Q3 2025 Boot Barn Holdings Inc Earnings Call
The End
Speaker Change: Good day, everyone, and welcome to the Boot Barn Holdings, Inc. third quarter 2025 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, senior vice president of investor relations and finance. Please go ahead, sir.
Speaker Change: Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Buparn's third quarter fiscal 2025 earnings results.
Speaker Change: with me on today's caller John Hazen, Interim Chief Executive Officer and Jim Watkins, Chief Financial Officer.
Speaker Change: A copy of today's press release, along with a supplemental financial presentation, is available on the Investor Relations section of Buffon's website at buffon.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: I would like to remind you that certain statements we will make during this call are forward-looking statements. These forward-looking statements reflect Buparn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Buparn'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 third 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 John Hazen, Buparn's Interim Chief Executive Officer. John?
John Hazen: Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our third quarter fiscal 2025 results, discuss the progress we have made across each of our four strategic initiatives, and provide an update on current business.
John Hazen: Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open the call up for questions.
John Hazen: We are very pleased with our third quarter results, which reflect broad-based growth across all major merchandise categories in stores and online, and across all geographies. During the quarter, revenue increased by 17%, including consolidated same-store sales growth of 8.6%.
John Hazen: Same store sales in both the stores and e-commerce channels were positive, with stores increasing 8.2% and e-commerce increasing 11.1%. We also opened 13 new stores in the quarter, bringing our year-to-date total to 39 new units.
John Hazen: From a margin perspective, third quarter merchandise margin expanded 130 basis points driven by supply chain efficiencies, better buying economies of scale, and growth in exclusive brand penetration.
John Hazen: The strength in sales and margin combined with solid expense control resulted in earnings per diluted share of $2.43 during the quarter, which was $0.36 above the high end of our guidance range and compares to $1.81 of earnings per diluted share in the prior year period.
John Hazen: Included in our third quarter earnings per diluted share is an approximately 22 cent benefit related to the CEO transition. I am extremely pleased with our third quarter results and I am very proud of the entire team's execution and dedicated effort during the critical holiday season.
John Hazen: I will now spend some time discussing each of our four strategic initiatives. Let's begin with expanding our store base.
John Hazen: We opened 13 stores in the third quarter, ending the period with 438 stores in 46 states. Our new store engine continues to meet our sales, earnings, and payback expectations.
John Hazen: throughout all regions of the country. 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 Hazen: We have 21 planned store openings in the fourth quarter, which would bring the fiscal year total to 16 stores opened, meeting our commitment of 15% new store growth annually. We continue to expand our store footprint across the country as we expect to open stores this quarter in Alaska, Vermont, and Rhode Island, which would bring our total store presence to 49 states.
John Hazen: Given the consistent success of our new store openings across all geographies, we believe that we have the market potential to double our store count in the U.S. alone over the next several years.
Moving to our second initiative, driving same-store sales.
John Hazen: Third quarter consolidated same store sales grew 8.6% with brick and mortar same store sales increasing 8.2%. Store comp growth was driven by a 6% increase in transactions.
John Hazen: plus a 2% increase in UPT which drove a larger average transaction.
John Hazen: From a merchandise category perspective, the third quarter comp sales were positive across all major merchandise categories, led by the combined ladies, western boots, and apparel businesses, which comp positive low double digits.
John Hazen: This was followed by the combined men's western boots and apparel business, which comp positive high single digits. Our denim business, which is included in the figures just mentioned, comp low double digit positive, and our combined work boots and apparel business comp low single digit positive in the quarter.
John Hazen: From a store operations perspective, I am very proud of our field organization across the country for contributing to another successful holiday season. They continue to provide best-in-class customer service while driving record sales volume and hiring over 5,000 seasonal store associates.
John Hazen: From both a supply chain and merchandising perspective, we were extremely pleased with the smooth flow of inventory through our distribution centers and stores and our overall preparation for the holiday season, which we believe contributed to the strength of our third quarter results. During store visits leading up to Black Friday and throughout the entire holiday season, we consistently received positive feedback from our store associates.
John Hazen: Many of them highlighted how the earlier preparation, particularly advanced floor sets and inventory availability, enabled them to better prepare for the anticipated holiday shopping surge, ultimately enhancing their ability to meet customer demand and maximize sales.
John Hazen: From a marketing perspective, the team continues to expand our brand awareness and carefully tailor communication to each of our customer segments. We believe the use of radio, direct mail, artist collaborations, digital advertising, and connected television has expanded our customer reach and driven increased traffic to our stores.
John Hazen: These efforts have also increased the number of active customers in our loyalty program to 9.4 million, a 15% increase over the prior year period.
Moving to our third initiative, strengthening our omnichannel leadership.
John Hazen: Ecommerce con sales grew 11.1% in the third quarter. We are very pleased with the consistent strength of our online business and the team's partnership with the field organization. During the critical weeks between Black Friday and Christmas, we were able to ship approximately half of our online orders from our stores, a result of our in-store inventory being accessible to online customers.
John Hazen: From an organizational perspective, we are happy to announce that John Kossoff has been hired as our new Chief Digital Officer.
Speaker Change: John was previously the Chief Digital Officer at Tillys and prior to that was the Vice President of E-Commerce and Marketing at Taco Bell. John brings a wealth of experience to our team and his leadership will allow me to focus on my efforts on my current role.
John Hazen: Now to our fourth strategic initiative, Merchandise Margin Expansion and Exclusive Brands.
John Hazen: During the third quarter, merchandise margin increased by 130 basis points compared to the prior year period, driven by supply chain efficiencies and better buying economies of scale.
John Hazen: Exclusive brand penetration increased by 180 basis points which was on top of 310 basis points of expansion in the prior year period.
John Hazen: 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.
Turning to current business.
John Hazen: Through the four weeks of our fiscal January, we have continued to see broad-based growth in same-store sales.
Speaker Change: On a consolidated basis, fiscal January's same-store sales have increased 8.3%, with our store comp increasing 7.2% and our e-commerce business increasing 17.1%. We feel very good about the current tone of the business and the start to our fourth quarter. I'd like now to turn the call over to Jim Watkins.
Thank you, John.
Speaker Change: In the third quarter, net sales increased 16.9% to $608 million.
Speaker Change: The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same-store sales.
Speaker Change: The 8.6% increase in same-store sales is comprised of an increase in retail store same-store sales of 8.2% and an increase in e-commerce same-store sales of 11.1%.
Speaker Change: Gross profit increased 20% to $239 million compared to gross profit of $199 million in the prior year period.
Speaker Change: Gross profit rate increased 100 basis points to 39.3% when compared to the prior year period as a result of a 130 basis point increase in merchandise margin rate partially offset by 30 basis points of deleverage in buying occupancy and distribution center costs.
Speaker Change: The increase in merchandise margin rate was primarily the result of supply chain efficiencies, better buying economies of scale, and growth in exclusive brand penetration, while the de-leverage in buying, occupancy, and distribution center costs was driven by the occupancy costs of new stores.
Speaker Change: Selling general and administrative expenses for the quarter were $139 million, or 22.9% of sales, compared to $124 million, or 23.8%.
Speaker Change: of sales in the prior year period. SG&A expense is a percentage of net sales decreased by 90 basis points, primarily as a result of the forfeiture of incentive-based compensation related to the CEO transition.
Speaker Change: Income from operations was $99 million or 16.4% of sales in the quarter compared to $75 million or 14.4% of sales in the prior year period.
Speaker Change: Net income was $75 million, or $2.43 per diluted share, compared to $56 million of net income, or $1.81 per diluted share in the prior year period.
Speaker Change: Turning to the balance sheet. On a consolidated basis, inventory increased 23% over the prior year period to $690 million and increased approximately 1% on a same-store basis.
Speaker Change: We finish the quarter with $153 million in cash and zero drawn on our $250 million revolving line of credit.
Turning to our Raised Outlook for Fiscal 2025.
Speaker Change: The supplemental financial presentation that we released today outlines the low and high end of our guidance range for both the full year and the fourth quarter. I will be speaking to the high end of the range for both periods in my following remarks.
Speaker Change: As we look to the fourth quarter, we expect total sales at the high end of our guidance range to be $460 million.
Speaker Change: We expect consolidated same-store sales to increase 7.8%, with a retail-store same-store sales increase of 7.2%, and an e-commerce same-store sales increase of 12.1%.
Speaker Change: We expect gross profit to be $168 million or approximately 36.5% of sales. Gross profit reflects an estimated 120 basis point increase in merchandise margin, partially offset by 60 basis points of deleverage in buying, occupancy, and distribution center costs.
Speaker Change: Our income from operations is expected to be $51 million or 11.2% of sales. We expect earnings per diluted share in the fourth quarter to be $1.26 and our effective tax rate is estimated to be 25.4%.
Speaker Change: Based on our third quarter performance and fourth quarter outlook, we are raising our full year guidance. For the full fiscal year, we now expect total sales at the high end of our guidance range to be $1.92 billion, representing growth of 15% over fiscal 24.
Speaker Change: We now expect same store sales to increase 5.9% with a retail store same store sales increase of 5.4% and e-commerce same store sales growth of 10.2%.
Speaker Change: We now expect gross profit to be $716 million, or approximately 37.4% of sales.
Speaker Change: Gross profit reflects an estimated 110 basis point increase in merchandise margin driven by supply chain efficiencies.
Speaker Change: Better buying economies of scale and growth in our exclusive brand penetration of 100 basis points.
Speaker Change: Our income from operations is expected to be $241 million, or 12.6% of sales.
Speaker Change: We expect net income for fiscal 25 to be 182 million dollars, representing growth of 24% over fiscal 24.
Speaker Change: We now expect earnings per diluted share to be $5.90, a $0.30 increase from our prior guidance of $5.60.
Speaker Change: We continue to expect our capital expenditures to be $120 million.
Speaker Change: We expect to open 21 stores in the fourth quarter and 60 new stores this fiscal year, or 15% new unit growth.
John: Now I would like to turn the call back to John for some closing remarks.
John Hazen: Thank you, Jim. We are very pleased with our third quarter results, and we believe we are well positioned for a strong finish to our fiscal year. I would like to thank the entire team across the country for their dedication to Bupart and our customers. Now I would like to open the call for questions.
John Hazen: We'll now begin the question and answer session. To ask a question, you may press star, then one, on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star and then two. In the interest of time, we ask that you please limit yourself to one question and one follow-up.
Speaker Change: And your first question today will come from Matthew Boss with J.P. Morgan. Please go ahead.
Great, thanks and congrats on another nice quarter.
Thank you, Matt. Thanks, Matt.
Speaker Change: So, John, maybe to start off, could you elaborate on traffic and demand that you're seeing across categories in January or just any areas of continued momentum post-holiday? And then as we think about moving forward, any change in the business as you're thinking about it relative to the historical low-to-mid single-digit comp algorithm?
Speaker Change: Yeah, Matt, I'll start with the first part and then get to the second question. So, as we got into January, and we, of course, have to start with January, is the smallest month of our fourth quarter, four-week, you know, post-holiday, and then we get into February and, of course, our five-week March.
Speaker Change: Looking at the specific departments in January, we saw an acceleration in both men's and women's western categories, specifically boots and apparel. So we saw nice business in those four major merchandise categories.
Speaker Change: As we look forward to the remainder of the quarter, there's nothing that we're seeing
Speaker Change: That makes us feel any different about the business. It was a strong start to our fourth quarter and we think that will continue. Easter, of course, has pushed out into our next fiscal year, but that's a very, very small piece of our business, so we're not expecting any major impact from that.
Speaker Change: and then as we look to next year again too early to guide but you know we always say we we like to start with the with the low to mid single digit algorithm and start to build our budget from there but again we're too too early to guide or talk about next fiscal year.
Thank you.
Speaker Change: And then maybe, Jim, just as we think about merchandise margin and multi-year drivers of merchandise margin, could you help break down what remains, whether it's private label and just basically how to think about some of the remaining levers in the merchandise margin?
Sure.
Speaker Change: As we look to Q4, and I'll start there and then go bigger picture, we expect to see the merge margin driven by the same drivers we've seen in third quarter and much of this year.
Speaker Change: We're guiding that fourth quarter merch margin up 120 basis points with a little more than half of that increase driven by supply chain efficiencies and the balance coming from better buying economies of scale, vendor discounts, and 200 basis points of exclusive brand penetration.
As we get to ...
Speaker Change: next year. The supply chain efficiencies really started about a year ago and so we've seen the benefit of those throughout this year, roughly 70 basis points of improvement on this year. Those will stay with us but we're not planning those to
Speaker Change: continue with us in improving in any significant manner. So right now, I'd strip those out. As we look to merchandise margin drivers, outside of those, as we get into next year, we tend to think of
Speaker Change: The baseline is being 30 or 40 basis points of merchandise margin expansion. We expect that over the next
Speaker Change: five years or so, we will average roughly 200 basis points of exclusive brand penetration growth. So, maybe half of that 30 to 40 basis point comes from continued exclusive brand penetration growth. And then the other half coming from
Speaker Change: and continuing to see the volume discounts that they've given us, whether that's us taking possession of a full container load of product and getting a better discount or the scale that we've been ...
Speaker Change: growing at and the growth our vendors have seen has allowed us to go back and get some discounts from our vendor partners and they've been really cooperative in that and we expect to continue to see those discounts increase as we move over the next five years.
Great, congrats again.
Thank you.
Speaker Change: And your next question today will come from Peter Keith with Piper Sandler. Please go ahead.
Speaker Change: Thank you. Good afternoon. So, John, at ICR a couple weeks ago, when you were describing fiscal Q3, you talked about it wasn't really a fashion trend or anything. I think you're attributing a lot of the strength to just execution and bringing in more inventory. So, I guess the heart of the question is
Speaker Change: Did those elements now continue with January and the rest of this fiscal Q4 and maybe even in the coming quarters?
Speaker Change: Did note the inventory does remain elevated Not thinking about as a markdown risk, but is this an investment that you think will continue to drive stand store sales growth?
Speaker Change: Yeah, Peter, I do. Looking at January as we came out of Q3, from an inventory standpoint, we're very happy where we ended the quarter and began our fourth quarter. Our markdown inventory is lower than it was last year and lower than pre-COVID times, so I feel that we're in a very good inventory position without a fashion risk.
I took another peek at
Speaker Change: at the top 200 products selling, which makes up a disproportionate amount of our sales. Nothing stood out as high fashion. We feel that it's not a fashion business. We are in a good position inventory-wise, not seeing any supply chain disruptions.
Speaker Change: So feel quite good about the inventory position and the type of inventory as we go into this fourth quarter into next year.
Speaker Change: Okay, very good. And maybe just following up on the last question, with the merged margin expansion remaining quite impressive, the supply chain efficiency, Jim, could you speak to that? It seems like there's both a combination of lower rates…
Speaker Change: and then you're leveraging a more centralized distribution center deliveries to the store. Are those dynamics going to get lapped or is that something that you'll continue to try to leverage for several years?
Speaker Change: Yes, we will continue to focus on finding efficiencies and leveraging those. I just don't want people to put in their models another year like we had this year as far as efficiencies. As we get to May, we'll fine-tune that and as we
As we
Speaker Change: build those those up from from really the the bottom the bottoms up will will really
Speaker Change: be able to give you a better number on that, but it's probably going to be in that 10 basis points maybe increased next year, not 70 or 60 basis points. And just to give you some more detail on that, as you call that, it wasn't negotiated rates or renegotiated rates with the shipping.
Speaker Change: logistics partners and we'll continue to work with them and as we get scale we expect to see better rates with them. The Kansas City Distribution Center that went
Speaker Change: live over a year ago. We really have been seeing some nice efficiencies there.
and the same general we saw this year.
Okay, very helpful. Thanks so much guys.
Thanks, Peter.
Speaker Change: Your next question today will come from Steven Zacon with Citi. Please go ahead.
Steven Zacon: Great, good afternoon. Thanks very much for taking my question. First question was on the top line, you know, clearly the business is seeing a lot of strength.
Steven Zacon: Are there areas where you'd like to see incremental improvement over the course of
calendar 2025, whether that's by channel or product category.
and then along those same lines.
Speaker Change: What gives you confidence you can comp the comp in some of these categories where you've seen improvement already, like Ladies and Men's Western?
and James Conroy.
something had to
Speaker Change: have a little more of a struggle, and that was work boots. So, you know, there's no crisis in work boots by any means, but we would like to see our work boots perform better. And we're doing some work around each brand, lace-up versus pull-on, to figure out what more we could do on the work boot side. So.
Speaker Change: Workboots is the one place I'd like to see some improvement in the business.
Speaker Change: and while not guiding next year by category or guiding next year at all at this point.
Speaker Change: The strength we have seen in denim, we expect that to continue to be with us.
Speaker Change: We also have some easier comps in the ladies' business early on in the year, and we have some really nice momentum in that business, and so we would expect to see that carry forward. And the men's...
Speaker Change: business has been really strong all year and really for longer than a year. We expect that momentum to continue with us, but the ladies have a little bit easier path to comping the comp.
Speaker Change: Okay, that's very helpful. And then I hate to be the guy that asks the tariff question, but just given some of the headlines Can you just help us understand your current exposure to Mexico? Maybe how you're reacting to some of these headlines and then remind us what happened the last time when tariffs were put into place
Speaker Change: How did you go about negotiating some of that pricing with vendors versus passing it on to the consumer?
Speaker Change: Yeah, we're as a reminder, we're 30% on order with China, 25% on order with Mexico. China's more rubber-soled performance boots and apparel, of course. And then Mexico is where we make our leather-soled cowboy boots. And we're the, you know, some of the best leather-soled cowboy boots.
are most of the leather-soled cowboy boots are made.
Speaker Change: We are testing other countries, but we're not going to overreact right now.
Boots Made in Mexico, and there's, you know, supply chain.
Speaker Change: efficiencies we're looking at in terms of how we bring those boots up, and how we go about manufacturing those boots, and then putting some pressure on our vendors. And then, you know,
Speaker Change: We will maintain margin. So we'll have to pass if there is a significant tariff we're going to have to work on getting better pricing, some economies of scale on the supply chain and perhaps passing some of that price increase on to the customer to maintain our margin profile.
Speaker Change: It really kind of depends, Steve, what the tariff number is, right? The first 10% or so is...
Speaker Change: a little easier to navigate through than the second 10% if it goes up higher than that. And our last time we were able to get some concessions on pricing from our...
Speaker Change: Our third-party vendors as well as our factories on the exclusive brands. We would expect to see that again and There were some price increases that we did pass through last time and and
John: That's, as John mentioned, that's what we'd be looking at as well. Okay, thanks for that detail. Best of luck during rodeo season.
Thank you.
Speaker Change: Your next question today will come from Max Raklenko with TD Cowan. Please go ahead.
Speaker Change: Hey, thanks a lot, guys, and congrats on the continued momentum.
Speaker Change: Thank you. So, first question is, how are you guys thinking about density and cannibalization? How close can you get some stores near one another, and what do you see happening with mature stores when a new store does open nearby? And then separately, how do you think about taking share from peers versus growing the entire market when you continue to grow penetration in various cities?
Sure, I'll jump in on that one, Max.
Speaker Change: As far as the density and cannibalization, it really depends on the market. If it's a more rural or even a
Speaker Change: suburban market. We tend to put those stores farther apart obviously than if we're in a densely populated area. I think Houston
Speaker Change: and Dallas, Southern California, Phoenix area, we've been able to put stores.
Speaker Change: you know, within 10 miles of each other and still see some really nice success. As we go into our approval meetings and looking at real estate, we'll factor in any cannibalization
Speaker Change: into the payback. So we've got to clear, the new store that's being proposed has to clear the hurdle of the cannibalization from the store that it has. We have not seen a,
Speaker Change: As much cannibalization as we would have thought we would have seen going back several years. We are approving deals that have some level of cannibalization, and we factor that in, and they're paying back nicely.
Speaker Change: It's a long answer to the first part of your question, Max, but it really depends on the market and how rural it is.
in determining the density.
Max Raklenko: Your second part of the question was around mature stores and what we're seeing around mature stores.
Max Raklenko: $1.7 million when we first went public was our was our target about 75% of what a mature store does
Max Raklenko: and Waterfall up to maturity over the course of five or six or seven years. It looks like we're seeing that since the stores that we've opened over the last three years or so have been
Max Raklenko: Opening at 3 million or north of 3 million dollars We're seeing that second year of comp outperformed the chain average
Max Raklenko: by about five points, and while still a little bit early, that third year of comp is also outperforming, not as much as that second year comp, but outperforming the chain average. One interesting thing that came up.
Max Raklenko: This morning, when we were going through some reports, we went back and looked at stores that had opened six to eight years ago, and in year one, those stores averaged $1.9 million in sales.
Max Raklenko: on average those three years of stores are doing 3.8 million dollars. So they've doubled their sales volume over the last, since they've opened in that six to eight year period.
Thank you very much.
Max Raklenko: And then as far as the third part of your question...
taking share from local competitors.
Max Raklenko: We've put out some surveys in the past in some of our slide decks and talked about how we're taking share from others in the trade area, and we're also
Max Raklenko: seeing some nice improvement from existing customers that have been with us for quite a while and growth in what they're purchasing. And so whether that's them purchasing more of the product is probably taking some share from where they used to purchase.
these additional items years ago.
Max Raklenko: Got it. And then, John, are there any changes or pivots that you'd like to see made to the product assortment, either on the Western or work side, including fashion versus function, and just any other areas where the business could evolve on the product side now?
No, I mean the...
Max Raklenko: No, we're very happy with our assortment. We're not gonna lean in, of course, more fashion. I talked about some of the small challenges we're facing on the work booth side, so those are worth calling out.
Max Raklenko: Probably the, and this isn't a large change at all, but a small tweak might be the, as we open this aperture to the just country customer and increase the TAM by 15 billion as part of that.
Max Raklenko: could go after that just country customer a little more. That's perhaps more folks who weren't going to wear a cowboy hat, now they're wearing a baseball hat. Maybe it's
Max Raklenko: some different denim shirts that don't always have a traditional Western yoke, those sorts of things. But in general, we're quite happy with the four segments and the product assortment we have for those four segments.
Speaker Change: Got it. Thanks a lot, guys, and best of luck in the fourth quarter.
Thanks Max.
Speaker Change: And your next question today will come from Janine Stichter with BTIG. Please go ahead.
Speaker Change: Hi, you got Ethan Sagi on for Janine. Thanks for taking my questions. Could you provide some more detail on the opportunities you see going forward in private label, particularly for men's and work?
Speaker Change: We have our Hawks exclusive brand and Cody James. Cody James has always been a little more Western. Think oil workers, pull-on work boots.
Speaker Change: And then we've had Hawks, which has been more competitive with what most folks probably think of as traditional Western brands with lace-up work boots.
Speaker Change: The lace-up work booth is probably the one we see more opportunity with on the worksite. HAWQS has turned into a really nice business for us.
Speaker Change: We think there's more upside in Hawks as it's a newer business in the Booth Barn portfolio. Cody James is not mature by any means, but that kind of more traditional work assortment, when you think work that Hawks is, I think has some nice potential for us.
Speaker Change: Got it. That's helpful. And then just one more for me. You previously talked about some of the temporary factors impacting expense leverage this year, and I know you laid out some of the groundwork for merge margin expansion next year, but could you talk about some of the other margin drivers you see for next year and where you see some of the leverage points shaping up for certain line items?
Speaker Change: It's a little early to talk too much about the detail of next year and
Speaker Change: how the things are going to roll up, different expense line items in SG&A. But a couple of things I'll point you to.
This year, we had some outsized increases in our ...
Speaker Change: lease expense related to our new corporate headquarters. And so we saw a step up in that. And that should be flat next year to maybe a little bit of a benefit, as we've talked about that on a call. So that should be a help to SG&A.
This year we also were up against
Speaker Change: pretty low incentive-based compensation given the performance of the company a year ago on the ...
Speaker Change: the growth level anyway. And so this year we've built back some of that incentive-based compensation. That's been a drag on the business, even with the reversal that we talked about with...
Speaker Change: Jim leaving last quarter and some of the expense reversal we had with that, it's still a headwind this year compared to last year, despite the tailwinds of Jim's
departure. And so next year as we get into the
planning around the incident-based comp, that should be ...
a little bit of a positive for us.
Speaker Change: other line items in there around insurance and that sort of thing. We'll have to work through the renewals and see where those are coming and build that up.
Speaker Change: We also had a legal settlement charge this year that shouldn't repeat with us next year that was pretty sizable. So those are some of the things that we're starting to think about as we look into next year, but not anything...
Speaker Change: significant or meaningful that we see on our radar that we'll need to expense besides just some normal growth in the business, adding some additional headcount to support
Speaker Change: The 60 to 70 stores that will open next year, 65 to 70, I should say, that we plan to open next year.
Speaker Change: new regional vice president, district manager, some of the support team that will need to support that growth, but nothing in a
that I think would be meaningful on the P&L SG&A.
Speaker Change: Got it. Really appreciate all the color. I'll pass it on.
Yeah, thank you, Ben.
Speaker Change: Your next question today will come from Corey Tarlow with Jeffries, please go ahead.
Great. Thanks, and good afternoon.
Corey Tarlow: John, I just wanted to ask on the increase in transactions that you've seen.
Corey Tarlow: It obviously speaks to the really continued health of the business in my view.
Corey Tarlow: Could you just talk about if there's any sort of behaviors...
Corey Tarlow: that you're seeing that are changing. I think your customer visits you twice a year on average, but is that new customers? Is it existing customer visiting more frequently? We'd just be curious to get a little bit more flavor around the health of the transactions that you've seen.
Corey Tarlow: Yeah, so yeah, the plus eight and change for the quarter, six points of that coming from transactions, which is our proxy for traffic.
Speaker Change: I hate to give a boring answer, but we spend a lot of time looking at our customers by income demographic.
Speaker Change: by customer segment, and the health of our customer and the frequency that our customer is shopping is very consistent across the income brackets. It's also very consistent between the penetration of Western work.
Speaker Change: Wonder West slash fashion and just country. So we haven't seen any real swings We have reassorted over the last year
Speaker Change: are kind of good, better, best, and feel that we are nicely positioned and at the best level with exotic boots.
Speaker Change: and 7 For All Mankind jeans. And then at the good level, we've got some new western shirts that are performing very well and we feel good about the level of product and inventory we have in our stores for the customer that might be at that lower income bracket. So all that to say, it's been incredibly consistent and I think part of that is full credit to the merchandising team for having the product at each level of good, better and best to meet those customers' needs.
Understood. Very helpful. And then, I guess, for Jim,
Speaker Change: You talked about, in response to a prior question, I think it was 30 to 40 basis points of merchandise margin expansion long-term. Is there any way to also think about, as you continue to add these new stores, what the B&O deleverage component would be? And theoretically, I would think that should lessen over time as you continue to scale and build out the infrastructure, so I'm curious.
Speaker Change: What that aspect might look like over time if you have any color on that.
Very good.
Speaker Change: On the buying and occupancy deleverage, it's really a function of growing 15% new units a year, and in the next two years or so, we'll have the
Speaker Change: the hurdle on rate of having increased our store openings from 10% new units a year to 15% new units a year. And so that puts some pressure on that. I'm not going to provide a...
Speaker Change: a guide on what the leverage points will be for the next few years. We talked about roughly 6%
Speaker Change: Same-store sales growth in order to leverage buying and occupancy was the number we put out there this year It's it's probably a good baseline for next year to put in your in your model but we'll give you an update on that when we get to the May call the
Speaker Change: As we start to cycle the 15% new units opening and we're seeing the new stores that we've opened at these higher volumes, at the higher flip,
Speaker Change: waterfall over the next couple of years, that does help that leverage point a little bit.
Speaker Change: But I don't think that comes down to a three or a four comp. It maybe comes down a half point or point as far as the comp needed to leverage that. The fastest thing we could do to
Speaker Change: leverage buying and occupancy and distribution center costs would be to stop opening new stores. That would help the rate, it would hurt the earnings dollars, and so that's something that we're not looking at. So it's something that will be with us for a while as we continue to open at this clip.
So that's how we're looking at it.
Got it. Thank you very much. Very helpful.
and Cory.
Speaker Change: Your next question today will come from Jeremy Hamblin with Craig Hallam Capital Group. Please go ahead.
Thanks and congrats on the strong results.
Speaker Change: I first wanted to just come back to making sure I understood, you know, some puts and takes here and thinking about SG&A on a go-forward basis. So, I think just the math on a pre-tax basis on the CEO.
Speaker Change: transition benefit in the quarter. I think works out to about nine million dollars pre-tax. Wanted to just get confirmation on that and and also just confirmation that all of that falls just in the third quarter.
The $6.7 million is
Speaker Change: Is the SG&A number, it's not a $9 million number, Jeremy, and it's really a function that those costs or those reversal of expenses were not tax deductible.
Speaker Change: And so they flow completely to the bottom line into net income. So it was a $6.7 million
Speaker Change: reversal of that expense in the quarter. And yes, that was a one-time that was with us that you reversed the multi-year incentive-based stock comp and then any
Speaker Change: Guide in the fourth quarter of seven 8%.
Speaker Change: So far in January were up eight 3% so.
Speaker Change: We've seen some really nice continued growth in.
Speaker Change: Those are all transaction based numbers.
Speaker Change: And if you look at the basket size or the.
Speaker Change: Which is a mix between the units per transaction that was up two during this last quarter and the AUR was kind of flat for us in.
Speaker Change: In the third quarter, we would expect to see the growth that we're seeing in January I guess January followed a consistent pattern as far as the.
Speaker Change:
Speaker Change: The the AUR being flattish U P T being up a little bit and really being led by transactions. The as we get through the rest of the quarter and we expect that trend to continue as far as the <unk>.
Speaker Change: Maybe where youre going with this question is on the.
Speaker Change: Same store sales and.
Speaker Change: Fourth quarter guide is a little bit below the third quarter guide Despite January still being a plus eight.
Speaker Change: We've looked at the.
Speaker Change: Trends over the last four months.
Speaker Change: Third quarter and in January and we looked at historical seasonality and how that rolls out into February and March and that's really how we've guided that quarter, which while down just a little bit from a deceleration from up.
Speaker Change: Plus eight six a plus seven eight is we feel a very.
Speaker Change: Strong guide and reflective of what the recent trends in the businesses.
Speaker Change: Part of that in March we do have a little bit tougher comp than we have in January and February.
Speaker Change: But it didn't feel like like guiding something above a seven eight was was appropriate.
Speaker Change: Great. Thank you.
Ashley: Thanks Ashley.
Speaker Change: Yeah.
Speaker Change: Again, if you have a question. Please press star and then one please stand as we poll for questions.
Speaker Change: And your next question today will come from Jonathan Komp with Baird. Please go ahead.
Jonathan Komp: Yes, hi, good afternoon. Thank you I'm sorry, if you touched on this already but I'm curious if you could share more light on the e-commerce acceleration the performance.
Jonathan Komp: It looks very good there and I'm wondering if there's anything specific that you would highlight in terms of the execution or other drivers.
Speaker Change: Yeah. The E. Com businesses is driven of course, mostly by boot barn dot com more than 75% of our E. Commerce business is from boot barn Dot com Shepler as shufflers Amazon business in country Outfitter are nice businesses, but all of those together make up the remainder of the business.
Jonathan Komp: The E Commerce business is driven by.
Jonathan Komp: By transactions and of course, we know traffic.
Jonathan Komp: On site. So it is a traffic driven business, which is which is the best answer.
Jonathan Komp: In Q3 for example, we had over a million people visit our store locator page on foreign Dot com.
Jonathan Komp: Our goal is always to take any e-commerce customer and turn them into our stores customer, but we're seeing nice business on e-commerce, driven by traffic and some of the gains we're seeing on the.
Jonathan Komp: The Google paid side, it's called <unk> for those who care, but Google has a tool that has been very good at finding us new customers and we will.
Jonathan Komp: We will never chasing unprofitable transaction from an ecommerce standpoint, we hold ourselves above four on return on advertising spend and we've been able to find more customers that match.
Jonathan Komp: That that gate that we put on ourselves so.
Jonathan Komp: We've had better luck.
Jonathan Komp: Finding new customers and prospecting customers online, it's driven a lot of traffic to the site and conversion has been relatively steady of course it came down in January versus the holiday quarter, but is flat in January your year over year and it really is a traffic story.
Jonathan Komp: Yes that sounds encouraging and then just as we think about the stores I know youre not a promotional driven business, but just a few of the.
Jonathan Komp: Typical campaigns and things like ground during the year are you thinking any differently. As you look ahead. The next few quarters about any of the plants there. Thanks.
Jonathan Komp: Thanks again.
Jonathan Komp: I think what are the only small tweaks, we'd make is we've been happy with how connected TV has performed and we've been very happy with some of our artist collaborations. So we're going to add we had.
Jonathan Komp: Jelly roll Morgan wall, and currently own last year, and we feel good about continuing to look for opportunities with different artists and of course, we have the long term relationships with Miranda and Brad that have been incredibly successful.
Jonathan Komp: So we will continue to lean into artist collaborations.
Jonathan Komp: Sponsoring Morgans festival down in Gulf shores, Alabama coming up this spring sand in my boots, we it will be the boot barn stage that is going very well and and continue to use traditional radio. So we're not a big fan of connected radio where a bigger fan of connected TV allow us to get allows.
Jonathan Komp: Us to get into markets that would otherwise be.
Too expensive for some of our media buys so that's a quick summary of how we're thinking about next year.
Jonathan Komp: Yeah, that's great. Thanks Kim.
Kim: Thanks, John.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to John Hayes for any closing remarks.
Speaker Change: 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: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Speaker Change: Okay.
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