2. Interim Financial Presentation and Other Information

All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The results of operations for the three and nine months ended August 29, 2026 are not necessarily indicative of results for the full fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended November 29, 2025.

Income Taxes

We calculate an anticipated effective tax rate for the year based on our annual estimates of pretax income or loss and use that effective tax rate to record our year-to-date income tax provision.  Any change in annual projections of pretax income or loss could have a significant impact on our effective tax rate for the respective quarter.

Our effective tax rates were 27.2% and 26.8% for the three and nine months ended August 29, 2026, respectively. The effective rate differs from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences.

Our effective tax rate was 26.8% for both the three and nine months ended August 30, 2025. The effective rate differs from the federal statutory rate of 21% primarily due to the effects of state income taxes and various permanent differences.

Supplemental Cash Flow Information

During the nine months ended August 29, 2026 and August 30, 2025, $9,228 and $378, respectively, of lease right-of-use assets were added through the recognition of the corresponding lease obligations.

Income tax refunds received (taxes paid), net, during the nine months ended August 29, 2026 and August 30, 2025 were as follows:

Interest paid during the nine months ended August 29, 2026 and August 30, 2025 was $42 and $25, respectively.

Lessor Income

We receive lease income as the lessor on a small number of leased premises which we have subleased to other tenants. Sublease income for closed stores and warehouses is included in selling, general and administrative (“SG&A”) expense in the accompanying condensed consolidated statements of income and was $118 and $427 for the three and nine months ended August 29, 2026, respectively, and $149 and $399 for the three and nine months ended August 30, 2025, respectively. We also sublease one location to a licensee. This sublease income is included in other income (loss), net in the accompanying condensed consolidated statements of income and was $118 and $354 for the three and nine months ended August 29, 2026, respectively, and $114 and $343 for the three and nine months ended August 30, 2025, respectively.

Licensee Acquisition

Effective March 1, 2026, we acquired the operations of the Bassett Home Furnishings (“BHF”) store located in Cherry Hill, New Jersey for an all-cash purchase price of $470 with no other forms of consideration transferred. The store had been owned and operated by a licensee that had determined that continued ownership of a BHF store was no longer consistent with its future business objectives. We believe that Cherry Hill, New Jersey represents a viable market for a BHF store.

The preliminary purchase price allocation was as follows:

The allocation of the fair value of the acquired business was based on a preliminary valuation. Our estimates and assumptions are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). The primary area of the preliminary allocation of the purchase price that is not yet finalized relates to the estimate of certain accrued liabilities. The inputs into our valuation of the acquired assets reflect our market assumptions and are not observable. Consequently, the inputs are considered to be Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosures. See Note 6, Goodwill, regarding the allocation of the goodwill to our reportable segments. The recognized goodwill of $447 is deductible for income tax purposes. We believe that the primary factor supporting the recognized goodwill is that the acquired licensee has established our brand in the greater Philadelphia, Pennsylvania market and this acquisition will enable us to maintain and grow our brand presence in that market.

The acquisition is not material to our condensed consolidated financial statements and, accordingly, pro forma revenue and earnings disclosures are not material and have not been presented. Sales and operating losses generated by the Cherry Hill store subsequent to acquisition were not material for the three and nine months ended August 29, 2026. Acquisition costs were immaterial.

New Store Pre-Opening Costs

Income from operations for the three and nine months ended August 29, 2026 includes new store pre-opening costs of $144 and $712, respectively. Such costs consist of expenses incurred at the new store location during the period prior to its opening and include, among other things, facility occupancy costs such as rent and utilities and local store personnel costs related to pre-opening activities including training. New store pre-opening costs do not include costs which are capitalized in accordance with our property and equipment capitalization policies, such as leasehold improvements and store fixtures and equipment. Such capitalized costs associated with new stores are depreciated commencing with the opening of the store. There are no pre-opening costs associated with stores acquired from licensees, as such locations were already in operation at the time of their acquisition.

Tariff Refund

During 2025, the President of the United States imposed high tariffs on many imported goods, including many of our imported products, under the International Emergency Economic Powers Act of 1977 (“IEEPA”). We capitalize tariffs into the cost of imported inventory and recognize tariffs in the income statement as the products are sold to third party customers. In February of 2026, the U.S. Supreme Court invalidated the tariffs previously imposed under IEEPA. As a result, during the third quarter of fiscal 2026 we received $2,832 in tariff refunds from U.S. Customs and Border Protection. We have elected to recognize the tariff refunds as received. To the extent that the refund related to tariffs previously capitalized into inventory that had been sold through August 29, 2026, the benefit of the refund has been recognized in the income statement resulting in a $956 increase in gross profit for the three and nine months ended August 29, 2026. The cost of inventory on hand at August 29, 2026 has been reduced to reflect the remaining reversal of previously incurred IEEPA tariffs due to the refund, which will result in additional benefits to gross profit as those goods are sold, primarily during the fourth quarter of fiscal 2026. In connection with the tariff refund, we also received interest of $94 which is included in interest income for the three and nine months ended August 29, 2026.