Boot Barn Holdings Inc. reported earnings rose slightly in its third quarter despite ongoing sales pressure in markets dependent on oil and other commodities.

Highlights for the quarter ended December 24, 2016, were as follows:

  • Net sales increased 2.9 percent to $199.4 million.
  • Consolidated same store sales increased 0.2 percent.
  • Net income was $10.5 million, or 39 cents per diluted share, compared to net income of $9.9 million, or 37 cents per diluted share (and compared to adjusted net income of $12 million, or 45 cents per diluted share) in the prior-year period.
  • The company opened six new stores.

Jim Conroy, chief executive officer, commented, “I am pleased that we were able to generate our third consecutive quarter of positive same store sales growth and achieve our earnings guidance. This performance is a testament to our diversified business model as we continue to find opportunities for sales growth despite the ongoing sales pressure in markets dependent on oil and other commodities. We also continue to invest in and improve our omni-channel capabilities. In the third quarter we posted our fifth consecutive quarter of double-digit growth in e-commerce and rolled out an in store touch-screen shopping tablet which enables customers to order merchandise from both our e-commerce warehouse and directly from most of our branded vendors. I am proud of the team’s efforts as we continue to build a national lifestyle brand while navigating a complicated retail environment.”

Operating Results For Third Quarter Ended December 24, 2016
Net sales increased 2.9 percent to $199.4 million from $193.8 million in the prior-year period. Net sales increased due to 14 new stores opened over the past twelve months and a 0.2 percent increase in consolidated same store sales. Sales growth was partially offset by the planned closure of one Sheplers store and the closure of one Boot Barn store over the last 12 months.
Gross profit decreased 1.3 percent to $63.4 million, or 31.8 percent of net sales, compared to gross profit of $64.2 million, or 33.1 percent of net sales, in the prior-year period. Excluding the amortization of inventory fair value adjustment and acquisition-related integration costs, adjusted gross profit in the prior-year period was $65 million or 33.5 percent of net sales. The decline in gross profit rate compared to the prior year was driven by a 100 basis point decline in merchandise margin rate, resulting from more e-commerce sales as a percentage of total sales, increased freight costs, higher redemption in our annual holiday bounce back promotion, and higher shrink. Also contributing to the decline in gross profit rate was a 70 basis point increase in store occupancy.

Income from operations was $20.9 million, compared to income from operations of $20.2 million in the prior-year period. Excluding the amortization of inventory fair value adjustment, acquisition-related integration costs, loss on disposal of assets and contract termination costs, and SEC filing costs, adjusted income from operations in the prior-year period was $23.5 million. The decrease in income from operations compared to the prior-year period’s adjusted income from operations was driven primarily by a decrease in adjusted gross profit and an increase in adjusted operating expenses related to increased sales.

The Company opened six new stores, ending the quarter with 219 stores in 31 states.

Interest expense was flat compared to the prior-year period at $3.6 million.

Net income was $10.5 million, or 39 cents per diluted share, compared to net income of $9.9 million or 37 cents per diluted share in the prior-year period. Excluding the amortization of inventory fair value adjustment, acquisition-related integration costs, loss on disposal of assets and contract termination costs, and SEC filing costs, adjusted net income in the third quarter of the prior year was $12 million, or $0.45 per diluted share.

Operating Results For Nine Months Ended December 24, 2016
Net sales increased 11.3 percent to $466.8 million from $419.6 million in the prior-year period. Net sales increased due to nine months of sales contributions from Sheplers (compared to six months in the prior-year period), the opening of 14 new stores over the last twelve months and a 0.7 percent increase in consolidated same store sales. Sales growth was partially offset by the planned closure of one Sheplers store and the closure of one Boot Barn store over the last 12 months.

Gross profit increased 7.4 percent to $140.6 million, or 30.1 percent of net sales, compared to gross profit of $130.8 million, or 31.2 percent of net sales, in the prior-year period. Excluding the amortization of inventory fair value adjustment, acquisition-related integration costs and contract termination costs, adjusted gross profit in the prior-year period was $134.1 million or 32 percent of net sales. The decline in gross profit rate when compared to the prior year’s adjusted gross profit rate was driven primarily by a decline in merchandise margin rate, resulting from nine months of historically lower margin Sheplers sales compared to six months in the prior-year period and more e-commerce sales as a percentage of total sales. Also contributing to the decline in gross profit rate was an increase in store occupancy.

Income from operations was $29.8 million, compared to $24.6 million in the prior-year period. Excluding the amortization of inventory fair value adjustment, acquisition-related expenses and integration costs, loss on disposal of assets and contract termination costs, and SEC filing costs, adjusted income from operations in the prior-year period was $35 million. The decrease in income from operations compared to the prior year’s adjusted income from operations was driven primarily by an increase in adjusted operating expenses related to nine months of the Sheplers business compared to six months in the prior-year period and the increase in adjusted operating expenses related to increased sales.

The Company opened ten new stores, ending the period with 219 stores in 31 states.

Net income was $11.6 million, or 43 cents per diluted share, compared to net income of $8.9 million or 33 cents per diluted share in the prior-year period. Excluding the amortization of inventory fair value adjustment, acquisition-related expenses and integration costs, loss on disposal of assets and contract termination costs, SEC filing costs and write-off of debt discount, adjusted net income in the prior-year period was $16.2 million or 60 cents per diluted share.

Balance Sheet Highlights AsOof December 24, 2016

  • Cash: $31.2 million
  • Inventories: Average inventory per store decreased 3.4 percent compared to December 26, 2015
  • Total net debt: $215.8 million, including $23 million outstanding on revolving credit facility

Fiscal Year 2017 Outlook
For the fiscal fourth quarter ending April 1, 2017, the Company expects:

  • To open two new stores.
  • Consolidated same store sales growth of flat to 2 percent.
  • Income from operations between $11.4 million and $12.7 million.
  • Net income of $4.6 million to $5.4 million.
  • Net income per diluted share of 17 cents to 20 cents based on 27.1 million weighted average diluted shares outstanding, which includes 3 cents per diluted share attributed to the additional week of the quarter.

The Company is updating its guidance for the fiscal year ending April 1, 2017 and now expects:

  • To open 12 new stores, including two stores in the fourth quarter.
  • Consolidated same store sales growth of approximately 1 percent.
  • Income from operations between $41 million and $42.3 million.
  • Net income of $16.1 million to $16.9 million.
  • Net income per diluted share of 60 cents to 63 cents based on 26.9 million weighted average diluted shares outstanding, which includes 3 cents per diluted share attributed to the 53rd week.

Photo courtesy Boot Barn