FLOOR & DECOR HOLDINGS, INC. The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes ofFloor & Decor Holdings, Inc. and Subsidiaries included in Item 1 of this quarterly report on Form 10-Q (this "Quarterly Report") and with our audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year endedDecember 30, 2021 and filed with theSecurities and Exchange Commission (the "SEC") onFebruary 24, 2022 (the "Annual Report"). As used in this Quarterly Report, except where the context otherwise requires or where otherwise indicated, the terms "Floor & Decor ," "Company," "we," "our" or "us" refer toFloor & Decor Holdings, Inc. and its subsidiaries.
Forward-Looking Statements
The discussion in this Quarterly Report, including under this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of Part I and Item 1A, "Risk Factors" of Part II, contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact contained in this Quarterly Report, including statements regarding the Company's future operating results and financial position, expectations related to our acquisition ofSpartan Surfaces, Inc. ("Spartan"), business strategy and plans, objectives of management for future operations, and the impact of the coronavirus (COVID-19) pandemic, are forward-looking statements. These statements are based on our current expectations, assumptions, estimates and projections. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements are based on management's current expectations and assumptions regarding the Company's business, the economy and other future conditions, including the impact of natural disasters on sales.In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "seeks," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "budget," "potential" or "continue" or the negative of these terms or other similar expressions. The forward-looking statements contained in this Quarterly Report are only predictions. Although we believe that the expectations reflected in the forward-looking statements in this Quarterly Report are reasonable, we cannot guarantee future events, results, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements in this Quarterly Report, including, without limitation, those factors described in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of Part I and Item 1A, "Risk Factors" of Part II. Some of the key factors that could cause actual results to differ from our expectations include the following: •an overall decline in the health of the economy, the hard surface flooring industry, consumer confidence and spending and the housing market, including as a result of rising inflation or interest rates or the COVID-19 pandemic;
•an economic recession or depression;
•global inflationary pressures on raw materials, energy, commodity, transportation, and other costs could cause our vendors to seek further price increases on the products we sell;
•any disruption in our supply chain, including carrier capacity constraints, port congestion, higher shipping, rail, and trucking prices and other supply chain costs or product shortages;
•our failure to successfully anticipate consumer preferences and demand;
•our inability to pass along cost increases at rates consumers are willing to pay, or reduced demand due to pricing increases;
•our inability to manage our growth;
•our inability to manage costs and risks relating to new store openings;
•our inability to find available locations for our stores on terms acceptable to us;
•any disruption in our distribution capabilities, including from difficulties operating our distribution centers;
•our failure to execute our business strategy effectively and deliver value to our customers;
•our inability to find, train and retain key personnel;
•the resignation, incapacitation or death of any key personnel;
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•the inability to staff our stores and distribution centers sufficiently, including for reasons due to the COVID-19 pandemic and other impacts of the COVID-19 pandemic;
•a pandemic, such as COVID-19, or other natural disaster or unexpected event, and its impacts on our suppliers, customers, employees, lenders, operations, including our ability to operate our distribution centers and stores or on the credit markets or our future financial and operating results;
•our dependence on foreign imports for the products we sell, which may include the impact of tariffs and other duties;
•geopolitical risks, such as the recent military conflict in
•if the use of "cookie" tracking technologies is further restricted, the amount of internet user information we collect would decrease, which could require additional marketing efforts and harm our business and operating results;
•violations of laws and regulations applicable to us or our suppliers;
•our failure to adequately protect against security breaches involving our information technology systems and customer information;
•suppliers may sell similar or identical products to our competitors;
•competition from other stores and internet-based competition;
•impact of acquired companies, including Spartan;
•our inability to manage our inventory obsolescence, shrinkage and damage;
•our inability to maintain sufficient levels of cash flow or liquidity to meet growth expectations;
•our inability to obtain merchandise on a timely basis at prices acceptable to us; and
•restrictions imposed by our indebtedness on our current and future operations.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The forward-looking statements contained in this Quarterly Report speak only as of the date hereof. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. If a change to the events and circumstances reflected in our forward-looking statements occurs, our business, financial condition, and operating results may vary materially from those expressed in our forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
Overview
Founded in 2000,Floor & Decor is a high-growth, differentiated, multi-channel specialty retailer of hard surface flooring and related accessories with 166 warehouse-format stores and five small-format standalone design studios across 34 states as ofMarch 31, 2022 . We believe that we offer the industry's broadest assortment of tile, wood, laminate, vinyl, and natural stone flooring along with decorative and installation accessories and adjacent categories at everyday low prices, positioning us as the one-stop destination for our customers' entire hard surface flooring needs. We appeal to a variety of customers, including professional installers and commercial businesses ("Pro"), Do it Yourself customers ("DIY"), and customers who buy the products for professional installation ("Buy it Yourself" or "BIY"). We operate on a 52- or 53-week fiscal year ending the Thursday on or precedingDecember 31 . The following discussion contains references to the first thirteen weeks of fiscal 2022 and fiscal 2021, which ended onMarch 31, 2022 andApril 1, 2021 , respectively.
During the thirteen weeks ended
•completing the relocation of our previous distribution center near
•supporting our stores and distribution centers during this continued period of
heightened sales, with particular emphasis on increasing staffing levels and
working collaboratively throughout our supply chain to improve our in-stock
inventory levels;
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•opening 6 new warehouse-format stores and three design studios, ending the quarter with 166 warehouse-format stores and five design studios;
•focusing on innovative new products and localized assortments, supported by inspirational in-store and online visual merchandising solutions;
•investing in our connected customer, in-store designer, and customer relationship and store focused technology;
•adding more resources dedicated to serving our Pro customers, including hiring a professional external sales staff to drive more commercial sales; and
•investing capital to continue enhancing the in-store shopping experience for our customers. COVID-19 Update
As the COVID-19 pandemic continues into fiscal 2022, we remain focused on five priorities while navigating through this period of volatility and uncertainty:
•First, protect the health and safety of our employees and customers through enhanced safety and sanitation measures at our stores, distribution centers, and store support center.
•Second, keep our brand strong and support all of our customers, including the numerous small businesses that rely upon us such as general contractors and flooring installers.
•Third, invest in store and distribution center staffing to support the heightened demand.
•Fourth, work with all of our supply chain partners to increase our in-stock inventory positions.
•Fifth, position
We are working hard to continue monitoring and quickly responding to the ongoing impacts of the COVID-19 pandemic, including communicating often throughout the organization and adapting our operations to follow evolving federal, state, and local ordinances as well as health guidelines on mitigating the risk of COVID-19 transmission. We have teams in place monitoring this evolving situation and recommending risk mitigation actions, and we are encouraging social distancing practices. We have also assessed and continue to implement supply chain continuity plans. While sales have remained strong as we continue to maintain a broad assortment of in-stock inventory, labor shortages and supply chain congestion and disruptions continue to cause logistical challenges for us and the entire hard surface flooring industry. In addition, we have seen significant cost increases, primarily in our supply chain, due to the global supply chain congestion and disruptions which we believe we can at least partially pass along to customers. In particular, there continues to be significant congestion at ports of entry tothe United States , primarily at the port ofLos Angeles , which is increasing the time and cost to ship goods to our distribution centers and stores and has resulted in a decrease in our in-stock levels for certain products. We remain focused on providing exceptional value to our customers through our broad assortment and "everyday low price" strategy. We believe that our strong relationships with our suppliers and transportation partners have been instrumental in helping us to navigate this difficult supply chain environment; however, the potential significance and duration of these supply chain disruptions is uncertain, and future capacity shortages or cost increases could have an adverse impact upon our business. There remains substantial uncertainty regarding the potential duration and severity of the COVID-19 pandemic, including how public health restrictions imposed to slow the spread of the virus may evolve. There may also be future "waves" or new variants of COVID-19 infections despite vaccines and other measures implemented to mitigate its spread. Although our stores are currently open to the public, we may face future closure requirements and other operational restrictions at some or all of our physical locations for prolonged periods of time if federal, state, and local authorities impose new and potentially more stringent restrictions such as shelter-in-place orders. We also may face store closures due to staffing challenges, including if store and distribution center associates are in quarantine due to the COVID-19 pandemic. In addition, changes in consumer behavior due to financial, health, or other concerns may continue even after the COVID-19 pandemic and may reduce consumer demand for our products. Further, some of the countries from which we source inventory and other necessary supplies are not vaccinating their populations as quickly or effectively as theU.S. , which could further constrain our ability to obtain inventory and other necessary supplies. As a result of these and other uncertainties, the full financial impact of the pandemic cannot be reasonably estimated at this time. 19
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Table of Contents Key Performance Indicators We consider a variety of performance and financial measures in assessing the performance of our business. The key performance and financial measures we use to determine how our business is performing are comparable store sales, the number of new store openings, gross profit and gross margin, operating income, and EBITDA and Adjusted EBITDA. For definitions and a discussion of how we use our key performance indicators, see the "Key Performance Indicators" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report. See "Non-GAAP Financial Measures" below for a discussion of how we define EBITDA and Adjusted EBITDA and a reconciliation of EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted inthe United States ("GAAP"). Other key financial terms we use include net sales, selling and store operating expenses, general and administrative expenses, and pre-opening expenses. For definitions and a discussion of how we use other key financial terms, see the "Other Key Financial Definitions" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report. 20
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Table of Contents Results of Operations See "Management's Discussion and Analysis of Financial Condition and Results of Operations - COVID-19 Update" and Item 1A., "Risk Factors" for information about the potential impacts that the COVID-19 pandemic and other risks, such as global supply chain disruptions, inflation, and geopolitical instability, including from the military conflict inUkraine , may have on our results of operations and overall financial performance for future periods. The following table summarizes key components of our results of operations for the periods indicated, in dollars and as a percentage of net sales (actuals in thousands; dollar changes in millions; certain numbers may not sum due to rounding): Thirteen Weeks Ended March 31, 2022 April 1, 2021 Actual % of Sales Actual % of Sales $ Increase/(Decrease) % Increase/(Decrease) Net sales$ 1,028,734 100.0 %$ 782,537 100.0 % $ 246.2 31.5 % Cost of sales 620,676 60.3 445,604 56.9 175.1 39.3 Gross profit 408,058 39.7 336,933 43.1 71.1 21.1 Operating expenses: Selling and store operating 249,500 24.3 189,946 24.3 59.6 31.4 General and administrative 54,645 5.3 44,041 5.6 10.6 24.1 Pre-opening 9,941 1.0 6,997 0.9 2.9 42.1 Total operating expenses 314,086 30.5 240,984 30.8 73.1 30.3 Operating income 93,972 9.1 95,949 12.3 (2.0) (2.1) Interest expense, net 1,162 0.1 1,388 0.2 (0.2) (16.3) Income before income taxes 92,810 9.0 94,561 12.1 (1.8) (1.9) Provision for income taxes 21,859 2.1 18,765 2.4 3.1 16.5 Net income$ 70,951 6.9 %$ 75,796 9.7 % $ (4.8) (6.4) %
Selected Financial Information
Thirteen Weeks Ended
March 31, 2022 April 1, 2021
Comparable store sales (% change) 14.3 % 31.1 %
Comparable average ticket (% change) 16.7 % 1.5 %
Comparable customer transactions (% change) (2.1) % 29.2 %
Number of warehouse-format stores 166 140
Adjusted EBITDA (in thousands) (1) $ 135,777 $ 127,075
Adjusted EBITDA margin 13.2 % 16.2 %
(1) EBITDA and adjusted EBITDA are non-GAAP financial measures. See the "Non-GAAP Financial Measures" section below for additional information and a reconciliation of EBITDA and adjusted EBITDA to net income.
Net sales during the thirteen weeks endedMarch 31, 2022 increased$246.2 million , or 31.5%, compared to the corresponding prior year period primarily due to an increase in comparable store sales of 14.3% and sales from the 26 new warehouse stores and three new design studios that we opened sinceApril 1, 2021 . The comparable store sales increase during the period of 14.3%, or$111.9 million , was driven by a 16.7% increase in comparable average ticket, partially offset by a 2.1% decrease in comparable customer transactions. Among our seven product categories, six experienced comparable store sales increases during the period, including laminate / luxury vinyl plank, tile, decorative accessories / wall tile, installation materials and tools, wood, and adjacent categories. Non-comparable store sales were$134.3 million during the same period driven by new stores opened afterApril 1, 2021 and revenue from our Spartan subsidiary, which was acquired in the second quarter of fiscal 2021. 21
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We believe the increase in sales for the thirteen weeks endedMarch 31, 2022 is also aided by price increases to cover higher transportation costs to bring inventory to our distribution centers and stores and customers continuing to invest more in home improvements than prior to the COVID-19 pandemic. We also believe that our business model, with its focus on substantial amounts of trend-right, in-stock inventory, is also contributing to the sales increase.
Gross Profit and Gross Margin
Gross profit during the thirteen weeks endedMarch 31, 2022 increased$71.1 million , or 21.1%, compared to the corresponding prior year period. The increase in gross profit was driven by the 31.5% increase in net sales, partially offset by a decrease to gross margin to 39.7%, down approximately 340 basis points from 43.1% in the same period a year ago. The decrease in gross margin was primarily due to higher supply chain costs.
Selling and Store Operating Expenses
Selling and store operating expenses during the thirteen weeks endedMarch 31, 2022 increased$59.6 million , or 31.4%, compared to the thirteen weeks endedApril 1, 2021 . The increase was primarily attributable to the 26 new warehouse stores and three new design studios that opened sinceApril 1, 2021 as well as additional staffing to satisfy sales growth. As a percentage of net sales, selling and store operating expenses were flat with the prior year period at 24.3%, while comparable store selling and store operating expenses as a percentage of comparable store sales decreased by approximately 60 basis points. The decrease in selling and store operating expenses as a percentage of comparable store sales during the thirteen weeks endedMarch 31, 2022 was primarily driven by leverage of our occupancy and advertising costs on higher net sales.
General and Administrative Expenses
General and administrative expenses increased$10.6 million , or 24.1%, during the thirteen weeks endedMarch 31, 2022 compared to the corresponding prior year period due to costs to support store growth, including increased store support staff, higher depreciation related to technology and other store support center investments, and operating expenses related to our Spartan subsidiary. General and administrative expenses as a percentage of net sales decreased approximately 30 basis points to 5.3% from 5.6% in the prior year quarter. The decline as a percentage of net sales was primarily driven by lower accruals for employee incentive compensation, slightly offset by amortization resulting from intangible assets acquired as part of our purchase of Spartan in the second quarter of fiscal 2021.
Pre-Opening Expenses
Pre-opening expenses during the thirteen weeks ended
Interest Expense
Net interest expense during the thirteen weeks endedMarch 31, 2022 decreased$0.2 million , or 16.3%, compared to the thirteen weeks endedApril 1, 2021 . The decrease in interest expense for the thirteen weeks endedMarch 31, 2022 was primarily due to lower term loan borrowings, partially offset by an increase in term loan interest rates compared to the thirteen weeks endedApril 1, 2021 .
Income Taxes
The provision for income taxes was$21.9 million during the thirteen weeks endedMarch 31, 2022 compared to$18.8 million during the thirteen weeks endedApril 1, 2021 . The effective tax rate was 23.6% for the thirteen weeks endedMarch 31, 2022 compared to 19.8% in the prior year quarter. The increase in the effective tax rate during the thirteen weeks endedMarch 31, 2022 was primarily due to a year-over-year decrease in excess tax benefits related to stock option exercises and the vesting of restricted stock and restricted stock units. 22
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Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA are key metrics used by management and our board of
directors to assess our financial performance and enterprise value. We believe
that EBITDA and Adjusted EBITDA are useful measures, as they eliminate certain
expenses that are not indicative of our core operating performance and
facilitate a comparison of our core operating performance on a consistent basis
from period to period. We also use Adjusted EBITDA as a basis to determine
covenant compliance with respect to our ABL Facility and Term Loan Facility
(together, the "Credit Facilities"), to supplement GAAP measures of performance
to evaluate the effectiveness of our business strategies, to make budgeting
decisions, and to compare our performance against that of other peer companies
using similar measures. EBITDA and Adjusted EBITDA are also frequently used by
analysts, investors, and other interested parties as performance measures to
evaluate companies in our industry.
EBITDA and Adjusted EBITDA are supplemental measures of financial performance
that are not required by or presented in accordance with GAAP. We define EBITDA
as net income before interest, (gain) loss on early extinguishment of debt,
taxes, depreciation and amortization. We define Adjusted EBITDA as net income
before interest, (gain) loss on early extinguishment of debt, taxes,
depreciation and amortization adjusted to eliminate the impact of certain items
that we do not consider indicative of our core operating performance. See below
for a reconciliation of EBITDA and Adjusted EBITDA to net income, the most
directly comparable financial measure calculated and presented in accordance
with GAAP.
EBITDA and Adjusted EBITDA are non-GAAP measures of our financial performance
and should not be considered as alternatives to net income as a measure of
financial performance or any other performance measure derived in accordance
with GAAP, and they should not be construed as an inference that our future
results will be unaffected by unusual or non-recurring items. Additionally,
EBITDA and Adjusted EBITDA are not intended to be measures of liquidity or free
cash flow for management's discretionary use. In addition, these non-GAAP
measures exclude certain non-recurring and other charges. Each of these non-GAAP
measures has its limitations as an analytical tool, and you should not consider
them in isolation or as a substitute for analysis of our results as reported
under GAAP. In evaluating EBITDA and Adjusted EBITDA, you should be aware that
in the future we may incur expenses that are the same as or similar to some of
the items eliminated in the adjustments made to determine EBITDA and Adjusted
EBITDA, such as stock compensation expense, distribution center relocation
expenses, fair value adjustments related to contingent earn-out liabilities, and
other adjustments. Our presentation of EBITDA and Adjusted EBITDA should not be
construed to imply that our future results will be unaffected by any such
adjustments. Definitions and calculations of EBITDA and Adjusted EBITDA differ
among companies in the retail industry, and therefore EBITDA and Adjusted EBITDA
disclosed by us may not be comparable to the metrics disclosed by other
companies.
The following table reconciles net income to EBITDA and Adjusted EBITDA for the
periods presented:
Thirteen Weeks Ended
in thousands March 31, 2022 April 1, 2021
Net income $ 70,951 $ 75,796
Depreciation and amortization (a) 34,120 25,520
Interest expense, net 1,162 1,388
Income tax expense 21,859 18,765
EBITDA 128,092 121,469
Stock-based compensation expense (b) 5,980 4,734
COVID-19 costs (c) - 216
Other (d) 1,705 656
Adjusted EBITDA $ 135,777 $ 127,075 (a) Excludes amortization of deferred financing costs, which is included as part of interest expense, net in the table above.
(b) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards and forfeitures.
(c) Amounts are comprised of sanitation, personal protective equipment, and other costs directly related to efforts to mitigate the impact of the COVID-19 pandemic on our business. (d) Other adjustments include amounts management does not consider indicative of our core operating performance. Amounts for the thirteen weeks endedMarch 31, 2022 primarily relate to expenses for ourHouston distribution center relocation that was completed during the quarter and changes in the fair value of contingent earn-out liabilities. Amounts for the thirteen weeks endedApril 1, 2021 primarily relate to relocation expenses for ourHouston distribution center and legal fees associated with theFebruary 2021 amendment to our senior secured term loan credit facility. 23
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Liquidity and Capital Resources
Liquidity is provided primarily by our cash flows from operations and our$400.0 million ABL Facility. Unrestricted liquidity based on ourMarch 31, 2022 financial data was$409.4 million , consisting of$31.8 million in cash and cash equivalents and$377.6 million immediately available for borrowing under the ABL Facility without violating any covenants thereunder. Our liquidity is not generally seasonal, and our uses of cash are primarily tied to when we open stores and make other capital expenditures. Our primary cash needs are for merchandise inventories, payroll, store rent, and other operating expenses and capital expenditures associated with opening new stores and remodeling existing stores, as well as information technology, e-commerce, and store support center infrastructure. We also use cash for the payment of taxes and interest and, as applicable, acquisitions. The most significant components of our operating assets and liabilities are merchandise inventories and accounts payable, and, to a lesser extent, accounts receivable, prepaid expenses and other assets, other current and non-current liabilities, and tax payables and receivables. Merchandise inventory is considered "in-transit" or "available for sale" based on whether we have physically received the products at an individual store location or in one of our four distribution centers. In-transit inventory generally varies due to contractual terms, country of origin, transit times, international holidays, weather patterns, and other factors.
Impact of the COVID-19 Pandemic on Liquidity
While our primary sources of funds for business activities are typically cash flows from operations and our existing credit facilities, the full potential impact of the pandemic on our sources of funds and liquidity cannot be reasonably estimated at this time due to uncertainty regarding the potential severity and duration of the pandemic and its future effect on our business. For additional discussion of the impact of the COVID-19 pandemic on our business, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - COVID-19 Update." We continue to monitor the impact of the COVID-19 pandemic on our business and may, as necessary, reduce expenditures, borrow additional amounts under our Term Loan Facility and ABL Facility, or pursue other sources of capital that may include other forms of external financing in order to increase our cash position and preserve financial flexibility. The pandemic may continue to drive volatility and uncertainty in financial and credit markets. Our continued access to external sources of liquidity depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings. If the impacts of the pandemic continue to create severe disruptions or turmoil in the financial markets, or if rating agencies lower our credit ratings, it could adversely affect our ability to access the debt markets, our cost of funds, and other terms for new debt or other sources of external liquidity. We expect that cash generated from operations together with cash on hand, the availability of borrowings under our credit facilities, and if necessary, additional funding through other forms of external financing, will be sufficient to meet liquidity requirements, anticipated capital expenditures, and payments due under our credit facilities for the next twelve months and the foreseeable future. The exact scope of our capital plans is evolving and will ultimately depend on a variety of factors, including the impact of the COVID-19 pandemic on our business. Total capital expenditures in fiscal 2022 are planned to be between approximately$550 million to$590 million and will be funded primarily by cash generated from operations and borrowings under the ABL Facility. Our capital needs may change in the future due to changes in our business, including in response to the COVID-19 pandemic, or new opportunities that we choose to pursue. We currently expect the following for capital expenditures in fiscal 2022 (projected amounts are based on the gross costs that we expect to accrue for these investments on the Condensed Consolidated Balance Sheets in fiscal 2022, which may include amounts incurred but not yet settled in cash during the period):
•invest approximately
•invest approximately
•invest approximately
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Cash Flow Analysis
A summary of our operating, investing, and financing activities is shown in the
following table:
Thirteen Weeks Ended
in thousands March 31, 2022 April 1, 2021
Net cash (used in) provided by operating activities $ (3,333) $ 100,996
Net cash used in investing activities (101,394) (45,876)
Net cash used in financing activities (2,889) (8,841)
Net (decrease) increase in cash and cash equivalents $
(107,616)
Net Cash Provided by Operating Activities
Cash provided by operating activities consists primarily of (i) net income adjusted for non-cash items, including depreciation and amortization, deferred income taxes, and stock-based compensation and (ii) changes in working capital.
Net cash used in operating activities was$3.3 million for the thirteen weeks endedMarch 31, 2022 compared with net cash provided by operating activities of$101.0 million for the thirteen weeks endedApril 1, 2021 . The decrease in net cash provided by operating activities was primarily the result of a net increase in inventory and other working capital items to support our operations.
Investing activities typically consist primarily of capital expenditures for new store openings, existing store remodels (including leasehold improvements, new racking, new fixtures, new product and display vignettes, and enhanced design studios) and new infrastructure and information systems. Cash payments to acquire a business are also included in investing activities. Net cash used in investing activities during the thirteen weeks endedMarch 31, 2022 andApril 1, 2021 was$101.4 million and$45.9 million , respectively. The increase was primarily driven by a$54.4 million increase in capital expenditures and$0.5 million in cash paid as part of the purchase price to acquire a small commercial flooring sales agency and its customer lists (refer to Note 8, "Fair Value Measurements" for additional details related to the acquisition). The year-over-year growth in capital expenditures was primarily driven by (i) an increase in new stores that opened or were under construction, as we generally incur significant capital expenditures for new stores a few to several months in advance of opening, (ii) payment of construction costs related to theHouston distribution center relocation, and (iii) an increase in existing store remodels.
Financing activities consist primarily of borrowings and related repayments under our credit agreements, proceeds from the exercise of stock options and our employee share purchase program, and payments of contingent earn-out consideration related to the Spartan acquisition.
Net cash used in financing activities was$2.9 million for the thirteen weeks endedMarch 31, 2022 compared to net cash provided by financing activities of$8.8 million for the thirteen weeks endedApril 1, 2021 . The decrease in net cash used in financing activities was primarily driven by the repayment of a portion of our Term Loan Facility during the thirteen weeks endedApril 1, 2021 , partially offset by payment of contingent earn-out consideration during the thirteen weeks endedMarch 31, 2022 .
Our Credit Facilities
As ofMarch 31, 2022 , total Term Loan Facility debt was$205.6 million , while no amounts were outstanding under our ABL Facility. For details regarding our Term Loan Facility and ABL Facility, including applicable covenants, please refer to Note 3, "Debt." 25
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Table of Contents Credit Ratings Our credit ratings are periodically reviewed by rating agencies. In fiscal 2022, Moody's andStandard & Poor's have continued to maintain a positive outlook for the Company, and our Moody's issuer corporate family rating of Ba3 andStandard & Poor's corporate credit rating of BB- have remained unchanged. These ratings and our current credit condition affect, among other things, our ability to access new capital. Negative changes to these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be lowered or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. In particular, a weakening of our financial condition, including an increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing.
The current domestic and international political environment, including existing and potential changes toU.S. policies related to global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy. In particular, the ongoing trade dispute between theU.S. andChina has resulted in theU.S. imposing tariffs of 25% on many products fromChina . While exclusions from tariffs were granted for certain products fromChina , nearly all of these exclusions have expired. In fiscal 2021, approximately 30% of the products we sold were produced inChina . As we continue to manage the impact these tariffs may have on our business, we continue taking steps to mitigate some of these cost increases through negotiating lower costs from our vendors, increasing retail pricing as we deem appropriate, and sourcing from alternative countries. While our efforts have mitigated a substantial portion of the overall effect of increased tariffs, the enacted tariffs have increased our inventory costs and associated cost of sales for the remaining products still sourced fromChina .
Tariff Refunds
InNovember 2019 , theU.S. Trade Representative ("USTR") made a ruling to retroactively exclude certain flooring products imported fromChina from the Section 301 tariffs that were implemented at 10% beginning inSeptember 2018 and increased to 25% inJune 2019 . The granted exclusions apply to certain "click" vinyl and engineered products that we have sold and continue to sell. As these exclusions were granted retroactively, we are entitled to a refund fromU.S. Customs for the applicable Section 301 tariffs previously paid on these goods. Tariff refund claims are subject to the approval ofU.S. Customs, and the Company currently expects to recover$22.1 million , including interest, related to these Section 301 tariff payments. Of the expected refunds,$14.7 million has been received as ofMarch 31, 2022 .
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with
GAAP, which requires management to make estimates and assumptions that affect
reported amounts. The estimates and assumptions are based on historical
experience and other factors management believes to be reasonable. The COVID-19
pandemic has impacted our business as discussed in Management's Discussion and
Analysis and the estimates used for, but not limited to, our critical accounting
policies could be affected by future developments related to the COVID-19
pandemic. We have assessed the impact and are not aware of any specific events
or circumstances that required an update to the estimates and assumptions used
for our critical accounting policies or that materially affected the carrying
value of our assets or liabilities as of the date of issuance of this Quarterly
Report on Form 10-Q. These estimates may change as new events occur and
additional information is obtained. Actual results could differ materially from
these estimates under different assumptions or conditions.
For a description of our critical accounting policies and estimates, refer to
Part II, Item 7, "Critical Accounting Policies and Estimates" in our Annual
Report. There have been no material changes to our critical accounting policies
and estimates as disclosed in our Annual Report. See Note 1 to our condensed
consolidated financial statements included in this Quarterly Report, which
describes recent accounting pronouncements adopted by us.
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