# Citi Trends Inc: Form 10-Q for the period ended Oct 31, 2020

- Company: [Citi Trends Inc](/companies/ctrn.md) (CIK 1318484)
- Form: 10-Q
- Filed: 2020-12-08
- Accepted by EDGAR: Dec 8, 2020, 07:30 ET
- Period: 2020-10-31
- Accession: 0001558370-20-014239
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1318484/000155837020014239/ctrn-20201031x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1318484/000155837020014239/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-10-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-08-02 to 2020-10-31 | $199.1m | us-gaap:Revenues |
| Revenue | 9 months, 2020-02-02 to 2020-10-31 | $531.4m | us-gaap:Revenues |
| Selling, general and administrative | 3 months, 2020-08-02 to 2020-10-31 | $69.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2020-02-02 to 2020-10-31 | $180.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-08-02 to 2020-10-31 | $9.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2020-02-02 to 2020-10-31 | $8.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-08-02 to 2020-10-31 | $193.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2020-02-02 to 2020-10-31 | $733.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-08-02 to 2020-10-31 | $2.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2020-02-02 to 2020-10-31 | $1.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-08-02 to 2020-10-31 | $7.0m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Net income | 9 months, 2020-02-02 to 2020-10-31 | $5.9m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2020-08-02 to 2020-10-31 | $0.67 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2020-02-02 to 2020-10-31 | $0.57 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-08-02 to 2020-10-31 | $0.67 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2020-02-02 to 2020-10-31 | $0.57 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-08-02 to 2020-10-31 | 10,401,153 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2020-02-02 to 2020-10-31 | 10,444,106 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2020-02-02 to 2020-10-31 | $63.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2020-02-02 to 2020-10-31 | $11.9m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2020-02-02 to 2020-10-31 | $831.0k | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2020-02-02 to 2020-10-31 | $16.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | at 2020-10-31 | $229.7m | us-gaap:AssetsCurrent |
| Total assets | at 2020-10-31 | $481.9m | us-gaap:Assets |
| Current liabilities | at 2020-10-31 | $170.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-10-31 | $321.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2020-10-31 | $160.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 23,229 characters.

### Forward-Looking Statements

Except for specific historical information, many of the matters discussed in this Form 10-Q may express or imply projections of revenues or expenditures, statements of plans and objectives for future operations, growth or initiatives, statements of future economic performance, capital allocation expectations or statements regarding the outcome or impact of pending or threatened litigation. These, and similar statements, are forward-looking statements concerning matters that involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from those expressed or implied by these statements. All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “estimate,” “objective,” “forecast,” “goal,” “intend,” “could,” “will likely result,” or “will continue” and similar words and expressions generally identify forward-looking statements, although not all forward-looking statements contain such language. The Company believes the assumptions underlying these forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in the forward-looking statements.

The factors that may result in actual results differing from such forward-looking information include, but are not limited to: the ongoing COVID-19 pandemic and associated containment and remediation efforts; the potential negative impacts of COVID-19 on the global economy and foreign sourcing; the impacts of COVID-19 on the Company’s financial condition, business operation and liquidity, including the re-closure of any of the Company’s retail stores and distribution centers; transportation and distribution delays or interruptions; changes in freight rates; the Company’s ability to negotiate effectively the cost and purchase of merchandise; inventory risks due to shifts in market demand; the Company’s ability to gauge fashion trends and changing consumer preferences; changes in consumer spending on apparel; changes in product mix; interruptions in suppliers’ businesses; a deterioration in general economic conditions, whether caused by acts of war, terrorism, political or social unrest (including any resulting store closures, damage or loss of inventory), or other factors; the results of pending or threatened litigation; temporary changes in demand due to weather patterns; seasonality of the Company’s business; delays associated with building, opening and operating new stores; delays associated with building, opening or expanding new or existing distribution centers; and other factors described in the section titled “Item 1A. Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020, as amended, and in Part II, “Item 1A. Risk Factors” and elsewhere in the Company’s Quarterly Reports on Form 10-Q and any amendments thereto and in the other documents the Company files with the SEC, including reports on Form 8-K.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Except as may be required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements contained herein to reflect events or circumstances occurring after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. Readers are advised, however, to read any further disclosures the Company may make on related subjects in its public disclosures or documents filed with the SEC, including reports on Form 8-K.

### Overview

We are a value-priced retailer of fashion apparel, accessories and home goods for the entire family. Our merchandise offerings are designed to appeal to the fashion preferences of value-conscious consumers, particularly African-Americans. We operated 585 stores in both urban and rural markets in 33 states as of October 31, 2020.

### COVID-19 Pandemic

In December 2019, a novel coronavirus (“COVID-19”) emerged and spread worldwide. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. After closely monitoring and taking into consideration the guidance from federal, state and local governments, we temporarily closed all of our retail store locations and distribution centers effective March 20, 2020. Beginning April 24, 2020, we started to reopen stores in select states in accordance with state and local government guidelines. As of July 18, 2020, we safely reopened all of our stores. We have taken numerous measures to protect the health of our associates, customers and communities we serve. Such measures include implementing occupancy limits, providing personal protective equipment for our associates and customers, encouraging social distancing, adjusting our processes for merchandise returns and implementing new cleaning procedures. We have incurred, and expect we will continue to incur, incremental costs for personal protective equipment, including masks, gloves and hand sanitizer for our associates and customers, as well as additional cleaning supplies.

The temporary closure of our stores has had, and may continue to have, an adverse impact on our financial condition, results of operations and liquidity as described in more detail below. In the first quarter of 2020, we took several steps to increase our cash position and preserve financial flexibility in light of uncertainties resulting from the COVID-19 pandemic, including (i) the drawdown of $43.7 million in principal amount under the revolving credit facility on March 20, 2020 and an amendment to the revolving credit facility to extend the term to August 2021; (ii) temporary furloughs of substantially all store and distribution center personnel and a significant portion of the corporate staff, with employee benefits for eligible employees continued through the temporary furloughs; (iii) temporary tiered salary reductions for management level corporate employees and a reduction to the cash portion of non-employee director fees; (iv) extensions of payment terms with vendors and suppliers; and (v) temporarily suspending share repurchases. Other measures taken by the Company to mitigate the impact of the pandemic that began in the first quarter of 2020 and are continuing include negotiating rent concessions with landlords and executing substantial reductions in operating expenses, store occupancy costs, capital expenditures and other costs.

We have continued to navigate through macro changes in the consumer landscape, including unpredictable and non-traditional back-to-school timing and learning methods and the ongoing uncertainties stemming from the COVID-19 pandemic. We will continue to monitor and evaluate the COVID-19 pandemic and work to respond appropriately to the impacts on our business, including those on our customers, vendors and the communities we serve.

### Accounting Periods

The following discussion contains references to fiscal years 2020 and 2019, which represent fiscal years ending or ended on January 30, 2021 and February 1, 2020, respectively. Fiscal 2020 and fiscal 2019 both have 52-week accounting periods. This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto contained in Part 1, Item 1 of this report.

### Results of Operations

The following discussion of the Company’s financial performance is based on the unaudited condensed consolidated financial statements set forth herein. The nature of the Company’s business is seasonal. Historically, sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year. Expenses and, to a greater extent, operating income, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year, as a result of changes in our business, consumer spending patterns, and the macroeconomic environment, including those resulting from the COVID-19 pandemic. Furthermore, as a result of the closure of our stores due to the COVID-19 pandemic for at least five weeks beginning on March 20, 2020, comparisons of expense ratios and year-over-year trends are not a meaningful way to evaluate our operating results for the thirty-nine weeks ended October 31, 2020.

### Key Operating Statistics

We measure performance using key operating statistics. One of the main performance measures we use is comparable store sales growth. We define a comparable store as a store that has been opened for an entire fiscal year. Therefore, a store will not be considered a comparable store until its 13th month of operation at the earliest or until its 24th month at the latest. As an example, stores opened in fiscal 2019 and fiscal 2020 are not considered comparable stores in fiscal 2020. Relocated and expanded stores are included in the comparable store sales results. Stores that are closed permanently or for an extended period are excluded from the comparable store sales results. We also use other operating statistics, most notably average sales per store, to measure our performance. As we typically occupy existing space in established shopping centers rather than sites built specifically for our stores, store square footage (and therefore sales per square foot) varies by store. We focus on overall store sales volume as the critical driver of profitability. In addition to sales, we measure cost of sales as a percentage of sales and store operating expenses, with a particular focus on labor, as a percentage of sales. These results translate into store level contribution, which we use to evaluate overall performance of each individual store. Finally, we monitor corporate expenses against budgeted amounts.

### Thirty-Nine Weeks Ended October 31, 2020 and November 2, 2019

*Net Sales.* Net sales decreased $39.5 million, or 6.9%, to $531.4 million in the thirty-nine weeks ended October 31, 2020 from $570.9 million in the thirty-nine weeks ended November 2, 2019. The decrease in sales was due to closing all 574 of our stores as a result of the COVID-19 pandemic from March 20 until April 23, at which point we began to gradually reopen certain stores, with all stores safely reopened as of July 18, 2020. In the first quarter of 2020, net sales decreased $88.9 million, or 43.4%. Prior to the onset of the COVID-19 pandemic, comparable store sales increased 3.1% from the beginning of the first quarter through March 7, 2020. In the second quarter of 2020, net sales increased $33.4 million, or 18.2%, with an increase in comparable store sales of 32.2% for reopened stores from their respective opening dates. In the third quarter of 2020, net sales increased $16.0 million, or 8.8%, as the result of a 6.3% increase in comparable store sales and the opening of 22 stores since the third quarter of last year, partially offset by the impact of closing three stores since the third quarter of last year.

*Cost of Sales (exclusive of depreciation).* Cost of sales (exclusive of depreciation) decreased $30.1 million, or 8.4%, to $327.3 million in the thirty-nine weeks ended October 31, 2020 from $357.4 million in the thirty-nine weeks ended November 2, 2019. Cost of sales as a percentage of sales decreased to 61.6% in the thirty-nine weeks of fiscal 2020 from 62.6% in the same period of fiscal 2019 due to an increase of 80 basis points in the core merchandise margin (initial mark-up, net of markdowns), along with an improvement of 20 basis points in shrinkage.

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses decreased $11.1 million, or 5.8%, to $180.9 million in the thirty-nine weeks ended October 31, 2020 from $192.0 million in the thirty-nine weeks ended November 2, 2019 due primarily to a $10.1 million decrease in payroll expenses as a result of associate furloughs and government credits under the CARES Act, as well as decreases in variable costs related to the temporary closures of our stores and distribution centers. These decreases were partially offset by $1.7 million of incremental supplies costs related to COVID-19 for personal protective equipment and cleaning supplies, as well as the impact on expenses of opening 22 new stores since the third quarter of last year. As a percentage of sales, selling, general and administrative expenses increased to 34.0% in the thirty-nine weeks of fiscal 2020 from 33.6% in the thirty-nine weeks of fiscal 2019.

*Depreciation.* Depreciation expense increased $0.9 million, or 6.1%, to $14.6 million in the thirty-nine weeks of fiscal 2020 from $13.7 million in the thirty-nine weeks of fiscal 2019.

*Asset Impairment.* Impairment charges related to an underperforming store totaled $0.3 million in the thirty-nine weeks of fiscal 2020, comprised of $0.2 million for an operating lease right-of-use asset and $0.1 million for leasehold improvements and fixtures and equipment. In the thirty-nine weeks of fiscal 2019, impairment charges related to underperforming stores totaled $0.5 million, comprised of $0.3 million for leasehold improvements and fixtures and equipment, and $0.2 million for an operating lease right-of-use asset.

*Income Tax Expense.* Income tax expense increased $0.5 million to $1.8 million in the thirty-nine weeks of fiscal 2020 compared to $1.3 million in the thirty-nine weeks of fiscal 2019 due to lower federal and state tax credits this year.

*Net Income.* Net income decreased $1.2 million, or 16.1%, to $5.9 million in the thirty-nine weeks of fiscal 2020 from $7.1 million in the thirty-nine weeks of fiscal 2019 due to the factors discussed above.

### Thirteen Weeks Ended October 31, 2020 and November 2, 2019

*Net Sales.* Net sales increased $16.0 million, or 8.8%, to $199.1 million in the third quarter of 2020 from $183.1 million in the third quarter of 2019. The increase in sales was due to a 6.3% increase in comparable store sales and the opening of 22 new stores since the third quarter of last year, partially offset by the impact of closing three stores since the third quarter of last year. The increase in comparable store sales was reflected in an increase of 21% in the average ticket size, partially offset by a decrease of 12% in customer transactions. Comparable store sales changes by major merchandise class were as follows: Home +22%; Men’s +20%; Ladies’ +5%; Children’s +5%; and Accessories +1%.

*Cost of sales (exclusive of depreciation).* Cost of sales (exclusive of depreciation) increased $1.2 million, or 1.1%, to $115.8 million in the third quarter of 2020 from $114.6 million in the third quarter of 2019. Cost of sales as a percentage of sales decreased to 58.2% in the third quarter of 2020 from 62.6% in the third quarter of last year due to an increase of 390 basis points in the core merchandise margin (initial mark-up, net of markdowns), along with an improvement of 30 basis points in shrinkage and an improvement of 20 basis points in freight costs.

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses increased $3.7 million, or 5.6%, to $69.2 million in the third quarter of 2020 from $65.5 million in last year’s third quarter. The increase was due primarily to a $2.8 million increase in incentive compensation resulting from favorable third quarter operating results in relation to budget, incremental supply costs of $0.5 million related to COVID-19 for personal protective equipment and cleaning supplies, and the impact on expenses of opening 22 new stores since the third quarter of last year. These increases were partially offset by a decrease of $1.1 million in professional fees due primarily to higher costs incurred in the third quarter of last year associated with our CEO transition and changes to the Company’s board of directors. As a percentage of sales, selling, general and administrative expenses decreased to 34.8% in the third quarter of 2020 from 35.8% in the third quarter of 2019.

*Depreciation.* Depreciation expense increased $0.2 million, or 4.0%, to $4.7 million in the third quarter of 2020 from $4.5 million in the third quarter of 2019.

*Income Tax Expense/Benefit.* Income tax expense was $2.2 million in the third quarter of 2020 compared to income tax benefit of $0.1 million in the third quarter of 2019, as a result of pretax income in the third quarter of this year compared to a pretax loss in the third quarter of last year.

*Net Income/Loss.* Net income was $7.0 million in the third quarter of 2020 compared to a net loss of $1.1 million in the third quarter of 2019 due to the factors discussed above.

### Liquidity and Capital Resources

Our principal sources of liquidity consist of: (i) cash and cash equivalents (which equaled $96.8 million as of October 31, 2020); (ii) short-term trade credit; (iii) cash generated from operations on an ongoing basis as we sell our merchandise inventory; and (iv) a revolving credit facility with a $50.0 million credit commitment (with no borrowings as of October 31, 2020). Trade credit represents a significant source of financing for inventory purchases and arises from customary payment terms and trade practices with our vendors.

*Cash Flows From Operating Activities*. Net cash provided by operating activities was $63.0 million in the thirty-nine weeks ended October 31, 2020 compared to $21.1 million in the thirty-nine weeks ended November 2, 2019. Sources of cash in the thirty-nine weeks of 2020 included net income adjusted for non-cash expenses such as depreciation, non-cash operating lease costs, asset impairment, loss on disposal of property and equipment, deferred income taxes and stock-based compensation expense, totaling $59.6 million (compared to $57.9 million in the thirty-nine weeks of 2019). Other significant sources of cash in the thirty-nine weeks of 2020 included (1) a $23.9 million decrease in inventory (compared to a $4.1 million decrease in the thirty-nine weeks of 2019) due to efforts to improve inventory turns and maintain as much inventory liquidity as possible in order to take advantage of opportunistic deals and trend changes; (2) a $7.7 million increase in accounts payable (compared to a $1.8 million decrease in the thirty-nine weeks of 2019) due to a high volume of merchandise receipts during the final two months of the third quarter of 2020, with nearly all of such purchases still in accounts payable at the end of the quarter; and (3) a $3.4 million increase in accrued compensation (compared to a $3.2 million decrease in the first thirty-nine weeks of 2019) due to an increase in incentive compensation resulting from favorable third quarter operating results in relation to budget, combined with an increase in deferred payroll taxes under the CARES Act.

Significant uses of cash from operating activities in the thirty-nine weeks of 2020 were (1) a $25.3 million decrease in accrued expenses and other long-term liabilities (compared to a $33.1 million decrease in the thirty-nine weeks of 2019) due primarily to payments of operating lease liabilities; and (2) a $7.4 million increase in prepaid and other current assets (compared to a $1.1 million increase in the thirty-nine weeks of 2019) due to an employee retention credit receivable under the CARES Act, combined with increases in receivables for tenant improvement dollars and charge card receivables.

*Cash Flows From Investing Activities.* Cash provided by investing activities was $31.3 million in the thirty-nine weeks of 2020 compared to cash used of $2.0 million in the thirty-nine weeks of 2019. Sales and redemptions of investment securities, net of purchases, provided cash of $43.3 million and $10.7 million in the thirty-nine weeks of 2020 and 2019, respectively. Cash used for purchases of property and equipment totaled $11.9 million and $13.2 million in the thirty-nine weeks of 2020 and 2019, respectively.

*Cash Flows From Financing Activities.* Cash used in financing activities was $17.6 million in the thirty-nine weeks of 2020 compared to cash used of $13.2 million in the thirty-nine weeks of 2019. Cash used for repurchases of common stock and dividends paid to shareholders totaled $16.9 million in the thirty-nine weeks of 2020 compared to $12.6 million in the same period of 2019.

### Cash Requirements

Our cash requirements are primarily for working capital and capital expenditures for stores, distribution infrastructure and information systems. We also use cash to repurchase stock under our stock repurchase program. Historically, we have met these cash requirements using cash flow from operations and short-term trade credit. As part of the actions we have taken to increase our cash position and preserve financial flexibility in light of uncertainties resulting from the COVID-19 pandemic, as described above in “COVID-19 Pandemic,” on March 20, 2020, we drew down $43.7 million on our revolving credit facility. During the second quarter of 2020, we repaid $2.1 million of the borrowings. On September 11, 2020, we repaid the full amount outstanding under the credit facility. In addition, we reduced our operating expenses and adjusted capital expenditure plans and inventory receipts, as appropriate. The Company previously announced a share repurchase program on March 13, 2020. On March 23, 2020, due to the economic uncertainty stemming from the COVID-19 pandemic, we suspended any repurchases and dividend payments. On September 14, 2020, we announced the reinstatement of the share repurchase program. During the third quarter of 2020, we repurchased shares of our common stock at an aggregate cost of $9.9 million.

Based on our current expectations regarding the impact of COVID-19, we expect to be able to meet future cash requirements for at least the next 12 months with cash flow from operations, short-term trade credit, existing balances of cash and cash equivalents, and borrowings under our revolving credit facility. We intend to carefully monitor and manage our cash position in light of ongoing conditions and results of operations.

### Recent Accounting Pronouncements

See discussion of Recent Accounting Pronouncements in Note 1 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this report.

### Critical Accounting Policies

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

There have been no other material changes to the Critical Accounting Policies outlined in the Company’s Annual Report on Form 10-K for the year ended February 1, 2020, as amended.

## Market risk

As filed, 237 characters.

There have been no material changes in our market risk during the thirty-nine weeks ended October 31, 2020 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the year ended February 1, 2020, as amended.

## Controls and procedures

As filed, 1,564 characters.

We have carried out an evaluation under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2020 pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based on that evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information has been accumulated and communicated to our management, including the officers who certify our financial reports, as appropriate, to allow timely decisions regarding the required disclosures.

Our disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended October 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,064 characters.

Other than as set forth below, there have been no material changes to the Risk Factors described under the section “ITEM 1A. RISK FACTORS” in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020, as amended.

**The ongoing COVID-19 pandemic has impacted our financial and operating performance and we are unable to predict the extent to which the pandemic and related effects will continue to impact our business.**

Beginning in the first quarter and continuing into the third quarter of 2020, there has been a widespread global impact from the COVID-19 pandemic, and our business has been, and will continue to be, impacted by the pandemic and any resulting economic consequences. In response to COVID-19, the Company temporarily closed all of its retail stores and distribution centers as of March 20, 2020 and temporarily closed its corporate and buying offices with associates working remotely where possible. As of July 18, 2020, the Company safely reopened all of its stores and distribution centers while following all applicable state and local health protocols, including providing personal protective equipment to employees and implementing social distancing practices as required.

The temporary closure of all of our retail stores and distribution centers and other factors resulting from the pandemic have had an adverse impact on our financial condition, results of operations and liquidity in fiscal 2020. While the ultimate global and economic impact of the COVID-19 pandemic remains highly uncertain, we expect that it could continue to have an adverse impact on our results of operations and liquidity; the operations of our suppliers, vendors and customers; and on our employees as a result of quarantines, the re-closure of any or all of our stores and distribution centers, and travel and other restrictions for at least the remainder of 2020. The extent to which COVID-19 will impact our business operations, consolidated financial results and liquidity will depend on future developments which are highly uncertain and cannot be predicted, including the duration and scope of the pandemic (including the resurgence of COVID-19 cases); our ability to adjust our business strategies to mitigate the impact of the pandemic; the re-closure of any or all of our retail stores or distribution centers; the negative impact the pandemic has on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending; changes in consumer shopping patterns and the impact on traditionally strong sales periods, including Christmas and other holidays; the ability of our suppliers, vendors and customers to successfully address the impacts of the pandemic; actions taken by governments, businesses and individuals in response to the pandemic; and how quickly economies recover after the COVID-19 pandemic subsides. As a result of the current level of uncertainty over the economic and operational impacts stemming from the COVID-19 pandemic, the impact on our business cannot be reasonably estimated at this time.

**Our sales could decline and our store operations could be disrupted as a result of general economic and other factors outside of our control, such as changes in consumer spending patterns and declines in employment levels.**

Downturns, or the expectation of a downturn, in general economic conditions, including the effects of unemployment levels, salaries and wage rates, interest rates, levels of consumer debt, inflation in food and energy prices, taxation (including delays in the distribution of tax refunds), government stimulus, consumer confidence, and other macroeconomic factors, could adversely affect consumer spending patterns, our sales and our results of operations. Consumer confidence may also be affected by domestic and international political or social unrest (including related protests or disturbances), acts of war or terrorism, natural disasters, public health emergencies like the COVID-19 pandemic, or other significant events outside of our control. These and other social, political and economic factors that contribute to consumer unease or damage to our stores, may lead to a decrease in spending by consumers or disrupt our store operations, which may negatively impact our business, financial condition and results of operations. Also, because apparel generally is a discretionary purchase, declines in consumer spending patterns may have a more negative effect on apparel retailers than some other retailers. In addition, since many of our stores are located in the southeastern United States, our operations are more susceptible to regional factors than the operations of our more geographically diversified competitors. Therefore, any adverse economic conditions that have a disproportionate effect on the southeastern United States could have a greater negative effect on our sales and results of operations than on retailers with a more geographically diversified store base.

Filed Dec 8, 2020.
Source: SEC EDGAR, the filing index for accession 0001558370-20-014239. Last ingested by Listed: Oct 27, 2026, 17:26 ET. No prices; not investment advice.