Boot Barn’s Q3 Tops Guidance

01 Feb Boot Barn’s Q3 Tops Guidance

Boot Barn Holdings Inc. reported earnings rose 18 percent in the third quarter ended December 31, topping guidance.

Highlights for the quarter ended December 30, 2017, were as follows:

• Net sales increased 12.7 percent to $224.7 million.
• Same-store sales increased 5.2 percent, with stores outperforming e-commerce sales.
• Net income per diluted share was $0.73 based on 27.6 million weighted average diluted shares outstanding. Excluding the impact of the change in federal tax law, net income per diluted share was $0.46 compared to guidance of $0.40 to $0.43, which was based on 27.2 million weighted average diluted shares outstanding.
• The company opened four new stores during the quarter.

On January 8, Boot Barn increased its Q3 guidance on improved traffic.

Jim Conroy, chief executive officer, commented, “We experienced solid sales growth during the third quarter and through January driven by the combination of a healthier consumer environment and solid execution across the company. Our retail stores led our growth with improvements in our marketing, merchandising and in-store initiatives. I am very pleased with our holiday performance as we drove sales growth without relying on outsized sales promotion, resulting in an increase to merchandise margin. At the same time, we continue to build out our multi-brand e-commerce strategy, having advanced some important capital projects in our fulfillment center. While these investments resulted in some temporary disruption to e-commerce revenue and unanticipated labor and freight costs during the peak holiday season, I believe we are well-positioned to build our market share on this platform going forward. I am pleased with the current tone of business and believe we can continue to further expand our market share as we reaccelerate new store openings and capitalize on our advanced omni-channel capabilities.”

Operating Results for the Third Quarter Ended December 30, 2017

• Net sales increased 12.7 percent to $224.7 million from $199.4 million in the prior-year period. Net sales increased due to an increase of 5.2 percent in same store sales, the sales contribution from seven new stores opened over the past twelve months and the four stores acquired from Wood’s Boots, and sales from the Country Outfitter site that was acquired in February 2017.
• Gross profit was $71.9 million, or 32.0 percent of net sales, compared to $63.4 million, or 31.8 percent of net sales, in the prior-year period. Gross profit increased primarily due to increased sales. As a percentage of net sales, consolidated gross profit increased primarily as a result of a 10 basis point increase in merchandise margin rate and a 10 basis point decrease in buying and occupancy costs. The higher merchandise margin rate was driven by more full-price selling, less clearance and increased exclusive brand penetration, partially offset by higher freight due to the temporary challenges in our e-commerce fulfillment center. The improvement in buying and occupancy costs as a percentage of sales resulted from leveraging fixed occupancy costs on increased sales, partially offset by increased labor costs in the company’s fulfillment center to meet holiday e-commerce demand.
• Selling, general and administrative expense was $47.5 million, or 21.2 percent of net sales, compared to $42.5 million, or 21.3 percent of net sales, in the prior-year period. Selling, general and administrative expenses increased primarily as a result of increased sales and additional costs for both new and acquired stores. Selling, general and administrative expenses as a percentage of sales decreased as a result of expense leverage on higher sales. A net pre-tax gain from insurance and other settlements related primarily to losses suffered in the second quarter from Hurricane Harvey was offset by incentive compensation expense in the third quarter.
• Income from operations increased 16.9 percent, to $24.4 million, or 10.9 percent of net sales, compared to $20.9 million, or 10.5 percent of net sales, in the prior-year period.
• The company opened four new stores, ending the quarter with 226 stores in 31 states.
• Net income was $20.1 million, or $0.73 per diluted share. Excluding the impact of the change in federal tax law that generated approximately $0.24 per share of tax benefit from the revaluation of deferred tax liabilities and $0.03 of tax benefit from a lower effective tax rate, net income per diluted share was $0.46, compared to $0.39 per diluted share, in the prior-year period.

Operating Results for the Nine Months Ended December 30, 2017

• Net sales increased 8.6 percent to $507.2 million from $466.8 million in the prior-year period. Net sales increased due to the sales contribution from seven new stores opened over the past twelve months and the four stores acquired from Wood’s Boots, a 3.1 percent increase in same store sales, and sales from the Country Outfitter site that was acquired in February 2017.
• Gross profit was $155.0 million, or 30.6 percent of net sales, compared to $140.6 million, or 30.1 percent of net sales, in the prior-year period. Gross profit increased primarily due to increased sales. As a percentage of sales, consolidated gross profit increased as a result of a 40 basis point increase in merchandise margin rate and 10 basis points of occupancy leverage.
• Selling, general and administrative expense was $120.0 million, or 23.7 percent of net sales, compared to $110.8 million, or 23.7 percent of net sales, in the prior-year period. Selling, general and administrative expenses increased as a result of additional costs associated with the opening of new and acquired stores over the last twelve months and incremental operational costs associated with the growth in the business.
• Income from operations increased 17.5 percent, to $35.0 million, or 6.9 percent of net sales, compared to $29.8 million, or 6.4 percent of net sales, in the prior-year period.
  The company opened five new stores, acquired four stores from Wood’s Boots and closed two Boot Barn stores, ending the period with 226 stores in 31 states.
• Net income was $22.0 million, or $0.81 per diluted share. Excluding the impact of the change in federal tax law, net income per diluted share was $0.54, compared to $0.43 per diluted share, in the prior-year period.

Balance Sheet Highlights as of December 30, 2017

• Cash of $19.1 million.
• Average inventory per store was flat on a comp store basis compared to December 24, 2016.
• Total net debt of $182.9 million, including a zero balance under the revolving credit facility.

Fiscal Year 2018 Outlook

For the fiscal fourth quarter ending March 31, 2018 the company expects:

• Same store sales growth of 4.0 percent to 5.0 percent.
• Income from operations between $8.3 million and $8.6 million, which includes an estimated $0.3 million of secondary offering costs.
• Net income of $4.2 million to $4.5 million, which is based on a blended tax rate of 5.8 percent for the quarter. The company’s effective tax rate of 36.2 percent is expected to be further reduced by an estimated tax benefit of $1.4 million, or $0.05 per share, related to stock option exercises made primarily in conjunction with the secondary offering that closed on January 22, 2018. Net income also includes the estimated pre-tax secondary offering costs of $0.3 million, or approximately $0.01 per share.
• Net income per diluted share of $0.15 to $0.16 based on 28.4 million weighted average diluted shares outstanding.

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

• To open 10 new stores, including the acquisition of the four Wood’s Boots stores.
• Income from operations between $43.2 million and $43.5 million, which includes an estimated $0.3 million of secondary offering costs.
• Net income between $26.2 million and $26.5 million, which includes a $6.8 million tax benefit from the revaluation of deferred tax liabilities and an updated annual tax rate pursuant to tax reform.
• Net income per diluted share of $0.95 to $0.96 based on 27.7 million weighted average diluted shares outstanding compared to the company’s November 2, 2017 outlook of $0.57 to $0.61 which assumed 27.2 million weighted average diluted shares outstanding.

When $40.0 million to $42.5 million.

• Net income between $23.3 million and $24.5 million. Excluding the impact of the change in federal tax law, the Company expects net income to be between $16.7 million and $17.6 million, compared to the Company’s prior outlook of $15.4 million to $16.6 million.
• Net income per diluted share of $0.85 to $0.89 based on 27.6 million weighted average diluted shares outstanding. Excluding the impact of the change in federal tax law, the Company expects net income per diluted share of $0.60 to $0.64 compared to the Company’s prior outlook of $0.57 to $0.61, which was based on 27.2 million weighted average diluted shares outstanding.