# Boot Barn Holdings, Inc.: Form 10-Q for the period ended Jun 25, 2016

- Company: [Boot Barn Holdings, Inc.](/companies/boot.md) (CIK 1610250)
- Form: 10-Q
- Filed: 2016-07-26
- Accepted by EDGAR: Jul 26, 2016, 17:01 ET
- Period: 2016-06-25
- Accession: 0001558370-16-006802
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1610250/000155837016006802/boot-20160625x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1610250/000155837016006802/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-25.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-03-27 to 2016-06-25 | $133.4m | us-gaap:SalesRevenueGoodsNet |
| Cost of revenue | 3 months, 2016-03-27 to 2016-06-25 | $92.7m | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2016-03-27 to 2016-06-25 | $40.8m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2016-03-27 to 2016-06-25 | $36.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-03-27 to 2016-06-25 | $4.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2016-03-27 to 2016-06-25 | $266.0k | us-gaap:IncomeTaxExpenseBenefit |
| Diluted EPS | 3 months, 2016-03-27 to 2016-06-25 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-03-27 to 2016-06-25 | $0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-03-27 to 2016-06-25 | 26,616,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 3 months, 2016-03-27 to 2016-06-25 | $4.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2016-06-25 | $5.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-06-25 | $204.5m | us-gaap:AssetsCurrent |
| Total assets | at 2016-06-25 | $539.4m | us-gaap:Assets |
| Current liabilities | at 2016-06-25 | $151.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-06-25 | $376.3m | us-gaap:Liabilities |
| Long-term debt | at 2016-06-25 | $258.2m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2016-06-25 | $163.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 40,485 characters.

*The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Boot 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 the Securities and Exchange Commission, or SEC, on June 3, 2016 (the “Fiscal 2016 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 to Boot Barn Holdings, Inc. and its subsidiaries.*

### 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 2016 10-K, 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.

### Overview

Management believes that Boot Barn is the largest and fastest-growing lifestyle retail chain devoted to western and work-related footwear, apparel and accessories in the U.S. As of June 25, 2016, we operated 210 stores in 29 states, as well as an e-commerce channel, consisting of www.bootbarn.com and www.sheplers.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 twice 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.

### 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, selling, general and administrative expenses, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA.

### 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. In addition, 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 days in any fiscal month are included in same store sales;
- stores that are closed temporarily, but for more than five days in any fiscal month, are excluded from same store sales beginning in the fiscal month in which the temporary closure begins 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
- 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 above are met, then all net sales of an 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.

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. 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;
- 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 significant 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 selling, general and administrative (“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.

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 private 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, 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 comprise 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 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, accounting, and other compliance-related expenses associated with being a public company and increases resulting from growth in the number of our stores.

### EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are important financial measures used by our management, board of directors and lenders to assess our operating performance. We use EBITDA and Adjusted EBITDA 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 unusual or non-recurring costs and expenses that are not directly related to our operations, including acquisition-related expenses and loss on disposal of assets and contract termination costs. See “Results of Operations” below for a reconciliation of our EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Because EBITDA and Adjusted EBITDA facilitate internal comparisons of our historical operating performance on a more consistent basis, we also use EBITDA and Adjusted EBITDA (or some variations thereof) for business planning purposes, in calculating covenant compliance for our credit facilities, in determining incentive compensation for members of our management and in evaluating acquisition opportunities. In addition, we believe that EBITDA and Adjusted EBITDA 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 and Adjusted EBITDA are measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate EBITDA and Adjusted EBITDA in a different manner than we calculate these measures.

### 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 2016 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 2016 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 2016 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. The fiscal year ending on April 1, 2017 (“fiscal 2017”) will consist of 53 weeks; whereas, the fiscal year ended on March 26, 2016 (“fiscal 2016”) consisted of 52 weeks. We identify our fiscal years by reference to the calendar year in which the fiscal year ends.

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:

*(dollars in thousands)*

| Condensed Consolidated Statements of Operations Data (Unaudited): | Thirteen Weeks Ended June 25, 2016 | June 27, 2015 |
| --- | ---: | ---: |
| Net sales | $133,414 | $96,000 |
| Cost of goods sold | 92,664 | 65,221 |
| Gross profit | 40,750 | 30,779 |
| Operating expenses: |  |  |
| Selling, general and administrative expenses | 36,300 | 25,053 |
| Acquisition-related expenses | — | 891 |
| Total operating expenses | 36,300 | 25,944 |
| Income from operations | 4,450 | 4,835 |
| Interest expense, net | 3,560 | 791 |
| Income before income taxes | 890 | 4,044 |
| Income tax expense | 266 | 1,773 |
| Net income | $624 | $2,271 |
| **Percentage of Net Sales (Unaudited):** |  |  |
| Net sales | 100.0% | 100.0% |
| Cost of goods sold | 69.5% | 67.9% |
| Gross profit | 30.5% | 32.1% |
| Operating expenses: |  |  |
| Selling, general and administrative expenses | 27.2% | 26.1% |
| Acquisition-related expenses | —% | 0.9% |
| Total operating expenses | 27.2% | 27.0% |
| Income from operations | 3.3% | 5.1% |
| Interest expense, net | 2.7% | 0.8% |
| Income before income taxes | 0.6% | 4.3% |
| Income tax expense | 0.2% | 1.8% |
| Net income | 0.4% | 2.5% |

25

The following table presents a reconciliation of EBITDA and Adjusted EBITDA to our net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, for each of the periods indicated:

*(in thousands)*

| EBITDA Reconciliation (Unaudited): | Thirteen Weeks Ended June 25, 2016 | June 27, 2015 |
| --- | ---: | ---: |
| Net income | $624 | $2,271 |
| Income tax expense | 266 | 1,773 |
| Interest expense, net | 3,560 | 791 |
| Depreciation and intangible asset amortization | 4,079 | 2,637 |
| EBITDA | 8,529 | 7,472 |
| Non-cash stock-based compensation(a) | 756 | 653 |
| Non-cash accrual for future award redemptions(b) | 42 | (248) |
| Acquisition-related expenses(c) | — | 891 |
| Loss on disposal of assets and contract termination costs(d) | 59 | 11 |
| Adjusted EBITDA | $9,386 | $8,779 |

(a) Represents non-cash compensation expenses related to stock options, restricted stock awards and restricted stock 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) Includes direct costs and fees related to the Sheplers Acquisition.

(d) Represents loss on disposal of assets and contract termination costs from store closures and unused office and warehouse space.

The following table presents store operating data for the periods indicated:

| Selected Store Data (Unaudited): | Thirteen Weeks Ended June 25, 2016 | June 27, 2015 |
| --- | ---: | ---: |
| Same Store Sales growth | 0.4% | 5.6% |
| Stores operating at end of period | 210 | 176 |
| Total retail store square footage, end of period (in thousands) | 2,409 | 1,889 |
| Average store square footage, end of period | 11,473 | 10,731 |
| Average net sales per store (in thousands) | $531 | $521 |

### Thirteen Weeks Ended June 25, 2016 Compared to Thirteen Weeks Ended June 27, 2015

***Net sales.*** Net sales increased $37.4 million, or 39.0%, to $133.4 million for the thirteen weeks ended June 25, 2016 from $96.0 million for the thirteen weeks ended June 27, 2015. The increase in net sales was the result of contributions from recently acquired Sheplers, 17 new stores opened between the beginning of the second quarter of fiscal 2016 and the end of the first quarter of fiscal 2017 and an increase of 0.4% in consolidated same store sales during the thirteen weeks ended June 25, 2016. This consolidated same store sales growth was pressured by the softening of local economies dependent on oil and other commodities between the thirteen weeks ended June 25, 2016 and June 27, 2015, respectively.

***Gross profit.*** Gross profit increased $10.0 million, or 32.4%, to $40.8 million for the thirteen weeks ended June 25, 2016 from $30.8 million for the thirteen weeks ended June 27, 2015. As a percentage of net sales, gross profit was 30.5% and 32.1% for the thirteen weeks ended June 25, 2016 and June 27, 2015, respectively. The gross profit increase was a result of the addition of the Sheplers’ business and the opening of 17 new stores between the beginning of the second quarter of fiscal 2016 and the end of the first quarter of fiscal 2017. The decline in gross profit rate during the thirteen weeks ended June 25, 2016, was primarily driven by the addition of the lower margin Sheplers’ business.

***Selling, general and administrative expenses.*** SG&A expenses increased $11.2 million, or 44.9%, to $36.3 million for the thirteen weeks ended June 25, 2016 from $25.1 million for the thirteen weeks ended June 27, 2015. As a percentage of net sales, SG&A was 27.2% and 26.1% for the thirteen weeks ended June 25, 2016 and June 27, 2015, respectively. The increase is primarily due to the cost of operating the Sheplers business and 17 new stores opened between the beginning of the second quarter of fiscal 2016 and the end of the first quarter of fiscal 2017, compared to the prior year period when the Company did not own Sheplers or operate these stores.

***Income from operations.*** Income from operations for the thirteen weeks ended June 25, 2016 totaled $4.5 million, a decrease of $0.4 million from income from operations for the thirteen weeks ended June 27, 2015. As a percentage of net sales, income from operations was 3.3% for the thirteen weeks ended June 25, 2016, compared to income from operations as a percentage of net sales of 5.1% for the thirteen weeks ended June 27, 2015. The change in income from operations was attributable to the factors noted above.

***Interest expense, net.*** Interest expense, net, increased 350.1% or $2.8 million, to $3.6 million for the thirteen weeks ended June 25, 2016 from $0.8 million for the thirteen weeks ended June 27, 2015. The increase in interest expense, net was primarily due to the Company refinancing its $150.0 million February 2015 Wells Fargo Credit Facility with the $125.0 million June 2015 Wells Fargo Revolver and the $200.0 million 2015 Golub Term Loan. See Note 5, “Revolving Credit Facilities and Long-Term Debt.”

***Income tax expense.*** Income tax expense decreased $1.5 million, to $0.3 million for the thirteen weeks ended June 25, 2016 from $1.8 million of income tax expense for the thirteen weeks ended June 27, 2015. The decrease in our income tax expense results from a lower tax rate and the $3.2 million decrease in income before income taxes for the thirteen weeks ended June 25, 2016 as compared to the thirteen weeks ended June 27, 2015. Our effective tax rate was 29.9% and 43.8% for the thirteen weeks ended June 25, 2016 and June 27, 2015, respectively. The effective tax rate for the thirteen weeks ended June 25, 2016 is lower than the comparable period in fiscal 2016 due to nondeductible acquisition costs not incurred in the current quarter and discrete items recognized in the first quarter of fiscal 2017, including a state tax credit.

***Net income.*** Net income decreased $1.6 million, from $2.3 million for the thirteen weeks ended June 27, 2015 to $0.6 million for the thirteen weeks ended June 25, 2016. The decrease in net income was attributable to the factors noted above.

***Adjusted EBITDA.*** Adjusted EBITDA increased $0.6 million, or 6.9%, to $9.4 million for the thirteen weeks ended June 25, 2016 from $8.8 million for the thirteen weeks ended June 27, 2015. The increase was primarily a result of the additional adjusted EBITDA contributions from the acquired Sheplers business and 17 new stores that opened between the beginning of the second quarter of fiscal year 2016 and the end of the first quarter of fiscal year 2017. These increases were partially offset by additions to SG&A required to support the expanded business operations.

### Liquidity and Capital Resources

We rely on cash flows from operating activities and our credit facility 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. Our cash usage from operations increased in the thirteen weeks ended June 25, 2016 as compared to cash provided by operations in the thirteen weeks ended June 27, 2015, primarily as a result of a $1.6 million reduction in net income and a significant decrease in accounts payable and accrued expenses and other current liabilities in the thirteen weeks ended June 25, 2016, relative to the thirteen weeks ended June 27, 2015. Additionally, there was an increase in prepaid expenses and other current assets in the current year compared to a decrease in prepaid expenses and other current assets in the prior year. The changes in these balances year over year are attributable to the timing of payments.

During the thirteen weeks ended June 25, 2016, we used $4.7 million in investing activities, primarily associated with capital expenditures related to the relocation of the Store Support Center in Irvine, California, opening of two new stores in the thirteen weeks ended June 25, 2016 and improvements to our e-commerce information technology infrastructures. 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 infrastructures, which will result in increased capital expenditures. We estimate that our total capital expenditures in fiscal 2017 will be between approximately $13.0 million and $15.0 million, net of landlord tenant allowances, and we anticipate that we will use cash flows from operations to fund these expenditures.

#### $150 Million Credit Facility (Wells Fargo Bank, N.A.)

On February 23, 2015, we and Boot Barn, Inc., our wholly-owned primary operating subsidiary, entered into the February 2015 Wells Fargo Credit Facility, which consisted of a $75.0 million revolving credit facility, including a $5.0 million sub-limit for letters of credit, and a $75.0 million term loan, and also provided us with the ability to incur additional incremental term loans of up to $50.0 million, provided that certain conditions were met, including compliance with certain covenants. On June 29, 2015, we repaid all outstanding borrowings under the February 2015 Wells Fargo Credit Facility and terminated such facility in connection with the refinancing discussed below.

Total interest expense incurred in the thirteen weeks ended June 27, 2015 on the February 2015 Wells Fargo Credit Facility was $0.8 million and the weighted average interest rate at June 27, 2015 was 4.09%.

#### June 2015 Wells Fargo Revolver and Golub Term Loan

On June 29, 2015, we, as guarantor, and our wholly-owned primary operating subsidiary, Boot Barn, Inc., refinanced our $150 million February 2015 Wells Fargo Credit Facility with the $125 million June 2015 Wells Fargo Revolver and $200 million 2015 Golub Term Loan. Borrowings under the credit agreements were initially used to pay costs and expenses related to the acquisition and the closing of the new credit agreements, and may be used for working capital and other general corporate purposes.

Borrowings under the June 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at our option, either (i) the 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 the June 2015 Wells Fargo Revolver is payable in quarterly installments ending on June 29, 2020, the maturity date. The amount outstanding under the June 2015 Wells Fargo Revolver for the thirteen weeks ended June 25, 2016 was $60.2 million. Total interest expense incurred in the thirteen weeks ended June 25, 2016 on the June 2015 Wells Fargo Revolver was $0.3 million, and the weighted average interest rate for the quarter ended June 25, 2016 was 1.6%.

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 1.00%. 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 will be payable in quarterly installments ending on June 29, 2021, the maturity date. Quarterly principal payments of $500,000 are due for each quarter. Total interest expense incurred in the thirteen weeks ended June 25, 2016 on the 2015 Golub Term Loan was $2.8 million, and the weighted average interest rate for the quarter ended June 25, 2016 was 5.5%.

All obligations under each of the 2015 Golub Term Loan and the June 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 the June 2015 Wells Fargo Revolver, as applicable.

The priority with respect to collateral under each of the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver is subject to the terms of an intercreditor agreement among the lenders under the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver.

Each of the June 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 the June 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. The terms of the 2015 Golub Term Loan require the Company to maintain, on a consolidated basis, a maximum Consolidated Total Net Leverage Ratio as of June 25, 2016 of 4.75:1.00. As provided for in the 2015 Golub Term Loan, this ratio steps down to 4.50:1.00 as of December 24, 2016, 4.25:1.00 as of April 1, 2017, and 4.00:1:00 as of September 30, 2017 and for all subsequent periods. The June 2015 Wells Fargo Revolver and 2015 Golub Term Loan also require us to pay additional interest of 2% 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 of June 25, 2016, the fair value of these embedded derivatives was estimated and was not significant.

As of June 25, 2016, we were in compliance with the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan debt covenants.

### Cash Position and Cash Flow

Cash and cash equivalents were $5.8 million as of June 25, 2016 compared to $7.2 million as of March 26, 2016.

The following table presents summary cash flow information for the periods indicated (in thousands):

*(in thousands)*

| Net cash provided by/(used in): | Thirteen Weeks Ended June 25, 2016 | June 27, 2015 |
| --- | ---: | ---: |
| Operating activities | $(7,650) | $5,238 |
| Investing activities | (4,721) | (7,085) |
| Financing activities | 11,015 | 13,319 |
| Net (decrease)/increase in cash | $(1,356) | $11,472 |

### Operating Activities

Net cash used in operating activities was $7.7 million for the thirteen weeks ended June 25, 2016. The significant components of cash flows used in operating activities were net income of $0.6 million, the add-back of non-cash depreciation and amortization expense of $4.1 million, stock-based compensation expense of $0.8 million, and amortization of debt issuance fees and debt discount of $0.3 million. Accounts payable and accrued expenses and other current liabilities decreased by $11.5 million due to the timing of payments. Further contributing to the cash used in operations for the thirteen weeks ended June 25, 2016, was an increase in inventories of $2.9 million due to the growth of the company.

Net cash provided by operating activities was $5.2 million for the thirteen weeks ended June 27, 2015. The significant components of cash flows provided by operating activities were net income of $2.3 million, the add-back of non-cash depreciation and amortization expense of $2.6 million, stock-based compensation expense of $0.7 million, an increase in deferred taxes of $0.2 million and the excess tax benefit related to the exercise of stock options of $2.1 million. Accounts payable and accrued expenses and other current liabilities increased by $3.7 million due to the timing of payments and growth of the company. Prepaid expenses and other current assets decreased by $3.1 million primarily due to the timing of prepaid rent. Other liabilities increased by $1.2 million due to landlord tenant allowance for the opening of new stores. The above was offset by an increase in inventories of $7.1 million due to the growth of the company.

### Investing Activities

Net cash used in investing activities was $4.7 million for the thirteen weeks ended June 25, 2016, which was attributable to purchases of property and equipment during the period.

Net cash used in investing activities was $7.1 million for the thirteen weeks ended June 27, 2015, which represents purchases of property and equipment during the period.

### Financing Activities

Net cash provided by financing activities was $11.0 million for the thirteen weeks ended June 25, 2016. We increased our line of credit borrowings by $11.4 million and repaid $0.6 million on our debt and capital lease obligations during the period. We also received $0.3 million from the issuance of common stock related to stock-based compensation.

Net cash provided by financing activities was $13.3 million for the thirteen weeks ended June 27, 2015. Net proceeds from drawings on our revolving credit facility totaled $10.9 million. We received $1.2 million from the exercise of stock options, and $2.1 million excess tax benefit from the exercise of those options.

### Contractual Obligations

During the thirteen weeks ended June 25, 2016, 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 2016 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, except for operating leases and purchase obligations.

### Implications of Being an Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise generally applicable to public companies.

## Market risk

As filed, 617 characters.

We are subject to interest rate risk in connection with borrowings under our credit facilities, which bear interest at variable rates. As of June 25, 2016, we had $60.2 million in outstanding borrowings under the June 2015 Wells Fargo

Revolver and $198.0 million under the 2015 Golub Term Loan. The annual impact of a 1.0% rate change on the outstanding total debt balance as of June 25, 2016 would be approximately $2.6 million.

As of June 25, 2016, there were no other material changes in the market risks described in the “Quantitative and Qualitative Disclosure of Market Risks” section of the Fiscal 2016 10-K.

## Controls and procedures

As filed, 2,259 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 25, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of June 25, 2016, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control Over Financial Reporting

During the quarter ended June 25, 2016, no changes occurred with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Filed Jul 26, 2016.
Source: SEC EDGAR, the filing index for accession 0001558370-16-006802. Last ingested by Listed: Oct 29, 2026, 05:14 ET. No prices; not investment advice.