Acquisition

6 Months Ended

Aug. 02, 2025

Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract]

Acquisition

Acquisition

Background

On December 30, 2022, the Company completed its acquisition of 100% of the equity interests of AdoreMe, Inc. (“Adore Me”). Under the terms of the definitive agreement setting forth the terms and conditions of the acquisition (the “Merger Agreement”), the Company made an upfront cash payment of $391 million at closing. Additionally, under the terms of the Merger Agreement, the Company agreed to pay further cash consideration in an aggregate amount of at least $80 million and up to $300 million, which included a minimum fixed payment along with consideration for potential additional payments based on the achievement of specified strategic objectives and EBITDA and net revenue goals within the two-year period following closing of the transaction.

Post-Acquisition

During fiscal year 2024, the Company made payments totaling $200 million, which included a fixed payment of $100 million and payments totaling $100 million relating to the achievement of specified strategic objectives under the terms of the Merger Agreement. During the first quarter of 2024, the Company made $20 million of these payments, comprised of $16 million classified as financing cash outflows and $4 million classified as operating cash outflows in the Consolidated Statement of Cash Flows. The amount classified as operating cash outflows was subject to the continued employment of a certain Adore Me employee (“Contingent Compensation Payments”) and was recognized as compensation expense within General, Administrative and Store Operating Expenses in the Consolidated Statements of Income as it was earned.

As of August 2, 2025, management believes no further payment is required based on its calculation of Adore Me’s EBITDA and net revenue results compared to specified targets applicable to the two-year period following the close of the transaction as set forth in the Merger Agreement. The Company submitted, under the terms of the Merger Agreement, its calculation of the contingent payment owed of zero dollars on March 3, 2025 and representatives of the former Adore Me shareholders submitted their calculation of the contingent payment owed of $11 million on April 2, 2025. According to the terms of the Merger Agreement, the calculations will be presented to a neutral accountant for a final determination.

In the second quarter and year-to-date 2025 and 2024, the Company recognized the financial impact of amortization of acquired intangible assets. In addition, in the second quarter and year-to-date 2024, the Company recognized the financial impact of other purchase accounting items, including recognition of changes in the estimated fair value of contingent consideration and Contingent Compensation Payments.

The following table provides a summary by line item in the Consolidated Statements of Income of the financial impact of purchase accounting items for the second quarter and year-to-date 2025 and 2024:

	Second Quarter		Year-to-Date
	2025	2024	2025	2024
Income Statement Line Item	(in millions)
General, Administrative and Store Operating Expenses	6	—	13	14
Interest Expense	—	1	—	2