Torrid Holdings Inc.

Previous wording

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section entitled "Risk Factors."

Current wording

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Form 10-K. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Form 10-K, particularly in the section entitled “Risk Factors.”

Previous wording

(C)Please refer to "Results of Operations" for a reconciliation of net income to Adjusted EBITDA.

Current wording

(C)Refer to “Results of Operations” for a reconciliation of net (loss) income to Adjusted EBITDA.

Previous wording

Active Customers. We define an active customer as a distinct, identifiable customer who has completed at least one purchase transaction either in-store or online in the preceding four quarters. We are able to identify the vast majority of our customers primarily through our robust loyalty program, which gives us access to extensive customer and sales data. We have improved our customer tracking capabilities and have maintained the proportion of our net sales attributable to active customers over time. The proportion of net sales, excluding PLCC Funds (as defined in “Note 2–Summary of Significant Accounting Policies”), that we are able to attribute to active customers was 97% for each of fiscal years 2024, 2023 and 2022. We view the number of active customers as a key indicator of our performance, the reach of our e-Commerce and stores platform, the value proposition and consumer awareness of our brand and our customers' desire to purchase our products.

Current wording

Active Customers. We define an active customer as a distinct, identifiable customer who has completed at least one purchase transaction either in-store or online in the preceding four quarters. We are able to identify the vast majority of our customers primarily through our robust loyalty program, which gives us access to extensive customer and sales data. We have improved our customer tracking capabilities and have maintained the proportion of our net sales attributable to active customers over time. The proportion of net sales, excluding PLCC Funds (as defined below), that we are able to attribute to active customers was 97% for each of fiscal years 2025,2024 and 2023. We view the number of active customers as a key indicator of our performance, the reach of our e-Commerce and stores platform, the value proposition and consumer awareness of our brand and our customers’ desire to purchase our products.

Previous wording

Number of Stores. Store count reflects all stores open at the end of a reporting period. In connection with opening new stores, we incur pre-opening costs, which primarily consist of payroll, travel, training, marketing, initial opening supplies, costs of transporting initial inventory and fixtures to store locations, and occupancy costs incurred from the time of possession of a store site to the opening of that store. These pre-opening costs are included in our selling, general and administrative expenses and are expensed as incurred.

Current wording

Number of Stores. Store count reflects all stores open at the end of a reporting period.

Previous wording

Adjusted EBITDA. Adjusted EBITDA is a supplemental measure of our operating performance that is neither required by, nor presented in accordance with GAAP and our calculation thereof may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA represents GAAP net income plus interest expense less interest income, net of other (income) expense, plus provision for less (benefit from) income taxes, depreciation and amortization ("EBITDA"), and share-based compensation, noncash deductions and charges and other expenses. We believe Adjusted EBITDA facilitates operating performance comparisons from period to period by isolating the effects of certain items that vary from period to period without any correlation to ongoing operating performance. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting the overall expected performance of our business and for evaluating on a quarterly and annual basis actual results against such expectations. Further, we recognize Adjusted EBITDA as a commonly used measure in determining business value and, as such, use it internally to report and analyze our results and as a benchmark to determine certain non-equity incentive payments made to executives.

Current wording

Adjusted EBITDA. Adjusted EBITDA is a supplemental measure of our operating performance that is neither required by, nor presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and our calculation thereof may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA represents GAAP net income (loss) plus interest expense less interest income, net of other (income) expense, plus provision for less (benefit from) income taxes, depreciation and amortization (“EBITDA”), and share-based compensation, noncash deductions and charges and other expenses. We believe Adjusted EBITDA facilitates operating performance comparisons from period to period by isolating the effects of certain items that vary from period to period without any correlation to ongoing operating performance. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting the overall expected performance of our business and for evaluating on a quarterly and annual basis actual results against such expectations. Further, we recognize Adjusted EBITDA as a commonly used measure in determining business value and, as such, use it internally to report and analyze our results and as a benchmark to determine certain non-equity incentive payments made to executives.

Previous wording

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and elsewhere in this Annual Report on Form 10-K in the section titled "Risk Factors."

Current wording

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and elsewhere in this Form 10-K and in the section titled “Risk Factors.”

Previous wording

Customer Acquisition and Retention. Our success is impacted not only by efficient and profitable customer acquisition, but also by our ability to retain customers and encourage repeat purchases. It is important to maintain reasonable costs for these marketing efforts relative to the net sales and profit we expect to derive from customers. Failure to effectively attract customers on a cost-efficient basis would adversely impact our profitability and operating results. New requirements for consumer disclosures regarding privacy practices, and new application tracking transparency framework that requires opt-in consent for certain types of tracking were implemented by third party providers in 2021, which has increased the difficulty and cost of acquiring and retaining customers. These changes may adversely affect our results of operations.

Current wording

Customer Acquisition and Retention. Our success is impacted not only by efficient and profitable customer acquisition, but also by our ability to retain customers and encourage repeat purchases. It is important to maintain reasonable costs for these marketing efforts relative to the net sales and profit we expect to derive from customers. Failure to effectively attract customers on a cost-efficient basis would adversely impact our profitability and operating results. Requirements for consumer disclosures regarding privacy practices and application tracking transparency framework that requires opt-in consent for certain types of tracking has increased the difficulty and cost of acquiring and retaining customers. These changes may adversely affect our results of operations.

Previous wording

Customer Migration from Single to Omni-channel. We have a history of converting customers from single-channel customers to omni-channel customers, defined as active customers who shopped both online and in-store within the last twelve months. Customers that shop across multiple channels purchase from us more frequently and spent approximately 3.5 times more per year than our single-channel customer.

Current wording

Customer Migration from Single to Omni-channel. We have a history of converting customers from single-channel customers to omni-channel customers, defined as active customers who shopped both online and in-store within the last 12 months. Customers that shop across multiple channels purchase from us more frequently and spend approximately 3.5 times more per year than our single-channel customer.

Previous wording

Overall Economic Trends. Our results of operations during any given period are often impacted by the overall economic conditions in the markets in which we operate. Consumer purchases of clothing generally remain constant or may increase during stable economic periods and decline during recessionary periods, inflationary periods and other periods when disposable income is adversely affected. Recent historic high rates of inflation have led to a softening of consumer demand. We have encountered inflation on our wages, transportation and product costs, and a material increase in these costs without any meaningful offsetting price increases may reduce our future profits.

Current wording

Overall Economic Trends. Our results of operations during any given period are often impacted by the overall economic conditions in the markets in which we operate. Consumer purchases of clothing generally remain constant or may increase during stable economic periods and decline during recessionary periods, inflationary periods and other periods when disposable income is adversely affected. Recent historic high rates of inflation have led to a softening of consumer demand. We have encountered inflation on our wages, transportation and product costs, and a material increase in these costs without any meaningful offsetting price increases may reduce our future profits. Government actions in various countries relating to tariffs, particularly countries in the East and Southeast Asia region, have introduced significant uncertainty to the current U.S. trade environment resulting in increased cost of goods sold and impacted gross margins. Beginning in early 2025, the U.S. government announced a series of broad import tariff increases, including new and expanded duties on goods imported from major sourcing countries that collectively supply a significant portion of our imports. The tariff environment has remained highly fluid, with executive orders, temporary pauses, partial reversals, and ongoing negotiations between the U.S. and its trading partners creating continuing uncertainty. On February 20, 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the IEEPA and following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. The degree of our exposure is dependent on (among other things) the countries in which the merchandise is manufactured, rates imposed, and timing of the tariffs. Higher tariffs may adversely impact our results.

Previous wording

Demographic Changes. The growth of our business is impacted, in part, by the size of the plus- and mid-size population. Slower or negative growth in this demographic, specific to certain geographic markets, income levels or overall, could adversely affect our results of operations.

Current wording

Demographic Changes. The growth of our business is impacted, in part, by the size of the plus- and mid-size population. Slower or negative growth in this demographic, specific to certain geographic markets, income levels, the increasing use of GLP-1 medications or overall, could adversely affect our results of operations.

Previous wording

Investments. We have invested significantly to strengthen our business, including augmenting leadership across our organization and enhancing our infrastructure and technology in order to realize growth. We anticipate that our operating expenses will grow as we continue to increase our spending on advertising and marketing and hire additional personnel primarily in marketing, product design and development, merchandising, technology, operations, customer service and general and administrative functions. We are strategically working to expand and rebalance our store footprint, aiming for an optimal split between malls and outdoor centers. We will also continue to make investments to improve the customer experience both in-store and online. We believe that such investments will increase the number and loyalty of our customers and, as a result, yield positive financial performance in the long term.

Current wording

Investments. We have invested significantly to strengthen our business, including augmenting leadership across our organization and enhancing our infrastructure and technology in order to realize growth. We anticipate that a significant portion of our operating expenses will be attributable to our spending on advertising and marketing and hiring additional personnel primarily in marketing, product design and development, merchandising, technology, operations, customer service and general and administrative functions. We are strategically working to rebalance our store footprint, aiming for an optimal split among malls, outdoor centers and online. We will also continue to make investments to improve the customer experience both in-store and online. We believe that such investments will increase the number and loyalty of our customers and, as a result, yield positive financial performance in the long term.

Previous wording

Seasonality. While seasonality frequently impacts businesses in the retail sector, our business is generally not seasonal. Accordingly, our net sales do not fluctuate as significantly as those of other brands and retailers from quarter to quarter and any modest seasonal effect does not significantly change the underlying trends in our business. Additionally, we do not generate an outsized share of our net sales or Adjusted EBITDA during the holiday season. Typically, our Adjusted EBITDA generation is strongest in the first half of the year as we benefit from more favorable merchandise margins, lower advertising and lower shipping expenses relative to the second half of the year. The lack of net sales seasonality provides structural cost advantages relative to peers, including reduced staffing cyclicality and seasonal distribution capacity needs.

Current wording

Seasonality. While seasonality frequently impacts businesses in the retail sector, our business is generally not seasonal. Accordingly, our net sales do not fluctuate as significantly as those of other brands and retailers from quarter to quarter and any modest seasonal effect does not significantly change the underlying trends in our business. Additionally, we do not generate an outsized share of our net sales or Adjusted EBITDA during the holiday season. Typically, our Adjusted EBITDA generation is strongest in the first half of the year as we benefit from more favorable product margins, lower advertising and lower shipping expenses relative to the second half of the year. The lack of net sales seasonality provides structural cost advantages relative to peers, including reduced staffing cyclicality and seasonal distribution capacity needs.

Previous wording

Net Sales. Net sales reflects our revenues from the sale of our merchandise, shipping and handling revenue received from e-Commerce sales, PLCC Funds (as defined in “Note 2–Summary of Significant Accounting Policies”) and gift card breakage income, less returns, discounts and loyalty points/awards. Revenue from our stores is recognized at the time of sale and revenue from our e-Commerce channel is recognized upon shipment of the merchandise to the customer; except in cases where the merchandise is shipped to a store and revenue is recognized when the customer retrieves the merchandise from the store. Net sales are impacted by the size of our active customer base, product assortment and availability, marketing and promotional activities and the spending habits of our customers. Net sales are also impacted by the migration of single-channel customers (i.e., customers shopping only in-store or online) to omni-channel customers (i.e., customers shopping both in-store and online), who on average spend significantly more than single-channel customers in a given year.

Current wording

Net Sales. Net sales reflects our revenues from the sale of our merchandise, shipping and handling revenue received from e-Commerce sales, royalties, profit-sharing and marketing and promotional funds from the use of private label credit cards (“PLCC Funds”), and gift card breakage income, less returns, discounts and loyalty points/awards. Revenue from our stores is recognized at the time of sale and revenue from our e-Commerce channel is recognized upon shipment of the merchandise to the customer; except in cases where the merchandise is shipped to a store and revenue is recognized when the customer retrieves the merchandise from the store. Net sales are impacted by the size of our active customer base, product assortment and availability, marketing and promotional activities and the spending habits of our customers. Net sales are also impacted by the migration of single-channel customers (i.e., customers shopping only in-store or online) to omni-channel customers (i.e., customers shopping both in-store and online), who on average spend significantly more than single-channel customers in a given year.

Previous wording

Interest Expense. Interest expense consists primarily of interest expense and other fees associated with our ABL Facility and Amended Term Loan Credit Agreement.

Current wording

Interest Expense. Interest expense consists primarily of interest expense and other fees associated with our ABL Facility (as defined below) and Amended Term Loan Credit Agreement (as defined below).

Previous wording

Provision for Income Taxes. Our provision for income taxes consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.

Current wording

Provision for (Benefit from) Income Taxes. Our provision for (benefit from) income taxes consists of an estimate of federal and state income taxes based on enacted federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.

Previous wording

A discussion regarding our results of operations for fiscal year 2024 compared to fiscal year 2023 is presented below. A discussion regarding our results of operations for fiscal year 2023 compared to fiscal year 2022 can be found under Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on the Form 10-K for the year ended February 3, 2024, filed with the SEC on April 2, 2024.

Current wording

Our fiscal year ends on the Saturday nearest to January 31 and each fiscal year is generally comprised of four 13-week quarters (although in years with 53 weeks, the fourth quarter is comprised of 14 weeks). Fiscal years 2025 and 2024 were 52-week years and fiscal year 2023 was a 53-week year. Fiscal years are identified according to the calendar year in which they begin. For example, references to “fiscal year 2025” or similar references refer to the fiscal year ended January 31, 2026. A discussion regarding our results of operations for fiscal year 2025 compared to fiscal year 2024 is presented below. A discussion regarding our results of operations for fiscal year 2024 compared to fiscal year 2023 can be found under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025, filed with the SEC on April 1, 2025.

Previous wording

The following table provides a reconciliation of net income to Adjusted EBITDA for the periods presented (in thousands):

Current wording

The following table provides a reconciliation of net (loss) income to Adjusted EBITDA for the periods presented (in thousands):

Previous wording

(B)Share-based compensation in fiscal year 2024 includes $3.0 million for awards that will be settled in cash as they are accounted for as share-based compensation in accordance with ASC 718, Compensation—Stock Compensation, similar to awards settled in shares.

Current wording

(B)Share-based compensation in fiscal years 2025 and 2024 includes $0.3 million and $3.0 million, respectively, for awards that will be settled in cash as they are accounted for similar to awards settled in shares in accordance with ASC 718, Compensation—Stock Compensation.

Previous wording

(C)Noncash deductions and charges includes losses on property and equipment disposals and the net impact of noncash rent expense.

Current wording

(C)Noncash deductions and charges includes noncash losses on property and equipment disposals and the net impact of noncash rent expense.

Previous wording

Net sales for fiscal year 2024 decreased by $48.2 million, or 4.2%, to $1,103.7 million, from $1,151.9 million for fiscal year 2023. This decrease was primarily driven by a decrease in sales transaction values, a decrease in PLCC Funds and sales of $21.7 million attributable to the 53 rd week in fiscal year 2023, partially offset by improved pricing strategies. Comparable sales decreased 5.0%. The total number of stores we operate decreased by 21 stores, or 3.2%, to 634 stores at the end of fiscal year 2024, from 655 stores at the end of fiscal year 2023.

Current wording

Net sales for fiscal year 2025 decreased $103.6 million, or 9.4%, to $1,000.1 million from $1,103.7 million for fiscal year 2024. This decrease was primarily driven by a decrease in sales transactions and sales transaction values. The total number of stores we operate decreased by 151 stores, or 23.8%, to 483 stores at the end of fiscal year 2025, from 634 stores at the end of fiscal year 2024, primarily due to the implementation of our retail store optimization strategy.

Previous wording

Gross profit for fiscal year 2024 increased by $7.5 million, or 1.8%, to $413.5 million, from $406.0 million for fiscal year 2023. This increase was primarily due to reduced product costs, an increase in sales of regular-priced products and a decrease in store occupancy costs, partially offset by decreased net sales. Gross profit as a percentage of net sales increased by 2.3% to 37.5% in fiscal year 2024 from 35.2% in fiscal year 2023. This increase was primarily driven by reduced product costs and an increase in sales of regular-priced products, partially offset by decreased net sales, an increase in store depreciation expense and deleverage of store occupancy costs and merchandising payroll costs as a result of lower net sales.

Current wording

Gross profit for fiscal year 2025 decreased $65.5 million, or 15.8%, to $348.0 million, from $413.5 million for fiscal year 2024. Gross profit as a percentage of net sales decreased 2.7% to 34.8% in fiscal year 2025 from 37.5% in fiscal year 2024. The decrease in gross profit was primarily driven by a decrease in net sales. The decrease in gross profit as a percentage of net sales was primarily driven by a decrease in net sales, increased merchandising payroll costs and store depreciation expense, and the deleverage of store occupancy costs as a result of lower net sales. In addition, new and increased tariffs on goods from the countries where we manufacture our merchandise had a negative impact on our gross profit for fiscal year 2025.

Previous wording

Selling, general and administrative expenses for fiscal year 2024 increased by $8.7 million, or 3.0%, to $302.0 million, from $293.3 million for fiscal year 2023. The increase was primarily due to a $9.1 million increase in headquarter general and administrative expenses and an $8.6 million increase in performance bonuses, partially offset by a $7.0 million decrease in store and e-Commerce payroll costs and a $1.6 million decrease in store pre-opening costs. Selling, general and administrative expenses as a percentage of net sales increased by 1.9% to 27.4% in fiscal year 2024 from 25.5% in fiscal year 2023. This increase was primarily driven by increased headquarter general and administrative expenses and performance bonuses, partially offset by decreased store and e-Commerce payroll costs.

Current wording

Selling, general and administrative expenses for fiscal year 2025 decreased $32.9 million, or 10.9%, to $269.2 million, from $302.0 million for fiscal year 2024. The decrease was primarily due to a $14.4 million decrease in store and e-Commerce payroll costs, a $6.3 million decrease in performance bonuses, a $5.6 million decrease in other store operating costs, a $4.1 million decrease in headquarters general and administrative expenses, and a $2.4 million decrease in share-based compensation. Selling, general and administrative expenses as a percentage of net sales decreased 0.5% to 26.9% in fiscal year 2025 from 27.4% in fiscal year 2024. The decrease was primarily driven by decreased store and e-Commerce payroll costs, performance bonuses, other store operating costs, and share-based compensation, partially offset by the deleverage of headquarters general and administrative expenses as a result of lower net sales.

Previous wording

Interest expense was $35.6 million for fiscal year 2024, compared to $39.2 million for fiscal year 2023. The decrease was primarily due to a decrease in the variable interest rate associated with the Amended Term Loan Credit Agreement, dated as of May 24, 2023, during fiscal year 2024 compared to fiscal year 2023.

Current wording

Interest expense was $31.8 million for fiscal year 2025, compared to $35.6 million for fiscal year 2024. The decrease was primarily due to a decrease in the variable interest rate and a lower balance on the Amended Term Loan Credit Agreement resulting from principal payments.

Previous wording

The provision for income taxes for fiscal year 2024 decreased by $1.1 million to $5.3 million, from $6.4 million for fiscal year 2023. Our effective tax rate was 24.5% for fiscal year 2024 as compared to 35.6% for fiscal year 2023. The decrease in the effective tax rate for fiscal year 2024 as compared to fiscal year 2023 was primarily due to the decrease in the amount of non-deductible stock-based compensation for covered employees and state income taxes relative to income before provision for income taxes for fiscal year 2024.

Current wording

The benefit from income taxes for fiscal year 2025 was $2.5 million and the provision for income taxes for fiscal year 2024 was $5.3 million. Our effective tax rate was 26.4% for fiscal year 2025 and 24.5% for fiscal year 2024. The increase in the effective tax rate for fiscal year 2025 as compared to fiscal year 2024 was primarily due to a decrease in our uncertain tax benefits and increases in the amount of non-deductible compensation for covered employees and non-deductible share-based compensation for fiscal year 2025.

Previous wording

In May 2015, we entered into a credit agreement for a senior secured asset-based revolving credit facility with Bank of America, N.A., which was subsequently amended in October 2017, June 2019, September 2019, June 2021 and April 2023 (“ABL Facility”). Under the ABL Facility the aggregate commitments available are $150.0 million (subject to a borrowing base), and we have the right to request additional commitments up to $50 million plus the aggregate principal amount of any permanent principal reductions we may take (subject to customary conditions precedent). The principal amount of the outstanding loans are due and payable on June 14, 2026. The April 21, 2023 amendment to the ABL Facility replaced the LIBOR interest rate benchmark with the SOFR benchmark. All other material terms of the ABL Facility remained substantially the same after giving effect to the April 21, 2023 amendment. We elected to apply the practical expedients included in ASU 2020-04 and 2021-01, accordingly, the April 21, 2023 amendment did not have a material impact on our consolidated financial statements.

Current wording

In May 2015, we entered into a credit agreement for a senior secured asset-based revolving credit facility (as amended and restated in October 2017 and as amended in June 2019, September 2019, June 2021, April 2023, and August 2025) with Bank of America, N.A., as agent, and the lenders party thereto (the “ABL Facility”). Under the ABL Facility, the aggregate commitments available are $150.0 million (subject to a borrowing base) and we have the right to request additional commitments up to $50.0 million plus the aggregate principal amount of any permanent principal reductions we may take (subject to customary conditions precedent). In August 2025, the maturity date of the principal amount of the outstanding loans was extended from June 14, 2026 to the earlier of (i) August 1, 2030 and (ii) the date that is 91 days prior to the maturity of any material indebtedness (as defined in the ABL Facility). The ABL Facility currently would mature 91 days prior to June 14, 2028, the maturity date of the Amended Term Loan Credit Agreement.

Previous wording

The ABL Facility requires us to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 if we fail to maintain Specified Availability (as defined by the ABL Facility) of at least the greater of 10% of the Loan Cap, as defined by the ABL Facility and $7.0 million. The ABL Facility contains a number of other covenants that, among other things and subject to certain exceptions, will restrict our ability and the ability of our subsidiaries to: incur additional indebtedness; pay dividends on our capital stock or redeem, repurchase or retire our capital stock or our other indebtedness; make investments, loans and acquisitions; engage in transactions with our affiliates; sell assets, including capital stock of our subsidiaries; alter the business we conduct; consolidate or merge; and incur liens. At the end of fiscal year 2024, we were compliant with our debt covenants under the ABL Facility.

Current wording

The ABL Facility requires us to maintain a fixed charge coverage ratio (as defined by the ABL Facility) of at least 1.00 to 1.00 when a covenant compliance event occurs. A covenant compliance event occurs if we fail to maintain certain specified availability (as defined by the ABL Facility) of at least the greater of 10% of the loan cap, as defined by the ABL Facility, and $7.0 million. If we fail to maintain the fixed charge coverage ratio defined by the ABL Facility, the lenders may declare the unpaid principal amount of all outstanding loans and all interest accrued and unpaid thereon to be immediately due and payable, among other remedies available to the lenders. The ABL Facility contains a number of other covenants that, among other things and subject to certain exceptions, will restrict our ability and the ability of our subsidiaries to: incur additional indebtedness; pay dividends on our capital stock or redeem, repurchase or retire our capital stock or our other indebtedness; make investments, loans and acquisitions; engage in transactions with our affiliates; sell assets, including capital stock of our subsidiaries; alter the business we conduct; consolidate or merge; and incur liens.

Previous wording

The Term Loan Credit Agreement provides for term loans in an initial aggregate amount of $350.0 million ("Principal"), which is recorded net of OID of $3.5 million and has a maturity date of June 14, 2028. In connection with the Term Loan Credit Agreement, we paid financing costs of approximately $6.0 million.

Current wording

In June 2021, we entered into a term loan credit agreement (as amended in May 2023) with Bank of America, N.A., as agent, and the lenders party thereto (the “Amended Term Loan Credit Agreement”). The Amended Term Loan Credit Agreement provides for term loans in an initial aggregate amount of $350.0 million and has a maturity date of June 14, 2028. The Amended Term Loan Credit Agreement is subject to fixed mandatory quarterly principal amortization payments until the maturity date of approximately $4.4 million.

Previous wording

At the end of fiscal year 2024, we were compliant with our financial covenants under the Amended Term Loan Credit Agreement.

Current wording

As of January 31, 2026, we were compliant with our covenants under the Amended Term Loan Credit Agreement.

Previous wording

Our business relies on cash flows from operations as our primary source of liquidity. We do, however, have access to additional liquidity, if needed, through borrowings under our ABL Facility. Our primary cash needs are for merchandise inventories, payroll, rent for our stores, headquarters and distribution center, capital expenditures associated with opening new stores and updating existing stores, logistics and information technology. We also need cash to fund our interest and principal payments on the Amended Term Loan Credit Agreement and make discretionary repurchases of our common stock. The most significant components of our working capital are cash and cash equivalents, merchandise inventories, prepaid expenses and other current assets, accounts payable, accrued and other current liabilities and operating lease liabilities. We believe that cash generated from operations and the availability of borrowings under our ABL Facility or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our ABL Facility or otherwise to enable us to service our indebtedness, or to make capital expenditures in the future. Our future operating performance and our ability to service or extend our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

Current wording

Our primary cash needs are for merchandise inventories, payroll, rent for our stores, headquarters and distribution center, capital expenditures associated with opening new stores and updating existing stores, logistics and information technology. We also need cash to fund our interest and principal payments on the Amended Term Loan Credit Agreement and ABL Facility and make discretionary repurchases of our common stock. The most significant components of our working capital are cash and cash equivalents, merchandise inventories, prepaid expenses and other current assets, accounts payable, accrued and other current liabilities and operating lease liabilities. We believe that cash generated from operations and the availability of borrowings under our ABL Facility or other financing arrangements will be sufficient to meet working capital requirements and anticipated capital expenditures for at least the next 12 months. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our ABL Facility or otherwise to enable us to service our indebtedness, or to make capital expenditures in the future. Our future operating performance and our ability to service or extend our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

Previous wording

(1)Amounts assume that the Amended Term Loan Credit Agreement is paid upon maturity and does not consider any variable mandatory principal prepayments or optional principal prepayments which we may make in the future.

Current wording

(1)Amounts assume that the Amended Term Loan Credit Agreement is paid upon maturity and does not consider any variable mandatory principal prepayments or optional principal prepayments which we may make in the future. See “Note 10—Debt” contained in the consolidated financial statements and notes, included elsewhere in this Form 10-K for additional disclosure related to our debt obligations.

Previous wording

(2)Assumes an interest rate of approximately 10% per annum, consistent with the interest rate at February 1, 2025.

Current wording

(2)Assumes an interest rate of approximately 9% per annum, consistent with the interest rate at January 31, 2026. See “Note 10—Debt” contained in the consolidated financial statements and notes, included elsewhere in this Form 10-K for additional disclosure related to our debt obligations.

Previous wording

(4)Includes estimated annual future minimum occupancy payments under operating leases including minimum base rents, common area maintenance charges and heating, ventilation and cooling charges, for lease terms that include periods covered by options to extend some of our leases, as we are reasonably certain to exercise those options. Options to terminate our leases have not been included in any lease terms as we are not reasonably certain to exercise those options. See "Note 9—Leases" contained in the consolidated financial statements and notes, included elsewhere in this Annual Report on Form 10-K for additional disclosure related to operating lease obligations.

Current wording

(4)Includes estimated annual future minimum occupancy payments under operating leases including minimum base rents, common area maintenance charges and heating, ventilation and cooling charges, for lease terms that include periods covered by options to extend some of our leases, as we are reasonably certain to exercise those options. Options to terminate our leases have not been included in any lease terms as we are not reasonably certain to exercise those options. See “Note 11—Leases” contained in the consolidated financial statements and notes, included elsewhere in this Form 10-K for additional disclosure related to operating lease obligations.

Previous wording

We have not included any income tax audit settlement payments due in less than one year in the contractual obligations table above as we do not have any open income tax audits as of February 1, 2025 or any material gross unrecognized tax benefits for which the statutes of limitations are expected to expire in fiscal year 2025. In addition, due to the uncertainty regarding the timing of future cash outflows associated with noncurrent unrecognized tax benefits of $2.0 million, we are unable to make a reliable estimate of the periods of cash settlement with the respective tax authorities and have not included such amounts in the contractual obligations table above.

Current wording

In the material cash requirements table above, we have not included: (i) the amounts outstanding on the ABL Facility of $31.0 million, plus accrued interest thereon, due to the uncertainty regarding the timing of future borrowings and repayments, (ii) any income tax audit settlement payments due in less than one year as we do not have any open income tax audits as of January 31, 2026 or any material gross unrecognized tax benefits for which the statutes of limitations are expected to expire in fiscal year 2026, and (iii) cash settlements to the respective tax authorities related to noncurrent unrecognized tax benefits of $0.8 million due to the uncertainty regarding the timing of future cash outflows of such settlements.

Previous wording

Net Cash Provided By Operating Activities

Current wording

Net cash used in operating activities during fiscal year 2025 was $13.0 million compared to net cash provided by operating activities of $77.4 million for fiscal year 2024. Thedecrease in net cash provided by operating activities during fiscal year 2025 was primarilyas a result of decreases in accounts payable, accrued expenses and other current liabilities, and net income, partially offset by a decrease in inventory. The decreases in accounts payable and accrued expenses and other current liabilities were primarily driven by a decrease in inventory purchases before the current period end compared to the prior period end and a decrease in accrued payroll and related expenses.

Previous wording

Financing activities consist primarily of (i) borrowings and repayments related to our ABL Facility, (ii) borrowings and repayments related to the Amended Term Loan Credit Agreement, (iii) repurchases and retirement of our common stock, and (iv) proceeds and withholding taxes related to issuances under our shared-based compensation plans.

Current wording

Financing activities consist primarily of (i) borrowings and repayments related to our ABL Facility, (ii) borrowings and repayments related to the Amended Term Loan Credit Agreement and (iii) repurchases and retirement of our common stock.

Previous wording

Net cash used in financing activities were $24.5 million and $18.5 million for fiscal years 2024 and 2023, respectively. The increase in net cash used in financing activities is primarily as a result of a $6.2 million increase in net payments on the ABL Facility.

Current wording

Net cash used in financing activities was $24.5 million and $18.5 million for fiscal years 2024 and 2023, respectively. The increase in net cash used in financing activities is primarily as a result of a $6.2 million increase in net payments on the ABL Facility.

Previous wording

Our discussion of results of operations and financial condition is based upon the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and certain assumptions about future events that affect the classification and amounts reported in our consolidated financial statements and accompanying notes, including revenue and expenses, assets and liabilities, and the disclosure of contingent assets and liabilities. These estimates and assumptions are based on our historical results as well as management’s judgment. Although management believes the judgment applied in preparing estimates is reasonable based on circumstances and information known at the time, actual results could vary materially from estimates based on assumptions used in the preparation of our consolidated financial statements.

Current wording

Our discussion of results of operations and financial condition is based upon the consolidated financial statements included elsewhere in this Form 10-K, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and certain assumptions about future events that affect the classification and amounts reported in our consolidated financial statements and accompanying notes, including revenue and expenses, assets and liabilities, and the disclosure of contingent assets and liabilities. These estimates and assumptions are based on our historical results as well as management’s judgment. Although management believes the judgment applied in preparing estimates is reasonable based on circumstances and information known at the time, actual results could vary materially from estimates based on assumptions used in the preparation of our consolidated financial statements.

Previous wording

The most significant accounting estimates involve a high degree of judgment or complexity. Management believes the estimates and judgments most critical to the preparation of our consolidated financial statements and to the understanding of our reported financial results include those made in connection with revenue recognition, including accounting for estimated merchandise returns and loyalty program expenses; estimating the value of inventory; determining operating lease liabilities; and estimating share-based compensation expense. Management evaluates its policies and assumptions on an ongoing basis. Our significant accounting estimates related to these accounts in the preparation of our consolidated financial statements are described below (see Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding our critical accounting policies).

Current wording

The most significant accounting estimates involve a high degree of judgment or complexity. Management believes the estimates and judgments most critical to the preparation of our consolidated financial statements and to the understanding of our reported financial results include those made in connection with revenue recognition, including accounting for estimated merchandise returns and loyalty program expenses; estimating the value of inventory; determining operating lease liabilities; and estimating share-based compensation expense. Management evaluates its policies and assumptions on an ongoing basis. Our significant accounting estimates related to these accounts in the preparation of our consolidated financial statements are described below (see Note 2 to our consolidated financial statements included elsewhere in this Form 10-K for additional information regarding our significant accounting policies).

Previous wording

If a customer earns loyalty program points in connection with the sales transactions described above, then we have a remaining performance obligation and cannot recognize all the revenue. A portion of the revenue is allocated to the loyalty program points earned during the transaction. We satisfy our performance obligation and recognize revenue allocated to these loyalty program points and the resulting awards at the point in time when the awards are redeemed for merchandise, when we determine that they will not be redeemed, or when the awards and points expire. Under our loyalty program, customers accumulate points based on purchase activity and qualifying non-purchase activity. Upon reaching a certain point level, customers can earn awards that may only be redeemed for merchandise. Unredeemed points typically expire after 13 months without additional purchase activity and qualifying non-purchase activity. Unredeemed awards typically expire 45 days after issuance. We use historical redemption rates to estimate the value of future award redemptions and we recognize the estimated value of these future awards as a reduction of revenue in the consolidated statements of operations and comprehensive income in the period the points are earned by the customer.

Current wording

If a customer earns loyalty program points in connection with the sales transactions described above, then we have a remaining performance obligation and cannot recognize all the revenue. A portion of the revenue is allocated to the loyalty program points earned during the transaction. We satisfy our performance obligation and recognize revenue allocated to these loyalty program points and the resulting awards at the point in time when the awards are redeemed for merchandise, when we determine that they will not be redeemed, or when the awards and points expire. Under our loyalty program, customers accumulate points based on purchase activity and qualifying non-purchase activity. Upon reaching a certain point level, customers can earn awards that may only be redeemed for merchandise. Unredeemed points typically expire after 13 months without additional purchase activity and qualifying non-purchase activity. Unredeemed awards typically expire 45 days after issuance. We use historical redemption rates to estimate the value of future award redemptions and we recognize the estimated value of these future awards as a reduction of revenue in the consolidated statements of comprehensive (loss) income in the period the points are earned by the customer.

Previous wording

We consider an agreement to be or contain a lease if it conveys us with the right to control the use of an identified asset for a period of time in exchange for consideration. Based on these criteria, we have operating lease agreements for our retail stores, distribution center and headquarter office space; and vehicles and equipment; under primarily non-cancelable leases with terms ranging from approximately one to 17 years.

Current wording

We consider an agreement to be or contain a lease if it conveys us with the right to control the use of an identified asset for a period of time in exchange for consideration. Based on these criteria, we have operating lease agreements for our retail stores, distribution center and headquarter office space; and vehicles and equipment; under primarily non-cancelable leases with terms ranging from approximately one to 16 years.