What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-09-09 compared with 2021-06-08 · 184 added, 125 removed, 417 unchanged (43% of the section changed)

50 unchanged sentences

and (2) on and after October 1, 2020, Academy Sports and Outdoors, Inc., a Delaware corporation and the current parent holding company of our operations, and its consolidated subsidiaries.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen weeks ended May 1, 2021 and our audited financial statements for the fiscal year ended January 30, 2021 and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen and twenty-six weeks ended July 31, 2021 and our audited financial statements for the fiscal year ended January 30, 2021 and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report.

This discussion contains forward-looking statements that involve risks and uncertainties.

3 unchanged sentences

conducts its operations through its subsidiaries, including its indirect subsidiary, Academy, Ltd., an operating company which is doing business as "Academy Sports + Outdoors." Any reference in this Quarterly Report to "year" or any year in particular refers to our fiscal year, which represents the fifty-two or fifty-three week period ending on the Saturday closest to January 31.

Any reference in this Quarterly Report to the "current quarter", "2021 first quarter" or similar reference refers to the thirteen week period ended May 1, 2021, and any reference in this Quarterly Report to the "prior year quarter", "2020 first quarter" or similar reference refers to the thirteen week period ended May 2, 2020.

Unless otherwise specified, all comparisons regarding the current quarter 2021 are made to the corresponding quarter of 2020.

Any reference in this Quarterly Report to the "current quarter", "2021 second quarter" or similar reference refers to the thirteen week period ended July 31, 2021, and any reference in this Quarterly Report to the "prior year quarter", "2020 second quarter" or similar reference refers to the thirteen week period ended August 1, 2020.

Any reference in this Quarterly Report to "current year-to-date", "year-to-date 2021" or similar reference represents the twenty-six week period ended July 31, 2021, and any reference in this Quarterly Report to the "prior year-to-date", "year-to-date 2020" or similar reference refers to twenty-six week period ended August 1, 2020.

Unless otherwise specified, all comparisons regarding the current period of 2021 are made to the corresponding period of 2020.

All statements in this Quarterly Report concerning our current and planned operations are modified by reference to our discussion of recent developments related to the COVID-19 pandemic, and our ability to carry out our current and planned operations are dependent on further developments associated with the COVID-19 pandemic.

7 unchanged sentences

Our value-based assortment also includes exclusive products from our portfolio of 19 owned brands.

As of May 1, 2021, we operated 259 stores that range in size from approximately 40,000 to 130,000 gross square feet, with an average size of approximately 70,000 gross square feet, throughout 16 contiguous states located primarily in the southern United States.

Our stores are supported by over 20,000 team members, three distribution centers, and our rapidly growing e-commerce platform, www.academy.com.

We are deepening our customer relationships, further integrating our e-commerce platform with our stores and driving operating efficiencies by developing our omnichannel capabilities, such as our curbside pickup and ship-to-store programs, which we launched in 2020.

As of July 31, 2021, we operated 259 stores that range in size from approximately 40,000 to 130,000 gross square feet, with an average size of approximately 70,000 gross square feet, throughout 16 contiguous states located primarily in the southern United States.

Our stores are supported by approximately 22,000 team members, three distribution centers, and our rapidly growing e-commerce platform, which includes our website at www.academy.com and our mobile app, newly introduced in the 2021 second quarter.

Additionally, we are deepening our customer relationships, further integrating our e-commerce platform with our stores and driving operating efficiencies by developing our omnichannel capabilities, such as our curbside pickup and ship-to-store programs, which we launched in 2020.

The following table summarizes store activity for the periods indicated:

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Twenty-Six Weeks Ended

July 31, 2021 August 1, 2020

Beginning stores 259 259

Q1 new stores — —

Q2 new stores — —

Ending stores 259 259

40 unchanged sentences

We have deployed several new tools over recent years to improve inventory handling and vendor management, including third-party programs to analyze our inventory stock and execute a disciplined markdown strategy throughout the year at every location.

This implementation, along with other factors, has allowed us to improve our inventory management in stores, increasing our average inventory turns from 2.96x to 4.08x in the twelve months ended May 2, 2020 and May 1, 2021, respectively.

This implementation, along with other factors, has allowed us to improve our inventory management in stores, increasing our average inventory turns from 3.36x to 4.04x in the twelve months ended August 1, 2020 and July 31, 2021, respectively.

We have coupled these tools with the data we have been able to collect from our Academy Credit Card program and targeted customer surveys, so that we can better estimate future inventory requirements.

1 unchanged sentence

During 2020 and through the 2021 first quarter, we experienced significant inventory reductions from high sell-through during the period.

We expect to use cash to replenish such inventory throughout the rest of the current fiscal year, which we expect will impact our net cash provided by operating activities for the rest of 2021.

In the 2021 second quarter, we had increased inventory relative to the prior year;

however, despite the improved inventory levels, we expect to continue to use cash

throughout the rest of the current fiscal year to build toward our optimal inventory position, which we believe will continue to impact our net cash provided by operating activities during the remainder of 2021.

Value Strategy.

7 unchanged sentences

We expect that the expansion and enhancement of our omnichannel capabilities will be a key driver of growth in our net sales and gross margin.

We continue to invest in initiatives that will increase traffic to our e-commerce website and drive increased online sales conversion.

Our improved website also supports our stores with digital marketing and our buy-online-pickup-in-store ("BOPIS") and ship-to-store programs.

Our website also allows us to reach customers outside of our current store footprint and introduces new customers to the Academy brand.

In the thirteen weeks ended May 1, 2021, BOPIS accounted for approximately half of our e-commerce sales.

Our website is also a platform for marketing and product education, allowing us to connect further with our customers.

During the 2021 first quarter, stores facilitated approximately 95% of our total sales, including ship-from-store, BOPIS and in-store retail sales.

We continue to invest in initiatives that will increase traffic to e-commerce and drive increased online sales conversion.

Our improved website and mobile app, which launched in the second quarter of 2021, also support our stores with digital marketing and our buy-online-pickup-in-store ("BOPIS") and ship-to-store programs.

Our e-commerce platform also allows us to reach customers outside of our current store footprint and introduces new customers to the Academy brand.

In both the thirteen and twenty-six weeks ended July 31, 2021, BOPIS accounted for approximately half of our e-commerce sales.

Our e-commerce platform also serves as a medium for marketing and product education, allowing us to connect further with our customers.

During the year-to-date 2021, stores facilitated approximately 95% of our total sales, including ship-from-store, BOPIS and in-store retail sales.

We believe it is important that we continue to grow our omnichannel capabilities, especially in light of changing consumer preferences as a result of the COVID-19 pandemic, which, together with recent enhancements made to our website and omnichannel capabilities, contributed to the substantial increase in e-commerce sales during 2020.

It is, however, difficult to ascertain with precision what portion of our e-commerce sales was attributable to the COVID-19 pandemic as compared to such recent enhancements.

During the 2021 first quarter, e-commerce penetration was 7.4% compared to 13.1% in the 2020 first quarter and 2.8% in the thirteen weeks ended May 4, 2019.

Our e-commerce sales declined 21.0% in the 2021 first quarter primarily driven by a demand shift from e-commerce to in-store as more and more customers are becoming comfortable shopping in our stores and the easing of COVID-19 restrictions;

however, our e-commerce sales increased 300% from the thirteen weeks ended May 4, 2019.

We expect to continue to invest in expanding and enhancing our omnichannel capabilities, including BOPIS, ship-from-store and ship-to-store, which will continue to require significant investments by us.

It is, however, difficult to ascertain with precision what portion of our e-commerce sales increase was attributable to the COVID-19 pandemic as compared to such recent enhancements.

During the year-to-date 2021, e-commerce penetration was 7.9% compared to 10.9% in the year-to-date 2020 and 3.4% in the year-to-date 2019.

Our e-commerce sales declined 10.8% in the year-to-date 2021 relative to the prior year-to-date which we believe was primarily driven by a demand shift from e-commerce to in-store as more and more customers are becoming comfortable shopping in our stores and the easing of COVID-19 restrictions;

however, our e-commerce sales increased 241.9% when compared to year-to-date 2019.

We expect to continue to expand and enhance our omnichannel capabilities, including BOPIS, ship-from-store and ship-to-store, which will continue to require significant investments by us.

sporting goods and outdoor recreation retail industries are highly competitive and fragmented.

14 unchanged sentences

Moreover, many of our suppliers provide us with merchandise purchasing incentives, such as return privileges, volume purchasing allowances and cooperative advertising, and a decline or discontinuation of these incentives could severely impact our results of operations.

In addition, the announcement or imposition of any new or increased tariffs, duties or taxes as a result of trade or political tensions between the United States and other countries or otherwise could adversely affect our supply chain.

In addition, the

announcement or imposition of any new or increased tariffs, duties or taxes as a result of trade or political tensions between the United States and other countries or otherwise could adversely affect our supply chain.

In recent years, the Trump administration imposed multiple rounds of tariffs on exports from China, where we and many of our vendors source commodities.

As a result, we have experienced rising inventory costs on owned brand products we directly source from China, as well as national brand

products from China that we source through our vendors.

As a result, we have experienced rising inventory costs on owned brand products we directly source from China, as well as national brand products from China that we source through our vendors.

These higher inventory costs have resulted in higher prices and/or lower margins, thus resulting in a negative impact to net sales and/or gross margin.

27 unchanged sentences

We also drew down $500 million on our ABL Facility (as defined below) in March 2020 as a precautionary measure to ensure financial flexibility and maximize liquidity.

All three of our distribution centers remained open during 2020 and through the 2021 first quarter, all of our 259 stores have been fully operational since May 20, 2020, and our corporate office has been fully open since June 8, 2020.

All three of our distribution centers remained open during 2020 and through year-to-date 2021, all of our 259 stores have been fully operational since May 20, 2020, and our corporate office has been fully open since June 8, 2020.

We continue to monitor the rapidly evolving situation and expect to continue to adapt our operations to address federal, state, and local requirements as well as to implement standards or processes that we determine to be in the best interest of our team members, customers, and communities.

4 unchanged sentences

We anticipate that the increased popularity of isolated recreation, outdoor and leisure activity products will continue for the duration of the pandemic and will result in a long-term increase to our customer base.

At the same time, during the 2020 first quarter we experienced decreased sales of certain of our offerings, primarily for apparel and footwear, and had to occasionally cancel certain of our purchase orders for these products.

At the same time, during the year-to-date 2020 we experienced decreased sales of certain of our offerings, primarily for apparel and footwear, and had to occasionally cancel certain of our purchase orders for these products.

Despite the initial challenges in 2020 with sales declines in our footwear and apparel merchandise divisions, these categories ultimately experienced positive comparable sales growth for 2020.

The outdoors and sports and recreation divisions had consistent positive store sales growth throughout 2020 and ultimately experienced significant positive comparable sales growth in 2020.

During the 2021 first quarter, we experienced double digit comparable sales growth in all of our merchandise divisions.

Additionally, our sales mix has returned to more balanced levels relative to the prior year quarter.

In-store traffic has increased recently and relative to the prior year quarter.

During the year-to-date 2021, we experienced double digit comparable sales growth in most of our merchandise divisions.

Additionally, our sales mix has returned to more balanced levels relative to the prior year which has contributed to improved margins as our footwear and apparel sales increased over the year-to-date 2020.

In-store traffic has increased recently and relative to the prior year.

We believe the increase is attributable to the easing of COVID-19 restrictions and increased availability of vaccinations throughout our footprint, which has contributed to increased customer comfort with shopping in our stores.

3 unchanged sentences

We also saw a significant increase during 2020 of customers purchasing our products through omnichannel platforms, specifically as customers increasingly take advantage of our curbside pick-up service, which we launched during the 2020 first quarter and ship-to-store, which launched in the 2020 third quarter, which gives our customers more options on how to shop Academy.

While the easing of most COVID-19 restrictions in the 2021 first quarter has allowed for greater traffic in our stores, we believe it has also resulted in decreased e-commerce sales penetration when compared to the prior year.

While the easing of most COVID-19 restrictions in the year-to-date 2021 has allowed for greater traffic in our stores, we believe it has also resulted in decreased e-commerce sales penetration when compared to the prior year.

The extent to which our operations and business trends will be impacted by, and any unforeseen costs will result from, the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted.

16 unchanged sentences

Various factors affect comparable sales, including consumer preferences, buying trends and overall economic trends;

our ability to identify and respond effectively to customer preferences and local and regional trends;

our ability to provide an assortment of

high quality/value oriented product offerings that generate new and repeat visits to our stores and our website;

to identify and respond effectively to customer preferences and local and regional trends;

our ability to provide an assortment of high quality/value oriented product offerings that generate new and repeat visits to our stores and our website;

the customer experience and unique services we provide in our stores;

3 unchanged sentences

a shift in the timing of a holiday between comparable periods;

and the number of stores that have been in operation for more than 13 months.

and the number of stores that have been in operation for more than thirteen months.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow.

30 unchanged sentences

Results of Operations

Thirteen Weeks Ended May 1, 2021 Compared to Thirteen Weeks Ended May 2, 2020

Thirteen Weeks Ended July 31, 2021 Compared to Thirteen Weeks Ended August 1, 2020

The following table sets forth amounts and information derived from our unaudited statements of income for the periods indicated as follows (dollar amounts in thousands):

Thirteen Weeks Ended Change

May 1, 2021 May 2, 2020 Dollars Percent

July 31, 2021 August 1, 2020 Dollars Percent

Net sales $ 1,791,530 100.0 % $ 1,606,420 100.0 % $ 185,110 11.5 %

2 unchanged sentences

Selling, general and administrative expenses 387,938 21.7 % 312,713 19.5 % 75,225 24.1 %

Operating income 239,074 15.1 % 14,022 1.2 % 225,052 NM

Operating income 254,558 14.2 % 183,788 11.4 % 70,770 38.5 %

Interest expense, net 12,157 0.7 % 23,566 1.5 % (11,409) (48.4) %

(Gain) loss on early extinguishment of debt, net 2,239 0.1 % (7,831) (0.5) % 10,070 (128.6) %

Other (income), net (735) 0.0 % (628) 0.0 % (107) 17.0 %

Income (loss) before income taxes 224,922 14.2 % (9,507) (0.8) % 234,429 NM

Income before income taxes 240,897 13.4 % 168,681 10.5 % 72,216 42.8 %

Income tax expense 50,387 2.8 % 1,005 0.1 % 49,382 NM

Net income (loss) $ 177,796 11.3 % $ (10,020) (0.9) % $ 187,816 NM

Net income $ 190,510 10.6 % $ 167,676 10.4 % $ 22,834 13.6 %

*Percentages in table may not sum properly due to rounding.

Net sales increased $444.0 million, or 39.1%, in the 2021 first quarter compared to the 2020 first quarter as a result of increased comparable sales of 38.9% and strong sales performances across all of our merchandise divisions.

During the 2021 first quarter, we experienced a more balanced product sales mix across merchandise divisions relative to the prior year quarter.

Our increase in comparable sales was led by strong performances in apparel and footwear resulting from increased overall customer spending and a decline in prior year sales within these categories.

During prior year quarter, we began to see the effects of the COVID-19 pandemic drive an increase in popularity of isolated recreation, outdoor and leisure activities resulting in better performances in the outdoors and sports and recreation merchandise divisions, which was partially offset by performance declines in the footwear and apparel divisions.

The 2021 first quarter comparable sales increase of 38.9% was driven by increased sales across all merchandise divisions and almost every product category.

The apparel division increase was led by athletic and outdoor and seasonal products.

The footwear division increased due to strong sales across the division especially in work, casual and youth and athletic.

The sports and recreation merchandise division comparable sales increase was driven by strong sales in recreation and team sports.

The outdoor merchandise division increase was led by the camping and fishing categories and partially offset by a decrease in firearms sales.

E-commerce net sales decreased $30.9 million, or 21.0%, in the 2021 first quarter compared to the 2020 first quarter and represented 7.4% of merchandise sales in the 2021 first quarter compared to 13.1% in the 2020 first quarter.

**NM - Not meaningful

Net sales increased $185.1 million, or 11.5%, in the 2021 second quarter over the prior year second quarter due to an increase in comparable sales of 11.4% and strong sales performances across all of our merchandise divisions.

The 2021 second quarter comparable sales increase of 11.4% was driven by increased sales across all merchandise divisions and almost every product category.

The increase in comparable sales was led by strong performances in apparel, footwear and sports and recreation.

The apparel division experienced strong sales across all product categories with the highest sales increases in outdoor and seasonal and athletic.

The footwear division increased due to strong sales across every category especially in work, casual and youth and athletic.

The sports and recreation merchandise division comparable sales increase was also driven by strong sales across every category especially in team sports where football and baseball sales were adversely impacted by the pandemic during the prior year second quarter.

The outdoor merchandise division increase was led by increased ammunition and camping sales, and partially offset by a decrease in the fishing category, which had a significant increase in the prior year due to the increased popularity of isolated recreation .

E-commerce net sales decreased $1.4 million, or 0.9%, in the 2021 second quarter compared to the prior year second quarter and represented 8.4% of merchandise sales the 2021 second quarter compared to 9.4% for the prior year second quarter.

We believe the decline in e-commerce was generated by a demand shift from e-commerce to in-store sales caused by the easing of COVID-19 restrictions, as well as a greater comfort level amongst our customers for visiting our stores in person.

During the 2021 first quarter, we encountered challenges from a winter storm, which occurred from February 14, 2021 through February 20, 2021, resulting in the temporary closure of up to 125 stores, two of our distribution centers and our e-commerce platform.

Gross Margin.

Gross margin increased $265.8 million, or 89.2%, to $563.7 million in the 2021 first quarter from $297.9 million in the 2020 first quarter.

As a percentage of net sales, gross margin increased 9.5% from 26.2% in the 2020 first quarter to 35.7% in the 2021 first quarter.

Gross margin increased $146.0 million, or 29.4%, to $642.5 million in the 2021 second quarter from $496.5 million in the 2020 second quarter.

As a percentage of net sales, gross margin increased 5.0% from 30.9% in the 2020 second quarter to 35.9% in the 2021 second quarter.

The increase of 500 basis points in gross margin is primarily attributable to:

• 298 basis points of favorability in merchandise margins due to a shift in higher margin goods driving the increased sales, higher average unit retails, and less promotional activity from the prior year;

• 139 basis points of favorability in inventory overhead expenditures as a result of lower expense absorption rates from higher inventory turnover rates;

• 55 basis points of favorability as result of higher vendor allowances.

Selling, General and Administrative Expenses.

SG&A expenses increased $75.2 million to $387.9 million in the 2021 second quarter as compared to $312.7 million in the 2020 second quarter.

As a percentage of net sales, SG&A expenses were up 2.2% to 21.7% in the 2021 second quarter compared to 19.5% in the 2020 second quarter.

The increase of 220 basis points in SG&A is primarily attributable to:

• 170 basis point increase in employee costs, primarily driven by increased equity compensation expense resulting from a vesting event (the "2021 Vesting Event";

see Note 1 to the financial statements included in this Quarterly Report);

• 76 basis point increase in advertising as a result of increased marketing and promotional activities relative to the prior year quarter, which included an initiative to lower advertising costs to help mitigate the financial impact of COVID-19 on the business.

Interest Expense.

Interest expense decreased $11.4 million, or 48.4%, in the 2021 second quarter when compared with the 2020 second quarter, primarily as a result of a lower outstanding principal balance on the Term Loan (as defined below) in the current year compared to the prior year due to debt refinancing activities as well as lower interest on the ABL Facility from our $500.0 million draw-down in the first quarter of 2020 taken as a precautionary measure at the beginning of the COVID-19 pandemic.

We repaid the $500.0 million draw-down during the 2020 second quarter.

(Gain) Loss on Early Extinguishment of Debt, net.

(Gain) loss on early retirement of debt, net decreased $10.1 million, or 128.6%, to a loss of $2.2 million from a gain of $7.8 million in the 2020 second quarter.

During the second quarter of 2021, we refinanced our Term Loan (as defined below), which resulted in a loss on early retirement of debt of $2.2 million.

During the second quarter of 2020, we repurchased $23.9 million in principal on the Term Loan, which was trading at a discount, in open market transactions for $16.0 million and recognized a net gain of $7.8 million.

Income Tax Expense.

Income tax expense increased $49.4 million to $50.4 million in the 2021 second quarter as compared to $1.0 million in the 2020 second quarter.

As a result of the Reorganization Transactions, which occurred on October 1, 2020, ASO, Inc.

became subject to U.S.

federal income taxes and is being taxed at the prevailing corporate rates.

ASO, Inc.’s effective tax rate for the 2021 second quarter was 20.9%.

The effective tax rate was reduced by approximately 3.9% for the benefit of tax deductions related to the vesting or exercise of several equity compensation awards during the period.

Twenty-Six Weeks Ended July 31, 2021 Compared to Twenty-Six Weeks Ended August 1, 2020

The following table sets forth amounts and information derived from our unaudited statements of income for the periods indicated as follows (dollar amounts in thousands):

Twenty-Six Weeks Ended Change

July 31, 2021 August 1, 2020 Dollars Percent

Net sales $ 3,371,863 100.0 % $ 2,742,721 100.0 % $ 629,142 22.9 %

Cost of goods sold 2,165,666 64.2 % 1,948,275 71.0 % 217,391 11.2 %

Gross margin 1,206,197 35.8 % 794,446 29.0 % 411,751 51.8 %

Selling, general and administrative expenses 712,565 21.1 % 596,636 21.8 % 115,929 19.4 %

Operating income 493,632 14.6 % 197,810 7.2 % 295,822 149.5 %

Interest expense, net 26,706 0.8 % 48,088 1.8 % (21,382) (44.5) %

(Gain) loss on early extinguishment of debt, net 2,239 0.1 % (7,831) (0.3) % 10,070 (128.6) %

Other (income), net (1,132) 0.0 % (1,621) (0.1) % 489 (30.2) %

Income before income taxes 465,819 13.8 % 159,174 5.8 % 306,645 192.6 %

Income tax expense 97,513 2.9 % 1,518 0.1 % 95,995 NM

Net income $ 368,306 10.9 % $ 157,656 5.7 % $ 210,650 133.6 %

*Percentages in table may not sum properly due to rounding.

**NM - Not meaningful

Net sales increased $629.1 million, or 22.9%, for the year-to-date 2021 compared to year-to-date 2020 as a result of increased comparable sales of 22.8% and strong sales performances across all of our merchandise divisions.

The year-to-date comparable sales increase of 22.8% was driven by increased sales across all merchandise divisions and almost every product category.

The increase in comparable sales was led by strong performances in apparel, footwear and sports and recreation.

The apparel division experienced strong sales across all product categories with the highest sales increases in athletic and outdoor and seasonal.

The footwear division increased due to strong sales across every category especially in work, casual and youth and athletic.

The sports and recreation merchandise division comparable sales increase was also driven by strong sales across every category especially in team sports where baseball sales were adversely impacted by the pandemic during the prior year second quarter.

E-commerce net sales decreased $32.3 million, or 10.8%, in the year-to-date 2021 compared to the year-to-date 2020 and represented 7.9% of merchandise sales for the current year-to-date compared to 10.9% for the prior year-to-date.

Gross Margin.

Gross margin increased $411.8 million, or 51.8%, to $1,206.2 million for the year-to-date 2021 from $794.4 million for the year-to-date 2020.

As a percentage of net sales, gross margin increased 6.8% from 29.0% in the prior year-to-date to 35.8% in the current year-to-date.

The increase of 680 basis points in gross margin is primarily attributable to:

• 495 basis points of favorability in merchandise margins due to a shift in higher margin goods driving the increased sales, higher average unit retails, and less clearance and promotional activity from the prior year;

• 152 basis points of favorability in inventory overhead expenditures as a result of lower expense absorption rates from higher inventory turnover rates.

partially offset by

• 100 basis points of unfavorability related to import freight as a result of increased rates.

Selling, General and Administrative Expenses.

SG&A expenses increased $40.7 million, or 14.3%, to $324.6 million in the 2021 first quarter from $283.9 million in the 2020 first quarter.

As a percentage of net sales, SG&A expenses were down 4.5% to 20.5% in the 2021 first quarter compared to 25.0% in the 2020 first quarter.

SG&A expenses increased $115.9 million, or 19.4%, to $712.6 million for the year-to-date 2021 from $596.6 million for the year-to-date 2020.

As a percentage of net sales, SG&A expenses were down 0.7% to 21.1% in the current year-to-date compared to 21.8% in the prior year-to-date.

The decrease of 70 basis points in SG&A is primarily attributable to:

• 259 basis point decrease in property and facility fees as a result of leveraging costs on increased sales;

• 168 basis point decrease in employee costs driven by increased sales that more than offset the increased costs from prior year furloughs, wage reductions and other strategic initiatives;

• various other declines as a result of leveraging SG&A costs on increased sales.

• 112 basis point decrease in property and facility fees as a result of leveraging costs on increased sales and decreased depreciation costs;

partially offset by a

• 44 basis point increase in advertising as a result of increased marketing and promotional activities relative to the prior year, which included an initiative to lower advertising costs to help mitigate the financial impact of COVID-19 on the business.

Interest Expense.

Interest expense decreased $10.0 million, or 40.7%, in the 2021 first quarter when compared to the 2020 first quarter, primarily as a result of a lower outstanding principal balance on the Term Loan (as defined below) in the current year compared to the prior year due to debt refinancing activities which occurred in the 2020 fourth quarter as well as lower interest on the ABL Facility from our 2020 first quarter $500.0 million draw-down as a precautionary measure at the beginning of the COVID-19 pandemic.

Interest expense decreased $21.4 million, or 44.5%, for the year-to-date 2021 when compared to the year-to-date 2020, primarily as a result of a lower outstanding principal balance on the Term Loan (as defined below) in the current year compared to the prior year due to debt refinancing activities as well as lower interest on the ABL Facility from our $500.0 million draw-down in the first quarter of 2020 taken as a precautionary measure at the beginning of the COVID-19 pandemic.

We repaid the $500.0 million draw-down during the 2020 second quarter.

(Gain) Loss on Early Extinguishment of Debt, net.

(Gain) loss on early retirement of debt, net decreased $10.1 million, or 128.6%, to a loss of $2.2 million in the year-to-date 2021 from a gain of $7.8 million in the year-to-date 2020.

During the second quarter of 2021, we refinanced our Term Loan (as defined below), which resulted in a loss on early retirement of debt of $2.2 million.

Other (Income), net.

Other income decreased $0.6 million due to lower earned interest on money market funds from lower balances and lower interest rates during the 2021 first quarter relative to the 2020 first quarter.

Other income, net, decreased $0.5 million due to lower earned interest on money market funds from lower balances and lower interest rates during the current year-to-date relative to the prior year-to-date.

The higher prior year investments in money market accounts were driven by the precautionary draw-down of $500.0 million on our ABL Facility at the beginning of the COVID-19 pandemic.

Income Tax Expense.

Income tax expense increased $46.6 million to $47.1 million in the 2021 first quarter as compared to $0.5 million in 2020 first quarter.

Income tax expense increased $96.0 million to $97.5 million for the year-to-date 2021 as compared to $1.5 million for the year-to-date 2020.

As a result of the Reorganization Transactions, which occurred on October 1, 2020, ASO, Inc.

1 unchanged sentence

federal income taxes and is being taxed at the prevailing corporate rates.

ASO, Inc.’s effective tax rate for the 2021 first quarter was 20.9%.

ASO, Inc.’s effective tax rate for the year-to-date 2021 was 20.9%.

The effective tax rate was reduced by approximately 3.9% for the benefit of tax deductions related to the vesting or exercise of several equity compensation awards during the period

1 unchanged sentence

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, as shown below, have been presented in this Quarterly Report as supplemental measures of financial performance that are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America ("GAAP").

We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment, further adjusted to exclude consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic and other adjustments.

We define Adjusted EBIT as net income (loss) before interest expense, net, and income tax expense, further adjusted to exclude consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic and other adjustments.

We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment, further adjusted to exclude consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, payroll taxes associated with the 2021 Vesting Event and other adjustments.

We define Adjusted EBIT as net income (loss) before interest expense, net, and income tax expense, further adjusted to exclude consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, payroll taxes associated with the 2021 Vesting Event and other adjustments.

We describe these adjustments reconciling net income (loss) to Adjusted EBITDA and to Adjusted EBIT in the applicable table below.

We define Adjusted Net Income as net income (loss), plus consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic and other adjustments, less the tax effect of these adjustments.

We define Adjusted Net Income as net income (loss), plus consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, payroll taxes associated with the 2021 Vesting Event and other adjustments, less the tax effect of these adjustments.

We define Pro Forma Adjusted Net Income as Adjusted Net Income less the retrospective tax effect of Adjusted Net Income at our estimated effective tax rate of approximately 25% for periods prior to October 1, 2020, the effective date of our conversion to a C-Corporation.

26 unchanged sentences

Adjusted EBITDA and Adjusted EBIT

The following table provides reconciliations of net income (loss) to Adjusted EBITDA and to Adjusted EBIT for the periods presented (amounts in thousands):

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Net income (loss) $ 177,796 $ (10,020)

The following table provides reconciliations of net income to Adjusted EBITDA and to Adjusted EBIT for the periods presented (amounts in thousands):

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020

Net income $ 190,510 $ 167,676 $ 368,306 $ 157,656

Interest expense, net 12,157 23,566 26,706 48,088

4 unchanged sentences

Equity compensation (c) 27,331 1,581 33,205 3,690

(Gain) loss on early extinguishment of debt, net 2,239 (7,831) 2,239 (7,831)

Severance and executive transition costs (d) — 3,909 — 4,137

Costs related to the COVID-19 pandemic (e) — 10,987 — 17,632

Other (f) 350 837

Payroll taxes associated with the 2021 Vesting Event (f) 15,418 — 15,418 —

Other (g) 364 1,092 714 1,929

Adjusted EBITDA $ 324,416 $ 229,645 $ 595,409 $ 282,902

4 unchanged sentences

See Note 12 to the financial statements included in this Quarterly Report.

(c) Represents non-cash charges related to equity based compensation, which vary from period to period depending on certain factors such as timing and valuation of awards, achievement of performance targets and equity award forfeitures.

(c) Represents non-cash charges related to equity based compensation, which vary from period to period depending on certain factors such as the 2021 Vesting Event (see Note 1 to the financial statements included in this Quarterly Report), timing and valuation of awards, achievement of performance targets and equity award forfeitures.

(d) Represents severance costs associated with executive leadership changes and enterprise-wide organizational changes.

(e) Represents costs incurred during the 2020 first quarter as a result of the COVID-19 pandemic, including temporary wage premiums, additional sick time, costs of additional cleaning supplies and third party cleaning services for the stores, corporate office and distribution centers, accelerated freight costs associated with shifting our inventory purchase earlier in the year to maintain stock, and legal fees associated with consulting in local jurisdictions.

(e) Represents costs incurred during the thirteen and twenty-six weeks ended August 1, 2020, as a result of the COVID-19 pandemic, including temporary wage premiums, additional sick time, costs of additional cleaning supplies and third party cleaning services for the stores, corporate office and distribution centers, accelerated freight costs associated with shifting our inventory purchase earlier in the year to maintain stock, and legal fees associated with consulting in local jurisdictions.

These costs were no longer added back beginning in the third quarter of 2020.

(f) Other adjustments include (representing deductions or additions to Adjusted EBITDA and Adjusted EBIT) amounts that management believes are not representative of our operating performance, including investment income, installation costs for energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's members and our omnibus incentive plan, store exit costs and other costs associated with strategic cost savings and business optimization initiatives.

(f) Represents cash expenses related to taxes on equity-based compensation resulting from the 2021 Vesting Event.

(g) Other adjustments include (representing deductions or additions to Adjusted EBITDA and Adjusted EBIT) amounts that management believes are not representative of our operating performance, including investment income, installation costs for energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's members and our omnibus incentive plan, store exit costs and other costs associated with strategic cost savings and business optimization initiatives.

Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share

The following table provides a reconciliation of net income to Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share for the periods presented (amounts in thousands, except per share data):

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Net income (loss) $ 177,796 $ (10,020)

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020

Net income $ 190,510 $ 167,676 $ 368,306 $ 157,656

Consulting fees (a) — 36 — 92

1 unchanged sentence

Equity compensation (c) 27,331 1,581 33,205 3,690

(Gain) loss on early extinguishment of debt, net 2,239 (7,831) 2,239 (7,831)

Severance and executive transition costs (d) — 3,909 — 4,137

Costs related to the COVID-19 pandemic (e) — 10,987 — 17,632

Other (f) 350 837

Tax effects of these adjustments (g) (1,489) (19)

Payroll taxes associated with the 2021 Vesting Event (f) 15,418 — 15,418 —

Other (g) 364 1,092 714 1,929

Tax effects of these adjustments (h) (11,312) (19) (12,801) (39)

Adjusted Net Income 224,550 178,351 407,081 179,106

Estimated tax effect of change to C-Corporation status (h) — (316)

Estimated tax effect of change to C-Corporation status (i) — (43,947) — (44,262)

Pro Forma Adjusted Net Income $ 224,550 $ 134,404 $ 407,081 $ 134,844

9 unchanged sentences

See Note 12 to the financial statements included in this Quarterly Report.

(c) Represents non-cash charges related to equity based compensation, which vary from period to period depending on certain factors such as the 2021 Vesting Event, timing and valuation of awards, achievement of performance targets and equity award forfeitures.

(d) Represents severance costs associated with executive leadership changes and enterprise-wide organizational changes.

These costs were no longer added back beginning in the third quarter of 2020.

(f) Other adjustments include (representing deductions or additions to Adjusted Net Income) amounts that management believes are not representative of our operating performance, including investment income, installation costs for energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's members and our omnibus incentive plan, store exit costs and other costs associated with strategic cost savings and business optimization initiatives.

(g) For the thirteen weeks ended May 1, 2021, this represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at the estimated effective tax rate for the fiscal year ended January 31, 2022.

For the thirteen weeks ended May 2, 2020, this represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at our historical tax rate.

(h) Represents the retrospective tax effect of Adjusted Net Income at our estimated effective tax rate of approximately 25% for periods prior to October 1, 2020, the effective date of our conversion to a C-Corporation, upon which we became subject to federal income taxes.

(f) Represents cash expenses related to taxes on equity-based compensation resulting from the 2021 Vesting Event.

(g) Other adjustments include (representing deductions or additions to Adjusted Net Income) amounts that management believes are not representative of our operating performance, including investment income, installation costs for energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's members and our omnibus incentive plan, store exit costs and other costs associated with strategic cost savings and business optimization initiatives.

(h) For the thirteen and twenty-six weeks ended July 31, 2021, this represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at the estimated effective tax rate for the fiscal year ended January 31, 2022.

For thirteen and twenty-six weeks ended August 1, 2020, this represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at our historical tax rate.

(i) Represents the retrospective tax effect of Adjusted Net Income at our estimated effective tax rate of approximately 25% for periods prior to October 1, 2020, the effective date of our conversion to a C-Corporation, upon which we became subject to federal income taxes.

Adjusted Free Cash Flow

The following table provides a reconciliation of net cash provided by operating activities to Adjusted Free Cash Flow for the periods presented (amounts in thousands):

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020

Net cash provided by operating activities $ 186,446 $ 682,865 $ 405,674 $ 773,621

12 unchanged sentences

• cash used to pay partnership distributions to our members;

• cash used to pay for the repurchase of common stock;

• fluctuations in working capital due to timing differences of cash receipts and cash disbursements.

On May 1, 2021, our cash and cash equivalents totaled $593.3 million.

On July 31, 2021, our cash and cash equivalents totaled $553.8 million.

During 2020, we focused on navigating the challenges presented by COVID-19 through the preservation of our long-term liquidity and management of cash flow through preemptive actions to enhance our ability to meet our short-term liquidity needs.

2 unchanged sentences

On August 28, 2020, we paid a $257.0 million one-time special distribution to our members of record as of August 25, 2020, $248.0 million of which was paid with cash on hand and the remainder of which was distributed through an offset of outstanding loans receivable from a member as well as state income tax withholdings made on behalf of NAHC's members.

Related cash payments of $24.0 million to vested share-based award holders was paid through May 1, 2021 and an additional $8.2 million of payments will be made to unvested share-based award holders as the related awards vest (see "Distribution" in Note 9 and "May Secondary Offering and Stock Repurchase" in Note 14 to the financial statements included in this Quarterly Report).

On October 6, 2020, we completed our IPO in which we issued and sold 15,625,000 shares of common stock, $0.01 par value, to the IPO underwriters for cash consideration of $12.22 per share (representing an initial public offering price of $13.00 per share, net of underwriting discounts) that resulted in net proceeds of approximately $184.9 million after deducting underwriting discounts, which included approximately $2.7 million paid to KKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO, and $6.1 million in costs directly associated with the IPO, such as legal and accounting fees (see "Initial Public Offering, IPO Over-Allotment Exercise and Reorganization Transactions" in Note 1 to the financial statements included in this Quarterly Report).

Related cash payments of $32.2 million to vested share-based award holders were paid in-full as of July 31, 2021 and no further payments are required relative to this distribution.

On October 6, 2020, we completed our IPO in which we issued and sold 15,625,000 shares of common stock, $0.01 par value, to the IPO underwriters for cash consideration of $12.22 per share (representing an initial public offering price of $13.00 per share, net of underwriting discounts) that resulted in net proceeds of approximately $184.9 million after deducting underwriting discounts, which included approximately $2.7 million paid to KKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO, and $6.1 million in costs directly associated with the IPO, such as legal and accounting fees (see "Initial Public Offering and Reorganization Transactions" and "IPO Over-Allotment Exercise" in Note 1 to the financial statements included in this Quarterly Report).

The shares sold in the offering were registered under the Securities Act of 1933, as amended, pursuant to our registration statement on Form S-1 (File No.

333-248683, which was declared effective by the Securities and Exchange Commission on October 1, 2020).

On November 3, 2020, the Company issued and sold an additional 1,807,495 shares of the Company’s common stock, par value $0.01 per share, for cash consideration of $12.22 per share (representing an initial public offering price of $13.00 per share, net of underwriting discounts) to the IPO underwriters, resulting in approximately $22.1 million in proceeds net of underwriting discounts (see "Initial Public Offering, Over-Allotment Exercise and Reorganization Transactions" in Note 1 to the financial statements included in this Quarterly Report), which included $0.3 million paid to KCM, for underwriting services, pursuant to the partial exercise by the underwriters of their option to purchase up to 2,343,750 additional shares to cover over-allotments in connection with our IPO.

On November 3, 2020, the Company issued and sold an additional 1,807,495 shares of the Company’s common stock, par value $0.01 per share, for cash consideration of $12.22 per share (representing an initial public offering price of $13.00 per share, net of underwriting discounts) to the IPO underwriters, resulting in approximately $22.1 million in proceeds net of underwriting discounts (see "Initial Public Offering and Reorganization Transactions" and "IPO Over-Allotment Exercise" in Note 1 to the financial statements included in this Quarterly Report), which included $0.3 million paid to KCM, for underwriting services, pursuant to the partial exercise by the underwriters of their option to purchase up to 2,343,750 additional shares to cover over-allotments in connection with our IPO.

The option has expired with respect to the remaining shares.

1 unchanged sentence

We used the net proceeds from the Notes and the net proceeds from the 2020 Term Loan, together with cash on hand, to repay in full the 2015 Term Loan, in the amount of $1,431.4 million (see Note 4 to the financial statements included in the Annual Report).

Subsequent to the 2021 first quarter and in connection with the May 2021 Secondary Offering (see "May 2021 Secondary Offering and Stock Repurchase" in Note 14 to the financial statements included in this Quarterly Report), on May 10, 2021, the Company completed a repurchase and simultaneous retirement of 3,229,974 shares from the underwriters for cash consideration of $30.96 per share, resulting in a payment of approximately $100.0 million to the underwriters.

The May 2021 Secondary Offering reduced KKR's ownership interest in the Company to 31.3% and resulted in a vesting event for awards granted under the 2011 Unit Incentive Plan, whereby unvested time awards, and performance-based awards which had previously met their performance targets, vested, and unvested performance-based awards which had not previously met their performance targets were forfeited.

On May 10, 2021, the Company completed a repurchase and simultaneous retirement of 3,229,974 shares from the underwriters for cash consideration of $30.96 per share, resulting in a payment of approximately $100.0 million to the underwriters (see "May 2021 Secondary Offering and Stock Repurchase" in Note 1 to the financial statements included in this Quarterly Report).

The May 2021 Secondary Offering reduced KKR's ownership interest in the Company and resulted in the 2021 Vesting Event for awards granted under the 2011 Unit Incentive Plan, whereby unvested time awards, and performance-based awards which had previously met their performance targets, vested, and unvested performance-based awards which had not previously met their performance targets were forfeited.

As a result, we incurred approximately $24.9 million in non-cash expenses related to equity-based compensation and approximately $15.4 million of cash expenses related to taxes on equity-based compensation.

Additionally, approximately $8.2 million of cash payments for equity-based compensation distributions will be accelerated (see Note 14 to the financial statements included in this Quarterly Report).

Subsequent to the 2021 first quarter, on May 25, 2021, the Company entered into an Amendment No.

On May 25, 2021, the Company entered into an Amendment No.

4 (the "Amendment") to the Second Amended and Restated Credit Agreement (as previously amended, the "Existing Credit Agreement") which (i) reduced the applicable margin on LIBOR borrowings under the Term Loan from 5.00% to 3.75% and (ii) utilized cash on hand to repay $99.0 million of outstanding borrowings under the Term Loan, leaving an outstanding principal balance of $300.0 million under the Amended Credit Agreement.

8 unchanged sentences

Liquidity information related to the ABL facility is as follows for the periods shown (dollar amounts in thousands):

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Twenty-Six Weeks Ended

July 31, 2021 August 1, 2020

Average funds drawn $ — $ 253,297

3 unchanged sentences

Liquidity information related to the ABL facility (amounts in thousands) as of:

May 1, 2021 January 30, 2021 May 2, 2020

July 31, 2021 January 30, 2021 August 1, 2020

Outstanding borrowings $ — $ — $ —

6 unchanged sentences

We review forecasted capital expenditures throughout the year and will adjust or modify projects based on business conditions at that time.

Cash Flows for the Thirteen Weeks Ended May 1, 2021 and May 2, 2020

Cash Flows for the Twenty-Six Weeks Ended July 31, 2021 and August 1, 2020

Our unaudited statements of cash flows are summarized as follows (in thousands):

Thirteen Weeks Ended

May 1, 2021 May 2, 2020

Twenty-Six Weeks Ended

July 31, 2021 August 1, 2020

Net cash provided by operating activities $ 405,674 $ 773,621

Net cash used in investing activities (33,767) (13,850)

Net cash provided by financing activities 13,264 495,400

Net cash used in financing activities (195,686) (25,127)

Net increase in cash and cash equivalents $ 176,221 $ 734,644

2 unchanged sentences

Typically, cash flows from operations are used to build inventory in advance of peak selling seasons, with the fourth quarter pre-holiday season inventory increase being the most significant.

Cash provided by operating activities in the 2021 first quarter increased $128.5 million, compared to the 2020 first quarter.

This increase in cash was attributable to:

Cash provided by operating activities in the year-to-date 2021 decreased $367.9 million, compared to the year-to-date 2020.

This decrease in cash was attributable to:

• $650.3 million net decrease in cash flows provided by operating assets and liabilities;

partially offset by

• $210.7 million increase in net income;

• $71.7 million net increase in non-cash charges.

partially offset by a

• $74.8 million net decrease in cash flows provided by operating assets and liabilities.

The decrease in cash flows from operating assets and liabilities was primarily attributable to:

• $325.6 million decrease in cash flows from merchandise inventories, net related to an increase in inventory receipts during the twenty-six weeks ended July 31, 2021 quarter coupled with a prior year reduction of inventory from higher inventory turnover and supply chain constraints resulting from the COVID-19 pandemic;

• $279.4 million decrease in cash flows from accounts payable related to the prior year extension of vendor payment terms intended to help mitigate the impact of COVID-19 on our business.

The increase from non-cash charges was primarily caused by:

2 unchanged sentences

federal income taxes after the Reorganization Transactions in October 2020;

partially offset by a

• $12.4 million decrease in non-cash lease expense due to timing of May rent payments in the prior year.

The decrease in cash flows from operating assets and liabilities was primarily attributable to:

• $177.8 million increase in merchandise inventories, net related to an increase in inventory during the 2021 first quarter coupled with a prior year reduction of inventory;

partially offset by an

• $89.5 million increase in accounts payable related to increased inventory receipts in recent months and extensions of vendor payment terms;

• $21.4 million increase in income taxes as a result of ASO, Inc.

becoming subject to U.S.

federal income taxes after the Reorganization Transactions in October 2020.

• $29.5 million increase in stock compensation expense as a result of the 2021 Vesting Event.

Investing Activities .

Cash used in investing activities increased $6.9 million in the 2021 first quarter compared to the same period last year.

Cash used in investing activities increased $19.9 million in the current year-to-date compared to the same period last year.

The increase in cash used in investing activities is primarily due to:

• $6.9 million higher capital expenditures on various digital projects as well as updates in the stores and distribution centers, coupled with the strategic reduction of capital expenditures in the prior year in response to the COVID-19 pandemic.

• $19.9 million higher capital expenditures on various digital projects, updates in the stores and distribution centers, and other improvements coupled with the strategic reduction of capital expenditures in the prior year in response to the COVID-19 pandemic.

Financing Activities .

Cash provided by financing activities decreased $482.1 million in the 2021 first quarter, compared to the same period last year.

The primary drivers of the decrease were:

• $500.0 million decrease in cash inflow due to the precautionary draw-down of $500.0 million on the ABL Facility during the 2020 first quarter in response to the COVID-19 pandemic;

partially offset by a

• $17.3 million of net proceeds from the exercise of stock options in the current year.

Cash used in financing activities increased $170.6 million in the year-to-date 2021, compared to the same period last year.

The primary drivers of the increase were:

• $100.0 million increase in cash outflows related to Company's repurchase and simultaneous retirement of common stock;

• $75.7 million increase in cash outflows related to higher current year-to-date principal repurchases of our Term Loan, primarily attributable to the $99 million current year principal reduction associated with the second quarter Amendment to refinance the Term Loan.

Critical Accounting Policies and Estimates

13 unchanged sentences

Off-Balance Sheet Arrangements

As of May 1, 2021, our off-balance sheet contractual obligations and commercial commitments relate to future minimum guaranteed contractual payments and letters of credit.

As of July 31, 2021, our off-balance sheet contractual obligations and commercial commitments relate to future minimum guaranteed contractual payments and letters of credit.

There have been no other material changes in our off-balance sheet arrangements as discussed in the section of the Annual Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" or our audited financial statements for the fiscal year ended January 30, 2021 included in the "Off-Balance Sheet Arrangements" section of the Annual Report.

1 unchanged sentence

Our contractual obligations and commercial commitments primarily relate to our debt facilities and senior secured notes, operating leases for stores, distribution centers, and office buildings, technology related commitments, and sponsorship and intellectual property agreements.

Other than than the item noted below and fluctuations from transactions in the ordinary course of business, there were no material changes during the quarter ended May 1, 2021 to the contractual obligations and commercial commitments disclosed in "Contractual Obligations and Commercial Commitments" in the section of the Annual Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations".

Other than the item noted below and fluctuations from transactions in the ordinary course of business, there were no material changes during the quarter ended July 31, 2021 to the contractual obligations and commercial commitments disclosed in "Contractual Obligations and Commercial Commitments" in the section of the Annual Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations".

On May 25, 2021, the Company refinanced its 2020 Term Loan and paid down approximately $99.0 million of the Term Loan (see Note 4 to the financial statements included in this Quarterly Report).

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis