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MarketScreener Homepage  >  Equities  >  Nyse  >  The Buckle, Inc.    BKE

THE BUCKLE, INC.

(BKE)
  Report
Delayed Quote. Delayed Nyse - 11/25 04:10:00 pm
28.54 USD   +1.46%
11/23BUCKLE : Reports Third Quarter Net Income
AQ
11/20BUCKLE INC : Results of Operations and Financial Condition (form 8-K)
AQ
11/20BUCKLE : Fiscal 3Q Earnings Snapshot
AQ
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Buckle : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

09/10/2020 | 03:08pm EST
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto of the Company included in
this Form 10-Q. All references herein to the "Company", "Buckle", "we", "us", or
similar terms refer to The Buckle, Inc. and its subsidiary. The following is
management's discussion and analysis of certain significant factors which have
affected the Company's financial condition and results of operations during the
periods included in the accompanying condensed consolidated financial
statements.

EXECUTIVE OVERVIEW

Company management considers the following items to be key performance indicators in evaluating Company performance.


Comparable Store Sales - Stores are deemed to be comparable stores if they were
open in the prior year on the first day of the fiscal period being presented.
Stores which have been remodeled, expanded, and/or relocated, but would
otherwise be included as comparable stores, are not excluded from the comparable
store sales calculation. Online sales are included in comparable store sales.
Management considers comparable store sales to be an important indicator of
current Company performance, helping leverage certain fixed costs when results
are positive. Negative comparable store sales results could reduce net sales and
have a negative impact on operating leverage, thus reducing net earnings.

Net Merchandise Margins - Management evaluates the components of merchandise
margin including initial markup and the amount of markdowns during a period. Any
inability to obtain acceptable levels of initial markups or any significant
increase in the Company's use of markdowns could have an adverse effect on the
Company's gross margin and results of operations.

Operating Margin - Operating margin is a good indicator for management of the
Company's success. Operating margin can be positively or negatively affected by
comparable store sales, merchandise margins, occupancy costs, and the Company's
ability to control operating costs.

Cash Flow and Liquidity (working capital) - Management reviews current cash and
short-term investments along with cash flow from operating, investing, and
financing activities to determine the Company's short-term cash needs for
operations and expansion. The Company believes that existing cash, short-term
investments, and cash flow from operations will be sufficient to fund current
and long-term anticipated capital expenditures and working capital requirements
for the next several years.

                                       14
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RESULTS OF OPERATIONS

The following table sets forth certain financial data expressed as a percentage of net sales and the percentage change in the dollar amount of such items compared to the prior period:

                                               Percentage of Net Sales                                                                                                 Percentage of Net Sales
                                              For Thirteen Weeks Ended                                                          Percentage                           For Twenty-Six Weeks Ended                           Percentage
                                         August 1,                 August 3,                                                     August 1,                  August 3,
                                           2020                      2019                   Increase/(Decrease)                    2020                        2019                   Increase/(Decrease)

Net sales                                      100.0  %                  100.0  %                             6.0  %                    100.0  %                   100.0  %                           (18.2) %
Cost of sales (including buying,
distribution, and occupancy costs)              56.8  %                   61.4  %                            (2.0) %                     63.7  %                    61.6  %                           (15.4) %
Gross profit                                    43.2  %                   38.6  %                            18.7  %                     36.3  %                    38.4  %                           (22.6) %
Selling expenses                                17.7  %                   23.8  %                           (21.2) %                     21.6  %                    23.5  %                           (24.6) %
General and administrative expenses              4.4  %                    5.2  %                            (9.2) %                      5.8  %                     5.4  %                           (12.7) %
Income from operations                          21.1  %                    9.6  %                           132.3  %                      8.9  %                     9.5  %                           (23.4) %
Other income, net                                0.2  %                    1.0  %                           (80.6) %                      0.3  %                     0.8  %                           (70.7) %
Income before income taxes                      21.3  %                   10.6  %                           111.8  %                      9.2  %                    10.3  %                           (27.2) %
Income tax expense                               5.2  %                    2.6  %                           111.8  %                      2.3  %                     2.5  %                           (27.2) %
Net income                                      16.1  %                    8.0  %                           111.8  %                      6.9  %                     7.8  %                           (27.2) %



Net sales increased from $203.8 million in the second quarter of fiscal 2019 to
$216.0 million in the second quarter of fiscal 2020, a 6.0% increase. Total net
sales for the quarter were impacted by the temporary closure of all brick and
mortar stores beginning March 18, 2020 due to the COVID-19 pandemic, as further
described in Footnote 2. Net sales were also impacted by the Company's permanent
closing of 4 stores during fiscal 2019 and the opening of 3 new stores and
permanent closure of 5 stores during the first two quarters of fiscal 2020.
Online sales for the quarter increased 99.0% to $46.0 million for the thirteen
week period ended August 1, 2020 compared to $23.1 million for the thirteen week
period ended August 3, 2019. For the quarter, the average retail price per piece
of merchandise sold increased 3.1%, the average transaction value increased
6.8%, and the average units sold per transaction increased 3.5%.

Net sales decreased from $405.1 million for the first two quarters of fiscal
2019 to $331.4 million for the first two quarters of fiscal 2020, an 18.2%
decrease. Total net sales for the quarter were impacted by the temporary closure
of all brick and mortar stores beginning March 18, 2020 due to the COVID-19
pandemic, as further described in Footnote 2. Net sales for the year-to-date
period were also impacted by the Company's permanent closing of 4 stores during
fiscal 2019 and the opening of 3 new stores and closure of 5 stores during the
first two quarters of fiscal 2020. Online sales for the year-to-date period
increased 64.3% to $78.1 million for the twenty-six week period ended August 1,
2020 compared to $47.5 million for the twenty-six week period ended August 3,
2019. For the year-to-date period, the average retail price per piece of
merchandise sold increased 1.0%, the average transaction value increased 3.7%,
and the average units sold per transaction increased 2.8%.

The Company's average retail price per piece of merchandise sold increased
$1.26, or 3.1%, during the second quarter of fiscal 2020 compared to the second
quarter of fiscal 2019. This $1.26 increase was primarily attributable to the
following changes (with their corresponding effect on the overall average price
per piece): a 2.4% increase in average denim price points ($0.32), a 2.1%
increase in average knit shirt price points ($0.21), a 4.7% increase in average
accessories price points ($0.18), an increase in average price points for
certain other merchandise categories ($0.08), and a shift in the merchandise mix
($0.58); partially offset by a 4.7% decrease in average woven shirt prices
(-$0.11). These changes are primarily a reflection of merchandise shifts in
terms of brands and product styles, fabrics, details, and finishes.

                                       15
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For the year-to-date period, the Company's average retail price per piece of
merchandise sold increased $0.44, or 1.0%, compared to the same period in fiscal
2019. This $0.44 increase was primarily attributable to the following changes
(with their corresponding effect on the overall average price per piece): a 0.9%
increase in average knit shirt price points ($0.09), an increase in average
price points for certain other merchandise categories ($0.14), and a shift in
merchandise mix ($0.41); partially offset by a 4.6% decrease in average woven
shirt price points (-$0.11) and a 2.2% decrease in average footwear price points
(-$0.09). These changes are primarily a reflection of merchandise shifts in
terms of brands and product styles, fabrics, details, and finishes.

Gross profit after buying, distribution, and occupancy expenses increased from
$78.7 million in the second quarter of fiscal 2019 to $93.4 million in the
second quarter of fiscal 2020. As a percentage of net sales, gross profit
increased from 38.6% in the second quarter of fiscal 2019 to 43.2% in the second
quarter of fiscal 2020. The gross margin increase was the result of leveraged
occupancy, buying, and distribution expenses (2.70%, as a percentage of net
sales) and an improvement in merchandise margins (1.90%, as a percentage of net
sales).

Year-to-date, gross profit decreased from $155.4 million for the twenty-six week
period ended August 3, 2019 to $120.2 million for the twenty-six week period
ended August 1, 2020. As a percentage of net sales, gross profit decreased from
38.4% for the first two quarters of fiscal 2019 to 36.3% for the first two
quarters of fiscal 2020. The gross margin decline for the year-to-date period
was the result of deleveraged occupancy, buying, and distribution expenses
(3.00%, as a percentage of net sales), partially offset by an improvement in
merchandise margins (0.90%, as a percentage of net sales).

Selling expenses decreased from $48.5 million in the second quarter of fiscal
2019 to $38.3 million in the second quarter of fiscal 2020. As a percentage of
net sales, selling expenses decreased from 23.8% for the second quarter of
fiscal 2019 to 17.7% for the second quarter of fiscal 2020. Year-to-date,
selling expenses decreased from $95.1 million for the first two quarters of
fiscal 2019 to $71.8 million for the first two quarters of fiscal 2020. As a
percentage of net sales, selling expenses decreased from 23.5% for the first two
quarters of fiscal 2019 to 21.6% for the first two quarters of fiscal 2020.

General and administrative expenses decreased from $10.6 million in the second
quarter of fiscal 2019 to $9.6 million in the second quarter of fiscal 2020. As
a percentage of net sales, general and administrative expenses decreased from
5.2% in the second quarter of fiscal 2019 to 4.4% in the second quarter of
fiscal 2020. Year-to-date, general and administrative expenses decreased from
$21.9 million for the first two quarters of fiscal 2019 to $19.1 million for the
first two quarters of fiscal 2020. As a percentage of net sales, general and
administrative expenses increased from 5.4% in fiscal 2019 to 5.8% in fiscal
2020 .

In total, selling, general, and administrative expenses decreased $11.2 million
or 19.0% from $59.1 million for the second quarter of fiscal 2019 to $47.9
million for the second quarter of fiscal 2020. A $12.2 million reduction in
compensation and benefit related expenses and a $2.0 million reduction in
certain other expense categories (including travel expenses and store supplies)
were partially offset by a $3.0 million increase in shipping and marketing costs
related to the strong growth in online sales.

Year-to-date, total selling, general, and administrative expenses decreased
$26.2 million or 22.4% from $117.0 million for the first two quarters of fiscal
2019 to $90.9 million for the first two quarters of fiscal 2020. A $25.8 million
reduction in compensation and benefit related expenses and a $5.3 million
reduction in certain other expense categories (including travel expenses and
store supplies) were partially offset by a $3.9 million increase in shipping and
marketing costs related to the strong growth in online sales and a $1.0 million
expense for store-related asset impairment charges.

For both the quarter and year-to-date periods, the reduction in compensation and
benefit related expenses is predominately the result of teammate furloughs
during the store closure period and, to a lesser extent, reduced store staffing
levels as stores have reopened.

As a result of the above changes, the Company's income from operations was $45.5
million in the second quarter of fiscal 2020 compared to $19.6 million in the
second quarter of fiscal 2019. Income from operations was 21.1% of net sales in
the second quarter of fiscal 2020 compared to 9.6% of net sales in the second
quarter of fiscal 2019.

Year-to-date, income from operations was $29.4 million for the twenty-six week
period ended August 1, 2020 compared to $38.3 million for the twenty-six week
period ended August 3, 2019. Income from operations was 8.9% of net sales for
the first two quarters of fiscal 2020 compared to 9.5% of net sales for the
first two quarters of fiscal 2019.


                                       16
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Other income decreased from $2.1 million in the second quarter of fiscal 2019 to
$0.4 million in the second quarter of fiscal 2020. Other income for the
year-to-date period decreased from $3.3 million for the twenty-six week period
ended August 3, 2019 to $1.0 million for the twenty-six week period ended
August 1, 2020. The Company's other income is derived primarily from investment
income related to the Company's cash and investments.

Income tax expense as a percentage of pre-tax income was 24.5% in both the
second quarter of fiscal 2020 and the second quarter of fiscal 2019, bringing
net income to $34.7 million in the second quarter of fiscal 2020 compared to
$16.4 million in the second quarter of fiscal 2019.

Income tax expense as a percentage of pre-tax income was 24.5% for both the
first two quarters of fiscal 2020 and the first two quarters of fiscal 2019,
bringing year-to-date net income to $22.9 million for fiscal 2020 compared to
$31.5 million for fiscal 2019.

LIQUIDITY AND CAPITAL RESOURCES


As of August 1, 2020, the Company had working capital of $244.5 million,
including $265.7 million of cash and cash equivalents and $12.6 million of
short-term investments. The Company's cash receipts are generated from retail
sales and from investment income, and the Company's primary ongoing cash
requirements are for inventory, payroll, occupancy costs, dividend payments, new
store expansion, remodeling, and other capital expenditures. Historically, the
Company's primary source of working capital has been cash flow from operations.
During the first two quarters of fiscal 2020 and fiscal 2019, the Company's cash
flow from operations was $49.2 million and $35.5 million, respectively. Changes
in operating cash flow between periods is primarily a function of changes in net
income, along with changes in inventory and accounts payable based on the timing
and amount of merchandise purchased in each respective period. The increase for
the first half of fiscal 2020 compared to the first half of fiscal 2019 is due
to changes in inventory and accounts payable as the Company managed and adjusted
to changing trends as a result of COVID-19 and also due to the deferral of a
significant portion of the Company's May and June store rent payments.
The uses of cash for both twenty-six week periods primarily include payment of
annual bonuses accrued at fiscal year end, inventory purchases, construction
costs for new and remodeled stores, other capital expenditures, and purchases of
investment securities. The first half of fiscal 2019 also included cash used for
dividend payments.

During the first two quarters of fiscal 2020 and 2019, the Company invested $2.6
million and $3.9 million, respectively, in new store construction, store
renovation, and store technology upgrades. The Company also spent $0.8 million
and $0.3 million in the first two quarters of fiscal 2020 and 2019,
respectively, in capital expenditures for the corporate headquarters and
distribution facility.

During the remainder of fiscal 2020, the Company anticipates completing three
additional full store remodel projects. Management estimates that total capital
expenditures during fiscal 2020 will be approximately $7.0 to $10.0 million,
which includes primarily planned store projects and technology investments. The
Company believes that existing cash and cash equivalents, investments, and cash
flow from operations will be sufficient to fund current and long-term
anticipated capital expenditures and working capital requirements for the next
several years. The Company has a consistent record of generating positive cash
flow from operations each year and, as of August 1, 2020, had total cash and
investments of $294.9 million, including $16.5 million of long-term investments.

Future conditions, however, may reduce the availability of funds based upon
factors such as a decrease in demand for the Company's product, change in
product mix, competitive factors, and general economic conditions as well as
other risks and uncertainties which would reduce the Company's sales, net
profitability, and cash flows. Also, the Company's acceleration in store
openings and/or remodels or the Company entering into a merger, acquisition, or
other financial related transaction could reduce the amount of cash available
for further capital expenditures and working capital requirements.

As announced on June 2, 2020, at its quarterly meeting of the Board of
Directors, held on June 1, 2020, the Board temporarily suspended the Company's
quarterly dividend payments. Previously, at its March 23, 2020 meeting, the
Board had deferred making a decision on dividend payments until its next
regularly scheduled Board meeting to allow more time to assess the impact of the
COVID-19 pandemic on the Company. The Board determined that suspending the
quarterly dividends was important to maintaining the Company's cash position,
providing the Company with financial flexibility to deal with any ongoing
uncertainty related to COVID-19.

                                       17
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The Company has available an unsecured line of credit of $25.0 million with
Wells Fargo Bank, N.A. for operating needs and letters of credit. The line of
credit agreement has an expiration date of July 31, 2021 and provides that $10.0
million of the $25.0 million line is available for letters of credit. Borrowings
under the line of credit provide for interest to be paid at a rate based on
LIBOR. The Company has, from time to time, borrowed against these lines of
credit. There were no bank borrowings during the first two quarters of fiscal
2020 or 2019. The Company had no bank borrowings as of August 1, 2020 and was in
compliance with the terms and conditions of the line of credit agreement.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon The Buckle, Inc.'s condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
consolidated financial statements requires that management make estimates and
judgments that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the financial statement date,
and the reported amounts of sales and expenses during the reporting period. The
Company regularly evaluates its estimates, including those related to inventory,
investments, incentive bonuses, and income taxes. Management bases its estimates
on past experience and on various other factors that are thought to be
reasonable under the circumstances, the results of which form the basis for
making 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. Management believes that
the estimates and judgments used in preparing these consolidated financial
statements were the most appropriate at that time. Presented below are those
critical accounting policies that management believes require subjective and/or
complex judgments that could potentially affect reported results of operations.
The critical accounting policies and estimates utilized by the Company in the
preparation of its condensed consolidated financial statements for the period
ended August 1, 2020 have not changed materially from those utilized for the
fiscal year ended February 1, 2020, included in The Buckle Inc.'s 2019 Annual
Report on Form 10-K.

1.Revenue Recognition. Retail store sales are recorded, net of expected returns,
upon the purchase of merchandise by customers. Online sales are recorded, net of
expected returns, when merchandise is tendered for delivery to the common
carrier. Shipping fees charged to customers are included in revenue and shipping
costs are included in selling expenses. The Company recognizes revenue from
sales made under its layaway program upon delivery of the merchandise to the
customer. Revenue is not recorded when gift cards and gift certificates are
sold, but rather when a card or certificate is redeemed for merchandise. A
current liability for unredeemed gift cards and certificates is recorded at the
time the card or certificate is purchased. The liability recorded for unredeemed
gift cards and gift certificates was $12.6 million and $15.3 million as of
August 1, 2020 and February 1, 2020, respectively. Gift card and gift
certificate breakage is recognized as revenue in proportion to the redemption
pattern of customers by applying an estimated breakage rate. The estimated
breakage rate is based on historical issuance and redemption patterns and is
re-assessed by the Company on a regular basis. Sales tax collected from
customers is excluded from revenue and is included as part of "accrued store
operating expenses" on the Company's condensed consolidated balance sheets.

The Company establishes a liability for estimated merchandise returns, based
upon the historical average sales return percentage, that is recognized at the
transaction value. The Company also recognizes a return asset and a
corresponding adjustment to cost of sales for the Company's right to recover
returned merchandise, which is measured at the estimated carrying value, less
any expected recovery costs. Customer returns could potentially exceed the
historical average, thus reducing future net sales results and potentially
reducing future net earnings. The accrued liability for reserve for sales
returns was $3.3 million as of August 1, 2020 and $2.3 million as of February 1,
2020.

The Company's Guest Loyalty program allows participating guests to earn points
for every qualifying purchase, which (after achievement of certain point
thresholds) are redeemable as a discount off a future purchase. Reported revenue
is net of both current period reward redemptions and accruals for estimated
future rewards earned under the Guest Loyalty program. A liability has been
recorded for future rewards based on the Company's estimate of how many earned
points will turn into rewards and ultimately be redeemed prior to expiration. As
of August 1, 2020 and February 1, 2020, $9.3 million and $9.6 million was
included in "accrued store operating expenses" as a liability for estimated
future rewards.

                                       18
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Through partnership with Comenity Bank, the Company offers a private label
credit card ("PLCC"). Customers with a PLCC are enrolled in our B-Rewards
incentive program and earn points for every qualifying purchase on their card.
At the end of each rewards period, customers who have exceeded a minimum point
threshold receive a reward to be redeemed on a future purchase. The B-Rewards
program also provides other discount and promotional opportunities to
cardholders on a routine basis. Reported revenue is net of both current period
reward redemptions, current period discounts and promotions, and accruals for
estimated future rewards earned under the B-Rewards program. A liability has
been recorded for future rewards based on the Company's estimate of how many
earned points will turn into rewards and ultimately be redeemed prior to
expiration, which is included in "gift certificates redeemable" on the Company's
condensed consolidated balance sheets.

2.Inventory. Inventory is valued at the lower of cost or net realizable value.
Cost is determined using an average cost method that approximates the first-in,
first-out (FIFO) method. Management makes adjustments to inventory and cost of
goods sold, based upon estimates, to account for merchandise obsolescence and
markdowns that could affect net realizable value, based on assumptions using
calculations applied to current inventory levels within each different markdown
level. Management also reviews the levels of inventory in each markdown group
and the overall aging of the inventory versus the estimated future demand for
such product and the current market conditions. Such judgments could vary
significantly from actual results, either favorably or unfavorably, due to
fluctuations in future economic conditions, industry trends, consumer demand,
and the competitive retail environment. Such changes in market conditions could
negatively impact the sale of markdown inventory, causing further markdowns or
inventory obsolescence, resulting in increased cost of goods sold from
write-offs and reducing the Company's net earnings. The adjustment to inventory
for markdowns and/or obsolescence was $13.7 million as of August 1, 2020 and
$12.2 million as of February 1, 2020.

3.Income Taxes. The Company records a deferred tax asset and liability for
expected future tax consequences resulting from temporary differences between
financial reporting and tax bases of assets and liabilities. The Company
considers future taxable income and ongoing tax planning in assessing the value
of its deferred tax assets. If the Company determines that it is more than
likely that these assets will not be realized, the Company would reduce the
value of these assets to their expected realizable value, thereby decreasing net
income. Estimating the value of these assets is based upon the Company's
judgment. If the Company subsequently determined that the deferred tax assets,
which had been written down, would be realized in the future, such value would
be increased. Adjustment would be made to increase net income in the period such
determination was made.

4.Leases. The Company's lease portfolio is primarily comprised of leases for
retail store locations. The Company also leases certain equipment and corporate
office space. Store leases for new stores typically have an initial term of 10
years, with options to renew for an additional 1 to 5 years. The exercise of
lease renewal options is at the Company's sole discretion and is included in the
lease term for calculations of its right-of-use assets and liabilities when it
is reasonably certain that the Company plans to renew these leases. Certain
store lease agreements include rental payments based on a percentage of retail
sales over contractual levels and others include rental payments adjusted
periodically for inflation. Lease agreements do not contain any residual value
guarantees, material restrictive covenants, or options to purchase the leased
property.

The Company has elected to apply the practical expedient to account for lease
components (e.g. fixed payments for rent, insurance, and real estate taxes) and
non-lease components (e.g. fixed payments for common area maintenance) together
as a single component for all underlying asset classes. Additionally, the
Company elected as an accounting policy to exclude short-term leases from the
recognition requirements.

Consistent with guidance in the FASB Staff Q&A regarding lease concessions
related to the effects of the COVID-19 pandemic, the Company has made the
election to treat all lease concessions as though the enforceable rights and
obligations existed in each contract and, therefore, will not apply the lease
modification guidance in ASC 842.
5.Investments. Investments classified as short-term investments include
securities with a maturity of greater than three months and less than one year.
Available-for-sale securities are reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity (net of the effect of income taxes), using the specific
identification method, until they are sold. Held-to-maturity securities are
reported at amortized cost. Trading securities are reported at fair value, with
unrealized gains and losses included in earnings, using the specific
identification method.

                                       19
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OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND COMMERCIAL COMMITMENTS


As referenced in the table below, the Company has contractual obligations and
commercial commitments that may affect the financial condition of the Company.
Based on management's review of the terms and conditions of its contractual
obligations and commercial commitments, there is no known trend, demand,
commitment, event, or uncertainty that is reasonably likely to occur which would
have a material effect on the Company's financial condition, results of
operations, or cash flows. In addition, the commercial obligations and
commitments made by the Company are customary transactions which the Company
believes to be similar to those of other comparable retail companies.

The following table identifies the material obligations and commitments as of
August 1, 2020:

                                                                            Payments Due by Fiscal Year
Contractual obligations (dollar amounts
in thousands):                              Total            2020 (remaining)          2021-2022          2023-2024           Thereafter

Purchase obligations                     $  14,865          $          

4,556 $ 7,973$ 1,780$ 556 Deferred compensation

                       16,536                         -                  -                  -               16,536
Operating lease payments (a)               366,047                    49,812            157,595            103,870               54,770
Total contractual obligations            $ 397,448          $         

54,368 $ 165,568$ 105,650$ 71,862

(a) See Footnote 6 to the condensed consolidated financial statements.


The Company has available an unsecured line of credit of $25.0 million, which is
excluded from the preceding table. The line of credit agreement has an
expiration date of July 31, 2021 and provides that $10.0 million of the $25.0
million line is available for letters of credit. Certain merchandise purchase
orders require that the Company open letters of credit. When the Company takes
possession of the merchandise, it releases payment on the letters of credit. The
amounts of outstanding letters of credit reported reflect the open letters of
credit on merchandise ordered, but not yet received or funded. The Company
believes it has sufficient credit available to open letters of credit for
merchandise purchases. There were no bank borrowings during the first two
quarters of fiscal 2020 or the first two quarters of fiscal 2019. The Company
had outstanding letters of credit totaling $1.9 million and $1.5 million as of
August 1, 2020 and February 1, 2020, respectively. The Company has no other
off-balance sheet arrangements.

SEASONALITY


The Company's business is seasonal, with the holiday season (from approximately
November 15 to December 30) and the back-to-school season (from approximately
July 15 to September 1) historically contributing the greatest volume of net
sales. For fiscal years 2019, 2018, and 2017, the holiday and back-to-school
seasons accounted for approximately 35% of the Company's fiscal year net sales.
Quarterly results may vary significantly depending on a variety of factors
including the timing and amount of sales and costs associated with the opening
of new stores, the timing and level of markdowns, the timing of store closings,
the remodeling of existing stores, competitive factors, and general economic
conditions.

FORWARD LOOKING STATEMENTS

Information in this report, other than historical information, may be considered
to be forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "1995 Act"). Such statements are made in good
faith by the Company pursuant to the safe-harbor provisions of the 1995 Act. In
connection with these safe-harbor provisions, this management's discussion and
analysis contains certain forward-looking statements, which reflect management's
current views and estimates of future economic conditions, Company performance,
and financial results. The statements are based on many assumptions and factors
that could cause future results to differ materially. Such factors include, but
are not limited to, changes in product mix, changes in fashion trends,
competitive factors, and general economic conditions, economic conditions in the
retail apparel industry, as well as other risks and uncertainties inherent in
the Company's business and the retail industry in general. Any changes in these
factors could result in significantly different results for the Company. The
Company further cautions that the forward-looking information contained herein
is not exhaustive or exclusive. The Company does not undertake to update any
forward-looking statements, which may be made from time to time by or on behalf
of the Company.

                                       20

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