What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-30 compared with 2021-09-02 · 272 added, 154 removed, 452 unchanged (49% of the section changed)

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Business in our Annual Report on Form 10-K for the fiscal year ended May 1, 2021.

Wolfram|Alpha Agreement

During the first quarter of Fiscal 2022, we launched Math Solver , a new bartleby ® product feature that is powered by Wolfram|Alpha best-in-class computation engine.

Math Solver allows students to access an interactive digital calculator that provides real-time, step-by-step explanations for even the most advanced math problems in subjects such as Algebra, Pre-Calc, Calculus.

Partnership with Fanatics and FLC

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As contemplated by the FLC Partnership's e-commerce agreement, we began to transition certain of our e-commerce sites to Fanatics e-commerce sites for logo and emblematic products during the first quarter of Fiscal 2022.

As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis in the prior year.

As the logo and emblematic general merchandise sales are fulfilled by FLC and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed

consolidated financial statements, as compared to the recognition of logo and emblematic general merchandise sales on a gross basis in the prior year.

For additional information, see Item 1.

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We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including the Delta variant, on enrollments, university budgets, athletics and other areas that directly affect our business operations .

Although most schools expect to return to a traditional on-campus environment for learning in the upcoming Fall semester, as well as host traditional on campus sporting activities and events, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic.

We will continue to assess our operations and will continue to consider the guidance of local governments and our campus partners to determine when our operations can begin returning to normal levels of business.

Although most four year schools have returned to a traditional on-campus environment for learning in the current Fall semester, as well as hosted traditional on campus sporting activities and events, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and the effect on our ability to source products, including textbooks and general merchandise offerings.

We will continue to assess our operations and will continue to consider the guidance of local governments and our campus partners to determine how to operate our bookstores in the safest manner for our employees and customers.

If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations.

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economy, with legislative and regulatory responses including unprecedented monetary and fiscal policy actions across all sectors, and there is significant uncertainty as to timing of stabilization and recovery, including the ability to gain adequate herd-immunity levels through vaccine programs and their resilience to future virus variants.

Many colleges and K-12 schools have been required to cease in-person classes in an attempt to limit the spread of the COVID-19 virus and ensure the safety of their students.

Although many academic institutions have reopened, they are considering alternatives to traditional in-person instruction, including online learning and significantly reduced classroom sizes.

Additionally, while many athletic conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company’s high-margin general merchandise business.

Many colleges and K-12 schools were required to cease in-person classes in an attempt to limit the spread of the COVID-19 virus and ensure the safety of their students.

Although many academic institutions have reopened, some are providing alternatives to traditional in-person instruction, including online and hybrid learning options and significantly reduced classroom sizes.

Additionally, our business, like many others has been affected by the challenging labor market and the ability to recruit employees.

• Economic Environment :

Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment.

The broader macro-economic global supply chain issues may also impact our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing.

• Enrollment Trends:

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Additionally, Wholesale is a national distributor for rental textbooks offered through McGraw-Hill Education's and Pearson Education’s consignment rental program, both of which are relatively nascent.

• Price Competition.

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Our selling and administrative expenses consist primarily of store payroll and store operating expenses.

Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business.

Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as

merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business.

Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services as discussed in the Overview - Segments discussion above.

Results of Operations - Summary

13 weeks ended

Dollars in thousands July 31,

2021 August 1,

13 weeks ended 26 weeks ended

Dollars in thousands October 30,

2021 October 31,

2020 October 30,

2021 October 31,

Product sales and other $ 577,329 $ 551,832 $ 805,099 $ 745,042

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Total sales $ 626,977 $ 595,485 $ 867,771 $ 799,499

Net loss $ (44,346) $ (46,652)

Net income (loss) $ 22,528 $ 7,515 $ (21,818) $ (39,137)

Adjusted Earnings (non-GAAP) (a)

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The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales:

13 weeks ended

2021 August 1,

13 weeks ended 26 weeks ended

2021 October 31,

2020 October 30,

2021 October 31,

Product sales and other 92.1 % 92.7 % 92.8 % 93.2 %

3 unchanged sentences

Product and other cost of sales (a)

78.5 82.0 77.9 83.0

Rental cost of sales (a)

57.1 63.5 55.8 64.5

Total cost of sales 76.8 80.6 76.3 81.7

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Restructuring and other charges 0.2 0.6 0.4 1.1

Operating loss (17.2) % (28.9) %

Operating income (loss) 3.9 % 1.2 % (1.9) % (6.5) %

(a) Represents the percentage these costs bear to the related sales, instead of total sales.

Results of Operations - 13 weeks ended July 31, 2021 compared with the 13 weeks ended August 1, 2020

13 weeks ended, July 31, 2021

Results of Operations - 13 and 26 weeks ended October 30, 2021 compared with the 13 and 26 weeks ended October 31, 2020

13 weeks ended October 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Restructuring and other charges 1,116

Operating income $ 24,589

13 weeks ended October 31, 2020

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

Product sales and other $ 532,861 $ 36,387 $ 5,947 $ — $ (23,363) $ 551,832

Rental income 43,653 — — — — 43,653

Total sales 576,514 36,387 5,947 — (23,363) 595,485

Cost of sales:

Product and other cost of sales 453,277 25,673 1,285 — (27,760) 452,475

Rental cost of sales 27,725 — — — — 27,725

Total cost of sales 481,002 25,673 1,285 — (27,760) 480,200

Gross profit 95,512 10,714 4,662 — 4,397 115,285

Selling and administrative expenses 77,380 4,146 5,003 5,501 (58) 91,972

Depreciation and amortization expense 9,985 1,322 1,855 31 — 13,193

$ 8,147 $ 5,246 $ (2,196) $ (5,532) $ 4,455 10,120

Restructuring and other charges 3,387

Operating income $ 6,733

26 weeks ended October 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

Product sales and other $ 756,749 $ 66,153 $ 16,582 $ — $ (34,385) $ 805,099

Rental income 62,672 — — — — 62,672

Total sales 819,421 66,153 16,582 — (34,385) 867,771

Cost of sales:

Product and other cost of sales 607,501 50,128 2,646 — (33,044) 627,231

Rental cost of sales 34,952 — — — — 34,952

Total cost of sales 642,453 50,128 2,646 — (33,044) 662,183

Gross profit 176,968 16,025 13,936 — (1,341) 205,588

Selling and administrative expenses 157,851 8,378 13,752 14,253 (97) 194,137

Depreciation and amortization expense 18,076 2,664 3,801 35 — 24,576

$ 1,041 $ 4,983 $ (3,617) $ (14,288) $ (1,244) (13,125)

Restructuring and other charges 3,739

Operating loss $ (16,864)

13 weeks ended, August 1, 2020

26 weeks ended, October 31, 2020

Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total

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Operating loss $ (52,182)

The following table summarizes our sales for the 13 weeks ended July 31, 2021 and August 1, 2020:

13 weeks ended

Dollars in thousands July 31, 2021 August 1, 2020 %

The following table summarizes our sales for the 13 and 26 weeks ended October 30, 2021 and October 31, 2020:

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 % October 30, 2021 October 31, 2020 %

Product sales and other $ 577,329 $ 551,832 4.6% $ 805,099 $ 745,042 8.1%

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Total Sales $ 626,977 $ 595,485 5.3% $ 867,771 $ 799,499 8.5%

Sales increased by $36.8 million, or 18.0%, to $240.8 million during the 13 weeks ended July 31, 2021 from $204.0 million during the 13 weeks ended August 1, 2020.

Sales increased by $31.5 million, or 5.3%, to $627.0 million during the 13 weeks ended October 30, 2021 from $595.5 million during the 13 weeks ended October 31, 2020.

Sales increased by $68.3 million, or 8.5%, to $867.8 million during the 26 weeks ended October 30, 2021 from $799.5 million during the 26 weeks ended October 31, 2020.

The sales increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

The first quarter is typically a low revenue quarter, consisting primarily of summer courses.

The components of the variances for the 13 week periods are reflected in the table below.

Sales variances 13 weeks ended

Dollars in millions July 31, 2021 August 1, 2020

The components of the variances for the 13 and 26 week periods are reflected in the table below.

Sales variances 13 weeks ended 26 weeks ended

Dollars in millions October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

New stores $ 26.3 $ 27.6 $ 36.6 $ 35.4

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Comparable stores (a)

14.0 (196.5) 58.6 (302.7)

Textbook rental deferral 3.2 16.4 3.4 10.1

Service revenue (b)

(2.1) 1.0 0.1 (3.7)

(1.1) 2.7 (2.1) 1.7

Retail sales subtotal:

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See discussion of intercompany activities and eliminations below.

Retail sales increased by $51.7 million, or 32.6%, to $210.5 million during the 13 weeks ended July 31, 2021 from $158.8 million during the 13 weeks ended August 1, 2020.

Retail added 53 new stores and closed 41 stores (not including temporary store closings due to COVID-19) during the 13 weeks ended July 31, 2021, ending the period with a total of 1,429 stores.

13 weeks ended

July 31, 2021 August 1, 2020

Retail sales increased by $32.4 million, or 5.6%, to $608.9 million during the 13 weeks ended October 30, 2021 from $576.5 million during the 13 weeks ended October 31, 2020.

Retail sales increased by $84.1 million, or 11.4%, to $819.4 million during the 26 weeks ended October 30, 2021 from $735.3 million during the 26 weeks ended October 31, 2020.

Retail added 76 new stores and closed 48 stores during the 26 weeks ended October 30, 2021, ending the period with a total of 1,445 stores.

13 weeks ended 26 weeks ended

October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Number of Stores:

Physical Virtual Physical Virtual

Physical Virtual Physical Virtual Physical Virtual Physical Virtual

Number of stores at beginning of period 784 645 772 670 769 648 772 647

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Number of stores at end of period 794 651 768 671 794 651 768 671

Product and other sales for Retail for the 13 weeks ended July 31, 2021 increased by $49.5 million, or 33.5% to $197.5 million from $148.0 million during the 13 weeks ended August 1, 2020.

Product and other sales for Retail for the 13 weeks ended October 30, 2021 increased by $26.4 million, or 5.0% to $559.3 million from $532.9 million during the 13 weeks ended October 31, 2020.

Product and other sales for Retail for the 26 weeks ended October 30, 2021 increased by $75.9 million, or 11.2% to $756.7 million from $680.8 million during the 26 weeks ended October 31, 2020.

The sales increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

Product and other sales are impacted by comparable store sales (as noted in the chart below), new store openings and store closings, as well as the impact from the COVID-19 pandemic.

Sales were impacted by the temporary store closings due to the COVID-19 pandemic in the prior year, as well as the impact of fewer students returning to campus, as many schools

implemented a remote learning model and curtailed on-campus classes and activities.

While many big-conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the company’s general merchandise business.

Additionally, sales were impacted by overall enrollment declines in higher education.

Comparable textbook sales remained essentially flat, as compared to a 19% decline a year ago, as enrollment declines were mitigated by the growth of First Day (our inclusive access program).

Revenue for First Day programs grew 80% to $96 million during the quarter.

Comparable general merchandise sales increased 78.3%, as compared to a 52.0% decline a year ago, benefiting greatly from the return to an on campus learning experience and the resumption of many activities and events.

Sales for general merchandise, including on-campus cafe and convenience products, and trade merchandise have increased compared to the prior year, when sales were impacted by the temporary store closings due to the COVID-19 pandemic, as well as the impact of fewer students returning to campus, as many schools implemented a remote learning model and curtailed on-campus classes and activities.

Sales were impacted by overall enrollment declines in higher education.

While many big-conferences resumed their sport activities, other on campus events, such as Parent's Weekends or Alumni events, continue to be either eliminated or severely restricted, which further impacted the company’s general merchandise business.

First Day (our inclusive access program), digital and eTextbook revenue increased, due to a shift to lower cost options and more affordable solutions, including digital offerings.

First Day sales increased approximately 200% compared to the prior year period.

To supplement the Total Sales table presented above in accordance with generally accepted accounting principles (“GAAP”), the Company uses the non-GAAP financial measure of Retail Gross Comparable Store Sales.

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We believe the current Retail Gross Comparable Store Sales (non-GAAP) calculation method reflects the manner in which management views comparable sales, as well as the seasonal nature of our business.

Retail Gross Comparable Store Sales (non-GAAP) variances for Retail by category for the 13 week periods are as follows:

Retail Gross Comparable Store Sales (non-GAAP) variances 13 weeks ended

Dollars in millions July 31, 2021 August 1, 2020

Retail Gross Comparable Store Sales (non-GAAP) variances for Retail by category for the 13 and 26 week periods are as follows:

Retail Gross Comparable Store Sales (non-GAAP) variances

13 weeks ended 26 weeks ended

Dollars in millions October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Textbooks (Course Materials) $ (0.5) (0.1) % $ (101.6) (19.0) % $ 22.9 4.1 % $ (112.5) (17.5) %

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Total Retail Gross Comparable Store Sales (non-GAAP) $ 73.5 13.2 % $ (205.1) (28.1) % $ 147.6 21.0 % $ (311.3) (31.8) %

Rental income for Retail for the 13 weeks ended July 31, 2021 increased by $2.2 million, or 20.5% to $13.0 million from $10.8 million during the 13 weeks ended August 1, 2020.

Rental income for Retail for the 13 weeks ended October 30, 2021 increased by $6.0 million, or 13.7% to $49.6 million from $43.7 million during the 13 weeks ended October 31, 2020.

Rental income for Retail for the 26 weeks ended October 30, 2021 increased by $8.2 million, or 15.1% to $62.7 million from $54.5 million during the 26 weeks ended October 31, 2020.

Rental income is impacted by comparable store sales, new store openings and store closings.

The increase in rental income is primarily due to increased rental activity due to the temporary store closings due COVID-19 pandemic in the prior year discussed above.

Wholesale sales decreased by $35.8 million, or 44.6% to $44.5 million during the 13 weeks ended July 31, 2021 from $80.3 million during the 13 weeks ended August 1, 2020.

The decrease is primarily due to decreased gross sales impacted by the COVID-19 pandemic, a decrease in customer demand resulting from a shift in buying patterns from physical textbooks to digital products, and lower demand from other third-party clients, partially offset by a lower returns and allowances.

The increase in rental income is primarily due to increased rental activity due to the temporary store closings due the COVID-19 pandemic in the prior year discussed above.

Wholesale sales decreased by $14.7 million, or 40.5% to $21.7 million during the 13 weeks ended October 30, 2021 from $36.4 million during the 13 weeks ended October 31, 2020.

Wholesale sales decreased by $50.5 million, or 43.3% to $66.2 million during the 26 weeks ended October 30, 2021 from $116.7 million during the 26 weeks ended October 31, 2020.

The decrease is primarily due to lower gross sales impacted by the COVID-19 pandemic, including supply constraints resulting from the lack of on campus textbook buyback opportunities during the prior fiscal year, a decrease in customer demand resulting from a shift in buying patterns from physical textbooks to digital products, and lower demand from other third-party clients, partially offset by a lower returns and allowances.

During the prior year period, the Wholesale operations assumed direct-to-student fulfillment of course material orders for the Retail Segment campus bookstores that were not fully operational due to COVID-19 campus store closures, whereas the sales shifted back to the physical bookstores in the current period.

DSS total sales increased by $2.4 million, or 41.4% to $8.3 million during the 13 weeks ended July 31, 2021 from $5.9 million during the 13 weeks ended August 1, 2020.

DSS total sales increased by $2.3 million, or 39.2% to $8.3 million during the 13 weeks ended October 30, 2021 from $6.0 million during the 13 weeks ended October 31, 2020.

DSS total sales increased by $4.8 million, or 40.3% to $16.6 million during the 26 weeks ended October 30, 2021 from $11.8 million during the 26 weeks ended October 31, 2020.

Sales increased primarily due to an increase in subscription sales.

Cost of Sales and Gross Margin

Our cost of sales decreased as a percentage of sales to 75.1% during the 13 weeks ended July 31, 2021 compared to 84.9% during the 13 weeks ended August 1, 2020.

Our gross margin increased by $29.2 million, or 94.5%, to $60.0 million, or 24.9% of sales, during the 13 weeks ended July 31, 2021 from $30.9 million, or 15.1% of sales during the 13 weeks ended August 1, 2020.

During the 13 weeks ended July 31, 2021, we recognized a merchandise inventory loss of $0.4 million in cost of goods sold in the Retail Segment discussed below.

Excluding the merchandise inventory loss, cost of goods sold and gross margin was 74.9% and 25.1%, respectively, of sales during the 13 weeks ended July 31, 2021 compared to 84.9% and 15.1%, respectively, of sales during the 13 weeks ended August 1, 2020.

Our cost of sales decreased as a percentage of sales to 76.8% during the 13 weeks ended October 30, 2021 compared to 80.6% during the 13 weeks ended October 31, 2020.

Our gross margin increased by $30.3 million, or 26.3%, to $145.6 million, or 23.2% of sales, during the 13 weeks ended October 30, 2021 from $115.3 million, or 19.4% of sales during the 13 weeks ended October 31, 2020.

Our cost of sales decreased as a percentage of sales to 76.3% during the 26 weeks ended October 30, 2021 compared to 81.7% during the 26 weeks ended October 31, 2020.

Our gross margin increased by $59.4 million, or 40.7%, to $205.6 million, or 23.7% of sales, during the 26 weeks ended October 30, 2021 from $146.1 million, or 18.3% of sales during the 26 weeks ended October 31, 2020.

During the 26 weeks ended October 30, 2021, we recognized a merchandise inventory loss of $0.4 million in cost of goods sold in the Retail Segment discussed below.

For additional information, see Item 1.

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Summary of Significant Accounting Policies - Merchandise Inventories.

The following table summarizes the Retail cost of sales for the 13 weeks ended July 31, 2021 and August 1, 2020:

13 weeks ended

Dollars in thousands July 31, 2021 % of

Related Sales August 1, 2020 % of

The following table summarizes the Retail cost of sales for the 13 and 26 weeks ended October 30, 2021 and October 31, 2020:

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 % of

Related Sales October 31, 2020 % of

Related Sales October 30, 2021 % of

Related Sales October 31, 2020 % of

Related Sales

5 unchanged sentences

$ 480,127 78.8% $ 481,002 83.4% $ 642,453 78.4% $ 623,643 84.8%

The following table summarizes the Retail gross margin for the 13 weeks ended July 31, 2021 and August 1, 2020:

13 weeks ended

Dollars in thousands July 31, 2021 % of

Related Sales August 1, 2020 % of

The following table summarizes the Retail gross margin for the 13 and 26 weeks ended October 30, 2021 and October 31, 2020:

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 % of

Related Sales October 31, 2020 % of

Related Sales October 30, 2021 % of

Related Sales October 31, 2020 % of

Related Sales

4 unchanged sentences

$ 128,825 21.2% $ 95,512 16.6% $ 176,968 21.6% $ 111,647 15.2%

For the 13 weeks ended July 31, 2021, the Retail gross margin as a percentage of sales increased as discussed below:

• Product and other gross margin increased (1,250 basis points), driven primarily by higher margin rates (1,215 basis points) due to lower inventory reserves and lower markdowns and a favorable sales mix (160 basis points) due to higher general merchandise sales, partially offset by higher contract costs as a percentage of sales related to our college and university contracts (90 basis points) resulting from contract renewals and new store contracts, and an inventory merchandise loss of $0.4 million (30 basis points) related to the final sale of our logo and emblematic general merchandise inventory below cost to FLC.

• Rental gross margin increased (1,765 basis points), driven primarily by lower contract costs as a percentage of sales related to our college and university contracts (1,215 basis points) and higher rental margin rates (690 basis points), partially offset by an unfavorable rental mix (140 basis points).

The cost of sales and gross margin for Wholesale were $34.1 million, or 76.6% of sales, and $10.4 million, or 23.4% of sales, respectively, during the 13 weeks ended July 31, 2021.

The cost of sales and gross margin for Wholesale was $63.5 million or 79.1% of sales and $16.8 million or 20.9% of sales, respectively, during the 13 weeks ended August 1, 2020.

The gross margin rate increased during the 13 weeks ended July 31, 2021 primarily due to lower markdowns and a favorable sales mix, partially offset by the unfavorable impact of returns and allowances.

The gross margin for the DSS segment was $7.0 million, or 84.7% of sales, during the 13 weeks ended July 31, 2021 and $4.7 million, or 80.8% of sales, during the 13 weeks ended August 1, 2020.

For the 13 weeks ended October 30, 2021, the Retail gross margin as a percentage of sales increased as discussed below:

• Product and other gross margin increased (430 basis points), driven primarily by a favorable sales mix (400 basis points) due to higher general merchandise sales, lower contract costs as a percentage of sales related to our college and university contracts (25 basis points) resulting from contract renewals and new store contracts, and higher margin rates (5 basis points) due to lower inventory reserves and lower markdowns.

• Rental gross margin increased (640 basis points), driven primarily by higher rental margin rates (595 basis points) and lower contract costs as a percentage of sales related to our college and university contracts (285 basis points), partially offset by an unfavorable rental mix (240 basis points).

For the 26 weeks ended October 30, 2021, the Retail gross margin as a percentage of sales increased as discussed below:

• Product and other gross margin increased (610 basis points), driven primarily by a favorable sales mix (475 basis points) due to higher general merchandise sales, higher margin rates (130 basis points) due to lower inventory reserves and lower markdowns, and lower contract costs as a percentage of sales related to our college and university contracts (5 basis points) resulting from contract renewals and new store contracts, partially offset by an inventory merchandise loss of $0.4 million (5 basis points) related to the final sale of our logo and emblematic general merchandise inventory below

• Rental gross margin increased (870 basis points), driven primarily by higher rental margin rates (590 basis points) and lower contract costs as a percentage of sales related to our college and university contracts (470 basis points), partially offset by an unfavorable rental mix (190 basis points).

The cost of sales and gross margin for Wholesale were $16.1 million, or 74.1% of sales, and $5.6 million, or 25.9% of sales, respectively, during the 13 weeks ended October 30, 2021.

The cost of sales and gross margin for Wholesale was $25.7 million or 70.6% of sales and $10.7 million or 29.4% of sales, respectively, during the 13 weeks ended October 31, 2020.

The gross margin rate decreased during the 13 weeks ended October 30, 2021 primarily due to higher markdowns, partially offset by a favorable sales mix.

The cost of sales and gross margin for Wholesale were $50.1 million, or 75.8% of sales, and $16.0 million, or 24.2% of sales, respectively, during the 26 weeks ended October 30, 2021.

The cost of sales and gross margin for Wholesale was $89.2 million or 76.5% of sales and $27.5 million or 23.5% of sales, respectively, during the 26 weeks ended October 31, 2020.

The gross margin rate increased during the 26 weeks ended October 30, 2021 primarily due to a favorable sales mix and lower markdowns, partially offset by the unfavorable impact of returns and allowances.

The gross margin for the DSS segment was $6.9 million, or 83.4% of sales, during the 13 weeks ended October 30, 2021 and $4.7 million, or 78.4% of sales, during the 13 weeks ended October 31, 2020.

The gross margin for the DSS segment was $13.9 million, or 84.0% of sales, during the 26 weeks ended October 30, 2021 and $9.4 million, or 79.6% of sales, during the 26 weeks ended October 31, 2020.

The high gross margins are driven primarily by high margin subscription service revenue earned.

Intercompany Eliminations

During the 13 weeks ended July 31, 2021 and August 1, 2020, our sales eliminations were $(22.5) million and $(40.9) million, respectively.

During the 13 weeks ended October 30, 2021 and October 31, 2020, our sales eliminations were $(11.9) million and $(23.4) million, respectively.

During the 26 weeks ended October 30, 2021 and October 31, 2020, our sales eliminations were $(34.4) million and $(64.3) million, respectively.

These sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale.

During the 13 weeks ended July 31, 2021 and August 1, 2020, the cost of sales eliminations were $(16.9) million and $(34.2) million, respectively.

During the 13 weeks ended October 30, 2021 and October 31, 2020, the cost of sales eliminations were $(16.1) million and $(27.8) million, respectively.

During the 26 weeks ended October 30, 2021 and October 31, 2020, the cost of sales eliminations were $(33.0) million and $(61.9) million, respectively.

These cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period.

During the 13 weeks ended July 31, 2021 and August 1, 2020, the gross margin eliminations were $(5.5) million and $(6.8) million, respectively.

During the 13 weeks ended October 30, 2021 and October 31, 2020, the gross margin eliminations were $4.2 million and $4.4 million, respectively.

During the 26 weeks ended October 30, 2021 and October 31, 2020, the gross margin eliminations were $(1.3) million and $(2.4) million, respectively.

The gross margin eliminations reflect the net impact of the sales eliminations and cost of sales eliminations during the above mentioned reporting periods.

Selling and Administrative Expenses

13 weeks ended

Dollars in thousands July 31, 2021 % of

Sales August 1, 2020 % of

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 % of

Sales October 31, 2020 % of

Sales October 30, 2021 % of

Sales October 31, 2020 % of

Total Selling and Administrative Expenses

$ 107,902 17.2% $ 91,972 15.4% $ 194,137 22.4% $ 162,015 20.3%

During the 13 weeks ended July 31, 2021, selling and administrative expenses increased by $16.2 million, or 23.1%, to $86.2 million from $70.0 million during the 13 weeks ended August 1, 2020.

The variances by segment are as follows:

During the 13 weeks ended July 31, 2021, Retail selling and administrative expenses increased by $11.4 million, or 20.0%, to $68.4 million from $57.0 million during the 13 weeks ended August 1, 2020.

This increase was primarily due to a $12.1 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, partially offset by a $0.8 million decrease in corporate payroll, infrastructure and product development costs.

During the 13 weeks ended October 30, 2021, selling and administrative expenses increased by $15.9 million, or 17.3%, to $107.9 million from $92.0 million during the 13 weeks ended October 31, 2020.

During the 26 weeks ended October 30, 2021, selling and administrative expenses increased by $32.1 million, or 19.8%, to $194.1 million from $162.0 million during the 26 weeks ended October 31, 2020.

The variances by segment are discussed by segment below.

The increase in selling and administrative expenses is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

Additionally, during the 13 and 26 weeks ended October 30, 2021, long-term incentive compensation expense increased by $2.5 million and $4.6 million, respectively, primarily related to cash-settled phantom share unit awards which are remeasured at the end of each reporting period to reflect current assumptions, including changes in the our common stock price.

During the 13 weeks ended October 30, 2021, Retail selling and administrative expenses increased by $12.1 million, or 15.6%, to $89.5 million from $77.4 million during the 13 weeks ended October 31, 2020.

This increase was primarily due to a $10.2 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, a $1.3 million increase in corporate payroll, infrastructure and product development costs and $0.6 million increase in incentive plan compensation expense related to phantom share awards as discussed above.

The payroll increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

Wholesale selling and administrative expenses increased by $0.2 million, or 5.3%, to $4.0 million from $3.8 million during the 13 weeks ended August 1, 2020.

The increase in selling and administrative expenses was primarily driven by higher compensation-related expense and higher operating expenses.

During the 13 weeks ended July 31, 2021, DSS selling and administrative expenses increased by $2.4 million, or 59.7%, to $6.4 million from $4.0 million during the 13 weeks ended August 1, 2020.

The increase in costs was primarily driven by higher operating costs invested in the business to continue to increase sales.

During the 26 weeks ended October 30, 2021, Retail selling and administrative expenses increased by $23.5 million, or 17.5%, to $157.9 million from $134.4 million during the 26 weeks ended October 31, 2020.

This increase was primarily due to a $22.3 million increase in stores payroll and operating expenses including comparable stores, virtual stores and new/closed stores payroll and operating expenses, a $1.1 million increase in incentive plan compensation expense related to phantom share awards as discussed above, and a $0.1 million increase in corporate payroll, infrastructure and product development costs.

The payroll increase is primarily related to the impact from re-opening stores that had temporarily closed due to the COVID-19 pandemic in the prior year.

Wholesale selling and administrative expenses increased by $0.3 million, or 5.8%, to $4.4 million from $4.1 million during the 13 weeks ended October 31, 2020.

Wholesale selling and administrative expenses increased by $0.5 million, or 5.6%, to $8.4 million from $7.9 million during the 26 weeks ended October 31, 2020.

The increase in selling and administrative expenses was primarily driven by higher incentive plan compensation expense related to phantom share awards, as discussed above.

During the 13 weeks ended October 30, 2021, DSS selling and administrative expenses increased by $2.3 million, or 46.0%, to $7.3 million from $5.0 million during the 13 weeks ended October 31, 2020.

During the 26 weeks ended October 30, 2021, DSS selling and administrative expenses increased by $4.7 million, or 52.1%, to $13.8 million from $9.0 million during the 26 weeks ended October 31, 2020.

The increase in costs was primarily driven by higher operating costs invested in the business associated with higher product development and sales costs aimed at increasing revenue, and higher incentive plan compensation expense related to phantom share awards, as discussed above.

Corporate Services

During the 13 weeks ended July 31, 2021, Corporate Services' selling and administrative expenses increased by $2.2 million, or 42.0%, to $7.4 million from $5.2 million during the 13 weeks ended August 1, 2020.

The increase was primarily due to higher compensation-related expense and higher operating expenses.

During the 13 weeks ended October 30, 2021, Corporate Services' selling and administrative expenses increased by $1.3 million, or 23.8%, to $6.8 million from $5.5 million during the 13 weeks ended October 31, 2020.

The increase was primarily due to higher incentive plan compensation expense related to phantom share awards of $1.6 million, as discussed above, partially offset by lower operating costs of $0.3 million.

During the 26 weeks ended October 30, 2021, Corporate Services' selling and administrative expenses increased by $3.5 million, or 32.6%, to $14.3 million from $10.8 million during the 26 weeks ended October 31, 2020.

The increase was primarily due to higher incentive plan compensation expense related to phantom share awards of $3.0 million, as discussed above, and higher operating expenses of $0.5 million.

Depreciation and Amortization Expense

13 weeks ended

Dollars in thousands July 31, 2021 % of

Sales August 1, 2020 % of

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 % of

Sales October 31, 2020 % of

Sales October 30, 2021 % of

Sales October 31, 2020 % of

Total Depreciation and Amortization Expense

$ 11,952 1.9% $ 13,193 2.2% $ 24,576 2.8% $ 27,256 3.4%

Depreciation and amortization expense decreased by $1.4 million, or 10.2%, to $12.6 million during the 13 weeks ended July 31, 2021 from $14.1 million during the 13 weeks ended August 1, 2020.

The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during the third quarter of Fiscal 2021.

Depreciation and amortization expense decreased by $1.2 million, or 9.4%, to $12.0 million during the 13 weeks ended October 30, 2021 from $13.2 million during the 13 weeks ended October 31, 2020.

Depreciation and amortization expense decreased by $2.7 million, or 9.8%, to $24.6 million during the 26 weeks ended October 30, 2021 from $27.3 million during the 26 weeks ended October 31, 2020.The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during the third quarter of Fiscal 2021.

Restructuring and other charges

During the 13 weeks ended July 31, 2021, we recognized restructuring and other charges totaling $2.6 million comprised primarily of $1.5 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($2.4 million is included in accrued liabilities in the consolidated balance sheet as of July 31, 2021), $1.0 million for professional service costs related to restructuring, process improvements, costs related to development and integration associated with the FLC Partnership, and shareholder activist activities, and $0.1 million related to liabilities for a facility closure.

During the 13 ended August 1, 2020, we recognized restructuring and other charges totaling $5.7 million comprised of $3.4 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives ($10.6 million is included in accrued liabilities in the consolidated balance sheet as of August 1, 2020), and $2.1 million for professional service costs related to restructuring, process improvements, and shareholder activities, and $0.2 million related to liability for a facility closure.

Operating Loss

13 weeks ended

Dollars in thousands July 31, 2021 % of

Sales August 1, 2020 % of

Total Operating Loss $ (41,453) (17.2)% $ (58,915) (28.9)%

Our operating loss was $(41.5) million during the 13 weeks ended July 31, 2021, compared to an operating loss of $(58.9) million during the 13 weeks ended August 1, 2020.

During the 13 and 26 weeks ended October 30, 2021, we recognized restructuring and other charges totaling $1.1 million and $3.7 million, respectively, comprised primarily of $0.4 million and $2.0 million, respectively, for severance and other

employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, $0.7 million and $1.7 million, respectively, for costs associated with professional service costs for restructuring, process improvements, development and integration associated with the FLC Partnership, shareholder activist activities, and liabilities for a facility closure.

During the 13 and 26 weeks ended October 31, 2020, we recognized restructuring and other charges totaling $3.4 million and $9.1 million, respectively, comprised primarily of $1.1 million and $4.5 million, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, $2.3 million and $4.6 million, respectively, for costs associated with professional service costs for restructuring, process improvements, shareholder activist activities, and liabilities for a facility closure.

Operating Income (Loss)

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 % of

Sales October 31, 2020 % of

Sales October 30, 2021 % of

Sales October 31, 2020 % of

Total Operating Income (Loss) $ 24,589 3.9% $ 6,733 1.2% $ (16,864) (1.9)% $ (52,182) (6.5)%

Our operating income was $24.6 million during the 13 weeks ended October 30, 2021, compared to operating income of $6.7 million during the 13 weeks ended October 31, 2020.

The increase in operating income is due to the matters discussed above.

For the 13 weeks ended October 30, 2021, excluding the $1.1 million of restructuring and other charges discussed above, operating income was $25.7 million (or 4.1% of sales).

For the 13 weeks ended October 31, 2020, excluding the $3.4 million of restructuring and other charges, discussed above, operating income was $10.1 million (or 1.7% of sales).

Our operating loss was $(16.9) million during the 26 weeks ended October 30, 2021, compared to an operating loss of $(52.2) million during the 26 weeks ended October 31, 2020.

The decrease in operating loss is due to the matters discussed above.

For the 13 weeks ended July 31, 2021, excluding the $0.4 million of merchandise inventory loss and the $2.6 million of restructuring and other charges, discussed above, operating loss was $(38.4) million (or (15.9)% of sales).

For the 13 weeks ended August 1, 2020, excluding the $5.7 million of restructuring and other charges, discussed above, operating loss was $(53.2) million (or (26.1)% of sales).

For the 26 weeks ended October 30, 2021, excluding the $0.4 million of merchandise inventory loss and the $3.7 million of restructuring and other charges discussed above, operating loss was $(12.7) million (or (1.5)% of sales).

For the 26 weeks ended October 31, 2020, excluding the $9.1 million of restructuring and other charges, discussed above, operating loss was $(43.1) million (or (5.4)% of sales).

Interest Expense, Net

13 weeks ended

Dollars in thousands July 31, 2021 August 1, 2020

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Interest Expense, Net $ 2,264 $ 912 $ 4,758 $ 3,565

Net interest expense decreased by $0.2 million, or 6.0%, to $2.5 million during the 13 weeks ended July 31, 2021 from $2.7 million during the 13 weeks ended August 1, 2020.

The decrease was primarily due to lower borrowings compared to the prior year.

Income Tax Expense (Benefit)

13 weeks ended

Dollars in thousands July 31, 2021 Effective Rate August 1, 2020 Effective Rate

Income Tax Expense (Benefit) $ 399 (0.9)% $ (14,916) 24.2%

We recorded an income tax expense of $0.4 million on a pre-tax loss of $(43.9) million during the 13 weeks ended July 31, 2021, which represented an effective income tax rate of (0.9)% and we recorded an income tax benefit of $(14.9) million on a pre-tax loss of $(61.6) million during the 13 weeks ended August 1, 2020, which represented an effective income tax rate of 24.2%.

The effective tax rate for the 13 weeks ended July 31, 2021 is lower as compared to the comparable prior year due to the assessment of the realization of deferred tax assets.

13 weeks ended

Dollars in thousands July 31, 2021 August 1, 2020

Net loss $ (44,346) $ (46,652)

As a result of the factors discussed above, net loss was $(44.3) million during the 13 weeks ended July 31, 2021, compared with net loss of $(46.7) million during the 13 weeks ended August 1, 2020.

Adjusted Earnings (non-GAAP) is $(40.0) million during the 13 weeks ended July 31, 2021, compared with $(41.7) million during the 13 weeks ended August 1, 2020.

Net interest expense increased by $1.4 million, or 148.4%, to $2.3 million during the 13 weeks ended October 30, 2021 from $0.9 million during the 13 weeks ended October 31, 2020.

Net interest expense increased by $1.2 million, or 33.5%, to $4.8 million during the 13 weeks ended October 30, 2021 from $3.6 million during the 13 weeks ended October 31, 2020.

The increase was primarily due to higher borrowings compared to the prior year.

Income Tax (Benefit) Expense

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 Effective Rate October 31, 2020 Effective Rate October 30, 2021 Effective Rate October 31, 2020 Effective Rate

Income Tax (Benefit) Expense $ (203) (0.9)% $ (1,694) (29.1)% $ 196 (0.9)% $ (16,610) 29.8%

We recorded an income tax benefit of $(0.2) million on pre-tax income of $22.3 million during the 13 weeks ended October 30, 2021, which represented an effective income tax rate of (0.9)% and we recorded an income tax benefit of $(1.7) million on a pre-tax income of $5.8 million during the 13 weeks ended October 31, 2020, which represented an effective income tax rate of (29.1)%.

We recorded income tax expense of $0.2 million on a pre-tax loss of $(21.6) million during the 26 weeks ended October 30, 2021, which represented an effective income tax rate of (0.9)% and we recorded an income tax benefit of $(16.6) million on a pre-tax loss of $(55.7) million during the 26 weeks ended October 31, 2020, which represented an effective income tax rate of 29.8%.

The effective tax rate for the 26 weeks ended October 30, 2021 is lower as compared to the comparable prior year due to the assessment of the realization of deferred tax assets and loss carrybacks recorded in the prior year.

Net Income (Loss)

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net income (loss) $ 22,528 $ 7,515 $ (21,818) $ (39,137)

As a result of the factors discussed above, net income was $22.5 million during the 13 weeks ended October 30, 2021, compared with net income of $7.5 million during the 13 weeks ended October 31, 2020.

As a result of the factors discussed above, net loss was $(21.8) million during the 26 weeks ended October 30, 2021, compared with net loss of $(39.1) million during the 26 weeks ended October 31, 2020.

Adjusted Earnings (non-GAAP) is $25.0 million during the 13 weeks ended October 30, 2021, compared with $11.1 million during the 13 weeks ended October 31, 2020.

Adjusted Earnings (non-GAAP) is $(15.1) million during the 26 weeks ended October 30, 2021, compared with $(30.6) million during the 26 weeks ended October 31, 2020.

See Adjusted Earnings (non-GAAP) discussion below.

5 unchanged sentences

We define Free Cash Flow as Adjusted EBITDA less capital expenditures, cash interest and cash taxes.

To properly and prudently evaluate our business, we encourage you to review our condensed consolidated financial statements included elsewhere in this Form 10-K, the reconciliation of Adjusted Earnings to net income and the reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure presented in accordance with GAAP, set

forth in the tables below.

All of the items included in the reconciliations below are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance.

8 unchanged sentences

Adjusted Earnings (non-GAAP)

13 weeks ended

Dollars in thousands July 31, 2021 August 1, 2020

Net loss $ (44,346) $ (46,652)

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net income (loss) $ 22,528 $ 7,515 $ (21,818) $ (39,137)

Reconciling items, after-tax (below)

2,427 3,560 6,759 8,496

Adjusted Earnings (non-GAAP) $ 24,955 $ 11,075 $ (15,059) $ (30,641)

1 unchanged sentence

Merchandise inventory loss (a)

$ — $ — 434 —

Content amortization (non-cash)

1,311 1,222 2,586 2,386

Restructuring and other charges (a)

1,116 3,387 3,739 9,058

Reconciling items, pre-tax 2,427 4,609 6,759 11,444

Pro forma income tax impact (a)(b)

— 1,049 — 2,948

Reconciling items, after-tax $ 2,427 $ 3,560 $ 6,759 $ 8,496

2 unchanged sentences

Adjusted EBITDA (non-GAAP)

13 weeks ended

Dollars in thousands July 31, 2021 August 1, 2020

Net loss $ (44,346) $ (46,652)

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Net income (loss) $ 22,528 $ 7,515 $ (21,818) $ (39,137)

Depreciation and amortization expense 11,952 13,193 24,576 27,256

Interest expense, net 2,264 912 4,758 3,565

Income tax expense (benefit) 399 (14,916)

Income tax (benefit) expense (203) (1,694) 196 (16,610)

Merchandise inventory loss (a)

Content amortization (non-cash)

1,311 1,222 2,586 2,386

Restructuring and other charges (a)

1,116 3,387 3,739 9,058

Adjusted EBITDA (non-GAAP) (a)

1 unchanged sentence

(a) See Management Discussion and Analysis and Results of Operations discussion above.

The following is Adjusted EBITDA by segment for the 13 weeks ended July 31, 2021 and August 1, 2020.

Adjusted EBITDA - by Segment 13 weeks ended July 31, 2021

The following is Adjusted EBITDA by segment for the 13 and 26 weeks ended October 30, 2021 and October 31, 2020.

Adjusted EBITDA - by Segment 13 weeks ended October 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services Elimination (b)

6 unchanged sentences

Adjusted EBITDA (non-GAAP) $ 39,444 $ 1,233 $ 807 $ (6,809) $ 4,293 $ 38,968

Adjusted EBITDA - by Segment 13 weeks ended August 1, 2020

Adjusted EBITDA - by Segment 13 weeks ended October 31, 2020

Dollars in thousands Retail Wholesale DSS Corporate Services Elimination (b)

6 unchanged sentences

Adjusted EBITDA (non-GAAP) $ 18,324 $ 6,568 $ 689 $ (5,501) $ 4,455 $ 24,535

(a) For the 13 weeks ended July 31, 2021, gross margin excludes $0.2 million and $1.1 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively.

For the 13 weeks ended July 31, 2021, gross margin also excludes a merchandise inventory loss of $0.4 million in the Retail Segment.

For the 13 weeks ended August 1, 2020, gross margin excludes $0.2 million and $1.0 million of amortization expense (non-cash) related to content development costs in the Retail Segment and DSS Segment, respectively.

Adjusted EBITDA - by Segment 26 weeks ended October 30, 2021

Dollars in thousands Retail Wholesale DSS Corporate Services Elimination (b)

Sales $ 819,421 $ 66,153 $ 16,582 $ — $ (34,385) $ 867,771

Cost of sales (a)

641,748 50,128 331 — (33,044) 659,163

Gross profit 177,673 16,025 16,251 — (1,341) $ 208,608

Selling and administrative expenses

157,851 8,378 13,752 14,253 (97) 194,137

Adjusted EBITDA (non-GAAP) $ 19,822 $ 7,647 $ 2,499 $ (14,253) $ (1,244) $ 14,471

Adjusted EBITDA - by Segment 26 weeks ended October 31, 2020

Dollars in thousands Retail Wholesale DSS Corporate Services Elimination (b)

Sales $ 735,290 $ 116,681 $ 11,819 $ — $ (64,291) $ 799,499

Cost of sales (a)

623,241 89,210 427 — 61,912 774,790

Gross profit 112,049 27,471 11,392 — (2,379) $ 148,533

Selling and administrative expenses

134,365 7,937 9,039 10,745 (71) 162,015

Adjusted EBITDA (non-GAAP) $ (22,316) $ 19,534 $ 2,353 $ (10,745) $ (2,308) $ (13,482)

(a) For the 13 and 26 weeks ended October 30, 2021, the Retail Segment gross margin excludes $0.1 million and $0.3 million, respectively, of amortization expense (non-cash) related to content development costs.

Additionally, for the 26 weeks ended October 30, 2021, gross margin excludes a merchandise inventory loss of $0.4 million in the Retail Segment related to the sale of our logo and emblematic general merchandise inventory below cost to FLC.

For the 13 and 26 weeks ended October 31, 2020, the Retail Segment gross margin excludes $0.2 million and $0.4 million, respectively, of amortization expense (non-cash) related to content development costs.

For the 13 and 26 weeks ended October 30, 2021, the DSS Segment gross margin excludes $1.2 million and $2.3 million, respectively, of amortization expense (non-cash) related to content development costs.

For the 13 and 26 weeks ended October 31, 2020, the DSS Segment gross margin excludes $1.0 million and $2.0 million, respectively of amortization expense (non-cash) related to content development costs.

(b) See Management Discussion and Analysis and Results of Operations discussion above.

Free Cash Flow (non-GAAP)

13 weeks ended

Dollars in thousands July 31, 2021 August 1, 2020

13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Adjusted EBITDA (non-GAAP) $ 38,968 $ 24,535 $ 14,471 $ (13,482)

Capital expenditures (a)

9,894 9,142 21,264 16,197

Cash interest 1,980 1,240 3,662 3,200

4 unchanged sentences

The following table provides the components of total purchases of property and equipment:

Capital Expenditures 13 weeks ended

Dollars in thousands July 31, 2021 August 1, 2020

Capital Expenditures 13 weeks ended 26 weeks ended

Dollars in thousands October 30, 2021 October 31, 2020 October 30, 2021 October 31, 2020

Physical store capital expenditures $ 3,587 $ 2,825 $ 7,480 $ 5,962

5 unchanged sentences

Our primary sources of cash are net cash flows from operating activities, funds available under our credit agreement and short-term vendor financing.

As of July 31, 2021, we had $203.7 million outstanding borrowings under the Credit Agreement.

As of October 30, 2021, we had $183.3 million outstanding borrowings under the Credit Agreement.

See Financing Arrangements discussion below.

7 unchanged sentences

Although most schools currently expect to return to a traditional on-campus environment for learning in the upcoming Fall semester, as well as host traditional on campus sporting activities and events, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic.

8 unchanged sentences

26 weeks ended

Dollars in thousands July 31, 2021 August 1, 2020

Dollars in thousands October 30, 2021 October 31, 2020

Cash, cash equivalents, and restricted cash at beginning of period $ 16,814 $ 9,008

Net cash flows used in operating activities (17,462) (53,149)

Net cash flows provided by operating activities 24,142 91,386

Net cash flows used in investing activities (20,804) (16,194)

Net cash flows provided by financing activities 24,885 59,518

Net cash flows provided by (used in) financing activities 3,378 (76,081)

Cash, cash equivalents, and restricted cash at end of period $ 23,530 $ 8,119

As of October 30, 2021 and October 31, 2020, we had restricted cash of $12.5 million and $0.8 million, respectively, comprised of $11.6 million and $0, respectively, in prepaid and other current assets in the consolidated balance sheet related to segregated funds for commission due to FLC for logo merchandise sales as per the FLC Partnership's merchandising agreement and $0.9 million and $0.8 million, respectively, in other noncurrent assets in the condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans.

Cash Flow from Operating Activities

1 unchanged sentence

For our retail operations, cash flows from operating activities are typically a source of cash in the second and third fiscal quarters, when students generally purchase and rent textbooks and other course materials for the upcoming semesters based on the typical academic semester.

For our wholesale operations, cash flows from operating activities are typically a source of cash in the second and fourth fiscal quarters, as payments are received from the summer and winter selling season when they sell textbooks and other course materials for retail distribution.

For our wholesale operations, cash flows from operating activities

are typically a source of cash in the second and fourth fiscal quarters, as payments are received from the summer and winter selling season when they sell textbooks and other course materials for retail distribution.

For both retail and wholesale, cash flows from operating activities are typically a use of cash in the fourth fiscal quarter, when sales volumes are materially lower than the other quarters.

2 unchanged sentences

These shifts in timing may affect the comparability of our results across periods.

Cash flows used in operating activities during the 13 weeks ended July 31, 2021 were $(17.9) million compared to $(53.1) million during the 13 weeks ended August 1, 2020.

This decrease in cash used in operating activities of $35.2 million was primarily due to higher earnings in the current year period compared to the prior year period, and changes in working capital.

As discussed above, our operations were highly impacted by COVID-19 related campus store closures in the prior year period.

Cash flows provided by operating activities during the 26 weeks ended October 30, 2021 were $24.1 million compared to $91.4 million during the 26 weeks ended October 31, 2020.

This decrease in cash used in operating activities of $67.3 million was primarily due to changes in working capital, including higher accounts receivables and higher inventory purchases, partially offset by higher earnings of $17.3 million in the current year period compared to the prior year period and lower tax payments of $13.8 million compared to the prior year period as discussed below.

Our operations were highly impacted by COVID-19 related campus store closures in the prior year period, resulting in lower operating costs and lower inventory purchases.

Cash Flow from Investing Activities

Cash flows used in investing activities during the 13 weeks ended July 31, 2021 were $(11.0) million compared to $(7.1) million during the 13 weeks ended August 1, 2020.

Cash flows used in investing activities during the 26 weeks ended October 30, 2021 were $(20.8) million compared to $(16.2) million during the 26 weeks ended October 31, 2020.

The increase in cash used in investing activities is primarily due to higher capital expenditures and contractual capital investments associated with content development, digital initiatives, enhancements to internal systems and websites, renewing existing contracts and new store construction.

Capital expenditures totaled $11.4 million and $7.1 million during the 13 weeks ended July 31, 2021 and August 1, 2020, respectively.

Capital expenditures totaled $21.3 million and $16.2 million during the 26 weeks ended October 30, 2021 and October 31, 2020, respectively.

Cash Flow from Financing Activities

Cash flows provided by financing activities during the 13 weeks ended July 31, 2021 were $24.9 million compared to $59.5 million during the 13 weeks ended August 1, 2020.

This net change of $34.6 million is primarily due to lower net borrowings under the credit agreement.

Cash flows provided by financing activities during the 26 weeks ended October 30, 2021 were $3.4 million compared to cash flows used in financing activities of $(76.1) million during the 26 weeks ended October 31, 2020.

This net change of $79.5 million is primarily due to higher net borrowings under the credit agreement.

Financing Arrangements

4 unchanged sentences

On March 31, 2021, we were granted a waiver to the availability test condition to the current draw under the FILO Facility.

During the 13 weeks ended July 31, 2021, we borrowed $71.7 million and repaid $45.6 million under the Credit Agreement, with $203.7 million of outstanding borrowings as of July 31, 2021, comprised of $153.7 million and $50.0 million under the Credit Facility and FILO Facility, respectively.

During the 13 weeks ended August 1, 2020, we borrowed $186.7 million and repaid $126.8 million under the Credit Agreement, with $234.6 million of outstanding borrowings as of August 1, 2020, comprised entirely of outstanding borrowings under the Credit Facility.

As of both July 31, 2021 and August 1, 2020, we have issued $4.8 million in letters of credit under the Credit Facility.

During the 26 weeks ended October 30, 2021, we borrowed $259.7 million and repaid $254.0 million under the Credit Agreement, with $183.3 million of outstanding borrowings as of October 30, 2021, comprised entirely of borrowings under the Credit Facility.

During the 26 weeks ended October 31, 2020, we borrowed $330.8 million and repaid $406.0 million under the Credit Agreement, with $99.5 million of outstanding borrowings as of October 31, 2020, comprised entirely of outstanding borrowings under the Credit Facility.

As of both October 30, 2021 and October 31, 2020, we have issued $4.8 million in letters of credit under the Credit Facility.

For additional information including interest terms and covenant requirements related to the Credit Facility and FILO Facility, refer to Part II - Item 7.

1 unchanged sentence

Income Tax Implications on Liquidity

As of July 31, 2021, other long-term liabilities includes $25.3 million related to the long-term tax payable associated with the LIFO reserve.

As of October 30, 2021, other long-term liabilities includes $25.3 million related to the long-term tax payable associated with the LIFO reserve.

The LIFO reserve is impacted by changes in the consumer price index ("CPI") and is dependent on the inventory levels at the end of our tax year (on or about January 31st) which is in the middle of our second largest selling cycle.

3 unchanged sentences

We have filed our federal income tax returns for the tax year ended January 2021, as well claims for refunds for cash taxes paid in prior years.

We expect to receive an aggregate refund of approximately $30.5 million.

We received a $7.8 million refund in the second quarter of Fiscal 2022 and expect to receive an additional refunds of approximately $22.6 million.

Share Repurchases

3 unchanged sentences

Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

During the 13 weeks ended July 31, 2021, we did not repurchase any of our Common Stock under the stock repurchase program.

As of July 31, 2021, approximately $26.7 million remains available under the stock repurchase program.

During the 13 weeks ended July 31, 2021, we repurchased 130,135 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

During the 13 weeks ended October 30, 2021, we did not repurchase any of our Common Stock under the stock repurchase program.

As of October 30, 2021, approximately $26.7 million remains available under the stock repurchase program.

During the 26 weeks ended October 30, 2021, we repurchased 238,170 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards.

Contractual Obligations

2 unchanged sentences

Off-Balance Sheet Arrangements

As of July 31, 2021, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

As of October 30, 2021, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K.

Critical Accounting Policies

52 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