What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-12-04 compared with 2020-09-04 · 115 added, 137 removed, 131 unchanged (66% of the section changed)

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the success of the open-air shopping centers where our stores are located and its impact on our ability to attract customers to our stores;

our ability to attract customers to our e-commerce website and to successfully grow our e-commerce sales;

our ability to attract customers to our e-commerce website and mobile app and to successfully grow our multi-channel sales;

the potential impact of national and international security concerns on the retail environment;

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and future stock repurchases under our stock repurchase program and future dividend payments.

For a more detailed discussion of risk factors impacting us, see the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, “Risk Factors” in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended May 2, 2020 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

For a more detailed discussion of risk factors impacting us, see the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, “Risk Factors” in Part II, Item 1A of our Quarterly Reports on Form 10-Q for the quarters ended May 2, 2020 and August 1, 2020, and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations.

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Shoe Carnival, Inc.

is one of the nation’s largest family footwear retailers, providing the convenience of shopping at any of our store locations, our mobile app or online at www.shoecarnival.com.

is one of the nation’s largest family footwear retailers, providing customers the convenience of shopping at any of our store locations, our mobile app or online at www.shoecarnival.com.

Our stores combine competitive pricing with a promotional, high-energy in-store environment that encourages customer participation and injects fun and excitement into every shopping experience.

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These brand statements are underscored by branded signage on endcaps and in-line signage throughout the store.

Our signage may highlight a vendor’s product offerings or sales promotions, or may highlight seasonal or lifestyle

statements by grouping similar footwear from multiple vendors.

Our signage may highlight a vendor’s product offerings or sales promotions, or may highlight seasonal or lifestyle statements by grouping similar footwear from multiple vendors.

Our e-commerce site offers customers a large assortment of products in all categories of footwear with an increased depth of sizes and colors that may not be available in all stores.

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August 1, 2020

October 31, 2020

August 3, 2019

November 2, 2019

Comparable store sales for the periods indicated include stores that have been open for 13 full months after such store’s grand opening prior to the beginning of the period, including those stores that have been relocated or remodeled.

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We include e-commerce sales in our comparable store sales.

Due to our multi-channel retailer strategy, we view e-commerce sales as an extension of our physical stores.

Due to our multi-channel strategy, we view e-commerce sales as an extension of our physical stores.

The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

October 31, 2020

November 2, 2019

October 31, 2020

November 2, 2019

Cost of sales (including buying, distribution and

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Selling, general and administrative expenses

Operating income/(loss)

Operating income

Interest income

Income tax expense/(benefit)

Net income/(loss)

Income tax expense

Information regarding the COVID-19 Coronavirus Pandemic (“COVID-19”)

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As guidance and mandates from governments and health officials continue to evolve, closures of some or all our stores may reoccur, and sales, including e-commerce sales, may be reduced.

The COVID-19 pandemic has delayed and lengthened the back-to-school shopping period and, at this time, considerable uncertainty exists regarding how the COVID-19 pandemic may affect the Christmas shopping period.

In response to the COVID-19 pandemic, a ll of our brick-and-mortar stores were closed effective March 19, 2020 and substantially all of our stores were closed for approximately 50% of the first fiscal quarter of 2020.

Our website and mobile app continued to accept order s after March 19, 2020 and e-commerce sales increased significantly as customer buying habits shifted to our online channel .

Appro ximately 50% of our stores were reopened by the beginning of our second quarter and substantially all stores had reopened by early June.

As stores have reopened, we experienced increases in conversion , total average transaction and units per transaction despite reduced traffic due to the COVID-19 pandemic .

Generally, since the reopening s , sales exceeded our original fiscal 2020 plan , with some stores exceeding plan and other stores showing declines.

In the last two weeks of the second quarter of fiscal 2020, we experienced declines in sales compared to the prior year due to delays in back-to-school start dates.

In our markets, school district announced return dates are on average a pproximately two to three weeks later than the prior year and we expect fiscal 2020 back-to-school shopping to continue into October.

As of August 31, 2020, 65% of schools in our markets have gone back to school, compared to 95% in a typical year’s back-t o-school shopping period.

The COVID-19 pandemic delayed and extended the back-to-school shopping period and, at this time, uncertainty remains regarding how the COVID-19 pandemic may affect the Christmas shopping period.

In response to the COVID-19 pandemic, a ll of our physical stores were closed effective March 19, 2020.

Our website and mobile app continued to accept order s after March 19, 2020 , and our e-commerce sales have increased significantly in fiscal 2020 as customers shifted to our online channel .

We began reopening our physical stores in accordance with applicable public health guidelines in late April.

B y the beginning of our second fiscal quarter, approximately 50 percent of our stores were reopened , and b y early June, substantially all of our stores had reopened .

As stores have reopened, we experienced increases in conversion and total average transaction despite reduced traffic due to the COVID-19 pandemic .

In our markets, back-to-school shopping continued into October , as many school districts in our markets delayed their back-to-school start dates .

We do not have any stores closed due to the pandemic as of October 31, 2020.

We have undertaken a number of actions to mitigate the financial impact of the COVID-19 pandemic, preserve capital and keep our customers and employees safe.

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Implementing new health and safety procedures at our stores, corporate headquarters and distribution center.

Materials, such as thermometers, cleaning supplies, new social distancing signage, and personal protective equipment have been distributed to our facilities.

Materials, such as thermometers, cleaning supplies, social distancing signage, and personal protective equipment have been distributed to our facilities.

Enhancing our liquidity by exercising the full accordion feature under our existing credit facility to increase our borrowing capacity under the facility, now collateralized by our inventory, from $50.0 million to $100.0 million, and eliminating a covenant through the first quarter of fiscal year 2021 that may have limited our access to the increased borrowing capacity.

Suspending repurchases under our share repurchase program until further notice.

Voluntarily suspending repurchases under our share repurchase program until further notice.

Continuing to pay employees while our stores were closed and recording tax credits in selling, general and administrative (“SG&A”) expenses that offset wage expense.

This credit was associated with the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, and represents an employee retention tax credit to support wages paid to employees while such employees were not working.

Reaching agreements with many of our landlords to defer April, May and June lease payments.

Reaching agreements with certain landlords to defer approximately $3.1 million of April, May and June lease payments with repayments scheduled primarily for the second half of fiscal 2020.

We continued to recognize lease expense on a straight-line basis in accordance with Generally Accepted Accounting Principles.

Temporarily reducing the base salaries of our executives and other senior members of the management team and the annual cash retainer fee of the Board of Directors and delaying the implementation of wage increases for certain employees while a majority of our brick-and-mortar stores were closed.

Reducing inventory receipts and inventory on hand and extending payment terms with many of our business partners.

Temporarily reducing the base salaries of our named executive officers and the annual cash retainer fee of the Board of Directors while a majority of our physical stores were closed.

Temporarily reducing inventory receipts and inventory on hand and extending payment terms with many of our business partners.

Reducing or deferring non-essential corporate spending and capital projects and implementing hiring freezes.

Postponing marketing activities for brick-and-mortar stores and evaluating promotional activities.

As a result of continuing to straight-line lease expense and pay our employees, our operating expenses in the first and second quarters of fiscal 2020 were generally consistent with the comparable periods from the prior fiscal year.

However, market volatility principally caused by the COVID-19 pandemic has impacted our deferred compensation liabilities and, as a result, our overall operating expenses.

Year-to-date in fiscal 2020, we recorded $2.5 million in impairment charges on long-lived assets for eight underperforming stores and have closed 12 stores.

Postponing marketing activities for physical stores and evaluating promotional activities.

Year-to-date in fiscal 2020, we impaired nine and closed 12 physical stores and recorded $3.5 million in impairment charges and closing costs.

Given the uncertainties surrounding the COVID-19 pandemic, additional impairments and closures may result in future periods.

Executive Summary for Second Quarter Ended August 1, 2020

Our second quarter sales have historically been impacted by seasonality, the timing of tax free holidays and back-to-school shopping.

In the second quarter of fiscal 2020, our historical sales patterns were significantly impacted by the COVID-19 pandemic, resulting in a shift in customer behavior away from adult dress product to higher demand in the adult athletics, children’s sandals and infant shoe categories.

The pandemic also impacted the timing of back-to-school start dates in our operating markets, resulting in lower sales in the last two weeks of the second quarter compared to the prior year.

Categories such as children’s athletics were negatively impacted by the delay in back-to-school shopping, posting a comparable store sales decrease in the low double-digits in the second quarter of fiscal 2020.

Highlights for the second quarter of fiscal 2020 and a brief discussion of some key initiatives are as follows:

Net sales were a record $300.8 million for the second quarter, increasing 4.6% compared to our previous record sales set in the third quarter of fiscal 2017.

Compared to the prior year second quarter, net sales increased $32.6 million, or 12.1%.

through our e- commerce platform increased 332 % compared to the prior year period and represented over 20% of total revenues.

This drove a chain - wide c omparable store sales increase of 12.6% during th e second quarter of fiscal 2020 .

Gross profit was generally flat, increasing $0.5 million, or 0.6%, for the quarter ended August 1, 2020, compared to the quarter ended August 3, 2019.

As a percentage of net sales, gross profit decreased to 27.5% compared to 30.6% in the second quarter of fiscal 2019.

Merchandise margin decreased by 3.7% quarter-over-quarter due to higher shipping-related costs associated with e-commerce sales and an increased mix of adult athletic sales.

Athletic products typically carry lower margins compared to seasonal warm weather and dress products.

Of our $32.6 million increase in net sales, $29.0 million was attributable to higher men’s and women’s athletic sales.

Our buying, distribution and occupancy costs, which are generally fixed in nature, decreased 0.6% as a percentage of net sales compared to the second quarter of fiscal 2019 due to the leveraging effect of higher sales.

Net income for the quarter ended August 1, 2020 was $10.1 million, or $0.71 per diluted share, compared to net income of $11.8 million, or $0.80 per diluted share, for the quarter ended August 3, 2019.

This decrease was primarily attributable to a lower gross margin and a higher effective income tax rate.

We ended the quarter with no cash borrowings outstanding and $76.9 million of cash and cash equivalents on our Condensed Consolidated Balance Sheet.

We further amended our Credit Agreement during the second quarter of fiscal 2020 to eliminate a covenant through the first quarter of fiscal year 2021 that could have limited access to our $100 million of borrowing capacity.

In the second quarter of fiscal 2020, we launched advanced third-party transportation and warehouse management platforms.

We plan to deploy a third-party order management system in the third quarter of fiscal 2020.

We are committed to implementing best practices in these areas and believe these enhanced systems will enable us to meet the complex demands of multi-channel fulfillment, position us for long-term growth and enhance customer satisfaction and convenience in an increasingly competitive environment.

Executive Summary for the Third Fiscal Quarter Ended October 31, 2020

Our third quarter sales have historically been impacted by back-to-school shopping and the transition to fall seasonal shopping.

Our sales patterns in the third quarter of fiscal 2020 have been significantly impacted by the COVID-19 pandemic, which caused a delay in the timing of back-to-school start dates in the markets we serve.

As a result, we saw sales shift from August into September and October, and we ended the third quarter with a 0.9 percent increase in comparable store sales.

We achieved this comparable store sales gain despite approximately 10 percent of schools in our markets not having returned to in-person learning at the end of the period.

Our third quarter comparable store increase was primarily driven by a high-single digit increase in adult athletics and increases in seasonal sandals and men’s work boots.

In the third quarter of fiscal 2020, we posted record levels of gross profit, net income and diluted net income per share.

Highlights for the third quarter of fiscal 2020 and a brief discussion of some key initiatives are as follows:

Net sales for the third quarter of fiscal 2020 of $274.6 million were generally flat compared to the prior year third quarter.

E-commerce sales increased over 150 percent compared to the prior year and represented more than 13 percent of net sales.

The increase in e-commerce sales drove a chain-wide comparable store sales increase of 0.9 percent on top of a 3.5 percent comparable store sales increase in the third quarter of fiscal 2019.

Net income for the third quarter of fiscal 2020 was $14.7 million, or $1.03 per diluted share, compared to net income of $13.7 million, or $0.94 per diluted share, in the third quarter of fiscal 2019.

Net income and diluted net income per share in the third quarter of 2020 were both quarterly records, surpassing the previous records by 5.8 percent and 9.6 percent, respectively.

We posted a record quarterly g ross profit of $87.8 million, a $3.0 million increase compared to the prior year third quarter .

As a percentage of net sales, gross profit increased to 32.0 percent compared to 30.9 percent in the third quarter of fiscal 2019 .

We had no cash borrowings during the third quarter and ended the quarter with $46.7 million of cash and cash equivalents.

In the third quarter of fiscal 2020, we continued to increase membership in our Shoe Perks customer loyalty program, approaching 10 percent growth compared to the prior year third quarter.

This brought total membership in the program to nearly 26 million customers as of October 31, 2020.

Membership in our Gold tier, which offers premium perks and rewards, increased over 17 percent compared to the third quarter of the prior year.

We believe our Shoe Perks program affords us opportunities to communicate, build relationships and engage with our most loyal shoppers, which we believe will result in long-term customer commitment to our brand.

In the third quarter of fiscal 2020, we launched a third-party order management system to support our growing multi-channel business.

In the second quarter of fiscal 2020, we implemented third-party transportation and warehouse management platforms that provide enhanced productivity, flexibility and optimized operations for our supply chain.

These upgrades reflect our goal of implementing best practices and systems to meet the complex demands of multi-channel fulfillment, and believe they will position us for long-term growth and provide enhanced customer satisfaction and convenience in an increasingly competitive environment.

Moreover, these platforms will provide the capacity needed to fulfill increased activity from our multi-channel sales channels out of our distribution center.

In fiscal 2020, we commenced implementation of a new, third-party merchandise planning system.

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We believe this collaborative platform will unify our buy plans, optimize inventory levels, help achieve more sales at higher margins and allow us to set goals for multiple channels and formats common in today’s competitive environment.

In the second quarter of fiscal 2020, we continued to increase the membership in our Shoe Perks customer loyalty program, adding over 2 million members compared to the second quarter of the prior year, which brought total membership to over 25 million customers as of August 1, 2020.

The number of our most loyal customers, those who qualify for the Gold tier, increased 11.7% compared to the second quarter of the prior year and represent approximately 16.2% of total Shoe Perks members as of August 1, 2020.

We believe our Shoe Perks program affords us opportunities to communicate, build relationships and engage with our most loyal shoppers, which we believe will result in long-term sales gains.

Results of Operations for the Second Quarter Ended August 1, 2020

Net sales were $300.8 million during the second quarter of fiscal 2020, a 12.1% increase over the prior year’s second quarter net sales of $268.2 million.

Comparable stores sales increased 12.6% and e-commerce sales increased 332% quarter-over-quarter.

With respect to product mix, more athletic shoes were sold in the quarter which drove higher revenue.

Gross profit was essentially flat quarter over quarter and gross profit margin decreased to 27.5% compared to 30.6% in the second quarter of fiscal 2019.

The decrease in margin was primarily due to higher shipping-related costs associated with the increase in e-commerce sales and a product mix encompassing increased adult athletics, which generally carry lower margins compared to seasonal and other non-athletic products.

These decreases were partially offset by the leveraging effect of higher sales on buying, distribution, and occupancy costs, which are generally fixed in nature.

Results of Operations for the Third Quarter Ended October 31, 2020

Net sales were $274.6 million during the third quarter of fiscal 2020 and were generally flat compared to the third quarter of the prior year.

Comparable stores sales increased 0.9 percent, with e-commerce sales increasing over 150 percent compared to the prior year and representing 13 percent of total sales in the third quarter.

Gross profit was a record $87.8 million during the third quarter, an increase of $3.0 million compared to the prior year.

Gross profit margin in the third quarter increased to 32.0 percent compared to 30.9 percent in the third quarter of fiscal 2019.

The increase in gross profit was primarily due to our broad assortment of inventory and our ability to effectively replenish fast-selling product, such as sandals and athletics, during the quarter, which enabled us to be less promotional.

Merchandise margin as a percentage of net sales increased 1.6 percent compared to the prior year quarter due to the lower promotional activity.

This 1.6 percent increase included offsetting shipping-related costs associated with e-commerce sales that were higher as a percentage of sales in the current year compared to the prior year.

Our buying, distribution and occupancy costs increased 0.5 percent as a percentage of net sales compared to the third quarter of fiscal 2019 primarily due to higher distribution expense.

Investments in our distribution center during fiscal 2020 resulted in higher implementation costs related to software, depreciation and labor during the third quarter of fiscal 2020 compared to the prior year quarter.

Selling, General and Administrative Expenses

SG&A expenses increased $1.8 million in the second quarter of fiscal 2020 to $68.2 million compared to $66.4 million in the second quarter of fiscal 2019.

The primary factors were as follows:

E-commerce fulfillment costs increased $1.8 million on higher sales through that channel.

Incentive compensation expense increased approximately $1.

3 million due to improved financial performance.

Due to financial market volatility, our deferred compensation plan experienced higher returns compared to the prior year, which increased operating expenses by approximately $1.3 million year-over-year.

Store-level wages decreased $1.9 million.

This decrease was primarily attributable to an employee payroll retention tax credit, a component of the CARES Act that was signed into law in March 2020.

We have not furloughed any employees.

This credit lowered our payroll tax expense to support wages paid to our employees while they were not working.

The effective income tax rate for the second quarter of fiscal 2020 was 29.6% as compared to 24.5% for the same period in fiscal 2019.

SG&A expense was $67.6 million during the third quarter, an increase of $1.0 million compared to the third quarter of fiscal 2019 primarily due to higher advertising and e-commerce related operating expenses.

The effective income tax rate for the third quarter of fiscal 2020 was 26.8 percent as compared to 24.9 percent for the same period in fiscal 2019.

Our provision for income taxes is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events.

The increase in effective rate in the quarter was primarily due to a reversal of a net operating loss carryback recorded in the first quarter of fiscal 2020 due to improved financial performance.

For the full fiscal year of 2020, we expect our tax rate to be approximately 23% compared to our 21.6% effective tax rate in fiscal 2019.

Results of Operations for the Six-Month Period Ended August 1, 2020

Net sales were $448.3 million year-to-date in fiscal 2020, a 14.1% decrease over the prior year’s year-to-date net sales of $522.0 million.

The decrease in net sales was primarily due to the temporary closure of our brick-and-mortar stores for approximately 50% of the first quarter of fiscal 2020 as a result of the COVID-19 pandemic.

The decrease in brick-and-mortar sales was partially offset by a 249% increase in e-commerce sales year-over-year as our customers shifted to online shopping amid government mandated stay-at-home orders.

Year-to-date gross profit margin for fiscal 2020 decreased to 25.4% compared to 30.1% year-to-date in fiscal 2019.

The decrease was primarily due to higher shipping-related costs associated with the increase in e-commerce sales, a higher mix of adult athletic sales that carry lower margins and the deleveraging effect of lower sales, primarily on occupancy costs, which are fixed in nature.

The lower tax rate in the prior year quarter was primarily driven by the reversal of a valuation allowance associated with our Puerto Rico operations.

For the full fiscal year of 2020, we expect our tax rate to be approximately 25 percent compared to our 21.6 percent effective tax rate in fiscal 2019.

Results of Operations for the Nine -Month Period Ended October 31, 2020

Year-to-date net sales were $722.9 million, a 9.3 percent decrease compared to the prior year’s year-to-date net sales of $796.7 million.

The decrease in net sales was primarily due to the temporary closure of our physical stores for approximately 50 percent of the first quarter of fiscal 2020 as a result of the COVID-19 pandemic.

The decrease in physical store sales was partially offset by a more than 200 percent increase in year-to-date e-commerce sales as our customers shifted to online shopping amid government mandated stay-at-home orders and continued health concerns.

Year-to-date gross profit margin in fiscal 2020 decreased to 27.9 percent compared to 30.4 percent in fiscal 2019.

The decrease was primarily due to higher shipping-related costs associated with the increase in e-commerce sales, increased distribution costs resulting from our investments in our distribution center, and the deleveraging effect of lower sales, primarily on occupancy costs, which are generally fixed in nature.

Selling, General and Administrative Expenses

Year-to-date SG&A decreased $3.0 million to $122.9 million on a year-to-date basis compared to $126.0 million in fiscal 2019.

The primary factors were as follows:

Store-level wages decreased $5.7 million.

This decrease was primarily attributable to an employee payroll retention tax credit, a component of the CARES Act that was signed into law in March 2020.

We have not furloughed any employees.

This credit lowered our payroll tax expense to support wages paid to our employees while they were not working.

E-commerce fulfillment costs increased $3.3 million due to higher sales through that channel.

Share-based compensation expense decreased approximately $1.5 million as fewer share-based awards were outstanding during fiscal 2020 and awards granted in the first quarter of fiscal 2020 were issued at a lower share price and vest over a longer period compared to awards granted in prior years.

Our deferred compensation plan experienced reduced returns compared to the prior year, which decreased operating expenses approximately $0.8 million year-over-year.

Depreciation and amortization included in selling, general and administrative expenses declined approximately $1.0 million year-over-year primarily due to operating fewer stores during fiscal 2020.

During fiscal 2020, we recorded impairment charges on long-lived assets totaling $2.5 million on eight underperforming stores, compared to $40,000 recorded in the prior year.

The effective income tax rate year-to-date for fiscal 2020 was 31.5% as compared to 18.6% for the same period in fiscal 2019.

The primary reason for the change in our effective tax rate was the $1.9 million tax benefit related to the vesting of equity-based compensation recognized in the first quarter of fiscal 2019 and the timing of other discrete tax adjustments.

SG&A expense was $190.5 million on a year-to-date basis, a decrease of $2.0 million compared to fiscal 2019.

The primary factors attributable to the decrease were lower store wages as a result of employee payroll retention tax credits related to the CARES Act and reductions in stock-based compensation expense and depreciation and amortization expense.

This overall decrease in SG&A expense was partially offset by increases in contracted services associated with e-commerce fulfillment, impairment charges on long-lived assets and advertising expense.

The effective income tax rate year-to-date for fiscal 2020 was 23.0 percent as compared to 20.9 percent for the same period in fiscal 2019.

The primary reason for the change in our effective tax rate was the $1.9 million tax benefit related to the vesting of stock-based compensation recognized in the first quarter of fiscal 2019 and the timing of other tax adjustments.

Liquidity and Capital Resources

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Our primary uses of cash are working capital needs, which are principally inventory purchases, store initiatives, dividend payments, the financing of capital projects, including investments in new systems, and various other commitments and obligations.

We have suspended repurchases under our share repurchase program to preserve liquidity during the COVID-19 pandemic.

We have voluntarily suspended repurchases under our share repurchase program to preserve liquidity during the COVID-19 pandemic.

Cash Flow - Operating Activities

Our net cash generated from operating activities was $26.2 million in the first six months of fiscal 2020 compared to net cash generated from operating activities of $10.0 million in the first six months of fiscal 2019.

The increase in operating cash flow was primarily driven by the timing of vendor payments for inventory, partially offset by reduced cash receipts on lower sales and our continued investment in software as a service hosted arrangements.

Working capital decreased to $200.1 million at August 1, 2020 from $212.3 million at August 3, 2019, primarily due to lower inventory positions and increased accounts payable compared to the first six months of fiscal 2019.

Our current ratio was 2.0 as of August 1, 2020 compared to 2.2 as of August 3, 2019.

Net cash generated from operating activities was $0.2 million on a year-to-date basis in fiscal 2020 compared to net cash generated from operating activities of $28.0 million during the same prior year period.

The decrease in operating cash flow was primarily driven by lower earnings.

Working capital was nearly flat on a year-over-year basis, totaling $214.9 million at October 31, 2020 and $214.4 million at November 2, 2019.

Our current ratio was 2.7 as of October 31, 2020 compared to 2.6 as of November 2, 2019.

Cash Flow – Investing Activities

Our cash outflows for investing activities are primarily for capital expenditures.

Year-to-date in fiscal 2020, we expended $7.2 million for the purchase of property and equipment, primarily related to investments in technology and normal asset replacement activities.

During the first half of fiscal 2019, we expended $11.5 million for the purchase of property and equipment, of which approximately $7.0 million was for the purchase of our corporate headquarters and the remainder was for continued investments in technology and normal asset replacement activities.

We expended $10.1 million on a year-to-date basis in fiscal 2020 for the purchase of property and equipment, primarily related to investments in our distribution center, new stores and remodels and normal asset replacement activities.

For the same prior year period, we expended $15.1 million for the purchase of property and equipment, of which approximately $7.0 million was for the purchase of our corporate headquarters and the remainder was for continued investments in technology and normal asset replacement activities.

Cash Flow – Financing Activities

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Our cash inflows from financing activities have represented purchases under our Employee Stock Purchase Plan and borrowings under our credit facility.

Year-to-date in fiscal 2020, net cash used in financing activities was $4.2 million compared to $28.1 million year-to-date in fiscal 2019.

The decrease in net cash used in financing activities was primarily due to the suspension of repurchases under our share repurchase program and fewer shares withheld upon the vesting of equity awards during the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019.

During fiscal 2020, we borrowed and repaid $24.9 million under our credit facility.

We had no outstanding borrowings under our credit facility at August 1, 2020.

Net cash used in financing activities was $5.4 million on a year-to-date basis in fiscal 2020 compared to $46.3 million in the same prior year period.

The decrease in net cash used in financing activities was primarily due to reduced stock buybacks under our share repurchase program and fewer shares withheld upon the vesting of equity awards during the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019.

Year-to-date in fiscal 2020, we borrowed and repaid $24.9 million under our credit facility.

Letters of credit outstanding were $1.2 million at August 1, 2020.

We had no outstanding borrowings under our credit facility at October 31, 2020.

During the same period in fiscal 2019, we borrowed and repaid $20.0 million under our credit facility.

Letters of credit outstanding were $1.2 million at October 31, 2020.

Our credit facility requires us to maintain compliance with various financial covenants, the most restrictive of which are disclosed in Note 7 – “Debt” to our Notes to Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.

W e were in compliance with these covenants as of August 1, 2020.

W e were in compliance with these covenants as of October 31, 2020.

Capital Expenditures

Capital expenditures for fiscal 2020, including actual expenditures during in the first half of that fiscal year, are expected to be $15 million to $16 million, with approximately $8 million to $10 million to be used for new stores, relocations and remodels and approximately $3 million to $4 million for upgrades to our distribution center.

Capital expenditures for fiscal 2020, including actual expenditures for the nine months ended October 31, 2020, are expected to be between $14 million and $15 million, with approximately $8 million to $9 million to be used for new stores, relocations and remodels and approximately $4 million for upgrades to our distribution center.

The remaining capital expenditures are expected to be incurred for various other store improvements, continued investments in technology and normal asset replacement activities.

The resources allocated to these projects are subject to near-term changes depending on the impacts associated with the COVID-19 pandemic.

Further, the actual amount of cash required for capital expenditures for store operations depends in part on the number of stores opened, the number of stores relocated, the amount of lease incentives, if any, received from landlords and the number of stores

Furthermore, the actual amount of cash required for capital expenditures for store operations depends in part on the number of stores opened, the number of stores relocated, the amount of lease incentives, if any, received from landlords and the number of stores remodeled.

The number of new store openings and relocations will be dependent upon, among other things, the availability of desirable locations, the negotiation of acceptable lease terms and general economic and business conditions affecting consumer spending.

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Increasing market penetration by opening new stores has historically been a key component of our growth strategy, and we continue to focus on generating positive long-term financial performance for our store portfolio.

In fiscal 2020, we expect to open four new stores within our existing 35-state geographic footprint, two of which were opened in the second quarter.

In the first half of fiscal 2020, we closed 12 stores.

We expect to close one additional store in fiscal 2020.

We expect to pursue opportunities for brick-and-mortar store growth across large and mid-size markets as we leverage customer data from our customer relationship management program and more attractive real estate options become available.

Further, our future store growth may continue to be impacted by the current economic uncertainty associated with the COVID-19 pandemic.

We continually analyze our portfolio of stores, with a concentration on underperforming stores, to meet our long-term goal of increasing shareholder value.

Our objective is to identify and address underperforming stores that produce low or negative contribution and either renegotiate lease terms, relocate or close the stores.

Even though store closings could reduce our overall net sales volume, we believe this strategy will realize long-term improvement in operating income and diluted net income per share.

Depending upon the results of lease negotiations with certain landlords of underperforming stores, we may increase or decrease the number of store closures in future periods.

The timing and actual amount of expense recorded in closing a store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout.

We will continue to review our store portfolio based on our view of the internal and external opportunities and challenges in the marketplace.

On June 11, 2020, our Board of Directors approved the payment of our second quarter cash dividend to our shareholders.

The second quarter dividend of $0.090 per share was paid on July 20, 2020 to our shareholders of record as of the close of business on July 6, 2020.

The amount per share represents a 5.9% increase over the first quarter dividend of $0.085 per share paid on April 20, 2020.

During fiscal 2019, the first quarter dividend was in the amount of $0.080 per share and the second quarter dividend was $0.085 per share.

During the first half of fiscal 2020 and 2019, we returned $2.6 million and $3.2 million, respectively, to our shareholders through our quarterly cash dividends.

In fiscal 2020, we opened four new stores within our existing 35-state geographic footprint, three of which were opened by the end of the third quarter and the remaining store was opened in November.

We closed 12 stores during the nine months ended October 31, 2020 and closed one additional store in November.

No additional store openings or closings are expected for fiscal 2020.

On September 15, 2020, our Board of Directors approved the payment of our third quarter cash dividend to our shareholders.

The third quarter dividend of $0.090 per share was paid on October 19, 2020 to our shareholders of record as of the close of business on October 5, 2020.

In fiscal 2019, the third quarter dividend was $0.085 per share.

During the nine months ended October 31, 2020 and November 2, 2019, we returned $3.9 million and $4.5 million, respectively, to our shareholders through our quarterly cash dividends.

The declaration and payment of any future dividends are at the discretion of the Board of Directors and will depend on our results of operations, financial condition, business conditions and other factors deemed relevant by our Board of Directors.

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The actual number and value of the shares to be purchased will depend on the performance of our stock price and other market conditions.

As of August 1, 2020, we had purchased approximately 184,000 shares at an aggregate cost of $6.9 million under this share repurchase program, and we had $43.1 million available for future repurchases.

No share repurchases have been made in fiscal 2020, and, given the uncertainty associated with the COVID-19 pandemic, we do not anticipate repurchasing any shares in fiscal 2020.

We purchased approximately 184,000 shares at an aggregate cost of $6.9 million under this share repurchase program in fiscal 2019.

No share repurchases have been made in fiscal 2020, and given the uncertainty associated with the COVID-19 pandemic, we do not anticipate repurchasing any shares under our share repurchase program in fiscal 2020.

However, we expect to reevaluate further share repurchases on an ongoing basis.

As of October 31, 2020, we had $43.1 million available for future repurchases.

The new share repurchase program replaced the prior $50.0 million share repurchase program that was authorized in December 2018 and expired in accordance with its terms on December 31, 2019.

At its expiration, we had purchased approximately 933,000 shares at an aggregate cost of $30.9 million under the prior repurchase program, including 411,168 shares of common stock at a total cost of $14.0 million year-to-date in fiscal 2019.

At its expiration, we had purchased approximately 933,000 shares at an aggregate cost of $30.9 million under the prior repurchase program.

Our credit facility stipulates that distributions in the form of redemptions of Equity Interests (as defined in the credit agreement) can be made solely with cash on hand so long as before and immediately after such distributions there are no revolving loans outstanding under the credit agreement .

See Note 7 – “Debt” to our Notes to Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a further discussion of our credit facility and its covenants.

Seasonality and Quarterly Results

Impact of Store Count and Seasonality on Quarterly Results

Our quarterly results of operations have fluctuated and are expected to continue to fluctuate in the future, primarily as a result of seasonal variances and the timing of sales and costs associated with opening new stores and closing underperforming stores.

Non-capital expenditures, such as advertising and payroll incurred prior to the opening of a new store, are charged to expense as incurred.

The timing and actual amount of expense recorded in closing an individual store can vary significantly depending, in part, on the period in which management commits to a closing plan, the remaining basis in the fixed assets to be disposed of at closing and the amount of any lease buyout.

Therefore, our results of operations may be adversely affected in any quarter in which we incur pre-opening expenses related to the opening of new stores or incur store closing costs related to the closure of existing stores.

We have three distinct peak selling periods:

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We canceled any seasonal merchandise that had a short selling window and moved seasonal merchandise with longer selling periods to later shipping dates, as applicable.

The back-to-school shopping period has also been impacted by the COVID-19 pandemic and is scheduled to start later and last longer than previous years in many of our markets.

In the last two weeks of the second quarter of fiscal 2020, we experienced comparable store sales declines compared to the same period in the prior year due to the delay in back-to-school start dates.

We anticipate that approximately 40% of school districts in the markets where we operate will return with virtual-only instruction, which may decrease our sales in those markets.

The back-to-school shopping period in fiscal 2020 started later and lasted longer than previous years in many of our markets.

In addition, approximately 10 percent of school districts in the markets where we operate have not yet returned to in-person learning, which decreased our sales in those markets.

Any other unanticipated decrease in demand for our products during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross margins and negatively affect our profitability.

We continually analyze our store portfolio and the potential for new stores based on our view of the internal and external opportunities and challenges in the marketplace.

In fiscal 2021 and beyond, we expect to pursue opportunities for store growth across large and mid-size markets as we leverage customer data from our customer relationship management program and more attractive real estate options become available.

When stores are identified that produce, or may potentially in the future produce, low or negative contribution, we either renegotiate lease terms, relocate it, or close it.

Even though store closings could reduce our overall net sales volume, we believe this strategy will realize long-term improvement in operating income and diluted net income per share.

Depending upon the results of lease negotiations with certain landlords of underperforming stores, we may increase or decrease the number of store closures in future periods.

Non-capital expenditures, such as advertising and payroll incurred prior to the opening of a new store, are charged to expense as incurred.

Our future store strategies may also continue to be impacted by the current economic uncertainty associated with the COVID-19 pandemic.

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