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 monitors and reviews its segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact its reportable segments. In the thirteen weeks ended September 29, 2018, as a result of the evolution of the Company’s operations and the information reviewed by the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker (“CODM”), the Company has determined it no longer operates in a single operating segment. The Company has concluded its retail stores and e-commerce websites ~~now~~ represent two operating segments. Given the similar qualitative and economic characteristics of the two operating segments, the Company’s retail stores and e-commerce websites ~~have been~~are aggregated into one reporting segment in accordance with guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting (“ASC 280”). ~~As a result of this change in the~~The Company’s ~~segment reporting, the Company’s~~ operations ~~now~~ represent two reporting units, retail stores and e-commerce, for the purpose of its goodwill impairment analysis.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Among the significant estimates affecting the Company’s 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 net realizable value. 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 at or above cost is written down to its estimated net realizable value.

Fair Value of Certain Financial Assets and Liabilities

The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which requires disclosure of the estimated fair value of certain assets and liabilities defined by the guidance as financial instruments. The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable and debt. ASC 820 defines the fair value of financial instruments as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a ~~three-~~

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~~level~~three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

·

●

Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.

·

●

Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates 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

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valuation techniques and significant management judgment or estimation. The Company’s Level 3 assets include certain acquired ~~businesses.~~

businesses and the evaluation of store impairment.

Cash and cash equivalents, accounts receivable and accounts payable are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified as Level 2 or Level 3 even though there may be certain significant inputs that are readily observable. The Company believes that the recorded value of its financial instruments approximates their current fair values because of their nature and respective relatively short maturity dates or duration.

Although market quotes for the fair value of the outstanding debt arrangements discussed in Note 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~~June 29, ~~2018.~~2019.

Recently Adopted Accounting Pronouncements

In ~~May 2014, the FASB and the International Accounting Standards Board (“IASB”) jointly issued a new revenue recognition standard, ASU No. 2014‑09,~~ ~~Revenue From Contracts with Customers~~, that supersedes nearly all existing revenue recognition guidance under GAAP. The revenue recognition standard allows 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. On August 8, 2015,February 2016, the FASB issued ASU No. ~~2015-14,~~2016-02, Leases (“ASC 842”). The FASB issued this ASU to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. Enhanced disclosures are also required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, allowing a modified retrospective approach, under which ~~deferred~~entities have the ~~effective date~~option to not restate comparative periods and instead recognize a cumulative effect adjustment to beginning retained earnings in the period of ~~ASU No. 2014-09 by one year, and permitted early adoption as long as the adoption date was not before the original public entity~~adoption. The amendments in these ASU’s are effective ~~date. The standard was effective for public entities~~ for annual periods, and interim periods within that year, beginning after December 15, ~~2017.~~2018. The standards became effective for the Company beginning March 31, 2019, the first day of its fiscal 2020 year.

As a result of the adoption of the new accounting standard, the Company elected transition-related practical expedients as accounting policies which allowed it to not reassess, as of the adoption date, (1) whether any expired or existing contracts are or contain leases, (2) the classification of any expired or existing leases, and (3) if previously capitalized initial direct costs qualify for capitalization under ASC 842. The Company ~~adopted this standard effective April 1, 2018~~elected the practical expedient option to not separate lease and non-lease components for all of its leases, and also elected the short-term lease recognition exemption that keeps leases with an initial term of 12 months or less excluded from balance sheet capitalization. This results in recognizing those lease payments in the consolidated statements of operations on a ~~modified retrospective basis.~~straight-line basis over the lease term. As of March 31, 2019, the first day of fiscal 2020, the Company recorded right-of-use (ROU) assets of $164.5 million and ROU liabilities of $179.4 million upon adoption of this standard. The ~~Company’s revenues are generated from the sale~~adoption of ~~finished products to customers. Those sales contain a single delivery element and revenue for such sales is recognized when the customer obtains control. Adoption of the~~this standard did not ~~result in any change in the timing or amount~~have a material impact on its consolidated statements of ~~revenue recognized by the Company in the thirteen~~operations and ~~twenty-six weeks ended September 29, 2018.~~consolidated statements of cash flows. Refer to “Note 8. Leases” for further discussion.

Revenue Recognition

Revenue is recorded for store sales upon the purchase of merchandise by customers. Transfer of control takes place at the point at which the customer receives and pays for the merchandise at the register. ~~E‑commerce~~E-commerce sales are recorded when control transfers to the customer, which generally occurs upon delivery of the product. Shipping and handling revenues are included in total net sales. Shipping costs incurred by the Company are included as cost of goods sold.

The Company maintains a customer loyalty program. Under the program, customers accumulate points based on purchase activity. For customers to maintain their active point balance, they must make a qualifying purchase of merchandise at least once in a 365-day period. Once a loyalty program member achieves a certain point level, the

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member earns awards that may be redeemed for credits on merchandise purchases. To redeem awards, the member must make a qualifying purchase of merchandise within 60 days of the date the award was granted. Unredeemed awards and accumulated partial points are accrued as unearned revenue until redemption or expiration and, upon redemption and expiration, as an adjustment to net sales using the relative standalone selling price method. The unearned revenue for this program is recorded in accrued expenses and other current liabilities on the consolidated balance sheets and was $2.0

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million as of June 29, 2019 and $1.7 million as of ~~September 29, 2018 and $1.9 million as of September~~June 30, ~~2017.~~2018. The following table provides a reconciliation of the activity related to the Company’s customer loyalty program:

Customer Loyalty Program


(in thousands)


September 29, 2018

September 30, 2017
Beginning balance as of March 31, 2018 and April 1, 2017, respectively

$
1,705

$
2,060
    Year-to-date provisions

2,123

2,440
    Year-to-date award redemptions

(2,117)

(2,618)
Ending balance

$
1,711

$
1,882


Customer Loyalty Program
(in thousands)		June 29, 2019		June 30, 2018
Beginning balance as of March 30, 2019 and March 31, 2018, respectively	$	1,936	$	1,705
Year-to-date provisions		1,468		1,029
Year-to-date award redemptions		(1,378)		(1,060)
Ending balance	$	2,026	$	1,674

Revenue is recorded net of estimated and actual sales returns and deductions for coupon redemptions, estimated future award redemption and other promotions. The sales return reserve reflects an estimate of sales returns based on projected merchandise returns determined through the use of historical average return percentages. The total reserve for returns is recorded in accrued expenses and other current liabilities in the consolidated balance sheets. The Company accounts for the asset and liability separately on a gross basis.

Proceeds from the sale of gift cards are deferred until the customers use the cards to acquire merchandise. Gift cards, gift certificates and store credits do not have expiration dates, and unredeemed gift cards, gift certificates and store credits are subject to state escheatment laws. Amounts remaining after escheatment are recognized in net sales in the period escheatment occurs and the liability is considered to be extinguished. The Company defers recognition of a layaway sale and its related profit to the accounting period when the customer receives the layaway merchandise. Income from the redemption of gift cards, gift card breakage, and the sale of layaway merchandise is included in net sales. The following table provides a reconciliation of the activity related to the Company’s gift card program:

Gift Card Program


(in thousands)


September 29, 2018

September 30, 2017
Beginning balance as of March 31, 2018 and April 1, 2017, respectively

$
7,857

$
7,108
    Year-to-date issued

4,057

2,631
    Year-to-date redemptions

(3,851)

(3,036)
Ending balance

$
8,063

$
6,703

~~As a result of the adoption of ASU No. 2014-09, the Company has provided incremental disaggregated revenue disclosures.~~


Gift Card Program
(in thousands)		June 29, 2019		June 30, 2018
Beginning balance as of March 30, 2019 and March 31, 2018, respectively	$	8,796	$	7,857
Year-to-date issued		2,395		1,882
Year-to-date redemptions		(2,594)		(2,020)
Ending balance	$	8,597	$	7,719

Disaggregated Revenue

The Company disaggregates net sales into the following major merchandise categories:


	Thirteen Weeks Ended		Twenty-Six Weeks Ended

					Thirteen Weeks Ended	Thirteen Weeks Ended
% of Net Sales	September 29, 2018	September 30, 2017	September 29, 2018	September 30, 2017	June 29, 2019	June 30, 2018
Footwear	53%	53%	53%	53%	52%	53%
Apparel	33%	32%	33%	31%	32%	32%
Hats, accessories and other	14%	15%	14%	16%	16%	15%
Total	100%	100%	100%	100%	100%	100%

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


	Thirteen Weeks Ended		Twenty-Six Weeks Ended

					Thirteen Weeks Ended	Thirteen Weeks Ended
% of Net Sales	September 29, 2018	September 30, 2017	September 29, 2018	September 30, 2017	June 29, 2019	June 30, 2018
Stores	84%	84%	84%	84%	86%	84%
E-commerce	16%	16%	16%	16%	14%	16%
Total	100%	100%	100%	100%	100%	100%

Recent Accounting Pronouncements

~~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 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 that year, 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. The Company currently expects that most of its operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption. Therefore, the Company expects this adoption will result in a material increase in the long-term assets and long-term liabilities on its consolidated balance sheets. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. The Company plans to adopt the standard in the first quarter of fiscal 2020 and is currently continuing its assessment, which may identify other impacts the revised standard will have on the consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment by eliminating step two from the goodwill impairment test. Under this new guidance, if the carrying amount of a reporting unit exceeds its estimated fair

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value, an impairment charge shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The amendments in this ASU are effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company plans to adopt the standard in the first quarter of fiscal 2021 and does not expect the revised standard to have a material impact on the consolidated financial statements.

3. Asset Acquisition and Business Combination

Drysdales, Inc.

On July 3, 2018, Boot Barn, Inc. completed the acquisition of assets from Drysdales, Inc. (“Drysdales”), a retailer with two stores in Tulsa, Oklahoma. As part of the transaction, Boot Barn, Inc. purchased the inventory, entered into new leases with the stores’ landlord, offered employment to the Drysdales team at both store locations and assumed certain customer credits. The primary reason for the acquisition of Drysdales was to furtherexpand the Company’s retail operations in Oklahoma. The cash consideration paid was $3.8 million.

In allocating the purchase price, the Company recorded all assets acquired and liabilities assumed at fair value. As the acquisition did not meet the definition of a business combination under FASB ASC Topic 805, Business Combinations, the Company accounted for the transaction as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets.

The Company determined the estimated fair values using Level 3 inputs after review and consideration of relevant information, including quoted market prices and estimates made by management. The inventory was valued using the comparative sales method and the customer credits were valued using the cost approach. Based on the fair value analysis of the net assets acquired and liabilities assumed, the inventory was valued at $4.2 million, and the customer credits were valued at $0.4 million.

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Lone Star Western & Casual LLC

On April 24, 2018, Boot Barn, Inc. completed the acquisition of Lone Star Western & Casual LLC (“Lone Star”), an individually owned retail company with three stores in Waxahachie, Corsicana and Athens, Texas. As part of the transaction, Boot Barn, Inc. purchased the inventory, entered into new leases with the stores’ landlord and offered employment to the Lone Star team at all three store locations. The primary reason for the acquisition of Lone Star was to furtherexpand the Company’s retail operations in Texas. The cash consideration paid for the acquisition was $4.4 million.

In allocating the purchase price, the Company recorded all assets acquired and liabilities assumed at fair value. 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 of Lone Star. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill.

~~The Company determined the estimated fair values using Level 3 inputs after review and consideration~~

11

Table of ~~relevant information, including quoted market prices and estimates made by management. The inventory was valued using the comparative sales method.~~Property and equipment, net, below and above-market leases and customer credits were valued under either the cost or income approach. 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:Contents

At June 30, 2018

(in thousands)
Assets acquired:

Inventory

$
1,872
Property & equipment, net

42
Below-market lease

92
Goodwill

2,763
Total assets acquired

$
4,769

Liabilities assumed:

Other liability - merchandise credits

$
69
Above-market lease

276
Total liabilities assumed

345
Net Assets acquired

$
4,424

4. Intangible Assets, Net and Goodwill

Net intangible assets as of ~~September~~June 29, ~~2018~~2019 and March ~~31, 2018~~30, 2019 consisted of the following:


	September 29, 2018
	Gross						Weighted
	Carrying		Accumulated				Average
	Amount		Amortization		Net		Useful Life
	(in thousands, except for weighted average useful life)

								June 29, 2019
								Gross						Weighted
								Carrying		Accumulated				Average
								Amount		Amortization		Net		Useful Life
								(in thousands, except for weighted average useful life)
Customer lists	$	1,594	$	(1,401)	$	193	3.8	$	506	$	(424)	$	82	3.0
Below-market leases		5,011		(2,754)		2,257	11.5
Trademarks—definite lived		15		(2)		13	3.0		15		(5)		10	3.0
Total definite lived		6,620		(4,157)		2,463			521		(429)		92
Trademarks—indefinite lived		60,677		—		60,677			60,677		—		60,677
Total intangible assets	$	67,297	$	(4,157)	$	63,140		$	61,198	$	(429)	$	60,769

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agent. The borrowing base of the June 2015 Wells Fargo Revolver is calculated on a monthly basis and is based on the amount of eligible credit card receivables, commercial accounts, inventory, and available reserves.

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Borrowings under the June 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at the Company’s option, either (i) London Interbank Offered Rate (“LIBOR”) plus an applicable margin for LIBOR loans, or (ii) the base rate plus an applicable margin for base rate loans. The base rate is calculated as the highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate and (c) one-month LIBOR plus 1.0%. The applicable margin is calculated based on a pricing grid that in each case is linked to quarterly average excess availability. For LIBOR Loans, the applicable margin ranges from 1.00% to 1.25%, and for base rate loans it ranges from 0.00% to 0.25%. The Company also pays a commitment fee of 0.25% per annum of the actual daily amount of the unutilized revolving loans. The interest on the June 2015 Wells Fargo Revolver is payable in quarterly installments ending on the maturity date. On May 26, 2017, the Company entered into an amendment to the June 2015 Wells Fargo Revolver (the “2017 Wells Amendment”), increasing the aggregate revolving credit facility to $135.0 million and extending the maturity date to the earlier of May 26, 2022 or 90 days prior to the previous maturity of the 2015 Golub Term Loan, which was scheduled to mature on June 29, 2021. On June 6, 2019, the Company entered into Amendment No. 3 to the Credit Agreement (the “2019 Wells Amendment”), further increasing the aggregate revolving credit facility to $165.0 million and extending the maturity date to the earlier of June 6, 2024 or 90 days prior to the maturity of the 2015 Golub Term Loan, which is currently scheduled to mature on June 29, ~~2021.~~2023. The 2019 Wells Amendment further made changes to the 2015 Wells Fargo Revolver in connection with the transition away from LIBOR as the benchmark rate. The amount outstanding under the June 2015 Wells Fargo Revolver as of ~~September~~June 29, ~~2018~~2019 and March ~~31, 2018~~30, 2019 was ~~$26.1~~$80.0 million and ~~$21.0 million,~~zero, respectively. Total interest expense incurred in the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 29, ~~2018~~2019 on the June 2015 Wells Fargo Revolver was $0.6 million and ~~$1.1~~the weighted average interest rate for the thirteen weeks ended June 29, 2019 was 3.8%. Total interest expense incurred in the thirteen weeks ended June 30, 2018 on the June 2015 Wells Fargo Revolver was $0.5 million, ~~respectively,~~ and the weighted average interest rate for the thirteen weeks ended ~~September 29,~~June 30, 2018 was 3.3%. Total interest expense incurred in the thirteen and twenty-six weeks ended September 30, 2017 on the June 2015 Wells Fargo Revolver was $0.5 million and $0.9 million, respectively, and the weighted average interest rate for the thirteen weeks ended September 30, 2017 was 2.3%3.1%.

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 for each quarter; however, on June 2, 2017, the Company prepaid $10.0 million on the 2015 Golub Term Loan, which included all of the required quarterly principal payments until the maturity date of the loan. On May 15, 2018, the Company made an additional $10.0 million prepayment on the 2015 Golub Term Loan. On June 6, 2019, the Company entered into the Third Amendment to the 2015 Golub Term Loan (the “2019 Golub Amendment”) which extended the maturity date to June 29, 2023. At the time of the Third Amendment, the company also prepaid $65.0 million of the term loan facility, reducing the outstanding principal balance to $111.5 million. The 2019 Golub Amendment further made changes to the 2015 Golub Term Loan in connection with the transition away from LIBOR as the benchmark rate. Total interest expense incurred in the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 29, ~~2018~~2019 on the 2015 Golub Term Loan was ~~$3.0~~$2.9 million ~~and $6.2 million, respectively,~~ and the weighted average interest rate for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 was ~~6.8%~~7.1%. Total interest expense incurred in the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 30, ~~2017~~2018 on the 2015 Golub Term Loan was ~~$2.7~~$3.1 million ~~and $5.5 million, respectively,~~ and the weighted average interest rate for the thirteen weeks ended ~~September~~June 30, ~~2017~~2018 was ~~5.8%~~6.8%.

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 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

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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. On May 26, 2017, the Company entered into an amendment to the 2015 Golub Term Loan (the “2017 Golub Amendment”). The 2017 Golub Amendment changed the maximum Consolidated Total Net Leverage Ratio requirements to ~~4.50:1.00 as of September 29, 2018, stepping down to~~ 4.00:1.00 as of December 29, 2018 and for all subsequent periods. The 2019 Golub Amendment maintains the same maximum Consolidated Total Net Leverage Ratio requirements. 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~~June 29, ~~2018,~~2019, the fair value of these embedded derivatives was estimated and was not significant. As

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~~of September~~June 29, ~~2018,~~2019, we were in compliance with the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan debt covenants.

Debt Issuance Costs and Debt Discount

Debt issuance costs totaling ~~$1.0~~$1.2 million were incurred under the June 2015 Wells Fargo Revolver, 2017 Wells Amendment and ~~2017~~2019 Wells Amendment and are included as assets on the condensed consolidated balance sheets in prepaid expenses and other current assets. Total unamortized debt issuance costs were ~~$0.4~~$0.5 million and ~~$0.5~~$0.3 million as of ~~September~~June 29, ~~2018~~2019 and March ~~31, 2018,~~30, 2019, 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 ~~$6.0~~$7.1 million were incurred under the 2015 Golub Term Loan, 2017 Golub Amendment and ~~2017~~2019 Golub Amendment and are included as a reduction of the current and non-current note payable on the condensed consolidated balance sheets. Total unamortized debt issuance costs and debt discount were ~~$2.8~~$3.0 million and ~~$3.3~~$2.2 million as of ~~September~~June 29, ~~2018~~2019 and March ~~31, 2018,~~30, 2019, respectively. These amounts are being amortized to interest expense over the term of the 2015 Golub Term Loan.

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


	September 29,		March 31,

					June 29,		March 30,
(in thousands)	2018		2018		2019		2019
Term Loan	$	176,500	$	186,500	$	111,500	$	176,500
Unamortized value of the debt issuance costs and debt discount		(2,755)		(3,300)		(3,036)		(2,236)
Net carrying value	$	173,745	$	183,200	$	108,464	$	174,264

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 both the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017.~~2018.

Total amortization expense of $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 both the twenty-six weeks ended September 29, 2018 and September 30, 2017.

Aggregate Contractual Maturities

Aggregate contractual maturities for the Company’s long-term debt as of ~~September~~June 29, ~~2018~~2019 are as follows:



Fiscal Year		(in thousands)		(in thousands)
2019	$	—
2020		—	$	—
2021		—		—
2022		176,500		—
2023		—		—
2024				111,500
Total	$	176,500	$	111,500

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~~June 29, ~~2018,~~2019, all awards granted by the Company under the 2011 Plan have

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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.

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On October 19, 2014, the Company approved the 2014 Equity Incentive Plan, which was amended as of August 24, 2016 (as amended, the “2014 Plan”). Following the approval of the 2014 Plan, no further grants have been made under the 2011 Plan. The 2014 Plan authorizes the Company to issue awards to employees, consultants and directors for up to a total of 3,600,000 shares of common stock. As of ~~September~~June 29, ~~2018,~~2019, all awards granted by the Company under the 2014 Plan to date have been nonqualified stock options, restricted stock awards, or restricted stock units or performance share units. Options granted under the 2014 Plan have a life of eight to ten years and vest over service periods of four or five years or in connection with certain events as defined by the 2014 Plan. Restricted stock awards granted under the 2014 Plan vest over one or four years, as determined by the Compensation Committee of our board of directors. Restricted stock units vest over service periods of one, four or five years, as determined by the Compensation Committee of our board of directors. Performance share units are subject to the vesting criteria discussed further below.

Non-Qualified Stock Options

During the thirteen weeks ended ~~September~~June 29, ~~2018,~~2019, the Company granted its Chief Executive Officer ("CEO") an option to purchase 227,273 shares of common stock under the 2014 Plan. This option contains both service and market vesting conditions. Vesting of this option is contingent upon the market price of the Company's common stock achieving three stated price targets for 30 consecutive trading days through the fourth anniversary of the date of grant. If the first market price target is met, 33% of the option granted will cliff vest on the fourth anniversary of the date of grant, with an additional 33% of the option vesting if the second market price target is met, and the last 34% of the option vesting if the final market price target is met. The total grant date fair value of this option was $2.0 million, with a grant date fair value of $8.80 per share. The Company is recognizing the expense relating to this stock option on a straight-line basis over the four-year service period. The exercise price of this award is $28.63 per share. The fair value of the option was estimated using a Monte Carlo simulation model. The following significant assumptions were used as of May 20, 2019, the date of grant:


Stock price	$	28.63
Exercise price	$	28.63
Expected option term		7.0	years
Expected volatility		35.3	%
Risk-free interest rate		2.3	%
Expected annual dividend yield		0	%

During the thirteen weeks ended June 29, 2019, the Company granted certain members of management options to purchase a total of ~~10,299~~116,952 shares under the 2014 Plan. The total grant date fair value of stock options granted during the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 was ~~$0.1~~$1.3 million, with a grant date fair value of ~~$11.11~~$11.19 per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the four-year service period of the awards. The exercise price of these awards is ~~$29.73~~$28.63 per share.

During the ~~twenty-six~~thirteen weeks ended ~~September 29,~~June 30, 2018, the Company granted certain members of management options to purchase a total of ~~264,691~~254,392 shares under the 2014 Plan. The total grant date fair value of stock options granted during the ~~twenty-six~~thirteen weeks ended ~~September 29,~~June 30, 2018 was ~~$2.4~~$2.3 million, with a grant date fair ~~values ranging from~~value of $8.90 ~~to $11.11~~ per share. The Company is recognizing the expense relating to these stock options on a straight-line basis over the four-year service period of the awards. The exercise ~~prices~~price of these awards ~~range between~~is $23.92 ~~and $29.73~~ per share.

During the thirteen weeks ended September 30, 2017, the Company granted options to purchase a total of 4,907 shares under the 2014 Plan. The total grant date fair value of stock options granted during the thirteen weeks ended September 30, 2017 was less than $0.1 million, with a grant date fair value of $2.91 per share. The Company is recognizing the expense on a straight-line basis over the five-year service period. The exercise price is $8.33 per share.

During the twenty-six weeks ended September 30, 2017, the Company granted certain members of management options to purchase a total of 392,522 shares under the 2014 Plan. The total grant date fair value of stock options granted during the twenty-six weeks ended September 30, 2017 was $0.8 million, with grant date fair values ranging from $2.11 to $2.91 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 $6.15 and $8.33 per share.

The stock option awards discussed above 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 will issue shares of common stock when the options are exercised.

1615

Table of Contents

The fair values of stock options granted during the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018 were estimated on the grant dates using the following assumptions:


	Thirteen Weeks Ended
	June 29,					June 30,
	2019					2018
Expected option term⁽¹⁾		6.3	-	7.0	years		5.3	years
Expected volatility factor⁽²⁾	35.3	%	-	35.6	%		36.1	%
Risk-free interest rate⁽³⁾				2.3	%		2.8	%
Expected annual dividend yield				0	%		0	%

Thirteen Weeks Ended

Twenty-Six Weeks Ended


September 29,

September 30,

September 29,

September 30,



2018


2017

2018

2017

Expected option term(1)

5.3
years

5.5
years

5.3
years

5.5
years

Expected volatility factor(2)

36.5
%

34.6
%

36.1
%
-
36.5
%

34.0
%
-
34.6
%

Risk-free interest rate(3)

2.8
%

1.8
%

2.8
%

1.8
%

Expected annual dividend yield

0.0
%

0.0
%

0
%

0
%

(1)

~~(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)

~~(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)

~~(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~~thirteen weeks ended ~~September~~June 29, ~~2018:~~2019:

Weighted


Grant Date

Average

Weighted

Remaining

Aggregate

Stock

Average

Contractual

Intrinsic


Options

Exercise Price

Life (in Years)

Value

(in thousands)

Outstanding at March 31, 2018

2,075,085

$
10.40

Granted

264,691

$
24.15

Exercised

(989,806)

$
8.11

$
16,421

Cancelled, forfeited or expired

(5,488)

$
13.97

Outstanding at September 29, 2018

1,344,482

$
14.78

5.9

$
18,417

Vested and expected to vest after September 29, 2018

1,344,482

$
14.78

5.9

$
18,417

Exercisable at September 29, 2018

292,930

$
17.00

4.5

$
3,389


		Grant Date		Weighted
		Weighted		Average	Aggregate
	Stock	Average		Remaining	Intrinsic
	Options	Exercise Price		Contractual Life	Value
				(in years)	(in thousands)
Outstanding at March 30, 2019	1,293,347	$	15.40
Granted	344,225	$	28.63
Exercised	(86,234)	$	14.69		$	1,569
Cancelled, forfeited or expired	(4,037)	$	30.97
Outstanding at June 29, 2019	1,547,301	$	18.35	6.4	$	26,759
Vested and expected to vest after June 29, 2019	1,547,301	$	18.35	6.4	$	26,759
Exercisable at June 29, 2019	519,266	$	15.77	4.7	$	10,318

A summary of the status of non-vested stock options as of ~~September~~June 29, ~~2018~~2019 including changes during the ~~twenty-six~~thirteen weeks ended ~~September~~June 29, ~~2018~~2019 is presented below:


		Weighted-
		Average
		Grant Date
	Shares	Fair Value
Nonvested at March 31, 2018	980,931	$	4.08

					Weighted-
					Average
					Grant Date
				Shares	Fair Value
Nonvested at March 30, 2019				917,850	$	5.48
Granted	264,691	$	8.99	344,225	$	9.61
Vested	(190,284)	$	3.72	(233,517)	$	5.11
Nonvested shares forfeited	(3,786)	$	3.25	(523)	$	8.90
Nonvested at September 29, 2018	1,051,552	$	5.38
Nonvested at June 29, 2019				1,028,035	$	6.95

17

~~Table of Contents~~

Restricted Stock Units

During the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 29, 2019, the Company granted 89,985 restricted stock units to various directors and employees under the 2014 Plan. The shares granted to employees vest in four equal annual installments beginning on the grant date, provided that the respective award recipient continues to be employed by the Company through each of those dates (subject to certain exceptions). The shares granted to the Company’s directors vest on the

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Table of Contents

first anniversary of the date of grant. The grant date fair value of these awards for the thirteen weeks ended June 29, 2019 totaled $2.6 million. The Company is recognizing the expense relating to these awards on a straight-line basis over the service period of each award, commencing on the date of grant.

During the thirteen weeks ended June 30, 2018, the Company granted ~~12,046 and 80,996~~68,950 restricted stock units ~~respectively,~~ to various directors and employees under the 2014 Plan. The shares granted to employees vest in four equal annual installments beginning on the grant date, provided that the respective award recipient continues to be employed by the Company through each of those dates. 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 29,~~June 30, 2018 totaled ~~$0.3 million and $2.0 million, respectively.~~$1.6 million. 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.

Performance Share Units

During the thirteen ~~and twenty-six~~ weeks ended ~~September 30, 2017,~~June 29, 2019, the Company granted ~~21,491 and 108,043 restricted stock~~38,546 performance share units ~~respectively,~~ to various ~~directors and~~ employees under the 2014 ~~Plan.~~ Plan with a grant date fair value of $28.63 per share.

The performance share units granted are stock-based awards in which the number of shares ~~granted to employees vest in five equal annual installments beginning~~ultimately received depends on the ~~grant date, provided that the respective award recipient continues to be employed~~Company's performance against its cumulative earnings per share target over a three-year performance period beginning March 31, 2019 and ending March 26, 2022. These performance metrics were established by the Company ~~through each of those dates. The shares granted to~~at the ~~Company’s directors vest on the first anniversary~~beginning of the ~~date~~performance period. At the end of ~~grant.~~ the performance period, the number of performance shares to be issued is fixed based upon the degree of achievement of the performance goals. If the cumulative three-year performance goals are below the threshold level, the number of performance units to vest will be 0%, if the performance goals are at the threshold level, the number of performance units to vest will be 50% of the target amounts, if the performance goals are at the target level, the number of performance units to vest will be 100% of the target amounts, and if the performance goals are at the maximum level, the number of performance units to vest will be 200% of the target amounts, each subject to continued service through the last day of the performance period (subject to certain exceptions). If performance is between threshold and target goals or between target and maximum goals, the number of performance units to vest will be determined by linear interpolation. The number of shares ultimately issued can range from 0% to 200% of the participant's target award.

The grant date fair value of ~~these awards for~~the performance share units granted during the thirteen ~~and twenty-six~~ weeks ended ~~September 30, 2017 totaled $0.2 million and $0.7 million, respectively. The Company is recognizing~~June 29, 2019 was initially measured using the Company's closing stock price on the date of grant with the resulting stock compensation expense ~~relating to these awards~~recognized on a straight-line basis over the ~~service~~three-year vesting period. The expense recognized over the vesting period ~~of each award, commencing~~is adjusted up or down on a quarterly basis based on the ~~date~~anticipated performance level during the performance period. If the performance metrics are not probable of ~~grant.~~achievement during the performance period, stock compensation expense would be reversed. The awards are forfeited if the threshold performance goals are not achieved as of the end of the performance period.

During the thirteen weeks ended June 30, 2018, the Company did not grant any performance share units.

Stock-Based Compensation Expense

Stock-based compensation expense was ~~$0.8~~$1.0 million and ~~$0.7~~$0.6 million for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017, respectively. Stock-based compensation expense was $1.4 million and $1.3 million for the twenty-six weeks ended September 29,~~ 2018, ~~and September 30, 2017,~~ respectively. Stock-based compensation expense of $0.1 million was recorded in cost of goods sold in the condensed consolidated statements of operations for both the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, 2017. Stock-based compensation expense of $0.2 million was recorded in cost of goods sold in the condensed consolidated statements of operations for both the twenty-six weeks ended September 29, 2018 and September 30, 2017.2018. All other stock-based compensation expense is included in selling, general and administrative expenses in the condensed consolidated statements of operations.

As of ~~September~~June 29, ~~2018,~~2019, there was ~~$4.5~~$6.6 million of total unrecognized stock-based compensation expense related to unvested stock options, with a weighted-average remaining recognition period of ~~3.16~~3.30 years. As of ~~September~~June 29, ~~2018,~~2019, there was ~~$3.2~~$4.6 million of total unrecognized stock-based compensation expense related to restricted stock units, with a weighted-average remaining recognition period of ~~3.10~~3.14 years. As of June 29, 2019, there was $1.3 million of total

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Table of Contents

unrecognized stock-based compensation expense related to performance share units, with a weighted-average remaining recognition period of 2.89 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 pursuant to indemnification policies or agreements, 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. On April 10, 2017, the Company reached a settlement with the employees for an amount that is not material to the consolidated financial statements. The amount of the settlement was previously accrued until payment was made to the employees in August 2018 and the liability was removed.

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. Leases

~~8. Capital Leases~~

The Company does not own any real estate. Instead, most of its retail store locations are occupied under operating leases. The store leases generally have a base lease term of five or 10 years, with one or more renewal periods of five years, on average, exercisable at the Company’s option. The Company is generally responsible for the payment of property taxes and ~~Financing Transactions~~insurance, utilities and common area maintenance fees. Some leases also require additional payments based on percentage of sales. Lease terms include the non-cancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods, termination options and purchase options.

AsOperating and finance lease ROU liabilities are recognized at the lease commencement date based on the present value of ~~September 29, 2018,~~ the ~~Company had non-cancelable capital leases~~fixed lease payments using the Company's incremental borrowing rates for ~~property~~its population of leases. Related operating and ~~equipment rentals with principal~~finance lease ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by cash payments received from landlords as lease incentives, plus any prepaid rent and ~~interest payments due monthly. The liability under capital~~other direct costs from executing the leases. Amortization of both operating and finance lease ~~arrangements as of September 29, 2018 totals $0.7 million.~~

~~During fiscal 2016, the Company acquired leases related to two retail stores, two office buildings, one distribution center facility~~ROU assets is performed on a straight-line basis and ~~land~~recorded as part of rent expense in selling, general and administrative expenses on 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~~condensed consolidated statements of operations. The interest expense amortization component of the ~~third-party real estate company to~~finance 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~~ROU liabilities is recorded within interest expense on the condensed consolidated statements of operations. ROU assets are tested for impairment in the same manner as ~~a financing transaction~~long-lived assets.

Leases with ~~the assets and related financing obligation~~an initial term of 12 months or less are not recorded on the balance ~~sheet. The lease expires in fiscal 2028 and includes renewal options and certain default provisions requiring~~sheet; the Company ~~to perform repairs~~recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense as they are incurred.

18

Table of Contents

ROU assets and ~~maintenance, make timely rent payments and insure the buildings and equipment. The liability under the financing transaction~~liabilities as of ~~September~~June 29, ~~2018 totals $6.9 million.~~2019 consist of the following:


	Balance Sheet Classification	June 29, 2019 (in thousands)
Assets
Finance lease assets	Right-of-use assets, net	$	7,887
Operating lease assets	Right-of-use assets, net		154,815
Total lease assets		$	162,702

Liabilities
Current
Finance	Right-of-use liabilities, current	$	635
Operating	Right-of-use liabilities, current		30,195
Total current lease liabilities		$	30,830

Non-Current
Finance	Right-of-use liabilities, non-current	$	6,581
Operating	Right-of-use liabilities, non-current		140,057
Total non-current lease liabilities		$	146,638
Total lease liabilities		$	177,468

Total lease cost for the thirteen weeks ended June 29, 2019 was:


		Thirteen Weeks Ended
(in thousands)	Statement of Operations Classification	June 29, 2019
Finance lease cost
Amortization of ROU assets	Cost of goods sold	$	179
Interest on ROU liabilities	Interest expense, net		188
Total finance lease cost		$	367

Operating lease cost	Cost of goods sold	$	9,094
Operating lease cost	Selling, general and administrative expenses		867
Short-term lease cost	Selling, general and administrative expenses		566
Variable lease cost	Selling, general and administrative expenses		564
Total lease cost		$	11,458

The ~~total liability under capital~~following table summarizes future lease ~~and financing transactions~~payments as of ~~September~~June 29, 2018 is $7.6 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 10.9%.2019:


	Operating Leases		Finance Leases
Fiscal Year	(in thousands)		(in thousands)
2020	$	20,250	$	1,012
2021		39,977		1,351
2022		35,329		1,364
2023		30,934		1,311
2024		24,346		1,286
Thereafter		58,447		4,278
Total		209,283		10,602
Less: Imputed interest		(39,031)		(3,386)
Present value of net lease payments	$	170,252	$	7,216

~~The net property and equipment involved in the Company’s capital leases and financing transaction are included in property and equipment as follows:~~

September 29,

March 31,

(in thousands)

2018

2018

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

(2,321)

(1,980)

Property and equipment, net

$
8,270

$
8,611

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Table of Contents

AsPrior to the Company’s adoption of ~~September 29, 2018,~~ASC 842, its future minimum ~~capital~~operating lease ~~and financing transaction payments are~~commitments as ~~follows:~~of March 30, 2019 under ASC 840 were (in thousands):



Fiscal Year	(in thousands)		Total
2019	$	651
2020		1,302	$	37,877
2021		1,326		36,352
2022		1,351		31,732
2023		1,300		26,649
2024				20,536
Thereafter		5,527		44,061
Total		11,457	$	197,207
Less: Imputed interest		(3,881)
Present value of capital leases and financing transaction		7,576
Less: Current capital leases and financing transaction		(553)
Noncurrent capital leases and financing transaction	$	7,023

The following table includes supplemental lease information:


	Thirteen Weeks Ended
Supplemental Cash Flow Information (dollars in thousands)	June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	10,026
Operating cash flows from finance leases		188
Financing cash flows from finance leases		146
	$	10,360
Lease liabilities arising from new ROU assets
Operating leases	$	5,594
Finance leases	$	—

Weighted average remaining lease term (in years)
Operating leases		8.0
Finance leases		11.5

Weighted average discount rate
Operating leases		6.4	%
Finance leases		10.3	%

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 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. On December 22, 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”) was signed into law by the President of the United States. The Act includes various changes to previously existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%, effective beginning January 1, 2018. As a result of this rate change, the Company was required to revalue its deferred tax assets and liabilities as of December 22, 2017 to account for the future impact of the lower federal corporate income tax rate. As a result of the Act, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) that allows for a measurement period up to one year after the enactment date of the Act to finalize the recording of the related tax impacts. We have not made any adjustments to the provision during the thirteen weeks or twenty-six weeks ended September 29, 2018. We are continuing to assess the final impact of the guidance which we expect to complete within the one-year time frame provided by SAB 118.

The income tax rate was ~~0.2%~~20.1% and ~~40.6%~~(18.0%) for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017, respectively, and (9.9%) and 40.1% for the twenty-six weeks ended September 29,~~ 2018, ~~and September 30, 2017,~~ respectively. The effective tax ~~rates~~rate for the thirteen ~~and twenty-six~~ weeks ended ~~September 29,~~June 30, 2018 ~~are~~is significantly lower than the comparable ~~periods~~period in fiscal ~~2018~~2020 due primarily to a ~~$1.1 million and $3.6~~$2.5 million tax benefit associated with stock option exercises and the vesting of restricted stock, respectively. Recently passed tax reform that lowered the federal corporate tax rate also contributed to the lower effective tax rate in the thirteen and twenty-six weeks ended September 29, 2018.stock. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized. To this end, the Company has considered and evaluated its sources of taxable income, including forecasted future taxable income, and the Company has concluded that a valuation allowance is primarily

20

Table of Contents

required for certain state net operating losses and credits it expects to expire unused. The Company will continue to evaluate the need for a valuation allowance at each period end.

20

~~Table of Contents~~

The Company’s policy is to accrue interest and penalties related to unrecognized tax benefits as a component of income tax expense. At ~~September~~June 29, ~~2018~~2019 and March ~~31, 2018,~~30, 2019, 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~~June 29, ~~2018,~~2019, 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~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, the Company had capital expenditures with Floor & Decor Holdings, Inc., a specialty retail vendor in the flooring market that as of September 29, 2018 is 13.0% owned by certain funds managed by Freeman Spogli & Co. During the thirteen and twenty-six weeks ended September 30, 2017, Freeman Spogli & Co. was the Company’s majority stockholder. Freeman Spogli & Co. sold all of its shares of the Company’s common stock in two secondary public offerings, one of which was completed on January 22, 2018 and the other of which was completed on May 22, 2018. As of September 29, 2018, Freeman Spogli & Co. retained representation on the Company’s board of directors. In addition, certain Company directors are also directors and/or executive officers of Floor & Decor Holdings, Inc.market. These capital expenditures amounted to less than $0.1 million in both the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017. These capital expenditures amounted to $0.2 million and $0.1 million in the twenty-six weeks ended September 29,~~ 2018, ~~and September 30, 2017, respectively,~~ and were recorded as property and equipment, net on the condensed consolidated balance sheet.Certain members of the Company’s board of directors either currently serve on the board of directors or as an executive officer at Floor & Decor Holdings, Inc.

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 shares of common stock outstanding during the period using the treasury stock method, whereby proceeds from such exercise and unamortized compensation, if any, on share-based awards, are assumed to be used by the Company to purchase the shares of common stock at the average market price during the period. The dilutive effect of stock options and restricted stock is applicable only in periods of net income. Performance share units and market-based stock option awards are excluded from the calculation of diluted earnings per share until their respective performance or market criteria has been achieved.

The components of basic and diluted earnings per share of common stock, in aggregate, for the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018 are as follows:


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	September 29,		September 30,		September 29,		September 30,

									Thirteen Weeks Ended
									June 29,		June 30,
(in thousands, except per share data)	2018		2017		2018		2017		2019		2018
Net income	$	4,534	$	1,098	$	11,295	$	1,875	$	9,721	$	6,761


Weighted average basic shares outstanding		28,119		26,608		27,861		26,584		28,380		27,604
Dilutive effect of options and restricted stock		756		342		860		376		645		938
Weighted average diluted shares outstanding		28,875		26,950		28,721		26,960		29,025		28,542


Basic earnings per share	$	0.16	$	0.04	$	0.41	$	0.07	$	0.34	$	0.24
Diluted earnings per share	$	0.16	$	0.04	$	0.39	$	0.07	$	0.33	$	0.24

Options to purchase ~~408,930~~730,581 shares and ~~2,049,351~~560,224 shares of common stock were outstanding during the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively, but were not included in the computation of weighted average diluted shares of common stock outstanding as the effect of doing so would have been anti-dilutive.

Options to purchase 465,200 shares and 1,485,256 shares of common stock were outstanding during the twenty-six weeks ended September 29, 2018 and September 30, 2017, respectively, but were not included in the computation of weighted average diluted shares of common stock outstanding as the effect of doing so would have been anti-dilutive.

21

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Item 2.Management’s Discussion and ~~Analysis~~Analysis 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 unaudited financial statements and related notes of Boot Barn Holdings, Inc. and Subsidiaries included in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and the related notes included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), on May ~~16, 2018~~24, 2019 (the “Fiscal ~~2018~~2019 10-K”). As used in this Quarterly Report on Form 10-Q, except where the context otherwise

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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 ~~2018~~2019 10-K, and those identified in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statement. We qualify all of our forward-looking statements by these cautionary statements.

We caution you that the risks and uncertainties identified by us may not be all of the factors that are important to you. Furthermore, the forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Overview

We believe that Boot Barn is the largest lifestyle retail chain devoted to western and work-related footwear, apparel and accessories in the U.S. As of ~~September~~June 29, ~~2018,~~2019, we operated ~~232~~240 stores in 3133 states, as well as ~~three~~our e-commerce ~~sites,~~websites consisting primarily of ~~www.bootbarn.com, www.sheplers.com~~bootbarn.com, sheplers.com and ~~www.countryoutfitter.com. We also operate three additional sites, consisting of www.idyllwind.com, www.wonderweststyle.com and www.shyanne.com.~~countryoutfitter.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 approximately three times as many stores as our nearest direct competitor that sells primarily western and work wear, provides us with significant economies of scale, enhanced supplier relationships, the ability to recruit and retain high

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quality store associates and the ability to reinvest in our business at levels that we believe exceed those of our competition.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators we use to evaluate the financial condition and operating performance of our business are net sales and gross profit. In addition, we also review other important metrics, such as same store sales, new store openings, and selling, general and administrative expenses, as well as the non-GAAP financial measures, earnings before interest, taxes,

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depreciation and amortization (“EBITDA”), EBITDA adjusted to exclude certain items (“Adjusted EBITDA”), and earnings before interest and taxes, adjusted to exclude certain items (“Adjusted EBIT”). See “—EBITDA, Adjusted EBITDA and Adjusted ~~EBIT.~~EBIT” below for more information and “—Results of Operations” for a reconciliation of these measures to net income.

Net sales

Net sales reflect revenue from the sale of our merchandise at retail locations, as well as sales of merchandise through our e-commerce websites. 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. However, neither the western nor the work component of our business has been meaningfully impacted by fashion trends or seasonality historically. We believe that many of our customers are driven primarily by utility and brand, and our best-selling styles.

Same store sales

The term “same store sales” refers to net sales from stores that have been open at least 13 full fiscal months as of the end of the current reporting period, although we include or exclude stores from our calculation of same store sales in accordance with the following additional criteria:

·

●

stores that are closed for five or fewer 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;~~closure (and for the comparable periods of the prior or subsequent fiscal periods for comparative purposes); and

·

●

acquired stores are added to same store sales beginning on the later of (a) the applicable acquisition date and (b) the first day of the first fiscal month after the store has been open for at least 13 full fiscal months regardless of whether the store has been operated under our management or predecessor management.

If the criteria described with respect to acquired stores above are met, then all net sales of ansuch 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. Beginning on their respective dates of acquisition, sales from the acquired Wood’s Boots stores, Lone Star stores and Drysdales stores have been included in same store sales.

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In addition to retail store sales, same store sales also includes e-commerce sales, e-commerce shipping and handling revenue and actual retail store or e-commerce sales returns. Sales as a result of an e-commerce asset acquisition, such as Country Outfitter, are excluded from ~~same-store~~same store sales until the 13th full fiscal month subsequent to the Company’s acquisition of such assets.

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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.

In calculating same stores sales, stores that were temporarily closed for more than five days in fiscal 2018 due to Hurricane Harvey have been excluded from the calculation in accordance with our policy for the closure period in fiscal 2018 and the comparable period of fiscal 2019.

Measuring the change in year-over-year same store sales allows us to evaluate how our store base is performing. Numerous factors affect our same store sales, including:

·

●

national and regional economic trends;

·

●

our ability to identify and respond effectively to regional consumer preferences;

·

●

changes in our product mix;

·

●

changes in pricing;

·

●

competition;

·

●

changes in the timing of promotional and advertising efforts;

·

●

holidays or seasonal periods; and

·

●

weather.

Opening new stores is an important part of our growth strategy and we anticipate that a percentage of our net sales in the near future will come from stores not included in our same store sales calculation. Accordingly, same store sales are only one measure we use to assess the success of our business and growth strategy. Some of our competitors and other retailers may calculate “same” or “comparable” store sales differently than we do. As a result, data in this Quarterly Report on Form 10-Q regarding our same store sales may not be comparable to similar data made available by other retailers.

New store openings

New store openings reflect the number of stores, excluding acquired stores, that are opened during a particular reporting period. In connection with opening new stores, we incur pre-opening costs. Pre-opening costs consist of costs incurred prior to opening a new store and primarily consist of manager and other employee payroll, travel and training costs, marketing expenses, initial opening supplies and costs of transporting initial inventory and certain fixtures to store locations, as well as occupancy costs incurred from the time that we take possession of a store site to the opening of that store. Occupancy costs are included in cost of goods sold and the other pre-opening costs are included in 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.

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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.

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Gross profit is also impacted by shifts in the proportion of sales of our exclusive brand products compared to third-party brand products, as well as by sales mix changes within and between brands and major product categories such as footwear, apparel or accessories.

Selling, general and administrative expenses

Our SG&A expenses are composed of labor and related expenses, other operating expenses and general and administrative expenses not included in cost of goods sold. Specifically, our SG&A expenses include the following:

Labor and related expenses—Labor and related expenses include all store-level salaries and hourly labor costs, including salaries, wages, benefits and performance incentives, labor taxes and other indirect labor costs.

Other operating expenses—Other operating expenses include all operating costs, including those for advertising, pay-per-click, marketing campaigns, operating supplies, 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~~include expenses associated with corporate and administrative functions that support the development and operations of our stores, including compensation and benefits, travel expenses, corporate occupancy costs, stock compensation costs, legal and professional fees, insurance 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~~accounting-related expenses ~~associated with being a public company~~ and increases resulting from growth in the number of our stores.

EBITDA, Adjusted EBITDA and Adjusted EBIT

EBITDA, Adjusted EBITDA and Adjusted EBIT are important non-GAAP financial measures used by our management, board of directors and lenders to assess our operating performance. We use EBITDA, Adjusted EBITDA and Adjusted EBIT 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 other costs and expenses that are not directly related to our operations, including loss on disposal of assets from store closures, store impairment charges and secondary offering costs. Similar to Adjusted EBITDA, Adjusted EBIT excludes the aforementioned adjustments while maintaining the impact of depreciation and amortization on our financial results. See “Results of Operations” below for a reconciliation of our EBITDA, Adjusted EBITDA and Adjusted EBIT to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Because EBITDA, Adjusted EBITDA and Adjusted EBIT facilitate internal comparisons of our historical operating performance on a more consistent basis, we also use EBITDA, Adjusted EBITDA and Adjusted EBIT for business planning purposes,

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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, Adjusted EBITDA and Adjusted EBIT 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, Adjusted EBITDA and Adjusted EBIT are measures not deemed to be in accordance with GAAP and are susceptible to varying calculations, our EBITDA, Adjusted EBITDA and Adjusted EBIT may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate EBITDA, Adjusted EBITDA and Adjusted EBIT 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

25

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statements. A summary of our significant accounting policies is included in Note 2 to our consolidated financial statements included in the Fiscal ~~2018~~2019 10-K.

Certain of our accounting policies and estimates are considered critical, as these policies and estimates are the most important to the depiction of our consolidated financial statements and require significant, difficult or complex judgments, often about the effect of matters that are inherently uncertain. Such policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Fiscal ~~2018~~2019 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 ~~2018~~2019 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. Both the fiscal year ending on March ~~30, 2019~~28, 2020 (“fiscal ~~2019”~~2020”) and the fiscal year ended on March ~~31, 2018~~30, 2019 (“fiscal ~~2018”~~2019”) consist of 52 weeks. We identify our fiscal years by reference to the calendar year in which the fiscal year ends.

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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
	June 29,			June 30,
(dollars in thousands)	2019			2018
Condensed Consolidated Statements of Operations Data:
Net sales	$	185,767		$	161,984
Cost of goods sold		123,611			110,537
Gross profit		62,156			51,447
Selling, general and administrative expenses		46,095			41,618
Income from operations		16,061			9,829
Interest expense, net		3,904			4,100
Other income, net		11			—
Income before income taxes		12,168			5,729
Income tax expense/(benefit)		2,447			(1,032)
Net income	$	9,721		$	6,761

Percentage of Net Sales ⁽¹⁾:
Net sales		100.0	%		100.0	%
Cost of goods sold		66.5	%		68.2	%
Gross profit		33.5	%		31.8	%
Selling, general and administrative expenses		24.8	%		25.7	%
Income from operations		8.6	%		6.1	%
Interest expense, net		2.1	%		2.5	%
Other income, net		—	%		—	%
Income before income taxes		6.6	%		3.5	%
Income tax expense/(benefit)		1.3	%		(0.6)	%
Net income		5.2	%		4.2	%

Thirteen Weeks Ended

Twenty-Six Weeks Ended

September 29,

September 30,

September 29,

September 30,

(dollars in thousands)

2018

2017

2018

2017

Condensed Consolidated Statements of Operations Data:

Net sales

$
168,109

$
143,072

$
330,093

$
282,451

Cost of goods sold

117,191

101,382

227,728

199,369

Gross profit

50,918

41,690

102,365

83,082

Selling, general and administrative expenses

42,221

36,052

83,839

72,503

Income from operations

8,697

5,638

18,526

10,579

Interest expense, net

4,153

3,789

8,253

7,447

Income before income taxes

4,544

1,849

10,273

3,132

Income tax expense/(benefit)

10

751

(1,022)

1,257

Net income

$
4,534

$
1,098

$
11,295

$
1,875

Percentage of Net Sales (1):

Net sales

100.0
%

100.0
%

100.0
%

100.0
%
Cost of goods sold

69.7
%

70.9
%

69.0
%

70.6
%
Gross profit

30.3
%

29.1
%

31.0
%

29.4
%
Selling, general and administrative expenses

25.1
%

25.2
%

25.4
%

25.7
%
Income from operations

5.2
%

3.9
%

5.6
%

3.7
%
Interest expense, net

2.5
%

2.6
%

2.5
%

2.6
%
Income before income taxes

2.7
%

1.3
%

3.1
%

1.1
%
Income tax expense/(benefit)

—
%

0.5
%

(0.3)
%

0.4
%
Net income

2.7
%

0.8
%

3.4
%

0.7
%

(1)

~~(1)~~

Percentages may not recalculate due to rounding.

26

Table of Contents

The following table presents a reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBIT 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
	June 29,		June 30,
(in thousands)	2019		2018
EBITDA Reconciliation:
Net income	$	9,721	$	6,761
Income tax expense/(benefit)		2,447		(1,032)
Interest expense, net		3,904		4,100
Depreciation and intangible asset amortization^(a)		4,802		4,431
EBITDA		20,874		14,260
Non-cash stock-based compensation^(b)		965		612
Non-cash accrual for future award redemptions^(c)		97		22
Loss on disposal of assets^(d)		12		—
Gain on adjustment of ROU asset and liability^(e)		(193)		—
Store impairment charge^(f)		—		213
Secondary offering costs^(g)		—		176
Adjusted EBITDA	$	21,755	$	15,283
Depreciation and intangible asset amortization		(4,802)		(4,431)
Adjusted EBIT	$	16,953	$	10,852

Thirteen Weeks Ended

Twenty-Six Weeks Ended

September 29,

September 30,

September 29,

September 30,
(in thousands)

2018

2017

2018

2017
EBITDA Reconciliation:

Net income

$
4,534

$
1,098

$
11,295

$
1,875
Income tax expense/(benefit)

10

751

(1,022)

1,257
Interest expense, net

4,153

3,789

8,253

7,447
Depreciation and intangible asset amortization

4,573

4,142

9,004

8,255
EBITDA

13,270

9,780

27,530

18,834
Non-cash stock-based compensation(a)

804

678

1,416

1,253
Non-cash accrual for future award redemptions(b)

92

(162)

114

(157)
Loss on disposal of assets(c)

27

47

27

61
Store impairment charge(d)

92

—

305

—
Secondary offering costs(e)

—

—

176

—
Adjusted EBITDA

$
14,285

$
10,343

$
29,568

$
19,991
Depreciation and intangible asset amortization

(4,573)

(4,142)

(9,004)

(8,255)
Adjusted EBIT

$
9,712

$
6,201

$
20,564

$
11,736

27

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(a)	~~(a)~~ The thirteen weeks ended June 29, 2019 excludes below-market lease amortization and certain asset depreciation expenses no longer recorded as amortization expense, but rent expense under ASC 842.

(b)

Represents non-cash compensation expenses related to stock options, restricted stock awards and restricted stock units granted to certain of our employees and directors.

(c)

~~(b)~~

Represents the non-cash accrual for future award redemptions in connection with our customer loyalty program.

(d)

~~(c)~~

Represents loss on disposal of assets from store closures.

(e)	~~(d)~~ Represents a gain on adjustment of a ROU asset and liability.

(f)

Represents store impairment charges recorded in order to reduce the carrying amount of the assets to their estimated fair value.

(g)

~~(e)~~

Represents professional fees and expenses incurred in connection with the May 2018 secondary offering.

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


		Thirteen Weeks Ended
	June 29,			June 30,
	2019			2018
Selected Store Data:
Same Store Sales growth		9.4	%		11.6	%
Stores operating at end of period		240			230
Total retail store square footage, end of period (in thousands)*		2,537			2,416
Average store square footage, end of period*		10,570			10,505
Average net sales per store (in thousands)	$	660		$	582

Thirteen Weeks Ended

Twenty-Six Weeks Ended

September 29,

September 30,

September 29,

September 30,


2018

2017

2018

2017

Selected Store Data:

Same Store Sales growth

11.3
%

1.8
%

11.4
%

1.5
%
Stores operating at end of period

232

222

232

222

Total retail store square footage, end of period (in thousands)

2,682

2,535

2,682

2,535

Average store square footage, end of period

11,561

11,420

11,561

11,420

Average net sales per store (in thousands)

$
602

$
533

$
1,179

$
1,058

*Note: The Company has changed the presentation of square footage to represent the estimated selling square footage in each of its stores and has presented the comparable information for the prior-year presented using the new measurement.

Thirteen Weeks Ended ~~September~~June 29, ~~2018~~2019 Compared to Thirteen Weeks Ended ~~September~~June 30, ~~2017~~2018

Net sales. Net sales increased ~~$25.0~~$23.8 million, or ~~17.5%~~14.7%, to ~~$168.1~~$185.8 million for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 from ~~$143.1~~$162.0 million for the thirteen weeks ended ~~September~~June 30, ~~2017. The~~2018. Consolidated same store sales increased 9.4%.

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Excluding the impact of the 0.9% increase in ~~net sales was the result of an increase of 11.3% in~~e-commerce same store sales, same store sales increased by 11.1%. Net sales increased during the thirteen weeks ended ~~September~~June 29, ~~2018,~~2019 due to the increase in same store sales, ~~contribution from the stores acquired from Wood’s Boots, Lone Star and Drysdales, and~~ sales from new stores added over the past twelve ~~months.~~months and the sales contribution from acquired stores.

Gross profit. Gross profit increased ~~$9.2~~$10.7 million, or ~~22.1%~~20.8%, to ~~$50.9~~$62.2 million for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 from ~~$41.7~~$51.4 million for the thirteen weeks ended ~~September~~June 30, ~~2017.~~2018. As a percentage of net sales, gross profit was ~~30.3%~~33.5% and ~~29.1%~~31.8% for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively. Gross profit increased primarily due to increased sales and an increase in merchandise margin rate. As a percentage of net sales, consolidated gross profit primarily increased as a result of a 30150 basis point increase in merchandise margin rate and a 9020 basis point decrease in buying and occupancy costs. The higher merchandise margin was driven by ~~more~~better full-price selling and ~~increased~~growth in exclusive brand penetration.

Selling, general and administrative expenses. SG&A expenses increased ~~$6.2~~$4.5 million, or ~~17.1%~~10.8%, to ~~$42.2~~$46.1 million for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 from ~~$36.1~~$41.6 million for the thirteen weeks ended ~~September~~June 30, ~~2017.~~2018. As a percentage of net sales, SG&A was 24.8% and 25.7% for the thirteen weeks ended June 29, 2019 and June 30, 2018, respectively. The increase in SG&A expenses was primarily a result of ~~increased~~additional costs to support higher sales and expenses for both new and acquired ~~stores, higher marketing costs as a result of the launch of~~ ~~Idyllwind, a new exclusive brand, and costs associated with the addition of a mid-year physical inventory.~~stores. As a percentage of net sales, SG&A ~~was 25.1% and 25.2% for the thirteen weeks ended September 29, 2018 and September 30, 2017, respectively.~~decreased primarily as a result of leverage on higher sales.

Income from operations. Income from operations increased ~~$3.1~~$6.2 million, or ~~54.3%~~63.4%, to ~~$8.7~~$16.1 million for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 from ~~$5.6~~$9.8 million for the thirteen weeks ended ~~September~~June 30, ~~2017.~~2018. As a percentage of net sales, income from operations was ~~5.2%~~8.6% and ~~3.9%~~6.1% for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively. The increase in income from operations was attributable to the factors noted above.

Interest expense, net. Interest expense, net, was ~~$4.2~~$3.9 million and ~~$3.8~~$4.1 million for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively. The ~~increase~~decrease in interest expense, net was primarily the result of a lower 2015 Golub Term Loan balance in the current-year period relative to the prior-year period, partially offset by higher interest rates associated with both the ~~debt as compared to the thirteen weeks ended September 30, 2017, partially offset by a lower debt balance~~2015 Golub Term Loan and June 2015 Wells Fargo Revolver in the current-year period.

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Income tax ~~expense.~~expense/(benefit). Income tax expense was ~~less than $0.1 million and $0.8~~$2.4 million for the thirteen weeks ended ~~September~~June 29, ~~2018 and September~~2019 compared to an income tax benefit of $1.0 million for the thirteen weeks ended June 30, ~~2017, respectively.~~2018. Our effective tax rate was ~~0.2%~~20.1% and ~~40.6%~~(18.0%) for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively. The effective tax rate for the thirteen weeks ended ~~September 29,~~June 30, 2018 iswas significantly lower than the comparable period in fiscal ~~2018~~2020 due primarily to a ~~$1.1~~$2.5 million tax benefit associated with stock option exercises and the vesting of restricted stock. ~~Recently passed tax reform that lowered the federal corporate tax rate also contributed to the lower effective tax rate in the thirteen weeks ended September 29, 2018.~~

Net income. Net income increased ~~$3.4~~$3.0 million to $4.5 million for the thirteen weeks ended September 29, 2018, from $1.1 million for the thirteen weeks ended September 30, 2017. The increase in net income was attributable to the factors noted above.

~~Adjusted EBITDA and Adjusted EBIT.~~ Adjusted EBITDA increased $3.9 million, or 38.1%, to $14.3 million for the thirteen weeks ended September 29, 2018 from $10.3 million for the thirteen weeks ended September 30, 2017. Adjusted EBIT increased $3.5 million, or 56.6%, to $9.7 million for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019, from ~~$6.2~~$6.8 million for the thirteen weeks ended ~~September~~June 30, ~~2017.~~2018. The increase in net income was primarily attributable to the factors noted above.

Adjusted EBITDA and Adjusted EBIT. Adjusted EBITDA increased $6.5 million, or 42.3%, to $21.8 million for the thirteen weeks ended June 29, 2019 from $15.3 million for the thirteen weeks ended June 30, 2018. Adjusted EBIT increased $6.1 million, or 56.2%, to $17.0 million for the thirteen weeks ended June 29, 2019 from $10.9 million for the thirteen weeks ended June 30, 2018. The increase in Adjusted EBITDA and Adjusted EBIT was primarily a result of the year-over-year increase in income from operations driven by an increase in gross ~~profit.~~

~~Twenty-Six Weeks Ended September 29, 2018 Compared to Twenty-Six Weeks Ended September 30, 2017~~

~~Net sales.~~ ~~Net sales increased $47.6 million, or 16.9%, to $330.1 million for the twenty-six weeks ended September 29, 2018 from $282.5 million for the twenty-six weeks ended September 30, 2017. The increase~~profit and a decrease in net sales was the result of an increase of 11.4% in same store sales during the twenty-six weeks ended September 29, 2018, the sales contribution from the stores acquired from Wood’s Boots, Lone Star and Drysdales, and sales from new stores added over the past twelve months.

~~Gross profit.~~ ~~Gross profit increased $19.3 million, or 23.2%, to $102.4 million for the twenty-six weeks ended September 29, 2018 from $83.1 million for the twenty-six weeks ended September 30, 2017. As~~SG&A as a percentage of net sales, gross profit was 31.0% and 29.4% for the twenty-six weeks ended September 29, 2018 and September 30, 2017, respectively. Gross profit increased primarily due to increased sales and an increase in merchandise margin rate. As a percentage of net sales, consolidated gross profit primarily increased as a result of an 80 basis point increase in merchandise margin rate and an 80 basis point decrease in buying and occupancy costs. The higher merchandise margin was driven by more full-price selling and increased exclusive brand penetration.sales.

~~Selling, general and administrative expenses.~~ SG&A expenses increased $11.3 million, or 15.6%, to $83.8 million for the twenty-six weeks ended September 29, 2018 from $72.5 million for the twenty-six weeks ended September 30, 2017. The increase in SG&A expenses was primarily a result of increased sales, expenses for both new and acquired stores, higher marketing costs as a result of the launch of ~~Idyllwind~~, a new exclusive brand, and costs associated with the addition of a mid-year physical inventory. As a percentage of net sales, SG&A was 25.4% and 25.7% for the thirteen weeks ended September 29, 2018 and September 30, 2017, respectively. Selling, general and administrative expenses as a percentage of sales decreased as a result of expense leverage on higher sales.

~~Income from operations.~~ Income from operations increased $7.9 million, or 75.1%, to $18.5 million for the twenty-six weeks ended September 29, 2018 from $10.6 million for the twenty-six weeks ended September 30, 2017. As a percentage of net sales, income from operations was 5.6% and 3.7% for the twenty-six weeks ended September 29, 2018 and September 30, 2017, respectively. The increase in income from operations was attributable to the factors noted above.

~~Interest expense, net.~~ Interest expense, net, was $8.3 million and $7.4 million for the twenty-six weeks ended September 29, 2018 and September 30, 2017, respectively. The increase in interest expense, net was primarily the result of higher interest rates associated with the debt as compared to the twenty-six weeks ended September 30, 2017, partially offset by a lower debt balance in the current-year period.

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~~Income tax (benefit)/expense.~~ Income tax benefit was $1.0 million for the twenty-six weeks ended September 29, 2018 compared to income tax expense of $1.3 million for the twenty-six weeks ended September 30, 2017. Our effective tax rate was (9.9%) and 40.1% for the twenty-six weeks ended September 29, 2018 and September 30, 2017, respectively. The effective tax rate for the twenty-six weeks ended September 29, 2018 is significantly lower than the comparable period in fiscal 2018 due primarily to a $3.6 million tax benefit associated with stock option exercises and the vesting of restricted stock. Recently passed tax reform that lowered the federal corporate tax rate also contributed to the lower effective tax rate in the twenty-six weeks ended September 29, 2018.

~~Net income.~~ Net income increased $9.4 million to $11.3 million for the twenty-six weeks ended September 29, 2018, from $1.9 million for the twenty-six weeks ended September 30, 2017. The increase in net income was attributable to the factors noted above.

~~Adjusted EBITDA and Adjusted EBIT.~~ Adjusted EBITDA increased $9.6 million, or 47.9%, to $29.6 million for the twenty-six weeks ended September 29, 2018 from $20.0 million for the twenty-six weeks ended September 30, 2017. Adjusted EBIT increased $8.8 million, or 75.2%, to $20.6 million for the twenty-six weeks ended September 29, 2018 from $11.7 million for the twenty-six weeks ended September 30, 2017. The increase in Adjusted EBITDA and Adjusted EBIT was primarily a result of the year-over-year increase in income from operations driven by an increase in gross profit.

Liquidity and Capital Resources

We rely on cash flows from operating activities and our credit facilities 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,

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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.

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 ~~2019~~2020 will be between ~~$23.0~~$27.0 million to ~~$25.0~~$29.0 million (including the capital expenditures made during the ~~twenty-six~~thirteen weeks ended ~~September~~June 29, ~~2018)~~2019), net of landlord tenant allowances, and we anticipate that we will use cash flows from operations to fund these expenditures.

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 a previous Wells Fargo credit facility with the $125.0 million syndicated senior secured asset-based revolving credit facility for which Wells Fargo Bank, National Association (“June 2015 Wells Fargo Revolver”), is agent, and the ~~$200~~$200.0 million syndicated senior secured term loan for which GCI Capital Markets LLC (“2015 Golub Term Loan”) is agent. The borrowing base of the June 2015 Wells Fargo Revolver is calculated on a monthly basis and is based on the amount of eligible credit card receivables, commercial accounts, inventory, and available reserves.

Borrowings under the June 2015 Wells Fargo Revolver bear interest at per annum rates equal to, at 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

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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 the maturity date. On May 26, 2017, the Company entered into an amendment to the June 2015 Wells Fargo Revolver (the “2017 Wells Amendment”), increasing the aggregate revolving credit facility to $135.0 million and extending the maturity date to the earlier of May 26, 2022 or 90 days prior to the previous maturity of the 2015 Golub Term Loan, which was scheduled to mature on June 29, 2021. On June 6, 2019, we entered into Amendment No. 3 to the Credit Agreement (the “2019 Wells Amendment”), further increasing the aggregate revolving credit facility to $165.0 million and extending the maturity date to the earlier of June 6, 2024 or 90 days prior to the maturity of the 2015 Golub Term Loan, which is currently scheduled to mature on June 29, ~~2021.~~2023. The 2019 Wells Amendment further made changes to the 2015 Wells Fargo Revolver in connection with the transition away from LIBOR as the benchmark rate. The amount outstanding under the June 2015 Wells Fargo Revolver as of ~~September~~June 29, ~~2018~~2019 and March ~~31, 2018~~30, 2019 was ~~$26.1~~$80.0 million and ~~$21.0 million,~~zero, respectively. Total interest expense incurred in the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 29, ~~2018~~2019 on the June 2015 Wells Fargo Revolver was $0.6 million and ~~$1.1~~the weighted average interest rate for the thirteen weeks ended June 29, 2019 was 3.8%. Total interest expense incurred in the thirteen weeks ended June 30, 2018 on the June 2015 Wells Fargo Revolver was $0.5 million ~~respectively,~~ and the weighted average interest rate for the thirteen weeks ended ~~September 29,~~June 30, 2018 was 3.3%. Total interest expense incurred in the thirteen and twenty-six weeks ended September 30, 2017 on the June 2015 Wells Fargo Revolver was $0.5 million and $0.9 million, respectively, and the weighted average interest rate for the thirteen weeks ended September 30, 2017 was 2.3%3.1%.

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%~~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 ~~will be~~is payable in quarterly installments ending on June 29, 2021, the maturity date. Quarterly principal payments of $500,000 are due for each quarter; however, on June 2, 2017, the Company prepaid $10.0 million on the 2015 Golub Term Loan, which included all of the required quarterly principal payments until the maturity date of the loan. On May 15, 2018, the Company made an additional $10.0 million prepayment on the 2015 Golub Term Loan. On June 6, 2019, the Company entered into the Third Amendment to the 2015 Golub Term Loan (the “2019 Golub Amendment”) which extended the maturity date to

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June 29, 2023. At the time of the Third Amendment, the company also prepaid $65.0 million of the term loan facility, reducing the outstanding principal balance to $111.5 million. The 2019 Golub Amendment further made changes to the 2015 Golub Term Loan in connection with the transition away from LIBOR as the benchmark rate. Total interest expense incurred in the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 29, ~~2018~~2019 on the 2015 Golub Term Loan was ~~$3.0~~$2.9 million ~~and $6.2 million, respectively,~~ and the weighted average interest rate for the thirteen weeks ended ~~September~~June 29, ~~2018~~2019 was ~~6.8%~~7.1%. Total interest expense incurred in the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 30, ~~2017~~2018 on the 2015 Golub Term Loan was ~~$2.7~~$3.1 million ~~and $5.5 million, respectively,~~ and the weighted average interest rate for the thirteen weeks ended ~~September~~June 30, ~~2017~~2018 was ~~5.8%~~6.8%.

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. On May 26, 2017, the Company entered into an amendment to the 2015 Golub Term Loan (the “2017 Golub Amendment”). The 2017 Golub Amendment ~~changes~~changed the maximum Consolidated Total Net Leverage Ratio requirements ~~to 4.50:1.00 as of September 29, 2018, stepping down~~ to 4.00:1.00 as of December 29, 2018 and for all subsequent periods. The 2019 Golub Amendment maintains the same maximum Consolidated Total Net Leverage Ratio requirements. The June 2015 Wells Fargo Revolver and 2015 Golub Term Loan also require us to pay additional interest of 2%2.0% 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~~June 29, ~~2018,~~2019, the fair value of these embedded derivatives was estimated and was not significant.

As of ~~September~~June 29, ~~2018,~~2019, we were in compliance with the June 2015 Wells Fargo Revolver and the 2015 Golub Term Loan debt covenants.

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Cash Position and Cash Flow

Cash and cash equivalents were ~~$9.4~~$22.7 million as of ~~September~~June 29, ~~2018~~2019 compared to ~~$9.0~~$16.6 million as of March ~~31, 2018.~~30, 2019.

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


	Twenty-Six Weeks Ended
	September 29,		September 30,

					Thirteen Weeks Ended
					June 29,		June 30,
(in thousands)	2018		2017		2019		2018
Net cash provided by/(used in):
Operating activities	$	17,310	$	(710)	$	(1,549)	$	5,506
Investing activities		(19,431)		(11,279)		(6,822)		(11,488)
Financing activities		2,511		13,388		14,496		4,340
Net increase in cash	$	390	$	1,399
Net increase/(decrease) in cash					$	6,125	$	(1,642)

Operating Activities

Net cash used in operating activities was $1.5 million for the thirteen weeks ended June 29, 2019. The significant components of cash flows used in operating activities were net income of $9.7 million, the add-back of non-cash depreciation and intangible asset amortization expense of $4.8 million, stock-based compensation expense of $1.0 million, and amortization of debt issuance fees and debt discount of $0.3 million. Accounts payable and accrued

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expenses and other current liabilities decreased by $3.8 million due to the timing of payments. Inventory increased by $13.2 million due to the growth of the company.

Net cash provided by operating activities was ~~$17.3~~$5.5 million for the ~~twenty-six~~thirteen weeks ended ~~September 29,~~June 30, 2018. The significant components of cash flows provided by operating activities were net income of ~~$11.3~~$6.8 million, the add-back of non-cash depreciation and amortization expense of ~~$9.0~~$4.4 million, stock-based compensation expense of ~~$1.4~~$0.6 million, and amortization of debt issuance fees and debt discount of ~~$0.6 million. Inventory increased by $16.7 million due to the growth of the company and the purchase of Drysdales’ inventory.~~

Net cash used in operating activities was $0.7 million for the twenty-six weeks ended September 30, 2017. The significant components of cash flows used in operating activities were net income of $1.9 million, the add-back of non-cash depreciation and amortization expense of $8.3 million, stock-based compensation expense of $1.3 million, and amortization of debt issuance fees and debt discount of $0.6$0.3 million. Accounts payable and accrued expenses and other current liabilities ~~increased~~decreased by ~~$11.5~~$14.2 million due to the timing of payments. Inventory ~~increased~~decreased by ~~$22.1~~$8.9 million due to the ~~growth~~timing of ~~the company and by an additional $2.8 million as a result of acquiring the inventory of Wood’s Boots.~~purchases.

Investing Activities

Net cash used in investing activities was ~~$19.4~~$6.8 million for the ~~twenty-six~~thirteen weeks ended ~~September~~June 29, 2019, which was primarily attributable to capital expenditures related to store construction, improvements to our e-commerce information technology infrastructure, and improvements to our distribution facilities.

Net cash used in investing activities was $11.5 million for the thirteen weeks ended June 30, 2018, which was primarily attributable to ~~$15.0~~$7.1 million in capital expenditures related to store construction, improvements to our e-commerce information technology infrastructure, and improvements to our distribution facilities and $4.4 million for the acquisition of Lone Star.

Net cash used in investing activities was $11.3 million for the twenty-six weeks ended September 30, 2017, which was primarily attributable to capital expenditures related to store construction, improvements to our e-commerce information technology infrastructure, and improvements to our distribution facilities.

Financing Activities

Net cash provided by financing activities was ~~$2.5~~$14.5 million for the ~~twenty-six~~thirteen weeks ended ~~September~~June 29, ~~2018.~~2019. We ~~borrowed $5.1 million on~~increased our line of credit borrowings by $80.0 million and repaid ~~$10.2~~$65.1 million on our debt and capital lease obligations during the period. We also received ~~$8.0~~$1.3 million from the exercise of stock options.

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Net cash provided by financing activities was ~~$13.4~~$4.3 million for the ~~twenty-six~~thirteen weeks ended ~~September~~June 30, ~~2017.~~2018. We ~~increased~~borrowed $9.7 million on our line of credit ~~borrowings by $23.8 million~~ and repaid ~~$10.2~~$10.1 million on our debt and capital lease obligations during the period. We also received $5.0 million from the exercise of stock options.

Contractual Obligations

During the thirteen ~~and twenty-six~~ weeks ended ~~September~~June 29, ~~2018,~~2019, 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 ~~2018~~2019 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.~~arrangements.

~~Implications of Being an Emerging Growth Company~~

We are currently an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise generally applicable to public companies.

We will cease to be an emerging growth company as of the end of fiscal 2019 as a result of becoming at that time a large accelerated filer since the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of fiscal 2019.

Item 3. Quantitative and Qualitative Disclosure of Market ~~Risk~~Risk

We are subject to interest rate risk in connection with borrowings under our credit facilities, which bear interest at variable rates. As of ~~September~~June 29, ~~2018,~~2019, we had ~~$26.1~~$80.0 million in outstanding ~~borrowings~~ under the June 2015 Wells Fargo Revolver and ~~$176.5~~$111.5 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~~June 29, ~~2018~~2019 would be approximately ~~$2.0~~$1.9 million.

As of ~~September~~June 29, ~~2018,~~2019, there were no other material changes in the market risks described in the “Quantitative and Qualitative Disclosure of Market Risks” section of the Fiscal ~~2018~~2019 10-K.

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Item 4.Controls and ~~Procedures~~Procedures

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~~June 29, ~~2018.~~2019. 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~~June 29, ~~2018,~~2019, 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.

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Changes in Internal Control Over Financial Reporting

During the quarter ended ~~September~~June 29, ~~2018,~~2019, no changes occurred with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

Part II. Other ~~Information~~Information

Item 1.Legal ~~Proceedings~~Proceedings

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 ~~Factors~~ Factors

We operate in a rapidly changing environment that involves a number of risks that could materially and adversely affect our business, financial condition, prospects, operating results or cash flows, including the ~~risk set forth below, as well as the~~ risks contained in “Item 1A—Risk Factors” in our Fiscal ~~2018~~2019 10-K.

We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our clients would have to pay for our offering and adversely affect our operating results.

~~An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state retailers. In~~ ~~South Dakota v. Wayfair, Inc. et al,~~ a case challenging existing law that online sellers are not required to collect sales and use tax unless they have a physical presence in the buyer’s state, the Supreme Court decided that states may adopt laws requiring sellers to collect sales and use tax, even in states where the seller has no physical presence. As a result of ~~Wayfair~~, states or the federal government may adopt, or begin to enforce, laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. A successful assertion by one or more states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments of sales tax collection obligations on out-of-state retailers could also create additional administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on our competitors and decrease our future sales, which could have a material adverse impact on our business and operating results.

Item 2.Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds

None.

Item 3.Defaults Upon Senior ~~Securities~~Securities

None.

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Item 4.Mine Safety ~~Disclosures~~Disclosures

Not Applicable.

Item 5.Other ~~Information~~Information

None.

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Item 6.~~Exhibits~~Exhibits


Exhibit No.		Description of Exhibit
~~Exhibit No.~~		~~Description of Exhibit~~
10.1 (1)		Amendment No. 3 to Credit Agreement, dated as of June 6, 2019, by and among Boot Barn Holdings, Inc., Boot Barn, Inc., Sheplers Holding Corporation, Sheplers, Inc., Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, and Wells Fargo Bank, National Association, as Sole Lead Arranger and Sole Bookrunner, and the other Lenders named therein.

10.2 (1)		Third Amendment to Credit Agreement, dated as of June 6, 2019, by and among Boot Barn Holdings, Inc., Boot Barn, Inc., Sheplers Holding Corporation, Sheplers, Inc., Golub Capital Markets LLC, as Administrative Agent, Sole Lead Arranger, Sole Bookrunner and Syndication Agent, and the other Lenders named therein.

10.3		Form of Employee Restricted Stock Unit Issuance Agreement

10.4		Form of Stock Option Agreement

10.5		Market-Based Stock Option Agreement between the Company and James G. Conroy dated May 20, 2019

10.6		Form of Performance Unit Issuance Agreement

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~~June 29, ~~2018,~~2019, formatted in ~~XBRL (eXtensible~~iXBRL (Inline 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.

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2019, formatted in Inline XBRL.

*

*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, as amended, except as shall be expressly set forth by specific reference in such filing.

(1) 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.~~to our Current Report on Form 8-K filed on June 12, 2019.

3633

Table of Contents

SIGNATURES

~~SIGNATURES~~

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 26, 2018~~August 2, 2019	/s/ James G. Conroy
	James G. Conroy
	President and Chief Executive Officer (Principal Executive Officer)

Date: ~~October 26, 2018~~August 2, 2019	/s/ Gregory V. Hackman
	Gregory V. Hackman
	Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer

3734


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value	BOOT	New York Stock Exchange


Large accelerated filer ☐☒	Accelerated filer ☒☐	Emerging growth company ☒
		☐
Non-accelerated filer ☐	Smaller reporting company ☐


		Page
		~~Page~~

PART I.	FINANCIAL INFORMATION	3

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of ~~September~~June 29, ~~2018~~2019 and March ~~31, 2018~~30, 2019	3
	Condensed Consolidated Statements of Operations for the Thirteen ~~and Twenty-Six~~ Weeks Ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018	4
	Condensed Consolidated Statements of Stockholders’ Equity for the ~~Twenty-Six~~Thirteen Weeks Ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018	5
	Condensed Consolidated Statements of Cash Flows for the ~~Twenty-Six~~Thirteen Weeks Ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018	6
	Notes to the Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22 21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33 31

Item 4.	Controls and Procedures	33 32

PART II.	OTHER INFORMATION	34 32

Item 1.	Legal Proceedings	34 32

Item 1A.	Risk Factors	34 32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34 32

Item 3.	Defaults Upon Senior Securities	34 32

Item 4.	Mine Safety Disclosures	35 32

Item 5.	Other Information	35 32

Item 6.	Exhibits	36
		33

	Signatures	37 34


	September 29,		March 31,
	2018		2018

Assets
Current assets:
Cash and cash equivalents	$	9,406	$	9,016
Accounts receivable, net		4,445		4,389
Inventories		230,089		211,472
Prepaid expenses and other current assets		20,090		16,250
Total current assets		264,030		241,127
Property and equipment, net		95,014		89,208
Goodwill		195,858		193,095
Intangible assets, net		63,140		63,383
Other assets		1,143		1,128
Total assets	$	619,185	$	587,941
Liabilities and stockholders’ equity
Current liabilities:
Line of credit	$	26,120	$	21,006
Accounts payable		102,764		89,958
Accrued expenses and other current liabilities		40,209		40,034
Total current liabilities		169,093		150,998
Deferred taxes		14,637		13,030
Long-term portion of notes payable, net		173,745		183,200
Capital lease obligations		7,023		7,303
Other liabilities		19,725		18,804
Total liabilities		384,223		373,335

Commitments and contingencies (Note 7)

Stockholders’ equity:
Common stock, $0.0001 par value; September 29, 2018 - 100,000 shares authorized, 28,377 shares issued; March 31, 2018 - 100,000 shares authorized, 27,331 shares issued		3		3
Preferred stock, $0.0001 par value; 10,000 shares authorized, no shares issued or outstanding		—		—
Additional paid-in capital		157,568		148,127
Retained earnings		77,965		66,670
Less: Common stock held in treasury, at cost, 47 and 31 shares at September 29, 2018 and March 31, 2018, respectively		(574)		(194)
Total stockholders’ equity		234,962		214,606
Total liabilities and stockholders’ equity	$	619,185	$	587,941


	June 29,		March 30,
	2019		2019

Assets
Current assets:
Cash and cash equivalents	$	22,739	$	16,614
Accounts receivable, net		6,552		8,095
Inventories		253,895		240,734
Prepaid expenses and other current assets		12,889		11,900
Total current assets		296,075		277,343
Property and equipment, net		93,733		98,663
Right-of-use assets, net		162,702		—
Goodwill		195,858		195,858
Intangible assets, net		60,769		62,845
Other assets		1,464		1,366
Total assets	$	810,601	$	636,075
Liabilities and stockholders’ equity
Current liabilities:
Line of credit	$	80,001	$	—
Accounts payable		99,471		104,955
Accrued expenses and other current liabilities		48,852		46,988
Right-of-use liabilities, current		30,830		—
Total current liabilities		259,154		151,943
Deferred taxes		16,155		17,202
Long-term portion of notes payable, net		108,464		174,264
Capital lease obligations		—		6,746
Right-of-use liabilities, non-current		146,638		—
Other liabilities		4,495		21,756
Total liabilities		534,906		371,911

Commitments and contingencies (Note 7)

Stockholders’ equity:
Common stock, $0.0001 par value; June 29, 2019 - 100,000 shares authorized, 28,542 shares issued; March 30, 2019 - 100,000 shares authorized, 28,399 shares issued		3		3
Preferred stock, $0.0001 par value; 10,000 shares authorized, no shares issued or outstanding		—		—
Additional paid-in capital		161,369		159,137
Retained earnings		115,413		105,692
Less: Common stock held in treasury, at cost, 66 and 51 shares at June 29, 2019 and March 30, 2019, respectively		(1,090)		(668)
Total stockholders’ equity		275,695		264,164
Total liabilities and stockholders’ equity	$	810,601	$	636,075


				Additional
	Common Stock			Paid-In		Retained		Treasury Shares
	Shares	Amount		Capital		Earnings		Shares	Amount		Total

Balance at March 31, 2018	27,331	$	3	$	148,127	$	66,670	(31)	$	(194)	$	214,606
Net income	—		—		—		11,295	—		—		11,295
Issuance of common stock related to stock-based compensation	1,046		—		8,025		—	—		—		8,025
Tax withholding for net share settlement	—		—		—		—	(16)		(380)		(380)
Stock-based compensation expense	—		—		1,416		—	—		—		1,416
Balance at September 29, 2018	28,377	$	3	$	157,568	$	77,965	(47)	$	(574)	$	234,962

				Additional
	Common Stock			Paid-In		Retained		Treasury Shares
	Shares	Amount		Capital		Earnings		Shares	Amount		Total

Balance at April 1, 2017	26,575	$	3	$	142,184	$	37,791	(14)	$	(69)	$	179,909
Net income	—		—		—		1,875	—		—		1,875
Issuance of common stock related to stock-based compensation	122		—		363		—	(3)		—		363
Tax withholding for net share settlement	—		—		—		—	(11)		(89)		(89)
Stock-based compensation expense	—		—		1,253		—	—		—		1,253
Balance at September 30, 2017	26,697	$	3	$	143,800	$	39,666	(28)	$	(158)	$	183,311


				Additional
	Common Stock			Paid-In		Retained		Treasury Shares
	Shares	Amount		Capital		Earnings		Shares	Amount		Total

Balance at March 30, 2019	28,399	$	3	$	159,137	$	105,692	(51)	$	(668)	$	264,164
Net income	—		—		—		9,721	—		—		9,721
Issuance of common stock related to stock-based compensation	143		—		1,267		—	—		—		1,267
Tax withholding for net share settlement	—		—		—		—	(15)		(422)		(422)
Stock-based compensation expense	—		—		965		—	—		—		965
Balance at June 29, 2019	28,542	$	3	$	161,369	$	115,413	(66)	$	(1,090)	$	275,695

				Additional
	Common Stock			Paid-In		Retained		Treasury Shares
	Shares	Amount		Capital		Earnings		Shares	Amount		Total

Balance at March 31, 2018	27,331	$	3	$	148,127	$	66,670	(31)	$	(194)	$	214,606
Net income	—		—		—		6,761	—		—		6,761
Issuance of common stock related to stock-based compensation	709		—		5,038		—	—		—		5,038
Tax withholding for net share settlement	—		—		—		—	(14)		(306)		(306)
Stock-based compensation expense	—		—		612		—	—		—		612
Balance at June 30, 2018	28,040	$	3	$	153,777	$	73,431	(45)	$	(500)	$	226,711


Customer Loyalty Program
(in thousands)		September 29, 2018		September 30, 2017
Beginning balance as of March 31, 2018 and April 1, 2017, respectively	$	1,705	$	2,060
Year-to-date provisions		2,123		2,440
Year-to-date award redemptions		(2,117)		(2,618)
Ending balance	$	1,711	$	1,882


Gift Card Program
(in thousands)		September 29, 2018		September 30, 2017
Beginning balance as of March 31, 2018 and April 1, 2017, respectively	$	7,857	$	7,108
Year-to-date issued		4,057		2,631
Year-to-date redemptions		(3,851)		(3,036)
Ending balance	$	8,063	$	6,703


	At June 30, 2018
	(in thousands)
Assets acquired:
Inventory	$	1,872
Property & equipment, net		42
Below-market lease		92
Goodwill		2,763
Total assets acquired	$	4,769

Liabilities assumed:
Other liability - merchandise credits	$	69
Above-market lease		276
Total liabilities assumed		345
Net Assets acquired	$	4,424


	March 30, 2019
	Gross						Weighted
	Carrying		Accumulated				Average
	Amount		Amortization		Net		Useful Life
	(in thousands, except for weighted average useful life)
Customer lists	$	506	$	(393)	$	113	3.0
Below-market leases		5,011		(2,967)		2,044	11.5
Trademarks-definite lived		15		(4)		11	3.0
Total definite lived		5,532		(3,364)		2,168
Trademarks—indefinite lived		60,677		—		60,677
Total intangible assets	$	66,209	$	(3,364)	$	62,845


	March 31, 2018
	Gross						Weighted
	Carrying		Accumulated				Average
	Amount		Amortization		Net		Useful Life
	(in thousands, except for weighted average useful life)
Customer lists	$	1,594	$	(1,287)	$	307	3.8
Below-market leases		4,918		(2,519)		2,399	11.6
Total definite lived		6,512		(3,806)		2,706
Trademarks—indefinite lived		60,677		—		60,677
Total intangible assets	$	67,189	$	(3,806)	$	63,383


Balance as of March 31, 2018	$	193,095
Goodwill as a result of the Lone Star Acquisition		2,763
Balance as of September 29, 2018	$	195,858