Boot Barn Holdings, Inc. — Q3 Fiscal 2021 Form 10-Q
Reporting period: Thirteen weeks ended December 26, 2020; year-to-date results cover 39 weeks. Comparisons are to the corresponding periods ended December 28, 2019. Boot Barn operates specialty retail stores and e-commerce sites selling western and work footwear, apparel and accessories. It had 266 stores in 36 states at quarter-end, versus 251 stores a year earlier.
Key financial results
| Metric | Q3 2021 | Q3 2020 | 39 weeks 2021 | 39 weeks 2020 |
|---|---|---|---|---|
| Net sales | $302.3 million | $284.0 million | $634.6 million | $656.9 million |
| Gross profit / margin | $106.8 million / 35.3% | $97.0 million / 34.2% | $202.5 million / 31.9% | $218.5 million / 33.3% |
| Operating income / margin | $41.6 million / 13.8% | $35.0 million / 12.3% | $53.5 million / 8.4% | $64.0 million / 9.7% |
| Net income | $29.6 million | $24.8 million | $34.8 million | $42.2 million |
| Diluted EPS | $1.00 | $0.85 | $1.19 | $1.45 |
| Adjusted EBITDA | $49.9 million | $42.8 million | $78.2 million | $83.7 million |
Cash flow and liquidity: For the 39 weeks, operating cash flow was $156.6 million, investing cash outflow was $20.5 million and financing cash outflow was $129.3 million; cash increased $6.8 million. Cash was $76.3 million at December 26, 2020, compared with $69.6 million at March 28, 2020. The company reported no revolver borrowings and $111.5 million of term-loan principal outstanding. It stated that cash flows and available credit should cover anticipated needs for at least 12 months.
Balance sheet: Total assets were $892.2 million and total liabilities were $529.6 million. Inventory was $246.0 million, down from $288.7 million at fiscal year-end. Lease liabilities totaled $202.0 million. The term loan matures in June 2023; the company reported compliance with debt covenants.
Changes versus the prior comparable periods
- Quarter: Sales increased 6.5%; same-store sales rose 4.6%, including e-commerce same-store growth of 16.3%. Gross margin improved 110 basis points, primarily from stronger full-price selling and fewer promotions. Net income rose 19.1%.
- Year to date: Sales fell 3.4% and same-store sales declined 3.2%. Excluding e-commerce same-store growth of 24.9%, same-store sales declined 8.9%. Management attributed weaker store sales to COVID-19-related traffic declines and temporary closures. Gross margin decreased 140 basis points, reflecting buying and occupancy cost deleverage. Net income fell 17.5%.
- Year-to-date SG&A declined 3.6%, while SG&A as a share of sales was unchanged at 23.5%. Interest expense declined in both periods, primarily due to lower rates and debt balances.
Outlook, risks and unusual items
- Management estimated fiscal 2021 capital expenditures of $17 million to $19 million, including spending already incurred, net of landlord allowances. No earnings or sales guidance was provided.
- COVID-19 continued to create uncertainty around consumer confidence, store traffic, potential closures and future results. The filing says all stores were open except for temporary COVID-related closures as of the report date.
- The company cited operating cash flow and credit availability as sufficient for anticipated needs over at least the next 12 months. Year-to-date operating cash flow benefited from lower inventory and increased accounts payable and accrued liabilities; management linked the latter in part to payment timing and elevated December sales.
- Variable-rate debt creates interest-rate exposure: management estimated that a 1 percentage-point rate change on debt outstanding at quarter-end would affect annual interest by approximately $1.1 million.
- A California class-action complaint alleges deceptive pricing on Sheplers’ e-commerce site. The company said an estimated cost had been accrued; management did not expect other pending or threatened litigation to have a material effect.
- Year-to-date store impairment charges were $0.7 million. The company reported no goodwill or intangible-asset impairment indicators at quarter-end.
Important facts for investors to verify
- Whether Q3’s sales and margin improvement persists, particularly the contribution from e-commerce and reduced promotions.
- How much of the reported operating cash flow reflects sustainable operating performance versus inventory reductions and payment timing.
- COVID-19 effects on store traffic, closures, consumer demand and the fiscal-year outlook.
- Term-loan covenant compliance, floating-rate exposure and available revolver capacity.
- The amount and potential resolution of the accrued Sheplers pricing litigation matter.