What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-12-02 compared with 2021-08-25 · 78 added, 84 removed, 203 unchanged (44% of the section changed)

13 unchanged sentences

● the possibility that we may be unable to compete effectively in our highly competitive markets;

● our ability to execute our Efficiencies for Growth cost optimization program;

● our ability to execute our operational excellence priorities, including continuous improvement, Project SOAR (our replacement enterprise resource planning platform), and supply chain optimization;

● the possibility that cybersecurity breaches and other disruptions could compromise our information or result in the unauthorized disclosure of confidential information;

5 unchanged sentences

● our ability to successfully execute our common stock repurchase program or implement future common stock repurchase programs;

ended January 30, 2021, as such may be amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q (including this report).

● other risk factors detailed in our public filings with the Securities and Exchange Commission (the SEC), including risk factors contained in Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended January 30, 2021, as such may be amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q (including this report).

Except to the extent required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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and salons and authorized retail outlets for professional hair care products.

We developed a unique specialty retail concept that offers a broad range of brands and price points, a compelling value proposition, and a convenient and welcoming shopping environment.

We developed a unique specialty retail concept

that offers a broad range of brands and price points, a compelling value proposition, and a convenient and welcoming shopping environment.

We define our target consumer as a beauty enthusiast, a consumer who is passionate about the beauty category and has high expectations for the shopping experience.

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The continued growth of our business and any future increases in net sales, net income, and cash flows is dependent on our ability to execute our strategic priorities:

1) build omnichannel operations that more deeply connects guests across channels, 2) reimagine how guests experience and discover beauty, 3) drive market share growth through the deployment of winning category strategies, 4) deepen Ulta Beauty love and loyalty, 5) drive holistic cost optimization, and 6) develop our talent and strengthen our culture.

We believe that the expanding U.S.

beauty products and salon services industry, the shift in distribution channel of prestige beauty products from department stores to specialty retail stores, coupled with Ulta Beauty’s competitive strengths, position us to capture additional market share in the industry.

1) drive growth through an expanded definition of all things beauty, 2) evolve the omnichannel experience through connected physical and digital ecosystems all in your world, 3) expand and deepen our presence across the beauty journey as the heart of the beauty community, 4) drive operational excellence and optimization, 5) develop our talent and strengthen our culture, and 6) expand our environmental and social impact.

We believe that the attractive and growing U.S.

beauty products and salon services industry, expanding definition of beauty and role that omnichannel capabilities play in consumers’ lives, coupled with Ulta Beauty’s competitive strengths, position us to capture additional market share in the industry.

Comparable sales is a key metric that is monitored closely within the retail industry.

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economic conditions, changes in merchandise strategy or mix, and timing and effectiveness of our marketing activities, among others.

Over the long term, our growth strategy is to increase total net sales through increases in our comparable sales, opening new stores, and increasing omnichannel capabilities.

Long term operating profit is expected to increase as a result of our ability to expand merchandise margin and leverage our fixed store costs with comparable sales increases and operating efficiencies offset by incremental investments in people, systems, and supply chain required to support a 1,500 to 1,700 store chain in the U.S.

Over the long term, our growth strategy is to increase total net sales through growing comparable sales, expanding omnichannel capabilities and opening new stores.

Long term operating profit is expected to increase as a result of our efforts to optimize our real estate portfolio, expand merchandise margin and leverage our fixed store costs with comparable sales increases and operating efficiencies, partially offset by incremental investments in people, systems, and supply chain required to support a 1,500 to 1,700 store chain in the U.S.

with successful e-commerce and competitive omnichannel capabilities.

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As we navigated the impact of the COVID pandemic, we proactively took steps to optimize our cost structure, while also investing in new capabilities to support future growth.

As of July 31, 2021, all our stores, salons and brow service offerings were open and operating under our Shop Safe Standards.

We intend to resume skin and make-up services when it is safe to do so.

Additionally,

during the first half of fiscal 2021, as local restrictions lifted, we increased our operating hours and, as store traffic trends improved, we adjusted staffing levels to support the increased demand.

During the first half of fiscal 2021, we experienced an increase in sales driven primarily by the favorable impact from stronger consumer confidence, government stimulus payments and the easing of COVID-19 restrictions.

While operations during the first half of fiscal 2021 did not appear to be negatively impacted, the COVID-19 pandemic had a material negative impact on fiscal 2020 operations and financial results and could have additional negative impacts in the future.

As of October 30, 2021, all our stores, salons and brow service offerings were open and operating under our Shop Safe Standards.

During the third quarter, we resumed skin and make-up services in select locations.

Additionally, during the first half of fiscal 2021, as local restrictions lifted, we increased our operating hours and, as store traffic trends improved, we adjusted staffing levels to support the increased demand.

During the first nine months of fiscal 2021, we experienced an increase in sales driven primarily by the favorable impact from stronger consumer confidence, government stimulus payments, and the easing of COVID-19 restrictions.

While operations during the first nine months of fiscal 2021 did not appear to be negatively impacted, the COVID-19 pandemic had a material negative impact on fiscal 2020 operations and financial results and could have additional negative impacts in the future.

The extent of the impact of pandemic on our business and financial results will depend on future developments, including, but not limited to, the potential temporary reclosing of certain stores, the potential temporary restrictions on certain store operating hours and/or in-store capacity, the duration of potential future quarantines, shelter-in-place and other travel restrictions within the U.S.

and other affected countries, supply chain disruptions, the potential for increased freight costs and higher wholesale costs, the duration of the pandemic and any variants of the virus, the duration, timing and severity of the impact on consumer spending, the timing and effectiveness of vaccine distribution, vaccination rates, and how quickly and to what extent normal economic and operating conditions can resume.

and other affected countries, supply chain disruptions, the potential for increased freight costs and higher wholesale costs, the duration of the pandemic and any variants of the virus, the

duration, timing and severity of the impact on consumer spending, the timing and effectiveness of vaccine distribution, vaccination rates, and how quickly and to what extent normal economic and operating conditions can resume.

Industry trends

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Our quarterly periods are the 13 weeks ending on the Saturday closest to April 30, July 31, October 31, and January 31.

The Company’s second quarter in fiscal 2021 and 2020 ended on July 31, 2021 and August 1, 2020, respectively.

The Company’s third quarter in fiscal 2021 and 2020 ended on October 30, 2021 and October 31, 2020, respectively.

Our quarterly results of operations have varied in the past and are likely to do so again in the future.

8 unchanged sentences

Pre-opening expenses

Operating income (loss)

Operating income

Interest expense, net

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Income before income taxes

Income tax expense

Other operating data:

Number of stores end of period

Comparable sales

Comparable sales increase (decrease)

13 Weeks Ended

5 unchanged sentences

Pre-opening expenses

Operating income (loss)

Operating income

Interest expense, net

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Comparison of 13 weeks ended July 31, 2021 to 13 weeks ended August 1, 2020

Net sales increased $739.2 million or 60.2%, to $2.0 billion for the 13 weeks ended July 31, 2021, compared to $1.2 billion for the 13 weeks ended August 1, 2020.

Income before income taxes

Income tax expense

Comparison of 13 weeks ended October 30, 2021 to 13 weeks ended October 31, 2020

Net sales increased $443.7 million or 28.6%, to $2.0 billion for the 13 weeks ended October 30, 2021, compared to $1.6 billion for the 13 weeks ended October 31, 2020.

The net sales increase was primarily due to the favorable impact from improving consumer confidence and the easing of COVID-19 restrictions.

The total comparable sales increase of 56.3% during the 13 weeks ended July 31, 2021 was driven by a 52.5% increase in transactions and a 2.5% increase in average ticket.

Gross profit increased $469.0 million or 142.5%, to $798.0 million for the 13 weeks ended July 31, 2021, compared to $329.0 million for the 13 weeks ended August 1, 2020.

Gross profit as a percentage of net sales increased to 40.6% for the 13 weeks ended July 31, 2021, compared to 26.8% for the 13 weeks ended August 1, 2020.

The increase in gross profit margin was primarily due to leverage of fixed costs, improvement in merchandise margins, favorable channel mix shifts, and leverage of salon expenses.

The total comparable sales increase of 25.8% during the 13 weeks ended October 30, 2021 was driven by a 16.8% increase in transactions and a 7.7% increase in average ticket.

Gross profit increased $244.0 million or 44.7%, to $789.5 million for the 13 weeks ended October 30, 2021, compared to $545.5 million for the 13 weeks ended October 31, 2020.

Gross profit as a percentage of net sales increased to 39.6% for the 13 weeks ended October 30, 2021, compared to 35.1% for the 13 weeks ended October 31, 2020.

The increase in gross profit margin was primarily due to leverage of fixed costs, favorable channel mix shifts, leverage of salon expenses, and improvement in merchandise margins.

Selling, general and administrative expenses

Selling, general and administrative (SG&A) expenses increased $192.7 million or 71.0%, to $464.3 million for the 13 weeks ended July 31, 2021, compared to $271.6 million for the 13 weeks ended August 1, 2020.

SG&A expenses as a percentage of net sales increased to 23.6% for the 13 weeks ended July 31, 2021, compared to 22.1% for the 13 weeks ended August 1, 2020, due to deleverage related to higher store payroll and benefits primarily due to less employee retention credits received under the CARES Act, and higher marketing expense, partially offset by leverage in corporate overhead and store expenses due to higher sales.

Selling, general and administrative (SG&A) expenses increased $87.0 million or 20.9%, to $503.4 million for the 13 weeks ended October 30, 2021, compared to $416.4 million for the 13 weeks ended October 31, 2020.

SG&A expenses as a percentage of net sales decreased to 25.2% for the 13 weeks ended October 30, 2021, compared to 26.8% for the 13 weeks ended October 31, 2020, primarily due to leverage of corporate overhead, store expenses and store payroll and benefits due to higher sales, partially offset by higher marketing expenses.

Impairment, restructuring and other costs

There were no impairment, restructuring and other costs recognized in the 13 weeks ended July 31, 2021, compared to $40.8 million for the 13 weeks ended August 1, 2020.

There were no impairment, restructuring and other costs recognized in the 13 weeks ended October 30, 2021, compared to $23.6 million for the 13 weeks ended October 31, 2020.

Pre-opening expenses

Pre-opening expenses decreased $2.6 million to $1.4 million for the 13 weeks ended July 31, 2021 compared to $3.9 million for the 13 weeks ended August 1, 2020.

Pre-opening expenses decreased $2.4 million to $1.8 million for the 13 weeks ended October 30, 2021 compared to $4.2 million for the 13 weeks ended October 31, 2020.

Interest expense, net

Interest expense, net was $0.4 million for the 13 weeks ended July 31, 2021 compared to $2.6 million of interest expense, net for the 13 weeks ended August 1, 2020.

Interest expense, net was $0.4 million for the 13 weeks ended October 30, 2021 compared to $1.4 million of interest expense, net for the 13 weeks ended October 31, 2020.

Interest expense represents interest on borrowings and fees related to the credit facility.

Interest income results from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase.

We did not have any outstanding borrowings on our credit facility as of July 31, 2021 and January 30, 2021.

We had $800.0 million outstanding under the credit facility as of August 1, 2020.

We did not have any outstanding borrowings on our credit facility as of October 30, 2021, January 30, 2021, and October 31, 2020.

Income tax expense

Income tax expense of $81.0 million for the 13 weeks ended July 31, 2021 represents an effective tax rate of 24.4%, compared to $2.1 million of tax expense representing an effective tax rate of 20.6% for the 13 weeks ended August 1, 2020.

The higher effective tax rate is primarily due to a decrease in the benefit of state tax credits compared to the 13 weeks ended August 1, 2020 as a result of an increase in pre-tax income.

Net income was $250.9 million for the 13 weeks ended July 31, 2021, compared to $8.1 million for the 13 weeks ended August 1, 2020.

The increase in net income is primarily due to the $469.0 million increase in gross profit and $40.8

million decrease in impairment, restructuring and other costs, partially offset by a $192.7 million increase in SG&A expenses and a $78.9 million increase in income taxes.

Comparison of 26 weeks ended July 31, 2021 to 26 weeks ended August 1, 2020

Net sales increased $1.5 billion or 62.7%, to $3.9 billion for the 26 weeks ended July 31, 2021, compared to $2.4 billion for the 26 weeks ended August 1, 2020.

Income tax expense of $68.5 million for the 13 weeks ended October 30, 2021 represents an effective tax rate of 24.1%, compared to $25.1 million of tax expense representing an effective tax rate of 25.1% for the 13 weeks ended October 31, 2020.

The lower effective tax rate is primarily due to favorable provision to tax return adjustments, driven by federal employment tax credits, compared to third quarter of fiscal 2020.

Net income was $215.3 million for the 13 weeks ended October 30, 2021, compared to $74.8 million for the 13 weeks ended October 31, 2020.

The increase in net income is primarily due to the $244.0 million increase in gross profit and $23.6 million decrease in impairment, restructuring and other costs, partially offset by a $87.0 million increase in SG&A expenses and a $43.4 million increase in income taxes.

Comparison of 39 weeks ended October 30, 2021 to 39 weeks ended October 31, 2020

Net sales increased $1.9 billion or 49.3%, to $5.9 billion for the 39 weeks ended October 30, 2021, compared to $4.0 billion for the 39 weeks ended October 31, 2020.

The net sales increase was primarily due to the favorable impact from stronger consumer confidence, government stimulus payments, and the easing of COVID-19 restrictions.

The total comparable sales increase of 60.9% during the 26 weeks ended July 31, 2021 was driven by a 52.5% increase in transactions and a 5.5% increase in average ticket.

Gross profit increased $919.1 million or 145.3%, to $1.6 billion for the 26 weeks ended July 31, 2021, compared to $632.6 million for the 26 weeks ended August 1, 2020.

Gross profit as a percentage of net sales increased to 39.7% for the 26 weeks ended July 31, 2021, compared to 26.3% for the 26 weeks ended August 1, 2020.

The total comparable sales increase of 47.1% during the 39 weeks ended October 30, 2021 was driven by a 40.7% increase in transactions and a 4.6% increase in average ticket.

Gross profit increased $1.2 billion or 98.7%, to $2.3 billion for the 39 weeks ended October 30, 2021, compared to $1.2 billion for the 39 weeks ended October 31, 2020.

Gross profit as a percentage of net sales increased to 39.7% for the 39 weeks ended October 30, 2021, compared to 29.8% for the 39 weeks ended October 31, 2020.

The increase in gross profit margin was primarily due to leverage of fixed costs, improvement in merchandise margins, leverage of salon expenses, and favorable channel mix shifts.

Selling, general and administrative expenses

SG&A expenses increased $255.7 million or 39.2%, to $908.2 million for the 26 weeks ended July 31, 2021, compared to $652.5 million for the 26 weeks ended August 1, 2020.

SG&A expenses as a percentage of net sales decreased to 23.3% for the 26 weeks ended July 31, 2021, compared to 27.2% for the 26 weeks ended August 1, 2020, due to leverage in corporate overhead and store expenses due to higher sales, partially offset by deleverage related to higher store payroll and benefits primarily due to less employee retention credits received under the CARES Act, and higher marketing expense.

SG&A expenses increased $342.7 million or 32.1%, to $1.4 billion for the 39 weeks ended October 30, 2021, compared to $1.1 billion for the 39 weeks ended October 31, 2020.

SG&A expenses as a percentage of net sales decreased to 23.9% for the 39 weeks ended October 30, 2021, compared to 27.1% for the 39 weeks ended October 31, 2020, due to leverage of corporate overhead and store expenses due to higher sales, partially offset by deleverage related to higher store payroll and benefits primarily due to less employee retention credits received under the CARES Act, and higher marketing expenses.

Impairment, restructuring and other costs

There were no impairment, restructuring and other costs recognized in the 26 weeks ended July 31, 2021, compared to $60.3 million for the 26 weeks ended August 1, 2020.

There were no impairment, restructuring and other costs recognized in the 39 weeks ended October 30, 2021, compared to $83.9 million for the 39 weeks ended October 31, 2020.

Pre-opening expenses

Pre-opening expenses decreased $2.6 million to $5.9 million for the 26 weeks ended July 31, 2021, compared to $8.5 million for the 26 weeks ended August 1, 2020.

Pre-opening expenses decreased $5.0 million to $7.8 million for the 39 weeks ended October 30, 2021, compared to $12.8 million for the 39 weeks ended October 31, 2020.

Interest expense, net

Interest expense, net was $0.8 million for the 26 weeks ended July 31, 2021 compared to $3.9 million of interest expense, net for the 26 weeks ended August 1, 2020.

Interest expense, net was $1.2 million for the 39 weeks ended October 30, 2021 compared to $5.3 million of interest expense, net for the 39 weeks ended October 31, 2020.

Interest expense represents interest on borrowings and fees related to the credit facility.

Interest income results from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase.

We did not have any outstanding borrowings on our credit facility as of July 31, 2021 and January 30, 2021.

We had $800.0 million outstanding under the credit facility as of August 1, 2021.

Income tax expense (benefit)

Income tax expense of $155.7 million for the 26 weeks ended July 31, 2021 represents an effective tax rate of 24.4%, compared to $22.2 million of tax benefit representing an effective tax rate of 23.9% for the 26 weeks ended August 1, 2020.

The higher effective tax rate is primarily due to a decrease in the benefit of state tax credits compared to the 26 weeks ended August 1, 2020 as a result of an increase in pre-tax income.

Net income (loss)

Net income was $481.2 million for the 26 weeks ended July 31, 2021 compared to a net loss of $70.5 million for the 26 weeks ended August 1, 2020.

The increase in net income is primarily due to a $919.1 million increase in gross profit and a $60.3 million decrease in impairment, restructuring and other costs, partially offset by a $255.7 million increase in SG&A expenses and a $177.8 million increase in income taxes.

We did not have any outstanding borrowings on our credit facility as of October 30, 2021, January 30, 2021, and October 31, 2020.

Income tax expense

Income tax expense of $224.2 million for the 39 weeks ended October 30, 2021 represents an effective tax rate of 24.4%, compared to $2.9 million of tax expense representing an effective tax rate of 40.3% for the 39 weeks ended October 31, 2020.

The lower effective tax rate is primarily due to a benefit from the income tax accounting for share-based compensation and favorable provision to tax return adjustments, driven by federal employment tax credits, compared to fiscal 2020.

Net income was $696.5 million for the 39 weeks ended October 30, 2021 compared to $4.3 million for the 39 weeks ended October 31, 2020.

The increase in net income is primarily due to a $1.2 billion increase in gross profit and an

$83.9 million decrease in impairment, restructuring and other costs, partially offset by a $342.7 million increase in SG&A expenses and a $221.3 million increase in income taxes.

Liquidity and capital resources

1 unchanged sentence

Our primary sources of liquidity are cash and cash equivalents, short-term investments, cash flows from operations, including changes in working capital, and borrowings under our credit facility.

As of July 31, 2021, January 30, 2021, and August 1, 2020, we had cash and cash equivalents of $770.1 million, $1.0 billion, and $1.2 billion, respectively.

As of October 30, 2021, January 30, 2021, and October 31, 2020, we had cash and cash equivalents of $605.1 million, $1.0 billion, and $560.9 million, respectively.

The most significant components of our working capital are merchandise inventories and cash and cash equivalents reduced by related accounts payable and accrued expenses.

1 unchanged sentence

Based on past performance and current expectations, we believe that cash and cash equivalents, short-term investments, cash generated from operations, and borrowings under the credit facility will satisfy the Company’s working capital needs, capital expenditure needs, commitments, and other liquidity requirements through at least the next twelve months.

The following table presents a summary of our cash flows for the 26 weeks ended July 31, 2021 and August 1, 2020:

The following table presents a summary of our cash flows for the 39 weeks ended October 30, 2021 and October 31, 2020:

39 Weeks Ended

1 unchanged sentence

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Net cash used in investing activities

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

1 unchanged sentence

Operating activities

Operating activities consist of net income (loss) adjusted for certain non-cash items, including depreciation and amortization, non-cash lease expense, long-lived asset impairment charges, deferred income taxes, stock-based compensation expense, realized gains or losses on disposal of property and equipment, and the effect of working capital changes.

The first 26 weeks of 2021 increase over the first 26 weeks of 2020 is mainly due to the increase in net income, and the timing of accounts payable and accrued liabilities, partially offset by decreases in merchandise inventories and long-lived asset impairment charges.

Operating activities consist of net income adjusted for certain non-cash items, including depreciation and amortization, non-cash lease expense, long-lived asset impairment charges, deferred income taxes, stock-based compensation expense, realized gains or losses on disposal of property and equipment, and the effect of working capital changes.

The increase in net cash provided by operating activities in fiscal 2021 is mainly due to the increase in net income and the timing of accounts payable, partially offset by higher merchandise inventories, higher prepaid income taxes and lower long-lived asset impairment charges compared to fiscal 2020.

The increase in net income was primarily due to an increase in gross profit resulting from higher sales and a decrease in impairment, restructuring and other costs, partially offset by an increase in SG&A expenses and income taxes.

Merchandise inventories, net were $1.44 billion at July 31, 2021, compared to $1.37 billion at August 1, 2020, representing an increase of $75.14 million or 5.5%.

The increase in total inventory was primarily driven by the addition of 32 net new stores opened since August 1, 2020, the opening of the Jacksonville, FL fast fulfillment center, and increased purchases to support strong demand.

Merchandise inventories, net were $1.92 billion at October 30, 2021, compared to $1.44 billion at October 31, 2020, representing an increase of $477.2 million or 33.2%.

The increase in total inventory was primarily driven by the addition of 40 net new stores opened since October 31, 2020 and the acceleration of inventory receipts to support expected demand and mitigate anticipated global supply chain disruptions.

Investing activities

We have historically used cash primarily for new, remodeled, relocated, and refreshed stores, supply chain investments, short-term investments, and investments in information technology systems.

Investment activities for capital

expenditures were $57.3 million during the 26 weeks ended July 31, 2021, compared to $77.1 million during the 26 weeks ended August 1, 2020.

During the 26 weeks ended August 1, 2020, we received $110.0 million in short-term investments and we contributed $5.4 million to equity investments.

During the 26 weeks ended July 31, 2021, we opened 35 new stores, relocated two stores and remodeled five stores, compared to the 26 weeks ended August 1, 2020, when we opened 11 new stores and relocated one store.

Investment activities for capital expenditures were $108.4 million during the 39 weeks ended October 30, 2021, compared to $116.7 million during the

39 weeks ended October 31, 2020.

During the 39 weeks ended October 31, 2020, we received $110.0 million in short-term investments and we contributed $5.7 million to equity investments.

During the 39 weeks ended October 30, 2021, we opened 42 new stores, relocated four stores and remodeled eight stores, compared to the 39 weeks ended October 31, 2020, when we opened 28 new stores and relocated three stores.

Our future investments will depend primarily on the number of new, remodeled, and relocated stores, information technology systems, and supply chain investments we undertake and the timing of these expenditures.

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Purchases of treasury shares represent the fair value of common shares repurchased from plan participants in connection with shares withheld to satisfy minimum statutory tax obligations upon the vesting of restricted stock.

We had no borrowings outstanding under the credit facility as of July 31, 2021 and January 30, 2021.

As of August 1, 2020, we had $800.0 million outstanding under the credit facility.

The zero outstanding borrowings position at July 31, 2021 and January 30, 2021 continues to be due to a combination of factors including an improvement in sales trends as compared to the 26 weeks ended August 1, 2020, overall performance of management initiatives including expense control, as well as inventory and other working capital reductions.

We had no borrowings outstanding under the credit facility as of October 30, 2021, January 30, 2021, and October 31, 2020.

The zero outstanding borrowings position continues to be due to a combination of factors including strong sales growth, overall performance of management initiatives including expense control.

We may require borrowings under the facility from time to time in future periods for unexpected business disruptions, to support our new store program, share repurchases, and seasonal inventory needs.

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and the other lenders party thereto.

The Loan Agreement matures on March 11,

2025, provides maximum revolving loans equal to the lesser of $1.0 billion or a percentage of eligible owned inventory and eligible owned receivables (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of qualified cash), contains a $50.0 million subfacility for letters of credit and allows the Company to increase the revolving facility by an additional $100.0 million, subject to the consent by each lender and other conditions.

The Loan Agreement matures on March 11, 2025, provides maximum revolving loans equal to the lesser of $1.0 billion or a percentage of eligible owned inventory and eligible owned receivables (which borrowing base may, at the election of the Company and satisfaction of certain conditions, include a percentage of qualified cash), contains a $50.0 million subfacility for letters of credit and allows the

Company to increase the revolving facility by an additional $100.0 million, subject to the consent by each lender and other conditions.

The Loan Agreement contains a requirement to maintain a fixed charge coverage ratio of not less than 1.0 to 1.0 during such periods when availability under the Loan Agreement falls below a specified threshold.

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Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0% to 0.125% or the London Interbank Offered Rate plus a margin of 1.125% to 1.250%, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.20% per annum.

As of July 31, 2021 and January 30, 2021, we had no borrowings outstanding under the credit facility.

As of August 1, 2020, we had $800.0 million outstanding under the credit facility and the weighted average interest rate was 1.59%.

As of July 31, 2021, we were in compliance with all terms and covenants of the Loan Agreement.

As of October 30, 2021, January 30, 2021, and October 31, 2020, we had no borrowings outstanding under the credit facility.

As of October 31, 2020, the weighted average interest rate was 1.56%.

As of October 30, 2021, we were in compliance with all terms and covenants of the Loan Agreement.

Our business is subject to seasonal fluctuation.

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Off-balance sheet arrangements

As of July 31, 2021, we have not entered into any “off-balance sheet” arrangements, as that term is described by the SEC.

As of October 30, 2021, we have not entered into any “off-balance sheet” arrangements, as that term is described by the SEC.

We do, however, have off-balance sheet purchase obligations incurred in the ordinary course of business.

1 unchanged sentence

Our contractual obligations consist of operating lease obligations, purchase obligations, and our revolving line of credit.

No material changes outside the ordinary course of business have occurred in our contractual obligations during the 26 weeks ended July 31, 2021.

No material changes outside the ordinary course of business have occurred in our contractual obligations during the 39 weeks ended October 30, 2021.

Critical accounting policies and estimates

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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