Q2 2025 Boot Barn Holdings Inc Earnings Call
Speaker Change: Good day everyone and welcome to the Bootborn Holdings Incorporated 2nd Quarter 2025 earnings call. As a reminder, this call is being recorded.
Speaker Change: Now I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Finance. Please go ahead sir.
Mark Dedovesh: Thank you, good afternoon everyone.
Mark Dedovesh: Thank you for joining us today to discuss Boone 2nd quarter fiscal 2025 earnings faults.
Speaker Change: with you on today's call, our Jim Conroy, President and Chief Executive Officer, John Hayson, Chief Digital Officer, and Jim Watkins, Chief Financial Officer. A copy of today's press release, along with a supplemental financial presentation, is available on the Investual Relations section of the Barnes website at DuParn.com.
Speaker Change: 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. I would like to remind you that certain statements we will make during this call are forward-looking statements.
Speaker Change: These forward-looking statements reflect Buffon's judgment and analysis only as of today and actual results may differ maturely from current expectations based on a number of factors affecting Buffon's business.
Speaker Change: Accordingly, you should not place undue reliance on these forward-looking statements.
Speaker Change: 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 second quarter fiscal 2025 earnings release, as well as our filings with the SEC referenced in that disclaimer.
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. I will now turn the call over to Jim Conroy, Buparn's President and Chief Executive Officer. Jim?
Jim Conroy: Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. As we announced in today's press release, I have made the decision to step down as president and CEO of Blue Barn to pursue an opportunity as CEO of Ross Stores.
Jim Conroy: I am extremely proud of the accomplishments of the Buparna organization during my tenure and will be forever grateful to the team with whom I've shared this amazing journey.
Jim Conroy: John Hazen, our chief digital officer, will assume the role of interim CEO after my departure on November 22nd, while the company conducts both an internal and external search before making a permanent decision.
Jim Conroy: John is currently responsible for e-commerce, marketing, and the customer experience. He has led many of our innovations over recent years and has partnered very closely with both merchandising and store operations as we've built out the brand and our omni-channel experience.
Jim Conroy: John's prior experience includes running both the stores and e-commerce businesses at True Religion. Prior to that role, John ran the digital business at Fox Racing, a leading lifestyle action sports brand.
Jim Conroy: John is a very collaborative leader, a solid contributor to the strong culture at Boot Barn, and is highly regarded within the organization.
Jim Conroy: Additionally, Pete Starrett, the Chairman of the Board for the past 12 years, will transition into the role of Executive Chairman.
Jim Conroy: Pete knows the company extremely well and is committed to working through an orderly transition.
Jim Conroy: John will be well supported by the senior management team that includes Jim Watkins, our CFO, Lori Groholva, our Chief Merchandising Officer, and Mike Love, our Chief Retail Officer.
Speaker Change: This group has worked together for over a decade, and I have a great deal of confidence that the company will operate smoothly going forward despite my absence.
Jim: I am confident in John's ability to lead as interim CEO, and I am pleased to now turn the call over to him. John? Thank you, Jim.
John: I appreciate the vote of confidence from you and the board, and I'm excited to take on this new role. I feel fortunate that the company is healthy, has strong momentum, and has a solid team in place that has been working together for a long time.
John: At this point, I would like to turn our attention to our second quarter fiscal 25 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 for questions.
John: We are very pleased with our second quarter results, which reflect broad-based strength across all major merchandise categories, in stores and online, and across all geographies. During the quarter, revenue increased by 14%, including consolidated same-store sales growth of 4.9%.
John: Same store sales in both the stores and e-commerce channels were positive and sequentially improved in the quarter, with stores increasing 4.3% and e-commerce increasing 10.1%. We believe both our revenue growth and new store expansion have significantly outperformed the industry, resulting in substantial market share gains.
John: Earnings per diluted share were $0.95 during the quarter compared to the high end of our guidance range of $0.87 and versus the prior year earnings per diluted share of $0.90.
John: I am extremely pleased with our second quarter results and believe that our team's year-to-date execution will continue into the second half of the fiscal year. I will now spend some time discussing each of our four strategic initiatives. Let's begin with expanding our store base.
John: We opened 15 stores in the second quarter, ending the period with 425 stores across 46 states. Our new store engine continues to meet our sales, earnings, and payback expectations.
John: As a reminder, we model new store performance at $3 million of revenue, with a cash-on-cash return on capital of approximately 60% in the first year of operation.
John: Our new store pipeline remains healthy and we expect to open 60 new units this year, meeting our commitment of 15% new store growth annually. Given the ongoing success of our new store openings, we believe that we have the market potential to open an additional 500 stores in the U.S. alone, more than doubling our current store count.
John: Moving to our second initiative, driving same-store sales growth.
John: Second quarter consolidated same-store sales grew 4.9% with brick-and-mortar same-store sales increasing 4.3%. Store comp growth was driven by an increase in transactions plus an increase in AUR and UPT which drove a larger average transaction.
John: From a merchandise category perspective, we experienced broad-based growth during the quarter as all major merchandise categories comp positive, led by the combined men's western boots and apparel business.
John: which count positive high single digits.
John: The largest sequential improvement was Ladies Western Boots and Apparel, which collectively comp positive mid-single digits in the second quarter. Approximately 500 basis points better than the first quarter. Included in the men's and ladies' comps is our denim business, which together comp nearly double digit positive in the quarter.
John: Our combined work boots and apparel business also comp low single-digit positive in the player.
John: Moving to our third initiative, strengthening our omni-channel leadership.
John: Ecommerce comp sales grew 10% in the second quarter, led by our bootbarn.com site, which posted sales growth of approximately 15%.
John: We are very pleased with the momentum of our online business and the innovation from the Omnichannel team, which continues to make progress on several fronts. The Boot Barn app that we launched two years ago has experienced solid growth and now comprises approximately 10% of Boot Barn's online sales.
John: Additionally, we are beginning to test an in-store consumer-driven AI solution named Cassidy, which we believe has the potential to help build transaction size, improve sales conversion, and train new store associates.
John: The Cassidy experience is tailored to each unique customer and the specific store they visit.
John: Now to our fourth strategic initiative, Merchandise Margin Expansion and Exclusive Brands. During the second quarter, merchandise margin increased by 70 basis points compared to the prior year period, driven by supply chain efficiencies.
John: Exclusive brand penetration decreased by 50 basis points which was in line with guidance as it wrapped over 600 basis points of growth in the prior year period.
John: Looking at the second half of the year, we expect to grow exclusive brand penetration at a normal pace of approximately 200 basis points over the prior year period, contributing to substantial merchandise margin growth.
John: We continue to believe we can achieve merchandise margin expansion through a combination of supply chain efficiencies, better buying economies of scale, and growth in exclusive brand penetration.
John: Turning to current business. Through October, we have continued to generate broad-based growth in same-store sales. On a consolidated basis, October's same-store sales were 5.1% with our store comp increasing 4.3% and our e-commerce business increasing 12.5%.
John: While we are pleased with the start to our third quarter, October historically represents 25% of the quarter's revenue, with December alone representing half of the third quarter's business and even more disproportionate share of the quarter's earnings.
John: We feel very good about the current tone of the business and believe we are well prepared for a successful holiday season with exciting marketing campaigns, fresh inventory, and a well-prepared field organization ready to provide best-in-class customer service.
Speaker Change: I'd like to now turn the call over to Jim Watkins.
Jim Watkins: Thank you, John. In the second quarter, net sales increased 13.7% to $426 million. The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same-store sales.
Jim Watkins: The 4.9% increase in same-store sales is comprised of an increase in retail store same-store sales of 4.3% and an increase in e-commerce same-store sales of 10.1%.
Jim Watkins: Gross profit increased 14% to $153 million compared to gross profit of $134 million in the prior year period.
Jim Watkins: Gross profit rate increased 10 basis points to 35.9% when compared to the prior year period as the result of a 70 basis point increase in merchandise margin rate, partially offset by 60 basis points of deleverage in buying, occupancy, and distribution center costs.
Jim Watkins: The increase in merchandise margin rate was primarily the result of supply chain efficiencies, while the deleverage in buying, occupancy, and distribution center costs was driven by the occupancy costs of new stores.
Jim Watkins: Selling general and administrative expenses for the quarter were $113 million or 26.5% of sales compared to $95 million or 25.5% of sales in the prior year period.
Jim Watkins: SG&A is a percentage of net sales increased by 100 basis points, primarily as a result of higher incentive-based compensation, legal expenses, and marketing expenses in the current year, partially offset by lower store payroll expenses.
Jim Watkins: Income from operations was $40 million or 9.4% of sales in the quarter compared to $39 million or 10.3% of sales in the prior year period.
Jim Watkins: Net income was $29 million, or $0.95 per diluted share, compared to $28 million of net income, or $0.90 per diluted share in the prior year period.
Jim Watkins: Turning to the balance sheet, on a consolidated basis, inventory increased 22% over the prior year period to $713 million and increased approximately 10% on a same-store basis. We finished the quarter with $37 million in cash and zero drawn on our $250 million revolving line of credits.
Jim Watkins: Turning to our raised outlook for fiscal 2025, the supplemental financial presentation that we released today lays out the low and high end of our guidance range for both the full year and third quarter.
Jim Watkins: I will be speaking to the high end of the range for both periods in my following remarks.
Jim Watkins: Please note that our guidance excludes any benefits and costs related to the CEO transition.
Jim Watkins: As we look to the third quarter, we expect total sales at the high end of our guidance range to be $595 million. We expect consolidated same-store sales to increase 6%, with a retail store same-store sales increase of 5%, and an e-commerce same-store sales increase of 10%.
Jim Watkins: We expect gross profit to be $232 million, or approximately 38.9% of sales. Gross profit reflects an estimated 100 basis point increase in merchandise margin, partially offset by 30 basis points of deleverage in buying occupancy and distribution center costs.
Jim Watkins: Our income from operations is expected to be $87 million or 14.7% of sales. We expect earnings per diluted share to be $2.07.
Jim Watkins: As a result of our second quarter performance and our updated outlook for the remainder of the fiscal year, we are raising our full year guidance.
Jim Watkins: For the full fiscal year, we now expect total sales at the high end of our guidance range to be $1.91 billion, representing growth of 14% over fiscal 24. This is a $57 million increase over our previous sales guide of $1.85 billion.
Jim Watkins: We now expect same-store sales to increase 5% with the retail store same-store sales increase of 4.5% and e-commerce same-store sales growth of 9.5%.
Jim Watkins: This is an increase from our previous guidance of consolidated same-store sales growth of 1.2%.
Jim Watkins: We now expect gross profit to be $713 million or approximately 37.4% of sales.
Jim Watkins: Gross profit continues to reflect an estimated 110 basis point increase in merchandise margins driven by supply chain efficiencies, better buying economies of scale, and growth in exclusive brand penetration of 110 basis points.
Jim Watkins: Our income from operations is expected to be $233 million or 12.2% of sales. We expect net income for fiscal 25 to be $174 million and earnings per diluted share to be $5.60, a 25 cent increase from our prior guidance of $5.35.
Jim Watkins: We continue to expect our capital expenditures to be $120 million, and for the remaining six months of the fiscal year, our effective tax rate is estimated to be 26.6%.
Jim Watkins: We remain committed to our plan to grow new units by 15%, adding a total of 60 new stores during the year. We anticipate opening 14 stores in the third quarter and 21 stores in the fourth quarter.
Speaker Change: I'd like to now take a moment to thank Jim for his contributions to Booth Barn and to all of us who have worked with him during the past 12 years. Jim's vision, passion, hard work, and leadership style have not only grown Booth Barn into the company it is today, but have made
Speaker Change: Boot Barn, a truly special place to work. From a personal standpoint, I can't say enough about what he has done for me. Jim has been an incredible mentor, partner, and friend. Thank you, Jim.
Speaker Change: I've had the pleasure of working with John for the last six years. He is an incredible leader with tremendous vision and I'm looking forward to working with him in his new role. Now I would like to turn the call back to John for some closing remarks.
John: Thank you, Jim. We are very pleased with our year-to-date performance and the continued momentum of the business, and we believe we are well prepared for a successful holiday season. I would also like to extend my gratitude to the team across our stores, distribution centers, call centers, and corporate offices for their hard work and dedication.
John: Now I would like to open the call for questions. Operator?
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time a question has been addressed and you would like to withdraw your question, please press star 2.
Speaker Change: In the essence of time, please limit yourself to one question and one follow-up.
Speaker Change: The first question comes from Matthew Boss from J.P. Morgan. Please go ahead.
Matthew Boss: Great thanks and congrats on the news Jim.
Speaker Change: Thank you.
Matthew Boss: So Jim or John, could you elaborate on the material inflection and comps that you saw as the second quarter progressed and maybe if you could just walk through trends that you've seen in October as we look across categories or just any notable outliers by region.
Matthew Boss: Very good. Matt, I'm not sure if Jim or John meant me, but this is Jim Conroy. I'll take that one. As you know, the story has been unfolding over the last several quarters where we've had
Matthew Boss: broad-based sequential improvement across categories and channels and regions within the storage organization. And as we got from the first quarter into the second quarter,
Matthew Boss: We just continue to see that sequential improvement carry forward.
Matthew Boss: essentially every single department got better between Q1 and Q2. The other really nice fact for the second quarter was
Matthew Boss: track had positive SAMHSA or sales growth.
Matthew Boss: and every region of the country had positive changes to our sales growth.
Matthew Boss: So we felt very good about that improvement. And October is very much in line with the second quarter. Most of the quarter is still ahead of us, of course, with December.
Matthew Boss: But we think we're off to a very solid start with a plus five October we feel great about the way the inventory is positioned and Looking forward to to a strong third quarter for us
Speaker Change: Great. And then maybe just to follow up on the margin side, could you elaborate on the drivers of merchandise margin expansion that you've embedded in the 3Q gross margin outlook and just runway you see remaining for gross margin multi-year?
Speaker Change: Thank you. Bye.
Speaker Change: So we expect merchandise margin to improve 100 basis points.
Speaker Change: in the third quarter, a little more of half of that coming from supply chain efficiencies that we've been seeing for the last couple of quarters and then about
Speaker Change: call it 40 basis points coming from better buying economies of scale including expectations of exclusive brand penetration improving to 200 basis points.
Speaker Change: And then as we get into the fourth quarter, things will look pretty similar to that, as well as we look at the merchandise margin, seeing continued expansion from supply chain efficiencies, as well as better economies.
Speaker Change: buying economies of scale and exclusive brand penetration that should be in the similar ballpark of 200 basis points in Q4.
Speaker Change: The next question comes from Peter Keith from Piper Sandler. Please go ahead.
Peter Keith: Hey, thanks everyone. Jim, it's been great working with you and I know you guys are coming right up on 10 years of the public company, so you've done a great job under your tenure. We'll miss you.
Jim: Thank you.
Jim: One thing that we've noticed with the last quarter, the categories are the sort of the farm and ranch sector sells a lot of the same products you do.
Speaker Change: not getting better with apparel and footwear. You guys are getting better, so it suggests some market share acceleration. Do you have opinions on where, what categories your market share might be picking up the strongest, and what might be the drivers to that?
Speaker Change: Sure. Yes, that report that you put out, I think had footwear and apparel at minus nine in the most recent quarter for farm and ranch. I think there is a couple of things that...
Speaker Change: may benefit us a little bit more than them because that group is a pretty formidable group of companies. We have seen some very nice
Speaker Change: sequential improvement in the ladies businesses, particularly ladies Western cowboy boots.
Speaker Change: which were better than company average. Not wildly better, but better than company average.
Speaker Change: So we skew a little bit more balanced where they tend to be extremely focused on functional product only
Speaker Change: country music stars and and feel like we're benefiting from that. So yeah so I think you're the setup for the question was spot-on which is I do think we're taking market share
Speaker Change: based on the fact that we're outcomping many of the other competitors in our space.
Speaker Change: If we were to add the additional sales that we're getting from new stores on top of the outperformance in comp, we're clearly taking share. So we feel great about that, and I think we're well positioned going forward.
Speaker Change: Okay, great.
Speaker Change: You did reference the country music stars and I know we've talked in the past around the Morgan Wallen Tour Sponsorship and it looks like there's been a few others that have been added. Could you highlight what other stars you've added? Are there sort of demographic audiences that you're targeting with those and how might those relationships evolve?
Speaker Change: Sure, sure. Well, we've had long-standing relationships on the product side with both Brad Paisley and Miranda Lambert, and they have been just fabulous partners for us.
Speaker Change: you're right to call out the more recent sponsorship for Morgan Wallen.
Speaker Change: But now we're doing a bit more with artists that are rifle shots for a specific target customer segment. So we've done some work with Corinne Leone.
Speaker Change: We over-index with a Mexican-American customer and leaning into Hispanic music we believe is a good place for us to...
Speaker Change: prospect for a larger customer base.
Speaker Change: We're doing some exciting things over the next month or so with an artist that's a bit of a bridge to country music called Jelly Roll and that is
Speaker Change: part and parcel with our strategy to continue to try to expand our customer demographic in concentric circles around sort of a pure Western customer. And that strategy has been serving us well.
Speaker Change: Very good. Thanks so much, Jim.
Speaker Change: of course.
Speaker Change: The next question comes from Stephen Ziccone from Citi. Please go ahead.
Stephen Ziccone: Great, thanks very much for taking my question. Jim, sad to see you go. Congrats on the success here and best wishes in the next step.
Stephen Ziccone: I wanted to ask around the comps inflection, to follow up on Matt's question. You know, when you look at the business, what's been the biggest driver of upside? Clearly, you've beaten expectations in the first half of the year here.
Stephen Ziccone: you know, is it better transactions, is it, you know, basket size, like, what are you seeing from the customer? And as you think about, you know, what's the incremental upside, you know, where are there areas in the assortment that are still a drag or where can business get a little bit better?
Stephen Ziccone: Sure.
Speaker Change: From that perspective, the biggest change has been in transactions. So in the first quarter, transactions on an average per basis was down very slightly, but in the second quarter that turned positive. And that was the first time transactions were positive for us in eight quarters.
Speaker Change: The other thing that was great, so transactions were up about 2%.
Speaker Change: and the basket size was up about 2%. You put those two together and you get to the, because this is a store's number, you get to that 4.3% same store sales in the stores.
Speaker Change: The other really great thing is both AUR and UPT were up, so sort of all four components of the store transaction.
Speaker Change: were up in the quarter.
Speaker Change: Again, we saw sequential improvement in virtually every part of the business.
Speaker Change: A couple of the businesses that had been slight drags on our same store sales, meaning they were negative, have turned positive. So it's nice to see the work apparel business turn positive.
Speaker Change: The work boot business turned slightly positive. We talked about that on the last call being slightly negative
Speaker Change: Ladies Western Apparel turned slightly positive, low single digits and was slightly negative in the last quarter. So, a few of the drags on our business turned to,
Speaker Change: to the positive side and we just feel great about how that whole quarter came together.
Speaker Change: Okay, thanks for that. The follow-up I had is just, as you've seen the category or maybe your own business start to do better, are there differences in performance, some of the newer stores versus some of your legacy boxes? Like is there anything to call out there? Because some of the newer stores have been, you know, opening much larger sizes and, you know, you know, more in the Mid-Atlantic and Northeast. Anything to call out there in differences in performance?
Speaker Change: This is Jim Watkins. The new stores continue to perform extremely well across the country.
Speaker Change: And again, the new store is open at a lower volume than the legacy stores, as you know. And we continue to see – we talked about this a little bit last quarter – we continue to see that
Speaker Change: As we get to the second year of comp, that we are seeing a little bit more of an outperformance in same store sales when compared to the mature stores. And I would say that that's not necessarily tied to a geography, but more just the class. And so year one, the stores are...
Speaker Change: Kind of in line with the chain average comp, but then that second comp year is when we're seeing that outperformance against the more mature stores.
Speaker Change: Okay, thanks for that detail.
Speaker Change: No problem.
Speaker Change: The next question comes from Max Raklenko from TD Cowen. Please go ahead.
Max Raklenko: Great, thanks a lot for taking my questions and Jim congratulations. It's been a pleasure working with you.
Jim Conroy: Thank you, likewise, I appreciate that.
Max Raklenko: So, first question, maybe just actually following up on the last one, but as we think about the new store waterfall over the course, say,
Max Raklenko: comps year one, year two, year three.
Max Raklenko: How should we think about the lift to the overall business that you're seeing now as trends appear to be stabilizing? And then just bigger picture, historically, you've always, historically for a while, you've been able to outperform what the algo is. So how do you think about that moving ahead?
Max Raklenko: Sure.
Speaker Change: So it's still a little bit early to
Speaker Change: what the year three comp is going to be with the new stores, picking up volume over the last couple of years and how they're opening. What I would say is the...
Speaker Change: the second-year comp or that store that is starting to get the outsized lift that I was just talking about We're talking about
Speaker Change: three, four, five basis points of outperformance, or not basis points, points of outperformance on the chain average, not 10 points of confidence.
Speaker Change: Again, it's still early to call that a tailwind and to include that in our out-years model with any specificity, but as we get through the next couple of quarters, Max, I imagine as we outline next year's sales guidance that we'll have some...
Speaker Change: more detail around how those new stores are opening and waterfalling and providing a little bit of a lift to the comp.
Speaker Change: as far as the
Speaker Change: The long-term algorithm, again, it's nice to see the comp sales for the year get to that 5% comp that has been kind of the high end of our long-term sales target and to see the earnings per share growth
Speaker Change: pretty close to the 20%. And so I think as we look forward into next year, again we'll give you next year's guidance in a couple of quarters, but I think the components of what we've laid out over the years are coming back and are still intact.
Speaker Change: We see no meaningful changes to that at this time.
Speaker Change: Got it. Okay. And then earlier this year, I think that you made a change to the ladies merchant team. So how would you assess how the assortment has evolved, if any, or if it's too soon? And then just how are you thinking about the right balance of fashion versus function and whether we should expect any changes ahead?
Speaker Change: Sure, yeah I wouldn't try to tie it back to a specific person but we did make some changes to
Speaker Change: the ladies western boot assortment mostly and We had leaned a little bit too heavily into the fashion side of the business
Speaker Change: We were looking at price points in terms of good, better, best, and felt like because we had a couple of years of inflation year over year, we had eroded the good, better, best. We had probably
Speaker Change: vacated some of the good price points. So we we took another hard look at it and sort of reset the assortment leaning more into more functional and performance based ladies western boots and that's probably the
Speaker Change: is the strongest part of our ladies' Western Boots business now. And we were also able to bring in some lower price points between, call it $149 and $179, that have done quite well for us.
Speaker Change: So I think it was just getting that assortment right-sized. On the apparel side, the apparel business has also turned positive. That's really been driven by denim. Our denim business is quite strong on the ladies' side and the men's side, for that matter.
Speaker Change: Great. Thanks a lot and best regards.
Speaker Change: Of course, thank you
Speaker Change: The next question comes from Janine Stitcher from BTIG. Please go ahead.
Janine Stitcher: Hi, thanks for taking my question, and Jim, we'll miss you.
Janine Stitcher: Thanks Janine. So just want to ask about the inventory down 10.5% on a same-store basis. It seems like it might be running a little bit lean. Just want to hear how you think about it. If there's any areas where you feel like maybe you're missing some sales or if that has anything to do with the mix of private brands versus third-party brands. Thank you.
Janine Stitcher: Yes, Janina, if I said it was down 10.5%, I misspoke and I apologize. The inventory on the same store basis is up. I see. My mistake.
Janine Stitcher: Markdowns as a percentage of inventory are down from a year ago. Weeks of supply is down year over year. So we really feel like we're in a great spot as we head into these couple of busy months.
Speaker Change: Perfect, and just as we're heading into the election, can you remind us of your exposure to China on both the third-party brand side and on the exclusive brand side and just how you're how you're thinking about additional tariff risk potential?
Speaker Change: Sure. So we used to be north of about 50% on our exclusive brand product coming out of China. I think we said on the last call that
Speaker Change: This last fiscal year, we were about 37% of our product comes out of China or came out last year. And what we have on order is approximately 30% coming out of China. So we have de-risked our...
Speaker Change: exposure to China. And again, there are a lot of benefits to staying in China. I don't think that we'll
Speaker Change: out of China, regardless of what tariff situation happens, but I feel like we've
Speaker Change: We've done a nice job of balancing our exposure while limiting the risk to product and quality and deliverability of the product.
Speaker Change: Great, thanks so much.
Speaker Change: Thank you. The next question comes from Jay Soule from UBS. Please go ahead.
Jay Soule: Great, thank you so much. Jim, just love to just dig into, you know, the change. Just talk about, you know, why now? What was it? You know, is there any change in strategy at Boot Barn? Any insight you can elaborate on to give us a sense of why you made this choice would be helpful. Thank you.
Jim: Sure, this was more of a personal decision for me and the family in terms of Boot Barn's strategy going forward.
Jim: We've had the same four strategies for 12 years. We've had the same senior team working on them and I think have performed pretty well. So I would...
Jim Conroy: Yeah, as we've discussed this transition I think I can safely say it's going to be a lot of continuity from what we've been doing for the last decade and John will hopefully take us forward for the next decade. So I wouldn't expect any
Jim Conroy: significant changes.
Jim Conroy: Thank you. Bye. Bye. Bye.
Jim Conroy: in the strategy. We are stamping out a working model. We have 425-ish stores. We can more than double the store count. We've been able to find opportunities for same-store sales growth on a consistent basis. So I think you can expect more of the same. I will certainly miss this place and be able to speak more to
Jim Conroy: potential opportunities at my next role, but I don't think this is the proper forum for that.
Speaker Change: Okay, understood. Thank you. If I can just add in one more. Just, you know, any updates on how the Cody James Blagg 1978 RAW is going? I think last quarter you think you said it was 100 stores. Just talk about where it is today and how did that brand perform in the quarter relative to the full assortment?
Speaker Change: It's performing quite well. It's now in 300 stores.
Speaker Change: It is the highest price point in the store, and one of the questions that we often get is, are we seeing a difference in spend by ...
Speaker Change: customer income or price point and what we haven't seen that and part of that on the boot side is because Dakota James Black brand
Speaker Change: is outperforming, and it's one of the more expensive products in the store, partly because it's an elevated brand and partly because it tends to skew more towards exotic skin versus plain leather.
Speaker Change: That said, sort of harkening back to the last call, we're excited about it. It adds some real excitement in the business.
Speaker Change: Hopefully it will be a great part of our gift giving for holiday.
Speaker Change: but just in terms of quantifying it, it's not multiple points of same store sales. It's a relatively small piece of our overall business, and I don't want to diminish the excitement of it or the work that's gone into it, but it's not comprising four or five points of comp.
Speaker Change: Okay, Jim, that's helpful. Thank you so much.
Speaker Change: The next question comes from Jonathan Komp from Baird. Please go ahead.
Speaker Change: Hi, this is Alex Conway on for John. Jim Watkins, just looking at the comp guidance for FQ2, there seems to be a bit of range if you just take October, some to the upside, some to the downside. Could you just walk through maybe a bit of some of the assumptions you have on either side of that and what really you think the swing factors could be for holiday?
Speaker Change: Sure, yeah, so on the third quarter guidance, really what we did is a similar approach that we've taken the last few quarters where we looked at the July, August, and September.
Speaker Change: sales, and we
Speaker Change: rolled that forward, applying historical seasonality across several years to see how that would play out in November, December, and then through the balance of the year.
Speaker Change: and set our guide accordingly.
Speaker Change: as we
Speaker Change: that shortened holiday period.
Speaker Change: around some macro uncertainty. And so, as far as the different ranges and how those can play out, October is behind us. Our fiscal October is behind us. As we look at November, we've got a nice range in there.
Speaker Change: The
Speaker Change: for those exact reasons, right, depending on how the holiday shopping season plays out.
Speaker Change: the election and how big of a distraction that is for our customers.
Speaker Change: and sometimes weather can play into things as you get into...
Speaker Change: November, December, and January especially.
Speaker Change: consumer is feeling financially and also the amount of time they have to shop. But what we've seen over the last couple of quarters is really encouraging and how resilient our customer is. Again, we have a needs-based product that
Speaker Change: our customer.
Speaker Change: is visiting our stores to shop for and they continue to need that product and so we're very optimistic and confident in the guidance that we put out there.
Speaker Change: while considering that there are a few distractions and a few nuances coming our way over the next couple of months.
Speaker Change: That's helpful and then maybe a bit longer term as you go through this leadership transition, can you share maybe it's a little early but at least any qualities that you might be looking for in the permanent CEO?
Speaker Change: Well this is Jim Conroy and I don't want to speak for the board but I can I can give you a couple of pieces having spoken with them through over the last few years over just our normal succession planning process.
Speaker Change: John was the number one choice.
Speaker Change: a couple of years ago as the person that would succeed me. We didn't know the timing would be this quarter. So he certainly has.
Speaker Change: all of the qualities that we would want in a go-forward leader.
Speaker Change: I think the board, given changes like this happen in a very short order
Speaker Change: They want to do their due diligence, make a considered choice.
Speaker Change: and potentially look outside for other candidates, but I think John is extremely well-positioned to potentially just take the company going forward.
Speaker Change: So, while I don't want to speak for the board, I think I am accurately conveying their thought process to the investment community.
Speaker Change: and in terms of qualities and traits, I mean, we have a very, very strong and defined culture here. Of all of the six core values that we have, the one that always rises to the top is one of collaboration.
Speaker Change: So, one of the reasons I feel very strongly that the company will continue forward successfully when I step away is that we already operate as a very solid team, and I'm just one member of that team. And as I step away, the other...
Speaker Change: 10,000 people on the team will move forward without me at the helm and do quite well. So, I think that's the best I can answer the question.
Speaker Change: Yeah, thanks again and best of luck in your new role, Jim.
Jim Conroy: Thank you.
Speaker Change: The next question comes from Sam Poser from Williams. Please go ahead.
Sam Poser: Thank you for taking my questions. Congratulations, Jim. I guess my question is, what...
Sam Poser: within the stronger transactions and everything, do you have one, well, what was your penetration on exclusive brands this year versus last year? Number two, can you track sort of your...
Sam Poser: return customers versus new customers? Can you give us some breakdown on what you're seeing there that drove these strong comps and appear to be continuing to drive them?
Speaker Change: Sure, sure. So, exclusive brands.
Speaker Change: For the year, we're expecting that to be up 110 basis points, so the next two quarters up about 200 basis points for each quarter
Speaker Change: There's a lot of that coming out of this big strength in denim that you're seeing which is probably more branded than not.
Speaker Change: We are seeing some nice...
Speaker Change: tends to penetrate a little more heavily on exclusive brands, so that's also a driver.
Speaker Change: I think that as we look at the last couple of quarters, just being up against some really big numbers last year,
Speaker Change: and taking some time to adjust through our assortment with the third-party vendors that have had some nice product improvements across categories.
Speaker Change: getting those in the store. I think we're at a spot now where we've got a great assortment from our third-party vendors. We've got some really nice product coming in from our exclusive brand team. And we'll be back to kind of our long-term target of
Speaker Change: growing exclusive brands in that 200 to 300 basis point, the penetration range, not like the outsized growth that we've seen over the last few years. It was much higher than that.
Speaker Change: and then on customers
Speaker Change: The customer count is up again year over year.
Speaker Change: we reached about
Speaker Change: 8.9 million customers up.
Speaker Change: 14% versus last year, we feel really good about the retention of customers and the addition of new customers. As new customers get introduced to the brand, as you know, Sam,
Speaker Change: average number of transactions
Speaker Change: per customer.
Speaker Change: is really only about twice a year do they shop with us. And we're seeing that behavior pretty similar, being pretty similar for legacy customers and for newly added customers. Their basket size is pretty similar.
Sam Poser: Yeah, we feel really good. You've asked in the past about...
Sam Poser: our ladies' business. We feel really good about the ladies' customer really re-engaging with us and seeing growth in both ladies' boots and ladies' apparel as that part of our business is now, when I put those together, almost 23% of total sales and prior to the pandemic was 18% of total sales. So we feel really good about how we've been able to add
Sam Poser: more female customers, younger female customers that hold on to them.
Speaker Change: Thank you and congratulations again.
Sam Poser: Thanks, Sam.
Speaker Change: The next question comes from Jeremy Hamblin from Craig Hallam's Capital Group. Please go ahead.
Jeremy Hamblin: Thanks and I'll add my congratulations on a fantastic tenure. I wanted to come back to just some questions around the
Jeremy Hamblin: the election, potential implications.
Jeremy Hamblin: You know, just to get a sense for, as you look back, 2016-2020,
Jeremy Hamblin: I wanted to understand, A, the magnitude of that, B, the length of period where you think there might be some distraction, and then also just related to the potential tariff stuff, what portion of your business or your products are produced in Mexico?
Speaker Change: Thank you. Bye bye. Bye bye.
Speaker Change: So, the last election in 2020 is a little bit difficult to gain a lot of information from given that we're coming out of COVID, and so to quantify that was a little tricky. In 2016, we had called out in a slide in our January
Speaker Change: I think it was Jim's presentation in January of that following year, that we had a negative impact. We didn't quantify it. It was probably a couple of points a comp if you look at the chart on the quarter.
Speaker Change: probably not 10 points of comp, maybe closer to three to five points of comp, but there's also some weather noise that was hurting us that quarter. So long-winded answer there. I think
Speaker Change: the time period that does tend to impact this is really now and until the election so I think we'll see over the next couple of weeks how big of a distraction that ends up being for us.
Speaker Change: And then as far as the Mexico question, about 25% of our exclusive brands comes out of Mexico.
Speaker Change: Got it. And then just one other follow-up here on, I want to come back to, you had really strong comps in the quarter and a strong start to current quarter. In terms of just thinking about, you noted buying occupancy costs, some deleverage there in the quarter, I think maybe about 60 basis points.
Speaker Change: and, you know, just wanted to get a sense in terms of...
Speaker Change: you know that drag on a you know plus five comp quarter you know is that just the real estate costs in some of the markets that you're you're getting into or a bit higher you know on a relative basis or just additional color you might be able to share on that
Speaker Change: Sure. Really, it's not so much that we're seeing more expensive real estate, but just that we're having new stores that we're opening and new stores.
Speaker Change: even at a similar real estate cost as existing stores or more mature stores they have a lower sales volume and so you have a higher rate of occupancy or occupancy as a rate of sales.
Speaker Change: Also, Q2 is a smaller quarter than what we see in Q3 and even Q4, and so when we talk about deleverage...
Speaker Change: We'd like to look at it more on...
Speaker Change: on a full-year basis when we provide leverage points, but I think your question was really around Q2 and why that was.
Speaker Change: There's also a little bit of utilities, I think I talked about that on the last call, that we tend to see higher utilities in the second quarter that hits that occupancy line.
Speaker Change: Got it. Thanks for taking the questions and best wishes on continued success.
Speaker Change: Thank you.
Speaker Change: The next question comes from Dylan Carden from William Blair. Please go ahead.
Speaker Change: Hi guys, this is Alex on for Dylan. Jim, congrats on the news and good luck with your move and thanks for taking our questions here.
Speaker Change: So just one on the macro, in light of the current macro and early start to the holiday season, what have you observed of your competitors? Is promotional activity tracking to similar levels relative to historicals?
Speaker Change: Are your expectations heading into the holidays? What do those look like? And what are your thoughts for projections on promotional activity in the third quarter? Thanks.
Speaker Change: I think it's been much of the same across the competitive set, maybe a slight increase in promotional activity, but certainly nothing we would react to.
Speaker Change: We have our strategy, we are an everyday low price model.
Speaker Change: and we'll continue to follow a very similar cadence for the very few and pretty light promotions that we will do during the holiday season. Yeah, they'll be pretty similar to last year. I don't expect anything
Speaker Change: We haven't planned any increases in terms of leaning into deeper discounts or more promotions.
Speaker Change: Got it, that's helpful. And then just one on margin. Higher level, can you speak to your longer-term margin recovery efforts?
Speaker Change: Specifically, what initiatives have you prioritized of late and how are those trending to drive the business back towards your prior targets?
Speaker Change: of EBIT Margin in the mid-teens. I know a few on the gross margin side have spoken to supply chain efficiency, buying economies of scale, that stuff. Is there anything else you would call out on that front?
Speaker Change: Yeah, I think you called those out in the merchandise margin arena. Really, we've worked hard to renegotiate contracts with suppliers, more than one supplier.
Speaker Change: Having two distribution centers that are up and running really allows us a lot of flexibility in how we support the stores and support the e-commerce business. And as we get into the out-years, a couple of years down the road, or several years down the road, we'll likely open up a third facility, and that'll drive continued long-term efficiencies.
Speaker Change: We also, on the SG&A side of things, we're constantly negotiating with our vendors and our providers. Recently saw some nice improvement in our...
Speaker Change: corporate and general liability and property insurance and as we came up on renewals. And so that's something that we're looking at and have.
Speaker Change: are expecting to see some improvement on as we get through the balance of this year and is included in our guidance, but will carry on with us as we get into next year. So it's really at every turn that we can try to renegotiate and drive the cost down.
Speaker Change: Last call, we talked about something we've been doing for years that
Speaker Change: continues to grow and scale, and that's the...
Speaker Change: taking possession of full container loads of product from our third-party vendors and getting a discount there and distributing that ourselves where we're able to pick up some additional margin. So we're not out of ideas. The team has done a fantastic job of
Speaker Change: working with our suppliers and our vendors to get that the cost down as we move forward and march back towards that 15% EBIT margin.
Speaker Change: Got it. Super helpful. I'll pass it on. Thanks.
Speaker Change: Thank you.
Speaker Change: And we have a follow-up question from Sam Poser. Please go ahead.
Sam Poser: At the high end, why see as much deleverage in the third quarter as we're seeing or thinking about the year the same way?
Speaker Change: You know, I mean, yeah
Speaker Change: No, it's a great, it's a fair question, Sam. You know, we had a couple, we did say that our, I was just backing up, we did say that our, at a 2% comp, we would get SG&A leverage on the year and we're about it flat on a 5% comp guide, and I think a couple things happened. One, the
Speaker Change: were required to make and...
Speaker Change: which we base it off of a three-year EPS projection, some from the annual bonus calculation as well. And then we had some elevated legal expenses during the quarter that were unforeseen related primarily to a settled dispute we had with one of our properties.
Speaker Change: And so there are a couple of things that we probably could have modeled a little bit better, but we also weren't anticipating.
Speaker Change: The sales guide that we have at the beginning of the year being a minus 1.6% comp at the high end of the range, accelerating as quickly to a 5% comp and that creates some additional expense that
Speaker Change: prove to make our leverage points not exactly accurate.
Speaker Change: and in the third quarter though you're you know you're talking about the leverage again on a stronger comp
Speaker Change: So there's some timing that's in there and it's...
Speaker Change: Again, we'll focus on the full year and what we're guiding there.
Speaker Change: Thank you very much.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to John Hazen for closing remarks.
John Hazen: Thank you everyone for joining the call today. I would like to give Jim Conroy an opportunity to make some closing remarks before we wrap up. Thanks, John. After 12 incredible years at Blue Point, I'm filled with immense gratitude for this company and the extraordinary partners who have been by my side throughout this journey.
Jim Conroy: Together, we built something truly special, and I will forever cherish the shared successes, challenges, and memories that we created. I will step away from Booth Barn knowing that the company is incredibly healthy, in very good hands, and poised for future growth. I would like to wish the entire Booth Barn family a heartfelt thank you. And with that, we will conclude today's call. Thank you, and take care.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.