What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-30 compared with 2023-11-30 · 64 added, 86 removed, 181 unchanged (45% of the section changed)

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Such forward-looking statements are subject to various risks and uncertainties, which include, without limitation:

● macroeconomic conditions, including inflation, rising interest rates and recessionary concerns, as well as ongoing labor cost pressures, transportation and shipping cost pressures, and the COVID-19 pandemic, have had, and may continue to have, a negative impact on our business, financial condition, profitability, and cash flows (including future uncertain impacts);

● macroeconomic conditions, including inflation, elevated interest rates and recessionary concerns, as well as continuing labor cost pressures, and transportation and shipping cost pressures, have had, and may continue to have, a negative impact on our business, financial condition, profitability, and cash flows (including future uncertain impacts);

● changes in the overall level of consumer spending and volatility in the economy, including as a result of macroeconomic conditions and geopolitical events;

● our ability to sustain our growth plans and successfully implement our long-range strategic and financial plan;

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

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

● our ability to gauge beauty trends and react to changing consumer preferences in a timely manner;

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● the failure to maintain satisfactory compliance with applicable privacy and data protection laws and regulations;

● changes in the good relationships we have with our brand partners and/or our ability to continue to offer permanent or temporary exclusive products of our brand partners;

● changes in the good relationships we have with our brand partners, our ability to continue to obtain sufficient merchandise from our brand partners, and/or our ability to continue to offer permanent or temporary exclusive products of our brand partners;

● our ability to effectively manage our inventory and protect against inventory shrink;

● changes in the wholesale cost of our products and/or interruptions at our brand partners’ or third-party vendors’ operations;

● future epidemics, pandemics or natural disasters could negatively impact sales;

● epidemics, pandemics or natural disasters, which could negatively impact sales;

● the possibility that new store openings and existing locations may be impacted by developer or co-tenant issues;

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

● a decline in operating results may lead to asset impairment and store closure charges;

● 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 28, 2023, as such may be amended or supplemented in our subsequently filed Quarterly Reports on Form 10-Q (including this report).

● a decline in operating results which could lead to asset impairment and store closure charges;

● 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 February 3, 2024, 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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Key aspects of our business include:

a differentiated assortment of more than 25,000 beauty products across a variety of categories and price points as well as a variety of beauty services, including salon services, in more than 1,350 stores predominantly located in convenient, high-traffic locations;

a differentiated assortment of approximately 25,000 beauty products across a variety of categories and price points as well as a variety of beauty services, including salon services, in more than 1,350 stores predominantly located in convenient, high-traffic locations;

engaging digital experiences delivered through our website, Ulta.com, and our mobile applications;

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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, solidifying Ulta Beauty at the Heart of the Beauty Community;

3) expand and deepen our presence across the beauty journey, positioning Ulta Beauty at the Heart of the Beauty Community;

4) drive operational excellence and optimization;

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Over the long term, our growth strategy is to increase total net sales through growing our 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, guest experiences, systems, and supply chain required to support a 1,500 to 1,700 store chain in the U.S.

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, guest experiences, 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.

Current Trends

Industry trends

Industry trend s

Our research indicates that Ulta Beauty has captured meaningful market share across all categories over the last several years.

The overall beauty market expanded in 2022 and into the first 39 weeks of fiscal 2023, supported by healthy consumer engagement with the beauty category.

The overall beauty market expanded in 2023 and into the first quarter of 2024, supported by healthy consumer engagement with the beauty category.

We remain confident that our differentiated and diverse business model, our commitment to strategic investments, and our highly engaged associates will continue to drive market share gains over the long term.

Impact of inflation and other macroeconomic trends

Although we do not believe inflation had a material impact on our sales during the first 39 weeks of fiscal 2023, continued pressure from inflation or other evolving macroeconomic conditions could have an adverse impact on consumer spending and could lead to a recession.

Although we do not believe inflation had a material impact on our sales during the first quarter of fiscal 2024, continued pressure from inflation or other evolving macroeconomic conditions could have an adverse impact on consumer spending and could lead to a recession.

Furthermore, inflationary pressures, as well as other macroeconomic trends, could negatively impact our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with higher costs.

In addition, inflation could materially increase the interest rates on any outstanding debt.

In addition, inflation could cause the interest rates on any future debt to remain at an elevated level or increase.

Basis of presentation

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● distribution costs including labor and related benefits, freight, rent, depreciation and amortization, real estate taxes, utilities, and insurance;

● shipping and handling costs;

● shipping and handling costs for e-commerce orders;

● retail store occupancy costs including rent, depreciation and amortization, real estate taxes, utilities, repairs and maintenance, insurance, and licenses;

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Pre-opening expenses include non-capital expenditures during the period prior to store opening for new, remodeled, and relocated stores including rent during the construction period for new and relocated stores, store set-up labor, management and employee training, and grand opening advertising.

Interest income represents interest primarily from cash equivalents, which include highly liquid investments such as money market funds and certificates of deposit with an original maturity of three months or less from the date of purchase.

Interest income, net represents interest from cash equivalents, which include highly liquid investments such as money market funds and certificates of deposit with an original maturity of three months or less from the date of purchase.

Interest expense includes interest costs and facility fees associated with our credit facility, which is structured as an asset-based lending instrument.

Our credit facility interest is based on a variable interest rate structure which can result in increased cost in periods of rising interest rates.

Our credit facility interest is based on a variable interest rate structure which can result in increased cost in periods of rising or elevated interest rates.

Income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which we operate stores.

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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 third quarter in fiscal 2023 and 2022 ended on October 28, 2023 and October 29, 2022, respectively.

The Company’s first quarter in fiscal 2024 and 2023 ended on May 4, 2024 and April 29, 2023, respectively.

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

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13 Weeks Ended

39 Weeks Ended

(Dollars in thousands)

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13 Weeks Ended

39 Weeks Ended

(Percentage of net sales)

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Income tax expense

Comparison of 13 weeks ended October 28, 2023 to 13 weeks ended October 29, 2022

Net sales increased $150.1 million or 6.4%, to $2.5 billion for the 13 weeks ended October 28, 2023, compared to $2.3 billion for the 13 weeks ended October 29, 2022.

The net sales increase was primarily due to increased comparable sales, strong new store performance, and an increase in other revenue compared to the 13 weeks ended October 29, 2022.

The total comparable sales increase of 4.5% during the 13 weeks ended October 28, 2023 was driven by a 5.9% increase in transactions and a 1.4% decrease in average ticket.

Gross profit increased $29.3 million or 3.0%, to $992.1 million for the 13 weeks ended October 28, 2023, compared to $962.8 million for the 13 weeks ended October 29, 2022.

Gross profit as a percentage of net sales decreased to 39.9% for the 13 weeks ended October 28, 2023, compared to 41.2% for the 13 weeks ended October 29, 2022.

The decrease in gross profit margin was primarily due to lower merchandise margin, higher inventory shrink, and higher supply chain costs, partially offset by strong growth in other revenue.

Selling, general and administrative expenses

Selling, general and administrative (SG&A) expenses increased $64.2 million or 10.8%, to $661.4 million for the 13 weeks ended October 28, 2023, compared to $597.2 million for the 13 weeks ended October 29, 2022.

SG&A expenses as a percentage of net sales increased to 26.6% for the 13 weeks ended October 28, 2023, compared to 25.5% for the 13 weeks ended October 29, 2022, primarily due to higher corporate overhead due to strategic investments, higher store expenses, higher store payroll and benefits, and higher marketing expenses, partially offset by lower incentive compensation.

Pre-opening expenses

Pre-opening expenses were $3.5 million for the 13 weeks ended October 28, 2023 compared to $3.8 million for the 13 weeks ended October 29, 2022.

Interest income, net

Net interest income was $2.5 million for the 13 weeks ended October 28, 2023 compared to $0.8 million for the 13 weeks ended October 29, 2022, due to higher average interest rates on cash balances.

As of October 28, 2023, we had $195.4 million outstanding under the credit facility.

We did not have any outstanding borrowings on the credit facility as of January 28, 2023 and October 29, 2022.

Income tax expense

Income tax expense of $80.2 million for the 13 weeks ended October 28, 2023 represents an effective tax rate of 24.3%, compared to $88.1 million of income tax expense representing an effective tax rate of 24.3% for the 13 weeks ended October 29, 2022.

Net income was $249.5 million for the 13 weeks ended October 28, 2023, compared to $274.6 million for the 13 weeks ended October 29, 2022.

The decrease in net income is primarily related to the $64.2 million increase in SG&A expenses, partially offset by the $29.3 million increase in gross profit, the $7.9 million decrease in income taxes, and the $1.6 million increase in interest income.

Comparison of 39 weeks ended October 28, 2023 to 39 weeks ended October 29, 2022

Net sales increased $671.2 million or 9.6%, to $7.7 billion for the 39 weeks ended October 28, 2023, compared to $7.0 billion for the 39 weeks ended October 29, 2022.

The net sales increase was primarily due to increased comparable sales, strong new store performance, and an increase in other revenue compared to the 39 weeks ended October 29, 2022.

The total comparable sales increase of 7.3% during the 39 weeks ended October 28, 2023 was driven by an 8.7% increase in transactions and a 1.4% decrease in average ticket.

Gross profit increased $208.5 million or 7.4%, to $3.0 billion for the 39 weeks ended October 28, 2023, compared to $2.8 billion for the 39 weeks ended October 29, 2022.

Gross profit as a percentage of net sales decreased to 39.7% for the 39 weeks ended October 28, 2023, compared to 40.6% for the 39 weeks ended October 29, 2022.

The decrease in gross profit margin was primarily due to lower merchandise margin, higher inventory shrink, higher supply chain costs, and deleverage of salon expenses, partially offset by strong growth in other revenue and leverage of store fixed costs.

Comparison of 13 weeks ended May 4, 2024 to 13 weeks ended April 29, 2023

Net sales increased $91.6 million or 3.5%, to $2.7 billion for the 13 weeks ended May 4, 2024, compared to $2.6 billion for the 13 weeks ended April 29, 2023.

The net sales increase was primarily due to increased comparable sales, new store contribution, and an increase of $9.1 million in other revenue.

The total comparable sales increase of 1.6% was driven by a 1.3% increase in transactions and a 0.3% increase in average ticket.

Gross profit increased $14.9 million or 1.4%, to $1.07 billion for the 13 weeks ended May 4, 2024, compared to $1.05 billion for the 13 weeks ended April 29, 2023.

Gross profit as a percentage of net sales decreased to 39.2% for the 13 weeks ended May 4, 2024, compared to 40.0% for the 13 weeks ended April 29, 2023.

The decrease in gross profit margin was primarily due to lower merchandise margins and higher inventory shrink, partially offset by growth in other revenue.

Selling, general and administrative expenses

SG&A expenses increased $241.6 million or 14.8%, to $1.9 billion for the 39 weeks ended October 28, 2023, compared to $1.6 billion for the 39 weeks ended October 29, 2022.

SG&A expenses as a percentage of net sales increased to 24.5% for the 39 weeks ended October 28, 2023, compared to 23.4% for the 39 weeks ended October 29, 2022, primarily due to higher corporate overhead due to strategic investments, higher store payroll and benefits, higher marketing expenses, and higher store expenses, partially offset by lower incentive compensation.

Selling, general and administrative (SG&A) expenses increased $53.8 million or 8.8%, to $665.9 million for the 13 weeks ended May 4, 2024, compared to $612.1 million for the 13 weeks ended April 29, 2023.

SG&A expenses as a percentage of net sales increased to 24.4% for the 13 weeks ended May 4, 2024, compared to 23.2% for the 13 weeks ended April 29, 2023, primarily due to higher corporate overhead for strategic investments, higher store payroll and benefits, and higher store expenses.

Pre-opening expenses

Pre-opening expenses were $5.4 million for the 39 weeks ended October 28, 2023 compared to $8.4 million for the 39 weeks ended October 29, 2022.

Pre-opening expenses were $2.9 million for the 13 weeks ended May 4, 2024 compared to $0.7 million for the 13 weeks ended April 29, 2023.

Interest income, net

Net interest income was $14.3 million for the 39 weeks ended October 28, 2023 compared to $0.6 million for the 39 weeks ended October 29, 2022 due to higher average interest rates on cash balances.

As of October 28, 2023, we had $195.4 million outstanding under the credit facility.

We did not have any outstanding borrowings on the credit facility as of January 28, 2023 and October 29, 2022.

Interest income, net was $6.9 million for the 13 weeks ended May 4, 2024 compared to $7.3 million for the 13 weeks ended April 29, 2023.

We did not have any outstanding borrowings on the credit facility as of May 4, 2024, February 3, 2024, and April 29, 2023.

Income tax expense

Income tax expense of $278.6 million for the 39 weeks ended October 28, 2023 represents an effective tax rate of 23.7%, compared to $289.9 million of income tax expense representing an effective tax rate of 24.3% for the 39 weeks ended October 29, 2022.

The lower effective tax rate is primarily due to benefits from income tax accounting for stock-based compensation.

Net income was $896.6 million for the 39 weeks ended October 28, 2023 compared to $901.7 million for the 39 weeks ended October 29, 2022.

The decrease in net income is primarily related to the $241.6 million increase in SG&A expenses, partially offset by the $208.5 million increase in gross profit, the $13.7 million increase in interest income, and the $11.3 million decrease in income taxes.

Income tax expense of $94.7 million for the 13 weeks ended May 4, 2024 represents an effective tax rate of 23.2%, compared to $102.4 million of income tax expense representing an effective tax rate of 22.8% for the 13 weeks ended April 29, 2023.

The higher income tax rate is primarily due to a reduced benefit from income tax accounting for stock-based compensation.

Net income was $313.1 million for the 13 weeks ended May 4, 2024, compared to $347.1 million for the 13 weeks ended April 29, 2023.

The decrease in net income is primarily related to the $53.8 million increase in SG&A expenses and the $0.4 million decrease in interest income, net, partially offset by the $14.9 million increase in gross profit and the $7.6 million decrease in income tax expense.

Liquidity and capital resources

Our primary sources of liquidity are cash and cash equivalents, cash flows from operations, and borrowings under our credit facility.

The most significant components of our working capital are merchandise inventories, receivables, and

cash and cash equivalents reduced by accounts payable, accrued liabilities, and deferred revenue.

As of October 28, 2023, January 28, 2023, and October 29, 2022, we had cash and cash equivalents of $121.8 million, $737.9 million, and $250.6 million, respectively.

The most significant components of our working capital are merchandise inventories, cash and cash equivalents, and receivables, reduced by accounts payable, deferred revenue, and accrued liabilities.

As of May 4, 2024, February 3, 2024, and April 29, 2023, we had cash and cash equivalents of $524.6 million, $766.6 million, and $636.4 million, respectively.

Our primary cash needs are for rent, capital expenditures for new, remodeled, and relocated stores, increased merchandise inventories related to store expansion and new brand additions, supply chain improvements, share repurchases, and continued investment in our information technology systems.

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Long-term cash requirements primarily relate to funding lease expenses and other purchase commitments.

We generally fund short-term and long-term cash requirements with cash from operating activities and supplement with borrowings under our credit facility, as necessary.

We generally fund short-term and long-term cash requirements with cash from operating activities.

We believe our primary sources of liquidity will satisfy our cash requirements over both the short term (the next twelve months) and long term.

We believe our ability to generate substantial cash from operating activities and readily secure financing at competitive rates are key strengths that give us significant flexibility to meet our short and long-term financial commitments.

The following table presents a summary of our cash flows for the 39 weeks ended October 28, 2023 and October 29, 2022:

The following table presents a summary of our cash flows:

13 Weeks Ended

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Operating activities consist of net income adjusted for certain non-cash items, including depreciation and amortization, non-cash lease expense, 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 decrease in net cash provided by operating activities in the first 39 weeks of fiscal 2023 compared to the first 39 weeks of fiscal 2022 was mainly due to a larger increase in merchandise inventories in the first 39 weeks of fiscal 2023, the timing of accrued liabilities and accounts payable, and the timing of receivable collections, partially offset by a decrease in prepaid income taxes and prepaid expenses.

Merchandise inventories, net were $2.3 billion at October 28, 2023, compared to $2.1 billion at October 29, 2022, representing an increase of $206.6 million or 9.8%.

The decrease in net cash provided by operating activities in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 was mainly due to the timing of accounts payable, accrued liabilities, accrued income taxes, and prepaid expenses and other current assets, the decrease in net income, and a larger increase in merchandise inventories in the first quarter of fiscal 2024, partially offset by the net decrease in other assets and liabilities.

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

Merchandise inventories, net were $1.9 billion at May 4, 2024, compared to $1.8 billion at April 29, 2023, representing an increase of $154.8 million or 8.8%.

The increase in total inventory is primarily due to the following:

● $76 million increase to support increased demand and product cost increases;

● $49 million increase due to the addition of 31 net new stores opened since October 28, 2022;

● $43 million increase due to our new market fulfillment center in Greer, South Carolina;

● $72 million increase due to new brand launches;

● $46 million increase due to the addition of 36 net new stores opened since April 29, 2023;

● $22 million increase in distribution center inventory primarily due to the opening of the market fulfillment center in Greer, SC.

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.

Investing activities for capital expenditures were $311.0 million during the 39 weeks ended October 28, 2023, compared to $204.0 million during the 39 weeks ended October 29, 2022.

During the 39 weeks ended October 28, 2023, we opened 20 new stores, relocated five stores, and remodeled 16 stores, compared to the 39 weeks ended October 29, 2022, when we opened 35 new stores, relocated 11 stores, and remodeled eight stores.

The increase in net cash used in investing activities in the first 39 weeks of fiscal 2023 compared to the first 39 weeks of fiscal 2022 was primarily due to higher capital expenditures.

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.

Investing activities for capital expenditures were $91.0 million during the 13 weeks ended May 4, 2024 compared to $109.8 million during the 13 weeks ended April 29, 2023.

During the 13 weeks ended May 4, 2024, we opened 12 new stores, closed two stores, and relocated one store, compared to the 13 weeks ended April 29, 2023, when we opened five new stores, closed one store, remodeled two stores, and relocated one store.

The decrease in net cash used in investing activities in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 was primarily due to lower capital expenditures for information technology systems and supply chain investments, partially offset by higher capital expenditures for merchandising fixtures, compared to the first quarter of fiscal 2023.

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

Based on past performance and current expectations, we believe our sources of liquidity will be sufficient to fund future capital 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.

The increase in net cash used in financing activities in the first 39 weeks of fiscal 2023 compared to the first 39 weeks of fiscal 2022 was primarily due to an increase in share repurchases, partially offset by borrowings on our revolving credit facility.

As of October 28, 2023, we had $195.4 million outstanding under the credit facility, and we had no borrowings outstanding under the credit facility as of January 28, 2023 and October 29, 2022.

The increase in net cash used in financing activities in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 was primarily due to an increase in share repurchases.

We had no borrowings outstanding under the credit facility as of May 4, 2024, February 3, 2024, and April 29, 2023.

The zero outstanding borrowings position is due to a combination of factors including sales demand, overall performance of management initiatives including expense control, and inventory and other working capital reductions.

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

Share repurchase program

In March 2022, the Board of Directors authorized a share repurchase program (the 2022 Share Repurchase Program) pursuant to which the Company may repurchase up to $2.0 billion of the Company’s common stock.

The 2022 Share Repurchase Program revokes the previously authorized but unused amounts from the earlier share repurchase program.

The authorized value of shares available to be repurchased under the 2022 Share Repurchase Program excludes excise tax.

In March 2022, the Board of Directors authorized a share repurchase program (the 2022 Share Repurchase Program) pursuant to which the Company could repurchase up to $2.0 billion of the Company’s common stock.

The 2022 Share Repurchase Program authorization revoked the previously authorized but unused amounts from the earlier share repurchase program.

The 2022 Share Repurchase Program did not have an expiration date but provided for suspension or discontinuation at any time.

In March 2024, the Board of Directors authorized a new share repurchase program (the 2024 Share Repurchase Program) pursuant to which the Company may repurchase up to $2.0 billion of the Company’s common stock.

The 2024 Share Repurchase Program authorization revokes the previously authorized but unused amounts from the 2022 Share Repurchase Program.

The 2024 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.

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Credit facility

On February 27, 2023, we entered into Amendment No.

On March 13, 2024, we entered into Amendment No.

3 to the Second Amended and Restated Loan Agreement (as so amended, the Loan Agreement) with Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent and a Lender thereunder;

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JPMorgan Chase Bank, N.A., as Syndication Agent and a Lender;

PNC Bank, National Association,

as Documentation Agent and a Lender;

PNC Bank, National Association, as Documentation Agent and a Lender;

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 13, 2029, provides maximum revolving loans equal to the lesser of $800.0 million 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 $200.0 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.

Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan Agreement.

Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0% to 0.125% or the Term Secured Overnight Financing Rate plus a margin of 1.125% to 1.250%, and a credit spread adjustment of 0.10%, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.20% per annum.

As of October 28, 2023, we had $195.4 million outstanding under the credit facility and the weighted average interest rate was 8.21%.

As of January 28, 2023 and October 29, 2022, we had no borrowings outstanding under the credit facility.

As of October 28, 2023, we were in compliance with all terms and covenants of the Loan Agreement.

Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the Loan

Outstanding borrowings bear interest, at the Company’s election, at either a base rate plus a margin of 0.5% to 1.0% or the Term Secured Overnight Financing Rate plus a margin of 1.5% to 2.0%, and a credit spread adjustment of 0.10%, with such margins based on the Company’s borrowing availability, and the unused line fee is 0.25% to 0.375% per annum.

As of May 4, 2024, February 3, 2024, and April 29, 2023 we had no borrowings outstanding under the credit facility.

As of May 4, 2024, we were in compliance with all terms and covenants of the Loan Agreement.

Our business is subject to seasonal fluctuation.

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Actual results may differ from these estimates.

There have been no significant changes to the critical accounting policies and estimates included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

There have been no significant changes to the critical accounting policies and estimates included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

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