Boot Barn Holdings, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Thirteen weeks ended June 26, 2021; comparison is with the thirteen weeks ended June 27, 2020. Balance-sheet comparisons are with March 27, 2021. Dollar amounts below are in millions unless stated otherwise.
Business context and performance
Boot Barn operates western and workwear retail stores and e-commerce websites. It had 276 stores in 36 states at quarter-end, versus 264 stores a year earlier. Results in the prior-year quarter were materially affected by COVID-19, including reduced store traffic and temporary store closures; year-over-year growth therefore reflects a difficult comparison.
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $306.3 | $147.8 |
| Gross profit / margin | $116.4 / 38.0% | $40.2 / 27.2% |
| SG&A / % of sales | $62.8 / 20.5% | $38.4 / 26.0% |
| Operating income / margin | $53.6 / 17.5% | $1.8 / 1.2% |
| Net income (loss) | $40.6 | ($0.5) |
| Diluted EPS | $1.35 | ($0.02) |
| Operating cash flow | $46.3 | $23.1 |
Material changes and drivers
- Sales increased 107.3%; same-store sales rose 78.9%. Excluding e-commerce same-store sales growth of 9.8%, same-store sales grew 104.5%. Growth also reflected temporarily closed stores returning to the comparison base and new-store sales.
- Gross margin expanded 10.8 percentage points: 6.6 points from leverage in buying and occupancy costs, and 4.2 points from merchandise margin. Boot Barn cited a higher share of store sales versus e-commerce, better full-price selling and increased exclusive-brand penetration.
- SG&A rose in dollars due mainly to higher store payroll, overhead and marketing, but fell as a share of sales because of sales leverage.
- Interest expense was $2.6 million, including a $0.9 million write-off of debt issuance costs and discount related to term-loan prepayments. Excluding that write-off, interest expense was $1.7 million.
- Adjusted EBITDA, a non-GAAP measure, was $63.4 million versus $9.1 million; Adjusted EBIT was $57.3 million versus $3.4 million.
Cash, debt and liquidity
- Cash and equivalents were $49.6 million at June 26, down from $73.1 million at March 27. Operating activities provided $46.3 million; capital expenditures used $9.3 million; financing activities used $60.5 million, primarily reflecting $61.7 million of debt and finance-lease repayments.
- The company voluntarily prepaid $61.5 million on its term loan during the quarter, leaving $50.0 million principal outstanding ($49.3 million net carrying value). No revolving-credit borrowings were outstanding.
- After quarter-end, the revolving facility was increased from $165 million to $180 million. The company reported compliance with debt covenants at June 26.
- Total liabilities were $510.6 million, including $233.6 million of lease liabilities. These lease obligations are distinct from funded debt.
- Management said operating cash flow and available credit were expected to cover working-capital needs, planned capital spending and other anticipated cash needs for at least the next 12 months.
Outlook, risks and unusual items
- No specific sales or earnings guidance was provided. Fiscal 2022 capital expenditures were estimated at $33 million–$36 million, net of landlord allowances, including spending already incurred in the quarter.
- Management cautioned that COVID-19’s duration and effects on the economy and consumer confidence remained uncertain, making near- to medium-term performance difficult to estimate. Results are also seasonal; the third quarter has historically generated higher sales and operating income.
- Variable-rate debt creates interest-rate exposure: a 1 percentage-point rate change on quarter-end funded debt would affect annual interest expense by approximately $0.5 million.
- The filing discusses a California e-commerce deceptive-pricing class action, for which an estimated cost was accrued, and a California wage-and-hour class action. A probable-loss amount for the latter was recorded but was described as immaterial; the company said it could not reasonably estimate the matter’s overall loss. Management considered other pending or threatened matters not expected to have a material effect.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- How much of the exceptional sales and margin improvement persists after the COVID-affected prior-year comparison, including same-store sales trends and store/e-commerce mix.
- Whether inventory growth, cash generation and planned $33 million–$36 million of fiscal-year capital expenditures remain consistent with the liquidity outlook.
- The pace of further term-loan repayment, revolving-facility availability and any changes to covenant compliance or variable borrowing costs.
- Developments and potential exposure in the disclosed litigation, as well as continuing COVID-19, consumer-spending and supply-cost risks.
- The filing’s results are for one quarter and are not necessarily indicative of the full fiscal year.