Business context and reporting period
Boot Barn Holdings, Inc. operates western- and work-wear specialty stores and an e-commerce business. This Form 10-K covers fiscal 2015, the 52 weeks ended March 28, 2015—not a standalone fiscal 2014 fourth-quarter filing. The company had 169 stores in 26 states at year-end. Fiscal 2015 included a full year of Baskins store sales, compared with ten months in fiscal 2014.
Key financial metrics
| Metric | Fiscal 2015 | Fiscal 2014 |
|---|---|---|
| Net sales | $402.7 million | $345.9 million |
| Gross profit / margin | $134.8 million / 33.5% | $113.2 million / 32.7% |
| Operating income / margin | $35.4 million / 8.8% | $20.5 million / 5.9% |
| Net income | $13.7 million | $5.7 million |
| Diluted EPS | $0.54 | $0.28 |
| Adjusted EBITDA | $48.2 million | $40.3 million |
| Cash from operating activities | $11.5 million | $12.8 million |
| Capital expenditures | $14.1 million | $11.4 million |
| Cash and cash equivalents at year-end | $1.4 million | $1.1 million |
| Total debt at year-end | $91.2 million | $128.1 million |
Working capital was $75.3 million, calculated using the company’s stated definition, which excludes cash and the current portion of credit-facility debt. The new credit facility had $58.8 million of unused revolving availability at year-end.
Material changes versus the prior comparable period
- Sales grew 16.4%; same-store sales rose 7.3%, and the company opened 18 stores and closed one. Growth also reflected the additional months of Baskins sales.
- Gross margin improved by 0.8 percentage points. The company cited higher-margin merchandise, including private brands, the completion of acquisition inventory fair-value amortization, and the absence of prior-year Baskins inventory liquidation markdowns.
- SG&A increased 8.0% to $99.3 million in dollars but declined from 26.6% to 24.7% of sales. Fiscal 2014 included Baskins integration and other one-time costs; fiscal 2015 included higher headcount, stock compensation, public-company costs, and secondary-offering expenses.
- Operating income and net income increased substantially. Interest expense rose to $13.3 million, including prepayment penalties and accelerated write-off of deferred loan fees from debt refinancing.
- Operating cash flow declined despite higher earnings, principally because inventory increased $26.6 million, related to new stores and private-brand inventory. Investing cash outflow fell to $14.1 million as there was no acquisition in fiscal 2015.
Outlook, risks, contingencies, and unusual items
- Management planned at least 22 new store openings in fiscal 2016 and believes the domestic store base could reach at least 400 locations. It estimated fiscal 2016 capital expenditures of $16–$18 million, net of landlord allowances, and expects to fund them with operating cash flow.
- The company targets at least 10% annual store-base growth for the next several years; its new-store model assumes about $0.8 million net cash investment and a payback period under three years. These are management expectations, not guarantees.
- On February 23, 2015, the company refinanced its prior facilities with a $75 million term loan and $75 million revolver, with up to $50 million of additional incremental term loans subject to conditions. The facilities are secured and contain leverage and fixed-charge covenants, restrictions on dividends and other activities, and a change-of-control default. The company reported covenant compliance at year-end.
- The company’s $41.3 million April 2014 dividend and related option-holder payments were funded by additional borrowing. It received $82.2 million net proceeds from its October 2014 IPO, used in part to repay debt. A February 2015 secondary offering provided no proceeds to the company. Management did not anticipate cash dividends in the foreseeable future.
- Operating lease commitments totaled $138.0 million; fiscal 2015 operating lease expense was $27.3 million. The company signed a lease for a new 199,245-square-foot Fontana distribution center, expected to take possession in August 2015, and planned to consolidate warehouse operations there.
- Principal risks include consumer spending and preference shifts, competition, new-store execution, inventory forecasting and markdowns, supplier concentration and sourcing practices, rising merchandise or transport costs, lease obligations, regional economic exposure (including oil and gas weakness), weather, cyber and systems disruptions, and public-company compliance costs. Goodwill was $93.1 million and indefinite-lived intangibles were $50.1 million; no impairment was recorded.
- The filing reported no material pending legal proceedings and no material effect from ordinary-course litigation to date. The independent auditor gave an unqualified opinion on the financial statements; it did not audit internal control over financial reporting because of the transition period for newly public companies. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Separate organic and same-store growth from acquired-store contributions, particularly the full-year Baskins comparison.
- Track whether inventory growth converts into sales and cash flow, and whether gross-margin gains persist without acquisition-related benefits.
- Review the new-store opening pace, returns on store investment, and the planned distribution-center transition and associated capital spending.
- Assess debt service, variable-rate exposure, covenant headroom, and substantial lease commitments; a 1 percentage-point rate change was estimated to affect annual interest by about $0.9 million at year-end debt levels.
- Consider the effect of the April 2014 dividend, IPO debt repayment, and secondary sale when evaluating capital allocation, leverage, ownership, and share dilution.
- Note that Adjusted EBITDA is a non-GAAP measure with company-specific adjustments; compare it with GAAP earnings and operating cash flow.