Boot Barn Holdings, Inc. — Q3 FY2020 Form 10-Q
Reporting period: Thirteen and thirty-nine weeks ended December 28, 2019; comparisons are to the periods ended December 29, 2018. Fiscal 2020 ends March 28, 2020. Boot Barn operates western and workwear stores and e-commerce sites; it had 251 stores in 33 states at quarter-end, versus 234 a year earlier.
Financial performance
| Metric | Q3 FY2020 | Q3 FY2019 | 39 weeks FY2020 | 39 weeks FY2019 |
|---|---|---|---|---|
| Net sales | $284.0m | $254.0m | $656.9m | $584.1m |
| Gross profit / margin | $97.0m / 34.2% | $85.7m / 33.7% | $218.5m / 33.3% | $188.0m / 32.2% |
| Operating income / margin | $35.0m / 12.3% | $29.3m / 11.5% | $64.0m / 9.7% | $47.8m / 8.2% |
| Net income | $24.8m | $19.0m | $42.2m | $30.3m |
| Diluted EPS | $0.85 | $0.66 | $1.45 | $1.05 |
| Adjusted EBITDA | $42.8m | $35.5m | $83.7m | $65.1m |
Q3 sales rose 11.8%; same-store sales increased 6.7%, including 11.0% e-commerce same-store growth. For the 39-week period, sales rose 12.5% and same-store sales increased 7.8%. Gross margin improvement reflected higher merchandise margins, attributed to exclusive-brand growth and, year to date, better full-price selling. SG&A increased in dollars to support sales and new or acquired stores, but fell as a share of sales, reflecting expense leverage. Q3 net income also benefited from lower net interest expense and a lower effective tax rate; year-to-date tax rate was higher than the prior-year period.
Cash flow, liquidity and debt
- Cash at December 28 was $45.4m, compared with $16.6m at March 30, 2019. Current assets were $345.9m and current liabilities $280.2m.
- For the 39 weeks, operating cash flow was $76.8m, down from $91.6m. Investing cash outflow was $30.5m, including $27.6m of capital expenditures and $3.7m for the G.&L. Clothing acquisition. Financing cash outflow was $17.4m.
- At quarter-end, borrowings were $45.0m on the revolving facility and $111.5m principal on the term loan. Term-loan carrying value, net of issuance costs and discount, was $108.8m. The company prepaid $65.0m of term debt in June 2019 and drew $45.0m on the revolver during the 39 weeks. Debt excludes lease liabilities.
- Operating and finance lease liabilities totaled $186.9m under the newly adopted lease accounting standard. The company recorded $168.1m of right-of-use assets at quarter-end.
- Management said operating cash flow and available credit should fund working capital, planned capital spending and other expected needs for at least 12 months. The company reported compliance with debt covenants.
Developments, outlook and risks
- Boot Barn acquired G.&L. Clothing, a single-store Iowa retailer, for $3.7m in August 2019, adding one location and $1.6m of goodwill. Store count grew to 251 from 240 at March 30, 2019.
- FY2020 capital expenditures were estimated at $30m–$32m, net of landlord allowances, including spending already incurred. Planned uses include stores, e-commerce and information technology, and distribution facilities. The filing gives no specific full-year sales or earnings guidance.
- Management noted that Q3, which includes the Christmas season, has historically generated higher sales and a disproportionate share of operating income; sales can also vary with holidays, weather and other factors.
- The company identified risks from potential tariffs and trade-policy changes affecting goods sourced directly or indirectly from countries including China and Mexico. It also warned that public-health issues, including the recently identified coronavirus outbreak in China, could disrupt suppliers or shipping and delay merchandise.
- Management said pending or threatened litigation was not expected to materially affect financial position, results or liquidity. No material goodwill or store impairment was recorded in the current 39-week period. Lease accounting adoption added substantial right-of-use assets and lease liabilities to the balance sheet but did not materially affect reported operations or cash flows.
Important facts for investors to verify
- Whether same-store sales growth and merchandise-margin gains persist, and how much growth comes from new or acquired stores.
- Inventory growth and operating cash flow: inventory increased $32.3m year to date, while operating cash flow declined versus the prior-year period.
- Debt and liquidity, including variable-rate exposure: the filing estimates a 1 percentage-point rate change would affect annual interest by about $1.6m on quarter-end debt.
- Execution of the $30m–$32m capital-spending plan and the effect of lease commitments on fixed costs.
- Potential tariff, supplier, shipping and public-health disruptions, and any resulting effect on merchandise availability or costs.