Boot Barn Holdings, Inc. — Form 10-Q Summary
Reporting period: Thirteen and thirty-nine weeks ended December 26, 2015 (fiscal 2016 third quarter and year to date); comparative periods ended December 27, 2014. Figures below are in U.S. dollars.
Business context
Boot Barn operates western and workwear retail stores and e-commerce businesses. At quarter-end it operated 206 stores in 29 states, compared with 166 stores at the prior-year quarter-end. The June 29, 2015 acquisition of Sheplers expanded the store base and e-commerce operations; Sheplers contributed $55.5 million of quarterly sales and $87.6 million year-to-date sales after acquisition.
Financial performance
| Metric | 13 weeks ended Dec. 26, 2015 | 13 weeks ended Dec. 27, 2014 | 39 weeks ended Dec. 26, 2015 | 39 weeks ended Dec. 27, 2014 |
|---|---|---|---|---|
| Net sales | $193.8 million | $130.5 million | $419.6 million | $299.4 million |
| Gross profit / margin | $64.2 million / 33.1% | $46.2 million / 35.4% | $130.8 million / 31.2% | $100.8 million / 33.7% |
| Operating income / margin | $20.2 million / 10.4% | $17.9 million / 13.7% | $24.6 million / 5.9% | $27.6 million / 9.3% |
| Net income | $9.9 million | $8.8 million | $8.9 million | $11.1 million |
| Diluted EPS | $0.37 | $0.36 | $0.33 | $0.45 |
| Adjusted EBITDA | $28.8 million | $21.6 million | $47.5 million | $37.1 million |
Quarterly net sales rose 48.5%, while same-store sales declined 2.0%; year-to-date same-store sales increased 0.3%. Management cited Sheplers and new stores as the main sales-growth sources, partly offset by weaker local economies dependent on oil and other commodities and unseasonably warm weather. Adjusted EBITDA is a non-GAAP measure and includes adjustments such as acquisition integration costs.
Cash flow, balance sheet and debt
- For the 39-week period, operating cash flow was $55.7 million, versus $20.6 million a year earlier. Management attributed the increase in part to higher accounts payable and accrued liabilities, including holiday timing and Sheplers-related items.
- Investing cash outflow was $176.6 million, principally the $146.5 million net cash outlay for Sheplers and $30.1 million of property and equipment purchases. Financing cash inflow was $137.4 million.
- At December 26, 2015, cash was $17.8 million; current assets were $206.7 million and current liabilities $160.2 million. Inventory was $174.1 million.
- Outstanding borrowings were $199.0 million under the term loan and $30.0 million under the revolving facility. Total debt and line-of-credit obligations were reported as $229.0 million; capital lease obligations were $8.3 million. The term loan’s weighted average rate was 5.5%, and the revolver’s was 1.6%.
- The company reported compliance with debt covenants. A 1 percentage-point change in interest rates would have an estimated annual impact of approximately $2.3 million on debt outstanding at quarter-end.
Material changes, outlook and risks
- Sheplers acquisition and integration: The acquisition increased scale but pressured gross margin because Sheplers had lower margins. Integration, remerchandising, inventory and corporate consolidation costs affected results; year-to-date acquisition-related integration and reorganization costs included in the company’s Adjusted EBITDA reconciliation were $8.5 million. Sheplers recorded a $4.4 million net loss for the post-acquisition year-to-date period.
- Profitability: Despite higher quarterly net income, quarterly operating margin fell 3.3 percentage points. Year-to-date operating income declined 10.9% and net income declined 20.4%, reflecting margin pressure, higher SG&A and acquisition-related effects.
- Capital spending and liquidity: Management estimated fiscal 2016 capital expenditures of approximately $33 million, net of landlord allowances, and stated that cash flows and available credit were expected to cover anticipated needs for at least 12 months. No earnings or sales guidance was provided in the supplied filing text.
- Key risks: The filing highlights integration execution, realization of anticipated synergies, potential additional integration costs, increased leverage, variable-rate exposure and restrictive debt covenants. Failure to comply with covenants could allow lenders to accelerate debt and enforce collateral rights.
- Other items: The company recorded $0.9 million of acquisition-related expenses year to date and $1.4 million of write-offs of prior financing costs in connection with the June refinancing. Management reported no legal matters expected to materially affect financial position, results or liquidity, and no identified goodwill or intangible-asset impairment indicators.
Important facts for investors to verify
- How much of reported sales growth and future performance comes from acquired Sheplers and new stores versus comparable-store demand.
- Whether integration costs, lower acquired margins and Sheplers’ post-acquisition losses improve as integration progresses.
- Whether operating cash flow remains strong when seasonal and acquisition-related working-capital movements normalize.
- Debt levels, interest-rate sensitivity, covenant headroom and the company’s ability to fund capital spending and lease obligations.
- The composition and comparability of Adjusted EBITDA adjustments; it is non-GAAP and excludes material integration and other costs.