What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-25 compared with 2021-03-26 · 60 added, 108 removed, 200 unchanged (46% of the section changed)

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Fiscal year 2021 and 2020 were 52-week periods.

For a discussion of fiscal 2019 results compared to fiscal 2018, refer to the Company’s Annual Report on Form 10-K for the year ended February 2, 2020.

For a discussion of fiscal 2020 results compared to fiscal 2019, refer to the Company’s Annual Report on Form 10-K for the year ended January 31, 2021.

We are a lifestyle brand of men’s and women’s casual wear, workwear and accessories sold primarily through our own omnichannel platform.

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 Net sales in fiscal 2021 increased by 9.4% over the prior year to $698.6 million;

 Net income in fiscal 2020 decreased compared to the prior year to $13.4 million;

 Net income in fiscal 2021 increased 118.8% compared to the prior year to $29.7 million;

 Adjusted EBITDA in fiscal 2021 increased 41.6% over the prior year to $77.4 million;

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See also the information under the heading “Free Cash Flow” in the section “How We Assess the Performance of Our Business” for our definition of Free Cash Flow.

With an emphasis on profitable growth we are pursuing several strategies, including building brand awareness to continue customer acquisition, continuing selective retail expansion, strengthening the core Men’s Duluth sub-brand and growing our Women’s Duluth sub-brand.

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.

As we expand our distribution network, and in conjunction with assessing the similar nature of products sold, production process, distribution process, target customers and economic characteristics between our sales channels, we have determined that the historical structure of separate reporting segments for direct and retail was no longer representative of the way in which we manage our business.

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 stores, website and catalog sales.

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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.

In March 2020, a novel strain of coronavirus (“COVID-19”) was declared a global pandemic by the World Health Organization.

This pandemic has negatively affected the U.S.

and global economies, disrupted global supply chains and financial markets, and led to significant travel and transportation restrictions, including mandatory business closures and orders to shelter in place.

The Company has focused on protecting the health and safety of our employees, customers and suppliers, working with our customers, landlords, suppliers and vendors to minimize potential disruptions and supporting our community, while managing our business in these unprecedented times.

The Company took the following significant actions during the first fiscal quarter as a response to the pandemic:

 Beginning March 20, 2020 temporarily closed all stores for a period of seven weeks;

 Made operational changes to accommodate social distancing within our distribution centers;

 Made work from home accommodations for corporate employees;

 Amended our Credit Agreement to include an incremental delayed draw term loan of $20.5 million and amended the loan covenants to provide greater flexibility during peak borrowing periods in fiscal 2020;

 Partnered with landlords, suppliers and vendors to materially reduce costs, extend payment terms and cancel merchandise receipts;

 Initiated furloughs of varying lengths with benefits intact for 68% of salaried staff;

 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;

 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 fiscal year, our strong brand awareness and loyal customer base were evident by a continued surge in direct sales through the fourth fiscal quarter.

As of June 15, 2020, all of our retail stores were re-opened in some capacity, but prolonged COVID-19 safety concerns did impact store traffic levels throughout the year, including during our peak selling 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, and the availability, safety and efficiency of a vaccine.

Our non-store market sales metrics include sales from our website, catalog and orders placed through the call center.

Throughout fiscal 2021, the COVID-19 pandemic impacted our business results and operations.

The disruption in the global supply chain due to transportation delays, container shortages and port congestion interrupted the flow of our inventory and added incremental expedited shipping costs.

Despite these disruptions caused by the pandemic, we achieved record revenues for fiscal 2021, which increased 9.4% to $698.6 million, compared to fiscal 2020, with gross margin expansion creating net income of $29.7 million, a 118.8% increase over fiscal 2020.

Our direct business coupled with retail reemerging in fiscal 2021 fueled our growth through the year as we continued to navigate the pandemic.

Given the uncertainty, we cannot reasonably estimate store traffic patterns and the prolonged impact on overall consumer demand.

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Direct-to-consumer sales are recognized upon shipment to a customer, while store sales are recognized at the point of sale.

Although we did not do so in fiscal 2020, we also have historically used net sales as one of the key financial metrics in determining our annual bonus compensation for our employees.

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

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We expect gross profit to increase to the extent that we successfully grow our net sales.

Given the size of our sales through our direct-to-consumer sales channel relative to our total net sales, shipping and handling revenue has had a significant impact on our gross profit and gross profit margin.

Historically, this revenue has partially offset shipping and handling expense included in selling, general and administrative expenses.

We have experienced declines in shipping and handling revenues, and this trend is expected to continue.

Declines in shipping and handling revenues may have a material adverse effect on our gross profit and gross profit margin, as well as Adjusted EBITDA to the extent there are not commensurate declines, or if there are increases, in our shipping and handling expense.

Shipping and handling revenue is also reflected in our gross profit and gross profit margin.

Our gross profit may not be comparable to other retailers, as we do not include distribution network and store occupancy expenses in calculating gross profit, but instead we include them in selling, general and administrative expenses.

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Our historical sales growth has been accompanied by increased selling, general and administrative expenses.

The most significant components of these increases are advertising, marketing, rent/occupancy and payroll costs.

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 increased during the second half of the year because of additional surcharges due to the strained distribution network.

The most significant components of these increases are advertising, rent/occupancy and payroll costs.

While we expect these expenses to increase as we continue to increase brand awareness and invest in infrastructure to support our growing business, we believe these expenses will decrease as a percentage of sales over time.

Our shipping and handling expenses increased during the second half of the year because of additional surcharges due to the strained distribution network during our peak selling season.

Adjusted EBITDA

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January 30, 2022

February 2, 2020

January 31, 2021

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Net sales increased $59.8 million, or 9.4%, to $698.6 million in fiscal 2021 compared to $638.8 million in fiscal 2020.

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

Net sales in non-store markets increased $46.0 million, or 27.5%, to $213.1 million in fiscal 2020 compared to $167.1 million in fiscal 2019.

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

Store market sales decreased $20.0 million, or 4.6%, to $419.1 million in fiscal 2020 compared to $439.1 million in fiscal 2019.

The decrease was driven by a decline of in-store market sales due to the temporary closure of all stores beginning on March 20, 2020 until they re-opened beginning the first week of May through the third week of June, as well as slower store traffic throughout the year due to the pandemic, partially offset by growth in online sales from both existing customers and new buyers.

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

Store market net sales increased $67.1 million, or 16.0%, to $486.2 million in fiscal 2021 compared to $419.1 million in fiscal 2020.

The year-over-year sales difference was primarily driven by temporary store closures beginning on March 20, 2020 until they re-opened beginning in the first week of May through the third week of June, coupled with higher conversion as compared to the prior year.

Net sales in non-store markets decreased $8.2 million, or 3.8%, to $206.2 million in fiscal 2021 compared to $214.4 million in fiscal 2020.

The decrease was driven by extended free shipping and higher promotions in the prior year.

Gross profit increased $45.8 million, or 13.8%, to $377.3 million in fiscal 2021 compared to $331.5 million in fiscal 2020.

As a percentage of net sales, gross margin decreased to 51.9% of net sales in fiscal 2020 compared to 53.3% of net sales in fiscal 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.

As a percentage of net sales, gross margin increased to 54.0% of net sales in fiscal 2021 compared to 51.9% of net sales in fiscal 2020.

The increase in gross margin rate was driven by a higher mix of full price sales due to lower clearance inventory and fewer promotional events, as well as improved gross margin rates on both full price and clearance items.

The year-over-year increase was partially offset by expenses associated with increased expedited freight costs in order to combat disruptions within the supply chain.

Selling, General and Administrative Expenses

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Selling, general and administrative expenses as a percentage of net sales decreased in fiscal 2021 to 47.7% of net sales, compared to 48.1% of net sales for fiscal 2020.

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 coupled with additional surcharges during our peak shopping season, higher retail overhead costs driven by new store growth, increased depreciation expense primarily associated with investments in technology, and increased incentive compensation.

These increases were partially offset by reduced catalog spend and national TV advertising.

The positive leverage was primarily due to shifting to a more efficient digital marketing approach, as well as lower shipping expenses driven in part by a shift in channel mix resulting from higher store traffic during the current year.

The increase in selling, general and administrative expense was primarily caused by increased wages due to Company retail locations being open for the full fiscal year, wage increases at both the stores and distribution centers, new headcount and merit increases, as well as increased depreciation expense associated with investments in technology.

Interest Expense

Interest expense increased $1.8 million to $6.3 million in fiscal 2020 compared to $4.5 million in fiscal 2019.

The increase in interest expense was primarily attributable to an increase in borrowings on our revolving line of credit and delayed draw term loan, particularly during the first six months of fiscal 2020 as compared to the same period in the prior year, and interest expense relating to two additional finance leases during fiscal 2020.

Interest expense decreased $1.6 million to $4.7 million in fiscal 2021 compared to $6.3 million in fiscal 2020.

The decrease in interest expense was primarily attributable the full pay-down of Duluth Trading’s bank debt in fiscal 2021 compared to increased borrowings on the revolving line of credit and delayed draw term loan during fiscal 2020 due to uncertainties resulting from the COVID-19 pandemic.

Income tax expense was $9.9 million in fiscal 2021 compared to $4.6 million in fiscal 2020.

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Non-GAAP Financial Measures

See the above section titled “How We Asses the Performance of Our Business,” for our definition of Adjusted EBITDA and Free Cash Flow.

See the above section titled “How We Assess the Performance of Our Business,” for our definition of Adjusted EBITDA and Free Cash Flow.

Reconciliation of Net Income to EBITDA and EBITDA to Adjusted EBITDA

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February 2, 2020

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Interest expense

Amortization of build-to-suit operating

‎ leases capital contribution

Income tax expense

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February 2, 2020

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Free cash flow increased $43.1 million to $81.6 million in fiscal 2021 compared to $38.5 million in fiscal 2020.

The increase was primarily driven by moderating inventory levels back in line with net sales growth as well as reducing capital expenditures during fiscal 2020.

The increase was primarily driven by higher net income and lower inventory levels associated with continued in-bound receipt delays.

Liquidity and Capital Resources

Our business relies on cash from operating activities and a credit facility as our primary sources of liquidity.

Our primary cash needs have been for inventory, marketing and advertising, payroll, store leases, capital expenditures associated with opening new stores, infrastructure and information technology.

Our primary cash needs have been for inventory, marketing and advertising, payroll, store leases, and capital expenditures associated with infrastructure and information technology.

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

At January 30, 2022 our working capital was $106.5 million, which includes cash of $77.1 million.

We spent $12.3 million in fiscal 2020 on capital expenditures, as well as, $4.1 million of additional investments in implementation costs to enhance the value of hosting arrangements, which are included in Prepaid expenses & other current assets on the Company’s Consolidated Balance Sheets.

We expect to spend approximately $10.0 million in fiscal 2021 on capital expenditures, primarily due to investments in technology, as well as $5.0 million of additional investments in implementations costs to enhance the value of hosting arrangements.

We spent $10.4 million in fiscal 2021 on capital expenditures, as well as, $4.7 million of additional investments in software hosting implementation costs, which are included in Prepaid expenses & other current assets on the Company’s Consolidated Balance Sheets.

We expect to spend approximately $57.0 million in fiscal 2022 on capital expenditures, primarily due to investments in logistics optimization, including the introduction of automated fulfillment centers.

Due to the seasonality of our business, a significant amount of cash from operating activities is generated during the fourth quarter of our fiscal year.

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Net cash used in investing activities

Net cash provided by financing activities

Increase (decrease) in cash, cash equivalents and restricted cash

Net cash (used in) provided by financing activities

Increase in cash and cash equivalents

Net Cash Provided by Operating Activities

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 assets and liabilities.

For fiscal 2020, net cash provided by operating activities was $50.8 million, which consisted of net income of $13.4 million, non-cash depreciation and amortization of $28.5 million and amortization of stock-based compensation of $1.6 million and cash provided by operating assets and liabilities of $7.2 million.

For fiscal 2021, net cash provided by operating activities was $92.0 million, which primarily consisted of net income of $29.6 million, non-cash depreciation and amortization of $29.2 million, amortization of stock-based compensation of $2.2 million and cash provided by operating assets and liabilities of $36.1 million.

The cash provided by operating assets and liabilities of $36.1 million primarily consisted of a $26.4 million decrease in inventory, a $10.5 million increase in accounts payable, and a $9.9 million increase in accrued expenses, partially offset by a $4.7 million increase in hosting software implementation costs, a $3.2 million increase in receivables, and a decrease of $2.4 million in prepaid expenses.

For fiscal 2020, net cash provided by operating activities was $50.8 million, which primarily consisted of net income of $13.4 million, non-cash depreciation and amortization of $28.5 million and amortization of stock-based compensation of $1.6 million and cash provided by operating assets and liabilities of $7.2 million.

The cash provided by operating assets and liabilities of $7.2 million primarily consisted of a $7.7 million increase in accrued expenses and deferred rent obligations due to $3.5 million of deferred payroll taxes afforded by the CARES Act, a $4.2 million increase in income tax payable, a $2.6 million decrease in prepaid expenses, offset by a $1.2 million increase in inventory, a $4.1 million increase in hosting software implementation costs and a $1.5 million decrease in trade accounts payable.

For fiscal 2019, net cash provided by operating activities was $8.3 million, which consisted of net income of $18.5 million, non-cash depreciation and amortization of $22.1 million and amortization of stock-based compensation of $0.6 million offset by deferred income taxes of $1.2 million and cash used in operating assets and liabilities of $31.7 million.

The cash used in operating assets and liabilities of $31.7 million primarily consisted of a $50.2 million increase in inventory due to growth and supply of inventory for our new retail stores in the first quarter of fiscal 2019, which was partially offset by a $5.4 decrease in prepaid expenses, coupled with a $3.2 million increase in income taxes payable and a $7.6 million increase in trade accounts payable.

The increase in trade accounts payable was primarily due to an increase in inventory and timing of payments.

Net Cash Used in Investing Activities

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

Investing activities consist primarily of capital expenditures for growth related to a new distribution center and information technology.

For fiscal 2021, net cash used in investing activities was $10.2 million, primarily driven by capital expenditures of $10.4 million for a new distribution center and one new retail store, as well as investments in information technology.

For fiscal 2020, net cash used in investing activities was $12.1 million, primarily driven by capital expenditures of $11.7 million, due mainly to the opening of 4 new stores, as well as investments in information technology.

For fiscal 2019, net cash used in investing activities was $30.7 million, primarily driven by capital expenditures of $24.4 million, due mainly to the opening of 15 new stores, as well as investments in information technology and $6.3 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 debts, as well as proceeds from finance lease obligations.

Net Cash (Used in) Provided by Financing Activities

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

For fiscal 2021, net cash used in financing activities was $51.4 million, primarily consisting of the full paydown of Duluth’s bank debt.

For fiscal 2020, net cash provided by financing activities was $6.4 million, primarily consisting of proceeds of $28.3 million, net from our term loan and payments of $19.3 million, net from our revolving line of credit to fund working capital.

For fiscal 2019, net cash provided by financing activities was $21.5 million, which included borrowings of $271.8 million on our revolving line of credit and $20.0 million on our delayed draw term loan to support our capital expenditures discussed above and working capital needs, offset by payments of $269.0 million on our revolving line of credit.

Credit Agreement

On May 17, 2018, we entered into a credit agreement (the “Credit Agreement”) which provides for borrowings of up to $80.0 million on a revolving line of credit and an additional $50.0 million in a delayed draw term loan.

The $80.0 million revolving line of credit matures on May 17, 2023 and we had the option to draw in various amounts on the $50.0 million term loan through May 17, 2020, with a maturity on May 17, 2023.

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 and for the fiscal year ended January 31, 2021, no amount of the incremental delayed draw term loan was funded.

See Note 4 “Debt and Credit Agreement,” included in this Annual Report on Form 10-K for further information.

On April 30, 2020, the Company’s credit agreement (the “Credit Agreement”) was amended to include an incremental DDTL of $20.5 million (the “Incremental DDTL”) that was available to draw upon before March 31, 2021, and matured on April 29, 2021, for a total credit facility of $150.5 million.

The loan covenants were also amended to allow for greater flexibility during the Company’s peak borrowing periods in fiscal 2020.

The interest rate applicable to the Revolver or DDTL was a fixed rate for a one-, two-, three- or six-month interest period equal to LIBOR (with a 1% floor) for such interest period plus a margin of 225 to 300 basis points, based upon the Company’s rent adjusted leverage.

The interest rate applicable to the Incremental DDTL was also a fixed rate over the aforementioned interest periods equal to LIBOR (with a 1% floor) for such interest period plus a margin of 275 to 350 basis points.

On May 14, 2021, the Company terminated the Credit Agreement, and entered into a new credit agreement (the “New Credit Agreement”), which was treated as a modification for accounting purposes.

The New Credit Agreement matures on May 14, 2026 and provides for borrowings of up to $150.0 million that are available under a revolving senior credit facility, with a $5.0 million sublimit for issuance of standby letters of credit, as well as a $10.0 million sublimit for swing line loans.

At the Company’s option, the interest rate applicable to the revolving senior credit facility will be a floating rate equal to:

(i) the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus the applicable rate of 1.25% to 2.00% determined based on the Company’s rent adjusted leverage ratio, or (ii) the base rate plus the applicable rate of 0.25% to 1.00% based on the Company’s rent adjusted leverage ratio.

The New Credit Agreement is secured by essentially all Company assets and requires the Company

to maintain compliance with certain financial and non-financial covenants, including a maximum rent adjusted leverage ratio and a minimum fixed charge coverage ratio as defined in the New Credit Agreement

As of and for the fiscal year ended January 30, 2022, we were in compliance with all financial and non-financial covenants.

Contractual Obligations

We enter into long term contractual obligations and commitments in the normal course of business.

As of January 31, 2021, our contractual cash obligations were as follows:

(in thousands)

Delayed draw term loan

Operating leases (2)

Finance leases (2)

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(1) Consists of debt based on the consolidation of the VIE, TRI.

The TRI debt listed above includes financing fees which are a direct deduction from the carrying value of the related debt liability on the Company’s Consolidated Balance Sheets.

See Note 4 “Debt and Credit Agreement,” included in this Annual Report on Form 10-K for further information.

(2) Our store leases generally have initial lease terms of 5-15 years and include renewal options and rent escalation provisions.

In connection with our investing and operating activities, we have entered into certain contractual obligations.

See Note 3 “Leases” of Notes to Consolidated Financial Statements for additional discussion of these obligations.

Off-Balance Sheet Arrangements

We are not a party to any off balance sheet arrangements, except for operating leases, as discussed in “Contractual Obligations” section above.

We are not a party to any significant off-balance sheet arrangements.

Critical Accounting Estimates

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Product Return Reserve

The Company currently estimates product return reserve using available industry data and its own historical sales information.

The Company currently estimates product return reserve using its own historical sales information.

The Company regularly assesses and adjusts the estimate of accrued sales returns by updating return rates for actual industry and company trends and projected costs.

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We believe the accounting estimate related to product returns is a critical accounting estimate because it requires us to make assumptions about future potential returns and changes in demand, both of which are highly uncertain.

The use of fair values is required in determining the carrying values of certain assets and liabilities, as well as for specific disclosures.

In determining the fair value of financial instruments, market prices of the same or similar instruments are used whenever such prices are available.

If observable market prices are unavailable or impracticable to obtain, we are required to make judgments about assumptions that market participants would use in estimating the fair value of the financial instrument.

Fair value is estimated using modeling techniques and incorporates assumptions about interest rates, duration, future expected cash flows, market conditions, risks inherent in a particular valuation technique and the risk of nonperformance.

These assumptions are inherently subjective as they require material estimates, all of which may be susceptible to significant change.

The models used to determine fair value adjustments are periodically evaluated by management for relevance under

current facts and circumstances.

We believe the accounting estimate related to the fair value of available-for-sale securities to be a critical accounting estimate because it requires us to make assumptions where observable market prices are unavailable.

Critical Accounting Policies

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Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.” The inventory value is adjusted periodically, if needed, to reflect current market conditions, which requires our judgments that may significantly affect the ending inventory valuation, as well as gross margin.

The significant estimates used in inventory valuation are obsolescence (including excess and slow-moving inventory and lower of cost or market reserves) and estimates of inventory shrinkage.

The estimates used in inventory valuation are obsolescence (including excess and slow-moving inventory and lower of cost or market reserves) and estimates of inventory shrinkage.

We adjust our inventory for obsolescence based on historical trends, aging reports, specific identification, current retail prices and our estimates of future retail sales prices.

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The reserve for inventory shrinkage is adjusted to reflect the trend of historical physical inventory count results.

The Company performs its retail store physical inventory counts in July and the difference between actual and estimated shrinkage, recorded in Cost of goods sold, may cause fluctuations in second fiscal quarter results.

Long-Lived Assets

Long-lived assets, such as property and equipment are reviewed for impairment during the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset, a product recall or an adverse action or an assessment by a regulator.

If the sum of the estimated undiscounted future cash flows related to the asset is less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted cash flow analysis of the asset.

Impairment charges are included in selling, general and administrative expenses.

We evaluate long-lived tangible assets at an individual store level, which is the lowest level at which independent cash flows can be identified.

We evaluate corporate assets or other long-lived assets that are not store-specific at the consolidated level.

Since there is typically no active market for our long-lived tangible assets, we estimate fair values based on the expected future cash flows.

We estimate future cash flows based on store-level historical results, current trends, and operating and cash flow projections.

Our estimates are subject to uncertainty and may be affected by a number of factors outside our control, including general economic conditions and the competitive environment.

While we believe our estimates and judgments about future cash flows are reasonable, future impairment charges may be required if the expected cash flow estimates, as projected, do not occur or if events change requiring us to revise our estimates.

We account for income taxes and the related accounts using the liability method in accordance with ASC Topic 740, Income Taxes (“ASC 740”).

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A valuation allowance is established if it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

No valuation allowance was recognized for the years ended January 30, 2022 or January 31, 2021.

We establish assets and liabilities for uncertain tax positions taken or expected to be taken in income tax returns, using a more-likely-than-not recognition threshold.

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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-K

Item 7. Management’s Discussion and Analysis