What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-12-07 compared with 2022-09-07 · 102 added, 102 removed, 407 unchanged (33% of the section changed)

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

We believe that these factors include but are not limited to those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (the "Annual Report"), as filed with the Securities and Exchange Commission (the "SEC") on March 29, 2022, and in this Quarterly Report, as such risk factors have been updated from time to time in our periodic filings with the SEC, and are accessible on the SEC's website at www.sec.gov.

We believe that these factors include but are not limited to those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (the "Annual Report"), as filed with the Securities and Exchange Commission (the "SEC") on March 29, 2022, as such risk factors have been updated from time to time in our periodic filings with the SEC, and are accessible on the SEC's website at www.sec.gov.

Any forward-looking statement made by us in this Quarterly Report speaks only as of the date of this Quarterly Report and are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report.

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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 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.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen and thirty-nine weeks ended October 29, 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.

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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 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.

References to the "current quarter," "2022 third quarter," or similar reference refers to the thirteen week period ended October 29, 2022, and any reference to the "prior year quarter," "2021 third quarter" or similar reference refers to the thirteen week period ended October 30, 2021.

Any reference in this Quarterly Report to "current year-to-date," "year-to-date 2022" or similar reference represents the thirty-nine week period ended October 29, 2022, and any reference in this Quarterly Report to the "prior year-to-date," "year-to-date 2021" or similar reference refers to the thirty-nine week period ended October 30, 2021.

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

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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.

Our product assortment focuses on key categories of outdoors, apparel, sports & recreation and footwear (representing 31%, 26%, 22% and 21% 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.

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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 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.

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.

As of October 29, 2022, we operated 265 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 17 contiguous states located primarily in the southern United States.

Our stores are supported by approximately 22,000 team members, three distribution centers, and our e-commerce platform, which includes our website at www.academy.com and our mobile app.

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:

Twenty-Six Weeks Ended

July 30, 2022 July 31, 2021

Thirty-Nine Weeks Ended

October 29, 2022 October 30, 2021

Beginning stores 259 259

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Q2 new stores 1 —

Q3 new stores 4 —

Ending stores 265 259

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However, we experienced a decrease in comparable sales of (6.9)% for the year-to-date 2022 as compared to an increase in the year-to-date 2021 of 21.2%.

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

The high 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.

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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.

Furthermore, in recent years we have experienced higher sales related to the outdoors and sports and recreation merchandise divisions, as our customers turned to us for isolated recreation and outdoor and leisure activities during the pandemic.

As our business begins to normalize, we are experiencing a shift in our sales mix from the outdoors and sports and recreation merchandise divisions to the footwear and apparel merchandise divisions, which would generally have a positive impact on our gross margin rate.

The expansion and enhancement of our omnichannel capabilities has resulted in increased sales in recent years and we expect that it will continue to be a 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.

During the third quarter of 2022, we improved our omnichannel capabilities by implementing several innovative features to enhance the customer shopping experience ahead of the holiday season, including outfitting, express check-out and enabling biometric security measures.

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

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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 nine new stores in 2022.

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

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

We are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider, and subsequent to the end of the 2022 third quarter, we have completed three additional new store openings, which brings our total to nine new store openings in 2022.

Additionally, we intend to open a significant number of new stores by the end of 2026.

We expect most of our stores to achieve profitability within the first twelve months of opening.

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

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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.

Under the last in, first out method ("LIFO"), 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.

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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 decreased from 21.1% in the prior year-to-date compared to 20.8% in the current year-to-date.

SG&A expenses as a percentage of sales increased from 21.3% in the prior year-to-date compared to 21.5% 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.

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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 thirteen and twenty-six weeks ended July 30, 2022.

These actions have resulted in interest expense reductions in the full year 2021 and in the thirty-nine weeks ended October 29, 2022.

However, during 2022 the Federal Reserve increased the federal funds benchmark rate, which resulted in increased interest rates on our Term Loan and led to higher interest expense in the 2022 third quarter relative to the prior year quarter.

Income Tax Expense.

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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.

Governmental authority safety recommendations and requirements such as stay at home orders and business closures aimed at mitigating the spread of the virus, both in the U.S.

and internationally, have contributed to the recent supply chain disruptions.

These disruptions have resulted in decreased transportation, goods and labor availability and increased inflationary levels.

The COVID-19 pandemic continues to affect our business and suppliers.

While restrictions aimed at mitigating the spread of the virus have largely been lifted in the U.S., governmental authority safety recommendations and requirements such as stay at home orders and business closures continue to affect our international supply chain, resulting in decreased transportation, goods and labor availability.

Supply chain disruptions due to the COVID-19 pandemic and other causes have also contributed to and increased inflationary levels and recessionary fears.

Additionally, the U.S.

government released stimulus packages throughout 2020 and 2021 as a result of the economic situation caused by the pandemic, which had a positive impact on sales during those periods.

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 from which we and our suppliers source products and materials and the related impact on consumer confidence and spending, labor supply or product supply, all of which are highly uncertain.

The extent to which our operations and business trends will continue to be impacted by, and any additional unforeseen costs or other effects will result from, the pandemic will depend largely on future developments, including whether there are additional periods of increases or spikes in the number or severity of COVID-19 cases (including as a result of a new variant) within the markets in which we operate and from which we and our suppliers source products and materials 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.

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Results of Operations

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

Thirteen Weeks Ended October 29, 2022 Compared to Thirteen Weeks Ended October 30, 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

July 30, 2022 July 31, 2021 Dollars Percent

October 29, 2022 October 30, 2021 Dollars Percent

Net sales $ 1,493,925 100.0 % $ 1,592,795 100.0 % $ (98,870) (6.2) %

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Interest expense, net 12,163 0.8 % 11,424 0.7 % 739 6.5 %

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 %

Other (income), net (2,538) (0.2) % (614) (0.0) % (1,924) NM

Income before income taxes 169,897 11.4 % 205,303 12.9 % (35,406) (17.2) %

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

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.

** NM - Not meaningful.

Net sales decreased $98.9 million, or 6.2%, in the 2022 third quarter over the prior year third quarter as a result of decreased comparable sales of 7.2%, which were partially offset by additional net sales generated by new locations.

As of the end of the 2022 third quarter, we operated six additional stores as compared to the end of the 2021 third quarter.

The decrease of 7.2% in comparable sales was driven by lower sales as a result of fewer transactions.

The majority of the decrease in comparable sales was due to lower sales in the outdoors merchandise division caused by a decrease in the shooting sports category.

To a lesser extent, within the outdoors merchandise division, fishing also contributed to the decrease in sales.

The sports and recreation merchandise division sales also declined, which was generally offset by an increase in the footwear merchandise division.

The sports and recreation merchandise division sales decrease was 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 football, baseball and golf.

The footwear merchandise division increase was primarily due to increased sales in the casual and seasonal footwear and youth footwear categories.

The apparel merchandise division was relatively flat compared to the prior year, experiencing only a slight decline.

E-commerce net sales increased $13.4 million, or 10.5%, in the 2022 third quarter compared to the prior year third quarter and represented 9.5% of merchandise sales for the 2022 third quarter compared to 8.0% for the prior year third 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.

Gross margin decreased $38.4 million, or 6.8%, to $522.5 million in the 2022 third quarter from $560.8 million in the 2021 third quarter.

As a percentage of net sales, gross margin decreased 0.2% from 35.2% in the 2021 third quarter to 35.0% in the 2022 third quarter.

The decrease of 20 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;

• 36 basis points of unfavorability on increased inventory shrinkage;

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

• 19 basis points of unfavorability in import freight and duties as a result of increased costs of ocean freight during the 2022 third quarter;

partially offset by

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

• 60 basis points of favorability in merchandise margins driven by favorable merchandise mix and 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.

SG&A expenses decreased $1.8 million to $342.9 million in the 2022 third quarter as compared to $344.7 million in the 2021 third quarter primarily as a result of higher prior year performance-based compensation expense.

As a percentage of net sales, SG&A expenses increased 1.4% to 23.0% in the 2022 third quarter compared to 21.6% in the 2021 third quarter.

The increase of 140 basis points in SG&A is primarily attributable to 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.

Interest expense increased $0.7 million, or 6.5%, in the 2022 third quarter when compared with the 2021 third quarter, resulting from increased interest rates in recent months on our Term Loan.

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.

Other (income), net, increased $1.9 million in the 2022 third quarter when compared with the 2021 third 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

Income tax expense decreased $5.8 million to $38.2 million for the 2022 third quarter as compared to $44.0 million in the 2021 third quarter, resulting primarily from a decrease in income before income taxes in the current year, partially offset by a higher effective tax rate.

Thirty-Nine Weeks Ended October 29, 2022 Compared to Thirty-Nine Weeks Ended October 30, 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

Thirty-Nine Weeks Ended Change

October 29, 2022 October 30, 2021 Dollars Percent

Net sales $ 4,648,570 100.0 % $ 4,964,658 100.0 % $ (316,088) (6.4) %

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*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.

Net sales decreased $316.1 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 6.9%, which were partially offset by increased sales from the addition of six new stores during the period.

The decrease of 6.9% 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 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 fitness equipment, outdoor games and bikes.

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.

The higher comparable sales in the prior year were partially due to stimulus payments and child tax credits issued by the U.S.

government during the year-to-date 2021.

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

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

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

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

E-commerce net sales increased $53.5 million, or 13.6%, in the year-to-date 2022 compared to the year-to-date 2021 and represented 9.7% of merchandise sales in the current year-to-date compared to 8.0% in the prior year-to-date.

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The decrease of 30 basis points in gross margin is primarily attributable to:

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

• 15 basis points of unfavorability on inventory valuation adjustments;

• 14 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 driven by higher average unit retails.

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

Selling, General and Administrative Expenses.

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.

SG&A expenses decreased $59.1 million, or 5.6%, to $998.2 million for the year-to-date 2022 from $1,057.3 million for the year-to-date 2021 primarily due to higher prior year compensation costs associated with the 2021 Vesting Event of $24.9 million of equity compensation and $15.5 million in related payroll tax expense.

Additionally, higher performance-based compensation in 2021 contributed to the decrease.

As a percentage of net sales, SG&A expenses increased 0.2% to 21.5% in the current year-to-date 2022 compared to 21.3% in the prior year-to-date primarily attributable to deleverage from decreased sales on decreased SG&A costs.

Interest Expense.

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.

Interest expense decreased $3.9 million, or 10.2%, for the year-to-date 2022 when compared to the year-to-date 2021, resulting from a lower outstanding balance on our long-term debt as a result of the refinancing of our Term Loan which occurred in May 2021 which was partially offset by an increase in interest rates in recent months on our Term Loan.

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.

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

Other (Income), net.

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ASO, Inc.’s effective tax rate for the year-to-date 2022 was 23.2% compared to 21.1% 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.

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.

Non-GAAP Measures

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

Thirteen Weeks Ended Twenty-Six Weeks Ended

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Net income $ 131,741 $ 161,305 $ 470,348 $ 529,611

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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 Twenty-Six Weeks Ended

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Net income $ 131,741 $ 161,305 $ 470,348 $ 529,611

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(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.

(e) For the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 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 Twenty-Six Weeks Ended

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Net cash provided by operating activities $ 50,763 $ 109,389 $ 309,169 $ 515,063

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

On October 29, 2022, our cash and cash equivalents totaled $318.2 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.

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

Twenty-Six Weeks Ended

July 30, 2022 July 31, 2021

Thirty-Nine Weeks Ended

October 29, 2022 October 30, 2021

Average funds drawn $ — $ —

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

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

October 29, 2022 January 29, 2022 October 30, 2021

Outstanding borrowings $ — $ — $ —

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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 July 30, 2022.

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

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

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(1) Minimum lease payments have not been reduced by sublease rentals of $0.6 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 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.

(2) These balances include stores where we have an executed contract but have not taken possession of the location as of October 29, 2022.

In the thirty-nine weeks ended October 29, 2022, we opened six new locations.

Subsequent to the end of the 2022 third quarter, we have completed three additional new store openings, which brings our total to nine new store openings in 2022.

Share Repurchases

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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.

As of October 29, 2022, we no longer had availability under the 2021 Share Repurchase Program and we had approximately $399.4 million available for share repurchases pursuant to the 2022 Share Repurchase Program.

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

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Second Quarter (May 1, 2022 to July 30, 2022) 5,550,892 36.05 200,110,996

Third Quarter (July 31, 2022 to October 29, 2022) (1)

2,176,463 46.33 100,824,712

Total Shares Repurchased 9,999,704 $ 38.94 $ 389,436,589

(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.

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

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

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

Third Quarter (July 31, 2022 to October 29, 2022) $ 0.075 $ 5,974 September 15, 2022

Total Dividends Paid $ 18,781

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).

On December 6, 2022, the Company's Board of Directors declared a quarterly cash dividend with respect to the fiscal quarter ended October 29, 2022, of $0.075 per share of the Company's common stock, payable on January 13, 2023, to stockholders of record as of the close of business on December 20, 2022 (see Note 13 to the accompanying financial statements).

Capital Expenditures

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

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

Cash Flows for the Thirty-Nine Weeks Ended October 29, 2022 and October 30, 2021

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

Twenty-Six Weeks Ended

July 30, 2022 July 31, 2021

Thirty-Nine Weeks Ended

October 29, 2022 October 30, 2021

Net cash provided by operating activities $ 309,169 $ 515,063

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• $98.9 million net decrease in cash flows provided by operating assets and liabilities;

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

• $59.3 million decrease in net income;

• $47.7 million net decrease in non-cash charges.

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

• $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.

• $73.9 million decrease in cash flows from accrued expenses and other current liabilities which was largely driven by performance compensation payments made and lower related accrual rates in the year-to-date 2022.

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

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Financing Activities .

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:

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

Cash used in financing activities decreased $35.5 million in the year-to-date 2022, compared to the year-to-date 2021.

The primary drivers of the decrease were:

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

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.

• $43.6 million increase in cash outflows related to Company's repurchase and simultaneous retirement of common stock in the current year;

• $29.7 million decrease in net proceeds from the exercise of stock options relative to the year-to-date 2021.

Critical Accounting Policies and Estimates

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis