[ad_1]
The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes ofTilly's, Inc. included in Part I Item 1 of this Quarterly Report on Form 10-Q (this "Report") and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year endedJanuary 29, 2022 . As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms "the Company", "World of Jeans & Tops", "we", "our", "us", "Tillys" and "Tilly's" refer toTilly's, Inc. and its subsidiary.
Overview
Tillys is a destination specialty retailer of casual apparel, footwear, accessories and hardgoods for men, women, boys and girls. We believe we bring together an unparalleled selection of iconic global, emerging, and proprietary brands rooted in an active and outdoor lifestyle. The Tillys concept began in 1982, when our co-founders,Hezy Shaked andTilly Levine , opened our first store inOrange County, California . As ofJuly 30, 2022 , we operated 242 stores in 33 states, averaging approximately 7,301 square feet per store, compared to 244 total stores last year at this time. We also sell our products through our e-commerce website, www.tillys.com.
Known or Anticipated Trends
Ongoing Impacts of the COVID-19 Pandemic
Economic Impacts. The impacts of the COVID-19 pandemic (the "pandemic") have had, and continue to have, a material effect on our business, financial condition and results of operations, as well as on the market generally. The scope and nature of these impacts continue to evolve. We may experience adverse impacts in the future, particularly related to broader economic conditions that result in significant part from the pandemic. Further, we believe our operating results for fiscal 2021 were significantly aided by the considerable pent-up consumer demand exiting 2020 pandemic restrictions and the impact of federal stimulus payments. Additionally, the factors noted below have had, and are expected to continue to have, an adverse impact on our operating results during fiscal 2022. As a result, we expect our operating results for fiscal 2022 will remain below fiscal 2021 levels for each quarter of the fiscal year. Inflationary Cost Pressures. As of the date of this filing, the pandemic and resulting supply chain disruptions, as well as certain geo-political matters, have resulted in significant price increases for the merchandise we purchase for sale to our customers as well as for gasoline, food and other consumables across the economy. We believe that these price increases have had, and will likely continue to have, a negative impact on consumer behavior and, by extension, our results of operations and financial condition during fiscal 2022. Supply Chain Disruptions. We source a significant portion of our merchandise assortment from third parties who manufacture their products in countries that have experienced widespread issues with the pandemic, thereby significantly impacting the global supply chain for merchandise inventories. Disruptions in the global transportation network remain prevalent, particularly in certainSouthern California receiving ports which handle a significant portion ofUnited States merchandise imports. These issues are resulting in shipping delays and increased shipping costs throughout the retail industry, including for us. Any untimely delivery of merchandise could have a negative impact on our ability to serve our customers with the specific merchandise they want in the quantities they wish to purchase in a timely manner, thereby potentially resulting in lost sales or increased markdowns to move through excess seasonal inventories that were delivered late. These supply chain issues, and the media attention surrounding them, had an impact on consumer shopping patterns during the fiscal 2021 holiday season and may do so again to some extent, and have caused us to adjust our merchandise planning, allocation and pricing strategies from historical practices, among other impacts. We have been monitoring the situation very closely and have been in frequent contact with our key brand partners to assess delivery delays on a continuous basis. However, we are unable to predict the specific effects these factors will have on our fiscal 2022 net sales, results of operations, and our inventory position at any point in time during fiscal 2022. Labor Challenges and Wage Inflation. The pandemic and the resulting factors above have also created challenges related to the availability of sufficient labor from time to time, and have caused a significant increase in the competition for labor among consumer facing companies. This competition for labor has driven significant increases in wages beyond government-mandated increases in minimum wages in order to compete for sufficient labor availability and/or to prevent the loss of existing workforce in our stores, distribution centers and corporate offices. We expect these pressures to continue throughout fiscal 2022. Operational Impacts. As of the date of filing this Report, there remain many uncertainties regarding the ongoing pandemic, including its anticipated duration and severity. In addition to the economic impacts on the Company, the pandemic has had far-reaching impacts on many aspects of the operations of the Company, directly and indirectly, including on consumer behavior, store traffic, operational capabilities and our corporate, distribution center and store operations generally, timing of deliveries, demands on our information technology and e-commerce capabilities, inventory and expense management, managing our 24
——————————————————————————–
Table of Contents
workforce, and our people, which have materially disrupted our business. With the continued challenges posed by the pandemic, we may experience adverse impacts in the future, including similar impacts to those we have previously experienced during the pandemic, such as regional quarantines, changes in consumer purchasing patterns, mandatory or elective shut-downs of retail locations, and operational challenges posted by the inability of our suppliers and service providers to deliver materials and services on a timely basis, which, in many cases, had, and may in the future continue to have, material adverse impacts on our business. This situation is continually evolving, and additional impacts may arise that we are not aware of currently, or current impacts may become magnified.
Fiscal 2022 New Store Openings and Capital Expenditure Plans
During fiscal 2022, we currently expect to open a total of 11 new stores within existing markets, primarily inCalifornia ,Texas and the Northeast, four of which have been opened as of the date of this Report. We expect our total capital expenditures for fiscal 2022 to be in the range of approximately$22 million to$24 million , inclusive of our new store plans, investments in website and mobile app upgrades, distribution efficiencies, and other information technology infrastructure investments.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of
performance and financial measures. The key indicators of the financial
condition and operating performance of our business are net sales, comparable
store sales, gross profit, selling, general and administrative ("SG&A") expenses
and operating income.
Net Sales
Net sales reflect revenue from the sale of our merchandise at store locations
and through e-commerce, net of sales taxes. Store sales are reflected in sales
when the merchandise is received by the customer. For e-commerce sales, we
recognize revenue, and the related cost of goods sold at the time the
merchandise is shipped to the customer. Net sales also include shipping and
handling fees for e-commerce shipments that have been shipped to the customer.
Net sales are net of returns on sales during the period as well as an estimate
of returns expected in the future stemming from current period sales. We
recognize revenue from gift cards as they are redeemed for merchandise. Prior to
redemption, we maintain a current liability for unredeemed gift card balances.
Our gift cards do not have expiration dates and in most cases there is no legal
obligation to remit unredeemed gift cards to relevant jurisdictions. Based on
actual historical redemption patterns, we determined that a small percentage of
gift cards are unlikely to be redeemed (which we refer to as gift card
"breakage"). Based on our historical gift card breakage rate, we recognize
breakage revenue over the redemption period in proportion to actual gift card
redemptions.
Our business is seasonal and as a result our revenues fluctuate from quarter to
quarter. In addition, our revenues in any given quarter can be affected by a
number of factors including the timing of holidays and weather patterns. The
third and fourth quarters of the fiscal year, which include the back-to-school
and holiday sales seasons, have historically produced stronger sales and
disproportionately stronger operating results than have the first two quarters
of the fiscal year.
Comparable Store
Comparable store net sales is a measure that indicates the change in
year-over-year comparable store net sales which allows us to evaluate how our
store base (including our e-commerce platform) is performing. Numerous factors
affect our comparable store sales, including:
•overall economic trends;
•our ability to attract traffic to our stores and online platform;
•our ability to identify and respond effectively to consumer preferences and
fashion trends;
•competition;
•the timing of our releases of new and seasonal styles;
•changes in our product mix;
•pricing;
•the level of customer service that we provide in stores;
•our ability to source and distribute products efficiently;
•calendar shifts of holiday or seasonal periods;
•the number and timing of store openings and the relative proportion of new
stores to mature stores; and
•the timing and success of promotional and advertising efforts.
Our comparable store sales are defined as sales from our e-commerce platform and
stores open on a daily basis compared to the same respective fiscal dates of the
prior year. A remodeled, relocated or refreshed store is included in comparable
store sales, both during and after construction, if the square footage of the
store used to sell merchandise was not changed by more than 20% in any fiscal
month. We include sales from our e-commerce platform as part of comparable store
sales as we manage and analyze our business on a single omni-channel basis and
have substantially integrated our investments and operations for our stores and
e-commerce platform to give our customers seamless access and increased ease of
shopping. Comparable store sales
25
——————————————————————————–
Table of Contents
exclude gift card breakage income and e-commerce shipping and handling fee revenue. Some of our competitors and other retailers may calculate comparable or "same store" sales differently than we do. As a result, data in this Report regarding our comparable store sales may not be comparable to similar data made available by other retailers.
Gross Profit
Gross profit is equal to our net sales less our cost of goods sold. Cost of goods sold reflects the direct cost of purchased merchandise as well as buying, distribution and occupancy costs. Buying costs include compensation and benefit expense for our internal buying organization. Distribution costs include costs for receiving, processing and warehousing our store merchandise, and shipping of merchandise to or from our distribution and e-commerce fulfillment centers and to our e-commerce customers and between store locations. Occupancy costs include the rent, common area maintenance, utilities, property taxes, security and depreciation costs of all store locations. These costs are significant and can be expected to continue to increase as our company grows. The components of our reported cost of goods sold may not be comparable to those of other retail companies. We regularly analyze the components of gross profit as well as gross profit as a percentage of net sales. Specifically we look at the initial markup on purchases, markdowns and reserves, shrinkage, buying costs, distribution costs and occupancy costs. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns or a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the buying, distribution and occupancy components of cost of goods sold could have an adverse impact on our gross profit and results of operations. Gross profit is also impacted by shifts in the proportion of sales of proprietary branded products compared to third-party branded products, as well as by sales mix shifts within and between brands and between major product departments such as young men's and women's apparel, footwear or accessories. A substantial shift in the mix of products could have a material impact on our results of operations. In addition, gross profit and gross profit as a percent of sales have historically been higher in the third and fourth quarters of the fiscal year, as these periods include the back-to-school and winter holiday selling seasons. This reflects that various costs, including occupancy costs, generally do not increase in proportion to the seasonal sales increase.
Selling, General and Administrative Expenses
Our selling, general and administrative, or SG&A, expenses are comprised of store selling expenses and corporate-level general and administrative expenses. Store selling expenses include store and regional support costs, including personnel, advertising and debit and credit card processing costs, e-commerce receiving and processing costs and store supplies costs. General and administrative expenses include the payroll and support costs of corporate functions such as executive management, legal, accounting, information systems, human resources, impairment charges and other centralized services. Store selling expenses generally vary proportionately with net sales and store growth. In contrast, general and administrative expenses are generally not directly proportional to net sales and store growth, but will be expected to increase over time to support the needs of our growing company. SG&A expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods. Operating Income
Operating income equals gross profit less SG&A expenses. Operating income
excludes interest income, interest expense and income taxes. Operating income
percentage measures operating income as a percentage of our net sales.
26
——————————————————————————–
Table of Contents Results of Operations
The following tables summarize key components of our unaudited results of
operations for the periods indicated, both in dollars (in thousands) and as a
percentage of our net sales:
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 30, July 31, July 30, July 31,
2022 2021 2022 2021
Statements of Income Data:
Net sales $ 168,308 $ 201,952 $ 314,083 $ 365,109
Cost of goods sold 115,424 126,523 216,524 234,139
Rent expense, related party 902 702 1,762 1,404
Total cost of goods sold 116,326 127,225 218,286 235,543
Gross profit 51,982 74,727 95,797 129,566
Selling, general and administrative
expenses 46,697 48,167 89,271 87,998
Rent expense, related party 133 133 266 267
Total selling, general and administrative
expenses 46,830 48,300 89,537 88,265
Operating income 5,152 26,427 6,260 41,301
Other income (expense), net 183 (102) 187 (218)
Income before income taxes 5,335 26,325 6,447 41,083
Income tax expense 1,516 5,927 1,815 9,726
Net income $ 3,819 $ 20,398 $ 4,632 $ 31,357
Percentage of Net Sales :
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 68.6 % 62.7 % 68.9 % 64.1 %
Rent expense, related party 0.5 % 0.3 % 0.6 % 0.4 %
Total cost of goods sold 69.1 % 63.0 % 69.5 % 64.5 %
Gross profit 30.9 % 37.0 % 30.5 % 35.5 %
Selling, general and administrative
expenses 27.7 % 23.9 % 28.4 % 24.1 %
Rent expense, related party 0.1 % 0.1 % 0.1 % 0.1 %
Total selling, general and administrative
expenses 27.8 % 23.9 % 28.5 % 24.2 %
Operating income 3.1 % 13.1 % 2.0 % 11.3 %
Other income (expense), net 0.1 % (0.1) % 0.1 % (0.1) %
Income before income taxes 3.2 % 13.0 % 2.1 % 11.3 %
Income tax expense 0.9 % 2.9 % 0.6 % 2.7 %
Net income 2.3 % 10.1 % 1.5 % 8.6 %
The following table presents store operating data for the periods indicated:
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 30, July 31, July 30, July 31,
2022 2021 2022 2021
Operating Data:
Stores operating at end of period 242 244 242 244
Comparable store net sales change (1) (16.4) % 10.6 % (14.9) % 9.5 %
Total square feet at end of period (in
'000s) 1,767 1,788 1,767 1,788
Average net sales per physical store (in
'000s) (2) $ 570 $ 676 $ 1,056 $ 1,213
Average net sales per square foot (2)
$ 144 $ 165
E-commerce net sales (in ‘000s) (3)
$ 59,512 $ 72,807 E-commerce net sales as a percentage of net sales 18.5 % 18.5 % 18.9 % 19.9 % (1)Our comparable store net sales are defined as sales from our e-commerce platform and stores open on a daily basis compared to the same respective fiscal dates of the prior year. A remodeled or relocated store is included in comparable store net sales, both during and after construction, if the square footage of the store used to sell merchandise was not changed by more than 20% in any fiscal month. We include sales from our e-commerce platform as part of our comparable store net sales as we manage and analyze our business on an omni-channel basis and have substantially integrated our investments and 27
——————————————————————————–
Table of Contents
operations for our stores and e-commerce platform to give our customers seamless access and increased ease of shopping. Comparable store net sales exclude gift card breakage income, and e-commerce shipping and handling fee revenue. (2)The number of stores and the amount of square footage reflect the number of days during the period that stores were open. E-commerce sales, e-commerce shipping and handling fee revenue and gift card breakage income are excluded from net sales in deriving average net sales per retail store and average net sales per square foot. (3)E-commerce net sales include e-commerce sales and e-commerce shipping and handling fee revenue.
Second Quarter (13 Weeks) Ended
Weeks) Ended
Net Sales
Total net sales were
compared to
year’s pent-up consumer demand and stimulus payments resulting from the
pandemic.
•Net sales from physical stores were$137.1 million , a decrease of$27.5 million or 16.7%, compared to$164.6 million last year. Net sales from physical stores represented 81.5% of total net sales both this year and last year. The Company ended the second quarter with 242 total stores compared to 244 total stores at the end of the second quarter last year. •Net sales from e-commerce were$31.2 million , a decrease of$6.1 million or 16.4%, compared to$37.3 million last year. E-commerce net sales represented 18.5% of total net sales both this year and last year.
Gross Profit
Gross profit was$52.0 million , or 30.9% of net sales, compared to$74.7 million , or 37.0% of net sales, last year. Buying, distribution and occupancy costs deleveraged by 330 basis points collectively, despite being reduced by$0.9 million due to carrying these costs against a significantly lower level of net sales this year. Product margins declined by 280 basis points primarily due to an increased markdown rate compared to last year.
Selling, General and Administrative Expenses
SG&A expenses were
variances, both in terms of percentage of net sales and total dollars, were as
follows:
% $ millions Primarily Attributable to
(1.4)% $(2.8) Decrease in corporate bonus expense
due to lack of a bonus accrual in
fiscal 2022.
0.1% (0.7) Decrease in e-commerce marketing
expenses.
2.5% 0.5 Increase in store payroll and
related benefits primarily due to wage
inflation.
0.3% 0.3 Increase in technology services
costs.
0.3% Increase in e-commerce fulfillment
costs primarily due to wage
0.3 inflation.
0.3% 0.3 Increase in insurance premiums.
0.2% 0.3 Increase in donations expense.
1.6% 0.3 Net change in all other SG&A expenses.
3.9% $(1.5) Total
Operating Income
Operating income was
Income Tax Expense
Income tax expense was
effective income tax rate was primarily due to the discrete tax effects of
stock-based compensation.
Net Income and Income Per Diluted Share
Net income was
28
——————————————————————————–
Table of Contents
First Half (26 Weeks) Ended
Ended
Total net sales were
compared to
year’s pent-up consumer demand and stimulus impacts resulting from the pandemic.
•Net sales from physical stores were$254.6 million , a decrease of$37.7 million or 12.9%, compared to$292.3 million last year. Net sales from stores represented 81.1% of total net sales compared to 80.1% of total net sales last year. •Net sales from e-commerce were$59.5 million , a decrease of$13.3 million or 18.3%, compared to$72.8 million last year. E-commerce net sales represented 18.9% of total net sales compared to 19.9% of total net sales last year.
Gross Profit
Gross profit was
occupancy costs deleveraged by 270 basis points collectively, despite being
reduced by
lower level of net sales this year. Product margins declined by 230 basis points
primarily due to an increased markdown rate compared to last year.
Selling, General and Administrative Expenses
SG&A expenses were
variances, both in terms of percentage of net sales and total dollars, were as
follows:
% $ millions Primarily Attributable to
2.6% $2.5 Increase in store payroll and
related benefits primarily due to wage
inflation.
0.4% 1.6 Credit from the reversal of a
disputed
assessment in last year's first quarter.
0.3% 0.6 Increase in technology services costs.
0.2% 0.5 Increase in insurance premiums.
(1.2)% (4.3) Decrease in corporate bonus expense
due to lack of a bonus accrual in
fiscal 2022.
2.0% 0.4 Net change in all other SG&A expenses.
4.3% $1.3 Total
Operating Income
Operating income was
Income Tax Expense
Income tax expense was
effective income tax rate was primarily due to the discrete tax effects of
stock-based compensation.
Net Income and Income Per Diluted Share
Net income was
Liquidity and Capital Resources
Our business relies on cash flows from operating activities as well as cash on
hand as our primary sources of liquidity. We currently expect to finance company
operations, store growth and remodels, and all of our planned capital
expenditures with existing cash on hand, marketable securities and cash flows
from operations.
In addition to cash and cash equivalents and marketable securities, the most
significant components of our working capital are merchandise inventories,
accounts payable and accrued expenses. We believe that cash flows from operating
activities, our cash and marketable securities on hand, and credit facility
availability will be sufficient to cover our working capital requirements and
anticipated capital expenditures for the next 12 months from the filing of this
Report. If cash flows from operations are not sufficient or available to meet
our capital 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 stockholders.
29
——————————————————————————–
Table of Contents Working Capital Working capital atJuly 30, 2022 , was$86.4 million compared to$91.8 million atJanuary 29, 2022 , a decrease of$5.4 million . The changes in our working capital during the first half of fiscal 2022 were as follows: $ millions Description$91.8 Working capital atJanuary 29, 2022 (9.0) Repurchase of shares under our share repurchase program.
(4.4) Decrease primarily due to an increase in accrued expenses related to accrued
construction, returns reserves, and timing of sales tax
payments.
7.9 Increase in receivables, primarily due to timing of credit and debit card
receivables.
3.9 Increase in merchandise inventories, net of accounts payable.
(3.8) Other net decreases.
$86.4 Working capital at July 30, 2022
Cash Flow Analysis
A summary of operating, investing and financing activities for the twenty-six
weeks ended July 30, 2022 compared to the twenty-six weeks ended July 31, 2021
is shown in the following table (in thousands):
Twenty-Six Weeks Ended
July 30 , July 31,
2022 2021
Net cash (used in) provided by operating activities
$ 37,442 Net cash provided by (used in) investing activities 59,399
(10,097)
Net cash used in financing activities (8,975)
(21,635)
Net increase in cash and cash equivalents$ 43,309
Operating activities consist primarily of net income adjusted for non-cash items that include depreciation, asset impairment write-downs, deferred income taxes and share-based expense, plus the effect on cash of changes during the period in our assets and liabilities. Net cash used in operating activities was$7.1 million this year compared to net cash provided of$37.4 million last year. The$44.6 million decrease in cash provided by operating activities was primarily due to lower net sales in fiscal 2022 compared to record net sales in fiscal 2021. The net sales decline was primarily due to the impacts of pent-up customer demand following the winding down of the 2020 pandemic restrictions and the pandemic-related federal stimulus payments on fiscal 2021 operations, coupled with the negative impact of a highly inflationary consumer environment in fiscal 2022.
Net Cash Provided by (Used In) Investing Activities
Cash flows from investing activities consist primarily of capital expenditures
and maturities and purchases of marketable securities.
Net cash provided by investing activities was$59.4 million this year compared to$10.1 million in net cash used last year. Net cash provided by investing activities in the first half of fiscal 2022 consisted of maturities of marketable securities of$96.2 million , partially offset by the purchases of marketable securities of$29.9 million and capital expenditures totaling$6.9 million . Net cash used in investing activities during the first half of fiscal 2021 consisted of purchases of marketable securities of$66.6 million and capital expenditures totaling$8.5 million , partially offset by proceeds from the maturities of marketable securities of$65.0 million .
Financing activities primarily consist of cash dividend payments, borrowings and repayments of our line of credit, taxes paid in lieu of shares issued for share based compensation, share repurchases, and proceeds from employee exercises of stock options. Net cash used in financing activities was$9.0 million this year compared to net cash used of$21.6 million last year. Financing activities in the first half of fiscal 2022 consisted of cash used to repurchase shares of our common stock of$9.0 million , partially offset by proceeds from the exercise of stock options of$40 thousand . Financing activities in the first half of fiscal 2021 consisted of dividends paid of$30.7 million , partially offset by proceeds from the exercise of stock options of$9.1 million . 30
——————————————————————————–
Table of Contents Credit Agreement New Credit Agreement OnJanuary 20, 2022 , we entered into a senior secured credit agreement (the "Credit Agreement") and revolving line of credit note (the "Note") withWells Fargo Bank, National Association (the "Bank"). The Credit Agreement provides for a senior secured revolving credit facility ("Revolving Facility") of up to$25.0 million ("Revolving Commitment") consisting of revolving loans, letters of credit and swing line loans, with a sub-limit on letters of credit outstanding at any time of$15.0 million . The Revolving Facility matures onJanuary 20, 2024 . The payment and performance in full of the secured obligations under the Revolving Facility are secured by a lien on and security interest in all of the assets of our company. The payment and performance in full of the obligations under the Credit Agreement are guaranteed by the Company pursuant to a continuing guaranty (the "Guaranty") granted by the Company in favor of the Bank. The payment and performance of the Company's obligations under the Guaranty are secured by a lien on, and pledge of, all of the equity interests owned by the Company. Borrowings under the Revolving Facility bear interest at a rate per annum equal to the daily simple Secured Overnight Financing Rate ("SOFR") plus 0.75%. Amounts available to be drawn under outstanding letters of credit accrue fees in an amount equal to 1.00% per annum. The unused portion of the Revolving Commitment is not subject to a commitment fee. Under the Credit Agreement, we are subject to a variety of affirmative and negative covenants of types customary in a cash-flow-based lending facility, including financial covenants that require maintenance of (1) a ratio of total funded debt to earnings before interest, taxes, depreciation, amortization and annual rent expenses no greater than 4.00 to 1.00 and (2) a fixed charge coverage ratio of not less than 1.25 to 1.00 (calculation of which takes into account dividends, distributions, redemptions and repurchases of the equity interests of the Company only if the Company's cash on hand, net of any amounts outstanding under the Credit Agreement, is less than$50.0 million after giving effect to such dividends, distributions, redemptions or repurchases). Events of default under the Credit Agreement include, among other things, failure to pay principal, interest, fees or other amounts; covenant defaults; material inaccuracy of representations and warranties; bankruptcy events with respect to the Company; actual or asserted invalidity of any of the loan documents; or a change of control of the Company. In connection with the entry into the Credit Agreement, onJanuary 20, 2022 , we entered into certain ancillary agreements, including (i) a security agreement in favor of the Bank (ii) a guaranty entered into by the Company, and (iii) a third party pledge agreement entered into by the Company in favor of the Bank. The security agreement, the guaranty and the pledge agreement replaced (i) the guaranty by the Company in favor of the Bank, datedNovember 9, 2020 , and (ii) the security agreement dated as ofNovember 9, 2020 , among the Company and the Bank, which were both terminated concurrently with the termination of the Prior Credit Agreement.
As of
outstanding borrowings under the Credit Agreement.
Prior Credit Agreement
The Credit Agreement replaced our previously existing asset-backed credit agreement (the "Prior Credit Agreement"), dated as ofNovember 9, 2020 , as amended, with the Bank, which had revolving commitments of up to$65.0 million , a sub-limit on letters of credit of$10.0 million and a sub-limit for swing-line loans of$7.5 million . The Prior Credit Agreement was terminated concurrently with the entry into the Credit Agreement. The maximum borrowings permitted under the Prior Credit Agreement was equal to the lesser of (x) the revolving commitment and (y) the borrowing base. The borrowing base was equal to (a) 90% of the borrower's eligible credit card receivables, plus (b) 90% of the cost of the borrower's eligible inventory, less inventory reserves established by the agent, and adjusted by the appraised value of such eligible inventory, plus (c) 90% of the cost of the borrower's eligible in-transit inventory, less inventory reserves established by the agent, and adjusted by the appraised value of such eligible in-transit inventory (not to exceed 10% of the total amount of all eligible inventory included in the borrowing base) less (d) reserves established by the agent. As of the date the Prior Credit Agreement was terminated, we had no outstanding borrowings under the Credit Agreement and the only utilization of the letters of credit sub-limit under the Credit Agreement was a$2.025 million irrevocable standby letter of credit, which was previously issued under the Prior Credit Agreement and was transferred on such date to the Credit Agreement. The unused portion of the revolving commitment under the Prior Credit Agreement accrued a commitment fee, which ranged from 0.375% to 0.50% per annum, based on the average daily borrowing capacity under the revolving facility over the applicable fiscal quarter. Borrowings under the Prior Credit Agreement bear interest at a rate per annum that ranged from the LIBOR rate plus 2.0% to the LIBOR rate plus 2.25%, or the base rate plus 1.0% to the base rate plus 1.25%, based on the average daily borrowing capacity under the Prior Credit Agreement over the applicable fiscal quarter. We were allowed to elect to apply either the LIBOR rate or base rate interest to borrowings at our discretion, other than in the case of swing line loans, to which the base rate shall apply. 31
——————————————————————————–
Table of Contents
Under the Prior Credit Agreement, we were subject to a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including a financial covenant relating to availability, and customary events of default. Prior to the first anniversary of the closing date, we were prohibited from declaring or paying any cash dividends to our respective stockholders or repurchasing of our own common stock. After the first anniversary of the closing date, we were allowed to declare and pay cash dividends to our respective stockholders and repurchase our own common stock, provided, among other things, no default or event of default exists as of the date of any such payment and after giving effect thereto and certain minimum availability and minimum projected availability tests are satisfied.
Contractual Obligations
As of
obligations as described in the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” section of our Annual Report on
Form 10-K for the fiscal year ended
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted inthe United States requires the appropriate application of certain accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements. Since future events and their impact cannot be determined with absolute certainty, the actual results will inevitably differ from our estimates. As noted elsewhere in this Report, the COVID-19 pandemic has had significant impacts on our business and the economy generally, making estimates and assumptions about future events far more difficult, if not impossible. A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year endedJanuary 29, 2022 .
© Edgar Online, source
[ad_2]
Source link
![The Map to Creating Your Own Content Calendar [Infographic]](https://blog.topseosupertools.com/wp-content/uploads/2022/08/bG9jYWw6Ly8vZGl2ZWltYWdlL2NvbnRlbnRfY2FsZW5kYXJfc2VtcnVzaDIucG5n-120x86.png)
