Boot Barn Holdings Inc (BOOT) 2017 Q1 法說會逐字稿

(Operator Instructions)

Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's first-quarter FY17 earnings results.

With me on today's call are Jim Conroy, President and Chief Executive Officer, 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 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 on this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first-quarter 2017 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. Please note that we have not presented adjusted measures for the first quarter of FY17, as there were no adjustments.

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

Thank you, Jim, and good afternoon. Thanks, everyone, for joining us.

On today's call, I'll be providing a review of our results, followed by a discussion around the key drivers of our business. Following that, Greg will review our financial performance in more detail, and comment on our outlook for FY17. Finally, we will open the call up for your questions.

I am pleased that we achieved positive same-store sales growth of 0.4% on a consolidated basis in the first quarter. This same-store sales growth, coupled with the sales contribution of the acquired Sheplers business and the 17 new Boot Barn stores opened over the past 12 months, contributed to consolidated net sales growth of 39%. Our results reflect strong sales growth in both e-commerce brands, while the stores business declined year over year with the Boot Barn stores outperforming the rebranded Sheplers stores.

In our stores, we saw continued growth in many core markets, particularly in the West, but we continued to face sales headwinds in Colorado, Wyoming, and North Dakota associated with the softness of local economies, dependent on oil and other commodities. Same-store sales in our Texas stores continued to be negative, but showed sequential improvement over each of the last two quarters.

In our e-commerce channel, our efforts to expand this business yielded positive results. We continued to make progress in the integration of the back-office operations of our two e-commerce businesses, which we believe will create further efficiencies, allow us to provide an even better customer experience, and result in further expense reduction. As part of this integration, we are converting our e-commerce businesses to a new technology platform. The conversion to the upgraded platform is expected to be completed in the second half of this fiscal year.

Looking at our core Boot Barn merchandise performance, we saw improvement in our work category as we continued the positive growth we experienced in the fourth quarter, reflecting further traction in the merchandising initiatives we implemented in FY16. We also grew comp sales of men's and ladies' western apparel, achieving positive results by expanding our assortment in dresses, skirts, and graphic tees in an effort to target the country music festival customer. However, we again experienced weakness in our ladies boots business, primarily attributed to sluggish sales in regions impacted by low oil and commodities prices.

Turning now to the Sheplers business, same-store sales at the Sheplers business, including e-commerce and the rebranded Sheplers stores were positive during the quarter. This sales growth was led by Sheplers' e-commerce business, outpacing the single-digit decline at the Sheplers stores that continued to anniversary heavy promotions in the first quarter of FY16, prior to the Sheplers acquisition.

Looking at Sheplers e-commerce, this business has continued to experience double-digit sales growth, with increases in every major merchandise department, and particularly outsized growth in boots. In terms of site metrics, we saw an increase in both traffic and conversion, along with a shift to mobile from desktop traffic. In the quarter, we completed the transition of Sheplers' store merchandise to the Boot Barn assortment.

Looking at those stores now compared to one year ago, you would see a significantly larger offering of western boots, work boots, and work apparel. The team has done a terrific job enhancing the store aesthetics and expanding our offering, positioning the rebranded Sheplers stores as a key destination for both the western and work customer. We believe the authoritative assortment in each of these categories differentiates us from our competitors.

Although we saw growth in some of the expanded merchandise categories, we did continue to see weakness in western apparel, as we continue to cycle the heavy Sheplers price promotion activity in the prior year. We expect this trend to continue for a few more months until we begin to anniversary the Boot Barn promotional calendar in our third fiscal quarter.

Looking at the profitability of these stores, we continued to work through some of the slower moving apparel at the Sheplers stores, which had some negative impact on merchandise margin rate. This pressure was more than offset by the merchandise margin rate improvement achieved by our purchase economies, introduction of private brands, and our efforts to reduce the amount of promotional activity in the stores relative to the prior-year period. While we are disappointed in the same-store sales results in these stores, we are encouraged by the healthy increase in merchandise margin rate, and feel that we are positioned well for profitable sales growth going forward in this part of the business.

Turning to current business, while still very early in the fiscal second quarter, our consolidated same-store sales were slightly negative in the month of July. For context, July of last year was the toughest comparison in the second quarter, particularly in the core Boot Barn business. We have continued to generate strong sales in our e-commerce channel, particularly at Sheplers.com, and our Western region stores continue to comp positively. However, while we hoped we would see some stabilization in sales in Colorado, Wyoming and North Dakota as we anniversary the beginning of the sales erosion in these commodity impacted markets, that has not yet materialized, and those markets continue to see sales declines.

Looking forward, visibility into sales trends is difficult, and week-to-week performance continues to be variable. Nonetheless, I am relatively pleased with our performance in the first quarter, and believe we have the appropriate strategies in place to manage through the current cycle as we search for more opportunity to drive same-store sales growth, strategically open new stores in areas with strong potential, and further enhance our e-commerce capabilities. 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 comment on our outlook for FY17. In my discussion, I will be commenting on both actual and adjusted results, excluding any one-time costs, to facilitate comparability. 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 39% to $133.4 million. As Jim mentioned, this was driven by the sales contribution from Sheplers, the 17 new Boot Barn stores opened over the past 12 months, and same-store sales growth of 0.4%. Gross profit increased 32.4%, to $40.8 million, or 30.5% of net sales, compared to gross profit of $30.8 million, or 32.1% of net sales, in the prior year period. Consolidated merchandise margin rate declined 210 basis points. Merchandise margin rate declined as the result of the historically lower merchandise margin rate at Sheplers compared to the merchandise margin rate at core Boot Barn.

The composition of the businesses this year with Sheplers, as compared to last year when the Company did not own Sheplers, was the primary driver of the decline in the consolidated merchandise margin rate. Also pressuring merchandise margin rate was the outsized growth in e-commerce, slightly more promotional activity online, additional shrink provision, and increased freight. Importantly, we did not change our full-price selling philosophy in our store base.

Operating expense for the quarter increased 40% to $36.3 million, or 27.2% of net sales, compared to adjusted operating expenses of $25.1 million, or 26.1% of sales, in the prior year period. The increase in operating expense is primarily attributable to the operating costs related to the Sheplers business and the 17 Boot Barn stores opened since the first quarter of FY16. The adjusted operating expenses in the prior year period exclude $0.9 million of acquisition-related expenses.

Our adjusted EBITDA increased to $9.4 million in the first quarter of FY17, compared to $8.8 million in the prior year period. Our income from operations was $4.5 million in the first quarter of FY17, compared to $5.7 million of adjusted income from operations in the prior-year period. The decrease in income from operations is primarily the result of higher depreciation and amortization expense.

Interest expense was $3.6 million, an increase of $2.8 million, or $0.06 per diluted share, compared to the prior-year period, which results from additional debt associated with the acquisition of Sheplers in the second quarter of FY16. Net income for the quarter was $0.6 million, or $0.02 per diluted share, compared to $2.3 million or $0.08 per diluted share in the prior-year period. Excluding acquisition-related expenses and the adjusted provision for income taxes, adjusted net income was $3.0 million or $0.11 per diluted share in the first quarter of FY16.

Turning to the balance sheet, we continue to manage our inventory very closely. Excluding the converted Sheplers stores, inventory was flat to last year on an average store basis. On a consolidated basis, inventory rose 31%, to $179 million, compared to a year ago. This increase is primarily driven by an 18% increase from the addition of the Sheplers stores business, a 7% increase from the new stores added in the last 12 months, and a 7% increase related to the Sheplers e-commerce business.

As of June 25, 2016, we had a total of $253.5 million outstanding on our revolver and term loan. At the end of the quarter, we had $60.2 million drawn on our $125 million revolving credit facility and $5.8 million of cash and cash equivalents. Our net debt leverage ratio was 4.1 times.

FY17 outlook Our outlook for the full FY17 remains unchanged from prior guidance. While we are beginning to cycle the external headwinds associated with softness of local economies dependent on oil and other commodities, we continue to expect same-store sales for the consolidated Company to be between slightly negative to slightly positive.

We expect income from operations of between $42.4 million and $46.8 million and net income to be between $16.9 million and $19.6 million for FY17. Earnings per diluted share is expected to be in the range of $0.63 to $0.73 per share, based on an estimated weighted average diluted share count of 26.8 million shares for the full fiscal year.

Second quarter guidance. As we look to the second quarter of FY17, we expect same-store sales to be slightly negative to slightly positive when compared to the prior-year period. We estimate our second-quarter earnings per diluted share to be in the range of zero to $0.02 per share, based on an estimated weighted average diluted share count of 26.7 million shares for the second fiscal quarter.

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

Thank you, Greg. We are working extremely hard to offset some of the pressures in our business and I am encouraged that we were able to achieve a slightly positive same-store sales result in the first quarter. Having said that, we remain in a challenging retail environment which makes forecasting difficult.

During this uncertain time, we continue to manage our expenses and inventory levels carefully, while remaining focused on building new stores, growing same-store sales, improving our merchandise margin, and enhancing our omni-channel capabilities. Now I would like to open up the call to take your questions. Operator?

(Operator Instructions)

Matthew Boss, JPMorgan.

Jim, just piggybacking on your comments related to business being hard to predict, what is your comp expectation for oil and gas regions in the second quarter, as well as the second half of the year? Just versus what you saw in July.

We are projecting those states to get a little bit better, but they will be negative for the balance of the year.

Okay. And then have you seen any stabilization on the promotional front? I know some of your peers have shifted their mix to lower ticket items. Are you seeing any trade down within categories, both in the oil and gas regions, as well as some of the other areas of the country that haven't been impacted by the oil and gas?

Yes, to some degree. Particularly in the commodities-impacted markets. A couple of examples, where we are seeing more difficulty in the high end boot business, particularly exotic boots. Historically the stereotypical oil worker who was flush with cash would buy not only what they needed to go work in the oil fields, but they would also buy themselves a $400 to $600 pair of exotic boots. That business has experienced pretty significant downward pressure.

The other thing that we have seen a little bit of a trade down in terms of, particularly on the work apparel side, in terms of good, better, best from some of the higher price points, at least on a relative basis, in the work-wear business, or work-wear apparel lines, down to more moderately priced apparel lines. For us though, it is all still essentially at full price. Our full price model hasn't changed. So while we are trading some business down in terms of AUR, our promotional posture hasn't really changed at all.

Got it. And then just last question, as we think about store growth, any change as it relates to the long-term 500 door target, and what would you need to see to consider reaccelerating growth back to 10%? And I guess, more so, does the balance sheet or the leverage that you have today play a role, or is it solely based on top line stabilization?

On the first part of your question, I think the opportunity for 500 stores is as alive and healthy as it was in October 2014, when we came public. In terms of our store rollout plan, we had a long-term goal of 10% new units. If you look at a multi-year period, we are way ahead of that goal. We did slow it this year, just in an attempt to be prudent, to see if we could -- until we saw top line sales stabilization. As soon as we see a couple of quarters that are positive, even in the low single digits, and get through Christmas, I think we will feel a lot better about reaccelerating the store growth. We are trying to, in this very uncertain retail environment, in general, we are just trying to be maybe overly cautious.

Okay. Great. That sounds prudent. Thanks.

Jonathan Komp, Robert W. Baird.

(Operator Instructions)

This is Jon Komp, from Baird. First question, if I could ask maybe on the sales cadence throughout the quarter that you saw, any color month-to-month, that would be helpful.

It was relatively consistent month to month, nothing drastically different throughout the quarter.

Got it. Okay. And if I could maybe clarify, Jim, your comments about some of the oil and gas impacted markets. I think you mentioned expecting some signs of stabilization, but not seeing improvement yet. Does that mean that the trend is stabilized at lower levels? Or maybe, more specifically, can you comment on the two-year trends that you are seeing in those markets?

Sure. The most optimistic view would have been, while we are wrapping negative numbers in the last year period, so that's where we will in term of two year SAC, we will comp positively. We have certainly not seen that. The more pessimistic view would be the negative sales trends, and we said this once before, is double digit sales trends that are negative, particularly in Colorado, North Dakota, and Wyoming. That they would stay that same magnitude negative. They have abated a little bit, they've gotten a tiny bit better than that, but not a lot, and they are certainly not yet flat.

Okay. And then in terms of the outlook for some of those locations, some of the work boot vendors are talking a little more positively about that their business could actually further stabilize, and in some cases, actually turn positive later in the year against some of the low comparisons. And I just wanted to maybe reconcile that with your views for the business, if you expect trends, as you look at the work side of the business versus some of the other categories, looking ahead?

Sure. Sure. I think there's a possibility that could happen. However, and I hope they are right, we are not banking on that, though. We have had some decent sales in our work boots category and in our work apparel category, but that really hasn't been what's pressuring the comp. What has been pressuring the comp in the affected markets is the more discretionary spend, people buying less ladies boots, less apparel other than work apparel. The underlying work boots business is up, as is the work apparel business is up.

Okay, that is helpful. At last one for me, if I could just ask related to the unit development targets longer-term, I noticed it looked like maybe our most recent annual update, that the disclosed unit economics looked slightly less favorable for the new stores, and I am wondering if that is just a factor of the class that was opened? Or if your expectations for the new unit targets have changed meaningfully in terms of the construction costs or the payback period?

I think it's more of the latter -- or rather the former. I think it is more of a temporary phenomenon. The most recent class had two things, maybe three things go against them.

The first was, we were tweaking the store model a bit, so the store capital was elevated modestly. That is not a brand-new store prototype, really, it was just some new fixturing and in-store signage, so we had an escalation of the store capital, which has now normalized because we have been able to source much of that on a bill-back basis, and gotten back down to a capital requirement that was similar to the one that we had called out, when we had first gone public.

The second piece was, we had taken a couple of stores and tried a model in certain markets, looking for store pro formas of $2.5 million to $3 million at some of the Texas new stores. That proved to be a little bit of an aggressive posture for two or three stores, and those couple of stores, while still positive, are still EBITDA positive, would be a longer payback, just because they are not meeting their expectations for those two or three stores.

And the third piece is that most recent class which opened in a much more difficult environment for the whole industry, as we can see in the comp, or the same-store sales piece of it. When you net all of that out, our new store sales volume is still averaging $1.7 million, which is what we had always said it would average. But because of the capital requirements had gone up a little bit, because we had the occupancy in a few -- a handful of stores was a little higher than our model, it slowed the pay back for the most recent class. We expect as we go forward that the roughly three-year payback model will come back to us, and we expect that we can model that as we go forward to the next classes of stores.

Okay. Very helpful. Thank you.

Peter Keith, Piper Jaffray.

I know there's a couple questions around the oil and gas markets. I wanted to make sure that we were maybe splitting out Texas, which I think you have classified as non-oil and gas. Last quarter, it seemed like you saw some sequential improvement in Texas, could you give us an update there? Is it more of the same, or continued sequential improvement?

That is a very good classification, Peter. Thank you. the Texas-based business was still slightly negative, but it was sequentially better than it was in the fourth quarter, and your memory is right, the fourth order was sequentially better than it was in the third quarter.

However, with 47 stores in Texas that are still a drag on our overall comp, because they are negative, they're just not quite as negative. The other three states that we call out specifically are North Dakota, Wyoming, and Colorado. The negative comp in those states is much more significant than that in Texas, and while they have slightly improved between the fourth quarter and the first quarter, they are still pretty significantly down, double-digit declines.

Okay. Thanks for the clarification. And then, Jim, going back to last quarter, I think your commentary was that the sales trends were remarkably volatile for a business that historically has been quite consistent. Maybe it is too short of a trend, but it sounds like this most recent quarter, you saw a little more consistency in the recent months. Is that a fair observation?

I think so. A little bit more. The standard deviation, if you will, is a little bit tighter, but it's still, when we look week-to-week, two years ago, as many of the folks on the call would remember, we had a positive 6 to positive 8 week virtually every week of our life, and now it's, we have got some positive weeks, and we have got some negative weeks, and they average out to where we have been reporting.

I think when we look at the store days from, and if you look at the sequential improvement from Q4 into Q1, what really drove that, and we are pleased with it, but I also don't want to necessarily extrapolate this yet, but what drove the improvement between Q4 and Q1, if you think about the components of our business, the tailwind from e-commerce between the two quarters was exactly the same between Q4 and Q1, and the Sheplers store business, unfortunately, they comped a little bit worse in Q1 versus Q4. So the overall sequential improvement in the consolidated comp is thanks to the Boot Barn core store business, and that is a good fact for us.

Again, we continued to manage in an environment where is difficult to predict next week and next month sales, but at least looking at those two quarters, it was good to see the core Boot Barn stores business had some improvement on the sales line, and still had a very healthy margin. In other words, we didn't change our promotional strategy, we didn't run any crazy sales, so there is some guarded optimism, but it is guarded.

Okay. That's helpful color, and maybe one last clarification question from me. So you have come into the Sheplers stores, it sounds like they will still be under pressure in fiscal Q2, until the promo calendar is lapped in Q3, but because you owned the stores in Q2, I am surprised you wouldn't be lapping that now. Could you help me understand why there is still some volatility there?

Sure. We bought the business at literally the last day of the first quarter, or the first day of the second quarter. For the month of July, and into August, the former Sheplers' team was still buying the product for that business, and running the promotions for that business, and they were running on their own point-of-sale systems.

We went through a very methodical conversion process, plus changing the POS systems over to ours and then taking control of the assortments, but in an effort to keep their business intact while we went through the conversion, for the first three-ish months, the promotional calendar just stayed intact, as they had already put together. That is why we didn't really start them on the Boot Barn promotional calendar until the stores were rebranded, which, while that started in September, most of the volume of the Sheplers' stores business didn't get rebranded until November.

Okay. That is very helpful color. Thanks a lot, and good luck with the coming quarter.

Randy Konik, Jefferies.

Can you hear me this time?

Yes.

There was something wrong with the phones. A couple things, and thanks for taking my question I appreciate. A quick question, if you think about the positive part of the business, obviously, with slightly positive comps, something has to be doing very well, what are the common characteristics of what areas of the geography are doing well from a geographic standpoint, but also from a product standpoint? That is my first question.

Sure. That is a good question. From a geographic standpoint, I think, you circle back to the comments earlier, the core Boot Barn stores have improved, they have a little bit of sequential improvement in Texas and a modest sequential improvement in the three states that have been a drag, although again, just want to reiterate, that is still a pretty sharp decline in Colorado and North Dakota and Wyoming.

From a merchandising category perspective, it's very interesting, when you look at the four quarter going into the first quarter, every single major merchandise department improved sequentially, almost in lockstep. And our read on that was, so traffic must have come up a little bit, because it's not like one particular category broke out and changed the sales trend. It was literally an incremental improvement, based on a consolidated basis, in every single, maybe virtually every single major merchandise department.

Got it. Could you talk about the 40 some-odd stores in Texas, did you talk about the variability within the geographic locales of those stores? Is there anything you can take away from that in Northern Or Southern or Eastern or Western Texas, is there any difference at all, or no?

There is, but it's not an obvious pattern to us. And there's probably a couple real reasons for that. One, in Texas as you know, we have a lot of stores that have been converted from Sheplers', so they sometimes are up and sometimes are declining, and in the most recent quarter, the Sheplers' rebranded stores had a difficult growth rate.

The other piece of it is, last year we actually opened some stores in the Houston market, so if we were to look at the Houston market as a whole, that market has comped down, but we in our view, have been taking share because total sales has gone up in particular market. So we have cannibalized ourselves a little bit. Then you have the different pressures of oil and gas between East Texas and West Texas. Paradoxically the West Texas business isn't quite as bad as you might think it would be.

That was my next question, because you said, I think on the comments when you talked to I believe it was Wyoming, Colorado and North Dakota, you actually said, I believe, that the work business was up, but the discretionary business was down. When those states were worse, was the work business, in fact, also down in addition to the discretionary business, such that the work business has reached an inflection? I am just curious there.

The honest answer is I am not sure if I can quote that specific number. I think your hypothesis is probably valid, but I don't know the specific, by department by those three states, sequentially.

Got it. Okay. And I guess my last question, when you spoke about, I think it was in your press release, but also your commentary, you spoke to a theme of you are not over -- not an extensive amount of sale events. It sounded like listen, the Sheplers is what caused the gross margins, the mix to be down from a total gross margin perspective. So I guess my question is, how do you feel about the full price sell-through rate from the business, are you starting to see those trends sequentially improve at all?

We feel good about that. Yes, I think what we're trying to communicate was that in a difficult retail environment, we are not going to resort to broad-based across the store promotions, with one exception to that, which is an annual sale that we do every year in August called Stinky Boots. We did that last year, and we will do it this year in August.

But other than that, we essentially never put the entire store on sale. We often try to have rifle-shy promotional offers in the store so either a particular vendor, or a particular category, and a particular vendor, will have some promotional activity, but it is very minor. And in terms of our sales composition, 85%-plus of it is still full priced selling, and the balance of it is clearance and all of the promotions pulled together.

We intend to continue to operate that way. We think that is the healthier way to run the business, and while sales haven't been as strong as they have been historically, we're just managing our inventory very closely so we don't wind up exposed from a margin perspective with clearance.

Got it, that's helpful. Sorry, you brought up Stinky Boots. I had one last little question. You commented that the ladies boots were negative, but you didn't comment that men's boots were negative, so I am assuming they were positive. Has there been any time before where you have seen variability in the two genders within the boot category? And if so or if not, what do you think is going on in the boot category? That is my final question. Thank you.

I think the ladies boot business is just a bit more discretionary. On the ladies side, many of our ladies customers wear boots either riding a horse or working with horses, or as part of their daily wardrobe. There is a portion of our ladies boots business that is more the casual concert-goer, the country music festival participant, and that piece of the business probably has a little bit more variability in it.

The men's business is a bit more stable than that, across-the-board. It's just-- I think it has always been that way. At least on my time here.

Got it. Very helpful. Thank you.

Mitch Kummetz, B. Riley & Company

Jim, I got on late because of all the technical difficulties. I am trying to piece together things here from the Q&A, but I may ask some questions that you have already addressed in your prepared remarks. It sounds like you gave a July comp, could you tell me what that was?

We didn't give a specific July comp. What we said was as we got into this quarter, the July business was slightly negative, yet we gave some context that in the last year period in Q2, July was our strongest month of the quarter, particularly in the core Boot Barn business.

Got it. Okay. And then it sounds like, from what you said in the Q&A that e-commerce was a tailwind, like it was left quarter. Can you break out the e-commerce stores?

We haven't broken out that specifically, but e-commerce continues to grow quite nicely. The storage business was slightly negative and the e-commerce business had a consolidated comp deposit.

Got it. And it also in terms of the July trend, did Texas continue to show the improvement that you have been seeing the last couple of quarters, or did that not occur?

I don't know if I have the Texas comp at my fingertips. I think it is roughly the same as it was in the first quarter.

And sounded like Sheplers' comp was a little worse this quarter than last. Did you give any break out between Sheplers' comp versus core Boot Barn comp?

We didn't give that specifically. What we said was the Sheplers business, or the Boot Barn stores business performed better than the Sheplers' stores business. Which is, inverting from the prior quarter, one hypothesis there in the prior quarter in January, where we and lots of other retailers put things on sale and had a clearance sale, the Sheplers business did very well in that particular month.

Speaking to the traditional Sheplers more promotional customer, we didn't have that same highly promotional clearance period as we do for a couple weeks in January in the second quarter, and that may explain a little bit why we do not have a strong same-store sales performance in the Sheplers stores. Having said that, the margin rate improvement in the Sheplers stores business has been so dramatic that we have almost made up the margin dollars in the same-stores between last year and this year, even on a negative single digit comp.

Okay. And then the last one from me. If I recall correctly, it was the oil and gas markets that turned negative in June of last year. I would imagine that they were negative in July. Is there any way that you can say when were they at their most negative in terms of the drag on comp, as we continue to cycle through that?

Sure. We haven't ever called it out specifically, but they were most negative in the third quarter.

Okay. All right. Thank you.

Paul Lejuez, Citigroup.

Just curious when you look at performance of the converted Sheplers stores, how wide is the range of performance? If you could give us a little color as to the stand outs maybe regionally positive and negatives, how much of a discrepancy do you see from one market to another market within the major states?

The answer to that question is the variability is pretty high, and I think there's a couple of reasons for that. I think there's some markets that have been converted that just really catered to a more value-conscious price promotional customer. And those customers have probably fled those stores more quickly than they have in other markets, that might be slightly higher income and a little bit less promotional.

The second piece that has created some variability is just the competitive dynamics, and each of the Sheplers stores operate in different markets, where we either have more or less aggressive competition from the mom and pop Western retailer. And as we have gotten less promotional, there have probably been a couple mom and pops that have taken advantage of that. I think there's some real reasons for that.

We have also had a couple of openings in two market by Cavender's. They continue to be a strong competitor to us in very localized places or localized markets, so I think there is some real reason why there is variability. But the answer to your question, it has been pretty highly variable from store to store, and it's tested our merchants and our merchandise planning team to bring inventory in and out, in a measured way.

Got you. Just last one for me, you have been hanging pretty flattish from a comp perspective, without changing the promotional model. What would you need to see that would make you adjust your promotional model, and rethink about what percent of your business should be happening?

Honestly, I am not sure we would ever get there. I think once we start to pull the promotional lever in a meaningful way, we probably could drive same-store sales for a year. And then the following year, we would be up against that same promotion at a lower margin rate, and we would have to have a deeper promotion into our same-store sales again, and we would have yet again a lower margin rate.

So while we want to amplify the margin, amplify the promotions that we have in the store, and try to make them more energizing and more exciting for the customer, and looking for new and innovative ways to leverage our customer loyalty program, and tie our promotions to our most loyal customers, I still don't think it is going to be promotions at a much higher index, regardless of what is happening on the same-store sales line. We have had several examples, where same-store sales have been soft, and margin dollars have gone up. In different microcosms of the business over the last few years, so I just don't think it's a winning long-term strategy, and we're playing a long-term game.

Yes. Got you. Thanks. Good luck.

Corinna Freedman, BB&T.

I wanted to know if you had an update on some of the new vendor collaborations that you were going to be rolling out to stores, and if there are any other merchandising initiatives you have got planned for the next few quarters? Thank you.

Sure. Corinna, good question. So we continue to partner well with Carhartt on rolling out those stores, probably about 100 stores that have a Carhartt shop, and we feel good about that performance. We are starting to do a little bit now on the denim wall with Wrangler, I wouldn't call it a store-in-store but it's more trying to take credit for being a denim authority, and there is perhaps one other vendor that we are doing some tests with, if they materialize, we might roll-out in a broader way. That is the way we are thinking about it.

We are also continuing to look for growth in our private brands. Our Shyanne brand continues to grow quite nicely, being leveraged a little bit from a marketing perspective, with connection to Kelsea Ballerini. She has been a great face of Shyanne and has helped us really open up that brand, and perhaps Boot Barn, to more of a millennial customer, and certainly to a country music festival customer. We feel good about that.

That is the big broad brush strokes that are happening from a standard partnership perspective. We certainly feel great about our ongoing relationship with Brad Paisley and the Moonshine Spirit line. He continues to be incredibly supportive of Boot Barn.

And then the other merchandising strategies, are similar to things that we talked about in the past, continuing to try to find growth in work boots, certainly the performance work boots, brands like Keen and Timberland, they are performed well for us. Expanding the definition of men's Western boots a bit include some more casual post-rodeo boots we call them. Apres rodeo boots, or driver moccasins is really, I guess, the official name.

There are a number of merchandising initiatives and the team, led by Laurie, continues to just squeeze every ounce of same-store sales growth we can find across each of the departments, particularly as we are facing into an environment with down retail traffic.

Great. Thanks so much, and best of luck.

(Operator Instructions)

At this time there appears to be no further questions. We will go ahead and conclude our question-and-answer session. Again we would like to thank the management team, not only for your time today, but again for your patience through the technical difficulties earlier.

We also thank you all again for your patience, and for your attendance today. I would now turn the call over to the management team for any closing remarks. Gentlemen?

Thank you everyone for joining the call. We appreciate the time. We apologize for the late start, we had the same difficulty unfortunately, as you did getting onto the call. We look forward to speaking with you again on the second-quarter earnings call this fall. Thank you very much.

Again we do thank you sir, and to everyone else, again for your time today. For joining the conference call and for the technical difficulties earlier, thank you for your patience. The conference call has now officially concluded. At this time you may disconnect your lines. Thank you, take care, and have a great day.