Boot Barn Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first half of fiscal 2022, ended September 25, 2021. The quarter covered 13 weeks and the first half 26 weeks. Comparisons are with periods ended September 26, 2020, which management notes were affected by COVID-19 and store traffic declines and closures.
Business context and results
Boot Barn operates western and workwear specialty stores and e-commerce sites. It had 278 stores in 36 states at quarter-end, compared with 265 a year earlier and 273 at the prior fiscal year-end.
| Metric | Q2 FY22 | Q2 FY21 | First half FY22 | First half FY21 |
|---|---|---|---|---|
| Net sales | $312.7 million | $184.5 million | $619.0 million | $332.3 million |
| Net sales growth | 69.5% | — | 86.3% | — |
| Same-store sales growth | 61.7% | (5.1%) | 69.1% | (9.7%) |
| Gross profit / margin | $118.2 million / 37.8% | $55.5 million / 30.1% | $234.6 million / 37.9% | $95.7 million / 28.8% |
| Operating income / margin | $50.1 million / 16.0% | $10.0 million / 5.4% | $103.8 million / 16.8% | $11.8 million / 3.6% |
| Net income | $37.9 million | $5.8 million | $78.5 million | $5.3 million |
| Diluted EPS | $1.25 | $0.20 | $2.59 | $0.18 |
Financial position, cash flow and liquidity
- First-half operating cash flow was $48.6 million, versus $43.9 million; capital expenditures were $22.3 million, versus $14.9 million. Cash declined by $33.6 million to $39.5 million, principally alongside debt repayments and investment.
- Inventory rose $74.5 million during the first half to $350.3 million. Management attributed the increase in operating liabilities partly to payment timing and the inventory increase to higher purchases.
- At September 25, 2021, term-loan principal was $50.0 million, after $61.5 million of voluntary first-half prepayments; the revolving credit facility had no borrowings and a stated commitment of $180 million. The term loan matures in June 2023. The company reported covenant compliance.
- Total lease liabilities were $250.0 million. These are separate from the reported $50.0 million term-loan principal.
- Management said cash from operations and credit-facility availability should cover working capital, anticipated capital expenditures and other expected cash needs for at least 12 months. The company reported $36–$39 million of estimated fiscal 2022 capital expenditures, net of landlord allowances.
Material changes, outlook and risks
- Sales and earnings rose sharply year over year, but the prior-year comparison was unusually weak due to the pandemic. Management attributed margin expansion to better full-price selling, increased exclusive-brand penetration and leverage in buying and occupancy costs from higher sales.
- Gross margin expanded 770 basis points in Q2 and 910 basis points in the first half. SG&A increased in dollars but declined as a share of sales, reflecting expense leverage.
- First-half interest expense included a $0.9 million write-off of debt issuance costs related to term-loan prepayments. Excluding that charge, first-half interest expense was $2.8 million, versus $5.0 million a year earlier.
- No sales or earnings guidance is provided in the supplied filing text; the quantified outlook is the fiscal 2022 capital expenditure estimate. Management cautioned that COVID-19’s duration and effects on the economy and consumer confidence remain uncertain, making near- to medium-term performance harder to estimate. The business is also exposed to discretionary spending, seasonality, weather, merchandise margins, freight and inventory risks.
- The company accrued estimated costs for a California e-commerce deceptive-pricing class action and a wage-and-hour/PAGA action; the latter’s recorded probable loss was described as not material. Management said additional charges above recorded amounts could affect results or liquidity, and other incidental litigation was not expected to be material.
- No goodwill impairment indicators were identified and no long-lived asset impairment charges were recorded in the 2021 periods; the comparable 2020 periods included $0.7 million of long-lived asset impairment charges.
Important facts for investors to verify
- How much of the exceptional sales growth and margin improvement reflects sustainable demand and pricing versus the COVID-affected prior-year comparison.
- Inventory levels, availability and markdown exposure, particularly as the company builds stock ahead of the holiday season.
- Cash generation and liquidity after planned capital expenditures, debt prepayments and seasonal working-capital needs; revolver availability is subject to its borrowing-base terms.
- Progress on the disclosed litigation, the adequacy of accrued loss estimates, and the company’s substantial lease commitments.
- Execution of store expansion and the $36–$39 million fiscal 2022 capital expenditure plan, alongside continuing pandemic and consumer-confidence uncertainty.