BURLINGTON STORES, INC. The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report and the Consolidated Financial Statements and notes thereto in our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 (Fiscal 2020 10-K). In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations, and intentions. Our actual results or other events may differ materially from those anticipated in these forward-looking statements due to various factors, including those discussed under the section of this Item 2 entitled "Safe Harbor Statement." Executive Summary Introduction We are a nationally recognized off-price retailer of high-quality, branded apparel at everyday low prices. We opened our first store inBurlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, we have expanded our store base to 784 stores as ofMay 1, 2021 in 45 states andPuerto Rico . We have diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise at up to 60% off other retailers' prices, including: women's ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats. We sell a broad selection of desirable, first-quality, current-brand, labeled merchandise acquired directly from nationally-recognized manufacturers and other suppliers. COVID-19 OnMarch 11, 2020 , theWorld Health Organization declared the novel coronavirus (known as COVID-19) outbreak to be a global pandemic. As a result, we began the temporary closing of some of our stores, and effectiveMarch 22, 2020 , we made the decision to temporarily close all of our stores, distribution centers (other than processing of received inventory) and corporate offices to combat the rapid spread of COVID-19. These developments caused significant disruptions to our business and had a significant adverse impact on our financial condition, results of operations and cash flows. We began re-opening stores onMay 11, 2020 , with substantially all stores re-opened by the end of the second quarter of Fiscal 2020. In response to the COVID-19 pandemic and the temporary closing of our stores, we provided two weeks of financial support to associates impacted by these store closures and by the shutdown of distribution centers. We temporarily furloughed most store and distribution center associates, as well as some corporate associates, but continued to provide benefits to furloughed associates in accordance with our benefit plans. In addition, we paid 100% of their medical benefit premiums during the period they were furloughed. During the second quarter of Fiscal 2020, we recalled all furloughed associates at our re-opened stores, as well as our corporate and distribution facilities. In order to maintain maximum financial flexibility during these uncertain times, we completed several debt transactions in the first quarter of Fiscal 2020. InMarch 2020 , we borrowed$400 million on our existing$600 million senior secured asset-based revolving credit facility (the ABL Line of Credit),$150 million of which was repaid during the second quarter of Fiscal 2020, and the remaining$250 million was repaid during the fourth quarter of Fiscal 2020. InApril 2020 , we issued$805 million of 2.25% Convertible Senior Notes due 2025 (the Convertible Notes), and through our indirect subsidiary,Burlington Coat Factory Warehouse Corporation (BCFWC), issued$300 million of 6.25% Senior Secured Notes due 2025 (the Secured Notes). Refer to Note 4, "Long Term Debt," for further discussion regarding these debt transactions.
Additionally, we took the following steps to further enhance our financial flexibility:
• Carefully managed operating expenses, working capital and capital
expenditures, including ceasing substantially all buying activities
while stores were closed. We subsequently resumed our buying activities,
while continuing our conservative approach toward operating expenses and
capital expenditures.
• Negotiated rent deferral agreements with landlords.
• Suspended our share repurchase program.
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• Our CEO voluntarily agreed to not take a salary, our board of directors
voluntarily forfeited their cash compensation, our executive leadership
team voluntarily agreed to decrease their salary by 50% and smaller
salary reductions were temporarily put in place for all employees
through a certain level. This compensation was reinstated once
substantially all of our stores re-opened.
• The annual incentive bonus payments related to Fiscal 2019 performance
were delayed to the second quarter of Fiscal 2020, and merit pay
increases for Fiscal 2020 were delayed to the third quarter of Fiscal
2020.
Due to the aging of inventory related to the temporary store closures discussed
above, as well as the impact of seasonality on our merchandise, we recognized
inventory markdown reserves of $271.9 million during the three month period
ended May 2, 2020 . These reserves covered markdowns taken during the second
quarter of Fiscal 2020. These charges were included in "Cost of sales" on our
Condensed Consolidated Statement of Income (Loss).
On March 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (the
CARES Act) was signed into law, which provides emergency economic assistance for
American workers, families and businesses affected by the COVID-19 pandemic. For
the year ended January 30, 2021 we estimated we will obtain a one-time tax
refund of $219.7 million from the carryback of federal net operating losses
(NOLs), which is included in the line item "Prepaid and other current assets" on
our Condensed Consolidated Balance Sheet.
We continue to keep health and safety as a top priority as we operate our stores and distribution centers. We have implemented social distancing and safety practices, including:
• Signage to remind customers and associates to practice social distancing
and remain at least six feet apart
• One way entrances and exits at the front of the store
• Wider check-out lanes
• A physical barrier between customers and associates at each register
• Closing all fitting rooms
• Routinely cleaning and disinfecting all areas of the store, including
frequently cleaning high-touch areas
• Providing sanitization materials throughout the store
• Making shopping cart wipes available
• Requiring associates to wear face coverings while in our stores and
distribution centers
• Screening all associates daily in stores and distribution centers where
required by state and local mandates
Fiscal Year
Fiscal 2021 is defined as the 52-week year ending
Store Openings, Closings, and Relocations
During the three month period endedMay 1, 2021 , we opened 26 new stores, inclusive of one relocation, and permanently closed two stores, exclusive of the aforementioned relocation, bringing our store count as ofMay 1, 2021 to 784 stores. 22
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Ongoing Initiatives for Fiscal 2021
Since the beginning of the COVID-19 pandemic, protecting the health and safety of our customers, associates, and the communities that we serve has been our top priority. Accordingly, we moved quickly to close our stores, distribution centers, and corporate offices in March of Fiscal 2020. We continue to keep health and safety as a top priority as we operate our stores and distribution centers. We continue to focus on a number of ongoing initiatives aimed at increasing our overall profitability by improving our comparable store sales trends, increasing total sales growth and reducing expenses. These initiatives include, but are not limited to:
• Driving Comparable Store Sales Growth.
We intend to continue to increase comparable store sales through the following initiatives:
• More Effectively Chasing the Sales Trend. We are conservatively
planning comparable stores sales growth, holding and controlling
liquidity and closely analyzing the sales trend by business, ready to
chase that trend. We believe that these actions should not only enable
us to more effectively chase the trend, but they will alsoallow us to
take more advantage of great opportunistic buys.
• Making a Greater Investment in Merchandising Capabilities. We intend
to invest in incremental headcount, especially in growing or
under-developed businesses, training and coaching, improved tools and
reporting, and other forms of merchant support. We believe that these
investments should improve our ability to develop vendor
relationships, source great merchandise buys, more accurately assess
value, and better forecast and chase the sales trend.
• Operating with Leaner Inventories. We are planning to carry less
inventory going forward, which we believe should result in the
customer finding a higher mix of fresh receipts and greatmerchandise
values. We believe that this should drive faster turns and lower
markdowns, while simultaneously improving our customers' shopping
experience.
• Enhancing Existing Categories and Introducing New Categories. We have
opportunities to expand the depth and breadth of certainexisting
categories, such as ladies' apparel, children's products, bath and
cosmetic merchandise, housewares, décor for the home andbeauty as we
continue to de-weather our business, and maintain the flexibility to
introduce new categories as we expand our merchandisingcapabilities.
• Expanding and Enhancing Our Retail Store Base.
We intend to expand and enhance our retail store base through the following initiatives:
• Adhering to a Market Focused and Financially Disciplined Real Estate
Strategy. We have grown our store base consistently since our founding
in 1972, developing more than 99% of our stores organically. We
believe there is significant opportunity to expand our retail store
base in the United States . We have identified numerous market
opportunities that we believe will allow us to operate 2,000 stores
over the long-term.
• Maintaining Focus on Unit Economics and Returns. We have adopted a
market focused approach to new store openings with a specific focus on
maximizing sales while achieving attractive unit economics and
returns. By focusing on opening stores with attractive unit economics,
we are able to achieve attractive returns on capital andcontinue to
grow our margins. We believe that as we continue to reduce our
comparable store inventory, we will be able to reduce the square
footage of our stores while continuing to maintain our broad
assortment.
• Enhancing the Store Experience Through Store Remodels, Downsizes and
Relocations. We continue to invest in store remodels anddownsizes on
a store-by-store basis where appropriate, taking into consideration
the age, size, sales and profitability of a store, as well as the
potential impact to the customer shopping experience. In our remodeled
stores, we have typically incorporated new flooring, painting,
lighting and graphics, relocated our fitting rooms and rightsized our
selling area to maximize productive selling space, enhanced certain
departments such as home and accessories and made various other
improvements as appropriate by location. We have also increased our
focus on relocations as leases expire to right size ourbuildings and
improve our competitive positioning.
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• Enhancing Operating Margins.
We intend to increase our operating margins through the following initiatives:
• Improving Operational Flexibility. Our store and supply chain teams
must continue to respond to the challenge of becoming more responsive
to the sales chase, enhancing their ability at flexing up and down
based on trends. Their ability to appropriately flex based on the
ongoing trends allows us to maximize leverage on sales,regardless of
the trend.
• Optimizing Markdowns. We believe that our markdown system allows us to
maximize sales and gross margin dollars based on forward-looking sales
forecasts, sell-through targets and exit dates. Additionally, as we
plan to carry less inventory in our stores, we expect to drive faster
turns, which in turn will reduce the amount of markdowns taken.
• Enhancing Purchasing Power . We believe that increasing our store
footprint and expanding our west coast and New York buying offices
provides us with the opportunity to capture incremental buying
opportunities and realize economies of scale in ourmerchandising and
non-merchandising purchasing activities.
• Challenging Expenses to Drive Operating Leverage. We believe that we
will be able to leverage our growing sales over the fixed costs of our
business. In addition, by more conservatively planning our comparable
store sales growth, we are forcing even tighter expensecontrol. We
believe that this should put us in a strong position to drive
operating leverage on any sales ahead of the plan. Additionally, we
plan to continue challenging the processes and operating norms
throughout the organization with the belief that this will lead to
incremental efficiency improvements and savings.
Uncertainties and Challenges
As we strive to increase profitability through achieving positive comparable store sales and leveraging productivity initiatives focused on improving the in-store experience, more efficient movement of products from the vendors to the selling floors, and modifying our marketing plans to increase our core customer base and increase our share of our current customers' spending, there are uncertainties and challenges that we face as an off-price retailer of apparel and accessories for men, women and children and home furnishings that could have a material impact on our revenues or income. COVID-19. The extent of the continuing impact of the COVID-19 pandemic on our business will depend largely on future developments, including the production and administration of effective medical treatments and vaccines, the timing and extent of the recovery in traffic and consumer spending at our stores, supply chain delays due to closed factories or distribution centers, reduced workforces or labor shortages and scarcity of raw materials, and any future required store closures because of COVID-19 resurgences. COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results, liquidity and cash flows. General Economic Conditions. Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing global economic conditions, inflation, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy costs, commodities pricing, income tax rates and policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by consumers' disposable income, credit availability and debt levels. A broader, protracted slowdown in theU.S. economy, an extended period of high unemployment rates, an uncertain global economic outlook or a credit crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis. Consumer confidence is also affected by the domestic and international political situation. Our financial condition and operations could be impacted by changes in government regulations in areas including, but not limited to, taxes and healthcare. Ongoing international trade and tariff negotiations could have a direct impact on our income and an indirect impact on consumer prices. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting theU.S. , or public health issues such as pandemics or epidemics, including the continuing COVID-19 pandemic, could lead to a decrease in spending by consumers. In addition, natural disasters, public health issues, industrial accidents and acts of war in various parts of the world could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world andU.S. economies and lead to a downturn in consumer confidence and spending. We closely monitor our net sales, gross margin and expenses. We have performed scenario planning such that if our net sales decline for an extended period of time, we have identified variable costs that could be reduced to partially mitigate the impact of these declines. If we were to experience adverse economic trends and/or if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods. 24 -------------------------------------------------------------------------------- Seasonality of Sales and Weather Conditions. Our sales, like most other retailers, are subject to seasonal influences. In the second half of the year, which includes the back-to-school and holiday seasons, we generally realize a higher level of sales and net income. Weather continues to be a contributing factor to the sale of our clothing. Generally, our sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are increased by early cold weather during the Fall, while sales of warm weather clothing are improved by early warm weather conditions in the Spring. Although we have diversified our product offerings, we believe traffic to our stores is still driven, in part, by weather patterns. Competition and Margin Pressure. We believe that in order to remain competitive with retailers, including off-price retailers and discount stores, we must continue to offer brand-name merchandise at a discount to prices offered by other retailers as well as an assortment of merchandise that is appealing to our customers. TheU.S. retail apparel and home furnishings markets are highly fragmented and competitive. We compete for business with department stores, off-price retailers, internet retailers, specialty stores, discount stores, wholesale clubs, and outlet stores as well as with certain traditional, full-price retail chains that have developed off-price concepts. At various times throughout the year, traditional full-price department store chains and specialty shops offer brand-name merchandise at substantial markdowns, which can result in prices approximating those offered by us at ourBurlington stores. We anticipate that competition will increase in the future. Therefore, we will continue to look for ways to differentiate our stores from those of our competitors. TheU.S. retail industry continues to face increased pressure on margins as overall challenging retail conditions have led consumers to be more value conscious. Our "open to buy" paradigm, in which we purchase both pre-season and in-season merchandise, allows us the flexibility to purchase less pre-season with the balance purchased in-season and opportunistically. It also provides us with the flexibility to shift purchases between suppliers and categories. This enables us to obtain better terms with our suppliers, which we expect to help offset any rising costs of goods.
Key Performance Measures
We consider numerous factors in assessing our performance. Key performance measures used by management include net income (loss), Adjusted Net Income (Loss), Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory, store payroll and liquidity.
Net income (loss). We earned net income of$171.0 million during the three month period endedMay 1, 2021 compared with a net loss of$333.7 million during the three month period endedMay 2, 2020 . This increase was primarily driven by the temporary closure of all our stores during the first quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales performance during the first quarter of Fiscal 2021, compared to the first quarter of Fiscal 2019. Refer to the section below entitled "Results of Operations" for further explanation.
Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT: Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT are non-GAAP financial measures of our performance.
We define Adjusted Net Income (Loss) as net income (loss), exclusive of the
following items, if applicable: (i) net favorable lease costs; (ii) costs
related to debt issuances and amendments; (iii) loss on extinguishment of debt;
(iv) impairment charges; (v) amounts related to certain litigation matters; (vi)
non-cash interest expense on the Convertible Notes; (vii) costs related to
closing the e-commerce store; and (viii) other unusual, non-recurring or
extraordinary expenses, losses, charges or gains, all of which are tax effected
to arrive at Adjusted Net Income (Loss).
We define Adjusted EBITDA as net income (loss), exclusive of the following
items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on
extinguishment of debt; (iv) income tax expense (benefit); (v) depreciation and
amortization; (vi) impairment charges; (vii) costs related to debt issuances and
amendments; (viii) amounts related to certain litigation matters; (ix) costs
related to closing the e-commerce store; and (x) other unusual, non-recurring or
extraordinary expenses, losses, charges or gains.
We define Adjusted EBIT as net income (loss), exclusive of the following items,
if applicable: (i) interest expense; (ii) interest income; (iii) loss on
extinguishment of debt; (iv) income tax expense (benefit); (v) impairment
charges; (vi) net favorable lease costs; (vii) costs related to debt issuances
and amendments; (viii) amounts related to certain litigation matters; (ix) costs
related to closing the e-commerce store; and (x) other unusual, non-recurring or
extraordinary expenses, losses, charges or gains.
We present Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT,
because we believe they are useful supplemental measures in evaluating the
performance of our business and provide greater transparency into our results of
operations. In particular, we believe that excluding certain items that may vary
substantially in frequency and magnitude from what
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we consider to be our core operating results are useful supplemental measures
that assist in evaluating our ability to generate earnings and leverage sales,
and to more readily compare core operating results between past and future
periods.
Adjusted Net Income (Loss) has limitations as an analytical tool, and should not
be considered either in isolation or as a substitute for net income (loss) or
other data prepared in accordance with GAAP. Among other limitations, Adjusted
Net Income (Loss) does not reflect the following items, net of their tax effect:
• favorable lease costs;
• costs related to debt issuances and amendments;
• losses on extinguishment of debt;
• amounts charged for certain litigation matters;
• non-cash interest expense related to original issue discount on the
Convertible Notes;
• impairment charges on long-lived assets;
• costs related to closing the e-commerce store; and
• other unusual, non-recurring or extraordinary expenses, losses, charges or
gains.
During the three months endedMay 1, 2021 , Adjusted Net Income (Loss) increased$491.0 million to income of$175.9 million , compared to the same period in the prior year. This increase was primarily driven by the temporary closure of all our stores during the first quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales performance during the first quarter of Fiscal 2021. Refer to the section below entitled "Results of Operations" for further explanation. The following table shows our reconciliation of net income (loss) to Adjusted Net Income (Loss) for the three months endedMay 1, 2021 compared with the three months endedMay 2, 2020 : (unaudited) (in thousands) Three Months Ended May 1, May 2, 2021 2020 Reconciliation of net income (loss) to Adjusted Net Income (Loss): Net income (loss)$ 171,030 $ (333,728 ) Net favorable lease costs (a) 5,911 6,443 Non-cash interest expense on convertible notes (b) -
1,366
Costs related to debt issuances and amendments (c) -
4,352
Loss on extinguishment of debt (d) - 202 Impairment charges 777 1,924 Litigation matters (e) - 10,400 Tax effect (f) (1,771 ) (6,006 ) Adjusted Net Income (Loss)$ 175,947 $ (315,047 )
(a) Net favorable lease cost represents the non-cash expense associated with
favorable and unfavorable leases that were recorded as a result of purchase
accounting related to the
These expenses are recorded in the line item "Selling, general and
administrative expenses" in our Condensed Consolidated Statements of Income
(Loss).
(b) Represents non-cash accretion of original issue discount on the Convertible
Notes. The original issue discount was eliminated as of the beginning of
Fiscal 2021, as a result of adopting Accounting Standards Update (ASU)
2020-06, "Accounting for Convertible Instruments and Contracts in an
Entity's Own Equity" (ASU 2020-06).
(c) Represents certain costs incurred as a result of the issuance of the
Secured Notes and the Convertible Notes, as well as the execution of
refinancing opportunities.
(d) Amounts relate to the refinancing of the Term Loan Facility.
(e) Represents amounts charged for certain litigation matters.
(f) Tax effect is calculated based on the effective tax rates (before discrete
items) for the respective periods, adjusted for the tax effect for the
impact of items (a) through (e). The effective tax rate for the first
quarter of Fiscal 2020 includes the benefit of loss carrybacks to prior
years with higher statutory tax rates.
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-------------------------------------------------------------------------------- Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income (loss) or other data prepared in accordance with GAAP. Among other limitations, Adjusted EBITDA does not reflect: • interest expense on our debt; • losses on the extinguishment of debt; • costs related to debt issuances and amendments;
• cash requirements for replacement of assets. Although depreciation and
amortization are non-cash charges, the assets being depreciated and
amortized will likely have to be replaced in the future;
• amounts charged for certain litigation matters;
• impairment charges on long-lived assets;
• costs related to closing the e-commerce store;
• income tax expense; and
• other unusual, non-recurring or extraordinary expenses, losses, charges or
gains.
During the three months endedMay 1, 2021 , Adjusted EBITDA increased$741.0 million to$293.5 million , compared to the same period in the prior year. This increase was primarily driven by the temporary closure of all our stores during the first quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales performance during the first quarter of Fiscal 2021. Refer to the section below entitled "Results of Operations" for further explanation. The following table shows our reconciliation of net income (loss) to Adjusted EBITDA for the three months endedMay 1, 2021 compared with the three months endedMay 2, 2020 : (unaudited) (in thousands) Three Months Ended May 1, May 2, 2021 2020 Reconciliation of net income (loss) to Adjusted EBITDA: Net income (loss)$ 171,030 $ (333,728 ) Interest expense 19,599 14,693 Interest income (74 ) (716 ) Loss on extinguishment of debt (a) -
202
Costs related to debt issuances and amendments (b) -
4,352
Litigation matters (c) -
10,400
Depreciation and amortization (d) 61,521
60,685
Impairment charges 777
1,924
Income tax expense (benefit) 40,637 (205,359 ) Adjusted EBITDA$ 293,490 $ (447,547 ) (a) Amounts relate to the refinancing of the Term Loan Facility. (b) Represents certain costs incurred as a result of the issuance of the Secured Notes and the Convertible Notes, as well as the execution of refinancing opportunities. (c) Represents amounts charged for certain litigation matters.
(d) Includes
the line item "Selling, general and administrative expenses" in our
Condensed Consolidated Statements of Income (Loss) for the three months
ended
favorable lease cost represents the non-cash expense associated with
favorable and unfavorable leases that were recorded as a result of the
Merger Transaction.
Adjusted EBIT has limitations as an analytical tool, and should not be
considered either in isolation or as a substitute for net income (loss) or other
data prepared in accordance with GAAP. Among other limitations, Adjusted EBIT
does not reflect:
• interest expense on our debt;
• losses on the extinguishment of debt;
• costs related to debt issuances and amendments;
• favorable lease cost;
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• amounts charged for certain litigation matters; • impairment charges on long-lived assets; • costs related to closing the e-commerce store; • income tax expense; and
• other unusual, non-recurring or extraordinary expenses, losses, charges or
gains.
During the three months endedMay 1, 2021 , Adjusted EBIT increased$739.7 million to$237.9 million , compared to the same period in the prior year. This increase was primarily driven by the temporary closure of all our stores during the first quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales performance during the first quarter of Fiscal 2021. Refer to the section below entitled "Results of Operations" for further explanation. The following table shows our reconciliation of net income (loss) to Adjusted EBIT for the three months endedMay 1, 2021 compared with the three months endedMay 2, 2020 : (unaudited) (in thousands) Three Months Ended May 1, May 2, 2021 2020 Reconciliation of net income (loss) to Adjusted EBIT: Net income (loss)$ 171,030 $ (333,728 ) Interest expense 19,599 14,693 Interest income (74 ) (716 ) Loss on extinguishment of debt (a) -
202
Costs related to debt issuances and amendments (b) - 4,352 Net favorable lease costs (c) 5,911 6,443 Impairment charges 777 1,924 Litigation matters (d) - 10,400 Income tax expense (benefit) 40,637 (205,359 ) Adjusted EBIT$ 237,880 $ (501,789 ) (a) Amounts relate to the refinancing of the Term Loan Facility. (b) Represents certain costs incurred as a result of the issuance of the Secured Notes and the Convertible Notes, as well as the execution of refinancing opportunities.
(c) Net favorable lease cost represents the non-cash expense associated with
favorable and unfavorable leases that were recorded as a result of the
Merger Transaction. These expenses are recorded in the line item "Selling,
general and administrative expenses" in our Condensed Consolidated
Statements of Income (Loss).
(d) Represents amounts charged for certain litigation matters.
Comparable Store Sales. Comparable store sales measure performance of a store
during the current reporting period against the performance of the same store in
the corresponding period of a prior year. Due to the impact of the COVID-19
pandemic, including the temporary closing of all stores during the first quarter
of Fiscal 2020, we are using Fiscal 2019 as the comparable previous year period
when calculating comparable store sales for Fiscal 2021. The method of
calculating comparable store sales varies across the retail industry. As a
result, our definition of comparable store sales may differ from other
retailers.
For Fiscal 2021, we define comparable store sales as merchandise sales of those
stores, commencing on the first day of the fiscal month two years after the end
of their grand opening activities, which normally conclude within the first two
months of operations. If a store is closed for seven or more days during a
month, our policy is to remove that store from our calculation of comparable
stores sales for any such month, as well as during the month(s) of their grand
re-opening activities. Comparable store sales increased 20% for the three month
period ended May 1, 2021 , compared to the three month period ended May 4, 2019 .
Comparable store sales were not meaningful for the three months ended May 2,
2020 , due to the extended store closures resulting from the COVID-19 pandemic.
Various factors affect comparable store sales, including, but not limited to,
weather conditions, current economic conditions, the timing of our releases of
new merchandise and promotional events, the general retail sales environment,
consumer preferences and buying trends, changes in sales mix among distribution
channels, competition, and the success of marketing programs.
Gross Margin. Gross margin is the difference between net sales and the cost of sales. Our cost of sales and gross margin may not be comparable to those of other entities, since some entities may include all of the costs related to their buying and distribution
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functions, certain store-related costs and other costs, in cost of sales. We
include certain of these costs in the line items "Selling, general and
administrative expenses" and "Depreciation and amortization" in our Condensed
Consolidated Statements of Income (Loss). We include in our "Cost of sales" line
item all costs of merchandise (net of purchase discounts and certain vendor
allowances), inbound freight, distribution center outbound freight and certain
merchandise acquisition costs, primarily commissions and import fees. Gross
margin as a percentage of net sales increased to 43.3% during the three month
period ended May 1, 2021 , compared with 2.0% during the three month period ended
May 2, 2020 , driven primarily by a $271.9 million charge against aged inventory
during the first quarter of Fiscal 2020 due to the extended store closures.
Product sourcing costs were $140.7 million during the three month period ended
May 1, 2021 , compared with $75.7 million during the three month period ended May
2, 2020 .
Inventory. Inventory at May 1, 2021 increased to $767.6 million compared with
$625.9 million at May 2, 2020 . The increase was attributable primarily to the
$271.9 million inventory charge during the three month period ended May 2, 2020
due to aged inventory, as well as aggressive actions to reduce inventory
receipts during the period that stores were closed.
Comparable store inventory at May 1, 2021 decreased 19% compared to May 4, 2019 ,
driven by our strategy of operating with leaner in-store inventory. When
comparing to May 2, 2020 , all stores were excluded from comparable store
inventory, due to the temporary closure of all stores at that time. Reserve
inventory was 35% of total inventory as of May 1, 2021 , compared with 34% as of
May 4, 2019 . Reserve inventory includes all inventory that is being stored for
release either later in the season, or in a subsequent season. We intend to
continue to build up our reserve merchandise in order to more effectively chase
sales trends. Inventory at January 30, 2021 was $740.8 million .
In order to better serve our customers and maximize sales, we continue to refine
our merchandising mix and inventory levels within our stores. By appropriately
managing our inventories, we believe we will be better able to deliver a
continual flow of fresh merchandise to our customers.
Store Payroll. The method of calculating store payroll varies across the retail
industry. As a result, our store payroll may differ from other retailers. We
define store payroll as regular and overtime payroll for all store personnel as
well as regional and territory personnel, exclusive of payroll charges related
to corporate and warehouse employees.
As a result of the COVID-19 outbreak, we temporarily furloughed most store
associates in March 2020 , while providing two weeks of financial support to
impacted associates. We also continued to provide benefits to furloughed
associates, including paying 100% of their current medical benefit premiums. As
a result, store payroll costs increased to $170.7 million during the three
months ended May 1, 2021 , compared with $105.2 million during the three months
ended May 2, 2020 .
Liquidity. Liquidity measures our ability to generate cash. Management measures
liquidity through cash flow, which is the measure of cash generated from or used
in operating, financing, and investing activities. We took several steps to
effectively manage our liquidity during the COVID-19 pandemic, including careful
management of operating expenses, working capital and capital expenditures, as
well as suspending our share repurchase program. Additionally, we borrowed $400
million on our existing ABL Line of Credit, issued $805 million of our
Convertible Notes, and through BCFWC, issued $300 million of our Secured Notes.
We repaid $150 million on the ABL Line of Credit during the second quarter of
Fiscal 2020, and the remaining $250 million during the fourth quarter of Fiscal
2020. At May 1, 2021 , we had $549.5 million available under the ABL Line of
Credit.
Cash and cash equivalents, including restricted cash and cash equivalents,
increased $150.3 million during the three months ended May 1, 2021 , compared
with an increase of $1,085.4 million during the three months ended May 2, 2020 .
Refer to the section below entitled "Liquidity and Capital Resources" for
further explanation.
29
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Results of Operations
The following table sets forth certain items in the Condensed Consolidated
Statements of Income (Loss) as a percentage of net sales for the three months
ended
Percentage of Net Sales
Three Months Ended
May 1, May 2,
2021 2020
Net sales 100.0 % 100.0 %
Other revenue 0.1 0.4
Total revenue 100.1 100.4
Cost of sales 56.7 98.0
Selling, general and administrative expenses 30.3 60.8
Costs related to debt issuances and amendments -
0.6
Depreciation and amortization 2.6
6.8
Impairment charges - long-lived assets 0.0
0.2
Other income - net (0.1 ) (0.3 ) Loss on extinguishment of debt - 0.0 Interest expense 0.9 1.8 Total costs and expenses 90.4 167.9 Income (loss) before income tax expense (benefit) 9.7 (67.5 ) Income tax expense (benefit) 1.9 (25.7 ) Net income (loss) 7.8 % (41.8 )%
Three Month Period Ended
Net sales Net sales improved$1,392.7 million , or 174.5%, to$2,190.7 million during the three month period endedMay 1, 2021 , primarily due to the temporary closure of all our stores during the first quarter of Fiscal 2020. This improvement was also driven by our comparable store sales increase of 20% for the first quarter of Fiscal 2021 compared to the first quarter of Fiscal 2019, as well as our 48 net new stores since the end of the first quarter of Fiscal 2020.
Cost of sales
Cost of sales as a percentage of net sales decreased to 56.7% during the three month period endedMay 1, 2021 , compared to 98.0% during the three month period endedMay 2, 2020 , driven primarily by a$271.9 million charge against aged inventory in the first quarter of Fiscal 2020 due to the extended store closures. On a dollar basis, cost of sales increased$460.0 million , or 58.8%, primarily driven by our overall increase in sales. Product sourcing costs, which are included in selling, general and administrative expenses, were$140.7 million during the three month period endedMay 1, 2021 , compared with$75.7 million during the three month period endedMay 2, 2020 .
Selling, general and administrative expenses
The following table details selling, general and administrative expenses for the three month period endedMay 1, 2021 compared with the three month period endedMay 2, 2020 . (in millions) Three Months Ended Percentage Percentage of of May 1, 2021 Net Sales May 2, 2020 Net Sales $ Variance % Change
Store related costs$ 411.2 18.8 %$ 312.9 39.2 %$ 98.3 31.4 % Product sourcing costs 140.7 6.4 75.7 9.5 65.0 85.9 Corporate costs 75.9 3.5 76.7 9.6 (0.8 ) (1.0 ) Marketing and strategy costs 12.3 0.6 7.5 0.9 4.8 64.0 Other selling, general and administrative expenses 24.7 1.0 12.3 1.6 12.4 100.8 Selling, general and administrative expenses$ 664.8 30.3 %$ 485.1 60.8 %$ 179.7 37.0 % 30
-------------------------------------------------------------------------------- The decrease in selling, general and administrative expenses as a percentage of net sales was primarily driven by the overall increase in sales. On a dollar basis, the increase in selling, general and administrative expenses was primarily due to our higher product sourcing costs, as well as the significant steps taken to reduce selling, general and administrative expenses during the period stores were closed during the first quarter of Fiscal 2020. Among other things, we worked with landlords to modify payment terms for certain leases, furloughed most store and distribution center associates, as well as some corporate associates, temporarily eliminated the salary of the CEO and cash compensation for our Board of Directors, and temporarily reduced the salaries for our executive leadership team by 50%, with smaller salary reductions for all employees through a certain level.
Costs related to debt issuances and amendments
During the first quarter of Fiscal 2020, we incurred legal fees related to the issuance of our Secured Notes of$3.2 million , as well as legal and placement fees of$1.1 million related to the refinancing our Term Loan Facility.
Depreciation and amortization
Depreciation and amortization expense related to the depreciation of fixed assets amounted to$55.6 million during the three month period endedMay 1, 2021 compared with$54.3 million during the three month period endedMay 2, 2020 . The increase in depreciation and amortization expense was primarily driven by capital expenditures related to our new and non-comparable stores.
Impairment charges - long-lived assets
Impairment charges on long-lived assets were$0.8 million during the three month period endedMay 1, 2021 , related to store-level assets at one store. Impairment charges on long-lived assets were$1.9 million during the three month period endedMay 2, 2020 , related to store-level assets at seven stores. The recoverability assessment related to these store-level assets requires various judgments and estimates, including estimates related to future revenues, gross margin rates, store expenses and other assumptions. We base these estimates upon our past and expected future performance. We believe our estimates are appropriate in light of current market conditions. However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store.
Other income - net
Other income decreased$0.8 million to$1.4 million during the first quarter of Fiscal 2021, primarily driven by a reduction in interest income due to the low rate environment, as well as one-time insurance gains during the first quarter of Fiscal 2020. Interest expense Interest expense increased$4.9 million during the three month period endedMay 1, 2021 to$19.6 million , compared to the same period in the prior year. This increase was primarily driven by a full quarter of interest expense on our$805 million Convertible Notes and our$300 million Secured Notes, which were only outstanding for a portion of the first quarter of Fiscal 2020. This increase was partially offset by the paydown of our ABL Line of Credit, as well as the lower average interest rate on our Term Loan Facility. The average interest rates and average balances related to our variable rate debt for the three month period endedMay 1, 2021 compared with prior year, are summarized in the table below: Three Months EndedMay 1 ,May 2, 2021 2020 Average interest rate - ABL Line of Credit -
2.2%
Average interest rate - Term Loan Facility 1.9%
3.0%
Average balance - ABL Line of Credit (in millions) - $
206.6
Average balance - Term Loan Facility (in millions) (a)
(a) Excludes original issue discount
Income tax expense (benefit)
Income tax expense was$40.6 million during the three month period endedMay 1, 2021 compared with income tax benefit of$205.4 million during the three month period endedMay 2, 2020 . The effective tax rate for the three month period endedMay 1, 2021 was 19.2% compared with 38.1% during the three month period endedMay 2, 2020 . The income tax benefit in the prior year was a result of the pre-tax loss and the carry-back of net operating losses arising in 2020 to the five prior tax years, as permitted under the 31
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CARES Act. The higher income tax rate in the prior year is a function of prior year losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate.
Net income (loss)
We earned net income of$171.0 million during the three month period endedMay 1, 2021 compared with a net loss of$333.7 million for the three month period endedMay 2, 2020 . This improvement was primarily driven by the temporary closure of all our stores during the first quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our above average sales performance during the first quarter of Fiscal 2021.
Liquidity and Capital Resources
Our ability to satisfy interest payment and future principal payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service interest payment and future principal payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed on terms similar to our current financing agreements, or at all. As a result of the uncertainty regarding the COVID-19 pandemic, the Company took a number of measures to manage its cash flow. These measures included carefully managing operating expenses, working capital and capital expenditures, as well as suspending the Company's share repurchase program. We completed several debt transactions in order to facilitate increased financial flexibility in response to the COVID-19 pandemic. DuringMarch 2020 , we borrowed$400 million on our existing ABL Line of Credit. We repaid$150 million on the ABL Line of Credit during the second quarter of Fiscal 2020, and the remaining$250 million during the fourth quarter of Fiscal 2020. OnApril 16, 2020 , we issued$805 million of our Convertible Notes, and through BCFWC, issued$300 million of Secured Notes. The proceeds of the Convertible Notes and Secured Notes are being used for general corporate purposes. We believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future. However, there can be no assurance that we would be able to offset declines in our comparable store sales with savings initiatives in the event that the economy declines. As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by tender offer, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material.
Cash Flow for the Three Month Period Ended
We generated$150.3 million of cash flow during the three month period endedMay 1, 2021 compared with$1,085.4 million during the three month period endedMay 2, 2020 . Net cash provided by operating activities amounted to$223.4 million during the three month period endedMay 1, 2021 , compared with a use of$271.7 million during the three month period endedMay 2, 2020 . The increase in our operating cash flows was primarily driven by the temporary closure of all our stores during the first quarter of Fiscal 2020, caused by the COVID-19 pandemic, as well as our above average sales performance during the first quarter of Fiscal 2021. Net cash used in investing activities was$71.8 million during the three month period endedMay 1, 2021 compared with a use of$62.6 million during the three month period endedMay 2, 2020 . This change was primarily the result of an increase in capital expenditures related to our stores (new stores, remodels and other store expenditures). 32
-------------------------------------------------------------------------------- Net cash used in financing activities was$1.3 million during the three month period endedMay 1, 2021 compared with net cash provided of$1,419.7 million during the three month period endedMay 2, 2020 . This change was primarily driven by our cash flow management efforts during the first quarter of Fiscal 2020 in response to the COVID-19 pandemic, which included drawing$400 million on our ABL Line of Credit, issuing$805 million of our Convertible Notes, and through BCFWC, issuing$300 million of Secured Notes, and suspending our share repurchase program. We repaid$150 million on the ABL Line of Credit during the second quarter of Fiscal 2020, and the remaining$250 million during the fourth quarter of Fiscal 2020. Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash) minus current liabilities. We had working capital atMay 1, 2021 of$1,002.8 million compared with$867.9 million atMay 2, 2020 . The increase in working capital was primarily due to an increase in prepaid and other current assets (primarily the tax refund for NOL carryback associated with the CARES Act), an increase in merchandise inventories and an increase in accounts receivable (primarily due to higher credit card receivables, driven by increased sales). These increases were partially offset by increased accounts payable and an increase in other current liabilities. We had working capital atJanuary 30, 2021 of$820.0 million .
Capital Expenditures
For the three month period endedMay 1, 2021 , cash spend for capital expenditures, net of$9.7 million of landlord allowances, amounted to$62.0 million . We estimate that we will spend approximately$470 million , net of approximately$15 million of landlord allowances, in capital expenditures during Fiscal 2021, including approximately$205 million , net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures). In addition, we estimate that we will spend approximately$140 million to support our supply chain initiatives, with the remaining capital used to support our information technology and other business initiatives. Share Repurchase Program OnAugust 14, 2019 , our Board of Directors authorized the repurchase of up to$400 million of common stock, which is authorized to be executed throughAugust 2021 . This repurchase program is funded using our available cash and borrowings on our ABL Line of Credit. During the three month period endedMay 1, 2021 , there were no repurchases under the share repurchase program. As part of the Company's cash management efforts during the COVID-19 pandemic, we suspended our share repurchase program inMarch 2020 . As ofMay 1, 2021 , we had$348.4 million remaining under our share repurchase authorization. We are authorized to repurchase, from time to time, shares of our outstanding common stock on the open market or in privately negotiated transactions under our repurchase program. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. Our share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program.
Dividends
We currently do, and intend to continue to, retain all available funds and any future earnings to fund all of the Company's capital expenditures, business initiatives, and to support any potential opportunistic capital structure initiatives. Therefore, at this time, we do not anticipate paying cash dividends in the near term. Our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our Board of Directors deems relevant. In addition, since we are a holding company, substantially all of the assets shown on our Condensed Consolidated Balance Sheets are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends.
Operational Growth
During the three month period endedMay 1, 2021 , we opened 26 new stores, inclusive of one relocation, and closed two stores, exclusive of the aforementioned relocation, bringing our store count as ofMay 1, 2021 to 784 stores. During Fiscal 2021, we plan to open 75 net new stores, which includes approximately 100 gross new stores, along with approximately 25 store relocations and closings. 33
-------------------------------------------------------------------------------- We have identified numerous market opportunities that we believe will allow us to operate 2,000 stores over the long-term. We believe that our ability to find satisfactory locations for our stores is essential for the continued growth of our business. The opening of stores generally is contingent upon a number of factors including, but not limited to, the availability of desirable locations with suitable structures and the negotiation of acceptable lease terms. There can be no assurance, however, that we will be able to find suitable locations for new stores or that we will be able to open the number of new stores presently planned, even if such locations are found and acceptable lease terms are obtained. Assuming that appropriate locations are identified, we believe that we will be able to execute our growth strategy without significantly impacting our current stores.
Debt and Hedging
As ofMay 1, 2021 , our obligations, inclusive of original issue discount, include$958.6 million under our Term Loan Facility,$805.0 million of Convertible Notes,$300.0 million of Secured Notes and no outstanding borrowings on our ABL Line of Credit. Our debt obligations also include$46.7 million of finance lease obligations as ofMay 1, 2021 .
Term Loan Facility
At
ABL Line of Credit
At
Convertible Notes
OnApril 16, 2020 , we issued$805 million of Convertible Notes. An aggregate of up to 3,656,149 shares of common stock may be issued upon conversion of the Convertible Notes, which number is subject to adjustment up to an aggregate of 4,844,410 shares following certain corporate events that occur prior to the maturity date or if we issue a notice of redemption, and which is also subject to certain anti-dilution adjustments. The Convertible Notes are general unsecured obligations of the Company. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears onApril 15 andOctober 15 of each year, beginning onOctober 15, 2020 . The Convertible Notes will mature onApril 15, 2025 , unless earlier converted, redeemed or repurchased. See Note 4, "Long Term Debt," for additional information.
Secured Notes
OnApril 16, 2020 , our indirect subsidiary, BCFWC, issued$300 million of Senior Secured Notes. The Secured Notes are senior, secured obligations of BCFWC, and interest is payable semiannually in cash at a rate of 6.25% per annum onApril 15 andOctober 15 of each year, beginning onOctober 15, 2020 . The Secured Notes are guaranteed on a senior secured basis byBurlington Coat Factory Holdings, LLC ,Burlington Coat Factory Investments Holdings, Inc. and BCFWC's subsidiaries that guarantee the loans under the Term Loan Facility and ABL Line of Credit. The Secured Notes will mature onApril 15, 2025 unless earlier redeemed or repurchased.
On
Hedging
OnDecember 17, 2018 , the Company entered into an interest rate swap contract, which was designated as a cash flow hedge. This interest rate swap, which hedges$450 million of our Term Loan Facility, became effectiveMay 31, 2019 and maturesDecember 29, 2023 .
Certain Information Concerning Contractual Obligations
The Company had$1,576.6 million of purchase commitments related to goods that were not received as ofMay 1, 2021 . Additionally, the Company had$3,414.0 million of future minimum lease payments under operating leases as ofMay 1, 2021 . There 34
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were no other significant changes regarding our obligations to make future payments under current contracts from those included in our Fiscal 2020 10-K.
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. We believe there are several accounting policies that are critical to understanding our historical and future performance as these policies affect the reported amounts of revenues and other significant areas that involve management's judgments and estimates. The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventories, long-lived assets, intangible assets, goodwill, insurance reserves and income taxes. Historical experience and various other factors that are believed to be reasonable under the circumstances form the basis for making estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As of the end of the first quarter of Fiscal 2021, the impact of the COVID-19 pandemic continues to unfold. As a result, many of our estimates and judgments carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. A critical accounting estimate meets two criteria: (1) it requires assumptions about highly uncertain matters and (2) there would be a material effect on the consolidated financial statements from either using a different, although reasonable, amount within the range of the estimate in the current period or from reasonably likely period-to-period changes in the estimate.
Our critical accounting policies and estimates are consistent with those disclosed in Note 1, "Summary of Significant Accounting Policies," to the audited Consolidated Financial Statements, included in Part II, Item 8 of the Fiscal 2020 10-K.
Safe Harbor Statement This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. For example, when we use words such as "projects," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "should," "would," "could," "will," "opportunity," "potential" or "may," variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). Our forward-looking statements are subject to risks and uncertainties. Such statements may include, but are not limited to, future impacts of the COVID-19 pandemic, proposed store openings and closings, proposed capital expenditures, projected financing requirements, proposed developmental projects, projected sales and earnings, our ability to maintain selling margins, and the effect of the adoption of recent accounting pronouncements on our consolidated financial position, results of operations and cash flows. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include: general economic conditions; pandemics, including the duration of the COVID-19 pandemic and actions taken to slow its spread and the related impact on consumer confidence and spending; our ability to successfully implement one or more of our strategic initiatives and growth plans; the availability of desirable store locations on suitable terms; changing consumer preferences and demand; industry trends, including changes in buying, inventory and other business practices; competitive factors, including pricing and promotional activities of major competitors and an increase in competition within the markets in which we compete; the availability, selection and purchasing of attractive merchandise on favorable terms; import risks, including tax and trade policies, tariffs and government regulations; weather patterns, including, among other things, changes in year-over-year temperatures; our future profitability; our ability to control costs and expenses; unforeseen cyber-related problems or attacks; any unforeseen material loss or casualty; the effect of inflation; regulatory and tax changes; our relationships with employees; the impact of current and future laws and the interpretation of such laws; terrorist attacks, particularly attacks on or within markets in which we operate; natural and man-made disasters, including fire, snow and ice storms, flood, hail, hurricanes and earthquakes; our substantial level of indebtedness and related debt-service obligations; restrictions imposed by covenants in our debt agreements; availability of adequate financing; our dependence on vendors for our merchandise; domestic events affecting the delivery of merchandise to our stores; existence of adverse litigation; and other risks discussed from time to time in our filings with theSecurities and Exchange Commission (SEC). 35 -------------------------------------------------------------------------------- Many of these factors, including the ultimate impact of the COVID-19 pandemic, are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements.
Recent Accounting Pronouncements
Refer to Note 1, "Summary of Significant Accounting Policies," to our Condensed Consolidated Financial Statements in Part I, Item 1 for a discussion of recent accounting pronouncements and their impact on our Condensed Consolidated Financial Statements.
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