What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-06-06 compared with 2022-12-07 · 158 added, 242 removed, 267 unchanged (60% of the section changed)

3 unchanged sentences

Forward-looking statements include all statements that are not historical facts, including statements reflecting our current views with respect to, among other things, our operations and financial performance.

These forward-looking statements are included throughout this Quarterly Report, including this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in the section entitled "Risk Factors," and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information.

These forward-looking statements are included throughout this Quarterly Report, including this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in the section entitled "Risk Factors," and relate to matters such as macroeconomic conditions, our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information.

We have used the words "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future," "will," "seek," "foreseeable," the negative version of these words or similar terms and phrases to identify forward-looking statements in this Quarterly Report.

14 unchanged sentences

• our ability to predict or effectively react to changes in consumer tastes and preferences, to acquire and sell brand name merchandise at competitive prices and/or to manage our inventory balances;

• the impact of COVID-19 on our business and the communities we serve;

• intense competition in the sporting goods and outdoor recreation retail industries;

• our ability to safeguard sensitive or confidential data relating to us and our customers, team members and vendors;

• the continued impact of the COVID-19 pandemic on our business and the communities we serve;

• risks associated with our reliance on internationally manufactured merchandise;

• our ability to safeguard sensitive or confidential data relating to us and our customers, team members and vendors;

• intense competition in the sporting goods and outdoor recreation retail industries;

• our ability to operate, update or implement our information technology systems;

4 unchanged sentences

• risks associated with our e-commerce business;

• risks related to our owned brand merchandise;

• risks related to our private label brand merchandise;

• any disruption in the operation of our distribution centers;

4 unchanged sentences

• the geographic concentration of our stores;

• fluctuations in merchandise (including raw material) costs and availability;

• fluctuations in merchandise (including raw materials) costs and availability;

• payment-related risks;

• our ability to successfully pursue strategic acquisitions and integrate acquired businesses;

• the effectiveness of our marketing and advertising programs;

• our ability to successfully pursue strategic acquisitions and integrate acquired businesses.

Legal and Regulatory Risks

• our ability to comply with laws and regulations affecting our business, including those relating to the sale, manufacture and import of consumer products;

• risks related to climate change and other sustainability-related matters;

• claims, demands and lawsuits to which we are, and may in the future, be subject and the risk that our insurance or indemnities coverage may not be sufficient;

• risks related to product safety;

• our ability to protect our intellectual property and avoid the infringement of third-party intellectual property rights.

• new and increased costs, risks, and additional regulations and requirements as a result of becoming a public company;

• our ability to have effective internal controls;

Risks Related to Our Indebtedness

1 unchanged sentence

• our ability to incur substantially more debt;

• restrictions on our current and future operations imposed by the terms of our indebtedness;

• our variable rate indebtedness subjects us to interest rate risk;

• restrictions on our current and future operations imposed by the terms of our indebtedness;

• our ability to borrow under the ABL Facility (as defined below);

1 unchanged sentence

Risks Related to the Ownership of Our Common Stock

• you may be diluted by any future issuances of shares by us;

• our stock price is volatile and may decline;

• our ability to raise capital in the future may be limited;

• our stock price is volatile or may decline;

• our ability or decision to pay dividends on our common stock or conduct stock repurchases;

• lack of or negative coverage by securities analysts;

• our ability to pay dividends on our common stock;

• anti-takeover provisions in our organizational documents could delay or prevent a change of control;

1 unchanged sentence

• our exclusive forum provision;

• you may be diluted by any future issuances of shares by us.

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

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 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.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen weeks ended April 29, 2023 and our audited financial statements for the fiscal year ended January 28, 2023 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.

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

We conduct our operations through our subsidiaries, including our indirect subsidiary, Academy, Ltd., an operating company which is doing business as "Academy Sports + Outdoors." All of the Company's sales and business operations occur at Academy, Ltd., and Academy, Ltd., is also the borrower and/or issuer of the Company's long-term debt and lessee of facilities.

We operate on a retail fiscal calendar pursuant to which our fiscal year consists of 52 or 53 weeks, ending on the Saturday closest to January 31 (which such Saturday may occur on a date following January 31) each year.

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 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.

References to the "current quarter," "2023 first quarter," or similar reference refers to the thirteen week period ended April 29, 2023, and any reference to the "prior year quarter," "2022 first quarter" or similar reference refers to the thirteen week period ended April 30, 2022.

Unless otherwise specified, all comparisons regarding the current period of 2023 are made to the corresponding period of 2022.

All statements in this Quarterly 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.

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

We are a leading full-line sporting goods and outdoor recreation retailer 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 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.

Our product assortment focuses on key categories of outdoors, apparel, sports and recreation and footwear (representing 28%, 25%, 25% and 22% of our 2023 first quarter net sales, respectively) through both leading national brands and a portfolio of private label brands, which go well beyond traditional sporting goods and apparel offerings.

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

2 unchanged sentences

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

As of 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.

As of April 29, 2023, we operated 269 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 e-commerce platform, which includes our website at www.academy.com and our mobile app.

1 unchanged sentence

The following table summarizes store activity for the periods indicated:

Thirty-Nine Weeks Ended

October 29, 2022 October 30, 2021

Thirteen Weeks Ended

April 29, 2023 April 30, 2022

Beginning stores 268 259

Q1 new stores 1 1

Q2 new stores 1 —

Q3 new stores 4 —

Ending stores 269 260

21 unchanged sentences

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 full year results from (0.7)% in 2019 to 16.1% and 18.9% in 2020 and 2021, respectively.

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

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.

We experienced a decrease in comparable sales in the prior year, which continued with a decline of 7.3% for the 2023 first quarter.

See the discussion on Net Sales below for some contributing factors to these 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, Adjusted Earnings per Share and Adjusted Free Cash Flow.

11 unchanged sentences

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 and targeted customer surveys, so that we can better estimate future inventory requirements.

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.

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.

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.

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.

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.

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.

We have recently 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.

1 unchanged sentence

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

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

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

During the 2023 first quarter, stores facilitated approximately 95% of our total sales, including ship-from-store, BOPIS and in-store retail sales.

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

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

We expect that new stores will be a key driver of growth in our net sales in the future as we execute our new store opening growth plans of 13 to 15 new stores in 2023 and 120 to 140 new stores over the next five years.

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 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 are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider, and during the 2023 first quarter we opened one new store.

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

2 unchanged sentences

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 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 owned brand merchandise sales, and our ability to control cost of goods sold, such as inventory and logistics cost management.

1 unchanged sentence

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 or delayed supply and high inflationary levels.

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

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.

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.

During 2021, there was increased competition across the industry for resources throughout a constrained supply chain, which 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 experienced a period of decreased or delayed supply and high inflation which negatively impacted transportation and inventory costs.

Over the past year, we have seen improvement to these constraints, resulting in decreased freight costs.

Selling, General and Administrative Expenses.

1 unchanged sentence

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

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.

SG&A expenses as a percentage of sales increased from 21.5% in the 2022 first quarter to 24.6% in the 2023 first quarter.

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

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

Pre-opening expenses represent non-capital expenditures associated with the opening of new stores and distribution centers prior to sales generation or start of operations, which consist primarily of occupancy costs, marketing, payroll and recruiting costs, and are expensed as incurred.

As we execute our new store opening growth plans of 13 to 15 new stores in 2023 and 120 to 140 new stores over the next five years, we expect our pre-opening expenses to increase and result in a negative impact to SG&A as a percentage of sales.

We opened one new store and incurred pre-opening expenses of $1.6 million during the 2023 first quarter.

We opened one new store and incurred pre-opening expenses of $1.0 million during the 2022 first quarter.

Interest Expense.

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

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

Subsequently, in May of 2021 we entered into an amendment to our Term Loan which reduced the applicable margin on our LIBOR rate by 1.25% and paid down $99 million.

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

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), which has resulted in interest expense reductions in the thirteen weeks ended April 29, 2023.

However, during 2022 and 2023 first quarter, 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 2023 first quarter relative to the prior year quarter.

Income Tax Expense.

3 unchanged sentences

Recent fluctuations in income tax expense have been primarily as a result of changes in income before income taxes.

Impact of COVID-19 on Our Business

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 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.

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

Results of Operations

Thirteen Weeks Ended October 29, 2022 Compared to Thirteen Weeks Ended October 30, 2021

Thirteen Weeks Ended April 29, 2023 Compared to Thirteen Weeks Ended April 30, 2022

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

October 29, 2022 October 30, 2021 Dollars Percent

April 29, 2023 April 30, 2022 Dollars Percent

Net sales $ 1,383,609 100.0 % $ 1,467,730 100.0 % $ (84,121) (5.7) %

10 unchanged sentences

**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 $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:

• 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

• 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 $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 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 $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 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):

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) %

Cost of goods sold 3,008,612 64.7 % 3,197,623 64.4 % (189,011) (5.9) %

Gross margin 1,639,958 35.3 % 1,767,035 35.6 % (127,077) (7.2) %

Selling, general and administrative expenses 998,209 21.5 % 1,057,290 21.3 % (59,081) (5.6) %

Operating income 641,749 13.8 % 709,745 14.3 % (67,996) (9.6) %

Interest expense, net 34,240 0.7 % 38,130 0.8 % (3,890) (10.2) %

Loss on early retirement of debt — — % 2,239 0.0 % (2,239) (100.0) %

Other (income), net (4,676) (0.1) % (1,746) (0.0) % (2,930) 167.8 %

Income before income taxes 612,185 13.2 % 671,122 13.5 % (58,937) (8.8) %

Income tax expense 141,837 3.1 % 141,511 2.9 % 326 0.2 %

Net income $ 470,348 10.1 % $ 529,611 10.7 % $ (59,263) (11.2) %

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

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 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.

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, bikes, outdoor games and outdoor cooking.

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.

Net sales decreased $84.1 million, or 5.7%, for the 2023 first quarter compared to the 2022 first quarter as a result of decreased comparable sales of 7.3%, which were partially offset by increased sales generated from new locations.

As of the end of the 2023 first quarter, we operated nine additional stores as compared to the end of the 2022 first quarter, and we had the full benefit of one store opened during the 2022 first quarter.

Collectively, these stores accounted for a net $22.9 million increase in net sales for the 2023 first quarter.

The decrease of 7.3% in comparable sales was driven by lower sales across all merchandise divisions as a result of a decrease in transactions of 6.7% and a decline in average ticket of 0.6%.

The outdoors merchandise division sales declines were led by the hunting and fishing categories.

The sports and recreation merchandise division sales were primarily driven by decreased sales in fitness equipment, water sports, bikes and outdoor games, partially offset by sales increases in team sports, including baseball, golf and racquet sports.

The footwear merchandise division sales decreased due to lower sales in athletic footwear, partially offset by increased sales in team sports footwear.

The apparel merchandise division was relatively flat compared to the prior year.

E-commerce net sales represented 8.2% of merchandise sales in the 2023 first quarter compared to 9.5% in the 2022 first quarter.

Gross Margin.

Gross margin decreased $127.1 million, or 7.2%, to $1,640.0 million for the year-to-date 2022 from $1,767.0 million for the year-to-date 2021.

As a percentage of net sales, gross margin decreased 0.3% from 35.6% in the prior year-to-date to 35.3% in the current year-to-date.

Gross margin decreased $54.3 million, or 10.4%, to $467.1 million for the 2023 first quarter from $521.4 million for the 2022 first quarter.

As a percentage of net sales, gross margin decreased 1.7% from 35.5% in the 2022 first quarter to 33.8% in the 2023 first quarter.

The decrease of 170 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;

partially offset by

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

• 110 basis points of unfavorability in merchandise margin as a result of increased clearance and promotional activity compared to the 2022 first quarter;

• 76 basis points of unfavorability as a result of increased inventory shrink.

Selling, General and Administrative Expenses.

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.

SG&A expenses increased $25.0 million, or 7.9%, to $340.9 million for the 2023 first quarter from $315.9 million for the 2022 first quarter.

As a percentage of net sales, SG&A expenses increased 3.1% to 24.6% in the 2023 first quarter compared to 21.5% in the 2022 first quarter.

The increase of 310 basis points is primarily attributable to deleverage from increased costs on decreased sales.

SG&A costs increased $25.0 million primarily as a result of:

• Employee compensation costs increased $12.0 million primarily due to increased equity compensation and an increased wages expense over the prior year, partially attributable to the addition of nine new stores since the end of the prior year first quarter;

• Advertising spend increase of $7.0 million;

• Property and facility fees increase of $4.0 million primarily due to the addition of new stores.

Interest Expense.

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 refinanced our Term Loan, which resulted in a loss on early retirement of debt of $2.2 million.

Interest expense increased $0.3 million, or 2.8%, for the 2023 first quarter when compared to the 2022 first quarter, resulting from an increase in interest rates in recent months on our Term Loan, which was partially offset by a lower outstanding balance on our long-term debt as a result of a voluntary prepayment of $100.0 million in December 2022.

Other (Income), net.

Other income, net, increased $2.9 million, or 167.8%, in the year-to-date 2022 when compared to the year-to-date 2021, primarily driven by favorable interest rate movement on money market investments in the current year.

Other income, net, increased $3.0 million in the 2023 first quarter when compared to the 2022 first quarter due to higher interest rates on money market investments in the current year.

Income Tax Expense.

Income tax expense increased $0.3 million to $141.8 million for the year-to-date 2022 as compared to $141.5 million for the year-to-date 2021, resulting primarily from an increased effective tax rate.

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

Income tax expense decreased $20.8 million to $24.7 million for the 2023 first quarter as compared to $45.5 million for the 2022 first quarter, resulting primarily from a decrease in pre-tax income.

Non-GAAP Measures

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

We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment, further adjusted to exclude costs such as consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early retirement of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, pre-opening expenses, payroll taxes associated with the 2021 Vesting Event and other adjustments.

We define Adjusted EBIT as net income (loss) before interest expense, net, and income tax expense, further adjusted to exclude costs such as consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early retirement of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, pre-opening expenses, payroll taxes associated with the 2021 Vesting Event and other adjustments.

We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment, further adjusted to exclude costs such as equity compensation expense, (gain) loss on early retirement of debt, net, payroll taxes associated with the 2021 Vesting Event and other adjustments.

We define Adjusted EBIT as net income (loss) before interest expense, net, and income tax expense, further adjusted to exclude costs such as equity compensation expense, (gain) loss on early retirement of debt, net, payroll taxes associated with the 2021 Vesting Event and other adjustments.

We describe these adjustments reconciling net income (loss) to Adjusted EBITDA and to Adjusted EBIT in the applicable table below.

We define Adjusted Net Income as net income (loss), plus costs such as consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early retirement of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, pre-opening expenses, payroll taxes associated with the 2021 Vesting Event and other adjustments, less the tax effect of these adjustments.

We define Adjusted Net Income as net income (loss), plus costs such as equity compensation expense, (gain) loss on early retirement of debt, net, payroll taxes associated with the 2021 Vesting Event and other adjustments, less the tax effect of these adjustments.

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

6 unchanged sentences

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

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

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

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

17 unchanged sentences

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

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

Thirteen Weeks Ended

April 29, 2023 April 30, 2022

Net income $ 93,970 $ 149,806

3 unchanged sentences

Equity compensation (a) 11,382 3,499

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

Pre-opening expenses (b) 2,115 — 4,941 —

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

Other (d) — 595 — 1,309

Adjusted EBITDA $ 217,004 $ 246,702 $ 745,704 $ 842,111

Adjusted EBITDA (b) $ 167,552 $ 235,267

Depreciation and amortization (26,261) (25,578)

Adjusted EBIT $ 190,004 $ 220,243 $ 666,852 $ 764,344

(a) Represents non-cash charges related to equity-based compensation, which vary from period to period depending on certain factors such as the 2021 Vesting Event, timing and valuation of awards, achievement of performance targets and equity award forfeitures.

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

These costs consist primarily of occupancy costs, marketing, payroll and recruiting costs.

These costs are expensed as incurred.

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

Adjusted EBIT (b) $ 141,291 $ 209,689

(a) Represents non-cash charges related to equity-based compensation, which vary from period to period depending on certain factors such as timing and valuation of awards, achievement of performance targets and equity award forfeitures.

(b) Effective January 28, 2023, we no longer exclude pre-opening expenses from our computations of Adjusted EBITDA and Adjusted EBIT.

Adjusted EBITDA and Adjusted EBIT for the thirteen weeks ended April 30, 2022 have been revised to the current period computation methodology.

See the section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview - Selling, General and Administrative Expenses for details of our pre-opening expenses for the periods presented.

Adjusted Net Income and Adjusted Earnings per Share

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

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

Thirteen Weeks Ended

April 29, 2023 April 30, 2022

Net income $ 93,970 $ 149,806

Equity compensation (a) 11,382 3,499

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

Pre-opening expenses (b) 2,115 — 4,941 —

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

Other (d) — 595 — 1,309

Tax effects of these adjustments (e) (1,808) (686) (4,735) (13,487)

Adjusted Net Income $ 137,877 $ 164,135 $ 486,040 $ 571,216

Tax effects of these adjustments (b) (2,370) (816)

Adjusted Net Income (c) $ 102,982 $ 152,489

Earnings per common share:

Basic $ 1.22 $ 1.73

Diluted $ 1.19 $ 1.69

Adjusted Earnings per Share:

4 unchanged sentences

79,288 88,614

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

These costs consist primarily of occupancy costs, marketing, payroll and recruiting costs.

These costs are expensed as incurred.

(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 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.

(b) For the thirteen weeks ended April 29, 2023 and April 30, 2022, 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 Net Income for the thirteen weeks ended April 30, 2022 has been revised to the current period computation methodology.

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 Thirty-Nine Weeks Ended

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

Thirteen Weeks Ended

April 29, 2023 April 30, 2022

Net cash provided by operating activities $ 52,135 $ 97,097

6 unchanged sentences

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

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

On April 29, 2023, our cash and cash equivalents totaled $295.5 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.

Long-Term Debt

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") 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 financial statements).

As of April 29, 2023, the Company's long-term debt and interest rates consist 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 - 8.60% variable rate term-loan with $194.0 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):

2022 2023 2024 2025 2026 After 2026 Total

2023 2024 2025 2026 2027 Total

Term Loan and related interest (1)

5 unchanged sentences

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

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

(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 assumes 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):

Thirty-Nine Weeks Ended

October 29, 2022 October 30, 2021

Thirteen Weeks Ended

April 29, 2023 April 30, 2022

Average funds drawn $ — $ —

3 unchanged sentences

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

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

April 29, 2023 January 28, 2023 April 30, 2022

Outstanding borrowings $ — $ — $ —

2 unchanged sentences

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 October 29, 2022.

Operating lease obligations include future minimum lease payments under all of our non-cancelable operating leases at April 29, 2023.

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

3 unchanged sentences

(1) Minimum lease payments have not been reduced by sublease rentals of $0.4 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 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.

(2) These balances include stores where we have an executed contract but have not taken possession of the location as of April 29, 2023.

In the thirteen weeks ended April 29, 2023, we opened one new location and we intend to open 13 to 15 new locations in 2023.

Share Repurchases

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

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

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

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

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

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

As of 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:

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

First Quarter (January 31, 2021 to May 1, 2021) — $ — $ —

Second Quarter (May 2, 2021 to July 31, 2021) (1)

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 29, 2022) 1,613,930 40.63 65,571,394

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

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

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

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

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.

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.

As of April 29, 2023, we had approximately $249.4 million available for share repurchases pursuant to the 2022 Share Repurchase Program (see Note 2 to the accompanying financial statements).

The following table summarizes our share repurchases for the 2023 first quarter (dollar amounts in thousands, except per share amounts):

Total Number of Shares Purchased Average Price Paid per Share (1)

Total Amount Repurchased (1)

First Quarter (January 29, 2023 to April 29, 2023) (2)

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)

750,010 $ 66.69 $ 50,015

Total Shares Repurchased 750,010 $ 66.69 $ 50,015

(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):

(1) Excludes the impact of excise taxes.

(2) See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for further detail on the 2023 first quarter share repurchases.

The following table summarizes our quarterly dividend payments for the 2023 first quarter (amounts in thousands, except per share amounts):

Dividend per Share Total Dividends Paid Stockholder Date of Record

First Quarter (January 29, 2023 to April 29, 2023) $ 0.09 $ 6,929 March 23, 2023

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 $ 6,929

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).

On June 1, 2023, the Company's Board of Directors declared a quarterly cash dividend with respect to the fiscal quarter ended April 29, 2023, of $0.09 per share of the Company's common stock, payable on July 13, 2023, to stockholders of record as of the close of business on June 15, 2023.

Capital Expenditures

We expect capital expenditures for fiscal year 2022 to be approximately $130.0 million.

Approximately 40% of our planned cash outflow relate to investments in our corporate, e-commerce and information technology programs.

Investments in new stores and relocations are expected to be 40% of our planned cash outflow and the remaining 20% of the planned cash outflow is expected to be utilized in updates for 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.

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

The following table summarizes our capital expenditures for the thirteen weeks ended April 29, 2023 and April 30, 2022 (amounts in thousands):

Thirteen Weeks Ended

April 29, 2023 April 30, 2022

New stores $ 17,207 $ 4,888

Corporate, e-commerce and information technology programs 16,348 8,661

Updates for existing stores and distribution centers 6,909 3,731

Total capital expenditures $ 40,464 $ 17,280

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:

New stores 55 %

Corporate, e-commerce and information technology programs 25 %

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.

Cash Flows for the Thirteen Weeks Ended April 29, 2023 and April 30, 2022

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

Thirty-Nine Weeks Ended

October 29, 2022 October 30, 2021

Thirteen Weeks Ended

April 29, 2023 April 30, 2022

Net cash provided by operating activities $ 52,135 $ 97,097

1 unchanged sentence

Net cash used in financing activities (53,197) (93,388)

Net increase (decrease) in cash and cash equivalents $ (167,831) $ 23,693

Net decrease in cash and cash equivalents $ (41,609) $ (13,603)

Operating Activities.

1 unchanged sentence

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

Cash provided by operating activities in the year-to-date 2022 decreased $205.9 million, compared to year-to-date 2021.

Cash provided by operating activities in the 2023 first quarter decreased $45.0 million, compared to 2022 first quarter.

This decrease in cash was attributable to:

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

• $55.8 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:

• $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:

• $23.4 million decrease in deferred income taxes;

• $20.6 million decrease in equity compensation expense as a result of the 2021 Vesting Event.

• $9.9 million net increase in cash flows provided by operating assets and liabilities;

• $1.0 million net increase in non-cash charges.

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

• $49.1 million increase in cash flows from merchandise inventories, net related to a reduction in inventory replenishment in the 2023 first quarter when compared to the prior year period;

• $34.8 million increase in cash flows from a decrease in performance compensation payments made in the 2023 first quarter relative to the prior year quarter;

partially offset by a

• $58.9 million decrease in cash flows from accounts payable primarily due to decreased inventory receipts relative to the prior year first quarter.

Investing Activities .

Cash used in investing activities increased $21.1 million in the year-to-date 2022 compared to the year-to-date 2021.

Cash used in investing activities increased $23.2 million in the 2023 first quarter compared to the 2022 first quarter.

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

• $20.9 million higher capital expenditures driven by investments in new stores and store updates in the year-to-date 2022.

• $23.2 million higher capital expenditures driven by increased investments in new stores in the 2023 first quarter.

Financing Activities .

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

Cash used in financing activities decreased $40.2 million in the 2023 first quarter, compared to the 2022 first quarter.

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

• $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.

• $38.5 million decrease in cash outflows caused by a reduction in repurchases and simultaneous retirement of common stock in the current year.

Critical Accounting Policies and Estimates

6 unchanged sentences

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

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

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

Given the global economic climate, these estimates remain challenging, and actual results could differ materially from our estimates.

Effective January 29, 2023, the Company changed the method of accounting for its inventories from the last-in-first-out (“LIFO”) method to the weighted average cost method.

The Company believes that this inventory method change is preferable because we believe it improves comparability with industry peers and is a more accurate representation of merchandise inventories, net and cost of goods sold.

Due to historical price deflation on the Company’s merchandise purchases, the Company was in a position where the LIFO merchandise inventories value exceeded the cost of its inventory for all periods presented in the consolidated financial statements.

In considering the lower of cost or market principle, merchandise inventories valued at LIFO, including necessary valuation adjustments, approximated the cost of such inventories using the weighted average inventory method (see Note 2 to the accompanying financial statements).

Recent Accounting Pronouncements

The information set forth in Note 2 to our unaudited consolidated financial statements under Part I, Item 1 of this Quarterly Report is incorporated herein by reference.

Related Party Transactions

The information set forth in Note 11 to our unaudited consolidated financial statements under Part I, Item 1 under the heading of this Quarterly Report entitled "Related Party Transactions" is incorporated herein by reference.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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