Boot Barn Holdings, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2017, the 13 weeks ended June 25, 2016. Comparatives are the 13 weeks ended June 27, 2015. Boot Barn operates western and workwear retail stores and e-commerce channels; it had 210 stores in 29 states at quarter-end.
Key financial results
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Net sales | $133.4 million | $96.0 million |
| Gross profit / margin | $40.8 million / 30.5% | $30.8 million / 32.1% |
| SG&A | $36.3 million | $25.1 million |
| Operating income / margin | $4.5 million / 3.3% | $4.8 million / 5.1% |
| Net income | $0.6 million | $2.3 million |
| Diluted EPS | $0.02 | $0.08 |
| Adjusted EBITDA | $9.4 million | $8.8 million |
| Operating cash flow | $(7.7) million | $5.2 million |
| Capital expenditures | $4.7 million | $7.1 million |
Sales rose 39.0%, reflecting the Sheplers acquisition, 17 new stores opened since the comparable prior-year period, and 0.4% same-store sales growth (versus 5.6%). The comparison is substantially affected by Sheplers, acquired June 29, 2015; the prior-year reported quarter did not include its operations. Gross margin fell 1.6 percentage points, primarily because Sheplers had lower margins. SG&A rose 44.9%, largely due to the acquired business and new stores. Higher interest expense—$3.6 million versus $0.8 million—also weighed on earnings, which declined to $0.6 million.
Cash, debt and liquidity
Cash was $5.8 million at June 25, 2016, down from $7.2 million at fiscal year-end. Operating cash use reflected, among other items, an $11.5 million decrease in accounts payable and accrued/current liabilities and a $2.9 million inventory increase; the company attributed payment-related movements partly to timing. Financing provided $11.0 million, including $11.4 million of net revolver borrowings.
Outstanding borrowings were $60.2 million under the $125 million Wells Fargo revolving facility and $198.0 million under the Golub term loan. Contractual debt maturities for the line of credit and long-term debt totaled $258.2 million. Capital lease and financing obligations were $8.6 million. The company reported compliance with debt covenants. Management said operating cash flows and credit availability should cover working capital, expected capital expenditures and other needs for at least 12 months; revolver availability is not stated clearly in the filing text.
Outlook, risks and other notable matters
- Management estimated fiscal 2017 capital expenditures of approximately $13–15 million, net of landlord tenant allowances, for new stores, store improvements, the support center and e-commerce/IT infrastructure.
- The business is seasonal; the third fiscal quarter, including the Christmas period, has historically generated higher sales and a disproportionate share of operating income.
- Management cited softening in local economies dependent on oil and other commodities as pressure on same-store sales.
- Variable-rate debt creates interest-rate exposure: a 1 percentage-point rate change on quarter-end borrowings would affect annual interest expense by approximately $2.6 million.
- A California wage-and-hour class action filed in April 2016 seeks unspecified damages and penalties. The company intends to defend it; it recorded an estimated probable loss considered immaterial, but said additional charges could potentially be material.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. No material changes to the risk factors in the prior annual report were reported.
Most important facts for investors to verify
- How much of sales growth and Adjusted EBITDA reflects Sheplers and new stores versus underlying same-store performance.
- Whether gross-margin pressure persists and whether the acquired business and new stores improve operating profitability.
- Cash conversion and working-capital trends, especially payables, accrued liabilities and inventory.
- Debt-service capacity, available revolver borrowing capacity, covenant headroom and sensitivity to variable interest rates.
- Developments in the wage-and-hour litigation and any resulting change to the recorded contingency.