Boot Barn Holdings, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended March 30, 2019 (52 weeks), compared with fiscal 2018 ended March 31, 2018 (also 52 weeks). Although the request identifies “2018 Q4,” this filing reports FY2019; it also includes unaudited fourth-quarter results.
Business context and key metrics
Boot Barn operates western and work-wear retail stores and e-commerce sites. At year-end it had 240 stores in 33 states. FY2019 growth reflected higher comparable sales, new stores and acquisitions.
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Net sales | $776.9 million | $677.9 million | +14.6% |
| Same-store sales | +10.0% | +5.2% | Improved |
| Gross profit / margin | $251.4 million / 32.4% | $207.9 million / 30.7% | Margin +1.7 pts |
| SG&A | $187.1 million / 24.1% of sales | $161.7 million / 23.8% | Expense ratio +0.3 pts |
| Operating income / margin | $64.3 million / 8.3% | $46.3 million / 6.8% | +39.1% |
| Net income / diluted EPS | $39.0 million / $1.35 | $28.9 million / $1.05 | Net income +35.1% |
| Operating cash flow | $63.3 million | $44.2 million | +$19.1 million |
| Capital expenditures | $27.5 million | $24.4 million | +$3.1 million |
Merchandise margin improved 110 basis points, attributed to stronger full-price selling and increased exclusive-brand penetration; buying and occupancy costs declined 60 basis points as a share of sales. Private brands represented approximately 16.2% of sales. E-commerce was 16.9% of FY2019 net sales, versus 17.3% in FY2018.
Fourth quarter, unaudited: FY2019 net sales were $192.8 million versus $170.8 million; operating income was $16.5 million versus $11.3 million; net income was $8.7 million versus $6.9 million.
Liquidity, debt and capital resources
- Cash and cash equivalents were $16.6 million at year-end, up from $9.0 million. Working capital was $108.8 million, using the company’s definition.
- Net cash provided by operating activities was $63.3 million; investing activities used $31.8 million and financing activities used $23.9 million. Inventory rose $27.7 million, partly offsetting operating cash generation.
- Debt was $176.5 million gross under the term loan, with a $174.3 million net balance-sheet carrying value; the $135 million revolving facility had no borrowings outstanding. The term loan was scheduled to mature June 29, 2021 and had a 7.0% weighted-average rate in FY2019.
- The company reported compliance with debt covenants. A 1 percentage-point interest-rate change on the year-end term-loan balance would affect annual interest by approximately $1.8 million.
- Operating lease commitments totaled $197.2 million; FY2019 operating lease expense was $45.7 million. Management estimated FY2020 adoption of lease accounting would add approximately $165 million of right-of-use assets and $180 million of lease liabilities, without a material expected impact on operating results or cash flows.
Material changes, outlook and risks
- FY2019 included the acquisition of three Lone Star stores and two Drysdales stores, as well as 12 organic store openings; three stores closed. Lone Star consideration was $4.4 million and Drysdales consideration was $3.8 million.
- Management planned approximately 25 new store openings or acquisitions in FY2020, estimated FY2020 capital expenditures of $27–$29 million net of landlord allowances, and described potential to double the domestic store base. These are plans, not earnings guidance.
- Management expects cash from operations and available credit to fund anticipated needs for at least 12 months. The business is seasonal, with historically higher sales and operating results in the Christmas-season third quarter.
- Risks highlighted include consumer-spending and regional economic exposure, competition and e-commerce execution, dependence on suppliers, foreign sourcing and potential tariffs, store-expansion execution, wage and lease costs, variable-rate debt, inventory and weather risks, cybersecurity and privacy. An April 2019 attempted e-commerce data access was reported unsuccessful, with no customer data accessed or exposed.
- FY2019’s effective tax rate was 18.7%, compared with 7.4% in FY2018, which included a $7.0 million benefit from revaluing deferred taxes after U.S. tax reform. FY2018 also included a $1.6 million net gain from hurricane-related insurance recoveries; these items affect year-over-year comparisons.
- A California wage-and-hour class action settled for an amount described as immaterial; payment was made in August 2018. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether comparable-sales growth and gross-margin improvement persisted after FY2019, including the contribution from full-price selling and private brands.
- Actual FY2020 store openings, returns on new and acquired locations, and capital expenditures versus management’s plans.
- Debt repayment, refinancing and interest-rate exposure ahead of the term loan’s June 2021 maturity, alongside covenant headroom.
- The impact of lease-accounting adoption on reported assets, liabilities and leverage comparisons.
- Exposure to tariffs, supplier concentration, inventory growth, regional economic conditions and customer-data security.
- Tax-rate comparability, given FY2018’s one-time deferred-tax benefit; adjusted EBITDA and adjusted EBIT are non-GAAP measures and should be assessed alongside GAAP results.