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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 105 added, 90 removed, 99 unchanged (66% of the section changed)

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Executive Overview

Our results in the second quarter of 2022 delivered a solid financial performance with increases in gross margin, net earnings and diluted earnings per share, compared to the same period last year.

We achieved all of this despite the ongoing macro-environment challenges surrounding the COVID-19 Omicron variant, supply chain, and inflationary pressures, which have impacted customer behavior and purchasing power.

However, by continuing to focus on our four strategic pillars;

leveraging our digital platform, driving loyalty and personalization, delivering product innovation and optimizing our supply chain, we believe we are well-positioned to navigate these macro headwinds and continue to drive growth in both of our businesses, retail and professional.

Highlights for the Three Months Ended March 31, 2022

Consolidated net sales for the three months ended March 31, 2022, decreased $14.9 million, or 1.6%, to $911.4 million, compared to the three months ended March 31, 2021;

Consolidated comparable sales increased 0.2% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021;

Consolidated gross profit for the three months ended March 31, 2022, decreased $1.9 million, or 0.4%, to $465.3 million, compared to the three months ended March 31, 2021.

Gross margin increased 70 basis points to 51.1% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021;

Consolidated operating earnings for the three months ended March 31, 2022, increased $11.0 million, or 14.5%, to $86.5 million, compared to the three months ended March 31, 2021.

Operating margin increased 130 bps to 9.5% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021;

For the three months ended March 31, 2022, our consolidated net earnings increased $8.5 million, or 22.2%, to $46.8 million, compared to the three months ended March 31, 2021;

For the three months ended March 31, 2022, our diluted earnings per share was $0.42 compared to $0.34 for the three months ended March 31, 2021;

Cash provided by operations was $2.8 million for the three months ended March 31, 2022, compared to cash provided by operations of $92.6 million for the three months ended March 31, 2021.

In the third quarter of fiscal year 2022, we delivered solid gross margin growth in both segments compared to the same period last year.

Additionally during the quarter, we repaid the entire $300 million dollar balance on our 8.75% Senior Notes and continued to invest for growth through many of our initiatives, despite volatile market conditions and its impact on our topline performance.

With a healthy balance sheet, a strong operating infrastructure and the loyalty of our core customers, we believe we are well positioned to continue navigating the macro-environment and remain focused on our four strategic pillars:

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

Financial Summary for the Three Months Ended June 30, 2022

Consolidated net sales for the three months ended June 30, 2022, decreased $60.9 million, or 6.0%, to $961.5 million, compared to the three months ended June 30, 2021.

Consolidated net sales included a negative impact from changes in foreign currency exchange rates of $13.0 million;

Consolidated comparable sales decreased 3.6% for the three months ended June 30, 2022, compared to the three months ended June 30, 2021;

Consolidated gross profit for the three months ended June 30, 2022, decreased $24.2 million, or 4.7%, to $490.2 million, compared to the three months ended June 30, 2021.

Gross margin increased 70 basis points to 51.0% for the three months ended June 30, 2022, compared to the three months ended June 30, 2021;

Consolidated operating earnings for the three months ended June 30, 2022, decreased $28.2 million, or 22.1%, to $99.2 million, compared to the three months ended June 30, 2021.

Operating margin decreased 220 bps to 10.3% for the three months ended June 30, 2022, compared to the three months ended June 30, 2021;

For the three months ended June 30, 2022, our consolidated net earnings decreased $29.6 million, or 38.9%, to $46.6 million, compared to the three months ended June 30, 2021;

For the three months ended June 30, 2022, our diluted earnings per share was $0.43 compared to $0.66 for the three months ended June 30, 2021;

Cash provided by operations was $52.0 million for the three months ended June 30, 2022, compared to $86.2 million for the three months ended June 30, 2021;

During the period, we redeemed the entire outstanding principal amount of our 8.75% Senior Notes at a redemption price equal to 104.375%.

As a result, we recorded a loss on debt extinguishment of $16.4 million within interest expense on our condensed consolidated statements of earnings.

Trends Impacting Our Business

Global inflationary pressures continue to impact consumer spending behavior and the cost for products and services.

Moreover, there is still volatility in the global supply chain, while freight carriers are faced with higher fuel prices.

During the current quarter and fiscal year, these headwinds have resulted in lower traffic and conversion in our business and increases in certain operating costs, including inbound freight and delivery expenses.

Additionally, due to general labor shortages in the U.S.

during the year, especially among retail and hourly employees, we have experienced an increase in our compensation costs in order to attract and retain associates.

We continue to monitor these challenges and implement measures to help mitigate their impacts, including managing our inventory levels to reduce out-of-stock items, adjusting our promotional activities, optimizing our store base and expanding our partnerships with delivery service providers.

Although these initiatives have helped mitigate ongoing macro-headwinds we cannot reasonably predict the long-term effects of inflation and supply chain disruptions.

In a measure to curb inflation, the U.S.

Federal Reserve has continued to increase the federal funds effective rate.

In turn, these increases have raised the cost of debt borrowings.

We currently have approximately $575.9 million in variable rate debt, with $408.9 million hedged with interest rate caps to help mitigate the impact of raising rates.

Future increases in the federal funds effective rate could have a material adverse impact to our cost of debt, including any future changes in our debt structure.

Impact of COVID-19 on Our Business

Throughout the current quarter and year we continued to experience disruptions to our business as a result of the COVID-19 pandemic and continued to take certain actions in order to protect our customers and associates.

In particular, our store operations were disrupted by the Omicron variant due to employee illnesses primarily in December and January and we continued to incur additional costs associated with testing and vaccinations, disinfectant cleanings in connection with positive cases in stores and support centers, and the write-down of obsolete personal-protective equipment inventory .

Due to general labor shortages in the U.S., especially among retail and hourly employees, we have also experienced staffing shortages at our U.S.

stores and an increase in our compensation costs in order to attract and retain associates.

While the situation has 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 decreased customer in-store traffic, new waves of infection, labor and supply chain disruptions, developing variants, changes in guidance from international and domestic authorities, and availability and timing of vaccines.

During the fiscal year, we experienced disruptions to our business as a result of the COVID-19 pandemic and we continue to take certain actions in order to protect our customers and associates.

In particular, our store operations continue to face challenges and disruptions related to COVID-19 surges and spikes in infection levels.

While the situation has shown signs of stabilization, we cannot reasonably predict the effects of new variants or expect improving trends to continue.

Therefore, our future performance may partially depend on impacts of COVID-19 such as decreased customer in-store traffic, temporary store closures, and continued labor and supply chain disruptions.

Refer to Item 1A.

“Risk Factors” in our Form 10-K for the fiscal year ended September 30, 2021, for further discussion on the risks and uncertainties created by COVID-19.

Global Supply Chain and Inflationary Impact

There continues to be volatility in the global supply chain as shipment delays continue to impact ports, inflationary pressures are exacerbated by global political instability, and consumer demand continues to evolve as a lingering effect from the COVID-19 pandemic.

In the current quarter we continued to experience elevated distribution costs as these shifts in demand and supply have led to longer lead times and delays, and carriers are faced with increased costs associated with capacity imbalances between ports as well as overall prolonged transportation challenges.

Moreover, the war in Ukraine has created additional uncertainty in the global markets, which have seen a rise in fuel prices, and is another factor impacting distribution costs.

Due to these events, we have seen an increase in our inbound freight costs and extended inventory in transit times.

Inflationary pressures also impacted customer behavior which resulted in lower traffic and conversion in the current quarter.

Comparable Sales

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

The Company’s initiative to invest in our digital platforms 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.

Additionally, 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.

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Three Months Ended

Six Months Ended

Nine Months Ended

Increase (Decrease)

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Results of Operations

The Three Months Ended March 31, 2022, compared to the Three Months Ended March 31, 2021

The Three Months Ended June 30, 2022, compared to the Three Months Ended June 30, 2021

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

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

The decrease in net sales was driven by lower unit volume, primarily due to operating fewer stores compared to the same period last year, lower traffic and conversion due to the impact of COVID-19, supply chain disruptions, the lapping of stimulus gains in the prior year, and inflationary pressures impacting consumer behavior, along with the negative impact of foreign exchange rates.

This decrease was partially offset by an increase in average unit prices, led by our color and care categories.

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

The decrease in SBS’s net sales was driven by lower comparable sales, the negative impact from foreign exchange rates and the impact of closed stores.

SBS’s comparable sales decrease was driven by fewer transactions as a result of lower store traffic, while the average ticket was relatively unchanged, resulting from lower average unit volume offset by higher average unit retail prices, led by our color and care categories.

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

Comparable sales

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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 and from strong e-commerce growth.

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

SBS’s gross profit decreased for the three months ended March 31, 2022, as a result of a decrease in net sales, partially offset by a higher gross margin.

SBS’s gross margin increased primarily as a result of pricing leverage and a decrease in write-downs of obsolete personal-protective equipment, partially offset by higher distribution and freight costs and an unfavorable sales mix shift between the U.S.

and international markets.

BSG’s gross profit increased for the three months ended March 31, 2022, driven by an improvement in pricing leverage and a decrease in write-downs of obsolete personal-protective equipment, partially offset by higher distribution and freight costs.

The decrease in BSG’s net sales was primarily due to lower comparable sales, the impact of closed stores and the negative impact from the Canadian foreign exchange rate.

BSG’s comparable sales was driven by fewer transactions as a result of lower store traffic, partially offset by an increase in average ticket, resulting from higher average unit retail prices, led by color, care and styling tools categories, partially offset by lower unit volume.

SBS’s gross profit decreased for the three months ended June 30, 2022, as a result of a decrease in net sales, partially offset by a higher gross margin.

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

BSG’s gross profit increased for the three months ended June 30, 2022, driven by an improvement in pricing leverage, partially offset by higher distribution and freight costs.

Selling, General and Administrative Expenses

SBS’s selling, general and administrative expenses increased $11.2 million, or 5.2%, for the three months ended March 31, 2022.

The increase was driven primarily by higher compensation and compensation-related expenses of $8.9 million, driven by general economic inflationary conditions and to store re-openings in certain international markets, as well as higher store facility costs associated with those re-openings.

BSG’s selling, general and administrative expenses increased $7.8 million, or 7.7%, for the three months ended March 31, 2022.

The increase was driven primarily by higher delivery expense of $1.9 million as a result of supply chain disruptions and the cost of fuel.

Additionally, there were increases in depreciation expense of $1.0 million, credit card fees of $0.9 million and other increases in variable operating expenses.

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $31.3 million, or 43.6%, for the three months ended March 31, 2022, primarily due to the recognition of $31.2 million donation expense related to personal-protective equipment inventory in the prior period.

SBS’s selling, general and administrative expenses increased $1.6 million, or 0.7%, for the three months ended June 30, 2022.

The increase was driven by higher compensation and compensation-related expenses of $5.4 million, resulting from higher wages within general labor markets, and higher information technology expenses of $1.2 million, partially offset by the favorable impact of foreign exchange rates of $4.6 million.

BSG’s selling, general and administrative expenses increased $1.4 million, or 1.2%, for the three months ended June 30, 2022.

The increase was driven primarily by higher delivery expense of $1.3 million as a result of increased fuel prices

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $1.5 million, or 3.4%, for the three months ended June 30, 2022, primarily due to higher information technology expense.

Interest Expense

The decrease in interest expense is primarily due to the lower outstanding debt principal for the three months ended March 31, 2022, as a result of the pay-down of our senior notes due 2023 and our term loan B fixed tranche during fiscal year 2021.

Additionally, we recognized $1.4 million of loss on debt extinguishment in connection with the pay-down of our term loan B fixed tranche in the prior period with no comparable amounts in the current period.

The increase in interest expense is primarily due to the repayment of our 8.75% Senior Notes, which resulted in a loss from debt extinguishment of $16.4 million from an early call premium of $13.1 million and the write-off of unamortized debt issuance costs of $3.3 million in the current quarter.

This increase was partially offset by the interest savings of $2.3 million from the repayment of the 8.75% Senior Notes.

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

Provision for Income Taxes

The effective tax rates were 29.7% and 25.8%, for the three months ended March 31, 2022, and 2021, respectively.

The increase in the effective tax rate was primarily due to the impact of the write-off of deferred tax assets related to share-based compensation in connection with expired stock options.

The Six Months Ended March 31, 2022, compared to the Six Months Ended March 31, 2021

The effective tax rates were 26.3% and 26.7%, for the three months ended June 30, 2022, and 2021, respectively.

The Nine Months Ended June 30, 2022, compared to the Nine Months Ended June 30, 2021

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

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

The decrease in net sales was driven by lower unit volume, primarily due to operating fewer stores compared to the same period last year, and the negative impact of foreign exchange rates.

This decrease was partially offset by an increase in comparable sales, reflecting stronger customer demand in the first fiscal quarter, and higher average unit prices, led by our color and care categories.

The decrease in SBS’s net sales was driven by the impact of store closures, the negative impact of foreign exchange rates and lower comparable sales.

SBS’s comparable sales were lower due to fewer transactions, impacted by lower traffic, and a lower average ticket, resulting from lower average unit volume, partially offset by higher average unit retail prices, led by our color and care categories.

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

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Foreign currency exchange

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 and from strong e-commerce growth.

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

SBS’s gross profit increased for the six months ended March 31, 2022, as a result of a higher gross margin, primarily due to pricing leverage and a decrease in obsolete personal-protective equipment write-downs, partially offset by higher distribution and freight costs.

BSG’s gross profit increased for the six months ended March 31, 2022, driven by an increase in sales, and improvement of pricing leverage, coupled with a decrease in personal-protective equipment write-downs.

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

The increase in BSG’s net sales was driven by higher comparable sales, partially offset by the impact of closed stores.

BSG’s comparable sales increase was driven by a higher average ticket, resulting from higher average unit retail prices, led by color, care and styling tools categories, partially offset by lower average unit volume.

SBS’s gross profit decreased for the nine months ended June 30, 2022, driven by a decrease in sales, partially offset by a higher gross margin.

SBS’s gross margin increase was driven by improvement of pricing leverage and fewer write-downs of obsolete personal-protective equipment, partially offset by higher distribution and freight costs and an unfavorable sales mix shift between the U.S.

and international markets, resulting from the closing of certain international operations in the prior year due to COVID-19.

BSG’s gross profit increased for the nine months ended June 30, 2022, driven by an increase in sales and a higher gross margin.

BSG’s gross margin increase was driven by improvement of pricing leverage and fewer write-downs of personal-protective equipment during the current year, partially offset by higher distribution and freight costs.

Selling, General and Administrative Expenses

SBS’s selling, general and administrative expenses increased $18.1 million, or 4.1%, for the six months ended March 31, 2022.

The increase was driven primarily by higher compensation and compensation-related expenses of $18.6 million, as a result of general economic inflationary conditions and store re-openings in certain international markets.

BSG’s selling, general and administrative expenses increased $14.9 million, or 7.1%, for the six months ended March 31, 2022.

The increase was driven primarily by an increase in delivery expense of $2.5 million, compensation and compensation-related expenses of $2.3 million, depreciation expense of $1.9 million, advertising expense of $1.6 million, technology expense of $1.1 million and other increases in variable operating expenses.

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $25.1 million, or 22.7%, for the six months ended March 31, 2022, driven by the recognition of $31.2 million donation expense related to personal-protective equipment inventory in the prior period, partially offset by an increase in information technology expense of $2.7 million.

Restructuring

For the six months ended March 31, 2022, restructuring charges in connection with our previously communicated Transformation Plan increased $0.2 million, to $1.1 million for the current year.

SBS’s selling, general and administrative expenses increased $19.7 million, or 2.9%, for the nine months ended June 30, 2022.

The increase was driven by higher compensation and compensation-related expenses of $17.5 million, as a result of higher wages within general labor markets and store re-openings in certain international markets, and the unfavorable impact from foreign exchange rates of $7.1 million.

These headwinds were partially offset by lower delivery expenses of $2.9 million, as a result of lower e-commerce sales, and lower facility costs of $2.2 million, as a result of operating fewer stores.

BSG’s selling, general and administrative expenses increased $16.3 million, or 5.1%, for the nine months ended June 30, 2022.

The increase was driven by higher delivery expense of $3.8 million, depreciation and amortization of $3.5 million, advertising expense of $2.1 million, credit card fees of $1.4 million, utility expenses of $1.0 million and compensation and compensation-related expenses of $0.9 million.

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $23.6 million, or 15.3%, for the nine months ended June 30, 2022, as a result of lower COVID-19 expenses of $26.4 million, including the impact of $31.2 million in donation expense in the prior year, partially offset by higher information technology expense of $3.4 million.

Interest Expense

The decrease in interest expense is primarily due to the lower outstanding debt principal for the six months ended March 31, 2022, as a result of the pay-down of our senior notes due 2023 and our term loan B fixed tranche during fiscal year 2021.

The increase in interest expense is primarily due to the repayment of our 8.75% Senior Notes, which resulted in a loss from debt extinguishment of $16.4 million during the nine months ended June 30, 2022, compared to loss from debt extinguishment of $4.3 million related to our repayment of our senior notes due 2023 and our term loan B fixed tranche during the prior period.

This was partially offset by the interest savings in connection with these repayments for $10.2 million during the fiscal year.

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

Provision for Income Taxes

The effective tax rates were 27.3% and 26.5%, for the six months ended March 31, 2022 and 2021, respectively.

The increase in the effective tax rate was primarily due to an increase in foreign losses, for which we do not receive a tax benefit, and the write-off of deferred tax assets related to share-based compensation in connection with expired stock option awards.

The effective tax rates were 27.0% and 26.6%, for the nine months ended June 30, 2022 and 2021, respectively.

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) increased $8.7 million, to $727.4 million at March 31, 2022, compared to $718.7 million at September 30, 2021, primarily from increased inventory as a result of restocking to normal levels of demand following prior year shipping delays, and our risk mitigation strategy to protect against potential, continued supply chain disruptions, and the reduction in accounts payable and accrued liabilities, due to the timing of payments.

These increases were partially offset by a decrease in cash and cash equivalents.

At March 31, 2022, cash and cash equivalents were $227.4 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), cash 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 twelve months.

Our capital structure contains a mix of debt and equity, and a substantial portion of our liquidity needs arise from 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 $250.5 million, to $468.2 million at June 30, 2022, compared to $718.7 million at September 30, 2021.

This decrease was driven by the repayment of our 8.75% Senior Notes through the use of excess cash and additional borrowing on our ABL facility.

Additionally, cash was further reduced by stock repurchases during the fiscal year.

The decrease to working capital was partially offset by higher inventory as a result of the inflationary cost increases on our purchases and additional inventory relating to BSG's distribution partnership with Regis to service their salons account.

At June 30, 2022, cash and cash equivalents were $101.3 million.

We anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), cash 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 twelve months.

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

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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 share repurchases.

During the six months ended March 31, 2022, we did not draw funds under our ABL facility.

As of March 31, 2022, we had $481.1 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.

During the nine months ended June 30, 2022, the weighted average interest rate on our borrowings under the ABL facility was 2.9%.

As of June 30, 2022, we had $167.0 million outstanding and $314.2 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.

Share Repurchase Programs

During the six months ended March 31, 2022, we repurchased 6.8 million shares of our common stock for $130.3 million with existing cash balances.

As of March 31, 2022, we had authorization of approximately $595.8 million of additional potential share repurchases remaining under our share repurchase program.

During the nine months ended June 30, 2022, we repurchased 6.8 million shares of our common stock for $130.3 million with existing cash balances.

As of June 30, 2022, we had authorization of approximately $595.8 million of additional potential share repurchases remaining under our 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.

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 $134.3 million decrease in operating activities was driven by the reduction in accounts payable and accrued liabilities primarily due to the timing of payments, partially offset by lower inventory purchases compared to the six months ended March 31, 2021 and an increase in net earnings.

Net Cash Provided by Operating Activities

Net cash provided by operating activities during the nine months ended June 30, 2022, decreased $168.5 million to $49.2 million, compared to the nine months ended June 30, 2021.

This decrease was driven by the reduction in our accrued liabilities, primarily due to the timing of personal-protective equipment donations and a lower bonus accrual, as well as higher inventory purchases compared to the nine months ended June 30, 2021.

Net Cash Used by Investing Activities

Net cash used by investing activities during the six months ended March 31, 2022, increased $15.1 million to $44.4 million, compared to the six months ended March 31, 2021.

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

Net cash used by investing activities during the nine months ended June 30, 2022, increased $20.7 million to $67.9 million, compared to the nine months ended June 30, 2021.

This was driven by additional investments in technology and store leasehold improvements.

Net Cash Used by Financing Activities

Net cash used by financing activities for the six months ended March 31, 2022, decreased $84.7 million to $126.5 million, as a result of the debt pay-down during the six months ended March 31, 2021 and an increase in stock options exercised, partially offset by share repurchases during the six months ended March 31, 2022.

Net cash used by financing activities for the nine months ended June 30, 2022, decreased $142.7 million to $273.8 million, as a result of lower net debt repayments during the fiscal year, compared to prior fiscal year, partially offset by share repurchases during the nine months ended June 30, 2022.

Debt and Guarantor Financial Information

At March 31, 2022, we had $1,390.2 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $8.6 million.

Our debt consisted of $980.0 million of senior notes outstanding and a term loan with an outstanding principal balance of $410.3 million.

As of March 31, 2022, there were no outstanding borrowings under our ABL facility.

At June 30, 2022, we had $1,255.8 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $4.7 million.

Our debt consisted of $680.0 million in senior notes outstanding, $408.9 million remaining on our term loan and $167.0 million in outstanding borrowings under our ABL facility.

During the fiscal year, we called and redeemed our 8.75%

Senior Notes, at a redemption price equal to 104.375% of the principal amount , through a combination of excess cash and borrowings under our ABL facility .

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

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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 March 31, 2022 and September 30, 2021 (in thousands):

March 31, 2022

The following table presents the summarized balance sheets information for the Issuers and the Guarantors as of June 30, 2022, and September 30, 2021 (in thousands):

June 30, 2022

September 30, 2021

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Total liabilities

The following table presents the summarized statement of income information for six months ended March 31, 2022 (in thousands):

The following table presents the summarized statement of income information for nine months ended June 30, 2022 (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, 2021.

There have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, 2021, except for the repayment of our 8.75% Senior Notes and the additional ABL borrowings.

In connection with these events, our contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, should be adjusted as follows (in thousands):

Payments Due by Period

Less than 1 year

More than 5 years

Long-term debt obligations, including interest

Off-Balance Sheet Financing Arrangements

At March 31, 2022, 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.

At June 30, 2022, 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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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