Impact of COVID-19 Pandemic

3 Months Ended

May 30, 2020

Impact of COVID-19 Pandemic [Abstract]

Impact of COVID-19 Pandemic

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. That same month, as a result of the COVID-19 pandemic, the Company began to temporarily close certain store locations that did not have a health and personal care department, and as of March 23, 2020, all retail banner stores across the US and Canada were temporarily closed except for most stand-alone buybuy BABY and Harmon store locations, subject to state and local regulations. On May 8, 2020, the Company announced a phased approach to fully re-open a number of stores, subject to state and local regulations, and on May 22, 2020 the Company announced its plan to re-open additional stores as part of the phased approach to re-opening stores across North America, subject to state and local regulations. As of May 30, 2020, the majority of the Company’s stores remained temporarily closed. The Company expects nearly all stores to re-open during July 2020, subject to state and local regulations. In addition, the Company expects to expand its recently rolled out Buy-Online-Pick-Up-In-Store (“BOPIS”) and contactless Curbside Pickup services to cover the vast majority of stores.

The consequences of the pandemic and impact to the economy continue to evolve and the full extent of the impact is uncertain as of the date of this filing. To date, the pandemic has materially disrupted the operations of the Company and has resulted in the recording of additional non-cash impairment charges. The Company has proactively taken steps to strengthen its financial position and liquidity. including, among other things: (i) renegotiating payment terms for goods, services and rent, managing to lower inventory levels, and reducing discretionary spending such as business travel, advertising and expenses associated with the maintenance of stores that are temporarily closed; (ii) deferring other previously planned capital expenditures; (iii) postponing its plans for share repurchases and suspending dividends and planned debt reductions; and (iv) prioritizing spending on essential capital expenditures to drive strategic growth plans, including investments in digital, BOPIS and contactless Curbside Pickup services.

There can be no assurance that the Company will be able to successfully renegotiate payment terms with its business partners, and the ultimate outcomes of these activities, including the responses of business partners, are not yet known. The COVID-19 pandemic has materially impacted the Company’s results of operations and cash flows for its first quarter of fiscal 2020, and it could continue to impact results of operations and cash flows, as well as the Company’s financial condition. Given the uncertainty regarding the spread of this virus and the timing of the economic recovery, the ultimate financial impact cannot be reasonably predicted or estimated at this time.

Further, on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the United States. The CARES Act is an emergency economic aid package to help mitigate the impact of the COVID-19 pandemic. Among other things, the CARES Act provides certain changes to tax laws, which may impact the Company’s results of operations, financial position and cash flows. The Company is currently implementing certain provisions of the CARES Act, such as deferring employer payroll taxes and utilizing the ability to carry back and deduct losses to offset prior income in previously filed tax returns.

As of May 30, 2020, the Company has deferred $5.9 million of employer payroll taxes, of which 50% are required to be deposited by December 2021 and the remaining 50% by December 2022. During the three months ended May 30, 2020, the Company recorded an additional $43.0 million benefit as a result of the fiscal 2019 net operating losses that can now be carried back to prior years during which the federal tax rate was 35% under the CARES Act. In addition, the Company recorded a credit of $22.9 million as an offset to selling, general and administrative expenses as a result of the employee retention credits made available under the CARES Act for US employees and under the Canada Emergency Wage Subsidy for Canadian employees during the three months ended May 30, 2020.