Academy Sports activities + Open air Stories Third Quarter 2022 Outcomes

0
8

Academy Sports and Outdoors, Inc.

Third Quarter Diluted EPS of $1.62; Adjusted Diluted EPS of $1.69; Company Raises Full Year EPS Guidance

Comparable Sales Declined 7.2%

E-commerce Sales Grew Double Digits (+10.5%) for the Fifth Consecutive Quarter

Company Opens Four New Stores During the Quarter

KATY, Texas, Dec. 07, 2022 (GLOBE NEWSWIRE) — Academy Sports and Outdoors, Inc. (Nasdaq: ASO) (“Academy” or the “Company”) today announced its financial results for the third quarter ended October 29, 2022. Unless otherwise indicated, comparisons are to the same period in the prior fiscal year. Comparisons to 2019 are also provided, where appropriate, to benchmark performance given the impact of the pandemic in 2020 and 2021.

Third Quarter 2022 Results
“The third quarter was challenging for Academy; however, we delivered a good profit performance that, while below last year, was in line with our expectations. Our team continues to execute at a high level in an uncertain environment, delivering results well above pre-pandemic levels on all measures,” stated Ken Hicks, Chairman, President and Chief Executive Officer. “Our focus is on our long-term growth opportunities in stores and online through consistent operational excellence, strong financial discipline, and executing our store and omnichannel expansion plans.”

Net sales were $1.49 billion, a decrease of 6.2%, compared to $1.59 billion. Comparable sales declined 7.2%. The decline in sales was primarily due to fewer transactions compared to last year, mainly from a decline in Hunting sales within the Outdoors division. When compared to the third quarter of 2019, net sales increased 30.5%. Additionally, e-commerce sales grew 10.5% year-over-year and 173% compared to 2019.

Gross margin was $522.5 million, or 35.0% of net sales, compared to gross margin of $560.8 million, or 35.2% of net sales in the prior year quarter. The 20 basis point decline was driven primarily by an increase in inventory shrink and e-commerce shipping costs, and was partially offset by an increase in merchandise margins. When compared to 2019, the gross margin rate expanded by 340 basis points.

Story continues

Selling, general and administrative (“SG&A”) expenses were 23.0% of sales, a 140 basis point increase, primarily due to fixed cost deleverage from the decline in sales and additional pre-opening expenses driven by the increase in store count.

Pre-tax income was $169.9 million compared to $205.3 million. When compared to the third quarter of 2019, pre-tax income increased by more than 480%.

GAAP net income decreased 18.3% to $131.7 million compared to $161.3 million. Diluted earnings per share were $1.62, a 5.8% decrease compared to $1.72 per share based on a share count of 81.4 million shares compared to 93.8 million at the end of the third quarter of 2021.

Adjusted net income, which excludes the impact of certain non-cash and extraordinary items, was $137.9 million. Adjusted diluted earnings per share were $1.69 compared to $1.75 per share.

Year-to-date 2022 Results
Net sales decreased 6.4% to $4.65 billion, while comparable sales decreased 6.9%. Year-to-date sales grew 34.4% compared to 2019.

Gross margin was $1.64 billion, or 35.3% of net sales, compared to gross margin of $1.77 billion, or 35.6% of net sales. When compared to year-to-date 2019, the gross margin rate expanded by 460 basis points.

Pre-tax income was $612.2 million compared to $671.1 million. When compared to year-to-date 2019 results, pre-tax income increased by more than 485%.

GAAP net income decreased 11.2% to $470.3 million compared to $529.6 million. Diluted earnings per share were $5.54 compared to $5.55 per share.

Adjusted net income, which excludes the impact of certain non-cash and extraordinary items, decreased 14.9% to $486.0 million. Adjusted diluted earnings per share were $5.72 compared to $5.98 per share.

Balance Sheet and Capital Allocation Update
At the end of the third quarter, the Company’s cash and cash equivalents totaled $318.2 million with no borrowings under the $1.0 billion credit facility. During the quarter, net cash provided by operating activities was $50.8 million.

Merchandise inventories were $1.5 billion, an increase of 12.8% compared to the third quarter 2021. When compared to the third quarter of 2019, inventories were 12.3% higher in dollars, while units declined by 10.0%.

During the third quarter, Academy returned $106.8 million to stockholders through a combination of share repurchases and dividends. The Company repurchased 2.2 million shares for $100.8 million and paid a quarterly cash dividend of $0.075 per share, or $6.0 million.

Year-to-date, the Company has repurchased 10.0 million shares for $389.4 million and has approximately $400 million remaining under its share repurchase program.

Subsequent to the end of the third quarter, on December 6, 2022, Academy announced that its Board of Directors declared a quarterly cash dividend with respect to the quarter ended October 29, 2022, of $0.075 per share of common stock. The dividend is payable on January 13, 2023, to stockholders of record as of the close of business on December 20, 2022.

New Store Openings
During the third quarter, Academy opened four new stores and has since opened three new stores in the fourth quarter, bringing the total number of stores opened in 2022 to nine, for a total of 268 stores. The Company expects to open 80 to 100 stores over the next five years.

2022 Outlook
“Our year-to-date operating income has now surpassed that of fiscal 2019 and 2020 combined. This is a clear indicator that the operational and organizational improvements made over the past few years have structurally changed the earnings power of the Company and positioned us for future growth,” said Michael Mullican, Executive Vice President and Chief Financial Officer. “As we close out the year, we remain focused on providing our customers with excellent service, broad assortments and value offerings.”

Based on its year-to-date results and current trends, Academy is updating its fiscal 2022 guidance as follows:

 

Previous Guidance

 

Updated Guidance

 

(in millions, except per share amounts)

Low end

High end

 

Low end

High end

 

Net Sales

$

6,430.0

 

$

6,630.0

 

 

$

6,430.0

 

$

6,490.0

 

 

 

 

 

 

 

 

 

Comparable Sales

 

-6.0

%

 

-3.0

%

 

 

-6.0

%

 

-5.0

%

 

 

 

 

 

 

 

 

Gross Margin Rate

 

33.0

%

 

33.5

%

 

 

34.0

%

 

34.5

%

 

 

 

 

 

 

 

 

GAAP Income Before Taxes

$

725.0

 

$

805.0

 

 

$

790.0

 

$

810.0

 

 

 

 

 

 

 

 

 

GAAP Net Income

$

550.0

 

$

615.0

 

 

$

610.0

 

$

620.0

 

 

 

 

 

 

 

 

 

GAAP Earnings per Common Share, Diluted

$

6.50

 

$

7.25

 

 

$

7.25

 

$

7.40

 

 

 

 

 

 

 

 

 

Adjusted Earnings per Common Share, Diluted

$

6.75

 

$

7.50

 

 

$

7.50

 

$

7.65

 

 

 

 

 

 

 

 

 

Diluted Weighted Average Common Shares Outstanding

 

85.0

 

 

85.0

 

 

 

84.0

 

 

84.0

 

 

 

 

 

 

 

 

 

The earnings per common share estimate reflects a tax rate of approximately 23.0% and the year-to-date share repurchase activity, but does not include any potential future share repurchases.

Conference Call Info
Academy will host a conference call today at 10:00 a.m. Eastern Time to discuss its financial results. Listeners may access the call by dialing 1-877-407-3982 (U.S.) or 1-201-493-6780 (International). The passcode is 13734402.
A webcast of the call can be accessed at investors.academy.com.

A telephonic replay of the conference call will be available for approximately 30 days, by dialing 1-844-512-2921 (U.S.) or 1-412-317-6671 (International) and entering passcode 13734402. An archive of the webcast will be available at investors.academy.com for 30 days.

About Academy Sports + Outdoors
Academy is a leading full-line sporting goods and outdoor recreation retailer in the United States. Originally founded in 1938 as a family business in Texas, Academy has grown to 268 stores across 18 states. Academy’s mission is to provide “Fun for All” and Academy fulfills this mission with a localized merchandising strategy and value proposition that strongly connects with a broad range of consumers. Academy’s product assortment focuses on key categories of outdoor, apparel, footwear and sports & recreation through both leading national brands and a portfolio of private label brands.

Non-GAAP Measures
Adjusted EBITDA, Adjusted EBIT, Adjusted Net Income, Adjusted Earnings per Common Share, and Adjusted Free Cash Flow have been presented in this press release as supplemental measures of financial performance that are not required by, or presented in accordance with, generally accepted accounting principles (“GAAP”). These non-GAAP measures have limitations as analytical tools. For information on these limitations, as well as information on why management believes these non-GAAP measures are useful, please see our Annual Report for the fiscal year ended January 29, 2022 (the “Annual Report”) and our Quarterly Report for the thirteen and thirty-nine weeks ended October 29, 2022 (the “Quarterly Report”), as such limitations and information may be updated from time to time in our periodic filings with the Securities and Exchange commission (the “SEC”), which are accessible on the SEC’s website at www.sec.gov.

We compensate for these limitations by primarily relying on our GAAP results in addition to using these non-GAAP measures supplementally.

See “Reconciliations of Non-GAAP to GAAP Financial Measures” below for reconciliations of non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures.

Forward Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on Academy’s current expectations and are not guarantees of future performance. You can identify these forward-looking statements by the use of words such as “outlook,” “guidance,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. The forward-looking statements include, among other things, statements regarding the payment of the dividend and declaration of future dividends, including the timing and amount thereof, share repurchases, the Company’s expectations regarding its future performance, and the Company’s future financial condition to support future dividend growth and are subject to various risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify. Actual results may differ materially from these expectations due to changes in global, regional, or local economic, business, competitive, market, regulatory and other factors, including ongoing inflation and continued increases in interest rates, many of which are beyond Academy’s control. Important factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in Academy’s filings with the SEC, including the Annual Report and the Quarterly Report, under the caption “Risk Factors,” as may be updated from time to time in our periodic filings with the SEC. Any forward-looking statement in this press release speaks only as of the date of this release. Academy undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

Investor Contact

 

Media Contact

Matt Hodges

 

Elise Hasbrook

VP, Investor Relations

 

VP, Communications

281-646-5362

 

281-944-6041

[email protected]

 

[email protected]

 

 

 

ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)

 

Thirteen Weeks Ended

 

October 29, 2022

 

Percentage of
Sales
(1)

 

October 30, 2021

 

Percentage of
Sales
(1)

Net sales

$

1,493,925

 

 

100.0

 

%

 

$

1,592,795

 

 

100.0

 

%

Cost of goods sold

 

971,454

 

 

65.0

 

%

 

 

1,031,957

 

 

64.8

 

%

Gross margin

 

522,471

 

 

35.0

 

%

 

 

560,838

 

 

35.2

 

%

Selling, general and administrative expenses

 

342,949

 

 

23.0

 

%

 

 

344,725

 

 

21.6

 

%

Operating income

 

179,522

 

 

12.0

 

%

 

 

216,113

 

 

13.6

 

%

Interest expense, net

 

12,163

 

 

0.8

 

%

 

 

11,424

 

 

0.7

 

%

Other (income), net

 

(2,538

)

 

(0.2

)

%

 

 

(614

)

 

(0.0

)

%

Income before income taxes

 

169,897

 

 

11.4

 

%

 

 

205,303

 

 

12.9

 

%

Income tax expense

 

38,156

 

 

2.6

 

%

 

 

43,998

 

 

2.8

 

%

Net income

$

131,741

 

 

8.8

 

%

 

$

161,305

 

 

10.1

 

%

 

 

 

 

 

 

 

 

Earnings Per Common Share:

 

 

 

 

 

 

 

Basic

$

1.67

 

 

 

 

$

1.77

 

 

 

Diluted

$

1.62

 

 

 

 

$

1.72

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

Basic

 

79,085

 

 

 

 

 

91,140

 

 

 

Diluted

 

81,379

 

 

 

 

 

93,844

 

 

 

(1) Column may not add due to rounding

ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)

 

Thirty-Nine Weeks Ended

 

October 29, 2022

 

Percentage of
Sales
(1)

 

October 30, 2021

 

Percentage of
Sales
(1)

Net sales

$

4,648,570

 

 

100.0

 

%

 

$

4,964,658

 

 

100.0

 

%

Cost of goods sold

 

3,008,612

 

 

64.7

 

%

 

 

3,197,623

 

 

64.4

 

%

Gross margin

 

1,639,958

 

 

35.3

 

%

 

 

1,767,035

 

 

35.6

 

%

Selling, general and administrative expenses

 

998,209

 

 

21.5

 

%

 

 

1,057,290

 

 

21.3

 

%

Operating income

 

641,749

 

 

13.8

 

%

 

 

709,745

 

 

14.3

 

%

Interest expense, net

 

34,240

 

 

0.7

 

%

 

 

38,130

 

 

0.8

 

%

Loss on early retirement of debt

 

 

 

 

%

 

 

2,239

 

 

0.0

 

%

Other (income), net

 

(4,676

)

 

(0.1

)

%

 

 

(1,746

)

 

(0.0

)

%

Income before income taxes

 

612,185

 

 

13.2

 

%

 

 

671,122

 

 

13.5

 

%

Income tax expense

 

141,837

 

 

3.1

 

%

 

 

141,511

 

 

2.9

 

%

Net income

$

470,348

 

 

10.1

 

%

 

$

529,611

 

 

10.7

 

%

 

 

 

 

 

 

 

 

Earnings Per Common Share:

 

 

 

 

 

 

 

Basic

$

5.67

 

 

 

 

$

5.76

 

 

 

Diluted

$

5.54

 

 

 

 

$

5.55

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

 

Basic

 

82,901

 

 

 

 

 

91,951

 

 

 

Diluted

 

84,910

 

 

 

 

 

95,504

 

 

 

(1) Column may not add due to rounding

ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands, except per share data)

 

 

October 29, 2022

 

January 29, 2022

 

October 30, 2021

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

318,167

 

$

485,998

 

$

401,297

 

Accounts receivable – less allowance for doubtful accounts of $1,449, $732 and $1,139, respectively

 

 

15,998

 

 

19,718

 

 

12,368

 

Merchandise inventories, net

 

 

1,495,464

 

 

1,171,808

 

 

1,325,979

 

Prepaid expenses and other current assets

 

 

44,241

 

 

36,460

 

 

44,491

 

Assets held for sale

 

 

1,763

 

 

1,763

 

 

1,763

 

Total current assets

 

 

1,875,633

 

 

1,715,747

 

 

1,785,898

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, NET

 

 

354,014

 

 

345,836

 

 

358,110

 

RIGHT-OF-USE ASSETS

 

 

1,100,522

 

 

1,079,546

 

 

1,087,407

 

TRADE NAME

 

 

577,571

 

 

577,215

 

 

577,144

 

GOODWILL

 

 

861,920

 

 

861,920

 

 

861,920

 

OTHER NONCURRENT ASSETS

 

 

12,804

 

 

4,676

 

 

5,516

 

Total assets

 

$

4,782,464

 

$

4,584,940

 

$

4,675,995

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable

 

$

840,585

 

$

737,826

 

$

919,196

 

Accrued expenses and other current liabilities

 

 

259,179

 

 

303,207

 

 

304,488

 

Current lease liabilities

 

 

88,447

 

 

83,077

 

 

86,701

 

Current maturities of long-term debt

 

 

3,000

 

 

3,000

 

 

3,000

 

Total current liabilities

 

 

1,191,211

 

 

1,127,110

 

 

1,313,385

 

 

 

 

 

 

 

 

LONG-TERM DEBT, NET

 

 

682,803

 

 

683,585

 

 

683,845

 

LONG-TERM LEASE LIABILITIES

 

 

1,093,909

 

 

1,077,667

 

 

1,088,142

 

DEFERRED TAX LIABILITIES, NET

 

 

242,843

 

 

217,212

 

 

188,243

 

OTHER LONG-TERM LIABILITIES

 

 

12,779

 

 

12,420

 

 

26,386

 

Total liabilities

 

 

3,223,545

 

 

3,117,994

 

 

3,300,001

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY :

 

 

 

 

 

 

Preferred stock, $0.01 par value, authorized 50,000,000 shares; none issued and outstanding

 

 

 

 

 

 

 

Common stock, $0.01 par value, authorized 300,000,000 shares; 77,959,530; 87,079,394; and 88,164,878 issued and outstanding as of October 29, 2022, January 29, 2022, and October 30, 2021, respectively.

 

 

779

 

 

870

 

 

882

 

Additional paid-in capital

 

 

203,734

 

 

198,016

 

 

188,329

 

Retained earnings

 

 

1,354,406

 

 

1,268,060

 

 

1,188,271

 

Accumulated other comprehensive loss

 

 

 

 

 

 

(1,488

)

Stockholders’ equity

 

 

1,558,919

 

 

1,466,946

 

 

1,375,994

 

Total liabilities and stockholders’ equity

 

$

4,782,464

 

$

4,584,940

 

$

4,675,995

 

 

ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)

 

 

Thirty-Nine Weeks Ended

 

 

October 29, 2022

 

October 30, 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

470,348

 

 

$

529,611

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

 

78,852

 

 

 

77,767

 

Non-cash lease expense

 

 

635

 

 

 

708

 

Equity compensation

 

 

15,486

 

 

 

36,126

 

Amortization of terminated interest rate swaps, deferred loan and other costs

 

 

2,328

 

 

 

4,787

 

Deferred income taxes

 

 

25,631

 

 

 

48,991

 

Non-cash loss on early retirement of debt

 

 

 

 

 

2,239

 

Changes in assets and liabilities:

 

 

 

 

Accounts receivable, net

 

 

3,720

 

 

 

4,938

 

Merchandise inventories, net

 

 

(323,656

)

 

 

(335,945

)

Prepaid expenses and other current assets

 

 

798

 

 

 

(16,177

)

Other noncurrent assets

 

 

(8,987

)

 

 

2,207

 

Accounts payable

 

 

95,183

 

 

 

128,743

 

Accrued expenses and other current liabilities

 

 

(39,196

)

 

 

34,683

 

Income taxes payable

 

 

(12,332

)

 

 

(1,830

)

Other long-term liabilities

 

 

359

 

 

 

(1,785

)

  Net cash provided by operating activities

 

 

309,169

 

 

 

515,063

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Capital expenditures

 

 

(79,454

)

 

 

(58,567

)

Purchases of intangible assets

 

 

(357

)

 

 

(144

)

  Net cash used in investing activities

 

 

(79,811

)

 

 

(58,711

)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Repayment of Term Loan

 

 

(2,250

)

 

 

(101,500

)

Debt issuance fees

 

 

 

 

 

(927

)

Share-Based Award Payments

 

 

 

 

 

(11,214

)

Proceeds from exercise of stock options

 

 

11,559

 

 

 

41,292

 

Proceeds from issuance of common stock under employee stock purchase program

 

 

2,797

 

 

 

945

 

Taxes paid related to net share settlement of equity awards

 

 

(1,078

)

 

 

(15,418

)

Repurchase of common stock for retirement

 

 

(389,436

)

 

 

(345,837

)

Dividends paid

 

 

(18,781

)

 

 

 

  Net cash used in financing activities

 

 

(397,189

)

 

 

(432,659

)

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(167,831

)

 

 

23,693

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

485,998

 

 

 

377,604

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

318,167

 

 

$

401,297

 

 

ACADEMY SPORTS AND OUTDOORS, INC.
RECONCILIATIONS OF NON-GAAP TO GAAP FINANCIAL MEASURES
(Unaudited)
(Dollar amounts in thousands)

Adjusted EBITDA and Adjusted EBIT
We define “Adjusted EBITDA” as net income (loss) before interest expense, net, income tax expense and depreciation, amortization, and impairment, further adjusted to exclude costs such as consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early retirement of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, pre-opening expenses, payroll taxes associated with a vesting event, as a result of a secondary offering, of certain time and performance-based equity awards, which occurred in May 2021 (the “2021 Vesting Event”) and other adjustments. We define “Adjusted EBIT” as net income (loss) before interest expense, net, and income tax expense, further adjusted to exclude costs such as consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early retirement of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, pre-opening expenses, payroll taxes associated with the 2021 Vesting Event and other adjustments. We describe these adjustments reconciling net income (loss) to Adjusted EBITDA and Adjusted EBIT in the following table.

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

 

October 29, 2022

 

October 30, 2021

 

October 29, 2022

 

October 30, 2021

Net income

 

$

131,741

 

 

$

161,305

 

 

$

470,348

 

 

$

529,611

 

Interest expense, net

 

 

12,163

 

 

 

11,424

 

 

 

34,240

 

 

 

38,130

 

Income tax expense

 

 

38,156

 

 

 

43,998

 

 

 

141,837

 

 

 

141,511

 

Depreciation and amortization

 

 

27,000

 

 

 

26,459

 

 

 

78,852

 

 

 

77,767

 

Equity compensation (a)

 

 

5,829

 

 

 

2,921

 

 

 

15,486

 

 

 

36,126

 

Loss on early retirement of debt

 

 

 

 

 

 

 

 

 

 

 

2,239

 

Pre-opening expenses (b)

 

 

2,115

 

 

 

 

 

 

4,941

 

 

 

 

Payroll taxes associated with the 2021 Vesting Event (c)

 

 

 

 

 

 

 

 

 

 

 

15,418

 

Other (d)

 

 

 

 

 

595

 

 

 

 

 

 

1,309

 

Adjusted EBITDA

 

$

217,004

 

 

$

246,702

 

 

$

745,704

 

 

$

842,111

 

Less: Depreciation and amortization

 

 

(27,000

)

 

 

(26,459

)

 

 

(78,852

)

 

 

(77,767

)

Adjusted EBIT

 

$

190,004

 

 

$

220,243

 

 

$

666,852

 

 

$

764,344

 

(a)

Represents non-cash charges related to equity-based compensation, which vary from period to period depending on certain factors such as the 2021 Vesting Event, timing and valuation of awards, achievement of performance targets and equity award forfeitures.

(b)

Represents pre-opening expenses, which are non-capital expenditures associated with opening new stores and incurred prior to the store opening and generating sales.  These costs consist primarily of occupancy costs, marketing, payroll and recruiting costs.  These costs are expensed as incurred.

(c)

Represents cash expenses related to taxes on equity-based compensation resulting from the 2021 Vesting Event.

(d)

Other adjustments include (representing deductions or additions to Adjusted EBITDA and Adjusted EBIT) amounts that management believes are not representative of our operating performance, such as costs associated with secondary offerings, installation costs for energy savings associated with our profitability initiatives and other costs associated with business optimization initiatives.

 

 

Adjusted Net Income and Adjusted Earnings Per Common Share

We define “Adjusted Net Income (Loss)” as net income (loss), plus costs such as consulting fees, private equity sponsor monitoring fees, equity compensation expense, (gain) loss on early retirement of debt, net, severance and executive transition costs, costs related to the COVID-19 pandemic, pre-opening expenses, payroll taxes associated with the 2021 Vesting Event and other adjustments, less the tax effect of these adjustments. We define “Adjusted Earnings per Common Share, Basic” as Adjusted Net Income divided by the basic weighted average common shares outstanding during the period and “Adjusted Earnings per Common Share, Diluted” as Adjusted Net Income divided by the diluted weighted average common shares outstanding during the period. We describe these adjustments reconciling net income (loss) to Adjusted Net Income, and Adjusted Earnings Per Common Share in the following table.

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

 

October 29, 2022

 

October 30, 2021

 

October 29, 2022

 

October 30, 2021

Net income

 

$

131,741

 

 

$

161,305

 

 

$

470,348

 

 

$

529,611

 

Equity compensation (a)

 

 

5,829

 

 

 

2,921

 

 

 

15,486

 

 

 

36,126

 

Loss on early retirement of debt

 

 

 

 

 

 

 

 

 

 

 

2,239

 

Pre-opening expenses (b)

 

 

2,115

 

 

 

 

 

 

4,941

 

 

 

 

Payroll taxes associated with the 2021 Vesting Event (c)

 

 

 

 

 

 

 

 

 

 

 

15,418

 

Other (d)

 

 

 

 

 

595

 

 

 

 

 

 

1,309

 

Tax effects of these adjustments (e)

 

 

(1,808

)

 

 

(686

)

 

 

(4,735

)

 

 

(13,487

)

Adjusted Net Income

 

$

137,877

 

 

$

164,135

 

 

$

486,040

 

 

$

571,216

 

 

 

 

 

 

 

 

 

 

Adjusted Earnings per Common Share:

 

 

 

 

 

 

 

 

Basic

 

$

1.74

 

 

$

1.80

 

 

$

5.86

 

 

$

6.21

 

Diluted

 

$

1.69

 

 

$

1.75

 

 

$

5.72

 

 

$

5.98

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

79,085

 

 

 

91,140

 

 

 

82,901

 

 

 

91,951

 

Diluted

 

 

81,379

 

 

 

93,844

 

 

 

84,910

 

 

 

95,504

 

(a)

Represents non-cash charges related to equity-based compensation, which vary from period to period depending on certain factors such as the 2021 Vesting Event, timing and valuation of awards, achievement of performance targets and equity award forfeitures.

(b)

Represents pre-opening expenses, which are non-capital expenditures associated with opening new stores and incurred prior to the store opening and generating sales.  These costs consist primarily of occupancy costs, marketing, payroll and recruiting costs.  These costs are expensed as incurred.

(c)

Represents cash expenses related to taxes on equity-based compensation resulting from the 2021 Vesting Event.

(d)

Other adjustments include (representing deductions or additions to Adjusted Net Income) amounts that management believes are not representative of our operating performance, such as costs associated with secondary offerings, installation costs for energy savings associated with our profitability initiatives and other costs associated with business optimization initiatives.

(e)

For the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021, this represents the tax effect (by using the projected full year tax rates for the respective years) of the total adjustments made to arrive at Adjusted Net Income.

 

 

GAAP to Adjusted Earnings Per Common Share, Diluted, Guidance Reconciliation

 

Low Range*

 

High Range*

(in millions, except per share amounts)

Fiscal Year Ending
January 28, 2023

 

Fiscal Year Ending
January 28, 2023

GAAP Net Income

$

610.0

 

 

$

620.0

 

Equity compensation (a)

 

21.0

 

 

 

21.0

 

Pre-opening expenses (a)

 

5.0

 

 

 

5.0

 

Tax effects of these adjustments (a)

 

(6.0

)

 

 

(6.0

)

Adjusted Net Income

$

630.0

 

 

$

640.0

 

 

 

 

 

GAAP Earnings Per Common Share, Diluted

$

7.25

 

 

$

7.40

 

Equity compensation (a)

 

0.25

 

 

 

0.25

 

Pre-opening expenses (a)

 

0.06

 

 

 

0.06

 

Tax effects of these adjustments (a)

 

(0.06

)

 

 

(0.06

)

Adjusted Earnings per Common Share, Diluted

$

7.50

 

 

$

7.65

 

*

Amounts presented have been rounded.

(a)

Adjustments include new store pre-opening costs (as defined above) and non-cash charges related to equity-based compensation (as defined above), which may vary from period to period. The tax effect of these adjustments is determined by using the projected full year tax rate for the fiscal year.

 

 

Adjusted Free Cash Flow

We define “Adjusted Free Cash Flow” as net cash provided by (used in) operating activities less net cash used in investing activities. We describe these adjustments reconciling net cash provided by operating activities to Adjusted Free Cash Flow in the following table.

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

 

October 29, 2022

 

October 30, 2021

 

October 29, 2022

 

October 30, 2021

Net cash provided by operating activities

 

$

50,763

 

 

$

109,389

 

 

$

309,169

 

 

$

515,063

 

Net cash used in investing activities

 

 

(31,677

)

 

 

(24,944

)

 

 

(79,811

)

 

 

(58,711

)

Adjusted Free Cash Flow

 

$

19,086

 

 

$

84,445

 

 

$

229,358

 

 

$

456,352