Citi Trends Inc 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Citi Trends, Inc. ​ Index to Consolidated Financial Statements ​ ​ ​ ​ ​ Reports of Independent Registered Public Accounting Firms (Deloitte & Touche LLP - PCAOB ID: 34 ) (KPMG LLP - PCAOB ID: 185) ​ 31 ​ ​ ​ Consolidated Balance Sheets ​ 34 ​ ​ ​ Consolidated Statements of Operations ​ 35 ​ ​ ​ Consolidated Statements of Cash Flows ​ 36 ​ ​ ​ Consolidated Statements of Stockholders’ Equity ​ 37 ​ ​ ​ Notes to Consolidated Financial Statements ​ 38 ​ ​ ​ ​ 30 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Citi Trends, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Citi Trends, Inc. and subsidiary (the "Company") as of January 28, 2023 and January 29, 2022, the related consolidated statements of operations, cash flows, and stockholders’ equity, for each of the two years in the period ended January 28, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the two years in the period ended January 28, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 13, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Inventory – Retail Inventory Method – Refer to Note 2 to the financial statements Critical Audit Matter Description Inventory is stated at the lower of cost or net realizable value as determined by the retail inventory method for store inventory. Under the retail inventory method, the cost of inventory is determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory. Inherent in the retail inventory calculation are certain management judgments and estimates, including, among others, merchandise markdowns and shrinkage, which impact the ending inventory valuation at cost as well as resulting cost of sales. Merchandise markdowns are reflected in the inventory valuation when the price of an item is lowered in the stores. The Company estimates and records an allowance for shrinkage for the period between the last physical count and the balance sheet date. The estimate of shrinkage can be affected by changes in actual shrinkage trends. The balance of ending inventory was $105.8 million as of January 28, 2023. Given the valuation of inventory under the retail inventory method requires management to make significant judgments and estimates, performing audit procedures to evaluate the reasonableness of the judgments and estimates related to the timing of 31 Table of Contents markdowns and the allowance for shrinkage used in the valuation of inventory required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures to evaluate the reasonableness of the judgments and estimates related to the timing of markdowns and the allowance for shrinkage used in the valuation of inventory included the following, among others: ● We tested the effectiveness of controls over the measurement of inventory under the retail inventory method, including merchandise markdowns and allowance for shrinkage. ● We tested the timing of markdowns by: o Making a selection of markdowns recorded throughout the year and after year-end to test the accuracy and timeliness of the markdowns recorded. o Making a selection of purchases made throughout the year; determining if those purchases were subsequently marked down; and, if marked down, that the markdown was recorded timely. ● We evaluated the assumptions used by management to estimate the allowance for shrinkage by: o Attending a selection of store physical inventories and recalculating the shrinkage for locations using the results of the store physical inventory. o Comparing management’s prior-year assumptions of expected shrinkage activity to actual activity incurred during the current year to determine the appropriateness of the allowance for shrinkage. o Developing an expectation of shrinkage in ending inventory based on historical relationships between shrinkage and inventory balances on hand and compared to recorded shrinkage. o Comparing the Company’s historical and current year inventory shrinkage to industry reports. ​ /s/ Deloitte & Touche LLP Atlanta, Georgia April 13, 2023 We have served as the Company's auditor since 2021. ​ ​ 32 Table of Contents ​ Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Citi Trends, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of operations, stockholders’ equity and cash flows of Citi Trends, Inc. and subsidiary (the Company) for the year ended January 30, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended January 30, 2021, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ( PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ KPMG LLP We served as the Company’s auditor from 2002 to 2021. Jacksonville, Florida April 14, 2021 ​ ​ ​ 33 Table of Contents Citi Trends, Inc. Consolidated Balance Sheets (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ January 28, January 29, ​ 2023 2022 Assets ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 103,495 ​ $ 49,788 ​ Inventory ​ 105,794 ​ 123,835 ​ Prepaid and other current assets ​ 12,977 ​ 14,997 ​ Income tax receivable ​ 615 ​ 3,987 ​ Total current assets ​ 222,881 ​ 192,607 ​ Property and equipment, net of accumulated depreciation ​ 60,106 ​ 75,282 ​ Operating lease right of use assets ​ ​ 257,195 ​ ​ 201,827 ​ Deferred income taxes ​ 2,893 ​ 2,992 ​ Other assets ​ 1,183 ​ 1,317 ​ Total assets ​ $ 544,258 ​ $ 474,025 ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 80,670 ​ $ 98,879 ​ Operating lease liabilities ​ ​ 52,661 ​ ​ 47,803 ​ Accrued expenses ​ 16,055 ​ 14,532 ​ Accrued compensation ​ 10,823 ​ 25,896 ​ Layaway deposits ​ 344 ​ 364 ​ Total current liabilities ​ 160,553 ​ 187,474 ​ Noncurrent operating lease liabilities ​ 214,939 ​ 168,304 ​ Other long-term liabilities ​ 2,322 ​ 2,104 ​ Total liabilities ​ 377,814 ​ 357,882 ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ ​ Common stock, $ 0.01 par value. Authorized 32,000,000 shares; 16,158,494 shares issued as of January 28, 2023 and 16,090,365 shares issued as of January 29, 2022; 8,354,481 shares outstanding as of January 28, 2023 and 8,617,210 shares outstanding as of January 29, 2022 ​ 160 ​ 159 ​ Paid in capital ​ 102,445 ​ 101,037 ​ Retained earnings ​ 331,050 ​ 272,158 ​ Treasury stock, at cost; 7,804,013 shares held as of January 28, 2023 and 7,473,155 shares held as of January 29, 2022 ​ ( 267,211 ) ​ ( 257,211 ) ​ Total stockholders’ equity ​ 166,444 ​ 116,143 ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 7) ​ ​ ​ ​ ​ ​ ​ Total liabilities and stockholders’ equity ​ $ 544,258 ​ $ 474,025 ​ ​ See accompanying notes to consolidated financial statements . 34 Table of Contents Citi Trends, Inc. Consolidated Statements of Operations (in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2022 ​ 2021 ​ 2020 ​ Net sales ​ $ 795,011 ​ $ 991,595 ​ $ 783,294 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales (exclusive of depreciation shown separately below) ​ ( 484,022 ) ​ ( 584,063 ) ​ ( 471,618 ) ​ Selling, general and administrative expenses ​ ( 279,177 ) ​ ( 307,622 ) ​ ( 260,198 ) ​ Depreciation ​ ( 20,595 ) ​ ( 20,393 ) ​ ( 19,259 ) ​ Asset impairment ​ ​ — ​ — ​ ( 286 ) ​ Gain on sale-leasebacks ​ 64,088 ​ — ​ — ​ Income from operations ​ 75,305 ​ 79,517 ​ 31,933 ​ Interest income ​ 1,034 ​ 31 ​ 238 ​ Interest expense ​ ( 306 ) ​ ( 306 ) ​ ( 776 ) ​ Income before income taxes ​ 76,033 ​ 79,242 ​ 31,395 ​ Income tax expense ​ ( 17,141 ) ​ ( 17,002 ) ​ ( 7,417 ) ​ Net income ​ $ 58,892 ​ $ 62,240 ​ $ 23,978 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic net income per common share ​ $ 7.17 ​ $ 6.98 ​ $ 2.33 ​ Diluted net income per common share ​ $ 7.17 ​ $ 6.91 ​ $ 2.32 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of shares outstanding ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 8,216 ​ 8,912 ​ 10,283 ​ Diluted ​ 8,216 ​ 9,013 ​ 10,325 ​ ​ See accompanying notes to consolidated financial statements 35 Table of Contents Citi Trends, Inc. Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2022 2021 2020 ​ Operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 58,892 ​ $ 62,240 ​ $ 23,978 ​ Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation ​ 20,595 ​ 20,393 ​ 19,259 ​ Non-cash operating lease costs ​ ​ 51,310 ​ ​ 50,455 ​ ​ 48,242 ​ Asset impairment ​ — ​ — ​ 286 ​ Loss on disposal of property and equipment ​ 10 ​ 201 ​ 39 ​ Deferred income taxes ​ 99 ​ 3,203 ​ 474 ​ Insurance proceeds related to operating activities ​ 1,575 ​ 804 ​ 1,042 ​ Non-cash stock-based compensation expense ​ 3,635 ​ 4,776 ​ 2,912 ​ Gain on sale-leasebacks ​ ( 64,088 ) ​ — ​ — ​ Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Inventory ​ 16,826 ​ ( 20,381 ) ​ 33,564 ​ Prepaid and other current assets ​ 1,660 ​ 2,011 ​ ( 7,718 ) ​ Other assets ​ 134 ​ ( 278 ) ​ ( 14 ) ​ Accounts payable ​ ( 18,329 ) ​ 12,833 ​ 5,083 ​ Accrued expenses and other long-term liabilities ​ ( 54,844 ) ​ ( 53,187 ) ​ ( 38,346 ) ​ Accrued compensation ​ ( 15,073 ) ​ ( 5 ) ​ 16,302 ​ Income tax payable/receivable ​ 3,372 ​ ( 8,610 ) ​ 5,809 ​ Layaway deposits ​ ( 20 ) ​ ( 136 ) ​ ( 54 ) ​ Net cash provided by operating activities ​ 5,754 ​ 74,319 ​ 110,858 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales/redemptions of investment securities ​ — ​ 35,272 ​ 43,759 ​ Purchases of investment securities ​ — ​ ( 35,272 ) ​ ( 522 ) ​ Purchases of property and equipment ​ ( 22,287 ) ​ ( 29,707 ) ​ ( 16,956 ) ​ Insurance proceeds related to investing activities ​ ​ 1,370 ​ ​ 192 ​ ​ 416 ​ Proceeds from sale-leasebacks ​ 81,098 ​ — ​ — ​ Net cash provided by (used in) investing activities ​ 60,181 ​ ( 29,515 ) ​ 26,697 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Borrowings under revolving credit facility ​ ​ — ​ ​ — ​ ​ 43,700 ​ Repayments of revolving credit facility ​ ​ — ​ ​ — ​ ​ ( 43,700 ) ​ Payment of debt issuance costs ​ — ​ ( 270 ) ​ — ​ Cash used to settle withholding taxes on the vesting of nonvested restricted stock ​ ( 2,228 ) ​ ( 2,638 ) ​ ( 608 ) ​ Dividends paid to stockholders ​ ​ — ​ ​ — ​ ​ ( 832 ) ​ Repurchase of common stock ​ ​ ( 10,000 ) ​ ​ ( 115,285 ) ​ ​ ( 32,861 ) ​ Net cash used in financing activities ​ ( 12,228 ) ​ ( 118,193 ) ​ ( 34,301 ) ​ Net increase (decrease) in cash and cash equivalents ​ 53,707 ​ ( 73,389 ) ​ 103,254 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning of year ​ 49,788 ​ 123,177 ​ 19,923 ​ End of year ​ $ 103,495 ​ $ 49,788 ​ $ 123,177 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosures of cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 158 ​ $ 176 ​ $ 731 ​ Cash payments of income taxes ​ $ 13,842 ​ $ 22,409 ​ $ 1,134 ​ Supplemental disclosures of non-cash investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accrual for purchases of property and equipment ​ $ 1,522 ​ $ 2,847 ​ $ 1,392 ​ Conversion of nonvested cash-settled units to nonvested shares under incentive plan ​ $ — ​ $ 3,415 ​ $ — ​ See accompanying notes to consolidated financial statements. 36 Table of Contents Citi Trends, Inc. Consolidated Statements of Stockholders’ Equity (in thousands, except share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Paid in ​ Retained ​ Treasury Stock ​ ​ ​ ​ ​ ​ Shares ​ Amount ​ Capital ​ Earnings ​ Shares ​ Amount ​ Total Balances — February 1, 2020 15,907,666 ​ $ 157 ​ $ 93,180 ​ $ 186,772 5,073,532 ​ $ ( 109,065 ) ​ $ 171,044 ​ Vesting of nonvested shares ​ — ​ ​ 1 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1 ​ Issuance of nonvested shares 127,880 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ Forfeiture of nonvested shares ( 15,218 ) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ Stock-based compensation expense ​ — ​ ​ — ​ ​ 2,912 ​ ​ — ​ — ​ ​ — ​ ​ 2,912 ​ Net share settlement of nonvested shares ( 38,934 ) ​ ​ — ​ ​ ( 608 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 608 ) ​ Repurchase of common stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ 1,030,961 ​ ​ ( 32,861 ) ​ ​ ( 32,861 ) ​ Dividends paid to stockholders ( $ 0.08 per common share) ​ — ​ ​ — ​ ​ — ​ ​ ( 832 ) ​ — ​ ​ — ​ ​ ( 832 ) ​ Net income ​ — ​ ​ — ​ ​ — ​ ​ 23,978 ​ — ​ ​ — ​ ​ 23,978 ​ Balances — January 30, 2021 15,981,394 ​ $ 158 ​ $ 95,484 ​ $ 209,918 6,104,493 ​ $ ( 141,926 ) ​ $ 163,634 ​ Vesting of nonvested units ​ — ​ ​ 1 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1 ​ Conversion of nonvested cash-settled units to nonvested shares ​ 123,478 ​ ​ — ​ ​ 3,415 ​ ​ — ​ — ​ ​ — ​ ​ 3,415 ​ Issuance of nonvested shares 23,539 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ Forfeiture of nonvested shares ( 9,166 ) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ Stock-based compensation expense ​ — ​ ​ — ​ ​ 4,776 ​ ​ — ​ — ​ ​ — ​ ​ 4,776 ​ Net share settlement of nonvested shares ( 28,880 ) ​ ​ — ​ ​ ( 2,638 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 2,638 ) ​ Repurchase of common stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ 1,368,662 ​ ​ ( 115,285 ) ​ ​ ( 115,285 ) ​ Net income ​ — ​ ​ — ​ ​ — ​ ​ 62,240 ​ — ​ ​ — ​ ​ 62,240 ​ Balances — January 29, 2022 16,090,365 ​ $ 159 ​ $ 101,037 ​ $ 272,158 7,473,155 ​ $ ( 257,211 ) ​ $ 116,143 ​ Vesting of nonvested units ​ — ​ ​ 2 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 2 ​ Issuance of nonvested shares ​ 140,441 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ Issuance of common stock under incentive plan, net of shares withheld for taxes 15,977 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ Forfeiture of nonvested shares ( 42,782 ) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ Stock-based compensation expense ​ — ​ ​ — ​ ​ 3,635 ​ ​ — ​ — ​ ​ — ​ ​ 3,635 ​ Net share settlement of nonvested shares ( 45,507 ) ​ ​ ( 1 ) ​ ​ ( 2,227 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 2,228 ) ​ Repurchase of common stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ 330,858 ​ ​ ( 10,000 ) ​ ​ ( 10,000 ) ​ Net income ​ — ​ ​ — ​ ​ — ​ ​ 58,892 ​ — ​ ​ — ​ ​ 58,892 ​ Balances — January 28, 2023 16,158,494 ​ $ 160 ​ $ 102,445 ​ $ 331,050 7,804,013 ​ $ ( 267,211 ) ​ $ 166,444 ​ ​ ​ See accompanying notes to consolidated financial statements. ​ ​ 37 Table of Contents Citi Trends, Inc. Notes to Consolidated Financial Statements ​ 1. Organization and Business Citi Trends, Inc. and its subsidiary (the “Company”) is a leading specialty value retailer of apparel, accessories and home trends for way less spend primarily for African American and multicultural families in the United States. As of January 28, 2023, the Company operated 611 stores in urban, suburban and rural markets in 33 states. The COVID-19 pandemic and related government stimulus caused significant volatility and disruptions in our business during fiscal 2020 and 2021. Certain lingering economic effects of the pandemic, such as supply chain disruptions, continued to impact results in fiscal 2022. T he Company cannot reasonably predict the extent to which our future business will be impacted by the pandemic. ​ 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation. Fiscal Year The Company’s fiscal year ends on the Saturday closest to January 31 of each year. The years ended January 28, 2023, January 29, 2022 and January 30, 2021 are referred to as fiscal 2022, fiscal 2021 and fiscal 2020, respectively, in the accompanying consolidated financial statements. Fiscal 2022, 2021 and 2020 are all comprised of 52 weeks. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and apply judgments that affect the reported amounts. Actual results could differ from those estimates. The most significant estimates include those used in the valuation of inventory, property and equipment, self-insurance liabilities, leases and income taxes. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively. Cash and Cash Equivalents/Concentration of Credit Risk For purposes of the consolidated balance sheets and consolidated statements of cash flows, the Company considers all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents. Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents. The Company places its cash and cash equivalents in what it believes to be high credit quality banks and institutional money market funds. The Company maintains cash accounts that exceed federally insured limits. Inventory Inventory is stated at the lower of cost (first-in, first-out basis) or net realizable value as determined by the retail inventory method for store inventory and the average cost method for distribution center inventory. Under the retail inventory method, the cost of inventory is determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory. Merchandise markdowns are reflected in the inventory valuation when the retail price of an item is lowered in the stores. Inventory is recorded net of an allowance for shrinkage based on the most recent physical inventory counts and other assumptions for shrinkage activity. The allowance for inventory shrinkage was $ 5.8 million as of January 28, 2023 and $ 4.4 million as of January 29, 2022. Property and Equipment, net Property and equipment, net are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the lesser of the estimated useful lives (primarily three to five years for computer equipment and furniture, fixtures and equipment, seven years for major purchased software systems, ten years for leasehold improvements and fifteen to twenty years for buildings and building improvements) of the related assets or the relevant lease term. 38 Table of Contents Impairment of Long-Lived Assets If facts and circumstances indicate that a long-lived asset may be impaired, the carrying value is reviewed. If this review indicates that the carrying value of the asset will not be recovered as determined based on projected undiscounted cash flows related to the asset over its remaining life, the carrying value of the asset is reduced to its estimated fair value. There was no impairment expense in fiscal 2022 or 2021 and non-cash impairment expense of $ 0.3 million in fiscal 2020 related primarily to leasehold improvements and fixtures and equipment at underperforming stores. Insurance Liabilities The Company is largely self-insured for workers’ compensation costs, general liability claims and employee medical claims. The Company’s self-insured retention or deductible, as applicable, for each claim involving workers’ compensation and employee medical is limited to $ 250,000 and $ 100,000 , respectively. Self-insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims. Current and historical claims data, together with information from actuarial studies, are used in developing the estimates. The insurance liabilities that are recorded are primarily influenced by the frequency and severity of claims and the Company’s growth. If the underlying facts and circumstances related to the claims change, then the Company may be required to record more or less expense which could be material in relation to results of operations. Stock-Based Compensation The Company recognizes compensation expense associated with all nonvested restricted stock and performance-based restricted stock units based on the grant-date fair value of each award. The fair value of the awards is calculated based on the stock price on the grant date, incorporating an analysis of the performance measure where applicable. Compensation expense is recognized ratably over the requisite service period. See Note 6 for additional information on the Company’s stock-based compensation plans. Revenue Recognition The Company’s primary source of revenue is derived from the sale of clothing and accessories to its customers with the Company’s performance obligations satisfied at the point of sale when the customer pays for their purchase and receives the merchandise. Sales taxes collected by the Company from customers are excluded from revenue. Revenue from layaway sales is recognized at the point in time when the merchandise is paid for and control of the goods is transferred to the customer, thereby satisfying the Company’s performance obligation. The Company defers revenue from the sale of gift cards and recognizes the associated revenue upon the redemption of the cards by customers to purchase merchandise. Breakage on gift cards is minimal as the cards are generally subject to escheat regulations of the state in which the gift card subsidiary is located. Sales Returns The Company allows customers to return merchandise for up to thirty days after the date of sale. Expected refunds to customers are recorded based on estimated margin using historical return information. The refund liability for merchandise returns is recorded in accrued expenses on the consolidated balance sheet and totaled $ 0.3 million and $ 0.2 million as of January 28, 2023 and January 29, 2022. The corresponding asset for the recoverable cost of expected refunds is included in prepaid and other current assets and totaled $ 0.1 million as of both January 28, 2023 and January 29, 2022. Disaggregation of Revenue In the following table, the Company’s revenue is disaggregated by “Citi” or major product category. The following table provides the percentage of net sales for each Citi within the merchandise assortment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Citis 2022 2021 2020 Ladies ​ 26 % 26 % 26 % Kids ​ 23 % 22 % 23 % Accessories & Beauty ​ 18 % 18 % 16 % Mens ​ 17 % 18 % 18 % Home & Lifestyle ​ 8 % 9 % 9 % Footwear ​ 8 % 7 % 8 % ​ 39 Table of Contents Cost of Sales Cost of sales includes the cost of inventory sold during the period and transportation costs, including inbound freight related to inventory sold and freight from the distribution centers to the stores, net of discounts and allowances. Distribution center costs, store occupancy expenses and advertising expenses are not considered components of cost of sales and are included as part of selling, general and administrative expenses. Depreciation is also not considered a component of cost of sales and is included as a separate line item in the consolidated statements of operations. Distribution center costs (exclusive of depreciation) for fiscal 2022, 2021 and 2020 were $ 26.3 million, $ 24.9 million and $ 20.3 million, respectively. Earnings per Share Basic earnings per common share amounts are calculated using the weighted average number of common shares outstanding for the period. Diluted earnings per common share amounts are calculated using the weighted average number of common shares outstanding plus the additional dilution for all potentially dilutive securities, such as nonvested restricted stock. During loss periods, diluted loss per share amounts are based on the weighted average number of common shares outstanding because the inclusion of common stock equivalents would be antidilutive. The following table provides a reconciliation of the number of average common shares outstanding used to calculate basic earnings per share to the number of common shares and common stock equivalents outstanding used in calculating diluted earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2022 2021 2020 ​ Weighted average number of common shares outstanding 8,216,448 8,911,810 10,282,718 ​ Incremental shares from assumed vesting of nonvested restricted stock — 101,122 42,521 ​ Average number of common shares and common stock equivalents outstanding 8,216,448 9,012,932 10,325,239 ​ ​ The dilutive effect of stock-based compensation arrangements is accounted for using the treasury stock method. The Company includes as assumed proceeds the amount of compensation costs attributed to future services and not yet recognized. For fiscal 2022, 2021 and 2020, respectively, there were 218,000 , 47,000 and 131,000 shares of nonvested restricted stock excluded from the calculation of diluted earnings per share because of antidilution. Advertising The Company expenses advertising as incurred. Advertising expense for fiscal 2022, 2021 and 2020 was $ 0.8 million, $ 1.2 million and $ 1.6 million, respectively. Operating Leases The Company leases all of its retail store locations and certain office space and equipment. All leases are classified as operating leases. The Company records right-of-use assets and lease liabilities based on the present value of future minimum lease payments using an incremental borrowing rate. The incremental borrowing rate is determined based on rates and terms from the Company’s existing borrowing facility with adjustments to bridge for differences in collateral, terms and payments. Lease costs are recognized over the estimated term of the lease, which includes any reasonably certain lease periods associated with available renewal periods. Lease expense for fixed lease payments is recognized on a straight-line basis over the lease term. In addition, certain leases provide for contingent rents that are not measurable at inception. These contingent rents are primarily based on a percentage of net sales that are in excess of a predetermined level. These amounts are excluded from minimum rent and included in the determination of total rent expense when it is probable that the expense has been incurred and the amount can be reasonably estimated. If an operating lease asset is impaired, the remaining operating lease asset will be amortized on a straight-line basis over the remaining lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 40 Table of Contents Business Operating Segment The Company is a specialty value retailer of fashion apparel, accessories and home goods for the entire family. The retail operations represent a single operating segment based on the way the Company manages its business. Operating decisions and resource allocation decisions are made at the Company level in order to maintain a consistent retail store presentation. The Company’s retail stores sell similar products, use similar processes to sell those products, and sell their products to similar classes of customers. All sales and assets are located within the United States . ​ 3. Property and Equipment, net Property and equipment, net, consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ January 28, January 29, ​ ​ 2023 2022 Land ​ $ — ​ $ 479 ​ Buildings ​ 4,786 ​ ​ 32,378 ​ Leasehold improvements ​ 128,522 ​ ​ 117,604 ​ Furniture, fixtures and equipment ​ 137,464 ​ ​ 156,215 ​ Computer equipment ​ 50,457 ​ ​ 45,804 ​ Construction in progress ​ 1,402 ​ ​ 6,247 ​ ​ ​ 322,631 ​ ​ 358,727 ​ Accumulated depreciation ​ ( 262,525 ) ​ ​ ( 283,445 ) ​ ​ ​ $ 60,106 ​ $ 75,282 ​ ​ ​ ​ 4. Revolving Line of Credit On October 27, 2011, the Company entered into a five-year , $ 50 million credit facility with Bank of America. The facility was amended in August 2015 and May 2020 to extend the maturity dates. The facility was further amended on April 15, 2021 to modify terms and extend the maturity date to April 15, 2026. The amended facility provides a $ 75 million credit commitment and a $ 25 million uncommitted “accordion” feature that under certain circumstances could allow the Company to increase the size of the facility to $ 100 million. The facility is secured by the Company’s inventory, accounts receivable and related assets, but not its real estate, fixtures and equipment, and it contains one financial covenant, a fixed charge coverage ratio, which is applicable and tested only in certain circumstances. The facility has an unused commitment fee of 0.20 % and permits the payment of cash dividends subject to certain limitations. Borrowings under the credit facility bear interest (a) for Eurodollar Loans, at a rate equal to the Eurodollar Rate plus either 1.25 % , 1.50 % or 1.75 % , or (b) for Base Rate Loans, at a rate equal to the highest of (i) the prime rate, (ii) the Federal Funds Rate plus 0.5 % or (iii) the Eurodollar Rate plus 1.0 % , plus, in each case either 0.25 % , 0.50 % or 0.75 % , based in any such case on the average daily availability for borrowings under the facility. On March 20, 2020, in response to the COVID-19 pandemic, the Company borrowed $ 43.7 million on the credit facility to enhance its liquidity position. On September 11, 2020, the Company repaid the full amount outstanding under the credit facility. Such borrowings accrued interest ranging from 1.625 % to 3.5 % . As of January 28, 2023, the Company had no borrowings under the credit facility and $ 0.6 million of letters of credit outstanding. ​ 41 Table of Contents 5. Income Taxes Income tax expense consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2022 2021 2020 ​ Current: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ $ ( 12,616 ) ​ $ ( 11,326 ) ​ $ ( 5,538 ) ​ State ​ ( 4,426 ) ​ ( 2,473 ) ​ ( 1,405 ) ​ Total current ​ ( 17,042 ) ​ ( 13,799 ) ​ ( 6,943 ) ​ Deferred: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ ( 1,031 ) ​ ( 2,629 ) ​ ( 588 ) ​ State ​ 932 ​ ( 574 ) ​ 114 ​ Total deferred ​ ( 99 ) ​ ( 3,203 ) ​ ( 474 ) ​ Total income tax expense ​ $ ( 17,141 ) ​ $ ( 17,002 ) ​ $ ( 7,417 ) ​ ​ Income tax expense computed using the federal statutory rate is reconciled to the reported income tax expense as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2022 2021 2020 ​ Statutory rate applied to income before income taxes ​ $ ( 15,967 ) ​ $ ( 16,641 ) ​ $ ( 6,593 ) ​ State income taxes, net of federal benefit ​ ( 2,738 ) ​ ( 2,936 ) ​ ( 1,777 ) ​ State tax credits ​ ( 268 ) ​ 152 ​ 168 ​ State tax credits - valuation allowance (net of federal benefit) ​ 393 ​ 158 ​ — ​ General business credits ​ 1,871 ​ 1,433 ​ 878 ​ Nondeductible compensation ​ ​ ( 44 ) ​ ​ ( 455 ) ​ ​ — ​ Excess (deficit) tax benefits from stock-based compensation ​ ​ ( 507 ) ​ ​ 1,226 ​ ​ ( 58 ) ​ Other ​ 119 ​ 61 ​ ( 35 ) ​ Income tax expense ​ $ ( 17,141 ) ​ $ ( 17,002 ) ​ $ ( 7,417 ) ​ ​ Deferred tax assets and deferred tax liabilities consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ January 28, January 29, ​ 2023 2022 Deferred tax assets: ​ ​ ​ ​ ​ ​ ​ Inventory capitalization ​ $ 1,627 ​ $ 1,910 ​ Vacation liability ​ 911 ​ 781 ​ Operating lease liabilities ​ ​ 67,075 ​ ​ 55,088 ​ State tax credits ​ 2,765 ​ 3,033 ​ Stock compensation ​ 1,178 ​ 2,233 ​ Insurance liabilities ​ 972 ​ 778 ​ Research and development ​ ​ 811 ​ ​ — ​ Other ​ 605 ​ 620 ​ Subtotal deferred tax assets ​ 75,944 ​ 64,443 ​ Less: State tax credits valuation allowance - net ​ ( 1,163 ) ​ ( 1,556 ) ​ Total deferred tax assets ​ 74,781 ​ 62,887 ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred tax liabilities: ​ ​ ​ ​ ​ ​ ​ Right of use asset ​ ​ ( 65,130 ) ​ ​ ( 53,342 ) ​ Book and tax depreciation differences ​ ​ ( 5,798 ) ​ ​ ( 5,574 ) ​ Prepaid expenses ​ ( 960 ) ​ ( 979 ) ​ Total deferred tax liabilities ​ ( 71,888 ) ​ ( 59,895 ) ​ Net deferred tax asset ​ $ 2,893 ​ $ 2,992 ​ ​ 42 Table of Contents The Company files income tax returns in U.S. federal and state jurisdictions where it does business and is subject to examinations by the Internal Revenue Service (“IRS”) and other taxing authorities. With a few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years prior to fiscal 2018. The Company reviews and assesses uncertain tax positions, if any, with recognition and measurement of tax benefit based on a “more-likely-than-not” standard with respect to the ultimate outcome, regardless of whether this assessment is favorable or unfavorable. As of January 28, 2023, there were no material benefits taken on the Company’s income tax returns that do not qualify for financial statement recognition. If a tax position does not meet the minimum statutory threshold to avoid payment of penalties and interest, a company is required to recognize an expense for the amount of the interest and penalty in the period in which the company claims or expects to claim the position on its tax return. For financial statement purposes, companies are allowed to elect whether to classify such charges as either income tax expense or another expense classification. Should such expense be incurred in the future, the Company will classify such interest as a component of interest expense and penalties as a component of income tax expense. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible and income tax credits may be utilized, management believes it is more likely than not that the Company will realize the benefits of these deductible differences with the exception of certain tax credits available in one state. Beginning in 2011, the Company concluded that its ability to utilize a portion of such state’s tax credits was no longer more likely than not. Such recognition resulted in the establishment of a valuation allowance which necessitated a charge to income tax expense and a reduction in deferred tax assets. Subsequent to 2011, the Company has continued to earn such state credits and has further adjusted the related valuation allowance. At January 28, 2023, the valuation allowance, net of federal tax benefit, totaled $ 1.2 million. The effective income tax rate for fiscal 2022, 2021 and 2020 included the recognition of benefits arising from various federal and state tax credits. Under current IRS and state income tax regulations, these credits may be carried back for one year or carried forward for periods up to 20 years . The income tax benefit included $ 1.6 million, $ 1.6 million and $ 1.7 million related to such credits in each of fiscal 2022, 2021 and 2020, respectively . 6 . Stockholders’ Equity Repurchases of common stock The Company periodically repurchases shares of its common stock under board-authorized repurchase programs. Such repurchases may be made in the open market, through block trades or through other negotiated transactions. Share repurchases are as follows (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2022 2021 2020 Total number of shares purchased ​ ​ 331 ​ ​ 1,369 ​ ​ 1,031 Average price paid per share (including commissions) ​ $ 30.22 ​ $ 84.23 ​ $ 31.87 Total investment ​ $ 10,000 ​ $ 115,285 ​ $ 32,861 ​ At January 28, 2023, $ 50.0 million remained available under the Company’s previously announced stock repurchase authorization. ​ Stock-Based Compensation The Company maintains the Citi Trends, Inc. Incentive Plan (the “Plan”) which permits the grant of stock-based incentive awards to employees, officers, directors and consultants. The Plan provides for the grant of incentive and nonqualified options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other forms of stock-based and cash-based compensation. At January 28, 2023, the Company had 610,968 shares reserved for future grants under the Plan. During fiscal 2022, 2021 and 2020, non-cash stock-based compensation expense recorded in selling and general and administrative expenses totaled $ 3.6 million, $ 4.8 million and $ 2.9 million, respectively. The income tax expense (benefit) resulting from the fair market value of restricted stock at vesting versus the cumulative compensation cost of such stock is recorded as a component of income tax expense and was $ 0.5 million, ($ 1.2 ) million and $ 0.1 million, respectively. 43 Table of Contents The Company issues shares of restricted stock to key team members and non-employee directors. Restricted stock granted to employees vests in equal installments over three years from the date of grant. Restricted stock granted to non-employee directors vests one year from the date of grant. The Company also issues performance-based restricted stock units (“PSUs”) to key team members that cliff vest at the end of a three-year period based upon the Company’s achievement of pre-established goals. The number of units earned and vested is subject to scaling based on a pre-established performance matrix. Prior to fiscal 2021, the Company issued cash-settled restricted stock units (“CSUs”) to certain team members. In the fourth quarter of fiscal 2021, all outstanding CSUs were converted to time-based restricted stock, with vesting criteria based on the original vesting criteria for the CSUs. This conversion resulted in the reclassification of a $ 3.4 million liability from accrued compensation to equity . The following table summarizes activity related to nonvested restricted stock and PSUs during fiscal 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Time-Based Restricted Stock ​ Performance-Based Restricted Stock Units ​ ​ Weighted Average ​ ​ Weighted Average ​ ​ Nonvested ​ Grant Date ​ Nonvested ​ Grant Date ​ Shares Fair Value ​ Units Fair Value Outstanding as of January 29, 2022 226,491 ​ $ 61.91 ​ 114,805 ​ $ 28.15 Granted 140,368 ​ 31.36 ​ 58,327 ​ 32.18 Vested ( 131,048 ) ​ 58.58 ​ — ​ — Forfeited ( 40,302 ) ​ 56.05 ​ ( 100,542 ) ​ 18.62 Outstanding as of January 28, 2023 195,509 ​ $ 43.41 ​ 72,590 ​ $ 44.60 ​ At January 28, 2023, there was $ 5.7 million of unrecognized compensation expense related to restricted stock. Based on current probable performance, there was no unrecognized compensation expense related to PSUs . 7. Commitments and Contingencies The Company from time to time is involved in various legal proceedings incidental to the conduct of its business, including claims by customers, employees or former employees. Once it becomes probable that the Company will incur costs in connection with a legal proceeding and such costs can be reasonably estimated, it establishes appropriate reserves. While legal proceedings are subject to uncertainties and the outcome of any such matter is not predictable, the Company is not aware of any legal proceedings pending or threatened against it that it expects to have a material adverse effect on its financial condition, results of operations or liquidity. In January 2023, the Company experienced a disruption of our back office and distribution center IT systems, which was due to what is known as Hive ransomware. In connection with this incident, third party consultants and forensic experts were engaged to assist with the restoration and remediation of the Company’s systems and, with the assistance of law enforcement, to investigate the incident. The Company can confirm that sensitive customer data is not retained on its systems. The impact of this disruption was not material to the Company’s fourth quarter fiscal 2022 financial results and, while the Company’s investigation and remediation efforts remain ongoing, it is not expected to be material to the Company’s full year fiscal 2023 financial results. In fiscal 2022, cyber disruption related costs incurred totaled $ 0.1 million, primarily comprised of third-party consulting services and legal counsel. The Company has cyber insurance and is working diligently with its insurance carriers on claims to recover costs incurred. The Company anticipates that its financial costs related to the cyber disruption will ultimately be covered by insurance, subject to a retention. The Company expects to incur ongoing costs related to the cyber disruption, including costs to enhance data security, and plans to take further steps to prevent unauthorized access to, or manipulation of, its systems and data. The Company is unable to estimate the ultimate direct and indirect financial impacts of this cyber disruption. ​ 44 Table of Contents 8. Leases The Company leases its retail store locations and certain office space and equipment. Leases for store locations are typically for a term of five years with options to extend for one or more five-year periods. The Company analyzes all leases at inception to determine if a right-of-use asset and lease liability should be recognized. Leases with an initial term of 12 months or less and leases with mutual termination clauses are not included on the consolidated balance sheets. The lease liability is measured at the present value of future lease payments as of the lease commencement date. In April 2022, the Company completed a sale-leaseback of its distribution center in Darlington, South Carolina for net proceeds of approximately $ 45.5 million. The total annual rent for this property starts at approximately $ 3.2 million with increases of 2 % annually over the 20-year lease term. The net proceeds included $ 5.6 million of advance funding for a capital improvement project that will be amortized over the 20-year lease term. The lease contains the option to extend for six additional periods of five years each. The transaction met the requirements for sale-leaseback accounting, resulting in a gain of approximately $ 34.9 million on the condensed consolidated statements of operations. The related land and property were removed from property and equipment, and an operating lease right-of-use asset and lease liability of $ 42.6 million and $ 37.0 million, respectively, were recorded in the condensed consolidated balance sheets. In September 2022, the Company completed a sale-leaseback of its distribution center in Roland, Oklahoma for net proceeds of approximately $ 35.6 million. The total annual rent for this property starts at approximately $ 2.7 million with increases of 2 % annually over the 15-year lease term. The net proceeds included $ 0.6 million of advance funding for a capital improvement project that will be amortized over the 15-year lease term. The lease contains the option to extend for six additional periods of five years each. The transaction met the requirements for sale-leaseback accounting, resulting in a gain of approximately $ 29.2 million on the condensed consolidated statements of operations. The related land and property were removed from property and equipment, and an operating lease right-of-use asset and lease liability of $ 25.8 million each were recorded in the condensed consolidated balance sheets. Total lease cost is comprised of operating lease costs, short-term lease costs and variable lease costs, which include rent paid as a percentage of sales, common area maintenance, real estate taxes and insurance for the Company’s real estate leases. Lease costs consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2022 ​ 2021 ​ 2020 Operating lease cost ​ $ 60,167 ​ $ 52,737 ​ $ 50,446 Variable lease cost ​ 9,911 ​ 10,938 ​ 8,159 Short term lease cost ​ 1,395 ​ 1,091 ​ 1,459 Total lease cost ​ $ 71,473 ​ $ 64,766 ​ $ 60,064 ​ In response to the impact of the COVID-19 pandemic on the Company’s operations in fiscal 2020, the Company suspended certain lease payments under its existing lease agreements. During the suspension of payments, the Company continued to recognize expenses and liabilities for lease obligations and corresponding right-of-use assets on the balance sheet in accordance with the applicable accounting guidance. The Company negotiated contractual rent concessions on certain leases in the form of early renewals, rent deferrals and rent abatements. The Company elected to account for qualifying COVID-19 related rent concessions as if they were part of the enforceable rights and obligations under the existing lease agreements, as permitted by the updated guidance provided by the FASB in April 2020. As a result of this election, the Company recognized rent abatement credits of approximately $ 0.3 million and $ 0.7 million in fiscal 2022 and 2021, respectively. The balance of accrued lease liabilities related to these suspended payments was $ 0.2 million at January 28, 2023. 45 Table of Contents Future minimum lease payments as of January 28, 2023 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ Fiscal Year Lease Costs 2023 $ 63,866 ​ ​ 2024 ​ ​ 56,587 ​ ​ 2025 ​ 46,147 ​ ​ 2026 ​ 35,626 ​ ​ 2027 ​ 25,574 ​ ​ Thereafter ​ 119,343 ​ ​ Total future minimum lease payments ​ ​ 347,143 ​ ​ Less: imputed interest ​ ​ ( 79,543 ) (1) ​ Total present value of lease liabilities ​ $ 267,600 (2) ​ ​ (1) Calculated using the discount rate for each lease. (2) Includes short-term and long-term portions of operating leases. ​ Certain operating leases provide for fixed monthly rents, while others provide for contingent rents computed as a percentage of net sales and others provide for a combination of both fixed monthly rents and contingent rents computed as a percentage of net sales. Supplemental cash flow and other information related to operating leases are as follows (in thousands, except for weighted average amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year ​ ​ 2022 ​ 2021 ​ 2020 Cash paid for operating leases $ 56,053 ​ $ 56,932 ​ $ 47,075 Right of use assets obtained in exchange for new operating lease liabilities ​ $ 101,241 ​ $ 75,359 ​ $ 60,144 ​ ​ ​ ​ ​ ​ ​ Weighted average remaining lease term (years) - operating leases ​ 7.83 ​ 5.32 ​ 5.12 Weighted average discount rate - operating leases ​ ​ 4.49 % ​ ​ 2.86 % ​ ​ 3.11 % ​ ​ ​ ​ ​ ​ ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ​ 46 Table of Contents