Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

May 04, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Substantial Doubt about Going Concern

Liquidity

The Company has incurred net losses and used cash in operating activities in 2022, 2023, and the first quarter of 2024. The Company is currently in compliance with the covenants under the agreements governing its indebtedness (see Note 2 for additional information on these agreements and covenants) and its current aggregate available borrowings under the 2022 Credit Agreement and Term Loan Facility are $213.9 million, subject to certain borrowing base limitations discussed in Note 2. Due to ongoing negative macroeconomic factors and their uncertain impacts on the Company’s business, results of operations, and cash flows, the Company expects to experience further operating losses and expects to experience difficulty remaining in compliance with such covenants.

As further described below, management has implemented plans to reduce costs, improve sales, and enhance its financial flexibility and liquidity.

However, based on our current cash and liquidity projections, and uncertainties with respect to the mitigating effect of management’s plans, the Company has concluded there is a significant likelihood that it will be unable to comply with the Excess Availability Covenant under the 2022 Credit Agreement and the Term Loan Facility within the next 12 months, which raises substantial doubt about the Company’s ability to continue as a going concern. Failure to comply with the Excess Availability Covenant would result in an event of default which could result in an acceleration of our obligations under the Term Loan Facility and the 2022 Credit Agreement. We can provide no assurance that the lender parties under the Term Loan Facility or the 2022 Credit Agreement would waive the Company’s failure to comply with the Excess Availability Covenant.

Notwithstanding the above, the Company intends to vigorously pursue its plans to enhance its liquidity, improve the performance of the business, and avoid a covenant violation. The Company is evaluating various alternatives to improve its available liquidity, including but not limited to, lease concessions and deferrals, entering a letter of credit facility, managing its working capital and raising additional capital. The Company is also seeking to further monetize assets, such as its remaining owned real estate property, through outright sale or sale and leaseback opportunities. Further, the Company is seeking to monetize certain pending litigation claims to which the Company is a plaintiff, which we expect would improve the Company’s

liquidity position, if actioned. The Company also plans to drive significant improvements in sales and profitability through our key strategic actions, which include, among others, our actions to increase penetration of extreme bargains and closeouts, improve merchandise presentations that highlight our best deals and encourage basket growth and visit frequency, and drive productivity and efficiency in our business by aggressively pursuing operating expense and capital outlay reductions, which includes continuing to achieve savings through our Project Springboard initiative. These plans have not been finalized, are subject to market conditions, and are not fully within the Company’s control, and therefore cannot be deemed probable; however, management believes that, in aggregate, these plans have the potential to maintain the Company’s compliance with the Excess Availability Covenant.

The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainty referenced above.