What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-24 compared with 2020-08-27 · 190 added, 177 removed, 456 unchanged (45% of the section changed)

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We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear.

Since then, we have expanded our store base to 739 stores as of August 1, 2020 in 45 states and Puerto Rico.

Since then, we have expanded our store base to 769 stores as of October 31, 2020 in 45 states and Puerto Rico.

We have diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise at up to 60% off other retailers’ prices, including:

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On March 11, 2020, the World Health Organization declared the novel coronavirus (known as COVID-19) outbreak to be a global pandemic.

As a result, we began the temporary closing of some of our stores, and effective March 22, 2020, we made the decision to temporarily close all of our stores, distribution centers (other than sporadic processing of received inventory) and corporate offices to combat the rapid spread of COVID-19.

As a result, we began the temporary closing of some of our stores, and effective March 22, 2020, we made the decision to temporarily close all of our stores, distribution centers (other than processing of received inventory) and corporate offices to combat the rapid spread of COVID-19.

These developments have caused significant disruptions to our business and have had a significant adverse impact on our financial condition, results of operations and cash flows, the continuing extent of which will be primarily based on a variety of factors, including the timing and extent of any recovery in traffic and consumer spending at our stores, as well as any future required store closures because of COVID-19 resurgences.

We began reopening stores on May 11, 2020, with the majority of stores, as well as all distribution centers, re-opened by mid-June 2020, and substantially all stores re-opened by the end of the second quarter.

We began re-opening stores on May 11, 2020, with the majority of stores, as well as all distribution centers, re-opened by mid-June 2020, and substantially all stores re-opened by the end of the second quarter.

However, w e are currently unable to determine whether, when or how the conditions surrounding the COVID-19 pandemic will change, including the impact that social distancing protocols will have on our operations, the degree to which our customers will patronize our stores and any impact from potential subsequent additional outbreaks, including additional temporary store closures.

In response to the COVID-19 pandemic and the temporary closing of our stores, we provided two weeks of financial support to associates impacted by these store closures and by the shutdown of distribution centers.

We temporarily furloughed most store and distribution center associates, as well as some corporate associates, but continued to provide benefits to furloughed associates, including paying 100% of their current medical benefit premiums.

As of August 1, 2020, we have recalled all furloughed associates at our re-opened stores, as well as our corporate and distribution facilities.

In order to maintain maximum financial flexibility during these uncertain times, we completed several debt transactions during the first quarter of Fiscal 2020.

During March 2020, we borrowed $400 million on our existing $600 million senior secured asset-based revolving credit facility (the ABL Line of Credit), $150 million of which was repaid during the second quarter.

We temporarily furloughed most store and distribution center associates, as well as some corporate associates, but continued to provide benefits to furloughed associates in accordance with our benefit plans.

In addition, we paid 100% of their medical benefit premiums during the period they were furloughed.

During the second quarter, we recalled all furloughed associates at our re-opened stores, as well as our corporate and distribution facilities.

In order to maintain maximum financial flexibility during these uncertain times, we completed several debt transactions in the first quarter of Fiscal 2020.

In March 2020, we borrowed $400 million on our existing $600 million senior secured asset-based revolving credit facility (the ABL Line of Credit), $150 million of which was repaid during the second quarter.

In April 2020, we issued $805 million of 2.25% Convertible Senior Notes due 2025 (the Convertible Notes), and through our indirect subsidiary, Burlington Coat Factory Warehouse Corporation (BCFWC), issued $300 million of 6.25% Senior Secured Notes due 2025 (the Secured Notes).

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Additionally, we took the following steps to further enhance our financial flexibility:

C arefully manag ed operating expenses, working capital and capital expenditures , including ceasing s ubstantially all buying activities .

We have su bsequently resumed our buying activity, while continuing our conservative approach toward operating expenses and capital expenditures .

Carefully managed operating expenses, working capital and capital expenditures, including ceasing substantially all buying activities while stores were closed.

We subsequently resumed our buying activities, while continuing our conservative approach toward operating expenses and capital expenditures.

Negotiated rent deferral agreements with landlords.

Suspended our share repurchase program.

Our CEO voluntarily agreed to not take a salary, our board of directors voluntarily forfeited their cash compensation, our executive leadership team voluntarily agreed to decrease their salary by 50% and smaller salary reductions have been temporarily put in place for all employees through a certain level.

This compensation has been reinstated now that substantially all of our stores have reopened.

Our CEO voluntarily agreed to not take a salary, our board of directors voluntarily forfeited their cash compensation, our executive leadership team voluntarily agreed to decrease their salary by 50% and smaller salary reductions were temporarily put in place for all employees through a certain level.

This compensation was reinstated once substantially all of our stores re-opened.

The annual incentive bonus payments related to Fiscal 2019 performance were delayed to the second quarter of Fiscal 2020, and merit pay increases for Fiscal 2020 were delayed to the third quarter of Fiscal 2020.

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These reserves covered markdowns taken during the second quarter of Fiscal 2020.

These charges were included in “Cost of sales” on our Condensed Consolidated Statement of (Loss) Income.

These charges were included in “Cost of sales” on our Condensed Consolidated Statement of Income (Loss).

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law, which provides emergency economic assistance for American workers, families and businesses affected by the COVID-19 pandemic.

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Based on our evaluation of the CARES Act, we believe we qualify for certain employer refundable payroll credits, deferral of applicable payroll taxes, net operating loss (NOL) carrybacks and immediate expensing for eligible qualified improvement property.

We recorded a tax benefit of $24.8 million and $87.3 million in our effective income tax rate for the three and six months ended August 1, 2020, respectively, for the increased benefit from NOL carrybacks to earlier years when the tax rate was higher than the current year.

The Company estimates that it will obtain a tax refund of $221.2 million from the carryback of federal NOLs, which is included in the line item “Other assets” on the Company’s Condensed Consolidated Balance Sheet.

We recorded a tax expense of $7.2 million and a tax benefit of $80.1 million in our effective income tax rate for the three and nine months ended October 31, 2020, respectively, for the increased benefit from NOL carrybacks to earlier years when the tax rate was higher than the current year.

The Company estimates that it will obtain a tax refund of $202.1 million from the carryback of federal NOLs, which is included in the line item “Prepaid and other current assets” on the Company’s Condensed Consolidated Balance Sheet.

Refer to Note 8, “Income Taxes” for further discussion.

We continue to keep health and safety as a top priority as we operate our stores.

We continue to keep health and safety as a top priority as we operate our stores and distribution centers.

We have implemented social distancing and safety practices, including:

Signage to remind customers and associates to practice social distancing and remain at least six feet apart.

One way entrances and exits at the front of the store and in the department aisles.

One way entrances and exits at the front of the store.

Wider check-out lanes, with social distancing markers on the floor.

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Making shopping cart wipes available.

All associates were screened before returning from furlough and continued to be screened daily in stores and distribution centers where required by state and local mandates.

All associates were screened before returning from furlough and continue to be screened daily in stores and distribution centers where required by state and local mandates.

Associates are also required to wear face coverings while in stores and our distribution centers and are provided face masks and gloves by the Company.

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Fiscal 2020 is defined as the 52-week year ending January 30, 2021.

Fiscal 2019 is defined as the 52-week year ending February 1, 2020.

Fiscal 2019 is defined as the 52-week year ended February 1, 2020.

Store Openings, Closings, and Relocations

During the six month period ended August 1, 2020, we opened 25 new stores, inclusive of 10 relocations, and permanently closed three stores, exclusive of the aforementioned relocations, bringing our store count as of August 1, 2020 to 739 stores, which includes temporarily closed stores.

During the nine month period ended October 31, 2020, we opened 62 new stores, inclusive of 17 relocations, and permanently closed three stores, exclusive of the aforementioned relocations, bringing our store count as of October 31, 2020 to 769 stores, which includes temporarily closed stores.

Ongoing Initiatives for Fiscal 2020

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Accordingly, we moved quickly to close our stores, distribution centers, and corporate offices in March.

We continue to keep health and safety as a top priority as we operate our stores.

As discussed above, we began reopening stores on May 11, 2020 in accordance with applicable government guidelines, with the majority of our stores re-opened by mid-June 2020, and substantially all stores re-opened by the end of the second quarter.

We continue to keep health and safety as a top priority as we operate our stores and distribution centers.

As discussed above, we began re-opening stores on May 11, 2020 in accordance with applicable government guidelines, with the majority of our stores re-opened by mid-June 2020, and substantially all stores re-opened by the end of the second quarter.

While our stores were closed, our primary short-term financial objective was to effectively manage and enhance our liquidity.

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As we strive to increase profitability through achieving positive comparable store sales and leveraging productivity initiatives focused on improving the in-store experience, more efficient movement of products from the vendors to the selling floors, and modifying our marketing plans to increase our core customer base and increase our share of our current customers’ spending, there are uncertainties and challenges that we face as an off-price retailer of apparel and accessories for men, women and children and home furnishings that could have a material impact on our revenues or income.

The extent of the impact of the COVID-19 pandemic on our business will depend largely on future developments, including the duration and spread of the outbreak within the U.S., the related impact on consumer confidence and spending and when, or if, we will be able to resume normal operations, all of which are highly uncertain and cannot be predicted.

The extent of the impact of the COVID-19 pandemic on our business will depend largely on future developments, including the duration and spread of the outbreak within the U.S., as well as the availability of, and prevalence of access to, effective medical treatments and vaccines;

related economic uncertainties and government stimulus measures;

the related impact on consumer confidence and spending;

and when, or if, we will be able to resume normal operations, all of which are highly uncertain and cannot be predicted.

Nevertheless, COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results, liquidity and cash flows.

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As the COVID-19 pandemic began to unfold, our focus shifted toward maintaining and enhancing our liquidity position, so that we would be able to operate with reduced revenues for an extended period and take advantage of opportunistic buys as our stores re-opened.

As our operations return to normal, management will continue to evaluate our other key performance measures, including, net (loss) income, Adjusted Net (Loss) Income, Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory and store payroll.

As our operations return to normal, management will continue to evaluate our other key performance measures, including, net income (loss), Adjusted Net Income (Loss), Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory and store payroll.

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.

We took several steps during the six months ended August 1, 2020 to effectively manage our liquidity during the COVID-19 pandemic, including careful management of operating expenses, working capital and capital expenditures, as well as suspending our share repurchase program.

We took several steps during the nine months ended October 31, 2020 to effectively manage our liquidity during the COVID-19 pandemic, including careful management of operating expenses, working capital and capital expenditures, as well as suspending our share repurchase program.

Additionally, we borrowed $400 million on our existing ABL Line of Credit, issued $805 million of our Convertible Notes, and through BCFWC, issued $300 million of our Secured Notes.

We repaid $150 million on the ABL Line of Credit during the second quarter of Fiscal 2020.

At August 1, 2020, we had $120.4 million available under the ABL Line of Credit.

Cash and cash equivalents, including restricted cash and cash equivalents, increased $674.1 million during the six months ended August 1, 2020, compared with a decrease of $15.1 million during the six months ended August 3, 2019.

At October 31, 2020, we had $292.4 million available under the ABL Line of Credit.

Cash and cash equivalents, including restricted cash and cash equivalents, increased $945.6 million during the nine months ended October 31, 2020, compared with an increase of $12.9 million during the nine months ended November 2, 2019.

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

Net (loss) income .

We recorded a net loss of $46.8 million during the three month period ended August 1, 2020 compared with net income of $84.6 million during the three month period ended August 3, 2019.

We recorded a net loss of $380.5 million during the six month period ended August 1, 2020 compared with net income of $162.3 million during the six month period ended August 3, 2019.

These decreases were primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Net income (loss) .

We earned net income of $8.0 million during the three month period ended October 31, 2020 compared with net income of $96.5 million during the three month period ended November 2, 2019.

This decrease was primarily driven by the business disruption upon re-opening stores caused by the COVID-19 pandemic.

We recorded a net loss of $372.5 million during the nine month period ended October 31, 2020 compared with net income of $258.8 million during the nine month period ended November 2, 2019.

This decrease was primarily driven by the temporary closure of all our stores and the subsequent business disruption upon re-opening caused by the COVID-19 pandemic.

Refer to the section below entitled “Results of Operations” for further explanation.

Adjusted Net (Loss) Income, Adjusted EBITDA and Adjusted EBIT :

Adjusted Net (Loss) Income, Adjusted EBITDA and Adjusted EBIT are non-GAAP financial measures of our performance.

We define Adjusted Net (Loss) Income as net (loss) income, exclusive of the following items, if applicable:

Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT :

Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT are non-GAAP financial measures of our performance.

We define Adjusted Net Income (Loss) as net income (loss) , exclusive of the following items, if applicable:

(i) net favorable lease cost;

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(vii) costs related to closing the e-commerce store;

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

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

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

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

(i) interest expense;

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(iii) loss on extinguishment of debt;

(iv) income tax expense;

(iv) income tax expense (benefit);

(v) depreciation and amortization;

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

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

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

(i) interest expense;

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(iii) loss on extinguishment of debt;

(iv) income tax expense;

(iv) income tax expense (benefit);

(v) impairment charges;

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

We present Adjusted Net (Loss) 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.

We present Adjusted Net Income (Loss), 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.

In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from what we consider to be our core operating results are useful supplemental measures that assist in evaluating our ability to generate earnings and leverage sales, and to more readily compare core operating results between past and future periods.

Adjusted Net (Loss) Income has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net (loss) income or other data prepared in accordance with GAAP.

Among other limitations, Adjusted Net (Loss) Income does not reflect the following items, net of their tax effect:

Adjusted Net Income (Loss) has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income (loss) or other data prepared in accordance with GAAP.

Among other limitations, Adjusted Net Income (Loss) does not reflect the following items, net of their tax effect:

favorable lease costs;

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

During the three and six months ended August 1, 2020, Adjusted Net (Loss) Income decreased $128.6 million to a loss of $37.2 million and decreased $529.2 million to a loss of $352.2 million, respectively, compared to the same periods in the prior year.

These decreases were primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

During the three and nine months ended October 31, 2020, Adjusted Net Income (Loss) decreased $83.1 million to income of $19.5 million and decreased $612.3 million to a loss of $332.7 million, respectively, compared to the same periods in the prior year.

These decreases were primarily driven by the temporary closure of all our stores and the subsequent business disruption upon re-opening caused by the COVID-19 pandemic.

Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net (loss) income to Adjusted Net (Loss) Income for the three and six months ended August 1, 2020 compared with the three and six months ended August 3, 2019 :

The following table shows our reconciliation of net income (loss) to Adjusted Net Income (Loss) for the three and nine months ended October 31, 2020 compared with the three and nine months ended November 2, 2019 :

(in thousands)

Three Months Ended

Six Months Ended

Reconciliation of net (loss) income to Adjusted Net (Loss) Income:

Net (loss) income

Nine Months Ended

Reconciliation of net income (loss) to Adjusted Net Income (Loss):

Net income (loss)

Net favorable lease costs (a)

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Tax effect (g)

Adjusted Net (Loss) Income

Adjusted Net Income (Loss)

Net favorable lease cost represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of purchase accounting related to the April 13, 2006 Bain Capital acquisition of Burlington Coat Factory Warehouse Corporation (the Merger Transaction).

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

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

Represents non-cash accretion of original issue discount on the Convertible Notes.

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The effective tax rate includes the benefit of loss carrybacks to prior years with higher statutory tax rates.

Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net (loss) income or other data prepared in accordance with GAAP.

Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income (loss) or other data prepared in accordance with GAAP.

Among other limitations, Adjusted EBITDA does not reflect:

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

During the three and six months ended August 1, 2020, Adjusted EBITDA decreased $179.1 million to a loss of $8.8 million and decreased $794.6 million to a loss of $456.4 million, respectively, compared to the same period in the prior year.

These decreases were primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

During the three and nine months ended October 31, 2020, Adjusted EBITDA decreased $79.0 million to income of $113.5 million and decreased $873.6 million to a loss of $342.8 million, respectively, compared to the same period in the prior year.

These decreases were primarily driven by the temporary closure of all our stores and the subsequent business disruption upon re-opening caused by the COVID-19 pandemic.

Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net (loss) income to Adjusted EBITDA for the three and six months ended August 1, 2020 compared with the three and six months ended August 3, 2019 :

The following table shows our reconciliation of net income (loss) to Adjusted EBITDA for the three and nine months ended October 31, 2020 compared with the three and nine months ended November 2, 2019 :

(in thousands)

Three Months Ended

Six Months Ended

Reconciliation of net (loss) income to Adjusted EBITDA:

Net (loss) income

Nine Months Ended

Reconciliation of net income (loss) to Adjusted EBITDA:

Net income (loss)

Interest expense

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Impairment charges

Income tax (benefit) expense

Income tax expense (benefit)

Adjusted EBITDA

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Represents costs related to the closure of our e-commerce store.

Includes $6.1 million and $12.5 million of favorable lease cost included in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of (Loss) Income for the three and six months ended August 1, 2020, and $9.1 million and $19.6 million for the three and six months ended August 3, 2019, respectively.

Includes $5.7 million and $18.3 million of favorable lease cost included in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of Income (Loss) for the three and nine months ended October 31, 2020, and $8.3 million and $27.9 million for the three and nine months ended November 2, 2019, respectively.

Net favorable lease cost represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of the Merger Transaction.

Adjusted EBIT has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net (loss) income or other data prepared in accordance with GAAP.

Adjusted EBIT has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income (loss) or other data prepared in accordance with GAAP.

Among other limitations, Adjusted EBIT does not reflect:

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

During the three and six months ended August 1, 2020, Adjusted EBIT decreased $181.3 million to a loss of $63.2 million and decreased $800.6 million to a loss of $564.9 million, respectively, compared to the same period in the prior year.

These decreases were primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

During the three and nine months ended October 31, 2020, Adjusted EBIT decreased $81.2 million to income of $58.6 million and decreased $881.8 million to a loss of $506.4 million, respectively, compared to the same period in the prior year.

These decreases were primarily driven by the temporary closure of all our stores and the subsequent business disruption upon re-opening caused by the COVID-19 pandemic.

Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net (loss) income to Adjusted EBIT for the three and six months ended August 1, 2020 compared with the three and six months ended August 3, 2019 :

The following table shows our reconciliation of net income (loss) to Adjusted EBIT for the three and nine months ended October 31, 2020 compared with the three and nine months ended November 2, 2019 :

(in thousands)

Three Months Ended

Six Months Ended

Reconciliation of net (loss) income to Adjusted EBIT:

Net (loss) income

Nine Months Ended

Reconciliation of net income (loss) to Adjusted EBIT:

Net income (loss)

Interest expense

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E-commerce closure (e)

Income tax (benefit) expense

Income tax expense (benefit)

Adjusted EBIT

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Net favorable lease cost represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of the Merger Transaction.

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

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

Represents amounts charged for certain litigation matters.

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If a store is closed for seven or more days during a month, our policy is to remove that store from our calculation of comparable stores sales for any such month, as well as during the month(s) of their grand re-opening activities.

Comparable store sales increased 4% and 2% for the three and six month periods ended August 3, 2019, respectively .

Comparable store sales as defined above are not meaningful for the three and six months ended August 1, 2020, due to the extended store closures resulting from the COVID-19 pandemic.

In order to provide a performance indicator for our stores as they reopen, we are temporarily reporting a new sales measure:

sales in re-opened stores.

Sales in re-opened stores includes all stores that were opened prior to the end of the second quarter of Fiscal 2019, and reports the sales increase or decrease of these stores for the days the stores were open in the current period against sales for the same days in the prior year.

Sales in re-opened stores decreased 14% during the second quarter of Fiscal 2020.

These sales were stronger in the first half of the quarter driven by strong clearance sales, but weakened in late June and July due to low inventory levels and delayed store replenishment.

Comparable store sales decreased 11% for the three month period ended October 31, 2020, and increased 3% and 2% for the three and nine month periods ended November 2, 2019, respectively .

Comparable store sales were not meaningful for the nine months ended October 31, 2020, due to the extended store closures resulting from the COVID-19 pandemic.

Various factors affect comparable store sales, including, but not limited to, weather conditions, current economic conditions, the timing of our releases of new merchandise and promotional events, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition, and the success of marketing programs.

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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 Condensed Consolidated Statements of (Loss) Income.

We include in our “Cost of sales” line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, distribution center outbound freight and certain merchandise acquisition costs, primarily commissions and import fees.

Gross margin as a percentage of net sales improved to 45.8% during the three month period ended August 1, 2020, compared with 41.4% during the three month period ended August 3, 2019.

We recorded a reserve in the first quarter of Fiscal 2020 to

account for the impact of clearance markdowns anticipated up on store re-openings in the s econd quarter.

These markdowns reserved for in the first quarter led to low levels of clearance inventory in the second half of the second quarter and resulted in lower markdowns and increased margin for the quarter.

Product sourcing costs, which are included in selling, general and administrative expenses, were $72.1 million during the three month period ended August 1, 2020 , compared with $82.2 million during the three month period ended August 3, 2019 .

Gross margin as a percentage of ne t sales decreased to 26.4% during the six month period ended August 1, 2020 , compared with 41.2 % during the six month period ended August 3, 2019 , driven primarily by aged inventory markdowns in the first quarter due to our extended store closures.

Product sourcing costs were $ 146.6 million during the six month period ended August 1, 2020 , compared with $160.7 million during the six month period ended August 3, 2019 .

Inventory at August 1, 2020 decreased to $607.6 million compared with $823.8 million at August 3, 2019.

The decrease was driven by faster than expected clearance sell through during the first half of the quarter, delays in inventory replenishment, and conservative inventory plans due to uncertain consumer demand during the pandemic.

We are planning in-store inventories to remain well below last year’s levels on a comparable store basis.

Pack and hold inventory was 26% of total inventory as of August 1, 2020, compared with 29% as of August 3, 2019.

We intend to continue to build up our pack and hold merchandise.

Gross margin as a percentage of net sales improved to 45.0% during the three month period ended October 31, 2020, compared with 42.4% during the three month period ended November 2, 2019, driven by a combination of lower markdowns and higher markup, partially offset by higher freight costs.

Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 360 basis points as a percentage of net sales, driven by higher wages and hiring incentives in our supply chain.

Gross margin as a percentage of net sales decreased to 35.3% during the nine month period ended October 31, 2020, compared with 41.6% during the nine month period ended November 2, 2019, driven primarily by aged inventory markdowns in the first quarter due to our extended store closures.

Product sourcing costs were $ 290.3 million during the nine month period ended October 31, 2020, compared with $250.3 million during the nine month period ended November 2, 2019.

Inventory at October 31, 2020 decreased to $ 867.0 million compared with $ 1,004.4 million at November 2, 2019 .

The decrease was due to a 20% decrease in comparable store inventory, driven by our initiative to decrease in-store inventory, as well as conservative inventory plans due to uncertain consumer demand during the pandemic.

These decreases were partially offset by our 43 net new stores since the end of the third quarter of Fiscal 2019 , as well as reserve inventory, which was 25 % of total inventory as of October 31, 2020 , compared with 19 % as of November 2, 2019 .

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

W e intend to continue to build up our reserve merchandise.

Inventory at February 1, 2020 was $ 777.2 million.

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

Once operations begin to normalize, we intend to move toward more productive inventories by increasing the amount of current inventory as a percent of total inventory.

Store Payroll.

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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 9.8% during the three month period ended October 31, 2020, compared with 9.0% during the three month period ended November 2, 2019.

This increase was driven by our overall decrease in sales.

As a result of the COVID-19 outbreak, we temporarily furloughed most store associates in March 2020, while providing two weeks of financial support to impacted associates.

We also continued to provide benefits to furloughed associates, including paying 100% of their current medical benefit premiums.

As a result of these actions, store payroll costs decreased to $110.5 million and $215.6 million during the three and six month periods ended August 1, 2020, compared with $148.8 million and $289.9 million during the three and six month periods ended August 3, 2019, respectively.

As a result of these actions, store payroll costs decreased to $378.6 million during the nine months ended October 31, 2020, compared with $450.3 million during the nine months ended November 2, 2019.

Results of Operations

The following table sets forth certain items in the Condensed Consolidated Statements of (Loss) Income as a percentage of net sales for the three and six months ended August 1, 2020 and the three and six months ended August 3, 2019.

The following table sets forth certain items in the Condensed Consolidated Statements of Income (Loss) as a percentage of net sales for the three and nine months ended October 31, 2020 and the three and nine months ended November 2, 2019.

Percentage of Net Sales

Three Months Ended

Six Months Ended

Nine Months Ended

Other revenue

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Total costs and expenses

(Loss) income before income tax (benefit) expense

Income tax (benefit) expense

Net (loss) income

Three Month Period Ended August 1, 2020 Compared With the Three Month Period Ended August 3, 2019

Net sales decreased approximately $646.5 million, or 39.0%, to $1,009.9 million during the second quarter of Fiscal 2020, primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Sales in reopened stores, from the date of

their reopening to the end of the second quarter, decreased 14%.

These sales were stronger in the first half of the quarter driven by strong clearance sales, but weakened in late June and July due to low inventor y levels and delayed store replenishment.

Income (loss) before income tax expense (benefit)

Income tax expense (benefit)

Net income (loss)

Three Month Period Ended October 31, 2020 Compared With the Three Month Period Ended November 2, 2019

Net sales decreased approximately $110.2 million, or 6.2%, to $1,664.7 million during the third quarter of Fiscal 2020, primarily driven by the business disruption upon re-opening stores caused by the COVID-19 pandemic.

Comparable store sales during the third quarter decreased 11%.

This decrease was partially offset by additional sales from our 43 net new stores since the end of the third quarter of Fiscal 2019.

Cost of sales

Cost of sales as a percentage of net sales decreased to 54.2% during the second quarter of Fiscal 2020, compared to 58.6% during the second quarter of Fiscal 2019.

We recorded a reserve in the first quarter of Fiscal 2020 to account for the impact of clearance markdowns anticipated upon store re-openings in the second quarter.

Cost of sales as a percentage of net sales decreased to 55.0% during the third quarter of Fiscal 2020, compared to 57.6% during the third quarter of Fiscal 2019.

This improvement was driven by a combination of lower markdowns and higher markup, partially

offset by higher freight costs .

On a dollar basis, cost of sales decreased $ 107.1 million, or 10.5% , primarily driven by our overall decrease in sales.

Product sourcing costs, which are included in selling, general and administrative expenses, were $72.1 million during the second quarter of Fiscal 2020, compared with $82.2 million during the second quarter of Fiscal 2019.

Selling, general and administrative expenses

The following table details selling, general and administrative expenses for the three month period ended August 1, 2020 compared with the three month period ended August 3, 2019.

The following table details selling, general and administrative expenses for the three month period ended October 31, 2020 compared with the three month period ended November 2, 2019.

Prior year amounts have been reclassified to conform to the current period presentation.

(in millions)

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Selling, general and administrative expenses

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by the temporary closure of all our stores.

We took significant steps to reduce selling, general and administrative expenses during this period.

Among other things, we worked with landlords to modify payment terms for certain leases, furloughed most store and distribution center associates, as well as some corporate associates, temporarily eliminated the salary of the CEO and cash compensation for our Board of Directors, and temporarily reduced the salaries for our executive leadership team by 50%, with smaller salary reductions for all employees through a certain level.

As a result of these actions, our selling, general and administrative expenses decreased from last year on a dollar basis.

These decreases were partially offset by COVID-19 related expenses and store re-opening costs of approximately $37 million, as well as litigation accruals.

Refer to Note 12, “Commitments and Contingencies” for further discussion regarding our litigation accruals.

The increase in selling, general and administrative expenses is primarily due to an increase in product sourcing costs due to higher wages and hiring incentives in our supply chain, as well as COVID-19 related expenses, which are included in store related costs in the table above.

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by the increases in product sourcing costs noted above, as well as deleverage on occupancy costs and store payroll.

Depreciation and amortization

Depreciation and amortization expense related to the depreciation of fixed assets amounted to $54.4 million during the second quarter of Fiscal 2020 compared with $52.3 million during the second quarter of Fiscal 2019.

Depreciation and amortization expense related to the depreciation of fixed assets amounted to $55.0 million during the third quarter of Fiscal 2020 compared with $52.7 million during the third quarter of Fiscal 2019.

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

Impairment charges – long-lived assets

Impairment charges on long-lived assets were $2.6 million during the third quarter of Fiscal 2020, related to store-level assets and lease assets at 10 stores.

There were no impairment charges on long-lived assets during the third quarter of Fiscal 2019.

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.

We base these estimates upon our past and expected future performance.

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.

Other income - net

Other income decreased $8.0 million to $1.3 million during the third quarter of Fiscal 2020, driven by insurance gains recognized during the third quarter of Fiscal 2019, as well as a reduction in layaway fees while the program was temporarily suspended during Fiscal 2020.

Interest expense

Interest expense increased $14.9 million during the second quarter of Fiscal 2020 to $28.4 million, compared to the same period in the prior year.

The increase was primarily driven by the $400 million draw on our ABL Line of Credit in March 2020, as well as the issuance of our $805 million Convertible Notes and our $300 million Secured Notes.

Interest expense increased $15.3 million during the third quarter of Fiscal 2020 to $27.5 million, compared to the same period in the prior year.

The increase was primarily driven by the issuance of our $805 million Convertible Notes and our $300 million Secured Notes, as well as an increased average balance on our ABL Line of Credit.

This increase was partially offset by the refinancing of our Term Loan Facility in February 2020, which reduced the applicable interest rate margins on our Term Loan Facility from 2.00% to 1.75%, as well as a decrease in average LIBOR.

The average interest rates and average balances related to our variable rate debt for the second quarter of Fiscal 2020 compared with the second quarter of Fiscal 2019 , are summarized in the table below:

The average interest rates and average balances related to our variable rate debt for the third quarter of Fiscal 2020 compared with the third quarter of Fiscal 2019 , are summarized in the table below:

Three Months Ended

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Excludes original issue discount.

Income tax (benefit) expense

Income tax benefit was $63.1 million during the second quarter of Fiscal 2020 compared with income tax expense of $11.2 million during the second quarter of Fiscal 2019.

The effective tax rate for the second quarter of Fiscal 2020 was 57.4% compared with 11.6% during the second quarter of Fiscal 2019.

The income tax benefit in the current year is a result of the pre-tax loss and the carry-back of net operating losses arising in 2020 to the five prior tax years, as permitted under the CARES Act.

The increase in the income tax rate is a function of current year losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate.

Income tax expense

Income tax expense was $15.1 million during the third quarter of Fiscal 2020 compared with income tax expense of $23.0 million during the third quarter of Fiscal 2019.

The effective tax rate for the third quarter of Fiscal 2020 was 65.3% compared with 19.2% during the third quarter of Fiscal 2019.

The decrease in income tax expense in the current year primarily relates to a decrease in pre-tax income, partially offset by an increased tax rate.

The increased effective tax rate for the third quarter of Fiscal 2020 is primarily due to the reversal of income tax benefit recorded in the first two quarters related to the CARES Act.

The CARES Act provides for net operating losses incurred in fiscal 2020 to be carried back to earlier tax years that have higher tax rates than the current year.

The projected losses subject to carry back to earlier years decreased in the third quarter of fiscal 2020, resulting in a reduction of the year to date income tax benefit

At the end of each interim period we are required to determine the best estimate of our annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis.

Use of this methodology during the second quarter of Fiscal 2020 resulted in an annual effective income tax rate of approximately 36 % (before discrete items) as our best estimate.

This is an increase compared to the annual effective tax rate for the second quarter of Fiscal 2019 of approximately 25% (before discrete items), due to current year losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate.

Net (loss) income

We recorded a net loss of $46.8 million for the second quarter of Fiscal 2020 compared with net income of $84.6 million for the second quarter of Fiscal 2019.

This decrease was primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Six Month Period Ended August 1, 2020 Compared With the Six Month Period Ended August 3, 2019

Net sales decreased approximately $1,477.0 million, or 45.0%, to $1,807.9 million during the six month period ended August 1, 2020, driven primarily by the temporary closure of all our stores due to the COVID-19 pandemic.

Sales in reopened stores, from the date of their reopening to the end of the second quarter, decreased 14%.

These sales were stronger in the first half of the quarter driven by strong clearance sales, but weakened in late June and July due to low inventory levels and delayed store replenishment.

Use of this methodology during the third quarter of Fiscal 2020 resulted in an annual effective income tax rate of approximately 35 % (before discrete items) as our best estimate.

This is an increase compared to the annual effective tax rate for the third quarter of Fiscal 2019 of approximately 25% (before discrete items), due to current year losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate.

We earned net income of $8.0 million for the third quarter of Fiscal 2020 compared with net income of $96.5 million for the third quarter of Fiscal 2019.

This decrease was primarily driven by the business disruption upon re-opening stores caused by the COVID-19 pandemic.

Nine Month Period Ended October 31, 2020 Compared With the Nine Month Period Ended November 2, 2019

Net sales decreased approximately $1,587.3 million, or 31.4%, to $3,472.6 million during the nine month period ended October 31, 2020, driven primarily by the temporary closure of all our stores and the subsequent business disruption upon re-opening caused by the COVID-19 pandemic.

Cost of sales

Cost of sales as a percentage of net sales increased to 73.6% during the six month period ended August 1, 2020, compared to 58.8% during the six month period ended August 3, 2019, driven primarily by markdowns on aged inventory in the first quarter due to the extended store closures.

Cost of sales as a percentage of net sales increased to 64.7% during the nine month period ended October 31, 2020, compared to 58.4% during the nine month period ended November 2, 2019, driven primarily by markdowns on aged inventory in the first quarter due to the extended store closures.

On a dollar basis, cost of sales decreased $709.1 million, or 24.0%, primarily driven by our overall decrease in sales.

Product sourcing costs, which are included in selling, general and administrative expenses, were $146.6 million during the six month period ended August 1, 2020, compared with $160.7 million during the six month period ended August 3, 2019.

Product sourcing costs, which are included in selling, general and administrative expenses, were $290.3 million during the nine month period ended October 31, 2020, compared with $250.3 million during the nine month period ended November 2, 2019.

Selling, general and administrative expenses

The following table details selling, general and administrative expenses for the six month period ended August 1, 2020 compared with the six month period ended August 3, 2019.

The following table details selling, general and administrative expenses for the nine month period ended October 31, 2020 compared with the nine month period ended November 2, 2019.

Prior year amounts have been reclassified to conform to the current period presentation.

(in millions)

Six Months Ended

August 1, 2020

August 3, 2019

Nine Months Ended

October 31, 2020

November 2, 2019

Store related costs

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Selling, general and administrative expenses

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by the temporary closure of all our stores.

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by the temporary closure of all our stores and the overall decrease in sales.

We took significant steps to reduce selling, general and administrative expenses during this period.

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As a result of these actions, our selling, general and administrative expenses decreased from last year on a dollar basis.

These decreases were partially offset by COVID-19 related expenses and store re-opening costs of approximately $37 million, as well as litigation accruals.

These decreases were partially offset by COVID-19 related expenses and store re-opening costs, as well as litigation accruals.

Refer to Note 12, “Commitments and Contingencies” for further discussion regarding our litigation accruals.

Costs related to debt issuances and amendments

During the first quarter of Fiscal 2020, we incurred legal fees related to the issuance of our Secured Notes of $3.2 million, as well as legal and placement fees of $1.1 million related to the refinancing our Term Loan Facility.

During Fiscal 2020, we incurred legal fees related to the issuance of our Secured Notes of $2.5 million, as well as legal and placement fees of $1.1 million related to the refinancing our Term Loan Facility.

During the first quarter of Fiscal 2019, we reversed $0.4 million of previously estimated debt amendment costs associated with the 2018 refinancing of our Term Loan Facility.

Depreciation and amortization

Depreciation and amortization expense related to the depreciation of fixed assets amounted to $108.7 million during the six month period ended August 1, 2020 compared with $102.9 million during the six month period ended August 3, 2019.

Depreciation and amortization expense related to the depreciation of fixed assets amounted to $163.7 million during the nine month period ended October 31, 2020 compared with $155.6 million during the nine month period ended November 2, 2019.

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

Impairment charges – long-lived assets

Impairment charges on long-lived assets were $ 5.6 million during the nine month period ended October 31, 2020, related to store-level assets and lease assets at 14 stores.

There were no impairment charges on long-lived assets during the nine month period ended November 2, 2019.

We base these estimates upon our past and expected future performance.

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.

Other income - net

Other income decreased $8.8 million to $4.2 million during the third quarter of Fiscal 2020, driven by insurance gains recognized during the third quarter of Fiscal 2019, as well as a reduction in layaway fees while the program was temporarily suspended during Fiscal 2020.

Interest expense

Interest expense increased $16.2 million during the six month period ended August 1, 2020 to $43.1 million, compared to the same period in the prior year.

The increase was primarily driven by the $400 million draw on our ABL Line of Credit in March 2020, as well as the issuance of our $805 million Convertible Notes and our $300 million Secured Notes.

Interest expense increased $31.6 million during the nine month period ended October 31, 2020 to $70.5 million, compared to the same period in the prior year.

The increase was primarily driven by the issuance of our $805 million Convertible Notes and our $300 million Secured Notes, as well as the higher average balance on our ABL Line of Credit.

The average interest rates and average balances related to our variable rate debt for the six month period ended August 1, 2020 compared with prior year, are summarized in the table below:

Six Months Ended

The average interest rates and average balances related to our variable rate debt for the nine month period ended October 31, 2020 compared with prior year, are summarized in the table below:

Nine Months Ended

Average interest rate – ABL Line of Credit

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Excludes original issue discount

Income tax (benefit) expense

Income tax benefit was $268.4 million during the six month period ended August 1, 2020 compared with income tax expense of $27.3 million during the six month period ended August 3, 2019.

The effective tax rate for the six month period ended August 1, 2020 was 41.4% compared with 14.4% during the six month period ended August 3, 2019.

Income tax expense (benefit)

Income tax benefit was $253.3 million during the nine month period ended October 31, 2020 compared with income tax expense of $50.3 million during the nine month period ended November 2, 2019.

The effective tax rate for the nine month period ended October 31, 2020 was 40.5% compared with 16.3% during the nine month period ended November 2, 2019.

The income tax benefit in the current year is a result of the pre-tax loss and the carry-back of net operating losses arising in 2020 to the five prior tax years, as permitted under the CARES Act.

The increase in the income tax rate is a function of current year losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate.

Net (loss) income

We recorded a net loss of $380.5 million during the six month period ended August 1, 2020 compared with net income of $162.3 million for the six month period ended August 3, 2019.

This decrease was primarily driven by the temporary closure of all our stores due to the COVID-19 pandemic.

Net income (loss)

We recorded a net loss of $372.5 million during the nine month period ended October 31, 2020 compared with net income of $258.8 million for the nine month period ended November 2, 2019.

This decrease was primarily driven by the temporary closure of all our stores and the subsequent business disruption upon re-opening caused by the COVID-19 pandemic.

Liquidity and Capital Resources

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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.

As a result of the temporary store closures and the uncertainty regarding the duration of the COVID-19 impact on store traffic, the Company took a more conservative approach to managing its cash flow during the first half of Fiscal 2020.

As a result of the uncertainty regarding the duration of the COVID-19 pandemic and the related impact on store traffic, the Company has taken a more conservative approach to managing its cash flow during Fiscal 2020.

These measures included carefully managing operating expenses, working capital and capital expenditures during the period, as well as suspending the Company’s share repurchase program.

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The proceeds of the Convertible Notes and Secured Notes are being used for general corporate purposes.

We believe that cash generated from operations upon re-opening of our stores, 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.

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 declines in our comparable store sales with savings initiatives in the event that the economy declines, or we are again required to cease or significantly limit our operations as a result of the COVID-19 pandemic.

Cash Flow for the Six Month Period Ended August 1, 2020 Compared With the Six Month Period Ended August 3, 2019

We generated $674.1 million of cash flow during the six month period ended August 1, 2020 compared with a use of $15.1 million during the six month period ended August 3, 2019.

Net cash used in operating activities amounted to $473.0 million during the six month period ended August 1, 2020, compared with proceeds of $229.4 million during the six month period ended August 3, 2019.

The decrease in our operating cash flows was primarily driven by the temporary closure of all stores due to the COVID-19 pandemic.

Net cash used in investing activities was $ 134.1 million during the six month period ended August 1, 2020 compared with a use of $ 164.0 million during the six month period ended August 3, 2019 .

Cash Flow for the Nine Month Period Ended October 31, 2020 Compared With the Nine Month Period Ended November 2, 2019

We generated $945.6 million of cash flow during the nine month period ended October 31, 2020 compared with $12.9 million during the nine month period ended November 2, 2019.

Net cash used in operating activities amounted to $116.9 million during the nine month period ended October 31, 2020, compared with proceeds of $476.9 million during the nine month period ended November 2, 2019.

The decrease in our operating cash flows was primarily driven by the temporary closure of all stores and the subsequent business disruption upon re-opening caused by the COVID-19 pandemic.

Net cash used in investing activities was $215.3 million during the nine month period ended October 31, 2020 compared with a use of $256.0 million during the nine month period ended November 2, 2019.

This change was primarily the result of a decrease in capital expenditures.

Some of our new store, store remodel and other store expenditure projects were moved to future periods as a result of the COVID-19 pandemic.

Net cash provided by financing activities was $1,281.2 million during the six month period ended August 1, 2020 compared with a use of $80.5 million during the six month period ended August 3, 2019.

Net cash provided by financing activities was $1,277.9 million during the nine month period ended October 31, 2020 compared with a use of $207.9 million during the nine month period ended November 2, 2019.

This change was primarily driven by our cash flow management efforts as a result of the COVID-19 pandemic, which included drawing $400 million on our ABL Line of Credit, issuing $805 million of our Convertible Notes, and through BCFWC, issuing $300 million of Secured Notes, and suspending our share repurchase program.

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

We had working capital at August 1, 2020 of $660.0 million compared with a working capital deficit of $151.7 million at August 3, 2019.

The increase in working capital was primarily due to our increased cash balance, as a result of issuing the Convertible Notes and the Secured Notes and the $250 million net draw on our ABL Line of Credit, as well as a decrease in accounts payable, due to decreased inventory receipts.

These increases were partially offset by a decrease in merchandise inventories, an increase in other current liabilities (primarily due to deferral of rent payments and accrued interest on the Convertible Notes and Secured Notes), and a decrease in accounts receivable (primarily due to decreased credit card receivables).

We had working capital at October 31, 2020 of $887.6 million compared with a working capital deficit of $199.1 million at November 2, 2019.

These increases were partially offset by a decrease in merchandise inventories and an increase in other current liabilities (primarily due to deferral of rent payments).

We had a working capital deficit at February 1, 2020 of $51.1 million.

Capital Expenditures

For the six month period ended August 1, 2020, cash spend for capital expenditures, net of $12.8 million of landlord allowances, amounted to $120.9 million.

For the nine month period ended October 31, 2020, cash spend for capital expenditures, net of $26.0 million of landlord allowances, amounted to $188.4 million.

As a result of our temporary store closures and the uncertainty regarding the impact of the COVID-19 pandemic on store traffic, some of our capital expenditure projects have been moved to future periods.

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This repurchase program is funded using our available cash and borrowings on our ABL Line of Credit.

During the six month period ended August 1, 2020, we repurchased 243,573 shares of our common stock for $50.2 million under the share repurchase program.

During the nine month period ended October 31, 2020, we repurchased 243,573 shares of our common stock for $50.2 million under the share repurchase program.

As part of the Company’s cash management efforts during the COVID-19 pandemic, we suspended our share repurchase program in March 2020.

As of August 1, 2020, we had $348.4 million remaining under our share repurchase authorization.

As of October 31, 2020, we had $348.4 million remaining under our share repurchase authorization.

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

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Therefore, at this time, we do not anticipate paying cash dividends in the near term.

Our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness.

governing our indebtedness.

Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our Board of Directors deems relevant.

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Operational Growth

During the six month period ended August 1, 2020, we opened 25 new stores, inclusive of 10 relocations, and closed three stores, exclusive of the aforementioned relocations, bringing our store count as of August 1, 2020 to 739 stores.

During the nine month period ended October 31, 2020, we opened 62 new stores, inclusive of 17 relocations, and closed three stores, exclusive of the aforementioned relocations, bringing our store count as of October 31, 2020 to 769 stores.

Some of our store opening and relocation projects have been moved to future periods as a result of the COVID-19 pandemic.

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Debt and Hedging

As of August 1, 2020, our obligations, inclusive of original issue discount, include $958.0 million under our Term Loan Facility, $633.1 million of Convertible Notes, $300.0 million of Secured Notes and $250.0 million of outstanding borrowings on our ABL Line of Credit.

Our debt obligations also include $48.8 million of finance lease obligations as of August 1, 2020.

As of October 31, 2020, our obligations, inclusive of original issue discount, include $958.2 million under our Term Loan Facility, $640.6 million of Convertible Notes, $300.0 million of Secured Notes and $250.0 million of outstanding borrowings on our ABL Line of Credit.

Our debt obligations also include $48.4 million of finance lease obligations as of October 31, 2020.

Term Loan Facility

On February 26, 2020, we completed a repricing of our Term Loan Facility, which among other things, 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 LIBOR loans, with the LIBOR floor remaining at 0.00%.

At August 1, 2020, our borrowing rate related to the Term Loan Facility was 1.9%.

At October 31, 2020, our borrowing rate related to the Term Loan Facility was 1.9%.

ABL Line of Credit

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We repaid $150 million of this amount during the second quarter of Fiscal 2020.

At August 1, 2020, we had $120.4 million available under the ABL Line of Credit.

The maximum borrowings under the ABL Line of Credit during the six month period ended August 1, 2020 amounted to $400.0 million.

Average borrowings during the six month period ended August 1, 2020 amounted to $289.3 million at an average interest rate of 2.1%.

At October 31, 2020, we had $292.4 million available under the ABL Line of Credit.

The maximum borrowings under the ABL Line of Credit during the nine month period ended October 31, 2020 amounted to $400.0 million.

Average borrowings during the nine month period ended October 31, 2020 amounted to $276.2 million at an average interest rate of 2.0%.

Convertible Notes

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

Thereafter, the 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.

Thereafter, the

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 Convertible Notes have an initial conversion rate of 4.5418 shares per $1,000 principal amount of 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.

The initial conversion price represents a conversion premium of approximately 32.50% over $166.17 per share, the last reported sale price of our common stock on April 13, 2020 (the pricing date of the offering) on the New York Stock Exchange.

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

The initial conversion price represents a conversion premium of approximately 32.50% over $166.17 per share, the last reported sale price of our common stock on April 13, 2020 (the pr icing date of the offering) on t he New York Stock Exchange.

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combi nation of cash and shares of our common stock, at our election.

We will not be able to redeem the Convertible Notes prior to April 15, 2023.

On or after April 15, 2023, we will be able to redeem for cash all or any portion of the

Convertible Notes, at our option, if the last reported sale price of our 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 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

On or after April 15, 2023, we will be able to redeem for cash all or any portion of the Convertible Notes, at our option, if the last reported sale price of our 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 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

Holders of the Convertible Notes may require us to repurchase their Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the 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.

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Certain Information Concerning Contractual Obligations

The Company had $955.6 million of purchase commitments related to goods that were not received as of August 1, 2020.

The Company had $1,090.7 million of purchase commitments related to goods that were not received as of October 31, 2020.

Except as disclosed above with respect to the issuance of the Convertible Notes and Secured Notes, there were no other significant changes regarding our obligations to make future payments under current contracts from those included in our Fiscal 2019 10-K.

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Actual results may differ from these estimates under different assumptions or conditions.

As of August 1, 2020, the end of our second quarter, the impact of the COVID-19 pandemic continues to unfold.

As of October 31, 2020, the end of our third quarter, the impact of the COVID-19 pandemic continues to unfold.

As a result, many of our estimates and judgments carry a higher degree of variability and volatility.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis