What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-06-08 compared with 2021-12-07 · 221 added, 269 removed, 222 unchanged (69% of the section changed)

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Exchange Commission, or SEC, on March 25, 2022 (“Annual Report”).

As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “Ollie’s,” the “Company,” “we,” “our” and “us”

refer to Ollie’s Bargain Outlet Holdings, Inc.

As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “Ollie’s,” the “Company,” “we,” “our” and “us” refer

to Ollie’s Bargain Outlet Holdings, Inc.

and subsidiaries.

We operate on a fiscal calendar widely used by the retail industry that results in a fiscal year consisting of a 52- or 53-week period ending on the

Saturday nearer to January 31 of the following year.

We operate on a fiscal calendar widely used by the retail industry that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday

nearer to January 31 of the following year.

References to “2022” refer to the 52-week period of January 30, 2022 to January 28, 2023.

References to “2020” refer to the 52-week period of February 2, 2020 to January 30, 2021.

References to

the “third quarter of fiscal 2021” and the “third quarter of fiscal 2020” refer to the thirteen weeks of August 1, 2021 to October 30, 2021 and August 2, 2020 to October 31, 2020, respectively.

Year-to-date periods ended October 30, 2021 and

October 31, 2020 refer to the thirty-nine weeks of January 31, 2021 to October 30, 2021 and February 2, 2020 to October 31, 2020, respectively.

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.

References to “2021” refer to the 52-week period of January 31, 2021 to January 29, 2022.

References to the “first

quarter of fiscal 2022” and the “first quarter of fiscal 2021” refer to the 13 weeks of January 30, 2022 to April 30, 2022 and January 31, 2021 to May 1, 2021, respectively.

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.

Cautionary Note Regarding Forward-Looking Statements

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Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by words such as “could,” “may,” “might,” “will,” “likely,” “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “continues,” “projects” and similar references to future

periods, prospects, financial performance and industry outlook.

prospects, financial performance and industry outlook.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.

Because forward-looking statements

relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.

As a result, our actual results may differ materially from those contemplated by the

forward-looking statements.

Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory

conditions, including, but not limited to, legislation, national trade policy, and the following:

Because forward-looking statements relate to the

future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.

As a result, our actual results may differ materially from those contemplated by the forward-looking statements.

limited to, legislation, national trade policy, and the following:

our failure to adequately procure and manage our inventory or anticipate consumer demand;

changes in consumer confidence and spending;

associated with our status as a “brick and mortar” only retailer;

risks associated with our status as a “brick and

mortar” only retailer;

risks associated with intense competition;

our failure to open new profitable stores, or successfully enter new markets, on a timely basis or at all;

the risks associated with doing

business with international manufacturers and suppliers including, but not limited to, transportation and shipping challenges, and potential increases in tariffs on imported goods;

outbreak of viruses or widespread illness, including the continued

impact of COVID-19 and continuing or renewed regulatory responses thereto;

our inability to operate our stores due to civil unrest and related protests or disturbances;

our failure to properly hire and to retain key personnel and other qualified

the risks associated with doing business with international manufacturers and

suppliers including, but not limited to, potential increases in tariffs on imported goods;

outbreak of viruses or widespread illness, including the continued impact of COVID-19 and continuing or renewed regulatory responses thereto;

our inability to

operate our stores due to civil unrest and related protests or disturbances;

our failure to properly hire and to retain key personnel and other qualified personnel;

risks associated with the timely and effective deployment, protection, and defense of

computer networks and other electronic systems, including e-mail;

our inability to obtain favorable lease terms for our properties;

the failure to timely acquire, develop and open, the loss of, or disruption or interruption in the operations of, our centralized distribution centers;

fluctuations in

comparable store sales and results of operations, including on a quarterly basis;

the failure to timely acquire, develop, open and operate, or the loss of, disruption or interruption in the operations

of, any of our centralized distribution centers;

fluctuations in comparable store sales and results of operations, including on a quarterly basis;

risks associated with our lack of operations in the growing online retail marketplace;

risks associated with litigation, the expense of defense, and potential for

adverse outcomes;

risks associated

with litigation, the expense of defense, and potential for adverse outcomes;

our inability to successfully develop or implement our marketing, advertising and promotional efforts;

the seasonal nature of our business;

risks associated with the timely and effective deployment, protection, and defense of

computer networks and other electronic systems, including e-mail;

risks associated with natural

disasters, whether or not caused by climate change;

changes in government regulations, procedures and requirements;

risks associated with natural disasters, whether or not caused by climate change;

and our ability to service

indebtedness and to comply with our financial covenants together with each of the other factors set forth under “Item 1A - Risk Factors” contained herein and in our filings with the SEC, including our Annual Report.

Any forward-looking statement

made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which such statement is made.

Factors or events that could cause our actual results to differ may emerge from time to time, and it

is not possible for us to predict all of them.

We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.

and our ability to service indebtedness and to comply with our financial covenants together with each of the other factors set forth

under “Item 1A - Risk Factors” contained herein and in our filings with the SEC, including our Annual Report.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of

the date on which such statement is made.

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.

We undertake no obligation to publicly update or revise any

forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

You are advised, however, to consult any further disclosures we make on related subjects in our public

announcements and SEC filings.

Ollie’s is a highly differentiated and fast-growing, extreme value retailer of brand name merchandise at drastically reduced prices.

Known for our assortment of

products offered as “Good Stuff Cheap,” we offer customers a broad selection of brand name products, including housewares, food, books and stationery, bed and bath, flooring, toys and hardware.

products offered as “Good Stuff Cheap,” we offer customers a broad selection of brand name products, including housewares, bed and bath, food, floor coverings, health and beauty aids,

books and stationery, toys and electronics.

Our differentiated go-to market strategy is

characterized by a unique, fun and engaging treasure hunt shopping experience, compelling customer value proposition and witty, humorous in-store signage and advertising campaigns.

characterized by a unique, fun and engaging treasure hunt shopping experience, compelling customer value proposition and witty, humorous in-store signage and

advertising campaigns.

COVID-19 Update

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we serve to address the challenges posed by the pandemic.

Following the onset of the pandemic, our net sales initially benefited from increased consumer spending associated with federal stimulus funds for said pandemic.

At this time, there is uncertainty

with regard to the continuation of these stimulus measures and, as a result, there may be potential changes in consumer spending behavior or demand.

In addition, we are experiencing labor pressures at both our stores and distribution centers,

higher import and trucking costs, and supply chain disruptions due to the impacts of COVID-19 and related measures.

We are increasing our hiring efforts in certain impacted markets and working closely with our suppliers and transportation

partners to mitigate the impact of the supply chain challenges.

The significance and duration of these and other potential elevated costs is uncertain, and we will continue to assess and respond to current and evolving conditions.

As we continue to monitor the COVID-19 pandemic and potentially take actions based on the requirements and recommendations of federal, state and local authorities, we intend to focus on managing

the business for future, long-term growth.

In certain circumstances, there may be developments outside our control, including resurgences of COVID-19 and, in particular, new and more contagious or vaccine resistant variants, requiring us to refine

our operations.

Following the onset of the pandemic through the first quarter of 2021, our net sales benefited from increased consumer spending associated with federal stimulus funds for said pandemic.

point, there is uncertainty with regard to any additional stimulus measures and, as a result, there may be potential changes in consumer spending behavior or demand.

In addition, we are experiencing labor pressures at both our stores and

distribution centers, higher import and trucking costs, and supply chain disruptions due to the impacts of COVID-19 and related measures.

We are increasing our hiring efforts in certain impacted markets and working closely with our suppliers and

transportation partners to mitigate the impact of the supply chain challenges.

The potential significance and duration of these elevated costs is uncertain, and we will continue to assess and respond to current and evolving conditions.

As we continue to monitor the COVID-19 pandemic and potentially take actions based on the requirements and recommendations of federal, state and local authorities, we intend to focus on managing the

business for future, long-term growth.

As such, given the evolving nature of the pandemic, we cannot reasonably estimate its impact on our financial condition, results of operations or cash flows in the future.

Refer to Part II, Item 1A.

Risk Factors of this Form 10-Q and Part I, Item 1A.

Risk Factors of our 2020 Form 10-K for a full discussion of the risks associated with the COVID-19 pandemic.

Refer to Part I, Item 1A.

Risk Factors of our 2021 Form 10-K for

a full discussion of the risks associated with the COVID-19 pandemic.

Our Growth Strategy

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contiguous states.

We have expanded to 426 stores located in 29 states as of October 30, 2021.

We have expanded to 439 stores located in 29 states as of April 30, 2022.

Our stores are supported by three distribution centers, one each in York, PA, Commerce, GA and Lancaster, TX.

We believe our distribution capabilities can support a range of 500 to 600 stores over

the next several years.

We believe our current distribution capabilities can support a range of 500 to 600 stores

over the next several years.

We have invested in our associates, infrastructure, distribution network and information systems to allow us to continue to rapidly grow our store footprint, including:

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increasing our offerings of great bargains;

leveraging and expanding Ollie’s Army, our customer loyalty program.

leveraging and expanding Ollie’s Army.

We have a proven portable, flexible, and highly profitable store model that has produced consistent financial results and returns.

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While we are focused on driving comparable store sales and managing our expenses, our revenue and profitability growth will primarily come from opening new stores.

The core elements of our

business model are procuring great deals, offering extreme values to our customers and creating consistent, predictable store growth and margins.

In addition, our new stores generally open strong, contributing to the growth in net sales and

profitability of our business.

We plan to achieve continued net sales growth, including comparable stores sales, by adding stores to our store base and by continuing to provide quality merchandise at a value for our customers as we scale and gain

more access to purchase directly from major manufacturers.

The core elements of our business

model are procuring great deals, offering extreme values to our customers and creating consistent, predictable store growth and margins.

In addition, our new stores generally open strong, contributing to the growth in net sales and profitability of

our business.

purchase directly from major manufacturers.

We also plan to leverage and expand our Ollie’s Army database marketing strategies.

In addition, we plan to continue to manage our selling, general and administrative expenses

(“SG&A”) by continuing to make process improvements and by maintaining our standard policy of reviewing our operating costs.

Our ability to grow and our results of operations may be impacted by additional factors and uncertainties, such as consumer spending habits, which are subject to macroeconomic conditions and

changes in discretionary income.

In addition, we plan to continue to manage our selling, general and administrative expenses (“SG&A”) by continuing

to make process improvements and by maintaining our standard policy of reviewing our operating costs.

Our ability to grow and our results of operations may be impacted by additional factors and uncertainties, such as consumer spending habits, which are subject to macroeconomic conditions and changes

in discretionary income.

Our customers’ discretionary income is primarily impacted by gas prices, wages and consumer trends and preferences, which fluctuate depending on the environment.

The potential consolidation of our competitors or

other changes in our competitive landscape could also impact our results of operations or our ability to grow, even though we compete with a broad range of retailers.

Our key competitive advantage is our direct buying relationships with many major manufacturers, wholesalers, distributors, brokers and retailers for our brand name and closeout products and

unbranded goods.

The potential consolidation of our competitors or other

changes in our competitive landscape could also impact our results of operations or our ability to grow, even though we compete with a broad range of retailers.

Our key competitive advantage is our direct buying relationships with many major manufacturers, wholesalers, distributors, brokers and retailers for our brand name and closeout products and unbranded

We also augment our product mix with private label brands.

As we continue to grow, we believe our increased scale will provide us with even greater access to brand name and closeout products as major manufacturers seek a single

buyer to acquire an entire deal.

As we continue to grow, we believe our increased scale will provide us with even greater access to brand name and closeout products as major manufacturers seek a single buyer to

acquire an entire deal.

How We Assess the Performance of Our Business and Key Line Items

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We expect new store growth to be the primary driver of our sales growth.

Our initial lease terms are approximately seven years with options to renew for three to five successive five-year

Our initial lease terms are approximately seven years with options to renew for three to five successive five-year periods.

Our portable and predictable real estate model focuses on backfilling existing markets and entering new markets in contiguous states.

Our new stores often open with higher sales levels as a result

of greater advertising and promotional spend in connection with grand opening events, but decline shortly thereafter to our new store model levels.

Our new stores often open with higher sales levels as a result of

greater advertising and promotional spend in connection with grand opening events, but decline shortly thereafter to our new store model levels.

Ollie’s recognizes retail sales in its stores when merchandise is sold and the customer takes possession of the merchandise.

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Net sales are presented net of returns and sales tax.

Net sales consist of sales from comparable stores and non-comparable stores, described below under “Comparable

Store Sales.” Growth of our net sales is primarily driven by expansion of our store base in existing and new markets.

As we continue to grow, we believe we will have greater access to brand name and closeout merchandise and an increased deal

selection, resulting in more potential offerings for our customers.

Net sales consist of sales from comparable stores and non-comparable stores, described below under “Comparable Store

Sales.” Growth of our net sales is primarily driven by expansion of our store base in existing and new markets.

As we continue to grow, we believe we will have greater access to brand name and closeout merchandise and an increased deal selection,

resulting in more potential offerings for our customers.

Net sales are impacted by product mix, merchandise mix and availability, as well as promotional activities and the spending habits of our customers.

Our broad selection of

offerings across diverse product categories supports growth in net sales by attracting new customers, which results in higher spending levels and frequency of shopping visits from our customers, including Ollie’s Army members.

Our broad selection of offerings across

diverse product categories supports growth in net sales by attracting new customers, which results in higher spending levels and frequency of shopping visits from our customers, including Ollie’s Army members.

The spending habits of our customers are subject to macroeconomic conditions and changes in discretionary income.

Our customers’ discretionary income is primarily impacted by gas prices, wages,

and consumer trends and preferences, which fluctuate depending on the environment.

However, because we offer a broad selection of merchandise at extreme values, we believe we are generally less impacted than other retailers by economic cycles that

consumer trends and preferences and inflation which fluctuate depending on the environment.

However, because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by economic cycles that

correspond with declines in general consumer spending habits.

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Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year.

store sales consist of net sales from our stores beginning on the first day of the sixteenth full fiscal month following the store’s opening, which is when we believe comparability is achieved.

Comparable store sales are impacted by the same

factors that impact net sales.

Comparable store

sales consist of net sales from our stores beginning on the first day of the sixteenth full fiscal month following the store’s opening, which is when we believe comparability is achieved.

Comparable store sales are impacted by the same factors that

impact net sales.

We define comparable stores to be stores that:

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

Specifically, our product margin

and merchandise mix is reviewed by our merchant team and senior management, ensuring strict adherence to internal margin goals.

Our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse impacts

on gross profit and results of operations.

Specifically, our product margin and

merchandise mix is reviewed by our merchant team and senior management, ensuring strict adherence to internal margin goals.

Our disciplined buying approach has produced consistent gross margins and we believe helps to mitigate adverse impacts on

gross profit and results of operation.

The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of our competitors and other retailers.

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The components of our SG&A remain relatively consistent per store and for each new store opening.

The components of our SG&A may not be comparable to the

components of similar measures of other retailers.

Consolidated SG&A generally increase as we grow our store base and as our net sales increase.

A significant portion of our expenses is primarily fixed in nature, and we expect to continue to

maintain strict discipline while carefully monitoring SG&A as a percentage of net sales.

We expect that our SG&A will continue to increase in future periods with future growth.

Consolidated SG&A generally increase as we grow our store

base and as our net sales increase.

A significant portion of our expenses is primarily fixed in nature, and we expect to continue to maintain strict discipline while carefully monitoring SG&A as a percentage of net sales.

We expect that our

SG&A will continue to increase in future periods with future growth.

Depreciation and Amortization Expenses

Property and equipment are stated at original cost less accumulated depreciation and amortization.

Depreciation and amortization expenses are calculated over the estimated useful lives of the

related assets, or in the case of leasehold improvements, the lesser of the useful lives or the remaining term of the lease.

Depreciation and amortization expenses are calculated over the estimated useful lives of the related

assets, or in the case of leasehold improvements, the lesser of the useful lives or the remaining term of the lease.

Expenditures for additions, renewals, and betterments are capitalized;

expenditures for maintenance and repairs are charged

to expense as incurred.

expenditures for maintenance and repairs are charged to

expense as incurred.

Depreciation and amortization are computed on the straight-line method for financial reporting purposes.

Depreciation and amortization as it relates to our distribution centers is included within cost of sales on the

condensed consolidated statements of income.

Depreciation as it relates to our distribution centers is included within cost of sales on the condensed consolidated

statements of income.

Pre-Opening Expenses

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EBITDA and Adjusted EBITDA are key metrics used by management and our Board to assess our financial performance.

EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and

other interested parties to evaluate companies in our industry.

We use Adjusted EBITDA to supplement U.S.

generally accepted accounting principles (“GAAP”) measures of performance to evaluate the effectiveness of our business strategies, to make

budgeting decisions, to evaluate our performance in connection with compensation decisions and to compare our performance against that of other peer companies using similar measures.

Management believes it is useful to investors and analysts to

evaluate these non-GAAP measures on the same basis as management uses to evaluate the Company’s operating results.

We believe that excluding items from operating income, net income and net income per diluted share that may not be indicative of, or

are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.

EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other

interested parties to evaluate companies in our industry.

We use Adjusted EBITDA to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to evaluate our performance in

connection with compensation decisions and to compare our performance against that of other peer companies using similar measures.

Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as

management uses to evaluate the Company’s operating results.

We believe that excluding items from operating income, net income and net income per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that

may vary in frequency or magnitude, enhances the comparability of our results and provides a better baseline for analyzing trends in our business.

We define EBITDA as net income before net interest income or expense, depreciation and amortization expenses and income taxes.

Adjusted EBITDA represents EBITDA as further adjusted for non-cash

stock-based compensation expense and the gain from an insurance settlement.

stock-based compensation expense and gains on insurance settlements.

EBITDA and Adjusted EBITDA are non-GAAP measures and may not be comparable to similar measures reported by other companies.

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Store Openings and Closings

We opened 18 new stores and temporarily closed one store due to weather-related events in the third quarter of fiscal 2021.

We opened 19 new stores, including one relocated store, and re-opened a

temporarily closed store in the third quarter of fiscal 2020.

In connection with these store openings, relocations and closings, we incurred expenses of $3.3 million and $3.7 million for the third quarters of fiscal 2021 and fiscal 2020,

respectively.

We opened 41 new stores, including two relocated stores, and temporarily closed one additional store due to weather-related events in the thirty-nine weeks ended October 30, 2021.

We opened 42 new stores, including one relocated

store, and closed two additional stores in the thirty-nine weeks ended October 31, 2020.

In connection with these store openings, relocations and closings, we incurred expenses of $8.4 million and $8.9 million for the thirty-nine weeks ended

October 30, 2021 and October 31, 2020, respectively.

We opened 9 new stores and closed one store in connection with a relocation in the first quarter of fiscal 2022 and opened 11 new stores and closed two stores in the first quarter of fiscal 2021.

connection with these store openings and closings, we incurred expenses of $2.7 million and $2.5 million in the respective periods.

Our business is seasonal in nature and demand is generally the highest in our fourth fiscal quarter due to the holiday sales season.

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in stock more merchandise than we carry during other times of the year and generally engage in additional marketing efforts.

We expect inventory levels, along with accounts payable and accrued expenses, to reach their highest levels in our third

and fourth fiscal quarters in anticipation of increased net sales during the holiday sales season.

We expect inventory levels, along with accounts payable and accrued expenses, to reach their highest levels in our third and

fourth fiscal quarters in anticipation of increased net sales during the holiday sales season.

As a result of this seasonality, and generally because of variation in consumer spending habits, we experience fluctuations in net sales and working

capital requirements during the year.

Because we offer a broad selection of merchandise at extreme values, we believe we are generally less impacted than other retailers by economic cycles which correspond with declines in general consumer

spending habits and we believe we still benefit from periods of increased consumer spending.

Because we offer a broad selection of merchandise at extreme values, we believe we are less impacted than other retailers by economic cycles which correspond with declines in general consumer spending habits and

we believe we still benefit from periods of increased consumer spending.

Results of Operations

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales.

We derived the condensed consolidated statements of income for the thirteen and thirty-nine weeks ended October 30, 2021 and October 31, 2020 from our unaudited condensed consolidated financial

statements and related notes.

We derived the condensed consolidated statements of income for the first quarter of fiscal 2022 and the first quarter of fiscal 2021 from our unaudited condensed consolidated financial statements and

related notes.

Our historical results are not necessarily indicative of the results that may be expected in the future.

Thirteen weeks ended

Thirty-nine weeks ended

( dollars in thousands)

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Select operating data:

New store openings

Number of new stores

Number of closed stores

Number of stores re-opened

Number of stores open at end of period

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Components may not add to totals due to rounding.

Average net sales per store represents the weighted average of total net weekly sales divided by the number of stores open at the end of each week for the respective periods presented.

Average net sales per store represents the weighted average of total net weekly sales divided by the number of stores open at the end of each week for

the respective periods presented.

The following table provides a reconciliation of our net income to Adjusted EBITDA for the periods presented:

Thirteen weeks ended

Thirty-nine weeks ended

( dollars in thousands)

(in thousands)

Interest expense (income), net

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Non-cash stock-based compensation expense

Gain from insurance settlement

Adjusted EBITDA

Includes depreciation and amortization relating to our distribution centers, which is included within cost of sales on our condensed consolidated statements of income.

Third Quarter of Fiscal 2021 Compared to Third Quarter of Fiscal 2020

Net sales decreased to $383.5 million in the third quarter of fiscal 2021 from $414.4 million in the third quarter of fiscal 2020, a decrease of $30.9 million, or

The decrease was the result of a comparable store sales decrease of $61.2 million offset by an increase in non-comparable store sales of $30.3 million.

The increase in non-comparable store sales was driven by new store unit growth.

Comparable store sales decreased 15.5% in the third quarter of fiscal 2021 compared with a 15.3% increase in the third quarter of fiscal 2020.

The decrease in

comparable store sales was due to a decrease in the number of transactions, partially offset by an increase in average transaction size.

Sales in our housewares, bed and bath and health and beauty aids departments significantly decreased during

the quarter due to a prior-year surge of COVID-related personal protective equipment, home-related and cleaning supplies sales.

In the third quarter of fiscal 2020, we benefited from increased consumer spending in our stores driven by a shift in spend from COVID-impacted categories, such as travel, dining and experiences, to retail as well as impacts from stimulus

related to the Coronavirus Aid, Relief, and Economic Security (CARES) Act in the early part of the quarter.

First Quarter of Fiscal 2022 Compared with the First Quarter of Fiscal 2021

Net sales decreased to $406.7 million in the first quarter of fiscal 2022 from $452.5 million in the first quarter of fiscal 2021, a decrease of $45.8 million, or 10.1%.

The decrease was the result

of a comparable store sales decrease of $75.7 million and a non-comparable store sales increase of $29.9 million.

The increase in non-comparable store sales was driven by new store unit growth and strong new store performance.

Comparable store sales decreased 17.3% in the first quarter of fiscal 2022 compared with an 18.8% increase in the first quarter of fiscal 2021.

The decrease in comparable store sales consisted of a

decrease in the number of transactions partially offset by an increase in average transaction size.

Declines in our domestics, floor coverings, lawn & garden, electronics, and housewares departments were offset by increases in hardware, pets and

luggage departments.

In the first quarter of fiscal 2021, we benefited from increased consumer spending associated with a third round of stimulus for the ongoing COVID-19 pandemic.

Gross Profit and Gross Margin

Gross profit decreased to $152.6 million in the third quarter of fiscal 2021 from $171.5 million in the third quarter of fiscal 2020, a decrease of $18.9 million, or 11.0%.

Gross profit decreased to $141.3 million in the first quarter of fiscal 2022 from $182.6 million in the first quarter of fiscal 2021, a decrease of $41.3 million, or 22.6%.

Gross margin decreased 560

160 basis points to 39.8% in the third quarter of fiscal 2021 from 41.4% in the third quarter of fiscal 2020.

The decrease in gross margin in the third quarter of fiscal 2021 is due to increased supply chain costs, primarily the result of higher

import and trucking costs and, to a lesser extent, higher wage rates in the distribution centers, partially offset by an increased merchandise margin.

basis points to 34.8% in the first quarter of fiscal 2022 from 40.4% in the first quarter of fiscal 2021.

The decrease in gross margin in the first quarter of fiscal 2022 is due to increased supply chain costs, primarily the result of higher import

and labor costs, partially offset by improvement in the merchandise margin.

Selling, General and Administrative Expenses

SG&A increased to $114.0 million in the third quarter of fiscal 2021 from $105.8 million in the third quarter of fiscal 2020, an increase of $8.2 million, or 7.8%, primarily driven by an

SG&A increased to $116.3 million in the first quarter of fiscal 2022 from $104.4 million in the first quarter of fiscal 2021, an increase of $11.9 million, or 11.4%, primarily driven by an

increased number of stores and higher wage rates in select markets.

As a percentage of net sales, SG&A increased 420 basis points to 29.7% in the third quarter of fiscal 2021 from 25.5% in the third quarter of fiscal 2020.

As a percentage of net sales, SG&A increased 550 basis points to 28.6% in the first quarter of fiscal 2022 from 23.1% in the first quarter of fiscal 2021.

The increase was

primarily due to deleveraging as a result of the decrease in sales.

Included in SG&A in the third quarter of fiscal 2021 is $0.3 million of income related to a gain from an insurance settlement.

Excluding this gain, SG&A expenses increased 8.1% over third

quarter of fiscal 2020 and as a percentage of net sales increased 430 basis points.

Pre-Opening Expenses

Pre-opening expenses for new stores decreased to $3.3 million in the third quarter of fiscal 2021 from $3.7 million in the third quarter of fiscal 2020 due to the comparative number and timing of

We opened 18 new stores and temporarily closed one store in the third quarter of fiscal 2021.

We opened 19 new stores, including one relocation, and re-opened one temporarily closed store in the third quarter of fiscal 2020.

percentage of net sales, pre-opening expenses were 0.9% in both the third quarters of fiscal 2021 and fiscal 2020.

Income Tax Expense

Income tax expense totaled $7.0 million and $12.7 million in the third quarter of fiscal 2021 and the third quarter of fiscal 2020, respectively.

The effective tax rates for the third quarters of

fiscal 2021 and fiscal 2020 were 23.1% and 21.9%, respectively.

The increased effective tax rate in the quarter was primarily due to a decrease in excess tax benefits related to stock-based compensation.

Discrete tax benefits totaled $1.0 million

and $2.0 million in the third quarter of fiscal 2021 and the third quarter of fiscal 2020, respectively.

As a result of the foregoing, net income decreased to $23.2 million in the third quarter of fiscal 2021 from $45.2 million in the third quarter of fiscal 2020, a decrease of $22.0 million or 48.7%.

Adjusted EBITDA

Adjusted EBITDA decreased to $37.9 million in the third quarter of fiscal 2021 from $65.3 million in the third quarter of fiscal 2020, a decrease of $27.4 million, or 41.9%.

Thirty-nine Weeks 2021 Compared to Thirty-nine Weeks 2020

Net sales decreased to $1.252 billion in the thirty-nine weeks ended October 30, 2021 from $1.293 billion in the thirty-nine weeks ended October 31, 2020, a decrease of $41.2 million, or 3.2%.

decrease was the result of a comparable store sales decrease of $138.2 million and a non-comparable store sales increase of $97.0 million.

The increase in non-comparable store sales was driven by new store unit growth and strong new store

Comparable store sales decreased 11.3% in the thirty-nine weeks ended October 30, 2021 compared with an 18.6% increase in the thirty-nine weeks ended October 31, 2020.

The decrease in comparable store sales

primarily consisted of a decrease in the number of transactions and, to a lesser extent, average transaction size.

Sales in our health and beauty aids, housewares and bed and bath departments significantly decreased in the thirty-nine weeks

ended October 30, 2021 due to a prior-year surge of COVID-related personal protective equipment, cleaning supplies and home-related sales.

In fiscal 2020, we benefited from increased consumer spending associated with federal economic stimulus funds for the COVID-19 pandemic and having our stores open while other competitors were closed for a portion

of the period.

Gross Profit and Gross Margin

Gross profit decreased to $498.2 million in the thirty-nine weeks ended October 30, 2021 from $518.7 million in the thirty-nine weeks ended October 31, 2020, a decrease of $20.5 million, or 4.0%.

Gross margin decreased 30 basis points to 39.8% in the thirty-nine weeks ended October 30, 2021 from 40.1% in the thirty-nine weeks ended October 31, 2020.

The decrease in gross margin in the thirty-nine weeks ended October 30, 2021 is due to

increased supply chain costs, primarily the result of higher import and trucking costs, partially offset by improvement in the merchandise margin.

Selling, General and Administrative Expenses

SG&A increased to $328.5 million in the thirty-nine weeks ended October 30, 2021 from $304.7 million in the thirty-nine weeks ended October 31, 2020, an increase of $23.8 million, or 7.8%,

primarily driven by an increased number of stores and partially offset by tight expense controls throughout the organization.

As a percentage of net sales, SG&A increased 260 basis points to 26.2% in the thirty-nine weeks ended October 30,

2021 from 23.6% in the thirty-nine weeks ended October 31, 2020.

The increase was primarily due to a significant deleveraging as a result of the decrease in sales.

Included in SG&A in the thirty-nine weeks ended October 30, 2021 is $0.3 million of income related to a gain from an insurance settlement.

Excluding this gain, SG&A expenses increased 7.9%

over the thirty-nine weeks ended October 31, 2020 and as a percentage of net sales increased 270 basis points.

primarily due to deleveraging as a result of the decrease in sales in the first quarter of fiscal 2022.

Pre-Opening Expenses

Pre-opening expenses for new stores decreased to $8.4 million in the thirty-nine weeks ended October 30, 2021 from $8.9 million in the thirty-nine weeks ended October 31, 2020 due to the

comparative number and timing of new stores.

During the thirty-nine weeks ended October 30, 2021, we opened 41 stores, including two relocated stores, and temporarily closed one additional store.

During the thirty-nine weeks ended October 31,

2020, we opened 42 stores, including one relocated store, and closed two additional stores.

As a percentage of net sales, pre-opening expenses were 0.7% in both the thirty-nine weeks ended October 30, 2021 and October 31, 2020.

Pre-opening expenses for new stores increased slightly to $2.7 million in the first quarter of fiscal 2022 from $2.5 million in the first quarter of fiscal 2021 due to the comparative number and

timing of new stores.

During the first quarter of fiscal 2022, we opened 9 new stores and closed one store in connection with a relocation.

During the first quarter of fiscal 2021, we opened 11 new stores and closed two relocated stores.

percentage of net sales, pre-opening expenses increased 10 basis points to 0.7% in the first quarter of fiscal 2022 from 0.6% in the first quarter of fiscal 2021.

Interest Expense (Income), Net

Net interest expense (income) was $0.1 million and $(25,000) in the first quarters of fiscal 2022 and fiscal 2021, respectively.

Income Tax Expense

Income tax expense in the thirty-nine weeks ended October 30, 2021 was $34.3 million compared to income tax expense of $15.0 million in the thirty-nine weeks ended October 31, 2020.

The effective

tax rates for the thirty-nine weeks ended October 30, 2021 and October 31, 2020 were 23.3% and 7.8%, respectively.

The variance in the effective tax rates in the thirty-nine week periods was primarily due to a significant decrease in excess tax

benefits related to stock-based compensation.

The prior year effective tax rate was impacted by tax benefits due to the exercise of stock options by the estate of the Company’s former chief executive officer.

Discrete tax benefits totaled $3.4

million and $33.8 million in the thirty-nine weeks ended October 30, 2021 and the thirty-nine weeks ended October 31, 2020, respectively.

As a result of the foregoing, net income decreased to $112.7 million in the thirty-nine weeks ended October 30, 2021 from $178.0 million in the thirty-nine weeks ended October 31, 2020, a decrease

of $65.3 million or 36.7%.

Income tax expense was $4.5 million and $16.0 million in the first quarters of fiscal 2022 and fiscal 2021, respectively.

The effective tax rates for the first quarters of fiscal 2022 and fiscal

2021 were 26.5% and 22.5%, respectively.

As a result of the foregoing, net income decreased to $12.5 million in the first quarter of fiscal 2022 from $55.2 million in the first quarter of fiscal 2021, a decrease of $42.7 million or 77.3%.

Adjusted EBITDA

Adjusted EBITDA decreased to $171.2 million in the thirty-nine weeks ended October 30, 2021 from $214.4 million in the thirty-nine weeks ended October 31, 2020, a decrease of $43.2 million, or

Adjusted EBITDA decreased to $26.2 million in the first quarter of fiscal 2022 from $79.2 million in the first quarter of fiscal 2021, a decrease of $53.0 million, or 66.9%.

Liquidity and Capital Resources

Our primary sources of liquidity are net cash flows provided by operating activities and available borrowings under our revolving credit facility (“Revolving Credit Facility”).

Our primary cash

needs are for capital expenditures and working capital.

As of October 30, 2021, we had $86.4 million available to borrow under our Revolving Credit Facility and $229.7 million of cash and cash equivalents on hand.

For further information regarding

our Revolving Credit Facility, see Note 6 under “Notes to Unaudited Condensed Consolidated Financial Statements.”

Our primary sources of liquidity are net cash flows provided by operating activities and available borrowings under our $100.0 million Revolving Credit Facility.

Our primary cash needs are for

capital expenditures and working capital.

As of April 30, 2022, we had $90.9 million available to borrow under our Revolving Credit Facility and $205.5 million of cash and cash equivalents on hand.

For further information, see Note 6 under “Notes to

Unaudited Condensed Consolidated Financial Statements.”

Our capital expenditures are primarily related to new store openings, store resets, which consist of improvements to stores as they are needed, expenditures related to our distribution centers, and

infrastructure-related investments, including investments related to upgrading and maintaining our information technology systems.

We spent $11.9 million and $7.8 million for capital expenditures during the third quarters of fiscal 2021 and fiscal

We spent $9.7 million and $9.5 million for capital expenditures in the first quarters of fiscal 2022 and fiscal 2021,

respectively.

For the thirty-nine weeks ended October 30, 2021, we spent $29.6 million for capital expenditures compared to $25.9 million for the thirty-nine weeks ended October 31, 2020.

We expect to fund capital expenditures from net cash

provided by operating activities.

We opened 41 new stores including two relocated stores, and temporarily closed one additional store due to weather-related events during the thirty-nine weeks ended October 30, 2021 and expect to open 46 stores

during fiscal 2021.

In fiscal 2022, we intend to expand our York, PA distribution center by 200,000 square feet.

We have experienced, and may continue to experience, delays in construction and permitting of new stores and other projects due to

We expect to fund capital expenditures from net cash provided by operating activities.

We opened 9 new stores and closed one store in connection with a relocation during the first quarter of fiscal 2022 and expect to open approximately

46 to 48 stores during 2022 including 2 relocations.

Included in our plans is a 200,000 square foot expansion of our York, PA distribution center, giving us the capacity for an additional 50 stores upon completion.

We have experienced, and may

continue to experience, delays in construction and permitting of new stores and other projects due to COVID-19.

Historically, we have funded our capital expenditures and working capital requirements during the fiscal year with cash flows from operations.

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timing of new store openings.

Based on our new store growth plans, we believe our cash and cash equivalents position, net cash provided by operating activities and availability under our Revolving Credit Facility will be

adequate to finance our planned capital expenditures, working capital requirements, debt service and other financing activities over the next 12 months.

If cash provided by operating activities and borrowings under our Revolving Credit Facility

are not sufficient or available to meet our capital requirements, we will then be required to obtain additional equity or debt financing in the future.

There can be no assurance equity or debt financing will be available to us when needed or, if

available, the terms will be satisfactory to us and not dilutive to our then-current stockholders.

Based on our new store growth plans, we believe our cash and cash equivalents position, net cash provided by operating activities and availability under our Revolving Credit Facility will be adequate

to finance our planned capital expenditures, working capital requirements, debt service and other financing activities over the next 12 months.

If cash provided by operating activities and borrowings under our Revolving Credit Facility are not

sufficient or available to meet our capital requirements, we will then be required to obtain additional equity or debt financing in the future.

There can be no assurance equity or debt financing will be available to us when needed or, if available,

the terms will be satisfactory to us and not dilutive to our then-current stockholders.

We are not currently receiving, and do not currently intend to apply for, loans under any federal or state programs implemented as a result of the COVID-19 pandemic, including the Coronavirus Aid,

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authorized the repurchase of another $100.0 million of our common stock on December 15, 2020 and a $100.0 million increase on March 16, 2021, resulting in $200.0 million approved for share repurchases through January 13, 2023.

The shares to be

repurchased may be purchased from time to time in open market conditions (including blocks), privately negotiated transactions, accelerated share repurchase programs or other derivative transactions, issuer self-tender offers or any combination of

the foregoing.

The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of our shares, general market, economic and business conditions, and other corporate considerations.

Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow us to purchase our shares during periods when we otherwise might be prevented from doing so under insider

trading laws or because of self-imposed trading blackout periods.

On November 30, 2021,

the Board authorized an additional $200.0 million to repurchase stock pursuant to the Company’s share repurchase program, expiring on December 15, 2023.

The shares to be repurchased may be purchased from time to time in open market conditions

(including blocks or in privately negotiated transactions).

The timing of repurchases and the actual amount purchased will depend on a variety of factors, including the market price of our shares, general market, economic, and business conditions,

and other corporate considerations.

prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.

Repurchases are expected to be funded from cash on hand or through the utilization of our Revolving Credit Facility.

The repurchase authorization does not require the purchase of a

specific number of shares and is subject to suspension or termination by our Board of Directors at any time.

During the thirty-nine weeks ended October 30, 2021, we repurchased 2,679,507 shares of our common stock for $200.0 million, inclusive of transaction costs, pursuant to our share repurchase

We made no share repurchases during the thirty-nine weeks ended October 31, 2020.

The repurchase

authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by our Board of Directors at any time.

During the first quarter of fiscal 2022, no share repurchases occured.

In the first quarter of fiscal 2021, we repurchased 110,622 shares of our common stock for $9.6 million, inclusive of

transaction costs, pursuant to our share repurchase program.

These expenditures were funded by cash generated from operations.

As of October 30, 2021, we had $33,000 remaining under our share repurchase

authorization.

On November 30, 2021, the Board of Directors of the Company authorized an additional $200.0 million to repurchase stock pursuant to the Company’s share repurchase program, expiring on December 15,

2023, subject to extension or earlier termination by the Board of Directors at any time.

As of April 30, 2022, we had $180.0 million remaining under our share repurchase authorization.

Subsequent to April 30, 2022, we paid $10.0 million, inclusive of transaction costs, to repurchase an additional 238,485 shares of our common stock, resulting in $170.0 million remaining under our

share repurchase authorization.

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

Thirty-nine weeks ended

Thirteen weeks ended

(in thousands)

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Cash Provided by Operating Activities

Net cash provided by operating activities was $2.7 million for the thirty-nine weeks ended October 30, 2021 compared to $235.9 million for the thirty-nine weeks ended October 31, 2020.

decrease in net cash provided by operating activities for the thirty-nine weeks ended October 30, 2021 was primarily due to increased working capital needs and a decrease in net sales.

Cash (Used in) Provided by Operating Activities

Net cash (used in) provided by operating activities in the first quarters of fiscal 2022 and fiscal 2021 was $(31.5) million and $40.1 million, respectively.

The decrease in net cash provided by

operating activities in the first quarter of fiscal 2022 was primarily due to increased working capital needs and a decrease in net sales.

Cash Used in Investing Activities

Net cash used in investing activities for the thirty-nine weeks ended October 30, 2021 was $26.5 million compared to net cash used in investing activities of $25.8 million for the thirty-nine weeks

ended October 31, 2020.

The comparative increase in cash used in investing activities is primarily from an increase in cash used for capital expenditures, partially offset by the proceeds from sale of property and equipment in the current year.

Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $193.6 million in the thirty-nine weeks ended October 30, 2021 as compared with net cash provided by financing activities of $25.5 million in the

thirty-nine weeks ended October 31, 2020.

The net cash outflow in the thirty-nine weeks ended October 30, 2021 is due to payment for shares repurchased, partially offset by proceeds from stock option exercises.

Net cash used in investing activities in the first quarters of fiscal 2022 and fiscal 2021 was $9.6 million and $9.4 million, respectively.

The comparative increase in cash used in investing

activities is primarily due to an increase in cash used for capital expenditures in the current year.

Cash Used in Financing Activities

Net cash used in financing activities in the first quarters of fiscal 2022 and fiscal 2021 was $381,000 and $5.7 million, respectively.

The comparative decrease in financing activities is primarily

due to the prior-year payment for shares repurchased, partially offset by an decrease in the proceeds from stock option exercises in the current year.

Contractual Obligations

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations,

liquidity, capital expenditures or capital resources that is material to investors.

capital resources that is material to investors.

Critical Accounting Policies and Estimates

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Not applicable.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are subject to interest rate risk in connection with borrowings under our Revolving Credit Facility, which bears interest at variable rates.

As of April 30, 2022, we had no outstanding variable

As of April 30, 2022, there were no material changes in the market risks described in the “Quantitative and Qualitative Disclosure of Market Risks” section of our Annual Report.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost.

While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the

estimates required, we believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial.

We cannot be assured that our results of operations and financial condition will not be materially

impacted by inflation in the future.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis