What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-06-11 compared with 2023-11-30 · 124 added, 192 removed, 301 unchanged (51% of the section changed)

10 unchanged sentences

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

We believe that these factors include but are not limited to those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (the "Annual Report"), as filed with the Securities and Exchange Commission (the "SEC") on March 16, 2023, as such risk factors have been updated from time to time in our periodic filings with the SEC, and are accessible on the SEC's website at www.sec.gov.

We believe that these factors include but are not limited to those described under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (the "Annual Report"), as filed with the Securities and Exchange Commission (the "SEC") on March 21, 2024, as such risk factors have been updated from time to time in our periodic filings with the SEC, and are accessible on the SEC's website at www.sec.gov.

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

7 unchanged sentences

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

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

• risks associated with our reliance on internationally manufactured merchandise;

1 unchanged sentence

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

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

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

• risks associated with disruptions in our supply chain and losses of merchandise purchasing incentives;

7 unchanged sentences

• the occurrence of severe weather events, catastrophic health events, natural or man-made disasters, social and political conditions or civil unrest;

• our dependence on our ability to meet our labor needs;

• any failure to attract, train and retain quality team members in sufficient numbers, increases in wage and labor costs, and changes in laws and other labor issues;

• our ability to retain key personnel;

3 unchanged sentences

• the effectiveness of our marketing and advertising programs;

• our ability to protect against inventory shrink;

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

2 unchanged sentences

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

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

• claims, demands and lawsuits to which we are, and may in the future, be subject and the risk that our insurance or

indemnities coverage may not be sufficient;

• risks related to product safety;

10 unchanged sentences

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

• lack of or negative coverage by securities analysts;

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

• our board of directors is authorized to issue and designate shares of preferred stock without stockholder approval;

• our exclusive forum provision;

2 unchanged sentences

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

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

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report for the thirteen weeks ended May 4, 2024 and our audited financial statements for the fiscal year ended February 3, 2024 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.

2 unchanged sentences

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 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.

References to the "current quarter," "2024 first quarter," or similar reference refers to the thirteen week period ended May 4, 2024, and any reference to the "prior year quarter," "2023 first quarter" or similar reference refers to the thirteen week period ended April 29, 2023.

Unless otherwise specified, all comparisons regarding the current period of 2024 are made to the corresponding period of 2023.

1 unchanged sentence

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

Our product assortment focuses on key categories of outdoors, apparel, 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.

Our product assortment focuses on key categories of outdoor, sports and recreation, apparel, and footwear (representing 28%, 26%, 25%, and 21% of our 2024 first quarter net sales, respectively) through both leading national brands and a portfolio of private label brands, which go well beyond traditional sporting goods and apparel offerings.

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

2 unchanged sentences

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

As of October 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.

As of May 4, 2024, we operated 284 stores that range in size from approximately 40,000 to 137,000 gross square feet, with an average size of approximately 70,000 gross square feet, throughout 18 contiguous states located primarily in the southern United States.

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

1 unchanged sentence

The following table summarizes store activity for the periods indicated:

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

Thirteen Weeks Ended

May 4, 2024 April 29, 2023

Beginning stores 282 268

Q1 new stores 2 1

Q2 new stores 1 1

Q3 new stores 5 4

Ending stores 284 269

21 unchanged sentences

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

We experienced a decrease in comparable sales in the prior year, which continued with a decline of 7.6% for the year-to-date 2023.

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

The Company's 2024 fiscal year is a 52-week year, whereas the 2023 fiscal year was a 53-week year, which created a one week shift.

The comparable sales metric for the 2024 first quarter compares the 13 weeks ended May 4, 2024 versus the 13 weeks ended May 6, 2023.

The prior year rate of decline in comparable store sales slowed in the 2024 first quarter with a 2024 first quarter comparable sales decrease of 5.7%, compared to 6.4% and 6.5% in 2022 and 2023, respectively.

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

Transactions and average ticket.

22 unchanged sentences

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

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

As our business 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, and we expect that it will continue to be a driver of growth in our net sales.

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

We have recently improved our omnichannel capabilities by implementing several innovative features to enhance the customer shopping experience, including a redesigned home page, additional BOPIS features, and enhanced shipment notifications.

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 that 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 2022.

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

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 2024 first quarter, stores facilitated approximately 95% of our total sales, including ship-from-store, BOPIS and in-store retail sales.

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 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.

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.

5 unchanged sentences

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

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".

2 unchanged sentences

Selling, General and Administrative Expenses.

Selling, general and administrative ("SG&A") expenses include store and corporate administrative payroll and payroll benefits, store and corporate headquarters occupancy costs, advertising, credit card processing, information technology, pre-opening costs and other store and administrative expenses.

Selling, general and administrative ("SG&A") expenses include store and corporate administrative payroll and payroll benefits, equity-based compensation, store and corporate headquarters occupancy costs, advertising, credit card processing, information technology, pre-opening costs and other store and administrative expenses.

These expenses are both variable and fixed in nature.

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.

SG&A expenses as a percentage of sales increased from 24.6% in the 2023

first quarter to 25.9% in the 2024 first quarter, 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.

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 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.

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:

Thirteen Weeks Ended Thirty-Nine Weeks Ended

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

Thirteen Weeks Ended

May 4, 2024 April 29, 2023

Number of new stores opened 2 1

Pre-opening expenses (in millions) $ 4.0 $ 2.1 $ 7.9 $ 4.9

Total pre-opening expenses incurred (in millions) $ 1.4 $ 1.6

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 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.

During the fourth quarter of 2023, we utilized cash on hand to voluntarily prepay $100 million of outstanding borrowings on our Term Loan.

This pay down has resulted in decreased interest expense in the 2024 first quarter relative to the prior year first quarter, and we anticipate it will result in decreased interest expense throughout the remainder of 2024.

Income Tax Expense.

4 unchanged sentences

Results of Operations

Thirteen Weeks Ended October 28, 2023 Compared to Thirteen Weeks Ended October 29, 2022

Thirteen Weeks Ended May 4, 2024 Compared to Thirteen Weeks Ended April 29, 2023

The following table sets forth amounts and information derived from our unaudited statements of income for the periods indicated as follows (dollar amounts in thousands):

Thirteen Weeks Ended Change

October 28, 2023 October 29, 2022 Dollars Percent

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

Cost of goods sold 915,136 65.5 % 971,454 65.0 % (56,318) (5.8) %

Gross margin 482,641 34.5 % 522,471 35.0 % (39,830) (7.6) %

Selling, general and administrative expenses 345,910 24.7 % 342,949 23.0 % 2,961 0.9 %

Operating income 136,731 9.8 % 179,522 12.0 % (42,791) (23.8) %

Interest expense, net 10,930 0.8 % 12,163 0.8 % (1,233) (10.1) %

Other (income), net (4,146) (0.3) % (2,538) (0.2) % (1,608) 63.4 %

Income before income taxes 129,947 9.3 % 169,897 11.4 % (39,950) (23.5) %

Income tax expense 29,969 2.1 % 38,156 2.6 % (8,187) (21.5) %

Net income $ 99,978 7.2 % $ 131,741 8.8 % $ (31,763) (24.1) %

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

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 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 third quarter, which were partially offset by increased sales in the camping category.

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 $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

• 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 $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:

• 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 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 $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 $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):

Thirty-Nine Weeks Ended Change

October 28, 2023 October 29, 2022 Dollars Percent

May 4, 2024 April 29, 2023 Dollars Percent

Net sales $ 1,364,220 100.0 % $ 1,383,609 100.0 % $ (19,389) (1.4) %

4 unchanged sentences

Interest expense, net 9,486 0.7 % 11,230 0.8 % (1,744) (15.5) %

Write off of deferred loan costs 449 — % — — % 449 NM

Other (income), net (5,204) (0.4) % (3,713) (0.3) % (1,491) 40.2 %

3 unchanged sentences

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

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 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 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.

Net sales decreased $19.4 million, or 1.4%, in the 2024 first quarter over the prior year first quarter as a result of decreased comparable sales of 5.7%, which were partially offset by additional net sales generated by new locations.

As of the end of the 2024 first quarter, we operated 15 additional stores as compared to the end of the 2023 first quarter, and we had the full benefit of one store opened during the 2023 first quarter.

Collectively, these stores accounted for a $35.2 million increase in net sales for the 2024 first quarter, which does not include e-commerce sales fulfilled from these locations.

The decrease of 5.7% in comparable sales was driven by lower comparable sales across all merchandise divisions as a result of fewer comparable transactions of 4.6% and a 1.2% decline in average ticket.

The decrease of 1.4% in net sales was driven by lower sales across the sports and recreation, footwear and apparel merchandise divisions, partially offset by an increase in the outdoors merchandise division.

The outdoors merchandise division sales increases were primarily as a result of an increase in the camping category, driven by increases in coolers and drinkware sales over the prior year first quarter.

The apparel merchandise division sales decreased primarily due to lower sales in licensed apparel.

The footwear merchandise division sales decrease was led by lower sales in the work footwear and team sports footwear categories, partially offset by an increase in sales in the athletic footwear category.

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

E-commerce net sales represented 9.0% of merchandise sales for the 2024 first quarter compared to 8.2% for the prior year first quarter.

Gross Margin.

Gross margin decreased $126.8 million, or 7.7%, to $1,513.2 million for the year-to-date 2023 from $1,640.0 million for the year-to-date 2022.

As a percentage of net sales, gross margin decreased 0.6% from 35.3% in the year-to-date 2022 to 34.7% in the year-to-date 2023.

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

• 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;

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

Gross margin decreased $11.3 million, or 2.4%, to $455.8 million in the 2024 first quarter from $467.1 million in the 2023 first quarter.

As a percentage of net sales, gross margin decreased 40 basis points from 33.8% in the 2023 first quarter to 33.4% in the 2024 first quarter.

The decrease in gross margin is primarily attributable to:

• 80 basis points of unfavorability in merchandise margin as a result of a higher sales mix of hard goods and increased planned promotional activity compared to the 2023 first quarter;

• 23 basis points of unfavorability as a result of increased inventory valuation adjustments;

partially offset by

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

• 18 basis points of favorability related to decreased inventory shrinkage.

Selling, General and Administrative Expenses.

SG&A expenses increased $41.1 million, or 4.1%, to $1,039.3 million for the year-to-date 2023 from $998.2 million for the year-to-date 2022.

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

SG&A expenses increased $12.5 million, or 3.7%, to $353.4 million in the 2024 first quarter as compared to $340.9 million in the 2023 first quarter.

As a percentage of net sales, SG&A expenses increased 130 basis points to 25.9% in the 2024 first quarter compared to 24.6% in the 2023 first quarter.

The increase in SG&A is partially attributable to deleverage from decreased sales.

SG&A costs also increased $12.5 million primarily as a result of:

• 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.

• Increased investments primarily related to our store growth strategy of $16.3 million, which was partially offset by favorable reductions in equity compensation.

Interest Expense.

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.

Interest expense decreased $1.7 million, or 15.5%, in the 2024 first quarter when compared with the 2023 first quarter, resulting from a lower outstanding balance on our long-term debt driven by a voluntary prepayment of $100.0 million made on February 1, 2024, slightly offset by higher interest rates.

Other (Income), net.

Other income, net, increased $6.8 million in the year-to-date 2023 when compared to the year-to-date 2022 due to higher interest rates on money market investments in the current year.

Other (income), net, increased $1.5 million in the 2024 first quarter when compared with the 2023 first quarter, primarily driven by higher interest rates on money market investments in the current year.

Write off of Deferred Loan Costs.

Write off of Deferred Loan Costs increased by $0.4 million in the 2024 first quarter when compared with the 2023 first quarter, in connection with the amendment that led to the write off of deferred loan costs on the ABL Facility in the 2024 first quarter.

Income Tax Expense.

Income tax expense decreased $41.0 million to $100.9 million for the year-to-date 2023 as compared to $141.8 million for the year-to-date 2022, resulting primarily from a decrease in pre-tax income.

Income tax expense decreased $3.5 million to $21.2 million for the 2024 first quarter as compared to $24.7 million in the 2023 first quarter, resulting primarily from a decrease in pre-tax income.

The Company's effective income tax rate was 21.7% in the first quarter of 2024 compared to 20.8% in the first quarter of 2023.

Non-GAAP Measures

7 unchanged sentences

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

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.

4 unchanged sentences

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, 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 (used in) 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.

15 unchanged sentences

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

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

Thirteen Weeks Ended

May 4, 2024 April 29, 2023

Net income $ 76,465 $ 93,970

3 unchanged sentences

Equity compensation (a) 6,138 11,382

Adjusted EBITDA (b) $ 174,495 $ 214,889 $ 590,894 $ 740,763

Write off of deferred loan costs 449 —

Adjusted EBITDA $ 142,578 $ 167,552

Depreciation and amortization (28,853) (26,261)

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

Adjusted EBIT $ 113,725 $ 141,291

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.

Adjusted Net Income and Adjusted Earnings per Share

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

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

Thirteen Weeks Ended

May 4, 2024 April 29, 2023

Net income $ 76,465 $ 93,970

Equity compensation (a) 6,138 11,382

Write off of deferred loan costs 449 —

Tax effects of these adjustments (b) (1,432) (2,370)

Adjusted Net Income (c) $ 104,692 $ 136,245 $ 371,242 $ 482,244

Adjusted Net Income $ 81,620 $ 102,982

Earnings per common share:

8 unchanged sentences

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.

For the thirteen weeks ended May 4, 2024 and April 29, 2023, this represents the estimated tax effect (by using the projected full year tax rates for the respective years) of the total adjustments made to arrive at Adjusted Net Income.

Adjusted Free Cash Flow

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended

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

Thirteen Weeks Ended

May 4, 2024 April 29, 2023

Net cash provided by operating activities $ 199,677 $ 52,135

4 unchanged sentences

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

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

We also use cash to pay dividends and 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 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.

On May 4, 2024, our cash and cash equivalents totaled $378.1 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 the next 12 months and the longer term foreseeable future.

Long-Term Debt

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

As of May 4, 2024, the Company's long-term debt and interest rates consist of (see Note 4 to the accompanying financial statements):

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

• Term Loan - 9.19% variable rate term-loan with $91.0 million in principal outstanding maturing November 6, 2027 and quarterly principal payments of $750 thousand;

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

• ABL Facility - $1.0 billion commitment on a variable rate secured asset-based revolving credit facility with no principal outstanding maturing March 8, 2029.

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

2023 2024 2025 2026 2027 Total

2024 2025 2026 2027 2028 After 2028 Total

Term Loan and related interest (1)

8 unchanged sentences

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

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

Thirteen Weeks Ended

May 4, 2024 April 29, 2023

Average funds drawn $ 129 $ —

3 unchanged sentences

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

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

May 4, 2024 February 3, 2024 April 29, 2023

Outstanding borrowings $ — $ — $ —

1 unchanged sentence

Available borrowing capacity 981,154 881,445 986,122

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 October 28, 2023.

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 May 4, 2024.

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

3 unchanged sentences

(1) Minimum lease payments have not been reduced by sublease rentals of $2.1 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 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.

(2) These balances include stores where we have an executed contract but have not taken possession of the location as of May 4, 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.

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 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):

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 May 4, 2024, the Company had $574.3 million remaining for share repurchases under the Share Repurchase Programs.

(see Note 2 to the accompanying financial statements).

The following table summarizes our share repurchases for the 2024 first quarter (dollar amounts in thousands, except per share amounts):

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

Total Amount Repurchased (1)

First Quarter (January 29, 2023 to April 29, 2023) 750,010 $ 66.69 $ 50,015

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)

First Quarter (February 4, 2024 to May 4, 2024) (2)

1,983,967 61.71 122,425

Total Shares Repurchased 1,983,967 $ 61.71 $ 122,425

(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 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):

(1) Excludes the impact of unpaid excise taxes.

(2) See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds for further detail on the 2024 first quarter share repurchases.

The following table summarizes our quarterly dividend payments for 2024 first quarter (amounts in thousands, except per share amounts):

Dividend per Share Total Dividends Paid Stockholder Date of Record

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

Second Quarter (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

First Quarter (February 4, 2024 to May 4, 2024) $ 0.11 $ 8,182 March 26, 2024

Total Dividends Paid $ 8,182

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.

On June 6, 2024, the Company's Board of Directors declared a quarterly cash dividend with respect to the fiscal quarter ended May 4, 2024, of $0.11 per share of the Company's common stock, payable on July 18, 2024, to stockholders of record as of the close of business on June 20, 2024.

Capital Expenditures

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

The following table summarizes our capital expenditures for the thirteen weeks ended May 4, 2024 and April 29, 2023 (amounts in thousands):

Thirteen Weeks Ended

May 4, 2024 April 29, 2023

New stores $ 16,789 $ 17,207

8 unchanged sentences

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 Thirty-Nine Weeks Ended October 28, 2023 and October 29, 2022

Cash Flows for the Thirteen Weeks Ended May 4, 2024 and April 29, 2023

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

Thirty-Nine Weeks Ended

October 28, 2023 October 29, 2022

Thirteen Weeks Ended

May 4, 2024 April 29, 2023

Net cash provided by operating activities $ 199,677 $ 52,135

1 unchanged sentence

Net cash used in financing activities (137,097) (53,197)

Net decrease in cash and cash equivalents $ (62,318) $ (167,831)

Net increase (decrease) in cash and cash equivalents $ 30,225 $ (41,609)

Operating Activities.

1 unchanged sentence

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

Cash provided by operating activities in the year-to-date 2023 decreased $8.1 million, compared to year-to-date 2022.

This decrease in cash was attributable to:

Cash provided by operating activities in the 2024 first quarter increased $147.5 million, compared to 2023 first quarter.

This increase in cash was attributable to:

• $17.5 million decrease in net income;

• $5.3 million net decrease in non-cash charges;

partially offset by a

• $1.9 million net increase in non-cash charges;

• $163.1 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:

• $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;

• $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.

• $59.7 million decrease in cash flows from merchandise inventories, net due to higher sales in the prior year period;

• $52.5 million increase in cash flows from accrued expenses and other current liabilities, primarily driven by a $43.5 million increase in accrued personnel costs related to bonuses and timing of payments, $5.7 million change in accrued self-insurance due to timing of payments in the 2023 first quarter compared to the 2024 first quarter, and a $1.7 million increase in accrued other liabilities in the year-to-date 2024 relative to the prior year;

• $159.7 million increase in cash flows from accounts payable, due to timing of payments relative to the prior year first quarter.

Investing Activities .

Cash used in investing activities increased $70.4 million in the year-to-date 2023 compared to the year-to-date 2022.

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

• $72.5 million higher capital expenditures, primarily driven by increased investments in new stores in the year-to-date 2023.

Cash used in investing activities decreased $8.2 million in the year-to-date 2024 compared to the year-to-date 2023.

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

• $8.2 million lower capital expenditures, primarily driven by decreased spending related to Corporate, E-commerce, and information technology programs in the year-to-date 2024 compared to the year-to-date 2023.

Financing Activities .

Cash used in financing activities decreased $184.0 million in the year-to-date 2023, compared to the year-to-date 2022.

The primary drivers of the decrease were:

• $189.4 million decrease in cash outflows caused by a reduction in repurchases and simultaneous retirement of common stock in the current year.

Cash used in financing activities increased $83.9 million in the year-to-date 2024, compared to the year-to-date 2023.

The primary drivers of the increase were:

• $72.4 million increase in cash outflows primarily caused by an increase in repurchases and simultaneous retirement of common stock in the current year;

• $5.7 million increase in debt issuance fees paid during the current year as part of the ABL Amendment;

• $1.3 million increase in dividends paid during the current year.

Critical Accounting Policies and Estimates

6 unchanged sentences

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

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

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

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

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

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

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

Recent Accounting Pronouncements

3 unchanged sentences

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