UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August~~May 1, ~~2020~~2021

☐ 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 001-08897

BIG LOTS, ~~INC~~INC.

(Exact name of registrant as specified in its charter)

Ohio 06-1119097

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

4900 E. Dublin-Granville Road, Columbus, Ohio 43081

(Address of Principal Executive Offices) (Zip Code)

(614) 278-6800

(Registrant's telephone number, including area code)

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 shares	BIG	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. Yesþ Noo

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesþ Noo

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

þ☑

Accelerated filer o☐

Non-accelerated filer o☐

Smaller reporting companyo

☐

Emerging growth company

o☐

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 ☐ Noþ

The number of the registrant’s common shares, $0.01 par value, outstanding as of ~~September~~June 4, ~~2020,~~2021, was ~~39,257,039.~~34,639,480.

Table of Contents

BIG LOTS, INC.

FORM 10-Q

FOR THE FISCAL QUARTER ENDED ~~AUGUST~~MAY 1, ~~2020~~2021

TABLE OF CONTENTS


		Page
Part I. Financial Information			2

Item 1.	Financial Statements	2

a)	Consolidated Statements of Operations and Comprehensive Income for the Thirteen ~~and~~Weeks Ended May T1 ~~wenty-Si~~, 202 x1 ~~Weeks Ended~~(Unaudited) and May ~~August 1~~2 , 20 20 ~~(Unaudited) and~~ ~~August~~ ~~3, 20~~19 (Unaudited)	2

b)	Consolidated Balance Sheets at May ~~August~~ 1 , 20202 201 (Unaudited) and ~~February~~ 1January 30 , 20202 201 (Unaudited)	3

c)	Consolidated Statements of Shareholders’ Equity for the Thirteen ~~and~~ ~~Twenty-Six~~Weeks Ended May ~~August~~ 1 , 20202 201 (Unaudited) and May ~~August~~ 2 3,, 20 20 (Unaudited)	4

d)	Consolidated Statements of Cash Flows for the T ~~wenty-Six~~Thirteen Weeks Ended ~~August~~May 1 , 20202 201 (Unaudited) and May ~~August~~2 3,, 20 1920 (Unaudited)	5

e)	Notes to Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1413

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2520

Item 4.	Controls and Procedures	2520

Part II. Other Information			2620

Item 1.	Legal Proceedings	2620

Item 1A.	Risk Factors	2620

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2621

Item 3.	Defaults Upon Senior Securities	2621

Item 4.	Mine Safety Disclosures	2621

Item 5.	Other Information	2621

Item 6.	Exhibits	2722

Signature		2722

Table of Contents

Part I. Financial Information

Item 1. Financial Statements


BIG LOTS, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income (Unaudited) (In thousands, except per share amounts)


		Thirteen Weeks Ended						Twenty-Six Weeks Ended							Thirteen Weeks Ended
		August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019			May 1, 2021		May 2, 2020
Net sales	Net sales	$	1,644,197	$	1,252,414	$	3,083,346	$	2,548,210	Net sales	$	1,625,552	$	1,439,149
Cost of sales (exclusive of depreciation expense shown separately below)	Cost of sales (exclusive of depreciation expense shown separately below)	960,633		754,184		1,829,026		1,530,933		Cost of sales (exclusive of depreciation expense shown separately below)	971,605		868,393
Gross margin	Gross margin	683,564		498,230		1,254,320		1,017,277		Gross margin	653,947		570,756
Selling and administrative expenses	Selling and administrative expenses	504,000		455,026		962,631		915,631		Selling and administrative expenses	497,418		458,631
Depreciation expense	Depreciation expense	33,974		30,023		71,664		62,820		Depreciation expense	33,977		37,690
Gain on sale of distribution centers		(463,053)		0		(463,053)		0
Operating profit	Operating profit	608,643		13,181		683,078		38,826		Operating profit	122,552		74,435
Interest expense	Interest expense	(2,548)		(4,565)		(5,870)		(8,298)		Interest expense	(2,568)		(3,322)
Other income (expense)	Other income (expense)	1,357		(789)		(1,960)		121		Other income (expense)	960		(3,317)
Income before income taxes	Income before income taxes	607,452		7,827		675,248		30,649		Income before income taxes	120,944		67,796
Income tax expense	Income tax expense	155,480		1,649		173,953		8,931		Income tax expense	26,381		18,473
Net income and comprehensive income	Net income and comprehensive income	$	451,972	$	6,178	$	501,295	$	21,718	Net income and comprehensive income	$	94,563	$	49,323

Earnings per common share	Earnings per common share									Earnings per common share
Basic	Basic	$	11.52	$	0.16	$	12.79	$	0.55	Basic	$	2.68	$	1.26
Diluted	Diluted	$	11.29	$	0.16	$	12.66	$	0.55	Diluted	$	2.62	$	1.26

Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Basic	Basic	39,239		39,000		39,184		39,461		Basic	35,349		39,129
Dilutive effect of share-based awards	Dilutive effect of share-based awards	801		77		419		83		Dilutive effect of share-based awards	693		111
Diluted	Diluted	40,040		39,077		39,603		39,544		Diluted	36,042		39,240

Cash dividends declared per common share	Cash dividends declared per common share	$	0.30	$	0.30	$	0.60	$	0.60	Cash dividends declared per common share	$	0.30	$	0.30

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents


BIG LOTS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (In thousands, except par value)


		August 1, 2020		February 1, 2020			May 1, 2021		January 30, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	898,560	$	52,721	Cash and cash equivalents	$	613,329	$	559,556
Inventories	Inventories	713,504		921,266		Inventories	901,482		940,294
Other current assets	Other current assets	83,956		89,962		Other current assets	114,001		85,939
Total current assets	Total current assets	1,696,020		1,063,949		Total current assets	1,628,812		1,585,789
Operating lease right-of-use assets	Operating lease right-of-use assets	1,663,020		1,202,252		Operating lease right-of-use assets	1,631,817		1,649,009
Property and equipment - net	Property and equipment - net	727,091		849,147		Property and equipment - net	723,158		717,216
Deferred income taxes	Deferred income taxes	16,597		4,762		Deferred income taxes	17,741		16,329
Other assets	Other assets	66,762		69,171		Other assets	36,008		68,914
Total assets	Total assets	$	4,169,490	$	3,189,281	Total assets	$	4,037,536	$	4,037,257

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	379,409	$	378,241	Accounts payable	$	380,942	$	398,433
Current operating lease liabilities	Current operating lease liabilities	206,088		212,144		Current operating lease liabilities	219,367		226,075
Property, payroll, and other taxes	Property, payroll, and other taxes	93,829		82,109		Property, payroll, and other taxes	112,532		109,694
Accrued operating expenses	Accrued operating expenses	137,428		118,973		Accrued operating expenses	158,136		138,331
Insurance reserves	Insurance reserves	35,360		36,131		Insurance reserves	34,803		34,660
Accrued salaries and wages	Accrued salaries and wages	44,755		39,292		Accrued salaries and wages	73,799		49,830
Income taxes payable	Income taxes payable	179,821		3,930		Income taxes payable	70,340		43,601
Total current liabilities	Total current liabilities	1,076,690		870,820		Total current liabilities	1,049,919		1,000,624
Long-term debt	Long-term debt	43,074		279,464		Long-term debt	32,063		35,764
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	1,472,307		1,035,377		Noncurrent operating lease liabilities	1,466,090		1,465,433
Deferred income taxes	Deferred income taxes	4,639		48,610		Deferred income taxes	3,805		7,762
Insurance reserves	Insurance reserves	56,333		57,567		Insurance reserves	59,379		57,452
Unrecognized tax benefits	Unrecognized tax benefits	10,442		10,722		Unrecognized tax benefits	10,601		11,304
Other liabilities	Other liabilities	177,845		41,257		Other liabilities	147,177		181,187
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred shares - authorized 2,000 shares; $0.01 par value; none issued		0		0
Common shares - authorized 298,000 shares; $0.01 par value; issued 117,495 shares; outstanding 39,251 shares and 39,037 shares, respectively		1,175		1,175
Treasury shares - 78,244 shares and 78,458 shares, respectively, at cost		(2,537,359)		(2,546,232)
Preferred shares - authorized 2,000 shares; $0.01 par value; NaN issued						Preferred shares - authorized 2,000 shares; $0.01 par value; NaN issued	0		0
Common shares - authorized 298,000 shares; $0.01 par value; issued 117,495 shares; outstanding 34,920 shares and 35,535, respectively						Common shares - authorized 298,000 shares; $0.01 par value; issued 117,495 shares; outstanding 34,920 shares and 35,535, respectively	1,175		1,175
Treasury shares - 82,575 shares and 81,960 shares, respectively, at cost						Treasury shares - 82,575 shares and 81,960 shares, respectively, at cost	(2,782,987)		(2,709,259)
Additional paid-in capital	Additional paid-in capital	617,496		620,728		Additional paid-in capital	615,955		634,813
Retained earnings	Retained earnings	3,246,848		2,769,793		Retained earnings	3,434,359		3,351,002
Total shareholders' equity		1,328,160		845,464
Total liabilities and shareholders' equity		$	4,169,490	$	3,189,281
Total shareholders’ equity						Total shareholders’ equity	1,268,502		1,277,731
Total liabilities and shareholders’ equity						Total liabilities and shareholders’ equity	$	4,037,536	$	4,037,257

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents


BIG LOTS, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders’ Equity (Unaudited) (In thousands)


		Common				Treasury						Additional Paid-In Capital		Retained Earnings					Common			Treasury				Additional Paid-In Capital		Retained Earnings
		Shares	Amount		Shares	Amount										Total			Shares	Amount		Shares		Amount					Total
Thirteen Weeks Ended August 3, 2019
Balance - May 4, 2019		39,042	$	1,175	78,453	$	(2,545,967)	$	614,174	$	2,578,949	$	648,331
Thirteen Weeks Ended May 2, 2020														Thirteen Weeks Ended May 2, 2020
Balance - February 1, 2020														Balance - February 1, 2020	39,037		$	1,175	78,458	$	(2,546,232)	$	620,728	$	2,769,793	$	845,464
Comprehensive income	Comprehensive income	—	0		—	0		0		6,178		6,178		Comprehensive income	—		0		—	0		0		49,323		49,323
Dividends declared ($0.30 per share)	Dividends declared ($0.30 per share)	—	0		—	0		0		(12,196)		(12,196)		Dividends declared ($0.30 per share)	—		0		—	0		0		(11,905)		(11,905)
Purchases of common shares	Purchases of common shares	(53)	0		53	(1,994)		0		0		(1,994)		Purchases of common shares	(119)		0		119	(1,940)		0		0		(1,940)
Exercise of stock options		0	0		0	0		0		0		0
Restricted shares vested	Restricted shares vested	12	0		(12)	406		(406)		0		0		Restricted shares vested	240		0		(240)	7,782		(7,782)		0		0
Performance shares vested	Performance shares vested	0	0		0	0		0		0		0		Performance shares vested	65		0		(65)	2,107		(2,107)		0		0
Other	Other	0	0		0	(1)		0		0		(1)		Other	0		0		0	7		(1)		0		6
Share-based employee compensation expense	Share-based employee compensation expense	—	0		—	0		4,225		0		4,225		Share-based employee compensation expense	—		0		—	0		2,985		0		2,985
Balance - August 3, 2019		39,001	$	1,175	78,494	$	(2,547,556)	$	617,993	$	2,572,931	$	644,543

Twenty-Six Weeks Ended August 3, 2019
Balance - February 2, 2019		40,042	$	1,175	77,453	$	(2,506,086)	$	622,685	$	2,575,267	$	693,041
Balance - May 2, 2020														Balance - May 2, 2020	39,223		$	1,175	78,272	$	(2,538,276)	$	613,823	$	2,807,211	$	883,933
Thirteen Weeks Ended May 1, 2021														Thirteen Weeks Ended May 1, 2021
Balance - January 30, 2021														Balance - January 30, 2021	35,535		1,175		81,960	(2,709,259)		634,813		3,351,002		1,277,731
Comprehensive income	Comprehensive income	—	0		—	0		0		21,718		21,718		Comprehensive income	—		0		—	0		0		94,563		94,563
Dividends declared ($0.60 per share)		—	0		—	0		0		(24,402)		(24,402)
Adjustment for ASU 2016-02		—	—		—	—		—		348		348
Dividends declared ($0.30 per share)														Dividends declared ($0.30 per share)	—		0		—	0		0		(11,206)		(11,206)
Purchases of common shares	Purchases of common shares	(1,456)	0		1,456	(54,919)		0		0		(54,919)		Purchases of common shares	(1,538)		0		1,538	(104,491)		0		0		(104,491)
Exercise of stock options		6	0		(6)	202		(2)		0		200
Restricted shares vested	Restricted shares vested	154	0		(154)	4,995		(4,995)		0		0		Restricted shares vested	390		0		(390)	12,995		(12,995)		0		0
Performance shares vested	Performance shares vested	255	0		(255)	8,255		(8,255)		0		0		Performance shares vested	533		0		(533)	17,770		(17,770)		0		0
Other	Other	0	0		0	(3)		0		0		(3)		Other	0		0		0	(2)		0		0		(2)
Share-based employee compensation expense	Share-based employee compensation expense	—	0		—	0		8,560		0		8,560		Share-based employee compensation expense	—		0		—	0		11,907		0		11,907
Balance - August 3, 2019		39,001	$	1,175	78,494	$	(2,547,556)	$	617,993	$	2,572,931	$	644,543

Thirteen Weeks Ended August 1, 2020
Balance - May 2, 2020		39,223	$	1,175	78,272	$	(2,538,276)	$	613,823	$	2,807,211	$	883,933
Comprehensive income		—	0		—	0		0		451,972		451,972
Dividends declared ($0.30 per share)		—	0		—	0		0		(12,335)		(12,335)
Purchases of common shares		0	0		0	(11)		0		0		(11)
Exercise of stock options		3	0		(3)	91		7		0		98
Restricted shares vested		24	0		(24)	795		(795)		0		0
Performance shares vested		0	0		0	0		0		0		0
Other		1	0		(1)	42		8		0		50
Share-based employee compensation expense		—	0		—	0		4,453		0		4,453
Balance - August 1, 2020		39,251	$	1,175	78,244	$	(2,537,359)	$	617,496	$	3,246,848	$	1,328,160

Twenty-Six Weeks Ended August 1, 2020
Balance - February 1, 2020		39,037	$	1,175	78,458	$	(2,546,232)	$	620,728	$	2,769,793	$	845,464
Comprehensive income		—	0		—	0		0		501,295		501,295
Dividends declared ($0.60 per share)		—	0		—	0		0		(24,240)		(24,240)
Purchases of common shares		(119)	0		119	(1,951)		0		0		(1,951)
Exercise of stock options		3	0		(3)	91		7		0		98
Restricted shares vested		264	0		(264)	8,577		(8,577)		0		0
Performance shares vested		65	0		(65)	2,107		(2,107)		0		0
Other		1	0		(1)	49		7		0		56
Share-based employee compensation expense		—	0		—	0		7,438		0		7,438
Balance - August 1, 2020		39,251	$	1,175	78,244	$	(2,537,359)	$	617,496	$	3,246,848	$	1,328,160
Balance - May 1, 2021														Balance - May 1, 2021	34,920		1,175		82,575	(2,782,987)		615,955		3,434,359		1,268,502

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents


BIG LOTS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (In thousands)


		Twenty-Six Weeks Ended							Thirteen Weeks Ended
		August 1, 2020		August 3, 2019			May 1, 2021		May 2, 2020
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	501,295	$	21,718	Net income	$	94,563	$	49,323
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	Depreciation and amortization expense	71,924		63,259		Depreciation and amortization expense	34,116		37,819
Non-cash lease amortization expense		118,170		114,348
Non-cash lease expense						Non-cash lease expense	64,457		57,766
Deferred income taxes	Deferred income taxes	(55,806)		(7,551)		Deferred income taxes	(5,369)		(8,838)
Non-cash impairment charge	Non-cash impairment charge	658		2,914		Non-cash impairment charge	194		362
(Gain) loss on disposition of property and equipment		(462,744)		130
Loss on disposition of equipment						Loss on disposition of equipment	780		129
Non-cash share-based compensation expense	Non-cash share-based compensation expense	7,438		8,560		Non-cash share-based compensation expense	11,907		2,985
Unrealized loss (gain) on fuel derivatives		1,438		(152)
Unrealized (gain) loss on fuel derivatives						Unrealized (gain) loss on fuel derivatives	(1,005)		3,144
Change in assets and liabilities:	Change in assets and liabilities:					Change in assets and liabilities:
Inventories	Inventories	207,762		95,504		Inventories	38,813		114,707
Accounts payable	Accounts payable	1,168		(51,548)		Accounts payable	(17,492)		(102,779)
Operating lease liabilities	Operating lease liabilities	(148,722)		(93,364)		Operating lease liabilities	(53,511)		(54,919)
Current income taxes	Current income taxes	191,488		(10,944)		Current income taxes	29,435		27,077
Other current assets	Other current assets	(9,768)		(23,597)		Other current assets	1,294		(486)
Other current liabilities	Other current liabilities	28,938		43,344		Other current liabilities	2,703		16,315
Other assets	Other assets	2,512		(2,578)		Other assets	389		4,395
Other liabilities	Other liabilities	12,633		(1,758)		Other liabilities	3,019		(879)
Net cash provided by operating activities	Net cash provided by operating activities	468,384		158,285		Net cash provided by operating activities	204,293		146,121
Investing activities:	Investing activities:					Investing activities:
Capital expenditures	Capital expenditures	(69,402)		(162,840)		Capital expenditures	(32,160)		(28,928)
Cash proceeds from sale of property and equipment	Cash proceeds from sale of property and equipment	587,010		127		Cash proceeds from sale of property and equipment	7		26
Other	Other	(22)		(18)		Other	(17)		(11)
Net cash provided by (used in) investing activities		517,586		(162,731)
Net cash used in investing activities						Net cash used in investing activities	(32,170)		(28,913)
Financing activities:	Financing activities:					Financing activities:
Net (repayments of) proceeds from long-term debt	Net (repayments of) proceeds from long-term debt	(236,155)		93,700		Net (repayments of) proceeds from long-term debt	(3,580)		157,337
Net financing proceeds from sale and leaseback		124,074		0
Payment of finance lease obligations	Payment of finance lease obligations	(1,968)		(1,946)		Payment of finance lease obligations	(1,293)		(982)
Dividends paid	Dividends paid	(24,285)		(24,915)		Dividends paid	(12,460)		(12,478)
Proceeds from the exercise of stock options		98		200
Payment for treasury shares acquired	Payment for treasury shares acquired	(1,951)		(54,919)		Payment for treasury shares acquired	(101,016)		(1,940)
Other	Other	56		(3)		Other	(1)		6
Net cash (used in) provided by financing activities	Net cash (used in) provided by financing activities	(140,131)		12,117		Net cash (used in) provided by financing activities	(118,350)		141,943
Increase in cash and cash equivalents	Increase in cash and cash equivalents	845,839		7,671		Increase in cash and cash equivalents	53,773		259,151
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Beginning of period	Beginning of period	52,721		46,034		Beginning of period	559,556		52,721
End of period	End of period	$	898,560	$	53,705	End of period	$	613,329	$	311,872

The accompanying notes are an integral part of these consolidated financial statements.

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BIG LOTS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

All references in this report to “we,” “us,” or “our” are to Big Lots, Inc. and its subsidiaries. We are a neighborhood discount retailer operating in the United States (“U.S.”). At ~~August~~May 1, ~~2020,~~2021, we operated ~~1,404~~1,413 stores in 47 states and an e-commerce platform. We make available, free of charge, through the “Investor Relations” section of our website (www.biglots.com) under the “SEC Filings” caption, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). The contents of our ~~website~~websites are not ~~incorporated into or otherwise~~ part of this report.

The accompanying consolidated financial statements and these notes have been prepared in accordance with the rules and regulations of the SEC for interim financial information. The consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly our financial condition, results of operations, and cash flows for all periods presented. The consolidated financial statements, however, do not include all information necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Interim results may not necessarily be indicative of results that may be expected for, or actually result during, any other interim period or for the year as a whole, including as a result of the COVID-19 coronavirus pandemic, which has disrupted and may continue to disrupt our business. We have historically experienced seasonal fluctuations, with a larger percentage of our net sales and operating profit realized in our fourth fiscal quarter. However, due to demand volatility we have experienced during the COVID-19 coronavirus pandemic, the seasonality of our ~~2020~~2021 results may differ from our historical experience. The accompanying consolidated financial statements and these notes should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended ~~February 1,~~ January 30, 2021 (“2020 ~~(“2019~~ Form 10-K”).

Fiscal Periods

Our fiscal year ends on the Saturday nearest to January 31, which results in fiscal years consisting of 52 or 53 weeks. Unless otherwise stated, references to years in this report relate to fiscal years rather than calendar years. Fiscal year 2021 (“2021”) is comprised of the 52 weeks that began on January 31, 2021 and will end on January 29, 2022. Fiscal year 2020 (“2020”) iswas comprised of the 52 weeks that began on February 2, 2020 and ~~will end~~ended on January 30, 2021. ~~Fiscal year 2019 (“2019”) was comprised of the 52 weeks that began on February 3, 2019 and ended on February 1, 2020.~~ The fiscal quarters ended ~~August~~May 1, ~~2020~~2021 (“~~second~~first quarter of ~~2020”~~2021”) and ~~August 3, 2019~~May 2, 2020 (“~~second~~first quarter of ~~2019”~~2020”) were both comprised of 13 weeks. ~~The year-to-date periods ended August 1, 2020 (“year-to-date 2020") and August 3, 2019 (“year-to-date 2019”) were both comprised of 26 weeks.~~

~~Cash and Cash Equivalents~~

Cash and cash equivalents primarily consist of amounts on deposit with financial institutions, outstanding checks, credit and debit card receivables, and highly liquid investments, including money market funds and commercial paper, which are unrestricted to withdrawal or use and which have an original maturity of three months or less. We review cash and cash equivalent balances on a bank by bank basis in order to identify book overdrafts. Book overdrafts occur when the aggregate amount of outstanding checks and electronic fund transfers exceed the cash deposited at a given bank. We reclassify book overdrafts, if any, to accounts payable on our consolidated balance sheets.

Selling and Administrative Expenses

Selling and administrative expenses include store expenses (such as payroll and occupancy costs) and costs related to warehousing (which includes rent), distribution, outbound transportation to our stores, advertising, purchasing, insurance, non-income taxes, accepting credit/debit cards, and overhead. Our selling and administrative expense rates may not be comparable to those of other retailers that include warehousing, distribution, and outbound transportation costs in cost of sales. Warehousing, distribution, and outbound transportation costs included in selling and administrative expenses were ~~$59.7~~$66.2 million and ~~$43.2~~$52.3 million for the ~~second~~first quarter of 2021 and the first quarter of 2020, ~~and the second quarter of 2019, respectively, and $112.0 million and $88.3 million for the year-to-date 2020 and the year-to-date 2019,~~ respectively.

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Advertising Expense

Advertising costs, which are expensed as incurred, consist primarily of television and print advertising, digital, ~~social media,~~ internet and e-mail marketing and advertising, and in-store point-of-purchase signage and presentations. Advertising expenses are included in selling and administrative expenses. Advertising expenses were ~~$21.9~~$21.8 million and ~~$17.3~~$23.0 million for the ~~second~~first quarter of ~~2020~~2021 and the ~~second~~first quarter of ~~2019, respectively, and $44.8 million and $39.7 million for the year-to-date~~ 2020, ~~and the year-to-date 2019,~~ respectively.

~~Derivative Instruments~~

We use derivative instruments to mitigate the risk of market fluctuations in the price of diesel fuel that we expect to consume to support our outbound transportation of inventory to our stores. We do not enter into derivative instruments for speculative purposes. Our derivative instruments may consist of collar or swap contracts. Our current derivative instruments do not meet the requirements for cash flow hedge accounting. Instead, our derivative instruments are marked-to-market to determine their fair value and any gains or losses are recognized currently in other income (expense) on our consolidated statements of operations and comprehensive income.

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Supplemental Cash Flow Disclosures

The following table provides supplemental cash flow information for the ~~year-to-date 2020~~first quarter of 2021 and the ~~year-to-date 2019:~~first quarter of 2020:


		Twenty-Six Weeks Ended							Thirteen Weeks Ended
(In thousands)	(In thousands)	August 1, 2020		August 3, 2019		(In thousands)	May 1, 2021		May 2, 2020
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for interest	Cash paid for interest	$	5,338	$	8,662	Cash paid for interest	$	468	$	3,211
Cash paid for income taxes, excluding impact of refunds	Cash paid for income taxes, excluding impact of refunds	38,356		27,779		Cash paid for income taxes, excluding impact of refunds	2,303		122
Gross proceeds from long-term debt	Gross proceeds from long-term debt	514,500		866,500		Gross proceeds from long-term debt	0		514,500
Gross payments of long-term debt	Gross payments of long-term debt	750,655		772,800		Gross payments of long-term debt	3,580		357,163
Gross financing proceeds from sale and leaseback		133,999		0
Gross repayments of financing from sale and leaseback		9,925		0
Cash paid for operating lease liabilities	Cash paid for operating lease liabilities	189,263		144,318		Cash paid for operating lease liabilities	76,727		75,317
Non-cash activity:	Non-cash activity:					Non-cash activity:
Assets acquired under finance leases		0		70,831
Share repurchases payable						Share repurchases payable	3,476		0
Accrued property and equipment	Accrued property and equipment	22,057		44,458		Accrued property and equipment	26,306		27,213
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	572,949	$	1,383,557	Operating lease right-of-use assets obtained in exchange for operating lease liabilities	47,661		62,641

~~Reclassification~~Reclassifications

In the first quarter of ~~Merchandise Categories~~

~~We periodically assess,~~2021, we realigned select merchandise categories to be consistent with the initial realignment of our merchandising team and ~~make minor adjustments~~changes to our ~~product hierarchy, which can impact the roll-up~~management reporting. We eliminated our Electronics, Toys, & Accessories category by absorbing its former merchandise departments into three of our existing merchandise categories. ~~Our financial reporting process utilizes the most current product hierarchy in reporting net sales by~~We moved our apparel, jewelry, and hosiery departments into our Soft Home merchandise category, ~~for all periods presented. Therefore, there may be minor reclassifications of net sales by~~our toys department into our Seasonal merchandise category, ~~compared to previously reported amounts.~~and our electronics department into our Hard Home merchandise category.

~~Recently Adopted Accounting Standards~~

~~In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15 Intangibles - Goodwill~~Our six merchandise categories, which match our internal management and ~~Other - Internal-Use Software. This update evaluates the accounting for costs paid by a customer to implement a cloud computing arrangement.~~reporting of merchandise net sales are now as follows: Food; Consumables; Soft Home; Hard Home; Furniture; and Seasonal. The new guidance aligns cloud computing arrangement implementation cost accounting with the capitalization requirements for internal-use software development, while leaving the accounting for service elements unchanged. On February 2, 2020, we adopted ASU 2018-15 on a prospective basis.Food category includes our beverage & grocery; candy & snacks; and specialty foods departments. The ~~impact of the adoption was immaterial to the consolidated financial statements.~~Consumables category includes our health, beauty and cosmetics; plastics; paper; chemical; and pet departments. The Soft Home category includes our home décor; frames; fashion bedding; utility bedding; bath; window; decorative textile; home organization; area rugs; apparel; hosiery; and jewelry departments. The Hard Home category includes our small appliances; table top; food preparation; stationery; home maintenance; and electronics departments. The Furniture category includes our upholstery; mattress; ready-to-assemble; and case goods departments. The Seasonal category includes our lawn & garden; summer; Christmas; toys; and other holiday departments.

In order to provide comparative information, we have reclassified our results into the new alignment for both periods presented.

Recent Accounting Pronouncements

There are currently no new accounting pronouncements with a future effective date that are of significance, or potential significance, to us.

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NOTE 2 – DEBT

Bank Credit Facility

On August 31, 2018, we entered into a $700 million five-year unsecured credit facility (“~~2018~~ Credit Agreement”). The ~~2018~~ Credit Agreement expires on August 31, 2023. In connection with our entry into the ~~2018~~ Credit Agreement, we paid bank fees and other expenses in the aggregate amount of $1.5 million, which are being amortized over the term of the ~~2018~~ Credit Agreement.

Borrowings under the ~~2018~~ Credit Agreement are available for general corporate purposes, working capital, and to repay certain indebtedness. The ~~2018~~ Credit Agreement includes a $30 million swing loan sublimit, a $75 million letter of credit sublimit, a $75 million sublimit for loans to foreign borrowers, and a $200 million optional currency sublimit. The interest rates, pricing and fees under the ~~2018~~ Credit Agreement fluctuate based on our debt rating. The ~~2018~~ Credit Agreement allows us to select our interest rate for each borrowing from multiple interest rate options. The interest rate options are generally derived from the prime rate or LIBOR. We may prepay revolving loans made under the ~~2018~~ Credit Agreement. The ~~2018~~ Credit Agreement contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens and investments, as well as the maintenance of two financial ratios – a leverage ratio and a fixed charge coverage ratio. The covenants of the ~~2018~~ Credit Agreement do not restrict our ability to pay dividends. Additionally, we are subject to cross-default provisions associated with the synthetic lease for our distribution center in Apple Valley, ~~California.~~CA. A violation of any of the covenants could result in a default under the ~~2018~~ Credit Agreement that would permit the lenders to restrict our ability to further access the ~~2018~~ Credit Agreement for loans and letters of credit and require the immediate repayment of any outstanding loans under the ~~2018~~ Credit Agreement. At ~~August~~May 1, ~~2020,~~2021, we had 0 borrowings outstanding under the ~~2018~~ Credit Agreement, while ~~$11.4~~$5.8 million was committed to outstanding letters of credit, leaving ~~$688.6~~$694.2 million available under the ~~2018~~ Credit Agreement.

Secured Equipment Term Note

On August 7, 2019, we entered into a ~~$70~~$70.0 million term note agreement (“2019 Term Note”), which is secured by the equipment at our Apple Valley, ~~California~~CA distribution center. The 2019 Term Note will expire on May 7, 2024. We are required to make monthly payments over the term of the 2019 Term Note and are permitted to prepay, subject to penalties, at any time. The interest rate on the 2019 Term Note is 3.3%. In connection with our entry into the 2019 Term Note, we paid debt issuance costs of $0.2 million. In light of our strong liquidity and current market conditions, on June 7, 2021, we prepaid the remaining $44.3 million principal balance under the 2019 Term Note. In connection with the prepayment, we incurred a $0.4 million prepayment fee and recognized a $0.5 million loss on debt extinguishment in the second quarter of 2021. The interest rate on the 2019 Term Note was 3.3%.

Debt was recorded in our consolidated balance sheets as follows:

Instrument (In thousands)
August 1, 2020 February 1, 2020
2019 Term Note $ 57,336 $ 64,291
2018 Credit Agreement 0 229,200
Total debt $ 57,336 $ 293,491
Less current portion of long-term debt (included in Accrued operating expenses) $ (14,262) $ (14,027)
Long-term debt $ 43,074 $ 279,464


Instrument (In thousands)	May 1, 2021		January 30, 2021
2019 Term Note	$	46,684	$	50,264
Credit Agreement	0		0
Total debt	$	46,684	$	50,264
Less current portion of long-term debt (included in Accrued operating expenses)	$	(14,621)	$	(14,500)
Long-term debt	$	32,063	$	35,764

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NOTE 3 – FAIR VALUE MEASUREMENTS

~~In the second quarter of 2020,~~At May 1, 2021 and January 30, 2021, we ~~invested a portion of the proceeds from the sale and leaseback of four distribution centers (see note 9 for additional information on the sale and leaseback transactions)~~held investments in money market ~~fund investments and commercial paper investments. These highly liquid investments~~funds, which were recorded ~~in cash and cash equivalents~~ in our consolidated balance sheets at their fair value. The fair values of the money market fund investments were Level 1 valuations under the fair value hierarchy because each fund’s quoted market value per share was available in an active market. The fair values of the commercial paper investments were Level 2 valuations under the fair value hierarchy because the instruments’ market values were determined based on quoted market prices in active markets.

InAt May 1, 2021 and January 30, 2021, in connection with our nonqualified deferred compensation plan, we had mutual fund investments, which were classified as trading securities and were recorded at their fair value. The fair values of mutual fund investments were Level 1 valuations under the fair value hierarchy because each fund’s quoted market value per share was available in an active market.

As of ~~August~~May 1, ~~2020,~~2021, the fair value of our investments were recorded in our consolidated balance sheets as follows:


(In thousands)	(In thousands)	Balance Sheet Location	August 1, 2020		Level 1		Level 2		(In thousands)	Balance Sheet Location	May 1, 2021		Level 1
Assets:	Assets:								Assets:
Money market funds	Money market funds	Cash and cash equivalents	$	280,008	$	280,008	$	0	Money market funds	Cash and cash equivalents	$	175,135	$	175,135
Commercial paper		Cash and cash equivalents	299,907		0		299,907
Mutual funds - deferred compensation plan	Mutual funds - deferred compensation plan	Other Assets	$	30,626	$	30,626	$	0	Mutual funds - deferred compensation plan	Other current assets	$	29,988	$	29,988

As of ~~February 1, 2020,~~January 30, 2021, the fair value of our investments were recorded in our consolidated balance sheets as follows:

(In thousands) Balance Sheet Location February 1,
2020 Level 1 Level 2
Assets:
Money market funds Cash and cash equivalents $ 0 $ 0 $ 0
Commercial paper Cash and cash equivalents 0 0 0
Mutual funds - deferred compensation plan Other Assets $ 33,715 $ 33,715 $ 0

The fair values of our long-term obligations under the 2018 Credit Agreement are estimated based on quoted market prices for the same or similar issues and the current interest rates offered for similar instruments. These fair value measurements are classified as Level 2 within the fair value hierarchy. The carrying value of these instruments was $0 as of August 1, 2020.


(In thousands)	Balance Sheet Location	January 30, 2021		Level 1
Assets:
Money market funds	Cash and cash equivalents	$	175,113	$	175,113
Mutual funds - deferred compensation plan	Other assets	$	32,484	$	32,484

The fair value of our long-term obligations under the 2019 Term Note are based on quoted market prices and are classified as Level 2 within the fair value hierarchy. The carrying value of the instrument approximates its fair value.

The carrying value of accounts receivable and accounts payable approximates fair value because of the relatively short maturity of these items.

NOTE 4 – SHAREHOLDERS’ EQUITY

Earnings per Share

There were no0 adjustments required to be made to the weighted-average common shares outstanding for purposes of computing basic and diluted earnings per share. At ~~August 1,~~May 2, 2020, ~~and August 3, 2019,~~ we excluded performance restricted share units (“PRSUs”) from the securities outstanding for the computation of earnings per share ~~antidilutive stock options, restricted stock units, and performance share units, for which~~because the minimum applicable performance conditions had not been ~~attained as of August~~attained. At May 1, ~~2020 and August 3, 2019, respectively. For the second quarter of~~ ~~2020, it was determined that an immaterial amount of stock options~~2021, all outstanding awards were ~~antidilutive and excluded from the~~included in our computation of ~~diluted~~ earnings per share ~~and for~~because the ~~second quarter of~~ ~~2019, there were 0.2 million stock options outstanding that were antidilutive.~~minimum applicable performance conditions had been attained. Antidilutive stock options for the year-to-date 2020 and the year-to-date 2019 were immaterial and 0.2 million, respectively. Antidilutive stock options generally consist of outstanding stock options where the exercise price per share is greater than the weighted-average market price per share for our common shares for each period. Antidilutive stock options, restricted stock units, ~~and~~ performance share units (“PSUs”), and PRSUs, are excluded from the calculation because they decrease the number of diluted shares outstanding under the treasury stock method. The restricted stock units, PSUs, and ~~performance~~PRSUs that were antidilutive, as determined under the treasury stock method, were 0.1 million and 0.3 million for the first quarter of 2021 and the first quarter of 2020, respectively.

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~~share units that were antidilutive, as determined~~Share Repurchase Programs

On August 27, 2020, our Board of Directors authorized the repurchase of up to $500 million of our common shares (“2020 Repurchase Authorization”). Pursuant to the 2020 Repurchase Authorization, we may repurchase shares in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. Common shares acquired through the 2020 Repurchase Authorization will be available to meet obligations under our equity compensation plans and for general corporate purposes. The 2020 Repurchase Authorization has no scheduled termination date.

During the first quarter of 2021, we acquired approximately 1.1 million of our outstanding common shares for $77.5 million under the ~~treasury stock method, were immaterial and 0.5~~2020 Repurchase Authorization. As of May 1, 2021, we had $249.6 million available for future repurchases under the ~~second quarter~~2020 Repurchase Authorization.

In addition to shares repurchased under the 2020 Repurchase Authorization, purchases of ~~2020 and~~common shares reported in the ~~second quarter~~consolidated statements of ~~2019, respectively, and 0.3 million and 0.4 million for~~shareholders’ equity include shares acquired to satisfy income tax withholdings associated with the ~~year-to-date 2020 and the year-to-date 2019, respectively.~~vesting of share-based awards.

Dividends

~~The Company~~We declared and paid cash dividends per common share during the ~~quarterly periods presented~~first quarter of 2021 as follows:


		Dividends Per Share		Amount Declared		Amount Paid			Dividends Per Share		Amount Declared		Amount Paid
2020:				(In thousands)		(In thousands)
2021:								2021:			(In thousands)		(In thousands)
First quarter	First quarter	$	0.30	$	11,905	$	12,478	First quarter	$	0.30	$	11,206	$	12,460
Second quarter		0.30		12,335		11,807

Total	Total	$	0.60	$	24,240	$	24,285	Total	$	0.30	$	11,206	$	12,460

The amount of dividends declared may vary from the amount of dividends paid in a period due to the vesting of restricted stock units, PSUs, and ~~performance share units, which accrue dividend equivalent rights that are paid when the award vests.~~PRSUs. The payment of future dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, compliance with applicable laws and agreements and any other factors deemed relevant by our Board of Directors.

NOTE 5 – SHARE-BASED PLANS

We have issued ~~nonqualified stock options,~~ restricted stock units, PSUs, and ~~performance share units~~PRSUs under our shareholder-approved equity compensation plans. At August 1, 2020, the number of nonqualified stock options outstanding was immaterial. Our restricted stock units and performance share units, as described below, are expensed and reported as non-vested shares. We recognized share-based compensation expense of ~~$4.5~~$11.9 million and ~~$4.2~~$3.0 million in the ~~second~~first quarter of ~~2020~~2021 and the ~~second~~first quarter of ~~2019, respectively, and $7.4 million and $8.6 million for the year-to-date~~ 2020, ~~and the year-to-date 2019,~~ respectively.

Non-vested Restricted Stock Units

The following table summarizes the non-vested restricted stock units activity for the ~~year-to-date2020~~:first quarter of 2021:


		Number of Shares	Weighted Average Grant-Date Fair Value Per Share			Number of Shares	Weighted Average Grant-Date Fair Value Per Share
Outstanding non-vested restricted stock units at February 1, 2020		648,510	$	38.52
Outstanding non-vested restricted stock units at January 30, 2021					Outstanding non-vested restricted stock units at January 30, 2021	1,214,212	$	22.71
Granted	Granted	921,309	15.82		Granted	206,685	70.77
Vested	Vested	(239,856)	43.07		Vested	(390,116)	22.74
Forfeited	Forfeited	(1,511)	38.06		Forfeited	(31,181)	25.26
Outstanding non-vested restricted stock units at May 2, 2020		1,328,452	$	21.95
Granted		74,244	33.20
Vested		(24,498)	27.99
Forfeited		(41,074)	25.26
Outstanding non-vested restricted stock units at August 1, 2020		1,337,124	$	22.35

Outstanding non-vested restricted stock units at May 1, 2021					Outstanding non-vested restricted stock units at May 1, 2021	999,600	$	32.56

The non-vested restricted stock units granted in the ~~year-to-date2020~~first quarter of 2021 generally vest and are expensed on a ratable basis over three years from the grant date of the award, if a threshold financial performance objective is achieved and the grantee remains employed by us through the vesting dates.

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~~Non-vested Restricted Stock Units Granted to Non-Employee Directors~~

In the second quarter of 2020, 44,229 common shares underlying the restricted stock units granted in 2019 to the non-employee members of our Board vested on the trading day immediately preceding our 2020 Annual Meeting of Shareholders (“2020 Annual Meeting”). These units were part of the annual compensation of the non-employee directors of the Board. Additionally, in the second quarter of 2020, the chairman of our Board received an annual restricted stock unit grant having a grant date fair value of approximately $210,000. The remaining non-employees elected to our Board at our 2020 Annual Meeting each received an annual restricted stock unit grant having a grant date fair value of approximately $145,000. The 2020 restricted stock units will vest on the earlier of (1) the trading day immediately preceding our 2021 Annual Meeting of Shareholders, or (2) the non-employee director's death or disability. However, the non-employee directors will forfeit their restricted stock units if their service on the Board terminates before either vesting event occurs.

Performance Share Units

In the first quarter of 2020,, we awarded ~~performance share units with a restriction feature (“RPSUs”)~~PRSUs to certain members of senior management, which vest based on the achievement of share price performance goals and a minimum service requirement of one year. The ~~RPSUs~~PRSUs have a contractual term of three years. We use a Monte Carlo simulation to estimate the fair value of the RPSUs on the grant date and recognize expense over the derived service period. If the share price performance goals applicable to the RPSUs are not achieved prior to expiration, the unvested portion of the awards will be forfeited. Shares issued in connection with vested ~~RPSUs~~PRSUs are generally restricted from sale, transfer, or other

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disposition prior to the third anniversary of the grant date except under certain circumstances, including death, disability, or change in control. The majority of PRSUs awarded in 2020 vested in the first quarter of 2021. At May 1, 2021, the share price performance goals applicable to the remaining 3,223 outstanding PRSUs had been attained and we expect the PRSUs outstanding at May 1, 2021 to vest in the second quarter of 2021.

Prior to 2020 and in the first quarter of 2021, we issued ~~performance share units (“PSUs”)~~PSUs to certain members of management, which will vest if certain financial performance objectives are achieved over a ~~three-year~~three-year performance period and the grantee remains employed by us during the performance period. ~~Typically, the~~The financial performance objectives for each fiscal year within the three-year performance period will be approved by the Compensation Committee of our Board of Directors during the first quarter of the respective fiscal year. In 2020, due to the lack of business visibility resulting from the COVID-19 pandemic, the Compensation Committee chose to defer the establishment of the 2020 performance objectives until later in the fiscal year.

As a result of the process used to establish the financial performance objectives, we will only meet the requirements for establishing a grant date for ~~the~~ PSUs when we communicate the financial performance objectives for the third fiscal year of the award to the award recipients, which will then trigger the service inception date, the fair value of the awards, and the associated expense recognition period. If we meet the applicable threshold financial performance objectives over the three-year performance period and the grantee remains employed by us through the end of the performance period, the PSUs will vest on the first trading day after we file our Annual Report on Form 10-K for the last fiscal year in the performance period.

As a result of the Compensation Committee’s decision to defer establishment of the 2020 performance objectives for PSUs, the financial performance objectives for the third fiscal year of the PSUs issued in 2018 were not established prior to the end of the second quarter of 2020 and the grant date for the 2018 PSUs was not established as of the end of the second quarter of 2020.

Subsequent to the end of the second quarter of 2020, in August 2020, the Compensation Committee established the financial performance objectives for the third fiscal year of PSUs issued in 2018; therefore, the 2018 PSUs were deemed granted in August 2020.

We have begun or expect to begin recognizing expense related to PSUs and ~~RPSUs~~PRSUs as follows:

Issue Year

Outstanding PSUs and RPSUs at August 1, 2020

Actual Grant Date

Expected Valuation (Grant) Date

Actual or Expected Expense Period

Issue Year

Outstanding PSUs and PRSUs at May 1, 2021

Actual Grant Date

Expected Valuation (Grant) Date

Actual or Expected Expense Period

2018

170,612

August 2020

Fiscal 2020

2019

309,705

March 2021

Fiscal 2021

2019

255,487

March 2021

Fiscal 2021

2020

400,572

April 2020

Fiscal 2020 - 2021

2020

3,223

April 2020

Fiscal 2020-2021

2021

166,055

March 2023

Fiscal 2023

Total

880,889

Total

424,765

The number of shares to be distributed upon vesting of the PSUs depends on the average performance attained during the three-year performance period compared to the performance targets established by the Compensation Committee, and may result in the distribution of an amount of shares that is greater or less than the number of PSUs granted, as defined in the ~~related~~ award agreement. WeDuring the first quarter of 2021, the PSUs issued in 2018 vested with an average performance attainment higher than the targets established. During the first quarters of 2021 and 2020, we recognized ~~$1.2~~$8.6 million and ~~$1.0~~$0.4 million in ~~the second quarter of 2020 and 2019, respectively, and $1.6 million and $2.2 million in the year-to-date 2020 and 2019 respectively, of~~ share-based compensation expense related to ~~PSUs.~~PSUs and PRSUs, respectively.

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The following table summarizes the activity related to PSUs and ~~RPSUs~~PRSUs for the ~~year-to-date2020~~:first quarter of 2021:


		Number of Units	Weighted Average Grant-Date Fair Value Per Share			Number of Units	Weighted Average Grant-Date Fair Value Per Share
Outstanding PSUs and RPSUs at February 1, 2020		181,922	$	31.89
Outstanding PSUs and PRSUs at January 30, 2021					Outstanding PSUs and PRSUs at January 30, 2021	474,031	$	24.31
Granted	Granted	408,340	11.70		Granted	263,787	70.24
Vested	Vested	(181,062)	31.89		Vested	(470,808)	24.27
Forfeited	Forfeited	(860)	31.89		Forfeited	(8,300)	70.24
Outstanding PSUs and RPSUs at May 2, 2020		408,340	$	11.70
Granted		4,682	29.44
Vested		0	0
Forfeited		(12,450)	11.70
Outstanding PSUs and RPSUs at August 1, 2020		400,572	$	11.90

Outstanding PSUs and PRSUs at May 1, 2021					Outstanding PSUs and PRSUs at May 1, 2021	258,710	$	69.74

The following activity occurred under our share-based plans during the respective periods shown:


		Second Quarter						Year-to-Date					First Quarter
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020
Total intrinsic value of stock options exercised		$	12	$	0	$	12	$	42
Total fair value of restricted stock vested	Total fair value of restricted stock vested	849		341		4,890		5,383		Total fair value of restricted stock vested	$	26,901	$	4,040
Total fair value of performance shares vested	Total fair value of performance shares vested	$	0	$	0	$	924	$	9,706	Total fair value of performance shares vested	$	37,168	$	924

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The total unearned compensation cost related to all share-based awards outstanding, excluding PSUs issued in ~~2018 and 2019,~~2021, at ~~August~~May 1, ~~2020~~2021 was approximately ~~$26.6~~$46.2 million. This compensation cost is expected to be recognized through ~~July 2023~~April 2024 based on existing vesting terms with the weighted-average remaining expense recognition period being approximately ~~2.0~~1.7 years from ~~August~~May 1, ~~2020.~~2021.

NOTE 6 – INCOME TAXES

We have estimated the reasonably possible expected net change in unrecognized tax benefits through ~~August 1, 2020,~~April 30, 2022, based on (1) expected cash and noncash settlements or payments of uncertain tax positions, and (2) lapses of the applicable statutes of limitations for unrecognized tax benefits. The estimated net decrease in unrecognized tax benefits for the next 12 months is approximately ~~$5.0~~$4.0 million. Actual results may differ materially from this estimate.

NOTE 7 – CONTINGENCIES

~~California Wage and Hour Matters~~

We currently are defending several purported wage and hour class actions in California. The cases were brought by various current and/or former California associates alleging various violations of California wage and hour laws. During the first quarter of 2019, upon consideration of these matters, including outcomes of cases against other retailers, we determined a loss from these matters was probable and we increased our accrual for litigation by recording a $7.3 million charge as our best estimate for these matters in aggregate. We intend to defend ourselves vigorously against the allegations levied in the remaining lawsuits.

~~Other Matters~~Legal Proceedings

We are involved in ~~other~~ legal actions and claims arising in the ordinary course of business. We currently believe that each such action and claim will be resolved without a material effect on our financial condition, results of operations, or liquidity. However, litigation involves an element of uncertainty. Future developments could cause these actions or claims to have a material effect on our financial condition, results of operations, and liquidity.

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NOTE 8 – BUSINESS SEGMENT DATA

We use the following ~~seven~~six merchandise categories, which ~~match~~are consistent with our internal management and reporting of merchandise net sales: ~~Food, Consumables,~~Food; Consumables; Soft ~~Home,~~Home; Hard ~~Home, Furniture, Seasonal,~~Home; Furniture; and ~~Electronics, Toys, & Accessories.~~Seasonal. The Food category includes our beverage & ~~grocery,~~grocery; candy & ~~snacks,~~snacks; and specialty foods departments. The Consumables category includes our health, beauty and ~~cosmetics, plastics, paper, chemical,~~cosmetics; plastics; paper; chemical; and pet departments. The Soft Home category includes ~~the~~our home dé~~cor, frames,~~cor; frames; fashion ~~bedding,~~bedding; utility ~~bedding, bath, window,~~bedding; bath; window; decorative ~~textile,~~textile; home ~~organization~~organization; area rugs; jewelry; apparel; and ~~area rugs~~hosiery departments. The Hard Home category includes our small ~~appliances,~~appliances; table ~~top,~~top; food ~~preparation, stationery, greeting cards,~~preparation; stationery; home maintenance; and ~~home maintenance~~electronics departments. The Furniture category includes our ~~upholstery, mattress, ready-to-assemble,~~upholstery; mattress; ready-to-assemble; and case goods departments. The Seasonal category includes our lawn & ~~garden, summer, Christmas,~~garden; summer; Christmas; toys; and other holiday departments. ~~The~~

In the first quarter of 2021, we realigned our merchandise categories and eliminated our Electronics, Toys, & Accessories ~~category includes our electronics, jewelry, hosiery, apparel, and toys departments.~~

We periodically assess, and make minor adjustments to, our product hierarchy, which can impact the roll-up of our merchandise categories. Our financial reporting process utilizes the most current product hierarchy in reporting net sales by merchandise category, ~~for all periods presented. Therefore, there may be minor reclassifications~~which comprised $75.1 million of net sales ~~by merchandise category compared~~reported in the first quarter of 2020. See the reclassifications section of n ote 1 to ~~previously reported amounts.~~the consolidated financial statements for further discussion.

The following table presents net sales data by merchandise category:

Second Quarter Year-to-Date
(In thousands) 2020 2019 2020 2019
Furniture $ 439,737 $ 303,358 $ 855,438 $ 687,255
Seasonal 299,700 246,106 496,021 429,597
Soft Home 286,556 190,767 516,378 399,904
Consumables 225,251 196,955 462,492 383,457
Food 185,011 169,157 388,830 350,282
Hard Home 110,610 81,891 191,777 163,751
Electronics, Toys, & Accessories 97,332 64,180 172,410 133,964
Net sales $ 1,644,197 $ 1,252,414 $ 3,083,346 $ 2,548,210

~~NOTE 9 – GAIN ON SALE OF DISTRIBUTION CENTERS~~

On June 12, 2020, we completed sale and leaseback transactions for our distribution centers located in Columbus, OH; Durant, OK; Montgomery, AL; and Tremont, PA. The aggregate sale price for the transactions was $725.0 million. Due to sale-leaseback accounting requirements, the proceeds received in the transactions were allocated between proceeds on the sale of the distribution centers and financing proceeds. Accordingly, aggregate net proceeds, before income taxes, on the sales of the distribution centers were $586.9 million and the aggregate gain on the sales was $463.1 million. Additionally, we incurred $4.0 million of additional selling and administrative expenses in connection with the transaction, which primarily consisted of consulting services. The remainder of consideration received was financing liability proceeds of $134.0 million. The current portion of the financing liability was recorded in accrued operating expenses in our consolidated balance sheets. The noncurrent portion of the financing liability was recorded in other liabilities in our consolidated balance sheets. Interest expense will be recognized on the financing liability using the effective interest method and the financing liability will be accreted over the duration of the lease agreements. Future payments to the buyer-lessor will be allocated between the financing liability and the lease liabilities.

The leases for the Columbus, OH and Montgomery, AL distribution centers each have an initial term of 15 years and multiple five-year extension options. The leases for the Durant, OK and Tremont, PA distribution centers each have an initial term of 20 years and multiple five-year extension options. At commencement of the leases, we recorded aggregate operating lease liabilities of $466.1 million and aggregate operating lease right-of-use assets of $466.1 million. The weighted average discount rate for the leases was 6.2%. All of the leases are absolute net. Additionally, all of the leases include a right of first refusal beginning after the fifth year of the initial term which allows us to purchase the leased property if the buyer-lessor receives a bona fide purchase offer from a third-party. In connection with our entrance into the sale and leaseback transactions, we agreed to repay all borrowings outstanding under the 2018 Credit Agreement and restrict our borrowings under the 2018 Credit Agreement for 90 days following closing of the transactions.


	First Quarter
(In thousands)	2021		2020
Furniture	$	481,431	$	415,700
Seasonal	328,794		215,302
Soft Home	303,981		248,743
Consumables	204,015		237,241
Food	175,131		203,819
Hard Home	132,200		118,344
Net sales	$	1,625,552	$	1,439,149

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Aggregate initial annual cash payments to the buyer-lessor, including payments of the financing liability and lease payments, are approximately $50 million and the payments escalate two percent annually. Aggregate annual straight-line rent expense for the four leases is approximately $46 million. Aggregate initial annual interest expense on the financing liability, which will decrease over the term, is approximately $8 million.

~~NOTE 10 – SUBSEQUENT EVENT~~

On August 27, 2020, our Board of Directors authorized the repurchase of up to $500.0 million of our common shares (“2020 Repurchase Authorization”). Pursuant to the 2020 Repurchase Authorization, we may repurchase shares in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. Common shares acquired through the 2020 Repurchase Authorization will be available to meet obligations under our equity compensation plans and for general corporate purposes. The 2020 Repurchase Authorization has no scheduled termination date.

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

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The Private Securities Litigation Reform Act of 1995 (“Act”) provides a safe harbor for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statements. We wish to take advantage of the “safe harbor” provisions of the Act.

Certain statements in this report are forward-looking statements within the meaning of the Act, and such statements are intended to qualify for the protection of the safe harbor provided by the Act. The words “anticipate,” “estimate,” “approximate,” “expect,” “objective,” “goal,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “may,” “target,” “forecast,” “guidance,” “outlook,” and similar expressions generally identify forward-looking statements. Similarly, descriptions of our objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements relate to the expectations of management as to future occurrences and trends, including statements expressing optimism or pessimism about future operating results or events and projected sales, earnings, capital expenditures and business strategy. Forward-looking statements are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Forward-looking statements are and will be based upon management’s then-current views and assumptions regarding future events and operating performance, and are applicable only as of the dates of such statements. Although we believe the expectations expressed in forward-looking statements are based on reasonable assumptions within the bounds of our knowledge, forward-looking statements, by their nature, involve risks, uncertainties and other factors, any one or a combination of which could materially affect our business, financial condition, results of operations or liquidity.

Forward-looking statements that we make herein and in other reports and releases are not guarantees of future performance and actual results may differ materially from those discussed in such forward-looking statements as a result of various factors, including, but not limited to, developments related to the COVID-19 coronavirus pandemic, the current economic and credit conditions, the cost of goods, our inability to successfully execute strategic initiatives, competitive pressures, economic pressures on our customers and us, the availability of brand name closeout merchandise, trade restrictions, freight costs, the risks discussed in the Risk Factors section of our most recent Annual Report on Form 10-K, and other factors discussed from time to time in our other filings with the SEC, including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. This report should be read in conjunction with such filings, and you should consider all of these risks, uncertainties and other factors carefully in evaluating forward-looking statements.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update forward-looking statements whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further disclosures we make on related subjects in our public announcements and SEC filings.

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OVERVIEW

The discussion and analysis presented below should be read in conjunction with the accompanying consolidated financial statements and related notes. Each term defined in the notes to the accompanying consolidated financial statements has the same meaning in this item and the balance of this report.

The following are the results from the ~~second~~first quarter of ~~2020~~2021 that we believe are key indicators of our operating performance when compared to our operating performance from the ~~second~~first quarter of ~~2019:~~2020:

•Net sales increased ~~$391.8~~$186.4 million, or ~~31.3%~~13.0%.

•Comparable sales for stores open at least fifteen months, plus our e-commerce operations, increased ~~$371.5~~$159.3 million, or ~~31.3%~~11.3%.

•Gross margin dollars increased ~~$185.3~~$83.2 million, while gross margin rate increased ~~180~~50 basis points to ~~41.6%~~40.2% of ~~net~~ sales.

•Selling and administrative expenses increased ~~$49.0~~$38.8 million. As a percentage of net sales, selling and administrative expenses decreased ~~560~~130 basis points to ~~30.7%~~30.6% of net sales.

•~~We recognized a pre-tax gain on sale of distribution centers of $463.1 million related~~Operating profit rate increased 230 basis points to the sale and leaseback of our four owned distribution centers. Additionally, we recognized consulting and other expenses associated with the sale and leaseback transactions of $4.0 million. The combined gain on sale of distribution centers and associated consulting and other expenses increased our operating profit by $459.1 million and increased our diluted earnings per share by approximately $8.54 per share.7.5%.

•Diluted earnings per share increased to ~~$11.29~~$2.62 per share from ~~$0.16~~$1.26 per share.

•~~Inventory decreased~~Cash and cash equivalents increased by ~~18.4%, or $160.6~~$301.5 million to ~~$713.5~~$613.3 million from the ~~second~~first quarter of ~~2019.~~2020.

•Inventory increased by 11.8% or $94.9 million to $901.5 million from the first quarter of 2020.

•We declared and paid a quarterly cash dividend in the amount of $0.30 per common share in the ~~second~~first quarter of ~~2020~~2021, which was consistent with the quarterly cash dividend of $0.30 per common share paid in the ~~second~~first quarter of ~~2019.~~2020.

•We acquired 1.1 million of our outstanding common shares for $77.5 million under the 2020 Repurchase Authorization (as defined below).

See the discussion and analysis below for additional details regarding our operating results.

STORES

The following table presents stores opened and closed during the ~~year-to-date 2020~~first quarter of 2021 and the ~~year-to-date 2019:~~first quarter of 2020:


			2020	2019				2021	2020
Stores open at the beginning of the fiscal year	Stores open at the beginning of the fiscal year			1,404	1,401		Stores open at the beginning of the fiscal year		1,408	1,404
Stores opened during the period	Stores opened during the period			11	29		Stores opened during the period		13	6
Stores closed during the period	Stores closed during the period			(11)	(19)		Stores closed during the period		(8)	(6)
		Stores open at the end of the period	1,404	1,411		Stores open at the end of the period		1,413	1,404

We expect our store count at the end of ~~2020~~2021 to beincrease by approximately ~~in line with~~20 stores compared to our store count at the end of ~~2019.~~2020.

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RESULTS OF OPERATIONS

The following table compares components of our consolidated statements of operations and comprehensive income as a percentage of net sales at the end of each period:


		Second Quarter						Year-to-Date							First Quarter
		2020		2019		2020		2019			2021		2020
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%
Cost of sales (exclusive of depreciation expense shown separately below)	Cost of sales (exclusive of depreciation expense shown separately below)	58.4		60.2		59.3		60.1		Cost of sales (exclusive of depreciation expense shown separately below)	59.8		60.3
Gross margin	Gross margin	41.6		39.8		40.7		39.9		Gross margin	40.2		39.7
Selling and administrative expenses	Selling and administrative expenses	30.7		36.3		31.2		35.9		Selling and administrative expenses	30.6		31.9
Depreciation expense	Depreciation expense	2.1		2.4		2.3		2.5		Depreciation expense	2.1		2.6
Gain on sale of distribution center		(28.2)		0.0		(15.0)		0.0
Operating profit	Operating profit	37.0		1.1		22.2		1.5		Operating profit	7.5		5.2
Interest expense	Interest expense	(0.2)		(0.4)		(0.2)		(0.3)		Interest expense	(0.2)		(0.2)
Other income (expense)	Other income (expense)	0.1		(0.1)		(0.1)		0.0		Other income (expense)	0.1		(0.2)
Income before income taxes	Income before income taxes	36.9		0.6		21.9		1.2		Income before income taxes	7.4		4.7
Income tax expense	Income tax expense	9.5		0.1		5.6		0.4		Income tax expense	1.6		1.3
Net income	Net income	27.5	%	0.5	%	16.3	%	0.9	%	Net income	5.8	%	3.4	%

~~SECOND~~FIRST QUARTER OF ~~2020~~2021 COMPARED TO ~~SECOND~~FIRST QUARTER OF ~~2019~~2020

Net Sales

Net sales by merchandise category (in dollars and as a percentage of total net sales), net sales change (in dollars and percentage), and comparable sales (“comp” or “comps”) in the ~~second~~first quarter of 2021 compared to the first quarter of 2020 ~~compared~~were as follows:


First Quarter
($ in thousands)	2021				2020				Change				Comps
Furniture	$	481,431	29.6	%	$	415,700	28.9	%	$	65,731	15.8	%	13.7	%
Seasonal	328,794		20.2		215,302		15.0		113,492		52.7		51.0
Soft Home	303,981		18.7		248,743		17.2		55,238		22.2		20.6
Consumables	204,015		12.6		237,241		16.5		(33,226)		(14.0)		(14.7)
Food	175,131		10.8		203,819		14.2		(28,688)		(14.1)		(15.1)
Hard Home	132,200		8.1		118,344		8.2		13,856		11.7		9.3
Net sales	$	1,625,552	100.0	%	$	1,439,149	100.0	%	$	186,403	13.0	%	11.3	%

In the first quarter of 2021, we realigned our merchandise categories and eliminated our Electronics, Toys, & Accessories merchandise category. See the reclassifications discussion in note 1 to the ~~second~~ ~~quarter of 2019 were as follows:~~

Second Quarter
($ in thousands) 2020 2019 Change Comps
Furniture $ 439,737 26.8 % $ 303,358 24.2 % $ 136,379 45.0 % 43.5 %
Seasonal 299,700 18.2 246,106 19.7 53,594 21.8 22.2
Soft Home 286,556 17.4 190,767 15.2 95,789 50.2 50.8
Consumables 225,251 13.7 196,955 15.7 28,296 14.4 15.1
Food 185,011 11.3 169,157 13.6 15,854 9.4 10.0
Hard Home 110,610 6.7 81,891 6.5 28,719 35.1 36.3
Electronics, Toys, & Accessories 97,332 5.9 64,180 5.1 33,152 51.7 52.6
Net sales $ 1,644,197 100.0 % $ 1,252,414 100.0 % $ 391,783 31.3 % 31.3 %

~~We periodically assess, and make minor adjustments~~consolidated financial statements for additional information. In order to provide comparative information, we have reclassified our ~~product hierarchy, which can impact~~results into the ~~roll-up of our merchandise categories. Our financial reporting process utilizes the most current product hierarchy in reporting net sales by~~new merchandise category alignment for ~~all~~both periods presented. ~~Therefore, there may be minor reclassifications of net sales by merchandise category compared to previously reported amounts.~~

Net sales increased ~~$391.8~~$186.4 million, or ~~31.3%~~13.0%, to ~~$1,644.2~~$1,625.6 million in the ~~second~~first quarter of ~~2020,~~2021, compared to ~~$1,252.4~~$1,439.1 million in the ~~second~~first quarter of ~~2019.~~2020. The increase in net sales was primarily driven by ~~a 31.3%~~an 11.3% increase in our comps, which increased net sales by ~~$371.5~~$159.3 million. Additionally, our non-comparable sales increased net sales by ~~$20.3~~$27.1 million, driven by increased sales inof our new and relocated stores compared to closed stores. Our comps are calculated based on the results of all stores that were open at least fifteen months plus the results of our e-commerce net sales.

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~~We experienced a favorable impact to~~Our net sales during the ~~second~~first quarter of ~~2020 driven by~~2021 benefited from government sponsored relief packages related to COVID-19, which included stimulus payments and enhanced unemployment benefits, the majority of which were released in January 2021 and March 2021. Additionally, we continued to experience increased demand for our home products in the first quarter of 2021, which includes our Furniture, Seasonal, Soft Home, and Hard Home merchandise ~~categories,~~categories. We believe this increased demand was the result of the continuation of nesting trends we experienced in 2020 due to customers ~~spending~~investing more time atand

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discretionary funds in their ~~homes~~home as a ~~result~~byproduct of the ~~ongoing~~ COVID-19 coronavirus pandemic, combined with government stimulus and enhanced unemployment funds, and our position as an “essential retailer.” Additionally, we believe our net sales in the second quarter of 2020 were favorably impacted by a strong alignment of our product assortment with current customer demand and a decrease in competition compared to the second quarter of 2019, as certain of our competitors were closed for a portion of the quarter due to the COVID-19 coronavirus pandemic. In the ~~second~~first quarter of ~~2020, we made the decision to cancel our Friends~~2021, nesting trends shifted toward patio furniture and ~~Family promotion to address social distancing concerns related to the COVID-19 coronavirus pandemic. In response, we implemented a~~ “~~Your Deal, Your Day” promotion to offset the sales decrease caused by cancellation of the July 2020 Friends and Family promotion~~.

~~Throughout the COVID-19 coronavirus pandemic, our stores have remained open and operating, with the exception of a small number of temporary closures for cleaning. At August 1, 2020,~~ five of our stores were operating with shortened store hours due to local curfews, safety concerns, and/or adjusted shopping center hours. At August 1, 2020, none of our stores were subject to selling restrictions that limited our sales to “essential products.” We believe the impact of shortened operating hours and selling restrictions due to the COVID-19 coronavirus pandemic was immaterial to our results for the second quarter of 2020 and that the impact of shortened operating hours and selling restrictions due to the COVID-19 coronavirus pandemic will be immaterial to our results for the remainder of 2020.

In the second quarter of 2020, protests and civil unrest caused us to temporarily shorten operating hours at several of our stores. The impact of protests and civil unrest on our results of operations was immaterial for the second quarter of 2020.

~~In the second quarter of 2020, we introduced The Lot and the Queue Line in a substantial number of stores,~~other outdoor products, which ~~contributed to~~drove the increased net sales and ~~positive~~ comps in our Seasonal merchandise category compared to the ~~second~~first quarter of ~~2019.~~2020. While our business in the first quarter of 2021 benefited from COVID-19-related factors, such as government stimulus, we believe the strength of our trend-right home offerings provided a strong foundation for net sales growth compared to the first quarter of 2020. Additionally, we believe that our strategic initiatives - including The Lot, Queue Line, Broyhill®, and Pantry Optimization - continued to contribute to our increased net sales in the first quarter of 2021. The Lot is a cross-category presentation solution with a curated assortment to promote ~~life's occasions, such as fall camping. The~~life’s occasions. Queue Line offers our customers a streamlined checkout experience with a new and expanded convenience assortment and a smaller footprint. The Broyhill® brand, which we launched in 2019, continues to grow as we have expanded our assortment. Pantry Optimization reallocated square footage from our Food category to Consumables category. Our customers have responded positively to each of these strategic initiatives and we believe that our product assortment is aligned with customer demand. At the end of the first quarter of 2021, The Lot and Queue Line have been rolled out to approximately 1,050 and 1,200 stores, respectively.

~~All of~~Partially offsetting our success in home offerings was a decline in net sales in our Food and Consumables merchandise categories ~~generated increased net sales and positive comps~~ induring the ~~second~~first quarter of ~~2020~~2021 due to a decrease in demand for essential products, which we define as food, consumables, health products, and pet supplies, compared to the ~~second~~first quarter of ~~2019:~~

•~~Our~~ ~~Furniture~~ category experienced increased net sales and positive comps during the second quarter of 2020, driven by continued demand following the release of government stimulus and unemployment funds beginning in mid-April 2020. Additionally, our customers have chosen to invest in home furnishings due to spending more time at their homes as a result of the ongoing COVID-19 coronavirus pandemic and have continued to respond positively to our brand-name mattress assortment and our new Broyhill^® ~~furniture assortment.~~

•~~The~~ ~~Soft Home~~ category experienced increased net sales and comps during the second quarter of 2020, driven by an increase in demand as our customers chose to invest more in their home environment due to spending more time at their homes as a result of the ongoing COVID-19 coronavirus pandemic. Additionally, our Soft Home category benefited from a favorable response to our new Broyhill^® ~~offerings.~~

•~~The~~ ~~Seasonal~~ category experienced increased net sales and comps during the second quarter of 2020, driven by our summer and lawn & garden departments. Given our customers are spending more time at their homes as a result of the ongoing COVID-19 coronavirus pandemic, they have chosen to invest in our outdoor furniture and lawn care maintenance offerings, fueled by government stimulus. Our customers continue to respond well to our Broyhill^® ~~patio assortment introduced~~Demand for essential products surged in the first quarter of ~~2020.~~

•~~The increased net sales and positive comps in our~~ ~~Electronics, Toys, & Accessories~~ ~~category was driven by our toys, apparel, and accessories departments. The increase was primarily driven by the introduction of~~2020 as customers stocked up on these products ~~into The Lot and~~at the ~~Queue Line in many~~onset of ~~our stores. Additionally,~~ the ~~increased sales and comps in apparel were driven by graphic tees, which were introduced to our stores late in the fourth quarter of 2019.~~

•~~The~~ ~~Hard Home~~ category experienced increased net sales and comps during the second quarter of 2020, driven by increased net sales in our small appliances, table top, and food preparation departments. As a result of various state-wide closings of dine-in restaurants, our customer has focusedCOVID-19 pandemic. Our customers did not stock up on ~~her home and has chosen to invest in our offerings from~~ these ~~departments to improve her in-home dining experience.~~

•~~Our~~ ~~Consumables~~ ~~and~~ ~~Food~~ ~~categories experienced increased demand compared~~products to the ~~second quarter of 2019. However, we observed a deceleration in demand for essential products, such as Consumables and Food, in the second quarter of 2020 following the surge in demand we experienced~~same extent in the first quarter of ~~2020. We believe that~~2021. Despite the decline in net sales in the first quarter of 2021 in our ~~customers stocked up on essential products during~~Food and Consumables categories compared to the first quarter of 2020, ~~which reduced~~ the ~~need~~performance of our Food and Consumables categories was consistent with our expectations, and we believe that our Pantry Optimization initiative has been successful to ~~replenish these products during the second quarter of 2020.~~date.

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Gross Margin

Gross margin dollars increased ~~$185.3~~$83.2 million, or ~~37.2%~~14.6%, to ~~$683.6~~$653.9 million for the ~~second~~first quarter of ~~2020,~~2021, compared to ~~$498.2~~$570.8 million for the ~~second~~first quarter of ~~2019.~~2020. The increase in gross margin dollars was primarily due to an increase in net sales, which increased gross margin dollars by ~~$155.9~~$73.9 million. Gross margin as a percentage of net sales increased ~~180~~50 basis points to ~~41.6%~~40.2% in the ~~second~~first quarter of ~~2020 as~~2021 compared to ~~39.8%~~39.7% in the ~~second~~first quarter of ~~2019.~~2020. The gross margin rate increase was primarily ~~a result of a significantly~~due to lower ~~markdown rate~~markdowns and favorable product mix resulting from increased sales in higher ~~comps~~average gross margin items, particularly in our ~~higher~~Seasonal category, in the first quarter of 2021 compared to lower average gross margin ~~merchandise categories,~~items in the first quarter of 2020, partially offset by higher ~~shrink~~inbound freight costs. Freight costs increased primarily due to detention and ~~lower initial markup~~demurrage charges resulting from delayed receipt of ~~products, as our receipts have skewed toward domestic purchases, which carry a slightly lower average initial markup.~~inventory related to supply chain constraints, high transportation rates, and increasing fuel costs.

Selling and Administrative Expenses

Selling and administrative expenses were ~~$504.0~~$497.4 million for the ~~second~~first quarter of ~~2020,~~2021, compared to ~~$455.0~~$458.6 million for the ~~second~~first quarter of ~~2019.~~2020. The increase of ~~$49.0~~$38.8 million in selling and administrative expenses was ~~comprised of increases~~driven by an increase in ~~store-related payroll of $25.5 million,~~ distribution and transportation ~~costs~~expense of ~~$16.5~~$13.9 million, accrued bonus expense of ~~$11.0~~$8.9 million, ~~advertising~~share-based compensation expense of ~~$4.6~~$8.9 million, ~~sale~~$2.1 million of store occupancy costs, and ~~leaseback related expenses~~store-related payroll expense of ~~$4.0 million, transaction fees of $3.6 million, and store supplies expenses of $2.1~~$1.9 million, partially offset by the absence of ~~$19.5 million in costs~~proxy contest related to our transformational restructuring initiative announced in the second quarter of 2019, which consisted of consulting expenses and employee separation costs incurred during the second quarter of 2019, and a decrease in health benefit costs of ~~$2.9 million due to a lower amount of benefits claims during the second quarter of 2020.~~$3.7 million. The increase in ~~store-related payroll~~distribution and transportation expenses was ~~due to additional payroll hours to support the increased sales during~~driven by rent on our leased distribution centers, four of which were sold and leased back in the second quarter of 2020, and implementation during the first quarter of 2020 of a temporary $2 per hour wage increase for most of our non-exempt workforce during the COVID-19 coronavirus pandemic. The temporary $2 per hour wage increase was continued through early July 2020. The increase inhigher outbound transportation volume and higher distribution ~~and transportation~~ costs was driven by rent expense for our distribution centers, all of which are now leased following the completion of the sale and leaseback transactions completed in the second quarter of 2020, higher inbound and outbound shipment volume to support ~~the~~our increased ~~sales, and the aforementioned temporary $2 per hour wage increase.~~net sales. The increase in accrued bonus expense was ~~driven by~~due to increased performance in the ~~second~~first quarter of ~~2020~~2021 relative to our quarterly and annual operating plans as compared to ~~our performance in~~ the ~~second~~first quarter of ~~2019 relative to our quarterly~~2020 and ~~annual operating plans, and~~accrual of a ~~one-time~~ discretionary bonus ~~to recognize~~for most of our non-exempt associates in the first quarter of 2021. Our share-based compensation expense increased primarily due to the timing of establishing the grant date of our 2019 PSUs, for which the grant date was established in the first quarter of 2021, compared to our 2018 PSUs, for which the grant date was established in the third quarter of 2020. Our store occupancy costs increased as a result of new stores opened in the first quarter of 2021, which have higher rents than the stores closed, normal rent increases resulting from lease renewals, and ~~distribution centers. The increase in advertising expense was driven by increased investments in digital and social media engagement, and video media to promote The Lot and our Store~~a higher store count at the end of the ~~Future concept. The increase in sale and leaseback related expenses was due~~first quarter of 2021 compared to ~~consulting costs incurred in~~ the ~~completion of the sale and leaseback transaction for our four distribution centers in the second~~first quarter of 2020. The increase in ~~transaction fees, which includes credit card fees, debit card fees, and other transaction-driven costs,~~store-related payroll was ~~driven by the higher~~primarily due to additional payroll hours to support our increased net sales in the ~~second~~first quarter of ~~2020 compared~~2021. The proxy contest related costs were comprised of legal, public relations, and advisory fees, and settlement costs incurred to resolve a proxy contest in the ~~second~~first quarter of 2019. The increase in store supplies expense was due to safety and cleaning supplies, such as personal protective equipment, hand sanitizer, and disinfectants, distributed to our stores during the second quarter of 2020 to ensure a safe environment for our customers and associates during the COVID-19 coronavirus pandemic.2020.

As a percentage of net sales, selling and administrative expenses decreased ~~560~~130 basis points to ~~30.7%~~30.6% for the ~~second~~first quarter of ~~2020~~2021 compared to ~~36.3%~~31.9% for the ~~second~~first quarter of ~~2019.~~

~~Depreciation Expense~~

Depreciation expense increased $4.0 million to $34.0 million in the second quarter of 2020, compared to $30.0 million for the second quarter of 2019. The increase in expense was driven by our 2019 investments in our Apple Valley, California distribution center, new store build-outs, and Store of the Future remodels, and the acquisition of our corporate headquarters facility in the third quarter of 2019, partially offset by a decrease in depreciation due to the sale and leaseback of our four distribution centers in Durant, OK; Tremont, PA; Montgomery, AL; ~~and Columbus, OH.~~

~~Depreciation expense as a percentage of sales decreased 30 basis points compared to the second quarter of 2019.~~

~~Gain on Sale of Distribution Centers~~

~~The gain on sale of distribution centers in the~~ ~~second~~ ~~quarter of 2020 was $463.1 million which was attributable to the completion of sale and leaseback transactions for our four distribution centers located in~~ ~~Durant, OK; Tremont, PA; Montgomery, AL;~~ ~~and Columbus, OH.~~

2020.

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Depreciation Expense

Depreciation expense decreased $3.7 million to $34.0 million in the first quarter of 2021, compared to $37.7 million for the first quarter of 2020. Depreciation expense as a percentage of sales decreased 50 basis points compared to the first quarter of 2020. The decrease was driven by the sale of four distribution centers in second quarter of 2020 and the disposition of other store assets since the first quarter of 2020.

Interest Expense

Interest expense was ~~$2.5~~$2.6 million in the ~~second~~first quarter of ~~2020,~~2021, compared to ~~$4.6~~$3.3 million in the ~~second~~first quarter of ~~2019.~~2020. The decrease in interest expense was driven by a decrease in total average borrowings. We had total average borrowings (including finance leases and the financing liability related to the sale and leaseback ~~financing liability)~~transactions for four of ~~$249.4 million~~our distribution centers in the second quarter of ~~2020~~2020) of $180.7 million in the first quarter of 2021 compared to total average borrowings of ~~$482.1~~$452.8 million in the ~~second~~first quarter of ~~2019.~~2020. The decrease in total average borrowings ~~(including finance leases and the sale and leaseback financing liability)~~ was driven by our repayment of all outstanding borrowings under the ~~2018~~ Credit Agreement as a condition of the closing of the sale and leaseback ~~transactions. Our entry into the 2019 Term Note increased our total average borrowings (including finance leases and the sale and leaseback financing liability)~~transactions in the second quarter of 2020, partially offset by ~~$58.5 million. Additionally, our completion~~the establishment of the financing liability in connection with the sale and leaseback ~~transactions for our distribution centers~~transactions. The decrease in ~~the second quarter of 2020 gave rise to a financing liability which increased~~ total average borrowings ~~(including finance leases and~~was partially offset by a higher average interest rate on the sale and leaseback financing ~~liability) by $82.5 million.~~liability.

Other Income (Expense)

Other income (expense) was ~~$1.4~~$1.0 million of income in the ~~second~~first quarter of ~~2020,~~2021, compared to ~~$(0.8)~~$(3.3) million of expense in the ~~second~~first quarter of ~~2019.~~2020. The change was primarily driven by unrealized gains on our diesel fuel derivatives due to ~~a slight~~an increase in current and forward diesel fuel ~~pricing~~ prices in the ~~second~~first quarter of ~~2020~~2021 as compared to ~~losses on diesel fuel derivatives during~~a sharp decline in prices in the ~~second~~first quarter of ~~2019~~.2020.

Income Taxes

The effective income tax rate for the ~~second~~first quarter of ~~2020 was an expense rate of 25.6% compared to 21.1% in the second quarter of 2019. The increase in the effective income tax rate was primarily attributable to the distribution centers sale~~2021 and leaseback transactions. The effective tax rate on the distribution center sale and leaseback transactions was consistent with the overall effective tax rate for the second quarter of 2020. Therefore, the impact of discrete items was not significant to the rate in the quarter. In the second quarter of 2019, income before income taxes was substantially smaller and the benefit of discrete items was more impactful on the rate.

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~~YEAR-TO-DATE 2020 COMPARED TO YEAR-TO-DATE 2019~~

~~Net Sales~~

Net sales by merchandise category (in dollars and as a percentage of total net sales) in the year-to-date 2020 and the year-to-date 2019, and the change in net sales (in dollars and percentage) and the change in comps (in percentage) from the year-to-date 2020 compared to the year-to-date 2019 were as follows:

Year-to-Date
($ in thousands) 2020 2019 Change Comps
Furniture $ 855,438 27.7 % $ 687,255 27.0 % $ 168,183 24.5 % 22.6 %
Soft Home 516,378 16.8 399,904 15.7 116,474 29.1 28.9
Seasonal 496,021 16.1 429,597 16.9 66,424 15.5 15.6
Consumables 462,492 15.0 383,457 15.0 79,035 20.6 21.2
Food 388,830 12.6 350,282 13.7 38,548 11.0 11.2
Hard Home 191,777 6.2 163,751 6.4 28,026 17.1 17.6
Electronics, Toys, & Accessories 172,410 5.6 133,964 5.3 38,446 28.7 29.9
Net sales $ 3,083,346 100.0 % $ 2,548,210 100.0 % $ 535,136 21.0 % 20.6 %

Net sales increased $535.1 million, or 21.0%, to $3,083.3 million in the year-to-date 2020, compared to $2,548.2 million in the year-to-date 2019. The increase in net sales was driven by comp increases in each of our merchandise categories, with an overall comp increase of 20.6%, which increased net sales by $497.8 million. Additionally, our non-comparable sales increased net sales by $37.3 million, driven by increased sales of our new and relocated stores compared to closed stores.

Overall, we experienced a favorable impact to net sales during the year-to-date 2020 due to our position as an “essential retailer” during the COVID-19 coronavirus pandemic and the increased demand for our home products while customers are spending more time at home. In the first quarter of 2020 ~~we experienced a significant increase in demand for “essential products,” which we define as food, consumables, health products,~~was 21.8% and pet supplies, with the primary impact in our Food and Consumables merchandise categories, as concern over the COVID-19 coronavirus grew and customers began stocking up on essential products. Beginning in mid-April, we experienced a surge in demand for products in our Furniture, Seasonal, Soft Home and Hard Home categories driven by the release of government stimulus and unemployment funds. This demand continued through the second quarter of 2020 as customers have chosen to invest more in their homes as a result of spending more time at home.

In the year-to-date 2020, we introduced The Lot and the Queue Line in a substantial number of our stores, which contributed to the increased net sales and positive comps compared to the year-to-date 2019.

~~All of our merchandise categories generated increased net sales and positive comps in~~ ~~the year-to-date~~ ~~2020~~ ~~compared to the year-to-date~~ ~~2019~~:

•~~Our~~ ~~Furniture~~ category experienced increased net sales and positive comps during the year-to-date 2020, driven by a surge in demand following the release of government stimulus and unemployment funds during the year-to-date 2020. Our customers have responded positively to our brand-name mattress assortment and Broyhill^® ~~furniture offerings in the year-to-date 2020. Additionally, our customers have chosen to invest in home furnishings as a result of spending more time at home during the COVID-19 coronavirus pandemic.~~

•~~Our~~ ~~Food and Consumables~~ ~~categories experienced increased sales and positive comps driven by high demand for “essential products” during the COVID-19 coronavirus pandemic.~~

•~~The positive comps and increased net sales in our~~ ~~Soft Home~~ category were primarily driven by an increase in demand following the release of government stimulus and unemployment funds and our customers' decision to invest more in their homes as a result of spending more time at home. Additionally, our Soft Home category benefited from a favorable response to our new Broyhill^® ~~assortment.~~

•~~We experienced increased net sales and positive comps in our~~ ~~Seasonal~~ category, specifically in the summer and lawn & garden departments, driven by sales of high-ticket items such as patio furniture following the release of government stimulus and unemployment funds in mid-April 2020. Our customers have chosen to invest in our outdoor furniture and lawn maintenance assortments as a result of spending more time at home. Additionally, our customers continue to respond well to our new Broyhill^® ~~assortment of patio furniture.~~

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•~~The increased net sales and positive comps in~~ ~~Hard Home~~ was driven by an increase in small appliances, table top, and food preparation departments. Despite space reductions and the exit from our greeting card offering, we experienced high demand for products that improve our customers' at-home dining experience.

•~~Our~~ ~~Electronics, Toys, & Accessories~~ category experienced increased net sales and positive comps driven by our toys, apparel, and accessories departments. The increased sales and comps were driven by the introduction of these products into the Queue Line and The Lot in the year-to-date 2020.

~~Gross Margin~~

Gross margin dollars increased $237.0 million, or 23.3%, to $1,254.3 million for the year-to-date 2020, compared to $1,017.3 million for the year-to-date 2019. The increase in gross margin dollars was principally due to an increase in net sales, which increased gross margin dollars by $213.6 million. Gross margin as a percentage of net sales increased 80 basis points to 40.7% in the year-to-date 2020, compared to 39.9% in the year-to-date 2019. This gross margin rate increase was primarily due to a lower markdown rate, and the absence of a $6.0 million impairment of inventory in our greeting cards department, which we chose to exit in the first quarter of 2019, partially offset by higher shrink costs and a lower initial mark-up compared to the year-to-date 2019, as our receipts have skewed toward domestic purchases, which carry a slightly lower average initial markup.

~~Selling and Administrative Expenses~~

Selling and administrative expenses were $962.6 million for the year-to-date 2020, compared to $915.6 million for the year-to-date 2019. The increase of $47.0 million in selling and administrative expenses was attributable to increases in store-related payroll of $29.5 million, distribution and transportation costs of $23.7 million, accrued bonus expense of $12.5 million, advertising expense of $5.1 million, store occupancy costs of $4.7 million, $4.2 million of transaction fees, $4.0 million of sale and leaseback related expenses, employee retirement and separation costs of $3.9 million, proxy contest-related costs of $3.7 million, and $3.4 million in store supplies, partially offset by the absence of $34.8 million in costs incurred for our transformational restructuring initiative, the absence of a $7.3 million loss contingency recorded in the year-to-date 2019, and a decrease in health benefits costs of $5.1 million. The increase in store-related payroll was driven by additional payroll hours allocated to stores to support the increased net sales during the year-to-date 2020 and a temporary $2 per hour wage increase, which began in March 2020 and continued through early July 2020, for most of our non-exempt workforce during the COVID-19 coronavirus pandemic. The increase in distribution and transportation expenses was due to the transition from our Rancho Cucamonga, California distribution center to our new Apple Valley, California distribution center, rent expense on our leased distribution centers, higher inbound and outbound volume to support the increased year-to-date net sales, and the aforementioned temporary $2 per hour wage increase. The increase in accrued bonus expense was driven by increased performance in the year-to-date 2020 relative to our quarterly and annual operating plans as compared to our performance in the year-to-date 2019 relative to our quarterly and annual operating plans, and a one-time discretionary bonus to recognize our non-exempt associates in our stores and distribution centers. Advertising expense increased due to increased investments in digital and social media engagement, and video media to promote The Lot and our Store of the Future concept to customers. Store-related occupancy costs increased due to new stores opened since the year-to-date 2019, which have higher rents than the stores closed, and normal rent increases resulting from lease renewals. The increase in transaction fees, which includes credit card fees, debit card fees, and other transaction-driven costs, was primarily due to the increased net sales in the year-to-date 2020 compared to the year-to-date 2019. The increase in sale and leaseback related expenses was due to consulting costs incurred in the completion of the sale and leaseback transaction for our four distribution centers in the second quarter of 2020. The increase in employee retirement and separation costs was primarily driven by the retirement and separation of senior executives in the year-to-date 2020. The proxy contest-related costs were comprised of legal, public relations, and advisory fees, and settlement costs incurred to resolve a proxy contest in the first quarter of 2020. The store supplies expense increase was driven by safety and cleaning supplies, such as personal protective equipment, hand sanitizer, and disinfectants, distributed to our stores in the year-to-date 2020 to ensure a safe environment for our customers and associates during the COVID-19 coronavirus pandemic. The costs incurred for our transformational restructuring initiative consisted of consulting expenses and employee separation costs recognized in the year-to-date 2019. The loss contingency recorded in the year-to-date 2019 was associated with wage and hour claims in the State of California. The decrease in health benefits costs was primarily due to lower benefits claim volume in the year-to-date 2020 as many medical care providers suspended non-emergency care and procedures during the year-to-date 2020 due to the COVID-19 coronavirus pandemic.

~~As a percentage of net sales, selling and administrative expenses decreased 470 basis points to 31.2% for the year-to-date 2020 compared to 35.9% for the year-to-date 2019.~~

~~Depreciation Expense~~

Depreciation expense increased $8.9 million to $71.7 million in the year-to-date 2020, compared to $62.8 million for the year-to-date 2019. The increase was driven primarily by investments in our Apple Valley, California distribution center, new store build-outs, and Store of the Future remodels, and the acquisition of our corporate headquarters facility in the third quarter of 2019, partially offset by a decrease due to the sale and leaseback of our four distribution centers in the second quarter of 2020.

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~~Depreciation expense as a percentage of sales decreased by 20 basis points compared to the year-to-date 2019.~~

~~Gain on Sale of Distribution Centers~~

The gain on sale of distribution centers in the year-to-date 2020 was $463.1 million, which was attributable to the sale and leaseback of our distribution centers in Durant, OK; Tremont, PA; Montgomery, AL; and Columbus, OH during the second quarter of 2020.

~~Interest Expense~~

Interest expense was $5.9 million in the year-to-date 2020, compared to $8.3 million in the year-to-date 2019. The decrease in interest expense was driven by lower total average borrowings (including finance leases and the sale and leaseback financing liability) and a lower average interest rate on our revolving debt. We had total average borrowings (including finance leases and the sale and leaseback financing liability) of $351.1 million in the year-to-date 2020 compared to total average borrowings (including finance leases and the sale and leaseback financing liability) of $455.5 million in the year-to-date 2019. The decrease in total average borrowings (including finance leases and the sale and leaseback financing liability) was driven by our repayment of all outstanding debt under the 2018 Credit Agreement following the sale and leaseback transaction completed in the second quarter of 2020. This decrease was partially offset by our entry into the 2019 Term Note, which increased our total average borrowings (including finance leases and the sale and leaseback financing liability) in the year-to-date 2020 by $60.2 million. Additionally, our completion of the sale and leaseback transactions for our distribution centers in the second quarter of 2020 gave rise to a financing liability which increased total average borrowings (including finance leases and the sale and leaseback financing liability) by $41.3 million in the year-to-date 2020. The average interest rate on our revolving debt, which is variable based on LIBOR and our credit rating, decreased due to a significant decline in the LIBOR rate in the year-to-date 2020 as a result of the COVID-19 coronavirus pandemic, partially offset by the impact of a decrease in our credit rating during the first quarter of 2020.

~~Other Income (Expense)~~

Other income (expense) was $(2.0) million in the year-to-date 2020, compared to $0.1 million in the year-to-date 2019. The change was primarily driven by unrealized losses on our diesel fuel derivatives due to a sharp decline in current and forward diesel fuel prices in the first quarter of 2020 as a result of the COVID-19 coronavirus pandemic.

~~Income Taxes~~

~~The effective income tax rate for the year-to-date 2020 and the year-to-date 2019 were 25.8% and 29.1%~~27.2%, respectively. The decrease in the effective income tax rate was primarily attributable to the ~~relative impact of~~ net tax ~~deficiencies associated with settlement of share-based payment awards. The impact of the net tax deficiencies~~benefit associated with settlement of share-based payment awards ~~was similar in value in~~during the year-to-date 2020 and the year-to-date 2019, but its impact on the tax rate was significantly curtailed in the year-to-date 2020 by the significant growth in taxable income in the year-to-date 2020 as compared to the year-to-date 2019.first quarter of 2021.

~~2020~~2021 Guidance

In March 2020, the World Health Organization declared ~~the~~ COVID-19 ~~coronavirus~~ a pandemic. The ~~rapid spread~~effects of the ~~disease throughout~~virus, the ~~U.S. has negatively~~related government response, and the impact on consumer spending behaviors have significantly impacted ~~the U.S. economy, which has caused significant volatility in~~ our business and reduced our visibility to future financial results. ~~Therefore, in March 2020, the Company withdrew its full year guidance for 2020.~~ At this time, the Company ~~still~~ does not believe it has sufficient visibility to ~~reinstate~~provide full year ~~guidance. We~~guidance for 2021.

As of May 28, 2021, and excluding consideration of potential share repurchase activity, we expect ~~to provide a business update at~~ the ~~end of September 2020 when we have greater visibility to expected results for~~following in the ~~third~~second quarter of ~~2020.~~

2021:

•Comparable sales decrease in the low double digits as the second quarter of 2020 benefited significantly from a government sponsored relief package;

•Gross margin rate below last year in consideration of macro-economic headwinds in freight cost;

•Selling and administrative expenses slightly below last year; and

•Diluted earnings per share in the range of $1.00 to $1.15.

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Capital Resources and Liquidity

On August 31, 2018, we entered into the ~~2018~~ Credit Agreement, which provides for a $700 million five-year unsecured credit facility. The ~~2018~~ Credit Agreement expires on August 31, 2023. Borrowings under the ~~2018~~ Credit Agreement are available for general corporate purposes, working capital, and to repay certain indebtedness. The ~~2018~~ Credit Agreement includes a $30 million swing loan sublimit, a $75 million letter of credit sublimit, a $75 million sublimit for loans to foreign borrowers, and a $200 million optional currency sublimit. The interest rates, pricing and fees under the ~~2018~~ Credit Agreement fluctuate based on our debt rating. The ~~2018~~ Credit Agreement allows us to select our interest rate for each borrowing from multiple interest rate options. The interest rate options are generally derived from the prime rate or LIBOR. We may prepay revolving loans made under the ~~2018~~ Credit Agreement without penalty. The ~~2018~~ Credit Agreement contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens and investments, as well as the maintenance of two financial ratios – a leverage ratio and a fixed charge coverage ratio. The covenants of the ~~2018~~ Credit Agreement do not restrict our ability to pay dividends. Additionally, we are subject to cross-default provisions associated with the synthetic lease for our distribution center in Apple Valley, ~~California.~~CA. A violation of any of the covenants could result in a default under the ~~2018~~ Credit Agreement that would permit the lenders to restrict our ability to further access the ~~2018~~ Credit Agreement for loans and letters of credit and require the immediate repayment of any outstanding loans under the ~~2018~~ Credit Agreement. At ~~August~~May 1, ~~2020,~~2021, we were in compliance with the covenants of the ~~2018~~ Credit Agreement. At May 1, 2021, we had no borrowings under the Credit Agreement, and the borrowings available under the Credit Agreement were $694.2 million, after taking into account the reduction in availability resulting from outstanding letters of credit totaling $5.8 million.

On August 7, 2019, we entered into the 2019 Term Note, a $70 million term note agreement, which iswas secured by the equipment at our ~~new~~ California distribution center. ~~The 2019 Term Note will expire on May 7, 2024. We are required to make monthly payments over the term of the 2019 Term Note and are permitted to prepay the note, subject to penalties, at any time.~~ The interest rate on the note iswas fixed at 3.3%. In light of our strong liquidity and current market conditions, on June 7, 2021, we prepaid the remaining $44.3 million principal balance under the 2019 Term Note. In connection with the prepayment, we incurred a $0.4 million prepayment fee and recognized a $0.5 million loss on debt extinguishment in the second quarter of 2021.

The primary source of our liquidity is cash flows from operations and borrowings under the 2018 Credit Agreement, as necessary. Our net income and, consequently, our cash provided by operations are impacted by net sales volume, seasonal sales patterns, and operating profit margins. Our net sales are typically highest during the nine-week Christmas selling season in our fourth fiscal quarter. ~~However, due to demand volatility we~~We have ~~experienced during the COVID-19 coronavirus pandemic, the seasonality of our 2020 results may differ from our historical experience.~~ ~~Generally,~~historically funded our working capital ~~requirements peak late in our third fiscal quarter or early in our fourth fiscal quarter. We have typically funded those~~ requirements with borrowings under our credit facility. ~~At August 1, 2020, we had no borrowings under the 2018 Credit Agreement,~~However, based on our current cash and the borrowings available under the 2018 Credit Agreement were $688.6 million, after taking into account the reduction in availability resulting from outstanding letters of credit totaling $11.4 million. We believe that cash on hand, cash equivalents position and projected cash ~~available~~flows from ~~future~~ operations, ~~and our 2018 Credit Agreement will provide us with sufficient liquidity~~we intend to fund our ~~operations~~working capital requirements, along with capital expenditures, share repurchases, and other contractual commitments, for ~~at least~~ the ~~next twelve months.~~upcoming quarter without borrowing under the Credit Agreement. Cash requirements include among other things, capital expenditures, working capital needs, interest payments, and other contractual commitments.

As a measure to secure additional liquidity during a period of economic uncertainty caused by the COVID-19 coronavirus pandemic, on June 12, 2020, we completed the sale and leaseback transactions relating to our distribution centers located in Columbus, OH; Durant, OK; Montgomery, AL; and Tremont, PA for an aggregate selling price of $725 million. Due to sale-leaseback accounting requirements, the proceeds received in the transactions were allocated between proceeds on the sale of the distribution centers and financing proceeds. Accordingly, aggregate net proceeds on the sales of the distribution centers was $586.9 million and the aggregate gain on the sales was $463.1 million. The remainder of consideration received was financing liability proceeds of $134.0 million.

In the second quarter of 2020, we invested a portion of the proceeds from the sale and leaseback of our four distribution centers in money market fund investments and commercial paper investments. These highly liquid investments were recorded in cash and cash equivalents in our consolidated balance sheets. Our aggregate money market fund and commercial paper investments were $579.9 million and $0 at August ~~1, 2020 and February 1, 2020, respectively.~~

As a result of the sale and leaseback transactions and our strong cash flow from operations during the year-to-date 2020, our cash and cash equivalents increased $844.9 million to $898.6 million from the second quarter of 2019.

~~On August 27,~~ 2020, our Board of Directors authorized the ~~2020 Repurchase Authorization, which provides for the~~ repurchase of up to $500 million of our common ~~shares.~~shares (“2020 Repurchase Authorization”). Pursuant to the 2020 Repurchase Authorization, we are authorized to repurchase shares in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. Common shares acquired through the 2020 Repurchase Authorization will be available to meet obligations under our equity compensation plans and for general corporate purposes. The 2020 Repurchase Authorization has no scheduled termination date and we intend to fund repurchases under the authorization with cash and cash equivalents on hand and cash generated from operations going forward. During the first quarter of 2021, we purchased 1.1 million of our common shares for $77.5 million under the 2020 Repurchase Authorization, at an average price of $67.45. At May 1, 2021, we had $249.6 million available for future repurchases under the 2020 Repurchase Authorization.

23In February 2021, our Board of Directors declared a quarterly cash dividend of $0.30 per common share payable on April 2, 2021 to shareholders of record as of the close of business on March 19, 2021. The cash dividend of $0.30 per common share is consistent with our quarterly dividends declared in 2020. In the first quarter of 2021, we paid approximately $12.5 million in dividends, consistent with the dividends paid of $12.5 million in the first quarter of 2020.

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In May ~~2020,~~2021, our Board of Directors declared a quarterly cash dividend of $0.30 per common share payable on June ~~26, 2020~~25, 2021 to shareholders of record as of the close of business on June 12, 2020. The cash dividend of $0.30 per common share is consistent with our quarterly dividends declared in 2019. In the year-to-date of 2020, we paid approximately $24.3 million in dividends compared to $24.9 million in the year-to-date of 2019.11, 2021.

~~In August 2020, our Board~~

Table of ~~Directors declared a quarterly cash dividend of $0.30 per common share payable on September 25, 2020 to shareholders of record as of the close of business on September 11, 2020.~~

Contents

The following table compares the primary components of our cash flows from the ~~year-to-date 2020~~first quarter 2021 compared to the ~~year-to-date 2019:~~first quarter 2020:


(In thousands)	(In thousands)	2020		2019		Change		(In thousands)	2021		2020		Change
Net cash provided by operating activities	Net cash provided by operating activities	$	468,384	$	158,285	$	310,099	Net cash provided by operating activities	$	204,293	$	146,121	$	58,172
Net cash provided by (used in) investing activities		517,586		(162,731)		680,317
Net cash used in investing activities								Net cash used in investing activities	(32,170)		(28,913)		(3,257)
Net cash (used in) provided by financing activities	Net cash (used in) provided by financing activities	$	(140,131)	$	12,117	$	(152,248)	Net cash (used in) provided by financing activities	$	(118,350)	$	141,943	$	(260,293)

Cash provided by operating activities increased ~~$310.1~~by $58.2 million to ~~$468.4~~$204.3 million in the ~~year-to-date 2020~~first quarter of 2021 compared to ~~$158.3~~$146.1 million in the year-to-date 2019. The primary drivers of the increase were an increase of $479.6 million in net income, a $202.4 million increase in current income taxes, a $112.3 million increase in cash inflows from inventories, and a $52.7 million increase in cash inflows from accounts payable, partially offset by an increase in the add-back for gain on disposition of equipment and property of $462.8 million, a $55.3 million increase in cash outflows from operating lease liabilities, and an increase in the add-back for deferred taxes of $48.2 million. The increase in net income was due to the gain on sale of distribution centers in the second quarter of 2020 and a $535.1 million increase in net sales in the year-to-date 2020. Similarly, the increase in current income taxes was due to the higher income before income taxes, which resulted from the gain on sale of distribution centers and increased net sales. The increase in cash inflows from inventories was primarily driven by the increase in net sales during the year-to-date 2020 as compared to the year-to-date 2019, and an 18.4% decrease in inventory at the end of the secondfirst quarter of 2020. The increase in the change in accounts payable was primarily the result of a decrease in the book overdraft for the year-to-date 2020, which increased the change in accounts payable by approximately $55 million. The increase in the add-back for gain on disposition of equipment and property was principally ~~due to the gain on sale of distribution centers in the second quarter of 2020. The increase in outflows~~driven by our higher net income after adjusting for ~~operating~~non-cash activities such as non-cash share-based compensation expense and non-cash lease liabilities was primarily due to the prepayment of the first year of rent for our four distribution centers sold and leased back in the second quarter of 2020. The increase in the add-back for deferred taxes was primarily due to the deferred gain on the sale of our Rancho Cucamonga, California distribution center in the third quarter of 2019.expense.

Cash ~~provided by (used in)~~used in investing activities increased by ~~$680.3~~$3.3 million to ~~cash provided by investing activities of $517.6~~$32.2 million in the ~~year-to-date 2020~~first quarter of 2021 compared to ~~cash used in investing activities of $162.7~~$28.9 million in the ~~year-to-date 2019.~~first quarter of 2020. The increase was principally due to an increase ~~of $586.9 million in cash proceeds from sale of property and equipment, partially offset by a decrease of $93.4 million~~ in capital expenditures. The increase in cash proceeds from sale of property and equipment was due to the completion of the sale and leaseback transactions for our four distribution centers in the second quarter of 2020. The decrease in capital expenditures was driven by our decisions to reduce our investments in our Store of the Future concept in 2020, reduce investments in new stores in 2020 to preserve liquidity and promote safety during the COVID-19 coronavirus pandemic, and a decrease in investments in our Apple Valley, California distribution center which opened in late 2019.

Cash (used in) provided by financing activities increased by ~~$152.2~~$260.3 million to cash used in financing activities of ~~$140.1~~$118.4 million in the ~~year-to-date 2020~~first quarter of 2021 compared to cash provided by financing activities of ~~$12.1~~$141.9 million in the ~~year-to-date 2019.~~first quarter of 2020. The ~~primary driver~~increase was primarily driven by borrowings under the Credit Agreement in the first quarter of 2020, which was due to our borrowing approximately $200 million under the Credit Agreement in the first quarter of 2020 as a liquidity safeguard at the outset of the ~~increase in cash used in financing activities was~~COVID-19 pandemic and an increase ~~in net repayments of long-term debt of $329.9 million, partially offset by an increase in net financing proceeds from sale and leaseback of $124.1 million and a decrease~~ in payment for treasury shares acquired in the first quarter of ~~$52.9 million. The increase in net repayments of long-term debt was a result of the repayment of all outstanding borrowings~~2021 primarily due to shares repurchased under the ~~2018 Credit Agreement following~~2020 Repurchase Authorization. In the ~~completion of the sale and leaseback transaction for our four distribution centers in the second~~first quarter of 2020. The increase in net financing proceeds from sale and leaseback was driven by the sale and leaseback transactions completed for our four distribution centers in second quarter of 2020. The decrease in payment for treasury shares acquired was due to the absence of a2020, we had no active share repurchase program in ~~the year-to-date 2020 compared to the year-to-date 2019.~~place.

~~Table of Contents~~

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its estimates, judgments, and assumptions, and bases its estimates, judgments, and assumptions on historical experience, current trends, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. See note 1 to our consolidated financial statements included in our ~~2019~~2020 Form 10-K for additional information about our accounting policies.

The estimates, judgments, and assumptions that have a higher degree of inherent uncertainty and require the most significant judgments are outlined in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our ~~2019~~2020 Form 10-K. Had we used estimates, judgments, and assumptions different from any of those discussed in our ~~2019~~2020 Form 10-K, our financial condition, results of operations, and liquidity for the current period could have been materially different from those presented.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risk from exposure to changes in interest rates on investments that we make from time to time and on borrowings under the ~~2018~~ Credit Agreement. We had no borrowings under the ~~2018~~ Credit Agreement at ~~August~~May 1, ~~2020.~~2021. An increase of 1% in our variable interest rate on our expected future borrowings would not currently materially affect our financial condition, results of operations, or liquidity.

We are subject to market risk from exposure to changes in our derivative instruments associated with diesel fuel. At ~~August~~May 1, ~~2020,~~2021, we had outstanding derivative instruments, in the form of collars, covering ~~5.5~~3.0 million gallons of diesel fuel. The below table provides further detail related to our current derivative instruments, associated with diesel fuel.


Calendar Year of Maturity	Calendar Year of Maturity	Diesel Fuel Derivatives							Fair Value		Calendar Year of Maturity		Diesel Fuel Derivatives					Fair Value
			Puts		Calls			Asset (Liability)	Calendar Year of Maturity			Puts		Calls			Asset (Liability)
		(Gallons, in thousands)								(In thousands)			(Gallons, in thousands)					(In thousands)
2020		1,920		1,920		$	(964)
2021	2021	2,400		2,400		(1,030)		2021		1,800			1,800		$	84
2022	2022	1,200		1,200		(476)		2022		1,200			1,200		183
Total	Total	5,520		5,520		$	(2,470)	Total		3,000			3,000		$	267

Additionally, at ~~August~~May 1, ~~2020,~~2021, a 10% difference in the forward curve for diesel fuel prices could affect unrealized gains (losses) in other income (expense) by approximately ~~$1.5~~$1.0 million.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have each concluded that such disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

Part II. Other Information

Item 1. Legal Proceedings

~~No response is required under Item 103 of Regulation S-K.~~ For information regarding certain legal proceedings to which we have been named a ~~discussion of certain litigated matters,~~party or are subject, see note 7 to the accompanying consolidated financial statements.

Item 1A. Risk Factors

During the ~~second~~first quarter of ~~2020,~~2021, there were no material changes to the risk factors previously disclosed in our ~~2019~~2020 Form 10-K.

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

~~(In thousands, except price per share data)~~

~~Period~~

~~(a) Total Number of Shares Purchased~~ ⁽¹⁾

~~(b) Average Price Paid per Share~~

~~(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs~~

~~(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs~~

~~May 3, 2020 - May 30, 2020~~

—

~~27.15~~

—

~~May 31, 2020 - June 27, 2020~~

—

~~June 28, 2020 - August 1, 2020~~

—

~~Total~~

—

~~27.15~~

—


(In thousands, except price per share data)
Period	(a) Total Number of Shares Purchased (1)(2)	(b) Average Price Paid per Share (1)(2)		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 31, 2021 - February 27, 2021	41	$	55.25	39	$	325,000
February 28, 2021 - March 27, 2021	543	67.85		500	290,948
March 28, 2021 - May 1, 2021	954	68.56		610	249,634
Total	1,538	$	67.96	1,149	$	249,634

(1) In ~~May 2020,~~February, March, and April 2021, in connection with the vesting of certain outstanding restricted stock units, PSUs, and ~~performance share units,~~PRSUs, we acquired ~~394~~946, 42,930 and 344,189 of our common shares, ~~that~~respectively, which were withheld to satisfy ~~minimum statutory~~ income tax withholdings.

(2) The 2020 Repurchase Authorization is comprised of an August 27, 2020 authorization by our Board of Directors for the repurchase of up to $500.0 million of our common shares. During the first quarter of 2021, we purchased approximately 1.1 million of our common shares for approximately $77.5 million under the 2020 Repurchase Authorization. The 2020 Repurchase Authorization has no scheduled termination date.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

2621

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Item 6. Exhibits

Exhibits marked with an asterisk (*) are filed herewith.

~~Certain portions of the exhibits marked with a pound sign (#) have been excluded from the exhibit pursuant to Item 601(b)(10)(iv) of Regulation S-K.~~


			Exhibit No.						Document
			10.1						Form of Big Lots 2020 Long-Term Incentive Plan Performance Share Units Award Agreement (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated March 9, 2021).
			~~10.1*#~~10.2						~~Agreement for Purchase and Sale~~Form of ~~Real Property, as amended, between Durant DC, LLC and BIGDUOK001 LLC relating to the registrant’s distribution center located in Durant, Oklahoma.~~
			~~10.~~2 *#						~~Lease Agreement, as amended, between~~ Big Lots ~~Stores, Inc. and BIGCOOH002, LLC relating~~2020 Long-Term Incentive Plan Restricted Stock Units Award Agreement (incorporated herein by reference to ~~the registrant’s distribution center located in Columbus, Ohio.~~Exhibit 10.2 to our Form 8-K dated March 9, 2021).
			31.1*						Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
			31.2*						Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
			32.1*						Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
			32.2*						Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
			101.Def*						XBRL Taxonomy Definition Linkbase Document
			101.Pre*						XBRL Taxonomy Presentation Linkbase Document
			101.Lab*						XBRL Taxonomy Labels Linkbase Document
			101.Cal*						XBRL Taxonomy Calculation Linkbase Document
			101.Sch						XBRL Taxonomy Schema Linkbase Document
			101.Ins						XBRL Taxonomy Instance Document - the instance document does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL document
			104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Signature

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.

Dated: ~~September~~June 9, ~~2020~~2021


			BIG LOTS, INC.

			By: /s/ Jonathan E. Ramsden

			Jonathan E. Ramsden
			Executive Vice President, Chief Financial and Administrative Officer
			(Principal Financial Officer, Principal Accounting Officer and Duly Authorized Officer)

2722


(In thousands)	Balance Sheet Location	February 1, 2020		Level 1		Level 2
Assets:
Money market funds	Cash and cash equivalents	$	0	$	0	$	0
Commercial paper	Cash and cash equivalents	0		0		0
Mutual funds - deferred compensation plan	Other Assets	$	33,715	$	33,715	$	0