Boot Barn Holdings, Inc. (BOOT) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this annual report. The statements in the following discussion and analysis regarding expectations about our future performance, liquidity and capital resources and any other non-historical statements in this discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those described under “Risk Factors” and “Forward-Looking Statements” elsewhere in this annual report. Our actual results could differ materially from those contained in or implied by any forward-looking statements.
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We have omitted discussion of our fiscal 2023 results where it would be redundant of information previously disclosed. For a comparison of our fiscal 2023 versus fiscal 2022 results, please see the discussion previously included in Part II, Item 7 of our fiscal 2023 Annual Report on Form 10-K filed with the SEC on May 18, 2023.
Overview
We are the largest lifestyle retail chain devoted to western and work-related footwear, apparel and accessories in the United States. As of March 30, 2024, we operated 400 stores in 45 states, as well as an e-commerce channel, consisting primarily of bootbarn.com, sheplers.com, countryoutfitter.com, idyllwind.com and third-party marketplaces. Our stores feature a comprehensive assortment of brands and styles, coupled with attentive, knowledgeable store associates. Our product offering is anchored by an extensive selection of western and work boots and is complemented by a wide assortment of coordinating apparel and accessories. Many of the items that we offer are basics or necessities for our customers’ daily lives and typically represent enduring styles that are not meaningfully impacted by changing fashion trends.
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 clothing. Our broad geographic footprint, which comprises more than four 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.
Growth Strategies and Outlook
Over the long-term we plan to continue to expand our business, increase our sales growth and profitability and enhance our competitive position by executing the following strategies:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | continuing omni-channel leadership; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | driving same store sales growth; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | building our exclusive brand portfolio; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | expanding our store base |
Since the founding of Boot Barn in 1978, we have grown both organically and through successful strategic acquisitions of competing chains. We have rebranded and remerchandised the acquired chains under the Boot Barn banner, resulting in sales increases over their original concepts. We believe that our business model and scale provide us with competitive advantages that have contributed to our consistent financial performance, generating sufficient cash flow to support national growth.
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, selling, general and administrative (“SG&A”) expenses, and operating income.
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
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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 and weather patterns. The third quarter of our fiscal year, which includes the Christmas shopping season, has historically produced higher sales and disproportionately higher operating results than the other quarters of our fiscal year. In fiscal 2024, fiscal 2023 and fiscal 2022 we generated approximately 31%, 31% and 33% of our net sales during our third fiscal quarter, respectively. In addition, 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” generally refers to net sales from stores that have been open at least 13 full fiscal months (“comparable stores”) 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:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | stores that are closed for five or fewer consecutive days in any fiscal month are included in same store sales; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | stores that are closed temporarily and relocated within their respective trade areas are included in same store sales; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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 |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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 an 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 stores 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.
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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:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | national and regional economic trends; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | our ability to identify and respond effectively to regional consumer preferences; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | changes in our product mix; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | changes in pricing; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | competition; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | changes in the timing of promotional and advertising efforts; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | holidays or seasonal periods; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | weather. |
Opening new stores is an important part of our growth strategy. We opened 55, 45, and 28 stores in fiscal 2024, 2023 and 2022, respectively. We also closed one store in fiscal 2022 (and none in fiscal 2024 or 2023). 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 annual report 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 have had, and are 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 distribution center occupancy costs (including rent, depreciation and utilities), inbound and outbound freight, supplier allowances, occupancy-related taxes, inventory acquisition-related costs, and compensation costs for merchandise purchasing, exclusive brand design and development and distribution center personnel. These costs are significant and can be expected to continue to increase as we grow.
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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, or 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 shifts within and between brands and between major product categories such as footwear, apparel or accessories.
Selling, general and administrative expenses
Our selling, general and administrative (“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:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | 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. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | Other operating expenses—Other operating expenses include all operating costs, including those for advertising, pay-per-click, marketing campaigns, operating supplies, and repairs and maintenance, as well as credit card fees and costs of third-party services. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | General and administrative expenses—General and administrative expenses comprise 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 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, accounting and other compliance-related expenses and increases resulting from growth in the number of our stores.
Fiscal Year
We operate on a fiscal calendar which results in a 52- or 53-week fiscal year ending on the last Saturday of March unless April 1st is a Saturday, in which case the fiscal year ends on April 1st. In a 52-week fiscal year, each quarter includes thirteen weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include thirteen weeks of operations and the fourth quarter includes fourteen weeks of operations. Fiscal 2024 was a 52-week period, fiscal 2023 was a 53-week period and fiscal 2022 was a 52-week period. For ease of reference, we identify our fiscal years by reference to the calendar year in which the fiscal year ends.
Results of Operations
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. The following discussion contains references to fiscal 2024, fiscal 2023, and
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fiscal 2022, which represent our fiscal years ended March 30, 2024, April 1, 2023 and March 26, 2022. Fiscal 2024 was a 52-week period, fiscal 2023 was a 53-week period and fiscal 2022 was a 52-week period.
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal Year Ended | ||||||||
| | | March 30, | April 1, | March 26, | ||||||
| (dollars in thousands) | 2024 | | 2023 | | 2022 | |||||
| Consolidated Statements of Operations Data: | | | | | | | | | | |
| Net sales | | $ | 1,667,009 | | $ | 1,657,615 | | $ | 1,488,256 | |
| Cost of goods sold | | 1,052,585 | | 1,047,043 | | 913,183 | | |||
| Gross profit | | 614,424 | | 610,572 | | 575,073 | | |||
| Selling, general and administrative expenses | | 416,210 | | 378,785 | | 316,735 | | |||
| Income from operations | | 198,214 | | 231,787 | | 258,338 | | |||
| Interest expense | | 2,238 | | 5,880 | | 5,780 | | |||
| Other (loss)/income, net | | | 1,396 | | | (29) | | | 35 | |
| Income before income taxes | | 197,372 | | 225,878 | | 252,593 | | |||
| Income tax expense | | 50,376 | | 55,325 | | 60,143 | | |||
| Net income | | $ | 146,996 | | $ | 170,553 | | $ | 192,450 | |
| | | | | | | | | | | |
| Percentage of Net Sales(1): | | | | | | | | | | |
| Net sales | | 100.0 | % | 100.0 | % | 100.0 | % | |||
| Cost of goods sold | | 63.1 | % | 63.2 | % | 61.4 | % | |||
| Gross profit | | 36.9 | % | 36.8 | % | 38.6 | % | |||
| Selling, general and administrative expenses | | 25.0 | % | 22.9 | % | 21.3 | % | |||
| Income from operations | | 11.9 | % | 14.0 | % | 17.4 | % | |||
| Interest expense | | 0.1 | % | 0.4 | % | 0.4 | % | |||
| Other (loss)/income, net | | | 0.1 | % | | — | % | | — | % |
| Income before income taxes | | 11.8 | % | 13.6 | % | 17.0 | % | |||
| Income tax expense | | 3.0 | % | 3.3 | % | 4.0 | % | |||
| Net income | | 8.8 | % | 10.3 | % | 12.9 | % |
| Column 1 | Column 2 |
|---|---|
| (1) | Percentages may not total 100% due to rounding. |
Fiscal 2024 compared to Fiscal 2023
Net sales. Net sales in fiscal 2024 increased by $9.4 million, or 0.6%, to $1.667 billion compared to $1.658 billion in fiscal 2023. Consolidated same store sales decreased 6.2%. Excluding the impact of the 10.6% decrease in e-commerce same store sales, same store sales decreased by 5.6%. Net sales increased primarily due to the incremental sales from new stores opened over the past twelve months partially offset by the decrease in consolidated same store sales and sales from the 53rd week in the prior year.
Gross profit. Gross profit increased by $3.8 million, or 0.6%, to $614.4 million in fiscal 2024 from $610.6 million in fiscal 2023. As a percentage of net sales, gross profit was 36.9% and 36.8% for fiscal 2024 and fiscal 2023, respectively. Gross profit increased primarily due to merchandise margin expansion and sales growth. As a percentage of net sales, gross profit rate was approximately flat driven primarily by a 160 basis-point increase in merchandise margin rate offset by 160 basis points of deleverage in buying, occupancy and distribution center costs. The increase in merchandise margin rate was driven primarily by a 120 basis-point improvement in freight expense as a percentage of net sales and 40 basis points of product margin expansion resulting primarily from growth in exclusive brand penetration and buying economies of scale. The deleverage in buying, occupancy and distribution center costs was driven primarily by the higher occupancy costs of new stores, depreciation expense related to the opening of the new Kansas City distribution center and the impact of a 52-week year when compared to a 53-week year last year.
Selling, general and administrative expenses. SG&A expenses increased by $37.4 million, or 9.9%, to $416.2 million in fiscal 2024 from $378.8 million in fiscal 2023. As a percentage of net sales, SG&A expenses were 25.0% for fiscal 2024 compared to 22.9% for fiscal 2023. SG&A expenses increased primarily as a result of higher general and
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administrative expenses, store payroll associated with operating 55 new stores and other operating expenses in the current year. SG&A expenses as a percentage of net sales increased by approximately 210 basis points primarily as a result of higher general and administrative expenses and store payroll costs.
Income from operations. Income from operations decreased by $33.6 million, or 14.5%, to $198.2 million for fiscal 2024 from $231.8 million for fiscal 2023. As a percentage of net sales, income from operations was 11.9% and 14.0% for fiscal 2024 and fiscal 2023, respectively. The change in income from operations was attributable to the factors noted above.
Interest expense. Interest expense decreased by $3.6 million, or 61.9%, to $2.2 million in fiscal 2024 from $5.9 million in fiscal 2023. The decrease in interest expense was primarily the result of a lower debt balance, partially offset by a higher weighted average interest rate compared to the prior year.
Income tax expense. Income tax expense was $50.4 million in fiscal 2024 compared to $55.3 million in fiscal 2023. Our effective tax rate was 25.5% and 24.5% for fiscal 2024 and fiscal 2023, respectively. The effective tax rate for fiscal 2024 is higher than fiscal 2023 primarily due to changes to state enacted tax rates, partially offset by a higher tax benefit due to income tax accounting for share-based compensation compared to the prior year.
Net income. Net income decreased by $23.6 million, or 13.8%, to $147.0 million in fiscal 2024 from net income of $170.6 million in fiscal 2023. The change in net income was attributable to the factors noted above.
Store Operating Data
The following table presents store operating data for the periods indicated:
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal Year Ended | ||||||||
| | | | | | | | ||||
| | | March 30, | | April 1, | | March 26, | | |||
| | | 2024 | | 2023 | | 2022 | | |||
| Selected Store Data (unaudited): | | | | | | | | | | |
| Same Store Sales (decline)/growth | | (6.2) | % | (0.1) | % | 53.7 | % | |||
| Stores operating at end of period | | 400 | | 345 | | 300 | | |||
| Comparable stores open at end of period | | | 335 | | | 290 | | | 265 | |
| Total retail store square footage, end of period (in thousands) | | 4,371 | | 3,735 | | 3,194 | | |||
| Average store square footage, end of period | | 10,929 | | 10,825 | | 10,648 | | |||
| Average sales per comparable store (in thousands)(1) | | $ | 4,081 | | $ | 4,554 | | $ | 4,449 | |
| Column 1 | Column 2 |
|---|---|
| (1) | Average sales per comparable store is calculated by dividing comparable store trailing twelve-month sales for the applicable period by the number of comparable stores operating at the end of the period. |
Liquidity and Capital Resources
We rely on cash flows from operating activities and our credit facility as our primary sources of liquidity. Our primary cash needs are for inventories, operating expenses, occupancy 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 historically used cash for acquisitions and the subsequent rebranding and integration of the stores acquired in those acquisitions. In addition to cash 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 facility 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 incur additional marketing expenses and increase our inventory in advance of the Christmas shopping season. Our cash flows from operations increased in fiscal 2024 compared to fiscal 2023, primarily as a result of a $105.6 million decrease
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in cash paid for inventories year-over-year, a $14.8 million decrease in cash paid for prepaid expenses and other current assets, and a $15.4 million increase in cash provided by accounts payable and accrued expenses and other current liabilities.
As of the end of fiscal 2024, we did not have any material capital expenditure commitments. As of March 30, 2024, we did not have an amount outstanding under the Wells Fargo Revolver. We had $250.0 million of remaining availability under the Wells Fargo Revolver and $75.8 million of cash on hand as of March 30, 2024. Our primary ongoing sources of liquidity include funds provided by operations and borrowings under our revolving credit facility. We expect our cash from operations will continue to be sufficient to support our operations and anticipated capital expenditures for the foreseeable future. We estimate that our capital expenditures in fiscal 2025 will be between approximately $115.0 million and $120.0 million, which is net of estimated landlord tenant allowances of $30.2 million. We anticipate that we will use cash flows from operations to fund these expenditures.
Current Credit Facility
The Company currently has a $250.0 million syndicated senior secured asset-based revolving credit facility for which Wells Fargo Bank, National Association is agent (“Wells Fargo Revolver”). Under the Wells Fargo Revolver, the sublimit for letters of credit is $10.0 million and the current maturity date is July 11, 2027. The Company previously had a $200.0 million syndicated senior secured term loan for which GCI Capital Markets LLC was agent (“2015 Golub Term Loan”).
Revolving credit loans under the Wells Fargo Revolver bear interest at per annum rates equal to, at the Company’s option, either (i) Adjusted Term Secured Overnight Financing Rate (defined as “Term SOFR” for the applicable interest period plus a fixed credit spread adjustment of 0.10%) plus an applicable margin for Term SOFR loans, or (ii) the base rate plus an applicable margin for base rate loans. The base rate is calculated at the highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate and (c) Term SOFR for a one-month tenor in effect on such day plus 1.0%. The applicable margin is calculated based on a pricing grid that in each case is linked to quarterly average excess availability. For Term SOFR loans, the applicable margin ranges from 1.00% to 1.25% and for base rate loans it ranges from 0.00% to 0.25%. The interest on base rate loans under the Wells Fargo Revolver is payable in quarterly installments ending on the maturity date and for Term SOFR loans is payable on the earlier of the last day of each interest period applicable thereto, or on each three-month interval of such interest period. The Company also pays a commitment fee of 0.25% per annum of the actual daily amount of the unutilized revolving loans.
The borrowing base of the Wells Fargo Revolver is calculated on a monthly basis and is based on the amount of eligible credit card receivables, commercial accounts, inventory, and available reserves.
The amounts outstanding under the Wells Fargo Revolver and letter of credit commitments as of March 30, 2024 were zero and $2.3 million, respectively. The amounts outstanding under the Wells Fargo Revolver and letter of credit commitments as of April 1, 2023 were $66.0 million and $0.8 million, respectively. Total interest expense incurred in fiscal 2024 on the Wells Fargo Revolver was $1.7 million and the weighted average interest rate for fiscal 2024 was 7.0%. Total interest expense incurred in fiscal 2023 on the Wells Fargo Revolver was $5.2 million and the weighted average interest rate for fiscal 2023 was 4.3%. Total interest expense incurred in fiscal 2022 on the Wells Fargo Revolver was $0.7 million and the weighted average interest rate for fiscal 2022 was 3.4%.
All obligations under the Wells Fargo Revolver are unconditionally guaranteed by the Company and each of its direct and indirect domestic subsidiaries (other than certain immaterial subsidiaries) which are not named as borrowers under the Wells Fargo Revolver.
The Wells Fargo Revolver contains customary provisions relating to mandatory prepayments, restricted payments, voluntary payments, affirmative and negative covenants, and events of default. In addition, the terms of the Wells Fargo Revolver require the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio (as defined in the Wells Fargo Revolver) of at least 1.00:1.00 during such times as a covenant trigger event shall exist. The Wells Fargo Revolver also requires the Company to pay additional interest of 2.0% per annum upon triggering certain specified events of default set forth therein. For financial accounting purposes, the requirement for the Company
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to pay a higher interest rate upon an event of default is an embedded derivative. As of March 30, 2024, the fair value of this embedded derivative was estimated and was not significant.
As of March 30, 2024, the Company was in compliance with the Wells Fargo Revolver debt covenants.
Cash Position and Cash Flow
Cash and cash equivalents were $75.8 million as of March 30, 2024 compared to $18.2 million as of April 1, 2023.
The following table presents summary cash flow information for the periods indicated:
| | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|
| | | Fiscal Year Ended | ||||||||
| | | March 30, | April 1, | March 26, | ||||||
| | | 2024 | | 2023 | | 2022 | ||||
| | | (In thousands) | ||||||||
| Net cash provided by/(used in): | | | | | | | | | | |
| Operating activities | | $ | 236,080 | | $ | 88,887 | | $ | 88,864 | |
| Investing activities | | (118,782) | | (124,534) | | (60,443) | | |||
| Financing activities | | (59,644) | | 33,166 | | (80,895) | | |||
| Net (decrease)/increase in cash | | $ | 57,654 | | $ | (2,481) | | $ | (52,474) | |
Operating activities
Cash provided by operating activities consists primarily of net income adjusted for non-cash items including depreciation, amortization and stock-based compensation, plus the effect on cash of changes during the year in our assets and liabilities.
Net cash provided by operating activities was $236.1 million for the fiscal year ended March 30, 2024. The significant components of cash flows provided by operating activities were net income of $147.0 million, the add-back of non-cash depreciation and amortization expense of $49.5 million and stock-based compensation expense of $12.9 million. Inventories increased $9.6 million as a result of an increase in purchases. Accounts payable and accrued expenses and other current liabilities decreased by $5.8 million due to the timing of payments.
Net cash provided by operating activities was $88.9 million for the fiscal year ended April 1, 2023. The significant components of cash flows provided by operating activities were net income of $170.6 million, the add-back of non-cash depreciation and amortization expense of $35.9 million and stock-based compensation expense of $9.7 million. Inventories increased $115.2 million as a result of an increase in purchases. Accounts payable and accrued expenses and other current liabilities decreased by $21.2 million due to the timing of payments.
Investing activities
Cash used in investing activities consists primarily of purchases of property and equipment.
Net cash used in investing activities was $118.8 million for fiscal 2024, which was primarily attributable to capital expenditures related to store construction, investments in our Kansas City, Missouri distribution center, improvements to our e-commerce information technology infrastructure, and improvements to our distribution facilities.
Net cash used in investing activities was $124.5 million for fiscal 2023, which was primarily attributable to capital expenditures related to store construction, investments in a new distribution center in Kansas City, Missouri, improvements to our e-commerce information technology infrastructure, and improvements to our stores and distribution facilities.
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Financing activities
Cash used in financing activities consists primarily of repayments on our line of credit borrowings.
Net cash used in financing activities was $59.6 million for fiscal 2024. We paid $66.0 million on our revolving line of credit and paid $2.5 million in taxes related to the vesting of restricted stock. We also received $9.7 million from the exercise of stock options.
Net cash provided by financing activities was $33.2 million for fiscal 2023. We increased our line of credit borrowings by $37.5 million and repaid $0.8 million on our debt and capital lease obligations during the period. We also received $1.2 million from the exercise of stock options.
Other obligations
Contractual obligations. We enter into long-term contractual obligations and commitments in the normal course of business, primarily non-cancelable operating and finance leases.
As of March 30, 2024, our contractual cash obligations over the next several periods are set forth below.
| | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Payments Due by Period | | |||||||||||||
| (In thousands) | | Total | | Less Than 1 Year | | 1 - 2 Years | | 3 - 5 Years | | More Than 5 Years | | |||||
| Operating lease obligations | | $ | 554,488 | | $ | 74,848 | | $ | 154,542 | | $ | 171,177 | | $ | 153,921 | |
| Finance lease obligations | | | 19,181 | | | 1,515 | | | 3,142 | | | 5,007 | | | 9,517 | |
| Line of credit | | | — | | | — | | | — | | | — | | | — | |
| Unutilized line of credit fees | | | 2,055 | | | 625 | | | 1,250 | | | 180 | | | — | |
| Total | | $ | 575,724 | | $ | 76,988 | | $ | 158,934 | | $ | 176,364 | | $ | 163,438 | |
We lease our stores, facilities and certain other equipment under non-cancelable operating leases. These operating leases expire at various dates through fiscal 2043, and contain various provisions for rental adjustments, including, in certain cases, adjustments based on increases in the Consumer Price Index. They also generally contain renewal provisions for varying periods. Our future operating lease obligations would change if we were to exercise these renewal provisions or if we were willing to enter into additional operating leases.
Finance lease obligations primarily relate to the acquisition of two retail stores, two office buildings, one distribution center facility and land as part of our acquisition of Sheplers, Inc. and Sheplers Holding Corporation in June of fiscal 2016. The lease related to these finance lease obligations expires in fiscal 2036.
As of March 30, 2024, we did not have an amount outstanding under the Wells Fargo Revolver. The maturity date of the Wells Fargo Revolver is July 11, 2027.
Interest expense on line of credit relates to our Wells Fargo Revolver and was determined using an interest rate of 0.25% applied to the unutilized portion of the $250.0 million revolving line of credit on March 30, 2024, the last day of the fiscal year.
Off-balance sheet arrangements. We are not a party to any off-balance sheet arrangements, except for purchase obligations.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the appropriate application of certain accounting policies, some of which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements.
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Since future events and their impact cannot be determined with absolute certainty, our actual results will inevitably differ from our estimates.
We believe that the application of our accounting policies, and the estimates inherently required therein, are reasonable. Our accounting policies and estimates are re-evaluated on an ongoing basis and adjustments are made when facts and circumstances dictate a change.
The policies and estimates discussed below involve the selection or application of alternative accounting policies that are material to our financial statements. With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have a materially favorable or unfavorable impact on subsequent results of operations. However, our historical results for the periods presented in our financial statements have not been materially impacted by such variances. Our accounting policies are more fully described in Note 2 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Management has discussed the development and selection of these critical accounting policies and estimates with our board of directors.
We have certain accounting policies that require more significant management judgment and estimates than others. These include our accounting policies with respect to revenue recognition, inventories, goodwill, intangible and long-lived assets, leases, stock-based compensation and income taxes, which are more fully described below.
Revenue recognition
Sales are recognized at the time of purchase by customers at our retail store locations. Sales are recorded net of taxes collected from customers. Transfer of control takes place at the point at which the customer receives and pays for the merchandise at the register. For e-commerce sales, revenue is recognized when control transfers to the customer, which generally occurs upon delivery of the product. On average, customers receive goods within approximately five days of being ordered. The estimate of the transit times for these shipments is based on shipping terms and historical delivery times. Shipping and handling fees billed to customers for online sales are included in net sales and the related shipping and handling costs are classified as cost of goods sold in the consolidated statements of operations.
We reserve for projected merchandise returns based upon historical experience and various other assumptions that we believe to be reasonable. Customers can return merchandise purchased in-store within 30 days of the original purchase date and can return merchandise purchased at bootbarn.com, countryoutfitter.com, sheplers.com and idyllwind.com within 60 days of the original purchase date. Merchandise returns are often resalable merchandise and the purchase price is generally refunded by issuing the same tender used in the original purchase. Merchandise exchanges of the same product and price are not considered merchandise returns and, therefore, are not included in the population when calculating our sales returns reserve. We record the impact of adjustments to our sales returns reserve quarterly within total net sales. Should the returns rate as a percentage of net sales significantly change in future periods, it could have a material impact on our results of operations.
We maintain a customer loyalty program at the stores and bootbarn.com. Under the program, customers accumulate points based on purchase activity. For customers to maintain their active point balance, they must make a qualifying purchase of merchandise at least once in a 365-day period. Once a loyalty program member achieves a certain point level, the member earns awards that may be redeemed for credits on merchandise purchases. To redeem awards, the member must make a qualifying purchase of merchandise within 60 days of the date the award was granted. Unredeemed awards and accumulated partial points are accrued as unearned revenue until redemption or expiration and, upon redemption and expiration, as an adjustment to net sales using the relative standalone selling price method. If actual redemptions ultimately differ from accrued redemption levels, or if we further modify the terms of the program in a way that affects expected redemption value and levels, we could record adjustments to the unearned revenue accrual, which would affect net sales.
We recognize the sales from gift cards, gift certificates and store credits as they are redeemed for merchandise. Prior to redemption, we maintain an unearned revenue liability for gift cards, gift certificates and store credits until we are released from such liability, including potential obligations arising under state escheatment laws. Our gift cards, gift certificates and store credits do not have expiration dates, and unredeemed gift cards, gift certificates and store credits are
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subject to state escheatment laws. Amounts remaining after escheatment are recognized in net sales in the period escheatment occurs and the liability is considered to be extinguished.
Leases
Operating and finance lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. The Company does not separate lease and non-lease components for all of its leases, and leases with an initial term of 12 months or less are excluded from balance sheet capitalization. Related operating and finance lease right-of-use assets are recognized based on the initial present value of the fixed lease payments, reduced by cash payments received from landlords as lease incentives, plus any prepaid rent and other direct costs from executing the leases. Amortization of both operating and finance lease right-of-use assets is performed on a straight-line basis and recorded as part of rent expense in cost of goods sold and selling, general and administrative expenses on the consolidated statements of operations. The majority of total lease costs is recorded as part of cost of goods sold, with the balance recorded in selling, general and administrative expenses on the consolidated statements of operations. The interest expense amortization component of the finance lease liabilities is recorded within interest expense on the consolidated statements of operations.
Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense as they are incurred.
Inventories
Inventories, which consist primarily of general consumer merchandise held for sale, are valued at the lower of cost or net realizable value. Cost is determined using the weighted-average cost method and includes the cost of merchandise and import related costs, including freight, duty and agent commissions.
During each accounting period, we record adjustments to our inventories, which are reflected in cost of goods sold, if the cost of specific inventory items on hand exceeds the amount that we expect to realize from the ultimate sale or disposal of the inventory. A periodic review of inventory is performed in order to determine if inventory is properly stated at the lower of cost or net realizable value. This adjustment calculation requires us to make assumptions and estimates, which are based on factors such as average selling cycle and seasonality of merchandise, the historical rate at which merchandise has sold below cost during the average selling cycle, and the value and nature of merchandise currently priced below original cost. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if appropriate.
To the extent that management’s estimates differ from actual results, additional markdowns may be required that could reduce our gross profit, operating income and the carrying value of inventories.
We also record an inventory shrinkage reserve calculated as a percentage of net sales for estimated merchandise losses for the period between the last physical inventory count and the balance sheet date. These estimates are based on historical percentages and can be affected by changes in merchandise mix and changes in shrinkage trends. We perform periodic physical inventory counts for our entire chain of stores and our distribution centers and adjust the inventory shrinkage reserve accordingly. If actual physical inventory losses differ significantly from the estimate, our results of operations could be adversely impacted. The inventory shrinkage reserve reduces the value of total inventory and is a component of inventories on the consolidated balance sheets.
Goodwill, intangible and long-lived assets
Goodwill and indefinite-lived intangible assets. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. Intangible assets with indefinite lives include the Boot Barn trademark that was acquired as part of the recapitalization with Freeman Spogli & Co. on December 12, 2011, the Sheplers trademark acquired as part of our acquisition of Sheplers, Inc. and Sheplers Holding Corporation in June of fiscal 2016, the cost to register the Boot Barn trademark in Hong Kong, and the www.countryoutfitter.com website trademark we acquired as part of our asset acquisition in
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February of fiscal 2017. We test goodwill and indefinite-lived intangible assets for impairment at least annually on the first day of the fourth quarter or more frequently if indicators of impairment exist, in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 350, Goodwill and Other. This guidance provides us the option to first assess qualitative factors such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant entity-specific events to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.
GAAP has established guidance for reporting information about a company’s operating segments, including disclosures related to a company’s products and services, geographic areas and major customers. We monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments. Our retail stores and e-commerce websites represent two operating segments. Given the similar qualitative and economic characteristics of the two operating segments, our retail stores and e-commerce websites were aggregated into one reporting segment in accordance with guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting (“ASC 280”). As a result of this, our operations represent two reporting units, retail stores and e-commerce, for the purpose of our goodwill impairment analysis.
If, based on a review of qualitative factors it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to compare the fair value of the reporting unit with its carrying amount. We evaluate the fair value of the reporting unit by using market-based analysis to review market capitalization and by reviewing a discounted cash flow analysis using management’s assumptions. We determine the fair value of our reporting unit using the income approach and market approach to valuation, as well as other generally accepted valuation methodologies. If the carrying amount of the reporting unit exceeds the reporting unit’s fair value, we recognize an impairment loss equal to the difference between the carrying amount and the estimated fair value of the reporting unit.
Definite-lived intangible assets and long-lived assets. Definite-lived intangible assets consist of certain customer lists. Customer lists are amortized over a five-year useful life based on their estimated attrition rate.
Long-lived assets consist of leasehold improvements, machinery and equipment, furniture and fixtures, software and vehicles. Long-lived assets are subject to depreciation and amortization. We assess potential impairment of our definite-lived intangible assets and long-lived assets whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. Factors that are considered important that could trigger an impairment review include a current-period operating or cash flow loss combined with a history of operating or cash flow losses and a projection or forecast that demonstrates continuing losses or insufficient income associated with the use of a long-lived asset or asset group. Other factors include a significant change in the manner of the use of the asset or a significant negative industry or economic trend. This evaluation is performed based on estimated undiscounted future cash flows from operating activities compared with the carrying value of the related assets. If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized, measured by the difference between the carrying value and the estimated fair value of the assets, with such estimated fair values determined using the best information available and in accordance with FASB ASC Topic 820, Fair Value Measurements (“ASC 820”).
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions, our operating results could be adversely affected by additional impairment charges.
Stock-based compensation
We account for employee stock options, restricted stock units and performance share units in accordance with relevant authoritative literature. Stock options are granted with exercise prices equal to or greater than the market value, as reported on the New York Stock Exchange (or on any other national securities exchange on which our common stock is then listed) on the date of grant as authorized by our board of directors. Stock option grants are generally subject to forfeiture if employment terminates prior to vesting. We have selected the Black-Scholes option pricing model for estimating the grant date fair value of stock option awards granted with only service conditions. We have considered the retirement and forfeiture provisions of the options and utilized the simplified method to estimate the expected life of the options. We base the risk-free interest rate on the yield of a zero-coupon U.S. Treasury security with a maturity equal to
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the expected life of the option from the date of the grant. Stock volatility for each grant is measured using historical daily price changes of our stock and our competitors’ common stock over the most recent period equal to the expected option term of the awards. The fair value of stock options granted with both service and market vesting conditions is estimated using a Monte Carlo simulation model. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period based on the number of years for which the requisite service is expected to be rendered. Forfeitures are recognized as incurred.
The fair value of our restricted stock units and performance share units is the closing price of our common stock on the grant date.
Income taxes
We account for income taxes in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), which requires the asset and liability approach for financial accounting and reporting of income taxes. Deferred tax assets and liabilities are attributable to differences between financial statement and income tax reporting. Deferred tax assets, net of any valuation allowances, represent the future tax return consequences of those differences and for operating loss and tax credit carryforwards, which will be deductible when the assets are recovered. Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
We account for uncertain tax positions in accordance with ASC 740, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Such changes in recognition or measurement might result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying statement of operations. See Note 12 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding our tax disclosures.