Business context and reporting period
Boot Barn Holdings, Inc. filed this Form 10-K for fiscal 2020, the 52-week year ended March 28, 2020. The company operates western- and work-wear retail stores and e-commerce sites; it had 259 stores across 35 states at year-end. Fiscal 2019, the comparable 52-week period, ended March 30, 2019. The filing also reports unaudited fourth-quarter results.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $845.6 million | $776.9 million | +8.8% |
| Gross profit / margin | $276.5 million / 32.7% | $251.4 million / 32.4% | +10.0% gross profit |
| Operating income / margin | $73.7 million / 8.7% | $64.3 million / 8.3% | +14.5% operating income |
| Net income | $47.9 million | $39.0 million | +22.9% |
| Diluted EPS | $1.64 | $1.35 | Increase |
| Adjusted EBITDA | $100.6 million | $87.3 million | +15.1% |
| Cash from operations | $25.3 million | $63.3 million | Down $38.0 million |
Same-store sales grew 5.0%; excluding e-commerce, they grew 4.5%. E-commerce same-store sales increased 7.4%, while e-commerce represented 15.9% of total sales, compared with 16.9% in FY2019. Private-label products accounted for approximately 22% of sales.
Fourth-quarter sales were $188.6 million, versus $192.8 million a year earlier; gross profit was $58.0 million versus $63.4 million, operating income was $9.7 million versus $16.5 million, and net income was $5.7 million versus $8.7 million. Management attributed the late-year sales weakness to COVID-19; traffic fell significantly in the final three weeks of FY2020.
Cash and cash equivalents were $69.6 million at year-end, versus $16.6 million a year earlier. Outstanding debt was $241.4 million: $129.9 million drawn on the $165.0 million revolving facility and $111.5 million on the term loan, with $35.1 million of revolver availability. The balance sheet reported net debt carrying value of $238.9 million. Operating cash flow declined principally because inventory investment increased and accounts-payable cash benefits were lower due to payment timing. Capital expenditures were $37.2 million.
Operating lease liabilities totaled $181.7 million and finance lease liabilities $14.0 million at year-end. FY2020 lease expense was $47.3 million. The company adopted ASC 842 during the year, recording $164.5 million of right-of-use assets and $179.4 million of lease liabilities at adoption; the change did not materially affect reported operating results or cash flows.
Material changes versus the prior period
- Sales, gross profit, operating income, net income and diluted EPS increased year over year; gross margin improved by 30 basis points, supported by private-brand penetration and more full-price sales.
- Same-store sales growth moderated to 5.0% from 10.0% in FY2019. The COVID-19-related late-quarter disruption partially offset earlier growth.
- Operating cash flow fell to $25.3 million from $63.3 million, while cash on hand rose following $129.9 million of net revolving-credit borrowings.
- Debt outstanding rose from zero on the revolver at FY2019 year-end; the term loan was reduced by a $65.0 million prepayment and its maturity extended to June 2023.
- The company opened 19 stores and acquired one store in FY2020, ending the year with 259 locations. It also acquired G.&L. Clothing for $3.7 million.
Outlook, risks, contingencies and unusual items
- Management stated that COVID-19’s duration and effects were highly uncertain and made near- to medium-term performance difficult to estimate. Store traffic and comparable sales had declined; 36 stores were temporarily closed at March 28, 2020. As of May 19, 242 of 260 stores were open, with reduced hours and labor.
- To preserve liquidity, the company reduced management and board pay, furloughed employees, cut store labor, reduced or deferred merchandise receipts, delayed new-store openings, significantly reduced capital spending, and sought payment relief from vendors and landlords. Management said it planned to slow store growth in FY2021.
- FY2021 capital expenditures were estimated at $10 million to $12 million, net of landlord allowances. Management expected operating cash flow and available credit to cover anticipated needs for at least 12 months, while emphasizing pandemic uncertainty.
- Key risks include weaker consumer spending and store traffic; canceled western events; lower oil prices affecting workwear customers and markets; supply-chain disruption and import tariffs; inventory markdown risk; competition; variable-rate debt and covenant compliance; and significant lease commitments.
- A class-action complaint filed in California in May 2019 alleges deceptive pricing on Sheplers’ e-commerce site. The estimated cost was accrued at year-end, but the filing does not provide a clear amount. The company reported no material impairment of goodwill or indefinite-lived intangible assets; it recorded a $0.2 million store impairment charge.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. The audit identified the incremental borrowing rate used in lease accounting adoption as a critical audit matter.
Important facts for investors to verify
- Post-year-end comparable-sales trends, store reopening status, and the ongoing effect of COVID-19 on demand and earnings.
- Cash burn, revolver availability, debt covenant headroom, and any further borrowing or repayment activity.
- Inventory levels, markdowns, vendor payment terms, and whether landlord or supplier relief was obtained.
- Progress against the FY2021 capital-spending estimate and planned slowdown in store openings.
- The amount and expected resolution of the Sheplers pricing litigation accrual, and any material changes in lease obligations or impairment assessments.