Q3 2024 Boot Barn Holdings Inc Earnings Call
Good day, everyone and welcome to the boot barn, Holdings' third quarter 2024 earnings call.
Operator: Good day, everyone, and welcome to the Boot Barn Holdings third quarter 2024 earnings call. As a reminder, this call is being recorded. Now I'd like to turn the conference over to your host, Mr. Mark Dedovesh.
As a reminder, this call is being recorded.
Speaker Change: Now I'd like to turn the conference over to your host Mr. Mark The Dovish Senior Vice President of financial planning. Please go ahead Sir.
Mark Dedovesh: Senior Vice President of Finance. Thank you. Good afternoon, everyone.
Speaker Change: Thank you good afternoon, everyone. Thank you for joining us today to discuss our third quarter fiscal 'twenty 'twenty four earnings results with me on today's call are Jim <unk>, President and Chief Executive Officer, and you want to as Chief Financial Officer.
Mark Dedovesh: Thank you for joining us today to discuss Boot Barn's third quarter fiscal 2024 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer, and Jim Watkins, Chief Financial Officer. A copy of today's press release, along with a supplemental financial presentation, is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company's website.
Speaker Change: Copy of today's press release, along with supplemental financial presentation is available on the Investor Relations section of Dupont's website, and Dupont Dot com.
Speaker Change: Shortly 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.
Mark Dedovesh: I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements.
Speaker Change: I would like to remind you that certain statements. We will make in this presentation are forward looking statements. These forward looking statements on 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.
Speaker Change: Accordingly, you should not place undue reliance on these forward looking 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 third quarter fiscal 2024 earnings release as well as our filings with the SEC referenced that disclaimer.
Mark Dedovesh: 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 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 any forward-looking statements, whether as a result of new information, future events, or otherwise. I will now turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim.
Speaker Change: This claim.
Speaker Change: 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.
Now I'll turn the call Liberty Jim.
Speaker Change: President and Chief Executive Officer, Jim.
Jim: Thank you Mark and good afternoon. Thank you everyone for joining us on this call I will review, our third quarter of fiscal 'twenty four results discuss the progress we have made across each of our four strategic initiatives and provide an update on current business.
James G. Conroy: Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our third quarter fiscal 24 results, discuss the progress we have made across each of our four strategic initiatives, and provide an update on current business. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open the call to questions. We are pleased with our third quarter results, which mark the highest sales volume in Boot Barn today. During the quarter, total sales grew by 1.1%, driven by the 49 new stores added over the last 12 months. It is worth noting that, except for three COVID-impacted quarters, we have grown sales on a year-over-year basis every quarter since we went public nearly 10 years ago. However, the incremental revenue from new stores was partially offset by a 9.7% decline in same store sales.
Jim: Following my remarks, Jim Watkins, who will review our financial performance in more detail and then we will open the call up for questions.
Jim: We are pleased with our third quarter results, which marks the highest sales volume to boot barns history.
Jim Watkins: During the quarter total sales grew by one 1% driven by the 49 new stores added over the last 12 months.
Jim Watkins: It's worth noting that except for three COVID-19 impacted quarters, we have grown sales on a year over year basis every quarter. Since we went public nearly 10 years ago.
Jim Watkins: The incremental revenue from new stores was partially offset by a nine 7% decline in same store sales to put this performance in perspective, our third quarter sales are up 83% from pre pandemic levels with.
James G. Conroy: To put this performance in perspective, our third-quarter sales are up 83% from pre-pandemic levels, and same store sales are up almost 50% on a four-year stack basis over that same period. With our same store sales up almost 50% on a four-year stack basis over that same period. Additionally, we achieved 300 basis points of merchandise margin expansion during the quarter, comprised of 250 basis points of freight improvement and 50 basis points of product margin expansion. The growth in product margin was driven by more than 300 basis points of increased exclusive brand penetration, a reduced level of promotional activity, and buying economies of scale. The strength in sales and gross margin combined with solid expense control drove a 30 basis point increase in operating margin and earnings per diluted share of $1.81 during the quarter, up from $1.74 a year ago and more than double our earnings per share in the same quarter pre-pandemic.
Jim Watkins: With our same store sales up almost 50% on a four year stacked basis over that same period.
Jim Watkins: Additionally, we achieved 300 basis points of merchandise margin expansion during the quarter comprised of 250 basis points of freight propane and 50 basis points of product margin expansion.
Jim Watkins: The growth in product margin was driven by more than 300 basis points increase in exclusive brand penetration ever.
Jim Watkins: A reduced level of promotional activity and buying economies of scale.
Jim Watkins: The strength in sales and gross margin combined with solid expense control drove a 30 basis point increase in operating margin and earnings per diluted share of $1 81 during the quarter.
Jim Watkins: Up from $1 74, a year ago and more than double our earnings per share in the same quarter.
Coming.
Jim Watkins: We believe this demonstrates the ability of the boot barn model.
Jim Watkins: To utilize multiple levers to drive earnings growth and the team's ability to execute at a high level.
Jim Watkins: Yeah.
Jim Watkins: As we approach the last two months of fiscal 'twenty 'twenty four and prepare for 2025, we will maintain our focus on executing against our four strategic initiatives.
James G. Conroy: We believe this demonstrates the ability of the boot barn model to utilize multiple levers to drive earnings growth and the team's ability to execute at a high level. As we approach the last two months of fiscal 2024 and prepare for 2025, we will maintain our focus on executing against our four strategic initiatives. I would like to spend a few minutes providing an update on each of them, beginning with expanding our store base. With 382 stores today, we are the largest player in the Western workwear industry.
Speaker Change: I would like to spend a few minutes, providing an update on each of them beginning with expanding our store base.
Speaker Change: With 382 stores today, we are the largest player in the western and workwear industry in the quarter. We added 11, new stores as we expand our footprint across the country.
Speaker Change: As a reminder, we typically underwrite the investment in a new store expecting revenue of approximately $2 million a two to three year payback.
Speaker Change: The performance in the most recent 100, new stores has been considerably better than this model with new store revenue projected to generate more than $3 million on average are 50% higher than the typical investment thesis with an accelerated payback of approximately 18 months.
James G. Conroy: In the quarter, we added 11 new stores as we expanded our footprint across the country. As a reminder, we typically underwrite the investment in a new store, expecting revenue of approximately $2 million with a two to three year payback. The performance of the most recent 100 new stores has been considerably better than this model, with new store revenue projected to generate more than $3 million on average, or 50% higher than the typical investment thesis, with an accelerated payback of approximately 18 months. And if we view this on a shorter timeline, the most recent 45 stores that have been open for one full calendar year, opening before December 2022, have generated approximately $3.3 million of annual revenue on average over the last 12 months
Speaker Change: And if we view this on a shorter timeline. The most recent 45 stores that had been opened one full calendar year opening before December 2022.
Speaker Change: Have generated approximately $3.3 million of annual revenue on average over the last 12 months.
Speaker Change: We believe that the combination of 15% new store openings, a 60% return on capital and the opportunity to more than double our units is one of the strongest most compelling growth stories in the retail industry.
Speaker Change: Moving to our second initiative driving same store sales growth.
Speaker Change: Yeah.
Speaker Change: Our third quarter same store sales declined nine 7% within the guidance range, we outlined in November the <unk>.
Speaker Change: Decline was driven by lower transactions, partially offset by higher AUR and transaction size.
James G. Conroy: We believe that the combination of 15% new store openings, a 60% return on capital, and the opportunity to more than double our units is one of the strongest, most compelling growth stories in the retail industry. Moving to our second initiative, driving same store sales. Our third quarter same store sales declined 9.7% within the guidance range we outlined in November. The decline was driven by lower transactions partially offset by higher AUR in transaction size. The more functional categories, such as men's Western boots and apparel and work boots, while still negative mid-single digit on a comp-basic, outperformed the more discretionary Ladies Western Department. Geographically, the west and north regions were slightly better than the chain average, and the south and east were slightly worse than the chain average.
The more functional categories, such as men's western boots, and apparel and work boots, while still negative mid single digits on a comp basis.
Speaker Change: Outperformed the more discretionary ladies western departments.
Speaker Change: Geographically the western North regions were slightly better than chain average in the south and east were slightly worse than chain average.
Speaker Change: As I reflect on our execution in the quarter I'm very proud of the entire cross functional team and merchandising team managed inventory levels extremely well improving product margin and constraining growth in clearance merchandise. Despite a nearly double digit decline in same store sales.
Speaker Change: The stores team also performed quite well as evidenced by earning the highest customer service scores for any holiday quarter in the history of boot barn.
Speaker Change: They also supported our omnichannel business by fulfilling more than 45% of our total ecommerce orders over the holiday period.
Speaker Change: Before moving onto the next strategic initiative and you want to provide a bit of historical perspective to our recent same store sales results.
Speaker Change: I think it is helpful to remember that our average store volume increased by more than 50% beginning in March of 2021.
And has remained at elevated levels for nearly three full years now.
James G. Conroy: As I reflect on our execution in the quarter, I'm very proud of the entire cross-functional team. The merchandising team managed inventory levels extremely well, improving product margin and constraining growth in clearance merchandise, despite a nearly double-digit decline in same-store sales. The stores team also performed quite well, as evidenced by earning the highest customer service scores for any holiday quarter in the history of Boot Barn.
Speaker Change: On a year to date basis, our retail store same store sales have declined by approximately 6%.
Speaker Change: Cycling plus 2% for the full year of fiscal 'twenty, three and plus 57% a year prior to that.
Speaker Change: Going forward, while same store sales may continue to be negative for the near future. We believe it is unlikely that we will forfeit a significant portion of the higher average store sales volume.
Speaker Change: Similarly, when we look at our customer count metrics, we reached the same conclusion.
James G. Conroy: They also supported our omnichannel business by fulfilling more than 45% of our total e-commerce orders over the holiday period. Before moving on to the next strategic initiative, I do want to provide a bit of historical perspective on our recent Sam's Store sales results. I think it is helpful to remember that our average store volume increased by more than 50% beginning in March of 2021 and has remained at elevated levels for nearly three full years now. On a year-to-date basis, our retail store same store sales have declined by approximately 6%, cycling plus 2% for the full year of fiscal 23 and plus 57% the year prior to that.
Speaker Change: The elevated level of average store volume that began a few years ago was a result of a nearly 50% growth in new customers and a comp store and most of those customers became repeat purchasers.
Speaker Change: These two statistics gives us confidence in our belief that we will likely maintain most of the elevated sales and an average store going forward.
Speaker Change: Moving to our third initiative strengthening our Omnichannel leadership.
Speaker Change: In the third quarter I E Commerce sales declined 11, 5% our online channel has felt pressure due to less efficient online marketing spend partly caused by an increase in digital spend by a handful of vendors and competitors.
Speaker Change: To add some more color our boot barn, dotcom business comped down low single digits in the quarter.
Speaker Change: And approximately three fourths of the decline was due to the erosion of paid demand.
Speaker Change: Our other two sites shufflers and country Outfitters are more dependent on paid traffic. So the erosion in paint demand has a significant impact on that.
James G. Conroy: Going forward, while same-store sales may continue to be negative for the near future, we believe it is unlikely that we will forfeit a significant portion of the higher average store sales volume. Similarly, when we look at our customer count metrics, we reach the same conclusion. The elevated level of average store volume that began a few years ago was a result of a nearly 50% growth in new customers in a comp store, and most of those customers became repeat purchasers. These two statistics give us confidence in our belief that we will likely maintain most of the elevated sales in an average store going forward. Moving to our third initiative, Strengthening Our Omnichannel Leadership. In the third quarter, our e-commerce sales declined 11.5%.
Speaker Change: Our objective continues to be to maximize profitability for our online business. So we will remain disciplined with our digital spend so as not to erode earnings and our desire to grow top line sales.
Speaker Change: Operationally, we have improved our ability to fill demand from nearly all of our store and warehouse locations across the country.
Speaker Change: This enabled us to commit to a pre Christmas deliveries later in the season than ever before.
Speaker Change: Now to our fourth strategic initiative exclusive brands.
Speaker Change: Exclusive brands did penetration increased 310 basis points in the quarter to 37, 3%.
Speaker Change: I am pleased with this result, particularly as we were able to achieve healthy growth and penetration despite softness in our ladies business, which over indexes to exclusive brands.
James G. Conroy: Our online channel has felt pressure due to less efficient online marketing spend, partly caused by an increase in digital spend by a handful of vendors and competitors. To add some more color, our bootbarn.com business jumped down low single digits in the quarter, and approximately three-quarters of the decline was due to the erosion of paid demand. Our other two sites, Sheplers and Country Outfitters, are more dependent on paid traffic, so the erosion of paid demand has a significant impact on them. Our objective continues to be to maximize profitability for our online business, so we will remain disciplined with our digital spend so as not to erode earnings and our desire to grow top-line sales. Operationally, we've improved our ability to fill demand from nearly all of our store and warehouse locations across the country.
Speaker Change: In the quarter, we did launch a brand extension in approximately 50 stores called Cody James Black.
Speaker Change: Which targets a higher end customer for men's cowboy boots and cowboy hats.
Speaker Change: Well this will be a relatively small contributor to the overall exclusive brand business. We do feel great about the initial results and are in the process of extending the new assortment to 200 stores.
Speaker Change: Okay.
Speaker Change: Looking back over the last three years, we've expanded exclusive brands penetration 1400 basis points far exceeding our historical goal of 250 basis points per year.
Speaker Change: This growth is a testament to the team's ability to develop world class brands and compelling merchandise assortments.
Speaker Change: Turning to current business.
Speaker Change: Through the first four weeks of our fiscal fourth quarter.
Speaker Change: Preliminary consolidated same store sales have declined eight 1% compared to the prior year period.
James G. Conroy: This enabled us to commit to a pre-Christmas delivery later in the season than ever before. Now, to our fourth strategic initiative, Exclusive Brands. Exclusive Brands Penetration increased 310 basis points in the quarter to 37.3%. I am pleased with this result, particularly as we were able to achieve healthy growth and penetration despite softness in our ladies' business, which over-indexes to exclusive brands. In the quarter, we did launch a brand extension in approximately 50 stores called Cody James Black, which targets a higher-end customer for men's cowboy boots and cowboy shoes.
Speaker Change: On the surface. This is only a modest sequential improvement in our sales trend. However.
However, we did see significant disruption in the business in the second and third week of the month due to a winter weather pattern at forest store closures reduced operating hours and presented significant travel challenges for customers.
When we evaluate the business by region. The same store sales trend in the south and west regions, which were less impacted by the weather have improved sequentially from the prior quarter by more than five points of comp.
Speaker Change: Conversely in north and east regions, which were impacted by the weather have deteriorated sequentially from the third quarter by approximately four points of comp.
James G. Conroy: While this will be a relatively small contributor to the overall exclusive brand business, we do feel great about the initial results and are in the process of extending the new assortment to 200 stores. Looking back over the last three years, we've expanded our occlusive branch penetration by 1,400 basis points, far exceeding our historical goal of 250 basis points per year. This growth is a testament to the team's ability to develop world-class brands and compelling merchandise. Turning to current business, Through the first four weeks of our fiscal fourth quarter, our preliminary consolidated same store sales declined 8.1% compared to the prior year period.
Speaker Change: While significant variability in weekly comp sales since we believe the underlying tone of the business has improved compared to the holiday quarter.
Speaker Change: Yeah.
Speaker Change: I'd like to now turn the call over to Jim.
Jim Watkins: Thank you Jim in.
Jim Watkins: In the third quarter net sales increased 1.1% to $520 million.
Jim Watkins: Our sales performance benefited from new stores opened during the past 12 months, partially offset by a same store sales decline of nine 7% comprised of a decrease in retail stores same store sales of nine 4% and a decrease in E. Commerce same store sales of 11, 5%.
Jim Watkins: Gross profit increased 6% to $199 million or 38, 3% of sales compared to gross profit of 108 hundred $88 million or 36, 5% of sales in the prior year period.
James G. Conroy: On the surface, this is only a modest sequential improvement in our sales. However, we did see significant disruption in the business in the second and third weeks of the month due to a winter weather pattern that forced store closures, reduced operating hours, and presented significant travel challenges for customers. When we evaluate the business by region, the same store sales trend in the south and west regions, which were less impacted by the weather, improved sequentially from the prior quarter by more than five points of comp. Conversely, the north and east regions, which were impacted by the weather, have deteriorated sequentially from the third quarter by approximately four points of calm.
The 180 basis point increase in gross profit rate resulted from a 300 basis point increase in merchandise margin rate, partially offset by 120 basis points of deleverage in buying occupancy and distribution center costs.
Jim Watkins: The increase in merchandise margin rate was driven by a 250 basis point improvement in freight expense as a percentage of sales and 50 basis points of product margin expansion.
Jim Watkins: Selling general and administrative expenses for the quarter were $124 million or 23, 8% of sales compared to $115 million or 22, 4% of sales in the prior year period.
Jim Watkins: The increase in SG&A expenses compared to the prior year period was primarily a result of higher overhead costs and store payroll associated with operating an additional 49 stores when compared to the prior year period.
James G. Conroy: While significant variability in weekly comp sales persists, we believe the underlying tone of the business has improved compared to the holiday quarter. I'd like to now turn the call over to Jim.
Jim Watkins: Income from operations was $75 million or 14, 4% of sales in the quarter compared to $72 million or 14.1% of sales in the prior year period.
Jim Watkins: Thank you, Jim. In the third quarter, net sales increased 1.1% to $520 million. Our sales performance benefited from new stores opened during the past 12 months, partially offset by a same-store sales decline of 9.7%, comprised of a decrease in retail store same-store sales of 9.4% and a decrease in e-commerce same-store sales of 11.5%. Gross profit increased 6% to $199 million, or 38.3% of sales, compared to gross profit of $188 million, or 36.5% of sales in the prior year period The 180 basis point increase in gross profit rate resulted from a 300 basis point increase in merchandise margin rate partially offset by 120 basis points of deleverage in buying, occupancy, and distribution center costs. [inaudible] Selling general and administrative expenses for the quarter were $124 million, or 23.8% of sales, compared to $115 million, or 22.4% 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 overhead costs and store payroll associated with operating an additional 49 stores when compared to the prior year period.
Jim Watkins: Yeah.
Jim Watkins: Net income was $56 million or $1 81 per diluted share compared to $53 million or $1 74 per diluted share in the prior year period.
Yeah.
Jim Watkins: Turning to the balance sheet on a consolidated basis inventory decreased 5% over the prior year period to $563 million and decreased 1% on a same store basis.
Jim Watkins: We finished the quarter with $107 million in cash and zero drawn on our $250 million revolving line of credit.
Speaker Change: I would now like to provide an update on our fourth quarter guidance, which is outlined in our supplemental financial presentation.
Speaker Change: As the presentation lays out the low and high end of our guidance range I will only speak to the high end of the range in my following remarks.
As we look to the fourth quarter, we expect total sales to be $386 million.
We expect the same store sales decline of six 3% with retail store same store sales declining, 5.5% and E Commerce same store sales declining 13%.
Speaker Change: We expect to open 15, new stores with all openings scheduled for the second half of the quarter.
As a reminder, this year's fourth quarter includes 13 weeks of sales compared to 14 weeks of sales in the fourth quarter last year.
Speaker Change: We expect fourth quarter gross profit to be $136 million or approximately 35, 2% of sales.
Speaker Change: Gross profit reflects an estimated 160 basis point.
Speaker Change: Increase in merchandise margin rate, including a 140 basis point improvement in freight expense year over year, and a 20 basis point improvement in product margin.
Jim Watkins: Income from operations was $75 million, or 14.4% of sales in the quarter, compared to $72 million, or 14.1% of sales in the prior year period. Net income was $56 million, or $1.81 per diluted share, compared to $53 million, or $1.74 per diluted share, in the prior year period. Turning to the balance sheet, on a consolidated basis, inventory decreased 5% over the prior year period to $563 million and decreased 1% on a same-store basis. We finished the quarter with $107 million in cash and zero drawn on our $250 million revolving line of credit.
Speaker Change: Included in the product margin growth, we expect fourth quarter exclusive brand penetration to be flat to down 100 basis points when compared to last year.
Speaker Change: As a reminder, exclusive brand penetration grew 770 basis points in the fourth quarter last year.
Speaker Change: The driver of the slowdown besides wrapping remarkable growth. The past few years is primarily due to the softer ladies business, which penetrates at a higher rate of exclusive brand sales.
Speaker Change: We anticipate 310 basis points of deleverage in buying occupancy and distribution center costs as we cycle, a 15 week quarter in the fourth quarter last year.
Speaker Change: 14 week quarter in the fourth quarter last year.
Our income from operations is expected to be $38 million or nine 8% of sales.
Jim Watkins: I would now like to provide an update on our fourth quarter guidance, which is outlined in our supplemental financial presentation. As the presentation lays out the low and high end of our guidance range, I will only speak to the high end of the range in my following remarks. As we look to the fourth quarter, we expect total sales to be $386 million. We expect a same-store sales decline of 6.3%, with retail-store same-store sales declining 5.5%, and e-commerce same-store sales declining 13%. We expect to open 15 new stores, with all openings scheduled for the second half of the quarter.
Speaker Change: We expect earnings per diluted share to be 92 cents.
Speaker Change: Okay.
Speaker Change: As a result of our year to date performance and our updated estimates for the rest of the year, we're updating our full year guidance for the full fiscal year. We now expect total sales to be $1.66 billion, representing growth of 4% over fiscal 'twenty, three which as a reminder, was a 53 week year.
This compares to our previous guidance of 170 $1 billion.
We expect same store sales declined six 3% with a retail store same store sales decline of five 5% and then E. Commerce same store sales decline of 11, 7%.
Jim Watkins: As a reminder, this year's fourth quarter includes 13 weeks of sales compared to 14 weeks of sales in the fourth quarter last year. We expect fourth quarter gross profit to be $136 million, or approximately 35.2% of sales. Gross profit reflects an estimated 160 basis points increase in the merchandise margin rate, including a 140 basis point improvement in freight expense year over year and a 20 basis point improvement in product margin. Included in the product margin growth, we expect fourth quarter exclusive brand penetration to be flat to down 100 basis points when compared to last year. As a reminder, exclusive brand penetration grew 770 basis points in the fourth quarter last year. The driver of the slowdown, besides registering remarkable growth the past few years, is primarily due to the softer ladies business, which penetrates at a higher rate of exclusive brand sales. We anticipate 310 basis points of deleverage in buying, occupancy, and distribution center costs as we cycle a 15-week quarter in the fourth quarter last year, compared to a 14-week quarter in the fourth quarter last year. Our income from operations is expected to be $38 million, or 9.8% of sales. We expect earnings per diluted share to be $0.92.
Speaker Change: This update compares to our previous guidance of our consolidated same store sales decline of 5%.
Speaker Change: Yeah.
Speaker Change: We now expect gross profit to be $611 million or approximately 36, 7% of sales.
Speaker Change: Gross profit reflects an estimated 170 basis point increase in merchandise margin.
Speaker Change: <unk>, a 130 basis point improvement from freight expense.
Speaker Change: And had a 40 basis point improvement from product margin.
Speaker Change: We anticipate a 180 basis points of deleverage in buying occupancy and distribution center costs were.
Speaker Change: We now project 370 basis points of growth in exclusive brand penetration for the full year, bringing our total penetration to 37, 7%.
Speaker Change: Our income from operations is expected to be $198 million or 11, 9% of sales. We expect net income for fiscal 'twenty for it to be $146 million and earnings per diluted share to be $4 75.
Speaker Change: I'd now like to talk about our fiscal year 'twenty 'twenty five that begins on March 31st well.
Speaker Change: While it is premature to fully outline our guidance for next year, we thought it would be helpful to share our thoughts on select components of the P&L as we get ready to begin our annual budget planning process.
Speaker Change: Yeah.
Speaker Change: During fiscal year 2025, we again plan to open 15% new units and these new stores are expected to generate at least $3 million of sales during the first 12 months of business.
Speaker Change: We expect to achieve approximately 25 basis points of product margin expansion through exclusive brand penetration growth and better economies of scale with our vendor partners.
Jim Watkins: As a result of our year-to-date performance and our updated estimates for the rest of the year, we are updating our full-year guidance. For the full fiscal year, we now expect total sales to be $1.66 billion, representing growth of 0.4% over fiscal 23, which, as a reminder, was a 53-week year. This compares to our previous guidance of $1.70 billion. We expect same store sales to decline 6.3% with a retail store same store sales decline of 5.5% and an e-commerce same store sales decline of 11.7%. This update compares to our previous guidance of a consolidated same-store sales decline of 5%. We now expect gross profit to be $611 million, or approximately 36.7% of sales.
Speaker Change: Additionally.
Speaker Change: We expect to see a reduction in our overall supply chain costs that will benefit our merchandize margin beyond the 25 basis points of product margin expansion I just mentioned.
Speaker Change: These improvements are part of our larger efforts to manage expenses and drive efficiency in the business.
Speaker Change: Okay.
Speaker Change: As we look to SG&A expenses.
Speaker Change: We've outgrown our corporate office building in Irvine, California, which we first moved into in 2016.
Speaker Change: We signed a lease for a building nearby and will move during the third or fourth quarter of fiscal 'twenty five.
Speaker Change: Creek lease costs and associated depreciation will put some pressure on the SG&A line.
Speaker Change: We will provide more detailed financial projections on our May earnings call now.
Speaker Change: Now I would like to turn the call back to Jim for some closing remarks.
Jim Watkins: Thank you Jim.
Jim Watkins: We are pleased with our ability to execute during the third quarter.
We were able to grow sales and earnings despite a negative same store sales result.
Jim Watkins: Gross profit reflects an estimated 170 basis point increase in merchandise margin, including a 130 basis point improvement in freight expense, and a 40 basis point improvement in product margin. We anticipate 180 basis points of deleverage in buying, occupancy, and distribution center costs. We now project 370 basis points of growth and exclusive brand penetration for the full year, bringing our total penetration to 37.7%. Our income from operations is expected to be $198 million, or 11.9% of sales. We expect net income for fiscal 24 to be $146 million and earnings per diluted share to be $4.75.
Jim Watkins: Further it is encouraging to see that there has been only a modest decline in our average store sales volume since the outsized increase that began in March 'twenty one.
Speaker Change: I'm very proud of the team across the country I want to thank you all for your dedication to boot barn.
Speaker Change: Now I would like to open the call to take your questions.
Speaker Change: <unk>.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: To ask a question. Please press star one on your telephone keypad.
Speaker Change: Hello indicate that your line is in the question queue.
Press Star two if you'd like to remove your question. Thank you.
Speaker Change: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Speaker Change: As a reminder, today's call is scheduled for one hour. So please limit yourself to one question and to one follow up.
Speaker Change: Our first question will come from the line of Matthew Boss with Jpmorgan. Please proceed with your question.
Matthew Robert Boss: Great. Thanks.
Matthew Robert Boss: So maybe first question Jim near term.
Matthew Robert Boss: Could you elaborate on the regional improvement that you cited in January sales relative to November December outside of weather, maybe at a category level and then just a follow up on your on the total company average unit volumes.
Matthew Robert Boss: Multiyear <unk> seen average unit volumes moved from I think it was $2 6 million pre pandemic.
Jim Watkins: I'd now like to talk about our fiscal year 2025, which begins on March 31st. While it is premature to fully outline our guidance for next year, we thought it would be helpful to share our thoughts on select components of the P&L as we get ready to begin our annual budget planning process. During fiscal year 2025, we again plan to open 15% new units, and these new stores are expected to generate at least $3 million in sales during the first 12 months of business. Additionally, we expect to achieve approximately 25 basis points of product margin expansion through exclusive brand penetration growth and better economies of scale with our vendor partners. Additionally... We expect to see a reduction in our overall supply chain costs that will benefit our merchandise margin beyond the 25 basis points of product margin expansion I just mentioned.
Matthew Robert Boss: To a peak of a bit over four and I think.
Matthew Robert Boss: Just under four today I guess, what do you see as the sustainable fee for the company going forward and what supports the structural improvement.
Matthew Robert Boss: Sure.
Speaker Change: On the first one.
Speaker Change: Your first question was around sales by week in January.
And actually it was sales by week in January by category.
Speaker Change: Essentially what happened was weeks one in four had temporary weather weeks, two and three we had a winter storm that went across most of the country.
Speaker Change: The two regions for ice the west switches, Arizona, and California, and Nevada, and a couple of others.
Speaker Change: In the South which is Texas and a few other states didn't feel the weather quite as much as the other two regions. So their business actually improved by about five points sequentially from the holiday quarter.
Jim Watkins: These improvements are part of our larger efforts to manage expenses and drive efficiency in the business. As we look to SG&A expenses... We have outgrown our corporate office building in Irvine, California, which we first moved into in 2016. We've signed a lease for a building nearby and will move during the third or fourth quarter of fiscal 25. The increased lease costs and associated depreciation will put some pressure on the SG&A line.
Speaker Change: Okay.
The other two regions, we had just and as you know, Matt we almost never call out weather in this case, we had stores closing early or not opening at all and we have a lot of customers as couldn't get out and drive to stores. So those two regions, our north region in our East region.
Speaker Change: Their business decelerated by.
Speaker Change: Four points of comp.
Speaker Change: From the third quarter so.
Speaker Change: But we as I said in my prepared remarks, we believe that the overall tone of the business improved from the holiday quarter.
James G. Conroy: We will provide more detailed financial projections on our May earnings call. Now, I would like to turn the call back to Jim for some closing remarks. Thank you, Jim.
Speaker Change: In terms of your second question around average unit volume I think your your before number is in the ballpark we used to be 2.6 actually if you go back just five years or something were $2 2 million.
James G. Conroy: We are pleased with our ability to execute during the third quarter. We were able to grow sales and earnings despite a negative same-store sales result. We were able to grow sales and earnings despite a negative same-store sales result. Furthermore, it is encouraging to see that there has been only a modest decline in our average store sales volume since the outsized increase that began in March of 21. I'm very proud of the team across the country.
Speaker Change: And then we've.
Speaker Change: You know grown too.
Speaker Change: Much more than that what one of the ways to think about it is.
Speaker Change: Okay.
Speaker Change: We looked at a base of stores that were open.
Speaker Change: In.
Speaker Change: Q3 of fiscal 'twenty or had been up I mean, we looked at our comp base. If you will of 234 stores.
Operator: I want to thank you all for your dedication to Boot Barn. Now I would like to open the call to take your questions. [inaudible] You will now be conducting a The Bulletproof Executive 2013, As a reminder, today's call is scheduled for one. This question will come from the line of Matthew Boss....
Speaker Change: And those stores were at $2 9 million average unit volume those same stores are now at 4.4 million average unit volume. So that 2.9 went to four four for that base of stores and I think I think that's greater than a 50% increase right one one and a half on Tonight.
James G. Conroy: Great, thanks. So maybe my first question, Jim, near term. Would you elaborate on the regional improvement that you cited in January sales relative to November-December outside of weather, maybe at a Category Love? [inaudible] [inaudible] So multi-year. $1.6 million pre-pandemic, to a peak of It's been over four, and I, just under four today.
Speaker Change: Like doing math live with judge of people listening.
Speaker Change: And if we if we want to think of the whole chain and what our average unit volume is going forward, it's still north of four and.
Speaker Change: Embedded in your question is what's driven that the single biggest thing that's driven that is we've added customers.
Tremendously over the last four or five years in total of course part of that driven by new stores, but also on a comp store basis, our customer count on a comp store basis is up approximately 50% also.
James G. Conroy: I guess, what do you see as the sustainable? company going forward and what supports the structural? Sure. On the first one.
James G. Conroy: Your first question was around sales by week in January, and actually, it was sales by week in January by category. Essentially, what happened was weeks one and four had temperate weather. In weeks two and three, we had the winter storm that went across most of the country. The two regions for us, the West, which is Arizona and California and Nevada and a couple of others, and the South, which is Texas and a few other states, didn't feel the weather quite as much as the other two regions.
Speaker Change: Yeah.
Speaker Change: When you put all those facts together, we look at the business over an extended period of time and see nothing by tremendous growth.
Speaker Change: And on a year to date basis, we're down roughly 6%.
Speaker Change: In our retail stores.
Speaker Change: When we cycle plus two and a plus 57, we actually feel pretty good about that number.
Speaker Change: Got it and then maybe.
Speaker Change: For Jim Watkins just on flow through and the model could you elaborate on the magnitude of buying and occupancy and SG&A deleverage in the fourth quarter.
James G. Conroy: So their business actually improved by about five points sequentially from the Holiday Quarter. The other two regions we had just, and as you know, Matt, we almost never call out weather. In this case, we had stores closing early or not opening at all, and we had a lot of customers that couldn't get out and drive to the stores. So those two regions, our north region and our east region, their business decelerated by four points of content from the third quarter. But, as I said in my prepared remarks, we believe that the overall tone of the business is improved from the holiday quarter. In terms of your second question around average unit volume, I think your before number is in the ballpark.
Speaker Change: And just how best to size up as we think multiyear the magnitude of the supply chain efficiencies you sighted and how that may impact fixed cost leverage hurdles and the model moving forward.
Speaker Change: Sure.
Jim Watkins: Yeah, So as we look to the fourth quarter.
Jim Watkins: Given that 14 week period, we do have higher.
Jim Watkins: <unk>.
Jim Watkins: Yeah.
Jim Watkins: Average and so if I look to the high end of the guide and they get all endpoints you to the slide on page 20, where we kind of go through the different components of that 310 basis points of buying occupancy in D. C.
James G. Conroy: We used to be 2.6. Actually, if you go back just five years or something, we were 2.2 million, and then we have grown to much more than that. Well, one of the ways to think about it is that we looked at a base of stores that were open in Q3 of fiscal 20, or we looked at a comp base, if you will, of 234 stores. And those stores had an average unit volume of 2.9 million.
Jim Watkins: Deleverage during during that fourth quarter.
Jim Watkins: And then as we look to SG&A.
Jim Watkins: For the same period that the Opex, yes, 340 basis points and the one thing I would remind you on particularly around the SG&A deleverage, it's a little more outsized and part of that is because of some unique factors that are that are working against us.
Jim Watkins: Besides the negative same store sales for the quarter and the 14 week period, you'll remember last year in the fourth quarter. When we gave a report on that as our sales turned negative as we got out of January and went into February and they they.
James G. Conroy: Those same stores are now at 4.4 million average unit volume. So that 2.9 went to 4.4 for that base of stores. And I think that's greater than a 50% increase, right? One and a half on 2.9. I like doing math live with 300 people listening.
Jim Watkins: Deteriorate, a little bit more as we got into March.
We pulled back on several expenses such as marketing and then we reversed incentive based compensation and so those are things that they created a little bit more deleverage as we get into the fourth quarter around SG&A.
James G. Conroy: If we want to think of the whole chain and what our average unit of volume is going forward, it's still north of four. Embedded in your question is what's driving that. The single biggest thing that's driving that is we've added customers tremendously over the last four or five years in total. Of course, part of that's driven by new stores, but also, on a comp store basis, or a customer count on a comp store basis is up approximately 50% also. When you put all those facts together,
Jim Watkins: As far as the magnitude of the supply chain improvements that we're expecting to see as we get into next year.
Speaker Change: Yeah, we'll give you more color on that and how they impact the the leverage points, but that's the way I would model. It out right now it is around $6 million of an annual run rate.
Speaker Change: Next year.
And.
Again, we'll give you more color on that as we look beyond but that should be something that continues with us as we get into the years beyond fiscal 'twenty five.
James G. Conroy: We look at the business over an extended period of time and see nothing but tremendous growth. And on a year-to-date basis, we're down roughly 6% in our retail stores. But when we cycle, you know, a plus two and a plus 57, we actually feel pretty good about that.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Great that's great color. Thanks again best of luck.
Speaker Change: Thanks, Matt.
Speaker Change: Thank you. Your next question comes from the line of Steven <unk> with Citi. Please proceed with your question.
Steven: Great. Good afternoon, Thanks for taking my question.
Steven: I wanted to follow up on Matts question and May be drill down on the preliminary commentary you gave about fiscal 'twenty five.
Jim Watkins: Question for Jim Watkins, just on flow-through in the model, could you elaborate on the magnitude of buying an occupancy in SG&A deleverage in the fourth quarter and just how best to size up, as we think, multi-year, the magnitude of the supply chain efficiencies you cited and how that may impact fixed-cost leverage hurdles in the model moving forward? Sure. Yeah, so as we look to the fourth quarter, you're right, given that 14-week period, we do have higher, you know, deleverage. And so if I look to the high end of the guide, and again, I'd point you to the slide on page 20, where we kind of go through the different components of that, there are 310 basis points of buying occupancy in DC.
Steven: You gave some details there, but I was curious for how you think about the potential recovery in same store sales.
Speaker Change: Do you see that being transaction driven.
Speaker Change: How do you think about that happening by category do you need the discretionary business together.
Speaker Change: Any sort of commentary you can would be would be appreciated.
Speaker Change: Sure Yeah, as we look to two on the same store sales guide for the for the year again, it's a little early for US to guide that so we're not providing a lot of commentary around that.
Speaker Change: As far as the recovery goes.
Speaker Change: If we look at the components of that.
Yeah. The average unit retail I think a lot of the big price increases are behind us.
Jim Watkins: [inaudible] You know, besides the negative same store sales for the quarter and the 14-week period, you'll remember last year in the fourth quarter when we gave our report on that as our sales turned negative as we got out of January went into February, and they deteriorated a little bit more as we got into March. We pulled back on several expenses, such as marketing, and then we reversed incentive-based compensation.
Speaker Change: Low single digit increase in AUR is probably the way I'd think about that and so any recovery that we see as we get into next year, we would expect to be transaction based.
Speaker Change: In nature.
Speaker Change: And from a category perspective.
Speaker Change: Does it I guess from a discretionary standpoint, that's been most challenged category do you think that needs to stabilize or could we.
Speaker Change: We will start to see that improve at some point, how do you think about that.
Speaker Change: I think it's a good question.
Speaker Change: The ladies businesses, which.
Jim Watkins: And so, you know, those are things that created a little bit more deleverage as we got into the fourth quarter around SG&A. As far as the magnitude of the supply chain improvements that we're expecting to see as we get into next year, we'll give you more color on that and how they impact the leverage points. But the way I would model those out right now is around $6 million in annual run rate for next year. And again, we'll give you more color on that as we look beyond, but that should be something that continues with us as we get into the years beyond fiscal 25. That's a great color.
In an abbreviated way, we call them, all discretionary which isn't completely true but that.
Speaker Change: That business has been a drag on recent same store sales.
Speaker Change: And we'd like that to get back to you.
Speaker Change: Even just flat so it's less of a drag.
We do think that business has some unique challenges simply in the sense that we're cycling just giant numbers, 100% comm and ladies business a couple of years ago. So that if that can get back to low single digit.
Matthew Robert Boss: Thanks. Thanks, Matt, ahem. Your next question comes from the line of Steven Zaccone. Thanks for watching!
Declines or flat.
Speaker Change: That would help the overall math of course.
Speaker Change: Well, we'd really like to see though is we've when we look at our third quarter.
Speaker Change: The declines were more broad based so ladies was worse, but most of the other businesses also were down on a comp basis.
Jim Watkins: Great, good afternoon. Thanks for taking my question. I wanted to follow up on Matt's question and maybe drill down on the preliminary commentary you gave about fiscal 25. You gave some details there, but I was curious about how you think about the potential recovery in same-source sales. You know, do you see that being transaction driven? How do you think about that happening by category? Do you need a discretionary business to get a bit better? Any sort of commentary you can give would be appreciated.
Speaker Change: So.
Speaker Change: Going forward I do think there is some optimism that our core customer is relatively healthy ends mostly employed.
Speaker Change: I think they are feeling the impacts of inflation still and I think there is an overall.
Speaker Change: CERN around the economy may be geopolitical factors et cetera. So I think there is a tendency to.
Jim Watkins: Sure, yeah, as we look to the same store sales guide for the year, again, it's a little early for us to guide that. So we're not providing a lot of commentary around that. As far as the recovery goes, you know, if we look at the components, you know, that average unit retail, you know, I think a lot of the big price increases are behind us. You know, a low single-digit increase in AUR is probably the way I'd think about that. And so any recovery that we see as we get into next year, we would expect to be transaction-based, and Nature. [inaudible] Does it, I guess from a discretionary standpoint, that's been your most challenged category? Do you think that needs to stabilize, or could we start to see that improve at some point?
Speaker Change: Push off spending, but I don't think there's any endemic challenges with the health of our customer so as I as we look into fiscal 'twenty five I think there's a possibility that we'll get back to positive comps over the next few quarters.
Speaker Change: Okay, Thanks for that detail.
Speaker Change: Thank you. Our next question comes from the line of Max <unk> with TD Cowen. Please proceed with your question.
Great. Thanks, a lot Jim just curious if you could actually elaborate on that last comment just a color on when you think toms could flip positive underlying trends do appear to be improving and then compare as well he's pretty meaningfully sequentially over the next couple of months.
Speaker Change: Max I wish I could give you a date amongst the quarter okay.
Speaker Change: It's it's very difficult to predict comps going forward.
Jim Watkins: How do you think about that? That answers the question, I think. The ladies' businesses, which, in an abbreviated way, we call all discretionary, which isn't completely true.
Speaker Change: And I recognize that's very important to the folks on this call.
Speaker Change: What we can predict with a fairly high degree of certainty.
Speaker Change: We're gonna open.
Jim Watkins: But that business has been a drag on recent same-store sales, and we'd like that to get back to, even just flat, so it's less of a drag. We do think that business has some unique challenges simply in the sense that we're cycling just giant numbers, 100% comp in a lady's business a couple of years ago. So if that can get back to low single digits, declines or fly. That would help the overall math, of course. But what we'd really like to see, though, is when we look at our third quarter...
Speaker Change: Empty or 60 stores next year, they're going to do $3 million or more we.
Speaker Change: We think we still have the opportunity to grow merchandise margin.
Speaker Change: We still are by far the biggest company in the industry. So while I can't give you.
Speaker Change: A specific day or.
Speaker Change: Timing for a reversion to.
Speaker Change: Positive same store sales growth.
Speaker Change: Yeah.
Speaker Change: Nearly everything else in the businesses is just operating extraordinarily well so we'll manage our inventory levels based on the same store sales trends that we're currently facing.
James G. Conroy: The clients were more broad-based, so ladies were worse off, but most of the other businesses also were down on a comp basis.
Speaker Change: We're able to continue to grow merchandise margin even in a negative same store sales environment.
James G. Conroy: Going forward, I do think there's some optimism that our core customer is relatively healthy and mostly employed. However, I think they are still feeling the impacts of inflation. And I think there is an overall concern around the economy, maybe geopolitical factors, etc., so I think there is a tendency to push off spending. But I don't think there's any endemic challenges with the health of our customers. So, as we look into fiscal 25, I think there's a possibility that we'll get back to positive outcomes over the next few quarters. Okay, thanks for the detail. Your next question comes from the line with you. Great, thanks a lot. Jim, just curious if you could actually elaborate on that last comment, just any color on when you think comps could flip positive as the underlying trends do appear to be improving, and then comps will ease pretty meaningfully, sequentially over the next couple months. Max, I wish I could give you a date, a month, or a quarter.
Speaker Change: We havent built up a tremendous amount of clearance markdowns. So we're managing through the current sales trend I think extremely well and for the folks that worked for the company. We all recognize that we've had sort of a once in a lifetime uptick in sales a couple of years ago and to give back just a small portion of it.
Speaker Change: Really hasnt bothered the company and again I recognize that the folks on the call.
Speaker Change: Buy and sell the stock based on the.
Speaker Change: The most recent quarter same store sales that may not give you a lot of comfort.
Speaker Change: Overall, the company is still pretty darn healthy.
Speaker Change: Got it that's helpful. And then just on the new store economics is it fair to assume that you know $3 million as potentially trough level and then just a color on dispersion between maybe some of the faster and slower ramp in stores and then just within that if we are closer to the bottom how are you thinking that the new store waterfall.
Speaker Change: Could look like.
James G. Conroy: It's, it's very difficult to predict POMS going forward, and I recognize that it's very important to the folks on this call. What we can predict with a fairly high degree of certainty is we're going to open 50 or 60 stores next year, and they're going to do $3 million or more. We think we still have the opportunity to grow merchandise and margin. We are still by far the biggest company in the industry.
Speaker Change: So there's a few things embedded in that question, the new stores and the new store volumes.
Speaker Change: I just every bit of it is a homerun success rate so.
Speaker Change: Yeah.
Speaker Change: Historically, we would think a new store would open at $1.7 million and payback in three years and that was a great growth vehicle for us and we were happy about it Wall Street was happy about it.
James G. Conroy: So while I can't give you a specific day or timing for reversion to positive same-source sales growth, nearly everything else in the business is just operating extraordinarily well. So we'll manage our inventory levels based on the same source sales trend that we're currently facing. We were able to continue to grow merchandise margin even in a negative same-source sales environment.
To some degree we've been a victim of our success as we spiked that number up to three and a half million and now it's at three three.
Speaker Change: I don't view that as a a bottom and it could go down it could go up from there, but I do know is it's a 60% cash on cash return.
Speaker Change: Which is double what we had promised when we first went public.
Speaker Change: And we'll continue to open stores in a very accelerated way.
James G. Conroy: We haven't built up a tremendous amount of clearance markdowns, so we're managing through the current sales trend, I think, extremely well. And for the folks that work for the company, we all recognize that we had sort of a once-in-a-lifetime uptick in sales a couple of years ago, and to give back just a small portion of it really hasn't bothered the company. And again, I recognize that the folks on the call were that quick to buy and sell the stock based on the most recent quarter's same store sales. That may not give you a lot of comfort. But overall, the company is still pretty darn healthy. Got it, that's helpful.
Speaker Change: In terms of the new store waterfall.
Speaker Change: If the stores were opening at one seven we would really want them to start growing into an average store volume over time and get up to 3 million some day, but they're not they're opening a double that.
And while we'd love the waterfall to start right away.
Speaker Change: Circling back to my comment a minute ago to some degree we're a victim of our own success, where they are opening up at.
Speaker Change: Extremely strong volumes.
Speaker Change: In.
Speaker Change: In their first year the ones that just turned comp are comping kind of in line with the company's trend.
Speaker Change: One of the reasons for that if you want to think about a category by category is oftentimes our new stores have outsized success on the ladies side of the business when they open.
James G. Conroy: And then just on the new store economics, is it fair to assume that you now view $3 million as a potentially trough level? And then just any color on dispersion between maybe some of the faster and slower ramping stores? And then just within that, if we are closer to the bottom, what are you thinking that the new store waterfall could look like? So there's a few things embedded in that question. I am just every bit of it is a home run success, right?
Speaker Change: And because of the ladies business is under pressure from a bit of a fashion cycle. We think that's one of the reasons why we're not seeing the waterfall.
Speaker Change: Well once again recognizing that.
Speaker Change: Wall Street does tend to be extremely focused on same store sales.
Speaker Change: We're actually not that worried about that we're getting more volume faster than a higher return on capital than we ever expected, we could and if we give a little bit of that back in the second year that time, I mean, I suppose we could do something to constrain the first year sales. So we can get back to the waterfall, but I don't think we have plans to do that.
James G. Conroy: So, historically, we would think a new store would open for $1.7 million and pay itself back in three years. And that was a great growth vehicle for us. And we were happy about it. Wall Street was happy about it. To some degree, we've been a victim of our success because we spiked that number up to three and a half million, and now it's at three and a half. I don't view that as a
Speaker Change: I appreciate that color. Thanks, a lot guys.
Speaker Change: Of course, thanks Max.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Jason Haas with Bank of America. Please proceed with your question.
Jason Haas: Hey, good afternoon, and thanks for taking my questions.
Jason Haas: I was curious if you could provide some color on how you thought through the comp guidance for fiscal <unk> since it does seem to imply a deceleration either.
James G. Conroy: It could go down; it could go up from there. But what I do know is it's a 60% cash on cash return, which is double what we promised when we first went public. And we'll continue to open stores in a very accelerated way. In terms of the new store waterfall... If the stores were opening at 1.7, we would really want them to start growing into an average store volume over time and get up to 3 million someday, but they're not. They're opening at double that.
Speaker Change: Water on a two year stack basis and.
Jason Haas: And especially I'm, especially curious about it because you talked about January being impacted by weather.
Jason Haas: Sure.
Speaker Change: Yes, Jason so and guiding the fourth quarter. We followed the same approach we've been using all year, which is to apply the historical seasonality of the business to the most recent sales.
Jason Haas: And while it hasn't been perfect. This has been a much better predictor of the business that are looking at a two or a three year stack.
Jason Haas: And in this case, we use the the recent non holiday sales. So really October November and January and apply the historical seasonality of the business.
James G. Conroy: And while we'd love the waterfall to start right away, I'd circle back to my comment a minute ago. To some degree, we're a victim of our own success, where they're opening up at extremely high volume in their first year. And the ones that just turned comp are comping kind of in line with the company's trend. One of the reasons for that, if you want to think about it category by category, is that oftentimes our new stores have outsized success on the ladies side of the business when they open. And because the ladies' business is under pressure from a bit of a fashion cycle, we think that's one of the reasons why we're not seeing the waterfall. Well, once again, recognizing that Wall Street does tend to be extremely focused on same-source sales. We're actually not that worried about that.
Jason Haas: And when we talk about using the historical seasonality and in this case, we tried to exclude the COVID-19 noise and looked at last year the year before and then to the pre COVID-19 years and kind of blended out how the flow of those sales rolled out from the month of January and that's what we use.
Jason Haas: To project out the rest of the quarter.
Jason Haas: Interestingly enough when you use just the January as business and exclude October November and roll that forward to February or March you get to almost an identical answer and the guy. So we've continued to look at it based off kind of the recent business and historical seasonality in.
James G. Conroy: We're getting more volume faster and a higher return on capital than we ever expected we could. And if we give a little bit of that back in the second year, that's fine. I mean, I suppose we could do something to constrain the first year sales so we get back to the waterfall, but I don't think we have plans to do that. I appreciate that color.
Jason Haas: <unk>.
Jason Haas: Kicks out a number and oftentimes it's not what you would expect when looking at a multi year trend, but it's been a little bit more reliable.
Speaker Change: Got it that's helpful and then as a follow up I was curious if you could give us your sourcing exposure to China I think there's some talk about potential for more tariffs coming in and so I'm curious how that would impact you in the industry overall.
Max: Thanks a lot, guys. Of course. Thanks, Max. This question comes from the line of... Bank of... Hey, good afternoon, and thanks for taking my question. I was curious if you could provide some color on how you thought through the comp guidance for fiscal 4Q, since it does seem to imply a deceleration through the quarter on a two-year stack basis, and, you know, I'm especially curious about it because you talked about January being impacted by weather. Boom.
Speaker Change: Yes generally speaking.
Speaker Change: Rough numbers about half of what we sell comes from China about 25% for Mexico, and the balance coming from the U S and other countries.
Speaker Change: Got it that's helpful. Thank you.
Speaker Change: Yeah, I would add to Jim's comment.
Speaker Change: We've lived through a tariff environment before and it didn't really impact us.
Speaker Change: We certainly would prefer that that doesn't come back to us.
Speaker Change: That said it.
Jason: Yeah, Jason, so in guiding the fourth quarter, we follow the same approach we've been using all year, which is to apply the historical seasonality of the business to the most recent sales. And while it hasn't been perfect, this has been a much better predictor of the business than looking at a two or three year chart. And in this case, you know, we used recent non-holiday sales, so really, October, November, and January, and applied the historical seasonality of the business. And when we talk about using historical seasonality, in this case, you know, we tried to exclude the COVID noise and looked at last year, the year before, and then two of the pre-COVID years and kind of blended out how the flow of those sales rolled out, you know, from the month of January.
Speaker Change: It certainly doesn't make us uniquely less competitive in the industry.
Speaker Change: Actually construct an argument that it makes us more competitive because we're the biggest player we have exclusive brands in our merger drivers et cetera. So it's something we're watching and being cognizant of it.
Speaker Change: But I don't think it's really keeping us awake at night either.
Speaker Change: Okay got it thank you that makes sense.
Speaker Change: Thanks Nathan.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from the line of Dylan Carden with William Blair. Please proceed with your question.
Dylan Carden: Thanks, a lot.
Dylan Carden: Just anticipation that those comments on private label penetration flat to down in the fourth quarter. It might raise some eyebrows any more color you can add there.
Dylan Carden: It sounds like Youre anticipating.
Dylan Carden: Back to growth next year.
Speaker Change: There will be helpful.
Speaker Change: Yeah.
Speaker Change: Sure I wouldn't worry really at all about the exclusive brand, it's not it's not weaker brands or bad product. It's the result of arithmetic essentially so R. R. B.
Jason: And that's what we used to project out the rest of the quarter. Interestingly enough, when you use just January's business and exclude October, November, and roll that forward to February, and March, you get almost an identical answer in the guide. So we've continued to look at it based on kind of recent business and historical seasonality and, it kicks out a number, and oftentimes, it's not what you would expect when looking at a multi-year trend, but it's been a little bit more reliable.
Speaker Change: Businesses are penetrated at different levels in our ladies businesses are penetrated the highest with exclusive brands and because those are a smaller portion of our sales in this quarter, because they're comping down more.
Speaker Change: It's taking the exclusive brand penetration down with it.
Speaker Change: And that we are facing 300 basis points of headwind in penetration simply due to the composition of the business.
Speaker Change: So if we were if.
Jim Watkins: That's helpful. And then, as a follow-up, I was curious if you could give us your sourcing exposure to China since there's some talk about the potential for more tariffs coming in. And so I'm curious how that would impact you and the industry overall. Yeah, generally speaking, rough numbers: about half of what we sell comes from China, about 25% from Mexico, and the balance comes from the US and other countries. Got it, that's helpful. Thank you.
Speaker Change: Said differently, if the composition of sales didn't change in the quarter, we would've seen we'd be projecting growth for this particular quarter and exclusive brands.
Speaker Change: So I hope that answers the question I mean, it's of course, we preferred to have growth, we get more margin that way. It helps build our merchandize margin, but it's truly just a result of the math of the business.
Speaker Change: And I think we also have other abilities to grow our merchandise margin. In addition to exclusive brands and done as we look into fiscal 'twenty. Five we are planning on returning to growth in exclusive brand penetration right. So this is a one quarter.
James G. Conroy: [inaudible] We've lived through a tariff environment before, and it didn't really impact us. We certainly would prefer that that doesn't come back to us.
James G. Conroy: It certainly doesn't make us uniquely less competitive. We could actually construct an argument that it makes us more competitive because we're the biggest player, we have exclusive brands that are margin drivers, et cetera. So it's something we're watching and being cognizant of. But I don't think it's really keeping us awake at night either.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: And a drag on the business.
Speaker Change: Great and is it kind of bleeds into another question around one way to think about the <unk>.
Speaker Change: On the volume question, perhaps is what business youre, losing.
Speaker Change: And as you kind of walk through some of the categories, where you have been weaker obviously women.
Speaker Change: Do you feel like you're reaching a point, where the discretionary nature of some of the what's remaining or just the behavior of your customers or anything to kind of give you some comfort.
Jason: Got it. Thank you. That makes sense. Thanks, Jason. [inaudible] IE, IE, IE, IE, IE, This is from the line of Dylan Carden with William. Thanks a lot.
Around how much more there.
Speaker Change: Bruce.
Speaker Change: Okay.
Bruce: It does that I think we continue to have a very solid.
Bruce: These functional business. So all of work business, both men's and ladies most of men's western business is functional.
Dylan Douglas Carden: Just in anticipation that those comments on private label penetration flat to down in the fourth quarter might raise some eyebrows, any more color you can add there? It sounds like you're anticipating back to growth next year, but anything there would be helpful. Sure, I wouldn't worry really at all about the exclusive brand. It's not weaker brands or bad products. It's the result of arithmetic, essentially.
Bruce: A portion of our ladies business as functional.
Bruce: So the bid that is more cyclical perhaps caught up in a fashion cycle a couple of years ago.
Bruce:
Bruce: There is there is it could still decline further and we still have fashion ladies business in the store and still are doing some <unk>.
James G. Conroy: So our There's a are penetrated at different levels in our ladies' businesses. [inaudible] in this quarter because they're comping down more. It's taking the exclusive brand penetration down with it, so we're facing 300 basis points of headwind and penetration. So if we were, if, said differently, if the composition of sales didn't change in the quarter, we would have seen, we'd be projecting growth for this particular quarter-inclusive brand. So I hope that answers the question.
Bruce: Relatively significant sales there.
Bruce: But it's.
Bruce: It's tempered to a large extent by the overall business there.
Bruce: It does tend to be much more functional so I don't think we're necessarily out of the woods in the ladies business yet.
Bruce: I do think at some point well probably in the next few quarters start to see that trend improve and hopefully get to flatten perhaps positive after that but I don't think that's going to happen in the next one.
James G. Conroy: I mean, of course, we prefer to have growth; we get more margin that way. It helps build our merchandise margin. But it's truly just a result of the math of the business.
Bruce: One or two quarters.
Speaker Change: Understood. Thanks, a lot guys.
Speaker Change: Thank you. Our next question comes from the line of Janine Stichter with BTG. Please proceed with your question.
Janine Stichter: Hi, everyone wanted to ask about the e-commerce business. It seems like it's still kind of.
Janine Stichter: Rain down in that negative low double digit range, let us know how you think about that piece of the business that are not that boot barn, dot com business and remind us of the strategic importance of having separate country outfitter.
Dylan Douglas Carden: And I think we also have other abilities to grow our merchandise margin in addition to exclusive brands. And Dylan, as we look into fiscal 25, we are planning on returning to growth and exclusive brand penetration, right? So this is a one-quarter drag on the business. Great.
Janine Stichter: The Amazon business and then we'll update you hedged how youre thinking about driving that business into next year, we're hearing of AD rates continuing to push higher so how do you think about how that business evolved just in light of maybe higher Kaufman.
Speaker Change: Sure. Thank you.
Speaker Change: Sure very good question.
Speaker Change: So the four pieces boot barn dot Com of course is an extension of the store.
James G. Conroy: And it kind of bleeds into another question around one way to think about the unit volume question, perhaps about what business you're losing. And as you kind of look through some of the categories where you've been weaker, obviously women, do you feel like you're reaching a point where the discretionary nature of some of what's remaining or just the behavior of newer customers or anything to kind of give you some comfort about how much more, in theory, you could lose? Does that make sense? It does indeed.
Speaker Change: And we do really pride ourselves on that omni channel experience and I think those two channels have been stitched together quite well and they also share the same retail prices.
Speaker Change: <unk> Dot com <unk>.
Speaker Change: True to its heritage is a very price conscious customer.
Speaker Change: And oftentimes frankly is a lower price than boot barn, dotcom and we.
Speaker Change: Like that brand because it enables us to.
James G. Conroy: I think we continue to have a very solid, base-functioning business. So all of our work business, both men's and ladies, most of our Western business is functioning. And a portion of our ladies business is functional. So the bit that is more cyclical, perhaps caught up in a fashion cycle a couple of years ago, it could still decline further, and we still have fashion women's business in the store and still do some relatively significant sales there. But it's tempered to a large extent by the overall business, which does tend to be much more functional. So I don't think we're necessarily out of the woods in the ladies' business yet. I do think at some point, probably in the next few quarters, we'll start to see that trend improve and hopefully get to flatten, perhaps positive after that. But I don't think that's gonna happen in the next one or two quarters.
Speaker Change: Compete against other online players that are playing a price game.
Yeah.
Speaker Change: So that's that's kind of the Shepler has strategic importance country Outfitters was an acquisition several years ago. It tends to be focused on ladies' fashion, which is one of the reasons why its having so much difficulty right now.
Speaker Change: We do think there is some long term possibility for that business to get back to growth. It also gives us a testing ground for trying new things without impacting the two bigger business.
Speaker Change: The Amazon business is I think a necessary evil.
Speaker Change: <unk>.
Speaker Change: Sell some product on their ads, so do a lot of other people it tends to be a low margin business for us, but still profitable.
Speaker Change: So we participate in sort of that.
Speaker Change: Behemoths of Amazon.
James G. Conroy: I understand. Thanks a lot, guys. Hi everyone.
Speaker Change: And that businesses is gives us a read on sort of the general public demand.
James G. Conroy: Yeah, I wanted to ask about the e-commerce business. It seems like it's still kind of hovering down in that negative little double-digit range. I want to know how you think about the pieces of the business that are not the bootbarn.com business. Remind us of the strategic importance of having Shuffler's Country Outfitter and the Amazon business, and then we'd love to hear how you're thinking about driving that business into next year. We're hearing ad rates continuing to push higher, so how do you think about how that business evolves just in light of maybe higher costs on ad spend into next year? Thank you. Sure, very good question. So the four pieces, bootbarn.com, of course, is an extension of the store. And we do really pride ourselves on that omni-channel experience. And I think those two channels have been stitched together quite well. And they also share the same retail price, true to its heritage as a very price-conscious customer and, oftentimes, frankly, at a lower price than bootbarn.com.
That might be more casual purchasers of our product.
Speaker Change: And in terms of the future of the online business and the growth the online spend and the inefficiency of that is real.
Speaker Change: We could quite easily get more sales and spend more money in.
Speaker Change: Those sales would be EBIT eroding. So we just don't do it.
Speaker Change: So we manage it somewhat algorithmically.
I do think that will normalize at some point there'll be sort of a new equilibrium.
Speaker Change: That is another business that when we look at our historic respective it's grown extremely strongly over a few years.
Speaker Change: Well, we'd like it to get back to positive sales. The fact that it's giving a portion of the business back after.
Speaker Change: After such outsized growth.
Speaker Change: Yes, it might be kind of expected, but we do think it can get back to positive sometime in fiscal 'twenty five.
Speaker Change: Perfect. Thank you and then just wanted to follow up on the tariff question do you have an estimate of what you directly import from China understand I think you said half of your product from China, but only a portion of that.
James G. Conroy: And we like that brand because it enables us to compete against other online players that are playing a price game. So that's kind of the Shepler's. Country Outfitters was an acquisition several years ago. It tends to be focused on women's fashion, which is one of the reasons why it's having so much difficulty right now. We do think there is some long-term possibility for that business to get back to growth. It also gives us a testing ground for trying new things without impacting the two bigger businesses. The Amazon business is, I think, a necessary evil. We sell some products on there. So do a lot of other people.
Speaker Change: Correct.
Speaker Change: Yes. It is.
Speaker Change: Similar with the exclusive brands.
Speaker Change: Yeah between exclusive brands and third party, it's still about 50%.
Speaker Change: Perfect. Thanks, so check the box.
The direct import would be half of 30, 37% roughly.
Speaker Change: Okay. Thank you very much.
Speaker Change: Okay.
Thank you. Our next question comes from the line of Jonathan Komp with Baird. Please proceed with your question.
Jonathan Robert Komp: Yeah, Hi, Thank you maybe just to follow up once more when you run through the exercise and look at the sales volumes that you called out for a project in the fourth quarter.
James G. Conroy: It tends to be a low-margin business for us, but still profitable. So we participate in sort of the behemoth of Amazon. And that business gives us a read on sort of the general public demand that might be more casual purchasers of. In terms of the future of the online business and the growth, the online spend and the inefficiency of that is real. We could quite easily get more sales and spend more money, and those sales would be EBIT eroding, so we just don't do it. So we manage it somewhat algorithmically.
Jonathan Robert Komp: Ailes and comps could you just share a little more insight when you do that.
Same exercise what does that inform you to you know when the comps of the business could turn back positive and how should we think about.
Jonathan Robert Komp: Any swing factors, one way or another.
Jonathan Robert Komp: Sure.
Jonathan Robert Komp: Yeah.
Speaker Change: Encouraging as we look to this current quarter and well, it's a deceleration on a two year stack and maybe a couple of other stacks. If we go back far enough.
Speaker Change: And that in the February and March period.
Speaker Change: We're guiding that business in the stores to be.
James G. Conroy: I do think that it will normalize at some point. There'll be sort of a new equilibrium. That is another business, though, when we look at it from a historical perspective, it's grown extremely strongly over a few years, and, While we'd like it to get back to positive sales, the fact that it's giving a portion of the business back after such outsized growth might be kind of expected, but we do think it can get back to positive sometime in fiscal 25. Perfect, thank you. And then I just want to follow up on the tariff question. Do you have an estimate of what you directly import from China? I understand I think you said half of your products are from China, but only a portion of that is. Yeah, it's similar with the exclusive brands.
Speaker Change: Yeah minus four minus five right and so that's an improvement off of what we've seen.
Speaker Change: More recently and so that's encouraging I would also say aye.
Speaker Change: I think you go back a couple of quarters, we talked about this time period, where February March April over the last several years has had a lot of macro noise in it between.
Speaker Change:
Speaker Change: Covid and omicron and tax stimulus and tax refund payments and different things in that so it is a little bit harder to read kind of where that business is going but what what I would say as you know February and March of last year. So just a year ago, we did see a slowing in the trend of the business.
Speaker Change: That was abnormal for the seasonality of that so as we're planning this year and at least getting through February and March.
Speaker Change: You know if theres any kind of.
James G. Conroy: Yeah, between exclusive brands and third parties, it's still about 50%. The direct import would be half of 37% gross. Got it. Thank you very much. This question comes from the line of... Yeah, hi, thank you.
Speaker Change: Reversion back to to what's been been normal.
Speaker Change: There is some upside to February and March and that would be encouraging as well as we look to fiscal 'twenty five.
Speaker Change: It's a long way to not answer your question John but the.
Jim Watkins: Maybe just to follow up once more, when you run through the exercise and look at the sales volumes that you called out for projecting the fourth quarter sales and comps, could you just share a little more insight when you do that? The same exercise, what does that inform you about when the comps of the business could turn back positive? And how should we think about, you know, any swing factors one way or another?
Speaker Change: As we look to fiscal 'twenty five I think we really just have to get through the next three months or so to give you a better read on when that.
Speaker Change: Turns positive.
Speaker Change: Yeah, that's helpful color and maybe just.
Speaker Change: Couple of follow ups quickly that the fourth quarter, Jim could you just confirm it looks like maybe the implied product margin is a little lower today than it was previously even after you account for the exclusive brand update you gave so I just wanted to confirm if that's the case if anything is changing on the product margin side, and then just to clarify that that S.
Jim Watkins: Sure. You know, it's encouraging as we look at this current order, and while it's a deceleration on a two-year stack and maybe a couple other stacks if we go back far enough. In the February and March period, you know, we're guiding that business in the stores to be, you know, minus four or minus five, right. And so that's an improvement on what we've seen, you know, more recently. And so that that's encouraging.
Speaker Change: G&A comments for fiscal 'twenty five.
Speaker Change: Are you, implying you still need more than a 4% comp to leverage.
Speaker Change: Similar to how they set up was in 2024, just just trying to read kind of about the reason for given that commentary today on the SG&A sure. Thanks Sharon.
Jim Watkins: Yeah no problem. So on the on the product margin for Q4, we're guiding that plus 20 basis points year over year on the product margin in our freight would be a 140 basis points and so despite flat to maybe a little bit negative exclusive brand penetration, we still expect that to grow from better economies of scale.
Jim Watkins: I would also say if you go back a couple of quarters, we talked about this time period where February, March, April, over the last several years, has had a lot of macro noise in it between, you know, COVID and Omicron and tax stimulus and tax refund payments and different things in there. So it is a little bit harder to read kind of where that business is going. But what I would say is, you know, February and March of last year, so just a year ago, we did see a slowing in the trend of the business that was abnormal for the seasonality of that.
Jim Watkins: And then is as we look to fiscal 'twenty five on the SG&A side of things.
Oh, I guess I'll talk to both the buying and occupancy and SG&A on buying and occupancy we had talked about kind of that 4% comp needed to leverage buying and occupancy we'll update you at the sea air to let you know if there are any changes to that as we get to next year.
Jim Watkins: So as we plan this year and at least get through February and March, you know, if there's any kind of reversion back to what it has been normal, there's some upside to February-March, and that would be encouraging as well as we look to fiscal 25. It's a long way to not answer your question, John, but as we look to fiscal 25, I think we really just have to get through the next three months or so to give you a better read on when that turns positive. Yeah, that's a helpful color.
Jim Watkins: Assuming that there are not changes to that then the benefits that we called out on supply chain.
Jim Watkins: To help lower that leverage point.
Jim Watkins: But it's too early to kind of say before we've done our full buildup of next year's budget.
Whether that is 4% precisely for next year or not and then on SG&A that.
Jim Watkins: Maybe just a couple of follow-ups quickly on the fourth quarter, Jim, could you just confirm that maybe the implied product margin is a little lower today than it was previously, even after your account for the exclusive brand update you gave. So I just want to confirm if that's the case, if anything's changing on the product margin side. And then just to clarify, the SG&A comments for fiscal 25, are you implying that you still need more than a 4% comp to leverage, you know, that's similar to, you know, how the setup was in 2024? Just trying to read kind of the reason for giving that commentary today on SG&A.
Jim Watkins: The leverage point there at the same store sales required to get leverage in SG&A.
Jim Watkins: It's historically been at two 5%.
Jim Watkins: Called out the you know the new corporate building will put some pressure on that yeah, that's going to be again, it's still a little early to tell but similarly, probably.
Jim Watkins: Five or $6 million hurt on.
Jim Watkins: SG&A next year, but again, we're working on things that well yes.
Jim Watkins: Help offset some of that hopefully.
Jim Watkins: And we will give you an update on kind of what that leverage point looks like as we get into next year on our may call.
Speaker Change: Understood. Thanks again.
Speaker Change: Thanks, Sean Thanks, Sean.
Speaker Change: Thank you. Our next question comes from the line of Jeremy Hamblin with Craig Hallum. Please proceed with your question.
Jeremy Scott Hamblin: Thanks for taking the questions and just wanted to start with.
Jeremy Scott Hamblin: New store openings I think I caught.
Jeremy Scott Hamblin: In the script that you were expecting for FQ4 that.
Jeremy Scott Hamblin: All of the openings for the March quarter, we're going to be in the back half of the quarter.
Jim Watkins: Sure, sure. So, yeah, no problem, John. So on the product margin for Q4, we're guiding that plus 20 basis points year over year on the product margin, and the freight would be 140 basis points. And so despite flat to maybe a little bit negative exclusive ramp penetration, we still expect that to grow from better economies of scale. And then as we look to Fiscal 25 on the SG&A side of things, I guess I'll talk about both the buying and occupancy and SG&A. On buying and occupancy, we talked about kind of that 4% comp needed to leverage buying and occupancy. We'll update you to see or let you know if there are any changes to that as we get closer to next year.
Speaker Change: And then you know.
Speaker Change: Just if you could provide a little bit color on that and then related as we look ahead to your commentary on FY 'twenty five unit growth.
Speaker Change: Is there anything notable that you would point out on the expected cadence of those openings.
Speaker Change: I think you recounted the script comments, we are back loaded into this quarter in terms of our fiscal 'twenty five.
Speaker Change: At the risk of laying out guidance that we're certainly not prepared to do today was in the next call. There's there's nothing unique to call out that they're all going to be in the first quarter are all going to love it.
Speaker Change: We're going to try to make them relatively spread out throughout the year.
Jim Watkins: Assuming that there are not any changes to that, then the benefits that we called out on the supply chain would help lower that leverage point. It's too early to kind of say, before we've done our full buildup of next year's budget, whether that is 4% precisely for next year or not. Then on SG&A, the leverage point there, same-store sales required to get leverage at SG&A have historically been at 2.5%, calling out the new corporate building. We'll put some pressure on that. That's going to be a... Again, it's still a little early to tell, but similarly, probably a $5 or $6 million hit on SG&A next year.
Speaker Change: So nothing specific to call out and I would just add Jeremy the pipeline is healthy we've got a lot of leases that we've signed and so we're headed into next year with a very healthy pipeline.
Speaker Change: Got it and then if I could just dig in a little bit here on the new headquarter.
Speaker Change: Which you know I guess to move as expected.
Speaker Change: Q3, or Q4 fiscal 'twenty five.
Speaker Change: What is the.
Speaker Change: The annual lease cost.
Speaker Change: Higher than what Youre currently your pain and then what is the expected depreciation.
Speaker Change: On an annualized basis, yeah. So so it's still it's still a little of it.
Speaker Change: It's still a little early to give you all of those costs, because we haven't built out the.
John: But again, we're working on things that will hopefully help offset some of that. And we'll give you an update on kind of what that leverage point looks like as we get into next year, you know, on our May call. Thanks again.
Speaker Change: Property, yet in the in the space, but the number I just threw out there $5 million to $6 million would be the P&L expense for next year and that includes.
Speaker Change: The increase in lease cost and it is important to point out that when we moved into this.
Jeremy Scott Hamblin: Thanks, John. Thanks, John. Our next question comes from the line of Jeremy Hamblin with...
Speaker Change: Building that we're currently in.
Speaker Change: Several years ago were a much smaller organization, where we just don't fit anymore and so it will be.
James G. Conroy: Thanks for taking the questions. And I just wanted to start with the new store openings. I think I caught in the script that you were expecting for FQ4 that all of the openings for the March quarter were going to be in the back half of the quarter. And then, you know, just so you could provide a little bit of color on that. And then related, as we look ahead to your commentary on FY25 unit growth, is there anything notable that you would point out on the expected cadence of those? I think you recounted the script comments.
Speaker Change: It's a bigger building.
Speaker Change: The lease costs are higher you know just given that its a new lease as well.
Speaker Change: Included in that $6 million, though is a period of some some double rent some depreciation that starts later in the year and my expectation as we get into the following year.
Speaker Change: Yeah.
Speaker Change: $5 million to $6 million will likely be a little bit lower than that kind of on a run rate basis as we.
Speaker Change: We will incur some costs that are more onetime in nature of this year and moving so again the purpose of calling that out with that we will have some benefits in.
Jim Watkins: We are backloaded into this quarter. In terms of our fiscal 25, our fiscal 25, I think you recounted the script comments. We are backloaded into this quarter, at the risk of laying out guidance that we're certainly not prepared to do today; we'll do it on the next call. There's nothing unique to call out that they're all going to be in the first quarter, all going to be in the last.
Speaker Change: Benefit in.
Speaker Change: Yeah.
Speaker Change: Some of our supply chain costs to the tune of $6 million and a little bit of a drag due to the corporate office building at the SG&A line.
Speaker Change: It's kind of a neutral between the two but it may create a little geography.
Speaker Change: Worked for you in your models and wanted to just make sure you're aware of that.
Speaker Change: Yeah.
Speaker Change: Got it that's helpful Best of luck.
Speaker Change: Thank you. Thank you.
James G. Conroy: You know, we're going to try to make them relatively spread out throughout the year. So nothing specific to call out. And I would just add, Jeremy, the pipeline's healthy.
Speaker Change: Thank you. Our next question comes from the line of Jeff <unk> with B Riley Securities. Please proceed with your question.
Jeff: Thanks for squeezing me in.
Jeff: Jim Connor I was wondering if you by my math it seems like you've taken your Q4 guidance down by about $23 million I'm just curious.
Jim Watkins: We've got a lot of leases that we've signed, and so we're headed into next year with a very healthy pipeline.
Relative to when you previously gave kind of the implied guidance.
Jeff: Just elaborate on whats changed in terms of your thoughts over that time period and then another quick question would be.
Jim Watkins: And then, if I could just dig in a little bit here on the new headquarters, which, you know, I guess the move is expected in Q3 or Q4 of Fiscal 25, you know, what is the annual lease cost? higher than what you're currently paying, and then what is the expected depreciation, and you know, the increased lease cost. And it's important to point out that, you know, when we moved into this building that we're currently in, several years ago, we were a much smaller organization where we just didn't fit anymore, and so it's a bigger building. The lease costs are higher, just given that it's a new lease as well.
Jeff: Could you give us as it relates to the new store openings and kind of non traditional market. So I was wondering you know usually you have a couple of good anecdotes like you did with Scottsdale, if theres anything that just kind of shows how the.
Jeff: The concept is resonating in places like Connecticut, or New Hampshire.
Speaker Change: Well I'll take the one on new stores and Jim Watkins can take the one on.
Speaker Change: The guidance for Q4.
Jim Watkins: New stores are working pretty much everywhere in new markets and legacy markets I think the.
Jim Watkins: Phoenix Slash Scottsville example, that you might be alluding to is we used to have forced their stores. There now we've each stores there.
Jim Watkins: Included in that $6 million, though, is a period of some double rent and some depreciation that starts later in the year. My expectation as we get into the following year is that this $5 million to $6 million will likely be a little bit lower than that on a run rate basis as we benefit and cover some of our supply chain costs to the tune of $6 million. A little bit of a drag due to the corporate office building of SG&A Line. It's kind of a neutral between the two, but it may create a little geography work for you and your models, and wanted to just make sure you're aware of that.
Jim Watkins: And with more and more development opportunities in our view are still there and.
Jim Watkins: You know those.
Jim Watkins: Four stores Houston to their volume has gone up we've comped up while we're adding stores. There. So we've kind of learned that we continue to build our legacy markets and have it be net new business and Matt Erode our com.
Jim Watkins: We've also been able to open up in the northeast and have had some real nice successes in markets that would traditionally be considered western.
Speaker Change: Yes on the first part of your question the change in the Q4 sales the $23 million is really a function of when we guided in.
Jim Watkins: Got it. That's helpful. Best of luck. Thank you. Thank you. Our next question comes from the line of... Be Riley.
Speaker Change: November 2nd on this.
Speaker Change: Yeah, we had the October business.
Jeff: Thanks for squeezing me in. Jim Conroy, I was wondering if, by my math, it seems like you've taken your Q4 guidance down by about $23 million. I'm just curious, relative to when you previously gave implied guidance, if you could just elaborate on what's changed in terms of your thoughts over that time period. And then another quick question would be, could you give us some, as it relates to the new store openings and kind of non-traditional markets? I was wondering if you usually have a couple of good anecdotes like you did with Scottsdale. If there's anything that just kind of shows how the concept is responding in places like Connecticut or New Hampshire.
Speaker Change: Done and we guided based off what was kind of late September October business and unfortunately.
Speaker Change: Things softened a little bit more on the sales trend as we got particularly into December more than what we had anticipated and so we've.
And January was softer than what we had anticipated. So we've just rolled that forward based off of what we've seen in the recent business.
Speaker Change: I'm, assuming I guess, what I'm looking for is it.
Speaker Change: Primarily the ladies business or your what you'd call a discretionary fashion business.
Speaker Change: Okay.
Speaker Change: Yeah, I mean, it's it's it's kind of a broad base.
Just slower than what we had thought it it's not that that one business got significantly worse and everything else kind of stay at the same but it's more broad based on that.
James G. Conroy: Well, I'll take the one on new stores, and Jim Watkins can take the one on..., the guidance for Q4. The new stores are working pretty much everywhere, in new markets and in legacy markets. I think the Phoenix slash Scottsdale example that you might be alluding to is that we used to have four stores there. Now we have eight stores there, and with more and more development opportunities in our view are still there, and you know those four stores used to, you know, their volume has gone up. We've comped up while we're adding stores there, so we've kind of learned that we can continue to build out legacy markets and have it be net new business and not erode our comp. We've also been able to open up in the Northeast and have had some really nice successes in markets that wouldn't traditionally be considered Western.
Speaker Change: Okay, great. Thanks for taking my question and best of luck look forward to chat with you soon alright.
Speaker Change: Alright, Thanks, Jeff.
Speaker Change: Thank you.
Speaker Change: So we're coming up on the one hour limit. Our final question will come from the line of Mitch <unk> with seaport.
Mitch: Global Securities. Please proceed with your question.
Mitch: Hi, yes, thanks for taking my questions.
Mitch: A few things one I was hoping to get a little bit more clarity on the January comp I do appreciate the regional breakout given the weather, but Jim Condra I think you said that like weeks one in four.
Speaker Change: We're pretty normal weather wise across the country.
Speaker Change: When you sort of isolate those weeks was your store comp kind of in that low to mid single digit range or is there anything more you can say about it.
Speaker Change: That was sort of non weather impacted weeks.
Jim Condra: Yeah. So so January in total was minus eight ish and the <unk>.
Jim Condra: Non weather impacted businesses were low single digit negative.
Jim Watkins: Yeah, on the first part of your question, the change in Q4 sales, the $23 million, is really a function of when we guided in on November 2, on the Yes, we have the October business. And January was softer than what we had anticipated also. So we've just rolled that forward based on what we've seen in the recent business. And I'm assuming I guess what I was looking for is it that's primarily the, you know, the ladies business or what you'd call a discretionary fashion business.
Jim Condra: And then of course, the others were double digit negative with with some submarkets just getting really really.
Jim Condra: Hurt with with the weather.
Speaker Change: That's the color I'd provide okay.
Speaker Change: Could you say what your ladies comp was for January or for the first four weeks of the quarter.
Speaker Change: In line with Q3.
Speaker Change: Three.
Speaker Change:
Speaker Change: Maybe a little bit worse.
Speaker Change: Not the least functional of our businesses.
Speaker Change: Certainly somebody making a special trip during difficult weather to go by so and seen a slight erosion or deterioration sequentially from our Q3 business.
Jeff: Yeah, I mean, it's kind of a broad base, just lower than we thought it would be. It's not that, you know, that one business got, you know, significantly worse, and everything else kind of stayed the same, but it's more broad based than that. Okay, great. Thanks for taking my question and best of luck. Look forward to chatting with you soon.
Speaker Change: And then I guess lastly, just.
Speaker Change: Given your comments around exclusive brand penetration in the fourth quarter.
Speaker Change: How that business skews to the ladies and the fact that you expect the penetration to be down does that suggest that there's going to be a bigger delta and your performance between kind of ladies and normally you use of the fourth quarter than what you've seen sort of year to date is that the right kind of takeaway.
Mitch: All right. Thanks, Jeff. As we are coming up on the one-hour limit, our final question will come from the... Yes, thanks for taking my questions. A few things. One, I was hoping to get a little bit more clarity on the January comp. I do appreciate the regional breakdown given the weather, but Jim Conroy, I think you said that weeks one and four were pretty normal weather-wise across the country. When you sort of isolate those weeks, was your store comp kind of in that low to mid single-digit range, or is there anything more you can say about, you know, those sort of non-weather-impacted weeks? Yeah, so January in total was minus eight ish. And the non-weather impacted businesses were low single digit negative. And then, of course, the others were double digit negative with some some markets just getting really, really hurt by the weather.
Speaker Change: Those comments.
Speaker Change: Okay.
Speaker Change:
Speaker Change: I feel like I'm doing a math problem with my son.
Speaker Change: It's a fair hypothesis I think the what.
Speaker Change: The reason, we called it out this time.
Speaker Change: Is because they pushed the penetration from positive to negative right. If you. If you work back to the most recent quarter, we had the same dynamic but because.
Speaker Change: Exclusive brands still grew three points.
Speaker Change: We I suppose we could have called out that it would've grown I'm, making this number up by 500 basis points, rather than 300 basis points by for a composition. We just didnt because we didn't think it was going to raise any eyebrows, we had a feeling that when we called out that exclusive brands could be.
James G. Conroy: So that's the color I provide. OK. Could you say what your ladies' comp was for January, or for the first four weeks of the quarter? In line with, 1, 2, 3. Maybe a little bit worse, and Nick Knight, you know, the least functional of our businesses, and certainly somebody making a special trip during difficult weather to go by, so including a slight erosion or deterioration sequentially from our Q3 visit.
The decline from a penetration standpoint in this particular quarter, we worked up the math.
Speaker Change: So I wouldn't I wouldn't read anything further into that other than the fact that because you pushed it to a decline rather than an improvement in penetration we thought it was important to call out.
Mitch: And then I guess lastly, just given your comments around exclusive brands penetration in the fourth quarter and how that business skews to the lady. The fact that you expect the penetration to be down, does that suggest that there's going to be a bigger delta in your performance between kind of ladies and non-ladies in the fourth quarter than you've seen sort of year to date? Is that the right kind of takeaway from those comments? Um, I feel like I'm doing a math problem with my son.
Speaker Change: Okay fair enough alright, thanks, and good luck.
Speaker Change #100: Thanks, Nick.
Speaker Change #101: Thank you.
Speaker Change #101: It's being the for a question and answer session and I would like to turn the floor back over to Mr. Jim Conroy for closing comments.
James G. Conroy: Thank you everyone for joining the call today, we look forward to speaking with you on our fourth quarter earnings call take care.
Speaker Change #103: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change #103: Yeah.
Speaker Change #103: [music].
James G. Conroy: It's a fair hypothesis. I think the reason we called it out this time is because it pushed the penetration from positive to negative, right? If you work back to the most recent quarter, we had the same dynamic, but because Exclusive Brands still grew three points, we could have called out that it would have grown. I'm making this number up, but 500 basis points rather than 300 basis points, but for composition, we just didn't do it because we didn't think it was going to raise any eyebrows.
Speaker Change #103: Mhm.
Speaker Change #103: [music].
James G. Conroy: We had a feeling that when we called out that exclusive brands could be, the decline from a penetration standpoint in this particular quarter. We worked out the math, so I wouldn't read anything further into that other than the fact that because it pushed it to a decline rather than an improvement in penetration, we thought it was important to call out. Okay, fair enough. All right. Thanks, and good luck. Thanks, Mitch. [inaudible] Thank you, everyone, for joining the call today. We look forward to speaking with you on our fourth quarter earnings call. Take care. This concludes today's... You may disconnect. Thank you for your time.
Speaker Change #103: Mhm.
Speaker Change #103: [music].
Speaker Change #103: Hum.
Speaker Change #103: [music].
Speaker Change #103: Hum.
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Speaker Change #103: [music].
Speaker Change #103: Hum.
Speaker Change #103: Mhm.
Speaker Change #103: [music].
Speaker Change #103: Uh-huh.
Speaker Change #103: [music].
Speaker Change #103: Okay.