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Item 2. Management’s Discussion and Analysis

2023-11-30 compared with 2023-08-31 · 107 added, 92 removed, 386 unchanged (34% of the section changed)

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

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

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 28, 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.

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

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

Any reference in this Quarterly Report to "current year-to-date," "year-to-date 2023" or similar reference represents the twenty-six week period ended July 29, 2023, and any reference in this Quarterly Report to "prior year-to-date," "year-to-date 2022" or similar reference represents the twenty-six week period ended July 30, 2022.

References to the "current quarter," "2023 third quarter," or similar reference refers to the thirteen week period ended October 28, 2023, and any reference to the "prior year quarter," "2022 third quarter" or similar reference refers to the thirteen week period ended October 29, 2022.

Any reference in this Quarterly Report to "current year-to-date," "year-to-date 2023" or similar reference represents the thirty-nine week period ended October 28, 2023, and any reference in this Quarterly Report to "prior year-to-date," "year-to-date 2022" or similar reference represents the thirty-nine week period ended October 29, 2022.

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

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

Our product assortment focuses on key categories of apparel, outdoors, sports and recreation and footwear (representing 28%, 27%, 25% and 20% of our 2023 second 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.

Our product assortment focuses on key categories of outdoors, apparel, footwear and sports and recreation (representing 32%, 27%, 22% and 19% of our 2023 third 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.

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

As of July 29, 2023, we operated 270 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.

As of October 28, 2023, we operated 275 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.

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The following table summarizes store activity for the periods indicated:

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

Beginning stores 268 259

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Q2 new stores 1 1

Q3 new stores 5 4

Ending stores 275 265

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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 2022.

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

During the 2023 third 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 in the future as we execute our new store opening growth plans of 13 to 14 total new stores in 2023 and 120 to 140 total new stores over the five fiscal year period ending with 2027.

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 14 total new stores in 2023 and 120 to 140 total new stores over the five fiscal year period ending with 2027.

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 during the 2023 second quarter we opened one new store.

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 third quarter we opened five new stores.

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

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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.

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

Our gross margin depends on a number of factors, such as net sales increases or decreases, our promotional activities, product mix including private label 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 (discussed below) 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.

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.

During 2021, we began to see 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.

We refer to loss or theft of inventory as "shrinkage" or "shrink".

Over recent years, the United States retail industry, including Academy, has experienced a significant increase in inventory shrink, which has resulted in a negative impact to our gross margins.

A prolonged period of significant increased shrink could have a material negative impact on our gross margin and results of operations.

Selling, General and Administrative Expenses.

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These expenses are both variable and fixed in nature.

SG&A expenses as a percentage of sales increased from 20.8% in the prior year-to-date to 23.4% in the current year-to-date.

SG&A expenses as a percentage of sales increased from 21.5% in the prior year-to-date to 23.8% in the current year-to-date, primarily attributable to the addition of new stores.

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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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 14 total new stores in 2023 and 120 to 140 total new stores over the five fiscal year period ending with 2027, we expect our pre-opening expenses to increase and result in a negative impact to SG&A as a percentage of sales.

As we execute our new store opening growth plans of 14 total new stores in 2023 and 120 to 140 total new stores over the five fiscal year period ending with 2027, we expect our pre-opening expenses to increase and result in a negative impact to SG&A as a percentage of sales.

The following table summarizes our pre-opening expense activity for the periods presented:

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022

Number of new stores opened 5 4 7 6

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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 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), however, during the year-to-date 2022 and 2023, 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 year-to-date 2023 relative to the year-to-date 2022.

In December 2022, we utilized cash on hand to voluntarily prepay $100 million of outstanding borrowings on our Term Loan;

however, this decrease in the Term Loan was largely offset by increases made by the Federal Reserve to the federal funds benchmark rate during 2022 and 2023, resulting in a small decrease in interest expense in the year-to-date 2023 compared to the year-to-date 2022.

Income Tax Expense.

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Results of Operations

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

Thirteen Weeks Ended October 28, 2023 Compared to Thirteen Weeks Ended October 29, 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

July 29, 2023 July 30, 2022 Dollars Percent

October 28, 2023 October 29, 2022 Dollars Percent

Net sales $ 1,397,777 100.0 % $ 1,493,925 100.0 % $ (96,148) (6.4) %

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

Net sales decreased $103.8 million, or 6.2%, in the 2023 second quarter over the prior year second quarter as a result of decreased comparable sales of 7.5%, which were partially offset by additional net sales generated by new locations.

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

Collectively, these stores accounted for a $24.2 million increase in net sales for the 2023 second quarter.

The decrease of 7.5% in comparable sales was driven by lower sales across all merchandise divisions as a result of a decrease in transactions of 8.3%, partially offset by an increase in average ticket of 0.8%.

The outdoors merchandise division sales declines were primarily as a result of a decrease in the hunting category, driven by decreases in firearms and ammunition sales over the prior year second quarter.

The apparel merchandise division sales decreased due to lower sales in athletic and outdoor apparel, partially offset by increased sales in licensed apparel.

The footwear merchandise division sales decreased due to lower sales in athletic footwear and team sports footwear categories, which were partially offset by increased sales in the casual footwear category.

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

E-commerce net sales represented 9.4% of merchandise sales for the 2023 second quarter compared to 10.0% for the prior year second quarter.

Net sales decreased $96.1 million, or 6.4%, in the 2023 third quarter over the prior year third quarter as a result of decreased comparable sales of 8.0%, which were partially offset by additional net sales generated by new locations.

As of the end of the 2023 third quarter, we operated 10 additional stores as compared to the end of the 2022 third quarter, and we had the full benefit of four stores opened during the 2022 third quarter.

Collectively, these stores accounted for a $21.9 million increase in net sales for the 2023 third quarter, which does not include e-commerce sales fulfilled from these locations.

The decrease of 8.0% in comparable sales was driven by lower sales across all merchandise divisions as a result of a decrease in transactions of 8.1%, while average ticket remained relatively flat.

The apparel merchandise division sales decreased due to lower sales in athletic and outdoor apparel.

The footwear merchandise division sales decrease was led by lower sales in the athletic footwear, work footwear and casual footwear categories.

The decline in the sports and recreation merchandise division sales was primarily driven by decreased sales in fitness equipment and bikes.

E-commerce net sales represented 9.4% of merchandise sales for the 2023 third quarter compared to 9.5% for the prior year third quarter.

Gross Margin.

Gross margin decreased $32.6 million, or 5.5%, to $563.4 million in the 2023 second quarter from $596.1 million in the 2022 second quarter.

As a percentage of net sales, gross margin increased 0.3% from 35.3% in the 2022 second quarter to 35.6% in the 2023 second quarter.

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

• 88 basis points of favorability in import and domestic freight due to lower freight costs per unit;

Gross margin decreased $39.8 million, or 7.6%, to $482.6 million in the 2023 third quarter from $522.5 million in the 2022 third quarter.

As a percentage of net sales, gross margin decreased 0.5% from 35.0% in the 2022 third quarter to 34.5% in the 2023 third quarter.

The decrease of 50 basis points in gross margin is primarily attributable to:

• 49 basis points of unfavorability in merchandise margin as a result of increased planned promotional activity compared to the 2022 third quarter;

• 26 basis points of unfavorability in inventory overhead expenditures as a result of higher absorption rates from slower inventory turnover;

• 19 basis points of unfavorability as a result of decreased vendor allowances;

• 12 basis points of unfavorability related to increased inventory shrinkage;

partially offset by

• 37 basis points of unfavorability as a result of increased shrink;

• 21 basis points of unfavorability in merchandise margin as a result of increased promotional activity compared to the 2022 second quarter.

• 77 basis points of favorability in import and domestic freight due to lower freight costs per unit.

Selling, General and Administrative Expenses.

SG&A expenses increased $13.2 million, or 3.9%, to $352.5 million in the 2023 second quarter as compared to $339.3 million in the 2022 second quarter.

As a percentage of net sales, SG&A expenses increased 2.2% to 22.3% in the 2023 second quarter compared to 20.1% in the 2022 second quarter.

The increase of 220 basis points in SG&A is primarily attributable to deleverage from decreased sales.

SG&A expenses increased $3.0 million, or 0.9%, to $345.9 million in the 2023 third quarter as compared to $342.9 million in the 2022 third quarter.

As a percentage of net sales, SG&A expenses increased 1.7% to 24.7% in the 2023 third quarter compared to 23.0% in the 2022 third quarter.

The increase of 170 basis points in SG&A is partially attributable to deleverage from decreased sales.

SG&A costs also increased $3.0 million primarily as a result of:

• Employee compensation costs increased $8.2 million, primarily due to increased equity compensation and increased wages expense over the prior year, partially attributable to the addition of nine new stores since the end of the second quarter of prior year;

• Property and facility fees increase of $6.0 million primarily due to the addition of new stores.

• Property and facility fees increase of $8.3 million primarily due to investments in long-term growth initiatives, which includes the addition of new stores and increased technology expense;

partially offset by

• Professional fees decrease of $2.5 million;

• Employee compensation costs decrease of $1.1 million, primarily driven by lower incentive compensation expenses in the current year quarter.

Interest Expense.

Interest expense increased $0.2 million, or 1.4%, in the 2023 second quarter when compared with the 2022 second quarter, resulting from increased interest rates on our Term Loan, which were 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.

Interest expense decreased $1.2 million, or 10.1%, in the 2023 third quarter when compared with the 2022 third quarter, resulting from higher capitalized interest due to increased construction of new stores and a lower outstanding balance on our long-term debt driven by a voluntary prepayment of $100.0 million made in December 2022.

Other (Income), net.

Other (income), net, increased $2.2 million in the 2023 second quarter when compared with the 2022 second quarter, primarily driven by higher interest rates on money market investments in the current year.

Other (income), net, increased $1.6 million in the 2023 third quarter when compared with the 2022 third quarter, primarily driven by higher interest rates on money market investments in the current year.

Income Tax Expense.

Income tax expense decreased $12.0 million to $46.2 million for the 2023 second quarter as compared to $58.2 million in the 2022 second quarter, resulting primarily from a decrease in pre-tax income.

Twenty-Six Weeks Ended July 29, 2023 Compared to Twenty-Six Weeks Ended July 30, 2022

Income tax expense decreased $8.2 million to $30.0 million for the 2023 third quarter as compared to $38.2 million in the 2022 third quarter, resulting primarily from a decrease in pre-tax income.

Thirty-Nine Weeks Ended October 28, 2023 Compared to Thirty-Nine Weeks Ended October 29, 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):

Twenty-Six Weeks Ended Change

July 29, 2023 July 30, 2022 Dollars Percent

Thirty-Nine Weeks Ended Change

October 28, 2023 October 29, 2022 Dollars Percent

Net sales $ 4,364,463 100.0 % $ 4,648,570 100.0 % $ (284,107) (6.1) %

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Net sales decreased $284.1 million, or 6.1%, for the year-to-date 2023 compared to the year-to-date 2022 as a result of decreased comparable sales of 7.6%, which were partially offset by increased sales generated from new locations.

As of the end of the 2023 second quarter, we operated nine additional stores as compared to the end of the 2022 second quarter, and we had the full benefit of two stores opened during the year-to-date 2022.

Collectively, these stores accounted for a $47.1 million increase in net sales for the year-to-date 2023.

As of the end of the 2023 third quarter, we operated 10 additional stores as compared to the end of the 2022 third quarter, and we had the full benefit of six stores opened during the year-to-date 2022.

Collectively, these stores accounted for a $69.1 million increase in net sales for the year-to-date 2023, which does not include e-commerce sales fulfilled from these locations.

The decrease of 7.6% in comparable sales was driven by lower sales across all merchandise divisions as a result of a decrease in transactions of 7.8%, while the average ticket remained relatively flat.

The outdoors merchandise division sales declines were primarily as a result of the hunting category driven by decreases in firearms and ammunition sales over the prior year-to-date.

The sports and recreation merchandise division decrease was a result of decreased sales in water sports, fitness equipment, 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 casual and seasonal footwear.

The footwear merchandise division sales decreased due to lower sales in the athletic footwear and work footwear categories, partially offset by increased sales in the casual and seasonal footwear categories.

The apparel merchandise division sales decreased due to lower sales in athletic and outdoor apparel, partially offset by increased sales in licensed apparel.

The sports and recreation merchandise division decrease was a result of decreased sales in fitness equipment and bikes.

E-commerce net sales represented 9.0% of merchandise sales in the year-to-date 2023 compared to 9.7% in the year-to-date 2022.

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

• 62 basis points of unfavorability in merchandise margin as a result of increased clearance and promotional activity compared to the 2022 year-to-date;

• 60 basis points of unfavorability in merchandise margin as a result of increased planned promotional activity compared to the prior year-to-date;

• 42 basis points of unfavorability as a result of increased inventory shrink;

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

• 37 basis points of unfavorability in inventory overhead expenditures as a result of higher absorption rates from slower inventory turnover;

partially offset by

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As a percentage of net sales, SG&A expenses increased 2.3% to 23.8% in the year-to-date 2023 compared to 21.5% in the year-to-date 2022.

The increase of 260 basis points is primarily attributable to deleverage from decreased sales.

The increase of 230 basis points is partially attributable to deleverage from decreased sales.

SG&A costs also increased $41.1 million primarily as a result of:

• Employee compensation costs increased $20.2 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 second quarter;

• Property and facility fees increase of $10.3 million primarily due to the addition of new stores;

• Employee compensation costs increased $19.1 million primarily due to increased equity compensation and an increased wages expense over the prior year, partially attributable to the addition of 10 new stores since the end of the prior year third quarter;

• Property and facility fees increase of $18.6 million primarily due to investments in long-term growth initiatives, which includes the addition of new stores and increased technology expense;

• Advertising spend increase of $5.4 million.

Interest Expense.

Interest expense increased $0.5 million, or 2.1%, for the year-to-date 2023 when compared to the year-to-date 2022, resulting from an increase in interest rates on our Term Loan, which were 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.

Interest expense decreased $0.8 million, or 2.2%, for the year-to-date 2023 when compared to the year-to-date 2022, resulting from higher capitalized interest due to increased construction of new stores and a lower outstanding balance on our long-term debt driven by a voluntary prepayment of $100.0 million made in December 2022, partially offset by an increase in interest rates on our Term Loan.

Other (Income), net.

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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 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 define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment and other adjustments included in the table below.

We define Adjusted EBIT as Adjusted EBITDA less depreciation and amortization.

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 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 Adjusted Net Income as net income (loss) plus other adjustments included in the table below, 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.

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

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022

Net income $ 99,978 $ 131,741 $ 351,023 $ 470,348

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Adjusted EBIT (b) $ 147,122 $ 187,889 $ 511,500 $ 661,911

(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 and twenty-six weeks ended July 30, 2022 have been revised to the current period computation methodology.

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.

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 and thirty-nine weeks ended October 29, 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.

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

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022

Net income $ 99,978 $ 131,741 $ 351,023 $ 470,348

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76,057 81,379 77,893 84,910

(b) For the thirteen and twenty-six weeks ended July 29, 2023 and July 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 and twenty-six weeks ended July 30, 2022 has been revised to the current period computation methodology.

For the thirteen and thirty-nine weeks ended October 28, 2023 and October 29, 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.

Effective January 28, 2023, we no longer exclude pre-opening expenses from our computation of Adjusted Net Income.

Adjusted Net Income for the thirteen and thirty-nine weeks ended October 29, 2022 has been revised to the current period computation methodology.

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

Thirteen Weeks Ended Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022 July 29, 2023 July 30, 2022

Thirteen Weeks Ended Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022

Net cash provided by operating activities $ 57,476 $ 50,763 $ 301,042 $ 309,169

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

On July 29, 2023, our cash and cash equivalents totaled $311.3 million.

On October 28, 2023, our cash and cash equivalents totaled $274.8 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

As of July 29, 2023, the Company's long-term debt and interest rates consist of (see Note 4 to the accompanying financial statements):

As of October 28, 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;

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

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

Average funds drawn $ — $ —

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

July 29, 2023 January 28, 2023 July 30, 2022

October 28, 2023 January 28, 2023 October 29, 2022

Outstanding borrowings $ — $ — $ —

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We lease store locations, distribution centers, office space and certain equipment under operating leases expiring between fiscal years 2023 and 2044.

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

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

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

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(1) Minimum lease payments have not been reduced by sublease rentals of $0.1 million due in the future under non-cancelable sub-leases.

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

In the twenty-six weeks ended July 29, 2023, we opened two new locations and we intend to open 13 to 14 total new locations in 2023.

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

In the thirty-nine weeks ended October 28, 2023, we opened seven new locations and we intend to open 14 total new locations in 2023.

Share Repurchases

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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 July 29, 2023, we had approximately $143.0 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 second quarter (dollar amounts in thousands, except per share amounts):

As of October 28, 2023, we had $99.4 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 third quarter (dollar amounts in thousands, except per share amounts):

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

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Second Quarter (April 30, 2023 to July 29, 2023) 1,994,064 53.37 106,432

Third Quarter (July 30, 2023 to October 28, 2023) (2)

863,631 50.51 43,625

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(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 second quarter share repurchases.

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

On November 29, 2023, the Board of Directors of the Company authorized a new share repurchase program (the "2023 Share Repurchase Program") under which the Company may purchase up to $600 million of its outstanding shares during the three-year period ending November 29, 2026.

The total availability under the combined 2023 Share Repurchase Program and 2022 Share Repurchase Program is $699.4 million (see Note 11 to the accompanying financial statements).

The following table summarizes our quarterly dividend payments for the year-to-date 2023 (amounts in thousands, except per share amounts):

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Second Quarter (April 30, 2023 to July 29, 2023) 0.09 6,896 June 15, 2023

Third Quarter (July 30, 2023 to October 28, 2023) 0.09 6,718 September 13, 2023

Total Dividends Paid $ 20,543

On August 30, 2023, the Company's Board of Directors declared a quarterly cash dividend with respect to the fiscal quarter ended July 29, 2023, of $0.09 per share of the Company's common stock, payable on October 11, 2023, to stockholders of record as of the close of business on September 13, 2023.

On November 29, 2023, the Company's Board of Directors declared a quarterly cash dividend with respect to the fiscal quarter ended October 28, 2023, of $0.09 per share of the Company's common stock, payable on January 10, 2024, to stockholders of record as of the close of business on December 13, 2023.

Capital Expenditures

The following table summarizes our capital expenditures for the twenty-six weeks ended July 29, 2023 and July 30, 2022 (amounts in thousands):

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

The following table summarizes our capital expenditures for the thirty-nine weeks ended October 28, 2023 and October 29, 2022 (amounts in thousands):

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

New stores $ 75,156 $ 30,108

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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 Twenty-Six Weeks Ended July 29, 2023 and July 30, 2022

Cash Flows for the Thirty-Nine Weeks Ended October 28, 2023 and October 29, 2022

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

Twenty-Six Weeks Ended

July 29, 2023 July 30, 2022

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

Net cash provided by operating activities $ 301,042 $ 309,169

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• $115.0 million increase in cash flows from merchandise inventories, net related to a reduction in inventory replenishment in the year-to-date 2023 when compared to the prior year period;

partially offset by a

• $44.0 million decrease in cash flows from accounts payable due to decreased inventory receipts relative to the prior year second quarter.

• $33.7 million increase in cash flows from accrued expenses and other current liabilities, primarily driven by a decrease in performance compensation payments made in the year-to-date 2023 relative to the prior year;

• $33.1 million increase in cash flows from accounts payable, due to decreased inventory receipts relative to the prior year third quarter;

partially offset by

• $60.0 million decrease in cash flows from prepaid expenses and other current assets, largely driven by increased construction reimbursement receivables in the year-to-date 2023 relative to the prior year.

Investing Activities .

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis