Boot Barn saw first-quarter net sales decrease 20.5 percent to $147.8 million, while same-store sales dipped 14.9 percent in what was one of the better quarters for apparel and footwear retailers, as the company temporarily closed just 30 of its 264 stores since April.
On Aug. 5, Boot Barn stock climbed nearly 11 percent after the news, with both net sales and earnings per share beating Wall Street estimates.
In a Nutshell: The Western-themed retailer, perhaps best known for its cowboy boots, has reopened all stores, and opened five new stores in the quarter, increasing its total count to 264. The company is planning to open an additional 10 stores this fiscal year, including one store expected to open in the second quarter.
During the first quarter, Boot Barn drove a sequential increase in same-store sales each month, improving from a dip of 45 percent in April to 3 percent growth in June.
While preliminary same-store sales declined by approximately 15 percent in July from June sales levels, they sequentially improved again through the first week of August. The company anticipates that store sales will continue to fluctuate based on COVID-19 cases in states such as Texas, Arizona and California, as well as potential future outbreaks.
Boot Barn cut total inventory by $27 million, or 9.4 percent, to $261.5 million, with CEO Jim Conroy indicating that selling the inventory at a “healthy margin” enabled the retailer to increase cash by $14 million and reduce vendor accounts payable by $15 million without increasing debt. Despite the decrease in sales volume, Boot Barn reduced its average comp store inventory by 3 percent versus last year.
Operating expenses for the quarter were $38.4 million or 26 percent of sales, compared to $46.1 million or 24.8 percent of sales in the prior-year period. Operating expenses decreased primarily as a result of expense reduction measures, lower stores payroll and reduced non-payroll-related expenses.
As of June 27, Boot Barn had $83.1 million in terms cash and cash equivalents. The company also had a total of $241 million of debt outstanding, including a $111 million term loan and $130 million outstanding on its $165 million revolving line of credit.
Due to the ongoing uncertainty created by COVID-19, the company is not providing second quarter and fiscal year 2021 guidance at this time.
Net Sales: Net sales decreased 20.5 percent to $147.8 million from $185.8 million in the prior-year period, beating Wall Street estimates by more than $10 million. Consolidated same-store sales (brick-and-mortar and e-commerce sales) decreased 14.9 percent with retail store same store sales down 27.1 percent and e-commerce same store sales up 51.9 percent.
The e-commerce growth increased the total digital sales penetration to 25 percent of total sales in the first quarter, up from 14 percent in the first quarter of the prior year. The number has since tapered off in July and the first week of August, with online penetration standing at 18 percent and 17 percent respectively.
With Boot Barn experiencing omnichannel growth during the COVID-19 pandemic, the company revealed plans in an earnings call to introduce ship-from-store fulfillment, as well same-day delivery from stores via a third-party delivery partner.
Net Earnings: Net loss was $490,000 in the first quarter, or 2 cents per diluted share, compared to net income of $9.7 million, or 33 cents per diluted share in the prior-year period. The loss was a still a significant improvement over the expected 17 cents-per-share loss. Net income per diluted share in the prior-year period includes a 1 cent per share benefit due to income tax accounting for share-based compensation.
Gross profit was $40.2 million, or 27.2 percent of net sales, compared to $62.2 million, or 33.5 percent of net sales, in the first quarter last year. Gross profit decreased primarily due to a decline in sales stemming from the COVID-19 crisis. The decrease in gross profit rate of 630 basis points (6.3 percentage points) was primarily driven by a lower volume sales.
Merchandise margin, or the percentage of profits earned after covering production costs, declined 200 basis points (two percentage points) primarily as a result of outsized growth in the company’s e-commerce channel as a percent of sales. Of the 200-basis point decline, 160 basis points are attributable to the increased sales penetration of the lower merchandise margin e-commerce business, while 30 basis points stem from a write-down of discontinued inventory at the recently acquired G&L Clothing store, which used to only sell work boots and work apparel.
Operating income plummeted 88.8 percent to $1.8 million, or 1.2 percent of net sales, compared to $16.1 million, or 8.6 percent of net sales in the prior-year period. This decline in income from operations is a result of the negative impact on sales, gross margin and selling, general and administrative (SG&A) expenses due to COVID-19.
CEO’s Take: Conroy, who believes there has been a weakening of the “core mom-and-pop competitor” in the Western specialty industry, alluded to the fact that Boot Barn might continue to expand its store fleet through small acquisitions.
“It’s a time where while we’re trying to play defense and pull back on things like inventory and expenditures, it’s also a time where we might try to be opportunistic and look for tuck-in acquisitions,” Conroy said during the earnings call. “I would lead everybody to believe that’s still going to be small players, one store, two stores, not major chains or any kind of strategic acquisitions. That’s not kind of in our current headset. But it is something that we’ve seen some mom-and-pop raise their hand and say, ‘this might be a better time as any to exit.’ And we’re certainly willing to have those conversations.”