The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See "Forward-Looking Statements" and Part I, Item 1A. "Risk Factors".
Business Overview
We are a leading omni-channel sporting goods retailer offering an extensive assortment of authentic, high-quality sports equipment, apparel, footwear and accessories. In addition toDICK'S Sporting Goods stores, we own and operate Golf Galaxy,Field & Stream , Public Lands, and Going Going Gone! stores, and offer our products both online and through our mobile apps. We also own and operateDICK'S House of Sport andGolf Galaxy Performance Center , as well as GameChanger, a youth sports mobile app for video streaming, scorekeeping, scheduling and communications. When used in this Annual Report on Form 10-K, unless the context otherwise requires or specifies, any reference to "year" is to our fiscal year. Our profitability is primarily influenced by the growth in consolidated same store sales, the strength of our gross margins derived from our omni-channel platform and our ability to manage expenses. We have grown from 676DICK'S Sporting Goods stores at the end of fiscal 2016 to 730DICK'S Sporting Goods stores at the end of fiscal 2021. Our current real estate strategy has resulted in a reduction in the rate at which we open newDICK'S Sporting Goods stores in recent years. We intend to continue this strategy over the next few years, which will allow us to continue to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities as leases come up for renewal. We expect that our future real estate strategy will include growth in new retail concepts and experiential store prototypes. We deploy an in-house eCommerce platform, which allows for continued innovation and enhancements to our eCommerce websites and applications, new releases of our mobile and tablet apps, and the development of omni-channel capabilities that further integrate our online presence with our brick and mortar stores to increase athlete engagement, including ship-from-store, buy-online, pick-up in store or curbside and multi-channel marketing campaigns. Our eCommerce sales penetration to total net sales increased from approximately 12% in fiscal 2016 to approximately 16% in fiscal 2019. Our eCommerce sales growth further accelerated during the COVID-19 pandemic. Compared to fiscal 2019, eCommerce sales increased 81% in fiscal 2021, and eCommerce penetration grew to 21% of total net sales. Approximately 70% of online sales during fiscal 2021 were fulfilled directly by our stores, which serve as localized points of distribution, and our stores enabled over 90% of fiscal 2021 sales through online fulfillment and in-person sales.
COVID-19 Update
Following temporary store closures in the spring of fiscal 2020 due to the COVID-19 pandemic, our differentiated product assortment, supply chain, technological capabilities and omni-channel platform enabled us to capitalize on strong consumer demand as net sales increased 40.5% in fiscal 2021 compared to fiscal 2019. In response to the pandemic, we implemented additional safety and cleaning protocols at our stores, distribution centers and corporate offices, as well as provided a temporary 15% pay premium program to our store and distribution center teammates through the end of fiscal 2020, resulting in$175 million in COVID-related costs. Following the conclusion of our temporary 15% pay premium program, in fiscal 2021 we transitioned these teammates to compensation programs with a longer-term focus, including accelerated annual merit increases and higher wages. Other COVID-related costs decreased significantly beginning in the second quarter of 2021 in consideration of guidance from theCenters for Disease Control and Prevention , resulting in total COVID-related costs of$15 million in fiscal 2021. The effect that the COVID-19 pandemic may have on our future business remains uncertain, including the long-term economic outlook, inflation and its impact on consumer discretionary spending behavior when the pandemic ends. Additionally, COVID-19 has disrupted global supply chains, including factory closures and port congestion that have resulted in longer transit times and rising container and transportation costs, which we expect will continue to remain elevated in the near term. Although we have successfully managed these challenges thus far, our ability to continue to replenish our inventory to meet current levels of consumer demand could be impacted by further delays or disruptions to the flow of products from our key vendor partners and our vertical brand sources. Our fiscal 2022 outlook contemplates this uncertainty, and we plan to continue to actively manage any impacts of COVID-19 on our business. 28 -------------------------------------------------------------------------------- Table of Contents
How We Evaluate Our Operations
Senior management focuses on certain key indicators to monitor our performance including:
•Consolidated same store sales performance - Our management considers same store sales, which consists of both brick and mortar and eCommerce sales, to be an important indicator of our current performance. Same store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Same store sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the same store sales calculation during the same fiscal period that it commences its 14th full month of operations. Stores that were permanently closed or relocated during the applicable period have been excluded from same store sales results. Each relocated store is returned to the same store sales base during the fiscal period that it commences its 14th full month of operations at the new location. See further discussion of our consolidated same store sales within the "Results of Operations" section herein. •Earnings before taxes and the related operating margin - Our management views operating margin and earnings before taxes as key indicators of our performance. The key drivers of earnings before taxes are same store sales, gross profit, and our ability to control selling, general and administrative expenses. •Cash flows from operating activities - Cash flow generation supports our general liquidity needs and funds capital expenditures for our omni-channel platform, which include investments in new and existing stores and our eCommerce channel, distribution and administrative facilities, continuous improvements to information technology tools, potential strategic acquisitions or investments that may arise from time-to-time and stockholder return initiatives, including cash dividends and share repurchases. We typically experience lower operating cash flows in our third fiscal quarter due to inventory purchases in advance of the holiday selling season, which normalizes in our fourth fiscal quarter. See discussion of our fiscal 2021 cash flows compared to fiscal 2020 in the "Liquidity and Capital Resources" section herein. •Quality of merchandise offerings - To measure acceptance of our merchandise offerings, we monitor sell-throughs, inventory turns, gross margins and markdown rates at the department and style level. This analysis helps us manage inventory levels to reduce working capital requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns.
•Store productivity - To assess store-level performance, we monitor various indicators, including new store productivity, sales per square foot, store operating contribution margin and store cash flow.
Due to temporary store closures and other actions taken in fiscal 2020 in response to the emergence of the COVID-19 pandemic, our fiscal 2021 operating plan was based on our 2019 results. Accordingly, we have also included comparative results from fiscal 2019 in our discussion of results of operations for fiscal 2021. Executive Summary
•Net sales increased 28.3% to
•Consolidated same store sales increased 26.5% from fiscal 2020, which was on top of a 9.9% consolidated same store sales increase last year. Fiscal 2019 consolidated same store sales increased 3.7%.
•eCommerce sales increased 81% in the current year compared to fiscal 2019, a 9% decrease compared to fiscal 2020.
•We reported net income of
•Net income in the current year included$22.8 million of non-cash interest expense, net of tax, related to our convertible senior notes due 2025 (the "Convertible Senior Notes") and earnings per diluted share included 11.3 million shares from these notes that are designed to be offset at conversion by our bond hedge, which together decreased earnings per diluted share by$1.83 . •Net income in fiscal 2020 included$16.0 million of non-cash interest expense, net of tax, related to our Convertible Senior Notes and earnings per diluted share included 3.5 million shares from these notes that are designed to be offset at conversion by our bond hedge, which together decreased earnings per diluted share by$0.40 . 29
-------------------------------------------------------------------------------- Table of Contents •In fiscal 2021 and fiscal 2020, net income included approximately$15 million and$175 million of pre-tax expenses, or$0.10 and$1.40 per diluted share, net of tax, respectively, of teammate compensation and safety costs resulting from the COVID-19 pandemic.
•In addition, during fiscal 2021, we:
•Declared and paid$603.0 million in dividends, including quarterly dividends and a special dividend in the amount of$5.50 per share, on our common stock and Class B common stock. The quarterly dividend of$0.4375 per share we paid in the third and fourth quarters represented a 21% increase over our previous quarterly dividend per share;
•Repurchased 10.79 million shares of common stock under our share repurchase
program for a total cost of
•Issued$1.5 billion of senior unsecured notes and concurrently replaced our revolving credit facility with a new unsecured$1.6 billion revolving credit facility (the "Credit Facility") as part of our inaugural long-term investment grade debt issuance, ending fiscal 2021 with$2.6 billion of cash and cash equivalents and no borrowings under our Credit Facility. •The following table summarizes store openings and closings in fiscal 2021 and fiscal 2020: Fiscal 2021 Fiscal 2020 DICK'S Sporting Specialty Concept Specialty Concept Goods (2) Stores (1) Total DICK'S Sporting Goods Stores (1) Total Beginning stores 728 126 854 726 124 850 New stores 6 8 14 7 10 17 Closed stores (3) 4 3 7 5 8 13 Ending stores 730 131 861 728 126 854 Relocated stores 11 1 12 12 3 15 (1)Includes our Golf Galaxy,Field & Stream , Public Lands and Going Going Gone! stores, and excludes temporary Warehouse Sale store locations. In some markets, we operateDICK'S Sporting Goods stores adjacent to our specialty concept stores on the same property with a pass-through for our athletes. We refer to this format as a "combo store" and include combo store openings within both theDICK'S Sporting Goods and specialty concept store reconciliations, as applicable.
(2)Includes two new
(3)Includes our closure and sublease of four
30
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Table of Contents Results of Operations The following table presents, for the fiscal years indicated, selected items in the Consolidated Statements of Income as a percentage of our net sales, as well as the basis point change in percentage of net sales from fiscal 2021 to fiscal 2020 and 2019: Basis Point Change Basis Point Change Fiscal Year in Percentage of in Percentage of Net Sales from Net Sales from Two Prior Year 2020 - Years Ago 2021 2020 (A) 2019 (A) 2021(A) 2019 - 2021 (A) Net sales (1) 100.00 % 100.00 % 100.00 % N/A N/A Cost of goods sold, including occupancy and distribution costs (2) 61.67 68.17 70.81 (650) (914) Gross profit 38.33 31.83 29.19 650 914 Selling, general and administrative expenses (3) 21.67 23.98 24.84 (231) (317) Pre-opening expenses (4) 0.11 0.11 0.06 - 5 Income from operations 16.55 7.74 4.29 881 1,226 (Gain) loss on sale of subsidiaries (5) - - (0.39) - 39 Interest expense 0.47 0.51 0.19 (4) 28 Other (income) expense (0.14) (0.20) (0.18) 6 4 Income before income taxes 16.22 7.43 4.66 879 1,156 Provision for income taxes 3.86 1.89 1.26 197 260 Net income 12.36 % 5.53 % 3.40 % 683 896 Other Data: Consolidated same store sales change (6) 26.5 % 9.9 % 3.7 % Number of stores at end of period (7) 861 854 850 Total square feet at end of period (in millions) (7) 42.4 42.0 41.8
(A) Column does not add due to rounding.
(1) Revenue from retail sales is recognized at the point of sale, net of sales tax. Revenue from eCommerce sales, including vendor-direct sales arrangements, is recognized upon shipment of merchandise. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Revenue from gift cards and returned merchandise credits (collectively the "cards") is deferred and recognized upon the redemption of the cards. The cards have no expiration date. (2) Cost of goods sold includes: the cost of merchandise (inclusive of vendor allowances, inventory shrinkage and inventory write-downs for the lower of cost or net realizable value); freight; distribution; shipping; and store occupancy costs. We define merchandise margin as net sales less the cost of merchandise sold. Store occupancy costs include rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses. (3) Selling, general and administrative expenses include store and field support payroll and fringe benefits, advertising, bank card charges, operating costs associated with our internal eCommerce platform, information systems, marketing, legal, accounting, other store expenses and all expenses associated with operating our customer support center. (4) Pre-opening expenses, which consist primarily of rent, marketing, payroll and recruiting costs, are expensed as incurred. Rent is recognized within pre-opening expense from the date we take possession of a site through the date the store opens.
(5) Represents the gain recorded in connection with our sale of two technology
subsidiaries, Blue Sombrero and
31 -------------------------------------------------------------------------------- Table of Contents (6) Consolidated same store sales include stores that were temporarily closed during fiscal 2020 as a result of the COVID-19 pandemic. The method of calculating consolidated same store sales varies across the retail industry, including as to the treatment of temporary store closures as a result of the COVID-19 pandemic. Accordingly, our method of calculating this metric may not be the same as other retailers' methods.
(7) Includes our
Note - As retailers vary in how they record costs of operating their stores and supply chain between cost of goods sold and selling, general and administrative expenses, our gross profit rate and selling, general and administrative expenses rate may not be comparable to other retailers. For additional information regarding the types of costs classified within cost of goods sold, selling, general and administrative expenses or any other financial statement line items presented herein, refer to Note 1-Basis of Presentation and Summary of Significant Accounting Policies included in Part IV. Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K. 32 -------------------------------------------------------------------------------- Table of Contents A discussion regarding our financial condition and results of operations for the year endedJanuary 29, 2022 (Fiscal 2021) compared to the year endedJanuary 30, 2021 (Fiscal 2020) is presented below. A discussion regarding our financial condition and results of operations for the year endedJanuary 30, 2021 (Fiscal 2020) compared to the year endedFebruary 1, 2020 (Fiscal 2019) can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year endedJanuary 30, 2021 , filed with theSEC onMarch 24, 2021 .
Fiscal 2021 Compared to Fiscal 2020
Net sales were$12.29 billion in fiscal 2021, a 28.3% increase from net sales of$9.58 billion in fiscal 2020, due primarily to a consolidated same store sales increase of$2.45 billion , or 26.5%, after giving effect to last year's temporary store closures resulting from the COVID-19 pandemic. The remaining$261.6 million increase in net sales was primarily attributable to new and relocated stores. The increase in consolidated same store sales was driven by balanced growth across hardlines, apparel and footwear, and included an 18.8% increase in transactions and a 7.7% increase in sales per transaction. Additionally, our consolidated same store sales increase included an increase in brick and mortar sales of over 42%, while eCommerce sales decreased approximately 9% compared to the prior year, as both channels were impacted by last year's temporary store closures. Compared to fiscal 2019, net sales increased approximately 40.5%. This included a 32.6% increase in brick and mortar sales and an 81% increase in eCommerce sales. eCommerce sales penetration as a percentage of net sales increased to approximately 21% in the current year compared to approximately 16% during fiscal 2019. As expected, eCommerce sales penetration decreased in the current year from 30% of net sales in fiscal 2020.
Income from Operations
Income from operations increased to
Gross profit increased 54.5% to$4,711.9 million in fiscal 2021 from$3,050.7 million in fiscal 2020 and increased as a percentage of net sales by 650 basis points due primarily to higher merchandise margin and occupancy leverage. Merchandise margin increased 407 basis points, which was driven by our differentiated product assortment and disciplined promotional strategy, as well as a favorable sales mix. In addition, merchandise cost increases resulting from higher supply chain and input costs were partially offset by selective price increases during the year. Occupancy costs, which after the cost of merchandise represents the largest item within our cost of goods sold, are generally fixed on a per store basis and fluctuate based on the number of stores that we operate. Our occupancy costs increased$14.2 million compared to fiscal 2020, but increased gross profit as a percentage of net sales by approximately 223 basis points due to the increase in net sales. The remaining increase in gross profit as a percentage of net sales included lower eCommerce shipping expense due primarily to a lower penetration of eCommerce sales compared to the prior year, partially offset by increased freight expenses due to continuing global supply chain disruptions following the start of the COVID-19 pandemic. Gross profit included approximately$23 million of COVID-related compensation and safety costs in fiscal 2020. Compared to fiscal 2019, gross profit increased approximately 914 basis points as a percentage of net sales, driven primarily by merchandise margin expansion of 626 basis points due to fewer promotions and a write-down of inventory related to the restructuring of our hunt business in fiscal 2019, and occupancy leverage of 336 basis points. These improvements were partially offset by higher freight costs due to the aforementioned global supply chain disruptions. Selling, general and administrative expenses increased 15.9% to$2,664.1 million in the current year from$2,298.5 million in fiscal 2020, but decreased as a percentage of net sales by 231 basis points due primarily to leverage from the increase in sales. The$365.6 million increase was due primarily to current year cost increases to support the growth in net sales, last year's operating expense reductions following our temporary store closures and higher incentive compensation expense, partially offset by lower contributions to The DICK'SSporting Goods Foundation , as fiscal 2020 included a$30 million contribution to help jump-start youth sports programs struggling to return from the COVID-19 pandemic. Selling, general and administrative expenses included approximately$15 million and$152 million of COVID-related costs in fiscal 2021 and fiscal 2020, respectively. Prior year COVID-related costs were net of a$17 million benefit from employee retention tax credits provided by the Coronavirus Aid, Relief and Economic Security Act and included a temporary 15% pay premium program. In the current year, we transitioned store teammates to compensation programs with a longer-term focus, including increasing and accelerating annual merit increases and higher hourly wages, partially offsetting the year-over-year decrease in COVID-related costs. 33 -------------------------------------------------------------------------------- Table of Contents Compared to fiscal 2019, selling, general and administrative expenses decreased as a percentage of net sales by 317 basis points due primarily to leverage from the increase in net sales, while increasing 22.6% from$2,173.7 million in fiscal 2019. The$490.4 million increase in selling, general and administrative expenses was due primarily to higher payroll and operating expenses incurred to support the increase in net sales, hourly wage rate investments and higher incentive compensation expense. Fiscal 2019 included hunt restructuring charges due to our removal of that department from 440DICK'S Sporting Goods stores and our exit from eightField & Stream stores, a non-cash asset impairment and the favorable settlement of a litigation contingency.
Interest Expense
Interest expense increased to$57.8 million in fiscal 2021 compared to$48.8 million in fiscal 2020, due primarily to a full year of interest expense on our Convertible Senior Notes, which were issued inApril 2020 . Interest expense included non-cash debt discount amortization related to our Convertible Senior Notes of$30.8 million in the current year and$21.6 million in the prior year.
Other Income
Other income decreased to$17.8 million in fiscal 2021 compared to$19.1 million in fiscal 2020. Other income primarily relates to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording a corresponding charge or reduction to selling, general and administrative costs.
Income Taxes
Our effective tax rate decreased to 23.8% in the current year from 25.5% in fiscal 2020. The current year effective tax rate was favorably impacted by the vesting of employee equity awards at a higher share price than awards that vested in the prior year.
Liquidity and Capital Resources
Our cash on hand atJanuary 29, 2022 was$2.6 billion , which was further strengthened as a result of our issuance of$1.5 billion investment-grade senior notes. We believe that we have sufficient cash flows from operations and cash on hand to operate our business for at least the next 12 months, supplemented by funds available under our new unsecured$1.6 billion Credit Facility, if necessary. We may require additional funding should we pursue strategic acquisitions, settle all or a portion of the Convertible Senior Notes, undertake share repurchases, pursue other investments or engage in store expansion rates in excess of historical levels. We had no revolving credit facility borrowings at any point during fiscal 2021.
The following sections describe the potential short and long term impacts to our liquidity and capital requirements.
Leases
We lease all of our stores, three of our distribution centers and certain equipment under non-cancellable operating leases that expire at various dates through 2033. Over two-thirds of ourDICK'S Sporting Goods stores will be up for lease renewal at our option over the next five years, and we plan to leverage the significant flexibility within our existing real estate portfolio to capitalize on future real estate opportunities. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 7-Leases for additional details.
Revolving Credit Facility
We have available to us a$1.6 billion Credit Facility, which includes a maximum amount of$75 million to be issued in the form of letters of credit. As ofJanuary 29, 2022 , there were no borrowings outstanding under the Credit Facility, and we have total remaining borrowing capacity, after adjusting for$16.1 million of standby letters of credit, of$1.58 billion . See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 8-Revolving Credit Facility for additional details. Senior Notes As ofJanuary 29, 2022 , we have$750 million principal amount of senior notes due 2032 (the "2032 Notes") and$750 million of senior notes due 2052 outstanding (the "2052 Notes" and together with the 2032 Notes, the "Senior Notes"). Cash interest accrues at a rate of 3.15% per year on the 2032 Notes and 4.10% per year on the 2052 Notes, each of which are payable semi-annually in arrears onJanuary 15 andJuly 15 . See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 9-Senior Notes for additional details.
As of
34 --------------------------------------------------------------------------------
Table of Contents Convertible Senior Notes As ofJanuary 29, 2022 , we have$575 million principal amount of Convertible Senior Notes outstanding. Cash interest accrues at a rate of 3.25% per year, payable semi-annually in arrears onApril 15 andOctober 15 . We currently anticipate that we will repay the principal amount of the Convertible Senior Notes in cash to minimize dilution, whether in connection with an early conversion of the Convertible Senior Notes or repayment at maturity inApril 2025 , using excess cash, free cash flow and borrowings on our Credit Facility. AtJanuary 29, 2022 , the stock price conditions under which the Convertible Senior Notes could be convertible at the holders' option were met. However, the Company has not received any material conversion requests through the filing date of this Annual Report on Form 10-K. There can be no assurance as to the availability of capital to fund such repayments, or to the extent that capital is available through additional debt issuances or refinancing of the Convertible Senior Notes, that such capital will be available on terms that are favorable to us. See Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 10-Convertible Senior Notes for additional details.
Capital Expenditures
Our capital expenditures are primarily allocated toward the development of our omni-channel platform, including investments in new and existing stores and eCommerce technology, while we have also invested in our supply chain and corporate technology capabilities. In fiscal 2021, capital expenditures totaled$308.3 million on a gross basis and$268.1 million on a net basis, which includes tenant allowances provided by landlords. We anticipate that fiscal 2022 capital expenditures will be in a range of$340 to$365 million , net of tenant allowances provided by landlords. We expect our expenditures to be concentrated on improvements within our existing stores and new store development, as well as on continued investments in technology to enhance our store fulfillment and in-store pickup capabilities.
Share Repurchases
From time-to-time, we may opportunistically repurchase shares of our common stock under favorable market conditions. In fiscal 2021, we repurchased approximately 10.79 million shares of our common stock for$1.18 billion . We currently operate under a$2.0 billion share repurchase program that was authorized by the Board of Directors inDecember 2021 . As ofJanuary 29, 2022 , the available amount remaining under theDecember 2021 authorization was$1.85 billion .
Any future share repurchase programs are subject to the authorization by our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.
Dividends
In fiscal 2021, we paid$603.0 million of dividends to our shareholders, which included a special dividend in the amount of$5.50 per share. OnMarch 7, 2022 , our Board of Directors declared an 11% increase in our quarterly cash dividend compared to the previous quarterly per share amount. The dividend of$0.4875 per share of common stock and Class B common stock is payable onMarch 25, 2022 to stockholders of record as of the close of business onMarch 18, 2022 . The declaration of future dividends and the establishment of the per share amount, record dates and payment dates for any such future dividends are subject to authorization by our Board of Directors and are dependent upon multiple factors, including future earnings, cash flows, financial requirements and other considerations. Supply Chain Financing We have entered into supply chain financing arrangements with several financial institutions, whereby suppliers have the opportunity to settle outstanding payment obligations early at a discount. In turn, we settle invoices with the financial institutions in accordance with the original supplier payment terms. Our rights and obligations to our suppliers, including amounts due and scheduled payment terms, are not impacted. Our liability associated with the funded participation in the arrangements, which is presented within accounts payable on the Consolidated Balance Sheet, was$76.0 million and$67.5 million as ofJanuary 29, 2022 andJanuary 30, 2021 , respectively. 35 --------------------------------------------------------------------------------
Table of Contents Cash Flows
Changes in cash and cash equivalents for the last three fiscal years are as follows (in millions):
Fiscal Year Ended January 29, January 30, February 1, 2022 2021 2020 Net cash provided by operating activities$ 1,616.9 $ 1,552.8 $ 404.6 Net cash used in investing activities (344.0) (224.2) (129.3) Net cash (used in) provided by financing activities (287.7) 260.0 (319.6) Effect of exchange rate changes on cash and cash equivalents (0.1) 0.1 -
Net increase (decrease) in cash and cash equivalents
$ 1,588.7 $ (44.3) Operating Activities Cash flows provided by operating activities increased$64.1 million in fiscal 2021 compared to fiscal 2020. The increase was primarily due to higher earnings, partially offset by higher cash payments for inventory and accounts payable to replenish inventory following a 11.3% inventory decrease in fiscal 2020, which included precautionary reductions in inventory receipts in response to the COVID-19 pandemic, supply chain constraints and a 9.5% sales increase in fiscal 2020 compared to fiscal 2019. The remaining year-over-year decrease in operating cash flows was primarily due to our fiscal 2020 deferrals of rent payments in response to the COVID-19 pandemic that we paid in fiscal 2021 and qualified payroll tax deferrals and related payments as permitted by the CARES Act.
Investing Activities
Cash used in investing activities for fiscal 2021 was$344.0 million , an increase of$119.8 million compared to the prior year. Gross capital expenditures increased$84.2 million , which included investments to enhance the athlete experience in our existing stores, including merchandise presentation, improving the fitting and lesson experience in our golf business, and store remodel and facility investments. Cash used in investing activities in fiscal 2021 also reflected$45.4 million of deposits and other investing activities, which included progress payments for the purchase of corporate aircraft.
Financing Activities
Financing activities have historically consisted of capital return initiatives, including share repurchases and cash dividend payments, cash flows generated from stock option exercises and cash activity associated with our Credit Facility, or other financing sources. Cash flows used in financing activities for fiscal 2021 included over$1.1 billion in share repurchases and the payment of a special dividend of$5.50 per share, which was partially offset by our issuance of the Senior Notes that provided net proceeds of approximately$1.5 billion . Prior year cash flows provided by financing activities included precautionary measures we took in response to the COVID-19 pandemic during fiscal 2020, which included activities related to the issuance of the Convertible Senior Notes and the temporary suspension of share repurchases.
Critical Accounting Policies and Use of Estimates
Our significant accounting policies are described in Part IV. Item 15. Exhibits and Financial Statement Schedules, Note 1-Basis of Presentation and Summary of Significant Accounting Policies. Critical accounting policies are those that we believe are both 1) most important to the portrayal of our financial condition and results of operations and 2) require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of such policies may result in materially different amounts being reported under different conditions or using different assumptions.
We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements.
Inventory Valuation
We value inventory using the lower of weighted average cost and net realizable value, which is generally based on the selling price expectations of the merchandise. We regularly review inventories to determine if the carrying value of the inventory exceeds net realizable value and, when determined necessary, record a reserve to reduce the carrying value to net realizable value. Changes in customer merchandise preference, current and anticipated demand, consumer spending, weather patterns, economic conditions, business trends or merchandising strategies could cause our inventory to be exposed to obsolescence or slow-moving merchandise. 36 -------------------------------------------------------------------------------- Table of Contents
Shrink expense is accrued as a percentage of merchandise sales based on historical shrink trends. We perform physical inventories at our stores and distribution centers throughout the year. The shrink reserve represents the cumulative loss estimate for each of our locations since the last physical inventory date through the reporting date. Estimates by location and in the aggregate are impacted by internal and external factors and may vary significantly from actual results.
Business Development Allowances
Business development allowances include allowances, rebates and cooperative advertising funds received from vendors. These funds are determined for each fiscal year and the majority are based on various quantitative contract terms. Amounts we expect to receive from vendors for the purchase of merchandise inventories ("vendor allowances") are recognized as a reduction of cost of goods sold as the merchandise is sold. Amounts that represent a reimbursement of costs incurred, such as cooperative advertising, are recorded as a reduction to the related expense in the period that the expense is incurred. We record estimates of earned allowances based on the latest projected purchase volumes and advertising forecasts.
Goodwill , indefinite-lived and other finite-lived intangible assets are reviewed for impairment on an annual basis, or whenever circumstances indicate that a decline in value may have occurred. Our evaluation for impairment requires accounting judgments and financial estimates in determining the fair value of the reporting unit or asset. If these judgments or estimates change in the future, we may be required to record impairment charges for these assets. Our goodwill impairment test compares the fair value of each reporting unit to its carrying value. We determine the fair value of our reporting units using a combination of an income approach and a market approach. Estimates may differ from actual results due to, among other things, economic conditions, changes to our business models, or changes in operating performance. Significant differences between these estimates and actual results could result in future impairment charges and could materially affect our future financial results. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, an impairment charge is recorded to reduce the carrying value of the reporting unit to its fair value. As ofJanuary 29, 2022 , we had no reporting units at risk of impairment. Similar to our test for impairment of goodwill, the impairment test for indefinite-lived intangible assets involves comparing their estimated fair values to their carrying values. We estimate the fair value of indefinite-lived intangible assets, which are comprised almost entirely of trademarks and trade names, based on an income approach using the relief-from-royalty method, which assumes that, in lieu of ownership, a third-party would be willing to pay a royalty in order to derive a benefit from these types of assets. This approach is dependent on a number of factors, including estimates of future sales projections and growth, royalty rates in the category of intellectual property, discount rates and other variables. If actual results are not consistent with our estimates and assumptions used in estimating fair value, we may be exposed to material losses. We recognize an impairment charge when the estimated fair value of the intangible asset is less than its carrying value. We recorded no such impairments in fiscal 2021 or 2020.
Impairment of Long-Lived Assets
We review long-lived assets whenever events and circumstances indicate that the carrying value of these assets may not be recoverable based on estimated undiscounted future cash flows. Assets are reviewed at the lowest level for which independent cash flows can be identified, which is typically the store level. We use an income approach to determine the fair value of individual store locations, which requires discounting projected future cash flows over each store's remaining lease term. When determining the stream of projected future cash flows associated with an individual store location, we make assumptions about key store variables that incorporate local market conditions, including sales growth rates, gross margin and controllable expenses, such as store payroll. An impairment loss is recognized when the carrying amount of the store location is not recoverable and exceeds its fair value.
We are self-insured for certain losses related to health, workers' compensation and general liability insurance, although we maintain stop-loss coverage with third-party insurers to limit our liability exposure. Liabilities associated with these losses are estimated in part by considering historical claim experience, industry factors, severity factors and other actuarial assumptions. 37 --------------------------------------------------------------------------------
Table of Contents Stock-Based Compensation We account for stock-based compensation in accordance with fair value recognition provisions. We use the Black-Scholes pricing model to estimate fair value of our stock options, which requires the input of multiple assumptions, such as the length of time employees will retain their vested stock options before exercising them ("expected term"), the volatility of our common stock price over the expected term and the expected dividend yield. In addition, we estimate the number of awards that will ultimately not complete their vesting requirements ("forfeitures") and recognize expense for those stock awards expected to vest. Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized on the Consolidated Statements of Income.
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