What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-12-10 compared with 2021-09-09 · 132 added, 132 removed, 469 unchanged (36% of the section changed)

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Actual results may differ materially from these expectations due to changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our control.

We believe that these factors include but are not limited to those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2021 (the "Annual Report"), as filed with the Securities and Exchange Commission (the "SEC") on April 7, 2021, and in this Quarterly Report, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC's website at www.sec.gov, and also include the following:

We believe that these factors include but are not limited to those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2021 (the "Annual Report"), as filed with the Securities and Exchange Commission (the "SEC") on April 7, 2021, and in this Quarterly Report, as such risk factors have been updated from time to time in our periodic filings with the SEC, and are accessible on the SEC's website at www.sec.gov, such as the following:

• overall decline in the health of the economy and consumer discretionary spending;

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• our substantial indebtedness.

• investment funds and other entities affiliated with Kohlberg Kravis Roberts & Co.

(collectively "KKR")) have the ability to exert substantial influence over us and their interests may conflict with ours or yours in the future.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report.

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We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

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 thirty-nine weeks ended October 30, 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.

All references to "Academy," "Academy Sports + Outdoors," "we," "us," "our" or the "Company" in this Quarterly Report refer to (1) prior to October 1, 2020, New Academy Holding Company, LLC, a Delaware limited liability company and the prior parent holding company for our operations, and its consolidated subsidiaries;

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 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.

See the section of this Quarterly Report entitled "Cautionary Statement Regarding Forward-Looking Statements." When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business.

Known material factors that could affect our financial performance and actual results, and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this discussion or otherwise made by our management, are described in the "Risk Factors" sections of the Annual Report and this Quarterly Report.

Academy Sports and Outdoors, Inc.

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 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.

conducts its operations through its subsidiaries, including its indirect subsidiary, Academy, Ltd., an operating company which is doing business as "Academy Sports + Outdoors."

We operate on the retail industry’s 4-5-4 calendar.

The 4-5-4 calendar is a guide for retailers that ensures sales comparability between years by dividing the year into months based on a 4 weeks – 5 weeks – 4 weeks format.

Every five to six years a week is added to the 4-5-4 fiscal calendar.

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 third quarter" or similar reference refers to the thirteen week period ended October 30, 2021, and any reference in this Quarterly Report to the "prior year quarter", "2020 third quarter" or similar reference refers to the thirteen week period ended October 31, 2020.

Any reference in this Quarterly Report to "current year-to-date", "year-to-date 2021" or similar reference represents the thirty-nine week period ended October 30, 2021, and any reference in this Quarterly Report to the "prior year-to-date", "year-to-date 2020" or similar reference refers to thirty-nine week period ended October 31, 2020.

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

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Our value-based assortment also includes exclusive products from our portfolio of 20 owned brands.

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.

As of October 30, 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.

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The following table summarizes store activity for the periods indicated:

Twenty-Six Weeks Ended

July 31, 2021 August 1, 2020

Thirty-Nine Weeks Ended

October 30, 2021 October 31, 2020

Beginning stores 259 259

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Q2 new stores — —

Q3 new stores — —

Ending stores 259 259

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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 3.36x to 4.04x in the twelve months ended August 1, 2020 and July 31, 2021, respectively.

This implementation, along with other factors, has allowed us to improve our inventory management in stores, increasing our average inventory turns from 3.55x to 3.84x in the twelve months ended October 31, 2020 and October 30, 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.

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

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.

In the 2021 second and third quarters, 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.

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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.

In both the thirteen and thirty-nine weeks ended October 30, 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.

We intend to continue working 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 increase was attributable to the COVID-19 pandemic as compared to such recent enhancements.

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For our business to be successful, our suppliers must provide us with quality products in substantial quantities, in compliance with regulatory requirements, at acceptable costs and on a timely basis.

Competition for resources throughout the supply chain, such as production and transportation capacities, has increased.

Trends affecting the supply chain include the impact of fluctuating prices of labor and raw materials on our suppliers, as well as the impact of the COVID-19 pandemic.

The merchandise we sell is sourced from a wide variety of domestic and international suppliers and our ability to find qualified suppliers and access merchandise in a timely and efficient manner is often challenging, particularly with respect to merchandise sourced outside the United States.

The merchandise we sell is sourced from a wide variety of domestic and international suppliers and our ability to find qualified suppliers and access merchandise in a timely and efficient manner can be challenging, particularly with respect to merchandise sourced outside the United States.

We generally do not have long-term written contracts with our suppliers that would require them to continue supplying us with merchandise, particular payment terms or the extension of credit.

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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 recent months, we have seen increased competition across the industry for resources throughout the supply chain, which has resulted in disruptions to the flow of products from our vendors, labor shortages, reduced shipping container availability, and longer delays at the port.

These factors have negatively impacted transportation costs, as we continue to pay higher rates to maintain our inventory levels.

To help mitigate these constraints and potential disruptions to our supply chain, we continue to work with our partners by ordering merchandise earlier, securing transportation capacity, and utilizing different ports of entry.

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.

These tariffs continue to remain in effect.

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.

However, no significant modifications have been enacted to date, relative to the escalated tariffs, which impact our business.

New Store Openings.

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Our net sales and profits are also impacted by the November/December holiday selling season, and in part by the sales of cold weather sporting goods and apparel during the fourth quarter.

We operate on the retail industry’s 4-5-4 calendar.

The 4-5-4 calendar is a guide for retailers that ensures sales comparability between years by dividing the year into months based on a 4 weeks – 5 weeks – 4 weeks format.

Every five to six years a week is added to the 4-5-4 fiscal calendar.

Impact of COVID-19 on Our Business

The outbreak of COVID-19, which has been declared a global pandemic by the World Health Organization, continues to affect our business, as well as our customers, team members and suppliers, and has resulted in federal, state and local governmental authority safety recommendations and requirements aimed at mitigating the spread of the virus, such as stay-at-home orders, prohibitions of large group gatherings, travel restrictions and closures of certain businesses.

The scope and nature of these impacts continue to evolve on a daily basis, including any potential resurgence in COVID-19 cases.

In response to these restrictions, and in order to serve our customers while also providing for the safety of our customers, team members and service providers, we have taken many actions, including cleaning each store professionally on a regular basis, equipping each store with hand sanitizer stations and signage illustrating how to socially distance within the store, wearing face coverings, limiting the number of customers admitted at one time, and having protective shields installed at cash registers and other countertops.

The scope and nature of these impacts continue to evolve on a daily basis.

In response to COVID-19 related recommendations and requirements, and in order to serve our customers while also providing for the safety of our customers, team members and service providers, we have taken many actions, including cleaning each store professionally on a more frequent basis, equipping each store with hand sanitizer stations and signage illustrating how to socially distance within the store, requiring or suggesting that customers, team members and service providers wear face coverings, limiting the number of customers admitted at one time, and having protective shields installed at cash registers and other countertops.

We have incurred increased costs related to the implementation of these measures, and temporary wage premiums and additional sick time for our active store and distribution center team members.

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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 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.

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

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

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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.

These developments include, among other things, new information that may emerge concerning the severity of the outbreak and health implications, the development and availability of vaccines to mitigate the risk of COVID-19, actions by government authorities to contain the outbreak or treat its impact, and changes in consumer behavior resulting from the outbreak and such government actions.

We continue to monitor the evolving situation as there remain many uncertainties regarding the pandemic and its resurgence, including the anticipated duration.

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 remain highly uncertain and cannot be accurately predicted.

These developments include, among other things, a resurgence of the pandemic, including the possible emergence of new strains of COVID-19, the development, availability, uptake and effectiveness of vaccines and other treatments to mitigate the risk of COVID-19, actions by government authorities to contain the outbreak or treat its impact (including OSHA's ETS described in Part II, Item 1A "Risk Factors" of this Quarterly Report), and changes in consumer behavior resulting from the outbreak and such government actions.

We continue to monitor the evolving situation.

See the section of the Annual Report entitled "Risk Factors—Risks Related to Our Business—The impact of COVID-19 may adversely affect our business and financial results."

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

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

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

experience and unique services we provide in our stores;

our ability to execute our omnichannel strategy, including the growth of our e-commerce business;

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We expect that our SG&A expenses will increase in future periods due to our continuing growth and in part to additional legal, accounting, insurance and other expenses we expect to incur as a result of being a newly public company.

Income Tax Expense (Benefit).

Income Tax (Benefit) Expense.

Prior to October 1, 2020, New Academy Holding Company, LLC, our prior ultimate parent company, was treated as a flow through entity for U.S.

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Results of Operations

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

Thirteen Weeks Ended October 30, 2021 Compared to Thirteen Weeks Ended October 31, 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

July 31, 2021 August 1, 2020 Dollars Percent

October 30, 2021 October 31, 2020 Dollars Percent

Net sales $ 1,592,795 100.0 % $ 1,349,076 100.0 % $ 243,719 18.1 %

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Interest expense, net 11,424 0.7 % 22,399 1.7 % (10,975) (49.0) %

(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 %

Other (income) expense, net (614) 0.0 % 764 0.1 % (1,378) NM

Income before income taxes 205,303 12.9 % 58,393 4.3 % 146,910 251.6 %

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

Income tax (benefit) expense 43,998 2.8 % (1,193) (0.1) % 45,191 NM

Net income $ 161,305 10.1 % $ 59,586 4.4 % $ 101,719 170.7 %

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**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.

Net sales increased $243.7 million, or 18.1%, in the 2021 third quarter over the prior year third quarter due to an increase in comparable sales of 17.9% and strong sales performances across all of our merchandise divisions.

The 2021 third quarter comparable sales increase of 17.9% 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 outdoor and apparel.

The outdoor merchandise division increase was primarily driven by strong sales in ammunition and camping products, 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 .

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

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

The sports and recreation merchandise division comparable sales also increased especially in team sports such as basketball, baseball and football, which were adversely impacted by the pandemic during the prior year.

E-commerce net sales increased $26.2 million, or 25.9%, in the 2021 third quarter compared to the prior year third quarter and represented 8.0% of merchandise sales for the 2021 third quarter compared to 7.5% for the prior year third quarter.

Gross Margin.

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.

Gross margin increased $120.3 million, or 27.3%, to $560.8 million in the 2021 third quarter from $440.5 million in the 2020 third quarter.

As a percentage of net sales, gross margin increased 2.5% from 32.7% in the 2020 third quarter to 35.2% in the 2021 third quarter.

The increase of 250 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;

• 219 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 and clearance activity from the prior year;

• 55 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.

partially offset by

• 46 basis points of unfavorability in import freight as a result of increased costs of ocean freight.

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.

SG&A expenses decreased $14.2 million to $344.7 million in the 2021 third quarter as compared to $359.0 million in the 2020 third quarter.

As a percentage of net sales, SG&A expenses were down 5.0% to 21.6% in the 2021 third quarter compared to 26.6% in the 2020 third quarter.

The decrease of 500 basis points in SG&A is primarily attributable to:

• 286 basis point decrease in employee costs from leveraging costs on increased sales and higher prior year quarter costs driven by incremental expenses resulting from the expensing of certain share-based awards in connection with the completion of the IPO;

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

• 89 basis point decrease related to a 2020 third quarter expense for the termination of our Monitoring Agreement, which occurred upon completion of the IPO.

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.

Interest expense decreased $11.0 million, or 49.0%, in the 2021 third quarter when compared with the 2020 third 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.

Other (Income), net.

Other (income), net, increased to other income of $0.6 million in the 2021 third quarter when compared to other expense of $0.8 million in the 2020 third quarter.

This increase was primarily driven by $1.3 million of expense in 2020 third quarter related to a portion of the underlying cash flows of swap notional principal amount which were no longer probable of occurring and resulted in immediate recognition of expense.

Income Tax (Benefit) Expense.

Income tax (benefit) expense increased to an expense of $44.0 million in the 2021 third quarter as compared to a benefit of $1.2 million in the 2020 third quarter.

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

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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

ASO, Inc.’s effective tax rate for the 2021 third quarter was 21.4%.

The effective tax rate was reduced by approximately 2.2% for the benefit of tax deductions related to the vesting or exercise of several equity compensation awards during the quarter.

Thirty-Nine Weeks Ended October 30, 2021 Compared to Thirty-Nine Weeks Ended October 31, 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

Thirty-Nine Weeks Ended Change

October 30, 2021 October 31, 2020 Dollars Percent

Net sales $ 4,964,658 100.0 % $ 4,091,797 100.0 % $ 872,861 21.3 %

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Interest expense, net 38,130 0.8 % 70,487 1.7 % (32,357) (45.9) %

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

(Gain) loss on early retirement of debt, net 2,239 0.0 % (7,831) (0.2) % 10,070 NM

Other (income), net (1,746) 0.0 % (857) 0.0 % (889) 103.7 %

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**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.

Net sales increased $872.9 million, or 21.3%, for the year-to-date 2021 compared to year-to-date 2020 as a result of increase comparable sales of 21.2% and strong sales performances across all of our merchandise divisions.

The year-to-date comparable sales increase of 21.2% was driven by increased sales across all merchandise divisions and almost every product category.

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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.

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

The sports and recreation merchandise division comparable sales increase was also driven by strong sales across every category, especially in team sports such as baseball, football, basketball and other sports and recreation activities, which were all adversely impacted by the pandemic during the year-to-date 2020.

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

E-commerce net sales decreased $6.1 million, or 1.5%, in the year-to-date 2021 compared to the year-to-date 2020 and represented 8.0% of merchandise sales for the current year-to-date compared to 9.8% for the prior year-to-date.

We believe the decline in e-commerce was generated by a demand shift, especially evident in the first quarter of 2021 as compared to the first quarter of 2020, 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.

Gross Margin.

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The decrease of 210 basis points in SG&A is primarily attributable to:

• 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.

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

• 70 basis point decrease in employee costs from leveraging costs on increased sales, partially offset 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);

• 29 basis point decrease related to a 2020 third quarter expense for the termination of our Monitoring Agreement, which occurred upon completion of the IPO.

Interest Expense.

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.

Interest expense decreased $32.4 million, or 45.9%, 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 in the current year compared to the prior year due to debt refinancing activities.

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

(Gain) loss on early retirement of debt, net decreased $10.1 million 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 year-to-date 2021, we refinanced our Term Loan, which resulted in a loss on early retirement of debt of $2.2 million.

During the year-to-date 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.

Other (Income), net.

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.

Other income, net, increased $0.9 million in the year-to-date 2021 when compared to the year-to-date 2020, primarily driven by a $1.3 million of expense in the year-to-date 2020 related to a portion of the underlying cash flows of swap notional principal amount which were no longer probable of occurring and resulted in immediate recognition of expense.

Income Tax Expense.

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ASO, Inc.’s effective tax rate for the year-to-date 2021 was 21.1%.

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

The effective tax rate was reduced by approximately 3.4% for the benefit of tax deductions related to the vesting or exercise of several equity compensation awards during the year-to-date 2021.

Non-GAAP Measures

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) 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 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 retirement 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 retirement 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) 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 Adjusted Net Income as net income (loss), plus consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early retirement 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.

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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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net income $ 161,305 $ 59,586 $ 529,611 $ 217,242

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Equity compensation (c) 2,921 23,359 36,126 27,049

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

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

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

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

(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.

(e) Represents costs incurred during the thirty-nine weeks ended October 31, 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.

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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 Twenty-Six Weeks Ended

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net income $ 161,305 $ 59,586 $ 529,611 $ 217,242

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Equity compensation (c) 2,921 23,359 36,126 27,049

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

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

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

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93,844 80,714 95,504 77,171

(1) See Retrospective Presentation of Ownership Exchange in Note 2 to the financial statements.

(a) Represents outside consulting fees associated with our strategic cost savings and business optimization initiatives.

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(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.

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(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.

(h) For the thirteen and thirty-nine weeks ended October 30, 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 thirty-nine weeks ended October 31, 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.

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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 Twenty-Six Weeks Ended

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net cash provided by operating activities $ 109,389 $ 83,597 $ 515,063 $ 857,218

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• cash generated from operating activities;

• issuances of the Notes / debt securities;

• issuances of the debt securities, including the Notes;

• borrowings under our Term Loan and ABL Facility.

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

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

On October 30, 2021, our cash and cash equivalents totaled $401.3 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.

We took various cost cutting measures to maximize operational cash flows (see "Impact of COVID-19 on Our Business" in the MD&A).

Such actions included, but are not limited to, reduction of discretionary spending, deferring or cancelling our planned expenses, revisiting and reprioritizing our strategic investments, and reducing our payroll costs, including temporary team member furloughs, workforce reductions and pay cuts.

Such actions included, but were not limited to, reduction of discretionary spending, deferring or cancelling our planned expenses, revisiting and reprioritizing our strategic investments, and reducing our payroll costs, including temporary team member furloughs, workforce reductions and pay cuts.

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 $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).

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" 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 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.

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 "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.

On November 6, 2020, the Company (1) issued $400.0 million of 6.00% senior secured notes (the "Notes"), which are due November 15, 2027, (2) entered into a $400.0 million first lien term loan facility (the "2020 Term Loan" and, together with the 2015 Term Loan (as defined in the notes to the financial statements included in this Annual Report), the "Term Loan"), which is due November 6, 2027 and (3) extended the maturity of Academy, Ltd.’s asset-based revolving credit facility thereunder to November 6, 2025 (as extended, the "2020 ABL Facility" and, together with the 2015 ABL Facility (as defined in the notes to the financial statements included in this Annual Report), the "ABL Facility").

On November 6, 2020, the Company (1) issued $400.0 million of 6.00% senior secured notes (the "Notes"), which are due November 15, 2027, (2) entered into a $400.0 million first lien term loan facility (the "2020 Term Loan" and, together with the 2015 Term Loan (as defined in the notes to the financial statements included in the Annual Report), the "Term Loan"), which is due November 6, 2027 and (3) extended the maturity of Academy, Ltd.’s asset-based revolving credit facility thereunder to November 6, 2025 (as extended, the "2020 ABL Facility" and, together with the 2015 ABL Facility (as defined in the notes to the financial statements included in the Annual Report), the "ABL Facility").

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).

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).

On May 10, 2021, the Company completed a repurchase and simultaneous retirement of 3,229,974 shares from the May 2021 Underwriters for cash consideration of $30.96 per share, resulting in a payment of approximately $100.0 million to the May 2021 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.

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Borrowings under the Amended Credit Agreement will continue to mature on November 6, 2027, and all other material terms and provisions of the Existing Credit Agreement remain substantially the same as the terms and provisions in place immediately prior to the effectiveness of the Amendment (see Note 4 to the financial statements included in this Quarterly Report).

On September 2, 2021, the Board of Directors of the Company authorized a share repurchase program (the "Share Repurchase Program") under which the Company may purchase up to $500 million of its outstanding shares during the three-year period ending September 2, 2024.

Under the Share Repurchase Program, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions and/or a non-discretionary trading plan, all in compliance with the rules of the SEC and other applicable legal requirements.

The timing, manner, price and amount of any common share repurchases are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions.

The Share Repurchase Program does not obligate the Company to acquire any particular number of common shares, and the program may be suspended, extended, modified or discontinued at any time.

On September 17, 2021 the Company completed a repurchase and simultaneous retirement of 4,500,000 shares from the September 2021 Underwriters for cash consideration of approximately $43.52 per share, resulting in a payment of approximately $195.8 million to the September 2021 Underwriters (see "September 2021 Secondary Offering and Stock Repurchase" in Note 1 to the financial statements included in this Quarterly Report).

Additionally, during October 2021, the Company completed several open market share repurchases totaling 1,222,892 shares, which were simultaneously retired, for cash consideration of approximately $40.87 per share (see "Equity" in Note 9 to the financial statements included in this Quarterly Report).

We expect to use existing cash balances, internally generated cash flows, and available borrowings under the ABL Facility to fund anticipated capital expenditures, working capital needs and scheduled debt service costs and maturities over at least the next twelve months.

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

Twenty-Six Weeks Ended

July 31, 2021 August 1, 2020

Thirty-Nine Weeks Ended

October 30, 2021 October 31, 2020

Average funds drawn $ — $ 168,864

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

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

October 30, 2021 January 30, 2021 October 31, 2020

Outstanding borrowings $ — $ — $ —

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

Cash Flows for the Thirty-Nine Weeks Ended October 30, 2021 and October 31, 2020

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

Twenty-Six Weeks Ended

July 31, 2021 August 1, 2020

Thirty-Nine Weeks Ended

October 30, 2021 October 31, 2020

Net cash provided by operating activities $ 515,063 $ 857,218

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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;

• $352.7 million decrease in cash flows from merchandise inventories, net related to an increase in inventory receipts during the thirty-nine weeks ended October 30, 2021 coupled with a prior year reduction of inventory from higher inventory turnover and supply chain constraints resulting from the COVID-19 pandemic;

• $310.9 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.

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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 .

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

• $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.

• $36.7 million higher capital expenditures on updates in the stores and distribution centers, various digital projects, and other improvements coupled with the strategic reduction of capital expenditures in the prior year in response to the COVID-19 pandemic;

• $8.1 million decrease from cash proceeds for repayment of notes receivable from one NAHC member which occurred during the year-to-date 2020.

Financing Activities .

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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.

• $345.8 million increase in cash outflows related to Company's repurchase and simultaneous retirement of common stock in the current year;

• $184.9 million increase in cash used related to net proceeds from the issuance of common stock during the third quarter of 2020, net of offering costs;

• $71.8 million increase in cash outflows related to higher current year-to-date principal repurchases of our Term Loan;

partially offset by

• $257.0 million decrease in cash used from a distribution to NAHC's members in the prior year;

• $41.3 million decrease in cash used from net proceeds from the exercise of stock options in the current year.

Critical Accounting Policies and Estimates

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Our most significant estimates and assumptions that materially affect the financial statements involve difficult, subjective or complex judgments by management, including the valuation of merchandise inventories and performing goodwill, intangible and long-lived asset impairment analyses.

Given the global economic climate and additional unforeseen effects from the COVID-19 pandemic, these estimates remain more challenging, and actual results could differ materially from our estimates.

Given the global economic climate and the possibility of additional unforeseen effects from the COVID-19 pandemic, these estimates remain challenging, and actual results could differ materially from our estimates.

More information on all of our significant accounting policies can be found in Note 2, "Summary of Significant Critical Accounting Policies and Estimates" to our audited consolidated financial statements included in the Annual Report and the section of the Annual Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in the Annual Report.

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Off-Balance Sheet Arrangements

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.

As of October 30, 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.

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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 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).

Other than fluctuations from transactions in the ordinary course of business, there were no material changes during the quarter ended October 30, 2021 to the contractual obligations and commercial commitments disclosed in "Contractual Obligations and Commercial Commitments" in the sections of the Annual Report, our Quarterly Report on Form 10-Q for the quarter ended May 1, 2021 and our Quarterly Report on Form 10-Q for the quarter ended July 31, 2021 entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations".

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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