•

Net sales increased 4.0% to $124.7 million in the quarter, with 44 fewer stores; comparable sales increased 10.2%, including e-commerce growth of 77.1%

•

Gross profit improved to 28.6% of net sales compared with 22.2% of net sales in the prior year quarter, or an increase of $9.1 million

•

Operating expenses (excluding impairment) were reduced to 28.4% of net sales compared with 38.0% in the prior year quarter, or a reduction of $10.2 million

•

Asset impairment from closing underperforming stores and the effect of discrete items on the tax rate impacted earnings by $9.1 million, or approximately $0.62 per diluted share

•

Loss per diluted share narrowed to $0.66 compared with $1.21 in the prior-year quarter

•

Adjusted income per diluted share increased to $0.02 compared with an adjusted loss per diluted share of $0.99 in the prior-year quarter

•

Adjusted EBITDA improved to $6.8 million compared with an adjusted loss of $10.7 million in the prior-year quarter, or an improvement of $17.4 million

•

Cash balance of $27.6 million with no outstanding debt; total liquidity of $78.9 million

•

Store count at quarter end was 387 stores, with 18 additional stores closed in the quarter

•

Accelerating product development to reinforce quality and relevancy and building upon the tabletop and select furniture assortments we added in 2019;

•

Improving omni-channel via website enhancements, more focused marketing spend, an expanded online assortment, and an in-store experience that is aligned with our omni-channel capabilities;

•

Improving the customer experience with a re-launch of our loyalty program, extended credit options and broadened delivery options; and

•

Utilizing our leaner infrastructure to be more nimble in our response to changes in consumer preference and buying behaviors.

•

Improving comparable sales performance, driven by e-commerce growth, merchandising, brick-and-mortar store productivity and closure of underperforming stores. The COVID-19 pandemic has changed the way the customer shops, and within the quarter, e-commerce sales, as a percent of our total sales, almost doubled from a year ago.  We expect e-commerce to continue to grow as a percent of our total business, but also intend to focus on improving the contribution of our remaining store base as they are an integral part of our omni-channel strategy.  

•

Stabilizing gross margin by continuing with our current discipline of limited promotional offers, expanding direct sourcing, improving supply chain efficiency and reducing occupancy costs. With two new e-commerce distribution hubs operating by the third quarter to replace our existing e-commerce distribution center and direct sourcing expected to increase from approximately 20% of purchases in 2020 to 40% to 50% over the next two to three years, we have a goal to improve our gross profit margin to a low to mid-30% range.

•

Improving profitability by leveraging the leaner infrastructure with comparable sales growth. We believe our ideal store count should be in the range of 300 to 350 stores. With nearly one-third of our store leases up for renewal within the next 12 months, we believe there will be additional opportunities for more favorable rent terms. With approximately $45 million in annualized operating expenses eliminated from the business, we have a goal of reaching EBITDA as a percent of annual total sales in the high-single-digit range and a goal of reaching operating income as a percent of annual total sales in the mid-single-digit range within two to three years.

•

Maintaining adequate liquidity and generating free cash flow while continuing to invest in key strategic initiatives of the business. Our goal is to continue to build cash throughout fiscal 2020 and end the year with no debt. Within our two to three-year timeframe, we also expect to generate increasing free cash flow.

13-Week Period Ended

August 1,

August 3,

2020

2019

Net sales

$

124,722

$

119,885

Cost of sales

89,002

93,312

Gross profit

35,720

26,573

Operating expenses:

Compensation and benefits

20,236

27,162

Other operating expenses

13,594

16,656

Depreciation (exclusive of depreciation included in cost of sales)

1,569

1,736

Asset impairment

5,666

1,981

Total operating expenses

41,065

47,535

Operating loss

(5,345

)

(20,962

)

Other expense (income), net

103

(158

)

Loss before income taxes

(5,448

)

(20,804

)

Income tax expense (benefit)

3,915

(3,684

)

Net loss

$

(9,363

)

$

(17,120

)

Loss per share:

Basic

$

(0.66

)

$

(1.21

)

Diluted

$

(0.66

)

$

(1.21

)

Weighted average shares outstanding:

Basic

14,123

14,110

Diluted

14,123

14,110

26-Week Period Ended

August 1,

August 3,

2020

2019

Net sales

$

201,969

$

249,533

Cost of sales

156,013

186,741

Gross profit

45,956

62,792

Operating expenses:

Compensation and benefits

38,814

54,218

Other operating expenses

28,161

34,790

Depreciation (exclusive of depreciation included in cost of sales)

3,070

3,575

Asset impairment

8,850

3,859

Total operating expenses

78,895

96,442

Operating loss

(32,939

)

(33,650

)

Other expense (income), net

203

(416

)

Loss before income taxes

(33,142

)

(33,234

)

Income tax benefit

(16,341

)

(7,193

)

Net loss

$

(16,801

)

$

(26,041

)

Loss per share:

Basic

$

(1.20

)

$

(1.83

)

Diluted

$

(1.20

)

$

(1.83

)

Weighted average shares outstanding:

Basic

14,057

14,241

Diluted

14,057

14,241

August 1,

February 1,

August 3,

2020

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

27,565

$

30,132

$

14,650

Inventories, net

77,078

94,674

108,233

Income taxes receivable

6,162

243

465

Prepaid expenses and other current assets

8,467

6,462

8,197

Total current assets

119,272

131,511

131,545

Property and equipment, net

72,676

82,863

102,566

Operating lease right-of-use assets

165,393

200,067

219,648

Deferred income taxes

—

1,525

9,010

Other assets

5,925

6,476

6,229

Total assets

$

363,266

$

422,442

$

468,998

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

36,890

$

59,513

$

60,537

Accrued expenses

29,056

28,773

24,646

Operating lease liabilities

49,034

53,154

53,561

Total current liabilities

114,980

141,440

138,744

Operating lease liabilities

180,180

195,736

218,700

Other liabilities

7,294

8,311

9,148

Total liabilities

302,454

345,487

366,592

Net shareholders’ equity

60,812

76,955

102,406

Total liabilities and shareholders’ equity

$

363,266

$

422,442

$

468,998

26 Weeks Ended

August 1,

August 3,

2020

2019

Cash flows from operating activities:

Net loss

$

(16,801

)

$

(26,041

)

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

Depreciation of property and equipment

11,986

14,295

Amortization of debt issue costs

48

27

Asset impairment

8,850

3,859

Cumulative effect of change in accounting principle

—

(331

)

(Gain) loss on disposal of property and equipment

(28

)

139

Stock-based compensation expense

636

1,291

Deferred income taxes

1,525

(7,307

)

Changes in assets and liabilities:

Inventories, net

17,596

(23,799

)

Prepaid expenses and other current assets

(2,005

)

2,116

Accounts payable

(21,608

)

19,438

Accounts payable to related party vendor

—

(8,166

)

Accrued expenses

315

(2,428

)

Income taxes receivable

(5,951

)

(959

)

Operating lease assets and liabilities

8,683

(4,295

)

Other assets and liabilities

(414

)

635

Net cash provided by (used in) operating activities

2,832

(31,526

)

Cash flows from investing activities:

Proceeds from sale of property and equipment

154

—

Capital expenditures

(5,560

)

(8,457

)

Net cash used in investing activities

(5,406

)

(8,457

)

Cash flows from financing activities:

Borrowings on revolving line of credit

40,000

—

Repayments on revolving line of credit

(40,000

)

—

Refinancing costs

(15

)

—

Cash used in net share settlement of restricted stock

(13

)

(44

)

Employee stock purchases

35

145

Repurchase and retirement of common stock

—

(3,414

)

Net cash provided by (used in) financing activities

7

(3,313

)

Cash and cash equivalents:

Net decrease

(2,567

)

(43,296

)

Beginning of the period

30,132

57,946

End of the period

$

27,565

$

14,650

Supplemental schedule of non-cash activities:

Non-cash accruals for purchases of property and equipment

$

838

$

2,367

Operating lease assets and liabilities recognized upon adoption of ASC 842

—

295,240

13-Week Period Ended

26-Week Period Ended

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Operating loss

$

(5,345

)

$

(20,962

)

$

(32,939

)

$

(33,650

)

Depreciation and amortization

5,933

7,051

11,986

14,295

EBITDA

588

(13,911

)

(20,953

)

(19,355

)

Non-GAAP adjustments:

Closed store and lease termination costs in cost of sales⁽¹⁾

95

—

58

—

Asset impairment⁽²⁾

5,666

1,981

8,850

3,859

Stock-based compensation expense⁽³⁾

329

731

636

1,291

Severance charges⁽⁴⁾

85

410

880

787

Other costs included in operating expenses⁽⁵⁾

—

119

134

119

Total adjustments in operating expenses

6,080

3,241

10,500

6,056

Total non-GAAP adjustments

6,175

3,241

10,558

6,056

Adjusted EBITDA

$

6,763

$

(10,670

)

$

(10,395

)

$

(13,299

)

Net loss

$

(9,363

)

$

(17,120

)

$

(16,801

)

$

(26,041

)

Non-GAAP adjustments, net of tax:

Closed store and lease termination costs in cost of sales⁽¹⁾

73

—

45

—

Asset impairment⁽²⁾

4,378

1,628

6,805

2,978

Stock-based compensation expense, including tax impact⁽³⁾

391

1,040

886

1,443

Severance charges⁽⁴⁾

71

336

677

607

Other costs included in operating expenses⁽⁵⁾

—

91

103

91

Total adjustments in operating expenses

4,840

3,095

8,471

5,119

Tax valuation allowance⁽⁶⁾

3,274

—

5,470

—

CARES Act - net operating loss carry back⁽⁷⁾

1,490

—

(14,596

)

—

Total non-GAAP adjustments, net of tax

9,677

3,095

(610

)

5,119

Adjusted net income (loss)

$

314

$

(14,025

)

$

(17,411

)

$

(20,922

)

Diluted loss per share

$

(0.66

)

$

(1.21

)

$

(1.20

)

$

(1.83

)

Adjusted diluted income (loss) per share

$

0.02

$

(0.99

)

$

(1.24

)

$

(1.47

)

Diluted weighted average shares outstanding

14,123

14,110

14,057

14,241

Adjusted diluted weighted average shares outstanding

14,741

14,110

14,057

14,241

(1)

Costs associated with closed stores and lease termination costs, including amounts paid to third-parties for rent reduction negotiations, lease termination fees paid to landlords for store closings and gain on lease terminations.

(2)

Impairment charges include both right-of-use asset and property and equipment impairment charges.

(3)

Stock-based compensation expense includes amounts expensed related to equity incentive plans.

(4)

Severance charges include expenses related to severance agreements. This also includes permanent store closure compensation costs.

(5)

Other costs include corporate lease negotiation fees associated with rent reduction in fiscal 2020 and write-offs of excess and obsolete supplies in fiscal 2019.

(6)

The tax valuation allowance is the change in the Company’s valuation allowance against deferred tax assets. The Company did not have a valuation allowance against deferred tax assets in the prior year periods.

(7)

The Company recorded an income tax expense (benefit) related to the carry back of fiscal 2019 and estimated fiscal 2020 federal net operating losses to prior periods included in the CARES Act in fiscal 2020.