ACADEMY SPORTS AND OUTDOORS, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report for the fiscal year endedJanuary 30, 2021 (this "Annual Report"). This discussion contains forward-looking statements that involve risks and uncertainties. See the section of this Annual Report entitled "Cautionary Statement Regarding Forward-Looking Statements." When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. Known material factors that could affect our financial performance and actual results, and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this discussion or otherwise made by our management, are described in the "Risk Factors" section of this Annual Report. Any reference in this Annual Report to "year" or any year in particular refers to our fiscal year, which represents the fifty-two or fifty-three week period ending on the Saturday closest toJanuary 31 . Unless otherwise specified, all comparisons or changes regarding 2020 are made to 2019. All statements in this Annual Report concerning our current and planned operations are modified by reference to our discussion of recent developments related to the COVID-19 pandemic, and our ability to carry out our current and planned operations are dependent on further developments associated with the COVID-19 pandemic. Our fiscal year represents the 52- or 53- week period ending on the Saturday closest toJanuary 31 . All references in this discussion and analysis to "2020", "2019" and "2018" or like terms relate to our fiscal years as follows: Fiscal Year Ended Weeks 2020 January 30, 2021 52 2019 February 1, 2020 52 2018 February 2, 2019 52 Overview We are one of the leading full-line sporting goods and outdoor recreation retailers inthe United States . Our mission is to provide "Fun for All" and fulfill this mission with a localized merchandising strategy and value proposition that deeply connect with a broad range of consumers. Our broad and localized assortment appeals to all ages, incomes and aspirations, including beginning and advanced athletes, families enjoying outdoor recreation, and enthusiasts pursuing their passion for sports and the outdoors. 51 -------------------------------------------------------------------------------- We sell a range of sporting and outdoor recreation products, including sporting equipment, apparel, footwear, camping gear, patio furniture, outdoor cooking equipment, and hunting and fishing gear, among many others. Our strong merchandise assortment is anchored by our broad offering of year-round items, such as fitness equipment and apparel, work and casual wear, folding chairs, wagons and tents, training and running shoes, and coolers. We also carry a deep selection of seasonal items, such as sports equipment and apparel, seasonal wear and accessories, hunting and fishing equipment and apparel, patio furniture, trampolines, play sets, bicycles, and severe weather supplies. We provide locally relevant offerings, such as crawfish boilers inLouisiana , licensed apparel for area sports fans, baits and lures for area fishing spots, and beach towels in coastal markets. Our value-based assortment also includes exclusive products from our portfolio of 19 owned brands. As ofJanuary 30, 2021 , we operated 259 stores that range in size from approximately 40,000 to 130,000 gross square feet, with an average size of approximately 70,000 gross square feet, throughout 16 contiguous states. Our stores are supported by over 22,000 team members, three distribution centers, and our rapidly growing e-commerce platform, www.academy.com. We are deepening our customer relationships, further integrating our e-commerce platform with our stores and driving operating efficiencies by developing our omnichannel capabilities, such as our buy-online-pickup-in-store ("BOPIS") program, which we launched in 2019. The following table summarizes store activity for the periods indicated: Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 Beginning stores 259 253 244 Q1 new stores - 1 2 Q2 new stores - 2 3 Q3 new stores - 5 4 Q4 new stores - - - Closed - (2) - Ending stores 259 259 253 Relocated stores - - 3 Trends and Other Factors Affecting Our Business Various trends and other factors affect or have affected our operating results, including: Overall Economic Trends. All of our sales are generated withinthe United States , making our results of operations highly dependent on theU.S. economy andU.S. consumer discretionary spending. Macroeconomic factors that may affect customer spending patterns, and thereby our results of operations, include, but are not limited to: health of the economy; consumer confidence in the economy; financial market volatility; wages, jobs and unemployment trends; the housing market, including real estate prices and mortgage rates; consumer credit availability; consumer debt levels; gasoline and fuel prices; interest rates and inflation; tax rates and tax policy; immigration policy; import and customs duties/tariffs and policy; impact of natural or man-made disasters; legislation and regulations; international unrest, trade disputes, labor shortages, and other disruptions to the supply chain; changes to raw material and commodity prices; national and international security and safety concerns; and impact any of public health pandemics. Factors that impact consumer discretionary spending, which remains volatile globally, continue to create a complex and challenging retail environment for us. See the section of this Annual Report entitled "Impact of COVID-19 on Our Business." Consumer Preferences and Demands. The level of success we achieve is dependent on, among other factors, how accurately and timely we predict consumer tastes and preferences regarding sporting goods and outdoor recreation merchandise, the level of consumer demand, the availability of merchandise, and the competitive environment. Our products must appeal to a broad range of customers whose preferences cannot be predicted with certainty and are subject to change. We must identify, obtain supplies of, and offer to our customers, attractive and high-quality merchandise on a continuous basis. It is difficult to predict consistently and successfully the products and services our customers will demand as we often purchase products from our vendors several months in advance of the proposed delivery. If we misjudge the market for our products, we may be faced with inventory excesses or shortages for some products. We utilize a variety of measures to help us identify products that are relevant to our customer base and to better understand changing customer trends, such as social media analysis, internet search analytics, internal customer insights and vendor intelligence. 52
-------------------------------------------------------------------------------- Strategic Inventory Management. We must maintain sufficient inventory levels of merchandise that our customers desire to successfully operate our business. A shortage of popular merchandise could reduce our net sales. Conversely, we also must seek to avoid accumulating excess inventory to maintain appropriate in-stock levels. If we overstock unpopular merchandise, then we may be forced to take significant inventory markdowns or miss opportunities for the sale of other merchandise, both of which could have a negative impact on our profitability, and, in turn, our sales may decline or we may be required to sell the merchandise we have obtained at lower prices. We have deployed several new tools over recent years to improve inventory handling and vendor management, including third-party programs to analyze our inventory stock and execute a disciplined markdown strategy throughout the year at every location. This implementation, along with other factors, has allowed us to improve our inventory management in stores, increasing our average inventory turns from 2.84x in 2019 to 3.89x in 2020. We have coupled these tools with the data we have been able to collect from our Academy Credit Card program and targeted customer surveys, so that we can better estimate future inventory requirements. It is imperative that we continue to find innovative ways to strengthen our inventory management if we are to remain competitive and expand our margins on a go-forward basis. During 2020, although we received significant levels of inventory to support our sales, on a net basis, we experienced significant inventory reductions from high sell-through during the period. Despite increased inventory receipts, we experienced challenges in maintaining certain merchandise, resulting from the COVID-19 pandemic, manufacturing supply limitations, and transportation capacity issues, the latter of which resulted in higher than normal transportation costs. We expect to use cash to replenish such inventory during 2021, which we expect will impact our net cash provided by operating activities for the coming year. Value Strategy. We offer a broad assortment of products at competitive prices that offer extraordinary value. Our in-store experience includes value-added customer service delivered by our highly trained and passionate staff, such as free assembly of certain products (such as bicycles, grills, and bows), fitness equipment demonstrations, issuances and renewals of hunting and fishing licenses, fishing line spooling and assisting customers with carrying bulk items to the car, among others. Our goal is to consistently offer better value than our peer retailers. Our value-based pricing gives us an advantage over the specialty retailers and other large format retailers, who typically offer their more limited assortment at premium prices. Our broad assortment gives us an advantage over mass general merchants who typically do not carry the leading national brands sold at Academy. We have also continued to add owned brand products to our assortment of products, which we generally price lower than the national brand products of comparable quality that we also offer. A shift in our sales mix in which we sell more units of our owned brand products and fewer units of the national brand products would generally have a positive impact on our gross margin but an adverse impact on our total net sales. E-commerce. We expect that the expansion and enhancement of our omnichannel capabilities will be a key driver of growth in our net sales and gross margin. We continue to invest in initiatives that will increase traffic to our e-commerce website and drive increased online sales conversion. Our improved website also supports our stores with digital marketing and our BOPIS and ship-to-store programs. Our website also allows us to reach customers outside of our current store footprint and introduces new customers to the Academy brand. Our website is also a platform for marketing and product education, allowing us to connect further with our customers. We believe it is important that we continue to grow our omnichannel capabilities, especially in light of changing consumer preferences as a result of the COVID-19 pandemic, which, together with recent enhancements made to our website and omnichannel capabilities, contributed to the substantial increase in e-commerce sales during 2020. During 2020, stores facilitated approximately 95% of our total sales, including ship-from-store, BOPIS and in-store retail sales. It is, however, difficult to ascertain with precision what portion of our increased e-commerce sales during 2020 was attributable to the COVID-19 pandemic as compared to such recent enhancements. We expect to continue to invest in expanding and enhancing our omnichannel capabilities, including BOPIS, ship-from-store and ship-to-store, will continue to require significant investments by us. Competition. TheU.S. sporting goods and outdoor recreation retail industries are highly competitive and fragmented. We compete with specialty footwear and outdoor retailers, traditional sporting goods stores, large format sporting goods stores, mass general merchants and catalogue and internet retailers. This competition takes place both in physical retail locations and online. Some of our competitors may be significantly larger and have substantially greater resources than us. Pressure from our competitors could require us to reduce our prices or increase our spending for advertising and promotion. Traditional competitors have become increasingly promotional and, if our competitors reduce their prices, it may be difficult for us to reach our net sales goals without reducing our prices, which could impact our margins. We may require significant capital in the future to sustain or grow our business, including our store and e-commerce activities, due to increased competition. 53 -------------------------------------------------------------------------------- Sourcing andSupply Chain Management . For our business to be successful, our suppliers must provide us with quality products in substantial quantities, in compliance with regulatory requirements, at acceptable costs and on a timely basis. Competition for resources throughout the supply chain, such as production and transportation capacities, has increased. Trends affecting the supply chain include the impact of fluctuating prices of labor and raw materials on our suppliers, as well as the impact of the COVID-19 pandemic. The merchandise we sell is sourced from a wide variety of domestic and international suppliers and our ability to find qualified suppliers and access merchandise in a timely and efficient manner is often challenging, particularly with respect to merchandise sourced outsidethe United States . We generally do not have long-term written contracts with our suppliers that would require them to continue supplying us with merchandise, particular payment terms or the extension of credit. As a result, these suppliers could modify the terms of these relationships due to general economic conditions or otherwise. Changes in our relationships with our suppliers (which can occur for various reasons in or out of our control) also have the potential to increase our expenses and adversely affect our results of operations. Moreover, many of our suppliers provide us with merchandise purchasing incentives, such as return privileges, volume purchasing allowances and cooperative advertising, and a decline or discontinuation of these incentives could severely impact our results of operations. In addition, the announcement or imposition of any new or increased tariffs, duties or taxes as a result of trade or political tensions betweenthe United States and other countries or otherwise could adversely affect our supply chain. In recent years, the Trump administration imposed multiple rounds of tariffs on exports fromChina , where we and many of our vendors source commodities. As a result, we have experienced rising inventory costs on owned brand products we directly source fromChina , as well as national brand products fromChina that we source through our vendors. These higher inventory costs have resulted in higher prices and/or lower margins, thus resulting in a negative impact to net sales and/or gross margin. New Store Openings. We expect that new stores will be a key driver of growth in our net sales and gross margin 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. We are continually assessing the number of locations available that could accommodate our preferred size of stores in markets we would consider and we expect to open eight to 10 new stores per year, starting in 2022, similar to our growth rates from 2018 through 2019. 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 team member costs at the time of a new store opening associated with set-up and other opening costs. Most of our stores achieve profitability within the first twelve months of opening a store. We believe our real estate strategy has positioned us well for further expansion. However, our planned store expansion will place increased demands on our operational, managerial, administrative and other resources. New stores in new markets, where we are less familiar with the target customer and less well-known by the target customer, may face different or additional risks and increased costs compared to new stores in existing markets. We may have to broaden our assortment to merchandise more locally as we grow into newer markets. Managing our growth effectively will require us to continue to enhance our store management 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, affects our operating income and net income. Interim Results and Seasonality. Our business is subject to seasonal fluctuations. A significant portion of our net sales and profits is driven by summer holidays, such asMemorial Day ,Father's Day andIndependence Day , during the second quarter. Our net sales and profits are also impacted by the November/December holiday selling season, and in part by the sales of cold weather sporting goods and apparel during the fourth quarter. 53rd Week. We operate on the retail industry's 4-5-4 calendar. The 4-5-4 calendar is a guide for retailers that ensures sales comparability between years by dividing the year into months based on a 4 weeks - 5 weeks - 4 weeks format. Every five to six years a week is added to the 4-5-4 fiscal calendar. This anomaly most recently occurred in 2017, which consisted of 53 weeks, whereas 2018, 2019 and 2020 each consisted of 52 weeks. Impact of COVID-19 on Our Business The outbreak of COVID-19, which has been declared a global pandemic by theWorld Health Organization , continues to affect our business, as well as our customers, team members and suppliers, and has resulted in federal, state and local governmental authority safety recommendations and requirements aimed at mitigating the spread of the virus, such as stay-at-home orders, prohibitions of large group gatherings, travel restrictions and closures of certain businesses. The scope and nature of these impacts continue to evolve on a daily basis, including a potential resurgence in COVID-19 cases in 2021. In response to these restrictions, and in order to serve our customers while also providing for the safety of our customers, team members and service providers, we have taken many actions, including cleaning each store professionally on a regular basis, equipping each store with hand sanitizer stations and signage illustrating how to socially distance within the store, wearing (and in some cases, requiring customers to wear) face coverings, limiting the number of customers admitted at one time, and having protective shields installed at cash registers and other countertops. We have incurred increased costs related to 54
-------------------------------------------------------------------------------- the implementation of these measures. We also incurred temporary wage premiums and additional sick time for our active store and distribution center team members. To mitigate the cost of these measures, during the thirteen weeks endedMay 2, 2020 , we temporarily furloughed a significant number of corporate, store and distribution center team members and enforced temporary pay cuts for executives and remaining active team members as well as other strategic actions to significantly reduce operating expenses during the period. We also drew down$500 million on our ABL Facility (as defined below) inMarch 2020 as a precautionary measure to ensure financial flexibility and maximize liquidity. We shortened the operating hours of our stores and fully closed six stores at some point during the thirteen weeks endedMay 2, 2020 , only one of which was closed for more than a week. We also reduced, deferred or cancelled planned capital expenditures, primarily related to store remodels, have worked with our business partners to modify vendor and landlord payments and terms, and reduced near term marketing. Our temporary furlough period ended byJune 8, 2020 for all of our store, distribution center and corporate team members, and onJune 25, 2020 , we completed repaying the$500 million draw on the 2018 ABL Facility. All three of our distribution centers remained open during 2020, all of our 259 stores have been fully operational sinceMay 20, 2020 , and our corporate office has been fully open sinceJune 8, 2020 . We continue to monitor the rapidly evolving situation and expect to continue to adapt our operations to address federal, state, and local requirements as well as to implement standards or processes that we determine to be in the best interest of our team members, customers, and communities. The impact of the pandemic and actions taken in response to it had varying effects on our results of operations, as further discussed below, and our business has been especially unpredictable during 2020. However, as an essential retailer, we have been able to serve our customers as their needs evolved during the pandemic. In earlyMarch 2020 , we saw the acceleration of sales in specific categories, such as outdoor cooking, camping, shooting sports and hunting. Later in the first quarter, customers realized they needed to find ways to entertain their families and stay fit while schools and gyms closed, so they turned to us for isolated recreation, outdoor and leisure activities that we support, and as a result, we saw increased sales of weights, yoga mats, treadmills, indoor bicycles, fishing, hunting and camping gear, backyard and driveway games, trampolines, patio seating and grills. We anticipate that the increased popularity of isolated recreation, outdoor and leisure activity products will continue for the duration of the pandemic and will result in a long-term increase to our customer base. At the same time, during the first quarter 2020 we experienced decreased sales of certain of our offerings, primarily for apparel and footwear, and had to from time to time cancel certain of our purchase orders for these products. Despite the initial challenges in 2020 with sales declines in our footwear and apparel merchandise divisions, these categories ultimately experienced positive comparable sales growth for the year. The outdoors and sports and recreation divisions had consistent positive store sales growth throughout the year and ultimately experienced significant positive comparable sales growth in 2020. We believe that our consumers feel comfortable visiting our stores due to the fact that we have big-box stores and curbside pick-up availability for online orders, making it easier to socially distance, and that we are not in, or tethered to, malls, as customers seek to avoid crowded spaces. We also saw a significant increase in customers purchasing our products through omnichannel platforms, specifically as customers increasingly take advantage of our curbside pickup service, which we launched during the first quarter 2020. We launched our ship-to-store capabilities in third quarter 2020, which gives our customers more options on how to shop Academy. The extent to which our operations and business trends will be impacted by, and any unforeseen costs will result from, the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted. These developments include, among other things, new information that may emerge concerning the severity of the outbreak and health implications, the development and distribution of vaccines to mitigate the risk of COVID-19, actions by government authorities to contain the outbreak or treat its impact, and changes in consumer behavior resulting from the outbreak and such government actions. We continue to monitor the evolving situation as there remain many uncertainties regarding the pandemic and its resurgence, including the anticipated duration. See the section of this Annual Report entitled "Risk Factors-Risks Related to Our Business-The impact of COVID-19 may adversely affect our business and financial results." 55 -------------------------------------------------------------------------------- How We Assess the Performance of Our Business Our management considers a number of financial and operating metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, determine the allocation of resources, make decisions regarding corporate strategies and evaluate projections. These metrics include operational measures and non-GAAP metrics supplemental to our GAAP results. Comparable Sales. We define comparable sales as the percentage of period-over-period net sales increase or decrease, in the aggregate, for stores open after thirteen full fiscal months, as well as for all e-commerce sales. There may be variations in the way in which some of our competitors and other retailers calculate comparable sales. As a result, data in this Annual Report regarding our comparable sales may not be comparable to similar data made available by other retailers. Stores which have been significantly remodeled or relocated are removed from this calculation until the new store has been in operation for substantially all of the periods being compared. Stores which have been closed for an extended period of time due to circumstances beyond our control are also removed from the calculation. Any sales made through our website are allocated to e-commerce sales for the purpose of measuring comparable sales, regardless of how those sales are fulfilled, whether shipped to home or picked up in-store or curbside through BOPIS. For example, all BOPIS transactions, which are originated by our website, are allocated to e-commerce sales for the purpose of comparable sales, despite the fact that our customers pick-up these purchases from a specific store. Increases or decreases in e-commerce between periods being compared directly impact the comparable sales results. Various factors affect comparable sales, including consumer preferences, buying trends and overall economic trends; our ability to identify and respond effectively to customer preferences and local and regional trends; our ability to provide an assortment of high quality/value oriented product offerings that generate new and repeat visits to our stores and our website; the customer experience and unique services we provide in our stores; our ability to execute our omnichannel strategy, including the growth of our e-commerce business; changes in product mix and pricing, including promotional activities; the number of items purchased per visit and average order value; a shift in the timing of a holiday between comparable periods; and the number of stores that have been in operation for more than 13 months. Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow. Management uses Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, which are non-GAAP financial measures 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. See "Non-GAAP Financial Measures" below. E-commerce Penetration. E-commerce penetration is defined as total e-commerce merchandise sales (which includes BOPIS) divided by total Company merchandise sales. Components of Our Results of Operations Our profitability is primarily influenced by fluctuations in net sales, gross margin and our ability to leverage selling, general and administrative expenses.Net Sales . Net sales are derived from in-store and e-commerce merchandise sales, net of sales tax and an allowance for merchandise returns. Net sales fluctuations can be driven by new store openings, comparable sales increases or decreases including e-commerce sales, our ability to adjust inventory based on sales fluctuations, our management of vendor relations and meeting customer demand, allowances and logistics, seasonality, unseasonal or extreme weather, changes in consumer shopping preferences, consumer discretionary spending, and market and sales promotions. Gross Margin. Gross margin is our net sales less cost of goods sold. Our cost of goods sold includes the direct cost of merchandise and costs related to procurement, warehousing and distribution. These costs consist primarily of payroll and benefits, occupancy costs and freight and are generally variable in nature relative to our sales volume. Our gross margin depends on a number of factors, such as net sales increases or decreases, our promotional activities, product mix including owned brand merchandise sales, and our ability to control cost of goods sold, such as inventory and logistics cost management. Our gross margin is also impacted by variables including commodity costs, freight costs, shrinkage and inventory processing costs and e-commerce shipping costs. We track and measure gross margin as a percentage of net sales in order to evaluate our performance against profitability targets. 56
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Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses include store and corporate administrative
payroll and payroll benefits, store and corporate headquarters occupancy costs,
advertising, credit card processing, information technology, pre-opening costs
and other store and administrative expenses. These expenses are both variable
and fixed in nature. We track and measure operating expenses as a percentage of
net sales in order to evaluate our performance against profitability targets.
Management of SG&A expenses depends on our ability to balance a control of
operating costs, such as store, distribution center, and corporate headcount,
information technology infrastructure and marketing and advertising expenses,
with efficiently and effectively servicing our customers. We expect that our
SG&A expenses will increase in future periods due to our continuing growth and
in part to additional legal, accounting, insurance and other expenses we expect
to incur as a result of being a public company.
Income Tax Expense (Benefit). Prior to October 1, 2020 , New Academy Holding
Company, LLC , our prior ultimate parent company, was treated as a flow through
entity for U.S. federal income tax purposes and thus no federal income tax
expense was recorded in our consolidated statements of income for periods prior
to October 1, 2020 . Our tax rate prior to October 1, 2020 was almost entirely
the result of state income taxes. In connection with our initial public offering
("IPO"), as a result of the Reorganization Transactions (see Note 1 to the
consolidated financial statements) completed on October 1, 2020 , Academy Sports
and Outdoors, Inc. ("ASO, Inc. ") is treated as a U.S. corporation for U.S.
federal, state, and local income tax purposes and accordingly, a provision for
income taxes has been recorded for the anticipated tax consequences of our
reported results of operations for federal, state and local income taxes since
October 1, 2020 .
Results of Operations
2020 (52 weeks) Compared to 2019 (52 weeks)
The following table sets forth amounts and information derived from our
consolidated statements of income for the periods indicated as follows (dollar
amounts in thousands):
Fiscal Year Ended Change
January 30, 2021 February 1, 2020 Dollars Percent
Net sales $ 5,689,233 100.0 % $ 4,829,897 100.0 % $ 859,336 17.8 %
Cost of goods sold 3,955,188 69.5 % 3,398,743 70.4 % 556,445 16.4 %
Gross margin 1,734,045 30.5 % 1,431,154 29.6 % 302,891 21.2 %
Selling, general and
administrative expenses 1,313,647 23.1 % 1,251,733 25.9 % 61,914 4.9 %
Operating income 420,398 7.4 % 179,421 3.7 % 240,977 134.3 %
Interest expense, net 86,514 1.5 % 101,307 2.1 % (14,793) (14.6) %
Gain on early retirement of
debt, net (3,582) (0.1) % (42,265) (0.9) % 38,683 (91.5) %
Other (income), net (1,654) 0.0 % (2,481) (0.1) % 827 (33.3) %
Income before income taxes 339,120 6.0 % 122,860 2.5 % 216,260 176.0 %
Income tax expense 30,356 0.5 % 2,817 0.1 % 27,539 977.6 %
Net income $ 308,764 5.4 % $ 120,043 2.5 % $ 188,721 157.2 %
* Percentages in table may not sum properly due to rounding. **NM - Not meaningful
Net Sales . Net sales increased$859.3 million , or 17.8%, in 2020 over the prior year. The 17.8% increase was driven primarily by 16.1% of favorable comparable sales, as well as additional net sales generated by new locations. As of fiscal year end 2020, we had the full benefit of eight stores which were opened during 2019, partially offset by a reduction of sales due to the closure of two locations during 2019. These stores generated additional net sales of$77.7 million , or 1.4% of net sales. The 16.1% increase in comparable sales resulted from favorable sales performances across all of our merchandise divisions. The outdoors division increase was primarily driven by strong sales in firearms, ammunition and fishing products. The sports and recreation division sales increased as a result of various products such as fitness equipment and accessories, bikes and barbecues and grills, which were partially offset by declines in team sports. The apparel division increased due to increases in athletic, outdoor and seasonal, and youth apparel divisions, partially offset by declines in sales of licensed apparel resulting from the Astros World Series appearance in the prior year. The footwear division sales increased primarily driven by increases in the athletic and work footwear categories which were partially offset by declines in team sports footwear sales. We 57 -------------------------------------------------------------------------------- believe our merchandise division sales continue to be impacted by the COVID-19 pandemic which has caused increases in popularity in our outdoors and sports and recreation merchandise divisions as demand has increased in the merchandise categories that provide customers with isolated recreation, outdoor and leisure activities. Additionally we believe that the substantial increase in e-commerce sales described below and ongoing improvements to our business, such as enhancements to our merchandise planning and allocation capabilities that began inFebruary 2019 and the launch of the Academy Credit Card inMay 2019 , together with our big-box store format and the implementation of a number of safety measures within our stores in response to COVID-19 that helped facilitate our customers' ability to obtain the products they sought in a safe manner, contributed to the increase in comparable sales during this period. E-commerce sales increased$341.3 million , or 138.3%, in 2020 when compared to the prior year, and e-commerce sales represented 10.4% and 5.1% of merchandise sales for 2020 and 2019, respectively. This increase was driven by a change in consumer shopping preferences resulting from the COVID-19 pandemic. Additionally, enhancements to our e-commerce platform, including the introduction of BOPIS at the end of the 2019 second quarter, the rapid development of curbside fulfillment in the 2020 first quarter and the introduction of ship-to-store capabilities during the 2020 third quarter further supported the increase in e-commerce sales. Gross Margin. Gross margin for 2020 increased$302.9 million , or 21.2%, when compared to 2019. Our gross margin, as a percentage of net sales, was 30.5% in 2020 compared to 29.6% in 2019, an increase of 90 basis points. This increase is primarily due to: •112 basis points of favorability in merchandise margins due to less clearance activity and lower markdowns from the prior year; •53 basis points of favorability in inventory overhead expenditures as a result of lower expense absorption rates from higher current year inventory turnover and less expenses capitalized during the first half of 2020. The lower capitalized expenses relative to the prior year is driven by temporary workforce furloughs and wage cuts during the first half of 2020; partially offset by •45 basis points of unfavorability due to a higher merchandise valuation benefit in the prior year from sell through of previously marked down merchandise related to a large prior year sales event, and •44 basis points of unfavorability as a result of decreased vendor allowances including new store allowances. Selling, General and Administrative Expenses. SG&A expenses increased$61.9 million , or 4.9%, to$1,313.6 million in 2020 from$1,251.7 million in 2019. As a percentage of net sales, SG&A expenses were down 2.8% to 23.1% in 2020 compared to 25.9% in 2019. The decrease of 280 basis points in SG&A is primarily attributable to: •155 basis point decrease in property and facility fees as a result of leveraging costs on increased sales and decreased depreciation costs; •79 basis point decrease in advertising as a result of favorable leveraging of costs on increased sales and reduced marketing and promotional activities; and •56 basis point decrease in employee costs, primarily driven by leveraging of costs on increased sales as well as decreased costs in the first quarter of 2020 resulting from temporary salary cuts and furloughs in response to the COVID-19 pandemic, partially offset by increased incentive compensation expense and incremental expenses resulting from the expensing of certain share-based awards in connection with the completion of the IPO. Gain on early retirement of debt, net. Gain on early retirement of debt, net decreased$38.7 million , or 91.5%, to$3.6 million from$42.3 million in 2019. During the second quarter of 2020, we repurchased$23.9 million in principal on the Term Loan (see Note 4 to the consolidated financial statements), which was trading at a discount, in open market transactions for$16.0 million and recognized a net gain of$7.8 million . Additionally, during the fourth quarter of 2020, the Refinancing Transactions (see Note 4 to the consolidated financial statements) resulted in a loss on early retirement of debt of$4.2 million . During 2019, we repurchased$147.7 million in principal on the Term Loan, which was trading at a discount in open market transactions for$104.6 million and recognized a net gain of$42.3 million . Interest Expense. Interest expense decreased$14.8 million , or 14.6%, to$86.5 million in 2020 from$101.3 million in 2019 resulting primarily from a lower outstanding balance on our Term Loan as a result of the Refinancing Transactions and principal repurchases during the current year. Other (Income) Expense, net. Other income decreased$0.8 million in 2020 when compared with 2019 caused by a portion of the underlying cash flows related to$100.0 million of swap notional principal amount which were no longer probable of occurring and resulted in the immediate recognition of$1.3 million of expense. 58
-------------------------------------------------------------------------------- Income Tax Expense. Income tax expense increased$27.5 million to an income tax expense of$30.4 million in 2020 as compared to$2.8 million in 2019. As a result of the Reorganization Transactions, which occurred onOctober 1, 2020 ,ASO, Inc. became subject toU.S. federal income taxes and is being taxed at the prevailing corporate rates. Non-GAAP Measures Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, as shown below, have been presented in this Annual Report as supplemental measures of financial performance that are not required by, or presented in accordance with GAAP. We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax expense and depreciation, amortization and impairment, further adjusted to exclude consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, inventory write-down adjustments associated with strategic merchandising initiative and other adjustments. We describe these adjustments reconciling net income (loss) to Adjusted EBITDA in the applicable table below. We define Adjusted Net Income as net income (loss), plus consulting fees, private equity sponsor monitoring fees, equity compensation expense, gain on early extinguishment of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, inventory write-down adjustments associated with strategic merchandising initiative and other adjustments, less the tax effect of these adjustments. We define Pro Forma Adjusted Net Income as Adjusted Net Income less the retrospective tax effect of Adjusted Net Income at our estimated effective tax rate of approximately 25% for periods prior toOctober 1, 2020 , the effective date of our conversion to a C-Corporation. We define basic Pro Forma Adjusted Earnings per Share as Pro Forma Adjusted Net Income divided by the basic weighted average common shares outstanding during the period and diluted Pro Forma Adjusted Earnings per Share as Pro Forma Adjusted Net Income divided by the diluted weighted average common shares outstanding during the period. We describe these adjustments by reconciling net income (loss) to Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share in the applicable table below. We describe Adjusted Free Cash Flow as net cash provided by (used in) operating activities less net cash used in investing activities. We describe this adjustment by reconciling net cash provided by operating activities to Adjusted Free Cash Flow in the applicable table below. We believe Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share 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. Management believes Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Management believes Adjusted Free Cash Flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash. Management uses Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow 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. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or net cash provided by operating activities as a measure of liquidity, or any other performance measures derived in accordance with GAAP. Additionally, these measures are not intended to be a measure of free cash flow available for management's discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share should not be construed to imply that our future results will be unaffected by unusual or non-recurring items. In evaluating Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow, 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 this presentation. Our presentation of Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be construed to imply that our future results will be unaffected by any such adjustments. 59 -------------------------------------------------------------------------------- Our Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow measures have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: •Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect costs or cash outlays for capital expenditures or contractual commitments; •Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect changes in, or cash requirements for, our working capital needs; •Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, and Adjusted Free Cash Flow does not reflect the cash requirements necessary to service principal payments on our debt; •Adjusted EBITDA does not reflect period to period changes in taxes, income tax expense or the cash necessary to pay income taxes; •Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; •although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted Free Cash Flow do not reflect cash requirements for such replacements; and •other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures. Because of these limitations, Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow should not be considered as measures of discretionary cash available to invest in business growth or to reduce indebtedness. Management compensates for these limitations by primarily relying on our GAAP results in addition to using Adjusted EBITDA, Adjusted Net Income, Pro Forma Adjusted Net Income, Pro Forma Adjusted Earnings per Share and Adjusted Free Cash Flow supplementally. 60
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Adjusted EBITDA
The following table provides reconciliations of net income (loss) to Adjusted
EBITDA for the periods presented (amounts in thousands):
Fiscal Year Ended
January 30, 2021 February 1, 2020 February 2, 2019
Net income $ 308,764 $ 120,043 $ 21,442
Interest expense, net 86,514 101,307 108,652
Income tax expense 30,356 2,817 1,951
Depreciation, amortization and impairment 105,481 117,254 134,190
Consulting fees (a) 285 3,601 949
Private equity sponsor monitoring fee (b) 14,793 3,636 3,522
Equity compensation (c) 31,617 7,881 4,633
Gain on early extinguishment of debt, net (3,582) (42,265) -
Severance and executive transition costs (d) 6,571 1,429 4,350
Costs related to the COVID-19 pandemic (e) 17,632 - -
Inventory write-down adjustments associated with
strategic merchandising initiative (f) - - 18,225
Other (g) 8,592 7,111 2,345
Adjusted EBITDA $ 607,023 $ 322,814 $ 300,259
(a) Represents outside consulting fees associated with our strategic cost savings and business optimization
initiatives.
(b) Represents our contractual payments under the Monitoring Agreement. See Note 14 to the consolidated financial
statements.
(c) Represents non-cash charges related to equity based compensation, which vary from period to period depending on
certain factors such as timing and valuation of awards, achievement of performance targets and equity award
forfeitures.
(d) Represents severance costs associated with executive leadership changes and enterprise-wide organizational changes. (e)
Represents costs incurred during the first half of 2020 as a result of the COVID-19 pandemic, including temporary
wage premiums, additional sick time, costs of additional cleaning supplies and third party cleaning services for
the stores, corporate office and distribution centers, accelerated freight costs associated with shifting our
inventory purchase earlier in the year to maintain stock, and legal fees associated with consulting in local
jurisdictions. These costs were no longer added back beginning in the third quarter of 2020.
(f) Represents inventory write-down adjustments in connection with our new merchandising strategy adopted as part of
our strategic transformation, including exiting certain categories of products.
(g) Other adjustments include (representing deductions or additions to Adjusted EBITDA) amounts that management
believes are not representative of our operating performance, including investment income, installation costs for
energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's
members and our omnibus incentive plan, store exit costs and other costs associated with strategic cost savings and
business optimization initiatives.
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Adjusted Net Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted
Earnings per Share
The following table provides a reconciliation of net income to Adjusted Net
Income, Pro Forma Adjusted Net Income and Pro Forma Adjusted Earnings per Share
for the periods presented (amounts in thousands, except per share data):
Fiscal Year Ended
January 30, 2021 February 1, 2020 February 2, 2019
Net income $ 308,764 $ 120,043 $ 21,442
Consulting fees (a) 285 3,601 949
Private equity sponsor monitoring fee (b) 14,793 3,636 3,522
Equity compensation (c) 31,617 7,881 4,633
Gain on early extinguishment of debt, net (3,582) (42,265) -
Severance and executive transition costs (d) 6,571 1,429 4,350
Costs related to the COVID-19 pandemic (e) 17,632 - -
Inventory write-down adjustments associated with
strategic merchandising initiative (f) - - 18,225
Other (g) 8,592 7,111 2,345
Tax effects of these adjustments (h) (136) 33 (61)
Adjusted Net Income 384,536 101,469 - 55,405
Estimated tax effect of change to C-Corporation
status (i) (72,844) (25,542) (14,067)
Pro Forma Adjusted Net Income $ 311,692 $ 75,927 $ 41,338
Pro Forma Adjusted Earnings per Share Basic $ 4.00 $ 1.05 $ 0.57 Diluted $ 3.83 $ 1.02 $ 0.55 Weighted average common shares outstanding Basic (1) 77,994 72,477 72,432 Diluted (1) 81,431 74,795 75,198
(1) See Retrospective Presentation of Ownership Exchange in Note 2 to the financial statements.
(a) Represents outside consulting fees associated with our strategic cost savings and business optimization
initiatives.
(b) Represents our contractual payments under the Monitoring Agreement. See Note 14 to the consolidated financial
statements.
(c) Represents non-cash charges related to equity based compensation, which vary from period to period depending on
certain factors such as timing and valuation of awards,achievement of performance targets and equity award
forfeitures.
(d) Represents severance costs associated with executive leadership changes and enterprise-wide organizational changes. (e) Represents costs incurred during the first half of 2020 as a result of the COVID-19 pandemic, including temporary
wage premiums, additional sick time, costs of additional cleaning supplies and third party cleaning services for
the stores, corporate office and distribution centers,accelerated freight costs associated with shifting our
inventory purchase earlier in the year to maintain stock, and legal fees associated with consulting in local
jurisdictions. These costs were no longer added back beginning in the third quarter of 2020. (f) Represents inventory write-down adjustments in connection with our new merchandising strategy adopted as part of
our strategic transformation, including exiting certaincategories of products. (g) Other adjustments include (representing deductions or additions to Adjusted Net Income) amounts that management
believes are not representative of our operating performance, including investment income, installation costs for
energy savings associated with our profitability initiatives, legal fees associated with a distribution to NAHC's
members and our omnibus incentive plan, store exit costs and other costs associated with strategic cost savings and
business optimization initiatives.
(h) Represents the tax effect of the total adjustments made to arrive at Adjusted Net Income at our historical tax
rate.
(i) Represents the retrospective tax effect of Adjusted Net Income at our estimated effective tax rate of approximately
25% for periods prior to October 1, 2020 , the effective date of our conversion to a C-Corporation, upon which we
became subject to federal income taxes.
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Adjusted Free Cash Flow
The following table provides a reconciliation of net cash provided by operating
activities to Adjusted Free Cash Flow for the periods presented (amounts in
thousands):
Fiscal Year Ended
January 30, 2021 February 1, 2020 February 2, 2019
Net cash provided by operating activities
$ 263,669 $ 198,481 Net cash used in investing activities (33,144) (66,783) (99,027) Adjusted Free Cash Flow $ 978,453 $ 196,886 $ 99,454
Liquidity and Capital Resources
Sources and Uses of Liquidity
Historically, our principal sources of cash have included: •cash generated from operating activities; •issuances of debt securities; and •borrowings under our term loan and ABL credit facilities. Our historical uses of cash have been associated primarily with: •cash used for operating activities such as the purchase and growth of inventory, expansion of our sales and marketing activities and other working capital needs; •cash used for capital improvements and support of expansion plans, as well as various investments in store renovations, store fixtures and on-going infrastructure improvements; •cash used to pay our debt obligations and related interest expense; •cash used to pay partnership distributions to our members; and •fluctuations in working capital due to timing differences of cash receipts and cash disbursements. OnJanuary 30, 2021 , our cash and cash equivalents totaled$377.6 million . We are focused on navigating the recent challenges presented by COVID-19 through the preservation of our long-term liquidity and management of cash flow through preemptive actions to enhance our ability to meet our short-term liquidity needs. During 2020, we took various cost cutting measures to maximize operational cash flows (see "Impact of COVID-19 on Our Business" in the section of this Annual Report entitled Management's Discussion & Analysis). Such actions included, but were not limited to, drawing down$500 million on our ABL Facility (as defined below) inMarch 2020 as a precautionary measure to ensure financial flexibility and maximize liquidity, reduction of discretionary spending, deferring or cancelling our planned expenses, revisiting and reprioritizing our strategic investments, and reducing our payroll costs, including temporary team member furloughs, workforce reductions and pay cuts. OnAugust 28, 2020 , we paid a$257.0 million one-time special distribution to our members of record as ofAugust 25, 2020 ,$248.0 million of which was paid with cash on hand and the remainder of which was distributed through an offset of outstanding loans receivable from a member as well as state income tax withholdings made on behalf of NAHC's members. Related cash payments of$21.0 million to vested share-based award holders were paid throughJanuary 30, 2021 and an additional$11.2 million of payments will be made to unvested share-based award holders as the related awards vest (see "Distribution" in Note 9 to the financial statements included in this Annual Report). OnOctober 6, 2020 , we completed our IPO in which we issued and sold 15,625,000 shares of common stock,$0.01 par value, to the IPO underwriters for cash consideration of$12.22 per share (representing an initial public offering price of$13.00 per share, net of underwriting discounts) that resulted in net proceeds of approximately$184.9 million after deducting underwriting discounts, which included approximately$2.7 million paid toKKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO, and$6.1 million in costs directly associated with the IPO, such as legal and accounting fees (see "Initial Public Offering, Over-Allotment Exercise and Reorganization Transactions" in Note 1 to the financial statements included in this Annual Report). The shares sold in the offering were registered under the Securities Act of 1933, as amended, pursuant to our registration statement on Form S-1 (File No. 333-248683, which was declared effective by theSecurities and Exchange Commission onOctober 1, 2020 ). 63 -------------------------------------------------------------------------------- OnNovember 3, 2020 , the Company issued and sold an additional 1,807,495 shares of the Company's common stock, par value$0.01 per share, for cash consideration of$12.22 per share (representing an initial public offering price of$13.00 per share, net of underwriting discounts) to the IPO underwriters, resulting in approximately$22.1 million in proceeds net of underwriting discounts (see "Initial Public Offering, Over-Allotment Exercise and Reorganization Transactions" in Note 1 to the financial statements included in this Annual Report), which included$0.3 million paid to KCM, for underwriting services, pursuant to the partial exercise by the underwriters of their option to purchase up to 2,343,750 additional shares to cover over-allotments in connection with our IPO. The option has expired with respect to the remaining shares. OnNovember 6, 2020 , the Company (1) issued$400.0 million of 6.00% senior secured notes (the "Notes"), which are dueNovember 15, 2027 , (2) entered into a$400.0 million first lien term loan facility (the "2020 Term Loan Facility", the 2015 Term Loan Facility and the 2020 Term Loan Facility are collectively referred to as the "Term Loan Facility"), which is dueNovember 6, 2027 and (3) extended the maturity ofAcademy, Ltd.'s asset-based revolving credit facility thereunder toNovember 6, 2025 (as extended, the "2020 ABL Facility", the 2015 ABL Facility and the 2020 ABL Facility are collectively referred to as the "ABL Facility"). We used the net proceeds from the Notes and the net proceeds from the Term Loan Facility, together with cash on hand, to repay in full our existing term loan, in the amount of$1,431.4 million (see Note 4 to the consolidated financial statements). We expect to use existing cash balances, internally generated cash flows, and available borrowings under the ABL Facility to fund anticipated capital expenditures, working capital needs and scheduled debt service costs and maturities over at least the next twelve months. The ABL Facility provides for these financing needs and other general corporate purposes, as well as to support certain letter of credit requirements. We may continue to use the ABL Facility to repay debt under the Term Loan Facility. Availability under the ABL Facility is subject to customary asset-backed loan borrowing base and availability provisions. Amounts outstanding under the ABL Facility may fluctuate materially during each quarter mainly due to cash flow from operations, normal changes in working capital, capital expenditures and debt service costs. Our availability under the ABL Facility during the peak borrowing days of 2020 was ample to support our operations and service our requirements. OnJune 25, 2020 , we completed repaying the$500 million draw on the ABL Facility.
Liquidity information related to the ABL Facility is as follows for the periods shown (dollar amounts in thousands):
Fiscal Year Ended
January 30, 2021 February 1, 2020
Average funds drawn $ 126,648 $ 29,593
Number of days with outstanding balance 99 182
Maximum daily amount outstanding $ 500,000 $ 147,100
Minimum available borrowing capacity $ 161,089 $ 771,750
Liquidity information related to the ABL Facility (amounts in thousands) as of:
January 30, 2021 February
1, 2020
Outstanding borrowings $ - $ -
Outstanding letters of credit $ 20,112 $ 15,927
Available borrowing capacity $ 718,763 $ 827,404
Capital Expenditures. We expect capital expenditures for fiscal year 2021 to be approximately$80.0 million . Approximately 50% of the planned cash outflow relates to corporate, e-commerce and information technology programs. Investments in existing stores and distribution centers is expected to account for approximately 40% of the planned cash outflow and the remaining 10% is expected to be utilized through investments in new stores and store relocations. 64
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Cash Flows for 2020, 2019 and 2018:
Our consolidated statements of cash flows are summarized as follows (in
thousands):
Fiscal Year Ended
January 30, 2021 February 1, 2020 February 2, 2019
Net cash provided by operating activities
263,669 $ 198,481
Net cash used in investing activities (33,144) (66,783) (99,027)
Net cash used in financing activities (750,234) (123,192) (54,808)
Net increase in cash and cash equivalents $ 228,219 $
73,694 $ 44,646
Operating Activities. Cash flows from operating activities are seasonal in our business. Typically, cash flows from operations are used to build inventory in advance of peak selling seasons, with the fourth quarter pre-holiday inventory increase being the most significant.
Cash provided by operating activities in 2020 increased
•$495.5 million net increase in cash flows provided by operating assets and liabilities; •$188.7 million increase in net income; and •$63.7 million net increase in non-cash charges.
The increase in cash flows from operating assets and liabilities was primarily attributable to:
•$364.4 million increase in accounts payable related to increased inventory receipts in the recent months and extensions of vendor payment terms; •$75.1 million decrease in merchandise inventories, net due to inventory reductions from high sell through in the current year; and •$36.8 million increase in accrued expenses and other liabilities primarily due to increased incentive compensation accruals.
The increase from non-cash charges was primarily caused by:
•$38.7 million decrease in non-cash gains on the early retirement of debt, net; and •$23.7 million increase in equity compensation expense, which includes approximately$19.9 million of equity compensation associated with the expensing of certain outstanding restricted stock units as a result of the liquidity condition being achieved upon completion of our IPO.
Investing Activities.
Cash used in investing activities decreased
•$21.5 million less capital expenditures due to a planned overall reduction in the year 2020 led by reduction in new stores and store remodeling; and •$12.1 million increase related to cash proceeds as a result of repayment of notes receivable from one NAHC member during 2020 compared to the cash outflow related to the issuance of a note receivable to one NAHC member in 2019.
Financing Activities. Cash used in financing activities increased
•$1,338.3 million increase in cash outflows related to the repayment of the 2015
Term Loan as part of the Refinancing Transactions;
•$278.0 million increase in cash outflow resulting from a distribution to NAHC's
members and related share-based award payments which occurred in 2020; partially
offset by
•$781.9 million of net proceeds resulting from the issuance of the Notes and the
2020 Term Loan in connection with the Refinancing Transactions; and
•$207.0 million of net proceeds from the issuance of common stock in connection
with the completion of our IPO and subsequent Over-Allotment Exercise.
65
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We expect to use existing cash balances, internally generated cash flows and borrowings under our ABL Facility to fulfill anticipated obligations such as capital expenditures, working capital needs and scheduled debt maturities over at least the next twelve months. As ofJanuary 30, 2021 , we had$718.8 million of available capacity under our ABL Facility and$377.6 million of cash and cash equivalents.
Contractual Obligations and Commercial Commitments
The following table summarizes our significant contractual obligations and
commercial commitments as of
Payments Due by Period
Less than 1 More than 5
Total Year 1 - 3 Years 3 - 5 Years Years
Term Loan (1) $ 400,000 $ 4,000 $ 8,000 $ 8,000 $ 380,000
Term Loan interest (2) 156,846 22,895 45,099 44,949 43,903
Notes 400,000 - - - 400,000
Notes interest 168,000 24,000 48,000 48,000 48,000
ABL Facility - - - - -
Operating leases (3) 1,983,237 196,948 382,225 351,789 1,052,275
Technology related commitments
and other (4) 10,820 8,795 2,025 - -
Sponsorship agreement and
intellectual property commitments 12,172 6,879 4,444 500 349
Total contractual cash
obligations $ 3,131,075 $ 263,517 $ 489,793 $ 453,238 $ 1,924,527
(1) Principal amount excluding discount and debt issuance costs.
(2) Interest payments shown are approximated based on projected interest rates
and assumes no unscheduled principal payments until maturity.
(3) Substantially all of our leases are operating leases. We lease store
locations, distribution centers, office space and certain equipment under
operating leases expiring between fiscal year 2021 and 2039. Operating lease
obligations include future minimum lease payments under all of our noncancelable
operating leases at January 30, 2021 .
(4) Amounts include technology related contractual commitments and other
commitments such as construction commitments. The amounts included in the table
are for executed contracts less amounts paid.
Off-Balance Sheet Arrangements
As of
We enter into letters of credit in the ordinary course of operating and
financing activities. As of
The following table details our letters of credit commitments as of
Amount of Commitment Expiration Per Period
Total Amounts
Committed Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years
Commercial Commitments:
Letters of credit $ 25,376 $ 25,376 $ - $ - $ -
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Critical Accounting Policies and Estimates
For discussion of critical accounting policies and estimates, see Note 2 to the consolidated financial statements.
Recent Accounting Pronouncements
For discussion of recent accounting pronouncements, see Note 2 to the consolidated financial statements.
Related Party Transactions
For discussion of related party transactions, see Note 13 to the consolidated financial statements.
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