Boot Barn Holdings, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended March 26, 2016 (52 weeks), filed June 2, 2016. The filing is an annual report, not a standalone calendar 2015 Q4 filing; it also provides FY2016 fourth-quarter figures.
Business context
Boot Barn sells western- and work-related footwear, apparel and accessories through retail stores and e-commerce. At year-end it operated 208 stores in 29 states. Results include Sheplers from its June 29, 2015 acquisition; therefore, annual comparisons are affected by the acquisition and store growth.
Financial performance
| Metric | FY2016 | FY2015 | Change / context |
|---|---|---|---|
| Net sales | $569.0 million | $402.7 million | Up 41.3%; included $126.9 million from Sheplers and sales from 22 new stores; same-store sales declined 0.1%. |
| Gross profit / margin | $173.2 million / 30.5% | $134.8 million / 33.5% | Gross profit rose 28.5%, but margin fell 3.0 percentage points, principally from Sheplers’ lower-margin mix and acquisition integration costs. |
| Operating income / margin | $30.2 million / 5.3% | $35.4 million / 8.8% | Operating income declined 14.7%. |
| Net income / diluted EPS | $9.9 million / $0.37 | $13.7 million / $0.54 | Both declined year over year. |
| Adjusted EBITDA | $59.6 million | $48.2 million | Up 23.5%; non-GAAP measure with significant acquisition and integration adjustments. |
| Cash from operations | $32.9 million | $11.5 million | Improved; inventory growth used $16.1 million of cash. |
| Capital expenditures | $36.1 million | $14.1 million | Higher, reflecting expansion and other property and equipment spending. |
| Cash and working capital | $7.2 million; $93.6 million | $1.4 million; $75.1 million | Working capital is calculated excluding cash and the current portion of credit-facility debt. |
| Debt | $247.3 million gross contractual debt | $89.8 million reported total debt | FY2016 balance-sheet carrying value was $242.4 million after unamortized term-loan costs and discount. |
FY2016 e-commerce sales were 14.6% of consolidated sales versus 4.2% in FY2015, primarily due to Sheplers. FY2016 fourth-quarter sales were $149.5 million versus $103.3 million; same-store sales declined 1.2%, and net income was $1.0 million versus $2.6 million.
Liquidity, debt and material changes
- The Sheplers acquisition added 25 retail locations and an e-commerce business. Six Sheplers stores were closed during FY2016; 19 were rebranded.
- At year-end, debt comprised $198.5 million under the Golub term loan and $48.8 million drawn on the Wells Fargo asset-based revolver. The facilities have variable rates; management estimated a 1 percentage-point rate increase would raise annual interest expense by about $2.5 million.
- The company reported compliance with debt covenants at March 26, 2016. The term-loan maximum net-leverage covenant tightens over time. Future minimum operating lease obligations totaled $208.9 million; FY2016 operating lease expense was $38.1 million.
- Cash provided by operations was below capital expenditures, before acquisition spending and financing. The company said operating cash flow and available credit were expected to cover anticipated needs for at least the next 12 months; the filing does not state a clear amount of undrawn revolver availability.
Outlook, risks and unusual items
- Management planned 15 new stores in FY2017 and estimated FY2017 capital expenditures of $13–15 million, net of landlord allowances. It cited potential to reach at least 500 domestic locations and to grow the store base at least 10% annually over the next several years; these are plans and estimates, not guaranteed outcomes.
- Management attributed weak same-store sales to softer economies tied to oil and other commodities and unseasonably warm weather. Risks include regional economic exposure, consumer demand, store expansion and integration, competition, inventory execution, supplier dependence, lease commitments, variable-rate debt and covenant compliance.
- FY2016 included $10.3 million of acquisition-related integration costs added back in Adjusted EBITDA, plus $0.9 million of acquisition-related expenses. Sheplers contributed $126.9 million in sales and a $6.1 million net loss after acquisition.
- A California wage-and-hour class action was filed April 28, 2016. The company recorded an estimated probable loss that was not material, but could not reasonably estimate the total potential loss; additional charges could be material.
- No goodwill, indefinite-lived intangible or long-lived asset impairment was recorded. Goodwill was $193.1 million and intangible assets were $64.9 million at year-end.
Most important facts for investors to verify
- How much of sales growth and Adjusted EBITDA reflects acquired Sheplers and new stores, and whether integration costs and other exclusions in Adjusted EBITDA are recurring.
- Whether same-store sales and gross margin stabilize after FY2016 declines, including the effects of weather, commodity-linked markets and Sheplers’ lower-margin mix.
- Current revolver availability, debt paydown capacity, floating-rate exposure and headroom under progressively tighter leverage covenants.
- Execution and returns from planned store openings and capital spending, alongside the company’s substantial lease commitments.
- Subsequent developments in the wage-and-hour litigation and any resulting reserve or financial impact.