Q4 2020 Earnings Call
To the boot barn holdings fourth quarter fiscal year 2020 earnings call. As a reminder, this call is being recorded that was like just trying to compensate over to your host Mr., Jim Walking Vice President Investor Relations. Please go ahead Sir.
Thank you good afternoon, everyone.
Thank you for joining us today to discuss the boss fourth quarter fiscal 2020 earnings result.
With me on todays call or Jim Connor, President Chief Executive Officer, and brick House, <unk> Chief Financial Officer.
A copy of today's press release is available on the Investor Relations section I'd be biased website it depend dot com.
Shortly after we end this call recording the call will be available at the 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 it much presentation all forward looking statements.
These forward looking statements reflect the best judgment and analysis only as of today and actual results may differ materially.
Expectation based on a number of factors affecting the parts business.
Accordingly, you should not take undue reliance on these forward looking statements.
For more thorough discussion of the risk and uncertainties associated with the forward looking statements to be made during this conference call. What can we refer you to the disclaimer regarding forward looking statements that was included in our fourth quarter 2020, <unk> earnings release as well just I think it that's if he referenced they're not this quarter.
We do not undertake any obligation to update or alter any forward looking statements, whether the result of your commission future events or otherwise.
On this call Jim will begin by providing an update on actions, we've taken unresponsive to coordinate king crisis.
He will then briefly discuss the highlights of our annual performance and click business before concluding that the discussion of our strategic initiatives.
Greg will then review the financial results.
Following Greg will open up the call for your questions.
I'll now turn the call a bunch of Genpower I'd be bunch, President and Chief Executive Officer Joe.
Thank you Jane and good afternoon, thank everyone for joining us on today's call.
These are unprecedented times in our Hearts go out to those who are suffering as a result at the cobot 19 crisis.
We would like to express how gratitude to the medical professionals, hoping caring for infected patients for the doctors and scientists working to find the solution.
For all a central workloads performing critical functions to keep the country operating on a daily basis.
We often say that our customers feed America protect America and Gold America.
Accordingly, when the koby prices began to build momentum retired people aren't team moved with haste to ensure that we would be able to see we provide essential merchandise to our core customers that were continuing to shop with us the products necessary to perform their jobs.
We immediately transformed a ballpark physical stores and our E commerce sites to meet their specific needs.
Expanded assortments in key areas, we merchandise the stores and the site to prioritize essential products.
Offered advantageous pricing.
In the Gulf multiple safe ways to shop and buy critical items.
Nothing gives us more pride and continuing to support these emerging workers farmers ranchers first responders and the communities we serve during this difficult time.
I would personally like to thank all the boot barn associates, who have demonstrated tremendous leadership developing innovative and seek ways to continue to serve our customers.
It's a testament to the powerful culture across the entire organization and I'm proud to be part of it.
I'd now like to present, a timeline as to some of the actions we have taken during the last two months.
That's the crisis began to unfold, we formed an internal Kobin task force that meets daily.
Spend the initial part of each meeting synthesizing the learnings from the prior day, including me directives from the CDC guidelines from the federal and local government and input from our field organizations.
Nearly every state where we operate newborn stores remain open as it is recognize that we show the central workers.
Working closely with local municipalities, we've been able to keep open approximately 200.
The roughly 250 stores throughout the crisis.
In order to do so however, we had to address several significant issues, including sanitation operational procedures and store staffing.
[noise] comments on occasion perspective, we have significantly augmented our in store cleaning process to ensure that surfaces are cleaned up consistent basis, we distributed hand, sanitizer disinfectant and cleaning supplies.
If installed plexiglas barriers that the Pos registers and distributed piece coverings for all of our store associates.
In terms of operational procedures, we quickly pivoted to help ensure exceeds shopping environment for both our associates and our customers.
We established prescribed maximum occupancy per store.
We implemented social distancing behaviors, we changed our booth sizing fitting room and returns procedures and took several other measures to enable us to continue to operate safely.
Additionally, we augmented and launched several other services that filter integrated our digital in store channels, including upgrading buy online pickup in store capabilities, and adding a curbside pickup option.
Finally from a staffing perspective, we're working very close partnership with our stores team.
First every associate was given the choice to take your voluntary furlough.
Where they would be paid for a period of time and maintain their health insurance benefits.
Alternatively, they could continue to work in stores, where they wouldn't see premium pay for the hours that they worked.
I give you a glimpse into the culture of the company, we were able to open nearly every store that met the local legal requirements with voluntary associates with only a small number of stores not able to assemble a team.
Compared to many other retailers, we were quite fortunate to be able to continue operations showed us our customers and preserve more than 2000 jobs in our stores.
That said given the health concerns and stay at home directives, we experienced a significant decline in traffic and sales volume across the store base.
To quantify this on a quarter state basis through March seven the end of the second week of fiscal March and prior to the onset of the corporate 19 health crisis.
Consolidated same store sales had grown approximately 3.4%.
We expect itself to accelerate the balance of the quarter due in part to the Houston Rodeo that began in one week later this year and is a very strong sales contributor for us.
At that point in the quarter, we're also experiencing a meaningful year over year improvement in merchandise margin rate due to a 600 basis points increase inexpensive brand penetration and more full price selling.
The combination of strong sales improved margin, we were projecting another very strong quarter and expected to meet our EPS guidance.
However, as a result of covert 19.
And stayed home directors, our business declined dramatically in the final three weeks of the quarter.
Many events were delayed or canceled, including the <unk> remaining 12 days of the 20 day Houston wrote.
Hi shopping for Houston Radio began.
Sorry, nice acceleration in same store sales, which then declined to a negative 8% in the third week of fiscal March before sliding to more than 50% declines the last two weeks of March.
Given that our same store sales metric removes the stores that have been closed for more than five consecutive days. Our actual sales erosion was even more pronounced during this period as many stores what contributing zero sales were excluded from the same store sales calculation.
In response to the significant decline in business, we moved quickly to take measures to reduce expenses.
These measures include pay cuts to the management team and board of directors.
Reduced hours of operations for the stores.
Furloughs of approximately 40% of the employees of course, our store support center and distribution centers.
It's significant reduction in our marketing spend.
And if so review of all third party spending with an eye toward minimizing all that mission critical expenses.
In addition to our focus on expense reduction we also quickly.
Moved to manage our cash position.
Well, we are confident in the strengthened the balance sheet, we took certain steps out of an abundance of caution.
Accordingly, we have partnered with vendors and landlords to defer payments.
We've significantly reduced capital expenditures and we have delayed the opening of many new stores.
We also increased the draw on our line of credit to ensure the availability of cash during this crisis period.
These actions have enabled us to maintain our strong liquidity position.
I'd like to personally thank our vendors for demonstrating true partnership as we all try to navigate this unprecedented times.
We are confident that we're taking the necessary steps to preserve cash as we work through this period of sluggish sales and prepare for the business to return to growth.
Right. This entire process, we have prioritized the health safety and the financial well being up our sales associates.
In addition to measure is already described many of US have added to our personal contributions to our internal charity called them spreads.
This funding is an employee operated employee funded charity or 100% of every dollar donated goes to boot barn employees in need.
Given the hardship that cobalt has created we expect to see an uptick in applications for support.
[noise], which we hope will be more than offset by the increase funding from the entire boot barn family.
At this point you will shift our discussion to a broader review of our annual financial performance.
Despite the challenging finished fiscal 2020 wasn't astounding outstanding year for boot barn.
Consolidated same store sales growth increased 5% cycling, a plus 10% same store sales in the prior year.
Ecommerce comped up 7.4% and retail stores Comped up 4.5%.
The combination of strong sales and merchandise margin coupled with a strong focus on EBIT profitability.
You have a 40 basis point increase in EBIT margin to 8.7% and 25% escrow tax adjusted basis.
We ended the year with 259 stores and enhance our leading position serving the western and work lifestyles across the country.
We continued the transformation of the boot barn brand, which has enabled us to further increase the size of our customer database and drive topline sales, while reducing our promotional posture.
Turning now to current business.
While the environment has created unique challenges, we believe that boot barn will emerge strong and we'll have opportunities to continue to take market share from competitors.
During fiscal April same store sales declined 45% with retail stores declining more than 60% and ecommerce growing more than 40%.
While our business saw significant declines in April.
Midway through the month insight sharp improvement in our sales both online and in our retail stores, which we believe was the result of consumers receiving government stimulus payments.
We've seen an improving trend with each passing week the strong E commerce business mitigating the decline in store sales.
Order today through Saturday, our consolidated same store sales have declined approximately 30%, which stores down approximately 50% and ecommerce up approximately 60%.
Given the fact that a portion of a stores have been closed during the last several weeks total sales quarter to date have declined approximately 40%.
While the business has declined sharply due to the pandemic. We are seeing some encouraging results beginning to emerge with last week's consolidated same store sales down only single digits.
[laughter] from our merchandise perspective, the business has shifted dramatically to products required and critical industries, what boots work apparel and basic denim now comprise half of the stores business, which is a significant increase in historical sales penetration.
While discretionary in more fashionable products will likely build overtime, we expect that the business will be driven by functional products for the next couple of quarters.
Accordingly, we're pivoting our assortment to maximize the sales opportunity.
From a channel perspective, we continue invest.
Corporately in driving traffic to the E Commerce business.
As both traffic and conversion have increased we're taking the opportunity to fuel that business with additional pay per click marketing dollars.
Fortunately the work we have completed over the past couple of years on our E. Commerce infrastructure has enabled us to absorb the sharp increase in sales with no significant change in fixed cost infrastructure.
Well I merchants have manager inventory extremely well throughout this period, we do expect to see headwinds to merchandise margin for the foreseeable future.
First as many vendors are trying to sell through their inventories they have temporarily relax their minimum price guidelines in E commerce selling.
Second this dynamic coupled with outsized growth in our E Commerce channel, it's exacerbating the erosion of consolidated merchandise margin due to the sales composition of the two channels.
And finally, we have taken a more aggressive stance in moving through spring clearance, which will have a modest impact on margin in the short term.
[laughter].
At this point I.
I'd now like to provide a view into our four strategies typically on the fourth quarter call. We outlined the major initiatives under each growth strategy that we intend to execute for the year.
Given the current environment I will simply summarize how we expect each strategy will be impacted.
Let's begin with same store sales growth.
What we have been doing over the past few years had is well positioned for another solid years of sales growth in both our store and ecommerce channels.
However, with the abrupt change in the retail environment due to cope with 19, our merchandising team has had to pivot extremely quickly to both maximize new sales opportunities and minimize inventory risk.
We've expanded our focus on the work boots category, adding a broader assortment to capture additional industries end to end uses.
We've also expanded our assortment of product for first responders and healthcare workers, including bulk industrial specific footwear as well as scrubs and many of our stores.
While we have been looking for sales growth opportunities at the same time, we've also been deferring cancelling and shifting receipts of merchandise and other categories that are not in high demand and have more inherent inventory risk like ladies apparel.
As most of the boot barn assortment doesn't serve functional purpose. The fashion liability remains relatively small mostly limited to ladies apparel any portion of ladies boots.
We plan to clear some of this merchandise at a discount over the next few months, but expect the impact on merchandise margin from the additional clearance to be relatively minor.
As we see the economy reopening it's encouraging to see the sales trend improving sequentially.
The industry leader, we feel that customers will continue to be loyalty boot barn, and we expect to take market share.
However, we're also cognizant of the fact that we will stay several headwinds in the months to come.
A combination of high unemployment extremely depressed oil prices any shift toward online shopping will present challenges for us as we progressed through the next six to 12 months.
Accordingly, we will operate very prudently from an inventory expense and capital expenditures point of view and look for places to maximize our strengths and shore up our vulnerability.
Turning to our next strategic initiative exclusive brands.
You are extremely proud of the outsized growth we've experienced in this portion of our business.
Historically exclusive brands penetration grew two to three percentage points annually.
Recently, we have seen great success in each of our six major brands and that growth rate.
Was approximately double that between 500 to 600 basis points of growth each of the last several quarters.
We had invested in our design and development team grown or legacy brands and launched new brands.
In fact over the past three fiscal years, we've grown our exclusive brand penetration from 11%, 22%, but the most recent quarter exceeding 24% of total sales.
During this time, we significantly improved our companywide merchandise margin and saw sales accelerate the entire team deserves a great deal of credit for developing this portion of our business.
As we look forward over the next 12 to 18 months or taking a more cautious approach with the growth and exclusive brands.
The supply chain to this product is different than our supply chain for third party brands.
For exclusive brands, we need to make product commitments. Much further ahead paper goods earlier in the cycle and holding more inventory.
Given the uncertainty of the current environment, we intend to taking more risk mitigated approach until visibility becomes more clear.
We still have the ability to push for growth in the more functional categories like work boots, but we'll need to pull back on some of the more fashionable merchandise classifications.
In addition to our plan to be more conservative with exclusive brands. The composition of the business will also impact our penetration rates.
As E commerce grows a disproportionately relative to store growth this will negatively impact the mix of our own brands.
Similarly, as we expect that growth and ladies apparel and ladies boots will lag the overall growth.
This will further drive our composition of exclusive brands down.
We expect that the combination of managing supply chain risk with the expected changes in the composition of our sales, resulting exclusive brand penetration being roughly flat compared to the prior year.
We will closely monitor the quickly changing environment, and we're prepared to reengage and outsized growth on short notice as appropriate.
Our third initiative this new store growth.
Prior to the pandemic, we continued success in our new stores, adding 20 stores during the fiscal year, including stores in Pennsylvania and Ohio.
Each group of stores opened over the past few years was projected to meet or exceed our new store payback hurdle of three years or better.
As new stores are single biggest usage of capital, we intend to slower growth until we gain confidence in your external environment.
We are targeting the opening of approximately 10 stores in fiscal 2021.
Plus the five that were deferred from March.
The boot barn, the timeline for new store development is only six months accordingly, we begin to see a healthier outlook. We can accelerate this growth and open additional stores at the tail end of fiscal 2021.
Our final strategy Omni channel is one area that has seen an improving trend partly due to the current environment.
Many of the improvements we have made to boot barn back time over the past 12 months like same day order processing and our DC buy online pick up in store and curbside pickup have proven to be worthwhile investments, particularly during this time.
We've also spent considerable time rebranding sheplers and transforming that site.
Historically sheplers has been the deep discount site they would attract much of its traffic from pay per click advertising and convert that traffic with promotional pricing.
Over the past few months that business has been repositioned to celebrate the iconic heritage and western brand that is more than 100 years old.
We have completely revamped the branding upgraded to creative look and feel substantially and dramatically change the promotional posture of the site.
You expected to see an erosion and traffic.
And sales an increase in merchandise margin.
Instead, we have seen a steady increase in sales with that business turning positive comps.
Looking forward, we're in the process of adding two more capabilities to our ecommerce business.
First we are working on the ability to fulfill E commerce orders from our stores. In addition to the Wichita film et cetera.
This would enable us to reach consumers more quickly.
With leverage at store inventory.
And could enable us to clear slower moving merchandise without a deep clearance guest count.
Additionally, we were about to rollout testing at same day delivery from our stores using a third party delivery company.
Do you want to commend the E commerce and creative teams for their great work on both online brands and for the agility to add meaningful digital capabilities quickly to enable us to maximize the online sales opportunities.
In this environment. These enhancements will help us to continue to build market share and gain customer loyalty.
At this point I'd like to turn the call over to Greg Hackman.
Thank you Jim Good afternoon, everyone in the fourth quarter net sales decreased 2.1% to $189 million.
The decline in sales was driven by 84.7% decline in same store sales.
Same store sales were solid during the first 10 weeks for the quarter before declining significantly during the last three weeks primarily from the decrease store traffic as customer stayed at home in response to the Cobot 19 crisis.
During the fourth quarter, we added eight new stores, bringing our four count at the end of the quarter to 259 stores and 35 states.
Gross profit decreased 8.6% to $58 million or 30.7% of sales compared to gross profit of $63.4 billion worth 32.9% of sales in the prior year period.
The 220 basis point decrease in gross profit rate resulted from a 210 basis point increase in buying and occupancy costs and a 10 basis point decline in merchandise marginally.
The deleverage and buying and occupancy costs was primarily a result of lower volume sales.
But you guys margin declined 10 basis points as a result of higher shrink when compared to lower than normal shrunken, apart you and higher outbound freight resulting from growth in ecommerce sales.
These increases were more than offset more than offset the product margin expansion from increased exclusive brand penetration and more full price selling.
Operating expense for the quarter was $48.3 million or 25.6% of sales compared to $46.9 million or 24.3% of sales in the prior year period.
Operating expense increased primarily as a result of additional expenses for both new and acquired stores and cobot 19 related expenses.
Operating expense as a percentage of sales increased by 130 basis points as a result of deleverage from lower sales in the current your period and covert 19 related expenses in the current year period.
Income from operations was $9.7 million or 5.1% of sales in the quarter compared to $16.5 million or 8.6% of sales in the prior year period.
This decline in income from operations as a result of the negative impact of sales and gross margin and increased operating expenses due to covert 19.
Income tax expense was $900000 in the quarter compared to $3.7 million in the prior year period, resulting in an effective income tax rate a 14% in the fourth quarter.
Our lower income tax rate is the result of income tax accounting for share based compensation and the realization of a state tax operating loss that was previously reserved.
Net income was $5.7 million or 20 cents per diluted share compared to $8.7 million or 30 cents per diluted share in the prior year period.
Net income.
Net income per diluted share in the current your period includes one cents per share benefit due to an income tax occur due to income tax accounting for share based compensation and a penny per share benefit from the realization of a tax operating loss.
Net income per diluted share in the prior year period includes two cents per share of tax expense related to a return to provision adjustment.
Excluding the tax adjustments in both periods net income per diluted share was 18 cents compared to 32 cents in that part of your period.
Turning to the balance sheet inventory increased approximately 9.3, and 3% on a comp store basis compared to last year.
On a consolidated basis inventory rose, 20% $289 million compared to year ago.
This increase was primarily driven by inventory from new and acquired stores added in the last 12 months and an increase in inventory at our form 10 of distribution center, which supports our exclusive brands and new store openings.
As Jim mentioned, we have significantly slowed merchandise purchases. We expect these measures to reduce our inventory balance over the course of the first quarter and expect that to continue throughout the year.
As of March 28, 2020, we had a total of $241 million a debt outstanding including a 881 hundred 11 billion dollar term loan and $130 million outstanding on a 165 million dollar revolving line of credit.
We have $35 million.
Availability on our revolver and $70 million in cash on hand at the end of the quarter.
Our net debt leverage ratio at the end of the fiscal year was 1.7.
We believe we are in a strong position financially and we are confident that we are taking the appropriate measures to navigate the business and expect our cash from operations will be sufficient to support our business and anticipated capital expenditures for the foreseeable future.
Given the lack of visibility into the business as a result of cobot 19. The company is not providing first quarter in fiscal year 2021 guidance at this time.
Now I'd like to turn the call back to Jim for some closing remarks.
Thanks, Greg.
Fiscal 2020 was a great year for boot barn things maybe difficult in the coming months, we're confident in our ability to navigate through these challenging times in the short term and set the company up for a solid returned to growth over the longer term.
Before we open up the call to take your questions, we'd like to thank the entire boot barn organization for their commitment and execution in fiscal 2020.
Shaped up to be great year financially.
But more than that I'm humbled by the perseverance loyalty and resolve of the entire organization as we are facing to be adversity over the past few months.
I would like to especially recognize our stores organization that has shown incredible leadership continues to take care of customers on the front line everyday.
Now I'd like to open up the call to take your questions Laura.
At this time will be conducting a question answer session. If you would like to ask a question. Please press star one on your telephone keypad confirmation indicate your line is no question. Q. You May proceed start should you have liked your questions from the Q, but participants using speaker equipment and may be necessary to pick up your handset.
Oh pressing the star Keith one moment, please poll for questions.
[noise]. Our first question comes from the line of Matthew Boss with JP Morgan. Please proceed with your question.
On an average gross.
Maybe on gross margin, what's your expectation or any range of outcomes to consider for first quarter merchandise margins, maybe as we put together the multiple moving pieces that you just walked through.
Matt We really can't give you a lot of guidance I mean, I think Jim laid out some of the pressures that are impacted.
Impacting margin.
As we see.
The the ecommerce business is Comping plus 60 on a same store sales basis, and now represents 38% of our total business that will certainly be a headwind.
We do have some clearance merchandise that we haven't been able to clear through in a meaningful way as the business largely work focused so we really can't help you a much more than that lay those kind of pressure points out and the fact, the other fact on E commerce that some of our vendors have have reduced.
Allow to fall on selling price online as they want to move through product as well so.
I think Jim laid those out but.
We really can't.
To put a range around that.
Sure and then maybe just a follow up so by region have you seen any notable impact on sales from some of the the more recent volatility any energy markets.
Maybe just higher level, how exposed our year to this industry overall and just how do you think the company has positioned today relative to 2016 or 2017.
We haven't really seen a big difference geographically.
I would caution everybody, it's a little hard to read through the numbers are we get everyday right. We have some places that source a close some places where they are in.
Stay at home directive is there more strict et cetera, having said that the the geographical differences haven't become apparent.
In terms of our exposure.
Yes, Texas continues to be our number one state.
So what we call last time was the oil drilling markets get impacted first.
Then sort of the secondary outlying markets got impacted right after that and we saw as you well known that having been with us through that period.
Four consecutive quarters of negative five Thompson, Texas.
When we look at the business now to Chew early reads that we look for are telling us different things. So one we would see a a reduction in <unk> and sales of flame resistant work apparel and we have seen that we're fine with us and work apparel is.
Comping down.
Inversely boots that are worn in that industry.
Our distinctively.
Pull on work boots as opposed to lace up work boots and the pull on work boot business isn't isn't really that at all in fact, it's given the environment, it's actually holding up Bob just fine.
So.
Yes, we are going to watch it closely and there are some places that were exposed in maybe slightly less than we were back in 2015, because we are in most states we have strengthened our ladies apparel business, but still.
Well boots, the guys that are in west, Texas, ending mined at North Dakota, and northern part of Colorado.
And to guidance and.
Men and women network in the oil refining industry.
Cross Houston, So it's something that we'll we'll need to watch closely.
Presently, we can't really discern a big fall off in that business relative to the rest of the business, so thats a bit encouraging.
Look the rig count numbers, you know they are falling precipitously.
Great and last one from me just too I just to circle back to a 16 and 17 because that was the last time I think that you cut square footage I guess, maybe Jim what what drove your decision to cut store growth. This time around and what would you need to react what would you need to see to Reaccelerate growth.
I would say as as we and many other retailers saw the onsite of.
This pandemic.
You do some scenario planning and you could play out some chest.
Terrible telephony in.
Scenarios, where the economy does an opening stores and open in people don't shops, and we went into a complete lockdown on cash and capital on expense.
In the beginning parts of April of end of March beginning of April.
Presently things are emerging a little bit right. The president Lee markets are reopening everybody's I'm watching the news closely to see what's happening to first the health crisis and secondarily the economy.
But if the current trajectory continues I would say the outlook is getting healthier and healthier and we can reengage in store openings.
And in relatively short order.
If you think about the real estate processing, we were looking at multiple deals and deals were somewhere along the pipeline prior to being signed leases.
So we could just dust those real estate packages often get those stores reopened.
I think what we would have to see is a few months of some sustainable business.
Clear visibility and.
Some sense the security that we won't see a reemergence of.
The the covert crisis as we get into the fall sort of.
Driving everybody back into a.
Cash conservation [laughter]. So I wouldn't say now we are we are absolutely taking a pretty conservative stance.
And more recently, we're feeling a little bit more bullish by we're certainly not yet prepared.
To to become more aggressive until we see that more consistently.
That's great. Thanks for all the color best of luck.
Thanks.
Or are there other questions.
Our next question comes from the line Oliver Chen. Please proceed with your question.
Hey, guys that's Max.
Thanks, a lot for taking my questions. So first it was we think about various options. So you have in Europe tool kit to deal with the weakness in the oil markets. You know as we look ahead, how would you characterize them more out you know offensive versus defensive initiatives and then also as demand from our those score shoppers as you know expect.
Just to be pressure at what are top opportunities to grow your in new shopper base and then we'll follow up question.
Okay on the first one relative to oil defensively, if that playbook is relatively straight forward that we we manage expenses very carefully in those markets and managed to labor very carefully.
Well, we did last time news we.
Teams the inventory assortment, particularly for the work customer that was.
Typically looking for flame resistant merchandise and we brought in less expensive options because generally that.
That work or that American work or that oil Guy will go out and try to get a different job and still needs.
Look year, but not necessarily flame resistant work here, so well look at expenses and from a labor perspective, we'll look at inventory levels well look at the composition of our assortment.
From a offense standpoint.
And we.
Over the last several years, we've really been developing our commercial accounts business. So we'll continue to try to source additional industrial accounts.
And grow those businesses.
Five or six years ago, we probably had.
Two to three people in that organization now, we probably have 10 people on that organization so that.
Could help to to ease the burden if the oil patch gets weaker.
We've also been accumulating more customers and we've been pretty vociferous about.
The change in customer count on a same store sales basis. So that will help we have another segment that we're starting to nurture the country.
Segment, so to speak that it was sort of an offshoot of our core western Guy.
And yeah, that's another area for growth.
So we'll continue to try to expand the pool of customers that we can address.
One of the things we've seen its been more on the E. Commerce channel is we've seen new customers being introduced to boot barn through our online business. So.
Given the shift to online shopping we've been much more president from a pay per click standpoint, and we've seen a pickup in customer acquisition online. So that may also add help us continue to find growth areas and so I think we put all those things together.
Yes, well managed through like we did last time I think we're better positioned than most of our competitors, particularly the mom and pop guys. In this space. So, we'll we'll look to be taking share from them.
Got it and then can you just discuss the early.
I mentioned learnings from our curbside and is this a service that you expect to maintain one see environment normalizes. Thank you.
Sure.
Well necessity is the mother of invention right and I think many retailers had right a lot of new capabilities to bear throughout this crisis period, as we had and it's certainly something that we will.
Most likely continue going forward.
We're curious to see has same day delivery operates requests from the stores.
That's something that we're really seen on getting up and operating and.
It could gains traction we want it could be perfected prior to getting into holiday periods and we can extend.
Our online shopping either even further closer to the holidays and Matt fall victim to the shipping window.
So right now I would expect.
All of the new capabilities to continue forward.
I would say that wall.
We were able to get then launched to quickly they've all they all are operating.
Extremely well with very few hiccups, it's still a relatively small part of our business today.
And that will will continue to push and market those services more and more and it may become.
A more familiar way for people to shop going forward.
Laura.
Our next question comes from the line of Peter Keith.
Piper Jaffray.
The question.
Hi, Thanks, good afternoon guys.
Appreciate some of the color on the quarter to date trends.
I'm curious if you could maybe just kind of.
Fill in with a little bit more detail, yes, certainly you guys, you're a stimulus check beneficiary, but you know book of those direct deposits came in in mid April and get it seems like at least your comp is still getting less bad here in the most recent weeks. So is it simply dynamic as states.
Our opening up and get stores in those states that you're you're seeing a more meaningful lift in sales as a as customers are coming back.
If you're very good question Peter him and.
We'll try to give you and honest answer as we possibly can you we part of us wants to feel encouraged.
By the sequential improvement in the business.
And you're right on the timing of the stimulus checks.
Of course on other hand, yeah. We we are also cognizant of some of the reality is out there right we.
We happen to be a retailer that operating and many retailers, particularly malls are closed so for.
Every consumable or consumer dollar out there, we might be getting preferential treatment today and as more and more retailers open.
We do worried that will be splitting it up with more people.
We do have a and this is relatively minor and the grand scheme of things, but the for the last few days last week or so we've had a.
Clearance sale going on in that started earlier this year than it did last year, so that might be artificially driving sales. So again I I would just say that we are of course cautiously optimistic that the business continues to improve.
But also pragmatic enough to know that there's a number of other pretty strong forces at play in its hard to isolate one from the other.
Okay.
And then just pivoting maybe over to the competitive landscape.
Obviously, its intriguing, but you guys are kind of the gorilla in this space you compete against a lot a lot of smaller one to two store retailers or are you hearing about any closures at this point or covers their even getting calls so looking people want to sell their business.
Just curious if the competitive landscape has it shifted downward and away that you might be aware of at this point.
Peter we have heard and seeing some competitors pardon me.
Closing up are choosing not to reopen as a result, I wouldn't say, we've seen a whole lot of that but we have certainly seen that in some markets and.
My phone hasn't been ringing off the hook, but I do expect as states you know start to open up and allow people to sort assess their business that in fact, you know people may be reaching out to us and talking to us.
As a result, so we'll see how that plays out, but but it certainly seems like it could be a good opportunity for us.
Okay, great and maybe it wouldn't lesson that you said you 50 stores that were close or those remaining closed or are they those are starting to open now.
So we had about 200 open.
Most of this.
Covert crisis, having said that I think as of today or yesterday, we have 242 of the 260 stores opened so.
About 18 of the of the 260 haven't we opened yet.
Okay, great. Thanks, a lot guys for all the color and good luck.
Thanks Peter.
Our next question comes from the line of Jonathan Komp from Baird. Please proceed with your question.
Yeah, Hi, Thank you I'm, maybe just a follow up on some of that discussion you patents I get back a few years.
Yeah, maybe eight quarters, or so give or take up of some pretty significant comps pressure there with a lot of different factors at play that and but.
How do you think about kind of the duration of the impacts are seeing today and just even thinking differently about art to your business sale Burke and then separately, maybe you know any thoughts on what will be needed to get that fast and side of things back.
Hmm I think when compared to last time.
I do think we're a little bit more diversified and our assortment is a little bit broader.
So we do you have some other areas to find growth.
The other thing that we have the somewhat of a luxury relative to 2015 2016 is we're in a much stronger position from a capital structure standpoint liquidity standpoint, so one of the things that created nervousness nervousness last time as you well remember was the combination of slower.
In sales.
And then increasing leverage ratio.
So that dynamic isn't nearly as concerning as it was back then.
I also think we've improved as a company from a from a merchandising and marketing perspective, using analytics to drive new customer acquisition.
And really trying to understand how we can maximize.
Lifetime value of customers more and and access new customer markets rates. So our segmentation is really the underpinning of how we go to market and Fortunately the new split between a core western.
Customer.
Any more casual country customer is already well underway and once we feel like it's appropriate to.
Market heavily to that customer we have some weapons in place to introduce more people to the Groupon brand. So.
I think when you pull that together.
Assuming and more normal environment, which of course is or is it pretty.
Significant simplifying assumption.
I think we can blunt the softness in the oil patch to some degree.
I don't like we did last time to die from last time, we got to flattish comps and didn't really have any.
Massively negative quarters.
For the last 10 years so.
Maybe won't we won't be plus 10, but I do think we could still has a pretty decent business even in a difficult oil environment.
If we can get through some of these other challenges that we and the rest of the while the pacing.
Do you think talking about fashion and lifestyle side I mean, how significant there are your music event or rodeo things of that makes for like if you think you'd be those types of event.
To come back current a meaningful portion a part of that business.
They be definitely do drive the business in local markets when those events happen.
That said.
Yes, it in the Grand scheme of things, it's it's a relatively small piece of our business going after festival way or in concert.
Yeah, it's it's.
If another headwind that will phase, where rodeos country music concerts.
Stage page.
Other festivals are being canceled.
Yes that just another part of our business that it's gonna have to find other outlets to sell the merchandise. So it it it's a good the excellent question a insightful question.
And it is a bit concerning I think the pressure that we are.
And we might see oil patch.
We'd be a higher magnitude than.
The elimination of cancer center going to them.
Okay. That's that's really helpful. Maybe just the last one for me, maybe just want to understand that the gross margin or product margin mix impact from from the near term prioritization of the in other words categories. Just any any major mix call out that you can give us.
Sure.
The overarching answer is.
Unless is dramatic shifts in the merchandise classifications.
A different composition of departmental selling doesnt massively change our merchandise margin mix. If there's if there's one small silver lining to the oil patch flame resistant work apparel happens to be a low margin business for us probably one of the lowest but that's it.
It's not a.
It would be very difficult for one business to grow so much from another business to decline so much where mix by department has been major impact on the merchandise margin.
Having said that the composition that is meaningful is ecommerce versus stores.
Our margin rate online is lower than in the stores.
For a variety of reasons part of that is pricing, particularly on Shepherd Sheplers part of that is the exclusive brand penetration online is lower than exclusive brand penetration in the stores.
And that that is an area that is is a bit more concerning where we'll we'll mix out or composition out our margin rate down a bit.
That said.
If the if the very recent.
Trajectory of our stores business continues to build which that is a big gap.
It will help moderate that composition impact over time.
Okay. That's helpful. Thank you best of luck.
I'm showing Sean.
Our next question comes from the line of Dolan card in from William Blair. Please proceed with your question.
Thanks, very much yeah, just curious what these events going on maybe how you to reallocate some of those marketing dollars. It sounds like you had some remarks about maybe moving those online I think I heard.
And then sort of the new customers that you're getting online. It fit that is the case or any way you can quantify kind of percentage wise or anything that might be helpful. There.
Well.
We have changed our marketing mix over the last couple of months pretty dramatically right almost all of our marketing over the last few weeks has being in the form of digital mostly paper click and a small amount of social.
That said as as markets are starting to.
We open and we emerge.
Particularly in places like Texas.
Where we're reverting back to a more typical boot barn media mix, where we're using some very traditional marketing media to go after new customers.
Like radio perhaps some television.
And the goal is to continue to bring the lifestyle brand to boot barn, Hawaii.
And get more trial from from customers that perhaps having shop with us in the past.
In terms of the.
How to quantify that number the net new customers coming through the online channel.
I think if you look at the sales growth being so outsized.
It's hard to say how much of it specifically new customers and how much of it is stores customers shifting over.
Anecdotally, though we know only a portion of it is new stores and we have a pretty decent handle on our stores customers through our loyalty program.
And we know that some of them have shifted to E com, but it would it would be surprising if.
The entire outsized growth in E. Commerce is from stores customers and we do believe that much of it is from new customers.
So it's hard to be a hard figure there by.
It does.
Absolutely feel like.
Maybe half of the.
Increase business online our customers that weren't necessarily buying from us over the last year or two.
You know definition for us of a new customer.
Got you. Thank you and then just one follow up I guess.
I take a plan to competition, but I'm, just curious sort of in the back half of this year. If you do find yourself in a position where a lot of the mom and pop in particular locations are sort of going out of business are up for sale and I know you are buying some of these businesses for inventory cost anyway.
You have toward the financial flexibility and as you envision it from here to.
Kind of the act on that is actually you might even see kind of an accelerated expansion.
In the 2021.
Yes.
Don't it's Greg we do have that flexibility as I've mentioned in my prepared remarks that.
Our net debt leverage ratios healthy 1.7, and so their credit markets are are functioning well and we could access capital I believe pretty easily if these opportunities.
Pop up.
Excellent. Thank you very much guys.
Thank you.
Question comes from the line haul Louise with Citigroup. Please proceed with your question.
Hey, guys. Thanks.
Jim curious it.
If you can share with us what you're well you see what you've been seeing.
The competitive landscape in terms of [laughter] you know how many of your competitors, we're able to keep stores open throughout this time I'm sure that there maybe some differences by Mark Im not sure. If you can give any color. There what are you seeing in terms of the stores that are that are open.
You would consider competitors from a from a discounting perspective.
And you know what do you think that means for the next couple of.
Quarters, and then I guess, just bigger picture just given you're seeing a surge in E. Com. Yeah. I think you know many people might be a view that that E com will gain share a little bit more at a more accelerated rate.
Over the next couple of quarters, if not years curious if there's any any of this changes your long term view about the right number of stores.
And the fleet spent a long term basis. Thanks.
Okay.
So, let's unravel a couple other questions there.
On the first piece.
From a competitive standpoint.
Many of the pure western and work businesses stayed open so that the one comparison many of the calendar stores stayed open and they are a formidable competitor outside of Texas.
Most of the farm and ranch stores stayed open and notably tractor supply State opened who is a part of secondary while very large and very strong retailer and our specific categories Kinda secondary competitor.
In terms of feeling pricing pressure within our industry.
I think there'll be some by that's actually not a major concern for us we have the strongest brand people tend to shop us because.
Well the national lifestyle retailer out there.
We do feel a little bit that every other retailer that when they re emerge will be.
Marking down in clearing through spring game. So every store in the mall Thats been close for eight or 10 weeks is going to have to clear through inventory and.
While we'll be fighting for our share of the market will be a lot of companies out there just on on deep discounting.
So with in the industry I think the pricing pressure will be moderated.
Right within retail I think the pricing pressure will will build momentum overtime.
Companies reopened.
On the strength of the E com business versus stores business in the long term store count.
It's a little hard to we project that number but.
Our experience has been for countless years now that we can open up new stores in new markets haven't payback in three years.
Our stores channel continues to be more profitable than our ecommerce channel. Despite all the work we've done from you EBIT profitability standpoint, an E com.
We have just opening some new stores in brand new markets that are even in this environment doing quite well.
So it's this is a call that we kind of promise that we're not going to give.
Guide and fine, but it's I think it's much too early to pull back on our long term store count until we see how the next couple of quarters plays out and.
You have shoppers behaved there is a thesis out there that those people have been.
In Lockdown mode for so long that they're going to want to get out and shop.
And perhaps the store environment.
Or perhaps the store environment connected to a digital experience is going to become even more important so.
Well stay tuned, but right now we still have some.
Some optimism about continuing to open 500 stores across the country and as visibility becomes more clear will well update you on that number.
Thanks, Good luck.
Thank you next fall.
Our next question comes from the line of Tom They get from Wells Fargo. Please proceed with your question.
Hey, everybody. Thanks for taking my question.
I was kind of what you I know you said about 50 or some of your stores at the close at some point during the.
During the crisis I know built a lot of on that reopened.
Is there anyway that you can parse out a you know performance in stores that had to.
Close for a portion of time and you know how how the volume has recovered once every open.
Perhaps relative to the stores that.
Never had to close.
Yeah, I guess you have there again no bring back in demand right.
Kind of <unk>, we haven't really looked at that and when I said 200 of roughly 250, we're operating.
Pretty much during the entire time there was a period when all 47, California stores were closed. So we were operating at 150 stores are the 250 or something like that and it wasn't always a consistent number sometimes a store would be close because you know they had trouble staffing the store perhaps be.
Cosan us or because an associate it was going out for covert test and we would close the store and including the store.
Thoroughly before reopening so.
I'm I couldn't tell you how many stores stayed open the entire time, but but my sense is there wasn't really a meaningful change in terms of weather.
The stores closed for five days or remained open the entire period.
I do think when we were closed for six weeks or something like that because of local mandate, perhaps in new Mexico. For example that business came back a bit stronger, but again, that's more about pent up demand for six weeks.
Got it say that that's helpful.
I also want to ask a from a modeling perspective, how should we think about inventory levels I'm, assuming that at the end of Q1.
Your your inventory growth would probably be a little bit higher than you would like just if there's any help you could give around inventory maybe Q1.
Progressive that'd be helpful.
Sure so.
Merchants did a phenomenal job of I'll say getting out of receipts as quickly as they could when we saw that's happening having said that we had exclusive brand product that was on the water you know and so it was received into April and we had purchase orders written to land from branded vendors that hit in April so.
We couldn't effect April receipts in a meaningful way.
So we we received good then in April like business were normal ish.
But they were able to impact may forward, and we've done a pretty good job of of rationalizing receipts.
Our inventory is in a in a healthy position.
So we're going to be able to fuel the business off the inventory we have on hand with the exception of things like worked foods, where we buy into a replenishment model and will probably be bringing in new seats from there but in general you should expect to see our inventory balances continue to walk down from the level was added through and.
Got it Okay and just last one Greg is there any.
Help or color you can give us around operating expenses and how we should think of that either in the near term or for the full year.
Hi, Tom I really can't give you anything.
Enough that will help your model I mean, we've done things to reduce discretionary spend and frankly most of the spend we are viewing is discretionary at this point, even things that that we've been committed to in the past are on the table for review.
We've got folks.
Furloughed at this point, we're operating on lower hours of operation in stores and so we've got what I'll call base minimum coverage, which is good from a productivity perspective and that does save us some payroll costs in the stores.
But I can't give you anything specific because frankly, our decisions and how they're doing some of these things changers day to day, Jim mentioned that we kind of went silent in marketing with exception of pay per click and we typically spend about 3% of.
Store retail sales on marketing. So we spent virtually nothing of that in April and I think we'll be very thoughtful as we move forward.
Again can't get really give you a number or.
Punch in a direction.
All right well thanks, thanks for the color and a special luck navigating this as expected.
No.
Our next question comes from the line of John Morris with D.A. Davidson. Please proceed with your question.
Hi, Thank you happy to hear that everybody.
Safe and healthy.
And wanted to.
Got a little bit more color on.
The challenges of the supply chain, we you've talked about them a little bit here, but I'm wondering.
On a go forward basis.
Maybe talk a little bit about enumerate, a little bit better give us a little bit better color on on where those challenges are and at what point would you be.
Getting back to kind of a more normal.
I guess pipeline.
If things kind of roll crews, so they or is it something that you see extending quite a bit into the future similar trying to kind of get to feel for how long. We should expect some of these uncontrollables to continue.
Yeah.
John It's Greg and I think what you're saying range the pull back on exclusive brands, where weve, where weve uncommitted, if you will or or decided to not have a commitment for six months out out and I would expect it will continue to operate trying to maintain maximum flexibility.
Until we see some consistency and stabilization in the business.
[music].
There's things that will produce something exclusive brands, Sean that our basics like our men's koby James denim product that will continue to buy into as needed, but you know buying Christmas at this point for exclusive brands.
Feels like.
Stretch for us it feels like we're tying up some capital and we don't know what's going to happen as it relates to covert 19. So so in that regard you know if the business accelerates and we can't buy into that exclusive brand product because of the timeline will buy in from a branded.
Vendor to support that sales. So we're trying not to lose sales, but maintain maximum flexibility that answer your question.
Yep Yep.
I think it does give me a pretty good feel quite so okay. Thanks, guys. Good luck.
Alright, Thanks John.
Our next question comes from the line up Sam Poser with nothing.
You May proceed with your question.
Hi, Hi, guys. This is well on for Sam So I just wanted to touch on inventory.
How are you guys discuss your pivoting.
From fashion product towards.
More functional onward product what does your inventory composition look now fashion versus functional.
Yeah, and again, great getting dressed it's a little bit and the merchants really did a nice job of managing receipts down throughout the last couple of months whereby.
We've actually made some progress on our average inventory on a comp store basis.
In other words its is better than are less than a 9.3% that was at the end of the quarter.
So that's pretty good news, particularly given the backdrop. The other thing I would say is pretty good news is.
And we've mentioned this in the past where we've been on the heavier side tends to be on categories that have.
Much more limited markdown exposure.
We didn't give crystal clear color on this call.
But we did last time, saying.
Work apparel tends to be heavier.
That continues to be true, it's probably the single category that is that has had the most growth on a year over year basis.
And while.
Might see some softness in flame resistant work apparel going forward and oil patch.
That merchandise has extremely long longevity right. There's there's no fashion risk for no. There's very very limited markdown risk for fashion risk in our work apparel business, regardless of a disconnect between sales trend and inventory build.
So the one area that we do want to work through some clearance merchandise is on ladies apparel.
And less so on ladies boots.
And while it will.
It will drive some markdowns slightly more outsized than we typically have done in the path as you know we've been growing our merchandise margin I think since you guys picked up coverage with very little markdown exposure.
What we've done now isn't clear through mostly ladies apparel I don't think it'll be massively outside so we would have called that out more explicitly.
And if it was really outsized would've had a reserve for now in our fourth quarter financials.
So from a composition standpoint, I think that's working a little bit in our favor aware.
The area that would have.
Higher growth in inventory tends to be an even lower markdown risk.
Got you Thanks, and just what was just one follow up are you.
How backed up for you guys are are the ports.
Are you guys, peaking in new product at this point.
We are so so we went from.
Shut off all the fossett's eight weeks ago, and let's preserve cash at all costs too.
Okay things are starting to ease up and and markets are starting to open our business he's getting sequentially better, let's turn on replenishment for staple in functional products.
Let's look at forward receipts for.
Things like mens and ladies basic denim.
And certainly work boots.
As they continue to sell well so the we can we can turn the supply chain back online I may have been doing that opportunistically.
And if things continue to March along positively, we'll we'll open the capture a bit more in and continue to bringing more receipts.
The stores will feel.
I think we'll continue to feel fresh enough.
As we go forward and again, yeah, we're managing it week to week.
And if things turned one way or the other will react accordingly.
Great. Thank you and good luck. Thanks.
Well thanks.
Our next question comes from the line of Rick Nelson with Stephen.
And with your question [laughter] collected after there.
<unk> Commerce current growth rate has really accelerated here in April.
And to me if you could speak I know you Strauss who's at bats, but.
Hmm and your show no to store.
So Matt the rationale behind that is there's other car Ah hey, so to speak of delivery issue or inventory is residing in the stores.
You want to push some of that out.
A very good question I would I would separate the comment, though while you could connect them.
It really wasn't cause and effect I give a a lot of credit to the E commerce team and certainly be ecommerce supply chain fulfillment center in Wichita.
The business overnight essentially doubled and.
When it doubled we had actually already furloughed some people in that warehouse or in that film and center.
So the head of that part of our business called people off a furlough brought them back in to manage the increased throughput.
And has been managing really well, we hold ourselves to a pretty high standard of getting.
98% of our order is roughly.
The same day that they come in and that we haven't really relax that standard, but for a day or two here or there. So that the E. Commerce business Haynes has been able to respond extremely quickly and with greater agility to the increased volume.
Changing back to the second part of your question is utilizing the stores.
That's more reaction to a potential changing shopping behavior going forward right. If the world changes, how they shop day to day or how they shop for gifts during holiday.
We want to have more ammunition at our disposal to drive the business and.
Our our biggest competitive advantages our stores. So if we can.
Gave a consumer the ability to byproduct and having delivered to their house from the store or picked up by themselves from the store.
It makes us more competitive than some pure play ecommerce players out there.
And if you think about.
Boot barn, and many retailers in and apparel and footwear, the holiday periods going to be extremely important.
And we want to make sure that we can remain as competitive as possible with every.
Potential way to service our customers either the way they want to buyers, where the won't have that product fulfilled.
So that's really why that's the biggest reason why we're trying to get to using our stores as an extension of our would stop told them Center.
And just to give you a scale, mainly eight ish percent of our business going through our online channel.
Is still being fulfilled by Wichita, or perhaps Wichita and drop shipped from vendors and not from our stores.
So it's it's still a small piece of our business, but we want to use that as I.
I suppose you could call it a strategic option as we get into the holiday period.
Okay, that's what I'm kind of parents for that color.
Sure Yes.
What we've had discussions with the landlords and your though her all around how it will pose cameras heard chunks her going or.
Yeah, what sort of cost.
It was involved with that.
But as you might expect I really can't talk about that in any great detail, giving you know, it's a fluid negotiation needless to say we've explained to them landlords how.
No adversely affected our business lost as a result of Cove in spite of the fact that we remained open.
You know our stores business was incredibly challenged in April for example, where we were down 64 on a comp basis. So I I think that you know they've been they listened they understand the position we're in and we continue to work with them.
You know on a deferral.
[noise] fair enough. Thanks, Craig Thanks, Jim.
Thank you very much.
Our next question comes from the line of Jeremy Hamblin, It's Craig Hallum. Please proceed with your question.
Thanks for the color guys.
I wanted to just first ask about you know we.
Marketing events.
Change and that schedule is going to change the dollars and so forth.
You mentioned that you also change some of the promotion.
You brought forward I think a little sooner than normal.
Clearance event.
As you look forward to the summer season last year, you remove the anniversary sale that you would run pretty quick 20 years.
That's something that you would consider given the situation, bringing back or other types of event.
Along those lines that you know it could be a possibility.
Yes, it's a very good question.
We have worked pretty hard for the last few years to take a business that was.
Already pretty low and promotional scale and.
Meeting, we so most of our product at full price.
And making it even more full price selling and I don't think even a pandemic of the scale that we're facing into any disruption to the business.
But the scale, we're facing really change that for us what we found for our products given the functional nature of a issues.
People tend to come to boot barn, because they were the lifestyle brand in the industry.
We are going to typically be in stock and product that they need in wine and their size.
And.
When we discount a big tax and at the store.
We don't really see.
Unit velocity picked up in any meaningful way to sort of pay for that sale and we certainly don't want to anniversary at the next year and third year.
From a clearance perspective coming back to your question around the timing.
I think there are two reasons why we did that wont wise, we haven't clearance product, particularly on the Lady side that we wanted to work through.
By more than Matt we it was somewhat of a strategic opportunity for us the case, where if we could get out.
And be a little bit more promotional before lots of other retailers started to open.
We we take that opportunity and as customers were shopping.
And if they were looking for sale, we wanted to sort of deep competitors. If you will to the punch or be even a mall retailers that will undoubtedly have to clear some gates and we didn't want to just be in the play with everybody else. So part of it of the timing shift why.
As a competitive moon as much as it weighs on its necessary moves to move up won a move out.
Excess inventory.
So just kind of concluding that those comments I don't expect us to become highly promotional.
I, just don't view that as a as a winning hand in.
At least in our industry and probably most retail industries.
Thanks, that's great discipline that tough environment.
Last question here you know their attention a you know there's going to be some obvious fall out.
You know from the crisis and you know create pensions continue to be.
Pencil source of concern as you think about sourcing arrangements.
Whether it's your own on on private label good.
Or some of your key vendors you know if there any you know movement in terms of potentially altering where you're sourcing arrangements are coming from moving some of that out of China.
I'd say, yes and no.
Hi, coupon and perhaps many other retailers like is that that Tara.
Saber rattling created a lot of that flexibility.
For the last year or so so we have a diversified our supply chain quite a bit based on that and you're right to call out that that just another area of risk going forward for us.
So we're continuing to.
Like everybody else I suppose monitor that different political actions that are happening out there for different countries that we're sourcing from and we've we've.
We have brought China down as a percentage of our imported goods.
But it's still you know, it's still a pretty good chunk and you know it will probably remain so in pull something really meaningful happens. So I would say, where we're watching it carefully but as we sit here today one of our most important countries going forward either for ourselves.
Or for our third party vendors is going to be China.
So I think it's a fair question and I think we're on top of it but it's it's sad yeah, we'll have just wait and see.
Great. Thanks for the color guys best wishes.
Jeremy.
Very good late ladies and gentleman, we have reached the end of the question answer session I would now like to turn the call back over to Mr. genconn rate for closing remarks.
Well I appreciate everybody spending so much time with us today I know is a long call.
Thank you for joining and we look forward to speaking with you all on our first quarter earnings calls pickup.
This concludes today's conference you may now disconnect your lines and have a great Dan.