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Item 7. Management’s Discussion and Analysis

2024-03-21 compared with 2023-03-16 · 76 added, 79 removed, 247 unchanged (39% of the section changed)

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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 2024" or "fiscal 2024" refer to the period from February 4, 2024 to February 1, 2025, which consists of a 52-week fiscal 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.

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References to “fiscal year 2019” or “fiscal 2019” refer to the period from February 3, 2019 to February 1, 2020, which consists of a 52-week fiscal year.

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.

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.

Five Below, Inc.

(collectively referred to herein with its wholly owned subsidiary as "we," "us," or "our") is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the tween and teen customer.

(collectively referred to herein with its wholly owned subsidiaries as "we," "us," or "our") is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the tween and teen customer.

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.

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Most of our products remain at $5 and below.

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.

As of February 3, 2024, we operated 1,544 stores in 43 states.

We also offer our merchandise on the internet, through our fivebelow.com e-commerce website, offering home delivery and the option to buy online and pick up in store.

Additionally, we sell merchandise through on-demand third-party delivery services to enable our customers to shop online and receive convenient delivery.

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

Our e-commerce expenses will have components classified as both cost of goods sold and selling, general and administrative expenses.

Our e-commerce expenses will have components classified as both cost of goods sold and selling, general and administrative expenses (including depreciation and amortization).

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

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.

Our comparable sales increased by 2.8% in fiscal 2023, decreased by 2.0% in fiscal 2022, and increased by 30.3% in fiscal 2021.

Between fiscal 2021 and fiscal 2023, our net sales increased from $2,848.4 million to $3,559.4 million, representing a compounded annual growth rate of 11.8%.

Over the same period, our operating income increased from $379.9 million to $385.6 million, representing a compounded annual growth rate of 0.7%.

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.

In addition, we expanded our store base from 1,190 stores at the end of fiscal 2021 to 1,544 stores at the end of fiscal 2023 and we plan to open between 225 and 235 new stores in fiscal 2024.

We expect to continue our strong growth in the future.

By offering trend-right merchandise at a differentiated price points, our stores have been successful in varying geographic regions, population densities and real estate settings.

As of January 28, 2023, we operated stores in 42 states throughout the United States.

By offering trend-right merchandise at differentiated price points, our stores have been successful in varying geographic regions, population densities and real estate settings.

As of February 3, 2024, we operated stores in 43 states throughout the United States.

We are primarily located in power, community and lifestyle shopping centers across a variety of urban, suburban and semi-rural markets with trade areas including at least 100,000 people in the specified market.

We continue to believe we have the opportunity to expand our store base in the United States from 1,340 locations as of January 28, 2023 to more than 3,500 locations over time.

We continue to believe we have the opportunity to expand our store base in the United States from 1,544 locations as of February 3, 2024 to more than 3,500 locations over time.

Our ability to open profitable new stores depends on many factors, including our ability to identify suitable markets and sites;

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and achieve sufficient levels of cash flow and financing to support our expansion.

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.

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 period of less than one year.

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.

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For further information, see Part I, Item 1A “Risk Factors-Risk Relating to our Business and Industry.”

Over the past five years, we have invested a significant amount of capital in infrastructure and systems necessary to support our future growth and we expect to incur additional capital expenditures related to expansion of our infrastructure and systems in future periods.

Over the past nine years, we have invested a significant amount of capital in infrastructure and systems necessary to support our future growth and we expect to incur additional capital expenditures related to expansion of our infrastructure and systems in future periods.

In fiscal 2015, we invested in a new ERP and began the multi-year implementation of the ERP, which is designed to enhance functionality and provide timely information to the Company's management team related to the operation of the business.

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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.

We began operating the shipcenter in April 2019 and will expand to approximately 1,000,000 square feet in the first half of 2024.

The total construction cost of the expansion is expected to be approximately $21 million.

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

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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.

We began operating the shipcenter in August 2021 and will expand to approximately 1,200,000 square feet in the second half of 2024.

The total construction costs of the expansion is expected to be approximately $26 million.

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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See Part I, Item 1A “Risk Factors” for a description of these and other important factors that could adversely impact us and our results of operations.

How We Assess the Performance of Our Business

How We Assess the Performance of Our Business and Non-GAAP Measures

In assessing the performance of our business, we consider a variety of performance and financial measures.

These key measures include net sales, comparable sales, cost of goods sold and gross profit, selling, general and administrative expenses and operating income.

These key measures include net sales, comparable sales, cost of goods sold and gross profit, selling, general and administrative expenses (including depreciation and amortization) and operating income.

Net sales constitute gross sales net of merchandise returns for damaged or defective goods.

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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, 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.

Therefore, Fiscal 2023 comparable sales were calculated using a 52-week comparable period through the week ending January 27, 2024.

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 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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As we continue to pursue our growth strategy, we expect that a significant percentage of our net sales will continue to come from new stores not included in comparable sales.

Accordingly, comparable sales is only one measure we use to assess the success of our growth strategy.

Accordingly, comparable sales are only one measure we use to assess the success of our growth strategy.

Cost of Goods Sold and Gross Profit

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The variable component of our cost of goods sold is higher in higher volume quarters because the variable component of our cost of goods sold generally increases as net sales increase.

We regularly analyze the components of gross profit as well as gross margin.

We regularly analyze the components of gross profit, a non-GAAP financial measure, as well as gross margin as it provides a useful and relevant measure to analyze our financial performance.

Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns, and a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the store occupancy, distribution and buying components of cost of goods sold could have an adverse impact on our gross profit and results of operations.

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Changes in the mix of our products may also impact our overall cost of goods sold.

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses are composed of payroll and other compensation, marketing and advertising expense, depreciation and amortization expense and other selling and administrative expenses.

Selling, General and Administrative Expenses (including Depreciation and Amortization)

Selling, general and administrative (including depreciation and amortization), or SG&A, expenses are composed of payroll and other compensation, marketing and advertising expense, depreciation and amortization expense and other selling and administrative expenses.

SG&A expenses as a percentage of net sales are usually higher in lower sales volume quarters and lower in higher sales volume quarters.

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We expect that our SG&A expenses will increase in future periods due to our continuing store growth.

In addition, any increase in future share-based grants or modifications will increase our share-based compensation expense included in SG&A expenses.

In addition, any increase in future share-based grants or modifications will impact our share-based compensation expense included in SG&A expenses.

Operating Income

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Net sales $ 3,559.4 $ 3,076.3

Cost of goods sold 1,980.8 1,817.9

Gross profit 1,095.5 1,030.4

Cost of goods sold (exclusive of items shown separately below) 2,285.5 1,980.8

Selling, general and administrative expenses 757.5 644.8

Depreciation and amortization 130.7 105.6

Operating income 385.6 345.0

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

Interest income and other income, net 15.5 2.5

Income before income taxes 401.1 347.5

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Net sales 100.0 % 100.0 %

Cost of goods sold 64.4 % 63.8 %

Gross profit 35.6 % 36.2 %

Cost of goods sold (exclusive of items shown separately below) 64.2 % 64.4 %

Selling, general and administrative expenses 21.3 % 21.0 %

Depreciation and amortization 3.7 % 3.4 %

Operating income 10.8 % 11.2 %

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

Interest income and other income, net 0.4 % 0.1 %

Income before income taxes 11.3 % 11.3 %

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Total stores at end of period 1,544 1,340

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

Comparable sales increase (decrease) 2.8 % (2.0) %

Average net sales per store (2)

Gross margin (3)

35.8 % 35.6 %

(1) Components may not add to total due to rounding.

(2) Only includes stores open before the beginning of the fiscal year.

(3) Gross margin is equal to our net sales less our cost of goods sold as a percentage of our net sales.

Fiscal Year 2023 Compared to Fiscal Year 2022

Net sales increased to $3,559.4 million in fiscal year 2023 from $3,076.3 million in fiscal year 2022, an increase of $483.1 million, or 15.7%.

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 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.

The increase was the result of a non-comparable sales increase of $400.7 million and a comparable sales increase of $82.4 million.

In fiscal year 2023, we opened 204 net new stores compared to 150 new stores in fiscal year 2022.

The increase in non-comparable sales was primarily driven by new stores that opened in fiscal 2023, and the number of stores that opened in fiscal 2022 but have not been open for 15 full months and includes approximately $48.1 million of sales contributed by the 53rd week in fiscal 2023.

Comparable sales increased 2.8%.

This increase resulted from an increase of approximately 3.9% in the number of transactions, partially offset by a decrease of approximately 1.0% in the average dollar value of transactions.

Cost of Goods Sold and Gross Profit

Cost of goods sold increased to $2,285.5 million in fiscal year 2023 from $1,980.8 million in fiscal year 2022, an increase of $304.7 million, or 15.4%.

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.

The increase in cost of goods sold was primarily the result of increases in the merchandise costs of goods resulting from increases in net sales and inventory shrinkage, and store occupancy costs primarily resulting from new store openings.

Gross profit increased to $1,273.8 million in fiscal year 2023 from $1,095.5 million in fiscal year 2022, an increase of $178.3 million, or 16.3%.

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 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.

Gross margin increased to 35.8% in fiscal year 2023 from 35.6% in fiscal year 2022, an increase of approximately 20 basis points.

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

Also contributing to the increase in gross margin was a decrease in merchandise cost of goods sold, which includes the impact of higher inventory shrinkage.

Selling, General and Administrative Expenses (including Depreciation and Amortization)

Selling, general and administrative expenses (including depreciation and amortization) increased to $888.3 million in fiscal year 2023 from $750.4 million in fiscal year 2022, an increase of $137.8 million, or 18.4%.

As a percentage of net sales, selling, general and administrative expenses (including depreciation and amortization) increased approximately 60 basis points to 25.0% in fiscal year 2023 compared to 24.4% in fiscal year 2022.

The increase in selling, general and administrative expenses (including depreciation and amortization) was the result of an increase of $107.1 million in store-related expenses to support new store growth and $30.7 million of corporate-related expenses.

Income Tax Expense

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.

Income tax expense increased to $100.0 million in fiscal year 2023 from $86.0 million in fiscal year 2022, an increase of $14.0 million, or 16.3%.

The increase in income tax expense was primarily due to a $53.6 million increase 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 2023 was 24.9% compared to 24.7% in fiscal year 2022.

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%.

The increase in our effective tax rate was primarily driven by changes in the mix of pretax income across state jurisdictions and non-deductible expenses, partially offset 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 increased to $301.1 million in fiscal year 2023 from $261.5 million in fiscal year 2022, an increase of approximately $39.6 million, or 15.1%.

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 $365 million in fiscal 2024, 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 $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.

We expect to incur approximately $170 million of our cash capital expenditure budget in fiscal 2024 to construct and open between 225 and 235 new stores, with the remainder projected to be spent on our store relocations and remodels, distribution facilities, which includes the expansion of two 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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Fluctuations in working capital are also driven by the timing of new store openings.

Historically, we have funded our capital expenditures and working capital requirements during the fiscal year with cash on hand, net cash provided by operating activities and borrowings under our Revolving Credit Facility, as needed, and we expect that funding to continue.

When we have used our Revolving Credit Facility, the amount of indebtedness outstanding under it has tended to be the highest in the beginning of the fourth quarter of each fiscal year.

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.

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.

As of February 3, 2024, we did not have any direct borrowings under our Revolving Credit Facility and had approximately $216 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.

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

In fiscal 2022, we purchased 247,132 shares at an aggregate cost 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.

In fiscal 2023, we purchased 504,369 shares at an aggregate cost of approximately $80.0 million, or average price of $158.63 per share.

On November 27, 2023, our Board of Directors retired this share repurchase program.

On November 27, 2023, our Board of Directors approved a new share repurchase program for up to $100 million of our common stock through November 27, 2026.

Since approval of the share repurchase program in March 2018, we have purchased approximately 1.6 million shares for an aggregate cost of approximately $230 million.

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

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There can be no assurance that equity or debt financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our then-current shareholders.

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.

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 (95.9) (43.6)

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

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

$ (152.6) $ 267.4

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Cash Provided by Operating Activities

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 an increase in income taxes paid.

Net cash provided by operating activities for fiscal 2023 was $499.6 million, an increase of $184.7 million compared to fiscal 2022.

The increase was primarily due to changes in working capital, an increase in operating cash flows from store performance and a decrease in income taxes paid.

Cash Used in Investing Activities

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.

Net cash used in investing activities for fiscal 2023 was $556.3 million, an increase of $552.4 million compared to fiscal 2022.

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

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

Cash Used in Financing Activities

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.

Net cash used in financing activities for fiscal year 2023 was $95.9 million, an increase of $52.2 million compared to fiscal 2022.

The increase was primarily the result of increases in the repurchase and retirement of common stock and common shares withheld for taxes.

Line of Credit

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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.

The Second Amendment also replaced the existing LIBOR (the "London Interbank Offered Rate") provisions with SOFR (the "Secured Overnight Financing 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").

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

Pursuant to the First Amendment, we obtained commitments from the Lenders that would allow us at our election (subject only to satisfaction of certain customary conditions such as the absence of any Event of Default), to increase the amount of the Revolving Credit Facility by an aggregate principal amount up to $50 million within the Accordion (the "Committed Increase").

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All obligations under the Revolving Credit Facility are guaranteed by 1616 Holdings and secured by substantially all of the assets of the Company and 1616 Holdings.

As of January 28, 2023 and January 29, 2022, we were in compliance with the covenants applicable to us under the First Amendment and the Revolving Credit Facility.

As of January 28, 2023 and January 29, 2022, we had approximately $192 million and $153 million, respectively, available in the Revolving Credit Facility.

As of February 3, 2024 and January 28, 2023, we were in compliance with the covenants applicable to us under the First Amendment and the Revolving Credit Facility.

As of February 3, 2024 and January 28, 2023, we had approximately $216 million and $192 million, respectively, available in the Revolving Credit Facility.

Critical Accounting Policies and Estimates

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The impairment loss analysis requires management to apply judgment and make estimates.

Leases are accounted for in accordance with the guidance in “Leases" (Topic 842).

We are required to recognize an operating lease asset and an operating lease liability for all of our leases (other than leases that meet the definition of a short-term lease).

The liability is equal to the present value of lease payments using an estimated incremental borrowing rate, on a collateralized basis over a similar term, that we would have incurred to borrow the funds necessary to purchase the leased asset.

The asset is based on the liability, subject to certain adjustments, such as for initial direct costs.

For income statement purposes, leases are required to be classified as either operating or finance leases.

Operating leases result in straight-line expense while finance leases result in a front-loaded expense pattern.

Income taxes are accounted for under the asset-and-liability method .

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Contractual Obligations

The following table summarizes, as of January 28, 2023, our minimum rental commitments under operating lease agreements including assumed extensions, minimum payments for long-term debt and other obligations in future periods:

The following table summarizes, as of February 3, 2024, our minimum rental commitments under operating lease agreements including assumed extensions, minimum payments for long-term debt and other obligations in future periods:

(In millions) Payments Due By Period

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(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 shipcenters.

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.

From February 4, 2024 to March 21, 2024, we committed to 25 new leases with terms of 10 years that have future minimum lease payments of approximately $52.2 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