The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Tilly’s, Inc. included in Part I Item 1 of this Quarterly Report on Form 10-Q (this "Report") and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2026. As used in this Report, except where the context otherwise requires or where otherwise indicated, the terms “the Company”, “World of Jeans & Tops”, “we”, “our”, “us”, "Tillys" and “Tilly’s” refer to Tilly’s, Inc. and its subsidiary. Overview Tillys is a destination specialty retailer of casual apparel, footwear, and accessories for young men, young women, boys and girls. We believe we bring together an unparalleled selection of iconic global, emerging, and proprietary brands rooted in an active, outdoor and social lifestyle. 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 May 2, 2026, we operated 220 stores in 32 states, averaging approximately 7,127 square feet per store, compared to 238 total stores at the same time last year. We also sell our products through our e-commerce ("e-com") website, www.tillys.com. Known or Anticipated Trends We believe the combined impacts of persistent inflation related to prices of essential goods, including but not limited to fuel and grocery prices, enacted and potential tariffs, geo-political conflicts, and potential economic recession in the current economic environment could negatively impact consumer spending generally and our customer base, in particular, which could negatively impact our ability to build upon the turnaround momentum we have been generating in our business in recent quarters. Inflation more broadly has 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 46% of our total selling, general and administrative expense in the first quarter of fiscal 2026. Our average hourly rate for store payroll in fiscal 2026 was approximately 37% higher than in pre-pandemic fiscal 2019 and approximately 1% higher than in fiscal 2025. These and other cost increases may continue to have a material adverse impact on our results of operations and financial condition in fiscal 2026, particularly if we are unable to sustain net sales growth. We expect our effective income tax rate to be near zero on an annual basis until such time that we are able to return to generating operating profits on a consistent basis due to maintaining a full valuation allowance on all deferred tax assets as a result of our recent operating losses. 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 ("SG&A") expenses and operating loss. Net Sales Net sales reflect revenue from the sale of our merchandise at store locations and through e-com, net of sales taxes. Store net sales are reflected in sales when the merchandise is received by the customer. For e-com net 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-com shipments that have been shipped to the customer. Net sales are net of returns on sales during the period as well as an estimate of returns expected in the future stemming from current period sales. 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. Our gift cards do not have expiration dates and in most cases there is no legal obligation to remit unredeemed gift cards to relevant jurisdictions. Based on actual historical redemption patterns, we determined that a small percentage of gift cards are unlikely to be redeemed (which we refer to as gift card “breakage”). Based 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. In addition, our revenues in any given quarter can be affected by a number of factors including the timing of holidays and weather patterns. The third and fourth quarters of the fiscal year, which include the back-to-school and holiday sales seasons, have historically produced stronger sales and disproportionately stronger operating results than have the first two quarters of the fiscal year. Comparable Store Net Sales Comparable store net sales is a measure that indicates the change in year-over-year comparable store net sales, which allows us to evaluate how our store base is performing. Numerous factors affect our comparable store net sales, including: 22 Table of Contents •overall economic trends; •our ability to attract traffic to our stores and online platform; •our ability to identify and respond effectively to consumer preferences and fashion trends; •competition; •the timing of our releases of new and seasonal styles; •changes in our product mix; •pricing; •the level of customer service that we provide in stores; •our ability to source, distribute and allocate products efficiently; •calendar shifts of holiday or seasonal periods; •the number and timing of store openings and the relative proportion of new stores to mature stores; and •the timing and success of promotional and advertising efforts. Our comparable store net sales are defined as net sales from our physical stores open on a daily basis combined with net sales from our e-com website compared to the same respective fiscal dates of the prior year. A remodeled, relocated or refreshed 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. We include net sales from our e-com website as part of comparable store net sales as we manage and analyze our business on a single omni-channel basis and have substantially integrated our investments and operations for our stores and e-com website to give our customers seamless access and increased ease of shopping. Comparable store net sales exclude gift card breakage income and e-com shipping and handling fee revenue. Some of our competitors and other retailers may calculate comparable or “same store” net sales differently than we do. As a result, data in this Report regarding our comparable store net sales may not be comparable to similar data made available by other retailers. Gross Profit Gross profit is equal to our net sales less our cost of goods sold. Cost of goods sold reflects the direct cost of purchased merchandise as well as buying, distribution and occupancy costs. Buying costs include compensation and benefit expense for our internal buying organization. Distribution costs include costs for receiving, processing and warehousing our store merchandise, and shipping of merchandise to or from our distribution and e-com fulfillment centers, and to our e-com customers and between store locations. Occupancy costs include the rent, common area maintenance, utilities, property taxes, security and depreciation costs of all store locations. These costs are significant and can be expected to continue to increase relative to business growth. The components of our reported cost of goods sold may not be comparable to those of other retail companies. We regularly analyze the components of gross profit as well as gross profit as a percentage of net sales. Specifically we look at the initial markup on purchases, markdowns and reserves, shrinkage, buying costs, distribution costs and occupancy costs. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns or a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the buying, distribution and occupancy components of cost of goods sold could have an adverse impact on our gross profit and results of operations. Gross profit is also impacted by shifts in the proportion of sales of proprietary branded products compared to third-party branded products, as well as by sales mix shifts within and between brands and between major product departments such as young men's and women's apparel, footwear or accessories. A substantial shift in the mix of products could have a material impact on our results of operations. In addition, gross profit and gross profit as a percent of sales have historically been higher in the third and fourth quarters of the fiscal year, as these periods include the back-to-school and winter holiday selling seasons. 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 ("SG&A") expenses are comprised of store selling expenses and corporate-level general and administrative expenses. Store selling expenses include store and regional support costs, including personnel, advertising and debit and credit card processing costs, e-com receiving and processing costs and store supplies costs. General and administrative expenses include the payroll and support costs of corporate functions such as executive management, legal, accounting, information systems, human resources, impairment charges and other centralized services. Store selling expenses generally vary proportionately with net sales and store growth. In contrast, general and administrative expenses are generally not directly proportional to net sales and store growth but may be expected to increase over time to support the needs of our company. SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods. Operating Loss Operating loss equals gross profit less SG&A expenses. Operating loss excludes interest income, interest expense and income 23 Table of Contents taxes. Operating loss percentage measures operating loss as a percentage of our net sales. Results of Operations The following tables summarize key components of our unaudited results of operations for the periods indicated, both in dollars (in thousands) and as a percentage of our net sales: Thirteen Weeks Ended May 2, 2026 May 3, 2025 Statements of Operations Data: Net sales $ 124,718 $ 107,611 Cost of goods sold 87,714 85,394 Rent expense, related party 932 932 Total cost of goods sold 88,646 86,326 Gross profit 36,072 21,285 Selling, general and administrative expenses 44,037 43,841 Rent expense, related party 133 133 Total selling, general and administrative expenses 44,170 43,974 Operating loss (8,098) (22,689) Other income, net 282 398 Loss before income taxes (7,816) (22,291) Income tax expense (benefit) 137 (139) Net loss $ (7,953) $ (22,152) Percentage of Net Sales: Net sales 100.0 % 100.0 % Cost of goods sold 70.3 % 79.4 % Rent expense, related party 0.7 % 0.9 % Total cost of goods sold 71.1 % 80.2 % Gross profit 28.9 % 19.8 % Selling, general and administrative expenses 35.3 % 40.7 % Rent expense, related party 0.1 % 0.1 % Total selling, general and administrative expenses 35.4 % 40.9 % Operating loss (6.5) % (21.1) % Other income, net 0.2 % 0.4 % Loss before income taxes (6.3) % (20.7) % Income tax expense (benefit) 0.1 % (0.1) % Net loss (6.4) % (20.6) % 24 Table of Contents The following table presents store operating data for the periods indicated: Thirteen Weeks Ended May 2, 2026 May 3, 2025 Operating Data: Stores operating at end of period 220 238 Comparable store net sales change (1) 22.9 % (7.0) % Total square feet at end of period (in '000s) 1,568 1,707 Average net sales per physical store (in '000s) (2) $ 430 $ 353 Average net sales per square foot (2) $ 60 $ 49 E-com net sales (in '000s) (3) $ 28,401 $ 21,699 E-com net sales as a percentage of net sales 22.8 % 20.2 % (1)Our comparable store net sales are defined as sales from our physical stores open on a daily basis combined with net sales from our e-com website compared to the same respective fiscal dates of the prior year. 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. We include sales from our e-com website as part of our comparable store net sales as we manage and analyze our business on an omni-channel basis and have substantially integrated our investments and operations for our stores and e-com website to give our customers seamless access and increased ease of shopping. Comparable store net sales exclude gift card breakage income, and e-com 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. E-com net sales, e-com 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-com net sales include e-com net sales and e-com shipping and handling fee revenue. First Quarter (13 Weeks) Ended May 2, 2026 Compared to First Quarter (13 Weeks) Ended May 3, 2025 Net Sales Total net sales were $124.7 million, an increase of 15.9%. Total comparable net sales, including both physical stores and e-com, increased by 22.9%. •Net sales from physical stores were $96.3 million, an increase of 12.1%. The Company ended the first quarter with 220 total stores, a decrease of 18 stores or 7.6%, compared to 238 total stores at the end of the first quarter last year. Comparable net sales from physical stores increased by 20.8% relative to the comparable 13-week period ended May 3, 2025. Net sales from physical stores represented 77.2% of total net sales this year compared to 79.8% total net sales last year. •Net sales from e-com were $28.4 million, an increase of 30.9%. E-com net sales represented 22.8% of total net sales this year compared to 20.2% of total net sales last year. Gross Profit Gross profit was $36.1 million, or 28.9% of net sales, compared to $21.3 million, or 19.8% of net sales, last year. Product margins improved to 56.6% of net sales from 52.6% of net sales during last year's first quarter, primarily due to improved full-price selling from inventories that were more current in terms of aging compared to last year. Buying, distribution, and occupancy costs improved by 520 basis points as a percentage of net sales, or $0.9 million, collectively, primarily due to decreased occupancy costs associated with reduced store count. Selling, General and Administrative Expenses SG&A expenses were $44.2 million, or 35.4% of net sales, compared to $44.0 million, or 40.9% of net sales, last year. Primary SG&A variances, both in terms of percentage of net sales and total dollars, were as follows: % $ millions Primarily Attributable to (0.2)% $0.6 Increase in marketing expenses (2.2)% 0.4 Increase in store payroll and related benefits (0.9)% (1.0) Decrease in non-cash asset impairment charges. (2.1)% 0.2 Net change from all other SG&A expenses (5.4)% $0.2 Total 25 Table of Contents Operating Loss Operating loss was $8.1 million, or 6.5% of net sales, compared to $22.7 million, or 21.1% of net sales, last year primarily as a result of the combination of the factors noted above. Income Tax Expense (Benefit) Income tax expense was $0.1 million, or (1.7%) of pre-tax loss, compared to an income tax benefit of $0.1 million, or 0.6% of pre-tax loss, last year. Both period's income tax results include the continuing impact of a full, non-cash deferred tax asset valuation allowance. Net Loss and Loss Per Share Net loss was $8.0 million, or $0.26 net loss per share, compared to $22.2 million, or $0.74 net loss per share, last year. Liquidity and Capital Resources Our business relies on cash flows from operating activities as well as cash on hand as our primary sources of liquidity. We currently expect to finance company operations, new store openings 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. 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. 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. 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 May 2, 2026, was $13.5 million compared to $25.1 million at January 31, 2026, a decrease of $11.6 million. The primary changes in our working capital during the first quarter of fiscal 2026 were as follows: $ millions Description $25.1 Working capital at January 31, 2026 (5.2) Decrease in cash, cash equivalents, and marketable securities (4.1) Decrease primarily due to an increase in operating lease liabilities (3.1) Decrease in prepaid expenses and other current assets 2.3 Increase in merchandise inventories net of accounts payable (1.5) Net change from all other changes in current assets and current liabilities $13.5 Working capital at May 2, 2026 Cash Flow Analysis A summary of operating, investing and financing activities for the thirteen weeks ended May 2, 2026 compared to the thirteen weeks ended May 3, 2025 is shown in the following table (in thousands): Thirteen Weeks Ended May 2, 2026 May 3, 2025 Net cash used in operating activities $ (3,879) $ (8,119) Net cash (used in) provided by investing activities (11,248) 14,294 Net cash provided by financing activities 58 — Net change in cash and cash equivalents $ (15,069) $ 6,175 Net Cash Used in Operating Activities Operating activities consist primarily of net loss adjusted for non-cash items that include depreciation and amortization, 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. Net cash used in operating activities was $3.9 million this year compared to $8.1 million last year. The $4.2 million decrease in net cash used in operating activities compared to last year was primarily due to a decrease in net loss of $14.2 million this year 26 Table of Contents compared to last year, partially offset by accounts payable balances and a decrease in related merchandise inventories as a result of efficient management of merchandise inventories and timing of payments, respectively. 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 $11.2 million this year compared to net cash provided by of $14.3 million last year. Net cash used in investing activities in the first quarter of fiscal 2026 consisted of purchases of marketable securities of $9.9 million, and capital expenditures totaling $1.4 million. Net cash provided by investing activities in the first quarter of fiscal 2025 consisted of maturities of marketable securities of $15.8 million, partially offset by capital expenditures totaling $1.5 million. Net Cash Provided by Financing Activities Financing activities primarily consist of proceeds from employee exercises of stock options. Credit Agreement On April 27, 2023 (the “Closing Date”), we entered into an asset-backed credit agreement and revolving line of credit note (the "Note" and, collectively, the “Credit Agreement”) with Wells Fargo Bank, National Association, as lender (the “Bank”). The Credit Agreement provides for an asset-based, senior secured revolving credit facility (as amended, the “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 secured credit agreement. The Credit Agreement also includes an uncommitted accordion feature whereby we may increase the Revolving Commitment by an aggregate amount not to exceed $12.5 million, subject to certain conditions. On March 25, 2025, we entered into an amendment of the Credit Agreement which extended the maturity date to June 25, 2027. 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. 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. The unused portion of the Revolving Commitment accrues a commitment fee of 0.25% or 0.375% per annum, based on the average daily borrowing capacity under the Revolving Facility under 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. 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. 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). 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. In connection with the entry into the Credit Agreement, we entered into certain ancillary agreements including (i) a security agreement in favor of the Bank, and (ii) a guarantee by us in favor of the Bank. As of May 2, 2026, we were in compliance with all of our covenants, were eligible to borrow up to a total of $50.7 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 $1.7 million irrevocable standby letter of credit. Contractual Obligations As of May 2, 2026, there were no material changes to our contractual obligations as described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the fiscal year ended January 31, 2026. 27 Table of Contents Critical Accounting Policies and Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires the appropriate application of certain accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements. Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates. A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2026.