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Form 10-Q FIVE BELOW, INC For: Oct 29

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December 1, 2022 3:29 PM EST
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
(mark one)
☑    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 2022.
OR
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             
Commission file number: 001-35600
Five Below, Inc.
(Exact name of Registrant as Specified in its Charter)
Pennsylvania75-3000378
(State or Other Jurisdiction of
Incorporation or Organization)		(I.R.S. Employer
Identification No.)
701 Market Street
Suite 300 
Philadelphia
Pennsylvania 19106
(Address of Principal Executive Offices)(Zip Code)

(215) 546-7909
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stockFIVENASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.




Large accelerated filer ☒  Accelerated filer ☐
Non-accelerated filer ☐  Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of November 30, 2022 was 55,513,690.




INDEX
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
  




3



PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

FIVE BELOW, INC.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data) 
October 29, 2022January 29, 2022October 30, 2021
Assets
Current assets:
Cash and cash equivalents$44,229 $64,973 $86,753 
Short-term investment securities72,722 277,141 224,563 
Inventories701,561 455,104 521,107 
Prepaid income taxes and tax receivable25,389 11,325 24,013 
Prepaid expenses and other current assets113,147 96,196 77,480 
Total current assets957,048 904,739 933,916 
Property and equipment, net of accumulated depreciation and amortization of $439,890, $363,254, and $340,637, respectively.
880,469 777,497 728,319 
Operating lease assets1,312,437 1,151,395 1,151,632 
Long-term investment securities— 37,717 — 
Other assets13,761 9,112 9,585 
$3,163,715 $2,880,460 $2,823,452 
Liabilities and Shareholders’ Equity
Current liabilities:
Line of credit$— $— $— 
Accounts payable279,836 196,461 253,817 
Income taxes payable— 28,096 811 
Accrued salaries and wages14,140 53,539 28,697 
Other accrued expenses152,260 145,268 167,468 
Operating lease liabilities193,614 163,537 162,809 
Total current liabilities639,850 586,901 613,602 
Other long-term liabilities4,307 1,663 1,536 
Long-term operating lease liabilities 1,293,692 1,135,456 1,137,658 
Deferred income taxes41,378 36,156 37,407 
Total liabilities1,979,227 1,760,176 1,790,203 
Commitments and contingencies (note 6)
Shareholders’ equity:
Common stock, $0.01 par value. Authorized 120,000,000 shares; issued and outstanding 55,512,425, 55,662,400, and 56,025,753 shares, respectively.
555 556 560 
Additional paid-in capital254,663 280,666 333,823 
Retained earnings 929,270 839,062 698,866 
Total shareholders’ equity1,184,488 1,120,284 1,033,249 
$3,163,715 $2,880,460 $2,823,452 
See accompanying notes to consolidated financial statements.

4




FIVE BELOW, INC.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data) 
 Thirteen Weeks EndedThirty-Nine Weeks Ended
October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Net sales$645,034 $607,645 $1,953,557 $1,852,022 
Cost of goods sold437,226 405,283 1,310,463 1,218,472 
Gross profit207,808 202,362 643,094 633,550 
Selling, general and administrative expenses186,874 159,913 523,820 441,246 
Operating income 20,934 42,449 119,274 192,304 
Interest income (expense) and other income (expense), net483 (10,624)341 (12,672)
Income before income taxes21,417 31,825 119,615 179,632 
Income tax expense 5,271 7,648 29,407 41,018 
Net income $16,146 $24,177 $90,208 $138,614 
Basic income per common share$0.29 $0.43 $1.62 $2.48 
Diluted income per common share$0.29 $0.43 $1.62 $2.46 
Weighted average shares outstanding:
Basic shares55,509,525 56,023,961 55,551,382 56,001,437 
Diluted shares55,683,609 56,340,635 55,720,792 56,305,456 
See accompanying notes to consolidated financial statements.
5



FIVE BELOW, INC.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
(in thousands, except share data)

Common stockAdditional
paid-in capital		Retained earningsTotal
shareholders’ equity
SharesAmount
Balance, January 29, 202255,662,400 $556 $280,666 $839,062 $1,120,284 
Share-based compensation expense— — 5,857 — 5,857 
Issuance of unrestricted stock awards718 — 117 — 117 
Exercise of options to purchase common stock2,402 — 79 — 79 
Vesting of restricted stock units and performance-based restricted stock units99,124 1 — — 1 
Common shares withheld for taxes(26,151)— (4,107)— (4,107)
Repurchase and retirement of common stock(247,132)(2)(40,005)— (40,007)
Net Income— — — 32,718 32,718 
Balance, April 30, 202255,491,361 $555 $242,607 $871,780 $1,114,942 
Share-based compensation expense— — 6,007 — 6,007 
Issuance of unrestricted stock awards864 — 116 — 116 
Exercise of options to purchase common stock550 — 22 — 22 
Vesting of restricted stock units and performance-based restricted stock units13,625 — — — — 
Common shares withheld for taxes(2,681)— (314)— (314)
Issuance of common stock to employees under employee stock purchase plan4,212 — 464 — 464 
Net Income— — — 41,344 41,344 
Balance, July 30, 202255,507,931 $555 $248,902 $913,124 $1,162,581 
Share-based compensation expense— — 5,802 — 5,802 
Issuance of unrestricted stock awards1,079 — 158 — 158 
Exercise of options to purchase common stock260 — 9 — 9 
Vesting of restricted stock units and performance-based restricted stock units4,703 — — — — 
Common shares withheld for taxes(1,548)— (208)— (208)
Net Income— — — 16,146 16,146 
Balance, October 29, 202255,512,425 $555 $254,663 $929,270 $1,184,488 



6





Common stockAdditional
paid-in capital		Retained earningsTotal
shareholders’ equity
SharesAmount
Balance, January 30, 202155,935,237 $559 $321,075 $560,252 $881,886 
Share-based compensation expense— — 5,695 — 5,695 
Issuance of unrestricted stock awards400 — 81 — 81 
Exercise of options to purchase common stock200 — 6 — 6 
Vesting of restricted stock units and performance-based restricted stock units92,914 1 — — 1 
Common shares withheld for taxes(34,682)— (6,623)— (6,623)
Net income— — — 49,596 49,596 
Balance, May 1, 202155,994,069 $560 $320,234 $609,848 $930,642 
Share-based compensation expense— — 6,457 — 6,457 
Issuance of unrestricted stock awards413 — 80 — 80 
Exercise of options to purchase common stock10,246 — 352 — 352 
Vesting of restricted stock units and performance-based restricted stock units17,339 — — — — 
Common shares withheld for taxes(1,879)— (355)— (355)
Issuance of common stock to employees under employee stock purchase plan2,090 — 443 — 443 
Net income— — — 64,841 64,841 
Balance, July 31, 202156,022,278 $560 $327,211 $674,689 $1,002,460 
Share-based compensation expense— — 6,707 — 6,707 
Issuance of unrestricted stock awards379 — 75 — 75 
Exercise of options to purchase common stock1,192 — 8 — 8 
Vesting of restricted stock units and performance-based restricted stock units2,834 — — — — 
Common shares withheld for taxes(930)— (178)— (178)
Net income— — — 24,177 24,177 
Balance, October 30, 202156,025,753 $560 $333,823 $698,866 $1,033,249 
See accompanying notes to consolidated financial statements.
7



FIVE BELOW, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 Thirty-Nine Weeks Ended
October 29, 2022October 30, 2021
Operating activities:
Net income $90,208 $138,614 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization76,698 62,598 
Share-based compensation expense 18,117 19,154 
Deferred income tax expense5,222 8,496 
Other non-cash expenses 364 530 
Changes in operating assets and liabilities:
Inventories(246,457)(239,840)
Prepaid income taxes and tax receivable(14,064)(17,663)
Prepaid expenses and other assets(21,787)(7,868)
Accounts payable79,046 115,589 
Income taxes payable(28,096)(1,214)
Accrued salaries and wages(39,399)(14,748)
Operating leases27,271 14,368 
Other accrued expenses7,895 46,649 
Net cash (used in) provided by operating activities(44,982)124,665 
Investing activities:
Purchases of investment securities and other investments(31,815)(285,429)
Sales, maturities, and redemptions of investment securities273,951 198,295 
Capital expenditures(173,589)(213,215)
Net cash provided by (used in) investing activities68,547 (300,349)
Financing activities:
Cash paid for Revolving Credit Facility financing costs(248)— 
Net proceeds from issuance of common stock464 443 
Repurchase and retirement of common stock
(40,007)— 
Proceeds from exercise of options to purchase common stock and vesting of restricted and performance-based restricted stock units
111 368 
Common shares withheld for taxes(4,629)(7,157)
Net cash used in financing activities(44,309)(6,346)
Net decrease in cash and cash equivalents(20,744)(182,030)
Cash and cash equivalents at beginning of period64,973 268,783 
Cash and cash equivalents at end of period$44,229 $86,753 
Supplemental disclosures of cash flow information:
Non-cash investing activities
Increase in accrued purchases of property and equipment$6,008 $12,350 
See accompanying notes to consolidated financial statements.
8
FIVE BELOW, INC.
Notes to Consolidated Financial Statements
(Unaudited)

(1) Summary of Significant Accounting Policies
(a)Description of Business
Five Below, Inc. (collectively referred to herein with its wholly owned subsidiary as the "Company") is a specialty value retailer offering merchandise targeted at the tween and teen demographic. The Company offers an edited assortment of products, with most priced at $5 and below.
The Company’s edited assortment of products includes select brands and licensed merchandise. The Company believes its merchandise is readily available, and that there are a number of potential vendors that could be utilized, if necessary, under approximately the same terms the Company is currently receiving; thus, it is not dependent on a single vendor or a group of vendors.
The Company is incorporated in the Commonwealth of Pennsylvania and, as of October 29, 2022, operated in 42 states that include Pennsylvania, New Jersey, Delaware, Maryland, Virginia, Massachusetts, New Hampshire, West Virginia, North Carolina, New York, Connecticut, Rhode Island, Ohio, Illinois, Indiana, Michigan, Missouri, Georgia, Texas, Tennessee, Maine, Alabama, Kentucky, Kansas, Florida, South Carolina, Mississippi, Louisiana, Wisconsin, Oklahoma, Minnesota, California, Arkansas, Iowa, Nebraska, Arizona, Nevada, Colorado, Utah, New Mexico, North Dakota and South Dakota . As of October 29, 2022 and October 30, 2021, the Company operated 1,292 stores and 1,173 stores, respectively, each operating under the name “Five Below,” and sold merchandise on the internet, through the Company's fivebelow.com e-commerce website as well as with an on demand third party delivery service to enable our customers to shop online and receive convenient same day delivery.
(b)Fiscal Year
The Company operates on a 52/53-week fiscal year ending on the Saturday closest to January 31. References to "fiscal year 2022" or "fiscal 2022" refer to the period from January 30, 2022 to January 28, 2023, which is a 52-week fiscal year. References to "fiscal year 2021" or "fiscal 2021" refer to the period from January 31, 2021 to January 29, 2022, which is a 52-week fiscal year. The fiscal quarters ended October 29, 2022 and October 30, 2021 refer to the thirteen weeks ended as of those dates. The year-to-date periods ended October 29, 2022 and October 30, 2021 refer to the thirty-nine weeks ended as of those dates.
(c)Basis of Presentation
The consolidated balance sheets as of October 29, 2022 and October 30, 2021, the consolidated statements of operations for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021, the consolidated statements of shareholders’ equity for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021 and the consolidated statements of cash flows for the thirty-nine weeks ended October 29, 2022 and October 30, 2021 have been prepared by the Company in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim reporting and are unaudited. In the opinion of management, the aforementioned financial statements include all known adjustments (which consist primarily of normal, recurring accruals, estimates and assumptions that impact the financial statements) necessary to present fairly the financial position at the balance sheet dates and the results of operations and cash flows for the periods ended October 29, 2022 and October 30, 2021. The balance sheet as of January 29, 2022, presented herein, has been derived from the audited balance sheet included in the Company's Annual Report on Form 10-K for fiscal 2021 as filed with the Securities and Exchange Commission on March 30, 2022 and referred to herein as the “Annual Report,” but does not include all annual disclosures required by U.S. GAAP. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the fiscal year ended January 29, 2022 and footnotes thereto included in the Annual Report. The consolidated results of operations for the thirteen and thirty-nine weeks October 29, 2022 and October 30, 2021 are not necessarily indicative of the consolidated operating results for the year ending January 28, 2023 or any other period. The Company's business is seasonal and as a result, the Company's net sales fluctuate from quarter to quarter. Net sales are usually highest in the fourth fiscal quarter due to the year-end holiday season.
(d)Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company determined that the impact of the adoption of ASU 2020-04 will have an immaterial impact on its consolidated financial statements.
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(e)Use of Estimates
The preparation of the consolidated financial statements requires management of the Company to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, net realizable value for inventories, income taxes, share-based compensation expense, the incremental borrowing rate utilized in operating lease liabilities, equity method investments and notes receivable.
(f)Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation at the measurement date:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Inputs, other than Level 1, that are either directly or indirectly observable.
Level 3: Unobservable inputs developed using the Company’s estimates and assumptions which reflect those that market participants would use.
The classification of fair value measurements within the hierarchy are based upon the lowest level of input that is significant to the measurement.
The Company’s financial instruments consist primarily of cash equivalents, investment securities, accounts payable, borrowings, if any, under a line of credit, equity method investments and notes receivable. The Company believes that: (1) the carrying value of cash equivalents and accounts payable are representative of their respective fair value due to the short-term nature of these instruments; and (2) the carrying value of the borrowings, if any, under the line of credit approximates fair value because the line of credit’s interest rates vary with market interest rates. Under the fair value hierarchy, the fair market values of cash equivalents and the investments in corporate bonds are Level 1 while the investments in municipal bonds are Level 2. The fair market values of Level 2 instruments are determined by management with the assistance of a third-party pricing service. Since quoted prices in active markets for identical assets are not available, these prices are determined by the third-party pricing service using observable market information such as quotes from less active markets and quoted prices of similar securities.
As of October 29, 2022, January 29, 2022 and October 30, 2021, the Company had cash equivalents of $21.7 million, $41.3 million and $60.8 million, respectively. The Company’s cash equivalents consist of cash management solutions, credit and debit card receivables, money market funds, corporate bonds and municipal bonds with original maturities of 90 days or less. Fair value for cash equivalents was determined based on Level 1 inputs.
As of October 29, 2022, January 29, 2022 and October 30, 2021, the Company's investment securities are classified as held-to-maturity since the Company has the intent and ability to hold the investments to maturity. Such securities are carried at amortized cost plus accrued interest and consist of the following (in thousands):
As of October 29, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Market Value
Short-term:
Corporate bonds$72,522 $— $813 $71,709 
Municipal bonds200 — — 200 
Total$72,722 $— $813 $71,909 
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As of January 29, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Market Value
Short-term:
Corporate bonds$236,069 $— $286 $235,783 
Municipal bonds41,072 — 44 41,028 
Total$277,141 $— $330 $276,811 
Long-term:
Corporate bonds$37,717 $— $199 $37,518 
Total$37,717 $— $199 $37,518 
As of October 30, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Market Value
Short-term:
Corporate bonds$190,700 $6 $82 $190,624 
Municipal bonds33,863 — 11 33,852 
Total$224,563 $6 $93 $224,476 
Short-term investment securities as of October 29, 2022, January 29, 2022 and October 30, 2021 all mature in one year or less. Long-term investment securities as of January 29, 2022 all mature after one year but in less than three years.
(g)Prepaid Expenses and Other Current Assets
Prepaid expenses as of October 29, 2022, January 29, 2022 and October 30, 2021 were $27.6 million, $26.4 million, and $26.5 million, respectively. Other current assets as of October 29, 2022, January 29, 2022 and October 30, 2021 were $85.5 million, $69.8 million, and $51.0 million, respectively.
(h)Other Accrued Expenses
Other accrued expenses include accrued capital expenditures of $43.4 million, $41.7 million, and $42.0 million as of October 29, 2022, January 29, 2022 and October 30, 2021, respectively.
(i)Deferred Compensation
The Five Below, Inc. Nonqualified Deferred Compensation Plan (the "Deferred Comp Plan") and a related, irrevocable grantor trust (the "Trust") provides eligible key employees with the opportunity to elect to defer up to 80% of their eligible compensation. The Company may make discretionary contributions, at the discretion of the Board. Payments under the Deferred Comp Plan will be made from the general assets of the Company or from the assets of the Trust, funded by the Company. The related liability is recorded as deferred compensation and included in other long-term liabilities in the consolidated balance sheets.
(j)Equity Method Investments
The Company uses the equity method to account for its investments in which the Company is deemed to have the ability to exercise significant influence over an investee’s operating and financial policies or in which the Company holds a significant partnership or limited liability company interest. Equity method investments are initially recorded at cost in other assets in the consolidated balance sheets. The cost is adjusted to recognize the Company's proportionate share of the investee’s net income or loss after the date of investment and is also adjusted for any impairments resulting from other-than-temporary declines in fair value that is less than its carrying value. During the thirteen weeks ended October 30, 2021, the Company recorded an other-than-temporary impairment utilizing the market and cost approach considering historical and projected financial results to calculate fair value. Also related to this investment, management recorded a reserve against outstanding debt owed to the Company based on management's evaluation of collectability. The total amount of impairment and reserve was approximately $9.7 million and was recorded in interest income (expense) and other income (expense), net in the consolidated statements of operations.
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(2)Revenue from Contracts with Customers
Revenue Transactions
Revenue from store operations is recognized at the point of sale when control of the product is transferred to the customer at such time. Internet sales, through the Company's fivebelow.com e-commerce website, are recognized when the customer receives the product as control transfers upon delivery. Returns subsequent to the period end are immaterial; accordingly, no significant reserve has been recorded. Gift card sales to customers are initially recorded as liabilities and recognized as sales upon redemption for merchandise or as breakage revenue in proportion to the pattern of redemption of the gift cards by the customer in net sales.
The transaction price for the Company’s sales is based on the item’s stated price. To the extent that the Company charges customers for shipping and handling on e-commerce sales, the Company records such amounts in net sales. Shipping and handling costs, which include fulfillment and shipping costs related to the Company's e-commerce operations, are included in costs of goods sold. As permitted by applicable accounting guidance, ASU 2014-09 "Revenue from Contracts with Customers," the Company has elected to exclude all sales taxes collected from customers and remitted to governmental authorities from net sales in the accompanying consolidated statements of operations.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by groups of products: leisure, fashion and home, and party and snack (dollars in thousands):
Thirteen Weeks EndedThirteen Weeks Ended
October 29, 2022October 30, 2021
AmountPercentage of Net SalesAmountPercentage of Net Sales
Leisure$283,464 44.0 %$305,600 50.3 %
Fashion and home203,893 31.6 %192,472 31.7 %
Party and snack157,677 24.4 %109,573 18.0 %
Total$645,034 100.0 %$607,645 100.0 %
Thirty-Nine Weeks EndedThirty-Nine Weeks Ended
October 29, 2022October 30, 2021
AmountPercentage of Net SalesAmountPercentage of Net Sales
Leisure$895,018 45.8 %$930,890 50.3 %
Fashion and home576,430 29.5 %563,401 30.4 %
Party and snack482,109 24.7 %357,731 19.3 %
Total$1,953,557 100.0 %$1,852,022 100.0 %
(3) Leases
The Company determines if an arrangement contains a lease at the inception of a contract. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
During the thirteen weeks ended October 29, 2022, the Company committed to 28 new store leases with average terms of approximately 10 years that have future minimum lease payments of approximately $55.7 million.
All of the Company's leases are classified as operating leases and the associated assets and liabilities are presented as separate captions in the consolidated balance sheets. As of October 29, 2022 and October 30, 2021, the weighted average remaining lease term for the Company's operating leases was 7.7 years and 7.9 years, respectively, and the weighted average discount rate was 5.2% and 5.6%, respectively.
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The following table is a summary of the Company's components for net lease costs (in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
Lease CostOctober 29, 2022October 30, 2021October 29, 2022October 30, 2021
Operating lease cost$59,401 $51,477 $171,080 $148,272 
Variable lease cost16,012 14,951 46,134 42,602 
Net lease cost*$75,413 $66,428 $217,214 $190,874 

* Excludes short-term lease cost, which is immaterial.


The following table summarizes the maturity of lease liabilities under operating leases as of October 29, 2022 (in thousands):
Maturity of Lease LiabilitiesOperating Leases
2022$64,372 
2023257,370 
2024249,342 
2025235,106 
2026219,633 
After 2026744,076 
Total lease payments1,769,899 
Less: imputed interest282,593 
Present value of lease liabilities$1,487,306 

The following table summarizes the supplemental cash flow disclosures related to leases (in thousands):
Thirty-Nine Weeks Ended
October 29, 2022October 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Cash payments arising from operating lease liabilities (1)
$154,840 $144,030 
Supplemental non-cash information:
Operating lease liabilities arising from obtaining right-of-use assets$274,097 $266,717 
(1) Included within operating activities in the Company's Consolidated Statements of Cash Flows.
(4) Income Per Common Share
Basic income per common share amounts are calculated using the weighted average number of common shares outstanding for the period. Diluted income per common share amounts are calculated using the weighted average number of common shares outstanding for the period and include the dilutive impact of exercised stock options as well as assumed vesting of restricted stock awards and shares currently available for purchase under the Company's Employee Stock Purchase Plan, using the treasury stock method. Performance-based restricted stock units are considered contingently issuable shares for diluted income per common share purposes and the dilutive impact, if any, is not included in the weighted average shares until the performance conditions are met. The dilutive impact, if any, for performance-based restricted stock units, which are subject to market conditions based on the Company's total shareholder return relative to a pre-defined peer group, are included in the weighted average shares.
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The following table reconciles net income and the weighted average common shares outstanding used in the computations of basic and diluted income per common share (in thousands, except for share and per share data):
Thirteen Weeks EndedThirty-Nine Weeks Ended
 October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Numerator:
Net income $16,146 $24,177 $90,208 $138,614 
Denominator:
Weighted average common shares outstanding - basic55,509,525 56,023,961 55,551,382 56,001,437 
Dilutive impact of options, restricted stock units and employee stock purchase plan174,084 316,674 169,410 304,019 
Weighted average common shares outstanding - diluted55,683,609 56,340,635 55,720,792 56,305,456 
Per common share:
Basic income per common share$0.29 $0.43 $1.62 $2.48 
Diluted income per common share$0.29 $0.43 $1.62 $2.46 
The effects of the assumed vesting of restricted stock units for 54,833 shares of common stock for the thirteen weeks ended October 29, 2022 were excluded from the calculation of diluted income per share, as their impact would have been anti-dilutive.
The effects of the assumed vesting of restricted stock units for 69 shares of common stock for the thirteen weeks ended October 30, 2021 were excluded from the calculation of diluted income per share, as their impact would have been anti-dilutive.
The effects of the assumed vesting of restricted stock units for 87,225 shares of common stock for the thirty-nine weeks ended October 29, 2022 were excluded from the calculation of diluted income per share, as their impact would have been anti-dilutive.
The effects of the assumed vesting of restricted stock units for 7,775 shares of common stock for the thirty-nine weeks ended October 30, 2021 were excluded from the calculation of diluted income per share, as their impact would have been anti-dilutive.
The aforementioned excluded shares do not reflect the impact of any incremental repurchases under the treasury stock method.
(5)Line of Credit
On September 16, 2022, the Company entered into a Second Amendment to Credit Agreement (the "Second Amendment") which amended the Fifth Amended and Restated Credit Agreement, dated as of April 24, 2020, as previously amended by that certain First Amendment to Credit Agreement, dated as of January 27, 2021 (the "First Amendment"; the Fifth Amended and Restated Credit Agreement as amended by the First Amendment and the Second Amendment, the “Credit Agreement”), among the Company, 1616 Holdings, Inc., a wholly-owned subsidiary of the Company ("1616 Holdings" and together with the Company, the "Loan Parties"), Wells Fargo Bank, National Association as administrative agent (the "Agent"), and other lenders party thereto (the "Lenders").
The Credit Agreement provides for a secured asset-based revolving line of credit in the amount of up to $225.0 million (the "Revolving Credit Facility"). Advances under the Revolving Credit Facility are tied to a borrowing base consisting of eligible credit card receivables and inventory, as reduced by certain reserves in effect from time to time. Pursuant to the Credit Agreement, inventory appraisals and certain other diligence items are deferred, with reduced advance rates during the period that such appraisals have not been delivered. Pursuant to the Second Amendment, the Revolving Credit Facility expires on the earliest to occur of (i) September 16, 2027 or (ii) an event of default.
The Second Amendment also replaced the existing LIBOR rate provisions with SOFR rate provisions which converted then outstanding LIBOR loans into SOFR loans and additionally makes a number of other revisions to other provisions of the Credit Agreement. Giving effect to the Second Amendment, outstanding borrowings under the Revolving Credit Facility would accrue interest at floating rates plus an applicable margin ranging from 1.12% to 1.50% for SOFR loans and 0.125% to 0.50% for base rate loans, and letter of credit fees range from 1.125% to 1.50%, in each case based on the average availability under the Revolving Credit Facility.
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The Revolving Credit Facility may be increased up to $150.0 million, subject to certain conditions, including obtaining commitments from one or more Lenders (the "Accordion"). Pursuant to the First Amendment, the Company obtained commitments from the Lenders that would allow the Company at its election (subject only to satisfaction of certain customary conditions such as the absence of any Event of Default), to increase the amount of the Revolving Credit Facility by an aggregate principal amount up to $50.0 million within the Accordion (the "Committed Increase"). The entire amount of the Revolving Credit Facility is available for the issuance of letters of credit and allows for swingline loans.
The Credit Agreement contains customary covenants that limit, absent lender approval, the ability of the Company and certain of its affiliates to, among other things, pay cash dividends, incur debt, create liens and encumbrances, redeem or repurchase stock, enter into certain acquisition transactions with affiliates, merge, dissolve, repay certain indebtedness, change the nature of the Company’s business, enter sale or leaseback transactions, make investments or dispose of assets. In some cases, these restrictions are subject to certain negotiated exceptions or permit the Company to undertake otherwise restricted activities if it satisfies certain conditions. In addition, the Company will be required to maintain availability of not less than (i) 12.5% of the lesser of (x) aggregate commitments under the Revolving Credit Facility and (y) the borrowing base (the "loan cap") during the period that inventory appraisals have not been delivered as described above and (ii) at all other times 10.0% of the loan cap.
If there exists an event of default or availability under the Revolving Credit Facility is less than 15% of the loan cap, amounts in any of the Loan Parties’ or subsidiary guarantors' designated deposit accounts will be transferred daily into a blocked account held by the Agent and applied to reduce outstanding amounts under the Revolving Credit Facility (the "Cash Dominion Event"), so long as (i) such event of default has not been waived and/or (ii) until availability has exceeded 15% of the loan cap for sixty (60) consecutive calendar days (provided that such ability to discontinue the Cash Dominion Event shall be limited to two times during the term of the Credit Agreement).
The Credit Agreement contains customary events of default including, among other things, failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain other indebtedness, change of control, incurrence of certain material judgments that are not stayed, satisfied, bonded or discharged within 30 days, certain ERISA events, invalidity of the credit documents, and violation of affirmative and negative covenants or breach of representations and warranties set forth in the Credit Agreement. Amounts under the Revolving Credit Facility may become due upon events of default (subject to any applicable grace or cure periods).
All obligations under the Revolving Credit Facility are guaranteed by 1616 Holdings and secured by substantially all of the assets of the Company and 1616 Holdings.
As of October 29, 2022, the Company had no borrowings under the Revolving Credit Facility and had approximately $225 million available under the Revolving Credit Facility.
As of October 29, 2022 and October 30, 2021, the Company was in compliance with the covenants applicable to it under the Credit Agreement.
(6)Commitments and Contingencies
Commitments
Other Contractual Commitments
As of October 29, 2022, the Company has other purchase commitments of approximately $26.9 million consisting of purchase agreements for materials that will be used in the construction of new stores.
Contingencies
Legal Matters
The Company is subject to various proceedings, lawsuits, disputes, and claims arising in the ordinary course of the Company's business. Many of these actions raise complex factual and legal issues and are subject to uncertainties. Actions filed against the Company from time to time include commercial, intellectual property, customer, and employment actions, including class action lawsuits. The plaintiffs in some actions seek unspecified damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by insurance. The Company cannot predict with assurance the outcome of actions brought against the Company. Accordingly, adverse developments, settlements, or resolutions may occur and negatively impact income in the quarter of such development, settlement or resolution. If a potential loss arising from these lawsuits, claims and pending actions is probable and reasonably estimable, the Company records the estimated liability based on circumstances and assumptions existing at the time. Although the outcome of these and other claims cannot be predicted with certainty, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's financial condition or results of operations.
(7)Share-Based Compensation
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Equity Incentive Plan
Pursuant to the Company's 2022 Equity Incentive Plan (the “Plan”), which was approved in June 2022, the Company’s Board of Directors may grant stock options, restricted shares, and restricted stock units to officers, directors, key employees and professional service providers. The Plan allows for the issuance of up to a total of 4.3 million shares under the Plan. As of October 29, 2022, approximately 3.5 million stock options, restricted shares, or restricted stock units were available for grant.
Common Stock Options
All stock options have a term not greater than ten years. Stock options vest and become exercisable in whole or in part, in accordance with vesting conditions set by the Company’s Board of Directors. Options granted to date generally vest over four years from the date of grant.
Stock option activity during the thirty-nine weeks ended October 29, 2022 was as follows:
Options
Outstanding		Weighted
Average
Exercise
Price		Weighted
Average
Remaining
Contractual
Term
(in years)
Balance as of January 29, 202239,763 $34.48 2.3
Exercised(3,212)23.51
Balance as of October 29, 202236,551 35.441.7
Exercisable as of October 29, 202236,551 $35.44 1.7

The fair value of each option award granted to employees, including outside directors, is estimated on the date of grant using the Black-Scholes option-pricing model. There were no stock options granted or forfeited during the thirty-nine weeks ended October 29, 2022.
Restricted Stock Units and Performance-Based Restricted Stock Units
All restricted stock units ("RSU") and performance-based restricted stock units ("PSU") vest in accordance with vesting conditions set by the compensation committee of the Company’s Board of Directors. RSUs and PSUs granted to date generally have vesting periods ranging from less than one year to four years from the date of grant. The fair value of RSUs is the market price of the underlying common stock on the date of grant.
PSUs that have a performance condition are subject to satisfaction of the applicable performance goals established for the respective grant. The Company periodically assesses the probability of achievement of the performance criteria and adjusts the amount of compensation expense accordingly. The fair value of these PSUs is the market price of the underlying common stock on the date of grant. Compensation is recognized over the vesting period and adjusted for the probability of achievement of the performance criteria.
PSUs that have a market condition based on our total shareholder return relative to a pre-defined peer group are subject to multi-year performance objectives with vesting periods of approximately three years from the date of grant (if the applicable performance objectives are achieved). The fair value of these PSUs are determined using a Monte Carlo valuation model.
RSU and PSU activity during the thirty-nine weeks ended October 29, 2022 was as follows:
Restricted Stock UnitsPerformance-Based Restricted Stock Units
NumberWeighted-Average Grant Date Fair ValueNumberWeighted-Average Grant Date Fair Value
Non-vested balance as of January 29, 2022254,295 $126.93 349,236 $163.16 
Granted117,650 140.81 127,598 165.90 
Vested(117,452)108.71 — — 
Forfeited(25,076)140.85 (17,738)171.16 
Non-vested balance as of October 29, 2022229,417 $133.76 459,096 $163.61 
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In connection with the vesting of RSUs and PSUs during the thirty-nine weeks ended October 29, 2022, the Company withheld 30,380 shares with an aggregate value of $4.6 million in satisfaction of minimum tax withholding obligations due upon vesting.
In connection with the vesting of RSUs and PSUs during the thirty-nine weeks ended October 30, 2021, the Company withheld 37,491 shares with an aggregate value of $7.2 million in satisfaction of minimum tax withholding obligations due upon vesting.
As of October 29, 2022, there was $37.1 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements (including stock options, RSUs and PSUs) granted under the Plan. The cost is expected to be recognized over a weighted average vesting period of 2.3 years.
Share Repurchase Programs
On March 20, 2018, the Company's Board of Directors approved a share repurchase program authorizing the repurchase of up to $100 million of the Company's common stock through March 31, 2021, on the open market, in privately negotiated transactions, or otherwise. This program expired on March 31, 2021.
On March 9, 2021, the Company's Board of Directors approved a new share repurchase program for up to $100 million of the Company's common stock through March 31, 2024. In fiscal 2021, the Company purchased 368,699 shares at an aggregate cost of approximately $60.0 million, or average price of $162.75 per share. During the thirty-nine weeks ended October 29, 2022, the Company purchased 247,132 shares at an aggregate cost of approximately $40.0 million, or average price of $161.88 per share. The Company has exhausted repurchases under this program.
On June 14, 2022, the Company's Board of Directors approved a new share repurchase program for up to $100 million of the Company's common stock through June 30, 2025. As of October 29, 2022, the Company has not made any repurchases under this program.
Since approval of the share repurchase programs in March 2018, the Company has purchased approximately 1,100,000 shares for an aggregate cost of approximately $150 million.
(8)Income Taxes
The following table summarizes the Company’s income tax expense and effective tax rates for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021 (dollars in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 29, 2022October 30, 2021October 29, 2022October 30, 2021
Income before income taxes$21,417 $31,825 $119,615 $179,632 
Income tax expense$5,271 $7,648 $29,407 $41,018 
Effective tax rate24.6 %24.0 %24.6 %22.8 %
The effective tax rates for the thirteen and thirty-nine weeks ended October 29, 2022 and October 30, 2021 were based on the Company’s forecasted annualized effective tax rates and were adjusted for discrete items that occurred within the periods presented. The effective tax rate for the thirteen weeks ended October 29, 2022 was higher than the thirteen weeks ended October 30, 2021 primarily due to discrete items. The effective tax rate for the thirty-nine weeks ended October 29, 2022 was higher than the thirty-nine weeks ended October 30, 2021 primarily due to discrete items, which includes the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting with respect to the requirement to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the Company's consolidated statements of operations."
The Company had no material accrual for uncertain tax positions or interest and/or penalties related to income taxes on the Company’s balance sheets as of October 29, 2022, January 29, 2022 or October 30, 2021 and has not recognized any material uncertain tax positions or interest and/or penalties related to income taxes in the consolidated statements of operations for the thirteen and thirty-nine weeks ended October 29, 2022 or October 30, 2021.
The Company files a federal income tax return as well as state tax returns. The Company’s U.S. federal income tax returns for the fiscal years ended February 2, 2019 and thereafter remain subject to examination by the U.S. Internal Revenue Service. State returns are filed in various state jurisdictions, as appropriate, with varying statutes of limitation and remain subject to examination for varying periods up to three years to four years depending on the state.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with “Selected Financial Data” and the consolidated financial statements and related notes included in our Annual Report on Form 10-K for our fiscal year ended January 29, 2022 and referred to herein as the "Annual Report," and the consolidated financial statements and related notes as of and for the thirteen and thirty-nine weeks ended October 29, 2022 included in Part I, Item I of this Quarterly Report on Form 10-Q. The statements in this discussion regarding expectations of our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described below in “Special Note Regarding Forward-Looking Statements” and in Part II, Item 1A "Risk Factors." Our actual results may differ materially from those contained in or implied by any forward-looking statements.
We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to January 31 of the following year. References to "fiscal year 2022" or "fiscal 2022" refer to the period from January 30, 2022 to January 28, 2023, which is a 52-week fiscal year. References to "fiscal year 2021" or "fiscal 2021" refer to the period from January 31, 2021 to January 29, 2022, which is a 52-week fiscal year. The fiscal quarters ended October 29, 2022 and October 30, 2021 refer to the thirteen weeks ended as of those dates. The year-to-date periods ended October 29, 2022 and October 30, 2021 refer to the thirty-nine weeks ended as of those dates. Historical results are not necessarily indicative of the results to be expected for any future period and results for any interim period may not necessarily be indicative of the results that may be expected for a full year.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or present facts or conditions, such as statements regarding our future financial condition or results of operations, our prospects and strategies for future growth, the introduction of new merchandise, and the implementation of our marketing and branding strategies. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology.
The forward-looking statements contained in this Quarterly Report on Form 10-Q reflect our views as of the date of this report about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in Part I, Item 1A “Risk Factors” in our Annual Report, as amended by the risk factors included in Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. These factors include without limitation:
•uncertainties associated with the Coronavirus (or COVID-19) pandemic, including closures of our stores, adverse impacts on our sales and operations, future impairment charges, the risk of global recession, and the impact of related government regulations;
•failure to successfully implement our growth strategy;
•the impacts of inflation and increasing commodity prices;
•disruptions in our ability to select, obtain, distribute and market merchandise profitably;
•reliance on merchandise manufactured outside of the United States;
•the direct and indirect impact of current and potential tariffs imposed and proposed by the United States on foreign imports, including, without limitation, the tariffs themselves, any counter-measures thereto and any indirect effects on consumer discretionary spending, which could increase the cost to us of certain products, lower our margins, increase our import related expenses, and reduce consumer spending for discretionary items, each of which could have a material adverse effect on our business, financial condition and results of future operations;
•the impact of price increases, such as, a reduction in our unit sales, damage to our reputation with our customers, and our becoming less competitive in the marketplace;
•dependence on the volume of traffic to our stores and website;
•inability to successfully build, operate or expand our distribution centers or network capacity;
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•disruptions to the global supply chain, increased cost of freight, constraints on shipping capacity to transport inventory or the timely receipt of inventory;
•extreme weather conditions in the areas in which our stores are located could negatively affect our business and results of operations;
•disruptions in our information technology systems and our inability to maintain and update those systems could adversely affect operations and our customers;
•the risks of cyberattacks or other cyber incidents, such as the failure to secure customers' confidential or credit card information, or other private data relating to our employees or our company, including the costs associated with protection against or remediation of such incidents;
•increased operating costs or exposure to fraud or theft due to customer payment-related risks;
•inability to increase sales and improve the efficiencies, costs and effectiveness of our operations;
•dependence on our executive officers, senior management and other key personnel or inability to hire additional qualified personnel;
•inability to successfully manage our inventory balances and inventory shrinkage;
•inability to meet our lease obligations;
•the costs and risks of constructing and owning real property;
•changes in our competitive environment, including increased competition from other retailers and the presence of online retailers;
•the seasonality of our business;
•inability to successfully implement our expansion into online retail;