Boot Barn Posts Profit In Q3

Boot Barn Holdings Inc. reported a profit against a loss in the third quarter, while earnings came in at the high end of expectations.

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

• Net sales increased 3.3 percent to $134 million.
• Consolidated same-store sales increased 1.8 percent.
• Net income was $0.5 million, or 2 cents per diluted share, compared to a net loss of $3.3 million, or 13 cents per diluted share (and compared to adjusted net income of $1.2 million, or 4 cents per diluted share) in the prior-year period.
• The company opened two new stores.

Jim Conroy, CEO, commented, “I am pleased with our financial performance during the second quarter, in which we grew net sales, achieved positive same-store sales and reported diluted earnings per share of 2 cents a share, which met our expectations for the quarter. We believe our positive same-store sales reflect the strength of the Boot Barn brand as well as the strategies we put in place to mitigate external pressures in oil and commodity driven markets. While this pressure has not abated, and consumer retail trends remain variable, we are optimistic about the second half of the year. Our new merchandise categories and product offerings are resonating well with our customers, and we believe we have appropriately invested in the right level and composition of inventory. We remain committed to prudently investing in our business as we continue to grow our leading market share of the western and work wear markets across our channels.”

Operating Results For The Second Quarter Ended September 24, 2016
Net sales increased 3.3 percent to $134 million from $129.7 million in the prior-year period. Net sales increased due to 13 new stores opening over the past 12 months and a 1.8 percent increase in same-store sales. Sales growth was partially offset by the planned closure of eight stores over the last 15 months, including six low-volume Sheplers stores that were closed, consistent with original expectations.

Gross profit increased 1.6 percent to $36.4 million, or 27.2 percent of net sales, compared to gross profit of $35.9 million, or 27.7 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 $38.4 million, or 29.6 percent of net sales. The decline in gross profit rate compared to the prior year’s adjusted gross profit rate resulted primarily from increases in store occupancy costs associated with the 13 new stores opened during the last 12 months and additional depreciation expense from the rebranded Sheplers stores that was not included in the prior-year period. Also contributing to the decline in gross profit rate was an 80 basis point decline in the merchandise margin rate, resulting from higher loyalty rewards redemption, shrink and aged inventory provision.

The bottom line benefited from a reduction in selling, general and administrative expenses to $32 million, or 23.9 percent of sales, or 28 percent, a year ago.

Income from operations increased $4.8 million to $4.4 million, compared to a loss from operations of $0.4 million in the prior-year period. Excluding the amortization of inventory fair value adjustment, acquisition-related integration costs and loss on disposal of assets and contract termination costs, adjusted income from operations in the prior-year period was $5.8 million.

The company opened two new stores and ended the quarter with 212 stores in 29 states.

Interest expense decreased $1.3 million to $3.7 million from $5 million in the prior-year period. Excluding a $1.4 million write-off of debt issuance costs associated with the refinancing of debt, adjusted interest expense was $3.6 million in the prior-year period.

Net income was $0.5 million, or 2 cents per diluted share, compared to a net loss of $3.3 million, or 13 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 write-off of debt issuance costs associated with the refinancing of debt, adjusted net income in the second quarter of the prior year was $1.2 million, or 4 cents per diluted share.

Boot Barn had expected earnings between 0 cents and 2 cents a share. Comps were expected to be slightly negative to slightly positive.

Operating Results For The Six Months Ended September 24, 2016
Net sales increased 18.5 percent to $267.4 million from $225.7 million in the prior-year period. Net sales increased due to six months of sales contributions from Sheplers (compared to three months in the prior-year period), the opening of 13 new stores between the beginning of the third quarter of fiscal 2016 and the end of the second quarter of fiscal 2017 and a 1.1 percent increase in consolidated same-store sales. Sales growth was partially offset by the planned closure of eight stores over the last 15 months, including six low-volume Sheplers stores that were closed, consistent with original expectations.

Gross profit increased 15.8 percent to $77.2 million, or 28.9 percent of net sales, compared to gross profit of $66.7 million, or 29.5 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 $69.2 million, or 30.6 percent of net sales. The decline in gross profit rate compared to the prior year’s adjusted gross profit rate was primarily driven by the addition of six months of historically lower-margin Sheplers sales (compared to three months in the prior-year period).

Income from operations increased $4.5 million to $8.9 million, compared to $4.4 million in the prior-year period. Excluding the amortization of inventory fair value adjustment, acquisition-related expenses and integration costs, and loss on disposal of assets and contract termination costs, adjusted income from operations in the prior-year period was $11.5 million. The decrease in income from operations compared to the prior year’s adjusted income from operations was driven primarily by additional expenses associated with Sheplers and higher expenses associated with new stores opened.

The company opened four new stores and ended the period with 212 stores in 29 states.

Net income was $1.1 million, or 4 cents per diluted share, compared to a net loss of $1.1 million, or 4 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, and write-off of debt issuance costs associated with the refinancing of debt, adjusted net income in the prior-year period was $4.2 million, or 16 cents per diluted share.

Balance Sheet Highlights As Of September 24, 2016

• Cash: $11.1 million
• Inventories: Average inventory per store was flat compared to September 26, 2015
• Total debt: $250.1 million
• Line of credit: $57 million outstanding on revolving credit facility

Fiscal Year 2017 Outlook
The company is updating its guidance for the fiscal year ending April 1, 2017 and now expects:

• To open 15 new stores, including four opened in the first two quarters.
• Slightly positive consolidated same-store sales.
• Income from operations between $43.7 million and $46.8 million.
• Net income of $17.7 million to $19.6 million.
• Net income per diluted share of 66 cents to 73 cents based on 26.9 million weighted average diluted shares outstanding, which includes 3 cents per diluted share attributed to the 53rd week.

With better-than-expected Q3 performance, the guidance was slightly increased. Previously, Boot Barn had projected consolidated same-store sales between slightly negative to slightly positive, income from operations between $42.4 million and $46.8 million and net income of $16.9 million, or 63 cents, to $19.6 million, or 73 cents.

For the fiscal third quarter ending December 24, 2016 the company expects:

• Slightly positive consolidated same store sales.
• Net income per diluted share of 38 cents to 43 cents based on 27 million weighted average diluted shares outstanding.

Photo courtesy Boot Barn