Childrens Place, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Quarterly Report on Form 10-Q contains or may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the Company’s strategic initiatives and results of operations, including adjusted net income (loss) per diluted share. Forward-looking statements typically are identified by use of terms such as “may,” “will,” “should,” “plan,” “project,” “expect,” “anticipate,” “estimate,” and similar words, although some forward-looking statements are expressed differently. These forward-looking statements are based upon the Company’s current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results and performance to differ materially. Some of these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in Part I, Item 1A. Risk Factors of its annual report on Form 10-K for the fiscal year ended January 28, 2023. Included among the risks and uncertainties that could cause actual results and performance to differ materially are the risk that the Company will be unsuccessful in gauging fashion trends and changing consumer preferences, the risks resulting from the highly competitive nature of the Company’s business and its dependence on consumer spending patterns, which may be affected by changes in economic conditions (including inflation), the risks related to the COVID-19 pandemic, including the impact of the COVID-19 pandemic on our business or the economy in general, the risk that the Company’s strategic initiatives to increase sales and margin are delayed or do not result in anticipated improvements, the risk of delays, interruptions, disruptions and higher costs in the Company’s global supply chain, including resulting from COVID-19 or other disease outbreaks, foreign sources of supply in less developed countries, more politically unstable countries, or countries where vendors fail to comply with industry standards or ethical business practices, including the use of forced, indentured or child labor, the risk that the cost of raw materials or energy prices will increase beyond current expectations or that the Company is unable to offset cost increases through value engineering or price increases, various types of litigation, including class action litigations brought under consumer protection, employment, and privacy and information security laws and regulations, the imposition of regulations affecting the importation of foreign-produced merchandise, including duties and tariffs, and the uncertainty of weather patterns. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The following discussion should be read in conjunction with the Company’s unaudited financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the annual audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 28, 2023. Terms that are commonly used in our Management’s Discussion and Analysis of Financial Condition and Results of Operations are defined as follows: • First Quarter 2023 — The thirteen weeks ended April 29, 2023 • First Quarter 2022 — The thirteen weeks ended April 30, 2022 • Fiscal 2023 – The fifty-three weeks ending February 3, 2024 • Fiscal 2022 – The fifty-two weeks ended January 28, 2023 • SEC — U.S. Securities and Exchange Commission • U.S. GAAP — Generally Accepted Accounting Principles in the United States • FASB — Financial Accounting Standards Board • FASB ASC — FASB Accounting Standards Codification, which serves as the source for authoritative U.S. GAAP, except that rules and interpretive releases by the SEC are also sources of authoritative U.S. GAAP for SEC registrants • AUR — Average unit retail price • Comparable Retail Sales — Net sales, in constant currency, from stores that have been open for at least 14 consecutive months and from our e-commerce store, excluding postage and handling fees. Store closures in the current fiscal year will be excluded from Comparable Retail Sales beginning in the fiscal quarter in which the store closes. A store that is closed for a substantial remodel, relocation, or material change in size will be excluded from Comparable Retail Sales for at least 14 months beginning in the fiscal quarter in which the closure occurred. However, stores that temporarily close will be excluded from Comparable Retail Sales until the store is reopened for a full fiscal month. • Gross Margin — Gross profit expressed as a percentage of net sales • SG&A — Selling, general, and administrative expenses 18 OVERVIEW Our Business We are the largest pure-play children’s specialty apparel retailer in North America. We design, contract to manufacture, sell at retail and wholesale, and license to sell, trend right, high quality merchandise predominantly at value prices, primarily under our proprietary “The Children’s Place”, “Place”, “Baby Place”, “Gymboree”, “Sugar & Jade”, and “PJ Place” brand names. As of April 29, 2023, we had 599 stores across North America, our e-commerce business at www.childrensplace.com, www.gymboree.com , www.sugarandjade.com, and www.pjplace.com , and had 212 international points of distribution with our five franchise partners in 15 countries. Segment Reporting In accordance with FASB ASC 280— Segment Reporting , we report segment data based on geography: The Children’s Place U.S. and The Children’s Place International. Each segment includes an e-commerce business located at www.childrensplace.com, www.gymboree.com, www.sugarandjade.com and www.pjplace.com . Included in The Children’s Place U.S. segment are our U.S. and Puerto Rico-based stores and revenue from our U.S.-based wholesale business. Included in The Children’s Place International segment are our Canadian-based stores, revenue from our Canadian-based wholesale business, as well as revenue from international franchisees. We measure our segment profitability based on operating income, defined as income before interest and taxes. Net sales and direct costs are recorded by each segment. Certain inventory procurement functions such as production and design, as well as corporate overhead, including executive management, finance, real estate, human resources, legal, and information technology services, are managed by The Children’s Place U.S. segment. Expenses related to these functions, including depreciation and amortization, are allocated to The Children’s Place International segment based primarily on net sales. The assets related to these functions are not allocated. We periodically review these allocations and adjust them based upon changes in business circumstances. Net sales to external customers are derived from merchandise sales, and we have no customers that individually account for more than 10% of our net sales. COVID-19 Pandemic As a result of the impact of the COVID-19 pandemic, we continue to experience disruptions in our business, including in our global supply chain, which have caused delays in the production and transportation of our products, which we are mitigating through shifting production schedules. Recent Developments Recent macroeconomic conditions have increased the cost of goods and services necessary to produce, import, and distribute our products, including cotton and other materials used in production, as well as labor, transportation, fuel and energy. Inflationary pressures have also adversely affected our core customer, resulting in a decrease in discretionary apparel purchases during the First Quarter 2023. We expect these macroeconomic conditions, including but not limited to increased product input costs, transportation costs and inflationary pressures, to continue to impact Fiscal 2023. On May 26, 2023, the Company proactively issued a voluntary termination notice for its corporate office building lease, to accelerate the termination date to June 1, 2024, and paid a termination fee of approximately $4 million. This termination was executed in order to capitalize on the prevailing tenant-favorable market conditions, as compared to the existing lease escalations contained in the Company’s agreement which was signed in 2009. The lease termination will reduce the Company’s right-of-use (“ROU”) assets and operating lease liabilities balance by approximately $17 million. On June 5, 2023, we entered into the Fifth Amendment to our credit agreement, dated as of May 9, 2019, with the lenders party thereto (as amended from time to time, the “Credit Agreement”), pursuant to which, among other things, (i) PNC Bank, National Association (“PNC Bank”) was added as a new lender, (ii) our ABL Credit Facility was increased to $445.0 million, (iii) the London InterBank Offered Rate (“LIBOR”) was replaced by the Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark, and (iv) the pricing grid for applicable margins on borrowings was updated. All other material terms and conditions of the Credit Agreement remained unchanged. Operating Highlights Net sales decreased $40.8 million, or 11.2%, to $321.6 million during the First Quarter 2023 from $362.4 million during the First Quarter 2022, primarily due to the combination of the ongoing macroeconomic conditions and the resulting outsized pressure on our customer. Comparable retail sales decreased 8.2% for the First Quarter 2023. 19 Gross profit decreased $45.4 million to $96.5 million or 30.0% of net sales during the First Quarter 2023 from $141.9 million or 39.2% of net sales during the First Quarter 2022. The 920 basis point decrease in gross margin was primarily the result of higher input costs, including cotton and other supply chain costs such as inbound transportation expenses, all of which are embedded in our inventory, and the deleverage of fixed expenses resulting from the decline in net sales. Operating income (loss) decreased $49.4 million to a loss of $30.1 million during the First Quarter 2023 compared to income of $19.3 million during the First Quarter 2022. Operating loss deleveraged 1,460 basis points to (9.3)% of net sales. Net income (loss) decreased $48.6 million to a loss of $28.8 million, or $(2.33) per diluted share, during the First Quarter 2023 compared to income of $19.8 million, or $1.43 per diluted share, during the First Quarter 2022, due to the factors discussed above. While we continue to face a challenging macroeconomic environment, including increases in the cost of goods and services necessary to produce, import, and distribute our products, including cotton and other inputs, as well as labor, transportation, fuel and energy, and continuing uncertainty regarding the future impact of the COVID-19 pandemic, we continue to focus on our key strategic growth initiatives – superior product, digital transformation, alternative channels of distribution, and fleet optimization. Digital remains our top priority and we continue to expand our digital capabilities. We have migrated to a new responsive site and mobile application, and we have expanded our partnerships with our outside providers to help us monitor and reallocate our marketing budgets in a more efficient and timely manner to drive acquisition, retention and reactivation. Starting in the second half of Fiscal 2022, the results from our new marketing strategies have been encouraging and we continue to position marketing as a key growth lever in Fiscal 2023 and beyond. As our digital business continues to expand, we also continue to strengthen our partnership with our third-party logistics providers in an effort to provide our customer with a best-in-class digital experience. We continue to evaluate our store fleet through our fleet optimization initiative. We have closed 600 stores, including 14 stores closed during the First Quarter 2023, since the announcement of our fleet optimization initiative in 2013. We are currently targeting approximately 80 - 100 store closures in Fiscal 2023, which will leave us with approximately 500 stores entering 2024. With over 75% of our store fleet coming up for lease action in the next 24 months, we continue to maintain meaningful financial flexibility in our lease portfolio. The average unexpired lease term for our stores is approximately 0.9 years in the United States, Puerto Rico, and Canada. In November 2021, our Board of Directors authorized a $250.0 million share repurchase program (the “Share Repurchase Program”). During the First Quarter 2023, we repurchased approximately 0.2 million shares of our common stock for $6.1 million, consisting of shares surrendered to cover tax withholdings associated with the vesting of equity awards. As of April 29, 2023, there was $158.3 million remaining availability under the Share Repurchase Program. We have subsidiaries whose operating results are based in foreign currencies and are thus subject to the fluctuations of the corresponding translation rates into U.S. dollars. The table below summarizes the average translation rates that most significantly impact our operating results: Thirteen Weeks Ended April 29, 2023 April 30, 2022 Average Translation Rates (1) Canadian dollar 0.7387 0.7895 Hong Kong dollar 0.1274 0.1279 ____________________________________________ (1) The average translation rates are the average of the monthly translation rates used during each period to translate the respective statements of operations. Each rate represents the U.S. dollar equivalent of the respective foreign currency. 20 SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES We describe our significant accounting policies in “Note 1. Basis of Preparation and Summary of Significant Accounting Policies” of the notes to consolidated financial statements included in our most recent Annual Report on Form 10-K for the fiscal year ended January 28, 2023. There have been no significant changes in our accounting policies from those described in our most recent Annual Report on Form 10-K. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the amounts of revenues and expenses reported during the period. We continuously review the appropriateness of the estimates used in preparing our financial statements; however, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. Consequently, actual results could differ materially from our estimates. Our critical accounting estimates are described under the heading “Critical Accounting Estimates” in Item 7 of our most recent Annual Report on Form 10-K for the fiscal year ended January 28, 2023. Our critical accounting estimates include impairment of long-lived assets, impairment of indefinite-lived intangible assets, income taxes, stock-based compensation, and inventory valuation. There have been no material changes in these critical accounting estimates from those described in our most recent Annual Report on Form 10-K. Recent Accounting Standards Updates There are no pending accounting standards updates that are currently expected to have a material impact on the Company’s consolidated financial statements. RESULTS OF OPERATIONS We believe that our e-commerce and brick-and-mortar retail store operations are highly interdependent, with both sharing common customers purchasing from a common pool of product inventory. Accordingly, we believe that consolidated omni-channel reporting presents the most meaningful and appropriate measure of our performance, including net sales. The following table sets forth, for the periods indicated, selected data from our Statements of Operations expressed as a percentage of Net sales. We primarily evaluate the results of our operations as a percentage of Net sales rather than in terms of absolute dollar increases or decreases by analyzing the year over year change in our business expressed as a percentage of Net sales (i.e., “basis points”). For example, SG&A increased 500 basis points to 35.1% of Net sales during the First Quarter 2023 from 30.1% during the First Quarter 2022. Accordingly, to the extent that our sales have increased at a faster rate than our costs (i.e., “leveraging”), the more efficiently we have utilized the investments we have made in our business. Conversely, if our sales decrease or if our costs grow at a faster pace than our sales (i.e., “deleveraging”), we have less efficiently utilized the investments we have made in our business. Thirteen Weeks Ended April 29, 2023 April 30, 2022 Net sales 100.0 % 100.0 % Cost of sales (exclusive of depreciation and amortization) 70.0 60.8 Gross profit 30.0 39.2 Selling, general, and administrative expenses 35.1 30.1 Depreciation and amortization 3.7 3.8 Asset impairment charges 0.5 — Operating income (loss) (9.3) 5.3 Interest expense, net (1.9) (0.5) Income (loss) before benefit for income taxes (11.2) 4.8 Benefit for income taxes (2.2) (0.6) Net income (loss) (9.0 %) 5.5 % Number of Company stores, end of period 599 665 21 The following table sets forth net sales by segment, for the periods indicated: Thirteen Weeks Ended April 29, 2023 April 30, 2022 (in thousands) Net sales: The Children’s Place U.S. $ 293,486 $ 327,961 The Children’s Place International 28,154 34,389 Total net sales $ 321,640 $ 362,350 First Quarter 2023 Compared to First Quarter 2022 Net sales decreased $40.8 million or 11.2%, to $321.6 million during the First Quarter 2023 from $362.4 million during the First Quarter 2022, primarily due to the combination of the ongoing macroeconomic conditions and the resulting outsized pressure on our consumer. Comparable retail sales decreased 8.2% for the quarter. The Children’s Place U.S. net sales decreased $34.5 million or 10.5%, to $293.5 million in the First Quarter 2023, compared to $328.0 million in the First Quarter 2022. This decrease was primarily due to the combination of the ongoing macroeconomic conditions and the resulting outsized pressure on our consumer. The Children’s Place International net sales decreased $6.2 million or 18.1%, to $28.2 million in the First Quarter 2023, compared to $34.4 million in the First Quarter 2022. This decrease was primarily due to the ongoing macroeconomic conditions and the resulting outsized pressure on our consumer. Total e-commerce sales, which include postage and handling, were 46.4% of net retail sales and 42.4% of net sales during the First Quarter 2023, compared to 44.5% and 42.1%, respectively, during the First Quarter 2022. Gross profit decreased $45.4 million to $96.5 million or 30.0% in the First Quarter 2023, compared to $141.9 million or 39.2% in the First Quarter 2022. The 920 basis point decrease in gross margin was primarily the result of higher input costs, including cotton and other supply chain costs such as inbound transportation expenses, all of which are embedded in our inventory, and the deleverage of fixed expenses resulting from the decline in net sales. Gross profit as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, the timing and level of promotional activities, foreign currency exchange rates, and fluctuations in shipping and material costs. These factors, among others, may cause gross profit as a percentage of net sales to fluctuate from period to period. Selling, general, and administrative expenses increased $3.9 million to $112.9 million during the First Quarter 2023 from $109.0 million during the First Quarter 2022. SG&A deleveraged 500 basis points to 35.1% of net sales in the First Quarter 2023. The First Quarter 2023 results included incremental operating expenses, including contract termination costs of $2.4 million, fleet optimization costs of $1.1 million and restructuring costs of $0.3 million. The First Quarter 2022 results included incremental operating expenses, including professional and consulting fees of $0.5 million and fleet optimization costs of $0.3 million. Excluding the impact of these incremental charges, SG&A deleveraged 400 basis points to 33.9% of net sales, primarily as a result of the deleverage of fixed expenses resulting from the decline in net sales, as well as planned higher marketing spend. Depreciation and amortization was $11.8 million during the First Quarter 2023, compared to $13.6 million during the First Quarter 2022. The decrease was primarily driven by reduced depreciation of capitalized software and the permanent closure of 66 stores during the past twelve months. Asset impairment charges were $1.8 million during the First Quarter 2023, inclusive of ROU assets. These charges were related to underperforming stores identified in our ongoing store portfolio evaluation primarily as a result of decreased net sales and cash flow projections. There were no asset impairment charges recorded during the First Quarter 2022. Operating income (loss) decreased $49.4 million to a loss of $30.1 million during the First Quarter 2023, compared to income of $19.3 million during the First Quarter 2022. Operating loss deleveraged 1,460 basis points to (9.3)% of net sales in the First Quarter 2023. The First Quarter 2023 results included incremental operating expenses of $5.5 million, as described above, and included all asset impairment charges recorded, compared to $1.4 million in the First Quarter 2022. Excluding the impact of these incremental charges, operating loss deleveraged 1,330 basis points to (7.6)% of net sales. 22 Net interest expense was $5.9 million during the First Quarter 2023, compared to $1.7 million during the First Quarter 2022. The increase in interest expense was driven by higher borrowings and higher average interest rates associated with the ABL Credit Facility and Term Loan due to continued market-based rate increases. Benefit for income taxes was $7.1 million during the First Quarter 2023, compared to $2.3 million during the First Quarter 2022. Our effective tax rate was a benefit of 19.8% and 13.0% in the First Quarter 2023 and First Quarter 2022, respectiv ely. The increase in our effective tax rate for the First Quarter 2023 compared to the First Quarter 2022 was primarily driven by the release of a reserve for unrecognized tax benefits as a result of a settlement with a taxing authority in the First Quarter 2022 which was nonrecurring and the First Quarter 2023 pretax loss as compared to pretax income in the First Quarter 2022. Net income (loss) decreased $48.6 million to a loss of $28.8 million, or $(2.33) per diluted share during the First Quarter 2023, compared to income of $19.8 million, or $1.43 per diluted share during the First Quarter 2022, due to the factors discussed above . LIQUIDITY AND CAPITAL RESOURCES Liquidity Our working capital needs typically follow a seasonal pattern, peaking during the third fiscal quarter based on seasonal inventory purchases. Currently, o ur primary uses of cash are for working capital requirements, which are principally inventory purchases, and the financing of capital projects. On November 16, 2021, we completed the refinancing of our previous $360.0 million asset-based revolving credit facility (the “Previous ABL Credit Facility”) and our previous $80.0 million term loan (the “Previous Term Loan”) with a new lending group led by an affiliate of Wells Fargo Bank, National Association (“Wells Fargo”) by entering into the Fourth Amendment to our Credit Agreement, with the lenders party thereto. The refinanced debt consists of a $350.0 million asset-based revolving credit facility (the “ABL Credit Facility”) and a $50.0 million term loan (the “Term Loan”). See “ABL Credit Facility and Term Loan” below for further information. Our working capital deficit increased $82.5 million to $112.7 million at April 29, 2023, compared to $30.2 million at April 30, 2022, primarily reflecting a decrease in our inventory balance and cash on hand, and an increase in borrowings on our ABL Credit Facility, partially offset by a decrease in our accounts payable balance. During the First Quarter 2023, we used $6.1 million of cash to repurchase shares, consisting of shares surrendered to cover tax withholdings associated with the vesting of equity awards. At April 29, 2023, we had $300.8 million of outstanding borrowings under our $350.0 million ABL Credit Facility. At April 29, 2023, we had total liquidity of $25.0 million, including $6.8 million of availability under our ABL Credit Facility (after factoring in our excess availability requirement), and $18.2 million of cash on hand. In addition, at April 29, 2023, we had $7.4 million of outstanding letters of credit with an additional $42.6 million available for issuing letters of credit under our ABL Credit Facility. On June 5, 2023, we entered into the Fifth Amendment to our Credit Agreement, dated as of May 9, 2019, with the lenders party thereto, pursuant to which, among other things, our ABL Credit Facility was increased to $445.0 million. (See “Recent Developments” for further information.) As a result of the amendment, our liquidity increased by approximately $85 million (after factoring in our excess availability requirement), based upon our borrowing base availability as of June 5, 2023. We expect to be able to meet our working capital and capital expenditure requirements for the foreseeable future by using our cash on hand, cash flows from operations, and availability under our ABL Credit Facility. ABL Credit Facility and Term Loan We and certain of our subsidiaries maintain the $350.0 million ABL Credit Facility and the $50.0 million Term Loan with Wells Fargo, Truist Bank, Bank of America, N.A., HSBC Business Credit (USA) Inc., and JPMorgan Chase Bank, N.A., as lenders (collectively, the “Lenders”) and Wells Fargo, as Administrative Agent, Collateral Agent, Swing Line Lender and Term Agent. Both the ABL Credit Facility and the Term Loan mature in November 2026, and both of these debt facilities have lower interest rates, reduced reporting requirements, and increased flexibility under the covenants compared to the Previous ABL Credit Facility and Previous Term Loan. The ABL Credit Facility includes a $25.0 million Canadian sublimit and a $50.0 million sublimit for standby and documentary letters of credit. 23 Borrowings outstanding under the ABL Credit Facility bear interest, at our option, at: (i) the prime rate, plus a margin of 0.375% or 0.625% based on the amount of our average excess availability under the facility; or (ii) the LIBOR rate, for an interest period of one, three, or six months, as selected by us, plus a margin of 1.125% or 1.375% based on the amount of tour average excess availability under the facility. For the First Quarter 2023 and First Quarter 2022, we recognized $4.7 million and $1.6 million, respectively, in interest expense related to the ABL Credit Facility. We are charged a fee of 0.20% on the unused portion of the commitments. Letter of credit fees range from 0.563% to 0.683% for commercial letters of credit and range from 0.625% to 0.875% for standby letters of credit. Letter of credit fees are determined based on the amount of our average excess availability under the facility. The amount available for loans and letters of credit under the ABL Credit Facility is determined by a borrowing base consisting of certain credit card receivables, certain trade receivables, certain inventory, and the fair market value of certain real estate, subject to certain reserves. The outstanding obligations under the ABL Credit Facility may be accelerated upon the occurrence of certain events, including, among others, non-payment, breach of covenants, the institution of insolvency proceedings, defaults under other material indebtedness, and a change of control, subject, in the case of certain defaults, to the expiration of applicable grace periods. We are not subject to any early termination fees. The ABL Credit Facility contains covenants, which include conditions on stock buybacks and the payment of cash dividends or similar payments, and a fixed-charge coverage ratio covenant, which only becomes effective in the event that borrowings and other uses of credit exceed $315.0 million. These covenants also limit our ability to incur certain liens, to incur certain indebtedness, to make certain investments, acquisitions, or dispositions or to change the nature of our business. Credit extended under the ABL Credit Facility is secured by a first priority security interest in substantially all of our U.S. and Canadian assets other than intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in our intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock. The table below presents the components of our ABL Credit Facility: April 29, 2023 January 28, 2023 April 30, 2022 (in millions) Total borrowing base availability $ 408.9 $ 404.2 $ 420.0 Credit facility maximum 350.0 350.0 350.0 Maximum borrowing availability (1) 350.0 350.0 350.0 Outstanding borrowings 300.8 287.0 249.5 Letters of credit outstanding—standby 7.4 7.4 7.4 Utilization of credit facility at end of period 308.2 294.4 256.9 Availability (2) (3) $ 41.8 $ 55.6 $ 93.1 Interest rate at end of period 6.5% 5.9% 2.0% First Quarter 2023 Fiscal 2022 First Quarter 2022 (in millions) Average end of day loan balance during the period $ 297.1 $ 274.9 $ 251.2 Highest end of day loan balance during the period $ 305.9 $ 297.7 $ 308.6 Average interest rate 5.9% 3.7% 2.0% ____________________________________________ (1) Lower of the credit facility maximum or the total borrowing base availability. (2) The sub-limit availability for the letters of credit was $42.6 million at April 29, 2023, January 28, 2023, and April 30, 2022. (3) The ABL Credit Facility contains an excess availability requirement which would effectively reduce this amount to $6.8 million as of April 29, 2023. 24 The Term Loan bears interest, payable monthly, at (a) the LIBOR Rate plus 2.50% for any portion that is a LIBOR loan, or (b) the base rate plus 1.75% for any portion that is a base rate loan. The Term Loan is pre-payable at any time without penalty, and does not require amortization. For the First Quarter 2023 and First Quarter 2022, we recognized $0.9 million and $0.4 million, respectively, in interest expense related to the Term Loan. The Term Loan is secured by a first priority security interest in our intellectual property, certain furniture, fixtures, equipment, and pledges of subsidiary capital stock, and a second priority security interest in the collateral securing the ABL Credit Facility on a first-priority basis. The Term Loan is guaranteed by each of our subsidiaries that guarantees the ABL Credit Facility and contains substantially the same covenants as provided in the ABL Credit Facility. Both the ABL Credit Facility and the Term Loan contain customary events of default, which include (subject in certain cases to customary grace and cure periods) nonpayment of principal or interest, breach of covenants, failure to pay certain other indebtedness, and certain events of bankruptcy, insolvency or reorganization. As of April 29, 2023, unamortized deferred financing costs amounted to $2.2 million, of which $1.9 million related to our ABL Credit Facility. Fifth Amendment to the Credit Agreement On June 5, 2023, we entered into the Fifth Amendment to our Credit Agreement, dated as of May 9, 2019, with the lenders party thereto, pursuant to which, among other things, (i) PNC Bank was added as a new lender, (ii) our ABL Credit Facility was increased to $445.0 million, (iii) LIBOR was replaced by SOFR as the interest rate benchmark, and (iv) the pricing grid for applicable margins on borrowings was updated. Under the amended ABL Credit Facility, based on the amount of our average daily excess availability under the facility, borrowings outstanding bear interest, at our option, at: (i) the prime rate per annum, plus a margin of 1.25% or 1.50%; or (ii) the SOFR rate per annum, plus a margin of 2.00% or 2.25%. Letter of credit fees range from 1.000% to 1.125% for commercial letters of credit and range from 1.500% to 1.750% for standby letters of credit. Letter of credit fees are determined based on the amount of our average daily excess availability under the facility. Once we achieve a consolidated EBITDA of at least $200.0 million across four consecutive fiscal quarters, and based on the amount of our average daily excess availability under the facility, borrowings outstanding under the ABL Credit Facility would bear interest, at our option, at: (i) the prime rate per annum, plus a margin of 0.625% or 0.875%; or (ii) the SOFR rate per annum, plus a margin of 1.375% or 1.625%. Letter of credit fees would range from 0.688% to 0.813% for commercial letters of credit and would range from 0.875% to 1.125% for standby letters of credit. Letter of credit fees are determined based on the amount of the Company’s average daily excess availability under the facility. The Term Loan bears interest, payable monthly, at (a) the SOFR rate per annum plus 2.75% for any portion that is a SOFR loan, or (b) the base rate per annum plus 2.00% for any portion that is a base rate loan. All other material terms and conditions of the Credit Agreement remain unchanged. Cash Flows and Capital Expenditures Cash provided by operating activities was $5.1 million during the First Quarter 2023, compared to cash used in operating activities of $18.8 million during the First Quarter 2022. Cash provided by operating activities during the First Quarter 2023 was primarily the result of a lower inventory balance, partially offset by losses incurred during the period and other planned changes in working capital. Cash used in operating activities during the First Quarter 2022 was primarily the result of the timing of inventory receipts as a result of global supply chain disruptions, partially offset by earnings generated during the period, the receipt of a net income tax refund of $21.6 million, as well as other planned changes in working capital. Cash used in investing activities was $11.0 million during the First Quarter 2023 and First Quarter 2022, primarily driven by capital expenditures. Cash provided by financing activities was $7.8 million during the First Quarter 2023, compared to $33.9 million during the First Quarter 2022. The decrease primarily resulted from lower net borrowings under our ABL Credit Facility, and lower repurchases of our common stock during the First Quarter 2023 compared to the First Quarter 2022. 25 We anticipate total capital expenditures to be in the range of $20 million to $25 million in Fiscal 2023, primarily to support our distribution center expansion, digital initiatives, and enhancement of our fulfillment capabilities, compared to $45.6 million in Fiscal 2022. Our ability to continue to meet our capital requirements in Fiscal 2023 depends on our cash on hand, our ability to generate cash flows from operations, and available borrowings under our ABL Credit Facility. Cash flows generated from operations depends on our ability to achieve our financial plans. We believe that our existing cash on hand, cash generated from operations, and funds available to us through our ABL Credit Facility will be sufficient to fund our capital and other cash requirements for the foreseeable future.