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Item 7. Management’s Discussion and Analysis

2021-03-26 compared with 2020-03-31 · 247 added, 198 removed, 112 unchanged (80% of the section changed)

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This section of this Annual Report on Form 10-K generally discusses fiscal 2020 and fiscal 2019 items and year-over-year comparisons between fiscal 2020 and fiscal 2019.

A detailed discussion of fiscal 2017 items and year-over-year comparisons between fiscal 2018 and fiscal 2017 that are not included in this Annual Report on Form 10-K can be found in PART II, ITEM 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019, filed with the United States Securities and Exchange Commission on April 2, 2019.

A discussion of fiscal 2018 and year-over-year comparisons between fiscal 2019 and fiscal 2018 that are not included in this Annual Report on Form 10-K can be found in PART II, ITEM 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, filed with the United States Securities and Exchange Commission on March 31, 2020.

At the end of this section of this Annual Report on Form 10-K, we have included historical data for the past five fiscal years to facilitate trend analysis of key data reported in our consolidated financial statements and other select operating data.

Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31.

Unless otherwise stated, references to fiscal years 2020, 2019 and 2018 relate to the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019, respectively.

Fiscal years 2020, 2019 and 2018 all consisted of 52 weeks.

Overview of Our Business

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.

We believe our distinctive shopping experi ence gives us various competitive advantages, including increased multiple unit sales;

We believe our distinctive shopping experience gives us various competitive advantages, including increased multiple unit sales;

the building of a loyal, repeat customer base;

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and enhanced sell-through of in-season goods.

A similar customer experience is reflected in our e-commerce site and mobile app through special promotions and limited time sales.

A similar customer experience is reflected in our e-commerce platform through special promotions and limited time sales.

Our objective is to be the destination retailer-of-choice for value-priced, on-trend branded and private label footwear.

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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.

Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31.

Unless otherwise stated, references to years 2019 and 2018 relate respectively to the fiscal years ended February 1, 2020 and February 2, 2019.

Both fiscal year 2019 and fiscal year 2018 consisted of 52 weeks.

Our e-commerce platform 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.

Comparable store sales is a key performance indicator for us.

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

Therefore, stores recently opened or closed are not included in comparable store sales.

We include e-commerce sales in our comparable store sales as a result of our multi-channel retailer strategy.

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

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

We continue to closely monitor and manage the impact of the COVID-19 pandemic, and the safety and well-being of our customers, employees and business partners remains a top priority.

The COVID-19 pandemic has significantly impacted, and is expected to continue to impact, our operations, supply chains, and overall economic conditions and consumer spending for the foreseeable future.

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.

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

Our e-commerce platform continued to operate, and our e-commerce sales increased significantly in fiscal 2020 as customers shifted purchases to our online channel.

We began reopening our physical stores in accordance

with applicable public health guidelines in late April 2020 .

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

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

In addition, changes in customer shopping habits due to the pandemic and government stimulus impacted our peak shopping periods throughout fiscal 2020.

We do not have any stores closed due to the pandemic as of January 30, 2021.

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.

These actions include:

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

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 from $50 million to $100 million and eliminating a covenant through the first quarter of fiscal year 2021 that may have limited our access to the increased borrowing capacity.

The facility is now collateralized by our inventory.

Voluntarily suspending repurchases under our share repurchase program.

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 certain landlords to defer approximately $3.1 million of April, May and June lease payments with the deferrals substantially repaid over the remainder of fiscal 2020.

We continued to recognize lease expense on a straight-line basis.

Temporarily lowering 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 physical stores and evaluating promotional activities.

Executive Summary

Net income increased 12.5% to $42.9 million in fiscal 2019, or $2.92 per diluted share, compared to net income of $38.1 million, or $2.45 per diluted share, in fiscal 2018.

Comparable store sales increased by 1.9% in fiscal 2019 and we generated low-single digit improvements in our conversion rate and units per transaction.

Store traffic was flat in fiscal 2019 compared to fiscal 2018.

Fiscal 2019 contains a $1.9 million, or $0.13 per diluted share, tax benefit associated with stock-based compensation awards.

Highlights of our performance in fiscal 2019 compared to the prior year are presented below, followed by a more comprehensive discussion under “Results of Operations”:

Net sales increased $6.9 million, or 0.7%, during fiscal 2019 to a record $1.037 billion compared to fiscal 2018.

Comparable store sales increased 1.9% in fiscal 2019 primarily due to strong sales in our non-athletic and accessories departments.

Women’s non-athletics posted a mid-single digit increase in comparable store sales with women’s sport posting a high single digit increase.

Men’s non-athletics posted a mid-single digit increase in comparable store sales, with men’s boots posting a low double-digit increase.

Children’s non-athletics also posted a mid-single digit increase in comparable store sales, with the infant category posting a low double-digit increase in comparable store sales.

Moreover, children’s athletics posted a low-single digit increase and our accessories department posted a high-single digit increase in comparable store sales.

Our gross profi t margin slightly increased to 30.

1 % in fiscal 201 9 from 30.0 % in the prior year.

Our merchandise margin increased 0.

3 % , but was partially offset by increases in b uying, distribution and occupancy costs, which as a percentage of sales in creased 0.

2 % compa red to the prior year .

We repurchased approximately 1.1 million shares of common stock during fiscal 2019 at a total cost of $37.8 million under our share repurchase programs and ended fiscal 2019 with $61.9 million in cash and cash equivalents and no outstanding debt.

During fiscal 2019, we continued to invest in CRM and completed the launch of our new, upgraded CRM platform in the third quarter of fiscal 2019.

This new platform includes a new production CRM database for a single source of customer information, identity resolution for multiple customer records, a new loyalty management platform and a new campaign management solution.

In fiscal 2019, we partnered with a third-party developer to deploy the necessary platforms to enhance our supply chain and order processing systems.

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.

We expect these systems to go live in mid fiscal 2020.

In fiscal 2019, we increased membership in our Shoe Perks customer loyalty program by an additional 2.4 million members, which brought total membership to 23.9 million customers at the end of the 2019 fiscal year.

For the 2019 fiscal year, member sales accounted for approximately 70% of our comparable total net sales, and members on average spent 19% more per transaction than non-members.

Our most loyal customers, those who qualify for the Gold tier, represent approximately 15% of our Shoe Perks members, and the average transaction value for these customers was 38% higher than non-Gold tier Shoe Perks members in fiscal 2019.

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.

We closed six stores during the year, opened one store and relocated four stores.

Our sales patterns throughout fiscal 2020 were significantly impacted by the COVID-19 pandemic.

In the first quarter of fiscal 2020, we sustained unprecedented comparable store sales declines and losses due to the temporary closure of our physical stores.

Throughout the remainder of fiscal 2020, we experienced considerable sales growth compared to fiscal 2019.

Fiscal 2020 annual highlights included:

Record second quarter net sales despite a COVID-related shift in back-to-school shopping, as the timing of back-to-school start dates were delayed in the markets we serve.

Record third quarter gross profit, net income and diluted net income per share.

Record fourth quarter net sales, net income and diluted net income per share, partially attributable to government stimulus late in 2020.

During fiscal 2020, comparable store sales decreased 42.3% in the first quarter, followed by comparable store sales increases of 12.6% in the second quarter, 0.9% in the third quarter and 6.4% in the fourth quarter.

Throughout fiscal 2020, sales through our e-commerce platform increased approximately 175% compared to fiscal 2019.

In addition, in fiscal 2020, we experienced high demand for athletics and leisure product and reduced demand for adult dress product.

We believe this reflects a more casual and active lifestyle in response to the COVID-19 pandemic.

The following tables illustrate the quarterly impact of our temporary store closures through June 2020 due to the COVID-19 pandemic:

(In thousands, except per share amounts)

Second through

Fourth Quarters

Full Fiscal Year

Operating (loss)/income

Net (loss)/income

Net (loss)/income per share – Diluted 1

Second through

Fourth Quarters

Full Fiscal Year

Operating income

Net income per share – Diluted 1

Per share amounts are computed independently for each quarter.

For per share amounts, the sum of the quarters does not equal the total year due to the impact of changes in weighted shares outstanding and differing applications of earnings as prescribed by accounting guidance.

Included in fiscal 2019 earnings is the first quarter impact of a tax benefit associated with the vesting of equity-based compensation of approximately $1.9 million, or $0.13 per diluted share.

Highlights of our performance in fiscal 2020 compared to the prior year are as follows:

Fiscal 2020 net sales decreased $59.8 million to $976.8 million.

This included a $106.3 million decrease in first quarter net sales followed by an increase in sales over the remainder of the fiscal year.

Net sales in the first quarter of fiscal 2020 declined primarily due to the temporary closure of our physical stores for approximately 50% of the quarter.

Fiscal 2020 comparable store sales decreased 5.3% due to a 42.3% decrease in comparable store sales in the first quarter followed by a 6.9% cumulative increase over the remaining three fiscal quarters.

E-commerce sales increased approximately 175% compared to fiscal 2019 and represented approximately 19% of merchandise sales in fiscal 2020 compared to 6% of merchandise sales in fiscal 2019.

Net income for fiscal 2020 was $16.0 million, or $1.12 per diluted share, compared to net income of $42.9 million, or $2.92 per diluted share, in fiscal 2019.

Net income and diluted net income per share decreased primarily due to the temporary physical store closures in the first quarter of fiscal 2020.

We did, however, experience earnings growth in the second half of fiscal 2020 primarily due to shifts in back-to-school shopping, government stimulus, and our ability to replenish high demand product during peak shopping periods.

Gross profit in fiscal 2020 was $280.0 million, a $31.9 million decrease compared to fiscal 2019.

As a percentage of net sales, gross profit decreased 1.4% to 28.7%.

The decrease was primarily attributable to an increase in shipping costs associated with higher e-commerce sales and the deleveraging effect of certain fixed costs against a lower sales base.

As of January 30, 2021, we had no debt outstanding and $106.5 million of cash and cash equivalents.

In fiscal 2020, we continued to increase membership in our Shoe Perks customer loyalty program, approaching 10% growth compared to fiscal 2019.

This brought total membership in the program to over 26 million customers as of January 30, 2021.

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 fiscal 2020, we launched a new order management system to support our growing multi-channel business.

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

These upgrades reflect our goals of implementing best practices and systems to meet the complex demands of multi-channel fulfillment, building the capacity needed to fulfill increased activity from our multi-channel business and positioning ourselves for long-term growth.

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

This cloud-based platform is a multi-year project that includes a complete range of critical financial planning functions that will enhance the efficiency and effectiveness of our merchandise buying process.

We closed 13 stores during fiscal 2020 and opened four stores.

We ended fiscal 2020 with 383 stores.

We adopted a new lease accounting standard in the first quarter of fiscal 2019.

This new guidance required us to recognize our operating leases and the rights and obligations created by these leases on the balance sheet in the form of right-of-use assets and lease liabilities.

Based on our assessment of the guidance, we recorded lease liabilities of $251.7 million upon adoption based on the present value of the remaining lease payments.

We recorded a corresponding right-of-use asset on the balance sheet based on the operating lease liabilities, reduced by net accrued rent, unamortized deferred lease incentives and prepaid rent totaling $25.8 million.

The new lease standard did not change the presentation of occupancy expense on our income statement and did not have a material impact on the amount of occupancy expense we recorded in cost of sales relative to legacy guidance.

The COVID-19 pandemic has significantly impacted our store operations, sales and costs beginning in the first quarter of fiscal 2020.

Impacts have included the temporary closure of our brick-and-mortar stores effective March 19, 2020 to April 2, 2020, reduced foot traffic and sales prior to such time, deteriorating economic conditions for our customer base and some disruption to our global supply chain.

The impact caused by COVID-19 on our operations and the operations of our business partners will continue to be fluid over the course of fiscal 2020 as our operations, economic conditions, supply chains and consumer spending adapt to the impacts of this virus being present where we operate, procure merchandise and raise capital.

As guidance and mandates from governments and health officials continue to evolve, closures to some, or all, of our operations will need to extend beyond the announced closure period.

In addition, certain projects and expansion opportunities will likely experience some delay as a result of the need for social distancing to control the virus and the need to allocate resources to address the impacts associated with COVID-19.

Our plan for fiscal 2020 is to manage the effect of COVID-19 on our operations and to continue to focus on key strategic objectives in order to create sustainable long-term growth for our shareholders.

O ur core initiatives include :

Customer Relationship Management – In fiscal 2020, we will continue to build our CRM program in order to capture actionable insights and enhance value for our consumers.

Our marketing, merchandising, analytics and real estate teams will continue to leverage the new CRM platform in order to further shape our holistic view of customer shopping habits and identify our most valuable customers.

We will continue to engage in focused marketing activities in order to attract and grow our Shoe Perks loyalty program, especially our Gold membership tier, which offers our highest level of customer rewards and benefits.

In fiscal 2020, our teams will capture new shopper insights, giving us confidence that our CRM capability will fuel long-term growth, customer satisfaction and customer engagement.

Brand Awareness – Our second core strategy is building Shoe Carnival brand awareness and preference within the family footwear channel.

During fiscal 2019, we launched our first fully integrated campaign with our new advertising agency, and we plan to continue to drive brand growth and reach customers in new and meaningful ways in fiscal 2020.

In fiscal 2020, we will continue to combine innovative marketing campaigns with strong merchandising in order to drive comparable store sales and traffic and optimize conversion.

E-commerce – We launched our online business in 2012.

Since this launch, we have been committed to developing an e-commerce and integrated multi-channel strategy that resonates with our customers and reflects our customer centric brand.

In fiscal 2020, we will continue to build capabilities and integrate our CRM program with our online platform in order to enhance our customer’s journey and drive growth online and across all aspects of our multi-channel business.

Our long-term objective is to grow our multi-channel sales, including our e-commerce business, to over 10% of our total net sales from approximately 8% in fiscal 2019.

Real Estate – Opening and repositioning stores to capture customer shopping preferences is our fourth core strategic growth opportunity.

As part of our strategic initiatives, we plan to open a limited number of new stores in fiscal 2020 and more stores in fiscal 2021.

Our strategic plans are focused on growth within our existing 35-state geographic footprint.

Moreover, we plan on leveraging the new insights that we gain from our CRM program to optimize our site selection and real estate decision making processes.

In fiscal 2021 we will continue to lay the foundation for growth through investments in our e-commerce platform, investments in our customer relationship capabilities and investments in our store experience.

We believe these enhancements will reinforce our customer-centric focus and strengthen our unique Shoe Carnival brand.

Over the next fiscal year, we remain committed to providing customers with a preferred shopping experience and broad product assortment which is core to our long-term strategy.

Following is a summary of certain strategic initiatives and goals for fiscal 2021:

Continue to manage the effect of COVID-19 on our operations and protect the health and safety of our customers, associates and vendor partners.

Maintain the growth and market share of our multi-channel platform.

Navigate and manage the growing import disruption that has begun to impact our supply chain.

Leverage our recent leadership changes and leadership experience to drive shareholder value.

Start modernizing our stores through design enhancements with the goal of modernizing two-thirds of our stores in the next three to five years.

Leverage our CRM capabilities to increase personalized, segmented marketing, decrease broad-based promotional intensity, and enhance our vendor relationships.

Implement the financial planning phase of our new merchandise planning system and continue to increase the productivity of other recently implemented systems.

Critical Accounting Policies

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The accounting policies that require more significant judgment are included below.

Furthermore, as the COVID-19 pandemic has had a significant impact on our financial performance in fiscal 2020, we evaluated this impact on the related accounting estimates and assumptions described in these critical polices and throughout our consolidated financial statements.

Merchandise Inventories – Our merchandise inventories are stated at the lower of cost or net realizable value as of the balance sheet date and consist primarily of dress, casual and athletic footwear for women, men and children.

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We reduce the value of our inventory to its estimated net realizable value where cost exceeds the estimated future selling price.

Merchandise inventories as of February 1, 2020, totaled $259.5 million, representing approximately 41% of total assets.

Merchandise inventories as of January 30, 2021 , totaled $233.3 million , representing approximately 36% of total assets.

Merchandise inventories as of February 1, 2020 , totaled $259.5 million , representing approximately 41% of total assets .

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This evaluation includes performing an analysis of the estimated undiscounted future cash flows of the long-lived assets.

Assets are grouped an d the evaluation performed at the lowest level for which there are identifiable cash flows, which is generally at a store level.

Assets are grouped and the evaluation performed at the lowest level for which there are identifiable cash flows, which is generally at a store level.

If the estimated future cash flows for a store are determined to be less than the carrying value of the store’s assets, an impairment loss is recorded for the difference between the estimated fair value and the carrying value.

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842 – Leases (“ASC 842”), which we adopted in fiscal 2019, on the lease commencement date we recognize a right-of-use asset for the right to use a leased asset and a liability based on the present value of remaining lease payments over the lease term.

The weighted average discount rate utilized in fiscal 2019 was 5.5%.

The weighted average discount rate utilized in fiscal 2020 was 5.2% and was 5.5% in fiscal 2019.

As of the date of adoption of ASC 842 and for new leases, renewals or amendments, we make certain estimates and assumptions regarding property values, market rents, property lives, discount rates and probable terms.

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When determining the lease term, we include options that are reasonably certain to be exercised.

Insurance Reserves – We self-insure a significant portion of our workers’ compensation, general liability and employee health care costs and also maintain insurance in each area of risk to protect us from individual and aggregate losses over specified dollar values.

Self-insurance reserves include estimates of claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported.

These estimates take into consideration a number of factors, including historical claims experience, severity factors, statistical trends and, in certain instances, valuation assistance provided by independent third parties.

As of February 1, 2020 and February 2, 2019, our self-insurance reserves totaled $2.7 million and $3.4 million, respectively.

While we believe that the recorded amounts are adequate, there can be no assurance that changes to management’s estimates will not occur due to limitations inherent in the estimating process.

If actual results are not consistent with our estimates or assumptions, we may be exposed to future losses or gains that could be material.

Income Taxes – As part of the process of preparing our consolidated financial statements, we are required to estimate our current and future income taxes for each tax jurisd iction in which we operate.

Significant judgment is required in determining our annual tax expense and evaluating our tax positions.

As a part of this process, deferred tax assets and liabilities are recognized based on the difference between the consoli dated financial statement carrying amounts of existing assets and liabilities and their respective tax bas e s.

Our temporary timing differences relate primarily to inventory, depreciation, accrued expenses, deferred lease incentives and stock-based compens ation.

Deferred tax assets and liabilities are measured using the tax rates enacted and expected to be in effect in the years when those temporary diffe rences are expected to reverse.

Deferred tax assets are reduced, if necessary, by a valuation allowanc e to the extent future realization of those tax benefits are uncertain.

As a part of this process, deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bas i s.

Our temporary timing differences relate primarily to inventory, depreciation, a ccrued expenses, right-of-use assets, operating lease liabilities and stock-based compensation.

Deferred tax assets and liabilities are measured using the tax rates enacted and expected to be in effect in the years when those temporary differences are expected to reverse.

Deferred tax assets are reduced, if necessary, by a valuation allowance to the extent future realization of those tax benefits are uncertain.

We are also required to make many subjective assumptions and judgments regarding our income tax exposures when accounting for uncertain tax positions associated with our income tax filings.

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Income tax expense

In the regular course of business, we offer our customers sales incentives, including coupons, discounts, and free merchandise.

We offer our customers sales incentives, including coupons, discounts, and free merchandise.

Sales are recorded net of such incentives and returns and allowances.

If an incentive involves free merchandise, that merchandise is recorded as a zero sale and the cost is included in cost of sales.

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

Therefore, stores opened or closed during the periods indicated are not included in comparable store sales.

We include e-commerce sales in our comparable store sales as a result of our multi-channel retailer strategy.

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

2019 Compared to 2018

Net sales increased $6.9 million to $1.037 billion for fiscal 2019, a 0.7% increase from net sales of $1.030 billion for fiscal 2018.

Of this increase in net sales, $20.2 million was attributable to the 1.9% increase in comparable store sales, as we generated low-single digit improvements in our conversion rate and units per transaction, even though traffic was flat in fiscal 2019 compared to fiscal 2018, and $4.6 million was attributable to the four new stores opened since the beginning of fiscal 2018.

The increase in net sales was partially offset by a loss in sales of $16.1 million from the 20 stores closed since the beginning of fiscal 2018 and a decrease in sales of $1.8 million attributable to our other non-comparable stores in fiscal 2019.

Gross profit increased $2.9 million to $311.9 million in fiscal 2019 primarily due to higher sales.

Our gross profit margin slightly increased to 30.1% in fiscal 2019 from 30.0% in the prior year.

Our merchandise margin increased 0.3% primarily due to higher sales in the women’s non-athletic category, which typically carry a higher margin.

Buying, distribution and occupancy costs, as a percentage of sales, increased 0.2% compared to the prior year primarily due to lower occupancy expense during fiscal 2018 as a result of a $1.0 million lease termination benefit recognized for two stores in Puerto Rico where the landlord failed to make contractually required repairs.

Fiscal 2020 Compared to Fiscal 2019

Net sales decreased $59.8 million to $976.8 million in fiscal 2020, a 5.8% decrease from net sales of $1.037 billion in fiscal 2019.

Of this decrease in net sales, approximately $106.3 million occurred in the first quarter of fiscal 2020.

During the first quarter of fiscal 2020, our physical stores were temporarily closed for approximately 50% of the quarter due to the COVID-19 pandemic.

Fiscal 2020 comparable store sales decreased 5.3% primarily due to a 42.3% decrease in comparable store sales in the first quarter.

Comparable store sales increased 6.9% over the remainder of the fiscal year.

We experienced increases in conversion but experienced lower traffic throughout fiscal 2020 in our physical stores, which led to lower physical store sales.

The decrease in physical store sales was partially offset by an increase in e-commerce sales of approximately 175% as customers shifted to online shopping amid government mandated stay-at-home orders and ongoing health concerns.

Gross profit decreased $31.9 million to $280.0 million in fiscal 2020 primarily due to lower sales.

Our gross profit margin decreased 1.4% to 28.7% in fiscal 2020.

Our merchandise margin decreased 0.6% primarily due to increased shipping costs associated with higher e-commerce sales.

The decrease in merchandise margin was partially offset by being less promotional throughout fiscal 2020.

Buying, distribution and occupancy costs, as a percentage of sales, increased 0.8% compared to fiscal 2019 primarily due to increased distribution costs resulting from recent investments in our distribution center, and the deleveraging effect of lower sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $1.6 million to $257.7 million in fiscal 2019 compared to $259.2 million in the prior year.

As a percentage of sales, these expenses decreased to 24.9% in fiscal 2019 from 25.2% in fiscal 2018.

On an overall basis, the decrease in selling, general and administrative expenses was primarily driven by decreases in incentive and stock-based compensation expense and store closing and impairment costs, partially offset by increases in payroll and related benefits.

Significant changes in expense between the periods were as follows:

Stock-based compensation expense decreased $3.7 million in fiscal 2019 compared to fiscal 2018 primarily due to the vesting of awards granted prior to fiscal 2017 in March 2019 and higher expense in fiscal 2018 associated with awards granted in fiscal 2017 and fiscal 2018 due to our financial performance.

Incentive compensation expense decreased $3.1 million in fiscal 2019 compared to fiscal 2018.

This decrease was primarily attributable to above target incentive compensation earned in fiscal 2018 compared to target performance earned in fiscal 2019.

Expense associated with our nonqualified deferred compensation plans increased $1.9 million during fiscal 2019 compared to fiscal 2018 due to increased market returns in fiscal 2019.

As noted below, closing costs and impairments decreased by $1.1 million as a result of less closures in fiscal 2019 compared to fiscal 2018.

Payroll and benefits increased $4.3 million in fiscal 2019 compared to fiscal 2018, primarily attributable to payroll at our stores.

Pre-Opening Costs

In fiscal 2019, pre-opening costs included in selling, general and administrative expenses were $43,000 compared to $208,000 for fiscal 2018.

We opened one store during fiscal 2019 compared to three stores in fiscal 2018 at an average pre-opening cost of $69,000.

Per store pre-opening expense decreased between years primarily due to lower advertising costs.

Pre-opening costs, such as payroll, most forms of advertising and supplies incurred prior to the opening of a new store, are charged to expense in the period in which they are incurred.

Advertising related to external production costs is expensed when the advertisement first takes place.

The total amount of pre-opening expense incurred will vary by store depending on the specific market and the promotional activities involved.

Store Closing Costs and Impairments

The portion of store closing costs included in selling, general and administrative expenses for fiscal 2019 was $1.7 million.

Store closing costs in fiscal 2019 were related to the six stores we closed during the year and acceleration of expenses associated with management’s determination to close certain underperforming stores in future periods.

From our evaluations performed during fiscal 2019, we recorded impairments of long-lived assets of $1.2 million on 11 underperforming stores.

The portion of store closing costs included in selling, general and administrative expenses for fiscal 2018 was $2.8 million.

Store closing costs in fiscal 2018 were related to the 14 stores we closed during the year and acceleration of expenses associated with management’s determination to close certain underperforming stores in future periods.

There were no impairments of long-lived assets recorded in fiscal 2018.

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 cost incurred in terminating the lease.

Selling, general and administrative expenses were $258.1 million in fiscal 2020, an increase of $0.5 million compared to fiscal 2019.

The primary factors attributable to the increase were e-commerce fulfillment, impairment charges on long-lived assets and store opening and closing costs (see “Impact of Store Count and Seasonality on Quarterly Results” below for more detail) and advertising expense.

The overall increase in SG&A expense was partially offset by lower store wages as a result of employee payroll retention tax credits related to the CARES Act, reductions in stock-based compensation expense and lower depreciation and amortization expense.

Interest Income and Interest Expense

Throughout fiscal 2020, we experienced a net $0.9 million decrease in our income before income taxes compared to fiscal 2019 due to decreased interest income and an increase in interest expense.

The primary reason for the decrease was lower interest earned on our cash and cash equivalents and increased commitment fees associated with our larger credit facility.

The effective income tax rate for fiscal 2020 was 25.8% compared to 21.6% for fiscal 2019.

Our effective tax rate decreased in fiscal 2019 primarily due to a $1.9 million tax benefit related to the vesting of stock-based compensation recognized during fiscal 2019.

The primary reason for the change in our effective tax rate was a $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

Our primary sources of liquidity are cash and cash equivalents on hand of $61.9 million, cash generated from operations and availability under our $50 million credit facility.

While the impact of the COVID-19 pandemic, including our decision to temporarily close our stores, makes our operating cash flow less predictable, we believe our resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months.

Our primary uses of cash are for working capital, which are principally inventory purchases, store initiatives, potential dividend payments, potential share repurchases under our share repurchase program, the financing of capital projects, including investments in new systems, and various other commitments and obligations.

Our primary sources of liquidity are $106.5 million of cash and cash equivalents on hand as of fiscal 2020 year end, cash generated from operations and availability under our $100 million credit facility.

During fiscal 2020, we amended our credit facility to increase its capacity to $100 million from $50 million and waive a covenant through the first quarter of 2021 in order to access the additional borrowing capacity if needed.

As part of these amendments, the facility is now collateralized by our inventory.

See Note 7 – “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our credit facility and its covenants.

While the continued economic uncertainty and future effects on customer behavior caused by the COVID-19 pandemic makes our operating cash flow less predictable, we believe our resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months.

Our primary uses of cash are for working capital, which are principally inventory purchases, store initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program, the financing of capital projects, including investments in new systems, and various other commitments and obligations.

Cash Flow - Operating Activities

Our net cash provided by operating activities was $63.4 million and $66.9 million in fiscal years 2020 and 2019, respectively.

These amounts reflect our income from operations adjusted for non-cash items and working capital changes.

The $7.2 million decrease in operating cash flow was primarily due to payments related to developing our new CRM platform and our new traffic management, warehouse management and order management systems, which are hosted arrangements.

The current ratio was 2.7 as of February 1, 2020 compared to 4.8 as of February 2, 2019.

This decrease was primarily due to classifying a portion of our operating lease liabilities as current in fiscal 2019 due to the adoption of the new lease accounting guidance.

These amounts reflect our income from operations adjusted for non-cash items and working capital and other changes.

The $3.5 million decrease in operating cash flow was primarily due to reduced earnings as a result of the pandemic, partially offset by lower inventory near year end.

The current ratio was 2.7 at both January 30, 2021 and February 1, 2020.

Cash Flow - Investing Activities

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

During fiscal 2020, we expended $12.4 million for the purchase of property and equipment, $5.9 million of which was for the construction of four new stores and the remodeling and relocation of existing stores, and $3.1 million was for investments in our distribution center.

During fiscal 2019, we expended $18.5 million for the purchase of property and equipment, $7.1 million of which was for the purchase of our corporate headquarters and $3.3 million was for the construction of one new store and the remodeling and relocation of existing stores.

During fiscal 2018, we expended $7.4 million for the purchase of property and equipment, $2.5 million of which was for the construction of new stores, remodeling and relocations.

Cash Flow - Financing Activities

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Shares of our common stock can be either acquired as part of a publicly announced repurchase program or withheld by us in connection with employee payroll tax withholding upon the vesting of equity awards.

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

Our cash inflows from financing activities generally reflect stock issuances to employees under our Employee Stock Purchase Plan and borrowings under our credit facility.

During fiscal 2020, net cash used in financing activities was $6.7 million compared to $54.3 million during fiscal 2019.

The increase in net cash used in financing activities between years was primarily due to a $10.7 million year-over-year increase for shares withheld upon the vesting of equity awards , partially offset by an $8.

3 million de crease in common stock repurchased as part of our stock repurchase program.

There were no borrowings outstanding under our credit facility and letters of credit outstanding were $1.2 million at February 1, 2020.

As of February 1, 2020, $48.8 million was available to us for additional borrowings under the credit facility.

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

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

At January 30, 2021, there were no borrowings outstanding under our credit facility and letters of credit outstanding were $1.2 million.

As of January 30, 2021, $98.8 million was available to us for additional borrowings under the credit facility.

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 Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K.

We were in compliance with these covenants at February 1, 2020.

We were in compliance with these covenants at January 30, 2021.

Store Openings and Closings – Fiscal 2021

We expect to realize positive long-term financial performance for our store portfolio.

We utilize a formal review process in our evaluation of potential new store sites as well as for decisions surrounding leases on existing store locations.

Our approach is both qualitative and quantitative in nature.

We continually enhance this process with tools such as real estate software used for portfolio analysis that aid in identifying viable locations for future expansion and identifying potential store closings and relocations, as well as additional information we learn about customers from our new CRM platform.

In fiscal 2019, we opened one new store.

The initial inventory investment for the new store was $683,000, capital expenditures were $236,000 and lease incentives received from our landlord were $120,000.

Pre-opening expenses for the store opened in fiscal 2019 included in cost of sales and selling, general and administrative expenses were approximately $59,000.

Items classified as pre-opening expenses include rent, freight, advertising, salaries and supplies.

During fiscal 2018, we opened three new stores and expended $288,000 in pre-opening expenses, or an average of $96,000 per store.

The decrease in the average expense per new store was primarily the result of a decrease in advertising expense.

We closed six stores during fiscal 2019 and 14 stores during fiscal 2018.

Total store closing costs were $1.3 million in fiscal 2019 and $554,000 in fiscal 2018.

Store closing costs include impairments of long-lived assets, fixed asset write-offs, employee severances, lease termination fees and store tear-down and clean-up expenses associated with closing a store, and acceleration of expenses and deferred lease incentives associated with management’s determination to close certain underperforming stores in future periods.

In fiscal 2019, store closing costs included non-cash impairment charges on fixed assets of $1.2 million.

There were no impairments of long-lived assets recorded in fiscal 2018.

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.

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 2021, we expect to open a limited number of new stores within our existing geographic footprint, and we expect to close approximately nine stores.

Capital Expenditures – Fiscal 2021

Capital expenditures are expected to be $23 million to $25 million in fiscal 2021 and lease incentives from landlords are expected to be approximately $2 million.

Of our total capital expenditures, approximately $4 million are expected to be used for new store construction, approximately $6 million are expected to be used for store relocations and remodels and approximately $4 million are expected to be used to upgrade 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.

Of our total capital expenditures, approximately $16 million are expected to be used for new store construction and relocations, with the majority expected to be used for store remodels.

Moreover, approximately $2 million are expected to be used for the ongoing upgrade of our distribution center.

The remaining capital expenditures are expected to be incurred for various other store improvements, enhancements to our e-commerce platform, 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 remodeled.

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.

Store Openings and Closings – Fiscal 2020

2020, we expect to open a limited number of new stores within our existing 35-state geographic footprint, and we also expect store closings to occur .

W e expect to pursue opportunities for brick-and-mortar store growth across large and mid-size markets as we lev erage customer data from our CRM program and more attractive real estate options become available.

Further, our future store growth may continue to be impacted by the current econom ic 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.

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

In fiscal 2020, four quarterly cash dividends were approved and paid.

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Share Repurchase Program

On December 12, 2019, our Board of Directors authorized a new share repurchase program for up to $50 million of outstanding common stock, effective January 1, 2020.

On December 15, 2020, our Board of Directors authorized a share repurchase program for up to $50 million of our outstanding common stock, effective January 1, 2021 (the “2021 Share Repurchase Program”).

The purchases may be made in the open market or through privately negotiated transactions from time-to-time through December 31, 2021 and in accordance with applicable laws, rules and regulations.

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

We do not anticipate repurchasing any shares in fiscal 2020 but will continue to reevaluate further share repurchases on an ongoing basis.

The new share repurchase program replaced the prior $50 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.

The 2021 Share Repurchase Program replaced a $50 million share repurchase program that was authorized in December 2019, became effective January 1, 2020 and expired in accordance with its terms on December 31, 2020.

Share repurchases pursuant to previous Board-approved share repurchase programs were approximately 1,117,000 shares at an aggregate cost of $37.8 million in fiscal 2019 and approximately 1,527,000 shares at an aggregate cost of $46.0 million in fiscal 2018.

Due to uncertainty related to the COVID-19 pandemic, no share repurchases were made in fiscal 2020.

We plan to resume the repurchase of shares under the 2021 Share Repurchase Program in fiscal 2021 under the assumption that general economic conditions will stabilize and the pandemic will have significantly less impact on our performance and operations.

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 .

Contractual Obligations

Significant contractual obligations as of February 1, 2020 and the fiscal years in which payments are due include:

(In thousands)

Payments Due By Fiscal Year

Contractual Obligations

Letters of credit

Operating leases

Purchase commitments

Deferred compensation

Total contractual obligations

For purposes of our contractual obligations table above, we have assumed that we will make all payments scheduled or reasonably estimated to be made under those obligations that have a determinable expiration date.

We have disregarded the possibility that such obligations may be prematurely terminated or extended, whether automatically by the terms of the obligation or by agreement between us and the counterparty, due to the speculative nature of premature termination or extension.

Except for operating leases, the balances included in the “2025 and after” column of the contractual obligations table include amounts for which we are not able to reasonably estimate the timing of the potential future payments.

Estimated interest payments on our credit facility are not included in the above table, as our credit facility provides for frequent borrowing and/or repayment activities, which does not lend itself to reliable forecasting for disclosure purposes.

See Note 7 – “Debt”, Note 8 – “Leases”, Note 9 – “Income Taxes” and Note 10 – “Employee Benefit Plans” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our contractual obligations.

Off-Balance Sheet Arrangements

There were no assignments of operating leases to third parties in fiscal 2019 or 2018.

We did not have any off-balance sheet arrangements as of February 1, 2020.

Rent-related payments made in fiscal 2020 totaled $76.1 million.

As we are contractually obligated to make lease payments to landlords, estimated future payments to landlords and lease-related charges are expected to be significant in future years and consistent with the total amount paid in fiscal 2020.

These payments include estimates for fixed minimum and contingent rent, estimated reimbursements to landlords for common area maintenance, taxes and insurance and other lease related charges.

See Note 8 – “Leases” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for further discussion of our lease obligations.

Seasonality and 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.

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.

Impact of Store Count and Seasonality on Quarterly Results

underperforming stores.

As discussed in the Executive Summary, our fiscal 2020 quarterly results were significantly impacted by the COVID-19 pandemic.

As illustrated in the chart below, our f irst quarter fiscal 2020 net sales and earnings significantly declined due to the temporary closure of our physical stores for ap proximately 50% of the quarter.

(Unaudited, In thousands, except per share amounts)

Operating (loss)/income

Net (loss)/income

Net (loss)/income per share – Diluted 1

Operating income

Net income per share – Diluted 1

1) Per share amounts are computed independently for each of the quarters presented.

For per share amounts, the sum of the quarters may not equal the total year due to the impact of changes in weighted shares outstanding and differing applications of earnings as prescribed by accounting guidance.

We have three distinct peak selling periods:

Easter, back-to-school and Christmas.

To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other parts of the year.

We expect reduced sales during the fiscal 2020 Easter season as a result of the COVID-19 pandemic.

This expected reduction and 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.

Our operating results depend significantly upon the sales generated during these periods.

New Accounting Pronouncements

Recent accounting pronouncements applicable to our operations are contained in Note 16 – “New Accounting Pronouncements,” contained in the Notes to Consolidated Financial Statements included in PART II, ITEM 8 of this Annual Report on Form 10-K.

QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in that the interest payable on our credit facility is based on variable interest rates and therefore is affected by changes in market rates.

We do not use interest rate derivative instruments to manage exposure to changes in market interest rates.

We borrowed $20 million under our credit facility in July 2019, which we repaid prior to the end of the second quarter ended August 3, 2019.

A 1% change in the weighted average interest rate charged under the credit facility would not have yielded a material fluctuation of interest expense for fiscal 2019.

To prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other periods of the year.

We experienced reduced sales during the fiscal 2020 Easter season as a result of the COVID-19 pandemic.

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 in fiscal 2020 started later and lasted longer than previous years in many of our markets.

In addition, approximately 10% of school districts in the markets where we operate did not return to in-person learning, which decreased our sales in those markets.

Our holiday shopping season was also impacted by the effects of COVID-19 on customer shopping habits and discretionary income associated with government stimulus provided in late fiscal 2020.

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

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

As part of our long-term growth strategy, 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 we identify a store that produces or may potentially produce, low or negative contribution, we either renegotiate lease terms, relocate or close the store.

In instances when underperformance indicates the carrying value of a store’s assets may not be recoverable, we impair the store.

Although 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.

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.

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

Store Openings, Closings and Impairment Charges – Impact on Fiscal 2020 and Fiscal 2019

In fiscal 2020, we opened four new stores.

The average initial inventory investment for new stores in fiscal 2020 was $578,000, capital expenditures were $973,000 and lease incentives received from our landlord were $448,000.

In fiscal 2019, we opened one new store.

The initial inventory investment for the new store was $683,000, capital expenditures were $236,000 and lease incentives received from our landlord were $120,000.

Pre-opening expenses for the stores opened in fiscal 2020 included in cost of sales and SG&A expenses were approximately $590,000, or an average of $147,000 per store.

Items classified as pre-opening expenses include rent, freight, advertising, salaries and supplies.

During fiscal 2019, we opened one new store and expended $59,000 in pre-opening expenses.

Total store closing costs were $4.0 million in fiscal 2020 and $1.3 million in fiscal 2019.

We closed 13 stores during fiscal 2020 and six stores during fiscal 2019.

We recorded non-cash impairment charges on a majority of these stores and also recognized impairment charges on other underperforming stores during these years.

Included in store closing costs were non-cash impairment charges of $3.1 million in fiscal 2020 and $1.2 million in fiscal 2019.

In addition to non-cash impairment charges, store closing costs can include fixed asset write-offs, employee severance, lease termination fees, store tear-down and clean-up expenses, and acceleration of expenses and deferred lease incentives.

In total, store opening and closing costs impacting SG&A expenses were $4.1 million in fiscal 2020 and $1.7 million in fiscal 2019.

Store opening and closing costs included in cost of sales was expense of $0.5 million in fiscal 2020 and a benefit of $0.3 million in fiscal 2019.

Historical Financial Data

The following historical financial data is included for the convenience of assessing trends in our financial condition and results of operations over the previous five fiscal years.

A more detailed description of the fluctuations among fiscal 2016 – fiscal 2019 can be found in our Annual Reports on Form 10-K filed for those previous fiscal years.

(In thousands, except per share and operating data)

Fiscal years (1)

Income Statement Data:

Operating income

Diluted net income per share

Dividends Declared Per Share:

Balance Sheet Data:

Cash and cash equivalents

Total assets (2)

Long-term debt

Total shareholders’ equity

Selected Operating Data:

Stores open at end of year

Comparable store sales (3)(4)

Square footage of store space at year

Average sales per store (000’s) (3) (5)

Average sales per square foot (3) (6)

(1) Our fiscal year is a 52/53 week year ending on the Saturday closest to January 31.

Unless otherwise stated, references to years 2020, 2019, 2018, 2017, and 2016 relate respectively to the fiscal years ended January 30, 2021, February 1, 2020, February 2, 2019, February 3, 2018, and January 28, 2017.

Fiscal year 2017 consisted of 53 weeks and the other fiscal years consisted of 52 weeks.

(2) In fiscal 2019, we adopted Accounting Standards Codification No.

842 on a modified retrospective basis, which requires us to recognize leased assets and obligations on our balance sheet.

See Note 8 – “Leases” contained in the Notes to Consolidated Financial Statements included in PART II, ITEM 8 of this Annual Report on Form 10-K for further discussion.

(3) Data for fiscal 2017 has been adjusted to a comparable 52-week period ended January 27, 2018.

The 53rd week in fiscal 2017 caused a one-week shift in our fiscal calendar.

To minimize the effect of this fiscal calendar shift on comparable store sales, average sales per store and average sales per square foot, our reported annual comparable store sales results for fiscal 2017 compare the 52-week period ended January 27, 2018 to the 52-week period ended January 28, 2017 and average sales per store and average sales per square foot are calculated for the 52-week period ended January 28, 2017.

Comparable store sales results for fiscal 2018 compare the 52-week period ended February 2, 2019 to the 52-week period ended February 3, 2018.

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

Therefore, stores opened or closed during the periods indicated are not included in comparable store sales.

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.

(5) In fiscal years 2020, 2019, and 2018, average sales per store includes e-commerce sales that are in close proximity to a physical store.

(6) Average sales per square foot includes net e-commerce sales.

We include e-commerce sales in our average sales per square foot as a result of our multi-channel retailer strategy.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis