Boot Barn Holdings, Inc. - 10-Q filing on 2022-01-28

Leases

9 Months Ended

Dec. 25, 2021

7. Leases

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

Operating and finance lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating and finance lease ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by cash payments received from landlords as lease incentives, plus any prepaid rent and other direct costs from executing the leases. Amortization of both operating and finance lease ROU assets is performed on a straight-line basis and recorded as part of rent expense in costs of goods sold and selling, general and administrative expenses on the condensed consolidated statements of operations. The interest expense amortization component of the finance lease liabilities is recorded within interest expense on the condensed consolidated statements of operations. ROU assets are tested for impairment in the same manner as long-lived assets. During both the thirteen and thirty-nine weeks ended December 25, 2021, the Company did not record ROU asset impairment charges related to its stores. During the thirteen and thirty-nine weeks ended December 26, 2020, the Company recorded ROU asset impairment charges of zero and $0.3 million, respectively, related to its stores.

ROU assets and lease liabilities as of December 25, 2021 and March 27, 2021 consist of the following:


	Balance Sheet Classification	December 25, 2021 (in thousands)		March 27, 2021 (in thousands)
Assets
Finance lease assets	Right-of-use assets, net	$	10,510	$	8,036
Operating lease assets	Right-of-use assets, net		216,388		178,791
Total lease assets		$	226,898	$	186,827

Liabilities
Current
Finance	Short-term lease liabilities	$	1,250	$	1,164
Operating	Short-term lease liabilities		40,491		38,236
Total short-term lease liabilities		$	41,741	$	39,400

Non-Current
Finance	Long-term lease liabilities	$	15,969	$	13,507
Operating	Long-term lease liabilities		202,946		168,329
Total long-term lease liabilities		$	218,915	$	181,836
Total lease liabilities		$	260,656	$	221,236

Total lease costs for the thirteen and thirty-nine weeks ended December 25, 2021 and December 26, 2020 were:


		Thirteen Weeks Ended					Thirty-Nine Weeks Ended
(in thousands)	Statement of Operations Classification	December 25, 2021		December 26, 2020			December 25, 2021		December 26, 2020
Finance lease cost
Amortization of right-of-use assets	Cost of goods sold	$	256	$	200		$	675	$	648
Interest on lease liabilities	Interest expense		188		209			587		589
Total finance lease cost		$	444	$	409		$	1,262	$	1,237

Operating lease cost	Cost of goods sold	$	12,356	$	10,931		$	35,860	$	32,587
Operating lease cost	Selling, general and administrative expenses		347		702			1,027		966
Short-term lease cost	Cost of goods sold		1,468		633	*		2,617		1,302	**
Short-term lease cost	Selling, general and administrative expenses		71		76	*		183		271	**
Variable lease cost	Cost of goods sold		5,751		3,511	*		14,486		10,358	**
Variable lease cost	Selling, general and administrative expenses		109		114	*		331		332	**
Sublease income	Cost of goods sold		—		(156)			—		(468)
Total lease cost		$	20,546	$	16,220		$	55,766	$	46,585

*Amounts disclosed above for short-term lease cost recorded in selling, general, and administrative expenses and in costs of goods sold, as well as amounts for variable lease cost recorded in selling, general, and administrative expenses and in costs of goods sold, for the thirteen weeks ended December 26, 2020 have been corrected from amounts previously reported of $709, $0, $584, and $0, respectively.

**Amounts disclosed above for short-term lease cost recorded in selling, general, and administrative expenses and in costs of goods sold, as well as amounts for variable lease cost recorded in selling, general, and administrative expenses and in costs of goods sold, for the thirty-nine weeks ended December 26, 2020 have been corrected from amounts previously reported of $1,573, $0, $1,441, and $0, respectively.

The following table summarizes future lease payments as of December 25, 2021:


	Operating Leases		Finance Leases
Fiscal Year	(in thousands)		(in thousands)
2022	$	8,661	$	403
2023		51,465		1,560
2024		49,679		1,544
2025		43,344		1,515
2026		36,428		1,552
Thereafter		95,934		16,114
Total		285,511		22,688
Less: Imputed interest		(42,074)		(5,469)
Present value of net lease payments	$	243,437	$	17,219

The following table includes supplemental lease information:


	Thirty-Nine Weeks Ended			Thirty-Nine Weeks Ended
Supplemental Cash Flow Information (dollars in thousands)	December 25, 2021			December 26, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	37,753		$	33,739
Operating cash flows from finance leases		—			2
Financing cash flows from finance leases		1,192			1,057
	$	38,945		$	34,798
Lease liabilities arising from new right-of-use assets
Operating leases	$	66,557		$	36,481
Finance leases	$	3,148		$	2,733

Weighted average remaining lease term (in years)
Operating leases		6.5			6.3
Finance leases		13.5			14.4

Weighted average discount rate
Operating leases		4.9	%		6.0	%
Finance leases		10.9	%		12.1	%