UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~November 3, 2018~~May 4, 2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 1-14035

Stage Stores, Inc.

(Exact name of registrant as specified in its charter)



NEVADA (State or other jurisdiction of incorporation or organization)	91-1826900 (I.R.S. Employer Identification No.)

2425 West Loop South, Houston, Texas (Address of principal executive offices)	77027 (Zip Code)

(800) 579-2302

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.01 par value)	SSI	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	o	Accelerated filer	þ

Non-accelerated filer	o	Smaller reporting company	þ

		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of ~~December~~June 5, ~~2018,~~2019, there were ~~28,293,608~~28,663,276 shares of the registrant’s common stock outstanding.



TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
			Page No.
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets
		~~November 3,~~May 4, 2019, February 2, 2019 and May 5, 2018 ~~February 3, 2018 and October 28, 2017~~	34
	Condensed Consolidated Statements of Operations and Comprehensive Loss
		Three ~~and Nine~~ Months Ended ~~November 3,~~May 4, 2019 and May 5, 2018 ~~and October 28, 2017~~	45
	Condensed Consolidated Statements of Cash Flows
		~~Nine~~Three Months Ended ~~November 3,~~May 4, 2019 and May 5, 2018 ~~and October 28, 2017~~	56
	Condensed Consolidated ~~Statement~~Statements of ~~Stockholders'~~Stockholders’ Equity
		~~Nine~~Three Months Ended ~~November 3,~~May 4, 2019 and May 5, 2018	67
	Notes to Condensed Consolidated Financial Statements (Unaudited)		78
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		2321
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		3229
Item 4.	Controls and Procedures		3229

PART II OTHER INFORMATION

Item 1.	Legal Proceedings		3229
Item 1A.	Risk Factors		3229
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3330
Item 3.	Defaults Upon Senior Securities		3431
Item 4.	Mine Safety Disclosures		3431
Item 5.	Other Information		3431
Item 6.	Exhibits		3531

SIGNATURES			3632

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Stage Stores, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value)

(Unaudited)


				February 3, 2018			October 28, 2017
	November 3, 2018			As Adjusted			As Adjusted			May 4, 2019			February 2, 2019			May 5, 2018
ASSETS
Cash and cash equivalents	$	25,825		$	21,250		$	30,330		$	22,793		$	15,830		$	29,091
Merchandise inventories, net	602,283			438,377			576,367			472,000			424,555			477,562
Prepaid expenses and other current assets	47,181			52,407			54,642			43,817			52,518			48,762
Total current assets	675,289			512,034			661,339			538,610			492,903			555,415

Property, equipment and leasehold improvements, net of accumulated depreciation of $736,014, $699,788 and $734,626, respectively	229,942			252,788			260,870
Property, equipment and leasehold improvements, net of accumulated depreciation of $742,162, $733,366 and $713,867, respectively										211,849			224,803			244,214
Operating lease assets										332,233			—			—
Intangible assets	17,135			17,135			17,135			2,225			2,225			17,135
Other non-current assets, net	23,152			24,449			28,237			22,690			24,230			23,715
Total assets	$	945,518		$	806,406		$	967,581		$	1,107,607		$	744,161		$	840,479

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	190,070		$	145,991		$	214,783		$	121,347		$	106,825		$	128,883
Current portion of debt obligations	3,555			2,985			3,025			5,170			4,812			2,896
Current portion of operating lease liabilities										75,211			—			—
Accrued expenses and other current liabilities	80,320			64,442			74,068			73,822			65,715			64,617
Total current liabilities	273,945			213,418			291,876			275,550			177,352			196,396

Long-term debt obligations	345,840			180,350			268,969			306,699			250,294			265,469
Long-term operating lease liabilities										289,154			—			—
Other long-term liabilities	62,809			68,524			70,052			33,305			61,990			66,029
Total liabilities	682,594			462,292			630,897			904,708			489,636			527,894

Commitments and contingencies

Common stock, par value $0.01, 100,000 shares authorized, 33,458, 32,806 and 32,794 shares issued, respectively	335			328			328
Common stock, par value $0.01, 100,000 shares authorized, 33,805, 33,469 and 33,111 shares issued, respectively										338			335			331
Additional paid-in capital	422,539			418,658			416,422			424,407			423,535			420,091
Treasury stock, at cost, 5,175 shares, respectively	(43,527		)	(43,298		)	(43,248		)	(43,552		)	(43,579		)	(43,339		)
Accumulated other comprehensive loss	(5,731		)	(5,177		)	(5,021		)	(5,687		)	(5,857		)	(4,978		)
Accumulated deficit	(110,692		)	(26,397		)	(31,797		)	(172,607		)	(119,909		)	(59,520		)
Total stockholders' equity	262,924			344,114			336,684			202,899			254,525			312,585
Total liabilities and stockholders' equity	$	945,518		$	806,406		$	967,581		$	1,107,607		$	744,161		$	840,479

Stage Stores, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
				October 28, 2017						October 28, 2017
	November 3, 2018			As Adjusted			November 3, 2018			As Adjusted			May 4, 2019			May 5, 2018
Net sales	$	347,100		$	357,236		$	1,060,623		$	1,042,924		$	327,721		$	344,229
Credit income	13,324			13,670			43,143			39,788			13,108			15,514
Total revenues	360,424			370,906			1,103,766			1,082,712			340,829			359,743
Cost of sales and related buying, occupancy and distribution expenses	278,665			285,542			847,213			816,071			277,599			281,741
Selling, general and administrative expenses	109,774			113,706			327,965			328,976			106,576			107,277
Interest expense	3,350			2,001			8,253			5,505			3,994			2,253
Loss before income tax	(31,365		)	(30,343		)	(79,665		)	(67,840		)	(47,340		)	(31,528		)
Income tax (benefit) expense	(12		)	(12,621		)	288			(24,873		)
Income tax expense													150			150
Net loss	$	(31,353	)	$	(17,722	)	$	(79,953	)	$	(42,967	)	$	(47,490	)	$	(31,678	)

Other comprehensive (loss) income:
Amortization of employee benefit related costs, net of tax of $0, $81, $0 and $242, respectively	$	85		$	132		$	439		$	395
Pension settlement charges, net of tax of $0, $142, $0 and $142, respectively	411			232			411			232
Employee benefit related adjustment, net of tax of $0	(1,404		)	—			(1,404		)	—
Total other comprehensive (loss) income	(908		)	364			(554		)	627
Other comprehensive income:
Amortization of employee benefit related costs, net of tax of $0, respectively													$	170		$	199
Total other comprehensive income													170			199
Comprehensive loss	$	(32,261	)	$	(17,358	)	$	(80,507	)	$	(42,340	)	$	(47,320	)	$	(31,479	)

Net loss per share:
Basic	$	(1.11	)	$	(0.64	)	$	(2.85	)	$	(1.57	)	$	(1.67	)	$	(1.14	)
Diluted	$	(1.11	)	$	(0.64	)	$	(2.85	)	$	(1.57	)	$	(1.67	)	$	(1.14	)

Weighted average shares outstanding:
Basic	28,261			27,602			28,059			27,468			28,441			27,765
Diluted	28,261			27,602			28,059			27,468			28,441			27,765

Stage Stores, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Nine Months Ended						Three Months Ended
				October 28, 2017
	November 3, 2018			As Adjusted			May 4, 2019			May 5, 2018
Cash flows from operating activities:
Net loss	$	(79,953	)	$	(42,967	)	$	(47,490	)	$	(31,678	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of long-lived assets	44,135			49,300			15,344			15,151
Impairment of long-lived assets	1,070			176			519			—
Gain on retirements of property, equipment and leasehold improvements	(505		)	(926		)	(678		)	(30		)
Deferred income taxes	—			(6,065		)
Non-cash operating lease expense							17,588			—
Stock-based compensation expense	3,854			6,191			949			1,558
Amortization of debt issuance costs	248			216			170			74
Deferred compensation obligation	229			(38		)	(27		)	41
Amortization of employee benefit related costs and pension settlement charges	850			1,011
Amortization of employee benefit related costs							170			199
Construction allowances from landlords	757			1,228			1,867			—
Other changes in operating assets and liabilities:
Increase in merchandise inventories	(163,906		)	(136,247		)	(47,445		)	(39,185		)
Decrease (increase) in other assets	4,910			(10,941		)
Increase in accounts payable and other liabilities	51,394			120,137
Decrease in other assets							14,252			4,303
Decrease in operating lease liabilities							(18,972		)	—
Increase (decrease) in accounts payable and other liabilities							26,551			(19,088		)
Net cash used in operating activities	(136,917		)	(18,925		)	(37,202		)	(68,655		)

Cash flows from investing activities:
Additions to property, equipment and leasehold improvements	(21,793		)	(25,342		)	(13,774		)	(6,930		)
Proceeds from insurance and disposal of assets	2,349			2,404			678			45
Business acquisition	—			(36,144		)
Net cash used in investing activities	(19,444		)	(59,082		)	(13,096		)	(6,885		)

Cash flows from financing activities:
Proceeds from revolving credit facility borrowings	481,384			426,308			149,411			164,071
Payments of revolving credit facility borrowings	(338,100		)	(318,851		)	(91,756		)	(78,310		)
Proceeds from long-term debt obligation	25,000			—
Payments of long-term debt obligations	(2,224		)	(5,626		)	(338		)	(731		)
Payments of debt issuance costs	(358		)	(8		)	(36		)	—
Payments for stock related compensation	(424		)	(192		)	(20		)	(204		)
Cash dividends paid	(4,342		)	(7,097		)	—			(1,445		)
Net cash provided by financing activities	160,936			94,534			57,261			83,381
Net increase in cash and cash equivalents	4,575			16,527			6,963			7,841

Cash and cash equivalents:
Beginning of period	21,250			13,803			15,830			21,250
End of period	$	25,825		$	30,330		$	22,793		$	29,091

Supplemental disclosures including non-cash investing and financing activities:
Interest paid	$	8,097		$	5,221		$	3,745		$	2,116
Income taxes refunded	$	(11	)	$	(8,485	)
Income taxes paid (refunded)							$	473		$	(180	)
Unpaid liabilities for capital expenditures	$	3,624		$	5,362		$	3,863		$	2,597

Stage Stores, Inc.

Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity

~~For the Nine Months Ended November 3, 2018~~

(in thousands, except per share ~~data)~~amounts)

(Unaudited)


																										Common Stock					Additional Paid-in Capital				Treasury Stock							Accumulated Other Comprehensive Loss				Accumulated Deficit
																										Shares			Amount					Shares			Amount								Total
Balance at February 2, 2019																										33,469			$	335	Additional Paid-in Capital	$	423,535			(5,175	)		$	(43,579	)	Accumulated Other Comprehensive Loss		$	(5,857	Accumulated Deficit		)		$	(119,909	)		$	254,525
Cumulative-effect adjustment ^(a)																										—			—		—				—			—				—				(5,208		)		(5,208		)
Net loss																										—			—		—				—			—				—				(47,490		)		(47,490		)
Other comprehensive income																										—			—		—				—			—				170				—				170
Deferred compensation																										—			—		(27		)		—			27				—				—				—
Issuance of equity awards, net																										336			3		(3		)		—			—				—				—				—
Tax withholdings paid for net settlement of stock awards																										—			—		(47		)		—			—				—				—				(47		)
Stock-based compensation expense																										—			—		949				—			—				—				—				949
Balance at May 4, 2019																										33,805			$	338	$	424,407			(5,175	)		$	(43,552	)		$	(5,687	)		$	(172,607	)		$	202,899

^(a) Related to the adoption of the new lease accounting standard. See Note 1 for further disclosures regarding the adoption impact.																										^(a) Related to the adoption of the new lease accounting standard. See Note 1 for further disclosures regarding the adoption impact.

	Common Stock			Additional Paid-in Capital				Treasury Stock							Accumulated Other Comprehensive Loss				Accumulated Deficit							Common Stock					Additional Paid-in Capital				Treasury Stock							Accumulated Other Comprehensive Loss				Accumulated Deficit
	Shares	Amount					Shares			Amount								Total				Shares			Amount					Shares	Additional Paid-in Capital			Amount						Total						Accumulated Deficit
Balance at February 3, 2018	32,806	$	328	Additional Paid-in Capital	$	418,658			(5,175	)		$	(43,298	)	Accumulated Other Comprehensive Loss		$	(5,177	Accumulated Deficit		)		$	(26,397	)		$	344,114		32,806	$	328			$	418,658			(5,175	)		Accumulated Other Comprehensive Loss	$	(43,298	)		$	(5,177	)		$	(26,397	)		$	344,114
Net loss	—	—		—				—			—				—				(79,953		)		(79,953		)	—			—		—				—			—				—				(31,678		)		(31,678		)
Other comprehensive loss	—	—		—				—			—				(554		)		—				(554		)
Dividends on common stock, $0.15 per share	—	—		—				—			—				—				(4,342		)		(4,342		)
Other comprehensive income																										—			—		—				—			—				199				—				199
Dividends on common stock, $0.05 per share																										—			—		—				—			—				—				(1,445		)		(1,445		)
Deferred compensation	—	—		229				—			(229		)		—				—				—			—			—		41				—			(41		)		—				—				—
Issuance of equity awards, net	652	7		(7		)		—			—				—				—				—			305			3		(3		)		—			—				—				—				—
Tax withholdings paid for net settlement of stock awards	—	—		(195		)		—			—				—				—				(195		)	—			—		(163		)		—			—				—				—				(163		)
Stock-based compensation expense	—	—		3,854				—			—				—				—				3,854			—			—		1,558				—			—				—				—				1,558
Balance at November 3, 2018	33,458	$	335	$	422,539			(5,175	)		$	(43,527	)		$	(5,731	)		$	(110,692	)		$	262,924
Balance at May 5, 2018																										33,111			$	331	$	420,091			(5,175	)		$	(43,339	)		$	(4,978	)		$	(59,520	)		$	312,585

Stage Stores, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements of Stage Stores, Inc. and its subsidiary (“we,” “us” or “our”) have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Those adjustments that are, in the opinion of management, necessary for a fair presentation of the results of the interim periods have been made. Results of operations for such interim periods are not necessarily indicative of the results of operations for a full year due to seasonality and other factors. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto filed with our Annual Report on Form 10-K for the year ended February ~~3, 2018~~2, 2019 (“Form 10-K”).

We are a retailer of trend-right, moderately priced, name-brand apparel, accessories, cosmetics, footwear and home goods. As of ~~November 3, 2018,~~May 4, 2019, we operated in 42 states through ~~754~~685 BEALLS, GOODY’S, PALAIS ROYAL, PEEBLES and STAGE specialty department stores and 68105 GORDMANS off-price stores, as well as an e-commerce ~~website.~~website (www.stage.com). Our department stores are predominantly located in small towns and rural communities. Our off-price stores are predominantly located in smaller and mid-sized ~~non-rural Midwest markets.~~markets in the Midwest.

References to a particular year are to our fiscal year, which is the 52- or 53-week period ending on the Saturday closest to January 31st of the following calendar year. For example, a reference to ~~“2018”~~“2019” is a reference to the fiscal year ending February ~~2, 2019,~~1, 2020, and ~~“2017”~~“2018” is a reference to the fiscal year ended February ~~3, 2018.~~2, 2019. Fiscal years ~~2018~~2019 and ~~2017~~2018 are comprised of 52 ~~weeks and 53 weeks, respectively.~~weeks. References to the “three months ended ~~November 3, 2018”~~May 4, 2019” and “three months ended ~~October 28, 2017”~~May 5, 2018” are for the respective 13-week fiscal quarters. References to quarters relate to our fiscal quarters. ~~References to the “nine months ended November 3, 2018” and “nine months ended October 28, 2017” are for the respective 39-week fiscal periods.~~

On April 7, 2017, we acquired select assets of Gordmans Stores, Inc. and its subsidiaries through a bankruptcy auction (“Gordmans Acquisition”). The results of the Gordmans branded stores that we operated since the Gordmans Acquisition are included in our condensed consolidated statements of operations (see Note 9).

Recently Adopted Accounting Pronouncements. In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards ~~Update (ASU) 2014-09,~~Updates (“ASU”) 2016-02, ~~Revenue from Contracts with Customers~~Leases (Topic ~~606)~~842), and subsequently issued related ASUs, which were incorporated into Topic ~~606.~~ 842.Under ~~Topic 606, revenue is recognized when~~the new standard, lessees are required to recognize a ~~customer obtains control~~right-of-use asset and a lease liability, measured on a discounted basis, at the later of ~~promised goods or services in an amount that reflects~~ the ~~consideration~~lease commencement date and the ~~entity expects to be entitled to in exchange for those goods or services.~~date of adoption. The standard establishes a five-step revenue recognition model, which includes (i) identifying the contract with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. The standardguidance also requires ~~disclosure of~~qualitative and quantitative disclosures about the ~~nature,~~ amount, timing and uncertainty of ~~revenue and~~ cash flows arising from ~~contracts with customers. On February 4, 2018, we~~leases. We adopted the new standard ~~using~~on February 3, 2019, the ~~full retrospective method. As a result~~first day of fiscal 2019.

Transition elections:

We elected to apply the effective date transition method as of the February 3, 2019 adoption date. Comparative periods prior to the adoption of ~~ASU 2014-09,~~ the ~~condensed consolidated statements~~new standard have not been restated and are reported under the legacy guidance in Accounting Standards Codification (“ASC”) Topic 840, Leases.

We elected the package of ~~operations reflect~~practical expedients in the ~~reclassification~~transition guidance, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

We elected not to use the practical expedient of ~~credit income related~~using hindsight to ~~our private label credit card program from selling, general~~determine the lease term and ~~administrative expenses to revenue. In addition, the condensed consolidated balance sheets and condensed consolidated statement of cash flows reflect the reclassification~~in assessing impairment of the ~~asset~~right-of-use assets.

Accounting policy elections:

We elected the short-term lease exemption for non-real estate leases that have a lease term of twelve months or less. For non-real estate leases that qualify for the ~~right~~short-term exemption, we will not recognize a right-of-use asset or liability and will recognize those lease expenses on a straight-line basis over the lease term.

We elected to ~~recover sales return merchandise from merchandise inventories to prepaid expenses~~not separate lease and ~~other~~non-lease components for all of our current ~~assets. The tables that follow depict the impact of the reclassification adjustments on the prior period financial statement presentations.~~

lease classes.

~~Table of Contents~~

The condensed consolidated balance sheets reflect the reclassification of the asset for the right to recover sales return merchandise from merchandise inventories to prepaid expenses and other current assets.

Condensed Consolidated Balance Sheets (in thousands)
February 3, 2018 ASU 2014-09 February 3, 2018
As previously reported Adjustments As adjusted
Assets:
Merchandise inventories, net $ 439,735
$ (1,358 ) $ 438,377
Prepaid expenses and other current assets 51,049
1,358
52,407

October 28, 2017 ASU 2014-09 October 28, 2017
As previously reported Adjustments As adjusted
Assets:
Merchandise inventories, net $ 578,633
$ (2,266 ) $ 576,367
Prepaid expenses and other current assets 52,376
2,266
54,642

~~The condensed consolidated statement of operations reflects the reclassification of credit income to revenue, previously reported as an offset to selling, general and administrative expenses.~~

Condensed Consolidated Statement of Operations and Comprehensive Loss (in thousands)
Three Months Ended Three Months Ended
October 28, 2017 ASU 2014-09 October 28, 2017
As previously reported Adjustments As adjusted
Net sales $ 357,236
$ —
$ 357,236
Credit income —
13,670
13,670
Total revenues 357,236
13,670
370,906
Selling, general and administrative expenses 100,036
13,670
113,706

Nine Months Ended Nine Months Ended
October 28, 2017 ASU 2014-09 October 28, 2017
As previously reported Adjustments As adjusted
Net sales $ 1,042,924
$ —
$ 1,042,924
Credit income —
39,788
39,788
Total revenues 1,042,924
39,788
1,082,712
Selling, general and administrative expenses 289,188
39,788
328,976

Table of Contents

The ~~condensed consolidated statement~~adoption of ~~cash flows reflects~~the standard resulted in the recognition of operating lease assets and liabilities of $344.2 million and $375.8 million, respectively, as of February 3, 2019. Included in the measurement of the operating lease assets and liabilities is the reclassification of balances historically recorded as deferred rent and deferred rent tenant allowances. We also recognized a cumulative effect charge of $5.2 million, net of tax, to the opening accumulated deficit balance. This adjustment reflects $5.8 million in depreciation of leasehold improvements associated with conforming the asset ~~for~~useful life to the ~~right to recover merchandise returned from merchandise inventories to prepaid expenses and other current assets.~~

Condensed Consolidated Statement of Cash Flows (in thousands)
Nine Months Ended Nine Months Ended
October 28, 2017 ASU 2014-09 October 28, 2017
As previously reported Adjustments As adjusted
Cash flows from operating activities:
Increase in merchandise inventories $ (137,479 ) $ 1,232
$ (136,247 )
Increase in other assets (9,709 ) (1,232 ) (10,941 )

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires the service cost component of net periodic benefit cost to be presented in the same income statement line item~~remaining lease life as ~~other employee compensation costs arising from services rendered during the period. If a subtotal for operating income is shown on the income statement, then the other components~~ of the ~~net periodic benefit cost must be presented separately from~~transition date. It also reflects $0.6 million associated with the ~~line item~~derecognition of lease obligations that ~~includes~~had been classified as finance obligations under the ~~service cost and outside of any subtotal of operating income. The~~former failed sale-leaseback guidance applied to build-to-suit arrangements. Under the new standard, also requires disclosure of the line item(s) in the income statement that include net periodic benefit costs. Additionally, only the service cost component of the net periodic benefit cost is eligible for capitalization. The change in presentation of service cost must be applied retrospectively, while the capitalization of service cost must be applied on a prospective basis. On February 4, 2018, we adopted ASU 2017-07. The pension plan that we sponsor is frozen, and therefore, service costs no longer accrue under the plan.these leases are classified as operating leases. The adoption of the ~~new~~ standard did not ~~change~~have a material impact on our results of operations or cash flows. In addition, our bank covenants under our Credit Facility were not affected by the ~~presentation~~adoption of ~~our condensed consolidated statements of operations.~~the standard. See Note 5 for further disclosures regarding leases.

Recent Accounting Pronouncements Not Yet Adopted. ~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in~~ ~~Topic 840, Leases~~. The new standard requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. A policy election can be made, by underlying asset class, to keep leases with an initial term of 12 months or less off the balance sheet and recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. Consistent with current GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a financing or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet. As a result, lessees will be required to put most leases on their balance sheets while recognizing expense on their income statements in a manner similar to current accounting. In addition, this guidance requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. The new standard will be effective for us in the first quarter of fiscal 2019, which begins on February 3, 2019. ASU 2016-02 requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

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~~In July 2018, the FASB issued ASU 2018-11,~~ ~~Leases (Topic 842) - Targeted Improvements~~, which provides an optional transition method for the adoption of the new leases standard. If elected, the comparative periods would continue to be reported under the legacy guidance in Topic 840, including the related disclosures, and a cumulative-effect adjustment would be made to retained earnings as of the adoption date.

~~In July 2018, the FASB issued ASU 2018-10,~~ ~~Codification Improvements to Topic 842~~, ~~Leases~~, which clarifies certain aspects of the new leases standard. The amendments in this ASU address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments, among other things. The amendments have the same effective date and transition requirements as the new leases standard.

We continue to evaluate the impact that the adoption of Topic 842 will have on our consolidated financial statements and disclosures, including the effect of the optional practical expedients permitted under the transition guidance. Based on our assessment to date, we expect the adoption of Topic 842will result in a significant increase in lease-related assets and liabilities on our consolidated balance sheets. The ultimate impact of adopting the new standard will depend on our lease portfolio as of the adoption date.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The new standard will be effective for us in the first quarter of fiscal 2020, with early adoption permitted. We are currently evaluating the impact of the new guidance on our disclosures.

~~In August 2018, the FASB issued ASU 2018-14,~~ ~~Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans,~~ which eliminates and adds certain disclosure requirements for defined benefit plans. The new standard will be effective for us for year-end fiscal 2021, with early adoption permitted. We are currently evaluating the impact of the new guidance on our disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force), which aligns the requirements for capitalizing implementation costs in a hosting arrangement that is a service contract with the requirements for capitalizing implementations costs incurred to develop or obtain internal-use software. The guidance also requires disclosure of the nature of hosting arrangements that are service contracts. The new standard will be effective for us in the first quarter of fiscal 2020, with early adoption permitted. We are currently evaluating the impact of the new guidance on our financial statements and disclosures.

NOTE 2 - FAIR VALUE MEASUREMENTS

We recognize or disclose the fair value of our financial and non-financial assets and liabilities on a recurring and non-recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, we assume the highest and best use of the asset by market participants in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability.

We applied the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:



Level 1 –	Quoted prices in active markets for identical assets or liabilities.

Level 2 –	Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 –	Inputs that are both unobservable and significant to the overall fair value measurement reflect our estimates of assumptions that market participants would use in pricing the asset or liability.

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~~NOTE 2 - DEBT OBLIGATIONS~~

~~Debt obligations for each period presented consisted of the following~~Financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):

November 3, 2018 February 3, 2018 October 28, 2017
Revolving credit facility $ 322,572
$ 179,288
$ 267,159
Term loan 25,000
—
—
Finance obligations 812
1,549
1,849
Other financing 1,011
2,498
2,986
Total debt obligations 349,395

183,335
271,994
Less: Current portion of debt obligations 3,555
2,985
3,025
Long-term debt obligations $ 345,840

$ 180,350
$ 268,969



	May 4, 2019
	Balance		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other assets:
Securities held in grantor trust for deferred compensation plans ^(a)(b)	$	17,887	$	17,887	$	—	$	—


	February 2, 2019
	Balance		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other assets:
Securities held in grantor trust for deferred compensation plans ^(a)(b)	$	19,536	$	19,536	$	—	$	—


	May 5, 2018
	Balance		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Other assets:
Securities held in grantor trust for deferred compensation plans ^(a)(b)	$	19,606	$	19,606	$	—	$	—

^(a) The liability for the amount due to participants corresponding in value to the securities held in the grantor trust is recorded in other long-term liabilities.

~~On August 3, 2018, we entered into an amendment~~^(b) Using the market approach, the fair values of these securities represent quoted market prices multiplied by the quantities held. Net gains and losses related to our senior secured revolving credit facility agreement (“credit facility” or “credit facility agreement”). The amendment provides us with a $25.0 million term loan, which increased total availabilitythe changes in fair value in the assets and liabilities under ~~our credit facility from $400.0 million to $425.0 million, with a seasonal increase to $450.0 million~~the various deferred compensation plans are recorded in selling, general and ~~a $25.0 million letter of credit sublimit. Both~~administrative expenses and were nil for the ~~existing credit facility and the term loan mature on December 16, 2021. The term loan is payable in quarterly installments of $0.6 million beginning on February~~three months ended May 4, 2019 ~~with~~and May 5, 2018, and for the ~~remaining balance due upon maturity.~~fiscal year ended February 2, 2019.

We use the credit facility to provide financing for working capital and general corporate purposes, as well as to finance capital expenditures and to support our letter of credit requirements. Borrowings under the credit facility are limited to the availability under a borrowing base that is determined principally on eligible inventory as defined by the credit facility agreement. The credit facility is secured by our inventory, cash, cash equivalents, and substantially all of our other assets. The daily interest rates are determined by a prime rate or LIBOR, plus an applicable margin, as set forth in the credit facility agreement. For the nine months ended November 3, 2018, the weighted average interest rate on outstanding borrowings and the average daily borrowings on the credit facility, including the term loan, were 3.53% and $274.3 million, respectively.

~~Letters~~10

Table of credit issued under the credit facility support certain merchandise purchases and collateralize retained risks and deductibles under various insurance programs. At November 3, 2018, outstanding letters of credit totaled approximately $6.9 million. These letters of credit expire within 12 months of issuance and may be renewed.Contents

The credit facility agreement contains a covenant requiring us to maintain excess availability at or above $35.0 million or 10% of the Adjusted Combined Loan Cap (as defined therein). The credit facility agreement also contains covenants which, among other things, restrict (i) the amount of additional debt or capital lease obligations, (ii) the payment of dividends to $30.0 million in a fiscal year, and (iii) the repurchase of common stock under certain circumstances. At November 3, 2018, we were in compliance with the debt covenants of the credit facility agreement and we expect to remain in compliance. Excess availability under the credit facility was $95.3 million as of November 3, 2018.

Non-financial assets measured at fair value on a nonrecurring basis were as follows (in thousands):



	May 4, 2019
	Balance		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Assets held for sale ^(a)	$	3,270	$	—	$	—	$	3,270
Store property, equipment and leasehold improvements ^(b)	2		—		—		2
Total Assets	$	3,272	$	—	$	—	$	3,272


	February 2, 2019
	Balance		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Store property, equipment and leasehold improvements ^(a)	$	1,583	$	—	$	—	$	1,583

^(a)Assets held for sale are reflected in prepaid expenses and other current assets.

^(b)Using an undiscounted cash flow model, we evaluate the cash flow trends of our stores at least annually and when events or changes in circumstances, such as a store closure, indicate that property, equipment and leasehold improvements may not be fully recoverable. When a store’s projected undiscounted cash flows indicate its carrying value may not be recoverable, we use a discounted cash flow model to estimate the fair value of the underlying long-lived assets. An impairment write-down is recorded if the carrying value of a long-lived asset exceeds its fair value. Key assumptions in estimating future cash flows include, among other things, expected future operating performance, including expected closure date and lease term, and changes in economic conditions. We believe estimated future cash flows are sufficient to support the carrying value of our long-lived assets. Significant changes in the key assumptions used in our cash flow projections may result in additional asset impairments. For the three months ended May 4, 2019 and fiscal year 2018, we recognized impairment charges of $0.5 million and $2.8 million, respectively. There were no impairment charges recognized for the three months ended May 5, 2018. Impairment charges related to assets held for sale are recorded in selling, general and administrative expenses, while impairment charges related to store property, equipment and leasehold improvements are recorded in cost of sales and related buying, occupancy and distribution expenses.

Due to the short-term nature of cash and cash equivalents, payables and short-term debt obligations, the carrying value approximates the fair value of these instruments. In addition, we believe that the credit facility obligation approximates its fair value because interest rates are adjusted daily based on current market rates.

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~~NOTE 3 - REVENUE~~

~~Net Sales~~

We recognize revenue for merchandise sales, net of expected returns and sales tax, at the time of in-store purchase or delivery of the product to our guest. When merchandise is shipped to our guests, we estimate receipt based on historical experience. Revenue is deferred and a liability is established for sales returns based on historical return rates and sales for the return period. We recognize an asset and corresponding adjustment to cost of sales for our right to recover returned merchandise. At each financial reporting date, we assess our estimates of expected returns, refund liabilities and return assets. For merchandise sold in our stores and online, tender is accepted at the point of sale. When we receive payment before the guest has taken possession of the merchandise, the amount received is recorded as deferred revenue until the transaction is complete. Our performance obligations for unfulfilled merchandise orders are typically satisfied within one week. Shipping and handling fees charged to guests relate to fulfillment activities and are included in net sales with the corresponding costs recorded in cost of sales.

We record deferred revenue for the sale of gift cards and merchandise credits issued for returned merchandise, and we recognize revenue in net sales upon redemption. Gift card and merchandise credit redemptions typically occur within 12 months of the date of issuance with the majority redeemed within the first three months. Our gift cards and merchandise credits do not expire. Based on historical redemption rates, a small percentage of gift cards and merchandise credits will never be redeemed. We recognize estimated breakage income for gift cards and merchandise credits that will never be redeemed in proportion to actual historical redemption patterns.

Under our loyalty programs, members can accumulate points, based on their spending, toward earning a reward certificate that can be redeemed for future merchandise purchases. Points earned by loyalty members reset to zero at the end of each calendar year. Reward certificates expire 30 and 60 days after the date of issuance for our department stores and off-price stores, respectively. We allocate and defer a portion of our sales to reward certificates expected to be earned, based on the relative stand-alone sales transaction price and reward certificate value, and recognize the reward certificate as a net sale when it is redeemed.

~~The following table presents the composition of net sales by merchandise category (in thousands):~~

Three Months Ended
November 3, 2018 October 28, 2017
Merchandise Category Department Stores Off-price Stores Total Company Department Stores Off-price Stores Total Company
Women’s $ 94,732
$ 19,934
$ 114,666
$ 105,805
$ 19,366
$ 125,171
Men’s 43,954
11,230
55,184
47,674
9,327
57,001
Children's 29,682
10,635
40,317
34,813
9,565
44,378
Apparel 168,368
41,799
210,167
188,292
38,258
226,550

Footwear 44,400
4,594
48,994
45,329
1,235
46,564
Accessories 17,823
4,863
22,686
19,792
5,153
24,945
Cosmetics/Fragrances 27,822
2,620
30,442
28,843
2,569
31,412
Home/Gifts/Other 16,665
18,074
34,739
13,699
14,460
28,159
Non-apparel 106,710
30,151
136,861
107,663
23,417
131,080

Revenue adjustments not allocated^(a)
183
(111 ) 72
(493 ) 99
(394 )

Net sales $ 275,261
$ 71,839
$ 347,100
$ 295,462
$ 61,774
$ 357,236

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Nine Months Ended
November 3, 2018 October 28, 2017
Merchandise Category Department Stores Off-price Stores Total Company Department Stores Off-price Stores Total Company
Women’s $ 315,428
$ 59,165
$ 374,593
$ 345,892
$ 41,492
$ 387,384
Men’s 138,414
27,688
166,102
144,588
19,021
163,609
Children's 88,160
26,261
114,421
96,898
17,715
114,613
Apparel 542,002
113,114
655,116
587,378
78,228
665,606

Footwear 134,024
13,918
147,942
134,836
2,396
137,232
Accessories 55,121
13,118
68,239
61,045
11,932
72,977
Cosmetics/Fragrances 90,295
7,530
97,825
90,640
5,854
96,494
Home/Gifts/Other 41,463
53,327
94,790
35,708
35,622
71,330
Non-apparel 320,903
87,893
408,796
322,229
55,804
378,033

Revenue adjustments not allocated^(a)
(2,986 ) (303 ) (3,289 ) (274 ) (441 ) (715 )

Net sales $ 859,919
$ 200,704
$ 1,060,623
$ 909,333
$ 133,591
$ 1,042,924

^(a)~~Includes adjustments related to deferred revenue, estimated sales returns, breakage income, shipping and miscellaneous revenues, which are not allocated to merchandise categories.~~

~~Contract Liabilities~~

Contract liabilities reflect our performance obligations related to gift cards, merchandise credits, loyalty program rewards and merchandise orders that have not been satisfied as of a given date, and therefore, revenue recognition has been deferred. Contract liabilities are recorded in accrued expenses and other current liabilities. Contract liabilities for each period presented were as follows (in thousands):

November 3, 2018 February 3, 2018 October 28, 2017
Gift cards and merchandise credits, net $ 9,756
$ 12,122
$ 8,587
Loyalty program rewards, net 5,540
1,118
2,452
Merchandise fulfillment liability 1,180
234
684
Total contract liabilities $ 16,476
$ 13,474
$ 11,723

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~~The following table summarizes contract liability activity for each period presented (in thousands):~~

Three Months Ended Nine Months Ended
November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017
Beginning balance $ 15,119
$ 10,399
$ 13,474
$ 11,669
Net sales recognized during the period from amounts included in contract liability balances at the beginning of the period (6,574 ) (2,404 ) (7,396 ) (5,291 )
Current period additions to contract liability balances included in contract liability balances at the end of the period 7,931
3,728
10,398
5,345
Ending balance $ 16,476
$ 11,723
$ 16,476
$ 11,723

~~Credit Income~~

The portfolio for our private label credit card is owned and serviced by Comenity Bank, an affiliate of Alliance Data Systems Corporation. Comenity Bank manages the account activation, receivables funding, card authorization, card issuance, statement generation, remittance processing and guest service functions for our private label credit card program. We perform certain duties, including electronic processing and transmitting of transaction records, and executing marketing promotions designed to increase card usage. We also accept payments in our stores from cardholders on behalf of Comenity Bank. We receive a monthly net portfolio yield payment from Comenity Bank, and we can potentially earn an annual bonus based upon the performance of the private label credit card portfolio. The receivable for credit income, which is recorded in prepaid expenses and other current assets, was $4.0 million, $5.8 million, $3.5 million and $4.9 million as of November 3, 2018, February 3, 2018, October 28, 2017 and January 28, 2017, respectively.

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NOTE 3 - DEBT OBLIGATIONS

Debt obligations for each period presented consisted of the following (in thousands):



	May 4, 2019		February 2, 2019		May 5, 2018
Revolving loan	$	261,699	$	204,044	$	265,049
Term loan	50,000		50,000		—
Finance obligations	—		554		1,310
Other financing	170		508		2,006
Total debt obligations	311,869		255,106		268,365
Less: Current portion of debt obligations	5,170		4,812		2,896
Long-term debt obligations	$	306,699	$	250,294	$	265,469

We have total availability of $450.0 million with a seasonal increase to $475.0 million under our senior secured revolving credit facility agreement including a revolving loan (“Revolving Loan”) and term loans (“Term Loan”), jointly referred to as the “Credit Facility”. Additionally, we have a $25.0 million letter of credit sublimit. The Term Loan is payable in quarterly installments of $1.3 million beginning on June 15, 2019, with the remaining balance due upon maturity. The Credit Facility matures on December 16, 2021.

We use the Credit Facility to provide financing for working capital and general corporate purposes, as well as to finance capital expenditures and to support our letter of credit requirements. Borrowings under the Credit Facility are limited to the availability under a borrowing base that is determined principally on eligible inventory as defined by the Credit Facility agreement. The Credit Facility is secured by our inventory, cash, cash equivalents, and substantially all of our other assets. The daily interest rates are determined by a prime rate or LIBOR, plus an applicable margin, as set forth in the Credit Facility agreement. For the three months ended May 4, 2019, the weighted average interest rate on outstanding borrowings and the average daily borrowings on the Credit Facility, were 4.8% and $299.2 million, respectively.

Letters of credit issued under the Credit Facility support certain merchandise purchases and collateralize retained risks and deductibles under various insurance programs. At May 4, 2019, outstanding letters of credit totaled approximately $6.0 million. These letters of credit expire within 12 months of issuance and may be renewed.

The Credit Facility agreement contains a covenant requiring us to maintain excess availability at or above $35.0 million or 10% of the Adjusted Combined Loan Cap (as defined therein). The Credit Facility agreement also contains covenants which, among other things, restrict (i) the amount of additional debt or capital lease obligations, (ii) the payment of dividends to $30.0 million in a fiscal year, and (iii) the repurchase of common stock under certain circumstances. At May 4, 2019, we were in compliance with the debt covenants of the Credit Facility agreement and we expect to remain in compliance. Excess availability under the Credit Facility at May 4, 2019 was $55.7 million.

We derecognized finance obligations of $0.6 million upon adoption of ASC Topic 842, Leases, on February 3, 2019. See Note 1 for further disclosures regarding the adoption impact.

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NOTE 4 - REVENUE

Net Sales

The following table presents the composition of net sales by merchandise category (in thousands):



	Three Months Ended
	May 4, 2019									May 5, 2018
Merchandise Category	Department Stores			Off-price Stores			Total Company			Department Stores			Off-price Stores		Total Company
Women’s	$	83,615		$	20,861		$	104,476		$	103,487		$	19,967	$	123,454
Men’s	39,108			8,514			47,622			41,336			7,545		48,881
Children's	25,138			9,880			35,018			29,078			8,096		37,174
Apparel	147,861			39,255			187,116			173,901			35,608		209,509

Footwear	40,271			5,074			45,345			44,483			4,819		49,302
Accessories	16,714			4,344			21,058			18,872			4,366		23,238
Cosmetics/Fragrances	27,869			2,813			30,682			31,186			2,482		33,668
Home/Gifts/Other	25,154			20,705			45,859			12,809			18,507		31,316
Non-apparel	110,008			32,936			142,944			107,350			30,174		137,524

Revenue adjustments not allocated^(a)	(1,912		)	(427		)	(2,339		)	(2,888		)	84		(2,804		)

Net sales	$	255,957		$	71,764		$	327,721		$	278,363		$	65,866	$	344,229

^(a) Includes adjustments related to deferred revenue, estimated sales returns, breakage income, shipping and miscellaneous revenues, which are not allocated to merchandise categories.

Contract Liabilities

Contract liabilities (recorded in accrued expenses and other current liabilities) for each period presented were as follows (in thousands):



	May 4, 2019		February 2, 2019		May 5, 2018
Gift cards and merchandise credits, net	$	10,503	$	12,433	$	10,159
Loyalty program rewards, net	3,239		1,484		3,081
Merchandise fulfillment liability	698		488		788
Total contract liabilities	$	14,440	$	14,405	$	14,028

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The following table summarizes contract liability activity for each period presented (in thousands):



	Three Months Ended
	May 4, 2019			May 5, 2018
Beginning balance	$	14,405		$	13,474
Net sales recognized during the period from amounts included in contract liability balances at the beginning of the period	(4,986		)	(4,669		)
Current period additions to contract liability balances included in contract liability balances at the end of the period	5,021			5,223
Ending balance	$	14,440		$	14,028

Credit Income

We earn credit income from our private label credit card (“PLCC”) through a profit-sharing arrangement with Comenity Bank, an affiliate of Alliance Data Systems Corporation. We receive a monthly net portfolio yield payment from Comenity Bank, and we can potentially earn an annual bonus based upon the performance of the PLCC portfolio.

We recorded deferred revenue for certain upfront payments received from Comenity Bank associated with the execution of the PLCC agreement, and we recognized $0.6 million and $0.4 million in credit income related to these upfront payments during the three months ended May 4, 2019 and May 5, 2018, respectively. As of May 4, 2019, deferred revenue of $7.3 million remained to be amortized.

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NOTE 5 - LEASES

Our lease agreements include leases for our retail stores, distribution centers and corporate headquarters. As of May 4, 2019, all of our leases were classified as operating leases. Our store leases typically have an initial term of 10 years and often have two renewal options of five years each. The exercise of a lease renewal option is at our sole discretion. The lease term includes the initial contractual term as well as any options to extend the lease when it is reasonably certain that we will exercise that option. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

We recognize a lease liability for our obligation to make lease payments arising from the lease and a related asset for our right to use the underlying asset for the lease term. The lease liability is measured based on the present value of lease payments over the lease term, and the asset is measured based on the value of the lease liability, net of landlord allowances. As the implicit interest rate in our lease agreements is not readily identifiable, we use our estimated collateralized incremental borrowing rate in determining the present value of lease payments. For all current lease classes, we made an accounting policy election not to separate lease and non-lease components.

The majority of our leases include fixed rent payments. A number of store leases provide for escalating minimum rent payments at pre-determined dates. Certain store leases provide for contingent rent payments based on a percentage of retail sales over contractual levels. Some of our leases include variable payments for maintenance, taxes and insurance.

Operating lease payments are expensed on a straight-line basis over the lease term. Variable payments are not included in the measurement of the lease liability or asset and are expensed as incurred.

We sublease our former corporate office building to a third party and recognize sublease income on a straight-line basis over the lease term.

ASC 842 Disclosures

Lease cost includes both the fixed and variable expenses recorded for leases. The components of lease cost were as follows (in thousands):



	Three Months Ended
	May 4, 2019
Operating lease cost	$	26,294
Variable lease cost	9,657
Sublease income	(368		)
Total net lease cost ^(a)	$	35,583

^(a) Of this amount, $34.1 million is recorded in cost of sales and related buying, occupancy and distribution expenses and $1.5 million is recorded in selling, general and administrative expenses.

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Cash and non-cash activities associated with our leases were as follows (in thousands):



	Three Months Ended
	May 4, 2019
Cash paid for operating leases	$	27,678
Cash received from sublease	362
Lease assets obtained in exchange for lease liabilities ^(a)	7,333

^(a)Excludes operating lease assets of $344.2 million recognized on February 3, 2019 as a result of the adoption of ASU 2016-02, Leases (Topic 842). See Note 1 for further disclosures regarding the adoption impact.

The weighted-average remaining lease term and weighted-average discount rate associated with our leases as of May 4, 2019 were as follows:



Weighted average remaining lease term	5.4 years
Weighted average discount rate	10.1	%

Maturities of operating leases as of May 4, 2019 were as follows (in thousands):



Fiscal Year	Operating Leases		Sublease
2019 (remainder of year)	$	81,980	$	(1,085	)
2020	101,056		(1,492		)
2021	86,201		(1,582		)
2022	69,971		(1,582		)
2023	49,154		(1,054		)
2024	31,275		—
Thereafter	55,898		—
Total lease payments	475,535		$	(6,795	)
Less: Effects of discounting	111,170
Present value of lease liabilities	364,365
Less: Current portion of lease liabilities	75,211
Long-term lease liabilities	$	289,154

As of May 4, 2019, there were no leases that had not yet commenced.

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Comparative Period Disclosures Reported Under ASC 840

Future minimum rental commitments on long-term, non-cancelable operating leases at February 2, 2019, were as follows (in thousands):



Fiscal Year	Commitments		Sublease Income			Net Minimum Lease Commitments
2019	$	108,541	$	(1,447	)	$	107,094
2020	98,859		(1,492		)	97,367
2021	83,377		(1,582		)	81,795
2022	67,447		(1,582		)	65,865
2023	46,887		(1,054		)	45,833
Thereafter	77,910		—			77,910
Total	$	483,021	$	(7,157	)	$	475,864

While infrequent in occurrence, occasionally we are responsible for the construction of leased stores and for paying project costs. ASC 840-40-55, The Effect of Lessee Involvement in Asset Construction, requires us to be considered the owner (for accounting purposes) of such build-to-suit arrangements during the construction period. The leases are accounted for as finance obligations with the amounts received from the landlord being recorded in debt obligations. Interest expense is recognized at a rate that will amortize the finance obligation over the initial term of the lease. Where ASC 840-40-55 was applicable, we have recorded finance obligations with interest rates of 6.1% and 12.3% on our consolidated financial statements related to two store leases as of February 2, 2019.

Future minimum annual payments required under existing finance obligations as of February 2, 2019 were as follows (in thousands):



Fiscal Year	Minimum Payments		Less: Interest		Principal Payments
2019	$	580	$	26	$	554

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NOTE 6 - STOCK-BASED COMPENSATION

Stock-based compensation expense by type of grant for each period presented was as follows (in thousands):


	Three Months Ended						Nine Months Ended					Three Months Ended
	November 3, 2018			October 28, 2017			November 3, 2018		October 28, 2017			May 4, 2019		May 5, 2018
Non-vested stock	$	887		$	1,300		$	3,153	$	4,203		$	781	$	1,187
Restricted stock units	196			108			947		310			178		492
Stock-settled performance share units	(82		)	579			701		1,988			168		371
Cash-settled performance share units	11			—			161		—			79		54
Total stock-based compensation expense	1,012			1,987			4,962		6,501			1,206		2,104
Related tax benefit	—			(747		)	—		(2,444		)	—		—
Stock-based compensation expense, net of tax	$	1,012		$	1,240		$	4,962	$	4,057		$	1,206	$	2,104

As of ~~November 3, 2018,~~May 4, 2019, we have estimated unrecognized compensation cost of ~~$8.9~~$8.3 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of ~~2.2~~2.6 years.

Non-vested Stock

We grant shares of non-vested stock to our employees and non-employee directors. Shares of non-vested stock awarded to employees vest 25% annually over a four-year period from the grant date. Shares of non-vested stock awarded to non-employee directors cliff vest after one year. At the end of the vesting period, shares of non-vested stock convert one-for-one to common stock. Certain non-vested stock awards have shareholder rights, including the right to vote and to receive dividends. The fair value of non-vested stock awards with dividend rights is based on the closing share price of our common stock on the grant date. The fair value of non-vested stock awards that do not have dividend rights is discounted for the present value of expected dividends during the vesting period. Compensation expense is recognized ratably over the vesting period.

The following table summarizes non-vested stock activity for the ~~nine~~three months ended ~~November 3, 2018:~~May 4, 2019:


Non-vested Stock	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Outstanding at February 3, 2018	1,637,037		$	6.67
Outstanding at February 2, 2019					1,379,616		$	4.43
Granted	631,266		2.41		625,000		0.98
Vested	(732,452	)	7.12		(383,465	)	7.09
Forfeited	(117,259	)	6.64		(9,983	)	6.36
Outstanding at November 3, 2018	1,418,592		4.54
Outstanding at May 4, 2019					1,611,168		2.45

The weighted-average grant date fair value for non-vested stock granted during the ~~nine~~three months ended ~~November 3,~~May 4, 2019 and May 5, 2018 was $0.98 and ~~October 28, 2017 was $2.41 and $2.21,~~$2.19, respectively. The aggregate intrinsic value of non-vested stock that vested during the ~~nine~~three months ended ~~November 3,~~May 4, 2019 and May 5, 2018, ~~and October 28, 2017,~~ was ~~$1.3~~$0.4 million and ~~$1.2~~$0.8 million, respectively. The payment of the employees’ tax liability for a portion of the vested shares was satisfied by withholding shares with a fair value equal to the tax liability. As a result, the actual number of shares issued during the ~~nine~~three months ended ~~November 3, 2018~~May 4, 2019 was ~~645,242.~~336,233.

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Restricted Stock Units (“RSUs”)

We grant RSUs to our employees, which vest 25% annually over a four-year period from the grant date. Each vested RSU is settled in cash in an amount equal to the fair market value of one share of our common stock on the vesting date, not to exceed five times the per share fair market value of our common stock on the grant date. Unvested RSUs have the right to receive a dividend equivalent payment equal to cash dividends paid on our common stock. RSUs are accounted for as a liability in accordance with accounting guidance for cash settled stock awards. The liability for RSUs is remeasured based on the closing share price of our common stock at each reporting period until the award vests. Compensation expense is recognized ratably over the vesting period and adjusted with changes in the fair value of the liability.

The following table summarizes RSU activity for the ~~nine~~three months ended ~~November 3, 2018:~~May 4, 2019:


Restricted Stock Units	Number of Units		Weighted Average Grant Date Fair Value		Number of Units		Weighted Average Grant Date Fair Value
Outstanding at February 3, 2018	1,283,750		$	2.14
Outstanding at February 2, 2019					1,740,314		$	2.16
Granted	1,415,000		2.18		1,615,000		0.98
Vested	(387,186	)	2.15		(439,064	)	2.16
Forfeited	(451,250	)	2.17
Outstanding at November 3, 2018	1,860,314		2.16
Outstanding at May 4, 2019					2,916,250		1.51

Stock-settled Performance Share Units (“Stock-settled PSUs”)

We grant stock-settled PSUs as a means of rewarding management for our long-term performance based on total shareholder return relative to a specific group of companies over a three-year performance cycle. These awards cliff vest following a three-year performance cycle, and if earned, are settled in shares of our common stock, unless otherwise determined by our Board of Directors (“Board”), or its Compensation Committee. The actual number of shares of our common stock that may be earned ranges from zero to a maximum of twice the number of target units awarded to the recipient. Grant recipients do not have any shareholder rights on unvested or unearned stock-settled PSUs. The fair value of these PSUs is estimated using a Monte Carlo simulation, based on the expected term of the award, a risk-free rate, expected dividends, expected volatility, and share price of our common stock and the specified peer group. The expected term is estimated based on the vesting period of the awards, the risk-free rate is based on the yield on U.S. Treasury securities matching the vesting period, and the volatility is based on the historical volatility over the expected term. Compensation expense is recognized ratably over the corresponding vesting period for stock-settled PSUs.

The following table summarizes stock-settled PSU activity for the ~~nine~~three months ended ~~November 3, 2018:~~May 4, 2019:


Period Granted	Target PSUs Outstanding at February 3, 2018	Target PSUs Granted	Target PSUs Vested & Earned		Target PSUs Forfeited		Target PSUs Outstanding at November 3, 2018	Weighted Average Grant Date Fair Value per Target PSU		Target PSUs Outstanding at February 2, 2019	Target PSUs Granted	Target PSUs Outstanding at May 4, 2019	Weighted Average Grant Date Fair Value per Target PSU
2016	321,706	—	(9,302	)	(51,680	)	260,724	$	8.69
2017	600,000	—	—		(90,000	)	510,000	1.80		470,000	—	470,000	$	1.80
2018	—	280,000	—		—		280,000	3.05		280,000	—	280,000	3.05
2019										—	375,000	375,000	1.39
Total	921,706	280,000	(9,302	)	(141,680	)	1,050,724	3.84		750,000	375,000	1,125,000	1.97

The weighted-average grant date fair value for stock-settled PSUs granted during the ~~nine~~three months ended ~~November 3, 2018~~May 4, 2019 and ~~October 28, 2017 was $3.05 and $1.80, respectively. The aggregate intrinsic value of stock settled PSUs that vested during the nine months ended November 3,~~May 5, 2018 was ~~$0.02 million.~~$1.39 and $3.05, respectively. No stock-settled PSUs vested during the ~~nine~~three months ended October 28, 2017. The payment of the employees’ tax liability for a portion of the vested shares was satisfied by withholding shares with a fair value equal to the tax liability. As a result, the actual number of stock-settled PSUs issued during the nine months ended November 3, 2018 was 7,036.May 4, 2019 and May 5, 2018.

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Cash-settled Performance Share Units (“Cash-settled PSUs”)

We grant cash-settled PSUs as a means of rewarding management for our long-term performance based on total shareholder return relative to a specific group of companies over a three-year performance cycle. These awards cliff vest following a three-year performance cycle, and if earned, are settled in cash. The amount of settlement ranges from zero to a maximum of twice the number of target units awarded multiplied by the fair market value of one share of our common stock on the vesting date. Grant recipients do not have any shareholder rights on unvested or unearned cash-settled PSUs. Cash-settled PSUs are accounted for as a liability in accordance with accounting guidance for cash settled stock awards. The liability for cash-settled PSUs is remeasured based on their fair value at each reporting period until the award vests, which is estimated using a Monte Carlo simulation. Assumptions used in the valuation include the expected term of the award, a risk-free rate, expected dividends, expected volatility, and share price of our common stock and the specified peer group. The expected term is estimated based on the vesting period of the awards, the risk-free rate is based on the yield on U.S. Treasury securities matching the vesting period, and the volatility is based on the historical volatility over the expected term. Compensation expense is recognized ratably over the corresponding vesting period and adjusted with changes in the fair value of the liability.

The following table summarizes cash-settled PSU activity ~~nine~~three months ended ~~November 3, 2018:~~May 4, 2019:


Period Granted	Target PSUs Outstanding at February 3, 2018	Target PSUs Granted	Target PSUs Forfeited		Target PSUs Outstanding at November 3, 2018	Weighted Average Grant Date Fair Value per Target PSU		Target PSUs Outstanding at February 2, 2019	Target PSUs Granted	Target PSUs Outstanding at May 4, 2019	Weighted Average Grant Date Fair Value per Target PSU
2018	—	460,000	(110,000	)	350,000	$	3.05	300,000	—	300,000	$	3.05
2019								—	530,000	530,000	$	1.39
Total								300,000	530,000	830,000	$	1.99

~~Stock Appreciation Rights (“SARs”)~~

Prior to 2012, we granted SARs to our employees, which generally vested 25% annually over a four-year period from the grant date. Outstanding SARs expired, if not exercised or forfeited, within seven years from the grant date.

~~The following table summarizes SARs activity for the nine months ended November 3, 2018:~~

Stock Appreciation Rights Number of Shares Weighted Average Exercise Price
Outstanding, vested and exercisable at February 3, 2018 97,900
$ 18.83
Expired (97,900 ) 18.83
Outstanding, vested and exercisable at November 3, 2018 —

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~~NOTE 5 - EARNINGS PER SHARE~~

~~The following tables show the computation of basic and diluted loss per common share for each period presented (in thousands, except per share amounts):~~

Three Months Ended Nine Months Ended
November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017
Basic:
Net loss $ (31,353 ) $ (17,722 ) $ (79,953 ) $ (42,967 )
Distributed earnings allocated to participating securities (18 ) (66 ) (149 ) (268 )
Net loss allocated to common shares (31,371 ) (17,788 ) (80,102 )
(43,235 )

Basic weighted average shares outstanding 28,261
27,602
28,059
27,468
Basic loss per share $ (1.11 ) $ (0.64 ) $ (2.85 ) $ (1.57 )

Three Months Ended Nine Months Ended
November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017
Diluted:

Net loss $ (31,353 ) $ (17,722 ) $ (79,953 ) $ (42,967 )
Distributed earnings allocated to participating securities (18 ) (66 ) (149 ) (268 )
Net loss allocated to common shares (31,371 ) (17,788 ) (80,102 )
(43,235 )

Basic weighted average shares outstanding 28,261
27,602
28,059
27,468
Dilutive effect of stock awards —
—
—
—
Diluted weighted average shares outstanding 28,261
27,602
28,059

27,468
Diluted loss per share $ (1.11 ) $ (0.64 ) $ (2.85 ) $ (1.57 )

The number of shares attributable to outstanding stock-based compensation awards that would have been considered dilutive securities, but were excluded from the calculation of diluted loss per common share because the effect was anti-dilutive were as follows (in thousands):

Three Months Ended Nine Months Ended
November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017
Number of anti-dilutive shares due to net loss for the period 89
—
341
—
Number of anti-dilutive SARs due to exercise price greater than average market price of our common stock —

113
19
129

~~NOTE 6 - STOCKHOLDERS’ EQUITY~~

During the nine months ended November 3, 2018, we paid $4.3 million in cash dividends. On November 20, 2018, our Board declared a quarterly cash dividend of $0.05 per share of common stock, payable on December 19, 2018 to shareholders of record at the close of business on December 4, 2018.

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NOTE 7 - PENSION PLAN

We sponsor a frozen defined benefit pension plan. The components of net periodic pension cost, which were recognized in selling, general and administrative expenses, were as follows (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	November 3, 2018			October 28, 2017			November 3, 2018			October 28, 2017			May 4, 2019			May 5, 2018
Employer service cost	$	127		$	123		$	383		$	368		$	135		$	123
Interest cost on pension benefit obligation	338			363			1,013			1,090			327			358
Expected return on plan assets	(435		)	(407		)	(1,305		)	(1,222		)	(368		)	(414		)
Amortization of net loss	85			213			439			637			170			199
Pension settlement charges	411			374			411			374
Net periodic pension cost	$	526		$	666		$	941		$	1,247		$	264		$	266

Our funding policy is to make contributions to maintain the minimum funding requirements for our pension obligations in accordance with the Employee Retirement Income Security Act. We may elect to contribute additional amounts to maintain a level of funding to minimize the Pension Benefit Guaranty Corporation premium costs or to cover the short-term liquidity needs of the plan in order to maintain current invested positions. We contributed ~~$1.1~~$0.3 million during the ~~nine~~three months ended ~~November 3, 2018,~~May 4, 2019, and we expect to contribute an additional ~~$0.2~~$1.0 million in ~~2018.~~2019.

NOTE 8 - ~~FAIR VALUE MEASUREMENTS~~

We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels, and base the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:



~~Level 1 –~~	~~Quoted prices in active markets for identical assets or liabilities.~~

~~Level 2 –~~	Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

~~Level 3 –~~	~~Inputs that are both unobservable and significant to the overall fair value measurement reflect our estimates of assumptions that market participants would use in pricing the asset or liability.~~

EARNINGS PER SHARE

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For the three months ended May 4, 2019 and May 5, 2018, respectively, participating securities had no impact on loss per common share and there were no anti-dilutive securities.

~~Financial assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):~~

November 3, 2018
Balance
Quoted Prices in Active Markets for Identical Instruments
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
Other assets:
Securities held in grantor trust for deferred
compensation plans ^(a)(b)
$ 18,969
$ 18,969
$ —
$ —

February 3, 2018
Balance
Quoted Prices in Active Markets for Identical Instruments
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
Other assets:

Securities held in grantor trust for deferred
compensation plans ^(a)(b)
$ 20,293
$ 20,293
$ —
$ —

October 28, 2017
Balance Quoted Prices in Active Markets for Identical Instruments
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Other assets:

Securities held in grantor trust for deferred
compensation plans ^(a)(b)
$ 18,750
$ 18,750
$ —
$ —

^(a) ~~The liability for the amount due to participants corresponding in value to the securities held in the grantor trust is recorded in other long-term liabilities.~~

^(b) Using the market approach, the fair values of these items represent quoted market prices multiplied by the quantities held. Net gains and losses related to the changes in fair value in the assets and liabilities under the various deferred compensation plans are recorded in selling, general and administrative expenses and were nil ~~for the~~ ~~nine months ended November 3, 2018 and October 28, 2017, and for the fiscal year ended February 3, 2018.~~

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~~Non-financial assets measured at fair value on a nonrecurring basis were as follows (in thousands):~~

November 3, 2018
Balance Quoted Prices in Active Markets for Identical Instruments
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Assets:
Store property, equipment and leasehold improvements ^(a)
$ 1,106
$ —
$ —
$ 1,106

February 3, 2018
Balance Quoted Prices in Active Markets for Identical Instruments
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Assets:
Store property, equipment and leasehold improvements ^(a)
$ 778
$ —
$ —
$ 778

October 28, 2017
Balance Quoted Prices in Active Markets for Identical Instruments
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Assets:
Store property, equipment and leasehold improvements ^(a)
$ 229
$ —
$ —
$ 229

^(a)Using an undiscounted cash flow model, we evaluate the cash flow trends of our stores at least annually and when events or changes in circumstances, such as a store closure, indicate that property, equipment and leasehold improvements may not be fully recoverable. When a store’s projected undiscounted cash flows indicate its carrying value may not be recoverable, we use a discounted cash flow model, with a 10% discount rate, to estimate the fair value of the underlying long-lived assets. An impairment write-down is recorded if the carrying value of a long-lived asset exceeds its fair value. Key assumptions in estimating future cash flows include, among other things, expected future operating performance, including expected closure date and lease term, and changes in economic conditions. We believe estimated future cash flows are sufficient to support the carrying value of our long-lived assets. Significant changes in the key assumptions used in our cash flow projections may result in additional asset impairments. For the nine months ended November 3, 2018 and October 28, 2017, and fiscal year 2017, we recognized impairment charges of $1.1 million, $0.2 million, and $1.7 million, respectively. Impairment charges are recorded in cost of sales and related buying, occupancy and distribution expenses.

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~~NOTE 9 - GORDMANS ACQUISITION~~

On April 7, 2017, we acquired select assets of Gordmans Stores, Inc. and its subsidiaries (collectively, the “Sellers”) through a bankruptcy auction. The terms of the transaction agreement required us to take assignment of a minimum of 50 of the Sellers’ store leases, with rights to take assignment of the leases for an additional seven stores and a distribution center. We also acquired all of the Sellers’ inventory, furniture, fixtures and equipment at the 57 store locations and distribution center, as well as the trademarks and other intellectual property of the Sellers. The Gordmans stores, which we operate as an off-price concept, add scale to our business, while allowing us to leverage strategic synergies and our current infrastructure. The acquisition also brings beneficial geographic and guest diversification.

The purchase price for the inventory and other assets acquired from the Sellers was approximately $36.1 million, all of which was paid by the end of the second quarter 2017 using existing cash and availability under the credit facility. We took assignment of 55 of the 57 store locations and the distribution center, and we renegotiated the terms of many of those leases. We also entered into new leases for three former Gordmans store locations in 2017.

~~The estimated fair values of the assets acquired at the acquisition date were as follows (in thousands):~~

April 7, 2017
Inventory $ 31,770
Property, plant and equipment and other assets 4,374
Total $ 36,144

Acquisition and integration related costs were recognized in selling, general and administrative expenses and were nil and $9.2 million for the three and nine months ended October 28, 2017, respectively.

Net sales included in our condensed consolidated statements of operations from Gordmans stores that we operated since the acquisition on April 7, 2017, were as follows for each period presented (in thousands):

Three Months Ended Nine Months Ended
November 3, 2018 October 28, 2017 November 3, 2018 October 28, 2017
Net sales $ 71,839
$ 61,774
$ 200,704
$ 133,591

Pro forma net sales and earnings for the three and nine months ended October 28, 2017 are not presented due to the impracticability in substantiating this information as the Gordmans Acquisition was limited to select assets and assignment of leases acquired through a bankruptcy auction. Furthermore, the results of operations may have been impacted by the Sellers’ liquidation and may not be indicative of future performance.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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,” “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 and factors concerning future conditions that may ultimately prove to be inaccurate and could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements that are made 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. These factors include, but are not limited to, the ability for us to maintain normal trade terms with vendors, the ability for us to comply with the various covenant requirements contained in the credit facility agreement, the demand for apparel, and other factors. The demand for apparel and sales volume can be affected by significant changes in economic conditions, including an economic downturn, employment levels in our markets, consumer confidence, energy and gasoline prices, the value of the Mexican peso, and other factors influencing discretionary consumer spending. Other factors affecting the demand for apparel and sales volume include unusual weather patterns, an increase in the level of competition in our market areas, competitors’ marketing strategies, changes in fashion trends, changes in the average cost of merchandise purchased for resale, availability of product on normal payment terms and the failure to achieve the expected results of our merchandising and marketing plans as well as our store opening or relocation plans. Additional assumptions, factors and risks concerning future conditions are discussed in the Risk Factors section of the Form 10-K, and may be 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. Most of these factors are difficult to predict accurately and are generally beyond our control.

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 management believes 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.

Readers should carefully review the Form 10-K in its entirety including, but not limited to, our financial statements and the notes thereto and the risks and uncertainties described in Part I, Item 1A (Risk Factors) of the Form 10-K. This report should be read in conjunction with the Form 10-K, 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.

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For purposes of the following discussion, all references to the ~~“third~~“first quarter ~~2018”~~2019” and the ~~“third~~“first quarter ~~2017”~~2018” are for the 13-week fiscal periods ended ~~November 3,~~May 4, 2019 and May 5, 2018, and October 28, 2017, respectively, and all reference to the “year-to-date 2018” and the “year-to-date 2017” are for the 39-week fiscal periods ended November 3, 2018 and October 28, 2017, respectively.

The financial information, discussion and analysis that follow should be read in conjunction with our consolidated financial statements and the related notes included in this Form 10-Q as well as the financial and other information included in the Form 10-K.

Our Business

We are a retailer of trend-right, moderately priced, name-brand apparel, accessories, cosmetics, footwear and home goods. As of ~~November 3, 2018,~~May 4, 2019, we operated in 42 states through ~~754~~685 specialty department stores under the BEALLS, GOODY’S, PALAIS ROYAL, PEEBLES and STAGE ~~specialty department stores~~nameplates and 68105 GORDMANS off-price ~~stores, as well as~~stores. We also operate an e-commerce website. Our department stores are predominantly located in small towns and rural communities. Our off-price stores are predominantly located in smaller and mid-sized ~~non-rural Midwest markets.~~markets in the Midwest.

~~Third~~First Quarter ~~2018~~2019 Financial Overview

Select financial results for the ~~third~~first quarter ~~2018~~2019 were as follows (comparisons are to the ~~third~~first quarter ~~2017)~~2018):

Net sales decreased ~~$10.1~~$16.5 million, or ~~2.8%~~4.8%.

Comparable sales decreased ~~2.8%~~3.1%. Comparable sales consist of store sales after a store has been in operation for 14 full months, including stores converted to off-price stores, and e-commerce sales.

~~Pretax loss was~~ ~~$31.4 million~~ ~~compared to~~ ~~$30.3 million~~.

~~Effective income tax rate was 0%, due to a full valuation allowance of substantially all tax benefits, compared to 41.6%.~~

Net loss was ~~$31.4~~$47.5 million compared to ~~$17.7~~$31.7 million.

Loss per common share was ~~$1.11,~~$1.67, compared to a loss per common share of ~~$0.64.~~$1.14.

~~EBIT~~EBITDA adjusted for impairments was ~~$(28.0)~~a loss of $27.5 million compared to ~~$(28.3) million, and EBITDA was $(14.0) million compared to $(12.0)~~a loss of $14.1 million (see the reconciliation of non-GAAP financial measures on page ~~26)~~23).

~~2018~~2019 Outlook and Strategy

Our strategy is centered on growing our off-price stores, emphasizing merchandise categories that are trending to drive sales in both our off-price and department stores, and exiting underperforming department stores. ~~For~~Sales early in the ~~year-to-date 2018, net sales increased~~first quarter 2019 were negatively impacted by ~~$17.7 million compared~~expected disruptions related to the ~~year-to-date 2017 due to an increase in~~rollout of our ~~off-price and e-commerce sales, partially offset by a decrease in our department~~strategic initiatives, which included temporary store ~~sales due to a decline in traffic and store closures. We expect total net sales for 2018 to be flat to slightly up from 2017~~closures associated with ~~continued growth in our off-price store sales and contraction in our department store sales.~~

~~During~~ the ~~year-to-date 2018, we opened one off-price store, converted nine~~conversion of 37 department stores to off-price and ~~permanently closed 15~~the home department expansion in our department stores. Sales benefited later in the quarter as these initiatives began to take hold. We ~~plan~~expect these initiatives to ~~close a total of approximately 35~~positively impact our sales going forward and to ~~40 department stores in 2018, excluding store conversions~~contribute to ~~off-price.~~ positive comparable sales for the year.

Store counts at the end of the ~~third~~first quarter ~~2018~~2019 and ~~third~~first quarter ~~2017~~2018 were as follows:


	November 3, 2018	October 28, 2017	May 4, 2019	May 5, 2018
Department stores	754	789	685	773
Off-price stores	68	58	105	59
Total stores	822	847	790	832

Our inventory as of the end of the third quarter 2018 was up 4% compared to the third quarter 2017, primarily due to the early Thanksgiving and planned increases in off-price compared to suppressed levels in the prior year. Department store clearance inventory was down 11%, consistent with the trend for the prior quarters in the year-to-date 2018. Going into the fourth quarter, we are well-positioned with the content and newness of our inventory. For the holiday season, our off-price stores will feature an expanded assortment of seasonal home decor and gifts, as well as active and team apparel. In our department stores, we have added gourmet foods to go along with our women’s, men’s, beauty and toy power centers.

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Our ~~2018~~2019 and long-term strategic ~~initiatives~~objectives are ~~focused on:~~to:

~~Off-Price Growth~~ ~~- Comparable sales for~~Accelerate our presence in the off-price ~~stores increased 10.6% for~~sector with the ~~year-to-date 2018 compared to the year-to-date 2017. We are continuing to build the foundation for long-term growth and have developed a cost-effective model to convert underperforming~~conversion of approximately 85 department stores to off-price ~~with a capital investment~~in 2019, and another 150 conversions in the first half of 2020. Following the conversions, our off-price store count will be approximately ~~$125,000 per store. The nine conversion~~300, and will represent approximately 50% of our total sales volume in 2020. During the first quarter 2019, we converted 37 department stores ~~completed during~~to off-price. Comparable sales in the ~~year-to-date 2018 had a meaningful sales lift after conversion and some of~~small markets which constitute the ~~lower-volume stores are projected to more than double in sales. Based on the performance~~majority of our off-price ~~stores, we believe there is significant upside potential and we plan to accelerate our off-price store~~ conversions increased more than 120% in the first quarter 2019.

~~Differentiation~~ ~~- We are differentiating ourselves from the competition by emphasizing our best performing merchandise categories and developing synergies~~Close between ~~our~~40 to 60 underperforming department stores ~~and off-price~~(excluding conversions to off-price). During the first quarter 2019, we permanently closed 6 department stores. ~~Beauty is a core strength in our~~

Expand the home department ~~stores, and we are leveraging this strength to drive beauty and fragrance sales growth in our off-price stores. Additionally, we expanded our Beauty Bar concept~~ in our department stores to ~~over 300 stores during~~drive sales in this trending category. During the ~~year-to-date 2018, and~~first quarter 2019, we ~~now have Beauty Bar in nearly 500 stores. In our off-price stores,~~rolled out new high capacity home ~~is a core strength, representing nearly 30%~~fixtures to all of sales, and we are leveraging this strength to drive more value and expanded assortments into our department store home business. We are also focused on accelerating the positive sales trends in athletic and outdoor by adding new brands and expanded assortments in these categories.

~~Guest Acquisition and Retention~~ - Our loyalty programs and private label credit card program are integral to the value proposition for our guests. Spend and retention rates for guests enrolled in these programs are significantly higher than non-members, and we are focused on growing these programs and expanding private label credit card usage as a percentage of sales. As of November 3, 2018, our Style Circle Rewards® and gRewards® loyalty programs have grown to nearly 10 million members. We expect our private label credit card sales penetration to be between 48% and 49% for our department stores and ~~between 14% and 15% for~~moved the home department to the front of the store, which along with expanded merchandise assortments, drove home department sales up by more than 100% in our off-price stores in 2018. To communicate value to existing loyalty members and attract new guests, we have increased our digital marketing efforts, which enables us to be more targeted and nimble with our promotions.

~~Guest Experience~~ - We are elevating the guest experience by focusing on service, maintaining an ongoing flow of new merchandise offerings, and expanding categories that generate guest excitement. During the year-to-date 2018, we introduced thredUP resale clothing to a select group of our off-price and department stores. We ~~are also pursuing opportunities~~expect home department sales as a percent of total sales to ~~gain market share~~increase in penetration throughout the year with the greatest benefit to sales during the fourth quarter holiday gift period.

•

Promote brand recognition of our nameplates through our private label credit card and loyalty program, which guests can use across all our stores and online. In March 2019, we rebranded our Gordmans loyalty program and integrated it with our existing department stores multi-tender loyalty program called Style Circle Rewards^®. In the second quarter 2019, we plan to reissue our existing credit cards as a combined off-price and department store branded credit card to more than 2 million cardholders.

Optimize our supply chain through capital investments and by ~~shifting our assortments~~engaging outside expertise to ~~capitalize on other retailers exiting our markets. In our~~mitigate higher supply chain costs and prepare us for future off-price stores, for example, we are expanding on toys, baby apparel and baby gear. In our department stores, we have expanded our partnership with FAO Schwarz for the holiday season by rolling out the brand to all department stores and expanding our FAO shops to approximately 100 stores compared to 15 in 2017.

store growth.

~~Table of Contents~~

Non-GAAP Financial Measures

The following table presents earnings (loss) before interest, ~~and taxes (EBIT) and earnings (loss) before interest,~~ taxes, depreciation and amortization ~~(EBITDA),~~(“EBITDA”) and EBITDA adjusted for impairments, non-GAAP financial measures. We believe the presentation of these supplemental non-GAAP financial measures helps facilitate comparisons of our operating performance across periods. In addition, management uses these non-GAAP financial measures to assess the results of our operations. Non-GAAP financial information should not be considered in isolation or viewed as a substitute for net income, cash flow from operations, diluted earnings per common share or other measures of performance as defined by GAAP. Moreover, the inclusion of non-GAAP financial information as used herein is not necessarily comparable to other similarly titled measures of other companies due to the potential inconsistencies in the method of presentation and items considered. The following table sets forth the supplemental financial information and the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	November 3, 2018			October 28, 2017			November 3, 2018			October 28, 2017			May 4, 2019			May 5, 2018
Net loss (GAAP)	$	(31,353	)	$	(17,722	)	$	(79,953	)	$	(42,967	)	$	(47,490	)	$	(31,678	)
Interest expense	3,350			2,001			8,253			5,505			3,994			2,253
Income tax (benefit) expense	(12		)	(12,621		)	288			(24,873		)
EBIT (non-GAAP)	(28,015		)	(28,342		)	(71,412		)	(62,335		)
Income tax expense													150			150
Depreciation and amortization	13,988			16,299			44,135			49,300			15,344			15,151
EBITDA (non-GAAP)	$	(14,027	)	$	(12,043	)	$	(27,277	)	$	(13,035	)	(28,002		)	(14,124		)
Impairment of long-lived assets													519			—
EBITDA adjusted for impairments (non-GAAP)													$	(27,483	)	$	(14,124	)

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Results of Operations

~~Third~~First Quarter ~~2018~~2019 Compared to ~~Third~~First Quarter ~~2017 and Year-to-Date~~ 2018 ~~Compared to Year-to-Date 2017~~ (amounts in thousands, except percentages):

Net Sales


	Three Months Ended							Nine Months Ended							Three Months Ended
	November 3, 2018		October 28, 2017		Change			November 3, 2018		October 28, 2017		Change			May 4, 2019		May 5, 2018		Change
Net sales	$	347,100	$	357,236	$	(10,136	)	$	1,060,623	$	1,042,924	$	17,699		$	327,721	$	344,229	$	(16,508	)
Sales percent change:
Total net sales					(2.8		)%					1.7		%					(4.8		)%
Comparable sales					(2.8		)%					(1.9		)%					(3.1		)%

Net sales for the ~~third~~first quarter ~~2018~~2019 decreased compared to the ~~third~~first quarter ~~2017~~2018 primarily due to a decrease in ~~department store~~ comparable sales, as traffic continued to be challenged, and store closures. In addition, sales in the beginning of the first quarter 2019 were negatively impacted by disruptions due to temporary store closures ~~partially offset by an increase in~~associated with the conversion of 37 department stores to off-price ~~store sales. Comparable sales~~and the installation of new high capacity home fixtures in our department ~~stores decreased 5.5% due to~~stores. Sales later in the quarter benefited from these initiatives. As a decline in store traffic, partially offset by a higher conversion rate and an increase in e-commerce sales. Comparable sales increased 9.9% in our off-price stores driven by a higher conversion rate and an increase in average transaction value.

~~Net sales for the year-to-date 2018 increased compared to the year-to-date 2017 due to an increase in off-price store sales, partially offset by a decrease in department store~~result, comparable sales were down double digits in February and ~~store closures. Comparable sales decreased 3.5% for department stores~~were flat in the combined March and ~~increased 10.6% for off-price stores.~~

~~E-commerce sales,~~April period, which ~~are included in department store comparable sales, had double-digit increases for~~includes the ~~third quarter 2018 and the year-to-date 2018.~~Easter shift.

Non-apparel categories outperformed apparel categories ~~in both department stores and off-prices stores~~ for the ~~third~~first quarter ~~2018 and for the year-to-date 2018.~~2019. In our department stores, ~~footwear, cosmetics~~home and ~~home~~men’s were our best performing merchandise categories, while women’s, ~~men’s,~~ children’s, footwear, accessories and ~~accessories~~cosmetics underperformed. In our off-price stores, ~~women’s, men’s,~~ children’s ~~footwear~~ and ~~home~~cosmetics were our best performing merchandise categories, while footwear, accessories, women’s, men’s and ~~cosmetics~~home underperformed.

Geographically, all regions of the country performed in line with our comparable sales averages for the third quarter 2018 compared to the third quarter 2017. In our south central region, the negative impact of Hurricane Harvey on the third quarter 2017 sales was offset by continued weakness in our Mexican border stores in the third quarter 2018. For the year-to-date 2018 compared to the year-to-date 2017, comparable sales for our department stores in the four oil and gas states of Texas, Louisiana, Oklahoma and New Mexico were down 2.9% and the balance of the chain was down 4.2%. Department store sales performance in these four states began to converge with the balance of the chain in the second quarter 2018 and that trend continued in the third quarter 2018 due to weaker sales in our Mexican border stores.

Credit Income


	Three Months Ended									Nine Months Ended									Three Months Ended
	November 3, 2018			October 28, 2017			Change			November 3, 2018			October 28, 2017			Change			May 4, 2019			May 5, 2018			Change
Credit Income	$	13,324		$	13,670		$	(346	)	$	43,143		$	39,788		$	3,355		$	13,108		$	15,514		$	(2,406	)
As a percent of net sales	3.8		%	3.8		%	—		%	4.1		%	3.8		%	0.3		%	4.0		%	4.5		%	(0.5		)%

The ~~increase~~decrease in credit income for the ~~year-to-date 2018~~first quarter 2019 compared to the ~~year-to-date 2017~~first quarter 2018 is primarily due to ~~incremental~~the off-price store conversions, lower department store credit ~~income from~~sales and bad debt write-offs. Off-price store credit sales are generally underpenetrated as compared to department stores. However, we expect off-price credit sales as a percentage of total off-price sales to continue to grow in 2019 as compared to 2018. For the first quarter 2019 compared to the first quarter 2018, the credit sales penetration rate in our off-price ~~stores.~~

business increased by 170 basis points.

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Cost of Sales and Gross Margin


	Three Months Ended									Nine Months Ended									Three Months Ended
	November 3, 2018			October 28, 2017			Change			November 3, 2018			October 28, 2017			Change			May 4, 2019			May 5, 2018			Change
Net sales	$	347,100		$	357,236		$	(10,136	)	$	1,060,623		$	1,042,924		$	17,699		$	327,721		$	344,229		$	(16,508	)
Cost of sales and related buying, occupancy and distribution expenses	278,665			285,542			(6,877		)	847,213			816,071			31,142			277,599			281,741			(4,142		)
Gross profit	$	68,435		$	71,694		$	(3,259	)	$	213,410		$	226,853		$	(13,443	)	$	50,122		$	62,488		$	(12,366	)
As a percent of net sales	19.7		%	20.1		%	(0.4		)%	20.1		%	21.8		%	(1.7		)%	15.3		%	18.2		%	(2.9		)%

The decrease in gross profit rate for the ~~third~~first quarter ~~2018~~2019 compared to the ~~third~~first quarter ~~2017~~2018 is primarily due to ~~the third quarter 2017 benefit~~increased supply chain costs associated with the acquisition of the initial Gordmans inventory, as well as higher supply chain costs. The decrease in gross profit rate for the year-to-date 2018 compared to the year-to-date 2017 is primarily due to the year-to-date 2017 benefit associated with the acquisition of the initial Gordmans inventory, as well as higher supply chain costs.

our off-price stores.

Selling, General and Administrative Expenses (“SG&A Expenses”)


	Three Months Ended									Nine Months Ended									Three Months Ended
	November 3, 2018			October 28, 2017			Change			November 3, 2018			October 28, 2017			Change			May 4, 2019			May 5, 2018			Change
SG&A Expenses	$	109,774		$	113,706		$	(3,932	)	$	327,965		$	328,976		$	(1,011	)	$	106,576		$	107,277		$	(701	)
As a percent of net sales	31.6		%	31.8		%	(0.2		)%	30.9		%	31.5		%	(0.6		)%	32.5		%	31.2		%	1.3		%

The decrease in SG&A expenses for the ~~third~~first quarter ~~2018~~2019 compared to the ~~third~~first quarter ~~2017 reflects~~2018 is primarily due to reductions in store payroll and department store advertising ~~expenses. The decrease in SG&A~~ expenses, ~~for the year-to-date 2018 compared to the year-to-date 2017 is primarily due to Gordmans Acquisition related costs of $9.2 million incurred in the year-to-date 2017,~~ partially offset by ~~higher off-price~~lower net gains from casualty insurance claims. SG&A as a percentage of sales increased due to grand opening costs related to store ~~expenses in the year-to-date 2018, which included approximately two additional months of operating expenses compared to the year-to-date 2017.~~conversions and sales deleverage.

Interest Expense


	Three Months Ended									Nine Months Ended									Three Months Ended
	November 3, 2018			October 28, 2017			Change			November 3, 2018			October 28, 2017			Change			May 4, 2019			May 5, 2018			Change
Interest Expense	$	3,350		$	2,001		$	1,349		$	8,253		$	5,505		$	2,748		$	3,994		$	2,253		$	1,741
As a percent of net sales	1.0		%	0.6		%	0.4		%	0.8		%	0.5		%	0.3		%	1.2		%	0.7		%	0.5		%

Interest expense is comprised of interest on borrowings under the ~~credit facility,~~Credit Facility, related letters of credit and commitment fees, amortization of debt issuance costs and interest on finance obligations. The increase in interest expense is primarily due to an increase in average borrowings and higher interest rates under the credit facility for the ~~third~~first quarter ~~2018~~2019 compared to the ~~third~~first quarter ~~2017 and for the year-to-date 2018 as compared to the year-to-date 2017.~~2018. For the ~~third~~first quarter ~~2018,~~2019, the weighted average interest rate on outstanding borrowings and the average daily borrowings under the credit facility, including the term loan, were ~~3.91%~~4.8% and ~~$303.1~~$299.2 million, respectively, as compared to ~~2.77%~~3.2% and ~~$234.4~~$247.5 million for the ~~third~~first quarter 2017. For the year-to-date 2018, the weighted average interest rate on outstanding borrowings and the average daily borrowings under the credit facility, including the term loan, were 3.53% and $274.3 million, respectively, as compared to 2.62% and $221.7 million for the year-to-date 2017.2018.

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Income Taxes


	Three Months Ended									Nine Months Ended									Three Months Ended
	November 3, 2018			October 28, 2017			Change			November 3, 2018			October 28, 2017			Change			May 4, 2019			May 5, 2018			Change
Income tax (benefit) expense	$	(12	)	$	(12,621	)	$	12,609		$	288		$	(24,873	)	$	25,161
Income tax expense																			$	150		$	150		$	—
Effective tax rate	—		%	41.6		%	(41.6		)%	(0.4		)%	36.7		%	(37.1		)%	(0.3		)%	(0.5		)%	0.2		%

The ~~lower~~ effective income tax ~~rate~~rates in both the ~~third~~first quarter 2019 and the first quarter 2018 ~~compared to the third quarter 2017 and for the year-to-date 2018 compared to year-to-date 2017 is~~were nearly 0% due to a valuation allowance taken for substantially all tax benefits generated by tax losses in each period due to the ~~uncertainty~~uncertainly of realization, which is is dependent upon generation of future taxable income. We expect our effective income tax rate to be approximately ~~zero~~0% percent for ~~2018.~~2019.

Loss Before Income Tax and Net Loss


	Three Months Ended									Nine Months Ended									Three Months Ended
	November 3, 2018			October 28, 2017			Change			November 3, 2018			October 28, 2017			Change			May 4, 2019			May 5, 2018			Change
Loss before income tax	$	(31,365	)	$	(30,343	)	$	(1,022	)	$	(79,665	)	$	(67,840	)	$	(11,825	)	$	(47,340	)	$	(31,528	)	$	(15,812	)
Net loss	(31,353		)	(17,722		)	(13,631		)	(79,953		)	(42,967		)	(36,986		)	(47,490		)	(31,678		)	(15,812		)

Seasonality and Inflation

Our business, like many other retailers, is subject to seasonal influences, with a significant portion of sales and income typically realized during the last quarter of our fiscal year. Working capital requirements fluctuate during the year and generally reach their highest levels during the third and fourth quarters. Because of the seasonality of our business, results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

We do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

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Liquidity and Capital Resources

Our liquidity is currently provided by (i) existing cash balances, (ii) operating cash flows, (iii) trade credit terms from our vendors and their factors and (iv) the Credit Facility. The loss of key vendors, or material changes in support by our vendors or their factors, can have a material impact on our business and liquidity. To date, we have successfully managed our vendor relationships to maintain inventory purchases at planned levels on acceptable payment terms. However, if we fail to meet our performance objectives, we may experience a tightening of credit ~~facility, including the term loan.~~or payment terms from our vendors or their factors. Our primary cash requirements are for operational needs, including rent and salaries, inventory purchases, and capital investments in our stores, omni-channel, supply chain and information technology. We also have used our cash flows and other liquidity sources to pay quarterly cash dividends. Our cash requirements for 2017 included the Gordmans Acquisition and additional investments required to support the integration of the Gordmans operations into our infrastructure.

Our working capital fluctuates with seasonal variations which affect our borrowings and availability under the ~~credit facility.~~Credit Facility. Our availability under the ~~credit facility~~Credit Facility is generally highest after the back-to-school and holiday selling seasons and is lowest just before those seasons as we build inventory levels. Based on our current expectations regarding our operating results, we believe that our sources of liquidity will be sufficient to cover working capital needs, planned capital expenditures and debt service requirements for at least the next 12 months.

Key components of our cash flow are summarized below (in thousands):


	Nine Months Ended									Three Months Ended
	November 3, 2018			October 28, 2017			Change			May 4, 2019			May 5, 2018			Change
Net cash (used in) provided by:
Operating activities	$	(136,917	)	$	(18,925	)	$	(117,992	)	$	(37,202	)	$	(68,655	)	$	31,453
Investing activities	(19,444		)	(59,082		)	39,638			(13,096		)	(6,885		)	(6,211		)
Financing activities	160,936			94,534			66,402			57,261			83,381			(26,120		)

Operating Activities

During the ~~year-to-date 2018,~~first quarter 2019, we used ~~$136.9~~$37.2 million in cash from operating activities. Net loss, adjusted for non-cash expenses, used cash of approximately ~~$30.1~~$13.5 million, including operating lease asset amortization of $17.6 million. Changes in operating assets and liabilities used net cash of approximately ~~$107.6~~$25.6 million, which included a ~~$163.9~~$47.4 million increase in merchandise inventories, primarily due to the seasonal build of inventories, partially offset by a ~~$4.9~~$14.3 million decrease in other assets, a $19.0 million decrease in operating lease liabilities and a ~~$51.4~~$26.6 million increase in accounts payable and other liabilities. Additionally, cash flows from operating activities included construction allowances from landlords of ~~$0.8~~$1.9 million, which funded a portion of the capital expenditures in investing activities.

During the ~~year-to-date 2017,~~first quarter 2018, we used ~~$18.9~~$68.7 million in cash from operating activities. Net loss, adjusted for non-cash expenses, ~~generated~~used cash of approximately ~~$6.9~~$14.7 million. Changes in operating assets and liabilities used net cash of approximately ~~$27.1~~$54.0 million, which included ~~increases of $136.2~~a $39.2 million increase in merchandise inventories, primarily due to the seasonal build of inventories, ~~and $10.9~~partially offset by a $4.3 million decrease in other assets ~~partially offset by an increase of $120.1~~and a $19.1 million decrease in accounts payable and other liabilities. ~~Additionally, cash flows from operating activities included construction allowances from landlords of $1.2 million, which funded a portion of the capital expenditures in investing activities.~~

The year-over-year change primarily reflects ana $47.3 million increase in ~~off-price store inventory levels at the end~~cash flow from working capital, offset by a higher net loss of ~~the third quarter 2018 compared~~$15.8 million. The increase in cash flow from working capital was largely due to ~~the end~~favorable fluctuations of ~~the third quarter 2017, the higher~~$45.6 million in cash flows from accounts payable and other liabilities driven by paying down our elevated payables balance at the end of 2017 ~~compared to~~in the ~~end of 2016, and the timing of payments associated with fall 2018 merchandise receipts.~~first quarter 2018.

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Investing Activities

Net cash used in investing activities ~~decreased $39.6~~increased $6.2 million to ~~$19.4~~$13.1 million for the ~~year-to-date 2018,~~first quarter 2019, compared to ~~$59.1~~$6.9 million for the year-to-date 2017. Investing activities for the year-to-date 2017 included $36.1 million paid for the Gordmans Acquisition, which was funded with existing cash and availability under the credit facility, and was predominately for inventory acquired.first quarter 2018.

Capital expenditures were ~~$21.8~~$13.8 million for the ~~year-to-date 2018,~~first quarter 2019, compared to ~~$25.3~~$6.9 million for the ~~year-to-date 2017, reflecting a decrease~~first quarter 2018. The increase in ~~store expansions~~capital expenditures reflect our investments in converting stores to off-price and ~~remodels.~~rolling out high capacity home fixtures in our department stores. We received construction allowances from landlords of ~~$0.8~~$1.9 million in the ~~year-to-date 2018 and $1.2 million in the year-to-date 2017,~~first quarter 2019, which are included in cash flows from operating activities, and were used to fund a portion of the capital expenditures. These funds are recorded as a ~~deferred rent credit~~reduction from our operating lease assets on the balance sheet and are recognized as an offset to rent expense over the lease term commencing with the date the allowances are earned.

We estimate that capital expenditures in ~~2018,~~2019, net of construction allowances to be received from landlords, will be approximately $30.0 million to $35.0 million. The expenditures will principally be for investments in our stores, omni-channel, supply chain and technology.

Financing Activities

Net cash provided by financing activities ~~increased $66.4~~decreased $26.1 million to ~~$160.9~~$57.3 million for the ~~year-to-date 2018,~~first quarter 2019, compared to ~~$94.5~~$83.4 million for the ~~year-to-date 2017,~~first quarter 2018, primarily due to lower net borrowings under the ~~revolving credit facility and term loan.~~

On August 3, 2018, we entered into an amendment to our senior secured revolving credit facility agreement. The amendment provides us with a $25.0 million term loan, which increased total availability under our credit facility from $400.0 million to $425.0 million, with a seasonal increase to $450.0 million and a $25.0 million letter of credit sublimit. Both the existing credit facility and the term loan mature on December 16, 2021. The term loan is payable in quarterly installments of $0.6 million beginning on February 4, 2019, with the remaining balance due upon maturity.Credit Facility.

We use the ~~credit facility~~Credit Facility to provide financing for working capital and general corporate purposes, as well as to finance capital expenditures and to support our letter of credit requirements. Borrowings ~~under the credit facility~~ are limited to the availability under a borrowing base that is determined principally on eligible inventory as defined by the ~~credit facility~~Credit Facility agreement. The ~~credit facility~~Credit Facility is secured by our inventory, cash, cash equivalents, and substantially all of our other assets. The daily interest rates are determined by a prime rate or LIBOR, plus an applicable margin, as set forth in the credit facility agreement. For the ~~nine months ended November 3, 2018,~~first quarter 2019, the weighted average interest rate on outstanding borrowings and the average daily borrowings on the credit facility, including the term loan, were ~~3.53%~~4.8% and ~~$274.3~~$299.2 million, respectively, compared to ~~2.62%~~3.2% and ~~$221.7~~$247.5 million for the ~~year-to-date 2017.~~first quarter 2018.

Letters of credit issued under the credit facility support certain merchandise purchases and collateralize retained risks and deductibles under various insurance programs. At ~~November 3, 2018,~~May 4, 2019, outstanding letters of credit totaled approximately ~~$6.9~~$6.0 million. These letters of credit expire within 12 months of issuance and may be renewed.

The ~~credit facility~~Credit Facility agreement contains a covenant requiring us to maintain excess availability at or above $35.0 million or 10% of the Adjusted Combined Loan Cap (as defined therein). The ~~credit facility~~Credit Facility agreement also contains covenants which, among other things, restrict (i) the amount of additional debt or capital lease obligations, (ii) the payment of dividends to $30.0 million in a fiscal year, and (iii) the repurchase of common stock under certain circumstances. At ~~November 3, 2018,~~May 4, 2019, we were in compliance with the debt covenants of the credit facility agreement and we expect to remain in compliance. Excess availability under the credit facility at May 4, 2019 was ~~$95.3 million as of November 3, 2018.~~

We paid $4.3 million in cash dividends during the year-to-date 2018. On November 20, 2018, our Board declared a quarterly cash dividend of $0.05 per share of common stock, payable on December 19, 2018 to shareholders of record at the close of business on December 4, 2018.$55.7 million.

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Recent Accounting Standards

Disclosure concerning recent accounting standards is incorporated by reference to Note 1 of our Condensed Consolidated Financial Statements (Unaudited) contained in this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

No response is required under Item 305 of Regulation S-K.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have each concluded that such disclosure controls and procedures were effective as of the end of the period covered by this report.

Internal Control Over Financial Reporting

As defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act, the term “internal control over financial reporting” means a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:


(1)	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;


(2)	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and


(3)	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material adverse effect on the financial statements.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. During the three months ended May 4, 2019, we implemented software and related technology controls to comply with the new lease accounting guidance requirements under ASC Topic 842. In addition, we enhanced our control environment over financial reporting and accounting for lease arrangements. There were no other changes in our internal control over financial reporting during the three months ended ~~November 3, 2018~~May 4, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

No response is required under Item 103 of Regulation S-K.

ITEM 1A. RISK FACTORS

There have not been any material changes from the risk factors as previously disclosed in the Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 7, 2011, our Board approved a stock repurchase program (“2011 Stock Repurchase Program”), which authorized us to repurchase up to $200.0 million of our outstanding common stock. The 2011 Stock Repurchase Program will expire when we have exhausted the authorization, unless terminated earlier by our Board. Through ~~November 3, 2018,~~May 4, 2019, we repurchased approximately $141.6 million of our outstanding common shares under the 2011 Stock Repurchase Program. Also in March 2011, our Board authorized us to repurchase shares of our outstanding common stock equal to the amount of the proceeds and related tax benefits from the exercise of stock options, stock appreciation rights and other equity grants. Purchases of shares of our common stock may be made from time to time, either on the open market or through privately negotiated transactions and are financed by our existing cash, cash flow and other liquidity sources, as appropriate.

The table below sets forth information regarding our repurchases of common stock during the three months ended ~~November 3, 2018:~~May 4, 2019:

													ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased ^(a)	Average Price Paid Per Share ^(a)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ^(b)		Total Number of Shares Purchased ^(a)	Average Price Paid Per Share ^(a)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ^(b)

August 5, 2018 to September 1, 2018	4,793	$	2.12	—	$	58,351,202
February 3, 2019 to March 2, 2019							9,480	$	1.14	—	$	58,351,202

September 2, 2018 to October 6, 2018	24,910	1.98		—	$	58,351,202
March 3, 2019 to April 6, 2019							51,341	1.00		—	$	58,351,202

October 7, 2018 to November 3, 2018	55,580	1.91		—	$	58,351,202
April 7, 2019 to May 4, 2019							12,147	1.07		—	$	58,351,202

Total	85,283	$	1.94	—			72,968	$	1.03	—

^(a)Although we did not repurchase any of our common stock during the three months ended ~~November 3, 2018~~May 4, 2019 under the 2011 Stock Repurchase Program:

We reacquired ~~12,979~~47,232 shares of common stock from certain employees to cover tax withholding obligations from the vesting of restricted stock at a weighted average acquisition price of ~~$1.94~~$1.00 per common share; and

The trustee of the grantor trust established by us for the purpose of holding assets under our deferred compensation plan purchased an aggregate of ~~72,304~~25,736 shares of our common stock in the open market at a weighted average price of ~~$1.94~~$1.08 in connection with the option to invest in our stock under the deferred compensation plan and reinvestment of dividends paid on our common stock held in trust in the deferred compensation plan.

^(b)Reflects the $200.0 million authorized under the 2011 Stock Purchase Program, less the $141.6 million repurchased as of ~~November 3, 2018~~May 4, 2019 using our existing cash, cash flow and other liquidity sources since March 2011.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

~~Table of Contents~~

ITEM 6. EXHIBITS

The following documents are the exhibits to this Form 10-Q. For convenient reference, each exhibit is listed according to the Exhibit Table of Item 601 of Regulation S-K.



Exhibit Number	Description

10.1*#	Amendment No. Eight to Amended and Restated Private Label Credit Card Plan Agreement dated as of April 11, 2019 between Comenity Bank and Stage Stores, Inc. and Specialty Retailers, Inc.

31.1*	Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32*	Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document



*	Filed electronically herewith.
#	Certain confidential portions with a [****] have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	STAGE STORES, INC.

Dated: ~~December 12, 2018~~June 13, 2019	/s/ Michael L. Glazer
	Michael L. Glazer
	President and Chief Executive Officer
	(Principal Executive Officer)


Dated: ~~December 12, 2018~~June 13, 2019	/s/ Jason T. Curtis
	Jason T. Curtis
	~~Senior~~Executive Vice President,
	~~Interim~~ Chief Financial Officer and Treasurer
	(Principal Financial Officer)

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Condensed Consolidated Balance Sheets (in thousands)
	February 3, 2018		ASU 2014-09			February 3, 2018
	As previously reported		Adjustments			As adjusted
Assets:
Merchandise inventories, net	$	439,735	$	(1,358	)	$	438,377
Prepaid expenses and other current assets	51,049		1,358			52,407


	October 28, 2017		ASU 2014-09			October 28, 2017
	As previously reported		Adjustments			As adjusted
Assets:
Merchandise inventories, net	$	578,633	$	(2,266	)	$	576,367
Prepaid expenses and other current assets	52,376		2,266			54,642



Stock Appreciation Rights	Number of Shares		Weighted Average Exercise Price
Outstanding, vested and exercisable at February 3, 2018	97,900		$	18.83
Expired	(97,900	)	18.83
Outstanding, vested and exercisable at November 3, 2018	—



	April 7, 2017
Inventory	$	31,770
Property, plant and equipment and other assets	4,374
Total	$	36,144