Boot Barn Holdings Inc (BOOT) 2015 Q4 法說會逐字稿

Welcome to the Boot Barn Holdings' Inc. fourth quarter fiscal year 2015 conference call.

(Operator Instructions)

It is now my pleasure to introduce your host Jim Watkins, Vice President of Investor Relations and External Reporting for Boot Barn. Thank you, Mr. Watkins. You may begin.

Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn Holdings' Inc fourth quarter 2015 earnings results. With me on today's call are Jim Conroy, our President and CEO; Greg Hackman, Chief Financial Officer.

A copy of today's press release is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days in the Investor Relations section of the company's website.

I would like to remind you that certain statements we will make in this presentation are forward-looking statements and these forward-looking statements reflect Boot Barn's judgment and analysis only as of today and actual results may differ materially from current expectations, based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements.

For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our fourth quarter 2015 earnings release, which was furnished to the SEC today on Form 8-K, as well as our filings with the SEC referenced in their disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

With that, I'll turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?

Thank you, Jim and good afternoon. I would like to thank you all for joining us today. During my discussion I will provide you with an overview of our fourth quarter results and the key drivers of that performance (inaudible -- technical difficulty) next I would like to highlight areas of focus for us in fiscal 2016 as we continue to advance our strategic initiatives. Then Greg will review our financial performance in more detail and provide our outlook for fiscal 2016. Following that we will open the call up for your questions.

Turning to your review of our fourth quarter results, we continued our positive momentum with strong execution across nearly all areas of the organization leading to a net sales increase of 16.7% over the same period last year to a $103.3 million. This increase was driven by the sales contributions of new stores as well as a strong 7% increase in same store sales.

Roughly half of our increase in same store sales was driven by an increase in average transactions per store with the balance of the growth attributed to a higher basket size. We also achieved higher merchandize margins year-over-year primarily due to the planned increase in private brand penetration. During the quarter we achieved progress across each of our four key initiatives which I would like to highlight for you now. Our first initiative is to build more stores by both filling in existing markets and building out developing markets. During the fourth quarter we opened four new stores bringing the year-to-date total to 18 reflecting 12% new unit growth which is ahead of our 10% long term target.

Total store count at the end of the year was a 169 stores in 26 states. As a group the new stores that opened in fiscal 2014 and 2015 are on target to outperform our internal hurdle rate of a three year payback. Further we continue to be encouraged by the new stores opening in new markets which thus far have been opening and ramping up as well as new stores in existing markets further illustrating the demand for the Boot Barn offering and a potential that exists to further expand our portfolio of stores nation-wide.

Our second growth strategy is increasing same store sales through a combination merchandizing, marketing and customer service initiatives. This past quarter marked our 22nd consecutive quarter of positive same store sales growth which continues to be driven strong full price selling. Similar to last quarter same store sales growth was fairly broad based across most of the major departments in the store and most of our store districts across the country.

We did see particular strength in both boots and apparel in the men's western business and in the work business. On our last call we provided an update on our store that we believe could be impacted by declining oil prices. As a reminder we underscore that Boot Barn business is fairly diversified across gender, geography and merchandize categories and now less than 10% of our store base relies directly on oil and gas business.

Further we noted that off the 15 stores that we believe could be impacted by declining oil prices, six of those stores are in refining markets with the balance in oil drilling markets.

When we analyze our stores in these oil markets in the fourth quarter while we did see a deceleration in same store sales growth in those stores. Their same store sales growth exceeded the chain average with particular strength in the oil refining markets.

Same store sales growth in the State of Texas which includes both oil markets and non-oil markets also exceeded the chain average. Most importantly we're pleased that we were able to achieve another quarter of same store sales growth for the total chain as we comped up 7% in Q4 this year again 8.9% in Q4 of fiscal 2014 which was our strongest quarter last year.

Our third strategy is to continue to grow our private brand penetration which provides us with competitive differentiation and an ability to grow our merchandize margin. For the full fiscal year private brand penetration in Boot Barn stores exceeded our plans and increased to slightly more than 10% from 7% in fiscal year 2014 driven by continued strong demand for our existing six private brands.

Our fourth and final growth strategy is to augment our omnichannel capabilities to enhance customer connectivity and drive sales across all channels. During the quarter we further enhanced our offerings in this area by improving the ordering and order confirmation process, more proactively offering boot care and other boot accessories to our customers online and by enhancing the cross selling recommendations on the site.

Turning to our outlook for fiscal 2016 we will continue to execute against the same four initiatives to further drive the growth of our business from a new store perspective we remain disciplined in our site selection and build out process and expect to open at least 22 new stores in fiscal year 2016 which represents more than 13% annual unit growth and is ahead of our long term target of 10%. As discussed on our third quarter call we have accelerated our new store openings in the first quarter of fiscal 2016 and have already opened six stores in the quarter.

I'm pleased to report that we continue to improve the efficiency and speed of our new store openings which speaks to the experience and discipline of our real estate store operations and new construction teams as well as our recruiting and talent development process.

With the accelerated pace new store openings will be skewed towards the first half of the year with approximately 13 stores opening in the first six months and the remainder in the second half. Our new store plan for fiscal year 2016 reflects the strong pipeline of quality locations we have sourced and secured as well as our confidence in our ability to staff and manage these new locations effectively. We continue to target payback in less than three years on average.

We will continue to focus on driving same store sales growth during a number of key projects planned for this year. First we plan to refresh approximately 8 to 10 existing stores in our chain to further grow sales and profitability. This is part of an ongoing plan to refresh some of our legacy stores which often contribute above average sales. We believe this investment is necessary to ensure that the customer experience aligns with the Boot Barn brand promise and it's consistent across the country.

The majority of these refreshers will take just a few days if these stores will not come out of the comp store base during the construction period. We're also going to materially expand two stores in very strong markets to provide additional selling square footage to accommodate very high productivity stores and allow room for more sales growth. From a merchandising perspective we plan to drive additional in sales with renewed focus on country music and festival related merchandize on the Western side of the business and investment and additional work (inaudible) capacity and more cohort shops on the work side and continuing to evolve the front third of the store which includes jewelry and accessories.

We have also recently rolled out a more comprehensive planning the process which creates more exciting idea driven floor sets which has helped our stores improve their in-store merchandising and display capabilities and will bring more consistency across the chain.

Customer centric projects include (inaudible) improvements to our CRM capabilities and designing and casting in-store mobile POS systems to further enhance our MSI of selection and to improve customer conversion by shortening checkout time. Customer centric projects include -- returning to our strategy to enhance margins through increased penetration of private brands, we're slightly ahead of our goal of achieving private brand penetration of 15% over the next two years.

During fiscal 2016 we will also be exploring opportunities to move up the value chain by improving our processes and resources to enhance the profitability of our private brand longer term. We also believe there are opportunities to expand our full container of vendor direct program for greater efficiencies as we scale. As part of our long term strategy we expect to establish a sourcing presence overseas in the second quarter of fiscal year 2016.

As always we will carefully balance the penetration of private brands to ensure that we're offering our customers the best and broadest selection of both private brand and third party merchandize that they have come to expect from Boot Barn.

Finally omnichannel strategy in fiscal year 2016 will focus on making some targeted investments in infrastructure as we further enhance our ability to connect with our customer. These include refinements to our ecommerce site and continued focus on augmenting our social media presence. We plan to implement and update to our ecommerce platform in fiscal 2016 which we believe will improve our customers online shopping experience. We will also continue our initiative to enhance connections between our website and our stores.

Additionally we're extremely pleased to announce that we recently hired Jon Kubo, to be our Chief Digital Officer. Jon joins us with 30 years of experience in ecommerce, technology and digital marketing. Jon brings a strong entrepreneurial background to the company with experience in a number of startup ventures as well as expertise managing large scale omnichannel specialty retailers.

Jon is a strategic leader who will further strengthen our management team.

Now I would like to turn the call over to Greg Hackman.

Thank you, Jim. Good afternoon everyone. I will begin by reviewing our fourth quarter results and then provide our outlook for fiscal 2016. In my discussion I will be commenting on both actual and adjusted results excluding any onetime cost to facilitate comparability between periods in going forward. Please reference today's press release for all definitions and for reconciliation of GAAP numbers to these non-GAAP adjusted numbers. In the fourth quarter net sales increased 16.7% to a $103.3 million driven by the sales contributions of new stores as well as a 7% same store sales increase. Gross profit increased 23.5% to $34 million. This compares to $27.5 million in the fourth quarter of fiscal 2014 which included a $1.1 million adjustment related to remerchandising the Baskin stores.

Excluding that prior year adjustment gross profit increased 18.6% and our adjusted gross profit rate improved 50 basis points.

The gross profit rate improvement was driven by higher merchandize margins reflecting increased penetration of private brand and improved mark-up across the store. The increase was partially offset by increases in store occupancy cost and depreciation expense associated with the accelerate of new store openings compared to the prior year period.

Operating expense was $26.2 million which included $0.5 million in cost associated with our secondary offering in February of 2015. This compares to $22.7 million in the prior year which included $1.6 million of Baskins integration cost and a $1.2 million loss of asset disposals.

In addition to the cost of the secondary offering, the increase in operating expense was primarily attributable to store operating expenses from an increased store count, increased incentive compensation related to Q4 of fiscal 2015 hire sales, employee relocation cost and public company cost that were not incurred in Q4 fiscal 2014.

Income from operations was $7.8 million compared to $4.8 million in the prior year period which included the items I've just mentioned. Excluding these items adjusted income from operations increased 9.6% to $8.4 million compared to $7.6 million in the prior year period. Net income in the quarter was $2.6 million or $0.10 per diluted share which includes 0.5 million to $1 million of secondary offering cost and a $1.4 million write-off of debt issuance cost in connection with our February 2015 debt refinancing. This compares to $1.8 million or $0.09 per diluted share last year. In today's press release we included a reconciliation to pro forma adjusted net income. This reflects the cost of the secondary offering that occurred in the fourth quarter of fiscal 2015 and the repayment of $81.9 million of our term loan and the 25 basis point reduction on our interest rate both of which that occurred during the third quarter of fiscal 2015.

The pro forma assumes the IPO, debt pay down and interest rate reduction occurred at the beginning of fiscal 2014. On that basis pro forma adjusted net income was $4.6 million or $0.17 per diluted share compared to $4.4 million or $0.18 per diluted share in the prior year period.

The effective tax rate for the pro forma adjusted net income in the fourth quarter was 36% compared to 30% in the fourth quarter of fiscal 2014. Our fiscal full year results are highlighted, are included in the press release but I would like to touch on a few highlights. In fiscal 2015 net sales increased 16.4% driven by the contribution of 18 new stores opened during the fiscal year, as same store sales increase of 7.3% and having a full year of sales from the Baskin stores.

Adjusted income from operations as a percentage of sales was 9.2% an improvement of 40 basis points.

Turning to the balance sheet, as of March 28, 2015 we had $1.4 million of cash and cash equivalents compared to $1.1 million at the end of last year. We ended the year with $16.2 million of outstanding borrowings on our revolving credit facility and $74.2 million outstanding on our term loan. Inventory rose 25.9% to a $129.3 million compared to a year ago. This increase is primarily driven by an 11.2% increase in store count, a 9.9% increase in our average inventory per store and an increase in our distribution center inventory related to our private brand growth initiative.

This increase in average inventory per store was primarily to support our plus 7% Q4 same store sales, our private brand initiative and our increased investment in work food [ph] inventory.

Now I would like to turn to our outlook for fiscal 2016. For the full year of fiscal 2016 we expect same store sales growth to be in the low to mid-single digits. While we do not comment on inter-quarter results, given where we are with more than eight weeks into the quarter we wanted to communicate that we're tracking slightly above the high-end of that annual range.

We expect income from operations for the full fiscal year to be between $39.1 million and $40.1 million. As Jim outlined we will continue to execute our initiatives in fiscal 2016 in order to drive growth this year and longer term. As a result we expect to incur some higher operating cost which will put some pressure on operating margins in the short term, that will provide compelling paybacks over the ensuing years. These higher costs include the cost associated with acceleration of new store openings as we take advantage of opportunities to secure great locations.

The establishment of an oversea sourcing presence in the second quarter of the year and the consolidation of our four satellite warehouses into one primary distribution center which we believe will add further efficiencies to our operations and be accretive to operating margins longer term. However we will have some duplication of operating cost during that transition period.

Despite these investments in our future growth, we expect to maintain our fiscal 2015 pro forma adjusted operating margin rate. In 2016 we will also have a full year of public company costs compared to only two quarters in fiscal 2015. Public company cost are expected to be $2.3 million in fiscal 2016 compared to $0.7 million in fiscal 2015. Higher depreciation and amortization expense associated with the 80 new stores opened in fiscal 2015 and the 22 new stores we expect to open in fiscal 2016. And non-cash stock compensation expense of $3 million in fiscal 2016 compared to $2 million in fiscal 2015.

We expect net income to be in the range of $21.9 million to $23.1 million. This represents earnings per share in the range of $0.81 to $0.86 per share based on an estimated weighted average diluted share count of 27.0 million shares for the fiscal year.

When we report fiscal 2016 results we will be adjusting fiscal 2015 results to reflect the incremental $1.6 million of public company cost. For comparative purposes the high end of our fiscal year outlook is in-line with our long term net income growth target of approximately 20% when we adjust 2015 results to include the additional $1.6 million of public company cost most of which would have been incurred in Q1 and Q2 of last year.

This translates into a $1 million reduction in pro forma adjusted net income or $0.04 per share. Said another way if we were to adjust fiscal 2015 results to reflect our estimate for a full year of public company cost our pro forma adjusted net income would have been $18.9 million which would have translated to $0.72 per share.

When we review growth rates by quarter we expect our highest growth rate to be in Q4 which will be offset by slightly lower growth in Q3. We expect fiscal year 2016 capital expenditures to be in the range of $16 million to $18 million. The majority of this relates to the opening of 22 new stores during the year the refresh of approximately 8 to 10 existing stores and the consolidation of our four satellite warehouses into one primary distribution center. We expect our fiscal 2016 interest expense to be approximately $3.2 million and our tax rate to be approximately 39%.

Now I would like to turn the call back to Jim for some closing remarks.

Thank you, Greg. I'm pleased with our fourth quarter results which have been a year of strong performance and solid execution across our entire organization. During fiscal year 2015 we increased our sales by 16.4% driven by the solid performance from 18 new stores opened during the year and a 7.3% increase in same store sales growth. We expanded our merchandize margin and on an adjusted basis increased our operating margin by over 40 basis points even as we accelerated the pace of our new store openings and augmented our management team.

I would like to take one minute and extend my personal gratitude to the entire management team as well as the stores organization for successfully growing Boot Barn in such an accelerated manner. We have surpassed $400 million in sales and more than double the size of chain in less than three years. This is really a testament to the hardwork and dedication of the entire team across the country.

Our continued success is rooted in our leading position as a lifestyle retail brand that serves the Western Country and work customer groups, a demographic that is loyal, vibrant and growing. Our business is well balanced and diversified across categories and geographies with plenty of white space for continued growth. We're excited and energized by the opportunity before us to expand the Boot Barn concept nationally and have confidence in our ability to achieve the objectives we have set for ourselves for the current fiscal year and beyond.

I would now like to open the call up for your questions. Devin?

([Operator Instructions). Our first question comes from the line of Matthew Boss with JPMorgan. Please proceed with your question.

First question, new store productivity was very strong in the quarter, could you just talk about the performance in your newer stores and then Jim if you could just elaborate on some of the trends that you're seeing in those newer markets?

Sure. So the newer stores taken in total both from last fiscal year fiscal 2015 and in fiscal 2015 have been performing better than our pro forma's at least in total and which means their payback will be faster than three years. We have seen strengthen across many different markets, so it's not a pocket of stores and probably the thing we're most excited about is that the stores that have opened in our newest markets and you can read into that most of the stores in the South-East where we didn't have as strong a brand presence or as many stores and in some states we're opening our first or second store, we're particularly pleased with how quickly those stores have gotten out of the gate and we had originally thought maybe they would build sales more slowly than stores in our more legacy markets that was our hypothesis going in, that hasn't proven to be true so we're delighted to see sort of the speed that those stores have ramped up.

And then just a quick follow-up, from a margin perspective. I guess Jim how would you reflect on some of the wins that you've seen over the past year and then more so looking forward, what's the best way to rank the margin expansion opportunities as you kind of lay them out over the next couple of years?

So as we reflect back and Greg talked a bit about the -- we have had margin expansion from a few different areas right, so we have had from private brand expansion, increased mark-up across the stores. If you went back through the whole year not necessarily in the fourth quarter part of it was a composition of higher boot sales and higher growth of boots versus other pieces of our business which as you know boots are margin enhancing. As we look forward I would come back to the same three or four lever. So we have continued to grow private brand penetration, we have communicated that we expect that we can grow that by 250 or 300 basis points of penetration each year with the goal of getting to 15% two years from today. I think that we will find that number to be a little bit conservative.

We also are continuing to expand our full container vendor direct program, so this is buying bigger lots of merchandize directly from our vendors typically on the most basic merchandize with very low if not zero markdown exposure and by doing so in lowering the cost reserved [ph] from our vendors we're getting higher mark-up there.

We also think that as we continue to evolve as a company, and mature as a company we will be able to expand the merchandize margin rate for private brands and it's in a very, very early stages but we have communicated that we will be putting an office overseas, China or Hong Kong probably more specifically to help us get more than our stated 1000 basis points of mark-up.

Now the reason that I ranked third is number one it will take some time to ramp up and number two we're going to start in categories that aren't huge drivers of the business but have less of a strong brand preference from our customers. So, if you tie that into our front door of our store initiative where we're looking at jewelry, accessories, items around the cash or at home and gift merchandize, customers typically don't have a very strong brand preference for those items and if we can bring those overseas we think we can really expand the merchandize margin for that product.

Thank you. Our next question comes from the line of Peter Keith with Piper Jaffray. Please proceed with your question.

I wanted to just continue the discussion a little bit on gross margin. It looked like the gross margin from a product margin perspective came in at least better than what we expected and offset some of the (inaudible) leverage and I was curious if there was anything specific to the quarter or maybe that (inaudible) launched and accelerated their private label penetration or something that they might be continuing into the New Year here?

There is no specific anomaly. We are helped a bit by higher than -- the higher comp, we're helped because private brands performed well but there was nothing extremely uniquely happened in that quarter that drove an outsized number other than some really great execution by our merchants to be honest.

And then Jim, I was intrigued with one of the initiatives this year you're talking about going after the country music and festival crowd. Is that something that's relatively new for this year and I guess should we think about that as maybe a Q1 and Q2 sales driver specifically for you?

I would say it's a continuation of strategy that started and many of these things tied together. So if you went back far enough before we had really begun to penetrate the South Eastern part of the U.S. we thought we needed to become more relevant in country music to help bring the brand to life in the states that aren't, in the western part of the U.S., so that was the umbrella strategy. Last year we said to ourselves we have opportunity to expand a more modern fit men's private brand and at the same time we wanted to have a direct connection to country music where we bought those two things together we developed MoonShine Spirit by Brad Paisley.

As we looked this year and the first quarter of this year and over the summer we have and you can see it in our stores, we have made a press for festivals so this is younger customers typically but all customers often wear to outdoor music events and we have really made a press not only focusing on that merchandize but bringing some emerging country music artist to life so if you were to go to our site or see our most recent direct mail campaign or go to our store you would see that there is a big presence of Brad Paisley, I mean there is a smaller presence of some of the country music artist that are much smaller in stature (inaudible), Mary Sarah, so it's kind of all tying that together and that is something that we're looking to grow as we look at fiscal 2016.

And maybe is there any early read on that or historic read that you might have with your reward program and have some of those customers continue to shop your store or is it more of maybe a onetime purchase?

No I don't think it's a onetime purchase. I think while we're merchandizing it if you will in the packaging of country music festivals it really is part of the aesthetic that these customers wear all the time, right, so if you walk into one of our stores right now you would see our store associates outfitted in straw hats, (inaudible) around their neck talking about be festival ready and it's just something that we're shinning a light on, it's been in the assortment and merchandising it if you will in the literal sense of the term.

Thank you. Our next question is from the line of Randy Konik with Jefferies. Please proceed with your question.

I just want to go back to the store acceleration roll-out, when you're thinking about that what is the interest behind that? Is it you're getting better locations that you're finding or the execution of the builds are better, just kind of curious on what you're seeing there and from a store you kind of alluded to it earlier on another question but it seems like all the stores are doing well in new markets and existing in-store markets. Are the store economics looking that should in the new versus existing markets, that's my first kind of question. Thanks.

On the acceleration piece, there is a couple of factors at play, one was when we first came to market we said we grow new units by about 10% a year and we had over the most recent couple of years before we introduced it to the public markets, we didn't have an enormous track record that we could point to from a new store perspective. So we came out with a relatively conservative unit.

What we said to the investment community at that time is if we start to see success with our new store performance we would likely accelerate it and we said explicitly and you can certainly read into the fact that we're accelerating it because we are seeing ongoing success of our new store and our new store program which is if you were to model this business going forward the biggest lever for us in terms of sales growth and growth in earnings per share is our new unit capacity and the fact that we can take a compelling four wall [ph] model and continue to roll it out and more than double the chain size from today.

In terms of the new store economics and how they vary across the country. There is no support for any of the more typical hypothesis that while the store in North Carolina or South Carolina where we have very few stores versus a new store that opens in California with the first one in North Carolina taking longer to ramp up or having a slower payback, we had those hypothesis we haven't seen them prove out.

I think there is just too many other variable at play that we have had just some terrific stores opened in essentially brand new markets and we have had some pretty good stores open in existing markets where the Boot Barn brand is already known and fortunately we virtually have no really bad stores that have opened in the last couple of years which just underscores our confidence to continue to take the model and grow it in a more accelerated way but still be prudent so that we can continue to be certain to monitor and manage the growth effectively.

And then I guess my last question is maybe if you just give us a little guidance or help with how we should be thinking about quarterly flow. It seems like the store cadence will be more front end loaded so we should expect more I guess potential key leverage on the front half of the margin side of the year rather than the back half, just curious on how we should be thinking about quarterly flow from the margin perspective in this regards? It's very helpful. Thanks.

So we said 13 stores in the first six months and nine in the back half so yes you will see a little bit more margin pressure on the first part of the year. In terms of quarterly flow we're six stores into the year already so we will open seven more in the balance of this quarter and next and the nine I would almost just split them equally if you wanted to modulate 4 and 5 between the third and fourth quarter.

So yes I think the way you're thinking about it is right way, that there will be a little bit more margin pressure in the first six months but it's really the difference between 13 stores and 9 stores.

Thank you. Our next question comes from the line of Corinna Freedman with BB&T Capital Markets. Please proceed with your question.

I wanted to ask about the Carhartt roll out of shopper stop, what is your target for 2016 as far as number of openings and how many have you done in 2015?

So there is about -- I think the plan for this year in the 22 stores nearly all of them will have a Carhartt shop and the ones that won't will either be undersized or we don't think there is a huge opportunity for work. Last year we expanded about 20 or so Carhartt shops and the total number I think is in the 70s.

Yes, we're just under 70 right now.

We can give you some more dimension to that. Carhartt has been a great partner to us and as we look to open more stores and bring their brand to life within the work part of the business it helps the work apparel business, it helps the work boot business and it's just been a great addition for us.

Okay. Another merchandising question, any new categories that you plan to introduce in the next year or two such as like outer wear or athletics?

No sharp turns left or right in terms of while we're doing from a merchandize assortment standpoint. I would say most of the categories that we're adding are in concentric circles that are pretty close to our core assortment. For example we have expanded in some stores a line of camouflage both out wear and hunting boots but it's not an enormous roll-out. It's not all stores in terms of the athletic piece and I know that's important trend in the rest of the retail business. Our customer wears blue jeans and boots just about every day. So while we see the rest of the world chasing this athletic trend we're pretty happy selling blue jeans and cow boy hats and western boots. So we're going to kind of continue to stick to what's been working.

Okay, my last question was on ecommerce. You did a sort of for the private label launch the specific landing page for Brad Paisley but wasn't necessarily with the banner of Boot Barn, with under -- through a separate, did that drive more ecommerce traffic and conversions? That's my last question. Thank you.

I can't speak to this specific traffic that we get from that microsite. I can however tell you that just the relationship that we have with their camp and Brad Paisley personally if I'm honest has been just extremely positive.

They and he have gone above and beyond any contractual arrangement with us and have continued to support merchandize assortment, the Boot Barn brand, the MoonShine Spirit brand. He has given us mentions on national TV, he has tweeted about us. He has just been a phenomenal, phenomenal partner and frankly our obligation back to them is to continue to try to return the partnership every single one of our stores has a full Brad Paisley merchandize fixture. We have expanded the boot line of MoonShine Spirit, when we launched we had two styles of boots in all stores with some stores having four styles and we have doubled that both of those numbers. So today we have four styles of boots in all stores and some stores having eight styles.

So we will continue to work with Brad and his team and I think it may feel equally good about the partnership with us, don't want to speak for them but the relationship has just continued to strengthen and started off on a really good foot anyway.

Thank you. Our next question comes from the line of [Jonathan Comp] with Robert W. Baird. Please proceed with your question.

Just a couple of question guys if you don't mind, maybe first Jim, just want to ask about the same store sales strength and obviously the results beat the plan that you laid out for the quarter and it sounded like based on your commentary that the traffic accelerated sequentially. I think you said it was 50% on the same store sales versus 20% last quarter if I remember correctly. So can you maybe just talk about what's driving that trend as you see it and how you're viewing the overall landscape in terms of the same store sales that you're seeing?

Sure. Your recollection is exactly right, that the split between traffic and ticket between Q3 and Q4 did move the way it did, if you went back a quarter prior to that it looked more like Q4, my honest answer John is, when we look at the key performance indicators that are driving same store sales we really are trying to get both growth and traffic and growth in basket size, however I don't read anything into what I perceive to be a relatively minor shift between the split. If one were to turn south on us I might have a different answer but I think they are both healthy, both being average transactions per store and the size of the basket and I don't really view it as a sequential change between Q3 and Q4 that being the composition of our comps.

I guess I'm most happy in Q4 that we had another plus seven on top of nearly a plus nine last year that was probably the thing that I was most proud of the team for.

And maybe one more on the same store sales, I know you've done a very good job of breaking out some of the exposure of the oil related markets and I just wanted to see if you can maybe quantify or give any more contacts to the degree of the deceleration you saw for those oil markets during the quarter. I know you said they are still above the overall average but maybe asked another way, do you expect them to stay above the company average or do you expect them to be lower than the company average as you look ahead or how should we think about the degree of deceleration there?

Sure. So I can't necessarily predict how much deceleration or they will continue or if they will go the other way and accelerate on us. The way I would think about it though and I encourage everybody to think about it is we feel obligation to mention this to the public markets because of the hot topic and I've been on record saying we will keep everybody apprised of what's happening but most importantly this is a very small portion of our stores. If oil and gas business took off and those stores started having outside comps in a tremendous way it wouldn't have a meaningful tailwind impact, nor will it have a super meaningful headwind impact on our business for 15 stores out of what is today 175. So I guess what I'm suggesting is I wouldn't be distracted by the performance of 15 stores, when the whole chain is performing so well.

If I want to give you any color I would say that any of the softness or deceleration that we have seen has mostly been focused on the back information and the stores related to the back information, the Texas business continues to be quite strong for us and continues from the same store sales perspective continues to be one of our better markets.

And maybe last one for me for -- maybe for Greg or Jim. You provided some detail on the outlook for the year in terms of the operating margin and I think you said kind of flat or no expansion year-over-year and you outlined a number of the investments you're making. I'm wondering if you can just give any more color maybe from a broad stroke perspective that magnitude of some of those investments and some of the margin impact and I'm talking more specifically about the accelerated new store openings, the overseas sourcing presence that you're planning to setup in the consolidated warehouses if you can give any more color on kind of the magnitude of some of those.

Sure. I think Greg and I might tag team on this a little bit, I think just to put everything in context as it relates to our operating margin rates our original stated strategy was we get 25 to 30 basis -- this is big picture, this was up in most recent quarter but we would get to 25 to 30 basis points of margin enhancement as we continue to grow private brands because private brands was growing 250 to 300 basis points a year and a 1000 basis points pick up and we said if we grew at 10% new units we would essentially offset from a margin rate perspective that pick up of 25 to 30 basis points because the new units are compositioning in at higher occupancy rate because they haven't been in the chain and they haven't grown to full maturity and push their occupancy leverage down.

So the starting point was we would get merchandize margin improvement that would be offset by new store growth at 10% new units. As we have accelerated our new units beyond the 10% with what we're communicating is not only have we accelerated the new units, we have also made investments and we're still maintaining our operating margin rate. And the reason I want to go through that is I think there is a big -- an overarching picture that relates to the back that we're accelerating new stores and then there are some specific investments that we're making in our infrastructure to help us continue to scale the business and I will let Greg kind of walk you through those.

Right. So in terms of like the overseas sourcing presence, this year we expect that to be roughly $400,000 so we expect to open that in Q2 with four folks and an office and they will have some ramp-up time and then we will start to get some traction in terms of margin expansion next year 2017. From the DC consolidation if you will or the consolidation of four warehouses into a distribution center that again is something like a 300,000 or 400,000 spend largely in Q2 and then if you think about the cost associated with new store openings. I mean the main driver of that is pre-opening costs, I mean there is obviously an occupancy element and depreciation element but pre-opening is roughly a $100,000 of store so that as you think about how that works into your model. So hopefully that helps.

There are no further questions at this time. I would like to turn the floor back over to Mr. Conroy for closing comments.

Well thank you again everybody for joining us and we look forward to discussing our first quarter results with you in late July and speaking to many of you in the interim. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.