Boot Barn Holdings, Inc. — Q2 FY2020 Form 10-Q
Reporting period: Thirteen and twenty-six weeks ended September 28, 2019, compared with the periods ended September 29, 2018. Fiscal 2020 ends March 28, 2020. The company operates western and workwear retail stores and e-commerce businesses; it had 248 stores in 33 states at quarter-end.
Financial results
| Metric | Q2 FY2020 | Q2 FY2019 | First half FY2020 | First half FY2019 |
|---|---|---|---|---|
| Net sales | $187.2m | $168.1m | $373.0m | $330.1m |
| Gross profit / margin | $59.3m / 31.7% | $50.9m / 30.3% | $121.5m / 32.6% | $102.4m / 31.0% |
| Operating income / margin | $12.9m / 6.9% | $8.7m / 5.2% | $29.0m / 7.8% | $18.5m / 5.6% |
| Net income | $7.7m | $4.5m | $17.4m | $11.3m |
| Diluted EPS | $0.26 | $0.16 | $0.60 | $0.39 |
| Adjusted EBITDA (non-GAAP) | $19.1m | $14.3m | $40.9m | $29.6m |
Q2 sales grew 11.3%; same-store sales rose 7.8%. First-half sales grew 13.0%; same-store sales rose 8.6%. Store sales represented 85% of sales and e-commerce 15% in both current-year periods. Management attributed improved gross margin principally to stronger full-price selling and greater exclusive-brand penetration; SG&A leveraged higher sales.
Cash flow, debt and liquidity
- First-half operating cash flow was negative $4.1m, versus positive $17.3m a year earlier. Inventory increased $58.6m, primarily with business growth; accounts payable and accrued liabilities increased $27.6m, partly offsetting the inventory cash use.
- First-half investing cash outflow was $19.2m, including $15.5m of capital expenditures and $3.7m for the G.&L. Clothing acquisition. Financing provided $19.9m, including $85.0m of revolver borrowings and $65.3m of debt and finance-lease repayments.
- Cash was $13.2m at September 28, 2019, down from $16.6m at fiscal year-end. Revolver borrowings were $85.0m; term-loan principal was $111.5m (net carrying value $108.6m). The revolving facility was increased to $165.0m and the term-loan maturity extended to June 2023 in June 2019. The company reported compliance with debt covenants.
- Variable-rate debt totaled $196.5m. Management estimated that a 1 percentage-point rate change would affect annual interest expense by approximately $2.0m.
- Adoption of lease accounting added $165.0m of right-of-use assets and $179.4m of lease liabilities at March 31, 2019. At quarter-end, lease liabilities totaled $182.6m. The adoption had no material effect on reported operations or cash flows.
Outlook, commentary and risks
- Management expects cash from operations and available credit to cover working capital, anticipated capital spending and other needs for at least 12 months. Fiscal 2020 capital expenditures are estimated at $29m–$31m, net of landlord allowances; this includes spending already incurred during the first half.
- Sales and cash needs are seasonal; inventory requirements generally rise ahead of the third-quarter Christmas shopping season. Management cautioned that interim results are not necessarily indicative of full-year results. No specific revenue or earnings guidance was provided.
- In August 2019, the company acquired one Iowa store, G.&L. Clothing, for $3.7m. The company reported no goodwill or intangible-asset impairment indicators at quarter-end.
- Risks highlighted include retail competition, changing consumer preferences, weather and seasonality, inventory and margin pressures, store expansion costs, and variable interest rates. The company said pending litigation was not expected to materially affect its financial position, results or liquidity; it reported no off-balance-sheet arrangements.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether strong same-store sales and margin gains persist, particularly the contribution from full-price sales and exclusive brands.
- Inventory growth and the resulting operating cash use, alongside seasonal working-capital needs.
- Revolver utilization, borrowing-base availability, debt covenant headroom and exposure to floating rates.
- Capital spending against the $29m–$31m fiscal-year estimate and the returns from new and acquired stores.
- The impact of lease liabilities and lease costs on leverage, liquidity and comparisons with prior periods.
- Tax-rate comparability: the prior-year first half included larger share-based compensation tax benefits and an income-tax benefit, unlike the current-year period.