Core & Main Inc., a leader in advancing reliable infrastructure with local service, nationwide, today announced financial results for the fourth quarter and fiscal year ended January 29, 2023.
Fiscal 2022 Fourth Quarter Highlights (Compared with Fiscal 2021 Fourth Quarter)
• Net sales increased 10.3% to $1,374 million
• Gross profit margin increased 90 basis points to 27.1%
• Net income increased 6.3% to $84 million
• Adjusted EBITDA (Non-GAAP) increased 8.6% to $164 million
• Net cash provided by operating activities increased $272 million to $307 million
Fiscal Year 2022 Highlights (Compared with Fiscal 2021)
• Net sales increased 32.9% to $6,651 million
• Gross profit margin increased 140 basis points to 27.0%
• Net income increased 158.2% to $581 million
• Adjusted EBITDA (Non-GAAP) increased 54.8% to $935 million
• Adjusted EBITDA margin (Non-GAAP) increased 200 basis points to 14.1%
• Net cash provided by operating activities increased $432 million to $401 million
• Closed 8 acquisitions during and subsequent to the year with approximately $175 million of historical annualized net sales
• Opened 3 new locations, building on our commitment to make our products and expertise more accessible nationwide
"Fiscal 2022 was an impressive year for Core & Main," said Steve LeClair, chief executive officer of Core & Main.
"We achieved a record $6.7 billion of net sales. Our ability to grow the business over the last several years is a testament to the investments we have made, our ability to execute with agility and our associates' relentless focus on our customers. Our teams executed at a high level to deliver these record results while improving our operating capabilities and solidifying our platform for growth in the years to come. We welcomed eight new companies to Core & Main during and subsequent to the year with approximately $175 million of historical annualized net sales. Our acquisitions are a key source of new talent and expertise, and they continue to enhance our competitive position as we grow."
"I would like to thank all of our associates, as well as our supplier partners, for their hard work and dedication to serving our customers and communities. Our fiscal 2022 performance builds on the journey we've taken to transform our business and create a stronger platform for long-term growth. Looking forward, we expect to continue generating strong cash flow and our capital allocation strategy remains focused on investing in both organic and inorganic growth opportunities, while returning capital to shareholders. We have significant financial flexibility and liquidity, a proven growth strategy and the platform to capitalize on secular growth trends to deliver value to our stakeholders over the long term."
Three Months Ended January 29, 2023
Net sales for the three months ended January 29, 2023 increased $128 million, or 10.3%, to $1,374 million compared with $1,246 million for the three months ended January 30, 2022. The increase in net sales was primarily attributable to higher selling prices and acquisitions, partially offset by a mid single-digit volume decline. Net sales growth for pipes, valves & fittings, storm drainage products and fire protection products benefited from higher selling prices and acquisitions. Net sales of meter products benefited from higher volumes due to an increasing adoption of smart meter technology by municipalities and an improving supply chain.
Gross profit for the three months ended January 29, 2023 increased $46 million, or 14.1%, to $373 million compared with $327 million for the three months ended January 30, 2022. The increase in net sales contributed an additional $34 million of gross profit and the increase in gross profit as a percentage of net sales contributed $12 million. Gross profit as a percentage of net sales for the three months ended January 29, 2023 was 27.1% compared with 26.2% for the three months ended January 30, 2022. The overall increase in gross profit as a percentage of net sales was primarily attributable to strategic inventory investments ahead of announced price increases, favorable product mix, the execution of our gross margin initiatives and accretive acquisitions.
Selling, general and administrative (“SG&A”) expenses for the three months ended January 29, 2023 increased $30 million, or 16.4%, to $213 million compared with $183 million during the three months ended January 30, 2022. The increase was primarily attributable to an increase of $20 million in personnel expenses, which was driven by higher variable compensation costs and headcount. In addition, distribution and facility costs increased due to inflation and acquisitions. SG&A expenses as a percentage of net sales was 15.5% for the three months ended January 29, 2023 compared with 14.7% for the three months ended January 30, 2022.
Net income for the three months ended January 29, 2023 increased $5 million, or 6.3%, to $84 million compared with $79 million for the three months ended January 30, 2022. The increase in net income was primarily attributable to higher operating income, partially offset by higher interest expense and provision for income taxes.
Adjusted EBITDA for the three months ended January 29, 2023 increased $13 million, or 8.6%, to $164 million compared with $151 million for the three months ended January 30, 2022. Growth in Adjusted EBITDA was primarily attributable to higher net sales and improved gross profit margins. Adjusted EBITDA margin decreased 20 basis points to 11.9% from 12.1% in the prior year period.
Fiscal Year Ended January 29, 2023
Net sales for fiscal 2022 increased $1,647 million, or 32.9%, to $6,651 million compared with $5,004 million for fiscal 2021. The increase in net sales was primarily attributable to higher selling prices, volume growth and acquisitions, with higher selling prices representing approximately three-fourths of the net sales increase. The volume increases were driven by market volume growth and share gains in part due to preferred access to products during a period of material shortages, which helped drive growth across all product lines, and the execution of our sales initiatives. Net sales growth for pipes, valves & fittings and storm drainage products benefited from higher selling prices, end-market growth and acquisitions. Net sales growth for fire protection products also benefited from higher selling prices, share gains and end-market growth. Net sales of meter products benefited from higher volumes due to an increasing adoption of smart meter technology by municipalities and an improving supply chain.
Gross profit for fiscal 2022 increased $515 million, or 40.2%, to $1,795 million compared with $1,280 million for fiscal 2021. The increase in net sales contributed an additional $422 million of gross profit and the increase in gross profit as a percentage of net sales contributed $93 million. Gross profit as a percentage of net sales for fiscal 2022 was 27.0% compared with 25.6% for fiscal 2021. The overall increase in gross profit as a percentage of net sales was primarily attributable to strategic inventory investments ahead of announced price increases, a favorable pricing environment, the execution of our gross margin initiatives and accretive acquisitions.
SG&A expenses for fiscal 2022 increased $163 million, or 22.7%, to $880 million compared with $717 million during fiscal 2021. The increase was primarily attributable to an increase of $127 million in personnel expenses, which was primarily driven by higher variable compensation costs and increased headcount. In addition, distribution and facility costs increased due to volume, inflation and acquisitions. These factors were partially offset by a $14 million decrease related to equity-based compensation expense due to accounting for a modification to equity awards in the prior year period. SG&A expenses as a percentage of net sales was 13.2% for fiscal 2022 compared with 14.3% for fiscal 2021. The decrease was attributable to our ability to leverage our fixed costs and lower equity-based compensation expense during fiscal 2022.
Net income for fiscal 2022 increased $356 million, or 158.2%, to $581 million compared with $225 million for fiscal 2021. The increase in net income was primarily attributable to higher operating income, the $51 million loss on debt modification and extinguishment and equity award modification expense, both of which occurred in fiscal 2021, and lower interest expense, partially offset by increased income taxes.
Adjusted EBITDA for fiscal 2022 increased $331 million, or 54.8%, to $935 million compared with $604 million for fiscal 2021. Growth in Adjusted EBITDA was primarily attributable to higher net sales, improved gross profit margins and leveraging our cost structure on the increase in net sales. Adjusted EBITDA margin increased 200 basis points to 14.1% from 12.1% in the prior year period.
Liquidity and Capital Resources
Net cash provided by operating activities for fiscal 2022 was $401 million compared with an outflow of $31 million for fiscal 2021. The improvement in operating cash flow was primarily driven by higher operating income, a smaller investment in working capital and lower interest payments due to the redemption of the Senior 2024 Notes and Senior 2025 Notes completed on July 27, 2021. These factors were partially offset by a $92 million increase in tax payments due to higher income before provision for income taxes.
Net debt, calculated as gross consolidated debt net of cash and cash equivalents, as of January 29, 2023 was $1,301 million. Net Debt Leverage (defined as the ratio of net debt to Adjusted EBITDA for the last 12 months) was 1.4x, an improvement of 1.1x from January 30, 2022. The improvement was attributable to an increase in Adjusted EBITDA and higher cash and cash equivalents.
As of January 29, 2023, Core & Main had cash and cash equivalents totaling $177 million and no outstanding borrowings on the Senior ABL Credit Facility, which provides for borrowings up to $1,250 million, subject to borrowing base availability. As of January 29, 2023, after giving effect to approximately $12 million of letters of credit issued under the Senior ABL Credit Facility, Core & Main would have been able to borrow approximately $1,238 million under the Senior ABL Credit Facility.
Fiscal 2023 Outlook
• Net sales of $6,455 to $6,875 million
• Adjusted EBITDA of $785 to $865 million
• Adjusted EBITDA margin of 12.2% to 12.6%
• Effective income tax rate of 18% to 20%
"We are confident that we are well positioned to capitalize on municipal infrastructure tailwinds, particularly as water utilities begin to accelerate repair and replacement work supported by the federal infrastructure bill," LeClair said. "We expect to continue driving above market growth and gaining market share through our product, customer and geographic expansion initiatives. We expect net sales to range from $6,455 to $6,875 million for fiscal 2023, and we expect gross margin to normalize without the benefit we saw in 2021 and 2022 due to our strategic inventory investments and preferred access to products. Accordingly, we expect Adjusted EBITDA to be in the range of $785 to $865 million, providing a new foundation for further EBITDA margin improvement over the long term."
