FIVE BELOW, INC. You should read the following discussion together with "Selected Financial Data," and the consolidated financial statements and related notes included elsewhere in this Annual Report. The statements in this discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Part I, Item 1A "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by any forward-looking statements. We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest toJanuary 31 of the following year. References to "fiscal year 2021" or "fiscal 2021" refer to the period fromJanuary 31, 2021 toJanuary 29, 2022 , which consists of a 52-week fiscal year. References to "fiscal year 2020" or "fiscal 2020" refer to the period fromFebruary 2, 2020 toJanuary 30, 2021 , which consists of a 52-week fiscal year. References to "fiscal year 2019" or "fiscal 2019" refer to the period fromFebruary 3, 2019 toFebruary 1, 2020 , which consists of a 52-week fiscal year. References to "fiscal year 2018" or "fiscal 2018" refer to the period fromFebruary 4, 2018 toFebruary 2, 2019 , which consists of a 52-week fiscal year. References to "fiscal year 2017" or "fiscal 2017" refer to the period fromJanuary 29, 2017 toFebruary 3, 2018 , which consists of a 53-week fiscal year. References to "fiscal year 2016" or "fiscal 2016" refer to the period fromJanuary 31, 2016 toJanuary 28, 2017 , which consists of a 52-week fiscal year. Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year. OverviewFive Below is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the tween and teen customer. We offer a dynamic, edited assortment of exciting products, with most priced at$5 and below, including select brands and licensed merchandise across our category worlds. As ofJanuary 30, 2021 , we operated 1,020 stores in 38 states. InAugust 2016 , we commenced selling merchandise on the internet through our fivebelow.com e-commerce website. We launched our e-commerce operation as an additional channel to service our customers. All e-commerce sales, which includes shipping and handling revenue, are included in net sales and beginning with the third fiscal quarter of 2016, are included in comparable sales. Our e-commerce expenses will have components classified as both cost of goods sold and selling, general and administrative expenses. We believe that our business model has resulted in strong financial performance when considered in light of the economic environment. Our comparable sales decreased by 5.5% in fiscal 2020, and increased by 0.6% in fiscal 2019 and 3.9% in fiscal 2018, based on the restated calendar. Between fiscal 2018 and fiscal 2020, our net sales increased from$1,559.6 million to$1,962.1 million , representing a compounded annual growth rate of 12.2%. Over the same period, our operating income decreased from$187.2 million to$154.8 million . In addition, we expanded our store base from 750 stores at the end of fiscal 2018 to 1,020 stores at the end of fiscal 2020 and we plan to open approximately 170 to 180 new stores in fiscal 2021. We expect to continue our strong growth in the future. By offering trend-right merchandise at a differentiated price points, our stores have been successful in varying geographic regions, population densities and real estate settings. As ofJanuary 30, 2021 , we operated stores in 38 states throughoutthe United States . We are primarily located in power, community and lifestyle shopping centers across a variety of urban, suburban and semi-rural markets with trade areas including at least 100,000 people in the specified market. We continue believe we have the opportunity to expand our store base inthe United States from 1,020 locations as ofJanuary 30, 2021 to more than 2,500 locations over time. Our ability to open profitable new stores depends on many factors, including our ability to identify suitable markets and sites; negotiate leases with acceptable terms; achieve brand awareness in the new markets; efficiently source and distribute additional merchandise; and achieve sufficient levels of cash flow and financing to support our expansion. Our store expansion plans for fiscal 2020 were adjusted downward as a result of the COVID-19 pandemic. However, we were still able to open over 120 stores in fiscal 2020 and expect to remain aggressive on our store opening plan. We have a proven and highly profitable store model that has produced consistent financial results and returns, and our new stores have achieved average payback periods of less than one year. Our new store model assumes a store size of approximately 9,000 square feet that achieves annual sales of approximately$2.0 million in the first full year of operation. Our new store model also assumes an average new store investment of approximately$0.4 million . Our new store investment includes our store build-out (net of tenant allowances), inventory (net of payables) and cash pre-opening expenses. 36 -------------------------------------------------------------------------------- Our planned store expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our growth effectively will require us to continue to maintain adequate distribution capacity, enhance our store management systems, financial and management controls, information systems and other operational system capabilities. In addition, we will be required to hire, train and retain store management and other qualified personnel. For further information, see Part I, Item 1A "Risk Factors-Risk Relating to our Business and Industry." Over the past five years, we have invested a significant amount of capital in infrastructure and systems necessary to support our future growth and we expect to incur additional capital expenditures related to expansion of our infrastructure and systems in future periods. In fiscal 2015, we invested in a new ERP and began the multi-year implementation of the ERP, which is designed to enhance functionality and provide timely information to the Company's management team related to the operation of the business. In fiscal 2020, we invested in a new Retail Merchandising System and began the multi-year implementation of the Retail Merchandising System, which is designed to manage, control, and perform seamless execution of day-to-day merchandising activities, including purchasing, distribution, order fulfillment, and financial close. In fiscal 2015, we opened a distribution center inPedricktown, New Jersey . We occupy approximately 1,000,000 square feet at this distribution center, having expanded from 800,000 square feet inSeptember 2018 . In fiscal 2016, we signed a 15-year lease for a new corporate headquarters location inPhiladelphia, Pennsylvania . We currently occupy approximately 190,000 square feet of office space with multiple options to expand in the future. InMarch 2019 , we completed the purchase of an approximately 700,000 square foot distribution center inForsyth, Georgia . We began operating the distribution center inApril 2019 . InAugust 2019 , we acquired land inConroe, Texas , to build an approximately 860,000 square foot distribution center for approximately$56 million . We began operating the distribution center inJuly 2020 . InJuly 2020 , we acquired land inBuckeye, Arizona , to build an approximately 860,000 square foot distribution center for approximately$65 million . We expect to occupy the distribution center inBuckeye, Arizona in the second half of 2021. We are planning to lease or build new distribution centers over the next few years to support our growth objectives. We continuously assess ways to maximize the productivity and efficiency of our existing facilities, infrastructure and systems. The timing and amount of investments in our facilities, infrastructure and systems could affect the comparability of our results of operations in future periods. The completion date and ultimate cost of future projects could differ significantly from initial expectations due to construction-related or other reasons. We believe our business strategy will continue to offer significant opportunity, but it also presents risks and challenges. These risks and challenges include, but are not limited to, that we may not be able to effectively identify and respond to changing trends and customer preferences, that we may not be able to find desirable locations for new stores and that we may not be able to effectively manage our future growth. In addition, our financial results can be expected to be directly impacted by substantial increases in product costs due to commodity cost increases or general inflation which could lead to a reduction in our sales as well as greater margin pressure as costs may not be able to be passed on to consumers. To date, changes in commodity prices and general inflation have not materially impacted our business. In response to increasing commodity prices or general inflation, we seek to minimize the impact of such events by sourcing our merchandise from different vendors and changing our product mix. See Part I, Item 1A "Risk Factors" for a description of these and other important factors that could adversely impact us and our results of operations. How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures. These key measures include net sales, comparable sales, cost of goods sold and gross profit, selling, general and administrative expenses and operating income.Net Sales Net sales constitute gross sales net of merchandise returns for damaged or defective goods. Net sales consist of sales from comparable stores, non-comparable stores, and e-commerce, which includes shipping and handling revenue. Revenue from the sale of gift cards is deferred and not included in net sales until the gift cards are redeemed to purchase merchandise or as breakage revenue in proportion to the pattern of redemption of the gift cards by the customer. Our business is seasonal and as a result, our net sales fluctuate from quarter to quarter. Net sales are usually highest in the fourth fiscal quarter due to the year-end holiday season. 37 -------------------------------------------------------------------------------- Comparable Sales Comparable sales include net sales from stores that have been open for at least 15 full months from their opening date, and e-commerce sales. Comparable stores include the following: •Stores that have been remodeled while remaining open; •Stores that have been relocated within the same trade area, to a location that is not significantly different in size, in which the new store opens at about the same time as the old store closes; and •Stores that have expanded, but are not significantly different in size, within their current locations. For stores that are relocated or expanded, the following periods are excluded when calculating comparable sales: •The period beginning when the closing store receives its last merchandise delivery from one of our distribution centers through: ?the last day of the fiscal year in which the store was relocated or expanded (for stores that increased significantly in size); or ?the last day of the fiscal month in which the store re-opens (for all other stores); and •The period beginning on the first anniversary of the date the store received its last merchandise delivery from one of our distribution centers through the first anniversary of the date the store re-opened. Comparable sales exclude the 53rd week of sales for 53-week fiscal years. In the 52-week fiscal year subsequent to a 53-week fiscal year, we exclude the sales in the non-comparable week from the same-store sales calculation. Due to the 53rd week in fiscal 2017, all comparable sales related to any reporting period during the year endedFebruary 2, 2019 are reported on a restated calendar basis using theNational Retail Federation's restated calendar comparing similar weeks. There may be variations in the way in which some of our competitors and other retailers calculate comparable or "same store" sales. As a result, data in this Annual Report regarding our comparable sales may not be comparable to similar data made available by other retailers. Non-comparable sales are comprised of new store sales, sales for stores not open for a full 15 months, and sales from existing store relocation and expansion projects that were temporarily closed (or not receiving deliveries) and not included in comparable sales. Measuring the change in fiscal year-over-year comparable sales allows us to evaluate how we are performing. Various factors affect comparable sales, including: •consumer preferences, buying trends and overall economic trends; •our ability to identify and respond effectively to customer preferences and trends; •our ability to provide an assortment of high-quality, trend-right and everyday product offerings that generate new and repeat visits to our stores; •the customer experience we provide in our stores and online; •the level of traffic near our locations in the power, community and lifestyle centers in which we operate; •competition; •changes in our merchandise mix; •pricing; •our ability to source and distribute products efficiently; •the timing of promotional events and holidays; •the timing of introduction of new merchandise and customer acceptance of new merchandise; •our opening of new stores in the vicinity of existing stores; •the number of items purchased per store visit; and •weather conditions; and •the impacts associated with the COVID-19 pandemic, including closures of our stores, adverse impacts on our operations, and consumer sentiment regarding discretionary spending. Opening new stores is an important part of our growth strategy. As we continue to pursue our growth strategy, we expect that a significant percentage of our net sales will continue to come from new stores not included in comparable sales. Accordingly, comparable sales is only one measure we use to assess the success of our growth strategy. 38 -------------------------------------------------------------------------------- Cost of Goods Sold and Gross Profit Gross profit is equal to our net sales less our cost of goods sold. Gross margin is gross profit as a percentage of our net sales. Cost of goods sold reflects the direct costs of purchased merchandise and inbound freight, as well as shipping and handling costs, store occupancy, distribution and buying expenses. Shipping and handling costs include internal fulfillment and shipping costs related to our e-commerce operations. Store occupancy costs include rent, common area maintenance, utilities and property taxes for all store locations. Distribution costs include costs for receiving, processing, warehousing and shipping of merchandise to or from our distribution centers and between store locations. Buying costs include compensation expense and other costs for our internal buying organization, including our merchandising and product development team and our planning and allocation group. These costs are significant and can be expected to continue to increase as our Company grows. The components of our cost of goods sold may not be comparable to the components of cost of goods sold or similar measures of our competitors and other retailers. As a result, data in this Annual Report regarding our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers. The variable component of our cost of goods sold is higher in higher volume quarters because the variable component of our cost of goods sold generally increases as net sales increase. We regularly analyze the components of gross profit as well as gross margin. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns, and a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the store occupancy, distribution and buying components of cost of goods sold could have an adverse impact on our gross profit and results of operations. Changes in the mix of our products may also impact our overall cost of goods sold. Selling, General and Administrative Expenses Selling, general and administrative, or SG&A, expenses are composed of payroll and other compensation, marketing and advertising expense, depreciation and amortization expense and other selling and administrative expenses. SG&A expenses as a percentage of net sales are usually higher in lower sales volume quarters and lower in higher sales volume quarters. The components of our SG&A expenses may not be comparable to those of other retailers. We expect that our SG&A expenses will increase in future periods due to our continuing store growth. In addition, any increase in future share-based grants or modifications will increase our share-based compensation expense included in SG&A expenses. Operating Income Operating income equals gross profit less SG&A expenses. Operating income excludes interest expense or income and other, and income tax expense or benefit. We use operating income as an indicator of the productivity of our business and our ability to manage SG&A expenses. Operating income percentage measures operating income as a percentage of our net sales. 39 -------------------------------------------------------------------------------- Results of Consolidated Operations The following tables summarize key components of our results of consolidated operations for the periods indicated, both in dollars and as a percentage of our net sales. Refer to Item 7. "Results of Consolidated Operations" in our Annual Report on Form 10-K for the year endedFebruary 1, 2020 for a comparison of fiscal years 2019 and 2018. Fiscal Year 2020 2019 (in millions, except total stores) Consolidated Statements of Operations Data (1): Net sales$ 1,962.1 $ 1,846.7 Cost of goods sold 1,309.8 1,172.8 Gross profit 652.3 674.0 Selling, general and administrative expenses 497.5 456.7 Operating income 154.8 217.3 Interest (expense) income and other, net (1.7) 4.3 Income before income taxes 153.1 221.6 Income tax expense 29.7 46.5 Net income$ 123.4 $ 175.1 Percentage ofNet Sales (1): Net sales 100.0 % 100.0 % Cost of goods sold 66.8 % 63.5 % Gross profit 33.2 % 36.5 % Selling, general and administrative expenses 25.4 % 24.7 % Operating income 7.9 % 11.8 % Interest (expense) income and other, net (0.1) % 0.2 % Income before income taxes 7.8 % 12.0 % Income tax expense 1.5 % 2.5 % Net income 6.3 % 9.5 % Operational Data: Total stores at end of period 1,020 900 Comparable sales (decrease) increase (5.5) % 0.6 % Average net sales per store (2)$ 2.0 $ 2.2
(1)Components may not add to total due to rounding. (2)Only includes stores open before the beginning of the fiscal year.
Fiscal Year 2020 Compared to Fiscal Year 2019Net Sales Net sales increased to$1,962.1 million in fiscal year 2020 from$1,846.7 million in fiscal year 2019, an increase of$115.4 million , or 6.2%. The increase was the result of a non-comparable sales increase of$209.9 million , partially offset by comparable sales decrease of$94.5 million . In fiscal year 2020, we opened 120 net new stores compared to 150 new stores in fiscal year 2019. The increase in non-comparable sales was primarily driven by new stores that opened in fiscal 2020 and the number of stores that opened in fiscal 2019 but have not been open for 15 full months. Comparable sales decreased 5.5%. The decrease was primarily the result of the impact of COVID-19 as we temporarily closed all of our stores as ofMarch 20, 2020 . We began reopening our stores at the end of April in compliance with federal, state and local requirements, and as of the end of June, the Company had reopened substantially all of its stores to the general public. 40 -------------------------------------------------------------------------------- Cost of Goods Sold and Gross Profit Cost of goods sold increased to$1,309.8 million in fiscal year 2020 from$1,172.8 million in fiscal year 2019, an increase of$137.0 million , or 11.7%. The increase in cost of goods sold was primarily the result of an increase in the merchandise costs of goods resulting from an increase in sales. Also contributing to the increase in cost of goods sold was an increase in store occupancy costs resulting from new store openings. Gross profit decreased to$652.3 million in fiscal year 2020 from$674.0 million in fiscal year 2019, a decrease of$21.7 million , or 3.2%. Gross margin decreased to 33.2% in fiscal year 2020 from 36.5% in fiscal year 2019, a decrease of approximately 330 basis points. The decrease in gross margin was primarily the result of an increase as a percentage of sales in merchandise cost of goods sold and an increase as a percentage of sales in store occupancy costs due to the impact of COVID-19 as we temporarily closed all of our stores while still incurring rent expense. Selling, General and Administrative Expenses Selling, general and administrative expenses increased to$497.5 million in fiscal year 2020 from$456.7 million in fiscal year 2019, an increase of$40.8 million , or 8.9%. As a percentage of net sales, selling, general and administrative expenses increased approximately 70 basis points to 25.4% in fiscal year 2020 compared to 24.7% in fiscal year 2019. The increase in selling, general and administrative expenses was the result of an increase of$30.7 million of corporate-related expenses, which is net of the benefit related to the CARES Act. The increase was also driven by an increase of$10.1 million in store-related expenses to support new store growth, which is net of the expense savings from the temporary closure of all of our stores, furloughing of employees, and other non-payroll expense reductions due to the impact of COVID-19. Income Tax Expense Income tax expense decreased to$29.7 million in fiscal year 2020 from$46.5 million in fiscal year 2019, a decrease of$16.8 million , or approximately 36.1%. This decrease in income tax expense was primarily due to a$68.5 million decrease in pre-tax net income and discrete items, which includes the impact of the CARES Act, partially offset by a reduction of the benefit of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," with respect to the requirements to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets. Our effective tax rate for fiscal year 2020 was 19.4% compared to 21.0% in fiscal year 2019. The decrease in our effective tax rate was primarily driven by discrete items, which includes the impact of the CARES Act, partially offset by a reduction of the benefit of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." Net Income As a result of the foregoing, net income decreased to$123.4 million in fiscal year 2020 from$175.1 million in fiscal year 2019, a decrease of approximately$51.7 million , or 29.5%. Impact of Inflation Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. We cannot assure you, however, that our results of operations and financial condition will not be materially impacted by inflation in the future. Seasonality Our business is seasonal in nature with the highest level of net sales and net income generated in the fourth fiscal quarter due to the year-end holiday season and, therefore, operating results for any fiscal quarter are not necessarily indicative of results for the full fiscal year. To prepare for the holiday season, we must order and keep in stock more merchandise than we carry during other parts of the year. We expect inventory levels, along with an increase in accounts payable and accrued expenses, generally to reach their highest levels in the third and fourth fiscal quarters in anticipation of the increased net sales during the year-end holiday season. As a result of this seasonality, and generally because of variation in consumer spending habits, we experience fluctuations in net sales, net income and working capital requirements during the year. 41
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Liquidity and Capital ResourcesOverview
Cash capital expenditures typically vary depending on the timing of new store openings and infrastructure-related investments. We plan to make cash capital expenditures of approximately$315 million in fiscal 2021, which exclude the impact of tenant allowances, and which we expect to fund from cash generated from operations, cash on-hand, short-term investments and, as needed, borrowings under our Revolving Credit Facility. We expect to incur approximately$95 million of our cash capital expenditure budget in fiscal 2021 to construct and open approximately 170 to 180 new stores, with the remainder projected to be spent on our distribution facilities (existing and new), store relocations and remodels, and our corporate infrastructure. Our primary working capital requirements are for the purchase of store inventory and payment of payroll, rent, other store operating costs and distribution costs. Our working capital requirements fluctuate during the year, rising in the third and fourth fiscal quarters as we take title to increasing quantities of inventory in anticipation of our peak, year-end holiday shopping season in the fourth fiscal quarter. Fluctuations in working capital are also driven by the timing of new store openings. Historically, we have funded our capital expenditures and working capital requirements during the fiscal year with cash on hand, net cash provided by operating activities and borrowings under our Revolving Credit Facility, as needed, and we expect that funding to continue. When we have used our Revolving Credit Facility, the amount of indebtedness outstanding under it has tended to be the highest in the beginning of the fourth quarter of each fiscal year. To the extent that we have drawn on the facility, we have paid down the borrowings before the end of the fiscal year with cash generated during our peak selling season in the fourth quarter. Although it is not possible to reliably estimate the duration or severity of the COVID-19 pandemic and the resulting financial impact on our results of operations, financial position and liquidity, we have the ability to draw down on our Revolving Credit Facility if and as needed. During the thirteen weeks endedMay 2, 2020 , we borrowed and repaid approximately$50 million from our Revolving Credit Facility. As ofJanuary 30, 2021 , we did not have any direct borrowings under our Revolving Credit Facility. As ofJanuary 30, 2021 , we had approximately$191 million available on the line of credit. OnMarch 20, 2018 , our Board of Directors approved a share repurchase program authorizing the repurchase of up to$100 million of our common stock throughMarch 31, 2021 , on the open market, in privately negotiated transactions, or otherwise. In fiscal 2018, we repurchased 21,810 shares under this program at an aggregate cost of approximately$2.0 million . In fiscal 2019, we repurchased 337,552 shares under this program at an aggregate cost of approximately$36.9 million . In fiscal 2020, we repurchased 137,023 shares under this program at an aggregate cost of approximately$12.7 million . Since approval of the share repurchase program inMarch 2018 , we have purchased approximately 500,000 shares for an aggregate cost of approximately$50 million . OnMarch 9, 2021 , our Board of Directors approved a new share repurchase program for up to$100 million of our common shares throughMarch 31, 2024 . There can be no assurances that any additional repurchases will be completed, or as to the timing or amount of any repurchases. The share repurchase program may be modified or discontinued at any time. Based on our growth plans, we believe that our cash position which includes our cash equivalents and short-term investments, net cash provided by operating activities and availability under our Revolving Credit Facility will be adequate to finance our planned capital expenditures, authorized share repurchases and working capital requirements over the next 12 months and for the foreseeable future thereafter. If cash flows from operations and borrowings under our Revolving Credit Facility are not sufficient or available to meet our requirements, then we will be required to obtain additional equity or debt financing in the future. There can be no assurance that equity or debt financing will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our then-current shareholders. Although, we began reopening stores at the end of April where permitted in compliance with federal, state, and local requirements, any significant reduction in consumer willingness to visit malls and shopping centers or purchase merchandise using curbside pickup where available, levels of consumer spending at our stores or employee willingness to staff our stores or the temporary closure of our stores or distribution centers relating to the pandemic or its impact on the economy, disruptions in the supply chains related to our products or consumer sentiment or health concerns would result in a further loss of sales and profits and other material adverse effects. In order to mitigate the negative impact on our liquidity, management took several short term and long term actions, which included the following: • we cancelled certain vendor orders and delayed receipts on others in order to manage inventory levels, and extended payment terms for product and non-product vendors, although we have since returned to more normalized payment terms; • we amended our Credit Agreement and increased our Revolving Credit Facility from$50 million to$225 million ; • we implemented significant non-payroll expense reductions, including advertising, occupancy and other store operating expenses (including rent abatements and deferrals for a significant part of our lease portfolio), distribution and corporate office operating expenses, as well as professional and consulting fees; 42 -------------------------------------------------------------------------------- • we significantly reduced our 2020 capital expenditure budget, including reducing the number of new stores to be opened in 2020 and delaying purchase and construction of a new Midwest distribution center; and • as permitted by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, we have applied for and received payroll tax credits with theIRS , and elected to defer the payment of the employer's portion of FICA taxes. The extent to which COVID-19 continues to impact our results, financial position and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including new federal, state and local governmental restrictions that may be taken to contain COVID-19 or treat its impact, and any new mitigation measures we may determine to take in response to any such restrictions. Cash Flows A summary of our cash flows from operating, investing and financing activities is presented in the following table (in millions): Fiscal Year 2020 2019 Net cash provided by operating activities$ 366.0 $ 187.0 Net cash used in investing activities (286.9) (193.6) Net cash used in financing activities (12.8) (42.7)
Net increase (decrease) during period in cash and cash equivalents (1) $
66.3
(1) Components may not add to total due to rounding.
Cash Provided by Operating Activities Net cash provided by operating activities for fiscal 2020 was$366.0 million , an increase of$179.0 million compared to fiscal 2019. The increase was primarily due to changes in working capital and a decrease in income taxes paid, partially offset by a decrease in operating cash flows from store performance due to the impact of COVID-19 as we temporarily closed all of our stores in March and had reopened substantially all of our stores as of the end of June. During fiscal 2020, we added 120 net new stores. Cash Used in Investing Activities Net cash used in investing activities for fiscal 2020 was$286.9 million , an increase of$93.3 million compared to fiscal 2019. The increase was primarily due to an increase in net purchases of investment securities and other investments, partially offset by a decrease in capital expenditures. Cash Used in Financing Activities Net cash used in financing activities for fiscal year 2020 was$12.8 million , a decrease of$29.9 million compared to fiscal 2019. The decrease was primarily the result of decreases in the repurchase and retirement of common stock and in common shares withheld for taxes. Line of Credit OnMay 10, 2017 , the Company entered into a Fourth Amendment and Restated Loan and Security Agreement (the "Prior Credit Agreement"), among the Company, 1616Holdings, Inc. , a wholly owned subsidiary of the Company ("1616 Holdings"), andWells Fargo Bank, National Association , which includes a secured asset-based revolving line of credit in the amount of up to$20 million (the "Revolving Credit Facility"). OnMarch 20, 2020 , the Company exercised its right under the Prior Credit Agreement to increase the aggregate commitments under the Revolving Credit Facility from$20 million to$50 million . OnApril 24, 2020 , the Company entered into a Fifth Amended and Restated Credit Agreement (the "Credit Agreement"), among the Company, 1616Holdings, Inc. (together with the Company, the "Loan Parties"),Wells Fargo Bank, National Association as administrative agent (the "Agent"), and other lenders party thereto (the "Lenders"). The Credit Agreement amends and restates the Prior Credit Agreement. The Credit Agreement increased the Revolving Credit Facility to$225.0 million . Pursuant to the Credit Agreement, advances under the Revolving Credit Facility are tied to a borrowing base consisting of eligible credit card receivables and inventory, as reduced by certain reserves in effect from time to time. The Revolving Credit Facility expires on the earliest to occur of (i)April 24, 2023 or (ii) an event of default. The Revolving Credit Facility may be increased by up to$150.0 million , subject to certain conditions, including obtaining commitments from one or more Lenders. The entire amount of the Revolving Credit Facility is available for the issuance of letters of credit and allows for swingline loans. 43 -------------------------------------------------------------------------------- The Credit Agreement provides that the interest rate payable on borrowings shall be, at the Company's option, a per annum rate equal to (a) a base rate plus an applicable margin ranging from 1.00% to 1.25% or (b) a LIBOR rate plus a margin ranging from 2.00% to 2.25%. Letter of credit fees will range from 2.00% to 2.25%. The interest rate and letter of credit fees under the Credit Agreement are subject to an increase of 2.00% per annum upon an event of default. The Credit Agreement contains customary covenants that limit, absent lender approval, the ability of Company and certain of its affiliates to, among other things, pay cash dividends, incur debt, create liens and encumbrances, redeem or repurchase stock, enter into certain acquisition transactions or transactions with affiliates, merge, dissolve, repay certain indebtedness, change the nature of Company's business, enter sale or leaseback transactions, make investments or dispose of assets. In some cases, these restrictions are subject to certain negotiated exceptions or permit Company to undertake otherwise restricted activities if it satisfies certain required conditions. In addition, the Company will be required to maintain availability of not less than (i) 15% of the lesser of (x) aggregate commitments under the Revolving Credit Facility and (y) the borrowing base (the "loan cap") prior to a stepdown date (as described below) and (ii) 10% of the loan cap after the stepdown date. The stepdown date is the first date occurring after both (i) the date that 75% of the number of stores as of the closing date of the Revolving Credit Facility have reopened ("store opening date") and (ii) the date occurring at least six months after the store reopening date on which the fixed charge coverage ratio is at least 1.00 to 1.00. If there exists an event of default or availability under the Revolving Credit Facility is less than 15% of the loan cap, amounts in any of the Loan Parties' or subsidiary guarantors' designated deposit accounts will be transferred daily into a blocked account held by the Agent and applied to reduce outstanding amounts under the Revolving Credit Facility (the "Cash Dominion Event"), so long as (i) such event of default has not been waived and/or (ii) until availability has exceeded 15% of the loan cap for sixty (60) consecutive calendar days (provided that such ability to discontinue the Cash Dominion Event shall be limited to two times during the term of the Agreement). The Credit Agreement also contains a provision stating that the Company cannot borrow in excess of$50 million under the Revolving Credit Facility at any time the amount of the consolidated cash and cash equivalents of the Loan Parties (excluding certain long-term investments and certain other items) exceeds$50 million . The Credit Agreement contains customary events of default including, among other things, failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain other indebtedness, change of control, incurrence of certain material judgments that are not stayed, satisfied, bonded or discharged within 30 days, certain ERISA events, invalidity of the credit documents, and violation of affirmative and negative covenants or breach of representations and warranties set forth in the Credit Agreement. Amounts under the Revolving Credit Facility may become due upon events of default (subject to any applicable grace or cure periods). Under the Credit Agreement, all obligations under the Revolving Credit Facility are guaranteed by 1616 Holdings and are secured by substantially all of the assets of the Company and 1616 Holdings. OnJanuary 27, 2021 , the Company entered into a First Amendment to Credit Agreement (the "First Amendment") among the Loan Parties, the Lenders and Agent, which amended the Credit Agreement. Pursuant to the First Amendment, the Company obtained commitments from the Lenders that would allow the Company at its election (subject only to satisfaction of certain customary conditions such as the absence of any Event of Default), to increase the amount of the Revolving Credit Facility by an aggregate principal amount up to$50,000,000 (the "Committed Increase"). The First Amendment preserves the existing provisions of the Credit Agreement allowing for further increases to the total commitment under the Revolving Credit Facility, subject to certain conditions including obtaining commitments from one or more Lenders ("Uncommitted Incremental Capacity"), provided that the total amount of the facility, as increased pursuant to a Committed Increase or Uncommitted Incremental Capacity, cannot exceed$375,000,000 . The current amount of the Revolving Credit Facility is maintained at$225,000,000 . Pursuant to the First Amendment, availability under the Revolving Credit Facility will continue to be based upon quarterly (or monthly or weekly, in certain cases) borrowing base certifications valuing the loan parties' eligible credit card receivables and inventory, as reduced by certain reserves in effect from time to time. The First Amendment provides for the deferral of inventory appraisals and certain other diligence items, with reduced advance rates applicable during the period that such appraisals have not been delivered. The First Amendment also reduced the pricing under the Revolving Credit Facility. Giving effect to the First Amendment, outstanding borrowings under the Revolving Credit Facility would accrue interest at floating rates plus an applicable margin ranging from 1.25% to 1.75% for LIBOR loans and 0.25% to 0.75% for base rate loans, and letter of credit fees range from 1.25% to 1.75%., in each case based on the average availability under the Revolving Credit Facility. The First Amendment makes a number of other revisions to the covenants in the Credit Agreement, including a revision to the minimum availability covenant to require availability of 12.5% during the diligence deferral period referenced above and 10.0% at all other times. 44 -------------------------------------------------------------------------------- As ofJanuary 30, 2021 andFebruary 1, 2020 , we had approximately$191 million and$20 million , respectively, available in the Revolving Credit Facility. All obligations under the First Amendment are secured by substantially all of our assets and are guaranteed by 1616 Holdings. As ofJanuary 30, 2021 , we were in compliance with the covenants applicable to us under the First Amendment. Critical Accounting Policies and Estimates We have identified the policies below as critical to our business operations and understanding of our consolidated results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations" where such policies affect our reported and expected financial results. Our consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles, require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. For a detailed discussion on the application of these and other accounting policies, see Note 1 in our annual consolidated financial statements included elsewhere in this Annual Report. Inventories Inventories consist of finished goods purchased for resale, including freight and tariffs, and are stated at the lower of cost and net realizable value, at the individual product level. Cost is determined on a weighted average cost method. The market value used in the lower of cost or market analysis is subject to the effects of consumer demands, customer preferences and the broader economy. The effects of the previously listed criteria are not controllable by management. Our management reviews inventory levels in order to identify obsolete and slow-moving merchandise as these factors can indicate a decline in the market value of inventory on hand. Inventory cost is reduced when the selling price less costs of disposal is below cost. We accrue an estimate for inventory shrink for the period between the last physical count and the balance sheet date. The shrink estimate can be affected by changes in merchandise mix and changes in actual shrink trends. These estimates are derived using available data and our historical experience. Our estimates may be impacted by changes in certain underlying assumptions and may not be indicative of future activity. Impairment of Long-Lived Assets Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Assets are grouped and evaluated for impairment at the lowest level of which there are identifiable cash flows, which is generally at a store level. Assets are reviewed for impairment using factors including, but not limited to, our future operating plans and projected cash flows. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is based on discounted future cash flows of the asset using a discount rate commensurate with the risk. In the event of a store closure, we will record an impairment charge, if appropriate, or accelerate depreciation over the revised useful life of the asset. Based on the analysis performed, our management believes that there was no impairment of long-lived assets for each of the 2020, 2019 and 2018 fiscal years. The impairment loss analysis requires management to apply judgment and make estimates. Leases EffectiveFebruary 3, 2019 , we adopted ASU 2016-02, "Leases" (Topic 842). We are required to recognize an operating lease asset and an operating lease liability for all of our leases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of lease payments using an estimated incremental borrowing rate, on a collateralized basis over a similar term, that we would have incurred to borrow the funds necessary to purchase the leased asset. The asset is based on the liability, subject to certain adjustments, such as for initial direct costs. For income statement purposes, a dual model was retained, requiring leases to be classified as either operating or finance leases. Operating leases result in straight-line expense (similar to operating leases under the prior accounting standard) while finance leases result in a front-loaded expense pattern (similar to capital leases under the prior accounting standard). See the Recently Issued Accounting Standards section of Note 1 ''Summary of Significant Accounting Policies'' to the consolidated financial statements for a detailed discussion of the adoption of this new lease standard. 45 -------------------------------------------------------------------------------- Income Taxes Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record a valuation allowance to reduce our deferred tax assets when uncertainty regarding their realizability exists. In assessing the realizability of deferred tax assets, our management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Our management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Recently Issued Accounting Pronouncements See "Note 1 - Summary of Significant Accounting Policies" to the consolidated financial statements included in "Item 8. Consolidated Financial Statements and Supplementary Data" of this Form 10-K, for a detailed description of recently issued accounting pronouncements. Contractual Obligations The following table summarizes, as ofJanuary 30, 2021 , our minimum rental commitments under operating lease agreements including assumed extensions, minimum payments for long-term debt and other obligations in future periods: Payments Due By Period Less than More than (In millions) Total 1 year 1-3 years 3-5 years 5 years Operating lease obligations (1)$ 1,394.5 $ 204.2 $ 369.7 $ 325.8 $ 494.8 Purchase obligations (2) 5.9 5.9 - - - Total$ 1,400.4 $ 210.1 $ 369.7 $ 325.8 $ 494.8 (1)Our store leases generally have initial lease terms of 10 years and include renewal options on substantially the same terms and conditions as the original lease. Also included in operating leases are our leases for the corporate office, distribution centers and other. (2)Purchase obligations are primarily for materials that will be used in the construction of new stores and purchase commitments for infrastructure and systems that will be used by the corporate office and distribution centers. FromJanuary 31, 2021 toMarch 18, 2021 , we committed to 23 new leases with terms of 10 years that have future minimum lease payments of approximately$46.0 million . Off Balance Sheet Arrangements For the fiscal year endedJanuary 30, 2021 , we were not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, expenses, results of operations, liquidity, capital expenditures or capital resources.
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