Boot Barn Holdings Inc. reported fourth-quarter results came in below guidance due to lower than expected retail store sales, unanticipated operating expenses, and disruption in sales at sheplers.com arising from the transition to a new software platform.

For the fourth quarter ended April 1, 2017:

  • Net sales increased 9.1 percent to $163.0 million;
  • Consolidated same store sales declined 0.9 percent;
  • GAAP net income was $2.6 million, or $0.10 per diluted share, compared to $1.0 million, or $0.04 per diluted share in the prior-year period. Adjusted net income was $3.3 million, or $0.12 per diluted share, compared to adjusted net income of $2.5 million, or $0.09 per diluted share in the prior-year period;
  • Two new stores were opened.

When it reported third-quarter results, the retailer said it expected consolidated same store sales growth of flat to 2.0 percent, income from operations between $11.4 million and $12.7 million, net income of $4.6 million to $5.4 million, and earnings per share between 17 to 20 cents.

 

For the fiscal year ended April 1, 2017:

  • Net sales increased 10.7 percent to $629.8 million;
    Consolidated same store sales increased 0.3 percent;
    GAAP net income was $14.2 million, or $0.53 per diluted share, compared to $9.9 million, or $0.37 per diluted share in the prior-year period. Adjusted net income was $14.9 million, or $0.55 per diluted share, compared to adjusted net income of $18.7 million, or $0.69 per diluted share in the prior-year period;
    Twelve new stores were opened and one store was closed, bringing the total count at year-end to 219 stores.

Other developments:

  • Acquired certain assets of Country Outfitter, including the countryoutfitter.com domain name, customer list and social media assets for $1.8 million of cash and assumed liabilities;
  • Increased the capacity under the revolving credit facility $10 million to $135 million and extended the maturity date for two additional years;
  • Amended the financial covenant under the term loan facility to increase the maximum net leverage ratio requirements.

Jim Conroy, chief executive officer, commented, “While we reported slightly negative consolidated same store sales for the quarter, we are pleased that comparable sales in our physical stores improved on a sequential basis, and we were able to achieve 30 basis points of improvement in our core merchandise margin. Unfortunately, our fourth quarter earnings per share fell short of our expectations due to lower than expected retail store sales, unanticipated operating expenses, and disruption in sales at sheplers.com arising from the transition of the e-commerce site to a new software platform. We are continuing to work to improve the site performance and return sheplers.com to positive sales growth.”

Conroy continued, “Looking ahead, we are excited to announce that we have further strengthened our position as the leading omni-channel western and work wear retailer in the U.S. with the purchase of certain assets of countryoutfitter.com, a large pure-play e-commerce retailer targeting a younger, female country customer. While more difficult than anticipated, we have also completed the transition of sheplers.com to our new e-commerce platform which now includes the newly acquired countryoutfitter.com. Additionally, we are encouraged that same store sales at our physical stores are improving and are positive fiscal year-to-date partly driven by a recovery in the oil and gas markets. We remain confident that our industry-leading position, advanced omni-channel capabilities and ongoing merchandising opportunities will allow us to continue to capture market share and drive profitable growth over the long-term.”

Operating Results for the Fourth Quarter Ended April 1, 2017

  • Net sales increased 9.1 percent to $163.0 million in the fourth quarter of fiscal year 2017 (14 weeks), from $149.5 million in the fourth quarter of fiscal year 2016 (13 weeks). Net sales increased due primarily to the extra week of sales in the fourth quarter of fiscal year 2017 and contributions from the 12 new stores opened during fiscal year 2017. Sales growth was partially offset by a decrease of 0.9 percent in consolidated same store sales and the closure of one store in the fourth quarter. Sales at sheplers.com declined in February and March when compared to fiscal year 2016 as a result of disruption from the conversion to a new e-commerce platform, resulting in sales below plan.
  • Gross profit was $49.3 million, or 30.3 percent of net sales in the fourth quarter of fiscal year 2017, compared to gross profit of $42.4 million, or 28.4 percent of net sales, in the prior-year period. Gross profit increased $5.4 million, or 12.4 percent, from adjusted gross profit of $43.9 million, or 29.4 percent of net sales, in the prior-year period. Gross profit increased as a result of additional sales in the 14-week fourth quarter in fiscal year 2017, the opening of 12 new stores, and improvement in merchandise margin rate. As a percentage of sales, consolidated gross profit increased primarily due to merchandise margin expansion and occupancy leverage from the 14-week fourth quarter. Adjusted gross profit in the prior-year period excludes acquisition-related integration costs, contract termination costs and the amortization of inventory fair value adjustment.
  • On a GAAP basis, income from operations was $8.1 million in the fourth quarter of fiscal year 2017 compared to $5.6 million in the prior-year period. Adjusted income from operations was $9.2 million in the fourth quarter of fiscal year 2017, an increase of 20.6 percent, compared to $7.7 million in the prior-year period. In each case, the increase was driven primarily by the extra week of sales in the fourth quarter of fiscal year 2017. Adjusted income from operations was below guidance as a result of disruption in sales at sheplers.com during the quarter. Also contributing to lower income from operations and adjusted income from operations were unanticipated store expenses, repairs and maintenance, and outside services primarily related to transitioning and operating the newly acquired Country Outfitter e-commerce site. In the fourth quarter of fiscal year 2017, adjusted income from operations excludes a store impairment charge of $1.2 million. Adjusted income from operations in fourth quarter of fiscal year 2016 excludes acquisition-related integration costs, loss on disposal of assets and contract termination costs, and the amortization of inventory fair value adjustment.
  • During the fourth quarter, the company opened two stores and closed one store.
  • On a GAAP basis, net income was $2.6 million, or $0.10 per diluted share, in the fourth quarter of fiscal year 2017, compared to $1.0 million or $0.04 per diluted share in the prior-year period. Adjusted net income was $3.3 million, or $0.12 per diluted share, in the fourth quarter of fiscal year 2017, compared to $2.5 million, or $0.09 per diluted share, in the prior-year period. See “Non-GAAP Financial Measures.”

Operating Results for the Fiscal Year Ended April 1, 2017

  • Net sales for fiscal year 2017 (53 weeks) increased 10.7 percent to $629.8 million from $569.0 million in fiscal year 2016 (52 weeks). Net sales increased from twelve months of sales contributions from Sheplers (compared to nine months in the prior-year period), additional sales from the 53rd week, the opening of 12 new stores over the last twelve months, and a 0.3 percent increase in consolidated same store sales.
  • Gross profit was $189.9 million, or 30.2 percent of net sales, compared to gross profit of $173.2 million, or 30.4 percent of net sales, in fiscal year 2016. Gross profit increased 6.7 percent compared to adjusted gross profit of $178.0 million, or 31.3 percent of net sales, in the prior-year period. Gross profit increased from an entire year of Sheplers in fiscal year 2017, additional sales from the 53rd week, and the opening of 12 new stores. The decline in gross profit rate was driven primarily by an increase in store occupancy costs and a decline in merchandise margin rate. The decline in merchandise margin rate resulted from an increase in lower margin e-commerce sales penetration and twelve months of lower margin Sheplers sales compared to nine months in the prior-year period. Adjusted gross profit in fiscal year 2016 excludes acquisition-related integration costs, contract termination costs and the amortization of inventory fair value adjustment.
  • On a GAAP basis, income from operations was $37.8 million, compared to $30.2 million in fiscal year 2016, the increase primarily resulting from the acquisition-related expenses and integration costs in fiscal year 2016 that were not incurred in fiscal year 2017. Adjusted income from operations was $39.0 million in fiscal year 2017, a decrease of 8.6 percent, compared to $42.7 million in fiscal year 2016. The decrease in adjusted 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 twelve months of the Sheplers business compared to nine months in the prior-year period and the increase in adjusted operating expenses related to increased sales. In fiscal year 2017, adjusted income from operations excludes a store impairment charge of $1.2 million. Adjusted income from operations in fiscal year 2016 excludes acquisition-related expenses and integration costs, loss on disposal of assets and contract termination costs, and the amortization of inventory fair value adjustment.
  • The company opened 12 stores and closed one store, ending the fiscal year with 219 stores in 31 states.
  • On a GAAP basis, net income was $14.2 million, or $0.53 per diluted share, compared to $9.9 million, or $0.37 per diluted in the prior-year period. Adjusted net income was $14.9 million, or $0.55 per diluted share, in fiscal year 2017, compared to $18.7 million or $0.69 per diluted share in fiscal year 2016.

Balance Sheet Highlights as of April 1, 2017

  • Cash: $8.0 million
  • Inventories: Average inventory per store decreased 5 percent compared to March 26, 2016
  • Total net debt: $225.9 million, including $33.3 million outstanding on revolving credit facility

Fiscal Year 2018 Outlook

For the fiscal year ending March 31, 2018 the company expects:

To open 12 new stores.
Flat to slightly positive consolidated same store sales growth.
Income from operations between $37.8 million and $40.0 million.
Net income of $14.0 million to $15.4 million.
Net income per diluted share of $0.52 to $0.57 based on 27.1 million weighted average diluted shares outstanding. The company estimates that $0.03 of the $0.55 adjusted net income per diluted share in fiscal year 2017 relates to the 53rd week. Therefore, fiscal year 2018 net income per diluted share will compare to $0.52 adjusted net income per diluted share in fiscal year 2017.

For the fiscal first quarter ending July 1, 2017 the company expects:

Flat consolidated same store sales.
Break-even earnings per diluted share based on 27.1 million weighted average diluted shares outstanding.

Photo courtesy Boot Barn