What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-17 compared with 2024-03-15 · 118 added, 147 removed, 400 unchanged (40% of the section changed)

12 unchanged sentences

Store Openings, Closings and Relocations

During Fiscal 2023, we opened 104 new stores, inclusive of 13 relocations, and closed 11 stores, exclusive of the aforementioned relocations, bringing our store count as of February 3, 2024 to 1007 stores.

During the fiscal year ended February 1, 2025 (Fiscal 2024), we opened 147 new stores, inclusive of 31 relocations, and closed 15 stores, exclusive of the aforementioned relocations, bringing our store count as of February 1, 2025 to 1,108 stores.

We continue to pursue our growth plans and invest in capital projects that meet our financial requirements.

During the fiscal year ending February 1, 2025 (Fiscal 2024), we plan to open approximately 100 net new stores.

During the fiscal year ending January 31, 2026 (Fiscal 2025), we plan to open approximately 100 net new stores.

Fiscal Year Ended

1 unchanged sentence

We report fiscal years under a 52/53-week format and as a result, certain fiscal years will contain 53 weeks.

The fiscal year ended February 3, 2024 (“Fiscal 2023”) included 53 weeks, while the fiscal years ended January 28, 2023 (“Fiscal 2022”) and January 29, 2022 (“Fiscal 2021”) each included 52 weeks.

The fiscal year ending February 1, 2025 (“Fiscal 2024”) will have 52 weeks.

Fiscal 2024 included 52 weeks, the fiscal year ended February 3, 2024 (Fiscal 2023) included 53 weeks, and the fiscal year ended January 28, 2023 (Fiscal 2022) included 52 weeks.

Fiscal 2025 will have 52 weeks.

Ongoing Initiatives for Fiscal 2025

14 unchanged sentences

• Enhancing Existing Categories and Introducing New Categories.

We have opportunities to expand our offerings in certain existing categories, such as ladies’ apparel, beauty, and home merchandise, and maintain the flexibility to introduce new categories as we expand our merchandising capabilities.

We have opportunities to expand our offerings in certain existing categories, such as ladies’ and junior apparel, beauty, and home merchandise, and maintain the flexibility to introduce new categories as we expand our merchandising capabilities.

• Expanding and Enhancing Our Retail Store Base.

4 unchanged sentences

As a result of our smaller store prototype, we have identified numerous market opportunities that we believe will allow us to operate 2,000 stores over the long term.

Beginning in Fiscal 2024, we expect to average about 100 net new stores per year through Fiscal 2028, for a total of 500 net new stores over the five-year period.

We expect to average about 100 net new stores per year, for a total of 500 net new stores over the five-year period from Fiscal 2024 through Fiscal 2028.

• Enhancing the Store Experience.

10 unchanged sentences

• Optimizing the Supply Chain .

We believe that our transportation initiatives will lead to lower freight costs compared to recent levels, and that our efficiency and labor productivity initiatives will result in lower supply chain costs over the next several years.

We also believe there are longer-term supply chain opportunities through investments in automation.

Our transportation initiatives have led to lower freight costs compared to recent levels, and we believe our efficiency and labor productivity initiatives will continue to result in lower supply chain costs over the next several years.

We also believe there are longer-term supply chain opportunities through investments in automation and new purpose built processing buildings, and owning (rather than leasing) a larger portion of our warehouse network going forward.

• Challenging Expenses to Drive Operating Leverage.

11 unchanged sentences

economy, an extended period of high unemployment or inflation rates, an uncertain domestic or global economic outlook or a financial crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis.

Conversely, if inflation continues to decline next year, it could benefit our core customers who have been impacted by the higher cost of living since early 2022, and if economic growth slows, it could cause moderate and higher-income shoppers to become more value conscious.

Both of these developments, if they occur, would be expected to improve our business.

Conversely, if inflation continues to decline, it could benefit our core customers who have been impacted by the higher cost of living since early 2022, and if economic growth slows, it could cause moderate and higher-income shoppers to become more value conscious.

Either of these developments, if they occur, would be expected to improve our business.

Consumer confidence is also affected by the domestic and international political situation.

Our financial condition and operations could be impacted by changes in government regulations in areas including, but not limited to, taxes and healthcare.

Ongoing international trade and tariff negotiations could have a direct impact on our income and an indirect impact on consumer prices.

Our financial condition and operations could be impacted by changes in government regulations, initiatives or programs in areas including, but not limited to, trade and tariffs, taxes, healthcare, and immigration.

In addition, trade and tariff regulations could have an indirect impact on consumer prices.

The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the U.S., or public health issues such as pandemics or epidemics, could lead to a decrease in spending by consumers.

In addition, natural disasters, public health issues, industrial accidents and acts of war or conflicts in various parts of the world (such as the conflict in Ukraine or the Hamas-Israel war), could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and U.S.

In addition, natural disasters, public health issues, industrial accidents and acts of war or conflicts in various parts of the world (such as the conflict in the Middle East), could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and U.S.

economies and lead to a downturn in consumer confidence and spending.

1 unchanged sentence

We have performed scenario planning such that if our net sales decline for an extended period of time, we have identified variable costs that could be reduced to partially mitigate the impact of these declines.

If we were to experience adverse economic trends and/or if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods.

If we were to experience adverse sales trends and if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods.

Seasonality of Sales and Weather Conditions .

17 unchanged sentences

We believe that this enables us to obtain better terms with our suppliers, which we expect will help offset any rising costs of goods.

While freight rates are now moderating compared to Fiscals 2022 and 2021, we have experienced inflationary pressure in our supply chain and with respect to raw materials and finished goods, as well as in occupancy and other operating costs.

There can be no assurance that we will be able to offset inflationary pressure in the future by increasing prices or through other means, or that our business will not be negatively affected by continued inflation in the future.

Key Performance and Non-GAAP Measures

We consider numerous factors in assessing our performance.

Key performance and non-GAAP measures used by management include net income, Adjusted Net Income, Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory, store payroll and liquidity.

Key performance and non-GAAP measures used by management include net income, Adjusted Net Income, Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory and liquidity.

We earned net income of $503.6 million during Fiscal 2024 compared with $339.6 million during Fiscal 2023.

9 unchanged sentences

(v) amounts related to certain litigation matters;

and (vi) other unusual or non-recurring expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net Income.

and (vi) other unusual, non-recurring expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net Income.

We define Adjusted EBITDA as net income, exclusive of the following items, if applicable:

8 unchanged sentences

(ix) amounts related to certain litigation matters;

and (x) other unusual or non-recurring expenses, losses, charges or gains

and (x) other unusual, non-recurring expenses, losses, charges or gains.

We define Adjusted EBIT as net income, exclusive of the following items, if applicable:

7 unchanged sentences

(viii) amounts related to certain litigation matters;

and (ix) other unusual or non-recurring expenses, losses, charges or gains.

and (ix) other unusual, non-recurring expenses, losses, charges or gains.

We present Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT because we believe they are useful supplemental measures in evaluating the performance of our business and provide greater transparency into our results of operations.

9 unchanged sentences

• amounts charged for certain litigation matters;

• other unusual or non-recurring expenses, losses, charges or gains.

• other unusual, non-recurring expenses, losses, charges or gains.

During Fiscal 2024, Adjusted Net Income improved $134.6 million to $527.9 million.

14 unchanged sentences

These expenses are recorded in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income.

(b) Amounts relate to the partial repurchases of the 2.25% Convertible Senior Notes due 2025 (2025 Convertible Notes) in Fiscal 2023 and Fiscal 2022, the exchange of a portion of the 2025 Convertible Notes in Fiscal 2023, and the redemption of the Secured Notes in Fiscal 2021.

(c) Fiscal 2023 amount relates to the Term Loan Credit Agreement amendment in the second quarter of Fiscal 2023 changing one of the reference rates under the Term Loan Credit Agreement from the Adjusted LIBOR Rate to the Adjusted Term SOFR Rate.

Fiscal 2021 amount represents costs incurred in connection with the review and execution of refinancing opportunities.

(b) Fiscal 2024 amount relates to the partial write-off of the original issue discount and deferred debt costs related to the September 2024 extension and upsize of the Term Loan Facility.

Prior year amounts relate to the partial repurchases of the 2025 Convertible Notes in Fiscal 2023 and Fiscal 2022, and the exchange of a portion of the 2025 Convertible Notes in Fiscal 2023.

(c) Fiscal 2024 amount relates to the September 2024 extension and upsizing of the Term Loan Facility in the third quarter of Fiscal 2024.

Fiscal 2023 amount relates to the Term Loan Facility amendment in the second quarter of Fiscal 2023 changing from the Adjusted LIBOR Rate to the Adjusted Term SOFR Rate.

(d) Represents amounts charged for certain litigation matters.

9 unchanged sentences

• income tax expense;

• other unusual or non-recurring expenses, losses, charges or gains.

• other unusual, non-recurring expenses, losses, charges or gains.

Adjusted EBITDA is further adjusted for cash requirements for replacement of assets.

5 unchanged sentences

The following table shows our reconciliation of net income to Adjusted EBIT and Adjusted EBITDA for Fiscal 2024, Fiscal 2023 and Fiscal 2022:

(in thousands)

Fiscal Year Ended

13 unchanged sentences

These expenses are recorded in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income.

(b) Amounts relate to the partial repurchases of the 2025 Convertible Notes in Fiscal 2023 and Fiscal 2022, the exchange of a portion of the 2025 Convertible Notes in Fiscal 2023, and the redemption of the Secured Notes in Fiscal 2021.

Fiscal 2021 amount represents costs incurred in connection with the review and execution of refinancing opportunities.

(b) Fiscal 2024 amount relates to the partial write-off of the original issue discount and deferred debt costs related to the September 2024 extension and upsize of the Term Loan Facility.

Prior year amounts relate to the partial repurchases of the 2025 Convertible Notes in Fiscal 2023 and Fiscal 2022, and the exchange of a portion of the 2025 Convertible Notes in Fiscal 2023.

(c) Fiscal 2024 amount relates to the September 2024 extension and upsizing of the Term Loan Facility in the third quarter of Fiscal 2024.

Fiscal 2023 amount relates to the Term Loan Facility amendment in the second quarter of Fiscal 2023 changing from the Adjusted LIBOR Rate to the Adjusted Term SOFR Rate.

(d) Represents amounts charged for certain litigation matters.

1 unchanged sentence

Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of a prior year.

Due to the impact of the COVID-19 pandemic in Fiscal 2020, we are using Fiscal 2019 as the comparable previous year period when calculating comparable store sales for Fiscal 2021.

The method of calculating comparable store sales varies across the retail industry.

4 unchanged sentences

Fiscal Year Ended

Change in Comparable Store Sales

February 1, 2025

January 28, 2023

February 3, 2024

January 28, 2023

2 unchanged sentences

Gross margin is the difference between net sales and the cost of sales.

Our cost of sales and gross margin may not be comparable to those of other entities, since some entities may include all of the costs related to their buying and distribution

functions, certain store-related costs and other costs, in cost of sales.

Our cost of sales and gross margin may not be comparable to those of other entities, since some entities may include all of the costs related to their buying and distribution functions, certain store-related costs and other costs, in cost of sales.

We include certain of these costs in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in our Consolidated Statements of Income.

1 unchanged sentence

Gross margin as a percentage of net sales expanded to 43.2% during Fiscal 2024, compared with 42.5% during Fiscal 2023, driven primarily by higher merchandise margins and improved freight costs.

Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 20 basis points as a percentage of net sales.

Inventory at February 3, 2024 decreased to $1,087.8 million from $1,182.0 million at January 28, 2023.

This decrease primarily relates to a decrease in reserve inventory and a decrease in comparable store inventory, partially offset by 80 net new stores since the end of Fiscal 2022.

Product sourcing costs, which are included in selling, general and administrative expenses, decreased approximately 50 basis points as a percentage of net sales during the fiscal year ended February 3, 2024, compared with the fiscal year ended February 3, 2024, primarily driven by supply chain efficiency initiatives.

Product sourcing costs include the costs of processing goods through our supply chain and buying costs.

Inventory at February 1, 2025 increased to $1,250.8 million from $1,087.8 million at February 3, 2024.

This increase primarily relates to 101 net new stores since the end of Fiscal 2023 and an increase in reserve inventory, partially offset by a decrease in comparable store inventory.

Reserve inventory includes all inventory that is being stored for release either later in the season, or in a subsequent season.

We intend to use our reserve merchandise to effectively chase sales trends.

Reserve inventory was 46% of total inventory at the end of Fiscal 2024 compared to 39% at the end Fiscal 2023.

In order to better serve our customers and maximize sales, we continue to refine our merchandising mix and inventory levels within our stores.

By appropriately managing our inventories, we believe we will be better able to deliver a continual flow of fresh merchandise to our customers.

Store Payroll as a Percentage of Net Sales .

Store payroll as a percentage of net sales measures our ability to manage our payroll in accordance with increases or decreases in net sales.

The method of calculating store payroll varies across the retail industry.

As a result, our store payroll as a percentage of net sales may differ from other retailers.

We define store payroll as regular and overtime payroll for all store personnel as well as regional and territory personnel, exclusive of payroll charges related to corporate and warehouse employees.

Store payroll as a percentage of net sales was 8.2% and 8.0% during Fiscal 2023 and Fiscal 2022, respectively.

Liquidity measures our ability to generate cash.

Management measures liquidity through cash flow, which is the measure of cash generated from or used in operating, financing, and investing activities.

Cash and cash equivalents, including restricted cash and cash equivalents, increased $46.2 million during Fiscal 2023, compared with a decrease of $218.5 million during Fiscal 2022.

Cash and cash equivalents increased $69.3 million during Fiscal 2024, compared with an increase of $46.2 million during Fiscal 2023.

Refer to the section below entitled “Liquidity and Capital Resources” for further explanation.

16 unchanged sentences

Income tax expense

Performance for Fiscal Year Ended February 3, 2024 (Fiscal 2023) Compared with Fiscal Year Ended January 28, 2023 (Fiscal 2022)

Net sales improved $1,024.4 million, or 11.8%, to $9,709.0 million, primarily driven by 80 net new stores since the end of Fiscal 2022, an increase of 4% in comparable store sales during Fiscal 2023, and additional sales of $138.0 million from the 53rd week in Fiscal 2023.

Performance for Fiscal Year Ended February 1, 2025 (Fiscal 2024) Compared with Fiscal Year Ended February 3, 2024 (Fiscal 2023)

Net sales improved $907.8 million, or 9.3%, to $10,616.7 million, primarily driven by 101 net new stores since the end of Fiscal 2023 and an increase of 4% in comparable store sales during Fiscal 2024.

Cost of sales

Cost of sales as a percentage of net sales decreased to 57.5% during Fiscal 2023, primarily driven by higher merchandise margins and improved freight costs.

Cost of sales as a percentage of net sales decreased to 56.8% during Fiscal 2024, compared with 57.5% during Fiscal 2023, primarily driven by higher merchandise margins and improved freight costs.

On a dollar basis, cost of sales increased $441.2 million, or 7.9%, primarily driven by our overall increase in sales.

Selling, general and administrative expenses

The following table details selling, general and administrative expenses for Fiscal 2023 compared with Fiscal 2022.

(in millions)

Fiscal Year Ended

February 3, 2024

January 28, 2023

Store related costs

Product sourcing costs

Corporate costs

Marketing and strategy costs

Other selling, general and administrative expenses

Selling, general and administrative expenses

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by increased incentive compensation, store payroll, product sourcing costs, and a 20 basis point impact for costs related to acquiring store leases from Bed, Bath & Beyond (as described below).

The dollar basis increase was primarily due to the same drivers listed above as well as costs incurred during the 53rd week of Fiscal 2023.

During Fiscal 2023, we acquired 64 store leases directly from Bed, Bath & Beyond.

We started paying rent immediately upon acquisition for all of the stores.

32 of these stores were opened during Fiscal 2023, with the remaining planned to be open during the first half of Fiscal 2024.

This transaction resulted in $18.4 million of selling, general and administrative expenses related to occupancy of unopened stores during Fiscal 2023.

Selling, general and administrative expenses as a percentage of net sales decreased to 33.4% during the fiscal year ended February 1, 2025, compared to 33.9% during the fiscal year ended February 3, 2024.

The decrease was primarily driven by supply chain efficiency initiatives and leverage on fixed expenses, partially offset by investments in store payroll and higher incentive costs.

On a dollar basis, selling, general and administrative expenses increased by $258.7 million, or 7.9%, to $3,547.0 million during the fiscal year ended February 1, 2025.

The increase was primarily driven by our 101 net new stores opened since the end of Fiscal 2023.

During Fiscal 2024 and Fiscal 2023, the Company acquired leases through bankruptcy proceedings.

The acquisition of these leases resulted in $15.7 million and $18.4 million of pre-opening costs that are recorded in the line item, “Selling, general and administrative expenses” in our Consolidated Statements of Income during Fiscal 2024 and Fiscal 2023, respectively.

Depreciation and amortization

Depreciation and amortization expense amounted to $347.6 million during Fiscal 2024, compared with $307.1 million during Fiscal 2023.

The increase in depreciation and amortization expense was primarily driven by capital expenditures related to new and non-comparable stores, our supply chain investments, and costs incurred during the 53rd week of Fiscal 2023.

The increase in depreciation and amortization expense was primarily driven by capital expenditures related to new and non-comparable stores and our supply chain investments.

Impairment charges—long-lived assets

Impairment charges related to long-lived assets were $6.4 million and $21.4 million during Fiscal 2023 and Fiscal 2022, respectively, related to unrecoverable fixed assets at eleven underperforming stores and unrecoverable lease assets at three of those stores during Fiscal 2023, compared to four stores sold below carrying value as well as impairment of store-level assets and lease assets at twelve stores during Fiscal 2022.

Impairment charges related to long-lived assets were $12.9 million and $6.4 million during Fiscal 2024 and Fiscal 2023, respectively.

Fiscal 2024 relates to two owned stores selling below carrying value, unrecoverable fixed assets at six underperforming stores, and two stores relocated and closed before the end of the respective lease-end dates.

Fiscal 2023 relates to unrecoverable fixed assets at eleven underperforming stores and unrecoverable lease assets at three of those stores.

The recoverability assessment related to these store-level assets requires various judgments and estimates, including estimates related to future revenues, gross margin rates, store expenses and other assumptions.

1 unchanged sentence

We believe our estimates are appropriate in light of current market conditions.

However, future

impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store.

However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store.

Refer to Note 4, “Impairment Charges,” for further discussion.

1 unchanged sentence

Other income, net improved $7.3 million to $48.2 million during Fiscal 2024.

The improvement in other income was primarily driven by increased interest income from higher interest rates, the sale of certain state tax credits, and income earned during the 53rd week of Fiscal 2023, partially offset by gains on real estate sales in Fiscal 2022 as well as insurance claims in Fiscal 2022.

The improvement in other income was primarily driven by increased interest income from higher cash balance and interest rates.

Loss on Extinguishment of Debt

During Fiscal 2024, debt extinguishment charges amounted to $1.4 million related to the partial write-off of the original issue discount and deferred debt costs, as a result of the September 2024 extension and upsize of our Term Loan Facility.

During Fiscal 2023 we entered into separate, privately negotiated exchange agreements with certain holders of the 2025 Convertible Notes, whereby the holders exchanged $241.2 million in aggregate principal amount of 2025 Convertible Notes held by them for $255.0 million in aggregate principal amount of 2027 Convertible Notes, as well as $110.3 million in aggregate principal amount of 2025 Convertible Notes held by them for $133.3 million in cash.

These exchanges resulted in aggregate pre-tax debt extinguishment charges of $38.3 million.

During Fiscal 2022, we entered into separate, privately negotiated exchange agreements with certain holders of the 2025 Convertible Notes, whereby the holders exchanged $64.6 million in aggregate principal amount of 2025 Convertible Notes held by them for $78.2 million in cash.

These exchanges resulted in aggregate pre-tax debt extinguishment charges of $14.7 million.

Refer to Note 5, “Long Term Debt,” for further discussion regarding our debt transactions.

Interest expense

Interest expense increased $11.9 million to $78.4 million.

The increase was driven by a higher interest rate on the unhedged portion of the term loan, as well as costs incurred during the 53rd week, partially offset by a lower average balance of 2025 Convertible Notes and a lower interest rate on the 2027 Convertible Notes compared to the 2025 Convertible Notes that were extinguished.

Our average interest rates and average balances related to our variable rate debt for Fiscal 2023 compared with Fiscal 2022 are summarized in the table below:

Fiscal Year Ended

Average balance – ABL Line of Credit (in millions)

Average interest rate – ABL Line of Credit

Average balance – Term Loan Facility (in millions) (a)

Average interest rate – Term Loan Facility

(a) Excludes original issue discount

Interest expense decreased $8.9 million to $69.5 million.

This decrease was primarily related to accumulated other comprehensive income on our previous interest rate swap, which was fully amortized as of the end of Fiscal 2023.

Additionally, we had a lower average balance of 2025 Convertible Notes, and a lower interest rate on the 2027 Convertible Notes compared to the 2025 Convertible Notes that were extinguished, partially offset by a higher average balance due to the September 2024 extension and upsize of the Term Loan Facility during the third quarter of Fiscal 2024.

The average interest rate on the Term Loan Facility was 7.0% and 7.2% for the fiscal year ended February 1, 2025 and the fiscal year ended February 3, 2024, respectively.

The average balance on the Term Loan Facility, excluding the original issue discount, was $1,047.0 million and $942.5 million for the fiscal year ended February 1, 2025 and the fiscal year ended February 3, 2024, respectively.

Income tax expense

1 unchanged sentence

The effective tax rate was 25.4% related to pretax income of $674.8 million for Fiscal 2024, and 27.1% related to pretax income of $465.8 million for Fiscal 2023.

The increase in income tax expense and tax rate is due to higher pre-tax income and the disallowance of certain debt extinguishment costs related to the partial repurchase of the 2025 Convertible Notes during Fiscal 2023.

The increase in income tax expense is primarily due to higher pre-tax income.

The higher tax rate in the prior period is primarily attributable to the disallowance of certain debt extinguishment costs related to the partial repurchase of the 2025 Convertible Notes in Fiscal 2023.

We earned net income of $503.6 million during Fiscal 2024 compared with net income of $339.6 million for Fiscal 2023.

This increase was primarily driven by higher sales and increased gross margin rate.

Performance for Fiscal Year Ended January 28, 2023 (Fiscal 2022) Compared with Fiscal Year Ended January 29, 2022 (Fiscal 2021)

For a discussion related to Fiscal 2022 performance compared to Fiscal 2021 performance, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (Fiscal 2022 10-K).

Net income included $11.7 million and $13.8 million of expense, net of income taxes, for Fiscal 2024 and Fiscal 2023, respectively, related to the bankruptcy acquired leases.

Performance for Fiscal Year Ended February 3, 2024 (Fiscal 2023) Compared with Fiscal Year Ended January 28, 2023 (Fiscal 2022)

For a discussion related to Fiscal 2023 performance compared to Fiscal 2022 performance, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (Fiscal 2023 10-K).

Liquidity and Capital Resources

Our ability to satisfy interest and principal payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control.

If we do not have sufficient cash flow to service interest and principal payment obligations on our outstanding indebtedness, and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected.

Our ability to satisfy interest payment and future principal payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control.

If we do not have sufficient cash flow to service interest payment and future principal payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected.

We cannot be assured that any replacement borrowing or equity financing could be successfully completed on terms similar to our current financing agreements, or at all.

Refer to "Debt and Hedging" below for recent debt transactions completed.

We believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future.

However, there can be no assurance that we would be able to offset potential declines in our comparable store sales with savings initiatives in the event that the economy declines.

We believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements for at least the next twelve months as well as the foreseeable future, including planned capital expenditures and repayment of the 2025 Convertible Notes.

However, there can be no assurance that we would be able to offset declines in our comparable store sales with savings initiatives.

As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by tender offer, by exchange transaction or otherwise.

1 unchanged sentence

The amounts involved and total consideration paid may be material.

From time to time, we evaluate options to opportunistically increase, refinance or extend our debt.

Our assessment will be based on our capital needs for, among other things, facility purchases, capital improvements and expenditures.

No assurance can be given that we will enter into such agreements.

Cash Flows for Fiscal 2024 Compared with Fiscal 2023

We generated $46.2 million of cash flows during Fiscal 2023 compared with a use of $218.5 million during Fiscal 2022.

We generated $69.3 million of cash flows during Fiscal 2024 compared with $46.2 million during Fiscal 2023.

Net cash provided by operating activities amounted to $863.4 million and $868.7 million during Fiscal 2024 and Fiscal 2023, respectively.

The increase in our operating cash flows was primarily driven by higher sales and margin in Fiscal 2023, as well as changes in working capital.

The decrease in our operating cash flows was primarily driven by changes in working capital, partially offset by improved net income.

Net cash used in investing activities was $882.3 million and $503.7 million during Fiscal 2024 and Fiscal 2023, respectively.

This change was primarily the result of an increase in capital expenditures related to our stores (new stores, remodels and other store expenditures and an increase in lease acquisition costs, as a result of our acquisition of 64 Bed, Bath & Beyond stores.

Net cash used in financing activities was $318.8 million during Fiscal 2023 compared to $391.7 million during Fiscal 2022.

This change was primarily driven by additional debt issued on the Convertible Notes exchange and lower share repurchases, partially offset by increased convertible debt repayments.

This change was primarily the result of an increase in capital expenditures related to supply chain initiatives resulting from the purchase of the distribution center in Ellabell, Georgia, as well as increased store openings.

Net cash provided by financing activities was $88.2 million during Fiscal 2024 compared to a use of $318.8 million during Fiscal 2023.

This change was primarily driven by the September 2024 extension and upsizing of the Term Loan Facility during the third quarter of Fiscal 2024 as well as net payment on the Convertible Notes during Fiscal 2023.

Changes in working capital also impact our cash flows.

Working capital equals current assets (exclusive of restricted cash) minus current liabilities.

We had working capital at February 3, 2024 of $298.2 million compared with $365.3 million at January 28, 2023.

The decrease in working capital was primarily driven by decreased inventory and increased other current liabilities (primarily accrued payroll and fixed assets), partially offset by increased prepaid assets (primarily prepaid rent due to timing) and increased cash balance.

Working capital equals current assets minus current liabilities.

We had working capital at February 1, 2025 of $356.3 million compared with $298.2 million at February 3, 2024.

The increase in working capital was primarily driven by increased inventory, increased cash balance, and increased prepaid assets, partially offset by increased current maturities of long term debt related to the 2025 Convertible Notes and increased accounts payable.

Cash Flows for Fiscal 2023 Compared with Fiscal 2022

3 unchanged sentences

These capital expenditures include approximately $334.9 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures).

In addition, we made capital expenditures of $116.4 million to support our supply chain initiatives, with the remaining capital to support information technology and other business initiatives.

In addition, we made capital expenditures of $384.8 million to support our supply chain initiatives, largely related to the purchase of the distribution center in Ellabell, Georgia, with the remaining capital to support information technology and other business initiatives.

We incurred capital expenditures of $522.5 million (inclusive of accrued capital expenditures), net of approximately $14.6 million of landlord allowances, during Fiscal 2023.

We estimate that we will spend approximately $950 million, net of approximately $55 million of landlord allowances, in capital expenditures during Fiscal 2025, including approximately $390 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures).

In addition, we estimate that we will spend approximately $210

million to support our supply chain initiatives, with the remaining capital used to support our information technology and other business initiatives.

In addition, we estimate that we will spend approximately $460 million to support our supply chain initiatives, largely related to a purchase agreement for the Cactus Ave.

distribution center in Riverside, California, which was negotiated during Fiscal 2024.

The remaining capital will be used to support our information technology and other business initiatives.

Share Repurchase Program

On February 16, 2022, our Board of Directors authorized the repurchase of up to an additional $500.0 million of common stock, which was authorized to be executed through February 2024.

As of the end of Fiscal 2023, we had $115.4 million remaining under this share repurchase authorization.

On August 15, 2023, our Board of Directors authorized the repurchase of up to an additional $500 million of common stock, which is authorized to be executed through August 2025.

As of the end of Fiscal 2023, we had $500.0 million remaining under this share repurchase authorization.

On August 15, 2023, our Board of Directors authorized the repurchase of up to $500 million of common stock, which is authorized to be executed through August 2025.

During Fiscal 2024, we repurchased 1,013,561 shares of common stock for $241.9 million under our share repurchase program.

As of February 1, 2025, we had $263.2 million remaining under our share repurchase authorization.

We are authorized to repurchase shares of our outstanding common stock from time to time on the open market or in privately negotiated transactions under our repurchase program.

8 unchanged sentences

Debt and Hedging

As of February 3, 2024, our obligations, inclusive of original issue discount, include $933.4 million under our Term Loan Facility, $453.2 million of 2025 Convertible Notes and 2027 Convertible Notes, and no outstanding borrowings on our ABL Line of Credit.

As of February 1, 2025, our obligations, inclusive of original issue discount, include $1,238.9 million under our Term Loan Facility, $453.2 million of Convertible Notes and no outstanding borrowings on our ABL Line of Credit.

Our debt obligations also include $25.0 million of finance lease obligations as of February 1, 2025.

1 unchanged sentence

Term Loan Facility

On May 11, 2023, we amended the Term Loan Credit Agreement to change one of the reference interest rates for borrowings under the Term Loan Facility from the Term Loan Adjusted LIBOR Rate to the Adjusted Term SOFR Rate (as defined in the Term Loan Credit Agreement), effective as of July 1, 2023.

The Adjusted Term SOFR Rate includes a credit spread adjustment of 0.11% for an interest period of one-month’s duration, 0.26% for an interest period of three-months’ duration and 0.43% for an interest period of six-months’ duration, with a floor of 0.00%.

BCFWC and certain of its subsidiaries and holding companies are party to a Credit Agreement (as amended, supplemented and otherwise modified, the Term Loan Facility) that provides for term loans in an aggregate principal amount as of February 1, 2025 of $1,246.9 million maturing on September 24, 2031.

On September 24, 2024, we entered into an amendment to the Term Loan Facility dated as of February 24, 2011 (the "Amendment"), which among other things, (i) refinanced the outstanding $933 million principal amount of Term B-6 Loans with Term B-7 Loans in an aggregate principal amount of $1,250 million, which includes incremental term loans in an aggregate principal amount of $317 million, (ii) extended the maturity date from June 24, 2028 to September 24, 2031, and (iii) reduced the interest rate margins applicable to our term loan facility from 1.00% to 0.75%, in the case of prime rate loans, and from 2.00% to 1.75%, in the case of SOFR loans, with a 0.00% SOFR floor, and removed the SOFR adjustment.

The Term B-7 Loans were issued with an original issue discount of 99.5.

The Term Loan Facility is collateralized by a first lien on BCFWC’s and each guarantor’s equity interests, equipment, intellectual property, and certain favorable leases and real estate, and certain related assets and proceeds thereof (subject to certain exceptions), and a second lien on BCFWC’s and each guarantor’s other assets and proceeds thereof (subject to certain exceptions).

At February 1, 2025, our borrowing rate related to the Term Loan Facility was 6.1%.

ABL Line of Credit

On June 26, 2023, we entered into an amendment to the credit agreement governing our ABL Line of Credit, which increased the sublimit for letters of credit thereunder from $150 million to $250 million.

The letter of credit sublimit will automatically be reduced to (i) $237.5 million on April 1, 2024, (ii) $225 million on July 1, 2024, (iii) $212.5 million on October 1, 2024, and (iv) $200

million on January 1, 2025.

BCFWC and the agent may extend the foregoing dates under clauses (i) through (iii), as long as the sublimit is reduced to $200 million no later than January 1, 2025.

BCFWC and certain of its subsidiaries and holding companies are party to a Second Amended and Restated Credit Agreement (as amended, supplemented and otherwise modified, the ABL Line of Credit) that provides for $900.0 million of revolving commitments (subject to a borrowing base limitation) maturing on December 22, 2026, and, subject to the satisfaction of certain conditions, BCFWC can increase the aggregate amount of commitments up to $1,200 million.

The interest rate margin applicable under the ABL Line of Credit is 1.125% to 1.375% in the case of a daily Secured Overnight Financing Rate (SOFR) rate or a term SOFR rate (in each case, plus a credit spread adjustment of 0.10%), and 0.125% to 0.375% in the case of a prime rate, depending on the average daily availability of the lesser of (a) the total commitments or (b) the borrowing base.

The ABL Line of Credit is collateralized by a first priority lien on BCFWC’s and each guarantor's inventory, receivables, bank accounts, and certain related assets and proceeds thereof (subject to certain exceptions), and a second priority lien on BCFWC’s and each guarantor's other assets and proceeds thereof (other than real estate and subject to certain exceptions).

On June 26, 2023, BCFWC entered into a Fifth Amendment to the Second Amended and Restated Credit Agreement, which increased the sublimit for letters of credit thereunder from $150 million to $250 million.

The letter of credit sublimit was subsequently reduced to $200 million.

At February 1, 2025, we had $827.0 million available under the ABL Line of Credit.

9 unchanged sentences

These exchanges resulted in aggregate pre-tax debt extinguishment charges of $24.6 million.

During the first quarter of Fiscal 2023, we entered into separate, privately negotiated exchange agreements with certain holders of the 2025 Convertible Notes.

Under the terms of the exchange agreements, the holders exchanged $110.3 million in aggregate principal amount of 2025 Convertible Notes held by them for $133.3 million in cash.

These exchanges resulted in aggregate pre-tax debt extinguishment charges of $24.6 million.

Prior to the close of business on the business day immediately preceding January 15, 2025, the 2025 Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods.

Thereafter, the 2025 Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

The 2025 Convertible Notes are convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of April 15, 2025.

The 2025 Convertible Notes have an initial conversion rate of 4.5418 shares per $1,000 principal amount of 2025 Convertible Notes (equivalent to an initial conversion price of approximately $220.18 per share of our common stock), subject to adjustment if certain events occur.

3 unchanged sentences

For any excess above principal, we will deliver shares of its common stock.

We were not permitted to redeem the 2025 Convertible Notes prior to April 15, 2023.

From and after April 15, 2023, we are able to redeem for cash all or any portion of the 2025 Convertible Notes, at our option, if the last reported sale price of the Company’s common stock is equal to or greater than 130% of the conversion price for a specified period of time, at a redemption price equal to 100% of the principal aggregate amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

We are able to redeem for cash all or any portion of the 2025 Convertible Notes, at our option, if the last reported sale price of the Company’s common stock is equal to or greater than 130% of the conversion price for a specified period of time, at a redemption price equal to 100% of the principal aggregate amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

Holders of the 2025 Convertible Notes may require us to repurchase their 2025 Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the 2025 Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase.

In connection with certain corporate events or if we issue a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their 2025 Convertible Notes in connection with such corporate event or during the relevant redemption period for such 2025 Convertible Notes.

In connection with certain corporate events or if we issue a notice of redemption, it will, under certain circumstances, increase the

conversion rate for holders who elect to convert their 2025 Convertible Notes in connection with such corporate event or during the relevant redemption period for such 2025 Convertible Notes.

2027 Convertible Notes

1 unchanged sentence

We exchanged approximately $241.2 million in aggregate principal amount of the 2025 Convertible Notes for approximately $255.0 million in aggregate principal amount of the 2027 Convertible Notes.

These exchanges resulted in aggregate pre-tax debt extinguishment charges of $13.6 million.

We also issued approximately $42.1 million in aggregate principal amount of 2027 Convertible Notes in a private placement to certain investors.

3 unchanged sentences

Prior to the close of business on the business day immediately preceding September 15, 2027, the 2027 Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods.

Thereafter, the 2027 Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

The 2027 Convertible Notes have an initial conversion rate of 4.8560 shares per $1,000 principal amount of 2027 Convertible Notes (equivalent to an initial conversion price of approximately $205.93 per share of our common stock), subject to adjustment if certain events occur.

The initial conversion price represents a conversion premium of approximately 32.50% over $155.42 per share, the last reported sale price of our common stock on September 7, 2023 on The New York Stock Exchange.

Upon conversion, we will pay cash up to the aggregate principal amount of 2027 Convertible Notes being converted, and pay (and deliver, if applicable) cash, shares of our common stock or a combination thereof, at its election, in respect of the remainder (if any) of our conversion obligation in excess of such aggregate principal amount.

Upon conversion, we will pay cash for the aggregate principal amount of 2027 Convertible Notes being converted, and pay (and deliver, if applicable) cash, shares of our common stock or a combination thereof, at our election, in respect of the remainder (if any) of our conversion obligation in excess of such aggregate principal amount.

We will not be able to redeem the 2027 Convertible Notes prior to December 20, 2025.

2 unchanged sentences

The fundamental change repurchase price will be 100% of the aggregate principal amount of the 2027 Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

On June 24, 2021, the Company terminated its previous interest rate swap and entered into a new interest rate swap.

The new interest rate swap, which hedges $450 million of variable rate exposure under our Term Loan Facility, is designated as a cash flow hedge and expires on June 24, 2028.

We have interest rate swaps which hedge $800.0 million of variable rate exposure under our Term Loan Facility.

The interest rate swaps are designated as cash flow hedges and expire on September 24, 2031.

Refer to Note 6, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.

9 unchanged sentences

(1) Represents future principal payments on outstanding borrowings as of February 1, 2025.

(2) Represents interest payments on (i) the outstanding balance of the Term Loan Facility, with an interest rate of 7.4% as of January 28, 2023;

(ii) $450.0 million interest rate swap with a SOFR rate of 2.16%;

(iii) the outstanding balance of the 2025 Convertible Notes, with an interest rate of 2.25%;

and (iv) the outstanding balance of the 2027 Convertible Notes, with an interest rate of 1.25%.

(2) Represents interest payments on (i) the outstanding balance of the Term Loan Facility with an interest rate of 6.1%;

(ii) $800.0 million interest rate swap;

(iii) the outstanding balance of the 2025 Convertible Notes;

and (iv) the outstanding balance of the 2027 Convertible Notes.

(3) Finance lease obligations include future interest payments.

(4) Represents minimum rent payments for operating leases under the current terms.

(5) Represents commitments to purchase goods that have not been received as of February 3, 2024.

The table above excludes estimated commitments for services to be used in our business of up to approximately $165 million over the next five years.

The above table excludes approximately $451.4 million for 66 stores that we have committed to open or relocate but have not yet taken possession of the space.

(5) Represents commitments to purchase merchandise that have not been received as of February 1, 2025.

The table above excludes estimated commitments for non-merchandise goods of approximately $395 million, which primarily relates to capital expenditures for our stores and supply chain, largely related to a purchase agreement for the Cactus Ave.

distribution center in Riverside, California, as well as other miscellaneous operating expenses.

(6) Represents severance payments in the normal course of business that are included in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income.

Our agreements with three former employees to pay their respective beneficiaries $1.0 million upon their deaths for a total of $3.0 million is not reflected in the table above because the timing of the payments is unpredictable.

The table above excludes ASC Topic No.

2 unchanged sentences

The total Topic No.

740 liability was $10.1 million, inclusive of $7.0 million of interest and penalties included in our total Topic No.

740 liability neither of which is presented in the table above as we are not certain if and when these payments would be required.

740 liability was $8.1 million, inclusive of $5.8 million of interest and penalties, neither of which is presented in the table above as we are not certain if and when these payments would be required.

The table above excludes our irrevocable letters of credit guaranteeing payment and performance under certain leases, insurance contracts, debt agreements, merchandising agreements and utility agreements in the amount of $52.5 million as of February 1, 2025.

7 unchanged sentences

and (iii) the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventories, long-lived assets, intangible assets, goodwill, insurance reserves and income taxes.

Historical experience and various other factors that are believed to be reasonable under the circumstances form the basis for making estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

32 unchanged sentences

An increase in workers’ compensation claims by employees, health insurance claims by employees or general liability claims may result in a corresponding increase in our costs related to these claims.

Insurance reserves amounted to $94.8 million and $86.2 million at February 3, 2024 and January 28, 2023, respectively.

Insurance reserves amounted to $102.8 million and $94.8 million at February 1, 2025 and February 3, 2024, respectively.

Recent Accounting Pronouncements

There were no new accounting standards that had a material impact on the Company’s Consolidated Financial Statements during Fiscal 2023.

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740):

Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid.

ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis.

We are currently determining the impact that ASU 2023-09 will have on the Company's consolidated financial statement disclosures.

Refer to Note 2, “Recent Accounting Pronouncements,” of our Consolidated Financial Statements for a discussion of recent accounting pronouncements and their impact on our Consolidated Financial Statements.

Fluctuations in Operating Results

1 unchanged sentence

Certain of the general factors that may cause such fluctuations are discussed in Item 1A, Risk Factors and elsewhere in this Annual Report.

While freight rates are now moderating, we have experienced inflationary pressure in our supply chain and with respect to raw materials and finished goods, as well as in occupancy, wages, and other operating costs.

There can be no assurance that we will be able to offset inflationary pressure in the future, or that our business will not be negatively affected by continued inflation in the future.

We may not be able to adequately increase our prices over time to offset increased costs, whether due to inflation or otherwise.

15 unchanged sentences

Primary exposures include changes in interest rates, as borrowings under our ABL Line of Credit and Term Loan Facility bear interest based on SOFR, in each case plus an applicable borrowing margin.

The interest rate of our Term Loan Facility is also dependent on the prime rate, and the federal funds rate as further discussed in Note 7 to our Consolidated Financial Statements, “Long Term Debt.” During Fiscal 2022, an amendment to the ABL Line of Credit replaced the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate (SOFR) or a daily SOFR rate (in the case of daily SOFR, available for borrowings up to $100 million, or up to the full amount of the commitments if the term SOFR rate is not available).

Additionally, during Fiscal 2023, we amended the Term Loan Credit Agreement changing from Adjusted LIBOR Rate to the Adjusted Term SOFR Rate.

The interest rate of our Term Loan Facility is also dependent on the prime rate, and the federal funds rate as further discussed in Note 5 to our Consolidated Financial Statements, “Long Term Debt.” On September 24, 2024, the Company entered into an amendment to the Credit Agreement dated as of February 24, 2011, which among other things, (i) refinanced the outstanding $933 million principal amount of term B-6 loans with term B-7 loans in an aggregate principal amount of $1,250 million, which includes incremental term loans in an aggregate principal amount of $317 million, (ii) extended the maturity date from June 24, 2028 to September 24, 2031, and (iii) reduced the interest rate margins applicable to the Company’s term loan facility from 1.00% to 0.75%, in the case of prime rate loans, and from 2.00% to 1.75%, in the case of SOFR loans, with a 0.00% SOFR floor, and removing the SOFR adjustment.

We manage our interest rate risk through the use of interest rate derivative contracts.

For our floating-rate debt, interest rate changes generally impact our earnings and cash flows, assuming other factors are held constant.

On June 24, 2021, we terminated our previous interest rate swap and entered into a new interest rate swap.

The new interest rate swap, which hedges $450.0 million of variable rate exposure under our Term Loan Facility, is designated as a cash flow hedge and expires on June 24, 2028.

During the second quarter of Fiscal 2023, we amended our interest rate swap to be based on SOFR rather than LIBOR, which resulted in an updated swap rate of 2.16%.

This amendment was covered under the guidance in ASU 2020-04, Reference Rate Reform ("ASC 848") and did not impact the hedge accounting relationship.

On September 27, 2024, the Company terminated the previous $450 million interest rate swap, and entered into a new interest rate swap in the notional amount of $500 million with a blended interest rate of 2.83%.

On this same date, the Company also entered into a new interest rate swap for $300 million with an interest rate of 3.37%.

Refer to Note 6, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.

1 unchanged sentence

At February 1, 2025, we had $1,246.9 million of floating-rate debt, exclusive of original issue discount.

Based on $937.4 million outstanding as floating-rate debt, a one percentage point interest rate increase or decrease as of February 3, 2024 ( after considering our interest rate swap contract and assuming current borrowing level remains constant), would cause an increase or decrease, respectively, to cash interest expense of $4.9 million per year.

Based on this, a one percentage point interest rate increase or decrease as of February 1, 2025 ( after considering our interest rate swap contract and assuming current borrowing level remains constant), would cause an increase or decrease, respectively, to cash interest expense of $4.4 million per year.

This sensitivity analysis assumes our mix of financial instruments and all other variables will remain constant in future periods.

4 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-K

Item 7. Management’s Discussion and Analysis