Boot Barn Holdings, Inc. — Form 10-Q Summary
Reporting period: Third quarter of fiscal 2015, the 13 weeks ended December 27, 2014; year-to-date results cover 39 weeks. Comparisons are with the periods ended December 28, 2013. Amounts below are in millions unless stated otherwise.
Business context and performance
Boot Barn sells western and work-related footwear, apparel and accessories through stores and e-commerce. At quarter-end it operated 166 stores in 26 states, versus 155 stores in 23 states a year earlier. The company completed its IPO in October 2014.
| Metric | Quarter | 39 weeks |
|---|---|---|
| Net sales | $130.5; up 13.1% | $299.4; up 16.3% |
| Same-store sales growth | 7.2% | 7.3% |
| Gross profit / margin | $46.2 / 35.4% | $100.8 / 33.7% |
| Operating income / margin | $17.9 / 13.7% | $27.6 / 9.2% |
| Net income | $8.8 | $11.1 |
| Diluted EPS | $0.36 | $0.45 |
| Adjusted EBITDA (non-GAAP) | $21.6 | $37.1 |
Cash flow, debt and liquidity
- For the 39 weeks, operating cash flow was $20.6, capital expenditures were $9.6, investing cash outflow was $9.6, and financing cash outflow was $8.5. Cash increased $2.5 to $3.6.
- At December 27, cash was $3.6, current assets $137.5 and current liabilities $108.0. Inventory was $121.9.
- Debt comprised $32.0 drawn on the revolving credit facility and $47.4 on the Golub term loan. The revolver had $38.0 of borrowing availability. The company reported compliance with debt covenants and no defaults.
- IPO proceeds were $82.2 net; $81.9 was used to repay term-loan principal. The company reported a $0.6 prepayment penalty and $1.7 accelerated amortization of loan fees in quarterly interest expense.
- Management said operating cash flows and available revolving-credit capacity should cover working capital, anticipated capital expenditures and other cash needs for at least 12 months. Fiscal 2015 capital expenditures were estimated at $14–$15, with $9.6 spent through December 27.
Changes versus the prior comparable periods
- Quarterly sales growth reflected 7.2% same-store growth and contributions from 14 stores opened since the end of fiscal 2014; management cited increased transactions and a higher mix of boots and work merchandise.
- Quarterly gross margin rose to 35.4% from 34.4%, supported by private-brand and boot sales. Higher new-store occupancy and procurement and distribution costs partly offset the improvement. SG&A fell to 21.7% of sales from 23.0%.
- For the 39 weeks, operating margin improved to 9.2% from 6.1%, and net income rose to $11.1 from $3.8. Sales benefited from new stores and a full 39 weeks of Baskins operations, versus 31 weeks in the prior-year period.
- Quarterly net interest expense rose to $4.2 from $2.2, primarily due to IPO-related term-loan repayment costs. Year-to-date interest expense was $9.8 versus $9.5.
Outlook, commentary and risks
- No sales or earnings guidance is provided in the filing. Management described store growth, remodeling and technology investment as priorities; the stated fiscal 2015 capital-expenditure estimate is $14–$15.
- Management highlighted seasonality, holiday timing and weather as factors affecting sales. New stores may initially have lower margins and higher operating costs.
- Variable-rate borrowings expose the company to interest-rate risk; management estimated a 1 percentage-point change in blended rates would change interest expense by about $0.8, based on period-end debt.
- Credit agreements impose leverage, interest-coverage, capital-expenditure and other restrictions. Management reported covenant compliance. The filing says there were no material changes to previously disclosed risk factors.
- The company reported ordinary-course litigation and stated that, in management’s view, these matters would not materially affect its financial position, results, cash flows or liquidity. No impairment indicators for goodwill or intangible and long-lived assets were identified at quarter-end.
- The company paid $41.3 in dividends and related vested-option payments in April 2014, funded in part with borrowings; the IPO proceeds were subsequently used largely to reduce term debt. Management said it did not plan cash dividends in the foreseeable future.
Important facts for investors to verify
- Whether same-store sales and margin trends persist, and how much future growth depends on new-store openings.
- Inventory levels, working-capital needs and operating cash conversion as the store base expands.
- Debt balances, revolver availability, variable-rate exposure, covenant headroom and remaining term-loan repayment obligations.
- The effect of IPO-related debt repayment costs and tax true-ups on comparisons of reported earnings.
- Progress against the capital-expenditure estimate and the company’s ability to fund planned investment while maintaining liquidity.