SPORTSMANS WAREHOUSE HOLDINGS INC

Previous wording

Global economic and business activities continue to face widespread macroeconomic uncertainties, including labor shortages, inflation and monetary supply shifts, rising interest rates, recession risks and potential disruptions from the Russia-Ukraine conflict and the Israel-Hamas war. Our results may also be impacted by the upcoming presidential election this year. In fiscal year 2023 and continuing into the first quarter of fiscal year 2024 our business was impacted by consumer inflationary pressures and recession concerns. As a result of our recent performance, we have taken steps to reduce our total inventory, implement cost reduction measures to reflect current sales trends and reduce investments in future new store openings. We currently do not plan to open any new stores during fiscal year 2024.

Current wording

Global economic and business activities continue to face widespread macroeconomic uncertainties, including labor shortages, inflation and monetary supply shifts, high interest rates, recession risks and potential disruptions from the Russia-Ukraine conflict and rising global political tensions. Our results may also be impacted by the upcoming presidential election this year. In fiscal year 2023 and continuing into the first half of fiscal year 2024 our business was impacted by consumer inflationary pressures and recession concerns. As a result of our recent performance, we have taken steps to reduce our total inventory, implement cost reduction measures to reflect current sales trends and reduce investments in future new store openings. We currently do not plan to open any new stores during fiscal year 2024.

Previous wording

macroeconomic factors, political trends, social unrest, inflationary pressures, recessionary trends, labor shortages, monetary supply shifts, rising interest rates, tightening of credit markets, and potential disruptions from the ongoing Russia-Ukraine conflict and Israel-Hamas war and pandemics;

Current wording

macroeconomic factors, political trends, social unrest, inflationary pressures, recessionary trends, labor shortages, monetary supply shifts, high interest rates, tightening of credit markets, and potential disruptions from the ongoing Russia-Ukraine conflict and rising global political tensions and pandemics;

Previous wording

We operate in a complex regulatory and legal environment that could negatively impact the demand for our products, which could significantly affect our operations and financial results. State, local and federal laws and regulations relating to products that we sell may change, sometimes significantly, as a result of political, economic or social events. For instance, in November 2022, the State of Oregon passed legislation that will, among other things, impose complex permitting and training requirements for the purchases of firearms. As a result, sales of firearms in Oregon may be halted or substantially diminished until such permitting and training programs are developed by the state, which may take a significant amount of time. If that were to occur, it could result in a substantial decline in our sales of firearms and related products and reduce traffic to our stores in Oregon, which could have a substantial impact on our sales and gross margin. On December 6, 2022, a state court judge in Oregon temporarily blocked the enforcement of such legislation pending trial. The measure is also being challenged in a related case in federal court and is currently on appeal in the U.S. Court of Appeals for the Ninth Circuit. We currently operate eight stores in the State of Oregon.

Current wording

We operate in a complex regulatory and legal environment that could negatively impact the demand for our products, which could significantly affect our operations and financial results. State, local and federal laws and regulations relating to products that we sell may change, sometimes significantly, as a result of political, economic or social events. For instance, in November 2022, the State of Oregon passed legislation that will, among other things, impose complex permitting and training requirements for the purchases of firearms. As a result, sales of firearms in Oregon may be halted or substantially diminished until such permitting and training programs are developed by the state, which may take a significant amount of time. If that were to occur, it could result in a substantial decline in our sales of firearms and related products and reduce traffic to our stores in Oregon, which could have a substantial impact on our sales and gross margin. A state court judge in Oregon ruled that the measure violates the Oregon state constitution. This ruling is currently being appealed in the Oregon Court of Appeals. The measure is also being challenged in a related case in federal court and is currently on appeal in the U.S. Court of Appeals for the Ninth Circuit. We currently operate eight stores in the State of Oregon.

Previous wording

We believe the key drivers to improving our gross margin are increasing the product mix to higher margin products, particularly apparel and footwear, increasing foot traffic within our stores and traffic to our website, improving buying opportunities with our vendor partners and coordinating pricing strategies among our stores and our merchandise group. Our ability to properly manage our inventory can also impact our gross margin. Successful inventory management ensures we have sufficient high margin products in stock at all times to meet customer demand, while overstocking of items could lead to markdowns in order to help a product sell. During fiscal year 2023, we commenced an effort to reduce our inventory and initiated various strategic promotional efforts as part of this plan, which impacted our gross margins during fiscal year 2023. At the end of fiscal year 2023, we completed our inventory reduction plan. During the first quarter of fiscal year 2024 our gross margins have begun to return to rates more in line with historical numbers. We believe that the overall growth of our business can also help improve our gross margins, because increased merchandise volumes will enable us to maintain our strong relationships with our vendors. If we see significant declines in sales or increases in overstocked inventory, we may experience a decline in gross margins as we use promotions to drive traffic and reduce inventory.

Current wording

We believe the key drivers to improving our gross margin are increasing the product mix to higher margin products, particularly apparel and footwear, increasing foot traffic within our stores and traffic to our website, improving buying opportunities with our vendor partners and coordinating pricing strategies among our stores and our merchandise group. Our ability to properly manage our inventory can also impact our gross margin. Successful inventory management ensures we have sufficient high margin products in stock at all times to meet customer demand, while overstocking of items could lead to markdowns in order to help a product sell. During fiscal year 2023, we commenced an effort to reduce our inventory and initiated various strategic promotional efforts as part of this plan, which impacted our gross margins during fiscal year 2023. At the end of fiscal year 2023, we completed our inventory reduction plan. During the first half of fiscal year 2024 our gross margins have begun to return to rates more in line with historical numbers when compared to the second half of fiscal year 2023. We believe that the overall growth of our business can also help improve our gross margins, because increased merchandise volumes will enable us to maintain our strong relationships with our vendors. If we see significant declines in sales or increases in overstocked inventory, we may experience a decline in gross margins as we use promotions to drive traffic and reduce inventory.

Previous wording

Net Sales and Same Store Sales. Net sales decreased by $23.3 million, or 8.7%, to $244.2 million during the 13 weeks ended May 4, 2024 compared to $267.5 million in the corresponding period of fiscal year 2023. Our net sales decreased primarily due to the impact of consumer inflationary pressures on discretionary spending, resulting in a decline in store traffic and lower demand across most product categories. This decrease was partially offset by our opening of 11 new stores since April 29, 2023. Stores that have been open for less than 12 months and were, therefore, not included in our same store sales, contributed $15.6 million to net sales. E-commerce driven sales comprised more than 18% of total sales for the 13 weeks ended May 4, 2024. Same store sales decreased by 13.5% during the 13 weeks ended May 4, 2024 compared to the corresponding 13-week period of fiscal year 2023, primarily as a result of the factors discussed above that impacted net sales.

Current wording

Net Sales and Same Store Sales. Net sales decreased by $20.8 million, or 6.7%, to $288.7 million during the 13 weeks ended August 3, 2024 compared to $309.5 million in the corresponding period of fiscal year 2023. Our net sales decreased primarily due to the continued impact of consumer inflationary pressures on discretionary spending, resulting in a decline in store traffic and lower demand across most product categories. This decrease was partially offset by same store sales growth in our fishing department and our opening of 6 new stores since July 29, 2023. Stores that have been open for less than 12 months and were, therefore, not included in our same store sales, contributed $11.2 million to net sales. E-commerce driven sales comprised more than 19% of total sales for the 13 weeks ended August 3, 2024. Same store sales decreased by 9.8% during the 13 weeks ended August 3, 2024 compared to the corresponding 13-week period of fiscal year 2023, primarily as a result of the factors discussed above that impacted net sales.

Previous wording

Our Fishing department saw a net sales increase of $2.6 million during the first quarter of fiscal year 2024 compared to the corresponding period of fiscal year 2023 primarily driven by our reset of fishing inventory and the opening of 11 new stores since April 29, 2023. Our Hunting and Shooting, Footwear, Apparel, Camping and Optics, Electronics, Accessories and Other departments saw net sales decreases of $12.9 million, $5.0 million, $5.0 million $1.5 million and $1.5 million, respectively, in the first quarter of fiscal year 2024 compared to the corresponding period of fiscal year 2023. Within our Hunting and Shooting department, sales from our firearm and ammunition categories saw decreases of $5.8 million or 7.3% and $5.0 million or 10.8%, respectively, during the first quarter of fiscal year 2024 compared to the corresponding period of fiscal year 2023. The decreases in the firearm and ammunition categories were primarily due to the impact of consumer inflationary pressures on discretionary spending. This was partially offset by our opening of 11 new stores since April 29, 2023.

Current wording

Our Fishing department saw a net sales increase of $4.1 million during the 13 weeks ended August 3, 2024 compared to the corresponding period of fiscal year 2023 primarily driven by our reset of fishing inventory and the opening of 6 new stores since July 29, 2023. Our Hunting and Shooting, Footwear, Camping, Apparel and Optics, Electronics, Accessories and Other departments saw net sales decreases of $16.3 million, $2.8 million, $2.3 million, $2.0 million and $1.4 million, respectively, during the 13 weeks ended August 3, 2024 compared to the corresponding period of fiscal year 2023. Within our Hunting and Shooting department, our ammunition and firearm categories saw decreases of $8.1 million and $6.0 million or 18.3% and 9.2%, respectively, during the 13 weeks ended August 3, 2024 compared to the corresponding period of fiscal year 2023. The decreases in the firearm and ammunition categories were primarily due to the impact of consumer inflationary pressures on discretionary spending. This was partially offset by our opening of 6 new stores since July 29, 2023.

Previous wording

With respect to same store sales, during the 13 weeks ended May 4, 2024, our Fishing department saw an increase of 4.1% compared to the corresponding period of fiscal year 2023. Our Footwear, Apparel, Hunting and Shooting, Optics, Electronics, Accessories and Other and Camping departments saw decreased same store sales of 31.5%, 31.1%, 12.9%, 11.3%, and 10.9%, respectively, compared to the corresponding period of fiscal year 2023 , as a result of a decline in store traffic and the impact of consumer inflationary pressures on discretionary spending. As of May 4, 2024, 135 stores were included in our same store sales calculation.

Current wording

With respect to same store sales, during the 13 weeks ended August 3, 2024, our Fishing department saw an increase of 6.1% compared to the corresponding period of fiscal year 2023. Our Footwear, Hunting and Shooting, Apparel, Optics, Electronics, Accessories and Other and Camping departments saw same store sales decreases of 15.2%, 13.6%, 12.8%, 11.7% and 7.0%, respectively, during the 13 weeks ended August 3, 2024 compared to the corresponding period of fiscal year 2023. These changes were primarily driven by the items noted above for net sales. As of August 3, 2024, 140 stores were included in our same store sales calculation.

Previous wording

Gross Profit. Gross profit decreased by $6.3 million, or 7.8%, to $73.8 million during the 13 weeks ended May 4, 2024 compared to $80.0 million for the corresponding period of fiscal year 2023. As a percentage of net sales, gross profit increased to 30.2% during the 13 weeks ended May 4, 2024, compared to 29.9% for the corresponding period of fiscal year 2023, primarily driven by improved product mix and rate within our Fishing department.

Current wording

Gross Profit. Gross profit decreased by $10.8 million, or 10.7%, to $90 million during the 13 weeks ended August 3, 2024 compared to $100.8 million for the corresponding period of fiscal year 2023. As a percentage of net sales, gross profit decreased to 31.2% during the 13 weeks ended August 3, 2024, compared to 32.6% for the corresponding period of fiscal year 2023, primarily driven by increased shrink and reduced product margins from seasonal markdowns in our Camping and Apparel departments.

Previous wording

On a per store basis, our payroll and other operating expenses decreased approximately 18% and 9%, respectively, compared to the corresponding period of fiscal year 2023. As a percentage of net sales, selling, general, and administrative expenses increased to 38.6% of net sales in the first quarter of fiscal year 2024, compared to 37.0% of net sales in the first quarter of fiscal year 2023, as a result of the factors discussed above.

Current wording

On a per store basis, our payroll and other operating expenses decreased approximately 17% and 3%, respectively, compared to the corresponding period of fiscal year 2023. As a percentage of net sales, selling, general, and administrative expenses decreased to 32.7% of net sales in the second quarter of fiscal year 2024, compared to 33.1% of net sales in the second quarter of fiscal year 2023, as a result of the factors discussed above.

Previous wording

Interest Expense. Interest expense increased by $0.9 million, or 45%, to $2.9 million during the 13 weeks ended May 4, 2024, compared to $2.0 million for the corresponding period of fiscal year 2023. Interest expense increased primarily because of increased borrowings on our revolving credit facility and higher interest rates during the first quarter of fiscal year 2024 compared to the corresponding period of fiscal year 2023.

Current wording

Interest Expense. Interest expense decreased by $0.3 million, or 8.6%, to $3.2 million during the 13 weeks ended August 3, 2024, compared to $3.5 million for the corresponding period of fiscal year 2023. The decrease in interest expense was primarily driven by decreased borrowings on our revolving credit facility partially offset by higher interest rates during the second quarter of fiscal year 2024 compared to the corresponding period of fiscal year 2023.

Previous wording

Income Taxes. We recognized income tax benefit of $5.5 million during the 13 weeks ended May 4, 2024 compared to an income tax benefit of $5.4 million during the corresponding period of fiscal year 2023. Our effective tax rates during the 13 weeks ended May 4, 2024 and April 29, 2023 were 23.2% and 25.5%, respectively. Our effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0%, due to state taxes, permanent items, and discrete items relating to stock award deductions.

Current wording

Income Taxes. We recognized income tax benefit of $2.1 million during the 13 weeks ended August 3, 2024 compared to an income tax benefit of $1.8 million during the corresponding period of fiscal year 2023. Our effective tax rates during the 13 weeks ended August 3, 2024 and July 29, 2023 were 25.8% and 34.8%, respectively. Our effective tax rate will generally differ from the U.S. Federal statutory rate of 21.0%, due to state taxes, permanent items, and discrete items relating to stock award deductions.

Previous wording

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased by $4.6 million, or 4.6%, to $94.4 million during the 13 weeks ended May 4, 2024, compared to $99.0 million for the corresponding period of fiscal year 2023. This decrease was primarily the result of decreases in payroll and pre-opening expenses of $5.0 million and $2.3 million, respectively, during the 13 weeks ended May 4, 2024 primarily related to our ongoing cost reduction efforts and decision to not open new stores during the current year. These decreases were partially offset by increases of $2.1 million and $1.6 million in rent and depreciation expenses, respectively, during the 13 weeks ended May 4, 2024 primarily as a result of opening 11 new stores since April 29, 2023.

Current wording

Selling, General, and Administrative Expenses. Selling, general, and administrative expenses decreased by $12.6 million, or 6.2%, to $188.8 million during the 26 weeks ended August 3, 2024, compared to $201.3 million for the corresponding period of fiscal year 2023. This decrease was primarily the result of decreases in payroll and pre-opening expenses of $10.8 million and $4.4 million, respectively, during the 26 weeks ended August 3, 2024 primarily related to our ongoing cost reduction efforts and decision to not open new stores during the current year. These decreases were partially offset by increases of $3.2 million and $2.8 million in rent and depreciation expenses, respectively, during the 26 weeks ended August 3, 2024 primarily as a result of opening 6 new stores since July 29, 2023.

Previous wording

As of May 4, 2024, we had cash and cash equivalents of $2.2 million and working capital, consisting of current assets less current liabilities, of $47.2 million. As of February 3, 2024, we had cash and cash equivalents of $3.1 million and working capital, consisting of current assets less current liabilities, of $65.4 million.

Current wording

As of August 3, 2024, we had cash and cash equivalents of $2.6 million and working capital, consisting of current assets less current liabilities, of $69.5 million. We also had $97.3 million available for borrowing under our senior secured revolving credit facility and our term loan facility as of August 3, 2024, calculated based upon certain borrowing base restrictions for each of the revolving credit facility and term loan facility.

Previous wording

Our primary cash requirements are for seasonal working capital needs and capital expenditures related to ongoing operational needs and new system investments. For both the short-term and the long-term, our primary sources of cash are borrowings under our $350.0 million senior secured revolving credit facility and operating cash flows. We believe that our cash on hand, cash generated by operating activities and funds available under our revolving credit facility will be sufficient to finance our operating activities and meet our cash requirements for at least the next twelve months and beyond.

Current wording

Our primary cash requirements are for seasonal working capital needs and capital expenditures related to ongoing operational needs and new system investments. For both the short-term and the long-term, our primary sources of cash are borrowings under our senior secured revolving credit facility, our term loan facility and operating cash flows. We believe that our cash on hand, cash generated by operating activities and funds available under our revolving credit facility and term loan facility will be sufficient to finance our operating activities and meet our cash requirements for at least the next twelve months and beyond. With no new stores planned for the remainder of fiscal year 2024, we intend to prioritize the repayment of outstanding debt with any excess cash flow.

Previous wording

Operating Lease Obligations. Operating lease commitments consist principally of leases for our retail stores, corporate office and distribution center. Our leases often include options which allow us to extend the terms beyond the initial lease term. As of May 4, 2024, our expected operating lease payments for the remainder of fiscal year 2024 are $56.1 million and our total committed lease payments are $477.6 million. Other operating lease obligations consist of distribution center equipment. See Note 6, “Leases” to our unaudited condensed consolidated financial statements included in this 10-Q.

Current wording

Operating Lease Obligations. Operating lease commitments consist principally of leases for our retail stores, corporate office and distribution center. Our leases often include options which allow us to extend the terms beyond the initial lease term. As of August 3, 2024, our expected operating lease payments for the remainder of fiscal year 2024 are $37.4 million and our total committed lease payments are $480.7 million. Other operating lease obligations consist of distribution center equipment. See Note 6, “Leases” to our unaudited condensed consolidated financial statements included in this 10-Q.

Previous wording

Capital Expenditures. During the 13 weeks ended May 4, 2024, we incurred approximately $3.3 million in capital expenditures primarily related to strategic technological investments and general store maintenance. We expect capital expenditures, net of tenant allowances, between $20 million and $25 million for fiscal year 2024 (inclusive of amounts spent during the 13 weeks ended May 4, 2024) primarily related to strategic technological investments, such as planogramming, merchandising and replenishment and store scheduling tools, and general store fleet maintenance. We intend to fund these capital expenditures with our operating cash flows, cash on hand and funds available under our revolving credit facility. Other investment opportunities, such as potential strategic acquisitions or store expansion rates in excess of those presently planned, may require additional funding.

Current wording

Capital Expenditures. During the 26 weeks ended August 3, 2024, we incurred approximately $7.7 million in capital expenditures primarily related to strategic technological investments and general store maintenance. We expect capital expenditures, net of tenant allowances, between $20 million and $25 million for fiscal year 2024 (inclusive of amounts spent during the 26 weeks ended August 3, 2024) primarily related to strategic technological investments, such as planogramming, merchandising and replenishment and store scheduling tools, and general store fleet maintenance. We intend to fund these capital expenditures with our operating cash flows, cash on hand and funds available under our revolving credit facility. Other investment opportunities, such as potential strategic acquisitions or store expansion rates in excess of those presently planned, may require additional funding.

Previous wording

Principal and Interest Payments. We maintain a $350.0 million revolving credit facility. As of May 4, 2024, $176.1 million was outstanding under the revolving credit facility. Assuming no additional repayments or borrowings on our revolving credit facility after May 4, 2024, our interest payments would be approximately $8.8 million for the remainder of fiscal year 2024 based on the interest rate as of May 4, 2024. See below under “Indebtedness” for additional information regarding our revolving credit facility, including the interest rate applicable to any borrowing under such facility.

Current wording

Principal and Interest Payments. We maintain a $350.0 million revolving credit facility and a $45.0 million term loan facility. As of August 3, 2024, $144.7 million was outstanding under the revolving credit facility and $25.0 million was outstanding under the term loan facility. Assuming no additional repayments or borrowings on our revolving credit facility and our term loan facility after August 3, 2024, our interest payments would be approximately $6.3 million for the remainder of fiscal year 2024 based on the interest rate as of August 3, 2024. As of August 3, 2024, our weighted average interest rate on the amounts outstanding under our revolving credit facility and term loan facility was 7.40%. See below under “Indebtedness” for additional information regarding our revolving credit facility and term loan facility, including the interest rates applicable to any borrowing under such facilities.

Previous wording

Net cash used in operating activities was $34.7 million for the 13 weeks ended May 4, 2024, compared to net cash used in operating activities of $37.0 million for the corresponding period of fiscal year 2023, a change of approximately $2.3 million. The decrease in our cash flows used in operating activities was primarily driven by reduced inventory build up during the 13 weeks ended May 4, 2024 compared to the corresponding period of fiscal year 2023.

Current wording

Net cash used in operating activities was $16.1 million for the 26 weeks ended August 3, 2024, compared to net cash used in operating activities was $58.3 million for the corresponding period of fiscal year 2023, a decrease of approximately $42.2 million. The decrease in our cash flows used in operating activities was primarily driven by reduced inventory build up during the 26 weeks ended August 3, 2024 compared to the corresponding period of fiscal year 2023.

Previous wording

Net cash used in investing activities was $3.3 million for the 13 weeks ended May 4, 2024, compared to $22.8 million for the corresponding period of fiscal year 2023, a decrease of approximately $19.5 million, which was primarily driven by reduced capital expenditures related to the construction of new stores and the refurbishment of existing stores during the 13 weeks ended May 4, 2024 compared to the corresponding period of fiscal year 2023.

Current wording

Net cash used in investing activities was $7.6 million for the 26 weeks ended August 3, 2024, compared to net cash used in investing activities was $52.0 million for the corresponding period of fiscal year 2023, a decrease of approximately $44.4 million, which was primarily driven by reduced capital expenditures related to the construction of new stores and the refurbishment of existing stores during the 26 weeks ended August 3, 2024 compared to the corresponding period of fiscal year 2023.

Previous wording

Net cash provided by financing activities was $37.0 million for the 13 weeks ended May 4, 2024, compared to net cash provided by financing activities of $60.4 million for the corresponding period of fiscal year 2023, a change of approximately $23.4 million. The decrease in cash provided by financing activities was primarily the result of decreased borrowings under our revolving credit facility.

Current wording

Net cash provided by financing activities was $23.2 million for the 26 weeks ended August 3, 2024, compared to net cash provided by financing activities was $110.8 million for the corresponding period of fiscal year 2023, a decrease of approximately $87.6 million. The decrease in cash provided by financing activities was primarily the result of decreased incremental borrowings under our revolving credit facility.

Previous wording

We maintain a $350.0 million revolving credit facility, with $176.1 million outstanding as of May 4, 2024. Borrowings under our revolving credit facility are subject to a borrowing base calculation. Our revolving credit facility is governed by an amended and restated credit agreement with a consortium of banks led by Wells Fargo Bank, National Association (“Wells Fargo”). As of May 4, 2024, we had $78.6 million available for borrowing, calculated based upon certain borrowing base restrictions, and $2.0 million in stand-by commercial letters of credit.

Current wording

We maintain a $350.0 million revolving credit facility, with $144.7 million outstanding as of August 3, 2024. Our revolving credit facility is governed by an amended and restated credit agreement with a consortium of banks led by Wells Fargo Bank, National Association (“Wells Fargo”). We additionally entered into a term loan credit facility on July 30, 2024 with an aggregate principal amount available of $45.0 million, with $25.0 million outstanding as of August 3, 2024. Borrowings under our revolving credit facility and term loan facility are subject to a borrowing base calculation. As of August 3, 2024, we had an aggregate amount of $97.3 million available for borrowing under our revolving credit facility and our term loan facility, calculated based upon certain borrowing base restrictions, and $2.0 million in stand-by commercial letters of credit.

Previous wording

Borrowings under the revolving credit facility bear interest based on either the base rate or Term SOFR (as defined by the credit agreement governing the revolving credit facility), at our option, in each case plus an applicable margin. The base rate is the greatest of (1) the floor rate (as defined in the credit agreement as a rate of interest equal to 0.0%) (2) Wells Fargo’s prime rate, (3) the federal funds rate (as defined in the credit agreement) plus 0.50% or (4) the one-month Term SOFR (as defined in the credit agreement) plus 1.00%. The applicable margin for loans under the revolving credit facility, which varies based on the average daily availability, ranges from 0.25% to 0.50% per year for base rate loans and from 1.35% to 1.60% per year for Term SOFR loans. We are required to pay a commitment fee for the unused portion of the revolving credit facility, which will range from 0.20% to 0.225% per annum, depending on the average daily availability under the revolving credit facility. The weighted average interest rate on the amounts outstanding under the revolving credit facility as of May 4, 2024 and February 3, 2024 was 6.72% and 7.01%, respectively.

Current wording

Borrowings under the revolving credit facility bear interest based on either the base rate or Term SOFR (as defined by the credit agreement governing the revolving credit facility), at our option, in each case plus an applicable margin. The base rate is the greatest of (1) the floor rate (as defined in the credit agreement as a rate of interest equal to 0.0%) (2) Wells Fargo’s prime rate, (3) the federal funds rate (as defined in the applicable credit agreement) plus 0.50% or (4) the one-month Term SOFR (as defined in the applicable credit agreement) plus 1.00%. The applicable margin for loans under the revolving credit facility, which varies based on the average daily availability, ranges from 0.25% to 0.50% per year for base rate loans and from 1.35% to 1.60% per year for Term SOFR loans. We are required to pay a commitment fee for the unused portion of the revolving credit facility, which will range from 0.20% to 0.225% per annum, depending on the average daily availability under the revolving credit facility.

Previous wording

Each of the subsidiaries of Holdings is a borrower under the revolving credit facility, and all obligations under the revolving credit facility are guaranteed by Holdings. All of the obligations under the revolving credit facility are secured by a lien on substantially all of Holdings’ tangible and intangible working capital assets and the tangible and intangible working capital assets of all of Holdings’ subsidiaries, including a pledge of all capital stock of each of Holdings’ subsidiaries. The lien securing the obligations under the revolving credit facility is a first priority lien as to certain liquid assets, including cash, accounts receivable, deposit accounts and inventory.

Current wording

Each of the subsidiaries of Holdings is a borrower under the revolving credit facility and the term loan, and all obligations under the revolving credit facility and the term loan are guaranteed by Holdings. All of the obligations under the revolving credit facility and the term loan are secured by a lien on substantially all of Holdings’ assets and assets of all of Holdings’ subsidiaries, including a pledge of all capital stock of each of Holdings’ subsidiaries. The lien securing the obligations under the revolving credit facility is a first priority lien as to certain liquid assets, including cash, accounts receivable, deposit accounts and inventory. The lien securing the obligations under the term loan facility is a first priority lien as to equipment, fixtures, intellectual property and equity interests.

Previous wording

We may be required to make mandatory prepayments under the revolving credit facility in the event of a disposition of certain property or assets, in the event of receipt of certain insurance or condemnation proceeds, upon the issuance of certain debt or equity securities, upon the incurrence of certain indebtedness for borrowed money or upon the receipt of certain payments not received in the ordinary course of business.

Current wording

We may be required to make mandatory prepayments under the revolving credit facility and the term loan in the event of a disposition of certain property or assets, in the event of receipt of certain insurance or condemnation proceeds, upon the issuance of certain debt or equity securities, upon the incurrence of certain indebtedness for borrowed money or upon the receipt of certain payments not received in the ordinary course of business.

Previous wording

Our revolving credit facility requires us to maintain a minimum availability at all times of not less than 10% of the gross borrowing base. In addition, the credit agreement governing our revolving credit facility contains customary affirmative and negative covenants, including covenants that limit our ability to incur, create or assume certain indebtedness, to create, incur or assume certain liens, to make certain investments, to make sales, transfers and dispositions of certain property and to undergo certain fundamental changes, including certain mergers, liquidations and consolidations. The credit agreement also contains customary events of default. As of May 4, 2024, we were in compliance with all covenants under the credit agreement governing our revolving credit facility.

Current wording

Our revolving credit facility and term loan facility each require us to maintain a minimum availability at all times of not less than 10% of the gross borrowing base. In addition, the credit agreements governing each of our revolving credit facility and our term loan facility contain customary affirmative and negative covenants, including covenants that limit our ability to incur, create or assume certain indebtedness, to create, incur or assume certain liens, to make certain investments, to make sales, transfers and dispositions of certain property and to undergo certain fundamental changes, including certain mergers, liquidations and consolidations. The revolving credit facility and term loan facility also contain customary events of default, including defaults triggered by defaults under the other facility. As of August 3, 2024, we were in compliance with all covenants under the credit agreements governing each of our revolving credit facility and our term loan facility.

Previous wording

In evaluating our business, we use Adjusted EBITDA and Adjusted EBITDA margin as supplemental measures of our operating performance. We define Adjusted EBITDA as net (loss) income plus interest expense (benefit), income tax expense (benefit), depreciation and amortization, stock-based compensation expense, transition and severance costs related to director and officer transitions, and other gains, losses and expenses that we do not believe are indicative of our ongoing expenses. Beginning with the three months ended October 28, 2023, we no longer add back new store pre-opening expenses to our net (loss) income to determine Adjusted EBITDA. The presentation of past periods has been conformed to the current presentation. Net (loss) income is the most comparable GAAP financial measure to Adjusted EBITDA. We define Adjusted EBITDA margin as, for any period, the Adjusted EBITDA for that period divided by the net sales for that period. We consider Adjusted EBITDA and Adjusted EBITDA margin important supplemental measures of our operating performance and believe they are frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. Other companies in our industry, however, may calculate Adjusted EBITDA and Adjusted EBITDA margin differently than we do. Management also uses Adjusted EBITDA and Adjusted EBITDA margin as additional measurement tools for purposes of business decision-making, including evaluating store performance, developing budgets and managing expenditures. Management believes Adjusted EBITDA and Adjusted EBITDA margin allow investors to evaluate our operating performance and compare our results of operations from period to period on a consistent basis by excluding items that management does not believe are indicative of our core operating performance.

Current wording

EBITDA for that period divided by the net sales for that period. We consider Adjusted EBITDA and Adjusted EBITDA margin important supplemental measures of our operating performance and believe they are frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. Other companies in our industry, however, may calculate Adjusted EBITDA and Adjusted EBITDA margin differently than we do. Management also uses Adjusted EBITDA and Adjusted EBITDA margin as additional measurement tools for purposes of business decision-making, including evaluating store performance, developing budgets and managing expenditures. Management believes Adjusted EBITDA and Adjusted EBITDA margin allow investors to evaluate our operating performance and compare our results of operations from period to period on a consistent basis by excluding items that management does not believe are indicative of our core operating performance.

Previous wording

A reconciliation of net income, to Adjusted EBITDA and a calculation of Adjusted EBITDA margin is set forth below for the periods presented (amounts in thousands):

Current wording

A reconciliation of net loss, to Adjusted EBITDA and a calculation of Adjusted EBITDA margin is set forth below for the periods presented (amounts in thousands):

Previous wording

Beginning with the three months ended October 28, 2023, we no longer add back new store pre-opening expenses to our net (loss) income to determine Adjusted EBITDA. The presentation of past periods has been conformed to the current presentation. For the 13 weeks ended April 29, 2023 we had $2.3 million in new store pre-opening expenses.

Current wording

Beginning with the three months ended October 28, 2023, we no longer add back new store pre-opening expenses to our net (loss) income to determine Adjusted EBITDA. The presentation of past periods has been conformed to the current presentation. For the 13 and 26 weeks ended July 30, 2023 we had $2.2 million and $4.4 million in new store pre-opening expenses.

Previous wording

Stock-based compensation expense represents non-cash expenses related to equity instruments granted to employees under our 2019 Performance Incentive Plan, Inducement Plan and Employee Stock Purchase Plan.

Current wording

Stock-based compensation expense represents non-cash expenses related to equity instruments granted to employees under our equity incentive plan and employee stock purchase plan.