DOLLAR GENERAL CORPORATION General
This discussion and analysis is based on, should be read with, and is qualified in its entirety by, the accompanying unaudited condensed consolidated financial statements and related notes, as well as our consolidated financial statements and the related Management's Discussion and Analysis of Financial Condition and Results of Operations as contained in our Annual Report on Form 10-K for the fiscal year endedJanuary 29, 2021 . It also should be read in conjunction with the disclosure under "Cautionary Disclosure Regarding Forward-Looking Statements" in this report. Impact of COVID-19 The COVID-19 (coronavirus) pandemic has resulted in widespread and continuing impacts on the global economy and continues to affect our business, as well as our customers, suppliers, and other business partners. In addition, the pandemic has contributed to, and may continue to contribute to, financial results that differ significantly from our historical results and seasonal variations that are significantly different from our historical patterns. In earlyMarch 2020 , we began seeing heightened demand from customers, particularly for consumable products such as paper, food and cleaning products, which continued throughout 2020, although with some variability as to the volume and product mix. Beginning inApril 2020 , demand significantly increased for many non-consumable products, including home, seasonal and apparel, resulting in an overall significant mix shift into non-consumable categories, which continued through the first quarter of 2021, although this trend began to reverse in the second quarter of 2021. We believe these buying patterns were influenced in part by the economic stimulus payments and enhanced unemployment benefits. We also have been acquiring new customers since the beginning of the pandemic, and we are pleased with the retention rates. Finally, general trends in customer behavior toward trip consolidation, and purchases of larger average basket amounts, which began in 2020 as customers shopped our stores less frequently than in 2019, have continued in 2021. Heightened customer demand and the shifts in customer behavior significantly benefited our results of operations, and in particular, sales, gross profit, operating income and net income, for fiscal 2020 and the first and second quarters of 2021. We anticipate a less favorable overall net impact of the pandemic to operating income and net income for fiscal 2021 than fiscal 2020 primarily due to the moderating positive impact to our net sales and the impacts that the phase out of various economic stabilization efforts such as economic stimulus payments and enhanced unemployment benefits may have on our customers. We expect to continue to be affected, although the extent and duration is unknown, by the COVID-19 pandemic and its effects on the economy in a variety of ways, including changing consumer demand (whether higher or lower) in certain product categories; supply chain constraints, delays and interruptions (including product shortages and vendor allocation issues); increased distribution and transportation costs; increased payroll expenses; and increased costs in an effort to maintain safe work and shopping environments. Our operating environment during COVID-19 remains very fluid, and developments in this environment, including additional government economic stabilization efforts or actions, or the failure to take such efforts or actions, may materially impact our business, results of operations and financial condition. As a result, the quarterly cadence of our results of operations may continue to vary from historical patterns for an extended period of time. Due to the significant uncertainty surrounding the COVID-19 pandemic and its effects, including its duration; the duration and intensity of new variants; the availability, adoption rates and effectiveness of vaccines; the extent and duration of any government response efforts, programs and benefits; and impact on employment trends, consumer behavior and the supply chain, there may be consequences that we do not anticipate at this time or that develop in unexpected ways. We will continue to monitor the evolving situation, and we will continue to take actions as necessary to serve our employees, customers, communities and shareholders. 14 Executive Overview We are the largest discount retailer inthe United States by number of stores, with 17,683 stores located in 46 states as ofJuly 30, 2021 , with the greatest concentration of stores in the southern, southwestern, midwestern and easternUnited States . We offer a broad selection of merchandise, including consumable products such as food, paper and cleaning products, health and beauty products and pet supplies, and non-consumable products such as seasonal merchandise, home decor and domestics, and basic apparel. Our merchandise includes national brands from leading manufacturers, as well as our own private brand selections with prices at substantial discounts to national brands. We offer our customers these national brand and private brand products at everyday low prices (typically$10 or less) in our convenient small-box locations. We believe our convenient store formats, locations, and broad selection of high-quality products at compelling values have driven our substantial growth and financial success over the years and through a variety of economic cycles. We are mindful that the majority of our customers are value-conscious, and many have low and/or fixed incomes. As a result, we are intensely focused on helping our customers make the most of their spending dollars. Our core customers are often among the first to be affected by negative or uncertain economic conditions and among the last to feel the effects of improving economic conditions, particularly when trends are inconsistent and of an uncertain duration. The primary macroeconomic factors that affect our core customers include the unemployment and underemployment rates, wage growth, changes inU.S. and global trade policy, and changes to certain government assistance programs, such as theSupplemental Nutrition Assistance Program , unemployment benefits, economic stimulus payments, and the child tax credit. In 2020 and the first half of 2021, our customers experienced impacts from many of these factors, as detailed above under "Impact of COVID-19". We are monitoring the potential impact of changes to SNAP benefits and unemployment benefit programs, as well as the monthly payments of the child tax credit, all of which may impact our customers during the second half of 2021. Additionally, our customers are impacted by increases in those expenses that generally comprise a large portion of their household budgets, such as rent, healthcare, and fuel prices; as well as cost inflation in frequently purchased household products. Finally, significant unseasonable or unusual weather patterns can impact customer shopping behaviors. We remain committed to our long-term operating priorities as we consistently strive to improve our performance while retaining our customer-centric focus. These priorities include: 1) driving profitable sales growth, 2) capturing growth opportunities, 3) enhancing our position as a low-cost operator, and 4) investing in our diverse teams through development, empowerment and inclusion. We seek to drive profitable sales growth through initiatives aimed at increasing customer traffic and average transaction amount. As we work to provide everyday low prices and meet our customers' affordability needs, we remain focused on enhancing our margins through effective category management, inventory shrink reduction initiatives, private brands penetration, distribution and transportation efficiencies, global sourcing, and pricing and markdown optimization. Several of our strategic and other sales-driving initiatives are also designed to capture growth opportunities and are discussed in more detail below. Historically, our sales in our consumables category, which tend to have lower gross margins, have been the key drivers of net sales and customer traffic, while sales in our non-consumables categories, which tend to have higher gross margins, have contributed to more profitable sales growth and an increase in average transaction amount. Prior to 2020, our sales mix had continued to shift toward consumables, and, within consumables, toward lower margin departments such as perishables. This trend did not occur in 2020 or the first quarter of 2021 (as discussed above under "Impact of COVID-19"), though we did begin to see some reversion toward the prior mix trends beginning in the second quarter of 2021. We continue to expect some sales mix challenges to persist, and we expect the mix trend reversion toward consumables will continue. Several of our initiatives, including certain of those discussed below, are intended to address these mix challenges; however, there can be no assurances that these efforts will be successful.
We continue to make progress on and invest in certain strategic initiatives that we believe will help drive profitable sales growth, both with new and existing customers, and capture long-term growth opportunities. Such opportunities include leveraging existing and developing new digital tools and technology to provide our customers with additional shopping access points and even greater convenience. This technology includes ourDollar General app, which contains a variety of tools to enhance the in-store shopping experience. Additionally, DG Pickup, which is a buy online, pickup in-store initiative, is now available in more than 17,000 stores across the chain. Further, our non-consumables initiative, which offers a new, differentiated and limited assortment that will change throughout the year, is contributing 15 to improved overall sales and gross margin performance in stores where it has been deployed. We plan to significantly expand the number of stores with the full or "lite" version of our non-consumables initiative offering in 2021, and to complete our initial rollout of the non-consumables initiative in the vast majority of ourDollar General stores by the end of fiscal 2022. Additionally, in the third quarter of 2020, we introduced pOpshelf, a unique retail concept that incorporates certain of the lessons learned from NCI in a differentiated format that is focused on categories such as seasonal and home décor, health and beauty, home cleaning supplies, and party and entertainment goods. At the end of the second quarter of 2021, we operated 16 standalone pOpshelf locations and two pOpshelf store-within-a-store offerings within existing DollarGeneral Market stores. Our goal is to operate up to 50 pOpshelf locations, as well as up to 25 pOpshelf store-within-a-store offerings by the end of fiscal 2021. In the second quarter of 2021, we completed our rollout of the "DG Fresh" initiative, a self-distribution model for frozen and refrigerated products that is designed to reduce product costs, enhance item assortment, improve our in-stock position, and enhance sales. DG Fresh contributed to our strong sales performance in the first half of 2021, driven by higher in-stock levels and the introduction of new products in select stores. In addition, DG Fresh benefitted gross profit in the first half of 2021 through improved initial markups on inventory purchases, which were partially offset by increased distribution and transportation costs. DG Fresh now serves essentially all stores across the chain, and we expect the overall net benefit to our financial results to continue throughout 2021. Moving forward, we plan to focus on further optimization of the distribution footprint and product assortment within DG Fresh to further drive profitable sales growth. To support our other operating priorities, we remain focused on capturing growth opportunities. In the first half of 2021, we opened 530 new stores, remodeled 1,020 stores, and relocated 58 stores. For 2021, we plan to open approximately 1,050 new stores (including any pOpshelf stores), remodel approximately 1,750 stores, and relocate approximately 100 stores, for a total of 2,900 real estate projects.
We continue to innovate within our channel and are able to utilize the most
productive of our various Dollar General store formats based on the specific
market opportunity. We recently introduced two new larger format stores (one at
approximately 8,500 square feet and the other at approximately 9,500 square
feet), which allows us to further expand our offering and our ability to serve
our customers. We expect the 8,500 square foot box, along with our existing
Dollar General Plus format of a similar size, to become our base prototypes for
the majority of new stores moving forward, replacing our traditional 7,300
square foot store format and higher-cooler count Dollar General Traditional Plus
format. The innovation in store formats is expected to allow us to capture
additional growth opportunities within our existing markets. Additionally, the
larger formats allow for expanded high-capacity-cooler counts; an extended queue
line; and a broader product assortment, including NCI, a larger health and
beauty section, and produce in select stores. We continue to incorporate lessons
learned from our various store formats and layouts into our existing store base.
These lessons contribute to innovation in developing new formats, with a goal of
driving increased customer traffic, average transaction amount, same-store sales
and overall store productivity. Additionally, we have a smaller format store
(less than 6,000 square feet), which is expected to allow us to capture growth
opportunities in urban areas.
We have established a position as a low-cost operator, always seeking ways to
reduce or control costs that do not affect our customers' shopping experiences.
We plan to continue enhancing this position over time while employing ongoing
cost discipline to reduce certain expenses as a percentage of sales.
Nonetheless, we seek to maintain flexibility to invest in the business as
necessary to enhance our long-term competitiveness and profitability.
We also have launched "Fast Track", an initiative aimed at further enhancing our
convenience proposition and in-stock position as well as increasing labor
efficiencies within our stores. The first phase of Fast Track involved sorting
process optimization within our distribution centers, as well as increased
shelf-ready packaging, to allow for greater store-level stocking efficiencies,
followed by the second-phase pilot of a self-checkout option in a limited number
of stores. We completed the sorting process optimization at all of our
non-refrigerated distribution centers in 2019. Additionally, we expect to
continue to add self-checkout capabilities in additional stores throughout 2021
and beyond. These and the other strategic initiatives discussed above will
require us to incur upfront expenses for which there may not be an immediate
return in terms of sales or enhanced profitability.
Certain of our operating expenses, such as wage rates and occupancy costs, have
continued to increase in recent years, due primarily to market forces, including
labor availability, increases in minimum wage rates and increases in
16
property rents. Further federal, state and/or local minimum wage increases could
have a material negative impact on our operating expenses, although the
magnitude and timing of such impact is uncertain. We have experienced
incremental payroll, distribution and transportation costs related to the
COVID-19 pandemic and its associated impacts. Labor shortages and shipping
capacity shortages continue to pressure our business, resulting in significantly
higher supply chain costs and shipping delays in some instances. As we move
through 2021, we expect continued inflationary pressures due to higher input
costs will continue to affect us as well as our vendors, including higher
commodity, transportation and other costs, all of which may result in continued
pressure to our operating results. While we expect these challenges to persist,
certain of our initiatives and plans are intended to help offset these
challenges; however, they are somewhat dependent on the scale and timing of the
increases, among other factors. There can be no assurance that our mitigation
efforts will be successful.
Our diverse teams are a competitive advantage, and we proactively seek ways to continue investing in their development. Our goal is to create an environment that attracts, develops, and retains talented personnel, particularly at the store manager level, because employees who are promoted from within our company generally have longer tenures and are greater contributors to improvements
in our financial performance.
To further enhance shareholder returns, we repurchased shares of our common
stock and paid quarterly cash dividends in the first half of 2021. We expect to
continue our share repurchase activity, and to pay quarterly cash dividends,
throughout the remainder of 2021, subject to Board discretion and approval.
We utilize key performance indicators ("KPIs") in the management of our
business. Our KPIs include same-store sales, average sales per square foot, and
inventory turnover. Same-store sales are calculated based upon stores that were
open at least 13 full fiscal months and remain open at the end of the reporting
period. We include stores that have been remodeled, expanded or relocated in our
same-store sales calculation. Changes in same-store sales are calculated based
on the comparable 52 calendar weeks in the current and prior years. The method
of calculating same-store sales varies across the retail industry. As a result,
our calculation of same-store sales is not necessarily comparable to similarly
titled measures reported by other companies. Net sales per square foot is
calculated based on total sales for the preceding 12 months as of the ending
date of the reporting period divided by the average selling square footage
during the period, including the end of the fiscal year, the beginning of the
fiscal year, and the end of each of our three interim fiscal quarters. Inventory
turnover is calculated based on total cost of goods sold for the preceding four
quarters divided by the average inventory balance as of the ending date of the
reporting period, including the end of the fiscal year, the beginning of the
fiscal year, and the end of each of our three interim fiscal quarters. Each of
these measures is commonly used by investors in retail companies to measure the
health of the business. We use these measures to maximize profitability and for
decisions about the allocation of resources.
A continued focus on our four operating priorities as discussed above
contributed to our overall operating and financial performance in the 2021 and
2020 periods, which were enhanced by increased consumer demand, as discussed
above under "Impact of Covid-19".
17
Highlights of our 2021 second quarter results of operations compared to the 2020
second quarter and our financial condition at July 30, 2021 are set forth below.
Basis points amounts referred to below are equal to 0.01% as a percentage of net
sales.
Net sales decreased 0.4% to
? primarily reflecting a decrease in customer traffic. Average sales per square
foot for all stores over the 52-week period ended
Gross profit, as a percentage of net sales, was 31.6% in the 2021 period and
? 32.5% in the 2020 period, a decrease of 80 basis points, primarily reflecting
increased transportation costs and an increased LIFO provision.
SG&A expense, as a percentage of net sales, was 21.8% in the 2021 period
? compared to 20.4% in the 2020 period, an increase of 138 basis points, due in
part to higher retail labor and store occupancy costs as a percentage of net
sales.
? Operating profit decreased 18.5% to
to
? Interest expense increased by
The effective income tax rate for the 2021 period was 21.4% compared to a rate
? of 21.5% for the 2020 period primarily due to a greater impact of permanent
income tax differences in the 2021 period.
Net income was
? compared to net income of
2020 period.
Highlights of the year-to-date period of 2020 include:
? Cash generated from operating activities was
a decrease of$1.59 billion , or 54.7%, from the comparable 2020 period.
Total cash dividends of
? the 2021 period, compared to
comparable 2020 period.
Inventory turnover was 4.6 times on a rolling four-quarter basis. On a per
? store basis, inventories at
balances atJuly 31, 2020 . The above discussion is a summary only. Readers should refer to the detailed discussion of our results of operations below in the current year periods as compared with the prior year periods as well as our financial condition at
July 30, 2021 . Results of Operations Accounting Periods. We utilize a 52-53 week fiscal year convention that ends on the Friday nearest toJanuary 31 . The following text contains references to years 2021 and 2020, which represent the 52-week fiscal years ending or endedJanuary 28, 2022 andJanuary 29, 2021 , respectively. References to the second quarter accounting periods for 2021 and 2020 contained herein refer to the 13-week accounting periods endedJuly 30, 2021 andJuly 31, 2020 , respectively. Seasonality. The nature of our business is somewhat seasonal. Primarily because of sales of Christmas-related merchandise, operating profit in our fourth quarter (November, December and January) has historically been higher than operating profit in each of the first three quarters of the fiscal year. Expenses, and to a greater extent operating profit, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods. Consumer behavior driven by the COVID-19 pandemic and theU.S. government's response thereto, including economic stimulus legislation, has 18 resulted in a departure from seasonal norms we have experienced in recent years and may continue to disrupt the historical quarterly cadence of our results of operations for an unknown period of time. The following table contains results of operations data for the second 13-week periods and the 26-week periods of 2021 and 2020, and the dollar and percentage variances among those periods: 13 Weeks Ended 2021 vs. 2020 26 Weeks Ended 2021 vs. 2020 (amounts in millions, except July 30, July 31, Amount % July 30, July 31, Amount % per share amounts) 2021 2020 Change Change 2021 2020 Change Change Net sales by category: Consumables$ 6,613.0 $ 6,496.4 $ 116.6 1.8 %$ 12,991.1 $ 13,199.8 $ (208.7) (1.6) % % of net sales 76.45 % 74.81 % 76.19 % 77.04 % Seasonal 1,090.3 1,161.6 (71.3) (6.1) 2,140.7 2,079.5 61.2 2.9 % of net sales 12.60 % 13.38 % 12.55 % 12.14 % Home products 561.2 586.0 (24.8) (4.2) 1,132.5 1,084.3 48.2 4.4 % of net sales 6.49 % 6.75 % 6.64 % 6.33 % Apparel 385.7 440.3 (54.5) (12.4) 786.9 769.1 17.8 2.3 % of net sales 4.46 % 5.07 % 4.61 % 4.49 % Net sales$ 8,650.2 $ 8,684.2 $ (34.0) (0.4) %$ 17,051.2 $ 17,132.7 $ (81.5) (0.5) % Cost of goods sold 5,912.5 5,866.0 46.5 0.8
11,557.8 11,718.8 (160.9) (1.4) % of net sales 68.35 % 67.55 % 67.78 % 68.40 % Gross profit 2,737.7 2,818.2 (80.6) (2.9) 5,493.3 5,413.9 79.4 1.5 % of net sales 31.65 % 32.45 % 32.22 % 31.60 % Selling, general and administrative expenses 1,888.1 1,775.6 112.5 6.3
3,734.9 3,504.5 230.4 6.6
% of net sales 21.83 % 20.45 % 21.90 % 20.46 %
Operating profit 849.6 1,042.6 (193.1) (18.5) 1,758.4 1,909.4 (151.0) (7.9)
% of net sales 9.82 % 12.01 % 10.31 % 11.14 %
Interest expense 39.4 39.3 0.1 0.3 79.8 69.8 10.0 14.3
% of net sales 0.46 % 0.45 % 0.47 % 0.41 %
Income before income
taxes 810.1 1,003.3 (193.2) (19.3) 1,678.6 1,839.6 (161.0) (8.8)
% of net sales 9.37 % 11.55 % 9.84 % 10.74 %
Income tax expense 173.1 215.7 (42.6) (19.7) 363.8 401.5 (37.7) (9.4)
% of net sales 2.00 % 2.48 % 2.13 % 2.34 %
Net income $ 637.0 $ 787.6 $ (150.6) (19.1) % $ 1,314.8 $ 1,438.0 $ (123.3) (8.6) %
% of net sales 7.36 % 9.07 % 7.71 % 8.39 %
Diluted earnings per
share $ 2.69 $ 3.12 $ (0.43) (13.8) % $ 5.52 $ 5.69 $ (0.17) (3.0) %
13 WEEKS ENDED
Net Sales . The net sales decrease in the 2021 period was primarily due to a same-store sales decrease of 4.7% compared to the 2020 period. We believe the effect of the onset of the COVID-19 pandemic on consumer behavior had a significant positive effect on net sales and same-store sales, particularly in the 2020 period in our non-consumable categories, which affects the comparisons between periods. For the 2021 period, there were 16,488 same-stores which accounted for sales of$8.2 billion . The decrease in same-store sales primarily reflects a decline in customer traffic, partially offset by an increase in average transaction amount which was driven by higher average item retail prices. Same-store sales declined in all categories with the largest percentage decrease in the apparel category. Net sales were positively affected by sales from new stores, modestly offset by sales from closed stores. Gross Profit. For the 2021 period, gross profit decreased by 2.9%, and as a percentage of net sales decreased by 80 basis points to 31.6%, compared to the 2020 period. Increased transportation costs and an increased LIFO provision contributed to the decrease in the gross profit rate. In recent years a greater percentage of our sales have come from our consumables category, which generally has a lower gross profit rate than our other product categories, creating downward pressure on our overall gross profit rate. This sales trend began to reverse in the second quarter of 2020 and continued each subsequent quarter through the first quarter of 2021, as non-consumables sales increased at a higher rate than consumables sales. In relative terms, the mix of sales shifted back to consumables in the current year period, which also contributed to the decrease in the gross profit rate, along with an increase in inventory damages. These factors were partially offset by higher inventory markups and a reduction in inventory shrink as a percentage of net sales. 19 Selling, General & Administrative Expenses ("SG&A"). SG&A was 21.8% as a percentage of net sales in the 2021 period compared to 20.4% in the comparable 2020 period, an increase of 138 basis points, which was primarily impacted by the reduction in net sales in the 2021 period. The primary expenses that were a greater percentage of net sales in the current year period were retail labor, store occupancy costs, employee benefits, depreciation and amortization, utilities, workers' compensation and general liability expenses, and taxes and licenses, partially offset by lower incentive compensation expense.
Interest Expense. Interest expense increased by
Income Taxes. The effective income tax rate for the 2021 period was 21.4% compared to a rate of 21.5% for the 2020 period which represents a net decrease of 0.1 percentage points. The tax rate for the 2021 period was lower than the comparable 2020 period primarily due to a greater impact of permanent differences resulting from a decrease in pre-tax income for the 2021 period compared to the 2020 period.
26 WEEKS ENDED
Net Sales . The net sales decrease in the 2021 period reflects a same-store sales decrease of 4.7% compared to the 2020 period. For the 2021 period, there were 16,488 same-stores which accounted for sales of$16.2 billion . The decrease in same-store sales reflects a decline in customer traffic partially offset by an increase in average transaction amount which was driven by higher average item retail prices. Same-store sales decreased in all categories, with the largest percentage decrease in the consumables category. Net sales were positively affected by sales from new stores, modestly offset by sales from closed stores. Gross Profit. For the 2021 period, gross profit increased by 1.5%, and as a percentage of net sales increased by 62 basis points to 32.2% compared to the 2020 period. Higher inventory markups, a lower inventory shrink rate and a reduction in markdowns as a percentage of net sales each contributed to the increase in the gross profit rate. In addition, consumables sales decreased while non-consumables sales increased in the current year period, which also contributed to the increase in the gross profit rate. These factors were partially offset by increased transportation costs, an increased LIFO provision, and increased inventory damages. Selling, General & Administrative Expenses. SG&A was 21.9% as a percentage of net sales in the 2021 period compared to 20.5% in the comparable 2020 period, an increase of 144 basis points, which was primarily impacted by the reduction in net sales. The primary expenses that were a higher percentage of net sales in the current year period were retail labor, store occupancy costs, depreciation and amortization, utilities, taxes and licenses, workers' compensation and general liability expenses, employee benefits and administrative compensation (driven by share-based compensation), partially offset by lower incentive compensation expense.
Interest Expense. Interest expense increased by
Income Taxes. The effective income tax rate for the 2021 period was 21.7% compared to a rate of 21.8% for the 2020 period which represents a net decrease of 0.1 percentage points. The tax rate for the 2021 period was lower than the comparable 2020 period primarily due to a greater impact of permanent differences resulting from a decrease in pre-tax income for the 2021 period compared to the 2020 period.
Liquidity and Capital Resources
AtJuly 30, 2021 , we had a$1.25 billion unsecured revolving credit agreement (the "Revolving Facility"),$4.0 billion aggregate principal amount of senior notes, and a commercial paper program that may provide borrowing availability in the form of commercial paper notes ("CP Notes") of up to$1.0 billion . AtJuly 30, 2021 , we had total consolidated outstanding long-term obligations of$4.2 billion , most of which was in the form of senior notes. All of our material borrowing arrangements are described in greater detail below. Our borrowing availability under the Revolving Facility may be effectively limited by our CP Notes as further described below. We believe our cash flow from operations and existing cash balances, combined with availability under the Revolving Facility, the CP Notes and access to the debt markets, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, capital spending, anticipated dividend payments and share 20 repurchases for a period that includes the next twelve months as well as the next several years. However, our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control. Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the issuance of debt, equity or other securities, the proceeds of which could provide additional liquidity for our operations. For the remainder of fiscal 2021, we anticipate potential combined borrowings under the Revolving Facility and our CP Notes to be a maximum of approximately$900 million outstanding at any one time. Revolving Credit Facility
OnSeptember 10, 2019 , we entered into the Revolving Facility consisting of a$1.25 billion senior unsecured revolving credit facility of which up to$175.0 million is available for the issuance of letters of credit and which is scheduled to mature onSeptember 10, 2024 . Borrowings under the Revolving Facility bear interest at a rate equal to an applicable interest rate margin plus, at our option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate). The applicable interest rate margin for borrowings as ofJuly 30, 2021 was 1.015% for LIBOR borrowings and 0.015% for base-rate borrowings. We must also pay a facility fee, payable on any used and unused commitment amounts of the Revolving Facility, and customary fees on letters of credit issued under the Revolving Facility. As ofJuly 30, 2021 , the facility fee rate was 0.11%. The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Revolving Facility are subject to adjustment from time to time based on our long-term senior unsecured debt ratings. The Revolving Facility contains a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, our (including our subsidiaries') ability to: incur additional liens; sell all or substantially all of our assets; consummate certain fundamental changes or change in our lines of business; and incur additional subsidiary indebtedness. The Revolving Facility also contains financial covenants that require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio. As ofJuly 30, 2021 , we were in compliance with all such covenants. The Revolving Facility also contains customary events of default. As ofJuly 30, 2021 , under the Revolving Facility, we had no outstanding borrowings, outstanding letters of credit of$2.9 million , and borrowing availability of approximately$1.25 billion that, due to our intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of$1.05 billion atJuly 30, 2021 . In addition, as ofJuly 30, 2021 we had outstanding letters of credit of$53.4 million which were issued pursuant to separate agreements. Commercial Paper We may issue the CP Notes from time to time in an aggregate amount not to exceed$1.0 billion outstanding at any time. The CP Notes may have maturities of up to 364 days from the date of issue and rank equal in right of payment with all of our other unsecured and unsubordinated indebtedness. We intend to maintain available commitments under the Revolving Facility in an amount at least equal to the amount of CP Notes outstanding at any time. As ofJuly 30, 2021 , our condensed consolidated balance sheet reflected outstanding unsecured CP Notes of$18.4 million , which had a weighted average interest rate of 0.15%. CP Notes totaling$181.0 million were held by a wholly-owned subsidiary and are therefore not reflected on the condensed consolidated balance sheet. Senior Notes
InApril 2013 we issued$900.0 million aggregate principal amount of 3.25% senior notes due 2023 (the "2023 Senior Notes") at a discount of$2.4 million , which are scheduled to mature onApril 15, 2023 . InOctober 2015 we issued$500.0 million aggregate principal amount of 4.150% senior notes due 2025 (the "2025 Senior Notes") at a discount of$0.8 million , which are scheduled to mature onNovember 1, 2025 . InApril 2017 we issued$600.0 million aggregate principal amount of 3.875% senior notes due 2027 (the "2027 Senior Notes") at a discount of$0.4 million , which are scheduled to mature onApril 15, 2027 . InApril 2018 we issued$500.0 million aggregate principal amount of 4.125% senior notes due 2028 (the "2028 Senior Notes") at a discount of$0.5 million , which are scheduled to mature onMay 1, 2028 . InApril 2020 we issued$1.0 billion aggregate principal amount of 3.5% senior notes due 2030 (the "2030 Senior Notes") at a discount of$0.7 million , which are scheduled to mature onApril 3, 2030 , and$500.0 million aggregate principal amount of 4.125% senior notes due 2050 (the "2050 Senior Notes") at a discount of$5.0 million , 21 which are scheduled to mature onApril 3, 2050 . Collectively, the 2023 Senior Notes, 2025 Senior Notes, 2027 Senior Notes, 2028 Senior Notes, 2030 Senior Notes and 2050 Senior Notes comprise the "Senior Notes", each of which were issued pursuant to an indenture as supplemented and amended by supplemental indentures relating to each series of Senior Notes (as so supplemented and amended, the "Senior Indenture"). Interest on the 2023 Senior Notes and the 2027 Senior Notes is payable in cash onApril 15 andOctober 15 of each year. Interest on the 2025 and 2028 Senior Notes is payable in cash onMay 1 andNovember 1 of each year. Interest on the 2030 and 2050 Senior Notes is payable in cash onApril 3 andOctober 3 of each year. We may redeem some or all of the Senior Notes at any time at redemption prices set forth in the Senior Indenture. Upon the occurrence of a change of control triggering event, which is defined in the Senior Indenture, each holder of our Senior Notes has the right to require us to repurchase some or all of such holder's Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. The Senior Indenture contains covenants limiting, among other things, our ability (subject to certain exceptions) to consolidate, merge, or sell or otherwise dispose of all or substantially all of our assets; and our ability and the ability of our subsidiaries to incur or guarantee indebtedness secured by liens on any shares of voting stock of significant subsidiaries. The Senior Indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on our Senior Notes to become or to be declared due and payable, as applicable.
Current Financial Condition / Recent Developments
Our inventory balance represented approximately 52% of our total assets exclusive of operating lease assets, goodwill and other intangible assets as ofJuly 30, 2021 . Our ability to effectively manage our inventory balances can have a significant impact on our cash flows from operations during a given fiscal year. Inventory purchases are often somewhat seasonal in nature, such as the purchase of warm-weather or Christmas-related merchandise. Efficient management of our inventory has been and continues to be an area of focus for us. As described in Note 7 to the unaudited condensed consolidated financial statements, we are involved in a number of legal actions and claims, some of which could potentially result in material cash payments. Adverse developments in those actions could materially and adversely affect our liquidity. Our senior unsecured debt is rated "Baa2," by Moody's with a stable outlook and "BBB" byStandard & Poor's with a stable outlook, and our commercial paper program is rated "P-2" by Moody's and "A-2" by Standard and Poor's, respectively. Our current credit ratings, as well as future rating agency actions, could (i) impact our ability to finance our operations on satisfactory terms; (ii) affect our financing costs; and (iii) affect our insurance premiums and collateral requirements necessary for our self-insured programs. There can be no assurance that we will maintain or improve our current credit ratings.
Unless otherwise noted, all references to the 2021 and 2020 periods in the
discussion of cash flows from operating, investing and financing activities
below refer to the 26-week periods ended
Cash flows from operating activities. Cash flows from operating activities were$1.32 billion in the 2021 period, which represents a$1.59 billion decrease compared to the 2020 period. Net income decreased$123.3 million in the 2021 period compared to the 2020 period. Changes in merchandise inventories resulted in a$80.0 million decrease in the 2021 period as compared to an increase of$284.0 million in the 2020 period as further discussed below. Changes in accounts payable resulted in a$245.4 million decrease in the 2021 period compared to a$560.9 million increase in the 2020 period, due primarily to the timing of receipts and payments. Changes in accrued expenses and other liabilities resulted in a$25.5 million decrease in the 2021 period compared to an$273.2 million increase in the 2020 period, due in part to the timing of regular and discretionary incentive compensation accruals and payments. Changes in income taxes in the 2021 period compared to the 2020 period are primarily due to the timing of payments for income taxes. On an ongoing basis, we closely monitor and manage our inventory balances, and they may fluctuate from period to period based on new store openings, the timing of purchases, and other factors. Inventory levels in the 2020 22 period were lower than we had experienced in prior recent years and is reflective of changes in consumer behavior and, to a lesser extent, supply chain disruption caused by the onset of the COVID-19 pandemic. In addition, we strategically accelerated certain inventory purchases during the 2021 period, particularly in select non-consumable categories, in anticipation of the supply chain constraints discussed above. Total merchandise inventories increased by 1% in the 2021 period and decreased by 6% in the 2020 period, with changes in our four inventory categories as follows: consumables increased by 1% compared to a 1% decrease; seasonal decreased 1% compared to a 12% decrease; home products increased by 14% compared to a 13% decrease; and apparel decreased by 15% compared to a 24% decrease. Cash flows from investing activities. Significant components of property and equipment purchases in the 2021 period included the following approximate amounts:$248 million for improvements, upgrades, remodels and relocations of existing stores;$126 million for distribution and transportation-related capital expenditures;$125 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores; and$19 million for information systems upgrades and technology-related projects. The timing of new, remodeled and relocated store openings along with other factors may affect the relationship between such openings and the related property and equipment purchases in any given period. During the 2021 period, we opened 530 new stores and remodeled or relocated 1,078 stores. Significant components of property and equipment purchases in the 2020 period included the following approximate amounts:$162 million for improvements, upgrades, remodels and relocations of existing stores;$138 million related to store facilities, primarily for leasehold improvements, fixtures and equipment in new stores;$95 million for distribution and transportation-related capital expenditures; and$26 million for information systems upgrades and technology-related projects. During the 2020 period, we opened 500 new stores and remodeled or relocated 1,016 stores. Capital expenditures for 2021 are currently projected to be in the range of$1.1 billion to$1.2 billion . We anticipate funding 2021 capital requirements with a combination of some or all of the following: existing cash balances, cash flows from operations, availability under our Revolving Facility and/or the issuance of additional CP Notes. We plan to continue to invest in store growth through the development of new stores and the remodel or relocation of existing stores. Capital expenditures in 2021 are anticipated to support our store growth as well as our remodel and relocation initiatives, including capital outlays for leasehold improvements, fixtures and equipment; the construction of new stores; costs to support and enhance our supply chain initiatives including new and existing distribution center facilities and our private fleet; technology and other strategic initiatives; as well as routine and ongoing capital requirements. Cash flows from financing activities. In the 2020 period, net proceeds from the issuance of the 2030 Senior Notes and 2050 Senior Notes totaled$1.5 billion . Net commercial paper borrowings increased by$18.4 million in the 2021 period and decreased by$425.2 million in the 2020 period. There were no borrowings or repayments under the Revolving Facility during the 2021 period, and such borrowings and repayments in the 2020 period were$300.0 million each. Also during the 2021 and 2020 periods, we repurchased 8.3 million and 3.6 million shares of our common stock at a total cost of$1.7 billion and$0.7 billion , respectively, and paid cash dividends of$198.1 million and$180.3 million ,
respectively. Share Repurchase Program As ofJuly 30, 2021 our common stock repurchase program had a total remaining authorization of approximately$0.98 billion . The authorization allows repurchases from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions. The timing, manner and number of shares repurchased will depend on a variety of factors, including price, market conditions, compliance with the covenants and restrictions under our debt agreements and other factors. The repurchase program has no expiration date and may be modified or terminated from time to time at the discretion of our Board of Directors. For more about our share repurchase program, see Note 9 to the condensed consolidated financial statements contained in Part I, Item 1 of this report and Part II, Item 2 of this report. 23
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