Boot Barn Holdings, Inc. reported net income on an adjusted basis fell 47 percent. Same-store sales were down 1.2 percent.

Highlights for the quarter ended March 26, 2016, were as follows:

  •     Net sales increased 45 percent to approximately $149.5 million;
  •     Opened four new stores;
  •     Consolidated same store sales declined 1.2 percent;
  •     Pro forma adjusted net income was $2.5 million, or $0.09 per diluted share, compared to $0.17 per diluted share in the prior-year period. Net income was $1.0 million, or $0.04 per diluted share, on a GAAP basis.

Highlights for the year ended March 26, 2016, were as follows:

  •     Net sales increased 41 percent to $569.0 million;
  •     Acquired 25 Sheplers stores and closed six of those stores. Opened 22 new stores and closed two stores, ending the fiscal year with 208 stores;
  •     Consolidated same store sales essentially flat at -0.1 percent;
  •     Pro forma adjusted net income was $18.7 million, or $0.69 per diluted share, compared to $0.72 per diluted share in fiscal year 2015. Net income was $9.9 million, or $0.37 per diluted share, on a GAAP basis.

1) Pro forma adjusted net income is a non-GAAP measure. An explanation of the computation of this measure and a reconciliation to GAAP net income is included below. See also “Non-GAAP Financial Measures.”

Jim Conroy, Chief Executive Officer, commented, “While the continued impact from low commodities prices on some of our key markets resulted in fourth quarter performance that was below our expectations, we made further progress towards our long-term targets. During the quarter we grew net sales, increased our higher-margin private brand penetration, and opened four new Boot Barn stores. During the fiscal year we opened 22 new Boot Barn stores and completed the acquisition and integration of Sheplers, which has significantly elevated our e-commerce capabilities and expanded our market share in key markets. Overall, we solidified our position as the largest omni-channel western and work wear retailer in the U.S. While the current market environment remains challenging, and it is difficult to predict when external pressures to our business will subside, we believe we have appropriately positioned our merchandise offering, marketing strategy, and inventory levels to manage through this cycle and we continue to appropriately invest in our business for long-term growth and increased value for our shareholders.”

Operating Results for the Fourth Quarter Ended March 26, 2016

  •     Net sales increased 45 percent to $149.5 million in the fourth quarter of fiscal year 2016, from $103.3 million in the prior-year period. Net sales increased due to contributions from recently acquired Sheplers and 22 new stores opened during fiscal year 2016, partially offset by a decrease of 1.2 percent in consolidated same store sales.
  •     Adjusted gross profit was $43.9 million or 29.4 percent of net sales (on a GAAP basis, gross profit was $42.4 million or 28.4 percent of net sales) in the fourth quarter of fiscal year 2016, an increase of $9.9 million, or 29.2 percent, from gross profit of $34.0 million, or 32.9 percent of net sales, in the prior-year period. Adjusted gross profit excludes acquisition-related integration costs, including an adjustment to normalize the impact of Sheplers’ discontinued inventory, contract termination costs and the amortization of inventory fair value adjustment. See “Non-GAAP Financial Measures.” Adjusted gross profit increased as a result of the addition of the Sheplers business and the opening of 22 new stores. As a percentage of sales, consolidated gross margin declined primarily due to a higher percentage of historically lower-margin Sheplers sales compared to the prior year period when the company did not own Sheplers. Also contributing to the decline was a higher shrink adjustment at the Sheplers business, unfavorable freight costs at the core Boot Barn business and occupancy deleverage.
  •     Adjusted income from operations was $7.7 million in the fourth quarter of fiscal year 2016, a decrease of 8.5 percent, compared to $8.4 million in the prior-year period, driven primarily by higher depreciation and amortization expense, additional expenses associated with Sheplers, and the higher shrink adjustment. Adjusted income from operations excludes acquisition-related integration costs, loss on disposal of assets and contract termination costs, and the amortization of inventory fair value adjustment incurred in the fourth quarter of fiscal year 2016. See “Non-GAAP Financial Measures.” On a GAAP basis, income from operations was $5.6 million in the fourth quarter of fiscal year 2016 compared to $7.8 million in the prior-year period.
  •     During the fourth quarter, the company opened four Boot Barn stores and closed two stores, ending the quarter with 208 stores in 29 states.
  •     Pro forma adjusted net income was $2.5 million, or $0.09 per diluted share, in the fourth quarter of fiscal year 2016, compared to $4.6 million, or $0.17 per diluted share, in the prior-year period. The decrease is primarily the result of an additional $2.4 million, or $0.05 per diluted share, of pro forma adjusted interest expense combined with $0.01 per diluted share of higher shrink recorded in the fourth quarter of fiscal year 2016. See “Non-GAAP Financial Measures.” On a GAAP basis, net income was $1.0 million, or $0.04 per diluted share, in the fourth quarter of fiscal year 2016, compared to $2.6 million, or $0.10 per diluted share in the prior-year period.

A reconciliation of adjusted gross profit, adjusted income from operations, pro forma adjusted net income and pro forma adjusted net income per diluted share, each a non-GAAP financial measure, to their most directly comparable GAAP financial measures is included in the accompanying financial data. See also “Non-GAAP Financial Measures.”

Operating Results for the Fiscal Year Ended March 26, 2016

  •     Net sales increased 41 percent to $569.0 million from $402.7 million in fiscal year 2015. Net sales increased due to contributions from recently acquired Sheplers, 22 new stores opened during fiscal year 2016, partially offset by a decrease of 0.1 percent in consolidated same store sales.
  •     Adjusted gross profit was $178.0 million or 31.3 percent of net sales (on a GAAP basis, gross profit was $173.2 million or 30.4 percent of net sales), an increase of $43.2 million, or 32.1 percent, from gross profit of $134.8 million, or 33.5 percent of net sales, in fiscal year 2015. Adjusted gross profit increased as a result of the addition of the Sheplers business and the opening of 22 new stores. The decline in adjusted gross profit margin rate was primarily driven by the composition of the lower margin Sheplers e-commerce business and rebranded Sheplers stores that are included in the consolidated Boot Barn results for the final three quarters of fiscal year 2016 but were not part of Boot Barn in fiscal year 2015.
  •     Adjusted income from operations was $42.7 million in fiscal year 2016, an increase of 20.4 percent, compared to $35.4 million in fiscal year 2015. On a GAAP basis, income from operations was $30.2 million, compared to $35.4 million in fiscal year 2015.
  •     The company acquired 25 Sheplers stores, opened 22 Boot Barn stores, closed six Sheplers and two Boot Barn stores, and ended the period with 208 stores in 29 states.
  •     Pro forma adjusted net income was $18.7 million, or $0.69 per diluted share, in fiscal year 2016, compared to $19.0 million, or $0.72 per diluted share in fiscal year 2015. The decrease is primarily due to an additional $6.7 million, or $0.15 per diluted share of pro forma adjusted interest expense in fiscal year 2016. On a GAAP basis, net income was $9.9 million, or $0.37 per diluted share, compared to net income of $13.7 million, or $0.54 per diluted share, in fiscal year 2015.

Balance Sheet Highlights as of March 26, 2016

  •     Cash: $7.2 million
  •     Total net borrowings: $242.4 million
  •     Total liquidity (cash plus availability on $125 million revolving credit facility): $83.4 million

Fiscal Year 2017 Outlook

For the fiscal year ending April 1, 2017 the company expects:

  •     To open 15 new stores, with 3 expected to open in the first half of the fiscal year and the remainder in the second half of the fiscal year.
  •     Consolidated same store sales between slightly negative to slightly positive.
  •     Income from operations between $42.4 million and $46.8 million.
  •     Net income of $16.9 million to $19.6 million,
  •     Net income per diluted share of $0.63 to $0.73 based on 26.8 million weighted average diluted shares outstanding. Fiscal year 2017 is a 53-week year and the company expects to earn approximately $0.03 per diluted share in the 53rd week, which is included in the above guidance range. Fiscal year 2017 net income per diluted share will compare to $0.66 per diluted share in fiscal year 2016, after assuming the company had acquired Sheplers at the beginning of fiscal year 2016.

For the fiscal first quarter ending June 25, 2016 the company expects:

  •     Consolidated same stores sales to be flat;
  •     Net income per diluted share of $0.01 to $0.03 based on 26.8 million weighted average diluted shares outstanding.