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Item 2. Management’s Discussion and Analysis

2022-02-02 compared with 2021-07-29 · 105 added, 157 removed, 53 unchanged (83% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section discusses management’s view of the financial condition, results of operations and cash flows of Sally Beauty.

This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and our other filings with the Securities and Exchange Commission, including the Risk Factors sections therein, and information contained elsewhere in this Quarterly Report, including the condensed consolidated interim financial statements and notes to those financial statements.

The results of operations for any interim period may not necessarily be indicative of the results that may be expected for any future interim period or the entire fiscal year, in particular as a result of the uncertainty of the continued effects of the COVID-19 pandemic on future periods.

Highlights for the Three Months Ended June 30, 2021

Consolidated net sales for the three months ended June 30, 2021, increased $317.1 million, or 45.0%, to $1,022.4 million, compared to the three months ended June 30, 2020;

Consolidated same store sales increased 44.7% for the three months ended June 30, 2021, compared to the three months ended June 30, 2020;

Consolidated gross profit for the three months ended June 30, 2021, increased $192.6 million, or 59.8%, to $514.4 million, compared to the three months ended June 30, 2020.

Gross margin increased 470 basis points to 50.3% for the three months ended June 30, 2021, compared to the three months ended June 30, 2020;

Consolidated operating earnings for the three months ended June 30, 2021, increased $126.0 million, or 8,804.1%, to $127.4 million, compared to the three months ended June 30, 2020.

Operating margin increased 1,230 basis points to 12.5% for the three months ended June 30, 2021, compared to the three months ended June 30, 2020;

For the three months ended June 30, 2021, we had consolidated net earnings of $76.2 million compared to consolidated net loss of $23.5 million for the three months ended June 30, 2020;

For the three months ended June 30, 2021, we had diluted earnings per share of $0.66, compared to diluted loss per share of $0.21 for the three months ended June 30, 2020;

Cash provided by operations was $86.2 million for the three months ended June 30, 2021, compared to $198.3 million for the three months ended June 30, 2020.

Impact of COVID-19 on Our Business and Business Strategy Update

COVID-19 restrictions on our global store operations continued to ease in the current quarter.

However, due to the continued uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the adverse impact of the pandemic may continue further into our fiscal year 2021 and possibly beyond, and it may be material.

Furthermore, we continue to make progress against our key business initiatives, which includes leveraging and optimizing our elevated digital capabilities, growing our customer engagement and loyalty, and implementing the final steps in our successful transformation journey, which remains on track to be substantially completed by the end of the year.

This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

Executive Overview

Our financial results in the first quarter of 2022 reflect strong performance across our core categories of color and care as well as our ability to mitigate the current macro environment’s challenges and respond to them effectively.

Our company and team of talented associates remain focused on providing first-rate experiences for our customers.

We believe that this, coupled with our healthy levels of inventory, position us to meet customer demand and continue executing on our strategic initiatives.

To that end, during the quarter we continued making progress on four strategic pillars;

leveraging our digital platform, driving loyalty and personalization, delivering product innovation and advancing our supply chain.

Highlights for the Three Months Ended December 31, 2021

Consolidated net sales for the three months ended December 31, 2021, increased $44.2 million, or 4.7%, to $980.3 million, compared to the three months ended December 31, 2020;

Consolidated comparable sales increased 6.1% for the three months ended December 31, 2021, compared to the three months ended December 31, 2020;

Consolidated gross profit for the three months ended December 31, 2021, increased $29.4 million, or 6.2%, to $500.1 million, compared to the three months ended December 31, 2020.

Gross margin increased 70 basis points to 51.0% for the three months ended December 31, 2021, compared to the three months ended December 31, 2020;

Consolidated operating earnings for the three months ended December 31, 2021, increased $8.5 million, or 8.1%, to $112.8 million, compared to the three months ended December 31, 2020.

Operating margin increased 40 bps to 11.5% for the three months ended December 31, 2021, compared to the three months ended December 31, 2020;

For the three months ended December 31, 2021, our consolidated net earnings increased $11.6 million, or 20.4%, to $68.8 million, compared to the three months ended December 31, 2020;

For the three months ended December 31, 2021, our diluted earnings per share was $0.60 compared to $0.50 for the three months ended December 31, 2020;

Cash used by operations was $5.7 million for the three months ended December 31, 2021, compared to cash provided by operations of $39.0 million for the three months ended December 31, 2020.

Impact of COVID-19 on Our Business

During the current quarter, the COVID-19 Omicron variant started to spread globally.

Meanwhile, we continued to stay vigilant to developments in compliance and guidance from local and federal authorities, as well as geographical impacts of the virus and its variants.

We continue to take decisive actions to protect our customers and associates.

As such, we incurred additional costs around COVID-19, including testing in our distribution centers and COVID-19 cleanings during the quarter.

While trends in business have been improving, we cannot reasonably predict the effects of new variants or expect these positive trends to continue.

Therefore, our future performance may partially depend on impacts of COVID-19 such as widespread infections, labor shortages, global supply chain disruptions, variants of the virus, changes in governmental compliance and availability of vaccines and testing.

Refer Item 1A.

“Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, for further discussion of the risks and uncertainties pertaining to COVID-19.

Global Supply Chain and Inflationary Impact

There continues to be volatility in the global supply chain as strong U.S.

customer demand, COVID-19 restrictions, and labor shortages in many U.S.

ports have caused logistical and delivery challenges specifically with inbound container volume.

Shifts in demand have led to longer lead times and delays, and carriers have been faced with increased costs associated with capacity imbalances between Chinese and U.S ports, causing the freight market to increase as well.

Due to these events, we have seen an increase in our inbound freight costs and the number of out-of-stock products.

Furthermore, the increase in customer demand, along with COVID-19, have created labor shortages in the U.S and caused an increase in labor costs.

As a result, we may experience an increase in our compensation costs in order to attract and retain associates.

Comparable Sales

We have recently launched many digital initiatives to support our omni-channel strategies to provide customers an enhanced shopping experience.

As such, we believe that comparable sales is an appropriate performance indicator to measure our sales growth compared to the prior period.

O ur comparable sales include sales from stores that have been operating for 14 months or longer as of the last day of a month and e-commerce revenue.

Additionally, our comparable sales include sales to franchisees and full service sales.

Our comparable sales excludes the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation.

Revenue from acquisitions are excluded from our comparable sales calculation until 14 months after the acquisition.

Our calculation of comparable sales might not be the same as other retailers as the calculation varies across the retail industry.

Key Operating Metrics

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Three Months Ended

Nine Months Ended

Increase (Decrease)

Gross profit:

Segment gross margin:

Net earnings (loss):

Net earnings:

Segment operating earnings:

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Interest expense

Earnings (loss) before provision for income taxes

Provision (benefit) for income taxes

Net earnings (loss)

Earnings before provision for income taxes

Provision for income taxes

Number of stores at end-of-period (including franchises):

Same store sales growth (decline) (b) :

Comparable sales growth (decline) (b) :

Unallocated expenses consist of corporate and shared costs and are included in selling, general and administrative expenses in our consolidated statements of earnings.

For the purpose of calculating our same store sales metrics, we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year.

Our same store sales are calculated in constant dollars and include e-commerce sales from certain digital platforms, but do not generally include the sales from stores relocated until 14 months after the relocation.

The sales from stores acquired are excluded from our same store sales calculation until 14 months after the acquisition.

Our comparable sales include sales from stores that have been operating for 14 months or longer as of the last day of a month and e-commerce revenue.

Additionally, our comparable sales include sales to franchisees and full service sales.

Our comparable sales excludes the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation.

Revenue from acquisitions are excluded from our comparable sales calculation until 14 months after the acquisition.

Prior to fiscal year 2022, we reported Same Store Sales.

For fiscal year 2022, we are reporting Comparable Sales, which includes sales to franchisees and full service sales.

We have recast prior year amounts to conform to the change.

See “Comparable Sales” discussion above for further information.

Results of Operations

The Three Months Ended June 30, 2021, compared to the Three Months Ended June 30, 2020

Consolidated .

Consolidated net sales include a positive impact from changes in foreign currency exchange rates of $18.7 million, or 2.6% of consolidated net sales.

The increase in net sales for SBS was primarily driven by the following (in thousands):

Same store sales

Foreign currency exchange

Other consists of stores outside same store sales and non-store sales, including catalog and internet sales of our Sinelco Group subsidiaries.

SBS experienced higher unit volume primarily due to the reopening of all of our customer-facing store operations in the U.S.

and Canada, improving consumer confidence in the U.S.

and the easing of COVID-19 restrictions across international territories.

For the three months ended June 30, 2021, there was minimal impact from temporary closures of certain customer-facing store operations as a result of COVID-19.

Additionally, SBS experienced an increase in average unit prices, resulting from a change in product mix to higher-priced products.

The increase in net sales for BSG was primarily driven by the following (in thousands):

Same store sales

Distributor sales consultants

Sales to franchisees

Foreign currency exchange

Other consists of stores outside same store sales, included recently acquired businesses.

BSG experienced higher unit volume primarily due to reopening of all of our customer-facing store operations in the U.S.

and Canada and higher operating capacities in salons from the easing of COVID-19 restrictions.

This was partially offset by a decrease in average unit price primarily due to increased promotions and customer discounts.

Consolidated .

Consolidated gross profit increased for the three months ended June 30, 2021, due to higher net sales in both segments and a higher gross margin in SBS, partially offset by a lower gross margin in BSG.

SBS’s gross profit increased for the three months ended June 30, 2021, as a result of an increase in net sales and a higher gross margin.

SBS’s gross margin increased primarily as a result of the impact of the prior year’s non-cash inventory write down and inventory clearance efforts, partially offset by higher sales volume from the lower margin European operations as a percentage of total segment sales compared to the prior year.

BSG’s gross profit increased for the three months ended June 30, 2021, as a result of an increase in net sales, partially offset by a lower gross margin.

BSG’s gross margin decreased primarily as a result of higher sales volume from large volume/lower margin full service customers that rebounded from the COVID-19 impact in the prior year.

Selling, General and Administrative Expenses

Consolidated .

Consolidated selling, general and administrative expenses increased primarily as a result of higher compensation and compensation-related expenses, rent expense and advertising expenses.

These increases were driven by the impact of COVID-19 in the prior year.

Consolidated selling, general and administrative expenses, as a percentage of net sales, decreased 680 basis points to 37.8% for the three months ended June 30, 2021, due to the increase in sales.

SBS’s selling, general and administrative expenses increased $33.0 million, or 16.6%, for the three months ended June 30, 2021.

The increase was driven primarily by higher compensation and compensation-related expenses of $49.7 million, resulting from furloughs due to COVID-19 in the prior year.

Additionally, rent expense increased $6.9 million, due to rent abatements in the prior year.

These expenses were partially offset by lower delivery expense of $21.5 million due to lower e-commerce volume compared to the three months ended June 30, 2020.

BSG’s selling, general and administrative expenses increased $ 30.7 million , or 38.7% , for the three months ended June 30, 2021 .

The increase was driven primarily by higher compensation and compensation-related expenses of $23.3 million, resulting from furloughs due to COVID-19 in the prior year.

Additionally, rent expense increased $3.9 million, due to rent abatements in the prior year, and advertising expenses increased $1.7 million.

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $8.2 million, or 22.8%, for the three months ended June 30, 2021, primarily due to higher compensation and compensation-related expenses of $14.9 million as a result of employees furloughed in the prior year.

This increase was partially offset by lower COVID-19 expense in the current period.

Restructuring

For the three months ended June 30, 2021, restructuring charges in connection with our previously communicated Project Surge and the Transformation Plan decreased $5.3 million to $0.5 million as we have substantially completed these restructuring plans.

Interest Expense

The decrease in interest expense is primarily due to the lower outstanding debt principal for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

We recognized lower interest expense as a result of the repayments of our term loan B fixed tranche of $3.0 million and senior notes due 2023 of $2.7 million.

Additionally, the lower outstanding principal balance on our ABL facility resulted in lower interest expense of $2.6 million.

These decreases were partially offset by debt extinguishment costs of $2.9 million and incremental interest on the senior notes issued in April 2020 of $1.7 million.

See “Liquidity and Capital Resources” below for additional information.

Provision for Income Taxes

The effective tax rates were 26.7% and 9.1%, for the three months ended June 30, 2021, and 2020, respectively.

The effective tax rate for the three months ended June 30, 2020 was negatively impacted by foreign losses which cannot be tax benefitted.

For the three months ended June 30, 2020, the impact of these and certain other tax impacting items is opposite the customary relationship due to the loss before the provision for income taxes that was incurred.

A lower effective tax rate is not beneficial in situations where a pre-tax book loss has been incurred.

See Note 12, Income Tax , for more information on our effective tax rate.

The Nine Months Ended June 30, 2021, compared to the Nine Months Ended June 30, 2020

Consolidated .

Consolidated net sales include a positive impact from changes in foreign currency exchange rates of $29.6 million, or 1.2% of consolidated net sales.

The Three Months Ended December 31, 2021, compared to the Three Months Ended December 31, 2020

The increase in net sales for SBS was primarily driven by the following (in thousands):

Same store sales

Comparable sales

Sales outside comparable sales (a)

Foreign currency exchange

Other consists of stores outside same store sales, which were negatively impacted by net store closures, and non-store sales, including catalog and internet sales of our Sinelco Group subsidiaries.

SBS experienced an increase in average unit prices as a result of a reduction in promotional activity and increased sales of higher-priced products.

Additionally, SBS experienced higher unit volume primarily due to the reopening of all of our customer-facing store operations in the U.S.

and Canada , improving consumer confidence in the U.S.

and the easing of COVID-19 restrictions across international territories.

Includes stores opened for less than 14 months, net of stores closures

The increase in net sales was driven by an increase in comparable sales, reflecting strong customer demand.

While store traffic and conversion remained consistent with recent trends, average unit price increased this quarter, led by our color categories.

These increases were offset by a decrease in unit volume due to operating fewer stores compared to the same quarter last year.

The increase in net sales for BSG was primarily driven by the following (in thousands):

Same store sales

Sales to franchisees

Distributor sales consultants

Comparable sales

Sales outside comparable sales (a)

Foreign currency exchange

Other consists of stores outside same store sales, included recently acquired businesses.

BSG experienced higher unit volume and an increase in average unit prices.

The higher unit volume was primarily due to the impact of reopening of customer-facing store operations in the U.S.

For the nine months ended June 30, 2021, we experienced additional temporary closures and restricted capacity of certain customer-facing store operations in various markets in the U.S.

and Canada, as well as salon closures in parts of California and Canada due to the effects of COVID-19 during the fiscal year.

The increase in the average unit price was primarily driven by lower promotional activity.

Consolidated .

Consolidated gross profit increased for the nine months ended June 30, 2021, due to higher net sales in both segments and a higher gross margin in SBS, partially offset by a lower gross margin in BSG.

SBS’s gross profit increased for the nine months ended June 30, 2021, as a result of increased net sales and a higher gross margin.

SBS’s gross margin increased primarily as a result of fewer promotions, partially offset by the write-down of personal-protective equipment inventory.

BSG’s gross profit decreased for the nine months ended June 30, 2021, as a result of a lower gross margin, partially offset by increased net sales.

BSG’s gross margin decreased primarily as a result of the write-down of personal-protective equipment inventory, partially offset by fewer promotions.

Includes stores opened for less than 14 months, net of stores closures

The increase in net sales was driven by an increase in comparable sales, primarily due to an increase in average unit prices, salons operating at full capacity during the quarter, as well as strong e-commerce growth.

These increases were offset by a decrease in overall unit volume due to operating fewer stores in the current quarter compared to the same quarter last year.

SBS’s gross profit increased for the three months ended December 31, 2021, as a result of an increase in net sales and a higher gross margin.

SBS’s gross margin increased primarily as a result of the impact of pricing leverage, partially offset by higher distribution and freight costs.

BSG’s gross profit increased for the three months ended December 31, 2021, as a result of an increase in net sales and a higher gross margin.

BSG’s gross margin increased primarily as a result of increased pricing leverage and an increase in sales volume from e-commerce customers.

Selling, General and Administrative Expenses

Consolidated .

Consolidated selling, general and administrative expenses increased primarily as a result of the impact of prior year cost saving initiatives in response to COVID-19, including furloughs and the suspension or elimination of all non-critical projects and non-essential spend.

Additionally, the increase was due to higher COVID-19 expenses, primarily from donation expense related to personal-protective equipment inventory, rent expense and incremental costs from businesses acquired in the past 12 months.

Consolidated selling, general and administrative expenses, as a percentage of net sales, decreased 250 basis points to 39.6% for the nine months ended June 30, 2021, due to the increase in sales.

SBS’s selling, general and administrative expenses increased $3.3 million, or 0.5%, for the nine months ended June 30, 2021.

The increase was driven primarily by higher compensation and compensation-related expenses of $33.5 million, resulting from furloughs due to COVID-19 in the prior year.

The increase was partially offset by lower delivery expense of $17.3 million due to lower e-commerce volume compared to the nine months ended June 30, 2020, advertising expenses of $7.0 million and incremental store expense for personal protective equipment in the prior year .

BSG’s selling, general and administrative expenses increased $36.2 million, or 12.8%, for the nine months ended June 30, 2021.

The increase was driven primarily by higher compensation and compensation-related expenses of $20.5 million, resulting from furloughs due to COVID-19 in the prior year.

Additionally, the increase was due to higher rent expense of $5.6 million, primarily due to rent abatements in the prior year, shipping costs and incremental costs from businesses acquired in the past 12 months.

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $28.4 million, or 22.4%, for the nine months ended June 30, 2021, primarily due to higher compensation and compensation-related expenses of $24.9 million as a result of employees furloughed in the prior year, and higher COVID-19 expense in the current period primarily from donation expense related to personal-protective equipment inventory of $29.8 million, compared to COVID-19 expense of $23.4 million in the prior year.

SBS’s selling, general and administrative expenses increased $6.9 million, or 3.1%, for the three months ended December 31, 2021.

The increase was driven primarily by higher compensation and compensation-related expenses of $11.2 million, driven by general economic inflationary conditions and to international markets re-opening, partially offset by lower delivery expense of $2.4 million, as a result of a change in fulfillment strategy, and lower depreciation and amortization expenses of $2.1 million.

BSG’s selling, general and administrative expenses increased $7.1 million, or 6.6%, for the three months ended December 31, 2021.

The increase was driven primarily by higher compensation and compensation-related expenses of $3.0 million, an increase in variable-sales related expense of $1.8 million, higher advertising expenses of $1.0 million and an increase in other operating expenses of $0.8 million.

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $6.1 million, or 15.7%, for the three months ended December 31, 2021, primarily due to higher COVID-19 related expenses and compensation and compensation-related expenses.

Restructuring

For the nine months ended June 30, 2021, restructuring charges in connection with our previously communicated Project Surge and the Transformation Plan decreased $10.2 million to $1.4 million as we have substantially completed these restructuring plans.

For the three months ended December 31, 2021, restructuring charges in connection with our previously communicated Transformation Plan increased $0.9 million to $1.1 million.

Interest Expense

The increase in interest expense is primarily due to incremental interest on the senior notes issued in April 2020 of $14.8 million and debt extinguishment costs of $4.5 million, partially offset by the impact of the repayments of our term loan B fixed tranche in January 2021 of $7.0 million and the senior notes due 2023 in April 2021 of $2.7 million.

Additionally, the lower outstanding principal balance on our ABL facility resulted in lower interest expense of $3.3 million and the lower interest rates on our term loan B variable tranche of $4.0 million.

The decrease in interest expense is primarily due to the lower outstanding debt principal for the three months ended December 31, 2021 compared to the three months ended December 31, 2020, as a result of the paydown of our senior notes due 2023 and our term loan B fixed tranche during fiscal year 2021.

See “Liquidity and Capital Resources” below for additional information.

Provision for Income Taxes

The effective tax rates were 26.6% and 37.2%, for the nine months ended June 30, 2021, and 2020, respectively.

The decrease in the effective tax rate was primarily due to greater losses in the prior year from foreign subsidiaries for which a tax benefit could not be recognized and the establishment of a valuation allowance in a foreign subsidiary in the prior year.

See Note 12, Income Tax , for more information on our effective tax rate.

The effective tax rates were 25.6% and 27.0%, for the three months ended December 31, 2021, and 2020, respectively.

The decrease in the effective tax rate was primarily due to the tax impact of share-based compensation which was beneficial in the current year quarter, but detrimental in the prior year quarter.

Liquidity and Capital Resources

We are highly leveraged and a substantial portion of our liquidity needs arise from debt service on our outstanding indebtedness and from funding the costs of our operations, working capital, capital expenditures, debt repayment and share repurchases.

Working capital (current assets less current liabilities) decreased $190.8 million, to $678.9 million at June 30, 2021, compared to $869.7 million at September 30, 2020, resulting primarily from a decrease in cash and cash equivalents from the repayments of outstanding long-term debt and increased inventory as a result of improving COVID-19 conditions.

At June 30, 2021, cash and cash equivalents were $270.3 million.

Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), funds expected to be generated by operations and funds available under our ABL facility will be sufficient to fund working capital requirements, potential acquisitions, anticipated capital expenditures, including information technology upgrades and store remodels, and debt repayments over the next 12 months.

Due to the improving COVID-19 conditions, we have shifted our focus to reducing our debt levels while also being proactive in maintaining our financial flexibility.

Working capital (current assets less current liabilities) increased $15.1 million, to $733.8 million at December 31, 2021, compared to $718.7 million at September 30, 2021, primarily from increased inventory as a result of restocking to new levels of demand and our risk mitigation strategy to protect against potential, continued supply chain disruptions, partially offset by a decrease in cash and cash equivalents.

At December 31, 2021, cash and cash equivalents were $298.1 million.

We have continued to focus on reducing our debt levels and shares outstanding through repurchases, while also being proactive in maintaining our financial flexibility.

We utilize our ABL facility for the issuance of letters of credit, certain working capital and liquidity needs, and to manage normal fluctuations in our operational cash flow.

In that regard, we may from time to time draw funds under the ABL facility for general corporate purposes including funding of capital expenditures, acquisitions, interest payments due on our indebtedness, paying down other debt and opportunistic share repurchases.

During the nine months ended June 30, 2021, we did not borrow under our ABL facility.

As of June 30, 2021, we had $481.7 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.

During the three months ended December 31, 2021, we did not draw funds under our ABL facility.

As of December 31, 2021, we had $481.1 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.

Amounts drawn on our ABL facility are generally paid down with cash provided by our operating activities.

During the three months ended June 30, 2021, we entered into a third amendment to our ABL facility which extended the maturity date to May 11, 2026.

Share Repurchase Programs

During the nine months ended June 30, 2021, we did not repurchase any common stock.

As of June 30, 2021, we had authorization of approximately $726.1 million of additional potential share repurchases remaining under the 2017 Share Repurchase Program.

See Note 13, Subsequent Event , for additional information on our share repurchase program.

Historical Cash Flows

During the three months ended December 31, 2021, we repurchased 3.7 million shares of our common stock for $75.0 million.

As of December 31, 2021, we had authorization of approximately $651.1 million of additional potential share repurchases remaining under the 2017 Share Repurchase Program.

Historically, our primary source of cash has been net funds provided by operating activities and, when necessary, borrowings under our ABL facility.

While historically, the primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions, we have shifted our focus in the short-term to reduce cash expenditures.

Net Cash Provided by Operating Activities

Net cash provided by operating activities during the nine months ended June 30, 2021, decreased $56.7 million to $217.7 million, compared to the nine months ended June 30, 2020, mainly due to increases in vendor receivables and inventory, partially offset by increased net income and higher accounts payable.

The increase in inventory and accounts payable was driven by the timing of inventory purchases and payments as we restock to new levels of demand.

Additionally, the increase in vendor receivables was driven by higher sales in the three months ended June 30, 2021.

Historically, the primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions.

Net Cash (Used) Provided by Operating Activities

The $44.7 million decrease in net cash (used) provided by operating activities was driven by an increase in inventory purchases as we increased stocking levels to new demand and our risk mitigation strategy to protect against potential, continued supply chain disruptions, partially offset by an increase in net earnings and the timing of our receivable collections.

Net Cash Used by Investing Activities

Net cash used by investing activities during the nine months ended June 30, 2021, decreased $44.4 million to $47.2 million, compared to the nine months ended June 30, 2020.

This change was primarily a result of our focus on reduced capital expenditures.

Net Cash (Used) Provided by Financing Activities

Net cash used by financing activities during the nine months ended June 30, 2021 resulted primarily from the repayments on our term loan B fixed tranche, the senior notes due 2023 and term loan B variable tranche.

During the nine months ended June 30, 2020, we had a source of cash from financing activities primarily from the borrowings on our ABL and the issuance of senior notes as a response to COVID-19, partially offset by share repurchases.

Long-Term Debt and Guarantor Financial Information

At June 30, 2021, we had $1,394.3 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $11.7 million.

Net cash used by investing activities during the three months ended December 31, 2021, increased $9.2 million to $26.7 million, compared to the three months ended December 31, 2020.

This change was primarily a result of additional investments in information technology and store improvements.

Net Cash Used by Financing Activities

Net cash used by financing activities for the three months ended December 31, 2021, increased $69.9 million to $70.2 million, as a result of share repurchases, partially offset by an increase in stock options exercised.

Debt and Guarantor Financial Information

At December 31, 2021, we had $1,391.6 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $9.5 million.

Our debt consisted of $980.0 million of senior notes outstanding and a term loan with an outstanding principal balance of $411.6 million.

As of June 30, 2021, there were no outstanding borrowings under our ABL facility.

During the fiscal year, we paid the remaining $213.2 million of aggregate outstanding principal on our term loan B fixed tranche, the $197.4 million outstanding on our senior notes due 2023 and $8.3 million on our term loan B variable tranche.

As of December 31, 2021, there were no outstanding borrowings under our ABL facility.

We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.

See Note 9, Short-term Borrowings and Long-term Debt , for more information on our debt.

Guarantor Financial Information

We are providing the following information in compliance with Rule 13-01 of Regulation S-X for guaranteed issued securities that have been registered under such regulation.

Currently, our issued securities consist of the 5.625% Senior Notes due 2025 .

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All transactions and intercompany balances between these combined entities has been eliminated.

The following table presents the summarized balance sheets information for the Issuers and the Guarantors as of June 30, 2021 and September 30, 2020 (in thousands):

June 30, 2021

The following table presents the summarized balance sheets information for the Issuers and the Guarantors as of December 31, 2021 and September 30, 2021 (in thousands):

December 31, 2021

September 30, 2021

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Current assets

Intercompany payable

Current liabilities

Total liabilities

The following table presents the summarized statement of income information for nine months ended June 30, 2021 (in thousands):

The following table presents the summarized statement of income information for three months ended December 31, 2021 (in thousands):

Earnings before provision for income taxes

Contractual Obligations

There have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, 2020, other than the extinguishment of our term loan B fixed tranche, as discussed above.

There have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, 2021.

Off-Balance Sheet Financing Arrangements

At June 30, 2021, and September 30, 2020, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.

At December 31, 2021, and September 30, 2021, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.

Critical Accounting Estimates

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Recent Accounting Pronouncements

See Note 3, Recent Accounting Pronouncements , of the Notes to Condensed Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.

There have been no recent accounting pronouncements issued that will have a material impact to our business.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis