o

On a GAAP basis, total sales declined 51%, net loss was $334 million, and EPS was ($5.09).

o

On a Non-GAAP basis, Adjusted EPS was ($4.76), which includes a $272 million charge, or $2.77 per share, against aged inventory. This reserve covers the full cost of markdowns that are expected to be taken on this aged inventory in the second quarter.

o

All stores were closed by March 22, 2020, but began to re-open on May 11, 2020; since re-opening, sales in re-opened stores have exceeded prior year levels.

o

Expect to have 402 stores re-opened by May 29, 2020, and most of the balance of the chain re-opened by mid-June 2020.

•

Total sales decreased 51% to $798 million. All of the Company’s stores were closed by the end of business on March 22, 2020, and remained closed through the end of the first quarter, due to the COVID-19 pandemic. Currently, 332 of the Company’s stores have re-opened and 402 stores are expected to be open as of May 29, 2020, with most of the balance of our stores expected to open by mid-June.  

•

Gross margin rate was 2.0% vs. last year’s rate of 41.0%. This rate decrease was driven primarily by a $272 million inventory charge against aged inventory due to extended store closures. This charge is expected to cover the full cost of markdowns needed to clear this inventory, which we anticipate taking in the second quarter. Product sourcing costs, which are included in selling, general and administrative expenses (SG&A), were $76 million in the first quarter vs. $79 million in last year’s first quarter. Product sourcing costs include the costs of processing goods through our supply chain and buying costs.

•

SG&A decreased $32 million to $485 million for the first quarter of Fiscal 2020. Adjusted SG&A, as defined below, was $390 million vs. $428 million last year. Note that Adjusted SG&A excludes $3 million in management transition costs incurred during the first quarter of Fiscal 2020.

•

The effective tax rate was 38.1% vs. 17.2% in last year’s first quarter.  The Adjusted Effective Tax Rate was 39.0% vs. last year’s first quarter Adjusted Effective Tax Rate of 18.0%.

•

Net income was a loss of $334 million, or ($5.09) per share vs. net income of $78 million, or $1.15 per share for the first quarter last year, and Adjusted Net Income represented a loss of $312 million, or ($4.76) per share vs. $85 million, or $1.26 per share last year. Adjusted Net Income and EPS exclude the previously anticipated $0.04 charge per share for management transition costs. This decrease in Adjusted Net Income was driven primarily by the $272 million inventory charge due to aged inventory, as well as the significant decline in sales, both of which were driven by extended store closures related to the COVID-19 pandemic.  

•

Fully diluted shares outstanding amounted to 65.6 million at the end of the quarter compared with 67.7 million at the end of last year’s first quarter. The decrease was primarily the result of share repurchases under the Company’s share repurchase program, discussed in more detail below, as well as the Company’s stock-based compensation grants being anti-dilutive while in a net loss position. From the end of the first quarter of Fiscal 2019 through the suspension of our share repurchase program announced on March 19, 2020, the Company repurchased approximately 1.1 million shares of its common stock under its share repurchase program.

•

Adjusted EBITDA decreased $613 million from last year’s first quarter to ($445) million. Adjusted EBIT decreased $617 million below the prior year period to ($499) million. The decrease in Adjusted EBIT was driven by the same factors described above that drove the decline in Adjusted Net Income.  

Adjusted EBITDA and Adjusted EBIT exclude the impact of $3 million in management transition costs incurred during the first quarter of Fiscal 2020.

•

Merchandise inventories were $626 million vs. $896 million last year, a 30% decrease. The decrease was made possible by aggressive actions to reduce inventory receipts during this period of extended store closures and was driven by the $272 million inventory charge that we took at the end of the quarter to cover expected markdowns in the second quarter. We anticipate the need to take these markdowns because our inventory is aged and because we expect a very promotional environment for the first few months as retailers re-open their stores. Pack and hold inventory was 22% of total inventory at the end of the first quarter of Fiscal 2020 compared to 28% at the end of the first quarter of Fiscal 2019.

•

On April 16, 2020, the Company closed on $1.1 billion of debt offerings, which included $300 million of high yield senior secured notes and $805 million of convertible senior unsecured notes, each maturing in April 2025.

•

The Company ended the first quarter with $1,639 million in liquidity, including $1,488 million in unrestricted cash and $151 million in availability on its ABL facility.

•

Prior to the suspension of its share repurchase program announced on March 19, 2020, the Company had repurchased 243,573 shares of its common stock for $50 million during the first quarter. As of the end of the first quarter, the Company’s share repurchase program, which remains suspended, had $348 million in remaining authorization.  

•

Capital expenditures, net of landlord allowances, are now expected to be approximately $260 million; this compares to a previous outlook of $400 million;

•

The Company now expects to open 64 new stores, while relocating or closing 26 stores, for a total of 38 net new stores in Fiscal 2020. This compares to a previous plan of 80 new stores and 54 net new stores. A total of 16 new stores have been shifted from Fall 2020 to Spring 2021;

•

Depreciation & amortization, exclusive of favorable lease costs, is now expected to be approximately $230 million vs. previous outlook of $235 million; and

•

Interest expense, net of non-cash interest of $24 million on convertible notes, is expected to be $80 million vs. previous guidance of $45 million.

Three Months Ended

May 2,

May 4,

2020

2019

REVENUES:

Net sales

$

797,996

$

1,628,547

Other revenue

3,527

5,647

Total revenue

801,523

1,634,194

COSTS AND EXPENSES:

Cost of sales

782,184

961,318

Selling, general and administrative expenses

485,088

517,378

Costs related to debt amendments

4,352

(382

)

Depreciation and amortization

54,291

50,641

Impairment charges - long-lived assets

1,924

—

Other income - net

(2,124

)

(2,092

)

Loss on extinguishment of debt

202

—

Interest expense

14,693

13,371

Total costs and expenses

1,340,610

1,540,234

(Loss) income before income tax (benefit) expense

(539,087

)

93,960

Income tax (benefit) expense

(205,359

)

16,195

Net (loss) income

$

(333,728

)

$

77,765

Diluted net (loss) income per common share

$

(5.09

)

$

1.15

Weighted average common shares - diluted

65,572

67,730

May 2,

February 1,

May 4,

2020

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

1,488,470

$

403,074

$

105,031

Restricted cash and cash equivalents

6,582

6,582

21,882

Accounts receivable—net

12,375

91,508

99,461

Merchandise inventories

625,908

777,248

895,813

Assets held for disposal

2,261

2,261

—

Prepaid and other current assets

94,284

136,698

129,614

Total current assets

2,229,880

1,417,371

1,251,801

Property and equipment—net

1,407,082

1,403,173

1,288,180

Operating lease assets

2,436,761

2,397,111

2,144,757

Goodwill and intangible assets—net

285,747

285,795

286,005

Deferred tax assets

4,661

4,678

4,191

Other assets

276,546

85,731

90,305

Total assets

$

6,640,677

$

5,593,859

$

5,065,239

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

701,922

$

759,107

$

707,672

Current operating lease liabilities

269,016

302,185

273,348

Other current liabilities

380,789

397,032

359,818

Current maturities of long term debt

3,679

3,577

3,052

Total current liabilities

1,355,406

1,461,901

1,343,890

Long term debt

2,304,094

1,001,723

1,133,385

Long term operating lease liabilities

2,370,861

2,322,000

2,045,743

Other liabilities

112,092

97,798

83,393

Deferred tax liabilities

219,123

182,288

180,280

Stockholders' equity

279,101

528,149

278,548

Total liabilities and stockholders' equity

$

6,640,677

$

5,593,859

$

5,065,239

Three Months Ended

May 2,

May 4,

2020

2019

OPERATING ACTIVITIES

Net (loss) income

$

(333,728

)

$

77,765

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities

Depreciation and amortization

54,291

50,641

Deferred income taxes

(4,146

)

2,993

Non-cash loss on extinguishment of debt

202

—

Non-cash stock compensation expense

17,352

9,427

Non-cash lease expense

1,174

4,057

Cash received from landlord allowances

5,807

12,213

Changes in assets and liabilities:

Accounts receivable

89,367

(20,170

)

Merchandise inventories

151,340

57,864

Accounts payable

(70,377

)

(140,767

)

Other current assets and liabilities

1,862

(3,513

)

Long term assets and liabilities

(192,735

)

3,080

Other operating activities

7,856

601

Net cash (used in) provided by operating activities

(271,735

)

54,191

INVESTING ACTIVITIES

Cash paid for property and equipment

(62,463

)

(83,781

)

Other investing activities

(146

)

(72

)

Net cash (used in) investing activities

(62,609

)

(83,853

)

FINANCING ACTIVITIES

Proceeds from long term debt—ABL Line of Credit

400,000

588,300

Principal payments on long term debt—ABL Line of Credit

—

(438,300

)

Proceeds from long term debt—Convertible Note

805,000

—

Proceeds from long term debt—Secured Note

300,000

—

Purchase of treasury shares

(57,542

)

(130,319

)

Other financing activities

(27,718

)

2,738

Net cash provided by financing activities

1,419,740

22,419

Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents

1,085,396

(7,243

)

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period

409,656

134,156

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

$

1,495,052

$

126,913

(unaudited)

(in thousands, except per share data)

Three Months Ended

May 2,

May 4,

2020

2019

Reconciliation of net (loss) income to Adjusted Net (Loss) Income:

Net (loss) income

$

(333,728

)

$

77,765

Net favorable lease costs (a)

6,443

10,701

Non-cash interest expense on convertible notes (b)

1,366

—

Costs related to debt amendments (c)

4,352

(382

)

Loss on extinguishment of debt (d)

202

—

Impairment charges

1,924

—

Litigation accruals (e)

10,400

—

Tax effect (f)

(6,006

)

(2,597

)

Adjusted Net (Loss) Income

(315,047

)

85,487

Management transition costs, net of tax effect (h)

2,599

—

Adjusted Net (Loss) Income, exclusive of management transition costs

$

(312,448

)

$

85,487

Fully diluted weighted average shares outstanding (g)

65,572

67,730

Adjusted Earnings per Share, exclusive of management transition costs

$

(4.76

)

$

1.26

(unaudited)

(in thousands)

Three Months Ended

May 2,

May 4,

2020

2019

Reconciliation of net (loss) income to Adjusted EBITDA:

Net (loss) income

$

(333,728

)

$

77,765

Interest expense

14,693

13,371

Interest income

(716

)

(205

)

Loss on extinguishment of debt (d)

202

—

Costs related to debt amendments (c)

4,352

(382

)

Litigation accruals (e)

10,400

—

Depreciation and amortization (i)

60,685

61,180

Impairment charges

1,924

—

Income tax (benefit) expense

(205,359

)

16,195

Adjusted EBITDA

(447,547

)

167,924

Management transition costs (h)

2,599

—

Adjusted EBITDA, exclusive of management transition costs

$

(444,948

)

$

167,924

(unaudited)

(in thousands)

Three Months Ended

May 2,

May 4,

2020

2019

Reconciliation of net (loss) income to Adjusted EBIT:

Net (loss) income

$

(333,728

)

$

77,765

Interest expense

14,693

13,371

Interest income

(716

)

(205

)

Loss on extinguishment of debt (d)

202

—

Costs related to debt amendments (c)

4,352

(382

)

Net favorable lease costs (a)

6,443

10,701

Impairment charges

1,924

—

Litigation accruals (e)

10,400

—

Income tax (benefit) expense

(205,359

)

16,195

Adjusted EBIT

(501,789

)

117,445

Management transition costs (h)

2,599

—

Adjusted EBIT, exclusive of management transition costs

$

(499,190

)

$

117,445

(unaudited)

(in thousands)

Three Months Ended

May 2,

May 4,

Reconciliation of SG&A to Adjusted SG&A:

2020

2019

SG&A

$

485,088

$

517,378

Favorable lease costs (a)

(6,394

)

(10,539

)

Product sourcing costs

(75,661

)

(78,558

)

Litigation accruals (e)

(10,400

)

—

Adjusted SG&A

392,633

428,281

Management transition costs (h)

(2,599

)

—

Adjusted SG&A, exclusive of management transition costs

$

390,034

$

428,281

(unaudited)

Three Months Ended

May 2,

May 4,

2020

2019

Effective tax rate on a GAAP basis

38.1

%

17.2

%

Adjustments to arrive at Adjusted Effective Tax Rate

0.9

0.8

Adjusted Effective Tax Rate

39.0

%

18.0

%

(a)

Net favorable lease costs represents the non-cash amortization 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. These expenses are recorded in the line item “Selling, general and administrative expenses” in our Consolidated Statement of (Loss) Income.

(b)

Represents accretion of original issue discount on the Convertible Notes.

(c)

Represents certain costs incurred as a result of the issuance of the Secured Notes and the Convertible Notes, as well as the execution of refinancing opportunities.

(d)

Amounts relate to the refinancing of the Term Loan Facility.

(e)

Represents amounts charged for certain litigation matters.

(f)

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

(g)

Fully diluted weighted average shares outstanding starts with basic shares outstanding and adds back any potentially dilutive securities outstanding during the period.

(h)

Represents costs incurred as a result of hiring a new Chief Executive Officer, primarily related to sign-on and duplicative compensation costs.

(i)

Includes $6.4 million and $10.5 million of favorable lease costs included in the line item “Selling, general and administrative expenses” in our Condensed Consolidated Statement of (Loss) Income for the three months ended May 2, 2020 and the three months ended May 4, 2019, respectively.