Overview
Bed Bath & Beyond Inc. and subsidiaries (the "Company", "we", "our", "us", or "ourselves") is an omni-channel retailer that makes it easy for our customers to feel at home. We sell a wide assortment of merchandise in the Home, Baby, Beauty & Wellness markets and operate under the namesBed Bath & Beyond , buybuy BABY ("BABY"), and Harmon, Harmon Face Values, or Face Values (collectively, "Harmon"). In addition, we are a partner in a joint venture, which operates retail stores inMexico under the nameBed Bath & Beyond . We account for our operations as one North American Retail reporting segment. We are driving a digital-first, omni-always growth strategy and optimizing our digital and physical store channels to provide our customers with a seamless omni-channel shopping experience. Digital purchases, including web and mobile, can be shipped to a customer from our distribution facilities, directly from vendors, or from a store. Store purchases are primarily fulfilled from that store's inventory or may also be shipped to a customer from one of our distribution facilities, from a vendor, or from another store. Customers can also choose to pick up orders using ourBuy Online Pickup In Store ("BOPIS") and contactless Curbside Pickup services, as well as return online purchases to a store. Customers can also make purchases through one of our customer contact centers and in-store throughThe Beyond Store , our proprietary web-based platform. These capabilities allow us to better serve our customers across various channels. Across our banners, we carry a wide variety of domestics and home furnishings merchandise. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall décor), consumables and certain juvenile products.
Business Transformation and Restructuring
In the second quarter of fiscal 2022, we have begun to undertake significant changes to transform our business and adapt to the dynamic retail environment and the evolving needs of our customers in order to position ourselves for long-term success. In 2022, the Company has realigned its management team, which is being led by our Interim Chief Executive Officer,Sue Gove , who was appointed inJune 2022 , to execute on strategic priorities and changes. These strategic priorities and changes are focused on driving an omni-always, customer-inspired strategy to re-establish our authority in the Home, Baby, Beauty & Wellness markets. We have created a more focused portfolio through the divestiture of non-core assets and continue to focus on key actions such as corporate restructurings and operating expense control to re-set our cost structure and support our ongoing business transformation. We are focused on implementing strategic changes to regain our authority in the market as the destination for customers, with the products they want and the experiences they seek across our core banners (Bed Bath & Beyond , buybuy BABY, and Harmon) in an enterprise-wide plan to accelerate our omni-channel transformation. In conjunction with these changes, in the second quarter of fiscal 2022, the Company created Brand President roles forBed Bath & Beyond and BABY to lead the teams focused on merchandising, planning, brand marketing, site merchandising and stores for each banner. Our strategy is underpinned by five key pillars of strategic focus and investment: product, price, promise, place and people. Through this approach, we are bringing back more of our customers' favorite national brands and products while leveraging value and promotion and will be building stronger relationships with customers through programs such as Welcome Rewards™. OnAugust 31, 2022 , subsequent to the end of the second quarter of fiscal 2022, we announced that we would be reducing the number of our Owned Brands by discontinuing three of our nine labels (Haven™, Wild Sage™ and Studio 3B™) We expect that the breadth and depth of inventory across our six remaining Owned Brands (Simply Essential™, Nestwell™, Our Table™, Squared Away™, H for Happy™ and Everhome™) will be reduced to approximately 30%, which will allow us to rebalance our inventory and bring back popular national brands and introduce new, emerging direct-to-consumer brands.
In addition, we have begun to implement significant SG&A reductions to right-size our cost structure and our store fleet. Key components of these reductions include:
•Reduction in SG&A by focusing on immediate priorities of merchandising, inventory, and traffic to align with changes in our store footprint, lower Owned Brands development and support, and deferral of longer-term strategic initiatives. Also, we have had a reduction in force, including an approximately 20% reduction across corporate and supply chain. •Reduction in planned capital expenditures from$400 million to$250 million in fiscal 2022, which is expected to provide sufficient strategic investments in technology, digital capabilities and offerings, and store maintenance.
•The planned closure of approximately 150 lower-producing
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The Company recorded$54.2 million and$77.3 million in its consolidated statements of operations for the three and six months endedAugust 27, 2022 , respectively, for costs associated with restructuring and other transformation initiatives, of which a benefit of$1.2 million is included in cost of sales for the six months endedAugust 27, 2022 . There were no restructuring and other transformation expenses included in cost of sales for the three months endedAugust 27, 2022 . In addition, for the three and six months endedAugust 27, 2022 , approximately$54.1 million and$78.3 million , respectively, is recorded in restructuring and transformation initiative expenses, which included$35.0 million of severance costs related to workforce reduction and leadership changes for both the three and six months endedAugust 27, 2022 . The Company also recorded approximately$1.6 million and$6.8 million , respectively, of lease related and other costs and approximately$17.5 million and$36.5 million , respectively, of costs and other transformation initiatives, including technology transformation and business strategy and operating model transformation programs across core functions including merchandising, supply chain and finance for the three and six months endedAugust 27, 2022 .
Executive Summary
The following represents a summary of key financial results and related business developments for the periods indicated:
•Net sales for the three months endedAugust 27, 2022 were$1.437 billion , a decrease of approximately 27.6% as compared with the three months endedAugust 28, 2021 . Net sales for the six months endedAugust 27, 2022 were$2.900 billion , a decrease of approximately 26.4% as compared with the six months endedAugust 28, 2021 .
•Comparable sales* for the three and six months ended
* See "Results of Operations -
•Net loss for the three months endedAugust 27, 2022 was$366.2 million , or 4.59 per diluted share, compared with net loss of$73.2 million , or$0.72 per diluted share, for the three months endedAugust 28, 2021 . Net loss for the three months endedAugust 27, 2022 included a net unfavorable impact of$1.37 per diluted share associated with restructuring and other transformation initiatives and non-cash impairment charges. Net loss for the three months endedAugust 28, 2021 included a net unfavorable impact of$0.76 per diluted share associated with non-cash impairment charges, charges associated with restructuring program and transformation initiatives, loss on sale of business, and loss on extinguishment of debt, partially offset by a gain on the sale of property, as well as the associated tax effects. •Net loss for the six months endedAugust 27, 2022 was$723.8 million , or$9.09 per diluted share, compared with net loss of$124.1 million , or$1.19 per diluted share, for the six months endedAugust 28, 2021 . Net loss for the six months endedAugust 27, 2022 included a net unfavorable impact of$2.39 per diluted share associated with inventory markdown reserves and supply chain-related port fees, restructuring and other transformation initiatives, and non-cash impairment charges. Net loss for the six months endedAugust 28, 2021 included a net unfavorable impact of$1.27 per diluted share associated with non-cash impairment charges, charges associated with restructuring program and transformation initiatives, loss on sale of business, and loss on extinguishment of debt, partially offset by a gain on the sale of property, as well as the associated tax effects. •In connection with our restructuring and transformation initiatives, during the three and six months endedAugust 27, 2022 , we recorded total expenses of$54.2 million and$77.3 million , respectively, including a benefit of$1.2 million for the six months endedAugust 27, 2022 in cost of sales. There were no restructuring and other transformation expenses included in cost of sales for the three months endedAugust 27, 2022 . In addition, approximately$54.1 million and$78.3 million , respectively, is recorded in restructuring and transformation initiative expenses in the consolidated statement of operations, as well as$55.5 million and$82.2 million , respectively, of impairments.
•During the six months ended
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•Product Initiatives. The following key product initiatives launched in the first quarter of fiscal 2022:
•Our Bed Bath & Beyond banner kicked off Back-to-College season with its "Decision Day" campaign, helping college-bound students and their parents prepare for the transition to a campus residence with the products and services needed to create a comfortable, functional, personalized, and happy home away from home. •Our buybuy BABY banner expanded its assortment through an exclusive retail partnership with Primary, a leading direct to consumer gender-neutral children's clothing brand, and expanded its "buzzworthy brands" portfolio of parent-founded brands with the introduction of Ahimsa, Monica + Andy, Gro To, Ready.Set.Food!, Snuggle Me Organic and Waterful Baby Wipes products in select stores and buybuybaby.com. Both of these initiatives build on the "welcome to parenthood" initiative launched in fiscal 2021. •Strategic Collaboration with The Kroger Co. As part of our strategic collaboration with The Kroger Co. inApril 2022 , we announced the launch of our e-commerce collaboration with Kroger Co. to directly offer Kroger customers an extensive selection of the most sought-after goods for the Home & Baby products carried by theBed Bath & Beyond and buybuy BABY banners through Kroger.com. A small-scale physical store pilot at select Kroger Family of Companies stores commenced in the second quarter of fiscal 2022. •Welcome Rewards™. The Company plans to leverage its recently introduced, cross-banner loyalty program, Welcome Rewards™ to drive traffic, sales, and customer retention. Welcome Rewards™ brings valuable savings, more benefits, and special perks to customers who shop online and in stores nationwide atBed Bath & Beyond , buybuy BABY, and Harmon. Customers earn and redeem points across the retail banners with every purchase. •During fiscal 2021, we announced plans to complete our$1 billion three-year repurchase plan by the end of fiscal 2021, which was two years ahead of schedule and resulted in the repurchase of$950.0 million of shares under this plan as ofFebruary 26, 2022 . During the first quarter of fiscal 2022, we completed this program, repurchasing approximately 2.3 million shares of our common stock under the share repurchase plan approved by our Board of Directors, at a total cost of approximately$40.4 million .
Impact of the COVID-19 Pandemic
The COVID-19 pandemic continues to present potential disruptions to our business. As the COVID-19 pandemic evolves, national and local governments in regions in which we operate have enacted various measures, including travel restrictions, restrictions on events and gatherings, temporary closure of non-essential businesses, "social distancing" requirements, vaccine and mask mandates and various other requirements designed to slow the spread of COVID-19. While many of these measures have been eased, the extent, severity and overall duration of the COVID-19 pandemic, including its phases of resurgence and the introduction of new variants, some of which may be more transmissible or virulent, are unknown, and COVID-19 has had, and may continue to have, a material adverse effect, on our business. The full extent of the impact of the COVID-19 pandemic on our business, financial position, and results of operations will depend on future developments, many of which are outside of our control, including the duration and spread of the COVID-19 pandemic, the emergence of variant strains, the availability, adoption, and effectiveness of the COVID-19 vaccines and COVID-19 testing, and government actions, which are uncertain and cannot be predicted.
Further discussion of the risks and uncertainties posed by the COVID-19 pandemic is included in "Risk Factors" under Part I, Item 1A of our 2021 Form 10-K.
Results of OperationsNet Sales Three Months Ended Six Months Ended August 27, August 28, August 27, August 28, (in millions) 2022 2021 Change 2022 2021 Change Net sales$ 1,437.0 $ 1,984.7 $ (547.7) (27.6) %$ 2,900.4 $ 3,938.5 $ (1,038.1) (26.4) % Net sales for the three months endedAugust 27, 2022 were$1.437 billion , a decrease of$547.7 million , or approximately 27.6%, compared with net sales of$1.985 billion for the three months endedAugust 28, 2021 . Net sales for the six months endedAugust 27, 2022 were$2.900 billion , a decrease of$1.038 billion , or approximately 26.4%, compared with net sales of$3.939 billion for the six months endedAugust 28, 2021 . The decrease in net sales for the three and six months endedAugust 27, 2022 was primarily due to the decrease in comparable sales, which were negatively impacted by continued downward trends in customer traffic reflective of consumer spending patterns and demand, lack of inventory availability and assortment in -28-
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key product areas, as well as the effect of the closure of certain stores in fiscal 2021 in connection with our store fleet optimization project.
Sales consummated on a mobile device while physically in a store location and BOPIS orders are recorded as customer facing digital channel sales. Customer orders taken in-store by an associate throughThe Beyond Store , our proprietary, web-based platform, are recorded as in-store sales. Prior to implementation of BOPIS and contactless Curbside Pickup services, customer orders reserved online and picked up in a store were recorded as in-store sales. Sales originally consummated from customer facing digital channels and subsequently returned in-store are recorded as a reduction of in-store sales. Net sales consummated through digital channels represented approximately 37.0% and 39.0% of our sales for the three and six months endedAugust 27, 2022 , respectively, compared with approximately 34.0% and 36.0% of our sales for the three and six months endedAugust 28, 2021 , respectively. Comparable sales* for the three and six months endedAugust 27, 2022 decreased by approximately 26.0% and 24.0%, respectively. Management attributes a portion of this decline to the impact of lower traffic due to macro-economic factors, such as steep inflation, and fluctuations in purchasing patterns of the consumer. Also contributing to the comparable sales decline was the lack of inventory availability and assortment in key product areas, due in part to supply chain challenges. * Comparable sales normally includes sales consummated through all retail channels that have been operating for twelve full months following the opening period (typically six to eight weeks), excluding the impact of store fleet optimization program. We are an omni-channel retailer with capabilities that allow a customer to use more than one channel when making a purchase, including in-store, online, with a mobile device or through a customer contact center, and have it fulfilled, in most cases, either through in-store customer pickup or by direct shipment to the customer from one of our distribution facilities, stores or vendors. Sales of domestics merchandise and home furnishings accounted for approximately 37.9% and 62.1% of net sales, respectively, for the three months endedAugust 27, 2022 , and approximately 39.8% and 60.2% of net sales, respectively, for the three months endedAugust 28, 2021 . Sales of domestics merchandise and home furnishings accounted for approximately 36.6% and 63.4% of net sales, respectively, for the six months endedAugust 27, 2022 , and approximately 38.9% and 61.1% of net sales, respectively, for the six months endedAugust 28, 2021 . Gross Profit Three Months Ended Six Months Ended August 27, August 28, August 27, (in millions) 2022 2021 Change 2022 August 28, 2021 Change Gross profit$ 398.3 $ 601.1 $ (202.8) (33.7) %$ 747.6 $ 1,234.8 $ (487.2) (39.5) % Gross margin 27.7 % 30.3 % (2.6) % (8.6) % 25.8 % 31.4 % (5.6) % (17.8) % Gross profit for the three months endedAugust 27, 2022 was$398.3 million , or 27.7% of net sales, compared with$601.1 million , or 30.3% of net sales, for the three months endedAugust 28, 2021 . Gross profit for the six months endedAugust 27, 2022 was$747.6 million , or 25.8% of net sales, compared with$1.235 billion , or 31.4% of net sales, for the six months endedAugust 28, 2021 . Gross profit margin as a percentage of net sales for the three months endedAugust 27, 2022 includes the unfavorable impact of the acceleration of inventory clearance activity resulting from actions taken to rebalance inventory levels in response to consumer trends and transient supply chain-related port fees, partially offset by higher product margin due to the continuation of greater Owned Brand levels within our assortment. Gross profit margin as a percentage of net sales for the six months endedAugust 27, 2022 includes$91.6 million , associated with the markdown of inventory being removed from our assortment in connection with clearance of certain Owned Brands merchandise and the acceleration of inventory clearance activity resulting from actions taken to rebalance inventory levels in response to consumer trends as well as the impact of transient supply chain-related port fees, partially offset by higher product margin due to the continuation of greater Owned Brand levels within our assortment. Gross profit for the three and six months endedAugust 27, 2022 also includes higher freight expenses, both for inbound product shipments and direct-to-customer fulfillment and in part due to industry wide, global supply chain challenges, compared with the prior year. -29- -------------------------------------------------------------------------------- Table of Contents Selling, General and Administrative Expenses Three Months Ended Six Months Ended August 27, August 28, (in millions) 2022 2021 Change August 27, 2022 August 28, 2021 Change Selling, general and administrative expenses ("SG&A")$ 634.9 $ 653.0 $ (18.1) (2.8) %$ 1,272.4 $ 1,311.7 $ (39.3) (3.0) % SG&A as a percentage of net sales 44.2 % 32.9 % 11.3 % 34.3 % 43.9 % 33.3 % 10.6 % 31.8 % SG&A for the three months endedAugust 27, 2022 was$634.9 million , or 44.2% of net sales, compared with$653.0 million , or 32.9% of net sales, for the three months endedAugust 28, 2021 . SG&A for the six months endedAugust 27, 2022 was$1.272 billion , or 43.9% of net sales, compared with$1.312 billion , or 33.3% of net sales, for the six months endedAugust 28, 2021 . The decrease in SG&A for the three and six months endedAugust 27, 2022 compared with the three and six months endedAugust 28, 2021 was primarily attributable to the Company's cost reduction initiatives, primarily a decrease in payroll and payroll-related expenses, and lower rent and occupancy expenses due to a lower store base as a result of the Company's fleet optimization program in fiscal 2021. These cost reductions were partially offset by higher marketing spend. The increase in SG&A as a percentage of net sales for the three and six months endedAugust 27, 2022 was primarily due to the impact of de-leveraging of SG&A due to the declines in net sales noted above. Impairments Impairments for the three and six months endedAugust 27, 2022 were$55.5 million and$82.2 million , respectively, compared with$7.6 million and$16.7 million , respectively, during the comparable periods last year. Impairment charges for the three months endedAugust 27, 2022 andAugust 28, 2021 included$55.5 million and$7.0 million , respectively, relating to certain store-level assets (including leasehold improvements and operating lease assets) and tradename impairments of$0.6 million for three months endedAugust 28, 2021 . There were no tradename impairment charges for three months endedAugust 27, 2022 . Impairment charges for the six months endedAugust 27, 2022 andAugust 28, 2021 included$79.3 million and$14.0 million , respectively, relating to certain store-level assets (including leasehold improvements and operating lease assets) and tradename impairments of$2.9 million and$2.7 million , respectively.
Restructuring and Transformation Initiative Expenses
During the three and six months endedAugust 27, 2022 , restructuring and transformation initiative expenses were$54.1 million and$78.3 million , respectively, which included$35.0 million of severance costs for workforce reduction and leadership changes for both the three and six months endedAugust 27, 2022 . The Company also recorded approximately$1.6 million and$6.8 million , respectively, of lease related and other costs and approximately$17.5 million and$36.5 million , respectively, of costs in connection with our technology transformation and business strategy and operating model transformation programs across core functions, including merchandising, supply chain, and finance for the three and six months endedAugust 27, 2022 . During the three and six months endedAugust 28, 2021 , restructuring and transformation initiative expenses were$24.5 million and$58.2 million , respectively, primarily related to costs recorded in connection with the store network optimization program as well as costs associated with other transformation initiatives (see "Restructuring and Transformation Initiative Expenses," Note 18 to the accompanying consolidated financial statements). Loss on Sale of Businesses
During the three and six months ended
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Operating Loss
311.7 %
339.4 % As a percentage of net sales (24.1) % (4.2) % (19.9) % 473.8 % (23.6) % (4.0) % (19.6) % 490.0 % For the three months endedAugust 27, 2022 , operating loss was$346.2 million , or 24.1% of net sales, compared with an operating loss of$84.1 million , or 4.2% of net sales, for the three months endedAugust 28, 2021 . Operating loss for the three months endedAugust 27, 2022 included the unfavorable impact of the acceleration of inventory clearance activity resulting from actions taken to rebalance inventory levels in response to consumer trends and transient supply chain-related port fees,$54.1 million associated with restructuring and other transformation initiatives, and$55.5 million for non-cash impairment charges (each as discussed above or below). The change in operating loss as a percentage of net sales for three months endedAugust 27, 2022 was primarily due to the decline in gross margin, as discussed above, as well as higher restructuring and transformation initiative expenses and higher impairment charges compared to the three months endedAugust 28, 2021 . For the six months endedAugust 27, 2022 , operating loss was$685.4 million , or 23.6% of net sales, compared with an operating loss of$156.0 million , or 4.0% of net sales, for the six months endedAugust 28, 2021 . Operating loss for the six months endedAugust 27, 2022 included the impact of$91.6 million related to inventory markdown reserves, the acceleration of inventory clearance activity resulting from actions taken to rebalance inventory levels in response to consumer trends and transient supply chain-related port fees,$78.3 million associated with restructuring and other transformation initiatives, and$82.2 million for non-cash impairment charges (each as discussed above). The change in operating loss as a percentage of net sales for six months endedAugust 27, 2022 was primarily due to the decline in gross margin, as discussed above, as well as higher restructuring and transformation initiative expenses and higher impairment charges compared to the six months endedAugust 28, 2021 .
Interest Expense, net
Interest expense, net for the three and six months endedAugust 27, 2022 was$18.6 million and$35.1 million , respectively, compared with$16.1 million and$32.1 million , respectively, for the three and six months endedAugust 28, 2021 . Interest expense, net includes interest costs attributable to our revolving credit facilities and our senior unsecured notes.
Income Taxes
The effective tax rate for the three and six months endedAugust 27, 2022 was (0.4)% and (0.5)%, respectively, compared with 27.0% and 34.2%, respectively, for the three and six months endedAugust 28, 2021 . For the three and six months endedAugust 27, 2022 , the effective tax rate reflects the impact of continuing to record a valuation allowance against the Company'sU.S. federal and state deferred tax assets (discussed below). For the three and six months endedAugust 28, 2021 , the effective tax rate reflects the impact of charges for restructuring and transformation initiatives, as well as a benefit under the provisions of the CARES Act, to a year in which the tax rate was 35%. In assessing the recoverability of our deferred tax assets, we evaluated the available objective positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit the use of existing deferred tax assets in each taxpaying jurisdiction. For any deferred tax asset in excess of the amount for which it is more likely than not that we will realize a benefit, we established a valuation allowance. A valuation allowance is a non-cash charge, and does not limit our ability to utilize our deferred tax assets, including our ability to utilize tax loss and credit carryforward amounts, against future taxable income. In the third quarter of fiscal 2021, we concluded that, based on our evaluation of available objective positive and negative evidence, it was no longer more likely than not that our netU.S. federal and state deferred tax assets were recoverable. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included our cumulative loss before income taxes for the past three years, current trends related to actual taxable earnings or losses, and expected future reversals of existing taxable temporary differences, as well as timing and the cost of our transformation initiatives and their expected associated benefits. Accordingly, in the third quarter of fiscal 2021, we recorded a valuation allowance against substantially all of our netU.S. federal and state deferred tax assets. -31-
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During the three and six months endedAugust 27, 2022 , we concluded that it continues to not be more likely than not that our netU.S. federal and state deferred tax assets are recoverable, and have recorded a valuation allowance against any deferred tax assets generated in the quarter. As ofAugust 27, 2022 , the total valuation allowance relative toU.S. federal and state deferred tax assets was$224.3 million . The amount of the deferred tax assets considered realizable, and the associated valuation allowance, could be adjusted in a future period if estimates of future taxable income change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth.
Potential volatility in the effective tax rate from year to year may occur as we are required each year to determine whether new information changes our assessment of both the probability that a tax position will effectively be sustained and the appropriateness of the amount of recognized benefit.
Net Loss
As a result of the factors described above, net loss for the three months endedAugust 27, 2022 was$366.2 million , or$4.59 per diluted share, compared with net loss of$73.2 million , or$0.72 per diluted share, for the three months endedAugust 28, 2021 . Net loss for the three months endedAugust 27, 2022 included a net unfavorable impact of$1.37 per diluted share associated with charges for restructuring and other transformation initiatives, and non-cash impairment charges (each as discussed above), as well as the associated tax effects. Net loss for the three months endedAugust 28, 2021 included a net unfavorable impact of$0.76 per diluted share associated with non-cash impairment charges, charges associated with restructuring program and transformation initiatives, loss on sale of business, and loss on extinguishment of debt, partially offset by a gain on the sale of property (each as discussed above), as well as the associated tax effects. As a result of the factors described above, net loss for the six months endedAugust 27, 2022 was$723.8 million , or$9.09 per diluted share, compared with net loss of$124.1 million , or$1.19 per diluted share, for the six months endedAugust 28, 2021 . Net loss for the six months endedAugust 27, 2022 included a net unfavorable impact of$2.39 per diluted share associated with inventory markdown reserves, the acceleration of inventory clearance activity and transient supply chain-related port fees, restructuring and other transformation initiatives, and non-cash impairment charges (each as discussed above), as well as the associated tax effects. Net loss for the six months endedAugust 28, 2021 included a net unfavorable impact of$1.27 per diluted share associated with non-cash impairment charges, charges associated with restructuring program and transformation initiatives, loss on sale of business, and loss on extinguishment of debt, partially offset by a gain on the sale of property, (each as discussed above), as well as the associated tax effects.
Liquidity and Capital Resources
We had cash, cash equivalents and restricted cash of$166.7 million as ofAugust 27, 2022 , a decrease of approximately$304.2 million as compared withFebruary 26, 2022 , driven by working capital investments in inventory, as well as$226.5 million in capital expenditures and$43.2 million in share repurchases, partially offset by borrowings under our ABL Facility of$550.0 million and net cash used in operating activities of$582.4 million for the six months endedAugust 27, 2022 . As ofAugust 27, 2022 , we had approximately$315.0 million of available borrowing capacity under its ABL Facility. Subsequent to the end of the second quarter of fiscal 2022, we entered into an amendment, which expanded its ABL Facility to$1.130 billion and entered into a new FILO Facility of$375.0 million (see "Long-Term Debt", Note 13). As of the end of fiscalSeptember 2022 , our current available borrowing capacity was approximately$690.0 million . We are required to perform a two-step analysis of our ability to continue as a going concern. It must first evaluate whether there are conditions and events that raise substantial doubt about our ability to continue as a going concern (Step 1). If we conclude that substantial doubt is raised, it is also required to consider whether our plans alleviate that doubt (Step 2). Management's assessment included the preparation of cash flow forecasts. Management has implemented or expects to implement various strategic actions including permanently closing stores that are deemed to be performing below expectations, reducing its workforce, deferring or eliminating certain capital expenditures and reducing other operating expenses to ensure alignment with customer demand and its go-forward strategy. We believe that available cash and cash equivalents, the cash provided by future operating activities, and availability under its recently increased ABL credit facility and its new FILO credit facility should enable us to meet presently anticipated cash needs for at least the next 12 months after the date that the financial statements are issued. If we encounter unforeseen circumstances that place further constraints on its capital resources, management will be required to take various additional measures to conserve liquidity, which could include, but not necessarily be limited to, reducing capital expenditures, and controlling -32- -------------------------------------------------------------------------------- Table of Contents overhead expenses. Management cannot provide any assurance that our efforts will be successful. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties. We have the ability to continue to borrow under our ABL Facility, subject to customary conditions, including no default, the accuracy of representations and warranties, and borrowing base availability. The ABL Facility matures onAugust 9, 2026 . Our ability to borrow under the ABL Facility is based upon a specified borrowing base consisting of a percentage of our eligible inventory and credit card receivables as defined in the ABL Facility, net of applicable reserves (see "Long-Term Debt," Note 13 to the accompanying consolidated financial statements). In addition, onAugust 31, 2022 , subsequent to the end of the second quarter of fiscal 2022, we established an at the market equity distribution program (the "ATM Program") (see "Shareholders' (Deficit) Equity," Note 14 to the accompanying consolidated financial statements), under which we may offer and sell up to a maximum of 12 million shares of common stock. The potential proceeds from the ATM Program are expected to be used for a number of corporate purposes, which may include the repayment, refinancing, redemption or repurchase of existing indebtedness, working capital or capital expenditures, acquisitions and other investments. Since the end of the fiscal second quarter, we have sold approximately 3.0 million shares for approximately$30.0 million of proceeds under the ATM Program. We are considering liability management transactions with particular focus on the 2024 bonds. Transactions could be launched in the third quarter of fiscal 2022 and could include offers to exchange our current debt for new longer tenured debt or equity at exchange ratios related to the then-current value of the current debt. However, the transactions could take other forms or might not be launched at all. Capital Expenditures Capital expenditures for the six months endedAugust 27, 2022 were$226.5 million , and for fiscal 2022 are projected to be approximately$250 million . Our capital expenditures are related to digital and omni-channel capabilities, store remodels and investments in technology across a number of areas including supply chain, merchandising, and finance. We continue to review and prioritize our capital needs and remain committed to making the required investments in our infrastructure to help position us for continued growth and success. Key areas of investment include: continuing to improve the presentation and content as well as the functionality, general search and navigation across our customer facing digital channels; improving customer data integration and customer relations management capabilities; continuing to enhance service offerings to our customers; continuing to strengthen and deepen our information technology, analytics, marketing, e-commerce, merchandising and finance capabilities; and creating more flexible fulfillment options designed to improve our delivery capabilities and lower our shipping costs. These and other investments are expected to, among other things, provide a seamless and compelling customer experience across our omni-channel retail platform. Stock Repurchases During the three and six months endedAugust 27, 2022 , we repurchased less than 0.1 million and approximately 2.5 million shares, respectively, of our common stock, at a total cost of approximately$0.2 million and$43.2 million , respectively. For the six months endedAugust 27, 2022 , the stock repurchases included approximately 2.3 million shares at a total cost of approximately$40.4 million , repurchased under our share repurchase programs as authorized by our Board of Directors, which was completed in the first quarter of fiscal 2022. During the three and six months endedAugust 28, 2021 , we repurchased approximately 3.5 million and 8.7 million shares, respectively, of our common stock, at a total cost of approximately$101.3 million and$240.0 million , respectively, which included approximately 3.4 million and 8.3 million shares, respectively, at a total cost of approximately$100.8 million and$231.2 million , respectively, repurchased under our share repurchase programs as authorized by our Board of Directors. Additionally, during the three and six months endedAugust 27, 2022 , we repurchased less than 0.1 million and approximately 0.2 million shares, respectively, of our common stock, to cover employee related taxes withheld on vested restricted stock, restricted stock unit awards, and performance stock unit awards at a total cost of approximately$0.2 million and$2.8 million , respectively. During the three and six months endedAugust 28, 2021 , we repurchased approximately 0.1 million and 0.4 million shares, respectively, of our common stock, to cover employee related taxes withheld on vested restricted stock, restricted stock unit awards, and performance stock unit awards at a total cost of approximately$0.5 million and$8.8 million , respectively. -33- -------------------------------------------------------------------------------- Table of Contents During fiscal 2021, we announced that we intended to complete our$1 billion three-year share repurchase plan by the end of fiscal 2021, two years ahead of schedule. During the first quarter of fiscal 2022, we completed this program, repurchasing approximately 2.3 million shares of our common stock. InJanuary 2021 , we entered into an accelerated share repurchase agreement to repurchase an aggregate$150.0 million of our common stock, subject to market conditions. This resulted in the repurchase of 5.0 million shares in the fourth quarter of fiscal 2020, and an additional 0.2 million shares received upon final settlement in the first quarter of fiscal 2021. BetweenDecember 2004 andApril 2021 , our Board of Directors authorized, through several share repurchase programs, the repurchase of up to$12.950 billion of our shares of common stock. We also acquire shares of our common stock to cover employee related taxes withheld on vested restricted stock, restricted stock units and performance stock unit awards. Since the initial authorization inDecember 2004 , the aggregate total of common stock repurchased is approximately 264.7 million shares for a total cost of approximately$11.7 billion . We had approximately$1.2 billion remaining of authorized share repurchases as ofAugust 27, 2022 . Decisions regarding share repurchases are within the discretion of the Board of Directors, and are influenced by a number of factors, including the price of our common stock, general business and economic conditions, our financial condition and operating results, the emergence of alternative investment or acquisition opportunities, changes in business strategy and other factors. Our share repurchase program could change, and could be influenced by several factors, including business and market conditions, such as the impact of the COVID-19 pandemic on our business operations or stock price. We review our alternatives with respect to its capital structure on an ongoing basis. Any future share repurchases will be subject to the determination of the Board of Directors, based on an evaluation of our earnings, financial condition and requirements, business conditions and other factors, including the restrictions on share repurchases under the ABL Facility (see "Long-Term Debt," Note 13 to the accompanying consolidated financial statements). We do not currently have plans to engage in stock repurchases as this time.
Debt Repurchases
There were no debt repurchases made during the three and six months endedAugust 27, 2022 . During the three and six months endedAugust 28, 2021 , we purchased approximately$3.1 million and$11.0 million , respectively, aggregate principal amount of our outstanding 3.749% senior unsecured notes dueAugust 1, 2024 .
Cash Flow
Fiscal 2022 compared with Fiscal 2021
Net cash used in operating activities for the six months endedAugust 27, 2022 was$582.4 million , compared with net cash provided by operating activities of$46.0 million in the corresponding period in fiscal 2021. The year-over-year change in operating cash flow was primarily due to higher net loss, adjusted for non-cash expense, which included the impact of higher impairments in fiscal 2022, as well as investments in inventory as a result of lower than anticipated sales, partially offset by a decrease in accrued expenses and other current liabilities. Retail inventory, which includes inventory in our distribution facilities for direct to customer shipments, was approximately$1.576 billion atAugust 27, 2022 , a decrease of 8.6% compared with retail inventory atFebruary 26, 2022 . We continue to focus on our inventory optimization strategies. Net cash used in investing activities for the six months endedAugust 27, 2022 was$226.5 million , compared with net cash used in investing activities of$174.5 million in the corresponding period of fiscal 2021. For the six months endedAugust 27, 2022 , net cash used in investing activities included$226.5 million of capital expenditures. For the six months endedAugust 28, 2021 , net cash used in investing activities was comprised of$149.5 million of capital expenditures and$30.0 million of purchases of held-to-maturity investment securities, partially offset by$5.0 million in proceeds from the sale of property. Net cash provided by financing activities for the six months endedAugust 27, 2022 was$505.6 million , compared with net cash used in financing activities of$255.4 million in the corresponding period of fiscal 2021. Net cash provided by financing activities in the six months endedAugust 27, 2022 was comprised of$550.0 million of borrowings under the ABL Facility, offset by repurchases of common stock of$43.2 million , of which$40.4 million is related to our share repurchase program, repayments of finance leases of$0.8 million and dividend payments of$0.3 million . Net cash used in financing activities in the six months endedAugust 28, 2021 was comprised of repurchases of our common stock of$240.0 million , of which$231.2 -34- -------------------------------------------------------------------------------- Table of Contents million is related to the Company's share repurchase program, repayments of long-term debt of$11.4 million , payments of deferred financing costs of$3.4 million and dividend payments of$0.6 million .
Seasonality
Our business is subject to seasonal influences. Generally, our sales volumes are higher in the calendar months of August, November and December, and lower in September and October.
Critical Accounting Policies
See "Critical Accounting Policies" under Item 7 of our Annual Report on Form 10-K for the fiscal year endedFebruary 26, 2022 ("2021 Form 10-K"), filed with theSecurities and Exchange Commission ("SEC").
Forward-Looking Statements
This Form 10-Q and Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934 including, but not limited to, our progress and anticipated progress towards our long-term objectives, as well as more generally the status of our future liquidity and financial condition and our outlook for our 2022 fiscal year. Many of these forward-looking statements can be identified by use of words such as may, will, expect, anticipate, approximate, estimate, assume, continue, model, project, plan, goal, preliminary, and similar words and phrases, although the absence of those words does not necessarily mean that statements are not forward-looking. Our actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors. Such factors include, without limitation: general economic conditions including the recent supply chain disruptions, labor shortages, wage pressures, rising inflation and the ongoing military conflict betweenRussia andUkraine ; challenges related to our relationships with our suppliers, including the failure of our suppliers to supply us with the necessary volume and type of products; the impact of cost-saving measures; our inability to generate sufficient cash to service all of our indebtedness or our ability to access additional capital; our inability to complete our expected credit financings; changes to our credit rating or the terms on which vendors or others will provide us credit; the impact of strategic changes, including the reaction of customers to such changes; a challenging overall macroeconomic environment and a highly competitive retailing environment; risks associated with the ongoing COVID-19 pandemic and the governmental responses to it, including its impacts across our businesses on demand and operations, as well as on the operations of our suppliers and other business partners, and the effectiveness of our and governmental actions taken in response to these risks; changing consumer preferences, spending habits and demographics; demographics and other macroeconomic factors that may impact the level of spending for the types of merchandise sold by us; challenges in executing our omni-channel and transformation strategy, including our ability to establish and profitably maintain the appropriate mix of digital and physical presence in the markets we serve; our ability to successfully execute our store fleet optimization strategies, including our ability to achieve anticipated cost savings and to not exceed anticipated costs; our ability to execute on any additional strategic transactions and realize the benefits of any acquisitions, partnerships, investments or divestitures; disruptions to our information technology systems, including but not limited to security breaches of systems protecting consumer and employee information or other types of cybercrimes or cybersecurity attacks; damage to our reputation in any aspect of our operations; the cost of labor, merchandise, logistical costs and other costs and expenses; potential supply chain disruption due to trade restrictions or otherwise, and other factors such as natural disasters, pandemics, including the COVID-19 pandemic, political instability, labor disturbances, product recalls, financial or operational instability of suppliers or carriers, and other items; inflation and the related increases in costs of materials, labor and other costs; inefficient management of relationships and dependencies on third-party service providers; our ability to attract and retain qualified employees in all areas of the organization; unusual weather patterns and natural disasters, including the impact of climate change; uncertainty and disruptions in financial markets; volatility in the price of our common stock and its effect, and the effect of other factors, including the COVID-19 pandemic, on our capital allocation strategy; changes to statutory, regulatory and other legal requirements or deemed noncompliance with such requirements; changes to accounting rules, regulations and tax laws, or new interpretations of existing accounting standards or tax laws; new, or developments in existing, litigation, claims or assessments; and a failure of our business partners to adhere to appropriate laws, regulations or standards. Except as required by law, we do not undertake any obligation to update our forward-looking statements.
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