Business context and reporting period
Boot Barn Holdings, Inc. filed this audited Form 10-K for the 52-week fiscal year ended March 26, 2022 (fiscal 2022); the filing does not present standalone fourth-quarter results. The company operates western and workwear retail stores and e-commerce sites. At year-end it had 300 stores in 38 states, up from 273 in fiscal 2021.
Key financial metrics
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Net sales | $1,488.3 million | $893.5 million |
| Same-store sales growth | 53.7% | 3.1% |
| Gross profit / margin | $575.1 million / 38.6% | $294.9 million / 33.0% |
| Operating income / margin | $258.3 million / 17.4% | $86.3 million / 9.7% |
| Net income | $192.5 million | $59.4 million |
| Diluted EPS | $6.33 | $2.01 |
| Cash from operating activities | $88.9 million | $155.9 million |
| Cash and cash equivalents at year-end | $20.7 million | $73.1 million |
Fiscal 2022 investing cash outflow was $60.4 million, primarily for stores, e-commerce technology and distribution facilities. Financing cash outflow was $80.9 million. Inventory was $474.3 million, compared with $275.8 million a year earlier.
Year-end borrowings were $28.5 million under the $180 million revolving facility, with $151.5 million of availability. The company repaid the remaining $111.5 million term loan during the year. Lease liabilities totaled $277.7 million; lease expense was $76.1 million.
Material changes versus the prior comparable period
- Sales rose 66.6%; management attributed growth to the strong same-store-sales increase, new stores and sales from stores temporarily closed in the prior-year period. Fiscal 2021 sales had been affected by COVID-19-related traffic declines and temporary closures.
- Gross margin increased 5.6 percentage points. Management cited better full-price selling, greater exclusive-brand penetration and leverage in buying and occupancy costs.
- SG&A increased 51.9% to $316.7 million, but fell to 21.3% of sales from 23.3% as higher sales provided expense leverage.
- Operating cash flow declined despite substantially higher earnings, principally because inventory purchases increased; inventory rose $198.5 million during fiscal 2022.
- E-commerce accounted for 15.5% of sales, down from 18.6% in fiscal 2021. Exclusive brands represented approximately 28.3% of consolidated sales.
Outlook, commentary, risks and unusual items
- Management expects operating cash flows and available revolver capacity to cover working capital and anticipated needs for at least the next 12 months. Fiscal 2023 capital expenditures are estimated at approximately $87 million, net of landlord allowances.
- The company opened 28 stores in fiscal 2022 and believes its U.S. store base could grow from 300 to approximately 900 over time. It describes a long-term target of about 10% annual store-base growth over the next several years, subject to execution and market conditions.
- Key risks include inflation and higher merchandise, freight and labor costs; supply-chain disruption and foreign sourcing exposure; consumer spending and regional economic conditions; competition; inventory forecasting; store expansion; and continued COVID-19 effects. The business is seasonal, with the third fiscal quarter historically generating about one-third of annual sales.
- Fiscal 2022 interest expense included a $1.4 million write-off of term-loan issuance costs and discount associated with repayment and termination of the term loan. The company reported no goodwill or indefinite-lived intangible impairment in fiscal 2022.
- Two class actions are disclosed: a Sheplers e-commerce deceptive-pricing case, for which an estimated cost was accrued, and a California wage-and-hour case, for which a probable-loss accrual was described as not material. The filing cautions that additional litigation charges could be material.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. Inventory valuation was identified as a critical audit matter, reflecting judgment involved in estimating demand and obsolescence.
Important facts for investors to verify
- Whether the exceptional 53.7% same-store-sales growth and 38.6% gross margin are sustainable as prior-year COVID comparisons normalize.
- Inventory levels, sell-through, markdowns and the assumptions behind the inventory valuation reserve, especially after the significant inventory build.
- Cash conversion, planned fiscal 2023 capital spending and the ability to fund store expansion while maintaining liquidity.
- Progress on new-store productivity and the assumptions supporting the long-term store-growth opportunity.
- Exposure to inflation, supplier concentration, freight constraints, variable-rate borrowing and lease commitments.
- Developments and potential additional costs in the disclosed litigation matters.