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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2023

or

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

For the Transition Period from to

Commission File Number: 001-36711

Boot Barn Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

90-0776290

(I.R.S. employer

identification no.)

15345 Barranca Pkwy

Irvine, California

(Address of principal executive offices)

92618

(Zip code)

(949) 453-4400

Registrant’s telephone number, including area code

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

BOOT

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

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

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

Large accelerated filer

Accelerated filer

Emerging growth company

Non-accelerated filer

Smaller reporting company

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

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

As of November 1, 2023, the registrant had 30,283,816 shares of common stock outstanding, $0.0001 par value.

Boot Barn Holdings, Inc. and Subsidiaries

Form 10-Q

For the Thirteen and Twenty-Six Weeks Ended September 30, 2023

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Consolidated Financial Statements (Unaudited)

3

Consolidated Balance Sheets as of September 30, 2023 and April 1, 2023

3

Consolidated Statements of Operations for the Thirteen and Twenty-Six Weeks Ended September 30, 2023 and September 24, 2022

4

Consolidated Statements of Stockholders’ Equity for the Thirteen and Twenty-Six Weeks Ended September 30, 2023 and September 24, 2022

5

Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended September 30, 2023 and September 24, 2022

6

Notes to Consolidated Financial Statements

7

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosure of Market Risk

29

Item 4.

Controls and Procedures

29

PART II.

OTHER INFORMATION

30

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

Signatures

32

2

Part 1. Financial Information

Item 1.

Consolidated Financial Statements (Unaudited)

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

September 30,

    

April 1,

    

2023

    

2023

Assets

Current assets:

Cash and cash equivalents

$

38,665

$

18,193

Accounts receivable, net

 

9,321

 

13,145

Inventories

 

585,573

 

589,494

Prepaid expenses and other current assets

 

39,044

 

48,341

Total current assets

 

672,603

 

669,173

Property and equipment, net

 

293,702

 

257,143

Right-of-use assets, net

348,788

326,623

Goodwill

 

197,502

 

197,502

Intangible assets, net

 

60,724

 

60,751

Other assets

 

4,887

 

6,189

Total assets

$

1,578,206

$

1,517,381

Liabilities and stockholders’ equity

Current liabilities:

Line of credit

$

$

66,043

Accounts payable

139,762

134,246

Accrued expenses and other current liabilities

 

132,860

 

122,958

Short-term lease liabilities

56,209

51,595

Total current liabilities

 

328,831

 

374,842

Deferred taxes

 

36,253

 

33,260

Long-term lease liabilities

357,478

330,081

Other liabilities

 

3,258

 

2,748

Total liabilities

725,820

740,931

Commitments and contingencies (Note 6)

Stockholders’ equity:

Common stock, $0.0001 par value; September 30, 2023 - 100,000 shares authorized, 30,511 shares issued; April 1, 2023 - 100,000 shares authorized, 30,072 shares issued

 

3

 

3

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

 

 

Additional paid-in capital

 

226,379

 

209,964

Retained earnings

 

637,963

 

576,030

Less: Common stock held in treasury, at cost, 227 and 192 shares at September 30, 2023 and April 1, 2023, respectively

(11,959)

(9,547)

Total stockholders’ equity

 

852,386

 

776,450

Total liabilities and stockholders’ equity

$

1,578,206

$

1,517,381

The accompanying notes are an integral part of these consolidated financial statements.

3

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

September 30,

September 24,

September 30,

September 24,

    

2023

    

2022

    

2023

    

2022

Net sales

$

374,456

$

351,545

$

758,151

$

717,401

Cost of goods sold

 

240,540

 

222,449

 

482,272

 

450,475

Gross profit

 

133,916

 

129,096

 

275,879

 

266,926

Selling, general and administrative expenses

 

95,338

 

84,946

 

191,056

 

170,351

Income from operations

 

38,578

 

44,150

 

84,823

 

96,575

Interest expense

 

463

 

1,362

 

1,486

 

2,087

Other (loss)/income, net

(50)

174

(273)

Income before income taxes

 

38,065

 

42,788

 

83,511

 

94,215

Income tax expense

 

10,385

 

10,734

 

21,578

 

22,843

Net income

$

27,680

$

32,054

$

61,933

$

71,372

Earnings per share:

Basic

$

0.92

$

1.08

$

2.06

$

2.40

Diluted

$

0.90

$

1.06

$

2.03

$

2.35

Weighted average shares outstanding:

Basic

 

30,137

 

29,808

 

30,029

 

29,778

Diluted

 

30,627

 

30,313

 

30,540

 

30,351

The accompanying notes are an integral part of these consolidated financial statements.

4

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

Additional

 

Common Stock

Paid-In

Retained

Treasury Shares

 

    

Shares

    

Amount

    

Capital

    

Earnings

    

Shares

    

Amount

    

Total

Balance at April 1, 2023

30,072

$

3

$

209,964

$

576,030

(192)

$

(9,547)

$

776,450

Net income

34,253

34,253

Issuance of common stock related to stock-based compensation

123

345

345

Tax withholding for net share settlement

(34)

(2,305)

(2,305)

Stock-based compensation expense

4,953

4,953

Balance at July 1, 2023

30,195

$

3

$

215,262

$

610,283

(226)

$

(11,852)

$

813,696

Net income

27,680

27,680

Issuance of common stock related to stock-based compensation

316

8,237

8,237

Tax withholding for net share settlement

(1)

(107)

(107)

Stock-based compensation expense

2,880

2,880

Balance at September 30, 2023

30,511

$

3

$

226,379

$

637,963

(227)

$

(11,959)

$

852,386

Additional

 

Common Stock

Paid-In

Retained

Treasury Shares

 

    

Shares

    

Amount

    

Capital

    

Earnings

Shares

    

Amount

Total

Balance at March 26, 2022

29,820

$

3

$

199,054

$

405,477

(135)

$

(4,858)

$

599,676

Net income

 

39,318

39,318

Issuance of common stock related to stock-based compensation

175

247

247

Tax withholding for net share settlement

(53)

(4,408)

(4,408)

Stock-based compensation expense

 

4,701

4,701

Balance at June 25, 2022

 

29,995

$

3

$

204,002

$

444,795

(188)

$

(9,266)

$

639,534

Net income

32,054

32,054

Issuance of common stock related to stock-based compensation

6

Tax withholding for net share settlement

(2)

(93)

(93)

Stock-based compensation expense

2,442

2,442

Balance at September 24, 2022

30,001

$

3

$

206,444

$

476,849

(190)

$

(9,359)

$

673,937

The accompanying notes are an integral part of these consolidated financial statements.

5

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Twenty-Six Weeks Ended

September 30,

    

September 24,

    

2023

    

2022

Cash flows from operating activities

Net income

$

61,933

$

71,372

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

Depreciation

 

22,597

 

16,792

Stock-based compensation

 

7,833

 

7,143

Amortization of intangible assets

 

27

 

32

Noncash lease expense

26,487

22,951

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

 

54

 

74

Loss on disposal of assets

 

298

 

250

Deferred taxes

 

2,993

 

1,479

Changes in operating assets and liabilities:

Accounts receivable, net

 

3,046

 

(972)

Inventories

 

3,921

 

(166,721)

Prepaid expenses and other current assets

 

9,243

 

(5,857)

Other assets

 

1,302

 

(3,329)

Accounts payable

 

7,051

 

36,472

Accrued expenses and other current liabilities

 

13,600

 

(27,199)

Other liabilities

 

510

 

244

Operating leases

(15,435)

(14,868)

Net cash provided by/(used in) operating activities

$

145,460

$

(62,137)

Cash flows from investing activities

Purchases of property and equipment

$

(64,687)

$

(52,459)

Net cash used in investing activities

$

(64,687)

$

(52,459)

Cash flows from financing activities

(Payments)/Borrowings on line of credit, net

$

(66,043)

$

118,281

Repayments on debt and finance lease obligations

(428)

(419)

Tax withholding payments for net share settlement

(2,412)

(4,501)

Proceeds from the exercise of stock options

8,582

247

Net cash (used in)/provided by financing activities

$

(60,301)

$

113,608

Net increase/(decrease) in cash and cash equivalents

 

20,472

 

(988)

Cash and cash equivalents, beginning of period

 

18,193

 

20,674

Cash and cash equivalents, end of period

$

38,665

$

19,686

Supplemental disclosures of cash flow information:

Cash paid for income taxes

$

2,822

$

45,519

Cash paid for interest

$

1,399

$

1,642

Supplemental disclosure of non-cash activities:

Unpaid purchases of property and equipment

$

14,103

$

21,551

The accompanying notes are an integral part of these consolidated financial statements.

6

BOOT BARN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business Operations

Boot Barn Holdings, Inc. (the “Company”), the parent holding company of the group of operating subsidiaries that conduct the Boot Barn business, was formed on November 17, 2011, and is incorporated in the State of Delaware. The equity of the Company consists of 100,000,000 authorized shares and 30,511,186 issued and 30,283,816 outstanding shares of common stock as of September 30, 2023. The shares of common stock have voting rights of one vote per share.

The Company operates specialty retail stores and e-commerce websites that sell western and work boots and related apparel and accessories. The Company operates retail locations throughout the United States and sells its merchandise via the internet. The Company operated a total of 371 stores in 44 states as of September 30, 2023 and 345 stores in 43 states as of April 1, 2023. As of September 30, 2023, all stores operate under the Boot Barn name.

Recent Developments

Our business and opportunities for growth depend on consumer discretionary spending, and as such, our results are particularly sensitive to economic conditions and consumer confidence. Inflation and other challenges affecting the global economy could impact our operations and will depend on future developments, which are uncertain. These and other effects make it more challenging for us to estimate the future performance of our business, particularly over the near-to-medium term. For further discussion of the uncertainties and business risks affecting the Company, see Item 1A, Risk Factors, of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), on May 18, 2023 (the “Fiscal 2023 10-K”).

Basis of Presentation

The Company’s consolidated financial statements as of September 30, 2023 and April 1, 2023 and for the thirteen and twenty-six weeks ended September 30, 2023 and September 24, 2022 are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), and include the accounts of the Company and each of its subsidiaries, consisting of Boot Barn, Inc., RCC Western Stores, Inc., Baskins Acquisition Holdings, LLC, Sheplers, LLC and Sheplers Holding LLC (collectively with Sheplers, LLC, “Sheplers”). All intercompany accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation. The vast majority of the Company’s identifiable assets are in the United States. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted.

In the opinion of management, the interim consolidated financial statements reflect all adjustments that are of a normal and recurring nature necessary to fairly present the Company’s financial position, results of operations and cash flows in all material respects as of the dates and for the periods presented. The results of operations presented in the interim consolidated financial statements are not necessarily indicative of the results that may be expected for the fiscal year ending March 30, 2024.

Fiscal Periods

The Company reports its results of operations and cash flows on a 52- or 53-week basis ending on the last Saturday of March unless April 1st is a Saturday, in which case the fiscal year ends on April 1st. In a 52-week year, each quarter includes thirteen weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include thirteen weeks of operations and the fourth quarter includes fourteen weeks of operations. The current fiscal year ending on March 30, 2024 (“fiscal 2024”) will consist of 52 weeks; whereas the fiscal year ended on April 1, 2023 (“fiscal 2023”) consisted of 53 weeks.

7

2. Summary of Significant Accounting Policies

Information regarding the Company’s significant accounting policies is contained in Note 2, “Summary of Significant Accounting Policies”, to the consolidated financial statements included in the Company’s Fiscal 2023 10-K. Presented below and in the following notes is supplemental information that should be read in conjunction with those consolidated financial statements.

Comprehensive Income

The Company does not have any components of other comprehensive income recorded within its consolidated financial statements and, therefore, does not separately present a statement of comprehensive income in its consolidated financial statements.

Segment Reporting

GAAP has established guidance for reporting information about a company’s operating segments, including disclosures related to a company’s products and services, geographic areas and major customers. The Company’s retail stores and e-commerce websites represent two operating segments. Given the similar qualitative and economic characteristics of the two operating segments, the Company’s retail stores and e-commerce websites are aggregated into one reporting segment in accordance with guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting (“ASC 280”). The Company’s operations represent two reporting units, retail stores and e-commerce websites, 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, lease accounting, inventories, goodwill, intangible and long-lived assets, stock-based compensation and income taxes. Management regularly evaluates its estimates and assumptions based upon historical experience and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent actual results differ from those estimates, the Company’s future results of operations may be affected.

Inventories

Inventories consist primarily of purchased merchandise and are valued at the lower of cost or net realizable value. Cost is determined using the weighted-average cost method and includes the cost of merchandise and import-related costs, including freight, duty and agent commissions. The Company assesses the recoverability of inventory through a periodic review of historical usage and present demand. When the inventory on hand exceeds the foreseeable demand, the value of inventory that, at the time of the review, is not expected to be sold at or above cost is written down to its estimated net realizable value.

Leases

Operating and finance lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating and finance lease right-of-use (“ROU”) assets are recognized based on the initial present value of the fixed lease payments, reduced by cash payments received from landlords as lease incentives, plus any prepaid rent and other direct costs from executing the leases. Amortization of both operating and finance lease right-of-use assets is performed on a straight-line basis and recorded as part of rent expense in cost of goods sold and selling, general and administrative expenses on the consolidated statements of operations. The majority of total lease costs is recorded as part of cost of

8

goods sold, with the balance recorded in selling, general and administrative expenses on the consolidated statements of operations. The interest expense amortization component of the finance lease liabilities is recorded within interest expense on the consolidated statements of operations.

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense as they are incurred.

Fair Value of Certain Financial Assets and Liabilities

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

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

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

Level 3 uses one or more significant inputs that are unobservable and supported by little or no market activity, and reflect the use of significant management judgment. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation. The Company’s Level 3 assets include certain acquired businesses and the evaluation of store impairment.

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

Although market quotes for the fair value of the outstanding debt arrangement discussed in Note 4, “Revolving Credit Facility” is 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 30, 2023.

Revenue Recognition

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

9

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

The Company maintains a customer loyalty program. Under the program, customers accumulate points based on purchase activity. For customers to maintain their active point balance, they must make a qualifying purchase of merchandise at least once in a 365-day period. Once a loyalty program member achieves a certain point level, the member earns awards that may be redeemed for credits on merchandise purchases. To redeem awards, the member must make a qualifying purchase of merchandise within 60 days of the date the award was granted. Unredeemed awards and accumulated partial points are accrued as unearned revenue until redemption or expiration and, upon redemption or 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 $4.5 million as of September 30, 2023, and $4.0 million as of September 24, 2022. The following table provides a reconciliation of the activity related to the Company’s customer loyalty program:

Customer Loyalty Program

    

(in thousands)

    

September 30, 2023

September 24, 2022

Beginning balance as of April 1, 2023 and March 26, 2022, respectively

    

$

4,145

$

3,504

Year-to-date provisions

7,223

8,089

Year-to-date award redemptions

(6,880)

(7,559)

Ending balance

$

4,488

$

4,034

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

Gift Card Program

    

(in thousands)

    

September 30, 2023

September 24, 2022

Beginning balance as of April 1, 2023 and March 26, 2022, respectively

    

$

19,855

$

15,392

Year-to-date issued

13,154

11,300

Year-to-date redemptions

(14,081)

(12,006)

Ending balance

$

18,928

$

14,686

Disaggregated Revenue

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

    

Thirteen Weeks Ended

Twenty-Six Weeks Ended

% of Net Sales

    

September 30, 2023

September 24, 2022

September 30, 2023

September 24, 2022

Footwear

    

49%

48%

49%

48%

Apparel

35%

35%

34%

35%

Hats, accessories and other

16%

17%

17%

17%

Total

100%

100%

100%

100%

10

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

    

Thirteen Weeks Ended

Twenty-Six Weeks Ended

% of Net Sales

    

September 30, 2023

September 24, 2022

September 30, 2023

September 24, 2022

Stores

    

90%

88%

90%

88%

E-commerce

10%

12%

10%

12%

Total

100%

100%

100%

100%

3. Goodwill and Intangible Assets, Net

The Company performs its annual goodwill impairment assessment on the first day of its fourth fiscal quarter, or more frequently if it believes that indicators of impairment exist. The Company’s goodwill balance was $197.5 million as of both September 30, 2023 and April 1, 2023. As of September 30, 2023, the Company had identified no indicators of impairment with respect to its goodwill and intangible asset balances.

During both the thirteen and twenty-six weeks ended September 30, 2023 and September 24, 2022, the Company did not record any long-lived asset impairment charges.

Net intangible assets as of September 30, 2023 and April 1, 2023 consisted of the following (in thousands, except for weighted average useful life):

September 30, 2023

Gross

    

    

    

Weighted

Carrying

Accumulated

Average

    

Amount

    

Amortization

    

Net

    

Useful Life

Customer lists—definite lived

$

345

$

(298)

$

47

 

5.0

Trademarks—indefinite lived

 

60,677

 

 

60,677

Total intangible assets

$

61,022

$

(298)

$

60,724

April 1, 2023

Gross

Weighted

Carrying

Accumulated

Average

    

Amount

    

Amortization

    

Net

    

Useful Life

Customer lists—definite lived

$

345

$

(271)

$

74

 

5.0

Trademarks—indefinite lived

 

60,677

 

 

60,677

Total intangible assets

$

61,022

$

(271)

$

60,751

Amortization expense for intangible assets totaled less than $0.1 million for both the thirteen weeks ended September 30, 2023 and September 24, 2022, and is included in selling, general and administrative expenses.

Amortization expense for intangible assets totaled less than $0.1 million for both the twenty-six weeks ended September 30, 2023 and September 24, 2022, and is included in selling, general and administrative expenses.

As of September 30, 2023, estimated future amortization of intangible assets was as follows:

Fiscal Year

    

(in thousands)

2024

    

$

27

2025

 

20

Thereafter

 

-

Total

$

47

11

4. Revolving Credit Facility

The Company currently has a $250.0 million syndicated senior secured asset-based revolving credit facility for which Wells Fargo Bank, National Association is agent (“Wells Fargo Revolver”). Under the Wells Fargo Revolver, the sublimit for letters of credit is $10.0 million and the current maturity date is July 11, 2027.

Revolving credit loans under the Wells Fargo Revolver bear interest at per annum rates equal to, at the Company’s option, either (i) Adjusted Term Secured Overnight Financing Rate (defined as “Term SOFR” for the applicable interest period plus a fixed credit spread adjustment of 0.10%) plus an applicable margin for Term SOFR loans, or (ii) the base rate plus an applicable margin for base rate loans. The base rate is calculated at the highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate and (c) Term SOFR for a one-month tenor in effect on such day plus 1.0%. The applicable margin is calculated based on a pricing grid that in each case is linked to quarterly average excess availability. For Term SOFR loans, the applicable margin ranges from 1.00% to 1.25% and for base rate loans it ranges from 0.00% to 0.25%. The interest on base rate loans under the Wells Fargo Revolver is payable in quarterly installments ending on the maturity date and for Term SOFR loans is payable on the earlier of the last day of each interest period applicable thereto, or on each three-month interval of such interest period. The Company also pays a commitment fee of 0.25% per annum of the actual daily amount of the unutilized revolving loans.

The borrowing base of the 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.

The amounts outstanding under the Wells Fargo Revolver and letter of credit commitments as of September 30, 2023 were zero and $0.8 million, respectively. The amounts outstanding under the Wells Fargo Revolver and letter of credit commitments as of April 1, 2023 were $66.0 million and $0.8 million, respectively. Total interest expense incurred in the thirteen and twenty-six weeks ended September 30, 2023 on the Wells Fargo Revolver was $0.3 million and $1.2 million, respectively, and the weighted average interest rate for the thirteen weeks ended September 30, 2023 was 8.2%. Total interest expense incurred in the thirteen and twenty-six weeks ended September 24, 2022 on the Wells Fargo Revolver was $1.2 million and $1.7 million, respectively, and the weighted average interest rate for the thirteen weeks ended September 24, 2022 was 3.3%.

All obligations under the 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 Wells Fargo Revolver.

The Wells Fargo Revolver 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 Wells Fargo Revolver require the Company to maintain, on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio (as defined in the Wells Fargo Revolver) of at least 1.00:1.00 during such times as a covenant trigger event shall exist. The Wells Fargo Revolver also requires the Company to pay additional interest of 2.0% per annum upon triggering certain specified events of default set forth therein. For financial accounting purposes, the requirement for the Company to pay a higher interest rate upon an event of default is an embedded derivative. As of September 30, 2023, the fair value of this embedded derivative was estimated and was not significant.

As of September 30, 2023, the Company was in compliance with the Wells Fargo Revolver debt covenants.

Debt Issuance Costs

Debt issuance costs totaling $1.7 million have been incurred under the Wells Fargo Revolver and are included as assets on the consolidated balance sheets in prepaid expenses and other current assets. Total unamortized debt issuance costs were $0.4 million and $0.5 million as of September 30, 2023 and April 1, 2023, respectively. These amounts are being amortized to interest expense over the term of the Wells Fargo Revolver.

Total amortization expense of less than $0.1 million related to the Wells Fargo Revolver is included as a component of interest expense in both the thirteen weeks ended September 30, 2023 and September 24, 2022.

12

Total amortization expense of $0.1 million related to the Wells Fargo Revolver is included as a component of interest expense in both the twenty-six weeks ended September 30, 2023 and September 24, 2022.

5. Stock-Based Compensation

Equity Incentive Plans

On October 19, 2014, the Company approved the 2014 Equity Incentive Plan, which was amended as of August 24, 2016 (as amended, the “2014 Plan”). The 2014 Plan authorizes the Company to issue awards to employees, consultants and directors for up to a total of 3,600,000 shares of common stock, par value $0.0001 per share. All awards granted by the Company under the 2014 Plan were nonqualified stock options, restricted stock awards, restricted stock units or performance share units. Options granted under the 2014 Plan have a life of eight to ten years and vest over service periods of four or five years or in connection with certain events as defined by the 2014 Plan and as determined by the Compensation Committee of our board of directors. Restricted stock awards granted under the 2014 Plan vested over one or four years, as determined by the Compensation Committee of our board of directors. Restricted stock units granted under the 2014 Plan vest over service periods of one, four or five years, as determined by the Compensation Committee of our board of directors. Performance share units granted under the 2014 Plan are subject to the vesting criteria discussed further below.

On August 26, 2020, the Company approved the 2020 Equity Incentive Plan (the “2020 Plan”). Following the approval of the 2020 Plan, no further grants have been made under the 2014 Plan. The 2020 Plan authorizes the Company to issue awards to employees and directors for up to a total of 2,000,000 shares of common stock, par value $0.0001 per share. As of September 30, 2023, all awards granted by the Company under the 2020 Plan to date have been market-based stock options, restricted stock units or performance share units. Market-based stock options granted under the 2020 Plan are subject to the vesting criteria discussed further below. Restricted stock units granted under the 2020 Plan vest over service periods of one, three or four years, as determined by the Compensation Committee of our board of directors. Performance share units granted under the 2020 Plan are subject to the vesting criteria discussed further below.

Stock Options

During both the thirteen and twenty-six weeks ended September 30, 2023, the Company did not grant options to purchase shares.

During the thirteen weeks ended September 24, 2022, the Company did not grant options to purchase shares.

During the twenty-six weeks ended September 24, 2022, the Company granted its Chief Executive Officer ("CEO") an option to purchase 86,189 shares of common stock under the 2020 Plan. This option contains both service and market vesting conditions. Vesting of this option is contingent upon the market price of the Company's common stock achieving three stated price targets for 30 consecutive trading days through the third anniversary of the date of grant. If the first market price target is met, 33% of the option granted will cliff vest on the third anniversary of the date of grant, with an additional 33% of the option vesting on the third anniversary of the date of grant if the second market price target is met, and the last 34% of the option vesting on the third anniversary of the date of grant if the final market price target is met. The total grant date fair value of this option was $4.0 million, with a grant date fair value of $46.41 per share. The Company is recognizing the expense relating to this stock option on a straight-line basis over the three-year service period. The exercise price of this award is $86.96 per share. The fair value of the option was estimated using a Monte Carlo simulation model. The following significant assumptions were used as of May 12, 2022, the date of grant:

13

Stock price

    

$

86.96

 

Exercise price

$

86.96

Expected option term (1)

 

6.5

years

Expected volatility (2)

 

65.9

%

Risk-free interest rate (3)

2.8

%

Expected annual dividend yield

0

%

(1)The Company has limited historical information regarding expected option term. Accordingly, the Company determined the expected life of the options using the simplified method.
(2)Stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company’s stock over the most recent period equal to the expected option term of the Company’s awards.
(3)The risk-free interest rate is determined using the rate on treasury securities with the same term.

Intrinsic value for stock options is defined as the difference between the market price of the Company’s common stock on the last business day of the fiscal quarter and the weighted average exercise price of in-the-money stock options outstanding at the end of each fiscal period.

The following table summarizes the stock award activity for the twenty-six weeks ended September 30, 2023:

Grant Date

Weighted

Weighted

Average

Aggregate

Stock

Average

Remaining

Intrinsic

    

Options

    

Exercise Price

    

Contractual Life 

    

Value

(in years)

(in thousands)

Outstanding at April 1, 2023

 

739,480

$

31.60

Granted

 

$

Exercised

(340,386)

$

25.21

$

22,876

Cancelled, forfeited or expired

 

$

Outstanding at September 30, 2023

 

399,094

$

37.04

 

5.7

$

18,118

Vested and expected to vest after September 30, 2023

 

399,094

$

37.04

 

5.7

$

18,118

Exercisable at September 30, 2023

 

242,107

$

23.54

 

4.6

$

13,957

A summary of the status of non-vested stock options as of September 30, 2023 including changes during the twenty-six weeks ended September 30, 2023 is presented below:

    

    

Weighted-

Average

Grant Date

    

Shares

    

Fair Value

Nonvested at April 1, 2023

 

480,252

$

16.26

Granted

 

$

Vested

 

(323,265)

$

9.39

Nonvested shares forfeited

 

$

Nonvested at September 30, 2023

 

156,987

$

30.25

Restricted Stock Units

During the thirteen weeks ended September 30, 2023, the Company did not grant restricted stock units.

During the twenty-six weeks ended September 30, 2023, the Company granted 132,713 restricted stock units to various directors and employees under the 2020 Plan. The shares granted to employees vest in three equal annual installments beginning on the grant date, provided that the respective award recipient continues to be employed by the Company through each of those dates (subject to certain exceptions). The shares granted to the Company’s directors vest on the first day following the first anniversary of the date of the grant. The grant date fair value of these awards for the

14

twenty-six weeks ended September 30, 2023 totaled $8.6 million. The Company is recognizing the expense relating to these awards on a straight-line basis over the service period of each award (subject to certain exceptions), commencing on the date of the grant.

During the thirteen weeks ended September 24, 2022, the Company did not grant restricted stock units.

During the twenty-six weeks ended September 24, 2022, the Company granted 94,262 restricted stock units to various employees under the 2020 Plan. The shares granted to employees vest in three equal annual installments beginning on the grant date, provided that the respective award recipient continues to be employed by the Company through each of those dates (subject to certain exceptions). The shares granted to the Company’s directors vest on the first anniversary of the date of the grant. The grant date fair value of these awards for the twenty-six weeks ended September 24, 2022 totaled $8.2 million. The Company is recognizing the expense relating to these awards on a straight-line basis over the service period of each award (subject to certain exceptions), commencing on the date of the grant.

Performance Share Units

During both the thirteen weeks ended September 30, 2023 and September 24, 2022, the Company did not grant performance share units.

During the twenty-six weeks ended September 30, 2023 and September 24, 2022, the Company granted 112,740 and 57,843 performance share units, respectively, to various employees under the 2020 Plan with grant date fair values of $7.3 million and $5.0 million, respectively. Performance share units are stock-based awards in which the number of shares ultimately received depends on the Company’s performance against its cumulative earnings per share target over a three-year performance period. The performance period for the awards granted during the twenty-six weeks ended September 30, 2023 began April 2, 2023 and ends March 28, 2026, and the performance period for the awards granted during the twenty-six weeks ended September 24, 2022 began March 27, 2022 and ends March 29, 2025.

The performance metrics for these awards were established by the Company at the beginning of the performance periods. At the end of the performance periods, the number of performance share units to be issued is fixed based upon the degree of achievement of the performance goals. If the cumulative three-year performance goals are below the threshold level, the number of performance share units to vest will be 0%, if the performance goals are at the threshold level, the number of performance share units to vest will be 50% of the target amounts, if the performance goals are at the target level, the number of performance share units to vest will be 100% of the target amounts, and if the performance goals are at the maximum level, the number of performance share units to vest will be 200% of the target amounts, each subject to continued service by the applicable award recipients through the last day of the performance periods (subject to certain exceptions). If performance is between threshold and target goals or between target and maximum goals, the number of performance share units to vest will be determined by linear interpolation. The number of shares ultimately issued can range from 0% to 200% of the participant’s target award.

The grant date fair value of the performance share units granted during both the twenty-six weeks ended September 30, 2023 and September 24, 2022, respectively, was initially measured using the Company's closing stock price on the dates of grant with the resulting stock compensation expense recognized on a straight-line basis over the three-year vesting periods (subject to certain exceptions). The expense recognized over the vesting periods is adjusted up or down on a quarterly basis based on the anticipated performance level during the performance periods. If the performance metrics are not probable of achievement during the performance periods, any previously recognized stock compensation expense is reversed. The awards are forfeited if the threshold performance goals are not achieved as of the end of the performance periods.

Stock-Based Compensation Expense

Stock-based compensation expense was $2.9 million and $2.4 million for the thirteen weeks ended September 30, 2023 and September 24, 2022, respectively. Stock-based compensation expense was $7.8 million and $7.1 million for the twenty-six weeks ended September 30, 2023 and September 24, 2022, respectively. Stock-based compensation expense of $0.4 million and $0.3 million was recorded in cost of goods sold in the consolidated statements of operations

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for the thirteen weeks ended September 30, 2023 and September 24, 2022, respectively. Stock-based compensation expense of $1.8 million and $1.2 million was recorded in cost of goods sold in the consolidated statements of operations for the twenty-six weeks ended September 30, 2023 and September 24, 2022, respectively. All other stock-based compensation expense is included in selling, general and administrative expenses in the consolidated statements of operations.

As of September 30, 2023, there was $2.5 million of total unrecognized stock-based compensation expense related to unvested stock options, with a weighted-average remaining recognition period of 1.49 years. As of September 30, 2023, there was $11.0 million of total unrecognized stock-based compensation expense related to restricted stock units, with a weighted-average remaining recognition period of 2.06 years. As of September 30, 2023, there was $6.3 million of total unrecognized stock-based compensation expense related to performance share units, with a weighted-average remaining recognition period of 2.44 years.

6. Commitments and Contingencies

The Company is involved, from time to time, in litigation that is incidental to its business. The Company has reviewed these matters to determine if reserves are required for losses that are probable and reasonable to estimate in accordance with FASB ASC Topic 450, Contingencies. The Company evaluates such reserves, if any, based upon several criteria, including the merits of each claim, settlement discussions and advice from outside legal counsel, as well as indemnification of amounts expended by the Company’s insurers or others pursuant to indemnification policies or agreements, if any.

On February 27, 2020, one employee, on behalf of themself and all other similarly situated employees, filed a class action lawsuit against the Company, which includes claims for penalties under California’s Private Attorney General Act, in the Sacramento County Superior Court, Case No. 34-2019-00272000-CU-OE-GDS, alleging violations of California’s wage and hour, overtime, meal periods and rest breaks, and an alleged violation of the suitable seating requirement as per California Labor Law among other things. The Company reached a settlement for an amount that is not material to the consolidated financial statements, and all settlement amounts have been paid as of September 30, 2023.

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 consolidated balance sheets as the impact is expected to be immaterial.

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7. Leases

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

ROU assets are tested for impairment in the same manner as long-lived assets. During both the thirteen and twenty-six weeks ended September 30, 2023 and September 24, 2022, the Company did not record ROU asset impairment charges related to its stores.

ROU assets and lease liabilities as of September 30, 2023 and April 1, 2023 consist of the following:

September 30, 2023

April 1, 2023

Balance Sheet Classification

(in thousands)

(in thousands)

Assets

Finance lease assets

Right-of-use assets, net

$

8,944

$

9,357

Operating lease assets

Right-of-use assets, net

 

339,844

 

317,266

Total lease assets

$

348,788

$

326,623

Liabilities

 

 

Current

Finance

Short-term lease liabilities

$

858

$

863

Operating

Short-term lease liabilities

55,351

50,732

Total short-term lease liabilities

$

56,209

$

51,595

Non-Current

Finance

Long-term lease liabilities

$

14,878

$

15,301

Operating

Long-term lease liabilities

342,600

314,780

Total long-term lease liabilities

$

357,478

$

330,081

Total lease liabilities

$