What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-29 compared with 2021-09-03 · 111 added, 114 removed, 134 unchanged (63% of the section changed)

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

our ability to attract customers to our e-commerce platform and to successfully grow our multi-channel sales;

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

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

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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, 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.

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 Reports on Forms 10-Q for the quarters ended May 1, 2021 and July 31, 2021.

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.

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

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

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

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.

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.

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 at least 100 more Nike shops to our physical stores through 2023.

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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.

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.

We did not have any stores closed as of October 30, 2021 or for extended periods during the first nine months of fiscal 2021 due to the pandemic.

Results of Operations Summary Information

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July 31, 2021

October 30, 2021

August 1, 2020

October 31, 2020

Comparable store sales is a key performance indicator for us.

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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.

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

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

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

July 31, 2021

August 1, 2020

July 31, 2021

August 1, 2020

October 30, 2021

October 31, 2020

October 30, 2021

October 31, 2020

Cost of sales (including buying, distribution and

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Selling, general and administrative expenses

Operating income/(loss)

Operating income

Interest income

Income tax expense/(benefit)

Net income/(loss)

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.

Income tax expense

Given the significant impact of the COVID-19 pandemic on our fiscal 2020 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 two-for-one stock split of the outstanding shares of our common stock held by shareholders of record on July 6, 2021 that was completed on July 19, 2021.

See Note 1 — “Basis of Presentation” to our Notes to Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q for additional information on the stock split.

Executive Summary for the Third Fiscal Quarter Ended October 30, 2021

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

Results for the third 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 our previous records set in the second and first quarters of fiscal 2021.

Thus, this fiscal quarter represented the third consecutive quarter where we established all-time quarterly records.

Through the first nine months of fiscal 2021, our diluted net income per share of $4.69 exceeded the diluted net income per share earned during the last five fiscal years combined.

Comparable store sales in the third quarter of fiscal 2021 increased 30.1% compared to the third quarter of fiscal 2020 and increased 31.4% compared to the third quarter of fiscal 2019.

We believe these record-breaking results were driven by the following:

our inventory selection;

our more focused promotional strategy;

our customer base returning to a more normal lifestyle, including going back to work and fully back to in-person learning;

a stronger economy, inclusive of the impacts of government stimulus on consumer spending.

During the third quarter of fiscal 2021, physical store traffic increased 29.9% compared to the third quarter of fiscal 2020 and increased 2.6% compared to the third quarter of fiscal 2019.

Through the first nine months of fiscal 2021, physical store traffic increased over 40% compared to the same period in fiscal 2020.

The increased store traffic, combined with stable conversion rates, resulted in an increased number of converted customers, compared to the prior year periods.

All of our major product categories had comparable store sale increases ranging from low to mid double digits compared to the third quarter of fiscal 2020 and the third quarter of fiscal 2019.

These increases were driven by higher average per unit prices across all categories and, overall, more units sold.

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

Net sales for the third quarter of fiscal 2021 of $356.3 million set another all-time quarterly record, eclipsing the previous all-time records established earlier this fiscal year.

Net income for the third quarter of fiscal 2021 was $ 46.8 million, or $ 1.64 per diluted share, compared to n et income of $14.7 million, or $0.51 per diluted share in the third q uarter of fiscal 2020.

Earnings in the third quarter of fiscal 2021 exceeded any previous quarterly or full-year reco rd, including exceeding results recognized in the first quarter and second quarter of fiscal 2021, which w ere record s at th ose point s in time.

We achieved record quarterly gross profit of $144.1 million during the third quarter of fiscal 2021.

Gross profit margin as a percent of sales increased 8.4 percentage points compared to the third quarter of fiscal 2020 to 40.4% and increased 9.5 percentage points compared to the third quarter of fiscal 2019.

We had no borrowings during the third quarter of fiscal 2021 and ended the quarter with $191.2 million of cash, cash equivalents and marketable securities.

In the third 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 third quarter.

This brought total membership in the program to over 28.5 million customers as of October 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.

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.

We are continuing to modernize our stores and expect to have approximately 100 stores completed by the spring of fiscal 2022, within our plan to modernize 90 percent of our store portfolio by 2025.

Results of Operations for the Third Quarter Ended October 30, 2021

Net sales were a record $356.3 million during the third quarter of fiscal 2021 and increased 29.8% compared to the third quarter of fiscal 2020.

Comparable stores sales increased 30.1% compared to the third quarter of fiscal 2020.

Sales generated from our comparable physical stores increased 32.8% for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 and 22.6% compared to the third quarter of fiscal 2019.

Sales generated from our e-commerce platform increased 12.5% compared to the third quarter of fiscal 2020 and 186.2% compared to the third quarter of fiscal 2019.

E-commerce sales were approximately 12% of merchandise sales in the third quarter of fiscal 2021, compared to 13% in the third quarter of fiscal 2020 and 5% in the third quarter of fiscal 2019.

Net sales were positively impacted by continued demand for our merchandise as result of our merchandise selection, the continued easing of COVID-19 restrictions and customers returning a more normal lifestyle, including going back to work and fully back to in-person learning, and a stronger economy (including impacts from consumer-based government stimulus).

Net sales in the third quarter of fiscal 2021 were favorably impacted by increased average transaction price and more units sold compared to the third quarter of fiscal 2020, with traffic 2.6% above pre-pandemic levels experienced in the third 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.

Gross profit was a record $144.1 million during the third quarter of fiscal 2021, an increase of $56.3 million compared to the third quarter of fiscal 2020.

Gross profit margin in the third quarter of fiscal 2021 increased to 40.4% compared to 32.0% in the third quarter of fiscal 2020 and 30.9% in the third quarter of fiscal 2019.

Merchandise margin increased 6.7 percentage points compared to the third quarter of fiscal 2020 and 8.3 percentage points compared to the third 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.

We began eliminating broad-based use of the “buy one get one half off” promotional strategy during fiscal 2020 and have completely eliminated its broad use during the current fiscal year.

As a percentage of sales, our buying, distribution and occupancy costs decreased 1.7 percentage points compared to the third quarter of fiscal 2020 due to the leveraging effect of higher sales, despite higher supply chain expense.

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

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.

SG&A increased $14.0 million in the third quarter of fiscal 2021 to $81.6 million compared to $67.6 million in the third quarter of fiscal 2020.

Nearly half of the increase in SG&A in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 was due to increased advertising expense, with the remaining increase primarily attributable to store level wages, including incentive compensation.

As a percentage of net sales, SG&A was 22.9% in the third quarter of fiscal 2021 compared to 24.7% in the third quarter of fiscal 2020 and 24.3% recorded in the third quarter of fiscal 2019, with the decrease due to the leveraging effect of higher sales.

The effective income tax rate for the third quarter of fiscal 2021 was 24.8% compared to 26.8% 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 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

The lower quarterly effective tax rate was primarily due to the timing of discrete tax adjustments and increased utilization of foreign tax credits associated with our Puerto Rico operations.

For the full 2021 fiscal year, we expect our tax rate to be between 25% and 26% compared to the 25.8% effective tax rate recognized during the full 2020 fiscal year.

Results of Operations for the Nine-Month Period Ended October 30, 2021

Net sales were $1,017.0 million year-to-date in fiscal 2021, a 40.7% increase over the prior year’s year-to-date net sales of $722.9 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.

The overall increase in net sales was primarily due to our more focused promotional strategies and inventory selection.

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, decreased net sales in the prior year.

Comparable stores sales increased 41.6% compared to the first nine months of fiscal 2020 and increased 29.2% compared to the first nine months of fiscal 2019.

Gross profit was $410.0 million during the first nine months of fiscal 2021, an increase of $208.1 million compared to the first nine months of fiscal 2020.

Gross profit margin in the first nine months of fiscal 2021 increased to 40.3% compared to 27.9% in fiscal 2020 and 30.4% in fiscal 2019.

Merchandise margin increased 10.0 percentage points compared to the first nine months of fiscal 2020 and 8.7 percentage points compared to the first nine months of 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.

A more standard product mix, with more non-athletic merchandise sold in fiscal 2021 compared to fiscal 2020, further increased margins compared to fiscal 2020.

As a percentage of sales, our buying, distribution and occupancy costs decreased 2.4 percentage points compared to the first nine months of fiscal 2020 and 1.2 percentage points compared to the first nine months fiscal 2019 primarily due to the leveraging effect of increased sales, offset somewhat by increased freight and distribution labor costs.

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.

SG&A increased $39.7 million to $230.2 million in the first nine months of fiscal 2021 compared to $190.5 million in the first nine months of fiscal 2020.

As a percentage of net sales, SG&A was leveraged to 22.6% in the first nine months of fiscal 2021 compared to 26.3% in the first nine months of fiscal 2020 and 24.2% in the first nine months fiscal 2019.

Compared to the first nine 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 (inclusive of CARES Act payroll retention tax credits recognized in fiscal 2020) and variable costs, such as credit card fees.

SG&A also increased due to higher advertising expense, as well as market return volatility on our deferred compensation plan and higher stock-based compensation.

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

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.

The effective income tax rate year-to-date for fiscal 2021 was 25.1% compared to 23.0% for the same period in fiscal 2020.

The higher effective rate was primarily attributable to more unfavorable permanent differences and discrete tax adjustments, partially offset by increased utilization of foreign tax credits associated with our Puerto Rico operations.

Liquidity and Capital Resources

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.

Our primary sources of liquidity are $191.2 million of cash, cash equivalents and marketable securities on hand at the end of the third 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.

Our primary uses of cash are for working capital, which are principally inventory purchases, investments in our stores, such as new stores, remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program, and the financing of capital projects, including investments in new systems.

Our primary uses of cash are normally for working capital, which are principally inventory purchases, investments in our stores, such as new stores, remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program, and the financing of capital projects, including investments in new systems.

As part of our growth strategy, we may also pursue strategic acquisitions of other footwear retailers.

Cash Flow - Operating Activities

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.

Net cash generated from operating activities was $120.5 million in the first nine months of fiscal 2021 compared to $0.2 million during the first nine 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.

Working capital increased on a year-over-year basis and totaled $333.8 million at October 30, 2021 compared to $214.9 million at October 31, 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.

Our current ratio was 3.1 as of October 30, 2021 compared to 2.7 as of October 31, 2020.

Cash Flow – Investing 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.

During the first nine months of fiscal 2021, we expended $20.4 million for the purchase of property and equipment, primarily related to our store portfolio modernization plan.

During the first nine months of fiscal 2020, we expended $10.1 million for the purchase of property and equipment, primarily related to investments in technology and normal asset replacement activities.

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

Additional information regarding these marketable securities can be found in Note 5 — “Fair Value Measurements” to our Notes to Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q.

Cash Flow – Financing Activities

Our cash outflows for financing activities are typically for cash dividend payments, share repurchases or payments on our credit facility.

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 generally reflect stock issuances to employees under our Employee Stock Purchase Plan and borrowings under our credit facility.

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.

During the first nine months of fiscal 2021, net cash used in financing activities was $15.8 million compared to $5.4 million during the first nine months of fiscal 2020.

The increase in net cash used in financing activities was primarily due to the repurchase of $7.1 million of shares in 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 stock-based compensation awards.

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

Letters of credit outstanding were $700,000 at October 30, 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 July 31, 2021.

W e were in compliance with these covenants as of October 30, 2021.

Capital Expenditures

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.

Capital expenditures for fiscal 2021, including actual expenditures for the first nine 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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Increasing market penetration by opening new stores has historically been a key component of our long-term growth strategy, and we continue to focus on generating positive long-term financial performance from our store portfolio.

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 opened one new store

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

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 open ed 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.

3 unchanged sentences

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

We closed seven stores in the first nine 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 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.

On September 16, 2021, the Board of Directors approved the payment of a third quarter cash dividend to our shareholders.

The quarterly cash dividend of $0.070 per share was paid on October 18, 2021 to shareholders of record as of the close of business on October 4, 2021.

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

During the first nine months of fiscal 2021 and 2020, we returned $6.0 million and $3.9 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.

8 unchanged sentences

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.

Shares totaling 91,594 shares were repurchased during the third quarter of fiscal 2021 at a cost of $3.2 million.

We purchased a total of 208,662 shares at a cost of $7.1 million under this share repurchase program in fiscal 2021.

As of October 30, 2021, we had $42.9 million available for future repurchases.

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

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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.

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.

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.

Any unanticipated decrease in demand for our products or a supply chain disruption that reduces inventory availability during these peak shopping seasons in future periods could reduce our net sales and gross profit and negatively affect our profitability.

Recent Accounting Pronouncements

1 unchanged sentence

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