Boot Barn Holdings, Inc. — Q1 FY2020 Form 10-Q
Reporting period: Thirteen weeks ended June 29, 2019; comparisons are to the thirteen weeks ended June 30, 2018 unless otherwise noted. Boot Barn operated 240 stores in 33 states and e-commerce websites. The interim results are not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 FY2020 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $185.8 million | $162.0 million | +14.7% |
| Same-store sales | +9.4% | +11.6% | Growth moderated |
| Gross profit / margin | $62.2 million / 33.5% | $51.4 million / 31.8% | Margin +1.7 percentage points |
| SG&A / sales | $46.1 million / 24.8% | $41.6 million / 25.7% | Expense rose 10.8%; ratio improved |
| Operating income / margin | $16.1 million / 8.6% | $9.8 million / 6.1% | +63.4% |
| Net income | $9.7 million | $6.8 million | +43.8% |
| Diluted EPS | $0.33 | $0.24 | Up $0.09 |
| Adjusted EBITDA (non-GAAP) | $21.8 million | $15.3 million | +42.3% |
| Adjusted EBIT (non-GAAP) | $17.0 million | $10.9 million | +56.2% |
| Operating cash flow | $(1.5) million | $5.5 million | Down $7.1 million |
| Capital expenditures | $6.8 million | $7.1 million | Cash investing outflow |
Management attributed sales growth to higher same-store sales, stores opened over the prior twelve months, and acquired-store contributions. Gross-margin improvement primarily reflected a 150-basis-point increase in merchandise margin, supported by better full-price selling and greater exclusive-brand penetration, and a 20-basis-point decrease in buying and occupancy costs. SG&A increased to support sales and new or acquired stores, but declined as a percentage of sales due to leverage.
Cash, debt, and liquidity
- Cash and cash equivalents were $22.7 million at June 29, 2019, versus $16.6 million at March 30, 2019. Cash increased by $6.1 million during the quarter, primarily with financing inflows.
- Operating cash use was $1.5 million, compared with $5.5 million generated a year earlier. Inventory increased $13.2 million, which management attributed to company growth; accounts payable and accrued expenses also decreased by a net $3.8 million due to payment timing.
- At quarter-end, the company had $80.0 million drawn on its revolving facility and $111.5 million principal outstanding on its term loan. The term loan’s balance-sheet carrying value, net of unamortized issuance costs and discount, was $108.5 million. Both facilities have variable rates.
- On June 6, 2019, Boot Barn amended both facilities: the revolver commitment increased to $165 million and its maturity was extended, while the term-loan maturity was extended to June 2023. Boot Barn also prepaid $65 million of term-loan principal. The filing does not provide a clear amount of remaining revolver availability after borrowing-base limitations.
- Weighted-average quarterly interest rates were 3.8% on the revolver and 7.1% on the term loan. Management estimated that a 1-percentage-point rate change on quarter-end debt would affect annual interest expense by approximately $1.9 million. The company reported covenant compliance at quarter-end.
- Operating lease adoption under ASC 842 added $164.5 million of right-of-use assets and $179.4 million of lease liabilities at adoption. At June 29, total lease liabilities were $177.5 million. Adoption did not materially affect operating results or cash flows.
Outlook, risks, and other items
- Management expected operating cash flows and available financing to cover working capital, planned capital expenditures, and other anticipated needs for at least the next 12 months. It estimated FY2020 capital expenditures of $27 million to $29 million, net of landlord allowances, for stores, e-commerce and IT, and distribution facilities.
- No earnings or sales guidance was provided in the supplied filing text. Management noted seasonal cash needs, including higher inventory ahead of the holiday quarter; third-quarter sales and operating income have historically been disproportionately higher.
- Key exposures include variable interest rates, inventory and merchandise-margin risks, sales sensitivity to economic conditions, competition, promotions, weather and seasonality, and execution of store growth and e-commerce investments.
- Management said pending or threatened litigation was not expected to have a material effect on financial position, results, or liquidity. No store impairment charge was recorded in the quarter, and no goodwill or intangible-asset impairment indicators were identified.
- The prior-year quarter included a $2.5 million tax benefit associated with stock-option exercises and restricted-stock vesting, contributing to its unusually low effective tax rate of (18.0%); the current-quarter rate was 20.1%. This limits direct comparison of reported net-income growth.
- The company reported effective disclosure controls and procedures and no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether same-store sales and merchandise-margin improvement persist, and how much growth comes from comparable locations versus new and acquired stores.
- Revolver borrowing-base availability, covenant headroom, and the effects of the amended debt terms and variable rates on interest expense and liquidity.
- Whether inventory growth converts to sales and cash generation, given negative operating cash flow in the quarter.
- Progress against the $27 million–$29 million FY2020 capital-expenditure estimate and the expected returns from store and technology investment.
- How lease obligations and the seasonal working-capital cycle affect cash needs across the remainder of the fiscal year.