What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-09-03 compared with 2021-06-04 · 128 added, 98 removed, 120 unchanged (65% of the section changed)

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These factors include, but are not limited to:

the duration and spread of the COVID-19 pandemic, mitigating efforts deployed, including the effects of government stimulus on consumer spending, and the pandemic’s overall impact on the operations of our stores, economic conditions, financial market volatility, and our supply chain and distribution processes;

the duration and spread of the COVID-19 pandemic, mitigating efforts deployed, including the effects of government stimulus on consumer spending, and the pandemic’s overall impact on our operations, including our stores, supply chain and distribution processes, economic conditions, and financial market volatility;

general economic conditions in the areas of the continental United States and Puerto Rico where our stores are located;

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changes in the overall retail environment and more specifically in the apparel and footwear retail sectors;

our ability to generate increased sales at our stores;

our ability to generate increased sales;

our ability to successfully navigate the increasing use of online retailers for fashion purchases and the impact on traffic and transactions in our physical stores;

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

changes in our relationships with key suppliers;

the effectiveness of our inventory management, including our ability to manage key merchandise vendor relationships and emerging direct-to-consumer initiatives;

changes in our relationships with other key suppliers;

our ability to control costs and meet our labor needs in a rising wage and/or inflationary environment;

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the impact of disruptions in our distribution or information technology operations;

the effectiveness of our inventory management;

the impact of natural disasters, other public health crises, political crises, civil unrest, and other catastrophic events on our stores and our suppliers, as well as on consumer confidence and purchasing in general;

the impact of natural disasters, other public health crises, political crises, civil unrest, and other catastrophic events on our operations and the operations of our suppliers, as well as on consumer confidence and purchasing in general;

risks associated with the seasonality of the retail industry;

the impact of unauthorized disclosure or misuse of personal and confidential information about our customers, vendors and employees, including as a result of a cybersecurity breach;

our ability to manage our third-party vendor relationships;

our ability to successfully execute our business strategy, including the availability of desirable store locations at acceptable lease terms, our ability to implement and adapt to new technology and systems, our ability to open new stores in a timely and profitable manner, including our entry into major new markets, and the availability of sufficient funds to implement our business plans;

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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 January 30, 2021.

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.

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 January 30, 2021, and “Risk Factors” in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended May 1, 2021 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 (“MD&A”) is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations.

We encourage you to read this in conjunction with our Condensed Consolidated Financial Statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended January 30, 2021 as filed with the SEC.

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Our objective is to be the multi-channel retailer-of-choice for on-trend branded and private label footwear for the entire family.

Our product assortment includes dress and casual shoes, sandals, boots and a wide assortment of athletic shoes.

Our average store carries shoes in four general categories – women’s, men’s, children’s and athletics, as well as a broad range of accessories.

Footwear is organized by category and brand, creating strong brand statements within the aisles.

Our product assortment, whether shopping in a physical store or on our e-commerce platform, includes dress and casual shoes, sandals, boots and a wide assortment of athletic shoes.

Our average physical store carries shoes in four general categories – women’s, men’s, children’s and athletics, as well as a broad range of accessories.

Footwear is organized by category and brand, creating strong brand

statements within the aisles.

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.

Over 100 of our physical stores have strongly branded Nike shops that highlight Nike products within the stores, and we expect to add more Nike

shops to our physical stores through 2023.

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.

Over 100 of our physical stores have strongly branded Nike shops that highlight Nike products within the stores, and we expect to add at least 100 more Nike shops to our physical stores through 2023.

Our e-commerce platform offers customers the same assortment of merchandise in all categories of footwear with expanded options in certain instances .

Critical Accounting Policies

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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.

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

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

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By the beginning of the second quarter of fiscal 2020, approximately 50% of our stores were reopened, and by early June 2020, substantially all of our stores had reopened.

Due to the pandemic, we did not have any stores closed as of May 1, 2021 or for extended periods during the first quarter of fiscal 2021.

We did not have any stores closed as of July 31, 2021 or for extended periods during the first six months of fiscal 2021 due to the pandemic.

Results of Operations Summary Information

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Store Sales (1)

July 31, 2021

August 1, 2020

Comparable store sales is a key performance indicator for us.

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

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

Cost of sales (including buying, distribution and

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Net income/(loss)

Executive Summary for the First Fiscal Quarter Ended May 1, 2021

Given the significant impact of the COVID-19 pandemic on our fiscal 2020 first quarter results, we have included certain comparisons between the first quarter of fiscal 2021 and the first quarter of fiscal 2019 to provide further context regarding our fiscal 2021 results of operations.

The first quarter of fiscal 2021 was a record-breaking quarter with the highest quarterly net sales, gross profit, operating income and diluted net income per share in our history.

For the first quarter of fiscal 2021, diluted net income per share of $3.02 exceeded our highest annual diluted net income per share of $2.92, which we reported for the full fiscal year 2019.

The beginning of the first quarter of fiscal 2021 was negatively impacted by a combination of cold, wet weather and a delay in tax refunds.

As the quarter progressed, we started to experience an increase in sales primarily due to more seasonable weather, the positive impact of consumer tax refunds and government stimulus payments, and the arrival of new spring inventory.

We believe sales were further bolstered by the successful rollout of COVID-19 vaccinations and the decrease in the number of positive COVID-19 cases in our trade areas, which we believe gave our customers confidence to shop our physical stores.

Comparable store sales for our physical stores increased 161.1% for the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 and 22.7% compared to the first quarter of fiscal 2019.

Comparable store sales for our e-commerce platform increased 11.8% compared to the first quarter of fiscal 2020 and 191.3% compared to the first quarter of fiscal 2019.

All of our product categories had comparable store sales increases ranging from double digits to low triple-digits compared to the first quarter of fiscal 2020.

Additionally, certain categories showed significant comparable store sales increases compared to the first quarter of fiscal 2019, including:

adult athletics, women’s non-athletics and in particular women’s non-athletic sport and seasonal categories, men’s non-athletics and children’s athletics and non-athletic shoes.

Demand for additional product categories such as women’s dress shoes began to show improvement in the first quarter of fiscal 2021, as social and work-related activity continued to increase;

however, comparable store sales in women's dress shoes decreased in the first quarter of fiscal 2021 compared to the first quarter of 2019.

Highlights for the first quarter of fiscal 2021 and a brief discussion of some key initiatives are as follows:

Net sales for the first quarter of fiscal 2021 were an all-time quarterly record of $328.5 million.

Comparable store sales increased 125.8% compared to the first quarter of fiscal 2020 and increased 31.6% compared to the first quarter of fiscal 2019 when operations were not impacted by the pandemic.

Net income for the first quarter of fiscal 2021 was $43.2 million, or $3.02 per diluted share, compared to a net loss of $16.2 million, or a loss of $1.16 per diluted share, in the first quarter of fiscal 2020.

Earnings in the first quarter of fiscal 2021 exceeded any previous quarterly or full-year record.

We achieved record quarterly gross profit of $130.2 million during the first quarter of fiscal 2021.

Gross profit margin as a percent of sales increased 18.3 percentage points to a record 39.6% compared to the first quarter of fiscal 2020 and increased 10.0 percentage points compared to the first quarter of fiscal 2019, driven by a strong merchandise selection and reduced chain-wide promotional pricing.

We had no borrowings during the first fiscal quarter of 2021 and ended the quarter with $174.6 million of cash and cash equivalents.

In the first quarter of fiscal 2021, we continued to increase membership in our Shoe Perks customer loyalty program, which grew over 10 percent compared to the prior year first quarter.

This brought total membership in the program to over 27 million customers as of May 1, 2021.

Given the significant impact of the COVID-19 pandemic on our fiscal 2020 second quarter and year-to-date results, we have included certain comparisons in this MD&A between fiscal 2021 and fiscal 2019 to provide further context regarding our fiscal 2021 results of operations.

The shares outstanding and net income per share information throughout this MD&A has been adjusted retroactively for all periods presented as a result of a 2-for-1 stock split that was paid as a dividend on July 19, 2021 to shareholders of record on July 6, 2021.

See Note 1 — “Basis of Presentation” in the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on the stock split.

Executive Summary for the Second Fiscal Quarter Ended July 31, 2021

The second quarter of fiscal 2021 was another record-breaking quarter.

Results for the second quarter of fiscal 2021 were the highest in terms of quarterly net sales, gross profit, operating income and diluted net income per share in our history, surpassing previous records set in the first quarter of fiscal 2021.

Through the first six months of fiscal 2021, our diluted net income per share of $3.05 exceeded the diluted net income per share earned during the fiscal years of 2020 and 2019 combined.

Comparable store sales in the second quarter of fiscal 2021 increased 11.4% compared to the second quarter of fiscal 2020 and increased 25.5% compared to the second quarter of fiscal 2019.

In the second quarter of fiscal 2020, we were still reopening a portion of our physical stores throughout May that were closed due to the pandemic.

As our physical stores and the U.S.

economy reopened, we experienced a significant increase in sales;

however, sales in July 2020 were negatively impacted by delays in back-to-school shopping.

Our sales in fiscal 2020 were also more significantly weighted towards our e-commerce platform due to the pandemic.

Fiscal 2019 is considered a more normal year as it was not impacted by COVID-19.

We believe our inventory selection, more focused promotional strategy, a stronger economy (inclusive of the impacts of government stimulus) and the return of a more normal back-to-school shopping season positively impacted our fiscal 2021 second quarter results.

During the second quarter of fiscal 2021, physical store traffic increased 23.1% compared to the second quarter of fiscal 2020 and neared the pre-pandemic levels in the second quarter of fiscal 2019.

Sales generated from our physical stores increased 25.8% for the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020 and 19.0% compared to the second quarter of fiscal 2019.

Sales generated from our e-commerce platform decreased 44.4% compared to the second quarter of fiscal 2020 but increased 140% compared to the second quarter of fiscal 2019.

E-commerce sales were approximately 10% of merchandise sales in the second quarter of fiscal 2021, down from 20% in the second quarter of fiscal 2020, but up from 5% in the second quarter of fiscal 2019.

All of our non-athletic product categories had comparable store sale increases ranging from double digits to low triple-digits compared to the second quarter of fiscal 2020.

As expected, decreases in the men’s and women’s athletic categories occurred.

Athletic categories were elevated in the second quarter of fiscal 2020 consistent with more active life-style choices responsive to the COVID-19 pandemic.

Compared to the second quarter of fiscal 2019, all product categories, including athletics and children’s non-athletics, showed double digit comparable store sale increases.

This increase was driven by higher average per unit prices across all categories, and overall, more units sold.

Highlights for the second quarter of fiscal 2021 and a brief discussion of some key initiatives are as follows:

Net sales for the second quarter of fiscal 2021 set another all-time quarterly record of $332.2 million, eclipsing the previous all-time record set last quarter (first quarter of fiscal 2021).

Net income for the second quarter of fiscal 2021 was $44.2 million, or $1.54 per diluted share, compared to net income of $10.1 million, or $0.35 per diluted share in the second quarter of fiscal 2020.

Earnings in the second quarter of fiscal 2021 exceeded any previous quarterly or full-year record, including exceeding results recognized in the first quarter of fiscal 2021, which were a record at that point in time.

We achieved record quarterly gross profit of $135.8 million during the second quarter of fiscal 2021.

Gross profit margin as a percent of sales increased 13.4 percentage points compared to the second quarter of fiscal 2020 to a record 40.9% and increased 10.3 percentage points compared to the second quarter of fiscal 2019, driven by a strong merchandise selection and more focused promotional activity.

We had no borrowings during the second quarter of fiscal 2021 and ended the quarter with $163.9 million of cash, cash equivalents and marketable securities.

In the second quarter of fiscal 2021, we continued to increase membership in our Shoe Perks customer loyalty program, which grew over 10% compared to the prior year second quarter.

This brought total membership in the program to over 27.7 million customers as of July 31, 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.

During the next twelve months, we expect to have completed the first 100 stores within our plan to modernize two-thirds of our store portfolio over the next three to five years.

Results of Operations for the First Quarter Ended May 1, 2021

Net sales were a record $328.5 million during the first quarter of fiscal 2021 and increased substantially compared to the first quarter of the prior year.

Total comparable stores sales increased 125.8% with physical stores sales increasing 161.1% and e-commerce sales increasing 11.8 % compared to the prior year.

E-commerce sales represented approximately 12% of merchandise sales in the first quarter of fiscal 2021.

Total comparable store sales increased 31.6% compared to the first quarter of fiscal 2019.

Net sales were positively impacted by continued demand for our strong product offerings, seasonal weather, increased COVID-19 vaccination rates

and the positive impact of consumer-based government stimulus.

Additionally, substantially all of our stores were closed for approximately half of the first quarter of fiscal 2020 due to the pandemic.

Net sales in the first quarter of fiscal 2021 were favorably impacte d by increased conversion and average t ransaction price with traffic returning to fiscal 2019 levels.

The increase in average transaction price was primarily driven by reduced promotional activity as more fully discussed below.

Gross profit was a record $130.2 million during the first quarter, an increase of $98.7 million compared to the prior year.

Gross profit margin in the first fiscal quarter increased to 39.6% compared to 21.3% in the first quarter of fiscal 2020 and 29.6% in the first quarter of fiscal 2019.

The increase in gross profit was primarily due to our broad assortment of inventory and our ability to effectively replenish product, despite supply chain disruptions.

As a result of our strong inventory position and related customer response, we were able to eliminate low margin, chain-wide promotional events, including Buy One, Get One Half Off (“BOGO”) promotions, for the entire quarter.

Our customers responded positively to our promotional strategy by remaining focused on certain categories and brands and continued to shop our stores and e-commerce platform for their needs.

The decision to be less promotional led to higher merchandise margins, which increased 10.0 percentage points compared to the first quarter of fiscal 2020 and 8.1 percentage points compared to the first quarter of fiscal 2019.

Based on our customer’s response to date, we anticipate eliminating chain-wide BOGO promotions for the remainder of fiscal 2021.

As a percentage of sales, our buying, distribution and occupancy costs decreased 8.3 percentage points compared to the first quarter of fiscal 2020 and 1.9 percentage points compared to the first quarter of fiscal 2019 primarily due to the increase in sales.

Investments in our distribution center placed into service after the first quarter of fiscal 2020 resulted in higher costs in fiscal 2021, which offset some of the leveraging effect of the higher sales.

We are continuing to modernize our stores and expect to have 100 stores modernized by the spring of fiscal 2022, within our plan to modernize two-thirds of our store portfolio over the next three to five years.

Results of Operations for the Second Quarter Ended July 31, 2021

Net sales were a record $332.2 million during the second quarter of fiscal 2021 and increased 10.5% compared to the second quarter of fiscal 2020.

Comparable stores sales increased 11.4% compared to the second quarter of fiscal 2020.

Compared to the second quarter of fiscal 2020, physical store sales increased 25.8%, and e-commerce sales decreased 44.4%.

E-commerce sales represented approximately 10% of merchandise sales in the second quarter of fiscal 2021.

Net sales were positively impacted by continued demand for our merchandise, a more normal beginning to the back-to-school shopping season, and a stronger economy (including impacts from consumer-based government stimulus).

Additionally, a portion of our stores were closed during May 2020 due to the pandemic.

Net sales in the second quarter of fiscal 2021 were favorably impacted by increased conversion and average transaction price compared to the second quarter fiscal 2020, with traffic nearing the pre-pandemic levels in the second quarter of fiscal 2019.

The increase in average transaction price was primarily driven by our more focused promotional activity.

Gross profit was a record $135.8 million during the second quarter of fiscal 2021, an increase of $53.1 million compared to the second quarter of fiscal 2020.

Gross profit margin in the second quarter of fiscal 2021 increased to 40.9% compared to 27.5% in the second quarter of fiscal 2020 and 30.6% in the second quarter of fiscal 2019.

Merchandise margin increased 13.3 percentage points compared to the second quarter of fiscal 2020 and 9.6 percentage points compared to the second quarter of fiscal 2019.

Our more focused promotional strategy drove a higher merchandise margin compared to both fiscal 2020 and 2019.

A more standard product mix sold during the second quarter of fiscal 2021 further increased merchandise margin compared to fiscal 2020.

With respect to product mix, the second quarter of fiscal 2020 had a heavier mix of adult athletic sales, which typically sell at lower margins compared to other footwear categories.

As a percentage of sales, our buying, distribution and occupancy costs were slightly down compared to the second quarter of fiscal 2020 as higher freight and distribution labor costs mostly offset the leveraging effect of higher sales.

Selling, General and Administrative Expenses (“SG&A”)

SG&A increased $17.8 million in the first quarter of fiscal 2021 to $72.6 million compared to $54.7 million in the first quarter of fiscal 2020.

As a percentage of net sales, SG&A leveraged to 22.1% compared to 37.1% in the first quarter of fiscal 2020 and 23.4% in the first quarter of fiscal 2019.

This decrease in SG&A as a percentage of sales compared to the last two years reflects the leveraging effect of higher sales .

The increase in SG&A primarily correlated with our record performance, in terms of increased performance-based incentive compensation, general wages and variable costs that change with sales, such as credit card fees.

SG&A also increased due to market return volatility on our deferred compensation plan.

With respect to performance-based incentive compensation, our record performance in the first quarter of fiscal 2021 exceeded annual performance targets;

therefore, virtually all annual performance-based compensation expected for the full year was expensed this quarter resulting in 40% of the period-over-period increase.

The effective income tax rate for the first quarter of fiscal 2021 was 24.8% compared to 30.3% for the same period in fiscal 2020.

SG&A increased $7.8 million in the second quarter of fiscal 2021 to $76.0 million compared to $68.2 million in the second quarter of fiscal 2020.

As a percentage of net sales, SG&A was relatively consistent at 22.9% in the second quarter of fiscal 2021 compared to 22.7% in the second quarter of fiscal 2020 and lower than the 24.8% recorded in the second quarter of fiscal 2019.

The increase in SG&A in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020 correlates with our continued record performance, with increases in store level wages and store level incentive compensation comprising a majority of the increase .

The effective income tax rate for the second quarter of fiscal 2021 was 25.8% compared to 29.6% for the same period in fiscal 2020.

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 higher tax rate in the prior year was primarily impacted by our first quarter implementation of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and the deleveraging effect of lower pre-tax profitability on permanent differences.

For the full 2021 fiscal year, we expect our tax rate to be comparable to the 25.8% effective tax rate recognized in fiscal 2020.

The higher tax rate in the prior year 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 2021 fiscal year, we expect our tax rate to be comparable to the 25.8% effective tax rate recognized during the full 2020 fiscal year.

Results of Operations for the Six-Month Period Ended July 31, 2021

Net sales were $660.7 million year-to-date in fiscal 2021, a 47.4% increase over the prior year’s year-to-date net sales of $448.3 million.

The overall increase in net sales was primarily due to the temporary closure of our physical stores for approximately 50% of the first quarter of fiscal 2020 as a result of the COVID-19 pandemic, with some stores closed through May 2020.

Comparable stores sales increased 48.8% compared to the first six months of fiscal 2020 and increased 28.1% compared to the first six months of fiscal 2019.

Gross profit was $265.9 million during the first six months of fiscal 2021, an increase of $151.8 million compared to the first six months of fiscal 2020.

Gross profit margin in the first six months of fiscal 2021 increased to 40.3% compared to 25.4% in fiscal 2020 and 30.1% in fiscal 2019.

Merchandise margin increased 11.9 percentage points compared to fiscal 2020 and 8.8 percentage points compared to fiscal 2019.

Our more focused promotional strategies throughout fiscal 2021 drove a higher merchandise margin compared to both fiscal 2020 and 2019.

A more standard product mix sold principally during the second quarter of fiscal 2021 further increased our merchandise margin compared to fiscal 2020.

As a percentage of sales, our buying, distribution and occupancy costs decreased 2.9 percentage points compared to fiscal 2020 and 1.4 percentage points compared to fiscal 2019 primarily due to the leveraging effect of increased sales.

Selling, General and Administrative Expenses

SG&A increased $25.7 million to $148.6 million in the first six months of fiscal 2021 compared to $122.9 million in fiscal 2020.

As a percentage of net sales, SG&A was leveraged to 22.5% in the first six months of fiscal 2021 compared to 27.4% in fiscal 2020 and 24.1% in fiscal 2019.

Compared to the first six months of fiscal 2020, the increase in SG&A primarily correlated with our record performance, in terms of increased performance-based incentive compensation, general wages and variable costs that change with sales, such as credit card fees.

SG&A also increased due to market return volatility on our deferred compensation plan, higher stock-based compensation, and the CARES Act payroll retention tax credits recognized in fiscal 2020.

Store level wages, incentives paid to store level employees, and annual performance-based compensation comprised the majority of the increase.

Our performance year-to-date has exceeded annual fiscal 2021 performance targets;

therefore, virtually all annual performance-based compensation expected for the full year has been recognized.

The effective income tax rate year-to-date for fiscal 2021 was 25.3%.

In fiscal 2020, income taxes were a benefit as a result of a year-to-date pre-tax loss and the timing of favorable discrete tax adjustments.

Liquidity and Capital Resources

Our primary sources of liquidity are $174.6 million of cash and cash equivalents on hand at the end of the first fiscal quarter of 2021, cash generated from operations and availability under our $100 million credit facility.

Our primary sources of liquidity are $163.9 million of cash, cash equivalents and marketable securities on hand at the end of the second fiscal quarter of 2021, cash generated from operations, and availability under our $100 million credit facility.

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.

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Cash Flow - Operating Activities

Net cash generated from operating activities was $76.5 million in the first quarter of fiscal 2021 compared to net cash used in operating activities of $42.9 million during the first quarter of fiscal 2020.

The increase in operating cash flow was primarily driven by higher cash receipts on increased sales, partially offset by increased inventory purchases for the quarter ended May 1, 2021 compared to the quarter ended May 2, 2020.

Working capital increased on a year-over-year basis, totaling $262.3 million at May 1, 2021 and $185.9 million at May 2, 2020.

The increase was primarily attributable to increased cash positions.

Our current ratio was 2.3 as of May 1, 2021 compared to 2.2 as of May 2, 2020.

Net cash generated from operating activities was $79.8 million in the first six months of fiscal 2021 compared to $26.2 million during the first six months of fiscal 2020.

The increase in operating cash flow was primarily driven by higher cash receipts on increased sales, partially offset by inventory purchases and payments for operating expenses and income taxes.

Working capital increased on a year-over-year basis, totaling $298.7 million at July 31, 2021 and $200.1 million at August 1, 2020.

The increase was primarily attributable to increased cash and marketable securities positions.

Our current ratio was 2.5 as of July 31, 2021 compared to 2.0 as of August 1, 2020.

Cash Flow – Investing Activities

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

During the first quarter of fiscal 2021, we expended $4.1 million for the purchase of property and equipment, primarily related to our store portfolio modernization plan.

During the first quarter of fiscal 2020, we expended $3.2 million for the purchase of property and equipment, primarily related to investments in technology and normal asset replacement activities.

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

During the first six months of fiscal 2021, we expended $12.1 million for the purchase of property and equipment, primarily related to our store portfolio modernization plan.

During the first six months of 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 second quarter of fiscal 2021, we also invested approximately $17.5 million in publicly traded mutual funds designed to mitigate income statement volatility associated with our nonqualified deferred compensation plan.

As of July 31, 2021, the balance in our deferred compensation plan was $17.5 million, of which $6.1 million was classified as a current liability in Accrued and other liabilities.

Cash Flow – Financing Activities

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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 the first quarter of fiscal 2021, net cash used in financing activities was $4.3 million compared to $3.0 million during the first quarter of fiscal 2020.

The increase in net cash used in financing activities was primarily due to increased dividend payments and more shares withheld upon the vesting of equity awards.

During the first quarter of fiscal 2021, we did not borrow or repay funds under our credit facility and did not repurchase any shares associated with our Board of Directors’ authorized share repurchase program.

Letters of credit outstanding were $750,000 at May 1, 2021, and our borrowing capacity was $99.2 million.

During the first six months of fiscal 2021, net cash used in financing activities was $10.3 million compared to $4.2 million during the first six months of fiscal 2020.

The increase in net cash used in financing activities was primarily due to the repurchase of $4.0 million of shares in the second quarter of fiscal 2021 associated with our Board of Directors’ authorized share repurchase program.

In fiscal 2021 we also increased our dividend payments and more shares were withheld upon the vesting of equity awards.

During the first six months of fiscal 2021, we did not borrow or repay funds under our credit facility.

Letters of credit outstanding were $700,000 at July 31, 2021, and our borrowing capacity was $99.3 million.

Our credit facility requires us to maintain compliance with various financial covenants.

See Note 7 – “Debt” to our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of our Annual Report on Form 10-K for the fiscal year ended January 30, 2021 for a further discussion of our credit facility and its covenants.

W e were in compliance with these covenants as of May 1, 2021.

W e were in compliance with these covenants as of July 31, 2021.

Capital Expenditures

Capital expenditures for fiscal 2021, including actual expenditures for the fiscal quarter ended May 1, 2021, are expected to be between $30 million and $35 million, with approximately $24 million to $26 million to be used for a new store, relocations and remodels and approximately $2 million to $4 million for upgrades to our distribution center and e-commerce platform.

Capital expenditures for fiscal 2021, including actual expenditures for the first six months of fiscal 2021, are expected to be between $30 million and $35 million, with approximately $24 million to $26 million to be used for a new store, relocations and remodels and approximately $2 million to $4 million for upgrades to our distribution center and e-commerce platform.

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

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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.

In fiscal 2021, we expect to open one new store within our existing geographic footprint.

In fiscal 2021, we opened one new store

within our existing geographic footprint and do not anticipate opening any more stores this fiscal year .

We anticipate store growth will return after fiscal 2021.

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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 closed six stores in the quarter and expect to close two additional stores by the end of the current fiscal year.

We closed six stores in the first six months of fiscal 2021 and expect to close three additional stores by the end of the current fiscal year.

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

On March 18, 2021, the Board of Directors increased the quarterly cash dividend from $0.09 to $0.14 per share, an increase of 56%.

The quarterly cash dividend of $0.14 per share was paid on April 19, 2021 to shareholders of record as of the close of business on April 5, 2021.

In fiscal 2020, the first quarter dividend was $0.085 per share.

During the first quarters of fiscal 2021 and 2020, we returned $2.1 million and $1.3 million, respectively, to our shareholders through our quarterly cash dividends.

On June 10, 2021, the Board of Directors approved the payment of our second quarter cash dividend to our shareholders.

The quarterly cash dividend of $0.070 per share was paid on July 19, 2021 to shareholders of record as of the close of business on July 6, 2021.

In fiscal 2020, the second quarter dividend was $0.045 per share.

During the first half of fiscal 2021 and 2020, we returned $4.0 million and $2.6 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 2021 Share Repurchase Program may be amended, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock.

We have funded, and intend to continue to fund, the share repurchase program from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes.

We have funded, and intend to continue to fund, share repurchases from cash on hand, and any shares acquired will be available for stock-based compensation awards and other corporate purposes.

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

Due to uncertainty related to the COVID-19 pandemic, no share repurchases have been made to date in fiscal 2021 and no repurchases were made throughout fiscal 2020.

We will continue to evaluate the repurchase of shares under the 2021 Share Repurchase Program.

Due to uncertainty related to the COVID-19 pandemic, share repurchases have been limited in fiscal 2021 and no repurchases were made in fiscal 2020.

Shares totaling 117,068 shares were repurchased during the second quarter of fiscal 2021 at a cost of $4.0 million.

We will continue to evaluate the repurchase of shares under the 2021 Share Repurchase Program given the uncertainty.

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 .

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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.

With respect to our back-to-school shopping season, we believe most schools may resume in-person learning on a part-time or full-time basis.

However, as of early June 2021, very few schools in the trade areas we serve have announced start dates for the upcoming fall semester.

It currently remains uncertain whether the traditional late July and early August school openings will resume as normal, commence at a later date, or open at all.

The timing of these traditional school openings typically benefit our second quarter sales and earnings results.

Whether Christmas shopping will be impacted by COVID-19 remains uncertain given the recent increase in cases, increased discussion of social distancing and mask mandates, and continued supply chain disruptions.

The Christmas shopping season impacts our fourth quarter sales and earnings results.

Recent Accounting Pronouncements

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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