Burlington Stores, Inc. - Quarter Report: 2022 October (Form 10-Q)

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


☐	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 001-36107

BURLINGTON STORES, INC.

(Exact name of registrant as specified in its charter)


Delaware		80-0895227
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2006 Route 130 North Burlington, New Jersey		08016
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (609) 387-7800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock

BURL

New York Stock Exchange

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 pursuant to Rule 405 of Regulation S-T 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 registrant had 65,191,267 shares of common stock outstanding as of October 29, 2022.

BURLINGTON STORES, INC.

INDEX


		Page
Part I—Financial Information		3

Item 1. Financial Statements (unaudited)		3

Condensed Consolidated Statements of Income - Three and Nine Months Ended October 29, 2022 and October 30, 2021		3

Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended October 29, 2022 and October 30, 2021		4

Condensed Consolidated Balance Sheets – October 29, 2022, January 29, 2022 and October 30, 2021		5

Condensed Consolidated Statements of Cash Flows – Nine Months Ended October 29, 2022 and October 30, 2021		6

Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3. Quantitative and Qualitative Disclosures About Market Risk		37

Item 4. Controls and Procedures		37

Part II—Other Information		38

Item 1. Legal Proceedings		38

Item 1A. Risk Factors		38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		38

Item 3. Defaults Upon Senior Securities		38

Item 4. Mine Safety Disclosures		38

Item 5. Other Information		39

Item 6. Exhibits		40

SIGNATURES		41

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(All amounts in thousands, except per share data)


	Three Months Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
REVENUES:
Net sales	$	2,035,927		$	2,299,610		$	5,945,459		$	6,703,089
Other revenue		4,760			4,431			12,862			10,159
Total revenue		2,040,687			2,304,041			5,958,321			6,713,248
COSTS AND EXPENSES:
Cost of sales		1,198,126			1,347,559			3,546,340			3,869,432
Selling, general and administrative expenses		726,926			759,785			2,092,756			2,126,904
Costs related to debt issuances and amendments		—			89			—			3,419
Depreciation and amortization		67,634			64,663			201,908			183,087
Impairment charges - long-lived assets		10,599			1,488			17,556			3,235
Other income - net		(2,828	)		(3,055	)		(18,833	)		(10,267	)
Loss on extinguishment of debt		—			86,362			14,657			117,756
Interest expense		17,412			15,609			47,454			52,710
Total costs and expenses		2,017,869			2,272,500			5,901,838			6,346,276
Income before income tax expense		22,818			31,541			56,483			366,972
Income tax expense		6,035			17,922			11,560			79,769
Net income	$	16,783		$	13,619		$	44,923		$	287,203

Net income per common share:
Common stock - basic	$	0.26		$	0.20		$	0.68		$	4.31
Common stock - diluted	$	0.26		$	0.20		$	0.68		$	4.21
Weighted average number of common shares:
Common stock - basic		65,362			66,740			65,815			66,591
Common stock - diluted		65,504			68,205			66,058			68,228

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(All amounts in thousands)


	Three Months Ended				Nine Months Ended
	October 29,		October 30,		October 29,		October 30,
	2022		2021		2022		2021

Net income	$	16,783	$	13,619	$	44,923	$	287,203
Other comprehensive income, net of tax:
Interest rate derivative contracts:
Net unrealized gain arising during the period		22,402		6,509		35,693		2,251
Net reclassification into earnings during the period		851		2,984		5,772		7,662
Other comprehensive income, net of tax		23,253		9,493		41,465		9,913
Total comprehensive income	$	40,036	$	23,112	$	86,388	$	297,116

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(All amounts in thousands, except share and per share data)


	October 29,			January 29,			October 30,
	2022			2022			2021
ASSETS
Current assets:
Cash and cash equivalents	$	428,583		$	1,091,091		$	1,185,383
Restricted cash and cash equivalents		6,582			6,582			6,582
Accounts receivable—net		80,641			54,089			90,705
Merchandise inventories		1,445,087			1,021,009			1,059,749
Assets held for disposal		7,054			4,358			4,358
Prepaid and other current assets		131,834			370,515			425,288
Total current assets		2,099,781			2,547,644			2,772,065
Property and equipment—net		1,666,523			1,552,237			1,499,780
Operating lease assets		2,951,614			2,638,473			2,653,776
Tradenames		238,000			238,000			238,000
Goodwill		47,064			47,064			47,064
Deferred tax assets		3,643			3,959			4,119
Other assets		94,885			62,136			63,023
Total assets	$	7,101,510		$	7,089,513		$	7,277,827

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	953,680		$	1,080,802		$	1,174,252
Current operating lease liabilities		391,056			358,793			346,167
Other current liabilities		520,145			493,695			544,852
Current maturities of long term debt		13,528			14,357			14,224
Total current liabilities		1,878,409			1,947,647			2,079,495
Long term debt		1,464,563			1,541,102			1,614,645
Long term operating lease liabilities		2,828,574			2,539,420			2,560,663
Other liabilities		68,687			80,904			94,507
Deferred tax liabilities		222,549			220,023			211,710
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value: authorized: 50,000,000 shares; no shares issued and outstanding		—			—			—
Common stock, $0.0001 par value:
Authorized: 500,000,000 shares;
Issued: 81,933,895 shares, 81,677,315 shares and 81,605,876 shares, respectively;
Outstanding: 65,191,267 shares, 66,491,555 shares and 66,765,122 shares, respectively		7			7			7
Additional paid-in-capital		1,984,821			1,927,554			1,914,086
Accumulated earnings		459,215			414,292			292,656
Accumulated other comprehensive income (loss)		37,024			(4,441	)		(13,102	)
Treasury stock, at cost		(1,842,339	)		(1,576,995	)		(1,476,840	)
Total stockholders' equity		638,728			760,417			716,807
Total liabilities and stockholders' equity	$	7,101,510		$	7,089,513		$	7,277,827

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON STORES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(All amounts in thousands)


	Nine Months Ended
	October 29,			October 30,
	2022			2021
OPERATING ACTIVITIES
Net income	$	44,923		$	287,203
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		201,908			183,087
Impairment charges—long-lived assets		17,556			3,235
Amortization of deferred financing costs		2,731			4,293
Accretion of long term debt instruments		713			650
Deferred income taxes		(12,339	)		46,725
Loss on extinguishment of debt		14,657			117,756
Non-cash stock compensation expense		51,195			53,356
Non-cash lease expense		674			(6,997	)
Cash received from landlord allowances		9,799			24,552
Changes in assets and liabilities:
Accounts receivable		(26,801	)		(27,223	)
Merchandise inventories		(424,078	)		(318,961	)
Prepaid and other current assets		238,680			(111,135	)
Accounts payable		(133,305	)		307,684
Other current liabilities		20,163			31,280
Other long term assets and long term liabilities		(1,135	)		1,332
Other operating activities		4,236			11,530
Net cash provided by operating activities		9,577			608,367
INVESTING ACTIVITIES
Cash paid for property and equipment		(338,979	)		(238,468	)
Lease acquisition costs		(3,515	)		(559	)
Proceeds from sale of property and equipment and assets held for sale		23,383			5,746
Net cash (used in) investing activities		(319,111	)		(233,281	)
FINANCING ACTIVITIES
Proceeds from long term debt—Term B-6 Loans		—			956,608
Principal payments on long term debt—Term B-6 Loans		(7,211	)		(2,404	)
Principal payments on long term debt—Term B-5 Loans		—			(961,415	)
Principal payment on long term debt—Convertible Notes		(78,236	)		(92,289	)
Principal payments on long term debt—Secured Notes		—			(323,905	)
Purchase of treasury shares		(265,344	)		(166,473	)
Proceeds from stock option exercises		6,073			31,610
Deferred financing costs		—			(601	)
Other financing activities		(8,256	)		(11,110	)
Net cash (used in) financing activities		(352,974	)		(569,979	)
(Decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents		(662,508	)		(194,893	)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period		1,097,673			1,386,858
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	435,165		$	1,191,965
Supplemental disclosure of cash flow information:
Interest paid	$	36,944		$	47,373
Income tax (refund) payments - net	$	(228,107	)	$	129,624
Non-cash investing and financing activities:
Shares issued to repurchase Convertible Notes	$	-		$	151,206
Finance lease modification	$	(6,042	)	$	-
Accrued purchases of property and equipment	$	75,746		$	50,696

See Notes to Condensed Consolidated Financial Statements.

BURLINGTON STORES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 29, 2022

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

As of October 29, 2022, Burlington Stores, Inc., a Delaware corporation (collectively with its subsidiaries, the Company), through its indirect subsidiary Burlington Coat Factory Warehouse Corporation (BCFWC), operated 893 retail stores.

These unaudited Condensed Consolidated Financial Statements include the accounts of Burlington Stores, Inc. and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The Condensed Consolidated Financial Statements are unaudited, but in the opinion of management reflect all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of operations for the interim periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (Fiscal 2021 10-K). The balance sheet at January 29, 2022 presented herein has been derived from the audited Consolidated Financial Statements contained in the Fiscal 2021 10-K. Because the Company’s business is seasonal in nature, the operating results for the three and nine month periods ended October 29, 2022 are not necessarily indicative of results for the fiscal year.

Accounting policies followed by the Company are described in Note 1, “Summary of Significant Accounting Policies,” included in Part II, Item 8 of the Fiscal 2021 10-K.

Fiscal Year

The Company defines its fiscal year as the 52- or 53-week period ending on the Saturday closest to January 31. The current fiscal year ending January 28, 2023 (Fiscal 2022) and the prior fiscal year ended January 29, 2022 (Fiscal 2021) both consist of 52 weeks.

Recently Adopted Accounting Standards

There were no new accounting standards that had a material impact on the Company’s Condensed Consolidated Financial Statements and notes thereto during the three and nine month periods ended October 29, 2022, and there were no new accounting

standards or pronouncements that were issued but not yet effective as of October 29, 2022 that the Company expects to have a material impact on its financial position or results of operations upon becoming effective.

2. Stockholders’ Equity

Activity for the three and nine month periods ended October 29, 2022 and October 30, 2021 in the Company’s stockholders’ equity is summarized below:


	(in thousands, except share data)
	Common Stock				Additional Paid-in		Accumulated		Accumulated Other Comprehensive			Treasury Stock
	Shares		Amount		Capital		Earnings		(Loss) Income			Shares			Amount			Total
Balance at January 29, 2022		81,677,315	$	7	$	1,927,554	$	414,292	$	(4,441	)		(15,185,760	)	$	(1,576,995	)	$	760,417
Net income		—		—		—		16,174		—			—			—			16,174
Stock options exercised		41,673		—		4,721		—		—			—			—			4,721
Shares used for tax withholding		—		—		—		—		—			(30,090	)		(5,673	)		(5,673	)
Shares purchased as part of publicly announced program		—		—		—		—		—			(512,905	)		(99,090	)		(99,090	)
Vesting of restricted shares, net of forfeitures of 199 restricted shares		81,832		—		—		—		—			—			—			—
Stock based compensation		—		—		16,705		—		—			—			—			16,705
Unrealized gains on interest rate derivative contracts, net of related taxes of $7.4 million		—		—		—		—		20,060			—			—			20,060
Amount reclassified from accumulated other comprehensive income into earnings, net of related taxes of $1.1 million		—		—		—		—		2,842			—			—			2,842
Balance at April 30, 2022		81,800,820		7		1,948,980		430,466		18,461			(15,728,755	)		(1,681,758	)		716,156
Net income		—		—		—		11,966		—			—			—			11,966
Stock options exercised		23,088		—		1,230		—		—			—			—			1,230
Shares used for tax withholding		—		—		—		—		—			(34,028	)		(6,923	)		(6,923	)
Shares purchased as part of publicly announced program		—		—		—		—		—			(598,278	)		(101,035	)		(101,035	)
Vesting of restricted shares		83,620		—		—		—		—			—			—			—
Stock based compensation		—		—		17,173		—		—			—			—			17,173
Unrealized losses on interest rate derivative contracts, net of related taxes of $2.6 million		—		—		—		—		(6,769	)		—			—			(6,769	)
Amount reclassified from accumulated other comprehensive income into earnings, net of related taxes of $0.8 million		—		—		—		—		2,079			—			—			2,079
Balance at July 30, 2022		81,907,528	$	7	$	1,967,383	$	442,432	$	13,771			(16,361,061	)	$	(1,789,716	)	$	633,877
Net income		—		—		—		16,783		—			—			—			16,783
Stock options exercised		984		—		121		—		—			—			—			121
Shares used for tax withholding		—		—		—		—		—			(10,968	)		(1,535	)		(1,535	)
Shares purchased as part of publicly announced program		—		—		—		—		—			(370,599	)		(51,088	)		(51,088	)
Vesting of restricted shares		25,383		—		—		—		—			—			—			—
Stock based compensation		—		—		17,317		—		—			—			—			17,317
Unrealized gains on interest rate derivative contracts, net of related taxes of $8.2 million		—		—		—		—		22,402			—			—			22,402
Amount reclassified from accumulated other comprehensive income into earnings, net of related taxes of $0.3 million		—		—		—		—		851			—			—			851
Balance at October 29, 2022		81,933,895	$	7	$	1,984,821	$	459,215	$	37,024			(16,742,628	)	$	(1,842,339	)	$	638,728


	(in thousands, except share data)
	Common Stock				Additional Paid-in			Accumulated (Deficit)			Accumulated Other Comprehensive			Treasury Stock
	Shares		Amount		Capital			Earnings			Loss			Shares			Amount			Total
Balance at January 30, 2021		80,661,453	$	7	$	1,809,831		$	(11,702	)	$	(23,015	)		(14,275,122	)	$	(1,310,367	)	$	464,754
Net income		—		—		—			171,030			—			—			—			171,030
Stock options exercised		181,683		—		16,089			—			—			—			—			16,089
Shares used for tax withholding		—		—		—			—			—			(41,768	)		(13,083	)		(13,083	)
Vesting of restricted shares, net of forfeitures of 883 restricted shares		53,914		—		—			—			—			—			—			—
Stock based compensation		—		—		12,879			—			—			—			—			12,879
Unrealized gains on interest rate derivative contracts, net of related taxes of $0.3 million		—		—		—			—			825			—			—			825
Amount reclassified from accumulated other comprehensive income into earnings, net of related taxes of $0.8 million		—		—		—			—			2,159			—			—			2,159
Adoption of ASU 2020-06		—		—		(131,916	)		17,155			—			—			—			(114,761	)
Balance at May 1, 2021		80,897,050		7		1,706,883			176,483			(20,031	)		(14,316,890	)		(1,323,450	)		539,892
Net income		—		—		—			102,554			—			—			—			102,554
Stock options exercised		139,274		—		12,811			—			—			—			—			12,811
Shares used for tax withholding		—		—		—			—			—			(603	)		(178	)		(178	)
Vesting of restricted shares, net of forfeitures of 1,101 restricted shares		5,645		—		—			—			—			—			—			—
Stock based compensation		—		—		23,180			—			—			—			—			23,180
Unrealized losses on interest rate derivative contracts, net of related taxes of $1.9 million		—		—		—			—			(5,083	)		—			—			(5,083	)
Amount reclassified from accumulated other comprehensive loss into earnings, net of related taxes of $0.9 million		—		—		—			—			2,519			—			—			2,519
Balance at July 31, 2021		81,041,969	$	7	$	1,742,874		$	279,037		$	(22,595	)		(14,317,493	)	$	(1,323,628	)	$	675,695
Net income		—		—		—			13,619			—			—			—			13,619
Stock options exercised		25,479		—		2,709			—			—			—			—			2,709
Shares used for tax withholding		—		—		—			—			—			(10,898	)		(3,202	)		(3,202	)
Shares purchased as part of publicly announced program		—		—		—			—			—			(512,363	)		(150,010	)		(150,010	)
Vesting of restricted shares, net of forfeitures of 382 restricted shares		24,437		—		—			—			—			—			—			—
Stock based compensation		—		—		17,297			—			—			—			—			17,297
Shares issued to redeem Convertible Notes		513,991		—		151,206			—			—			—			—			151,206
Unrealized gains on interest rate derivative contracts, net of related taxes of $2.4 million		—		—		—			—			6,509			—			—			6,509
Amount reclassified from accumulated other comprehensive loss into earnings, net of related taxes of $1.1 million		—		—		—			—			2,984			—			—			2,984
Balance at October 30, 2021		81,605,876	$	7	$	1,914,086		$	292,656		$	(13,102	)		(14,840,754	)	$	(1,476,840	)	$	716,807

3. Lease Commitments

The Company’s leases primarily consist of stores, distribution facilities and office space under operating and finance leases that will expire principally during the next 30 years. The leases typically include renewal options at five year intervals and escalation clauses. Lease renewals are only included in the lease liability to the extent that they are reasonably assured of being exercised. Some of the Company’s leases provide for contingent rentals based on a percentage of gross sales. Contingent rentals are not included in the lease liability, and they are recognized as variable lease cost when incurred.

The following is a schedule of the Company’s future lease payments:


	(in thousands)
Fiscal Year	Operating Leases			Finance Leases
2022 (remainder)	$	121,195		$	1,460
2023		554,017			5,906
2024		521,395			5,733
2025		487,318			3,604
2026		449,970			3,640
2027		411,946			3,640
Thereafter		1,359,967			24,233
Total future minimum lease payments		3,905,808			48,216
Amount representing interest		(686,178	)		(13,830	)
Total lease liabilities		3,219,630			34,386
Less: current portion of lease liabilities		(391,056	)		(3,914	)
Total long term lease liabilities	$	2,828,574		$	30,472

Weighted average discount rate	4.8%			6.1%
Weighted average remaining lease term (years)	8.2			12.0

The above schedule excludes approximately $394.5 million for 69 stores that the Company has committed to open or relocate but has not yet taken possession of the space. The discount rates used in valuing the Company’s leases are not readily determinable, and are based on the Company’s incremental borrowing rate on a fully collateralized basis.

The following is a schedule of net lease costs for the periods indicated:


	(in thousands)
	Three Months Ended						Nine Months Ended
	October 29, 2022			October 30, 2021			October 29, 2022			October 30, 2021
Finance lease cost:
Amortization of finance lease asset (a)	$	1,052		$	1,140		$	3,333		$	3,414
Interest on lease liabilities (b)		627			768			2,046			2,366
Operating lease cost (c)		132,984			119,858			387,318			346,789
Variable lease cost (c)		52,141			49,445			152,689			142,356
Total lease cost		186,804			171,211			545,386			494,925
Less all rental income (d)		(1,507	)		(1,386	)		(4,195	)		(4,015	)
Total net rent expense (e)	$	185,297		$	169,825		$	541,191		$	490,910


(a)	Included in the line item “Depreciation and amortization” in the Company’s Condensed Consolidated Statements of Income.
(b)	Included in the line item “Interest expense” in the Company’s Condensed Consolidated Statements of Income.
(c)	Includes real estate taxes, common area maintenance, insurance and percentage rent. Included in the line item “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income.
(d)	Included in the line item “Other revenue” in the Company’s Condensed Consolidated Statements of Income.
(e)	Excludes an immaterial amount of short-term lease cost.

Supplemental cash flow disclosures related to leases are as follows:


	(in thousands)
	Nine Months Ended
	October 29, 2022		October 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Cash payments arising from operating lease liabilities (a)	$	387,209	$	381,006
Cash payments for the principal portion of finance lease liabilities (b)	$	3,517	$	2,980
Cash payments for the interest portion of finance lease liabilities (a)	$	2,046	$	2,366
Supplemental non-cash information:
Operating lease liabilities arising from obtaining right-of-use assets (c)	$	609,567	$	440,874

(a)

Included within operating activities in the Company’s Condensed Consolidated Statements of Cash Flows.

(b)

Included within financing activities in the Company’s Condensed Consolidated Statements of Cash Flows.

(c)

Includes additions arising from lease modifications.

4. Long Term Debt

Long term debt consists of:


	(in thousands)
	October 29,			January 29,			October 30,
	2022			2022			2021
Senior secured term loan facility (Term B-6 Loans), LIBOR (with a floor of 0.00%) plus 2.00%, matures on June 24, 2028	$	944,178		$	950,676		$	952,841
Convertible senior notes, 2.25%, matures on April 15, 2025		507,687			572,322			644,627
ABL senior secured revolving facility, SOFR plus spread based on average outstanding balance, matures on December 22, 2026		—			—			—
Finance lease obligations		34,386			43,945			45,039
Unamortized deferred financing costs		(8,160	)		(11,484	)		(13,638	)
Total debt		1,478,091			1,555,459			1,628,869
Less: current maturities		(13,528	)		(14,357	)		(14,224	)
Long term debt, net of current maturities	$	1,464,563		$	1,541,102		$	1,614,645

Term Loan Facility

On June 24, 2021, BCFWC entered into Amendment No. 9 (the Ninth Amendment) to the credit agreement, dated February 24, 2011, among BCFWC the guarantors signatory thereto, and JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, the lenders party thereto, J.P. Morgan Securities LLC and Goldman Sachs Lending Partners LLC, as joint bookrunners, and J.P. Morgan Securities LLC, Goldman Sachs Lending Partners LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint arrangers (as amended from time to time, the Term Loan Credit Agreement) governing the senior secured term loan facility (the Term Loan Facility). The Ninth Amendment, among other things, extended the maturity date from November 17, 2024 to June 24, 2028, and changed the interest rate margins applicable to the Term Loan Facility from 0.75% to 1.00%, in the case of prime rate loans, and from 1.75% to 2.00%, in the case of LIBOR loans, with a 0.00% LIBOR floor. This amendment also requires quarterly principal payments of $2.4 million. In connection with the execution of the Ninth Amendment, the Company incurred fees of $3.3 million, primarily related to legal and placement fees, which were recorded in the line item “Costs related to debt issuances and amendments” in the Company’s Condensed Consolidated Statement of Income. Additionally, the Company recognized a loss on the extinguishment of debt of $1.2 million, representing the write-off of unamortized deferred financing costs and original issue discount, which was recorded in the line item “Loss on extinguishment of debt” in the Company’s Condensed Consolidated Statement of Income.

The Term Loan Facility is collateralized by a first lien on the Company's leases, real estate and property & equipment and a second lien on the Company's inventory and receivables. Interest rates for the Term Loan Facility are based on: (i) for LIBOR rate loans for any interest period, at a rate per annum equal to the greater of (x) the LIBOR rate, as determined by the Term Loan Facility Administrative Agent, for such interest period multiplied by the Statutory Reserve Rate (as defined in the Term Loan Credit Agreement), and (y) 0.00% (the Term Loan Adjusted LIBOR Rate), plus an applicable margin; and (ii) for prime rate loans, a rate per annum equal to the highest of (a) the variable annual rate of interest then announced by JPMorgan Chase Bank, N.A. at its head office as its “prime rate,” (b) the federal reserve bank of New York rate in effect on such date plus 0.50% per annum, and (c) the Term Loan Adjusted LIBOR Rate for the applicable class of term loans for one-month plus 1.00%, plus, in each case, an applicable margin.

At October 29, 2022 and October 30, 2021, the interest rate related to the Term Loan Facility was 5.1% and 2.1%, respectively.

Convertible Notes

On April 16, 2020, the Company issued $805.0 million of its 2.25% Convertible Senior Notes due 2025 (Convertible Notes). The Convertible Notes are general unsecured obligations of the Company. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears, on April 15 and October 15 of each year, beginning on October 15, 2020. The Convertible Notes will mature on April 15, 2025, unless earlier converted, redeemed or repurchased.

During the second half of Fiscal 2021, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $232.7 million in aggregate principal amount of Convertible Notes held by them for a combination of an aggregate of $199.8 million in cash and 513,991 shares of the Company's common stock.

During the first quarter of Fiscal 2022, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $64.6 million in aggregate principal amount of Convertible Notes held by them for $78.2 million in cash.

These exchanges resulted in aggregate pre-tax debt extinguishment charges of $14.7 million and $86.4 million during the nine month period ended October 29, 2022 and the nine month period ended October 30, 2021, respectively.

Prior to the close of business on the business day immediately preceding January 15, 2025, the Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Convertible Notes have an initial conversion rate of 4.5418 shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $220.18 per share of the Company’s common stock), subject to adjustment if certain events occur. The initial conversion price represents a conversion premium of approximately 32.50% over $166.17 per share, the last reported sale price of the Company’s common stock on April 13, 2020 (the pricing date of the offering) on the New York Stock Exchange. During the first quarter of Fiscal 2021, the Company made an irrevocable settlement election for any conversions of the Convertible Notes. Upon conversion, the Company will pay cash for the principal amount. For any excess above principal, the Company will deliver shares of its common stock. The Company may not redeem the Convertible Notes prior to April 15, 2023. On or after April 15, 2023, the Company will be able to redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of the Company’s common stock is equal to or greater than 130% of the conversion price for a specified period of time, at a redemption price equal to 100% of the principal aggregate amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

Holders of the Convertible Notes may require the Company to repurchase their Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of repurchase. In connection with certain corporate events or if the Company issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their Convertible Notes in connection with such corporate event or during the relevant redemption period for such Convertible Notes. The effective interest rate is 2.8%.

The Convertible Notes consist of the following components as of the dates indicated:


	(in thousands)
	October 29,			January 29,			October 30,
	2022			2022			2021
Principal	$	507,687		$	572,322		$	644,627
Unamortized deferred debt costs		(6,644	)		(9,761	)		(11,845	)
Net carrying amount	$	501,043		$	562,561		$	632,782

Interest expense related to the Convertible Notes consists of the following as of the periods indicated:


	(in thousands)
	Three Months Ended				Nine Months Ended
	October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Coupon interest	$	2,854	$	3,967	$	8,711	$	12,988
Amortization of deferred debt costs		647		941		2,065		2,948
Convertible Notes interest expense	$	3,501	$	4,908	$	10,776	$	15,936

Secured Notes

On April 16, 2020, BCFWC issued $300.0 million of 6.25% Senior Secured Notes due 2025 (Secured Notes). The Secured Notes were senior, secured obligations of BCFWC, and interest was payable semiannually in cash, in arrears, at a rate of 6.25% per annum on April 15 and October 15 of each year, beginning on October 15, 2020. The Secured Notes were guaranteed on a senior secured basis by Burlington Coat Factory Holdings, LLC, Burlington Coat Factory Investments Holdings, Inc. and BCFWC’s subsidiaries that guarantee the loans under the Term Loan Facility.

On June 11, 2021, BCFWC redeemed the full $300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption. This redemption resulted in a pre-tax debt extinguishment charge of $30.2 million in the third quarter of Fiscal 2021.

ABL Line of Credit

On July 20, 2022, BCFWC entered into a Fourth Amendment to Second Amended and Restated Credit Agreement (the “Amendment”). The Amendment increased the aggregate principal amount of the commitments of its current asset-based lending facility (the ABL Line of Credit) from $650.0 million to $900.0 million and replaced the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate (SOFR) or a daily SOFR rate (in the case of daily SOFR, available for borrowings up to $100 million, or up to the full amount of the commitments if the term SOFR rate is not available).

At October 29, 2022, the Company had $850.0 million available under the ABL Line of Credit. There were no borrowings under the ABL Line of Credit during the three and nine month periods ended October 29, 2022.

At October 30, 2021, the Company had $541.0 million available under the ABL Line of Credit. There were no borrowings under the ABL Line of Credit during the three and nine month periods ended October 30, 2021.

5. Derivative Instruments and Hedging Activities

The Company accounts for derivatives and hedging activities in accordance with ASC 815, “Derivatives and Hedging” (ASC 815). As required by ASC 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis. In addition, to comply with the provisions of ASC 820, “Fair Value Measurements” (ASC 820), credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees. In accordance with ASC 820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. There is no impact of netting, because the Company has only one derivative. The Company classifies its derivative valuations in Level 2 of the fair value hierarchy.

On December 17, 2018, the Company entered into an interest rate swap, which hedged $450 million of the variable rate exposure under the Term Loan Facility at a rate of 2.72%. On June 24, 2021, the Company terminated this previous interest rate swap, and entered into a new interest rate swap, which hedges $450 million of the variable rate exposure on the Term Loan Facility at a blended rate of 2.19%, and is designated as a cash flow hedge.

The amount of loss deferred for the previous interest rate swap was $26.9 million. The Company is amortizing this amount from accumulated other comprehensive income into interest expense over the original life of the previous interest rate swap, which had an original maturity date of December 29, 2023. The new interest rate swap had a liability fair value at inception of $26.9 million. The Company will accrete this amount into accumulated other comprehensive income as a benefit to interest expense over the life of the new interest rate swap, which has a maturity date of June 24, 2028.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

As of October 29, 2022, the Company had the following outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk:


Interest Rate Derivative	Number of Instruments	Notional Aggregate Principal Amount	Interest Swap Rate	Maturity Date
Interest rate swap contract	One	$450.0 million	2.19%	June 24, 2028

Tabular Disclosure

The table below presents the fair value of the Company’s derivative financial instruments on a gross basis as well as their classification on the Company’s Condensed Consolidated Balance Sheets:

(in thousands)

Fair Values of Derivative Instruments

October 29, 2022

January 29, 2022

October 30, 2021

Derivatives Designated as Hedging Instruments

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
Value

Interest rate swap contracts

Other assets

41,687

Other liabilities

10,968

Other liabilities

20,439

The following table presents the unrealized gains and losses deferred to accumulated other comprehensive income resulting from the Company’s derivative financial instruments for each of the reporting periods.


	(in thousands)
	Three Months Ended						Nine Months Ended
Interest Rate Derivatives:	October 29, 2022			October 30, 2021			October 29, 2022			October 30, 2021
Unrealized gains, before taxes	$	30,599		$	8,936		$	48,746		$	3,096
Income tax benefit		(8,197	)		(2,427	)		(13,053	)		(845	)
Unrealized gains, net of taxes	$	22,402		$	6,509		$	35,693		$	2,251

The following table presents information about the reclassification of gains and losses from accumulated other comprehensive income into earnings related to the Company’s derivative instruments for each of the reporting periods.


	(in thousands)
	Three Months Ended						Nine Months Ended
Component of Earnings:	October 29, 2022			October 30, 2021			October 29, 2022			October 30, 2021
Interest expense	$	1,162		$	4,096		$	7,901		$	10,519
Income tax benefit		(311	)		(1,112	)		(2,129	)		(2,857	)
Net reclassification into earnings	$	851		$	2,984		$	5,772		$	7,662

The Company estimates that approximately $4.8 million will be reclassified from accumulated other comprehensive income as a reduction to interest expense during the next twelve months.

6. Fair Value Measurements

The Company accounts for fair value measurements in accordance with ASC 820, which defines fair value, establishes a framework for measurement and expands disclosure about fair value measurements. ASC 820 defines fair value 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 (exit price), and classifies the inputs used to measure fair value into the following hierarchy:

Level 1: Quoted prices for identical assets or liabilities in active markets.

Level 2: Quoted market prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3: Pricing inputs that are unobservable for the assets and liabilities and include situations where there is little, if any, market activity for the assets and liabilities.

The inputs into the determination of fair value require significant management judgment or estimation.

The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments.

Refer to Note 5, “Derivative Instruments and Hedging Activities,” for further discussion regarding the fair value of the Company’s interest rate swap contract.

Financial Assets

The fair values of the Company’s financial assets and the hierarchy of the level of inputs as of October 29, 2022, January 29, 2022 and October 30, 2021 are summarized below:


	(in thousands)
	Fair Value Measurements at
	October 29,		January 29,		October 30,
	2022		2022		2021
Level 1
Cash equivalents (including restricted cash equivalents)	$	92,424	$	701,638	$	701,607

Long-lived assets are measured at fair value on a non-recurring basis for purposes of calculating impairment using the fair value hierarchy of ASC 820. The fair value of the Company’s long-lived assets is calculated using a discounted cash-flow model that used level 3 inputs. In calculating future cash flows, the Company makes estimates regarding future operating results and market rent rates, based on its experience and knowledge of market factors in which the retail location is located.

Impairment charges on long-lived assets were $10.6 million during the third quarter of Fiscal 2022, related to two owned stores expected to be sold below net carrying value and declines in revenue and operating results for eight stores. Impairment charges on long-lived assets were $1.5 million during the third quarter of Fiscal 2021, primarily related to store-level assets at four stores.

Impairment charges on long-lived assets were $17.6 million during the nine months ended October 29, 2022, related to three owned stores expected to be sold below net carrying value, declines in revenue and operating results for eight stores, and unrecoverable fixed assets at two relocating stores. Impairment charges on long-lived assets were $3.2 million during the nine months ended October 30, 2021, primarily related to declines in revenues and operating results at certain stores. During the nine months ended October 29, 2022 and the nine months ended October 30, 2021, the assets impaired had a remaining carrying value after impairments of $69.4 million and $13.9 million, respectively.

Financial Liabilities

The fair values of the Company’s financial liabilities are summarized below:


	(in thousands)
	October 29, 2022				January 29, 2022				October 30, 2021
	Principal Amount		Fair Value		Principal Amount		Fair Value		Principal Amount		Fair Value
Term B-6 Loans	$	949,397	$	911,421	$	956,608	$	955,412	$	959,011	$	953,017
Convertible Notes		507,687		513,982		572,322		724,703		644,627		915,048
ABL Line of Credit (a)		—		—		—		—		—		—
Total debt (b)	$	1,457,084	$	1,425,403	$	1,528,930	$	1,680,115	$	1,603,638	$	1,868,065

(a)

To the extent the Company has any outstanding borrowings under the ABL Line of Credit, the fair value would approximate its reported value, because the interest rate is variable and reflects current market rates, due to its short term nature.

(b)

The table above excludes finance lease obligations, debt discount and deferred debt costs.

The fair values presented herein are based on pertinent information available to management as of the respective period end dates. The estimated fair values of the Company’s debt are classified as Level 2 in the fair value hierarchy, and are based on current market quotes received from inactive markets.

7. Income Taxes

Income tax expense was $6.0 million during the third quarter of Fiscal 2022 compared with $17.9 million during the third quarter of Fiscal 2021. The effective tax rate for the third quarter of Fiscal 2022 was 26.4% compared with 56.8% during the third quarter of Fiscal 2021. The higher income tax expense and tax rate in the prior year period is primarily driven by higher pre-tax income and the disallowance of certain debt extinguishment costs related to partial repurchase of the Convertible Notes during the third quarter of Fiscal 2021.

Income tax expense was $11.6 million during the nine month period ended October 29, 2022 compared with $79.8 million during the nine month period ended October 30, 2021. The effective tax rate for the nine month period ended October 29, 2022 was 20.5% compared with 21.7% during the nine month period ended October 30, 2021. The decrease in income tax expense in the nine months ended October 29, 2022 was a result of lower pre-tax income.

Net deferred taxes are as follows:


	(in thousands)
	October 29,		January 29,		October 30,
	2022		2022		2021
Deferred tax asset	$	3,643	$	3,959	$	4,119
Deferred tax liability		222,549		220,023		211,710
Net deferred tax liability	$	218,906	$	216,064	$	207,591

Net deferred tax assets relate to Puerto Rico deferred balances that have a future net benefit for tax purposes. Net deferred tax liabilities primarily relate to intangible assets and depreciation expense where the Company has a future obligation for tax purposes.

As of October 29, 2022, the Company had a deferred tax asset related to net operating losses of $14.6 million, inclusive of $14.3 million related to state net operating losses that expire at various dates between 2023 and 2041, as well as $0.3 million related to Puerto Rico net operating losses that will expire in 2025.

As of October 29, 2022, the Company had a deferred tax asset related to tax credit carry-forwards of $7.8 million, inclusive of $7.1 million of state tax credit carry-forwards, which will begin to expire in 2023, and $0.7 million of deferred tax assets recorded for Puerto Rico alternative minimum tax credits that have an indefinite life.

As of October 29, 2022, January 29, 2022 and October 30, 2021, valuation allowances amounted to $10.6 million, $12.9 million and $12.1 million, respectively, related to state and Puerto Rico net operating losses and state tax credit carry-forwards. The Company believes that it is more likely than not that this portion of state and Puerto Rico net operating losses and state tax credit carry-forwards will not be realized.

8. Capital Stock

Treasury Stock

The Company accounts for treasury stock under the cost method.

Shares Used to Satisfy Tax Withholding

During the nine month period ended October 29, 2022, the Company acquired 75,086 shares of common stock from employees for approximately $14.1 million to satisfy their minimum statutory tax withholdings related to the vesting of restricted stock and restricted stock unit awards, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows.

Share Repurchase Program

On August 18, 2021, the Company’s Board of Directors authorized the repurchase of up to $400.0 million of common stock, which was authorized to be executed through August 2023. This authorization was completed during the second quarter of Fiscal 2022.

On February 16, 2022, the Company's Board of Directors authorized the repurchase of up to $500.0 million of common stock, which is authorized to be executed through February 2024.

These repurchase programs are funded using the Company’s available cash and borrowings under the ABL Line of Credit.

During the nine month period ended October 29, 2022, the Company repurchased 1,481,782 shares of common stock for $251.2 million under these repurchase programs, which was recorded in the line item “Treasury stock” on the Company’s Condensed Consolidated Balance Sheets, and the line item “Purchase of treasury shares” on the Company’s Condensed Consolidated Statements of Cash Flows. As of October 29, 2022, the Company had $398.8 million remaining under its share repurchase authorization.

9. Net Income Per Share

Basic net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding. Diluted net income per share is calculated by dividing net income by the weighted-average number of common shares and potentially dilutive securities outstanding during the period using the treasury stock method for the Company’s stock option,

restricted stock and restricted stock unit awards, and the if-converted method for the Convertible Notes. The following table presents the computation of basic and diluted net income per share:


	(in thousands, except per share data)
	Three Months Ended				Nine Months Ended

	October 29,		October 30,		October 29,		October 30,
	2022		2021		2022		2021
Basic net income per share
Net income	$	16,783	$	13,619	$	44,923	$	287,203
Weighted average number of common shares – basic		65,362		66,740		65,815		66,591
Net income per common share – basic	$	0.26	$	0.20	$	0.68	$	4.31
Diluted net income per share
Net income	$	16,783	$	13,619	$	44,923	$	287,203
Shares for basic and diluted net income per share:
Weighted average number of common shares – basic		65,362		66,740		65,815		66,591
Assumed exercise of stock options and vesting of restricted stock		142		577		243		666
Assumed conversion of convertible debt		—		888		—		971
Weighted average number of common shares – diluted		65,504		68,205		66,058		68,228
Net income per common share – diluted	$	0.26	$	0.20	$	0.68	$	4.21

Approximately 1,498,000 and 1,132,000 shares of the Company’s stock-based compensation grants were excluded from diluted net income per share for the three and nine month periods ended October 29, 2022, respectively, since their effect was anti-dilutive.

Approximately 242,000 and 144,000 shares related to the Company’s stock-based compensation grants were excluded from diluted net income per share for the three and nine month periods ended October 30, 2021, respectively, since their effect was anti-dilutive.

During the three and nine months ended October 29, 2022, respectively, shares of common stock issuable upon conversion of the Convertible Notes have been excluded from the computation of diluted earnings per share as the effect would be anti-dilutive, since the conversion price of $220.18 exceeded the average market price of the Company’s common stock during the periods.

10. Stock-Based Compensation

As of October 29, 2022, there were 6,287,228 shares of common stock available for issuance under the Company’s 2022 Omnibus Incentive Plan.

Non-cash stock compensation expense is as follows:


	(in thousands)
	Three Months Ended				Nine Months Ended
	October 29,		October 30,		October 29,		October 30,
Type of Non-Cash Stock Compensation	2022		2021		2022		2021
Restricted stock and restricted stock unit grants (a)	$	9,736	$	8,192	$	28,519	$	22,132
Stock option grants (a)		4,851		4,815		15,144		13,891
Performance stock unit grants (a)		2,730		4,290		7,532		17,333
Total (b)	$	17,317	$	17,297	$	51,195	$	53,356

(a)

Included in the line item “Selling, general and administrative expenses” in the Company’s Condensed Consolidated Statements of Income.

(b)

The amounts presented in the table above exclude taxes. For the three and nine month periods ended October 29, 2022, the tax benefit related to the Company’s non-cash stock compensation was approximately $3.2 million and $9.5 million,

respectively. For the three and nine month periods ended October 30, 2021, the tax benefit related to the Company’s non-cash stock compensation was approximately $3.1 million and $9.2 million, respectively.

Stock Options

Stock option transactions during the nine month period ended October 29, 2022 are summarized as follows:


	Number of Shares			Weighted Average Exercise Price Per Share
Options outstanding, January 29, 2022		1,097,558		$	181.17
Options granted		326,483			202.09
Options exercised (a)		(65,745	)		92.37
Options forfeited		(30,453	)		225.28
Options outstanding, October 29, 2022		1,327,843		$	189.70

(a)

Options exercised during the nine month period ended October 29, 2022 had a total intrinsic value of $6.4 million.

The following table summarizes information about the stock options vested and expected to vest during the contractual term of such options as of October 29, 2022:


	Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions)
Options vested and expected to vest		1,327,843		7.0	$	189.70	$	9.4
Options exercisable		726,860		5.5	$	161.97	$	9.3

The fair value of each stock option granted during the nine month period ended October 29, 2022 was estimated using the Black Scholes option pricing model using the following assumptions:


		Nine Months Ended
		October 29,
		2022
Risk-free interest rate		1.13% - 2.78%
Expected volatility		32% - 34%
Expected life (years)		6.25
Contractual life (years)		10.0
Expected dividend yield		0%
Weighted average grant date fair value of options issued	$	75.64

The expected dividend yield was based on the Company’s expectation of not paying dividends in the near term. To evaluate its volatility factor, the Company uses the historical volatility of its stock price, as well as the historical volatility of the stock price of peer companies that are publicly traded over the expected life of the options. The risk free interest rate was based on the U.S. Treasury rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the awards being valued. For grants issued during the nine month period ended October 29, 2022, the expected life of the options was calculated using the simplified method. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches. This methodology was utilized due to the relatively short length of time the Company’s common stock has been publicly traded.

Restricted Stock

Prior to May 1, 2019, the Company granted shares of restricted stock. Grants made on and after May 1, 2019 are in the form of restricted stock units. Restricted stock transactions during the nine month period ended October 29, 2022 are summarized as follows:


	Number of Shares			Weighted Average Grant Date Fair Value Per Award
Non-vested awards outstanding, January 29, 2022		368,158		$	233.00
Awards granted		247,768			201.96
Awards vested (a)		(131,261	)		205.03
Awards forfeited		(20,429	)		234.13
Non-vested awards outstanding, October 29, 2022		464,236			224.29

(a)

Restricted stock awards vested during the nine month period ended October 29, 2022 had a total intrinsic value of $24.9 million.

The fair value of each share of restricted stock granted during the nine month period ended October 29, 2022 was based upon the closing price of the Company’s common stock on the grant date.

Performance Stock Units

The Company grants performance-based restricted stock units to its senior executives. Vesting of the performance stock units granted in Fiscal 2020 and Fiscal 2021 is based on continued service and the achievement of pre-established EBIT margin expansion and sales compounded annual growth rate (CAGR) goals (each weighted equally) over a three-year performance period. Vesting of the performance stock units granted in Fiscal 2022 will be based on continued service and the achievement of pre-established adjusted net income per share growth over a three-year performance period. Based on the Company’s achievement of these goals, each award may be earned up to 200% of the target award. In the event that actual performance is below threshold, no award will be made. Compensation costs recognized on the performance stock units are adjusted, as applicable, for performance above or below the target specified in the award.

Performance stock unit transactions during the nine month period ended October 29, 2022 are summarized as follows:


	Number of Shares			Weighted Average Grant Date Fair Value Per Award
Non-vested awards outstanding, January 29, 2022		186,436		$	215.90
Awards granted (a)		105,783			204.38
Awards vested (a) (b)		(81,440	)		173.84
Awards forfeited		(10,094	)		228.67
Non-vested awards outstanding, October 29, 2022		200,685			226.25

(a)

Inclusive of awards distributed in connection with the final settlement of the performance-based stock awards granted in Fiscal 2019.

(b)

Performance-based stock awards vested during the nine month period ended October 29, 2022 had a total intrinsic value of $15.4 million.

11. Commitments and Contingencies

Legal

In the course of business, the Company is party to class or collective actions alleging violations of federal and state wage and hour and other labor statutes, representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory proceedings from time to time including, among others, commercial, product, employee, customer, intellectual property, privacy and other claims. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. While no assurance can be given as to the ultimate outcome of these matters, the Company believes

that the final resolution of these actions will not have a material adverse effect on the Company’s results of operations, financial position, liquidity or capital resources.

Letters of Credit

The Company had letters of credit arrangements with various banks in the aggregate amount of $50.0 million, $55.4 million and $59.0 million as of October 29, 2022, January 29, 2022 and October 30, 2021, respectively. Among these arrangements, as of October 29, 2022, January 29, 2022 and October 30, 2021, the Company had letters of credit outstanding in the amount of $47.4 million, $48.4 million and $46.8 million, respectively, guaranteeing performance under various insurance contracts and utility agreements. In addition, the Company had outstanding letters of credit arrangements in the amounts of $2.6 million, $7.1 million and $12.3 million at October 29, 2022, January 29, 2022 and October 30, 2021, respectively, related to certain merchandising agreements. Based on the terms of the agreement governing the ABL Line of Credit, the Company had the ability to enter into letters of credit up to $850.0 million, $594.6 million and $541.0 million as of October 29, 2022, January 29, 2022 and October 30, 2021, respectively.

Purchase Commitments

The Company had $1,157.0 million of purchase commitments related to goods that were not received as of October 29, 2022.

Death Benefits

In November 2005, the Company entered into agreements with three of the Company’s former executives whereby upon each of their deaths the Company will pay $1.0 million to each respective designated beneficiary.

BURLINGTON STORES, INC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this report and the Consolidated Financial Statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (Fiscal 2021 10-K).

In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions. Our actual results or other events may differ materially from those anticipated in these forward-looking statements due to various factors, including those discussed under the section of this Item 2 entitled “Safe Harbor Statement.”

Executive Summary

Introduction

We are a nationally recognized off-price retailer of high-quality, branded merchandise at everyday low prices. We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, we have expanded our store base to 893 stores as of October 29, 2022 in 46 states and Puerto Rico. We have diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise at up to 60% off other retailers’ prices, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats. We sell a broad selection of desirable, first-quality, current-brand, labeled merchandise acquired directly from nationally-recognized manufacturers and other suppliers.

Fiscal Year

Fiscal 2022 is defined as the 52-week year ending January 28, 2023. Fiscal 2021 is defined as the 52-week year ended January 29, 2022.

Store Openings, Closings, and Relocations

During the nine month period ended October 29, 2022, we opened 74 new stores, inclusive of 17 relocations, and permanently closed four stores, exclusive of the aforementioned relocations, bringing our store count as of October 29, 2022 to 893 stores.

Ongoing Initiatives for Fiscal 2022-2023

We continue to focus on a number of ongoing initiatives aimed at increasing our overall profitability. These initiatives include, but are not limited to:

•

Driving Comparable Store Sales Growth.

We strive to increase comparable store sales through the following initiatives:

•

More Effectively Chasing the Sales Trend. We plan sales using conservative comparable store sales growth, holding and controlling liquidity, closely analyzing the sales trend by business, and remaining ready to chase that trend. We believe that these actions will also allow us to take more advantage of great opportunistic buys.

•

Operating with Leaner Inventories. We are planning to carry less inventory in our stores going forward compared to historical levels, which we believe should result in the customer finding a higher mix of fresh receipts and great merchandise values. We believe that this should drive faster turns and lower markdowns, while simultaneously improving our customers’ shopping experience.

•

Making a Greater Investment in Merchandising Capabilities. We intend to invest in incremental headcount, especially in growing or under-developed businesses, training and coaching, improved tools and reporting, and other forms of merchant support. We believe that these investments should improve our ability to develop vendor

relationships, source great merchandise buys, more accurately assess value, and better forecast and chase the sales trend.

•

Enhancing Existing Categories and Introducing New Categories. We have opportunities to expand the depth and breadth of certain existing categories, such as ladies’ apparel, children’s products, bath and cosmetic merchandise, housewares, décor for the home and beauty as we continue to de-weather our business, and maintain the flexibility to introduce new categories as we expand our merchandising capabilities.

•

Expanding and Enhancing Our Retail Store Base.

We intend to expand and enhance our retail store base through the following initiatives:

•

Adhering to a Market Focused and Financially Disciplined Real Estate Strategy. We have grown our store base consistently since our founding in 1972, developing more than 99% of our stores organically. We believe there is significant opportunity to expand our retail store base in the United States. As a result of our smaller store prototype, we have identified numerous market opportunities that we believe will allow us to operate 2,000 stores over the long term.

•

Maintaining Focus on Unit Economics and Returns. We have adopted a market focused approach to new store openings in more productive retail locations, with a specific focus on maximizing sales while achieving attractive unit economics and returns. Additionally, as we continue to execute our smaller store prototype, we believe we can reduce occupancy and operating expenses.

•

Enhancing the Store Experience. We continue to invest in select store relocations and downsizes to improve the customer experience, taking into consideration the age, size, sales, and location of a store. Relocations provide an opportunity, upon lease expirations, to right-size our stores, improve our competitive positioning, incorporate our new prototype store designs and reduce occupancy costs. Downsizes provide an opportunity to right-size our stores, within our existing space, improve co-tenancy, incorporate our new store designs and reduce occupancy costs.

•

Enhancing Operating Margins.

We intend to increase our operating margins through the following initiatives:

•

Improving Operational Flexibility. Our store and supply chain teams must continue to respond to the challenge of becoming more responsive to the sales chase, enhancing their ability at flexing up and down based on trends. Their ability to appropriately flex based on the ongoing trends allows us to maximize leverage on sales, regardless of the trend.

•

Optimizing Markdowns. We believe that our markdown system allows us to maximize sales and gross margin dollars based on forward-looking sales forecasts, sell-through targets and exit dates. Additionally, as we plan to carry less inventory in our stores compared to historical levels, we expect to drive faster turns, which in turn should reduce the amount of markdowns taken.

•

Enhancing Purchasing Power. We believe that increasing our store footprint and expanding our east and west coast buying offices provides us with the opportunity to capture incremental buying opportunities and realize economies of scale in our merchandising and non-merchandising purchasing activities.

•

Challenging Expenses to Drive Operating Leverage. We believe that we will be able to leverage our growing sales over the fixed costs of our business. In addition, by more conservatively planning our comparable store sales growth, we are forcing even tighter expense control throughout all areas of our business. We believe that this should put us in a strong position to drive operating leverage on any sales ahead of the plan. Additionally, we plan to continue challenging the processes and operating norms throughout the organization with the belief that this will lead to incremental efficiency improvements and savings.

Uncertainties and Challenges

As we strive to increase profitability, there are uncertainties and challenges that we face that could have a material impact on our revenues or income. Some of these uncertainties and challenges are summarized below. For a further discussion, please refer to the description under the heading “Risk Factors” in the Fiscal 2021 10-K.

General Economic Conditions. Consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing global economic conditions, inflation, including the costs of basic necessities and other goods, levels of employment, salaries and wage rates, prevailing interest rates, housing costs, energy costs, commodities pricing, income tax rates and

policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns may be influenced by consumers’ disposable income, credit availability and debt levels.

A broad, protracted slowdown in the U.S. economy, an extended period of high unemployment rates, inflation rates, an uncertain global economic outlook or a credit crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis. Consumer confidence is also affected by the domestic and international political situation. Our financial condition and operations could be impacted by changes in government regulations in areas including, but not limited to, taxes and healthcare. Ongoing international trade and tariff negotiations could have a direct impact on our income and an indirect impact on consumer prices. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the U.S., or public health issues such as pandemics or epidemics, including the continuing COVID-19 pandemic, could lead to a decrease in spending by consumers. In addition, natural disasters, public health issues, industrial accidents and acts of war in various parts of the world, such as the current war in Ukraine, could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and U.S. economies and lead to a downturn in consumer confidence and spending.

We closely monitor our net sales, gross margin and expenses. We have performed scenario planning such that if our net sales decline for an extended period of time, we have identified variable costs that could be reduced to partially mitigate the impact of these declines. If we were to experience adverse economic trends and/or if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods.

Seasonality of Sales and Weather Conditions. Our business, like that of most retailers, is subject to seasonal influences. In the second half of the year, which includes the back-to-school and holiday seasons, we generally realize a higher level of sales and net income.

Weather continues to be a contributing factor to the sale of our merchandise. Generally, our sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are increased by early cold weather during the Fall, while sales of warm weather clothing are improved by early warm weather conditions in the Spring. Although we have diversified our product offerings, we believe traffic to our stores is still driven, in part, by weather patterns.

Competition and Margin Pressure. We believe that in order to remain competitive with retailers, including off-price retailers and discount stores, we must continue to offer brand-name merchandise at a discount to prices offered by other retailers as well as an assortment of merchandise that is appealing to our customers.

The U.S. retail apparel and home furnishings markets are highly fragmented and competitive. We compete for business with department stores, off-price retailers, internet retailers, specialty stores, discount stores, wholesale clubs, and outlet stores as well as with certain traditional, full-price retail chains that have developed off-price concepts. At various times throughout the year, traditional full-price department store chains and specialty shops offer brand-name merchandise at substantial markdowns, which can result in prices approximating those offered by us at our Burlington Stores. We anticipate that competition will increase in the future. Therefore, we will continue to look for ways to differentiate our stores from those of our competitors.

The U.S. retail industry continues to face increased pressure on margins as overall challenging retail conditions have led consumers to be more value conscious. Our strategy to chase the sales trend allows us the flexibility to purchase less pre-season merchandise with the balance purchased in-season and opportunistically. It also provides us with the flexibility to shift purchases between suppliers and categories. This enables us to obtain better terms with our suppliers, which we expect to help offset any rising costs of goods.

Industry-wide supply chain issues led to increased freight and labor costs during Fiscal 2021 and continue to add pressure on margins in Fiscal 2022. These costs significantly impacted results in Fiscal 2021 and the nine months ended October 29, 2022, and there remains significant uncertainty around when and if freight costs will return to pre-pandemic levels. Additionally, the higher our sales volume is, and the more sales we chase above our initial plans, the more these increased supply chain costs will impact our margins.

We have also experienced inflationary pressure in our supply chain and with respect to raw materials and finished goods, as well as in occupancy and other operating costs. There can be no assurance that we will be able to offset inflationary pressure in the future by increasing prices or through other means, or that our business will not be negatively affected by continued inflation in the future.

Key Performance and Non-GAAP Measures

We consider numerous factors in assessing our performance. Key performance and non-GAAP measures used by management include net income, Adjusted Net Income, Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory, store payroll and liquidity.

Net income. We earned net income of $16.8 million during the three month period ended October 29, 2022 compared with net income of $13.6 million during the three month period ended October 30, 2021. This increase was primarily driven by loss on debt extinguishment charges during the third quarter of Fiscal 2021 for debt transactions that did not recur during the third quarter of Fiscal 2022, partially offset by lower sales and gross margin rate during the third quarter of Fiscal 2022. We earned net income of $44.9 million during the nine month period ended October 29, 2022 compared with a net income of $287.2 million during the nine month period ended October 30, 2021.This decrease was primarily driven by lower sales, as well as decreased gross margin rate, partially offset by decreased loss on debt extinguishment charges. Refer to the section below entitled “Results of Operations” for further explanation.

Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT: Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT are non-GAAP financial measures of our performance.

We define Adjusted Net Income as net income, exclusive of the following items, if applicable: (i) net favorable lease costs; (ii) loss on extinguishment of debt; (iii) impairment charges; (iv) costs related to debt issuances and amendments; (v) amounts related to certain litigation matters; and (vi) other unusual, non-recurring or extraordinary expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net Income.

We define Adjusted EBITDA as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) costs related to debt issuances and amendments; (iv) loss on extinguishment of debt; (v) income tax expense; (vi) depreciation and amortization; (vii) impairment charges; (viii) amounts related to certain litigation matters; and (ix) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

We define Adjusted EBIT as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) costs related to debt issuances and amendments; (iv) loss on extinguishment of debt; (v) income tax expense; (vi) impairment charges; (vii) net favorable lease costs; (viii) amounts related to certain litigation matters; and (ix) other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

We present Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT, because we believe they are useful supplemental measures in evaluating the performance of our business and provide greater transparency into our results of operations. In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from what we consider to be our core operating results are useful supplemental measures that assist investors and management in evaluating our ability to generate earnings and leverage sales, and to more readily compare core operating results between past and future periods.

We believe that these non-GAAP measures provide investors helpful information with respect to our operations and financial condition. Other companies in the retail industry may calculate these non-GAAP measures differently such that our calculation may not be directly comparable.

Adjusted Net Income has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted Net Income does not reflect the following items, net of their tax effect:

•

net favorable lease costs;

•

costs related to debt issuances and amendments;

•

losses on extinguishment of debt;

•

impairment charges on long-lived assets;

•

amounts charged for certain litigation matters; and

•

other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

During the three and nine months ended October 29, 2022, Adjusted Net Income decreased $64.9 million to $28.0 million and decreased $314.9 million to $87.0 million, respectively, compared to the same periods in the prior year. These decreases were

primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net income to Adjusted Net Income for the three and nine months ended October 29, 2022 compared with the three and nine months ended October 30, 2021:


	(unaudited)
	(in thousands)
	Three Months Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Reconciliation of net income to Adjusted Net Income:
Net income	$	16,783		$	13,619		$	44,923		$	287,203
Net favorable lease costs (a)		4,791			5,275			14,262			17,188
Costs related to debt issuances and amendments (b)		—			89			—			3,419
Loss on extinguishment of debt (c)		—			86,362			14,657			117,756
Impairment charges - long-lived assets		10,599			1,488			17,556			3,235
Litigation matters (d)		—			—			10,500			—
Tax effect (e)		(4,148	)		(13,891	)		(14,867	)		(26,835	)
Adjusted Net Income	$	28,025		$	92,942		$	87,031		$	401,966

(a)

Net favorable lease cost represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of purchase accounting related to the April 13, 2006 Bain Capital acquisition of Burlington Coat Factory Warehouse Corporation (the Merger Transaction). These expenses are recorded in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of Income.

(b)

Represents certain costs incurred to refinance our senior secured term loan facility (the Term Loan Facility).

(c)

Fiscal 2022 amounts relate to the partial repurchases of the Convertible Note in the first quarter of Fiscal 2022. Fiscal 2021 amounts relate to the partial repurchase of the Convertible Notes, the redemption of the Secured Notes, as well as the refinancing of the Term Loan Facility.

(d)

Represents amounts charged for certain litigation matters.

(e)

Tax effect is calculated based on the effective tax rates (before discrete items) for the respective periods, adjusted for the tax effect for the impact of items (a) through (d).

Adjusted EBITDA has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted EBITDA does not reflect:

•

interest expense on our debt;

•

interest income;

•

losses on the extinguishment of debt;

•

costs related to debt issuances and amendments;

•

amounts charged for certain litigation matters;

•

cash requirements for replacement of assets. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will likely have to be replaced in the future;

•

impairment charges on long-lived assets;

•

income tax expense; and

•

other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

During the three and nine months ended October 29, 2022, Adjusted EBITDA decreased $82.4 million to $122.6 million and decreased $385.6 million to $358.6 million, respectively, compared to the same periods in the prior year. These decreases were primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net income to Adjusted EBITDA for the three and nine months ended October 29, 2022 compared with the three and nine months ended October 30, 2021:


	(unaudited)
	(in thousands)
	Three Months Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Reconciliation of net income to Adjusted EBITDA:
Net income	$	16,783		$	13,619		$	44,923		$	287,203
Interest expense		17,412			15,609			47,454			52,710
Interest income		(658	)		(38	)		(4,242	)		(156	)
Loss on extinguishment of debt (a)		—			86,362			14,657			117,756
Costs related to debt issuances and amendments (b)		—			89			—			3,419
Litigation matters (c)		—			—			10,500			—
Depreciation and amortization (d)		72,425			69,938			216,170			200,275
Impairment charges - long-lived assets		10,599			1,488			17,556			3,235
Income tax expense		6,035			17,922			11,560			79,769
Adjusted EBITDA	$	122,596		$	204,989		$	358,578		$	744,211

(a)

(b)

Represents certain costs incurred to execute refinancing of the Term Loan Facility.

(c)

Represents amounts charged for certain litigation matters.

(d)

Includes $4.8 million and $14.3 million of favorable lease cost included in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of Income for the three and nine months ended October 29, 2022 and $5.3 million and $17.2 million for the three and nine months ended October 30, 2021, respectively. Net favorable lease cost represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of the Merger Transaction.

Adjusted EBIT has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted EBIT does not reflect:

•

interest expense on our debt;

•

interest income;

•

losses on the extinguishment of debt;

•

costs related to debt issuances and amendments;

•

net favorable lease cost;

•

impairment charges on long-lived assets;

•

amounts charged for certain litigation matters;

•

income tax expense; and

•

other unusual, non-recurring or extraordinary expenses, losses, charges or gains.

During the three and nine months ended October 29, 2022, Adjusted EBIT decreased $85.4 million to $55.0 million and decreased $404.5 million to $156.7 million, respectively, compared to the same periods in the prior year. These decreases were primarily driven by lower sales, as well as decreased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.

The following table shows our reconciliation of net income to Adjusted EBIT for the three and nine months ended October 29, 2022 compared with the three and nine months ended October 30, 2021:


	(unaudited)
	(in thousands)
	Three Months Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Reconciliation of net income to Adjusted EBIT:
Net income	$	16,783		$	13,619		$	44,923		$	287,203
Interest expense		17,412			15,609			47,454			52,710
Interest income		(658	)		(38	)		(4,242	)		(156	)
Loss on extinguishment of debt (a)		—			86,362			14,657			117,756
Costs related to debt issuances and amendments (b)		—			89			—			3,419
Net favorable lease costs (c)		4,791			5,275			14,262			17,188
Impairment charges - long-lived assets		10,599			1,488			17,556			3,235
Litigation matters (d)		—			—			10,500			—
Income tax expense		6,035			17,922			11,560			79,769
Adjusted EBIT	$	54,962		$	140,326		$	156,670		$	561,124

(a)

(b)

Represents certain costs incurred to execute refinancing of the Term Loan Facility.

(c)

Net favorable lease cost represents the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of the Merger Transaction. These expenses are recorded in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statements of Income.

(d)

Represents amounts charged for certain litigation matters.

Comparable Store Sales. Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of a prior year. Due to the impact of the COVID-19 pandemic, including the temporary closing of all stores during Fiscal 2020, we are using Fiscal 2019 as the comparable previous year period when calculating comparable store sales for Fiscal 2021. The method of calculating comparable store sales varies across the retail industry. As a result, our definition of comparable store sales may differ from other retailers.

For Fiscal 2022, we define comparable store sales as merchandise sales of those stores commencing on the first day of the fiscal month one year after the end of their grand opening activities, which normally conclude within the first two months of operations. If a store is closed for seven or more days during a month, our policy is to remove that store from our calculation of comparable store sales for any such month, as well as during the month(s) of their grand re-opening activities. The change in our comparable store sales was as follows:


	Three Months Ended	Nine Months Ended
October 29, 2022	-17%	-17%
October 30, 2021	16%	18%

Various factors affect comparable store sales, including, but not limited to, weather conditions, current economic conditions, the timing of our releases of new merchandise and promotional events, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition, and the success of marketing programs.

Gross Margin. Gross margin is the difference between net sales and the cost of sales. Our cost of sales and gross margin may not be comparable to those of other entities, since some entities may include all of the costs related to their buying and distribution functions, certain store-related costs and other costs, in cost of sales. We include certain of these costs in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in our Condensed Consolidated Statements of Income. We include in our “Cost of sales” line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, distribution center outbound freight and certain merchandise acquisition costs, primarily commissions and import fees.

Gross margin as a percentage of net sales decreased to 41.2% during the three month period ended October 29, 2022, compared with 41.4% during the three month period ended October 30, 2021, driven primarily by decreased merchandise margins, primarily due to higher markdowns and increased shortage, partially offset by decreased freight costs. Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 120 basis points as a percentage of net sales.

Gross margin as a percentage of net sales decreased to 40.4% during the nine months ended October 29, 2022, compared with 42.3% during nine months ended October 30, 2021, driven primarily by decreased merchandise margins, primarily due to higher markdowns and increased shortage, as well as increased freight costs. Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 140 basis points as a percentage of net sales.

Inventory. Inventory at October 29, 2022 increased to $1,445.1 million compared with $1,059.7 million at October 30, 2021. The increase was attributable primarily to increased inventory in our warehouses, inclusive of reserve inventory, as well as 61 net new stores opened since the end of the third quarter of Fiscal 2021, and an 8% increase in comparable store inventory. Reserve inventory was 31% of total inventory as of October 29, 2022, compared with 30% as of October 30, 2021.

The difference between inventory and comparable store inventory is primarily the result of the latter not including distribution center and warehouse inventory or inventory at new and non-comparable stores. Inventory held at our warehouses and distribution centers includes merchandise being readied for shipment to our stores and reserve inventory acquired opportunistically for future store release. The magnitude of reserve inventory, at any one point in time, is dependent on the buying opportunities identified in the marketplace.

Reserve inventory includes all inventory that is being stored for release either later in the season, or in a subsequent season. We intend to use our reserve merchandise to effectively chase sales trends. Inventory at January 29, 2022 was $1,021.0 million.

In order to better serve our customers and maximize sales, we continue to refine our merchandising mix and inventory levels within our stores. By appropriately managing our inventories, we believe we will be better able to deliver a continual flow of fresh merchandise to our customers.

Store Payroll as a Percentage of Net Sales. Store payroll as a percentage of net sales measures our ability to manage our payroll in accordance with increases or decreases in net sales. The method of calculating store payroll varies across the retail industry. As a result, our store payroll as a percentage of net sales may differ from other retailers. We define store payroll as regular and overtime payroll for all store personnel as well as regional and territory personnel, exclusive of payroll charges related to corporate and warehouse employees. Store payroll as a percentage of net sales was 8.1% and 8.1% during the three and nine month periods ended October 29, 2022, respectively, compared with 8.4% and 8.1% during the three and nine month periods ended October 30, 2021, respectively.

Liquidity. Liquidity measures our ability to generate cash. Management measures liquidity through cash flow, which is the measure of cash generated from or used in operating, financing, and investing activities. Cash and cash equivalents, including restricted cash and cash equivalents, decreased $662.5 million during the nine months ended October 29, 2022, compared with a decrease of $194.9 million during the nine months ended October 30, 2021. Refer to the section below entitled “Liquidity and Capital Resources” for further explanation.

Results of Operations

The following table sets forth certain items in the Condensed Consolidated Statements of Income as a percentage of net sales for the three and nine months ended October 29, 2022 and the three and nine months ended October 30, 2021.


	Percentage of Net Sales
	Three Months Ended						Nine Months Ended
	October 29,			October 30,			October 29,			October 30,
	2022			2021			2022			2021
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Other revenue		0.2			0.2			0.2			0.2
Total revenue		100.2			100.2			100.2			100.2
Cost of sales		58.8			58.6			59.6			57.7
Selling, general and administrative expenses		35.7			33.0			35.2			31.7
Costs related to debt issuances and amendments		—			0.0			—			0.1
Depreciation and amortization		3.3			2.8			3.4			2.7
Impairment charges - long-lived assets		0.5			0.1			0.3			0.0
Other income - net		(0.1	)		(0.1	)		(0.3	)		(0.2	)
Loss on extinguishment of debt		—			3.8			0.2			1.8
Interest expense		0.9			0.7			0.8			0.8
Total costs and expenses		99.1			98.9			99.2			94.6
Income before income tax expense		1.1			1.3			1.0			5.6
Income tax expense		0.3			0.8			0.2			1.2
Net income		0.8	%		0.5	%		0.8	%		4.4	%

Three Month Period Ended October 29, 2022 Compared With the Three Month Period Ended October 30, 2021

Net sales

Net sales decreased $263.7 million, or 11.5%, to $2,035.9 million during the third quarter of Fiscal 2022, primarily driven by a decrease of 17% in comparable store sales during the third quarter of Fiscal 2022, on top of a 16% increase in the third quarter of Fiscal 2021. We believe this decrease in comparable store sales was driven by strong results in the prior period, as well as economic pressure on our core customers and promotional activity throughout the retail environment, which we did not respond to quickly enough. The decrease in net sales was partially offset by 61 net new stores since the end of the third quarter of Fiscal 2021.

Cost of sales

Cost of sales as a percentage of net sales increased to 58.8% during the third quarter of Fiscal 2022, compared to 58.6% during the third quarter of Fiscal 2021. This increase was primarily driven by decreased merchandise margins, primarily due to higher markdowns and increased shortage, partially offset by decreased freight costs. On a dollar basis, cost of sales decreased $149.4 million, or 11.1%, primarily driven by our overall decrease in sales. Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 120 basis points as a percentage of net sales.

Selling, general and administrative expenses

The following table details selling, general and administrative expenses for the three month period ended October 29, 2022 compared with the three month period ended October 30, 2021. Prior year amounts have been reclassified to conform to the current period presentation.


	(in millions)
	Three Months Ended
	October 29,		Percentage of			October 30,		Percentage of
	2022		Net Sales			2021		Net Sales			$ Variance			% Change
Store related costs	$	432.7		21.3	%	$	454.3		19.8	%	$	(21.6	)		(4.8	)%
Product sourcing costs		177.9		8.7			172.7		7.5			5.2			3.0
Corporate costs		78.0		3.8			85.7		3.7			(7.7	)		(9.0	)
Marketing and strategy costs		12.4		0.6			17.9		0.8			(5.5	)		(30.7	)
Other selling, general and administrative expenses		25.9		1.3			29.2		1.2			(3.3	)		(11.3	)
Selling, general and administrative expenses	$	726.9		35.7	%	$	759.8		33.0	%	$	(32.9	)		-4.3	%

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by deleverage from comparable sales decrease and increased product sourcing costs, partially offset by decreased store payroll costs. On a dollar basis, the decrease in selling, general and administrative expenses was primarily driven by decreases in store payroll costs and incentive compensation, partially offset by increases in occupancy costs.

Depreciation and amortization

Depreciation and amortization expense amounted to $67.6 million during the third quarter of Fiscal 2022 compared with $64.7 million during the third quarter of Fiscal 2021. The increase in depreciation and amortization expense was primarily driven by capital expenditures related to our new and non-comparable stores.

Impairment charges – long-lived assets

Impairment charges on long-lived assets were $10.6 million during the third quarter of Fiscal 2022, primarily related to two owned stores expected to be sold below net carrying value. Impairment charges on long-lived assets were $1.5 million during the third quarter of Fiscal 2021, related to store-level assets at four stores.

The recoverability assessment related to these store-level assets requires various judgments and estimates, including estimates related to future revenues, gross margin rates, store expenses and other assumptions. We base these estimates upon our past and expected future performance. We believe our estimates are appropriate in light of current market conditions. However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store. Refer to Note 6, “Fair Value Measurements,” for further discussion regarding impairment charges.

Loss on Extinguishment of Debt

During the third quarter of Fiscal 2021, we incurred a debt extinguishment charge of $86.4 million related to the partial repurchase of the Convertible Notes. Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

Interest expense

Interest expense increased $1.8 million during the third quarter of Fiscal 2022 to $17.4 million, compared to the same period in the prior year. The increase was driven by the increase in LIBOR rates on the unhedged portion of our Term Loan Facility, partially offset by the repurchase of Convertible Notes.

The average interest rates and average balances related to our variable rate debt for the third quarter of Fiscal 2022 compared with the third quarter of Fiscal 2021, are summarized in the table below:


		Three Months Ended
		October 29,			October 30,
		2022			2021
Average balance – ABL Line of Credit (in millions)	$		—	$		—
Average interest rate – ABL Line of Credit			—			—
Average balance – Term Loan Facility (in millions) (a)	$	951.0		$	960.6
Average interest rate – Term Loan Facility		4.7%			2.1%

(a) Excludes original issue discount.

Income tax expense

Income tax expense was $6.0 million during the third quarter of Fiscal 2022 compared with income tax expense of $17.9 million during the third quarter of Fiscal 2021. The effective tax rate for the third quarter of Fiscal 2022 was 26.4% compared with 56.8% during the third quarter of Fiscal 2021. The higher income tax expense and tax rate in the prior year period is primarily driven by higher pre-tax income and the disallowance of certain debt extinguishment costs related to partial repurchase of the Convertible Notes during the third quarter of Fiscal 2021.

At the end of each interim period we are required to determine the best estimate of our annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. Use of this methodology during the third quarter of Fiscal 2022 resulted in an annual effective income tax rate of approximately 28% (before discrete items) as our best estimate.

Net income

We earned net income of $16.8 million for the third quarter of Fiscal 2022 compared with $13.6 million for the third quarter of Fiscal 2021. This increase was primarily driven by loss on debt extinguishment charges during the third quarter of Fiscal 2021 for debt transactions that did not recur during the third quarter of Fiscal 2022, offset by lower sales and gross margin rate during the third quarter of Fiscal 2022.

Nine Month Period Ended October 29, 2022 Compared With the Nine Month Period Ended October 30, 2021

Net sales

Net sales decreased $757.6 million, or 11.3%, to $5,945.5 million during the nine months ended October 29, 2022, primarily driven by a decrease of 17% in comparable stores sales during the nine months ended October 29, 2022, on top of an 18% increase during the nine months ended October 30, 2021. We believe this decrease in comparable store sales was driven by strong results in the prior period, as well as economic pressure on our core customers and promotional activity throughout the retail environment, which we did not respond to quickly enough. The decrease in net sales was partially offset by 61 net new stores since the end of the third quarter of Fiscal 2021.

Cost of sales

Cost of sales as a percentage of net sales increased to 59.6% during the nine months ended October 29, 2022, compared to 57.7% during the nine months ended October 30, 2021. This increase was primarily driven by decreased merchandise margins, primarily due to higher markdowns and increased shortage, as well as increased freight costs. On a dollar basis, cost of sales decreased $323.1 million, or 8.3%, primarily driven by our overall decrease in sales. Product sourcing costs, which are included in selling, general and administrative expenses, increased approximately 140 basis points as a percentage of net sales.

Selling, general and administrative expenses

The following table details selling, general and administrative expenses for the nine month period ended October 29, 2022 compared with the nine month period ended October 30, 2021. Prior year amounts have been reclassified to conform to the current period presentation.


	(in millions)
	Nine Months Ended
	October 29, 2022		Percentage of Net Sales			October 30, 2021		Percentage of Net Sales			$ Variance			% Change
Store related costs	$	1,257.5		21.2	%	$	1,298.6		19.4	%	$	(41.1	)		(3.2	)%
Product sourcing costs		491.9		8.2			459.1		6.8			32.8			7.1
Corporate costs		235.6		4.0			246.5		3.7			(10.9	)		(4.4	)
Marketing and strategy costs		33.1		0.6			42.9		0.6			(9.8	)		(22.8	)
Other selling, general and administrative expenses		74.7		1.2			79.8		1.2			(5.1	)		(6.4	)
Selling, general and administrative expenses	$	2,092.8		35.2	%	$	2,126.9		31.7	%	$	(34.1	)		(1.6	)%

The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by deleverage from comparable sales decrease as well as increased product sourcing costs and litigation accrual. On a dollar basis, the decrease in selling, general and administrative expenses was primarily driven by decreases in store payroll costs, incentive compensation, and marketing costs, partially offset by increases in occupancy costs and product sourcing costs.

Depreciation and amortization

Depreciation and amortization expense amounted to $201.9 million during the nine months ended October 29, 2022 compared with $183.1 million during the nine months ended October 30, 2021. The increase in depreciation and amortization expense was primarily driven by capital expenditures related to our new and non-comparable stores.

Impairment charges – long-lived assets

Impairment charges on long-lived assets were $17.6 million during the nine months ended October 29, 2022, related to three owned stores expected to be sold below net carrying value, declines in revenue and operating results for eight stores, and unrecoverable fixed assets at two relocating stores. Impairment charges on long-lived assets were $3.2 million during the nine months ended October 30, 2021, related to the expected sale of one store, as well as declines in revenues and operating results for five stores.

Other income - net

Other income - net improved $8.6 million to $18.8 million during the nine months ended October 29, 2022, compared to the same period in the prior year. The increase was primarily driven by the gain on sale of real estate related assets and interest income on a tax refund.

Loss on Extinguishment of Debt

During the nine months ended October 29, 2022, we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $64.6 million in aggregate principal amount of Convertible Notes held by them for $78.2 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $14.7 million.

During the nine months ended October 30, 2021, we incurred a debt extinguishment charge of $86.4 million related to the partial repurchase of the Convertible Notes, $30.2 million related to the premium paid on redemption of the Secured Notes, as well as $1.2 million related to the refinancing of our Term Loan Facility. Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

Interest expense

Interest expense decreased $5.3 million during the nine months ended October 29, 2022 to $47.5 million, compared to the same period in the prior year. The decrease was driven by the redemption in full of the $300.0 million aggregate principal amount of Secured Notes, repurchase of $297.3 million of Convertible Notes, partially offset by the increase in LIBOR rates on the unhedged portion of our Term Loan Facility.

The average interest rates and average balances related to our variable rate debt for the nine months ended October 29, 2022 compared with the nine months ended October 30, 2021, are summarized in the table below:


		Nine Months Ended
		October 29,			October 30,
		2022			2021
Average balance – ABL Line of Credit (in millions)	$		—	$		—
Average interest rate – ABL Line of Credit			—			—
Average balance – Term Loan Facility (in millions) (a)	$	953.4		$	961.2
Average interest rate – Term Loan Facility		3.4%			2.0%

(a) Excludes original issue discount.

Income tax expense

Income tax expense was $11.6 million during the nine months ended October 29, 2022 compared with income tax expense of $79.8 million during the nine months ended October 30, 2021. The effective tax rate for the nine months ended October 29, 2022 was 20.5% compared with 21.7% during the nine months ended October 30, 2021. The decrease in income tax expense in the nine months ended October 29, 2022 was a result of lower pre-tax income.

months ended October 29, 2022 resulted in an annual effective income tax rate of approximately 28% (before discrete items) as our best estimate.

Net income

We earned net income of $44.9 million for the nine months ended October 29, 2022 compared with $287.2 million for the nine months ended October 30, 2021. This decrease was primarily driven by lower sales, as well as decreased gross margin rate, partially offset by a smaller debt extinguishment charge.

Liquidity and Capital Resources

Our ability to satisfy interest payment and future principal payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service interest payment and future principal payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed on terms similar to our current financing agreements, or at all.

On June 11, 2021, we redeemed the full $300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption. Additionally, we repurchased $232.7 million of principal on the Convertible Notes during the second half of Fiscal 2021. During the first quarter of Fiscal 2022, we repurchased an additional $64.6 million of principal on the Convertible Notes. During the second quarter of Fiscal 2022, we finalized an increase to the aggregate principal amount of the commitments of our current asset-based lending facility (the ABL Line of Credit) from $650.0 million to $900.0 million.

We believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future. However, there can be no assurance that we would be able to offset declines in our comparable store sales with savings initiatives in the event that the economy declines.

As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by tender offer, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material.

Cash Flow for the Nine Month Period Ended October 29, 2022 Compared With the Nine Month Period Ended October 30, 2021

We used $662.5 million of cash during the nine month period ended October 29, 2022 compared with $194.9 million during the nine month period ended October 30, 2021.

Net cash provided by operating activities amounted to $9.6 million during the nine month period ended October 29, 2022, compared with $608.4 million during the nine month period ended October 30, 2021. The decrease in our operating cash flows was primarily driven by lower sales and decreased gross margin rate, as well as changes in working capital, primarily decreased accounts payable and increased inventory. The decrease was partially offset by a $245.5 million tax refund received during Fiscal 2022.

Net cash used in investing activities was $319.1 million during the nine month period ended October 29, 2022 compared with $233.3 million during the nine month period ended October 30, 2021. This change was primarily the result of an increase in capital expenditures related to our stores (new stores, remodels and other store expenditures).

Net cash used in financing activities was $353.0 million during the nine month period ended October 29, 2022 compared with $570.0 million during the nine month period ended October 30, 2021. This change was primarily driven by higher debt redemptions in Fiscal 2021 compared to Fiscal 2022, partially offset by more share repurchases in Fiscal 2022.

Changes in working capital also impact our cash flows. Working capital equals current assets (exclusive of restricted cash) minus current liabilities. We had working capital at October 29, 2022 of $214.8 million compared with $686.0 million at October 30, 2021. The decrease in working capital was primarily due to a decrease in cash and cash equivalents, primarily driven by payments on the Convertible Notes and share repurchases, as well as decreased prepaid income taxes, partially offset by decreased accounts payable and increased inventory. We had working capital at January 29, 2022 of $593.4 million.

Capital Expenditures

For the nine month period ended October 29, 2022, cash spend for capital expenditures, net of $9.8 million of landlord allowances, amounted to $332.7 million.

We estimate that we will spend approximately $510 million, net of approximately $15 million of landlord allowances, in capital expenditures during Fiscal 2022, including approximately $230 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, remodels and other store expenditures). In addition, we estimate that we will spend approximately $150 million to support our supply chain initiatives, with the remaining capital used to support our information technology and other business initiatives.

Share Repurchase Program

On February 16, 2022, our Board of Directors authorized the repurchase of up to an additional $500.0 million of common stock, which is authorized to be executed through February 2024.

During the nine months ended October 29, 2022, we repurchased 1,481,782 shares of common stock for $251.2 million under these repurchase programs. As of October 29, 2022, we had $398.8 million remaining under our share repurchase authorization.

We are authorized to repurchase shares of our outstanding common stock from time to time on the open market or in privately negotiated transactions under our repurchase program. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. Our share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program.

Dividends

We currently do, and intend to continue to, retain all available funds and any future earnings to fund all of the Company's capital expenditures, business initiatives, and to support any potential opportunistic capital structure initiatives. Therefore, at this time, we do not anticipate paying cash dividends in the near term. Our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our Board of Directors deems relevant.

In addition, since we are a holding company, substantially all of the assets shown on our Condensed Consolidated Balance Sheets are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends.

Operational Growth

During the nine month period ended October 29, 2022, we opened 74 new stores, inclusive of 17 relocations, and closed four stores, exclusive of the aforementioned relocations, bringing our store count as of October 29, 2022 to 893 stores. During Fiscal 2022, we plan to open 87 net new stores.

We have identified numerous market opportunities that we believe will allow us to operate 2,000 stores over the long-term. We believe that our ability to find satisfactory locations for our stores is essential for the continued growth of our business. The opening of stores generally is contingent upon a number of factors including, but not limited to, the availability of desirable locations with suitable structures and the negotiation of acceptable lease terms. There can be no assurance, however, that we will be able to find suitable locations for new stores or that we will be able to open the number of new stores presently planned, even if such locations are

found and acceptable lease terms are obtained. Assuming that appropriate locations are identified, we believe that we will be able to execute our growth strategy without significantly impacting our current stores.

Debt and Hedging

As of October 29, 2022, our obligations, inclusive of original issue discount, include $944.2 million under our Term Loan Facility, $507.7 million of Convertible Notes and no outstanding borrowings on our ABL Line of Credit. Our debt obligations also include $34.4 million of finance lease obligations as of October 29, 2022.

Term Loan Facility

On June 24, 2021, Burlington Coat Factory Warehouse Corporation, an indirect subsidiary of the Company (BCFWC), entered into Amendment No. 9 (the Ninth Amendment) to the Term Loan Credit Agreement governing the Term Loan Facility. The Ninth Amendment, among other things, extended the maturity date from November 17, 2024 to June 24, 2028, and changed the interest rate margins applicable to the Term Loan Facility from 0.75% to 1.00%, in the case of prime rate loans, and from 1.75% to 2.00%, in the case of LIBOR loans, with a 0.00% LIBOR floor. Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

At October 29, 2022, our borrowing rate related to the Term Loan Facility was 5.1%.

ABL Line of Credit

On July 20, 2022, we entered into a Fourth Amendment to the Second Amended and Restated Credit Agreement (the “Amendment”), by and among BCFWC, as lead borrower and the other borrowers party thereto, the facility guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent, which Amendment amends that certain Second Amended and Restated Credit Agreement dated as of September 2, 2011, by and among the BCFWC, the other borrowers party thereto, the facility guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent. The Amendment increased the aggregate principal amount of the commitments of the ABL Line of Credit from $650.0 million to $900.0 million and replaced the LIBOR-based interest rate benchmark provisions with interest rate benchmark provisions based on a term secured overnight financing rate (SOFR) or a daily SOFR rate (in the case of daily SOFR, available for borrowings up to $100 million, or up to the full amount of the commitments if the term SOFR rate is not available).

At October 29, 2022, we had $850.0 million available under the ABL Line of Credit. There were no borrowings on the ABL Line of Credit during the nine month period ended October 29, 2022.

Convertible Notes

On April 16, 2020, we issued $805.0 million of Convertible Notes. The Convertible Notes have an initial conversion rate of 4.5418 shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $220.18 per share of the Company’s common stock), subject to adjustment if certain events occur.

The Convertible Notes are general unsecured obligations of the Company. The Convertible Notes bear interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears on April 15 and October 15 of each year, beginning on October 15, 2020. The Convertible Notes will mature on April 15, 2025, unless earlier converted, redeemed or repurchased.

During the second half of Fiscal 2021, we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of these exchange agreements, the holders exchanged $232.7 million in aggregate principal amount of Convertible Notes held by them for a combination of an aggregate of $199.8 million in cash and 513,991 shares of our common stock. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $124.6 million in Fiscal 2021.

During the first quarter of Fiscal 2022, we entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Notes. Under the terms of the exchange agreements, the holders exchanged $64.6 million in aggregate principal amount of Convertible Notes held by them for $78.2 million in cash. These exchanges resulted in aggregate pre-tax debt extinguishment charges of $14.7 million.

Secured Notes

On April 16, 2020, BCFWC issued $300.0 million of Secured Notes. The Secured Notes are senior, secured obligations of BCFWC, and interest was payable semiannually in cash at a rate of 6.25% per annum on April 15 and October 15 of each year, beginning on October 15, 2020. The Secured Notes were guaranteed on a senior secured basis by Burlington Coat Factory Holdings, LLC, Burlington Coat Factory Investments Holdings, Inc. and BCFWC’s subsidiaries that guarantee the loans under the Term Loan Facility and ABL Line of Credit.

On June 11, 2021, BCFWC redeemed the full $300.0 million aggregate principal amount of the Secured Notes. The redemption price of the Secured Notes was $323.7 million, plus accrued and unpaid interest to, but not including, the date of redemption. Refer to Note 4, “Long Term Debt,” for further discussion regarding our debt transactions.

Hedging

On June 24, 2021, the Company terminated its previous interest rate swap and entered into a new interest rate swap. The new interest rate swap, which hedges $450 million of variable rate exposure under our Term Loan Facility, is designated as a cash flow hedge and expires on June 24, 2028. Refer to Note 5, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.

Certain Information Concerning Contractual Obligations

We had $1,157.0 million of purchase commitments related to goods that were not received as of October 29, 2022, and had $3,905.8 million of future minimum lease payments under operating leases as of October 29, 2022. Additionally, during the first quarter of Fiscal 2022, we repurchased $64.6 million in aggregate principal amount of the Convertible Notes. See Note 4, “Long Term Debt,” for additional information related to our debt transactions. There were no other significant changes regarding our obligations to make future payments under current contracts from those included in our Fiscal 2021 10-K.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements have been prepared in accordance with GAAP. We believe there are several accounting policies that are critical to understanding our historical and future performance as these policies affect the reported amounts of revenues and other significant areas that involve management’s judgments and estimates. The preparation of our Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventories, long-lived assets, intangible assets, goodwill, insurance reserves and income taxes. Historical experience and various other factors that are believed to be reasonable under the circumstances form the basis for making estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A critical accounting estimate meets two criteria: (1) it requires assumptions about highly uncertain matters and (2) there would be a material effect on the consolidated financial statements from either using a different, although reasonable, amount within the range of the estimate in the current period or from reasonably likely period-to-period changes in the estimate.

Our critical accounting policies and estimates are consistent with those disclosed in Note 1, “Summary of Significant Accounting Policies,” to the audited Consolidated Financial Statements, included in Part II, Item 8 of the Fiscal 2021 10-K.

Safe Harbor Statement

This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements regarding matters that are not historical facts. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making 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 (Exchange Act). Our forward-looking statements are subject to risks and uncertainties. Such statements may include, but are not limited to, future impacts of the COVID-19 pandemic, proposed store openings and closings, proposed capital expenditures, projected financing requirements, proposed developmental projects, projected sales and earnings, our ability to maintain selling margins, and the effect of the adoption of recent accounting pronouncements on our consolidated financial position, results of

operations and cash flows. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual events or results to differ materially from those we expected include: the impact of the COVID-19 pandemic and actions taken to slow its spread and the related impacts on economic activity, financial markets, labor markets and the global supply chain; general economic conditions, including inflation, and the related impact on consumer confidence and spending; competitive factors, including pricing and promotional activities of major competitors and an increase in competition within the markets in which we compete; weather patterns, including changes in year-over-year temperatures; the reduction in traffic to, or the closing of, the other destination retailers in the shopping areas where our stores are located; changing consumer preferences and demand; industry trends, including changes in buying, inventory and other business practices; natural and man-made disasters, including fire, snow and ice storms, flood, hail, hurricanes and earthquakes; our ability to successfully implement one or more of our strategic initiatives and growth plans; the availability, selection and purchasing of attractive merchandise on favorable terms; the availability of desirable store locations on suitable terms; industry trends, including changes in buying, inventory and other business practices; terrorist attacks, particularly attacks on or within markets in which we operate; our ability to attract, train and retain quality employees and temporary personnel in appropriate numbers; our ability to control costs and expenses; the solvency of parties with whom we do business and their willingness to perform their obligations to us; import risks, including tax and trade policies, tariffs and government regulations; our dependence on vendors for our merchandise; domestic and international events affecting the delivery of merchandise to our stores; unforeseen cyber-related problems or attacks; regulatory and tax changes; issues with merchandise safety and shrinkage; any unforeseen material loss or casualty or the existence of adverse litigation; the impact of current and future laws and the interpretation of such laws; our substantial level of indebtedness and related debt-service obligations; consequences of the failure to comply with covenants in our debt agreements; the availability of adequate financing; and other risks discussed from time to time in our filings with the Securities and Exchange Commission (SEC), including those under the heading “Risk Factors” in the Fiscal 2021 10-K.

Many of these factors, including the ultimate impact of the COVID-19 pandemic, are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements.

Recent Accounting Pronouncements

Refer to Note 1, “Summary of Significant Accounting Policies,” to our Condensed Consolidated Financial Statements in Part I, Item 1 for a discussion of recent accounting pronouncements and their impact on our Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes to our quantitative and qualitative disclosures about market risk from those included in our Fiscal 2021 10-K.

Item 4. Controls and Procedures.

Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of the last day of the fiscal period covered by this report, October 29, 2022. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the 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. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of October 29, 2022.

During the quarter ended October 29, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

In the course of business, the Company is party to class or collective actions alleging violations of federal and state wage and hour and other labor statutes, representative claims under the California Private Attorneys’ General Act and various other lawsuits and regulatory proceedings from time to time including, among others, commercial, product, employee, customer, intellectual property, privacy and other claims. Actions against us are in various procedural stages. Many of these proceedings raise factual and legal issues and are subject to uncertainties. Refer to Note 11, "Commitments and Contingencies," to our Condensed Consolidated Financial Statements for further detail.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our Fiscal 2021 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information regarding our purchases of common stock during the three fiscal months ended October 29, 2022:


Month	Total Number of Shares Purchased(1)		Average Price Paid Per Share(2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands)
July 31, 2022 through August 27, 2022		69,242	$	157.12		69,214	$	438,985
August 28, 2022 through October 1, 2022		209,908	$	139.81		209,895	$	409,638
October 2, 2022 through October 29, 2022		91,490	$	118.77		91,490	$	398,772
Total		370,640				370,599

(1)

The number of shares purchased between July 31, 2022 and August 27, 2022, between August 28, 2022 and October 1, 2022 and between October 2, 2022 and October 29, 2022 include 28 shares, 13 shares and zero shares, respectively, which were withheld for tax payments due upon the vesting of employee restricted stock awards, and do not reduce the dollar value that may yet be purchased under our publicly announced share repurchase programs.

(2)

Includes commissions for the shares repurchased under our publicly announced share repurchase programs.

(3)

On August 18, 2021, our Board of Directors authorized the repurchase of up to $400.0 million of common stock, which was authorized to be executed through August 2023. This authorization was completed during the second quarter of Fiscal 2022. On February 16, 2022, our Board of Directors authorized the repurchase of an additional $500.0 million of common stock, which is authorized to be executed through February 2024. As of October 29, 2022, we had $398.8 million remaining under our share repurchase authorization. For a further discussion of our share repurchase programs, see “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Share Repurchase Programs.”

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On November 16, 2022, the Board of Directors of Burlington Stores, Inc. approved and adopted an amendment to and restatement of the Company’s Amended and Restated Bylaws (Restated Bylaws), which became effective immediately. The Restated Bylaws were amended and restated as follows:

•

Advance Notice. Provisions of the Restated Bylaws relating to advance notice of director nominations and other business at annual stockholder meetings were amended to update, enhance and clarify the notice requirements and the information required to be provided to the Company, including addressing matters related to Rule 14a-19 under the Securities Exchange Act of 1934, as amended.

•

Proxy Access. The Restated Bylaws were updated to permit a stockholder, or a group of up to 20 stockholders, owning at least 3% of the Company’s outstanding common stock continuously for at least three years, to nominate and include in the Company’s proxy materials for an annual meeting of stockholders director nominees constituting up to the greater of two nominees or 20% of the number of directors in office. The stockholders’ proxy access rights are subject to the satisfaction of conditions and other requirements by the stockholders and the director nominees as specified in the Restated Bylaws.

•

Other Amendments. In addition to certain other ministerial changes, clarifications, technical edits and updates, the Restated Bylaws include (i) provisions that would operate in the event of an emergency and permit calling special meetings of the Board of Directors with less than 24 hours’ notice, and (ii) certain changes to conform to recent amendments to the Delaware General Corporation Law.

The foregoing summary of the Restated Bylaws does not purport to be a complete description of the amendments made to the Company’s Amended and Restated Bylaws. It is qualified in its entirety by reference to the complete text of the Restated Bylaws which is attached as Exhibit 3.1 to this Quarterly Report on Form 10-Q and is incorporated by reference herein.

Item 6. Exhibits.


Exhibit		Incorporated by Reference
Number	Exhibit Description	Form	Filing Date
3.1†	Amended and Restated Bylaws of Burlington Stores, Inc. effective November 16, 2022
31.1†	Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2†	Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†	Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2†	Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS†	Inline XBRL Instance Document – the instance document does not appear in Interactive Data File, because its XBRL tags are embedded within the Inline XBRL document.
101.SCH†	Inline XBRL Taxonomy Extension Schema Document
101.CAL†	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE†	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104†	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

† Filed or furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BURLINGTON STORES, INC.

/s/ Michael O’Sullivan

Michael O’Sullivan

Chief Executive Officer

(Principal Executive Officer)

/s/ Kristin Wolfe

Kristin Wolfe

Chief Financial Officer

(Principal Financial Officer)

Date: November 22, 2022