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



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

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

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

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

                                       15
--------------------------------------------------------------------------------
  Table of Contents
OVERVIEW

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

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



•Net sales decreased $42.3 million, or 3.1%.
•Comparable sales for stores open at least fifteen months, plus our e-commerce
operations, decreased $62.2 million, or 4.7%.
•Gross margin dollars decreased $38.7 million, while gross margin rate decreased
160 basis points to 38.9% of net sales.
•Selling and administrative expenses increased $5.1 million. As a percentage of
net sales, selling and administrative expenses increased 150 basis points to
36.5% of net sales.
•Operating (loss) profit decreased to an operating loss of $4.1 million from an
operating profit of $42.5 million.
•Inventory increased by 17.3%, or $188.2 million, to $1,277.2 million from the
third quarter of 2020.
•We declared and paid a quarterly cash dividend in the amount of $0.30 per
common share in the third quarter of 2021 consistent with the quarterly cash
dividend of $0.30 per common share paid in the third quarter of 2020.
•We acquired 2.0 million of our outstanding common shares for $96.8 million
under the 2020 Repurchase Authorization in the third quarter of 2021.

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

STORES

The following table presents stores opened and closed during the year-to-date 2021 and the year-to-date 2020:


                                                                    2021    

2020


Stores open at the beginning of the fiscal year                    1,408    

1,404


Stores opened during the period                                       34    

24


Stores closed during the period                                      (18)     (17)
                           Stores open at the end of the period    1,424    1,411


We expect our store count at the end of 2021 to increase by approximately 20 stores compared to our store count at the end of 2020.


                                       16
--------------------------------------------------------------------------------
  Table of Contents
RESULTS OF OPERATIONS

The following table compares components of our consolidated statements of
operations and comprehensive income as a percentage of net sales at the end of
each period:
                                                 Third Quarter            Year-to-Date
                                                 2021        2020        2021        2020
Net sales                                         100.0  %  100.0  %      100.0  %  100.0  %
Cost of sales (exclusive of depreciation
expense shown separately below)                    61.1      59.5          60.4      59.4
Gross margin                                       38.9      40.5          39.6      40.6
Selling and administrative expenses                36.5      35.0          33.3      32.4
Depreciation expense                                2.7       2.4           2.4       2.3
Gain on sale of distribution centers                0.0       0.0           0.0     (10.4)
Operating (loss) profit                            (0.3)      3.1           3.9      16.3
Interest expense                                   (0.2)     (0.2)         (0.2)     (0.2)
Other income (expense)                              0.0      (0.0)          0.0      (0.1)
(Loss) income before income taxes                  (0.5)      2.9           3.8      16.0
Income tax (benefit) expense                       (0.1)      0.7           0.9       4.1
Net (loss) income and comprehensive (loss)
income                                             (0.3) %    2.2  %        2.9  %   11.9  %


THIRD QUARTER OF 2021 COMPARED TO THIRD QUARTER OF 2020

Net Sales
Net sales by merchandise category (in dollars and as a percentage of total net
sales), net sales change (in dollars and percentage), and comparable sales
("comp" or "comps") in the third quarter of 2021 compared to the third quarter
of 2020 were as follows:
                                                              Third Quarter
($ in thousands)                       2021                            2020                          Change                    Comps
Furniture                    $   401,256       30.1  %       $   429,305       31.2  %       $ (28,049)      (6.5) %              (8.6) %
Soft Home                        194,217       14.5              215,253       15.6            (21,036)      (9.8)               (11.3)
Food                             182,936       13.7              194,713       14.1            (11,777)      (6.0)                (7.0)
Consumables                      163,350       12.2              169,584       12.3             (6,234)      (3.7)                (4.8)
Hard Home                        141,905       10.6              160,238       11.6            (18,333)     (11.4)               (12.3)
Apparel, Electronics, &
Other                            126,845        9.5              108,003        7.9             18,842       17.4                 15.0
Seasonal                         125,147        9.4              100,829        7.3             24,318       24.1                 22.6
 Net sales                   $ 1,335,656      100.0  %       $ 1,377,925      100.0  %       $ (42,269)      (3.1) %              (4.7) %



In the year-to-date 2021, we realigned our merchandise categories and renamed
our Electronics, Toys, & Accessories merchandise category as Apparel,
Electronics, & Other. See the reclassifications discussion in   note 1   to the
consolidated financial statements for additional information. In order to
provide comparative information, we have reclassified our results into the
revised merchandise category alignment for both periods presented.

Net sales decreased $42.3 million, or 3.1%, to $1,335.7 million in the third
quarter of 2021, compared to $1,377.9 million in the third quarter of 2020. The
decrease in net sales was primarily driven by a 4.7% decrease in our comps,
which decreased net sales by $62.2 million. This decrease was partially offset
by our non-comparable sales, which increased net sales by $19.9 million, driven
by increased sales in our new and relocated stores compared to closed stores,
and a higher store count compared to the third quarter of 2020. Our comps are
calculated based on the results of all stores that were open at least fifteen
months plus our e-commerce net sales. Our comps and net sales declined during
the third quarter of 2021 in comparison to the third quarter of 2020 primarily
due to the larger impact of nesting trends on consumer behavior as a result of
the COVID-19 pandemic in the third quarter of 2020.

                                       17
--------------------------------------------------------------------------------
  Table of Contents
Comps and net sales in our home products categories, including our Furniture,
Soft Home, and Hard Home categories, decreased in the third quarter of 2021
compared to the third quarter of 2020. We believe this decrease was primarily
attributable to the easing of nesting trends in the third quarter of 2021
compared to the third quarter of 2020. In the third quarter of 2020, we saw many
of our customers choosing to invest more in their home as a result of staying
home during the COVID-19 pandemic. We believe our customers spent less of their
discretionary funds investing in their homes in the third quarter of 2021
because they were able to spend more time outside their homes due to lifted
COVID-19-related restrictions.

Our comps and net sales in our home products categories were also negatively
impacted during the third quarter of 2021 by global and domestic supply chain
constraints. While we maintained healthy overall inventory levels in our home
products categories during the third quarter of 2021, shortages in certain
historically popular SKUs caused by temporary factory and port shutdowns
overseas contributed to the decreased comps and net sales compared to the third
quarter of 2020. These global supply chain challenges have impacted both
imported home products and domestically-sourced home products, as our domestic
vendors have faced similar supply chain challenges with sourcing raw materials.
Domestically, our supply chain has been impacted by labor challenges in certain
of our distribution centers, with the majority of the impact in the northeast
U.S. In response to labor challenges in our distribution centers, we have
increased wages and implemented attendance and retention programs to improve
overall productivity. In the third quarter of 2021, we also launched two forward
distribution centers ("FDCs"), small-format distribution centers designed to
process bulky and full-pallet shipments, which have begun to relieve pressure
from our distribution centers most impacted by labor challenges. Despite these
challenges, our home products categories performed in line with our expectations
in the third quarter of 2021 and we believe that our customers continued to
respond positively to our trend-right home offerings and the Broyhill® brand.

Comps and net sales in our Food and Consumables merchandise categories also
decreased during the third quarter of 2021 compared to the third quarter of
2020. Similar to our home products categories above, comps and net sales in our
Food and Consumables categories were also negatively impacted by supply chain
constraints and labor challenges in our distribution centers. The third quarter
of 2021 also marks the first anniversary of the implementation of our Pantry
Optimization initiative, which reallocated linear square footage from our Food
category to our Consumables category. The Food and Consumables categories
performed in line with our expectations considering the supply chain challenges
experienced in the third quarter of 2021.

Partially offsetting our decreased comps and net sales in the third quarter of
2021 was an increase in comps and net sales in our Seasonal and our Apparel,
Electronics, & Other categories.

The increased net sales and positive comps in our Seasonal category was
primarily driven by increased sales in our lawn & garden, summer, Halloween, and
harvest departments compared to the third quarter of 2020. These departments
benefited from increased inventory levels in the third quarter of 2021 as we
purchased more Seasonal inventory in anticipation of higher demand for these
products. Net sales and comps decreased in our Christmas department in the third
quarter of 2021, which was principally driven by lower inventory levels
resulting from delayed receipts due to global supply chain issues. Shortly after
the end of the third quarter of 2021, the vast majority of our Christmas
merchandise was delivered to our stores.

Increased net sales and positive comps in our Apparel, Electronics, & Other
category was driven by the product assortments found in The Lot and Queue Line.
The Lot is a cross-category presentation solution with a curated assortment to
promote life's occasions. Queue Line offers our customers a streamlined checkout
experience with a new and expanded convenience assortment and a smaller
footprint that provides additional floor space to other categories. We believe
the product assortment offered by The Lot and Queue Line is aligned with
customer demand and leading to increased net sales and positive comps in our
Apparel, Electronics, & Other category. At the end of the third quarter of 2021,
The Lot and Queue Line had each been rolled out to approximately 1,320 stores,
compared to approximately 750 stores at the end of the third quarter of 2020.

Gross Margin
Gross margin dollars decreased $38.7 million, or 6.9%, to $519.2 million for the
third quarter of 2021, compared to $557.9 million for the third quarter of
2020. The decrease in gross margin dollars was due to the decrease in net sales,
which decreased gross margin dollars by $17.1 million, and the decrease in gross
margin rate, which decreased gross margin dollars by $21.6 million. Gross margin
as a percentage of net sales decreased 160 basis points to 38.9% in the third
quarter of 2021 as compared to 40.5% in the third quarter of 2020. The gross
margin rate decrease was primarily a result of higher inbound freight costs
driven by increased ocean carriage rates as demand for ocean carriage has
outpaced container and carrier supply. The ocean carriage demand and supply
imbalance was exacerbated by temporary COVID-19-related port shutdowns during
the second quarter of 2021, which further increased shipping costs during the
third quarter of 2021. The higher inbound freight costs were also driven by
higher domestic transportation rates and increased fuel costs compared to the
third quarter of 2020. The gross margin rate also decreased due to a slightly
higher markdown rate in the third quarter of 2021 compared to the third quarter
of 2020. The decrease in gross margin rate was partially offset by moderate
price increases implemented in the third quarter of 2021 to mitigate rising
costs, particularly freight.

                                       18
--------------------------------------------------------------------------------
  Table of Contents
Selling and Administrative Expenses
Selling and administrative expenses were $487.4 million for the third quarter of
2021, compared to $482.3 million for the third quarter of 2020. The increase of
$5.1 million in selling and administrative expenses was driven by an increase in
distribution and transportation costs of $13.3 million, health benefits expense
of $5.8 million, and $2.5 million of store occupancy expense, partially offset
by a decrease in accrued bonus expense of $10.8 million, and $6.1 million of
advertising expense. The increase in distribution and transportation costs was
driven by higher outbound volume, increased labor costs, and higher
transportation rates, as well as the incremental costs associated with our two
FDCs that opened in the third quarter of 2021. The increase in health benefits
expense was due to a higher volume of claims in the third quarter of 2021
compared to the third quarter of 2020, as many medical providers were not
offering elective care and fewer associates were seeking elective care in the
third quarter of 2020. The increase in store occupancy expense was due to an
increase in net store count since the third quarter of 2020, relocated stores
which have higher rents than the stores closed, and normal rent increases
resulting from lease renewals. The decrease in accrued bonus expense was driven
by decreased performance in the third quarter of 2021 relative to our bonus
targets as compared to our performance in the third quarter of 2020 relative to
our bonus targets. The decrease in advertising expense was primarily driven by
lower spend on video media as we have increased the efficiency of our spend
through a more targeted approach to advertising investments, particularly
through use of digital channels.

As a percentage of net sales, selling and administrative expenses increased 150
basis points to 36.5% for the third quarter of 2021 compared to 35.0% for the
third quarter of 2020.

Depreciation Expense
Depreciation expense increased $2.8 million to $35.9 million in the third
quarter of 2021, compared to $33.1 million for the third quarter of 2020. The
increase in depreciation expense was driven by investments in our strategic
initiatives, such as The Lot and Queue Line, new stores, and supply chain
improvements in the last twelve months.

Depreciation expense as a percentage of sales increased 30 basis points compared to the third quarter of 2020.



Interest Expense
Interest expense was $2.3 million in the third quarter of 2021, compared to $2.6
million in the third quarter of 2020. The decrease in interest expense was
primarily driven by a decrease in total average borrowings. We had total average
borrowings (including finance leases and the sale and leaseback financing
liability) of $132.2 million in the third quarter of 2021 compared to total
average borrowings of $185.9 million in the third quarter of 2020. The decrease
in total average borrowings was driven by the repayment of all borrowings under
the 2019 Term Note in the second quarter of 2021.

Other Income (Expense)
Other income (expense) was $0.3 million in the third quarter of 2021, compared
to $(0.5) million in the third quarter of 2020. The change was driven by gains
on our diesel fuel derivatives in the third quarter of 2021 compared to the
losses on diesel fuel derivatives during the third quarter of 2020.

Income Taxes
The effective income tax rate for the third quarter of 2021 was 29.3% compared
to 24.1% in the third quarter of 2020. The change in the effective income tax
rate in the third quarter of 2021 compared to the third quarter of 2020 was
primarily attributable to a reduction in nondeductible executive compensation
and the absence of an audit-related reserve release in the prior year, partially
offset by a change in employment-related tax credits compared to the third
quarter of 2020.

                                       19

--------------------------------------------------------------------------------

Table of Contents

YEAR-TO-DATE 2021 COMPARED TO YEAR-TO-DATE 2020

Net Sales
Net sales by merchandise category (in dollars and as a percentage of total net
sales) in the year-to-date 2021 and the year-to-date 2020, and the change in net
sales (in dollars and percentage) and the change in comps (in percentage) from
the year-to-date 2021 compared to the year-to-date 2020 were as follows:
                                                               Year-to-Date
($ in thousands)                       2021                            2020                           Change                    Comps
Furniture                    $ 1,291,765       29.2  %       $ 1,284,743       28.8  %       $   7,022         0.5  %              (1.7) %
Seasonal                         688,747       15.6              596,850       13.4             91,897        15.4                 13.9
Soft Home                        601,320       13.6              654,669       14.7            (53,349)       (8.1)                (9.7)
Food                             541,400       12.3              615,624       13.8            (74,224)      (12.1)               (13.2)
Consumables                      485,039       11.0              542,515       12.2            (57,476)      (10.6)               (11.7)
Hard Home                        439,805        9.9              465,936       10.4            (26,131)       (5.6)                (6.8)
Apparel, Electronics, &
Other                            370,506        8.4              300,934        6.7             69,572        23.1                 21.1
 Net sales                   $ 4,418,582      100.0  %       $ 4,461,271      100.0  %       $ (42,689)       (1.0) %              (2.6) %



Net sales decreased $42.7 million, or 1.0%, to $4,418.6 million in the
year-to-date 2021, compared to $4,461.3 million in the year-to-date 2020. The
decrease in net sales was driven by a comp decrease of 2.6%, which decreased net
sales by $114.1 million, partially offset by our non-comparable sales which
increased net sales by $71.4 million as a result of increased net sales in our
new and relocated stores compared to closed stores, and an increase in net store
count compared to the year-to-date 2020. Our comps and net sales decreased in
the year-to-date 2021 primarily due to the larger impact that government
stimulus, unemployment funds, and nesting trends had on consumer behaviors in
the year-to-date 2020.

In the year-to-date 2021, we experienced an increase in demand for our Furniture
and Seasonal categories which we believe was initially driven by government
stimulus and unemployment funds in the first quarter of 2021, together with the
continuation of nesting trends we experienced in 2020 due to customers investing
more time and discretionary funds in their home. In the first quarter of 2021,
nesting trends shifted toward patio furniture and other outdoor products which
drove increased net sales and comps in the lawn & garden and summer departments
of our Seasonal merchandise category. Nesting trends abated in the second
quarter of 2021 as COVID-19 vaccines became widely available and consumers began
spending more time outside their homes. In the second and third quarter of 2021,
we experienced supply chain constraints that negatively impacted our inventory
levels of home product categories, particularly Furniture, leading to low
inventory levels in certain popular product lines. In the third quarter of 2021,
our Seasonal category benefited from higher inventory levels in the lawn &
garden, summer, Halloween, and harvest departments as we experienced increased
demand for outdoor furniture and decor late into the summer season and fall.

Our Soft Home and Hard Home categories each experienced a decrease in comps and
net sales in the year-to-date 2021 compared to the year-to-date 2020, primarily
due to lower on-hand product availability in the year-to-date 2021, which was
primarily driven by global supply chain challenges. Despite the decrease in net
sales and comps in the year-to-date 2021, both categories performed in line with
our expectations.

Our Apparel, Electronics, & Other category experienced increased comps and net
sales in the year-to-date 2021 driven by our strategic initiatives - including
The Lot and Queue Line. We believe our product assortment is aligned with
customer demand and that the Apparel, Electronics, & Other category is a growth
opportunity for us.

Our Food and Consumables categories each experienced a decrease in net sales and
comps in the year-to-date 2021 compared to the year-to-date 2020, primarily due
to a decrease in demand for essential products, which we define as food,
consumables, health products, and pet supplies. In the year-to-date 2020, during
the early stages of the COVID-19 pandemic, we experienced greater demand for
these products which has since declined as customers are no longer stocking up
on these products. Our Food and Consumables categories were also negatively
impacted by supply chain constraints since the second quarter of 2021 and by
labor challenges in our distribution centers. In the third quarter of 2021, we
passed the first anniversary of the implementation of our Pantry Optimization
initiative, which reallocated linear square footage from our Food category to
our Consumables category.

                                       20
--------------------------------------------------------------------------------
  Table of Contents
Gross Margin
Gross margin dollars decreased $61.3 million, or 3.4%, to $1,750.9 million for
the year-to-date 2021, compared to $1,812.2 million for the year-to-date
2020. The decrease in gross margin dollars was due to a decrease in net sales,
which decreased gross margin by $17.3 million, and a decrease in gross margin
rate, which decreased gross margin by $44.0 million. Gross margin as a
percentage of net sales decreased 100 basis points to 39.6% in the year-to-date
2021, compared to 40.6% in the year-to-date 2020. The gross margin rate decrease
was primarily due to higher inbound freight costs, partially offset by lower
markdowns. Freight costs increased primarily due to higher ocean carriage rates,
domestic transportation rates, and fuel costs, and detention and demurrage
charges resulting from delayed receipt of inventory related to supply chain
constraints.

Selling and Administrative Expenses
Selling and administrative expenses were $1,473.5 million for the year-to-date
2021, compared to $1,444.9 million for the year-to-date 2020. The increase of
$28.6 million in selling and administrative expenses was attributable to
increases in distribution and transportation costs of $39.4 million, $13.3
million of share-based compensation expense, health benefit expense of $7.4
million, and $7.2 million of store occupancy costs, partially offset by
decreases of $16.4 million in store-related payroll, accrued bonus expense of
$11.1 million, and advertising expense of $7.1 million, the absence of $4.0
million of sale and leaseback transaction-related expenses, and the absence of
proxy contest-related costs of $3.7 million. The increase in distribution and
transportation costs was driven by rent on our leased distribution centers, four
of which were sold and leased back in the second quarter of 2020, and higher
outbound volume, transportation costs, and labor costs, partially offset by the
absence of a $2 per hour wage increase that was implemented for most of our
non-exempt workforce beginning in March 2020 through June 2020 in the early
stages of the COVID-19 pandemic. The increase in share-based compensation
expense was primarily due to a higher grant date fair value and higher estimated
performance on the 2019 PSUs for which the grant date was established in 2021
compared to the 2018 PSUs for which the grant date was established in 2020 and
PRSUs granted in 2020. Health benefit expense increased driven by an increase in
health benefit claims in the year-to-date 2021 compared to the year-to-date
2020, as many medical providers postponed elective care procedures in the
year-to-date 2020. Our store occupancy costs increased primarily due to an
increased store count in the year-to-date 2021, new stores opened in the last
twelve months, which have higher rents than the stores closed, and normal rent
increases resulting from lease renewals. The decrease in store-related payroll
was primarily due to the absence of the aforementioned $2 per hour wage
increase. The decrease in accrued bonus expense was driven by decreased
performance in the year-to-date 2021 relative to our bonus targets as compared
to our performance in the year-to-date 2020 relative to our bonus targets, as
well as the absence of a one-time discretionary bonus granted in the second
quarter of 2020 to recognize our non-exempt associates in our stores and
distribution centers. Advertising expense decreased due to decreased investments
in video media as we have taken a more targeted approach to our advertising
spend. The sale and leaseback transaction-related expenses, which included
consulting costs, were incurred in completing the sale and leaseback of our
distribution centers in the second quarter of 2020. The proxy contest-related
costs were comprised of legal, public relations, and advisory fees, and
settlement costs incurred to resolve a proxy contest in the first quarter of
2020.

As a percentage of net sales, selling and administrative expenses increased 90 basis points to 33.3% for the year-to-date 2021 compared to 32.4% for the year-to-date 2020.



Depreciation Expense
Depreciation expense increased $0.4 million to $105.2 million in the
year-to-date 2021, compared to $104.8 million for the year-to-date 2020. The
increase was driven by the investments in our strategic initiatives, new stores,
and supply chain improvements, partially offset by the sale of four distribution
centers in the second quarter of 2020.

Depreciation expense as a percentage of sales increased by 10 basis points compared to the year-to-date 2020.



Gain on Sale of Distribution Centers
Gain on sale of distribution centers decreased $463.1 million to $0 in the
year-to-date 2021, compared to $463.1 million in the year-to-date 2020. The gain
on sale of distribution centers in the year-to-date 2020 was attributable to the
sale and leaseback of our distribution centers in Durant, OK; Tremont, PA;
Montgomery, AL; and Columbus, OH during the second quarter of 2020.

Interest Expense
Interest expense was $7.1 million in the year-to-date 2021, compared to $8.5
million in the year-to-date 2020. The decrease in interest expense was driven by
lower total average borrowings (including finance leases and the sale and
leaseback financing liability). We had total average borrowings of $153.7
million in the year-to-date 2021 compared to $282.3 million in the year-to-date
2020. The decrease in total average borrowings was driven by our repayment of
all outstanding debt under the 2018 Credit Agreement following the sale and
leaseback transaction completed in the second quarter of 2020, and our
prepayment of the 2019 Term Note in the second quarter of 2021, partially offset
by the establishment of the financing liability in connection with the sale and
leaseback transactions in the second quarter of 2020. The decrease in total
average borrowings was partially offset by a higher average interest rate on the
sale and leaseback financing liability.
                                       21

--------------------------------------------------------------------------------

Table of Contents



Other Income (Expense)
Other income (expense) was $1.1 million in the year-to-date 2021, compared to
$(2.4) million in the year-to-date 2020. The change was primarily driven by
gains on our diesel fuel derivatives in the year-to-date 2021 compared to losses
on diesel fuel derivatives in the year-to-date 2020. The gains on diesel fuel
derivatives in the year-to-date 2021 were partially offset by a $0.5 million
loss on debt extinguishment recognized in the year-to-date 2021 related to the
prepayment of the 2019 Term Note.

Income Taxes
The effective income tax rate for the year-to-date 2021 and the year-to-date
2020 were 23.0% and 25.7%, respectively. The decrease in the effective income
tax rate was primarily attributable to the net tax benefit associated with
settlement of share-based payment awards during the year-to-date 2021 and an
increase in employment-related credits in the year-to-date 2021 compared to the
year-to-date 2020, partially offset by an increase in nondeductible executive
compensation compared to the year-to-date 2020.

2021 Guidance
We continue to face significant supply chain challenges as a result of
COVID-19-related shutdowns in factories and ports overseas, which we expect to
adversely impact our net sales and gross margin in the fourth quarter of 2021.
Additionally, we are facing a highly competitive domestic labor market, which we
expect to result in increased payroll expenses for our stores and distribution
centers in the fourth quarter of 2021. We have incorporated our current best
estimate of the impacts of the supply chain and labor headwinds into the
guidance below.

As of December 3, 2021, we expect the following in the fourth quarter of 2021:
•Comparable sales slightly above last year;
•Gross margin rate down approximately 150 basis points compared to last year,
driven by freight headwinds;
•Selling and administrative expenses up compared to last year; and
•Diluted earnings per share in the range of $2.05 to $2.20.

As of December 3, 2021, we expect the following in the full year 2021: •Comparable sales decline in the low single digits; •Gross margin rate down approximately 120 basis points compared to last year; •Selling and administrative expenses up compared to last year; and •Diluted earnings per share in the range of $5.70 to $5.85.



Capital Resources and Liquidity
On September 22, 2021, we entered into the 2021 Credit Agreement, which provides
for a $600 million five-year unsecured credit facility. The 2021 Credit
Agreement expires on September 22, 2026. The 2021 Credit Agreement replaced the
2018 Credit Agreement, $700 million five-year unsecured credit facility which we
entered into on August 31, 2018 and was scheduled to expire on August 31, 2023,
but was terminated concurrent with our entry into the 2021 Credit Agreement. The
2021 Credit Agreement includes a $50 million swing loan sublimit, a $75 million
letter of credit sublimit, a $75 million sublimit for loans to foreign
borrowers, and a $200 million optional currency sublimit. The 2021 Credit
Agreement also contains an environmental, social and governance ("ESG")
provision, which may provide favorable pricing and fee adjustments if we meet
ESG performance criteria to be established by a future amendment to the 2021
Credit Agreement. Under the 2021 Credit Agreement, we have the option to
establish incremental term loans and/or increases in the revolving credit limits
in an aggregate amount of up to $300 million, subject to the lenders agreeing to
increase their commitments. Additionally, the 2021 Credit Agreement includes two
options to extend the maturity date of the 2021 Credit Agreement by one year
each, subject to each lender agreeing to extend the maturity date of its
respective loans. The interest rates, pricing and fees under the 2021 Credit
Agreement fluctuate based on our debt rating or leverage ratio, whichever
results in more favorable pricing to us. The 2021 Credit Agreement allows us to
select our interest rate for each borrowing from multiple interest rate options.
The interest rate options are generally derived from the prime rate or LIBOR.
The 2021 Credit Agreement updated the LIBOR fallback language to implement
fallback provisions, pursuant to which the interest rate on the loans will
transition to an alternative rate upon the occurrence of certain LIBOR cessation
events. Loans made under the 2021 Credit Agreement may be prepaid without
penalty. The 2021 Credit Agreement contains financial and other covenants,
including, but not limited to, limitations on indebtedness, liens and
investments, as well as the maintenance of two financial ratios - a leverage
ratio and a fixed charge coverage ratio. The covenants of the 2021 Credit
Agreement do not restrict our ability to pay dividends. Additionally, we are
subject to cross-default provisions associated with the synthetic lease for our
distribution center in Apple Valley, CA. A violation of any of the covenants
could result in a default under the 2021 Credit Agreement that would permit the
lenders to restrict our ability to further access the 2021 Credit Agreement for
loans and letters of credit and require the immediate repayment of any
outstanding loans under the 2021 Credit Agreement.  At October 30, 2021, we were
in compliance with the covenants of the 2021 Credit Agreement. At October 30,
2021, we had no borrowings outstanding under the 2021 Credit
                                       22
--------------------------------------------------------------------------------
  Table of Contents
Agreement, and the borrowings available under the 2021 Credit Agreement were
$594.9 million, after taking into account the reduction in availability
resulting from outstanding letters of credit totaling $5.1 million.

On August 7, 2019, we entered into the 2019 Term Note, a $70 million term note
agreement, which was secured by the equipment at our Apple Valley, CA
distribution center and carried a fixed interest rate of 3.3%. In light of our
strong liquidity and market conditions, we prepaid the remaining $44.3 million
principal balance under the 2019 Term Note in the second quarter of 2021. In
connection with the prepayment, we incurred a $0.4 million prepayment fee and
recognized a $0.5 million loss on debt extinguishment in the second quarter of
2021.

We have historically funded our working capital requirements with borrowings
under our credit facility. Based on our current cash and cash equivalents
position and projected cash flows from operations, we intend to fund our working
capital requirements, along with capital expenditures, share repurchases, and
other contractual commitments, for the upcoming quarter with limited borrowings
under the 2021 Credit Agreement. While we expect to borrow under the 2021 Credit
Agreement early in the fourth quarter of 2021, we expect to end the fourth
quarter of 2021 with no outstanding debt. Cash requirements include among other
things, capital expenditures, working capital needs, interest payments, and
other contractual commitments.

In August 2020, our Board of Directors authorized the repurchase of up to $500
million of our common shares. The 2020 Repurchase Authorization was exhausted in
the third quarter of 2021. During the year-to-date 2021, we purchased 5.6
million of our common shares for $327.2 million under the 2020 Repurchase
Authorization, at an average price of $58.48.

On December 1, 2021 our Board of Directors authorized the 2021 Repurchase
Authorization, which provides for the repurchase of $250 million of our common
shares. Pursuant to the 2021 Repurchase Authorization, we are authorized to
repurchase shares in the open market and/or in privately negotiated transactions
at our discretion, subject to market conditions and other factors. Common shares
acquired through the 2021 Repurchase Authorization will be available to meet
obligations under our equity compensation plans and for general corporate
purposes. The 2021 Repurchase Authorization has no scheduled termination date.

In August 2021, our Board of Directors declared a quarterly cash dividend of
$0.30 per common share payable on September 24, 2021 to shareholders of record
as of the close of business on September 10, 2021. The cash dividend of $0.30
per common share is consistent with our quarterly dividends declared in 2020. In
the year-to-date of 2021, we paid approximately $32.6 million in dividends
compared to $35.8 million in the year-to-date of 2020.

In December 2021, our Board of Directors declared a quarterly cash dividend of
$0.30 per common share payable on December 29, 2021 to shareholders of record as
of the close of business on December 15, 2021.

The following table compares the primary components of our cash flows from the year-to-date 2021 compared to the year-to-date 2020: (In thousands)

                                      2021                 2020                Change
Net cash provided by operating activities      $    75,706          $   267,410          $  (191,704)
Net cash (used in) provided by investing
activities                                        (122,545)             485,209             (607,754)

Net cash used in financing activities $ (442,121) $ (257,509) $ (184,612)





Cash provided by operating activities decreased $191.7 million to $75.7 million
in the year-to-date 2021 compared to $267.4 million in the year-to-date 2020.
The decrease was primarily driven by an increase in cash outflows from
inventories, due to restoration of inventory levels in the third quarter of 2021
compared to the historically low inventory levels in the third quarter of 2020,
and an increase in cash outflows from current income taxes, driven by the
payment of taxes on the sale of our distribution centers since the third quarter
of 2020. These decreases were partially offset by an increase in net income
after adjusting for non-cash activities such as non-cash share-based
compensation expense, non-cash lease expense, and the add-back for (loss) gain
on disposition of equipment and property.

Cash (used in) provided by investing activities decreased by $607.8 million to
cash used in investing activities of $122.5 million in the year-to-date 2021
compared to cash provided by investing activities of $485.2 million in the
year-to-date 2020. The decrease was driven by the decrease in cash proceeds from
sale of property and equipment, due to the sale and leaseback transactions
completed in the second quarter of 2020, as well as an increase in capital
expenditures.
Cash used in financing activities increased by $184.6 million to $442.1 million
in the year-to-date 2021 compared to $257.5 million in the year-to-date 2020.
The increase was primarily driven by the repurchase of $327.2 million of our
common shares under the 2020 Repurchase Authorization in the year-to-date 2021
compared to $100.0 million of our common shares under the
                                       23
--------------------------------------------------------------------------------
  Table of Contents
2020 Repurchase Authorization in the year-to-date 2020. Additionally, the
increase was driven by the absence of financing proceeds from sale and leaseback
transactions completed in the second quarter of 2020. The increase was partially
offset by a decrease in net repayments of long-term debt due to the repayment of
all outstanding borrowings under the 2018 Credit Agreement in the year-to-date
2020 compared to repayment of all outstanding borrowings under the 2019 Term
Note, which carried a lower balance at the time of repayment compared to the
2018 Credit Agreement at the time of repayment, in the year-to-date 2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates, judgments, and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period, as well as the related disclosure of contingent assets and
liabilities at the date of the financial statements. On an ongoing basis,
management evaluates its estimates, judgments, and assumptions, and bases its
estimates, judgments, and assumptions on historical experience, current trends,
and various other factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates. See   note 1 

to

our consolidated financial statements included in our 2020 Form 10-K for additional information about our accounting policies.



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

© Edgar Online, source Glimpses