BOOT BARN HOLDINGS, INC. The following discussion and analysis of the financial condition and results of
our operations should be read together with the unaudited financial statements
and related notes of
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate", "believe", "can", "continue", "could", "estimate", "expect", "intend", "may", "plan", "project", "seek", "should", "target", "will", "would" and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information
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currently available to management. These forward-looking statements are subject to numerous risks and uncertainties, including the risks and uncertainties described under the section titled "Risk Factors" in our Fiscal 2021 10-K, and those identified in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.
We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
The major global health pandemic caused by COVID-19 and resulting economic impacts have had and may continue to have an impact on our operations, future growth strategies and outlook. Our business and opportunities for growth depend on consumer discretionary spending, and as such, our results are particularly sensitive to economic conditions and consumer confidence. The extent to which COVID-19 impacts our operations will depend on future developments, which remain uncertain. For further discussion of the uncertainties and business risks associated with COVID-19, see Item 1A, Risk Factors, of our Fiscal 2021 10-K.
Overview
We believe that
We strive to offer an authentic, one-stop shopping experience that fulfills the everyday lifestyle needs of our customers, and as a result, many of our customers make purchases in both the western and work wear sections of our stores. We target a broad and growing demographic, ranging from passionate western and country enthusiasts, to workers seeking dependable, high-quality footwear and apparel. Our broad geographic footprint, which comprises more than three times as many stores as our nearest direct competitor that sells primarily western and work wear, provides us with significant economies of scale, enhanced supplier relationships, the ability to recruit and retain high quality store associates and the ability to reinvest in our business at levels that we believe exceed those of our competition.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators we use to evaluate the financial condition and operating performance of our business are net sales and gross profit. In addition, we also review other important metrics, such as same store sales, new store openings, and selling, general and administrative expenses ("SG&A"), as well as the non-GAAP financial measures, earnings before interest, taxes, depreciation and amortization ("EBITDA"), EBITDA adjusted to exclude certain items ("Adjusted EBITDA"), and earnings before interest and taxes, adjusted to exclude certain items ("Adjusted EBIT"). See "-EBITDA, Adjusted EBITDA and Adjusted EBIT" below for more information and "-Results of Operations" for a reconciliation of these measures to net income.
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Net sales
Net sales reflect revenue from the sale of our merchandise at retail locations, as well as sales of merchandise through our e-commerce websites. We recognize revenue upon the purchase of merchandise by customers at our stores and upon delivery of the product in the case of our e-commerce websites. Net sales also include shipping and handling fees for e-commerce shipments that have been delivered to our customers. Net sales are net of returns on sales during the period as well as an estimate of returns and award redemptions expected in the future stemming from current period sales. Revenue from the sale of gift cards is deferred until the gift cards are used to purchase merchandise.
Our business is moderately seasonal and as a result our revenues fluctuate from quarter to quarter. In addition, our revenues in any given quarter can be affected by a number of factors including the timing of holidays, weather patterns, rodeos and country concerts. The third quarter of our fiscal year, which includes the Christmas shopping season, has historically produced higher sales and disproportionately larger operating income than the other quarters of our fiscal year. However, neither the western nor the work component of our business has been meaningfully impacted by fashion trends or seasonality historically. We believe that many of our customers are driven primarily by utility and brand, and our best-selling styles.
Same store sales
The term "same store sales" refers to net sales from stores that have been open at least 13 full fiscal months as of the end of the current reporting period, although we include or exclude stores from our calculation of same store sales in accordance with the following additional criteria:
? stores that are closed for five or fewer consecutive days in any fiscal month
are included in same store sales;
stores that are closed temporarily, but for more than five consecutive days in
any fiscal month, are excluded from same store sales beginning in the fiscal
? month in which the temporary closure begins (and for the comparable periods of
the prior or subsequent fiscal periods for comparative purposes) until the
first full month of operation once the store re-opens;
? stores that are closed temporarily and relocated within their respective trade
areas are included in same store sales;
stores that are permanently closed are excluded from same store sales beginning
? in the month preceding closure (and for the comparable periods of the prior or
subsequent fiscal periods for comparative purposes); and
acquired stores are added to same store sales beginning on the later of (a) the
applicable acquisition date and (b) the first day of the first fiscal month
? after the store has been open for at least 13 full fiscal months regardless of
whether the store has been operated under our management or predecessor
management.
If the criteria described with respect to acquired stores above are met, then all net sales of such acquired store, excluding those net sales before our acquisition of that store, are included for the period presented. However, when an acquired store is included for the period presented, the net sales of such acquired store for periods before its acquisition are included (to the extent relevant) for purposes of calculating "same store sales growth" and illustrating the comparison between the applicable periods. Pre-acquisition net sales numbers are derived from the books and records of the acquired company, as prepared prior to the acquisition, and have not been independently verified by us.
In addition to retail store sales, same store sales also includes e-commerce sales, e-commerce shipping and handling revenue and actual retail store or e-commerce sales returns. Sales as a result of an e-commerce asset acquisition are excluded from same store sales until the 13th full fiscal month subsequent to the Company's acquisition of such assets.
We exclude gift card escheatment, provision for sales returns and estimated future loyalty award redemptions from sales in our calculation of net sales per store.
Measuring the change in year-over-year same store sales allows us to evaluate how our store base is performing. Numerous factors affect our same store sales, including:
? national and regional economic trends, including those resulting from the
COVID-19 pandemic;
? our ability to identify and respond effectively to regional consumer
preferences;
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? changes in our product mix;
? changes in pricing; ? competition;
? changes in the timing of promotional and advertising efforts;
? holidays or seasonal periods; and
? weather.
Opening new stores is an important part of our growth strategy and we anticipate that a percentage of our net sales in the near future will come from stores not included in our same store sales calculation. Accordingly, same store sales are only one measure we use to assess the success of our business and growth strategy. Some of our competitors and other retailers may calculate "same" or "comparable" store sales differently than we do. As a result, data in this Quarterly Report on Form 10-Q regarding our same store sales may not be comparable to similar data made available by other retailers.
New store openings
New store openings reflect the number of stores, excluding acquired stores, that are opened during a particular reporting period. In connection with opening new stores, we incur pre-opening costs. Pre-opening costs consist of costs incurred prior to opening a new store and primarily consist of manager and other employee payroll, travel and training costs, marketing expenses, initial opening supplies and costs of transporting initial inventory and certain fixtures to store locations, as well as occupancy costs incurred from the time that we take possession of a store site to the opening of that store. Occupancy costs are included in cost of goods sold and the other pre-opening costs are included in SG&A expenses. All of these costs are expensed as incurred.
New stores often open with a period of high sales levels, which subsequently decrease to normalized sales volumes. In addition, we experience typical inefficiencies in the form of higher labor, advertising and other direct operating expenses, and as a result, store-level profit margins at our new stores are generally lower during the start-up period of operation. The number and timing of store openings has had, and is expected to continue to have, a significant impact on our results of operations. In assessing the performance of a new store, we review its actual sales against the sales that we projected that store to achieve at the time we initially approved its opening. We also review the actual number of stores opened in a fiscal year against the number of store openings that we included in our budget at the beginning of that fiscal year.
Gross profit
Gross profit is equal to our net sales less our cost of goods sold. Cost of goods sold includes the cost of merchandise, obsolescence and shrinkage provisions, store and warehouse occupancy costs (including rent, depreciation and utilities), inbound and outbound freight, supplier allowances, occupancy-related taxes, compensation costs for merchandise purchasing and warehouse personnel, and other inventory acquisition-related costs. These costs are significant and can be expected to continue to increase as we grow. The components of our reported cost of goods sold may not be comparable to those of other retail companies, including our competitors.
Our gross profit generally follows changes in net sales. We regularly analyze the components of gross profit, as well as gross profit as a percentage of net sales. Specifically, we examine the initial markup on purchases, markdowns and reserves, shrinkage, buying costs, distribution costs and occupancy costs. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns or in inventory shrinkage, or a significant increase in freight and other inventory acquisition costs, could have an adverse impact on our gross profit and results of operations.
Gross profit is also impacted by shifts in the proportion of sales of our exclusive brand products compared to third-party brand products, as well as by sales mix changes within and between brands and major product categories such as footwear, apparel or accessories.
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Selling, general and administrative expenses
Our SG&A expenses are composed of labor and related expenses, other operating expenses and general and administrative expenses not included in cost of goods sold. Specifically, our SG&A expenses include the following:
Labor and related expenses - Labor and related expenses include all store-level
? salaries and hourly labor costs, including salaries, wages, benefits and
performance incentives, labor taxes and other indirect labor costs.
Other operating expenses - Other operating expenses include all operating
? costs, including those for advertising, pay-per-click, marketing campaigns,
operating supplies, utilities, and repairs and maintenance, as well as credit
card fees and costs of third-party services.
General and administrative expenses - General and administrative expenses
include expenses associated with corporate and administrative functions that
? support the development and operations of our stores, including compensation
and benefits, travel expenses, corporate occupancy costs, stock compensation
costs, legal and professional fees, insurance, long-lived asset impairment
charges and other related corporate costs.
The components of our SG&A expenses may not be comparable to those of our competitors and other retailers. We expect our selling, general and administrative expenses will increase in future periods as a result of incremental share-based compensation, legal, and accounting-related expenses and increases resulting from growth in the number of our stores.
EBITDA, Adjusted EBITDA and Adjusted EBIT
EBITDA, Adjusted EBITDA and Adjusted EBIT are important non-GAAP financial measures used by our management, board of directors and lenders to assess our operating performance. We use EBITDA, Adjusted EBITDA and Adjusted EBIT as key performance measures because we believe that they facilitate operating performance comparisons from period to period by excluding potential differences primarily caused by the impact of variations from period to period in tax positions, interest expense and depreciation and amortization, as well as, in the case of Adjusted EBITDA, excluding non-cash expenses, such as stock-based compensation and the non-cash accrual for future award redemptions, and other costs and expenses that are not directly related to our operations, including gain on disposal of assets and gain on adjustment of ROU assets and lease liabilities. Similar to Adjusted EBITDA, Adjusted EBIT excludes the aforementioned adjustments while maintaining the impact of depreciation and amortization on our financial results. See "Results of Operations" below for a reconciliation of our EBITDA, Adjusted EBITDA and Adjusted EBIT to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Because EBITDA, Adjusted EBITDA and Adjusted EBIT facilitate internal comparisons of our historical operating performance on a more consistent basis, we also use EBITDA, Adjusted EBITDA and Adjusted EBIT for business planning purposes, in determining incentive compensation for members of our management and in evaluating acquisition opportunities. Our credit facilities also require us to use EBITDA, Adjusted EBITDA and Adjusted EBIT in calculating covenant compliance. In addition, we believe that EBITDA, Adjusted EBITDA and Adjusted EBIT and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities. Given that EBITDA, Adjusted EBITDA and Adjusted EBIT are measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our EBITDA, Adjusted EBITDA and Adjusted EBIT may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate EBITDA, Adjusted EBITDA and Adjusted EBIT in a different manner than we calculate these measures.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in
Certain of our accounting policies and estimates are considered critical, as these policies and estimates are the most important to the depiction of our consolidated financial statements and require significant, difficult or complex
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judgments, often about the effect of matters that are inherently uncertain. Such policies are summarized in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Fiscal 2021 10-K. As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates described in the Fiscal 2021 10-K.
Results of Operations
We operate on a fiscal calendar that results in a 52- or 53-week fiscal year
ending on the last Saturday of March unless
The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales:
Thirteen Weeks Ended
June 26, June 27,
(dollars in thousands) 2021 2020
Condensed Consolidated Statements of Operations Data: Net sales
$ 306,327 $ 147,766 Cost of goods sold 189,900 107,565 Gross profit 116,427 40,201 Selling, general and administrative expenses 62,784 38,403 Income from operations 53,643 1,798 Interest expense 2,563 2,641 Other income, net 104 64 Income/(loss) before income taxes 51,184 (779) Income tax expense/(benefit) 10,539 (289) Net income/(loss)$ 40,645 $ (490) Percentage ofNet Sales (1): Net sales 100.0 % 100.0 % Cost of goods sold 62.0 % 72.8 % Gross profit 38.0 % 27.2 % Selling, general and administrative expenses 20.5 % 26.0 % Income from operations 17.5 % 1.2 % Interest expense 0.8 % 1.8 % Other income, net - % - % Income/(loss) before income taxes 16.7 % (0.5) % Income tax expense/(benefit) 3.4 % (0.2) % Net income/(loss) 13.3 % (0.3) %
(1) Percentages may not recalculate due to rounding.
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The following table presents a reconciliation of EBITDA, Adjusted EBITDA and
Adjusted EBIT to our net income, the most directly comparable financial measure
calculated and presented in accordance with GAAP, for each of the periods
indicated:
Thirteen Weeks Ended
June 26, June 27,
(in thousands) 2021 2020
EBITDA, Adjusted EBITDA and Adjusted EBIT
Reconciliations:
Net income/(loss) $ 40,645 $ (490)
Income tax expense/(benefit) 10,539 (289)
Interest expense 2,563 2,641
Depreciation and intangible asset amortization 6,170 5,710
EBITDA 59,917 7,572
Non-cash stock-based compensation(a) 3,201 1,824
Non-cash accrual for future award redemptions(b) 339 (302)
Gain on disposal of assets(c) (4) (4)
Gain on adjustment of right-of-use assets and lease liabilities(d)
(33) -
Adjusted EBITDA $ 63,420 $ 9,090
Depreciation and intangible asset amortization (6,170) (5,710)
Adjusted EBIT $ 57,250 $ 3,380 Represents non-cash compensation expenses related to stock options, (a) restricted stock units and performance share units granted to certain of our
employees and directors.
(b) Represents the non-cash accrual for future award redemptions in connection
with our customer loyalty program.
(c) Represents gain on disposal of assets.
(d) Represents gain on adjustment of right-of-use assets and lease liabilities.
The following table presents store operating data for the periods indicated:
Thirteen Weeks Ended
June 26, June 27,
2021 2020
Selected Store Data:
Same Store Sales growth/(decline) 78.9 % (14.9) %
Stores operating at end of period 276 264
Total retail store square footage, end of
period (in thousands) 2,915 2,770
Average store square footage, end of period 10,563 10,491
Average net sales per store (in thousands)
Thirteen Weeks Ended
Note: Comparisons to the thirteen weeks ended
Net sales. Net sales increased
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Gross profit. Gross profit increased
Selling, general and administrative expenses. SG&A expenses increased
Income from operations. Income from operations increased
Interest expense. Interest expense was
Income tax expense/(benefit). Income tax expense was
Net income/(loss). Net income was
Adjusted EBITDA and Adjusted EBIT. Adjusted EBITDA increased
Liquidity and Capital Resources
We rely on cash flows from operating activities and our credit facilities as our primary sources of liquidity. Our primary cash needs are for inventories, operating expenses, capital expenditures associated with opening new stores and remodeling or refurbishing existing stores, improvements to our distribution facilities, marketing and information technology expenditures, debt service and taxes. We have also used cash for acquisitions, the subsequent rebranding and integration of the stores acquired in those acquisitions and costs to consolidate the corporate offices. In addition to cash
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and cash equivalents, the most significant components of our working capital are accounts receivable, inventories, accounts payable and accrued expenses and other current liabilities. We believe that cash flows from operating activities and the availability of cash under our credit facilities or other financing arrangements will be sufficient to cover working capital requirements, anticipated capital expenditures and other anticipated cash needs for at least the next 12 months.
Our liquidity is moderately seasonal. Our cash requirements generally increase in our third fiscal quarter as we increase our inventory in advance of the Christmas shopping season.
We are planning to continue to open new stores, remodel and refurbish our
existing stores, and make improvements to our e-commerce and information
technology infrastructure, which will result in increased capital expenditures.
We estimate that our total capital expenditures in fiscal 2022 will be between
On
Borrowings under the
Borrowings under the 2015 Golub Term Loan bear interest at per annum rates equal
to, at our option, either (a) LIBOR plus an applicable margin for LIBOR loans
with a LIBOR floor of 1.0%, or (b) the base rate plus an applicable margin for
base rate loans. The base rate is calculated as the greater of (i) the higher of
(x) the prime rate and (y) the federal funds rate plus 0.5% and (ii) the sum of
one-month LIBOR plus 1.0%. The applicable margin is 4.5% for LIBOR Loans and
3.5% for base rate loans. The principal and interest on the 2015 Golub Term Loan
is payable in quarterly installments ending on the maturity date, which was
originally
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On
All obligations under each of the 2015 Golub Term Loan and the
The priority with respect to collateral under each of the 2015 Golub Term Loan
and the
Each of the
As of
Cash Position and Cash Flow
Cash and cash equivalents were
The following table presents summary cash flow information for the periods
indicated:
Thirteen Weeks Ended
June 26, June 27,
(in thousands) 2021 2020
Net cash provided by/(used in):
Operating activities $ 46,328 $ 23,133
Investing activities (9,294) (8,944)
Financing activities (60,542) (629)
Net (decrease)/increase in cash
Operating Activities
Net cash provided by operating activities was
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non-cash depreciation and intangible asset amortization expense of
Net cash provided by operating activities was
Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was
Financing Activities
Net cash used in financing activities was
Net cash used in financing activities was
Contractual Obligations
During the thirteen weeks ended
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements.
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