Boot Barn Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

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 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 (the “SEC”), on May 18, 2023 (the “Fiscal 2023 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 2023 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.

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. Inflation and other challenges affecting the global economy could impact our operations and will depend on future developments, which are uncertain. For further discussion of the uncertainties and business risks affecting the Company, see Item 1A, Risk Factors, of our Fiscal 2023 10-K.

Overview

We believe that Boot Barn is the largest lifestyle retail chain devoted to western and work-related footwear, apparel and accessories in the U.S. As of September 30, 2023, we operated 371 stores in 44 states, as well as our e-commerce websites consisting primarily of bootbarn.com, sheplers.com, countryoutfitter.com, idyllwind.com and third-party marketplaces. Additionally, during fiscal 2023, we launched a Boot Barn app, which has become an additional sales channel for the business. 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.

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 (“SG&A”) expenses, and operating 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 and app. 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 and app. Net sales also include shipping and handling fees for e-commerce shipments that have been delivered to our customers. Net sales are net of estimated and actual sales returns and deductions for estimated future award redemptions. 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.

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 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;
• 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 distribution center occupancy costs (including rent, depreciation and utilities), inbound and outbound freight, supplier allowances, occupancy-related taxes, compensation costs for merchandise purchasing, exclusive brand design and development, distribution center 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 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, certain 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 stock-based compensation, legal, and accounting-related expenses and increases resulting from growth in the number of our stores.

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 2023 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 2023 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 2023 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 current fiscal year ending on March 30, 2024 (“fiscal 2024”) will consist of 52 weeks; whereas the fiscal year ended on April 1, 2023 (“fiscal 2023”) consisted of 53 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)

(1) Percentages may not recalculate due to rounding.

Thirteen Weeks Ended September 30, 2023 Compared to Thirteen Weeks Ended September 24, 2022

Net sales. Net sales increased $23.0 million, or 6.5%, to $374.5 million for the thirteen weeks ended September 30, 2023 from $351.5 million for the thirteen weeks ended September 24, 2022. Consolidated same store sales decreased 4.8%. Excluding the impact of the 11.7% decrease in e-commerce same store sales, same store sales decreased by 3.8%. The increase in net sales was the result of the incremental sales from new stores opened over the past twelve months, partially offset by the decrease in consolidated same store sales.

Gross profit. Gross profit increased $4.8 million, or 3.7%, to $133.9 million for the thirteen weeks ended September 30, 2023 from $129.1 million for the thirteen weeks ended September 24, 2022. As a percentage of net sales, gross profit was 35.8% and 36.7% for the thirteen weeks ended September 30, 2023 and September 24, 2022, respectively. Gross profit increased primarily due to higher sales. The decrease in gross profit rate of 90 basis points was driven primarily by 140 basis points of deleverage in buying, occupancy and distribution center costs driven primarily by occupancy costs of 50 new stores and operating costs related to the new Kansas City distribution center, partially offset by a 50 basis-point increase in merchandise margin rate. The increase in merchandise margin rate was driven by 35 basis points of product margin expansion resulting primarily from growth in exclusive brand penetration and a 15 basis-point tailwind from lower freight expense as a percentage of net sales.

Selling, general and administrative expenses. SG&A expenses increased $10.4 million, or 12.2%, to $95.3 million for the thirteen weeks ended September 30, 2023 from $84.9 million for the thirteen weeks ended September 24, 2022. The increase in SG&A expenses as compared to the prior-year period was primarily a result of higher store payroll and store-related expenses associated with operating 50 new stores and general and administrative expenses in the current year. As a percentage of net sales, SG&A increased by 130 basis points to 25.5% for the thirteen weeks ended September 30, 2023 from 24.2% for the thirteen weeks ended September 24, 2022 primarily as a result of higher store payroll and store-related expenses.

Income from operations. Income from operations decreased $5.6 million, or 12.6%, to $38.6 million for the thirteen weeks ended September 30, 2023 from $44.2 million for the thirteen weeks ended September 24, 2022. The decrease in income from operations was attributable to the factors noted above. As a percentage of net sales, income from operations was 10.3% and 12.6% for the thirteen weeks ended September 30, 2023 and September 24, 2022, respectively.

Interest expense. Interest expense was $0.5 million and $1.4 million for the thirteen weeks ended September 30, 2023 and September 24, 2022, respectively. The decrease in interest expense in the current-year period was primarily the result of a lower debt balance in the current year, partially offset by a higher weighted average interest rate compared to the prior-year period.

Income tax expense. Income tax expense was $10.4 million for the thirteen weeks ended September 30, 2023, compared to $10.7 million for the thirteen weeks ended September 24, 2022. Our effective tax rate was 27.3% and 25.1% for the thirteen weeks ended September 30, 2023 and September 24, 2022, respectively. The tax rate for the thirteen weeks ended September 30, 2023 was higher than the tax rate for the thirteen weeks ended September 24, 2022, primarily due to changes to state enacted tax rates, partially offset by a higher tax benefit due to income tax accounting for share-based compensation compared to the thirteen weeks ended September 24, 2022.

Net income. Net income was $27.7 million for the thirteen weeks ended September 30, 2023 compared to $32.1 million for the thirteen weeks ended September 24, 2022. The decrease in net income was primarily attributable to the factors noted above.

Twenty-Six Weeks Ended September 30, 2023 Compared to Twenty-Six Weeks Ended September 24, 2022

Net sales. Net sales increased $40.8 million, or 5.7%, to $758.2 million for the twenty-six weeks ended September 30, 2023 from $717.4 million for the twenty-six weeks ended September 24, 2022. Consolidated same store sales decreased 3.8%. Excluding the impact of the 11.3% decrease in e-commerce same store sales, same store sales decreased by 2.8%. The increase in net sales was the result of the incremental sales from new stores opened over the past twelve months, partially offset by the decrease in consolidated same store sales.

Gross profit. Gross profit increased $9.0 million, or 3.4%, to $275.9 million for the twenty-six weeks ended September 30, 2023 from $266.9 million for the twenty-six weeks ended September 24, 2022. As a percentage of net sales, gross profit was 36.4% and 37.2% for the twenty-six weeks ended September 30, 2023 and September 24, 2022, respectively. Gross profit increased primarily due to higher sales. The decrease in gross profit rate of 80 basis points was driven primarily by 150 basis points of deleverage in buying, occupancy and distribution center costs driven primarily by occupancy costs of 50 new stores and operating costs related to the new Kansas City distribution center, partially offset by a 70 basis-point increase in merchandise margin rate. The increase in merchandise margin rate was driven by 60 basis points of product margin expansion resulting primarily from growth in exclusive brand penetration and a 10 basis-point tailwind from lower freight expense as a percentage of net sales.

Selling, general and administrative expenses. SG&A expenses increased $20.7 million, or 12.2%, to $191.1 million for the twenty-six weeks ended September 30, 2023 from $170.4 million for the twenty-six weeks ended September 24, 2022. The increase in SG&A expenses as compared to the prior-year period was primarily a result of higher store payroll and store-related expenses associated with operating 50 new stores and general and administrative expenses in the current year. As a percentage of net sales, SG&A increased by 150 basis points to 25.2% for the twenty-six weeks ended September 30, 2023 from 23.7% for the twenty-six weeks ended September 24, 2022 primarily as a result of higher store payroll, store-related expenses and general and administrative expenses.

Income from operations. Income from operations decreased $11.8 million, or 12.2%, to $84.8 million for the twenty-six weeks ended September 30, 2023 from $96.6 million for the twenty-six weeks ended September 24, 2022. The decrease in income from operations was attributable to the factors noted above. As a percentage of net sales, income from operations was 11.2% and 13.5% for the twenty-six weeks ended September 30, 2023 and September 24, 2022, respectively.

Interest expense. Interest expense was $1.5 million and $2.1 million for the twenty-six weeks ended September 30, 2023 and September 24, 2022, respectively. The decrease in interest expense in the current-year period was primarily the result of a lower debt balance, partially offset by a higher weighted average interest rate compared to the prior-year period.

Income tax expense. Income tax expense was $21.6 million for the twenty-six weeks ended September 30, 2023, compared to $22.8 million for the twenty-six weeks ended September 24, 2022. Our effective tax rate was 25.8% and 24.2% for the twenty-six weeks ended September 30, 2023 and September 24, 2022, respectively. The tax rate for the twenty-six weeks ended September 30, 2023 was higher than the tax rate for the twenty-six weeks ended September 24, 2022, primarily due to changes to state enacted tax rates, partially offset by a higher tax benefit due to income tax accounting for share-based compensation compared to the twenty-six weeks ended September 24, 2022.

Net income. Net income was $61.9 million for the twenty-six weeks ended September 30, 2023 compared to $71.4 million for the twenty-six weeks ended September 24, 2022. The decrease in net income was primarily attributable to the factors noted above.

Store Operating Data:

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

(1) Average net sales per store is calculated by dividing store net sales for the applicable period by the number of stores operating at the end of the period.

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, occupancy 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 historically used cash for acquisitions and the subsequent rebranding and integration of the stores acquired in those acquisitions. 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 facility 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.

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. Included in our fiscal 2024 capital expenditures are continued investments in our new distribution center in Kansas City, Missouri. We estimate that our total capital expenditures in fiscal 2024 will be between $95.0 million and $105.0 million (including the capital expenditures made during the twenty-six weeks ended September 30, 2023), which is net of estimated landlord tenant allowances of $21.0 million. We anticipate that we will use cash flows from operations to fund these expenditures.

Wells Fargo Revolver

The Company currently has a $250.0 million syndicated senior secured asset-based revolving credit facility for which Wells Fargo Bank, National Association is agent (“Wells Fargo Revolver”). Under the Wells Fargo Revolver, the sublimit for letters of credit is $10.0 million and the current maturity date is July 11, 2027.

Revolving credit loans under the Wells Fargo Revolver bear interest at per annum rates equal to, at the Company’s option, either (i) Adjusted Term Secured Overnight Financing Rate (defined as “Term SOFR” for the applicable interest period plus a fixed credit spread adjustment of 0.10%) plus an applicable margin for Term SOFR loans, or (ii) the base rate plus an applicable margin for base rate loans. The base rate is calculated at the highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate and (c) Term SOFR for a one-month tenor in effect on such day 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 Term SOFR loans, the applicable margin ranges from 1.00% to 1.25% and for base rate loans it ranges from 0.00% to 0.25%. The interest on base rate loans under the Wells Fargo Revolver is payable in quarterly installments ending on the maturity date and for Term SOFR loans is payable on the earlier of the last day of each interest period applicable thereto, or on each three-month interval of such interest period. The Company also pays a commitment fee of 0.25% per annum of the actual daily amount of the unutilized revolving loans.

The borrowing base of the 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.

The amounts outstanding under the Wells Fargo Revolver and letter of credit commitments as of September 30, 2023 were zero and $0.8 million, respectively. The amounts outstanding under the Wells Fargo Revolver and letter of credit commitments as of April 1, 2023 were $66.0 million and $0.8 million, respectively. Total interest expense incurred in the thirteen and twenty-six weeks ended September 30, 2023 on the Wells Fargo Revolver was $0.3 million and $1.2 million, respectively, and the weighted average interest rate for the thirteen weeks ended September 30, 2023 was 8.2%. Total interest expense incurred in the thirteen and twenty-six weeks ended September 24, 2022 on the Wells Fargo Revolver was $1.2 million and $1.7 million, respectively, and the weighted average interest rate for the thirteen weeks ended September 24, 2022 was 3.3%.

All obligations under the Wells Fargo Revolver are unconditionally guaranteed by the Company and each of its direct and indirect domestic subsidiaries (other than certain immaterial subsidiaries) which are not named as borrowers under the Wells Fargo Revolver.

The Wells Fargo Revolver 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 Wells Fargo Revolver require the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio (as defined in the Wells Fargo Revolver) of at least 1.00:1.00 during such times as a covenant trigger event shall exist. The Wells Fargo Revolver also requires the Company to pay additional interest of 2.0% per annum upon triggering certain specified events of default set forth therein. For financial accounting purposes, the requirement for the Company to pay a higher interest rate upon an event of default is an embedded derivative. As of September 30, 2023, the fair value of this embedded derivative was estimated and was not significant.

As of September 30, 2023, the Company was in compliance with the Wells Fargo Revolver debt covenants.

Cash Position and Cash Flow

Cash and cash equivalents were $38.7 million as of September 30, 2023 compared to $18.2 million as of April 1, 2023.

The following table presents summary cash flow information for the periods indicated below:

(in thousands)

Operating Activities

Net cash provided by operating activities was $145.5 million for the twenty-six weeks ended September 30, 2023. The significant components of cash flows provided by operating activities were net income of $61.9 million, the add-back of non-cash depreciation and intangible asset amortization expense of $22.6 million, and stock-based compensation expense of $7.8 million. Accounts payable and accrued expenses and other current liabilities increased by $20.7 million due to the timing of payments. Inventory decreased by $3.9 million as a result of a decrease in purchases.

Net cash used in operating activities was $62.1 million for the twenty-six weeks ended September 24, 2022. The significant components of cash flows used in operating activities were net income of $71.4 million, the add-back of non-cash depreciation and intangible asset amortization expense of $16.8 million, and stock-based compensation expense of $7.1 million. Accrued expenses and other current liabilities decreased by $27.2 million and accounts payable increased by $36.5 million due to the timing of payments. Inventory increased by $166.7 million as a result of an increase in purchases.

Investing Activities

Net cash used in investing activities was $64.7 million for the twenty-six weeks ended September 30, 2023, which was attributable to capital expenditures related to store construction, investments in our Kansas City, Missouri distribution center, improvements to our e-commerce information technology infrastructure, and improvements to our distribution facilities.

Net cash used in investing activities was $52.5 million for the twenty-six weeks ended September 24, 2022, which was attributable to capital expenditures related to store construction, improvements to our e-commerce information technology infrastructure, and improvements to our distribution facilities.

Financing Activities

Net cash used in financing activities was $60.3 million for the twenty-six weeks ended September 30, 2023. We paid $66.0 million on our revolving line of credit and paid $2.4 million in taxes related to the vesting of restricted stock. We also received $8.6 million from the exercise of stock options.

Net cash provided by financing activities was $113.6 million for the twenty-six weeks ended September 24, 2022. We borrowed $118.3 million on our revolving line of credit and paid $4.5 million in taxes related to the vesting of restricted stock.

We are subject to interest rate risk in connection with borrowings under our credit facility which bears interest at variable rates. As of September 30, 2023, we did not have an amount outstanding under the Wells Fargo Revolver.

As of September 30, 2023, there were no other material changes in the market risks described in the “Quantitative and Qualitative Disclosure of Market Risks” section of the Fiscal 2023 10-K.

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 September 30, 2023. 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 September 30, 2023, 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 September 30, 2023, 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.

We operate in a rapidly changing environment that involves a number of risks that could materially and adversely affect our business, financial condition, prospects, operating results or cash flows, including the risks contained in “Item 1A—Risk Factors” in our Fiscal 2023 10-K.