Boot Barn Holdings, Inc. — Q2 FY2023 Form 10-Q
Reporting period: Thirteen and twenty-six weeks ended September 24, 2022; comparative periods ended September 25, 2021. Fiscal 2023 is a 53-week year. Figures below are in millions of dollars except per-share data, percentages and store counts.
Business context
Boot Barn sells western and work footwear, apparel and accessories through retail stores and e-commerce. At quarter-end it operated 321 stores in 40 states, versus 278 stores at the comparable prior-year date. Stores generated 88% of sales and e-commerce 12%.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | First half FY2023 | First half FY2022 |
|---|---|---|---|---|
| Net sales | $351.5 | $312.7 | $717.4 | $619.0 |
| Gross profit | $129.1 | $118.2 | $266.9 | $234.6 |
| Gross margin | 36.7% | 37.8% | 37.2% | 37.9% |
| SG&A | $84.9 | $68.0 | $170.4 | $130.8 |
| Operating income | $44.2 | $50.1 | $96.6 | $103.8 |
| Operating margin | 12.6% | 16.0% | 13.5% | 16.8% |
| Net income | $32.1 | $37.9 | $71.4 | $78.5 |
| Diluted EPS | $1.06 | $1.25 | $2.35 | $2.59 |
- Q2 sales increased 12.4%; consolidated same-store sales rose 2.3%. Excluding e-commerce, same-store sales increased 3.9%; e-commerce same-store sales declined 7.0%.
- First-half sales increased 15.9%; consolidated same-store sales rose 6.1%. E-commerce same-store sales increased 0.8%; excluding e-commerce, same-store sales increased 7.0%.
- Sales growth reflected new-store contributions and higher average unit retail prices, partly driven by inflation. Merchandise margin improved through greater exclusive-brand penetration and better full-price selling, but gross margin contracted as buying, occupancy and distribution costs deleveraged.
- SG&A rose faster than sales, driven principally by store payroll, other store costs and marketing. The resulting margin pressure contributed to lower operating income and net income despite revenue growth.
Cash flow, liquidity and debt
- First-half operating cash flow was a use of $62.1, versus $48.6 provided in the prior-year period. The main working-capital driver was a $166.7 inventory increase, compared with $74.5 in the prior year.
- First-half capital expenditures were $52.5, versus $22.3 a year earlier. Investing cash use was $52.5; financing provided $113.6, largely from $118.3 of net revolver borrowings. Cash declined $1.0 to $19.7 from $20.7 at fiscal year-end.
- At September 24, inventory was $641.0, current assets $714.7 and current liabilities $481.4. The revolver balance was $146.8, up from $28.5 at March 26, 2022. The amended facility has a $250.0 maximum commitment and matures July 11, 2027; borrowing availability is subject to its borrowing-base terms.
- The company repaid and terminated its former term loan in December 2021. The revolver uses variable rates; the quarter’s weighted-average rate was 3.3%. The facility was amended in July 2022 to replace LIBOR provisions with Term SOFR provisions. The company reported compliance with its debt covenant.
- Total lease liabilities were $346.7, including $299.8 long-term and $46.8 short-term. Cash and available credit are the company’s stated primary liquidity sources.
Outlook, risks and unusual items
- Management said operating cash flows and credit availability should be sufficient for working capital, planned capital expenditures and other expected needs for at least the next 12 months. Fiscal 2023 capital expenditures were estimated at $80–$87, including first-half spending, net of landlord allowances.
- The filing provides no quantified sales, earnings or margin guidance. Management cautioned that discretionary spending, consumer confidence, continuing inflation and broader economic uncertainty make near- and medium-term performance harder to estimate. Results are seasonal, with higher sales and operating income historically in the holiday quarter.
- Variable-rate borrowing exposes the company to interest-rate risk. Inventory growth and planned store expansion and technology investment are notable cash requirements.
- One California wage-and-hour class action has an estimated probable loss accrued, described as immaterial; additional charges could arise and could materially affect results or liquidity. A separate e-commerce pricing class action settlement was described as immaterial. Management considered other pending or threatened matters not material in aggregate.
- No long-lived asset impairment charges were recorded in the reported periods, and management identified no goodwill or intangible-asset impairment indicators as of September 24. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether store and e-commerce same-store sales trends persist, particularly the Q2 e-commerce decline.
- Whether higher inventory converts to sales without markdowns, shrinkage or further working-capital pressure.
- Whether SG&A growth and occupancy, distribution and buying costs moderate enough to stabilize margins.
- Actual revolver availability under borrowing-base limits, variable-rate costs and compliance with covenant requirements.
- Capital spending against the $80–$87 million estimate, cash generation through the holiday season, and developments in the wage-and-hour litigation.