What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-12-04 compared with 2020-09-04 · 93 added, 88 removed, 187 unchanged (49% of the section changed)

5 unchanged sentences

Fiscal 2019 was a 52-week period and ended on February 2, 2020.

The three and six months of fiscal 2020 and fiscal 2019 represent our 13 and 26-week periods ended August 2, 2020 and August 4, 2019, respectively.

The three and nine months of fiscal 2020 and fiscal 2019 represent our 13 and 39-week periods ended November 1, 2020 and November 3, 2019, respectively.

Unless the context indicates otherwise, the terms the “Company,” “Duluth,” “Duluth Trading,” “we,” “our,” or “us” are used to refer to Duluth Holdings Inc.

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For example, all statements we make relating to our estimated and projected earnings, revenue, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements.

All forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described under Part I, Item 1A “Risk Factors,” in our 2019 Form 10-K, Part II, Item 1A “Risk Factors” in our first quarter Form 10-Q and in this report on Form 10-Q and other SEC filings, which factors are incorporated by reference herein.

All forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described under Part I, Item 1A “Risk Factors,” in our 2019 Form 10-K, Part II, Item 1A “Risk Factors” in our first and second quarter Form 10-Q and other SEC filings, which factors are incorporated by reference herein.

These risks and uncertainties include, but are not limited to, the following:

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In 2010, we initiated our omnichannel platform with the opening of our first store.

Since then, we have expanded our retail presence, and as of August 2, 2020, we operated 59 retail store and three outlet stores.

Since then, we have expanded our retail presence, and as of November 1, 2020, we operated 62 retail stores and three outlet stores.

We offer a comprehensive line of innovative, durable and functional products, such as our Longtail T ® shirts, Buck Naked TM underwear, Fire Hose ® work pants, and No-Yank ® Tank, which reflect our position as the Modern, Self-Reliant American Lifestyle brand.

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A summary of our financial results is as follows:

 Net sales in fiscal 2020 second quarter increased by 12.6% over the prior year second quarter to $137.4 million, and net sales in the first six months of fiscal 2020 increased by 4.7% over the first six months of the prior year to $247.3 million;

 Net income of $5.9 million in fiscal 2020 second quarter compared to the prior year second quarter net income of $1.9 million and net loss in the first six months of fiscal 2020 of $9.2 million compared to the net loss in the first six months of fiscal 2019 of $5.6 million;

 Adjusted EBITDA increased by 75.3% to $16.8 million in fiscal 2020 second quarter compared to the prior year second quarter Adjusted EBITDA of $9.6 million and adjusted EBITDA in the first six months of fiscal 2020 increased by 9.6% over the first six months of the prior year to $5.2 million.

See “Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA” section for a reconciliation of our net income to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S.

 Net sales in fiscal 2020 third quarter increased by 13.2% over the prior year third quarter to $135.5 million, and net sales in the first nine months of fiscal 2020 increased by 7.5% over the first nine months of the prior year to $382.8 million;

 Net income of $0.9 million in fiscal 2020 third quarter compared to the prior year third quarter net income of $0.2 million and net loss in the first nine months of fiscal 2020 of $8.3 million compared to the net loss in the first nine months of fiscal 2019 of $5.5 million;

 Adjusted EBITDA increased by 57.4% to $11.4 million in fiscal 2020 third quarter compared to the prior year third quarter Adjusted EBITDA of $7.3 million and adjusted EBITDA in the first nine months of fiscal 2020 increased by 38.6% over the first nine months of the prior year to $16.6 million;

 We opened three new stores in fiscal 2020 third quarter, adding approximately 32,800 of gross square feet.

See “Reconciliation of Net Income (Loss) to EBITDA and EBITDA to Adjusted EBITDA” section for a reconciliation of our net income to EBITDA and EBITDA to Adjusted EBITDA, both of which are non-U.S.

GAAP financial measures.

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Net sales are historically higher in the fourth quarter of our fiscal year due to the holiday selling season.

With an emphasis on profitability we are pursuing several strategies to continue our growth, including building brand awareness to continue customer acquisition, continuing selective retail expansion, selectively broadening assortments in certain men’s product categories and growing our women’s business.

With an emphasis on profitable growth we are pursuing several strategies, including building brand awareness to continue customer acquisition, continuing selective retail expansion, selectively broadening assortments in certain men’s product categories and growing our women’s business.

We continue to grow our omnichannel distribution network which allows the consumer to interact with us through a consistent customer experience whether on the company website or at company stores.

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Therefore, as of February 3, 2020, we have updated our segment reporting to one reportable external segment, consistent with our omnichannel business approach.

Our management’s discussion and analysis includes market sales metrics for our retail stores, website and catalog sales.

Our management’s discussion and analysis includes market sales metrics for our stores, website and catalog sales.

Market areas are determined by a third-party that divides the United States and Puerto Rico into 280 unique geographical areas.

Our store market sales metrics include sales from our retail stores, website and catalog.

Our store market sales metrics include sales from our stores, website and catalog.

Our non-store market sales metrics include sales from our website and catalog.

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 Began a six-month pay reduction for senior leadership ranging from 10 to 20 percent;

 The Company’s Chief Executive Officer (“CEO”) agreed to temporarily forgo his base salary starting March 22, 2020 through the end of fiscal 2020;

 Reduced planned capital spend levels by 50% primarily by decreasing new store openings to four in fiscal 2020;

 Partnered with the American Red Cross to donate a portion of proceeds on key apparel items.

While the business environment and above actions have impacted our results for the first half of the fiscal year, our strong brand awareness and loyal customer base were evident by a continued surge in direct sales and improved profitability during the second fiscal quarter.

As of June 15, 2020, all of our 62 retail stores have re-opened in some capacity, but prolonged COVID-19 safety concerns are expected to keep store traffic at subdued levels through fiscal 2020.

In light of the Company’s better than expected year-to-date performance, the Board of Directors has decided to reinstate the Company’s CEO’s base salary effective October 19, 2020.

Senior leadership’s pay reduction will also expire as originally planned on October 19, 2020.

 The Company’s Chief Executive Officer (“CEO”) agreed to temporarily forgo his base salary;

 The Board of Directors agreed to forgo cash retainers for the second and third quarters;

 Reduced planned capital spend levels by approximately 40% primarily by decreasing new store openings to four in fiscal 2020;

 Partnered with the American Red Cross to donate a portion of sales on key apparel items.

While the business environment and above actions have impacted our results for the first three quarters of the fiscal year, our strong brand awareness and loyal customer base were evident by a continued surge in direct sales and improved profitability during the third fiscal quarter.

As of June 15, 2020, all of our retail stores have re-opened in some capacity, but prolonged COVID-19 safety concerns are expected to keep store traffic at subdued levels through fiscal 2020, particularly as we head into the peak holiday season.

The ultimate impact of COVID-19 on our operational and financial performance still depends on future developments outside of our control, including the duration and spread of the pandemic and related actions taken by federal, state and local government officials, and international governments to prevent disease spread.

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Net sales reflect our sale of merchandise plus shipping and handling revenue collected from our customers, less returns and discounts.

Direct-to-consumer sales are recognized upon shipment of the product and retail store sales are recognized at the point of sale.

Direct-to-consumer sales are recognized upon shipment of the product and store sales are recognized at the point of sale.

We also use net sales as one of the key financial metrics in determining our annual bonus compensation for our employees.

The shipping thresholds allocated to us by our primary delivery provider, United Parcel Service (“UPS”), may not be sufficient for anticipated sales volume in the third and fourth quarter, which may affect our sales.

We are considering adding additional shipping partners to mitigate these constraints on our shipping capacity.

The shipping thresholds allocated to us by our primary delivery provider have increased based on anticipated sales volume during the fourth quarter.

The Company has also added an additional shipping partner to mitigate any constraints on our shipping capacity.

Gross profit is equal to our net sales less cost of goods sold.

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While we expect these expenses to increase as we continue to open new stores, increase brand awareness and grow our organization to support our growing business, we believe these expenses will decrease as a percentage of sales over time.

Our shipping and handling expenses are also expected to increase in the third and fourth quarter, in part because of additional surcharges during our peak holiday shopping season due to the expected strained distribution network.

Management is considering adding additional shipping partners and working closely with UPS to mitigate the effect of these surcharges.

Our shipping and handling expenses increased during the third quarter and are expected to continue to increase during the fourth quarter, in part because of additional surcharges during our peak holiday shopping season due to the expected strained distribution network.

Adjusted EBITDA

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Three Months Ended

Six Months Ended

August 2, 2020

August 4, 2019

August 2, 2020

August 4, 2019

Nine Months Ended

November 1, 2020

November 3, 2019

November 1, 2020

November 3, 2019

(in thousands)

Cost of goods sold (excluding depreciation and amortization)

Cost of goods sold (excluding depreciation

‎ and amortization)

Selling, general and administrative expenses

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Interest expense

Other (loss) income, net

Other income (loss), net

Income (loss) before income taxes

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Percentage of Net sales:

Cost of goods sold (excluding depreciation and amortization)

Cost of goods sold (excluding depreciation

‎ and amortization)

Selling, general and administrative expenses

1 unchanged sentence

Interest expense

Other (loss) income, net

Other income (loss), net

Income (loss) before income taxes

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Net income (loss) attributable to controlling interest

Three Months Ended August 2, 2020 Compared to Three Months Ended August 4, 2019

Net sales increased $15.4 million, or 12.6%, to $137.4 million in the three months ended August 2, 2020 compared to $122.0 million in the three months ended August 4, 2019.

The increase was primarily due to an increase in non-store market sales slightly offset by a decrease in store market sales.

Non-store market sales increased $17.3 million, or 58.6%, to $46.8 million in the three months ended August 2, 2020 compared to $29.5 million in the three months ended August 4, 2019.

The increase was driven by an increase in digital advertising to promote our Mother’s Day, Father’s Day and online warehouse clearance events.

Store market sales decreased $1.6 million, or 1.8%, to $89.2 million in the three months ended August 2, 2020 compared to $90.9 million in the three months ended August 4, 2019.

The decrease was due to the temporary closure of stores that continued from the first fiscal quarter until they re-opened beginning in the first week of May through the third week of June, partially offset by an increase in existing customers shifting from buying in-store to buying online.

Gross profit increased $7.7 million, or 11.8%, to $72.5 million in the three months ended August 2, 2020 compared to $64.8 million in the three months ended August 4, 2019.

As a percentage of net sales, gross margin decreased to 52.8% of net sales in the three months ended August 2, 2020, compared to 53.1% of net sales in the three months ended August 4, 2019.

The decrease in gross margin rate was driven by promotional, clearance and sitewide sales events to continue moving inventory during the period of slower store traffic and uncertainty in customer demand.

The decrease was partially offset by reduced store

delivery costs from lower store sales volumes, lower product returns as well as favorable retail physical inventory count results during the three months ended August 2, 2020 as compared to the three months ended August 4, 2019.

Three Months Ended November 1, 2020 Compared to Three Months Ended November 3, 2019

Net sales increased $15.8 million, or 13.2%, to $135.5 million in the three months ended November 1, 2020 compared to $119.8 million in the three months ended November 3, 2019.

The increase was due to increases in both non-store and store market sales.

Non-store market sales increased $11.1 million, or 37.5%, to $40.6 million in the three months ended November 1, 2020 compared to $29.5 million in the three months ended November 3, 2019.

The increase was driven by new buyer growth and effective digital advertising to promote our Pink Buck Naked, Big Dam Birthday and global sales events.

Store market sales increased $5.0 million, or 5.6%, to $93.8 million in the three months ended November 1, 2020 compared to $88.8 million in the three months ended November 3, 2019.

The increase was driven by growth in online sales from both existing customers and new buyers, partially offset by a decline in in-store sales, caused by a decrease in store traffic due to continued COVID-19 safety concerns.

Gross profit increased $5.7 million, or 8.7%, to $71.0 million in the three months ended November 1, 2020 compared to $65.4 million in the three months ended November 3, 2019.

As a percentage of net sales, gross margin decreased to 52.4% of net sales in the three months ended November 1, 2020, compared to 54.6% of net sales in the three months ended November 3, 2019.

The decrease in gross margin rate was driven by promotional, clearance and sitewide sales events to continue moving inventory during the period of slower store traffic and drive top-line growth.

The decrease was partially offset by reduced store delivery costs from lower store sales volumes.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $1.6 million, or 2.6%, to $62.7 million in the three months ended August 2, 2020 compared to $61.1 million in the three months ended August 4, 2019.

Selling, general and administrative expenses as a percentage of net sales decreased to 45.6% in the three months ended August 2, 2020, compared to 50.1% in the three months ended August 4, 2019.

Selling, general and administrative expenses increased $4.2 million, or 6.5%, to $68.2 million in the three months ended November 1, 2020 compared to $64.0 million in the three months ended November 3, 2019.

Selling, general and administrative expenses as a percentage of net sales decreased to 50.3% in the three months ended November 1, 2020, compared to 53.5% in the three months ended November 3, 2019.

The positive leverage was primarily due to shifting to a more efficient digital marketing approach as customer purchasing patterns migrated to online.

The increase in selling, general and administrative expense was due to increased shipping costs to support website sales, higher retail overhead costs driven by new store growth and increased depreciation expense associated with investments in technology, partially offset by reduced catalog spend and national TV advertising.

Income Tax Expense

Income tax expense was $1.9 million in the three months ended August 2, 2020, compared to $0.7 million in the three months ended August 4, 2019.

Our effective tax rate related to controlling interest was 24% for the three months ended August 2, 2020 compared to 26% for the three months ended August 4, 2019.

Net income was $5.9 million, in the three months ended August 2, 2020 compared to net income of $1.9 million in the three months ended August 4, 2019, primarily due to the factors discussed above.

Six Months Ended August 2, 2020 Compared to Six Months Ended August 4, 2019

Net sales increased $11.1 million, or 4.7%, to $247.3 million in the six months ended August 2, 2020 compared to $236.2 million in the six months ended August 4, 2019.

The increase was primarily due to an increase in non-store market sales slightly offset by a decrease in store market sales.

Non-store market sales increased $25.9 million, or 41.7%, to $88.2 million in the six months ended August 2, 2020 compared to $62.3 million in the six months ended August 4, 2019.

The increase was also primarily driven by an increase in digital advertising to promote our Mother’s Day, Father’s Day, online warehouse clearance and global sales events, coupled with extended free shipping offers.

Store market sales decreased $14.2 million, or 8.3%, to $156.4 million in the six months ended August 2, 2020 compared to $170.6 million in the six months ended August 4, 2019.

The decrease was due to the temporary closure of all stores beginning on March 20, 2020 until they re-opened beginning in the first week of May through the third week of June, partially offset by an increase in existing customers shifting from buying in-store to buying online.

Gross profit decreased $0.9 million, or 0.7%, to $124.8 million in the six months ended August 2, 2020 compared to $125.7 million in the six months ended August 4, 2020.

As a percentage of net sales, gross margin decreased to 50.5% of net sales in the six months ended August 2, 2020, compared to 53.2% of net sales in the six months ended August 4, 2019.

Income Tax Expense (Benefit)

Income tax expense was $0.4 million in the three months ended November 1, 2020, compared to an income tax benefit of $0.2 million in the three months ended November 3, 2019.

Our effective tax rate related to controlling interest, which was 29% for the three months ended November 1, 2020 was impacted by changes to certain discrete items during the quarter.

Our effective tax rate related to controlling interest, which was not meaningful for the three months ended November 3, 2019, was impacted by discrete items related to stock compensation activity.

Net Income Attributable to Controlling Interest

Net income attributable to controlling interest was $0.9 million, in the three months ended November 1, 2020 compared to $0.2 million in the three months ended November 3, 2019, primarily due to the factors discussed above.

Nine Months Ended November 1, 2020 Compared to Nine Months Ended November 3, 2019

Net sales increased $26.8 million, or 7.5%, to $382.8 million in the nine months ended November 1, 2020 compared to $356.0 million in the nine months ended November 3, 2019.

The increase was primarily due to an increase in non-store market sales slightly offset by a decrease in store market sales driven by temporary store closures in the first and second quarters of fiscal 2020.

Non-store market sales increased $36.7 million, or 40.2%, to $128.1 million in the nine months ended November 1, 2020 compared to $91.3 million in the nine months ended November 3, 2019.

The increase was also primarily driven by effective digital advertising to promote our Mother’s Day, Father’s Day, Pink Buck Naked, Big Dam Birthday, online warehouse clearance and global sales events, coupled with extended free shipping offers.

Store market sales decreased $9.0 million, or 3.5%, to $250.9 million in the nine months ended November 1, 2020 compared to $259.9 million in the nine months ended November 3, 2019.

The decrease was due to the temporary closure of all stores beginning on March 20, 2020 until they re-opened beginning in the first week of May through the third week of June, partially offset by an increase in online sales from both existing customers and new buyers.

Gross profit increased $4.8 million, or 2.5%, to $195.8 million in the nine months ended November 1, 2020 compared to $191.1 million in the nine months ended November 3, 2019.

As a percentage of net sales, gross margin decreased to 51.2% of net sales in the nine months ended November 1, 2020, compared to 53.7% of net sales in the nine months ended November 3, 2019.

The decrease in gross margin rate was driven by promotional events, extending clearance events and sitewide sales events to continue moving inventory during the period of store closures and uncertainty in customer demand.

The decrease was partially offset by reduced store delivery costs from lower store sales volumes and lower product returns.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $1.9 million, or 1.4%, to $134.0 million in the six months ended August 2, 2020 compared to $132.1 million in the six months ended August 4, 2019.

Selling, general and administrative expenses as a percentage of net sales decreased to 54.2% in the six months ended August 2, 2020, compared to 55.9% in the six months ended August 4, 2019.

The drivers of the increase in selling, general and administrative expense were consistent with those for the three months ended August 2, 2020.

Selling, general and administrative expenses increased $6.0 million, or 3.1%, to $202.2 million in the nine months ended November 1, 2020 compared to $196.1 million in the nine months ended November 3, 2019.

Selling, general and administrative expenses as a percentage of net sales decreased to 52.8% in the nine months ended November 1, 2020, compared to 55.1% in the nine months ended November 3, 2019.

The drivers of the increase in selling, general and administrative expense were consistent with those for three months ended November 1, 2020.

Income Tax Benefit

Income tax benefit was $3.2 million in the six months ended August 2, 2020, compared to $2.0 million in the six months ended August 4, 2019.

Our effective tax rate related to controlling interest was 26% for both the six months ended August 2, 2020, and six months ended August 4, 2019, respectively.

Net loss was $9.2 million, in the six months ended August 2, 2020 compared to $5.6 million in the six months ended August 4, 2019, primarily due to the factors discussed above.

Income tax benefit was $2.8 million in the nine months ended November 1, 2020, compared to $2.2 million in the nine months ended November 3, 2019.

Our effective tax rate related to controlling interest was 26% for the nine months ended November 1, 2020, compared to 29% for the nine months ended November 3, 2019.

Net Loss Attributable to Controlling Interest

Net loss attributable to controlling interest was $8.3 million, in the nine months ended November 1, 2020 compared to $5.5 million in the nine months ended November 3, 2019, primarily due to the factors discussed above.

Reconciliation of Net Income (Loss) to EBITDA and EBITDA to Adjusted EBITDA

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Three Months Ended

Six Months Ended

August 2, 2020

August 4, 2019

August 2, 2020

August 4, 2019

Nine Months Ended

November 1, 2020

November 3, 2019

November 1, 2020

November 3, 2019

(in thousands)

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Adjusted EBITDA

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA increased $7.2 million, or 75.3%, to $16.8 million in the three months ended August 2, 2020 compared to $9.6 million in the three months ended August 4, 2019.

As a percentage of net sales, Adjusted EBITDA increased to 12.2% of net sales in the three months ended August 2, 2020 compared to 7.8% of net sales in the three months ended August 4, 2019.

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA increased $0.5 million, or 9.6%, to $5.2 million in the six months ended August 2, 2020 compared to $4.7 million in the six months ended August 4, 2019.

As a percentage of net sales, Adjusted EBITDA increased to 2.1% of net sales in the six months ended August 2, 2020 compared to 2.0% of net sales in the six months ended August 4, 2019.

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA increased $4.2 million, or 57.4%, to $11.4 million in the three months ended November 1, 2020 compared to $7.3 million in the three months ended November 3, 2019.

As a percentage of net sales, Adjusted EBITDA increased to 8.4% of net sales in the three months ended November 1, 2020 compared to 6.1% of net sales in the three months ended November 3, 2019.

As a result of the factors discussed above in the “Results of Operations” section, Adjusted EBITDA increased $4.6 million, or 38.6%, to $16.6 million in the nine months ended November 1, 2020 compared to $12.0 million in the nine months ended November 3, 2019.

As a percentage of net sales, Adjusted EBITDA increased to 4.3% of net sales in the nine months ended November 1, 2020 compared to 3.4% of net sales in the nine months ended November 3, 2019.

Liquidity and Capital Resources

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The most significant components of our working capital are cash, inventory, accounts payable and other current liabilities.

At August 2, 2020, our net working capital was $117.7 million, including $19.0 million of cash and cash equivalents.

We continue to expect to spend approximately $15.0 million in fiscal 2020 on capital expenditures, which is a 50% reduction from the beginning of the fiscal year plan.

At November 1, 2020, our net working capital was $136.6 million, including $12.8 million of cash and cash equivalents.

We expect to spend approximately $17.0 million in fiscal 2020 on capital expenditures, which is an approximately 40% reduction from the beginning of the fiscal year plan.

Capital expenditures includes a total of approximately $10.0 million for new retail store expansion and point of sale upgrades.

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A summary of operating, investing and financing activities is shown in the following table.

Six Months Ended

August 2, 2020

August 4, 2019

Nine Months Ended

November 1, 2020

November 3, 2019

(in thousands)

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Operating activities consist primarily of net income adjusted for non-cash items that include depreciation and amortization, stock-based compensation and the effect of changes in operating assets and liabilities.

While our cash flows from operations for the six months ended August 2, 2020 is negative, due in part to COVID-19 and in part to the seasonal nature of our business, we expect cash flows from operations for the full year fiscal 2020 to be positive based on operating performance and seasonal reductions in working capital during the fourth quarter of our fiscal year, which is consistent with previous full fiscal years.

For the six months ended August 2, 2020, net cash used in operating activities was $12.8 million, which consisted of net loss of $9.3 million and cash used in operating assets and liabilities of $21.3 million, partially offset by non-cash depreciation and amortization of $13.3 million, stock based compensation of $0.9 million and deferred income taxes of $3.3 million.

The cash used in operating assets and liabilities of $21.3 million primarily consisted of a $19.7 million increase in inventory, primarily due to building of inventory for our peak season, partially offset by a $2.6 million decrease in prepaid expenses and other current assets and a $3.4 million increase in trade accounts payable.

For the six months ended August 4, 2019, net cash used in operating activities was $8.0 million, which primarily consisted of net loss of $5.8 million and cash used in operating assets and liabilities of $12.0 million, partially offset by non-cash depreciation and amortization of $9.4 million and stock based compensation of $1.0 million.

The cash used in operating assets and liabilities of $12.0 million primarily consisted of a $17.2 million increase in inventory, primarily due to the increase in the number of retail stores and building of inventory for our peak season, a $10.8 million increase in trade accounts payable due to timing of payments, a $7.1 million decrease in accrued expenses and deferred rent obligations, and a $1.9 million decrease in deferred catalog costs due to a reduction in catalog circulation.

While our cash flows from operations for the nine months ended November 1, 2020 is negative, due in part to the seasonal nature of our business, it has improved as compared to the nine months ended November 3, 2019 by $19.0 million.

We expect cash flows from operations for the full year fiscal 2020 to be positive based on operating performance and seasonal reductions in working capital during the fourth quarter of our fiscal year, which is consistent with previous full fiscal years.

For the nine months ended November 1, 2020, net cash used in operating activities was $28.6 million, which consisted of net loss of $8.4 million and cash used in operating assets and liabilities of $46.5 million, partially offset by non-cash depreciation and amortization of $21.2 million, stock based compensation of $1.3 million and deferred income taxes of $3.5 million.

The cash used in operating assets and liabilities of $46.5 million primarily consisted of a $65.6 million increase in inventory in advance of our peak season, partially offset by a $21.4 million increase in trade accounts payable.

For the nine months ended November 3, 2019, net cash used in operating activities was $47.6 million, which primarily consisted of net loss of $5.7 million and cash used in operating assets and liabilities of $57.2 million, partially offset by non-cash depreciation and amortization of $15.9 million and stock based compensation of $0.3 million.

The cash used in operating assets and liabilities of $57.2 million primarily consisted of a $85.4 million increase in inventory, primarily due to building of inventory for our peak season and an increase in the number of retail stores, partially offset by a $29.9 million increase in trade accounts payable due to timing of payments.

Net Cash Used in Investing Activities

Investing activities consist primarily of capital expenditures for growth related to new store openings and information technology.

For the six months ended August 2, 2020, net cash used in investing activities was $9.1 million and was primarily driven by capital expenditures of $8.8 million for new retail stores, as well as investments in information technology.

For the six months ended August 4, 2019, net cash used in investing activities was $16.7 million and was primarily driven by capital expenditures of $13.8 million for new retail stores and retail store build-out, as well as investments in information technology, and $3.0 million of capital contributions towards our build-to-suit stores.

For the nine months ended November 1, 2020, net cash used in investing activities was $11.5 million and was primarily driven by capital expenditures of $11.1 million for new retail stores, as well as investments in information technology.

For the nine months ended November 3, 2019, net cash used in investing activities was $24.5 million and was primarily driven by capital expenditures of $20.9 million for new retail stores and retail store build-out, as well as investments in information technology, and $3.7 million of capital contributions towards our build-to-suit stores.

Net Cash Provided by Financing Activities

Financing activities consist primarily of borrowings and payments related to our revolving line of credit and other long-term debt, as well as payments on finance lease obligations.

For the six months ended August 2, 2020, net cash provided by financing activities was $38.9 million, primarily consisting of proceeds of $29.5 million, net from our term loan and proceeds of $10.7 million, net from our revolving line of credit to fund working capital.

For the six months ended August 4, 2019, net cash provided by financing activities was $27.8 million, primarily consisting of proceeds of $28.5 million, net from our revolving line of credit to fund working capital.

For the nine months ended November 1, 2020, net cash provided by financing activities was $50.7 million, primarily consisting of proceeds of $28.9 million, net from our term loan and proceeds of $23.7 million, net from our revolving line of credit to fund working capital.

For the nine months ended November 3, 2019, net cash provided by financing activities was $73.0 million, primarily consisting of proceeds of $53.9 million, net from our revolving line of credit and proceeds of $20.0 million from our term loan to fund working capital.

Line of Credit

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On April 30, 2020, the Credit Agreement was amended to include an incremental delayed draw term loan of $20.5 million that is available to draw upon before March 31, 2021, and matures on April 29, 2021, for a total credit facility of $150.5 million.

As of August 2, 2020 and for the six months then ended, the Company was in compliance with all financial and non-financial covenants for all debts discussed above and expects to be in compliance for the remainder of fiscal 2020.

As of November 1, 2020 and for the nine months then ended, the Company was in compliance with all financial and non-financial covenants for all debts discussed above and expects to be in compliance for the remainder of fiscal 2020.

Contractual Obligations

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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