Boot Barn Holdings, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Thirteen weeks ended June 25, 2022; comparisons are with the thirteen weeks ended June 26, 2021 unless noted. Boot Barn operates western and workwear retail stores and e-commerce sites; it had 311 stores in 38 states at quarter-end.
Financial highlights
| Metric | Q1 FY2023 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $365.9 million | $306.3 million | +19.4% |
| Same-store sales | +10.0% | +78.9% | — |
| Gross profit / margin | $137.8 million / 37.7% | $116.4 million / 38.0% | Profit +18.4%; margin -30 bps |
| SG&A | $85.4 million / 23.3% of sales | $62.8 million / 20.5% | Expense +36.0% |
| Operating income / margin | $52.4 million / 14.3% | $53.6 million / 17.5% | Income -2.3%; margin -320 bps |
| Net income | $39.3 million | $40.6 million | -3.3% |
| Diluted EPS | $1.29 | $1.35 | -4.4% |
| Operating cash flow | -$25.8 million | +$46.3 million | — |
| Capital expenditures | $20.8 million | $9.3 million | — |
Balance sheet and liquidity
- Cash was $16.0 million at June 25, 2022, down from $20.7 million at March 26, 2022. Inventory was $534.4 million, up from $474.3 million.
- Revolver borrowings were $74.9 million, versus $28.5 million at fiscal year-end; the company had repaid and terminated its term loan in December 2021. Variable-rate borrowing creates interest-rate exposure.
- Lease liabilities totaled $305.1 million, including $45.1 million current and $260.0 million long-term. Total assets were $1.321 billion and total liabilities were $681.7 million.
- Operating cash use reflected, among other factors, a $60.1 million inventory increase and a $20.6 million increase in prepaid and other current assets. The company borrowed $46.3 million net on its revolver during the quarter.
- After quarter-end, on July 11, 2022, Boot Barn amended its facility, increasing capacity from $180 million to $250 million and extending maturity to July 11, 2027; the amendment transitioned benchmark provisions from LIBOR to SOFR.
Material changes and management commentary
- Sales growth came from 10.0% same-store sales growth and incremental sales from new stores. Excluding e-commerce same-store sales growth of 9.3%, same-store sales rose 10.1%. Stores accounted for 88% of sales and e-commerce 12%.
- Gross margin declined 30 basis points: 70 basis points of deleverage in buying, occupancy and distribution costs was partly offset by a 40-basis-point increase in merchandise margin. Merchandise margin benefited from exclusive-brand penetration and full-price selling, despite a 70-basis-point freight-cost headwind.
- SG&A increased with higher store payroll, overhead and marketing; those costs also rose as a percentage of sales. Lower interest expense, primarily following repayment of the term loan, partly offset operating pressure. Net income was also affected by a higher effective tax rate, 23.5% versus 20.6%, principally due to a smaller share-based-compensation tax benefit.
- Management expects fiscal 2023 capital expenditures of $80 million to $87 million, net of landlord allowances, for store openings and improvements, e-commerce and IT infrastructure, and distribution facilities. It expects operating cash flows and credit-facility availability to cover anticipated needs for at least the next 12 months.
Outlook, risks and unusual items
- The filing gives no sales, earnings or margin guidance. Management cautions that results are sensitive to consumer discretionary spending, economic conditions, consumer confidence and continuing inflation; uncertainty makes near- to medium-term performance harder to estimate.
- The business is seasonal, with the third fiscal quarter historically generating higher sales and disproportionately larger operating income. Fiscal 2023 is a 53-week year.
- Two class-action matters are disclosed: an e-commerce pricing case with an estimated cost accrued, and a California wage-and-hour case with a recorded probable-loss amount described as immaterial. The company warns that additional litigation charges could be material; management considers other pending matters not material.
- Prior-year results included a $0.9 million write-off of term-loan issuance costs and discount. No long-lived asset impairment charges were recorded in either comparative quarter.
Important facts for investors to verify
- Whether inventory growth and the related working-capital cash outflow are consistent with demand and planned seasonal purchasing.
- Whether sales growth and comparable-store performance persist as the prior-year comparison includes unusually high 78.9% same-store growth.
- Whether margin pressure from freight, occupancy, distribution and labor costs moderates, and whether exclusive-brand and full-price selling gains continue.
- How revolver usage, variable interest rates and the post-quarter facility amendment affect liquidity and financing costs.
- Actual fiscal 2023 capital spending against the $80 million to $87 million estimate, and developments in the disclosed litigation matters.