Boot Barn Holdings Inc.’s (NYSE:BOOT) earnings on an adjusted basis slumped 46.1 percent in its fiscal fourth quarter ended March 26, continuing to feel the impact from low commodities prices on some of its key markets.
Adjusted earnings reached $2.5 million, or 9 cents a share, falling short of management’s guidance in the range of 11 to 13 cents. Adjusted earnings exclude costs and inventory adjustments tied to the June-2015 acquisition of Sheplers as well as expenses to cover stock offerings. Net earnings were down 61.2 percent to $1 million, or 4 cents a share.
Sales jumped 44.7 percent to $149.5 million due to addition of the 25-unit Sheplers chain as well as 22 new stores opened last year, partially offset by a decrease of 1.2 percent in consolidated same store sales. Same-store sales growth also fell short, with expectations pegged at flat to slightly positive.
Adjusted gross margins eroded to 29.4 percent of sales from 32.9 percent, reflecting lower margins at Sheplers. Also contributing to the decline was a higher shrink adjustment at Sheplers, unfavorable freight costs at the core Boot Barn business and occupancy deleverage.
Adjusted income from operations slid 8.5 percent to $7.7 million, driven primarily by higher depreciation and amortization expense, additional expenses associated with Sheplers, and the higher shrink adjustment.
The steeper net income decrease on an adjusted basis was primarily the result of an additional $2.4 million, or 5 cents per share, of pro-forma adjusted interest expense.
On a conference call with analysts, Jim Conroy, president and CEO, noted that e-commerce had positive double-digit growth with strong performance in both brands, but that was offset by a decline in its stores business with the rebranded Sheplers stores outperforming Boot Barn.
“While we had a strong start to the quarter, consolidated same-store sales declined in February, partially due to warmer weather across parts of the country,” said Conroy. “Similar to the second and third quarters of fiscal-year 2016 in markets such as North Dakota, Wyoming, Colorado and Texas, we faced headwinds associated with the softness of local economies dependent on oil and other commodities. We continue to see solid growth in many core markets without commodity exposure, particularly in the West, but not enough to offset the declines in markets facing these headwinds.”
In terms of category performance at the core Boot Barn business, modest improvement was seen in its work segment but women’s boots and women’s denim both comped negative in the quarter. Added Conroy, “This composition of sales leads us to believe that as disposable income has declined in areas with commodities exposure, customers are avoiding discretionary purchases or focusing their spending on more immediate necessities such as work boots and work apparel.”
At Sheplers, western boots, work boots and work apparel are being added to the stores to make the mix similar to Boot Barns. But the chain experienced weakness in western apparel, particularly in denim, which has been challenged by a promotional cycle the prior year. Merchandise margins at Sheplers also fell as a result of increased freight costs, higher shrink, and clearance activity to further exit some Sheplers inventory.
On the positive side, BootBarn.com saw “solid growth,” driven by enhancements in search engine optimization, better site merchandising, and improvements made to pay per click advertising. Private-label penetration also increased to 13 percent of sales in its fiscal year, up from 10 percent the prior year, helping improve merchandise margins.
For the fiscal year ending April 1, 2017 the company expects net income of 63 to 73 cents a share, which compares to 66 cents the prior year. Comps are expected to range between slightly negative to slightly positive. Boot Barn plans to open 15 new stores after ending the year with 208.
For the first quarter, earnings are expected to land between 1 to 3 cents a share. Same-store sales are expected to be flat.
Conroy said comps in the current quarter to date have been running positive despite a strong same-store sales performance at Boot Barn in the same quarter last year, as well as highly promotional activity in the Sheplers stores in that same period. The CEO noted that while the improvement is “encouraging,” the first quarter is the smallest period of the year “and visibility into sales continues to be very challenging.”
–Tom Ryan
