You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report, and the audited consolidated financial statements and related notes thereto and management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year endedJanuary 1, 2022 ("2021 Form 10-K"). This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in other sections of this report. We operate on a fiscal year that ends on the Saturday closest toDecember 31st each year. References to the first quarter of fiscal 2022 and the first quarter of fiscal 2021 refer to the 13 weeks endedApril 2, 2022 andApril 3, 2021 , respectively. As used in this report, references to "Grocery Outlet ," "the Company," "the registrant," "we," "us" and "our," refer toGrocery Outlet Holding Corp. and its consolidated subsidiaries unless otherwise indicated or the context requires otherwise. Overview We are a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores. Our flexible buying model allows us to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional retailers. Entrepreneurial independent operators ("IOs") run our stores and create a neighborhood feel through personalized customer service and a localized product offering. As ofApril 2, 2022 , we had 418 stores inCalifornia ,Washington ,Oregon, Pennsylvania ,Idaho ,Nevada andNew Jersey .
COVID-19
The COVID-19 pandemic has significantly impacted theU.S. and global economies, resulting in business operation slowdowns and additional expenses, changes in consumer behavior, changes in the mindset and supply of labor, and logistics and supply chain challenges. During the first quarter of fiscal 2022, many aspects of our business continued to be affected by the pandemic. For example, our IOs currently face and expect to continue to face staffing challenges and increased labor costs. We also have incurred and expect to continue to incur COVID-related expenses, including cleaning and safety costs, and supplies. The pandemic additionally continues to create logistical challenges that have increased delivery costs resulting from higher fuel costs, carrier rates and driver wages due to driver shortages, decreases in transportation capacity, and slowdowns. As a result, we have been impacted by varying levels of inflation, resulting in part from supply disruptions, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain and other disruptions, which we have not fully offset through price increases. These increased costs continued to negatively impact our cost of sales and gross margin in the first quarter of fiscal 2022, and they may continue throughout fiscal 2022. Further, planned construction and opening of new stores has been, and may continue to be, negatively impacted due to increased lead times to acquire materials such as steel, obtain permits and licenses and other related factors. Therefore, we continue to plan for lower new store growth in fiscal 2022, compared to our long-term strategic goal of 10%, including with more new stores weighted towards the second half of the year. The extent and continuing impact of the pandemic on our operational and financial performance will depend on many factors, including those outside of our control, however, we believe the flexibility of our unique buying model, our strong vendor relationships and our agile approach to inventory management will allow us to maintain healthy inventory levels, continue to offer a competitive assortment of products for our customers and to effectively operate our business.
Key Factors and Measures We Use to Evaluate Our Business
We consider a variety of financial and operating measures in assessing the performance of our business. The key generally accepted accounting principles ("GAAP") financial measures we use are net sales, gross profit and gross margin, selling, general and administrative expenses ("SG&A") and operating income. The key operational metrics and non-GAAP financial measures we use are number of new stores, comparable store sales, EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share.
First Quarter of Fiscal 2022 Overview
Key financial and operating performance results for the first quarter of fiscal 2022 were as follows:
•Net sales increased by 10.5% to$831.4 million from$752.5 million in the first quarter of fiscal 2021; comparable store sales increased by 5.2% and on a 3-year stacked basis increased 14.3%(1). 18
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•We opened four new stores and closed one, ending the first quarter of fiscal 2022 with 418 stores in seven states.
•Net income decreased 38.7% to
•Adjusted EBITDA(2) increased 0.8% to
•Adjusted net income(2) decreased 7.0% to
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(1)Comparable store sales on a 3-year stacked basis represents the sum of the increase or decrease in comparable store sales, as reported, in the first quarters of fiscal 2022, 2021 and 2020.
(2)Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures, which exclude the impact of certain special items. Please note that our non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. See the "Operating Metrics and Non-GAAP Financial Measures" section below for additional information about these items, including their definitions, how management utilizes such non-GAAP financial measures and reconciliations of the non-GAAP measures and the most directly comparable GAAP measures.
Key Components of Results of Operations
We recognize revenues from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities. Discounts provided to customers by us are recognized at the time of sale as a reduction in net sales as the products are sold. Discounts that are funded solely by IOs are not recognized as a reduction in net sales as the IO bears the incidental costs arising from the discount. We do not accept manufacturer coupons. Net sales consist of net sales from comparable stores and non-comparable stores, described below under "Comparable Store Sales." Growth of our net sales is generally driven by expansion of our store base in existing and new markets as well as comparable store sales growth. Net sales are impacted by the spending habits of our customers, product mix and supply, as well as promotional and competitive activities. Our ever-changing selection of offerings across diverse product categories supports growth in net sales by attracting new customers and encouraging repeat visits from our existing customers. The spending habits of our customers are affected by changes in macroeconomic conditions, such as those experienced due to the COVID-19 pandemic, the recent invasion ofUkraine and changes in discretionary income. Our customers' discretionary income is primarily impacted by wages, fuel and other cost-of-living increases including food-at-home inflation, as well as consumer trends and preferences, which fluctuate depending on the environment. Because we offer a broad selection of merchandise at extreme values, historically our business has benefited from periods of economic uncertainty. 19
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Cost of Sales, Gross Profit and Gross Margin
Cost of sales includes, among other things, merchandise costs, inventory markdowns, inventory losses and transportation, and distribution and warehousing costs, including depreciation. Gross profit is equal to our net sales less our cost of sales. Gross margin is gross profit as a percentage of our net sales. Gross margin is a measure used by management to indicate whether we are selling merchandise at an appropriate gross profit. Gross margin is impacted by product mix and availability, as some products generally provide higher gross margins, and by our merchandise costs, which can vary. Gross margin is also impacted by the costs of distributing and transporting product to our stores, which can vary. Our gross profit is variable in nature and generally follows changes in net sales. While our disciplined buying approach has produced consistent gross margins throughout economic cycles, which we believe has helped to mitigate adverse impacts on gross profit and results of operations, changes in consumer demand like we experienced and continue to experience as a result of the COVID-19 pandemic, including inflationary cost increases for goods, labor and transportation, supply chain constraints and changes in discretionary income, have resulted and could continue to result in unexpected changes to our gross margins. The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of our competitors and other retailers. As a result, our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers.
Selling, General and Administrative Expenses
SG&A expenses are comprised of both store-related expenses and corporate expenses. Our store-related expenses include commissions paid to IOs, occupancy and our portion of maintenance costs and the cost of opening new IO stores. Company-operated store-related expenses include payroll, benefits, supplies and utilities. Corporate expenses include payroll and benefits for corporate and field support, marketing and advertising, insurance and professional services and operator recruiting and training costs. SG&A generally increases as we grow our store base and invest in our corporate infrastructure. SG&A expenses related to commissions paid to IOs are variable in nature and generally increase as gross profits rise and decrease as gross profits decline. We continue to closely manage our expenses and monitor SG&A as a percentage of net sales. The components of our SG&A may not be comparable to the components of similar measures of our competitors and other retailers. We expect that our SG&A will continue to increase in future periods as we continue to grow our net sales and gross profits. Operating Income Operating income is gross profit less SG&A, depreciation and amortization and share-based compensation. Operating income excludes interest expense, net, gain on insurance recoveries, debt extinguishment and modification costs and income tax expense. We use operating income as an indicator of the productivity of our business and our ability to manage expenses. 20
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Table of Contents Results of Operations The following tables summarize key components of our results of operations both in dollars and as a percentage of net sales (amounts in thousands, except for percentages): 13 Weeks Ended April 2, April 3, 2022 2021 Net sales$ 831,427 $ 752,466 Cost of sales 580,538 520,539 Gross profit 250,889 231,927 Operating expenses: Selling, general and administrative 207,433 188,598 Depreciation and amortization 18,233 15,543 Share-based compensation 5,795 3,939 Total operating expenses 231,461 208,080 Income from operations 19,428 23,847 Other expenses: Interest expense, net 3,682 3,906 Total other expenses 3,682 3,906 Income before income taxes 15,746 19,941 Income tax expense 4,172 1,049
Net income and comprehensive income
13 Weeks Ended April 2, April 3, 2022 2021 Percentage of net sales (1) Net sales 100.0 % 100.0 % Cost of sales 69.8 % 69.2 % Gross profit 30.2 % 30.8 % Operating expenses: Selling, general and administrative 24.9 % 25.1 % Depreciation and amortization 2.2 % 2.1 % Share-based compensation 0.7 % 0.5 % Total operating expenses 27.8 % 27.7 % Income from operations 2.3 % 3.2 % Other expenses: Interest expense, net 0.4 % 0.5 % Total other expenses 0.4 % 0.5 % Income before income taxes 1.9 % 2.7 % Income tax expense 0.5 % 0.1 % Net income and comprehensive income 1.4 % 2.5 %
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(1)Components may not sum to totals due to rounding.
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Operating Metrics and Non-GAAP Financial Measures
Number of New Stores
The number of new stores reflects the number of stores opened during a particular reporting period. New stores require an initial capital investment in the store build-outs, fixtures and equipment that we amortize over time as well as cash required for inventory and pre-opening expenses. We expect new store growth to be the primary driver of our net sales growth over the long term. We lease substantially all of our store locations. Our initial lease terms on stores are typically ten years with options to renew for two or three successive five-year periods.
Comparable Store Sales
We use comparable store sales as an operating metric to measure performance of a store during the current reporting period against the performance of the same store in the corresponding period of the previous year. Comparable store sales are impacted by the same factors that impact net sales. Comparable store sales consists of net sales from our stores beginning on the first day of the fourteenth full fiscal month following the store's opening, which is when we believe comparability is achieved. Included in our comparable store definition are those stores that have been remodeled, expanded, or relocated in their existing location or respective trade areas. Excluded from our comparable store definition are those stores that have been closed for an extended period as well as any planned store closures or dispositions. When applicable, as was the case with fiscal 2020, we exclude the net sales in the non-comparable week of a 53-week year from the same store sales calculation after comparing the current and prior year weekly periods that are most closely aligned.
Opening new stores is a primary component of our growth strategy and, as we continue to execute on our growth strategy, we expect that a significant portion of our net sales growth will be attributable to non-comparable store sales. Accordingly, comparable store sales is only one of many measures we use to assess the success of our growth strategy.
EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share
EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share are supplemental key metrics used by management and our Board of Directors to assess our financial performance. EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share are also frequently used by analysts, investors and other interested parties to evaluate us and other companies in our industry. We use EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share 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. In addition, we use adjusted EBITDA to supplement GAAP measures of performance to evaluate our performance in connection with compensation decisions. Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate our operating results. We believe that excluding items from operating income, net income and net income per diluted share that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude, enhances the comparability of our results and provides additional information for analyzing trends in our business. We define EBITDA as net income before net interest expense, income taxes and depreciation and amortization expenses. Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation expense, non-cash rent, asset impairment and gain or loss on disposition, provision for accounts receivable reserves and certain other expenses that may not be indicative of, or are unrelated to, our core operating results, and that may vary in frequency or magnitude. Adjusted net income represents net income adjusted for the previously mentioned adjusted EBITDA adjustments, further adjusted for costs related to amortization of purchase accounting assets and deferred financing costs, tax adjustment to normalize the effective tax rate, and tax effect of total adjustments. Basic adjusted earnings per share is calculated using adjusted net income, as defined above, and basic weighted average shares outstanding. Diluted adjusted earnings per share is calculated using adjusted net income, as defined above, and diluted weighted average shares outstanding. EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share are non-GAAP measures and may not be comparable to similar measures reported by other companies. EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We address the limitations of the non-GAAP measures through the use of various GAAP measures. In the future we will incur expenses or charges such as those added back to calculate adjusted EBITDA or adjusted net income. Our presentation of EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share should not be construed as an inference that our future results will be unaffected by the adjustments we have used to derive our non-GAAP measures. 22
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The following table summarizes key operating metrics and non-GAAP financial measures for the periods presented (amounts in thousands, except for percentages and store counts): 13 Weeks Ended April 2, April 3, 2022 2021 Other Financial and Operations Data Number of new stores 4 10 Number of stores open at end of period 418 389 Comparable store sales increase (decrease) (1) 5.2 % (8.2) % EBITDA (2)$ 38,418 $ 39,991 Adjusted EBITDA (2)$ 49,250 $ 48,837 Adjusted net income (2)$ 21,507 $ 23,124 _______________________ (1)Comparable store sales consist of net sales from our stores beginning on the first day of the fourteenth full fiscal month following the store's opening, which is when we believe comparability is achieved.
(2)See "GAAP to Non-GAAP Reconciliations" section below for the applicable reconciliations.
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GAAP to Non-GAAP Reconciliations
The following tables provide a reconciliation from our GAAP net income to EBITDA and adjusted EBITDA, GAAP net income to adjusted net income, and our GAAP earnings per share to adjusted earnings per share for the periods presented (amounts in thousands, except per share data):
13 Weeks Ended April 2, April 3, 2022 2021 Net income$ 11,574 $ 18,892 Interest expense, net 3,682 3,906 Income tax expense 4,172 1,049 Depreciation and amortization expenses (1) 18,990
16,144
EBITDA 38,418
39,991
Share-based compensation expenses (2) 5,795
3,939
Non-cash rent (3) 1,936
2,908
Asset impairment and gain or loss on disposition (4) 363 452 Provision for accounts receivable reserves (5)
1,233 955 Other (6) 1,505 592 Adjusted EBITDA$ 49,250 $ 48,837 13 Weeks Ended April 2, April 3, 2022 2021 Net income$ 11,574 $ 18,892 Share-based compensation expenses (2) 5,795 3,939 Non-cash rent (3) 1,936 2,908 Asset impairment and gain or loss on disposition (4) 363 452 Provision for accounts receivable reserves (5) 1,233 955 Other (6) 1,505 592
Amortization of purchase accounting assets and deferred financing costs (7)
3,112 2,943 Tax adjustment to normalize effective tax rate (8) (176) (4,256) Tax effect of total adjustments (9) (3,835) (3,301) Adjusted net income$ 21,507 $ 23,124 GAAP earnings per share Basic$ 0.12 $ 0.20 Diluted$ 0.12 $ 0.19 Adjusted earnings per share Basic$ 0.22 $ 0.24 Diluted$ 0.22 $ 0.23 Weighted average shares outstanding Basic 96,148 95,195 Diluted 99,434 99,570 ___________________________ (1)Includes depreciation related to our distribution centers, which is included within the cost of sales line item in our condensed consolidated statements of operations and comprehensive income. See Note 1 to the condensed consolidated financial statements for additional information about the components of cost of sales. (2)Includes non-cash share-based compensation expense and cash dividends paid on vested share-based awards as a result of dividends declared in connection with recapitalizations that occurred in fiscal 2018 and 2016. See "Share-based Compensation Expense" in the "Comparison of the 13 weeks endedApril 2, 2022 andApril 3, 2021 " section below for additional information. (3)Consists of the non-cash portion of rent expense, which represents the difference between our straight-line rent expense recognized under GAAP and cash rent payments. The adjustment can vary depending on the average age of our lease portfolio. 24
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(4)Represents impairment charges with respect to planned store closures and gains or losses on dispositions of assets in connection with store transitions to new IOs.
(5)Represents non-cash changes in reserves related to our IO notes and accounts receivable. See Note 2 to the condensed consolidated financial statements for additional information. (6)Represents other non-recurring, non-cash or non-operational items, such as store closing costs, costs related to employer payroll taxes associated with equity awards, technology upgrade implementation costs, legal settlements and other legal expenses, certain personnel-related costs, and miscellaneous costs.
(7)Represents the amortization of debt issuance costs and incremental
amortization of an asset step-up resulting from purchase price accounting
related to our acquisition in 2014 by an investment fund affiliated with
(8)Represents adjustments to normalize the effective tax rate for the impact of unusual or infrequent tax items that we do not consider in our evaluation of ongoing performance, including excess tax benefits related to stock option exercises and vesting of RSUs that are recorded in earnings as discrete items in the reporting period in which they occur.
(9)Represents the tax effect of the total adjustments. We calculate the tax effect of the total adjustments on a discrete basis excluding any non-recurring and unusual tax items.
Comparison of the 13 weeks ended
Net Sales 13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Net sales$ 831,427 $ 752,466 $ 78,961 10.5 % The increase in net sales for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was attributable to non-comparable store sales growth from the net 29 new stores opened over the last 12 months as well as in increase in comparable store sales.
Comparable store sales increased 5.2% for the 13 weeks ended
Cost of Sales 13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Cost of sales$ 580,538 $ 520,539 $ 59,999 11.5 % % of net sales 69.8 % 69.2 % The increase in cost of sales for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was primarily the result of new store growth and higher costs as a percentage of net sales combined with an increase in comparable store sales (as discussed above). Costs as a percentage of net sales increased for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 due in large part to inflationary cost increases for goods, labor and transportation as well as the impact of supply chain constraints. Gross Profit and Gross Margin 13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Gross profit$ 250,889 $ 231,927 $ 18,962 8.2 % Gross margin 30.2 % 30.8 % The increase in gross profit for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was primarily the result of new store growth and an increase in comparable store sales, partially offset by higher costs as a percentage of sales (as discussed above). Our gross margin decreased for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 primarily due to the higher cost of sales as a percentage of net sales, as discussed previously. 25
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Selling, General and Administrative Expenses ("SG&A")
13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change SG&A$ 207,433 $ 188,598 $ 18,835 10.0 % % of net sales 24.9 % 25.1 % The increase in SG&A for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was primarily driven by increases in commission payments to IOs, higher store occupancy and maintenance costs due to a higher store count, as well as higher personnel and incentive compensation expenses. As a percentage of net sales, SG&A decreased slightly for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 due to lower commission payments to IOs as a percentage of net sales, partially offset by higher accrued incentive compensation expenses.
Depreciation and Amortization Expense
13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Depreciation and amortization$ 18,233 $ 15,543 $ 2,690 17.3 % % of net sales 2.2 % 2.1 % The increase in depreciation and amortization expenses for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was primarily driven by new store growth and existing store investments.
Share-based Compensation Expense
13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Share-based compensation$ 5,795 $ 3,939 $ 1,856 47.1 % % of net sales 0.7 % 0.5 %
The increase in share-based compensation expenses for the 13 weeks ended
Interest Expense, Net 13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Interest expense, net$ 3,682 $ 3,906 $ (224) (5.7) % % of net sales 0.4 % 0.5 %
The decrease in net interest expense for the 13 weeks ended
Income Tax Expense 13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Income tax expense$ 4,172 $ 1,049 $ 3,123 297.7 % % of net sales 0.5 % 0.1 % Effective tax rate 26.5 % 5.3 % The increase in income tax expense for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was primarily driven by a reduction in excess tax benefits related to the exercise of stock options and vesting of 26
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RSUs. Such excess tax benefits totaled$0.1 million for the 13 weeks endedApril 2, 2022 compared to$4.3 million for the 13 weeks endedApril 3, 2021 . Net Income 13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Net income$ 11,574 $ 18,892 $ (7,318) (38.7) % % of net sales 1.4 % 2.5 %
As a result of the foregoing factors, net income decreased for the 13 weeks
ended
Adjusted EBITDA 13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Adjusted EBITDA$ 49,250 $ 48,837 $ 413 0.8 % The slight increase in adjusted EBITDA for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was primarily due to higher net sales resulting from new store growth and an increase in comparable store sales for the 13 weeks endedApril 2, 2022 , partially offset by a decrease in gross margin and an increase in SG&A, each as discussed previously. Adjusted Net Income 13 Weeks Ended April 2, April 3, 2022 2021 $ Change % Change Adjusted net income$ 21,507 $ 23,124 $ (1,617) (7.0) % The decrease in adjusted net income for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was primarily due to an increase in SG&A along with depreciation and amortization expense as well as a decrease in gross margin, partially offset by an increase in net sales resulting from new store growth and an increase in comparable store sales for the 13 weeks endedApril 2, 2022 . 27
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Liquidity and Capital Resources
Sources of Liquidity
Based on our current operations and new store growth plans, we expect to satisfy our short-term and long-term cash requirements through a combination of our existing cash and cash equivalents position, funds generated from operating activities, and the borrowing capacity available in the revolving credit facility under our first lien credit agreement (the "FirstLien Credit Agreement"). If cash generated from our operations and borrowings under our revolving credit facility are not sufficient or available to meet our liquidity requirements, then we will be required to obtain additional equity or debt financing in the future. There can be no assurance equity or debt financing will be available to us when we need it or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders. Additionally, we may seek to take advantage of market opportunities to refinance our existing debt instruments with new debt instruments at interest rates, maturities and terms we deem attractive. As ofApril 2, 2022 , we had cash and cash equivalents of$138.0 million , which consisted primarily of cash held in checking and money market accounts with financial institutions. In addition, we have a revolving credit facility with$100.0 million in borrowing capacity under our First Lien Credit Agreement. As ofApril 2, 2022 , we had$3.5 million of outstanding standby letters of credit and$96.5 million of remaining borrowing capacity available under this revolving credit facility. We did not borrow under this revolving credit facility during the 13 weeks endedApril 2, 2022 . We may also, from time to time, at our sole discretion, prepay or retire all or a portion of our outstanding debt. Subsequent to quarter end, inApril 2022 we prepaid$75.0 million of principal on the senior term loan outstanding under our First Lien Credit Agreement. Material Cash Requirements
There has been no material change in our material cash requirements since the end of fiscal 2021. See our 2021 Form 10-K for additional information.
Capital Expenditures
Capital expenditures include purchases of capital assets such as property and equipment as well as intangible assets and licenses. Capital expenditures for the 13 weeks endedApril 2, 2022 , before the impact of tenant improvement allowances, were$34.8 million , and, net of tenant improvement allowances, were$27.2 million . We continue to expect total capital expenditures, net of tenant improvement allowances, to be approximately$115.0 million for fiscal 2022.
Debt Covenants
The First Lien Credit Agreement contains certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants. The First Lien Credit Agreement restricts us from entering into certain types of transactions and making certain types of payments including dividends and stock repurchases and other similar distributions, with certain exceptions. Additionally, borrowing availability under the revolving credit facility under our First Lien Credit Agreement is subject to a first lien secured leverage ratio of 7.00 to 1.00 (as defined in the FirstLien Credit Agreement), tested quarterly if, and only if, the aggregate principal amount outstanding and/or issued, as applicable, from the revolving facility, letters of credit (to the extent not cash collateralized or backstopped or, in the aggregate, not in excess of the greater of$10.0 million and the stated face amount of letters of credit outstanding on the closing date) and swingline loans exceeds 35% of the total amount of the revolving credit facility commitments.
As of
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The following table summarizes our cash flows for the periods presented (amounts in thousands, except percentages):
13 Weeks Ended
April 2, 2022 April 3, 2021 $ Change % Change
Net cash provided by operating activities
37.5 % Net cash used in investing activities (35,522) (39,164) 3,642 (9.3) % Net cash provided by (used in) financing activities (2,896) 2,717 (5,613) (206.6) %
Net decrease in cash and cash equivalents
(79.2) %
Cash Provided by Operating Activities
Net cash provided by operating activities was$36.3 million for the 13 weeks endedApril 2, 2022 compared to$26.4 million for the same period in fiscal 2021. The increase in net cash provided by operating activities of$9.9 million for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was primarily driven by changes to our working capital balances. Changes to accrued compensation and trade accounts payable provided increases to net cash flow provided by operating activities, which were partially offset by changes to merchandise inventories.
Cash Used in Investing Activities
Net cash used in investing activities was$35.5 million for the 13 weeks endedApril 2, 2022 compared to$39.2 million for the same period in fiscal 2021. The decrease in net cash used in investing activities of$3.6 million for the 13 weeks endedApril 2, 2022 compared to the same period in fiscal 2021 was primarily related to decreased capital expenditures related to the timing of construction of newly opened stores and stores under development as well as existing store capital investments. We had four new store openings and two store relocations during the 13 weeks endedApril 2, 2022 compared to 10 new store openings and two store relocation for the same period of fiscal 2021.
Cash Provided by (Used in) Financing Activities
Net cash used in financing activities of$2.9 million for the 13 weeks endedApril 2, 2022 was primarily due to the repurchase of$3.5 million worth of common stock, partially offset by$0.9 million in proceeds from the exercise of stock options. Net cash provided by financing activities of$2.7 million for the 13 weeks endedApril 3, 2021 was primarily due to$3.0 million in proceeds from the exercise of stock options, partially offset by$0.2 million in principal payments on finance leases.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States of America and the applicable rules and regulations of theSEC for interim reporting. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. With respect to critical accounting policies, even a relatively minor variance between actual and expected results can potentially have a materially favorable or unfavorable impact on subsequent results of operations.
There have been no material changes to our critical accounting policies and
estimates during the 13 weeks ended
Recent Accounting Pronouncements
Refer to Note 1 to the condensed consolidated financial statements included elsewhere in this report.
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