DICK'S SPORTING GOODS, INC. FORWARD-LOOKING STATEMENTS
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Quarterly Report on Form 10-Q or made by our management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Investors should not place undue reliance on forward-looking statements as a prediction of actual results. These statements can be identified as those that may predict, forecast, indicate or imply future results, performance or advancements and by forward-looking words such as "believe", "anticipate", "expect", "estimate", "predict", "intend", "plan", "project", "goal", "will", "will be", "will continue", "will result", "could", "may", "might" or any variations of such words or other words with similar meanings. Forward-looking statements address, among other things, our belief that consumers have made lasting lifestyle changes by an increased focus on health and fitness, sports, and outdoor activities, leading to structurally higher sales; current macroeconomic conditions, including the uncertain impact of inflation, fuel prices, and the risk of recession; supply chain disruptions and labor market challenges, including factory closures and port congestion, which are resulting in rising container and transportation costs; the normalization of sales in certain categories, including fitness and outdoor equipment; the adequacy of our cash flow; our ability to control expenses; plans to leverage our real estate portfolio to capitalize on future opportunities in the near and intermediate term as our existing leases come up for renewal and our plans to add new retail concepts and experiential stores; our intention to repay the principal outstanding amounts of the Convertible Senior Notes using excess cash, free cash flow or borrowings on our unsecured$1.6 billion revolving credit facility (the "Credit Facility"); projections of our future profitability; projected range of capital expenditures and our plans to make improvements within our existing stores and new store development and to continue investing in technology to enhance our store fulfillment and in-store pickup capabilities; anticipated store openings and relocations; plans to return capital to stockholders through dividends and in share repurchases; and our future results of operations and financial condition. The following factors, among others, in some cases have affected, and in the future, could affect our financial performance and actual results, and could cause actual results for fiscal 2022 and beyond to differ materially from those expressed or implied in any forward-looking statements included in this Quarterly Report on Form 10-Q or otherwise made by our management: ?Challenging macroeconomic conditions, including inflationary pressures, the risk of recession and supply chain constraints, due to COVID-19, the conflict inUkraine or otherwise; decreases in consumer demand for our products; and the effectiveness of measures to mitigate such impact on our business and consumer spending; ?The impact of COVID-19 on our business, operations and financial results, including the impact due to disruptions in our or our vendors' supply chains and due to restrictions imposed by federal, state, and local governments in response to increases in the number of COVID-19 cases in areas in which we operate; ?The dependence of our business on consumer discretionary spending, the impact of a decrease in discretionary spending due to inflation or otherwise on our business, and our ability to predict or effectively react to changes in consumer demand or shopping patterns, including the short-term and long-term impact due to the COVID-19 pandemic;
?Intense competition in the sporting goods industry and in retail, including competition for talent and the level of competitive promotional activity;
?Increasing product costs, which could be caused by numerous reasons including foreign trade issues, currency exchange rate fluctuations, increasing prices for materials due to inflation or other reasons, supply chain delays, associated costs and constraints, or foreign political instability;
?Disruptions to our eCommerce platform, including interruptions, delays or downtime caused by high volumes of users or transactions; deficiencies in design or implementation; or platform enhancements;
?Vendors continuing to sell or increasingly selling their products directly to customers or through broadened or alternative distribution channels;
?Negative reactions from our customers, shareholders or vendors regarding changes to our policies or positions related to social and political issues;
?That our strategic plans and initiatives may initially result in a negative impact on our financial results, or that such plans and initiatives may not achieve the desired results within the anticipated time frame or at all;
•The impact of an increase to corporate tax rates or imposition of an excise tax
with respect to share repurchase activity, including the potential impact of the
Inflation Reduction Act of 2022;
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Table of Contents•Our ability to optimize our store lease portfolio and our distribution and fulfillment network;
?Unauthorized disclosure of sensitive or confidential customer information;
?Risks associated with our vertical brand offerings, including product liability and product recalls, specialty concept stores, and GameChanger;
?Disruptions or other problems with our information systems;
?Risks and costs relating to changing laws and regulations affecting our business, including consumer products; firearms and ammunition; tax, foreign trade; labor; data protection; privacy; environmental, social, and governance issues;
?Litigation risks for which we may not have sufficient insurance or other coverage;
?Our ability to secure and protect our trademarks and other intellectual property and defend claims of intellectual property infringement;
?Our ability to protect the reputation of our Company and our brands;
?Our ability to attract, train, engage and retain qualified leaders and
associates due to current labor challenges or otherwise or the loss of
?The impact of wage increases on our financial results, including those related to supply chain disruptions and labor challenges;
?Disruptions at our supply chain facilities or customer support center;
?Poor performance of professional sports teams, professional team lockouts or strikes, retirement, serious injury or scandal involving key athletes, and disruptions to or cancellations of major sporting events or organized youth and adult sports programs due to COVID-19 or otherwise; ?Weather-related disruptions, unusual seasonal weather patterns and the overall seasonality of our business, as well as the current geographic concentration ofDICK'S Sporting Goods stores;
?Our pursuit of strategic investments or acquisitions, including the timing and costs of such investments and acquisitions;
?We are controlled by our Executive Chairman and his relatives, whose interests may differ from those of our other stockholders;
?Risks related to our indebtedness, including the senior notes due 2032 (the "2032 Notes") and senior notes due 2052 (the "2052 Notes" and together with the 2032 Notes, the "Senior Notes"), the Convertible Senior Notes and the related bond hedge and warrant transactions;
?Our current anti-takeover provisions, which could prevent or delay a change in control of the Company; and
?The issuance of special or quarterly cash dividends and our repurchase activity, if any, pursuant to our share repurchase programs.
The foregoing and additional risk factors are described in more detail in Item 1A. "Risk Factors" of this Quarterly Report and other reports or filings filed or furnished by us with theSecurities and Exchange Commission , including our Annual Report on Form 10-K for the year endedJanuary 29, 2022 , filed onMarch 23, 2022 (our "2021 Annual Report"). In addition, we operate in a highly competitive and rapidly changing environment; therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as of the date hereof. We do not assume any obligation and do not intend to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise except as may be required by securities laws.
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! specialty concept 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 scheduling, communications, live scorekeeping and video streaming. When used in this Quarterly Report on Form 10-Q, unless the context otherwise requires or specifies, any reference to "year" is to our fiscal year. 16 -------------------------------------------------------------------------------- Table of Contents Over the past five years, we have transformed our business to drive sustainable growth in sales and profitability. During this time, we meaningfully improved our merchandise assortment, as our strong relationships with our key brand partners provided access to highly differentiated product. We also enhanced our store selling culture and service model and incorporated experiential elements and technology into our stores to engage our athletes. Finally, we invested in technology and data science to improve our pricing strategy, digital marketing and personalization. Consumers have also made lasting lifestyle changes in recent years, increasing their focus on health and fitness, sports and outdoor activities. As a result of our core strategies, foundational improvements and favorable consumer trends, net sales increased 40.5% in fiscal 2021 compared to fiscal 2019, while merchandise margins increased 626 basis points as a percentage of net sales in the same period-to-period comparison. Our profitability is primarily influenced by growth in comparable store sales, the strength of merchandise margins derived from our omni-channel platform and our ability to manage operating expenses. With our structurally higher sales, expanded merchandise margins, and operating expense leverage, our pre-tax income as a percentage of net sales has grown from 4.7% in fiscal 2019 to 16.2% in fiscal 2021.
Macroeconomic Outlook
The macroeconomic environment in which we operate remains uncertain as a result of numerous factors, including inflation and the potential risk of recession. In addition, the continued disruption of global labor markets and supply chains due to COVID-19 and other factors, including factory closures and port congestion, has resulted in longer transit times and elevated container and transportation costs that we expect will continue in the near term. Although we have successfully managed these issues thus far, the longer-term effect of these challenges may impact consumer discretionary spending behavior and the promotional landscape in which we operate. Our revised fiscal 2022 outlook contemplates this uncertainty.
How We Evaluate Our Operations
Senior management focuses on certain key indicators to monitor our performance, including:
?Comparable store sales performance - Our management considers comparable store sales, which includes online sales, to be an important indicator of our current performance. Comparable store sales results are important to leverage our costs, which include occupancy costs, store payroll and other store expenses. Comparable store sales also have a direct impact on our total net sales, net income, cash and working capital. A store is included in the comparable store sales calculation during the same fiscal period that it commences its 14th full month of operations. Relocated stores are included in the comparable store sales calculation from the open date of the original location. Stores that were permanently closed during the applicable period have been excluded from comparable store sales results. See further discussion of our comparable store sales in the "Results of Operations and Other Selected Data" 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 comparable 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 increased inventory purchases in advance of the holiday selling season, which typically normalizes in our fourth fiscal quarter. See further discussion of our cash flows in the "Liquidity and Capital Resources" section herein. ?Quality of merchandise offerings - To measure effectiveness 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.
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CRITICAL ACCOUNTING POLICIES
As discussed in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Company's 2021 Annual Report, we
consider our policies on inventory valuation, business development allowances,
goodwill and intangible assets, impairment of long-lived assets, self-insurance
reserves and stock-based compensation to be the most critical in understanding
the judgments that are involved in preparing our consolidated financial
statements.
RESULTS OF OPERATIONS AND OTHER SELECTED DATA
Executive Summary
•Net sales decreased 5.0% to$3.11 billion in the current quarter from$3.27 billion during the second quarter of 2021, which included a decrease in comparable store sales of 5.1% following a 20.2% increase in the same period last year. When compared to the second quarter of 2019, net sales increased 38%. •In the current quarter, we reported net income of$318.5 million , or$3.25 per diluted share, compared to$495.5 million , or$4.53 per diluted share, during the second quarter of 2021. •Earnings per diluted share for the current quarter excluded$8.0 million of interest expense, net of tax, and included 13.9 million diluted shares related to the Convertible Senior Notes, which together, decreased earnings per diluted share by$0.43 . In fiscal 2022, earnings per diluted share reflects the adoption of ASU 2020-06, which requires the assumption that our Convertible Senior Notes will be settled in shares of our common stock. Due to our intent to settle the principal of the Convertible Senior Notes in cash and the shares we expect to receive from our convertible bond hedge, which is designed to offset dilution, we do not expect the Convertible Senior Notes will have a dilutive effect upon conversion. •Net income in the second quarter of 2021 included$5.7 million of non-cash interest expense, net of tax, and earnings per diluted share included 10.7 million shares related to the Convertible Senior Notes that are designed to be offset at conversion by our bond hedge, which together decreased earnings per diluted share by$0.55 in the prior year quarter.
•During the second quarter of 2022, we:
•Exchanged$100 million aggregate principal amount of our 3.25% Convertible Senior Notes and unwound the corresponding portion of the convertible bond hedge and warrants for$100 million of cash and 1.7 million shares of our common stock;
•Declared and paid a quarterly cash dividend in the amount of
•Repurchased 3.9 million shares of common stock for a total cost of
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•The following table summarizes store openings and permanent store closures for
the periods indicated:
Fiscal 2022 Fiscal 2021
DICK'S Sporting Specialty Concept DICK'S Sporting Specialty Concept
Goods (1) Stores (2) Total Goods (1) Stores (2) Total
Beginning stores 730 131 861 728 126 854
Q1 New stores - 1 1 2 - 2
Q2 New stores 1 1 2 1 1 2
Closed stores 1 3 4 - 1 1
Ending stores 730 130 860 731 126 857
Relocated stores 3 1 4 7 - 7
(1)Fiscal 2021 includes two
(2)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. As ofJuly 30, 2022 , the Company operated 25 combo stores. The following tables present selected information from the unaudited Consolidated Statements of Income as a percentage of net sales and the changes in the percentage of net sales from the comparable 2021 period, and other data, and are provided to facilitate a further understanding of our business. These tables should be read in conjunction with Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the accompanying unaudited Consolidated Financial Statements and related notes thereto. Basis Point Change in Percentage of Net Sales from 13 Weeks Ended Prior Year July 30, 2022 July 31, 2021 2021-2022 Net sales (1) 100.00 % 100.00 % N/A
Cost of goods sold, including occupancy and distribution costs (2)
63.97 60.09 388
Gross profit 36.03 39.91 (388)
Selling, general and administrative expenses (3) 21.12 19.55 157
Pre-opening expenses (4) 0.12 0.10 2
Income from operations 14.79 20.26 (547)
Interest expense 0.82 0.42 40
Other expense (income) 0.24 (0.21) 45
Income before income taxes 13.73 20.05 (632)
Provision for income taxes 3.50 4.92 (142)
Net income 10.23 % 15.13 % (490)
Other Data:
Comparable store sales (decrease) increase (5) (5.1 %) 20.2 %
Number of stores at end of period (6) 860 857
Total square feet at end of period (6) 42,394,897 42,278,449
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Basis Point Change
in Percentage of
Net Sales from
26 Weeks Ended Prior Year
July 30, 2022 July 31, 2021 (A) 2021-2022 (A)
Net sales (1) 100.00 % 100.00 % N/A
Cost of goods sold, including occupancy and distribution costs (2)
63.77 61.32 245
Gross profit 36.23 38.68 (245)
Selling, general and administrative expenses (3) 21.89 20.16 173
Pre-opening expenses (4) 0.12 0.13 (1)
Income from operations 14.22 18.40 (418)
Interest expense 0.88 0.44 44
Other expense (income) 0.28 (0.23) 51
Income before income taxes 13.06 18.19 (513)
Provision for income taxes 3.10 4.34 (124)
Net income 9.96 % 13.84 % (388)
Other Data:
Comparable store sales (decrease) increase (5) (6.6 %) 52.2 %
Number of stores at end of period (6) 860 857
Total square feet at end of period (6) 42,394,897 42,278,449
(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)Beginning in fiscal 2022, we revised our method for determining comparable store sales calculations to include relocated store locations. Prior year information is revised to reflect this change for comparability purposes. See additional details as furnished in Exhibit 99.2 of Form 8-K, which was filed with theSecurities and Exchange Commission onMarch 8, 2022 .
(6)Includes our
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13 Weeks Ended
Net sales decreased approximately 5.0% to$3,112.4 million in the current quarter from$3,274.8 million in the quarter endedJuly 31, 2021 , due primarily to a$164.1 million , or 5.1%, decrease in comparable store sales. The decrease in comparable store sales included an 8.4% decrease in transactions offset by a 3.3% increase in sales per transaction, and reflects an anticipated sales normalization in certain categories, including fitness and outdoor equipment, as well as inventory constraints affecting apparel, partially offset by growth in footwear and team sports. Income from Operations
Income from operations decreased to
Gross profit decreased to$1,121.4 million in the current quarter from$1,307.1 million for the quarter endedJuly 31, 2021 and decreased as a percentage of net sales by approximately 388 basis points. Merchandise margins decreased 197 basis points, as we strategically introduced some item level pricing offerings, and higher inventory shrink due to increased theft. In addition, supply chain costs increased approximately 92 basis points, primarily due to continuing global disruptions, and occupancy deleveraged 71 basis points. 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$9.1 million compared to the prior year quarter. The remaining decrease in gross profit as a percentage of net sales was driven by an increase in eCommerce shipping expense. Selling, general and administrative expenses increased to$657.4 million in the current quarter from$640.3 million during the second quarter of 2021, and increased as a percentage of net sales by 157 basis points primarily due to the decrease in net sales. The$17.1 million increase was driven by investments in hourly wage rates and talent to support our growth strategies, offset by a$17.8 million net cost reduction compared to the prior year quarter related to changes in the investment values of our deferred compensation plans, for which the corresponding investment change was recognized in Other Expense.
Interest Expense
Interest expense increased to$25.5 million in the current quarter from$13.8 million in the prior year quarter. The increase was primarily due to$13.8 million of interest expense related to the aggregate$1.5 billion Senior Notes issued during the fourth quarter of 2021. Current quarter interest expense also included$6.6 million of inducement charges related to the exchange of$100 million aggregate principal amount of the Convertible Senior Notes, which were primarily offset by a reduction in non-cash interest expense due to our adoption of ASU 2020-06; see Part I. Item 1. Financial Statements, Note 1 - Description of Business and Basis of Presentation for additional details.
Other Expense (Income)
Other expense totaled$7.4 million in the current quarter compared to other income of$6.8 million in the prior year quarter. The change was primarily due to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording an offsetting charge or reduction to selling, general and administrative costs.
Income Taxes
Our effective tax rate increased to 25.5% in the current quarter from 24.5% in
the quarter ended
26 Weeks Ended
Net sales were$5,812.6 million in the current period, a 6.2% decrease from net sales of$6,193.6 million reported for the prior year period, due primarily to a$403.2 million , or 6.6%, decrease in comparable store sales, partially offset by a$22.2 million increase in net sales primarily attributable to new stores. The decrease in comparable store sales included a 7.4% decrease in transactions offset by a 0.8% increase in sales per transaction, and reflects an anticipated sales normalization in certain categories, including fitness and outdoor equipment, along with last year's favorable sales impact following government stimulus payments, and inventory constraints affecting apparel, partially offset by growth in footwear and team sports. 21 --------------------------------------------------------------------------------
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Income from Operations
Income from operations decreased to
Gross profit decreased to$2,106.1 million for the current period from$2,395.7 million for the prior year period, a decrease as a percentage of net sales of 245 basis points, primarily due to a 98 basis point increase in supply chain related costs, primarily due to continuing global disruptions and 81 basis points of occupancy deleverage. Our occupancy costs increased$15.5 million compared to the prior year period and decreased gross profit as a percentage of net sales due primarily to the decrease in net sales. The remaining decrease in gross profit as a percentage of net sales was primarily driven by lower merchandise margin and higher eCommerce shipping expenses. Selling, general and administrative expenses increased to$1,272.7 million in the current year-to-date period from$1,248.6 million for the prior year period, and increased as a percentage of net sales by 173 basis points primarily due to the decrease in net sales. The$24.1 million increase was driven by investments in hourly wage rates and talent to support our growth strategies, along with higher brand-building marketing expenses, offset by lower incentive compensation expense and a$34.8 million net cost reduction compared to the prior year period related to changes in the investment values of our deferred compensation plans, for which the corresponding investment change was recognized in Other Expense. In addition, selling, general and administrative expense included approximately$15 million of COVID-related costs in the prior year-to-date period.
Interest Expense
Interest expense increased to$51.1 million in the current period from$27.2 million in the prior year period. The increase was primarily due to$27.6 million of interest expense related to the aggregate$1.5 billion Senior Notes issued during the fourth quarter of 2021. Current period interest expense also included$12.3 million of inducement charges related to three exchange transactions totaling$200 million aggregate principal amount of the Convertible Senior Notes, which were primarily offset by a reduction in non-cash interest expense due to our adoption of ASU 2020-06; see Part I. Item 1. Financial Statements, Note 1 - Description of Business and Basis of Presentation for additional details.
Other Expense (Income)
Other expense totaled$16.4 million in the current period compared to other income of$14.1 million for the period endedJuly 31, 2021 . The change was primarily due to changes in our deferred compensation plan investment values, which we account for by recognizing investment income or expense and recording an offsetting charge or reduction to selling, general and administrative costs.
Income Taxes
Our effective tax rate decreased to 23.7% for the current period from 23.9% for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Our cash on hand atJuly 30, 2022 was$1.90 billion . We believe that we have sufficient cash flows from operations and cash on hand to operate our business for at least the next twelve months, supplemented by funds available under our 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.
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. 22 --------------------------------------------------------------------------------
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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. Loans under
the Credit Facility bear interest at an alternate base rate or an adjusted
secured overnight financing rate plus, in each case, an applicable margin
percentage. As of July 30, 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 . We were in
compliance with all covenants under the Credit Facility agreement at July 30,
2022 .
Senior Notes
As of July 30, 2022 , we have $750 million principal amount of 2032 Notes and
$750 million of 2052 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 on January 15 and July 15 .
Convertible Senior Notes
Following our exchanges totaling$200 million principal amount in cash during the 26 weeks endedJuly 30, 2022 , we have an aggregate principal amount of$375 million of Convertible Senior Notes outstanding. Cash interest accrues at a rate of 3.25% per annum, payable semi-annually in arrears onApril 15 andOctober 15 . We currently anticipate that we will repay the remaining principal amount of the Convertible Senior Notes in cash, whether in connection with an early conversion of such notes or repayment at maturity, using excess cash, free cash flow or borrowings on our Credit Facility to minimize share dilution. However, we may need to pursue additional sources of liquidity to repay the Convertible Senior Notes in cash at their maturity date inApril 2025 or upon early conversion, as applicable. As ofJuly 30, 2022 , the stock price conditions under which the Convertible Senior Notes could be convertible at the holders' option were met. However, we have not received any material conversion requests through the filing date of this Form 10-Q. There can be no assurance that any capital required to repay our Convertible Senior Notes will be available on terms that are favorable to us, or at all. 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. Capital expenditures for the 26 weeks endedJuly 30, 2022 totaled$167.7 million on a gross basis and$138.4 million on a net basis, which includes tenant allowances provided by landlords. We anticipate that fiscal 2022 gross capital expenditures will be in a range of$400 to$425 million , and$340 to$365 million on a net basis, which includes tenant allowances provided by landlords. We expect our capital expenditures to be concentrated on improvements within our existing stores and new store development, as well as continued investments in technology to enhance our store fulfillment, in-store pickup and other foundational capabilities.
Share Repurchases
From time-to-time, we may opportunistically repurchase shares of our common stock. During the 26 weeks endedJuly 30, 2022 , we repurchased approximately 4.4 million shares of our common stock at a cost of$361.1 million . We currently operate under a$2.0 billion share repurchase program that was authorized by the Board of Directors onDecember 16, 2021 . As ofJuly 30, 2022 , the available amount remaining under theDecember 2021 authorization was$1.5 billion . Any future share repurchase programs are subject to authorization by our Board of Directors and will be dependent upon future earnings, cash flows, financial requirements and other factors.
Dividends
During the 26 weeks endedJuly 30, 2022 , we have paid$82.9 million of dividends to our stockholders. OnAugust 22, 2022 , our Board of Directors authorized and declared a quarterly cash dividend in the amount of$0.4875 per share of common stock and Class B common stock, payable onSeptember 30, 2022 to stockholders of record as of the close of business onSeptember 9, 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. 23 --------------------------------------------------------------------------------
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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 $86.1 million and $76.0 million as of
July 30, 2022 and January 29, 2022 , respectively.
Cash Flows
Changes in cash and cash equivalents are as follows:
26 Weeks Ended
July 30, July 31,
(in millions) 2022 2021
Net cash provided by operating activities $ 101.7 $ 1,030.8
Net cash used in investing activities (171.0) (177.1)
Net cash used in financing activities (678.4)
(275.0)
Effect of exchange rate changes on cash and cash equivalents -
-
Net (decrease) increase in cash and cash equivalents$ (747.7) $ 578.7 Operating Activities Cash from operating activities decreased$929.0 million for the 26 weeks endedJuly 30, 2022 compared to the same period in the prior year. The decrease was primarily due to a$465.4 million increase in cash payments for inventory and accounts payable to replenish inventory levels after a 28.3% sales increase in fiscal 2021 and supply chain disruptions following the start of COVID-19, which resulted in inventory growth relatively in line with sales growth compared to fiscal 2019. The remaining decrease in cash from operating activities was primarily driven by a$278.2 million decrease in earnings during the current period as compared to the same period last year, and a$126.0 million decrease in accrued expenses as a result of year-over-year changes in incentive compensation accruals and corresponding payments, and the timing of marketing and deferred compensation plan payments.
Investing Activities
Cash used in investing activities decreased$6.1 million for the 26 weeks endedJuly 30, 2022 compared to the same period last year. Gross capital expenditures for the current period include investments in our stores and technology, offset by last year's investments in merchandise presentation, space optimization and investments to enhance the fitting and lesson experience in our golf business.
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 used in financing activities increased$403.4 million for the 26 weeks endedJuly 30, 2022 compared to the prior year period, primarily driven by higher share repurchases and the exchange of$200 million aggregate principal amount of our Convertible Senior Notes during the current year.
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