Boot Barn Holdings, Inc. — Q2 FY2021 Form 10-Q
Reporting period: 13 and 26 weeks ended September 26, 2020; comparisons are to the corresponding periods ended September 28, 2019. Amounts below are in millions unless stated otherwise. Boot Barn operates western and workwear retail stores and e-commerce sites; it had 265 stores in 36 states at quarter-end.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | First half FY2021 | First half FY2020 |
|---|---|---|---|---|
| Net sales | $184.5 | $187.2 | $332.3 | $373.0 |
| Gross profit / margin | $55.5 / 30.1% | $59.3 / 31.7% | $95.7 / 28.8% | $121.5 / 32.6% |
| Operating income / margin | $10.0 / 5.4% | $12.9 / 6.9% | $11.8 / 3.6% | $29.0 / 7.8% |
| Net income / diluted EPS | $5.8 / $0.20 | $7.7 / $0.26 | $5.3 / $0.18 | $17.4 / $0.60 |
| Adjusted EBITDA | $19.2 | $19.1 | $28.3 | $40.9 |
| Adjusted EBIT | $12.9 | $14.1 | $16.3 | $31.1 |
Q2 sales declined 1.4% year over year; same-store sales fell 5.1%, while e-commerce same-store sales rose 17.6%. First-half sales declined 10.9%; same-store sales fell 9.7%, while e-commerce same-store sales rose 33.7%. E-commerce represented 17% of Q2 sales and 21% of first-half sales, versus 15% in each prior-year period.
First-half operating cash flow was $43.9, compared with cash used of $4.1 in the prior year. Inventory fell $27.8, contributing to cash generation. Investing cash use was $14.9, primarily capital expenditures; financing cash use was $62.9, including $62.4 of net repayments on debt and finance lease obligations. Cash declined from $69.6 at fiscal year-end to $35.7.
At September 26, current assets were $324.3 and current liabilities $237.9. Revolver borrowings were $67.8, down from $129.9 at March 28; term-loan principal was $111.5. Total lease liabilities were $202.2. The company reported covenant compliance. Its variable-rate debt exposure was $179.3; management estimated a 1 percentage-point rate change would affect annual interest by approximately $1.8.
Changes, outlook and risks
- Q2 gross margin declined 160 basis points, primarily from deleverage in buying and occupancy costs and a 50-basis-point merchandise-margin decline, including e-commerce mix and higher freight. First-half gross margin fell 380 basis points.
- Q2 SG&A declined 2.1%, with lower marketing and pay-per-click costs; first-half SG&A declined 9.3% but rose as a share of sales to 25.2% from 24.8%, reflecting deleverage on lower sales.
- Management attributed sales and profit pressure to COVID-19, reduced store traffic and temporary closures. On average, approximately four stores were closed during Q2; all stores were open as of the filing, subject to potential future closures. The pandemic’s duration and effects on consumer confidence and operations remained uncertain.
- Management stated that operating cash flows and available credit were expected to cover working capital, planned capital expenditures and other anticipated cash needs for at least 12 months. Fiscal 2021 capital expenditures were estimated at $15–$17, including spending already incurred. No earnings or sales guidance was provided.
- The filing reports store-related long-lived asset impairment charges of $0.7 for the quarter and first half in a note, while its cash-flow and non-GAAP reconciliation tables show $0.384; investors may wish to reconcile these presentations.
- A California class-action case alleges deceptive pricing on Sheplers’ e-commerce site; the estimated cost was accrued. Management said other pending or threatened litigation was not expected to have a material effect. The company reported effective disclosure controls and no material quarter-period change in internal control.
Investor verification priorities
- Track COVID-related store traffic, closures, comparable sales and the continued growth and margin contribution of e-commerce.
- Reconcile reported impairment amounts and monitor store asset valuations and any goodwill or intangible-asset impairment indicators.
- Review liquidity, revolver availability and borrowing-base capacity, debt covenants, lease commitments and sensitivity to variable interest rates.
- Monitor progress against the $15–$17 fiscal-year capital expenditure estimate and management’s 12-month liquidity assessment.
- Follow the accrued Sheplers pricing litigation and assess any changes in the matter’s expected cost or other contingencies.