The following discussion and analysis is intended to provide the reader with information that will assist in understanding the significant factors affecting our consolidated operating results, financial condition, liquidity, and capital resources during the two-year period ended
December 25, 2021(our fiscal years 2021 and 2020). For a comparison of our results of operations for fiscal year December 26, 2020and December 28, 2019, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020, filed with the SECon February 18, 2021. This discussion should be read in conjunction with our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included elsewhere in this report. This discussion contains forward-looking statements and information. See "Forward-Looking Statements and Information" and "Risk Factors" included elsewhere in this report. Tractor Supplyreports its financial results in accordance with accounting principles generally accepted in the United States of America(" U.S.GAAP"). Tractor Supplyalso uses certain non-GAAP measures that fall within the meaning of Securities and Exchange Commission Regulation G and Regulation S-K Item 10(e), which may provide users of the financial information with additional meaningful comparison to prior reported results. Non-GAAP measures do not have standardized definitions and are not defined by U.S.GAAP. Therefore, Tractor Supply's non-GAAP measures are unlikely to be comparable to similar measures presented by other companies. The presentation of these non-GAAP measures should not be considered in isolation from, as a substitute for, or as superior to the financial information presented in accordance with U.S.GAAP. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations. Overview Founded in 1938, Tractor Supply Company(the "Company" or " Tractor Supply" or "we" or "our" or "us") is the largest rural lifestyle retailer in the United States("U.S."). The Company is focused on supplying the needs of recreational farmers, ranchers, and all those who enjoy living the rural lifestyle (which we refer to as the "Out Here" lifestyle). As of December 25, 2021, we operated 2,181 retail stores in 49 states under the names Tractor Supply Company, Petsense, and Del's Feed & Farm Supply. Our stores are located primarily in towns outlying major metropolitan markets and in rural communities. We also operate websites under the names TractorSupply.com and Petsense.com as well as a Tractor Supply Companymobile application. Through our stores and e-commerce channels, we offer the following comprehensive selection of merchandise: •Equine, livestock, pet, and small animal products, including items necessary for their health, care, growth, and containment (i.e. fencing); •Hardware, truck, towing, and tool products; •Seasonal products, including heating, lawn and garden items, power equipment, gifts, and toys; •Work/recreational clothing and footwear; and •Maintenance products for agricultural and rural use. Tractor Supply Companybelieves we can grow our business by being an integral part of our customers' lives as the dependable supplier of "Out Here" lifestyle solutions, creating customer loyalty through personalized experiences, and providing convenience that our customers expect at anytime, anywhere, and in any way they choose. Our long-term growth strategy is to: (1) expand and deepen our customer base by providing personal, localized, and memorable customer engagements by leveraging content, social media, and digital shopping experiences, attracting new customers and driving loyalty, (2) evolve customer experiences by digitizing our business processes and furthering our omni-channel capabilities, (3) offer relevant assortments and services across all channels through exclusive and national brands and continue to grow our total addressable market by introducing new products and services through our test and learn strategy, (4) drive operational excellence and productivity through continuous improvement, increasing space utilization, and implementing advanced supply chain capabilities to support growth, scale and agility, and (5) expand through selective acquisitions, as such opportunities arise, to add complementary businesses and to enhance penetration into new and existing markets to supplement organic growth. Achieving this strategy will require a foundational focus on: (1) connecting, empowering and growing our team to enhance their lives and the communities they live in, enabling them to provide legendary service to our customers, and (2) allocating resources in a disciplined and efficient manner to drive profitable growth and build stockholder value, including leveraging technology and automation, to align our cost structure to support new business capabilities for margin improvement and cost reductions. Over the past five years, we have experienced considerable growth in stores, growing from 1,738 stores at the end of fiscal 2016 to 2,181 stores (2,003 Tractor Supplyand Del's retail stores and 178 Petsenseretail stores) at the end of fiscal 2021, and in net sales, with a compounded annual growth rate of approximately 13.4%. Given the size of the communities that we target, we believe that there is ample opportunity for new store growth in many existing and new markets. We have developed a proven method for selecting store sites, and we believe we have significant additional opportunities for new Tractor Supplystores. We also believe that there is opportunity for continued growth for Petsensestores. 30
In fiscal 2021, we opened 80 new
Tractor Supplystores in 27 states and seven new Petsensestores in four states. In fiscal 2020, we opened 80 new Tractor Supplystores in 31 states and nine new Petsensestores in three states. This resulted in a selling square footage increase of approximately 4% in each of fiscal 2021 and fiscal 2020. Net sales increased 19.9% to $12.73 billionin fiscal 2021 from $10.62 billionin fiscal 2020 as we experienced significant demand for our products across all product categories, geographies and channels in fiscal 2021 as we acquired new customers who entered our markets and our existing customers focused on the care of their homes, land, and animals while navigating the COVID-19 pandemic. Comparable store sales increased 16.9% in fiscal 2021 versus a 23.1% increase in fiscal 2020. Gross profit increased 19.0% to $4.48 billionin fiscal 2021 from $3.76 billionin fiscal 2020, and gross margin decreased 25 basis points to 35.2% of net sales in fiscal 2021 from 35.4% of net sales in fiscal 2020. Operating income increased 88 basis points to 10.3% of net sales in fiscal 2021 from 9.4% of net sales in fiscal 2020. For fiscal 2021, net income was $997.1 million, or $8.61per diluted share, compared to $749.0 million, or $6.38per diluted share, in fiscal 2020.
We ended fiscal 2021 with
Information Regarding the COVID-19 Coronavirus Pandemic
The Company has been and continues to closely monitor the impact of the COVID-19 pandemic on all facets of our business. This includes the impact on our team members, customers, suppliers, vendors, business partners, and supply chain networks. The health and safety of our team members and customers are the primary concerns of our management team. We have taken and continue to take numerous actions to promote health and safety, including, encouraging vaccination efforts, providing personal protective equipment to our team members, following local and federal guidance regarding the use of masks in our facilities, maintaining enhanced services for cleaning and sanitation, continuing to provide additional functionality to support contactless shopping experiences, promoting social distancing in our stores, and continuing to offer remote work plans at our Store Support Center. As further described in the results of operations, our net sales have significantly increased due to unprecedented customer demand across all major product categories, channels, and geographic regions. However, the net incremental costs of doing business during this crisis have increased as a result of the aforementioned actions we have taken to support and promote the safety and well-being of our team members and customers, and we believe some of these incremental costs will continue after the pandemic is over. There are numerous uncertainties surrounding the pandemic and its impact on the economy and our business, as further described in the Risk Factors section under Part I Item 1A. of this Form 10-K, which make it difficult to predict the impact on our business, financial position, or results of operations in fiscal 2022 and beyond. While our stores, distribution centers, and e-commerce operations are open and plan to remain open, we cannot predict the uncertainties, or the corresponding impacts on our business, at this time.
Comparable Store Metrics
Comparable store metrics are a key performance indicator used in the retail industry and by the Company to measure the performance of the underlying business. Our comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales and exclude certain adjustments to net sales. Stores closed during either of the years being compared are removed from our comparable store metrics calculations. Stores relocated during either of the years being compared are not removed from our comparable store metrics calculations. If the effect of relocated stores on our comparable store metrics calculations became material, we would remove relocated stores from the calculations. 31
Transaction Count and Transaction Value
Transaction count and transaction value metrics are used by the Company to measure sales performance. Transaction count represents the number of customer transactions during a given period. Transaction value represents the average amount paid per transaction and is calculated as net sales divided by the total number of customer transactions during a given period.
Significant Accounting Policies and Estimates
Management's discussion and analysis of our financial position and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with
U.S.GAAP. The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements. The following discussion addresses our most critical accounting policies and estimates, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates.
We identify potentially excess and slow-moving inventory by evaluating turn rates, historical and expected future sales trends, age of merchandise, overall inventory levels, current cost of inventory, and other benchmarks. We have established an inventory valuation reserve to recognize the estimated impairment in value (i.e., an inability to realize the full carrying value) based on our aggregate assessment of these valuation indicators under prevailing market conditions and current merchandising strategies. We also have established a reserve for estimating inventory shrinkage between physical inventory counts. The reserve is established by assessing the chain-wide average shrinkage experience rate, applied to the related periods' sales volumes. Such assessments are updated on a regular basis for the most recent individual store experiences. Our general policy is to perform physical inventories at least once a year for each store that has been open more than twelve months. We receive funding from substantially all of our significant merchandise vendors, in support of our business initiatives, through a variety of programs and arrangements, including guaranteed vendor support funds ("vendor support") and volume-based rebate funds ("volume rebates"). The amounts received are subject to terms of vendor agreements, most of which are "evergreen", reflecting the on-going relationship with our significant merchandise vendors. Certain of our agreements, primarily volume rebates, are renegotiated annually, based on expected annual purchases of the vendor's product. Vendor funding is initially deferred as a reduction of the purchase price of inventory, and then recognized as a reduction of cost of merchandise as the related inventory is sold. During interim periods, the amount of vendor support and volume rebates are estimated based upon initial commitments and anticipated purchase levels with applicable vendors. We do not believe our merchandise inventories are subject to significant risk of obsolescence in the near term. However, changes in market conditions or consumer purchasing patterns could result in the need for additional reserves. Our impairment reserves contain uncertainties because the calculations require management to make assumptions and to apply judgment regarding forecasted customer demand and the promotional environment. The estimated store inventory shrink rate is based on historical experience. We believe historical rates are a reasonably accurate reflection of future trends. Our shrinkage reserve contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding future shrinkage trends, the effect of loss prevention measures and merchandising strategies. For vendor funding, we estimate the purchase volume (and related vendor funding) based on our current knowledge of inventory levels, sales trends and expected customer demand, as well as planned new store openings and relocations. Although we believe we can reasonably estimate purchase volume and related volume rebates at interim periods, it is possible that actual year-end results could be different from previously estimated amounts. Our allocation methodology contains uncertainties because the calculation requires management to make assumptions and to apply judgment regarding customer demand, purchasing activity, target thresholds, vendor attrition and collectability. 32
We have not made any material changes in the accounting methodology used to recognize inventory impairment reserves or shrinkage in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate impairment or shrinkage. However, if assumptions regarding consumer demand, clearance potential or inventory loss for certain products are inaccurate, we may be exposed to losses or gains that could be material. A 10% change in our inventory impairment reserve as of
December 25, 2021, would have affected net income by approximately $1.3 millionin fiscal 2021. A 10% change in our shrinkage reserve as of December 25, 2021, would have affected net income by approximately $4.2 millionin fiscal 2021. We have not made any material changes in the accounting methodology used to establish our vendor funding reserves in the financial periods presented. At the end of each fiscal year, a significant portion of the actual purchase activity is known. Thus, we do not believe there is a reasonable likelihood that there will be a material change in the amounts recorded as vendor funding. We do not believe there is a significant collectability risk related to vendor funding amounts due to us at the end of fiscal 2021. If a 10% reserve had been applied against our outstanding vendor funding due as of December 25, 2021, net income would have been affected by approximately $2.3 millionin fiscal 2021. Although it is unlikely that there will be any significant reduction in historical levels of vendor funding, if such a reduction were to occur in future periods, the Company could experience a higher inventory balance and higher cost of sales.
We self-insure a significant portion of our workers' compensation insurance and general liability (including product liability) insurance plans. We have stop-loss insurance policies to protect from individual losses over specified dollar values. Provisions for losses related to our self-insured liabilities are based upon periodic independent actuarially determined estimates that consider a number of factors including historical claims experience, loss development factors, and severity factors. The full extent of certain workers' compensation and general liability claims may not become fully determined for several years. Our self-insured liabilities contain uncertainties because management is required to make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims incurred but not reported as of the balance sheet date based upon historical data and experience, including actuarial calculations. We have not made any material changes in the accounting methodology used to establish our self-insurance reserves in the financial periods presented. We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate insurance reserves. However, if we experience a significant increase in the number of claims or the cost associated with these claims, we may be exposed to losses that could be material. A 10% change in our self-insurance reserves as of
December 25, 2021, would have affected net income by approximately $8.4 millionin fiscal 2021.
Impairment of Long-Lived Assets:
Long-lived assets, including lease right-of-use assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset or asset group to its estimated undiscounted future cash flows. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level. The significant assumptions used to determine estimated undiscounted cash flows include cash inflows and outflows directly resulting from the use of those assets in operations, including margin on net sales, payroll and related items, occupancy costs, insurance allocations, and other costs to operate a store. If the estimated future cash flows are less than the carrying value of the related asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the related asset or asset group to its estimated fair value, which may be based on an estimated future cash flow model, market valuation, or other valuation technique, as appropriate. We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining estimated useful life of that asset.
Our assessment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values.
We have not made any material changes in our impairment loss assessment methodology in the financial periods presented.
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. None of these estimates and assumptions are significantly sensitive, and a 10% 33
change in any of these estimates would not have a material impact on our analysis. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material.
There were no significant long-lived assets charges recognized in fiscal 2021.
Goodwilland other indefinite-lived intangible assets are evaluated for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value. The quantitative impairment test for goodwill compares the fair value of a reporting unit with the carrying value of its net assets, including goodwill. If the fair value of the reporting unit is less than the carrying value of the reporting unit, an impairment charge would be recorded to the Company's operations, for the amount in which the carrying amount exceeds the reporting unit's fair value. We determine fair values for each reporting unit using the market approach, when available and appropriate, the income approach, or a combination of both. The income approach involves forecasting projected financial information (such as revenue growth rates, profit margins, tax rates, and capital expenditures) and selecting a discount rate that reflects the risk inherent in estimated future cash flows. Under the market approach, the fair value is based on observed market data. If multiple valuation methodologies are used, the results are weighted appropriately. The quantitative impairment test for other indefinite-lived intangible assets involves comparing the carrying amount of the asset to the sum of the discounted cash flows expected to be generated by the asset. If the implied fair value of the indefinite-lived intangible asset is less than the carrying value, an impairment charge would be recorded to the Company's operations. Our impairment loss calculation contains uncertainties because they require management to make assumptions and to apply judgment to qualitative factors as well as estimate future cash flows and asset fair values, including forecasting projected financial information and selecting the discount rate that reflects the risk inherent in future cash flows. The valuation approaches utilized to estimate fair value for the purposes of the impairment tests of goodwill and other indefinite-lived intangible assets require the use of assumptions and estimates, which involve a degree of uncertainty. If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to non-cash impairment losses that could be material.
There were no goodwill or other indefinite-lived intangible assets accusations recognized in fiscal 2021.
Results of Operations
The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Income expressed as a percentage of net sales.
Fiscal Year 2021 2020 Net sales 100.00 % 100.00 % Cost of merchandise sold (a) 64.83 64.58 Gross margin (a) 35.17 35.42
Selling, general and administrative expenses (a) 22.78 23.34 Depreciation and amortization
Impairment of goodwill and other intangible assets - 0.65 Operating income 10.26 9.39 Interest expense, net 0.21 0.27 Income before income taxes 10.05 9.12 Income tax expense 2.22 2.07 Net income 7.83 % 7.05 % (a) Our gross margin amounts may not be comparable to those of other retailers since some retailers include all of the costs related to their distribution facility network in cost of merchandise sold and others (like our Company) exclude a portion of these distribution facility network costs from gross margin and instead include them in selling, general, and administrative expenses; refer to Note 1 - Significant Accounting Policies of the Notes to the Consolidated Financial Statements, included in Item 8 Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
Fiscal 2021 Compared to Fiscal 2020
Net sales increased 19.9% to
$12.73 billionin fiscal 2021 from $10.62 billionin fiscal 2020. Comparable store sales increased 16.9% to $12.43 billionversus a 23.1% increase in fiscal 2020. The comparable store average transaction value increased 9.8% and comparable store average transaction count increased 7.1% for fiscal 2021, as compared to an increase of 12.2% and 10.9% in fiscal 2020, respectively. Our sales performance continued to benefit from the shift of consumer behavior trends due to the COVID-19 pandemic as customers focused on the care of their homes, land, and animals, targeted investments in marketing to increase our unaided brand awareness, and other key initiatives to enhance customers' shopping experience, including the relaunch of the Neighbor's Clubloyalty program. These factors led to growth in new customer acquisition and increased spend from existing customers, which further resulted in an increase in comparable store sales across all major product categories, driven by robust growth for everyday merchandise, including C.U.E. products, and solid demand for seasonal categories. In addition, the Company's e-commerce sales experienced double-digit percentage growth in fiscal 2021 as compared to fiscal 2020. In addition to comparable store sales growth in fiscal 2021, sales from stores opened less than one year were $324.6 millionin fiscal 2021, which represented 3.1 percentage points of the 19.9% increase over fiscal 2020 net sales. Sales from stores opened less than one year were $355.3 millionin fiscal 2020, which represented 4.3 percentage points of the 27.2% increase over fiscal 2019 net sales. 35
The following table summarizes our store growth during fiscal 2021 and 2020: Fiscal Year Store Count Information: 2021 2020
Tractor SupplyBeginning of period 1,923 1,844 New stores opened 80 80 Stores closed - (1) End of period 2,003 1,923 Petsense Beginning of period 182 180 New stores opened 7 9 Stores closed (11) (7) End of period 178 182 Consolidated end of period 2,181 2,105 Stores relocated 3 1
The following table indicates the percentage of net sales represented by each of our major product categories during fiscal 2021 and 2020:
Percent of Net Sales Fiscal Year Product Category: 2021 2020 Livestock and Pet 47 % 47 % Hardware, Tools and Truck 21 21 Seasonal, Gift and Toy Products 21 21 Clothing and Footwear 8 7 Agriculture 3 4 Total 100 % 100 % Gross profit increased 19.0% to
$4.48 billionin fiscal 2021 compared to $3.76 billionin fiscal 2020. As a percent of net sales, gross margin decreased 25 basis points to 35.2% for fiscal 2021 compared to 35.4% for fiscal 2020. The decrease in gross margin as a percentage of net sales was primarily driven by higher product cost inflation, higher transportation costs driven by increased pressures on domestic freight, import freight, and rising fuel prices, and product mix shift towards C.U.E. products, which run at a slightly lower margin rate. Partially offsetting the decrease was the Company's price management program and limited promotional and clearance activity, which effectively offset a significant portion of the inflation and transportation pressures. Total selling, general and administrative ("SG&A") expenses, including depreciation and amortization and asset impairment, increased 14.7% to $3.17 billionin fiscal 2021 from $2.76 billionin fiscal 2020. SG&A expenses, as a percent of net sales, improved 113 basis points to 24.9% in fiscal 2021 from 26.0% in fiscal 2020. The SG&A expenses in fiscal 2020 were impacted by discrete non-cash impairment charges for the Petsensebusiness of $74.1 milliondue primarily to a strategic reassessment of the business and a decision to reduce the number of new store openings planned over the long term and, to a lesser extent, the impairment of long-lived assets at underperforming locations. On an adjusted basis, excluding the impact of the discrete impairment charges in the prior year, SG&A expenses increased 17.8% to $3.17 billionin fiscal 2021 from $2.69 billionin fiscal 2020. On an adjusted basis, SG&A expenses, as a percent of net sales, improved 43 basis points to 24.9% in fiscal 2021 from 25.3% in fiscal 2020. The improvement in SG&A as a percent as net sales was primarily attributable to strong leverage in occupancy and other fixed costs from the increase in comparable store sales and lower COVID-19 pandemic response costs. COVID-19 pandemic response costs in fiscal 2021 of $63.3 millionconsisted of sick pay, benefits, and other health and safety related expenses, as compared to $117.1 millionin fiscal 2020. The leverage from these SG&A expenses was partially offset by higher store wage rates, additional store labor hours, and investment in the Company's strategic initiatives.
Our effective income tax rate decreased to 22.1% for fiscal 2021 compared to 22.6% in fiscal 2020. The primary drivers for the decrease in the Company’s effective income tax rate were additional benefits from share-based compensation, a reduction in
Disallowed executive compensation, and increases in available tax credits, partially offset by a small increase in the Company’s provision for state taxes.
Net income in fiscal 2021 was
$997.1 million, or $8.61per diluted share, compared to $749.0 million, or $6.38per diluted share, in fiscal 2020. The aforementioned non-cash impairment expense related to the Petsensebusiness had an after-tax impact on fiscal 2020 net income of approximately $57.3 millionor $0.49per diluted share. On an adjusted basis, considering the after-tax impact of the non-cash impairment charges related to the Petsensebusiness, net income was $806.2 million, or $6.87per diluted share, for fiscal 2020. Adjusted net income and adjusted net income per diluted share are non-GAAP measures which have been provided in order to enhance comparability for the periods presented given that the impairment charges related to the Petsensebusiness are non-recurring in nature. A reconciliation of these non-GAAP financial measures is included in the following table. Reconciliation of Non-GAAP Financial Measures
(in thousands, except per share amounts) Fiscal 2020 Impairment (a) Fiscal 2020 (As Reported) (Adjustment) (As Adjusted)
SG&A (including depreciation, amortization and asset impairment)
$ 996,928$ 74,051 $ 1,070,979Income before income taxes $ 968,147$
Income tax expense
$ 219,189$ 16,765 $ 235,954Net income $ 748,958$ 57,286 $ 806,244Diluted net income per share $ 6.38 $ 0.49 $ 6.87 (a) Comprised of $68.97 millionof impairment of goodwill and other intangible assets along with $5.08 millionof impairment of other long-lived assets related to the Petsensereporting unit During fiscal 2021, we repurchased approximately 4.4 million shares of the Company's common stock at a total cost of $798.9 millionas part of our share repurchase program. In fiscal 2020, we repurchased approximately 3.4 million shares at a total cost of $343.0 million. Shares repurchased in fiscal 2020 were impacted by the temporary suspension of our share repurchase program from March 12, 2020until November 5, 2020, in order to strengthen our liquidity and preserve cash while navigating the COVID-19 pandemic.
Fiscal 2020 Compared to Fiscal 2019
For a comparison of our performance and financial metrics for the fiscal years ended
Liquidity and Capital Resources
In addition to normal operating expenses and expenses associated with COVID-19, our primary ongoing cash requirements are for new store expansion, existing store remodeling and improvements, store relocations, distribution facility capacity and improvements, information technology, inventory purchases, repayment of existing borrowings under our debt facilities, share repurchases, cash dividends, and selective acquisitions as opportunities arise. Our primary ongoing sources of liquidity are existing cash balances, cash provided from operations, remaining funds available under our debt facilities, operating and finance leases, and normal trade credit. Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support the higher sales volume of the spring and cold-weather selling seasons, respectively. We believe that our existing cash balances, expected cash flow from future operations, funds available under our debt facilities, operating and finance leases, and normal trade credit will be sufficient to fund our operations, including expenses associated with COVID-19, and our capital expenditure needs, including new store openings, existing store remodeling and improvements, 37
store relocations, distribution facility capacity and improvements, and information technology improvements through the end of fiscal 2022. We are not aware of any trends or events that would materially affect our capital requirements or liquidity.
December 25, 2021, the Company had working capital of $1.19 billion, which decreased $329.3 millionfrom fiscal 2020. The shifts in working capital were attributable to changes in the following components of current assets and current liabilities (in millions): December 25, December 26, 2021 2020 Variance Current assets: Cash and cash equivalents $ 878.0
Inventories 2,191.2 1,783.3 407.9 Prepaid expenses and other current assets 164.1 133.6 30.5 Income taxes receivable 17.1 - 17.1 Total current assets 3,250.4 3,258.7 (8.3) Current liabilities: Accounts payable 1,155.6 976.1 179.5 Accrued employee compensation 109.6 119.7 (10.1) Other accrued expenses 474.4 324.8 149.6 Current portion of finance lease obligations 3.9 4.6 (0.7) Current portion of operating lease obligations 321.3 298.7 22.6 Income taxes payable - 19.9 (19.9) Total current liabilities 2,064.8 1,743.8 321.0 Working capital
$ 1,185.6 $ 1,514.9 $ (329.3)
In comparison to
•The decrease in cash and cash equivalents was primarily driven by share repurchases, capital expenditures to support strategic growth, and cash dividends to stockholders. •The increase in inventories resulted from an increase in average inventory per store driven by our commitment to support our strong sales trends, along with the impact of inflation and the purchase of additional inventory to support new store growth. •The increase in accounts payable resulted from the purchase of additional inventory to support new store growth and strong sales volume trends. •Other accrued expenses increased primarily due to increases in freight and other payables due to the growth in sales. 38
The following table summarizes the Company's outstanding debt as of the dates indicated (in millions): December 25, December 26, 2021 2020 1.75% Senior Notes due 2030
$ 650.0 $ 650.03.70% Senior Notes due 2029 150.0 150.0 Senior Credit Facility: November 2020 Term Loan 200.0 200.0 Revolving credit loans - - Total outstanding borrowings 1,000.0 1,000.0 Less: unamortized debt issuance costs (13.6)
Total debt 986.4
Less: current portion of long-term debt - - Long-term debt
$ 986.4 $ 984.3Outstanding letters of credit $ 52.9 $ 48.7On October 30, 2020, the Company issued and sold, in a public offering, $650 millionin aggregate principal amount of senior unsecured notes due November 1, 2030bearing interest at 1.75% per annum (the "1.75% Senior Notes"). In support of the issuance of the 1.75% Senior Notes, we obtained credit ratings from Moody's Investor Servicesand Standard & Poor's. We manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable market costs. As of December 25, 2021, and the date of this filing, February 17, 2022, the Company's senior unsecured debt is rated "Baa1," by Moody's Investor Serviceswith a stable outlook and "BBB" by Standard & Poor'swith a stable outlook. These ratings have been obtained with the understanding that Moody's Investors Services and Standard & Poor'swill continue to monitor our credit and make future adjustments to these ratings to the extent warranted. The ratings are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating. Our current ratings, as well as future rating agency actions, could impact our ability to finance our operations on satisfactory terms and affect our financing costs. There can be no assurance that we will maintain or improve our current credit ratings. We also maintain a $500 millionrevolving credit facility (the "Revolver") under the senior credit facility (the "Senior Credit Facility") with a sublimit of $50 millionfor swingline loans and a sublimit of $150 millionfor letters of credit.
For additional information about the Company’s debt and credit facilities, refer to Note 4 to the Consolidated Financial Statements.
Sources and Uses of Cash
Our primary source of liquidity is cash provided by operations and funds available under our debt facilities. Principal uses of cash for investing activities are capital expenditures while principal uses of cash for financing activities are repurchase of the Company's common stock and cash dividends paid to stockholders. 39
The following table presents a summary of cash flows provided by or used in operating, investing, and financing activities for fiscal years 2021 and 2020 (in millions): Fiscal Year 2021 2020 (52 weeks) (52 weeks) Net cash provided by operating activities
Net cash used in investing activities (627.3)
Net cash (used in)/provided by financing activities (975.1) 155.2 Net (decrease)/increase in cash and cash equivalents
Operating Activities Operating activities provided cash of
$1.14 billionand $1.39 billionin fiscal 2021 and 2020, respectively. The $255.8 milliondecrease in net cash provided by operating activities in fiscal 2021, compared to fiscal 2020, was due to changes in the following (in millions): Fiscal Year 2021 2020 (52 weeks) (52 weeks) Variance Net income $ 997.1 $ 749.0 $ 248.1Depreciation and amortization 270.2 217.1 53.1 Impairment expense - 74.1 (74.1) Share-based compensation expense 47.6 37.3
Deferred income taxes 29.1 (31.7)
Inventories and accounts payable (228.4) 152.6
Prepaid expenses and other current assets (30.5) (32.8)
2.3 Accrued expenses 127.8 152.4 (24.6) Income taxes (37.0) 14.0 (51.0) Other, net (37.2) 62.5 (99.7)
Net cash provided by operating activities
Investing activities used cash of
$627.3 millionand $292.2 millionin fiscal 2021 and 2020, respectively. The $335.1 millionincrease in net cash used in investing activities primarily reflects an increase in capital expenditures in fiscal 2021 compared to fiscal 2020. 40
Investing activities, including capital expenditures, for fiscal 2021 and 2020 were as follows (in millions):
Fiscal Year 2021 2020 (52 weeks) (52 weeks) Variance Existing stores
$ 326.9 $ 73.7 $ 253.2Information technology 124.8 133.0 (8.2) Distribution center capacity and improvements 93.3 23.4 69.9 New and relocated stores and stores not yet opened 73.0 58.8 14.2 Corporate and other 10.4 5.1 5.3 Total capital expenditures $ 628.4 $ 294.0 $ 334.4Proceeds from sale of property and equipment (1.1) (1.8) 0.7 Net cash used in investing activities $ 627.3
The increase in spending for existing stores in fiscal 2021 as compared to fiscal 2020 principally reflects our strategic initiatives related to store remodels, including internal space productivity and the outside side lot improvements. The spending on information technology represents continued support of our store growth and our omni-channel initiatives, as well as improvements in security and compliance, enhancements and upgrades to our customer loyalty program, mobility in our stores, and other strategic initiatives.
The increase in spending for distribution center capacity and improvements in fiscal 2021 as compared to fiscal 2020 is principally related to beginning construction of a new distribution center in
Navarre, Ohio, which is expected to be approximately 900,000 square feet and is currently anticipated to be completed in the fall of fiscal 2022.
The above table reflects an investment in 80 new
Our projected capital expenditures for fiscal 2022 are currently estimated to be in a range of approximately
$625 millionto $675 million. The capital expenditures include a plan to open approximately 75 to 80 new Tractor Supplystores, remodel more than 150 stores and transform the side lots in approximately 100 locations, along with opening 10 new Petsensestores. We also anticipate the opening of our ninth distribution center in Navarre, Ohioin the fall of 2022. Additionally, we plan to begin construction in the middle of fiscal 2022 on a new distribution center in Maumelle, Arkansas, which is currently anticipated to be complete in late 2023. In addition, we plan to support our continued improvements in technology and infrastructure at our existing stores, and ongoing investments to enhance our digital and omni-channel capabilities to better serve our customers.
Financing activities used cash of
$975.1 millionin fiscal 2021, while financing activities provided $155.2 millionin fiscal 2020. The $1.13 billiondecrease in net cash provided by financing activities in fiscal 2021, compared to fiscal 2020, was due to changes in the following (in millions): Fiscal Year 2021 2020 (52 weeks) (52 weeks) Variance
Net borrowings and repayments under debt facilities $ –
$ 602.5 $ (602.5)Repurchase of common stock (798.9) (343.0) (455.9) Net proceeds from issuance of common stock 82.2 99.3 (17.1) Cash dividends paid to stockholders (239.0) (174.7) (64.3) Other, net (19.4) (28.9) 9.5
Net cash (used in)/provided by financing activities
$ 155.2 $ (1,130.3)41
The decrease in net cash from financing activities in fiscal 2021, compared to fiscal 2020, is principally due to actions taken in fiscal 2020 intended to strengthen our liquidity and preserve cash while navigating the COVID-19 pandemic, including borrowings under our debt facilities as well as a temporary suspension of our share repurchase program.
Repurchase of Common Stock
The Company's Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in
February 2007. The authorization amount of the program, which has been increased from time to time, is currently authorized for up to $6.50 billion, exclusive of any fees, commissions or other expenses related to such repurchases. The currently authorized amount reflects a $2.0 billionincrease to the existing share repurchase program which was approved by our Board of Directors on January 26, 2022. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused, or terminated at any time without prior notice. We repurchased approximately 4.4 million and 3.4 million shares of common stock under the share repurchase program at a total cost of $798.9 millionand $343.0 millionin fiscal 2021 and 2020, respectively. As of December 25, 2021, prior to the expanded $2.0 billionrepurchase authorization, the Company had remaining authorization under the share repurchase program of $345.0 million, exclusive of any fees, commissions, or other expenses. Shares repurchased in fiscal 2020 were impacted by the temporary suspension of our share repurchase program from March 12, 2020until November 5, 2020, in order to strengthen our liquidity and preserve cash while navigating the COVID-19 pandemic. Our projected share repurchases for fiscal 2022 are currently estimated to be in a range of approximately $700 millionto $800 million.
Cash Dividends Paid to Stockholders
We paid cash dividends totaling
$239.0 millionand $174.7 millionin fiscal 2021 and 2020, respectively. In fiscal 2021, we declared and paid cash dividends to stockholders of $2.08per common share outstanding as compared to $1.50per common share outstanding in fiscal 2020. These payments reflect an increase in the quarterly dividend in the first quarter of fiscal 2021 to $0.52per share from $0.40per share and an increase in the quarterly dividend in the third quarter of fiscal 2020 from $0.35per share.
It is the present intention of the Company's Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment amount of future dividends will be determined by the Company's Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with any other factors which the Company's Board of Directors deem relevant.
New Accounting Pronouncements
Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued pronouncements not yet adopted as of
December 25, 2021.
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