Boot Barn Holdings, Inc. — Form 10-Q Summary
Business context and reporting period. Boot Barn operates western- and work-oriented footwear, apparel and accessories stores and an e-commerce business. It had 158 stores in 24 states at September 27, 2014, compared with 151 stores a year earlier. This report covers the 13-week second quarter and 26 weeks of fiscal 2015; comparable periods ended September 28, 2013. Amounts below are in U.S. dollars.
Key financial results
| Metric | 13 weeks ended Sept. 27, 2014 | 13 weeks ended Sept. 28, 2013 | 26 weeks ended Sept. 27, 2014 | 26 weeks ended Sept. 28, 2013 |
|---|---|---|---|---|
| Net sales | $86.4 million | $77.4 million | $168.9 million | $141.9 million |
| Gross profit | $27.8 million | $23.7 million | $54.6 million | $46.0 million |
| Gross margin | 32.1% | 30.7% | 32.4% | 32.4% |
| Operating income (loss) | $4.4 million | $(0.1) million | $9.8 million | $2.6 million |
| Net income (loss) | $0.9 million | $(1.5) million | $2.4 million | $(2.9) million |
| Diluted EPS | $0.05 | $(0.07) | $0.05 | $(0.15) |
Sales and margins. Quarterly sales grew 12%; six-month sales grew 19%. Same-store sales rose 7.3% in the quarter and 7.4% for the first half. Management attributed growth to more transactions and a higher mix of boots and work-related merchandise, as well as new stores and, for the six-month comparison, operating Baskins stores for the full period rather than 18 weeks. Quarterly gross margin improved 1.4 percentage points; first-half margin was unchanged. Higher-margin footwear and private-brand mix helped, while occupancy, depreciation, procurement and distribution costs offset benefits.
Expenses and non-GAAP results. Quarterly SG&A was $23.4 million, down 2% year over year; first-half SG&A was $44.9 million, up 5%. SG&A included $0.9 million of costs for a potential acquisition that was not pursued. Adjusted EBITDA, a non-GAAP measure, was $7.8 million for the quarter versus $5.2 million and $15.6 million for the first half versus $11.1 million. Consider the company’s stated adjustments when comparing this measure with GAAP results.
Cash flow, liquidity and debt. For the first half, operating cash flow was negative $6.5 million, investing cash flow was negative $4.6 million and financing cash flow was positive $11.4 million; cash increased $0.3 million to $1.4 million. Inventory increased $16.7 million and prepaid expenses and other current assets increased $5.0 million, contributing to operating cash use. At quarter-end, current assets were $136.3 million and current liabilities $116.7 million. Revolver borrowings were $51.9 million, with $17.9 million available under the borrowing base; term debt was $129.7 million. Total reported borrowings were approximately $181.5 million. The company reported compliance with debt covenants and said operating cash flow and available financing should cover expected needs for at least 12 months.
Material changes, outlook and risks
- Compared with the prior-year quarter, the company moved from an operating loss and net loss to operating and net income. First-half net income also replaced a prior-year net loss.
- Interest expense rose 28% in the quarter, primarily reflecting increased borrowings used to fund a $41.3 million dividend and payments to vested option holders. First-half interest expense declined 23%, largely because the prior-year period included a $2.0 million write-off of deferred loan and termination costs.
- Management estimated fiscal 2015 capital expenditures of approximately $14–15 million; $4.6 million had been spent through September 27. It expected higher spending on store openings, remodels and refurbishments, and information technology. No earnings or sales guidance is provided in the filing.
- Subsequent to quarter-end, the company completed an IPO of 5.75 million shares at $16 per share, receiving approximately $82.5 million in net proceeds. On November 5, 2014, it used $81.9 million to reduce Golub term-loan principal and paid a $0.6 million prepayment penalty. The amended term loan’s interest rate was reduced from 7.00% to 6.75%.
- Key exposures include variable-rate debt: management estimated that a 1 percentage-point change in blended rates would change annual interest expense by approximately $1.8 million, based on quarter-end borrowings. Other risks noted include sales sensitivity to economic conditions, competition, weather, seasonality, merchandise mix, store-opening execution, and inventory and margin management.
- The company reported no legal proceedings expected to have a material effect, no material changes to previously disclosed risk factors, and no material impairment indicators for goodwill, intangible or long-lived assets. It reported effective disclosure controls as of September 27, 2014.
Important facts for investors to verify
- How subsequent IPO proceeds and the $81.9 million term-loan repayment changed debt, interest costs and covenant headroom after quarter-end.
- Whether strong same-store sales and improved quarterly gross margin continue, and how new-store growth affects operating costs and cash needs.
- How inventory growth, seasonal working-capital requirements and planned capital expenditures affect operating cash flow and liquidity.
- The composition and recurrence of adjusted EBITDA adjustments, including the $0.9 million abandoned-acquisition expense.
- The effect of the $41.3 million dividend and option-related payments on leverage and equity; the filing says the dividend was primarily funded with additional borrowings.