Boot Barn Holdings, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended April 1, 2017. Fiscal 2017 comprised 53 weeks; fiscal 2016 comprised 52 weeks. The filing also reports fourth-quarter results. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
Boot Barn operates a specialty retail business focused on western and work footwear, apparel and accessories. At year-end it had 219 stores in 31 states and three e-commerce sites. Fiscal 2017 included a full year of Sheplers operations, compared with nine months in fiscal 2016, and the acquisition of Country Outfitter website assets in February 2017.
Financial results and key metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Net sales | $629.8 | $569.0 |
| Gross profit / margin | $189.9 / 30.1% | $173.2 / 30.4% |
| SG&A | $152.1 / 24.1% of sales | $142.1 / 25.0% of sales |
| Operating income / margin | $37.8 / 6.0% | $30.2 / 5.3% |
| Net income | $14.2 | $9.9 |
| Diluted EPS | $0.53 | $0.37 |
| Adjusted EBITDA (non-GAAP) | $59.2 | $59.6 |
| Operating cash flow | $41.2 | $32.9 |
| Capital expenditures | $22.3 | $36.1 |
| Cash and cash equivalents, year-end | $8.0 | $7.2 |
| Total debt outstanding, gross | $229.8 | Not clearly stated on a comparable gross basis |
Fiscal 2017 net sales rose 10.7%; consolidated same-store sales grew 0.3%. E-commerce represented 18.4% of consolidated sales, up from 14.6%. The company reported working capital of $102.8 million (using its stated definition) and total debt net of unamortized issuance costs of $225.9 million. Debt consisted of $196.5 million under the term loan and $33.3 million under the revolver. Debt is variable-rate; management estimated that a 1 percentage-point rate change would affect annual interest by approximately $2.3 million.
Fourth quarter: Net sales were $163.0 million versus $149.5 million in fiscal 2016’s fourth quarter; gross profit was $49.3 million versus $42.4 million; operating income was $8.1 million versus $5.6 million; and net income was $2.6 million versus $1.0 million. Fourth-quarter same-store sales declined 0.9%. Fiscal 2017’s fourth quarter had 14 weeks, versus 13 weeks in the prior-year quarter.
Changes versus prior period
- Net income increased to $14.2 million from $9.9 million, and operating margin improved to 6.0% from 5.3%. SG&A declined as a share of sales.
- Gross margin eased to 30.1% from 30.4%. Management cited sales mix and operating factors; prior-year integration costs also affected comparability.
- Adjusted EBITDA decreased 0.7% to $59.2 million, despite higher GAAP net income.
- Operating cash flow increased to $41.2 million. Inventory increased $12.8 million, while accounts payable and other liabilities supported cash flow through payment timing.
- Gross debt declined from $246.8 million at the prior year-end to $229.8 million, principally alongside lower revolver borrowings. Fiscal 2017 investing cash outflow was $23.6 million, compared with $182.7 million in fiscal 2016, which included the Sheplers acquisition.
Outlook, risks and notable items
- Management planned 12 new stores in fiscal 2018 and estimated capital expenditures of $15 million to $17 million, net of landlord allowances. It cited potential to grow the domestic store base from 219 to 500 and a targeted annual store-base growth rate of approximately 10% over the next several years; these are plans and estimates, not guarantees.
- Management expected operating cash flows and credit availability to fund anticipated needs for at least 12 months. The filing does not provide a clear year-end amount of unused borrowing availability.
- The fourth-quarter migration of sheplers.com to a new e-commerce platform disrupted sales. Management said the disruption could affect future results while it works to improve site performance.
- After year-end, amendments increased the revolving facility from $125 million to $135 million and extended its maturity; amendments also revised term-loan leverage covenant thresholds. At April 1, 2017, the company reported compliance with its covenants.
- Key risks include consumer spending and regional exposure to commodity-dependent economies, competition and promotional pressure, store expansion and lease commitments, supplier concentration and overseas sourcing, variable-rate debt and covenant compliance, e-commerce execution and cybersecurity, and seasonal or adverse weather effects.
- The company recorded a $1.2 million impairment charge for three stores. A California wage-and-hour class-action settlement reached after year-end was described as immaterial and accrued at year-end. No goodwill or indefinite-lived intangible impairment was recorded.
- The company had $187.9 million of future minimum operating lease payments and reported fiscal 2017 operating lease expense of $41.3 million. Twenty-two store leases reached termination dates in fiscal 2018 without automatic extension options.
- The independent auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation because of the company’s emerging-growth-company exemption.
Investor verification priorities
- Separate underlying sales and margin trends from the effects of the 53rd week, new stores, and the full-year inclusion of Sheplers; examine same-store sales by quarter and channel.
- Track Sheplers.com recovery after the platform migration and whether e-commerce growth translates into profitable sales.
- Review cash conversion, inventory growth, capital spending, and actual revolver availability alongside the company’s lease and debt obligations.
- Check compliance with amended leverage covenants, variable-rate exposure, and the timing of term-loan maturities and required repayments.
- Assess planned store openings and returns against the stated investment and payback targets, including the impact of lease renewals and store impairments.