platform generated total net sales of $141 million during fiscal 2022, or 21.0% of our total net sales.
We maintain a Regulation FD-compliant Investor Relations policy which limits the time periods during which Company management is authorized to discuss business matters with external stock analysts and stockholders.
We also maintain a Regulation FD-compliant Investor Relations policy which limits the time periods during which Company management is authorized to discuss business matters with external stock analysts and stockholders. Company management is precluded from communicating with such external parties for the final two weeks of each quarter and until the next quarterly earnings release has taken place.
We regularly update individual store profiles for every store to highlight the differences in brand performance, gender penetrations, and customer interests that exist within our fleet of stores. We also monitor sell-through rates online versus stores to identify opportunities for inventory efficiencies.
We continue to improve our operating results through more refined micro-merchandising tactics based on specific store and online characteristics. We regularly update individual store profiles for every store to highlight the differences in brand performance, gender penetrations, and customer interests that exist within our fleet of stores.
We believe that these enhancements have improved customer engagement, increased sales opportunities, enhanced our real-time inventory visibility and order management, facilitated seamless omni-channel execution integrated across mobile devices and stores, and allowed for effective customer relations management capabilities. We plan to further upgrade our e-commerce platform and mobile application during fiscal 2022.
We believe that these enhancements will improve our customer engagement, increase sales opportunities, enhance our real-time inventory visibility and order management, facilitate seamless omni-channel execution integrated across mobile devices and stores and allow for effective customer relations management capabilities.
In fiscal 2021, upon the reopening of stores and removal or reduction in pandemic-related restrictions, there was a resurgence in our customers' preference for shopping in stores relative to e-commerce which resulted in a reduced level of e-commerce net sales while we generated Company-record net sales overall in fiscal 2021.
In fiscal 2021 and thereafter, there was a resurgence in our customers' preference for shopping in stores relative to e-commerce which resulted in a reduced level of e-commerce net sales, although e-commerce net sales were significantly higher than pre-pandemic levels.
We focus on opening new stores in locations that have above-average incomes and an ability to draw from a sufficient population.
We focus on opening new stores in locations that have above-average incomes and an ability to draw from a sufficient population. We may also close a limited number of stores in any given year based on market conditions, under-performance, or lease negotiations with landlords.
As supported by consumer demand, we plan to continue to advocate with our merchants and brand partners to support eco-friendly product stories to continue to build the percentage of our product offering that have sustainable features.
We ended fiscal 2022 with over 4,000 units of Restored by Tillys product sold, up from approximately 3,600 in fiscal 2021. As supported by consumer demand, we plan to continue to encourage our merchants and brand partners to support sustainable product stories and to continue to build the percentage of our product offerings that have sustainable features.
Once an award is earned, our loyalty program allows customers to redeem their award instantly towards the purchase of merchandise or to continue to build up to additional awards over time. We currently expire unredeemed awards and accumulated partial points 365 days after the last purchase activity.
Once a loyalty member achieves a certain point level, the member earns awards that may be used towards purchase of merchandise. Once an award is earned, our loyalty program allows customers to redeem their award instantly towards the purchase of merchandise or to continue to build up to additional awards over time.
From a distribution perspective, all purchased corrugated boxes utilized in shipping products from our distribution center to our stores are made from previously used materials. We reuse approximately 70% of those corrugated boxes for future shipping needs. We recycle the remaining 30% of corrugated boxes. We recycle all plastics received with garments from our product suppliers.
From a distribution center operations perspective, all purchased corrugated boxes used for shipping products from our distribution center to Tillys stores are made from previously used corrugated material. During fiscal 2022, we reused approximately 60% of those corrugated boxes for future shipping needs, and we recycled the remaining 40% of corrugated boxes.
With 241 total stores at the end of fiscal 2021, we believe there are numerous attractive opportunities for Tillys to continue to open new stores in the future.
With 249 total stores at the end of fiscal 2022, we believe there are numerous attractive opportunities for Tillys to continue to open new stores in the future. We currently expect to open up to 10 new stores during fiscal 2023 within existing markets, assuming we are able to negotiate what we believe to be acceptable lease economics.
We personalize emails and communications to customers and audiences. • Digital Marketing . We use digital marketing to drive new customers to Tillys.com and the Tillys stores. We use multiple forms of digital advertising, including pay per click, display, retargeting, paid social and affiliate marketing. We continue to invest in digital marketing to grow our digital business.
We use multiple forms of digital advertising, including pay per click, display, retargeting, paid social and affiliate marketing. We continue to invest in digital marketing to grow our digital business. We are also partnering with brands in co-op marketing to grow awareness and increase brand sales. • Social Media.
Since 2018, we have specified the use of air conditioning equipment with energy efficiency ratings well above the minimum required rating by The International Energy Conservation Code and Building Energy Efficiency Standards.
In our stores, our shopping bags, as well as all polyester bags used to ship e-commerce orders to customers, are comprised of at least 90% recycled materials. Since 2018, we have used air conditioning equipment with energy efficiency ratings well above the minimum required rating by The International Energy Conservation Code and Building Energy Efficiency Standards.
We may also close a limited number of stores in any given year based on market conditions, under-performance, or lease negotiations with landlords. 11 Store Management, Culture and Training We believe that a key to our success is our ability to attract, train, retain and motivate qualified employees at all levels of our organization.
Store Management, Culture and Training We believe that a key to our success is our ability to attract, train, retain and motivate qualified employees at all levels of our organization. Each of our stores typically operates with a three to five member store management team.
No other brand, whether third-party or proprietary, reached 4% of our total net sales during fiscal 2021. Selected third-party brands (in alphabetical order) include: Adidas BDG Billabong Birkenstock Brixton Champion Converse Diamond Supply Dickies Dr. Martens Ethika Free People G-Shock Herschel Supply Co.
Our third-party brands represented approximately 68%, 70% and 74% of our total net sales in fiscal 2022, 2021 and 2020, respectively, with no third-party brand accounting for more than 5% of our total net sales during fiscal 2022. Selected third-party brands (in alphabetical order) include: Adidas BDG Billabong Birkenstock Brixton Champion Converse Diamond Supply Dickies Dr.
Marketing and Advertising Our marketing approach is designed to create an authentic connection with our customers by consistently generating excitement for our brand and the active, outdoor and social lifestyle we represent. We utilize a multi-pronged marketing strategy to connect with our customers and drive traffic to our stores and online platform, comprised of the following: • Loyalty Program.
We plan to continue to enhance our customers' experience by upgrading our mobile application during fiscal 2023. Marketing and Advertising Our marketing approach is designed to create an authentic connection with our customers by consistently generating excitement for our brand and the active, outdoor and social lifestyle we represent.
We also launched a sustainable collection of vintage and upcycled product with over 200 unique pieces online and in 25 of our stores. We ended fiscal 2021 with an aggregate of approximately 6% of our total inventory composed of products containing at least one of the sustainability features noted above.
We ended fiscal 2022 with an aggregate of approximately 6% of our total inventory composed of products containing at least one of the sustainability features noted above. As of March 15, 2023, approximately 79% our Men’s RSQ shorts and swim had sustainable features.
In fiscal 2021, our proprietary RSQ brand was our top selling brand overall and accounted for approximately 16% of our total net sales, while our proprietary Full Tilt brand and Vans (a third-party brand) accounted for 8 9% and 7% of our total net sales, respectively.
In fiscal 2022, our top two selling brands overall were our proprietary RSQ brand (19% of our total net sales) and our proprietary Full Tilt brand (8% of our total net sales).
Growth Strategy Subject to our ongoing evaluation of the COVID-19 pandemic and its impacts on our business (as further described elsewhere in this Report), we are pursuing several strategies to drive long-term sales and profitability, including: • Drive Comparable Store Sales Growth.
Growth Strategy We are pursuing several strategies to drive long-term sales and profitability, including: • Drive Comparable Store Sales Growth.
From a technology perspective, in fiscal 2021, we migrated our data center located in Irvine, CA to Las Vegas, NV, which is operated with 100% renewable energy. We also recycle e-waste from certain computer and other electronic components.
Earlier in fiscal 2022, we also migrated our production systems located in Irvine, CA to Las Vegas, NV, which location is operated with 100% renewable energy and thus power consumption and footprint was significantly reduced.
We believe our distribution and fulfillment infrastructure is adequate to support our current business needs and growth strategies over the next few years. However, i n order to position ourselves for longer-term anticipated growth, we have begun exploring additional potential distribution investments to support that future growth.
We believe our distribution and fulfillment infrastructure is adequate to support our current business needs and growth strategies over the next few years. In fiscal 2023 we have initiated a plan to upgrade our warehouse management systems to allow for more efficient inventory management across our distribution facilities to support future growth.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn addition, any future store closures arising from federal, state and local instructions resulting from the COVID-19 pandemic or any other pandemic or other situations outside of our control may again require us to take certain actions with respect to some or all of our existing leases, including negotiating with landlords for rent abatement, terminating certain leases, or discontinuing payment, which may subject us to legal, reputational and financial risks.
Biggest changeWe may also elect, or be required, to take actions with respect to some or all of our existing leases that are in contravention to the existing terms of those leases in response to adverse pressures, including negotiating with landlords for rent abatement, terminating certain leases, or discontinuing payment, such as the actions we took in response to the closures of our stores during the COVID-19 pandemic, which may subject us to legal, reputational and financial risks.
From time to time we may be subject to litigation claims through the ordinary course of our business operations regarding, but not limited to, employment matters, compliance with the Americans with Disabilities Act of 1990, apparel, footwear and accessory safety standards, security of customer and employee personal information, contractual relations with vendors, marketing and infringement of trademarks and other intellectual property rights.
From time to time we may be subject to litigation claims through the ordinary course of our business operations regarding, but not limited to, employment matters, compliance with the Americans with Disabilities Act of 1990, apparel, footwear and 21 accessory safety standards, security of customer and employee personal information, contractual relations with vendors, marketing and infringement of trademarks and other intellectual property rights.
As a controlled company, certain exemptions under the NYSE listing standards will exempt us from the obligation to comply with certain NYSE corporate governance requirements, including the requirements: • that a majority of our Board of Directors consist of independent directors, as defined under the rules of the NYSE; • that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and • that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
As a controlled company, certain exemptions under the NYSE listing standards will exempt us from the obligation to comply with certain NYSE corporate governance requirements, including the requirements: • that a majority of our Board of Directors consist of independent directors, as defined under the rules of the NYSE; 24 • that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and • that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
In addition, consumer spending can be impacted by non-economic factors, including geopolitical issues, trade restrictions, unseasonable weather, pandemics/epidemics, including the current COVID-19 pandemic, and other factors that are outside of our control. These risks may be exacerbated for retailers like us who focus on specialty apparel, footwear and accessories.
In addition, consumer spending can be impacted by non-economic factors, including geopolitical issues, trade restrictions, unseasonable weather, pandemics/epidemics, including the COVID-19 pandemic, and other factors that are outside of our control. These risks may be exacerbated for retailers like us who focus on specialty apparel, footwear and accessories.
Any failure to continue to open profitable new stores or improve the performance of existing stores could have a material adverse effect on our financial condition, results of operations, and stock price. 19 Our continued growth depends upon our ability to continue to grow our e-commerce business and improve its profitability, which is subject to a variety of risks and uncertainties.
Any failure to continue to open profitable new stores or improve the performance of existing stores could have a material adverse effect on our financial condition, results of operations, and stock price. Our continued growth depends upon our ability to continue to grow our e-commerce business and improve its profitability, which is subject to a variety of risks and uncertainties.
Traffic at these retail centers, and consequently our stores, could be adversely affected by economic downturns nationally or regionally, competition from Internet retailers, changes in consumer demographics, the closing or decrease in popularity of other retailers in the retail centers in which our stores are located, our inability to obtain or maintain prominent store locations within retail centers or the selection by prominent retailers and businesses of other locations.
Traffic at these retail centers, and consequently our stores, could be adversely affected by economic downturns nationally or regionally, competition from Internet retailers, changes in consumer demographics, the closing or decrease in popularity of other retailers in the retail centers in which our stores are located, our inability to obtain or maintain desirable store locations within retail centers or the selection by prominent retailers and businesses of other locations.
These circumstances may negatively impact our financial condition and results of operations. 23 We rely on print and online marketing services. We use the U.S. Postal Service to mail printed marketing materials several times each year to inform our customers about our products, acquire new customers, drive customers into our stores, and promote our website and stores.
These circumstances may negatively impact our financial condition and results of operations. We rely on print and online marketing services. We use the U.S. Postal Service to mail printed marketing materials several times each year to inform our customers about our products, acquire new customers, drive customers into our stores, and promote our website and stores.
Moreover, if future laws, regulations, industry standards, or other legal obligations, or any changed interpretations of the foregoing, limit the ability of our customers, partners or service providers to use and share personally identifiable information or other data or our ability to store, process and share personally identifiable information or other data, our costs could increase and our business, financial condition and operating results could be harmed.
Moreover, if future laws, regulations, industry standards, or other legal obligations, or any changed interpretations of the foregoing, further limit the ability of our customers, partners or service providers to use and share personally identifiable information or other data or our ability to store, process and share personally identifiable information or other data, our costs could increase and our business, financial condition and operating results could be harmed.
If there is a significant decrease in demand for our products or if we fail to accurately predict fashion trends or consumer demands, or unseasonable weather impacts the anticipated demand for certain product categories, we may be forced to rely on markdowns or promotional sales to dispose of excess inventory.
If there is a significant decrease in demand for our products or if we fail to accurately predict fashion trends or consumer demands, economic trends or unseasonable weather impacts the anticipated demand for certain product categories, we may be forced to rely on markdowns or promotional sales to dispose of excess inventory.
Our company’s name, logo, domain name and our proprietary brands and our registered and unregistered trademarks and copyrights are valuable assets that serve to differentiate us from our competitors. We currently rely on a combination of copyright, trademark, trade dress and unfair competition laws to establish and protect our intellectual property rights.
Our company’s name, logo, domain name and our proprietary brands and our registered and unregistered trademarks and copyrights are valuable assets that serve to differentiate us from our 23 competitors. We currently rely on a combination of copyright, trademark, trade dress and unfair competition laws to establish and protect our intellectual property rights.
As we execute our growth strategy, our ability to successfully 21 integrate new stores into their surrounding communities, to expand into new markets or to maintain the strength and distinctiveness of our brand image in our existing markets will be adversely impacted if we fail to connect with our target customer.
As we execute our growth strategy, our ability to maintain the strength and distinctiveness of our brand image in our existing markets, successfully integrate new stores into their surrounding communities, or to expand into new markets will be adversely impacted if we fail to connect with our target customer.
Although our purchase orders and vendor agreement with each vendor require the vendor to indemnify us against such claims, a vendor may not have the financial resources to defend itself or us against such claims, in which case we may have to pay the costs and expenses associated with defending such claim.
Although our purchase orders and vendor agreement require the vendor to indemnify us against such claims, a vendor may not have the financial resources to defend itself or us against such claims, in which case we may have to pay the costs and expenses associated with defending such claim.
Consumer spending may be adversely impacted by economic conditions such as consumer confidence in future economic conditions, inflation in housing, energy, gasoline and food costs, interest and tax rates, employment levels, salary and wage 17 levels, general business conditions, and the availability of consumer credit.
Consumer spending may be adversely impacted by economic conditions such as consumer confidence in future economic conditions, inflation in housing, energy, gasoline and food costs, interest and tax rates, employment levels, salary and wage levels, general business conditions, and the availability of consumer credit.
Our business is subject to a variety of laws, rules, and other obligations regarding data protection, which could result in additional compliance costs, subject us to enforcement actions, or cause us to change our platform or business practices.
Our business is subject to a variety of laws, rules, and other obligations regarding data protection and privacy, which could result in additional compliance costs, subject us to enforcement actions, or cause us to change our platform or business practices.
However, carrying our proprietary brands limits the amount of third-party branded merchandise we can carry and, therefore, there is a risk that the customers’ perception that we offer many major brands will decline.
However, carrying our proprietary brands limits the amount of third-party branded merchandise we can carry and, therefore, there is a risk that the 20 customers’ perception that we offer many major brands will decline.
Any person purchasing or otherwise acquiring 27 any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended and restated bylaws.
Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended and restated bylaws.
Trade restrictions, including increased tariffs or quotas, embargoes and customs restrictions, against apparel items, as well as United States or foreign labor strikes, work stoppages or boycotts (including as a result of the COVID-19 pandemic) could increase the cost or reduce the supply of apparel available to us and have a material adverse effect on our business, financial condition and results of operations.
Trade restrictions, including increased tariffs or quotas, embargoes and customs restrictions, against apparel items, as well as United States or foreign labor strikes, work stoppages or boycotts (including as a result of the COVID-19 pandemic or other events) could increase the cost or reduce the supply of apparel available to us and have a material adverse effect on our business, financial condition and results of operations.
If we encounter any disruptions to our operations within these buildings or if they were to shut down for any reason, including by fire or other natural disaster, or as a result of the COVID-19 pandemic, then we may be prevented from effectively operating our stores, shipping and processing our merchandise and operating our e-commerce platform.
If we encounter any disruptions to our operations within these buildings or if they were to shut down for any reason, including by fire or other natural disaster, or as a result of the pandemics/epidemics, including COVID-19 pandemic, then we may be prevented from effectively operating our stores, shipping and processing our merchandise and operating our e-commerce platform.
Any disruption or shut down at these locations could significantly impact our operations and have a material adverse effect on our financial condition and results of operations. 22 Our stores are mostly located in the southwestern and northeastern United States and in Florida, with a significant number of stores located in California, putting us at risk to region-specific disruptions.
Any disruption or shut down at these locations could significantly impact our operations and have a material adverse effect on our financial condition and results of operations. Our stores are mostly located in the southwestern and northeastern United States and in Florida, with a significant number of stores located in California, putting us at risk of region-specific disruptions.
Our corporate headquarters, distribution and e-commerce fulfillment centers and information technology systems are in Irvine, California, and if their operations are disrupted, we may not be able to operate our store support functions, ship merchandise to our stores, or fulfill e-commerce orders, which would adversely affect our business.
Our corporate headquarters, distribution and e-commerce fulfillment centers and certain information technology systems are in Irvine, California, and if their operations are disrupted, we may not be able to fully operate our store support functions, ship merchandise to our stores, or fulfill e-commerce orders, which would adversely affect our business.
Shaked and Ms. Levine own a significant economic interest in the company and substantial majority of the total voting power of our outstanding common stock. In addition, Mr. Shaked serves as Executive Chairman of the Board of Directors, and 25 is the voting trustee, pursuant to a voting trust agreement, covering the shares owned by Ms. Levine.
Shaked and Ms. Levine own a significant economic interest in the company and substantial majority of the total voting power of our outstanding common stock. In addition, Mr. Shaked serves as Executive Chairman of the Board of Directors, and is the voting trustee, pursuant to a voting trust agreement, covering the shares owned by Ms. Levine. As a result, Mr.
As a result, Mr. Shaked may dictate the outcome of most corporate actions requiring stockholder approval, including the election of directors and mergers, acquisitions and other significant corporate transactions. Mr. Shaked may delay or prevent a change of control from occurring, even if the change of control could appear to benefit the stockholders. Mr.
Shaked may dictate the outcome of most corporate actions requiring stockholder approval, including the election of directors and mergers, acquisitions and other significant corporate transactions. Mr. Shaked may delay or prevent a change of control from occurring, even if the change of control could appear to benefit the stockholders. Mr.
To date, the COVID-19 pandemic has had far-reaching impacts on many aspects of our operations, directly and indirectly, including on consumer behavior, our people, store traffic, operational capabilities and our operations generally, timing of deliveries, demands on our information technology and e-commerce capabilities, expense management, managing our workforce, our store configurations and operations upon reopening, as well as our ability to procure sufficient quantities of inventory in line with our sales plans, or to effectively manage inventory levels on an ongoing basis relative to net sales performance and changing market conditions, in light of ongoing supply chain disruptions that have significantly altered historical product flows both in terms of timing and amount of inventory available, which have materially disrupted our business and the market generally.
To date, the COVID-19 pandemic has had far-reaching impacts on many aspects of our operations, directly and indirectly, including on consumer behavior, our people, store traffic, operational capabilities and our operations generally, timing of deliveries, demands on our information technology and e-commerce capabilities, expense management, lease negotiations, managing our workforce, as well as our ability to procure sufficient quantities of inventory in line with our sales plans, or to effectively manage inventory levels on an ongoing basis relative to net sales performance and changing market conditions, in light of ongoing supply chain disruptions that significantly altered historical product flows both in terms of timing and amount of inventory available, which have materially disrupted our business and the market generally.
In addition, we rely on temporary personnel to staff our distribution and fulfillment centers, as well as seasonal part-time employees to provide incremental staffing to our stores in busy selling seasons such as the back-to-school and winter holiday seasons.
We additionally rely on temporary personnel to staff our distribution and fulfillment centers, as well as seasonal part-time employees to provide incremental staffing to our stores in busy selling seasons such as the back-to-school and winter holiday seasons.
The retail industry is highly competitive. We currently compete with a variety of publicly-traded and privately-held specialty apparel retail chains such as, but not limited to, Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, The Buckle, Forever 21, Hot Topic, Pacific Sunwear, Urban Outfitters, and Zumiez.
The retail industry is highly competitive. We currently compete with a variety of publicly-traded and privately-held specialty apparel retail chains such as, but not limited to, Abercrombie & Fitch, Aeropostale, American Eagle Outfitters, Boot Barn, The Buckle, Forever 21, H&M, Hot Topic, Pacific Sunwear, Urban Outfitters, and Zumiez.
Hackers, computer programmers and internal users may be able to penetrate our network security and create system disruptions, cause shutdowns and misappropriate our confidential information or that of third parties, including our employees and customers.
Hackers, computer programmers and internal users may be able to penetrate our network security and create system and operational disruptions, cause shutdowns or loss of data, and misappropriate our confidential information or that of third parties, including our employees and customers.
Competition with some or all of these retailers noted above could require us to lower our prices or risk losing customers. In addition, significant or unusual promotional activities by our 18 competitors may cause us to respond in-kind and adversely impact our operating cash flow.
Competition with some or all of these retailers noted above could require us to lower our prices or risk losing customers. In addition, significant or unusual promotional activities by our competitors and third-party brands may cause us to respond in-kind and adversely impact our operating cash flow.
If we cannot identify changing trends in advance, fail to react to changing trends or misjudge the market for a trend, our sales could be adversely affected, and we may be faced with a substantial amount of unsold inventory or missed opportunities.
If we cannot identify changing trends in advance, fail to react to changing trends, misjudge the market for a trend, or fail to timely secure then-fashionable inventory, our sales could be adversely affected, and we may be faced with a substantial amount of unsold inventory or missed opportunities.
In addition, local authorities or management from the mall or shopping center could close the mall or shopping center in response to security concerns. Such closures, as well as lower traffic due to security concerns, could result in decreased sales. We may be subject to unionization, work stoppages, slowdowns or increased labor costs.
In addition, local authorities or management from the mall or shopping center could close the mall or shopping center in response to security concerns. Such closures, as well as lower traffic due to security concerns, could result in decreased sales. We may be subject to unionization and work stoppages, or slowdowns.
Our ability to attract customers to our stores depends significantly on the success of the retail centers where our stores are located. We have historically depended on the location of our stores to generate a large amount of traffic for our stores.
Our ability to attract customers to our stores depends significantly on the success of the retail centers where our stores are located. We have historically depended on the location of our stores to generate a large proportion of traffic to our stores.
For example, the COVID-19 pandemic has resulted in, and may continue to result in, 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, have had, and we expect will continue to have, material adverse impacts on our business, financial condition and results of operations.
For example, the COVID-19 pandemic resulted in, and may in the future result in, further, regional quarantines, labor stoppages and shortages, changes in consumer purchasing patterns, mandatory or elective shut-downs of retail locations, including the closure of all of our stores and distribution centers in 2020, 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, have had, and we expect may continue to have, material adverse impacts on our business, financial condition and results of operations.
Our proprietary branded merchandise represents a significant portion of our net sales. Our proprietary branded merchandise generally has a higher gross margin than the third-party branded merchandise we offer. As a result, we may determine that it is best for us to continue to hold or increase the penetration of our proprietary brands in the future.
Our proprietary branded merchandise generally has a higher gross margin than the third-party branded merchandise we offer. As a result, we may determine that it is best for us to continue to hold or increase the penetration of our proprietary brands in the future.
While we have paid aggregate special cash dividends of $5.70 per share to all holders of record of issued and outstanding shares of our common stock across six separate special cash dividends since February 2017, there can be no assurance that we will pay additional cash dividends on our common stock in the future.
From February 2017 through December 2021 we have paid aggregate special cash dividends of $5.70 per share to all holders of record of issued and outstanding shares of our common stock across six separate special cash dividends, and there can be no assurance that we will pay additional cash dividends on our common stock in the future.
Our ability to successfully open and operate new stores is subject to a variety of risks and uncertainties, such as: • identifying suitable store locations, the availability of which is beyond our control; • obtaining acceptable lease terms; • sourcing sufficient levels of inventory; • selecting the appropriate merchandise that appeals to our customers; • hiring and retaining store employees; • assimilating new store employees into our corporate culture; • effectively marketing new store locations; • avoiding construction delays and cost overruns in connection with the build-out of new stores; • managing and expanding our infrastructure to accommodate growth; • integrating the new stores with our existing buying, distribution and other support operations; and • pandemics or other outbreaks of illness, disease or virus (such as COVID-19) that affect countries or regions in which our stores are located.
Our ability to successfully open and operate new stores is subject to a variety of risks and uncertainties, such as: • identifying suitable store locations, the availability of which is beyond our control; • obtaining acceptable lease terms; • sourcing sufficient levels of inventory; • selecting the appropriate merchandise that appeals to our customers; • hiring and retaining store employees; • assimilating new store employees into our corporate culture; • effectively marketing new store locations; • avoiding construction delays and cost overruns in connection with the build-out of new stores; • managing and expanding our infrastructure to accommodate growth; and • integrating the new stores with our existing buying, distribution and other support operations.
We purchase merchandise in advance of the season in which it will be sold and if we purchase too much inventory we may need to reduce prices in order to sell it, which may adversely affect our overall profitability. We must actively manage our purchase of inventory.
We purchase merchandise in advance of the season in which it will be sold and if we purchase too much inventory or do not receive inventory on time we may need to reduce prices in order to sell it, which may adversely affect our overall profitability. We must actively manage our purchase of inventory.
The loss of services of any of our key personnel could have a material adverse effect on our business and prospects, and could be viewed in a negative light by investors and analysts, which could cause our Class A common stock price to decline. Except for Mr.
The loss of services of any of our key personnel could have a material adverse effect on our business and prospects, and could be viewed in a negative light by investors and analysts, which could cause our Class A common stock price to decline. Except for Mr. Thomas, none of our employees has an employment agreement.
As discussed previously in this Report, in connection with the COVID-19 pandemic, we discontinued the operations of the distribution center for our stores and implemented other precautions in our corporate offices and distribution centers that materially disrupted our operations in Irvine, California, and elsewhere, and we may need to do so again in the future.
For example, in connection with the COVID-19 pandemic, we discontinued the operations of the distribution center for our stores and implemented other precautions in our corporate offices and distribution centers that materially disrupted our operations in Irvine, California, and we may need to do so again in the future.
Similarly, changes in laws could make operating our business more expensive or require us to change the way we do business. For example, changes in laws related to employee health care, hours, wages, job classification and benefits could significantly increase operating costs and adversely impact our results of operations.
Similarly, changes in laws could make operating our business more expensive or require us to change the way we do business (such as those enacted during the COVID-19 pandemic). For example, changes in laws related to employee health care, hours, wages, job classification and benefits could significantly increase operating costs and adversely impact our results of operations.
We cannot assure you that the steps taken by us to protect our proprietary rights will be adequate to prevent infringement of our trademarks and proprietary rights by others, including imitation and misappropriation of our brand. We cannot assure you that obstacles will not arise as we expand our product lines and geographic scope.
There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate to prevent infringement of our trademarks and proprietary rights by others, including imitation and misappropriation of our brand. There can be no assurance that obstacles will not arise as we expand our product lines and geographic scope.
Our e-commerce platform and its continued growth subjects us to certain risks that could have an adverse effect on our results of operations, including: • diversion of traffic from our stores; • liability for online content; • government regulation impacting the Internet; and • risks related to the computer systems that operate our website and related support systems, including computer viruses, electronic break-ins, system errors or failures, or similar disruptions.
Our e-commerce platform and its continued growth subjects us to certain risks that could have an adverse effect on our results of operations, including: • diversion of traffic from our stores; • risks related to proper allocation of merchandise between e-commerce and stores; • liability for online content; • government regulation impacting the Internet, including with respect to privacy; and • risks related to the computer systems that operate our website and related support systems, including computer viruses, electronic break-ins, other cyber security breaches, system errors or failures, or similar disruptions.
We may incur 24 significant costs related to prevention of breaches of our cyber-security and to comply with laws regarding the unauthorized disclosure of confidential information, including customer payment information, and we could incur significant expenses addressing problems created by security breaches to our network.
We may incur significant costs related to prevention of breaches of our cyber-security and to comply with laws regarding the unauthorized disclosure of confidential information, including customer payment information, and we could incur significant expenses addressing problems created by security breaches to our network, including potential remediation efforts, reputational harm, and litigation.
We cannot guarantee that we will be able to find adequate temporary or seasonal personnel to staff our operations when needed, particularly during the COVID-19 pandemic, which may strain our existing personnel or increase costs, and negatively impact our operations.
We cannot guarantee that we will be able to find adequate temporary or seasonal personnel to staff our operations when needed, which may strain our existing personnel or increase costs, and negatively impact our operations.
In addition, sophisticated hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture that could unexpectedly interfere with our operations, including potentially unintentionally sharing personal information retained by us.
In addition, sophisticated hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture that could unexpectedly interfere with our operations, including potentially unintentionally sharing personal information retained by us, or may not remain current with the rapidly-evolving cybersecurity risks.
However, there can be no assurance that we will continue to be able to open new stores that are profitable or to continue to improve the performance of our existing stores sufficiently to continue to improve our profitability.
We have grown our store count over time, however, there can be no assurance that we will continue to be able to open new stores that are profitable or to continue to improve the performance of our existing stores sufficiently to improve our profitability.
Fluctuations in the price, availability and quality of fabrics or other raw materials used to manufacture our products, as well as the price for transportation and labor, including the impact of federal or state minimum wage rate increases, could have adverse impacts on our cost of sales and our ability to meet our customers’ demands.
Fluctuations in the price, availability and quality of fabrics or other raw materials used to manufacture our products, as well as the price for transportation and labor, could have adverse impacts on our cost of sales and our ability to meet our customers’ demands.
The market for retail apparel stocks can be highly volatile. As a result, the market price of our Class A common stock is likely to be volatile and investors may experience a decrease in the value of the Class A common stock, unrelated to our operations.
As a result, the market price of our Class A common stock is likely to be volatile and investors may experience a decrease in the value of the Class A common stock, unrelated to our operations.
If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term.
Additional sites that we lease are likely to be subject to similar long-term leases. If an existing or future store is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term.
Thomas, none of our employees has an employment agreement and we do not intend to purchase key person life insurance covering any employee. If we lose the services of any of our key personnel or we are not able to attract additional qualified personnel, we may not be able to successfully manage our business.
We do not intend to purchase key person life insurance covering any employee. If we lose the services of any of our key personnel or we are not able to attract additional qualified personnel, we may not be able to successfully manage our business.
In addition, as described elsewhere in this Report, we furloughed certain of our employees in response to the store closures due to the COVID-19 pandemic and, thereafter, have experienced challenges in finding temporary or seasonal staffing, which may create additional challenges in attracting and retaining quality employees in the future.
In response to the COVID-19 pandemic, we furloughed certain of our employees and, thereafter, have experienced challenges in finding temporary or seasonal staffing, which may create additional challenges in attracting and retaining quality employees in the future.
Furthermore, many of our competitors have greater financial, marketing and other resources than we currently do, and therefore may be able to devote greater resources to the marketing and sale of their products, generate national brand recognition or adopt more aggressive pricing policies than we can, which would put us at a competitive disadvantage.
Because of these factors, current and future competition could have a material adverse effect on our financial condition and results of operations. 17 Furthermore, many of our competitors have greater financial, marketing and other resources than we currently do, and therefore may be able to devote greater resources to the marketing and sale of their products, generate national brand recognition or adopt more aggressive pricing policies than we can, which would put us at a competitive disadvantage.
The law took effect on January 1, 2020. The cost of compliance with these laws, regulations, policies, legal obligations and industry standards is high and is likely to increase in the future.
The cost of compliance with these laws, regulations, policies, legal obligations and industry standards is high and is likely to increase in the future.
In addition, we compete with independent specialty shops, department stores, off-price retailers, online marketplaces such as Amazon, stores and websites operated by our third-party brands, and direct marketers that sell similar lines of merchandise and target customers through catalogs and e-commerce. Moreover, the internet and other new technologies facilitate competitive entry and comparison shopping in our retail market.
In addition, we compete with independent specialty shops, department stores, e-commerce only retailers, off-price retailers, online marketplaces such as Amazon, stores and websites operated by our third-party brands, and direct marketers that sell similar lines of merchandise and target customers through catalogs and e-commerce.
Relying on these third-party delivery services puts us at risk from disruptions in their operations, such as employee strikes, inclement weather and their ability to meet our shipping demands (including as a result of the COVID-19 pandemic which we have been informed has already disrupted the operations of many of our third-party service providers).
Relying on these third-party delivery services puts us at risk from disruptions in their operations, such as employee strikes, inclement weather and their ability to meet our shipping demands (including as a result of pandemics/epidemics, including the COVID-19 pandemic).
If we are not successful in selling our inventory during these periods, we may be forced to rely on markdowns or promotional sales to dispose of the inventory, or we may not be able to sell the inventory at all, which could have an adverse effect on our margins and operating income.
If we are not successful in selling our inventory during these periods, we may be forced to rely on markdowns or promotional sales to dispose of the inventory, or we may not be able to sell the inventory at all, which could have an adverse effect on our margins and operating income. 19 Our sales can significantly fluctuate based upon shopping seasons, which may cause our operating results to fluctuate disproportionately on a quarterly basis.
This could also adversely impact our sales and earnings if we are unable to pass such increases on to our customers or are unable to implement more efficient printing, mailing, delivery and order fulfillment systems or, in the case of our online marketing, to find alternative providers in a timely manner and on terms that are not significantly more costly to us.
This could also adversely impact our sales and earnings if we are unable to pass such increases on to our customers or are unable to implement more efficient printing, mailing, delivery and order fulfillment systems or, in the case of our online marketing, to find alternative providers in a timely manner and on terms that are not significantly more costly to us. 22 Risks Related to Information Technology, Data Privacy and Intellectual Property If our information technology fails to operate or is unable to support our growth, our operations could be disrupted.
Shaked may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests.
Shaked may also have interests that differ from other stockholders and may vote in a way with which stockholders disagree and which may be adverse to the interests of other stockholders.
Our continued growth depends upon our ability to successfully open profitable new stores and improve the performance of our existing stores, which is subject to a variety of risks and uncertainties. We have grown our store count and improved the profitability of our existing stores in recent years.
Our continued growth depends upon our ability to successfully open profitable new stores and improve the performance of our existing stores, which is subject to a variety of risks and uncertainties.
An increase in our net cash outflow for new stores or remodels of existing stores could adversely affect our operations by reducing the amount of cash available to address other aspects of our business.
We primarily rely on cash flows generated from existing stores to fund our current operations and our growth plans. An increase in our net cash outflow for new stores or remodels of existing stores could adversely affect our operations by reducing the amount of cash available to address other aspects of our business.
If some or all of our workforce were to become unionized and the terms of the collective bargaining agreement were significantly different from our current compensation arrangements, it could increase our costs and adversely impact our profitability. Moreover, participation in labor unions could put us at increased risk of labor strikes and disruption of our operations.
If some or all of our workforce were to become unionized and the terms of the collective bargaining agreement were significantly different from our current compensation arrangements, it could increase our costs and adversely impact our profitability.
Some foreign countries can be, and have been, affected by political and economic instability and natural disasters, negatively impacting trade, including as a result of the COVID-19 pandemic which we have been informed has already had a material adverse impact on the operations of our suppliers and the manufacturers with whom they work, and has resulted in material delays in the delivery of certain merchandise to us from foreign manufacturers.
Some foreign countries can be, and have been, affected by political and economic instability and natural disasters, negatively impacting trade, including as a result of the COVID-19 pandemic, which continues to result in material delays in the delivery of certain merchandise to us from foreign manufacturers.
Furthermore, extended unseasonable weather conditions in regions such as in the southwestern United States, particularly in California, Arizona, Nevada, Florida and the northeastern United States will likely have a greater impact on our sales because of our store concentration in those regions. 20 Our sales can significantly fluctuate based upon shopping seasons, which may cause our operating results to fluctuate disproportionately on a quarterly basis.
Furthermore, extended unseasonable weather conditions in regions such as in the southwestern United States, particularly in California, Arizona, Nevada, Florida and the northeastern United States will likely have a greater impact on our sales because of our store concentration in those regions.
If our management information systems fail to operate (including as a result of the COVID-19 pandemic) or are unable to support our growth, our store operations and e-commerce platform could be severely disrupted, and we could be required to make significant additional expenditures to remediate any such failure.
If our management information systems fail to operate or are unable to support our growth, our store and e-commerce operations could be severely disrupted, and we could be required to make significant additional expenditures to remediate any such failure, which may negatively impact our financial condition.
Levine, the anti-takeover provisions under Delaware law, as well as the provisions contained in our corporate organizational documents, may make an acquisition of us more difficult.
In addition to the concentration of ownership and voting power held by Mr. Shaked and Ms. Levine, the anti-takeover provisions under Delaware law, as well as the provisions contained in our corporate organizational documents, may make an acquisition of us more difficult.
If we cannot attract and retain corporate employees, district managers, store managers and store associates with the qualifications we deem necessary at requisite cost, our ability to effectively operate and expand may be adversely affected.
The turnover rate in the retail industry is high and finding qualified candidates to fill positions may be difficult. If we cannot attract and retain corporate and distribution center employees, regional, district and store managers, and store associates with the qualifications we deem necessary at requisite cost, our ability to effectively operate and expand may be adversely affected.
These costs are significant, recurring and increasing, which places a consistent strain on our cash flows. We depend on cash flows from operations to pay our lease expenses and to fulfill our other cash needs.
In addition, rent costs could escalate when multi-year leases are renewed at the expiration of their lease term. These costs are significant, recurring and increasing, which places a consistent strain on our cash flows. We depend on cash flows from operations to pay our lease expenses and to fulfill our other cash needs.
We seek employees who are motivated, represent our corporate culture and brand image and, for many positions, have knowledge of our merchandise and the skill necessary to excel in a customer service environment. The turnover rate in the retail industry is high and finding qualified candidates to fill positions may be difficult.
Our success depends upon the quality of the employees we hire. We seek employees who are motivated, represent our corporate culture and brand image and, for many positions, have knowledge of our merchandise and the skill necessary to excel in a customer service environment.
This risk is heightened because we collect and store customer information for marketing purposes, and use credit card information to process transactions. We must, and do, take precautions to secure customer information and prevent unauthorized access to our database of confidential information.
This risk is heightened because we collect and store customer information for marketing purposes, and use credit card information to process transactions.
Any negative impact upon or disruption to the operations of stores in these states could have a material adverse effect on our financial condition and results of operations. Litigation costs and the outcome of litigation could have a material adverse effect on our business.
Any negative impact upon or disruption to the operations of stores in these states could have a material adverse effect on our financial condition and results of operations. Factors associated with climate change could adversely affect our business. We are subject to several risks related to climate change that could adversely affect our business.
Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations in future periods. Risks Related to our Business The COVID-19 pandemic has materially disrupted our operations and may have an adverse effect on our business.
Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations in future periods. Risks Related to our Business Our sales could be severely impacted by decreases in consumer spending.
However, if unauthorized parties, including external hackers or computer programmers, gain access to our database, they may be able to steal this confidential information. Our failure to secure this information could result in costly litigation, adverse publicity or regulatory action that could have a material adverse effect on our financial condition and results of operations.
Our failure to secure this information could result in costly litigation, adverse publicity or regulatory action that could have a material adverse effect on our financial condition and results of operations.
Violations of and/or changes in laws, including employment laws and laws related to our merchandise, could make conducting our business more expensive or change the way we do business.
Moreover, participation in labor unions could put us at increased risk of labor strikes and disruption of our operations. 26 Violations of and/or changes in laws, including employment laws and laws related to our merchandise and our e-commerce platform, could make conducting our business more expensive or change the way we do business.
We may not be able to pass all or a portion of these higher costs on to our customers, which could have a material adverse effect on our profitability. Any inability to balance merchandise bearing our proprietary brands with the third-party branded merchandise we sell may have an adverse effect on our sales and gross margin.
We may not be able to pass all or a portion of these higher costs on to our customers, which could have a material adverse effect on our profitability.
The e-commerce retail market continues to rapidly evolve, creating new competition and increasing cost pressures from shipping charges and online marketing costs. As a result, there can be no guarantee that we will be able to continue to grow our e-commerce net sales or to improve the profitability of our e-commerce operations.
As a result, there can be no guarantee that we will be able to continue to grow our e-commerce net sales or to 18 improve the profitability of our e-commerce operations.
Many of our lease agreements also contain provisions which increase the rent payments on a set time schedule, causing the cash rent paid for a location to escalate over the term of the lease. In addition, rent costs could escalate when multi-year leases are renewed at the expiration of their lease term.
In addition, we must make significant payments for common area maintenance and real estate taxes. Many of our lease agreements also contain provisions which increase the rent payments on a set time schedule, causing the cash rent paid for a location to escalate over the term of the lease.
Epidemics or pandemics, including COVID-19, terrorist attacks or threats thereof, civil unrest, and/or acts or threats of violence involving public areas could cause people not to visit areas where our stores are located, including with respect to the current mandatory and elective closures as a result of the COVID-19 pandemic.
Epidemics or pandemics, including COVID-19, terrorist attacks or threats thereof, civil unrest, and/or acts or threats of violence involving public areas could cause people not to visit areas where our stores are located, and could have other potential impacts that may adversely affect our results of operations and financial condition.
In addition, seasonal fluctuations also affect our inventory levels, as we usually order and carry a significant amount of inventory before the back-to-school and winter holiday shopping seasons.
Due to continued supply chain disruptions, we may fail to receive inventory timely or in line with when we anticipate customers will be seeking to purchase merchandise for a given season. In addition, seasonal fluctuations also affect our inventory levels, as we usually order and carry a significant amount of inventory before the back-to-school and winter holiday shopping seasons.
If we cannot retain or find qualified employees to meet our staffing needs in our stores, our distribution and e-commerce fulfillment centers, or our corporate offices, our business could be adversely affected. Our success depends upon the quality of the employees we hire.
Further, if we lose key vendors or are unable to find alternative vendors to supply us with substitute merchandise for lost products, our business may be adversely affected. If we cannot retain or find qualified employees to meet our staffing needs in our stores, our distribution and e-commerce fulfillment centers, or our corporate offices, our business could be adversely affected.
We lease all of our retail store locations as well as our corporate headquarters, warehouses, distribution and e-commerce fulfillment centers. We do not own any real estate. Leases for our stores are typically for terms of ten years and many can be extended in five-year increments.
We are required to make significant lease payments for our store leases, corporate offices, and distribution centers, which may strain our cash flow. We lease all of our retail store locations as well as our corporate headquarters, warehouses, distribution and e-commerce fulfillment centers. We do not own any real estate.
We are subject to a complex array of federal, state, and international laws relating to the collection, use, retention, disclosure, security, and transfer of personal data. Many jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions, including regulating the level of notice and consent required to collect and process end-user data.
Many jurisdictions have passed laws in this area, including, for example, the California Consumer Privacy Act of 2018 and California Privacy Rights Act, including amendments thereto, and other jurisdictions are considering imposing additional restrictions, including regulating the level of notice and consent required to collect and process end-user data.
Over the last few years, the retail industry has experienced continued declines in consumer traffic to retail centers as consumer purchasing behaviors have shifted toward online purchases and this trend may continue in the future.
We, and the retail industry generally, have experienced continued declines in consumer traffic to retail centers as consumer purchasing behaviors have shifted toward online purchases (which was significantly affected by the COVID-19 pandemic) and we may experience further declines in the future.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe lease began on June 29, 2012 and terminates on June 30, 2022. We expect to have a fully negotiated renewal completed in advance of lease expiration. We lease approximately 81,000 square feet for our e-commerce fulfillment center located at 17 Pasteur, Irvine, California.
Biggest changeThe lease began on August 1, 2022 and terminates on June 30, 2032. We lease approximately 81,000 square feet for our e-commerce fulfillment center located at 17 Pasteur, Irvine, California. The lease began on November 1, 2021 and terminates on October 31, 2031.
Item 2. Properties We lease approximately 172,000 square feet for our corporate headquarters and retail support and distribution center located at 10 Whatney and 12 Whatney, Irvine, California. Our lease began on January 1, 2003 and terminates on December 31, 2027. We lease approximately 26,000 square feet of office and warehouse space located at 11 Whatney, Irvine, California.
Item 2. Properties We lease approximately 172,000 square feet for our corporate headquarters and retail support and distribution center located at 10 Whatney and 12 Whatney, Irvine, California. Our lease began on January 1, 2003 and terminates on December 31, 2027. 27 We lease approximately 26,000 square feet of office and warehouse space located at 11 Whatney, Irvine, California.
The lease began on November 1, 2021 and terminates on October 31, 2031. 29 All of our 241 stores, encompassing a total of approximately 1.8 million total square feet as of January 29, 2022, are occupied under operating leases.
All of our 249 stores, encompassing a total of approximately 1.8 million total square feet as of January 28, 2023, are occupied under operating leases.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The information under the subheading "Legal Proceedings" contained in "Note 10: Commitments and Contingencies" to our consolidated financial statements included in this Report is incorporated by reference into this Item. Item 4. Mine Safety Disclosures Not applicable. 30 PART II
Biggest changeItem 3. Legal Proceedings The information under the subheading "Legal Proceedings" contained in "Note 10: Commitments and Contingencies" to our consolidated financial statements included in this Report is incorporated by reference into this Item. Item 4. Mine Safety Disclosures Not applicable. 28 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe number of stockholders of record is based upon the actual number of stockholders registered at such date and does not include holders of shares in “street names” or persons, partnerships, associates, corporations or other entities identified in security position listings maintained by depositories.
Biggest changeThe number of stockholders of record is based upon the actual number of stockholders registered at such date and does not include holders of shares in “street names” or persons, partnerships, associates, corporations or other entities identified in security position listings maintained by depositories. Dividends on Common Stock We did not pay any special cash dividends in 2022.
Securities Authorized for Issuance under Equity Compensation Plans The information required by this Item is incorporated herein by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the end of the fiscal year ended January 29, 2022 (the "2022 Proxy Statement").
Securities Authorized for Issuance under Equity Compensation Plans The information required by this Item is incorporated herein by reference to our Proxy Statement for the 2023 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the end of the fiscal year ended January 28, 2023 (the "2023 Proxy Statement").
Stock Performance Graph The following graph compares the cumulative stockholder return on our Class A common stock for the five years ended January 29, 2022 to the cumulative return of (i) the S&P Midcap 400 Index and (ii) the S&P 400 Apparel Retail Index over the same period.
Stock Performance Graph The following graph compares the cumulative stockholder return on our Class A common stock for the five years ended January 28, 2023 to the cumulative return of (i) the S&P Midcap 400 Index and (ii) the S&P 400 Apparel Retail Index over the same period.
Dividends on Common Stock We paid special cash dividends of $1.00 per share in each of July and December of 2021, and in February of each of 2020, 2019 and 2018, and $0.70 per share in February 2017 to all holders of record of issued and outstanding shares of our common stock.
We paid special cash dividends of $1.00 per share in each of July and December of 2021, and in February of each of 2020, 2019 and 2018 to all holders of record of issued and outstanding shares of our common stock.
Comparison of 5-Year Cumulative Total Return as of January 29, 2022 Among Tilly's, Inc., the S&P Midcap 400 Index and the S&P 400 Apparel Retail Index Recent Sales of Unregistered Securities We did not sell any unregistered equity securities or purchase any of our securities during the fiscal year ended January 29, 2022. Item 6. Reserved 31
Comparison of 5-Year Cumulative Total Return as of January 28, 2023 Among Tilly's, Inc., the S&P Midcap 400 Index and the S&P 400 Apparel Retail Index Recent Sales of Unregistered Securities We did not sell any unregistered equity securities during the fiscal year or purchase any of our securities during the three months ended January 28, 2023. Item 6.
This graph assumes an initial investment of $100 on January 28, 2017 in our Class A common stock, the S&P Midcap 400 Index and the S&P 400 Apparel Retail Index and assumes the reinvestment of dividends, if any.
This graph assumes an initial investment of $100 on February 3, 2018 in our Class A common stock, the S&P Midcap 400 Index and the S&P 400 Apparel Retail Index and assumes the reinvestment of dividends, if any.
As of April 12, 2022, we had approximately seven stockholders of record, five of whom were holders of our Class A common stock and two of whom were holders of our Class B common stock.
As of April 7, 2023, we had approximately eleven stockholders of record, nine of whom were holders of our Class A common stock and two of whom were holders of our Class B common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOperating income (loss) percentage measures operating income as a percentage of our net sales. 34 Results of Operations The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales: Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 (in thousands) Statements of Operations Data: Net sales $ 775,694 $ 531,329 $ 619,300 Cost of goods sold 499,031 389,139 432,592 Gross profit 276,663 142,190 186,708 Selling, general and administrative expenses 185,575 141,953 154,748 Rent expense, related party 3,493 3,277 3,505 Total selling, general and administrative expenses 189,068 145,230 158,253 Operating income (loss) 87,595 (3,040) 28,455 Other (expense) income, net (594) 581 2,901 Income (loss) before income taxes 87,001 (2,459) 31,356 Income tax expense (benefit) 22,752 (1,314) 8,734 Net income (loss) $ 64,249 $ (1,145) $ 22,622 Percentage of Net Sales: Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 64.3 % 73.2 % 69.9 % Gross profit 35.7 % 26.8 % 30.1 % Selling, general and administrative expenses 23.9 % 26.7 % 25.0 % Rent expense, related party 0.5 % 0.6 % 0.6 % Total selling, general and administrative expenses 24.4 % 27.3 % 25.6 % Operating income (loss) 11.3 % (0.6) % 4.6 % Other (expense) income, net (0.1) % 0.1 % 0.5 % Income (loss) before income taxes 11.2 % (0.5) % 5.1 % Income tax expense (benefit) 2.9 % (0.3) % 1.4 % Net income (loss) 8.3 % (0.2) % 3.7 % The following table presents store operating data for the periods indicated: Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 Store Operating Data: Stores operating at end of period 241 238 240 Comparable store sales change (1) 16.3% 3.7% 0.8% Total square feet at end of period (in thousands) 1,764 1,751 1,776 Average net sales per brick-and-mortar store (in thousands) (2) $2,511 $1,494 $2,240 Average net sales per square foot (2) $342 $202 $301 E-commerce revenues (in thousands) (3) $165,950 $173,433 $98,457 E-commerce revenues as a percentage of net sales 21.4% 32.6% 15.9% (1) During fiscal 2019, our comparable store sales were sales from our e-commerce platform and stores open at least 12 full fiscal months as of the end of the current period.
Biggest changeOperating income (loss) percentage measures operating income as a percentage of our net sales. 32 Results of Operations The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales: Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 (in thousands) Statements of Operations Data: Net sales $ 672,280 $ 775,694 $ 531,329 Cost of goods sold 465,916 496,083 386,326 Rent expense, related party 3,616 2,948 2,813 Total cost of goods sold 469,532 499,031 389,139 Gross profit 202,748 276,663 142,190 Selling, general and administrative expenses 191,028 188,527 144,701 Rent expense, related party 533 541 529 Total selling, general and administrative expenses 191,561 189,068 145,230 Operating income (loss) 11,187 87,595 (3,040) Other income (expense), net 1,980 (594) 581 Income (loss) before income taxes 13,167 87,001 (2,459) Income tax expense (benefit) 3,490 22,752 (1,314) Net income (loss) $ 9,677 $ 64,249 $ (1,145) Percentage of Net Sales: Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 69.3 % 64.0 % 72.7 % Rent expense, related party 0.5 % 0.3 % 0.5 % Total cost of goods sold 69.8 % 64.3 % 73.2 % Gross profit 30.2 % 35.7 % 26.8 % Selling, general and administrative expenses 28.4 % 24.3 % 27.2 % Rent expense, related party 0.1 % 0.1 % 0.1 % Total selling, general and administrative expenses 28.5 % 24.4 % 27.3 % Operating income (loss) 1.7 % 11.3 % (0.6) % Other income (expense), net 0.3 % (0.1) % 0.1 % Income (loss) before income taxes 2.0 % 11.2 % (0.5) % Income tax expense (benefit) 0.5 % 2.9 % (0.2) % Net income (loss) 1.4 % 8.3 % (0.2) % The following table presents store operating data for the periods indicated: Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Store Operating Data: Stores operating at end of period 249 241 238 Comparable store sales change (1) (14.6) % 16.3 % 3.7 % Total square feet at end of period (in thousands) 1,818 1,764 1,751 Average net sales per brick-and-mortar store (in thousands) (2) $ 2,171 $ 2,511 $ 1,494 Average net sales per square foot (2) $ 297 $ 342 $ 202 E-commerce revenues (in thousands) (3) $ 141,130 $ 165,950 $ 173,433 E-commerce revenues as a percentage of net sales 21.0 % 21.4 % 32.6 % (1) Our comparable store net sales are defined as sales from our e-commerce platform and stores open on a daily basis compared to the same respective fiscal dates of the prior year.
SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods. Operating Income (Loss) Operating income (loss) equals gross profit less SG&A expenses. Operating (loss) income excludes interest income, interest expense and income taxes.
SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods. Operating Income (Loss) Operating income (loss) equals gross profit less SG&A expenses. Operating income (loss) excludes interest income, interest expense and income taxes.
The payment and performance in full of the obligations under the credit agreement are guaranteed by the Company pursuant to a continuing guaranty granted by the Company in favor of the Bank.
The payment and performance in full of the obligations under the Credit Agreement are guaranteed by the Company pursuant to a continuing guaranty (the "Guaranty") granted by the Company in favor of the Bank.
Long-Lived Assets We evaluate the carrying value of our long-lived assets, consisting largely of leasehold improvements, furniture and fixtures and equipment at store, distribution center and corporate office locations, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.
Impairment of Long-Lived Assets We evaluate the carrying value of our long-lived assets, consisting largely of leasehold improvements, furniture and fixtures and equipment at store, distribution center and corporate office locations, for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.
Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates. 39 We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable. Our accounting policies and estimates are reevaluated on an ongoing basis and adjustments are made when facts and circumstances dictate a change.
Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates. We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable. Our accounting policies and estimates are reevaluated on an ongoing basis and adjustments are made when facts and circumstances dictate a change.
If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized, measured by the difference between the carrying value and the estimated fair value of the assets, based on discounted cash flows using our weighted-average cost of capital, with such estimated fair values determined using the best information available.
If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized, measured by the difference between the carrying 38 value and the estimated fair value of the assets, based on discounted cash flows using our weighted-average cost of capital, with such estimated fair values determined using the best information available.
We include in income tax expense any interest and penalties related to uncertain tax positions. Recent Accounting Pronouncements For a description of recently issued accounting standards not yet adopted, refer to Note 2 to our financial statements included in this Annual Report on Form 10-K.
We include in income tax expense any interest and penalties related to uncertain tax positions. Recent Accounting Pronouncements For a description of recently issued accounting standards not yet adopted, refer to Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.
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. Net Sales Net sales reflect revenue from the sale of our merchandise at store locations and through e-commerce, net of sales taxes.
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. 30 Net Sales Net sales reflect revenue from the sale of our merchandise at store locations and through e-commerce, net of sales taxes.
In connection with the entry into the Credit Agreement, on January 20, 2022, we entered into certain ancillary agreements, 38 including (i) a security agreement in favor of the Bank, (ii) a guaranty entered into by the Company, and (iii) a third party pledge agreement entered into by the Company in favor of the Bank.
In connection with the entry into the Credit Agreement, on January 20, 2022, we entered into certain ancillary agreements, including (i) a security agreement in favor of the Bank (ii) the Guaranty entered into by the Company and (iii) a third party pledge agreement entered into by the Company in favor of the Bank.
Fiscal years 2021, 2020, and 2019 each consisted of a 52-week period. The discussion and analysis of our financial condition and results of operations for fiscal 2021 compared to fiscal 2020 appears below.
Fiscal years 2022, 2021, and 2020 each consisted of a 52-week period. The discussion and analysis of our financial condition and results of operations for fiscal 2022 compared to fiscal 2021 appears below.
As permitted by SEC rules, we have omitted the discussion and analysis of our financial condition, cash flows and results of operations for fiscal 2020 compared to fiscal 2019. See Item 7,“Management’s Discussions and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the year ended January 30, 2021, for this discussion.
As permitted by SEC rules, we have omitted the discussion and analysis of our financial condition, cash flows and results of operations for fiscal 2021 compared to fiscal 2020. See Item 7,“Management’s Discussions and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the year ended January 29, 2022, for this discussion.
The Tillys concept began in 1982 when our co-founders, Hezy Shaked and Tilly Levine, opened our first store in Orange County, California. As of January 29, 2022, we operated 241 stores in 33 states, averaging approximately 7,300 square feet. We also sell our products through our e-commerce website, www.tillys.com.
The Tillys concept began in 1982 when our co-founders, Hezy Shaked and Tilly Levine, opened our first store in Orange County, California. As of January 28, 2023, we operated 249 stores in 33 states, averaging approximately 7,300 square feet. We also sell our products through our e-commerce website, www.tillys.com.
A remodeled, relocated or refreshed store is included in comparable store sales, both during and after construction, if the square footage of the store used to sell merchandise was not changed by more than 20% and the store was not closed for remodel for more than five days in any fiscal month.
A remodeled, relocated or refreshed store is included in comparable store sales, both during and after construction, if the square footage of the store used to sell merchandise was not changed by more than 20% in any fiscal month.
The Credit Agreement replaced our previously existing asset-backed credit agreement (the “Prior Credit Agreement”), dated as of November 9, 2020, as amended, with the Bank, which had revolving commitments of up to $65.0 million, a sub-limit on letters of credit of $10.0 million and a sub-limit for swing-line loans of $7.5 million.
Prior Credit Agreement The Credit Agreement replaced our previously existing asset-backed credit agreement (the “Prior Credit Agreement”), dated as of November 9, 2020, as amended, with the Bank, which had revolving commitments of up to $65.0 million, a sub-limit on letters of credit of $10.0 million and a sub-limit for swing-line loans of $7.5 million. 36 The Prior Credit Agreement was terminated concurrently with the entry into the Credit Agreement.
The security agreement, the guaranty and the pledge agreement replaced (i) the guaranty by the Company in favor of the Bank, dated November 9, 2020, and (ii) the security agreement dated as of November 9, 2020, among the Company and the Bank, which were both terminated concurrently with the termination of the Prior Credit Agreement.
The security agreement, the guaranty and the pledge agreement replaced (a) the guaranty by the Company in favor of the Bank, dated November 9, 2020, and (b) the security agreement dated as of November 9, 2020, between the Company and the Bank, which were both terminated concurrently with the termination of the Prior Credit Agreement.
There can be no assurance that equity or debt financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our stockholders. Working Capital Working capital at January 29, 2022, was $91.8 million compared to $77.5 million at January 30, 2021, an increase of $14.3 million.
There can be no assurance that equity or debt financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our stockholders. Working Capital Working capital at January 28, 2023, was $94.1 million compared to $91.8 million at January 29, 2022, an increase of $2.3 million.
A remodeled or relocated store is included in comparable store sales, both during and after construction, if the square footage of the store used to sell merchandise was not change by more than 20% and the store was not closed for remodel for more than five days in any fiscal month.
A remodeled or relocated store is included in comparable store net sales, both during and after construction, if the square 33 footage of the store used to sell merchandise was not changed by more than 20% in any fiscal month.
Certain leases provide for additional rent based on a percentage of sales and annual rent increases based upon the Consumer Price Index. In addition, 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 such lease.
In addition, 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 such lease.
Numerous factors affect our comparable store sales, including: • overall economic trends; • our ability to attract traffic to our stores and online 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; • 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. 33 Historically, our 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.
Numerous factors affect our comparable store sales, including: • overall economic trends; • our ability to attract traffic to our stores and online 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; • 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.
The maximum borrowings permitted under the prior credit agreement was equal to the lesser of (x) the revolving commitment and (y) the borrowing base.
No borrowings were outstanding under the Prior Credit Agreement as of the closing date. The maximum borrowings permitted under the prior credit agreement was equal to the lesser of (x) the revolving commitment and (y) the borrowing base.
Merchandise Inventories Merchandise inventories are stated at the lower of cost or net realizable value using the retail inventory method. Under the retail inventory method, inventory is stated at its current retail selling value and then is converted to a cost basis by applying a cost-to-retail ratio based on beginning inventory and the fiscal year purchase activity.
Under the retail inventory method, inventory is stated at its current retail selling value and then is converted to a cost basis by applying a cost-to-retail ratio based on beginning inventory and the fiscal year purchase activity.
(2) E-commerce sales, e-commerce shipping and handling fee revenue and gift card breakage income are excluded from net sales in deriving average net sales per brick-and-mortar store. 35 (3) E-commerce revenues include e-commerce sales and e-commerce shipping fee revenue.
E-commerce sales, e-commerce shipping and handling fee revenue and gift card breakage income are excluded from net sales in deriving average net sales per retail store and average net sales per square foot. (3) E-commerce net sales include e-commerce sales and e-commerce shipping and handling fee revenue.
Net sales from stores represented 78.6% of total net sales compared to 67.4% of total net sales last year.
Net sales from physical stores represented 79.0% of total net sales compared to 78.6% of total net sales last year.
However, as a result of the pandemic and related periods of store closures during 2020, our comparable store sales for fiscal 2021 and 2020 are defined as sales from our e-commerce and stores open on a daily basis compared to the same respective fiscal dates of the prior year.
Our comparable store sales are defined as sales from our e-commerce platform and stores open on a daily basis compared to the same respective fiscal dates of the prior year.
However, our historical results for the periods presented in the consolidated financial statements have not been materially impacted by such variances. Our accounting policies are more fully described in "Note 2: Summary of Significant Accounting Policies” in the notes to our consolidated financial statements.
However, our historical results for the periods presented in the consolidated financial statements have not been 37 materially impacted by such variances. This summary should be read in conjunction with the more complete discussion of our accounting policies and procedures included in "Note 2: Summary of Significant Accounting Policies” in the notes to our consolidated financial statements.
References to "fiscal year 2021" or "fiscal 2021" refer to the fiscal year ended January 29, 2022, references to "fiscal year 2020" or "fiscal 2020" refer to the fiscal year ended January 30, 2021 and references to "fiscal year 2019” or "fiscal 2019” refer to the fiscal year ended February 1, 2020.
References to "fiscal year 2022" or "fiscal 2022" refer to the fiscal year ended January 28, 2023, references to "fiscal year 2021" or "fiscal 2021" refer to the fiscal year ended January 29, 2022 and references to "fiscal year 2020” or "fiscal 2020” refer to the fiscal year ended January 30, 2021.
The lease is accounted for as an operating lease and expires on June 30, 2022.We expect to have a fully negotiated renewal completed in advance of this lease expiration. We lease approximately 81,000 square feet for our e-commerce distribution center from a company that is owned by one of the co-founders of Tillys.
The lease is accounted for as an operating lease and expires on June 30, 2032. We lease approximately 81,000 square feet for our e-commerce distribution center from a company that is owned by one of the co-founders of Tillys. This building is located at 17 Pasteur, Irvine, California.
Under this method, we accrue income taxes payable or refundable and recognize deferred tax assets and liabilities based on differences between GAAP and tax bases of assets and liabilities.
Accounting for Income Taxes We account for income taxes and the related accounts in accordance with FASB ASC Topic 740, Income Taxes , or ASC 740. Under this method, we accrue income taxes payable or refundable and recognize deferred tax assets and liabilities based on differences between GAAP and tax bases of assets and liabilities.
Preliminary Fiscal 2022 New Store Openings and Capital Expenditure Plans During fiscal 2022, we currently plan to open approximately 15 to 20 new stores within existing markets, primarily in California, Texas and the Northeast, assuming we are able to negotiate what we believe to be acceptable lease economics.
Preliminary Fiscal 2023 New Store Openings and Capital Expenditure Plans During fiscal 2023, we currently expect to open up to 10 new stores within existing markets, assuming we are able to negotiate what we believe to be acceptable lease terms.
As of January 29, 2022, we were in compliance with all of our covenants and had no outstanding borrowings under the New Credit Agreement. The Prior Credit Agreement was terminated concurrently with the entry into the New Credit Agreement. No borrowings were outstanding under the Prior Credit Agreement as of the closing date.
As of January 28, 2023, we were in compliance with all of our covenants and had no outstanding borrowings under the Credit Agreement.
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.
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. 31 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.
If we fail to anticipate, identify or react appropriately to changing styles, trends or brand preferences of our customers, we may experience lower sales, excessive inventories and more frequent and extensive markdowns, which would adversely affect our operating results. 40 We also record an inventory shrinkage reserve calculated as a percentage of net sales for estimated merchandise losses for the period between the last physical inventory count and the balance sheet date.
If we fail to anticipate, identify or react appropriately to changing styles, trends or brand preferences of our customers, we may experience lower sales, excessive inventories and more frequent and extensive markdowns, which would adversely affect our operating results.
In addition to cash and cash equivalents and marketable securities, the most significant components of our working capital are merchandise inventories, accounts payable and accrued expenses.
We currently expect to finance company operations, store growth and remodels, and all of our planned capital expenditures with existing cash on hand, marketable securities and cash flows from operations. In addition to cash and cash equivalents and marketable securities, the most significant components of our working capital are merchandise inventories, accounts payable and accrued expenses.
This building is located at 17 Pasteur, Irvine, California. The lease is accounted for as an operating lease and expires on October 31, 2031. Our leases are generally non-cancellable operating leases expiring at various dates through fiscal year 2032.
The lease is accounted for as an operating lease and expires on October 31, 2031. Our leases are generally non-cancellable operating leases expiring at various dates through fiscal year 2032. Certain leases provide for additional rent based on a percentage of sales and annual rent increases based upon the Consumer Price Index.
If actual physical inventory losses differ significantly from the estimate, our results of operations could be adversely impacted. The inventory shrinkage reserve reduces the value of total inventory and is a component of inventories on the Consolidated Balance Sheets. The inventory shrinkage reserve at January 29, 2022 and January 30, 2021 was not material.
The inventory shrinkage reserve reduces the value of total inventory and is a component of inventories on the Consolidated Balance Sheets. The inventory shrinkage reserve at January 28, 2023 and January 29, 2022 was not material.
The retail inventory method inherently requires management judgments and estimates, such as the amount and timing of markdowns needed in order to sell through slow-moving inventories. Markdowns are recorded when the sales value of the inventory has diminished. Factors considered in the determination of markdowns include current and anticipated demand, customer preferences, age of the merchandise and fashion trends.
The retail inventory method inherently requires management judgments and estimates, such as the amount and timing of markdowns needed in order to sell through slow-moving inventories.
These include our accounting policies with respect to revenue recognition, loyalty program, merchandise inventories, long-lived assets, operating leases, share-based compensation and accounting for income taxes, which are more fully described below. Revenue Recognition Revenue is recognized for store sales when the customer receives and pays for the merchandise at the register, net of estimated returns.
These include our accounting policies with respect to reserves for sales returns, gift cards, loyalty program, inventory reserves, impairment of long-lived assets and accounting for income taxes, which are more fully described below. Reserves for Sales Returns Revenue is recognized net of estimates for sales returns from our customers.
(7.2) Decrease primarily due to corporate bonus accruals and timing of accrued compensation and benefits. 0.3 Net changes in all other assets and liabilities $91.8 Working capital at January 29, 2022 Cash Flow Analysis A summary of operating, investing and financing activities is shown in the following table: Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 (in thousands) Net cash provided by operating activities $ 63,402 $ 38,897 $ 36,434 Net cash used in investing activities (45,328) (3,197) (6,509) Net cash used in financing activities (52,057) (29,653) (27,948) 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. 37 Net cash provided by operating activities increased in fiscal 2021 as compared to fiscal 2020 primarily due to higher net sales in fiscal 2021, which was primarily attributable to the closure of all stores from mid-March to mid-May in fiscal 2020 as a result of the pandemic and the varying periods of ongoing store closures for certain stores that continued into October 2020.
(10.9) Repurchase of shares under our share repurchase program. 8.9 Increase primarily due to a decrease in accrued compensation and benefits. 8.7 Increase primarily due to a decrease in accounts payable, net of merchandise inventories. 3.2 Increase primarily due to a decrease in accrued expenses. 2.5 Increase in receivables, primarily due to an increase in tenant allowance receivables. 4.9 Other net increases. $94.1 Working capital at January 28, 2023 Cash Flow Analysis A summary of operating, investing and financing activities is shown in the following table: Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 (in thousands) Net cash (used in) provided by operating activities $ (1,415) $ 63,402 $ 38,897 Net cash provided by (used in) investing activities 42,805 (45,328) (3,197) Net cash used in financing activities (10,065) (52,057) (29,653) Net change in cash and cash equivalents $ 31,325 $ (33,983) $ 6,047 Net Cash (Used In) 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.
Gift Cards We estimate and record breakage revenue in proportion to actual redemptions on unredeemed gift cards based on historical and expected customer redemption trends. Actual customer redemptions may vary from our estimates. Based on actual historical redemption patterns, we determined that a small percentage of gift cards are unlikely to be redeemed.
We accrue for estimated sales returns from customers based on historical sales returns results for a given period, taking into account the seasonal nature of our business. Gift Cards We estimate and record breakage revenue in proportion to actual redemptions on unredeemed gift cards based on historical and expected customer redemption trends. Actual customer redemptions may vary from our estimates.
Loyalty Program Based on historical redemption patterns, unredeemed awards and accumulated partial points are accrued as deferred revenue with a corresponding impact to net sales. A liability is estimated based on estimated redemptions and the standalone selling price of awards and partial points earned. Actual customer redemptions may vary from our estimates.
Based on actual historical redemption patterns, we determined that a small percentage of gift cards are unlikely to be redeemed. Loyalty Program Based on historical redemption patterns, unredeemed awards and accumulated partial points are accrued as deferred revenue with a corresponding impact to net sales.
Line of Credit On January 20, 2022, we entered into a senior unsecured credit agreement (the "Credit Agreement") and revolving line of credit note (the "Note") with Wells Fargo Bank, National Association (the “Bank”).
Financing activities in fiscal 2021 consisted of dividends paid of $61.6 million, partially offset by proceeds from exercise of stock options of $9.6 million. Credit Agreement New Credit Agreement On January 20, 2022, we entered into a senior secured credit agreement (the "Credit Agreement") and revolving line of credit note (the "Note") with Wells Fargo Bank, National Association (the “Bank”).
The changes in our working capital during fiscal 2021 were as follows: $ millions Description $77.5 Working capital at January 30, 2021 59.7 Increase in cash, cash equivalents, and marketable securities, primarily due to higher net income. 16.3 Increase primarily due to timing of income tax payments. 6.8 Increase in merchandise inventories, net of accounts payable.
The changes in our working capital during fiscal 2022 were as follows: $ millions Description $91.8 Working capital at January 29, 2022 (15.0) Decrease in cash, cash equivalents, and marketable securities, primarily due to lower net income.
We expect our total capital expenditures for fiscal 2022 to be in the range of approximately $25 million to $30 million, inclusive of our new store plans, investments in website and mobile app upgrades, distribution efficiencies, and other information technology infrastructure investments.
We expect our total capital expenditures for fiscal 2023 to be within the range of $15 million to $20 million, inclusive of our new store plans and upgrades to certain distribution and information technology infrastructure systems. How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures.
Income Tax Expense (Benefit) Income tax expense was $22.8 million for fiscal 2021 compared to income tax benefit of $(1.3) million for fiscal 2020. Our effective tax rates were 26.2% for fiscal 2021 and 53.5% of pre-tax loss for fiscal 2020.
Income Tax Expense Income tax expense was $3.5 million or 26.5% of pre-tax income, compared to $22.8 million or 26.2%, of pre-tax income last year.
These estimates are based on historical percentages and can be affected by changes in merchandise mix and changes in shrinkage trends. We perform physical inventory counts at least once per year for the entire chain of stores and our distribution center and adjust the inventory shrinkage reserve accordingly.
We perform physical inventory counts at least once per year for the entire chain of stores and our distribution center and adjust the inventory shrinkage reserve accordingly. If actual physical inventory losses differ significantly from the estimate, our results of operations could be adversely impacted.
This situation is continually evolving, and additional impacts may arise that we are not aware of currently, or current impacts may become magnified. We believe our operating results for fiscal 2021 were significantly aided by the considerable pent-up consumer demand exiting 2020 pandemic restrictions and the impact of federal stimulus payments.
We believe this inflationary environment had a significant, adverse impact on our consumers and, by extension, our operating results for the year, particularly when compared to our operating results for fiscal 2021 which we believe were significantly aided by the considerable pent-up consumer demand exiting 2020 pandemic restrictions and the impact of federal stimulus payments.
(1.8)% 3.0 Net change in all other SG&A expenses (2.9)% $43.8 Total Operating Income (Loss) Operating income was $87.6 million in fiscal 2021 compared to an operating loss of $(3.0) million for fiscal 2020, an improvement of $90.6 million.
(0.9)% (7.1) Decrease in corporate bonus expense due to zero bonus accrual in fiscal 2022. 0.2% (1.4) Decrease in e-commerce marketing expense. 2.0% 4.0 Net change in all other SG&A expenses 4.1% $2.5 Total Operating Income Operating income was $11.2 million or 1.7% of net sales, compared to $87.6 million or 11.3% of net sales, last year.
Net Cash Used in Financing Activities Financing activities consist of proceeds from the exercise of stock options, cash dividends paid, borrowings and repayments of our line of credit, and employee taxes paid as a result of the net settlement of issued restricted stock. Net cash used in financing activities was $52.1 million in fiscal 2021.
Net Cash Used in Financing Activities Financing activities primarily consist of cash dividend payments, borrowing and repayments of our line of credit, share repurchases and proceeds from exercises of stock options. Net cash used in financing activities was $10.1 million this year compared to net cash used of $52.1 million last year.
This included $61.6 million of cash dividends paid, partially offset by $9.6 million of proceeds from the exercise of stock options. Net cash used in financing activities was $29.7 million in fiscal 2020. This included $29.7 million of cash dividends paid and $23.7 million in both borrowings and repayments under our line of credit.
Financing activities in fiscal 2022 consisted of cash used to repurchase shares of our common stock of $10.9 million, partially offset by proceeds from short-swing profit settlement of $0.7 million and proceeds from the exercise of stock options of $0.2 million.
Comparable store sales include sales through our e-commerce platform but exclude gift card breakage income, deferred revenue from the loyalty program and e-commerce shipping and handling fee revenue.
Comparable store net sales exclude gift card breakage income and e-commerce shipping and handling fee revenue. (2) The number of stores and the amount of square footage reflect the number of days during the period that stores were open.
Investing activities also consist of the purchase and maturing of marketable securities. Net cash used in investing activities was $45.3 million in fiscal 2021. Capital expenditures totaled $13.4 million, primarily related to new and remodeled stores and other improvements in our existing stores and information technology systems.
Net cash used in investing activities in fiscal 2021 consisted of purchases of marketable securities of $162.3 million and capital expenditures totaling $13.4 million, partially offset by the maturities of marketable securities of $130.4 million.
Fiscal Year 2021 Compared to Fiscal Year 2020 Net Sales Net sales were $775.7 million in fiscal 2021 compared to $531.3 million in fiscal 2020, an increase of $244.4 million, or 46.0%, primarily due to significant pent-up consumer demand coming out of 2020's pandemic restrictions and the impact of federal stimulus payments during fiscal 2021, and the various periods of government-mandated store closures, reduced store operating hours, and restrictions on customer traffic into physical stores resulting from the pandemic during fiscal 2020.
Fiscal Year 2022 Compared to Fiscal Year 2021 Net Sales Total net sales were $672.3 million, a decrease of $103.4 million, or 13.3%, compared to $775.7 million last year, primarily due to the impacts of last year's pent-up consumer demand and stimulus payments resulting from the pandemic. $ millions Attributable to $(111.3) Decrease in comparable net sales of 14.6%, including e-commerce. 7.9 Increase in non-comparable store sales. $(103.4) Total ◦ Net sales from physical stores were $531.1 million, a decrease of $78.6 million or 12.9%, compared to $609.7 million last year with a comparable store net sales decrease of 14.5%.
The components of the changes in SG&A, both in terms of percentage of net sales and total dollars, were as follows: % $ millions Attributable to 0.3% $28.5 Increase in store payroll and related benefits due to operating all stores for the entirety of fiscal 2021 and serving higher net sales. 0.8% 6.6 Corporate bonus accruals due to strong operating performance in fiscal 2021.
The primary components of the SG&A variances, both in terms of percentage of net sales and total dollars, were as follows: % $ millions Primarily Attributable to 2.3% $3.9 Increase in store payroll and related benefits as a result of having eight net additional stores along with higher hourly wage rates. 0.2% 1.7 Credit from the reversal of a disputed California sales tax assessment in last year's first quarter. 0.3% 1.4 Increase in software as a service cost.
Product margins improved 130 basis points as a percentage of net sales, primarily due to reduced total markdowns overall compared to last year. Buying, distribution, and occupancy costs improved by 760 basis points, collectively, due to leveraging these costs against higher total net sales.
Gross Profit Gross profit was $202.7 million, or 30.2% of net sales compared to $276.7 million or 35.7% of net sales, last year. Buying, distribution and occupancy costs deleveraged by 290 basis points collectively despite being $1.2 million lower than last year due to carrying these costs against a significantly lower level of net sales this year.
Liquidity and Capital Resources Our business relies on cash flows from operating activities as well as cash on hand as our primary sources of liquidity. We currently expect to finance company operations, store growth and remodels, and all of our planned capital expenditures with existing cash on hand, marketable securities and cash flows from operations.
Net Income and Earnings Per Share Net income was $9.7 million or $0.32 per diluted share, compared to $64.2 million or $2.06 per diluted share, last year. 34 Liquidity and Capital Resources Our business relies on cash flows from operating activities as well as cash on hand as our primary sources of liquidity.
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Known or Anticipated Trends COVID-19 Pandemic As of the date of filing this Report, there remain many uncertainties regarding the ongoing COVID-19 pandemic (the "pandemic"), including the anticipated duration and severity of the pandemic.
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Known or Anticipated Trends Economic Trends During fiscal 2022, the economic environment included the highest inflationary pressures in the past 40 years, resulting in significant price increases on gas, food, rental housing and other items.
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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.
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High inflation remains a significant concern entering fiscal 2023 and may continue to negatively impact consumer spending generally and our business specifically. These economic pressures have also resulted in increased costs for many products and services that are necessary for the operation of our business, such as product costs, labor costs, shipping costs, and digital marketing costs, among others.
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The scope and nature of these impacts continue to evolve.
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For example, store payroll represents approximately 40% of our total selling, general and administrative expenses. Our average hourly rate for store payroll in early fiscal 2023 was 24% higher than in fiscal 2019, before the COVID-19 pandemic hit, and 7% higher than in fiscal 2022.
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With the continued challenges posed by the pandemic, we may experience adverse impacts in the future, including similar impacts to those 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 operations.
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Minimum wage increases for 2023 are expected to cost us an estimated additional $3 million during fiscal 2023 compared to fiscal 2022.
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As a result, we cannot reliably predict future business trends relative to fiscal 2021 with any certainty at this time. Supply Chain Disruptions We source a significant portion of our merchandise assortment from third parties who manufacture their products in countries that have experienced widespread issues with the pandemic, thereby significantly impacting the global supply chain for merchandise inventories.
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These and other cost increases may continue to have a material adverse impact on our results of operations and financial condition in fiscal 2023, particularly if the broader economy is negatively impacted by recessionary impacts for an extended period of time.
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Additionally, disruptions in the global transportation network remain prevalent, particularly in certain Southern California receiving ports which handle a significant portion of United States merchandise imports. These issues are resulting in shipping delays and increased shipping costs throughout the retail industry, including for us.
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We include sales from our e-commerce platform as part of our comparable store net sales as we manage and analyze our business on an omni-channel basis 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.
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Any untimely delivery of merchandise could have a negative impact on our ability to serve our customers with the specific merchandise they want in the quantities they wish to purchase in a timely manner, thereby potentially resulting in lost sales.
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We ended fiscal 2022 with 249 total stores compared to 241 total stores at the end of fiscal 2021. ◦ Net sales from e-commerce were $141.1 million, a decrease of $24.8 million or 15.0% , compared to $165.9 million last year. E-commerce net sales represented 21.0% of total net sales compared to 21.4% to total net sales last year.
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These supply chain issues, and the media attention surrounding them, appear to have changed consumer shopping patterns to some extent, and have caused us to adjust our merchandise planning, allocation and pricing strategies from historical practices, among other impacts.
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Product margins declined by 270 basis points primarily due to an increased markdown rate compared to last year, during which we experienced record full price selling with an abnormally low markdown rate. Selling, General and Administrative Expenses ("SG&A") SG&A expenses were $191.6 million or 28.5% of net sales, compared to $189.1 million or 24.4% of net sales, last year.
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We 32 have been monitoring the situation very closely and have been in frequent contact with our key brand partners to assess delivery delays. However, we are unable to predict the specific effects these factors will have on our fiscal 2022 net sales, results of operations, and our inventory position at any point in time during fiscal 2022.
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Net cash used in operating activities was $1.4 million this year compared to net cash provided by of $63.4 million last year. The $64.8 million decrease in cash provided by operating activities was primarily due to lower net sales in fiscal 2022 compared to record net sales in fiscal 2021.
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Inflationary Cost Pressures As of the date of this filing, certain geo-political matters and supply chain disruptions have resulted in significant price increases for gasoline, food and other consumables in early 2022.
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The net sales decline was primarily due to the impacts of pent-up customer demand following the winding down of the 2020 pandemic restrictions and the pandemic-related federal stimulus payments on fiscal 2021 operations, coupled with the negative impact of a highly inflationary consumer environment in fiscal 2022.
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While we do not believe that these price increases have had a material adverse impact on our business to date, we believe that these price increases may have a negative impact on consumer behavior at some point in the future which, by extension, could have a material negative impact on our results of operations and financial condition at any point during fiscal 2022.
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Net Cash Provided By (Used In) Investing Activities Cash flows from investing activities consist primarily of capital expenditures and maturities and purchases of marketable securities. Net cash provided by investing activities was $42.8 million this year compared to $45.3 million in net cash used last year.
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We believe our distribution and fulfillment infrastructure is adequate to support our current business needs and growth strategies over the next few years. However, i n order to position ourselves for longer-term anticipated growth, we have begun exploring additional potential distribution investments to support that future growth.
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Net cash provided by investing activities in fiscal 2022 consisted of maturities of marketable securities of $147.3 million, partially 35 offset by the purchases of marketable securities of $89.3 million and capital expenditures totaling $15.1 million.
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These potential additional investments in distribution capacity are not yet determinable and are, therefore, not included in the capital expenditure range noted above. How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risks Interest Rate Risk We are subject to interest rate risk in connection with borrowings, if any, under our credit facility, which bears interest at variable rates. As of January 29, 2022 and January 30, 2021, we had no outstanding borrowings under our credit facility.
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risks Interest Rate Risk We may be subject to interest rate risk in connection with borrowings, if any, under our credit facility, which bears interest at variable rates. As of January 28, 2023 and January 29, 2022, we had no outstanding borrowings under our credit facility.
We source certain fixtures and materials from various suppliers in other countries. All purchases are denominated in U.S. dollars, and therefore we do not hedge using any derivative instruments. Historically, we have not been impacted by changes in exchange rates. 42
We source certain fixtures and materials from various suppliers in other countries. All purchases are denominated in U.S. dollars, and therefore we do not hedge using any derivative instruments. Historically, we have not been impacted by changes in exchange rates. 39
However, the impact of inflationary cost pressures on gasoline, food, and other consumables in early fiscal 2022 may have a material adverse impact on consumer behavior at any point in time, which may by extension have a material adverse affect on our results of operations and financial condition. Foreign Exchange Rate Risk We currently source all merchandise through domestic vendors.
However, the impact of inflationary cost pressures on gasoline, food, and other consumables may have a material adverse impact on consumer behavior at any point in time, which may by extension have a material adverse effect on our results of operations and financial condition. Foreign Exchange Rate Risk We currently source all merchandise through domestic vendors.

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