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 ~~May 4,~~November 2, 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~~Nevada			91-1826900
(State or other jurisdiction of incorporation or organization)		~~91-1826900~~ ~~(I.R.S.~~	(I.R.S. Employer Identification No.)

2425 West Loop South			77027
Houston,	Texas ~~(Address~~		(Zip Code)
(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 ~~June 5,~~December 4, 2019, there were ~~28,663,276~~28,911,336 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
		~~May 4,~~November 2, 2019, February 2, 2019 and ~~May 5,~~November 3, 2018	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss
		Three and Nine Months Ended ~~May 4,~~November 2, 2019 and ~~May 5,~~November 3, 2018	5
	Condensed Consolidated Statements of Cash Flows
		Nine Months Ended November 2, 2019 and November 3, 2018	6
	Condensed Consolidated Statements of Stockholders’ Equity
		Three and Nine Months Ended ~~May 4,~~November 2, 2019 and ~~May 5, 2018~~	6
	~~Condensed Consolidated Statements of Stockholders’ Equity~~
		~~Three Months Ended May 4, 2019 and May 5,~~November 3, 2018	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)		89
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		2127
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		2936
Item 4.	Controls and Procedures		2936

PART II OTHER INFORMATION

Item 1.	Legal Proceedings		2936
Item 1A.	Risk Factors		2937
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3038
Item 3.	Defaults Upon Senior Securities		3139
Item 4.	Mine Safety Disclosures		3139
Item 5.	Other Information		3139
Item 6.	Exhibits		3139

SIGNATURES			3240

~~Table of Contents~~

PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Stage Stores, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except par value)

(Unaudited)



	May 4, 2019			February 2, 2019			May 5, 2018			November 2, 2019			February 2, 2019			November 3, 2018
ASSETS
Cash and cash equivalents	$	22,793		$	15,830		$	29,091		$	26,268		$	15,830		$	25,825
Merchandise inventories, net	472,000			424,555			477,562			581,495			424,555			602,283
Prepaid expenses and other current assets	43,817			52,518			48,762			43,754			52,518			47,181
Total current assets	538,610			492,903			555,415			651,517			492,903			675,289

Property, equipment and leasehold improvements, net of accumulated depreciation of $742,162, $733,366 and $713,867, respectively	211,849			224,803			244,214
Property, equipment and leasehold improvements, net of accumulated depreciation of $778,376, $733,366 and $736,014, respectively										181,716			224,803			229,942
Operating lease assets	332,233			—			—			319,036			—			—
Intangible assets	2,225			2,225			17,135			1,900			2,225			17,135
Other non-current assets, net	22,690			24,230			23,715			19,544			24,230			23,152
Total assets	$	1,107,607		$	744,161		$	840,479		$	1,173,713		$	744,161		$	945,518

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	121,347		$	106,825		$	128,883		$	176,304		$	106,825		$	190,070
Current portion of debt obligations	5,170			4,812			2,896			5,000			4,812			3,555
Current portion of operating lease liabilities	75,211			—			—			75,709			—			—
Accrued expenses and other current liabilities	73,822			65,715			64,617			86,767			65,715			80,320
Total current liabilities	275,550			177,352			196,396			343,780			177,352			273,945

Long-term debt obligations	306,699			250,294			265,469			360,123			250,294			345,840
Long-term operating lease liabilities	289,154			—			—			275,604			—			—
Other long-term liabilities	33,305			61,990			66,029			30,703			61,990			62,809
Total liabilities	904,708			489,636			527,894			1,010,210			489,636			682,594

Commitments and contingencies

Common stock, par value $0.01, 100,000 shares authorized, 33,805, 33,469 and 33,111 shares issued, respectively	338			335			331
Common stock, par value $0.01, 100,000 shares authorized, 34,076, 33,469 and 33,458 shares issued, respectively										341			335			335
Additional paid-in capital	424,407			423,535			420,091			426,606			423,535			422,539
Treasury stock, at cost, 5,175 shares, respectively	(43,552		)	(43,579		)	(43,339		)	(44,444		)	(43,579		)	(43,527		)
Accumulated other comprehensive loss	(5,687		)	(5,857		)	(4,978		)	(6,566		)	(5,857		)	(5,731		)
Accumulated deficit	(172,607		)	(119,909		)	(59,520		)	(212,434		)	(119,909		)	(110,692		)
Total stockholders' equity	202,899			254,525			312,585			163,503			254,525			262,924
Total liabilities and stockholders' equity	$	1,107,607		$	744,161		$	840,479		$	1,173,713		$	744,161		$	945,518

Stage Stores, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(Unaudited)


	Three Months Ended
							Three Months Ended						Nine Months Ended
	May 4, 2019			May 5, 2018			November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Net sales	$	327,721		$	344,229		$	399,302		$	347,100		$	1,094,888		$	1,060,623
Credit income	13,108			15,514			15,678			13,324			42,774			43,143
Total revenues	340,829			359,743			414,980			360,424			1,137,662			1,103,766
Cost of sales and related buying, occupancy and distribution expenses	277,599			281,741			315,494			278,665			888,297			847,213
Selling, general and administrative expenses	106,576			107,277			111,180			109,774			324,066			327,965
Interest expense	3,994			2,253			4,070			3,350			12,187			8,253
Loss before income tax	(47,340		)	(31,528		)	(15,764		)	(31,365		)	(86,888		)	(79,665		)
Income tax expense	150			150
Income tax expense (benefit)							150			(12		)	450			288
Net loss	$	(47,490	)	$	(31,678	)	$	(15,914	)	$	(31,353	)	$	(87,338	)	$	(79,953	)

Other comprehensive income:
Other comprehensive income (loss):
Amortization of employee benefit related costs, net of tax of $0, respectively	$	170		$	199		$	186		$	85		$	558		$	439
Total other comprehensive income	170			199
Pension settlement charges, net of tax of $0, respectively							270			411			270			411
Employee benefit related adjustment, net of tax of $0, respectively							(1,537		)	(1,404		)	(1,537		)	(1,404		)
Total other comprehensive loss							(1,081		)	(908		)	(709		)	(554		)
Comprehensive loss	$	(47,320	)	$	(31,479	)	$	(16,995	)	$	(32,261	)	$	(88,047	)	$	(80,507	)

Net loss per share:
Basic	$	(1.67	)	$	(1.14	)	$	(0.55	)	$	(1.11	)	$	(3.04	)	$	(2.85	)
Diluted	$	(1.67	)	$	(1.14	)	$	(0.55	)	$	(1.11	)	$	(3.04	)	$	(2.85	)

Weighted average shares outstanding:
Basic	28,441			27,765			28,886			28,261			28,706			28,059
Diluted	28,441			27,765			28,886			28,261			28,706			28,059

Stage Stores, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Three Months Ended
							Nine Months Ended
	May 4, 2019			May 5, 2018			November 2, 2019			November 3, 2018
Cash flows from operating activities:
Net loss	$	(47,490	)	$	(31,678	)	$	(87,338	)	$	(79,953	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of long-lived assets	15,344			15,151			45,144			44,135
Impairment of long-lived assets	519			—			11,295			1,070
Gain on retirements of property, equipment and leasehold improvements	(678		)	(30		)	(302		)	(505		)
Non-cash operating lease expense	17,588			—			52,617			—
Stock-based compensation expense	949			1,558			2,276			3,854
Dividends charged to compensation expense							21			—
Amortization of debt issuance costs	170			74			512			248
Deferred compensation obligation	(27		)	41			865			229
Amortization of employee benefit related costs	170			199
Amortization of employee benefit related costs and pension settlement charges							828			850
Construction allowances from landlords	1,867			—			4,833			757
Other changes in operating assets and liabilities:
Increase in merchandise inventories	(47,445		)	(39,185		)	(156,940		)	(163,906		)
Decrease in other assets	14,252			4,303			15,111			4,910
Decrease in operating lease liabilities	(18,972		)	—			(56,234		)	—
Increase (decrease) in accounts payable and other liabilities	26,551			(19,088		)
Increase in accounts payable and other liabilities							90,402			51,394
Net cash used in operating activities	(37,202		)	(68,655		)	(76,910		)	(136,917		)

Cash flows from investing activities:
Additions to property, equipment and leasehold improvements	(13,774		)	(6,930		)	(25,145		)	(21,793		)
Proceeds from insurance and disposal of assets	678			45			2,887			2,349
Net cash used in investing activities	(13,096		)	(6,885		)	(22,258		)	(19,444		)

Cash flows from financing activities:
Proceeds from revolving credit facility borrowings	149,411			164,071			419,397			481,384
Payments of revolving credit facility borrowings	(91,756		)	(78,310		)	(305,818		)	(338,100		)
Proceeds from long-term debt obligation							—			25,000
Payments of long-term debt obligations	(338		)	(731		)	(3,008		)	(2,224		)
Payments of debt issuance costs	(36		)	—			(36		)	(358		)
Payments for stock related compensation	(20		)	(204		)	(929		)	(424		)
Cash dividends paid	—			(1,445		)	—			(4,342		)
Net cash provided by financing activities	57,261			83,381			109,606			160,936
Net increase in cash and cash equivalents	6,963			7,841			10,438			4,575

Cash and cash equivalents:
Beginning of period	15,830			21,250			15,830			21,250
End of period	$	22,793		$	29,091		$	26,268		$	25,825

Supplemental disclosures including non-cash investing and financing activities:
Interest paid	$	3,745		$	2,116		$	11,652		$	8,097
Income taxes paid (refunded)	$	473		$	(180	)	$	417		$	(11	)
Unpaid liabilities for capital expenditures	$	3,863		$	2,597		$	3,255		$	3,624

Stage Stores, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except per share amounts)

(Unaudited)



	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 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		)
Balance at August 3, 2019																										34,052			$	341	$	425,033			(5,175	)		$	(43,546	)		Accumulated Other Comprehensive Loss	$	(5,485	)		$	(196,520	)		$	179,823
Net loss	—	—		—				—			—				—				(47,490		)		(47,490		)	—			—		—				—			—				—				(15,914		)		(15,914		)
Other comprehensive income	—	—		—				—			—				170				—				170
Other comprehensive loss																										—			—		—				—			—				(1,081		)		—				(1,081		)
Deferred compensation	—	—		(27		)		—			27				—				—				—			—			—		898				—			(898		)		—				—				—
Issuance of equity awards, net	336	3		(3		)		—			—				—				—				—			24			—		—				—			—				—				—				—
Tax withholdings paid for net settlement of stock awards	—	—		(47		)		—			—				—				—				(47		)	—			—		(16		)		—			—				—				—				(16		)
Stock-based compensation expense	—	—		949				—			—				—				—				949			—			—		691				—			—				—				—				691
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.
Balance at November 2, 2019																										34,076			$	341	$	426,606			(5,175	)		$	(44,444	)		$	(6,566	)		$	(212,434	)		$	163,503

	Common Stock			Additional Paid-in Capital				Treasury Stock							Accumulated Other Comprehensive Loss				Accumulated Deficit
	Shares	Amount					Shares			Amount								Total				Common Stock							Additional Paid-in Capital		Treasury Stock							Accumulated Other Comprehensive Loss				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	Additional Paid-in Capital
																										Shares			Amount		Additional Paid-in Capital				Shares			Accumulated Other Comprehensive Loss			Amount					Accumulated Other Comprehensive Loss				Accumulated Deficit			Total
Balance at August 4, 2018																										33,418			$	334				(5,175	)		$	(43,388	)					$	295,835	Accumulated Other Comprehensive Loss				Accumulated Deficit
Net loss	—	—		—				—			—				—				(31,678		)		(31,678		)	—			—		Additional Paid-in Capital	—				—			—			Accumulated Deficit		—				(31,353		)		(31,353	)
Other comprehensive income	—	—		—				—			—				199				—				199
Other comprehensive loss																										—			—		—				—			—				(908		)		—				(908		)
Dividends on common stock, $0.05 per share	—	—		—				—			—				—				(1,445		)		(1,445		)	—			—		—				—			—				—				(1,430		)		(1,430		)
Deferred compensation	—	—		41				—			(41		)		—				—				—			—			—		139				—			(139		)		—				—				—
Issuance of equity awards, net	305	3		(3		)		—			—				—				—				—			40			1		(1		)		—			—				—				—				—
Tax withholdings paid for net settlement of stock awards	—	—		(163		)		—			—				—				—				(163		)	—			—		(25		)		—			—				—				—				(25		)
Stock-based compensation expense	—	—		1,558				—			—				—				—				1,558			—			—		805				—			—				—				—				805
Balance at May 5, 2018	33,111	$	331	$	420,091			(5,175	)		$	(43,339	)		$	(4,978	)		$	(59,520	)		$	312,585
Balance at November 3, 2018																										33,458			$	335	$	422,539			(5,175	)		$	(43,527	)		$	(5,731	)		$	(110,692	)		$	262,924

Stage Stores, Inc.

Condensed Consolidated Statements of Stockholders’ Equity - continued

(in thousands, except per share amounts)

(Unaudited)



	Common Stock			Additional Paid-in Capital			Treasury Stock					Accumulated Other Comprehensive Loss			Accumulated Deficit
	Shares	Amount		Additional Paid-in Capital			Shares		Amount			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
Balance at February 2, 2019	33,469	$	335	$	423,535		(5,175	)	$	(43,579	)	$	(5,857	)	$	(119,909	)	$	254,525
Cumulative-effect adjustment ^(a)	—	—		—			—		—			—			(5,208		)	(5,208		)
Net loss	—	—		—			—		—			—			(87,338		)	(87,338		)
Other comprehensive loss	—	—		—			—		—			(709		)	—			(709		)
Deferred compensation	—	—		865			—		(865		)	—			—			—
Issuance of equity awards, net	607	6		(6		)	—		—			—			—			—
Tax withholdings paid for net settlement of stock awards	—	—		(64		)	—		—			—			—			(64		)
Stock-based compensation expense	—	—		2,276			—		—			—			—			2,276
Dividends on forfeited stock awards charged to compensation expense	—	—		—			—		—			—			21			21
Balance at November 2, 2019	34,076	$	341	$	426,606		(5,175	)	$	(44,444	)	$	(6,566	)	$	(212,434	)	$	163,503

^(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
	Shares	Amount		Additional Paid-in Capital			Shares		Amount			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
Balance at February 3, 2018	32,806	$	328	$	418,658		(5,175	)	$	(43,298	)	$	(5,177	)	$	(26,397	)	$	344,114
Net loss	—	—		—			—		—			—			(79,953		)	(79,953		)
Other comprehensive loss	—	—		—			—		—			(554		)	—			(554		)
Dividends on common stock, $0.15 per share	—	—		—			—		—			—			(4,342		)	(4,342		)
Deferred compensation	—	—		229			—		(229		)	—			—			—
Issuance of equity awards, net	652	7		(7		)	—		—			—			—			—
Tax withholdings paid for net settlement of stock awards	—	—		(195		)	—		—			—			—			(195		)
Stock-based compensation expense	—	—		3,854			—		—			—			—			3,854
Balance at November 3, 2018	33,458	$	335	$	422,539		(5,175	)	$	(43,527	)	$	(5,731	)	$	(110,692	)	$	262,924

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 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 ~~May 4,~~November 2, 2019, we operated in 42 states through ~~685~~617 BEALLS, GOODY’S, PALAIS ROYAL, PEEBLES and STAGE ~~specialty~~ department stores and ~~105~~158 GORDMANS off-price stores, as well as an e-commerce 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 markets in the Midwest. In September 2019, we announced our plan to convert substantially all of our department stores to off-price beginning in February 2020. By the end of the third quarter of fiscal year 2020, we expect to be operating approximately 700 predominantly small-market, Gordmans stores, offering off-price values and broad assortments of name-brand merchandise in a fun, scarcity driven, treasure hunt experience.

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 “2019” is a reference to the fiscal year ending February 1, 2020, and “2018” is a reference to the fiscal year ended February 2, 2019. Fiscal years 2019 and 2018 are comprised of 52 weeks. References to the “three months ended ~~May 4,~~November 2, 2019” and “three months ended ~~May 5,~~November 3, 2018” are for the respective 13-week fiscal quarters. References to quarters relate to our fiscal quarters. References to the “nine months ended November 2, 2019” and “nine months ended November 3, 2018” are for the respective 39-week fiscal periods.

Recently Adopted Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updates (“ASU”) 2016-02, Leases (Topic 842), and subsequently issued related ASUs, which were incorporated into Topic 842.Under the new standard, lessees are required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the later of the lease commencement date and the date of adoption. The guidance also requires qualitative and quantitative disclosures about the amount, timing and uncertainty of cash flows arising from leases. We adopted the new standard on February 3, 2019, the 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 the new standard have not been restated and are reported under the legacy guidance in Accounting Standards Codification (“ASC”) ~~Topic 840, Leases~~.


•	We elected to apply the effective date transition method as of the February 3, 2019 adoption date. Comparative periods prior to the adoption of the 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 practical expedients in the 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 using hindsight to determine the lease term and in assessing impairment of the right-of-use assets.

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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 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 not separate lease and non-lease components for all of our current lease classes.

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The adoption of 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 useful life to the remaining lease life as of the transition date. It also reflects $0.6 million associated with the derecognition of lease obligations that had been classified as finance obligations under the former failed sale-leaseback guidance applied to build-to-suit arrangements. Under the new standard, these leases are classified as operating leases. The adoption of the standard did not 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 adoption of the standard. See Note 56 for further disclosures regarding leases.

Recent Accounting Pronouncements Not Yet Adopted. 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. The provisions of ASU 2018-13 applicable to us should be applied prospectively. We ~~are currently evaluating~~expect ASU 2018-13 to impact our disclosures by eliminating the ~~impact~~disclosure of valuation processes for Level 3 fair value measurements, and adding disclosure of quantitative information, such as the ~~new guidance on our disclosures.~~range and weighted average, of significant unobservable inputs used to develop Level 3 fair value measurements.

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~~implementation 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. Upon adoption, we plan to apply the provisions of ASU 2018-15 prospectively. We expect the adoption to result in the recognition of prepaid expenses or other non-current assets that will be expensed over the contract term, whereas prior to adoption, these costs are ~~currently evaluating~~recognized as long-lived assets and depreciated over the ~~impact of~~assets’ useful life. We do not expect the ~~new guidance~~adoption to have a material impact on our financial ~~statements and disclosures.~~condition, results of operations or cash flows.

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


	May 4, 2019								November 2, 2019
	Balance		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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	$	—	$	—	$	15,058	$	15,058	$	—	$	—


	February 2, 2019								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)		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	$	—	$	—	$	19,536	$	19,536	$	—	$	—


	May 5, 2018								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)		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	$	—	$	—	$	18,969	$	18,969	$	—	$	—

^(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 securities 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 ~~three months ended May 4,~~year-to-date November 2, 2019 and ~~May 5,~~November 3, 2018, and for the fiscal year ended February 2, 2019.

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


	May 4, 2019								November 2, 2019
	Balance		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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
Store property, equipment and leasehold improvements ^(a)									$	928	$	—	$	—	$	928
Operating lease assets ^(a)									5,419		—		—		5,419
Total assets									$	6,347	$	—	$	—	$	6,347


	February 2, 2019								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)		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	$	1,583	$	—	$	—	$	1,583


									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

^(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~~the asset group may not be fully recoverable. When a store’s projected undiscounted cash flows indicate its asset carrying value may not be recoverable, we use a discounted cash flow model to estimate the fair value of the underlying ~~long-lived assets.~~asset group. An impairment write-down is recorded if the carrying value of ~~a long-lived~~an 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 right-of-use operating lease and 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,~~year-to-date November 2, 2019 and November 3, 2018 and during fiscal year 2018, we recognized impairment charges of ~~$0.5~~$2.1 million, $1.1 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~~were 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 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

The components of property, equipment and leasehold improvements were as follows (in thousands):



	November 2, 2019		February 2, 2019		November 3, 2018
Land	$	540	$	1,544	$	1,544
Buildings and improvements	10,393		12,969		12,969
Fixtures and equipment	535,923		530,385		540,371
Leasehold improvements	413,236		413,271		411,072
Property, equipment and leasehold improvements	960,092		958,169		965,956
Less: Accumulated depreciation	778,376		733,366		736,014
Property, equipment and leasehold improvements, net	$	181,716	$	224,803	$	229,942

Depreciation expense and impairment charges were as follows for each period presented (in thousands):



	Three Months Ended				Nine Months Ended
	November 2, 2019		November 3, 2018		November 2, 2019		November 3, 2018
Depreciation and amortization	$	15,272	$	13,988	$	45,144	$	44,135
Store impairment ^(a)	1,466		—		2,116		1,070
E-commerce impairment ^(b)	7,889		—		7,889		—
Intangible asset impairment ^(c)	325		—		325		—
Airplane impairment ^(d)	—		—		965		—
Total depreciation, amortization and impairment	$	24,952	$	13,988	$	56,439	$	45,205

Depreciation, amortization and impairment in cost of sales and related buying, occupancy and distribution expenses	$	16,070	$	11,241	$	39,767	$	35,617
Depreciation, amortization and impairment in selling, general and administrative expenses	8,882		2,747		16,672		9,588
Total depreciation, amortization and impairment	$	24,952	$	13,988	$	56,439	$	45,205

^(a)See Note 2 for further disclosures regarding store impairment charges.

^(b) We plan to discontinue e-commerce order fulfillment from our distribution centers and stores after the 2019 holiday shopping season to focus on off-price stores. Accordingly, we fully impaired property and equipment associated with these operations because we do not expect to recover any of the carrying value of these assets. E-commerce operations will subsequently be restricted to drop-ship order fulfillment. Of these impairment charges, $2.4 million were recorded in cost of sales and related buying, occupancy and distribution expenses, and $5.5 million were recorded in selling, general and administrative expenses.

^(c) Represents full impairment of the Stage.com domain name associated with the planned discontinuance of e-commerce order fulfillment from our distribution centers and stores after the 2019 holiday shopping season. Impairment charges related to the Stage.com domain name were recorded in selling, general and administrative expenses.

^(d) Represents partial impairment of an airplane based on a third-party valuation obtained in connection with its sale. Impairment charges related to the airplane were recorded in selling, general and administrative expenses. We sold the airplane in the third quarter 2019 and recognized a loss of $0.4 million on the sale for the three and nine months ended November 2, 2019. The loss on sale of the airplane was recorded in selling, general and administrative expenses.

As of November 2, 2019, we had land and buildings with a carrying value of $1.2 million classified as assets held-for-sale in connection with sale and leaseback arrangements for 4 stores, which were completed in the fourth quarter 2019. Assets held-for-sale were recorded in prepaid expenses and other current assets.

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NOTE 34 - DEBT OBLIGATIONS

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



	November 2, 2019		February 2, 2019		November 3, 2018
Revolving loan	$	317,623	$	204,044	$	322,572
Term loan	47,500		50,000		25,000
Finance obligations	—		554		812
Other financing	—		508		1,011
Total debt obligations	365,123		255,106		349,395
Less: Current portion of debt obligations	5,000		4,812		3,555
Long-term debt obligations	$	360,123	$	250,294	$	345,840

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~~$447.5 million with a seasonal increase to ~~$475.0~~$472.5 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~~that began on June 15, 2019, with the remaining balance due upon maturity. The Credit Facility matures on December 16, ~~2021.~~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~~nine months ended ~~May 4,~~November 2, 2019, the weighted average interest rate on outstanding borrowings and the average daily borrowings on the Credit Facility, were ~~4.8%~~4.6% and ~~$299.2~~$320.9 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,~~November 2, 2019, outstanding letters of credit totaled approximately ~~$6.0~~$6.5 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,~~November 2, 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,~~November 2, 2019 was ~~$55.7~~$100.7 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 45 - 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 program, 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 days after the date of issuance. 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 2, 2019									November 3, 2018
Merchandise Category	Department Stores			Off-price Stores			Total Company			Department Stores		Off-price Stores			Total Company
Women’s	$	100,929		$	27,834		$	128,763		$	94,732	$	19,934		$	114,666
Men’s	48,849			13,287			62,136			43,954		11,230			55,184
Children's	34,779			13,130			47,909			29,682		10,635			40,317
Apparel	184,557			54,251			238,808			168,368		41,799			210,167

Footwear	40,650			6,096			46,746			44,400		4,594			48,994
Accessories	18,830			4,281			23,111			17,823		4,863			22,686
Cosmetics/Fragrances	24,071			3,051			27,122			27,822		2,620			30,442
Home/Gifts	34,663			23,955			58,618			15,972		17,918			33,890
Other	4,242			717			4,959			693		156			849
Non-apparel	122,456			38,100			160,556			106,710		30,151			136,861

Revenue adjustments not allocated^(a)	(6		)	(56		)	(62		)	183		(111		)	72

Net sales	$	307,007		$	92,295		$	399,302		$	275,261	$	71,839		$	347,100

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

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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.



	Nine Months Ended
	November 2, 2019									November 3, 2018
Merchandise Category	Department Stores			Off-price Stores			Total Company			Department Stores			Off-price Stores			Total Company
Women’s	$	285,183		$	73,649		$	358,832		$	315,428		$	59,165		$	374,593
Men’s	137,539			33,335			170,874			138,414			27,688			166,102
Children's	85,115			32,880			117,995			88,160			26,261			114,421
Apparel	507,837			139,864			647,701			542,002			113,114			655,116

Footwear	120,148			17,267			137,415			134,024			13,918			147,942
Accessories	53,532			12,490			66,022			55,121			13,118			68,239
Cosmetics/Fragrances	79,128			8,720			87,848			90,295			7,530			97,825
Home/Gifts	80,528			64,516			145,044			35,766			51,740			87,506
Other	11,929			2,220			14,149			5,697			1,587			7,284
Non-apparel	345,265			105,213			450,478			320,903			87,893			408,796

Revenue adjustments not allocated^(a)	(2,265		)	(1,026		)	(3,291		)	(2,986		)	(303		)	(3,289		)

Net sales	$	850,837		$	244,051		$	1,094,888		$	859,919		$	200,704		$	1,060,623

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



	November 2, 2019		February 2, 2019		November 3, 2018
Gift cards and merchandise credits, net	$	8,835	$	12,433	$	9,756
Loyalty program rewards, net	6,065		1,484		5,540
Merchandise fulfillment liability	657		488		1,180
Total contract liabilities	$	15,557	$	14,405	$	16,476

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						Nine Months Ended
	November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Beginning balance	$	15,765		$	15,119		$	14,405		$	13,474
Net sales recognized during the period from amounts included in contract liability balances at the beginning of the period	(7,209		)	(6,574		)	(7,775		)	(7,396		)
Current period additions to contract liability balances included in contract liability balances at the end of the period	7,001			7,931			8,927			10,398
Ending balance	$	15,557		$	16,476		$	15,557		$	16,476

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. Comenity Bank owns the PLCC portfolio and manages the account activation, receivables funding, card authorization, card issuance, statement generation, remittance processing and guest service functions for our PLCC 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 PLCC portfolio. The receivable for credit income, which is recorded in prepaid expenses and other current assets, was $4.5 million, $4.9 million and $4.0 million as of November 2, 2019, February 2, 2019 and November 3, 2018, respectively.

On April 11, 2019, we entered into an amendment to our profit-sharing arrangement with Comenity Bank. The amendment extended the term of the arrangement from July 31, 2021 to July 31, 2024.

We recorded deferred revenue for certain upfront payments received from Comenity Bank associated with the execution of the PLCC ~~agreement, and we~~agreement. The amounts 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.~~ for each period presented were as follows (in thousands):



	Three Months Ended				Nine Months Ended
	November 2, 2019		November 3, 2018		November 2, 2019		November 3, 2018
Upfront payments recognized in credit income	$	469	$	438	$	1,344	$	1,313

As of ~~May 4,~~November 2, 2019, deferred revenue of ~~$7.3~~$6.5 million remained to be amortized.

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NOTE 56 - LEASES

Our lease agreements include leases for our retail stores, distribution centers and corporate headquarters. As of ~~May 4,~~November 2, 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~~2 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 and space in one of our distribution centers to a third ~~party~~parties and recognize sublease income on a straight-line basis over the lease ~~term.~~terms.

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			Nine Months Ended
	November 2, 2019			November 2, 2019
Operating lease cost	$	26,448		$	78,905
Variable lease cost	9,676			29,117
Short-term lease cost	152			176
Sublease income	(553		)	(1,290		)
Total net lease cost	$	35,723		$	106,908

Net lease cost in cost of sales and related buying, occupancy and distribution expenses	$	34,712		$	103,588
Net lease cost in selling, general and administrative expenses	1,011			3,320
Total net lease cost	$	35,723		$	106,908

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		Nine Months Ended
	May 4, 2019		November 2, 2019
Cash paid for operating leases	$	27,678	$	82,522
Cash received from sublease	362		1,271
Lease assets obtained in exchange for lease liabilities ^(a)	7,333		27,454

^(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~~weighted average remaining lease term and ~~weighted-average~~weighted average discount rate associated with our leases as of ~~May 4,~~November 2, 2019 were as follows:



Weighted average remaining lease term	~~5.4~~5.3 years
Weighted average discount rate	10.1	%

Maturities of operating leases as of ~~May 4,~~November 2, 2019 were as follows (in thousands):



Fiscal Year	Operating Leases		Sublease
2019 (remainder of year)	$	27,459	$	(424	)
2020	105,350		(1,739		)
2021	90,889		(1,829		)
2022	74,893		(1,829		)
2023	54,382		(1,184		)
2024	36,359		—
Thereafter	68,584		—
Total lease payments	457,916		$	(7,005	)
Less: Effects of discounting	106,603
Present value of lease liabilities	351,313
Less: Current portion of lease liabilities	75,709
Long-term lease liabilities	$	275,604

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,~~November 2, 2019, ~~there were no leases~~we had an additional operating lease that ~~had~~has not yet ~~commenced.~~commenced of $0.1 million. The lease will commence in 2020 and has a lease term of six years.

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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

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 condensed consolidated financial statements related to ~~two~~2 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

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

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NOTE 67 - 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
	November 2, 2019		November 3, 2018			November 2, 2019		November 3, 2018
Non-vested stock	$	505	$	887		$	1,801	$	3,153
Restricted stock units	807		196			1,053		947
Stock-settled performance share units	186		(82		)	475		701
Cash-settled performance share units	913		11			941		161
Total stock-based compensation expense	2,411		1,012			4,270		4,962
Related tax benefit	—		—			—		—
Stock-based compensation expense, net of tax	$	2,411	$	1,012		$	4,270	$	4,962

Three Months Ended
May 4, 2019 May 5, 2018
Non-vested stock $ 781
$ 1,187
Restricted stock units 178
492
Stock-settled performance share units 168
371
Cash-settled performance share units 79
54
Total stock-based compensation expense 1,206
2,104
Related tax benefit —
—
Stock-based compensation expense, net of tax $ 1,206
$ 2,104

As of ~~May 4,~~November 2, 2019, we have estimated unrecognized compensation cost of ~~$8.3~~$9.4 million related to stock-based compensation awards granted, which is expected to be recognized over a weighted average period of ~~2.6~~2.4 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 of four years 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 ~~three~~nine months ended ~~May 4,~~November 2, 2019:



Non-vested Stock	Number of Shares		Weighted Average Grant Date Fair Value
Outstanding at February 2, 2019	1,379,616		$	4.43
Granted	1,004,670		0.94
Vested	(663,427	)	5.40
Forfeited	(40,974	)	6.87
Outstanding at November 2, 2019	1,679,885		1.90

Non-vested Stock Number of Shares
Weighted
Average Grant
Date Fair Value
Outstanding at February 2, 2019 1,379,616
$ 4.43
Granted 625,000
0.98
Vested (383,465 ) 7.09
Forfeited (9,983 ) 6.36
Outstanding at May 4, 2019 1,611,168
2.45

The ~~weighted-average~~weighted average grant date fair value for non-vested stock granted during the ~~three~~nine months ended ~~May 4,~~November 2, 2019 and ~~May 5,~~November 3, 2018 was ~~$0.98~~$0.94 and ~~$2.19,~~$2.41, respectively. The aggregate intrinsic value of non-vested stock that vested during the ~~three~~nine months ended ~~May 4,~~November 2, 2019 and ~~May 5,~~November 3, 2018, was ~~$0.4~~$0.7 million and ~~$0.8~~$1.3 million, respectively. The payment of ~~the~~ employees’ tax ~~liability~~liabilities for a portion of the vested shares was satisfied by withholding shares with a fair value equal to the tax ~~liability.~~liabilities. As a result, the actual number of shares issued during the ~~three~~nine months ended ~~May 4,~~November 2, 2019 was ~~336,233.~~607,579.

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Restricted Stock Units (“RSUs”)

We grant RSUs to our employees, which vest 25% annually over a ~~four-year~~ period of four years 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 ~~three~~nine months ended ~~May 4,~~November 2, 2019:



Restricted Stock Units	Number of Units		Weighted Average Grant Date Fair Value
Outstanding at February 2, 2019	1,740,314		$	2.16
Granted	1,615,000		0.98
Vested	(492,814	)	2.16
Forfeited	(613,125	)	1.59
Outstanding at November 2, 2019	2,249,375		1.47

Restricted Stock Units Number of Units
Weighted
Average Grant
Date Fair Value
Outstanding at February 2, 2019 1,740,314
$ 2.16
Granted 1,615,000
0.98
Vested (439,064 ) 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.~~cycle of three years. These awards cliff vest following a ~~three-year~~ performance cycle of three years, 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~~0 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 ~~three~~nine months ended ~~May 4,~~November 2, 2019:



Period Granted	Target PSUs Outstanding at February 2, 2019	Target PSUs Granted	Target PSUs Forfeited		Target PSUs Outstanding at November 2, 2019	Weighted Average Grant Date Fair Value per Target PSU
2017	470,000	—	(50,000	)	420,000	$	1.80
2018	280,000	—	—		280,000	3.05
2019	—	375,000	—		375,000	1.39
Total	750,000	375,000	(50,000	)	1,075,000	1.98

Period Granted 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
2017 470,000
—
470,000
$ 1.80
2018 280,000
—
280,000
3.05
2019 —
375,000
375,000
1.39
Total 750,000
375,000
1,125,000
1.97

The ~~weighted-average~~weighted average grant date fair value for stock-settled PSUs granted during the ~~three~~nine months ended ~~May 4,~~November 2, 2019 and ~~May 5,~~November 3, 2018 was $1.39 and $3.05, respectively. The aggregate intrinsic value of stock settled PSUs that vested during the nine months ended November 2, 2019 and November 3, 2018 was nil and $0.02 million, respectively. No stock-settled PSUs vested during the ~~three~~nine months ended ~~May 4, 2019 and May 5, 2018.~~November 2, 2019.

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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.~~cycle of three years. These awards cliff vest following a ~~three-year~~ performance cycle of three years, and if earned, are settled in cash. The amount of settlement ranges from ~~zero~~0 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 ~~three~~nine months ended ~~May 4,~~November 2, 2019:



Period Granted	Target PSUs Outstanding at February 2, 2019	Target PSUs Granted	Target PSUs Forfeited		Target PSUs Outstanding at November 2, 2019	Weighted Average Grant Date Fair Value per Target PSU
2018	300,000	—	(50,000	)	250,000	$	3.05
2019	—	530,000	(50,000	)	480,000	$	1.39
Total	300,000	530,000	(100,000	)	730,000	$	1.96

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Period Granted 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 300,000
—
300,000
$ 3.05
2019 —
530,000
530,000
$ 1.39
Total 300,000
530,000
830,000
$ 1.99

NOTE 78 - 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
	November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Employer service cost	$	135		$	127		$	405		$	383
Interest cost on pension benefit obligation	321			338			965			1,013
Expected return on plan assets	(363		)	(435		)	(1,090		)	(1,305		)
Amortization of net loss	186			85			558			439
Settlement charges ^(a)	270			411			270			411
Net periodic pension cost	$	549		$	526		$	1,108		$	941

^(a) Non-cash pension settlement charges were recognized as a result of lump sum distributions exceeding interest cost for the nine months ended November 2, 2019 and November 3, 2018, respectively.

Three Months Ended
May 4, 2019 May 5, 2018
Employer service cost $ 135
$ 123
Interest cost on pension benefit obligation 327
358
Expected return on plan assets (368 ) (414 )
Amortization of net loss 170
199
Net periodic pension cost $ 264

$ 266

Other changes in plan assets and benefit obligations recognized in other comprehensive loss were as follows (in thousands):



	Three Months Ended						Nine Months Ended
	November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Amortization of net loss	$	(186	)	$	(85	)	$	(558	)	$	(439	)
Settlement charges	(270		)	(411		)	(270		)	(411		)
Net loss	1,537			1,404			1,537			1,404
Net change recognized in other comprehensive loss, pre-tax	$	1,081		$	908		$	709		$	554

The actuarial net loss recognized in other comprehensive loss comprised of the following changes (in thousands):



	Three Months Ended						Nine Months Ended
	November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Loss (gain) from decrease (increase) in discount rate	$	3,818		$	(2,521	)	$	3,818		$	(2,521	)
(Gain) loss from investment return on plan assets	(1,803		)	3,365			(1,803		)	3,365
(Gain) loss due to updated demographic data and assumption changes (other than discount rate)	(478		)	560			(478		)	560
Net loss	$	1,537		$	1,404		$	1,537		$	1,404

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 ~~$0.3~~$1.0 million during the ~~three months ended May 4,~~year-to-date November 2, 2019, and we expect to contribute an additional ~~$1.0~~$0.3 million in 2019.

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NOTE 89 - EARNINGS PER SHARE

~~For~~The following tables show the ~~three months ended May 4, 2019~~computation of basic and ~~May 5, 2018, respectively, participating securities had no impact on~~diluted loss per common share ~~and there~~for each period presented (in thousands, except per share amounts):



	Three Months Ended						Nine Months Ended
	November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Basic:
Net loss	$	(15,914	)	$	(31,353	)	$	(87,338	)	$	(79,953	)
Distributed earnings allocated to participating securities	—			(18		)	—			(149		)
Net loss allocated to common shares	(15,914		)	(31,371		)	(87,338		)	(80,102		)

Basic weighted average shares outstanding	28,886			28,261			28,706			28,059
Basic loss per share	$	(0.55	)	$	(1.11	)	$	(3.04	)	$	(2.85	)

	Three Months Ended						Nine Months Ended
	November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Diluted:
Net loss	$	(15,914	)	$	(31,353	)	$	(87,338	)	$	(79,953	)
Distributed earnings allocated to participating securities	—			(18		)	—			(149		)
Net loss allocated to common shares	(15,914		)	(31,371		)	(87,338		)	(80,102		)

Basic weighted average shares outstanding	28,886			28,261			28,706			28,059
Dilutive effect of stock awards	—			—			—			—
Diluted weighted average shares outstanding	28,886			28,261			28,706			28,059
Diluted loss per share	$	(0.55	)	$	(1.11	)	$	(3.04	)	$	(2.85	)

The number of shares attributable to outstanding stock-based compensation awards that would have been considered dilutive securities, but were noexcluded from the calculation of diluted loss per common share because the effect was anti-dilutive ~~securities.~~

were as follows (in thousands):



	Three Months Ended		Nine Months Ended
	November 2, 2019	November 3, 2018	November 2, 2019	November 3, 2018
Number of anti-dilutive shares due to net loss for the period	1,120	89	373	341

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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~~our ability ~~for us~~ to maintain ~~normal~~customary trade terms with vendors, ~~the~~our 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~~apply 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 ~~“first~~“third quarter 2019” and the ~~“first~~“third quarter 2018” are for the 13-week fiscal periods ended ~~May 4,~~November 2, 2019 and ~~May 5,~~November 3, 2018, ~~respectively.~~respectively, and all references to the “year-to-date 2019” and the “year-to-date 2018” are for the 39-week fiscal periods ended November 2, 2019 and November 3, 2018, 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 ~~May 4,~~November 2, 2019, we operated in 42 states through ~~685 specialty department stores under the~~617 BEALLS, GOODY’S, PALAIS ROYAL, PEEBLES and STAGE ~~nameplates~~department stores and ~~105~~158 GORDMANS off-price ~~stores. We also operate~~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 markets in the Midwest. In September 2019, we announced our plan to convert substantially all of our department stores to off-price beginning in February 2020. By the end of the third quarter of fiscal year 2020, we expect to be operating approximately 700 predominantly small-market, Gordmans stores, offering off-price values and broad assortments of name-brand merchandise in a fun, scarcity driven, treasure hunt experience.

~~First~~Third Quarter 2019 Financial Overview

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

Net sales ~~decreased $16.5~~increased $52.2 million, or ~~4.8%~~15.0%.

Comparable sales ~~decreased 3.1%~~increased 17.4%. Comparable sales consist of store sales after a store has been in operation for 14 full months, including ~~stores converted to~~pre-conversion department store sales, post-conversion off-price ~~stores,~~sales and e-commerce sales.

Net loss was ~~$47.5~~$15.9 million compared to ~~$31.7~~$31.4 million.

Loss per common share was ~~$1.67,~~$0.55, compared to a loss per common share of ~~$1.14.~~$1.11.

~~EBITDA adjusted for impairments~~Adjusted net loss was ~~a loss of $27.5~~$4.2 million compared to ~~a loss of $14.1~~$30.5 million (see the reconciliation of non-GAAP financial measures on page ~~23)~~30).

Adjusted loss per common share was $0.15, compared to an adjusted loss per common share of $1.08 (see the reconciliation of non-GAAP financial measures on page 30).

~~2019 Outlook and Strategy~~

~~Our strategy is centered~~Adjusted EBITDA was $15.3 million compared to adjusted EBITDA of $(13.2) million (see the reconciliation of non-GAAP financial measures 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. Sales early in the first quarter 2019 were negatively impacted by expected disruptions related to the rollout of our strategic initiatives, which included temporary store closures associated with the conversion of 37page 30).


•	Recognized impairment charges of $9.7 million compared to nil.

Converted 17 department stores to off-price, bringing the year-to-date conversion total to 89.

Strategy and ~~the~~Outlook

Our 2019 strategy is to grow our off-price stores, emphasize trending merchandise such as home ~~department expansion in~~goods, drive sales through pre-conversion promotions associated with our transition to off-price, and exit underperforming department stores. ~~Sales benefited later~~These initiatives, along with the strong performances of our home and women’s categories, contributed to the 17.4% increase in comparable sales for the third quarter ~~as these initiatives began~~2019. Based on the sales trend for the year-to-date 2019, we expect to ~~take hold. We expect these initiatives to positively impact our sales going forward and to contribute to~~generate positive comparable sales for the ~~year.~~fourth quarter.

~~Store counts~~In October 2019, we launched Amazon Hub Counter (“Counter”) pick-up points in our off-price and department stores. With Counter, Amazon shoppers have the option to pick up their Amazon packages at our stores. Counter is currently available over 700 of our stores. While it is still too early to determine the ~~end~~impact of the ~~first quarter 2019 and first quarter 2018 were as follows:~~ program on our sales, we expect Counter to bring in additional traffic to our stores.

May 4, 2019 May 5, 2018
Department stores 685
773
Off-price stores 105
59
Total stores 790
832

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Our 2019 and long-term strategic objectives are to:

~~Accelerate~~Transition to an off-price business model by converting substantially all stores to off-price by the third quarter of 2020. The recent growth in the off-price retail industry, the success of our 2018 and 2019 off-price conversions, and our presence in ~~the~~small markets without major off-price ~~sector with the conversion of approximately 85 department stores to off-price in 2019, and another 150 conversions in the first half of 2020.~~competitors, have driven our strategy which we believe provides a sustained growth opportunity. Following the 2020 conversions, ~~our~~we will have more than 700 off-price ~~store count will be approximately 300, and will represent approximately 50%~~stores, representing over 90% of our total sales volume in 2020. During the ~~first quarter~~year-to-date 2019, we ~~converted 37~~completed 89 store conversions and opened one new off-price store.

Build a national brand through our growing population of Gordmans off-price stores and promote brand recognition of our Gordmans nameplate through our private label credit card and loyalty program. In July 2019, we reissued our existing credit cards as a combined off-price and department ~~stores~~store branded credit card to ~~off-price. Comparable~~more than 2 million cardholders. We expect off-price credit sales as a percentage of total off-price sales to continue to grow in 2019 and beyond, and reach 25% in the ~~small markets which constitute the majority of our off-price conversions increased more than 120% in the first quarter 2019.~~future.

~~Close between 40 to 60 underperforming department stores (excluding conversions to off-price). During the first quarter 2019, we permanently closed 6 department stores.~~

Expand the home department in our department stores to drive sales in this trending ~~category.~~category and prepare for off-price conversion. During the first quarter 2019, we ~~rolled out~~relocated the home department to the store front and added new high capacity home fixtures ~~to all~~in the majority of our department ~~stores and moved the home department to the front of the store, which~~stores. This, along with ~~expanded~~expanding the merchandise assortments, ~~drove~~increased home department sales up by ~~more than 100%~~approximately 150% in our department ~~stores.~~stores for the year-to-date 2019. We expect home department sales as a percent of total sales to increase in penetration ~~throughout the year with~~and provide 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~~to support the full-chain rollout of off-price conversions in 2020.

Shift our e-commerce operations to a drop-ship model to allow our stores, merchants and ~~by engaging outside expertise~~distribution centers to ~~mitigate higher supply chain costs~~focus on our pivot to our off-price model. We plan to discontinue order fulfillment from our distribution centers and ~~prepare us~~stores after the 2019 holiday shopping season.

Close 60 underperforming department stores in 2019. During the year-to-date 2019, we permanently closed 22 department stores. The majority of the remaining closures are planned for ~~future off-price store growth.~~

January 2020.

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



	November 2, 2019	November 3, 2018
Department stores	617	754
Off-price stores	158	68
Total stores	775	822

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Non-GAAP Financial Measures

The following table presents adjusted earnings (loss) before interest, taxes, depreciation and amortization ~~(“EBITDA”)~~(adjusted EBITDA), adjusted net loss and ~~EBITDA~~ adjusted ~~for impairments,~~diluted loss per share, 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						Three Months Ended						Nine Months Ended
	May 4, 2019			May 5, 2018			November 2, 2019			November 3, 2018			November 2, 2019			November 3, 2018
Net loss (GAAP)	$	(47,490	)	$	(31,678	)	$	(15,914	)	$	(31,353	)	$	(87,338	)	$	(79,953	)
Interest expense	3,994			2,253			4,070			3,350			12,187			8,253
Income tax expense	150			150			150			(12		)	450			288
Depreciation and amortization	15,344			15,151			15,272			13,988			45,144			44,135
EBITDA (non-GAAP)	(28,002		)	(14,124		)
Impairment of long-lived assets	519			—			9,680			—			11,295			1,070
EBITDA adjusted for impairments (non-GAAP)	$	(27,483	)	$	(14,124	)
Severance							425			819			2,928			938
Pre-opening expenses ^(a)							560			—			3,457			—
Store closing services							1,038			—			2,216			—
Adjusted EBITDA (non-GAAP)							$	15,281		$	(13,208	)	$	(9,661	)	$	(25,269	)

Net loss (GAAP)							$	(15,914	)	$	(31,353	)	$	(87,338	)	$	(79,953	)
Impairment of long-lived assets							9,680			—			11,295			1,070
Severance							425			819			2,928			938
Pre-opening expenses ^(a)							560			—			3,457			—
Store closing services							1,038			—			2,216			—
Adjusted net loss (non-GAAP)							$	(4,211	)	$	(30,534	)	$	(67,442	)	$	(77,945	)

Diluted loss per share (GAAP)							$	(0.55	)	$	(1.11	)	$	(3.04	)	$	(2.85	)
Impairment of long-lived assets							0.34			—			0.39			0.04
Severance							0.01			0.03			0.10			0.03
Pre-opening expenses ^(a)							0.02			—			0.12			—
Store closing services							0.04			—			0.08			—
Adjusted diluted loss per share (non-GAAP) ^(b)							$	(0.15	)	$	(1.08	)	$	(2.35	)	$	(2.78	)

^(a) Pre-opening expenses include store payroll, marketing expenses, meals and travel expenses, and supplies.							^(a) Pre-opening expenses include store payroll, marketing expenses, meals and travel expenses, and supplies.
^(b) Per share amounts may not foot due to rounding.

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Results of Operations

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

Net Sales


	Three Months Ended							Three Months Ended							Nine Months Ended
	May 4, 2019		May 5, 2018		Change			November 2, 2019		November 3, 2018		Change			November 2, 2019		November 3, 2018		Change
Net sales	$	327,721	$	344,229	$	(16,508	)	$	399,302	$	347,100	$	52,202		$	1,094,888	$	1,060,623	$	34,265
Sales percent change:
Total net sales					(4.8		)%					15.0		%					3.2		%
Comparable sales					(3.1		)%					17.4		%					5.3		%

Net sales for the ~~first~~third quarter 2019 ~~decreased~~increased compared to the ~~first~~third quarter 2018 primarily due to ~~a decrease~~an increase in comparable sales, ~~as traffic continued to be challenged, and~~partially offset by store closures. ~~In addition,~~The increase in comparable sales was driven by off-price conversions completed during 2019, strong performances of our home and women’s categories, and favorable response to pre-conversion promotions in our department stores as we execute our transition to off-price. The increase in comparable sales reflects increases in transaction count and average transaction value, with an increase in units per transaction partially offset by lower average unit retail.

Net sales for the ~~beginning of~~year-to-date 2019 increased compared to the ~~first quarter 2019 were negatively impacted by disruptions~~year-to-date 2018 primarily due to ~~temporary~~an increase in comparable sales, partially offset by store ~~closures associated with the conversion~~closures. The increase in comparable sales was driven by off-price conversions completed during 2019, strong performance of ~~37 department stores~~our home category, and favorable response to ~~off-price and the installation of new high capacity home fixtures~~third quarter pre-conversion promotions in our department stores. ~~Sales later~~The increase in ~~the quarter benefited from these initiatives. As a result,~~ comparable sales ~~were down double digits~~reflects increases in ~~February~~transaction count and ~~were flat~~average transaction value, with an increase in ~~the combined March and April period, which includes the Easter shift.~~units per transaction partially offset by lower average unit retail.

Non-apparel categories outperformed apparel categories for the first quarter 2019. In our department stores, home and men’s were our best performing merchandise categories, while women’s, children’s, footwear, accessories and cosmetics underperformed. In our off-price stores, children’s and cosmetics were our best performing merchandise categories, while footwear, accessories, women’s, men’s and home underperformed.

Credit Income


	Three Months Ended									Three Months Ended									Nine Months Ended
	May 4, 2019			May 5, 2018			Change			November 2, 2019			November 3, 2018			Change			November 2, 2019			November 3, 2018			Change
Credit Income	$	13,108		$	15,514		$	(2,406	)
Credit income										$	15,678		$	13,324		$	2,354		$	42,774		$	43,143		$	(369	)
As a percent of net sales	4.0		%	4.5		%	(0.5		)%	3.9		%	3.8		%	0.1		%	3.9		%	4.1		%	(0.2		)%

The ~~decrease~~increase in credit income for the ~~first~~third quarter 2019 compared to the ~~first~~third quarter 2018 iswas primarily ~~due to the off-price store conversions, lower department store~~driven by higher credit 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~~timing 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 business increased by 170 basis points.income earned.

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Cost of Sales and Gross Margin


	Three Months Ended									Three Months Ended									Nine Months Ended
	May 4, 2019			May 5, 2018			Change			November 2, 2019			November 3, 2018			Change			November 2, 2019			November 3, 2018			Change
Net sales	$	327,721		$	344,229		$	(16,508	)	$	399,302		$	347,100		$	52,202		$	1,094,888		$	1,060,623		$	34,265
Cost of sales and related buying, occupancy and distribution expenses	277,599			281,741			(4,142		)	315,494			278,665			36,829			888,297			847,213			41,084
Gross profit	$	50,122		$	62,488		$	(12,366	)	$	83,808		$	68,435		$	15,373		$	206,591		$	213,410		$	(6,819	)
As a percent of net sales	15.3		%	18.2		%	(2.9		)%	21.0		%	19.7		%	1.3		%	18.9		%	20.1		%	(1.2		)%

The increase in gross profit rate for the third quarter 2019 compared to the third quarter 2018 was driven by lower markdowns and sales leverage on fixed costs, partially offset by increased supply chain costs and impairment of long-lived assets.

The decrease in gross profit rate for the ~~first quarter~~year-to-date 2019 compared to the ~~first quarter~~year-to-date 2018 iswas primarily due to increased supply chain costs ~~associated with our off-price stores.~~and impairment of long-lived assets.

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


	Three Months Ended									Three Months Ended									Nine Months Ended
	May 4, 2019			May 5, 2018			Change			November 2, 2019			November 3, 2018			Change			November 2, 2019			November 3, 2018			Change
SG&A Expenses	$	106,576		$	107,277		$	(701	)
SG&A expenses										$	111,180		$	109,774		$	1,406		$	324,066		$	327,965		$	(3,899	)
As a percent of net sales	32.5		%	31.2		%	1.3		%	27.8		%	31.6		%	(3.8		)%	29.6		%	30.9		%	(1.3		)%

The decrease in SG&A expenses rate for the ~~first~~third quarter 2019 compared to the ~~first~~third quarter 2018 ~~is primarily~~was driven by lower store expenses due to the closure of underperforming stores, lower marketing costs associated with operating our off-price stores, planned reductions in ~~store payroll and~~ department store ~~advertising expenses,~~marketing and sales leverage on fixed costs, partially offset by ~~lower net gains from casualty insurance claims.~~impairment of long-lived assets and higher incentive compensation costs due to better results.

The decrease in SG&A ~~as a percentage of sales increased~~expenses rate for the year-to-date 2019 compared to the year-to-date 2018 was driven by lower store expenses due to ~~grand opening~~the closure of underperforming stores, lower marketing costs ~~related to~~associated with operating our off-price stores, planned reductions in department store ~~conversions~~marketing and sales ~~deleverage.~~leverage on fixed costs, partially offset by higher impairment of long-lived assets, pre-opening expenses associated with conversion stores in the year-to-date 2019 and higher incentive compensation costs due to better results.

Interest Expense


	Three Months Ended									Three Months Ended									Nine Months Ended
	May 4, 2019			May 5, 2018			Change			November 2, 2019			November 3, 2018			Change			November 2, 2019			November 3, 2018			Change
Interest Expense	$	3,994		$	2,253		$	1,741
Interest expense										$	4,070		$	3,350		$	720		$	12,187		$	8,253		$	3,934
As a percent of net sales	1.2		%	0.7		%	0.5		%	1.0		%	1.0		%	—		%	1.1		%	0.8		%	0.3		%

Interest expense is comprised of interest on borrowings under the Credit Facility, related letters of credit and commitment fees, amortization of debt issuance costs and interest on finance obligations. The increase in interest expense iswas primarily due to an increase in average borrowings and higher interest rates under the ~~credit facility~~Credit Facility for the ~~first quarter~~year-to-date 2019 compared to the ~~first quarter~~year-to-date 2018. For the ~~first quarter~~year-to-date 2019, the weighted average interest rate on outstanding borrowings and the average daily borrowings under the credit facility, including the term loan, were ~~4.8%~~4.6% and ~~$299.2~~$320.9 million, respectively, as compared to ~~3.2%~~3.53% and ~~$247.5~~$274.3 million for the ~~first quarter~~year-to-date 2018.

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Income Taxes


	Three Months Ended									Three Months Ended									Nine Months Ended
	May 4, 2019			May 5, 2018			Change			November 2, 2019			November 3, 2018			Change			November 2, 2019			November 3, 2018			Change
Income tax expense	$	150		$	150		$	—
Income tax expense (benefit)										$	150		$	(12	)	$	162		$	450		$	288		$	162
Effective tax rate	(0.3		)%	(0.5		)%	0.2		%	(1.0		)%	—		%	(1.0		)%	(0.5		)%	(0.4		)%	(0.1		)%

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

Loss Before Income Tax and Net Loss


	Three Months Ended									Three Months Ended								Nine Months Ended
	May 4, 2019			May 5, 2018			Change			November 2, 2019			November 3, 2018			Change		November 2, 2019			November 3, 2018			Change
Loss before income tax	$	(47,340	)	$	(31,528	)	$	(15,812	)	$	(15,764	)	$	(31,365	)	$	15,601	$	(86,888	)	$	(79,665	)	$	(7,223	)
Net loss	(47,490		)	(31,678		)	(15,812		)	(15,914		)	(31,353		)	15,439		(87,338		)	(79,953		)	(7,385		)

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 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.

Our working capital fluctuates with seasonal variations which affect our borrowings and availability under the Credit Facility. Our availability under the Credit Facility is generally highest after the ~~back-to-school and~~ holiday selling ~~seasons~~season and is lowest just before ~~those seasons~~this season 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):


	Three Months Ended									Nine Months Ended
	May 4, 2019			May 5, 2018			Change			November 2, 2019			November 3, 2018			Change
Net cash (used in) provided by:
Operating activities	$	(37,202	)	$	(68,655	)	$	31,453		$	(76,910	)	$	(136,917	)	$	60,007
Investing activities	(13,096		)	(6,885		)	(6,211		)	(22,258		)	(19,444		)	(2,814		)
Financing activities	57,261			83,381			(26,120		)	109,606			160,936			(51,330		)

Operating Activities

During the ~~first quarter~~year-to-date 2019, we used ~~$37.2~~$76.9 million in cash from operating activities. Net loss, adjusted for non-cash expenses, ~~used~~provided cash of approximately ~~$13.5~~$25.9 million, including non-cash operating lease ~~asset amortization~~expense of ~~$17.6~~$52.6 million. Changes in operating assets and liabilities used net cash of approximately ~~$25.6~~$107.7 million, which included a ~~$47.4~~$156.9 million increase in merchandise inventories, primarily due to the seasonal build of inventories, ~~partially offset by~~and a ~~$14.3 million decrease in other assets, a $19.0~~$56.2 million decrease in operating lease liabilities, partially offset by a $15.1 million decrease in other assets and a ~~$26.6~~$90.4 million increase in accounts payable and other liabilities. Additionally, cash flows from operating activities included construction allowances from landlords of ~~$1.9~~$4.8 million, which funded a portion of the capital expenditures in investing activities.

During the ~~first quarter~~year-to-date 2018, we used ~~$68.7~~$136.9 million in cash from operating activities. Net loss, adjusted for non-cash expenses, used cash of approximately ~~$14.7~~$30.1 million. Changes in operating assets and liabilities used net cash of approximately ~~$54.0~~$107.6 million, which included a ~~$39.2~~$163.9 million increase in merchandise inventories, primarily due to the seasonal build of inventories, partially offset by a ~~$4.3~~$4.9 million decrease in other assets and a ~~$19.1~~$51.4 million ~~decrease~~increase in accounts payable and other liabilities. Additionally, cash flows from operating activities included construction allowances from landlords of $0.8 million, which funded a portion of the capital expenditures in investing activities.

The $60.0 million year-over-year ~~change primarily reflects~~improvement was driven by (i) a ~~$47.3~~$39.0 million ~~increase in cash flow from working capital, offset by a higher net loss of $15.8 million. The increase in cash flow from working capital was largely due to~~ favorable ~~fluctuations of $45.6 million~~change in cash flows from accounts payable and other liabilities ~~driven by paying down our elevated payables balance at~~resulting from continued trade support, (ii) a $7.0 million favorable change in cash flows from inventories attributable to faster inventory turnover, lower inventory investments in off-price stores compared to department stores, and the ~~end~~closure of ~~2017~~underperforming stores, (iii) a $10.2 million favorable change in ~~the first quarter 2018.~~cash flows from other assets, and (iv) a $3.8 million improvement in net loss excluding non-cash depreciation, amortization and impairment.

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Investing Activities

Net cash used in investing activities increased ~~$6.2~~$2.8 million to ~~$13.1~~$22.3 million for the ~~first quarter~~year-to-date 2019, compared to ~~$6.9~~$19.4 million for the ~~first quarter~~year-to-date 2018.

Capital expenditures were ~~$13.8~~$25.1 million for the ~~first quarter~~year-to-date 2019, compared to ~~$6.9~~$21.8 million for the ~~first quarter~~year-to-date 2018. The increase in capital expenditures reflect our investments in converting stores to off-price and ~~rolling out~~adding high capacity home fixtures in our department stores. We received construction allowances from landlords of ~~$1.9~~$4.8 million in the ~~first quarter~~year-to-date 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 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 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 decreased ~~$26.1~~$51.3 million to ~~$57.3~~$109.6 million for the ~~first quarter~~year-to-date 2019, compared to ~~$83.4~~$160.9 million for the ~~first quarter~~year-to-date 2018, primarily due to lower net borrowings during the current year under the Credit ~~Facility.~~Facility due to improved cash usage in the year-to-date 2019 compared to the year-to-date 2018.

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 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 ~~first quarter~~nine months ended November 2, 2019, the weighted average interest rate on outstanding borrowings and the average daily borrowings on the credit facility, including the term loan, were ~~4.8%~~4.6% and ~~$299.2~~$320.9 million, respectively, compared to ~~3.2%~~3.5% and ~~$247.5~~$274.3 million for the ~~first quarter~~year-to-date 2018.

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,~~November 2, 2019, outstanding letters of credit totaled approximately ~~$6.0~~$6.5 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,~~November 2, 2019, we were in compliance with the debt covenants of the credit facility agreement and we expect to remain in ~~compliance.~~compliance for the next 12 months. Excess availability under the credit facility at ~~May 4,~~November 2, 2019 was ~~$55.7~~$100.7 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 ~~May 4,~~November 2, 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.

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ITEM 1A.RISK FACTORS

In addition to the other information set forth in this report, readers should carefully consider the factors discussed in Part I, Item 1A (Risk Factors) of the Form 10-K. There have not been any material changes from the risk factors as previously disclosed in the Form ~~10-K.~~10-K, except updates to the following risk factors:

Risks associated with our vendors from whom our products are sourced may have a material adverse effect on our business and financial condition. Our merchandise is sourced from a variety of domestic and international vendors. All our vendors must comply with applicable laws, including our required standards of conduct. Political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade, the ability to access suitable merchandise on acceptable terms and the financial viability of our vendors are beyond our control and may adversely impact our performance.

Risks associated with future economic and industry trends may have a material adverse effect on our business and financial condition. A slowdown in the U.S. economy, an uncertain global economic outlook or a credit crisis could adversely affect consumer spending habits resulting in lower net sales and profits than expected on a quarterly or annual basis. Consumer confidence is also affected by the domestic and international political situation. We are still evaluating the potential impact of the tariffs that the current U.S. Administration has imposed and may continue to impose on imports from China and other countries around the world, as well as other recent changes in foreign trade policy on our supply chain, costs, sales and profitability. We are actively working through strategies to mitigate such impact, including reviewing sourcing options and working with our vendors and merchants. At this time, it is unknown how long U.S. tariffs on Chinese goods will remain in effect or whether additional tariffs will be imposed. While it is too early to predict how these changes in foreign trade policy and any recently enacted, proposed and future tariffs will affect our business, these changes have the potential to adversely impact demand for our products, our costs, consumer prices, and/or the U.S. economy, which in turn could adversely impact our results of operations and business.

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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 ~~May 4,~~November 2, 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 ~~May 4,~~November 2, 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)

February 3, 2019 to March 2, 2019	9,480	$	1.14	—	$	58,351,202
August 4, 2019 to August 31, 2019							19,619	$	0.72	—	$	58,351,202

March 3, 2019 to April 6, 2019	51,341	1.00		—	$	58,351,202
September 1, 2019 to October 5, 2019							649,120	1.37		—	$	58,351,202

April 7, 2019 to May 4, 2019	12,147	1.07		—	$	58,351,202
October 6, 2019 to November 2, 2019							5,478	2.18		—	$	58,351,202

Total	72,968	$	1.03	—			674,217	$	1.36	—

^(a)Although we did not repurchase any of our common stock during the three months ended ~~May 4,~~November 2, 2019 under the 2011 Stock Repurchase Program:

We reacquired ~~47,232~~7,927 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 ~~$1.00~~$1.98 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 ~~25,736~~666,290 shares of our common stock in the open market at a weighted average price of ~~$1.08~~$1.35 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 ~~May 4,~~November 2, 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.

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	Inline XBRL Instance Document - the instance document does not appear in Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



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


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

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