AT HOME GROUP INC. This discussion and analysis of the financial condition and results of our
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and related notes of
We operate on a fiscal calendar widely used by the retail industry that results
in a given fiscal year consisting of a 52- or 53-week period ending on the last
Saturday in January. In a 52-week fiscal year, each quarter contains 13 weeks of
operations; in a 53-week fiscal year, each of the first, second and third
quarters includes 13 weeks of operations and the fourth quarter includes 14
weeks of operations. References to a fiscal year mean the year in which that
fiscal year ends. References herein to "fiscal year 2021" relate to the 53 weeks
ending
Overview
At Home is the leading home décor superstore based on the number of our locations and our large format stores that we believe dedicate more space per store to home décor than any other player in the industry. We are focused on providing the broadest assortment of products for any room, in any style, for any budget. We utilize our space advantage to out-assort our competition, offering over 50,000 SKUs throughout our stores. Our differentiated merchandising strategy allows us to identify on-trend products and then value engineer those products to provide desirable aesthetics at attractive price points for our customers. Over 70% of our products are unbranded, private label or specifically designed for us. We believe that our broad and comprehensive offering and compelling value proposition combine to create a leading destination for home décor with the opportunity to continue taking market share in a highly fragmented and growing industry.
As of
Recent Developments
The global COVID-19 pandemic has resulted in significant disruptions to the global economy, and substantially impacted our business, results of operations and financial condition.
Following government mandates in certain locations as well as advice from the
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The temporary closure of our stores and decline in store traffic due to the
COVID-19 pandemic has resulted in significantly declined cash flows from
operations. There can be no assurance that we will not be required by landlords
or authorities at the local, state or federal level to reinstate or extend store
closures, or as to how long any such closure would continue. In general, during
any such closure, we would still be obligated to make payments to landlords and
for routine operating costs, such as utilities and insurance. We may not have
sufficient cash flows from operations or other sources of liquidity to continue
making such payments when due, and our efforts to reduce, offset or defer such
obligations, such as entering into deferral agreements with landlords or other
creditors, may not be successful. On
Our customers may also be negatively affected by layoffs, work reductions or financial hardship as a result of the global outbreak of COVID-19, which could negatively impact demand for our products as customers delay or reduce discretionary purchases. Even once we are able to fully reopen our stores, health concerns could continue and could cause employees or customers to avoid gathering in public places, which could have an adverse effect on store traffic or the ability to adequately staff our stores. Any significant reduction in customer visits to, and spending at, our stores caused directly or indirectly by COVID-19 would continue to result in a loss of revenue and profits and could result in other material adverse effects.
The negative impact of the outbreak of COVID-19 could result in an adverse impact to manufacturing activity and supply chains, including as a result of work stoppages, factory and other business closings, slowdowns or delays, or if we fail to make timely payments to our suppliers. In addition, there may be restrictions and limitations placed on workers and factories, including shelter-in-place and stay-at-home orders and other limitations on the ability to travel and return to work, which could result in shortages or delays in production or shipment of products.
During the thirteen weeks ended
The extent of the impact of COVID-19 on our business, results of operations and
financial results will depend largely on future developments, including the
duration and spread of the outbreak within
We have also implemented a number of other measures to help mitigate the operating and financial impact of the pandemic, including: (i) furloughing a significant number of employees; (ii) temporary tiered salary reductions for corporate employees, including executive officers; (iii) deferring annual merit increases and bonuses; (iv) executing substantial reductions in expenses, store occupancy costs, capital expenditures and overall costs, including through reduced inventory purchases; (v) extending payment terms with our vendors; (vi) negotiating rent deferrals or rent abatements for a portion of our leases; and (vii) working to maximize our participation in all eligible government or other initiatives available to businesses or employees impacted by the COVID-19 pandemic.
Trends and Other Factors Affecting Our Business
Various trends and other factors affect or have affected our operating results, including:
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Overall economic trends. The overall economic environment and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote customer spending in our stores, while economic weakness results in a reduction of customer spending. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs, and localized or global events such as the outbreak of epidemic or pandemic disease.
Consumer preferences and demand. Our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate, develop and offer a compelling product assortment responsive to customer preferences and design trends. If we misjudge the market for our products, we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities, which would impact our net sales and gross profit.
New store openings. We expect new stores will be a key driver of the growth in our sales and operating profit in the future. Our results of operations have been and will continue to be materially affected by the timing and number of new store openings. As we continue to open new stores, competition among our stores within the same or adjacent geographic regions may impact the performance of our comparable store base. The performance of new stores may vary depending on various factors such as the store opening date, the time of year of a particular opening, the amount of store opening costs, the amount of store occupancy costs and the location of the new store, including whether it is located in a new or existing market. For example, we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs. In addition, in response to the interest and excitement generated when we open a new store, the new stores generally experience higher net sales during the initial period of one to three months after which the new store's net sales will begin to normalize as it reaches maturity within six months of opening, as further discussed below.
Our planned store expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our growth effectively will require us to continue to enhance our inventory management and distribution systems, financial and management controls and information systems. We will also be required to hire, train and retain store management and store personnel, which, together with increased marketing costs, can affect our operating margins.
A new store typically reaches maturity, meaning the store's annualized targeted sales volume has been reached within six months of opening. New stores are included in the comparable store base during the sixteenth full fiscal month following the store's opening, which we believe represents the most appropriate comparison. We also periodically explore opportunities to relocate a limited number of existing stores to improve location, lease terms, store layout or customer experience. Relocated stores typically achieve a level of operating profitability comparable to our company-wide average for existing stores more quickly than new stores.
During the first quarter of fiscal year 2021, we suspended all new store openings and remodeling projects in response to the COVID-19 pandemic with the exception of seven stores that were at or near completion. The ultimate duration and impact of this suspension is currently unknown.
Infrastructure investment. Our historical operating results reflect the impact
of our ongoing investments to support our growth. In the past seven fiscal
years, we have made significant investments in our business that we believe have
laid the foundation for continued profitable growth. We believe that our strong
management team, brand identity, upgraded distribution centers and enhanced
information systems, including our warehouse and order management, e-commerce,
POS, merchandise planning and inventory allocation systems, have enabled us to
replicate our profitable store format and differentiated shopping experience. We
have made investments relating to our second distribution center in
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Pricing strategy. We are committed to providing our products at everyday low prices. We value engineer products in collaboration with our suppliers to recreate the "look" that we believe our customer wants while eliminating the costly construction elements that our customer does not value. We believe our customer views shopping At Home as an in-person experience through which our customer can see and feel the quality of our products and physically assemble a desired aesthetic. This design approach allows us to deliver an attractive value to our customer, as our products are typically less expensive than other branded products with a similar look. We employ a simple everyday low pricing strategy that consistently delivers savings to our customer without the need for extensive promotions, as evidenced by over 80% of our net sales occurring at full price.
Our ability to source and distribute products effectively. Our net sales and gross profit are affected by our ability to purchase our products in sufficient quantities at competitive prices. While we believe our vendors have adequate capacity to meet our current and anticipated demand, our level of net sales could be adversely affected in the event of constraints in our supply chain, including the inability of our vendors to produce sufficient quantities of some merchandise in a manner that is able to match market demand from our customers, leading to lost sales. Tariffs could also impact our or our vendors' ability to source product efficiently or create other supply chain disruptions. The tariffs enacted in fiscal year 2019 did not have a material impact on our gross margin due to a combination of supplier negotiations, direct sourcing and strategic price increases. However, the additional tariffs enacted in fiscal year 2020 led us to institute strategic price increases, which had a direct negative impact on comparable store sales. In addition, supply chain disruption for reasons such as the outbreak or persistence of epidemic or pandemic disease, including the global COVID-19 pandemic, could have a negative impact on our results of operations.
Fluctuation in quarterly results. Our quarterly results have historically varied depending upon a variety of factors, including our product offerings, promotional events, store openings and shifts in the timing of holidays, among other things. As a result of these factors, our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year.
Inflation and deflation trends. Our financial results can be expected to be directly impacted by substantial increases in product costs due to commodity cost increases or general inflation, including with respect to freight costs, which could lead to a reduction in our sales as well as greater margin pressure as costs may not be able to be passed on to consumers. To date, changes in commodity prices and general inflation have not materially impacted our business. We have faced and continue to face inflationary pressure on freight costs, which are being heightened by tariff-related shipment surges, port congestion and supply chain disruptions relating to the global outbreak of COVID-19. In response to increasing commodity prices, freight costs or general inflation, we seek to minimize the impact of such events by sourcing our merchandise from different vendors, changing our product mix or increasing our pricing when necessary.
How We Assess the Performance of Our Business
In assessing our performance, we consider a variety of performance and financial measures. The key measures include net sales, gross profit and gross margin, and selling, general and administrative expenses. In addition, we also review other important metrics such as Adjusted EBITDA, Store-level Adjusted EBITDA and Adjusted Net Income.
Net Sales
Net sales are derived from direct retail sales to customers in our stores, net of merchandise returns and discounts. Growth in net sales is impacted by opening new stores and increases and decreases in comparable store sales.
New store openings
The number of new store openings reflects the new stores opened during a particular reporting period, including any relocations of existing stores during such period. Before we open new stores, we incur pre-opening costs, as described below. The total number of new stores per year and the timing of store openings has, and will continue to have, an impact on our results as described above in "-Trends and Other Factors Affecting Our Business".
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Comparable store sales
A store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store's opening, which is when we believe comparability is achieved. When a store is being relocated or remodeled, we exclude sales from that store in the calculation of comparable store sales until the first day of the sixteenth full fiscal month after it reopens. In addition, when applicable, we adjust for the effect of the 53rd week. We have not excluded stores from the comparable store sales calculation that were impacted by the COVID-19 pandemic. There may be variations in the way in which some of our competitors and other retailers calculate comparable or "same store" sales. As a result, data in this report regarding our comparable store sales may not be comparable to similar data made available by other retailers.
Comparable store sales allow us to evaluate how our store base is performing by measuring the change in period-over-period net sales in stores that have been open for the applicable period. Various factors affect comparable store sales, including:
consumer preferences (including changing consumer preferences in response to
? unforeseen events such as the global COVID-19 pandemic), buying trends and
overall economic trends;
? our ability to identify and respond effectively to customer preferences and
trends;
? our ability to provide an assortment of high quality and trend-right product
offerings that generate new and repeat visits to our stores;
? the customer experience we provide in our stores;
? our ability to source and receive products accurately and timely;
? changes in product pricing, including promotional activities;
? the number of items purchased per store visit;
? weather;
? competition, including among our own stores within the same or adjacent
geographic region; and
? timing and length of holiday shopping periods.
As we continue to execute our growth strategy, we anticipate that a portion of our net sales will come from stores not included in our comparable store sales calculation. However, comparable store sales are only one measure we use to assess the success of our growth strategy.
Gross Profit and Gross Margin
Gross profit is determined by subtracting cost of sales from our net sales. Gross margin measures gross profit as a percentage of net sales.
Cost of sales consists of various expenses related to the cost of selling our merchandise. Cost of sales consists of the following: (1) cost of merchandise, net of inventory shrinkage, damages and vendor allowances; (2) inbound freight and internal transportation costs such as distribution center-to-store freight costs; (3) costs of operating our distribution centers, including labor, occupancy costs, supplies, and depreciation; and (4) store occupancy costs including rent, insurance, taxes, common area maintenance, utilities, repairs and maintenance and depreciation. The components of our cost of sales expenses may not be comparable to other retailers.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") consist of various expenses related to supporting and facilitating the sale of merchandise in our stores. These costs include payroll, benefits and other personnel expenses for corporate and store employees, including stock-based compensation expense, consulting, legal and other professional services expenses, marketing and advertising expenses, occupancy costs for our corporate headquarters and various other expenses.
SG&A includes both fixed and variable components and, therefore, is not directly correlated with net sales. In addition, the components of our SG&A expenses may not be comparable to those of other retailers. We expect that our SG&A expenses will increase in future periods due to our continuing store growth. In particular, we have expanded our marketing and advertising spend as a percentage of net sales in each of the fiscal years since our initial public offering and expect that we will continue to make investments in marketing and advertising spend in future fiscal years.
In addition, any increase in future stock option or other stock-based grants or modifications will increase our stock-based compensation expense included in SG&A.
Adjusted EBITDA
Adjusted EBITDA is a key metric used by management and our board of directors to
assess our financial performance. Adjusted EBITDA is also the basis for
performance evaluation under our current executive compensation programs. In
addition, Adjusted EBITDA is frequently used by analysts, investors and other
interested parties to evaluate companies in our industry. In addition to
covenant compliance and executive performance evaluations, we use Adjusted
EBITDA to supplement generally accepted accounting principles in
Adjusted EBITDA is defined as net (loss) income before net interest expense, income tax (benefit) provision and depreciation and amortization, adjusted for the impact of certain other items as defined in our debt agreements, including certain legal settlements and consulting and other professional fees, stock-based compensation expense, impairment charges, gain on sale-leaseback, non-cash rent and other adjustments. For a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP measure, see "-Results of Operations".
Store-level Adjusted EBITDA
We use Store-level Adjusted EBITDA as a supplemental measure of our performance, which represents our Adjusted EBITDA excluding the impact of costs associated with new store openings and certain corporate overhead expenses that we do not consider in our evaluation of the ongoing operating performance of our stores from period to period. Our calculation of Store-level Adjusted EBITDA is a supplemental measure of operating performance of our stores and may not be comparable to similar measures reported by other companies. We believe that Store-level Adjusted EBITDA is an important measure to evaluate the performance and profitability of each of our stores, individually and in the aggregate, especially given the level of investments we have made in our home office and infrastructure over the past seven years to support future growth. We also believe that Store-level Adjusted EBITDA is a useful measure in evaluating our operating performance because it removes the impact of general and administrative expenses, which are not incurred at the store level, and the costs of opening new stores, which are non-recurring at the store level, and thereby enables the comparability of the operating performance of our stores during the period. We use Store-level Adjusted EBITDA information to benchmark our performance versus competitors. Store-level Adjusted EBITDA should not be used as a substitute for consolidated measures of profitability of performance because it does not reflect corporate overhead expenses that are necessary to allow us to effectively operate our stores and generate Store-level Adjusted EBITDA. For a reconciliation of Store-level Adjusted EBITDA to net (loss) income, the most directly comparable GAAP measure, see "-Results of Operations".
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Adjusted Net Income
Adjusted Net Income represents our net (loss) income, adjusted for impairment charges, gain on sale-leaseback, payroll tax expenses related to initial public offering non-cash stock-based compensation expense and the income tax impact associated with the special one-time initial public offering bonus stock option exercises and other adjustments, which include other transaction costs. We present Adjusted Net Income because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. For a reconciliation of Adjusted Net Income to net (loss) income, the most directly comparable GAAP measure, see "-Results of Operations".
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Results of Operations
The following tables summarize key components of our results of operations for the periods indicated in dollars (in thousands), as a percentage of our net sales and other operational data:
Thirteen Weeks Ended
April 25, 2020 April 27, 2019
(in thousands, except percentages and
operational data)
Statement of Operations Data:
Net sales $ 189,846 $ 306,264
Cost of sales 173,496 218,213
Gross profit 16,350 88,051
Operating expenses
Selling, general and administrative
expenses 66,466 76,929
Impairment charges 319,732 -
Depreciation and amortization 2,213 1,761
Total operating expenses 388,411 78,690
Gain on sale-leaseback - 16,528
Operating (loss) income (372,061) 25,889
Interest expense, net 6,971 7,769
(Loss) income before income taxes (379,032) 18,120
Income tax (benefit) provision (20,090) 4,237
Net (loss) income $ (358,942) $ 13,883
Percentage of Net Sales :
Net sales 100.0 % 100.0 %
Cost of sales 91.4 % 71.2 %
Gross profit 8.6 % 28.8 %
Operating expenses
Selling, general and administrative
expenses 35.0 % 25.1 %
Impairment charges 168.4 % - %
Depreciation and amortization 1.2 % 0.6 %
Total operating expenses 204.6 % 25.7 %
Gain on sale-leaseback - % 5.4 %
Operating (loss) income (196.0)% 8.5 %
Interest expense, net 3.7 % 2.5 %
(Loss) income before income taxes (199.7)% 5.9 %
Income tax (benefit) provision (10.6)% 1.4 %
Net (loss) income (189.1)% 4.5 %
Operational Data:
Total stores at end of period 218 191
New stores opened 6 11
Comparable store sales (46.5)% (0.8)%
Non-GAAP Measures(1):
Store-level Adjusted EBITDA(2) $ 13,986 $ 64,707
Store-level Adjusted EBITDA margin(2) 7.4 % 21.1%
Adjusted EBITDA(2) $ (14,610) $ 33,750
Adjusted EBITDA margin(2) (7.7)% 11.0%
Adjusted Net Income(3) $ (39,210) $ 1,896
We present Adjusted EBITDA, Adjusted EBITDA margin, Store-level Adjusted
EBITDA, Store-level Adjusted EBITDA margin and Adjusted Net Income, which are
not recognized financial measures under GAAP, because we believe they assist
investors and analysts in comparing our operating performance across
reporting periods on a consistent basis by excluding items that we do not
believe are indicative of our core operating performance, such as interest,
depreciation, amortization, loss on extinguishment of debt, impairmentcharges and taxes. You are encouraged to evaluate these adjustments and the (1) reasons we consider them appropriate for supplemental analysis. In evaluating
Adjusted EBITDA, Store-level Adjusted EBITDA and Adjusted Net Income, you
should be aware that in the future we may incur expenses that are the same as
or similar to some of the adjustments in our presentation of Adjusted EBITDA,
Store-level Adjusted EBITDA and Adjusted Net Income. In particular,
Store-level Adjusted EBITDA does not reflect costs associated with new store
openings, which are incurred on a limited basis with respect to any
particular store when opened and are not indicative of ongoing core operating
performance, and corporate
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overhead expenses that are necessary to allow us to effectively operate our
stores and generate Store-level Adjusted EBITDA. Our presentation of Adjusted
EBITDA, Store-level Adjusted EBITDA and Adjusted Net Income should not be
construed as an inference that our future results will be unaffected by unusual
or non-recurring items. There can be no assurance that we will not modify the
presentation of Adjusted EBITDA, Store-level Adjusted EBITDA and Adjusted Net
Income in the future, and any such modification may be material. In addition,
Adjusted EBITDA, Adjusted EBITDA margin, Store-level Adjusted EBITDA,
Store-level Adjusted EBITDA margin and Adjusted Net Income may not be comparable
to similarly titled measures used by other companies in our industry or across
different industries.
Management believes Adjusted EBITDA is helpful in highlighting trends in our
core operating performance, while other measures can differ significantly
depending on long-term strategic decisions regarding capital structure, the tax
jurisdictions in which companies operate and capital investments. We also use
Adjusted EBITDA in connection with performance evaluations for our executives;
to supplement GAAP measures of performance in the evaluation of the
effectiveness of our business strategies; to make budgeting decisions; and to
compare our performance against that of other peer companies using similar
measures. In addition, we utilize Adjusted EBITDA in certain calculations under
our
(2) The following table reconciles our net income to EBITDA, Adjusted EBITDA and
Store-level Adjusted EBITDA for the periods presented (in thousands):
Thirteen Weeks Ended
April 25, 2020 April 27, 2019
Net (loss) income, as reported $ (358,942) $ 13,883
Interest expense, net 6,971 7,769
Income tax (benefit) provision (20,090) 4,237
Depreciation and amortization(a) 18,148 16,530
EBITDA $ (353,913) $ 42,419
Impairment charges(b) 319,732 -
Gain on sale-leaseback - (16,528)
Consulting and other professional
services(c) 275 1,581
Stock-based compensation expense(d) 2,063 1,848
Non-cash rent(e) 17,233 4,376
Other(f) - 54
Adjusted EBITDA $ (14,610) $ 33,750
Costs associated with new store
openings(g) 3,579 7,060
Corporate overhead expenses(h) 25,017 23,897
Store-level Adjusted EBITDA 13,986 64,707
Includes the portion of depreciation and amortization expenses that are (a) classified as cost of sales in our condensed consolidated statements of
operations.
(b) Represents a non-cash impairment charge of
impairment of goodwill.
Primarily consists of (i) consulting and other professional fees with respect (c) to projects to enhance our merchandising and human resource capabilities and
other company initiatives; and (ii) other transaction costs.
Non-cash stock-based compensation expense related to the ongoing equity (d) incentive program that we have in place to incentivize, retain and motivate
our employees, officers and non-employee directors.
Consists of the non-cash portion of rent, which reflects the extent to which
our GAAP straight-line rent expense recognized exceeds or is less than ourcash rent payments. The GAAP straight-line rent expense adjustment can vary (e) depending on the average age of our lease portfolio, which has been impacted
by our significant growth. For newer leases, our rent expense recognized
typically exceeds our cash rent payments while for more mature leases, rent
expense recognized is typically less than our cash rent payments.
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(f) Other adjustments include amounts our management believes are not
representative of our ongoing operations.
Reflects non-capital expenditures associated with opening new stores,
including marketing and advertising, labor and cash occupancy expenses. Costsrelated to new store openings represent cash costs, and you should be aware (g) that in the future we may incur expenses that are similar to these costs. We
anticipate that we will continue to incur cash costs as we open new stores in
the future. We opened six and eleven new stores during the thirteen weeks
ended April 25, 2020 and April 27, 2019 , respectively.
Reflects corporate overhead expenses, which are not directly related to the
profitability of our stores, to facilitate comparisons of store operating
performance as we do not consider these corporate overhead expenses when
evaluating the ongoing performance of our stores from period to period.
Corporate overhead expenses, which are a component of selling, general and
administrative expenses, are comprised of various home office general andadministrative expenses such as payroll expenses, occupancy costs, marketing (h) and advertising, and consulting and professional fees. See our discussion of
the changes in selling, general and administrative expenses presented in
"-Results of Operations". Store-level Adjusted EBITDA should not be used as a
substitute for consolidated measures of profitability or performance because
it does not reflect corporate overhead expenses that are necessary to allow
us to effectively operate our stores and generate Store-level Adjusted
EBITDA. We anticipate that we will continue to incur corporate overhead
expenses in future periods.
(3) The following table reconciles our net (loss) income to Adjusted Net (Loss)
Income for the periods presented (in thousands):
Thirteen Weeks Ended
April 25, 2020 April 27, 2019
Net (loss) income, as reported $ (358,942) $ 13,883
Adjustments:
Impairment charges(a) 319,732 - Gain on sale-leaseback - (16,528) Payroll tax expense related to special one-time IPO bonus stock option exercises(b) - 36 Other(c) - 899 Tax impact of adjustments to net (loss) income(d) - 3,612 Tax benefit related to special one-time IPO bonus stock option exercises(e) - (6) Adjusted Net Income (39,210) 1,896
(a) Represents a non-cash impairment charge of
impairment of goodwill.
Payroll tax expense related to stock option exercises associated with a (b) special one-time initial public offering bonus grant to certain members of
senior management (the "IPO grant"), which we do not consider in our
evaluation of our ongoing performance.
(c) Other adjustments include amounts our management believes are not
representative of our ongoing operations, including other transaction costs.
Represents the income tax impact of the adjusted expenses using the annualeffective tax rate excluding discrete items. After giving effect to the (d) adjustments to net (loss) income, the adjusted effective tax rate was 33.9%
and 25.0% for the thirteen weeks ended April 25, 2020 and April 27, 2019 ,
respectively.
(e) Represents the income tax benefit related to stock option exercises
associated with the IPO grant.
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Matters Affecting Comparability
As a result of the COVID-19 pandemic, our stores and distribution centers were closed or operated in a limited capacity during the first fiscal quarter 2021. In addition to lost revenues, we continued to incur expenses relating to our stores, distribution centers and home office. As a result, comparisons as a percentage of sales and year-over-year trends may not be meaningful for certain financial statement items this quarter.
Thirteen Weeks Ended
Net Sales
Net sales decreased
Cost of Sales
Cost of sales decreased
Gross Profit and Gross Margin
Gross profit was
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
Selling, general and administrative expenses include expenses related to store
operations, which decreased by
The remaining change in selling, general and administrative expenses was related
to marketing and advertising expenses. Total marketing and advertising expenses
were
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Impairment Charges
During the thirteen weeks ended
Interest Expense, Net
Interest expense, net decreased to
Income Tax Provision
Income tax benefit was
Liquidity and Capital Resources
Our principal sources of liquidity have historically been our cash generated by operating activities, proceeds from sale-leaseback transactions and borrowings under our ABL Facility and Term Loan Facilities (as described in "-Term Loan Facilities"). Historically, we have financed our operations primarily from cash generated from operations and periodic borrowings under our ABL Facility. Our primary cash needs are for day-to-day operations, to provide for infrastructure investments in our stores, to invest in future projects such as e-commerce, to finance new store openings, to pay interest and principal on our indebtedness and to fund working capital requirements for seasonal inventory builds and new store inventory purchases.
In response to the global COVID-19 pandemic, in
The availability of liquidity from the sources described herein are subject to a
range of risks and uncertainties, including those discussed under "Item 1A. Risk
Factors" of our Annual Report on Form 10-K for the fiscal year ended
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As of
In
Our capital expenditures can vary depending on the timing of new store openings
and infrastructure-related investments. Capital expenditures for the fiscal year
ended
In response to the COVID-19 pandemic, we have taken swift and decisive action to
preserve liquidity, including temporarily suspending new store openings,
collaborating with our vendors on payment terms and reducing non-essential
expenses and inventory flows. While the ultimate duration and impact of this
suspension of new store openings is unknown, it could have a material adverse
effect on the execution of our growth strategy and our business, financial
condition and results of operations. Additionally, on
Our indebtedness could adversely affect our ability to raise additional capital, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk and prevent us from meeting our obligations. Management reacts strategically to changes in economic conditions and monitors compliance with debt covenants to seek to mitigate any potential material impacts to our financial condition and flexibility.
Sale-Leaseback Transactions
As part of our flexible real estate strategy, we utilize sale-leaseback transactions to finance investments previously made for the purchase of second-generation properties and the construction of new store locations. This enhances our ability to access a range of locations and facilities efficiently. We factor sale-leaseback transactions into our capital allocation decisions. In order to support the execution of sale-leaseback transactions, we have relationships with certain REITs and other lenders that have demonstrated interest in our portfolio of assets.
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In
Term Loan Facilities
On
The Term Loan permits us to add one or more incremental term loans in amounts subject to our compliance with a first lien net leverage ratio test. The first lien net leverage ratio test is calculated using Adjusted EBITDA, which is defined as "Consolidated EBITDA" under our credit agreement.
On
As of
Asset-Based Lending Credit Facility
In
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ABL Facility was extended to the earlier of
Borrowings under the ABL Facility bear interest at a rate per annum equal to, at
our option: (x) the higher of (i) the Federal Funds Rate plus 1/2 of 1.00%, (ii)
the agent bank's prime rate and (iii) LIBOR plus 1.00%, plus in each case, an
applicable margin of 0.25% to 0.75% based on our availability or (y) the agent
bank's LIBOR plus an applicable margin of 1.25% to 1.75% based on our
availability. The effective interest rate was approximately 2.80% and 4.30%
during the thirteen weeks ended
As of
The ABL Facility contains a number of covenants that, among other things,
restrict our ability to, subject to specified exceptions, incur additional debt;
incur additional liens and contingent liabilities; sell or dispose of assets;
merge with or acquire other companies; liquidate or dissolve ourselves; engage
in businesses that are not in a related line of business; make loans, advances
or guarantees; pay dividends; engage in transactions with affiliates; and make
investments. In addition, the ABL Facility contains certain cross-default
provisions. There are no financial maintenance covenants in the ABL Facility.
However, during the existence of an event of default or when we fail to maintain
availability of the greater of
On
Collateral under the ABL Facility and the Term Loan
The ABL Facility is secured by (a) a first priority lien on our (i) cash, cash
equivalents, deposit accounts, accounts receivable, other receivables, tax
refunds and inventory, (ii) to the extent relating to, arising from, evidencing
or governing any of the items referred to in the preceding clause (i), chattel
paper, documents, instruments, general intangibles, and securities accounts
related thereto, (iii) books and records relating to the foregoing and (iv)
supporting obligations and all products and proceeds of the foregoing and all
collateral security and guarantees given by any person with respect to any of
the foregoing, in each case subject to certain exceptions (collectively, "ABL
Priority Collateral") and (b) a second priority lien on our remaining assets not
constituting ABL Priority Collateral, subject to certain exceptions
(collectively, "Term Priority Collateral"); provided, however that since our
amendment of the ABL Facility in
The Term Loan is secured by (a) a first priority lien on the Term Priority Collateral and (b) a second priority lien on the ABL Priority Collateral.
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