# HAVERTY FURNITURE COMPANIES INC (HVT) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from HAVERTY FURNITURE COMPANIES INC's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/216085/000114036122007311/hvt10k123121.htm Accession: 0001140361-22-007311 Filing date: 2022-03-01 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/HVT/ All MD&A years: /company/HVT/mda/ Next year: /company/HVT/mda/fy2022/ (FY 2022) ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Industry The retail residential furniture industry’s results are influenced by the overall strength of the economy, new and existing housing sales, consumer confidence, spending on large ticket items, interest rates, and availability of credit. These factors remain tempered by rising consumer debt, home inventory constraints, and tight access to home mortgage credit, all of which provide impediments to industry growth. Our Business We sell home furnishings in our retail stores and via our website and record revenue when the products are delivered to our customer. Our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles. Our commissioned sales team members receive a high level of product training and are provided a number of tools with which to serve our customers. We also have over 120 in‑home designers serving most of our stores. These individuals work with our sales team members to provide customers additional confidence and inspiration in their furniture purchase journey. We do not outsource the delivery function, something common in the industry, but instead ensure that the “last contact” is handled by a customer-oriented Havertys delivery team. We are recognized as a provider of high-quality fashionable products and exceptional service in the markets we serve. Impact of COVID-19  The COVID-19 pandemic continues to impact numerous aspects of our business.  Our sales remain at record levels as we have experienced unprecedented customer demand for our products during the COVID-19 pandemic. Consumers not negatively impacted financially are spending on their homes. Our online shopping and chat continued to surge during 2021 and outpaced similar activity in 2020. Store traffic remained strong as customers shop online but want to touch, see, and comfort test before purchasing. Consumers are also favoring quality over price and our average ticket rose in 2021 compared to 2020. Our main priority continues to be the health, safety and well-being of our customers and employees. We continue to invest in supplies for the protection of our employees and customers and increased the frequency of cleaning and disinfecting our stores. Demand is outpacing product availability in many categories. Manufacturers are challenged to ensure safe work environments and have encountered raw material shortages and transportation capacity issues. Our supply chain and sales teams, supported by a strong IT infrastructure, are working to communicate with customers and manage delivery expectations. The long-term impact to our business remains unknown as we are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity and transmissibility of the disease, the duration of the outbreak, the likelihood of additional variants and resurgences of the outbreak, actions that may be taken by governmental authorities in response to the disease, the distribution, efficacy and public acceptance of vaccines, and unintended consequences of the foregoing. Furthermore, the continuing pandemic and related economic uncertainty may result in prolonged disruption and volatility to our business and magnify certain risks, including risks associated with our supply chain and sourcing quality merchandise domestically and outside the U.S.; our ability to promptly adjust inventory levels to meet fluctuations in customer demand; our ability to comply with complex and evolving laws and regulations related to customers’ and employees’ health and safety; our ability to open new store locations and expand or remodel existing stores; and our ability to hire and train qualified employees to address temporary or sustained labor shortages. At this point, we cannot reasonably estimate the duration of the pandemic’s influence on consumers and the “nesting” economy.  17 Management Objectives Management is focused on capturing more market share and increasing sales per square foot of showroom space. This growth will be driven by concentrating our efforts on our customers with improved interactions highlighted by new products, high touch service and better technology. The Company’s strategies for profitability include gross margin focus, targeted marketing initiatives, productivity and process improvements, and efficiency and cost-saving measures. Our focus is to serve our customers better and distinguish ourselves in the marketplace. Key Performance Indicators We evaluate our performance based on several key metrics which include net sales, comparable store sales and written comparable store sales, sales per weighted average square foot, gross profit, selling, general and administrative costs as a percentage of sales, operating income, cash flow, and earnings per share. The goal of utilizing these measurements is to provide tools in economic decision-making such as store growth, capital allocation and product pricing. Net sales is the revenues from merchandise sales and related fees, net of expected returns and sales tax. We record our sales when the merchandise is delivered to the customer. Comparable-store or “comp-store” sales is a measure which indicates the performance of our existing stores and website by comparing the growth in sales in store and online for a particular month over the corresponding month in the prior year. Stores are considered non-comparable if they were not open during the corresponding month in the prior year or if the selling square footage has been changed by more than 10%. Large clearance sales events from warehouses or temporary locations are also excluded from comparable store sales. The method we use to compute comp-store sales may not be the same method used by other retailers. We also track written sales and written comp-store sales. Written sales are when a customer makes a deposit or pays in full, and places an order. Written sales shows the current pace or trend of customer transactions. The lag time between customers placing orders and delivery grew in 2020 and remained high during 2021 due to demand outpacing merchandise supply and disruptions in supply chain. As a retailer, comp‑store sales and written comp‑store sales are an indicator of relative customer spending and store performance. Comp-store sales, total written sales and written comp-store sales are intended only as supplemental information and is not a substitute for net sales presented in accordance with US GAAP. Sales per weighted average (“WAVG”) square foot is calculated by dividing net sales by WAVG square footage. WAVG square footage is a daily WAVG based on the ratio of the days open in a period to the total days in the period. 18 Results of Operations and Non-GAAP Measures The table and discussion below should be read in conjunction with our consolidated financial statements and related notes included in this report. [[GREPCENT_TABLE]] [["Statement of Earnings Data","","Year Ended December 31,"],["(Dollars in thousands, except per share data)","","2021","","","2020(1)","","","2019","","","2018","","","2017"],["Net sales","","$","1,012,799","","","$","748,252","","","$","802,291","","","$","817,733","","","$","819,866"],["Gross profit","","","574,625","","","","418,994","","","","434,488","","","","446,542","","","","444,923"],["Percent of net sales","","","56.7","%","","","56.0","%","","","54.2","%","","","54.6","%","","","54.3","%"],["Selling, general and administrative expenses(2)","","","456,267","","","","377,288","","","","407,456","","","","404,856","","","","402,884"],["Percent of net sales","","","45.1","%","","","50.4","%","","","50.8","%","","","49.5","%","","","49.1","%"],["Income before income taxes(2)(3)","","","118,535","","","","76,731","","","","28,724","","","","40,408","","","","43,223"],["Percent of net sales","","","11.7","%","","","10.3","%","","","3.6","%","","","4.9","%","","","5.3","%"],["Net income(2)(3)","","","90,803","","","","59,148","","","","21,865","","","","30,307","","","","21,075"],["Percent of net sales","","","9.0","%","","","7.9","%","","","2.7","%","","","3.7","%","","","2.6","%"],["Share Data"],["Diluted earnings per Common share(2)(3)","","$","4.90","","","$","3.12","","","$","1.08","","","$","1.42","","","$","0.98"],["Cash dividends \u2013 per share:"],["Common Stock(4)","","$","2.97","","","$","2.77","","","$","0.76","","","$","1.72","","","$","0.54"],["Class A Common Stock(4)","","$","2.79","","","$","2.62","","","$","0.72","","","$","1.63","","","$","0.51"],["Diluted weighted average common shares outstanding","","","18,543","","","","18,932","","","","20,261","","","","21,295","","","","21,599"],["Balance Sheet Data"],["Total assets","","$","686,290","","","$","680,372","","","$","560,072","","","$","440,179","","","$","461,329"],["Inventories","","","112,031","","","","89,908","","","","104,817","","","","105,840","","","","103,437"],["Net property and equipment(5)","","","126,099","","","","108,366","","","","156,534","","","","218,852","","","","229,215"],["Right-of-use lease assets","","","222,356","","","","228,749","","","","175,474","","","","\u2014","","","","\u2014"],["Lease liabilities","","","230,352","","","","233,666","","","","179,055","","","","\u2014","","","","\u2014"],["Customer deposits","","","98,897","","","","86,183","","","","30,121","","","","24,465","","","","27,813"],["Total debt(6)","","","\u2014","","","","\u2014","","","","\u2014","","","","50,803","","","","54,591"],["Stockholders\u2019 Equity","","","255,970","","","","252,967","","","","260,503","","","","274,629","","","","294,142"],["Statement of Cash Flows Data"],["Net cash provided by operating activities","","$","97,242","","","$","130,191","","","$","63,419","","","$","70,392","","","$","52,457"],["Depreciation and amortization(5)","","","16,304","","","","18,207","","","","20,596","","","","29,806","","","","30,516"],["Capital expenditures","","","34,090","","","","10,927","","","","16,841","","","","21,473","","","","24,465"],["Dividends paid","","","52,446","","","","50,521","","","","15,056","","","","35,464","","","","11,392"],["Share repurchases","","","41,809","","","","19,708","","","","29,757","","","","18,732","","","","\u2014"],["Other Supplemental Data and Metrics"],["Number of stores","","","121","","","","120","","","","121","","","","120","","","","124"],["Retail square footage at year-end","","","4,354","","","","4,352","","","","4,426","","","","4,417","","","","4,517"],["Sales per WAVG retail square foot ($)","","","232","","","","173","","","","183","","","","185","","","","185"],["Average ticket ($)(7)","","","2,865","","","","2,482","","","","2,323","","","","2,184","","","","2,091"],["Net sales increases (%)","","","35.4","%","","","(6.7",")%","","","(1.9",")%","","","(0.3",")%","","","(0.2",")%"],["Comparable store sales increase (%)","","","17.9","%","","","5.0","%","","","(1.4",")%","","","0.3","%","","","(1.3",")%"],["Employees","","","2,845","","","","2,766","","","","3,425","","","","3,418","","","","3,551"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Stores were closed and delivery operations were paused for approximately six weeks due to COVID-19."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Includes impairment loss of $2.4 million, or $1.8 million after tax, on a retail store in 2019 which impacted diluted earnings per share $0.09."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Includes gain of $31.6 million on a sale-leaseback transaction in 2020 which impacted diluted earnings per share $1.24."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(4)","Includes special dividends of $2.00 for Common Stock and $1.90 for Class A Common Stock paid in the fourth quarter of 2021 and 2020 and $1.00 for Common Stock and $0.95 for Class A Common Stock paid in the fourth quarter of 2018."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(5)","We adopted ASC 840 effective January 1, 2019. The cumulative effect included a reduction of property and equipment, net of $53,519,000. Amortization of buildings under lease was included in depreciation expense."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(6)","Debt is comprised completely of lease obligations accounted for under ASC 840, prior to adoption of ASU 2016-02."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(7)","Average ticket is calculated by dividing total sales by the number of orders."]] [[/GREPCENT_TABLE]] 19 Net Sales The following outlines our sales and comp-store sales increases and decreases for the periods indicated. (Amounts and percentages may not always add to totals due to rounding.) [[GREPCENT_TABLE]] [["","","December 31,"],["","","2021","","","2020","","","2019"],["","","Net Sales","","","Comp-Store Sales","","","Net Sales","","","Comp-Store Sales","","","Net Sales","","","Comp-Store Sales"],["Period Ended","","Dollars in millions","","% Increase (decrease) over prior period","","","% Increase (decrease) over prior period","","","Dollars in millions","","% Increase (decrease) over prior period","","","% Increase (decrease) over prior period","","","Dollars in millions","","% Increase (decrease) over prior period","","","% Increase (decrease) over prior period"],["Q1","","$","236.5","","","31.8","%","","","11.5","%","","$","179.4","","","(4.2",")%","","","11.6","%","","$","187.2","","","(6.1",")%","","","(4.7",")%"],["Q2","","","250.0","","","127.3","","","","46.9","","","","110.0","","","(42.7",")","","","(15.2",")","","","191.9","","","(3.5",")","","","(2.3",")"],["Q3","","","260.4","","","19.7","","","","17.7","","","","217.5","","","3.9","","","","4.0","","","","209.3","","","(0.6",")","","","(0.4",")"],["Q4","","","265.9","","","10.2","","","","9.2","","","","241.3","","","12.9","","","","13.7","","","","213.8","","","2.3","","","","1.4"],["Year","","$","1,012.8","","","35.4","%","","","17.9","%","","$","748.3","","","(6.7",")%","","","5.0","%","","$","802.3","","","(1.9",")%","","","(1.4",")%"]] [[/GREPCENT_TABLE]] Sales in 2021 reached record levels for each quarter as customer demand remained strong despite ongoing COVID concerns and supply chain challenges. The comparisons for 2020 reflect the impact of our store closures in mid‑March and re-opening on May 1, and the surge in business that followed. In response to increasing product and freight costs, we raised our retail prices. The impact of the supply chain disruptions is reflected in our sales by merchandise category. Our mattress business, as a percent of total sales, continues to lag at 8.9% compared to its pre-pandemic level of 11.3%. The impact of the factory closures in Vietnam affected our sales of bedroom furniture, particularly in the fourth quarter, and we expect this may continue into the second quarter of 2022. Our upholstery suppliers made good strides towards meeting demand and sales in this category in 2021 increased 37.3% over 2020 and as a percent of total sales increased 60 basis points. COVID concerns continue to affect sales generated by our in-home designers and as a percent of our total sales they remain at the 2020 level of 22.8%. Our ability to deliver customer orders has improved from 2020 but is still longer than pre-pandemic time frames. Manufacturers are beginning to recover from raw material shortages but are still challenged by worker shortages. Transportation logistics continue to contribute to the supply chain disruption. Our warehouse and delivery operations are also adjusting to personnel shortages. Time between purchase and delivery lengthened from our pre-pandemic average of 3 to 5 days for in stock items to 1 to 2 weeks due to staffing constraints. We have added additional team members and purchases of in stock product were generally delivered within 3 to 5 days during the last quarter of 2021. The disruptions to our supply chain have resulted in lower inventory and for out‑of‑stock merchandise delivery times can be 8 to 12 weeks. Our vendor partners for special order products continue to experience delays, but are reducing their backlogs and delivery on these orders are now 12 to 20 weeks on average.  Sales in 2020 were impacted by COVID-19. Our written sales suffered during the first weeks of March as information and news coverage concerning the pandemic increased. We closed our stores and paused operations mid-March. We enacted our business continuity plan in April which anticipated continued low levels of sales. Most stores reopened on May 1 with approximately 76% of their original staff, store hours were reduced 17%, and delivery capacity was also reduced. Our business was very strong upon reopening, total written sales for the two months ended June 30, 2020 were up 13.9% and written comparable store sales were up 17.5% compared to the same two-month period in 2019. Our written sales remained strong during the third quarter of 2020 with total written sales up 22.8% and written comparable store sales rose 22.6% over the same period in 2019. Our written sales in the fourth quarter were up 16.7% and written comp-store sales rose 17.5%. Our delivery capacity was reduced as part of our business continuity plan in 2020. Deliveries resumed on May 5 with reduced personnel and capacity and total sales from May 5 through June 30, 2020 were down 13.4% compared with the same period of 2019. Demand quickly began to outpace supply and we worked during the third quarter to increase our inventory levels and delivery capacity. We adjusted our operations during the third quarter, adding additional personnel and worked with our vendors to accelerate orders. 20 Revenues by product category as a percentage of net sales in 2020 increased over 2019 by 220 basis points in upholstery sales and by 60 basis points in home office due to “nesting” buying, and our mattress business declined 160 basis points due to supply-chain disruption caused by COVID-19. Our in-home designer sales were hampered during 2020 but were 22.8% of our total sales compared to 25.3% in 2019. Total sales for 2020 decreased $54.0 million or 6.7% compared to 2019. Our comp-store sales, which includes online sales, increased 5.0% or $32.7 million in 2020 compared to 2019. The remaining $86.8 million of the change was primarily from our store closures in March through April and from new, closed and otherwise non-comparable stores.  Sales in 2019 declined for the year due to severe supply-chain disruptions as we moved several product lines out of China due to the increased tariffs. Although these changes were not fully resolved until the first quarter of 2020, we did see improvement late in the third quarter of 2019.  Revenues by product category reflected the supply-chain disruption with a drop in case goods sales. Our mattress business saw an increase of 6.5% over 2018 due to customer purchases of new higher price point offerings. We offer a number of custom upholstery items and sales in this category rose 6.8% in 2019 over 2018. Total sales for 2019 decreased $15.4 million or 1.9% compared to 2018. Comp-store sales decreased 1.4% or $11.6 million in 2019 compared to 2018 and the remaining $3.8 million of the change was from closed, new and otherwise non-comparable stores.  2022 Outlook We cannot predict the impact of consumer spending on home furnishings post-pandemic. We believe the strong  housing market benefits our business as our footprint covers many of the fastest growing markets. We are improving our customers’ online experience and furthering our targeted marketing. We have well positioned stores, and we offer on-trend merchandise, knowledgeable salespeople, free in-home design service, and special-order capabilities. Gross Profit Our cost of goods sold consists primarily of the purchase price of the merchandise together with inbound freight, handling within our distribution centers and transportation costs to the local markets we serve.  Our gross profit is primarily dependent upon vendor pricing, the mix of products sold and promotional pricing activity. Substantially all of our occupancy and home delivery costs are included in selling, general and administrative expenses as is a portion of our warehousing expenses. Accordingly, our gross profit may not be comparable to those entities that include some of these expenses in cost of goods sold. Year-to-Year Comparisons Gross profit as a percentage of net sales was 56.7% in 2021 compared to 56.0% in 2020. The increase of 70 basis points was primarily due to merchandise price increases and disciplined discounting offsetting product cost and freight increases. The use of the LIFO method generated a $12.3 million charge in 2021 versus $0.6 million in 2020, or a negative 110 basis points impact to the total gross profit change.  Gross profit as a percentage of net sales was 56.0% in 2020 compared to 54.2% in 2019. The increase was primarily due to less discounting and sales promotions and product mix. The use of the LIFO method generated a $0.6 million charge in 2020 versus $1.8 million in 2019. The impact of changes in reserves, including LIFO, contributed approximately 23 basis points to the total gross profit improvement.  2022 Outlook Our expectations for 2022 are for annual gross profit margins of approximately 56.6% to 57.0%. This assumes changes in merchandise and freight costs and its impact on the LIFO reserve. Selling, General and Administrative Expenses SG&A expenses are comprised of five categories: selling, occupancy, delivery and certain warehousing costs, advertising, and administrative. Selling expenses primarily are comprised of compensation of sales team members and sales support staff, and fees paid to credit card and third-party finance companies. Occupancy costs include rents, depreciation charges, insurance and property taxes, repairs and maintenance expense and utility costs. Delivery costs include personnel, fuel costs, and depreciation and rental charges for rolling stock. 21 Warehouse costs include supplies, depreciation, and rental charges for equipment. Advertising expenses are primarily media production and space, direct mail costs, market research expenses and agency fees. Administrative expenses are comprised of compensation costs for store personnel exclusive of sales team members, information systems, executive, accounting, merchandising, advertising, supply chain, real estate and human resource departments. We classify our SG&A expenses as either variable or fixed and discretionary. Our variable expenses include the costs in the selling and delivery categories and certain warehouse expenses as these amounts will generally move in tandem with our level of sales. The remaining categories and expenses are classified as fixed and discretionary because these costs do not fluctuate with sales. The following table outlines our SG&A expenses by classification: [[GREPCENT_TABLE]] [["","2021","","","2020","","","2019"],["(In thousands)","","","% of Net Sales","","","","","% of Net Sales","","","","","","% of Net Sales"],["Variable","$","173,810","","","17.2","%","","$","135,286","","","18.1","%","","$","147,415","","","18.4","%"],["Fixed and discretionary","","282,457","","","27.9","","","","242,002","","","32.3","","","","260,041","","","32.4"],["","$","456,267","","","45.1","","","$","377,288","","","50.4","%","","$","407,456","","","50.8","%"]] [[/GREPCENT_TABLE]] Year-to-Year Comparisons Our SG&A dollars as a percent of sales decreased to 45.1% in 2021 from 50.4% in 2020. We were able to leverage our fixed and discretionary costs as we achieved record sales throughout the year. We increased our advertising spend $9.5 million in 2021 to $49.3 million. Our occupancy costs increased $3.9 million driven by greater rent expense primarily on the distribution facilities in the sale-leaseback in 2020 and higher utilities and repairs and maintenance partly offset by lower depreciation expense. Warehouse and transportation expense rose $10.6 million on higher salaries and benefits, temporary labor and $4.2 million in accessorial and demurrage fees. Administrative expense increased $18.9 million primarily from increased wages and related costs, higher amortization expense on performance stock awards, and increased incentive compensation costs. Our SG&A dollars as a percent of sales decreased 40 basis points to 50.4% in 2020 from 50.8% in 2019. Our fixed and discretionary expenses fell $18.0 million or 6.9% in 2020 over 2019. This drop was due to actions taken as part of our business continuity plan. Advertising expenditures decreased approximately $9.4 million. Our occupancy costs were down $5.4 million in 2020 versus 2019 due to rent abatements in 2020 and a $2.4 million impairment charge in 2019. The workforce reduction in April also contributed to the reduction in our fixed and discretionary costs. Our variable expenses decreased 30 basis points as a percent of sales due to reduced third-party financing costs. 2022 Outlook Fixed and discretionary type expenses within SG&A are expected to be in the $295.0 to $298.0 million range for 2022. We anticipate higher advertising and marketing costs in 2022, increased compensation and incentive expense, and additional costs associated with new stores. Fixed and discretionary type expenses are expected to be at similar quarterly levels in 2022 as in 2021, as adjusted for the overall increases. Variable costs within SG&A for 2022 are expected to be between 17.2% and 17.4% as a percent of sales. This increase is primarily driven by wage inflation and higher delivery costs. Interest (Income) Expense, Net We earned $0.1 million less interest income in 2021 than in 2020 due to lower rates and incurred $0.2 million less interest expense under our credit agreement. Provision for Income Taxes Our effective tax rate was 23.4% in 2021, 22.9% in 2020 and 23.9% in 2019. The rates vary from the U.S. federal statutory rate primarily due to state income taxes. The rates in 2021 and 2020 also benefitted from the recognition of state quality jobs credits of $481,000 and $1,527,000, respectively.  See Note 7, “Income Taxes” of the Notes to Consolidated Financial Statements for further information about our income taxes. 22 Liquidity and Capital Resources Cash and Cash Equivalents at End of Year At December 31, 2021, we had $166.1 million in cash and cash equivalents, and $6.7 million in restricted cash equivalents. See Note 1 to our consolidated financial statements for further discussion of our restricted cash equivalents. We believe that our current cash position, cash flow generated from operations, funds available from our credit agreement, and access to the long-term debt capital markets should be sufficient for our operating requirements and to enable us to fund our capital expenditures, dividend payments, and lease obligations through the next several years. In addition, we believe we have the ability to obtain alternative sources of financing. We expect capital expenditures of approximately $37.0 million in 2022. Long-Term Debt In May 2020, we entered into the Third Amendment to our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) with a bank.  The Credit Agreement, which matures September 27, 2024, provides for a $60.0 million revolving credit facility. See Note 5, “Credit Arrangement” of the Notes to Consolidated Financial Statements for information about our Credit Agreement. Leases We use operating leases to fund a portion of our real estate, including our stores, distribution centers, and store support space. On May 18, 2020, we completed a sale and leaseback transaction of three facilities which we initiated in April as part of our business continuity plan. The total sales price for these properties, excluding costs and taxes, was $70.0 million and their net book value was approximately $37.9 million. In August 2021, we purchased one of these facilities. See Note 8, “Leases” of the Notes to Consolidated Financial Statements for further discussion of our operating leases. Share Repurchases In August and November 2021, our Board of Directors authorized additional amounts under a share repurchase program. We made cash payments of $41.8 million for repurchases of our common stock through open market purchases during 2021 and there is approximately $25.0 million at December 31, 2021 that may yet be purchased under the existing authorization. Cash Flows Summary 23 Operating Activities. Cash flow generated from operations provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs. Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any specific point in time is subject to many variables, including seasonality, inventory selection, the timing of cash receipts and payments, and vendor payment terms. Net cash provided by operating activities in 2021 was $97.2 million driven primarily by net income of $90.8 million and non-cash adjustments to net income of $25.5 million consisting primarily of depreciation and amortization and stock-based compensation expense, and by working capital inflows driven primarily by customer deposits and outflows for inventory turnover and timing of inventory purchases. Net cash provided by operating activities in 2020 was $130.2 million driven primarily by net income of $59.1 million and non-cash adjustments to net income of $14.0 million, consisting of gains from sales of property and equipment, depreciation and amortization, stock-based compensation expense and changes in deferred income taxes, and by working capital inflows driven primarily by customer deposits, inventory turnover and timing of inventory purchases. Investing Activities. Cash used in investing activities in 2021 primarily reflected $34.1 million of capital expenditures. Cash provided by investing activities in 2020 primarily reflected $76.3 million of proceeds from sale of property and equipment, primarily from the sale-leaseback transaction, net of $10.9 million of capital expenditures. Financing Activities. Cash used in financing activities in 2021 primarily reflected $52.4 million of cash dividends paid and $41.8 million of share repurchases. Cash used in financing activities in 2020 primarily reflected $50.5 million of cash dividends paid and $19.7 million of share repurchases. Contractual Obligations We have no short-term borrowings or funded debt. The following summarizes our contractual obligations and commercial commitments as of December 31, 2021 (in thousands): [[GREPCENT_TABLE]] [["","","Payments Due or Expected by Period"],["","","Total","","","Less than 1 Year","","","1-3 Years","","","3-5 Years","","","After 5 Years"],["Operating leases(1)","","$","290,696","","","$","45,277","","","$","78,992","","","$","59,622","","","$","106,805"],["Rent deferrals(2)","","","351","","","","131","","","","\u2014","","","","32","","","","188"],["Purchase orders","","","201,520","","","","201,520","","","","\u2014","","","","\u2014","","","","\u2014"],["Total contractual obligations (3)","","$","492,567","","","$","246,928","","","$","78,992","","","$","59,654","","","$","106,993"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","These amounts are for our undiscounted lease obligations recorded in our consolidated balance sheets, as lease liabilities. For additional information about our leases, refer to Note 8, \u201cLeases\u201d of the Notes to the Consolidated Financial Statements."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Lease concessions related to the impact of COVID-19. For additional information about our leases, refer to Note 8, \u201cLeases\u201d of the Notes to the Consolidated Financial Statements."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","The contractual obligations do not include any amounts related to retirement benefits. For additional information about our plans, refer to Note 10, \u201cBenefit Plans\u201d of the Notes to the Consolidated Financial Statements."]] [[/GREPCENT_TABLE]] 24 Store Expansion and Capital Expenditures We have entered new markets and made continued improvements and relocations of our store base. The following outlines the change in our selling square footage for each of the three years ended December 31 (square footage in thousands): [[GREPCENT_TABLE]] [["","","2021","","","2020","","","2019"],["Store Activity:","","# of Stores","","","Square Footage","","","# of Stores","","","Square Footage","","","# of Stores","","","Square Footage"],["Opened","","","2","","","","44","","","","1","","","","28","","","","3","","","","98"],["Closed","","","1","","","","42","","","","2","","","","102","","","","2","","","","88"],["Year end balances","","","121","","","","4,354","","","","120","","","","4,352","","","","121","","","","4,426"]] [[/GREPCENT_TABLE]] The following table summarizes our store activity in 2021 and plans for 2022. [[GREPCENT_TABLE]] [["Location","Opening (Closing) Quarter Actual or Planned","Category"],["Myrtle Beach, SC","Q-1-21","Open-New Market"],["The Villages, FL","Q-3-21","Open"],["Dallas, TX","Q-3-21","Closure"],["Austin, TX","Q-2-22","Open"],["Indianapolis, IN","Q-3-22","Relocation"],["Metro DC","Q-3-22","Open"],["Atlanta, GA","Q-3-22","Closure"],["TBA","Q-4-22","Open"]] [[/GREPCENT_TABLE]] These plans and other changes should increase net selling space in 2022 approximately 1% over 2021 assuming the new stores open and existing stores close as planned. Our investing activities in stores and operations in 2021, 2020 and 2019 and planned outlays for 2022 are categorized in the table below. Capital expenditures for stores in the years noted do not necessarily coincide with the years in which the stores open. [[GREPCENT_TABLE]] [["(Approximate in thousands)","","Proposed 2022","","","2021","","","2020","","","2019"],["Stores:"],["New or replacement stores(1)","","$","10,000","","","$","7,000","","","$","1,000","","","$","5,700"],["Remodels/expansions","","","3,600","","","","4,300","","","","600","","","","500"],["Other improvements","","","5,700","","","","4,500","","","","3,200","","","","4,100"],["Total stores","","","19,300","","","","15,800","","","","4,800","","","","10,300"],["Distribution(1)","","","13,500","","","","15,300","","","","3,600","","","","2,700"],["Information technology","","","4,200","","","","3,000","","","","2,500","","","","3,800"],["Total","","$","37,000","","","$","34,100","","","$","10,900","","","$","16,800"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","In 2021 we purchased one retail location and one distribution facility that were previously leased."]] [[/GREPCENT_TABLE]] 25 Critical Accounting Estimates and Assumptions Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and evaluate our estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions. Accounting estimates are considered critical if both of the following conditions are met: (a) the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to account for matters that are highly uncertain and susceptible to change and (2) the effect of the estimates and assumptions is material to the financial statements.  We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented.