Boot Barn Holdings, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Thirteen and thirty-nine weeks ended December 25, 2021; comparable periods ended December 26, 2020. Fiscal year ends March 26, 2022. Amounts below are U.S. dollars; financial statement amounts are in millions unless indicated.
Business context
Boot Barn operates western and workwear retail stores and e-commerce websites. At quarter-end, it had 289 stores in 37 states, compared with 266 stores in 36 states a year earlier. The company describes its business as seasonal, with the third quarter typically benefiting from Christmas shopping.
Financial performance
| Metric | Thirteen weeks ended Dec. 25, 2021 | Year-earlier quarter | Thirty-nine weeks ended Dec. 25, 2021 | Year-earlier period |
|---|---|---|---|---|
| Net sales | $485.9 | $302.3 | $1,104.9 | $634.6 |
| Gross profit / margin | $191.7 / 39.4% | $106.8 / 35.3% | $426.2 / 38.6% | $202.5 / 31.9% |
| Operating income / margin | $92.2 / 19.0% | $41.6 / 13.8% | $195.9 / 17.7% | $53.5 / 8.4% |
| Net income | $69.2 | $29.6 | $147.7 | $34.8 |
| Diluted EPS | $2.27 | $1.00 | $4.86 | $1.19 |
| Adjusted EBITDA (non-GAAP) | $101.9 | $49.9 | $225.1 | $78.2 |
- Quarterly sales increased 60.7%; same-store sales rose 54.2%. Excluding e-commerce same-store sales growth, same-store sales increased 55.7%.
- For the thirty-nine-week period, sales increased 74.1% and same-store sales rose 61.8%. The prior-year comparison was affected by COVID-19-related store traffic declines and temporary closures.
- Quarterly gross margin improved 410 basis points, reflecting a 270-basis-point increase in merchandise margin—primarily better full-price selling and greater exclusive-brand penetration—and 140 basis points of buying and occupancy cost leverage. Year-to-date gross margin improved 670 basis points.
- SG&A increased in dollars as payroll, store overhead and marketing costs rose, but declined as a share of sales to 20.5% from 21.6% in the quarter and to 20.8% from 23.5% year to date.
Cash flow, debt and liquidity
- For the thirty-nine weeks, operating cash flow was $190.6 million, investing cash outflow was $39.7 million, and financing cash outflow was $109.2 million. Cash increased $41.6 million to $114.7 million from March 27, 2021.
- Inventory rose $109.9 million during the period. Management attributed the increase to higher purchases; accounts payable and accrued expenses also increased, partly due to payment timing.
- The company repaid the remaining $111.5 million principal on its term loan and terminated that agreement. At December 25, 2021, term-loan and revolving-credit borrowings were both zero; the revolving facility had a $180 million commitment. The company reported compliance with its revolver covenants.
- Balance-sheet current assets were $562.5 million and current liabilities were $388.4 million. Lease liabilities totaled $260.7 million, including $218.9 million long term; lease obligations are distinct from borrowings under the credit facilities.
- Capital expenditures were $39.7 million year to date. Management estimated fiscal 2022 capital expenditures of $41 million to $43 million, net of landlord allowances, and said operating cash flow was expected to fund them.
Outlook, commentary and risks
- Management said operating cash flow and available credit were expected to cover working capital, anticipated capital expenditures and other cash needs for at least the next 12 months. The filing provides no specific sales or earnings guidance.
- Management cautioned that COVID-19 and its economic effects remain uncertain and complicate near- to medium-term performance estimates. Results are also sensitive to discretionary spending, consumer confidence, weather, competition, product mix, freight and inventory costs, and store-opening timing.
- The quarter’s results reflect the normally stronger holiday season. The prior-year periods were affected by COVID-19, so year-over-year growth comparisons should be viewed in that context.
- Interest expense includes write-offs of debt issuance costs and discount associated with term-loan prepayments: $0.6 million in the quarter and $1.4 million year to date. Year-to-date income tax expense benefited from share-based compensation tax accounting.
- The company accrued estimated costs for a California e-commerce deceptive-pricing class action. It also recorded a non-material estimated probable loss for a California wage-and-hour class action; management stated that excess charges could arise depending on outcomes. Other pending or threatened matters were not expected by management to materially affect the company.
- Management concluded disclosure controls were effective as of December 25, 2021 and reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether the exceptional same-store sales growth and margin expansion persist beyond the holiday quarter and against less COVID-affected comparisons.
- Inventory levels, availability and markdown exposure, given the year-to-date inventory build and the company’s sensitivity to merchandise and freight costs.
- Cash conversion and working-capital movements, including the effect of payment timing, while the company funds planned store, distribution and technology investments.
- Capital expenditure delivery against the $41–$43 million fiscal 2022 estimate, store growth plans, and availability and terms of the $180 million revolver.
- Developments in the disclosed California litigation and any potential charges beyond recorded estimates.
- Lease commitments and the prior-year lease-cost disclosure corrections described in the filing’s lease note.