# BJ's Wholesale Club Holdings, Inc. (BJ) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BJ's Wholesale Club Holdings, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1531152/000153115222000007/bj-20220129.htm
Accession: 0001531152-22-000007
Filing date: 2022-03-17
Report date: 2022-01-29
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BJ/
All MD&A years: /company/BJ/mda/
Next year: /company/BJ/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to promote understanding of the results of operations and financial condition of the Company and MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements and related notes thereto included in Item 8 in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and assumptions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause such differences are discussed in "Item 1A. Risk Factors".

We report on the basis of a 52- or 53-week fiscal year, which ends on the Saturday closest to the last day of January. Accordingly, references herein to "fiscal year 2022", "fiscal year 2021" and "fiscal year 2020" relate to the 52 weeks ended January 28, 2023, January 29, 2022 and January 30, 2021, respectively.

Overview

BJ’s Wholesale Club is a leading warehouse club operator concentrated primarily on the east coast of the United States. We deliver significant value to our members, consistently offering 25% or more savings on a representative basket of manufacturer-branded groceries compared to traditional supermarket competitors. We provide a curated assortment focused on perishable products, continuously refreshed general merchandise, gasoline and other ancillary services to deliver a differentiated shopping experience that is further enhanced by our omnichannel capabilities.

Since pioneering the warehouse club model in New England in 1984, we have grown our footprint to 226 large-format, high volume warehouse clubs spanning 17 states. In our core New England markets, which have high population density and generate a disproportionate part of U.S. GDP, we operate almost three times the number of clubs compared to the next largest warehouse club competitor. In addition to shopping in our clubs, members are able to shop when and how they want through our website, bjs.com, and our highly rated mobile app, which allows them to use our BOPIC service, curbside delivery, same day home delivery or traditional ship-to-home service.

Our leadership team continues to implement significant cultural and operational changes to our business, including transforming how we use data to improve member experience, instilling a culture of cost discipline, adopting a more proactive approach to growing our membership base and building an omnichannel offering oriented towards making shopping at BJ’s more convenient. These changes continue to deliver results rapidly, evidenced by year-over-year income from continuing operations growth, consecutive quarter comparable club sales growth over the last three years and adjusted EBITDA growth over the last three years.

Our goal is to offer our members significant value and a meaningful return in savings on their annual membership fee. We have more than six million members paying annual fees to gain access to savings on groceries and general merchandise and services. The annual membership fee for our Inner Circle® membership is $55, and the annual membership fee for our BJ’s Perks Rewards® membership, which offers additional value-enhancing features, is $110. We believe that members can save over ten times their $55 Inner Circle membership fee versus what they would otherwise pay at traditional supermarket competitors when they spend $2,500 or more per year at BJ’s on manufacturer-branded groceries. In addition to providing significant savings on a representative basket of manufacturer-branded groceries, we accept all manufacturer coupons and also carry our own exclusive brands that enable members to save on price without compromising on quality. Our two private label brands, Wellsley Farms® and Berkley Jensen®, represent over $3.0 billion in annual sales, and are the largest brands we sell in terms of volume. Our customers recognize the relevance of our value proposition across economic environments, as demonstrated by over 20 consecutive years of membership fee income growth. Our membership fee income was $360.9 million for fiscal year 2021.

Our business is moderately seasonal in nature. Historically, our business has generally realized a slightly higher portion of net sales, operating income and cash flows from operations in the second and fourth fiscal quarters, attributable primarily to the impact of the summer and year-end holiday season, respectively. Our quarterly results have been, and will continue to be,

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affected by the timing of new club openings and their associated pre-opening expenses. As a result of these factors, our financial results for any single quarter or for periods of less than a year are not necessarily indicative of the results that may be achieved for a full fiscal year.

On January 25, 2022, the Company entered into an agreement to acquire the assets and operations of four distribution centers and the related private transportation fleet from Burris Logistics, which is expected to bring end-to-end perishable supply chain in-house. The transaction is expected to close in the second quarter of fiscal year 2022 and the Company expects to finance the purchase price with a combination of available cash and borrowings under the Company’s revolving credit facility. However, there is no assurance that the transaction will be completed on the time frame or the terms that we expect or that, following the closing of the transaction, we will not experience disruption in our logistics processes that could materially impact sales and profitability for the near term while we integrated the assets into our operations.

Impact of the COVID-19 Pandemic

Despite the ongoing impact and evolution of the COVID-19 pandemic, we have continued to experience strong sales, growth in membership rates, and acceleration in traffic and ticket. During fiscal year 2021, our grocery division continued to drive higher sales performance as consumer trends continued with greater at-home food consumption. However, we have continued to face several operational challenges directly or indirectly related to the pandemic, including supply chain constraints, inflation, and wage inflation. Refer to "Item 1A. Risk Factors" for additional information.

Effective September 1, 2021, we increased wages for hourly club and warehouse team members. Additionally, we have continued to invest in health and safety practices, including providing personal protective equipment, enhancing sanitation measures and implementing social distancing protocols to ensure the safety of our members and team members.

The COVID-19 pandemic is unprecedented and continuously evolving, and the long-term impacts on our financial condition and results of operations are still uncertain.

Use of Non-GAAP Financial Measures

The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with generally accepted accounting principles ("GAAP"). In addition to relevant GAAP measures we also provide non-GAAP measures, including adjusted EBITDA, comparable club sales, free cash flow, adjusted net income and adjusted net income per diluted share because management believes these metrics are useful to investors and analysts by excluding items that we do not believe are indicative of our core operating performance. These measures are customary for our industry and commonly used by competitors. These non-GAAP financial measures should not be reviewed in isolation or considered as an alternative to any other performance measure derived in accordance with GAAP and should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, adjusted EBITDA, comparable club sales, free cash flow, adjusted net income and adjusted net income per diluted share may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

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Adjusted EBITDA

Adjusted EBITDA is defined as income from continuing operations before interest expense, net, provision for income taxes and depreciation and amortization, adjusted for the impact of certain other items, including stock-based compensation expense; pre-opening expenses; non-cash rent; strategic consulting; offering costs; club closing and impairment charges; reduction in force severance; acquisition and integration costs; and other adjustments. The following is a reconciliation of our income from continuing operations to Adjusted EBITDA and Adjusted EBITDA as a percentage of net sales for the periods presented:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["","January 29, 2022","","January 30, 2021","","February 1, 2020"],["(In thousands)"],["Income from continuing operations","$","426,760","","","$","421,182","","","$","187,757"],["Interest expense, net","59,444","","","84,385","","","108,230"],["Provision for income taxes","131,119","","","136,825","","","56,212"],["Depreciation and amortization","180,547","","","167,454","","","157,000"],["Stock-based compensation expense","53,837","","","32,150","","","18,796"],["Pre-opening expenses (1)","14,902","","","9,809","","","15,152"],["Non-cash rent (2)","6,146","","","4,942","","","8,374"],["Acquisition and integration costs (3)","3,504","","","\u2014","","","\u2014"],["Reduction-in-force severance (4)","2,300","","","\u2014","","","3,994"],["Offering costs (5)","\u2014","","","\u2014","","","1,928"],["Club closing and impairment charges (6)","\u2014","","","\u2014","","","15,383"],["Strategic consulting (7)","\u2014","","","\u2014","","","11,349"],["Other adjustments, net (8)","991","","","745","","","(2,551)"],["Adjusted EBITDA","$","879,550","","","$","857,492","","","$","581,624"],["Adjusted EBITDA as a percentage of net sales","5.4","%","","5.7","%","","4.5","%"]]
[[/GREPCENT_TABLE]]

__________

[[GREPCENT_TABLE]]
[["(1)","Represents direct incremental costs of opening or relocating a facility that are charged to operations as incurred."],["(2)","Consists of an adjustment to remove the non-cash portion of rent expense, inclusive of incremental rent expense as the Company transitions from the current home office to a new home office building in fiscal year 2022."],["(3)","Represents costs related to the anticipated acquisition of assets of Burris Logistics, including due diligence, legal, and other consulting expenses."],["(4)","Represents severance charges associated with labor reductions from the realignment of our field operations in fiscal year 2021 and a reduction in workforce announced in January 2020."],["(5)","Represents costs related to our IPO and the registered offerings by selling shareholders."],["(6)","Represents primarily closing costs associated with our clubs in Charlotte, N.C. and Geneva, N.Y., which closed in the fourth quarter of fiscal year 2019."],["(7)","Represents fees paid to external consultants for strategic initiatives of limited duration."],["(8)","Other non-cash items, including gains from sale leaseback transactions, non-cash accretion on asset retirement obligations and obligations associated with our post-retirement medical plan."]]
[[/GREPCENT_TABLE]]

Comparable Club Sales and Merchandise Comparable Club Sales

Comparable club sales, also known as same-store sales, includes all clubs that were open for at least 13 months at the beginning of the period and were in operation during the entirety of both periods being compared, including relocated clubs and expansions.

Comparable club sales allow us to evaluate how our club base is performing by measuring the change in period-over-period net sales in clubs that have been open for the applicable period. Various factors affect comparable club sales, including consumer preferences and trends, product sourcing, promotional offerings and pricing, customer experience and purchase amounts, weather and holiday shopping period timing and length.

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Merchandise comparable club sales represents comparable club sales from all merchandise other than our gasoline operations for the applicable period. Refer to "Results of Operations" below for further discussion of comparable club sales and merchandise comparable club sales.

Free Cash Flow

We present free cash flow because we use it to report to our board of directors and we believe it assists investors and analysts in evaluating our liquidity. Free cash flow should not be considered as an alternative to cash flows from operations as a liquidity measure. We define free cash flow as net cash provided by operating activities less additions to property and equipment, net of disposals, plus proceeds from sale leaseback transactions. The following is a reconciliation of our net cash provided by operating activities to free cash flow for the periods presented:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["","January 29, 2022","","January 30, 2021","","February 1, 2020"],["(In thousands)"],["Net cash provided by operating activities","$","831,655","","","$","868,546","","","$","355,143"],["Less: Additions to property and equipment, net of disposals","323,591","","","218,333","","","196,901"],["Plus: Proceeds from sale leaseback transactions","19,080","","","25,893","","","21,606"],["Free cash flow","$","527,144","","","$","676,106","","","$","179,848"]]
[[/GREPCENT_TABLE]]

Free cash flow continues to be healthy. The decline year-over-year is a result of the timing of net working capital investments and capital spend in fiscal year 2021 as we opened five new clubs and seven new gas stations.

Adjusted Net Income

The adjusted net income and adjusted net income per diluted share metrics are important measures used by management to compare the performance of core operating results between periods. We define adjusted net income as net income as reported adjusted for: stock-based compensation related to acceleration of stock awards; acquisition and integration costs; incremental home office expenses; loss on cash flow hedge; expenses related to debt payments; severance charges; offering costs; gains on sale leaseback transactions; club closing and impairment charges; and the tax impact of the foregoing adjustments on net income. We define adjusted net income per diluted share as adjusted net income divided by the weighted-average diluted shares outstanding.

We believe adjusted net income and adjusted net income per diluted share are useful metrics to investors and analysts because they present more accurate year-over-year comparisons for our net income and net income per diluted share because adjusted items are not the result of our normal operations.

[[GREPCENT_TABLE]]
[["","52 Weeks Ended January 29, 2022","","52 Weeks Ended January 30, 2021","","52 Weeks Ended February 1, 2020"],["Net income as reported","$","426,652","","","$","421,030","","","$","187,176"],["Adjustments:"],["Stock-based compensation related to acceleration of stock awards (1)","17,494","","","\u2014","","","\u2014"],["Acquisition and integration costs (2)","3,504","","","\u2014","","","\u2014"],["Incremental home office expense (3)","552","","","\u2014","","","\u2014"],["Loss on cash flow hedge (4)","6,340","","","6,926","","","\u2014"],["Charges related to debt payments (5)","657","","","4,077","","","3,820"],["Severance charges (6)","2,300","","","\u2014","","","3,994"],["Offering costs (7)","\u2014","","","\u2014","","","1,928"],["Gains on sale leaseback transactions (8)","\u2014","","","\u2014","","","(2,585)"],["Club closing and impairment charges (9)","\u2014","","","\u2014","","","15,383"],["Tax impact of adjustments to net income (10)","(8,641)","","","(3,081)","","","(6,311)"],["Adjusted net income","$","448,859","","","$","428,952","","","$","203,405"],["Weighted-average diluted shares outstanding","138,045","","","138,876","","","139,109"],["Adjusted net income per diluted share (11)","$","3.25","","","$","3.09","","","$","1.46"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(1)","Represents accelerated vesting of equity awards, which were related to the passing of a former executive."],["(2)","Represents costs related to the anticipated acquisition of assets of Burris Logistics, including due diligence, legal, and other consulting expenses."],["(3)","Represents incremental rent expense as the Company transitions from the current home office to a new home office building in fiscal year 2022."],["(4)","Represents the reclassification into earnings of accumulated other comprehensive income associated with the de-designation of hedge accounting on one of our swap agreements due to the payment of debt."],["(5)","Represents the expensing of fees and deferred fees and original issue discount associated with the partial prepayment of debt."],["(6)","Represents severance charges associated with labor reductions from the realignment of our field operations in fiscal year 2021 and a reduction in workforce announced in January 2020."],["(7)","Represents costs related to registered offerings by selling shareholders."],["(8)","Represents a gain from the sale leaseback of one of our Michigan locations."],["(9)","Represents primarily closing costs associated with our clubs in Charlotte, N.C. and Geneva, N.Y., which closed in the fourth quarter of fiscal year 2019."],["(10)","Represents the tax effect of the above adjustments at a statutory tax rate of approximately 28%."],["(11)","Adjusted net income per diluted share is measured using weighted average diluted shares outstanding."]]
[[/GREPCENT_TABLE]]

Factors Affecting Our Business

Overall economic trends

The overall economic environment and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote customer spending in our clubs, while economic weakness, which generally results in a reduction of customer spending, may have a different or more extreme effect on spending at our clubs. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, changes to the Supplemental Nutrition Assistance Program (SNAP), government stimulus programs, tax legislation, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs. In addition, unemployment rates and benefits may cause us to experience higher labor costs.

Size and loyalty of membership base

The membership model is a critical element of our business. Members drive our results of operations through their membership fee income and their purchases. The majority of members renew within six months following their renewal date. Therefore, our renewal rate is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date. We have grown our membership fee income each year for the past two decades. Our membership fee income totaled $360.9 million in fiscal year 2021. Our membership renewal rate, a key indicator of membership engagement, satisfaction and loyalty, was 89% at the end of fiscal year 2021.

Effective sourcing and distribution of products and consumer demands

Our net sales and gross profit are affected by our ability to purchase our products in sufficient quantities at competitive prices. Recently, we have experienced challenges in the global supply chain, which we expect to continue for the foreseeable future. Further, our ability to maintain our appeal to existing customers and attract new customers primarily depends on our ability to originate, develop and offer a compelling product assortment responsive to customer preferences. As a result, our level of net sales could be adversely affected due to constraints in our supply chain, including our inability to procure and stock sufficient quantities of some merchandise in a manner that is able to match market demand from our customers.

Infrastructure investment

Our historical operating results reflect the impact of our ongoing investments to support our growth. We have made significant investments in our business that we believe have laid the foundation for continued profitable growth. We believe that strengthening our management team and enhancing our information systems, including our distribution center management and point-of-sale systems, and investing in hardware and digitally enabled shopping capabilities for convenience, such as BOPIC and curbside pickup, will enable us to replicate our profitable club format and provide a differentiated shopping experience. We expect these infrastructure investments to support our successful operating model across our club operations.

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Gasoline prices

The market price of gasoline impacts our net sales and comparable club sales, and large fluctuations in the price of gasoline may produce a short-term impact on our margins. Retail gasoline prices are driven by daily crude oil and wholesale commodity market changes and are volatile, as they are influenced by factors that include changes in demand and supply of oil and refined products, global geopolitical events, regional market conditions and supply interruptions caused by severe weather conditions. Typically, the change in crude oil prices impacts the purchase price of wholesale petroleum fuel products, which in turn impacts retail gasoline prices at the pump. During times when prices are particularly volatile, differences in pricing and procurement strategies between the Company and its competitors may lead to temporary margin contraction or expansion, depending on whether prices are rising or falling, and this impact could affect our overall results for a fiscal quarter.

In addition, the relative level of gasoline prices from period to period may lead to differences in our net sales between those periods. Further, because we generally attempt to maintain a fairly stable gross profit per gallon, this variance in net sales, which may be substantial, may or may not have a significant impact on our operating income.

Inflation and deflation trends

Our financial results can be directly impacted by substantial increases in product costs due to commodity cost increases or general inflation, which could lead to a reduction in our sales, as well as greater margin pressure, as costs may not be able to be passed on to consumers. Changes in commodity prices and general inflation have impacted several categories of our business. This inflationary pressure is due primarily to supply chain disruptions complicated by the COVID-19 pandemic. In response to increasing commodity prices or general inflation, we seek to minimize the impact of such events by sourcing our merchandise from different vendors, changing our product mix or increasing our pricing when necessary.

Results of Operations

Information pertaining to fiscal year 2019 was included in the Company’s Annual Report on Form 10-K for the year ended January 30, 2021 in Part II, Item 7, "Management’s Discussion and Analysis of Financial Position and Results of Operations," which was filed with the SEC on March 19, 2021.

The following tables summarize key components of our results of operations for the periods indicated:

[[GREPCENT_TABLE]]
[["Statement of Operations Data (dollars in thousands):","Fiscal Year Ended"],["","January 29, 2022","","January 30, 2021"],["Net sales","$","16,306,365","","","$","15,096,913"],["Membership fee income","360,937","","","333,104"],["Total revenues","16,667,302","","","15,430,017"],["Cost of sales","13,588,612","","","12,451,061"],["Selling, general and administrative expenses","2,446,465","","","2,326,755"],["Pre-opening expenses","14,902","","","9,809"],["Operating income","617,323","","","642,392"],["Interest expense, net","59,444","","","84,385"],["Income from continuing operations before income taxes","557,879","","","558,007"],["Provision for income taxes","131,119","","","136,825"],["Income from continuing operations","426,760","","","421,182"],["Income (loss) from discontinued operations, net of income taxes","(108)","","","(152)"],["Net income","$","426,652","","","$","421,030"],["Operational Data:"],["Total clubs at end of period","226","","","221"],["Comparable club sales","6.5","%","","15.9","%"],["Merchandise comparable club sales","(0.5)","%","","21.3","%"],["Adjusted EBITDA","$","879,550","","","$","857,492"],["Free cash flow","527,144","","","676,106"],["Membership renewal rate","89","%","","88","%"]]
[[/GREPCENT_TABLE]]

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Fiscal Year 2021 Compared to Fiscal Year 2020

Net Sales

Net sales are derived from direct retail sales to customers in our clubs and online, net of merchandise returns and discounts. Growth in net sales is impacted by opening new clubs and increases in comparable club sales. Net sales for fiscal year 2021 were $16.3 billion, an 8.0% increase from net sales reported for fiscal year 2020 of $15.1 billion. The increase was due primarily to a 6.5% increase in comparable club sales and incremental sales from new clubs opened over the past two years. 

Comparable Club Sales and Merchandise Comparable Club Sales

We believe net sales is an important driver of our profitability, particularly comparable club sales. Comparable sales growth is a function of increasing shopping frequency from new and existing members and the amount they spend on each visit. Sales comparisons can be influenced by certain factors that are beyond our control such as changes in the cost of gasoline and macro-economic factors such as inflation. The higher comparable club sales, the more we can leverage certain of our selling, general and administrative (SG&A) expenses, reducing them as a percentage of sales and enhancing profitability.

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 29, 2022"],["Comparable club sales","6.5","%"],["Less: Contribution from gasoline sales","7.0","%"],["Merchandise comparable club sales","(0.5)","%"]]
[[/GREPCENT_TABLE]]

Merchandise comparable club sales decreased (0.5)% in fiscal year 2021. The decrease was driven by a decrease in sales of groceries of 1.7% and growth in sales of general merchandise and services of approximately 5.7%.

In grocery, sales decreased as a result of categories impacted by the COVID-19 pandemic and supply chain challenges, including paper products, cleaning supplies, and dairy. In general merchandise and services, sales were strongest in apparel, toys, tires and indoor furniture.

Membership fee income

Our membership structure is pinnacle to our business and we continue to see growth in the size and quality of our membership base, primarily driven by renewals and favorable membership mix. Higher-tier membership penetration has increased year-over-year. This group consists of our most loyal members with the highest lifetime value.

Membership fee income was $360.9 million in fiscal year 2021, compared to $333.1 million in fiscal year 2020, an 8.4% increase. The growth in membership fee income was due to successful member acquisition efforts, improving our renewal rate to 89%, increasing higher tier membership penetration and improving the quality of memberships.

Cost of sales

Cost of sales consists primarily of the direct cost of merchandise and gasoline sold at our clubs, including costs associated with operating our distribution centers, including payroll, payroll benefits, occupancy costs and depreciation; freight expenses associated with moving merchandise from vendors to our distribution centers and from distribution centers to our clubs, and vendor allowances, rebates and cash discounts. We continue to experience inflation across most categories and have invested in certain categories to preserve our member value proposition.

Cost of sales was $13.6 billion, or 83.3% of net sales, in fiscal year 2021, compared to $12.5 billion, or 82.5% of net sales, in fiscal year 2020. The 0.9% increase as a percentage of net sales was driven by higher penetration of gas sales. Merchandise gross margin rate increased approximately 20 basis points over fiscal year 2020. While merchandise margins benefited from strong sales performance, execution of our category profitability improvement initiatives and performance of our services businesses, these drivers were slightly offset by costs associated with the COVID-19 pandemic and cost inflation in certain commodities.

Selling, general and administrative expenses

SG&A consists of various expenses related to supporting and facilitating the sale of merchandise in our clubs, including the following: payroll and payroll benefits for team members; rent, depreciation and other occupancy costs for retail and corporate locations; advertising expenses; tender costs, including credit and debit card fees; amortization of intangible assets; and consulting, legal, insurance, acquisition and integration costs, and other professional services expenses.

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SG&A includes both fixed and variable components and, therefore, is not directly correlated with net sales. We expect that our SG&A will increase in future periods due to investments to spur comparable club sales growth and our expanding footprint as we open new clubs. In addition, any future increases in wages, stock options or other stock-based grants or modifications will increase our SG&A expenses.

SG&A expenses were $2.4 billion, or 15.0% of net sales, in fiscal year 2021, compared to $2.3 billion, or 15.4% of net sales, in fiscal year 2020. The year-over-year increase in SG&A was primarily driven by $43.1 million in investments in club team member wages, $19.3 million in occupancy costs, $17.5 million of accelerated stock-based compensation expense related to a former executive, increased depreciation and amortization expense, and other operating costs related to volume and continued investments to drive strategic priorities.

Pre-opening expenses

Pre-opening expenses include startup costs for new clubs. Expenses will vary based on the number of new club openings, geography of the club, whether the club is owned or leased, and timing of the opening relative to our fiscal year end.

Pre-opening expenses were $14.9 million in fiscal year 2021, compared to $9.8 million in fiscal year 2020. Pre-opening expenses for fiscal year 2021 included charges for new clubs and gas stations that opened in fiscal year 2021 and new club openings that are expected for fiscal year 2022.

Interest expense, net

Interest expense, net was $59.4 million for fiscal year 2021, compared to $84.4 million for fiscal year 2020. Interest expense, net for fiscal year 2021 included interest expense of $45.1 million related to debt service on outstanding borrowings and $0.7 million of fees and write-offs of deferred financing costs and original issue discounts associated with the partial prepayments of our First Lien Term Loan. Additionally, interest expense included $3.4 million of amortization expense on deferred financing costs and original issue discounts on our outstanding borrowings, $6.3 million of reclassified unrealized losses on interest rate swap agreements and $3.9 million of other interest charges.

Interest expense, net for fiscal year 2020 included interest expense of $65.3 million related to debt service on outstanding borrowings and $4.1 million of fees and write-offs of deferred financing costs and original issue discounts associated with the partial prepayments of our First Lien Term Loan in October and July of fiscal year 2020. Additionally, interest expense included $4.4 million of amortization expense on deferred financing costs and original issue discounts on our outstanding borrowings, $6.9 million of reclassified unrealized losses on interest rate swap agreements and $3.7 million of other interest charges.

Provision for income taxes

The Company’s effective income tax rate from continuing operations was 23.5% for fiscal year 2021 and 24.5% for fiscal year 2020. The decrease in the effective tax rate is primarily due to a higher excess tax benefit from exercises of stock-based awards in fiscal year 2021.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows generated from club operations and borrowings from our ABL Facility. As of January 29, 2022, cash and cash equivalents totaled $45.4 million and we had $886.9 million of unused capacity under our ABL Facility. Our principal liquidity needs for the next twelve months and beyond are to fund normal recurring operational expenses and anticipated capital expenditures; fund pending and possible acquisitions, including the anticipated acquisition of assets from Burris Logistics; fund share repurchases and meet debt service and principal repayment obligations. We believe that our current resources, together with anticipated cash flows from operations and borrowing capacity under our ABL Facility, will be sufficient to finance our operations for at least the next twelve months.

We do not have any off-balance sheet arrangements that have, or are, in the opinion of management, reasonably likely to have, a current or future material effect on our results of operations or financial position. We do, however, enter into letters of credit and purchase obligations in the normal course of our operations.

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Summary of Cash Flows

A summary of our cash flows from operating, investing and financing activities is presented in the following table:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended"],["","January 29, 2022","","January 30, 2021"],["(In thousands)"],["Net cash provided by operating activities","$","831,655","","","$","868,546"],["Net cash used in investing activities","(304,511)","","","(192,440)"],["Net cash used in financing activities","(525,226)","","","(662,792)"],["Net increase in cash and cash equivalents","$","1,918","","","$","13,314"]]
[[/GREPCENT_TABLE]]

Net Cash from Operating Activities

Net cash provided by operating activities was $831.7 million in fiscal year 2021, compared to $868.5 million in fiscal year 2020. The decrease in operating cash flow was due to timing of investments in net working capital.

Net Cash from Investing Activities

Cash used in investing activities was $304.5 million in fiscal year 2021, compared to $192.4 million in fiscal year 2020. The increase was due to continued investments in new clubs, new gas stations and digital capabilities compared to the prior year.

Net Cash from Financing Activities

Cash used in financing activities in fiscal year 2021 was $525.2 million, compared to $662.8 million in fiscal year 2020. The decrease in fiscal year 2021 is due mainly to lower levels of repayment of outstanding borrowings on our First Lien Term Loan and ABL Facility, offset by higher share repurchases in fiscal year 2021 of $179.2 million.

Debt and Borrowing Capacity

Our primary sources of borrowing capacity are the ABL Facility, which is comprised of a $950.0 million revolving credit facility and a $50.0 million term loan, and is scheduled to mature on August 17, 2023, and the First Lien Term Loan, a senior secured first lien term loan that matures on February 3, 2024. For a further description of the ABL Facility and First Lien Term Loan, see Note 5, "Debt and Credit Arrangements" of our consolidated financial statements included in this Annual Report on Form 10-K.

On April 30, 2021, the Company used $100.0 million of cash and cash equivalents to pay $100.0 million of the principal amount outstanding on the First Lien Term Loan. In connection with the payment, the Company expensed $0.7 million of previously capitalized debt issuance costs and original issue discount.

At January 29, 2022, there was $50.0 million outstanding in loans under the ABL Facility and $12.7 million in outstanding letters of credit. The interest rate on the revolving credit facility was 1.23%, the interest rate on the term loan was 2.10% and unused capacity was $886.9 million.

At January 29, 2022, there was $701.9 million outstanding under the First Lien Term Loan and the interest rate, before the effect of the interest rate swaps, was 2.11%.

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Material Cash Commitments

The following table summarizes our material cash commitments as of January 29, 2022:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","Total"],["Outstanding borrowings and interest (1)","$","783,117"],["Operating leases","3,440,341"],["Financing leases including interest","30,648"],["Purchase obligations (2)","1,859,767"],["Total","$","6,113,873"]]
[[/GREPCENT_TABLE]]

(1)Total interest payments associated with these borrowings are included within this amount and are estimated to be $31.2 million based on the interest rate of 2.11% on the First Lien Term Loan and 2.10% on the ABL term loan, which were the rates in effect as of January 29, 2022.

(2)Includes our material unconditional cash commitments. For cancellable agreements, any penalty due upon cancellation is included. These commitments do not exceed our projected requirements and are in the normal course of business. Examples include firm commitments for merchandise purchase orders, capital expenditures, gasoline and information technology.

In addition, On January 25, 2022, we entered into an agreement to acquire the assets and operations of four distribution centers and the related private transportation fleet from Burris Logistics. The transaction is expected to close in the second quarter of fiscal year 2022 and we expect to finance the purchase price with a combination of available cash and borrowings under the ABL Facility.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We review our estimates on an ongoing basis and make judgments about the carrying value of assets and liabilities based on a number of factors. These factors include historical experience and assumptions made by management that are believed to be reasonable under the circumstances. Although management believes the judgment applied in preparing estimates is reasonable based on circumstances and information known at the time, actual results could vary materially from estimates based on assumptions used in the preparation of our consolidated financial statements. This section summarizes critical accounting policies and the related judgments involved in their application.

Workers’ Compensation and General Liability Self-insurance Reserves

We are primarily self-insured for workers’ compensation and general liability claims. Amounts in excess of certain levels, which range from $0.3 million to $1.0 million per occurrence, are insured as a risk reduction strategy to mitigate the impact of catastrophic losses on net income. Reported reserves for claims are derived from estimated ultimate costs based upon individual claim file reserves and estimates for incurred but not reported claims. The estimates are developed utilizing actuarial methods and are based on historical claims experience and other actuarial assumptions related to loss development factors. The inherent uncertainty of future loss projections could cause actual claims to differ from our estimates. When historical losses are not a good measure of future liability, such as in the event of COVID-19, we base our estimates of ultimate liability on our interpretation of current law, claims filed to date and other relevant factors which are subject to change. These accruals, if any, are included in accrued expenses and other current liabilities and other non-current liabilities in the Company’s Consolidated Balance Sheets.

Recent Accounting Pronouncements

See Note 2, "Summary of Significant Accounting Policies" of our consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding recently issued accounting pronouncements.

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