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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For purposes of the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” unless the context requires otherwise, references to “the Company,” “we,” “our,” or “us” refer to Burlington Stores, Inc. and its consolidated subsidiaries.

The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report.

In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions set forth under the caption above entitled “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results or other events and the timing of events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Item 1A, Risk Factors and elsewhere in this Annual Report.

General

We are a nationally recognized off-price retailer of high-quality, branded merchandise at everyday low prices. We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, we have expanded our store base to 840 stores as of January 29, 2022 in 45 states and Puerto Rico. We have diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise at up to 60% off other retailers’ prices, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats. We sell a broad selection of desirable, first-quality, current-brand, labeled merchandise acquired directly from nationally-recognized manufacturers and other suppliers.

Executive Summary

COVID-19

On March 11, 2020, the World Health Organization declared the novel coronavirus (known as COVID-19) outbreak to be a global pandemic. As a result, we began the temporary closing of some of our stores, and effective March 22, 2020, we made the decision to temporarily close all of our stores, distribution centers (other than processing of received inventory) and corporate offices to combat the rapid spread of COVID-19. These developments caused significant disruptions to our business and had a significant adverse impact on our financial condition, results of operations and cash flows. We began re-opening stores on May 11, 2020, with substantially all stores re-opened by the end of the second quarter of Fiscal 2020.

In response to the COVID-19 pandemic and the temporary closing of our stores, we provided two weeks of financial support to associates impacted by these store closures and by the shutdown of distribution centers. We temporarily furloughed most store and distribution center associates, as well as some corporate associates, but continued to provide benefits to furloughed associates in accordance with our benefit plans. In addition, we paid 100% of their medical benefit premiums during the period they were furloughed. During the second quarter of Fiscal 2020, we recalled all furloughed associates at our re-opened stores, as well as our corporate and distribution facilities.

In order to maintain maximum financial flexibility during the pandemic, we completed several debt transactions in the first quarter of Fiscal 2020. Refer to Note 7, “Long Term Debt,” for further discussion regarding these debt transactions.

Additionally, we took the following steps to further enhance our financial flexibility:

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Due to the aging of inventory related to the temporary store closures discussed above, as well as the impact of seasonality on our merchandise, we recognized inventory markdown reserves of $271.9 million during the three month period ended May 2, 2020. These reserves covered markdowns taken during the second quarter of Fiscal 2020. These charges were included in “Cost of sales” on our Consolidated Statement of Income (Loss).

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law, which provided emergency economic assistance for American workers, families and businesses affected by the COVID-19 pandemic. As a result of amending prior returns to carry back the federal net operating loss generated on the Fiscal 2020 tax return, we expect to obtain a one-time tax refund of $245.5 million, which is included in the line item “Prepaid and other current assets” on our Consolidated Balance Sheet.

Store Openings, Closings and Relocations

During Fiscal 2021, we opened 101 new stores, inclusive of 17 relocations, and closed five stores, exclusive of the aforementioned relocations, bringing our store count as of January 29, 2022 to 840 stores. We continue to pursue our growth plans and invest in capital projects that meet our financial requirements. During the fiscal year ending January 28, 2023 (Fiscal 2022), we plan to open approximately 90 net new stores,which includes approximately 120 gross new stores, along with approximately 30 store relocations and closings.

Ongoing Initiatives for Fiscal 2022

Since the beginning of the COVID-19 pandemic, protecting the health and safety of our customers, associates, and the communities that we serve has been our top priority. Accordingly, we moved quickly to close our stores, distribution centers, and corporate offices in March 2020. As we’ve re-opened our stores and distribution centers, we continue to keep health and safety as a top priority.

We continue to focus on a number of ongoing initiatives aimed at increasing our overall profitability. These initiatives include, but are not limited to:

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Driving Comparable Store Sales Growth.

We intend to continue to increase comparable store sales through the following initiatives:

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More Effectively Chasing the Sales Trend. We plan sales using conservative comparable stores sales growth, holding and controlling liquidity, closely analyzing the sales trend by business, and remaining ready to chase that trend. We believe that these actions will also allow us to take more advantage of great opportunistic buys.

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Operating with Leaner Inventories. We are planning to carry less inventory in our stores going forward, which we believe should result in the customer finding a higher mix of fresh receipts and great merchandise values. We believe that this should drive faster turns and lower markdowns, while simultaneously improving our customers’ shopping experience.

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Making a Greater Investment in Merchandising Capabilities. We intend to invest in incremental headcount, especially in growing or under-developed businesses, training and coaching, improved tools and reporting, and other forms of merchant support. We believe that these investments should improve our ability to develop vendor relationships, source great merchandise buys, more accurately assess value, and better forecast and chase the sales trend.

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Enhancing Existing Categories and Introducing New Categories. We have opportunities to expand the depth and breadth of certain existing categories, such as ladies’ apparel, children’s products, bath and cosmetic merchandise,

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housewares, décor for the home and beauty as we continue to de-weather our business, and maintain the flexibility to introduce new categories as we expand our merchandising capabilities.

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Expanding and Enhancing Our Retail Store Base.

We intend to expand and enhance our retail store base through the following initiatives:

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Adhering to a Market Focused and Financially Disciplined Real Estate Strategy. We have grown our store base consistently since our founding in 1972, developing more than 99% of our stores organically. We believe there is significant opportunity to expand our retail store base in the United States. As a result of our smaller store prototype, we have identified numerous market opportunities that we believe will allow us to operate 2,000 stores over the long term.

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Maintaining Focus on Unit Economics and Returns. We have adopted a market focused approach to new store openings in more productive retail locations, with a specific focus on maximizing sales while achieving attractive unit economics and returns. Additionally, as we continue to execute our smaller store prototype, we believe we can reduce occupancy and operating expenses.

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Enhancing the Store Experience. We continue to invest in select store relocations and downsizes to improve the customer experience, taking into consideration the age, size, sales, and location of a store. Relocations provide an opportunity, upon leases expiration, to right-size our stores, improve our competitive positioning, incorporate our new prototype store designs and reduce occupancy costs. Downsizes provide an opportunity to right-size our stores, within our existing space, improve co-tenancy, incorporate all of our new store designs and reduce occupancy costs During Fiscal 2021, we relocated or downsized a total of 20 stores.

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Enhancing Operating Margins.

We intend to increase our operating margins through the following initiatives:

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Improving Operational Flexibility. Our store and supply chain teams must continue to respond to the challenge of becoming more responsive to the sales chase, enhancing their ability at flexing up and down based on trends. Their ability to appropriately flex based on the ongoing trends allows us to maximize leverage on sales, regardless of the trend.

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Optimizing Markdowns. We believe that our markdown system allows us to maximize sales and gross margin dollars based on forward-looking sales forecasts, sell-through targets and exit dates. Additionally, as we plan to carry less inventory in our stores, we expect to drive faster turns, which in turn will reduce the amount of markdowns taken.

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Enhancing Purchasing Power.We believe that increasing our store footprint and expanding our east and west coast buying offices provides us with the opportunity to capture incremental buying opportunities and realize economies of scale in our merchandising and non-merchandising purchasing activities.

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Challenging Expenses to Drive Operating Leverage. We believe that we will be able to leverage our growing sales over the fixed costs of our business. In addition, by more conservatively planning our comparable store sales growth, we are forcing even tighter expense control throughout all areas of our business. We believe that this should put us in a strong position to drive operating leverage on any sales ahead of the plan. Additionally, we plan to continue challenging the processes and operating norms throughout the organization with the belief that this will lead to incremental efficiency improvements and savings.

Uncertainties and Challenges

As we strive to increase profitability through achieving positive comparable store sales and leveraging productivity initiatives focused on improving the in-store experience, more efficient movement of products from the vendors to the selling floors, and modifying our marketing plans to increase our core customer base and increase our share of our current customers’ spending, there are uncertainties and challenges that we face as an off-price retailer of apparel and accessories for men, women and children and home furnishings that could have a material impact on our revenues or income.

COVID-19. The extent of the continuing impact of the COVID-19 pandemic on our business will depend largely on future developments, including the production and administration of effective medical treatments and vaccines, the timing and extent of the recovery in traffic and consumer spending at our stores, additional costs and delays related to our supply chain, reduced workforces or labor shortages and scarcity of raw materials, and any future required store closures because of COVID-19 resurgences. COVID-19

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presents material uncertainty and risk with respect to our business, financial performance and condition, operating results, liquidity and cash flows.

General Economic Conditions.Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing global economic conditions, inflation, including the costs of basic necessities and other goods, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy costs, commodities pricing, income tax rates and policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by consumers’ disposable income, credit availability and debt levels.

A broad, protracted slowdown in the U.S. economy, an extended period of high unemployment rates, an uncertain global economic outlook or a credit crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis. Consumer confidence is also affected by the domestic and international political situation. Our financial condition and operations could be impacted by changes in government regulations in areas including, but not limited to, taxes and healthcare. Ongoing international trade and tariff negotiations could have a direct impact on our income and an indirect impact on consumer prices. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the U.S., or public health issues such as pandemics or epidemics, including the continuing COVID-19 pandemic, could lead to a decrease in spending by consumers. In addition, natural disasters, public health issues, industrial accidents and acts of war in various parts of the world, such as the current conflict in Ukraine, could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and U.S. economies and lead to a downturn in consumer confidence and spending.

We closely monitor our net sales, gross margin and expenses. We have performed scenario planning such that if our net sales decline for an extended period of time, we have identified variable costs that could be reduced to partially mitigate the impact of these declines. If we were to experience adverse economic trends and/or if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods.

Seasonality of Sales and Weather Conditions. Our business, like that of most retailers, is subject to seasonal influences. In the second half of the year, which includes the back-to-school and holiday seasons, we generally realize a higher level of sales and net income.

Weather continues to be a contributing factor to the sale of our clothing. Generally, our sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are increased by early cold weather during the Fall, while sales of warm weather clothing are improved by early warm weather conditions in the Spring. Although we have diversified our product offerings, we believe traffic to our stores is still driven, in part, by weather patterns.

Competition and Margin Pressure. We believe that in order to remain competitive with retailers, including off-price retailers and discount stores, we must continue to offer brand-name merchandise at a discount to prices offered by other retailers as well as an assortment of merchandise that is appealing to our customers.

The U.S. retail apparel and home furnishings markets are highly fragmented and competitive. We compete for business with department stores, off-price retailers, internet retailers, specialty stores, discount stores, wholesale clubs, and outlet stores as well as with certain traditional, full-price retail chains that have developed off-price concepts. At various times throughout the year, traditional full-price department store chains and specialty shops offer brand-name merchandise at substantial markdowns, which can result in prices approximating those offered by us at our Burlington Stores. We anticipate that competition will increase in the future. Therefore, we will continue to look for ways to differentiate our stores from those of our competitors.

The U.S. retail industry continues to face increased pressure on margins as overall challenging retail conditions have led consumers to be more value conscious. Our strategy to chase the sales trend allows us the flexibility to purchase less pre-season merchandise with the balance purchased in-season and opportunistically. It also provides us with the flexibility to shift purchases between suppliers and categories. This enables us to obtain better terms with our suppliers, which we expect to help offset any rising costs of goods.

Industry-wide supply chain issues have led to increased freight and labor costs during Fiscal 2021 and may continue to add pressure on margins into Fiscal 2022. These costs significantly impacted results in Fiscal 2021 and there remains significant uncertainty around when and if freight costs will return to pre-pandemic levels. Additionally, the higher our sales volume is, and the more sales we chase above our initial plans, the more these increased supply chain costs will impact our margins.

We have also experienced inflationary pressure in our supply chain and with respect to raw materials and finished goods. There can be no assurance that we will be able to offset inflationary pressure in the future, or that our business will not be negatively affected by continued inflation in the future.

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Key Performance Measures

We consider numerous factors in assessing our performance. Key performance measures used by management include net income (loss), Adjusted Net Income (Loss), Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory, store payroll and liquidity.

Net income (loss). We earned net income of $408.8 million during Fiscal 2021 compared with a net loss of $216.5 million during Fiscal 2020. This increase was primarily driven by the temporary closure of all our stores during Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales growth during Fiscal 2021, partially offset by debt extinguishment charges during Fiscal 2021. Refer to the section below entitled “Results of Operations” for further explanation.

Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT: Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT are non-GAAP financial measures of our performance.

We define Adjusted Net Income (Loss) as net income (loss), exclusive of the following items, if applicable: (i) net favorable lease costs; (ii) costs related to debt issuances and amendments; (iii) loss on extinguishment of debt; (iv) impairment charges; (v) amounts related to certain litigation matters; (vi) non-cash interest on the Convertible Notes; (vii) costs related to closing the e-commerce store; and (viii) other unusual, non-recurring or extraordinary expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net Income (Loss).

We define Adjusted EBITDA as net income (loss), exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on extinguishment of debt; (iv) income tax expense (benefit); (v) depreciation and amortization; (vi) impairment charges; (vii) costs related to debt issuances and amendments; (viii) amounts related to certain litigation matters; (ix) costs related to closing the e-commerce store; and (x) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

We define Adjusted EBIT as net income (loss), exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on extinguishment of debt; (iv) income tax expense(benefit); (v) impairment charges; (vi) net favorable lease costs; (vii) costs related to debt issuances and amendments; (viii) amounts related to certain litigation matters; (ix) costs related to closing the e-commerce store; and (x) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

We present Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBIT because we believe they are useful supplemental measures in evaluating the performance of our business and provide greater transparency into our results of operations. In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from what we consider to be our core operating results are useful supplemental measures that assist investors and management in evaluating our ability to generate earnings and leverage sales, and to more readily compare core operating results between past and future periods.

Adjusted Net Income (Loss) has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income (loss) or other data prepared in accordance with GAAP. Among other limitations, Adjusted Net Income (Loss) does not reflect the following items, net of their tax effect:

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favorable lease costs;

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costs related to debt issuances and amendments;

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losses on extinguishment of debt;

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amounts charged for certain litigation matters;

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non-cash interest expense related to original issue discount on the Convertible Notes;

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impairment charges on long-lived assets;

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costs related to closing the e-commerce store; and

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other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

During Fiscal 2021, Adjusted Net Income (Loss) improved $742.7 million to $573.2 million. This increase was primarily driven by the temporary closure of all our stores during Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales growth during Fiscal 2021. Refer to the section below entitled “Results of Operations” for further explanation.

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The following table shows our reconciliation of net income (loss) to Adjusted Net Income (Loss) for Fiscal 2021, Fiscal 2020 and Fiscal 2019:

(unaudited)

(in thousands)

Fiscal Year Ended

January 29, January 30, February 1,

Reconciliation of net income (loss) to Adjusted Net Income (Loss):

Non-cash interest expense on convertible notes (b) — 23,988 —

Costs related to debt issuances and amendments (c) 3,419 3,633 (375 )

Loss on extinguishment of debt (d) 156,020 202 —

Litigation matters (e) — 22,788 —

E-commerce closure (f) — 1,549 —

(a) Net favorable lease costs represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of purchase accounting related to the April 13, 2006 Bain Capital acquisition of Burlington Coat Factory Warehouse Corporation (the Merger Transaction). These expenses are recorded in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income (Loss).

(b) Represents non-cash accretion of original issue discount on the Convertible Notes. The original issue discount was eliminated as of the beginning of Fiscal 2021, as a result of adopting Accounting Standards Update (ASU) 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06).

(c) Represents costs incurred in connection with the review and execution of refinancing opportunities, as well as the issuance of the $300.0 million 6.25% Senior Secured Notes due 2025 (Secured Notes) and the Convertible Notes.

(d) Amounts relate to the partial repurchase of the Convertible Notes, the full redemption of the Secured Notes, as well as the refinancing of the Term Loan Credit Agreement governing our senior secured credit term loan facility (Term Loan Facility).

(e) Represents amounts charged for certain litigation matters.

(f) Represents costs related to the closure of our e-commerce store.

(g) Tax effect is calculated based on the effective tax rates (before discrete items) for the respective periods, for the tax impact of items (a) through (f). The effective tax rate during Fiscal 2020 includes the benefit of loss carrybacks to prior years with higher statutory tax rates.

Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income (loss) or other data prepared in accordance with GAAP. Among other limitations, Adjusted EBITDA does not reflect:

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net interest expense;

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losses on the extinguishment of debt;

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costs related to debt issuances and amendments;

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cash requirements for replacement of assets. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will likely have to be replaced in the future;

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amounts charged for certain litigation matters

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impairment charges on long-lived assets;

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costs related to closing the e-commerce store;

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income tax expense (benefit); and

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other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

During Fiscal 2021, Adjusted EBITDA improved $1,113.6 million to $1,050.9 million. This increase was primarily driven by the temporary closure of all our stores during Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales growth during Fiscal 2021. Refer to the section below entitled “Results of Operations” for further explanation.

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The following table shows our reconciliation of net income (loss) to Adjusted EBITDA for Fiscal 2021, Fiscal 2020 and Fiscal 2019:

(unaudited)

(in thousands)

Fiscal Year Ended

January 29, January 30, February 1,

Reconciliation of net income (loss) to Adjusted EBITDA:

Loss on extinguishment of debt (a) 156,020 202 —

Costs related to debt issuances and amendments (b) 3,419 3,633 (375 )

Litigation matters (c) — 22,788 —

E-commerce closure (d) — 1,549 —

(a) Amounts relate to the partial repurchase of the Convertible Notes, the full redemption of the Secured Notes, as well as the refinancing of the Term Loan Facility.

(b) Represents costs incurred in connection with the review and execution of refinancing opportunities, as well as the issuance of the Secured Notes and the Convertible Notes.

(c) Represents amounts charged for certain litigation matters.

(d) Represents costs related to the closure of our e-commerce store.

(e) Includes $21.9 million, $23.9 million, and $35.4 million of favorable lease costs included in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income (Loss) for Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively. Net favorable lease cost represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of the Merger Transaction.

Adjusted EBIT has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income (loss) or other data prepared in accordance with GAAP. Among other limitations, Adjusted EBIT does not reflect:

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net interest expense;

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losses on the extinguishment of debt;

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costs related to debt issuances and amendments;

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net favorable lease cost;

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amounts charged for certain litigation matters;

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impairment charges on long-lived assets;

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costs related to closing the e-commerce store;

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income tax expense (benefit); and

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other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

During Fiscal 2021, Adjusted EBIT improved $1,084.6 million to $801.7 million. This increase was primarily driven by the temporary closure of all our stores during Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales growth during Fiscal 2021. Refer to the section below entitled “Results of Operations” for further explanation.

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The following table shows our reconciliation of net income (loss) to Adjusted EBIT for Fiscal 2021, Fiscal 2020 and Fiscal 2019:

(unaudited)

(in thousands)

Fiscal Year Ended

January 29, January 30, February 1,

Reconciliation of net income (loss) to Adjusted EBIT:

Loss on extinguishment of debt (a) 156,020 202 —

Costs related to debt issuances and amendments (b) 3,419 3,633 (375 )

Litigation matters (d) — 22,788 —

E-commerce closure (e) — 1,549 —

(a) Amounts relate to the partial repurchase of the Convertible Notes, the full redemption of the Secured Notes, as well as the refinancing of the Term Loan Facility.

(b) Represents costs incurred in connection with the review and execution of refinancing opportunities, as well as the issuance of the Secured Notes and the Convertible Notes.

(c) Net favorable lease costs represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of the Merger Transaction. These expenses are recorded in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income (Loss).

(d) Represents amounts charged for certain litigation matters.

(e) Represents costs related to the closure of our e-commerce store.

Comparable Store Sales. Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year. Due to the impact of the COVID-19 pandemic, including the temporary closing of all stores during Fiscal 2020, we are using Fiscal 2019 as the comparable previous year period when calculating comparable store sales for Fiscal 2021. The method of calculating comparable store sales varies across the retail industry. As a result, our definition of comparable store sales may differ from other retailers.

For Fiscal 2021, we define comparable store sales as merchandise sales of those stores, commencing on the first day of the fiscal month two years after the end of their grand opening activities, which normally conclude within the first two months of operations. If a store is closed for seven or more days during a month, our policy is to remove that store from our calculation of comparable stores sales for any such month, as well as during the month(s) of their grand re-opening activities. Comparable store sales increased 15% and 3% in full year periods for Fiscal 2021 and Fiscal 2019, respectively. Comparable store sales were not meaningful for Fiscal 2020 due to the temporary store closures resulting from the COVID-19 pandemic.

Various factors affect comparable store sales, including weather conditions, current economic conditions, the timing of our releases of new merchandise and promotional events, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition and the success of marketing programs.

Gross Margin. Gross margin is the difference between net sales and the cost of sales. Our cost of sales and gross margin may not be comparable to those of other entities, since some entities include all of the costs related to their buying and distribution functions, certain store-related costs and other costs, in cost of sales. We include certain of these costs in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in our Consolidated Statements of Income (Loss). We include in our “Cost of sales” line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, distribution center outbound freight and certain merchandise acquisition costs, primarily commissions and import fees. Gross margin as a percentage of net sales expanded to 41.6% during Fiscal 2021, compared with 38.2% during Fiscal 2020, driven primarily by inventory markdowns in Fiscal 2020 due to aged inventory at closed stores and warehouses, partially offset by increased freight costs in Fiscal 2021.

Inventory. Inventory at January 29, 2022 increased to $1,021.0 million from $740.8 million at January 30, 2021. This increase was primarily due to our 79 net new stores since the end of Fiscal 2020.

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Comparable store inventory at January 29, 2022 decreased 30% compared to February 1, 2020, driven by the continued execution of our strategy to operate with leaner in-store inventory. Reserve inventory was 50% of total inventory as of January 29, 2022, compared with 33% as of February 1, 2020. Reserve inventory includes all inventory that is being stored by our warehouses and distribution centers for release either later in the season, or in a subsequent season. We intend to use our reserve merchandise to effectively chase sales trends.

In order to better serve our customers and maximize sales, we continue to refine our merchandising mix and inventory levels within our stores. By appropriately managing our inventories, we believe we will be better able to deliver a continual flow of fresh merchandise to our customers.

Store Payroll. The method of calculating store payroll varies across the retail industry. As a result, our store payroll may differ from other retailers. We define store payroll as regular and overtime payroll for all store personnel as well as regional and territory personnel, exclusive of payroll charges related to corporate and warehouse employees.

As a result of the COVID-19 pandemic, we temporarily furloughed most store associates in March 2020, while providing two weeks of financial support to impacted associates. We also continued to provide benefits to furloughed associates, including paying 100% of their current medical benefit premiums while they were furloughed. As a result of these actions, store payroll costs increased to $754.9 million during Fiscal 2021, compared with $572.0 million during Fiscal 2020.

Liquidity. Liquidity measures our ability to generate cash. Management measures liquidity through cash flow, which is the measure of cash generated from or used in operating, financing, and investing activities. Cash and cash equivalents, including restricted cash and cash equivalents, decreased $289.2 million during Fiscal 2021, compared with an increase of $977.2 million during Fiscal 2020. Refer to the section below entitled “Liquidity and Capital Resources” for further explanation.

During Fiscal 2020, we took several steps to effectively manage our liquidity during the COVID-19 pandemic, including careful management of operating expenses, working capital and capital expenditures, as well as temporarily suspending our share repurchase program. We resumed the share repurchase program during the third quarter of Fiscal 2021, with $250.0 million repurchased in total during the year.

During Fiscal 2020, we borrowed $400 million on our existing ABL Line of Credit, issued $805 million of our Convertible Notes, and through Burlington Coat Factory Warehouse Corporation, an indirect subsidiary of the Company (BCFWC), issued $300 million of our Secured Notes.

We repaid $150.0 million on the ABL Line of Credit during the second quarter of Fiscal 2020, and the remaining $250.0 million during the fourth quarter of Fiscal 2020. On June 11, 2021, BCFWC redeemed the full $300.0 million aggregate principal amount of the Secured Notes. During Fiscal 2021, we redeemed $160.4 million and $72.3 million related to partial repurchases of the Convertible Notes. At January 29, 2022, we had $594.6 million available under the ABL Line of Credit. We also had irrevocable letters of credit in the amount of $55.4 million as of January 29, 2022.

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Results of Operations

The following table sets forth certain items in the Consolidated Statements of Income (Loss) as a percentage of net sales for the periods indicated.

Percentage of Net Sales

Fiscal Year Ended

January 29, January 30, February 1,

Selling, general and administrative expenses 30.8 40.5 30.7

Costs related to debt issuances and amendments 0.0 0.1 (0.0 )

Depreciation and amortization 2.7 3.8 2.9

Impairment charges - long-lived assets 0.1 0.1 0.1

Other income - net (0.1 ) (0.1 ) (0.2 )

Loss on extinguishment of debt 1.7 0.0 -

Income (loss) before income tax expense (benefit) 5.9 (7.7 ) 8.0

Income tax expense (benefit) 1.5 (3.8 ) 1.6

Net income (loss) 4.4 % (3.9 )% 6.4 %

Performance for Fiscal Year Ended January 29, 2022 (Fiscal 2021) Compared with Fiscal Year Ended January 30, 2021 (Fiscal 2020)

Net sales

Net sales improved $3,555.0 million, or 61.8%, to $9,306.5 million, primarily due to the temporary closure of all our stores during Fiscal 2020. This improvement was also driven by net sales from our 79 net new stores opened since the end of Fiscal 2020.

Other revenue

Other revenue improved $3.3 million to $15.7 million, primarily driven by increased revenue from our private label credit card.

Cost of sales

Cost of sales as a percentage of net sales improved to 58.4% during Fiscal 2021, driven primarily by a $271.9 million charge against aged inventory in the first quarter of Fiscal 2020 due to the extended store closures, partially offset by increased industry-wide supply chain costs during Fiscal 2021. On a dollar basis, cost of sales increased $1,881.1 million, or 52.9%, primarily driven by our overall increase in sales as well as increased industry-wide supply chain costs. Product sourcing costs, which are included in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income (Loss), were $618.3 million during Fiscal 2021, compared to $433.8 million during Fiscal 2020.

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Selling, general and administrative expenses

The following table details selling, general and administrative expenses for Fiscal 2021 compared with Fiscal 2020.

(in millions)

Fiscal Year Ended

The decrease in selling, general and administrative expenses as a percentage of net sales was primarily driven by the overall increase in sales. On a dollar basis, the increase in selling, general and administrative expenses was primarily due to our higher store count and sales volume, which drove increases in store related costs, primarily store payroll and occupancy costs, as well as product sourcing costs. Additionally, significant steps were taken to reduce selling, general and administrative expenses during the period stores were closed during Fiscal 2020.

Costs related to debt issuances and amendments

During Fiscal 2021, we incurred $3.4 million of legal and placement fees related to the refinancing of our Term Loan Facility. During Fiscal 2020, we incurred legal fees related to the issuance of our Secured Notes of $2.5 million, as well as legal and placement fees of $1.1 million related to the refinancing our Term Loan Facility. Refer to Note 7, “Long Term Debt,” for further discussion regarding our debt transactions.

Depreciation and amortization

Depreciation and amortization expense amounted to $249.2 million during Fiscal 2021, compared with $220.4 million during Fiscal 2020. The increase in depreciation and amortization expense was primarily driven by capital expenditures related to our new and non-comparable stores.

Impairment charges—long-lived assets

Impairment charges related to long-lived assets were $7.7 million and $6.0 million during Fiscal 2021 and Fiscal 2020, respectively, related to store-level assets and lease assets at 9 stores and 14 stores during Fiscal 2021 and Fiscal 2020, respectively.

The recoverability assessment related to these store-level assets requires various judgments and estimates, including estimates related to future revenues, gross margin rates, store expenses, market rent rates and other assumptions. We base these estimates upon our past and expected future performance. We believe our estimates are appropriate in light of current market conditions. However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store.

Other income, net

Other income, net (consisting of gains and losses on insurance proceeds, interest income, net gains and losses on disposition of assets, gift card breakage, and other miscellaneous items) improved $3.3 million to $11.6 million during Fiscal 2021. The improvement in other income was primarilydriven by increased recycling income due to store and distribution center closures in Fiscal 2020 and the sale of New Jersey Grow tax credits in Fiscal 2021, partially offset by losses on fixed asset disposal in Fiscal 2021.

Loss on Extinguishment of Debt

During Fiscal 2021, we incurred debt extinguishment charges of $124.6 million related to the partial repurchases of the Convertible Notes, $30.2 million related to the premium paid on redemption of the Secured Notes, as well as $1.2 million related to the refinancing of our Term Loan Facility. Refer to Note 7, “Long Term Debt,” for further discussion regarding our debt transactions.

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Interest expense

Interest expense improved $30.3 million to $67.5 million. The decrease was primarily driven by the adoption of ASU 2020-06, which eliminated the amortization of debt discount previously associated with the Convertible Notes. The decrease was also driven by the partial repurchase of $232.7 million of Convertible Notes and redemption in full of the $300.0 million Secured Notes in Fiscal 2021, as well as the paydown of our ABL Line of Credit during Fiscal 2020.

Our average interest rates and average balances related to our variable rate debt for Fiscal 2021 compared with Fiscal 2020 are summarized in the table below:

Fiscal Year Ended

January 29, January 30,

Average balance – ABL Line of Credit (in millions) $ — $ 256.6

Average interest rate – ABL Line of Credit — 1.9%

Average balance – Term Loan Facility (in millions) (a) $ 960.4 $ 961.4

Average interest rate – Term Loan Facility 2.0% 2.2%

(a)

Excludes original issue discount

Income tax expense (benefit)

Income tax expense (benefit) was an expense of $136.5 million for Fiscal 2021 compared with a benefit of $221.1 million for Fiscal 2020. The effective tax rate was 25.0% related to pretax income of $545.3 million for Fiscal 2021, and 50.5% related to pretax loss of $437.6 million for Fiscal 2020. The income tax benefit in the prior year was a result of the pre-tax loss and the carry-back of net operating losses arising in Fiscal 2020 to the five prior tax years, as permitted under the CARES Act. The higher effective tax rate in the prior year was a function of losses facilitating a refund receivable upon amending previously filed returns at a 35% tax rate. Additionally, excess tax benefit from stock compensation drove an increase in the tax rate related to pre-tax loss in Fiscal 2020, compared to a decrease in the tax rate related to pre-tax income in Fiscal 2021.

Net income (loss)

We earned net income of $408.8 million during Fiscal 2021 compared with a net loss of $216.5 million for Fiscal 2020. This improvement was primarily driven by the temporary closure of all our stores during Fiscal 2020, caused by the COVID-19 pandemic, as well as our sales growth during Fiscal 2021, partially offset by debt extinguishment charges during Fiscal 2021.

Performance for Fiscal Year Ended January 30, 2021 (Fiscal 2020) Compared with Fiscal Year Ended February 1, 2020 (Fiscal 2019)

For a discussion related to Fiscal 2020 performance compared to Fiscal 2019 performance, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021 (Fiscal 2020 10-K).

Liquidity and Capital Resources

Our ability to satisfy interest and principal payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service interest and principal payment obligations on our outstanding indebtedness, and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed on terms similar to our current financing agreements, or at all.

As a result of the uncertainty regarding the COVID-19 pandemic, we took a number of measures to manage its cash flow. These measures included carefully managing operating expenses, working capital and capital expenditures, as well as temporarily suspending our share repurchase program. We resumed the share repurchase program during the third quarter of Fiscal 2021, with $250.0 million repurchased in total during the year.

We completed several debt transactions in order to facilitate increased financial flexibility in response to the COVID-19 pandemic. During March 2020, we borrowed $400.0 million on our existing ABL Line of Credit. We repaid $150.0 million on the ABL Line of Credit during the second quarter of Fiscal 2020, and the remaining $250.0 million during the fourth quarter of Fiscal 2020. On April 16, 2020, we issued $805.0 million of our Convertible Notes, and through BCFWC, issued $300.0 million of Secured Notes. The proceeds of the Convertible Notes are being used for general corporate purposes. On June 11, 2021, BCFWC redeemed the

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full $300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption. Additionally, we repurchased $160.4 million and $72.3 million of principal on the Convertible Notes during the third quarter and fourth quarter of Fiscal 2021, respectively.

We believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future. However, there can be no assurance that we would be able to offset declines in our comparable store sales with savings initiatives in the event that the economy declines.

As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by tender offer, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material.

Cash Flows

Cash Flows for Fiscal 2021 Compared with Fiscal 2020

We used $289.2 million of cash flows during Fiscal 2021 compared with net proceeds of $977.2 million during Fiscal 2020.

Net cash provided by operating activities amounted to $833.2 million and $219.2 million during Fiscal 2021 and Fiscal 2020, respectively. The increase in our operating cash flows was primarily driven by the temporary closure of all our stores during Fiscal 2020, caused by the COVID-19 pandemic, as well as our strong sales performance during Fiscal 2021.

Net cash used in investing activities was $344.4 million and $274.1 million during Fiscal 2021 and Fiscal 2020, respectively. This change was primarily the result of an increase in capital expenditures related to our stores (new stores, remodels and other store expenditures), reflective of our cash management decisions due to COVID-19.

Net cash used in financing activities was $778.0 million during Fiscal 2021 compared to proceeds of $1,032.2 million during Fiscal 2020. This change was primarily driven by our cash flow management efforts during Fiscal 2020 in response to the COVID-19 pandemic, including our borrowings on the Secured Notes and the Convertible Notes during Fiscal 2020. During Fiscal 2021, BCFWC redeemed the Secured Notes in full, and we partially redeemed the Convertible Notes. Additionally, we repurchased shares of common stock for $150.0 million and $100.0 million under our share repurchase program during the third quarter and fourth quarter of Fiscal 2021, respectively. The share repurchase program was suspended during Fiscal 2020.

Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash) minus current liabilities. We had working capital at January 29, 2022 of $593.4 million compared with $820.0 million at January 30, 2021. The decrease in working capital was primarily driven by the decreased cash balance due to the Convertible Notes repurchases during the third quarter and fourth quarter of Fiscal 2021 and redemption of the Secured Notes, as well as an increased accounts payable balance, partially offset by increased merchandise inventory balance.

Cash Flows for Fiscal 2020 Compared with Fiscal 2019

For a discussion of our cash flows for Fiscal 2020 compared to Fiscal 2019, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Fiscal 2020 10-K.

Capital Expenditures

For Fiscal 2021, cash spend for capital expenditures, net of $34.1 million of landlord allowances, amounted to $318.4 million. These capital expenditures include approximately $140.8 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures). In addition, we made capital expenditures of $109.8 million to support our supply chain initiatives, with the remaining capital to support information technology and other business initiatives. We incurred cash spend on capital expenditures of $232.4 million, net of approximately $40.7 million of landlord allowances, during Fiscal 2020.

We estimate that we will spend approximately $725 million, net of approximately $10 million of landlord allowances, in capital expenditures during Fiscal 2022, including approximately $250 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures). In addition, we estimate that we will spend approximately $290 million to support our supply chain initiatives, with the remaining capital used to support our information technology and other business initiatives.

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Share Repurchase Program

On August 18, 2021, our Board of Directors authorized the repurchase of up to $400.0 million of common stock, which is authorized to be executed through August 2023.This repurchase program was funded using our available cash and borrowings on our ABL Line of Credit.

During Fiscal 2021, we repurchased 856,855 shares of common stock for $250.0 million under our share repurchase program. As of January 29, 2022, we had $150.0 million remaining under our share repurchase authorization.

Subsequent to January 29, 2022 (February 16, 2022), our Board of Directors authorized the repurchase of up to $500.0 million of common stock, which is authorized to be executed through February 2024.

We are authorized to repurchase shares of our outstanding common stock from time to time on the open market or in privately negotiated transactions under our repurchase program. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. Our share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program.

Dividends

We currently do, and intend to continue to, retain all available funds and any future earnings to fund all of our capital expenditures, business initiatives, and to support any potential opportunistic capital structure initiatives. Therefore, at this time, we do not anticipate paying cash dividends in the near term. Our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our Board of Directors deems relevant.

In addition, since we are a holding company, substantially all of the assets shown on our Consolidated Balance Sheets are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends.

Debt and Hedging

As of January 29, 2022, our obligations, inclusive of original issue discount, include $950.7 million under our Term Loan Facility, $572.3 million of Convertible Notes and no outstanding borrowings on our ABL Line of Credit. Our debt obligations also include $43.9 million of finance lease obligations as of January 29, 2022. Refer to Note 7 to our Consolidated Financial Statements, “Long Term Debt,” for an overview of the terms and conditions of these instruments.

Term Loan Facility

On June 24, 2021, BCFWC entered into Amendment No. 9 (the Ninth Amendment) to the Term Loan Credit Agreement governing the Term Loan Facility. The Ninth Amendment, among other things, extended the maturity date from November 17, 2024 to June 24, 2028, and changed the interest rate margins applicable to the Term Loan Facility from 0.75% to 1.00%, in the case of prime rate loans, and from 1.75% to 2.00%, in the case of LIBOR loans, with a 0.00% LIBOR floor. Refer to Note 7, “Long Term Debt,” for further discussion regarding our debt transactions.

At January 29, 2022, our borrowing rate related to the Term Loan Facility was 2.1%.

ABL Line of Credit

At January 29, 2022, we had $594.6 million available under the ABL Line of Credit. We did not have any borrowings during Fiscal 2021.

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Convertible Notes

On April 16, 2020, we issued $805.0 million of Convertible Notes. The Convertible Notes have an initial conversion rate of 4.5418 shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $220.18 per share of our common stock), subject to adjustment if certain events occur.

The Convertible Notes are our general unsecured obligations. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears on April 15 and October 15 of each year, beginning on October 15, 2020. The Convertible Notes will mature on April 15, 2025, unless earlier converted, redeemed or repurchased.

During the third quarter of Fiscal 2021, we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $160.4 million in aggregate principal amount of Convertible Notes held by them for a combination of an aggregate of $90.8 million in cash and 513,991 shares of our common stock. During the fourth quarter of Fiscal 2021, we entered into additional separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $72.3 million in aggregate principal amount of Convertible Notes held by them for $109.0 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $124.6 million in Fiscal 2021. See Note 7, “Long Term Debt,” for additional information.

Subsequent to January 29, 2022 (March 15, 2022), we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders have agreed to exchange $55.6 million in aggregate principal amount of Convertible Notes held by them for an amount in cash to be calculated based on the volume-weighted average price of our common stock over a two-day measurement period beginning on March 16, 2022. These exchange transactions are expected to close on March 21, 2022, subject to the satisfaction of customary closing conditions.

Secured Notes

On April 16, 2020, BCFWC, issued $300.0 million of Senior Secured Notes. The Secured Notes were senior, secured obligations of BCFWC, and interest was payable semiannually in cash at a rate of 6.25% per annum on April 15 and October 15 of each year, beginning on October 15, 2020. The Secured Notes were guaranteed on a senior secured basis by Burlington Coat Factory Holdings, LLC, Burlington Coat Factory Investments Holdings, Inc. and BCFWC’s subsidiaries that guarantee the loans under the Term Loan Facility and ABL Line of Credit.

On June 11, 2021, BCFWC redeemed the full $300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption. This redemption resulted in a pre-tax debt extinguishment charge of $30.2 million. Refer to Note 7, “Long Term Debt,” for further discussion regarding our debt transactions.

Hedging

On June 24, 2021, we terminated its previous interest rate swap and entered into a new interest rate swap. The new interest rate swap, which hedges $450 million of variable rate exposure under our Term Loan Facility, is designated as a cash flow hedge and expires on June 24, 2028. Refer to Note 8, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.

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Certain Information Concerning Material Cash Requirements

The following table sets forth certain information regarding our obligations to make future payments under current contracts as of January 29, 2022:

Payments Due By Period

Total Less Than1 Year 2-3 Years 4-5 Years Thereafter

(in thousands)

(1) Represents future principal payments on outstanding borrowings as of January 29, 2022.

(2) Represents interest payments on (i) the outstanding balance of the Term Loan Facility, with an average interest rate of 2.0% during Fiscal 2021; and (ii) the outstanding balance of the Convertible Notes, with an interest rate of 2.25%.

(3) Finance lease obligations include future interest payments.

(4) Represents minimum rent payments for operating leases under the current terms.

(5) Represents commitments to purchase goods that have not been received as of January 29, 2022. The table above excludes estimated commitments for services used in our business of up to approximately $105 million over the next five years.

(6) Represents severance payments in the normal course of business that are included in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income (Loss).

Our agreements with three former employees to pay their respective beneficiaries $1.0 million upon their deaths for a total of $3.0 million is not reflected in the table above because the timing of the payments is unpredictable.

The table above excludes ASC Topic No. 740 “Income Taxes” (Topic No. 740) liabilities which represent uncertain tax positions related to temporary differences. The total Topic No. 740 liability was $13.9 million, inclusive of $9.1 million of interest and penalties included in our total Topic No. 740 liability neither of which is presented in the table above as we are not certain if and when these payments would be required.

The table above excludes our irrevocable letters of credit guaranteeing payment and performance under certain leases, insurance contracts, debt agreements, merchandising agreements and utility agreements in the amount of $55.4 million as of January 29, 2022.

As of January 29, 2022, insurance reserves amounted to $81.6 million. These amounts are excluded from the table above as we are not certain if and when these payments would be required.

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements have been prepared in accordance with GAAP. We believe there are several accounting policies that are critical to understanding our historical and future performance as these policies affect the reported amounts of revenues and other significant areas that involve management’s judgments and estimates. The preparation of our Consolidated Financial Statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventories, long-lived assets, intangible assets, goodwill, insurance reserves and income taxes. Historical experience and various other factors that are believed to be reasonable under the circumstances form the basis for making estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As of the end of Fiscal 2021, the impact of the COVID-19 pandemic continues to unfold. As a result, many of our estimates and judgments carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. A critical accounting estimate meets two criteria: (1) it requires assumptions about highly uncertain matters and (2) there would be a material effect on the Consolidated Financial Statements from either using a different, although reasonable, amount within the range of the estimate in the current period or from reasonably likely period-to-period changes in the estimate.

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While there are a number of accounting policies, methods and estimates affecting our Consolidated Financial Statements as addressed in Note 1 to our Consolidated Financial Statements, “Summary of Significant Accounting Policies,” areas that are particularly critical and significant include:

Revenue Recognition. While our revenue recognition does not involve significant judgment, it represents an important accounting policy. We record revenue at the time control of goods are transferred to the customer, which we determine to be at point of sale and delivery of merchandise, net of allowances for estimated future returns, which is estimated based on historical return rates. We present sales, net of sales taxes, in our Consolidated Statements of Income (Loss). We account for layaway sales in compliance with ASC Topic No. 606 “Revenue from Contracts with Customers.” Layaway sales are recognized upon delivery of merchandise to the customer. The amount of cash received upon initiation of the layaway is recorded as a deposit liability within the line item “Other current liabilities” in our Consolidated Balance Sheets. Stored value cards (gift cards and store credits issued for merchandise returns) are recorded as a liability at the time of issuance, and the related sale is recorded upon redemption.

We estimate and recognize stored value card breakage income in proportion to actual stored value card redemptions. We determine an estimated stored value card breakage rate by continuously evaluating historical redemption data. Breakage income is recognized on a monthly basis in proportion to the historical redemption patterns for those stored value cards for which the likelihood of redemption is remote.

Inventory. Our inventory is valued at the lower of cost or market using the retail inventory method. Under the retail inventory method, the valuation of inventory and the resulting gross margin are determined by applying a calculated cost to retail ratio to the retail value of inventory. The retail inventory method is an averaging method that results in valuing inventory at the lower of cost or market provided markdowns are taken timely to reduce the retail value of inventory. Inherent in the retail inventory method calculation are certain significant management judgments and estimates including merchandise markups, markdowns and shortage, which significantly impact the ending inventory valuation as well as the resulting gross margin. Management believes that our retail inventory method provides an inventory valuation which approximates cost using a first-in, first-out assumption and results in carrying value at the lower of cost or market. We reserve for aged inventory based on historical trends and specific identification. Our aged inventory reserve contains uncertainties as the calculations require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. A 1% change in the dollar amount of retail markdowns would have resulted in an increase in markdown dollars, at cost, of approximately $2.3 million for Fiscal 2021.

Estimates are used to record inventory shortage at retail stores between physical inventories. Actual physical inventories are conducted at least annually to calculate actual shortage. While we make estimates on the basis of the best information available to us at the time the estimates are made, over accruals or under accruals of shortage may be identified as a result of the physical inventory counts, requiring adjustments.

Insurance Reserves. We have risk participation agreements with insurance carriers with respect to workers’ compensation, general liability insurance and health insurance. Pursuant to these arrangements, we are responsible for paying individual claims up to designated dollar limits. The amounts included in our costs related to these claims are estimated and can vary based on changes in assumptions or claims experience included in the associated insurance programs. For example, changes in legal trends and interpretations, as well as changes in the nature and method of how claims are settled, can impact ultimate costs. An increase in workers’ compensation claims by employees, health insurance claims by employees or general liability claims may result in a corresponding increase in our costs related to these claims. Insurance reserves amounted to $81.6 million and $80.9 million at January 29, 2022 and January 30, 2021, respectively.

Recent Accounting Pronouncements

Refer to Note 2 to our Consolidated Financial Statements, “Recent Accounting Pronouncements,” for a discussion of recent accounting pronouncements and their impact in our Consolidated Financial Statements.

Fluctuations in Operating Results

We expect that our revenues and operating results may fluctuate from fiscal quarter to fiscal quarter or over the longer term. Certain of the general factors that may cause such fluctuations are discussed in Item 1A, Risk Factors and elsewhere in this Annual Report.

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Seasonality

Our business, like that of most retailers, is subject to seasonal influences. In the second half of the year, which includes the back-to-school and holiday seasons, we generally realize a higher level of sales and net income. Weather is also a contributing factor to the sale of our clothing. Generally, our sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are increased by early cold weather during the Fall, while sales of warm weather clothing are improved by early warm weather conditions in the Spring. Although we have diversified our product offerings, we believe traffic to our stores is still driven, in part, by weather patterns.

Inflation

During Fiscal 2021, we have experienced inflationary pressure in our supply chain and with respect to raw materials and finished goods. There can be no assurance that we will be able to offset inflationary pressure in the future, or that our business will not be negatively affected by continued inflation in the future. We may not be able to adequately increase our prices over time to offset increased costs, whether due to inflation or otherwise. Any decreases in consumer discretionary spending could result in a decrease in store traffic and same store sales, all of which could negatively affect our business, operations, liquidity, financial results and/or stock price, particularly if consumer spending levels are depressed for a prolonged period of time.

We do not believe that our operating results were materially affected by inflation during Fiscal 2020 or Fiscal 2019. Historically, as the costs of merchandising and related operating expenses have increased, we have been able to mitigate the effect of such impact on our operations.

The U.S. retail industry continues to face increased pressure on margins as commodity prices increase and the overall challenging retail conditions have led consumers to be more value conscious. Our strategy of chasing sales, in which we purchase both pre-season and in-season merchandise, allows us the flexibility to purchase less pre-season with the balance purchased in-season and opportunistically. It also provides us the flexibility to shift purchases between suppliers and categories. This enables us to obtain better terms with our suppliers, which we expect to help offset the expected rising costs of goods.

Market Risk

We are exposed to market risks relating to fluctuations in interest rates. Our borrowings contain floating rate obligations and are subject to interest rate fluctuations. The objective of our financial risk management is to minimize the negative impact of interest rate fluctuations on our earnings and cash flows. We manage interest rate risk through the use of our interest rate cap contracts.

As more fully described in Note 8 to our Consolidated Financial Statements, “Derivative Instruments and Hedging Activities,” we enter into interest rate derivative contracts to manage interest rate risks associated with our long term debt obligations. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in the line item “Accumulated other comprehensive loss” on the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. We continue to have exposure to interest rate risks to the extent they are not hedged.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks as part of our ongoing business operations. Primary exposures include changes in interest rates, as borrowings under our ABL Line of Credit and Term Loan Facility bear interest at floating rates based on LIBOR or the base rate, in each case plus an applicable borrowing margin. The interest rate of our Term Loan Facility is also dependent on the prime rate, and the federal funds rate as further discussed in Note 7 to our Consolidated Financial Statements, “Long Term Debt.” To address the transition away from LIBOR, the Term Loan Facility and ABL Line of Credit agreements each provide for an agreed upon methodology to amend such agreements to substitute LIBOR with an agreed replacement rate, subject to our consent and the applicable administrative agent, and in each case subject to a short lender negative consent period.

We manage our interest rate risk through the use of interest rate derivative contracts. For our floating-rate debt, interest rate changes generally impact our earnings and cash flows, assuming other factors are held constant.

On June 24, 2021, we terminated our previous interest rate swap and entered into a new interest rate swap. The new interest rate swap, which hedges $450.0 million of variable rate exposure under our Term Loan Facility, is designated as a cash flow hedge and expires on June 24, 2028. Refer to Note 8, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.

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On June 24, 2021, we entered into Amendment No. 9 (the Ninth Amendment) to the Term Loan Credit Agreement governing the Term Loan Facility. The Ninth Amendment, among other things, extended the maturity date from November 17, 2024 to June 24, 2028, and changed the interest rate margins applicable to the Term Loan Facility from 0.75% to 1.00%, in the case of prime rate loans, and from 1.75% to 2.00%, in the case of LIBOR loans, with a 0.00% LIBOR floor.

We have unlimited interest rate risk related to borrowings on our variable rate debt in excess of the notional principal amount of our interest rate swap contract.

At January 29, 2022, we had $956.6 million of floating-rate debt, exclusive of original issue discount. Based on $956.6 million outstanding as floating-rate debt, a one percentage point interest rate increase as of January 29, 2022 (after considering our interest rate swap contract and assuming current borrowing level remains constant), would cause an increase to cash interest expense of $5.1 million per year. This sensitivity analysis assumes our mix of financial instruments and all other variables will remain constant in future periods. These assumptions are made in order to facilitate the analysis and are not necessarily indicative of our future intentions.

Our ability to satisfy our interest payment obligations on our outstanding debt will depend largely on our future performance, which, in turn, is in part subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service our interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm 46

Consolidated Balance Sheets as of January 29, 2022 and January 30, 2021 51

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Burlington Stores, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Burlington Stores, Inc. and subsidiaries (the "Company") as of January 29, 2022 and January 30, 2021, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended January 29, 2022, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 29, 2022 and January 30, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 29, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 29, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, on January 31, 2021, the Company adopted Financial Accounting Standards Board Accounting Standards Update (ASU) 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.”

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

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error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Retail Inventory Method—Impact of Markdowns—Refer to Note 1 to the financial statements

Critical Audit Matter Description

The Company values merchandise inventories at the lower of cost or market using the retail inventory method. Under this method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio to the retail value of inventories. The retail inventory method is an averaging method that results in valuing inventory at the lower of cost or market provided markdowns are taken timely to reduce the retail value of inventory. Merchandise inventories as of January 29, 2022, were $1,021 million.

The judgments involved in determining when to record markdowns can significantly impact the ending inventory valuation and the resulting gross profit. Given the significant judgments necessary to identify and record markdowns timely, performing audit procedures to evaluate the timeliness of markdowns involved a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the timing of markdowns taken included the following, among others:

•

We tested the effectiveness of controls over inventory valuation, specifically those over the determination and execution of markdowns.

•

We made a selection of markdowns recorded throughout the year to test the accuracy and timeliness of markdowns taken.

•

We made a selection of markdowns recorded after year-end to determine if the selected markdowns should have been taken as of the year-end balance sheet date.

•

We made a selection of purchases made throughout the year; determined if those purchases were subsequently marked down; and, if marked down, that the markdown was recorded timely.

•

We analyzed trends in the aging of inventory to determine if there were any significant fluctuations in aged inventory that would indicate markdowns were not taken timely.

•

We developed an expectation of markdowns in ending inventory based on historical relationships between markdowns and inventory balances on hand and compared to recorded markdowns.

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/s/ Deloitte & Touche LLP

Parsippany, New Jersey

March 16, 2022

We have served as the Company’s auditor since 1983.

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BURLINGTON STORES, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(All amounts in thousands, except per share data)

Fiscal Year Ended

January 29, January 30, February 1,

REVENUES:

COSTS AND EXPENSES:

Costs related to debt issuances and amendments 3,419 3,633 (375 )

Net income (loss) per common share:

Common stock - diluted $ 6.00 $ (3.28 ) $ 6.91

Weighted average number of common shares:

See Notes to Consolidated Financial Statements.

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BURLINGTON STORES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(All amounts in thousands)

Fiscal Year Ended

January 29, January 30, February 1,

Other comprehensive income (loss), net of tax:

Interest rate derivative contracts:

Net reclassification into earnings during the period 10,643 7,403 1,259

Other comprehensive income (loss), net of tax 18,574 (4,055 ) (15,347 )

See Notes to Consolidated Financial Statements.

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BURLINGTON STORES, INC.

CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except share and per share data)

January 29, January 30,

ASSETS

Current assets:

Restricted cash and cash equivalents 6,582 6,582

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current maturities of long term debt 14,357 3,899

Commitments and contingencies (Note 16)

Stockholders’ equity:

Common stock, $0.0001 par value:

Accumulated other comprehensive loss (4,441 ) (23,015 )

See Notes to Consolidated Financial Statements.

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BURLINGTON STORES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(All amounts in thousands)

Fiscal Year Ended

January 29, January 30, February 1,

OPERATING ACTIVITIES

Changes in assets and liabilities:

Other long term assets and long term liabilities (2,782 ) 562 3,176

INVESTING ACTIVITIES

Lease acquisition costs (576 ) — (1,983 )

Proceeds from insurance recoveries related to property and equipment — 220 5,131

Proceeds from sale of property and equipment and assets held for sale 8,654 — —

Other investing activities — (1,070 ) 611

FINANCING ACTIVITIES

Proceeds from long term debt—ABL Line of Credit — 400,000 1,294,400

Proceeds from long term debt—Term B-6 Loans 956,608 — —

Principal payments on long term debt—Term B-6 Loans (4,807 ) — —

Principal payments on long term debt—Term B-5 Loans (961,415 ) — —

Proceeds from long term debt—Convertible Note — 805,000 —

Principal payment on long term debt—Convertible Notes (201,695 ) — —

Proceeds from long term debt—Secured Note — 300,000 —

Principal payments on long term debt—Secured Notes (323,905 ) — —

Supplemental disclosure of cash flow information:

Non-cash investing and financing activities:

Shares issued to repurchase Convertible Notes $ 151,206 — —

Acquisition of finance leases $ — $ — $ 19,875

See Notes to Consolidated Financial Statements.

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BURLINGTON STORES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(All dollar amounts in thousands)

Shares Amount Capital Deficit Loss Shares Amount Total

Cumulative-effect adjustment — — — 600 — — — 600

See Notes to Consolidated Financial Statements.

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BURLINGTON STORES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Business

As of January 29, 2022, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), has expanded its store base to 840 retail stores in 45states and Puerto Rico. The Company sells in-season, fashion-focused merchandise at up to 60% off other retailers’ prices, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats. As of January 29, 2022, the Company operated stores under the names “Burlington Stores” (837 stores), “Cohoes Fashions” (2 stores), and “MJM Designer Shoes” (1 store). Cohoes Fashions offers products similar to those offered by Burlington Stores. MJM Designer Shoes offers moderately priced designer and fashion shoes.

Basis of Consolidation and Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Consolidated Financial Statements include the accounts of Burlington Stores, Inc. and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Fiscal Years

The Company defines its fiscal year as the 52 or 53-week period ending on the Saturday closest to January 31. The fiscal years ended January 29, 2022 (Fiscal 2021), January 30, 2021 (Fiscal 2020) and February 1, 2020 (Fiscal 2019) each consisted of 52 weeks.

Use of Estimates

Certain amounts included in the Consolidated Financial Statements are estimated based on historical experience, currently available information and management’s judgment as to the expected outcome of future conditions and circumstances. While every effort is made to ensure the integrity of such estimates, actual results could differ from these estimates, and such differences could have a material impact on the Company’s Consolidated Financial Statements.

COVID-19

On March 11, 2020, the World Health Organization declared the novel coronavirus (known as COVID-19) outbreak to be a global pandemic. As a result, the Company began the temporary closing of some its stores, and effective March 22, 2020, the Company made the decision to temporarily close all of its stores, distribution centers (other than processing of received inventory) and corporate offices to combat the rapid spread of COVID-19. The Company began re-opening stores on May 11, 2020, with the majority of stores, as well as all distribution centers, re-opened by mid-June 2020, and substantially all stores re-opened by the end of the second quarter of Fiscal 2020.

In response to the COVID-19 pandemic and the temporary closing of stores, the Company provided two weeks of financial support to associates impacted by these store closures and by the shutdown of distribution centers. The Company temporarily furloughed most store and distribution center associates, as well as some corporate associates, but continued to provide benefits to furloughed associates in accordance with its benefit plans. In addition, the Company paid 100% of medical benefit premiums during the period they were furloughed. During the second quarter, the Company recalled all furloughed associates at re-opened stores, as well as corporate and distribution facilities.

In order to maintain financial flexibility during these uncertain times, the Company completed several debt transactions in the first quarter of Fiscal 2020. Refer to Note 7, "Long Term Debt," for further discussion regarding these debt transactions.

Additionally, the Company took the following steps to further enhance its financial flexibility:

•

Carefully managed operating expenses, working capital and capital expenditures, including ceasing substantially all buying activities while stores were closed. The Company subsequently resumed its buying activities, while continuing its conservative approach toward operating expenses and capital expenditures;

•

Negotiated rent deferral agreements with landlords, which were substantially complete as of the end of Fiscal 2021;

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•

Temporarily suspended the Company’s share repurchase program, which resumed during the third quarter of Fiscal 2021;

•

The Company’s CEO voluntarily agreed to not take a salary; the Company’s Board of Directors voluntarily forfeited their cash compensation; the Company’s executive leadership team voluntarily agreed to decrease their salary by 50%; and smaller salary reductions were temporarily put in place for all associates through a certain level. This compensation was reinstated once substantially all of the Company’s stores re-opened; and

•

The annual incentive bonus payments related to Fiscal 2019 performance were delayed to the second quarter of Fiscal 2020, and merit pay increases for Fiscal 2020 were delayed to the third quarter of Fiscal 2020.

Due to the aging of inventory related to the temporary store closures discussed above, as well as the impact of seasonality on the Company’s merchandise, the Company recognized inventory markdown reserves of $271.9 million during the three month period ended May 2, 2020. These reserves covered markdowns taken during the second quarter of Fiscal 2020. These charges were included in “Cost of sales” on the Company’s Consolidated Statement of Income (Loss).

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law, which provided emergency economic assistance for American workers, families and businesses affected by the COVID-19 pandemic. As a result of amending prior returns to carry back the federal net operating loss generated on the Fiscal 2020 tax return, the Company expects to obtain a one-time tax refund of $245.5 million, which is included in the line item “Prepaid and other current assets” on the Company's Consolidated Balance Sheet.

Cash and Cash Equivalents

Cash and cash equivalents represent cash and short-term, highly liquid investments with maturities of three months or less at the time of purchase. Book cash overdrafts are included in the line item “Accounts payable” on the Company’s Consolidated Balance Sheets.

Accounts Receivable

Accounts receivable consist of credit card receivables, insurance receivables and other receivables. Accounts receivable are recorded at net realizable value, which approximates fair value. The Company provides an allowance for doubtful accounts for amounts deemed uncollectible.

Inventories

Merchandise inventories are valued at the lower of cost or market, as determined by the retail inventory method. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories. The Company regularly records a provision for estimated shortage, thereby reducing the carrying value of merchandise inventory. Complete physical inventories of all of the Company’s stores and warehouses are performed no less frequently than annually, with the recorded amount of merchandise inventory being adjusted to coincide with these physical counts.

The Company records its cost of merchandise (net of purchase discounts and certain vendor allowances), certain merchandise acquisition costs (primarily commissions and import fees), inbound freight, outbound freight from distribution centers, and freight on internally transferred merchandise in the line item “Cost of sales” in the Company’s Consolidated Statements of Income (Loss).

Costs associated with the Company’s distribution, buying, and store receiving functions (product sourcing costs) are included in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in the Company’s Consolidated Statements of Income (Loss). Product sourcing costs included within the line item “Selling, general and administrative expenses” amounted to $618.3 million, $433.8 million and $339.1 million during Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively. Depreciation and amortization related to the distribution and purchasing functions for the same periods amounted to $45.0 million, $30.8 million and $31.9 million, respectively.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from 20 to 40 years for buildings, depending upon the expected useful life of the facility, and 3 to 15

55

years for store fixtures and equipment. Leasehold improvements are amortized over the lease term, including any reasonably assured renewal options or the expected economic life of the improvement, whichever is less. Repairs and maintenance expenditures are expensed as incurred. Renewals and betterments, which significantly extend the useful lives of existing property and equipment, are capitalized. Assets recorded under capital leases are recorded at the present value of minimum lease payments and are amortized over the lease term. Amortization of assets recorded as capital leases is included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of Income (Loss). The carrying value of all long-lived assets is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, in accordance with ASC Topic No. 360 “Property, Plant, and Equipment” (Topic No. 360). Refer to Note 6, “Impairment Charges,” for further discussion of the Company’s measurement of impairment of long-lived assets.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to undiscounted pre-tax future net cash flows expected to be generated by that asset. If the undiscounted future cash flows are not adequate to recover the carrying value of the asset, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of such assets. Refer to Note 6, “Impairment Charges,” for further discussion of the Company’s measurement of impairment of long-lived assets.

Capitalized Computer Software Costs

The Company accounts for capitalized software in accordance with ASC Topic No. 350 “Intangibles—Goodwill and Other” (Topic No. 350) which requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. The Company capitalized $25.3 million, $12.2 million, and $18.0 million relating to these costs during Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively.

Intangible Assets

The Company accounts for intangible assets in accordance with Topic No. 350. The Company’s intangible assets represent tradenames. The tradename asset “Burlington” is expected to generate cash flows indefinitely and, therefore, is accounted for as an indefinite-lived asset not subject to amortization. The Company evaluates its intangible assets for possible impairment as follows:

Indefinite-lived intangible assets: The Company tests identifiable intangible assets with an indefinite life for impairment on an annual basis, or when a triggering event occurs, relying on a number of factors that include operating results, business plans and projected future cash flows. The impairment test consists of a comparison of the fair value of the indefinite-lived intangible asset with its carrying amount. The Company determines fair value through the relief of royalty method which is a widely accepted valuation technique. On the first business day of the second quarter, the Company’s annual assessment date, the Company performed a quantitative analysis and determined that the fair values of each of the Company’s identifiable intangible assets are greater than their respective carrying values. There were no impairment charges recorded during Fiscal 2021, Fiscal 2020 or Fiscal 2019 related to indefinite-lived intangible assets.

Finite-lived intangible assets: Identifiable intangible assets that are subject to amortization are evaluated for impairment in accordance with Topic No. 360 using a process similar to that used to evaluate other long-lived assets as described in Note 6, “Impairment Charges.” An impairment charge is recognized for the amount by which the carrying value exceeds the fair value of the asset. There were no impairment charges related to finite-lived intangible assets during Fiscal 2021, Fiscal 2020, and Fiscal 2019. Refer to Note 6, “Impairment Charges,” for further discussion of the Company’s measurement of impairment of long-lived assets.

Goodwill

Goodwill represents the excess of the acquisition cost over the estimated fair value of tangible assets and other identifiable intangible assets acquired less liabilities assumed. Topic No. 350 requires a comparison, at least annually, of the carrying value of the assets and liabilities associated with a reporting unit, including goodwill, with the fair value of the reporting unit. The Company determines fair value through multiple widely accepted valuation techniques. These techniques use a variety of assumptions including projected market conditions, discount rates and future cash flows. If the carrying value of the assets and liabilities exceeds the fair value of the reporting unit, the Company would calculate the implied fair value of its reporting unit goodwill as compared with the carrying value of its reporting unit goodwill to determine the appropriate impairment charge. On the first business day of the second fiscal quarter, the Company’s annual assessment date, the Company performed a quantitative analysis and determined that the fair value of the Company’s reporting unit was greater than its carrying value. There were no impairment charges related to goodwill during Fiscal 2021, Fiscal 2020 or Fiscal 2019.

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Other Assets

Other assets consist primarily of landlord-owned store assets that the Company has paid for as part of its lease and deferred financing costs associated with the Company’s senior secured asset-based revolving credit facility (the ABL Line of Credit). Landlord-owned assets represent leasehold improvements at certain stores for which the Company has paid and derives a benefit, but the landlord has retained title. These assets are amortized over the lease term inclusive of reasonably assured renewal options, and are included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of Income (Loss). Deferred financing costs are amortized over the life of the ABL Line of Credit using the interest method of amortization. Amortization of deferred financing costs is recorded in the line item “Interest expense” in the Company’s Consolidated Statements of Income (Loss).

Other Current Liabilities

Other current liabilities primarily consist of accrued payroll costs, self-insurance reserves, customer liabilities, accrued operating expenses, sales tax payable, payroll taxes payable and other miscellaneous items. Customer liabilities totaled $35.5 million and $30.2 million as of January 29, 2022 and January 30, 2021, respectively.

The Company has risk participation agreements with insurance carriers with respect to workers’ compensation, general liability insurance and health insurance. Pursuant to these arrangements, the Company is responsible for paying individual claims up to designated dollar limits. The amounts related to these claims are estimated and can vary based on changes in assumptions or claims experience included in the associated insurance programs. An increase in workers’ compensation claims, health insurance claims or general liability claims may result in a corresponding increase in costs related to these claims. Self-insurance reserves as of January 29, 2022 and January 30, 2021 were:

(in thousands)

Short-term self-insurance reserve(a) $ 33,734 $ 33,191

(a) Represents the portions of the self-insurance reserve expected to be paid in the next twelve months, which were recorded in the line item “Other current liabilities” in the Company’s Consolidated Balance Sheets.

(b) Represents the portions of the self-insurance reserve expected to be paid in excess of twelve months, which was recorded in the line item “Other liabilities” in the Company’s Consolidated Balance Sheets.

Other Liabilities

Other liabilities primarily consist of the long term portion of self-insurance reserves, the fair value of derivative contracts and tax liabilities associated with the uncertain tax positions recognized by the Company in accordance with ASC Topic No. 740 “Income Taxes” (Topic No. 740).

Revenue Recognition

The Company records revenue at the time control of the goods are transferred to the customer, which the Company determines to be at point of sale and delivery of merchandise, net of allowances for estimated future returns, which is estimated based on historical return rates. The Company presents sales, net of sales taxes, in its Consolidated Statements of Income (Loss). The Company accounts for layaway sales in compliance with ASC Topic No. 606 “Revenue from Contracts with Customers” (Topic No. 606). Layaway sales are recognized upon delivery of merchandise to the customer. The amount of cash received upon initiation of the layaway is recorded as a deposit liability in the line item “Other current liabilities” in the Company’s Consolidated Balance Sheets. Stored value cards (gift cards and store credits issued for merchandise returns) are recorded as a liability at the time of issuance, and the related sale is recorded upon redemption.

The Company determines an estimated stored value card breakage rate by continuously evaluating historical redemption data. Breakage income is recognized monthly in proportion to the historical redemption patterns for those stored value cards for which the likelihood of redemption is remote.

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Other Revenue

Other revenue consists of service fees (layaway and other miscellaneous service charges), subleased rental income and revenue from the Company's private label credit card (PLCC) as shown in the table below:

(in thousands)

Fiscal Years Ended

Private Label Credit Card

The Company has a private label credit card program, in which customers earn reward points for purchases made using the card. The Company reduces net sales for the dollar value of any points earned at the time of the initial transaction, and subsequently recognizes net sales at the time the points are redeemed or expired. The Company receives royalty revenue based on a percentage of all purchases made on the card, which is recognized at the time of the initial transaction. The Company also receives a fee for each card activated. Revenue from activation fees are deferred and amortized over the period the Company performs its obligations under the card to the customer.

Advertising Costs

The Company’s advertising costs consist primarily of video, audio and digital marketing. Advertising costs are expensed the first time the advertising takes place, and are included in the line item “Selling, general and administrative expenses” on the Company’s Consolidated Statements of Income (Loss). During Fiscal 2021, Fiscal 2020 and Fiscal 2019, advertising costs were $48.5 million, $43.8 million and $73.1 million, respectively.

Income Taxes

The Company accounts for income taxes in accordance with Topic No. 740. Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. A valuation allowance against the Company’s deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the need for a valuation allowance, management is required to make assumptions and to apply judgment, including forecasting future earnings, taxable income, and the mix of earnings in the jurisdictions in which the Company operates. Management periodically assesses the need for a valuation allowance based on the Company’s current and anticipated results of operations. The need for and the amount of a valuation allowance can change in the near term if operating results and projections change significantly.

Topic No. 740 requires the recognition in the Company’s Consolidated Financial Statements of the impact of a tax position taken or expected to be taken in a tax return, if that position is “more likely than not” to be sustained upon examination by the relevant taxing authority, based on the technical merits of the position. The tax benefits recognized in the Company’s Consolidated Financial Statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company records interest and penalties related to unrecognized tax benefits as part of income taxes.

Other Income, Net

Other income, net, consists of gains and losses on insurance proceeds, interest income, net gains and losses on disposition of assets, gift card breakage, and other miscellaneous items. The Company recognized $1.5 million, $3.2 million and $8.1 million of gain on insurance recoveries during Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively. The Company also recognized $3.7 million during Fiscal 2021, related to the sale of certain state tax credits. There were no sales of tax credits during Fiscal 2020 or Fiscal 2019.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and the effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges, less amounts reclassified into earnings.

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Lease Accounting

The Company leases store locations, distribution centers and office space used in its operations. Beginning in Fiscal 2019, as a result of adopting Accounting Standards Update (ASU) 2016-02, “Leases” (ASU 2016-02), the Company accounts for these types of leases in accordance with ASC Topic No. 842, “Leases” (Topic No. 842), which requires that leases be evaluated and classified as operating or finance leases for financial reporting purposes. The lease liability is calculated as the present value of the remaining future lease payments over the lease term, including reasonably assured renewal options. The discount rates used in valuing the Company’s leases are not readily determinable, and are based on the Company’s incremental borrowing rate on a fully collateralized basis. In calculating its incremental borrowing rate, the Company uses a retail industry yield curve, adjusted for the Company’s credit profile. The right-of-use asset for operating leases is based on the lease liability plus initial direct costs and prepaid lease payments, less landlord incentives received.

The Company’s operating lease cost, included in the line item “Selling, general and administrative expenses” on its Consolidated Statements of Income (Loss), includes amortization of right-of-use assets, interest on lease liabilities, as well as any variable and short-term lease cost. The Company commences recording operating lease cost when the underlying asset is made available for use.

Assets held under finance leases are included in the line item “Property and equipment—net of accumulated depreciation and amortization” in the Company’s Consolidated Balance Sheets.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC Topic No. 718, “Stock Compensation” (Topic No. 718), which requires companies to record stock compensation expense for all non-vested and new awards beginning as of the grant date and through the end of the vesting period. Refer to Note 11, “Stock-Based Compensation,” for further details.

Net Income (Loss) Per Share

Net income (loss) per share is calculated using the treasury stock method. Refer to Note 10, “Net Income (Loss) Per Share,” for further details.

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and investments. The Company manages the credit risk associated with cash equivalents and investments by investing with high-quality institutions and, by policy, limiting investments only to those which meet prescribed investment guidelines. The Company maintains cash accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses from maintaining cash accounts in excess of such limits. Management believes that it is not exposed to any significant risks on its cash and cash equivalent accounts.

Segment Information

The Company reports segment information in accordance with ASC Topic No. 280 “Segment Reporting.” The Company has one reportable segment. The Company is an off-price retailer that offers customers a complete line of value-priced apparel, including: women’s ready-to-wear apparel, accessories, footwear, menswear, youth apparel, baby, home, coats, beauty, toys and gifts. Sales percentage by major product category is as follows:

Accessories and shoes 23 % 24 % 26 %

Kids apparel and baby 14 % 15 % 15 %

Outerwear 4 % 4 % 4 %

Certain classifications have been updated in the above table compared to prior years in order to conform to the manner in which the Company manages its operations. These updates include a shift in certain cold weather categories from apparel to accessories and

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shoes, as well as in certain gifts, electronics, automotive and other miscellaneous categories from men's to home. Prior year amounts have been reclassified to conform to the current period presentation.

2. Recent Accounting Pronouncements

Convertible Debt

On August 5, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments. The new guidance removes from GAAP the separation models for convertible debt with a cash conversion feature. The Company elected to early adopt this ASU as of the beginning of Fiscal 2021, using the modified retrospective method of transition. Prior periods have not been restated.

In April 2020, the Company issued $805.0 million of 2.25% Convertible Senior Notes due 2025 (Convertible Notes). As a result of adopting the guidance, the Company is no longer separating the Convertible Notes into debt and equity components, and is instead accounting for it wholly as debt. As of the beginning of Fiscal 2021, this ASU resulted in a reduction in the line item “Additional paid-in capital” of $176.0 million, net of deferred financing costs, and an increase in the line item “Long term debt” of $153.0 million, which eliminated the debt discount and reallocated deferred financing costs that were previously allocated to the equity component.

The changes noted above caused a decrease in the effective interest rate on the Convertible Notes from 8.2% to 2.8%, resulting in a cumulative-effect adjustment to retained earnings of $23.0 million related to Fiscal 2020 interest expense, as well as a $31.3 million reduction in interest expense for Fiscal 2021.

As of the beginning of Fiscal 2021, the tax effect of adopting this guidance resulted in a $44.1 million increase in the line item “Additional paid-in-capital,” a $38.3 million reduction in the line item “Deferred tax liabilities” and a $5.9 million reduction to retained earnings.

The new guidance also requires use of the if-converted method when calculating the dilutive impact of the Convertible Notes on earnings per share. The Company used the treasury stock method prior to adoption of the ASU. This ASU resulted in an increase in net income as a result of the reduction of interest expense, as well as an increase in diluted shares caused by the application of the if-converted method, resulting in an increase to diluted net income per share of $0.29 during Fiscal 2021.

There were no other new accounting standards that had a material impact on the Company’s Consolidated Financial Statements and notes thereto during Fiscal 2021, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of January 29, 2022 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

Income Taxes

On December 18, 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes." The purpose of this ASU is to reduce cost and complexity associated with the accounting for income taxes by removing specific exceptions to the general principles in Topic 740, Income Taxes, and by clarifying and amending certain aspects of income-tax-related guidance. The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for franchise taxes that are partially based on income and enacted changes in tax laws in interim periods. This ASU became effective as of the beginning of Fiscal 2021. Adoption of this ASU did not have a significant impact on the Company’s Consolidated Financial Statements.

3. Restricted Cash and Cash Equivalents

At both January 29, 2022 and January 30, 2021, restricted cash and cash equivalents consisted of $6.6 million related to collateral for certain insurance contracts. The Company has the ability to convert the restricted cash to a letter of credit at any time, which would reduce available borrowings on the ABL Line of Credit by a like amount.

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4. Property and Equipment

Property and equipment consist of:

(in thousands)

Leasehold improvements Shorter oflease term oruseful life 828,095 772,825

Less: accumulated depreciation and amortization (1,651,447 ) (1,498,655 )

As of January 29, 2022 and January 30, 2021, assets, net of accumulated amortization of $13.3 million and $8.7 million, respectively, held under finance leases amounted to approximately $34.2 million and $38.9 million, respectively, and are included in the line item “Buildings” in the foregoing table. Amortization expense related to finance leases is included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of Income (Loss). The total amount of depreciation expense during Fiscal 2021, Fiscal 2020 and Fiscal 2019 was $218.1 million, $189.5 million and $178.2 million, respectively.

Internally developed software is amortized on a straight line basis over three to ten years and is recorded in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of Income (Loss). Amortization of internally developed software amounted to $18.9 million, $16.9 million and $17.9 million during Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively.

Landlord-owned assets represent leasehold improvements at certain stores for which the Company has paid and derives a benefit, but the landlord has retained title. These assets are amortized over the lease term inclusive of reasonably assured renewal options. Amortization of landlord-owned assets was $12.2 million, $14.0 million and $14.6 million, during Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively, and was included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of Income (Loss).

During Fiscal 2021, Fiscal 2020 and Fiscal 2019, the Company recorded impairment charges related to property and equipment of $7.5 million, $4.6 million and $3.4 million, respectively. These charges are recorded in the line item “Impairment charges—long-lived assets” in the Company’s Consolidated Statements of Income (Loss). Refer to Note 6, “Impairment Charges,” for further discussion.

5. Intangible Assets

Intangible assets at January 29, 2022 and January 30, 2021 consist primarily of tradenames.

(in thousands)

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6. Impairment Charges

Impairment charges recorded during Fiscal 2021, Fiscal 2020 and Fiscal 2019 amounted to $7.7 million, $6.0 million and $4.3 million, respectively. Impairment charges are primarily related to declines in revenues and operating results of the respective stores. Impairment charges during these periods related to the following: