BlueLinx Holdings Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Concerning Forward-Looking Statements This Quarterly Report on Form 10-Q (“Quarterly Report” or “Form 10-Q”) contains forward-looking statements. Forward-looking statements include, without limitation, any statements that predict, forecast, indicate or imply future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “could,” “expect,” “estimate,” “intend,” “may,” “project,” “plan,” “should,” “will,” “will be,” “will likely continue,” “will likely result” “would,” or words or phrases of similar meaning. Forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. The forward-looking statements in this report include, without limitation, statements about anticipated effects of adopting certain accounting standards; estimated future annual amortization expense; estimates made in connection with revenue recognition; the expected outcome of legal proceedings; the expected outcome of government and regulatory proceedings; industry conditions; seasonality; liquidity and capital resources; our confidence in the Company’s long-term growth strategy; our areas of focus and management initiatives; the demand outlook for construction materials and expectations regarding new home construction, repair and remodel activity and continued investment in existing and new homes; our positioning for long-term value creation; our efforts and ability to generate profitable growth; our ability to increase net sales in specialty product categories; our ability to generate profits and cash from sales of specialty products; our ability to effectively manage inventory; our ability to manage our lease commitments; our ability to negotiate collective bargaining agreements; our multi-year capital allocation plans; our ability to manage volatility in wood-based commodities; our improvement in execution and productivity; our efforts and ability to maintain a disciplined capital structure and capital allocation strategy; our ability to maintain a strong balance sheet; our ability to focus on operating improvement initiatives and commercial excellence; and whether or not the Company will continue any share repurchases. These risks and uncertainties also include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 30, 2023, those discussed elsewhere in this Form 10-Q, and in future reports that we file with the SEC. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information included in this Form 10-Q and in our Annual Report on Form 10-K for fiscal year 2023 . In addition to historical information, the following discussion and other parts of this Form 10-Q contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under Item 1A “Risk Factors” in our Form 10-K for fiscal 2023 and under “Cautionary Statement Concerning Forward-Looking Statements” in Item 2 of this Form 10-Q. Our Culture, Values and Management Focus We remain committed to driving a culture of profitable growth within new and existing product lines and geographies, while positioning the Company for long-term value creation. The following initiatives represent key areas of our management team’s focus: 1. Migrate sales mix toward higher-margin specialty product categories. The Company is pursuing a revenue mix increasingly weighted toward higher-margin, specialty product categories such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products. Additionally, the Company is expanding its value-added service offerings designed to simplify complex customer sourcing requirements, together with marketing, inventory and pricing services afforded by the Company’s national platform. 2. Foster a performance-driven culture committed to business excellence and profitable growth to be the provider of choice for suppliers and customers. This includes enhancing the customer experience through technology Table of Contents enablement; accelerating organic growth within specific product and solutions offerings where the Company is uniquely advantaged; enhancing our performance by leveraging our scale and footprint together with pricing, operational and procurement capabilities; and deploying capital to drive sustained margin expansion, grow cash flow and maintain continued profitable growth. 3. Maintain a disciplined capital structure and pursue strategic investments that increase the value of the Company. The Company continues to strategically target acquisition opportunities that grow its specialty products business, expand its geographic reach, or complement its existing capabilities. The Company also continues to identify markets that are potential opportunities for new market development. The Company further seeks to maintain a disciplined capital structure while at the same time investing in its business to modernize its distribution facilities, as well as its tractor and trailer fleet, and to improve operational performance. During the first half of 2024, we engaged in the following transactions: • Used cash of $11.9 million and entered into $11.2 million of finance leases to enhance our facilities and fleet. • Returned capital of $15.0 million to our shareholders by using cash to purchase 152,403 shares of our common stock at an average price of $98.28. Our culture is guided by an unwavering commitment to apply our values to every decision we make and every action we take: • Customer Centric - We put our customers first, so we are customer centric in all that we do. • Integrity - We act with integrity, because doing the right thing is critical to our success. • Respect - We treat everyone with dignity and respect. • Grit - We show grit in the face of changing landscapes. • Collaboration - We collaborate with each other and our customers to build great teams and construct innovative solutions. Looking ahead, we plan to continue pursuing a three-pronged growth strategy focusing on specialty products sales growth, opportunistic mergers and acquisitions (“M&A”), and potential greenfield expansion in new geographic markets. Within specialty products, we will continue our focus on the five key areas of engineered wood, siding, moulding and millwork, outdoor living, and industrial products, which we believe are all favorable for two-step distributors and have attractive long-term prospects. Factors That Affect Our Operating Results and Trends Our results of operations and financial performance are influenced by a variety of factors, including the following: housing market conditions; pricing and product cost variability; volumes of product sold; competition; the cyclical nature of the industry in which we operate; consolidation among competitors, suppliers, and customers; disintermediation risk; loss of products or key suppliers and manufacturers; our dependence on international suppliers and manufacturers for certain products; effective inventory management relative to our sales volume or the prices of the products we produce; business disruptions; potential acquisitions and the integration and completion of such acquisitions; information technology security risks and business interruption risks; the ability to attract, train, and retain highly qualified associates and other key personnel while controlling related labor costs; exposure to product liability and other claims and legal proceedings related to our business and the products we distribute; natural disasters, catastrophes, fire, wars or other unexpected events; the impacts of climate change; successful implementation of our strategy; wage increases or work stoppages by our union employees; costs imposed by federal, state, local, and other regulations; compliance costs associated with federal, state, and local environmental protection laws; the effects of epidemics, global pandemics or other widespread public health crises and governmental rules and regulations; fluctuations in our operating results; our level of indebtedness and our ability to incur additional debt to fund future needs; the covenants of the instruments governing our indebtedness limiting the discretion of our management in operating the business; the potential to incur more debt; the fact that we have consummated certain sale leaseback transactions with resulting long-term non-cancelable leases, many of which are or will be finance leases; the fact that we lease many of our distribution centers, and we would still be obligated under these leases even if we close a leased distribution center; inability to raise funds necessary to finance a required repurchase of our senior secured notes; a lowering or withdrawal of debt ratings; changes in our product mix; increases in fuel and other energy prices or availability of third-part freight providers; changes in insurance-related deductible/retention liabilities based on actual loss development experience; the possibility that the value of our deferred tax assets could become impaired; changes in our expected annual effective tax rate could be volatile; the costs and liabilities related to our participation in multi-employer pension plans could increase; the risk that our cash flows and capital resources may be insufficient to service our existing or future indebtedness; interest rate risk, which could cause our debt service obligations to increase; and changes Table of Contents in, or interpretation of, accounting principles. These factors, and the related trends and uncertainties, have historically produced cyclicality in our results of operations, and we expect this cyclicality to continue in future periods. For more information on the risk factors impacting our business, refer to Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year 2023. Table of Contents Results of Operations Our results of operations for the three months ended June 29, 2024 (“second quarter of fiscal 2024”) and for the three months ended July 1, 2023 (“second quarter of fiscal 2023”) were as follows: Three Months Ended June 29, 2024 % of Net Sales Three Months Ended July 1, 2023 % of Net Sales ($ amounts in thousands) Net sales $ 768,363 $ 815,967 Gross profit 122,444 15.9% 135,803 16.6% Selling, general, and administrative 89,453 11.6% 88,750 10.9% Depreciation and amortization 10,120 1.3% 7,951 1.0% Amortization of deferred gains on real estate (984) (0.1)% (984) (0.1)% Other operating expenses 8 0.0% 993 0.1% Operating income 23,847 3.1% 39,093 4.8% Interest expense, net 4,801 0.6% 6,311 0.8% Other expense, net — 0.0% 594 0.1% Income before provision for income taxes 19,046 2.5% 32,188 3.9% Provision for income taxes 4,710 0.6% 7,722 0.9% Net income $ 14,336 1.9% $ 24,466 3.0% Our results of operations for the six months ended June 29, 2024 (“first six months of fiscal 2024”) and for the six months ended July 1, 2023 (“first six months of fiscal 2023”) were as follows: Six Months Ended June 29, 2024 % of Net Sales Six Months Ended July 1, 2023 % of Net Sales ($ amounts in thousands) Net sales $ 1,494,607 $ 1,613,871 Gross profit 250,125 16.7% 269,342 16.7% Selling, general, and administrative 180,703 12.1% 179,924 11.1% Depreciation and amortization 19,553 1.3% 15,669 1.0% Amortization of deferred gains on real estate (1,968) (0.1)% (1,968) (0.1)% Other operating expenses 322 0.0% 4,109 0.3% Operating income 51,515 3.4% 71,608 4.4% Interest expense, net 9,425 0.6% 13,998 0.9% Other expense, net — 0.0% 1,188 0.1% Income before provision for income taxes 42,090 2.8% 56,422 3.5% Provision for income taxes 10,262 0.7% 14,144 0.9% Net income $ 31,828 2.1% $ 42,278 2.6% Table of Contents The following table sets forth net sales by product category: Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net sales by product category ($ amounts in thousands) Specialty products $ 539,466 $ 570,990 $ 1,043,300 $ 1,138,828 Structural products 228,897 244,977 451,307 475,043 Total net sales $ 768,363 $ 815,967 $ 1,494,607 $ 1,613,871 Percentage of total net sales by product category Specialty products 70.2 % 70.0 % 69.8 % 70.6 % Structural products 29.8 % 30.0 % 30.2 % 29.4 % Total net sales 100.0 % 100.0 % 100.0 % 100.0 % The following table sets forth gross profit and gross margin percentages by product category: Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Gross profit by product category: ($ amounts in thousands) Specialty products $ 104,350 $ 108,841 $ 208,399 $ 215,468 Structural products 18,094 26,962 41,726 53,874 Total gross profit $ 122,444 $ 135,803 $ 250,125 $ 269,342 Gross margin % by product category: Specialty products 19.3 % 19.1 % 20.0 % 18.9 % Structural products 7.9 % 11.0 % 9.2 % 11.3 % Company gross margin % 15.9 % 16.6 % 16.7 % 16.7 % Second Quarter of Fiscal 2024 Compared to Second Quarter of Fiscal 2023 For the second quarter of fiscal 2024, the Company generated consolidated net sales of $768.4 million, a decrease of $47.6 million, or 5.8 percent, compared to the second quarter of fiscal 2023. The decrease in net sales in the current quarter was attributable to both specialty products and structural products as sales were negatively impacted by demand challenges in the housing and building product sectors, by specialty products price deflation, and by declining lumber and panel prices. The Company’s gross profit for the second quarter of fiscal 2024 decreased by $13.4 million to $122.4 million from $135.8 million in the prior year period and this decrease was attributable to both specialty products and structural products. Gross margin percentage for the Company decreased from 16.6 percent to 15.9 percent in the current quarter, mainly attributable to structural products. Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased by $31.5 million, or 5.5 percent, to $539.5 million in the second quarter of fiscal 2024. This decrease in net sales was due to price deflation across all specialty product categories, partially offset by volume gains for millwork, engineered wood, and siding. Specialty products gross profit decreased by $4.5 million to $104.4 million due primarily to lower sales volume, but specialty products gross margin percentage increased by 20 basis points to 19.3 percent compared to 19.1 percent in the second quarter of fiscal 2023. Gross margin percentage and gross profit for specialty products benefited in the current quarter from a $2.7 million change in an estimate for an accrual initially made and disclosed in the first quarter of 2024 related to amounts the Company believes it may owe for discrepancies in duties paid in prior years for certain imported goods. Not including this benefit, specialty products gross margin percentage would have been 18.9 percent in the current quarter. Table of Contents Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased by $16.1 million, or 6.6 percent, to $228.9 million in the second quarter of fiscal 2024 compared to the second quarter of 2023. This decrease was primarily due to lower volumes and a decline in our lumber selling prices which generally correlated with a year-over-year decline in the average composite price of framing lumber. Structural products gross profit decreased by $8.9 million to $18.1 million from $27.0 million in the prior year period. Structural products gross margin percentage for the second quarter of fiscal 2024 was 7.9 percent compared to 11.0 percent in the prior-year period. Gross profit and gross margin percentage for the second quarter of fiscal 2024 were negatively impacted by lower sales and by a $2.4 million provision to adjust the carrying values of certain lumber and panel inventory items to their net realizable values as of June 29, 2024. During the second quarter of fiscal 2023, there was no such provision. Our selling, general, and administrative (“SG&A”) expenses increased by $0.7 million, or 0.8 percent, compared to the second quarter of fiscal 2023. In the current quarter, lower logistics expenses and share-based compensation expense were offset by higher technology expenses and by legal expenses associated with duty-related matters. Depreciation and amortization expense increased 27.3 percent compared to the second quarter of fiscal 2023 due to a higher base of depreciable assets in the second quarter of fiscal 2024, resulting from our continued focused capital investment. Interest expense, net, decreased by 23.9 percent, or $1.5 million, compared to the second quarter of fiscal 2023. The decrease was due to the generation of additional interest income from larger balances of cash and cash equivalents and from higher interest rates on those balances in the current quarter compared to the prior year period. Our effective income tax rates were 24.7 percent and 24.0 percent for the second quarters of fiscal 2024 and 2023, respectively. Our effective income tax rates for both periods were impacted by state taxes as well as the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, slightly offset by a benefit from the vesting of restricted stock units. For fiscal 2024, we expect our annual effective income tax rate will be approximately 26 percent. Our net income for the second quarter of fiscal 2024 was $14.3 million, or $1.65 per diluted share, versus $24.5 million, or $2.70 per diluted share, in the prior-year period. Decreases in our net income and earnings per diluted share were due primarily to the factors discussed above. First Six Months of Fiscal 2024 Compared to First Six Months of Fiscal 2023 For the first six months of fiscal 2024, the Company generated consolidated net sales of $1.5 billion, a decrease of $119 million, or 7.4 percent, compared to the first six months of fiscal 2023. The decrease in net sales in the current period was attributable to both specialty products and structural products as sales were negatively impacted by challenges in the housing and building products sectors and by declining lumber and panel prices. The Company’s gross profit for the first six months of fiscal 2024 decreased by $19.2 million to $250.1 million from $269.3 million in the prior year period and this decline was attributable to both specialty products and structural products. The Company’s gross margin percentage was 16.7 percent for both periods. Gross margin percentage and gross profit benefited in the current period by a net benefit in specialty products of $9.1 million for import duty items. The import duty items were related to changes in retroactive rates for anti-dumping duties resulting in a credit to cost of products sold of $16.9 million, partially offset by classification adjustments for certain goods imported by the Company that resulted in an increase in Cost of products sold of $7.7 million. Not including this net benefit, the Company’s gross margin percentage would have been 16.1 percent in the current period. Table of Contents Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased by $95.5 million, or 8 percent, to $1.0 billion in the first six months of fiscal 2024. The decline in net sales was due to price deflation across all specialty product categories, partially offset by volume gains for millwork, engineered wood, and siding. Specialty products gross profit decreased $7.1 million to $208.4 million due to lower net sales, while specialty products gross margin percentage increased 110 basis points to 20.0 percent for the first six months of fiscal 2024 compared to 18.9 percent in the first six months of fiscal 2023. The net impact of the import duty items described above increased specialty products gross profit for the current period by $9.1 million and specialty products gross margin percentage by 0.9 percent. Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased $23.7 million to $451.3 million in the first six months of fiscal 2024 primarily due to volume and price declines for the lumber category, partially offset by price increases in the panels category. Gross profit for structural products decreased by $12.1 million to $41.7 million from $53.9 million in the prior year period. Structural products gross margin percentage for the first six months of fiscal 2024 was 9.2 percent, a decline from 11.3 percent in the prior-year period. The declines in gross profit and gross margin percentage were attributable to the lower sales and by a $2.4 million provision to adjust the carrying values of certain lumber and panel inventory items to their net realizable values as of June 29, 2024. We determined that a provision for lower of cost and net realizable value was not required for any inventory at the end of the first six months of fiscal 2023. Our SG&A expenses in the first six months of fiscal 2024 increased $0.8 million compared to the first six months of fiscal 2023. In the current period, lower logistics expenses and share-based compensation expenses were offset by higher technology expenses and by legal expenses associated with duty-related matters. Depreciation and amortization expense increased 24.8 percent compared to the first six months of fiscal 2023 due to a higher base of depreciable assets throughout the first six months of fiscal 2024 when compared the prior-year period, resulting from our continued focus on capital investment. Other operating expenses decreased $3.8 million compared to the first six months of fiscal 2023 primarily due to restructuring related expenses, including severance expenses, incurred in the 2023 period due to our leadership transition. Interest expense, net, decreased by 32.7 percent, or $4.6 million, compared to the first six months of fiscal 2023. The decrease is primarily due to the generation of higher interest income, given our year-over-year increase in cash that is generating interest at higher rates than last year. Our effective income tax rates were 24.4 percent and 25.1 percent for the first six months of fiscal 2024 and 2023, respectively. Our effective income tax rate for both periods was impacted by state taxes as well as the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, offset by a benefit from the vesting of restricted stock units. For fiscal 2024, we expect our annual effective income tax rate will be approximately 26 percent. Our net income for the first six months of fiscal 2024 was $31.8 million, or $3.66 per diluted share, versus $42.3 million, or $4.67 per diluted share, in the prior-year period. Our net income for the first six months of fiscal 2024 decreased due primarily to the factors discussed above. Table of Contents Liquidity and Capital Resources We expect our primary sources of liquidity to be cash flows from sales and operating activities in the normal course of our operations, cash and cash equivalents on hand, and availability from our revolving credit facility, as needed. We expect that these sources will be sufficient to fund our ongoing cash requirements for at least the next 12 months and into the foreseeable future. As of June 29, 2024, we had $491 million of cash and cash equivalents plus $346.5 million of availability on our revolving credit facility. Senior Secured Notes In October 2021, we completed the private offering of $300 million of our 6.0 percent senior secured notes due 2029 (the “2029 Notes”). Interest is payable semi-annually. Our 2029 Notes are scheduled to mature on November 15, 2029, and no principal is due until that time as long as we remain in compliance with the related covenants. As of June 29, 2024, we were in compliance with these covenants. Revolving Credit Facility Our existing revolving credit facility (“Revolving Credit Facility”) with Wells Fargo, National Association, as administrative agent (“Agent”), and certain other financial institutions, matures on August 2, 2026, provided we remain in compliance with the related covenants. As of June 29, 2024, we were in compliance with such covenants. Any outstanding borrowings under our Revolving Credit Facility bear interest at a rate per annum equal to (i) Adjusted Term Secured Overnight Financing Rate (“SOFR”) (calculated as SOFR plus 0.1 percent) plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on SOFR, or (ii) the Agent’s base rate (as that term is defined in the agreement for the Revolving Credit Facility) plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate. Borrowings under our Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the agreement for the Revolving Credit Facility). The Company is required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. Our Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium but including all breakage costs incurred by any lender thereunder. As of June 29, 2024, we had zero outstanding borrowings under our Revolving Credit Facility and available borrowing capacity was $346.5 million, net of undrawn letters of credit. Excess availability, which includes availability under our Revolving Credit Facility plus cash and cash equivalents in qualified accounts, was $837.9 million. Finance Lease Obligations Our finance lease obligations consist of leases for real estate, equipment, and vehicles totaling $291.3 million and $285.4 million as of June 29, 2024 and December 30, 2023, respectively. Of the $291.3 million as of June 29, 2024, $243.4 million related to real estate and $48.0 million related to equipment. Of the $285.4 million as of December 30, 2023, $243.2 million related to real estate and $42.3 million related to equipment. Sources and Uses of Cash Operating Activities Net cash provided by operating activities for the first six months of fiscal 2024 was $4.7 million compared to net cash provided of $153.1 million in the first six months of fiscal 2023. The decrease in cash provided by operating activities during the first six months of fiscal 2024 was primarily a result of a decrease in net income for the current year period plus higher cash generated in the prior year period from changes in working capital, primarily inventory. Investing Activities Net cash used in investing activities for the first six months of fiscal 2024 was $11.6 million compared to net cash used of $13.9 million in the first six months of fiscal 2023. The change was primarily due to amounts invested in property and equipment. During the first six months of fiscal 2024, we also acquired $11.2 million of property and equipment through finance leases, compared to $3.4 million for the first six months of fiscal 2023. Table of Contents Financing Activities Net cash used in financing activities totaled $23.4 million for the first six months of fiscal 2024 compared to net cash used of $19.8 million for the first six months of fiscal 2023. The change in net cash used in financing activities was primarily due to an increase in cash used for repurchases of our common stock under our announced share repurchase programs. During the first six months of fiscal 2024, we repurchased $14.5 million of our common stock compared to $11.6 million during the first six months of fiscal 2023. Principal payments for finance leases were also higher in the current period. Stock Repurchase Programs During the first six months of fiscal 2024, we repurchased 152,403 shares of our common stock under our 2023 share repurchase program at an average price of $98.28, including broker commissions but excluding any excise tax that may be due on the repurchases, for a total of $15.0 million. All of the share repurchase in fiscal 2024 occurred in the second quarter. As of June 29, 2024, there remained $76.5 million repurchase capacity under this authorization. Between June 29, 2024 and July 26, 2024, we purchased an additional 58,715 shares of our common stock for $6.0 million at an average price of $102.75 per share, including broker commissions but excluding any excise tax that may be due on the repurchases. Under the 2023 share repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to prevailing market conditions and other considerations. Our repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1. During the second quarter of fiscal 2023, we repurchased 141,705 shares of our common stock under the former 2021/2022 share repurchase program at an average price of $81.36 per share, including broker commissions but excluding any excise tax due on the repurchases. No shares were repurchased during the first quarter of fiscal 2023. The 2021/2022 share repurchase program was concluded during the fourth quarter of fiscal 2023. Net Working Capital Net working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash. Net working capital is defined as the sum of accounts receivables and inventory, less accounts payable, each determined in accordance with GAAP and included in our consolidated balance sheets. This metric differs from traditional working capital in that it excludes certain current assets and current liabilities that are reported in our consolidated balance sheets. Net working capital of $451.7 million as of June 29, 2024, compared to $414.1 million as of December 30, 2023, increased on a net basis by approximately $37.6 million, as shown below: June 29, 2024 December 30, 2023 July 1, 2023 (In thousands) Current assets: Receivables, less allowance for doubtful accounts $ 273,537 $ 228,410 $ 294,341 Inventories, net 357,573 343,638 379,312 $ 631,110 $ 572,048 $ 673,653 Current liabilities: Accounts payable $ 179,375 $ 157,931 $ 190,130 $ 179,375 $ 157,931 $ 190,130 Net working capital $ 451,735 $ 414,117 $ 483,523 Table of Contents Investments in Property and Equipment Our investments in capital assets consist of cash paid for owned assets and the inception of financing lease arrangements for long-lived assets to support our distribution infrastructure. The gross value of these assets is included in property and equipment, at cost on our unaudited condensed consolidated balance sheets. For the first six months of fiscal 2024, we invested $11.9 million in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet. We also added $11.2 million in new finance leases during the first six months of fiscal 2024 for new tractors and forklifts to enhance our logistical network. For the first six months of fiscal 2023, we invested $14.0 million in cash investments in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet. We also added $3.4 million in new finance leases during the second fiscal quarter of 2023 for new forklifts to enhance our logistical network. Critical Accounting Policies The preparation of our consolidated financial statements and related disclosures in conformity with GAAP requires our management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain market risks as part of our on-going business operations. Our exposure includes commodity price risk and interest rate risk. There have been no material changes to our exposure to market risks from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.