Table of Contents  

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 September 24, 2016
 
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
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	 	Accelerated filer ☒	
 	 	 	
Non-accelerated filer ☐	 	Smaller reporting company ☐	
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 October 26, 2016, the registrant had 26,487,002 shares of common stock outstanding, $0.0001 par value.

 

 

Table of Contents  

Boot Barn Holdings, Inc. and Subsidiaries
Form 10-Q
For the Thirteen and Twenty-Six Weeks Ended September 24, 2016

 	 	 	Page	
 	 	 	 	
PART I.  	FINANCIAL INFORMATION	 	
3 	
 	 	 	 	
Item 1.  	Condensed Consolidated Financial Statements (Unaudited)	 	
3 	
 	Condensed Consolidated Balance Sheets as of September 24, 2016 and March 26, 2016	 	
3 	
 	Condensed Consolidated Statements of Operations for the Thirteen and Twenty-Six weeks Ended September 24, 2016 and September 26, 2015	 	
4 	
 	Condensed Consolidated Statements of Stockholders’ Equity for the Twenty-Six weeks Ended September 24, 2016 and September 26, 2015	 	
5 	
 	Condensed Consolidated Statements of Cash Flows for the Twenty-Six weeks Ended September 24, 2016 and September 26, 2015	 	
6 	
 	Notes to the Condensed Consolidated Financial Statements	 	
7 	
 	 	 	 	
Item 2.  	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	
22 	
 	 	 	 	
Item 3.  	Quantitative and Qualitative Disclosures About Market Risk	 	
34 	
 	 	 	 	
Item 4.  	Controls and Procedures	 	
34 	
 	 	 	 	
PART II.  	OTHER INFORMATION	 	
36 	
 	 	 	 	
Item 1.  	Legal Proceedings	 	
36 	
 	 	 	 	
Item 1A.  	Risk Factors	 	
36 	
 	 	 	 	
Item 2.  	Unregistered Sales of Equity Securities and Use of Proceeds	 	
36 	
 	 	 	 	
Item 3.  	Defaults Upon Senior Securities	 	
36 	
 	 	 	 	
Item 4.  	Mine Safety Disclosures	 	
36 	
 	 	 	 	
Item 5.  	Other Information	 	
36 	
 	 	 	 	
Item 6.  	Exhibits	 	
37 	
 	 	 	 	
 	Signatures	 	
38 	

2

Table of Contents  

Part 1. Financial Informatio  n
 
Item 1. Condensed Consolidated Financial Statements (Unaudited  )
 
BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

 	 	September 24,	    	March 26,	 	
 	    	2016	    	2016	 	
 	 	 	 	
Assets	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	
11,063	 	$	
7,195	 	
Accounts receivable, net	 	 	
4,570	 	 	
4,131	 	
Inventories	 	 	
190,760	 	 	
176,335	 	
Prepaid expenses and other current assets	 	 	
16,589	 	 	
15,558	 	
Total current assets	 	 	
222,982	 	 	
203,219	 	
Property and equipment, net	 	 	
81,116	 	 	
76,076	 	
Goodwill	 	 	
193,095	 	 	
193,095	 	
Intangible assets, net	 	 	
63,761	 	 	
64,861	 	
Other assets	 	 	
947	 	 	
2,075	 	
Total assets	 	$	
561,901	 	$	
539,326	 	
Liabilities and stockholders’ equity	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	
Line of credit	 	$	
56,983	 	$	
48,815	 	
Accounts payable	 	 	
76,109	 	 	
66,553	 	
Accrued expenses and other current liabilities	 	 	
34,933	 	 	
35,896	 	
Current portion of notes payable, net of unamortized debt issuance costs	 	 	
1,040	 	 	
1,035	 	
Total current liabilities	 	 	
169,065	 	 	
152,299	 	
Deferred taxes	 	 	
11,803	 	 	
12,255	 	
Long-term portion of notes payable, net of unamortized debt issuance costs	 	 	
192,049	 	 	
192,579	 	
Capital lease obligations	 	 	
8,064	 	 	
8,272	 	
Other liabilities	 	 	
16,125	 	 	
12,431	 	
Total liabilities	 	 	
397,106	 	 	
377,836	 	
 	 	 	 	 	 	 	 	
Commitments and contingencies (Note 7)	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	
Stockholders’ equity:	 	 	 	 	 	 	 	
Common stock, $0.0001 par value; September 24, 2016 - 100,000 shares authorized, 26,497 shares issued; March 26, 2016 - 100,000 shares authorized, 26,354 shares issued	 	 	
3	 	 	
3	 	
Preferred stock, $0.0001 par value; 10,000 shares authorized, no shares issued or outstanding	 	 	 —	 	 	 —	 	
Additional paid-in capital	 	 	
140,121	 	 	
137,893	 	
Retained earnings	 	 	
24,697	 	 	
23,594	 	
Less: Common stock held in treasury, at cost, 10 and 4 shares at September 24, 2016 and March 26, 2016, respectively	 	 	
(26)	 	 	 —	 	
Total stockholders’ equity	 	 	
164,795	 	 	
161,490	 	
Total liabilities and stockholders’ equity	 	$	
561,901	 	$	
539,326	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents  

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION  S
(In thousands, except per share data)
(Unaudited)

 	 	Thirteen Weeks Ended	 	Twenty-Six Weeks Ended	
 	 	September 24,	 	September 26,	 	September 24,	 	September 26,	
 	    	2016	    	2015	    	2016	    	2015	
 	 	 	
Net sales	 	$	
133,969	 	$	
129,712	 	$	
267,382	 	$	
225,712	
Cost of goods sold	 	 	
97,523	 	 	
94,064	 	 	
190,187	 	 	
159,285	
Amortization of inventory fair value adjustment	 	 	 —	 	 	
(225)	 	 	 —	 	 	
(225)	
Total cost of goods sold	 	 	
97,523	 	 	
93,839	 	 	
190,187	 	 	
159,060	
Gross profit	 	 	
36,446	 	 	
35,873	 	 	
77,195	 	 	
66,652	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	
32,003	 	 	
36,284	 	 	
68,302	 	 	
61,337	
Acquisition-related expenses	 	 	 —	 	 	 —	 	 	 —	 	 	
891	
Total operating expenses	 	 	
32,003	 	 	
36,284	 	 	
68,302	 	 	
62,228	
Income/(loss) from operations	 	 	
4,443	 	 	
(411)	 	 	
8,893	 	 	
4,424	
Interest expense, net	 	 	
3,651	 	 	
5,003	 	 	
7,211	 	 	
5,794	
Income/(loss) before income taxes	 	 	
792	 	 	
(5,414)	 	 	
1,682	 	 	
(1,370)	
Income tax expense/(benefit)	 	 	
313	 	 	
(2,071)	 	 	
579	 	 	
(298)	
Net income/(loss)	 	$	
479	 	$	
(3,343)	 	$	
1,103	 	$	
(1,072)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings/(loss) per share:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic shares	 	$	
0.02	 	$	
(0.13)	 	$	
0.04	 	$	
(0.04)	
Diluted shares	 	$	
0.02	 	$	
(0.13)	 	$	
0.04	 	$	
(0.04)	
Weighted average shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic shares	 	 	
26,427	 	 	
26,159	 	 	
26,400	 	 	
26,012	
Diluted shares	 	 	
26,897	 	 	
26,159	 	 	
26,736	 	 	
26,012	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents  

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUIT  Y
(In thousands)
(Unaudited)

 	 	 	 	 	 	 	Additional	 	 	 	 	 	 	 	 	 	 	 	
 	 	Common Stock	 	Paid-In	 	Retained	 	Treasury Shares	 	 	 	 	
 	    	Shares	    	Amount	    	Capital	    	Earnings	 	Shares	    	Amount	 	Total	 	
 	 	 	 	
Balance at March 26, 2016	 	
26,354	 	$	
3	 	$	
137,893	 	$	
23,594	 	
(4)	 	$	 —	 	$	
161,490	 	
 Net income	 	 —	 	 	 —	 	 	 —	 	 	
1,103	 	 —	 	 	 —	 	 	
1,103	 	
 Issuance of common stock related to stock-based compensation	 	
143	 	 	 —	 	 	
739	 	 	 —	 	
(3)	 	 	 —	 	 	
739	 	
 Tax withholding for net share settlement	 	 —	 	 	 —	 	 	 —	 	 	 —	 	
(3)	 	 	
(26)	 	 	
(26)	 	
 Excess tax deficiency related to stock-based compensation	 	 —	 	 	 —	 	 	
(17)	 	 	 —	 	 —	 	 	 —	 	 	
(17)	 	
 Stock-based compensation expense	 	 —	 	 	 —	 	 	
1,506	 	 	 —	 	 —	 	 	 —	 	 	
1,506	 	
Balance at September 24, 2016	 	
26,497	 	$	
3	 	$	
140,121	 	$	
24,697	 	
(10)	 	$	
(26)	 	$	
164,795	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	Additional	 	 	 	 	 	 	 	 	 	 	 	
 	 	Common Stock	 	Paid-In	 	Retained	 	Treasury Shares	 	 	 	 	
 	    	Shares	    	Amount	    	Capital	    	Earnings	 	Shares	    	Amount	 	Total	 	
 	 	 	 	
Balance at March 28, 2015	 	
25,824	 	$	
3	 	$	
128,693	 	$	
13,726	 	 —	 	$	 —	 	$	
142,422	 	
 Net loss	 	 —	 	 	 —	 	 	 —	 	 	
(1,072)	 	 —	 	 	 —	 	 	
(1,072)	 	
 Stock options exercised	 	
490	 	 	 —	 	 	
2,424	 	 	 —	 	 —	 	 	 —	 	 	
2,424	 	
 Shares forfeited, held in treasury	 	 —	 	 	 —	 	 	 —	 	 	 —	 	
(1)	 	 	 —	 	 	 —	 	
 Excess tax benefit related to stock-based compensation	 	 —	 	 	 —	 	 	
3,574	 	 	 —	 	 —	 	 	 —	 	 	
3,574	 	
 Stock-based compensation expense	 	 —	 	 	 —	 	 	
1,382	 	 	 —	 	 —	 	 	 —	 	 	
1,382	 	
Balance at September 26, 2015	 	
26,314	 	$	
3	 	$	
136,073	 	$	
12,654	 	
(1)	 	$	 —	 	$	
148,730	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents  

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW  S
(In thousands)
(Unaudited)

 	 	Twenty-Six Weeks Ended	    	
 	 	September 24,	    	September 26,	 	
 	    	2016	    	2015	 	
 	 	 	 	
Cash flows from operating activities	 	 	 	 	 	 	 	
Net income/(loss)	 	$	
1,103	 	$	
(1,072)	 	
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:	 	 	 	 	 	 	 	
Depreciation	 	 	
6,996	 	 	
4,711	 	
Stock-based compensation	 	 	
1,506	 	 	
1,382	 	
Excess tax benefit	 	 	 —	 	 	
(3,574)	 	
Amortization of intangible assets	 	 	
1,100	 	 	
1,218	 	
Amortization and write-off of debt issuance fees and debt discount	 	 	
563	 	 	
1,709	 	
Loss on disposal of property and equipment	 	 	
126	 	 	
234	 	
Accretion of above market leases	 	 	
(24)	 	 	
37	 	
Deferred taxes	 	 	
140	 	 	
(1,601)	 	
Amortization of inventory fair value adjustment	 	 	 —	 	 	
(225)	 	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	
Accounts receivable, net	 	 	
(439)	 	 	
1,165	 	
Inventories	 	 	
(14,425)	 	 	
(18,004)	 	
Prepaid expenses and other current assets	 	 	
(1,728)	 	 	
1,599	 	
Other assets	 	 	
1,128	 	 	
(1,610)	 	
Accounts payable	 	 	
7,875	 	 	
2,811	 	
Accrued expenses and other current liabilities	 	 	
(963)	 	 	
4,450	 	
Other liabilities	 	 	
3,718	 	 	
2,388	 	
Net cash provided by/(used in) operating activities	 	$	
6,676	 	$	
(4,382)	 	
Cash flows from investing activities	 	 	 	 	 	 	 	
Purchases of property and equipment	 	 	
(10,481)	 	 	
(19,695)	 	
Acquisition of business, net of cash acquired	 	 	 —	 	 	
(146,541)	 	
Net cash used in investing activities	 	$	
(10,481)	 	$	
(166,236)	 	
Cash flows from financing activities	 	 	 	 	 	 	 	
Line of credit - net	 	$	
8,168	 	$	
52,818	 	
Proceeds from loan borrowings	 	 	 —	 	 	
200,938	 	
Repayments on debt and capital lease obligations	 	 	
(1,208)	 	 	
(76,639)	 	
Debt issuance fees	 	 	 —	 	 	
(6,487)	 	
Tax withholding for net share settlement	 	 	
(26)	 	 	 —	 	
Excess tax benefit from stock options	 	 	 —	 	 	
3,574	 	
Proceeds from the exercise of stock options	 	 	
739	 	 	
2,424	 	
Net cash provided by financing activities	 	$	
7,673	 	$	
176,628	 	
Net increase in cash and cash equivalents	 	 	
3,868	 	 	
6,010	 	
Cash and cash equivalents, beginning of period	 	 	
7,195	 	 	
1,448	 	
Cash and cash equivalents, end of period	 	$	
11,063	 	$	
7,458	 	
 	 	 	 	 	 	 	 	
Supplemental disclosures of cash flow information:	 	 	 	 	 	 	 	
Cash paid for income taxes	 	$	
1,182	 	$	
2,827	 	
Cash paid for interest	 	$	
6,697	 	$	
3,957	 	
Supplemental disclosure of non-cash activities:	 	 	 	 	 	 	 	
Unpaid purchases of property and equipment	 	$	
3,712	 	$	
51	 	
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents  

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT  S
(Unaudited)
 
1.  Description of the Company and Basis of Presentation
 
Boot Barn Holdings, Inc., formerly known as WW Top Investment Corporation (the “Company”), was formed on November 17, 2011, and is incorporated in the State of Delaware. As of June 8, 2014, the Company held all of the outstanding shares of common stock of WW Holding Corporation, which held 95.0% of the outstanding shares of common stock of Boot Barn Holding Corporation. On June 9, 2014, WW Holding Corporation was merged with and into the Company and then Boot Barn Holding Corporation was merged with and into the Company (“Reorganization”). As a result of this Reorganization, Boot Barn, Inc. became a direct wholly owned subsidiary of the Company. On June 10, 2014, the legal name of the Company was changed from WW Top Investment Corporation to Boot Barn Holdings, Inc. The equity of the Company consists of 100,000,000 authorized shares and 26,496,712 issued and 26,487,002 outstanding shares of common stock as of September 24, 2016. The shares of common stock have voting rights of one vote per share.
 
The Company operates specialty retail stores that sell western and work boots and related apparel and accessories. The Company operates retail locations throughout the U.S. and sells its merchandise via the internet. The Company operated a total of 212 stores in 29 states as of September 24, 2016 and 208 stores in 29 states as of March 26, 2016. As of September 24, 2016, all stores operate under the Boot Barn name, with the exception of two stores which operate under the “American Worker” name.
 
Basis of Presentation
 
The Company’s condensed consolidated financial statements as of and for the thirteen and twenty-six weeks ended September 24, 2016 and September 26, 2015 are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”), and include the accounts of the Company and each of its subsidiaries, including Boot Barn, Inc., RCC Western Stores, Inc. (“RCC”), Baskins Acquisition Holdings, LLC (“Baskins”), Sheplers Inc. and Sheplers Holding Corporation (collectively with Sheplers, Inc., “Sheplers”) and Boot Barn International (Hong Kong) Limited (“Hong Kong”). All intercompany accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation. 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, 2017.
 
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 fiscal year ending on April 1, 2017 (“fiscal 2017”) will consist of 53 weeks; whereas, the fiscal year ended on March 26, 2016 (“fiscal 2016”) consisted of 52 weeks.
 
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 Securities and Exchange Commission (the “SEC”) on June 3, 2016. Presented below in the

7

Table of Contents  
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 consolidated financial statements and, therefore, does not separately present a statement of comprehensive income in its 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 operates in a single operating segment, which includes net sales generated from its retail stores and e-commerce websites. The vast majority of the Company’s identifiable assets are in the U.S.
 
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 consolidated financial statements are those relating to revenue recognition, 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 market. Cost is determined on a first-in, first-out basis 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 is written down to its estimated net realizable value.
 
The Company recorded a fair value adjustment of $0.2 million in the thirteen and twenty-six weeks ended September 26, 2015 to reflect the acquired cost of inventory related to its acquisition of Sheplers. The amount was amortized over the period that the related inventory was sold. The amortization of inventory costs was zero for the thirteen and twenty-six weeks ended September 24, 2016.
 
Fair Value of Certain Financial Assets and Liabilities
 
The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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.	

8

Table of Contents  

	·		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 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.	
 
Cash and cash equivalents, accounts receivable and accounts payable are valued at fair value and 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 approximate 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 5, “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 September 24, 2016.
 
Recent Accounting Pronouncements
 
In May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued a new revenue recognition standard, Accounting Standards Update (“ASU”) No. 2014‑09, Revenue From Contracts with Customers , that will supersede nearly all existing revenue recognition guidance under GAAP. The revenue recognition standard will allow for the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. On August 8, 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09 by one year, and permits early adoption as long as the adoption date is not before the original public entity effective date. The standard is effective for public entities for annual and interim periods beginning after December 15, 2017. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory . This update requires inventory within the scope of the standard to be measured at the lower of cost and net realizable value. Previous guidance required inventory to be measured at the lower of cost or market (where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin). This update is effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes . ASU No. 2015-17 eliminates the requirement to bifurcate deferred taxes between current and non-current on the balance sheet and requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. ASU No. 2015-17 is effective for public entities in annual periods beginning after December 15, 2016, and for interim periods within those annual periods. The amendments for ASU No. 2015-17 can be applied retrospectively or prospectively and early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The FASB issued this ASU to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on

9

Table of Contents  
the balance sheet for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . ASU No. 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU No. 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact the guidance will have on its consolidated financial statements.
 
3.  Business Combinations
 
On June 29, 2015, the Company completed the acquisition of Sheplers, a western lifestyle company with 25 retail locations across the United States and an e-commerce business, for a purchase price of $147.0 million (which included assumption of certain indebtedness), subject to customary adjustments (the “Sheplers Acquisition”). The primary reason for the Sheplers Acquisition was to expand the Company’s retail operations into new and existing markets and grow the Company’s e-commerce business. 
 
The Company funded the Sheplers Acquisition by refinancing approximately $172.0 million of its and Sheplers’ existing indebtedness in part with an initial borrowing of $57.0 million under a $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 a $200.0 million syndicated senior secured term loan for which GCI Capital Markets LLC (“2015 Golub Term Loan”) is agent. Borrowings under the credit agreements were initially used to pay costs and expenses related to the Sheplers Acquisition and the closing of the credit agreements, and may be used for working capital and other general corporate purposes.
 
The acquisition-date fair value of the consideration transferred totaled $149.3 million, which consisted of $147.0 million in cash and $2.3 million of a working capital adjustment, cash acquired and other adjustments. The total fair value of consideration transferred for the acquisition was allocated to the net tangible and intangible assets based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill. The goodwill and intangible assets are not deductible for income tax purposes. Such estimated fair values require management to make estimates and judgments, especially with respect to intangible assets.
 
The fair value of each intangible and fixed asset acquired through the Sheplers Acquisition was measured in accordance with ASC 820. Customer lists, furniture, fixtures, office equipment, leasehold improvements, computer equipment and warehouse equipment were all valued using the cost approach. The trade name was valued under the royalty savings income approach method and inventory was valued under the comparative sales method. All operating leases, below-market leases, capital leases and financing obligations were valued under either the cost or income approach. Such fair values were determined using Level 3 inputs.

10

Table of Contents  

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date based on the purchase price allocation:

    	 	At June 29, 2015	 	
 	    	(in thousands)	 	
Assets acquired:	 	 	 	 	
Cash	 	$	
2,762	 	
Accounts receivable	 	 	
1,792	 	
Inventory	 	 	
30,436	 	
Prepaid expenses and other current assets	 	 	
17,711	 	
Property and equipment	 	 	
10,744	 	
Properties under capital lease and financing transactions	 	 	
10,528	 	
Intangible - below-market leases	 	 	
500	 	
Intangible - trade name	 	 	
9,200	 	
Intangible - customer lists	 	 	
488	 	
Goodwill	 	 	
99,998	 	
Other assets	 	 	
128	 	
Total assets acquired	 	$	
184,287	 	
 	 	 	 	 	
Liabilities assumed:	 	 	 	 	
Accounts payable	 	$	
14,554	 	
Accrued liabilities and other payables	 	 	
5,065	 	
Accrued customer liabilities	 	 	
1,318	 	
Deferred tax liability	 	 	
1,226	 	
Capital lease and financing transactions	 	 	
8,853	 	
Other liabilities	 	 	
3,968	 	
Total liabilities assumed	 	 	
34,984	 	
Net Assets acquired	 	$	
149,303	 	
 
Definite-lived intangible assets are recorded at their fair value as of the acquisition date with amortization computed utilizing the straight-line method over the assets’ estimated useful lives. The period of amortization for these below-market leases is 8 to 12 years and for customer lists is three years. The trade name is an indefinite-lived intangible asset and is not amortized but instead is measured for impairment at least annually, or when events indicate that impairment may exist.
 
The Company incurred $0.9 million of acquisition-related costs in fiscal 2016 related to the acquisition of Sheplers, which are recorded in “Acquisition-related expenses” in the condensed consolidated statements of operations for the twenty-six weeks ended September 26, 2015.

11

Table of Contents  

Supplemental Pro Forma Data 
 
 The as adjusted net sales and net loss below give effect to the Sheplers Acquisition as if it had been consummated on March 30, 2014, the first day of the Company’s 2015 fiscal year. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Sheplers to reflect the effects of amortization of purchased intangible assets and acquired inventory valuation step-down, refinanced debt and capital lease and financing transactions as of March 30, 2014 in order to complete the acquisition, and income tax expense. The adjustments are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances. Pre-acquisition net sales and net loss numbers for Sheplers are derived from their books and records prepared prior to the acquisition and are not verified by the Company. This as adjusted data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place as of the date noted above.

 	 	 	 	Twenty-Six Weeks Ended	 	
 	 	 	 	September 26,	 	
 	    	 	    	2015	    	
(in thousands)	    	 	 	    	 	    	    	
As adjusted net sales	 	 	 	 	$	
258,644	 	
As adjusted net loss	 	 	 	 	$	
(4,680)	 	

 

4.  Intangible Assets, Net
 
Net intangible assets as of September 24, 2016 and March 26, 2016 consisted of the following:

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	September 24, 2016	 	
 	 	Gross	    	 	 	    	 	 	    	Weighted	 	
 	 	Carrying	 	Accumulated	 	 	 	 	Average	 	
 	    	Amount	    	Amortization	    	Net	    	Useful Life	 	
 	 	(in thousands, except for weighted average useful life)	 	
Customer lists	 	$	
7,788	 	$	
(6,864)	 	$	
924	 	
4.9	 	
Non-compete agreements	 	 	
1,290	 	 	
(1,101)	 	 	
189	 	
4.9	 	
Below-market leases	 	 	
5,248	 	 	
(1,977)	 	 	
3,271	 	
9.2	 	
Total definite lived	 	 	
14,326	 	 	
(9,942)	 	 	
4,384	 	 	 	
Trademarks—indefinite lived	 	 	
59,377	 	 	 —	 	 	
59,377	 	 	 	
Total intangible assets	 	$	
73,703	 	$	
(9,942)	 	$	
63,761	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	March 26, 2016	 	
 	 	Gross	 	 	 	 	 	 	 	Weighted	 	
 	 	Carrying	 	Accumulated	 	 	 	 	Average	 	
 	    	Amount	    	Amortization	    	Net	    	Useful Life	 	
 	 	(in thousands, except for weighted average useful life)	 	
Customer lists	 	$	
7,788	 	$	
(6,172)	 	$	
1,616	 	
4.9	 	
Non-compete agreements	 	 	
1,290	 	 	
(968)	 	 	
322	 	
4.9	 	
Below-market leases	 	 	
5,248	 	 	
(1,702)	 	 	
3,546	 	
9.4	 	
Total definite lived	 	 	
14,326	 	 	
(8,842)	 	 	
5,484	 	 	 	
Trademarks—indefinite lived	 	 	
59,377	 	 	 —	 	 	
59,377	 	 	 	
Total intangible assets	 	$	
73,703	 	$	
(8,842)	 	$	
64,861	 	 	 	
 
Amortization expense for intangible assets totaled $0.5 million for the thirteen weeks ended September 24, 2016 and $0.6 million for the thirteen weeks ended September 26, 2015, and is included in selling, general and administrative expenses.

12

Table of Contents  

Amortization expense for intangible assets totaled $1.1 million for the twenty-six weeks ended September 24, 2016 and $1.2 million for the twenty-six weeks ended September 26, 2015, and is included in selling, general and administrative expenses. 
 
As of September 24, 2016, estimated future amortization of intangible assets was as follows:

Fiscal Year	    	(in thousands)	 	
2017	    	$	
923	 	
2018	 	 	
966	 	
2019	 	 	
500	 	
2020	 	 	
388	 	
2021	 	 	
314	 	
Thereafter	 	 	
1,293	 	
Total	 	$	
4,384	 	
 
The Company performs its annual goodwill impairment test on the first day of the fourth fiscal quarter, or more frequently if it believes that indicators of impairment exist. As of September 24, 2016, the Company had identified no indicators of impairment with respect to its goodwill, intangible and long-lived asset balances.
 
5.  Revolving Credit Facilities and Long-Term Debt
 
On June 29, 2015, the Company, as guarantor, and its wholly-owned primary operating subsidiary, Boot Barn, Inc., refinanced the $150.0 million credit facility with Wells Fargo Bank, N.A. (“February 2015 Wells Fargo Credit Facility”) with the $125.0 million June 2015 Wells Fargo Revolver and the $200.0 million 2015 Golub Term Loan. 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 credit agreements were initially used to pay costs and expenses related to the Sheplers Acquisition and the closing of such credit agreements, and may be used for working capital and other general corporate purposes.
 
Borrowings under the June 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at 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 June 29, 2020, the maturity date. The amount outstanding under the June 2015 Wells Fargo Revolver as of September 24, 2016 and March 26, 2016 was $57.0 million and $48.8 million, respectively. Total interest expense incurred in the thirteen and twenty-six weeks ended September 24, 2016 on the June 2015 Wells Fargo Revolver was $0.4 million and $0.7 million, respectively, and the weighted average interest rate for the quarter ended September 24, 2016 was 1.8%.
 
Borrowings under the 2015 Golub Term Loan bear interest at per annum rates equal to, at the Company’s option, either (a) LIBOR plus an applicable margin for LIBOR loans with a LIBOR floor of 1.0%, or (b) the base rate plus an applicable margin for base rate loans. The base rate is calculated as the greater of (i) the higher of (x) the prime rate and (y) the federal funds rate plus 0.5% and (ii) the sum of one-month LIBOR plus 1.0%. The applicable margin is 4.5% for LIBOR Loans and 3.5% for base rate loans. The principal and interest on the 2015 Golub Term Loan is payable in quarterly installments ending on June 29, 2021, the maturity date. Quarterly principal payments of $500,000 are due each quarter. Total interest expense incurred in the thirteen and twenty-six weeks ended September 24, 2016 on the 2015 Golub Term Loan was $2.7 million and $5.5 million, respectively, and the weighted average interest rate for the quarter ended September 24, 2016 was 5.5%.
 
All obligations under each of the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver are unconditionally guaranteed by the Company and each of its direct and indirect domestic subsidiaries (other than certain

13

Table of Contents  
immaterial subsidiaries) which are not named as borrowers under the 2015 Golub Term Loan or the June 2015 Wells Fargo Revolver, as applicable.
 
The priority with respect to collateral under each of the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver is subject to the terms of an intercreditor agreement among the lenders under the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver.
 
Each of the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan contains customary provisions relating to mandatory prepayments, restricted payments, voluntary payments, affirmative and negative covenants, and events of default. In addition, the terms of the June 2015 Wells Fargo Revolver require the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio of at least 1.00:1.00 during such times as a covenant trigger event shall exist. The terms of the 2015 Golub Term Loan require the Company to maintain, on a consolidated basis, a maximum Consolidated Total Net Leverage Ratio as of September 24, 2016 of 4.75:1.00. As provided for in the 2015 Golub Term Loan, this ratio steps down to 4.50:1.00 as of December 24, 2016, 4.25:1.00 as of April 1, 2017, and 4.00:1:00 as of September 30, 2017 and for all subsequent periods. As of September 24, 2016, the Company was in compliance with the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan debt covenants. The June 2015 Wells Fargo Revolver and 2015 Golub Term Loan also require the Company to pay additional interest of 2.0% per annum upon triggering certain specified events of default set forth therein. For financial accounting purposes, the requirement for the Company to pay a higher interest rate upon an event of default is an embedded derivative. As of September 24, 2016, the fair value of these embedded derivatives was estimated and was not significant.
 
$150 Million Credit Facility (Wells Fargo Bank, N.A.)
 
On February 23, 2015, the Company and Boot Barn, Inc., the Company’s wholly-owned primary operating subsidiary, entered into the February 2015 Wells Fargo Credit Facility, which consisted of a $75.0 million revolving credit facility, including a $5.0 million sub-limit for letters of credit, and a $75.0 million term loan, and also provided the Company with the ability to incur additional incremental term loans of up to $50.0 million, provided that certain conditions were met, including compliance with certain covenants. On June 29, 2015, the Company repaid all outstanding borrowings under the February 2015 Wells Fargo Credit Facility and terminated such facility in connection with the refinancing discussed above.
 
Total interest expense incurred in the twenty-six weeks ended September 26, 2015 on the February 2015 Wells Fargo Credit Facility was $0.8 million and the weighted average interest rate at September 26, 2015 was 4.09%.
 
Debt Issuance Costs and Debt Discount
 
The Company paid $1.4 million of transaction fees in connection with the February 2015 Wells Fargo Credit Facility. These transaction fees were paid to both Wells Fargo and other advisors via a reduction in the proceeds from the February 2015 Wells Fargo Credit Facility and were accounted for as debt issuance costs and a debt discount at March 28, 2015. On June 29, 2015, the February 2015 Wells Fargo Credit Facility was repaid when the new financing was obtained, and the $1.4 million remaining debt issuance costs and debt discounts were written off to interest expense.
 
Debt issuance costs totaling $0.9 million were incurred under the June 2015 Wells Fargo Revolver and are included as assets on the condensed consolidated balance sheets in prepaid expenses and other current assets. Total debt issuance costs were $0.7 million and $0.8 million as of September 24, 2016 and March 26, 2016, respectively. These amounts are being amortized to interest expense over the term of the June 2015 Wells Fargo Revolver.
 
Debt issuance costs and debt discount totaling $5.6 million were incurred under the 2015 Golub Term Loan and are included as a reduction of the current and non-current note payable on the condensed consolidated balance sheets. Total debt issuance costs and debt discount were $4.4 million and $4.9 million as of September 24, 2016 and March 26, 2016, respectively. These amounts are being amortized to interest expense over the term of the 2015 Golub Term Loan.

14

Table of Contents  

The following sets forth the balance sheet information related to the term loan:

 	 	 	 	 	 	 	 	
 	 	September 24,	 	March 26,	 	
(in thousands)	    	2016	      	2016	 	
Term Loan	 	$	
197,500	 	$	
198,500	 	
Unamortized value of the debt issuance costs and debt discount	 	 	
(4,411)	 	 	
(4,886)	 	
Net carrying value	 	$	
193,089	 	$	
193,614	 	
 
Total amortization expense of $0.3 million and $0.6 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 and twenty-six weeks ended September 24, 2016, respectively.
 
Total amortization expense of $0.3 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 and twenty-six weeks ended September 26, 2015.
 
Aggregate Contractual Maturities
 
Aggregate contractual maturities for the Company’s long-term debt as of September 24, 2016 are as follows:

Fiscal Year	 	 	(in thousands)	 	
2017	    	$	
1,000	 	
2018	 	 	
2,000	 	
2019	 	 	
2,000	 	
2020	 	 	
2,000	 	
2021	 	 	
2,000	 	
Thereafter	 	 	
188,500	 	
Total	 	$	
197,500	 	

 
6.  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. As of September 24, 2016, all awards granted by the Company under the 2011 Plan have been 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”). 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 September 24, 2016, all   awards granted by the Company under the 2014 Plan to date have been nonqualified stock options, restricted stock awards or restricted stock units. Options granted under the 2014 Plan have a life of eight years and vest over service periods of five years or in connection with certain events as defined by the 2014 Plan. Restricted stock awards granted vest over one or four years, as determined by the Compensation Committee of the Board of Directors. Restricted stock units vest over service periods of one or five years, as determined by the Compensation Committee of the Board of Directors.
 
Non-Qualified Stock Options
 
During the thirteen weeks ended September 24, 2016, the Company did not grant options to purchase shares under the 2014 Plan.

15

Table of Contents  

During the twenty-six weeks ended September 24, 2016, the Company granted certain members of management options to purchase a total of 560,892 shares under the 2014 Plan. The total grant date fair value of stock options granted during the twenty-six weeks ended September 24, 2016 was $1.5 million, with grant date fair values ranging from $2.50 to $2.95 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the five-year service period of the awards. The exercise prices of these awards range between $7.11 and $8.38 per share.
 
During the thirteen weeks ended September 26, 2015, the Company granted certain members of management options to purchase a total of 10,540 shares under the 2014 Plan.  The total grant date fair value of stock options granted during the thirteen weeks ended September 26, 2015 was $0.1 million, with a grant date fair value of $11.52 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the five-year service period of the awards. The exercise price of these awards was $32.02 per share.
 
During the twenty-six weeks ended September 26, 2015, the Company granted certain members of management options to purchase a total of 294,153 shares under the 2014 Plan. The total grant date fair value of stock options granted during the twenty-six weeks ended September 26, 2015 was $2.7 million, with grant date fair values ranging from $7.48 to $11.52 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the five-year service period of the awards. The exercise prices of these awards range between $22.31 and $32.02 per share.
 
On October 29, 2014, the Company granted its Chief Executive Officer (“CEO”) options to purchase 99,650 shares of common stock under the 2014 Plan. These options contain both service and market conditions. Vesting of the options occurs if the market price of the Company’s stock achieves stated targets through the third anniversary of the date of grant. As of March 26, 2016, the market price targets were achieved, and the options will vest in equal amounts on the third, fourth and fifth anniversaries of the grant date. The fair value of the options was estimated using a Monte Carlo simulation model. The following significant assumptions were used as of October 29, 2014:

 	 	 	 	 	
Stock price	    	$	
16.00	 	
Exercise price	 	$	
16.00	 	
Expected option term	 	 	
6.0	years	
Expected volatility	 	 	
55.0	%	
Risk-free interest rate	 	 	
1.8	%	
Expected annual dividend yield	 	 	
0	%	
 
The stock option awards discussed above, with the exception of options awarded to the Company’s CEO on October 29, 2014, were measured at fair value on the grant date using the Black-Scholes option valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, expected volatility of the Company’s stock price over the option’s expected term, the risk-free interest rate over the option’s expected term and the Company’s expected annual dividend yield, if any. The Company’s estimate of pre-vesting forfeitures, or forfeiture rate, was based on its internal analysis, which included the award recipients’ positions within the Company and the vesting period of the awards. The Company will issue shares of common stock when the options are exercised.

16

Table of Contents  

The fair values of stock options granted during the thirteen and twenty-six weeks ended September 24, 2016 and September 26, 2015 were estimated on the grant dates using the following assumptions:

 	 	Thirteen Weeks Ended	 	Twenty-Six Weeks Ended	    	
 	 	September 24,	 	September 26,	 	September 24,	 	September 26,	 	
 	    	2016	    	2015	  	2016	    	2015	 	
Expected option term (1)	 	 	 	 	N/A	 	 	 	 	 	
5.5	years	 	 	 	 	
5.5	years  	 	 	 	 	
5.5	years	 	
Expected volatility factor (2)	 	 	 	 	N/A	 	 	 	 	 	
36.3	%	 	
35.8	%	-	
36.0	%  	 	
33.3	%	-	
37.1	%	 	
Risk-free interest rate (3)	 	 	 	 	N/A	 	 	 	 	 	
1.6	%	 	
1.38	%	-	
1.43	%  	 	
1.6	%	-	
2.0	%	 	
Expected annual dividend yield	 	 	 	 	N/A	 	 	 	 	 	
0	%	 	 	 	 	
0	%	 	 	 	 	
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 competitors’ common 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.	
 
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.
 
The following table summarizes the stock award activity for the twenty-six weeks ended September 24, 2016:

 	    	 	    	 	 	    	Weighted	    	 	 	 	
 	 	 	 	Grant Date	 	Average	 	 	 	 	
 	 	 	 	Weighted	 	Remaining	 	Aggregate	 	
 	 	Stock	 	Average	 	Contractual	 	Intrinsic	 	
 	    	Options	    	Exercise Price	    	Life (in Years)	    	Value	 	
 	 	 	 	 	 	 	 	 	(in thousands)	 	
Outstanding at March 26, 2016	 	
2,447,133	 	$	
9.87	 	 	 	 	 	 	
Granted	 	
560,892	 	$	
7.38	 	 	 	 	 	 	
Exercised	 	
(134,677)	 	$	
5.49	 	 	 	$	
644	 	
Cancelled, forfeited or expired	 	
(181,418)	 	$	
13.96	 	 	 	 	 	 	
Outstanding at September 24, 2016	 	
2,691,930	 	$	
9.29	 	
6.4	 	$	
9,498	 	
Vested and expected to vest after September 24, 2016	 	
2,691,930	 	$	
9.29	 	
6.4	 	$	
9,498	 	
Exercisable at September 24, 2016	 	
1,076,104	 	$	
8.15	 	
5.9	 	$	
4,186	 	
 
A summary of the status of non-vested stock options as of September 24, 2016 including changes during the twenty-six weeks ended September 24, 2016 is presented below:

 	    	 	    	Weighted-	 	
 	 	 	 	Average	 	
 	 	 	 	Grant Date	 	
 	    	Shares	    	Fair Value	 	
Nonvested at March 26, 2016	 	
1,335,103	 	$	
5.82	 	
Granted	 	
560,892	 	$	
2.60	 	
Vested	 	
(123,949)	 	$	
7.52	 	
Nonvested shares forfeited	 	
(156,220)	 	$	
6.20	 	
Nonvested at September 24, 2016	 	
1,615,826	 	$	
4.53	 	

17

Table of Contents  

Restricted Stock
 
During the thirteen and twenty-six weeks ended September 24, 2016, the Company granted 20,000 and 136,732  restricted stock units, respectively, to various directors and employees under the 2014 Plan. The shares granted to employees vest in five 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. The shares granted to the Company’s directors vest on the first anniversary of the date of grant. The grant date fair value of these awards for the thirteen and twenty-six weeks ended September 24, 2016 totaled $0.3 million and $1.1 million, respectively. 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 and twenty-six weeks ended September 26, 2015, the Company granted 2,655 and 46,201 restricted stock units, respectively, to various employees under the 2014 Plan. The shares granted to employees vest in five 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. The grant date fair value of these awards for the thirteen and twenty-six weeks ended September 26, 2015 totaled $0.1 million and $1.3 million, respectively. 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.
 
Stock-Based Compensation Expense
 
Stock-based compensation expense was $0.8 million and $0.7 million for the thirteen weeks ended September 24, 2016 and September 26, 2015, respectively. Stock-based compensation expense was $1.5 million and $1.4 million for the twenty-six weeks ended September 24, 2016 and September 26, 2015, respectively. Stock-based compensation expense of $0.1 million was recorded in cost of goods sold in the condensed consolidated statements of operations for each of the thirteen weeks ended September 24, 2016 and September 26, 2015, respectively. Stock-based compensation expense of $0.2 million was recorded in cost of goods sold in the condensed consolidated statements of operations for each of the twenty-six weeks ended September 24, 2016 and September 26, 2015, respectively. All other stock-based compensation expense is included in selling, general and administrative expenses in the condensed consolidated statements of operations.
 
As of September 24, 2016, there was $5.7 million of total unrecognized stock-based compensation expense related to unvested stock options, with a weighted-average remaining recognition period of 3.02 years. As of September 24, 2016, there was $2.2 million of total unrecognized stock-based compensation expense related to restricted stock, with a weighted-average remaining recognition period of 3.92 years.
 
7.  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 as indemnification of amounts expended by the Company’s insurers or others, if any.
 
On April 28, 2016, two employees, on behalf of themselves and all other similarly situated employees, filed a wage-and-hour class action, which includes claims for penalties under California’s Private Attorney General Act, in the Fresno County Superior Court, Case No. 16 CE CG 01330, alleging violations of California’s wage and hour, overtime, meal break and statement of wages rules and regulations among other things. The complaint seeks an unspecified amount of damages and penalties. The Company intends to defend this claim vigorously. At present, the Company cannot reasonably estimate the loss that may arise from this matter, but has recorded as of September 24, 2016 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.

18

Table of Contents  

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.
 
8.  Capital Leases and Financing Transactions
 
As of September 24, 2016, the Company had non-cancelable capital leases for property and equipment rentals with principal and interest payments due monthly. The liability under capital lease arrangements as of September 24, 2016 totals $0.9 million.
 
During fiscal 2016, the Company acquired leases related to two retail stores, two office buildings, one distribution center facility and land as part of the Sheplers Acquisition.  On July 30, 2007, Sheplers sold these properties to an unrelated third-party real estate company and simultaneously entered into an arrangement with the third-party real estate company to lease back these properties. Sheplers maintained continuing involvement in these properties such that this sale did not qualify for sale-leaseback accounting treatment. This transaction is recorded as a financing transaction with the assets and related financing obligation recorded on the balance sheet. The lease has a 20-year term expiring in 2027 and includes renewal options and certain default provisions requiring the Company to perform repairs and maintenance, make timely rent payments and insure the buildings and equipment. The liability under the financing transaction as of September 24, 2016 totals $7.6 million.
 
The total liability under capital lease and financing transactions as of September 24, 2016 is $8.5 million and is included as capital lease obligations in the condensed consolidated balance sheet. The current portion of the capital lease arrangements is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. The interest rates range from 6.1% to 11.1%.
 
The net property and equipment involved in the Company’s capital leases and financing transaction are included in property and equipment as follows:

 	 	September 24,	 	March 26,	 	
(in thousands)	    	2016	    	2016	 	
Buildings	 	$	
7,588	 	$	
7,588	 	
Land	 	 	
2,530	 	 	
2,530	 	
Site improvements	 	 	
410	 	 	
410	 	
Equipment	 	 	
63	 	 	
63	 	
Property and equipment, gross	 	 	
10,591	 	 	
10,591	 	
Less: accumulated depreciation	 	 	
(908)	 	 	
(551)	 	
Property and equipment, net	 	$	
9,683	 	$	
10,040	 	

19

Table of Contents  

As of September 24, 2016, future minimum capital lease and financing transaction payments are as follows:

Fiscal Year	 	(in thousands)	 	
2017	 	 	
641	 	
2018	 	 	
1,286	 	
2019	 	 	
1,309	 	
2020	 	 	
1,321	 	
2021	 	 	
1,346	 	
Thereafter	 	 	
8,310	 	
Total	 	 	
14,213	 	
Less: Imputed interest	 	 	
(5,748)	 	
Present value of capital leases and financing transaction	 	 	
8,465	 	
Less: Current capital leases and financing transaction	 	 	
(401)	 	
Noncurrent capital leases and financing transaction	 	$	
8,064	 	

9.  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 provision/(benefit) for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for discrete events occurring in a particular period. The income tax rate was 39.5% and 38.3% for the thirteen weeks ended September 24, 2016 and September 26, 2015, respectively, and 34.4% and 21.8% for the twenty-six weeks ended September 24, 2016 and September 26, 2015, respectively. The effective tax rate for the thirteen and twenty-six weeks ended September 24, 2016 is higher than the comparable periods in fiscal 2016 due to discrete items that decreased taxes in the thirteen and twenty-six weeks ended September 26, 2015. Because management believes that it is more likely than not that the Company will realize the full amount of the net deferred tax assets, the Company has not recorded any valuation allowance for the deferred tax assets.
 
The Company’s policy is to accrue interest and penalties related to unrecognized tax benefits as a component of income tax expense. At September 24, 2016 and March 26, 2016, 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. At September 24, 2016, the Company is not aware of tax examinations (current or potential) in any tax jurisdictions.
 
10.  Related Party Transactions
 
During the thirteen and twenty-six weeks ended September 24, 2016, the Company had capital expenditures with a specialty retail vendor in the flooring market that as of September 24, 2016 is 30.3% owned by Freeman Spogli, our majority stockholder. These capital expenditures amounted to less than $0.1 million in the thirteen and twenty-six weeks ended September 24, 2016 and were recorded as property and equipment, net on the condensed consolidated balance sheet. There were no costs incurred with this vendor in the prior year period.

20

Table of Contents  

11.  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 common shares outstanding during the period using the treasury stock method, whereby proceeds from such exercise, unamortized compensation and hypothetical excess tax benefits, if any, on share-based awards, are assumed to be used by the Company to purchase the common shares 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.
 
The components of basic and diluted earnings per share of common stock, in aggregate, for the thirteen and twenty-six weeks ended September 24, 2016 and September 26, 2015 are as follows:

 	 	Thirteen Weeks Ended	 	Twenty-Six Weeks Ended	    	
 	 	September 24,	 	September 26,	 	September 24,	 	September 26,	 	
(in thousands, except per share data)	    	2016	    	2015	    	2016	    	2015	 	
Net income /(loss)	 	$	
479	 	$	
(3,343)	 	$	
1,103	 	 	
(1,072)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average basic shares outstanding	 	 	
26,427	 	 	
26,159	 	 	
26,400	 	 	
26,012	 	
Dilutive effect of options and restricted stock	 	 	
470	 	 	 —	 	 	
336	 	 	 —	 	
Weighted average diluted shares outstanding	 	 	
26,897	 	 	
26,159	 	 	
26,736	 	 	
26,012	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings/(loss) per share	 	$	
0.02	 	$	
(0.13)	 	$	
0.04	 	$	
(0.04)	 	
Diluted earnings/(loss) per share	 	$	
0.02	 	$	
(0.13)	 	$	
0.04	 	$	
(0.04)	 	
 
Options to purchase 713,748 shares and 2,528,603 shares of common stock were outstanding during the thirteen weeks ended September 24, 2016 and September 26, 2015, respectively, but were not included in the computation of weighted average diluted common shares outstanding as the effect of doing so would have been anti-dilutive.
 
Options to purchase 1,220,740 shares and 2,528,603 shares of common stock were outstanding during the twenty-six weeks ended September 24, 2016 and September 26, 2015, respectively, but were not included in the computation of weighted average diluted common shares outstanding as the effect of doing so would have been anti-dilutive.

21

Table of Contents  

Item 2.      Management’s Discussion and Analysi  s of Financial Condition and Results of Operations
 
The following discussion and analysis of the financial condition and results of our operations should be read together with the financial statements and related notes of Boot Barn Holdings, Inc. and Subsidiaries included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on June 3, 2016 (the “Fiscal 2016 10-K”). As used in this Quarterly Report on Form 10-Q, except where the context otherwise requires or where otherwise indicated, the terms “company”, “Boot Barn”, “we”, “our” and “us” refer to Boot Barn Holdings, Inc. and its subsidiaries.
 
Cautionary Statement Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate”, “believe”, “can”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “project”, “seek”, “should”, “target”, “will”, “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. These forward-looking statements are subject to numerous risks and uncertainties, including the risks and uncertainties described under the section titled “Risk Factors” in our Fiscal 2016 10-K, those identified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.
 
We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
 
Overview
 
Management believes that Boot Barn is the largest lifestyle retail chain devoted to western and work-related footwear, apparel and accessories in the U.S. As of September 24, 2016, we operated 212 stores in 29 states, as well as an e-commerce channel, consisting of www.bootbarn.com and www.sheplers.com. Our product offering is anchored by an extensive selection of western and work boots and is complemented by a wide assortment of coordinating apparel and accessories. Our stores feature a comprehensive assortment of brands and styles, coupled with attentive, knowledgeable store associates. Many of the items that we offer are basics or necessities for our customers’ daily lives and typically represent enduring styles that are not meaningfully impacted by changing fashion trends.
 
We strive to offer an authentic, one-stop shopping experience that fulfills the everyday lifestyle needs of our customers, and as a result, many of our customers make purchases in both the western and work wear sections of our stores. We target a broad and growing demographic, ranging from passionate western and country enthusiasts, to workers seeking dependable, high-quality footwear and apparel. Our broad geographic footprint, which comprises more than twice as many stores as our nearest direct competitor that sells primarily western and work wear, provides us with significant economies of scale, enhanced supplier relationships, the ability to recruit and retain high quality store associates and the ability to reinvest in our business at levels that we believe exceed those of our competition.

22

Table of Contents  

How We Assess the Performance of Our Business
 
In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators we use to evaluate the financial condition and operating performance of our business are net sales and gross profit. In addition, we also review other important metrics, such as same store sales, new store openings, selling, general and administrative expenses, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA.
 
Net sales
 
Net sales reflect revenue from the sale of our merchandise at retail locations, as well as sales of merchandise through our e-commerce websites. We recognize revenue upon the purchase of merchandise by customers at our stores and upon delivery of the product in the case of our e-commerce websites. Net sales also include shipping and handling fees for e-commerce shipments that have been delivered to our customers. Net sales are net of returns on sales during the period as well as an estimate of returns and award redemptions expected in the future stemming from current period sales. Revenue from the sale of gift cards is deferred until the gift cards are used to purchase merchandise.
 
Our business is moderately seasonal and as a result our revenues fluctuate from quarter to quarter. In addition, our revenues in any given quarter can be affected by a number of factors including the timing of holidays, weather patterns, rodeos and country concerts. The third quarter of our fiscal year, which includes the Christmas shopping season, has historically produced higher sales and disproportionately larger operating income than the other quarters of our fiscal year. In addition, neither the western nor the work component of our business has been meaningfully impacted by fashion trends or seasonality historically. We believe that many of our customers are driven primarily by utility and brand, and our best-selling styles.
 
Same store sales
 
The term “same store sales” refers to net sales from stores that have been open at least 13 full fiscal months as of the end of the current reporting period, although we include or exclude stores from our calculation of same store sales in accordance with the following additional criteria:
 
	·		stores that are closed for five or fewer days in any fiscal month are included in same store sales;	
	·		stores that are closed temporarily, but for more than five days in any fiscal month, are excluded from same store sales beginning in the fiscal month in which the temporary closure begins until the first full month of operation once the store re-opens;	
	·		stores that are closed temporarily and relocated within their respective trade areas are included in same store sales;	
	·		stores that are permanently closed are excluded from same store sales beginning in the month preceding closure; and	
	·		acquired stores are added to same store sales beginning on the later of (a) the applicable acquisition date and (b) the first day of the first fiscal month after the store has been open for at least 13 full fiscal months regardless of whether the store has been operated under our management or predecessor management.	
 
If the criteria described above are met, then all net sales of an acquired store, excluding those net sales before our acquisition of that store, are included for the period presented. However, when an acquired store is included for the period presented, the net sales of such acquired store for periods before its acquisition are included (to the extent relevant) for purposes of calculating “same store sales growth” and illustrating the comparison between the applicable periods. Pre-acquisition net sales numbers are derived from the books and records of the acquired company, as prepared prior to the acquisition, and have not been independently verified by us.
 
In addition to retail store sales, same store sales also includes e-commerce sales, e-commerce shipping and handling revenue and actual retail store or e-commerce sales returns. We exclude gift card escheatment, provision for sales returns and estimated future loyalty award redemptions from sales in our calculation of net sales per store.

23

Table of Contents  

Measuring the change in year-over-year same store sales allows us to evaluate how our store base is performing. Numerous factors affect our same store sales, including:
 
	·		national and regional economic trends;	
	·		our ability to identify and respond effectively to regional consumer preferences;	
	·		changes in our product mix;	
	·		changes in pricing;	
	·		competition;	
	·		changes in the timing of promotional and advertising efforts;	
	·		holidays or seasonal periods; and	
	·		weather.	
 
Opening new stores is an important part of our growth strategy and we anticipate that a significant percentage of our net sales in the near future will come from stores not included in our same store sales calculation. Accordingly, same store sales are only one measure we use to assess the success of our business and growth strategy. Some of our competitors and other retailers may calculate “same” or “comparable” store sales differently than we do. As a result, data in this Quarterly Report on Form 10-Q regarding our same store sales may not be comparable to similar data made available by other retailers.
 
New store openings
 
New store openings reflect the number of stores, excluding acquired stores, that are opened during a particular reporting period. In connection with opening new stores, we incur pre-opening costs. Pre-opening costs consist of costs incurred prior to opening a new store and primarily consist of manager and other employee payroll, travel and training costs, marketing expenses, initial opening supplies and costs of transporting initial inventory and certain fixtures to store locations, as well as occupancy costs incurred from the time that we take possession of a store site to the opening of that store. Occupancy costs are included in cost of goods sold and the other pre-opening costs are included in selling, general and administrative (“SG&A”) expenses. All of these costs are expensed as incurred.
 
New stores often open with a period of high sales levels, which subsequently decrease to normalized sales volumes. In addition, we experience typical inefficiencies in the form of higher labor, advertising and other direct operating expenses, and as a result, store-level profit margins at our new stores are generally lower during the start-up period of operation. The number and timing of store openings has had, and is expected to continue to have, a significant impact on our results of operations. In assessing the performance of a new store, we review its actual sales against the sales that we projected that store to achieve at the time we initially approved its opening. We also review the actual number of stores opened in a fiscal year against the number of store openings that we included in our budget at the beginning of that fiscal year.
 
Gross profit
 
Gross profit is equal to our net sales less our cost of goods sold. Cost of goods sold includes the cost of merchandise, obsolescence and shrinkage provisions, store and warehouse occupancy costs (including rent, depreciation and utilities), inbound and outbound freight, supplier allowances, occupancy-related taxes, compensation costs for merchandise purchasing and warehouse personnel, and other inventory acquisition-related costs. These costs are significant and can be expected to continue to increase as we grow. The components of our reported cost of goods sold may not be comparable to those of other retail companies, including our competitors.
 
Our gross profit generally follows changes in net sales. We regularly analyze the components of gross profit, as well as gross profit as a percentage of net sales. Specifically, we examine the initial markup on purchases, markdowns and reserves, shrinkage, buying costs, distribution costs and occupancy costs. Any inability to obtain acceptable levels of initial markups, a significant increase in our use of markdowns or in inventory shrinkage, or a significant increase in freight and other inventory acquisition costs, could have an adverse impact on our gross profit and results of operations.

24

Table of Contents  

Gross profit is also impacted by shifts in the proportion of sales of our private brand products compared to third-party brand products, as well as by sales mix changes within and between brands and major product categories such as footwear, apparel or accessories.
 
Selling, general and administrative expenses
 
Our SG&A expenses are composed of labor and related expenses, other operating expenses and general and administrative expenses not included in cost of goods sold. Specifically, our SG&A expenses include the following:
 
Labor and related expenses —Labor and related expenses include all store-level salaries and hourly labor costs, including salaries, wages, benefits and performance incentives, labor taxes and other indirect labor costs.
Other operating expenses —Other operating expenses include all operating costs, including those for advertising, marketing campaigns, operating supplies, utilities, and repairs and maintenance, as well as credit card fees and costs of third-party services.
General and administrative expenses —General and administrative expenses comprise expenses associated with corporate and administrative functions that support the development and operations of our stores, including compensation and benefits, travel expenses, corporate occupancy costs, stock compensation costs, legal and professional fees, insurance and other related corporate costs.
 
The components of our SG&A expenses may not be comparable to those of our competitors and other retailers. We expect our selling, general and administrative expenses will increase in future periods as a result of incremental share-based compensation, legal, accounting, and other compliance-related expenses associated with being a public company and increases resulting from growth in the number of our stores.
 
EBITDA and Adjusted EBITDA
 
EBITDA and Adjusted EBITDA are important financial measures used by our management, board of directors and lenders to assess our operating performance. We use EBITDA and Adjusted EBITDA as key performance measures because we believe that they facilitate operating performance comparisons from period to period by excluding potential differences primarily caused by the impact of variations from period to period in tax positions, interest expense and depreciation and amortization, as well as, in the case of Adjusted EBITDA, excluding non-cash expenses, such as stock-based compensation and the non-cash accrual for future award redemptions, and unusual or non-recurring costs and expenses that are not directly related to our operations, including acquisition-related expenses and loss on disposal of assets and contract termination costs. See “Results of Operations” below for a reconciliation of our EBITDA and Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Because EBITDA and Adjusted EBITDA facilitate internal comparisons of our historical operating performance on a more consistent basis, we also use EBITDA and Adjusted EBITDA (or some variations thereof) for business planning purposes, in calculating covenant compliance for our credit facilities, in determining incentive compensation for members of our management and in evaluating acquisition opportunities. In addition, we believe that EBITDA and Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities. Given that EBITDA and Adjusted EBITDA are measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate EBITDA and Adjusted EBITDA in a different manner than we calculate these measures.
 
Critical Accounting Policies and Estimates
 
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as the related disclosures of contingent assets and liabilities at the date of the financial statements. A summary of our significant accounting policies is included in Note 2 to our consolidated financial statements included in the Fiscal 2016 10-K.

25

Table of Contents  

Certain of our accounting policies and estimates are considered critical, as these policies and estimates are the most important to the depiction of our consolidated financial statements and require significant, difficult or complex judgments, often about the effect of matters that are inherently uncertain. Such policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Fiscal 2016 10-K. As of the date of this filing, there were no significant changes to any of the critical accounting policies and estimates described in the Fiscal 2016 10-K.
 
Results of Operations
 
We operate on a fiscal calendar that results in a 52- or 53-week fiscal year ending on the last Saturday of March unless April 1st is a Saturday, in which case the fiscal year ends on April 1st. In a 52-week fiscal year, each quarter includes thirteen weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include thirteen weeks of operations and the fourth quarter includes fourteen weeks of operations. The fiscal year ending on April 1, 2017 (“fiscal 2017”) will consist of 53 weeks; whereas, the fiscal year ended on March 26, 2016 (“fiscal 2016”) consisted of   52 weeks. We identify our fiscal years by reference to the calendar year in which the fiscal year ends.

26

Table of Contents  

The following table summarizes key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales:

 	 	Thirteen Weeks Ended	 	Twenty-Six Weeks Ended	 	
 	 	September 24,	    	September 26,	    	September 24,	    	September 26,	 	
(dollars in thousands)	    	2016	    	2015	    	2016	    	2015	 	
Condensed Consolidated Statements of Operations Data (Unaudited):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	
133,969	 	$	
129,712	 	$	
267,382	 	$	
225,712	 	
Cost of goods sold	 	 	
97,523	 	 	
94,064	 	 	
190,187	 	 	
159,285	 	
Amortization of inventory fair value adjustment	 	 	 —	 	 	
(225)	 	 	 —	 	 	
(225)	 	
Total cost of goods sold	 	 	
97,523	 	 	
93,839	 	 	
190,187	 	 	
159,060	 	
Gross profit	 	 	
36,446	 	 	
35,873	 	 	
77,195	 	 	
66,652	 	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	
32,003	 	 	
36,284	 	 	
68,302	 	 	
61,337	 	
Acquisition-related expenses	 	 	 —	 	 	 —	 	 	 —	 	 	
891	 	
Total operating expenses	 	 	
32,003	 	 	
36,284	 	 	
68,302	 	 	
62,228	 	
Income/(loss) from operations	 	 	
4,443	 	 	
(411)	 	 	
8,893	 	 	
4,424	 	
Interest expense, net	 	 	
3,651	 	 	
5,003	 	 	
7,211	 	 	
5,794	 	
Income/(loss) before income taxes	 	 	
792	 	 	
(5,414)	 	 	
1,682	 	 	
(1,370)	 	
Income tax expense/(benefit)	 	 	
313	 	 	
(2,071)	 	 	
579	 	 	
(298)	 	
Net income/(loss)	 	$	
479	 	$	
(3,343)	 	$	
1,103	 	$	
(1,072)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Percentage of Net Sales (Unaudited):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	 	
100.0	%  	 	
100.0	%  	 	
100.0	%  	 	
100.0	%  	
Cost of goods sold	 	 	
72.8	%  	 	
72.5	%  	 	
71.1	%  	 	
70.6	%  	
Amortization of inventory fair value adjustment	 	 	 —	%  	 	
(0.2)	%  	 	 —	%  	 	
(0.1)	%  	
Total cost of goods sold	 	 	
72.8	%  	 	
72.3	%  	 	
71.1	%  	 	
70.5	%  	
Gross profit	 	 	
27.2	%  	 	
27.7	%  	 	
28.9	%  	 	
29.5	%  	
Operating expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative expenses	 	 	
23.9	%  	 	
28.0	%  	 	
25.5	%  	 	
27.2	%  	
Acquisition-related expenses	 	 	 —	%  	 	 —	%  	 	 —	%  	 	
0.4	%  	
Total operating expenses	 	 	
23.9	%  	 	
28.0	%  	 	
25.5	%  	 	
27.6	%  	
Income/(loss) from operations	 	 	
3.3	%  	 	
(0.3)	%  	 	
3.4	%  	 	
1.9	%  	
Interest expense, net	 	 	
2.7	%  	 	
3.9	%  	 	
2.7	%  	 	
2.6	%  	
Income/(loss) before income taxes	 	 	
0.6	%  	 	
(4.2)	%  	 	
0.7	%  	 	
(0.7)	%  	
Income tax expense/(benefit)	 	 	
0.2	%  	 	
(1.6)	%  	 	
0.2	%  	 	
(0.1)	%  	
Net income/(loss)	 	 	
0.4	%  	 	
(2.6)	%  	 	
0.5	%  	 	
(0.6)	%  	

27

Table of Contents  

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

 	 	Thirteen Weeks Ended	 	Twenty-Six Weeks Ended	    	
 	 	September 24,	 	September 26,	 	September 24,	 	September 26,	 	
(in thousands)	    	2016	    	2015	    	2016	    	2015	 	
EBITDA Reconciliation (Unaudited):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income/(loss)	 	$	
479	 	$	
(3,343)	 	$	
1,103	 	$	
(1,072)	 	
Income tax expense/(benefit)	 	 	
313	 	 	
(2,071)	 	 	
579	 	 	
(298)	 	
Interest expense, net	 	 	
3,651	 	 	
5,003	 	 	
7,211	 	 	
5,794	 	
Depreciation and intangible asset amortization	 	 	
4,017	 	 	
3,292	 	 	
8,096	 	 	
5,929	 	
EBITDA	 	 	
8,460	 	 	
2,881	 	 	
16,989	 	 	
10,353	 	
Non-cash stock-based compensation (a)	 	 	
750	 	 	
730	 	 	
1,506	 	 	
1,382	 	
Non-cash accrual for future award redemptions (b)	 	 	
133	 	 	
88	 	 	
175	 	 	
(160)	 	
Acquisition-related expenses (c)	 	 	 —	 	 	 —	 	 	 —	 	 	
891	 	
Acquisition-related integration costs (d)	 	 	 —	 	 	
5,368	 	 	 —	 	 	
5,368	 	
Amortization of inventory fair value adjustment (e)	 	 	 —	 	 	
(225)	 	 	 —	 	 	
(225)	 	
Loss on disposal of assets and contract termination costs (f)	 	 	
126	 	 	
1,042	 	 	
185	 	 	
1,053	 	
Adjusted EBITDA	 	$	
9,469	 	$	
9,884	 	$	
18,855	 	$	
18,662	 	

	(a)		Represents non-cash compensation expenses related to stock options, restricted stock awards and restricted stock units granted to certain of our employees and directors.	
	(b)		Represents the non-cash accrual for future award redemptions in connection with our customer loyalty program.	
	(c)		Includes direct costs and fees related to the Sheplers Acquisition.	
	(d)		Represents certain store integration, remerchandising, inventory obsolescence and corporate consolidation costs incurred in connection with the integration of Sheplers, which we acquired in June 2015. Includes an adjustment to normalize the gross margin impact of sales of discontinued inventory from Sheplers, which was sold at a discount or written off. The adjustment assumes such inventory was sold at Sheplers’ normalized margin rate.	
	(e)		Represents the amortization of purchase-accounting adjustments that decreased the value of inventory acquired to its fair value.	
	(f)		Represents loss on disposal of assets and contract termination costs from store closures and unused office and warehouse space.	
 
The following table presents store operating data for the periods indicated:

 	 	 	Thirteen Weeks Ended	 	 	Twenty-Six Weeks Ended	 	
 	 	September 24,	 	September 26,	 	September 24,	 	September 26,	 	
 	    	2016	    	2015	    	2016	    	2015	       	
Selected Store Data (Unaudited):	 	 	 	 	 	 	 	 	 	 	 	 	 	
Same Store Sales growth	 	 	
1.8	%	 	
0.1	%	 	
1.1	%	 	
2.4	%	
Stores operating at end of period	 	 	
212	 	 	
201	 	 	
212	 	 	
201	 	
Total retail store square footage, end of period (in thousands)	 	 	
2,426	 	 	
2,420	 	 	
2,426	 	 	
2,420	 	
Average store square footage, end of period	 	 	
11,445	 	 	
12,041	 	 	
11,445	 	 	
12,041	 	
Average net sales per store (in thousands)	 	$	
527	 	$	
553	 	$	
1,053	 	$	
1,010	 	
 
Thirteen Weeks Ended September 24, 2016 Compared to Thirteen Weeks Ended September 26, 2015
 
Net sales. Net sales increased $4.3 million, or 3.3%, to $134.0 million for the thirteen weeks ended September 24, 2016 from $129.7 million for the thirteen weeks ended September 26, 2015. The increase in net sales was the result of 13 new stores opened between the beginning of the third quarter of fiscal 2016 and the end of the second quarter of fiscal

28

Table of Contents  
2017 and an increase of 1.8% in consolidated same store sales during the thirteen weeks ended September 24, 2016. This consolidated same store sales growth was partially offset by the closure of eight stores over the last 15 months, including six low-volume Sheplers stores.
 
Gross profit. Gross profit increased $0.5 million, or 1.6%, to $36.4 million for the thirteen weeks ended September 24, 2016 from $35.9 million for the thirteen weeks ended September 26, 2015. The gross profit increase was primarily attributable to acquisition-related integration costs of $2.3 million incurred in the prior-year period and an increase in sales in the current year. As a percentage of net sales, gross profit was 27.2% and 27.7% for the thirteen weeks ended September 24, 2016 and September 26, 2015, respectively. The decline in gross profit rate compared to the prior year resulted primarily from increases in store occupancy costs associated with the 13 new stores opened during the last 12 months and additional depreciation expense from the rebranded Sheplers stores that was not included in the prior-year period. Also contributing to the decline in gross profit rate was an 80 basis point decline in the merchandise margin rate, resulting from higher loyalty rewards redemption, shrink, and aged inventory provision.
 
Selling, general and administrative expenses. SG&A expenses decreased $4.3 million, or 11.8%, to $32.0 million for the thirteen weeks ended September 24, 2016 from $36.3 million for the thirteen weeks ended September 26, 2015. As a percentage of net sales, SG&A was 23.9% and 28.0% for the thirteen weeks ended September 24, 2016 and September 26, 2015, respectively. The decrease is primarily due to acquisition-related integration costs and loss on disposal of assets incurred in the thirteen weeks ended September 26, 2015 that were not incurred in the thirteen weeks ended September 24, 2016 and improved expense control and a benefit from legal and contract settlements in the thirteen weeks ended September 24, 2016.
 
Income/(loss) from operations. Income from operations for the thirteen weeks ended September 24, 2016 totaled $4.4 million, an increase of $4.8 million from a loss from operations of $0.4 million for the thirteen weeks ended September 26, 2015. As a percentage of net sales, income from operations was 3.3% for the thirteen weeks ended September 24, 2016, compared to a loss from operations as a percentage of net sales of 0.3% for the thirteen weeks ended September 26, 2015. The change in income from operations was attributable to the factors noted above.
 
Interest expense, net. Interest expense, net, decreased 27.0% or $1.3 million, to $3.7 million for the thirteen weeks ended September 24, 2016 from $5.0 million for the thirteen weeks ended September 26, 2015. The decrease in interest expense, net was due to the $1.4 million write off of debt issuance costs and debt discounts in the thirteen weeks ended September 26, 2015 that did not occur in the thirteen weeks ended September 24, 2016.
 
Income tax expense. Income tax expense increased $2.4 million, to $0.3 million for the thirteen weeks ended September 24, 2016 from a $2.1 million income tax benefit for the thirteen weeks ended September 26, 2015. The increase in our income tax expense results from the $6.2 million increase in income before income taxes and a higher tax rate for the thirteen weeks ended September 24, 2016 as compared to the thirteen weeks ended September 26, 2015. Our effective tax rate was 39.5% and 38.3% for the thirteen weeks ended September 24, 2016 and September 26, 2015, respectively. The effective tax rate for the thirteen weeks ended September 24, 2016 is higher than the comparable period in fiscal 2016 due to discrete items recognized during the thirteen weeks ended September 26, 2015 that decreased taxes.
 
Net income/(loss). Net income increased $3.8 million, from a net loss of $3.3 million for the thirteen weeks ended September 26, 2015 to net income of $0.5 million for the thirteen weeks ended September 24, 2016. The increase in net income was attributable to the factors noted above.
 
Adjusted EBITDA. Adjusted EBITDA decreased $0.4 million, or 4.2%, to $9.5 million for the thirteen weeks ended September 24, 2016 from $9.9 million for the thirteen weeks ended September 26, 2015. The decrease was primarily a result of the year-over-year decline in gross profit when adjusting gross profit for acquisition-related integration costs of $2.3 million in the thirteen weeks ended September 26, 2015.

29

Table of Contents  

Twenty-Six Weeks Ended September 24, 2016 Compared to Twenty-Six Weeks Ended September 26, 2015
   
Net sales. Net sales increased $41.7 million, or 18.5%, to $267.4 million for the twenty-six weeks ended September 24, 2016 from $225.7 million for the twenty-six weeks ended September 26, 2015. Net sales increased due to six months of sales contributions from Sheplers (compared to three months in the prior-year period), the opening of 13 new stores between the beginning of the third quarter of fiscal 2016 and the end of the second quarter of fiscal 2017 and a 1.1% increase in consolidated same store sales. This consolidated same store sales growth was partially offset by the closure of eight stores during the last 15 months, including six low-volume Sheplers stores.
   
Gross profit. Gross profit increased $10.5 million, or 15.8%, to $77.2 million for the twenty-six weeks ended September 24, 2016 from $66.7 million for the twenty-six weeks ended September 26, 2015. The gross profit increase was a result of increased sales, the opening of 13 new stores and the acquisition-related integration costs of $2.3 million incurred in the prior year period that were not incurred in the twenty-six weeks ended September 24, 2016. As a percentage of net sales, gross profit was 28.9% and 29.5% for the twenty-six weeks ended September 24, 2016 and September 26, 2015, respectively. The decline in gross profit rate was primarily driven by the addition of six months of historically lower-margin Sheplers sales (compared to three months in the prior-year period).
   
Selling, general and administrative expenses. SG&A expenses increased $7.0 million, or 11.4%, to $68.3 million for the twenty-six weeks ended September 24, 2016 from $61.3 million for the twenty-six weeks ended September 26, 2015. As a percentage of net sales, SG&A was 25.5% and 27.2% for the twenty-six weeks ended September 24, 2016 and September 26, 2015, respectively. The decrease in rate is primarily due to acquisition-related integration costs, and loss on disposal of assets incurred in the twenty-six weeks ended September 26, 2015 that were not incurred in the twenty-six weeks ended September 24, 2016.
   
Income from operations. Income from operations increased $4.5 million to $8.9 million for the twenty-six weeks ended September 24, 2016 from $4.4 million for the twenty-six weeks ended September 26, 2015. As a percentage of net sales, income from operations was 3.3% and 2.0% for the twenty-six weeks ended September 24, 2016 and September 26, 2015, respectively. The change in income from operations was attributable to the factors noted above.
   
Interest expense, net. Interest expense, net, increased $1.4 million, or 24.5%, to $7.2 million for the twenty-six weeks ended September 24, 2016 from $5.8 million for the twenty-six weeks ended September 26, 2015. The increase in interest expense, net was primarily the result of six months of higher outstanding debt and interest rates associated with the refinanced debt as compared to three months in the twenty-six weeks ended September 26, 2015, partially offset by a $1.4 million write-off of debt issuance costs and debt discount incurred in the prior year period.
   
Income tax expense/(benefit).  Income tax expense increased $0.9 million, to $0.6 million for the twenty-six weeks ended September 24, 2016 from a $0.3 million income tax benefit for the twenty-six weeks ended September 26, 2015. The increase in our income tax expense results from a higher tax rate and the $3.1 million increase in income before income taxes for the twenty-six weeks ended September 24, 2016 as compared to the twenty-six weeks ended September 26, 2015. Our effective tax rate was 34.4% and 21.8% for the twenty-six weeks ended September 24, 2016 and September 26, 2015, respectively. The effective tax rate for the twenty-six weeks ended September 24, 2016 is higher than the comparable period in fiscal 2016 due to discrete items recognized during the twenty-six weeks ended September 26, 2015 that decreased taxes.
 
Net income/(loss). Net income increased $2.2 million, from a net loss of $1.1 million for the twenty-six weeks ended September 26, 2015 to net income of $1.1 million for the twenty-six weeks ended September 24, 2016. The increase in net income was attributable to the factors noted above.
 
Adjusted EBITDA. Adjusted EBITDA increased $0.2 million, or 1.0%, to $18.9 million for the twenty-six weeks ended September 24, 2016 from $18.7 million for the twenty-six weeks ended September 26, 2015. The increase was primarily the result of six months of Sheplers results as compared to three months in the prior-year period and the opening of 13 new stores.

30

Table of Contents  

Liquidity and Capital Resources
 
We rely on cash flows from operating activities and our credit facility as our primary sources of liquidity. Our primary cash needs are for inventories, operating expenses, capital expenditures associated with opening new stores and remodeling or refurbishing existing stores, improvements to our distribution facilities, marketing and information technology expenditures, debt service and taxes. We have also used cash for acquisitions, the subsequent rebranding and integration of the stores acquired in those acquisitions and costs to consolidate the corporate offices. In addition to cash and cash equivalents, the most significant components of our working capital are accounts receivable, inventories, accounts payable and accrued expenses and other current liabilities. We believe that cash flows from operating activities and the availability of cash under our credit facilities or other financing arrangements will be sufficient to cover working capital requirements, anticipated capital expenditures and other anticipated cash needs for at least the next 12 months.
 
Our liquidity is moderately seasonal. Our cash requirements generally increase in our third fiscal quarter as we increase our inventory in advance of the Christmas shopping season. Our cash provided by operations increased in the twenty-six weeks ended September 24, 2016 as compared to cash used in operations in the twenty-six weeks ended September 26, 2015, primarily as a result of a $2.2 million increase in net income over the prior-year period, which reflects the change in net income after a $2.3 million increase in depreciation expense from the remodeling of the Sheplers stores beginning in the third quarter of fiscal 2016, the 13 new stores added in the last twelve months, and other capital expenditures. Additionally, there was $3.6 million of cash provided from inventories due to a reduction in purchases year-over-year.
 
During the twenty-six weeks ended September 24, 2016, we used $10.5 million in investing activities, primarily associated with capital expenditures related to store construction, improvements to our e-commerce information technology infrastructure, and the relocation of the Store Support Center in Irvine, California. We are planning to continue to open new stores, remodel and refurbish our existing stores, and make improvements to our e-commerce and information technology infrastructure, which will result in increased capital expenditures. We estimate that our total capital expenditures in fiscal 2017 will be between approximately $13.0 million and $15.0 million, net of landlord tenant allowances, and we anticipate that we will use cash flows from operations to fund these expenditures.
 
$150 Million Credit Facility (Wells Fargo Bank, N.A.)
 
On February 23, 2015, we and Boot Barn, Inc., our wholly-owned primary operating subsidiary, entered into the February 2015 Wells Fargo Credit Facility, which consisted of a $75.0 million revolving credit facility, including a $5.0 million sub-limit for letters of credit, and a $75.0 million term loan, and also provided us with the ability to incur additional incremental term loans of up to $50.0 million, provided that certain conditions were met, including compliance with certain covenants. On June 29, 2015, we repaid all outstanding borrowings under the February 2015 Wells Fargo Credit Facility and terminated such facility in connection with the refinancing discussed below.
 
Total interest expense incurred in the thirteen weeks ended September 26, 2015 on the February 2015 Wells Fargo Credit Facility was $0.8 million and the weighted average interest rate at September 26, 2015 was 4.09%.
 
June 2015 Wells Fargo Revolver and Golub Term Loan
 
On June 29, 2015, we, as guarantor, and our wholly-owned primary operating subsidiary, Boot Barn, Inc., refinanced our $150 million February 2015 Wells Fargo Credit Facility with the $125 million June 2015 Wells Fargo Revolver and $200 million 2015 Golub Term Loan. Borrowings under the credit agreements were initially used to pay costs and expenses related to the acquisition and the closing of the new credit agreements, and may be used for working capital and other general corporate purposes.
 
Borrowings under the June 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at our option, either (i) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin for LIBOR loans, or (ii) the base rate plus an applicable margin for base rate loans.  The base rate is calculated as the highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate and (c) one-month LIBOR plus 1.0%.  The applicable margin is calculated based on a pricing grid that in each case is linked to quarterly average excess availability.  For LIBOR Loans, the applicable margin

31

Table of Contents  
ranges from 1.00% to 1.25%, and for base rate loans it ranges from 0.00% to 0.25%.  We also pay a commitment fee of 0.25% per annum of the actual daily amount of the unutilized revolving loans.  The interest on the June 2015 Wells Fargo Revolver is payable in quarterly installments ending on June 29, 2020, the maturity date. The amount outstanding under the June 2015 Wells Fargo Revolver as of September 24, 2016 and March 26, 2016 was $57.0 million and $48.8 million, respectively. Total interest expense incurred in the thirteen and twenty-six weeks ended September 24, 2016 on the June 2015 Wells Fargo Revolver was $0.4 million and $0.7 million, respectively, and the weighted average interest rate for the quarter ended September 24, 2016 was 1.8%.
 
Borrowings under the 2015 Golub Term Loan bear interest at per annum rates equal to, at our option, either (a) LIBOR plus an applicable margin for LIBOR loans with a LIBOR floor of 1.0%, or (b) the base rate plus an applicable margin for base rate loans. The base rate is calculated as the greater of (i) the higher of (x) the prime rate and (y) the federal funds rate plus 0.5% and (ii) the sum of one-month LIBOR plus 1.00%. The applicable margin is 4.5% for LIBOR Loans and 3.5% for base rate loans. The principal and interest on the 2015 Golub Term Loan will be payable in quarterly installments ending on June 29, 2021, the maturity date. Quarterly principal payments of $500,000 are due for each quarter. Total interest expense incurred in the thirteen and twenty-six weeks ended September 24, 2016 on the 2015 Golub Term Loan was $2.7 million and $5.5 million, respectively, and the weighted average interest rate for the quarter ended September 24, 2016 was 5.5%.
 
All obligations under each of the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver are unconditionally guaranteed by us and each of our direct and indirect domestic subsidiaries (other than certain immaterial subsidiaries) which are not named as borrowers under the 2015 Golub Term Loan or the June 2015 Wells Fargo Revolver, as applicable.
 
The priority with respect to collateral under each of the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver is subject to the terms of an intercreditor agreement among the lenders under the 2015 Golub Term Loan and the June 2015 Wells Fargo Revolver.
 
Each of the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan contains customary provisions relating to mandatory prepayments, restricted payments, voluntary payments, affirmative and negative covenants, and events of default.  In addition, the terms of the June 2015 Wells Fargo Revolver require the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio of at least 1.00:1.00 during such times as a covenant trigger event shall exist.  The terms of the 2015 Golub Term Loan require the Company to maintain, on a consolidated basis, a maximum Consolidated Total Net Leverage Ratio as of September 24, 2016 of 4.75:1.00. As provided for in the 2015 Golub Term Loan, this ratio steps down to 4.50:1.00 as of December 24, 2016, 4.25:1.00 as of April 1, 2017, and 4.00:1:00 as of September 30, 2017 and for all subsequent periods. The June 2015 Wells Fargo Revolver and 2015 Golub Term Loan also require us to pay additional interest of 2% per annum upon triggering certain specified events of default as set forth therein. For financial accounting purposes, the requirement for us to pay a higher interest rate upon an event of default is an embedded derivative. As of September 24, 2016, the fair value of these embedded derivatives was estimated and was not significant.
 
As of September 24, 2016, we were in compliance with the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan debt covenants.
 
Cash Position and Cash Flow
 
Cash and cash equivalents were $11.1 million as of September 24, 2016 compared to $7.2 million as of March 26, 2016.

32

Table of Contents  

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

 	 	Twenty-Six Weeks Ended	 	
 	 	September 24,	    	September 26,	 	
(in thousands)	    	2016	    	2015	 	
Net cash provided by/(used in):	 	 	 	 	 	 	 	
Operating activities	 	$	
6,676	 	$	
(4,382)	 	
Investing activities	 	 	
(10,481)	 	 	
(166,236)	 	
Financing activities	 	 	
7,673	 	 	
176,628	 	
Net increase in cash	 	$	
3,868	 	$	
6,010	 	
 
Operating Activities
 
Net cash provided by operating activities was $6.7 million for the twenty-six weeks ended September 24, 2016. The significant components of cash flows provided by operating activities were net income of $1.1 million, the add-back of non-cash depreciation and amortization expense of $8.1 million, stock-based compensation expense of $1.5 million, and amortization of debt issuance fees and debt discount of $0.6 million. Other liabilities, accounts payable and accrued expenses and other current liabilities increased by $10.6 million due to the timing of payments. These increases were partially offset by an increase in inventories of $14.4 million due to the growth of the company and an increase in prepaid expenses and other current assets of $1.7 million due to the timing of payments.
 
Net cash used in operating activities was $4.4 million for the twenty-six weeks ended September 26, 2015. The significant components of cash flows used in operating activities were a net loss of $1.1 million, the add-back of non-cash depreciation and amortization expense of $5.9 million, stock-based compensation expense of $1.4 million, amortization of deferred loan fees and debt discount of $1.7 million and the excess tax benefit related to the exercise of stock options of $3.6 million. Accounts payable and accrued expenses and other current liabilities increased by $7.3 million due to increases in acquisition-related integration accruals and increases in inventory purchases. Accounts receivable decreased by $1.2 million due to collections of accounts receivable balances and prepaid expenses and other current assets decreased by $1.6 million primarily due to a decrease in prepaid rent as a result of the timing of rent payments. The above was offset by an increase in other liabilities of $2.4 million due to landlord tenant improvement allowances, an increase of $1.6 million in other assets and an increase in inventories of $18.0 million due to the growth of the company.
 
Investing Activities
 
Net cash used in investing activities was $10.5 million for the twenty-six weeks ended September 24, 2016, which was attributable to purchases of property and equipment during the period.
 
Net cash used in investing activities was $166.2 million for the twenty-six weeks ended September 26, 2015, which represents the acquisition of the Sheplers business, net of cash acquired for $146.5 million and purchases of property and equipment for $19.7 million during the period as well as.
 
Financing Activities
 
Net cash provided by financing activities was $7.7 million for the twenty-six weeks ended September 24, 2016. We increased our line of credit borrowings by $8.2 million and repaid $1.2 million on our debt and capital lease obligations during the period. We also received $0.7 million from the exercise of stock options.
 
Net cash provided by financing activities was $176.6 million for the twenty-six weeks ended September 26, 2015. We increased our loan borrowings by $200.9 million and our line of credit borrowings by $52.8 million. We paid $6.5 million of debt issuance fees related to these borrowings and repaid $76.6 million on our debt and capital lease obligations during the period. We also received $2.4 million from the exercise of stock options, and $3.6 million excess tax benefit from the exercise of those options.

33

Table of Contents  

Contractual Obligations
 
During the thirteen and twenty-six weeks ended September 24, 2016, there were no significant changes to our contractual obligations described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Fiscal 2016 10-K, other than those which occur in the normal course of business.
 
Off-Balance Sheet Arrangements
 
We are not a party to any off-balance sheet arrangements, except for operating leases and purchase obligations.
 
Implications of Being an Emerging Growth Company
 
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise generally applicable to public companies.
 
Item 3.    Quantitative and Qualitative Disclosure of Market Ris  k
 
We are subject to interest rate risk in connection with borrowings under our credit facilities, which bear interest at variable rates. As of September 24, 2016, we had $57.0 million in outstanding borrowings under the June 2015 Wells Fargo Revolver and $197.5 million under the 2015 Golub Term Loan. The annual impact of a 1.0% rate change on the outstanding total debt balance as of September 24, 2016 would be approximately $2.5 million.
 
As of September 24, 2016, there were no other material changes in the market risks described in the “Quantitative and Qualitative Disclosure of Market Risks” section of the Fiscal 2016 10-K.
 
Item 4.      Controls and Procedure  s
 
Evaluation of Disclosure Controls and Procedures
 
Our management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 24, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of September 24, 2016, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
 
Changes in Internal Control Over Financial Reporting
 
During the quarter ended September 24, 2016, no changes occurred with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

34

Table of Contents  

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

35

Table of Contents  

Part II. Other Informatio  n
 
Item 1.      Legal Proceeding  s
 
For information on legal proceedings, see Note 7, “Commitments and Contingencies”, to our unaudited financial statements included in this Quarterly Report, which information is incorporated herein by reference.
 
Item 1A.      Risk Factor  s  
 
There have been no material changes to our risk factors as set forth in “Item 1A—Risk Factors” in our Fiscal 2016 10-K.
 
Item 2.      Unregistered Sales of Equity Securities and Use of Proceed  s
 
None.
 
Item 3.      Defaults Upon Senior Securitie  s
 
None.
 
Item 4.      Mine Safety Disclosure  s
 
Not Applicable.
 
Item 5.      Other Informatio  n
 
None.

36

Table of Contents  
Item 6.      Exhibit  s

Exhibit No.	 	Description of Exhibit	
 	 	 	
31.1	 	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.	
 	 	 	
31.2	 	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.	
 	 	 	
32.1*	 	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.2*	 	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
101	 	Interactive data files from Boot Barn Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 24, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statement of Stockholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows and (v) Notes to the Condensed Consolidated Financial Statements.	

* These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

37

Table of Contents  

SIGNATURE  S
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 	Boot Barn Holdings, Inc.	
 	 	
Date: October 27, 2016	/s/ James G. Conroy	
 	James G. Conroy	
 	President and Chief Executive Officer
(Principal Executive Officer)	
 	 	
Date: October 27, 2016	/s/ Gregory V. Hackman	
 	Gregory V. Hackman	
 	Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting Officer)	

38

Table of Contents  

EXHIBIT INDEX

Exhibit No.	 	Description of Exhibit	
 	 	 	
31.1	 	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.	
 	 	 	
31.2	 	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.	
 	 	 	
32.1*	 	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.2*	 	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
101	 	Interactive data files from Boot Barn Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 24, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statement of Stockholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows and (v) Notes to the Condensed Consolidated Financial Statements.	

* These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

39

Exhibit 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, James G. Conroy, certify that:
 
	1.		I have reviewed this Quarterly Report on Form 10-Q of Boot Barn Holdings, Inc. for the quarter ended September 24, 2016;	
 
	2.		Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.	
 
	5.		The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
Date: October 27, 2016

 	/s/ James G. Conroy	
 	James G. Conroy	
 	President and Chief Executive Officer	
 	(Principal Executive Officer)	

Exhibit 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Gregory V. Hackman, certify that:
 
	1.		I have reviewed this Quarterly Report on Form 10-Q of Boot Barn Holdings, Inc. for the quarter ended September 24, 2016;	
 
	2.		Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.	
 
	5.		The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
 
Date: October 27, 2016

 	/s/ Gregory V. Hackman	
 	Gregory V. Hackman	
 	Chief Financial Officer and Secretary	
 	(Principal Financial Officer and Principal Accounting Officer)	

Exhibit 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the quarterly report of Boot Barn Holdings, Inc., (the “Company”) on Form 10-Q for the quarter ended September 24, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James G. Conroy, President and Chief Executive Officer of the Company, certify, based on my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
	(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)): and	
 
	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
 
Date:   October 27, 2016
 
 	/s/ James G. Conroy	
 	James G. Conroy	
 	President and Chief Executive Officer	
 	(Principal Executive Officer)	
 
This certification accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

Exhibit 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the quarterly report of Boot Barn Holdings, Inc., (the “Company”) on Form 10-Q for the quarter ended September 24, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory V. Hackman, Chief Financial Officer and Secretary of the Company, certify, based on my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
	(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)): and	
 
	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
 
Date: October 27, 2016

 	/s/ Gregory V. Hackman	
 	Gregory V. Hackman	
 	Chief Financial Officer and Secretary	
 	(Principal Financial Officer and Principal Accounting Officer)	
 
This certification accompanies the Report to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.