What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-26 compared with 2021-05-27 · 214 added, 121 removed, 421 unchanged (44% 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 784 stores as of May 1, 2021 in 45 states and Puerto Rico.

Since then, we have expanded our store base to 792 stores as of July 31, 2021 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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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).

The Secured Notes were redeemed in full during the second quarter of Fiscal 2021.

Refer to Note 4, “Long Term Debt,” for further discussion regarding these debt transactions.

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Negotiated rent deferral agreements with landlords.

Suspended our share repurchase program.

Temporarily 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 were temporarily put in place for all employees through a certain level.

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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.

For the year ended January 30, 2021 we estimated we will obtain a one-time tax refund of $219.7 million from the carryback of federal net operating losses (NOLs), which is included in the line item “Prepaid and other current assets” on our Condensed Consolidated Balance Sheet.

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

Wider check-out lanes

A physical barrier between customers and associates at each register

Closing all fitting rooms

Routinely cleaning and disinfecting all areas of the store, including frequently cleaning high-touch areas

Providing sanitization materials throughout the store

Making shopping cart wipes available

Requiring associates to wear face coverings while in our stores and distribution centers

Screening all associates daily in stores and distribution centers where required by state and local mandates

For the year ended January 30, 2021 we will obtain a one-time tax refund of $245.5 million from the carryback of federal net operating losses (NOLs), which is included in the line item “Prepaid and other current assets” on our Condensed Consolidated Balance Sheet.

Fiscal 2021 is defined as the 52-week year ending January 29, 2022.

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Store Openings, Closings, and Relocations

During the three month period ended May 1, 2021, we opened 26 new stores, inclusive of one relocation, and permanently closed two stores, exclusive of the aforementioned relocation, bringing our store count as of May 1, 2021 to 784 stores.

Ong o ing Initiatives for Fiscal 2021

During the six month period ended July 31, 2021, we opened 37 new stores, inclusive of two relocations, and permanently closed four stores, exclusive of the aforementioned relocations, bringing our store count as of July 31, 2021 to 792 stores.

Ongoing Initiatives for Fiscal 2021

Since the beginning of the COVID-19 pandemic, protecting the health and safety of our customers, associates, and the communities that we serve has been our top priority.

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Making a Greater Investment in Merchandising Capabilities.

We intend to invest in incremental headcount, especially in growing or under-developed businesses, training and coaching, improved tools and reporting, and other forms of merchant support.

We intend to invest in incremental headcount, especially in our growing and under-developed businesses, training and coaching, improved tools and reporting, and other forms of merchant support.

We believe that these investments should improve our ability to develop vendor relationships, source great merchandise buys, more accurately assess value, and better forecast and chase the sales trend.

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This enables us to obtain better terms with our suppliers, which we expect to help offset any rising costs of goods.

Industry-wide supply chain issues have led to increased freight and labor costs during Fiscal 2021 and may continue to add pressure on margins for the remainder of the year and beyond.

Additionally, the higher our sales volume is, and the more sales we chase above our initial plans, the more these increased supply chain costs will impact our margins.

Key Performance Measures

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Net income (loss) .

We earned net income of $171.0 million during the three month period ended May 1, 2021 compared with a net loss of $333.7 million during the three month period ended May 2, 2020.

This increase was primarily driven by the temporary closure of all our stores during the first quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales performance during the first quarter of Fiscal 2021, compared to the first quarter of Fiscal 2019.

We earned net income of $102.6 million during the three month period ended July 31, 2021 compared with a net loss of $46.8 million during the three month period ended August 1, 2020.

We earned net income of $273.6 million during the six month period ended July 31, 2021 compared with a net loss of $380.5 million during the six month period ended August 1, 2020.

These increases were primarily driven by the temporary closure of all our stores during the first half of Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales growth during the first half of Fiscal 2021.

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

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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.

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.

We believe that these non-GAAP measures provide investors helpful information with respect to our operations and financial condition.

Other companies in the retail industry may calculate these non-GAAP measures differently such that our calculation may not be directly comparable.

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.

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

During the three months ended May 1, 2021, Adjusted Net Income (Loss) increased $491.0 million to income of $175.9 million, compared to the same period in the prior year.

During the three and six months ended July 31, 2021, Adjusted Net Income (Loss) increased $170.3 million to $133.1 million and increased $661.3 million to $309.0 million, respectively, compared to the same periods in the prior year.

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

The following table shows our reconciliation of net income (loss) to Adjusted Net Income (Loss) for the three months ended May 1, 2021 compared with the three months ended May 2, 2020:

The following table shows our reconciliation of net income (loss) to Adjusted Net Income (Loss) for the three and six months ended July 31, 2021 compared with the three and six months ended August 1, 2020 :

(in thousands)

Three Months Ended

Six Months Ended

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

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Litigation matters (e)

Tax effect (f)

E-commerce closure (f)

Tax effect (g)

Adjusted Net Income (Loss)

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The original issue discount was eliminated as of the beginning of Fiscal 2021, as a result of adopting Accounting Standards Update (ASU) 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06).

Represents certain costs incurred as a result of the issuance of the Secured Notes and the Convertible Notes, as well as the execution of refinancing opportunities.

Amounts relate to the refinancing of the Term Loan Facility.

Represents certain costs incurred to refinance the Term Loan Facility, as well as the issuance of the Secured Notes and the Convertible Notes.

Amounts relate to the redemption of the Secured Notes, as well as the refinancing of the Term Loan Facility.

Represents amounts charged for certain litigation matters.

Tax effect is calculated based on the effective tax rates (before discrete items) for the respective periods, adjusted for the tax effect for the impact of items (a) through (e).

The effective tax rate for the first quarter of Fiscal 2020 includes the benefit of loss carrybacks to prior years with higher statutory tax rates.

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

Tax effect is calculated based on the effective tax rates (before discrete items) for the respective periods, adjusted for the tax effect for the impact of items (a) through (f).

The effective tax rate during Fiscal 2020 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 income (loss) or other data prepared in accordance with GAAP.

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

During the three months ended May 1, 2021, Adjusted EBITDA increased $741.0 million to $293.5 million, compared to the same period in the prior year.

During the three and six months ended July 31, 2021, Adjusted EBITDA increased $254.5 million to $245.7 million and increased $995.6 million to $539.2 million, respectively, compared to the same periods in the prior year.

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

The following table shows our reconciliation of net income (loss) to Adjusted EBITDA for the three months ended May 1, 2021 compared with the three months ended May 2, 2020:

The following table shows our reconciliation of net income (loss) to Adjusted EBITDA for the three and six months ended July 31, 2021 compared with the three and six months ended August 1, 2020 :

(in thousands)

Three Months Ended

Six Months Ended

Reconciliation of net income (loss) to Adjusted EBITDA:

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Litigation matters (c)

Depreciation and amortization (d)

E-commerce closure (d)

Depreciation and amortization (e)

Impairment charges

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Adjusted EBITDA

Amounts relate to the refinancing of the Term Loan Facility.

Represents certain costs incurred as a result of the issuance of the Secured Notes and the Convertible Notes, as well as the execution of refinancing opportunities.

Amounts relate to the redemption of the Secured Notes, as well as the refinancing of the Term Loan Facility.

Represents certain costs incurred to refinance the Term Loan Facility, as well as the issuance of the Secured Notes and the Convertible Notes.

Represents amounts charged for certain litigation matters.

Includes $5.9 million and $6.4 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 months ended May 1, 2021 and the three months ended May 2, 2020, respectively.

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

Includes $6.0 million and $11.9 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 six months ended July 31, 2021, and $6.1 million and $12.5 million for the three and six months ended August 1, 2020, 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.

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

During the three months ended May 1, 2021, Adjusted EBIT increased $739.7 million to $237.9 million, compared to the same period in the prior year.

During the three and six months ended July 31, 2021, Adjusted EBIT increased $246.1 million to $182.9 million and increased $985.7 million to $420.8 million, respectively, compared to the same periods in the prior year.

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

The following table shows our reconciliation of net income (loss) to Adjusted EBIT for the three months ended May 1, 2021 compared with the three months ended May 2, 2020:

The following table shows our reconciliation of net income (loss) to Adjusted EBIT for the three and six months ended July 31, 2021 compared with the three and six months ended August 1, 2020:

(in thousands)

Three Months Ended

Six Months Ended

Reconciliation of net income (loss) to Adjusted EBIT:

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Litigation matters (d)

E-commerce closure (e)

Income tax expense (benefit)

Adjusted EBIT

Amounts relate to the refinancing of the Term Loan Facility.

Represents certain costs incurred as a result of the issuance of the Secured Notes and the Convertible Notes, as well as the execution of refinancing opportunities.

Amounts relate to the redemption of the Secured Notes, as well as the refinancing of the Term Loan Facility.

Represents certain costs incurred to refinance the Term Loan Facility, as well as the issuance of the Secured Notes and the Convertible Notes.

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.

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Represents amounts charged for certain litigation matters.

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

Comparable Store Sales.

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, including the temporary closing of all stores during the first quarter of Fiscal 2020, we are using Fiscal 2019 as the comparable previous year period when calculating comparable store sales for Fiscal 2021.

Due to the impact of the COVID-19 pandemic, including the temporary closing of all stores during the first half of 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.

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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 20% for the three month period ended May 1, 2021, compared to the three month period ended May 4, 2019.

Comparable store sales were not meaningful for the three months ended May 2, 2020, due to the extended store closures resulting from the COVID-19 pandemic.

Comparable store sales increased 19% for the three month period ended July 31, 2021, compared to the three month period ended August 3, 2019, and 20% for the six month period ended July 31, 2021 compared to the six month period ended August 3, 2019.

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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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 Condensed Consolidated Statements of Income (Loss).

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 ne t sales in creased to 43.3% during the three month period ended May 1, 2021 , compared with 2.0 % during the three month period ended May 2, 2020 , driven primarily by a $271.9 million charge against aged inventory during the first quarter of Fiscal 2020 due to the extended store closures.

Product sourcing costs were $ 14 0.7 million during the three month period ended May 1, 2021 , compared with $75.7 million during the three month period ended May 2, 2020 .

Inventory at May 1, 2021 increased to $767.6 million compared with $625.9 million at May 2, 2020.

The increase was attributable primarily to the $271.9 million inventory charge during the three month period ended May 2, 2020 due to aged inventory, as well as aggressive actions to reduce inventory receipts during the period that stores were closed.

Comparable store inventory at May 1, 2021 decreased 19% compared to May 4, 2019, driven by our strategy of operating with leaner in-store inventory.

When comparing to May 2, 2020, all stores were excluded from comparable store inventory, due to the temporary closure of all stores at that time.

Reserve inventory was 35% of total inventory as of May 1, 2021, compared with 34% as of May 4, 2019.

Gross margin as a percentage of net sales decreased to 42.2% during the three month period ended July 31, 2021, compared with 45.8% during the three month period ended August 1, 2020.

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.

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.

Additionally, industry-wide supply chain issues have led to increased freight and labor costs during the first half of Fiscal 2021, which we expect to continue for the remainder of the year.

Product sourcing costs, which are included in

selling, general and administrative expenses, were $ 14 5.

9 million during the three month period ended July 31, 2021 , compared with $72.1 million during the three month period ended August 1, 2020 , driven by an increase in sales and increased processing costs.

Gross margin as a percentage of net sales increased to 42.7% during the six month period ended July 31, 2021, compared with 26.4% during the six month period ended August 1, 2020, driven primarily by a $271.9 million charge against aged inventory during the first quarter of Fiscal 2020 due to the extended store closures.

Additionally, industry-wide supply chain issues have led to increased freight and labor costs during the first half of Fiscal 2021, which we expect to continue for the remainder of the year.

Product sourcing costs were $ 286.4 million during the six month period ended July 31, 2021, compared with $146.6 million during the six month period ended August 1, 2020, driven by an increase in sales and increased processing costs.

Inventory at July 31, 2021 increased to $828.2 million compared with $607.6 million at August 1, 2020.

The increase was attributable primarily to high levels of clearance sell-through during the second quarter of Fiscal 2020 once stores reopened, as well as the 53 net new stores opened since the end of the second quarter of Fiscal 2020.

Comparable store inventory at July 31, 2021 decreased 7% compared to August 3, 2019, driven by our strategy of operating with leaner in-store inventory.

Reserve inventory was 31% of total inventory as of July 31, 2021, compared with 33% as of August 3, 2019.

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

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

As a result, store payroll costs increased to $170.7 million during the three months ended May 1, 2021, compared with $105.2 million during the three months ended May 2, 2020.

As a result of the furloughs in Fiscal 2020, as well as our new stores opened since the end of the second quarter of Fiscal 2020, store payroll costs increased to $180.2 million and $350.8 million during the three and six month periods ended July 31, 2021, respectively, compared with $110.5 million and $215.6 million during the three and six month periods ended August 1, 2020.

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 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, and the remaining $250 million during the fourth quarter of Fiscal 2020.

At May 1, 2021, we had $549.5 million available under the ABL Line of Credit.

Cash and cash equivalents, including restricted cash and cash equivalents, increased $150.3 million during the three months ended May 1, 2021, compared with an increase of $1,085.4 million during the three months ended May 2, 2020.

On June 11, 2021, BCFWC redeemed the full $300 million aggregate principal amount of the Secured Notes.

The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption.

At July 31, 2021, we had $533.6 million available under the ABL Line of Credit.

Cash and cash equivalents, including restricted cash and cash equivalents, decreased $36.0 million during the six months ended July 31, 2021, compared with an increase of $674.1 million during the six months ended August 1, 2020.

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

Results of Operations

The following table sets forth certain items in the Condensed Consolidated Statements of Income (Loss) as a percentage of net sales for the three months ended May 1, 2021 and the three months ended May 2, 2020.

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 six months ended July 31, 2021 and the three and six months ended August 1, 2020.

Percentage of Net Sales

Three Months Ended

Six Months Ended

Other revenue

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Net income (loss)

Three Month Period Ended May 1, 2021 Compared With the Three Month Period Ended May 2, 2020

Net sales improved $1,392.7 million, or 174.5%, to $2,190.7 million during the three month period ended May 1, 2021, primarily due to the temporary closure of all our stores during the first quarter of Fiscal 2020.

This improvement was also driven by our comparable store sales increase of 20% for the first quarter of Fiscal 2021 compared to the first quarter of Fiscal 2019, as well as our 48 net new stores since the end of the first quarter of Fiscal 2020.

Three Month Period Ended July 31, 2021 Compared With the Three Month Period Ended August 1, 2020

Net sales improved approximately $1,202.9 million, or 119.1%, to $2,212.8 million during the second quarter of Fiscal 2021, primarily driven by the temporary closure of all our stores during the second quarter of Fiscal 2020 due to the COVID-19 pandemic.

This improvement was also driven by our comparable store sales increase of 19% for the second quarter of Fiscal 2021 compared to the second quarter of Fiscal 2019, as well as our 53 net new stores since the end of the second quarter of Fiscal 2020.

Cost of sales

Cost of sales as a percentage of net sales decreased to 56.7% during the three month period ended May 1, 2021, compared to 98.0% during the three month period ended May 2, 2020, driven primarily by a $271.9 million charge against aged inventory in the first quarter of Fiscal 2020 due to the extended store closures.

Cost of sales as a percentage of net sales increased to 57.8% during the second quarter of Fiscal 2021, compared to 54.2% during the second quarter of Fiscal 2020.

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.

On a dollar basis, cost of sales increased $732.1 million, or 133.7%, primarily driven by our overall increase in sales.

Product sourcing costs, which are included in selling, general and administrative expenses, were $140.7 million during the three month period ended May 1, 2021, compared with $75.7 million during the three month period ended May 2, 2020.

Product sourcing costs, which are included in selling, general and administrative expenses, were $145.9 million during the second quarter of Fiscal 2021, compared with $72.1 million during the second quarter of Fiscal 2020.

Selling, general and administrative expenses

The following table details selling, general and administrative expenses for the three month period ended May 1, 2021 compared with the three month period ended May 2, 2020.

The following table details selling, general and administrative expenses for the three month period ended July 31, 2021 compared with the three month period ended August 1, 2020.

(in millions)

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

On a dollar basis, the increase in selling, general and administrative expenses was primarily due to our higher product sourcing costs, as well as the significant steps taken to reduce selling, general and administrative expenses during the period stores were closed during the first quarter of Fiscal 2020.

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.

Additionally, incentive compensation and occupancy costs drove higher expense during Fiscal 2021.

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 the second quarter of Fiscal 2021, we incurred $3.3 million of legal and placement fees related to the refinancing of our Term Loan Facility.

Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

Depreciation and amortization

Depreciation and amortization expense related to the depreciation of fixed assets amounted to $55.6 million during the three month period ended May 1, 2021 compared with $54.3 million during the three month period ended May 2, 2020.

Depreciation and amortization expense amounted to $62.8 million during the second quarter of Fiscal 2021 compared with $54.4 million during the second quarter of Fiscal 2020.

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 $ 0.8 million during the three month period ended May 1, 2021, related to store-level assets at one store.

Impairment charges on long-lived assets were $1.9 million during the three month period ended May 2, 2020, related to store-level assets at seven stores.

Impairment charges on long-lived assets were $ 1.0 million during the second quarter of Fiscal 2021, related to the expected sale of one owned store.

Impairment charges on long-lived assets were $1.1 million during the three month period ended August 1, 2020, related to store-level assets at five 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.

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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 6, “Fair Value Measurements,” for further discussion regarding impairment charges.

Other income - net

Other income decreased $0.8 million to $1.4 million during the first quarter of Fiscal 2021, primarily driven by a reduction in interest income due to the low rate environment, as well as one-time insurance gains during the first quarter of Fiscal 2020.

Other income improved $5.0 million to $5.8 million during the second quarter of Fiscal 2021, primarily driven by the sale of state tax credits during the second quarter of Fiscal 2021.

Loss on Extinguishment of Debt

During the second quarter of Fiscal 2021, we incurred a debt extinguishment charge of $30.2 million related to the premium paid on redemption of the Secured Notes, as well as $1.2 million related to the refinancing of our Term Loan Facility.

Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

Interest expense

Interest expense increased $4.9 million during the three month period ended May 1, 2021 to $19.6 million, compared to the same period in the prior year.

This increase was primarily driven by a full quarter of interest expense on our $805 million Convertible Notes and our $300 million Secured Notes, which were only outstanding for a portion of the first quarter of Fiscal 2020.

This increase was partially offset by the paydown of our ABL Line of Credit, as well as the lower average interest rate on our Term Loan Facility.

The average interest rates and average balances related to our variable rate debt for the three month period ended May 1, 2021 compared with prior year, are summarized in the table below:

Interest expense improved $10.9 million during the second quarter of Fiscal 2021 to $17.5 million, compared to the same period in the prior year.

The decrease was primarily driven by the adoption of Accounting Standards Update 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), which eliminated the amortization of debt discount previously associated with the Convertible Notes.

The decrease was also driven by the redemption of the $300 million Secured Notes, as well as paydown of our ABL Line of Credit.

The average interest rates and average balances related to our variable rate debt for the second quarter of Fiscal 2021 compared with the second quarter of Fiscal 2020 , are summarized in the table below:

Three Months Ended

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Income tax expense (benefit)

Income tax expense was $40.6 million during the three month period ended May 1, 2021 compared with income tax benefit of $205.4 million during the three month period ended May 2, 2020.

The effective tax rate for the three month period ended May 1, 2021 was 19.2% compared with 38.1% during the three month period ended May 2, 2020.

The income tax benefit in the prior year was 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

Income tax expense was $21.2 million during the second quarter of Fiscal 2021 compared with income tax benefit of $63.1 million during the second quarter of Fiscal 2020.

The effective tax rate for the second quarter of Fiscal 2021 was 17.1% compared with 57.4% during the second quarter of Fiscal 2020.

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

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 2021 resulted in an annual effective income tax rate of approximately 27% (before discrete items) as our best estimate.

This is a decrease compared to the annual effective tax rate for the second quarter of Fiscal 2020 of approximately 36% (before discrete items), due to prior year losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate.

Net income (loss)

We earned net income of $171.0 million during the three month period ended May 1, 2021 compared with a net loss of $333.7 million for the three month period ended May 2, 2020.

This improvement was primarily driven by the temporary closure of all our stores during the first quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our above average sales performance during the first quarter of Fiscal 2021.

We earned net income of $102.6 million for the second quarter of Fiscal 2021 compared with a net loss of $46.8 million for the second quarter of Fiscal 2020.

This improvement was primarily driven by the temporary closure of all our stores during the second quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales growth during the second quarter of Fiscal 2021.

Six Month Period Ended July 31, 2021 Compared With the Six Month Period Ended August 1, 2020

Net sales improved $2,595.6 million, or 143.6%, to $4,403.5 million during the six month period ended July 31, 2021, primarily due to the temporary closure of all our stores during the first half of Fiscal 2020.

This improvement was also driven by our comparable store sales increase of 20% for the first half of Fiscal 2021 compared to the first half of Fiscal 2019, as well as our 53 net new stores since the end of the second quarter of Fiscal 2020.

Cost of sales

Cost of sales as a percentage of net sales decreased to 57.3% during the six month period ended July 31, 2021, compared to 73.6% during the six month period ended August 1, 2020, driven primarily by a $271.9 million charge against aged inventory in the first quarter of Fiscal 2020 due to the extended store closures.

On a dollar basis, cost of sales increased $1,192.1 million, or 89.7%, primarily driven by our overall increase in sales.

Product sourcing costs, which are included in selling, general and administrative expenses, were $286.4 million during the six month period ended July 31, 2021, compared with $146.6 million during the six month period ended August 1, 2020.

Selling, general and administrative expenses

The following table details selling, general and administrative expenses for the six month period ended July 31, 2021 compared with the six month period ended August 1, 2020.

(in millions)

Six Months Ended

July 31, 2021

August 1, 2020

Store related costs

Product sourcing costs

Corporate costs

Marketing and strategy costs

Other selling, general and administrative expenses

Selling, general and administrative expenses

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

Additionally, incentive compensation and occupancy costs drove higher expense during Fiscal 2021.

Costs related to debt issuances and amendments

During the first half of Fiscal 2021, we incurred $3.3 million of legal and placement fees related to the refinancing of our Term Loan Facility.

During the first half 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.

Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

Depreciation and amortization

Depreciation and amortization expense amounted to $118.4 million during the six month period ended July 31, 2021 compared with $108.7 million during the six month period ended August 1, 2020.

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 $ 1.7 million during the six month period ended July 31, 2021, related to the expected sale of one owned store, as well as declines in revenues and operating results for one store.

Impairment charges on long-lived assets were $3.0 million during the six month period ended August 1, 2020, related to store-level assets at ten stores.

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.

Refer to Note 6, “Fair Value Measurements,” for further discussion regarding impairment charges.

Other income - net

Other income improved $4.3 million to $7.2 million during the six months ended July 31, 2021, primarily driven by the sale of state tax credits during the second quarter of Fiscal 2021.

Loss on Extinguishment of Debt

During the first half of Fiscal 2021, we incurred a debt extinguishment charge of $30.2 million related to the premium paid on redemption of the Secured Notes, as well as $1.2 million related to the refinancing of our Term Loan Facility.

Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

Interest expense

Interest expense improved $6.0 million during the six month period ended July 31, 2021 to $37.1 million, compared to the same period in the prior year.

The decrease was primarily driven by the adoption of ASU 2020-06, which eliminated the amortization of debt discount previously associated with the Convertible Notes.

The decrease was also driven by the redemption of the $300 million Secured Notes, as well as paydown of our ABL Line of Credit.

The average interest rates and average balances related to our variable rate debt for the six month period ended July 31, 2021 compared with the prior year, are summarized in the table below:

Six Months Ended

Average interest rate – ABL Line of Credit

Average interest rate – Term Loan Facility

Average balance – ABL Line of Credit (in millions)

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

Excludes original issue discount.

Income tax expense (benefit)

Income tax expense was $61.8 million during the six month period ended July 31, 2021 compared with income tax benefit of $268.4 million during the six month period ended August 1, 2020.

The effective tax rate for the six month period ended July 31, 2021 was 18.4% compared with 41.4% during the six month period ended August 1, 2020.

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

Net income (loss)

We earned net income of $273.6 million during the six month period ended July 31, 2021 compared with a net loss of $380.5 million for the six month period ended August 1, 2020.

This improvement was primarily driven by the temporary closure of all our stores during the first half of Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales growth during the first half of Fiscal 2021.

Liquidity and Capital Resources

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As a result of the uncertainty regarding the COVID-19 pandemic, the Company took a number of measures to manage its cash flow.

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

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

We completed several debt transactions in order to facilitate increased financial flexibility in response to the COVID-19 pandemic.

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On April 16, 2020, we issued $805 million of our Convertible Notes, and through BCFWC, issued $300 million of Secured Notes.

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

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

On June 11, 2021, BCFWC redeemed the full $300 million aggregate principal amount of the Secured Notes.

The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption.

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.

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The amounts involved and total consideration paid may be material.

Cash Flow for the Three Month Period Ended May 1, 2021 Compared With the Three Month Period Ended May 2, 2020

We generated $150.3 million of cash flow during the three month period ended May 1, 2021 compared with $1,085.4 million during the three month period ended May 2, 2020.

Net cash provided by operating activities amounted to $223.4 million during the three month period ended May 1, 2021, compared with a use of $271.7 million during the three month period ended May 2, 2020.

The increase in our operating cash flows was primarily driven by the temporary closure of all our stores during the first quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our above average sales performance during the first quarter of Fiscal 2021.

Net cash used in investing activities was $71.8 million during the three month period ended May 1, 2021 compared with a use of $62.6 million during the three month period ended May 2, 2020.

Cash Flow for the Six Month Period Ended July 31, 2021 Compared With the Six Month Period Ended August 1, 2020

We used $36.0 million of cash during the six month period ended July 31, 2021 compared with a generation of $674.1 million during the six month period ended August 1, 2020.

Net cash provided by operating activities amounted to $426.9 million during the six month period ended July 31, 2021, compared with a use of $473.0 million during the six month period ended August 1, 2020.

The increase in our operating cash flows was primarily driven by the temporary closure of all our stores during the first half of Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales performance during the first half of Fiscal 2021.

Net cash used in investing activities was $141.6 million during the six month period ended July 31, 2021 compared with $134.1 million during the six month period ended August 1, 2020.

This change was primarily the result of an increase in capital expenditures related to our stores (new stores, remodels and other store expenditures).

Net cash used in financing activities was $ 1.3 million during the three month period ended May 1, 2021 compared with net cash provided of $ 1,419.7 million during the three month period ended May 2, 2020 .

This change was primaril y driven by our cash flow management efforts during the first quarter of Fiscal 2020 in response to 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 .

We repaid $150 million on the ABL Line of Credit during th e second quarter of Fiscal 2020, and the remaining $250 million during the fourth quarter of Fiscal 2020.

Net cash used in financing activities was $321.2 million during the six month period ended July 31, 2021 compared with net cash provided of $1,281.2 million during the six month period ended August 1, 2020.

This change was primarily driven by our cash flow management efforts during the first half of Fiscal 2020 in response to 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 temporarily suspending our share repurchase program.

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

On June 11, 2021, BCFWC redeemed the full $300 million aggregate principal amount of the Secured Notes.

The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption.

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 May 1, 2021 of $1,002.8 million compared with $867.9 million at May 2, 2020.

The increase in working capital was primarily due to an increase in prepaid and other current assets (primarily the tax refund for NOL carryback associated with the CARES Act), an increase in merchandise inventories and an increase in accounts receivable (primarily due to higher credit card receivables, driven by increased sales).

These increases were partially offset by increased accounts payable and an increase in other current liabilities.

We had working capital at July 31, 2021 of $853.8 million compared with $660.0 million at August 1, 2020.

These increases were partially offset by increased accounts payable.

We had working capital at January 30, 2021 of $820.0 million.

Capital Expenditures

For the three month period ended May 1, 2021, cash spend for capital expenditures, net of $9.7 million of landlord allowances, amounted to $62.0 million.

For the six month period ended July 31, 2021, cash spend for capital expenditures, net of $20.0 million of landlord allowances, amounted to $127.2 million.

We estimate that we will spend approximately $510 million, net of approximately $30 million of landlord allowances, in capital expenditures during Fiscal 2021, including approximately $200 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 $ 140 million to support our supply chain initiatives, with the remaining capital used to support our information technology and other business initiatives.

Share Repurchase Program

Share Repurchase Programs

On August 14, 2019, our Board of Directors authorized the repurchase of up to $400 million of common stock, which was authorized to be executed through August 2021.

During the six month period ended July 31, 2021, there were no repurchases under the share repurchase program.

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

As of July 31, 2021, we had $348.4 million remaining under this share repurchase authorization, which expired in August 2021.

On August 18, 2021, our board of directors authorized the repurchase of up to $400 million of common stock, which is authorized to be executed through August 2023.

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

During the three month period ended May 1, 2021, there were no repurchases 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 May 1, 2021, 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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Operational Growth

During the three month period ended May 1, 2021, we opened 26 new stores, inclusive of one relocation, and closed two stores, exclusive of the aforementioned relocation, bringing our store count as of May 1, 2021 to 784 stores.

During the six month period ended July 31, 2021, we opened 37 new stores, inclusive of two relocations, and closed four stores, exclusive of the aforementioned relocations, bringing our store count as of July 31, 2021 to 792 stores.

During Fiscal 2021, we plan to open 75 net new stores, which includes approximately 100 gross new stores, along with approximately 25 store relocations and closings.

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Debt and Hedging

As of May 1, 2021, our obligations, inclusive of original issue discount, include $958.6 million under our Term Loan Facility, $805.0 million of Convertible Notes, $300.0 million of Secured Notes and no outstanding borrowings on our ABL Line of Credit.

Our debt obligations also include $46.7 million of finance lease obligations as of May 1, 2021.

As of July 31, 2021, our obligations, inclusive of original issue discount, include $955.0 million under our Term Loan Facility, $805.0 million of Convertible Notes and no outstanding borrowings on our ABL Line of Credit.

Our debt obligations also include $46.1 million of finance lease obligations as of July 31, 2021.

Term Loan Facility

At May 1, 2021, our borrowing rate related to the Term Loan Facility was 1.9%.

On June 24, 2021, BCFWC entered into Amendment No.

9 (the Ninth Amendment) to the Term Loan Credit Agreement governing the Term Loan Facility.

The Ninth Amendment, among other things, extended the maturity date from November 17, 2024 to June 24, 2028, and changed the interest rate margins applicable to the Term Loan Facility from 0.75% to 1.00%, in the case of prime rate loans, and from 1.75% to 2.00%, in the case of LIBOR loans, with a 0.00% LIBOR floor.

Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

At July 31, 2021, our borrowing rate related to the Term Loan Facility was 2.1%.

ABL Line of Credit

At May 1, 2021, we had $549.5 million available under the ABL Line of Credit.

There were no borrowings on the ABL Line of Credit during the three month period ended May 1, 2021.

At July 31, 2021, we had $533.6 million available under the ABL Line of Credit.

There were no borrowings on the ABL Line of Credit during the six month period ended July 31, 2021.

Convertible Notes

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Secured Notes

On April 16, 2020, our indirect subsidiary, BCFWC, issued $300 million of Senior Secured Notes.

The Secured Notes are senior, secured obligations of BCFWC, and interest is payable semiannually in cash at a rate of 6.25% per annum on April 15 and October 15 of each year, beginning on October 15, 2020.

The Secured Notes are guaranteed on a senior secured basis by Burlington Coat Factory Holdings, LLC, Burlington Coat Factory Investments Holdings, Inc.

On April 16, 2020, BCFWC, issued $300 million of Senior Secured Notes.

The Secured Notes are senior, secured obligations of BCFWC, and interest was payable semiannually in cash at a rate of 6.25% per annum on April 15 and October 15 of each year, beginning on October 15, 2020.

The Secured Notes were guaranteed on a senior secured basis by Burlington Coat Factory Holdings, LLC, Burlington Coat Factory Investments Holdings, Inc.

and BCFWC’s subsidiaries that guarantee the loans under the Term Loan Facility and ABL Line of Credit.

The Secured Notes will mature on April 15, 2025 unless earlier redeemed or repurchased.

On May 27, 2021, we announced a make-whole call for the full $300.0 million outstanding principal amount of the Secured Notes.

As a result of this action, we are expecting a pre-tax debt extinguishment charge of approximately $30 million in the three month period ended July 31, 2021.

On December 17, 2018, the Company entered into an interest rate swap contract, which was designated as a cash flow hedge.

This interest rate swap, which hedges $450 million of our Term Loan Facility, became effective May 31, 2019 and matures December 29, 2023.

On June 11, 2021, BCFWC redeemed the full $300.0 million aggregate principal amount of the Secured Notes.

The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption.

Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

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.

Refer to Note 5, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.

Certain Information Concerning Contractual Obligations

The Company had $1,576.6 million of purchase commitments related to goods that were not received as of May 1, 2021.

Additionally, the Company had $3,414.0 million of future minimum lease payments under operating leases as of May 1, 2021.

were no other significant changes regarding our obligations to make future payments under current contracts from those included in our Fiscal 2020 10-K.

We had $1,959.7 million of purchase commitments related to goods that were not received as of July 31, 2021, and had $3,407.0 million of future minimum lease payments under operating leases as of July 31, 2021.

Additionally, we redeemed the full $300.0 million aggregate principal amount of the Secured Notes, and we extended and repriced the Term Loan Facility during the second quarter of Fiscal 2021.

See Note 4, “Long Term Debt,” for additional information related to our debt transactions.

There were no other significant changes regarding our obligations to make future payments under current contracts from those included in our Fiscal 2020 10-K.

Critical Accounting Policies and Estimates

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

As of the end of the first quarter of Fiscal 2021, the impact of the COVID-19 pandemic continues to unfold.

As of the end of the second quarter of Fiscal 2021, 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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This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts.

For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act).

For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act).

Our forward-looking statements are subject to risks and uncertainties.

Such statements may include, but are not limited to, future impacts of the COVID-19 pandemic, proposed store openings and closings, proposed capital expenditures, projected financing requirements, proposed developmental projects, projected sales and earnings, our ability to maintain selling margins, and the effect of the adoption of recent accounting pronouncements on our consolidated financial position, results of operations and cash flows.

Such statements may include, but are

not limited to, future impacts of the COVID-19 pandemic, proposed store openings and closings, proposed capital expenditures, projected financing requirements, proposed developmental projects, projected sales and earnings, our ability to maintain selling margins, and the effect of the adoption of recent accounting pronouncements on our consolidated financial position, results of operations and cash flows.

Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors.

While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include:

While it is impossible to identify all such factors, factors that could cause actual events or results to differ materially from those we expected include:

general economic conditions;

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changing consumer preferences and demand;

industry trends, including changes in buying, inventory and other business practices;

industry trends, including changes in buying, invento ry and other business practices ;

competitive factors, including pricing and promotional activities of major competitors and an increase in competition within the markets in which we compete;

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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