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Item 7. Management’s Discussion and Analysis

2023-03-23 compared with 2022-03-23 · 260 added, 288 removed, 220 unchanged (71% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of

Management's Discussion and Analysis of Financial Condition and Results

of Operations:

Discussion and

13 unchanged sentences

for the fiscal year ended January 29, 2022.

COVID-19 Update

preparing to return

the Company’s

2021 sales remain

below pre-pandemic 2019

comparable period,

significant uncertainty

regarding the

lingering effects

transmissible or

severe, stagnant

vaccination rates

surges of the virus or otherwise impede progress toward the return to pre-pandemic

activities and levels of

continued effects of disruption in the global supply chain, inflation and its

impact on our cost of products,

transportation, wage

other operating

Recent Developments

Inflationary Cost Pressure and Rising Interest Rates

The current high

inflationary environment continues to

impact the Company

through higher operating

costs, including costs to ship our products to stores and customers, operating supplies, wages, and

consumables across

are increasingly

impacting our

customers’ disposable

uncertainties

others related to

the pandemic will continue

to impact the

Company in fiscal 2022.

The adverse financial

impacts associated with

these continued effects

uncertainties related to,

the COVID-19 pandemic

conditions relating

pandemic, whether

counts, state

orders, reductions in

store traffic and

customer demand, labor shortages,

these factors, (ii)

costs and other expenses.

uncertainties

developments,

uncertainties regarding the duration

and further spread of

the outbreak or its

variants, its severity,

taken to contain the

virus or treat its impact,

and how quickly and to

what extent pre-pandemic economic

and operating conditions can resume.

as our customers’ willingness to purchase discretionary items such as

apparel, jewelry or shoes.

committed to continue

raising interest rates

until the inflationary

pressures subside.

These rising interest

mortgages, which increasingly is

negatively impacting our customers’

discretionary income.

rising interest rates may negatively impact our customers’ willingness

to purchase our products.

increases and

rising interest

impact during

and will likely continue to have

a negative impact on consumer behavior

and, by extension, our results of

operations and financial condition during fiscal 2023.

Labor Challenges and Wage Inflation

resulting factors

created challenges

availability of sufficient labor from time to time, and have caused a significant increase in the competition

among consumer-facing companies.

This competition

significant increases

distribution center

corporate office.

throughout fiscal 2023.

Results of Operations

The table below sets forth certain financial data of the Company expressed as a percentage of retail

sales for the years indicated:

The table below sets forth certain financial data of the Company

expressed as a percentage of

retail sales for the years indicated:

Fiscal Year Ended

January 28, 2023

January 29, 2022

Retail sales …………………………………………………………..

5 unchanged sentences

Interest and other income ……………………………………………

Income (loss) before income taxes ……………………………

Net income (loss) ……………………………………………………

Income before income taxes …………………………………………

Net income …………………………………………………………..

Fiscal 2022 Compared to Fiscal 2021

Retail sales increased by 34.2% to $761.4 million in fiscal 2021 compared to $567.5 million in fiscal 2020.

The increase in retail sales in fiscal 2021 was primarily

due to a 34% increase in same-store sales

new stores, partially offset by permanently closed stores in 2020.

Same-store sales

2021 increased

primarily due

store operating

store closures

that persisted

March 19, 2020

into the second

quarter of 2020.

Same-store sales includes stores that have been

open more than

relocated or expanded

the same-store sales

e-commerce sales were

than 5% of total

sales and same-store sales.

The method of

calculating same-store sales varies across the retail

other companies.

revenues, comprised of retail sales and

other revenue (principally finance

customer accounts

receivable, gift

shipping charges

purchases and layaway

increased by 33.8%

to $769.3 million

in fiscal 2021

compared to $575.1

Company operated 1,311

stores at January

January 30, 2021.

In fiscal 2021, the Company opened 6 new stores

and closed 25 stores.

increase resulted

$752.4 million

2022 compared

primarily due

card breakage

income, e-commerce shipping

layaway charges, partially offset by a decrease in finance charges.

in same-store

partially offset by

stores opened

Same-store sales

decreased primarily

selling price

resulting from

merchandise due to supply chain disruptions in the first half of 2022.

Same-store sales includes stores that

been relocated

the same-store sales calculation after they have been open more than

In fiscal 2022 and fiscal

2021, e-commerce

and same-store sales,

respectively.

calculating same-store

retail industry.

same-store sales

revenues, comprised

of retail sales and other

revenue (principally

finance charges and

late fees on customer

accounts receivable,

breakage, shipping

e-commerce purchases

layaway fees),

In fiscal 2022, the Company opened 19 new stores and closed 50 stores.

million in fiscal 2021.

The decrease resulted primarily due to

decreases in gift card breakage income and

e-commerce shipping revenues,

partially offset by an increase in finance and layaway charges.

increase compared to fiscal 2021 credit

revenue of $2.1 million or 0.3% of

total revenue.

The increase in

credit revenue was

primarily due to

increases in finance

charges and late

fee income as

accounts receivable

Credit revenue

million decrease

receivable balances.

Credit revenue is comprised of interest earned on the Company’s private label

administrative expenses and

to Consolidated Financial

the Company’s

card portfolio

Related expenses

principally payroll,

administrative

Consolidated Financial

Statements for

of credit-related

segment income before

taxes decreased $0.6

million to $0.6

million in fiscal

2021 from $1.2

million in fiscal

credit segment

income before

2022 compared

million, or 59.5% of retail sales, in fiscal 2021.

The decrease in cost of goods sold as a percentage of sales

The increase in cost of goods sold as a

percentage of sales

resulted primarily

from the leveraging of occupancy, buying and distribution costs

due to more normalized

regular priced

distribution costs include payroll, payroll-related costs and operating expenses for the buying departments

expects markdown

sales increase

optimum selling

includes merchandise

and allowances,

buying costs,

distribution costs,

occupancy costs,

and inventory

payroll, payroll-related

operating expenses

buying departments

and distribution

(retail sales less cost

of goods sold and

excluding depreciation) increased by 129.5% to

$308.3 million in

fiscal 2021 from

sold and excluding depreciation)

decreased by 21.3% to $242.7

million in fiscal 2022

million in fiscal 2021.

Gross margin as presented may not be comparable

to that of other companies.

Selling, general

and administrative expenses

(“SG&A”), which

primarily include corporate

processing fees were

$242.6 million in

margin as presented

comparable to that

other companies.

administrative

fees were $267.0 million in

fiscal 2021 compared to $206.7

million in fiscal 2020, an

increase of 29.2%.

retail sales,

fiscal 2022 compared

to $267.0 million

in fiscal 2021,

retail sales, SG&A

SG&A expense was

primarily attributable to lower

employee benefit/bonus

expense and lower

insurance costs,

partially offset

resulting from

higher hourly

rates and increased

operating hours.

information technology expenditures.

2022 compared

attributable to higher employee benefit/bonus expense, store productivity initiatives

store operating expenses

store operating hours

have increased

substantially compared to

year’s phased

store reopening following the

extended store closure

partially offset by

impairments of

improvements and

technology expenditures.

Interest and other income decreased to $2.1

million in fiscal 2021 compared to

$6.6 million in fiscal 2020.

The decrease is primarily due to

a gain on the sale

of land held for investment in

2020 and lower interest rates

on our short-term investments, partially

offset by an increase in short-term investments.

from property

claims related

hurricanes in

increase in interest

income from short-term investments

due to rising

interest rates, partially

offset by lower short-term investments.

$1.7 million,

was primarily

uncertain tax positions due

to the expiration

of the statute

of limitations, a

favorable adjustment to

net operating loss carryback and a partial release

of valuation allowances against state net

operating losses.

effective tax rate

was 5.4% (Expense) in

fiscal 2021 compared to

34.8% (Benefit) in fiscal 2020.

to the Consolidated Financial Statements,

“Income Taxes,” for further details.

primarily due

pre-tax income

federal, state

tax benefits,

partially offset

Global Intangible Low-taxed Income (“GILTI”) and

non-deductible officer’s compensation.

The effective

was 98.4% (Expense)

2022 compared to

5.4% (Expense) in

the Consolidated Financial Statements, “Income Taxes,” for further details.

Off-Balance Sheet Arrangements

3 unchanged sentences

more fully described

the Consolidated Financial

Consolidated Financial

the Consolidated Financial

11 unchanged sentences

workers’ compensation,

auto insurance liabilities,

reserves relating to

self-insured health insurance,

and uncertain tax

positions, and valuation of deferred tax assets.

The Company’s critical accounting policies and estimates are discussed with the Audit Committee.

Allowance for Customer Credit Losses

Company evaluates

collectability of

customer accounts

receivable and

The Company evaluates

the collectability

accounts receivable

credit losses

25 unchanged sentences

The Company has operating

warehouse space

and equipment.

have remaining

which include

terminate the

considers these

determining the

year to 10 years, some of which

include options to extend the lease term for

up to five years, and some of

Company considers

establish its

right-of-use assets

lease agreements

do not contain any material residual value guarantees or material

lease agreements do not contain any material residual value guarantees or material

restrictive covenants.

3 unchanged sentences

Company invests

in leaseholds,

and equipment

connection with

equipment primarily

the opening and remodeling of stores

12 unchanged sentences

determination is based on a

number of factors, including the

store’s historical

operating results and future

number of factors, including the store’s

historical operating results and future

projected cash flows, which include contribution margin projections.

33 unchanged sentences

Uncertain Tax Positions

records liabilities

for uncertain

tax positions

primarily related

The Company records

liabilities for

uncertain tax

positions primarily

of the balance sheet

11 unchanged sentences

These differences may arise from settlements

of tax audits, expiration of the statute

limitations, or

the evolution

and application

various jurisdictional

and regulations.

of tax audits, expiration of the statute of

limitations, and the evolution and application of the

various jurisdictional tax codes and regulations.

differences will

1 unchanged sentence

on the results of operations in the period the adjustment is recorded.

Deferred Tax Valuation

assessment, the

determines if

allowance should

assets, a valuation allowance is recorded for the proportion of the deferred tax asset it determines may not

Liquidity, Capital Resources and Market Risk

3 unchanged sentences

investments, together

flows from operations,

will be adequate

Company’s regular

operating requirements including

flows from operations, will be

adequate to fund the Company’s

regular operating requirements, including

$71.9 million

2 unchanged sentences

$22.1 million

expenditures for

expenditures,

fiscal 2023 and for the foreseeable future.

$30.7 million used

$59.8 million provided

$30.7 million

2 unchanged sentences

compensation, impairment and

working capital.

$90.5 million for

compared to fiscal 2020 is

due to net operating

income versus

a net operating

store impairment

At January 29, 2022, the Company had

working capital of $111.5

changes in working

of $46.4 million

for fiscal 2022

is primarily due

operating income and

a decrease in

accounts payable

and accrued bonus and benefits, partially offset

by lower accounts receivable and merchandise

$74.7 million compared

to $108.6 million

and $163.5 million at January

30, 2021 and February 1,

respectively.

capital compared

to the prior year is primarily

due to higher short-term

cash equivalents,

partially offset by lower accounts payable

and accrued bonus and benefits.

At January 28,

2 unchanged sentences

agreement, which provided

borrowings of up to $35.0 million less

the balance of any revocable

letters of credit discussed below.

revolving credit

committed until

new revolving credit

agreement and expects this

to be completed

The credit agreement

contains various financial covenants and limitations, including the maintenance of specific financial ratios

outstanding under this credit

facility as of

the fiscal year ended

January 29, 2022

or the fiscal

borrowings of

$35.0 million less

any revocable

credit related

covenants and limitations, including the maintenance of specific financial

ratios with which the Company

was in compliance as of January 28, 2023.

There were no borrowings

outstanding under this credit facility

as of the fiscal year ended January 28, 2023 or the fiscal year ended

January 29, 2022.

January 29, 2022, January 30, 2021 and February 1, 2020.

Expenditures for property and equipment totaled $4.1 million, $14.0

million and $8.3 million in fiscal

January 28, 2023, January 29, 2022 and January 30, 2021.

2020, respectively.

and information

investing activities

totaled $25.3

$64.5 million

attributable to the

net purchases of

short-term investments, partially offset by lower

and equipment.

expenditures for

were primarily

for additional

investments in 19 new stores, distribution

center and information technology.

million used in

fiscal 2021 and

$64.5 million provided

In fiscal 2022,

expenditures for property and equipment.

Net cash used by financing activities totaled $29.3 million in fiscal 2022 compared to net cash used of

$27.2 million for fiscal 2020 and $41.6 million for fiscal 2019.

$31.8 million

$27.2 million

The decrease in cash used was

due to lower share repurchase amounts,

partially offset by higher dividend payments.

The Company does not use derivative financial instruments.

8 unchanged sentences

state, municipal

and corporate bonds

and asset-backed securities

have contractual

maturities which range from three

days to 4.9 years.

Treasury Notes have

and corporate

asset-backed securities have

maturities which

contractual maturities

These securities

securities are

classified as

available-for-sale and are

recorded as Short-term investments,

Restricted cash, Restricted

available-for-sale and

Short-term investments,

and Other assets on

Restricted cash,

Restricted short-term

investments and

the accompanying

Balance Sheets.

These assets are carried at fair value with unrealized

in Accumulated

other comprehensive

The asset-backed

bonds comprised of

credit cards that

loan asset-backed

are backed by static pools of auto loans that were originated

and serviced by captive auto finance

finance companies.

asset-backed securities are backed by

receivables generated by account holders

American Express, Citibank,

Consolidated Balance

with unrealized

and losses reported net of taxes in Accumulated other comprehensive income.

The asset-backed securities are

securities are

were originated

JPMorgan Chase, Capital One, and Discover.

Additionally,

2 unchanged sentences

At January 29, 2022, the Company had

category securities

and municipal

not be available

active exchanges

for identical

value is principally

market values

by management with assistance of a

third-party pricing service.

Since quoted prices in

active markets for

identical assets

are not available,

these prices are determined

by the pricing service

using observable

characteristics,

other factors.

investment securities include corporate and municipal bonds for which quoted prices may

not be available on

active exchanges for identical instruments.

Their fair value is principally based on market values determined

identical assets are

not available, these

prices are determined

by the pricing

service using observable

characteristics, among other factors.

compensation plan

1 unchanged sentence

Consolidated Balance Sheets.

These funds are

designed to mirror

the return of

existing mutual funds

funds are designed

to mirror the

return of existing

mutual funds and

money market funds that are observable and actively traded.

19 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis