What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-09-09 compared with 2026-06-10 · 81 added, 43 removed, 98 unchanged (56% of the section changed)

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delays and costs associated with building, opening or expanding new or existing distribution centers;

changes in regulator’s requirements or stakeholder’s expectations on environmental, social and sustainability related topics;

challenges effectively managing the use of artificial intelligence;

and strategic transactions that could negatively impact our liquidity, increase our expenses, or present significant distractions to management;

changes in regulatory requirements or stackholder’s expectations on environmental, social and sustainability related topics, challenges effectively managing the use of artificial intelligence;

strategic transactions that could negatively impact our liquidity, increase our expenses, or present significant distractions to management;

debt and equity market conditions, including the ability to access capital markets on favorable terms or at all;

and other factors described in the section titled “Item 1A.

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Executive Overview

We are the leading off-price value retailer of apparel, accessories and home trends primarily for Black families.

Our high-quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-conscious customers.

As of May 2, 2026, we operated 591 stores in urban, suburban and rural markets in 33 states.

We are a leading off-price value retailer of apparel, accessories and home trends primarily for Black families in the United States.

Our high quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-concious customers.

As of August 1, 2026, we operated 594 stores in urban, suburban and rural markets in 33 states.

Uncertainties and Challenges

General Economic Conditions

We are monitoring trends in general economic conditions, including on-going inflationary pressures, new and changing tariff programs and changes in consumer sentiment.

We continue to monitor the impacts on our business of unemployment levels, wage inflation, interest rates, inflation rates, housing costs, energy costs, gas prices, consumer confidence, consumer perception of economic conditions, costs to source our merchandise and supply chain disruptions.

We are monitoring trends in general economic conditions including inflation, tariffs and changes in consumer sentiment.

We also regularly monitor the impacts on our business of unemployment levels, wage inflation, interest rates, inflation rates, housing costs, energy costs, gas prices, consumer confidence, consumer perception of economic conditions, costs to source our merchandise and supply chain disruptions.

Seasonality and Weather Patterns

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In addition, sales of clothing are directly impacted by the timing of the seasons to which the clothing relates.

While we have expanded our product offerings to balance discretionary with non-discretionary products, traffic to our stores is still influenced by weather patterns to some extent.

While we have expanded our product offerings to balance discretionary with non-discretionary product, traffic to our stores is still influenced by weather patterns to some extent.

Basis of Presentation

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Depreciation is not considered a component of cost of sales and is included as a separate line item in the consolidated statements of operations.

Selling, general and administrative expenses are comprised of store costs, including payroll and occupancy costs, corporate and distribution center costs and marketing costs.

Selling, general and administrative expenses are comprised of store costs, including payroll and occupancy costs, corporate and distribution center costs, and advertising costs.

The following discussion contains references to fiscal years 2026 and 2025, which represent fiscal years ending or ended on January 30, 2027 and January 31, 2026, respectively.

Fiscal 2026 and fiscal 2025 have a 52-week accounting period.

Fiscal 2026 and fiscal 2025 both have 52-week accounting periods.

This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto contained in Part I, Item 1 of this Report.

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Finally, we monitor corporate and distribution center expenses against budgeted amounts.

Thirteen Weeks Ended May 2, 2026 and May 3, 2025

Net sales increased $29.2 million, or 14.4%, to $230.9 million in the first quarter of 2026 from $201.7 million in the first quarter of 2025.

The increase in sales was due to a 13.9% increase in comparable store sales, as well as an increase of $1.5 million from net store opening and closing activity.

Thirteen Weeks Ended August 1, 2026 and August 2, 2025

Net sales increased $20.9 million, or 10.9%, to $211.6 million in the second quarter of 2026 from $190.8 million in the second quarter of 2025.

Comparable store sales increased 10.5%, resulting in an increase of $19.8 million in sales.

Net store opening and closing activity resulted in a net increase of $1.0 million in sales.

Cost of Sales (exclusive of depreciation).

Cost of sales (exclusive of depreciation) increased $16.7 million, or 13.7%, to $138.6 million in the first quarter of 2026 from $121.9 million in the first quarter of 2025.

Cost of sales as a percentage of sales decreased to 60.0% in the first quarter of 2026 from 60.4% in the first quarter of 2025.

The change was due to lower shrink expense, partially offset by fuel surcharges in freight.

Cost of sales (exclusive of depreciation) increased $11.3 million, or 9.8%, to $125.7 million in the second quarter of 2026 from $114.5 million in the second quarter of 2025.

Cost of sales as a percentage of sales was 59.4% in the second quarter of 2026 and 60.0% in the second quarter of 2025.

The change was due to higher merchandise margin and lower shrink, partially offset by higher freight expense.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased $4.8 million, or 6.5%, to $79.7 million in the first quarter of 2026 from $74.9 million in the first quarter of 2025.

The increase was primarily due to an increase in store and corporate expenses and incentive compensation accrual, partially offset by lower distribution center expenses.

As a percentage of sales, selling, general and administrative expenses decreased to 34.5% in the first quarter of 2026 from 37.1% in the first quarter of 2025.

Selling, general and administrative expenses increased $3.4 million, or 4.3%, to $82.3 million in the second quarter of 2026 from $78.9 million in the second quarter of 2025.

The increase was primarily driven by certain store expenses to support additional sales.

As a percentage of sales, selling, general and administrative expenses decreased to 38.9% in the second quarter of 2026 from 41.4% in the second quarter of 2025, primarily driven by the aforementioned items.

Depreciation.

Depreciation expense increased $0.7 million, or 16.9%, to $5.1 million in the first quarter of 2026 from $4.4 million in the first quarter of 2025.

Income Tax Benefit/Expense.

There was $0.2 million income tax expense in the first quarter of 2026 and there was no income tax expense in the first quarter of 2025.

We used the annual effective tax rate to determine income tax expense based upon interim period results.

Net income was $7.8 million in the first quarter of 2026 compared to net income of $0.9 million in the first quarter of 2025 due to the factors discussed above.

Depreciation expense increased $1.0 million, or 19.7%, to $5.4 million in the second quarter of 2026 from $4.5 million in the second quarter of 2025.

There were no non-cash impairment expenses related to underperforming stores in the second quarter of 2026 compared to $0.2 million in the second quarter of 2025, comprised of leasehold improvements and fixtures and equipment.

Gain on Sale of Building.

Gain on sale of the corporate office building was $11.0 million in the second quarter of 2025.

Income Tax Benefit.

Income tax benefit of $.3 million was recognized in the second quarter of 2026.

No income tax benefit was recognized in the second quarter of 2025.

We used the annual effective tax rate to determine income tax benefit based upon interim period results.

Net Income (Loss).

Net loss was $0.9 million in the second quarter of 2026 compared to net income of $3.8 million in the second quarter of 2025 due to the factors discussed above.

Twenty-Six Weeks Ended August 1, 2026 and August 2, 2025

Net sales increased $50.0 million, or 12.7%, to $442.5 million in the first twenty-six weeks of 2026 from $392.5 million in the same period of 2025.

Comparable store sales increased 12.2%, resulting in an increase of $47.5 million in sales.

Net store opening and closing activity resulted in a net increase of $2.5 million in sales.

Cost of Sales (exclusive of depreciation).

Cost of sales (exclusive of depreciation) increased $28.0 million, or 11.8%, to $264.4 million in the first twenty-six weeks of 2026 from $236.4 million in the same period of 2025.

Cost of sales as a percentage of sales decreased to 59.7% in the first twenty-six weeks of 2026 from 60.2% in the same period of 2025.

The change was due to higher merchandise margin and lower shrink, partially offset by higher freight expense.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased $8.2 million, or 5.4%, to $162.0 million in the first twenty-six weeks of 2026 from $153.8 million in the same period of 2025.

The increase was primarily driven by certain store expense to support additional sales.

As a percentage of sales, Selling, general and administrative expenses decreased to 36.6% in the first twenty-six weeks of 2026 from 39.2% in the same period of 2025, due to the aforementioned items.

Depreciation.

Depreciation expense increased $1.7 million, or 18.3%, to $10.6 million in the first twenty-six weeks of 2026 from $8.9 million in the same period of 2025 primarily due to increase in property and equipment.

There were no non-cash impairment expenses related to underperforming stores in the first twenty-six weeks of 2026 compared to $0.3 million in the first twenty-six weeks of 2025, comprised of leasehold improvements and fixtures and equipment.

Gain on Sale of Building.

Gain on sale of the corporate office building was $11.0 million in the second quarter of 2025.

Income Tax Benefit.

Income tax benefit of $.14 million was recognized in the first twenty-six weeks of 2026.

No income tax benefit was recognized in the first twenty-six weeks of 2025.

We used the annual effective tax rate to determine income tax benefit based upon interim period results.

Net Income (Loss).

Net income was $6.8 million in the first twenty-six weeks of 2026 compared to net income of $4.7 million in the same period of 2025 due to the factors discussed above.

Liquidity and Capital Resources

Capital Allocation

Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations, then to return excess cash to shareholders through our share repurchase programs.

Our quarter-end cash and cash equivalents balance was $81.1 million compared to $41.6 million at the end of the first quarter of 2025.

Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations.

Our existing share repurchase authorization also remains in place with $40 million of authorization outstanding.

We will deploy or return capital based on the opportunities available to us, market conditions, and ultimately, where we believe we can generate the greatest long term value for our shareholders.

Our quarter-end cash and cash equivalents balance was $55.9 million compared to $50.4 million at the end of the second quarter last year.

Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.

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and (iv) a revolving credit facility with a $75 million credit commitment.

Our quarter-end inventory balance was $115.2 million, compared with $109.9 million at the end of the first quarter of 2025.

The increase was primarily related to increased sales volume.

On August 25, 2026, the Company filed a registration statement on Form S-3 relating to the potential offer and sale from time to time of up to $100 million of its common stock.

Once effective, the registration statement will provide the Company with additional flexibility to access the capital markets and support potential future capital needs.

The Company currently has no definitive plans to issue securities under the registration statement, and no securities have been issued thereunder as of the date of this report.

Our quarter-end inventory balance was $126.4 million, a 7.5% increase compared to $117.6 million at the end of the second quarter last year.

The increase was primarily driven by inventory investments to support strong customer demand.

Capital Expenditures

Capital expenditures in the first quarter of 2026 were $5.8 million, an increase of $3.7 million from the first quarter of 2025, as we invested in more existing store remodels.

We anticipate capital expenditures in fiscal 2026 in the range of $35 million to $40 million, primarily for opening approximately 25 new stores and remodeling approximately 50 stores.

Capital expenditures in the first twenty-six weeks of 2026 were $15.6 million, an increase of $7.9 million over the first t wenty-six weeks of 2025, as we increased our investments in new stores and remodels.

We anticipate capital expenditures in fiscal 2026 to be in the range of $35 million to $40 million, primarily for new stores and remodeling of existing stores.

Share Repurchases

No shares were repurchased in the first quarter of fiscal 2026.

In the first quarter of fiscal 2025, we returned $6.3 million to shareholders through share repurchases.

No shares were repurchased in the first tweny-six weeks of fiscal 2026.

In the first twenty-six weeks of fiscal 2025, we returned $6.3 million to stockholders through share repurchases.

See Part II, Item 2 of this Report and Note 8 to the Financial Statements for more information.

Revolving Credit Facility

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Additional details of the credit facility are in Note 4 to the Financial Statements .

At the end of the first quarter of 2026, we had no borrowings under the credit facility and $2.2 million in letters of credit outstanding.

At the end of the second quarter of 2026, we had no borrowings under the credit facility and $2.2 million in letters of credit outstanding.

Cash Flows From Operating Activities .

Net cash provided by operating activities was $20.9 million in the first quarter of 2026 compared to cash used of $11.0 million in the first quarter of 2025.

Sources of cash in the first quarter of 2026 resulted from net income adjusted for non-cash expenses totaling $26.3 million (compared to a net income adjusted for non-cash items of $18.5 million in the first quarter of 2025), and an increase of $12.6 million in accounts payable (compared to a decrease of $21.9 million in the first quarter of 2025).

Significant uses of cash during the first quarter of 2026 included (1) a decrease of $11.3 million in accrued expenses and other long-term liabilities (compared to a decrease of $19.4 million in the first quarter of 2025) and (2) an increase of $3.8 million in prepaid and other current assets (compared to an increase of $3.5 million in the first quarter of 2025).

Net cash provided by operating activities was $6.7 million in the first twenty-six weeks of 2026 compared to net cash used in operating activities of $7.1 million in the same period of 2025.

Significant sources of cash for the first twenty-six weeks of 2026 included net income adjusted for non-cash items totaling $45.0 million compared to net income adjusted for non-cash items of $29.9 million in the first twenty-six weeks of 2025.

Significant uses of cash from operating activities in the first twenty-six weeks of 2026 included (1) a $21.8 million decrease in accrued expenses and other long-term liabilities (compared to a $29.6 million decrease in the first twenty-six weeks of 2025) due primarily to payments of operating lease liabilities;

(2) a $7.9 million increase in prepaid and other current assets compared to a $9.4 million dollar increase in the first twenty-six weeks of 2025;

(3) a $12.9 million increase in inventory in the first twenty-six weeks of 2026 compared to a $5.1 million decrease in inventory for the same period in 2025 and (4) a $2.8 million decrease in accrued compensation in the first twenty-six weeks of 2026 compared to a $2.0 increase in the same period last year.

Cash Flows From Investing Activities.

Cash used in investing activities was $5.8 million in the first quarter of 2026 compared to $2.1 million in the first quarter of 2025.

Cash used in the first quarter of 2026 and 2025 consisted of purchases of property and equipment.

Cash used in investing activities was $15.6 million in the first twenty-six weeks of 2026 compared to $3.5 million provided in the same period last year.

Cash used of $15.6 million in the first twenty-six weeks of fiscal 2026 consisted of purchases of property and equipment.

The cash provided of $3.5 million in the first twenty-six weeks of 2025 was from the sale of a building for $11.2 million, offset by $7.7 million used for the purchases of property and equipment.

Cash Flows From Financing Activities.

Cash used in financing activities was $0.0 million in the first quarter of 2026 compared to $6.4 million in the first quarter of 2025.

Cash used in first quarter of 2025 included $6.3 million for share repurchases and $0.1 million to settle withholding taxes on the vesting of restricted stock.

Cash used in financing activities was $1.3 million in the first twenty-six weeks of 2026 compared to $7.1 million in the same period last year.

Cash used in the first twenty-six weeks of fiscal 2026 was $1.3 million to settle withholding taxes on the vesting of restricted stock, compared to $0.8 million used to settle withholding taxes on the vesting of restricted stock and $6.3 million for share repurchases in the first twenty-six weeks of fiscal 2025.

Cash Requirements and Commitments

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Historically, we have met these cash requirements using cash flow from operations and short-term trade credit.

As of May 2, 2026, our contractual commitments for operating leases totaled $226.5 million (with $64.3 million due within 12 months).

As of August 1, 2026, our contractual commitments for operating leases totaled $224.8 million (with $64.9 million due within 12 months).

See Note 11 to the Financial Statements for more information regarding lease commitments.

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Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risk during the thirteen weeks ended May 2, 2026 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2026.

There have been no material changes in our market risk during the twenty-six weeks ended August 1, 2026 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2026 .

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