Q3 2021 Boot Barn Holdings Inc Earnings Call
Okay.
Good day, and we wanted and welcome to the boot Barn holdings third quarter fiscal year 'twenty 'twenty one earnings call. As a reminder, at this call is being recorded now I'd like to turn the conference over to your host Mr. Jim Watkins Senior Vice President of Finance and Investor Relations. Please go ahead Sir.
Thank you good afternoon, everyone. Thank you for joining us today to discuss the boot barn third quarter fiscal 'twenty 'twenty. One earnings results with me on today's call of Jim Conroy, President and Chief Executive Officer, and Greg Hackman, Chief operating Officer, and Chief Financial Officer.
A copy of today's press release is available on the Investor Relations section of boot barns website at boot barn Dot com.
Shortly after we end this call a recording of 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 in this presentation are forward looking statements. These forward looking statements reflect the boot barns judgment and analysis only as of today and actual results may differ materially from current expectations based on the number of factors affecting boot barns business.
Accordingly, you should not place undue reliance on these forward looking statements.
For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made during this conference call and webcast. We refer you to the disclaimer regarding forward looking statements that is included in our third quarter.
2021 earnings release, as well as our filings with the SEC referenced and that disclaimer.
We do not undertake any obligation to update or alter any forward looking statements, whether as a result of new information future events or otherwise.
I will now turn the call over to Jim Conroy Boot barns, President and Chief Executive Officer, Jim.
Thank you Jim and good afternoon. Thank you everyone for joining us on today's call I will discuss the highlights of our third quarter results briefing.
Briefly walk you through each of our four strategic initiatives.
And then provide an update on current business. Following my remarks, Greg will review, our financial performance and more detail and then we will open the call up for questions.
We are extremely pleased at the strength of our third quarter results through what continues to be of difficult macro environment.
During the third quarter consolidated same store sales increased four 6%.
Michael and a $6 seven per cent increase from the year ago period.
Same store sales and our physical locations returned to positive territory, increasing one 9% with growth driven by an increase and basket size, which more than offset and mid single digit decrease and transactions.
Our ecommerce business remained strong during the quarter with sales up 16, 3% over the same period last year.
Importantly, our momentum accelerated as the quarter progressed and the same store sales up one 7% and October <unk>.
Four 3% in November and up six 2% in December the.
The sequential improvement each month was primarily driven by store comps improving from approximately flat in October to up three 3% in December we are extremely pleased with the return to positive comps and our brick and mortar stores, particularly in light of the pandemic.
From the margin perspective, our third quarter merchandize margin remained strong both in stores and online, resulting in consolidated merchandize margin expansion of 150 basis points during the quarter.
The strength and merchandise margin was driven by better full price selling and reduced promotions and it is.
The Testament to the ongoing strength of the brand and we can continue to grow top line sales without resorting to discounts or promotions to drive traffic.
The combination of strong full price selling and reduced promotions and expense management resulted in third quarter earnings per share of $1 <unk>.
Compared to 85 cents in the prior year.
When adjusting for the tax benefit from share based compensation and both years, we grew earnings per share of 22%.
And 99 cents compared to 81 and the prior year period.
And I'm extremely pleased with our earnings growth despite ongoing headwinds from COVID-19, including pressure and oil and gas markets reduce tourism why isn't the case counts across the country and the ongoing lack of rodeos and concerts.
The fact that we grew earnings per share more than our long term growth algorithm of 20%, while facing the adversity associated with Covid and softness in oil markets truly speaks to the strength and diversity of the business.
I would now like to provide and update on each of our four strategic initiatives beginning with driving the same store sales growth.
During the quarter, we saw sequential improvement and the retail stores business with the stores returning to positive comps and gaining momentum through the month of December our same store sales results during the quarter were fueled by sequential improvement across each of the three geographic regions of stores.
The West region, which includes California continued to outperform and posted solid year over year growth.
The South region, which includes Texas showed the most sequential improvement of the three regions from Q2 to Q3, but.
But remained negative with respect the same store sales growth.
The North region delivered same store sales that were nearly flat for the quarter.
From a merchandise perspective, we are encouraged by the broad based improvement and category performance every major category with the exception of work apparel and men's western boots grew versus the prior year.
Work boot remain our strongest performing category with growth and bolt lace up and pull on styles. Additionally.
Additionally, we saw healthy growth and kids boots hats and belts.
As well as both mens and ladies western apparel, which were driven by solid gains in denim.
The main for our F. Our work apparel business was soft and the third quarter and as a result of topline pressure and many of our oil markets. While sales of non flame resistant work apparel showed positive growth at the customer's need for functional product continues to be healthy.
We believe a portion of the sequential improvement can be attributed to the work done by the merchandising team and both managing the challenges of the supply chain and.
And the and embracing the new just country customer segment. They have moved swiftly to capitalize on the trend towards being outdoors and dressing more casually and of augmenting the assortment considerably to capture a broader market share.
As part of these efforts, we have invested and more inventory of hiking boots, outerwear and casual footwear and apparel.
Which have started to gain traction.
From a marketing perspective, we feel that we had an appropriate balance between our digital advertising and our more traditional marketing programs and emphasize radio TV and direct mail.
These efforts helped to greatly minimize the decline and store traffic due to pandemic and helped to drive considerably more traffic to boot barn dot com.
From an operational perspective, our stores team performed extremely well during the holiday shopping season.
We were very playful with our approach and we're able to successfully higher seasonal associates to help with the increase in sales volume.
And I must further command and the stores team, which face of declining customer traffic and the quarter, but was able to achieve positive same store sales growth to a healthy increase in units per transaction.
Based on the level of customer service and salesmanship that they provided we saw transaction size grow by 6% with a nice increase in sales of add on items, including boot accessories ball caps and belt.
This achievement was further notable given all of the operational and staffing challenges that they faced due to COVID-19.
Moving to our second initiative strengthening our Omnichannel leadership.
During the third quarter E Commerce same store sales increased 16, 3% with our focus on E commerce profitability, driving and approximately 80% increase and operating income.
From a brand perspective boot barn dot com sales were up 37% during the quarter with the balance of our ecommerce sales declining largely as a result of the change and promotional posture and pricing on the shufflers Dot com site to align with a more full price selling model.
From an online and in store integration perspective, we believe the many omnichannel offerings, we had in place for the holiday shopping period helped boost sales both in our stores and online.
Our digital and <unk> teams have been working extremely hard on the last several months to further enhance our omni capabilities, giving our customers the ability to buy online and receive their product in our stores.
These initiatives were well received at approximately 20% of boot barn, dotcom orders were picked up and in store.
These orders include those purchased online and picked up in store and addition to those shipped to the store from our ecommerce fulfillment center.
Our omnichannel offerings helped drive incremental store traffic and provided convenience to our online customers, allowing for same day in store pickup.
Contactless Curbside service and even same day gift wrapped home delivery.
We believe these capabilities were successful and expanding the number of customers that shop across channels.
We were encouraged by the effectiveness of our direct to consumer supply chain, which was able to meet outsized customer demand while.
And while avoiding virtually all anticipated issues with package delivery service.
In summary, the ongoing changes, we have made and our focus on increasing ecommerce profitability of not only improved our bottom line, but of helped to narrow the margin differential between the stores and online channels.
Now to our third strategic initiative exclusive brands.
During the third quarter exclusive brand penetration grew to 23, 3% and increase of approximately 80 basis points compared to the prior year period.
We are extremely pleased with the quality of our exclusive brands and our customers' receptivity to them.
The continued acceptance of our brands helped position four of our exclusive brands and the top 10, selling brands and the store during the quarter.
We are particularly pleased with the performance of both Idaho wind and talks at both brands have penetrated our top 10 brand list despite being only a few years old.
While the growth and penetration of exclusive brands decelerated during the third quarter as a result of constraints and our supply chain. We expect to finish the current fiscal year with exclusive brand penetration growth of approximately 200 basis points when compared to the prior year.
Finally, our fourth initiative expanding our store base.
Year to date, we've opened seven stores and closed one store, bringing our total count to 265 stores across 36 states and we are targeting a total of 15, new store openings by the end of our fiscal year.
Even with the difficult backdrop of COVID-19, the new stores, we have opened in new markets, particularly in the northeast are outperforming our expectations and are expected to pay back within our targeted three year period.
On a couple of the performance, we're seeing and our new markets with less than expected store cannibalization and our more mature markets will further convinced that we can deliver 10% growth and units and double our store count going forward.
We are encouraged by the current store pipeline and feel that we are well positioned as we approach fiscal 2022.
I'd like to now provide and update on current business. Our fourth quarter is off to a very strong start with same store sales growth of 17% and fiscal January.
This marks our sixth consecutive month of sequential improvement.
The stores business continues to exhibit solid strength with January comps up 20%.
From an E Commerce perspective, we continue the focus on driving growth and profitability.
The strength and boot barn dotcom sales has continue with growth in line with our third quarter.
<unk> Dot com demand continues to be under pressure with declining year over year sales as we cycle at very promotional and January and the prior year period.
As a reminder, the shepherds dot com business has been repositioned at a much less promotional business, which as expected has put pressure on sales.
That said the rebranding of Shufflers has resulted in a much more profitable site and we believe provides a solid foundation for the long term health of that business.
On a combined basis, we continue to see very strong growth and EBIT dollar contribution for our E Commerce channel and the first fiscal month of our fourth quarter.
Notably the sales growth and January has been broad based with all major merchandise categories growing on a comp basis.
Additionally, we are seeing each of our three geographical regions grow double digits and the month.
That said, while we are certainly excited about the current sales trend and we believe the underlying business continues to be strong we do attribute a portion of the acceleration and sales to external factors, including the receipt of stimulus payments at the start of the <unk> 'twenty 'twenty one calendar year.
I'd like to now turn the call over to Greg Hackman.
Thank you Jim good afternoon, everyone in the third quarter.
Net sales increased six 5% of $302 million the increase in net sales was primarily a result of the $4 six per cent increase and same store sales and the sales contribution from new stores opened over the past 12 months.
Gross profit increased 10% to $106 8 million or 30 543 per cent of sales compared to gross profit of $97 million or 34, 2% of sales in the prior year period.
The 120 basis point increase in gross profit growth resulted from a 150 basis point increase and merchandise margin rates, partially offset by 30 basis points of deleverage and buying and occupancy costs.
Merchandise margin increase of 150 basis points, primarily as a result of better full price selling and reduced promotions.
Operating expense for the quarter was $65 $2 million or 21, 6% of sales compared to $62 1 million or 21, 9% of sales and the prior year period.
Operating expense increased primarily as a result of additional costs to support higher sales and expenses from new stores on.
Operating expenses as a percent of net sales decreased by 30 basis points, primarily as a result of expense leverage on higher sales.
Income from operations was $41 $6 million or 13, 8% of sales and the quarter compared to $35 million or 12, 3% of sales and the prior year period.
Income tax expense was $9 $9 million and the quarter compared to $7 million and the prior year period, resulting in an effective income tax rate of 25, 1% and the third quarter.
Net income was $29 $6 million of $1 per diluted share compared to net income of $24 $8 million or <unk> 85 cents per diluted share in the prior year period.
Turning to the balance sheet inventory.
Inventory decreased approximately 9% on a comp store basis compared to last year.
On a consolidated basis inventories decreased 10, 7% to $246 million.
This decrease was primarily driven by the reduction and comp store inventory and a decrease of inventory at our Fontana distribution Center.
As of December 26, 2020, we had a total of $111 $5 million of debt outstanding related to our term loan.
During the third quarter, we reduced our line of credit borrowings by approximately $130 million, resulting in zero drawn on our $165 million line of credit.
We had $76 million and cash on hand at the end of the quarter and our net debt leverage ratio at the end of the quarter was 0.5.
Given the continued lack of visibility into the business as a result of COVID-19. The company is not providing fourth quarter and full year of fiscal 'twenty one guidance at this time.
Now I'd like to turn the call back to James for some closing remarks. Thank.
Thank you Greg.
We are extremely pleased with the results of our third quarter and the underlying improvement and we're seeing across the business. We believe we are well positioned for a solid finish to our fiscal year and are looking forward to continuing to drive same store sales growth with the return of a more normalized macro environment.
I would like to express my personal appreciation to the more than 5000 associates across the country, who continue to show great dedication to both of our boot barn family and our customers and you have delivered an exceptional holiday quarter through a challenging environment.
Now I would like to open up the call to take your questions from earlier.
Thank you and at this time and we'll be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue.
You May press star two if you'd like to remove your question from the queue from participants using speaker equipment and may be necessary to pick up your handset before pressing the star of keys.
One moment, please while the pool for questions.
And our first question is from Matthew Boss with Jpmorgan. Please proceed with your question.
Thanks, and congrats on the business the acceleration guys.
Thanks, Matt.
Jim on the sequential improvement across your three regions and any key lead indicators that you are focused on and the oil and gas markets and how best to think about competitive market share opportunity and your more mature markets given I know that the backdrop is very fragmented.
Sure well.
Each of the three regions have improved sequentially quite nicely between Q2 and Q3 and then when we got into the January it's just been fantastic business across the country.
The the west has always been and.
The lead since Covid began a year ago or so.
And the South which does have Texas and eight.
And had some connectivity to the oil markets.
And has started to.
He started to get sequentially, better and the third quarter and and turned positive as we got into January.
We're not oil experts by any stretch, but it does seem that there seems to be a bit of a.
The emergence of that industry the price of a barrel of oil is up about $10 versus a few months ago.
Employment and rig count seems to be improving and we can see it on our business and that part of the business is getting a.
A little bit better and and again January which might be obscured a bit by stimulus checks.
Essentially everything was strong.
In terms of share.
And we continue to believe that our number one competitor in each of our markets, where we have stores.
And operator that has one or two stores at the mom and pop and just simply can't.
Put together the assortment that we have the level of inventory that we have they can't compete against the national brands like we have and I think we just continue to take share from the.
Several hundred or more than a thousand single store operators around the country.
So while we.
The other competitors that are maybe secondary to a market or a big competitors online et cetera, and we do want to.
Combat those guys and and go up against the best.
And frankly for us to be successful going forward, we just need to continue to execute on our current plan and take share from the market.
Great and then maybe just a follow up from the bottom line perspective.
On your comments around continued margin strength and January could you just elaborate on drivers of pricing power that you see from of March merchandise margin perspective, and any impediments to driving similar or greater merchandise margin expansion and the fourth quarter and then Greg is three to four comp the best way to think about the leverage point.
For buying and occupancy within that gross margin.
On the on the first part of on merchandise margin. If you think about the complexion of the business we.
We started the third quarter of inventory was down about 10% the business starting to accelerate as Greg mentioned, we ended the quarter with our inventory down about 9% on a comp store basis.
And our January business was just extremely strong so.
And one of the thing one of the the very few things that erodes merchandise margin is when we try to clear through clearance merchandize and by virtue of the fact that our inventory is lean and our sales of accelerated.
We will continue we believe to see margin expansion for the foreseeable future.
Yeah.
Going forward, if you look multiple quarters going forward, we continue to look at areas within E commerce to get more margin expansion. For example, can we improve the exclusive brand penetration online.
We continue to look for ways to.
Reduced supply chain costs would that be more efficient and our fulfillment center or try to figure out ways to lower shipping costs et cetera, So there's still opportunities for us to file.
Find margin improvements.
In the merchandise margin or operating margin and bolt channels stores and online.
And I.
And I wouldn't necessarily encourage you to the model of 150 basis points for the next several quarters, but it's not like we're out of idea and to find more margin rate.
And then on the leverage question, Matt in terms of the leverage we've typically guided this year, we're not guiding and of course, but we've typically guided roughly a 3.5% same store sales increase to get leverage out of buying and occupancy and.
And this specific quarter.
And we had 20 basis points roughly of deleverage and occupancy and 10 basis points and the buying wine the buy.
And wine was driven by higher and bonus cost.
And we had a really phenomenal quarter and we had to accrue more bonus expense both.
At the buyer of long and.
Pardon me and also within operating expense.
And so we've got 30 basis points of leverage and operating expense and that's also had a headwind from incremental bonus expense.
The 20 basis points of occupancy cost deleverage you know I would attribute.
A portion of that to while we had strong.
Comp growth of four 6%. The total sales grew about six 5% and that 6.5% would've been larger.
And if for example, the national finals of Rodeo of event would've been held in Las Vegas like at historically is and it would've been attended by lots of people and we would have had higher boot sales for example, so.
<unk> went on but it went on and sort of with reduced capacities, we had a smaller groups and so that negatively impacted the top line of bet.
So the.
Hopefully give guidance next year and be able to update anything as it relates to leverage points, but that's just a little bit more color around the deleverage.
Perfect Congrats again and best of luck.
Thanks, Matt and it's Matt.
And our next question is from Max <unk>.
<unk> with Cowen and company. Please proceed with your question.
Great. Thanks, a lot and congratulations on the nice quarter, So first and your boot barn dot com business, how much of the how much of the growth would you attribute to new shoppers and in your stores. Despite the traffic decline or are you seeing and shopper growth there as well and can you just touch on the strategies and to get these new shopper.
For us to become more loyal and productive shoppers for you over the longer term.
Sure on the on the boot barn Dot com, it's hard to give at specific number we believe it's about a third of the growth coming from new customers online.
From the stores perspective.
While transactions on a comp store basis were negative and the third quarter.
We continue to see them improving over the last several non trade at it we can.
We feel pretty confident that we can anchor.
Anchor of that right back to what's going on with Covid and.
And then while we didn't say the specifically when we got into January and clearly transactions on a comp store basis on our proxy for traffic was up and frankly up significantly as a component of the plus 20% comp.
And the store.
On the last piece and we.
We have a very.
Methodical and deliberate.
Spelled out process when someone enters our customer database, our b rewarded loyalty program.
Based on how they've entered either they've entered in store or online.
Based on the product that they purchased or the work of western or just country of wonder west the.
They get a series of emails that are specific for that person or maybe the small segment.
Over the course of a few weeks that really get them introduced to boot barn, and not only highlighting the area that they were first interested in but also giving them of a taste of the rest of the product and.
And the assortment that we carry.
And we believe this is really working for us right at more than.
Half and in fact, you know the vast majority of our.
Sales, particularly in store are connected to a royalty number of be rewarded member and that's part of the the reason why we feel that at the customer continues to be very well the state. They accumulate points at this point then get converted into what at Mt.
Through a modest merchandise discount at.
And then they come back in and and making the purchase and accumulate more points. So that's the program that's been in place for several years now.
But the uptake by the customers and probably one of the things that differentiates us.
From a lot of other retailers that have attempted the same thing.
Got it and that's very helpful. And then on the EBIT margin pre Covid I believe 10 per set was the medium term target that you discussed where do we stand today with the E com being much more profitable than before and how are you thinking of all at the profitability profile of the company could look like over the next few years. Thank you.
Good question Max.
We had signaled at the 10%.
Kind of a near term target and longer term I think we'd we had pointed out companies like ulta that sell both branded and exclusive brands and I believe their profitability profile is.
<unk> 13 of 14% I believe and and we think that that could be.
A reasonable prop.
Proxy for what we might be able to achieve.
Great Best regards.
Thank you. Thank you.
And our next question is from Jonathan Komp with Baird. Please proceed with your question.
Yeah, great. Thank you.
Maybe a bit of a follow up maybe you touched on this a little bit already but if I look back at really dairy and 2026 of your fiscal 2016 and 2017 when the comps were challenged.
Coming out of that period, you had two years of a very outsized earnings growth.
And I'm wondering just directionally as you look forward today, just given some of the puts and takes.
And why that may or may not be kind of a good good framework to judge where you might be able to produce going forward just kind of any high level of comps.
Well I think we are.
And we're positioned well to.
Grow on top of the Covid quarters of course, right and Unfortunately in Q1 last year with top line sales of eroding, so much and stores being closed et cetera.
We will get what we'll look like very outsized earnings growth, we do always want of anchor people back too.
And our long term algorithm, which is calls for 20 per cent EPS growth.
Arithmetically, we will do more than that presumably and our next fiscal year, just considering where we're cycling in the first and second quarter.
Less.
Strength in the earnings line.
I think one of the things we're really encouraged by is the business seems to be weaker.
The recovering and January seems to be very strong.
And many of the things that we thought could provide future growth haven't kicked in yet.
So oil while improving its still a drain on the oil markets are still a bit of a drain on our comp.
Covid is still impacting country music concerts and rodeos.
While we feel good about our inventory, we'd love to get a little bit more product through the supply chain and we haven't yet cycled the shepherds dot com and so that's been a drain on topline. So we think there is plenty of places where we can get.
Ongoing topline growth, which of course, we expect the drop that down to.
And to Bottomline and.
And I'd say the last thing is yes.
Coming out of this and and this is not necessarily the way we want to gain share if I'm honest, but.
We believe we've been able to weather of the pandemic.
Or if not much better than many of the of our competitors that have one or two stores.
So we believe there has been and will continue to be either some shake out or some ongoing weakness from those players and and.
That gives us the opportunity to.
And frankly, just continue a trend that had been going on for several years, which is us taking more share.
So perhaps a long winded answer to your question, but that's the way we're thinking about it.
And maybe just a follow up would you be content and really executing the plan at Baxter at 10% plus the growth.
And I assume kind of on deleveraging the balance sheet going forward or.
Would there be any other alternative investments either the operational internally or our M&A that you would look at.
Just how are you thinking about.
And the strategies going forward.
And thank for the foreseeable future our strategy is going to be.
Relentless focus on execution continuing to do what we're doing open up stores the payback in less than three years, maybe there was some upside to the 10% continue to develop great exclusive brands.
And the March forward with our Omnichannel initiatives.
Work with our segmentation and with marketing and merchandising to bring the boot barn experience of life and drive same store sales.
Yeah.
Perhaps over the next couple of years there'll be.
Some acquisition that comes our way that will take a look at it but.
I would say for the for the foreseeable future.
And we're just going to put our heads down and.
Continuing to execute like we have been.
And we really don't need to do.
And do anything and.
And the outsized way anything more than we've been able to do for the year.
If you can ex out COVID-19 for the last few years for us to continue to drive EPS growth.
So, it's perhaps the boring and not Super Sexy story, but.
Also one with debt we believe has a.
Yeah, no that's good.
Great and prepaid.
Sure. Thanks, guys.
Thanks, John Thanks, John.
And our next question is from Tom and the Kids with Wells Fargo. Please proceed with your question.
Oh, Hey, good afternoon, guys. Thanks for taking my question.
I want to ask about the private brands business.
I think you said that but you know for the full year at should grow something like 200 basis points of penetration, which will get you up into the kind of the the mid twenties I guess.
You know how should we think about that.
On a on a longer term basis, you know are we still thinking of.
200 basis points of penetration of the year.
And there.
Feeling that you've seen for that business.
Any color on the private brands would be it would be helpful.
Sure.
And Youre right and recounting the numbers when we had our call in May.
Of 2020, we actually had expected.
Exclusive brands can be even more challenged and purely based on the fact that out of abundance of caution caution we really held back the supply chain, we deferred orders or canceled orders.
And and then when it at.
It started to appear that COVID-19, while you're at very detrimental to.
At the environment and to the economy and two to the country, but our business started to build back we turned that supply chain back on and so while we thought we'd see zero growth. We've got about two points of penetration growth, which was better than we expected.
As we lay out our fiscal 2022 guidance.
Which I don't intend to do right now I think it's safe to say.
We expect to see and keeping with past year's two or two and a half point of penetration going forward.
We have plenty of opportunities for us to continue to grow.
And that might get us to 25, 6%.
Being mindful of the fact that we continue to want to have at.
A variety of brands for our customers. We have some extremely strong vendor partners that have helped us grow our business and continue to help us grow our business. So.
The ceiling will hit the ceiling at some point.
I don't think we're there yet, but I don't expect boot barn to have 50, and 60% exclusive brands and the foreseeable future.
That's helpful. Thanks, very much and muscle at the rest of the fiscal year.
Thanks, Tom and Tom.
And our next question is from Peter Keith with Piper Sandler. Please proceed with your question.
Everyone at Bobby Free now on for Peter Keith Thanks for taking my question.
Just looking at the January trends why do you think stimulus impact of Brexit reversal and track and counts ranks of with the retail store is accelerating and economy decelerating and are there any indications that retail store comps will remain positive once the stimulus benefits warehouse.
So it's an excellent question.
A portion of it for sure is the shippers dot com business.
Last January.
Was even more highly promotional and we're cycling that so the shoppers that com business.
Is more of a drag on our E commerce business in January than it was and the third quarter boot barn Dot com.
And kind of in line.
With the third quarter.
And in the third quarter I think we called out of 37% growth. So you know were in line with that in January.
I don't I don't have an easy answer as to why we think it's more of being flushed through the stores.
And while in April when stimulus last hit a lot of our stores were closed people werent comfortable being shopping and being outside the whole Covid thing was new and so I think he kind of got the benefit of that because people were at home. They have this money to spend and they wanted to spend at.
And this time around there were more comfortable and Ah.
Store environment, and so they're going to where they prefer to shop.
Thank you.
And I agree with Greg and then the last part of your question is at its very hard to strip out the impact of stimulus payments.
We are yes, and we have to use our intuition to try to understand your estimate what the underlying growth of <unk>.
But if you look at the five months, leading up to January we've seen a steady ramp of sequential improvement.
The tail end of December prior to stimulus was very solid and then we got into January the business just got extremely strong in terms of its duration I think.
And all it tends to be very relatively short lived six weeks maybe.
So I would say over the next couple or three weeks, we'll start to see a slowdown.
Or if not a slowdown less outsized growth I guess is how I would characterize it.
And then just as a reminder, you know and our fiscal fourth quarter. When we get to the tail end of March we will start the cycle very soft numbers because that's when.
The Covid really started to impact our top line kind of mid March of last year.
And it's all very helpful and just maybe separately on the.
The advertising and marketing.
How much was the average of benefit.
Bad debt for a lower AD expenses and calendar 'twenty and 'twenty and you anticipate the.
And if the kind of more of a headwind this year.
At the end market it gets more competitive and the consumer appears to be strengthening.
I think that's a small piece of the pie for US right. There is so much of our marketing.
Is the the dynamic USD two is most prevalent and TV and that's the.
A very small part of our marketing so all of our direct mail.
And we'll be roughly the same cost of last year and yes, we still same catalogs the homes.
Radio I don't think we'll have.
A big change in <unk>.
The P M.
Pay per click is that we've seen we've seen ups and downs I I'm not sure we had a particularly in.
Inexpensive cost per click and the third quarter anyway. So I just don't think that's going to be a big impact as it relates to boot barn.
And I'd be shocked if it's a headwind that will ever be big enough to.
Two were meaningful enough to have the callout to the public markets.
Alright, great. Thanks, a lot guys.
Thanks, Bobby.
And our next question is from Jeanine.
You're at with Jefferies. Please proceed with your question.
Hi, everyone, thanks for that and.
And not to make the momentum at.
I wanted to ask a little bit of about four about the and units per transaction the across the strength is there anything particularly at going on there that you can elaborate on it the merchandising at the towards the end product trended debt, a change and higher compensating the store associates and any additional color and.
Helpful.
Sure. It's a very good question and at once again.
If any of them and listen and kudos to the field team for driving basket size through more units per transaction.
One of the things that happened Ironically is in a COVID-19 environment.
We had to provide stores with.
Sufficient labor to take care of customers and a safe way. So ironically, we wound up perhaps with more hours than we otherwise would have scheduled which could have given the stores and the opportunity to take better care of customers et cetera.
I think we and.
And Mike Love of our head of stores.
The really put a focus on building the basket and calling out growth and ADT and we've got reporting on that but I think at also just becomes part of the mantra.
I think of them really on it so it makes it even.
More.
Compelling.
In the.
One of the things that tends to drive more units per transaction.
And they're not we don't do them that often but we do run clearance sales at a buy one get one off or get one free of buy one get 150 per cent off.
And given the fact that we didn't have that much clearance and December.
And even for the quarter, they were able to grow despite not having net tailwind so.
It's I think I could really attributed to the stores team mostly end.
Certainly the merchandising team.
Yes.
Great buyer of belts and as we're selling more denim, we're selling more belt as the boot business started to improve we started to sell more boot care.
But at the end of the day, it's the the sales associates in the field that were.
And they're really encouraging customers to build the basket and increase our gift, giving and et cetera.
Okay, Great and then you mentioned on the labor and putting more hours and the strength you might have otherwise at the Kobe precautions as we think about maybe some of the the need for some of those precautions wearing off and on the back half of the guarantee you high and setting the success of that and maybe just to keep those hours on or how do you think about flexing store labor and at the.
And no longer need the call the precautions.
Jimmy and it's a great point, and it's probably and on wrestling.
And match between May and Jerome later.
I don't think we will we will over staff the stores once some of these.
Covid requirements.
Unwind at is great and the <unk>.
Stores team did a fantastic job of of again building the basket as Jim described.
We do think the way we've managed the store labor of historically has worked extraordinarily well for us.
I think when we get has held the Q2 call. We said that we were going to invest in marketing and labor. So that we'd be ready if the customer came and that debt paid off but I'm not sure of outside of the holiday period that we need to.
Over staff the stores like we did and holiday when it's just a little bit more difficult to manage the traffic.
Okay, great. Thanks for all of the color and the best of luck.
Thank you Anthony.
And our next question is from Sam Poser with Williams trading. Please proceed with your question.
Thank you so much for taking my question.
First of all I'd like to know.
Given how strong the E commerce business has become.
And especially at.
The boot barn E Commerce business has become.
And what have you learned from that business on.
That's going to help and form.
How you are sort of.
The stores and better engage your customers at store level.
Well.
We're constantly feeding learnings between the two channels.
The boot barn dot com has and assortment that's much broader than what's in the stores. So when we start to see something emerging.
On the online business will funnel that in and.
And you start to.
Bring that part of the assortment into the stores. So it is of good.
Way to get.
Testing on many more styles, even more brands et cetera.
So we will see for example, as we start new businesses off.
Like hiking boots.
We'll start to see what's selling online and you.
And that is a bellwether to determine what to bring into the stores.
Where we should invest and key items.
And really bring the the the best of what we see online to the store channel I must tell you, though we also see things going the opposite direction of how we see things that emerge and the stores that we can make a bigger deal out of and tell the story with online and and we will go the opposite way.
Hey.
As well.
Yeah, and merchandising teams are very well integrated across channels.
And we're speaking towards.
Like being able to identify certain styles and might be and existing style that during the crisis, where more people are shopping online where you said Oh in this particular location or group of stores.
On the customers telling us they want this but we don't have that and the stores and.
And it's more on the basics like to be able to not not the finding new products new ideas and that's one thing.
But more to make sort of your core business more of Fisher through specifically the learnings this year, where there seem to be of shift more towards online and given that.
No.
Hi.
Very strong double digit.
Especially on the per quarter and then.
The economy and the group on Dot Com.
Now there is been place and I'll give you a more immediate example, thats more of a basic merchandise related.
We saw.
Lease up work boots and start to.
Sell in markets that were pull on working on markets and and that's the place where we started to build out the assortment and the store and started to see some some real growth.
And.
I think at the very good question and we absolutely use.
The E Commerce channel.
On a market by market basis to help inform.
And the two identify breaking trends.
And then well thank you and then lastly, you.
You talked about in your press release, and and then your conversation about sales by months of this past quarter and then you also talked about January can you tell us a lot.
Last year on what the comp was brick and mortar and digital by month for January February and March.
We cannot let me give you more of a conceptual sense and we.
We want to be a little bit of hedged here, because we don't want people modeling.
<unk> 20, or a two year stack or whatever but our January of business of the three months.
Last year and Q4, our January business was the strongest.
February was slightly less than January and then March Covid fell off the table. We also had a shift and a rodeo et cetera et cetera, but the.
The upshot of at all is January was the strongest month last year fourth quarter.
And I think it was roughly at plus five.
But again.
And we don't.
And I think you have to take that with the grain of salt and you have the kind of think about the stimulus checks and.
And it would be.
Much too aggressive for us to say, therefore, we expect a 25% two year stacked comp and February that's not what we're expecting March gets once again March gets more complicated because at the beginning of March at very strong and the second part of March fell off the table because the stores were closed and COVID-19 hate et cetera.
Okay. Thank you. Thank you very much continued success.
Thank you Dan.
And our next question is from Palm ridges with Citi. Please proceed with your question.
Hey, guys two questions one on the competitive landscape I'm curious what you're seeing from a promotional perspective are you able to be less promotional and as you have been.
And your competitors have also been less promotional and have you been able to get less promotional and despite the competition being promotional and curious if theres any difference by region there.
And also just curious big picture of how Youre thinking about where to grow your store base and I'm more confident in terms of on your ability to grow that 10% per year and I'm curious if at more of a push or pull kind of system at the same <unk> know, where you want to be and then you pursue that region and.
As opposed to on landlords and reaching out to you and then the testing it to make sense and just how that might have changed as a result of the pandemic.
Sure on the first piece I don't think the promotional posture within our industry has changed all that much and.
And candidly.
Regardless of what happens within the industry.
We like to put our great assortment out there at a very fair price with excellent service and nine stores at a great in store experience and just.
Choose not to.
Run significant promotions discounts sales et cetera, regardless of what kind of.
Our competitors are doing.
Bearing in mind that in.
And most of our markets. Our biggest competitor is one store, we do of one regional chain.
And they are based in Houston at the very formidable competitor.
And we actually of a lot of respect for what they do and they tend not to be very promotional and so yeah.
That's it I think it's just good for the industry.
On the store expansion piece.
Between pushing Paul I would say, it's the it's a push what we look at.
The map of where our current stores are how our field team is organized where we see competitors.
Neither places, where there may not be enough stores or places, where there might be competitors that you know.
And we can take on.
And we then look for real estate.
Given given what's going on and the world of of retail and finding a 10 or 11 or 12000 square foot freestanding retail store has proven to be relatively straightforward.
But we have of strategy as to where we want to go and what the roadmap looks like and and of course, the twist and turns a little bit but fundamentally we want to follow the path that we set out.
Got it. Thank you guys. Good luck.
Thank you thanks Paul.
And at our next question is from Rick Nelson of Stephens. Please proceed with your question.
Okay.
Tim.
Okay.
GAAP between online sales.
And margin at mist.
Stores.
Because the kind of square and we are I don't know where kind of GAAP.
Is there any thing.
Probably at Hibbett.
All right and you.
And our margins from matching those of the stores.
Rick It's Greg and that's of Great question.
We've made really good progress over the probably the last two years and we're probably in the fifth third and maybe the sixth inning in terms of.
Continued opportunity.
The places that are just a little bit harder to get at.
That caused that disconnect of bit is <unk>.
First the exclusive brand penetration is less on loan.
When a customer goes into a store they can they can touch and feel of the exclusive brands and they tend to.
Select our merchandize when given an opportunity to look at the quality and and and the make of the product.
So it's less online and it's that's a harder story to tell on line than it is on the store number one.
Number two if you just think about the components of the P&L.
Outbound shipping on E comm shipping is expensive and.
Most of all of our boots shipped for free and if you spend more than $75. I think you get free shipping so that's expensive of course.
We've done some things to try to reduce that cost whether it's using USPS as an alternative to EPS or whether it's encouraging customers to buy online and pick it up at the store or perhaps even shipping.
Purchases from our stores versus whats Wichita.
Have all helped that freight and will continue to help that outbound freight costs, but those are kind of the two structural things that are just a little bit more difficult to overcome.
Okay and character of current currency.
Greg and.
True.
And could just kind of country.
So much more apparel of your headroom.
Okay.
Hi, Brian.
And you had those kind of from that.
I, just have the opportunity and where apparel merger and incentives.
At birth.
Footwear margins.
Sure well the the.
The second part of your question.
Our footwear margins tend to outpace our apparel margins across virtually the whole store men's or ladies work of our western.
With that said.
The year.
Just country initiative and does absolutely include footwear so.
While we might be selling some more casual apparel more outdoor softgel jackets et cetera.
We're also.
Augmenting the assortment and building inventories and more and more stores for hiking boots, and casual footwear et cetera driver.
The drivers Mark it's at drivers moccasins.
So I think the composition and I doubt, we'll ever try to.
Yes.
Presented separately, but the composition of the just country part of the business.
Between.
Footwear and apparel.
<unk> resemble the whole store.
You know kind of to the one in favor of footwear.
Current thanks for that.
Good luck parents.
And that's very much Rick.
And our next question is from Mitch comments with pivotal research. Please proceed with your question.
Yes, thanks for taking my questions I've got a couple. So first question I was hoping you guys could provide a little more color on the trajectory of yourself region. So it's it's been your worst performing region, but you also mentioned there was the one the improved.
The most sequentially. So if I can if we think of the delta between the south and the overall business I mean, how is the delta gone from like minus 800 basis points of like minus five and now youre like down 100 or can you just give us.
A little color on kind of how that's improved on a relative basis.
Mitch I'm afraid I'm looking at Jim I'm afraid, we can't copy of that I don't have anything out there that the framework that delta is proud of.
So at this point I don't think we're going to.
We do that.
Color.
Okay. Let me, let me ask you about the south of a different way and then I do have another question.
When you think about that business on a go forward basis, given the improvement that you're seeing.
Like one is the easiest comp on the south on our on a relative basis, I mean does that happen.
The first quarter of 'twenty two or.
And I'm, just trying to understand how much easier of those comparisons for the region.
Yeah. So so COVID-19 was an equal opportunity the pressure in terms of the sales and impacted all of our regions and.
And week 50, which is the middle week of March if you will and everybody was down significantly and comp so.
The first full quarter of really tough business will be the Q1 quarter that you called out and.
The COVID-19 negatively impacts impacted west, Texas first from a COVID-19 concern.
But then obviously the follow on was global economy shut down and we saw.
And then and W. Ti and rigs drawing up if you will pulled offline so.
So that's what caused the south to be disproportionately impacted so long story short you nailed it in terms of.
It will be Q1, where the global.
Global see outsized negative business and the south compared kind of.
On the improvement in the north and and the West.
If you recall April and May were difficult months for us and then in June kind of the.
At the Westin and the north improved a bit and the south.
Okay. That's very helpful. And then my last question.
No the absence of rodeos and festivals and concerts as Ben.
And negative for your business I'm, just wondering what visibility do you have in terms of some of those things coming back online and I know Houston has been pushed back from March.
To me and hopefully it happens in May and I guess, maybe start with Houston, So for the fourth quarter Youre going to have zero days of the Houston Rodeo of this year versus eight last year, but then and may hopefully you'll have plenty.
Versus zero I mean could you maybe just address how you think about.
I believe that's the most important rodeo for you guys and I'm, just curious of thoughts material to the fourth quarter and then what visibility if any do you have on some of these things coming back online.
Yeah.
Great question, Mitch I don't think the lack of.
Houston Radio and March this year is going to is going to be that impactful to our business of course, we'd love to have the rodeo held but the reality is as Jim has described.
We're gonna have phenomenal numbers and March because there is some sales happening even if it's not from Houston, where the others still be normal sales as opposed to COVID-19 impacted sales.
In March one.
One thing we got the robot on Houston, where the areas that they've talked about keeping the kid of events.
At the normal timing now that may have changed or may change, but so there may be some Houston radio business in March, but again, it's not going to be meaningful to the quarter and in any way.
And it'll be interesting to see what happens in may when they hold the rodeo.
Given vaccine rollout et cetera, et cetera, if we will have a full fledged radio with the concert at concert and that I mean.
Those are the things that are hard for us from predict I don't think we've seen anybody announcing.
A concert tour of this year yet.
So we'll see does that business typically several million dollars per you guys are.
Moving instead I think in the past is on the year, it's a low single digit piece of our bid on it.
Two of 3% at ebbs and flows on different parts of the year.
I think Greg is right, though we absolutely want for a variety of reasons, we want that business to come back we want those events come back on line et cetera.
The noise of it though I think it's completely subsumed in a much bigger noise of Covid and rapid and Covid numbers. So while we might have a little bit of a pressure point in March and more help in may.
Cycling the numbers that we're cycling.
Yeah, they're just so soft given what happened in the very beginning of Covid debt I think it'll be very hard to understand what's going on with the rodeo piece of it sure alright. Thanks, guys. Good luck.
Okay.
And our question next question is from Jeremy Hamblin from Craig Hallum. Please proceed with your question.
Thanks, and I'll add my congratulations on the business momentum and strong execution.
I wanted to revisit.
And something you had mentioned Greg on the.
And <unk>.
The potential for longer term EBIT margins and.
And the prospects for <unk>.
And not just 10% EBIT margins, but something closer to 13 or 14%.
Could you give us a sense of that extra 300 of 400 basis points.
The drivers are the components of that is that coming from product margins as the coming from SG&A leverage I don't know, how and clearly you've thought about it though and detail of how we get the.
From 10% of 13 to 14.
And just wondering if you could.
Give us a sense for where those drivers are going to come from.
Yes, good question, Jeremy I, Havent put pencil to paper and mapped this out over the next number of years right, but you've touched on the things that that would be important expanding continuing to expand merchandise margins as is.
Something that we want to continue to do whether it's more exclusive brand penetration or better margins on the exclusive brands.
It's.
And the continued philosophy around.
Full price selling less promotions.
We talked about the fact that were and a cleaner inventory position and so maintaining that is important of course, I think getting leverage out of the occupancy line is important.
And we will get some.
We believe for sure and operating expense as we grow the store base. So its all of the things kind of that you talked about.
Okay, and then a follow up on that in terms of thinking about.
You know store counts and so forth and you mentioned this.
Not that long ago, but in terms of thinking about your.
Your opportunity how.
How much do you think it may have expanded given the cash.
And of the current conditions of some of maybe your weakened competitors.
At the mom and pop type stores.
Is it something where maybe its not that youre doubling your store base, but tripling your store base.
Can you give a sense of magnitude on what you think it's evolved too.
Another good question Jeremy.
We are.
Further emboldened by our success of stores opened in Ohio, and Pennsylvania, and and how strong those opened again and kind of in a COVID-19 environment. In addition to that the stores. We've opened in California that we would of thought might cannibalize, an existing store and really had no impact.
And it gives us confidence that the 500 number we put out there is I'm going to use the word conservative we haven't.
We haven't started to update all of our store kind of potential work, we're going to do that of course, but it's a little bit toned probably today to come out and tell you that we think that 500 is really.
600, or something like that just given COVID-19 and what we have in one of those are our customers.
<unk> and the Covid environment, what we have one of those our customer does enjoy shopping at our stores the <unk>.
Penetration.
Of ecommerce to total sales.
Definitely in line with what it was last year and Q3.
And that tells us that our customer wants to shop stores. So we have a lot of confidence and building more stores and I guess I'd say stay tuned in terms of what that opportunity is.
Yeah, no doubt interesting and somewhat unique.
The trends that Youre seeing.
And I wanted to ask you.
And again coming back to you.
Some of your some of the mom and pop type competition.
Have you been approached or are you getting approached with greater frequency now and we're in 2021.
And per.
Perhaps their businesses are recovering to some degree and maybe not but at the same magnitude as yours, but wanted to get a sense for whether or not and some of the mom and pops that might be hurting.
Might not have.
And as much.
On the long term horizon as boot barn and are they approaching you.
About potentially doing deals are you getting increase in inbound calls about potentially acquiring some of these stores and.
And if so how do we think about you know.
Funding on the capital side of the equation. If you have maybe some really good opportunities too.
Consolidate geographies, maybe even geographies that you're not currently in.
Any color you can share on that would be helpful. Thanks, so much.
Jim I'd say theres, probably more inbound calls over the last 90 days and there were pre COVID-19, but it's not it's not game changing numbers and.
And I think we've talked about this before we've acquired at.
We acquired a one store company of couple of years ago, We acquired the two store chain called drive sales that did the volume of say five.
<unk> boot barn stores, but historically, we've tried to buy operators bought at.
A chain of free stores, and four stores and before that we bought 25 store chains and Jim touched on this debt.
There's one regional guy out there thats pretty big and and.
And.
And we respect a lot, but theres not a lot of folks and between them.
Calendars and Ah.
And at four store chain of the three store chain. So I'd say the numbers are up but I wouldn't say they are all of interest to us.
We would kind of the interested more in our sweet three of four store chains.
And then in terms of capital structure et cetera.
And I think I've talked about the fact that.
Our term loan as of $112 million, we got nothing drawn on the ABL and we have $76 million of cash. So I think we've got the wherewithal to probably fund at just about any acquisition that we would have interest and.
And our industry.
Agree. Thanks, so much guys best of luck.
Thank you.
And the next question is from James So of UBS. Please proceed with your question.
Great. Thanks, so much.
And just.
Everybody's watching the pace of vaccine Rollouts.
Does it change your view of how youre thinking about buying inventory for the first quarter of next fiscal year or the second quarter.
Not really.
Right now were chasing product to get back in stock at as quickly as we as we can.
We were last year at this time, we were a little heavy now, we're probably a little way and.
And perhaps we want to get to that just rate positioning and going forward.
We need and we want to have a full assortment of the full size runs for boots, and denim and cowboy hats.
The work and western and et cetera.
And if.
If.
The vaccines and the Covid environment improves greatly will be ready and if it takes longer and we'll just turn of our inventory a little slower we don't really run the risk of bringing me and a whole bunch of inventory.
Have having something turn south on us and then having a bunch of markdowns. So we'll build back up the assortments that we feel on a little late.
We will add to some of the businesses that we're trying to expand some of those are within the country initiative.
And we're certainly looking forward playing.
Which is at much more enjoyable playing offense than playing defense.
And will I think it will be very well positioned going into the new fiscal year with some more work to the over the next couple of months to shore up some.
A few select departments that are still probably a little light.
Yeah.
Got it Okay. That's super helpful and maybe if I could ask one more just a lot of talk over the holiday season about freight cost pressures and port issues. How do you see that impacting the business as we go forward do you think the freight cost pressures will recede a little bit.
At the port issues and back to the business from those get easier.
The time.
Jay It's Greg.
And it's certainly something that is impacting us right. There is.
A bunch of ships.
Out of in the water on outside of long Beach, and Los Angeles ports.
On the dock workers are being affected by Covid are infected by Covid, and therefore harder for them to work.
I think the governor is trying to get them vaccinated quicker, but theres.
And there is a strain certainly and getting those ships on loaded and in our inland and our inventory that we can sell so.
And and to your point on freight costs, we're seeing that as well that debt with the shortage of equipment and again reduced productivity, perhaps of the of the courts that our freight cost and will probably be a pressure point for us over the next I don't know if.
Three months of our six months that I think it will take a bit of time for this to work its way through.
We were able to offset a lot of the free issues that other retailers called out during the holiday quarter. Fortunately so.
And a lot of people called UPN surcharges, and and issues of getting product delivered and we.
Some gratitude go into the supply chain and the folks and Wichita that run the direct to consumer fulfillment.
But we just were able to avoid.
A big uptick in the free charges and most of what happens going forward.
Got it thank you so much.
Thank you and Hugh.
And we have reached the end of the question and answer session and I will now turn the call over to Jim Conroy for closing remarks.
Very good well. Thank you everyone for joining today's call and look forward to speaking with you all on our fourth quarter earnings call take care.
And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.