10-Q 1 boot-20220625x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 25, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 001-36711

Boot Barn Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

90-0776290

(I.R.S. employer

identification no.)

15345 Barranca Pkwy

Irvine, California

(Address of principal executive offices)

92618

(Zip code)

(949) 453-4400

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

BOOT

New York Stock Exchange

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. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Emerging growth company

Non-accelerated filer

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of July 26, 2022, the registrant had 29,806,461 shares of common stock outstanding, $0.0001 par value.

Boot Barn Holdings, Inc. and Subsidiaries

Form 10-Q

For the Thirteen Weeks Ended June 25, 2022

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of June 25, 2022 and March 26, 2022

3

Condensed Consolidated Statements of Operations for the Thirteen Weeks Ended June 25, 2022 and June 26, 2021

4

Condensed Consolidated Statements of Stockholders’ Equity for the Thirteen Weeks Ended June 25, 2022 and June 26, 2021

5

Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended June 25, 2022 and June 26, 2021

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosure of Market Risk

29

Item 4.

Controls and Procedures

29

PART II.

OTHER INFORMATION

30

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

Signatures

32

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

$

16,014

$

20,674

Accounts receivable, net

 

9,240

 

9,662

Inventories

 

534,380

 

474,300

Prepaid expenses and other current assets

 

57,781

 

37,195

Total current assets

 

617,415

 

541,831

Property and equipment, net

 

177,447

 

155,247

Right-of-use assets, net

264,569

241,147

Goodwill

 

197,502

 

197,502

Intangible assets, net

 

60,797

 

60,813

Other assets

 

3,488

 

3,315

Total assets

$

1,321,218

$

1,199,855

Liabilities and stockholders’ equity

Current liabilities:

Line of credit

$

74,873

$

28,549

Accounts payable

151,638

$

131,394

Accrued expenses and other current liabilities

 

119,229

 

133,408

Short-term lease liabilities

45,116

43,117

Total current liabilities

 

390,856

 

336,468

Deferred taxes

 

28,470

 

26,895

Long-term lease liabilities

259,976

234,584

Other liabilities

 

2,382

 

2,232

Total liabilities

681,684

600,179

Commitments and contingencies (Note 6)

Stockholders’ equity:

Common stock, $0.0001 par value; June 25, 2022 - 100,000 shares authorized, 29,995 shares issued; March 26, 2022 - 100,000 shares authorized, 29,820 shares issued

 

3

 

3

Preferred stock, $0.0001 par value; 10,000 shares authorized, no shares issued or outstanding

 

 

Additional paid-in capital

 

204,002

 

199,054

Retained earnings

 

444,795

 

405,477

Less: Common stock held in treasury, at cost, 188 and 135 shares at June 25, 2022 and March 26, 2022, respectively

(9,266)

(4,858)

Total stockholders’ equity

 

639,534

 

599,676

Total liabilities and stockholders’ equity

$

1,321,218

$

1,199,855

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

    

Net sales

$

365,856

$

306,327

Cost of goods sold

 

228,026

 

189,900

Gross profit

 

137,830

 

116,427

Selling, general and administrative expenses

 

85,405

 

62,784

Income from operations

 

52,425

 

53,643

Interest expense

 

725

 

2,563

Other (loss)/income, net

(273)

104

Income before income taxes

 

51,427

 

51,184

Income tax expense

 

12,109

 

10,539

Net income

$

39,318

$

40,645

Earnings per share:

Basic

$

1.32

$

1.38

Diluted

$

1.29

$

1.35

Weighted average shares outstanding:

Basic

 

29,747

 

29,361

Diluted

 

30,386

 

30,213

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

29,820

$

3

$

199,054

$

405,477

(135)

$

(4,858)

$

599,676

Net income

39,318

39,318

Issuance of common stock related to stock-based compensation

175

247

247

Tax withholding for net share settlement

(53)

(4,408)

(4,408)

Stock-based compensation expense

4,701

4,701

Balance at June 25, 2022

29,995

$

3

$

204,002

$

444,795

(188)

$

(9,266)

$

639,534

Additional

 

Common Stock

Paid-In

Retained

Treasury Shares

 

    

Shares

    

Amount

    

Capital

    

Earnings

Shares

    

Amount

Total

Balance at March 27, 2021

29,348

$

3

$

183,815

$

213,027

(96)

$

(1,954)

$

394,891

Net income

 

40,645

40,645

Issuance of common stock related to stock-based compensation

313

3,616

3,616

Tax withholding for net share settlement

(34)

(2,476)

(2,476)

Stock-based compensation expense

 

3,201

3,201

Balance at June 26, 2021

 

29,661

$

3

$

190,632

$

253,672

(130)

$

(4,430)

$

439,877

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

$

39,318

$

40,645

Adjustments to reconcile net income to net cash (used in)/provided by operating activities:

Depreciation

 

8,022

 

6,152

Stock-based compensation

 

4,701

 

3,201

Amortization of intangible assets

 

16

 

18

Noncash lease expense

11,119

9,221

Amortization and write-off of debt issuance fees and debt discount

 

44

 

1,064

Loss/(gain) on disposal of assets

 

177

 

(4)

Gain on adjustment of right-of-use assets and lease liabilities

(33)

Deferred taxes

 

1,575

 

(5,891)

Changes in operating assets and liabilities:

Accounts receivable, net

 

600

 

4,912

Inventories

 

(60,080)

 

(21,002)

Prepaid expenses and other current assets

 

(20,630)

 

(7,309)

Other assets

 

(173)

 

(457)

Accounts payable

 

18,024

 

5,252

Accrued expenses and other current liabilities

 

(21,523)

 

19,071

Other liabilities

 

150

 

568

Operating leases

(7,108)

(9,080)

Net cash (used in)/provided by operating activities

$

(25,768)

$

46,328

Cash flows from investing activities

Purchases of property and equipment

$

(20,835)

$

(9,294)

Net cash used in investing activities

$

(20,835)

$

(9,294)

Cash flows from financing activities

Borrowings on line of credit - net

$

46,324

$

Repayments on debt and finance lease obligations

(220)

(61,682)

Tax withholding payments for net share settlement

(4,408)

(2,476)

Proceeds from the exercise of stock options

247

3,616

Net cash provided by/(used in) financing activities

$

41,943

$

(60,542)

Net decrease in cash and cash equivalents

 

(4,660)

 

(23,508)

Cash and cash equivalents, beginning of period

 

20,674

 

73,148

Cash and cash equivalents, end of period

$

16,014

$

49,640

Supplemental disclosures of cash flow information:

Cash paid for income taxes

$

19,226

$

Cash paid for interest

$

534

$

1,496

Supplemental disclosure of non-cash activities:

Unpaid purchases of property and equipment

$

17,473

$

4,130

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 100,000,000 authorized shares and 29,994,885 issued and 29,806,461 outstanding shares of common stock as of June 25, 2022. The shares of common stock have voting rights of one vote per share.

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 311 stores in 38 states as of June 25, 2022 and 300 stores in 38 states as of March 26, 2022. As of June 25, 2022, all stores operate under the Boot Barn name, with the exception of two stores that operate under the “American Worker” name.

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 53 weeks; whereas, the fiscal year ended on March 26, 2022 (“fiscal 2022”) consisted of 52 weeks.

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 two operating segments. Given the similar qualitative and economic characteristics of the two operating segments, the Company’s retail stores and e-commerce websites are aggregated into one reporting segment in accordance with guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting (“ASC 280”). The Company’s operations represent two reporting units, retail stores and e-commerce, for the purpose of its goodwill impairment analysis.

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 no financial assets or liabilities requiring fair value measurements on a recurring basis as of June 25, 2022.

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 365-day period. Once a loyalty program member achieves a certain point level, the member earns awards that may be redeemed for credits on merchandise purchases. To redeem awards, the member must make a qualifying purchase of merchandise within 60 days of the date the award was granted. Unredeemed awards and accumulated partial points are accrued as unearned revenue until redemption or expiration and, upon redemption and expiration, as an adjustment to net sales using the relative standalone selling price method. The unearned revenue for this program is recorded in accrued expenses and other current liabilities on the consolidated balance sheets and was $3.7 million as of June 25, 2022 and $2.9 million as of June 26, 2021. The following table provides a reconciliation of the activity related to the Company’s customer loyalty program:

Customer Loyalty Program

    

(in thousands)

    

June 25, 2022

June 26, 2021

Beginning balance as of March 26, 2022 and March 27, 2021, respectively

    

$

3,504

$

2,485

Year-to-date provisions

4,235

2,890

Year-to-date award redemptions

(4,040)

(2,515)

Ending balance

$

3,699

$

2,860

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

    

$

15,392

$

11,569

Year-to-date issued

6,167

4,340

Year-to-date redemptions

(6,399)

(4,284)

Ending balance

$

15,160

$

11,625

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

    

48%

51%

Apparel

34%

32%

Hats, accessories and other

18%

17%

Total

100%

100%

The Company further disaggregates net sales between stores and e-commerce:

    

Thirteen Weeks Ended

% of Net Sales

    

June 25, 2022

June 26, 2021

Stores

    

88%

87%

E-commerce

12%

13%

Total

100%

100%

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

$

345

$

(225)

$

120

 

5.0

Trademarks—indefinite lived

 

60,677

 

 

60,677

Total intangible assets

$

61,022

$

(225)

$

60,797

March 26, 2022

Gross

Weighted

Carrying

Accumulated

Average

    

Amount

    

Amortization

    

Net

    

Useful Life

Customer lists—definite lived

$

345

$

(209)

$

136

 

5.0

Trademarks—indefinite lived

 

60,677

 

 

60,677

Total intangible assets

$

61,022

$

(209)

$

60,813

Amortization expense for intangible assets totaled less than $0.1 million for both the thirteen weeks ended June 25, 2022 and June 26, 2021, and is included in selling, general and administrative expenses.

As of June 25, 2022, estimated future amortization of intangible assets was as follows:

Fiscal Year

    

(in thousands)

2023

    

$

46

2024

 

54

2025

 

20

2026

 

-

2027

 

-

Thereafter

 

-

Total

$

120

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 $197.5 million as of both June 25, 2022 and March 26, 2022. As of June 25, 2022, the Company had identified no indicators of impairment with respect to its goodwill and intangible asset balances.

During both the thirteen weeks ended June 25, 2022 and June 26, 2021, the Company did not record any long-lived asset impairment charges.

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 $125.0 million syndicated senior secured asset-based revolving credit facility for which Wells Fargo Bank, National Association (“June 2015 Wells Fargo Revolver”), is agent, and the $200.0 million syndicated senior secured term loan for which GCI Capital Markets LLC (“2015 Golub Term Loan”) was agent.

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 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%. The Company also pays 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 the maturity date. On May 26, 2017, the Company entered into an amendment to the June 2015 Wells Fargo Revolver (the “2017 Wells Amendment”), increasing the aggregate revolving credit facility to $135.0 million and extending the maturity date to the earlier of May 26, 2022 or 90 days prior to the previous maturity of the 2015 Golub Term Loan, which was then scheduled to mature on June 29, 2021. On June 6, 2019, the Company entered into Amendment No. 3 to the Credit Agreement (the “2019 Wells Amendment”), further increasing the aggregate revolving credit facility to $165.0 million and extending the maturity date to June 6, 2024. The 2019 Wells Amendment further made changes to the 2015 Wells Fargo Revolver in connection with the transition away from LIBOR as the benchmark rate. On July 26, 2021, the Company entered into an amendment (the “2021 Wells Amendment”), increasing the aggregate revolving credit facility to $180.0 million. The amount outstanding under the June 2015 Wells Fargo Revolver as of June 25, 2022 and March 26, 2022 was $74.9 million and $28.5 million, respectively. Total interest expense incurred in the thirteen weeks ended June 25, 2022 on the June 2015 Wells Fargo Revolver was $0.5 million and the weighted average interest rate for the thirteen weeks ended June 25, 2022 was 2.3%. Total interest expense incurred in the thirteen weeks ended June 26, 2021 on the June 2015 Wells Fargo Revolver was $0.1 million.

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 $1.2 million and the weighted average interest rate for the thirteen weeks ended June 26, 2021 was 5.5%.

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 1.00:1.00 during such times as a covenant trigger event shall exist. The June 2015 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

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 $250.0 million. The 2022 Wells Amendment also extends the maturity date to July 11, 2027.

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 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 as 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 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%.

Debt Issuance Costs

Debt issuance costs totaling $1.2 million were incurred under the June 2015 Wells Fargo Revolver, 2017 Wells Amendment, 2019 Wells Amendment and 2021 Wells Amendment and are included as assets on the condensed consolidated balance sheets in prepaid expenses and other current assets. Total unamortized debt issuance costs were $0.1 million and $0.2 million as of June 25, 2022 and March 26, 2022, respectively. These amounts are being amortized to interest expense over the term of the June 2015 Wells Fargo Revolver.

Total amortization expense of less than $0.1 million related to the June 2015 Wells Fargo Revolver is included as a component of interest expense in the thirteen weeks ended June 25, 2022. Total amortization expense of $0.2 million related to the June 2015 Wells Fargo Revolver and 2015 Golub Term Loan is included as a component of interest expense in the thirteen weeks ended June 26, 2021.

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 3,750,000 shares of common stock, par value $0.0001 per share. All awards granted by the Company under the 2011 Plan were nonqualified stock options. Options granted under the 2011 Plan have a life of 10 years and vest over service periods of five years or in connection with certain events as defined by the 2011 Plan.

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 3,600,000 shares of common stock, par value $0.0001 per share. As of June 25, 2022, all awards granted by the Company under the 2014 Plan to date have been nonqualified stock options, restricted stock awards, restricted stock units or performance share units. Options granted under the 2014 Plan have a life of eight to ten years and vest over service periods of four or five years or in connection with certain events as defined by the 2014 Plan. Restricted stock awards granted under the 2014 Plan vest over one or four years, as determined by the Compensation Committee of our board of directors. Restricted stock units vest over service periods of one, four or five years, as determined by the Compensation Committee of our board of directors. Performance share units are subject to the vesting criteria discussed in Note 9, “Stock-Based Compensation”, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on May 12, 2022.

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 2,000,000 shares of common stock, par value $0.0001 per share. As of June 25, 2022, all awards granted by the Company under the 2020 Plan to date have been market-based stock options, restricted stock units or performance share units. Market-based stock options granted under the 2020 Plan are subject to the vesting criteria discussed further below. Restricted stock units vest over service periods of one, three or four years, as determined by the Compensation Committee of our board of directors. Performance share units are subject to the vesting criteria discussed further below.

Stock Options

During the thirteen weeks ended June 25, 2022, the Company granted its Chief Executive Officer ("CEO") an option to purchase 86,189 shares of common stock under the 2020 Plan. This option contains both service and market vesting conditions. Vesting of this option is contingent upon the market price of the Company's common stock achieving three stated price targets for 30 consecutive trading days through the third anniversary of the date of grant. If the first market price target is met, 33% of the option granted will cliff vest on the third anniversary of the date of grant, with an additional 33% of the option vesting on the third anniversary of the date of grant if the second market price target is met, and the last 34% of the option vesting on the third anniversary of the date of grant if the final market price target is met. The total grant date fair value of this option was $4.0 million, with a grant date fair value of $46.41 per share. The Company is recognizing the expense relating to this stock option on a straight-line basis over the three-year service period. The exercise price of this award is $86.96 per share. The fair value of the option was estimated using a Monte Carlo simulation model. The following significant assumptions were used as of May 12, 2022, the date of grant:

Stock price

    

$

86.96

 

Exercise price

$

86.96

Expected option term (1)

 

6.5

years

Expected volatility (2)

 

65.9

%

Risk-free interest rate (3)

2.8

%

Expected annual dividend yield

0

%

(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 not grant options to purchase shares.

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

 

728,079

$

23.44

Granted

 

86,189

$

86.96

Exercised

(11,212)

$

22.03

$

610

Cancelled, forfeited or expired

 

$

Outstanding at June 25, 2022

 

803,056

$

30.28

 

6.6

$

39,189

Vested and expected to vest after June 25, 2022

 

803,056

$

30.28

 

6.6

$

39,189

Exercisable at June 25, 2022

 

293,267

$

19.49

 

5.0

$

17,196

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

 

626,976

$

9.14

Granted

 

86,189

$

46.41

Vested

 

(203,376)

$

8.04

Nonvested shares forfeited

 

$

Nonvested at June 25, 2022

 

509,789

$

15.88

Restricted Stock Units

During the thirteen weeks ended June 25, 2022, the Company granted 94,262 restricted stock units to various directors and employees under the 2020 Plan. The shares granted to employees vest in three equal annual installments beginning on the grant date, provided that the respective award recipient continues to be employed by the Company through each of those dates (subject to certain exceptions). The shares granted to the Company’s directors vest on the first anniversary of the date of the grant. The grant date fair value of these awards for the thirteen weeks ended June 25, 2022 totaled $8.2 million. Subject to certain exceptions, the Company is recognizing the expense relating to these awards on a straight-line basis over the service period of each award, commencing on the date of grant.

During the thirteen weeks ended June 26, 2021, the Company granted 59,842 restricted stock units to various directors and employees under the 2020 Plan. The shares granted to employees vest in four equal annual installments beginning on the grant date, provided that the respective award recipient continues to be employed by the Company through each of those dates (subject to certain exceptions). The shares granted to the Company’s directors vest on the first anniversary of the date of the grant. The grant date fair value of these awards for the thirteen weeks ended June 26, 2021 totaled $4.7 million. Subject to certain exceptions, the Company is recognizing the expense relating to these awards on a straight-line basis over the service period of each award, commencing on the date of the grant.

15

Performance Share Units

During the thirteen weeks ended June 25, 2022, the Company granted 57,843 performance share units to various employees under the 2020 Plan with a grant date fair value of $5.0 million.

During the thirteen weeks ended June 26, 2021, the Company granted 33,571 performance share units to various employees under the 2020 Plan with a grant date fair value of $2.6 million.

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 three-year performance period. The performance period for the performance share units granted during the thirteen weeks ended June 25, 2022 began on March 27, 2022 and ends on March 29, 2025. The performance period for the performance share units granted during the thirteen weeks ended June 26, 2021 began on March 28, 2021 and ends on March 30, 2024. The performance metrics were established by the Company at the beginning of the performance periods. At the end of the performance periods, the number of performance shares to be issued is fixed based upon the degree of achievement of the performance goals. If the cumulative three-year performance goals are below the threshold level, the number of performance share units to vest will be 0%, if the performance goals are at the threshold level, the number of performance share units to vest will be 50% of the target amounts, if the performance goals are at the target level, the number of performance share units to vest will be 100% of the target amounts, and if the performance goals are at the maximum level, the number of performance share units to vest will be 200% of the target amounts, each subject to continued service through the last day of the performance periods (subject to certain exceptions). If performance is between threshold and target goals or between target and maximum goals, the number of performance share units to vest will be determined by linear interpolation. The number of shares ultimately issued can range from 0% to 200% of the participant's target award.

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 three-year vesting periods, subject to certain exceptions. The expense recognized over the vesting periods is adjusted up or down on a quarterly basis based on the anticipated performance level during the performance period. If the performance metrics are not probable of achievement during the performance periods, stock compensation expense would be reversed. The awards are forfeited if the threshold performance goals are not achieved as of the end of the performance periods.

Stock-Based Compensation Expense

Stock-based compensation expense was $4.7 million and $3.2 million for the thirteen weeks ended June 25, 2022 and June 26, 2021, respectively. Stock-based compensation expense of $1.0 million and $0.7 million was recorded in cost of goods sold in the condensed consolidated statements of operations for the thirteen weeks ended June 25, 2022 and June 26, 2021, respectively. All other stock-based compensation expense is included in selling, general and administrative expenses in the condensed consolidated statements of operations.

As of June 25, 2022, there was $5.5 million of total unrecognized stock-based compensation expense related to unvested stock options, with a weighted-average remaining recognition period of 2.45 years. As of June 25, 2022, there was $10.4 million of total unrecognized stock-based compensation expense related to restricted stock units, with a weighted-average remaining recognition period of 2.54 years. As of June 25, 2022, there was $5.6 million of total unrecognized stock-based compensation expense related to performance share units, with a weighted-average remaining recognition period of 2.48 years.

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

16

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 five or 10 years, with one or more renewal periods of five years, on average, exercisable at the Company’s option. The Company is generally responsible for the payment of property taxes and insurance, utilities and common area maintenance fees. Some leases also require additional payments based on percentage of sales. Lease terms include the non-cancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods, termination options and purchase options.

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 not record ROU asset impairment charges related to its stores.

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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
(in thousands)

March 26, 2022
(in thousands)

Assets

Finance lease assets

Right-of-use assets, net

$

10,000

$

10,254

Operating lease assets

Right-of-use assets, net

 

254,569

 

230,893

Total lease assets

$

264,569

$

241,147

Liabilities

 

 

Current

Finance

Short-term lease liabilities

$

830

$

838

Operating

Short-term lease liabilities

44,286

42,279

Total short-term lease liabilities

$

45,116

$

43,117

Non-Current

Finance

Long-term lease liabilities

$

15,951

$

16,164

Operating

Long-term lease liabilities

244,025

218,420

Total long-term lease liabilities

$

259,976

$

234,584

Total lease liabilities

$

305,092

$

277,701

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

$

255

$

200

Interest on lease liabilities

182

202

Total finance lease cost

$

437

$

402

Operating lease cost

$

14,023

$

11,934

Short-term lease cost

897

581

Variable lease cost

5,469

4,407

*

Sublease income

Total lease cost

$

20,826

$

17,324

*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 $1.0 million.

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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

$

33,773

$

1,157

2024

 

58,798

 

1,544

2025

 

52,467

 

1,515

2026

45,301

1,552

2027

36,573

1,590

Thereafter

 

109,332

 

14,525

Total

336,244

21,883

Less: Imputed interest

(47,933)

(5,102)

Present value of net lease payments

$

288,311

$

16,781

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

$

13,881

$

11,997

Operating cash flows from finance leases

 

 

Financing cash flows from finance leases

403

385

$

14,284

$

12,382

Lease liabilities arising from new right-of-use assets

Operating leases

$

34,540

$

20,519

Finance leases

$

$

14

Weighted average remaining lease term (in years)

Operating leases

6.8

6.4

Finance leases

13.1

13.9

Weighted average discount rate

Operating leases

4.5

%

5.3

%

Finance leases

10.9

%

12.1

%

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 23.5% and 20.6% for the thirteen weeks ended June 25, 2022 and June 26, 2021, respectively. The tax rate for the thirteen weeks ended June 25, 2022 was higher than the tax rate for the thirteen weeks ended June 26, 2021, primarily due to a lower tax benefit due to income tax accounting for share-based compensation compared to a higher tax benefit in the thirteen weeks ended June 26, 2021. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized. To this end, the Company has

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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 no accrued liability for penalties and interest.

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 $0.1 million and $0.2 million in the thirteen weeks ended June 25, 2022 and June 26, 2021, respectively, and were recorded as property and equipment, net on the condensed consolidated balance sheets. One member of the Company’s board of directors currently serves on the board of directors at Floor & Decor Holdings, Inc. Additionally, one member of the Company’s board of directors served as an executive officer at Floor & Decor Holdings, Inc. through April 2022.

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

$

39,318

$

40,645