1.
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Item 10(e)(1)(i)(A) of Regulation S-K requires that when a registrant presents a non- GAAP measure it must present the most directly
comparable GAAP measure with equal or greater prominence. Please revise your reconciliations of non-GAAP financial measures to begin with the comparable GAAP measure to avoid undue prominence. Refer also to Question 102.10 of the
Non-GAAP Financial Measures Compliance & Disclosure Interpretations. Please apply this comment to your earnings releases on Form 8-K, as applicable.
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2.
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Based on your disclosure, it does not appear you recorded any store level long-lived asset impairments in fiscal 2018 or through the
third quarter of fiscal 2019. Further, you state in your disclosure, “For store level long-lived assets, expected cash flows are determined based on management’s estimate of future sales, merchandise margin rates and expenses over the
remaining expected terms of the leases.” In this regard, we note the comments made by management in the third quarter 2019 earnings call that would imply that certain stores are cash flow negative. Additionally, we note declining sales
and gross profit margins for the fiscal year ended 2018, and the 13 and 39 weeks ended December 1, 2018. With reference to ASC 360-10-35-21, please clarify whether or not you tested any store level long lived assets for recoverability
during the 39 weeks ended December 1, 2018. If not, please provide support for your conclusion that impairment testing was unnecessary. If you tested these assets for impairment, please refer to the guidance in ASC 360-10-35-29 through
33, and provide us with the summary results of your testing, including the underlying material assumptions you relied on in determining the estimates of future cash flows.
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o
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Individual store performance over several quarters: When assessing long-lived assets for indicators of impairment, management
considers the operating results of a store over several quarters and does not believe a limited number of underperforming quarters is necessarily an indicator of impairment. The Company’s experience has shown that store performance may
decline for a short period of time and return to cash flow positive performance in the near term.
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o
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Planned strategic initiatives: Management considers the potential impact of current and forthcoming strategic initiatives that are
expected to improve store performance such as changes to the Company’s merchandise assortment, marketing campaigns and store layout. Management also considers factors specific to an individual store such as the anticipated closure of a
nearby store which is expected to result in a transfer of sales to the remaining store.
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o
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Timing of the holiday selling season: The Company generally has its highest sales volume during November and December. Management
believes the performance of a store during this season is an important factor in determining whether an indicator of impairment is present and considered this seasonality in the determination of impairment indicators at the end of the
Company’s fiscal 2019 third quarter, December 1, 2018, which is in the middle of the holiday selling season.
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o
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Immaterial net book values: Many of the Company’s stores have store level long-lived assets comprised primarily of store fixtures with
immaterial net book values. After considering the estimated salvage value of the store fixtures which is based on historical sales of similar fixtures during store closures, an immaterial amount of carrying value generally remains for an
individual store.
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3.
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We note your disclosure that company comparable store sales for the third quarter of fiscal 2019 decreased by 10.5% compared to the
same period in fiscal 2018 and that comparable store sales for the year-to date period of fiscal 2019 decreased 10.1% compared to the same period in fiscal 2018. Please revise your discussion to provide more robust insight from management
as to the underlying reasons for the declines in your comparable store sales and to clarify whether management expects this trend to continue in the future.
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By:
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/s/ Nancy A. Walsh
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Nancy A. Walsh, Executive Vice President
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and Chief Financial Officer
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