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
annual report
on Form 10-K.
This section of the annual report
on Form 10-K generally discusses fiscal 2025
and fiscal
2024
and
year-to-year
comparisons
between
fiscal
2025
and
fiscal
2024,
as
well
as
certain
fiscal
2023
items.
Discussions
of
fiscal
2023
items
and
year-to-year
comparisons
between
fiscal
2024
and
fiscal
2023 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 February 1, 2025.
Recent Developments
Tariff
Uncertainties and Pressures
A
significant
quantity
of
our
products are
made
in
China
and
Southeast Asia.
These
products
were
subject
to
reciprocal
tariffs
throughout
fiscal
2025.
On
February
20,
2026,
the
Supreme
Court
struck
down
these
tariffs.
The
ruling
does
not
establish
a
refund
process,
and
significant
uncertainty
remains
regarding how
and when
any amounts
may be
refunded.
We
are evaluating
the ruling
and any
potential
actions
available
to
us.
We
are
unable
to
estimate
the
financial
impact,
if
any,
at
this
time
due
to
uncertainties regarding the process, timing and amounts of any
refunds.
On February 20, 2026,
after the Supreme Court
ruling, a 10% tariff
under Section 122 was
enacted for
150 days.
On March 11
,
2026, the U.S.
Trade Representative
announced Section 301
investigations into
various countries, including countries where much of our products are manufactured.
The extent to which
these Section
301 investigations will
result in
additional tariffs,
and the
timing of any
potential tariffs,
is
currently unknown.
Although the tariff amounts are reduced from their levels in the second half of 2025,
the
current
tariff
regime
is
higher
than
at
the
beginning
of
2025,
which
will
negatively
impact
our
acquisition costs in the first half of 2026 and possibly the second half
of 2026.
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 31, 2026
February 1, 2025
Retail sales ....................................................................
100.0
%
100.0
%
Other revenue..................................................................
1.1
1.2
Total revenues ................................................................
101.1
101.2
Cost of goods sold ...........................................................
66.7
68.0
Selling, general and administrative........................................
35.0
36.1
Depreciation ..................................................................
1.5
1.5
Interest and other income ...................................................
1.0
1.8
Loss before income taxes ................................................
(1.2)
(2.5)
Net loss....................................................................
(0.9)
%
(2.8)
%
Fiscal 2025 Compared to Fiscal 2024
Retail sales
increased by
0.7% to
$646.8 million
in fiscal
2025 compared
to $642.1
million in
fiscal
2024. The increase in
retail sales in fiscal
2025 was primarily due
to a 4.5%
increase in same-store sales,
partially
offset
by
closed stores in
2024
and
2025.
Same-store
sales
for
the
fiscal
year
2025
increased
30
primarily due to
higher transactions volume and
slightly higher average sales
per transaction. 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 2025 and fiscal 2024, 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 0.6%
to $653.8
million in fiscal
2025 compared to
$649.8 million in
fiscal 2024. The
Company
operated
1,069
stores
at
January
31,
2026
compared
to
1,117
stores
operated
at
February
1,
2025.
In fiscal 2025, the Company opened no new stores and closed 48 stores.
Other
revenue,
a
component
of
total
revenues,
was
$7.0
million
in
fiscal
2025
compared
to
$7.7
million in fiscal 2024.
Credit revenue
of $2.7
million represented 0.4%
of total
revenue in
fiscal 2025,
relatively
flat both in
dollars and percentage compared
to
fiscal
2024.
Credit
revenue
is
comprised
of
interest
earned
on
the
Company’s
private
label
credit
card
portfolio
and
related
fee
income.
Related
expenses
include
principally
payroll,
postage
and
other
administrative
expenses
and
totaled
$1.7
million
in
fiscal
2025
compared to
$1.6 million
in fiscal
2024.
Total
credit segment
income before
taxes
was $2.2
million in
fiscal 2025, relatively flat in dollars compared to fiscal 2024.
Cost
of
goods sold
was $431.6
million, or
66.7% of
retail
sales, in
fiscal
2025 compared
to
$436.4
million, or 68.0% of retail sales, in fiscal 2024. The decrease in cost of goods sold as a percentage of sales
resulted primarily from lower buying, distribution and occupancy costs, partially offset by increased sales of
markdown
priced goods.
Cost of goods
sold includes merchandise
costs, net of
discounts and allowances,
buying costs,
distribution costs,
occupancy costs,
and freight
and inventory
shrinkage. Net
merchandise
costs
and
in-bound
freight
are
capitalized
as
inventory
costs.
Buying
and
distribution
costs
include
payroll, payroll-related
costs and
operating expenses
for the
buying departments
and distribution
center.
Occupancy
expenses
include
rent,
real
estate
taxes,
insurance,
common
area
maintenance,
utilities
and
maintenance for stores and distribution facilities. Total gross margin dollars (retail sales less cost of goods
sold and excluding
depreciation) increased by
4.7% to $215.3
million in fiscal
2025 from $205.7
million
in fiscal 2024. Gross margin as presented may not be comparable to that of other companies.
Selling, general
and administrative expenses
(“SG&A”), which
primarily include corporate
and store
payroll,
related
payroll
taxes
and
benefits,
insurance,
supplies,
advertising,
bank
and
credit
card
processing fees were
$226.4 million in
fiscal 2025 compared
to $231.5 million
in fiscal 2024,
a decrease
of
2.2%.
As
a
percent
of
retail
sales,
SG&A
was
35.0%
compared
to
36.1%
in
the
prior
year.
The
decrease
in
SG&A
expense
in
fiscal
2025
was
primarily
attributable
to
lower
payroll
costs
and
lower
closed store and impairment expenses.
Depreciation
expense
was
$10.0
million
in
fiscal
2025
compared
to
$9.8
million
in
fiscal
2024.
Depreciation
expense
increased
slightly
from
fiscal
2024
due
to
additional
distribution
center
and
information
technology