Boot Barn Holdings Inc (BOOT) 2025 Q1 法說會逐字稿

Good day, everyone, and welcome to the Boot Barn Holdings, Inc. first quarter 2025 earnings call.

As a reminder, this call is being recorded.

Now, I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President, Investor Relations and Finance.

Please go ahead.

Thank you.

Good afternoon, everyone.

Thank you for joining us today to discuss Boot Barn's first quarter fiscal 2025 earnings results.

With me on today's call are Jim Conroy, President and Chief Executive Officer; and Jim Watkins, Chief Financial Officer.

A copy of today's press release, along with a supplemental financial presentation, 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 on the Investor Relations section of the company's website.

I would like to remind you that certain statements we will make during this call are forward looking statements.

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 the Barnes 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 during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our first quarter fiscal 2025 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.

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

Jim?

Thank you, Mark.

And good afternoon.

Thank you, everyone for joining us.

On this call, I will review our first quarter fiscal '25 results, discuss the progress we have made across each of our four strategic initiatives and provide an update on current business.

Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open the call up for questions.

We are very pleased with our first quarter results and the solid start to our fiscal year.

During the quarter, revenue increased by 10%, including consolidated same-store sales growth of 1.4%.

Same-store sales in both the stores and e-commerce channels were positive, with stores comping up 0.8% and e-commerce up 6.7%.

In terms of sequential improvement and same-store sales growth.

It was encouraging to see the quarterly improvement that we experienced from Q3 into Q4 continue into the first quarter of fiscal '25.

Consistent with our comments on our most recent earnings call.

This sequential improvement was broad-based across virtually all major merchandise departments, both stores and e-commerce channels and in all four regional geographies.

It is also worth noting that this quarter's sales results were cycling 33 nights of performances of Taylor Swift's Ara's tour last year across the United States.

While we have noted in the past that this tour had a negligible impact on our business.

It is encouraging to see the strength in sales as we went up against the excitement from her tour last year.

We believe our 10% revenue growth in the quarter outpaced the industry and has enabled us to continue to build on our recent market share gains.

From a margin perspective, first quarter merchandise margin expanded 100 basis points driven by supply chain efficiencies.

We were pleased to see such strong merchandise margin expansion with exclusive brand penetration increasing slightly over last year.

We believe this underscores our ability to expand margin beyond the benefit we typically experience from growing exclusive brands.

The strength in sales and margin, combined with solid expense control, drove earnings per diluted share of $1.26 during the quarter compare to the high end of our guidance of $1 and versus the prior year EPS of $1.13. I'm extremely pleased with our start to the year, as the team's execution continues to deliver both top and bottom line results.

I will now spend some time discussing each of our four strategic initiatives.

Let's begin with expanding our store base.

We opened 11 stores in the first quarter, ending the period with 411 stores across 46 states.

Our new store engine continues to meet our sales, earnings and payback expectations.

As a reminder, we model new store performance at $3 million of revenue with a cash-on-cash return on capital of approximately 60% in the 1 year of operation.

We believe our new store pipeline remains healthy and we expect to open 16 new units this year, continuing to meet our commitment of 15% square footage growth annually.

Given the ongoing success of our new store openings, we have confidence that we can open an additional 500 stores in the US alone, more than doubling our current store count.

Moving to our second initiative, driving same-store sales growth.

First quarter consolidated same-store sales grew 1.4% with retail stores same-store sales growing 0.8%, we saw an increase in AUR, which drove a larger average transaction, which was partially offset by fewer average transactions and a comp store.

While average transactions declined overall in the quarter, they showed sequential improvement throughout the quarter.

Inflecting to positive growth year-over-year in both May and June is encouraging to see the positive momentum in the business, particularly in June where we posted positive same-store sales growth cycling the strongest month of the quarter last year.

From a merchandise category perspective, during the quarter, we saw sequential improvement across virtually every major product department led by men's, Western boots and apparel, which comped positive mid single digits.

Ladies' Western boots comped positive low single digits in the quarter, while ladies' apparel saw low single digit decline in comp sales, which was a significant improvement from the fourth quarter of fiscal '24.

Moving to our third initiative, strengthening our omnichannel leadership.

In the first quarter, e-commerce same-store sales grew 6.7%, partially driven by growth in paid demand as we continue to improve our online marketing capabilities.

We were particularly encouraged by the performance of the bootbarn.com site, which posted sales growth of approximately 14% in the quarter, which further underscores the power of our integrated omnichannel strategy.

From an operational standpoint, our omnichannel capabilities continue to benefit us with over half of our online orders being fulfilled by the stores.

Our ability to fulfill online orders with store inventory helps drive selling margin, and we believe provides the customer with a better shopping experience and bring a broader assortment of merchandise.

Now, to our fourth strategic initiative, merchandise margin expansion and exclusive brands.

During the first quarter, we grew merchandise margin by 100 basis points.

Exclusive brand penetration increased slightly over last year to 38.1%, wrapping an outsized 630 basis points of growth in the prior year period.

We believe we have multiple opportunities for ongoing merchandise expansion -- margin expansion, including growing exclusive brands, driving supply chain efficiencies and leveraging buying economies of scale, which includes our vendor direct purchase program where we take ownership overseas have full container loads of merchandise and then manage the complete inbound supply chain.

We are confident that we can deliver long-term margin expansion.

Through a combination of these measures, we continue to expect a greater than 100 basis points increase in merchandise margin for fiscal '25, driven by supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration of more than 100 basis points over the prior year.

Turning to current business on a quarter to date basis, we continued to generate positive growth in consolidated same-store sales.

However, we did experience two weeks of challenging business in mid-July that drove negative comp sales.

We believe this was a transitory event, driven by multiple headwinds, including the hurricane in Houston, dangerously hot weather in our Western region and an unfavorable concert lineup as we cycled Morgan Wallen playing two of our largest revenue markets last year.

Since we emerged from that two-week period, the consistent strength of the business returned with our most recent two full weeks of consolidated same-store sales comping nicely positive at 6.5% and 2.6% respectively, with growth coming from both channels.

While we feel good about the current tone of the business, we remain cautious of our overall consumer sentiment and macro uncertainty and will continue to manage our business prudently.

I'd like to now turn the call over to Jim.

Thank you, Jim.

In the first quarter net sales increased 10.3% to $423 million.

The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same-store sales.

The 1.4% increase in same-store sales is comprised of an increase in retail stores, same-store sales of 0.8% and an increase in e-commerce same-store sales of 6.7%.

Gross profit increased 10% to $157 million compared to gross profit of $142 million in the prior year period.

Gross profit rate was flat at 37% when compared to the prior year period as a result of a 100 basis points increase in merchandise margin rate offset by 100 basis points of deleverage in buying occupancy and distribution center costs.

The increase in merchandise margin rate was the result of supply chain efficiencies while the deleverage in buying occupancy and distribution center costs was driven primarily by the addition of new stores.

Selling, general and administrative expenses for the quarter were $107 million or 25.2% of sales compared to $96 million or 24.9% of sales in the prior year period.

And SG&A as a percentage of net sales increased by 20 basis points, primarily as a result of higher online marketing expenses and higher corporate general and administrative expenses, partially offset by lower store related expenses.

Income from operations was $50 million or 11.9% of sales in the quarter compared to $46 million or 12.1% of sales in the prior year period.

Net income was $39 million or $1.26 per diluted share compared to $34 million or $1.13 per diluted share in the prior year.

Period.

Turning to the balance sheet, on a consolidated basis, inventory increased 11% over the prior year period to $627 million and increased approximately 6% on a same-store basis.

We finished the quarter with $83 million in cash and zero drawn on our $250 million revolving line of credit.

Turning to our raised outlook for fiscal 2025.

The supplemental financial presentation we released today lays out the low and high end of our guidance range for both the full year and the second quarter.

I will be speaking to the high end of the range for both periods and my following remarks.

As we look to the second quarter, we expect total sales at the high end of our guidance range to be $412 million.

We expect consolidated same-store sales to increase 1.4% with a retail store same-store sales increase of 1% and an e-commerce same-store sales increase of 5%.

We expect gross profit to be $146 million or approximately 35.4% of sales gross profit reflects an estimated 60 basis points increase in merchandise margin, offset by 90 basis points of deleverage in buying occupancy and distribution center costs or income from operations is expected to be $36 million or 8.7% of sales.

We expect earnings per diluted share to be $0.87.

As a result of our first quarter performance and our updated view for the remainder of the fiscal year, we are raising our full year guidance.

For the full fiscal year.

We now expect total sales to be in at the high end of our guidance range to be $1.85 billion, representing growth of 11% over fiscal '24.

This is a $50 million increase of our previous guide of $1.80 billion.

We expect same-store sales to increase 1.2% with a retail store same-store sales increase of 0.7% and e-commerce same-store sales growth of 5.5%.

This is an increase from our previous guidance of a consolidated same-store sales decline of 1.6%.

We now expect gross profit to be $689 million or approximately 37.2% of sales.

And gross profit continues to reflect an estimated 110 basis points increase in merchandise margin driven by supply chain efficiencies, better buying economies of scale and growth in exclusive brand penetration of 110 basis points.

We expect the growth in exclusive brand penetration to be in the back half of the fiscal year, given the outsized growth we experienced in the first half of fiscal '24.

Our income from operations is expected to be $219 million or 11.9% of sales.

We expect net income for fiscal '25 to be $165 million and earnings per diluted share to be $5.35, a $0.50 increase from our prior guidance of $4.85. We continue to expect our capital expenditures to be $120 million.

For the remaining nine months of the year, we expect our effective tax rate to be 26.3%.

We remain committed to our plan to grow new units by 15%, adding a total of 60 new stores during the year.

We anticipate opening roughly 25 stores in the first half of the year and 35 stores in the second half of the year.

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

Thank you, Jim.

We are pleased that our business is achieving positive same-store sales growth.

Our merchandise margin continues to grow and our inventory is well positioned with less markdown product as a percent of inventory than this time last year as there seems to be substantial uncertainty in the market right now, particularly with weakening retail industry metrics and concerned about the health of the consumer.

We're even more pleased that we were able to exceed our first quarter guidance and raise our guidance for the balance of the year.

I do want to thank the entire Boot Barn organization in the stores, distribution centers and store support center for their unwavering confidence in our four strategic initiatives and their continued focus on world-class execution.

Now we'd like to open the call to take your questions.

(Operatopr Instructions) Matthew Boss, JPMorgan.

Great.

Thanks and congrats on a on.

Another nice quarter.

Thanks, Matt.

So Jim, maybe could you help break down the drivers behind the return to positive same-store sales here in the first quarter.

As you look across traffic, new customer acquisition may be a basket component and just your confidence in sustaining positive comps now moving forward, as we think about pre pandemic algorithm, you used to talk about which 3% to 5% same-store sales, but I think you've materially exceeded that pre-pandemic.

So just kind of bridging first quarter returned to positive comps, maybe what you're seeing in the second quarter?

And then thinking about going forward, any change in that top line same-store sales algorithm as we think moving ahead.

Sure happy to do that.

In terms of the components, it was great to see broad-based sequential improvement.

It continued from Q3 to Q4, Q4 to Q1.

And then throughout Q1.

And that broad-based nature of it was across merchandise categories, geographies and channels.

In terms of your specific question around the components of the retail store business, the first quarter started out with slightly negative transactions per store.

But both in May and June, our average transactions per store were positive.

And then when we finished up the quarter, we can reflect back.

And we saw a positive growth in the size of the basket itself, driven mostly by AUR, but a little help with an increase in UPTs.

And we exited the quarter with transactions year-over-year, increasing on an average store basis.

In terms of the confidence going forward.

I appreciate the embedded confidence in your question.

We have exceeded our long-term algorithm of comps for a long period of time.

And I think everybody was waiting to see when we cycled that year of plus 53.7%, what would happen and while we gave a little bit of that back a couple of years after that, it now does seem that we're back to a pretty strongly predictable business a little bit more visibility than we've had in the last couple of years.

And again, nice to see sort of strength across the Board across merchandise categories and channels and geographies.

So I'd say if we didn't have the backdrop of all the other macro uncertainty, I'd say our confidence would be pretty high.

We are a student of the rest of the retail industry, and I know, there's a lot of uneasiness out there around consumer confidence, upcoming elections, et cetera.

So we're trying to remain a little bit prudent with and cautious as to how we view the balance of the year.

Great.

And then maybe just a follow up on the margin side.

So as we think about the bottom line outlook, maybe could you just elaborate on puts and takes in the second quarter gross margin and just overall flow-through rate best to think about is it 35% incremental margin on top line upside going forward in the model?

Yeah, Matt, the 35% is still the flow-through number to use on the model on the upside as you look forward and if you model some a beat on top of what we've guided there.

As far as the gross margin goes, as we look at the second quarter, the merchandise margin, we're expecting to improve 60 basis points driven by supply chain efficiencies.

And we expect more of the buying economies of scale to kick into a larger degree in the second half of the year, exclusive brand penetration to be down a little bit in the second quarter, be flat before ramping up and the second half and buying occupancy is expected to deliver by 90 basis points in the second quarter, with the continued higher occupancy from new stores and the deleverage from negative same-store sales in the second quarter.

And then as we look for the full year at the overall gross margin, we're expecting to see at the high end of the range of 40 basis points increase in gross margin.

Great.

Best of luck.

Thank you.

Thanks.

Matt.

Peter Keith, Piper Sandler.

Thanks.

Good afternoon.

Nice results here, guys.

As you've seen, the sequential comp improvement again, last quarter you were talking about a few company-specific initiatives like bringing in lower price point products back into the mix, even shifting some of the ad spend, I think to be maybe a little more bottom of funnel.

Could you talk about how some of those company-specific initiatives played out?

Are there still levers that you could pull?

Sure.

You're exactly right.

We were talking about two or three things that were doing that is that were somewhat consistent with past practice, but maybe with improved focus.

So starting with the merchandising piece and from the assortment -- from an assortment planning process.

We really wanted to ensure that we had balance across a couple of different dimensions.

One is pricing, right?

We wanted to get back in stock across good, better and best.

And with a couple of years of successive increases inflation, we did think we had vacated sort of some of that good price point range in a few different parts of the assortment.

So we were able to counteract that relatively quickly, bringing in oftentimes third party product to fill in the good price points.

And we also want to find the right balance to function and fashion.

And I think we've had gotten maybe a little bit off from a lease boot assortment standpoint, leaning a little bit too much into fashion.

And now we're I think we feel a little bit better about our balance between function and fashion, and that businesses has strengthened quite nicely.

The other two pieces.

One you mentioned was from a marketing standpoint, we've been building a brand for the last six or seven years and really focusing on elevating the aesthetic of the Boot Barn brand and candidly hoping to elevate the entire visibility of the Western industry.

But when comps started to get a little softer, we shifted gears slightly.

We didn't really break price.

We just wanted to focus more on call to action and generate what you described as bottom of the funnel, generate a little bit more immediate demand.

And then finally, we leaned heavily on the field and trying to equip them with more opportunities to build the basket.

So one of the victories, small victories that we are seeing now is a return to positive growth in units per transaction, which had been alluding us for the last few quarters.

So that's it's nothing more complicated than sort of those basic building blocks.

But when you put all those together and admittedly cycling some negative numbers.

All of last year's June was pretty strong.

Yeah, I think that bodes well for the future for us.

Okay.

But the other thing I want to ask about was the Morgan wall in sponsorship.

I think this is your second year in a row of sponsoring his tour.

It does seem to become one of the bigger tours of the summer.

And I recall that part of the thesis around getting behind is you could broaden your customer demographic, perhaps a little bit of a younger customer base.

And so two years in now, have you seen any results from that is maybe with your B rewards program for or what customers are buying around some of those concert events?

Yeah.

So it's a very good question.

We feel great about what we're doing with Morgan Wallen and not to correct you, Peter.

It hasn't quite been two years yet.

But we are almost a year into it.

We have seen and I think some really great excitement associated with the store and his impact on the business is is massive.

When he goes in and out of a market.

We've seen a really nice uptick in customer capture.

And a good part of those customers are now leaning a little bit more female a little bit younger and a little bit more in the category of fashion versus Western, which does fit nicely into the demographic of his fan base.

So I think it's hard to specifically draw causality between what we've done with them and what's happening in the customer database, but from what we expected to happen to what is happening.

And there's certainly some correlation there.

Okay.

Very good.

Thanks so much, Peter.

Steven Zaccone, Citi.

Thanks for taking my question and congrats on the strong results.

I wanted to ask on the sales guidance change.

So how should we think about how your expectations for the back half of the year have changed.

I'm just keeping in mind that Q3 compare looks like the easiest on a one year basis.

So just help us think there are some some of those planning for the back half?

Sure.

So when we guided the beginning of the beginning of the year, Stephen, we use February, March and April's business to form for the year and then as you'll recall, we haircut the back half of the year, particularly the third quarter for election disruption, a shortened holiday calendar and just some macro uncertainty for the entire back half of the year as we got through the end of the quarter.

The way we've updated our guide for the year is we expect Q2 same-store sales in the stores to look similar to Q1 at a plus 1%.

And then as we get to the third quarter, we expect the store comps to be flat and then straight into about a plus one in the fourth quarter.

Is that reflective of very similar haircut or a reduction in sales from what the rollout of just looking at the July's business and again, I should I should clarify.

We did usage at the four weeks of July plus the one week of August.

We looked at that five weeks of business to roll out the rest of the year.

And then that's what we haircut from then -- from there in the third and fourth quarter.

So similar level of conservatism to anticipate some of the disruption that we're seeing or could potentially see as we get into the third quarter, more of that reduction comes in the third than the fourth quarter.

And then as the online business is guided e-com comps.

We've taken a similar approach and we're expecting that to be at about a plus five for Q3, Q4, and then obviously an Q2, where we've provided the guide.

Thanks for that detail.

It's helpful.

The follow-up question I had was just the workwear side of the business.

I guess that's still lagging.

What do you think is happening there?

Did you see any sequential improvement in the first quarter?

And then how was that kind of trending thus far in 2Q?

Sure.

It's nearly flat and so we wish it was positive, but it hasn't yet turned positive.

The work Boot business saw a nice improvement sequentially from Q3 into Q4 and then slight improvement from Q4 into Q1 and is pretty much in line with Q1 right now.

So negative one-ish.

Work apparel, which is much smaller than work boots, is negative, low single digits.

We are making some changes to the assortment there and hope to get that back to a positive number in next couple of quarters.

And again, we'd rather those numbers be positive than negative but they're not massive drags on our overall comp right now, though.

So that's good.

So hopefully we'll get those turned around in the next couple of months.

Okay.

Thanks.

Max Rakhlenko, TD Cowen.

Great.

Thanks a lot, and congrats, guys on a nice quarter.

Thanks Max.

So first, can you provide an update if the improving trends that you're seeing are coming more from legacy shoppers or shoppers gained over the past few years?

And then just bigger picture, what's your sense of how good of a job you've done maintaining and growing sort of that legacy or core Western shopper versus a shop of them may be in the aperture or two away from that more traditional shopper that you've had in the past?

It's hard to look at a short period of time and answer that question.

If we look over the last few years, we've seen growth in both legacy and new and over -- over that period of time where, again, the businesses comped up or on a multiyear basis and more than 50%.

And if I think of it from that perspective, most of that was increased transactions.

And what we had said when we were going through that was about half of those increased transactions were new customers.

So when we look at the most recent quarter, we did increase trends at the size of the database by about $1.2 million people are about 16% versus the quarter last year.

And when I look at the composition of where they're coming into the database, it's a pretty distributed split between Western and work and fashion customers are just country and customer segment are all growing sort of in relative proportions to one, our legacy customers with a little bit a little bit more growth in some of the newer customer segments like fashion and country.

So again, if everything but just the overall business, I think be the health of our customer is we're seeing a reemergence of our legacy customer and adding new customers.

And hopefully that will bode well for the balance of this quarter and third and fourth quarter and materialize into nicely positive comps.

Got it.

That's very helpful.

And then you guys done a really nice job of lowering your sourcing exposure to China or from China, but it still remains somewhere between feels like 35% to maybe 40%.

So just curious if you could speak to any contingency plans and how you're thinking about sourcing if it were to look more likely that tariffs would increase?

Sure.

Thanks, Max.

You're right.

Over the last year, we were able to lower our exposure to about 37%, 38% from China, in our own order is actually closer to 30% now around 30%.

So we do continue to derisk our exposure to China.

We do want to pull completely out of China because we have learned over the years that they make a nice product and quality and we can get it delivered on time.

And that's an important to us.

But it is something that we continue to look at the risk of moving out of China versus staying in China.

And we'll continue to watch the news and and see what happens with tariffs or increased tariffs.

We did go through this once before where we had an increase in tariffs for several years ago, and we're able to absorb those and manage through the increasing costs and continue to grow our merchandise margin despite the tariffs we thought last time.

So while we don't love an increase in our cost of goods, it's something that we feel confident managing through.

Thanks a lot, guys, and best regards going forward.

Thank you, Max.

Dylan Carden, William Blair.

I'm curious if you're doing anything different in the online channel on and kind of what would trigger that recovery to if it's just simply easier comparisons.

And then just kind of looking historically that that penetration has gone as high as kind of the high 10s is the right way to think about that sort of the structural level should be at?

Or is this a different business where you're kind of to maintain the current level?

So the first questioner was around the inflection point of the online business.

What was the second part of your question, Dylan?

Just curious the penetration rate, if that should retrace back to historical levels before the normal?

I would say what we think that part of the question, I think the penetration of our online business will hover around 9%or 10% for the foreseeable future, not because I don't think our e-commerce business is going to grow nicely.

We're guiding it for the balance of the year, roughly plus five.

It's doing a bit better than that now and by I think our stores will remain positively comp even if it's low single digit and we're adding new stores.

So just the math of it, e-commerce would have to really accelerate to gain ground and tried to overtake the growth in both new store sales and low or mid single-digit comps from the store base.

In terms of what's changed in that business, we have done some things online right.

So all of the assortment changes we mentioned earlier around finding the right balance of price points between good, better and best finding the right balance between function and fashion flowed right through to the online channel.

We've set up some unique landing pages online where we've de cluttered some pages that would have historically had both full price and clearance markdown items.

On the page and now we've sort of separated those out.

We feel pretty good about the effectiveness of Google's PMAX. methodology or tool that is relatively new to us.

And we've I'd say finally, we continue to manage the spend online somewhat algorithmically based on a fixed return on ad spend.

And recently we've just gotten more for that spend we've been able to spend more dollars and achieve a profitable sales growth.

But all of that together, coupled with cycling some negative numbers to your point, and we feel good about the growth there.

I think the single thing that may have inflected differently from the last couple of quarters was the effectiveness of the online pay-per-click spend and that has added growth on top of a bit of growth.

I mean, I was fishing a little bit in the question.

Did you have you loosen your standards for return on or is it more that it's just naturally becoming more efficient?

We haven't really card counters still in the standard for return, though, it's been almost exactly the same number.

And when the cost per click comes down or the conversion goes up, you get more for that spend.

So if we could dial in to call it a [four or 4.5] as and spend 10% or 15% more and continue to maintain that number or higher.

We would keep doing it.

And conversely, there are quarters and there have been recent quarters where we pulled back on spend and gave up demand because we thought it was EBIT eroding or pretty much for sure it was EBIT eroding.

And so that's really what's the math behind the spend on digital.

Jay Sole, UBS.

Thank you so much, Jim.

I see in the slide deck that there's some what looks like a new exclusive brand in a new segment, the premium segment, and it's called Cody James Black 1978 and can you tell us about that a little bit?

Like what is that on the?

Where's it going to be distributed?

What's your what's your plan for that category in that new Cody, James, Subranad?

Sure.

Happy to.

It's an exciting piece of the business.

And I do want to be intellectually honest, it's not multiple points of same-store sales growth.

So I don't want to overplay it, but it's an extension of Cody, James.

It is an elevated price point.

It started with Boots.

And if you get into the different styles and silhouettes of boots, it tends to lean a little bit more exotic skin versus regular leather, and it tends to lean a little bit more Roper style versus riding style such as facility of the toe and the heel.

It's now in almost 100 stores and we'll be adding it to more stores going forward.

It's online.

Of course, there is an underlying trend in the industry where a new an age old brand called low KC, which many people have heard of even outside the Western industry, it created a market and we felt like the market was bigger than what they were able to deliver.

And now there's a few different companies out there that are going after that business.

And this is sort of our take on it.

We have direct competitor in Texas called calendars.

That's going after this area's going after this as a few others.

And but it's a it's a really nice elevated styling, an elevated price point.

And it's starting to extend a little bit into very high end cowboy hats and some and this is small and narrow, but and some sport jackets at elevated price points.

So if you think about it between casual and dress up, it sort of addressed that part of the store.

So that's interesting and sort of it sort of has some lifestyle brand elements to it already, even though it sounds kind of new and elevated price points.

I mean, I'm going to ask the question, how did the margins compare versus the rest of the Exclusive Brands portfolio given that elevated price point?

Yeah.

In line there, it's a really merchandise margin accretive business to us.

There in line with our exclusive brands.

And as you know, our exclusive brands outpace our third party brands.

So the more we can do with that, the better it also adds newness to the stores and add some vibrancy.

The store partners store associates out there, London, of course, because they're they tend to be loyalists to our brand into to Calgary boots in general.

So there's a lot of great qualitative factors to aid and in additional business, which again, it's not five points of comp, but it's nice additional business.

Got it sounds great.

Thank you so much.

No problem.

Thank you.

Janine Stichter, BTIG.

Hi.

Good afternoon.

I was hoping you could elaborate a bit on some of the other gross margin drivers that you spoke to.

I'm particularly interested in the supply chain efficiencies exactly what you're doing there and then extending vendor direct.

Maybe just elaborate on that and then kind of speak to what inning you're in with these efficiencies?

Thank you.

So as far as the gross margin drivers.

But starting with the supply chain efficiencies, we've really been able to the team's done a really nice job in renegotiating rates with shipping and freight and logistics providers we've created.

And so that's that's the bulk of what we're seeing in the supply chain efficiencies are just better rates with our with our supply chain partners.

We've been also created some efficiencies in our distribution centers.

We've got the Kansas City distribution center up and running, and it's doing really well.

It allows us to eliminate storage sites for inbound freight which was costing us some money.

We've also been begun to rework how we have product from the distribution centers to our stores and our shipping packages that are full or saving us shipping costs and some corporate savings.

So it's part of our broader initiative of looking at all of our vendor relationships and seeing how we can do things more efficiently.

We bid things out and just be smarter with how we're moving product around the country as we continue to grow gross stores.

And as I mentioned on the last call, I believe about two thirds of the gross margin improvement that we're expecting to see for the year is coming from the supply chain efficiencies.

And that's running pretty steady throughout the year.

We're in the early innings of those supply chain efficiencies.

The bulk of the step up is really going to be in this year as we get into next year.

We'll continue to look for opportunities, but I'm not expecting that to be in the magnitude what we're seeing this year.

And then as far as vendor or economies of scales is working to get bulk purchases.

We're taking possession of full container loads of product from some of our bigger vendors and getting a discount there.

And so continuing to work with them as we've grown our business with our vendors and making sure that we're getting the appropriate pricing is as partners, both of us are seeing really nice growth as we open stores and expand across the country, making sure that the pricing keeps up with the growth as we're both able to see some economies of scale there.

And I think that, I would have to see some better markup in as the product we're purchasing at better pricing works into the inventory.

We're expecting to see those economies of scales really come in the second half of the year.

And I do want to add to that.

That's with both our third party vendors and also our exclusive brand vendors and our team working at pricing with our on our exclusive brands.

Okay.

And then just a follow up on the exclusive brand side.

I mean, you talked about the expansion accelerating in the back half of the year.

Is that contingent upon the women's business starting to show more improvement?

Know that women's kind of [overindexes] to exclusive brands or exclusive brands overindexes?

Yeah.

That's a part of it, Janine, it's not the entirety of it.

It's really as we cycle the greater than 600 basis points expansion from a year ago in the first half of the year.

And as Jim mentioned, getting some of the really nice product from our third-party vendors into the stores in the first half and some excitement there and having that product available quickly.

It's really just been readjusting the assortment in the stores and we can see what's on order on some of the exclusive brand stuff and when that's planning to come in the stores.

As we get into fall and get ready for holiday, we can see and project that it's exclusive brand penetration growth reaccelerating as we get to that second half Perfect.

Thank you so much.

Jonathan Komp, Baird.

Yeah.

Hi.

Thank you.

Good afternoon.

I'd just ask how you're viewing the resiliency of the positive comp trends, given all the focus on the economy?

And then maybe related, it looked like the inventory per store stepped up to 6% growth, are you does that imply that you're planning scenarios where there could be upside to the comps guidance?

Or how should we is the off the inventory?

Sure.

On the first part on resiliency.

We're looking at this with cautious optimism.

If we look at the business over the last 14 weeks, 11 of them have been positive comps and we called out the two sort of transitory events in July that we think were one-offs.

So that gives us some confidence that the business is back to positive comps, as we turn into September a few weeks away.

September was a somewhat negative comp month last year.

So again, we if there's any hesitancy in our voice, we just don't want to be overly optimistic and be surprised because there is certainly a lot of macro noise out there.

In terms of the inventory position, inventory is up 6% on an average store basis just as a reminder, last year at this in this quarter it was down 9% on an average store basis.

So I wouldn't necessarily read all that much into it -- I guess if we're being completely honest, there is some optimism that as we go into the fall that we would want to fuel in growing sales trend and we'll have the product to do that.

We haven't, however, taking unnecessary risks, but we just haven't extended ourselves to the point where if the business doesn't materialize, we're going to wind up with significantly deteriorating margins in our view.

So we can take that as perhaps a subtle signal that we might believe a little bit more bullish Lee in the future of the business than what we've guided and there's a few other things going on.

And I would just add that that our philosophy around inventory management is continues to be the same unchanged from prior years.

Last year, our total inventory remained relatively flat despite opening 55 new stores and filling those stores and growing exclusive brands.

And so I think we've spent the last year managing our inventory extremely well and getting ready for this upcoming fall where we can, as Jim mentioned, get the right inventory in the stores and improve our inventory position.

Our markdowns as a percent of total inventory are below what they were a year ago.

And so it really is us bringing new freshness into the stores as it relates to inventory.

That's really helpful.

And then just one follow up by Jim Watkins on the Q2 guidance, it looks like the high end you're projecting similar comps as you saw in Q1, but you're embedding a greater operating leverage -- operating margin deleverage.

So could you maybe just talk through some of the puts and takes as we think about the operating margin performance quarter over quarter or unique factors in Q2?

As you know, well, John, Q2 typically had similar sales volume as the first quarter.

We've seen the last several years, higher expenses last year, we saw the first quarter was $1.13, I believe, in earnings per share and in the second quarter was $0.90. And so the similar flow-through from what we've seen in the past.

Q1, must also add have really nice flow through back to Matt's earlier question around flow through for the rest of the year on the upside we saw really nice flow through in Q1 where we had to get even better supply chain efficiencies and control some of the expenses.

And so we're just not planning that in the second quarter.

We also have additional expenses in the second quarter, such as store manager conference, higher utilities as we're running the air conditioning in our stores, more DC labor that impacts the operating margin as we ramp up the receipts for the holiday quarter.

And so that's typically what we're seeing in the second quarter that that's creating a little bit more of that deleverage as we get into the second.

Very good.

Thanks you.

Thanks, John.

Jeremy Hamblin, Craig-Hallum Capital Group.

Thanks and congrats on the momentum in the business.

I wanted to get into just understanding what you're seeing in terms of kind of your various income cohorts.

There's a lot of noise out there in terms of typically when you start to see a little economic softening that you see kind of premium household outperform, but that hasn't necessarily been the case here over the last few months.

I wanted to get a sense for what you are seeing if there's any discrepancies across your various income cohorts and you noted that I think work work boots are still a bit of a laggard.

But what are you seeing kind of internally in your metrics?

Some kind of help us understand where are your businesses?

It's a great question and certainly one that we follow other companies has been spoken to.

So we were sort of well prepared to answer this one.

But the quick answer is, while the hypothesis is out there and it certainly makes sense.

We haven't seen it, but we just our customer cohorts.

We haven't seen material differences between the more lower income and higher income customers.

We were trying to develop some reasons for that.

What one might be we do sell more functional product.

So regardless of what's happening in the economy, most of our product has a functional purpose behind it, and it's going to be purchased regardless.

And the second piece is while we've seen unemployment go up a little bit over the last few months, and that has spooked the market a bit.

When you peel back the unemployment numbers, the unemployment is really not hitting the sectors where we operate in right.

So the higher unemployment numbers were in the information sector, the restaurants and hotels and retail and wholesale, et cetera.

But when you look at agriculture, mining, oil and gas construction and manufacturing.

Those unemployment numbers are just not as bad.

So in an effort to tried to provide some color commentary as to why that's happened, that's all we can come up with.

But we haven't seen that natural phenomenon that you'd expect where perhaps the higher-income customer does better, but we haven't seen it.

Got it.

Thanks.

And then just another question here on them on, kind of your new unit kind of projections over coming years.

As you look beyond FY'25, I wanted to get a sense for you got a map on slide 5 here of your national footprint and how are you thinking about the go forward, continuing the pace of growth that you've been at in terms of kind of getting into new markets versus infilling into existing markets in terms of kind of percentage of split that we should expect beyond FY'25?

Sure.

We used to say it was it was two-thirds new markets and one-third existing markets.

And then we wound up after looking back a couple of years later, we had more quote unquote, existing markets.

I think as we if -- we look at new store openings in the next 12 or 24 months, I would say half of them are filling in markets and half of them are in.

It's pretty much brand new market that necessarily new states aren't that many states left to go into, but we are opening up stores in cities that don't have a store within an hour to Syracuse, New York.

As an example, we have a few stores in Upstate and Central New York, but nothing really close to Syracuse.

We would count that as a new market.

And then we've also been drilling in big states like Texas and California, we haven't seen any notable cannibalization, but we do count those as existing markets.

Got it up to [create synergies], great place to operate.

I'm sure you'll be well well there and good luck the rest of this year.

Thanks.

Corey Tarlowe, Jefferies.

Great, thanks.

I just wanted to ask about in light of all that macro volatility that we've seen -- are you seeing your competitors behave any differently?

On the margins, I'd say nothing bad for certainly nothing we would follow and emulate.

I would say we've seen a little bit more promotional activity in some categories of business and in some secondary competitors, some of the farm and ranch players as they're trying to find some catalyst for sales growth and the mom-and-pops are probably being a little bit more promotional.

We don't track you have 400 markets of mom-and-pops anyway, but that would have no impact on us.

And then the single competitor that's really in our space called calendars based in Texas.

They -- one of the things we like about them and they're a very formidable competitor.

They're great operators and they tend to operate like we do mostly full price and much less promotional than typical retailers.

I can't say they've really changed much at all, maybe slightly, but they are fundamentally still a full price, just like I said, they're mostly full price and occasional promotion here or there occasionally clearing markdown product.

But we haven't seen a race to the bottom.

That's for sure.

So we're not terribly worried at this point about following a discounting competitor and having the slashed price and nor do I think we would ever really do that.

Got it.

That's very helpful.

And then just on the women's business, could you talk a little bit more about what you're seeing in up on the apparel side and maybe a little bit on the boot side as well.

And it sounds like you're seeing a little bit of maybe and even miss or a little bit of choppiness in the trends where I think it was apparel that you highlighted.

Can you just talk a little bit about what you're seeing generally in the category?

Sure.

The Boots business has has really progressed nicely.

It was significantly negative in the third quarter, and we've been calling out it got progressively better and was positive in the first quarter, it's very nicely positive in August.

And given some of the events in July.

You both ladies businesses have had a tough time because they're more discretionary, less functional.

But the ladies boots business has

[Sam].

What we believe is back to flat or nicely positive comps, depending on what trend line I want to look at, the most recent trend line is very nicely positive.

In terms of Western apparel.

We've seen the denim business improve.

So denim has gotten sequentially better and positive in the month of August.

Admittedly, that's 10 days.

And that was great to see.

The balance of the ladies' Western business is still maybe low or mid single digit negative.

And we've seen some bright spots.

Dresses has been it has been a bright spot, and I think we'll get that business back to flat to positive over the next couple of quarters based on the sequential improvement that we've seen.

So that's how I'd summarize it for you.

Great.

Thank you so much and best of luck.

Thank you.

Sam Poser, Williams Trading.

Thank you.

I have two quick two questions.

One, how your digital businesses improving along with your cloud with along with your store comps are, how does it do you have any measurements on how many people like utilize your app or your website and then come into the store, like how much is digital, just how much does it address the average sale like you're doing 10% of your business purely through e-commerce, but how much -- how much do you think digital is acting as a as an advertising tool or a shopping tool to them for them then to come to the stores?

I would say it's probably 20% of our store customers are find digital as a catalyst to get into the store.

In our big legacy markets, California now it protects us and their customers know where we are.

The stores are familiar and some of the newer markets.

We are using the digital channel to create awareness.

We're using social to create awareness.

And we do some geo-targeted marketing in those markets too make customers aware of new stores opening in their market.

So I think on balance, it's maybe 20% of our customers that start their journey from a digital standpoint.

Is that an opportunity to both drive digital and and more in-store engagement?

Is that something that you would step on in a sense.

It might be it might be imminent.

That's something that I think we've made some nice progress on recently, but we probably have more opportunities to improve.

Thank you.

And then secondly, you talked about buying basically buying containers overseas and then taking possession in Asia and bringing goods across yourself.

How much closer does that bring, let's say those items.

I mean, what is that margin differential there, the versus exclusive brands and this -- and does that make I mean, what is the margin differential there between exclusive brands?

I would assume it's closer than 1,000 basis points.

Yeah, and not it's not as good as the 1,000 basis points that we get.

It does vary a little bit from vendor to vendor and quantities that we're purchasing.

But you're right, Sam, it's not as good as the buying and exclusive brands, but it is margin accretive and helpful to the profiles.

And how does that work by saying, okay, I'll bring in my container of initial orders to fill a store and then let RERA or whoever replenish me from them.

So you get the initial shot, I think with a big discount and then your your fill-in orders would come at more as needed.

Is that just a general way to think about it?

Yeah, that's part of it.

The other part of it, though, is when we commit to container loads of product in an effort to mitigate fashion or markdown risks, we're really only doing that in categories or on styles that will be in line for multiple quarters, if not multiple years.

So we have some great work boot styles from area you, [Eric], great.

Vendor partner of ours.

And so the area of work has been in our line for years, and that's the style that we buy in Vendor Direct and quantities.

Similarly, there are some western styles, typically more on the men's side, but not always where we can buy container load.

So part of it is filling new store and fixture fill, but more of it in terms of just volume is looking at commodity very low markdown risk products and taking up the vendors' hands earlier.

And then we have to we have some costs that we have to add to it.

So we don't capture all of that additional market because we have to bring to our GC and put it away and then picking and shipping, et cetera.

And so the discount has to more than offset that, otherwise we wouldn't do it.

Thank you very much.

Continue to success.

Thank you.

John Lawrence,

[Benchmark].

Thanks guys, for squeezing me in.

Just quickly.

I noticed in a couple of weeks here you've got a marketing promotion, it combines the concert with the Cowboys game, all that kind of stuff.

Can talk a little bit about the strategy, what you're seeing from that response.

I know we're a couple of weeks out, but just the response yet and the reach that maybe Morgan and the Cowboys have to dance.

Yeah.

So well with that are evolving too much.

I guess competitive information.

That strategy is a customer capture strategy, right?

We want people to engage with us, sign up for the sweepstakes.

You start to track us, et cetera.

And while we certainly get some business out of it.

We think because people go to the site, it's more than anything.

We're trying to build our customer database.

And this goes back to Sam's question earlier of perhaps we then bring on a new customer.

They enter the Boot Barn brand through the digital channel, even if it's just a sweepstakes like that.

And then they learn more about the brand and become omnichannel shoppers.

So it's it was quite impactful, though.

I wouldn't necessarily say we saw in same-store sales.

We saw in number of customers that were captured in our database.

And just to follow that, Jim, I would assume that's not just regional.

It's fairly national play as well.

Correct, correct.

I hesitate to pick a team on a public call, but they are American team.

So one of the reasons we went with and the second reason, I guess they are the Cowboys apparel and then more your wallet, of course, has somewhat of a national reach.

Great.

Thanks a lot.

And this concludes our question and answer session.

I'd like to turn the conference back over to the Boot Barn team for any closing remarks.

Well, thank you, everyone, for joining the call today.

Apologies that we ran a bit long.

We look forward to speaking with you all on our second quarter earnings call.

Take care.

Thank you for this concludes today's conference call.

We thank you all for attending today's presentation.

You may now disconnect your lines.

And have a wonderful day.