All right, thanks. Good morning, everyone. Good to see you all. So my name is Peter Keith. I'm a senior research analyst at Piper Sandler covering Hard lines and Broad lines. Very happy to have Boot Barn with us today. As many of you know, they are the largest retailer of Western and work product in the U.S. With me on stage is Interim CEO John Hazen and CFO Jim Watkins. Welcome both.
Thank you.
Thank you, Peter.
All right, so let's just kick it off. You guys had a pre-announced release on Friday afternoon. Could you just walk us through the results that you gave everyone some insight into?
Yeah, sure. The holiday quarter was very, very strong. We beat the high end of our guidance by 2.6 points. So high end was a 6. And we came in at an 8.6 comp, $608 million in sales. So really, really nice quarter. You always kind of wonder as you go into a shortened holiday season how things are going to play out. And we were very, very pleased with the holiday season overall.
OK, and the merchandise margin was up, what, 130 basis points? So pretty clean sales, didn't have to promote.
Yes, it was very nice. The promotions were in line with what we saw last year, maybe a little bit lower than what we did a year ago. The way the team really set up the merchandise, the store operations team, the marketing that was set up for the holiday, it all worked perfectly. We're able to grow our exclusive brand penetration this quarter, 180 basis points. We continue to see nice supply chain efficiencies that we've been working on over the last couple of years. Better buying economies of scale as our vendor partners have increased discounts, as our volumes of purchases with them have increased. It's been a really nice. It looks like it'll be our seventh year in a row with an average of 100 basis points of merch margin expansion. We're really pleased with that.
OK, great. So same store sales of 8.6%. It's fantastic. So some of the questions that we get is there's got to be some sort of transitory fashion trend. Everyone's watching Landman now, I guess. So what do you think is driving these strong same store sales results? And what's kind of a bit of a sluggish consumer environment?
Yeah, I was waiting for the first Landman reference. So thank you. No, we don't think the tailwind is caused by fashion. And we don't think it's a tailwind at all. If you look at, Peter, I think you quoted some of the farm and ranch numbers. They were having a little bit of a tougher time, some soft comps. We look at some of our third-party vendors who we respect greatly. And their business is good, but not as good as what we're seeing, some of those publicly traded companies. So I think it's more a result of our operational execution. If we look at our inventory flows leading up to the holiday season, and we visited quite a few stores prior to holiday, we are in the best inventory position I think we've been in in the past several years.
The holiday Christmas weekend and the days leading up to Christmas being spread out, I think, allowed us to schedule labor and spread out some of those sales over the last few days a little bit better. And then being a stores-first company and focusing on stores, I know that sounds strange coming from the former digital guy. But all of our direct mail, and we send out north of four million pieces, all were post-Cyber Monday. So everyone's chasing those Black Friday and Cyber Monday online sales with their direct mail pieces. We were more patient. And we waited until we had that window post-Cyber Monday, post-Cyber Week to talk to our customers and encourage them to come visit us in stores, which is more important to us.
OK, great. Let's parlay off of that question or that answer. Yes, John, former Chief Digital Officer, maybe a new face to many in the audience here, now Interim CEO. Congratulations on the interim tag. Maybe just give everyone some information on your background and maybe how you approach leadership.
Sure. So I grew up in Montreal, moved to California about 25 years ago. My background started in technology on the supply chain side. So worked for Kellwood for many years on product lifecycle and tech packs as everyone started to move offshore in the early 2000s. Had an opportunity to move into e-commerce during Nike's first big D2C push in 2007, 2008. Was working at Hurley at the time. And they pushed Hurley and Cole Haan, as well as Converse, all of us to go direct. And that's how I kind of moved from traditional technology into the world of e-commerce. From there, spent time at True Religion, where I came in as the head of omnichannel and eventually oversaw stores for the first time. So we had 160 stores at True Religion, 100 full-price, 60 outlets.
And that was the first time I kind of managed the district manager team and ran the stores business. Spent a year in technology at Ring Video Doorbell up until the Amazon acquisition, then came over to Boot Barn. When I came to Boot Barn, I was the chief digital officer. And for the first two or three years, focused on moving the business to bootbarn.com from Sheplers and making Boot Barn the digital flagship, which I think we'll talk a little bit about. And then Jim Conroy gave me a chance to run marketing and the customer experience. And over the past three or four years, I've probably spent less than half my time on the digital business itself and more on our opening up the aperture for our customers, our Just Country customer, and running the marketing and customer experience organization.
OK, great, and then so the board has said that they're doing an ongoing CEO search. Is there a sort of point in time we should think about where that process concludes and perhaps a near-term permanent CEO?
Yeah, the board believes this is going to be April to May time frame. They'll make a final decision. And you asked about my kind of leadership philosophy. I always lean back to my days at Hurley/Nike. And Nike had the saying, simplify and go was one of their maxims at the time. And especially in the world of technology, e-commerce, omnichannel, people tend to embrace complexity. There's a bit of a complexity trap. And everyone wants more and more. So I find it's almost tougher to restrain yourself and focus and simplify when it comes to the customer experience, when it comes to the features you have on the site, when it comes to how our store partners are using the different tools we've put in from an omnichannel standpoint. So I don't know.
I'll lean back on my Nike days and go with simplify and go and avoid complexity wherever possible.
OK, I like that. I guess one topic I just wanted to dig into is on the turnover. It's funny, we don't think about Boot Barn having a lot of turnover. CEO Jim leaves. Many people that I met during the pre-IPO process, which was now a little over 10 years ago, are still at the organization. I thought that might be interesting just to share maybe kind of what turnover at the executive level looks like. I think you guys have some interesting stats on that. What do you think it is about the culture that just provides such strong continuity?
Yeah, it is culture above all else. We've had some very talented individuals that we've talked to. And if they don't fit the culture and realize they won't fit in perfectly with the team, we just don't hire them. Jim's been with the company over 10 years. Laurie, our chief merchant, has been with the company over 20 years. Mike Love, our head of stores, has been with the company over 10 years. I'm coming up on seven years with the company. And it is a very unique culture where we can all talk freely. I hate to use the word collaborative. Everyone uses it. But it's very, very different. No one is climbing over each other. There's no backstabbing. And if you don't fit in with the way that management team works, there'll be an organ rejection. I've never worked anywhere quite like it in my career.
OK, great. And John, you talked about widening the aperture, widening the customer funnel. And I think that has been a multi-year process. And you're running marketing. So I'm curious, maybe you could talk directly on some of the initiatives the company has taken to widen that customer base?
Yeah, so we had a work, a Western, and a fashion customer for many years. And we came up with this customer segment a few years back called Just Country. And imagine someone who drives a Ford F-150, which is the best-selling vehicle in the country. They wear a backwards baseball cap. They're listening to country music. They may work in blue-collar employment. They go to country concerts. They're rural, but they're not Western, right? They don't work on a ranch. They may have never ridden a horse in their life, never touched a cow or worked with cattle in their life. But they like that country lifestyle. And if you look at our customer from that lens, it becomes a much wider group of people. A lot of the people in every state skip from New York to Los Angeles in what Jason Aldean calls the flyover states.
That's mostly a Just Country customer. We split that customer out from the traditional Western customer where maybe the rodeo content and the hardcore Western content wouldn't resonate as much with them. We talk to them more about some of the artist collaborations we're doing with different country artists. Some of the more rural or Just Country events, think NFL, think NASCAR. Kind of talking to a customer who's not a hardcore rodeo fan is probably a good way of putting it.
Okay. And I guess you guys have a very strong loyalty program, B Rewarded. So maybe just share where you are from a total count. And then as you're looking at customer demographics that are joining the loyalty program over the last five years, have you seen any certain type of demographic over-index to join the program?
Yeah, we have 9.4 million loyalty customers now versus 8.2 a year ago, so up 15%. We look at it very, very closely. I'm always trying to tease out, is there something going on from an income demographic cohort? And it is a very, very stable group of customers. We're growing across all income brackets. We're growing with both male and female customers, all age groups. I suppose the one nuance, and it is small, is it skews a little more female and a little younger. And we see that sometimes when different performers come to town. Morgan Wallen will come and play a stadium. And we'll see our female business pick up just a little bit. But overall, it is growing across all demographics.
OK, and then leveraging that data, I guess you talked about sending out a mailer in December. But how do you leverage that customer loyalty database to do direct marketing?
Yeah, so we segment our customers based on the product they buy. So you may be a 22-year-old female, but you're buying product. Your dad asked you to go once every three months to go pick up regular jeans for you. You're going to fall into the Western segment. So it's a segment of the product that you're buying, not the segment of necessarily who you are as a person. And so we have four segments: our fashion segment, Wonderw est, our work segment, our Western segment, and now this Just Country segment. And we'll create everything from different direct mail pieces to different online ads that we'll have on Meta and different social platforms to different radio spots based on those different segments. So it applies to all the different pieces of media that we use.
We'll go, "Hey, is this a rock station?" may get more Just Country versus a hardcore Western station may get a true Western message in terms of what we're doing from an advertising standpoint.
OK. And the concert and artist sponsorships and partnerships are certainly interesting. Can you highlight a couple of those that you think have been particularly helpful and how that drives consumers to your stores?
Totally. So we've partnered with Brad Paisley and Miranda Lambert for clothing lines, Moonshine Spirit, and then Idyllwind, respectively, for many years. And they've been our biggest supporters. And they've been amazing for the brand. So we love working with them. We have no plans to have additional exclusive brand or private label long-term partners right now. So these are more short-term. Let's sponsor a tour. Let's sponsor a particular event. We just had a partnership with Jelly Roll. He performed twice during the CMAs on November 20. And both times, we had this commercial around redemption and how he kind of changed his life, a very powerful commercial played during the CMAs. We sponsored Morgan Wallen's entire tour last year, which was amazing. He posted quite a bit about Boot Barn, logos on every one of his tour trucks, media at each of the stadiums.
That was exciting, so much so that we're going to sponsor his festival that he has in Gulf Shores, Alabama, this year. It's called Sand In My Boots. It's Stagecoach-esque, almost the same attendance as Stagecoach multi-day festival. And the main stage will be the Boot Barn Stage.
Outstanding. OK. Maybe we'll rope in Jim. Let's just talk about store growth. That's an important part of the story. So can you remind the audience of kind of what your annual store growth target rate is? And then maybe what parts of the country do you find most appealing for new store expansion?
Sure. Our new store target growth rate is 15% new units a year. So this year, we expect to open 60 new stores. We've opened 39 stores year to date. As we are opening those stores, we're opening them across the country. We talk a lot about the new stores in the Northeast because I think they're close to investors. But we're also opening stores, continue to open stores in more mature markets, California, Texas, or more legacy markets, I should say, and also expanding across the country in the Midwest and in the North and in the South as well.
OK. And then Jim, you guys have been opening stores for a long time. But it does seem like over the last couple of years, you've changed maybe the store locations, the store size. Maybe just talk about the evolution of new stores and how they've changed from where they were to where they are today.
Yeah, we've really, I think, refined the process. I think we're opening more in a power center, a strip center anchored by a big tenant, oftentimes, whether that's a Home Depot or a Costco or a Walmart, a Lowe's. We enjoy the frequency of visit that those anchor tenants provide. And it's allowed us to be a little bit more mainstream and more accessible for more customers to come in and shop with us. And we've seen that in the growth in the customer counts that John was talking about. But I think it's not just the store location, but also some of the things that we've been doing around marketing and merchandising and operations in the store that's helped those volumes increase.
OK. And I know there was a period that maybe two years ago, three years ago, the new stores were opening up so strong, they weren't really maturing. And now I think you've refined that. So maybe give us a sense, are you seeing a maturation process with stores? What do those same store sales look like in year two, year three?
Yes, it's a great reminder. When we went public 10 years ago, the new store target was $1.8 million sales. And what we've seen over the last three or four years is that accelerate to $3 million or north of $3 million for a new store opening. And those stores open at about 75% of what a mature store does, regardless of what the level has been in those new stores. And so we're now three plus years into it. We're starting to see more of that waterfall that we expected to see at these higher levels. And so the new store opens very strong in year one. The first year of comp, we're seeing those stores comp in line with the chain average as it's fighting to comp against a strong year one opening.
And now what we're seeing is the second year of comp, we're seeing an outperformance of the chain average by about five points of comp. And while it's still a little bit early in the data, that third year of comp, we're seeing an outperformance of the chain average, not to the tune of five points of comp, but something better than chain average, which is more in line with that historical waterfall that we saw pre-COVID. And so it's encouraging to see that waterfall return.
OK. And then just to remind the audience too, what's your total store target and where are you today?
Yeah, we're 438 stores open today, plan to open 21 in the fourth quarter, and as we march on the way to 900 stores.
Okay, great. Now how about the competitive environment for either one of you to answer? Has that evolved over the last couple of years, particularly coming out of COVID? Are there online players that are emerging? And there's some concern I know from investors that maybe some of the brands are starting to go more DTC. So what are you seeing from a competitive standpoint?
You know, we have the competitors in the Western industry are very rational, which is nice. We've got one large chain with north of 100 stores that is our biggest competitor. And they haven't done anything that I would call irrational through the holiday season, maybe a tad more promotional than a year ago. But if we look back to two or three years ago from an online perspective during kind of that COVID and post-COVID boom online, things were much more aggressive in the paid space online. That has subsided as well. So I think we're a pretty steady state from a promotional standpoint. There's nothing that really stands out or concerns me from our competitors, more rational than a lot of industries, I suppose. Yeah. And as far as the direct-to-consumer, our third-party vendors, we have great partners.
They're continuing to see really nice growth with us as we open new stores, and we comp positively. We don't love that they go direct-to-consumer, but it's something that we face and we compete with them. They compete with our exclusive brands, but they tend to be great partners, and we talked earlier about the nice discounts that they've continued to give us as we've grown with them.
OK. Yeah. So with your exclusive brands, let's just talk a bit on that. So maybe remind the audience where you are today from exclusive brand penetration, what you see as maybe a future goal, and any areas of the store where you haven't rolled out exclusive brands at this point.
Sure. So we expect to end the year or for this year to be close to 39% exclusive brand penetration growth, a growth of more than 100 basis points of penetration. We continue to look at opportunities. We tend to see a little bit more success or faster adoption with our exclusive brands on the female side of the business versus the male side of the business. So I think opportunities will continue on both sides of the business. But there's more work to do probably in the men's Western and work side.
OK. Now just to go back to some of the buying power that you're seeing, and you've got good gross margin drivers. You talked a bit about what you saw in fiscal Q3. Maybe lay out just for the group, what are some of the sustainable margin drivers, both kind of in the near to medium term?
Yes. This year, we've seen really nice growth with some of the renegotiated rates that we've had with some of our logistics and supply chain partners. I think that's a little bit more one-time in nature. That'll provide us probably somewhere in the 60-70 basis points of merch margin expansion this year. Some of the continued more sustainable drivers as we move into next year, the exclusive brand penetration growth. We've talked about that being in that 200 basis point of penetration expansion every year as we march towards 50% penetration growth. That'll continue to be a nice driver as we get more margin from our exclusive brands than we do from our third parties, about 1,000 basis points. But what we're also seeing are these buying economies of scale, whether that's increased vendor discounts, as we talked about, from both our third party and our exclusive brand partners.
As we get scale, we're taking full container loads of some of the high-selling styles. And we'll distribute those ourselves for a better discount. And just having this Kansas City distribution center up and running closer to full capacity this year is allowing us to be more efficient and save some money in our shipping and distribution. So the team's done a really nice job of that. And I think that stays with us as we move into next year. And while not providing guidance for next year, I would look at that to be more in that 30 to 40 basis points, not 100 basis points of merch margin expansion as we model more long-term.
OK, great. And then I guess we've got to weave in a tariff question. You talk about exclusive brands. That's where you maybe have some direct import exposure. What's the thinking, just how you might manage a tariff environment on whether it be China imports or even Mexico?
Yeah, yeah. Just a reminder, 30% on order roughly comes from China and about 25% from Mexico. We're all kind of in the same game, reading the same headlines in a little bit of a wait and see what happens. I think that will dictate how we manage it. We have de-risked over the last several years in moving into different countries. We want to ensure quality of product and fill rates that are high. We'll manage it once we see what the numbers are and what the risks are. I think we'll be able to make a better decision on how much, if any, we move out of China or Mexico or whatever country happens to be in the crosshairs.
Okay. All right, so we've got time for one more question. We'll ask John on the digital side. So you have overseen the digital effort for the last five years. We point out the same store sales for online, we're up 11%. So it's outperforming. Kind of what's been the evolution of digital at Boot Barn the last five years? And then where do you see it going for the next five years?
Yeah. The thing I'm most proud of on the digital side over the last five years is when I came on board, Boot Barn was much smaller than Sheplers. We had acquired the Sheplers business for their strong online business. At this point, bootbarn.com is, without question, our digital flagship. It's north of 75% of our online business. And it will, fortunately, and I think it's fortunately, hover between 9%-10% penetration, maybe even decline slightly at a rate of opening 438 stores today, 15% store growth, average unit volume of $3 million. Our e-commerce business, even though it's a very nice business, isn't going to be able to keep up with the pace of store openings. So given that we can get to 900 stores over the next four or five years, e-commerce will be a nice business, a nice addition.
But our goal is to take every one of those online customers and turn them into a stores customer, whether it be BOPIS making up 8%-9% of bootbarn.com sales, another 20% plus of the customers ship the order to the store versus their home. They'd rather have it shipped to the store. 70% of our returns happen in Boot Barn stores. So we do everything we can to take our bootbarn.com customer, our pure bootbarn.com customer, and turn them into an omni or a stores customer as well. And we're going to continue to do that.
OK, great. Well, we'll wrap it up there in the interest of time. So John and Jim, thank you very much.
Thank you.
Thank you.
Thank you, guys.
Thank you.