STOCK-BASED COMPENSATION

3 Months Ended

May 05, 2024

Share-Based Payment Arrangement [Abstract]

The Company grants stock-based awards under its Stock Incentive Plan (the “Plan”). Awards that may be granted under the Plan include, but are not limited to (i) service-based non-qualified stock options (“stock options”); (ii) service-based restricted stock units (“RSUs”); and (iii) contingently issuable performance share units (“PSUs”). Please see Note 13, “Stock-Based Compensation,” in the Notes to Consolidated Financial Statements included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended February 4, 2024 for a detailed description of the Company’s stock-based compensation awards, including information relating to vesting terms and service, performance and market conditions, and additional information.

Net income for the thirteen weeks ended May 5, 2024 and April 30, 2023 included $10.5 million and $13.1 million, respectively, of pre-tax expense related to stock-based compensation, with related recognized income tax benefits of $1.4 million and $1.6 million, respectively.

Stock Options

The Company estimates the fair value of stock options at the date of grant using the Black-Scholes-Merton model. The estimated fair value of the stock options granted is expensed over the stock options’ requisite service periods.

The following summarizes the assumptions used to estimate the fair value of stock options granted during the thirteen weeks ended May 5, 2024 and the resulting weighted average grant date fair value per stock option:


	5/5/24
Weighted average risk-free interest rate	4.33		%
Weighted average expected stock option term (in years)	6.25
Weighted average Company volatility	53.32		%
Expected annual dividends per share	$	0.15
Weighted average grant date fair value per stock option	$	60.96

Stock option activity for the thirteen weeks ended May 5, 2024 was as follows:


(In thousands, except per stock option data)	Stock Options	Weighted Average Exercise Price Per Stock Option
Outstanding at February 4, 2024	513	$	94.05
Granted	58	109.75
Exercised	57	122.25
Forfeited / Expired	4	124.53
Outstanding at May 5, 2024	510	$	92.44

RSUs

The fair value of RSUs is equal to the closing price of the Company’s common stock on the date of grant and is expensed over the RSUs’ requisite service periods.

RSU activity for the thirteen weeks ended May 5, 2024 was as follows:


(In thousands, except per RSU data)	RSUs	Weighted Average Grant Date Fair Value Per RSU
Non-vested at February 4, 2024	1,175	$	80.79
Granted	472	109.75
Vested	314	81.90
Forfeited	41	82.94
Non-vested at May 5, 2024	1,292	$	91.02

PSUs

PSU awards granted to employees have a three-year service period. Each award is subject to various performance and/or market conditions goals as follows:


Grant Year	Goal for 50% of the Award	Goal for 50% of the Award
2021	Company total shareholder return (“TSR”) relative to a pre-established group of industry peers during a three-year period from the grant date	Company’s earnings before interest and taxes (“EBIT”) during fiscal 2021
2022	Company TSR relative to a pre-established group of industry peers during a three-year period from the grant date	Company’s cumulative EBIT during a fiscal three-year performance period
2023	Company TSR relative to a pre-established group of industry peers during a three-year period from the grant date	Company’s average return on invested capital (“ROIC”) during a fiscal three-year performance period
2024	Company TSR relative to a pre-established group of industry peers during a three-year period from the grant date	Company’s average ROIC during a fiscal three-year performance period

The final number of shares to be earned, if any, is contingent upon the Company’s achievement of goals for the applicable performance period. For awards granted in 2021, the holders of the awards earned an aggregate of 55,000 shares. The Company achieved performance on the one-year EBIT measure above the maximum performance level. The Company achieved performance on the three-year TSR measure between the threshold and target levels.

The Company records expense ratably over the three-year service period, with expense determined as follows: (i) TSR-based portion of the awards is based on the grant date fair value regardless of whether the market condition is satisfied because the awards are subject to market conditions and (ii) EBIT- and ROIC-based portion of the awards are based on the grant date fair value per share and the Company’s current expectations of the probable number of shares that will ultimately be issued.

The grant date fair value of the awards is established as follows: (i) TSR-based portion of the awards uses a Monte Carlo simulation model and (ii) EBIT- and ROIC-based portion of the awards are based on the closing price of the Company’s common stock reduced for the present value of any dividends expected to be paid on such common stock during the three-year service period, as these contingently issuable PSUs do not accrue dividends.

The following summarizes the assumptions used to estimate the fair value of PSUs subject to market conditions that were granted during the thirteen weeks ended May 5, 2024 and the resulting weighted average grant date fair value:


	5/5/24
Weighted average risk-free interest rate	4.71		%
Weighted average Company volatility	48.28		%
Expected annual dividends per share	$	0.15
Weighted average grant date fair value per PSU	$	138.12

For certain of the awards granted, the after-tax portion of the award is subject to a holding period of one year after the vesting date. For these awards, the grant date fair value was discounted 4.40% for the restriction of liquidity, which was calculated using the Finnerty model.

Total PSU activity for the thirteen weeks ended May 5, 2024 was as follows:


(In thousands, except per PSU data)	PSUs	Weighted Average Grant Date Fair Value Per PSU
Non-vested at February 4, 2024	236	$	102.29
Granted	127	122.76
Reduction due to market conditions achieved below target	1	157.70

Vested	55	124.12
Forfeited	—	—
Non-vested at May 5, 2024	307	$	106.68