Boot Barn Holdings, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Thirteen weeks ended June 27, 2020; comparable period ended June 29, 2019. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
Boot Barn operates western and workwear retail stores and e-commerce websites. It had 264 stores in 36 states at quarter-end, compared with 240 stores a year earlier and 259 at March 28, 2020. COVID-19 disrupted store traffic and operations: an average of approximately 30 stores were closed during the quarter. As of the filing date, all stores were open except for temporary closures.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net sales | $147.8 | $185.8 | Down 20.5% |
| Gross profit / margin | $40.2 / 27.2% | $62.2 / 33.5% | Margin down 630 bps |
| SG&A / % of sales | $38.4 / 26.0% | $46.1 / 24.8% | Expense down; rate up 120 bps |
| Operating income / margin | $1.8 / 1.2% | $16.1 / 8.6% | Down 88.8% |
| Net income (loss) | $(0.5) | $9.7 | EPS: $(0.02) vs. $0.34 basic |
| Adjusted EBITDA | $9.1 | $21.8 | Down 58.2% |
| Adjusted EBIT | $3.4 | $17.0 | Down 80.1% |
Same-store sales declined 14.9%; e-commerce same-store sales increased 51.9%, while same-store sales excluding e-commerce declined 27.1%. E-commerce represented 25% of sales versus 14% a year earlier. Footwear accounted for 59% of sales, apparel 28%, and hats, accessories and other 13%.
Gross margin pressure reflected 430 bps of deleverage in buying and occupancy costs and a 200 bps decline in merchandise margin. Management attributed most of the merchandise-margin decline to the higher e-commerce mix, whose margins are lower; a discontinued-inventory write-down at G.&L. Clothing contributed 30 bps. SG&A dollars fell with lower payroll, marketing and overhead, but the expense rate rose because sales fell faster.
Cash flow, liquidity and debt
- Operating cash flow was $23.1, versus cash used of $1.5 a year earlier. Inventory fell $27.2, primarily reflecting reduced purchasing; accounts payable and accrued liabilities also declined by $14.4 combined, largely due to payment timing.
- Capital expenditures were $8.9; investing cash outflow was $8.9. Financing cash outflow was $0.6. Cash increased $13.6 to $83.1 from $69.6 at March 28, 2020.
- At June 27, 2020, revolving-credit borrowings were $129.9 under a $165.0 facility, and term-loan principal was $111.5. Total principal debt was $241.4; reported term-loan carrying value was $109.2 after unamortized issuance costs and discount. The revolver’s borrowing base applies, so nominal unused capacity is not necessarily fully available.
- Current assets were $368.8 and current liabilities $294.9. Lease liabilities totaled $190.6. The company reported compliance with debt covenants and stated that cash flows and available credit should cover anticipated needs for at least the next 12 months.
Outlook, risks and unusual items
- No earnings or sales guidance was provided. Fiscal 2021 capital expenditures were estimated at $12–14, including spending already incurred, net of landlord allowances.
- Management emphasized substantial uncertainty around the duration and economic effects of COVID-19, including potential effects on store traffic, consumer confidence, operations and the ability to forecast results. Temporary salary reductions and most employee furloughs were no longer in effect as of the filing date.
- A 1 percentage-point change in interest rates would affect annual interest expense by approximately $2.4 based on quarter-end debt. The debt is variable-rate.
- A California class-action complaint alleges deceptive pricing on Sheplers’ e-commerce site; the company says it accrued the estimated cost. Management believes other pending or threatened litigation will not materially affect financial position, results or liquidity.
- The company recorded no goodwill or long-lived-asset impairment charges and reported no goodwill or intangible-asset impairment indicators at quarter-end. The interim results are not necessarily indicative of full-year performance.
Most important facts for investors to verify
- Whether sales, store traffic and same-store trends recovered or weakened after the quarter, particularly as COVID-19 restrictions changed.
- Whether the e-commerce mix and promotional activity continue to affect gross margin, and whether inventory levels and markdowns remain well controlled.
- Actual borrowing-base availability under the revolver, covenant headroom, and the company’s ability to service variable-rate debt and lease obligations.
- Whether operating cash flow remains positive after the quarter’s inventory reduction and payment-timing effects.
- Developments in the Sheplers pricing litigation and any resulting changes to the accrued estimate.