Q1 2021 Boot Barn Holdings Inc Earnings Call
Now I'd like to turn the conference over to your host Mr., Jim Watkins Vice President Investor Relations. Please go ahead Sir.
Thank you good afternoon, everyone.
Thank you for joining us today to discuss boot barn first quarter fiscal 2021 earnings results.
With me on today's call, our Jim Conroy, President and Chief Executive Officer, and Greg Hackman, Chief Financial Officer.
Copies of today's press release that Investor presentation are available on the Investor Relations section a boot barns website, it boot barn dot com.
Certainly 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 will be making this presentation are forward looking statements. These forward looking statements reflect boot barns judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting who brings business.
Accordingly, you should not place undue reliance on these forward looking statements.
More thorough discussion of the risks and uncertainties associated with the forward looking statements can be made during this conference call and webcast. We refer you to the disclaimer regarding forward looking statements. There is included in our first quarter fiscal 2021 earnings release as well as our filings with the FCC referencing 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.
Well now turn the call over to Jim Conroy, Burns, President and Chief Executive Officer, Jim.
Thank you Jim and good afternoon. Thank you everyone for joining us on todays call.
These continue to be unprecedented times that our hearts go out to those impacted by cobot 19, and its continued effects on the world.
Before we begin with the typical content at the call I do want to speak briefly about pandemic.
The time when many people across the U.S. are being faced with difficult decisions, our customers and our associates.
Our seeking their personal balance between health concerns and economic considerations.
And I'd be remiss not to recognize the entire boot barn team was left the company through this difficult time.
The 4000 store associates.
Who are committed to servicing workers in essential industries and the more than 200 people across essential organization, who answered the call to help ensure a safe shopping environment.
They all made a commitment to keeping our stores open and safely servicing our customers is a testament to the boot barn brand and the culture that permeates the entire nationwide teams.
I couldn't be more proud to lead this organization and I know, we will emerge even stronger when the challenges in the current environment subside.
With that said I will now turn my attention to the impact that Kobin is having on our business.
Your first quarter results.
Update you on our current performance.
And walk through each of our four strategic initiatives.
Following my remarks, Greg will review, our financial performance in more detail and then we'll open the call up for questions.
It could make team health crisis continues to have a meaningful impact on our business. We've seen a strong correlation both up and down between the number of positive cobot 19 cats in specific geographies and its impact on consumer sentiment and retail store traffic.
At the same time, we've seen a surge in ecommerce demand that's consumers have shifted more of their spending online during the health crisis.
It's dynamics, reflecting in the monthly cadence of our consolidated same store sales performance.
April declined 45%.
May declined only 10% in June increased by 3%.
While we believe that the sequential improvement was driven in part by external factors such as easing restrictions are.
Well receipt of stimulus payments I would like to recognize our stores and digital teams for the superb execution during this challenging times.
On our last call we discussed measures, we talked in order to reduce operating expenses.
And preserve the balance sheet in response to the Coker 19 health crisis.
These measures included pay cuts from management.
We do store hours corporate wide furloughs and layoffs.
Auctions in marketing spend and the minimization of third party expenses.
Well these were tough decisions to make we believe they were necessary for the health of the business that I'm quite pleased with the results.
When compared to our.
It's 20 Eightth year end balances.
We lowered our inventory $27 million.
Reduce payables $15 million, an increased cash by $14 million without increasing our debt.
We believe we are in extract position financially yeah. We plan to continue to proceed cautiously as we anticipate periods a choppy sales during the coming months.
Due to the continued impact of the cobot 19 help prices.
During the first quarter consolidated same store sales declined 14.9%.
Given that our same store sales metric removed stores that have been closed for more than five consecutive days.
Our actual sales erosion with even more pronounced declining 20.5% when including the performance of the stories that remain closed due to the current health crisis.
Same store sales in our retail stores declined to 27% well our ecommerce sales grew 52%.
This resulted in our ecommerce channel increasing to 25% of total sales compared with 14% in the prior year period.
[music].
On the margin perspective merchandise margin both channels remained healthy.
[noise] Merck has been excellent job of working with our vendor partners managing down receipts and tightening replenishment algorithms, which enable us to bring our inventory in line with sales.
Our consolidated merchandise margin did a road by 200 basis points in the quarter driven primarily by two factors.
First given the outsides volume of ecommerce our merchandise margin declined to 160 basis points based on composition of the two channels.
Second we experienced a 30 basis point write down of discontinued inventory at the recently acquired GML clothing store they focused entirely on work boots and work apparel.
During this merchandising as part of the rebranding process that will change the name to boot barn expanded the assortment to include western boots and western apparel.
Given the challenging environment and continued to manage all expenditures closely expense control measures. We implemented resulted in an $8 million decrease in selling general and administrative expenses during the first quarter when compared to the prior year period.
It's all resulted in a first quarter net loss of $500000 or two cents per share.
Compared to net income of $9.7 million or 33 cents per diluted share in last year's first quarter.
Well, we are of course disappointing to not have grown earnings under the current circumstances and when compared to our internal expectations. We're very pleased with the first quarter results.
I'd like to now for about an update on current business.
Except for temporary store closures due to covert 19, we're fortunate to have all of our stores open today.
As you moved into July our second quarter, we continue to see a strong correlation between our customer shopping behavior and the number of positive Kobin test results in their communities.
I've case counts increased in certain markets and local jurisdictions took responsive action customers reacted and our business slowed from its June sales levels.
Ordinary same store sales in our retail stores declined by approximately 15% in July well, our ecommerce sales grew by approximately 24%.
Our consolidated July same store sales declined 10%.
This July sales dynamic includes retrenchment in many of our larger markets, such as Texas, Arizona and California.
Consistent with the sentiment around covert 19 same store sales in our retail stores sequentially improved.
For mid July through the first week of our fiscal August.
We expect that our retail store sales will continue to fluctuate based upon the news and customer response around corporate banking.
We anticipate that gets built 22000 2021, well continue to be volatile year, but we're confident in our ability to navigate through this temporary challenge and return to growth when conditions began to normalize.
I'd now like to provide an update on each of our four strategic initiatives beginning with driving same store sales growth.
We saw significant sequential improvement throughout the quarter in the retail stores business ending the month of June with negative low single digit comps.
Well merchandise perspective, what boots grew as our customers pivoted to more functional product for their work needs.
Sales in non flame resistant work apparel improved the positive growth in the month of June after declining in the month of May.
Sales of our fr or flame resistant work apparel declined largely as a result of the softening in the oil and gas markets.
Same store sales in Texas, Colorado, Wyoming in North Dakota lagged the chain average as many of our stores in these states serve customers working in the oil extraction industry.
As we look back to 2015, the last time, we saw significant decline in the price of oil. It was roughly nine month lag between beginning of the fall and the price of oil and when we saw significant impact to ourselves.
We believe up to speed at which the price of oil has declined over the past couple of months and the sharp reduction in rig counts have resulted in a more immediate impact on our customers' needs world markets when compared to 2015.
Sales of Western boots in apparel declined during the quarter, we believed that the cancellation of rodeos country music concerts and other festivals that typically occur in the spring and summer are contributing to sales declines in these categories.
In the near term you expect ourselves to shift to even more functional versus discretionary product.
As a result, our merchandising team has been <unk> refining the composition of our product assortment to reflect the change in demand.
From a marketing perspective, we are expanding or focus on the work customer while continuing to nurture the traditional western customer.
Given the environment, we redirected some of the spending and marketing activity away from them more fashionable segments.
We believe that pivoting.
<unk>.
We will enable us to continue to grow or customer database and drive additional traffic to both our stores and E commerce sites over the long term.
From a media spend standpoint.
[noise] most of our recent marketing has been focused on email and paper click with only a modest amount of radio.
At the sales composition between or two channels has shifted more online over the last few months, we continue to modify our marketing to keep expenses in line with sales and to ensure the tone of the marketing is aligned with customer sentiment.
From an operational perspective, we're prioritize safety for our customers and for our employees. We very quickly adapted our stores to take advantage of our omnichannel capabilities and encouraged our customers who use our integrated omni channel offerings, including buy online pick up in store and club.
Hi pickup.
As markets began reopening we were able to expand store hours in locations, where traffic was returning to more normal volume.
We continued to be focused on optimizing the store hours and labor with the flow of traffic to the stores.
We have promoted social dispensing behaviors adjusted our freedom returns procedures mandated to use a face coverings for all of our store associates and encouraged our customers to do the same.
Well take a moment to acknowledge our entire stores organization. It remained extremely positive during this challenging time as we had asked them to implement safety procedures.
Drew operational changes and be extremely flexible on their time and number of hours that they work I couldn't be more appreciate about them.
Moving to our second initiative strengthen their omni channel leadership.
Omni channel has been an area of significant growth over the last couple of months as customer shifted their shopping habits online as a result of Coca 90.
We're pleased with the growth we experienced in our ecommerce business during the first quarter with year over year sales, increasing 52% and healthy growth in operating profit margin.
The growth in online sales was primarily driven by growth in boot barn, dotcom with increased traffic and conversion from the prior year.
Our newly rebranded Sheplers site has exceeded our initial expectations in both sales and margin.
This is an extremely positive development as we were able to reduce the promotional activity on the new Sheplers site, driving a higher margin rate and upgrade the branding with a focus on its western heritage.
The outsized ecommerce growth increased the total ecommerce sales penetration to 25% of total sales in the first quarter up from 14% in the first quarter the prior year.
We're pleased that the enhancements we have made to our digital sites and Omnichannel platforms over the last couple of years have enabled us to serve our customers in a manner in which they are most comfortable shopping at the current time.
Looking forward, we intend to add to more capabilities for E commerce business, including the fulfillment of ecommerce orders from our stores and same day delivery from our stores using a third party delivery company.
We believe both of these capabilities will allow us to reach more customers decreased delivery times make more efficient use of our inventory and provide enhanced customer satisfaction.
Net or third strategic initiative exclusive brands.
During the first quarter exclusive brand penetration grew to 21.9% an increase of 200 basis points compared to the prior year period.
Our exclusive brands Coty, James in China, and continue to developing loyal customer following remains our number two and number four top selling brand in [noise].
In the store.
The expansion of our sins of brand portfolio over the last couple of years has been extremely well received by our customers and while we took a more cautious approach to our exclusive brand gross growth once the covert 19 crisis began.
We had been pleased that sales of our brands expanded in the first quarter and a further accelerated as we moved into the second quarter.
We now expect to see modest growth in our exclusive brand penetration during the current fiscal year, which is a testament to our ability to develop strong and relevant brands.
Finally, our fourth initiative expanding our store base.
During the first quarter, we opened five new stores, bringing our store count at the ended the quarter to 264 stores.
These five stores, we're set to open late in the fourth quarter, but we had intentionally to lead their opening as a result appropriate.
We are excited about the expansion into our 36 state the opening of our Russellville, Arkansas store in May as well as the new locations in Pennsylvania, Ohio, and North Carolina.
As new stores continue to be a larger she's of capital.
Our plan for slower unit growth until we gain confidence in the external environment.
We are targeting the opening of an additional 10 stores in fiscal 2021.
Turning one store expected to open in the second quarter.
As a reminder, the timeline for new store development, it's only six months, allowing us the opportunity to reaccelerate growth if market conditions show a marked improvement.
I'd like to now turn the call over to Greg Hackman.
Thank you Jim good afternoon, everyone.
In the first quarter net sales decreased 20.5% to $147.8 million. The decrease in net sales driven by a 14.9% decline in same store sales with same store sales in our retail stores declining, 27.1% and ecommerce same store sales increasing.
51.9%.
The decrease in retail store sales. It was primarily a result of decreased traffic in our stores that resulted from customer staying at home in response to the covert 19 crisis and temporary store closures.
On average approximately 30 of our 264 stores were closed during the quarter.
During the first quarter, we opened five new stores, bringing our store count at the ended the quarter to 264 Star Wars in 36 States.
Gross profit decreased 35.3% to $40.2 million or 27.2% of sales compared to gross profit of $62.2 million or 33.5% of sales in the prior year period.
The 630 basis point decrease in gross profit rate resulted from a 430 basis point increase in buying and occupancy costs.
And a 200 basis point decline in merchandise margin rate.
The de leverage and buying and occupancy costs was primarily a result of lower volume sales due to the covert my team crisis.
Of the 200 basis point decline in merchandise margin 160 basis points is attributable to the increased sales penetration of the lower merchandise margin ecommerce business.
30 basis points related to the write off of discontinued inventory at the recently acquired Janelle holding work only store.
Operating expenses for the quarter was $38.4 million or 26% of sales compared to $46.1 million or 24.8% of sales in the prior year period.
Operating expenses decreased primarily as a result of expense reduction measures previously discussed lower stores payroll and reduced non payroll related expenses.
Income from operations was $1.8 million or 1.2% of sales in the quarter compared to $16.1 million or 8.6% of sales in the prior year period.
Income tax was a 290000 dollar benefit in the quarter compared to income tax expense of $2.4 million in the prior year period.
Resulting in an effective income tax rate of 37.1% and the first quarter.
Net loss was a half a million dollars or two cents per diluted share compared to net income of $9.7 million or 33 cents per diluted share in the prior year period.
Turning to the balance sheet inventory decreased approximately 3% comp store basis compared to last year.
This is an improvement from the end of our fourth quarter for inventory on a comp store basis was up 9.3%.
On a consolidated basis inventory was 3% higher than a year ago. As a reminder, inventory at the end of our fourth quarter was 20% higher than the previous year.
We're very pleased with the team's ability to manage inventory levels down to reflect the current environment virtually no impact on merchandise margin rate.
As Jim mentioned, we significantly slowed merchandise purchases and reduced our inventory balance from year end by $27 million.
As of June 27, 2020, we had a total of $241 million a debt outstanding including a 111 billion dollar term loan.
$130 million outstanding on our $165 million revolving line of credit.
We have $35 million and the availability on our revolver and $83 million in cash on hand at the end of the quarter.
Our net debt leverage ratio if he ended the quarter was 1.8 times.
Given the lack of visibility into the business as a result of covered maintain the company is not providing second quarter guidance at this time.
Now I'd like to turn the call back to Jim for some closing remarks.
Thanks, Greg.
Well the current environment remains difficult we are confident in our ability to execute upon our four strategic initiatives over the long term.
In further establish boot barn is the leading brand in the western and work industry.
I would like to express my gratitude to both our stores and E. Commerce teams for their continued innovation diligence and commitments or customer shopping experience as seamless as possible. During this time.
They've all showing great leadership ample proud and thankful to work with such a dedicated team.
Now I'd like to open up the call to take your questions Maria.
At this time, we will be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad a confirmation Colin will indicate your line is in the question. Keith You May press star to if he would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith one moment, please while we pull for questions.
Hey, our first question is from Matthew boss with JP Morgan.
Please proceed with your question.
Great. Thanks, So maybe to start on on same store sales. If you broke down the negative 9% to 10% of comps in July and early August that you're seeing today, maybe relative to the positive three comp that you drove in June.
What would be either <unk> or maybe how best would you rank the drivers of this 12% to 13% negative swing in comps any color by category or by region I think would be really helpful.
Sure it's.
We would rank.
The impact as co vid number one specifically in Texas in California, as the case count started to increase in both of those states in the beginning of July.
Both governments and sort of local.
Jurisdiction started to really.
Kind of retrench move back into a.
Safer at home kind of environment and while there is a lot of other noise good or bad in the system. It was really the retrenchment in Texas in California.
Which while of course somewhat disappointing.
What we've seen is there is a bit of a pendulum effect when I state retrenching, whose customers react very strongly in the short term.
And then slowly.
Either benefited by more favorable numbers.
Or perhaps customers just getting for T. The being home at home they start to release.
And come back to the stores a bit more so.
Well, we don't necessarily want to predict the future here that's seemingly the.
The dynamic that's that play.
In terms of category changes they were they were inconsequential in terms of the differences between June and July It was it was.
Almost entirely store traffic and it was largely our two biggest states.
Great and then maybe just a follow up on gross margin, how best to think about second quarter and full year merchandise margin trends relative to the 200 basis point decline that we saw in the first quarter.
So I'll take it from a merchandise margin standpoint, and if it further color is necessary from sort of a gross margin standpoint, maybe Greg can weigh in.
Yeah. We were we were extremely pleased to deliver the merchandise margin that we delivered right both channels had healthy merchandise margin.
There had been some concern by some folks that we had gotten over extended from an inventory standpoint.
And if you look at our inventory position now we are completely in line with sales. So I think we can extinguish that concern entirely.
In terms of merchandise margin going forward I think there's probably.
An occasional clearance sale that we'll have to add from time to time I think it'll be de minimis in terms of the entire.
Margin rate.
Of the company.
On the plus side, we're seeing a little bit more penetration of exclusive brands than we had anticipated for this year. So.
While the long term algorithm was always.
Two to three points of penetration.
And more recently, we had been a five to six points that penetration growth each year.
I think we'll probably settle back down to two or three points of.
Exclusive brand penetration growth.
For fiscal 2021 and of course that will be a mild tailwind to the merchandise margin.
On the consolidated merchandise margin there, there's sort of no way around the math of the composition between the margin rate in the stores and the margin rate online. So while we're thrilled to get the ecommerce business and we're actually very pleased with the EBIT.
Right of the E commerce business from our merchandise margin perspective, its margin eroding.
Fortunately, we're we're seeing some new customer acquisition through our ecommerce channel. So it's.
Long term it might be a great thing for us to getting new customers were actively trying to make them omni channel customers. So they can shop, both in store and online.
So the composition the merchandise margin line.
Though we'll continue to bring that.
Consolidated merchandise margin number down.
As we get below merchandise margin, we get the gross margin I talked to show up in C. diff costs right. So the main driver of course it as you bridge from merchandise margin to gross margin is the occupancy lime and our ability to leverage that and and so if you look at what happened in the occupancy buying off line.
As a.
Approximately 430 basis points of de leverage on really what I would consider to be a minus 20.5 net sales decline right. So I think thats. How you would think about it going forward is what is what happens to the top line relative to last year.
Again occupancy of the main piece of that expense there was some buying and DC costs that we were able to.
While minimizing says, we furloughed folks and as we really ratcheted back payroll in Q1 and as business improves will probably reinvest we have brought back virtually all of the furloughed folks, especially at the SFC to Mdcs. So that's.
That's a way to think about it Matt.
Great color best of luck.
Hi, Thanks.
Our next question is from Oliver Chen with Cowen. Please proceed with your question.
This maxalt Oliver Thanks, a lot for take care question. So first the minus 15 comp how did that look between western and work and then you touched on the oil patch stays a little bit but could you maybe discern them give us a little bit more color on Texas and how it wasn't work versus western sales there.
During the first part.
The question.
The work business has two components boots and work apparel the work boots businesses has been quite strong.
And and would skew some really nice growth there.
The work apparel business and by the way that is much bigger than the work apparel business.
Work apparel business split roughly evenly between.
Fr and non fr.
And one of the thing that we've seen we saw in the quarter was the more traditional work apparel business.
Was negative at the height of Kobe, but turned positive and has remained positive.
And yet fr has been negative and that's that was what we called out in the last call, saying this might be a leading indicator.
Softness in the oil patch.
In terms of how that split is between and working western in Texas.
Yes, Texas has 50 plus stores and that split is very different in west, Texas versus sort of Houston and Dallas, but if you took the entire state as a composition you wouldn't see a meaningful difference in the split between work and western in Texas versus worse.
[laughter] work and western for the balance of the chain.
So hopefully that answered your question.
Oh, yes, thanks, a lot and then just separately so assuming that oilfield employment trends in Texas remain pressured how does that impact your longer term store opening plans would you potentially pulled back any openings in Texas and accelerate in other regions or are you guys thinking about that cost 10%.
No.
So yes, it Texas isn't a high priority development state for US right now anyway, even even pre.
Oil and oil rig decline, so where we continue to find opportunities that have been.
Pleasantly surprising in terms of their performance in North Carolina, and in Pennsylvania, and Ohio, So where where.
Somewhat emboldened to continue to grow the concept in the southeast and up into the mid Atlantic States.
And the other place what we're looking at stores is to continue to fill in our California market. While we had thought that we had reached close to saturation.
It seems that each time, we opened up another store in California, it exceeds our expectations. So.
While we may occasionally opening stores in Texas going forward, it's certainly not a high priority state for us.
At least for the foreseeable future.
Got it thanks a lot.
No problem, it's Matt.
Our next question is from Peter Keith from Piper Sandler. Please proceed with your question.
Hey, good afternoon, everyone. It's obviously not Peter Thanks for taking my questions.
First wanted to ask about ecommerce trends in a Q2 quarter date, it might be a lot shortsighted, but.
It seems in moderation versus Q1.
You know are you surprised that moderation in the context of retail stores.
Yeah declining from June.
Yes, what can make argument that you common accelerate or you know retail is down a little bit there is there any you call out on that.
So it's a good question, there's not quite as much transferring to between the channels as you might thing so I wouldn't necessarily expect.
A major left in ecommerce business with softness in the stores business.
Other piece of it we we continue to be.
We focused on the bottom line of or E commerce business. So while it's not growing quite as much in July as it was in.
The quarter.
The the growth in the bottom line of that business is still extremely extremely strong and and we just.
Simply have decided.
Over the long term to never really by our ecommerce business.
To the point, where it's even eroding so what we continue to be quite pleased by the ecommerce business. There was probably a piece of it in the first quarter that was spike due to the stimulus payments.
When you look at the daily and weekly data.
Literally at the very moment when stimulus payments came out with our E Commerce business Spike up so as I look at the business in E. Com right now where we're extremely pleased with how they're doing both topline and very much from a bottom line standpoint.
That's great I appreciate the color, maybe there's more broadly.
Over the past the Mckee you have a updated you.
On the health of your customers and end markets.
Clearly understanding around auto market headwinds, but not the same time seems like there's some strengthen the broader farm and ranch in a row channels.
Housings rebounding quickly.
Yes, I do think of all that imbalance with a broad customer.
Well you're right. There's there's a lot of factors at play and when when we step back and look at the business in the health of the customer and we think about the.
[music].
Number of headwinds and the magnitude of the headwinds that we're facing into whether that's the pandemic.
The cancellation cancer cancellation.
Concerts in radios and festivals.
The pressure in the oil markets. The fact that we've actually slowed our marketing.
Spends and pull back on marketing to sort of preserve expense and and with less focused on topic on driving topline sales.
Well actually somewhat encouraged by the most recent trends of the business, including June and July taken together and believe.
Yeah.
The sentiment relative to covert 19, eases up and hopefully the case count continues to improve.
Too early in California, and Texas.
We think there's a vibrant customer.
But if at all yeah, we've we've got a number of pretty strong headwinds that our business is actually kind of hanging in there. So.
I think if we can just.
If not removed just alleviate the the transitory pressure of.
Specifically in Texas, and California of co good we might get back to a.
More healthy comp.
And we can look at the business exiting out Kobe or exiting out states that have had a marketed change that we believe is transitory.
And if we ex those pieces of the business out it it's a much more optimistic view.
Alright, great.
Appreciate the detail and good luck.
Thank you thanks Bobby.
Our next question is from Janine see star from Jefferies.
These personnel identification.
I wanted to taking my question I'm, just curious what you're hearing from maybe some of the independent retailers to occupy a large portion of the market share in the western where markets are you hearing any independents, calling you maybe potential acquisitions and just curious how you think about.
As you do raising a more normal cadence is there for the next opening your own units versus potentially ongoing part with an acquisition that Ben various if that's okay.
So how did you mean good question.
We have seen a weakening of the.
Core mom and pop.
A competitor out there and what we are we believe we're gaining share from that group because they simply haven't been able to organize themselves.
At least in totality <unk>.
As well as we have two to operate.
Safe environment, given what we're facing into so we do believe where we're up against a weekend competitive set at least close staying within the western.
Specialty industry.
In terms of are there additional acquisition candidates.
Absolutely a great question, it's it's a time, where while we're trying to play defense.
And pull back on things like inventory and expenditures. It's also a time when we might try to be opportunistic and look for tuck in acquisitions.
I would I would lead everybody to believe that still going to be small players one store two stores not major jeans wear or any kind of strategic acquisitions, that's not kind of in our our current headset, but it is something that we've we've seen.
Mom and pop raise your hand say this is might be a good times any too.
Exit.
And we're certainly willing to have those conversations so stay tuned.
And can you just your mind, if I look the economics look like on the story that you acquired versus start that you open and people that right.
The volume wondering acquired store tends to be larger we tend to focus on bigger operators.
So the the payback tends to be faster than the three years that that we pencil out and so that's compelling financially I think as we've said before the.
There's a fair amount of work with converting at existing store or operator to the boot barn way and so we have to weigh the.
The work effort to.
Convert that that store to boot barn store with that.
I'll say improved economics.
Great. Thank you for the color.
Thank you Julie.
Our next question is from Jonathan Jonathan Komp.
Please proceed with your question.
Hi, This is Steve Mccarthy on for John Thanks for taking your questions I guess, my personal and really just be.
Could you clarify maybe some of your comments around.
Yes, I think you settle a lot of the traffic declines and deterioration and trends is really.
Texas and California, if you look at kind of all your other markets did you say July.
Sequentially improved or even kind of stable from June there anymore color on kind of ex Texas in California.
It certainly more in line with June.
As you.
Probably well know it Texas and California is.
100, plus stores and more than that proportion in terms of sales volumes. So.
As those states go so does that sort of consolidated chain.
In in terms of other markets. What we've had we've had pockets of extreme strength and we've had pockets of.
More negative results across the 24 or so districts out there.
And it's hard to.
It's hard to really.
Finally, the underlying.
Trend to tanker you back to.
Yeah.
Very helpful, but it's.
There was two states sort of set the tone for the overall business, which again wall that somewhat disappointing for the last few weeks.
Firstly from a health standpoint, both of those states are improving in terms of Coca cases and.
Proverbial curve.
And we I do believe that were we'll start to see and have started to see in a very short period of time, some sequential improvement both those states.
Got it and then maybe just one more on you talked a little bit about new customer acquisition for E. Commerce as our if you can share anything more on that as that give us sense. If that's you know customers that were coming into your stores that are now going online or is it.
Totally new customers customers from some competitors just anything you.
Might have on that.
Sure.
I would say a healthy portion of it is brand new customers. We have seen some customers that were stores customers convert over to E commerce.
Or some some variance of omni channel, so they're placing their order online and willing to drive to the store and pick it up or go to the curve and pick it up.
But where we're encouraged by the fact that this was a time.
Where we could use our ecommerce channel our digital channel to go out and introduce new customers to the brand.
And some again some healthy portion of bag customer account, our net new entrants are net new customers to boot barn.
And what we're working on now is how do we turned those customers into.
Repeat customers, how do we get them to shop across channels, how do we leverage the strength of our stores plus our digital channel to really maximize their experience and our business.
Got it thank you very much.
Thank you.
Our next question is coming just from Paul Best way with Citi. Please proceed with your question.
I'm curious if you could share what the EBIT margin was any E com channel versus store channel. This year I think you referenced an improvement in the E. Com EBIT margin. So just just curious where you are on an absolute levels and then could you also talk about the mix of business online versus.
The stores, how does that that category mix differ and specifically what is private brand penetration look like in store versus online. Thanks.
I'll take the easy part of your question, Paul We Havent disclosed in the EBIT rate, they absolutely EBIT rate or the differential between those two businesses.
Jim you want to cover the mix of business.
All right.
Commerce as a percentage of sales has of course grown in the quarter. So for the quarter is 25% of the business.
On an annualized basis, it's 17 or 18% of the business.
It minutely for the first quarter.
It's 14% of the business typically are was 14 last year.
As we got into July we got back to 17, or 18% ecommerce penetration and I think will probably as we go forward get to 16 or 17% during normalize times it spiked during holiday in Christmas.
So we'll see what happens then.
And we're certainly up for.
Our unique holiday season, as there's every retailer given.
Where the Koby crisis is then.
The third part of your question was around exclusive brands.
We.
We always quote a consolidated penetration of exclusive brands.
The exclusive brand penetration in stores is higher than our consolidated number and nicks and ecommerce is.
Only half of the consolidated numbers. So we've got some room to grow.
[laughter] exclusive brand penetration online and as we do that we'll we'll continue to get roughly 10 points of incremental margin on that piece of the business that converts over and so that's certainly a focus for the ecommerce team I think we continue to drive that business.
That said they also our servicing the long tail of consumer demand. So we don't ever expect ecommerce have the same penetration of exclusive brands as a storage steel.
Got it and you know the group the gross margin difference between the channels or how much of that can be attributed to the lower penetration of of exclusive brands versus just.
Running a little bit more promotional online.
It's it's.
The exclusive brand piece of it is probably.
One fourth of the difference.
The the promotional piece is probably a portion of it also but that's not the bigger piece the bigger piece is the the free.
Associated with shipping the product.
The the pricing is.
Depending on the product depend on the category and depending on the state to be honest the pricing is getting more in line with the stores.
But it's more the freight component that burdens that merchandise margin of our ecommerce business.
Got it. Thank you guys. Good luck.
Thank you thanks Paul.
Our next question is from.
Nick with Wells Fargo. Please proceed with your question.
Hey, good afternoon, guys. Thanks for taking my question.
Greg I want to ask about so the expense management in the corner.
Clearly you manage expenses very very tightly and.
You didn't really good job there how should we think about.
Expenses going forward I mean should we think about SGN, a being down year over year.
In Q2 for the balance of year just.
Any color on this year they would be helpful. Thanks.
Yeah, so come when that's going to give specific guidance.
But I can give you some directional.
Waste to think about SGN, a you know the biggest save we saw in Q1 was in our stores labor and bonus and kind of the benefits program. We were running basically about seven on a eligible open about seven hours a day and most of our stores. So we ran.
Based minimum coverage, which is roughly stores roughly have about a 140 hours per week to operate the store.
And we did that because the traffic dictated how much business was being done that allows us.
To really be efficient in terms of our payroll management and deliver a high sales per labor hour statistics. So as we've opened the stores up a bit more of your probably be less efficient in terms of store labor, but I would expect us still to be watching that very.
Carefully.
Jim mentioned also that we had reduced our marketing spend focused on on E mails and to a lesser degree pay per click advertising and I would expect that to continue as the business returns a bet, we're going to invest more in marketing, but you know as a weight of sale.
I think that that will be able to manage that pretty tightly.
So that that should that discipline should be ongoing and the ecommerce team has been really diligent in terms of.
Pay per click advertising and return on Ad spend.
The next piece is probably store related cost, so thats things like store travel and repair maintenance and things that go along with the topline and again I would expect us to manage that pretty closely.
I think about other parts of the PML, we did have furloughs in the in the corporate office or what we call the store support center.
We had a payroll reductions for a period of time dose of ended and we bought most of the folks back. So we won't have that same run rate savings.
And we have invested in premium pay for our associates in the store, we did pay for the employee portion of health insurance and and both of those programs extend through August So we will have.
Increased spending for most of the quarter.
That's how we're managing the business is very tightly we were again very very conservative in our approach to managing the business in the first quarter I think we'll continue that albeit.
As business returned in June we felt much better about starting to make investments like operating stores longer an operating.
More typically so.
I think that's about as much color as I can give you as we proceed through the year.
That's helpful. Thanks, Greg and just a quick follow up on you sound pretty I'm optimistic about merchandise margins.
Ability to.
Manage.
Keep your margins intact.
Everything that's going on what we've had a lot of.
Yeah companies talk about how that they expect a very.
Promotional.
Environment in the second half of the calendar year over the next six months or so do you think that maybe because youre.
Sort of the.
The one big dominant player in the industry are a little bit more.
Insulated.
From maybe.
Competitor discounts and promotions.
Relative to some other apparel and footwear companies out there.
So it's a very good question.
We do expect other people too.
The more promotional not even necessarily in our industry, although I'm sure that will be a piece of it just in general retailer is trying to clear goods.
Particularly those that didnt have the luxury of being open.
During the last few months or it was 100% open.
That said you're right to call out today, we are the brand in the industry were the leading brand in the industry and we really.
Almost never.
Turn up the promotional.
Lever because it just doesn't seem to pay back either in that year and certainly not.
In the following year when you have to go up again sort of an artificial lift in sales that may have good margin eroding. So what will will view the competitive marketplace. As we go forward well try to understand what other retailers are doing.
Like ecommerce players are doing that have.
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Less of an earnings obligation then some more traditional retailers and what they're doing.
But what we typically focus on is sort of a long term brand position of boot barn, we are in stock at a reasonable everyday price and I don't expect us to have a knee jerk reaction in the next several months from a promotional standpoint.
And Fortunately, we have really no reason to clear any inventory.
Because we've gotten ourselves into such a great spot from an inventory standpoint.
So I'd expect more the same focusing on the brand focusing on customer loyalty once we get back the playing a little bit of offense continuing to grow our customer base in the stores.
Continuing to build our brand online integrating those two channels better and better.
And and kind of looking forward from a a service and an assortment standpoint and not from a.
Race to the bottom from a discounting and promotional stance.
Got it thanks, Jim and best of luck to the other part University.
Thanks, Tom.
Our next question is from Don Cardinal with William Blair. Please proceed with your question.
Yes. Thank you very much just curious now you're through the quarter. If you have any better read on sort of the benefit of stimulus payments, albeit sort of me most likely anecdotally.
If you saw in sort of interesting conversion or traffic patterns, particularly towards the end of the quarters as those rolled over.
The.
Anecdotally it certainly was a spike in E commerce in the middle of the quarter. They has.
Moderated a bit towards the end of the quarter and into July.
So.
Yeah, I mean, where we definitely saw that you know that business has been so strong for the last 13 or or 17 weeks or 18 weeks, but it was even outsized for that one period or time, when the checks were sort of being received.
Yes, I mean, there's no question about the impact on E commerce business because it correlated.
To almost to the day so.
At least or anecdotally, we certainly believe that help the business in the middle of quarter.
Great.
And then.
The comments on sort of the infill opportunity in California, I know, where an industry different environment here as percent of slowing down the openings, but do you kind of suspect. The you might have similar types of opportunities in some of your older markets.
As for sort of pretty more stores initially thought that the market can sustain.
It's a very intriguing question, particularly given the current environment and the answer.
Hi, My challenge conventional wisdom is yet to say, we're actually seeing our ability to increase the density of stores. We've opened up stores in new markets in the height of a pandemic and they've gotten out of gate extremely quickly. So we feel as emboldened if not more involved and too.
Increase our retail store footprint, given what we're seeing so.
And and as we open up more stores in markets, where that have already matured.
Being an inconsequential amount of cannibalization and new stores opening with very good numbers. So we're sort of this it's certainly not the call or the time to.
Apparently heavy offense and raise our store count estimate et cetera, but we're certainly not pulling it back either.
Yeah, no totally thank you very much I appreciate Stella right. So.
Our next question is from Sam Poser.
That's kinda. Please proceed with your question.
Thanks for taking my question.
A couple of things on the.
I want to follow up on a product mix by channel and the margins. There did you give us any more color.
On on a on the how about the sales by channel as a percent of total on how E com, how the exclusive brands were versus.
Versus the branded product and how that may have changed.
Within both channels in the quarter year over year.
Yes, so both channels increased in the quarter.
I'm trying to give you more helpful number the ecommerce business was up about doubled just into double digit territory from a penetration standpoint in the stores business was higher than what we reported from consolidated standpoint.
And if you took.
The the composition of the business.
As.
70, 525 in terms of stores and E. Com you could you could pretty much get to the difference in the penetrations I actually I don't have the numbers right in front me either otherwise, it's probably where there.
And is that business more promotional online than it is in the stores are fairly equal one other thing.
It's it's not more promotional.
Food borne dot com it had been much more promotional at Sheplers dot com, but one of things will play a part of this we've we've rolled back those promotions and Sheplers now it's much more a.
Western Heritage branding say focused on building customer loyalty and not the latest Sal.
There or store markets that get a slightly higher place than some of our online businesses in certain categories, but it's.
It's sort of a small difference in certain categories in certain states.
The biggest difference between the two channels.
By a lot a the impact of fleet.
Gotcha and then.
Secondly, our your denim business, how both in store and online how did that hold up within the quarter and then you know also branded versus house brands as well.
Our exclusive brands as well.
So so that the denim business.
Yeah. It's of course hard when you look at the whole quarter given that the beginning part of the quarter was so pressured.
Sort of every business with the exception of work boots was under a tremendous amount of downward pressure.
As we got into June and you look at the denim business. The men's denim business started to come back to US was actually men's denim in June was actually positive.
And Yeah, We guide as you know way because we looked at the inventory in the stores together in Orlando, We've got some some new.
Kind of increased inventory and styling from Acquity James perspective in men's denim and where we're pretty pleased with that performance certainly in the stores.
And of course, a slower start online because as we try to build that branches brands online it takes a little bit longer.
So yeah. The our denim business has been has been decent it's been better in mens then in ladies we're happy about the Coty James Denim business.
Where we're happy about the.
Moonshine spirit business.
On the men side.
And I'm lazy side, I think Cheyenne and idle winder doing well as well, maybe just not quite as well on me at the on demand side.
And then I'd be remiss not to asking inventory question.
Are you are like are you shutting off some branded product now.
Or.
Is the replenishment of that back on.
So where.
No we're not shutting off anything.
I I say this in quotation marks what we're back to business as usual were selling product replenishing it stemming orders back the vendors.
And our vendor partners have just been fantastic in supporting us through this Ah.
First in differing purchase orders are deferring receipts.
And canceling some and now its business started to get sequentially better.
You know the product was available and we started writing orders and we're trying to.
Frankly return to favor and give them is best view as we possibly can.
Into the future of our business. So they can plan their business I think.
Yes the ad.
The motto of the current time as we're sort of all in this together so they really helped us out across the board in terms of getting through March and April and we're trying to.
Partner with them and they're looking at here, how do we see the business going forward.
As best as we possibly can given I think everybody's crystal ball is extremely blurry. So.
I think all of our vendors are quite pleased with where we're at right now they're still getting some really healthy orders from us and eat within our industry will still be the largest will still be growing with them.
They'll still be quite pleased and.
You know as as you pointed out in past calls we youre concerned that are inventory had gotten too high and was outpacing our growth in sales and.
They they helped us get us right back in line to me.
I think you knew it acknowledge that were now sales the stock is couldn't be better. So you know the vendors and part of that.
Okay. Thank you very much and and good luck.
For the rest of the year.
Hi, Sam.
Our next question is from Gem, Jeremy Hamblin with Craig Hallum. Please proceed with your question.
Thanks, I wanted to come back to the store operations and.
In terms of.
Sounds like you've had a lot of stores operating on kind of.
Four to five hours fewer than than typical.
As we move forward here in the second half of 2020.
And haven't seen trends bounce back fully you know how do we think about how you're going to manage the store operating hours.
You know as we get into fall and then probably more importantly, as we get towards the holiday season, when our sometimes and are you going to adapt really to the environment that you're seeing the on sales you know is it something where you know that typical jump that you see on.
Store payroll doesn't happen in nearly the same level simply because.
You're you're not operating our.
Topline at the same level.
But how are you thinking about managing that aspect of operation.
But generally it's Greg it's a great question, what we are managing this on kind of a store by store basis, and as volume dictates right as the business returns to more normalized levels, we've been opening up for more hours and with the with the slide back.
Words in a few states in in July we've had the you know go back to kind of those base salaries that we're operating within say may. So it's it's a pretty dynamic kind of store by store decision I think as we get into holiday, perhaps will will.
Expand that a bit but in the near term, we'll just managing it very closely to make sure that that we're getting the right productivity out of all out of our teams.
So we haven't gotten to the decision of every store is gonna be opening for 14 hours in December.
We'll probably get to a point, where we have to make that Paul but I do think that if the business dictates, we'll be opening for those hours and if it doesn't dictate then we'll probably continue to operate on more modified hours.
Perhaps opening more than seven or eight hours that were open today, but probably not again 14 or 16 hours that you might be opening open during really busy.
Times during holiday.
But at this point in time.
To assume a you know what something truly dynamic changes in the environment that that you would maybe even expect youre.
Your SGN a could be down as we get into that holiday season simply because.
The hours are gonna be fewer than you would typically have again outside of.
Something kind of magically happening and most of the country from a covert perspective.
I think you could think about it that way again, we're not giving any specific guidance, but but.
Based on what I've described I think you could come to that conclusion.
Okay and.
And then moving on tour to unit growth.
You had a kind of a quick comment on it I think Jim but in terms of the performance that you've seen you opened a you know five locations.
At New unit productivity can you give a sense of what you're seeing there and then a second part to the question as we look forward.
It to calendar 21, and it may be getting back to a little bit more aggressive unit growth.
You know.
They're kind of a target for where sales needs to be to get back to.
You know you're more typical 10% unit growth or is it a level of profitability that you're looking for.
I founded on the second piece it getting back to.
10% growth or perhaps even more than that.
Frankly, it's all external right if though.
Everybody you guys have heard from a million companies is facing into challenges anniversary, there's none of us have ever seen before so if we can get to the point, where we don't think we think that big pandemic is easing considerably we don't think bad extending ourselves.
From a capital standpoint on additional stores as unnecessary risk then we'll start to increase our unit growth.
The stores in general our new stores payback in better than three years, it's a great use of our capital.
We've seen nice take up in new stores in new markets.
The.
To give you a real read on the latest openings is another one of those statistics, that's extremely hard to handicap, because we have some stores that are.
Really exceeding our expectations and some that are falling a bit short and you don't know, particularly on the downside. If those that are falling short or a bad location or are just being impacted by coated.
I can tell you that when we when we look at the composition of the latest five or the latest 25 stores that have opened we continue to feel great about our new store development program the ability to continue to get.
Three years or faster pay back and the ability to essentially doubled the store count going forward.
It's.
In terms of when we get back to more normalized or accelerated growth. It's it's almost entirely based on what's happening in the country from a from a pandemic standpoint.
Hi, Thanks, guys nice work in a tough environment.
Thank you for me.
Okay. Our next question is from Mitch Kummetz. Please proceed with your question.
Hi, Thanks for taking my question I guess I've got a few I was hoping you could give us a little bit more specifics on Texas I know in years past it kind of broke it out when the oil patch was tough and it is your biggest market and it's kind of got the double whammy of coated a double whammy I say I've covered the oil patch right now so.
If there's any way you can kind of give us how that business is performing particularly kind of Q2 two days since that's when we've had the resurgence of covenant, Texas plus oil patch so.
Sure sure. So the quick answer is what westech West, Texas is under a lot more questions from Texas and if we if we want to normalize the business in Houston, Dallas, San Antonio Austin.
And sort of look at the.
The business prior to the resurgence.
I would say, Texas was was doing pretty well.
As we look at the business now West, Texas, and still under a tremendous amount of downward pressure and the big cities are are faced with.
The unfortunately to all too familiar.
Stay at home, where mask don't run crowds et cetera, and that's just been hurting store traffic in some barb our biggest markets with in the state of Texas.
Would you think.
Of course, that's transitory I don't know, if that's due more weeks or months or hopefully not tumor years, but.
That will abate and it seems too.
Well, we've seen as the market seem to have a knee jerk reaction and then sort of.
Come back slowly and we have seen again, it's only been two and half weeks since we saw the trough in mid July of the pullback in Texas, but we have seen those businesses start to come back slowly and again West Texas is still.
Very difficult, but even with very difficult business in West, Texas, just as a reminder, and I know you know this next those stores will still be extremely profitable for us just negative comps on a drag on comp got it and then some public pumps. Okay. And then when you look at your digital business can you maybe speak a little bit too.
Adoption I'm wondering if you're seeing adoption pretty consistent across categories I mean I just.
Sort of generally think of the work boot business in particular as kind of a sit and fit business and I'm wondering if you know your work because it sounds like it's really good. So I'm wondering if you're seeing sort of outpaced adoption on work boots and if so what does that mean for the business longer term if anything.
Yeah, well, you're right to call out that work boots has been a very strong business online I think thats.
Yes, partly just given the environment people and have had gone online and those guys that are working out there that the men and women that that need work product.
Our defaulting to come to us often enough that we're getting some nice growth there.
So we are would you think that is a good place to build the business.
On the on the Sheplers side, we have a very healthy business on the Sheplers Dot com.
Site in denim, but that's a big a bigger portion of that site than.
The other boot barn dot com weren't boot barn stores.
So.
Our our goal is to try to introduce customers that are either squarely in the work industry are squarely in the western industry or one concentric circle outside of those businesses and if their online shopping we're using paper click advertising social media.
Tizing to try to.
Convert them or at least get them to tip browse the site and we've seen a nice pickup in traffic in both the site center, a very nice increase in conversion.
So I think people are motivated to purchase online and more hesitant to go to a store.
Got it and then Greg last question on the only yesterday I just want a probe a little bit could start. So your question in dollar terms was down 8 million roughly year over here I was hoping you could say how much of it that was a decline in store payroll and then what do you think about store payroll in Q2 should it be pretty evenly.
Year over year, just based on kind of all your stores being opened or will still be down based on kind of reduce store hours or so little bit more color there would be helpful.
Right, so I'm not going to tell you how much the store payroll was of the 8 million reduction, but it was the first one I listed then I tend to talk about things in terms of order of magnitude. So it's at least Directionally lets you know it's the it was the biggest sales year over year and then in terms of how to look at Q2.
Based on the conversation about you know opening a little bit longer and being a little bit less productive.
You can assume that the rate. If you will is going to go up a bit compared to Q1.
I can't tell you that it's the dollars are gonna be last if I don't know what the topline is going to look like so I'm sorry, I can't help you about okay. All right. Thanks, guys. Good luck.
Thanks, Mitch I pledge.
We have reached the end of our question and answer session I would like to pass the floor back the gym Conroy for closing remarks.
Very good thanks, everyone for joining the call referred to talking to you at the end of our second quarter take care.
This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.
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