Boot Barn Holdings, Inc. — Form 10-Q Summary
Business context and period: The filing covers the 13 and 26 weeks ended September 30, 2017, compared with the periods ended September 24, 2016. Boot Barn operates specialty retail stores and e-commerce sites selling western and work footwear, apparel, and accessories. It had 222 stores in 31 states at quarter-end, including four stores acquired from Wood’s Boots on September 11, 2017.
Financial performance
Amounts below are in millions of dollars, except per-share data, percentages, and store counts.
| Metric | 13 weeks ended Sep. 30, 2017 | 13 weeks ended Sep. 24, 2016 | 26 weeks ended Sep. 30, 2017 | 26 weeks ended Sep. 24, 2016 |
|---|---|---|---|---|
| Net sales | $143.1 | $134.0 | $282.5 | $267.4 |
| Gross profit / margin | $41.7 / 29.1% | $36.4 / 27.2% | $83.1 / 29.4% | $77.2 / 28.9% |
| Operating income / margin | $5.6 / 3.9% | $4.4 / 3.3% | $10.6 / 3.7% | $8.9 / 3.4% |
| Net income | $1.1 | $0.5 | $1.9 | $1.1 |
| Diluted EPS | $0.04 | $0.02 | $0.07 | $0.04 |
| Adjusted EBITDA | $10.3 | $9.5 | $20.0 | $18.9 |
- Sales and comparable sales: Sales rose 6.8% for the quarter and 5.6% year to date. Same-store sales grew 1.8% and 1.5%, respectively. Management attributed sales growth to 11 new stores opened over the prior 13 months, the Wood’s Boots stores, same-store growth, and Country Outfitter e-commerce sales.
- Margins and expenses: Gross margin improved 1.9 percentage points for the quarter and 0.5 points year to date. Management cited stronger merchandise margin and, for the quarter, lower buying and occupancy costs as a percentage of sales. SG&A was 25.2% of quarterly sales versus 23.9%, and 25.7% year to date versus 25.5%; management cited growth-related costs and higher year-to-date bonus expense.
- Cash flow: Year-to-date operating cash flow was negative $0.7 million, compared with positive $6.7 million a year earlier. Inventory growth used $22.1 million, plus $2.8 million of inventory acquired from Wood’s Boots; increases in accounts payable and accrued liabilities partly offset this. Investing cash outflow was $11.3 million, mainly for stores, e-commerce/IT, and distribution facilities. Financing provided $13.4 million, including a $23.8 million net increase in revolver borrowings.
- Liquidity and balance sheet: Cash was $9.4 million at September 30, 2017, versus $8.0 million at April 1, 2017. Current assets were $241.6 million, including $211.8 million of inventory; current liabilities were $182.6 million. Management said operating cash flow and available credit should cover anticipated needs for at least 12 months.
- Debt: Revolver borrowings were $57.1 million under a $135 million facility; the term loan had $186.5 million principal outstanding. Combined gross borrowings were approximately $243.6 million, before $3.8 million of unamortized term-loan issuance costs and discount. The company prepaid $10.0 million of term-loan principal in June, covering scheduled quarterly principal payments through maturity. Debt covenants were reported in compliance at quarter-end.
Material changes, outlook, and risks
- The May 2017 revolver amendment increased facility capacity from $125 million to $135 million and extended its maturity. A term-loan amendment set maximum net leverage ratios of 4.75:1.00 at September 30, 2017, stepping down to 4.50:1.00 at December 30, 2017 and 4.00:1.00 at December 29, 2018 and thereafter.
- Hurricane Harvey damaged inventory and property at Houston-area stores. The company wrote off $3.2 million of assets and incurred $0.2 million of repairs and maintenance expense; it had received $0.7 million in insurance proceeds and recorded a $2.7 million insurance receivable, stating full reimbursement was probable.
- Fiscal 2018 capital expenditures were estimated at approximately $17 million, net of landlord allowances, including spending through the reporting date. No specific earnings or sales guidance was provided.
- Variable-rate debt creates interest-rate exposure: management estimated that a 1 percentage-point rate change would affect annual expense by approximately $2.4 million, based on quarter-end borrowings.
- The company identified risks in its recently launched private-label credit card program, including uncertain sales benefits, provider discretion and economics, customer data security, credit conditions, and regulatory constraints. Management reported no material effect expected from other pending or threatened litigation; a wage-and-hour class action settlement had been accrued and was described as immaterial.
- The company expects adoption of the new lease standard to materially increase reported assets and liabilities, principally because operating leases will be recognized on the balance sheet. Management was still assessing the impact.
Important facts for investors to verify
- Whether inventory growth and the resulting negative operating cash flow are seasonal or persist beyond the build-up for the holiday quarter.
- Realization of the $2.7 million Hurricane Harvey insurance receivable and the ultimate net effect of the loss and recovery.
- Available revolver capacity under the borrowing base, debt covenant headroom, and sensitivity to variable interest rates.
- Underlying same-store sales and margins, including the contribution from new, acquired, and e-commerce sales.
- Actual fiscal 2018 capital spending and the eventual balance-sheet impact of lease-standard adoption.