Boot Barn Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the 13 weeks ended June 27, 2015, the first quarter of fiscal 2016. Boot Barn operated 176 stores in 28 states and an e-commerce business. The company sells western and work boots, apparel, and accessories.
Financial performance
| Metric | Quarter ended June 27, 2015 | Prior-year quarter |
|---|---|---|
| Net sales | $96.0 million | $82.5 million |
| Gross profit / margin | $30.8 million / 32.1% | $26.9 million / 32.6% |
| Operating income / margin | $4.8 million / 5.1% | $5.4 million / 6.5% |
| Net income | $2.3 million | $1.4 million |
| Diluted earnings per share | $0.08 | Approximately $0.00 loss |
| Adjusted EBITDA | $8.8 million | $7.8 million |
| Same-store sales growth | 5.6% | 7.7% |
Sales rose 16.4%, reflecting 21 net store openings since the start of the comparable growth period and same-store sales growth. Gross margin narrowed 0.5 percentage point: improved merchandise margins were offset by higher occupancy and depreciation costs. SG&A increased 16.5% to $25.1 million but remained 26.1% of sales. Operating income declined 10.4%, while net income grew 60.7%, principally as net interest expense fell to $0.8 million from $2.8 million following debt refinancing and lower debt costs.
Cash from operations was $5.2 million, compared with cash used of $0.7 million a year earlier. Investing activities used $7.1 million, primarily for property and equipment; financing activities provided $13.3 million, including $10.9 million of net revolving-credit borrowings. Cash ended at $12.9 million, versus $1.4 million at fiscal year-end.
Debt and liquidity
At June 27, 2015, debt included $74.5 million of term borrowings and $27.1 million drawn on the revolving facility; approximately $47.9 million of revolver availability remained. The company reported $101.6 million of contractual debt maturities, including $83.4 million in fiscal 2020. It was in compliance with its then-current facility covenants. Management said operating cash flow and available financing should cover working capital, planned capital expenditures, and other anticipated needs for at least 12 months.
On June 29, after quarter-end, Boot Barn completed its $147.0 million acquisition of Sheplers, including assumed indebtedness, and refinanced approximately $172.0 million of existing Boot Barn and Sheplers debt. Financing included a $200 million term loan and a revolving facility of up to $125 million; the filing reports an initial $57 million revolver borrowing. The new borrowing increases leverage and carries variable rates. The quarter-end debt figures above predate this transaction.
Outlook, commentary, risks, and unusual items
- Management estimated fiscal 2016 capital expenditures of approximately $31 million, net of landlord allowances, for store openings and remodels, Sheplers rebranding, distribution capacity, and information technology.
- The company identified Sheplers integration, realization of expected synergies, rebranding and integration costs, potential unknown liabilities, and management of a larger business as significant risks. It cautioned that costs or disruption could exceed expectations and affect sales or earnings.
- The new credit agreements impose financial and other covenants; failure to comply could trigger default and acceleration. Variable-rate debt exposes the company to higher interest costs. Management estimated that a 1 percentage-point rate change on quarter-end borrowings would affect annual interest by approximately $1.0 million.
- Acquisition-related expenses were $0.9 million in the quarter. The Sheplers purchase accounting was not yet complete, so required acquisition disclosures were not all available in this filing.
- Management reported no legal matters expected to have a material effect and no material changes in internal control over financial reporting. Disclosure controls were judged effective. The filing provides no specific earnings or sales guidance.
Key facts for investors to verify
- Post-acquisition debt outstanding, revolver availability, interest expense, covenant headroom, and compliance under the new facilities.
- Sheplers purchase accounting, integration and rebranding costs, realized synergies, and the acquired business’s contribution to sales and cash flow.
- Whether same-store sales momentum and gross margins hold up as store count and operating costs grow.
- Actual capital spending versus the approximately $31 million fiscal 2016 estimate and resulting liquidity and cash-flow needs.