What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-09-07 compared with 2022-06-07 · 164 added, 94 removed, 345 unchanged (43% of the section changed)

65 unchanged sentences

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen weeks ended April 30, 2022 and our audited financial statements for the fiscal year ended January 29, 2022 and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen and twenty-six weeks ended July 30, 2022 and our audited financial statements for the fiscal year ended January 29, 2022 and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report.

All references to "Academy," "Academy Sports + Outdoors," "ASO, Inc.," "we," "us," "our" or the "Company" in this Quarterly Report refer to Academy Sports and Outdoors, Inc., a Delaware corporation and the current parent holding company of our operations, and its consolidated subsidiaries.

2 unchanged sentences

References to any year, quarter, or month mean our fiscal year, fiscal quarter, and fiscal month, respectively, unless the context requires otherwise.

References to the "current quarter", "2022 first quarter" or similar reference refers to the thirteen week period ended April 30, 2022, and any reference to the "prior year quarter", "2021 first quarter" or similar reference refers to the thirteen week period ended May 1, 2021.

References to the "current quarter," "2022 second quarter," or similar reference refers to the thirteen week period ended July 30, 2022, and any reference to the "prior year quarter," "2021 second quarter" or similar reference refers to the thirteen week period ended July 31, 2021.

Any reference in this Quarterly Report to "current year-to-date," "year-to-date 2022" or similar reference represents the twenty-six week period ended July 30, 2022, and any reference in this Quarterly Report to the "prior year-to-date," "year-to-date 2021" or similar reference refers to the twenty-six week period ended July 31, 2021.

Unless otherwise specified, all comparisons regarding the current period of 2022 are made to the corresponding period of 2021.

1 unchanged sentence

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 product assortment focuses on key categories of outdoor, sports & recreation, apparel, and footwear (representing 31%, 24%, 24% and 21% of our 2022 first quarter net sales, respectively) through both leading national brands and a portfolio of owned brands and private label brands, which go well beyond traditional sporting goods and apparel offerings.

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 30%, 26%, 24% and 20% of our year-to-date 2022 net sales, respectively) through both leading national brands and a portfolio of owned brands and private label brands, which go well beyond traditional sporting goods and apparel offerings.

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.

2 unchanged sentences

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.

As of April 30, 2022, we operated 260 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.

As of July 30, 2022, we operated 261 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.

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 mobile app, optimizing the website experience and upgrading our fulfillment capabilities.

The following table summarizes store activity for the periods indicated:

Thirteen Weeks Ended

April 30, 2022 May 1, 2021

Twenty-Six Weeks Ended

July 30, 2022 July 31, 2021

Beginning stores 259 259

Q1 new stores 1 —

Q2 new stores 1 —

Ending stores 261 259

22 unchanged sentences

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

However, we experienced a decrease in comparable sales of (7.5)% for the 2022 first quarter as compared to an increase in the 2021 first quarter of 38.9%.

The large 2021 first quarter comparable sales were affected by U.S.

government stimulus packages, which had a positive impact on sales in the first quarter of 2021 and a negative impact to comparable sales for the first quarter of 2022.

However, we experienced a decrease in comparable sales of (6.7)% for the year-to-date 2022 as compared to an increase in the year-to-date 2021 of 22.8%.

The large year-to-date 2021 comparable sales were impacted by changing economic conditions including U.S.

government stimulus packages, which had a positive impact on sales in the year-to-date 2021 and a negative impact to comparable sales for the year-to-date 2022.

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

24 unchanged sentences

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

We believe it is important that we continue to grow our omnichannel capabilities, which, together with recent enhancements made to our website and omnichannel capabilities, contributed to the increase in e-commerce sales during 2021 and in the first quarter of 2022.

During the year-to-date 2022, stores facilitated approximately 95% of our total sales, including ship-from-store, BOPIS and in-store retail sales.

2 unchanged sentences

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.

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 nine new stores in 2022.

Additionally, we intend to open a significant number of new stores over the next five years.

11 unchanged sentences

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

Under the LIFO method, our cost of sales reflects the costs of the most recently purchased inventories.

A prolonged continuation of high inflationary levels of inventory and related transportation costs could result in LIFO charges that have a negative impact on our gross margin.

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.

3 unchanged sentences

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% for the full years of 2019, 2020 and 2021, respectively.

SG&A expenses as a percentage of sales increased from 20.5% in the 2021 first quarter to 21.5% in the 2022 first quarter.

SG&A expenses as a percentage of sales decreased from 21.1% in the prior year-to-date compared to 20.8% in the current year-to-date.

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

1 unchanged sentence

Interest Expense.

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

Interest expense includes regular interest payable related to our Term Loan, Notes and ABL Facility (see Note 4 to the accompanying 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.

These actions have resulted in interest expense reductions in the full year 2021 and in the 2022 first quarter.

These actions have resulted in interest expense reductions in the full year 2021 and in the thirteen and twenty-six weeks ended July 30, 2022.

Income Tax Expense.

14 unchanged sentences

Results of Operations

Thirteen Weeks Ended April 30, 2022 Compared to Thirteen Weeks Ended May 1, 2021

Thirteen Weeks Ended July 30, 2022 Compared to Thirteen Weeks Ended July 31, 2021

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

Thirteen Weeks Ended Change

April 30, 2022 May 1, 2021 Dollars Percent

July 30, 2022 July 31, 2021 Dollars Percent

Net sales $ 1,686,915 100.0 % $ 1,791,530 100.0 % $ (104,615) (5.8) %

4 unchanged sentences

Interest expense, net 11,157 0.7 % 12,157 0.7 % (1,000) (8.2) %

Loss on early retirement of debt — — % 2,239 0.1 % (2,239) (100.0) %

Other (income), net (1,441) (0.1) % (735) (0.0) % (706) 96.1 %

3 unchanged sentences

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

Net sales decreased $112.6 million, or 7.1%, for the 2022 first quarter compared to 2021 first quarter as a result of decreased comparable sales of 7.5% and partially offset by increased sales from the addition of one new store during the period.

The decrease in sales was the result of fewer transactions partially offset by an increase in average ticket.

The decrease of 7.5% in comparable sales was driven by lower sales across all merchandise divisions and higher comparable sales in the prior year quarter that were partially due to stimulus payments issued by the U.S.

government during that period.

The sports and recreation division sales were lower, primarily driven by recreation and fitness as these divisions were particularly impacted by increased prior year isolated recreation demands brought on by the COVID-19 pandemic, especially in categories such as bikes, outdoor games and fitness equipment.

These decreases in the current year were partially offset by increased sales in team sports, including baseball, basketball and soccer.

Net sales decreased $104.6 million, or 5.8%, in the 2022 second quarter over the prior year second quarter as a result of decreased comparable sales of 6.0%, which were partially offset by increased sales from the addition of one new store during the period.

The decrease of 6.0% in comparable sales was driven by lower sales across all merchandise divisions as a result of fewer transactions partially offset by an increase in average ticket.

The outdoor merchandise division had declines in shooting sports and fishing, partially offset by an increase in the camping category.

The apparel division experienced declining sales largely due to athletic apparel.

The footwear division decreased due to lower sales in athletic footwear, casual and seasonal footwear, and work footwear, partially offset by increases in youth footwear.

The sports and recreation division sales were lower, primarily driven by fitness and recreation as these divisions were particularly impacted by increased prior year isolated recreation demands brought on by the COVID-19 pandemic, especially in categories such as fitness equipment, outdoor cooking, bikes and outdoor games.

These decreases in the current year were partially offset by increased sales in team sports, including football, golf and basketball.

E-commerce net sales increased $18.1 million, or 12.1%, in the 2022 second quarter compared to the prior year second quarter and represented 10.0% of merchandise sales for the 2022 second quarter compared to 8.4% for the prior year second quarter.

Gross Margin.

Gross margin decreased $46.4 million, or 7.2%, to $596.1 million in the 2022 second quarter from $642.5 million in the 2021 second quarter.

As a percentage of net sales, gross margin decreased 0.6% from 35.9% in the 2021 second quarter to 35.3% in the 2022 second quarter.

The decrease of 60 basis points in gross margin is primarily attributable to:

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

• 18 basis points of unfavorability in e-commerce shipping costs due to increased e-commerce sales during the 2022 second quarter;

• 17 basis points of unfavorability in import freight and duties as result of increased costs of ocean freight;

partially offset by

• 20 basis points of favorability in merchandise margins driven by higher average unit retails.

Selling, General and Administrative Expenses.

SG&A expenses decreased $48.6 million to $339.3 million in the 2022 second quarter as compared to $387.9 million in the 2021 second quarter.

As a percentage of net sales, SG&A expenses were down 1.6% to 20.1% in the 2022 second quarter compared to 21.7% in the 2021 second quarter.

The decrease of 160 basis points in SG&A is primarily attributable to:

• 232 basis point decrease in employee costs, primarily driven by increased equity compensation expense in the prior year quarter resulting from the "2021 Vesting Event" (see Note 1 to the accompanying financial statements) and lower incentive compensation expense in the current year quarter;

partially offset by

• 50 basis point increase in property and facility fees as a result of a deleverage of fixed costs from decreased sales.

Interest Expense.

Interest expense decreased $1.0 million, or 8.2%, in the 2022 second quarter when compared with the 2021 second quarter, resulting from a lower outstanding balance and a reduction in interest rates on our long-term debt as a result of the repricing of our Term Loan which occurred in May 2021.

Loss on Early Retirement of Debt.

Loss on early retirement of debt decreased $2.2 million in the 2022 second quarter when compared to the 2021 second quarter.

During the second quarter of 2021, we repriced our Term Loan, which resulted in a loss on early retirement of debt of $2.2 million.

Other (Income), net.

Other (income), net, increased $0.7 million or 96.1% in the 2022 second quarter when compared with the 2021 second quarter, primarily driven by favorable interest rate movement on money market investments in the current year.

Income Tax Expense.

Income tax expense increased $7.8 million to $58.2 million for the 2022 second quarter as compared to $50.4 million in the 2021 second quarter, resulting primarily from an increase in income before income taxes in the current year combined with a higher effective tax rate.

ASO, Inc.’s effective tax rate was 23.5% compared to 20.9% in the 2021 second quarter.

The change in effective tax rate was primarily driven by a prior year benefit from tax deductions related to the vesting or exercise of several equity compensation awards during the 2021 second quarter.

Twenty-Six Weeks Ended July 30, 2022 Compared to Twenty-Six Weeks Ended July 31, 2021

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

Twenty-Six Weeks Ended Change

July 30, 2022 July 31, 2021 Dollars Percent

Net sales $ 3,154,645 100.0 % $ 3,371,863 100.0 % $ (217,218) (6.4) %

Cost of goods sold 2,037,158 64.6 % 2,165,666 64.2 % (128,508) (5.9) %

Gross margin 1,117,487 35.4 % 1,206,197 35.8 % (88,710) (7.4) %

Selling, general and administrative expenses 655,260 20.8 % 712,565 21.1 % (57,305) (8.0) %

Operating income 462,227 14.7 % 493,632 14.6 % (31,405) (6.4) %

Interest expense, net 22,077 0.7 % 26,706 0.8 % (4,629) (17.3) %

Loss on early retirement of debt — — % 2,239 0.1 % (2,239) (100.0) %

Other (income), net (2,138) (0.1) % (1,132) (0.0) % (1,006) 88.9 %

Income before income taxes 442,288 14.0 % 465,819 13.8 % (23,531) (5.1) %

Income tax expense 103,681 3.3 % 97,513 2.9 % 6,168 6.3 %

Net income $ 338,607 10.7 % $ 368,306 10.9 % $ (29,699) (8.1) %

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

Net sales decreased $217.2 million, or 6.4%, for the year-to-date 2022 compared to the year-to-date 2021 as a result of decreased comparable sales of 6.7% which were partially offset by increased sales from the addition of two new stores during the period.

The decrease of 6.7% in comparable sales was driven by lower sales across all merchandise divisions as a result of fewer transactions partially offset by an increase in average ticket.

The higher comparable sales in the prior year quarter were partially due to stimulus payments issued by the U.S.

government during the 2021 first quarter.

The outdoor merchandise division had declines in shooting sports and fishing, partially offset by an increase in the camping category.

The apparel division experienced declining sales largely due to athletic apparel, youth apparel, and outdoor and seasonal apparel, which were partially offset by increased sales in licensed apparel.

The outdoor merchandise division had declines in fishing and shooting sports, partially offset by an increase in camping.

The footwear division decreased due to lower sales in the casual and seasonal category and the team sports category, partially offset by increases in the youth category.

E-commerce net sales increased $21.9 million, or 18.8%, in the 2022 first quarter compared to the 2021 first quarter and represented 9.5% of merchandise sales in the 2022 first quarter compared to 7.4% in the 2021 first quarter.

These decreases in the current year were partially offset by increased sales in team sports, including basketball, football, golf and baseball.

The footwear division decreased due to lower sales in the athletic category, casual and seasonal category, and work category, partially offset by increases in the youth category.

E-commerce net sales increased $40.0 million, or 15.0%, in the year-to-date 2022 compared to the year-to-date 2021 and represented 9.8% of merchandise sales in the current year-to-date compared to 7.9% in the prior year-to-date.

Gross Margin.

Gross margin decreased $42.3 million, or 7.5%, to $521.4 million for the 2022 first quarter from $563.7 million for the 2021 first quarter.

As a percentage of net sales, gross margin decreased 0.2% from 35.7% in the 2021 first quarter to 35.5% in the 2022 first quarter.

Gross margin decreased $88.7 million, or 7.4%, to $1,117.5 million for the year-to-date 2022 from $1,206.2 million for the year-to-date 2021.

As a percentage of net sales, gross margin decreased 0.4% from 35.8% in the prior year-to-date to 35.4% in the current year-to-date.

The decrease of 40 basis points in gross margin is primarily attributable to:

• 23 basis points of unfavorability on inventory valuation adjustments;

• 18 basis points of unfavorability in e-commerce shipping costs due to an increase in e-commerce sales during the 2022 first quarter;

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

• 18 basis points of unfavorability in e-commerce shipping costs due to an increase in e-commerce sales during the 2022 year-to-date;

partially offset by

• 20 basis points of favorability related to merchandise margins.

• 20 basis points of favorability related to merchandise margins driven by higher average unit retails.

Selling, General and Administrative Expenses.

SG&A expenses decreased $8.7 million, or 2.7%, to $315.9 million for the 2022 first quarter from $324.6 million for the 2021 first quarter.

As a percentage of net sales, SG&A expenses were up 1.0% to 21.5% in the 2022 first quarter compared to 20.5% in the 2021 first quarter.

The increase of 100 basis points in SG&A is primarily attributable to deleverage from decreased sales on decreased SG&A costs.

SG&A expenses decreased $57.3 million, or 8.0%, to $655.3 million for the year-to-date 2022 from $712.6 million for the year-to-date 2021.

As a percentage of net sales, SG&A expenses were down 0.3% to 20.8% in the current year-to-date 2022 compared to 21.1% in the prior year-to-date.

The decrease of 30 basis points in SG&A is primarily attributable to:

• 122 basis point decrease in employee costs, driven by increased equity compensation expense in the prior year resulting from the 2021 Vesting Event and lower incentive compensation expense in the current year;

partially offset by

• 59 basis point increase in property and facility fees as a result of a deleverage of fixed costs from decreased sales.

Interest Expense.

Interest expense decreased $3.6 million, or 24.9%, for the 2022 first quarter when compared to the 2021 first quarter, resulting from a lower outstanding balance and a reduction in interest rates on our long-term debt as a result of the repricing of our Term Loan which occurred in May 2021.

Interest expense decreased $4.6 million, or 17.3%, for the year-to-date 2022 when compared to the year-to-date 2021, resulting from a lower outstanding balance and a reduction in interest rates on our long-term debt as a result of the repricing of our Term Loan which occurred in May 2021.

Loss on Early Retirement of Debt.

Loss on early retirement of debt decreased $2.2 million for the year-to-date 2022 when compared to the year-to-date 2021.

During the second quarter of 2021, we repriced our Term Loan, which resulted in a loss on early retirement of debt of $2.2 million.

Other (Income), net.

Other income, net, remained relatively flat, increasing $0.3 million in the 2022 first quarter when compared to the 2021 first quarter.

Other income, net, increased $1.0 million, or 88.9%, in the year-to-date 2022 when compared to the year-to-date 2021, primarily driven by favorable interest rate movement on money market investments in the current year.

Income Tax Expense.

Income tax expense decreased $1.7 million to $45.5 million for the 2022 first quarter as compared to $47.1 million for the 2021 first quarter, resulting primarily from decreased income before income taxes.

ASO, Inc.’s effective tax rate for the 2022 first quarter was 23.3% compared to 20.9% in the 2021 first quarter.

The change in effective tax rate was primarily driven by a prior year benefit from tax deductions related to the exercise of several equity compensation awards during the 2021 first quarter.

Income tax expense increased $6.2 million to $103.7 million for the year-to-date 2022 as compared to $97.5 million for the year-to-date 2021, resulting primarily from an increased effective tax rate.

ASO, Inc.’s effective tax rate for the year-to-date 2022 was 23.5% compared to 20.9% in the year-to-date 2021.

The change in effective tax rate was primarily driven by a prior year benefit from tax deductions related to the vesting or exercise of several equity compensation awards during the period.

Non-GAAP Measures

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

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

We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment, further adjusted to exclude costs such as 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, pre-opening expenses, 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 costs such as 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, pre-opening expenses, 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, pre-opening expenses and other adjustments, less the tax effect of these adjustments.

We define Adjusted Net Income as net income (loss), plus costs such as 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, pre-opening expenses, payroll taxes associated with the 2021 Vesting Event and other adjustments, less the tax effect of these adjustments.

We define basic Adjusted Earnings per Share as Adjusted Net Income divided by the basic weighted average common shares outstanding during the period and diluted Adjusted Earnings per Share as Adjusted Net Income divided by the diluted weighted average common shares outstanding during the period.

26 unchanged sentences

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

Thirteen Weeks Ended

April 30, 2022 May 1, 2021

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Net income $ 188,801 $ 190,510 $ 338,607 $ 368,306

3 unchanged sentences

Equity compensation (a) 6,158 27,331 9,657 33,205

Loss on early retirement of debt — 2,239 — 2,239

Pre-opening expenses (b) 1,864 — 2,826 —

Other (c) — 350

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

Other (d) — 364 — 714

Adjusted EBITDA $ 292,471 $ 324,416 $ 528,700 $ 595,409

1 unchanged sentence

Adjusted EBIT $ 266,197 $ 298,406 $ 476,848 $ 544,101

(a) 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.

(a) 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.

(b) Represents pre-opening expenses which are non-capital expenditures associated with opening new stores and incurred prior to the store opening and generating sales.

1 unchanged sentence

These costs are expensed as incurred.

(c) Other adjustments include (representing deductions or additions to Adjusted EBITDA and Adjusted EBIT) amounts that management believes are not representative of our operating performance, such as costs associated with secondary offerings, installation costs for energy savings associated with our profitability initiatives and other costs associated with business optimization initiatives.

(d) Other adjustments include (representing deductions or additions to Adjusted EBITDA and Adjusted EBIT) amounts that management believes are not representative of our operating performance, such as costs associated with secondary offerings, installation costs for energy savings associated with our profitability initiatives and other costs associated with business optimization initiatives.

Adjusted Net Income and Adjusted Earnings per Share

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

Thirteen Weeks Ended

April 30, 2022 May 1, 2021

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Net income $ 188,801 $ 190,510 $ 338,607 $ 368,306

Equity compensation (a) 6,158 27,331 9,657 33,205

Loss on early retirement of debt — 2,239 — 2,239

Pre-opening expenses (b) 1,864 — 2,826 —

Other (c) — 350

Tax effects of these adjustments (d) (1,040) (1,489)

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

Other (d) — 364 — 714

Tax effects of these adjustments (e) (1,887) (11,312) (2,927) (12,801)

Adjusted Net Income $ 194,936 $ 224,550 $ 348,163 $ 407,081

5 unchanged sentences

84,906 95,891 86,792 96,391

(b) Represents pre-opening expenses which are non-capital expenditures associated with opening new stores and incurred prior to the store opening and generating sales.

1 unchanged sentence

These costs are expensed as incurred.

(c) Other adjustments include (representing deductions or additions to Adjusted Net Income) amounts that management believes are not representative of our operating performance, such as costs associated with secondary offerings, installation costs for energy savings associated with our profitability initiatives and other costs associated with business optimization initiatives.

(d) For the thirteen weeks ended April 30, 2022 and May 1, 2021, this represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at the estimated effective tax rate for the fiscal year ended January 28, 2023 and January 29, 2022, respectively.

(d) Other adjustments include (representing deductions or additions to Adjusted Net Income) amounts that management believes are not representative of our operating performance, such as costs associated with secondary offerings, installation costs for energy savings associated with our profitability initiatives and other costs associated with business optimization initiatives.

(e) For the thirteen and twenty-six weeks ended July 30, 2022 and July 31, 2021, this represents the estimated tax effect (by using the projected full year tax rates for the respective years) of the total adjustments made to arrive at Adjusted Net Income.

Adjusted Free Cash Flow

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

Thirteen Weeks Ended

April 30, 2022 May 1, 2021

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Net cash provided by operating activities $ 161,309 $ 186,446 $ 258,406 $ 405,674

6 unchanged sentences

We fund these liquidity requirements through cash and cash equivalents, cash generated from operating activities, issuances of debt (such as the Notes) and borrowings under our ABL Facility.

On April 30, 2022, our cash and cash equivalents totaled $472.4 million.

On July 30, 2022, our cash and cash equivalents totaled $399.9 million.

We believe our cash and cash equivalents, as well as our availability under the ABL Facility, will be sufficient to fund our cash requirements for at least the next 12 months.

2 unchanged sentences

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

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

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

6 unchanged sentences

1,243 2,500 2,500 1,909 — — 8,152

(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.

(1) Interest payments do not include amortization of discount and debt issuance costs and are approximated based on projected interest rates and assume no unscheduled principal payments.

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

1 unchanged sentence

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

Thirteen Weeks Ended

April 30, 2022 May 1, 2021

Twenty-Six Weeks Ended

July 30, 2022 July 31, 2021

Average funds drawn $ — $ —

3 unchanged sentences

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

April 30, 2022 January 29, 2022 May 1, 2021

July 30, 2022 January 29, 2022 July 31, 2021

Outstanding borrowings $ — $ — $ —

2 unchanged sentences

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 April 30, 2022.

Operating lease obligations include future minimum lease payments under all of our non-cancelable operating leases at July 30, 2022.

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

3 unchanged sentences

(1) Minimum lease payments have not been reduced by sublease rentals of $0.8 million due in the future under non-cancelable sub-leases.

(2) These balances include stores where we have an executed contract but have not taken possession of the location as of April 30, 2022.

In the first quarter of 2022, we opened our first new location in two years.

We intend to open at least eight stores in 2022.

(2) These balances include stores where we have an executed contract but have not taken possession of the location as of July 30, 2022.

In the twenty-six weeks ended July 30, 2022, we opened two new locations.

We intend to open at least nine stores in 2022.

Share Repurchases

On September 2, 2021, the Board of Directors of the Company authorized a share repurchase program (the "2021 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 2021 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 under the 2021 Share Repurchase Program 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 2021 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 April 30, 2022, $100.2 million remained available for share repurchases pursuant to our 2021 Share Repurchase Program.

On June 2, 2022, the Board of Directors of the Company authorized a new share repurchase program (the "2022 Share Repurchase Program") under which the Company may purchase up to $600 million of its outstanding shares during the three-year period ending June 2, 2025.

The 2022 Share Repurchase Program and the 2021 Share Repurchase program are collectively referred to as the "Share Repurchase Programs".

Under the Share Repurchase Programs, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions, accelerated share repurchase programs 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 under the Share Repurchase Programs 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 Programs do not obligate the Company to acquire any particular number of common shares, and the programs may be suspended, extended, modified or discontinued at any time.

As of July 30, 2022, $500.2 million remained available for share repurchases pursuant to the Share Repurchase Programs.

The following table summarizes our share repurchases for the fiscal year ended January 29, 2022:

6 unchanged sentences

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

(1) Shares repurchased during the 2021 second quarter were not subject to the 2021 Share Repurchase Program.

(1) Shares repurchased during the 2021 second quarter were not subject to the Share Repurchase Programs.

The following table summarizes our share repurchases for the year-to-date 2022:

1 unchanged sentence

First Quarter (January 30, 2022 to April 30, 2022) 2,272,349 $ 38.95 $ 88,500,881

Second Quarter (May 1, 2022 to July 30, 2022) (1)

5,550,892 36.05 200,110,996

Total Shares Repurchased 7,823,241 $ 36.89 $ 288,611,877

(2) See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for further detail on the 2022 first quarter share repurchases.

The total availability under the combined 2022 Share Repurchase Program and 2021 Share Repurchase Program is approximately $700.2 million (see Note 13 to the accompanying financial statements).

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

The total dividend paid in the 2022 first quarter was $6.5 million.

On June 2, 2022, the Company's Board of Directors declared a quarterly cash dividend with respect to the fiscal quarter ended April 30, 2022, of $0.075 per share of the Company's common stock, payable on July 14, 2022, to stockholders of record as of the close of business on June 16, 2022 (see Note 13 to the accompanying financial statements).

(1) See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for further detail on the 2022 second quarter share repurchases.

The following table summarizes our quarterly dividend payments for the year-to-date 2022 (amounts in thousands, except per share amounts):

Dividend per Share Total Dividends Paid Stockholder Date of Record

First Quarter (January 30, 2022 to April 30, 2022) $ 0.075 $ 6,536 March 17, 2022

Second Quarter (May 1, 2022 to July 30, 2022) $ 0.075 6,271 June 16, 2022

Total Dividends Paid $ 12,807

On September 1, 2022, the Company's Board of Directors declared a quarterly cash dividend with respect to the fiscal quarter ended July 30, 2022, of $0.075 per share of the Company's common stock, payable on October 13, 2022, to stockholders of record as of the close of business on September 15, 2022 (see Note 13 to the accompanying financial statements).

Capital Expenditures

3 unchanged sentences

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

Cash Flows for the Thirteen Weeks Ended April 30, 2022 and May 1, 2021

Cash Flows for the Twenty-Six Weeks Ended July 30, 2022 and July 31, 2021

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

Thirteen Weeks Ended

April 30, 2022 May 1, 2021

Twenty-Six Weeks Ended

July 30, 2022 July 31, 2021

Net cash provided by operating activities $ 258,406 $ 405,674

Net cash used in investing activities (48,134) (33,767)

Net cash provided by (used in) financing activities (93,388) 13,264

Net cash used in financing activities (296,413) (195,686)

Net increase (decrease) in cash and cash equivalents $ (86,141) $ 176,221

2 unchanged sentences

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

Cash provided by operating activities in the 2022 first quarter decreased $122.1 million, compared to 2021 first quarter.

Cash provided by operating activities in the year-to-date 2022 decreased $147.3 million, compared to year-to-date 2021.

This decrease in cash was attributable to:

• $61.6 million net decrease in cash flows provided by operating assets and liabilities;

• $28.0 million decrease in net income;

• $56.0 million net decrease in non-cash charges;

• $29.7 million decrease in net income.

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

• $61.3 million decrease in cash flows from merchandise inventories, net related to increased inventory in the 2022 first quarter due to higher sales in the prior year period;

• $37.4 million decrease in cash flows from accrued expenses and other current liabilities related primarily to increased employee costs, largely driven by performance compensation payments made in the 2022 first quarter;

partially offset by

• $17.2 million increase in income taxes payable due to timing of payments.

• $66.0 million decrease in cash flows from accrued expenses and other current liabilities which was largely driven by performance compensation payments made in the year-to-date 2022.

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

• $28.7 million decrease in deferred income taxes;

• $23.5 million decrease in equity compensation expense as a result of the 2021 Vesting Event.

Investing Activities .

Cash used in investing activities increased $0.5 million in the 2022 first quarter compared to the 2021 first quarter.

Cash used in investing activities increased $14.4 million in the year-to-date 2022 compared to the year-to-date 2021.

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

• $0.5 million higher capital expenditures related to new stores and store updates, partially offset by decreased costs related to the distribution centers for improvements made in the 2021 first quarter.

• $14.3 million higher capital expenditures driven by investments in new stores and store updates in the year-to-date 2022.

Financing Activities .

Cash used in financing activities increased $106.7 million in the 2022 first quarter, compared to the 2021 first quarter.

Cash used in financing activities increased $100.7 million in the year-to-date 2022, compared to the year-to-date 2021.

The primary drivers of the increase were:

• $88.5 million increase in cash outflows related to Company's repurchase and simultaneous retirement of common stock in the 2022 first quarter;

• $14.0 million decrease in net proceeds from the exercise of stock options relative to the 2021 first quarter;

• $6.5 million increase in cash outflows related to cash dividend paid in the 2022 first quarter.

• $188.6 million increase in cash outflows related to Company's repurchase and simultaneous retirement of common stock in the current year-to-date;

partially offset by

• $99.3 million decrease in cash outflows related to higher prior year-to-date principal repurchases in connection with the refinancing of our Term Loan which occurred in the second quarter of 2021.

Critical Accounting Policies and Estimates

15 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis