UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Accelerated filer ☐ | Emerging growth company | ||
Non-accelerated filer ☐ | Smaller reporting company |
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As of July 26, 2022, the registrant had
Boot Barn Holdings, Inc. and Subsidiaries
Form 10-Q
For the Thirteen Weeks Ended June 25, 2022
Page | |||
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Condensed Consolidated Balance Sheets as of June 25, 2022 and March 26, 2022 | 3 | ||
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5 | |||
6 | |||
7 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||
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2
Part 1. Financial Information
Item 1. | Condensed Consolidated Financial Statements (Unaudited) |
BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
June 25, |
| March 26, | ||||
| 2022 |
| 2022 | |||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
| |
| | ||
Inventories |
| |
| | ||
Prepaid expenses and other current assets |
| |
| | ||
Total current assets |
| |
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Property and equipment, net |
| |
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Right-of-use assets, net | | | ||||
Goodwill |
| |
| | ||
Intangible assets, net |
| |
| | ||
Other assets |
| |
| | ||
Total assets | $ | | $ | | ||
Liabilities and stockholders’ equity | ||||||
Current liabilities: | ||||||
Line of credit | $ | | $ | | ||
Accounts payable | | $ | | |||
Accrued expenses and other current liabilities |
| |
| | ||
Short-term lease liabilities | | | ||||
Total current liabilities |
| |
| | ||
Deferred taxes |
| |
| | ||
Long-term lease liabilities | | | ||||
Other liabilities |
| |
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Total liabilities | | | ||||
Commitments and contingencies (Note 6) | ||||||
Stockholders’ equity: | ||||||
Common stock, $ |
| |
| | ||
Preferred stock, $ |
|
| ||||
Additional paid-in capital |
| |
| | ||
Retained earnings |
| |
| | ||
Less: Common stock held in treasury, at cost, | ( | ( | ||||
Total stockholders’ equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended | |||||||
June 25, | June 26, | ||||||
| 2022 |
| 2021 |
| |||
$ | | $ | | ||||
| |
| | ||||
Gross profit |
| |
| | |||
Selling, general and administrative expenses |
| |
| | |||
Income from operations |
| |
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Interest expense |
| |
| | |||
Other (loss)/income, net | ( | | |||||
Income before income taxes |
| |
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Income tax expense |
| |
| | |||
Net income | $ | | $ | | |||
Earnings per share: | |||||||
Basic | $ | | $ | | |||
Diluted | $ | | $ | | |||
Weighted average shares outstanding: | |||||||
Basic |
| |
| | |||
Diluted |
| |
| | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Additional |
| ||||||||||||||||||
Common Stock | Paid-In | Retained | Treasury Shares |
| |||||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings |
| Shares |
| Amount |
| Total | ||||||
Balance at March 26, 2022 | | $ | | $ | | $ | | ( | $ | ( | $ | | |||||||
Net income | — | — | — | | — | — | | ||||||||||||
Issuance of common stock related to stock-based compensation | | — | | — | — | — | | ||||||||||||
Tax withholding for net share settlement | — | — | — | — | ( | ( | ( | ||||||||||||
Stock-based compensation expense | — | — | | — | — | — | | ||||||||||||
Balance at June 25, 2022 | | $ | | $ | | $ | | ( | $ | ( | $ | | |||||||
Additional |
| ||||||||||||||||||
Common Stock | Paid-In | Retained | Treasury Shares |
| |||||||||||||||
| Shares |
| Amount |
| Capital |
| Earnings | Shares |
| Amount | Total | ||||||||
Balance at March 27, 2021 | | $ | | $ | | $ | | ( | $ | ( | $ | | |||||||
Net income |
| — | — | — | | — | — | | |||||||||||
Issuance of common stock related to stock-based compensation | | — | | — | — | — | | ||||||||||||
Tax withholding for net share settlement | — | — | — | — | ( | ( | ( | ||||||||||||
Stock-based compensation expense |
| — | — | | — | — | — | | |||||||||||
Balance at June 26, 2021 |
| | $ | | $ | | $ | | ( | $ | ( | $ | | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Thirteen Weeks Ended | ||||||
June 25, |
| June 26, | ||||
| 2022 |
| 2021 | |||
Cash flows from operating activities | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash (used in)/provided by operating activities: | ||||||
Depreciation |
| |
| | ||
Stock-based compensation |
| |
| | ||
Amortization of intangible assets |
| |
| | ||
Noncash lease expense | | | ||||
Amortization and write-off of debt issuance fees and debt discount |
| |
| | ||
Loss/(gain) on disposal of assets |
| |
| ( | ||
Gain on adjustment of right-of-use assets and lease liabilities | — | ( | ||||
Deferred taxes |
| |
| ( | ||
Changes in operating assets and liabilities: | ||||||
Accounts receivable, net |
| |
| | ||
Inventories |
| ( |
| ( | ||
Prepaid expenses and other current assets |
| ( |
| ( | ||
Other assets |
| ( |
| ( | ||
Accounts payable |
| |
| | ||
Accrued expenses and other current liabilities |
| ( |
| | ||
Other liabilities |
| |
| | ||
Operating leases | ( | ( | ||||
Net cash (used in)/provided by operating activities | $ | ( | $ | | ||
Cash flows from investing activities | ||||||
Purchases of property and equipment | $ | ( | $ | ( | ||
Net cash used in investing activities | $ | ( | $ | ( | ||
Cash flows from financing activities | ||||||
Borrowings on line of credit - net | $ | | $ | — | ||
Repayments on debt and finance lease obligations | ( | ( | ||||
Tax withholding payments for net share settlement | ( | ( | ||||
Proceeds from the exercise of stock options | | | ||||
Net cash provided by/(used in) financing activities | $ | | $ | ( | ||
Net decrease in cash and cash equivalents |
| ( |
| ( | ||
Cash and cash equivalents, beginning of period |
| |
| | ||
Cash and cash equivalents, end of period | $ | | $ | | ||
Supplemental disclosures of cash flow information: | ||||||
Cash paid for income taxes | $ | | $ | — | ||
Cash paid for interest | $ | | $ | | ||
Supplemental disclosure of non-cash activities: | ||||||
Unpaid purchases of property and equipment | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of the Company, Recent Developments and Basis of Presentation
Boot Barn Holdings, Inc. (the “Company”), the parent holding company of the group of operating subsidiaries that conduct the Boot Barn business, was formed on November 17, 2011, and is incorporated in the State of Delaware. The equity of the Company consists of
The Company operates specialty retail stores and e-commerce websites that sell western and work boots and related apparel and accessories. The Company operates retail locations throughout the United States and sells its merchandise via the internet. The Company operated a total of
Recent Developments
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 (which has occurred over the past twelve months and is continuing) and other challenges affecting the global economy could impact our operations and will depend on future developments, which are uncertain. These and other effects make it more challenging for us to estimate the future performance of our business, particularly over the near-to-medium term. For further discussion of the uncertainties and business risks affecting the Company, see Item 1A, Risk Factors, of our Fiscal 2022 10-K.
Basis of Presentation
The Company’s condensed consolidated financial statements as of and for the thirteen weeks ended June 25, 2022 and June 26, 2021 are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), and include the accounts of the Company and each of its subsidiaries, consisting of Boot Barn, Inc., RCC Western Stores, Inc., Baskins Acquisition Holdings, LLC, Sheplers, LLC and Sheplers Holding LLC (collectively with Sheplers, LLC, “Sheplers”). On September 26, 2021, Sheplers, Inc. and Sheplers Holding Corporation each were converted to limited liability companies, Sheplers, LLC and Sheplers Holding LLC, respectively. All intercompany accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation. The vast majority of the Company’s identifiable assets are in the United States. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted.
In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments that are of a normal and recurring nature necessary to fairly present the Company’s financial position and results of operations and cash flows in all material respects as of the dates and for the periods presented. The results of operations presented in the interim condensed consolidated financial statements are not necessarily indicative of the results that may be expected for the fiscal year ending April 1, 2023.
Fiscal Periods
The Company reports its results of operations and cash flows on a 52- or 53-week basis 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 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 April 1, 2023 (“fiscal 2023”) will consist of
7
2. Summary of Significant Accounting Policies
Information regarding the Company’s significant accounting policies is contained in Note 2, “Summary of Significant Accounting Policies”, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on May 12, 2022. Presented below in the following notes is supplemental information that should be read in conjunction with those consolidated financial statements.
Comprehensive Income
The Company does not have any components of other comprehensive income recorded within its condensed consolidated financial statements and, therefore, does not separately present a statement of comprehensive income in its condensed consolidated financial statements.
Segment Reporting
GAAP has established guidance for reporting information about a company’s operating segments, including disclosures related to a company’s products and services, geographic areas and major customers. The Company’s retail stores and e-commerce websites represent
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Among the significant estimates affecting the Company’s condensed consolidated financial statements are those relating to revenue recognition, lease accounting, inventories, goodwill, intangible and long-lived assets, stock-based compensation and income taxes. Management regularly evaluates its estimates and assumptions based upon historical experience and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent actual results differ from those estimates, the Company’s future results of operations may be affected.
Inventories
Inventory consists primarily of purchased merchandise and is valued at the lower of cost or net realizable value. Cost is determined using the weighted-average cost method (which approximates the first-in, first-out method) and includes the cost of merchandise and import-related costs, including freight, duty and agent commissions. The Company assesses the recoverability of inventory through a periodic review of historical usage and present demand. When the inventory on hand exceeds the foreseeable demand, the value of inventory that, at the time of the review, is not expected to be sold at or above cost is written down to its estimated net realizable value.
Leases
Operating and finance lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating and finance lease right-of-use (“ROU”) assets are recognized based on the initial present value of the fixed lease payments, reduced by cash payments received from landlords as lease incentives, plus any prepaid rent and other direct costs from executing the leases. Amortization of both operating and finance lease right-of-use assets is performed on a straight-line basis and recorded as part of rent expense. The majority of total lease costs is recorded as part of cost of goods sold, with the balance recorded in selling, general and administrative expenses on the condensed consolidated
8
statements of operations. The interest expense amortization component of the finance lease liabilities is recorded within interest expense on the condensed consolidated statements of operations.
Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense as they are incurred.
Fair Value of Certain Financial Assets and Liabilities
The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which requires disclosure of the estimated fair value of certain assets and liabilities defined by the guidance as financial instruments. The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable and debt. ASC 820 defines the fair value of financial instruments as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.
| ● | Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. |
| ● | Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates, incremental borrowing rates, and volatility, can be corroborated by readily observable market data. |
| ● | Level 3 uses one or more significant inputs that are unobservable and supported by little or no market activity, and reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation. The Company’s Level 3 assets include certain acquired businesses and the evaluation of store impairment. |
Cash and cash equivalents, accounts receivable and accounts payable are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified as Level 2 or Level 3 even though there may be certain significant inputs that are readily observable. The Company believes that the recorded value of its financial instruments approximates their current fair values because of their nature and respective relatively short maturity dates or duration.
Although market quotes for the fair value of the outstanding debt arrangements discussed in Note 4, “Revolving Credit Facilities and Long-Term Debt” are not readily available, the Company believes its carrying value approximates fair value due to the variable interest rates, which are Level 2 inputs. There were
Recent Accounting Pronouncements
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which clarifies some of its guidance around reference rate reform activities as global market participants undertake efforts to transition from using or referencing the London Interbank Offered Rate (LIBOR) and other interbank offered rates to using or referencing alternative reference rates. The amendments in this ASU if elected by an entity, are effective immediately. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. The Company does not expect the revised standard to have an impact on its consolidated financial statements.
9
Revenue Recognition
Revenue is recorded for store sales upon the purchase of merchandise by customers. Sales are recorded net of taxes collected from customers. Transfer of control takes place at the point at which the customer receives and pays for the merchandise at the register. E-commerce sales are recorded when control transfers to the customer, which generally occurs upon delivery of the product. Shipping and handling revenues are included in total net sales. Shipping costs incurred by the Company are included in cost of goods sold.
Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions, estimated future award redemption and other promotions. The sales returns reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages. The total reserve for returns is recorded in accrued expenses and other current liabilities in the consolidated balance sheets. The Company accounts for the return asset and liability separately on a gross basis.
The Company maintains a customer loyalty program. Under the program, customers accumulate points based on purchase activity. For customers to maintain their active point balance, they must make a qualifying purchase of merchandise at least once in a
Customer Loyalty Program |
| |||||
(in thousands) |
| June 25, 2022 | June 26, 2021 | |||
Beginning balance as of March 26, 2022 and March 27, 2021, respectively |
| $ | | $ | | |
Year-to-date provisions | | | ||||
Year-to-date award redemptions | ( | ( | ||||
Ending balance | $ | | $ | | ||
Proceeds from the sale of gift cards are deferred until the customers use the cards to acquire merchandise. Gift cards, gift certificates and store credits do not have expiration dates, and unredeemed gift cards, gift certificates and store credits are subject to state escheatment laws. Amounts remaining after escheatment are recognized in net sales in the period escheatment occurs and the liability is considered to be extinguished. The Company defers recognition of a layaway sale and its related profit to the accounting period when the customer receives the layaway merchandise. Income from the redemption of gift cards, gift card breakage, and the sale of layaway merchandise is included in net sales. Deferred revenue is recorded in accrued expenses and other current liabilities in the consolidated balance sheets. The following table provides a reconciliation of the activity related to the Company’s gift card program:
Gift Card Program |
| |||||
(in thousands) |
| June 25, 2022 | June 26, 2021 | |||
Beginning balance as of March 26, 2022 and March 27, 2021, respectively |
| $ | | $ | | |
Year-to-date issued | | | ||||
Year-to-date redemptions | ( | ( | ||||
Ending balance | $ | | $ | | ||
10
Disaggregated Revenue
The Company disaggregates net sales into the following major merchandise categories:
| Thirteen Weeks Ended | ||||
% of Net Sales |
| June 25, 2022 | June 26, 2021 | ||
Footwear |
| ||||
Apparel | |||||
Hats, accessories and other | |||||
Total | |||||
The Company further disaggregates net sales between stores and e-commerce:
| Thirteen Weeks Ended | ||||
% of Net Sales |
| June 25, 2022 | June 26, 2021 | ||
Stores |
| ||||
E-commerce | |||||
Total | |||||
3. Intangible Assets, Net and Goodwill
Net intangible assets as of June 25, 2022 and March 26, 2022 consisted of the following (in thousands, except for weighted average useful life):
June 25, 2022 | |||||||||||
Gross |
|
|
| Weighted | |||||||
Carrying | Accumulated | Average | |||||||||
| Amount |
| Amortization |
| Net |
| Useful Life | ||||
Customer lists—definite lived | $ | | $ | ( | $ | |
| ||||
Trademarks—indefinite lived |
| |
| — |
| | |||||
Total intangible assets | $ | | $ | ( | $ | | |||||
March 26, 2022 | |||||||||||
Gross | Weighted | ||||||||||
Carrying | Accumulated | Average | |||||||||
| Amount |
| Amortization |
| Net |
| Useful Life | ||||
Customer lists—definite lived | $ | | $ | ( | $ | |
| ||||
Trademarks—indefinite lived |
| |
| — |
| | |||||
Total intangible assets | $ | | $ | ( | $ | | |||||
Amortization expense for intangible assets totaled less than $
As of June 25, 2022, estimated future amortization of intangible assets was as follows:
Fiscal Year |
| (in thousands) | |
2023 |
| $ | |
2024 |
| | |
2025 |
| | |
2026 |
| - | |
2027 |
| - | |
Thereafter |
| - | |
Total | $ | | |
11
The Company performs its annual goodwill impairment assessment on the first day of the fourth fiscal quarter, or more frequently if it believes that indicators of impairment exist. The Company’s goodwill balance was $
During both the thirteen weeks ended June 25, 2022 and June 26, 2021, the Company did
4. Revolving Credit Facility and Long-Term Debt
On June 29, 2015, the Company, as guarantor, and its wholly-owned primary operating subsidiary, Boot Barn, Inc., refinanced a previous Wells Fargo credit facility with the $
The borrowing base of the June 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 the June 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at the Company’s 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
On December 14, 2021, the Company repaid the remaining outstanding principal under the 2015 Golub Term Loan and terminated the agreement. Total interest expense incurred in the thirteen weeks ended June 26, 2021 on the 2015 Golub Term Loan was $
All obligations under the June 2015 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 June 2015 Wells Fargo Revolver.
The June 2015 Wells Fargo Revolver contains customary provisions relating to mandatory prepayments, restricted payments, voluntary payments, affirmative and negative covenants, and events of default, and requires the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio of at least
12
purposes, the requirement for the Company to pay a higher interest rate upon an event of default is an embedded derivative. As of June 25, 2022, the fair value of this embedded derivative was estimated and was not significant.
As of June 25, 2022, the Company was in compliance with the June 2015 Wells Fargo Revolver debt covenant.
Subsequent to the thirteen weeks ended June 25, 2022, on July 11, 2022, the Company entered into Amendment No. 4 to the Credit Agreement (the “2022 Wells Amendment”), increasing the aggregate revolving credit facility to $
The 2022 Wells Amendment also makes other changes to the June 2015 Wells Fargo Revolver, replacing all LIBOR based provisions with provisions reflecting Term Secured Overnight Financing Rate (“SOFR”), including, without limitation, the use of Term SOFR as the benchmark rate. Following the 2022 Wells Amendment, Revolving Credit Loans bear interest at per annum rates equal to, at the Company’s option, either (i) Adjusted Term SOFR (defined as Term SOFR plus
Debt Issuance Costs
Debt issuance costs totaling $
Total amortization expense of less than $
5. Stock-Based Compensation
Equity Incentive Plans
On January 27, 2012, the Company approved the 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan authorized the Company to issue options to employees, consultants and directors exercisable for up to a total of
On October 19, 2014, the Company approved the 2014 Equity Incentive Plan, which was amended as of August 24, 2016 (as amended, the “2014 Plan”). Following the approval of the 2014 Plan, no further grants have been made under the 2011 Plan. The 2014 Plan authorizes the Company to issue awards to employees, consultants and directors for up to a total of
13
On August 26, 2020, the Company approved the 2020 Equity Incentive Plan (the “2020 Plan”). Following the approval of the 2020 Plan, no further grants have been made under the 2014 Plan. The 2020 Plan authorizes the Company to issue awards to employees and directors for up to a total of
Stock Options
During the thirteen weeks ended June 25, 2022, the Company granted its Chief Executive Officer ("CEO") an option to purchase
Stock price |
| $ | |
|
Exercise price | $ | | ||
Expected option term (1) |
| years | ||
Expected volatility (2) |
| | % | |
Risk-free interest rate (3) | % | |||
Expected annual dividend yield | % |
| (1) | The Company has limited historical information regarding expected option term. Accordingly, the Company determined the expected life of the options using the simplified method. |
| (2) | Stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company’s stock over the most recent period equal to the expected option term of the Company’s awards. |
| (3) | The risk-free interest rate is determined using the rate on treasury securities with the same term. |
During the thirteen weeks ended June 26, 2021, the Company did
Intrinsic value for stock options is defined as the difference between the market price of the Company’s common stock on the last business day of the fiscal quarter and the weighted average exercise price of in-the-money stock options outstanding at the end of each fiscal period.
14
The following table summarizes the stock award activity for the thirteen weeks ended June 25, 2022:
Grant Date | Weighted | |||||||||
Weighted | Average | Aggregate | ||||||||
Stock | Average | Remaining | Intrinsic | |||||||
| Options |
| Exercise Price |
| Contractual Life |
| Value | |||
(in years) | (in thousands) | |||||||||
Outstanding at March 26, 2022 |
| | $ | | ||||||
Granted |
| | $ | | ||||||
Exercised | ( | $ | | $ | | |||||
Cancelled, forfeited or expired |
| — | $ | — | ||||||
Outstanding at June 25, 2022 |
| | $ | |
| $ | | |||
Vested and expected to vest after June 25, 2022 |
| | $ | |
| $ | | |||
Exercisable at June 25, 2022 |
| | $ | |
| $ | | |||
A summary of the status of non-vested stock options as of June 25, 2022 including changes during the thirteen weeks ended June 25, 2022 is presented below:
|
| Weighted- | |||
Average | |||||
Grant Date | |||||
| Shares |
| Fair Value | ||
Nonvested at March 26, 2022 |
| | $ | | |
Granted |
| | $ | | |
Vested |
| ( | $ | | |
Nonvested shares forfeited |
| — | $ | — | |
Nonvested at June 25, 2022 |
| | $ | | |
Restricted Stock Units
During the thirteen weeks ended June 25, 2022, the Company granted
During the thirteen weeks ended June 26, 2021, the Company granted
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Performance Share Units
During the thirteen weeks ended June 25, 2022, the Company granted
During the thirteen weeks ended June 26, 2021, the Company granted
The performance share units granted in both the thirteen weeks ended June 25, 2022 and June 26, 2021 are stock-based awards in which the number of shares ultimately received depends on the Company's performance against its cumulative earnings per share target over a
The grant date fair value of the performance share units granted during both the thirteen weeks ended June 25, 2022 and June 26, 2021, respectively, was initially measured using the Company's closing stock price on the dates of grant with the resulting stock compensation expense recognized on a straight-line basis over the
Stock-Based Compensation Expense
Stock-based compensation expense was $
As of June 25, 2022, there was $
6. Commitments and Contingencies
The Company is involved, from time to time, in litigation that is incidental to its business. The Company has reviewed these matters to determine if reserves are required for losses that are probable and reasonable to estimate in accordance with FASB ASC Topic 450, Contingencies. The Company evaluates such reserves, if any, based upon several criteria, including the merits of each claim, settlement discussions and advice from outside legal counsel, as well
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as indemnification of amounts expended by the Company’s insurers or others pursuant to indemnification policies or agreements, if any.
On May 8, 2019, Sheplers, LLC (formerly known as Sheplers, Inc. prior to September 26, 2021), a wholly-owned subsidiary of the Company, was named as defendant in a class-action complaint filed in the Superior Court of California, County of Los Angeles. Among other things, the complaint generally alleges deceptive pricing on merchandise sold in Sheplers’ e-commerce site. The estimated cost of the matter has been accrued as of June 25, 2022.
On February 27, 2020, one employee, on behalf of themself and all other similarly situated employees, filed a class action lawsuit against the Company, which includes claims for penalties under California’s Private Attorney General Act, in the Sacramento County Superior Court, Case No. 34-2019-00272000-CU-OE-GDS, alleging violations of California’s wage and hour, overtime, meal periods and rest breaks, and an alleged violation of the suitable seating requirement as per California Labor Law among other things. The complaint seeks an unspecified amount of damages and penalties. The Company intends to defend this claim vigorously. As of June 25, 2022, the Company has recorded an amount for the estimated probable loss, which is not material to the condensed consolidated financial statements. Depending on the actual outcome of pending litigation, charges in excess of such recorded amount could be recorded in the future, which may have a material adverse effect on the Company’s financial position, results of operations or liquidity.
The Company is also subject to certain other pending or threatened litigation matters incidental to its business. In management's opinion, none of these legal matters, individually or in the aggregate, will have a material effect on the Company's financial position, results of operations, or liquidity.
During the normal course of its business, the Company has made certain indemnifications and commitments under which the Company may be required to make payments for certain transactions. These indemnifications include those given to various lessors in connection with facility leases for certain claims arising from such facility leases, and indemnifications to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. The majority of these indemnifications and commitments do not provide for any limitation of the maximum potential future payments the Company could be obligated to make, and their duration may be indefinite. The Company has not recorded any liability for these indemnifications and commitments in the condensed consolidated balance sheets as the impact is expected to be immaterial.
7. Leases
The Company does not own any real estate. Instead, most of its retail store locations are occupied under operating leases. The store leases generally have a base lease term of or
Operating and finance lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating and finance lease ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by cash payments received from landlords as lease incentives, plus any prepaid rent and other direct costs from executing the leases. Amortization of both operating and finance lease ROU assets is performed on a straight-line basis and recorded as part of rent expense. The majority of total lease costs is recorded as part of cost of goods sold, with the balance recorded in selling, general and administrative expenses on the condensed consolidated statements of operations. The interest expense amortization component of the finance lease liabilities is recorded within interest expense on the condensed consolidated statements of operations. ROU assets are tested for impairment in the same manner as long-lived assets. During both the thirteen weeks ended June 25, 2022 and June 26, 2021, the Company did
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ROU assets and lease liabilities as of June 25, 2022 and March 26, 2022 consist of the following:
Balance Sheet Classification | June 25, 2022 | March 26, 2022 | ||||||
Assets | ||||||||
Finance lease assets | $ | | $ | | ||||
Operating lease assets |
| |
| | ||||
Total lease assets | $ | | $ | | ||||
Liabilities |
|
| ||||||
Current | ||||||||
Finance | $ | | $ | | ||||
Operating | | | ||||||
Total short-term lease liabilities | $ | | $ | | ||||
Non-Current | ||||||||
Finance | $ | | $ | | ||||
Operating | | | ||||||
Total long-term lease liabilities | $ | | $ | | ||||
Total lease liabilities | $ | | $ | | ||||
Total lease costs for the thirteen weeks ended June 25, 2022 and June 26, 2021 were:
Thirteen Weeks Ended | ||||||||
(in thousands) |
| June 25, 2022 | June 26, 2021 | |||||
Finance lease cost | ||||||||
Amortization of right-of-use assets | $ | | $ | | ||||
Interest on lease liabilities | | | ||||||
Total finance lease cost | $ | | $ | | ||||
Operating lease cost | $ | | $ | | ||||
Short-term lease cost | | | ||||||
Variable lease cost | | | * | |||||
Sublease income | — | — | ||||||
Total lease cost | $ | | $ | | ||||
*Amount previously disclosed above for variable lease cost in the thirteen weeks ended June 26, 2021 has been corrected from the amount previously reported of $
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The following table summarizes future lease payments as of June 25, 2022:
Operating Leases | Finance Leases | |||||
Fiscal Year | (in thousands) | (in thousands) | ||||
2023 | $ | | $ | | ||
2024 |
| |
| | ||
2025 |
| |
| | ||
2026 | | | ||||
2027 | | | ||||
Thereafter |
| |
| | ||
Total | | | ||||
Less: Imputed interest | ( | ( | ||||
Present value of net lease payments | $ | | $ | | ||
The following table includes supplemental lease information:
Thirteen Weeks Ended | Thirteen Weeks Ended | |||||||
Supplemental Cash Flow Information (dollars in thousands) | June 25, 2022 | June 26, 2021 | ||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from operating leases | $ | | $ | | ||||
Operating cash flows from finance leases |
| — |
| — | ||||
Financing cash flows from finance leases | | | ||||||
$ | | $ | | |||||
Lease liabilities arising from new right-of-use assets | ||||||||
Operating leases | $ | | $ | | ||||
Finance leases | $ | — | $ | | ||||
Weighted average remaining lease term (in years) | ||||||||
Operating leases | ||||||||
Finance leases | ||||||||
Weighted average discount rate | ||||||||
Operating leases | | % | | % | ||||
Finance leases | | % | | % | ||||
8. Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). In accordance with ASC 740, the Company recognizes deferred tax assets and liabilities based on the liability method, which requires an adjustment to the deferred tax asset or liability to reflect income tax rates currently in effect. When income tax rates increase or decrease, a corresponding adjustment to income tax expense is recorded by applying the rate change to the cumulative temporary differences. ASC 740 prescribes the recognition threshold and measurement principles for financial statement disclosure of tax positions taken or expected to be taken on a tax return. ASC 740 requires the Company to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recognized. Additionally, ASC 740 provides guidance on recognition measurement, derecognition, classification, related interest and penalties, accounting in interim periods, disclosure and transition.
The income tax rate was
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considered and evaluated its sources of taxable income, including forecasted future taxable income, and has concluded that a valuation allowance is not required as of June 25, 2022. The Company will continue to evaluate the need for a valuation allowance at each period end.
The Company’s policy is to accrue interest and penalties related to unrecognized tax benefits as a component of income tax expense. At June 25, 2022 and March 26, 2022, the Company had
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. As of June 25, 2022, the Company is not aware of tax examinations (current or potential) in any tax jurisdictions.
9. Related Party Transactions
During the thirteen weeks ended June 25, 2022 and June 26, 2021, the Company had capital expenditures with Floor & Decor Holdings, Inc., a specialty retail vendor in the flooring market. These capital expenditures amounted to $
10. Earnings Per Share
Earnings per share is computed under the provisions of FASB ASC Topic 260, Earnings Per Share. Basic earnings per share is computed based on the weighted average number of outstanding shares of common stock during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential shares of common stock outstanding during the period using the treasury stock method, whereby proceeds from such exercise and unamortized compensation, if any, on share-based awards, are assumed to be used by the Company to purchase the shares of common stock at the average market price during the period. The dilutive effect of stock options and restricted stock is applicable only in periods of net income. Performance share units and market-based stock option awards are excluded from the calculation of diluted earnings per share until their respective performance or market criteria has been achieved.
The components of basic and diluted earnings per share of common stock, in aggregate, for the thirteen weeks ended June 25, 2022 and June 26, 2021 are as follows:
Thirteen Weeks Ended | |||||||
June 25, | June 26, | ||||||
(in thousands, except per share data) |
| 2022 |
| 2021 |
| ||
Net income | $ | | $ | | |||