What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-29 · 178 added, 207 removed, 311 unchanged (55% of the section changed)

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Unless otherwise specified, all comparisons or changes regarding 2022 are made to 2021.

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.

All references in this discussion and analysis to "2022", "2021" and "2020" or like terms relate to our fiscal years as follows:

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2021 January 29, 2022 52

2019 February 1, 2020 52

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

2020 January 30, 2021 52

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

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 product assortment focuses on key categories of outdoors, apparel, sports & recreation and footwear (representing 31%, 28%, 21% and 20% of our 2022 net sales, respectively) through both leading national brands and a portfolio of 20 private label brands, which go well beyond traditional sporting goods and apparel offerings.

Our business is subject to seasonal fluctuations.

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As of January 28, 2023, we operated 268 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 18 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.

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

The following table summarizes store activity for the periods indicated:

Fiscal Year Ended

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

January 28, 2023 January 29, 2022 January 30, 2021

Beginning stores 259 259 259

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Q4 new stores 3 — —

Closed — — (2)

Ending stores 268 259 259

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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 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.

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.

We have seen a significant comparable sales increase in recent years 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 6.4% in 2022.

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

Transactions and average ticket.

We define transactions as the number of customer transactions for stores and e-commerce during a given period on a comparable sales basis.

Transactions are influenced by customer traffic, the amount of customers that visited our stores or website, and sales conversion, the percent of those customers that made a purchase.

We define average ticket as total comparable sales divided by the number of transactions during a given period, which tells us the average amount the customer is spending on a purchase.

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

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Components of Our Results of Operations.

Our profitability is primarily influenced by fluctuations in net sales, gross margin and our ability to leverage selling, general and administrative expenses.

Our profitability is primarily influenced by fluctuations in net sales, inventory expenses, our ability to leverage selling, general and administrative expenses, and our ability to limit our interest and income tax expense.

Net sales are derived from in-store and e-commerce merchandise sales, net of sales tax and an allowance for merchandise returns.

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

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

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.

This implementation, along with other factors, has allowed us to improve our inventory management in stores over the past few years.

We have coupled these tools with the data we have been able to collect from our Academy Credit Card program, our customer database 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.

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.

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

Additionally, we have benefited from 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.

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 has resulted in increased sales in recent years and will be a key driver of growth in our net sales and gross margin.

We have also continued to add private label 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 private label 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, our softgoods merchandise divisions, which consist of apparel and footwear, have higher margins than our hardgoods merchandise divisions, which consist of outdoors and sports and recreation.

A shift in sales mix toward softgoods would generally have a positive impact on gross margin and a shift in sales mix towards hardgoods would generally have a negative impact on gross margin.

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 2022, we improved our omnichannel capabilities by implementing several innovative features to enhance the customer shopping experience, 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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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, especially in light of changing consumer preferences as a result of the COVID-19 pandemic, which, together with recent enhancements made to our website and omnichannel capabilities, contributed to the substantial increase in e-commerce sales during 2020.

We 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 2020, 2021 and 2022.

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

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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 eight new stores in 2022.

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

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 13 to 15 new stores in fiscal 2023.

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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Gross margin is our net sales less cost of goods sold.

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, 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.

Our cost of goods sold includes the direct cost of merchandise and costs related to procurement, warehousing and distribution, which 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 private label brand merchandise sales, and our ability to control cost of goods sold, such as inventory and logistics cost management.

Our gross margin is also impacted by variables including commodity costs, freight costs, shrinkage and inventory processing costs and e-commerce shipping costs.

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.

Over the past couple of years, we have seen increased competition across the industry for resources throughout a constrained 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 experienced a period of decreased or delayed supply and high inflation.

These factors have negatively impacted transportation and inventory costs.

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.

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.

However, SG&A expenses as a percentage of sales remained relatively flat at 21.4% in 2022 when compared to 21.3% in 2021.

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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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.

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 (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).

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 financial statements).

In December of 2022, we utilized cash on hand to voluntarily prepay $100 million of outstanding borrowings on our Term Loan (see Note 4 to the accompanying financial statements).

These actions have resulted in interest expense reductions in 2021 and 2022 and are expected to continue into 2023.

Income Tax Expense.

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

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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 accompanying 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 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.

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 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.

A discussion regarding Results of Operations and Analysis of Financial Condition for the fiscal year ended January 29, 2022, as compared to the fiscal year ended January 30, 2021, 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 29, 2022.

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Interest expense, net 46,441 0.7 % 48,989 0.7 % (2,548) (5.2) %

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

Loss on early retirement of debt 1,963 0.0 % 2,239 0.0 % (276) (12.3) %

Other (income), net (20,175) (0.3) % (2,821) (0.0) % (17,354) 615.2 %

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

**NM - Not meaningful

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.

Net sales decreased $378.1 million, or 5.6%, in 2022 over the prior year as a result of decreased comparable sales of 6.4%, which were partially offset by $50.7 million in additional net sales generated by new locations.

As of the end of 2022, we operated nine additional stores as compared to the end of 2021.

The decrease of 6.4% in comparable sales was driven by lower sales across all merchandise divisions as a result of fewer transactions of 8.2%, partially offset by an increase in average ticket of 2.0%.

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 2021.

The majority of the decrease in comparable sales was due to lower sales in the outdoors merchandise division caused by a decrease in the hunting 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, largely driven by recreation and fitness as these categories 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, bikes and outdoor cooking.

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

The apparel division experienced declining sales largely due to athletic apparel and youth apparel, which were partially offset by increased sales in licensed apparel, and the footwear division was relatively flat compared to the prior year.

E-commerce sales increased $56.8 million, or 9.1%, in 2022 when compared to the prior year and represented 10.7% and 9.3% of merchandise sales for 2022 and 2021, 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.

Gross margin for 2021 increased $617.1 million, or 35.6%, when compared to 2020.

Our gross margin, as a percentage of net sales, was 34.7% in 2021 compared to 30.5% in 2020, an increase of 420 basis points.

This increase is primarily due to:

• 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;

Gross margin for 2022 decreased $138.6 million, or 5.9%, when compared to 2021.

Our gross margin, as a percentage of net sales, was 34.6% in 2022 compared to 34.7% in 2021, a decrease of 10 basis points.

This decrease is primarily due to:

• 17 basis points of unfavorability in e-commerce shipping costs due to increased e-commerce sales during 2022;

• 13 basis points of unfavorability on inventory valuation adjustments;

partially offset by

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

• 19 basis points of favorability on domestic inbound freight due to lower freight costs per unit.

Selling, General and Administrative Expenses.

SG&A expenses increased $129.5 million, or 9.9%, to $1,443.1 million in 2021 from $1,313.6 million in 2020.

As a percentage of net sales, SG&A expenses were down 1.8% to 21.3% in 2021 compared to 23.1% in 2020.

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

• 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.

SG&A expenses decreased $77.2 million, or 5.3%, to $1,366.0 million in 2022 from $1,443.1 million in 2021 primarily due to higher prior year compensation costs associated with the 2021 Vesting Event (see Note 1 to the accompanying financial statements) of $24.9 million of equity compensation and $15.4 million in related payroll tax expense.

Additionally, $54.7 million of higher performance-based compensation in 2021 contributed to the decrease.

As a percentage of net sales, SG&A expenses increased 0.1% to 21.4% in 2022 compared to 21.3% in 2021 primarily attributable to deleverage from decreased sales.

Loss on early retirement of debt.

Loss on early retirement of debt decreased $0.3 million to a loss of $2.0 million from $2.2 million in 2021.

During the 2022 fourth quarter, we utilized cash on hand to voluntarily prepay $100.0 million of outstanding borrowings under the Term Loan, which resulted in a loss on early retirement of debt of $2.0 million.

During the 2021 second quarter, we refinanced our Term Loan, including a prepayment of $99.0 million, which resulted in a loss on early retirement of debt of $2.2 million.

Interest 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.

Interest expense decreased $2.5 million, or 5.2%, to $46.4 million in 2022 from $49.0 million in 2021 resulting primarily from a lower outstanding balance on our long-term debt as a result of the Refinancing Transactions (see Note 4 to the accompanying financial statements) and the voluntary Term Loan prepayments of $99.0 million and $100.0 million, which occurred in the second quarter of 2021 and the fourth quarter of 2022, respectively, partially offset by an increase in interest rates in recent months on our Term Loan.

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.

Other income increased $17.4 million in 2022 when compared with 2021, primarily driven by $7.2 million in business interruption proceeds received related to a winter storm which occurred in February of 2021 (see Note 2 to the accompanying financial statements) and higher interest income driven by favorable interest rate movement on money market investments in the current year.

Income Tax Expense.

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.

became subject to U.S.

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

Income tax expense increased $2.2 million to $190.3 million in 2022 as compared to $188.2 million in 2021 resulting primarily from an increased effective tax rate.

ASO, Inc.'s effective tax rate for 2022 was 23.3% compared to 21.9% in 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.

Non-GAAP Measures

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Fiscal Year Ended

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

January 28, 2023 January 29, 2022 January 30, 2021

Net income $ 628,001 $ 671,381 $ 308,764

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Other (g) — 3,118 8,592

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

Adjusted EBITDA (h) $ 994,661 $ 1,073,842 $ 607,023

Depreciation and amortization (106,762) (105,274) (105,481)

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

Adjusted EBIT (h) $ 887,899 $ 968,568 $ 501,542

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

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

(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.

(b) Represents our contractual payments under the Monitoring Agreement (see Note 13 to the accompanying 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 (see Note 1 to the accompanying 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.

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(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.

(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 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 financial statements) members and our omnibus incentive plan, and other costs associated with strategic cost savings and business optimization initiatives.

(h) Effective January 28, 2023, we no longer exclude pre-opening expenses from our computation of Adjusted EBITDA and Adjusted EBIT (see "Pre-Opening Expenses" in Note 2 to the accompanying financial statements).

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

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Fiscal Year Ended

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

January 28, 2023 January 29, 2022 January 30, 2021

Net income $ 628,001 $ 671,381 $ 308,764

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Tax effects of these adjustments (h) (5,382) (14,884) (136)

Adjusted Net Income 716,536 384,536 101,469

Estimated tax effect of change to C-Corporation status (i) — (72,844) (25,542)

Pro Forma Adjusted Net Income $ 716,536 $ 311,692 $ 75,927

Adjusted Net Income (i) 645,757 716,536 384,536

Estimated tax effect of change to C-Corporation status (j) — — (72,844)

Pro Forma Adjusted Net Income (i) $ 645,757 $ 716,536 $ 311,692

Earnings per common share:

Basic $ 7.70 $ 7.38 $ 3.96

Diluted $ 7.49 $ 7.12 $ 3.79

Pro Forma Adjusted Earnings per Share:

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

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

(h) Represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at our historical tax rate.

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

(g) Other adjustments include (representing deductions or additions to Adjusted Net Income) amounts that management believes are not representative of our operating performance, including 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, and other costs associated with strategic cost savings and business optimization initiatives.

(h) Represents the tax effect of the total adjustments made to arrive at Adjusted Net Income and Pro Forma Adjusted Net Income at our historical tax rate.

(i) Effective January 28, 2023, we no longer exclude pre-opening expenses from our computation of Adjusted Net Income and Pro Forma Adjusted Net Income (see "Pre-Opening Expenses" in Note 2 to the accompanying financial statements).

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

Adjusted Free Cash Flow

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Fiscal Year Ended

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

January 28, 2023 January 29, 2022 January 30, 2021

Net cash provided by operating activities $ 552,005 $ 673,265 $ 1,011,597

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Sources and Uses of Liquidity

Historically, our principal sources of cash have included:

• cash generated from operating activities;

• 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, 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;

• cash used to pay our debt obligations and related interest expense;

• 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.

Our principal liquidity requirements are for working capital, capital expenditures and cash used to pay our debt obligations and related interest expense.

We also use cash to pay dividends and occasionally use cash to repurchase common stock.

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 January 28, 2023, our cash and cash equivalents totaled $337.1 million.

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 $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 "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 (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

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.

Long-Term Debt

As of January 28, 2023, the Company's long-term debt and interest rates consists of (see Note 4 to the accompanying financial statements):

• Notes - 6.00% fixed rate senior secured notes with $400 million in principal outstanding and full principal maturing November 15, 2027;

• Term Loan - 8.12% variable rate term-loan with $194.8 million in principal outstanding maturing November 6, 2027 and quarterly principal payments of $750 thousand;

• ABL Facility - $1.0 billion commitment on a variable rate secured asset-based revolving credit facility with no principal outstanding maturing November 6, 2025.

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

2023 2024 2025 2026 2027 Total

Term Loan and related interest (1)

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2,500 2,500 1,909 — — 6,909

(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.

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 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.

(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) Interest payments do not include amortization of debt issuance costs and assumes Notes are paid in full at maturity date.

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

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

Fiscal Year Ended

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

January 28, 2023 January 29, 2022 January 30, 2021

Average funds drawn $ — $ — $ 126,648

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Available borrowing capacity $ 947,764 $ 874,831

We lease store locations, distribution centers, office space and certain equipment under operating leases expiring between fiscal years 2023 and 2043.

Operating lease obligations include future minimum lease payments under all of our non-cancelable operating leases at January 28, 2023.

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

2023 2024 2025 2026 2027 After 2027 Total

Operating lease payments (1) (2)

$ 211,906 $ 207,038 $ 200,278 $ 192,346 $ 178,547 $ 908,455 $ 1,898,570

(1) Minimum lease payments have not been reduced by sublease rentals of $0.5 million due in the future under non-cancelable subleases.

(2) These balances include stores where we have an executed contract but have not taken possession of the location as of January 28, 2023.

In the fiscal year ended January 28, 2023, we opened nine new locations.

We expect to open 13 to 15 stores in fiscal 2023.

Share Repurchases

On June 2, 2022, the Board of Directors of the Company authorized a 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.

As of January 28, 2023, the Company had $299.4 million remaining for share repurchases under the 2022 Share Repurchase Program.

The 2022 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.

In 2022 and 2021, we repurchased and concurrently retired 11,903,636 and 10,566,796 shares of ASO, Inc.

common stock for an aggregate amount of $489.5 million and $411.4 million, respectively, which include purchases that were pursuant to the Share Repurchase Programs (see Note 2 to the accompanying financial statements) and those that were made prior to the Share Repurchase Programs.

The following table summarizes our share repurchases for the fiscal year ended January 28, 2023:

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

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) 5,550,892 36.05 200,110,996

Third Quarter (July 31, 2022 to October 29, 2022) 2,176,463 46.33 100,824,712

Fourth Quarter (October 30, 2022 to January 28, 2023) (1)

1,903,932 52.54 100,038,078

Total Shares Repurchased 11,903,636 $ 41.12 $ 489,474,667

(1) See Part II, Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for further detail on the 2022 fourth quarter share repurchases.

The following table summarizes our quarterly dividend payments for the fiscal year ended January 28, 2023 (amounts in thousands, except per share amounts):

Dividends Paid 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

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

Fourth Quarter (October 30, 2022 to January 28, 2023) $ 0.075 5,852 December 20, 2022

Total Dividends Paid $ 24,633

Capital Expenditures

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

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.

The following table summarizes our capital expenditures for the fiscal years ended January 28, 2023 and January 29, 2022 (amounts in thousands):

Fiscal Year Ended

January 28, 2023 January 29, 2022

Corporate, e-commerce and information technology programs $ 50,019 $ 44,967

New stores and relocations 42,735 1,955

Updates for existing stores and distribution centers 15,550 28,880

Total capital expenditures $ 108,304 $ 75,802

We expect capital expenditures for fiscal year 2023 to be between $200 million and $250 million.

The following table summarizes our forecasted allocation of capital expenditures for fiscal year 2023:

Corporate, e-commerce and information technology programs 25 %

New stores 55 %

Updates for existing stores and distribution centers 20 %

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

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

Fiscal Year Ended

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

January 28, 2023 January 29, 2022 January 30, 2021

Net cash provided by operating activities $ 552,005 $ 673,265 $ 1,011,597

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Net cash used in financing activities (592,052) (488,854) (750,234)

Net increase in cash and cash equivalents $ 108,394 $ 228,219 $ 73,694

Net increase (decrease) in cash and cash equivalents $ (148,853) $ 108,394 $ 228,219

Operating Activities.

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This decrease is attributable to:

• $51.5 million net decrease in non-cash charges;

• $43.4 million decrease in net income;

• $26.4 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 decrease from non-cash charges was primarily caused by:

• $37.7 million decrease in deferred income taxes;

• $18.1 million decrease in equity compensation expense as a result of the 2021 Vesting Event.

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:

• $78.8 million increase in deferred income taxes.

• $90.3 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 2022;

partially offset by

• $70.1 million increase in cash flows from merchandise inventories, net related to higher prior year outflows to replace lower inventory.

Investing Activities .

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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.

• $32.5 million higher capital expenditures driven by investments in new stores and store updates in 2022.

Financing Activities .

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;

Cash used in financing activities increased $103.2 million in the 2022, compared to 2021.

The primary drivers of the increase were:

• $78.1 million increase in cash outflows related to Company's repurchase and simultaneous retirement of common stock;

• $27.3 million decrease in net proceeds from the exercise of stock options;

• $24.6 million increase in cash outflows related to dividend payments made in 2022;

partially offset by

• $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.

• $14.2 million decrease in taxes paid related to net share settlement of equity awards;

• $11.2 million decrease in Share-Based Award Payments (see Note 9 to the accompanying financial statements) which were made in 2021.

Future Liquidity

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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:

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Judgments and Uncertainties:

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

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

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

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

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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.

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

We operate in one segment with one reporting unit.

We operate in one operating segment with one reporting unit.

Judgments and Uncertainties:

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Recent Accounting Pronouncements

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

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

Related Party Transactions

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

For discussion of related party transactions, see Note 13 to the accompanying 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