Good day, everyone, and welcome to the Boot Barn Holdings third quarter fiscal year 2022 earnings call. As a reminder, this call is being recorded. Now I'd like to turn the conference over to your host, Mark Dedovesh, Vice President of Financial Planning. Please go ahead, sir.
Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's third quarter fiscal 2022 earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer, Greg Hackman, Executive Vice President and Chief Operating Officer, and Jim Watkins, Chief Financial Officer. A copy of today's press release is available on the investor relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the investor relations section of the company's website. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business.
Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of these 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 2022 earnings release, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. I will now turn the call over to Jim Conroy, Boot Barn's President and Chief Executive Officer. Jim?
Thank you, Mark, and good afternoon. Thank you everyone for joining us. On today's call, I'll review our third quarter fiscal 2022 results, highlight each of our key 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'll open the call up for questions. Consistent with our last earnings call, and given the impact COVID had on our performance in fiscal 2021, we believe that a comparison of our third quarter results to the same period two years ago provides the most helpful view into our performance. Our business continues to perform extremely well as third quarter total sales grew 71% on a two-year basis, with retail stores up 71% and e-commerce up 70%. The consistency and broad-based strength of the business has been remarkable.
With every one of the 13 weeks in the quarter growing in excess of 55% on a two-year basis. Majority of the sales growth was a result of an increase in transactions with a substantial portion coming from new customers, underscoring the success of our merchandise and marketing initiatives aimed at broadening our consumer audience. At the same time, better full price selling and growth in exclusive brand penetration fueled a 420 basis point increase in merchandise margin over the same period two years ago. The combination of strong sales growth and robust merchandise margin expansion helped drive earnings of $2.27 per diluted share, compared to $0.85 in the same period two years ago.
When adjusting for the tax benefit in both years, we grew earnings per diluted share more than 175% to $2.23 compared to $0.81 in the same period two years ago. I would now like to provide an update on each of our four initiatives, beginning with driving same-store sales growth. Third quarter same-store sales on a two-year basis improved sequentially from Q2 with strong comps each week and across all regions. Geographically, sales growth in the West again outperformed the rest of the chain, while sales in the South were up strong double digits but below the chain average. From a merchandise perspective, every major category demonstrated solid double-digit growth. Ladies apparel and ladies western boots, cowboy hats, ball caps, and belts remain our strongest performing categories when compared to the two-year-ago period.
Additionally, we saw healthy growth in men's western boots, accessories, kids' boots, and men's apparel. Work boots and work apparel were also double-digit positive. While flame-resistant work apparel was negative in the quarter compared to two years ago, it has shown sequential improvement each quarter and has turned double-digit positive in January. We believe that a strong portion of the growth can be attributed to the work done by the merchandising team in managing the challenges of the supply chain to ensure healthy in-stock positions, expanding our customer segments by broadening our product assortment and bolstering our legacy offerings. From a marketing perspective, our investments in traditional marketing programs such as radio, television, and direct mail, in addition to digital advertising to increase traffic into our stores and to our e-commerce sites.
We continue to execute on our strategy of expanding the addressable market to include customers that are adjacent to a pure Western customer. With the addition of a more fashionable Wonderwest customer a few years ago, followed by the more recent addition of the Just Country segment, we have grown our active customer count significantly. At the same time, we've evolved and upgraded the creative aesthetic of the brand, which has embraced these new segments while not losing sight of our legacy Western customer. As we continue to gain more insights from our database analytics. It is becoming increasingly apparent that these new customers are exhibiting similar shopping patterns to our legacy customers in terms of average transaction size and their propensity to be repeat customers. We believe the ability for us to connect with a broader customer lifestyle will provide growth opportunities for years to come.
From an operational perspective, our teams performed extremely well during the holiday shopping season, working hard amidst a difficult labor environment. I am very pleased with the partnership between our field organization and human resources team that was able to support the volume associated with such a strong sales trend, coupled with the typical holiday build. The team was able to fill the increased hours needed to support our existing stores as well as recruit, train, and onboard the store teams for the 11 stores that we opened in the quarter. This achievement is more notable when you consider that we took the decision to significantly ramp up our ship from store capability to support our online channel during the busy period around Cyber Week. Moving to our second initiative, strengthening our omni-channel leadership.
e-commerce sales in the third quarter grew 70% compared with the same period two years ago, and EBIT increased more than 200% over the same time as our focus on enhancing the profitability of our e-commerce business continues to drive exceptional results. Specifically in the third quarter, we reduced our online-only promotions in order to better align with the in-store pricing during the holidays. Adding to our omni-channel capabilities, we recently made the merchandise in our stores available for sale in our online channels. These orders are executed online but fulfilled by the stores. Our merchandising, store ops, e-commerce, and technology teams worked relentlessly to develop and implement in-store fulfillment in advance of the holidays. With our online customers now able to see the vast selection of our exclusive brand assortment only previously available in our stores, we also drove incremental exclusive brand penetration growth online.
In addition, we believe we can elevate the in-store shopping experience even further with inventory purchases focused on more exciting product that will broaden the store selection and expose customers to product that was previously only available online. By placing more exciting product in stores, it will not only be available for in-store purchases, we will also be able to offer these products to online customers utilizing this in-store fulfillment capability, mitigating markdown exposure by selling in both channels. This will be yet another tactic for us to leverage our e-commerce channel to drive incremental growth in store. Now to our third strategic initiative, exclusive brands. It was a fantastic quarter for our exclusive brands as penetration grew 570 basis points compared to the same period two years ago, representing 28.3% of sales in the third quarter.
We have six exclusive brands in our current portfolio, and three of them are in our top five overall brands. In the coming months, we will be introducing four new exclusive brands, expanding our offering to address our Just Country segment, while also refining our Western offering to target both a younger rodeo customer and a more traditional ranching cowboy. The new assortment looks fantastic and will be arriving in stores and online this spring. I would also like to commend our exclusive brands team on their execution in both designing compelling product and in securing its delivery for the holidays. While many of our third-party branded vendors struggled to deliver our orders due to global supply chain disruptions, our exclusive brands team proved to be successful in obtaining merchandise to sell both online and in our stores. Finally, our fourth initiative, expanding our store base.
It was a very busy period as we opened 11 stores during the third quarter, bringing our total store count to 289 stores across 37 states. We expect to open another 11 stores in the fourth quarter, bringing our store count to 300 at the end of fiscal 2022. We are extremely pleased with recent new store performance. New stores opened during the last two fiscal years are paying back in approximately one year, well ahead of our targeted three-year period. Additionally, our pipeline for new store openings is very strong for the coming fiscal year. We are particularly excited to continue to expand the geographic reach of the brand into the Northeast, with stores scheduled to open in Upstate New York, Delaware, Maryland, New Jersey, and West Virginia. Turning to current business.
Our fourth quarter is off to a strong start with consolidated sales growth on a two-year basis through the first four weeks, increasing 89%. This not only represents a sequential improvement from the incredibly strong results in the third quarter, but has extended the trend to 45 consecutive weeks of more than 55% sales growth on a two-year basis. These sales continue to be driven by increases in transactions coupled with strong expansion in merchandise margin. January sales growth has been broad-based across all merchandise categories and geographies. I'd like to now turn the call over to Jim Watkins.
Thank you, Jim. Compared to the two-year-ago period, net sales increased 71% to $486 million, driven by a consolidated same-store sales increase of 61%. Brick-and-mortar same-store sales were up 59%, and e-commerce same-store sales were up 69% versus two years ago. The increase in net sales was primarily a result of the increase in same-store sales and the incremental sales from new stores opened during the past 24 months. Gross profit increased 98% to $192 million, or 39.4% of sales, compared to gross profit of $97 million, or 34.2% of sales in the two-year-ago period.
The 530 basis point increase in gross profit rate resulted from a 420 basis point increase in merchandise margin rate and 110 basis points of leverage in buying and occupancy costs. The merchandise margin rate increase was primarily a result of better full price selling and growth in exclusive brand penetration. Operating expense for the quarter was $99.5 million, or 20.5% of sales, compared to $62.1 million or 21.9% of sales in the two year ago period. Operating expense increased primarily as a result of higher store payroll, store overhead costs, and marketing expense. Operating expenses as a percentage of sales decreased by 140 basis points, primarily as a result of expense leverage on higher sales.
Income from operations was $92 million, or 19% of sales in the quarter, expanding 670 basis points compared to $35 million or 12.3% of sales in the two year ago period. Net income was $69 million or $2.27 per diluted share, compared to the $24.8 million or $0.85 per diluted share in the two year ago period. Excluding the $0.04 per share tax benefit in both the current year and the two year ago period, net income per diluted share in the current year was $2.23, compared to $0.81 in the two year ago period. Turning to the balance sheet. On a consolidated basis, inventory increased 57% over the prior year period to $386 million.
This increase was primarily driven by inventory held at both our Fontana and Wichita distribution centers, a 22% increase in same-store inventory, and inventory for new stores added in the last 12 months. We finished the quarter with no debt, having repaid the remaining $50 million outstanding on our term loan. We also had $115 million in cash on hand at the end of the quarter. While our sales growth has been very consistent for the past several months, we are not providing sales and EPS guidance for the fourth quarter. We reiterate our previously provided full year fiscal 2022 guidance to grow new units 10% and our recently updated 450 basis point exclusive brand penetration growth when compared to last year.
We now expect capital expenditures to be in the range of $41 million-$43 million, and our fourth quarter effective tax rate to be 25.4%. Now I would like to turn the call back to Jim for some closing remarks.
Thank you, Jim. We are extremely pleased with the results of our third quarter and the consistent growth we are seeing across the business. We believe that we are well-positioned for a strong finish to our fiscal year. I would like to thank the more than 10,000 associates across the country whose dedication to both our Boot Barn family and our customers helped deliver an exceptional holiday quarter in a challenging environment. Now I would like to open the call to take your questions. Kyle?
At this time, we will be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.
Our first question is from Matthew Boss with JP Morgan. Please proceed with your question.
Great. Thanks, and congrats on another strong quarter, guys.
Thanks, Matt.
Thank you.
Jim, as we think about more than 40 weeks of stacked sales growth over 50%, the fourth quarter exits up 71% and January is up nearly 90%, and that's despite lapping stimulus, how best to bridge if we think about pre-pandemic 6%-7% same store sales, that's basically what you did in the three years into the crisis. How best to think about that, maybe relative to the algorithm that you talk about 3%-5% same store sales, and as we look forward, what you think a reasonable run rate on the other side of this crisis might be, taking into account all in terms of market share and customer acquisition that you've seen?
Sure. Great question. It's hard to lay out sort of next year's full year comp guidance until we get through March and April. If I skip past sort of fiscal 2023 and just think what we expect the business can do on a longer term basis, as you well know, Matt, we went public in October 2014 with a low- to mid-single-digit same-store sales algorithm. We've been averaging 11% over the last 11 years, and you're right to call out that coming into the pandemic, we're probably more closer to six-seven. I think again, longer term, we would stick to low- to mid-single digits.
We would hope to outperform that. Our near-term fiscal 2023 same-store sales will outline when we get to our fourth quarter call, and we'll have the benefit of seeing how our business performed cycling the March and April business from last year. With that said, you know, the bullish side of me would say that we're cycling a very strong January, and we're consistently putting up really strong numbers, which seems to be perhaps even more unique relative to the rest of what's happening in the retail market. You know, we feel pretty encouraged by our current business, and I'll have a more cogent and specific answer when we get to our May call.
Great. Maybe as a follow-up, the other standout, your new stores. Given the consistency that you're seeing at brick-and-mortar, I believe your sales per new door have nearly doubled since the IPO. Could you speak to brand awareness, maybe how this factors into what you spoke to in terms of market share and maybe some of the mom-and-pop consolidation, and just confidence expanding in the Northeast? You mentioned a few new states there in the prepared remarks. Just help us to think about unit growth opportunity, maybe relative to that 10% historical target.
Sure. You're right. You're factually right that our new store revenue since March 2020, basically every store, and certainly all new stores on average, have dramatically exceeded what we had typically modeled and what we would've modeled when we went public at $1.7 million or $1.8 million, and these new stores are opening at $4 million. We would've modeled a three-year payback, and they're paying back in around one year. We are increasingly emboldened by our new store capability. We've seen very fast customer receptivity coming to your brand awareness question for brand new stores opening in brand new markets. As we opened in Pennsylvania, Ohio and Virginia, you know, we have stores in and around Richmond and Virginia Beach that are gonna be $4 million stores and more than double what we would've expected.
I think the brand has become extremely well-known. I think credit goes to the marketing team as we've really expanded our customer outreach. I also think that. You had looped in a question around taking share from within the industry. Well, one of the things we did when the pandemic first emerged was we made the decision to remain open. By doing so, we accelerated the share gain, we believe, that we were already getting from an extremely fragmented industry. As customers learned a bit about the Boot Barn model, we haven't, it doesn't appear, forfeited any of those customers back. Right on top of that, we then expanded our addressable market with a customer base that's adjacent to a Western customer, we're calling a Just Country customer.
As we look at the sales gains that we're getting now, most of it is driven by transactions, and half of those incremental transactions are driven by new customers. We're really pleased with the execution across the board, new stores, comp stores, the expanded market. You know, we do expect that when we outline our guidance for next fiscal year, we'll likely come out with a number that's higher than 10% new units, having opened 11 stores last quarter, expect to open 11 stores this quarter and having a robust pipeline going into next fiscal year.
Great color. Congrats again.
Thanks, Matt.
Our next question is from Max Rakhlenko with Cowen and Company. Please proceed with your question.
Hey, thanks a lot for taking my question and also congratulations on just the ongoing incredible momentum. So first question is, you know, how does the ongoing consistency in the top line growth impact your outlook and just confidence in your ability to continue to be able to lock in these new shoppers? And then just more broadly, you know, your ability to maintain this new revenue base, which is obviously significantly above where we were previously, and just confidence that there won't be, you know, any sort of a large give back, whether it's, you know, in fiscal 2023 or in the future.
Sure. One of the things I mentioned briefly in my remarks was the new customers are feeling familiar to us. In other words, their average basket is roughly in line. It's actually slightly larger than our legacy customer. Their propensity to return to shop is roughly in line, and again, slightly faster than our legacy customer. We feel that the new shoppers, the new customers that we have added are going to be sticky. We've now been able to see repeat visits and can measure how long it takes them to come back and how frequently they come back. Again, we feel pretty good about that. As we think about the kind of future growth, there's still plenty of opportunities for us to get ongoing growth. We've got this expanded customer base. We continue to sort of hammer against that.
We think we can increase frequency of shop. We've expanded our merchandise assortment a bit. We're starting to see rodeos and concerts come back, right? We haven't had the Houston Rodeo at all last year and only 50% of it two years ago. We haven't seen a lot of the outdoor music concerts like Stagecoach happen, and they're all starting to come back. While we try not to get people hung up on this, we are seeing a resurgence in the oil markets, right? Our West Texas business has turned positive. Our flame-resistant work apparel business has turned positive. So there's plenty of places for us to get continued growth. And again, it's a little bit too early to say whether we'll give it back what we've gotten this year. We have far outpaced our growth versus the industry.
I mean, when you look at other public companies in our space, our growth is exceedingly higher than theirs. That doesn't necessarily mean we'll give it back. We think we've gotten to a new floor, and we can grow from here.
Got it. That's very helpful. Just switching gears to the new brands, how are you thinking today about how big these brands can get? Do you think they could ultimately challenge any of your other exclusive brands in the portfolio once they scale? Just curious, given the potential, you know, very large TAM for Just Country if, you know, longer term, these brands could also, you know, squeak into the top five, if not bigger, just given the much bigger customer base that they might potentially be interesting for. Thanks a lot.
It's a very astute question, Max. There's little doubt in our mind that the overall market for what we're calling a country customer is bigger than the overall market for a western customer. Theoretically, those new brands, Brothers and Sons on the men's side, Cleo & Wolf on the ladies side, could be every bit as big as our western customer. The counterbalance, I suppose, to that answer, though, is we will have and will continue to have a larger share of the market in pure western than we likely will in country. But I wouldn't be surprised if those new brands in a couple or three years are in our top 10 brands. The most recent example of that was we launched IDYLLWIND in the fall of 2018.
It's three and a little bit years old now, and it's in our top five brands, and that's really more of a fashion brand, right? That's almost purely a Wonderwest brand. That's a smaller segment than country. We are pretty bullish about our extension into this much larger customer base and in our exclusive brands' ability to penetrate it. I think a couple of years from now, we'll say to you all that, you know, they're now in the top 10 brands as well.
Great. Thanks a lot. Best regards.
Thanks, Max.
Our next question is from Steven Zaccone with Citi. Please proceed with your question.
Great. Good afternoon, guys. Thanks for taking my question. First question was just on the outlook for margins in the fourth quarter. Was curious if you could give a little bit more color. You cited merchandise margin expansion has continued thus far in January. Would you expect to see leverage on buying occupancy and SG&A in the fourth quarter if the sales growth rate were to continue to hold?
Yeah. Hey, Steve, how you doing? This is Jim Watkins. What we're going to see in the fourth quarter, and again, we're not providing guidance at this time, but typically in the fourth quarter, we see fewer promotions than the holiday period in the Q3. So as you're looking to model out merchandise margin expansion, I would look at that as seeing growth, but maybe not quite as big and robust as we saw in the third quarter. Again, fewer markdowns and promotions. You know, freight is something that is with us to stay for a while.
I would model in the continued freight headwind, you know, maybe a little more than the 30 basis points, but probably not as much as, you know, 100 basis points or something that high. The exclusive brand penetration. You know, we updated our guidance for the full year this year to be 450 basis points of exclusive brand penetration. I think you can model that in as well for the fourth quarter from a margin standpoint. As far as leveraging, you know, occupancy and buying, again, we're not really going to guide around that. Again, you know, looking at growth against the two-year-ago period.
You have to remember, it gets a little bit tricky as you look back to March two years ago and the onset of COVID and the sharp decline that we saw in sales there. Something to factor in as you look at the two-year occupancy and buying leverage. It's gonna be a little bit tricky to model there.
Okay. Thanks for that color. The follow-up I had is just I was curious on the flame-resistant kind of turning double-digit positive in January and alluding to the fact that West Texas is comping positive. You know, I know there's potential there, but I guess I was curious if you look back at, you know, this past year or even a longer-term period, how much has that been a drag to the overall business? Is there a way to quantify it?
Sure. I mean, it's a little complicated because it's still a drag, right? Because while it's significantly positive, our business is growing at such an outsized rate that if it's not growing 70% or 89%, it's gonna pull the number now. I fully recognize you can do that arithmetic as quickly as I can. Flame resistant merchandise is a low single-digit piece of our business. And if it's, you know, 70 points off the trend, the drag is, you know, call it 3% times 70%. I think the reason we would call something out like that is more that while we believe the connection or correlation to oil is really no longer relevant, some investors are still very curious as to what's happening in that part of our business.
Just as a courtesy, we continue to kind of call out that business. It does speak to the health of the stores in those markets. Again, those markets are becoming a smaller and smaller portion of our total business.
Okay, thanks. Best of luck, guys, for the rest of the year.
Thank you.
Thank you.
Our next question is from Jonathan Komp with Baird. Please proceed with your question.
Yeah. Hi, good afternoon. Thank you. I wanna follow up and ask on the longer-term sales perspective. Jim Conroy, I know last quarter you talked about the goal to scale up to become a multi-billion dollar national retailer. Any more context on that comment, and I'm wondering if that's something we should expect to take longer than, say, a three-year horizon looking out?
If multi-billion starts with a two, I think it'll be less than three or four years, to be honest. When you take our current run rate, any growth in e-com, which we expect will happen, plus, you know, 10%- 12%- 13% new stores growing each year, you know, we'll hit $2 billion faster than three years, I think. So, you know, we'll have to see what happens on the stores' same-store sales line. But, you know, it's exciting to have crossed $1 billion in the first nine months and to have added, you know, now more than $100 million in sales every year for the last 10 years, right? It's. We’ve got a pretty high growth rate. So we think we'll continue to grow going forward and it'll be.
Again, I think everybody's waiting to see what happens when we cycle March and April, but we continue to believe we have more sales growth drivers in our back pocket, and you know, have a decade's worth of growth of 22% sales growth on average. I don't think we're out of ideas to continue to grow the business.
Yeah, that's really helpful. Maybe a separate question on the merchandise margin. It's been strong for quite a while, you know, maybe four or five years now in aggregate. Could you just give us a broader context, you know, your current merchandise margin rates, how far above, you know, the trough or the lows looking back you are today? Then as you look at the drivers the last few years, how much is structural and sustainable versus, you know, anything that's at risk of giving back going forward?
Well, as your question centered on merchandise margin, I'll address that one. Just one of the things we said when we presented at ICR was, at least just in the holiday quarter, the Christmas quarter, we were up 270 basis points in margin this most recent year. Over a four-year period, we were up 590 basis points. All right. We've added six points of merchandise margin in four years. We're, as you might expect, pretty proud of that fact. We do think there's still opportunities for us to grow our merchandise margin going forward. We continue with the narrative of fewer promotions, and we think there's still opportunities to reduce promotions.
We continue to build a narrative around our online pricing versus our stores, and we still think there's opportunity to get our online prices even more in line with stores. The Sheplers business, which had been a drag on margin, is now at par, essentially, with bootbarn.com. We, of course, have the ability to continue to grow exclusive brands, launching new exclusive brands, so that's a margin driver. While freight has been a headwind and many of our vendors are passing along freight increases, you know, once we see those container prices come back down, we expect that freight number to come right back to us. So that could be a further driver. I'd say the last thing is, this ability to ship product from our stores to an online customer gives us the ability to take a broken size assortment, right?
You have one pair of boots in size 7.5 in one store. To find that customer in that market to come into that store is difficult. To find that customer online in some, you know, much more macro view into these items is easier. We think we can actually move through clearance out of the stores quicker and at a lower discount than we otherwise would have by leveraging our online channel. I'm not sure we'll build another six points of margin over the next four years, but we're kind of coming back to the comments about sales growth. I don't think we're out of ideas to build more margin growth.
That's really helpful color. Best of luck. Thank you.
Thanks, Jon.
Our next question is from Corey Tarlowe with Jefferies. Please proceed with your question.
Yeah, thanks for taking my question and congrats on the quarter. I wanted to ask a question as it relates to exclusive brands penetration. Can you provide a little bit more color as to what's really driving the growth in this segment and what about it is really sustainable in your view? You mentioned at ICR that you were expecting, I believe it was 450 basis points of improvement in penetration for this fiscal year, and that number is up meaningfully from prior estimates. If we could get a little bit more color here, I think that would be very helpful. Thank you.
Sure. No, great question. There's two pieces to this, perhaps three. You got me laughing because now I have to remember the three points I was gonna make. The first is we absolutely are developing, you know, designing and developing what we believe to be compelling merchandise. High quality product at the same quality standards of the leading brands in the industry, not a price leader. We think the product on its surface or on its face is selling extremely well. The second piece is, while I wanna thank our third-party branded vendors for working tirelessly to get us product during the holiday quarter, and many of them did an outstanding job of trying to support our sales trend.
The truth of the matter is our exclusive brand vendor, ourselves, essentially perform the best by a lot. Not only did we have really good product, but we had it available to sell on the shelf because we were able to move that product through our supply chain at perhaps a better rate than the third-party brands in totality. The last piece, the third piece, we are launching new brands. When we launch new brands, that opens up open-to-buy dollars for our merchants to fund into them. We'll spend what turns out to be a modest amount of money to launch those brands from a marketing standpoint. We'll bring them to life in the store, both from a merchandising standpoint and from a store associate training standpoint.
I think when you couple all of that together, our exclusive brands, while it's grown quite nicely at 450 basis points year-over-year, we are pretty darn confident we'll continue to grow that going forward. We'll likely give a conservative guide. When we lay out our guidance next year, we'll likely circle back to our long-term algorithm of roughly 2.5 points of penetration. I see no reason why we can't continue to get really nice growth in exclusive brands.
That's great. Then a follow-up is, in the release around ICR, you had mentioned that, the company paid down the remaining balance on its term loan. I think a natural question is, are there any updates as to how we should be thinking about the allocation of excess cash?
Yeah, I'll take that one. Corey, it's Jim Watkins. Yeah, just I wanted to remind you that you know, December is a high point of cash generation after our holiday sales. We are you know, building back up the inventory in our stores and reinvesting that in the business and paying down our payables. There will be you know, some of that usage there. Then as we look in the next year at the new store growth plan that Jim mentioned you know, call it 13% and investing in the new stores is another use of that cash. In the short term, we're planning to operate with the cash balance and invest that in the business.
We don't have any plans, you know, for a dividend or a stock buyback or anything along those lines at this point.
Great. Thank you very much.
Thank you.
Our next question is from Jeremy Hamblin with Craig-Hallum. Please proceed with your question.
Thanks. I'll add my congratulations. So my question actually had to do with the cost side. You guys have executed incredibly well on top line. Sounds like there's a ton of potential tailwinds here for calendar 2022. As we think about the cost side, you know, your business also has been leveraging really nicely on SG&A. But I wanted to get a sense of the variability, you know, if you see a little bit of softening here. You know, it's hard to imagine continuing to drive your two-year stack numbers higher, although you just did that in January despite lapping stimulus. You know, is this kind of the embedded SG&A run rates, do you feel like those are structural in nature?
How much flexibility do you have, and how much of that is really being driven by, you know, some of what you're doing to attract this huge swath of new customers to your stores and online?
Yeah. Hey, Jeremy, it's Jim Watkins. I'll jump in there. I think from an SG&A cost structure, and we've talked about the variable nature of our store labor and during this last year, you know, sales took off and accelerated. We were working hard to get the right employees in place, and we weren't able to, frankly, keep up with, you know, the store labor demands that we needed in the store. We've been investing this last quarter particularly, and we'll continue to invest as we move into next year from both a cost and an hour standpoint, to make sure that we have the labor to service our customers and drive that sales growth.
That is variable in nature, our store labor, and as you're modeling out into Q4 and into next year, which I think is what's behind your question, you know, that is a big component, you know, of our SG&A, is the labor cost, and that is largely variable. The other piece would be around marketing. We've historically targeted 3% marketing spend as a rate of our store sales. And again, you know, we've talked about over the last couple of quarters that we haven't been able to spend as quickly as the sales have accelerated. We were able to invest a little bit more on that in our third quarter, and we'll continue to right-size that going forward.
Those are two items that can flex with sales as we look into the future.
Great. Just as a follow-up, it appears to us that, you know, most of the industry is also seeing pretty strong results, although maybe not quite as strong as what you've seen. Can you give us a sense for what you're seeing out there from competitors on whether they're getting a little promotional, or whether or not you feel like they're holding the line or perhaps, even more likely, you know, possibly a little less promotional on a year-over-year basis? Thanks.
I can take this. I think if there's been any change in the promotional stance within the industry, it's been less promotional rather than more promotional. I wish we could give you hard and fast numbers on industry growth, but it's just not an industry that tracks total sales or share per retailer well at all or doesn't track it at all. What we do, however, have a few public companies that we buy denim from, that we buy work boots from, that we buy Western boots from. While I take your point that many of them have been growing, one just reported yesterday, their growth rates are more, not naming names, but you know, 7%, 17%, 10%, and ours is 70%.
I must admit that it does feel that we're being thrown into a bucket of, well, the whole industry is growing. I don't think that's true. I think the industry is showing modest growth, but we are really showing outsized growth. I feel almost obligated to credit the team for adding dramatically to our customer base, the merchants who have gotten our inventory position where we're up year over year coming into the holiday quarter and the fourth quarter, the stores team for managing through call-outs from COVID and everything else and hiring people for seasonal hires. You know, we tend to try to take a stance towards humility.
In this case, I think we have to recognize that our growth is outpacing by a lot what the other public companies in our space are reporting.
Yeah. Agreed. Congratulations and best wishes, guys. Thanks.
Thank you.
Thanks.
Our next question is from Sam Poser with Williams Trading. Please proceed with your question.
Good evening. Thank you guys for taking my questions. I've got a handful here. Just wanna back up on the question about SG&A a moment ago. You talked about marketing, and how you try to run it around 3%, but sales keep outpacing. The question is sort of what comes first, chicken or the egg? Besides the execution in the stores, is that marketing just driving the incremental sales, so as you bump your marketing, the sales seem to follow it. I mean, can you talk about that? Because you know, you talk about marketing as sort of like an afterthought almost to the very strong results.
Sure. I would say that if you went back 24-36 months. We have been evolving the brand. Sam, you know our brand so well, and you have such great visibility into it from a consumer perspective. For the benefit of everybody on the call, we've elevated the brand, we've extended the reach of the brand, we've contemporized the brand. We've changed our media mix to get new customers, and that's been an ongoing story. It's been several years now where our same-store sales have been driven in part. Typically, roughly half of our same-store sales growth has been driven by the addition of new customers into the Boot Barn brand.
While our business has massively accelerated in the last nine months or 10 months, once again, roughly half of that growth, at least half of that transactions growth, is due to new customers. I don't know if it's the chicken or the egg, but I can tell you that we didn't come out one day and take our 3% marketing spend up to six , hoping for sales to increase. We continued to budget at 3%. We probably became much more efficient with that spend, added more sales, and then 3% on a bigger number just became more spend.
We're continuing to spend more dollars every year, but we'll continue to budget 3%, and if our sales outpace our sales plan, we'll come in at less than 3%, which is what happened this year and last year and outside of COVID, almost every year.
Okay, great. I've got a few more. Okay. You talked about March and April being important. Let me just read all the questions, then we can go through them. March and April are still very important, you mentioned. Is that because those were the most impacted by stimulus last year, and you're still unsure about rodeos and festivals and so on that come back in that time period, and that's sort of why you're not guiding Q4 and, you know, are sorting it out for the 2023 guidance?
The.
Next question. Sorry. You talked. You talked about, you know, you said 10%, but then a second ago you said 13% next year. So should we be modeling, you know, opening 39 stores next year? Also, the nationally branded vendors, they're taking price increases. You're going to take some price increases, but I would assume that if a Ariat boot, if they take a 5% price increase on Ariat boot, you could take a lesser increase and widen the gap to then help your exclusive brand business. Then lastly, your gross margin sequentially on a quarterly basis tends to peak in Q3 and then sort of looks like Q2 and Q4.
Is there anything going on right now that would prevent that from happening this year? How should we think about it differently this year?
Okay. Let's step through those questions. The only reason we're calling out March and April is we don't wanna lay out guidance. Again, this is for, as you well know, for next fiscal year, right? We're still in fiscal 2022. Until we get to the end of our fourth quarter, that call will be roughly in May timeframe, and we'll have cycled 52+ weeks since we saw the spike in business. In reflecting back to March seventeenth of 2021 or thereabouts, that's when the stimulus came. We called out on our next call that end of March, our business was up dramatically. April, our business was up dramatically. We ascribed essentially all of that spike to stimulus in what was our Q4 call.
Then on our Q1 call, we said, "Hey, you know, our business continues to be really strong." We kind of blamed it on pent-up demand and refilling closets, et cetera. As we got into the second and third quarter, we said, "Look, this just looks like a new basis for our business. We can see the absolute dollars each week are just remaining extremely constant. We've now seen 45 weeks of +55% versus two years ago on a two-year total sales basis, et cetera." But it would just be frankly a bit irresponsible to try to project what April business and next year's business is going to look like until we have visibility into cycling what has just been a once in a lifetime year.
That said, one of the things we just said to an earlier question is we feel pretty good about cycling our January business with solid numbers. That's the March and April piece. On the store count piece, our long-term algorithm is 10% new units. We will hit that this year. We have signaled pretty solidly that we expect to guide higher than that next year. If you want to model 12 or 13% new stores for next year, that's fine. We'll refine that guidance when we get to our Q4 call. In terms of you asked a question around price increases, wholesale cost increases to us from vendors. We have a pretty straightforward model.
If we receive a cost increase from a vendor, in most cases, and there are some exceptions to this, but in most cases, we pass along that cost increase with a standard markup. We have taken the decision to maintain our margin rate. As some of our bigger vendors pass along cost increases, some of them might be permanent, some of them might be transitory. We are going to reprice the goods in the store with a markup. We're not really doing that to advantage our exclusive brands. It occasionally has that result because our exclusive brand team, for whatever reason, seems to have done a better job of managing down costs, and we're seeing some cost increases there, just not as much, and a better job of managing freight costs.
We're seeing some cost increases there as well, but not as much as our third-party brands. Result of all of that is our margin rate will be maintained on our third-party brands. Sometimes the price goes up, and sometimes that does give an advantage to some of our exclusive brands because we have the same model, but we're working really hard to keep those costs down. Your last question was on gross margin rate Q4 versus Q1 and Q2, and I will turn that over to the gentleman from West Virginia, Jim Watkins, Utah, whatever.
Hey, Sam. I think you're thinking about that the right way. In general, the Q1, Q2 and Q4 gross margin rate have tended to be, you know, pretty similar. As we look to Q4, again, we're not providing guidance, but I think you're thinking about that the right way. The one piece I would add is, you know, we talked about, you know, labor in the DC and the rates going up and having increased headcount there to support the growing business. There is some wage pressure, I would say, just generally speaking, that we're looking at moving forward. To answer your question, I think you're thinking about that the right way.
Thanks very much. Continued success, guys.
Thanks, Sam.
Our next question is from Peter Keith with Piper Sandler. Please proceed with your question.
Hey, thanks everyone here for taking me towards the end. Store growth. You're kind of teasing out that you can run rate above 10%. I think you've also hinted that maybe, as you're looking at the country, you could do more than 500, which has been a target for a couple of years. The heart of my question is, if you're reassessing a total store target, what might be a timeframe where you could kind of share with the street, what you think a more appropriate target might be?
I'm sorry. The question is around when do we think we'll be able to provide an update on TAM and store count for country.
I see. Thank you.
The plan would be to outline that on our Q4 call. We're doing some work now to quantify increased TAM size and store count. You're right, you know, we have signaled that we think the numbers are bigger than where we started, certainly when we met you when we first went public. I would just stay tuned to our Q4 call.
Perfect. Second question from me. With all of the new customers that you've been getting, it's certainly an exciting aspect to the story. You have the customer segmentation marketing capabilities. What I'm wondering is, do you have the capability to identify customers that are coming in and put them into one of your four segments? If so, which of the four segments do you think you're garnering the most new customer growth?
We do. The initial segmentation that they're pointed to is determined almost entirely by what they buy in their first few transactions. While all of our business is growing and all of the segments are growing, and we're really thrilled with the underlying sales trend and customer count trend, as you might expect, our slowest growing in terms of rate of growth segment will be our Western segment. Our faster growing ones are the ones that, you know, are newer and just starting out, like Wonderwest and Just Country. The only other thing that gets thrown in there is, as we then market to those customers, new or legacy, many customers belong to multiple segments.
They'll get a little bit of work and a little bit of Western marketing, whether that's direct mail or email or whatever if they tend to buy work and Western product. It's not crystal clear lines between each of the segments. The newer ones and the smaller ones are growing faster. We're, of course, very excited about the Country segment. You know, a lot of the things that we've done over the last couple of years has really been aligned to that segment to see, 'cause we think that's a very big opportunity for us.
Okay. Sounds good. Thanks so much.
Thanks, Peter.
Our next question is from Dylan Carden with William Blair. Please proceed with your question.
Hey, thanks a lot. Just curious, you know, I agree that people tend to overestimate the correlation to the oil patch, but you have historically spoken to the high degree of exposure you have to sort of more agricultural industries, ranching and farming, and you're kinda seeing obviously sort of a spike in prices in those fields. I'm kinda wondering, Jim, the last time you saw prices this high, you were kinda just coming in to the company, but can you attribute any of the strength here, maybe by category, by region to some of that inflation, commodity inflation? Then as you think about the sort of newer customer, is there a way to kind of identify them for us as to sort of who that is generically kinda coming in to the store? Thanks.
Sure. On the oil piece, you know, we've seen such broad-based growth. While the price of a barrel of oil is higher than it's been, you know, in the last 12 months or so, it wasn't until recently that we saw the business turn up. You know, we've been saying for a long time that we don't believe our business correlates that closely with oil, and the price of a barrel of oil was up nicely over the last 12 months, and our FR business and our West Texas business was still not only lagging the chain, but literally negative when virtually every part of our business was positive. I do think going forward, it'll be
We'd like to see that part of our business get more in line with the rest of the company, and perhaps at some point, become a tailwind. Even we use an example in the script, even flame-resistant work apparel, solidly double-digit growth in January versus two years ago, is still a pretty significant drag on our comp on our total sales growth versus two years ago period. In terms of new customers, I don't have a great sort of way to describe them demographically. Although we do know that they are that adjacent customer base, or we are seeing ladies' Western apparel growing significantly. Some of the more fashionable lines like Idyllwind is growing significantly.
We are seeing what we have put forth as this Just Country customer and the merchandise to go after that customer, like ball caps, graphic T-shirts, footwear that's not cowboy boots, growing really nicely. Once we get some more information from a demographic perspective, we'll share that. We have some work to do there, where we have to append the database with a third party, which we haven't done yet. We'll be able to share that information.
Gotcha. I'm sorry, I probably wasn't clear. When I said spike in commodity prices, I meant on the agricultural side, corn, soy, wheat. They're all at sort of decade highs, and I was just curious if that might be having an impact on some parts of the business.
I'm sure it is. Look, what we almost always try to point to external factors because, you know, we try to again start with more of a humble tone. Having spent a fair amount of time trying to benchmark our growth against other companies that we can tease out how their business is that would be benefiting from the exact same trends. Again, with a heavy dose of humility, our growth is just much higher, sometimes 10 times higher. I can't blame it on commodities or oil or fashion trend or Yellowstone. I have to give some credit to the merchant team and the marketing team and the stores team for actually executing better than other companies out there. Analytically, there's no other answer I can get to.
You're not cutting Kevin Costner a check? No, that's great. Thanks, Jim.
We should cut him a check.
Take care, guys. I appreciate the question. Taking the question.
All right. Thank you.
Our next question is from Rick Nelson with Stephens. Please proceed with your question.
Thanks a lot. Good afternoon. I'd like to follow up on exclusive brands. You've got six exclusive brands now. You're launching four new ones in the spring. If you could speak to the segments that these new ones are targeting and the potential of the next four relative to the first six.
The first thing we did was we said, "Look, we've got this casual Western customer that we're calling Just Country, and this person maybe isn't a rodeo fan, but might be wearing cowboy boots and a baseball hat and going to listen to a country music artist." We came up with two brands, one for men and one for women, that's going after this country segment. On the men's side, the brand is called Brothers and Sons, and on the ladies side, the brand is called Cleo & Wolf. We then looked more specifically at our core Western customer. I mean, our customer we've had for 40 years.
We said, "Look, if you really look closely and you look at other third-party brands in our industry, there are multiple dimensions to a Western customer." I'll give you two somewhat ends of the spectrum extremes. There's a younger, more aggressive, more modern fit rodeo customer that we have isolated as a customer that we wanna put a brand against. The brand we're developing there is called RANK 45, and that brand is consistent for men's and ladies. There's a more traditional, tends to be more mature, i.e., older customer, living and working on a ranch, and that customer needs less modern fit or more traditional fit, more basic colors, more traditional styles, and the brand that has been launched there is called Blue Ranchwear.
When you put all that together, it's Brothers and Sons, Cleo & Wolf, RANK 45, and Blue Ranchwear, all going after different dimensions of customers that we believe are already in the store.
Thanks for that, Jim. Also, I'd like to ask about inventory up 22% per store. Do you think inventory is working back now for the industry? Are you know your competitors getting more product, or do you think you're getting outsized allocations?
I think we're in a very good spot from an inventory standpoint. Our inventory is now up more in line, still lagging, but more in line with our sales trend. As it relates to competitors, as we shop other stores, it certainly appears that we are more in stock than they are, whether that's due to getting priority or due to our exclusive brands filling the gaps for third-party brands that have some holes, or the fact that we started earlier, and we're buying more aggressively. You know, our field team constantly will give us feedback on what they're seeing out there, and they're seeing empty shelves for competitors, directly in our space and even competitors that are right outside the pure Western industry.
I do think it's part of the reason why our sales have been so strong, is that I think we're executing well. I think the marketing is great. I think the product is great, all those things. We also just happen to have the product available, in the size that a customer wants for that same-day purchase.
Okay. Thanks a lot for the comments. Good luck.
Thanks.
Our next question is from Jay Sole with UBS. Please proceed with your question.
Great. Thank you so much. I have two questions. First is, you know, talked a lot about on this call the opportunity to add to the store count. Jim, you know, given the economics of the store have improved a lot over the past, you know, year plus, and you really talked about how much work you've done to elevate the brand. Are you seeing opportunities to move into different types of real estate, essentially higher quality real estate, where you can put your stores maybe in places where you wouldn't have considered before, that can take advantage of the investments you've made in brand and the fact that stores are now higher productivity? What does that mean to the way you thought about the store growth potential and the brand potential?
I'm gonna give you an answer that I hope you hopefully doesn't seem conflicting. The overarching answer is no. We're opening 10- or 11,000-sq ft stores in regional centers that are in and around our core customer, and that customer lives and works outside. They're ranching or farming or working with horses, et cetera, or in, you know, construction or some other blue-collar type employment. What we haven't done is we haven't said, "Hey, we're gonna go for a high-end mall or high street location with some very few exceptions." The one difference, and this is the part that might seem contradictory, is we are getting, I would say, better spaces, better co-tenants, more visibility than we had in the past. The centers themselves are pretty consistent with our strategy.
It needs to be easy to get in and out. Our customers almost always driving on their way to and from work. We wanna have co-tenants that are meaningful to us. So oftentimes, we'll look at the home improvement chains or sporting goods stores where we believe we can share customers and siphon off some traffic from them. With very few exceptions, we haven't gone off of that model. We have a store downtown Nashville on Broadway that's been open for seven and a half years now. That is not that model at all and does extremely well. Going forward, the direction to the team is we have a working model, let's just execute against it and stamp it out across the country.
Got it. Okay, to follow up on that point, you know, the leverage on buying occupancy was 140 basis points in the quarter. You know, can you maybe elaborate on that? I think, you know, given the strength in the same store sales number, I think it was up 55.7%, you know, maybe based on the trends in the past, you know, maybe we would have thought the leverage would have been higher. Is there any sort of, you know, additional color you can give on that? Thank you.
Sure. Hey, Jay, it's Jim Watkins. You know, Jim has alluded to this already, but you know, like others, we've been battling supply chain and labor shortages and COVID and so we really made a conscious effort to pay up to support the sales growth of 71% that we saw. A couple of those things, you know, increasing the wages in our distribution centers to attract and retain employees so we could receive the goods and deliver them to our stores and to our customers was an investment we made there consciously.
You know, similarly, you know, with goods arriving later in the year with the supply chain, we did receive more goods, you know, into our distribution center in Q3, you know, where we would have normally received some of those into Q2, which pushed some of that labor cost and those hours into the third quarter. You know, while the leverage rate maybe could have been a little higher, you know, outside of those things from SG&A and occupancy, you know, we believe that would have come at the expense of sales. We're thrilled with what we saw as far as the growth from an earnings standpoint, you know, because of driving that sales.
Got it. Understood. Thank you so much.
Thanks, Jay.
Our next question is from Mitch Kummetz with Seaport. Please proceed with your question.
Yes, thanks for taking my questions. Two questions. First for Jim Watkins. So you guys have given us the sales for the first four weeks of Q4 on a, you know, this year LY and LLY. Do you happen to have that on an LLLY basis? Because I think as we think about the balance of the quarter, we really have to go back three years to kinda normalize for COVID and stimulus and the Houston Rodeo and all those things. I was hoping you might have that.
You're trying to figure out the January number from three years ago, Mitch?
Yeah, I'm trying to figure out the three-year growth, either the number three years ago or the growth on a three-year basis, because again, I think that would be helpful as we think about the balance of the quarter, given that you have to go back that far to kinda normalize for all these extraneous factors.
Right. No, I hear you. I don't have that number handy. I think the way we're looking at it is, you know, the +89% on the two-year basis and really the consistent sales that we're seeing, really an acceleration from third quarter, is how we're looking at it. We're pleased at what we're seeing from the sales dollar standpoint and that run rate. Again, I'm back to years ago and try to parse that out just a little bit for you.
Secondly, on the margins, just to follow up on Jonathan Komp's question from earlier. If I look at LTM op margin, your 16.8%, that's up 730 basis points from pre-COVID. As we think about, you know, what's more structural versus less structural, I think we can like, you know, we can back into the benefit that you're getting from exclusive brands. But do you happen to know how much margin you've picked up on the e-commerce business with all the changes you've taken there to improve the profitability of that business?
In addition, when you think about maybe the hit that you're taking on sort of elevated incentive comp and elevated freight, you know, how much margin drag is in that LTM op margin versus what would be kind of normal for those line items?
Yeah. The first part of your question on the e-comm versus stores, you know, we're not gonna provide the detail on that, but Jim did talk about it in his prepared remarks about the outsized EBIT growth that we saw from an e-commerce standpoint versus the sales. I think it was 70% sales growth on a two-year basis and 200% EBIT growth, if I've got that number right. We're seeing nice growth there. The second part of your question, Mitch, sorry, remind me again. It was on the SG&A.
Well, I'm wondering, you know, I would imagine that, based on, you know, well, obviously there's freight issues. I would imagine that your incentive comp is probably elevated relative to normal levels given how well the business is performing. I'm just curious how much maybe just from a, like, from a dollar standpoint or whatnot, those pieces are elevated relative to what they would normally be, just so we can kinda back into, you know, some kind of a normal level for those pieces.
Mitch, it's Greg. I haven't had a chance to talk too much, so I'm gonna jump in on this one. The, you're right. There is elevated comp, whether it's the store support team, us, or whether the store associates got a little bit higher sales bonus, but I think in the scheme of things, those are relatively small, compared to the increase in dollar sales. That percentage is gonna be relatively minor, I think, if I put a pencil to paper. The bigger and, you know, if you think about the first half of the year when I was CFO, so I can really talk about this now. We were under-invested in store labor, right?
We just could not get enough bodies, and we got really nice leverage in both store labor and marketing in the first half of the year that is frankly more of a tailwind to the EBIT rate that you quoted on a TTM basis. I think the best way for you to think about it is to kinda anchor back to what the Jims, both of them said, which is, you know, we're kinda targeting or believe that an EBIT rate in the 12%-14% next year makes sense when we reinvest in marketing and store labor and things normalize. That, of course, is dependent on the top line and the assumptions around store comps, right? That seems like a reasonable starting point as opposed to trying to unpack or disaggregate some of these smaller tailwinds and headwinds. Yeah. Okay, fair enough.
All right, guys. Thank you, and good luck. Thanks.
Our next question is from John Lawrence with Benchmark. Please proceed with your question.
Great. Thanks, guys. Congratulations on the quarter.
Thanks. Thanks, John.
Would you just step back and let me ask this a different way that somebody's touched around the edges of it. All of the new store growth, the new economics, all of those things you've done marketing-wise, reach the customer, but can you speak to a little bit about the lifestyle of that customer now with COVID? Has anything changed in their lifestyle? Staying at home more often, self-reliance, all of that that's when you look at the activities of the customer, has that helped bring in these new customers into the store or online?
I mean, it's hard to assign something specific to COVID. I mean, our core customer tends to be living and working in outdoor lifestyle already. They tend to be more of a blue collar worker. The bull's eye of our customer base is not an office employee that now is working from home. Now with that said, you know, we're probably benefiting a bit from casualization. Some other companies have called that out. We're probably benefiting a bit from increased hiking and camping and less air travel. Another thing we can't assign specific numbers to, but a lot has been written about people's waistband, so to speak, changing sizes during COVID. So perhaps that's been a benefit.
I think when you step back from all of these things that might be helping the business, I almost feel obliged again to circle back to we're also executing on a number of things that we outlined for a few years now. We've gone out and gotten new customers. We've broadened our product assortment. We're able to staff our stores. We managed our supply chain. We completely transformed our omnichannel capabilities. Again, while all these other macro things might be helping a little bit, it certainly seems that our business is outpacing virtually every other retailer out there. I can't blame it on one macro factor or even a collection of macro factors.
For the folks that listen in on these calls here in the office, I want them to smile knowing that they are getting and deserve some of the credit for 45 consecutive weeks of 55% growth over an LLY period.
Great. Thanks. Congrats and good luck.
Thank you very much. Thank you everyone for joining the call today. We look forward to speaking with you all on our fourth quarter earnings call.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.