What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-30 · 67 added, 70 removed, 259 unchanged (35% of the section changed)

4 unchanged sentences

We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to January 31 of the following year.

References to "fiscal year 2023 or "fiscal 2023" refer to the period from January 29, 2023 to February 3, 2024, which consists of a 53-week fiscal year.

References to "fiscal year 2022" or "fiscal 2022" refer to the period from January 30, 2022 to January 28, 2023, which consists of a 52-week fiscal year.

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References to “fiscal year 2018” or “fiscal 2018” refer to the period from February 4, 2018 to February 2, 2019, which consists of a 52-week fiscal year.

References to “fiscal year 2017” or “fiscal 2017” refer to the period from January 29, 2017 to February 3, 2018, which consists of a 53-week fiscal year.

Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year.

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We offer a dynamic, edited assortment of exciting products, with most priced at $5 and below, including select brands and licensed merchandise across our category worlds.

As of January 29, 2022, we operated 1,190 stores in 40 states.

In addition, in fall 2019, we rolled out new pricing to our full chain, increasing prices on certain products over $5.

In fiscal 2019, we rolled out new pricing to our full chain, increasing prices on certain products over $5.

Most of our products remain at $5 and below.

We also offer our merchandise on the internet, through our fivebelow.com e-commerce website.

We launched our e-commerce operation as an additional channel to service our customers.

During fiscal 2020, we entered into a partnership with an on demand third party delivery service to enable our customers to shop online and receive convenient same day delivery.

As of January 28, 2023, we operated 1,340 stores in 42 states.

We also offer our merchandise on the internet, through our fivebelow.com e-commerce website as well as with an on demand third party delivery service to enable our customers to shop online and receive convenient same day delivery.

All e-commerce sales, which includes shipping and handling revenue, are included in net sales and are included in comparable sales.

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We believe that our business model has resulted in strong financial performance when considered in light of the economic environment.

Our comparable sales increased by 30.3% in fiscal 2021, and decreased by 5.5% in fiscal 2020 and increased by 0.6% in fiscal 2019.

Our comparable sales decreased by 2.0% in fiscal 2022, increased by 30.3% in fiscal 2021, and decreased by 5.5% in fiscal 2020.

Between fiscal 2020 and fiscal 2022, our net sales increased from $1,962.1 million to $3,076.3 million, representing a compounded annual growth rate of 25.2%.

Over the same period, our operating income increased from $154.8 million to $345.0 million, representing a compounded annual growth rate of 49.3%.

In addition, we expanded our store base from 900 stores at the end of fiscal 2019 to 1,190 stores at the end of fiscal 2021 and we plan to open approximately 375 to 400 new stores over the next two fiscal years including approximately 160 new stores in fiscal 2022.

In addition, we expanded our store base from 1,020 stores at the end of fiscal 2020 to 1,340 stores at the end of fiscal 2022 and we plan to open 200 new stores in fiscal 2023.

We expect to continue our strong growth in the future.

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We have a proven and highly profitable store model that has produced consistent financial results and returns, and our new stores have achieved average payback periods of less than one year.

Our new store model assumes a store size of approximat ely 9,000 square f eet that achieves annual sales of approximate ly $2.0 million in the first full year of operation.

Our new store model assumes a store size of approximately 9,500 square feet that achieves annual sales of approximately $2 million in the first full year of operation.

Our new store model also assumes an average new store investment of approximately $0.4 million.

O ur new store investment includes our store build-out (net of tenant allowances), inventory (net of payables) and cash pre-opening expenses.

Our new store investment includes our store build-out (net of tenant allowances), inventory (net of payables) and cash pre-opening expenses.

Our planned store expansion will place increased demands on our operational, managerial, administrative and other resources.

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In fiscal 2020, we invested in a new Retail Merchandising System and began the multi-year implementation of the Retail Merchandising System, which is designed to manage, control, and perform seamless execution of day-to-day merchandising activities, including purchasing, distribution, order fulfillment, and financial close.

In fiscal 2015, we opened a distribution center in Pedricktown, New Jersey.

We occupy approximately 1,000,000 square feet at this distribution center, having expanded from 800,000 square feet in September 2018.

In fiscal 2015, we opened a shipcenter in Pedricktown, New Jersey.

We occupy approximately 1,000,000 square feet at this shipcenter, having expanded from 800,000 square feet in September 2018.

In fiscal 2016, we signed a 15-year lease for a new corporate headquarters location in Philadelphia, Pennsylvania.

We currently occupy approximately 230,000 square feet of office space with multiple options to expand in the future.

In March 2019, we completed the purchase of an approximately 700,000 square foot distribution center in Forsyth, Georgia.

We began operating the distribution center in April 2019.

In August 2019, we acquired land in Conroe, Texas, to build an approximately 860,000 square foot distribution center for approximately $56 million.

We began operating the distribution center in July 2020.

In July 2020, we acquired land in Buckeye, Arizona, to build an approximately 860,000 square foot distribution center for approximately $65 million.

We began operating the distribution center in August 2021.

In March 2021, we acquired land in Indianapolis, Indiana, to build an approximately 1,030,000 square foot distribution center for approximately $61 million.

We expect to occupy the distribution cent er in fiscal 2022.

As a result of the significant expansion of our network of distribution facilities over the last several years, including the planned opening in the first half of fiscal 2022 of our Indianapolis, Indiana distribution center, we expect to cease operations at our distribution centers in Olive Branch, Mississippi and Cincinnati, Ohio in the first half of fiscal 2022, and expect the costs incurred to be immaterial to our consolidated statements of operations.

In March 2019, we completed the purchase of an approximately 700,000 square foot shipcenter in Forsyth, Georgia.

We began operating the shipcenter in April 2019.

In August 2019, we acquired land in Conroe, Texas, to build an approximately 860,000 square foot shipcenter for approximately $56 million.

We began operating the shipcenter in July 2020.

In July 2020, we acquired land in Buckeye, Arizona, to build an approximately 860,000 square foot shipcenter for approximately $65 million.

We began operating the shipcenter in August 2021.

In March 2021, we acquired land in Indianapolis, Indiana, to build an approximately 1,030,000 square foot shipcenter for approximately $60 million.

We began operating the shipcenter in June 2022.

As a result of the significant expansion of our network of distribution facilities over the last several years, including the opening in the first half of fiscal 2022 of our Indianapolis, Indiana shipcenter, we ceased operations at our shipcenters in Olive Branch, Mississippi and Cincinnati, Ohio in the first half of fiscal 2022.

We continuously assess ways to maximize the productivity and efficiency of our existing facilities, infrastructure and systems.

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For stores that are relocated or expanded, the following periods are excluded when calculating comparable sales:

• The period beginning when the closing store receives its last merchandise delivery from one of our distribution centers through:

• The period beginning when the closing store receives its last merchandise delivery from one of our shipcenters through:

▪ the last day of the fiscal year in which the store was relocated or expanded (for stores that increased significantly in size);

▪ the last day of the fiscal month in which the store re-opens (for all other stores);

• The period beginning on the first anniversary of the date the store received its last merchandise delivery from one of our distribution centers through the first anniversary of the date the store re-opened.

• The period beginning on the first anniversary of the date the store received its last merchandise delivery from one of our shipcenters through the first anniversary of the date the store re-opened.

Comparable sales exclude the 53rd week of sales for 53-week fiscal years.

In the 52-week fiscal year subsequent to a 53-week fiscal year, we exclude the sales in the non-comparable week from the same-store sales calculation.

Due to the 53rd week in fiscal 2017, all comparable sales related to any reporting period during the year ended February 2, 2019 are reported on a restated calendar basis using the National Retail Federation's restated calendar comparing similar weeks.

Due to the 53rd week in fiscal 2017, the period from January 29, 2017 to February 3, 2018, all comparable sales related to any reporting period during the year ended February 2, 2019 are reported on a restated calendar basis using the National Retail Federation's restated calendar comparing similar weeks.

There may be variations in the way in which some of our competitors and other retailers calculate comparable or “same store” sales.

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Store occupancy costs include rent, common area maintenance, utilities and property taxes for all store locations.

Distribution costs include costs for receiving, processing, warehousing and shipping of merchandise to or from our distribution centers and between store locations.

Distribution costs include costs for receiving, processing, warehousing and shipping of merchandise from our shipcenters and between store locations.

Buying costs include compensation expense and other costs for our internal buying organization, including our merchandising and product development team and our planning and allocation group.

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Operating income 345.0 379.9

Interest (expense) income and other (expense) income, net (13.2) (1.7)

Interest income (expense) and other income (expense), net 2.5 (13.2)

Income before income taxes 347.5 366.7

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Operating income 11.2 % 13.3 %

Interest (expense) income and other (expense) income, net (0.5) % (0.1) %

Interest income (expense) and other income (expense), net 0.1 % (0.5) %

Income before income taxes 11.3 % 12.9 %

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Total stores at end of period 1,340 1,190

Comparable sales increase (decrease) 30.3 % (5.5) %

Comparable sales (decrease) increase (2.0) % 30.3 %

Average net sales per store (2)

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Net sales increased to $3,076.3 million in fiscal year 2022 from $2,848.4 million in fiscal year 2021, an increase of $227.9 million, or 8.0%.

The increase was the result of a comparable sales increase of $566.6 million and a non-comparable sales increase of $319.7 million.

In fiscal year 2021, we opened 170 net new stores compared to 120 net new stores in fiscal year 2020.

The increase was the result of a non-comparable sales increase of $281.7 million, partially offset by a comparable sales decrease of $53.8 million.

In fiscal year 2022, we opened 150 new stores compared to 170 net new stores in fiscal year 2021.

The increase in non-comparable sales was primarily driven by new stores that opened in fiscal 2022 and the number of stores that opened in fiscal 2021 but have not been open for 15 full months.

Comparable sales increased 30.3%.

The increase was primarily the result of the impact of COVID-19 during fiscal year 2020 as we temporarily closed all of our stores as of March 20, 2020, began reopening our stores at the end of April 2020, and had reopened substantially all of our stores by the end of June 2020.

Comparable sales decreased 2.0%.

This decrease resulted from decreases of approximately 1.9% in the average dollar value of transactions and approximately 0.1% in the number of transactions.

Cost of Goods Sold and Gross Profit

Cost of goods sold increased to $1,980.8 million in fiscal year 2022 from $1,817.9 million in fiscal year 2021, an increase of $162.9 million, or 9.0%.

The increase in cost of goods sold was primarily the result of an increase in the merchandise costs of goods resulting from an increase in net sales and due to the impact of COVID-19 in fiscal 2020.

The increase in cost of goods sold was primarily the result of an increase in the merchandise costs of goods resulting from an increase in net sales.

Also contributing to the increase in cost of goods sold was an increase in store occupancy costs resulting from new store openings.

Gross profit increased to $1,095.5 million in fiscal year 2022 from $1,030.4 million in fiscal year 2021, an increase of $65.1 million, or 6.3%.

Gross margin increased to 36.2% in fiscal year 2021 from 33.2% in fiscal year 2020, an increase of approximately 300 basis points.

The increase in gross margin was primarily the result of a decrease as a percentage of net sales in store occupancy costs due to the impact of COVID-19 in fiscal year 2020 as we temporarily closed all of our stores while still incurring rent expense.

Gross margin decreased to 35.6% in fiscal year 2022 from 36.2% in fiscal year 2021, a decrease of approximately 60 basis points.

The decrease in gross margin was primarily the result of an increase as a percentage of net sales in store occupancy costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $750.4 million in fiscal year 2022 from $650.6 million in fiscal year 2021, an increase of $99.8 million, or 15.3%.

As a percentage of net sales, selling, general and administrative expenses decreased approximately 260 basis points to 22.8% in fiscal year 2021 compared to 25.4% in fiscal year 2020.

The increase in selling, general and administrative expenses was the result of an increase of $107.0 million in store-related expenses to support new store growth and due to the impact of COVID-19 during fiscal year 2020, which included the temporary closure of all of our stores, furloughing of employees, and other non-payroll expense reductions.

This increase was also driven by an increase of $46.1 million of corporate-related expenses, which included both the benefit related to the CARES Act and the reversal of certain compensation related accruals in fiscal year 2020.

Interest (Expense) Income and Other (Expense) Income, net

Interest expense and other, net increased to $13.2 million in fiscal year 2021 from $1.7 million in fiscal year 2020, an increase of $11.5 million.

The increase in interest expense and other, net was primarily driven by an other than temporary impairment related to an equity method investment.

As a percentage of net sales, selling, general and administrative expenses increased approximately 160 basis points to 24.4% in fiscal year 2022 compared to 22.8% in fiscal year 2021.

The increase in selling, general and administrative expenses was the result of an increase of $80.7 million in store-related expenses to support new store growth and $19.1 million of corporate-related expenses.

Interest Income (Expense) and Other Income (Expense), net

Interest income and other, net increased to $2.5 million in fiscal year 2022 from interest expense and other, net of $13.2 million in fiscal year 2021, an increase of $15.7 million.

The increase in interest income and other, net was primarily driven by an other than temporary impairment related to an equity method investment in fiscal year 2021.

Income Tax Expense

Income tax expense increased to $87.9 million in fiscal year 2021 from $29.7 million in fiscal year 2020, an increase of $58.2 million, or approximately 195.9%.

This increase in income tax expense was primarily due to a $213.6 million increase in pre-tax net income and discrete items, which includes the impact of the CARES Act in fiscal year 2020 and the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," with respect to the requirements to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets.

Income tax expense decreased to $86.0 million in fiscal year 2022 from $87.9 million in fiscal year 2021, a decrease of $1.9 million, or approximately 2.1%.

This decrease in income tax expense was primarily due to a $19.2 million decrease in pre-tax net income, partially offset by discrete items, which includes the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," with respect to the requirements to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets.

Our effective tax rate for fiscal year 2022 was 24.7% compared to 24.0% in fiscal year 2021.

The increase in our effective tax rate was primarily driven by discrete items, which includes the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" and the impact of the CARES Act in fiscal year 2020.

As a result of the foregoing, net income increased to $278.8 million in fiscal year 2021 from $123.4 million in fiscal year 2020, an increase of approximately $155.4 million, or 126.0%.

The increase in our effective tax rate was primarily driven by discrete items, which includes the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."

As a result of the foregoing, net income decreased to $261.5 million in fiscal year 2022 from $278.8 million in fiscal year 2021, a decrease of approximately $17.3 million, or 6.2%.

Our business is seasonal in nature with the highest level of net sales and net income generated in the fourth fiscal quarter due to the year-end holiday season and, therefore, operating results for any fiscal quarter are not necessarily indicative of results for the full fiscal year.

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We plan to make cash capital expenditures of approximately $325 million in fiscal 2023, which exclude the impact of tenant allowances, and which we expect to fund from cash generated from operations, cash on-hand, investments and, as needed, borrowings under our Revolving Credit Facility.

We expect to incur approximately $85 million of our cash capital expenditure budget in fiscal 2022 to construct and open approximately 160 new stores of the planned 375 to 400 new stores over the next two fiscal years, with the remainder projected to be spent on our store relocations and remodels, distribution facilities and our corporate infrastructure.

We expect to incur approximately $145 million of our cash capital expenditure budget in fiscal 2023 to construct and open 200 new stores, with the remainder projected to be spent on our store relocations and remodels, distribution facilities and our corporate infrastructure.

Our primary working capital requirements are for the purchase of store inventory and payment of payroll, rent, other store operating costs and distribution costs.

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To the extent that we have drawn on the facility, we have paid down the borrowings before the end of the fiscal year with cash generated during our peak selling season in the fourth quarter.

Although it is not possible to reliably estimate the duration or severity of the COVID-19 pandemic and the resulting financial impact on our results of operations, financial position and liquidity, we have the ability to draw down on our Revolving Credit Facility if and as needed.

As of January 28, 2023, we did not have any direct borrowings under our Revolving Credit Facility and had approximately $192 million available on the line of credit.

On March 20, 2018, our Board of Directors approved a share repurchase program authorizing the repurchase of up to $100 million of our common stock through March 31, 2021, on the open market, in privately negotiated transactions, or otherwise.

This program expired on March 31, 2021.

On March 9, 2021, our Board of Directors approved a new share repurchase program for up to $100 million of our common stock through March 31, 2024.

In fiscal 2021, we purchased 368,699 shares under this program at an aggregate cost of approximately $60.0 million, or an average price of $162.75 per share.

In fiscal 2019, we purchased 337,552 shares under this program at an aggregate cost of approximately $36.9 million, or an average price of $109.27 per share.

In fiscal 2020, we purchased 137,023 shares under this program at an aggregate cost of approximately $12.7 million, or an average price of $92.42 per share.

In fiscal 2021, we purchased 368,699 shares under this program at an aggregate cost of approximately $60.0 million, or an average price of $162.75 per share.

Since March 2018, we have purchased approximately 865,000 shares for an aggregate cost of approximately $112 million.

In fiscal 2022, we purchased 247,132 shares at an aggregate costs of approximately $40.0 million, or an average price of $161.88 per share.

We have exhausted repurchases under this program.

On June 14, 2022, our Board of Directors approved a new share repurchase program for up to $100 million of our common stock through June 30, 2025.

As of January 28, 2023, we have not made any repurchases under this program.

Since approval of the share repurchase program in March 2018, we have purchased approximately 1,100,000 shares for an aggregate cost of approximately $150 million.

There can be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases.

The share repurchase program may be modified or discontinued at any time.

Based on our growth plans, we believe that our cash position which includes our cash equivalents and short-term investments, net cash provided by operating activities and availability under our Revolving Credit Facility will be adequate to finance our planned capital expenditures, authorized share repurchases and working capital requirements over the next 12 months and for the foreseeable future thereafter.

Based on our growth plans, we believe that our cash position which includes our cash equivalents and short-term investments, net cash provided by operating activities and availability under our Revolving Credit Facility, which expires in September 2027, will be adequate to finance our planned capital expenditures, authorized share repurchases and working capital requirements over the next 12 months and for the foreseeable future thereafter.

If cash flows from operations and borrowings under our Revolving Credit Facility are not sufficient or available to meet our requirements, then we will be required to obtain additional equity or debt financing in the future.

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As a result of the COVID-19 pandemic, our business operations and results of operations, including our net sales, earnings and cash flows, were materially impacted in fiscal 2020 as a result of the temporary closures of our stores in the first half of 2020, and decreased customer traffic in stores, as the result of limitations on the number of persons permitted in stores at one time by certain local and state regulations.

The Company's ability to operate improved beginning in the second half of fiscal 2020 and extending into fiscal 2021.

Our ability to operate improved beginning in the second half of fiscal 2020 and extending into fiscal 2021.

A summary of our cash flows from operating, investing and financing activities is presented in the following table (in millions):

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Net cash used in financing activities (43.6) (66.1)

Net (decrease) increase during period in cash and cash equivalents (1)

Net increase (decrease) during period in cash and cash equivalents (1)

$ 267.4 $ (203.8)

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Net cash provided by operating activities for fiscal 2022 was $314.9 million, a decrease of $13.0 million compared to fiscal 2021.

The decrease was primarily due to changes in working capital and an increase in income taxes paid, partially offset by an increase in operating cash flows from store performance due to the impact of COVID-19 as we temporarily closed all of our stores in March 2020 and had reopened substantially all of our stores as of the end of June 2020.

During fiscal 2021, we added 170 net new stores.

The decrease was primarily due to an increase in income taxes paid.

Cash Used in Investing Activities

Net cash used in investing activities for fiscal 2021 was $465.6 million, an increase of $178.7 million compared to fiscal 2020.

The increase was primarily due to increases in net purchases of investment securities and other investments and capital expenditures.

The increase in capital expenditures was primarily for our distribution centers, new store construction and corporate infrastructure.

Net cash used in investing activities for fiscal 2022 was $3.9 million, a decrease of $461.7 million compared to fiscal 2021.

The decrease was primarily due an increase in net sales, maturities, and redemptions of investment securities and a decrease in capital expenditures.

Cash Used in Financing Activities

Net cash used in financing activities for fiscal year 2021 was $66.1 million, an increase of $53.3 million compared to fiscal 2020.

The increase was primarily the result of an increase in the repurchase and retirement of common stock.

Net cash used in financing activities for fiscal year 2022 was $43.6 million, a decrease of $22.5 million compared to fiscal 2021.

The decrease was primarily the result of a decrease in the repurchase and retirement of common stock.

Line of Credit

On January 27, 2021, we entered into a First Amendment to Credit Agreement (the “First Amendment”) which amended the Fifth Amended and Restated Credit Agreement (as amended by the Fifth Amendment, the "Credit Agreement") dated April 24, 2020 among the Company, 1616 Holdings, Inc., a wholly-owned subsidiary of the Company ("1616 Holdings" and together with the Company, the "Loan Parties"), Wells Fargo Bank, National Association as administrative agent (the "Agent"), and other lenders party thereto (the "Lenders").

On September 16, 2022, we entered into a Second Amendment to Credit Agreement (the "Second Amendment") which amended the Fifth Amended and Restated Credit Agreement, dated as of April 24, 2020, as previously amended by that certain First Amendment to Credit Agreement, dated as of January 27, 2021 (the "First Amendment";

the Fifth Amended and Restated Credit Agreement as amended by the First Amendment and the Second Amendment, the “Credit Agreement”), among the Company, 1616 Holdings, Inc., a wholly-owned subsidiary of the Company ("1616 Holdings" and together with the Company, the "Loan Parties"), Wells Fargo Bank, National Association as administrative agent (the "Agent"), and other lenders party thereto (the "Lenders").

The Credit Agreement provides for a secured asset-based revolving line of credit in the amount of up to $225 million (the "Revolving Credit Facility").

Advances under the Revolving Credit Facility are tied to a borrow base consisting of eligible credit card receivables and inventory, as reduced by certain reserves in effect from time to time.

Advances under the Revolving Credit Facility are tied to a borrowing base consisting of eligible credit card receivables and inventory, as reduced by certain reserves in effect from time to time.

Pursuant to the Credit Agreement, inventory appraisals and certain other diligence items are deferred, with reduced advance rates during the period that such appraisals have not been delivered.

The Revolving Credit Facility expires on the earliest to occur of (i) April 24, 2023 or (ii) an event of default.

Pursuant to the Second Amendment, the Revolving Credit Facility expires on the earliest to occur of (i) September 16, 2027 or (ii) an event of default.

The Second Amendment also replaced the existing LIBOR rate provisions with SOFR rate provisions which converted then outstanding LIBOR loans into SOFR loans and additionally makes a number of other revisions to other provisions of the Credit Agreement.

Giving effect to the Second Amendment, outstanding borrowings under the Revolving Credit Facility would accrue interest at floating rates plus an applicable margin ranging from 1.12% to 1.50% for SOFR loans and 0.125% to 0.50% for base rate loans, and letter of credit fees range from 1.125% to 1.50%, in each case based on the average availability under the Revolving Credit Facility.

The Revolving Credit Facility may be increased up to $150.0 million, subject to certain conditions, including obtaining commitments from one or more Lenders (the "Accordion").

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The entire amount of the Revolving Credit Facility is available for the issuance of letters of credit and allows for swingline loans.

The Credit Agreement provides that the interest rate payable on borrowings shall be, at our option, a per annum rate equal to (a) a base rate plus an applicable margin ranging from 0.25% to 0.75%, or (b) a LIBOR rate plus a margin ranging from 1.25% to 1.75%.

Letter of credit fees range from 1.25% to 1.75%.

The interest rate and letter of credit fees under the Credit Agreement are subject to an increase of 2.00% per annum upon an event of default.

The Credit Agreement contains customary covenants that limits, absent lender approval, the ability of the Company and certain of its affiliates to, among other things, pay cash dividends, incur debt, create liens and encumbrances, redeem or repurchase stock, enter into certain acquisition transactions with affiliates, merge, dissolve, repay certain indebtedness, change the nature of our business, enter sale or leaseback transactions, make investments or dispose of assets.

The Credit Agreement contains customary covenants that limit, absent lender approval, the ability of the Company and certain of its affiliates to, among other things, pay cash dividends, incur debt, create liens and encumbrances, redeem or repurchase stock, enter into certain acquisition transactions with affiliates, merge, dissolve, repay certain indebtedness, change the nature of our business, enter sale or leaseback transactions, make investments or dispose of assets.

In some cases, these restrictions are subject to certain negotiated exceptions or permit us to undertake otherwise restricted activities if it satisfies certain conditions.

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(1) Our store leases generally have initial lease terms of 10 years and include renewal options on substantially the same terms and conditions as the original lease.

Also included in operating leases are our leases for the corporate office, distribution centers and other.

(2) Purchase obligations are primarily for materials that will be used in the construction of new stores and purchase commitments for infrastructure and systems that will be used by the corporate office and distribution centers.

Also included in operating leases are our leases for the corporate office, shipcenters and other.

From January 29, 2023 to March 16, 2023, we committed to 26 new leases with terms of 10 years that have future minimum lease payments of approximately $50.4 million.

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