Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations:
Management’s
Discussion and
Analysis of
Financial Condition
and Results
of Operations
is intended
to provide information to assist readers in better
understanding and evaluating our financial condition and
results
of
operations.
The
following
information
should
be
read
in
conjunction
with
the
Consolidated
Financial
Statements,
including
the
accompanying
Notes
appearing
in
Part
II,
Item
8
of
this
report
on
Form 10-K.
This section
of the
Form 10-K
generally discusses
fiscal 2021
and fiscal
2020 and
year-to-
year comparisons between fiscal
2021 and fiscal
2020, as well,
as certain fiscal
2019 items.
Discussions
of
fiscal
2019
items
and
year-to-year
comparisons
between
fiscal
2020
and
fiscal
2019
that
are
not
included
in
this
Form
10-K
can
be
found
in
“Management’s
Discussion
and
Analysis
of
Financial
Condition and
Results of
Operations” in
Part II,
Item 7
of the
Company’s
Annual Report
on Form
10-K
for the fiscal year ended January 30, 2021.
COVID-19 Update
The
COVID-19
pandemic
adversely
impacted
the
Company's
business,
financial
condition
and
operating
results
through
fiscal
2020
and
to
a
lesser
extent
through
2021.
In
2021,
the
Company
saw
significant
improvements
in
sales
compared
to
2020.
This
improvement
was
primarily
attributable
to
government
stimulus,
increased
customer
traffic,
states
lifting
capacity
limits
as
more
people
were
vaccinated,
consumers’
increasing
comfort
level
with
venturing
out
to
social
events
and
customers’
preparing to return
to work. However,
the Company’s
2021 sales remain
below pre-pandemic 2019
sales
for the
comparable period,
and there
is still
significant uncertainty
regarding the
lingering effects
of the
pandemic,
as
well
as
concerns
over
the
impact
of
new
or
potential
variants
of
the
virus
that
are
more
transmissible or
severe, stagnant
vaccination rates
and related
factors that
may continue
to fuel
periodic
surges of the virus or otherwise impede progress toward the return to pre-pandemic
activities and levels of
consumer
confidence
and
commercial
activity.
The
Company
faces
additional
uncertainty
from
the
continued effects of disruption in the global supply chain, inflation and its
impact on our cost of products,
transportation, wage
rates and
other operating
costs, as
well as,
the impact
on our
customers’ disposable
incomes,
and
the
availability
of
workers.
The
Company
expects
that
these
uncertainties
and
perhaps
others related to
the pandemic will continue
to impact the
Company in fiscal 2022.
The adverse financial
impacts associated with
these continued effects
of, and
uncertainties related to,
the COVID-19 pandemic
include,
but
are
not
limited
to,
(i)
lower
net
sales
in
markets
affected
by
actual
or
potential
adverse
changes in
conditions relating
to
the
pandemic, whether
due to
increases in
case
counts, state
and local
orders, reductions in
store traffic and
customer demand, labor shortages,
or all of
these factors, (ii)
lower
net
sales
caused
by
the
delay
of
inventory
production
and
fulfillment,
(iii)
and
incremental
costs
associated
with
efforts
to
mitigate
the
effects
of
the
outbreak,
including
increased
freight
and
logistics
costs and other expenses.
While
the
Company
currently
anticipates
a
continuation
of
the
uncertainties
listed
above
and
the
potential
adverse
impacts
of
COVID-19
during
2022,
the
duration
and
severity
of
these
effects
will
depend
on
the
course
of
future
developments,
which
are
highly
uncertain.
The
extent
to
which
the
COVID-19
pandemic
ultimately
impacts
the
Company’s
business,
financial
condition,
results
of
operations,
cash
flows,
and
liquidity
may
differ
from
management’s
current
estimates
due
to
inherent
uncertainties regarding the duration
and further spread of
the outbreak or its
variants, its severity,
actions
taken to contain the
virus or treat its impact,
and how quickly and to
what extent pre-pandemic economic
and operating conditions can resume.
28
Results of Operations
The table below sets forth certain financial data of the Company expressed as a percentage of retail
sales for the years indicated:
Fiscal Year Ended
January 29,
2022
January 30,
2021
Retail sales ....................................................................
100.0
%
100.0
%
Other revenue..................................................................
1.0
1.3
Total revenues ................................................................
101.0
101.3
Cost of goods sold ...........................................................
59.5
76.3
Selling, general and administrative........................................
35.1
36.4
Depreciation ..................................................................
1.6
2.6
Interest and other income ...................................................
0.3
1.2
Income (loss) before income taxes .................................
5.1
(12.8)
Net income (loss) ............................................................
4.8
%
(8.4)
%
Fiscal 2021 Compared to Fiscal 2020
Retail sales increased by 34.2% to $761.4 million in fiscal 2021 compared to $567.5 million in fiscal 2020.
The increase in retail sales in fiscal 2021 was primarily
due to a 34% increase in same-store sales
and sales
from
new stores, partially offset by permanently closed stores in 2020.
Same-store sales
for the
fiscal year
2021 increased
primarily due
to increased
store operating
hours in
fiscal 2021
as opposed
to the
store closures
that persisted
from
March 19, 2020
into the second
quarter of 2020.
Same-store sales includes stores that have been
open more than
15 months.
Stores that
have been
relocated or expanded
are also
included in
the same-store sales
calculation
after they
have been
open more
than 15
months.
In fiscal
2021 and
fiscal 2020,
e-commerce sales were
less
than 5% of total
sales and same-store sales. The method of
calculating same-store sales varies across the retail
industry.
As
a
result,
our
same-store
sales
calculation
may
not
be
comparable
to
similarly
titled
measures
reported by
other companies.
Total
revenues, comprised of retail sales and
other revenue (principally finance
charges and
late
fees
on
customer accounts
receivable, gift
card
breakage,
shipping charges
for
e-commerce
purchases and layaway
fees),
increased by 33.8%
to $769.3 million
in fiscal 2021
compared to $575.1
million
in fiscal
2020. The
Company operated 1,311
stores at January
29, 2022
compared to
1,330 stores
operated at
January 30, 2021.
In fiscal 2021, the Company opened 6 new stores
and closed 25 stores.
Other
revenue
in
total
increased
to
$7.9
million
in
fiscal
2021
from
$7.6
million
in
fiscal
2020.
The
increase resulted
primarily due
to increases
in gift
card breakage
income, e-commerce shipping
revenues and
layaway charges, partially offset by a decrease in finance charges.
Credit revenue
of
$2.1 million
represented
0.3% of
total
revenue
in
fiscal
2021,
a
$0.6
million decrease
compared
to
fiscal
2020
credit
revenue
of
$2.7
million
or
0.5%
of
total
revenue.
The
decrease
in
credit
revenue
was
primarily
due
to