BOOT BARN HOLDINGS, INC. Management’s Discussion and

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

                                       20

Table of Contents

included in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission
(the “SEC”), on May 12, 2022 (the “Fiscal 2022 10-K”). As
used in this Quarterly Report on Form 10-Q, except where the context otherwise
requires or where otherwise indicated, the terms “company”, “Boot Barn“, “we”,
“our” and “us” refer to Boot Barn Holdings, Inc. and its subsidiaries.

           Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties, as well as assumptions that, if they never
materialize or prove incorrect, could cause our results to differ materially
from those expressed or implied by such forward-looking statements. The
statements contained in this Quarterly Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Forward-looking statements are often identified by the use of words such as, but
not limited to, “anticipate”, “believe”, “can”, “continue”, “could”, “estimate”,
“expect”, “intend”, “may”, “plan”, “project”, “seek”, “should”, “target”,
“will”, “would” and similar expressions or variations intended to identify
forward-looking statements. These statements are based on the beliefs and
assumptions of our management based on information currently available to
management. These forward-looking statements are subject to numerous risks and
uncertainties, including the risks and uncertainties described under the section
titled “Risk Factors” in our Fiscal 2022 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.

Our business and opportunities for growth depend on consumer discretionary
spending, and as such, our results are particularly sensitive to economic
conditions and consumer confidence. Inflation (which has occurred over the past
twelve months and is continuing) and other challenges affecting the global
economy could impact our operations and will depend on future developments,
which are uncertain. For further discussion of the uncertainties and business
risks affecting the Company, see Item 1A, Risk Factors, of our Fiscal 2022 10-K.

                                    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
June 25, 2022, we operated 311 stores in 38 states, as well as our e-commerce
websites consisting primarily of bootbarn.com, sheplers.com and
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 more than
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 quality store
associates and the ability to reinvest in our business at levels that we believe
exceed those of our competition.

                                       21

  Table of Contents

                 How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of
performance and financial measures. The key indicators we use to evaluate the
financial condition and operating performance of our business are net sales and
gross profit. In addition, we also review other important metrics, such as same
store sales, new store openings, and selling, general and administrative
(“SG&A”) expenses, and operating 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 consecutive days in any fiscal month

are included in same store sales;

stores that are closed temporarily, but for more than five consecutive days in

any fiscal month, are excluded from same store sales beginning in the fiscal

? month in which the temporary closure begins (and for the comparable periods of

the prior or subsequent fiscal periods for comparative purposes) until the

first full month of operation once the store re-opens;

? stores that are closed temporarily and relocated within their respective trade

areas are included in same store sales;

stores that are permanently closed are excluded from same store sales beginning

? in the month preceding closure (and 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 such acquired store, excluding those net sales before our
acquisition of that store, are included for the period presented. However, when
an acquired store is included for the period presented, the net sales of such
acquired store for periods before its acquisition are included (to the extent
relevant) for purposes of calculating “same store sales growth” and illustrating
the comparison between the applicable periods. Pre-acquisition net sales numbers
are derived from the books and records of the acquired company, as prepared
prior to the acquisition, and have not been independently verified by us.

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

                                       22

Table of Contents

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.

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, including those resulting from global

pandemics;

? 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
SG&A expenses. All of these costs are expensed as incurred.

New stores often open with a period of high sales levels, which subsequently
decrease to normalized sales volumes. In addition, we experience typical
inefficiencies in the form of higher labor, advertising and other direct
operating expenses, and as a result, store-level profit margins at our new
stores are generally lower during the start-up period of operation. The number
and timing of store openings has had, and is expected to continue to have, a
significant impact on our results of operations. In assessing the performance of
a new store, we review its actual sales against the sales that we projected that
store to achieve at the time we initially approved its opening. We also review
the actual number of stores opened in a fiscal year against the number of store
openings that we included in our budget at the beginning of that fiscal year.

Gross profit

Gross profit is equal to our net sales less our cost of goods sold. Cost of
goods sold includes the cost of merchandise, obsolescence and shrinkage
provisions, store and warehouse occupancy costs (including rent, depreciation
and utilities), inbound and outbound freight, supplier allowances,
occupancy-related taxes, compensation costs for merchandise purchasing and
warehouse personnel, and other inventory acquisition-related costs. These costs
are significant and can be expected to continue to increase as we grow. The
components of our reported cost of goods sold may not be comparable to those of
other retail companies, including our competitors.

Our gross profit generally follows changes in net sales. We regularly analyze
the components of gross profit, as well as gross profit as a percentage of net
sales. Specifically, we examine the initial markup on purchases, markdowns and
reserves, shrinkage, buying costs, distribution costs and occupancy costs. Any
inability to obtain acceptable levels of initial markups, a significant increase
in our use of markdowns or in inventory shrinkage, or a significant increase in
freight and other inventory acquisition costs, could have an adverse impact on
our gross profit and results of operations.

                                       23

Table of Contents

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

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, long-lived asset impairment

charges 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, and accounting-related expenses and
increases resulting from growth in the number of our stores.

                   Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, as well as the related disclosures of contingent assets and
liabilities at the date of the financial statements. A summary of our
significant accounting policies is included in Note 2 to our consolidated
financial statements included in the Fiscal 2022 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 2022 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 2022 10-K.

                             Results of Operations

We operate on a fiscal calendar that results in a 52- or 53-week fiscal year
ending on the last Saturday of March unless April 1st is a Saturday, in which
case the fiscal year ends on April 1st. In a 52-week fiscal year, each quarter
includes thirteen weeks of operations; in a 53-week fiscal year, the first,
second and third quarters each include thirteen weeks of operations and the
fourth quarter includes fourteen weeks of operations. The current fiscal year
ending on April 1, 2023 (“fiscal 2023”) will consist of 53 weeks; whereas, the
fiscal year ended on March 26, 2022 (“fiscal 2022”) consisted of 52 weeks. We
identify our fiscal years by reference to the calendar year in which the fiscal
year ends.

                                       24

  Table of Contents

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

                                                           Thirteen Weeks Ended
                                                          June 25,      June 26,
(dollars in thousands)                                      2022          2021

Condensed Consolidated Statements of Operations Data:
Net sales

                                                $   365,856    $ 306,327
Cost of goods sold                                           228,026      189,900
Gross profit                                                 137,830      116,427
Selling, general and administrative expenses                  85,405       62,784
Income from operations                                        52,425       53,643
Interest expense                                                 725        2,563
Other (loss)/income, net                                       (273)          104
Income before income taxes                                    51,427       51,184
Income tax expense                                            12,109       10,539
Net income                                               $    39,318    $  40,645

Percentage of Net Sales (1):
Net sales                                                      100.0 %      100.0 %
Cost of goods sold                                              62.3 %       62.0 %
Gross profit                                                    37.7 %       38.0 %
Selling, general and administrative expenses                    23.3 %       20.5 %
Income from operations                                          14.3 %       17.5 %
Interest expense                                                 0.2 %        0.8 %
Other (loss)/income, net                                       (0.1) %          - %
Income before income taxes                                      14.1 %       16.7 %
Income tax expense                                               3.3 %        3.4 %
Net income                                                      10.7 %       13.3 %

(1) Percentages may not recalculate due to rounding.

Thirteen Weeks Ended June 25, 2022 Compared to Thirteen Weeks Ended June 26,
2021

Net sales. Net sales increased $59.5 million, or 19.4%, to $365.9 million for
the thirteen weeks ended June 25, 2022 from $306.3 million for the thirteen
weeks ended June 26, 2021. Consolidated same store sales increased 10.0%.
Excluding the impact of the 9.3% increase in e-commerce same store sales, same
store sales increased by 10.1%. The increase in net sales was the result of an
increase of 10.0% in consolidated same store sales and the incremental sales
from new stores opened over the past twelve months.

Gross profit. Gross profit increased $21.4 million, or 18.4%, to $137.8 million
for the thirteen weeks ended June 25, 2022 from $116.4 million for the thirteen
weeks ended June 26, 2021. As a percentage of net sales, gross profit was 37.7%
and 38.0% for the thirteen weeks ended June 25, 2022 and June 26, 2021,
respectively. Gross profit increased primarily due to higher sales. The decrease
in gross profit rate of 30 basis points was driven by 70 basis points of
deleverage in buying, occupancy and distribution center costs, partially offset
by a 40 basis-point increase in merchandise margin rate. Merchandise margin rate
increased 40 basis points despite a 70 basis-point headwind from increased
freight charges. The increase in merchandise margin was primarily a result of
growth in exclusive brand penetration and better full-price selling.

Selling, general and administrative expenses. SG&A expenses increased $22.6
million
, or 36.0%, to $85.4 million for the thirteen weeks ended June 25, 2022
from $62.8 million for the thirteen weeks ended June 26, 2021. The increase in
SG&A expenses was primarily a result of higher store payroll and overhead, in
addition to increased marketing expenses in the current-year period compared to
the prior-year period. As a percentage of net sales, SG&A increased by 280 basis
points to 23.3% for the thirteen weeks ended June 25, 2022 from 20.5% for the
thirteen weeks ended June 26,

                                       25

  Table of Contents

2021. SG&A expenses as a percentage of net sales increased by 280 basis points
primarily as a result of higher store labor and marketing expense as a
percentage of sales.

Income from operations. Income from operations decreased $1.2 million, or 2.3%,
to $52.4 million for the thirteen weeks ended June 25, 2022 from $53.6 million
for the thirteen weeks ended June 26, 2021. The decrease in income from
operations was attributable to the factors noted above. As a percentage of net
sales, income from operations was 14.3% and 17.5% for the thirteen weeks ended
June 25, 2022 and June 26, 2021, respectively.

Interest expense. Interest expense was $0.7 million and $2.6 million for the
thirteen weeks ended June 25, 2022 and June 26, 2021, respectively. The decrease
in interest expense in the current-year period was primarily the result of
paying off the remaining outstanding balance on the 2015 Golub Term Loan on
December 14, 2021, partially offset by interest expense incurred on the
revolving line of credit during the thirteen weeks ended June 25, 2022.
Additionally, interest expense in the prior-year period includes the write off
of $0.9 million in debt issuance costs and debt discount associated with the
$61.5 million prepayment on the 2015 Golub Term Loan during thirteen weeks ended
June 26, 2021.

Income tax expense. Income tax expense was $12.1 million for the thirteen weeks
ended June 25, 2022, compared to $10.5 million for the thirteen weeks ended June
26, 2021
. Our effective tax rate was 23.5% and 20.6% for the thirteen weeks
ended June 25, 2022 and June 26, 2021, respectively. The tax rate for the
thirteen weeks ended June 25, 2022 was higher than the tax rate for the thirteen
weeks ended June 26, 2021, primarily due to a lower tax benefit due to income
tax accounting for share-based compensation compared to a higher tax benefit in
the thirteen weeks ended June 26, 2021.

Net income. Net income was $39.3 million for the thirteen weeks ended June 25,
2022
compared to $40.6 million for the thirteen weeks ended June 26, 2021. The
decrease in net income was primarily attributable to the factors noted above.

Store Operating Data:

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

                                                         Thirteen Weeks Ended
                                                     June 25,          June 26,
                                                       2022              2021
Selected Store Data:
Same Store Sales growth                                    10.0 %             78.9 %
Stores operating at end of period                           311                276
Total retail store square footage, end of
period (in thousands)                                     3,333              2,915
Average store square footage, end of period              10,717             10,563

Average net sales per store (in thousands) (1) $ 1,031 $ 942

Average net sales per store is calculated by dividing net sales for the
(1) applicable period by the number of stores operating at the end of the period.

    For the purpose of calculating net sales per store, e-commerce sales and
    certain other revenues are excluded from net sales.


                        Liquidity and Capital Resources

We rely on cash flows from operating activities and our credit facility as our
primary sources of liquidity. Our primary cash needs are for inventories,
operating expenses, capital expenditures associated with opening new stores and
remodeling or refurbishing existing stores, improvements to our distribution
facilities, marketing and information technology expenditures, debt service and
taxes. We have also used cash for acquisitions, the subsequent rebranding and
integration of the stores acquired in those acquisitions and costs to
consolidate the corporate offices. In addition to cash and cash equivalents, the
most significant components of our working capital are accounts receivable,
inventories, accounts payable and accrued expenses and other current
liabilities. We believe that cash flows from operating activities

                                       26

Table of Contents

and the availability of cash under our credit facility 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 2023 will be between
$80.0 million and $87.0 million (including the capital expenditures made during
the thirteen weeks ended June 25, 2022), 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 2015 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 $200.0 million syndicated senior secured
term loan for which GCI Capital Markets LLC (“2015 Golub Term Loan”) was agent.

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

Borrowings under the June 2015 Wells Fargo Revolver bear interest at per annum
rates equal to, at our 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%. 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 then
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 June 6, 2024. The 2019 Wells Amendment further made changes to
the 2015 Wells Fargo Revolver in connection with the transition away from LIBOR
as the benchmark rate. On July 26, 2021, the Company entered in an amendment
(the “2021 Wells Amendment”), increasing the aggregate revolving credit facility
to $180.0 million. The amount outstanding under the June 2015 Wells Fargo
Revolver as of June 25, 2022 and March 26, 2022 was $74.9 million and $28.5
million
, respectively. Total interest expense incurred in the thirteen weeks
ended June 25, 2022 on the June 2015 Wells Fargo Revolver was $0.5 million and
the weighted average interest rate for the thirteen weeks ended June 25, 2022
was 2.3%. Total interest expense incurred in the thirteen ended June 26, 2021 on
the June 2015 Wells Fargo Revolver was $0.1 million.

On December 14, 2021, we repaid the remaining outstanding principal under the
2015 Golub Term Loan and terminated the agreement. Total interest expense
incurred in the thirteen weeks ended June 26, 2021 on the 2015 Golub Term Loan
was $1.2 million and the weighted average interest rate for the thirteen weeks
ended June 26, 2021 was 5.5%.

All obligations under the June 2015 Wells Fargo Revolver are unconditionally
guaranteed by us and each of our direct and indirect domestic subsidiaries
(other than certain immaterial subsidiaries) which are not named as borrowers
under the June 2015 Wells Fargo Revolver.

                                       27

Table of Contents

The June 2015 Wells Fargo Revolver contains customary provisions relating to
mandatory prepayments, restricted payments, voluntary payments, affirmative and
negative covenants, and events of default, and requires the Company to maintain,
on a consolidated basis, a Consolidated Fixed Charge Coverage Ratio of at least
1.00:1.00 during such times as a covenant trigger event shall exist. The
June 2015 Wells Fargo Revolver also requires us to pay additional interest of
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
June 25, 2022, the fair value of this embedded derivative was estimated and was
not significant.

As of June 25, 2022, we were in compliance with the June 2015 Wells Fargo
Revolver covenant.

Subsequent to the thirteen weeks ended June 25, 2022, on July 11, 2022, we
entered into Amendment No. 4 to the Credit Agreement (the “2022 Wells
Amendment”), increasing the aggregate revolving credit facility to $250.0
million
. The 2022 Wells Amendment also extends the maturity date to July 11,
2027
.

The 2022 Wells Amendment also makes other changes to the June 2015 Wells Fargo
Revolver, replacing all LIBOR based provisions with provisions reflecting Term
Secured Overnight Financing Rate (“SOFR”), including, without limitation, the
use of Term SOFR as the benchmark rate. Following the 2022 Wells Amendment,
Revolving Credit Loans bear interest at per annum rates equal to, at the
Company’s option, either (i) Adjusted Term SOFR (defined as Term SOFR plus
0.10%) plus an applicable margin for Term SOFR loans, or (ii) the base rate plus
an applicable margin for base rate loans. The base rate is calculated as the
highest of (a) the federal funds rate plus 0.5%, (b) the Wells Fargo prime rate
and (c) Term SOFR for a one month tenor in effect on such day plus 1.0%. The
applicable margin is calculated based on a pricing grid that in each case is
linked to quarterly average excess availability. For SOFR loans, the applicable
margin ranges from 1.00% to 1.25% and for base rate loans it ranges from 0.00%
to 0.25%.

                          Cash Position and Cash Flow

Cash and cash equivalents were $16.0 million as of June 25, 2022 compared to
$20.7 million as of March 26, 2022.

The following table presents summary cash flow information for the periods
indicated below:

                                     Thirteen Weeks Ended
                                    June 25,      June 26,
(in thousands)                        2022          2021
Net cash (used in)/provided by:
Operating activities               $ (25,768)    $   46,328
Investing activities                 (20,835)       (9,294)
Financing activities                   41,943      (60,542)
Net decrease in cash               $  (4,660)    $ (23,508)


Operating Activities

Net cash used in operating activities was $25.8 million for the thirteen weeks
ended June 25, 2022. The significant components of cash flows used in operating
activities were net income of $39.3 million, the add-back of non-cash
depreciation and intangible asset amortization expense of $8.0 million, and
stock-based compensation expense of $4.7 million. Prepaid expenses and other
current assets increased by $20.6 million due to the timing of payments.
Inventory increased by $60.1 million as a result of an increase in purchases.

Net cash provided by operating activities was $46.3 million for the thirteen
weeks ended June 26, 2021. The significant components of cash flows provided by
operating activities were net income of $40.6 million, the add-back of non-cash
depreciation and intangible asset amortization expense of $6.2 million, and
stock-based compensation expense of $3.2 million. Accounts payable and accrued
expenses and other current liabilities increased by $24.3 million due to the
timing of payments, including an increase in income taxes payable. Inventory
increased by $21.0 million as a result of an increase in purchases.

                                       28

  Table of Contents

Investing Activities

Net cash used in investing activities was $20.8 million for the thirteen weeks
ended June 25, 2022, which was attributable to $20.8 million in 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 $9.3 million for the thirteen weeks
ended June 26, 2021, which was primarily attributable to $9.3 million in 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 $41.9 million for the thirteen
weeks ended June 25, 2022. We borrowed $46.3 million on our revolving line of
credit and paid $4.4 million in taxes related to the vesting of restricted
stock.

Net cash used in financing activities was $60.5 million for the thirteen weeks
ended June 26, 2021. We repaid $61.7 million on our debt and finance lease
obligations during the period and paid $2.5 million in taxes related to the
vesting of restricted stock. We also received $3.6 million from the exercise of
stock options.

© Edgar Online, source Glimpses