Boot Barn Holdings Inc (BOOT) 2016 Q1 法說會逐字稿

Hello, and thank you for standing by. Welcome to the Boot Barn Holdings, Inc. first-quarter FY16 conference call.

(Operator Instructions)

And, the conference is being recorded.

(Operator Instructions)

At this time, I would like to turn the conference over to Jim Watkins. Please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us to today to discuss Boot Barn Holdings, Inc. first-quarter FY16 earnings results. With me on today's call are Jim Conroy, President and CEO; and 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 thirty 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 and 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 first-quarter 2016 earnings release, as well as our filings with the SEC referenced in that 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. Last week, the Company filed an S-1 with the SEC for secondary offering of shares by certain of our stockholders. During today's call, we will not be commenting further on this filing.

I will now turn the call over to Jim Conway, Boot Barn's President and Chief Executive Officer. Jim.

Thank you, Jim, and good afternoon. I'd like to thank you all for joining us today. During my discussion, I'll provide you with an overview of our first-quarter results and the key drivers of that performance.

Next, I'd like to update you on plans and progress made regarding the integration of our recently acquired Sheplers business, including some comments on the expected impact in the current quarter. Then, Greg will review our financial performance in more detail and review our updated outlook for the full year FY16, which now includes Sheplers. Following that, we will open the call up for your questions.

Turning to a review of our first-quarter results. We continued our positive momentum with strong execution across nearly all areas of the Organization leading to a net sales increase of 16.4% over the same period last year to $96 million. This increase was driven by the sales contributions of new stores and a strong 5.6% increase in same store sales. We were particularly pleased that roughly 3/4 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 merchandise margins year over year. Primarily due to the planned increase in private brands penetration, higher markup across the store, and an increase in e-commerce margin. During the quarter, we achieved progress across each of our fourteen 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 first quarter, we opened seven new stores. Including our first stores in Kansas and Oklahoma, which became the 27th and 28th states with a Boot Barn store. We also continued to penetrate the Southeast with two new stores in Florida, one in North Carolina, and one in Tennessee.

We expect to open seven stores in the current quarter. Three of these are already open and we expect that all seven of these stores will be opened by the end of this month. This is in addition to the 25 stores we acquired from Sheplers. Our new stores remain on target to meet our stated hurdle rate of a three-year payback.

Our second growth strategy is increasing same store sales. This past quarter marks our 23rd consecutive quarter of positive same store sales growth. Turning to our store base, and specifically, those stores directly impacted by oil and gas. As a reminder, we have 15 stores that we've identified as oil and gas stores. Nine of which are in drilling markets and six are in refining markets.

In the first quarter, we did see a continued deceleration of comps in that group of 15 stores and they had turned from a slight tailwind to a slight headwind relative to our consolidated same store sales growth. The remainder of the business showed a sequential increase in same store sales over Q4 driving our strong Company-wide same store sales growth of 5.6% in the first quarter. Same store sales growth was fairly broad-based across most of the major departments in the store. We did see particular strength in the men's Western categories of boots, hats, and apparel as well as strong growth in work boots. Conversely, we had weakness in ladies apparel and work apparel, particularly flame-resistant merchandise, consistent with weakness in the stores in oil and gas market.

Our third strategy is to continue to grow our private brand penetration. We are pleased with the progress in this area. As penetration Q1 increased by more than 400 basis points relative to Q1 of last year. We are also very excited to announce, that subsequent to the first quarter, we have officially opened Boot Barn International, a small overseas sourcing office led by a very experienced executive named Bobo Wong.

Ms. Wong has 20 years of sourcing background and she and I have worked together for five years previously. We are fortunate to add her and her merchandisers, to the now global Boot Barn team and we are looking forward to the long-term value this team will create. While we are excited about the launch of our overseas office, we will continue to seek the appropriate balance of private brand merchandise and product from our third-party brand departments.

The final growth strategy is to augment our e-commerce capability. Having recently launched our new mobile site we've begun to see a significant shift in traffic toward mobile and are focusing on improving conversion in this area. We are also making improvements to our email list segmentation, which will allow us to better target our customers based on the purchasing history and specific product and style preferences.

On June 29, immediately following the end of our first quarter, we completed the acquisition of Sheplers, a Western retailer with 25 stores and a strong e-commerce presence. Sheplers had sales of $157 million for the 12 months ended March 2015. We have been working extensively with the Sheplers team and are pleased to report that the integration is off to a very strong start and that we are executing according to our plan. In the month since we have taken ownership of the business, we've accomplished a great deal and I am proud of the team's combined effort.

From an operational perspective, the reporting relationships of both the corporate office and in the Sheplers stores organization, have been realigned and integrated into the Boot Barn team. We have also conducted a construction survey of every store. Planned the remodeling and fixturing process. And, developed a detailed plan to rebrand the stores between Labor Day and Thanksgiving, as previously mentioned.

From a technical perspective, we will be rolling out our point-of-sale systems to the Sheplers stores throughout the month of August. This will provide us with a much better ability to impact the business and sets the stage for rebranding. In addition, we've already begun to take advantage of best practices, from both the Boot Barn and Sheplers teams and to leverage e-commerce specific backend synergies to run both businesses. Finally, from a merchandising perspective, we are in the process of transitioning over to the Boot Barn assortment.

As we now have had one month to analyze the Sheplers business and product performance in detail, we believe we have even more opportunity than we originally thought to improve the assortment and in stock position over time. As part of this process, we are adding 13 boot brands and over 100 styles to their assortment and will be augmenting the work boot assortment to include all 20 of our best-selling work boot styles. Only seven of which are currently in the Sheplers assortment.

We will also be adding all of our private brands to their stores. As well as adding our Carhartt department and assortment to many of them. Which, should enhance the work business overall. Consistent with these changes, we have marked down approximately 40% of the Sheplers assortment to free up space for the Boot Barn offering. These steps are virtually identical to the plan that we executed when we acquired and then rebranded both the Baskins chain of stores in 2013 and the RCC chain in 2012.

As it relates to Sheplers, we continue to believe that Sheplers should be slightly accretive, excluding one-time transaction and integration costs in this fiscal year. And, we forecast the acquisition to be approximately 10% accretive to FY17 earnings per share. Again, excluding one-time transaction and integration costs.

We would like to summarize the impact of two components of the Sheplers business that we expect to occur in the second quarter. The first impact relates to the Sheplers stores business. By way of contacts, when we acquired the Baskins business in 2013, the same store sales trend for that business declined as we were preparing for the rebranding. This occurred because we were focusing on changing the store assortment, clearing aged and discontinued brands and merchandise, and integrating our systems. The following quarter, we were able to reverse a negative trend and achieved strong same store sales growth following the completion of the rebranding of all stores. We are expecting this dynamic with Sheplers and have already observed softer sales through the month of July. This is a necessary step to reset the business in preparation for the rebranding and we anticipate a negative trend in same store sales for Sheplers for Q2 in the mid-single digits.

Further, given the level of markdowns necessary to clear the merchandise, we will see considerable pressure on merchandise margin rate in the Sheplers business. We will be tracking this impact consistent with the way we reported Baskins, to isolate it and communicate it clearly on our calls going forward, enabling us to provide pro forma adjusted earnings that will exclude the margin impact from this temporary event.

The second impact relates to e-commerce and is not due to the integration of the businesses. Instead, it is being caused by two changes in our industry related to online pricing. While we view these changes as positive influences in the long term, they are creating a temporary headwind for the Sheplers e-commerce business in the current quarter. The first change is the implementation and enforcement by several of our key vendors of IMAP, or Internet Minimum Advertised Pricing. Which, sets a floor to retail prices in our category online.

The second change was the rolling out of a policy by many of these same vendors to control the explicit discounting of their merchandise online. Which, they felt reflected negatively on their brand and often pushed prices below IMAP. For context, in Q2 last year, Sheplers was able to promote percent and dollar discounts on the vast majority of their online assortment on the homepage and the product detail page. Further, the ultimate selling price was not regulated by an IMAP policy for the majority of the merchandise.

Sheplers capitalized on both of these opportunities in a very innovative manner last year. Which, resulted in growth in e-commerce demand of more than 40% in both July and August of 2014, which we are now wrapping up again. The challenge is, that this year the enforcement of IMAP, as well as the playing field online and the ability to offer outsized discounts has been narrowed.

Based on this, we expect that the e-commerce business at Sheplers will also be negative for Q2 in the high-single digits. As we move forward into Q3 and Q4, we anticipate that this impact will dissipate as the prior-year comparison becomes much more moderated the business will turn positive and build momentum again. The e-commerce business at Boot Barn is much less promotional than Sheplers.com. And, we have seen continued strong growth in the Boot Barn e-commerce business. In summary, we believe the enforcement of IMAP is a great decision for the industry.

Now, I'd like to turn the call over to Greg Hackman.

Thank you, Jim. Good afternoon, everyone. I will begin by reviewing our first-quarter results and then update you on our outlook for FY16. Which, now includes the impact of the Sheplers' acquisition. In my discussion, I will be commenting on both actual and adjusted results, excluding any one-time costs, to facilitate comparability between periods and going forward. Please reference today's press release for all definitions and for a reconciliation of GAAP numbers to these non-GAAP adjusted numbers.

In the first quarter, net sales increased 16.4% to $96 million. Driven by the sales contributions of new stores, as well as a 5.6% same store sales increase. Gross profit increased 14.5% to $30.8 million. Compared to $26.9 million in the first quarter of FY15. Merchandise margin rate grew in the quarter. Primarily driven by increased penetration of private brands and prudent markup across the chain and an improvement in e-commerce margin consistent with the enforcement of IMAP.

This increase of merchandise margin was offset by increases in store occupancy costs and depreciation expense associated with the acceleration of new store openings, compared to the prior-year period. As a result, the gross profit rate declined 50 basis points. Operating expense was $25.9 million, which included $900,000 in costs associated with the acquisition Sheplers. This compares to $21.5 million in the prior-year period. In addition to the acquisition-related costs, the increase in operating expense was primarily attributable to store operating expenses resulting from an increased store count and public Company costs that were not incurred in Q1 FY15. Income from operations was $4.8 million, which includes acquisition-related costs of $900,000. Compared to $5.4 million in the prior-year period.

Excluding the acquisition-related costs and adjusting the first quarter of FY15 by $800,000 to reflect estimated public Company costs, as if the Company had been public during that quarter, adjusted income from operations for the first quarter of FY16 increased 23.6% to $5.7 million compared to $4.6 million in the prior-year period. Adjusted income from operations, as a percentage of sales, includes 35 basis points year over year as we leveraged our fixed costs. Net income in the quarter was $2.3 million, or $0.08 per diluted share. Which, includes $0.03 per diluted share of acquisition-related costs, net of income tax. This compares to $1.4 million or $0.00 per diluted share last year.

Excluding acquisition-related expenses and one-time tax adjustments, pro forma adjusted net income was $3 million, or $0.11 per diluted share in the first quarter of FY16, compared to $1.4 million or $0.06 per diluted share in the prior-year period which resulted in net income growth of more than double on a pro forma adjusted basis. The prior-year net income has been adjusted to reflect the estimated public Company costs and impact of the post-IPO interest expense. Included in today's press release is a reconciliation to pro forma adjusted net income.

Turning to the balance sheet. As of June 27, 2015 we had $12.9 million of cash and cash equivalents, compared to $1.1 million at the end of the first quarter last year. Our outstanding borrowings on our revolving credit facility were $27.1 million and we have $73.8 million outstanding on our term loan. At the close of this Sheplers acquisition on June 29, 2015, the Company had an initial borrowing of $57 million under a new $125 million senior secured asset-based revolving credit facility and a $200 million senior secured term loan. The $257 million of funded debt at closing carries a weighted average interest rate of approximately 4.6%.

We believe the excess capacity on the revolver will provide us with a sufficient liquidity to support future growth. Inventory rose 24% to $136 million compared to a year ago. This increase is primarily driven by a 14% increase in store counts and an 8% increase in average inventory per store. The increase in average inventory per store was primarily to support our same store sales growth, our private brand growth initiative, and our increased investment in work boot inventory.

Now, I'd like to turn to our outlook for FY16. As Jim mentioned in his remarks, the integration of Sheplers with the Boot Barn business is progressing nicely and in line with our integration plan. We are currently working through the fair value analysis of the Sheplers assets which will have an impact on our future earnings. Our FY16 outlook now reflects nine months of Sheplers business in the current fiscal year.

As Jim outlined, we anticipate a decline in second-quarter same store sales of the -- for Sheplers in the mid-single digits followed by positive mid-single-digit growth in the third and fourth quarters. We are raising our FY16 earnings guidance and now expect pro forma adjusted income from operations for the full fiscal year to be between $49.3 million and $51.5 million. Adjustments will be made to exclude acquisition-related and integration expense related to the Sheplers acquisition. We also expect pro forma adjusted net income for the full fiscal year to be between $23.2 million and $24.5 million. This represents pro forma adjusted earnings per diluted share in the range of $0.85 to $0.90 per share based on an estimated weighted average diluted share count of 27.3 million shares for the fiscal year.

In order to provide more transparency in the flow of earnings given the Sheplers acquisition, we are providing Q2 earnings guidance. We expect that for the second quarter ending September 26, 2015, Boot Barn branded stores and e-commerce same store sales growth will be in the low- to mid-single digits. We expect pro forma adjusted earnings per diluted share for the fiscal second quarter to be between $0.02 and $0.05 per share based on 27.2 million weighted average diluted shares outstanding. We continue to believe the acquisition will be slightly accretive to pro forma adjusted net income this fiscal year and approximately 10% accretive to Boot Barn's net income in FY17.

We now expect FY16 capital expenditures to be approximately $31 million, which includes approximately $13 million of capital expenditures associated with the Sheplers business. We expect our FY16 interest expense to be approximately $11.1 million and our tax rate to be approximately 39.3%.

Now, I'd like to turn the call back to Jim for some closing remarks.

Take you, Greg. Our first quarter results are a great start to the current fiscal year. Solid execution of our business model is leading to continued growth and momentum in our business. This is a dynamic and exciting time for all of us at Boot Barn as we work to implement our growth strategies, including the integration and rebranding of Sheplers.

I would like to extend my appreciation to the entire stores' team who continues to provide stellar customer service across the country as well as the organizations in the Irvine, Frisco, and Wichita offices who have already begun to come together as a solid and unified team. I look forward to continuing to bring the combined Boot Barn and Sheplers business to new heights.

I'd now like to open the call up for your questions. Susan?

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Matthew Boss, JPMorgan.

Hello, guys. Can you just walk through the cadence of comps as the quarter progressed? Elaborate on some of the weakness that you talked about in ladies apparel that you mentioned? And, just what type of headwinds are you seeing in the oil and gas market?

Sure. And, so, we typically don't provide intra-quarter cadence. The quarter, we're pleased with the way the quarter rounded out with the 5.6% comp. Our ladies business, particularly on the apparel side, continued to be the softest business that we had and one of the only businesses that was in decline. We had a lot of nice progress and nice growth in men's Western apparel, men's Western boots, work boots, and hats. All had nice growth.

In terms of oil and gas. The -- most of the weakness that we saw in oil and gas continued to be in the Bakken formation. Either right on top of the Bakken formation in North Dakota or related to the Bakken formation. And, that was impacting, specifically, the for -- FR, flame-resistant merchandise for Boot Barn. Which, is a -- in the grand scheme of things, a relatively small business. But, that particular business experienced a decline. Which, actually pulled the work apparel business which includes other things that are non-FR from a positive to negative in from Q4 to Q -- from Q4 into Q1 sequentially.

Great. And then, just a follow up. I mean, now that you've closed the Sheplers transaction, you've laid out some pretty detailed road marks for us today. Any higher-level positive or negative take, so far? I mean, obviously, near term we have to suffer through some of the transition same store sales and margin impact. But, as you take a step back and think about the opportunity. If you could just, kind of, elaborate on how you're thinking about it?

Sure. Sure. No negative surprises. In fact, I would say that most of the things -- or, virtually everything we saw as an opportunity has materialized. And maybe, a little bit more than that. So, we knew when we walked our stores and were in the due diligence process that we had components of our assortment that weren't represented at all. Or, weren't well represented within the Sheplers assortment. And, now that we've gotten into the details and specific merchandising performance, that opportunity has certainly proven out. We knew that we could expand the Carhartt business.

If we go back to Baskins and the Baskins acquisition. That was a business that didn't believe very much in Carhartt and we invested in the stores, both from a fixturing standpoint and from an inventory standpoint, and saw a nice return at Baskins. And, we expect, virtually the same thing to happen at Sheplers. And, as you know, a lot of those stores are also in Texas. So, we expect that to be, kind of, in line with what we originally had seen.

I would say the one thing that may have been a little bit more positive than we had expected is Boot Barn competes extremely well in terms of being in stock. We have a very systematic approach to keeping our on hand inventory in stock. Particularly, for basic and commodity type product. We've quoted numbers like 70% of our assortment is on automated replenishment. It's actually higher than that in boots and higher than that, again, in work boots. And, that brings our in stock position into the 90-plus %. And, in some categories the 95% in stock.

And, that was something that was a little bit more difficult to evaluate, pre-closing of Sheplers. But, as we gotten into it, it -- our hypothesis is right that their ability to be in stock was much less strong than our ability is. And we've seen in another businesses when we continue to deliver styles in sizes for customers it just builds customer loyalty and turns into a very strong same store sales growth. And, based on what we've seen, we would expect a similar result at Sheplers.

Great. Best of luck, guys.

Thank you.

Jonathan Komp, Robert W. Baird.

All right. Thanks. Maybe, if I could just start off with a couple questions about the results themselves. Just the Boot Barn retail business. Going back to the same store sales. If I'm not mistaken, it looks like the transaction trend overall accelerated slightly compared to the last couple of quarters and that's despite some of the headwind -- incremental headwind from the sixteen oil-related stores. So, can you just confirm that's the case on the transactions? And, maybe, talk a little bit more about what's driving that strength for the core business?

Sure. Yes, you're exactly right. In this particular quarter, our comp -- about 3/4 of our comp is attributed to more transactions per store. We're on record for the other quarters. If my memory serves me, it was about 1/2 of the comp in Q4 and about 1/4 of the comp in the prior quarter; in Q3.

So, you're right. It's been sequentially better. Look, we've -- we're pleased with that. If I'm really honest, I like to see growth in transactions and growth in basket. We had both in this particular quarter. Within the basket growth we had growth in both AUR and UPT which is another kind of signal of positive signs.

In terms of what that means more broadly, I think it simply means that we're continuing to drive a loyal engaged customer base back to our stores. But that number, as you pointed out, does ebb and flow. And, while I'm pleased with that in this particular quarter, when it's 50/50 or 25/75 in terms of the apportion of our growth, one way or the other, I'm not displeased either. I just like to see them both going in positive directions.

Great. Makes sense. And then, maybe, following up on the oil-related stores. I'm sure you don't want to get into the habit of guiding for specific sub-sector stores. But, maybe, just directionally, as you look to guidance overall for same store sales for the rest of the year.

Could you, maybe, just comment directionally on what's needed for those oil-related stores? Are you assuming they remain a slight drag? Is there a risk to the guidance that they get a lot worse? Or, how should we think about, directionally, the guidance?

Sure. Now look, what we've been trying to be very forthcoming with how we see the oil and gas business. It was a drag on our Q1 comp and we expect there'll probably be a drag going forward. It is only 15 stores and now that 15 stores is on a base that's much bigger than that. With the Sheplers acquisition and the inclusion of a much bigger e-commerce business from Sheplers. So, we'll continue to watch it.

I would just, kind of, remind everybody that oil and gas is a very important and newsworthy event. And, that price of oil is obviously at a low point, or a pretty low point as a relates to the industry. But, it's also just a portion of our business. We again -- we've isolated those 15 stores. We have other categories of business that are seeing nice growth. And, we have lots of other industries on the work side that are growing quite nicely. Which, is why we see work boots continuing to grow, while flame resistant, which is a portion of work apparel, which is a bigger portion of the overall work business; flame resistant's going down.

But, lots of other things in the work business are increasing. So we've -- again, strong growth in work boots. A pretty decent business in the work apparel business, if you excluded flame resistant. So, there's a healthy set of industries out there in addition to oil and gas.

Great. And then, maybe, a couple for Greg, just shifting to the outlook. Just, in terms of some of the detailed guidance items that you have, now including Sheplers. Maybe, comparing to the prior guidance which you had given, excluding Sheplers.

It looks like the income from operations you're targeting for the year increased a little better than $10 million on the high and the low end of the ranges. And, I'm just wondering if you can break that out? Maybe, directionally how much of that is purely nine months of the Sheplers contribution? And, how much, if any, is changes related to the base business?

Yes. I would say that we really didn't change our base business projections as part of this. So, we continue to be confident in the guidance we gave you for the underlying Boot Barn business in -- on our last call in May. So, this is really just layering in the impact of Sheplers.

Got it. And then, I just wanted to clarify. I might've missed it. But, Greg, did you talk about the expectations for Sheplers same store sales in the second half of the year? And, maybe, more broadly, just talk about how you see that business trending over time? And, if there's anything, maybe more specifically, about the e-commerce business and some of the industry changes there? That all -- if any of that changes your view about what the business ultimately can grow to, relative to what you previously were thinking?

Right. So, Jim and I both commented that we thought Sheplers stores, same store sales would decline in the mid-single digits during Q2. And then, would strengthen to be positive mid-single digits in Q3 and Q4. And then, e-commerce we saw weakness in Q2 and improvement in Q3 and Q4.

Yes, just to add to the e-commerce piece. When we look at their last year demand trend. July and August, as I had mentioned, were plus 42% growth. So, we're, kind of, quote/unquote up against plus 42 in terms of demand in July and August last year. And, their month after that, are in the low-20s or mid-20s and sometimes in the high-teens. So, the -- it is a temporary, in our view, it's a temporary phenomenon. And, we expect once we get through August and into September, and then into our Q3, the year-over-year comparisons become much more moderated.

And, what -- just a follow up there, the -- in terms of, kind of, the context of that. The e-commerce business over time. Maybe, over the next several years or just more on an intermediate-term horizon. Kind of, once you get past some of the unique comparisons. Is it right to think about that business as a double digit growth type business? Or, how should we, kind of, adjust our expectations there?

Sure. Yes. So, I think the changes that were really outlined by our vendors to the industry are, in general, very good changes and very good rules that have been put into place for Boot Barn overall. Because, number one, the vast majority of our business today is still in the stores and the vast majority of our business today is still conducted at or close to full price. So, the fact that the industry is now saying we can't have outlandish discounting online, favors in our view, the overall business for the longer term.

As it relates specifically to your question. And, how -- whether the -- what does it mean to the e-commerce marketplace? We'll let it all play out. Our belief, as we sit here today, is it will favor real brand. So, Boot Barn is a real brand that we've been building and investing in overtime and people will sort to Boot Barn. And, it will favor companies that have been conducting business on a direct-to-consumer basis for a long time, and that's Sheplers.

So, we believe it's good overall and it's good for Boot Barn on a consolidated basis and over the medium and long term I think it will be a good influence for Sheplers as well. We just have to get through this temporary headwind that we're facing into.

All right. That's it for me. Thanks for all the perspective.

Thank you.

Peter Keith, Piper Jaffray.

Hello. Thanks everyone for taking the questions. Hey Jim, just a follow up on some of the new IMAP rules. Could you give us is a sense onto what percent of your e-commerce sales that's impacting? And then, what's the timing of when some of these new rules rolled out?

So, they -- it's a vendor-by-vendor decision. By the -- to abbreviate it for the folks on the call. It started essentially in April. So, just a few months ago. And, for -- so, for Sheplers, it was some fairly significant portion of their sales were probably dropping below IMAP in it before that, as were a lot of other online players.

For Boot Barn we -- BootBarn.com, I'm sure we were below what became IMAP before IMAP was being enforced. But, much less frequently. Which is why it had a much less impact. In fact, our Boot Barn business continues to be quite strong online.

So, it's -- I think what's done has taken the folks that are competing purely on price and leveled that playing field a bit. We do think that Sheplers is well-positioned because they do have a very strong brand online and because they -- the people that run that part of our business, Mark Hampton, in particular, was the person that's been running that business for years and continues to run it. And, he has an ability to take that business and make it grow with his team there. So, we expect that ultimately, the Sheplers brand will prevail on the, sort of, low price provider online, relative to a lot of the other players in our industry.

Okay. Thanks for that additional information. And then, I guess, I wasn't quite clear on why the Sheplers e-comm business comped up 40 for July and August and then slowed from there. Can you just help us understand that dynamic better?

Sure. Sure. What they were able to do, I think the comments in my scripts were doing an innovative approach or something. They -- they're -- they and Mark Hampton, in particular, is an extremely entrepreneurial group. So, what they were able to do was work through on the homepage and on the product detail page, a -- the arithmetic surrounding what discount you would be provided as you looked at the page. And a customer would see the full price, the coupon or a percent off applied to it, and how much they would save, and then the ultimate selling price.

Which, sounds relatively straight forward, but, Sheplers got out of the gate very quickly with that and were able to get a, sort of, a nice outsized growth in their business for two months. And then, lots of other people caught up in that sort of one-time affect subsided. So, the -- that's, kind of, why they -- their business, kind of -- and it happened when we got to that week which we saw coming, it happened like clockwork as soon as we got to that week there -- that part of their business declined. And, we expect that when we get through the eight or nine week period, eight week period, we're up against these plus 40s. We're projecting, or forecasting, that we'll see the business, kind of, come back up to a solid growth online.

Okay. Thank you, Jim. And then, just a quick question for Greg. So, it looks like the occupancy was at least a 60 basis point headwind on the gross margin line for the quarter. Does that headwind abate a bit as we go forward on the Boot Barn business for the rest of the year? Or, does that -- the extra store openings this year continue to put some pressure there?

Yes. Because of the rapid growth of the new stores, it is a headwind for the year. It's both the occupancy costs and the depreciation impact of those new stores.

What is -- should we assume it, kind of, stays at that run rate of 60 basis point headwind? Or, does that ease a little bit?

I mean, it somewhat varies based on what comps and our ability to leverage that. But, I think that's probably a fair way for you to think about it.

Okay. Thanks very much guys. Good luck with that integration.

Thank you.

Thank you.

Mitch Kummetz, B. Riley.

Yes, thanks for taking my questions. Let me start on the Q2 guidance. Could you say what the Sheplers dilution is on the quarter?

Yes. I don't think we can say that.

Okay. So, you -- if the guidance is $0.02 to $0.05, there's no assumed dilution in that $0.02 to $0.05?

Yes. It -- it's hard because of the range, right? Yes.

Okay. And then, as far as that guidance goes too. I know, Jim, you made some comments about you need to work through some of that -- you're clearing some of that Sheplers inventory as you transition to Boot Barn assortments. I wasn't clear if that margin impact, that merch margin impact, was in the guidance? Or, if that's something that you're going to, pro forma out, in terms of that $0.02 to $0.05? I wasn't clear. And, if the guide included that or if it, kind of, exited out?

The -- so, our -- on a pro forma adjusted net basis, so to speak, it will be adjusted out in GAAP. It won't be adjusted out.

Got it. Okay. And then, just thinking about the, kind of, the projections on the Sheplers store comps. I know you're saying down in the second quarter, then up mid-single digits over the back half of the year. Is there any way to, kind of, go back and look at Baskins and see how? Can you just, kind of, remind us how Baskins performed as you went through that transition? I would imagine that, as you went through the transition, it was also negative in terms of how those stores comped? I'm kind of curious as to how those stores performed one or two quarters post-transition.

Sure. Sure. And, these -- as I think about -- I want to circle back to your dilution question for one quick second. Well, when we look at the full year number in terms of EPS, we raised our full-year number, right? Because we were at top and burns of $0.86. Now we're at $0.90.

When we, kind of, modeled it out, I suppose part of that is dilution in Q2 followed by more accretion in Q3 and Q4 that offset that and gives us the $0.04 improvement on the full-year basis. On the -- on your point about Baskins, the -- as honest as we can be is -- as we look at Sheplers right now, it is following almost the exact same trajectory. And, we haven't rebranded yet, so we're still early innings -- as the Baskins business had. And, when we got past the rebranding at Baskins we had a -- I would say a very solid comp for Q3 of FY14 that improved again into Q4.

We are forecasting internally a similar curve and it's hard to say whether it's going to be more or less. One of the things that we think is different in our favor is that a fairly high proportion of the sales, or disproportionate amount of the sales at Sheplers, are from seven of their bigger stores. And, those seven stores are quite old. In fact, the average age of those seven stores is 38 years old. So, when we remodel, rebrand, refixture, put in new flooring, et cetera, into those stores, there will be a very obvious facelift to the consumer which, we think may help the growth.

Which, is not something that we really had at Baskins. Because, Baskins, for the most part, had a much newer store base. So, that we think is a tailwind as a relates to the positive impact that we had from Baskins. What may be offsetting that tailwind, to some degree, is Sheplers is a bit more price promotional than Baskins was. Baskins was also more price promotional them Boot Barn. But, not quite as promotional as Sheplers.

Yes.

So, when we rebrand Sheplers, we are going to have to face into potentially, a headwind that the customers are looking for the 25 off entire purchase or $20 off a item or whatever. In our mind, we think those two things offset each other and may end in our favor a bit.

Got it. And, just to be clear again. You said, internally, you're forecasting a similar curve as Baskins. But, I'm guessing externally what's baked into the guidance; it's something a little bit more conservative than that.

Yes, I mean, but, I think our guidance in our projections are fair. I mean, we tend to try to put out numbers that we can achieve. But, I don't think we're overly conservative.

Got it. And then, one last thing on the women's business. I think you said, overall, women's was down in terms of comp. Or, maybe, I misheard that. But, could you dissect that a little bit in terms of apparel versus boots? And, sort of, any commentary on kind of, how, sort of, the festival wear focus performed? And, kind of, how you're transitioning the women's business now, that, as we go into the fall season and all that?

Sure. Absolutely. The -- my comments earlier were really relating to women's apparel. Actually, our women's boots business was positive in Q1. A decent positive comp and a bit better than it was in Q4. So, we had some nice sequential improvement in the ladies boots business.

As we look forward, there is some discussion about, well, are we reentering a denim cycle? And, will that help our business? We'll have to wait and see. I mean, our customer wears denim, typically, as part of their everyday assortment. We have said that our ladies denim business has been soft. But, I don't expect it to get immediately positive if the denim -- if we get back into a denim cycle in the quote/unquote fashion world. Because I think our customer is a little bit more utilitarian as to how they look with their denim purchases.

So, we'll see. I mean, that might become a tailwind in the fall, but yet -- we haven't seen it yet, if I'm honest.

Okay. Thanks, guys.

Thanks, Mitch.

Corinna Freedman, BB&T.

Hi guys. Good afternoon. I wanted to ask a question about gross margin guidance going forward of -- what level of conservatism are you baking in for the balance of the year? And then, back on the taxes point, same question. Do you think that you're loading the single digits? Which, is not really unchanged from your prior guidance. that Is appropriately conservative?

I suppose we think it's appropriately conservative. We think we'll be in low- to mid-single as we've talked about. And, I think that's where we were prior to this call and where we are coming out of this call.

Right. The Sheplers business is not changing the overall total Company composition, if you will. Negative mid-single digits in Q2. Followed by positive mid-single digits in Q3 and Q4. That's not really changing our low to mid at the total Company level.

Okay.

And then, your second question -- your first question was around -- first --

First, margin guidance for the balance of the year, what do you -- what are you expecting? What should we be modeling?

I mean, we haven't given specific gross margin guidance, per se.

I think what I would probably come back to is -- the way we think about it is, if we can comp in the low- to mid-single digits, we can offset the pressures of the new store occupancy and depreciation. And, between the comp and between the private brand penetration, including merchandise margin. And, that's, sort of our overall plan remains in place as we think about the fiscal year in totality.

We still intend to grow private brand. That particular part of our business is working quite well. That is 900 to 1000 basis points of improved markups. And, that, coupled with a solid comp in the low- to mid-single digits offsets the pressure that we face from bringing in new stores, the associated depreciation with them, and the higher occupancy rate for that plug of new stores as we continue to build our portfolio.

So, I would, kind of, fall back to the way we've always thought about gross margin as we report. And then, as we leverage expenses, we should, over time, continue to see expansion at the EBIT margin rate. We have nice expansion in this first quarter as we layer in Sheplers which operates at a lower margin rate. We'll have to try to explain and communicate how that layers in over the next several quarters. Because our first quarter was clean Boot Barn against Boot Barn. So, as we go forward, we'll have a comp -- composition of the two businesses pulled together.

Great. I'll take the rest of my questions offline. Thanks so much.

Thanks, Corinna.

There are no more questions at this time. I will now turn the call back over to Mr. Conroy for closing remarks.

Well, thank you, everyone, for joining us on today's call and we look forward to talking with you again in the fall. Bye-bye.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.