What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-29 compared with 2021-04-07 · 316 added, 307 removed, 202 unchanged (76% of the section changed)

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All statements in this Annual 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.

Our fiscal year represents the 52- or 53- week period ending on the Saturday closest to January 31.

All references in this discussion and analysis to "2021", "2020" and "2019" or like terms relate to our fiscal years as follows:

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2021 January 29, 2022 52

2019 February 1, 2020 52

2020 January 30, 2021 52

2019 February 1, 2020 52

We are one of the leading full-line sporting goods and outdoor recreation retailers in the United States.

Our mission is to provide “Fun for All” and fulfill this mission with a localized merchandising strategy and value proposition that deeply connect with a broad range of consumers.

Our broad and localized assortment appeals to all ages, incomes and aspirations, including beginning and advanced athletes, families enjoying outdoor recreation, and enthusiasts pursuing their passion for sports and the outdoors.

We sell a range of sporting and outdoor recreation products, including sporting equipment, apparel, footwear, camping gear, patio furniture, outdoor cooking equipment, and hunting and fishing gear, among many others.

Our strong merchandise assortment is anchored by our broad offering of year-round items, such as fitness equipment and apparel, work and casual wear, folding chairs, wagons and tents, training and running shoes, and coolers.

We also carry a deep selection of seasonal items, such as sports equipment and apparel, seasonal wear and accessories, hunting and fishing equipment and apparel, patio furniture, trampolines, play sets, bicycles, and severe weather supplies.

We provide locally relevant offerings, such as crawfish boilers in Louisiana, licensed apparel for area sports fans, baits and lures for area fishing spots, and beach towels in coastal markets.

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

As of January 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.

Our stores are supported by over 22,000 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 buy-online-pickup-in-store ("BOPIS") program, which we launched in 2019.

Our mission is to provide “Fun for All” and we fulfill this mission with a localized merchandising strategy and value proposition that deeply connect with a broad range of consumers.

Our product assortment focuses on key categories of outdoor, apparel, sports & recreation and footwear (representing 32%, 27%, 22% and 19% of our 2021 net sales, respectively) through both leading national brands and a portfolio of 20 owned brands, which go well beyond traditional sporting goods and apparel offerings.

Our business is subject to seasonal fluctuations.

A significant portion of our net sales and profits is driven by summer holidays, such as Memorial Day, Father’s Day and Independence Day, during the second quarter.

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.

As of January 29, 2022, 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:

Fiscal Year Ended

January 30, 2021 February 1, 2020 February 2, 2019

January 29, 2022 January 30, 2021 February 1, 2020

Beginning stores 259 259 253

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Relocated stores 1 — —

Trends and Other Factors Affecting Our Business

Various trends and other factors affect or have affected our operating results, including:

Overall Economic Trends.

All of our sales are generated within the United States, making our results of operations highly dependent on the U.S.

economy and U.S.

consumer discretionary spending.

Macroeconomic factors that may affect customer spending patterns, and thereby our results of operations, include, but are not limited to:

health of the economy;

consumer confidence in the economy;

financial market volatility;

wages, jobs and unemployment trends;

the housing market, including real estate prices and mortgage rates;

consumer credit availability;

consumer debt levels;

gasoline and fuel prices;

interest rates and inflation;

tax rates and tax policy;

immigration policy;

import and customs duties/tariffs and policy;

impact of natural or man-made disasters;

legislation and regulations;

international unrest, trade disputes, labor shortages, and other disruptions to the supply chain;

changes to raw material and commodity prices;

national and international security and safety concerns;

and impact any of public health pandemics.

Factors that impact consumer discretionary spending, which remains volatile globally, continue to create a complex and challenging retail environment for us.

See the section of this Annual Report entitled "Impact of COVID-19 on Our Business."

Consumer Preferences and Demands.

The level of success we achieve is dependent on, among other factors, how accurately and timely we predict consumer tastes and preferences regarding sporting goods and outdoor recreation merchandise, the level of consumer demand, the availability of merchandise, and the competitive environment.

Our products must appeal to a broad range of customers whose preferences cannot be predicted with certainty and are subject to change.

We must identify, obtain supplies of, and offer to our customers, attractive and high-quality merchandise on a continuous basis.

It is difficult to predict consistently and successfully the products and services our customers will demand as we often purchase products from our vendors several months in advance of the proposed delivery.

If we misjudge the market for our products, we may be faced with inventory excesses or shortages for some products.

We utilize a variety of measures to help us identify products that are relevant to our customer base and to better understand changing customer trends, such as social media analysis, internet search analytics, internal customer insights and vendor intelligence.

Strategic Inventory Management.

We must maintain sufficient inventory levels of merchandise that our customers desire to successfully operate our business.

A shortage of popular merchandise could reduce our net sales.

Conversely, we also must seek to avoid accumulating excess inventory to maintain appropriate in-stock levels.

If we overstock unpopular merchandise, then we may be forced to take significant inventory markdowns or miss opportunities for the sale of other merchandise, both of which could have a negative impact on our profitability, and, in turn, our sales may decline or we may be required to sell the merchandise we have obtained at lower prices.

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 2.84x in 2019 to 3.89x in 2020.

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.

It is imperative that we continue to find innovative ways to strengthen our inventory management if we are to remain competitive and expand our margins on a go-forward basis.

During 2020, although we received significant levels of inventory to support our sales, on a net basis, we experienced significant inventory reductions from high sell-through during the period.

Despite increased inventory receipts, we experienced challenges in maintaining certain merchandise, resulting from the COVID-19 pandemic, manufacturing supply limitations, and transportation capacity issues, the latter of which resulted in higher than normal transportation costs.

We expect to use cash to replenish such inventory during 2021, which we expect will impact our net cash provided by operating activities for the coming year.

Value Strategy .

We offer a broad assortment of products at competitive prices that offer extraordinary value.

Our in-store experience includes value-added customer service delivered by our highly trained and passionate staff, such as free assembly of certain products (such as bicycles, grills, and bows), fitness equipment demonstrations, issuances and renewals of hunting and fishing licenses, fishing line spooling and assisting customers with carrying bulk items to the car, among others.

Our goal is to consistently offer better value than our peer retailers.

Our value-based pricing gives us an advantage over the specialty retailers and other large format retailers, who typically offer their more limited assortment at premium prices.

Our broad assortment gives us an advantage over mass general merchants who typically do not carry the leading national brands sold at Academy.

We have also continued to add owned brand products to our assortment of products, which we generally price lower than the national brand products of comparable quality that we also offer.

A shift in our sales mix in which we sell more units of our owned brand products and fewer units of the national brand products would generally have a positive impact on our gross margin but an adverse impact on our total net sales.

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 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.

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

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.

During 2020, stores facilitated approximately 95% of our total sales, including ship-from-store, BOPIS and in-store retail sales.

It is, however, difficult to ascertain with precision what portion of our increased e-commerce sales during 2020 was attributable to the COVID-19 pandemic as compared to such recent enhancements.

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

Competition .

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

We compete with specialty footwear and outdoor retailers, traditional sporting goods stores, large format sporting goods stores, mass general merchants and catalogue and internet retailers.

This competition takes place both in physical retail locations and online.

Some of our competitors may be significantly larger and have substantially greater resources than us.

Pressure from our competitors could require us to reduce our prices or increase our spending for advertising and promotion.

Traditional competitors have become increasingly promotional and, if our competitors reduce their prices, it may be difficult for us to reach our net sales goals without reducing our prices, which could impact our margins.

We may require significant capital in the future to sustain or grow our business, including our store and e-commerce activities, due to increased competition.

Sourcing and Supply Chain Management.

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.

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.

As a result, these suppliers could modify the terms of these relationships due to general economic conditions or otherwise.

Changes in our relationships with our suppliers (which can occur for various reasons in or out of our control) also have the potential to increase our expenses and adversely affect our results of operations.

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 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.

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.

New Store Openings.

We expect that new stores will be a key driver of growth in our net sales and gross margin in the future.

Our results of operations have been and will continue to be materially affected by the timing and number of new store openings.

We are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider and we expect to open eight to 10 new stores per year, starting in 2022, similar to our growth rates from 2018 through 2019.

The performance of new stores may vary depending on various factors such as the store opening date, the time of year of a particular opening, the amount of store opening costs, the amount of store occupancy costs and the location of the new store, including whether it is located in a new or existing market.

For example, we typically incur higher than normal team member costs at the time of a new store opening associated with set-up and other opening costs.

Most of our stores achieve profitability within the first twelve months of opening a store.

We believe our real estate strategy has positioned us well for further expansion.

However, our planned store expansion will place increased demands on our operational, managerial, administrative and other resources.

New stores in new markets, where we are less familiar with the target customer and less well-known by the target customer, may face different or additional risks and increased costs compared to new stores in existing markets.

We may have to broaden our assortment to merchandise more locally as we grow into newer markets.

Managing our growth effectively will require us to continue to enhance our store management systems, financial and management controls and information systems.

We will also be required to hire, train and retain store management and store personnel, which, together with increased marketing costs, affects our operating income and net income.

Interim Results and Seasonality .

Our business is subject to seasonal fluctuations.

A significant portion of our net sales and profits is driven by summer holidays, such as Memorial Day, Father’s Day and Independence Day, during the second quarter.

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.

This anomaly most recently occurred in 2017, which consisted of 53 weeks, whereas 2018, 2019 and 2020 each consisted of 52 weeks.

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 a potential resurgence in COVID-19 cases in 2021.

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 (and in some cases, requiring customers to 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.

We also incurred temporary wage premiums and additional sick time for our active store and distribution center team members.

To mitigate the cost of these measures, during the thirteen weeks ended May 2, 2020, we temporarily furloughed a significant number of corporate, store and distribution center team members and enforced temporary pay cuts for executives and remaining active team members as well as other strategic actions to significantly reduce operating expenses during the period.

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.

We shortened the operating hours of our stores and fully closed six stores at some point during the thirteen weeks ended May 2, 2020, only one of which was closed for more than a week.

We also reduced, deferred or cancelled planned capital expenditures, primarily related to store remodels, have worked with our business partners to modify vendor and landlord payments and terms, and reduced near term marketing.

Our temporary furlough period ended by June 8, 2020 for all of our store, distribution center and corporate team members, and on June 25, 2020, we completed repaying the $500 million draw on the 2018 ABL Facility.

All three of our distribution centers remained open during 2020, 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.

The impact of the pandemic and actions taken in response to it had varying effects on our results of operations, as further discussed below, and our business has been especially unpredictable during 2020.

However, as an essential retailer, we have been able to serve our customers as their needs evolved during the pandemic.

In early March 2020, we saw the acceleration of sales in specific categories, such as outdoor cooking, camping, shooting sports and hunting.

Later in the first quarter, customers realized they needed to find ways to entertain their families and stay fit while schools and gyms closed, so they turned to us for isolated recreation, outdoor and leisure activities that we support, and as a result, we saw increased sales of weights, yoga mats, treadmills, indoor bicycles, fishing, hunting and camping gear, backyard and driveway games, trampolines, patio seating and grills.

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 first quarter 2020 we experienced decreased sales of certain of our offerings, primarily for apparel and footwear, and had to from time to time 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 the year.

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

We believe that our consumers feel comfortable visiting our stores due to the fact that we have big-box stores and curbside pick-up availability for online orders, making it easier to socially distance, and that we are not in, or tethered to, malls, as customers seek to avoid crowded spaces.

We also saw a significant increase in customers purchasing our products through omnichannel platforms, specifically as customers increasingly take advantage of our curbside pickup service, which we launched during the first quarter 2020.

We launched our ship-to-store capabilities in third quarter 2020, which gives our customers more options on how to shop Academy.

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 distribution 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.

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

How We Assess the Performance of Our Business

How We Assess the Performance of Our Business and Recent Trends

Our management considers a number of financial and operating metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, determine the allocation of resources, make decisions regarding corporate strategies and evaluate projections.

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Stores which have been closed for an extended period of time due to circumstances beyond our control are also removed from the calculation.

Any sales made through our website are allocated to e-commerce sales for the purpose of measuring comparable sales, regardless of how those sales are fulfilled, whether shipped to home or picked up in-store or curbside through BOPIS.

Any sales made through our website or mobile app are allocated to e-commerce sales for the purpose of measuring comparable sales, regardless of how those sales are fulfilled, whether shipped to home or picked up in-store or curbside through BOPIS.

For example, all BOPIS transactions, which are originated by our website, are allocated to e-commerce sales for the purpose of comparable sales, despite the fact that our customers pick-up these purchases from a specific store.

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

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

Management uses Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, which are non-GAAP financial measures to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures.

We have seen a significant comparable store sales increase in recent years from (0.7%) in 2019 to 16.1% and 18.9% in 2020 and 2021, respectively.

See the discussion on Net Sales below for some contributing factors to these increases.

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

Management uses Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures.

Management also uses Adjusted EBIT as a performance target to establish and award discretionary annual incentive compensation.

See "Non-GAAP Financial Measures" below.

E-commerce Penetration.

E-commerce penetration is defined as total e-commerce merchandise sales (which includes BOPIS) divided by total Company merchandise sales.

Components of Our Results of Operations.

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Net sales fluctuations can be driven by new store openings, comparable sales increases or decreases including e-commerce sales, our ability to adjust inventory based on sales fluctuations, our management of vendor relations and meeting customer demand, allowances and logistics, seasonality, unseasonal or extreme weather, changes in consumer shopping preferences, consumer discretionary spending, and market and sales promotions.

We must maintain sufficient inventory levels of merchandise that our customers desire to successfully operate our business.

A shortage of popular merchandise could reduce our net sales.

Conversely, we also must seek to avoid accumulating excess inventory to avoid markdowns and clearance which negatively impact sales and gross margin.

This implementation, along with other factors, has allowed us to improve our inventory management in stores, increasing our average inventory turns from 2.84x in 2019 to 3.89x in 2020 and 2021.

It is imperative that we continue to find innovative ways to strengthen our inventory management if we are to remain competitive and expand our margins on a go-forward basis.

We anticipate that the increased popularity of isolated recreation, outdoor and leisure activity products brought on by customer demand during the COVID-19 pandemic will continue and will result in a long-term increase to our customer base.

Additionally, we have benefited from recent shifting of customer spend towards in-home health and wellness and dedicating more time to memory-making experiences.

Our broad assortment gives us an advantage over mass general merchants who typically do not carry the leading national brands sold at Academy.

We have also continued to add owned brand products to our assortment of products, which we generally price lower than the national brand products of comparable quality that we also offer.

We expect that the expansion and enhancement of our omnichannel capabilities has resulted in increased sales in recent years and 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 platform, which includes our website and mobile app, and drive increased online sales conversion.

Our improved e-commerce platform supports our stores with digital marketing and our BOPIS and ship-to-store programs.

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

It also allows for us to connect further with our customers for marketing and product education.

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

We expect to continue to invest in expanding and enhancing our omnichannel capabilities, including support of our mobile app, optimizing the web site experience and upgrading our fulfillment capabilities, which will continue to require significant investments by us.

We expect that new stores will be a key driver of growth in our net sales and gross margin in the future.

Our results of operations have been and will continue to be materially affected by the timing and number of new store openings.

We are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider and we expect to open at least eight new stores in 2022.

Most of our stores achieve profitability within the first twelve months of opening a store.

We believe our real estate strategy has positioned us well for further expansion.

Gross Margin.

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Our cost of goods sold includes the direct cost of merchandise and costs related to procurement, warehousing and distribution.

These costs consist primarily of payroll and benefits, occupancy costs and freight and are generally variable in nature relative to our sales volume.

These costs consist primarily of payroll and benefits, distribution center occupancy costs and freight and are generally variable in nature relative to our sales volume.

Our gross margin depends on a number of factors, such as net sales increases or decreases, our promotional activities, product mix including owned brand merchandise sales, and our ability to control cost of goods sold, such as inventory and logistics cost management.

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We track and measure gross margin as a percentage of net sales in order to evaluate our performance against profitability targets.

For the past several quarters, 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.

As a result, we have begun to experience a period of decreased supply and high inflationary costs.

These factors have negatively impacted transportation and inventory 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.

General trade tensions between the United States and China began escalating in 2018 with the Trump Administration ultimately imposing 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.

In certain cases t hese factors have resulted in higher inventory costs and higher sales prices and/or lower margins, thus resulting in a negative impact to net sales and/or gross margin.

During early 2020, due to changing demand as a result of the initial stages of the COVID-19 pandemic, customer preferences rapidly changed throughout certain categories (see below, “Impact of COVID-19 on Our Business”) and initially sales increased in categories such as fitness equipment, camping gear and hunting.

These items generally have a lower margin than some of our other categories such as apparel.

A demand shift in our sales mix in which we sell more units of our lower margin products can negatively impact our overall gross margin as a percent of sales.

Selling, General and Administrative Expenses.

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These expenses are both variable and fixed in nature.

As sales increase at a higher rate than our SG&A, this results in sales leverage and a higher sales flow through to net income, which we have experienced in recent years with SG&A expenses as a percentage of sales declining from 25.9% to 23.1% to 21.3% in 2019, 2020 and 2021, respectively.

We track and measure operating expenses as a percentage of net sales in order to evaluate our performance against profitability targets.

Management of SG&A expenses depends on our ability to balance a control of operating costs, such as store, distribution center, and corporate headcount, information technology infrastructure and marketing and advertising expenses, with efficiently and effectively servicing our customers.

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 public company.

Interest Expense.

Interest expense includes regular interest payable related to our Term Loan, Notes and ABL Facility (see Note 4 to the accompanying consolidated financial statements) and the amortization of our deferred loan costs and original issuance discounts associated with the acquisition of the debt.

In November of 2020, we refinanced our debt resulting in an approximate $630 million reduction in our overall debt outstanding.

Subsequently, in May of 2021 we entered into an amendment to our Term Loan which reduced the applicable margin on our LIBOR rate by 1.25% and paid down $99 million (see Note 4 to the accompanying consolidated financial statements).

These actions have resulted in interest expense reductions in 2020 and 2021.

Income Tax Expense (Benefit).

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Our tax rate prior to October 1, 2020 was almost entirely the result of state income taxes.

In connection with our initial public offering ("IPO"), as a result of the Reorganization Transactions (see Note 1 to the consolidated financial statements) completed on October 1, 2020, Academy Sports and Outdoors, Inc.

In connection with our initial public offering ("IPO"), as a result of the Reorganization Transactions (see Note 1 to the accompanying consolidated financial statements) completed on October 1, 2020, Academy Sports and Outdoors, Inc.

("ASO, Inc.") is treated as a U.S.

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federal, state, and local income tax purposes and accordingly, a provision for income taxes has been recorded for the anticipated tax consequences of our reported results of operations for federal, state and local income taxes since October 1, 2020.

Impact of COVID-19 on Our Business

The COVID-19 pandemic 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, including in response to resurgence of COVID-19 cases.

The scope and nature of these impacts continue to evolve.

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, at certain times 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 as well as additional sick time for our active store and distribution center team members.

Towards the beginning of the pandemic during the thirteen weeks ended May 2, 2020, to mitigate the cost of these measures, we temporarily furloughed a significant number of corporate, store and distribution center team members and enforced temporary pay cuts for executives and remaining active team members as well as other strategic actions to significantly reduce operating expenses during the period.

We also drew down $500 million on our ABL Facility 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 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 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.

The impact of the pandemic and actions taken in response to it had varying effects on our results of operations, as further discussed below, and our business has been especially unpredictable.

However, as an essential retailer, we have been able to serve our customers as their needs evolved during the pandemic.

Early in the pandemic, we saw the acceleration of sales in specific categories, such as outdoor cooking, camping, shooting sports and hunting.

Later in the 2020 first quarter, customers realized they needed to find ways to entertain their families and stay fit while schools and gyms closed, so they turned to us for isolated recreation, outdoor and leisure activities that we support, and as a result, we saw increased sales of weights, yoga mats, treadmills, indoor bicycles, fishing, hunting and camping gear, backyard and driveway games, trampolines, patio seating and grills.

At the same time, during 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 2020, we believe that our consumers felt more comfortable visiting our stores relative to other retailers due to our big-box stores and curbside pick-up availability for online orders, making it easier to socially distance, and that we are not in, or tethered to, malls, as customers seek to avoid crowded spaces.

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.

During 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.

We believe the in-store traffic 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.

Additionally, we have seen recent demand increases from various factors, such as the U.S.

government stimulus payments, enhanced unemployment benefits and the gradual return of team sports and in-person education.

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, including whether there are additional periods of increases or spikes in the number of COVID-19 cases, further mutations or related strains of the virus (or even the threat or perception that this could occur), within the markets in which we operate and the related impact on consumer confidence and spending, labor supply or product supply, all of which are highly uncertain.

We continue to monitor the evolving situation.

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

Results of Operations

A discussion regarding Results of Operations and Analysis of Financial Condition for the fiscal year ended January 30, 2021, as compared to the fiscal year ended February 1, 2020, is included in “Part II – Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” to our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.

2021 (52 weeks) Compared to 2020 (52 weeks)

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Fiscal Year Ended Change

January 30, 2021 February 1, 2020 Dollars Percent

January 29, 2022 January 30, 2021 Dollars Percent

Net sales $ 6,773,128 100.0 % $ 5,689,233 100.0 % $ 1,083,895 19.1 %

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Interest expense, net 48,989 0.7 % 86,514 1.5 % (37,525) (43.4) %

Gain on early retirement of debt, net (3,582) (0.1) % (42,265) (0.9) % 38,683 (91.5) %

(Gain) loss on early retirement of debt, net 2,239 0.0 % (3,582) (0.1) % 5,821 NM

Other (income), net (2,821) (0.0) % (1,654) 0.0 % (1,167) 70.6 %

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**NM - Not meaningful

Net sales increased $859.3 million, or 17.8%, in 2020 over the prior year.

The 17.8% increase was driven primarily by 16.1% of favorable comparable sales, as well as additional net sales generated by new locations.

As of fiscal year end 2020, we had the full benefit of eight stores which were opened during 2019, partially offset by a reduction of sales due to the closure of two locations during 2019.

These stores generated additional net sales of $77.7 million, or 1.4% of net sales.

The 16.1% increase in comparable sales resulted from favorable sales performances across all of our merchandise divisions.

The outdoors division increase was primarily driven by strong sales in firearms, ammunition and fishing products.

The sports and recreation division sales increased as a result of various products such as fitness equipment and accessories, bikes and barbecues and grills, which were partially offset by declines in team sports.

The apparel division increased due to increases in athletic, outdoor and seasonal, and youth apparel divisions, partially offset by declines in sales of licensed apparel resulting from the Astros World Series appearance in the prior year.

The footwear division sales increased primarily driven by increases in the athletic and work footwear categories which were partially offset by declines in team sports footwear sales.

believe our merchandise division sales continue to be impacted by the COVID-19 pandemic which has caused increases in popularity in our outdoors and sports and recreation merchandise divisions as demand has increased in the merchandise categories that provide customers with isolated recreation, outdoor and leisure activities.

Additionally we believe that the substantial increase in e-commerce sales described below and ongoing improvements to our business, such as enhancements to our merchandise planning and allocation capabilities that began in February 2019 and the launch of the Academy Credit Card in May 2019, together with our big-box store format and the implementation of a number of safety measures within our stores in response to COVID-19 that helped facilitate our customers' ability to obtain the products they sought in a safe manner, contributed to the increase in comparable sales during this period.

E-commerce sales increased $341.3 million, or 138.3%, in 2020 when compared to the prior year, and e-commerce sales represented 10.4% and 5.1% of merchandise sales for 2020 and 2019, respectively.

This increase was driven by a change in consumer shopping preferences resulting from the COVID-19 pandemic.

Additionally, enhancements to our e-commerce platform, including the introduction of BOPIS at the end of the 2019 second quarter, the rapid development of curbside fulfillment in the 2020 first quarter and the introduction of ship-to-store capabilities during the 2020 third quarter further supported the increase in e-commerce sales.

Net sales increased $1,083.9 million, or 19.1%, in 2021 over the prior year as a result of increased comparable sales of 18.9% and strong sales performances across all of our merchandise divisions.

The increase in sales, which included no new stores, was driven by an increase in both transactions and average ticket.

The 18.9% increase in comparable sales was a result of increased sales across all merchandise divisions and almost every product category, which was led by strong performances in the apparel and footwear merchandise divisions.

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

The footwear merchandise division also increased due to higher sales across every category, especially in athletic footwear and casual and seasonal footwear.

The sports and recreation merchandise division comparable sales increase was led by increased sales in team sports such as baseball, football, basketball and other sports and recreation activities, which were all adversely impacted by the pandemic during 2020.

The outdoor merchandise division increase was attributable to 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 sales increased $36.7 million, or 6.2%, in 2021 when compared to the prior year and represented 9.3% and 10.4% of merchandise sales for 2021 and 2020, respectively.

We believe the decline in e-commerce penetration was generated by a change in customer shopping preferences, 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 the 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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This increase is primarily due to:

• 112 basis points of favorability in merchandise margins due to less clearance activity and lower markdowns from the prior year;

• 53 basis points of favorability in inventory overhead expenditures as a result of lower expense absorption rates from higher current year inventory turnover and less expenses capitalized during the first half of 2020.

The lower capitalized expenses relative to the prior year is driven by temporary workforce furloughs and wage cuts during the first half of 2020;

• 357 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;

• 92 basis points of favorability in inventory overhead expenditures as a result of lower expense absorption rates from higher inventory flow through on increased sales;

partially offset by

• 45 basis points of unfavorability due to a higher merchandise valuation benefit in the prior year from sell through of previously marked down merchandise related to a large prior year sales event, and

• 44 basis points of unfavorability as a result of decreased vendor allowances including new store allowances.

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

Selling, General and Administrative Expenses.

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The decrease of 180 basis points in SG&A is primarily attributable to:

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

• 79 basis point decrease in advertising as a result of favorable leveraging of costs on increased sales and reduced marketing and promotional activities;

• 56 basis point decrease in employee costs, primarily driven by leveraging of costs on increased sales as well as decreased costs in the first quarter of 2020 resulting from temporary salary cuts and furloughs in response to the COVID-19 pandemic, partially offset by increased incentive compensation expense and incremental expenses resulting from the expensing of certain share-based awards in connection with the completion of the IPO.

Gain on early retirement of debt, net.

Gain on early retirement of debt, net decreased $38.7 million, or 91.5%, to $3.6 million from $42.3 million in 2019.

During the second quarter of 2020, we repurchased $23.9 million in principal on the Term Loan (see Note 4 to the consolidated financial statements), which was trading at a discount, in open market transactions for $16.0 million and recognized a net gain of $7.8 million.

Additionally, during the fourth quarter of 2020, the Refinancing Transactions (see Note 4 to the consolidated financial statements) resulted in a loss on early retirement of debt of $4.2 million.

During 2019, we repurchased $147.7 million in principal on the Term Loan, which was trading at a discount in open market transactions for $104.6 million and recognized a net gain of $42.3 million.

• 100 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 wages in our stores and distribution centers and increased payroll tax expense resulting from the 2021 Vesting Event (see Note 1 to the accompanying consolidated financial statements);

• 21 basis point decrease related to a 2020 third quarter expense for the termination of our Monitoring Agreement (see Note 13 to the accompanying consolidated financial statements), which occurred upon the completion of our IPO.

(Gain) loss on early retirement of debt, net.

(Gain) loss on early retirement of debt, net decreased $5.8 million to a loss of $2.2 million from a gain of $3.6 million in 2020.

During the 2021 second quarter, we refinanced our Term Loan, 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.

Additionally, during the fourth quarter of 2020, the Refinancing Transactions (see Note 4 to the accompanying consolidated financial statements) resulted in a loss on early retirement of debt of $4.2 million.

Interest Expense.

Interest expense decreased $14.8 million, or 14.6%, to $86.5 million in 2020 from $101.3 million in 2019 resulting primarily from a lower outstanding balance on our Term Loan as a result of the Refinancing Transactions and principal repurchases during the current year.

Other (Income) Expense, net.

Other income decreased $0.8 million in 2020 when compared with 2019 caused by a portion of the underlying cash flows related to $100.0 million of swap notional principal amount which were no longer probable of occurring and resulted in the immediate recognition of $1.3 million of expense.

Interest expense decreased $37.5 million, or 43.4%, to $49.0 million in 2021 from $86.5 million in 2020 resulting primarily from a lower outstanding balance on our long-term debt as a result of the Refinancing Transactions and principal repurchases during the current year.

Other (Income), net.

Other income increased $1.2 million in 2021 when compared with 2020 caused by a portion of the underlying cash flows related to $100.0 million of swap notional principal amount which were no longer probable of occurring due to the Refinancing Transactions and resulted in the immediate recognition of $1.3 million of expense in 2020.

Income Tax Expense.

Income tax expense increased $27.5 million to an income tax expense of $30.4 million in 2020 as compared to $2.8 million in 2019.

Income tax expense increased $157.8 million to $188.2 million in 2021 as compared to $30.4 million in 2020.

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

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Non-GAAP Measures

Adjusted EBITDA, 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 Annual Report as supplemental measures of financial performance that are not required by, or presented in accordance with 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, inventory write-down adjustments associated with strategic merchandising initiative and other adjustments.

We describe these adjustments reconciling net income (loss) to Adjusted EBITDA 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, inventory write-down adjustments associated with strategic merchandising initiative and other adjustments, less the tax effect of these adjustments.

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 Annual 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 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 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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We describe this adjustment by reconciling net cash provided by operating activities to Adjusted Free Cash Flow in the applicable table below.

We believe Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

Management believes Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

We believe Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

Management believes Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

Management believes Adjusted Free Cash Flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash.

Management uses Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures.

Management uses Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures.

Management also uses Adjusted EBIT as a performance target to establish and award discretionary annual incentive compensation.

Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.

Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or net cash provided by operating activities as a measure of liquidity, or any other performance measures derived in accordance with GAAP.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or net cash provided by operating activities as a measure of liquidity, or any other performance measures derived in accordance with GAAP.

Additionally, these measures are not intended to be a measure of free cash flow available for management’s discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements.

Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

In evaluating Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation.

Our presentation of Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be construed to imply that our future results will be unaffected by any such adjustments.

Our Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow measures have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

In evaluating Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation.

Our presentation of Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be construed to imply that our future results will be unaffected by any such adjustments.

Our Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow measures have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP.

Some of these limitations are:

• Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect costs or cash outlays for capital expenditures or contractual commitments;

• Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, and Adjusted Free Cash Flow does not reflect the cash requirements necessary to service principal payments on our debt;

• Adjusted EBITDA does not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes;

• Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect costs or cash outlays for capital expenditures or contractual commitments;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA and Adjusted EBIT do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, and Adjusted Free Cash Flow does not reflect the cash requirements necessary to service principal payments on our debt;

• Adjusted EBITDA and Adjusted EBIT do not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted Free Cash Flow do not reflect cash requirements for such replacements;

• other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.

Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow supplementally.

Adjusted EBITDA

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

Because of these limitations, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.

Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow supplementally.

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):

Fiscal Year Ended

January 30, 2021 February 1, 2020 February 2, 2019

January 29, 2022 January 30, 2021 February 1, 2020

Net income $ 671,381 $ 308,764 $ 120,043

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Income tax expense 188,159 30,356 2,817

Depreciation, amortization and impairment 105,481 117,254 134,190

Depreciation and amortization 105,274 105,481 117,254

Consulting fees (a) — 285 3,601

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Equity compensation (c) 39,264 31,617 7,881

Gain on early extinguishment of debt, net (3,582) (42,265) —

(Gain) loss on early retirement of debt, net 2,239 (3,582) (42,265)

Severance and executive transition costs (d) — 6,571 1,429

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

Inventory write-down adjustments associated with strategic merchandising initiative (f) — — 18,225

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

Other (g) 3,118 8,592 7,111

Adjusted EBITDA $ 1,073,842 $ 607,023 $ 322,814

Depreciation and amortization (105,274) (105,481) (117,254)

Adjusted EBIT $ 968,568 $ 501,542 $ 205,560

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

(b) Represents our contractual payments under the Monitoring Agreement.

See Note 14 to the consolidated financial statements.

(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 accompanying consolidated financial statements), 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 first half of 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 first half of 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 purchases 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) Represents inventory write-down adjustments in connection with our new merchandising strategy adopted as part of our strategic transformation, including exiting certain categories of products.

(g) Other adjustments include (representing deductions or additions to Adjusted EBITDA) 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 (see Note 1 to the accompanying consolidated financial statements) 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

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Fiscal Year Ended

January 30, 2021 February 1, 2020 February 2, 2019

January 29, 2022 January 30, 2021 February 1, 2020

Net income $ 671,381 $ 308,764 $ 120,043

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Equity compensation (c) 39,264 31,617 7,881

Gain on early extinguishment of debt, net (3,582) (42,265) —

(Gain) loss on early retirement of debt, net 2,239 (3,582) (42,265)

Severance and executive transition costs (d) — 6,571 1,429

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

Inventory write-down adjustments associated with strategic merchandising initiative (f) — — 18,225

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

Other (g) 3,118 8,592 7,111

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Weighted average common shares outstanding

77,994 72,477 72,432

81,431 74,795 75,198

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

Basic 90,956 77,994 72,477

Diluted 94,284 81,431 74,795

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

(b) Represents our contractual payments under the Monitoring Agreement.

See Note 14 to the consolidated financial statements.

(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.

(e) Represents costs incurred during the first half of 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 purchases 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) Represents inventory write-down adjustments in connection with our new merchandising strategy adopted as part of our strategic transformation, including exiting certain categories of products.

(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.

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Fiscal Year Ended

January 30, 2021 February 1, 2020 February 2, 2019

January 29, 2022 January 30, 2021 February 1, 2020

Net cash provided by operating activities $ 673,265 $ 1,011,597 $ 263,669

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• cash generated from operating activities;

• issuances of debt securities;

• borrowings under our term loan and ABL credit facilities.

• issuances of debt securities, including the Notes;

• borrowings under our Term Loan and ABL Facility.

Our historical uses of cash have been associated primarily with:

• cash used for operating activities such as the purchase and growth of inventory, expansion of our sales and marketing activities and other working capital needs;

• cash used for operating activities such as the purchase and growth of inventory, labor costs and other working capital needs;

• cash used for capital improvements and support of expansion plans, as well as various investments in store renovations, store fixtures and on-going infrastructure improvements;

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• 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 January 29, 2022, our cash and cash equivalents totaled $486.0 million.

We are focused on navigating the recent 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.

During 2020, we took various cost cutting measures to maximize operational cash flows (see "Impact of COVID-19 on Our Business" in the section of this Annual Report entitled Management's Discussion & Analysis).

Such actions included, but were not limited to, drawing down $500 million on our ABL Facility (as defined below) in March 2020 as a precautionary measure to ensure financial flexibility and maximize liquidity, 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.

During early 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 section of this Annual Report entitled Management's Discussion & Analysis).

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.

As 2020 progressed, we transitioned our focus from preservation of long-term liquidity to strengthening our balance sheet through a reduction of debt.

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 $21.0 million to vested share-based award holders were paid through January 30, 2021 and an additional $11.2 million of payments will be made to unvested share-based award holders as the related awards vest (see "Distribution" in Note 9 to the financial statements included in this Annual 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, Over-Allotment Exercise and Reorganization Transactions" in Note 1 to the financial statements included in this Annual 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" in Note 1 to the accompanying consolidated financial statements).

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 Annual 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 accompanying consolidated financial statements included in this Annual 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 Facility", the 2015 Term Loan Facility and the 2020 Term Loan Facility are collectively referred to as the "Term Loan Facility"), 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", the 2015 ABL Facility and the 2020 ABL Facility are collectively referred to as the "ABL Facility").

We used the net proceeds from the Notes and the net proceeds from the Term Loan Facility, together with cash on hand, to repay in full our existing term loan, in the amount of $1,431.4 million (see Note 4 to the consolidated financial statements).

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.

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 (the "2020 Term Loan" and, together with the 2015 Term Loan (as defined in the notes to the accompanying consolidated financial statements), 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 accompanying consolidated financial statements), 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 accompanying consolidated financial statements).

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 accompanying consolidated financial statements).

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.

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" and as amended by the "Amended 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.

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 accompanying consolidated financial statements).

The following table summarizes our current debt obligations by fiscal year (in thousands):

2022 2023 2024 2025 2026 After 2026 Total

Term Loan and related interest (1)

$ 17,309 $ 19,538 $ 19,684 $ 19,445 $ 19,241 $ 296,186 $ 391,403

Notes and related interest (2)

24,000 24,000 24,000 24,000 24,000 424,000 544,000

ABL Facility and related interest (3)

2,500 2,500 2,500 2,500 1,909 — 11,909

(1) Interest payments are future cash payments which do not include amortization of discount and debt issuance costs and are approximated based on projected interest rates and assumes no unscheduled principal payments until maturity.

(2) Assumes Notes are paid in full at maturity date.

(3) Assumes a minimum revolving credit commitment of $1.0 billion and assumes no balances drawn on our ABL Facility.

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.

As of January 29, 2022, $188.6 million remained available for share repurchases pursuant to our Share Repurchase Program.

The following table summarizes our share repurchases for the fiscal year ended January 30, 2022:

Total Number of Shares Purchased Average Price Paid per Share Total Amount Repurchased

First Quarter (January 30, 2021 to May 1, 2021) — $ — $ —

Second Quarter (May 2, 2021 to July 31, 2021) 3,229,974 30.96 99,999,995

Third Quarter (August 1, 2021 to October 30, 2021) 5,722,892 42.96 245,837,186

Fourth Quarter (October 31, 2021 to January 30, 2022) 1,613,930 40.63 65,571,394

Total Shares Repurchased 10,566,796 $ 38.93 $ 411,408,575

On March 3, 2022, the Company's Board of Directors declared a quarterly cash dividend in the amount of $0.075 per share on the Company's common stock, payable on April 14, 2022 to stockholders of record as of the close of business on March 17, 2022.

We lease store locations, distribution centers, office space and certain equipment under operating leases expiring between fiscal years 2022 and 2043.

Operating lease obligations include future minimum lease payments under all of our non-cancelable operating leases at January 29, 2022.

The following table summarizes our operating lease obligations by fiscal year:

2022 2023 2024 2025 2026 After 2026 Total

Operating lease payments (1)

$ 198,725 $ 192,775 $ 184,030 $ 177,496 $ 169,563 $ 902,083 $ 1,824,672

(1) Minimum lease payments have not been reduced by sublease rentals of $1.1 million due in the future under non-cancelable subleases.

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

The ABL Facility provides for these financing needs and other general corporate purposes, as well as to support certain letter of credit requirements.

We may continue to use the ABL Facility to repay debt under the Term Loan Facility.

We may continue to use the ABL Facility to repay debt under the Term Loan.

Availability under the ABL Facility is subject to customary asset-backed loan borrowing base and availability provisions.

Amounts outstanding under the ABL Facility may fluctuate materially during each quarter mainly due to cash flow from operations, normal changes in working capital, capital expenditures and debt service costs.

Our availability under the ABL Facility during the peak borrowing days of 2020 was ample to support our operations and service our requirements.

On June 25, 2020, we completed repaying the $500 million draw on the ABL Facility.

Our historical availability under the ABL Facility has been ample to support our operations and our debt service requirements.

We had no borrowings under the ABL Facility in 2021.

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

Fiscal Year Ended

January 30, 2021 February 1, 2020

January 29, 2022 January 30, 2021 February 1, 2020

Average funds drawn $ — $ 126,648 $ 29,593

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

January 30, 2021 February 1, 2020

January 29, 2022 January 30, 2021

Outstanding borrowings $ — $ —

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We expect capital expenditures for fiscal year 2022 to be approximately $140.0 million.

Approximately 50% of the planned cash outflow relates to corporate, e-commerce and information technology programs.

Investments in existing stores and distribution centers is expected to account for approximately 40% of the planned cash outflow and the remaining 10% is expected to be utilized through investments in new stores and store relocations.

Cash Flows for 2020, 2019 and 2018:

Approximately 50% of our planned cash outflow relate to investments in our corporate, e-commerce and information technology programs.

Investments in new stores and store relocations is expected to account for approximately 30% of the planned cash outflow and the remaining 20% is expected to be utilized through investments in existing stores and distribution centers.

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

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

Fiscal Year Ended

January 30, 2021 February 1, 2020 February 2, 2019

January 29, 2022 January 30, 2021 February 1, 2020

Net cash provided by operating activities $ 673,265 $ 1,011,597 $ 263,669

5 unchanged sentences

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

Cash provided by operating activities in 2020 increased $747.9 million compared to 2019.

This increase is attributable to:

• $495.5 million net increase in cash flows provided by operating assets and liabilities;

Cash provided by operating activities in 2021 decreased $338.3 million compared to 2020.

This decrease is attributable to:

• $772.1 million net decrease in cash flows provided by operating assets and liabilities;

partially offset by

• $362.6 million increase in net income;

• $71.1 million net increase in non-cash charges.

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

• $364.4 million increase in accounts payable related to increased inventory receipts in the recent months and extensions of vendor payment terms;

• $75.1 million decrease in merchandise inventories, net due to inventory reductions from high sell through in the current year;

• $36.8 million increase in accrued expenses and other liabilities primarily due to increased incentive compensation accruals.

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

• $412.1 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;

• $291.3 million decrease in cash flows from merchandise inventories, net related to an increase in inventory receipts during 2021 coupled with a prior year reduction of inventory from higher inventory turnover and supply chain constraints resulting from the COVID-19 pandemic.

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

• $38.7 million decrease in non-cash gains on the early retirement of debt, net;

• $23.7 million increase in equity compensation expense, which includes approximately $19.9 million of equity compensation associated with the expensing of certain outstanding restricted stock units as a result of the liquidity condition being achieved upon completion of our IPO.

• $78.8 million increase in deferred income taxes.

Investing Activities .

Cash used in investing activities decreased $33.6 million in 2020 compared to 2019.

The decrease in cash used in investing activities is primarily related to:

• $21.5 million less capital expenditures due to a planned overall reduction in the year 2020 led by reduction in new stores and store remodeling;

• $12.1 million increase related to cash proceeds as a result of repayment of notes receivable from one NAHC member during 2020 compared to the cash outflow related to the issuance of a note receivable to one NAHC member in 2019.

Cash used in investing activities increased $42.9 million in 2021 compared to 2020.

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

• $34.5 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 2020.

Financing Activities .

Cash used in financing activities increased $627.0 million in the 2020, compared to 2019.

The primary drivers of the increase were:

• $1,338.3 million increase in cash outflows related to the repayment of the 2015 Term Loan as part of the Refinancing Transactions;

• $278.0 million increase in cash outflow resulting from a distribution to NAHC's members and related share-based award payments which occurred in 2020;

Cash used in financing activities decreased $261.4 million in the 2021, compared to 2020.

The primary drivers of the decrease were:

• $562.8 million decrease in cash outflows primarily due to the prior year long-term debt reduction associated with the Refinancing Transactions;

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

partially offset by

• $781.9 million of net proceeds resulting from the issuance of the Notes and the 2020 Term Loan in connection with the Refinancing Transactions;

• $207.0 million of net proceeds from the issuance of common stock in connection with the completion of our IPO and subsequent Over-Allotment Exercise.

• $411.4 million increase in cash outflows related to Company's repurchase and simultaneous retirement of common stock in the current year;

• $207.0 million decrease in cash inflows related to net proceeds from the issuance of common stock during 2020, net of offering costs.

Future Liquidity

We expect to use existing cash balances, internally generated cash flows and borrowings under our ABL Facility to fulfill anticipated obligations such as capital expenditures, working capital needs and scheduled debt maturities over at least the next twelve months.

We expect to use existing cash balances, internally generated cash flows and borrowings under our ABL Facility to fulfill anticipated obligations such as capital expenditures, dividends, stock repurchases, working capital needs and scheduled debt maturities over at least the next twelve months.

As of January 29, 2022, we had $874.8 million of available capacity under our ABL Facility and $486.0 million of cash and cash equivalents.

Contractual Obligations and Commercial Commitments

The following table summarizes our significant contractual obligations and commercial commitments as of January 30, 2021 (amounts in thousands):

Payments Due by Period

Total Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years

Term Loan (1)

$ 400,000 $ 4,000 $ 8,000 $ 8,000 $ 380,000

Term Loan interest (2)

156,846 22,895 45,099 44,949 43,903

Notes 400,000 — — — 400,000

Notes interest 168,000 24,000 48,000 48,000 48,000

ABL Facility — — — — —

Operating leases (3)

1,983,237 196,948 382,225 351,789 1,052,275

Technology related commitments and other (4)

10,820 8,795 2,025 — —

Sponsorship agreement and intellectual property commitments 12,172 6,879 4,444 500 349

Total contractual cash obligations $ 3,131,075 $ 263,517 $ 489,793 $ 453,238 $ 1,924,527

(1) Principal amount excluding discount and debt issuance costs.

(2) Interest payments shown are approximated based on projected interest rates and assumes no unscheduled principal payments until maturity.

(3) Substantially all of our leases are operating leases.

We lease store locations, distribution centers, office space and certain equipment under operating leases expiring between fiscal year 2021 and 2039.

Operating lease obligations include future minimum lease payments under all of our noncancelable operating leases at January 30, 2021.

(4) Amounts include technology related contractual commitments and other commitments such as construction commitments.

The amounts included in the table are for executed contracts less amounts paid.

Off-Balance Sheet Arrangements

As of January 30, 2021, our off-balance sheet contractual obligations and commercial commitments relate to future minimum guaranteed contractual payments and letters of credit.

We enter into letters of credit in the ordinary course of operating and financing activities.

As of January 30, 2021, we had outstanding letters of credit of $25.4 million, of which $20.1 million were issued under the 2018 ABL Facility, primarily for insurance and foreign product purchases.

The following table details our letters of credit commitments as of January 30, 2021 (amounts in thousands):

Amount of Commitment Expiration Per Period

Total Amounts Committed Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years

Commercial Commitments:

Letters of credit $ 25,376 $ 25,376 $ — $ — $ —

Critical Accounting Policies and Estimates

For discussion of critical accounting policies and estimates, see Note 2 to the consolidated financial statements.

This discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles (U.S.

The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements.

See Note 2 to the consolidated financial statements for additional information.

Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions.

As conditions resulting from the COVID-19 pandemic continue to evolve, the Company expects these judgments and estimates may be subject to change, which could materially impact future periods.

The Company believes the following are its critical accounting estimates:

Merchandise Inventories, net

Merchandise inventories are valued at the lower of weighted average cost or net realizable value using the last-in first-out ("LIFO") method.

Merchandise inventories include the direct cost of merchandise and capitalized costs related to procurement, warehousing and distribution and are reflected net of shrinkage, vendor allowances and other valuation accounts.

Judgments and Uncertainties:

We record an inventory reserve for the estimated shrinkage between physical inventories on a store-by-store basis.

We generally perform a full physical inventory count for each store at least once a year, throughout the year, after which our shrinkage accrual rate to sales for each store is updated based on historical results.

For vendor allowances based on contractual provisions, we develop accrual rates for reserves as determined by the agreements, which are typically linked to purchase volumes.

Other non-contractual vendor allowances received are applied upon receipt.

We regularly review inventories and record a valuation adjustment when necessary such as for inventory that has a carrying value in excess of the net realizable value or for slow moving or obsolete inventory.

Impact of Assumptions:

For inventory shrinkage, our reserves may be inaccurate if our historical physical inventory shrinkage rates, used in our assumptions, differ significantly from actual rates due to consistent misses to our accrual.

However, due to the frequency with which we perform full physical inventory counts, our assumptions are regularly updated, and we constantly analyze the physical inventory results to our accruals and, where necessary, adjust our store accruals to compensate for consistent patterns identified.

We have not had a history of significant differences to our reserves for vendor allowances and the assumptions generally do not have a significant impact on reserves since they are typically short-term and contractual in nature.

We book a reserve for inventory permanently marked down below the inventory’s historical cost.

Additionally, for slow moving or obsolete inventory, we book reserves based on historical margins received for marked down inventory with similarly slow historical sell-through rates.

A twenty percent decrease in assumed margins would not have a material impact to our financial statements.

We believe our long history of operations has given us sufficient data to enable us to accurately predict these reserves.

Impairment of long-lived assets

We review the carrying value of long-lived assets, including property and equipment at our stores, for indicators of impairment regularly and whenever events and circumstances indicate that the carrying value of an asset may not be recoverable.

Judgments and Uncertainties:

We test stores operating over a long enough time span, based on our previous store history for similar locations, to allow for meaningful analysis of future operating results.

Recoverability of long-lived assets is measured by a comparison of the carrying amount of the assets to the estimated undiscounted future cash flows expected to be generated by the use of the assets, which is generally based on historical results.

If such assets are considered to be impaired, the impairment loss recognized is the amount by which the carrying amount of the assets exceeds its estimated fair value, which is calculated using discounted expected future cash flows.

Impact of Assumptions:

The assumptions used to project store impairment loss is based on projected future store income and considers variables such as historical and current trends, macroeconomic conditions, store location and local economy and supply chain factors.

Additionally, the long-term store income projections also contain a projection of future store specific costs such as store wages and advertising.

Actual long-term income results could vary significantly from our projections due to a variety of reasons such as changes in the local retail environment or macroeconomic factors not used in our assumptions.

In addition to variables considered in developing projected long-term store income, assumptions are made to develop the assumed discount rate based on company specific factors.

There is significant judgment used in determining these assumptions used in the assessment of store impairment and variability in the assumptions could cause us to reach a materially different conclusion on impairment, however, we do not believe the net book value of any individual store assets are material to the Company’s operations.

Goodwill represents the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination.

Goodwill is tested for impairment annually or more frequently if events or circumstances indicate that the carrying value of goodwill may not be recoverable.

We test for goodwill at the reporting unit level, which is the operating segment level.

We operate in one segment with one reporting unit.

Judgments and Uncertainties:

The annual goodwill impairment test provides for the option of first performing a qualitative assessment to evaluate the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment of goodwill.

However, if the qualitative assessment leads to a determination that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then no further assessments are required.

Our quantitative assessment for determining the fair value of our reporting unit includes using an estimated discounted cash flow model (income approach) and market value approach.

The output of this assessment is an estimated fair value for our reporting unit that is compared to its carrying value to determine whether an impairment charge is necessary.

The income approach uses a discounted cash flow analysis of our projected long-term future company income, and the market value approach is based on earnings multiples for a comparable set of public companies.

These approaches use key input assumptions such as our projected future operating results, the discount rate, the weighting for each valuation approach and the comparable set of companies.

Impact of Assumptions:

The assumptions used to project long-term company income consider variables such as historical and current trends, macroeconomic conditions, supply chain factors, projections consistent with the Company’s operating strategy, such as the future development of e-commerce and our assumptions used on future store openings, and other variables expected to impact future sales.

Additionally, the long-term company income projections also contain a projection of future company costs such as wages, freight and transportation, and advertising.

Actual long-term company income results could vary significantly from our projections due to a variety of reasons such as changes in the retail environment or macroeconomic factors not used in our assumptions.

In addition to variables considered in developing projected long-term company income, assumptions are made to develop the discount rate, which is based on an assumed risk-free rate, and an equity risk premium developed from general historical market data and comparable companies.

The earnings multiples used in the market approach can vary dependent on which companies are selected in our comparable set.

A history of declining trends in our operating results such as comparable sales, gross margin, net income and cash flow from operations could impact these assumptions and serve as indicators of future impairment.

There is significant judgment used in determining these assumptions used in the assessment of goodwill impairment and variability in the assumptions could cause us to reach a different conclusion on impairment.

In 2021, we performed a qualitative impairment assessment and determined a quantitative assessment was not necessary.

Intangible Assets

Intangible assets primarily consists of the trade name "Academy Sports + Outdoors" (the "Trade Name").

The Trade Name is expected to generate cash flows indefinitely and, therefore, is accounted for as an indefinite-lived asset not subject to amortization.

The Trade Name is tested for impairment annually or whenever events or circumstances indicate that the carrying amount of the Trade Name may not be recoverable.

Judgments and Uncertainties:

The annual Trade Name impairment test provides for the option of first performing a qualitative assessment to evaluate the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment for the Trade Name.

Impairment is calculated as the excess of the Trade Name’s carrying value over its fair value.

The fair value of the Trade Name is determined using the relief-from-royalty method, a variation of the income approach.

This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets.

Once a supportable royalty rate is determined, the rate is then applied to the projected long-term sales over the expected remaining life of the intangible assets to estimate the royalty savings.

This approach is dependent on a number of factors, including projections of long-term sales, royalty rates, discount rates and other variables.

Impact of Assumptions:

The assumptions used to project long-term company sales consider variables such as historical and current trends, macroeconomic conditions, supply chain factors, projections consistent with the Company’s operating strategy, such as the future development of e-commerce and our assumptions used on future store openings, and other variables expected to impact future sales.

Actual long-term income results could vary significantly from our projections due to a variety of reasons such as changes in the retail environment or macroeconomic factors not used in our assumptions.

In addition to variables considered in developing projected long-term sales, assumptions are made to develop the royalty rates and discount rates.

The royalty rates are based on market data where royalty rates are applicable and the discount rates are based on an assumed risk-free rate, and an equity risk premium based on general historical market data and comparable companies.

There is significant judgment used in determining these assumptions on intangible asset impairment and variability in the assumptions could cause us to reach a different conclusion on impairment.

In 2021, we performed a qualitative impairment assessment and determined a quantitative assessment was not necessary.

Recent Accounting Pronouncements

For discussion of recent accounting pronouncements, see Note 2 to the consolidated financial statements.

For discussion of recent accounting pronouncements, see Note 2 to the accompanying consolidated financial statements.

Related Party Transactions

For discussion of related party transactions, see Note 13 to the consolidated financial statements.

For discussion of related party transactions, see Note 13 to the accompanying consolidated financial statements.

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-K

Item 7. Management’s Discussion and Analysis