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Item 7. Management’s Discussion and Analysis

2024-03-21 compared with 2023-03-16 · 179 added, 195 removed, 294 unchanged (56% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report for the fiscal year ended January 28, 2023 (this "Annual Report").

This discussion contains forward-looking statements that involve risks and uncertainties.

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All references in this discussion and analysis to "2023", "2022" and "2021" or like terms relate to our fiscal years as follows:

Year Ended Weeks

2022 January 28, 2023 52

Fiscal Year Ended Weeks

2023 February 3, 2024 53

2022 January 28, 2023 52

2021 January 29, 2022 52

We are a 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.

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Our net sales and profits are also impacted by the November/December holiday selling season, and in part by the sales of cold weather sporting goods and apparel during the fourth quarter.

As of January 28, 2023, we operated 268 stores that range in size from approximately 40,000 to 130,000 gross square feet, with an average size of approximately 70,000 gross square feet, throughout 18 contiguous states located primarily in the southern United States.

Our stores are supported by approximately 22,000 team members, three distribution centers, and our e-commerce platform, which includes our website at www.academy.com and our mobile app, introduced in the 2021 second quarter.

As of February 3, 2024, we operated 282 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.

Additionally, we are deepening our customer relationships, further integrating our e-commerce platform with our stores and driving operating efficiencies by developing our omnichannel capabilities, such as our mobile app, optimizing the website experience and upgrading our fulfillment capabilities.

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Fiscal Year Ended

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

February 3, 2024 January 28, 2023 January 29, 2022

Beginning stores 268 259 259

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and the number of stores that have been in operation for more than 13 months.

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

However, we experienced a decrease in comparable sales of 6.4% in 2022.

The comparable sales metric for 2023 (53 week fiscal year) compares the 52 weeks ended January 27, 2024, against the 52 weeks ended January 28, 2023 (52 week fiscal year).

The 2023 53rd week ended February 3, 2024, is not included in comparable sales for 2023.

Merchandise net sales for the 2023 53rd week ended February 3, 2024, were $73.3 million.

We have seen significant comparable sales fluctuations in recent years from increases of 16.1% and 18.9% in 2020 and 2021, respectively, followed by decreases of 6.4% and 6.5% in 2022 and 2023, respectively.

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

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

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

Management uses Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma 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.

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

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.

See "Non-GAAP Financial Measures" below.

See "Non-GAAP Measures" below.

Components of Our Results of Operations.

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

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

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

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

Additionally, we have benefited from shifting of customer spend towards in-home health and wellness and dedicating more time to memory-making experiences.

Our broad assortment gives us an advantage over mass general merchants who typically do not carry the leading national brands sold at Academy.

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

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

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

We continue to invest in initiatives that will increase traffic to our e-commerce platform, which includes our website and mobile app, and drive increased online sales conversion.

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

As our business has normalized, we have experienced a shift in our sales mix from the outdoors and sports and recreation merchandise divisions to the footwear and apparel merchandise divisions, which has generally had a positive impact on our gross margin rate.

The expansion and enhancement of our omnichannel capabilities has resulted in increased sales in recent years.

We continue to invest in initiatives that will increase traffic to our stores and e-commerce platform, which includes our website and mobile app, and drive increased sales conversion.

These initiatives include investments in our new customer data platform and the development of strategies, which focus on customer segmentation with the intention of improving customer identification and increasing customer engagement.

Additionally, we recently implemented several innovative website features to enhance the customer online shopping experience, including a redesigned home page, additional BOPIS features, and enhanced shipping notifications.

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

Additionally, our e-commerce platform allows us to reach customers outside of our current store footprint and introduces new customers to the Academy brand.

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 2020, 2021 and 2022.

These platforms allow us to connect further with our customers for marketing and product education and assists us in introducing customers to the Academy brand by reaching customers outside of our current store footprint.

During 2023, 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 support of 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 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 further 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 as we execute our new store opening growth plans.

Our results of operations have been and will continue to be materially affected by the timing and number of new store openings.

We are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider, and we expect to open 13 to 15 new stores in fiscal 2023.

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

We are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider, and during 2023 we opened 14 new stores.

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

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Our gross margin depends on a number of factors, such as net sales increases or decreases, our promotional activities, product mix including private label brand merchandise sales, and our ability to control cost of goods sold, such as inventory and logistics cost management.

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

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.

Over the past couple of years, we have seen increased competition across the industry for resources throughout a constrained supply chain, which has resulted in disruptions to the flow of products from our vendors, labor shortages, reduced shipping container availability, and longer delays at the port.

As a result, we have experienced a period of decreased or delayed supply and high inflation.

These factors have negatively impacted transportation and inventory costs.

Under the last in, first out method ("LIFO"), our cost of sales reflects the costs of the most recently purchased inventories.

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

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.

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 23.1% to 21.3% in 2020 and 2021, respectively.

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

SG&A expenses as a percentage of sales increased from 21.4% in 2022 to 23.3% in 2023.

The majority of the increase in SG&A from the prior year was driven by investments in our growth initiatives, including costs related to new stores (such as additional property and facility fees, employee compensation costs and advertising costs).

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.

Management of SG&A expenses depends on our ability to balance a control of operating costs, such as store and corporate headcount, information technology infrastructure and marketing and advertising expenses, while 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, 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:

Fiscal Year Ended

February 3, 2024 January 28, 2023 January 29, 2022

Number of new stores opened 14 9 —

Pre-opening expenses (in millions) $ 8.3 $ 5.5 $ 0.2

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 (see Note 4 to the accompanying financial statements).

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

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

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.

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

However, this prepayment in principal on our 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 2023 compared to 2022.

In February of 2024, we made an additional prepayment of $100 million on our Term Loan, which we anticipate will result in decreased interest expense in fiscal 2024.

Income Tax Expense.

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

federal income tax purposes and thus no federal income tax expense was recorded in our consolidated statements of income for periods prior to October 1, 2020.

Our tax rate prior to October 1, 2020 was almost entirely the result of state income taxes.

In connection with our initial public offering ("IPO"), as a result of the Reorganization Transactions (see Note 1 to the accompanying financial statements) completed on October 1, 2020, Academy Sports and Outdoors, Inc.

("ASO, Inc.") is treated as a U.S.

is treated as a U.S.

corporation for U.S.

federal, state, and local income tax purposes and accordingly, a provision for income taxes has been recorded for the anticipated tax consequences of our reported results of operations for federal, state and local income taxes since October 1, 2020.

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

Results of Operations

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Fiscal Year Ended Change

January 28, 2023 January 29, 2022 Dollars Percent

February 3, 2024 January 28, 2023 Dollars Percent

Net sales $ 6,159,291 100.0 % $ 6,395,073 100.0 % $ (235,782) (3.7) %

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

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

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

Net sales decreased $235.8 million, or 3.7%, in 2023 over the prior year as a result of decreased comparable sales of 6.5%, which were partially offset by additional net sales generated by new locations.

As of the end of 2023, we operated 14 additional stores as compared to the end of 2022, and the full benefit of nine stores opened during 2022.

Collectively, these stores accounted for a $113.5 million increase in net sales for 2023, which does not include e-commerce sales fulfilled from these locations.

Additionally, merchandise net sales from the 53rd week, which is not included in comparable sales for 2023, increased net sales by $73.3 million in 2023.

The decrease of 6.5% in comparable sales was driven by lower sales across all merchandise divisions as a result of fewer transactions of 7.0%, partially offset by an increase in average ticket of 0.5%.

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

government during 2021.

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

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

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

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

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

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

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.

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

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

E-commerce sales represented 10.7% of merchandise sales for 2023 and 2022.

Gross Margin.

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This decrease is primarily due to:

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

• 13 basis points of unfavorability on inventory valuation adjustments;

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

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

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

partially offset by

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

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

Selling, General and Administrative Expenses.

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

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

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

SG&A expenses increased $66.4 million, or 4.9%, to $1,432.4 million in 2023 from $1,366.0 million in 2022.

As a percentage of net sales, SG&A expenses increased 1.9% to 23.3% in 2023 compared to 21.4% in 2022.

The increase of 190 basis points is partially attributable to deleverage from decreased sales.

SG&A costs also increased $66.4 million primarily as a result of:

• Property and facility fees increase of $34.7 million primarily due to investments in long-term growth initiatives, which includes the addition of 14 new stores since the end of the prior year and increased technology expense;

• Employee compensation costs increased $22.7 million primarily due to increased wages expense over the prior year, partially attributable to the addition of new stores;

• Advertising spend increase of $9.4 million.

Loss on early retirement of debt.

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

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

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

We utilized cash on hand to voluntarily prepay $100 million of outstanding borrowings under the Term Loan in February of 2024.

In December of 2022, we also voluntarily prepaid $100 million of outstanding borrowings under the Term Loan.

These prepayments resulted in losses on early retirement of debt of $1.5 million and $2.0 million for 2023 and 2022, respectively.

Interest Expense.

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

Interest expense decreased $0.4 million, or 0.8%, to $46.1 million in 2023 from $46.4 million in 2022 resulting primarily 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.

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

Other income increased $12.7 million in 2023, primarily driven by the recognition of a $15.9 million gain pertaining to the settlement of a credit card company litigation matter, which occurred in the fourth quarter of 2023, and higher interest rates on money market investments in the current year, both of which were partially offset by the receipt of $7.2 million in business interruption insurance proceeds relative to a winter storm in 2022 and $3.7 million in proceeds relative to a sale in which we factored rights to pursue a legal matter pertaining to the overpayment of certain tariffs.

Income Tax Expense.

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

Income tax expense decreased $46.4 million to $144.0 million in 2023 as compared to $190.3 million in 2022, resulting primarily from a decrease in pre-tax income.

ASO, Inc.'s effective tax rate for 2023 was 21.7% compared to 23.3% in 2022.

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.

The decrease in effective tax rate was largely driven by the inclusion of certain research and development tax credits relative to 2022 and 2023 in the current year results, as well as increased permanent adjustments resulting from the vesting of a higher number of stock compensation awards during 2023.

Non-GAAP Measures

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

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

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Free Cash Flow, as shown below, have been presented in this Annual 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 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 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, payroll taxes associated with the 2021 Vesting Event and other adjustments, less the tax effect of these adjustments.

We define Pro Forma Adjusted Net Income as Adjusted Net Income less the retrospective tax effect of Adjusted Net Income at our estimated effective tax rate of approximately 25% for periods prior to October 1, 2020, the effective date of our conversion to a C-Corporation.

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

We describe these adjustments by reconciling net income (loss) to Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share in the applicable table below.

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.

We describe these adjustments by reconciling net income (loss) to Adjusted Net Income and Adjusted Earnings per Share in the applicable table below.

We describe Adjusted Free Cash Flow as net cash provided by (used in) operating activities less net cash used in investing activities.

We describe this adjustment by reconciling net cash provided by operating activities to Adjusted Free Cash Flow in the applicable table below.

We believe Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

Management believes Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

We believe Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Earnings per Share assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

Management believes Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Earnings per Share are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

Management believes Adjusted Free Cash Flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash.

Management uses Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma 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 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 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.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or net cash provided by operating activities as a measure of liquidity, or any other performance measures derived in accordance with GAAP.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Free Cash Flow are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or net cash provided by operating activities as a measure of liquidity, or any other performance measures derived in accordance with GAAP.

Additionally, these measures are not intended to be a measure of free cash flow available for management’s discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

In evaluating Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation.

Our presentation of Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be construed to imply that our future results will be unaffected by any such adjustments.

Our Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow measures have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP.

Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Earnings per Share should not be construed to imply that our future results will be unaffected by unusual or non-recurring items.

In evaluating Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Free Cash Flow, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation.

Our presentation of Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Free Cash Flow should not be construed to imply that our future results will be unaffected by any such adjustments.

Our Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Free Cash Flow measures have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP.

Some of these limitations are:

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect costs or cash outlays for capital expenditures or contractual commitments;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Earnings per Share do not reflect costs or cash outlays for capital expenditures or contractual commitments;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Earnings per Share do not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA and Adjusted EBIT do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, and Adjusted Free Cash Flow does not reflect the cash requirements necessary to service principal payments on our debt;

• Adjusted EBITDA and Adjusted EBIT do not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

• Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income and Adjusted Earnings per Share do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted Free Cash Flow do not reflect cash requirements for such replacements;

• other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.

Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow supplementally.

Because of these limitations, Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Free Cash Flow should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness.

Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Adjusted Earnings per Share and Adjusted Free Cash Flow supplementally.

Adjusted EBITDA and Adjusted EBIT

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

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

Fiscal Year Ended

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

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

February 3, 2024 January 28, 2023 January 29, 2022

Net income (a) $ 519,190 $ 628,001 $ 671,381

Interest expense, net 46,051 46,441 48,989

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Depreciation and amortization 110,936 106,762 105,274

Consulting fees (a) — — 285

Private equity sponsor monitoring fee (b) — — 14,793

Equity compensation (c) 21,175 39,264 31,617

(Gain) loss on early retirement of debt, net 1,963 2,239 (3,582)

Severance and executive transition costs (d) — — 6,571

Costs related to the COVID-19 pandemic (e) — — 17,632

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

Other (g) — 3,118 8,592

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

Equity compensation (b) 24,377 21,175 39,264

Loss on early retirement of debt 1,525 1,963 2,239

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

Other (d) — — 3,118

Adjusted EBITDA $ 846,045 $ 994,661 $ 1,073,842

Depreciation and amortization (110,936) (106,762) (105,274)

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

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

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

(c) Represents non-cash charges related to equity based compensation, which vary from period to period depending on certain factors such as the 2021 Vesting Event (see Note 1 to the accompanying financial statements), timing and valuation of awards, achievement of performance targets and equity award forfeitures.

(d) Represents severance costs associated with executive leadership changes and enterprise-wide organizational changes.

(e) Represents costs incurred during the first half of 2020 as a result of the COVID-19 pandemic, including temporary wage premiums, additional sick time, costs of additional cleaning supplies and third party cleaning services for the stores, corporate office and distribution centers, accelerated freight costs associated with shifting our inventory purchases earlier in the year to maintain stock, and legal fees associated with consulting in local jurisdictions.

These costs were no longer added back beginning in the third quarter of 2020.

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

(g) Other adjustments include (representing deductions or additions to Adjusted EBITDA and Adjusted EBIT) amounts that management believes are not representative of our operating performance, including installation costs for energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's (see Note 1 to the accompanying financial statements) members and our omnibus incentive plan, and other costs associated with strategic cost savings and business optimization initiatives.

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

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

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

Adjusted EBIT $ 735,109 $ 887,899 $ 968,568

(a) Net income for the year ended February 3, 2024, includes a $15.9 million net gain relative to a credit card fee litigation settlement which occurred in the fourth quarter of 2023.

Net income for the year ended January 28, 2023, included a $7.2 million gain from a business interruption insurance recovery and a $3.7 million gain from the sale of a tariff relief litigation claim, both of which occurred in the fourth quarter of 2022.

All of these items are included in their respective years within Other (income), net on the Consolidated Statements of Income and are disclosed within Note 2 of the accompanying financial statements.

(b) Represents non-cash charges related to equity based compensation, which vary from period to period depending on certain factors such as the 2021 Vesting Event (see Note 1 to the accompanying financial statements), timing and valuation of awards, achievement of performance targets and equity award forfeitures.

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

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):

Fiscal Year Ended

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

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

Consulting fees (a) — — 285

Private equity sponsor monitoring fee (b) — — 14,793

Equity compensation (c) 21,175 39,264 31,617

(Gain) loss on early retirement of debt, net 1,963 2,239 (3,582)

Severance and executive transition costs (d) — — 6,571

Costs related to the COVID-19 pandemic (e) — — 17,632

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

Other (g) — 3,118 8,592

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

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

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

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

February 3, 2024 January 28, 2023 January 29, 2022

Net income (a) $ 519,190 $ 628,001 $ 671,381

Equity compensation (b) 24,377 21,175 39,264

Loss on early retirement of debt 1,525 1,963 2,239

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

Other (d) — — 3,118

Tax effects of these adjustments (e) (5,621) (5,382) (14,884)

Adjusted Net Income $ 539,471 $ 645,757 $ 716,536

Earnings per common share:

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Diluted $ 6.70 $ 7.49 $ 7.12

Pro Forma Adjusted Earnings per Share:

Adjusted Earnings per Share:

Basic $ 7.16 $ 7.91 $ 7.88

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Diluted 77,469 83,895 94,284

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

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

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

(d) Represents severance costs associated with executive leadership changes and enterprise-wide organizational changes.

These costs were no longer added back beginning in the third quarter of 2020.

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

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

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

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

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

(a) Net income for the year ended February 3, 2024, includes a $15.9 million net gain relative to a credit card fee litigation settlement which occurred in the fourth quarter of 2023.

All of these items are included in their respective years within Other (income), net on the Consolidated Statements of Income and are disclosed within Note 2 of the accompanying financial statements.

(b) 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.

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

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

Adjusted Free Cash Flow

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Fiscal Year Ended

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

February 3, 2024 January 28, 2023 January 29, 2022

Net cash provided by operating activities $ 535,779 $ 552,005 $ 673,265

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

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

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

We may fund our 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 February 3, 2024, our cash and cash equivalents totaled $347.9 million.

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

Long-Term Debt

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

As of February 3, 2024, the Company's long-term debt and interest rates consists of:

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

See Note 4 to the accompanying financial statements for further disclosure regarding our debt agreements.

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

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Fiscal Year Ended

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

February 3, 2024 January 28, 2023 January 29, 2022

Average funds drawn $ — $ — $ —

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

January 28, 2023 January 29, 2022

February 3, 2024 January 28, 2023

Outstanding borrowings $ — $ —

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Available borrowing capacity $ 881,445 $ 947,764

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

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

On March 8, 2024, the Company issued a press release announcing that the Company entered into an amendment which among other things, extended the maturity of Academy’s asset-based revolving credit facility to March 8, 2029.

See Note 17 to the accompanying financial statements.

We predominantly lease store locations, distribution centers, office space and certain equipment under operating leases expiring between fiscal years 2024 and 2044.

Operating lease obligations include future minimum lease payments under all of our non-cancelable operating leases at February 3, 2024.

In the fiscal year ended February 3, 2024, we opened 14 new locations.

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

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(1) Minimum lease payments have not been reduced by sublease rentals of $2.3 million due in the future under non-cancelable subleases.

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

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

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

(2) These balances include stores where we have an executed contract but have not taken possession of the location as of February 3, 2024.

Share Repurchases

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

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

The 2022 Share Repurchase Program does not obligate the Company to acquire any particular number of common shares, and the program may be suspended, extended, modified or discontinued at any time.

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

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

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

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

On November 29, 2023, the Board of Directors 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 2022 Share Repurchase Program and the 2023 Share Repurchase Program are collectively referred to as the "Share Repurchase Programs".

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 February 3, 2024, the Company had $696.7 million remaining for share repurchases under the Share Repurchase Programs.

The following table summarizes our share repurchases for the fiscal year ended February 3, 2024 (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) 750,010 $ 66.69 $ 50,015

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

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) 863,631 50.51 43,625

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

Fourth Quarter (October 29, 2023 to February 3, 2024) (2)

43,526 62.57 2,724

Total Shares Repurchased 3,651,231 $ 55.54 $ 202,796

(1) Excludes the impact of excise taxes.

(2) See Part II, Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for further detail on the 2023 fourth quarter share repurchases.

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

The following table summarizes our quarterly dividend payments for the fiscal year ended February 3, 2024 (amounts in thousands, except per share amounts):

Dividends Paid 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

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

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

Fourth Quarter (October 29, 2023 to February 3, 2024) $ 0.09 6,675 December 13, 2023

Total Dividends Paid $ 27,218

On March 7, 2024, the Company issued a press release announcing that the Board of Directors declared a quarterly cash dividend with respect to the quarter ended February 3, 2024 of $0.11 per share of common stock, payable on April 18, 2024, to stockholders of record as of the close of business on March 26, 2024.

Capital Expenditures

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

The following table summarizes our capital expenditures for the periods shown (amounts in thousands):

Fiscal Year Ended

January 28, 2023 January 29, 2022

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

February 3, 2024 January 28, 2023 January 29, 2022

New stores and relocations $ 100,419 $ 42,735 $ 1,955

Corporate, e-commerce, information technology programs and other 81,992 50,019 44,967

Updates for existing stores and distribution centers 25,359 15,550 28,880

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The following table summarizes our forecasted allocation of capital expenditures for fiscal year 2024:

Corporate, e-commerce and information technology programs 25 %

New stores 55 %

Corporate, e-commerce, information technology programs and other 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.

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

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

Fiscal Year Ended

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

February 3, 2024 January 28, 2023 January 29, 2022

Net cash provided by operating activities $ 535,779 $ 552,005 $ 673,265

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This decrease is attributable to:

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

• $108.8 million decrease in net income;

• $26.4 million net decrease in cash flows provided by operating assets and liabilities.

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

• $37.7 million decrease in deferred income taxes;

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

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

• $90.3 million decrease in cash flows from accrued expenses and other current liabilities which was largely driven by performance compensation payments made and lower related accrual rates in 2022;

partially offset by

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

• $23.1 million net decrease in non-cash charges;

• $115.7 million net increase in cash flows provided by operating assets and liabilities.

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

• $201.1 million increase in cash flows from merchandise inventories, net related to a reduction in inventory replenishment to align with 2023 sales patterns when compared to the prior year;

partially offset by a

• $86.9 million decrease in cash flows from accounts payable, primarily driven by a reduction in inventory replenishment and lower import and domestic freight costs relative to the prior year fourth quarter.

Investing Activities .

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

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

• $99.5 million higher capital expenditures, primarily driven by increased investments in new stores in 2023.

Financing Activities .

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

The primary drivers of the increase were:

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

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

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

partially offset by

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

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

Cash used in financing activities decreased $273.2 million in 2023, compared to 2022.

The primary driver of the decrease was a:

• $286.7 million decrease in cash outflows caused by a reduction in repurchases and retirement of common stock in the current year.

Future Liquidity

We expect to use existing cash balances, internally generated cash flows and borrowings under our ABL Facility to fulfill anticipated obligations such as capital expenditures, dividends, stock repurchases, working capital needs and scheduled debt maturities over at least the next twelve months.

As of January 28, 2023, we had $947.8 million of available capacity under our ABL Facility and $337.1 million of cash and cash equivalents.

We expect our existing cash balances, internally generated cash flows and available borrowings under our ABL Facility will fulfill anticipated obligations such as capital expenditures, dividends, stock repurchases, working capital needs and scheduled debt maturities over at least the next twelve months.

As of February 3, 2024, we had $881.4 million of available capacity under our ABL Facility and $347.9 million of cash and cash equivalents.

Critical Accounting Policies and Estimates

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The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements.

See Note 2 to the consolidated financial statements for additional information.

See Note 2 to the accompanying financial statements for additional information.

Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions.

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Merchandise Inventories, net

Merchandise inventories are valued at the lower of weighted average cost or net realizable value using the last-in first-out ("LIFO") method.

Merchandise inventories include the direct cost of merchandise and capitalized costs related to procurement, warehousing and distribution and are reflected net of shrinkage, vendor allowances and other valuation accounts.

Merchandise inventories are stated at the lower of weighted average cost and net realizable value.

Judgments and Uncertainties:

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Judgments and Uncertainties:

The annual Trade Name impairment test provides for the option of first performing a qualitative assessment to evaluate the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment for the Trade Name.

However, if the qualitative assessment leads to a determination that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then no further assessments are required.

However, if the qualitative assessment leads to a determination that it is more likely than not that the fair value of an intangible asset is greater than its carrying amount, then no further assessments are required.

Impairment is calculated as the excess of the Trade Name’s carrying value over its fair value.

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

Related Party Transactions

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis