BOOT BARN HOLDINGS, INC. The following discussion and analysis of the financial condition and results of our operations should be read together with the unaudited financial statements and related notes ofBoot Barn Holdings, Inc. and Subsidiaries included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (the "SEC"), onMay 22, 2020 (the "Fiscal 2020 10-K"). As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms "company", "Boot Barn ", "we", "our" and "us" refer toBoot Barn Holdings, Inc. and its subsidiaries. 23 Table of Contents Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties, as well as assumptions that, if they never
materialize or prove incorrect, could cause our results to differ materially
from those expressed or implied by such forward-looking statements. The
statements contained in this Quarterly Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Forward-looking statements are often identified by the use of words such as, but
not limited to, "anticipate", "believe", "can", "continue", "could", "estimate",
"expect", "intend", "may", "plan", "project", "seek", "should", "target",
"will", "would" and similar expressions or variations intended to identify
forward-looking statements. These statements are based on the beliefs and
assumptions of our management based on information currently available to
management. These forward-looking statements are subject to numerous risks and
uncertainties, including the risks and uncertainties described under the section
titled "Risk Factors" in our Fiscal 2020 10-K, and those identified in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we
operate in an evolving environment. New risks and uncertainties emerge from time
to time and it is not possible for our management to predict all risks and
uncertainties, nor can we assess the impact of all risks on our business or the
extent to which any risk, or combination of risks, may cause actual results to
differ materially from those contained in any forward-looking statement. We
qualify all of our forward-looking statements by these cautionary statements.
We caution you that the risks and uncertainties identified by us may not be all
of the factors that are important to you. Furthermore, the forward-looking
statements included in this Quarterly Report on Form 10-Q are made only as of
the date hereof. Our forward-looking statements do not reflect the potential
impact of any future acquisitions, mergers, dispositions, joint ventures or
investments that we may make. We undertake no obligation to publicly update or
revise any forward-looking statement as a result of new information, future
events or otherwise, except as otherwise required by law.
The major global health pandemic caused by COVID-19 and resulting economic
impacts have had and will continue to have an impact on our operations, future
growth strategies and outlook. Our business and opportunities for growth depend
on consumer discretionary spending, and as such, our results are particularly
sensitive to economic conditions and consumer confidence. The extent to which
COVID-19 impacts our operations will depend on future developments, which are
highly uncertain. For further discussion of the uncertainties and business risks
associated with COVID-19, see Item 1A, Risk Factors, of our Fiscal 2020 10-K.
Overview
We believe thatBoot Barn is the largest lifestyle retail chain devoted to western and work-related footwear, apparel and accessories in theU.S. As ofDecember 26, 2020 , we operated 266 stores in 36 states, as well as our e-commerce websites consisting primarily of bootbarn.com, sheplers.com and countryoutfitter.com. Our product offering is anchored by an extensive selection of western and work boots and is complemented by a wide assortment of coordinating apparel and accessories. Our stores feature a comprehensive assortment of brands and styles, coupled with attentive, knowledgeable store associates. Many of the items that we offer are basics or necessities for our customers' daily lives and typically represent enduring styles that are not meaningfully impacted by changing fashion trends. We strive to offer an authentic, one-stop shopping experience that fulfills the everyday lifestyle needs of our customers, and as a result, many of our customers make purchases in both the western and work wear sections of our stores. We target a broad and growing demographic, ranging from passionate western and country enthusiasts, to workers seeking dependable, high-quality footwear and apparel. Our broad geographic footprint, which comprises more than three times as many stores as our nearest direct competitor that sells primarily western and work wear, provides us with significant economies of scale, enhanced supplier relationships, the ability to recruit and retain high quality store associates and the ability to reinvest in our business at levels that we believe exceed those of our competition. 24 Table of Contents How We Assess the Performance of Our Business In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators we use to evaluate the financial condition and operating performance of our business are net sales and gross profit. In addition, we also review other important metrics, such as same store sales, new store openings, and selling, general and administrative expenses ("SG&A"), as well as the non-GAAP financial measures, earnings before interest, taxes, depreciation and amortization ("EBITDA"), EBITDA adjusted to exclude certain items ("Adjusted EBITDA"), and earnings before interest and taxes, adjusted to exclude certain items ("Adjusted EBIT"). See "-EBITDA, Adjusted EBITDA and Adjusted EBIT" below for more information and "-Results of Operations" for a reconciliation of these measures to net income. Net sales Net sales reflect revenue from the sale of our merchandise at retail locations, as well as sales of merchandise through our e-commerce websites. We recognize revenue upon the purchase of merchandise by customers at our stores and upon delivery of the product in the case of our e-commerce websites. Net sales also include shipping and handling fees for e-commerce shipments that have been delivered to our customers. Net sales are net of returns on sales during the period as well as an estimate of returns and award redemptions expected in the future stemming from current period sales. Revenue from the sale of gift cards is deferred until the gift cards are used to purchase merchandise. Our business is moderately seasonal and as a result our revenues fluctuate from quarter to quarter. In addition, our revenues in any given quarter can be affected by a number of factors including the timing of holidays, weather patterns, rodeos and country concerts. The third quarter of our fiscal year, which includes the Christmas shopping season, has historically produced higher sales and disproportionately larger operating income than the other quarters of our fiscal year. However, neither the western nor the work component of our business has been meaningfully impacted by fashion trends or seasonality historically. We believe that many of our customers are driven primarily by utility and brand, and our best-selling styles. Same store sales
The term "same store sales" refers to net sales from stores that have been open at least 13 full fiscal months as of the end of the current reporting period, although we include or exclude stores from our calculation of same store sales in accordance with the following additional criteria:
? stores that are closed for five or fewer consecutive days in any fiscal month
are included in same store sales;
stores that are closed temporarily, but for more than five consecutive days in
any fiscal month, are excluded from same store sales beginning in the fiscal
? month in which the temporary closure begins (and for the comparable periods of
the prior or subsequent fiscal periods for comparative purposes) until the
first full month of operation once the store re-opens;
? stores that are closed temporarily and relocated within their respective trade
areas are included in same store sales;
stores that are permanently closed are excluded from same store sales beginning
? in the month preceding closure (and for the comparable periods of the prior or
subsequent fiscal periods for comparative purposes); and
acquired stores are added to same store sales beginning on the later of (a) the
applicable acquisition date and (b) the first day of the first fiscal month
? after the store has been open for at least 13 full fiscal months regardless of
whether the store has been operated under our management or predecessor management. If the criteria described with respect to acquired stores above are met, then all net sales of such acquired store, excluding those net sales before our acquisition of that store, are included for the period presented. However, when an acquired store is included for the period presented, the net sales of such acquired store for periods before its acquisition are included (to the extent relevant) for purposes of calculating "same store sales growth" and illustrating the comparison between the applicable periods. Pre-acquisition net sales numbers are derived from the books and records of the acquired company, as prepared prior to the acquisition, and have not been independently verified by us. Beginning on their respective dates of acquisition, sales from the acquired Wood's Boots stores,Lone Star stores, Drysdales stores and G.&L. Clothing store have been included in same store sales. 25 Table of Contents In addition to retail store sales, same store sales also includes e-commerce sales, e-commerce shipping and handling revenue and actual retail store or e-commerce sales returns. Sales as a result of an e-commerce asset acquisition, such as Country Outfitter, are excluded from same store sales until the 13th full fiscal month subsequent to the Company's acquisition of such assets.
We exclude gift card escheatment, provision for sales returns and estimated future loyalty award redemptions from sales in our calculation of net sales per store.
Measuring the change in year-over-year same store sales allows us to evaluate how our store base is performing. Numerous factors affect our same store sales, including:
? national and regional economic trends, including those resulting from the
COVID-19 pandemic;
? our ability to identify and respond effectively to regional consumer
preferences;
? changes in our product mix;
? changes in pricing; ? competition;
? changes in the timing of promotional and advertising efforts;
? holidays or seasonal periods; and
? weather. Opening new stores is an important part of our growth strategy and we anticipate that a percentage of our net sales in the near future will come from stores not included in our same store sales calculation. Accordingly, same store sales are only one measure we use to assess the success of our business and growth strategy. Some of our competitors and other retailers may calculate "same" or "comparable" store sales differently than we do. As a result, data in this Quarterly Report on Form 10-Q regarding our same store sales may not be comparable to similar data made available by other retailers. New store openings
New store openings reflect the number of stores, excluding acquired stores, that are opened during a particular reporting period. In connection with opening new stores, we incur pre-opening costs. Pre-opening costs consist of costs incurred prior to opening a new store and primarily consist of manager and other employee payroll, travel and training costs, marketing expenses, initial opening supplies and costs of transporting initial inventory and certain fixtures to store locations, as well as occupancy costs incurred from the time that we take possession of a store site to the opening of that store. Occupancy costs are included in cost of goods sold and the other pre-opening costs are included in SG&A expenses. All of these costs are expensed as incurred. New stores often open with a period of high sales levels, which subsequently decrease to normalized sales volumes. In addition, we experience typical inefficiencies in the form of higher labor, advertising and other direct operating expenses, and as a result, store-level profit margins at our new stores are generally lower during the start-up period of operation. The number and timing of store openings has had, and is expected to continue to have, a significant impact on our results of operations. In assessing the performance of a new store, we review its actual sales against the sales that we projected that store to achieve at the time we initially approved its opening. We also review the actual number of stores opened in a fiscal year against the number of store openings that we included in our budget at the beginning of that fiscal year. Gross profit
Gross profit is equal to our net sales less our cost of goods sold. Cost of
goods sold includes the cost of merchandise, obsolescence and shrinkage
provisions, store and warehouse occupancy costs (including rent, depreciation
and utilities), inbound and outbound freight, supplier allowances,
occupancy-related taxes, compensation costs for merchandise purchasing and
warehouse personnel, and other inventory acquisition-related costs. These costs
are significant and can be expected to continue to increase as we grow. The
components of our reported cost of goods sold may not be comparable to those of
other retail companies, including our competitors.
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Our gross profit generally follows changes in net sales. We regularly analyze
the components of gross profit, as well as gross profit as a percentage of net
sales. Specifically, we examine the initial markup on purchases, markdowns and
reserves, shrinkage, buying costs, distribution costs and occupancy costs. Any
inability to obtain acceptable levels of initial markups, a significant increase
in our use of markdowns or in inventory shrinkage, or a significant increase in
freight and other inventory acquisition costs, could have an adverse impact on
our gross profit and results of operations.
Gross profit is also impacted by shifts in the proportion of sales of our
exclusive brand products compared to third-party brand products, as well as by
sales mix changes within and between brands and major product categories such as
footwear, apparel or accessories.
Selling, general and administrative expenses
Our SG&A expenses are composed of labor and related expenses, other operating expenses and general and administrative expenses not included in cost of goods sold. Specifically, our SG&A expenses include the following:
Labor and related expenses - Labor and related expenses include all store-level
? salaries and hourly labor costs, including salaries, wages, benefits and
performance incentives, labor taxes and other indirect labor costs.
Other operating expenses - Other operating expenses include all operating
? costs, including those for advertising, pay-per-click, marketing campaigns,
operating supplies, utilities, and repairs and maintenance, as well as credit
card fees and costs of third-party services.
General and administrative expenses - General and administrative expenses
include expenses associated with corporate and administrative functions that
? support the development and operations of our stores, including compensation
and benefits, travel expenses, corporate occupancy costs, stock compensation
costs, legal and professional fees, insurance, long-lived asset impairment
charges and other related corporate costs.
The components of our SG&A expenses may not be comparable to those of our competitors and other retailers. We expect our selling, general and administrative expenses will increase in future periods as a result of incremental share-based compensation, legal, and accounting-related expenses and increases resulting from growth in the number of our stores.
EBITDA, Adjusted EBITDA and Adjusted EBIT
EBITDA, Adjusted EBITDA and Adjusted EBIT are important non-GAAP financial
measures used by our management, board of directors and lenders to assess our
operating performance. We use EBITDA, Adjusted EBITDA and Adjusted EBIT as key
performance measures because we believe that they facilitate operating
performance comparisons from period to period by excluding potential differences
primarily caused by the impact of variations from period to period in tax
positions, interest expense and depreciation and amortization, as well as, in
the case of Adjusted EBITDA, excluding non-cash expenses, such as stock-based
compensation and the non-cash accrual for future award redemptions, and other
costs and expenses that are not directly related to our operations, including
loss on disposal of assets, gain/(loss) on adjustment of right-of-use assets and
lease liabilities, and store impairment charges. Similar to Adjusted EBITDA,
Adjusted EBIT excludes the aforementioned adjustments while maintaining the
impact of depreciation and amortization on our financial results. See "Results
of Operations" below for a reconciliation of our EBITDA, Adjusted EBITDA and
Adjusted EBIT to net income, the most directly comparable financial measure
calculated and presented in accordance with GAAP. Because EBITDA, Adjusted
EBITDA and Adjusted EBIT facilitate internal comparisons of our historical
operating performance on a more consistent basis, we also use EBITDA, Adjusted
EBITDA and Adjusted EBIT for business planning purposes, in determining
incentive compensation for members of our management and in evaluating
acquisition opportunities. Our credit facilities also require us to use EBITDA,
Adjusted EBITDA and Adjusted EBIT in calculating covenant compliance. In
addition, we believe that EBITDA, Adjusted EBITDA and Adjusted EBIT and similar
measures are widely used by investors, securities analysts, ratings agencies and
other parties in evaluating companies in our industry as a measure of financial
performance and debt-service capabilities. Given that EBITDA, Adjusted EBITDA
and Adjusted EBIT are measures not deemed to be in accordance with GAAP and are
susceptible to varying calculations, our EBITDA, Adjusted EBITDA and Adjusted
EBIT may not be comparable to similarly titled measures of other companies,
including companies in our industry, because other companies may calculate
EBITDA, Adjusted EBITDA and Adjusted EBIT in a different manner than we
calculate these measures.
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Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, as well as the related disclosures of contingent assets and
liabilities at the date of the financial statements. A summary of our
significant accounting policies is included in Note 2 to our consolidated
financial statements included in the Fiscal 2020 10-K.
Certain of our accounting policies and estimates are considered critical, as
these policies and estimates are the most important to the depiction of our
consolidated financial statements and require significant, difficult or complex
judgments, often about the effect of matters that are inherently uncertain. Such
policies are summarized in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of our Fiscal 2020 10-K.
As of the date of this filing, there were no significant changes to any of the
critical accounting policies and estimates described in the Fiscal 2020 10-K.
Results of Operations
We operate on a fiscal calendar that results in a 52- or 53-week fiscal year
ending on the last Saturday of March unless April 1st is a Saturday, in which
case the fiscal year ends on April 1st . In a 52-week fiscal year, each quarter
includes thirteen weeks of operations; in a 53-week fiscal year, the first,
second and third quarters each include thirteen weeks of operations and the
fourth quarter includes fourteen weeks of operations. Both the fiscal year
ending on March 27, 2021 ("fiscal 2021") and the fiscal year ended on March 28,
2020 ("fiscal 2020") consist of 52 weeks. We identify our fiscal years by
reference to the calendar year in which the fiscal year ends.
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The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
December 26, December 28, December 26, December 28,
(dollars in thousands) 2020 2019 2020 2019
Condensed Consolidated Statements
of Operations Data:
Net sales $ 302,338 $ 283,997 $ 634,619 $ 656,947
Cost of goods sold 195,529 186,961 432,119 438,417
Gross profit 106,809 97,036 202,500 218,530
Selling, general and administrative
expenses 65,183 62,059 149,034 154,558
Income from operations 41,626 34,977 53,466 63,972
Interest expense, net 2,303 3,155 7,327 10,369
Other income, net 152 37 294 51
Income before income taxes 39,475 31,859 46,433 53,654
Income tax expense 9,909 7,040 11,599 11,434
Net income $ 29,566 $ 24,819 $ 34,834 $ 42,220
Percentage of Net Sales (1):
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 64.7 % 65.8 % 68.1 % 66.7 %
Gross profit 35.3 % 34.2 % 31.9 % 33.3 %
Selling, general and administrative
expenses 21.6 % 21.9 % 23.5 % 23.5 %
Income from operations 13.8 % 12.3 % 8.4 % 9.7 %
Interest expense, net 0.8 % 1.1 % 1.2 % 1.6 %
Other income, net 0.1 % - % - % - %
Income before income taxes 13.1 % 11.2 % 7.3 % 8.2 %
Income tax expense 3.3 % 2.5 % 1.8 % 1.7 %
Net income 9.8 % 8.7 % 5.5 % 6.4 %
(1) Percentages may not recalculate due to rounding.
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The following table presents a reconciliation of EBITDA, Adjusted EBITDA and
Adjusted EBIT to our net income, the most directly comparable financial measure
calculated and presented in accordance with GAAP, for each of the periods
indicated:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
December 26, December 28, December 26, December 28,(in thousands) 2020 2019 2020 2019 EBITDA, Adjusted EBITDA and Adjusted EBIT Reconciliations: Net income$ 29,566 $ 24,819 $ 34,834 $ 42,220 Income tax expense 9,909 7,040 11,599 11,434 Interest expense, net 2,303 3,155 7,327 10,369 Depreciation and intangible asset amortization 5,994 5,682 17,986 15,511 EBITDA 47,772 40,696 71,746 79,534 Non-cash stock-based compensation(a) 1,482 1,181 5,011 3,326 Non-cash accrual for future award redemptions(b) 697 575 767 661 (Gain)/loss on disposal of assets(c) (19) 377 23 389 Loss/(gain) on adjustment of right-of-use assets and lease liabilities(d) -
7 295 (186) Store impairment charge(e) - - 384 - Adjusted EBITDA$ 49,932 $ 42,836 $ 78,226 $ 83,724 Depreciation and intangible asset amortization (5,994) (5,682) (17,986) (15,511) Adjusted EBIT$ 43,938 $ 37,154 $ 60,240 $ 68,213
Represents non-cash compensation expenses related to stock options, (a) restricted stock units and performance share units granted to certain of our
employees and directors.
(b) Represents the non-cash accrual for future award redemptions in connection
with our customer loyalty program.
(c) Represents (gain)/loss on disposal of assets.
(d) Represents loss/(gain) on adjustment of right-of-use assets and lease
liabilities.
(e) Represents store impairment charges recorded in order to reduce the carrying
amount of the assets to their estimated fair values.
The following table presents store operating data for the periods indicated:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
December 26 , December 28 ,
2020 2019 2020 2019
Selected Store Data:
Same Store Sales growth/(decline) 4.6 % 6.7 % (3.2) % 7.8 %
Stores operating at end of period 266 251 266 251
Total retail store square footage,
end of period (in thousands) 2,787 2,639 2,787 2,639
Average store square footage, end
of period 10,477 10,514 10,477 10,514
Average net sales per store (in
thousands) $ 563 $ 903 $ 969 $ 2,161 Thirteen Weeks Ended
Net sales. Net sales increased$18.3 million , or 6.5%, to$302.3 million for the thirteen weeks endedDecember 26, 2020 from$284.0 million for the thirteen weeks endedDecember 28, 2019 . Consolidated same store sales increased 4.6%. Excluding the impact of the 16.3% increase in e-commerce same store sales, same store sales increased by 1.9%. The increase in net sales was the result of an increase of 4.6% in same store sales during the thirteen weeks endedDecember 26, 2020 and the sales contribution from new and acquired stores over the past twelve months. 30 Table of Contents Gross profit. Gross profit increased$9.8 million , or 10.1%, to$106.8 million for the thirteen weeks endedDecember 26, 2020 from$97.0 million for the thirteen weeks endedDecember 28, 2019 . As a percentage of net sales, gross profit was 35.3% and 34.2% for the thirteen weeks endedDecember 26, 2020 andDecember 28, 2019 , respectively. The increase in gross profit rate of 120 basis points was driven by a 150-basis point increase in merchandise margin rate, partially offset by 30 basis points of deleverage in buying and occupancy costs. Merchandise margin increased 150 basis points primarily as a result of better full-price selling and reduced promotions. Selling, general and administrative expenses. SG&A expenses increased$3.1 million , or 5.0%, to$65.2 million for the thirteen weeks endedDecember 26, 2020 from$62.1 million for the thirteen weeks endedDecember 28, 2019 . The increase in SG&A expenses was primarily a result of additional costs to support higher sales and expenses for both new and acquired stores. As a percentage of net sales, SG&A decreased by 30 basis points to 21.6% from 21.9% for the thirteen weeks endedDecember 26, 2020 andDecember 28, 2019 , respectively. SG&A expenses as a percentage of net sales decreased by 30 basis points primarily as a result of expense leverage on higher sales. Income from operations. Income from operations increased$6.6 million , or 19.0%, to$41.6 million for the thirteen weeks endedDecember 26, 2020 from$35.0 million for the thirteen weeks endedDecember 28, 2019 . The increase in income from operations was attributable to the factors noted above. As a percentage of net sales, income from operations was 13.8% and 12.3% for the thirteen weeks endedDecember 26, 2020 andDecember 28, 2019 , respectively. Interest expense, net. Interest expense, net, was$2.3 million and$3.2 million for the thirteen weeks endedDecember 26, 2020 andDecember 28, 2019 , respectively. The decrease in interest expense, net was primarily the result of a lower debt balance in the current-year period and lower interest rates associated with the debt in the current-year period. Income tax expense. Income tax expense was$9.9 million for the thirteen weeks endedDecember 26, 2020 , compared to$7.0 million for the thirteen weeks endedDecember 28, 2019 . Our effective tax rate was 25.1% and 22.1% for the thirteen weeks endedDecember 26, 2020 andDecember 28, 2019 , respectively. The tax rate for the thirteen weeks endedDecember 26, 2020 was higher than the tax rate for the thirteen weeks endedDecember 28, 2019 , primarily due to a$0.3 million tax benefit resulting from income tax accounting for share-based compensation compared to a higher benefit of$1.1 million in the thirteen weeks endedDecember 28, 2019 . Net income. Net income was$29.6 million for the thirteen weeks endedDecember 26, 2020 compared to net income of$24.8 million for the thirteen weeks endedDecember 28, 2019 . The increase in net income was primarily attributable to
the factors noted above.
Adjusted EBITDA and Adjusted EBIT. Adjusted EBITDA increased$7.1 million , or 16.6%, to$49.9 million for the thirteen weeks endedDecember 26, 2020 from$42.8 million for the thirteen weeks endedDecember 28, 2019 . Adjusted EBIT increased$6.8 million , or 18.3%, to$43.9 million for the thirteen weeks endedDecember 26, 2020 from$37.2 million for the thirteen weeks endedDecember 28, 2019 . The increase in Adjusted EBITDA and Adjusted EBIT was primarily a result of the year-over-year increase in income from operations driven by an increase in gross profit and a decrease in SG&A as a percentage of net sales.
Thirty-Nine Weeks Ended
Net sales. Net sales decreased$22.3 million , or 3.4%, to$634.6 million for the thirty-nine weeks endedDecember 26, 2020 from$656.9 million for the thirty-nine weeks endedDecember 28, 2019 . Consolidated same store sales decreased 3.2%. Excluding the impact of the 24.9% increase in e-commerce same store sales, same store sales decreased by 8.9%. The decrease in retail store sales was primarily due to decreased traffic in our stores that resulted from customers staying at home in response to the COVID-19 crisis and temporary
store closures. Gross profit. Gross profit decreased$16.0 million , or 7.3%, to$202.5 million for the thirty-nine weeks endedDecember 26, 2020 from$218.5 million for the thirty-nine weeks endedDecember 28, 2019 . As a percentage of net sales, gross profit was 31.9% and 33.3% for the thirty-nine weeks endedDecember 26, 2020 andDecember 28, 2019 , 31 Table of Contents
respectively. The decrease in gross profit rate was driven by 140 basis points of deleverage in buying and occupancy costs primarily as a result of lower sales.
Selling, general and administrative expenses. SG&A expenses decreased$5.5 million , or 3.6%, to$149.0 million for the thirty-nine weeks endedDecember 26, 2020 from$154.6 million for the thirty-nine weeks endedDecember 28, 2019 . The decrease in SG&A expenses was primarily a result of reduced marketing expenses and lower payroll. As a percentage of net sales, SG&A was 23.5% for both the thirty-nine weeks endedDecember 26, 2020 andDecember 28, 2019 . Income from operations. Income from operations decreased$10.5 million , or 16.4%, to$53.5 million for the thirty-nine weeks endedDecember 26, 2020 from$64.0 million for the thirty-nine weeks endedDecember 28, 2019 . The decrease in income from operations was attributable to the factors noted above. As a percentage of net sales, income from operations was 8.4% and 9.7% for the thirty-nine weeks endedDecember 26, 2020 andDecember 28, 2019 , respectively. Interest expense, net. Interest expense, net, was$7.3 million and$10.4 million for the thirty-nine weeks endedDecember 26, 2020 andDecember 28, 2019 , respectively. The decrease in interest expense, net was primarily the result of lower interest rates associated with the debt in the current-year period and a lower average debt balance in the current-year period. Income tax expense. Income tax expense was$11.6 million for the thirty-nine weeks endedDecember 26, 2020 , compared to income tax expense of$11.4 million for the thirty-nine weeks endedDecember 28, 2019 . Our effective tax rate was 25.0% and 21.3% for the thirty-nine weeks endedDecember 26, 2020 andDecember 28, 2019 , respectively. The tax rate for the thirty-nine weeks endedDecember 26, 2020 was higher than the tax rate for the thirty-nine weeks endedDecember 28, 2019 , primarily due to a$0.4 million tax benefit resulting from income tax accounting for share-based compensation compared to a higher benefit of$1.9 million in the thirteen weeks endedDecember 28, 2019 .
Net income. Net income was
Adjusted EBITDA and Adjusted EBIT. Adjusted EBITDA decreased$5.5 million , or 6.6%, to$78.2 million for the thirty-nine weeks endedDecember 26, 2020 from$83.7 million for the thirty-nine weeks endedDecember 28, 2019 . Adjusted EBIT decreased$8.0 million , or 11.7%, to$60.2 million for the thirty-nine weeks endedDecember 26, 2020 from$68.2 million for the thirty-nine weeks endedDecember 28, 2019 . The decrease in Adjusted EBITDA and Adjusted EBIT was primarily a result of the year-over-year decrease in income from operations driven primarily by a decrease in gross profit as a result of the COVID-19
crisis.
Liquidity and Capital Resources
We rely on cash flows from operating activities and our credit facilities as our
primary sources of liquidity. Our primary cash needs are for inventories,
operating expenses, capital expenditures associated with opening new stores and
remodeling or refurbishing existing stores, improvements to our distribution
facilities, marketing and information technology expenditures, debt service and
taxes. We have also used cash for acquisitions, the subsequent rebranding and
integration of the stores acquired in those acquisitions and costs to
consolidate the corporate offices. In addition to cash and cash equivalents, the
most significant components of our working capital are accounts receivable,
inventories, accounts payable and accrued expenses and other current
liabilities. We believe that cash flows from operating activities and the
availability of cash under our credit facilities or other financing arrangements
will be sufficient to cover working capital requirements, anticipated capital
expenditures and other anticipated cash needs for at least the next 12 months.
Our liquidity is moderately seasonal. Our cash requirements generally increase in our third fiscal quarter as we increase our inventory in advance of the Christmas shopping season.
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We are planning to continue to open new stores, remodel and refurbish our
existing stores, and make improvements to our e-commerce and information
technology infrastructure, which will result in increased capital expenditures.
We estimate that our total capital expenditures in fiscal 2021 will be between
$17.0 million to $19.0 million (including the capital expenditures made during
the thirty-nine weeks ended December 26, 2020 ), net of landlord tenant
allowances, and we anticipate that we will use cash flows from operations to
fund these expenditures.
OnJune 29, 2015 , we, as guarantor, and our wholly-owned primary operating subsidiary,Boot Barn, Inc. , refinanced a previous Wells Fargo credit facility with the$125.0 million syndicated senior secured asset-based revolving credit facility for whichWells Fargo Bank, National Association ("June 2015 Wells Fargo Revolver"), is agent, and the$200.0 million syndicated senior secured term loan for whichGCI Capital Markets LLC ("2015 Golub Term Loan") is agent. The borrowing base of theJune 2015 Wells Fargo Revolver is calculated on a monthly basis and is based on the amount of eligible credit card receivables, commercial accounts, inventory, and available reserves. Borrowings under theJune 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at our option, either (i) London Interbank Offered Rate ("LIBOR") plus an applicable margin for LIBOR loans, or (ii) the base rate plus an applicable margin for base rate loans. The base rate is calculated as the highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate and (c) one-month LIBOR plus 1.0%. The applicable margin is calculated based on a pricing grid that in each case is linked to quarterly average excess availability. For LIBOR Loans, the applicable margin ranges from 1.00% to 1.25%, and for base rate loans it ranges from 0.00% to 0.25%. We also pay a commitment fee of 0.25% per annum of the actual daily amount of the unutilized revolving loans. The interest on theJune 2015 Wells Fargo Revolver is payable in quarterly installments ending on the maturity date. OnMay 26, 2017 , the Company entered into an amendment to theJune 2015 Wells Fargo Revolver (the "2017 Wells Amendment"), increasing the aggregate revolving credit facility to$135.0 million and extending the maturity date to the earlier ofMay 26, 2022 or 90 days prior to the previous maturity of the 2015 Golub Term Loan, which was then scheduled to mature onJune 29, 2021 . OnJune 6, 2019 , we entered into Amendment No. 3 to the Credit Agreement (the "2019 Wells Amendment"), further increasing the aggregate revolving credit facility to$165.0 million and extending the maturity date to the earlier ofJune 6, 2024 or 90 days prior to the maturity of the 2015 Golub Term Loan, which is currently scheduled to mature onJune 29, 2023 . The 2019 Wells Amendment further made changes to the 2015 Wells Fargo Revolver in connection with the transition away from LIBOR as the benchmark rate. The amount outstanding under theJune 2015 Wells Fargo Revolver as ofDecember 26, 2020 andMarch 28, 2020 was zero and$129.9 million , respectively. Total interest expense incurred in the thirteen and thirty-nine weeks endedDecember 26, 2020 on theJune 2015 Wells Fargo Revolver was$0.3 million and$1.3 million , respectively, and the weighted average interest rate for the thirteen weeks endedDecember 26, 2020 was 1.7%. Total interest expense incurred in the thirteen and thirty-nine weeks endedDecember 28, 2019 on theJune 2015 Wells Fargo Revolver was$0.9 million and$2.4 million , respectively, and the weighted average interest rate for the thirteen weeks endedDecember 28, 2019 was 3.2%.
Borrowings under the 2015 Golub Term Loan bear interest at per annum rates equal to, at our option, either (a) LIBOR plus an applicable margin for LIBOR loans with a LIBOR floor of 1.0%, or (b) the base rate plus an applicable margin for base rate loans. The base rate is calculated as the greater of (i) the higher of (x) the prime rate and (y) the federal funds rate plus 0.5% and (ii) the sum of one-month LIBOR plus 1.0%. The applicable margin is 4.5% for LIBOR Loans and 3.5% for base rate loans. The principal and interest on the 2015 Golub Term Loan is payable in quarterly installments ending on the maturity date, which was originallyJune 29, 2021 but is nowJune 29, 2023 . Quarterly principal payments of$500,000 are due for each quarter; however, onJune 2, 2017 , the Company prepaid$10.0 million on the 2015 Golub Term Loan, which included all of the required quarterly principal payments until the maturity date of the loan. OnMay 15, 2018 , the Company made an additional$10.0 million prepayment on the 2015 Golub Term Loan. OnJune 6, 2019 , the Company entered into the Third Amendment to the 2015 Golub Term Loan (the "2019 Golub Amendment") which extended the maturity date toJune 29, 2023 . At the time of the Third Amendment, the company also prepaid$65.0 million of the term loan facility, reducing the outstanding principal balance to$111.5 million . The 2019 Golub Amendment further made changes to the 2015 Golub Term Loan in connection with the transition away from LIBOR as the benchmark rate. Total interest expense incurred in the thirteen and thirty-nine weeks endedDecember 26, 2020 on the 2015 Golub Term Loan was$1.6 million and$4.7 million , respectively, and the weighted average interest rate for the thirteen weeks endedDecember 26, 2020 was 5.9%. Total interest expense incurred in the 33
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thirteen and thirty-nine weeks endedDecember 28, 2019 on the 2015 Golub Term Loan was$1.9 million and$6.7 million , respectively, and the weighted average interest rate for the thirteen weeks endedDecember 28, 2019 was 6.6%. All obligations under each of the 2015 Golub Term Loan and theJune 2015 Wells Fargo Revolver are unconditionally guaranteed by us and each of our direct and indirect domestic subsidiaries (other than certain immaterial subsidiaries) which are not named as borrowers under the 2015 Golub Term Loan or theJune 2015 Wells Fargo Revolver, as applicable. The priority with respect to collateral under each of the 2015 Golub Term Loan and theJune 2015 Wells Fargo Revolver is subject to the terms of an intercreditor agreement among the lenders under the 2015 Golub Term Loan and theJune 2015 Wells Fargo Revolver. Each of theJune 2015 Wells Fargo Revolver and the 2015 Golub Term Loan contains customary provisions relating to mandatory prepayments, restricted payments, voluntary payments, affirmative and negative covenants, and events of default. In addition, the terms of theJune 2015 Wells Fargo Revolver require the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio of at least 1.00:1.00 during such times as a covenant trigger event shall exist. OnMay 26, 2017 , the Company entered into an amendment to the 2015 Golub Term Loan (the "2017 Golub Amendment"). The 2017 Golub Amendment changed the maximum Consolidated Total Net Leverage Ratio requirements to 4.00:1.00 as ofDecember 29, 2018 and for all subsequent periods. The 2019 Golub Amendment maintains the same maximum Consolidated Total Net Leverage Ratio requirements. TheJune 2015 Wells Fargo Revolver and 2015 Golub Term Loan also require us to pay additional interest of 2.0% per annum upon triggering certain specified events of default as set forth therein. For financial accounting purposes, the requirement for us to pay a higher interest rate upon an event of default is an embedded derivative. As ofDecember 26, 2020 , the fair value of these embedded derivatives was estimated and was not significant.
As of
Cash Position and Cash Flow
Cash and cash equivalents were
The following table presents summary cash flow information for the periods
indicated:
Thirty-Nine Weeks Ended
December 26, December 28,
(in thousands) 2020 2019
Net cash provided by/(used in):
Operating activities $ 156,604 $ 76,801
Investing activities (20,508) (30,521)
Financing activities (129,317) (17,448)
Net increase in cash $ 6,779 $ 28,832
Operating Activities
Net cash provided by operating activities was $156.6 million for the thirty-nine
weeks ended December 26, 2020 . The significant components of cash flows provided
by operating activities were net income of $34.8 million , the add-back of
non-cash depreciation and intangible asset amortization expense of $18.0
million , and stock-based compensation expense of $5.0 million . Accounts payable
and accrued expenses and other current liabilities increased by $52.0 million
due to the timing of payments, particularly with elevated December sales when
compared to sales in March. Inventory decreased by $42.7 million as a result of
a reduction in purchases due to the COVID-19 crisis combined with elevated
December sales.
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Net cash provided by operating activities was $76.8 million for the thirty-nine
weeks ended December 28, 2019 . The significant components of cash flows provided
by operating activities were net income of $42.2 million , the add-back of
non-cash depreciation and intangible asset amortization expense of $15.5
million , stock-based compensation expense of $3.3 million , amortization of
right-of-use assets of $22.9 million and amortization of debt issuance fees and
debt discount of $0.7 million . Accounts payable and accrued expenses and other
current liabilities increased by $49.0 million due to the timing of payments.
Inventory increased by $32.3 million due to the growth of the company.
Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was
Financing Activities Net cash used in financing activities was$129.3 million for the thirty-nine weeks endedDecember 26, 2020 . We repaid$130.4 million on our debt and finance lease obligations during the period and paid$0.5 million in taxes related to the vesting of restricted stock. We also received$1.6 million from the exercise of stock options. Net cash used in financing activities was$17.4 million for the thirty-nine weeks endedDecember 28, 2019 . We increased our line of credit borrowings by$45.0 million and repaid$65.5 million on our debt and finance lease obligations during the period. We also received$4.7 million from the exercise of stock options. Contractual Obligations During the thirteen and thirty-nine weeks endedDecember 26, 2020 , there were no significant changes to our contractual obligations described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Fiscal 2020 10-K, other than those which occur in the normal course of business. Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements.
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