TILLY'S, INC.TLYS
TILLY'S, INC. Leases Disclosure
Leases
(1) Since our leases do not provide an implicit rate, we used our incremental borrowing rate ("IBR") at lease inception, or lease modification, in determining the present value of future minimum payments. In determining an appropriate IBR, our assumptions included using a consistent discount rate for a portfolio of leases entered into at varying dates, using the full 10-year term of the lease, excluding any options, and using the total minimum lease payments.
We conduct all of our retail sales and corporate operations in leased facilities. Lease terms generally range up to ten years in duration (subject to elective extensions) and provide for escalations in base rents. Many of our store leases contain one or more options to renew the lease at our sole discretion. Generally, we do not consider any additional renewal periods to be reasonably certain of being exercised.
Most store leases include tenant allowances from landlords, rent escalation clauses and/or contingent rent provisions. Certain leases provide for additional rent based on a percentage of sales and annual rent increases generally based upon the Consumer Price Index. In addition, most of our store leases are net leases, which typically require us to be responsible for certain property operating expenses, including property taxes, insurance, common area maintenance, in addition to base rent. Many of our store leases contain certain co-tenancy provisions that permit us to pay rent based on a pre-determined percentage of sales when the occupancy of the retail center falls below minimums established in the lease. For non-cancelable operating lease agreements, operating lease assets and operating lease liabilities are established for leases with an expected term greater than one year and we recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a straight-line basis. Leases with terms of 12 months or less are expensed as incurred and not reported on the Consolidated Balance Sheets. Contingent rent, determined based on a percentage of sales in excess of specified levels, is recognized as rent expense when the achievement of the specified sales that triggers the contingent rent is probable.
Our operating leases typically include non-lease components such as common-area maintenance costs, utilities, and other maintenance costs. We have elected to include non-lease components with the lease payment for the purpose of calculating the lease right-of-use assets and liabilities to the extent that they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease payments.
Operating leases
We lease office and warehouse space (10 and 12 Whatney, Irvine, California) from a company that is owned by the co-founders of Tillys. We incurred rent expense of $2.1 million, in each of the fiscal years 2024, 2023 and 2022, related to this lease. Pursuant to the lease agreement, the lease payment adjusts annually based upon the Los Angeles/Anaheim/Riverside Urban Consumer Price Index (the "LAARUCPI"), not to exceed 7%. The lease began on January 1, 2003 and terminates on December 31, 2027.
We lease office and warehouse space (11 Whatney, Irvine, California) from a company that is owned by one of the co-founders of Tillys. We incurred rent expense of $0.6 million, $0.6 million, and $0.5 million in fiscal years 2024, 2023 and 2022, respectively, related to this lease. The lease deposits were $0.2 million, as of both fiscal years ended February 1, 2025 and February 3, 2024, and are included as a component of other assets on the Consolidated Balance Sheets. Pursuant to the lease agreement, the lease payment adjusts annually at the greater of 5% or the annual change in the LAARUCPI. The lease began on June 29, 2012 and terminates on June 30, 2032.
We lease a building (17 Pasteur, Irvine, California) from a company that is owned by one of the co-founders of Tillys. We use this property as our e-com fulfillment center. We incurred rent expense of $1.5 million in each of the fiscal years 2024, 2023
and 2022, related to this lease. The lease deposits were $0.7 million, as of both fiscal years ended February 1, 2025 and February 3, 2024, and are included as a component of other assets on the Consolidated Balance Sheets. The lease payment adjusts annually based upon the greater of 5% or the annual change in the LAARUCPI. The lease began on November 1, 2011, and terminates on October 31, 2031.
We sublease a portion of our office space, approximately 5,887 square feet, in the 17 Pasteur Irvine, California facility to Tilly's Life Center, ("TLC"), a related party and a charitable organization. We received sublease income of $94.6 thousand, $90.1 thousand, and $85.8 thousand in fiscal years 2024, 2023, and 2022, respectively, related to this lease. The lease term is for five years and terminates on January 31, 2027. Sublease income is recognized on a straight-line basis over the sublease agreement and is recorded as an offset within the selling, general and administrative section in the Consolidated Statements of Operations.
The maturity of operating lease liabilities as of February 1, 2025 were as follows (in thousands):
| Fiscal Year | Related Party | Other | Total | Sublease Income | |||||||||||||||||||
| 2025 | $ | 4,244 | $ | 58,773 | $ | 63,017 | $ | 99 | |||||||||||||||
| 2026 | 4,411 | 43,008 | 47,419 | 105 | |||||||||||||||||||
| 2027 | 4,167 | 33,406 | 37,573 | — | |||||||||||||||||||
| 2028 | 2,251 | 23,400 | 25,651 | — | |||||||||||||||||||
| 2029 | 2,363 | 16,663 | 19,026 | — | |||||||||||||||||||
| Thereafter | 4,710 | 32,163 | 36,873 | — | |||||||||||||||||||
| Total minimum lease payments | 22,146 | 207,413 | 229,559 | 204 | |||||||||||||||||||
| Less: Amount representing interest | 2,879 | 32,813 | 35,692 | — | |||||||||||||||||||
| Present value of operating lease liabilities | $ | 19,267 | $ | 174,600 | $ | 193,867 | $ | 204 | |||||||||||||||
Lease expense for fiscal years 2024, 2023 and 2022 was as follows (in thousands):
| Fiscal Year Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| February 1, 2025 | February 3, 2024 | January 28, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COGS | SG&A | Total | COGS | SG&A | Total | COGS | SG&A | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed operating lease expense | $ | 66,837 | $ | 1,429 | $ | 68,266 | $ | 64,868 | $ | 1,403 | $ | 66,271 | $ | 63,252 | $ | 1,317 | $ | 64,569 | ||||||||||||||||||||||||||||||||||||||
| Variable lease expense | 14,875 | 42 | 14,917 | 19,271 | 70 | 19,341 | 16,605 | 44 | 16,649 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total lease expense | $ | 81,712 | $ | 1,471 | $ | 83,183 | $ | 84,139 | $ | 1,473 | $ | 85,612 | $ | 79,857 | $ | 1,361 | $ | 81,218 | ||||||||||||||||||||||||||||||||||||||
Supplemental lease information for the fiscal year ended February 1, 2025, February 3, 2024 and January 28, 2023 was as follows:
| Fiscal Year Ended | |||||||||||||||||
| February 1, 2025 | February 3, 2024 | January 28, 2023 | |||||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities (in thousands) | $ | 73,018 | $ | 71,751 | $ | 69,839 | |||||||||||
| Weighted average remaining lease term (in years) | 4.93 years | 5.42 years | 5.71 years | ||||||||||||||
Weighted average interest rate (1) | 6.68 | % | 6.63 | % | 6.33 | % | |||||||||||
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.