filings.toolsItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”) and subsequent Quarterly Reports on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements and information. The forward-looking statements included herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). All statements, other than statements of historical facts, which address activities, events, or developments that we expect or anticipate will or may occur in the future, including sales and earnings growth, new store growth, estimated results of operations in future periods (including, but not limited to, sales, comparable store sales, operating margins, net income, and earnings per diluted share), the declaration and payment of dividends, the timing and amount of share repurchases, future capital expenditures (including their timing, amount and nature), sale-leasebacks, acquisitions, business strategy, strategic initiatives, expansion and growth of our business operations, and other such matters are forward-looking statements. Forward-looking statements are usually identified by or are associated with such words as “will,” “plans,” “intend,” “expect,” “believe,” “anticipate,” “optimistic,” “forecasted” and similar terminology. These forward-looking statements may be affected by certain risks and uncertainties, any one, or a combination of which, could materially affect the results of our operations. To take advantage of the safe harbor provided by the PSLRA, we have identified certain factors, in Part I, Item 1A. “Risk Factors” in our 2022 Form 10-K, which may cause actual results to differ materially from those expressed in any forward-looking statements. These “Risk Factors” may be updated from time to time in our quarterly reports on Form 10-Q or other subsequent filings with the SEC.
Forward-looking statements made by or on behalf of the Company are based on our knowledge of our business and the environment in which we operate, but because of the factors listed above or other factors, actual results could differ materially from those reflected by any forward-looking statements. Consequently, all of the forward-looking statements made are qualified by these cautionary statements and those contained in the Company’s 2022 Form 10-K and other filings with the Securities and Exchange Commission (the “SEC”). There can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or our business and operations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.
Seasonality and Weather
Our business is seasonal. Historically, our sales and profits are the highest in the second and fourth fiscal quarters due to the sale of seasonal products. We usually experience our highest inventory and accounts payable balances during our first fiscal quarter for purchases of seasonal products to support the higher sales volume of the spring selling season, and again during our third fiscal quarter to support the higher sales volume of the cold weather selling season. We believe that our business can be more accurately assessed by focusing on the performance of the halves, not the quarters, due to the fact that different weather patterns from year-to-year can shift the timing of sales and profits between quarters, particularly between the first and second fiscal quarters and the third and fourth fiscal quarters.
Historically, weather conditions, including unseasonably warm weather in the fall and winter months and unseasonably cool weather in the spring and summer months, have unfavorably affected the timing and volume of our sales and results of operations. In addition, extreme weather conditions, including snow and ice storms, flood and wind damage, hurricanes, tornadoes, extreme rain, and droughts have impacted operating results both negatively and positively, depending on the severity and length of these conditions. Our strategy is to manage product flow and adjust merchandise assortments and depth of inventory to capitalize on seasonal demand trends, but there is no guarantee that we will be able to successfully execute this strategy. For more information regarding the risks we face in this regard, see Item 1A. “Risk Factors—Weather and Climate Risks” in our 2022 Form 10-K.
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Performance Metrics
Comparable Store Metrics
Comparable store metrics are a key performance indicator used in the retail industry and by the Company to measure the performance of the underlying business. Our comparable store metrics are calculated on an annual basis using sales generated from all stores open at least one year and all online sales and exclude certain adjustments to net sales. Stores closed during either of the years being compared are removed from our comparable store metrics calculations. Stores relocated during either of the years being compared are not removed from our comparable store metrics calculations. If the effect of relocated stores on our comparable store metrics calculations became material, we would remove relocated stores from the calculations. An Orscheln store will be considered a comparable store one year after its point-of-sale system conversion. Fiscal 2023 includes 52 weeks and fiscal 2022 includes 53 weeks. For our calculation of comparable store sales in fiscal 2023, we compare weeks 1 through 52 in fiscal 2023 against weeks 2 through 53 in fiscal 2022. Comparable store sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with U.S. GAAP.
Transaction Count and Transaction Value
Transaction count and transaction value metrics are used by the Company to measure sales performance. Transaction count represents the number of customer transactions during a given period. Transaction value represents the average amount paid per transaction and is calculated as net sales divided by the total number of customer transactions during a given period.
Results of Operations
The following table sets forth, for the periods indicated, certain items in the Consolidated Statements of Income expressed as a percentage of net sales.
| For the Fiscal Three | For the Fiscal Nine | ||||||||||||||||||||||
| Months Ended | Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Net sales | 100.00% | 100.00% | 100.00% | 100.00% | |||||||||||||||||||
| Cost of merchandise sold | 63.35 | 64.36 | 63.88 | 64.62 | |||||||||||||||||||
| Gross profit | 36.65 | 35.64 | 36.12 | 35.38 | |||||||||||||||||||
| Selling, general and administrative expenses | 24.01 | 23.61 | 22.95 | 22.40 | |||||||||||||||||||
| Depreciation and amortization | 2.65 | 2.66 | 2.66 | 2.44 | |||||||||||||||||||
| Operating income | 9.99 | 9.37 | 10.51 | 10.54 | |||||||||||||||||||
| Interest expense, net | 0.28 | 0.19 | 0.32 | 0.20 | |||||||||||||||||||
| Income before income taxes | 9.71 | 9.18 | 10.19 | 10.34 | |||||||||||||||||||
| Income tax expense | 2.24 | 2.02 | 2.30 | 2.33 | |||||||||||||||||||
| Net income | 7.47% | 7.16% | 7.89% | 8.01% |
Fiscal Three Months (Third Quarter) Ended September 30, 2023 and September 24, 2022
Net sales for the third quarter of fiscal 2023 increased 4.3% to $3.41 billion from $3.27 billion for the third quarter of fiscal 2022. The increase in net sales was driven by contributions from the acquisition of Orscheln Farm and Home and new store openings. Comparable store sales for the third quarter of fiscal 2023 decreased 0.4%. In the third quarter of fiscal 2022, net sales increased 8.4% and comparable store sales increased 5.7%.
The comparable store sales results for the third quarter of fiscal 2023 included a flat comparable average transaction count and a decrease in comparable average transaction value of 0.3%. Comparable store sales performance reflects continued strength in core year-round merchandise, including consumable, usable and edible (“C.U.E.”) products which significantly outpaced the chain average. This performance largely offset declines in demand for seasonal goods and big-ticket items.
Sales from stores open less than one year, including stores from the Orscheln acquisition, were $157.5 million for the third quarter of fiscal 2023, which represented 4.8 percentage points of the 4.3% net sales increase over third quarter fiscal 2022 net
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sales. For the third quarter of fiscal 2022, sales from stores open less than one year were $71.9 million, which represented 2.4 percentage points of the 8.4% increase over third quarter fiscal 2021 net sales.
The following table summarizes store growth for the fiscal three months ended September 30, 2023 and September 24, 2022:
| Fiscal Three Months Ended | |||||||||||
| Store Count Information: | September 30, 2023 | September 24, 2022 | |||||||||
| Tractor Supply (including Orscheln Farm and Home stores) | |||||||||||
| Beginning of period | 2,181 | 2,016 | |||||||||
| New stores opened | 17 | 11 | |||||||||
| Stores closed | — | — | |||||||||
| End of period | 2,198 | 2,027 | |||||||||
| Petsense by Tractor Supply | |||||||||||
| Beginning of period | 192 | 178 | |||||||||
| New stores opened | 4 | 2 | |||||||||
| Stores closed | (1) | — | |||||||||
| End of period | 195 | 180 | |||||||||
| Consolidated end of period | 2,393 | 2,207 | |||||||||
| Stores relocated | 1 | 3 |
The following table indicates the percentage of net sales represented by each of our major product categories for the fiscal three months ended September 30, 2023 and September 24, 2022:
| Percent of Net Sales | |||||||||||
| Fiscal Three Months Ended | |||||||||||
| Product Category: | September 30, 2023 | September 24, 2022 | |||||||||
| Livestock, Equine & Agriculture | 29 | % | 30 | % | |||||||
| Companion Animal | 26 | 24 | |||||||||
| Seasonal & Recreation | 20 | 21 | |||||||||
| Truck, Tool & Hardware | 17 | 17 | |||||||||
| Clothing, Gift & Décor | 8 | 8 | |||||||||
| Total | 100 | % | 100 | % |
Note: Net sales by major product categories for prior periods have been reclassified to conform to the current year presentation.
Gross profit increased 7.3% to $1.25 billion for the third quarter of fiscal 2023 from $1.17 billion for the third quarter of fiscal 2022. As a percent of net sales, gross margin in the third quarter of fiscal 2023 increased 101 basis points to 36.7% from 35.6% in the third quarter of fiscal 2022. Gross margin continued to benefit from the Company’s ongoing execution of an everyday low price strategy, complemented by the use of its Neighbor’s Club loyalty program as a value driver in a sustained higher-cost environment. The gross margin rate increase was primarily attributable to lower transportation costs driven by improvement in the global supply chain and efficiencies from a new distribution center, modestly offset by negative product mix.
Selling, general and administrative (“SG&A”) expenses, including depreciation and amortization, increased 5.8% to $909.6 million for the third quarter of fiscal 2023 from $859.4 million for the third quarter of fiscal 2022. As a percent of net sales, SG&A expenses increased 38 basis points to 26.7% from 26.3% in the third quarter of fiscal 2022. The increase in SG&A as a percent of net sales was primarily attributable to the Company’s planned growth investments, which included higher depreciation and amortization and the onboarding of a new distribution center, as well as higher medical claims and fixed cost deleverage. During the third quarter of 2023, the Company completed its strategically planned sale-leaseback of 10 Tractor Supply store locations, benefiting SG&A by approximately 70 basis points, net of transaction and repair costs. Additionally, the increase in SG&A was partially offset by a one-time benefit of approximately 35 basis points attributed to increases in the useful lives of leasehold improvements for certain stores that were remodeled in prior periods due to a change in the related lease term.
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Operating income for the third quarter of fiscal 2023 increased 11.3% to $340.9 million from $306.4 million in the third quarter of fiscal 2022.
The effective income tax rate was 23.0% in the third quarter of fiscal 2023 compared to 22.0% in the third quarter of fiscal 2022. The increase in the effective income tax rate in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 was driven primarily by state audit settlements and decreased state tax credits.
Net income for the third quarter of fiscal 2023 increased 8.9% to $255.0 million, or $2.33 per diluted share, as compared to net income of $234.1 million, or $2.10 per diluted share, for the third quarter of fiscal 2022.
During the third quarter of fiscal 2023, we repurchased approximately 0.6 million shares of the Company’s common stock at a total cost of $135.4 million, excluding the 1% excise tax, as part of our share repurchase program and paid quarterly cash dividends totaling $112.0 million, returning $247.4 million to our stockholders.
Fiscal Nine Months Ended September 30, 2023 and September 24, 2022
Net sales for the first nine months of fiscal 2023 increased 6.8% to $10.90 billion from $10.20 billion for the first nine months of fiscal 2022. The increase in net sales was driven by contributions from the acquisition of Orscheln Farm and Home, new store openings and growth in comparable store sales. Comparable store sales for the first nine months of fiscal 2023 increased 1.5%. In the first nine months of fiscal 2022, net sales increased 8.4% and comparable store sales increased 5.5%.
The comparable store sales results for the first nine months of fiscal 2023 included an increase in comparable average transaction value of 1.0% and an increase in comparable average transaction count of 0.4%. Comparable store sales growth reflects continued strength in core year-round merchandise, including C.U.E. products which significantly outpaced the chain average. This performance largely offset declines in seasonal goods and big-ticket items.
In addition to comparable store sales growth for the first nine months of fiscal 2023, sales from stores open less than one year, including stores from the Orscheln acquisition, were $498.2 million for the first nine months of fiscal 2023, which represented 4.9 percentage points of the 6.8% net sales increase over the first nine months of fiscal 2022 net sales. For the first nine months of fiscal 2022, sales from stores open less than one year were $236.5 million, which represented 2.5 percentage points of the 8.4% increase over the first nine months of fiscal 2021 net sales.
The following table summarizes store growth for the fiscal nine months ended September 30, 2023 and September 24, 2022:
| Fiscal Nine Months Ended | |||||||||||
| Store Count Information: | September 30, 2023 | September 24, 2022 | |||||||||
| Tractor Supply (including Orscheln Farm and Home stores) | |||||||||||
| Beginning of period | 2,147 | 2,003 | |||||||||
| New stores opened | 51 | 24 | |||||||||
| Stores closed | — | — | |||||||||
| End of period | 2,198 | 2,027 | |||||||||
| Petsense by Tractor Supply | |||||||||||
| Beginning of period | 186 | 178 | |||||||||
| New stores opened | 10 | 3 | |||||||||
| Stores closed | (1) | (1) | |||||||||
| End of period | 195 | 180 | |||||||||
| Consolidated end of period | 2,393 | 2,207 | |||||||||
| Stores relocated | 5 | 7 |
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The following table indicates the percentage of net sales represented by each of our major product categories for the fiscal nine months ended September 30, 2023 and September 24, 2022:
| Percent of Net Sales | |||||||||||
| Fiscal Nine Months Ended | |||||||||||
| Product Category: | September 30, 2023 | September 24, 2022 | |||||||||
| Livestock, Equine & Agriculture | 29 | % | 29 | % | |||||||
| Companion Animal | 25 | 23 | |||||||||
| Seasonal & Recreation | 22 | 23 | |||||||||
| Truck, Tool & Hardware | 16 | 16 | |||||||||
| Clothing, Gift & Décor | 8 | 9 | |||||||||
| Total | 100 | % | 100 | % |
Note: Net sales by major product categories for prior periods have been reclassified to conform to the current year presentation*.*
Gross profit increased 9.1% to $3.94 billion for the first nine months of fiscal 2023 from $3.61 billion for the first nine months of fiscal 2022. As a percent of net sales, gross margin in the first nine months of fiscal 2023 increased 74 basis points to 36.1% from 35.4% in the first nine months of fiscal 2022. The gross margin rate increase was primarily attributable to the Company’s consistent execution of an everyday low price strategy, lower transportation costs and other margin-driving initiatives that were able to more than offset the impact from product cost inflation pressures and product mix from the robust growth of C.U.E. products.
SG&A expenses, including depreciation and amortization, increased 10.2% to $2.79 billion for the first nine months of fiscal 2023 from $2.53 billion for the first nine months of fiscal 2022. As a percent of net sales, SG&A expenses increased 77 basis points to 25.6% from 24.8% in the first nine months of fiscal 2022. The increase in SG&A as a percent of net sales was primarily attributable to the Company’s planned growth investments, which included higher depreciation and amortization and the onboarding of a new distribution center, as well as higher medical claims and fixed cost deleverage. During the first nine months of fiscal 2023, the Company completed its strategically planned sale-leaseback of 10 Tractor Supply store locations, benefiting SG&A by approximately 22 basis points, net of transaction and repair costs. Additionally, the increase in SG&A was further partially offset by a one-time benefit of approximately 10 basis points attributed to increases in the useful lives of leasehold improvements for certain stores that were remodeled in prior periods due to a change in the related lease term.
Operating income for the first nine months of fiscal 2023 increased 6.4% to $1.14 billion from $1.08 billion in the first nine months of fiscal 2022.
The effective income tax rate was 22.6% in the first nine months of fiscal 2023 compared to 22.5% in the first nine months of fiscal 2022. The increase in the effective income tax rate in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 was driven primarily by state audit settlements and decreased state tax credits.
Net income for the first nine months of fiscal 2023 increased 5.1% to $859.3 million, or $7.81 per diluted share, as compared to net income of $817.8 million, or $7.27 per diluted share, for the first nine months of fiscal 2022.
During the first nine months of fiscal 2023, we repurchased approximately 2.2 million shares of the Company’s common stock at a total cost of $486.5 million, excluding the 1% excise tax, as part of our share repurchase program and paid quarterly cash dividends totaling $338.2 million, returning $824.7 million to our stockholders.
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Liquidity and Capital Resources
In addition to normal operating expenses, our primary ongoing cash requirements are for new store expansion, existing store remodeling and improvements, store relocations, distribution facility capacity and improvements, information technology, inventory purchases, repayment of existing borrowings under our debt facilities, share repurchases, cash dividends, and selective acquisitions as opportunities arise.
Our primary ongoing sources of liquidity are existing cash balances, cash provided from operations, remaining funds available under our debt facilities, operating and finance leases, and normal trade credit. Our inventory and accounts payable levels typically build in the first and third fiscal quarters to support the higher sales volume of the spring and cold-weather selling seasons, respectively.
We believe that our existing cash balances, expected cash flow from future operations, funds available under our debt facilities, operating and finance leases, normal trade credit, and access to the long-term debt capital markets will be sufficient to fund our operations and our capital expenditure needs, including new store openings, existing store remodeling and improvements, store relocations, distribution facility capacity and improvements, and information technology improvements, for the foreseeable future.
Debt
The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):
| September 30, 2023 | December 31, 2022 | September 24, 2022 | ||||||||||||||||||
| 5.25% Senior Notes | $ | 750.0 | $ | — | $ | — | ||||||||||||||
| 1.75% Senior Notes | 650.0 | 650.0 | 650.0 | |||||||||||||||||
| 3.70% Senior Notes (a) | 150.0 | 150.0 | 150.0 | |||||||||||||||||
| Senior credit facilities: | ||||||||||||||||||||
| November 2020 Term Loan | — | — | 200.0 | |||||||||||||||||
| Revolving Credit Facility (b) | 200.0 | 378.0 | 90.0 | |||||||||||||||||
| Total outstanding borrowings | 1,750.0 | 1,178.0 | 1,090.0 | |||||||||||||||||
| Less: unamortized debt discounts and issuance costs | (21.7) | (13.9) | (12.1) | |||||||||||||||||
| Total debt | 1,728.3 | 1,164.1 | 1,077.9 | |||||||||||||||||
| Less: current portion of long-term debt | — | — | — | |||||||||||||||||
| Long-term debt | $ | 1,728.3 | $ | 1,164.1 | $ | 1,077.9 | ||||||||||||||
| Outstanding letters of credit | $ | 58.2 | $ | 52.6 | $ | 55.8 |
(a) Also referred to herein as the “Note Purchase Facility,” referring to the Note Purchase and Private Shelf Agreement dated as of August 14, 2017 by and among the Company, PGIM, Inc. and the noteholders party thereto, as amended through November 2, 2022, under which the notes were purchased.
(b) Outstanding balances as of September 30, 2023 and December 31, 2022 represent amounts drawn under the 2022 Senior Credit Facility. Outstanding balance as of September 24, 2022 represents amounts drawn under the previous senior credit facility.
For additional information about the Company’s debt and credit facilities, refer to Note 6 to the Condensed Consolidated Financial Statements.
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Cash Flows Provided by Operating Activities
Operating activities provided net cash of $937.9 million and $626.3 million in the first nine months of fiscal 2023 and fiscal 2022, respectively. The $311.6 million increase in net cash provided by operating activities in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 is due to changes in the following operating activities (in millions):
| Fiscal Nine Months Ended | |||||||||||||||||
| September 30, 2023 | September 24, 2022 | Variance | |||||||||||||||
| Net income | $ | 859.3 | $ | 817.8 | $ | 41.5 | |||||||||||
| Depreciation and amortization | 289.8 | 248.2 | 41.6 | ||||||||||||||
| Share-based compensation expense | 45.1 | 38.5 | 6.6 | ||||||||||||||
| Deferred income taxes | 8.1 | 42.0 | (33.9) | ||||||||||||||
| Inventories and accounts payable | (134.0) | (423.0) | 289.0 | ||||||||||||||
| Prepaid expenses and other current assets | (28.6) | (47.8) | 19.2 | ||||||||||||||
| Accrued expenses | (126.8) | (69.5) | (57.3) | ||||||||||||||
| Income taxes | 24.2 | 13.6 | 10.6 | ||||||||||||||
| Other, net | 0.8 | 6.5 | (5.7) | ||||||||||||||
| Net cash provided by operating activities | $ | 937.9 | $ | 626.3 | $ | 311.6 |
Note: Amounts may not sum to totals due to rounding.
The $311.6 million increase in net cash provided by operating activities in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 was primarily driven by our management of inventory and accounts payable.
Cash Flows Used in Investing Activities
Investing activities used net cash of $454.6 million and $451.0 million in the first nine months of fiscal 2023 and fiscal 2022, respectively. The $3.6 million increase in net cash used in investing activities primarily reflects an increase in capital expenditures, primarily related to the onboarding and construction of new distribution centers, remodeling of existing stores, and new store growth, partially offset by proceeds from the sale-leaseback transactions, in the first nine months of fiscal 2023 compared to fiscal 2022.
Investing activities, including capital expenditures, for the first nine months of fiscal 2023 and fiscal 2022 were as follows (in millions):
| Fiscal Nine Months Ended | |||||||||||||||||
| September 30, 2023 | September 24, 2022 | Variance | |||||||||||||||
| Existing stores | $ | (246.2) | $ | (226.9) | $ | (19.3) | |||||||||||
| Distribution center capacity and improvements | (120.4) | (85.4) | (35.0) | ||||||||||||||
| New and relocated stores and stores not yet opened | (72.3) | (58.9) | (13.4) | ||||||||||||||
| Information technology | (86.4) | (76.9) | (9.5) | ||||||||||||||
| Corporate and other | (1.4) | (3.1) | 1.7 | ||||||||||||||
| Total capital expenditures | (526.7) | (451.2) | (75.5) | ||||||||||||||
| Proceeds from sale of property and equipment | 57.8 | 0.2 | 57.6 | ||||||||||||||
| Proceeds from Orscheln acquisition net working capital settlement | 4.3 | — | 4.3 | ||||||||||||||
| Proceeds from sale of Orscheln corporate headquarters and distribution center | 10.0 | — | 10.0 | ||||||||||||||
| Net cash used in investing activities | $ | (454.6) | $ | (451.0) | $ | (3.6) | |||||||||||
Note: Amounts may not sum to totals due to rounding.
The increase in spending for existing stores in the first nine months of fiscal 2023 as compared to the first nine months of fiscal 2022 primarily reflects our strategic initiatives related to store remodels, including internal space productivity, side lot garden
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center transformations and Orscheln store conversions. Spending in the first nine months of both fiscal 2023 and fiscal 2022 also includes routine refresh activity.
The increase in spending for distribution center capacity and improvements in the first nine months of fiscal 2023 as compared to the first nine months of fiscal 2022 is primarily related to the ongoing construction of a new distribution center in Maumelle, Arkansas.
In the first nine months of fiscal 2023, the Company opened 51 new Tractor Supply stores compared to 24 new Tractor Supply stores during the first nine months of fiscal 2022. The Company also opened 10 new Petsense by Tractor Supply stores during the first nine months of fiscal 2023 compared to three stores during the first nine months of fiscal 2022.
Expenditures for information technology represent continued support for improvements in mobility in our stores, our omni-channel initiatives, increased security and compliance, and other strategic initiatives.
In the first nine months of fiscal 2023, the Company sold and subsequently leased back 10 of its retail locations, resulting in proceeds of $55.8 million.
Our projected capital expenditures for fiscal 2023 are currently estimated to be in the range of $800 million to $850 million, which is partially funded by the proceeds from the sale of existing Company-owned stores. The capital expenditures include plans to open a total of approximately 70 new Tractor Supply stores, complete the Orscheln conversions to Tractor Supply, continue Project Fusion remodels and garden center transformations, build our 10th distribution center and open a total of 10 to 15 new Petsense by Tractor Supply stores.
Cash Flows Used in Financing Activities
Financing activities used net cash of $264.1 million in the first nine months of fiscal 2023 compared to used net cash of $842.1 million in the first nine months of fiscal 2022. The $578.0 million change in net cash used in financing activities in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 is due to changes in the following (in millions):
| Fiscal Nine Months Ended | |||||||||||||||||
| September 30, 2023 | September 24, 2022 | Variance | |||||||||||||||
| Net borrowings and repayments under debt facilities | $ | 572.0 | $ | 90.0 | $ | 482.0 | |||||||||||
| Repurchase of common stock | (480.4) | (608.0) | 127.6 | ||||||||||||||
| Cash dividends paid to stockholders | (338.2) | (308.0) | (30.2) | ||||||||||||||
| Net proceeds from issuance of common stock | 19.9 | 15.5 | 4.4 | ||||||||||||||
| Other, net | (37.4) | (31.6) | (5.8) | ||||||||||||||
| Net cash used in financing activities | $ | (264.1) | $ | (842.1) | $ | 578.0 |
Note: Amounts may not sum to totals due to rounding.
The $578.0 million change in net cash used in financing activities in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022 is primarily due to net borrowings under the debt facilities and a decrease in the repurchase of common stock, partially offset by an increase in cash dividends paid to stockholders.
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Dividends
During the first nine months of fiscal 2023 and fiscal 2022, the Company's Board of Directors declared the following cash dividends:
| Date Declared | Dividend Amount Per Share of Common Stock | Record Date | Date Paid | |||||||||||||||||
| August 9, 2023 | $ | 1.03 | August 28, 2023 | September 12, 2023 | ||||||||||||||||
| May 10, 2023 | $ | 1.03 | May 30, 2023 | June 13, 2023 | ||||||||||||||||
| February 8, 2023 | $ | 1.03 | February 27, 2023 | March 14, 2023 | ||||||||||||||||
| August 4, 2022 | $ | 0.92 | August 22, 2022 | September 7, 2022 | ||||||||||||||||
| May 10, 2022 | $ | 0.92 | May 25, 2022 | June 8, 2022 | ||||||||||||||||
| January 26, 2022 | $ | 0.92 | February 21, 2022 | March 8, 2022 |
It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with any other factors that the Company’s Board of Directors deem relevant.
On November 8, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $1.03 per share of the Company’s outstanding common stock. The dividend will be paid on December 12, 2023, to stockholders of record as of the close of business on November 27, 2023.
Share Repurchase Program
The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. The total authorized amount of the program, which has been increased from time to time, is currently $6.50 billion, exclusive of any fees, commissions, or other expenses related to such repurchases. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused, or terminated at any time without prior notice. As of September 30, 2023, the Company had remaining authorization under the share repurchase program of $1.16 billion, exclusive of any fees, commissions, or other expenses.
The following table provides the number of shares repurchased, average price paid per share, and total amount paid for share repurchases during the fiscal three months and fiscal nine months ended September 30, 2023 and September 24, 2022, respectively (in thousands, except per share amounts):
| Fiscal Three Months Ended | Fiscal Nine Months Ended | ||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||
| Total number of shares repurchased | 632 | 638 | 2,190 | 2,938 | |||||||||||||||||||
| Average price paid per share | $ | 214.45 | $ | 193.70 | $ | 222.20 | $ | 206.95 | |||||||||||||||
| Total cost of share repurchases (a) | $ | 136,778 | $ | 123,626 | $ | 491,394 | $ | 608,016 |
(a) Effective January 1, 2023, the Company’s share repurchases are subject to a 1% excise tax as a result of the Inflation Reduction Act of 2022. Excise taxes incurred on share repurchases represent direct costs of the repurchase and are recorded as a part of the cost basis of the shares within treasury stock. The cost of shares repurchased may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to unsettled share repurchases at the end of a period and excise taxes incurred on share repurchases.
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Significant Contractual Obligations and Commercial Commitments
For a description of the Company’s significant contractual obligations and commercial commitments, refer to Note 12 to the Consolidated Financial Statements included under Part II, Item 8 in our 2022 Form 10-K for the fiscal year ended December 31, 2022. As of September 30, 2023, the Company had contractual commitments of approximately $48.4 million related to the construction and onboarding of new distribution centers. As of September 30, 2023, there has been no other material change in the information disclosed in the 2022 Form 10-K for the fiscal year ended December 31, 2022.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of the Company’s financial position and results of operations are based upon its Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make informed estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company’s critical accounting policies, including areas of critical management judgments and estimates, have primary impact on the following financial statement areas:
| - | Inventory valuation | ||||
| - | Self-insurance reserves | ||||
| - | Impairment of long-lived assets | ||||
| - | Impairment of goodwill and other indefinite-lived intangible assets |
See Note 1 to the Consolidated Financial Statements in our 2022 Form 10-K, for a discussion of the Company’s critical accounting policies. The Company’s financial position and/or results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. There have been no changes to our critical accounting policies and estimates as previously disclosed in our 2022 Form 10-K.
New Accounting Pronouncements
For recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of September 30, 2023, refer to Note 1 to the Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.
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