Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report.
In addition to historical information, this discussion and analysis contains forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions as further described under the caption above entitled “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results or other events and the timing of events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Item 1A, Risk Factors and elsewhere in this Annual Report.
General
We are a nationally recognized off-price retailer of high-quality, branded merchandise at everyday low prices. We opened our first store in Burlington, New Jersey in 1972, selling primarily coats and outerwear. Since then, we have expanded our store base to 1,212 stores as of January 31, 2026 in 46 states, Washington D.C. and Puerto Rico. We have diversified our product categories by offering an extensive selection of in-season, fashion-focused merchandise at up to 60% off other retailers’ prices, including: women’s ready-to-wear apparel, menswear, youth apparel, baby, beauty, footwear, accessories, home, toys, gifts and coats. We sell a broad selection of desirable, first-quality, current-brand, labeled merchandise acquired directly from nationally-recognized manufacturers and other suppliers.
Executive Summary
Store Openings, Closings and Relocations
During the fiscal year ended February 1, 2025 (Fiscal 2025), we opened 131 new stores, inclusive of 18 relocations, and closed nine stores, exclusive of the aforementioned relocations, bringing our store count as of January 31, 2026 to 1,212 stores. We continue to pursue our growth plans and invest in capital projects that meet our financial requirements. During the fiscal year ending January 30, 2027 (Fiscal 2026), we plan to open approximately 110 net new stores.
Fiscal Year Ended
Our fiscal year ends on the Saturday closest to January 31. We report fiscal years under a 52/53-week format and as a result, certain fiscal years will contain 53 weeks. Fiscal 2025 included 52 weeks, the fiscal year ended February 1, 2025 (Fiscal 2024) included 52 weeks, and the fiscal year ended February 3, 2024 (Fiscal 2023) included 53 weeks. Fiscal 2026 will have 52 weeks.
Ongoing Initiatives for Fiscal 2026
We continue to focus on several ongoing strategic initiatives aimed at operating with flexibility, responsiveness, and efficiency in everything we do, while delivering great value to our customers through continued improvement in the execution of our off-price model. These initiatives are outlined below.
Merchandising
Our merchandising strategy is centered on delivering compelling value while remaining responsive to evolving customer preferences. Key initiatives include:
focusing on fashion, quality, brand, and price to inform our buying decisions and provide customers with outstanding value on their purchases;
delivering remarkable value every day with speed and agility through a culture of customer focus and continuous learning and innovation;
enabling buyers to spend more time in the market and take data-driven actions informed by current trends and opportunities;
following the off-price principles of opportunistic buying and in-season purchasing to more effectively chase the sales trend;
building capabilities to localize the assortment by region and store; and
continuing to grow our merchandising talent base.
Stores
We remain focused on delivering a neat, clean, easy-to-shop, organized, and consistent shopping experience for our customers while maintaining disciplined cost and inventory controls. Key initiatives include:
redesigning our stores with new interior layouts, signage and fixtures to better highlight our selection of trend-right, branded merchandise, and create an inviting environment for customers that accentuates the thrill of the treasure hunt;
optimizing shortage reduction by identifying risks and implementing innovative physical security solutions and technologies; and
getting fresh receipts out to the sales floor rapidly and efficiently.
Real Estate
We continue to selectively expand our store footprint in attractive locations to support long-term growth. Key initiatives include:
opening 100 stores per year on average, which we believe will allow us to operate 2,000 stores over the long-term;
prioritizing 25,000 square foot stores located in busy, convenient strip malls; and
downsizing existing stores to incorporate our new store designs and reduce occupancy costs.
Supply Chain
We continue to invest in supply chain capabilities to support growth and improve operational efficiency. Key initiatives include:
driving cost savings through speed, flexibility, and efficiency in distribution and transportation; and
expanding and modernizing our supply chain network with flexible and efficient distribution centers purpose-built to execute our off-price business model.
Marketing
Our marketing efforts are focused on building a strong and renewed reputation with consumers. Key initiatives include:
communicating a strong value message to new and existing shoppers; and
investing in advertising that drives traffic to our stores.
Uncertainties and Challenges
As we strive to increase profitability, there are uncertainties and challenges that we face that could have a material impact on our revenues or income.
General Economic Conditions. There remains a high level of uncertainty in the current macroeconomic and geopolitical environments, and prolonged inflationary pressures could continue to negatively impact the discretionary spending of the low-income shopper, our core customer. In addition to inflation, consumer spending habits, including spending for the merchandise that we sell, are affected by, among other things, prevailing global economic conditions, the costs of basic necessities and other goods, levels of employment, salaries and wage rates, prevailing interest rates, reductions in government benefits and lower tax refunds, housing and food costs, energy and fuel costs, commodities pricing, income tax rates and policies, immigration policies, consumer confidence and consumer perception of economic conditions. In addition, consumer purchasing patterns are generally influenced by consumers’ disposable income, credit availability and debt levels.
A broad, protracted slowdown or downturn in the U.S. economy, an extended period of high unemployment or inflation rates, an uncertain domestic or global economic outlook or a financial crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis. Conversely, if inflation declines, it could benefit our core customers who have been impacted by higher cost of living, and if economic growth slows, it could cause moderate and higher-income shoppers to become more value conscious. Either of these developments, if they occur, would be expected to improve our business. Consumer confidence is also affected by the domestic and international political situation. Our financial condition and operations could be impacted by changes in government regulations, initiatives or programs in areas including, but not limited to, trade and tariffs, taxes, healthcare, and immigration. In addition, trade and tariff regulations have had and are expected to continue to
have an indirect impact on consumer prices. We will continue to monitor changes in tariff policy and the impact of these changes on our industry and the economy and seek to adjust to these changes as efficiently as possible. The outbreak or escalation of war, or the occurrence of terrorist acts or other hostilities in or affecting the U.S., or public health issues such as pandemics or epidemics, could lead to a decrease in spending by consumers. In addition, natural disasters, public health issues, industrial accidents and acts of war or conflicts in various parts of the world (such as the conflict in Ukraine or the conflict in the Middle East), could have the effect of disrupting supplies and raising prices globally which, in turn, may have adverse effects on the world and U.S. economies and lead to a downturn in consumer confidence and spending.
We closely monitor our net sales, gross margin and expenses. We have performed scenario planning such that if our net sales decline for an extended period of time, we have identified variable costs that could be reduced to partially mitigate the impact of these declines. If we were to experience adverse sales trends and if our efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods.
Seasonality of Sales and Weather Conditions . Our business, like that of most retailers, is subject to seasonal influences. In the second half of the year, which includes the back-to-school and holiday seasons, we generally realize a higher level of sales and net income.
Weather continues to be a contributing factor to the sale of our merchandise. Generally, our sales are higher if the weather is cold during the Fall and warm during the early Spring. Sales of cold weather clothing are generally increased by early cold weather during the Fall, while sales of warm weather clothing are generally increased by early warm weather conditions in the Spring. Although we have diversified our product offerings, we believe traffic to our stores is still driven, in part, by weather patterns.
Competition and Margin Pressure. We believe that in order to remain competitive with retailers, including off-price retailers and discount stores, we must continue to offer brand-name merchandise at a discount to prices offered by other retailers as well as an assortment of merchandise that is appealing to our customers.
The U.S. retail apparel and home furnishings markets are highly fragmented and competitive. We compete for business with department stores, off-price retailers, internet retailers, specialty stores, discount stores, wholesale clubs, and outlet stores as well as with certain traditional, full-price retail chains that have developed off-price concepts. At various times throughout the year, traditional full-price department store chains and specialty shops offer brand-name merchandise at substantial markdowns, which can result in prices approximating those offered by us at our Burlington Stores. We anticipate that competition will increase in the future. Therefore, we will continue to look for ways to differentiate our stores from those of our competitors.
The U.S. retail industry continues to face increased pressure on margins as overall challenging retail conditions have led consumers to be more value conscious. Additionally, lower-to-moderate income shoppers continue to face economic pressure due to higher cost of living. Our strategy to chase the sales trend allows us the flexibility to purchase less pre-season merchandise with the balance purchased in-season and opportunistically. It also provides us with the flexibility to shift purchases between suppliers and categories. We believe that this enables us to obtain better terms with our suppliers, which we expect will help offset any rising costs of goods.
Key Performance and Non-GAAP Measures
We consider numerous factors in assessing our performance. Key performance and non-GAAP measures used by management include net income, Adjusted Net Income, Adjusted EBITDA, Adjusted EBIT, comparable store sales, gross margin, inventory and liquidity.
Net income . We earned net income of $610.2 million during Fiscal 2025 compared with $503.6 million during Fiscal 2024. This increase was primarily driven by higher sales and increased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT : Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT are non-GAAP financial measures of our performance.
We define Adjusted Net Income as net income, exclusive of the following items, if applicable: (i) net favorable lease costs; (ii) loss on extinguishment of debt; (iii) costs related to debt amendments; (iv) impairment charges; (v) amounts related to certain litigation matters; and (vi) other unusual, non-recurring expenses, losses, charges or gains, all of which are tax effected to arrive at Adjusted Net Income.
We define Adjusted EBITDA as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on extinguishment of debt; (iv) costs related to debt amendments; (v) income tax expense; (vi) depreciation and amortization; (vii) net favorable lease costs; (viii) impairment charges; (ix) amounts related to certain litigation matters; and (x) other unusual, non-recurring expenses, losses, charges or gains.
We define Adjusted EBIT as net income, exclusive of the following items, if applicable: (i) interest expense; (ii) interest income; (iii) loss on extinguishment of debt; (iv) costs related to debt amendments; (v) income tax expense; (vi) impairment charges; (vii) net favorable lease costs; (viii) amounts related to certain litigation matters; and (ix) other unusual, non-recurring expenses, losses, charges or gains.
We present Adjusted Net Income, Adjusted EBITDA and Adjusted EBIT because we believe they are useful supplemental measures in evaluating the performance of our business and provide greater transparency into our results of operations. In particular, we believe that excluding certain items that may vary substantially in frequency and magnitude from what we consider to be our core operating results are useful supplemental measures that assist investors and management in evaluating our ability to generate earnings and leverage sales, and to more readily compare core operating results between past and future periods.
We believe that these non-GAAP measures provide investors helpful information with respect to our operations and financial condition. Other companies in the retail industry may calculate these non-GAAP measures differently such that our calculation may not be directly comparable.
Adjusted Net Income has limitations as an analytical tool, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted Net Income does not reflect the following items, net of their tax effect:
net favorable lease costs;
losses on extinguishment of debt;
costs related to debt amendments;
impairment charges on long-lived assets;
amounts charged for certain litigation matters; and
other unusual, non-recurring expenses, losses, charges or gains.
During Fiscal 2025, Adjusted Net Income improved $97.7 million to $625.7 million. This increase was primarily driven by higher sales and increased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
The following table shows our reconciliation of net income to Adjusted Net Income for Fiscal 2025, Fiscal 2024 and Fiscal 2023:
(unaudited)
(in thousands)
Fiscal Year Ended
January 31,
February 1,
February 3,
(53 Weeks)
Net income
Net favorable lease costs (a)
Loss on extinguishment of debt (b)
Costs related to debt amendments (c)
Impairment charges - long-lived assets
Litigation matters (d)
Layaway liabilities (e)
Security tags (f)
Tax effect (g)
Adjusted Net Income
Net favorable lease costs represent the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of purchase accounting related to the April 13, 2006 Bain Capital acquisition of Burlington Coat Factory Warehouse Corporation (the Merger Transaction). These expenses are recorded in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income.
Fiscal 2024 amount relates to the partial write-off of the original issue discount and deferred debt costs related to the September 2024 extension and upsize of the Term Loan Facility. Fiscal 2023 amount relates to the partial repurchases of the 2.25% Convertible Senior Notes due 2025 (the “2025 Convertible Notes”) and the exchange of a portion of the 2025 Convertible Notes.
Fiscal 2025 amount relates to the settlement of the 2025 Convertible Notes during the first quarter of Fiscal 2025. Fiscal 2024 amount relates to the September 2024 extension and upsizing of the Term Loan Facility. Fiscal 2023 amount relates to the Term Loan Facility amendment changing from the Adjusted LIBOR Rate to the Adjusted Term SOFR Rate.
Represents amounts charged for certain litigation matters.
Represents a one-time settlement of certain layaway liabilities on our Consolidated Balance Sheet, resulting in a gain.
Represents a one-time write-off to amortization related to certain merchandise security tags on our Consolidated Balance Sheet.
Tax effect is calculated based on the effective tax rates (before discrete items) for the respective periods, adjusted for the tax effect for the impact of items (a) through (f).
Adjusted EBIT and Adjusted EBITDA have limitations as analytical tools, and should not be considered either in isolation or as a substitute for net income or other data prepared in accordance with GAAP. Among other limitations, Adjusted EBIT and Adjusted EBITDA do not reflect:
net interest expense;
net favorable lease costs;
losses on the extinguishments of debt;
costs related to debt issuances and amendments;
amounts charged for certain litigation matters;
impairment charges on long-lived assets;
income tax expense; and
other unusual, non-recurring expenses, losses, charges or gains.
Adjusted EBITDA is further adjusted for cash requirements for replacement of assets. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will likely have to be replaced in the future.
During Fiscal 2025, Adjusted EBIT improved $141.7 million to $887.1 million. During Fiscal 2025, Adjusted EBITDA increased $200.3 million to $1,293.3 million. These increases were primarily driven by higher sales and increased gross margin rate. Refer to the section below entitled “Results of Operations” for further explanation.
The following table shows our reconciliation of net income to Adjusted EBIT and Adjusted EBITDA for Fiscal 2025, Fiscal 2024 and Fiscal 2023:
(unaudited)
(in thousands)
Fiscal Year Ended
January 31,
February 1,
February 3,
(53 Weeks)
Reconciliation of net income to Adjusted EBIT and Adjusted EBITDA
Net income
Interest expense
Interest income
Net favorable lease costs (a)
Loss on extinguishment of debt (b)
Costs related to debt amendments (c)
Impairment charges - long-lived assets
Litigation matters (d)
Layaway liabilities (e)
Security tags (f)
Income tax expense
Adjusted EBIT
Depreciation and amortization (g)
Adjusted EBITDA
Net favorable lease costs represent the non-cash expense associated with favorable and unfavorable leases that were recorded as a result of purchase accounting related to the Merger Transaction. These expenses are recorded in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income.
Fiscal 2024 amount relates to the partial write-off of the original issue discount and deferred debt costs related to the September 2024 extension and upsize of the Term Loan Facility. Fiscal 2023 amount relates to the partial repurchases of the 2025 Convertible Notes and the exchange of a portion of the 2025 Convertible Notes.
Fiscal 2025 amount relates to the settlement of the 2025 Convertible Notes during the first quarter of Fiscal 2025. Fiscal 2024 amount relates to the September 2024 extension and upsizing of the Term Loan Facility. Fiscal 2023 amount relates to the Term Loan Facility amendment changing from the Adjusted LIBOR Rate to the Adjusted Term SOFR Rate.
Represents amounts charged for certain litigation matters.
Represents a one-time settlement of certain layaway liabilities on our Consolidated Balance Sheet, resulting in a gain.
Represents a one-time write-off to amortization related to certain merchandise security tags on our Consolidated Balance Sheet.
Depreciation and amortization excludes the write-off of security tags in item (f).
Comparable Store Sales . Comparable store sales measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of a prior year. The method of calculating comparable store sales varies across the retail industry. As a result, our definition of comparable store sales may differ from other retailers.
We define comparable store sales as merchandise sales of those stores commencing on the first day of the fiscal month one year after the end of their grand opening activities, which normally conclude within the first two months of operations. If a store is closed for seven or more days during a month, our policy is to remove that store from our calculation of comparable store sales for any such month, as well as during the month(s) of their grand re-opening activities. The table below depicts the change in our comparable store sales during Fiscal 2025, Fiscal 2024 and Fiscal 2023, all of which are calculated on a 52-week basis.
Comparable
Store Sales
Fiscal 2025
Fiscal 2024
Fiscal 2023
Various factors affect comparable store sales, including, but not limited to, weather conditions, current economic conditions, the timing of our releases of new merchandise and promotional events, the general retail sales environment, consumer preferences and buying trends, changes in sales mix among distribution channels, competition, and the success of marketing programs.
Gross Margin . Gross margin is the difference between net sales and the cost of sales. Our cost of sales and gross margin may not be comparable to those of other entities, since some entities may include all of the costs related to their buying and distribution functions, certain store-related costs and other costs, in cost of sales. We include certain of these costs in the line items “Selling, general and administrative expenses” and “Depreciation and amortization” in our Consolidated Statements of Income. We include in our “Cost of sales” line item all costs of merchandise (net of purchase discounts and certain vendor allowances), inbound freight, distribution center outbound freight and certain merchandise acquisition costs, primarily commissions and import fees.
Gross margin as a percentage of net sales expanded to 43.8% during Fiscal 2025, compared with 43.2% during Fiscal 2024, driven primarily by improved merchandise margin and freight costs.
Product sourcing costs, which are included in selling, general and administrative expenses, decreased approximately 20 basis points as a percentage of net sales during the fiscal year ended January 31, 2026, compared with the fiscal year ended February 1, 2025. Product sourcing costs include the costs of processing goods through our supply chain and buying costs.
Inventory . Inventory as of January 31, 2026 increased to $1,311.9 million from $1,250.8 million at February 1, 2025. This increase primarily relates to an increase in comparable store inventory and new store inventory at 104 net new stores since the end of Fiscal 2024.
Reserve inventory includes all inventory that is being stored for release either later in the season, or in a subsequent season. We intend to use our reserve merchandise to effectively chase sales trends. Reserve inventory was 40% of total inventory at the end of Fiscal 2025 compared to 46% at the end Fiscal 2024.
In order to better serve our customers and maximize sales, we continue to refine our merchandising mix and inventory levels within our stores. By appropriately managing our inventories, we believe we will be better able to deliver a continual flow of fresh merchandise to our customers.
Liquidity. Liquidity measures our ability to generate cash. Management measures liquidity through cash flow, which is the measure of cash generated from or used in operating, financing, and investing activities. Cash and cash equivalents increased $237.8 million during Fiscal 2025, compared with an increase of $69.3 million during Fiscal 2024. Refer to the section below entitled “Liquidity and Capital Resources” for further explanation.
Results of Operations
The following table sets forth certain items in the Consolidated Statements of Income as a percentage of net sales for the periods indicated.
Percentage of Net Sales
Fiscal Year Ended
January 31,
February 1,
February 3,
Net sales
Other revenue
Total revenue
Cost of sales
Selling, general and administrative expenses
Costs related to debt amendments
Depreciation and amortization
Impairment charges - long-lived assets
Other income - net
Loss on extinguishment of debt
Interest income
Interest expense
Total costs and expenses
Income before income tax expense
Income tax expense
Net income
Performance for Fiscal Year Ended January 31, 2026 (Fiscal 2025) Compared with Fiscal Year Ended February 1, 2025 (Fiscal 2024)
Net sales
Net sales improved $932.9 million, or 8.8%, to $11,549.6 million, primarily driven by both an increase in net sales of $691.4 million from our new stores and non-comparable stores as well as an increase of 2%, or $241.5 million, in comparable store sales during Fiscal 2025.
Cost of sales
Cost of sales as a percentage of net sales decreased to 56.2% during Fiscal 2025, compared with 56.8% during Fiscal 2024, primarily driven by improved merchandise margin and freight costs. On a dollar basis, cost of sales increased $461.7 million, or 7.7%, primarily driven by our overall increase in sales.
Selling, general and administrative expenses
Selling, general and administrative expenses as a percentage of net sales decreased to 33.1% during the fiscal year ended January 31, 2026, compared to 33.4% during the fiscal year ended February 1, 2025. The decrease was primarily driven by supply chain efficiency initiatives and store payroll costs, partially offset by increased occupancy costs. On a dollar basis, selling, general and administrative expenses increased by $270.2 million, or 7.6%, to $3,817.2 million during the fiscal year ended January 31, 2026. The increase was primarily driven by our 104 net new stores opened since the end of Fiscal 2024.
During Fiscal 2025 and Fiscal 2024, the Company acquired leases through bankruptcy proceedings. The acquisition of these leases resulted in $35.5 million and $15.7 million of pre-opening costs that are recorded in the line item, “Selling, general and administrative expenses” in our Consolidated Statements of Income during Fiscal 2025 and Fiscal 2024, respectively.
Depreciation and amortization
Depreciation and amortization expense amounted to $417.9 million during Fiscal 2025, compared with $347.6 million during Fiscal 2024. The increase in depreciation and amortization expense was primarily driven by new and non-comparable stores, as well as capital expenditures related to investments in our supply chain infrastructure.
Impairment charges—long-lived assets
Impairment charges related to long-lived assets were $9.9 million and $12.9 million during Fiscal 2025 and Fiscal 2024, respectively. Fiscal 2025 relates to an owned store selling below carrying value, unrecoverable assets at underperforming stores, as well as stores relocated and closed before the end of the respective lease-end dates. Fiscal 2024 relates to two owned stores selling below carrying value, unrecoverable assets at underperforming stores, and stores relocated and closed before the end of the respective lease-end dates.
The recoverability assessment related to these store-level assets requires various judgments and estimates, including estimates related to future revenues, gross margin rates, store expenses and other assumptions. We base these estimates upon our past and expected future performance. We believe our estimates are appropriate in light of current market conditions. However, future impairment charges could be required if we do not achieve our current revenue or cash flow projections for each store. Refer to Note 4, “Impairment Charges,” for further discussion.
Other income, net
Other income, net improved $14.6 million to $31.3 million during Fiscal 2025. The improvement in other income was primarily driven by a one-time settlement of certain layaway liabilities, resulting in a gain.
Loss on Extinguishment of Debt
There were no loss on extinguishment of debt charges during Fiscal 2025. During Fiscal 2024, debt extinguishment charges amounted to $1.4 million related to the partial write-off of the original issue discount and deferred debt costs, as a result of the September 2024 extension and upsize of our Term Loan Facility. Refer to Note 5, “Long Term Debt,” for further discussion regarding our debt transactions.
Interest income
Interest income decreased $10.6 million to $20.9 million. The decrease was primarily driven by more investments in Fiscal 2024 compared to Fiscal 2025.
Interest expense
Interest expense increased $1.5 million to $71.0 million. The increase is related to the upsize of the Term Loan Facility, partially offset by increased capitalized interest as a result of the ongoing construction of a distribution center and paydown of the 2025 Convertible Notes during the first quarter of Fiscal 2025.
The average interest rate on the Term Loan Facility was 5.9% and 7.0% for the fiscal year ended January 31, 2026 and the fiscal year ended February 1, 2025, respectively. The average balance on the Term Loan Facility, excluding the original issue discount, was $1,561.2 million and $1,047.0 million for the fiscal year ended January 31, 2026 and the fiscal year ended February 1, 2025, respectively.
Income tax expense
Income tax expense was $206.0 million for Fiscal 2025 compared with $171.2 million for Fiscal 2024. The effective tax rate was 25.2% related to pretax income of $816.1 million for Fiscal 2025, and 25.4% related to pretax income of $674.8 million for Fiscal 2024. The increase in income tax expense is primarily driven by higher pre‑tax income.
Net income
We earned net income of $610.2 million during Fiscal 2025 compared with net income of $503.6 million for Fiscal 2024. This increase was primarily driven by higher sales and increased gross margin rate. Net income included $26.4 million and $11.7 million of expense, net of income taxes, for Fiscal 2025 and Fiscal 2024, respectively, related to the bankruptcy acquired leases.
Performance for Fiscal Year Ended February 1, 2025 (Fiscal 2024) Compared with Fiscal Year Ended February 3, 2024 (Fiscal 2023)
For a discussion related to Fiscal 2024 performance compared to Fiscal 2023 performance, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025 (Fiscal 2024 10-K).
Liquidity and Capital Resources
Our ability to satisfy interest payment and future principal payment obligations on our outstanding debt will depend largely on our future performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service interest payment and future principal payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed on terms similar to our current financing agreements, or at all.
We believe that cash generated from operations, along with our existing cash and our ABL Line of Credit, will be sufficient to fund our expected cash flow requirements and planned capital expenditures for at least the next twelve months as well as the foreseeable future. However, there can be no assurance that we would be able to offset declines in our comparable store sales with savings initiatives.
As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by tender offer, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material.
From time to time, we evaluate options to opportunistically increase, refinance or extend our debt. Our assessment will be based on our capital needs for, among other things, facility purchases, capital improvements and expenditures. No assurance can be given that we will enter into such agreements.
Cash Flows
Cash Flows for Fiscal 2025 Compared with Fiscal 2024
We generated $237.8 million of cash flows during Fiscal 2025 compared with $69.3 million during Fiscal 2024.
Net cash provided by operating activities amounted to $1,231.4 million and $863.4 million during Fiscal 2025 and Fiscal 2024, respectively. The increase in our operating cash flows was primarily driven by improved net income as well as changes in working capital.
Net cash used in investing activities was $1,055.1 million and $882.3 million during Fiscal 2025 and Fiscal 2024, respectively. This change was primarily the result of investments in our supply chain infrastructure, as well as new store construction.
Net cash provided by financing activities was $61.5 million during Fiscal 2025 compared to a use of $88.2 million during Fiscal 2024. This change was primarily driven by the settlement of the 2025 Convertible Notes during the first quarter of Fiscal 2025 and an increase in treasury stock repurchases, partially offset by net proceeds related to the upsize of the Term Loan Facility during the second quarter of Fiscal 2025.
Changes in working capital also impact our cash flows. Working capital equals current assets minus current liabilities. We had working capital at January 31, 2026 of $522.3 million compared with $356.3 million at February 1, 2025. The increase in working capital was primarily driven by increased cash balance and a decrease in current maturity of long term debt, partially offset by a decrease in prepaid assets.
Cash Flows for Fiscal 2024 Compared with Fiscal 2023
For a discussion of our cash flows for Fiscal 2024 compared to Fiscal 2023, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Fiscal 2024 10-K.
Capital Expenditures
For Fiscal 2025, capital expenditures, net of $56.9 million of landlord allowances, amounted to $1,104.1 million (inclusive of accrued capital expenditures). These capital expenditures include approximately $482.0 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, downsizes, remodels and other store expenditures). In addition, we made capital expenditures of $464.0 million to support our supply chain initiatives, largely related to the purchase of the distribution center in California and build-out of the distribution center in Georgia, with the remaining capital to support information technology and other business initiatives. During Fiscal 2024, we incurred capital expenditures of $843.9 million (inclusive of accrued capital expenditures), net of approximately $28.9 million of landlord allowances.
We estimate that we will spend approximately $875 million, net of approximately $55 million of landlord allowances, in capital expenditures during Fiscal 2026, including approximately $420 million, net of the previously mentioned landlord allowances, for store expenditures (new stores, downsizes, remodels and other store expenditures). In addition, we estimate that we will spend approximately $290 million to support our supply chain initiatives, largely related to completing the build-out of the distribution center in Georgia and beginning construction on a distribution center in Arizona. The remaining capital will be used to support our information technology and other business initiatives.
Share Repurchase Program
On August 15, 2023, our Board of Directors authorized the repurchase of up to $500.0 million of common stock, which expired on August 15, 2025.
On May 20, 2025, our Board of Directors authorized the repurchase of up to an additional $500.0 million of common stock, which is authorized to be executed through May 20, 2027.
During Fiscal 2025, we repurchased 985,594 shares of common stock for $251.4 million under our share repurchase program. As of January 31, 2026, we had $385.0 million remaining under our share repurchase authorization.
We are authorized to repurchase shares of our outstanding common stock from time to time on the open market or in privately negotiated transactions under our repurchase program. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. Our share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common stock under the program.
Dividends
We currently do, and intend to continue to, retain all available funds and any future earnings to fund all of our capital expenditures, business initiatives, and to support any potential opportunistic capital structure initiatives. Therefore, at this time, we do not anticipate paying cash dividends in the near term. Our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to compliance with covenants in our current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our Board of Directors deems relevant.
In addition, since we are a holding company, substantially all of the assets shown on our Consolidated Balance Sheets are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends.
Debt and Hedging
As of January 31, 2026, our obligations, inclusive of original issue discount, include $1,719.4 million under our Term Loan Facility, $297.1 million of 2027 Convertible Notes and no outstanding borrowings on our ABL Line of Credit. Our debt obligations also include $22.9 million of finance lease obligations as of January 31, 2026. Refer to Note 5 to our Consolidated Financial Statements, “Long Term Debt,” for an overview of the terms and conditions of these instruments.
Term Loan Facility
BCFWC and certain of its subsidiaries and holding companies are party to a Credit Agreement (as amended, supplemented and otherwise modified, the Term Loan Facility) that provides for term loans in an aggregate principal amount as of January 31, 2026 of $1,730.6 million maturing on September 24, 2031.
On September 24, 2024, we entered into an amendment to the Term Loan Facility dated as of February 24, 2011 (the "Amendment"), which among other things, (i) refinanced the outstanding $933.0 million principal amount of Term B-6 Loans with Term B-7 Loans in an aggregate principal amount of $1,250.0 million, which includes incremental term loans in an aggregate principal amount of $317.0 million, (ii) extended the maturity date from June 24, 2028 to September 24, 2031, and (iii) reduced the interest rate margins applicable to our term loan facility from 1.00% to 0.75%, in the case of prime rate loans, and from 2.00% to
1.75%, in the case of SOFR loans, with a 0.00% SOFR floor, and removed the SOFR adjustment. The Term B-7 Loans were issued with an original issue discount of 99.5.
On June 11, 2025, we entered into an amendment to the Term Loan Facility, which among other things, provided for $500.0 million of incremental term loans under the Term Loan Credit Agreement as additional Term B-7 Loans. The incremental term loans were issued with an original issue discount of 99.0 and are otherwise on terms identical to, and fungible with, the existing Term B-7 Loans.
The Term Loan Facility is collateralized by a first lien on BCFWC’s and each guarantor’s equity interests, equipment, intellectual property, and certain favorable leases and real estate, and certain related assets and proceeds thereof (subject to certain exceptions), and a second lien on BCFWC’s and each guarantor’s other assets and proceeds thereof (subject to certain exceptions).
At January 31, 2026, our borrowing rate related to the Term Loan Facility, exclusive of the impact of interest rate swaps, was 5.4%.
ABL Line of Credit
BCFWC and certain of its subsidiaries and holding companies are party to a Second Amended and Restated Credit Agreement (as amended, supplemented and otherwise modified, the ABL Line of Credit) that provides for $1,000.0 million of revolving commitments (subject to a borrowing base limitation) maturing on July 25, 2030, and, subject to the satisfaction of certain conditions, BCFWC can increase the aggregate amount of commitments up to an amount not to exceed the sum of (i) the greater of (x) $300.0 million and (y) the amount by which the Borrowing Base exceeds the aggregate Commitments, plus (iii) the amount of all permanent reductions in commitments after July 25, 2025. The interest rate margin applicable under the ABL Line of Credit is 1.125% to 1.375% in the case of a daily SOFR rate or a term SOFR rate, and 0.125% to 0.375% in the case of a prime rate, depending on the average daily availability of the lesser of (a) the total commitments or (b) the borrowing base. The ABL Line of Credit is collateralized by a first priority lien on BCFWC’s and each guarantor's inventory, receivables, bank accounts, and certain related assets and proceeds thereof (subject to certain exceptions), and a second priority lien on BCFWC’s and each guarantor's other assets and proceeds thereof (other than real estate and subject to certain exceptions)
On July 25, 2025, we entered into an amendment to the ABL Line of Credit in order to, among other things, (i) increase the aggregate principal amount of the commitments from $900.0 million to $1,000.0 million and (ii) extend the maturity date of the commitments and loans from December 22, 2026 to July 25, 2030.
At January 31, 2026, we had $934.5 million available under the ABL Line of Credit. Average borrowings during Fiscal 2025 amounted to $20.2 million at an average interest rate of 5.5%.
2025 Convertible Notes
On April 16, 2020, we issued 2025 Convertible Notes, which matured on April 15, 2025. The 2025 Convertible Notes were general unsecured obligations of the Company and bore interest at a rate of 2.25% per year, payable semi-annually in cash, in arrears, on April 15 and October 15 of each year.
Prior to maturity, holders of the 2025 Convertible Notes submitted conversion notices with respect to approximately $155.5 million aggregate principal amount of the 2025 Convertible Notes. On the conversion settlement date, the Company paid to the converting holders the aggregate principal amount of 2025 Convertible Notes subject to conversion, and issued and delivered to such holders 57,149 shares of common stock, in respect of the remainder of its conversion obligation in excess of such aggregate principal amount. At maturity, the Company paid in cash the principal balance and related accrued and unpaid interest on the 2025 Convertible Notes not previously converted. There was no resulting debt extinguishment charge from this transaction.
2027 Convertible Notes
On September 12, 2023, we closed the issuance of approximately $297.1 million aggregate principal amount of our 2027 Convertible Notes pursuant to separate, privately negotiated exchange and subscription agreements with a limited number of holders of our 2025 Convertible Notes and certain investors, in each case pursuant to exemptions from registration under the Securities Act of 1933. An aggregate of up to 1,422,568 shares of common stock may be issued upon conversion of the 2027 Convertible Notes, which number is subject to adjustment up to an aggregate of 1,911,372 shares following certain corporate events that occur prior to the maturity date or if we issue a notice of redemption, and which is also subject to certain anti-dilution adjustments.
The 2027 Convertible Notes bear interest at a rate of 1.25% per year, payable semi-annually in arrears on June 15 and December 15 of each year. The 2027 Convertible Notes will mature on December 15, 2027, unless earlier converted, redeemed or repurchased.
Prior to the close of business on the business day immediately preceding September 15, 2027, the 2027 Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 2027 Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The 2027 Convertible Notes have an initial conversion rate of 4.8560 shares per $1,000 principal amount of 2027 Convertible Notes (equivalent to an initial conversion price of approximately $205.93 per share of our common stock), subject to adjustment if certain events occur. The initial conversion price represents a conversion premium of approximately 32.50% over $155.42 per share, the last reported sale price of our common stock on September 7, 2023 on The New York Stock Exchange. Upon conversion, we will pay cash up to the aggregate principal amount of 2027 Convertible Notes being converted, and pay (and deliver, if applicable) cash, shares of our common stock or a combination thereof, at its election, in respect of the remainder (if any) of our conversion obligation in excess of such aggregate principal amount. We will not be able to redeem the 2027 Convertible Notes prior to December 20, 2025. On or after December 20, 2025 and prior to the 21st scheduled trading day immediately preceding December 15, 2027, we will be able to redeem for cash all or any portion of the 2027 Convertible Notes, at its option, if the last reported sale price of our common stock is equal to or greater than 130% of the conversion price for a specified period of time, at a redemption price equal to 100% of the aggregate principal amount of the 2027 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
If we undergo a fundamental change, subject to certain conditions, holders of the 2027 Convertible Notes may require us to repurchase for cash all or any portion of our 2027 New Convertible Notes. The fundamental change repurchase price will be 100% of the aggregate principal amount of the 2027 Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
On March 12, 2026 and March 13, 2026, we entered into separate, privately negotiated exchange agreements with certain holders of the 2027 Convertible Notes. Under the terms of the Exchange Agreements, the holders have agreed to exchange $111.0 million in aggregate principal amount of 2027 Convertible Notes held by them for a combination of an aggregate of $128.6 million in cash and 150,831 shares of our common stock. These exchange transactions are expected to close on or around March 19, 2026, subject to the satisfaction of customary closing conditions.
Hedging
During the second quarter of Fiscal 2025, we entered into a $200.0 million interest rate swap agreement with a fixed interest rate of 3.76%. On the same date, we also entered into a $100.0 million interest rate swap agreement with a fixed interest rate of 3.73%.
In total, we have interest rate swaps which hedge $1,100.0 million of variable rate exposure under our Term Loan Facility. The interest rate swaps are designated as cash flow hedges and expire on September 24, 2031. Refer to Note 6, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.
Certain Information Concerning Material Cash Requirements
The following table sets forth certain information regarding our obligations to make future payments under current contracts as of January 31, 2026:
Payments Due By Period
Total
1 Year
2-3 Years
4-5 Years
Thereafter
(in thousands)
Debt obligations (a)
Interest on debt obligations (b)
Finance lease obligations (c)
Operating lease obligations (d)
Purchase obligations (e)
Other (f)
Total
Represents future principal payments on outstanding borrowings as of January 31, 2026.
Represents interest payments on (i) the outstanding balance of the Term Loan Facility with an interest rate of 5.4%; (ii) 1,100.0 million interest rate swap; and (iii) the outstanding balance of the 2027 Convertible Notes.
Finance lease obligations include future interest payments.
Represents minimum rent payments for operating leases under the current terms. The above table excludes approximately $536.9 million for 96 stores and one office that we have committed to open or relocate but have not yet taken possession of the space.
Represents commitments to purchase merchandise that have not been received as of January 31, 2026. The table above excludes estimated commitments for non-merchandise goods of approximately $225 million, which primarily relates to capital expenditures for our stores as well as other miscellaneous operating expenses.
Represents severance payments in the normal course of business that are included in the line item “Selling, general and administrative expenses” in our Consolidated Statements of Income.
The table above excludes ASC Topic No. 740 “Income Taxes” (Topic No. 740) liabilities which represent uncertain tax positions related to temporary differences. The total Topic No. 740 liability was $5.8 million, inclusive of $4.3 million of interest and penalties, neither of which is presented in the table above as we are not certain if and when these payments would be required.
The table above excludes our irrevocable letters of credit guaranteeing payment and performance under certain leases, insurance contracts, debt agreements, merchandising agreements and utility agreements in the amount of $50.4 million as of January 31, 2026.
As of January 31, 2026, insurance reserves amounted to $111.0 million. These amounts are excluded from the table above as we are not certain if and when these payments would be required.
Critical Accounting Policies and Estimates
Our Consolidated Financial Statements have been prepared in accordance with GAAP. We believe there are several accounting policies that are critical to understanding our historical and future performance as these policies affect the reported amounts of revenues and other significant areas that involve management’s judgments and estimates. The preparation of our Consolidated Financial Statements requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements; and (iii) the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, inventories, long-lived assets, intangible assets, goodwill, insurance reserves, leases, and income taxes. Historical experience and various other factors that are believed to be reasonable under the circumstances form the basis for making estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. A critical accounting estimate meets two criteria: (1) it requires assumptions about highly uncertain matters and (2) there would be a material effect on the Consolidated Financial Statements from either using a different, although reasonable, amount within the range of the estimate in the current period or from reasonably likely period-to-period changes in the estimate.
While there are a number of accounting policies, methods and estimates affecting our Consolidated Financial Statements as addressed in Note 1 to our Consolidated Financial Statements, “Summary of Significant Accounting Policies,” areas that are particularly critical and significant include:
Revenue Recognition . While our revenue recognition does not involve significant judgment, it represents an important accounting policy. We record revenue at the time control of goods are transferred to the customer, which we determine to be at point of sale and delivery of merchandise, net of allowances for estimated future returns, which is estimated based on historical return rates. We present sales, net of sales taxes, in our Consolidated Statements of Income. We account for layaway sales in compliance with ASC Topic No. 606 “Revenue from Contracts with Customers.” Layaway sales are recognized upon delivery of merchandise to the customer. The amount of cash received upon initiation of the layaway is recorded as a deposit liability within the line item “Other current liabilities” in our Consolidated Balance Sheets. Stored value cards (gift cards and store credits issued for merchandise returns) are recorded as a liability at the time of issuance, and the related sale is recorded upon redemption.
We estimate and recognize stored value card breakage income in proportion to actual stored value card redemptions. We determine an estimated stored value card breakage rate by continuously evaluating historical redemption data. Breakage income is recognized on a monthly basis in proportion to the historical redemption patterns for those stored value cards for which the likelihood of redemption is remote.
Inventory . Our inventory is valued at the lower of cost or market using the retail inventory method. Under the retail inventory method, the valuation of inventory and the resulting gross margin are determined by applying a calculated cost to retail ratio to the retail value of inventory. The retail inventory method is an averaging method that results in valuing inventory at the lower of cost or market provided markdowns are taken timely to reduce the retail value of inventory. Inherent in the retail inventory method calculation are certain significant management judgments and estimates including merchandise markups, markdowns and shortage, which significantly impact the ending inventory valuation as well as the resulting gross margin. Management believes that our retail inventory method provides an inventory valuation which approximates cost using a first-in, first-out assumption and results in carrying value at the lower of cost or market. We reserve for aged inventory based on historical trends and specific identification. Our aged inventory reserve contains uncertainties as the calculations require management to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends. A 1% change in the dollar amount of retail markdowns would have resulted in an increase in markdown dollars, at cost, of approximately $2.8 million for Fiscal 2025.
Estimates are used to record inventory shortage at retail stores between physical inventories. Actual physical inventories are conducted at least annually to calculate actual shortage. While we make estimates on the basis of the best information available to us at the time the estimates are made, over accruals or under accruals of shortage may be identified as a result of the physical inventory counts, requiring adjustments.
Insurance Reserves . We have risk participation agreements with insurance carriers with respect to workers’ compensation, general liability insurance and health insurance. Pursuant to these arrangements, we are responsible for paying individual claims up to designated dollar limits. The amounts included in our costs related to these claims are estimated and can vary based on changes in assumptions or claims experience included in the associated insurance programs. For example, changes in legal trends and interpretations, as well as changes in the nature and method of how claims are settled, can impact ultimate costs. An increase in workers’ compensation claims by employees, health insurance claims by employees or general liability claims may result in a corresponding increase in our costs related to these claims. Insurance reserves amounted to $111.0 million and $102.8 million at January 31, 2026 and February 1, 2025, respectively.
Recent Accounting Pronouncements
Refer to Note 2, “Recent Accounting Pronouncements,” of our Consolidated Financial Statements for a discussion of recent accounting pronouncements and their impact on our Consolidated Financial Statements.
Fluctuations in Operating Results
We expect that our revenues and operating results may fluctuate from fiscal quarter to fiscal quarter or over the longer term. Certain of the general factors that may cause such fluctuations are discussed in Item 1A, Risk Factors and elsewhere in this Annual Report.
Inflation
There can be no assurance that we will be able to offset inflationary pressure in the future by increasing prices or through other means, or that our business will not be negatively affected by continued inflation in the future. We may not be able to adequately increase our prices over time to offset increased costs, whether due to inflation or otherwise. Any decreases in consumer discretionary spending could result in a decrease in store traffic and same store sales, all of which could negatively affect our business, operations, liquidity, financial results and/or stock price, particularly if consumer spending levels are depressed for a prolonged period of time.
The U.S. retail industry continues to face increased pressure on margins as commodity prices increase and the overall challenging retail conditions have led consumers to be more value conscious. Additionally, lower-to-moderate income shoppers continue to face economic pressure due to higher cost of living. Our strategy of chasing sales, in which we purchase both pre-season and in-season merchandise, allows us the flexibility to purchase less pre-season with the balance purchased in-season and opportunistically. It also provides us the flexibility to shift purchases between suppliers and categories. This enables us to obtain better terms with our suppliers, which we expect to help offset the expected rising costs of goods.
Market Risk
We are exposed to market risks relating to fluctuations in interest rates. Our borrowings contain floating rate obligations and are subject to interest rate fluctuations. The objective of our financial risk management is to minimize the negative impact of interest rate fluctuations on our earnings and cash flows. We manage interest rate risk through the use of our interest rate swap contracts.
As more fully described in Note 6 to our Consolidated Financial Statements, “Derivative Instruments and Hedging Activities,” we enter into interest rate derivative contracts to manage interest rate risks associated with our long term debt obligations. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in the line item “Accumulated other comprehensive income” on the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. We continue to have exposure to interest rate risks to the extent they are not hedged.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk
We are exposed to certain market risks as part of our ongoing business operations. Primary exposures include changes in interest rates, as borrowings under our ABL Line of Credit and Term Loan Facility bear interest based on SOFR, in each case plus an applicable borrowing margin. The interest rate of our Term Loan Facility is also dependent on the prime rate, and the federal funds rate as further discussed in Note 5 to our Consolidated Financial Statements, “Long Term Debt.” On September 24, 2024, we entered into an amendment to the Credit Agreement dated as of February 24, 2011, which among other things, (i) refinanced the outstanding $933 million principal amount of term B-6 loans with term B-7 loans in an aggregate principal amount of $1,250 million, which includes incremental term loans in an aggregate principal amount of $317 million, (ii) extended the maturity date from June 24, 2028 to September 24, 2031, and (iii) reduced the interest rate margins applicable to our term loan facility from 1.00% to 0.75%, in the case of prime rate loans, and from 2.00% to 1.75%, in the case of SOFR loans, with a 0.00% SOFR floor, and removing the SOFR adjustment.
On June 11, 2025, we entered into an amendment to the Term Loan Facility, which among other things, provided for $500.0 million of incremental term loans under the Term Loan Credit Agreement as additional Term B-7 Loans. The incremental term loans were issued with an original issue discount of 99.0 and are otherwise on terms identical to, and fungible with, the existing Term B-7 Loans.
We manage our interest rate risk through the use of interest rate derivative contracts. For our floating-rate debt, interest rate changes generally impact our earnings and cash flows, assuming other factors are held constant.
On September 27, 2024, we terminated the previous $450.0 million interest rate swap, and entered into a new interest rate swap in the notional amount of $500.0 million with a blended interest rate of 2.83%. On this same date, we also entered into a new interest rate swap for $300.0 million with an interest rate of 3.37%.
On June 12, 2025, we entered into an interest rate swap agreement with a notional amount of $200.0 million and a fixed interest rate of 3.76%. On the same date, we also entered into an interest rate swap agreement with a notional amount of $100.0 million and a fixed interest rate of 3.73%. These interest rate swap agreements are designated as cash flow hedges. Refer to Note 6, “Derivative Instruments and Hedging Activities,” for further discussion regarding our derivative transactions.
We have unlimited interest rate risk related to borrowings on our variable rate debt in excess of the notional principal amount of our interest rate swap contract.
At January 31, 2026, we had $1,730.6 million of floating-rate debt, exclusive of original issue discount. Based on this, a one percentage point interest rate increase or decrease as of January 31, 2026 ( after considering our interest rate swap contract and assuming current borrowing level remains constant), would cause an increase or decrease, respectively, to cash interest expense of $6.3 million per year. This sensitivity analysis assumes our mix of financial instruments and all other variables will remain constant in future periods. These assumptions are made in order to facilitate the analysis and are not necessarily indicative of our future intentions.
Our ability to satisfy our interest payment obligations on our outstanding debt will depend largely on our future performance, which, in turn, is in part subject to prevailing economic conditions and to financial, business and other factors beyond our control. If we do not have sufficient cash flow to service our interest payment obligations on our outstanding indebtedness and if we cannot borrow or obtain equity financing to satisfy those obligations, our business and results of operations will be materially adversely affected. We cannot be assured that any replacement borrowing or equity financing could be successfully completed.
