Q2 2024 Boot Barn Holdings Inc Earnings Call
Good day, everyone and welcome to the boot barn Holdings' second quarter 'twenty 'twenty four earnings call. As a reminder, this call is being recorded now I would like to turn the conference over to your host Mr.
Mark the Dovish senior Vice President of Investor Relations.
Financial planning. Please go ahead.
Thank you good afternoon, everyone. Thank you for joining us today to discuss boot barn.
<unk> second quarter fiscal 2024 earnings results with met today's call are Jim Conroy, President and Chief Executive Officer, and Jim Watkins Chief Financial Officer.
Copy of today's press release, along with supplemental financial presentation is available on the investor.
Okay.
Okay.
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When we after we end this call a recording will be available as a replay for 30 days on the Investor Relations section of the company's website.
I would like to remind you that certain statements. We will make in this presentation are forward looking statements. These forward looking statements.
Judgment and analysis only as of today.
And actual results may differ materially from current expectations based on a number of factors affecting our business Accordingly, you should not place.
These statements for a more thorough discussion of the risks and uncertainties associated with 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 second quarter fiscal 2024 earnings release as well as our filings with the SEC referenced in that disclaimer, we do not undertake any obligation to update or alter.
Forward looking statements, whether as a result of new information future events or otherwise.
I will now turn the call over to Jim Koch, Vice President and Chief Executive Officer, Jim.
Thanks, Mark and good afternoon. Thank you everyone for joining us on this call I will review, our second quarter fiscal 'twenty four results discuss the progress we have made across each of our four strategic initiatives and provide an update on current business.
Following my remarks, Jim Watkins, who will review our financial performance in more detail and then we will open the call up for questions.
We are pleased with our second quarter results, which reflect the continued expansion of the brands national footprint.
During the quarter total sales increased 6.5% driven by the 15, new stores added over the last 12 months, including the 10 stores opened during the second quarter.
New store sales were partially offset by mid single digit decline per.
Percent in consolidated same store sales, which was within our guidance range.
We feel good about this performance considering that the business was cycling a plus 2% comp last year.
The big plus 62% in the prior year period.
Additionally, we achieved 50 basis points merchandise margin expansion during the quarter, driven primarily by more than 600 basis points of growth exclusive brand penetration.
Strength in sales and margin combined with solid expense control.
Drove earnings per diluted share of 90 cents during the quarter, which was at the high end of our earnings range.
Our consistent success is a result of the team's execution of our four strategic initiatives and underscores the future growth potential of the brand.
I'll now spend some time discussing each of our four strategic initiatives.
Let's begin.
Adding our store base.
A key growth engine for boot barn is to build out our store portfolio across the country to solidify our position as the market leader.
With the opening of 10 new units in the second quarter. We have now opened 15, new stores in the last 12 months and 93 stores in the last two years.
We continue to be quite pleased with the success of our store rollout as the group of stores opened over the past few years is projected to payback within 18 months with each individual store expected to pay back in less than three years.
We believe we have the potential for 900 or more stores in the United States, which will provide a significant lever for future growth in sales and earnings.
In addition to opening new stores, we're continuing with our store remodel and relocation program. We evaluate every store in our portfolio on a continual basis looking for opportunities to either secure better real estate or to remodel a store in place.
Given the progress over the past few years, we are encouraged that only about 60 stores remaining to be refreshed or need.
This ongoing focus not only provides the financial payback in many cases, but ensures that our stores are keeping pace with the recent transformation of the boot barn brand.
Moving to our second initiative driving same store sales growth.
Second quarter consolidated same store sales declined four 8% with retail store same store sales declining three 8%.
And E Commerce same store sales declining 11, 7%.
Average store sales remain at elevated but a.
Three year stack and retail store same store sales growth of more than 66%.
Our comp sales were in line with expectations through August but September experienced softer than expected results. The softening trend in same store sales was broad based across across both geographies and merchandize categories, leading us to believe that the change in trajectory was driven by macro pressures and a decline.
And in consumer spending.
The trend in our more functional categories, such as work boots and booties for.
Merchandise that's experienced less of a decline that are more discretionary categories like women's western merchandize.
It is also worth noting that while we have seen a greater decline in our more discretionary businesses. We are cycling a three year comp growth in ladies western boots, and apparel of more than 100%.
Geographically, our Texas business was weaker than chain average with our north and west regions outperforming the chain.
Yeah.
While we believe that the macro pressures are transitory, we are managing our inventory levels markdown planes and expense structure closely to maximize earnings despite pressure in same store sales growth.
In fact, the team has had a very good job of positioning our assortment and inventory levels as we enter the holiday season at the ended the quarter our inventory was down.
Year over year in total and down 14% on a comp store basis.
It is partly due to this rigor and discipline that we're able to expand merchandise margin by 50 basis points in the second quarter, Despite softening sales and moving through additional markdown inventory.
From a marketing perspective, the team is building the brand nationally and fueling the ongoing growth in customer count over.
Over the past few years, we have created several new partnerships with NASCAR teams additional rodeos country music artists and professional athletes.
We have two new collaborations that we're particularly excited about.
First we have entered into a partnership with the Dallas Cowboys as the official sponsor for this NFL season as America's team. We believe the Cowboys organization as a strong partner for us to connect with consumers across the country.
As well as strengthen our position locally in the important Dallas market.
Second boot barn will be the 'twenty 'twenty four headline tour sponsor for Morgan wallet, a country music Megastar that has tremendous appeal to a very broad consumer market.
Morgan has an undeniable connection with his family across the world as evidenced by his recent tour spanning 57 shows across five countries in three countries.
His latest album, one thing at a time cap the Billboard 200 chart for 12 consecutive weeks upon release, which is the most for a country artist in over 30 years and has prior record dangerous. The double album is the longest running Billboard top 10 album in history for any solo artist.
As part of our sponsorship of his one night at a time World Tour, we will have in arena exposure Horvath's marketing product placement opportunities and the chance to use him and our marriage.
We are excited for both of these new partnerships as we expect they will continue to expand the boot barn brand nationally enable us and enable us to reach new customer segments.
Moving to our third initiative strengthening our omni channel leadership.
In the second quarter ecommerce sales, which represent approximately 10% of total revenue declined 11, 7%.
Our main site boot barn dot com posted a modest low single digit sales declines bearing much better than the balance of our ecommerce business is.
It is encouraging that our namesake boot barn site is maintaining its volume and we would like to grow our other sites.
They serve a different strategic purpose and cater to a more price sensitive customer.
The digital team has contributed greatly to the broader business, adding numerous omnichannel capabilities over the past few years.
One significant improvement led by the Omni channel team has the ability to fulfill consumer demand from any store or any distribution facility.
This enables us to fulfill the.
The inefficient labor and shipping everything from a single E Commerce fulfillment center.
It also allows us to move through in store markdowns quicker and with less erosion in price.
Okay.
Now to our fourth strategic initiative exclusive brands.
During the second quarter, our exclusive brands continued to demonstrate strong double digit sales growth with penetration increasing by over 600 basis points to 38, 6%.
This is our fourth consecutive quarter of greater than 500 basis points of year over year growth significantly outstripping. Our historical stated goal of 250 to 300 basis points of growth there.
The product design and development team continues to find opportunities to build market share and our exclusive brand business alone is on track to generate more than $600 million in annual revenue.
Turning to current business.
We have seen the softness in same store sales in September continue into October on a consolidated basis October same store sales declined nine 2% with our retail store same store sales declining eight 2% and our ecommerce business down 16.7%.
Fortunately, we have other growth drivers that continue to perform we expect to build approximately 26 stores in the final two quarters of the year, which will drive topline sales and build our market share.
We also expect to see ongoing expansion in our merchandise margin rate for the balance of the year. Despite a decline in same store sales, which is a testament to nimble execution by the entire merchandising team.
In summary, we believe we have positioned our inventory levels at holiday staffing plans to maximize sales and profitability for the remainder of the quarter and the year.
I'd like to now turn the call over to Jim.
Thank you Jim.
In the second quarter net sales increased 6.5% to $374 million.
Our sales performance benefited from new stores opened during the past 12 months, partially offset by same store sales decline of 4.8% comprised of a decrease in retail stores same store sales of 3.8% and a decrease in e-commerce same store sales of 11.7%.
Gross profit increased 4% to $134 million or 35.8% of sales compared to gross profit of $129 million or 36, 7% of sales in the prior year period.
The 90 basis point decrease in gross profit rate resulted from a 140 basis points of deleverage in buying occupancy and distribution costs.
Partially offset by a 50 basis point increase in merchandise margin rate.
The increase in merchandise margin rate was driven by 35 basis points of product margin expansion, resulting primarily from a 620 basis point increase in exclusive brand penetration and a 15 basis point improvement from lower freight expense as a percentage of sales.
Selling general and administrative expenses for the quarter were $95 million or 25.5% of sales compared to $85 million or 24, 2% of sales in the prior year period.
The increase in SG&A expenses compared to the prior year period was primarily a result of higher store payroll and store related expenses associated with operating an additional 50 stores when compared to the prior year period.
And general and administrative costs in the current year.
Income from operations was $39 million or 10, 3% of sales in the quarter compared to $44 million or 12, 6% of sales in the prior year period.
Net income was $28 million or 90 cents per diluted share compared to $32 million or $1 six per diluted share in the prior year period.
Turning to the balance sheet on a consolidated basis inventory decreased 9% from the prior year period to $586 million, we finished the quarter with $39 million in cash and zero drawn on our $250 million revolving line of credit.
Turning to our outlook for the remainder of fiscal 'twenty four as outlined in our supplemental financial presentation, we are lowering our guidance for both the third quarter and full year.
As the presentation.
High end of our guidance range for both periods I will only speak to the high end of the range in my following remarks.
As we look to the third quarter, we expect total sales to be $535 million.
We expect the same store sales decline of 8.0% with retail stores same store sales declining, 7% and E Commerce same store sales declining 12, 5%.
We expect gross profit to be $204 million or approximately 38, 2% of sales.
Gross profit reflects an estimated 310 basis point increase in merchandise margin, including a 260 basis point improvement in freight expense year over year, and a 50 basis point improvement in product margin.
We anticipate a 150 basis points of deleverage in buying occupancy and distribution center costs.
Our income from operations is expected to be $75 million or 14% of sales.
We expect earnings per diluted share to be $1 79.
As a result of our year to date performance and our updated estimates for the rest of the year, we are lowering our full year guidance for the full fiscal year. We now expect total sales to be $1.70 billion.
<unk> growth of 2.7% over fiscal 'twenty, three which as a reminder, with 53 week year.
This compares to our previous guidance of $1.75 billion.
We expect same store sales declined 5% with a retail store same store sales decline of 4% and an e-commerce same store sales decline of 11%.
This update compares to our previous guidance of the same store sales decline of 3%.
We now expect gross profit to be $631 million or approximately 37, 1% of sales.
Gross profit reflects an estimated 190 basis point increase in merchandise margin, including a 130 basis point improvement from freight expense and a 60 basis point improvement from product margin.
We anticipate a 170 basis points of deleverage in buying occupancy and distribution center costs.
Our income from operations is expected to be $210 million or 12, 3% of sales.
We expect the net income for fiscal 'twenty, four to be $153 million and earnings per diluted share to be $5.
We also expect our interest expense to be $2.4 million and capital expenditures to be $105 million.
Now I would like to turn the call back to Jim for some closing remarks.
Thank you Jim.
We are pleased with our financial performance during the second quarter and are looking forward to the balance of the year.
And you want to thank the entire boot barn team across the country for their hard work and briefly acknowledge some well deserved third party recognition.
Last month boot barn was recognized by Fortune magazine as one of the top 100 global companies evaluated by three year growth in sales earnings and shareholder returns. It was humbling to be included on a list that includes the fastest growing businesses across all sectors not just retailing. It was a great demonstration of strong teamwork.
And solid execution and congratulations to the entire boot barn family.
Now I would like to open the call to take your questions <unk>.
Thank you.
Now be conducting a question and answer session.
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As a reminder, please restrict yourself to one question and one follow one moment. Please while we poll for questions.
The first question comes from the line of Matthew Boss with JP Morgan. Please go ahead.
Great. Thanks.
So Jim maybe could you help elaborate on the monthly volatility and trends that youre seeing maybe if we looked at it by category or by region and I know you cited the macro what factors from the macro backdrop do you believe have worsened for your core consumer and lastly, just as you think.
The back half of the year.
Maybe how did you dissect or what's your comfort today on the negative high single digit comp guide as we think about the back half.
I can start and maybe Jim Watkins will will contribute to the tail end of your question.
On a monthly basis.
We had a very strong July or August business was sort of right in line with our expectations and then we started to see a slowing in September.
And there is two different things that happened number one it was broad based so essentially every category saw a step down the step down though was more.
Market and more significant and ladies western boots, and ladies western apparel, which we tend to believe are more discretionary spending businesses than the more functional businesses.
And we've seen that same dynamic roll forward into October.
So I think when we look at.
All the news out there about inflation a pullback in consumer spending.
Potentially the repayment of college loans geopolitical risk and tensions across the world.
There does feel like a bit of a pullback in consumer spending across the board and it makes sense that we would see that more in the discretionary businesses versus our more functional businesses.
And in terms of the outlook for the balance of the year.
I'll, let Jim complete the the response.
Yeah. So so similar to how we guided last quarter and in fact that a quarter before and we looked at the most recent business and.
Yeah for this period, we looked at the last four to six weeks of sales volume and projected those sales for the balance of the year using our historical weekly sales curves and that.
<unk> contributed to the guidance that we've got for the second half of the year, which.
No question in Q3 to a minus aimed at the high end of the range consolidated.
And then for the full year of minus five and tightened range consolidated from the same store sales perspective.
As far as our comfort level.
If we go back three months and the guide that we provided in July using a similar methodology, where we had guided August to be minus four in the stores in September to be minus four it played out pretty nicely as we got through August we were minus three seven in September as Jim mentioned the.
Sales trend softened and we were below that and so.
We feel good using.
Which was our probably our toughest month of the year and projecting that forward if things soften further from here then that's not reflected in the high end of the range. It is reflected in the low end of the range and if things improve then.
Yeah, obviously, we'd be above that.
Great and then maybe as a follow up.
In light of the of the softening how are you proactively managing inventories today are there any areas of markdown exposure across the across the categories in the back half and could you just maybe break down the updated gross margin outlook as we think about the drivers both back half in and runway.
Remaining beyond this year.
Sure maybe we'll tag team this as well on that on the first piece on the merchandize margin part of it.
But we've been I think very.
Vigilant about continuing to work through.
Slower moving inventory in the categories that aren't performing as well and most of our fashion risk as in.
Ladies western boots, and ladies western apparel and those businesses are down the most.
As we called out our inventory comp store basis is down 14% and our inventory in those categories. Those categories that you might otherwise think are riskier we've.
We've actually managed the inventory down more than we managed the chain wide inventory down so we feel like we've been.
On top of markdowns and the.
Margin erosion that we would expect from that is already embedded in the quarter.
And when you think about a slowing same store sales line and an increase in markdowns.
We're pretty proud of the fact that we're still able to grow merchandise margin in the quarter in.
In terms of the outlook on gross profit for the balance of the year I'll, let Jim Watkins take that one.
Yes, so for the full year, and we're planning 190 basis points of merch margin expansion, which includes 130 basis points of freight improvement, which is up from the 100 basis points we saw.
We had previously guided and.
We continue to expect 60 basis points of product margin improvement and that's really the product margin improvement coming.
Primarily from the increase in exclusive brand penetration of 500 basis points.
And in Q3 is going to drive more of that or expecting it to drive more of the freight improvement in the margin rate and as we get into next year, it's still a little bit early to call that but as we're thinking about our inventory planning and the makeup of it we can.
And you'd to expect said drive exclusive brand penetration growth as we go into next year, we're not expecting that to be 500 basis point, it probably looks something more.
Like what we've historically guided you know maybe it's 200 basis points as we get into next year, what we'll do we'll update you in a few months and then well.
We're continuing to work with our vendors and really refocus on getting volume discounts and in improving our I am you as we've we've doubled the size of the business over the last few years.
Continuing to get some merchandise margin growth.
On top of what we would see from exclusive brands.
That's great color best of luck.
Thanks, Matt.
Thank you next question comes from the line of Stephens at Coney with Citi. Please go ahead.
Great. Thank you very much for taking my question.
I wanted to dig into the softness that you've seen in the past couple of months can you just talk about what you've seen from customer behavior has it been weaker traffic trends or has bank alright conversion had been more of the issue and if you think about pricing going forward. You know the category has taken a good amount of price you see less opportunity.
To take price up going forward.
Sure on the.
On the same store sales.
Sure.
From a stores perspective.
Essentially all of the decline in same store sales is an erosion in average transactions per store.
We don't have traffic counters I can't tell you if that fewer people coming in the store or a fewer of them converting my intuition tells you tells me that it's just.
Lighter foot traffic into the store.
When we look at our customer database, we're still seeing.
He sent repeat customer frequency bolt for legacy customers and for newly added customers.
Just think in total they're shopping a little bit less frequently.
Which is why our transactions were down helped a little bit by a our basket size.
<unk>.
Modestly in the quarter.
In terms of pricing opportunities.
And I think pricing going forward will be either neutral.
There may be opportunities as we've been in an inflationary environment for a while.
Where if we start seeing any input costs.
Come down or if we are able to negotiate a better discounts from vendors.
On costs will likely pass that through to the consumer.
Lower retail prices.
Maintaining our merchandize margin rate so.
So I don't think there is price inflation going forward I don't think there are significant price inflation going forward, nor do I expect to see opportunities to grow our same store sales from that going forward.
Right.
We do want to uphold sort of our position in the market.
Essentially an everyday low price provider of high quality product good value.
Okay. Thanks for that just a brief follow up then I mean weather has been choppy you know one of your farm and ranch competitors talked about choppy weather, especially in textile Homer So have you seen anything as well.
Whether it's changed.
So the weather in Texas.
If you were to play out over the summer.
And we tend to not refer back to weather as a hazard.
Or excuse for a big reason for changes in our business, our Texas business was was pretty soft for the quarter like minus 10 ish and if the weather was slightly better or.
We still have been significantly depressed so I think it would've been specious thinking presser blame it all on weather.
That said <unk>.
It's cooled off and it's only been in the last few days, our Texas business has seen a nice improvement.
It's less than a week's worth of time, I, certainly don't want to extrapolate that for the balance of the quarter, but at least in this very short window. There does seem to be some reaction to a more.
Traditional fall like temperatures going across Texas.
Okay very helpful. Thanks, guys.
Okay.
Thank you next.
Next question comes from the line of Max <unk> with TD Cowen. Please go ahead.
Great. Thanks, a lot guys. So first can you remind us how much of your business you view to be discretionary and then how are you thinking about that part of the portfolio could trend.
The consumer backdrop softened versus the more functional part.
Sure.
I wouldn't say discretionary businesses are between 20 and 25% of total sales at ladies ladies apparel are each roughly 10% of sales.
Not all of that is discretionary, but that's sort of how we.
We think about it.
And the balance of our business.
Work boots, and work apparel men's western boots and men's western apparel.
Tend to be just much more functional in nature and while many of those categories are also down they tend to fluctuate much less.
Much less variability then the yeah the.
The more fashionable categories of ladies boots and apparel.
Great. Thanks, a lot Glenn can you just remind us how you're comparing some blood.
Last year, just five months and then.
Some are very heavy sale days last December right around the holiday periods. So you guys any changes in how youre looking at those days Dodge maybe make up for us on the call.
Yeah.
Sure from it from a stores basis.
As we look at last year, we were plus one and a half to chew in October and November.
And then we got into December we were about a negative three from a stores perspective.
As a reminder, and as five minutes after I say, we don't use weather as an excuse.
[laughter].
The last three or four days, leading into Christmas day last year.
There was a pretty pronounced snow storm than we did at some point.
Talk about about a 4 million dollar sales erosion.
In December due to that so.
If you think about where we're running now and what our guide is part of the bridge is that $4 million, which on the balance of the quarter is about a point a little bit more than a point of comp.
And Max we've got on slide 10.
At the same store sales by month laid out too that's easier to reference.
Okay.
Great. Thanks, a lot.
Thanks, Matt.
Thank you next question comes from the line of Jason Haas with Bank.
America. Please go ahead.
Hey, good afternoon. Thanks for taking my questions I'm curious Jim Carrey, what gives you confidence that this slowdown is a macro issue and it's not that sales per store are starting to revert back to pre pandemic levels.
Well the sales per store.
We've grown them from roughly $2.7 million to about four and a half million.
And our comp is down.
3%.
Three 8% in the quarter in a bit more than that towards the end of the quarter.
So we would have to give up.
Much more of that to get back to the $2 7 million right. He is asking about 30 or 40% of yourselves to get back to that number.
And I think when you look just across retail and what other people are reporting.
There's been a pretty pronounced and it being pretty.
Widespread call out of a pullback from consumer spending from.
Target to tractor to floor and decor.
Go through the growth retailers in.
Yeah, they're all sort of saying the same thing.
Got it that that certainly makes sense and then I was curious about the non boot barn, I believe that the <unk> e-commerce.
Business I think there was an expectation that we would start to lap some of those declines, but it sounds like it.
Continuing to be soft there. So I'm just curious what's what's changed there and yeah why hasn't that business starting to.
It showed some signs of improvement.
So that's a good question and candidly that surprised us a little bit.
We didn't expect as we cycled softer business that we'll see some relief there.
One of the.
One of the unique.
Aspects of that business is.
As.
Different than boot barn, dotcom more of the shufflers dotcom traffic is driven by paid search.
And what we have found it.
<unk> has become relatively more expensive for rice or perhaps relatively less effective.
And we just manage that part of our business almost algorithmically, where we spend.
To drive traffic with a certain return on ad spend.
Hurdle to me and if we fall below that hurdle, we pull back on the spend so.
That's been the biggest I think surprise and theres been a number of changes in Google and how they manage.
Their AD words, and the shift towards shopping et cetera, but when we put all of that together.
And we've just made a decision denied overspend to get that business back.
But again in the spirit of full transparency, we did expect that business to be a bit better than it has been.
If we had our druthers, we'd certainly prefer to have softness outside of boot barn, dotcom. So thats, Fortunately, where it is but we do hope that we can get that business back to if not growth at least less of a drag on same store sales.
Got it that's helpful. Thank you.
Yeah.
Thanks, Jason. Thank you next question comes from the line of Janine Stichter with BP <unk>. Please go ahead.
Hi, everyone.
Wondering if you could walk us through some of the changes in the start paybacks are still super shot, but did notice that there's a slightly higher and investment embedded in your expectation for new store build out and it looks like a slightly lower sales per store just walk us through how you're thinking about the cost of any store in the paybacks and what's changed thank you.
Sure well the big change since we first went public as it is quite positive and we used to.
Model, a three year payback and at 1.7 million dollar first yourselves and we're essentially doubled that now and paying back in a year and a half. So it's been it's been quite good.
And much better than we ever anticipated when we laid out our original earnings algorithm.
Over the last couple of years as we were Comping up so strongly in the the tone of the business was extremely positive that probably flowed over to new stores as well.
And I think we've given back a little bit of that layer at the top but still at a $3 3 million dollar first year sales.
66%.
Return on invested capital, it's just a phenomenal use of our capital and we're pretty excited about our ability to continue to to blanket the United States in <unk>.
15% new units going forward for the foreseeable future.
Great and then just any anything you're seeing in terms of and new markets that you've already started than any difference is there between that the broader fleet.
Nothing significant on a market by market basis.
We're quite pleased that essentially all of our new stores are performing extremely well.
I think in the script, we talked about.
Every new store is has either achieved at least a three year payback or is projected to hit a three year payback and as a basket of stores. The payback is 18 months.
So as we think about our continued growth in sales.
The B <unk>.
Two stores this year.
<unk>.
Call. It 50, plus stores next year, we will give you a specific number when we guide.
That will contribute.
Several hundred million dollars over the next couple of years and it's just it's it's a very low beta.
And high payback investment for us So we're going to continue to build the business.
We think we can add 600 more stores.
And.
We feel great about the team that's doing that.
Great. Thanks, so much.
Thank you.
Question comes from the line of Dylan Carden William.
William Blair. Please go ahead.
Okay. Thanks.
I'm trying to sort of think through.
I take the point I think you're right that there are.
Some broad based sort of macro headwinds from a discretionary spend standpoint, but your business has historically been viewed as.
Somewhat above that and if you look at some of your bigger end markets construction oil and gas now you're you're seeing general stability, if not strong wage growth there.
How how do you kind of square that and you're thinking about sort of what's happening right now.
I think our business has puts and takes across the board like any good portfolio and we have some solid businesses. Our work boots business was down slightly so kind of much more stable than.
Sure.
More fashionable ladies' western apparel business.
So I think we do have a bit of a <unk>.
Risk.
Spread across businesses and I think the second piece is as you well know right I mean, our business has grown.
So much and frankly, so much more than essentially every other retailer that as we go up against the comparisons were up against.
Solid.
Part of our business, we're Comping 60, 70% two or three year comp numbers. So if we give back 3% of that I view that as a <unk>.
Success, if I'm honest.
I think most people have expected us to give back all of it.
And it doesn't appear that that's happening.
Got it and then on the 600 or just a continued sort of monster growth.
Your own brands is part of that a function of the decline in other parts of the business and is there then.
The risk that you kind of give some of that back.
Broader box.
Covers.
No I wouldn't view it that way I think I think.
We've expanded legacy brands and we've added some new brands at least over the last year or two and that has given us some nice growth.
There was a time, where we had some of our third party brands.
Struggling to keep up with our sales growth and the math then worked against them and their penetration came down.
Most of our big brains now, we're past that and have the ability to ship us.
So I think now we sort of have a a fair.
Horse race between.
Brands that we've developed and Brent and the third party brands.
So I don't think we expect to see.
A slowdown in exclusive brands based on that I do think though as <unk> called out.
With 500 or 600 basis points of growth over the last four quarters.
And I'm not sure that's sustainable it sort of never really playing that way. It's just that the businesses have done so well and the brand launches have gone so well that we've outperformed our expectations.
But R R.
Anyway, it doesn't need to have five points of increase penetration, we would do just fine with half of that.
So I think your your sort of composition.
Concern or percent of total concern would play out.
But I do expect that 500 or 600 basis points. This quarter was 620 I don't expect that's going to continue forever going forward.
Got it thanks a lot.
Sure.
Thank you next question comes from the line of Jonathan Komp with Baird. Please go ahead.
Yeah, Hi, good afternoon. Thank you.
I wanted to follow up on the merchandize margin Youre doing a excellent job of holding and growing that.
I wanted to just ask are you seeing any incremental disk.
Discounting and competitive pressure that you would need to respond to.
Just trying to think through any levers you may have to pull if you choose to or not and maybe separate up discounting what are some of the ways. You could you could move the needle that offset the trend you're seeing.
So there's as you know we compete typically against a single store operators Theres, one regional competitor and that's about a fourth of our size.
We don't really follow their promotional calendar, we don't really respond to other people in the industry doing running sales or discounting.
If I, if I wanted to or we wanted to drive.
Same store sales sure, we could discount and advertise more but.
We make less money and then have to cycle that next year and wind up.
Down a.
Sort of vicious cycle.
Essentially every other retailer has found themselves and so we don't intend to do that just to drive same store sales. It we're really happy that sales grew six 5% in the quarter.
And to try to artificially boost comps, we just don't have that in our DNA.
We are trying to do other things, though like.
How do we make the most of the traffic that we do have coming into the stores how do we.
<unk> build the size of the basket. The field team is doing a really nice job of trying to increase units per transaction.
Try to incent them in different ways to do more of that.
We are trying to sort of build the basket as much as we possibly can we're also doing a number of things on an <unk> from an ecommerce perspective.
Resorting the site re merchandising a trying to.
Really showcase best selling items more prominently.
It continually.
Continually tweaking.
Adding in media mix. So we're doing everything we can to try to get as much same store sales in a healthy way and.
That we can.
But we also are managing the downside, which is why I think we feel pretty good about the fact that we've gotten our inventory into a position that.
If the same store sales trend turns around I think we'll be fine and can maximize our business and if it doesn't.
Okay.
Any significant merchandise margin erosion.
As Jim called out for the quarter, we expect to see merchandize margin accretion in the third quarter and for the balance of the year.
Yeah, that's really encouraging to hear and just one other follow up on the new unit growth Jim I think you had mentioned.
50, Boston the right way to think about next year again without committing today, but maybe to ask differently what would have to change or are there any scenarios, where you would slow unit growth. If the the macro piece became even more impactful or just trying to think about how you are.
I'll set you are on units or not and how you would be about.
I think retailers tend to slow their new unit growth, if one or two thing one of two different things happen.
One is new stores are cannibalizing existing stores more than they expected or two they feel like their underlying model is broken or they can't execute anymore and I don't think either of those are true with us.
So.
For when we look at our business and we look at.
Very laser focused on same store sales line.
We can look at a quarter or a month, we're down or we could look at it a multi year period and say we're up massively.
We also don't see any outsized cannibalization and we don't see any significant changes in competition. So.
At this point I see no reason to certainly no reason to slow down our new store growth.
Yeah, many would argue that we could if.
If we can do more we should because the payback is so strong but right now we feel good about the 15% planned for this year.
Likely roughly 50% for our next fiscal year.
I would just add John that with a really strong balance sheet no debt every pump store in the chain is.
Contributing positive EBITDA.
We're in a really nice situation, particularly compared to.
Eight years ago, when that wasn't the case and maybe we didn't have to slow down a little bit for chose to slow down.
Thanks.
Got it.
Thanks Shannon.
Thank you next question comes from the line of Corey Kudlow with Jefferies. Please go ahead.
Hi, good afternoon.
So I just wanted to ask about marketing so.
And correct me, if I'm wrong, but I think I think this is.
The first time that boot barn has been the.
Sponsor for an NFL team.
<unk>.
And with sales continuing to grow obviously that your marketing machine with.
I believe the marketing relatively consistent and at a mid single digit percentage of sales.
So curious as sales have continued to grow the marketing budget seemingly has grown as well.
And which is unlock the opportunity too.
And partnerships like.
With the Dallas Cowboys or in 2024 headline tour sponsor for Morgan wallet. So just curious how you think about the opportunity in <unk>.
Scale boot barns marketing budget as sales have continued to grow and what that means from a brand awareness.
Sales perspective.
Alright, Thats a great question Bert very strategic question.
And you're right right of our total revenue in the last three years has essentially doubled and our marketing is our rate of sale is roughly exactly the same as it was three years ago. So our marketing dollars have essentially doubled as well and that does give us the ability to just.
Continue to beat the drum of National brand largest player in the industry leading market leader.
And.
And there is overused term, but there is that virtuous cycle of.
Reaching out getting more consumers.
The reach of the brand outside of sort of vote.
Sure Western customer.
Maybe we should've gone after the Cowboys specifically.
It is little bit narrow minded, but as we go to sort of professional athletes.
Or country music stars that have a broader reach than sort of our core legacy customer.
Okay.
You know with with twice as much marketing dollars spend we have a competitive advantage that nobody else in the industry has to sort of play you sort of at the major leagues and we're going to continue to do that and.
That will build the brand that will build brand awareness.
We hope that will be.
A national phenomenon.
Choruses opportunistic that it's also in Dallas, specifically, which is in our top three markets in the country. So it's a it's a very insightful callout to recognize that our our marketing has continued to evolve.
As we'd be gone from a a small regional player 10 years ago to a pretty big National player today, and I would expect more of that as we go forward.
Great. That's very helpful. And then I just had a longer term.
Strategic or structural question around merchandize margin.
So clearly exclusive brand penetration has continued to grow.
And.
It seems as if they are still pretty substantial opportunity for merchandise margins.
And freight it seemed like was also.
A slight benefit as well in the quarter. So just curious given the momentum that you've seen within that component of the gross margin how high do you think or what do you think the opportunity could be longer term.
For merchandise margin and gross margin over time.
Yeah, I'll take that Corey.
You're right we've seen some some nice benefit whether that's from exclusive brand penetration growth and also better.
I am Yu from our third party vendors.
Yes, really great partners, who have helped us.
Yeah, as we've grown in size and we've been able to get better volume discounts in purchasing or container loads that at times has been helpful. In and that will continue to be a driver as we head into the long term.
As far as rates concerned I think as we get through this year, we will have recouped some of the headwinds that.
We've seen over the last couple of years.
But we're continuing to look at freight rates with.
Our vendors and how we can get those down.
We're pretty optimistic of what that means going forward and then as we get returned to.
Comp growth and we're able to leverage some more of the buying occupancy and distribution center costs, that's something that.
We will continue to we expect to continue to drive our gross margin rate.
Back up about 38% this year at the high end of the range or we're guiding that at $37. One. So we feel like there are plenty of drivers ahead and I would just also throw in.
As it relates to SG&A expense and as we look at some of the service providers, we have there and we get through some of these inflationary costs that we've been.
Fighting the last few years, we think theres opportunity.
<unk> focus in and bring some of those costs down as we move into long long term. So all those things obviously, helping to drive EBIT EBIT margin backup.
Great. That's very helpful. Thank you so much and best of luck.
Thank you.
Thank you next question comes from the line of Jay sole with UBS. Please go ahead.
Great great. Thank you so much Jim I, just wanted to follow up on some of the marketing discussion.
With someone like Margaritaville and can you just talk about what you know a little bit more about what you want them to accomplish for the company a European firm to raise awareness of the boot barn brand are you looking maybe to elevate the boot barn brand or maybe promote some some of the private.
The owned brands that the company has goodwill of before about what what specifically he.
How he can help the company and sort of what the Kpis are that you're using to measure the return on that investment.
Sure.
It's a great question I think it's brand awareness and he is he is just an absolute.
Mega Star in our industry.
He also uniquely has a younger.
Fan base younger follower.
So if you look at the demographics of the boot barn customer the implied objectives. We've had for the last several years is to ensure that our customer doesn't age out and we've made some progress on lowering our average age and I think he will help us continue to do that.
We do have the ability to use him.
And we.
We very much view it as a partnership and he's got some great.
It is as well so we've we've already contemplated using them as a spokesperson for spokes first amendment may be.
<unk> trade of a way to describe it but someone to to really get behind one of our existing exclusive brands.
Or just boot barn in general or potentially do a line specifically with him. So all of those things are on the table right now the.
Actual agreement.
He focuses on his tour at the moment.
But we do have the ability to do use him and his likeness and image.
Much of our marketing and social media.
When he is out and performing well.
We will be well have a lot of pregnant.
Prominence in arena is on his tour buses et cetera. So I think it's a number of those things, but the biggest strategic purposes too.
Bring in more customers that age younger.
And he's got a very strong following on the female side, so that might help kind of get that business sort of back on more solid ground.
Yeah.
Got it thank you so much.
Of course.
Thank you next.
Next question comes from the line of Sam Poser.
William trading. Please go ahead.
Okay.
Good afternoon, and thank you for taking my question I've got for I'm going to read through them one outside of work.
What other categories outperformed in the quarter.
Two have you seen any <unk>.
Benefit from store traffic or anything from the Cowboys three.
What are you doing to I understand the macro but what's being done to you know actively drive traffic to the stores and conversion.
How are you.
Using your omnichannel activities or whatever to bring more people to the stores hopefully get them to buy something.
And then there had been a big differential between with the exclusive brands between the online in store performance and I sort of Wonder how you know how.
That gap is that cabot's closing and what that variance is thanks.
Okay on the first part of your question outside of work, what's outperforming it does fall somewhat tightly into the functional business of work boots and men's western boots and men's western apparel are doing better than later.
Ladies western boots, and ladies western apparel.
So that the notion of our functional business is less volatile is playing out just as you might expect.
In terms of store traffic from the Cowboys, it's a little bit early to see if we've had specific change in store traffic.
So I don't have a great answer for you on that one what's being done to drive traffic to the stores.
We've got a pretty good.
Playbook for driving traffic right I mean, we've we our business is twice what it was three years ago. So it's not a lack of ability to add customers, who drive them into the store.
We are making some changes or some modifications kind of on the fringe.
So we are marketing.
As I mentioned earlier, we have no intention of doing.
Coming more promotional or more sales driven or more markdown focused.
But there are times when we've made a decision to have the marketing feel a little bit more commercial and a little bit less pure branding or brand aesthetic.
I mentioned earlier on this call we've got the field really focused on.
How do we build the basket once somebody comes into the store.
We are we are constantly trying to build an omnichannel customer from a digital customer so youre your question.
Your question alluded to what are we doing with their digital customer and how do we build them into a bigger boot barn customer.
Well, if that digital customers near a store and we know that we.
We market to them differently than if they are a digital customer has shopped on boot barn dot com, but isn't within a radius of drive time to a store.
And then in terms of the exclusive brand penetration between stores and online.
Yes.
In total we're approaching 3% stores are a little bit higher than that and our ecommerce business is roughly 30%.
A little bit north of 30% so that gap has changed substantially.
And what drove that most leaves our ability to ship our exclusive brands out of our stores.
Two our digital customers.
So while our E Commerce E Commerce site.
Sales.
On a same store sales basis are down a bit.
Our margin rate is being helped by the exclusive brand penetration going up.
Thank you.
Hope that helps.
Okay.
Okay.
Okay.
Yes.
Okay. Thanks, Sam Thank you Sam.
Thank you next question comes from the line of Jeremy Hamblin with Craig Hallum. Please go ahead.
Thanks, and first I wanted to start with I'm, just returning to the gross margin visibility.
So.
It's pretty impressive given where the.
Comp trends are.
Your expectations here on gross margins both in the December quarter, but also for the year.
In terms of getting back to what you might feel like it's the baseline can you give us a sense for.
Either kind of comps you need to produce.
To get back to let's say, the 38% plus for the full fiscal fiscal year.
Or maybe another way to think about it might be just like an <unk> level that you.
Thank you need to achieve.
Given the build out costs you've had.
On the real estate side.
Yeah sure. So I guess, just kind of level setting and you know this is jeremy but for sure.
For everyone else I guess, the if you go back to fiscal 'twenty. Our gross profit rate was was 32, 7% and were able to grow that up to a peak of about 38% and two years later.
And that was up from fiscal 18 was 30%. So we feel really good about the 37, 1% that we're marching towards this fiscal year.
And I think that will continue to tune to find that opportunity as I mentioned earlier to March towards 38% as far as drivers in getting there I think with the new stores that we've opened over the last two years and the stores will continue to open and as those.
And March towards maturity.
Average unit volume of those stores right, that's going to help drive some profitability and leveraging the occupancy cost of those stores.
Got the new Kansas City distribution center that was.
We've brought online there's some duplicative costs add this year between the legacy distribution center and the new one that will will go away and we'll get more efficient in those those.
<unk>.
And then continuing to drive just the merchandize margin rate from from a product margin of the things we've talked about so I think we're we're not far away from the 38%.
We're thrilled with the growth that we've seen in over a few short years.
And that it's sustainable particularly in this.
Environment, one where.
Little bit of a growth on the on the full year.
And as we return back to a regular growth opportunity that provides us.
Okay.
Great and then a follow up here in terms of thinking about you know how.
The macro could play out that's out of your control, we've got low unemployment rates, if that were to track back up to.
<unk>, 6%.
And we ended up in a recessionary environment consumer discretionary spend.
Clothes further what type of ability do you think you have.
To reduce SG&A spend overall, and then kind of connected to this question is.
How would you think about potentially changing if at all the unit growth.
Plan of kind of this mid.
Mid teens level that you guys have been delivering on.
Yes, I think it started I think Jim kind of alluded to the answer on the unit growth question earlier. The fact that we've got such a strong financial position. These stores payback in a year and a half.
You've had those stores were to slip and payback in two years or even three years, which is the model. We had when we went public we would continue to expect to open those those new stores at that rate.
It's hard for us I guess to imagine a scenario, where we would slow that to any significant degree as far as reducing SG&A spend you know about roughly half of our spend is variable in nature and so as the sales come down we're able to reduce.
Labor in the stores and in some of the storm related costs.
Overtime, and the fixed level of expenses and it gets a little bit tougher, but one of the things that we've really been focused on over the last few months and as we look forward is.
The last three years, we've just seen this.
Growth and we've been very focused on meeting the needs of those customers and keeping pace with that with the business and we've seen that in the growth of the earnings.
Up and down the P&L and the improvement of the balance sheet. However, we haven't been able to focus as much on.
Driving those expenses down and so we've we've hired up in our procurement department.
Looking everywhere.
You know in all departments and are starting in earnest really over the last few months to start to drive to get those SG&A expenses down as tight as we can and so that's something we're looking forward to regardless of what happens with the overall macro the you'll start to see some benefit from.
Great. Thanks for taking the questions that's wishes.
Thanks, Jeremy Thanks, Jeremy.
Thank you next question comes from the line of Mitch commit but seaport such please go ahead.
Yes. Thanks for taking my questions can you give us the QQ com for ladies boots, and ladies apparel and then could you also tell us how those.
No.
Were in the quarter on a three year.
Yeah.
Yeah.
Mm three there were approximately 100%.
And on the quarter will look it up and they were like minus 15 or something.
Give you a real number.
Yeah in Q2.
Yeah.
I think where you're really asking is how did the businesses evolved throughout the quarter. So.
In the quarter, specifically that keep in mind the quarter the business didn't change all that much from the first quarter to the second quarter. It just all happened in September and October so for the quarter, ladies boots in ladies apparel were.
Around minus eight minus nine as we got into September and October that became like 17.
So it's.
Really more than well into the quarter and as we turned the page into the third quarter.
Or into October where those businesses guy sort of meaningfully worse.
And so that's where we stand but to your point.
As we look at that business and the team that runs that business.
They've they've doubled the business in a few years and theyre, giving a bit of it back now.
And they've sort of demonstrated their ability to now play defense inscape backwards a bit. So we feel good about the fact that they've been able to take inventory levels down more in line with that.
And then kind of very very vigilant and working through their markdowns.
Got it and then Jim.
You guys ran double digit positive comp from late 'twenty one into early 'twenty three.
And if I recall correctly.
A healthy portion of that came from acquiring new customers can you speak to.
Kind of any metrics.
With regard to kind of new customer retention. How are you how are you thinking about.
Well, you've been able to retain some of those customers that you are that you added over that period in particular.
So it's a very good question, but we youre right in if we look sort of big picture roughly half of our.
Growth over the last two or three years survey 60 ish percent growth was from.
Was transaction based and much of that was from new customers.
And they've proven to be.
Loyal to a sticky if you will.
So we continue we were a bit worried that we were going to get.
An influx of customers either due to.
A a snapback coming out of Covid or we had product during difficult supply chain times and nobody else did.
Or we were open and other people were closed et cetera.
But it seems okay.
More than seems what we see in the data now is that those customers are now boot barn customers and they're shopping with us at roughly the same frequency that are legacy customers would shop with us.
And.
While we are.
Comping slightly negative now if we were to have lost some of those customers, we'd be down sort of significant double digits. So.
We feel pretty good about the customer file.
<unk> be rewarded program the growth in our customer count.
I think in general they're shopping less frequently.
That's helpful. Thanks, Good luck.
Thanks Mitch.
Thank you next question comes from the line of John Lawrence with Benchmark Company. Please go ahead.
Yes, thanks, guys. Thanks for squeezing me in.
Yeah.
Jim if there's only a few quarters ago that you threw out the number of 40% for private life.
When you were in the 20 eights and thirties and now we're there.
Can you can you speak to a little bit when you look at the softness overall, which one of these I was in some stores less couple of weeks and surprise that.
<unk> 45 in Cheyenne or I'm, sorry, Cody James.
Really were presented right in your face at the front of the store.
Can you speak to obviously to the strong private label names, just getting stronger or some of the some of the newer names really taking off with traction.
I see good question will.
Cody James tends to be very prominently featured in the store right. It's our number one brand of all brands in the company.
So we tend to lead with that in.
In the front.
In terms of broadening to coming back to your question, we've seen really nice growth in are our two.
Most historical brands, which are accrued Jameson Cheyenne.
We added idle when in 2018 about five years ago, and that's just been.
Runaway success, a great partnership for Us and now we have some new brands that we've launched brothers and Sun.
Blue range, we're ranked 45 and they are emerging and we've seen some really nice pockets of success there.
Well, we expect that they'll continue to build their market share within the store as well over the next few years, which will enable us to take the 40% up to 50% E. B in call it three or four years.
So we feel.
We just feel great about the product design and development team their partnership with our buyers.
Our field team that gets behind the exclusive brands and understands the functions and features of the product to to showcase that to our customers.
And we do that in the context of still be.
A really important customer for the top western brands in the space Wrangler area adjusting carhartt etcetera, So I think we.
We feel really good about the composition of brands in general and still believe there is some.
Growth opportunities ahead for us for for our exclusive brands.
Great. Thanks, and the last question for me.
Does the Cowboys agreement include any retail placement at the Cowboys shops or at AT&T.
No no. It's it's really a marketing agreement, we can do brand activations, there, but we don't we won't see significant product selling at all.
Great.
Congrats.
Thank you.
Thank you.
There are no further questions at this time I would now like to turn the floor over to Jim Conroy for closing comments.
Well. Thank you everybody for joining the call today, and we look forward to speaking with you on our third quarter earnings call.
Take care.
Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Okay.
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