Boot Barn Holdings, Inc. — Q3 FY2023 Form 10-Q
Business context and reporting period. Boot Barn operates specialty retail stores and e-commerce sites selling western and work footwear, apparel and accessories. This unaudited report covers the 13 and 39 weeks ended December 24, 2022; the fiscal year is scheduled to end April 1, 2023 and comprises 53 weeks. The company operated 333 stores in 41 states, versus 289 stores a year earlier.
Financial performance
| Metric | 13 weeks ended Dec. 24, 2022 | 13 weeks ended Dec. 25, 2021 | 39 weeks ended Dec. 24, 2022 | 39 weeks ended Dec. 25, 2021 |
|---|---|---|---|---|
| Net sales | $514.6 million | $485.9 million | $1,232.0 million | $1,104.9 million |
| Gross profit / margin | $187.8 million / 36.5% | $191.7 million / 39.4% | $454.7 million / 36.9% | $426.2 million / 38.6% |
| Operating income / margin | $72.5 million / 14.1% | $92.2 million / 19.0% | $169.1 million / 13.7% | $195.9 million / 17.7% |
| Net income | $52.8 million | $69.2 million | $124.1 million | $147.7 million |
| Diluted EPS | $1.74 | $2.27 | $4.09 | $4.86 |
For the 39 weeks, operating cash flow was $87.1 million, compared with $190.6 million a year earlier; capital expenditures were $83.1 million versus $39.7 million. Cash was $50.4 million at December 24, 2022, up from $20.7 million at March 26, 2022. Inventory was $592.2 million, up from $474.3 million at fiscal year-end, and absorbed $117.9 million of operating cash during the period.
At December 24, 2022, the company had $59.1 million drawn on its $250 million asset-based revolving credit facility and $0.8 million in letters of credit. It had no term loan outstanding. The facility matures July 11, 2027, bears variable rates, and the company reported covenant compliance. Lease liabilities totaled $357.4 million, including $308.2 million long-term.
Material changes and drivers
- Quarterly sales rose 5.9%, while consolidated same-store sales fell 3.6%; e-commerce same-store sales fell 15.2%. Excluding e-commerce, same-store sales declined 0.8%. New stores and higher average selling prices, partly reflecting inflation, supported reported sales.
- For the 39 weeks, sales increased 11.5% and same-store sales increased 1.8%; excluding e-commerce, same-store sales rose 3.6%. E-commerce same-store sales declined 7.5%.
- Quarterly gross margin declined 290 basis points, principally from higher freight and merchandise costs and deleverage in buying, occupancy and distribution costs. SG&A rose 15.9% in the quarter and 24.0% year to date, driven mainly by store payroll, store-related and marketing expenses.
- Quarterly operating income fell 21.4% and net income fell 23.8%. Year-to-date operating income fell 13.7% and net income fell 16.0%, despite higher sales.
- Year-to-date operating cash flow was lower partly because inventory investment increased and increases in accounts payable and accrued liabilities were smaller than in the prior-year period. Financing included $30.5 million of net revolver borrowings; the prior-year period included substantial debt repayments.
Outlook, risks and contingencies
- Management expects operating cash flow and available credit to cover working capital, anticipated capital expenditures and other cash needs for at least the next 12 months. Planned FY2023 capital expenditures are $90 million to $95 million, including investment in a new Kansas City distribution center; the estimate includes spending through the reporting date and is net of landlord allowances. No earnings or sales guidance is provided in the filing.
- Management identifies consumer discretionary spending, economic conditions, consumer confidence and continuing inflation as uncertainties that make near- to medium-term performance harder to estimate. The business is also exposed to variable interest rates and freight, merchandise, occupancy and labor costs.
- The company reports a California wage-and-hour class action with an estimated probable loss accrued that management says is not material; additional charges could arise depending on the outcome. A separate e-commerce pricing class action was settled, with amounts paid. Management considers other pending or threatened litigation not material.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether same-store sales and e-commerce trends improve, and how much reported growth depends on new stores and price increases.
- Whether gross margin stabilizes as freight and merchandise costs evolve, and whether SG&A growth moderates relative to sales.
- Inventory levels, sell-through and operating cash conversion, particularly after the substantial year-to-date inventory build.
- Revolver borrowing-base availability and interest costs, alongside capital spending and execution of the Kansas City distribution center investment.
- Developments in the California wage-and-hour litigation and any resulting change to the recorded contingency.