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What changed in TILLY'S, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of TILLY'S, INC.'s 2023 and 2024 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 2024 report.

+271 added−293 removedSource: 10-K (2024-04-11) vs 10-K (2023-04-13)

Top changes in TILLY'S, INC.'s 2024 10-K

271 paragraphs added · 293 removed · 240 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

84 edited+7 added−26 removed69 unchanged
Biggest changeExamples 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.
Biggest changeExamples of our proprietary brands, ranked by total net sales generated in fiscal 2023, include: Denim, apparel, accessories and fragrance brand for young men, young women and kids Apparel and accessories brand for young women and girls Apparel brand for young women Apparel and accessories for young women Apparel, beauty and fragrance brand for young women Home accessories and gift brand for young women, men and kids 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.
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.
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 10 communities.
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.
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.
For example, we sell merchandise to customers in all 50 states and the District of Columbia even though we have brick-and-mortar stores in only 33 states. We also believe our fully-integrated digital platform reinforces the Tillys brand image and serves as an effective advertising vehicle for our retail stores.
For example, we sell merchandise to customers in all 50 states and the District of Columbia even though we have brick-and-mortar stores in only 33 states. We also believe our fully-integrated digital platform reinforces the Tillys brand image and serves as an advertising vehicle for our retail stores.
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.
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.
We believe our systems provide us with improved operational efficiencies, scalability, management control and timely reporting that allow us to identify and quickly respond to changes in our business. We believe that our information systems are scalable, flexible and have the capacity to accommodate our current growth plans.
We believe our systems provide us with improved operational efficiencies, scalability, management control and timely reporting that allow us to identify and quickly respond to changes in our business. We believe that our information systems are scalable, flexible and have the capacity to accommodate our current business plans.
We intend to continue to maintain a disciplined approach to store growth in the future by targeting existing markets with room for growth and new markets with high population density, clustering our stores to build better brand awareness in key markets.
We intend to continue to maintain a disciplined approach to store growth in the future by targeting existing markets with room for growth and potential new markets with high population density, clustering our stores to build better brand awareness in key markets.
We utilize a omni-channel marketing strategy to connect with our customers and drive traffic to our stores and online platform, comprised of the following: • Loyalty Program. We have a customer loyalty program wherein customers accumulate points based on purchase activity.
We utilize an omni-channel marketing strategy to connect with our customers and drive traffic to our stores and online platform, comprised of the following: • Loyalty Program. We have a customer loyalty program wherein customers accumulate points based on purchase activity.
We intend to continue to maintain a disciplined approach to store growth in the future by targeting existing markets with room for growth and new markets with high population density, and clustering stores within key markets to build brand awareness.
We intend to continue to maintain a disciplined approach to store growth in the future by targeting existing markets with room for growth and potential new markets with high population density, and clustering stores within key markets to build brand awareness.
Each of our Board committees (Audit, Compensation, and Nominating/Governance) are chaired by, and comprised of, only the independent members of our Board of Directors, consistent with NYSE requirements. Our Board of Directors is comprised of five individuals who self-identify as men and three individuals who self-identify as women.
Each of our Board committees (Audit, Compensation, and Nominating/Governance) are chaired by, and comprised of, only the independent members of our Board of Directors, consistent with NYSE requirements. Our Board of Directors is comprised of three individuals who self-identify as men and three individuals who self-identify as women.
Customers may also shop online, where we feature substantially the same assortment of products as is carried in our brick-and-mortar stores, supplemented by additional online-only styles. Our goal is to serve as a destination for the latest, most relevant merchandise and brands important to our customers.
Customers may also shop online, where we feature substantively the same assortment of products as is carried in our brick-and-mortar stores, supplemented by additional online-only styles. Our goal is to serve as a destination for the latest, most relevant merchandise and brands important to our customers.
We believe comparable store sales increases will permit us to generate more favorable buying costs from larger volume purchases, and better leverage largely fixed occupancy costs, labor costs for store management and corporate overhead, as well as the fixed portion of shipping and handling costs over higher sales volumes.
We believe comparable store sales increases would permit us to generate more favorable buying costs from larger volume purchases, and better leverage largely fixed occupancy costs, labor costs for store management and corporate overhead, as well as the fixed portion of shipping and handling costs over higher sales volumes.
Further, we may face new competitors and increased competition from existing competitors as we expand into new markets and increase our presence in existing markets.
Further, we may face new competitors and increased competition from existing competitors as we potentially expand into new markets and increase our presence in existing markets.
Outside of our stores, we connect with our consumers using the same authentic approach, including social media, community outreach and sponsorship of contests, demos, and other events. We believe the Tillys experience drives customer awareness, loyalty and repeat visits while generating excitement for our brand.
Outside of our stores, we connect with our consumers using the same authentic approach, including social media, community outreach and sponsorship of contests, demonstrations, and other events. We believe the Tillys experience drives customer awareness, loyalty and repeat visits while generating excitement for our brand.
We believe that we compete favorably with many of our competitors based on our differentiated merchandising strategy, store environment, flexible real estate strategy and company culture. However, many of our competitors are larger, have significantly more stores, and have substantially greater financial, marketing and other resources than we do.
We believe that we compete effectively with our competitors based on our differentiated merchandising strategy, store environment, flexible real estate strategy and company culture. However, many of our competitors are larger, have significantly more stores, and have substantially greater financial, marketing and other resources than we do.
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.
Martens Edikted 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 Stance The North Face Thrasher Vans Volcom We supplement our third-party merchandise assortment with our own proprietary brands across many of our product categories.
We support the Tilly’s Life Center Foundation ("TLC"), a non-profit charitable organization managed by our co-founder, Tilly Levine, which seeks to empower our youth and improve their self-confidence through a variety of educational programs.
We support the Tilly’s Life Center Foundation ("TLC"), a non-profit charitable organization created by our co-founder, Tilly Levine, which seeks to empower our youth and improve their self-confidence through a variety of educational programs.
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 also offer buy online pick-up in store, same-day delivery, 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 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 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%, 32% and 30% of our total net sales in fiscal 2023, 2022 and 2021, respectively.
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.
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 89 markets in 33 states.
We also monitor sell-through rates online versus stores to identify opportunities for inventory efficiencies. 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 also monitor sell-through rates online versus stores to identify opportunities for inventory transfers to generate greater sales efficiencies. 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.
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.
From a distribution center operations perspective, substantially all purchased corrugated boxes used for shipping products from our distribution center to Tillys stores are made from previously used corrugated material. During fiscal 2023, we reused approximately 40% of those corrugated boxes for future shipping needs, and we recycled the remaining 60% of corrugated boxes.
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.
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 certain stores in any given year based on market conditions, under-performance, or lease negotiations with landlords.
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.
However, the number of total employees, especially part-time employees, fluctuates depending upon our seasonal needs and, in fiscal 2023, varied between approximately 5,400 and 7,600 employees. None of our employees are represented by a labor union and we consider our relationship with our employees to be good.
Our senior management team, led by Hezy Shaked and Edmond Thomas, has extensive experience across a wide range of disciplines in the specialty retail and direct-to-consumer industries, including store operations, merchandising, distribution, real estate, and finance. Mr.
Our senior management team, led by Hezy Shaked and Michael Henry, has extensive experience across a wide range of disciplines in the specialty retail and direct-to-consumer industries, including store operations, merchandising, distribution, real estate, and finance. Mr.
We are actively engaging with customers through Tilly's Rewards by offering early access to product launches, events and promotional deals to loyalty members. We are also using the data and information provided by loyalty members to personalize the experience to the user and improve the communication and offering.
We are actively engaging with customers through Tillys Rewards by offering early access to product launches, events and promotional deals to loyalty members. We are also using the data and information provided by loyalty members to personalize the experience to the user and improve the communication and offering. • Social Media.
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 have a customer loyalty program, “Tillys Rewards”, to regularly engage with our customers, reward our most loyal customers, provide loyalty only events, and gain valuable insights.
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.
Selected brands involved in our sustainability program partnership include, among others, HydroFlask, Jansport, The North Face, Billabong, adidas, Birkenstock, Teva, Vans, Levi’s, Obey, Vissla, Brixton, Katin, RVCA, Santa Cruz, and O’Neill, as well as our own RSQ and Full Tilt proprietary brands.
We face intense competition in our industry and we may not be able to compete effectively.” Trademarks “Ambitious”, “Blue Crown”, "Destined", “Eldon”, “Full Tilt”, “Full Tilt Sport”, “If it’s not here...it’s not happening”, "Infamous", “Ivy + Main”, “RSQ”, "RSQ by Tillys", “#RSQME”, “Sky and Sparrow”, “Tilly's”, “Tilly’s Clothing & Shoes”, "Tilly's Clothing Shoes Accessories, “Vindicated”, “West of Melrose”, “White Fawn”, and "2/Second Saturdays" and logos related to some of these names, are among our trademarks registered with the United States Patent and Trademark Office.
We face intense competition in our industry and we may not be able to compete effectively.” Trademarks “Ambitious”, “Blue Crown”, "Destined", “Eldon”, “Full Tilt”, “If it’s not here...it’s not happening”, "Infamous", “RSQ”, "RSQ by Tillys", “RSQ Skate”, “Sky and Sparrow”, “Tilly's”, “Tilly’s Clothing & Shoes”, "Tilly's Clothing Shoes Accessories, “Vindicated”, “West of Melrose”, and "2/Second Saturdays" and logos related to some of these names, are among our trademarks registered with the United States Patent and Trademark Office.
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.
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 2024, we plan to complete an upgrade of our warehouse management systems to improve efficiency and position ourselves for longer-term anticipated growth in our business. • Experienced management team.
We plan to upgrade our mobile app (iOS and Android) in fiscal 2023, to a more loyalty focused application, targeted to our most loyal customers.
We continued to upgrade our mobile app (iOS and Android) in fiscal 2023, to a more loyalty and personalized focused application, targeted to our most loyal customers.
We do this by blending the most relevant brands and styles with music videos, product-related visuals, and a dedicated team of store associates. Our associates share the same passion as our customers for action sports, music, art and fashion, enabling them to easily engage with our customers and make shopping at Tillys a fun, social experience.
We do this by blending the most relevant brands and styles with music videos, product-related visuals, and a dedicated team of store associates. Our associates share the same passion as our customers for the brands that we sell, enabling them to easily engage with our customers and make shopping at Tillys a fun, social experience.
Governance Matters Although we are a controlled company as a result of the Company stock held by our Co-Founder, Executive Chairman and Chief Strategy Officer, Hezy Shaked, six of the eight members of our Board of Directors are independent under applicable NYSE rules.
Governance Matters Although we are a controlled company as a result of the Company stock held by our Co-Founder, Executive Chairman and Interim President and Chief Executive Officer, Hezy Shaked, five of the six members of our Board of Directors are independent under applicable NYSE rules.
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.
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: 2023 2022 2021 Regional Mall 138 140 137 Off-Mall (1) 92 91 90 Outlet 18 18 14 248 249 241 (1) Includes neighborhood and lifestyle centers, "power" centers, and street-front locations. 9 The table below shows the total number of stores by state as of February 3, 2024: State Number of Stores State Number of Stores Arizona 18 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 5 Indiana 4 Pennsylvania 4 Kansas 1 Rhode Island 2 Maryland 1 South Dakota 1 Massachusetts 5 Tennessee 3 Michigan 1 Texas 20 Minnesota 2 Utah 6 Missouri 1 Virginia 2 Nebraska 1 Washington 6 New Hampshire 2 Wisconsin 3 Nevada 6 Distinctive Store Experience Tillys is a customer-driven lifestyle brand.
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.
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 22%, 21% and 21% of our total net sales in fiscal 2023, 2022, and 2021, respectively.
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.
Our third-party brands represented approximately 68%, 68% and 70% of our total net sales in fiscal 2023, 2022 and 2021, respectively, with no third-party brand accounting for more than 4% of our total net sales during fiscal 2023. 7 Selected third-party brands (in alphabetical order) include: adidas BDG Billabong Birkenstock Brixton Champion Converse Crocs Diamond Supply Dickies Dr.
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 continue to improve our approach to inventory management over time 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.
To ensure a relevant assortment, our teams: • perform comprehensive analysis of sales trends for both stores and e-commerce; • constantly seek out new emerging brands, while maintaining close partnerships with existing brands; • utilize trend and color forecasting services; • attend trade shows and youth culture events; • conduct store visits to gather feedback from our customers and staff; and • maintain market and consumer insight through shopping trends of leading retailers, direct competitors and relevant social media influencers.
Our purchasing group and planning and allocation team are highly coordinated and maintain a disciplined buying strategy. 8 To ensure a relevant assortment, our teams: • perform comprehensive analysis of sales trends for both stores and e-commerce; • constantly seek out new emerging brands, while maintaining close partnerships with existing brands; • utilize trend and color forecasting services; • attend trade shows and youth culture events; • conduct store visits to gather feedback from our customers and staff; and • maintain market and consumer insight through shopping trends of leading retailers, direct competitors and relevant social media influencers.
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.
With regard to existing stores, we have nearly 100 lease decisions to make during fiscal 2024, 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.
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.
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 business. We believe our distribution and fulfillment infrastructure is adequate to support our current business needs.
This policy is distributed to all employees in advance of each quarterly trading window. Each trading window is only allowed to open after two full trading days have taken place following each of our quarterly earnings announcements. Each trading window is typically closed for the final month of each quarter and until the next quarterly earnings announcement has taken place.
Each trading window is only allowed to open after two full trading days have taken place following each of our quarterly earnings announcements. Each trading window is typically closed for the final month of each quarter and until the next quarterly earnings announcement has taken place.
Our e-commerce platform allows us to reach new customers, and build our brand in markets where we currently do not have stores. 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 goal is to provide 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. 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.
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.
Tillys is headquartered in Irvine, California and operated 248 stores in 33 states as of February 3, 2024. 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 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.
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 online net sales were $137 million during fiscal 2023, or 22.1% of our total net sales.
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).
In fiscal 2023, our top two selling brands overall were our proprietary RSQ brand (21% of our total net sales) and our proprietary Full Tilt brand (6% of our total net sales).
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.
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.
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.
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.
Shaked, our Co-Founder, Executive Chairman of the Board of Directors, and Chief Strategy Officer, plays an important role in developing our long-term growth initiatives and cultivating our unique culture. Mr. Thomas, our President and Chief Executive Officer, has over 30 years of retail industry experience.
Shaked, our Co-Founder, Executive Chairman of the Board of Directors, and Interim President and Chief Executive Officer, plays an important role in developing our long-term growth initiatives, driving planned improvements in our business, and cultivating our unique culture. Mr. Henry, our Executive Vice-President and Chief Financial Officer, has over 20 years of specialty retail industry experience.
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.
Stores As of February 3, 2024, we operated 248 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 $1.9 million per store, or $267 per square foot, in fiscal 2023.
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 believe that significant growth opportunities continue to exist within the online portion of our business and, relative to fiscal 2023, we believe it may continue to grow as a percentage of total net sales in the future.
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.
We consistently 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. • Brand Partnerships.
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.
Store Management, Culture and Training We believe our ability to attract, train, retain and motivate qualified employees at all levels of our organization is an important factor in creating a positive company culture and driving results over time. Each of our stores typically operates with a three to five member store management team.
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.
In 2023, we continued our membership in the Better Cotton Initiative ("BCI"), which is a global cotton sustainability organization that helps ensure clothing manufacturers source cotton with a lower environmental and social impact, including crop protection, water stewardship, soil health, and decent working conditions.
We plan to further optimize our 12 e-commerce platform and mobile application during fiscal 2023 and upgrade our warehouse management software that will serve both our stores and e-commerce distribution operations. Competition The teenage and young adult retail apparel, accessories and footwear industry is highly competitive.
During fiscal 2024, we plan to further optimize our warehouse management software that will serve both our stores and e-commerce operations, and we plan to upgrade our planning and allocation platforms to allow our teams to improve the merchandising mix in our stores and online. 12 Competition The teenage and young adult retail apparel, accessories and footwear industry is highly competitive.
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.
With 248 total stores at the end of fiscal 2023, we believe there are numerous attractive opportunities for Tillys to continue to open new stores in the future. We currently expect to open 5 new stores during fiscal 2024 within existing markets.
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.
Employees As of February 3, 2024, we employed approximately 1,536 full-time and approximately 4,512 part-time employees, of which approximately 528 were employed at our corporate office and distribution facilities and approximately 5,520 were employed at our 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 utilize multiple tools to drive traffic online and to our stores, including our 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 push notifications.
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 recycle all plastic packing material received with merchandise from our product suppliers. Our distribution centers are equipped with approximately 75% DesignLights Consortium (“DLC”) classified LED lamps. We have also recently applied for our California Green Business Network Certification for our e-commerce distribution center.
We endeavor to recycle all plastic packing material received with merchandise from our product suppliers. Our distribution centers are equipped with approximately 75% DesignLights Consortium (“DLC”) classified LED lamps.
In recent years, we have invested in a new point-of-sale system in stores, an upgraded e-commerce website platform, and a new order management system that is integrated with our stores and website to allow for certain omni-channel capabilities, including fulfilling e-commerce orders from stores when items are out of stock in our e-commerce distribution center, allowing customers to place orders online for in-store or curbside pickup, or to have items shipped to them from our stores.
In recent years, we have invested in a new point-of-sale system and upgraded our website platform and order management system that have enhanced our omni-channel capabilities, including fulfilling e-commerce orders from stores, allowing customers to place orders online to pick up in-store, and ordering items in store for fulfillment by e-commerce.
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.
We also expect to continue to expand digital marketing efforts through customer loyalty programs, SMS marketing, push messaging and building brand awareness in the communities surrounding our existing stores to drive growth across all channels. • Improve Inventory Allocation and Management.
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.
Store Openings and Closings 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 2019 14 3 240 2020 2 4 238 2021 9 6 241 2022 11 3 249 2023 7 8 248 43 24 We currently expect to open 5 new stores during fiscal 2024 within existing markets.
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.
We believe that these enhancements will improve customer engagement, expand sales opportunities, improve our real-time inventory visibility and order management, facilitate seamless omni-channel execution, and enhance our ability to manage customer relationships.
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 have curated a collection of product choices that use recycled materials, organic cotton, reusable products, and/or are certified by third-party organizations to specific sustainability standards.
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 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. 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.
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.
Moreover, partnerships with Afterpay, Apple, Google, Amazon, and Uber have provided our customers greater flexibility in payment options and delivery convenience, including same-day delivery or next-day delivery within certain areas. We plan to continue to invest in additional customer-facing technologies to improve customer convenience and engagement over time.
We view our print-format catalog and postcards and our digital-format catalog primarily as sales and marketing tools to drive online and store traffic from both existing and new customers. We also believe our marketing materials reinforce the Tillys brand and showcase our comprehensive selection of products in settings designed to reflect our brand’s lifestyle image.
We also believe our marketing materials reinforce the Tillys brand and showcase our comprehensive selection of products in settings designed to reflect our brand’s lifestyle image.
We offer an extensive selection of lifestyle and emerging third-party brands, as well as proprietary brands. Our merchandise includes a wide assortment of relevant brands, styles, colors, sizes, and price points to ensure our customers have a variety of choices every time they visit our stores.
Our merchandise includes a wide assortment 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 offer a balanced mix of merchandise across the apparel, footwear and accessories categories serving young men, young women, boys, and girls.
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.
In addition, we utilize the website to offer current information on our upcoming events, promotions and store locations. 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 expect inventory levels, along with an increase in accounts payable and accrued expenses, generally to reach their highest levels in anticipation of the increased revenues during these periods.
We expect inventory levels, along with an increase in accounts payable and accrued expenses, generally to reach their highest levels in anticipation of the increased revenues during these periods. 13 Environmental, Social, Governance (ESG) Matters Environmental Matters From a merchandising perspective in fiscal 2023, we continued to maintain our sustainability program in partnership with a variety of nationally and globally recognized third-party brands.
We believe a key element of our success is our team’s ability to identify and source the proven and emerging fashion trends and core styles that are most relevant to our customers. Our purchasing approach focuses on product relevance, quality, fit, availability, cost and speed of production in order to provide timely frequent delivery of merchandise to our stores.
Our purchasing approach focuses on product relevance, quality, fit, availability, cost and speed of production in order to provide timely frequent delivery of merchandise to our stores.
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.
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. This policy is distributed to all employees in advance of each quarterly trading window.
Growth Strategy We are pursuing several strategies to drive long-term sales and profitability, including: • Drive Comparable Store Sales Growth.
Growth Strategy Despite our recent operating challenges, we continue to believe in the following strategies to drive long-term sales and profitability, including: • Drive Comparable Store Sales Improvement.
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.
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 overall business. 11 • Email Marketing. We utilize email marketing to build awareness, drive traffic to our stores and online platform and to promote local in-store promotions and events.
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.
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. • Digital Marketing . We use digital marketing to drive new customers to Tillys.com and our stores.
Our digital platform provides substantially the same assortment available in our brick-and-mortar stores, supplemented by additional online-only styles and print-on-demand product offerings. Similar to the merchandising approach in our stores, we frequently change the look of our website to highlight new brands and products.
Similar to the merchandising approach in our stores, we frequently change the look of our website to highlight new brands and products.
We believe we have the opportunity to drive operating margin expansion through scaled efficiencies and continued process improvements.
We believe we have the opportunity to drive operating margin expansion through net sales growth, store unit growth, improving product margins off of company lows in fiscal 2023, and continued process improvements.
We believe our digital platform is an extension of our brand and retail stores and we seek to maintain an extensive selection of our newest and best merchandise assortments online at any point in time, providing our customers a seamless shopping experience.
We believe our digital platform is an extension of our brand and retail stores, offering substantially the same merchandise assortment as offered in our stores but with opportunities to provide extensions of that same assortment online, whether in terms of sizing or particular styles that may not be available in stores at a particular point in time, providing our customers a seamless shopping experience.
Our Strengths We believe that the following strengths contribute to our success and distinguish us from our competitors: • Destination retailer with a broad and differentiated assortment. We believe the combined depth and breadth of apparel, footwear and accessories offered at our stores exceeds the selection offered at many other specialty retailers.
We believe the combined depth and breadth of apparel, footwear and accessories offered at our stores exceeds the selection offered at many other specialty retailers. We offer an extensive selection of lifestyle and emerging third-party brands, as well as proprietary brands.
We plan to continue to grow our partnership with Recover™ in fiscal 2023, aligning with our long-term sustainability strategy and highlighting the importance of sustainability to our business and to our customer. We continue to partner with REPREVE ® , which produces recycled polyester from plastic water bottles.
During fiscal 2023, 29% of our cotton used in our proprietary brand products was sourced as Better Cotton, as defined by the Better Cotton Initiative. We continue to partner with REPREVE ® , which produces recycled polyester from plastic water bottles.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWhile we have paid special cash dividends in the past, there can be no assurance that we will pay dividends in the future, which may make our Class A common stock less desirable to investors and decrease its value.
Biggest changeSee “— Our founders control a majority of the voting power of our common stock, which may prevent other stockholders from influencing corporate decisions and may result in conflicts of interest, and a significant portion of our Class A common stock is held by a concentrated group of stockholders, which may adversely impact other stockholders .” While we have paid special cash dividends in the past, there can be no assurance that we will pay dividends in the future, which may make our Class A common stock less desirable to investors and decrease its value.
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.
Furthermore, extended unseasonable weather conditions in regions such as 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.
After the directors in each class serve for the initial terms provided in our certificate of incorporation, each class will serve for a staggered three-year term; • our certificate of incorporation permits removal of a director only for cause by the affirmative vote of the holders of a majority of the voting power of the company once the Board of Directors is divided into three classes and provides that director vacancies can only be filled by an affirmative vote of a majority of directors then in office; • our amended and restated bylaws require advance notice of stockholder proposals and director nominations; and • Section 203 of the Delaware General Corporation Law may prevent large stockholders from completing a merger or acquisition of us.
After the directors in each class serve for the initial terms provided in our certificate of incorporation, each class will serve for a staggered three-year term; • our certificate of incorporation permits removal of a director only for cause by the affirmative vote of the holders of a majority of the voting power of the company once the Board of Directors is divided into three classes and provides that director vacancies can only be filled by an affirmative vote of a majority of directors then in office; 24 • our amended and restated bylaws require advance notice of stockholder proposals and director nominations; and • Section 203 of the Delaware General Corporation Law may prevent large stockholders from completing a merger or acquisition of us.
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.
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; 16 • 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.
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.
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 • increased 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.
If a third-party claims to have licensing rights with respect to merchandise we purchased from a vendor, or we acquire unlicensed merchandise, we could be obligated to remove such merchandise from our stores, incur costs associated with destruction of such merchandise if the distributor or vendor is unwilling or unable to reimburse us and be subject to liability under various civil and criminal causes of action, including actions to recover unpaid royalties and other damages and injunctions.
If a third-party claims to have licensing rights with respect to merchandise we purchased from a vendor, or we acquire unlicensed merchandise, we could be obligated to remove such merchandise from our stores, incur costs associated with destruction of such merchandise if the distributor or vendor is unwilling or unable to reimburse us and be subject to liability under various civil and criminal causes of action, including actions to recover unpaid royalties and other damages and 22 injunctions.
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.
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.
Deterioration in our relationships with our suppliers, supply chain disruption, or increased demand for their products could have a material adverse impact on our business, and there can be no assurance that we will be able to acquire desired merchandise in sufficient quantities on terms acceptable to us in the future.
Deterioration in our relationships with our suppliers, supply chain disruption, or increased demand for their products could have a material adverse impact on our business, and there 18 can be no assurance that we will be able to acquire desired merchandise in sufficient quantities on terms acceptable to us 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.
From February 2017 through December 2021 we 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 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.
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.
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.
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 17 a location to escalate over the term of the lease.
Our failure to address and respond to these risks successfully could reduce e-commerce net sales, increase costs and damage the reputation of our brand. Any failure to continue to grow e-commerce net sales or improve the profitability of e-commerce operations could have a material adverse impact on our financial condition, results of operations, and stock price.
Our failure to address and respond to these risks successfully could reduce e-commerce net sales, increase costs and damage the reputation of our brand or our business. Any failure to continue to grow e-commerce net sales or improve the profitability of e-commerce operations could have a material adverse impact on our financial condition, results of operations, and stock price.
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.
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 and have imposed additional restrictions, including regulating the level of notice and consent required to collect and process end-user data.
Any failure or perceived failure by us to comply with federal, state, or foreign laws or self-regulatory standards could result in negative publicity, significant fines and expenses for remediation, diversion of management time and effort and proceedings against us by governmental entities, individuals or others.
Any failure or perceived failure by us to comply with federal, state, or foreign laws or self-regulatory 21 standards could result in negative publicity, significant fines and expenses for remediation, diversion of management time and effort and proceedings against us by governmental entities, individuals or others.
It may be difficult for us to foresee regulatory changes impacting our business and our actions needed to respond to changes in the law could be costly and may negatively impact our operations. We depend on cash generated from our operations to support our growth, which could strain our cash flow.
It may be difficult for us to foresee regulatory changes impacting our business and our actions needed to respond to changes in the law could be costly and may negatively impact our operations. 25 We depend on cash generated from our operations to support our growth, which could strain our cash flow.
In addition, our merchandise supply could be impacted if our suppliers’ imports become subject to existing or future duties and quotas, or if our suppliers face increased competition from other companies for production facilities, import quota capacity and shipping capacity.
In addition, our merchandise supply could be impacted if our suppliers’ imports become subject to existing or future duties and quotas, or if our suppliers face increased competition from other companies for production facilities, import quota capacity and 19 shipping capacity.
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.
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 those of our employees and customers.
We rely on third parties to deliver merchandise to our stores located outside of southern California and therefore our business could be negatively impacted by disruptions in the operations of these third-party providers.
We rely on third parties to deliver merchandise to our stores located outside of southern California and to our customers and, therefore, our business could be negatively impacted by disruptions in the operations of these third-party providers.
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.
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.
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.
Due to unanticipated 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.
Our costs under these leases are a significant amount of our expenses and are growing rapidly as we expand the number of locations and existing locations experience expense increases. We are required to pay additional rent under many of our lease agreements based upon achieving certain sales plateaus for each store location.
Our costs under these leases are a significant amount of our expenses and grow rapidly as we expand the number of locations and existing locations experience expense increases. We are required to pay additional rent under many of our lease agreements based upon achieving certain sales plateaus for each store location.
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.
Competition with some or all of these retailers 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.
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.
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 net sales could be adversely impacted by decreases in consumer spending.
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.
If our management information systems fail to operate or are unable to support our business, 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.
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.
Epidemics or pandemics, 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.
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.
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 pandemics/epidemics, then we may be prevented from effectively operating our stores, shipping and processing our merchandise and operating our e-commerce platform.
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.
In addition, consumer spending can be impacted by non-economic factors, including geopolitical issues, trade restrictions, unseasonable weather, pandemics/epidemics, 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.
This risk is heightened because we collect and store customer information for marketing purposes, and use credit card information to process transactions.
This risk is heightened because we collect and store customer information for marketing purposes, and use credit card information to process transactions (although tokenized).
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.
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 and market then-fashionable inventory, our sales could be adversely affected, and we may be faced with a substantial amount of unsold inventory, reduced sales, loss of customers or other missed opportunities.
In particular, because a key component of our clothing is cotton, increases in the cost of cotton may significantly affect the cost of our products and could have an adverse impact on our cost of sales.
In particular, because a key component of our clothing is cotton, increases in the cost of cotton may significantly affect the cost of the products that we sell and could have an adverse impact on our cost of sales.
In addition, as we expand our business, we will need significant amounts of cash from operations to pay our existing and future lease obligations, build out new store space, remodel existing stores, purchase inventory, create new marketing and advertising initiatives, fund the expansion of our e-commerce business, pay personnel, pay for the increased costs associated with operating as a public company, and, if necessary, further invest in our infrastructure and facilities.
In addition, any expansion of our business would require significant amounts of cash from operations to pay our existing and future lease obligations, build out new store space, remodel existing stores, purchase inventory, create new marketing and advertising initiatives, fund the expansion of our e-commerce business, pay personnel, pay for the increased costs associated with operating as a public company, and, if necessary, further invest in our infrastructure and facilities.
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.
We are subject to a complex array of laws relating to the collection, use, retention, disclosure, security, and transfer of personal data.
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.
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 accessibility laws, apparel, footwear and accessory safety standards, security of customer and employee personal information, stockholder litigation, contractual relations with vendors, marketing and infringement of trademarks and other intellectual property rights.
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.
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, epidemics or pandemics 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.
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.
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.
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.
Some foreign countries can be, and have been, affected by political and economic instability and natural disasters, negatively impacting trade, which can result in material delays in the delivery of certain merchandise to us from foreign manufacturers.
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.
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 our marketing initiatives are unsuccessful and we fail to connect with our target customer.
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.
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. Moreover, the internet and new technologies facilitate competitive entry and comparison shopping in our retail market.
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.
Fluctuations in the price, availability and quality of fabrics or other raw materials used to manufacture the products that we sell, as well as the price for transportation and labor, and other rising costs passed by our vendor partners to us, could have adverse impacts on our cost of sales and our ability to meet our customers’ demands.
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.
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.
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.
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 and we may experience further declines in the future.
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.
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.
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.
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, and that our third-party branded partners may become less interested in working with us.
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.
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.
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.
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.
Additionally, instances of supply chain disruptions and delays, such as those we experience in connection with the COVID-19 pandemic, as well as continued heightened inflation, could lead to inefficiencies and heightened costs passed to us by our vendors that could negatively impact our performance and our results of operations.
Additionally, instances of supply chain disruptions and delays, as well as continued heightened inflation, could lead to inefficiencies and heightened costs passed to us by our vendors that could negatively impact our performance and our results of operations.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our Class A common stock could decrease, which could cause the price of our Class A common stock and trading volume to decline.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our Class A common stock could decrease, which could cause the price of our Class A common stock and trading volume to decline. 23 Financial forecasting by us and financial analysts who may publish estimates of our performance may differ materially from actual results.
A continuing reduction in traffic to retail centers may likely lead to a decrease in our net sales and results of operations, which could have a material adverse effect on our financial condition, results of operations and stock price. We buy and stock merchandise based upon seasonal weather patterns and therefore unseasonable weather could negatively impact our sales.
A continuing reduction in traffic to retail centers may likely lead to a decrease in our net sales and results of operations, which could have a material adverse effect on our financial condition, results of operations and stock price.
Risks Related to Our Ownership Structure and Ownership of Our Common Stock Our founders control a majority of the voting power of our common stock, which may prevent other stockholders from influencing corporate decisions and may result in conflicts of interest. Our common stock consists of two classes: Class A and Class B.
Risks Related to Our Ownership Structure and Ownership of Our Common Stock Our founders control a majority of the voting power of our common stock, which may prevent other stockholders from influencing corporate decisions and may result in conflicts of interest, and a significant portion of our Class A common stock is held by a concentrated group of stockholders, which may adversely impact other stockholders.
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.
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.
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.
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.
Because of a traditionally higher level of sales during the back-to-school and winter holiday shopping seasons, our sales are typically higher in the third and fourth fiscal quarters than they are in the first and second fiscal quarters.
Our sales can significantly fluctuate based upon shopping seasons, which may cause our operating results to fluctuate disproportionately on a quarterly basis. Because of a traditionally higher level of sales during the back-to-school and winter holiday shopping seasons, our sales are typically higher in the third and fourth fiscal quarters than they are in the first and second fiscal quarters.
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.
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.
A rise in the cost of products and services that are necessary for the operation of our business could increase our cost of sales and cause our results of operations and margins to decline.
If periods of decreased consumer spending persist, our sales could continue to decrease, and our financial condition and results of operations could be adversely affected. A rise in the cost of products and services that are necessary for the operation of our business could increase our cost of sales and cause our results of operations and margins to decline.
This ownership concentration may adversely impact the trading of our Class A common stock because of a perceived conflict of interest that may exist, thereby depressing the value of our Class A common stock.
This ownership concentration may adversely impact the trading of our Class A common stock because of a perceived conflict of interest that may exist, thereby depressing the value of our Class A common stock. In addition, certain third-party stockholders have acquired beneficial ownership of over 30% of our outstanding Class A common stock.
These economic pressures may result in increased costs for many products and services that are necessary for the operation of our business (including product costs, labor costs, shipping costs, and digital marketing costs, among others), as well as decreases in consumer spending or demand for our products, any of which could adversely impact our financial condition and results of operations. 16 The COVID-19 pandemic has materially disrupted our operations and may have an adverse effect on our business.
These economic pressures may result in increased costs for many products and services that are necessary for the operation of our business (including product costs, labor costs, shipping costs, and digital marketing costs, among others), as well as decreases in consumer spending or demand for our products, any of which could adversely impact our financial condition and results of operations. 15 We face intense competition in our industry and we may not be able to compete effectively.
Our business and growth depends upon the leadership and experience of our key executive management team, including our co-founder, Hezy Shaked, who currently serves as our Chief Strategy Officer and Executive Chairman of our Board of Directors, and Edmond Thomas, our President and Chief Executive Officer, and we may be unable to retain their services.
Our business and growth depends upon the leadership and experience of our key executive management team, including our co-founder, Hezy Shaked, who currently serves as our Interim President and Chief Executive Officer and Executive Chairman of our Board of Directors, and Michael Henry, our Executive Vice-President and Chief Financial Officer.
Holders of Class A common stock are entitled to one vote per share, and holders of Class B common stock are entitled to 10 votes per share, on all matters to be voted on by our common stockholders. All of the shares of Class B common stock are beneficially owned by Hezy Shaked and Tilly Levine. As a result, Mr.
Our common stock consists of two classes: Class A and Class B. Holders of Class A common stock are entitled to one vote per share, and holders of Class B common stock are entitled to 10 votes per share, on all matters to be voted on by our common stockholders.
As a result, postal rates and paper and printing costs affect the cost of our mailings. We also use third-party online services to market our website and stores and to distribute promotions to attract new customers and encourage existing customers to purchase from us.
We also use third-party online services to market our website and stores and to distribute promotions to attract new customers and encourage existing customers to purchase from us.
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.
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.
Such changes may necessitate substantial operational adjustments and expenses, dampen demand for the Company's goods, and have an unfavorable impact on our business, financial health, marketing strategy and performance. Climate change, environmental, social and governance (“ESG”) and sustainability are a growing global movement.
Such changes may necessitate substantial operational adjustments and expenses, dampen demand for the Company's goods, and have an unfavorable impact on our business, financial health, marketing strategy and performance. We are subject to several risks related to climate change that could 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 is the voting trustee, pursuant to a voting trust agreement, covering the shares owned by Ms. Levine. As a result, Mr.
All of the shares of Class B common stock are beneficially owned by Hezy Shaked and Tilly Levine. As a result, Mr. 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.
If we are unable to enter into new leases or renew existing leases on terms acceptable to us or be released from our obligations under leases for stores that we close, our business, profitability and results of operations may be harmed. We face intense competition in our industry and we may not be able to compete effectively.
If we are unable to enter into new leases or renew existing leases on terms acceptable to us or be released from our obligations under leases for stores that we close, our business, profitability and results of operations may be harmed. We buy and stock merchandise based upon seasonal weather patterns and therefore unseasonable weather could negatively impact our sales.
Further, our effective tax rate in any financial statement period may be materially affected by changes in the mix and level of earnings, or changes in tax laws in any relevant jurisdiction. The implementation of climate change, environmental, social, and governance initiatives, as well as sustainability initiatives, could lead to regulatory or structural modifications within the industry.
Further, our effective tax rate in any financial statement period may be materially affected by changes in the mix and level of earnings, or changes in tax laws in any relevant jurisdiction.
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.
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. In addition, our results of operations and financial condition may be materially adversely impacted by continued heightened levels of inflation and interest rate increases.
Climate change, extreme weather conditions, wildfires, droughts, and rising sea levels could affect our ability to procure merchandise at costs and in quantities we currently experience. Litigation costs and the outcome of litigation could have a material adverse effect on our business.
Climate change, extreme weather conditions, wildfires, droughts, and rising sea levels could affect our ability to procure merchandise at costs and in quantities we currently experience. Climate change, environmental, social and governance (“ESG”) and sustainability are a growing global movement.
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).
Relying on these third-party delivery services puts us at risk from disruptions in their operations, such as employee strikes, inclement weather and epidemics/pandemics, and their inability to meet our shipping demands. If we are forced to use other delivery services, our costs could increase, and we may not be able to meet shipment deadlines.
If we are forced to use other delivery services, our costs could increase, and we may not be able to meet shipment deadlines. Moreover, we may not be able to obtain delivery terms as favorable as those received from the transportation providers we currently use, which would further increase our costs.
Moreover, we may not be able to obtain delivery terms as favorable as those received from the transportation providers we currently use, which would further increase our costs. 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.
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.
All of our employees are employed at will and are not contractually bound to stay with the company. If we lose the services of any of our 20 key personnel or we are not able to attract additional qualified personnel, we may not be able to successfully manage our business.
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.
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.
We do not currently have any formal plans for paying any additional cash dividends on our common stock.
We do not currently have any formal plans for paying any additional cash dividends on our common stock. Therefore, capital appreciation, if any, of our Class A common stock could be the sole source of gain for our Class A common stockholders for the foreseeable future.
The majority of our stores are located in California, Arizona, Nevada, Florida and the northeastern United States.
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 concentration issues and other region-specific disruptions. The majority of our stores are located in California, Arizona, Nevada, Florida and the northeastern United States.
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.
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. As a result, postal rates and paper and printing costs affect the cost of our mailings.
We rely upon our management information systems in almost every aspect of our daily business operations.
Risks Related to Information Technology, Data Privacy and Intellectual Property If our information technology fails to operate or is unable to support our business, our operations could be disrupted. We rely upon our management information systems in almost every aspect of our daily business operations.
Therefore, capital appreciation, if any, of our Class A common stock could be the sole source of gain for our Class A common stockholders for the foreseeable future. 25 Our corporate organizational documents and Delaware law have anti-takeover provisions that may inhibit or prohibit a takeover of us and the replacement or removal of our management.
Our corporate organizational documents and Delaware law have anti-takeover provisions that may inhibit or prohibit a takeover of us and the replacement or removal of our management. In addition to the concentration of ownership and voting power held by Mr. Shaked and Ms.
We experienced significant decreases in consumer spending during certain periods of fiscal 2022 in light of the recent decreases in consumer confidence and concerns regarding the current economic environment, and similar impacts may occur in the future. If periods of decreased consumer spending persist, our sales could decrease, and our financial condition and results of operations could be adversely affected.
We experienced significant decreases in net sales during fiscal 2023 and 2022, at least partly in light of inflationary pressures on consumers and concerns regarding the economic and geo-political environment, and similar impacts may occur in the future.
Removed
In addition, our results of operations and financial condition may be materially adversely impacted by continued heightened levels of inflation and interest rate increases, including those experienced globally as a result of the COVID-19 pandemic.
Added
Because of these factors, current and future competition could have a material adverse effect on our financial condition and results of operations.
Removed
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.
Added
There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information.

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Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeThe lease began on June 29, 2012 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, 2011 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. 27 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. We lease approximately 26,000 square feet of office and warehouse space located at 11 Whatney, Irvine, California.
The store leases generally have a base lease term of 10 years and many have renewal option periods, and we are generally responsible for payment of property taxes and utilities, common area maintenance and mall marketing fees. We consider all of our properties adequate for our present and anticipated future needs.
The store leases generally have a base lease term of 10 years and many have renewal option periods, and we are generally responsible for payment of property taxes and utilities, common area maintenance and mall marketing fees. We consider all of our properties adequate for our present and anticipated future needs. 27
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.
All of our 248 stores, encompassing a total of approximately 1.8 million total square feet as of February 3, 2024, are occupied under operating leases.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe 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.
Biggest changeWe paid special cash dividends of $1.00 per share in each of July and December of 2021 to all holders of record of issued and outstanding shares of our common stock.
The 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.
The 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 2023 and 2022.
There can be no assurance that we will pay additional cash dividends on our common stock in the future, and we do not currently have any formal plans to issue dividends in the future at this time.
There can be no assurance that we will pay additional cash dividends on our common stock in the future, and we do not currently have any formal plans to issue dividends in the future.
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.
This graph assumes an initial investment of $100 on February 2, 2019 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.
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").
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 2024 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the end of the fiscal year ended February 3, 2024 (the "2024 Proxy Statement").
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.
Comparison of 5-Year Cumulative Total Return as of February 3, 2024 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 February 3, 2024. 29 Item 6.
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.
Stock Performance Graph The following graph compares the cumulative stockholder return on our Class A common stock for the five years ended February 3, 2024 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.
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.
As of April 5, 2024, we had approximately ten stockholders of record, eight of whom were holders of our Class A common stock and two of whom were holders of our Class B common stock.
Added
In accordance with the terms of our Asset-Backed Credit Agreement, we are prohibited from declaring or paying any cash dividends to our stockholders prior to April 27, 2024.

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. 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.
Biggest changeOperating (loss) income percentage measures operating (loss) income as a percentage of our net sales. 33 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 (1) February 3, 2024 January 28, 2023 January 29, 2022 (in thousands) Statements of Operations Data: Net sales $ 623,083 $ 672,280 $ 775,694 Cost of goods sold 453,702 465,916 496,083 Rent expense, related party 3,724 3,616 2,948 Total cost of goods sold 457,426 469,532 499,031 Gross profit 165,657 202,748 276,663 Selling, general and administrative expenses 196,106 191,028 188,527 Rent expense, related party 533 533 541 Total selling, general and administrative expenses 196,639 191,561 189,068 Operating (loss) income (30,982) 11,187 87,595 Other income (expense), net 5,199 1,980 (594) (Loss) income before income taxes (25,783) 13,167 87,001 Income tax expense 8,709 3,490 22,752 Net (loss) income $ (34,492) $ 9,677 $ 64,249 Percentage of Net Sales: Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 72.8 % 69.3 % 64.0 % Rent expense, related party 0.6 % 0.5 % 0.3 % Total cost of goods sold 73.4 % 69.8 % 64.3 % Gross profit 26.6 % 30.2 % 35.7 % Selling, general and administrative expenses 31.5 % 28.4 % 24.3 % Rent expense, related party 0.1 % 0.1 % 0.1 % Total selling, general and administrative expenses 31.6 % 28.5 % 24.4 % Operating (loss) income (5.0) % 1.7 % 11.3 % Other income (expense), net 0.8 % 0.3 % (0.1) % (Loss) income before income taxes (4.1) % 2.0 % 11.2 % Income tax expense 1.4 % 0.5 % 2.9 % Net (loss) income (5.5) % 1.4 % 8.3 % The following table presents store operating data for the periods indicated: Fiscal Year Ended February 3, 2024 January 28, 2023 January 29, 2022 Store Operating Data: Stores operating at end of period 248 249 241 Comparable store sales change (2) (10.6) % (14.6) % 16.3 % Total square feet at end of period (in thousands) 1,801 1,818 1,764 Average net sales per brick-and-mortar store (in thousands) (3) $ 1,944 $ 2,171 $ 2,511 Average net sales per square foot (3) $ 267 $ 297 $ 342 E-commerce revenues (in thousands) (4) $ 137,453 $ 141,130 $ 165,950 E-commerce revenues as a percentage of net sales 22.1 % 21.0 % 21.4 % (1) The fiscal year ended February 3, 2024 included 53 weeks.
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.
SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods. Operating (Loss) Income Operating (loss) income equals gross profit less SG&A expenses. Operating (loss) income excludes interest income, interest expense and income taxes.
We believe that cash flows from operating activities, our cash and marketable securities on hand, and credit facility availability will be sufficient to cover our working capital requirements and anticipated capital expenditures for the next 12 months from the filing of this Report.
We believe that cash flows from operating activities, our cash on hand and marketable securities, and credit facility availability will be sufficient to cover our working capital requirements and anticipated capital expenditures for the next 12 months from the filing of this Report.
This adjustment calculation requires us to develop assumptions and estimates, which are based on factors such as merchandise seasonality, historical trends and inventory levels, including estimated sell-through rates of remaining units. To the extent that management’s estimates differ from actual results, additional markdowns may be required that could reduce our gross margin, operating income and the carrying value of inventories.
This adjustment calculation requires us to develop assumptions and estimates, which are based on factors such as merchandise seasonality, historical trends and inventory levels, including estimated sell-through rates of remaining units. 38 To the extent that management’s estimates differ from actual results, additional markdowns may be required that could reduce our gross margin, operating income and the carrying value of inventories.
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.
A remodeled or relocated store is included in comparable store net 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.
This reflects that various costs, including occupancy costs, generally do not increase in proportion to the seasonal sales increase. Selling, General and Administrative Expenses Our selling, general and administrative, or SG&A, expenses are comprised of store selling expenses and corporate-level general and administrative expenses.
This reflects that various costs, including occupancy costs, generally do not increase in proportion to the seasonal sales increase. 32 Selling, General and Administrative Expenses Our selling, general and administrative, or SG&A, expenses are comprised of store selling expenses and corporate-level general and administrative expenses.
The payment and performance in full of the secured obligations under the Revolving Facility are secured by a lien on and security interest in all of the assets of our company.
The payment and performance in full of the secured obligations under the Revolving Facility are secured by a lien on and security interest in all of our assets.
Quarterly, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable. The estimation of future cash flows from operating activities requires significant estimates of factors that include future sales and gross margin performance.
Quarterly, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets and operating lease ROU assets may not be recoverable. The estimation of future cash flows from operating activities requires significant estimates of factors that include future sales and gross margin performance.
If our net sales or gross profit performance or other estimated operating results are not achieved at or above our forecasted level, or inflation exceeds our forecast and we are unable to recover such costs through price increases, the carrying value of certain of our retail stores may prove to be unrecoverable and we may incur additional impairment charges in the future.
If our net sales or gross profit performance or other estimated operating results are not achieved at or above our forecasted level, or inflation exceeds our forecast and we are unable to recover such costs through price increases, the carrying value of certain of our retail store assets may prove to be unrecoverable and we may incur additional impairment charges in the future.
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.
The lease is accounted for as an operating lease and expires on October 31, 2031. Our store leases are generally non-cancellable operating leases expiring at various dates through fiscal year 2034. Certain leases provide for additional rent based on a percentage of sales and annual rent increases based upon the Consumer Price Index.
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.
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. (4) E-commerce net sales include e-commerce sales and e-commerce shipping and handling fee revenue.
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.
As permitted by SEC rules, we have omitted the discussion and analysis of our financial condition, cash flows and results of operations for fiscal 2022 compared to fiscal 2021. 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 28, 2023, for this discussion.
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.
These and other cost increases may continue to have a material adverse impact on our results of operations and financial condition into fiscal 2024, particularly if the broader economy is negatively impacted by recessionary impacts for an extended period of time.
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.
Net cash provided 36 by investing activities in fiscal 2022 consisted of maturities of marketable securities of $147.3 million, partially offset by purchases of marketable securities of $89.3 million and capital expenditures totaling $15.1 million.
Events of default under the Credit Agreement include, among other things, failure to pay principal, interest, fees or other amounts; covenant defaults; material inaccuracy of representations and warranties; bankruptcy events with respect to the Company; actual or asserted invalidity of any of the loan documents; or a change of control of the Company.
Events of default under the Credit Agreement include, among other things, failure to pay principal, interest, fees or other amounts; covenant defaults; material inaccuracy of representations and warranties; bankruptcy events; actual or asserted invalidity of any the Credit Agreement or related loan documents; or a change of control.
These costs are significant and can be expected to continue to increase as our company grows. The components of our reported cost of goods sold may not be comparable to those of other retail companies. We regularly analyze the components of gross profit as well as gross profit as a percentage of net sales.
These costs are significant and can be expected to continue to increase as our store count grows over time. The components of our reported cost of goods sold may not be comparable to those of other retail companies. We regularly analyze the components of gross profit as well as gross profit as a percentage of net sales.
Other factors include a significant change in the manner of the use of the asset or a significant negative industry or economic trend. This evaluation is performed based on estimated undiscounted future cash flows from operating activities compared with the carrying value of the related assets.
Other factors include a significant change in the manner of the use of the asset or a significant negative industry or economic trend. This evaluation is performed based on estimated undiscounted future cash flows from operating activities compared with the carrying value of the related long-lived assets and operating lease ROU assets.
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.
Net Cash (Used In) Provided By Investing Activities Cash flows from investing activities consist primarily of capital expenditures and maturities and purchases of marketable securities. Net cash used in investing activities was $20.0 million this year compared to net cash provided of $42.8 million last year.
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.
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 long-lived assets and operating lease right-of-use ("ROU") assets may not be recoverable.
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.
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 who is currently our Interim President and Chief Executive Officer. This building is located at 17 Pasteur, Irvine, California.
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.
Fiscal year 2023 consisted of a 53-week period, and fiscal years 2022, and 2021 each consisted of a 52-week period. The discussion and analysis of our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 appears below.
We were allowed to elect to apply either the LIBOR rate or base rate interest to borrowings at our discretion, other than in the case of swing line loans, to which the base rate shall apply.
We are allowed to elect to apply either SOFR or Base Rate interest to borrowings at our discretion, other than in the case of swing line loans, to which the Base Rate shall apply.
Prior to the first anniversary of the closing date, we were prohibited from declaring or paying any cash dividends to our respective stockholders or repurchasing of our own common stock.
Prior to the first anniversary of the Closing Date, we are prohibited from declaring or paying any cash dividends to our stockholders or repurchasing our common stock.
Store selling expenses generally vary proportionately with net sales and store growth. In contrast, general and administrative expenses are generally not directly proportional to net sales and store growth, but will be expected to increase over time to support the needs of our growing company.
Store selling expenses generally vary proportionately with net sales and store growth. In contrast, general and administrative expenses are generally not directly proportional to net sales and store growth, but will be expected to increase over time to support the needs of our business as our store count grows over time.
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.
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 February 3, 2024, we operated 248 stores in 33 states, averaging approximately 7,300 square feet per store. We also sell our products through our e-commerce website, www.tillys.com.
If cash flows from operations are not sufficient or available to meet our capital requirements, then we will be required to obtain additional equity or debt financing in the future.
If these sources are not sufficient or available to meet our capital requirements, then we will be required to obtain additional equity or debt financing in the future.
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 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 both February 3, 2024 and January 28, 2023 was not material.
After the first anniversary of the closing date, we were allowed to declare and pay cash dividends to our respective stockholders and repurchase our own common stock, provided, among other things, no default or event of default exists as of the date of any such payment and after giving effect thereto and certain minimum availability and minimum projected availability tests are satisfied.
Thereafter, we are permitted to declare or pay cash dividends and/or repurchase our common stock provided, among other things, no default or event of default exists as of the date of any such payment and after giving effect thereto and certain minimum availability and minimum projected availability tests are satisfied.
The lease is accounted for as an operating lease and expires on December 31, 2027. We lease approximately 26,000 square feet of office and warehouse space with a company that is owned by one of the co-founders of Tillys. This building is located at 11 Whatney, Irvine, California.
The lease is accounted for as an operating lease and expires on December 31, 2027. 37 We lease approximately 26,000 square feet of office and warehouse space from a company that is owned by one of the co-founders of Tillys who is currently our Interim President and Chief Executive Officer. This building is located at 11 Whatney, Irvine, California.
In addition, our revenues in any given quarter can be affected by a number of factors including the timing of holidays and weather patterns.
Our business is seasonal and as a result our revenues fluctuate from quarter to quarter. In addition, our revenues in any given quarter can be affected by a number of factors including the timing of holidays and weather patterns.
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.
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 February 3, 2024, was $71.5 million compared to $94.1 million at January 28, 2023, a decrease of $22.6 million.
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.
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. 39
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.
Comparable store net sales exclude gift card breakage income and e-commerce shipping and handling fee revenue. The comparable store sales change for the period ended February 3, 2024 includes the 53rd week in fiscal year 2023. (3) The number of stores and the amount of square footage reflect the number of days during the period that stores were open.
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.
References to "fiscal year 2023" or "fiscal 2023" refer to the fiscal year ended February 3, 2024, references to "fiscal year 2022" or "fiscal 2022" refer to the fiscal year ended January 28, 2023 and references to "fiscal year 2021” or "fiscal 2021” refer to the fiscal year ended January 29, 2022.
Contractual Obligations We enter into long-term contractual obligations and commitments in the normal course of business, primarily non-cancellable operating leases. We lease approximately 172,000 square feet for our corporate headquarters and distribution center from a company that is owned by the co-founders of Tillys. These buildings are located at 10 and 12 Whatney, Irvine, California.
Contractual Obligations We enter into long-term contractual obligations and commitments in the normal course of business, primarily non-cancellable operating leases and software maintenance agreements. We lease approximately 172,000 square feet for our corporate headquarters and distribution center from a company that is owned by the co-founders of Tillys, one of which is currently our Interim President and Chief Executive Officer.
(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.
The changes in our working capital during fiscal 2023 were as follows: $ millions Description $94.1 Working capital at January 28, 2023 (18.2) Decrease in cash, cash equivalents, and marketable securities, primarily due to lower net sales (5.9) Decrease in prepaid expenses and other current assets primarily from a reduction in prepaid income taxes (3.3) Decrease in receivables primarily from reduced tenant improvement allowances 2.8 Increase primarily due to a reduction in accrued expenses 2.5 Increase in merchandise inventories, net of accounts payable (0.5) Net change from all other changes in current assets and current liabilities $71.5 Working capital at February 3, 2024 Cash Flow Analysis A summary of operating, investing and financing activities is shown in the following table: Fiscal Year Ended February 3, 2024 January 28, 2023 January 29, 2022 (in thousands) Net cash (used in) provided by operating activities $ (6,733) $ (1,415) $ 63,402 Net cash (used in) provided by investing activities (19,993) 42,805 (45,328) Net cash provided by (used in) financing activities 227 (10,065) (52,057) Net change in cash and cash equivalents $ (26,499) $ 31,325 $ (33,983) Net Cash (Used In) Provided by Operating Activities Operating activities consist primarily of net (loss) income adjusted for non-cash items that include depreciation, asset impairment charges, deferred income taxes, gains on maturities of marketable securities and share-based compensation expense, plus the effect on cash of changes during the year in our assets and liabilities.
Store sales are reflected in sales when the merchandise is received by the customer. For e-commerce sales, we recognize revenue, and the related cost of goods sold at the time the merchandise is shipped to the customer. Net sales also include shipping and handling fees for e-commerce shipments that have been shipped to the customer.
Net Sales Net sales reflect revenue from the sale of our merchandise at store locations and through e-commerce, net of sales taxes. Store sales are reflected in sales when the merchandise is received by the customer. For e-commerce sales, we recognize revenue, and the related cost of goods sold at the time the merchandise is shipped to the customer.
The Credit Agreement provides for a senior secured revolving credit facility (“Revolving Facility”) of up to $25.0 million (“Revolving Commitment”) consisting of revolving loans, letters of credit and swing line loans, with a sub-limit on letters of credit outstanding at any time of $15.0 million. The Revolving Facility matures on January 20, 2024.
The Credit Agreement provides for an asset-based, senior secured revolving credit facility (“Revolving Facility”) of up to $65.0 million (“Revolving Commitment”) consisting of revolving loans, letters of credit and swing line loans, with a sub-limit on letters of credit outstanding at any time of $10.0 million and a sub-limit for swing line loans of $7.5 million, which replaced our previous senior unsecured credit agreement.
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.
Net cash used in investing activities in fiscal 2023 consisted of purchases of marketable securities of $121.0 million and capital expenditures totaling $14.0 million, partially offset by maturities of marketable securities of $115.0 million.
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.
If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized for the difference between the carrying value and the estimated fair value of assets based on the discounted cash flows of the assets using a rate that approximates the weighted average cost of capital plus a company specific risk premium determined by management.
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.
Net sales from physical stores represented 77.9% of total net sales compared to 79.0% of total net sales last year. We ended fiscal 2023 with 248 total stores compared to 249 total stores at the end of fiscal 2022. ◦ Net sales from e-commerce were $137.5 million, a decrease of $3.7 million or 2.6%, compared to $141.1 million last year.
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.
Under this method, we accrue income taxes payable or refundable and recognize deferred tax assets and liabilities based on differences between accounting principles generally accepted in the United States and tax bases of assets and liabilities.
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.
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.
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.
Net cash used in financing activities of $10.1 million last year was attributable to the repurchase of shares of our common stock of $10.9 million, partially offset by a short-swing profits disgorgement payment to us of $0.7 million and proceeds of employee exercises of stock options of $0.2 million.
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.
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 included in this Annual Report on Form 10-K.
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.
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.
Net sales are net of returns on sales during the period as well as an estimate of returns expected in the future stemming from current period sales. We recognize revenue from gift cards as they are redeemed for merchandise. Prior to redemption, we maintain a current liability for unredeemed gift card balances.
Net sales also include shipping and handling fees for e-commerce shipments that have been shipped to the customer. Net sales are net of returns on sales during the 31 period as well as an estimate of returns expected in the future stemming from current period sales. We recognize revenue from gift cards as they are redeemed for merchandise.
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.
Net cash used in operating activities was $6.7 million this year compared to $1.4 million last year. The $5.3 million increase in net cash used in operating activities compared to last year was due primarily to lower net sales.
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.
Product margins declined by 150 basis points primarily due to increased markdowns utilized to manage inventory levels. Selling, General and Administrative ("SG&A") Expenses SG&A expenses were $196.6 million, or 31.6% of net sales, compared to $191.6 million or 28.5% of net sales, last year.
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%.
Fiscal Year 2023 Compared to Fiscal Year 2022 Net Sales Total net sales were $623.1 million, a decrease of $49.2 million, or 7.3%, compared to $672.3 million last year. $ millions Attributable to $(70.7) Decrease in comparable net sales of 10.6%, including e-commerce 21.5 Increase in non-comparable store sales, primarily from net sales in new stores $(49.2) Total ◦ Net sales from physical stores were $485.6 million, a decrease of $45.5 million or 8.6%, compared to $531.1 million last year with a comparable store net sales decrease of 12.2%.
Our gift cards do not have expiration dates and in most cases there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. Based on actual historical redemption patterns, we determined that a small percentage of gift cards are unlikely to be redeemed (which we refer to as gift card “breakage”).
Prior to redemption, we maintain a current liability for unredeemed gift card balances. Our gift cards do not have expiration dates and in most cases there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions.
As of the closing date, we had no outstanding borrowings under the Credit Agreement and the only utilization of the letters of credit sub-limit under the Credit Agreement was a $2.025 million irrevocable standby letter of credit, which was previously issued under the Prior Credit Agreement and was transferred on the closing date to the Credit Agreement.
As of February 3, 2024, we were in compliance with all of our covenants, were eligible to borrow up to a total of $42.4 million, and had no outstanding borrowings under the Credit Agreement. The only utilization of the letters of credit sub-limit under the Credit Agreement was a $2.025 million irrevocable standby letter of credit.
Under the Prior Credit Agreement, we were subject to a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including a financial covenant relating to availability, and customary events of default.
Under the Credit Agreement, we are subject to a variety of affirmative and negative covenants customary in an asset-based lending facility, including a financial covenant relating to availability (which is required to remain above the greater of: (i) ten percent (10%) of the Loan Cap (as defined in the Credit Agreement) and (ii) $6.0 million).
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.
How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are net sales, comparable store sales, gross profit, selling, general and administrative expenses and operating (loss) income.
In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. We establish assets and liabilities for uncertain positions taken or expected to be taken in income tax returns, using a more-likely-than-not recognition threshold.
In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, carry-back potential if permitted under the tax law, and recent financial operations.
Based on our historical gift card breakage rate, we recognize breakage revenue over the redemption period in proportion to actual gift card redemptions. Our business is seasonal and as a result our revenues fluctuate from quarter to quarter.
Based on actual historical redemption patterns, we determined that a small percentage of gift cards are unlikely to be redeemed (which we refer to as gift card “breakage”). Based on our historical gift card breakage rate, we recognize breakage revenue over the redemption period in proportion to actual gift card redemptions.
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.
Other Income, Net Other income was $5.2 million compared to $2.0 million last year, primarily attributable to earning significantly higher rates of return on our marketable securities. Income Tax Expense Income tax expense was $8.7 million or 33.8% of pre-tax loss, compared to $3.5 million or 26.5%, of pre-tax income last year.
Borrowings under the prior credit agreement bear interest at a rate per annum that ranged from the LIBOR rate plus 2.0% to the LIBOR rate plus 2.25%, or the base rate plus 1.0% to the base rate plus 1.25%, based on the average daily borrowing capacity under the prior credit agreement over the applicable fiscal quarter.
Borrowings under the Revolving Facility bear interest at a rate per annum that ranges from the Secured Overnight Financing Rate (“SOFR”) plus a credit spread adjustment (equal to 10 basis points for one- and three-month term SOFR) plus 1.50% to 2.00%, or a base rate (as calculated in accordance with the Credit Agreement) (the “Base Rate”) plus 0.50% to 1.00%, based on the average daily borrowing capacity under the Revolving Facility over the applicable fiscal quarter.
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.
Persistent inflation has 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. For example, store payroll and payroll related expenses represented approximately 47% of our total selling, general and administrative expenses for fiscal 2023.
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.
Preliminary Fiscal 2024 New Store Openings and Capital Expenditure Plans During fiscal 2024, we currently expect to open five new stores. We currently expect that our total capital expenditures for fiscal 2024 will not exceed $15 million, inclusive of our new store plans and upgrades to certain distribution and information technology infrastructure systems.
Minimum wage increases for 2023 are expected to cost us an estimated additional $3 million during fiscal 2023 compared to fiscal 2022.
Our average hourly rate for store payroll for fiscal 2023 was 26% higher than in the pre-pandemic year of fiscal 2019 and 7% higher than in fiscal 2022. Minimum wage increases are estimated to cost us an additional $2 million during fiscal 2024 compared to fiscal 2023.
(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.
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 0.5% $3.4 Increase in non-cash store asset impairment charges 0.4% 2.5 Increase primarily due to the estimated impact of the 53rd week in fiscal 2023 compared to 52-weeks in fiscal 2022 2.2% (0.8) Net change in all other SG&A expenses 3.1% $5.1 Total Operating (Loss) Income Operating loss was $(31.0) million or (5.0)% of net sales, compared to operating income of $11.2 million or 1.7% of net sales, last year.
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.
Net Cash Provided By (Used In) Financing Activities Financing activities primarily consist of share repurchases, a short-swing profits disgorgement payment, and proceeds from employee exercises of stock options.
The borrowing base was equal to (a) 90% of the borrower's eligible credit card receivables, plus (b) 90% of the cost of the borrower's eligible inventory, less inventory reserves established by the agent, and adjusted by the appraised value of such eligible inventory, plus (c) 90% of the cost of the borrower's eligible in-transit inventory, less inventory reserves established by the agent, and adjusted by the appraised value of such eligible in-transit inventory (not to exceed 10% of the total amount of all eligible inventory included in the borrowing base) less (d) reserves established by the agent.
The maximum borrowings permitted under the Revolving Facility is equal to the lesser of (x) the Revolving Commitment and (y) the applicable borrowing base, which is equal to (i) 90% of our eligible credit card receivables, plus (ii) 90% of the cost of certain adjusted eligible inventory, less certain inventory reserves, plus (iii) 90% of the cost of certain adjusted eligible in-transit inventory, less certain inventory reserves, less (iv) certain other reserves established by the Bank.
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.
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.
The unused portion of the revolving commitment under the Prior Credit Agreement accrued a commitment fee, which ranged from 0.375% to 0.50% per annum, based on the average daily borrowing capacity under the revolving facility over the applicable fiscal quarter.
The unused portion of the Revolving Commitment accrues a commitment fee of 0.375% per annum.
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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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Known or Anticipated Trends Economic Trends We believe the uncertain and inflationary economic environment, significant levels of credit card debt with much higher interest rates, and a shift in consumer preferences for experiences over goods following the COVID-19 pandemic has had, and is likely to continue to have, a significant, adverse impact on our consumers' spending and, by extension, our operating results.
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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.
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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.
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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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The fiscal years ended January 28, 2023, and January 29, 2022 each included 52 weeks. 34 (2) 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.
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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.
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E-commerce net sales represented 22.1% of total net sales compared to 21.0% to total net sales last year. Gross Profit Gross profit was $165.7 million, or 26.6% of net sales compared to $202.7 million or 30.2% of net sales, last year.
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Net sales from physical stores represented 79.0% of total net sales compared to 78.6% of total net sales last year.
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Buying, distribution and occupancy costs increased by $1.8 million and deleveraged by 210 basis points as a percentage of net sales collectively, primarily due to increased occupancy costs, partially offset by a decrease in distribution costs arising from reduced freight costs associated with lower net sales.
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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.
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The increase in the effective income tax rate was primarily attributable to a $15.4 million non-cash deferred tax asset valuation allowance recorded during fiscal 2023. 35 Net (Loss) Income and (Loss) Earnings Per Share Net loss was $(34.5) million or $(1.16) loss per share, compared to net income of $9.7 million or $0.32 per diluted share, last year.
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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.
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Net cash provided by financing activities was $0.2 million this year resulting from the proceeds of employee exercises of stock options of $0.4 million, partially offset by taxes paid on a short swing profits disgorgement payment to us of $0.2 million.

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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 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.
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 both February 3, 2024 and January 28, 2023, 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. 39
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. 40

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