The Children's Place(PLCE) - 2022 Q4 - Annual Report

PART I ITEM 1. BUSINESS. The Children's Place is North America's largest children's apparel retailer, driving strategic growth and managing pandemic impacts General The Company is North America's largest children's apparel retailer, focusing on strategic initiatives and operational excellence - The Company is the largest pure-play children's specialty apparel retailer in North America, operating 672 stores and multiple e-commerce sites as of January 29, 2022[15][16] - Key strategic initiatives include superior product, digital transformation, and fleet optimization, supported by a focus on talent and operational excellence[16][17] COVID-19 Pandemic The Company discusses significant business disruptions and operational adjustments caused by the COVID-19 pandemic - The COVID-19 pandemic caused significant business disruption, including reduced retail traffic and changes in consumer spending, though all stores in the U.S., Canada, and Puerto Rico were open as of January 29, 2022[18][19][20] - The Company accelerated store closures under its fleet optimization initiative due to increased online purchasing demand, closing 256 stores over the past two fiscal years, including 78 in Fiscal 2021[19] Segment Reporting The Company reports its financial performance across U.S. and International operating segments - The Company operates in two segments: The Children's Place U.S. and The Children's Place International, each including e-commerce[21] | Segment | Fiscal 2022 Net Sales (in thousands) | Fiscal 2021 Net Sales (in thousands) | Fiscal 2020 Net Sales (in thousands) | Fiscal 2022 Operating Income (in thousands) | Fiscal 2021 Operating Income (in thousands) | Fiscal 2020 Operating Income (in thousands) | | :------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | The Children's Place U.S. | $1,723,887 | $1,372,079 | $1,671,165 | $253,419 | $(196,565) | $77,910 | | The Children's Place International | $191,477 | $150,519 | $199,502 | $22,229 | $(3,350) | $18,390 | | Total Net Sales | $1,915,364 | $1,522,598 | $1,870,667 | $275,648 | $(199,915) | $96,300 | | Operating Income % of Net Sales (U.S.) | 14.7% | (14.3)% | 4.7% | | | | | Operating Income % of Net Sales (International) | 11.6% | (2.2)% | 9.2% | | | | | Total Operating Income % of Net Sales | 14.4% | (13.1)% | 5.2% | | | | | Segment | January 29, 2022 (in thousands) | January 30, 2021 (in thousands) | | :------------------------------- | :------------------------------ | :------------------------------ | | The Children's Place U.S. | $951,401 | $1,054,339 | | The Children's Place International | $86,059 | $85,788 | | Total Assets | $1,037,460 | $1,140,127 | Key Capabilities The Company highlights its core strengths in merchandising, global sourcing, and brand image - The Company's merchandising strategy focuses on delivering compelling, coordinated apparel, footwear, and accessories, with new products flowing monthly[24][25] - Low-cost global sourcing is a competitive advantage, with manufacturing primarily in Asia and Africa, managed through global sourcing offices to ensure quality and value[27][33][34] - Brand image is strengthened by offering high-quality, age-appropriate products, providing coordinated outfits, exclusive e-commerce products, strong visual presentations, value-focused marketing, and leveraging loyalty programs and private label credit cards[27][31] Environmental, Social & Governance (ESG) The Company outlines its commitment to ESG principles, including environmental initiatives and responsible sourcing - The Company published a comprehensive ESG Report in November 2021, detailing 22 public goals aligned with SASB, GRI, and UN Sustainable Development Goals[36] - Board oversight of ESG topics, including environmental initiatives and responsible sourcing, has been assigned to the Corporate Responsibility, Sustainability & Governance Committee, while human capital management and DE&I are overseen by the Human Capital & Compensation Committee[37][38] - Environmental initiatives aim to reduce GHG emissions, deliver responsibly sourced products, manage water and chemical usage, and divert waste from landfills[39] Human Capital Management The Company details its workforce structure, talent management, and leadership development - As of January 29, 2022, the Company had approximately 11,900 employees, with 2,000 at corporate/distribution centers, 1,500 full-time store employees, and 8,400 part-time/seasonal store employees[42] - The Human Capital & Compensation Committee oversees talent and succession planning, with the senior leadership team having an average tenure of over six years and 60% of senior leaders promoted internally[43] Diversity, Equity and Inclusion The Company emphasizes its commitment to DE&I, highlighting workforce diversity and leadership representation - Diversity, Equity, and Inclusion (DE&I) is a top priority, with oversight by the Human Capital & Compensation Committee[44] - The Company is female-led, with 87% of associates being women, and over 50% of Board members and senior leadership being women[45] - The Company is committed to doubling its Black associate population at corporate headquarters by 2025[45] Company Stores The Company provides an overview of its retail store footprint and fleet optimization strategy - As of January 29, 2022, the Company operated 672 stores in the U.S., Canada, and Puerto Rico, and had 211 international points of distribution with partners in 16 countries[49][53] | Location | January 29, 2022 | January 30, 2021 | | :------------ | :--------------- | :--------------- | | United States | 582 | 640 | | Canada | 83 | 101 | | Puerto Rico | 7 | 8 | | Total Stores | 672 | 749 | - The fleet optimization initiative has resulted in 527 store closures since 2013, including 78 in Fiscal 2021, reducing total store square footage from 5.2 million to 3.2 million, and improving profitability[50] E-commerce Sales The Company outlines its strategic focus and investments in enhancing its e-commerce platform - E-commerce sales are a top strategic priority, with investments in back-end infrastructure and front-end technology to enhance the online shopping experience[52] International Franchisees and Wholesale The Company describes its international distribution network and wholesale business relationships - The Company has 211 international points of distribution with seven partners in 16 countries, generating revenue from product sales and sales royalties[53] - The wholesale business includes a relationship with Amazon[53] Store Operations The Company details its store operational structure and employee incentive programs - Store operations are geographically organized, with a centralized corporate function supporting stores[54] - Store managers are motivated by a monthly incentive compensation plan tied to financial goals[54] Seasonality The business is subject to seasonal influences, with sales concentrated in specific periods - The business is subject to seasonal influences, with heavier sales concentrations during back-to-school and holiday seasons[55] | Quarter | Fiscal 2021 Net Sales (%) | Fiscal 2020 Net Sales (%) | Fiscal 2021 Operating Income (Loss) (%) | Fiscal 2020 Operating Income (Loss) (%) | | :------ | :------------------------ | :------------------------ | :-------------------------------------- | :-------------------------------------- | | First | 22.8 | 16.8 | 23.9 | (86.6) | | Second | 21.6 | 24.2 | 13.7 | (32.3) | | Third | 29.1 | 27.9 | 41.3 | 11.7 | | Fourth | 26.5 | 31.1 | 21.1 | 7.0 | Marketing The Company discusses its brand strategies, loyalty programs, and customer engagement initiatives - The Company relaunched the Gymboree brand in February 2020 and introduced the new Sugar & Jade brand in November 2021, exclusively online[56] - The MyPLACE Rewards loyalty program and private label credit card accounted for approximately 75% of sales at the end of Fiscal 2021[57] - The Company partnered with Afterpay to offer a "buy-now-pay-later" program to customers[57] Distribution The Company describes its distribution network, including owned and third-party logistics centers - The Company owns and operates a 700,000 sq ft distribution center in Alabama for U.S. operations and leases a 95,000 sq ft center in Ontario, Canada for Canadian retail[58] - Third-party logistics providers are used for U.S. and Canadian e-commerce operations (Indiana, Ontario) and international franchise business (Malaysia, China)[58][59] Competition The children's apparel, footwear, and accessories retail markets are highly competitive, with diverse competitors - The children's apparel, footwear, and accessories retail markets are highly competitive, with competitors including specialty stores, mass merchants, off-price stores, and e-commerce retailers[60] - Key competitors include Target Corporation, Old Navy, GapKids, Carter's, Inc., T.J. Maxx, Marshall's, Burlington Coat Factory, Kohl's Corporation, Walmart Stores, Inc., and Amazon[60] Trademarks and Service Marks The Company lists its key trademarks and intellectual property acquisitions - Key trademarks include "The Children's Place," "Place," "Baby Place," "Gymboree," "Crazy 8," and "Sugar & Jade"[61] - The Company acquired worldwide rights to "Gymboree" and "Crazy 8" intellectual property in Fiscal 2019 and launched the "Sugar & Jade" e-commerce website in November 2021[61] Government Regulation The Company outlines its compliance with extensive federal, state, and international regulations - The Company is subject to extensive federal, state, local, provincial, and international laws and regulations, including product testing and safety, consumer protection, privacy, and customs[62] - The Company is committed to product quality and safety, adhering to laws such as CPSIA, Federal Hazardous Substances Act, Flammable Fabrics Act, and CCPSA[63] Internet Access to Reports The Company provides information on accessing its SEC filings and corporate governance documents online - SEC filings (10-K, 10-Q, 8-K, Proxy Statement) are available on the SEC website and the Company's corporate website[65][66] - Corporate governance guidelines, code of business conduct, and the ESG Report are also available on the corporate website[66][67] ITEM 1A. RISK FACTORS. The Company faces significant risks from the COVID-19 pandemic, strategic execution, global operations, competition, economic sensitivity, cybersecurity, and regulatory compliance RISKS RELATED TO THE COVID-19 PANDEMIC The Company details the adverse impacts of the COVID-19 pandemic on its operations and supply chain - The COVID-19 pandemic caused significant adverse effects, including temporary store closures, reductions and volatility in demand, and global supply chain disruptions[69][70][71] - Increased digital demand due to the pandemic led to higher utilization of third-party logistics providers and potentially increased fulfillment costs[71] RISKS RELATED TO BUSINESS STRATEGIES AND GLOBAL OPERATIONS The Company identifies risks associated with executing strategic initiatives, global sourcing, and international operations - Failure to successfully execute strategic initiatives like digital transformation, inventory management, and store fleet optimization could materially adversely affect the business[72][73][74][77] - Dependencies on unaffiliated manufacturers, suppliers, and transportation companies, particularly international ones, expose the Company to risks such as supply chain disruptions, geopolitical instability, and increased costs[82][85][87] - Foreign currency fluctuations, especially with the Canadian dollar, impact revenues and product costs, potentially affecting profitability[93][94] - Acts of terrorism, war, pandemics, natural disasters, or political unrest could disrupt commerce, production, and consumer confidence, materially affecting the business[95][96] RISKS RELATED TO THE RETAIL AND APPAREL INDUSTRIES The Company discusses risks stemming from fashion trends, consumer spending, cost fluctuations, and intense market competition - Failure to anticipate and respond to rapidly changing fashion trends, consumer preferences, and technology shifts could lead to excess or insufficient inventory and negatively impact profitability and reputation[101][102] - Declines in consumer confidence and spending, influenced by economic conditions (unemployment, inflation) and external events (pandemics, natural disasters), can adversely affect the apparel industry and the Company's operating results[103][104][105] - Fluctuations in raw material, labor, energy, and service prices can increase product and delivery costs, leading to pressure on margins and potential declines in profitability[106][107] - The children's apparel market is highly competitive, with numerous specialty, mass, off-price, and e-commerce retailers, leading to intense price and promotional competition[111][112] RISKS RELATED TO CYBERSECURITY, DATA PRIVACY, INFORMATION TECHNOLOGY AND E-COMMERCE The Company highlights risks concerning data breaches, privacy compliance, IT system failures, and e-commerce operational challenges - Privacy breaches or failure to comply with evolving privacy laws (e.g., CCPA, CPRA) could result in data theft, operational delays, negative publicity, lost sales, and significant fines[115][116][117] - The successful operation of the e-commerce business depends on maintaining efficient online order-taking, fulfillment, and a positive shopping experience, with risks including system failures, security breaches, and rapid technological changes[120][121][122] - Disruptions or failures in information technology and other business systems, including those managed by third-party vendors, could materially adversely affect operations, financial reporting, and customer satisfaction[123][124][125] RISKS RELATED TO OUR STOCK AND STOCK PRICE The Company addresses factors influencing its common stock price volatility and shareholder concentration risks - Fluctuations in sales, comparable retail sales, margins, operating income, and EPS, driven by factors like economic conditions, weather, and competitive actions, can materially adversely affect the common stock price[126][127][129] - The highly concentrated nature of stock holdings (top ten institutional holders own over 50%) could facilitate approval of proposals contrary to Board or management positions[130] - The Company has experienced, and may continue to experience, large "short" positions, which can lead to substantial volatility in the stock price[132] RISKS RELATED TO LEGAL AND REGULATORY MATTERS The Company outlines risks associated with intellectual property protection, legislative changes, and compliance with various laws - Inability to protect trademarks and other intellectual property rights globally could diminish brand value, weaken competitive position, and materially adversely affect the business[134] - Changes in federal tax and other legislation, including income tax laws, minimum wage requirements, and overtime regulations, could increase expenses and materially adversely affect financial results[135][137] - Failure to comply with applicable laws (wage and hour, privacy, product safety) and ongoing legal/regulatory actions could result in significant penalties, litigation, increased expenses, and reputational harm[138][139] ITEM 1B. UNRESOLVED STAFF COMMENTS. There are no unresolved staff comments reported by the Company - No unresolved staff comments were reported[144] ITEM 2. PROPERTIES. The Company leases all its retail store locations and owns a distribution center in Alabama - All existing store locations in the U.S., Puerto Rico, and Canada are leased, with terms expiring through 2030 and an average unexpired lease term of approximately 1.2 years[145] | Location | Use | Approximate Sq. Footage | Current Lease Term Expiration | | :-------------------- | :------------------------ | :---------------------- | :---------------------------- | | Fort Payne, AL | Warehouse Distribution Center | 700,000 | Owned | | Ontario, Canada | Warehouse Distribution Center | 95,000 | 4/30/2024 | | Secaucus, NJ | Corporate Offices | 200,000 | 5/31/2029 | | Hong Kong, China | Product Support | 22,800 | 4/30/2022 | | Brownsburg, Indiana | Warehouse Distribution Center | 315,000 | 8/31/2024 | ITEM 3. LEGAL PROCEEDINGS. The Company settled a class action lawsuit regarding false advertising and manages other legal proceedings - The Company settled a class action lawsuit (Rael v. The Children's Place, Inc.) concerning false advertising, with final approval granted in March 2021[147][148] - The settlement includes merchandise vouchers for qualified class members and a $5.0 million reserve recorded in Q1 2017[149] - Management believes other legal proceedings arising in the normal course of business will not have a material adverse effect on the Company's financial position[150] ITEM 4. MINE SAFETY DISCLOSURES. This item is not applicable to the Company - This item is not applicable to the Company[151] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. The Company's common stock is listed on Nasdaq, with details on share repurchase programs and equity compensation Share Repurchase Programs The Board authorized two $250.0 million share repurchase programs, with $257.3 million remaining as of January 29, 2022 - The Board authorized two $250.0 million share repurchase programs (March 2018 and November 2021), with $257.3 million remaining as of January 29, 2022[155] - Share repurchases were suspended from March 2020 through July 2021 due to the COVID-19 pandemic, except for tax withholding requirements[155] | Type of Repurchase | Fiscal 2022 Shares (in thousands) | Fiscal 2022 Amount (in thousands) | Fiscal 2021 Shares (in thousands) | Fiscal 2021 Amount (in thousands) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Share repurchase program | 1,025 | $85,648 | 294 | $15,490 | | Shares acquired in treasury | 4 | $278 | 6 | $209 | Equity Plan Compensation Information This section provides information on securities available for future issuances under equity compensation plans | Plan Category | Securities to be issued upon exercise of outstanding options | Weighted average exercise price of outstanding options | Securities remaining available for future issuances under equity compensation plans (excluding securities reflected in Column A) | | :--------------------------------- | :--------------------------------------------------------- | :----------------------------------------------------- | :--------------------------------------------------------------------------------------------------------------------------- | | Equity Compensation Plans Approved by Security Holders | N/A | N/A | 596,216 | | Equity Compensation Plans Not Approved by Security Holders | N/A | N/A | N/A | | Total | N/A | N/A | 596,216 | Performance Graph The performance graph illustrates the Company's stock return against benchmark indices | Index | FY17 | FY18 | FY19 | FY20 | FY21 | | :---------------------------------- | :------- | :------- | :------- | :------- | :------- | | The Children's Place---"PLCE" | $155.72 | $105.20 | $66.76 | $82.20 | $78.81 | | NASDAQ US Benchmark TR Index | $122.14 | $121.66 | $146.88 | $177.49 | $206.49 | | NASDAQ US Benchmark Retail TR Index | $134.78 | $144.34 | $167.86 | $232.24 | $242.91 | | Index | FY17 | FY18 | FY19 | FY20 | FY21 | | :---------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | | The Children's Place---"PLCE" | $145.60 | $92.13 | $59.67 | $73.47 | $70.44 | | NASDAQ US Benchmark TR Index | $2,344.18 | $2,335.10 | $2,819.09 | $3,406.63 | $3,963.21 | | NASDAQ US Benchmark Retail TR Index | $3,026.13 | $3,240.82 | $3,768.85 | $5,214.30 | $5,453.85 | ITEM 6. [RESERVED] This item is reserved and contains no information - This item is reserved[165] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This section analyzes the Company's financial condition, operating results, liquidity, and capital resources OVERVIEW This overview covers the Company's business, segment reporting, COVID-19 impacts, and recent debt refinancing - The Company is the largest pure-play children's specialty apparel retailer in North America, with 672 stores and e-commerce operations across U.S. and International segments as of January 29, 2022[169][170] - The COVID-19 pandemic continued to cause business disruption and supply chain issues, though all stores were open as of January 29, 2022[171][172] - Product input costs (cotton, labor, fuel) are expected to increase in 2022, partially offset by higher price realization[173] - The Company refinanced its $360.0 million asset-based revolving credit facility and $80.0 million term loan in November 2021 with a new $350.0 million ABL Credit Facility and $50.0 million Term Loan, featuring lower interest rates and increased flexibility[174][175] Operating Highlights This section summarizes key financial metrics and strategic growth initiatives for the fiscal year | Metric | Fiscal 2021 (in millions) | Fiscal 2020 (in millions) | Change ($) (in millions) | Change (%) | | :-------------------------------------- | :------------------------ | :------------------------ | :----------------------- | :--------- | | Net Sales | $1,915.364 | $1,522.598 | $392.766 | 25.8% | | Gross Profit | $794.740 | $333.251 | $461.489 | 138.4% | | Gross Margin | 41.5% | 21.9% | 19.6 percentage points | | | SG&A Expenses | $459.169 | $428.234 | $30.935 | 7.2% | | SG&A as % of Net Sales | 24.0% | 28.1% | (4.1) percentage points | | | Interest Expense | $18.634 | $11.906 | $6.728 | 56.5% | | Provision (Benefit) for Income Taxes | $69.859 | $(71.393) | $141.252 | | | Effective Tax Rate | 27.2% | (33.7)% | | | | Net Income (Loss) | $187.171 | $(140.365) | $327.536 | | | Diluted EPS | $12.59 | $(9.59) | $22.18 | | - The increase in net sales was driven by strong customer response, strategic pricing, and government stimulus/child tax credit payments[179][204] - Gross margin improvement was due to leverage of fixed expenses, higher merchandise margins from AUR increases, lower occupancy expenses (rent abatements, lease negotiations, store closures), and reduced e-commerce fulfillment costs[180][208] - The Company continues to focus on key strategic growth initiatives: superior product (Gymboree relaunch, Sugar & Jade introduction), digital transformation (redesigned sites, personalization, ship-from-store), and fleet optimization (256 store closures in past two years)[184][185][186][187] CRITICAL ACCOUNTING ESTIMATES The Company discusses key accounting estimates requiring significant management judgment, such as asset impairment and income taxes - Critical accounting estimates include impairment of long-lived assets, income taxes, stock-based compensation, and inventory valuation, all requiring significant management judgment and assumptions[190][191] - Impairment of long-lived assets involves comparing estimated undiscounted future cash flows to carrying values, with fair market value determined using discounted cash flows and considering external (mall traffic, competition, macro factors) and internal (fashion taste, cost control, lease renegotiation) factors[192][193][194] - Income tax accounting uses the liability method, with deferred taxes based on temporary differences and valuation allowances recorded when realization of deferred tax assets is not more likely than not, requiring significant judgment on future taxable income[195][196][197] - Stock-based compensation expense for Performance Awards is based on the estimated achievement of performance metrics, which can impact the number of shares vested and total expense recognized[198] - Inventory is valued at the lower of cost or net realizable value, with estimates for market value and shrinkage based on historical trends, market conditions, and future demand[199][200] RESULTS OF OPERATIONS This section provides a detailed analysis of the Company's financial performance for recent fiscal years Fiscal 2021 Compared to Fiscal 2020 Net sales and gross profit significantly increased in Fiscal 2021, leading to a return to net income | Metric | Fiscal 2021 (%) | Fiscal 2020 (%) | Fiscal 2019 (%) | | :---------------------------------------------- | :-------------- | :-------------- | :-------------- | | Net sales | 100.0 | 100.0 | 100.0 | | Cost of sales (exclusive of depreciation and amortization) | 58.5 | 78.1 | 65.0 | | Gross profit | 41.5 | 21.9 | 35.0 | | Selling, general, and administrative expenses | 24.0 | 28.1 | 25.6 | | Depreciation and amortization | 3.0 | 4.4 | 4.0 | | Asset impairment charges | 0.1 | 2.5 | 0.3 | | Operating income (loss) | 14.4 | (13.1) | 5.2 | | Income (loss) before provision (benefit) for income taxes | 13.4 | (13.9) | 4.7 | | Provision (benefit) for income taxes | 3.6 | (4.7) | 0.8 | | Net income (loss) | 9.8 | (9.2) | 3.9 | | Segment | Fiscal 2021 Net Sales (in thousands) | Fiscal 2020 Net Sales (in thousands) | Fiscal 2019 Net Sales (in thousands) | | :--------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | The Children's Place U.S. | $1,723,887 | $1,372,079 | $1,671,165 | | The Children's Place International | $191,477 | $150,519 | $199,502 | | Total net sales | $1,915,364 | $1,522,598 | $1,870,667 | - Total e-commerce sales were 44.8% of net sales in Fiscal 2021, down from 52.7% in Fiscal 2020[207] - Asset impairment charges significantly decreased from $38.5 million in Fiscal 2020 (related to 419 stores) to $1.5 million in Fiscal 2021 (related to two stores)[211] - Interest expense increased to $18.6 million in Fiscal 2021 from $11.8 million in Fiscal 2020, partly due to a $3.7 million charge from debt refinancing[214] Fiscal 2020 Compared to Fiscal 2019 For a comparative discussion of Fiscal 2020 to Fiscal 2019, refer to the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2021 - Comparative discussion for Fiscal 2020 to Fiscal 2019 is available in the previous year's 10-K report[218] LIQUIDITY AND CAPITAL RESOURCES This section analyzes the Company's ability to meet its financial obligations and fund operations through cash and credit facilities Liquidity The Company's working capital improved, and it expects to meet future capital needs through cash, operations, and its ABL Credit Facility - Working capital deficit improved from $171.4 million at January 30, 2021, to $10.3 million at January 29, 2022[221] - As of January 29, 2022, the Company had $175.3 million in outstanding borrowings and $97.0 million available under its ABL Credit Facility[222] - The Company expects to meet future working capital and capital expenditure needs using cash on hand, cash flows from operations, and the ABL Credit Facility[223][237] ABL Credit Facility and Term Loan The Company refinanced its debt with new ABL and Term Loan facilities, featuring lower interest rates and increased flexibility - The Company secured a new $350 million ABL Credit Facility and a $50 million Term Loan in November 2021, both maturing in November 2026, with lower interest rates and increased flexibility[224] | Metric (in millions) | January 29, 2022 (in millions) | January 30, 2021 (in millions) | | :-------------------------- | :----------------------------- | :----------------------------- | | Credit facility maximum | $350.0 | $360.0 | | Borrowing base | $279.7 | $282.2 | | Outstanding borrowings | $175.3 | $169.8 | | Letters of credit outstanding | $7.4 | $8.2 | | Utilization of credit facility | $182.7 | $178.0 | | Availability | $97.0 | $104.2 | | Interest rate at end of period | 1.6% | 4.2% | - The Term Loan bears interest at LIBOR plus 2.50% or base rate plus 1.75%, is pre-payable without penalty, and does not require amortization[230] Cash Flows and Capital Expenditures Cash provided by operating activities significantly improved, while financing activities shifted to debt repayment and share repurchases | Cash Flow Activity (in millions) | Fiscal 2021 (in millions) | Fiscal 2020 (in millions) | | :----------------------------- | :------------------------ | :------------------------ | | Operating Activities | $133.3 (provided) | $(35.7) (used) | | Investing Activities | $(29.3) (used) | $(30.4) (used) | | Financing Activities | $(112.7) (used) | $60.9 (provided) | | Net Decrease in Cash | $(8.8) | $(4.9) | | Cash and Cash Equivalents, end of period | $54.8 | $63.5 | - The improvement in operating cash flow in Fiscal 2021 was primarily due to earnings and planned changes in working capital, while Fiscal 2020 was impacted by the net loss from the COVID-19 pandemic[233][234] CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The Company details its merchandise purchase commitments, operating lease liabilities, and standby letters of credit - As of January 29, 2022, the Company had $365.0 million in merchandise purchase commitments and $18.0 million in non-merchandise commitments for the next 12 months[406] - Operating lease liabilities totaled $249.6 million and standby letters of credit were $7.4 million[406] OFF-BALANCE SHEET ARRANGEMENTS The Company reports no material off-balance sheet arrangements - The Company has no material off-balance sheet arrangements[238] QUARTERLY RESULTS AND SEASONALITY Quarterly results are subject to fluctuations from economic conditions, store operations, and seasonal sales patterns - Quarterly results are subject to material fluctuations from factors like economic conditions, store closures, comparable retail sales, weather, holiday timing, and pricing strategy[239] | Metric (in thousands, except EPS) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | | :-------------------------------- | :------------ | :------------- | :------------ | :------------- | | Net sales | $435,481 | $413,855 | $558,225 | $507,803 | | Gross profit | $188,206 | $167,861 | $244,831 | $193,842 | | Selling, general, and administrative expenses | $106,738 | $115,620 | $115,563 | $121,248 | | Depreciation and amortization | $15,561 | $14,392 | $14,204 | $14,260 | | Asset impairment charges | $0 | $0 | $1,254 | $252 | | Operating income | $65,907 | $37,849 | $113,810 | $58,082 | | Income before provision for income taxes | $61,496 | $33,153 | $109,851 | $52,530 | | Provision for income taxes | $16,291 | $9,058 | $30,983 | $13,527 | | Net income | $45,205 | $24,095 | $78,868 | $39,003 | | Diluted earnings per share | $3.01 | $1.60 | $5.30 | $2.69 | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risks from interest rate movements and foreign currency fluctuations, primarily in Canada and Hong Kong - The Company's financial position is subject to market risk from interest rate movements on borrowings (ABL Credit Facility, Term Loan) and currency rate movements on foreign-denominated assets and liabilities[241][243][244] - As of January 29, 2022, net assets in Canada and Hong Kong amounted to $52.7 million, and a 10% change in their exchange rates would impact the net investment by $5.3 million[245] - Foreign operations, primarily in Canada, expose the Company to exchange rate fluctuations, with a 10% change in rates potentially impacting Fiscal 2021 net sales by approximately $17 million and total costs/expenses by $19 million[247] - The Company imports most merchandise from foreign countries (Vietnam, Cambodia, Indonesia, Ethiopia, Bangladesh, China), making it vulnerable to political, trade, financial, or labor changes in these regions[248] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. This item incorporates by reference the consolidated financial statements and supplementary data from Item 15 - Financial statements and supplementary data are incorporated by reference from Item 15[249] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[251] ITEM 9A. CONTROLS AND PROCEDURES. Management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes Evaluation of Disclosure Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of January 29, 2022[253] Management's Report on Internal Control Over Financial Reporting Management assessed and concluded that internal control over financial reporting was effective based on the COSO framework - Management concluded that internal control over financial reporting was effective as of January 29, 2022, based on the COSO framework[255] - The independent registered public accounting firm issued an unqualified opinion on the effectiveness of internal control over financial reporting[255][260] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during the most recent fiscal quarter - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[256] ITEM 9B. OTHER INFORMATION. No other information is reported under this item - No other information was reported under this item[268] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. This item is not applicable to the Company - This item is not applicable to the Company[269] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Information required for this item is incorporated by reference from the Company's Definitive Proxy Statement - Information is incorporated by reference from the Proxy Statement[272] ITEM 11. EXECUTIVE COMPENSATION. Information required for this item is incorporated by reference from the Company's Definitive Proxy Statement - Information is incorporated by reference from the Proxy Statement[273] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Information required for this item is incorporated by reference from the Company's Definitive Proxy Statement - Information is incorporated by reference from the Proxy Statement[274] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. Information required for this item is incorporated by reference from the Company's Definitive Proxy Statement - Information is incorporated by reference from the Proxy Statement[275] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Information required for this item is incorporated by reference from the Company's Definitive Proxy Statement - Information is incorporated by reference from the Proxy Statement[276] PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. This item lists the financial statements, exhibits, and financial statement schedules filed as part of the report - This section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Changes in Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements[279] - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of January 29, 2022[282][283][291] - A critical audit matter identified was the impairment of long-lived assets, due to the subjectivity of estimating forecasted cash flows and fair values for retail stores[287][288] ITEM 16. FORM 10-K SUMMARY. This item is omitted at the registrant's option - This item is omitted at the registrant's option[462]