Earnings Call: Q1 2021

Aug 4, 2020

Good day, everyone, and welcome to the Boot Barn Holdings First Quarter Fiscal Year twenty twenty one Earnings Call. As a reminder, this call is being recorded. Now I'd like to turn the conference over to your host, Mr. Jim Watkins, Vice President, Investor Relations. Please go ahead, sir. Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's first quarter fiscal twenty twenty one earnings results. With me on today's call are Jim Conroy, President and Chief Executive Officer and Greg Hackman, Chief Financial Officer. Copies of today's press release and investor presentation are 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 thirty days on the Investor Relations section of the company's website. I would like to remind you that certain statements we will be making 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 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 first quarter fiscal twenty twenty one 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, Bluebarn's President and Chief Executive Officer. Jim? Thank you, Jim, and good afternoon. Thank you everyone for joining us on today's call. These continue to be unprecedented times and our hearts go out to those impacted by COVID-nineteen and its continued effects on the world. Before we begin with the typical content of the call, I do wanna speak briefly about the pandemic. This is the time when many people across The US are being faced with difficult decisions. Our customers and our associates are seeking their personal balance between health concerns and economic considerations. And I would be remiss not to recognize the entire Boot Barn team who has led the company through this difficult time. The 4,000 store associates who are committed to servicing workers in essential industries and the more than 200 people across the central organization who answered the call to help ensure a safe shopping environment. They all made a commitment to keeping our stores open and safely servicing our customers. It is a testament to the Boot Barn brand and the culture that permeates the entire nationwide team. I couldn't be more proud to lead this organization, and I know we will emerge even stronger when the challenges in the current environment subside. With that said, I will now turn my attention to the impact that COVID is having on our business, review our first quarter results, update you on our current performance, and walk through each of our four strategic initiatives. Following my remarks, Greg will review our financial performance in more detail, and then we will open the call up for questions. The COVID nineteen health crisis continues to have a meaningful impact on our business. We have seen a strong correlation, both up and down, between the number of positive COVID nineteen tests in specific geographies and its impact on consumer sentiment and retail store traffic. At the same time, we have seen a surge in e commerce demand as consumers have shifted more of their spending online during the health crisis. This dynamic is reflected in the monthly cadence of our consolidated same store sales performance as April declined 45%, May declined only 10% and June increased by 3%. While we believe that the sequential improvement was driven in part by external factors such as easing restrictions or receipt of stimulus payments, I would like to recognize our stores and digital teams for their superb execution during this challenging time. On our last call, we discussed measures we took in order to reduce operating expenses and preserve the balance sheet in response to the COVID nineteen health crisis. These measures included pay cuts for management, reduced store hours, corporate wide furloughs and layoffs, reductions in marketing spend, and the minimization of third party expenses. While these were tough decisions to make, we believe they were necessary for the health of the business and I'm quite pleased with the results. When compared to our March 28 year end balances, we lowered our inventory $27,000,000 reduced payables $15,000,000 and increased cash by $14,000,000 without increasing our debt. We believe we are in a strong position financially, yet we plan to continue to proceed cautiously as we anticipate periods of choppy sales during the coming months due to the continued impact of the COVID nineteen health crisis. During the first quarter, consolidated same store sales declined 14.9%. Given that our same store sales metric removes stores that have been closed for more than five consecutive days, our actual sales erosion was even more pronounced, declining 20.5% when including the performance of the stores that remained closed due to the current health crisis. Same store sales in our retail stores declined 27% while our e commerce sales grew 52. This resulted in our e commerce channel increasing to 25% of total sales compared with 14% in the prior year period. From a margin perspective, merchandise margin in both channels remained healthy. The merchant did an excellent job of working with our vendor partners, managing down receipts and tightening replenishment algorithms, which enable us to bring our inventory in line with sales. Our consolidated merchandise margin did erode by 200 basis points in the quarter driven primarily by two factors. First, given the outsized volume of e commerce, our merchandise margin declined 160 basis points based on composition of the two channels. Second, we experienced a 30 basis point write down of discontinued inventory at the recently acquired GNL clothing store that focused entirely on work boots and work apparel. Clearing this merchandise is part of the rebranding process that will change the name of the Boot Barn and expand the assortment to include western boots and western apparel. Given the challenging environment, we continue to manage all expenditures closely. The expense control measures we implemented resulted in an $8,000,000 decrease in selling, general and administrative expenses during the first quarter when compared to the prior year period. This all resulted in a first quarter net loss of $500,000 or $02 per share compared to net income of $9,700,000 or $0.33 per diluted share in last year's first quarter. While we are, of course, disappointed to not have grown earnings under the current circumstances and when compared to our internal expectations, we are very pleased with the first quarter results. I'd like to now provide an update on current business. Except for temporary store closures due to COVID nineteen, we are fortunate to have all of our stores open today. As we moved into July, our second quarter, we continue to see a strong correlation between our customer shopping behavior and the number of positive COVID test results in their communities. As case counts increased in certain markets and local jurisdictions took responsive action, customers reacted and our business slowed from its June sales levels. Preliminary same store sales in our retail stores declined by approximately 15% in July, while our ecommerce sales grew by approximately 24%. Our consolidated July same store sales declined 10%. This July sales dynamic includes retrenchment in many of our larger markets such as Texas, Arizona, and California. Consistent with the sentiment around COVID nineteen, same store sales in our retail stores sequentially improved from mid July through the first week of our fiscal August. We expect that our retail store sales will continue to fluctuate based upon the news and customer response around COVID-nineteen. We anticipate that fiscal twenty twenty one will continue to be a volatile year, but we are confident in our ability to navigate through this temporary challenge and return to growth when conditions begin to normalize. I'd now like to provide an update on each of our four strategic initiatives, beginning with driving same store sales growth. We saw significant sequential improvement throughout the quarter in the retail stores business ending the month of June with negative low single digit comps. From a merchandise perspective, work boots grew as our customers pivoted to more functional product for their work needs. Sales in non flame resistant work apparel improved to positive growth in the month of June after declining in the month of May. Sales of our FR or flame resistant work apparel declined largely as a result of the softening in the oil and gas markets. Same store sales in Texas, Colorado, Wyoming, and North Dakota lag the chain average as many of our stores in these states serve customers working in the oil extraction industry. As we look back to 2015, the last time we saw a significant decline in the price of oil, there was roughly a nine month lag between the beginning of the fall in the price of oil and when we saw a significant impact to our sales. We believe that the speed at which the price of oil has declined over the past couple of months and the sharp reduction in rig counts have resulted in a more immediate impact on our customers in these oil markets when compared to 2015. Sales of Western boots and apparel declined during the quarter. We believe that the cancellation of rodeos, country music concerts and other festivals that typically occur in the spring and summer are contributing to sales declines in these categories. In the near term, we expect our sales to shift to even more functional versus discretionary product. As a result, our merchandising team has been refining the composition of our product assortment to reflect the change in demand. From a marketing perspective, we are expanding our focus on the work customer while continuing to nurture the traditional western customer. Given the environment, we have redirected some of the spending and marketing activity away from the more fashionable segments. We believe that pivoting segments will enable us to continue to grow our customer database and drive additional traffic to both our stores and ecommerce sites over the long term. From a media spend standpoint, most of our recent marketing has been focused on email and pay per click with only a modest amount of radio as the sales composition between our two channels has shifted more online over the last few months. We continue to modify our marketing to keep expenses in line with sales and to ensure the tone of the marketing is aligned with customer sentiment. From an operational perspective, we have prioritized safety for our customers and for our employees. We very quickly adapted our stores to take advantage of our omnichannel capabilities and have encouraged our customers to use our integrated omnichannel offerings, including buy online, pick up in store and curbside pickup. As markets began reopening, we were able to expand store hours in locations where traffic was returning to more normal volume. We continue to be focused on optimizing the store hours and labor with the flow of traffic to the stores. We have promoted social distancing behaviors, adjusted our fitting room and returns procedures, mandated the use of face coverings for all of our store associates, and encouraged our customers to do the same. I wanna take a moment to acknowledge our entire STORE's organization. They've remained extremely positive during this challenging time as we've asked them to implement safety procedures, work through operational changes, and be extremely flexible on the time and number of hours that they work. I couldn't be more appreciative of them. Moving to our second initiative, strengthening our omnichannel leadership. Omnichannel has been an area of significant growth over the last couple of months as customers shifted their shopping habits online as a result of COVID-nineteen. We are pleased with the growth we experienced in our e commerce business during the first quarter with year over year sales increasing 52% and healthy growth in operating profit margin. The growth in online sales was primarily driven by growth in bootbarn.com with increased traffic and conversion from the prior year. Our newly rebranded Shepler site has exceeded our initial expectations in both sales and margin. This is an extremely positive development as we were able to reduce the promotional activity on the new Shepler site, drive a higher margin rate and upgrade the branding with a focus on its western heritage. The outsized e commerce growth increased the total e commerce sales penetration to 25% of total sales in the first quarter, up from 14% in the first quarter of the prior year. We are pleased that the enhancements we have made to our digital sites and omnichannel platforms over the last couple of years have enabled us to serve our customers in the manner in which they are most comfortable shopping at the current time. Looking forward, we intend to add two more capabilities to our e commerce business, including the fulfillment of e commerce orders from our stores and same day delivery from our stores using a third party delivery company. We believe both of these capabilities will allow us to reach more customers, decrease delivery times, make more efficient use of our inventory, and provide enhanced customer satisfaction. Now to our third strategic initiative, exclusive brands. During the first quarter, exclusive brand penetration grew to 21.9%, an increase of 200 basis points compared to the prior year period. Our exclusive brands Cody James and Cheyenne continued to develop a loyal customer following and remained our number two and number four top selling brands in the store. The extension of our exclusive brand portfolio over the last couple years has been extremely well received by our customers. And while we took a more cautious approach to our exclusive brand growth growth once the COVID nineteen crisis began, we have been pleased that sales of our brands expanded in the first quarter and have further accelerated as we moved into the second quarter. We now expect to see modest growth in our exclusive brand penetration during the current fiscal year, which is a testament to our ability to develop strong and relevant brands. Finally, our fourth initiative expanding our store base. During the first quarter, we opened five new stores bringing our store count at the end of the quarter to two sixty four stores. These five stores were set to open late in the fourth quarter, but we had intentionally delayed their opening as a result of COVID. We are excited about the expansion into our thirty sixth state with the opening of our Russellville, Arkansas store in May, as well as the new locations in Pennsylvania, Ohio, and North Carolina. As new stores continue to be our largest use of capital, we have planned for slower unit growth until we gain confidence in the external environment. We are targeting the opening of an additional 10 stores in fiscal twenty twenty one, including one store expected to open in the second quarter. As a reminder, the timeline for new store development is only six months, allowing us the opportunity to reaccelerate growth if market conditions show a marked improvement. I'd like to now turn the call over to Greg Hackman. Thank you, Jim. Good afternoon, everyone. In the first quarter, net sales decreased 20.5% to $147,800,000 The decrease in net sales was driven by a 14.9% decline in same store sales, with same store sales in our retail stores declining 27.1% and e commerce same store sales increasing 51.9%. The decrease in retail store sales was primarily a result of decreased traffic in our stores that resulted from customers staying at home in response to the COVID-nineteen crisis and temporary store closures. On average, approximately 30 of our two sixty four stores were closed during the quarter. During the first quarter, we opened five new stores, bringing our store count at the end of the quarter to two sixty four stores in 36 states. Gross profit decreased 35.3 to $40,200,000 or 27.2% of sales compared to gross profit of $62,200,000 or 33.5% of sales in the prior year period. The six thirty basis point decrease in gross profit rate resulted from a four thirty basis point increase in buying and occupancy costs and a 200 basis point decline in merchandise margin rate. The deleverage in buying and occupancy costs was primarily a result of lower volume sales due to the COVID-nineteen crisis. Of the February basis point decline in merchandise margin, 160 basis points is attributable to the increased sales penetration of the lower merchandise margin e commerce business and 30 basis points related to the write off of discontinued inventory at the recently acquired G and L Clothing work only store. Operating expense for the quarter was $38,400,000 or 26% of sales compared to $46,100,000 or 24.8% of sales in the prior year period. Operating expense decreased primarily as a result of expense reduction measures previously discussed, lower stores payroll and reduced non payroll related expenses. Income from operations was $1,800,000 or 1.2% of sales in the quarter compared to $16,100,000 or 8.6% of sales in the prior year period. Income tax was a $290,000 benefit in the quarter compared to income tax expense of $2,400,000 in the prior year period, resulting in an effective income tax rate of 37.1% in the first quarter. Net loss was 5,000,000 or $02 per diluted share compared to net income of $9,700,000 or $0.33 per diluted share in the prior year period. Turning to the balance sheet. Inventory decreased approximately 3% on a comp store basis compared to last year. This is an improvement from the end of our fourth quarter where inventory on a comp store basis was up 9.3%. On a consolidated basis, inventory was 3% higher than a year ago. As a reminder, inventory at the end of our fourth quarter was 20% higher than the previous year. We are very pleased with the team's ability to manage inventory levels down to reflect the current environment with virtually no impact on merchandise margin rate. As Jim mentioned, we significantly slowed merchandise purchases and reduced our inventory balance from year end by $27,000,000 As of 06/27/2020, we had a total of $241,000,000 of debt outstanding, including a $111,000,000 term loan and $130,000,000 outstanding on our $165,000,000 revolving line of credit. We have $35,000,000 of availability on our revolver and $83,000,000 on hand at the end of the quarter. Our net debt leverage ratio at the end of the quarter was 1.8 times. Given the lack of visibility into the business as a result of COVID-nineteen, the company is not providing second quarter guidance at this time. Now I'd like to turn the call back to Jim for some closing remarks. Thanks, Greg. While the current environment remains difficult, we are confident in our ability to execute upon our four strategic initiatives over the long term and further establish Boot Barn as the leading brand in the Western and work industry. I would like to express my gratitude to both our stores and e commerce teams for their continued innovation, diligence and commitment in our customer shopping experience as seamless as possible during this time. They've all shown great leadership and I'm both proud and thankful to work with such a dedicated team. Now I would like to open up the call to take your questions. Maria? At this time, we will be conducting a question and answer session. If you would 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 would 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. Okay. Our first question is from Matthew Boss with JPMorgan. Please proceed with your question. Great. Thanks. So maybe to start on same store sales. If you broke down the negative 9% to 10 comps in July and early August that you're seeing today maybe relative to the positive three comp that you drove in June, what would be or maybe how best would you rank the drivers of this 12% to 13% negative swing in comps? Any color by category or by region I think would be really helpful. Sure. It's we would rank the impact as COVID number one, specifically in Texas and California as the case count started to increase in both of those states in the July, both governments and sort of local jurisdictions started to really kind of retrench, move back into a safer at home kind of environment. And while there is a lot of other noise, good or bad in the system, it was really the retrenchment in Texas and California, which while, of course, somewhat disappointing, what we've seen is there's a bit of a pendulum effect when a state retrenches, customers react very strongly in the short term and then slowly either benefited by more favorable numbers or perhaps customers just getting fatigued of being home at home, they start to release and and come back to the stores a bit more. So while we don't necessarily want to predict the future here, that's seemingly the dynamic that's at play. In terms of category changes, they were inconsequential in terms of the differences between June and July. It was almost entirely store traffic, and it was largely our two biggest states. Great. And then maybe just a follow-up on gross margin. How best to think about second quarter and full year merchandise margin trends relative to the 200 basis point decline that we saw in the first quarter? So I'll take it from a merchandise margin standpoint and if further color is necessary from sort of a gross margin standpoint, maybe Greg can weigh in. We were extremely pleased to deliver the merchandise margin that we delivered. Right? Both channels had healthy merchandise margin. There had been some concern by some folks that we had gotten overextended from an inventory standpoint. And if you look at our inventory position now, we are completely in line with sales. So I think we can extinguish that concern entirely. In terms of the merchandise margin going forward, I think there's probably an occasional clearance sale that we'll have to add from time to time. I think it'll be de minimis in in terms of the entire margin rate of the company. On the plus side, we are seeing a little bit more penetration of exclusive brands than we had anticipated for this year. So while the long term algorithm was always two to three points of penetration, and more recently we have been at five to six points of penetration growth each year, I think we'll probably settle back down to two or three points of exclusive brand penetration growth for fiscal twenty twenty one. And, of course, that will be a mild tailwind to the merchandise margins. On the consolidated merchandise margin, there there's sort of no way around the math of the composition between the margin rate in the stores and the margin rate online. So while we're thrilled to get the ecommerce business, and we're actually very pleased with the EBIT rate of the ecommerce business, from a merchandise margin perspective, it's margin eroding. Fortunately, we're we're we're seeing some new customer acquisition through our ecommerce channel. So it's long term, it might be a great thing for us to gain new customers. We're actively trying to make them omnichannel customers so they can shop both in store and online. So the the composition of the merchandise margin line, though, will continue to bring that that consolidated merchandise margin number down. As we get below merchandise margin, we get the gross margin. Do you want to talk to Right. So the main driver, of course, as you bridge from merchandise margin to gross margin is the occupancy line and our ability to leverage that. So if you look at what happened in the occupancy buying line, that was, I believe, approximately four thirty basis points of deleverage on really what I would consider to be a minus 20.5 net sales decline. Right? So I think that's how you would think about it going forward is what is you know, what happens to the top line relative to last year. Again, occupancy is the main piece of that expense. There was some buying and DC costs that we were able to, minimize as we furloughed folks and as we really ratcheted back payroll in q one. And as business improves, we'll probably reinvest. We have brought back virtually all of the furloughed folks, especially at the SSC and DCs. So that's the way to think about it, Matt. That's great color. Best of luck. Thanks, Matt. Our next question is from Oliver Chen with Cowen. Please proceed with your question. This is Max on for Oliver. Thanks a lot for taking our question. So first, the minus 15 comp, how did that look between Western and work? And then you touched on the oil patch, states a little bit, but could you maybe discern and give us a little bit more color on Texas? And how is work versus western sales there? So in the first part of the question, the the work business has two components, boots and work apparel. The work boots businesses has been quite strong, and and we've seen some really nice growth there. The work apparel business and by the way, that's much bigger than the work apparel business. The work apparel business splits roughly evenly between f r and non f r. And one of the things that we've seen we saw in the quarter was the the more traditional work apparel business was negative at the height of COVID, but turned positive and has remained positive. And yet, FR has been negative. And that's that was what we called out in the last call saying this might be a leading indicator of softness in the oil patch. In terms of how that split is between, Work in Western and Texas, you know, Texas has 50 plus stores and that split is very different in West Texas versus sort of Houston and Dallas. But it's if you took the entire state as a composition, you wouldn't see a meaningful difference in the split between work and Western in Texas versus worst work and Western for the balance of the chain. So I hope that answered your question. Yes. Thanks a lot. And then just separately, so assuming the oilfield employment trends in Texas remain pressured, how does that impact your longer term store opening plans? Would you potentially pull back any openings in Texas and accelerate in other regions? Or, you know, how are you guys thinking about that plus 10%, growth? So, yes, Texas isn't a high priority development state for us right now anyway, even even pre oil, an oil rig decline. So we're we continue to find opportunities that have been pleasantly surprising in terms of their performance in North Carolina and in Pennsylvania and in Ohio. So we're we're somewhat emboldened to continue to grow the concept in the Southeast and up into the Mid Atlantic states. And the other place where we're looking at stores is to continue to fill in our California market. While we had thought that we had reached close to saturation, it seems that each time we open up another store in California, it exceeds our expectations. So while we we may occasionally open up stores in Texas going forward, it's it's certainly not a high priority state for us, at least for the foreseeable future. Got it. Thanks a lot. No problem. Thanks, Max. Our next question is from Peter Keith from Piper Sandler. Please proceed with your question. Hey, good afternoon, everyone. It's Bobby Friedner on for Peter, and thanks for taking my questions. First, just wanted to ask about e commerce trends in Q2 quarter to date. It might be a little shortsighted, but seeing some moderation versus Q1. Are you surprised that moderation in context of you know, retail stores, you know, declining from June? You know, what you know, to make the argument that, you e comm would accelerate if, you know, retail is slowing down a little bit. So is there is there any, you know, view or, call out on that? So it it's a good question. There's not quite as much transference between the channels as you might think. So I wouldn't necessarily expect a a major lift in ecommerce business with softness in the stores business. The the other piece of it, we we continue to be completely focused on the bottom line of our ecommerce business. So while it's not growing quite as much in July as it was in, the quarter, the the growth in the bottom line of that business is still extremely, extremely strong. And and we just simply have decided over the long term to to never really buy our ecommerce business, to the point where it's even eroding. So what we continue to be quite pleased by the ecommerce business, there was probably a piece of it in the first quarter that was spiked due to the stimulus payments. When we look at the the daily and weekly data, literally, at the very moment when stimulus payments came out, saw ecommerce business spike up. So as I look at the business in ecommerce right now, we're we're extremely pleased with how they're doing, both top line and very much from a bottom line standpoint. That's great. I appreciate the color. Maybe, you know, just more broadly, over the past few months, do have a, you know, an updated view, you know, the health of your customers and and end markets? You know, there's clearly understanding around auto market headwinds, but at the same time, it seems like there's some, you know, strength in the, you know, broader farm and ranch and, rural channels. You know, housing is rebounding quickly. You know? So how how do think of all that in in balance with the Boot Barn customer? Well, you're right. I there's there's a lot of factors at play. And when when we step back and look at the business and the health of the customer and we think about the the number of headwinds and the magnitude of the headwinds that we're facing into, whether that's the pandemic, the cancellation of concerts and rodeos and festivals, the pressure in the oil markets, the fact that we've actually slowed our marketing expense and pulled back on marketing to sort of preserve expense and and with less of a focus on top on driving top line sales. We're actually somewhat encouraged by the the most recent trends of the business, including, you know, June and July taken together and believe that once the sentiment relative to COVID nineteen eases up and hopefully the case count continues to improve, particularly in California and Texas, We think there's a vibrant customer beneath it all. You know, we've we've got a number of pretty strong headwinds, and our business is actually kind of hanging in there. So I think if we can just, if not remove, just alleviate the the transitory pressure of specifically in Texas and California of COVID, we might get back to a a more healthy comp. And we can look at the business x ing out COVID or x ing out states that have had a market change that we believe is transitory. And if we x those pieces of the business out, it's it's a much more optimistic view. Alright. Great. Appreciate all the detail, and good luck. Thank you. Thanks, Bobby. Our next question is from Janine Seister from Jefferies. Please proceed with your Hi, everyone. Thanks for taking my question. Just curious what you're hearing from maybe some of the independent retailers who occupy a large portion of the market share in the Westernwear market. Are you hearing any independents calling you and maybe potential acquisitions? And just curious how you think about as you do resume a more normal cadence of store growth, the mix of opening your own units versus potentially going forward with some of the acquisitions that have been very successful for you in the past. So, hi, Janine. Good question. We we have seen a weakening of the core mom and pop competitor out there. And what we are we believe we're gaining share from that group because they they simply haven't been able to organize themselves, at least in totality, as well as we have to to operate in a safe environment given what we're facing into. So we do believe we're we're up against a weakened competitive set, at least close in within the western specialty industry. In terms of are there additional acquisition candidates? Absolutely a great question. It's it's a time where while we're trying to play defense and pull back on things like inventory and and expenditures, it's also a time where we might try to be opportunistic and and look for tuck in acquisitions. I would I would lead everybody to believe that's still going to be small players. You know, one store, two stores, not major chains or or any kind of strategic acquisitions. That's not kind of in our our current headset. But but it is something that we've we've seen some mom and pops raise their hand and say, you know, this is might be a good time as any to, to exit, and we're we're certainly willing to have those conversations. So stay tuned. And can you just remind us, what the economics look like on the stores that you acquire versus stores that you open, to build out. Right? The volume on an acquired store tends to be larger. We tend to focus on bigger operators. So the the the payback tends to be faster than the three years that that we pencil out. And so that's compelling financially. Think as we've said before, the there there is a fair amount of work with converting an existing store or operator to the Boot Barn Way. And so we'd have to weigh the, you know, the work effort to, you know, convert that that store to a Boot Barn store with the, I'll say, improved economics. Great. Thank you for all the color. Thank you, Janine. Our next question is from Jonathan Komp. Please proceed with your question. Hi. This is on for John. I guess my first one would really just be, could you clarify maybe some of your comments around, you know, I think you said a lot of the traffic declines and deterioration in trends is really, you know, Texas and California. If you look at kind of all your other markets, would you say July sequentially improved or even kind of stable from June or, any more color on on kind of ex Texas and California? It it's certainly more in line with June. As you probably well know, Texas and California is a hundred plus stores, and more than that proportion in terms of sales volume. So as those states go, does the sort of consolidated chain. In in terms of other markets, what we've had we've had pockets of extreme strength and we've had pockets of more negative results across the 24 or so districts out there. And it's hard to it's hard to really find an underlying trend to to anchor you back to. So very helpful. But it it's it's those two states sort of set the tone for the the overall business, which, again, while that was somewhat disappointing for the last few weeks, firstly, from a health standpoint, you know, both of those states are improving in terms of COVID cases and the the proverbial curve. And we I do believe that we'll start to see and have started to see in a very short period of time, some sequential improvement in both of those states. Got it. And then maybe just one more. You talked a little bit about new customer acquisition for e commerce. I was wondering if you could share anything more on that. Is that do you have a sense if that's, you know, customers that were coming into your stores that are now going online? Or is it totally new customers, customers from some competitors? Just anything you might add on that. Sure. I would say a healthy portion of it is brand new customers. We we have seen some customers that were stores customers convert over to ecommerce or some some variant of omnichannel. So they're placing their order online and willing to drive to the store and pick it up or go to the curb and pick it up. But we're we're encouraged by the fact that this was a time where we could use our ecommerce channel, our digital channel to go out and introduce new customers to the brand. And some, again, some healthy portion of that customer count are net new entrants or net new customers to Boot Barn. And what we're working on now is how do we turn those customers into repeat customers? How do we get them to shop across channels? How do we leverage the strength of our stores plus our digital channel to really maximize their experience and our business. Got it. Thank you very much. No problem. Thank you. Our next question is coming is from Paul Lejuez with Citi. Please proceed with your question. Curious if you could share what the EBIT margin was in the ecom channel versus store channel this year. I think you referenced an improvement in the ecom EBIT margin. Just curious where you are on the absolute levels. And then could you also talk about the mix of business online versus stores? How does that category mix differ? And specifically, what does private brand penetration look like in store versus online? Thanks. I'll take the easy part of your question, Paul. We haven't disclosed the EBIT rate the absolute EBIT rate or the differential between those two businesses. Jim, you wanna cover the mix of business? Sure. Well, ecommerce as a percentage of sales has, of course, grown in the quarter. So for the quarter, was 25% of the business. On an annualized basis, it's 17 or 18% of the business. Admittedly, for the first quarter, it's 14% of the business typically or was 14 last year. As we got into July, we got back to, you know, 17 or 18% ecommerce penetration. And I I think we'll probably, as we go forward, get to 16 or 17% during normalized times. It spikes during holiday and Christmas. So we'll see what happens then, and we're we're certainly up for a unique holiday season as is every retailer given where the the COVID crisis is then. The the third part of your question was around exclusive brands. We we always quote a consolidated penetration of exclusive brands. The the exclusive brand penetration in stores is higher than our consolidated number and and ecommerce is roughly half of the consolidated number. So we've got some room to grow exclusive brand penetration online. And as we do that, we'll we'll continue to get roughly 10 points of incremental margin on that piece of the business that converts over. So that's certainly a focus for the ecommerce team to continue to drive that business. That said, they also are servicing the long tail of consumer demand. So we don't ever expect ecommerce to have the same penetration of exclusive brands as the stores do. Got it. And the gross margin difference between the channels, how much of that can be attributed to the lower penetration of exclusive brands versus just you know, running a little bit more promotional, online? It it's it's the exclusive brand piece of it is probably one fourth of the difference. The the promotional piece is probably a portion of it also, but that's not the bigger piece. The bigger piece is the the freight associated with shipping the product. So that the the the pricing is depending on the product, depending on the category, and depending on the state, to be honest, the pricing is getting more in line with the stores, but it's more the the freight component that burdens the merchandise margin of our ecommerce business. Got it. Thank you, guys. Good luck. Thank you. Thanks, Paul. Our next question is from Tom Nikic with Wells Fargo. Please proceed with your question. Hey, good afternoon, guys. Thanks for taking my question. Greg, I want to ask about so so the expense management in the quarter, you know, I think, you know, clearly, you manage expenses very, very tightly, and you did a really good job there. How should we think about expenses going forward? I mean, we think about SG and A being down year over year in Q2 for the balance of the year? Any color around SG and A would be helpful. Thanks. Yeah. So, Tom, we're not gonna give specific guidance, but I can give you some directional ways to think about SG and A. You know, the biggest save we saw in q one was in our stores, labor and bonus and and kind of the benefits program. We were running basically about seven on a average, we were open about seven hours a day in most of our stores. So we ran base minimum coverage, is roughly stores roughly have about a hundred and forty hours per week to operate the store. And we did that because, you know, the traffic dictated how much business was being done. That allows us to really be efficient in terms of payroll management and deliver a high sales per labor hour statistics. So as we've opened the stores up a bit more, we'll probably be less efficient in terms of store labor. But I would expect us still to be watching that very carefully. Jim mentioned also that we had reduced our marketing spend, focused on on emails and, you know, to a lesser degree, pay per click advertising. And I would expect that to continue. As the business returns a bit, we're gonna invest more in marketing. But, you know, as a rate of sale, I think that that we'll be able to manage that pretty tightly. So that that should that discipline should be ongoing. And the ecommerce team has been really diligent in terms of of pay per click advertising and return on ad spend. The next piece is probably store related costs. So that's things like store travel and repair and maintenance and things that go along with the top line. And, again, I would expect us to manage that pretty closely. If I think about other parts of the p and l, we we did have furloughs in the in the corporate office or what we call the store support center. We had payroll reductions for a period of time. Those have ended, and we brought most of the folks back. So we won't have that same run rate savings. And we have invested in premium pay for our associates in the store. We did pay for the employee portion of health insurance, and and both of those programs extend through August. So we will have increased spending for most of the quarter. But that's how we're managing the businesses is very tightly. We were, again, very, very conservative in our approach to managing the business in the first quarter. I think we'll continue that, albeit as business returned in June, we felt much better about starting to make investments like operating stores longer and operating more typically. So I think that's about as much color as I can give you as we proceed through the year. That's helpful. Thanks, Greg. And just a quick follow-up. Sound pretty you know, optimistic about, you know, merchandise margins and and your ability to, you know, manage you know, keep keep your margins intact with everything that's going on. You know, we've had a lot of, you know, companies talk about how they they expect a very, you know, promotional environment in the second half of of the calendar year over the next six months or so. Do you think that, you know, maybe because you're, you know, sort of the, you know, the the the one big dominant player in the industry, you're a little bit more insulated from, you know, maybe, you know, competitor discounts and promotions, you know, maybe relative to some other apparel and footwear companies out there? So it's a very good question. We do expect other people to be more promotional. Not not even necessarily in our industry, although I'm sure that'll be a piece of it. Just in general, retailers trying to clear goods, particularly those that didn't have the luxury of being open during the last few months or at least a % open. That said, you're right to call out that we are the the brand in the industry. We're the the leading brand in the industry, and we we really almost never turn up the promotional, lever because it just doesn't seem to pay back, either in that year and certainly not in the following year when we have to go up against sort of an artificial lift in sales that may have been margin eroding. So, yeah, we'll we'll view the competitive marketplace as we go forward. We'll try to understand what other retailers are doing, what ecommerce players are doing that have less of an earnings obligation than some, you know, more traditional retailers and what they're doing. But what we typically focus on is sort of a long term brand position of Boot Barn. We are in stock at a reasonable everyday price, and I I don't expect us to have a knee jerk reaction in the next several months, from a promotional standpoint. And, fortunately, we have really no reason to clear any inventory because we've gotten ourselves into such a great spot from an inventory standpoint. So I'd expect more of the same, focusing on the brand, focusing on customer loyalty. Once we get back to playing a little bit of offense, continuing to grow our customer base in the stores, continuing to build our brand online, integrating those two channels better and better, and and kind of looking forward from a a service and an assortment standpoint and not from a, you know, race to the bottom from a discounting and promotional standpoint. Got it. Thanks Jim and best of luck to the Blue Bar team the rest of the year. Thanks Tom. Our next question is from Dylan Carden with William Blair. Please proceed with your question. Yes, thank you very much. Just curious now that you're through the quarter, if you have any better read on sort of the benefit of the stimulus payments albeit sort of most likely anecdotally if you saw any sort of interesting conversion or traffic patterns particularly towards the end of the quarter as those rolled over? The anecdotally, certainly, it was a spike in ecommerce in the middle of the quarter that has moderated a bit towards the end of the quarter and into July. So yeah. I mean, we we definitely saw that, you know, that business has been so strong for the last thirteen or or seventeen weeks or eighteen weeks, but it was even outsized for that one period of time when the checks were sort of being received. I mean, there's no question about the impact on the e commerce business because it correlated to almost to the day. So at least anecdotally, we certainly believe that helped the business in the middle of the quarter. Great. And then the comments on sort of the infill opportunity in California. I know we're in a different environment here as per sort of slowing down the openings. But do you kind of suspect that you might have similar types of opportunities in some of your older markets as for sort of putting more stores you initially thought that the market could sustain? It's a very intriguing question, particularly given the current environment. And the answer, which might challenge conventional wisdom is yes. We're actually seeing our ability to increase the density of stores. We've opened up stores in new markets in the height of a pandemic, and they've gotten out of the gate extremely quickly. So what we we feel as involved in, if not more involved in, to increase our retail store footprint, given what we're seeing. So and and as we open up more stores in markets where that have already matured, we're seeing an inconsequential amount of cannibalization and new stores opening with very good numbers. So we're we're certainly this is certainly not the call or the time to to play heavy offense and and raise our store count estimate, etcetera, but we're we're certainly not pulling it back either. Yes, no totally. Thank you very much. I appreciate it. Best of luck. All right. Go on. Our next question is from Sam Poser with Susquehanna. Please proceed with your question. Thanks for taking my question. A couple of things. On the I want to follow-up on the product mix by channel and the margins there. Can you give us any more color on this? How about the sales by channel as a percent of total on how the exclusive brands were versus the branded product and how that may have changed within both channels in the quarter year over year? So so both channels increased in the quarter. I'm trying to give you a more helpful number. The the ecommerce business was about double just into double digit territory from a penetration standpoint. The storage business was higher than what we reported from a consolidated standpoint. And if you took, you know, the the composition of the business as seventy five twenty five in terms of stores and ecom, you could you could pretty much get to the difference in the penetrations. I actually and I don't have the numbers right in front of me either. Otherwise, I'll just tell you what they are. And and and is that business more promotional online than it is in the stores, or is it fairly equal? And I have one other thing. It's it's not more promotional, at BootBarn.com. It had been much more promotional at Sheplers.com. But one of the things we're quite proud of is we've we've rolled back those promotions and Sheplers now is much more a western heritage branding site focused on building customer loyalty and not, you know, the latest sale. There are store markets that get a slightly higher price than some of our online businesses in certain categories, but it's it's sort of a a small difference in certain categories in certain states. The the biggest difference between the two channels by a lot is the impact of freight. Gotcha. And then, secondly, your denim business, how, both, in store and online, how did that hold up, within the quarter and then, you know, also branded versus, house brands as well or exclusive brands as well? So so the the denim business, it it's, of course, hard. When you look at the whole quarter, given that the beginning part of the quarter was so pressured, Sort of every business with the exception of work boots was under a tremendous amount of downward pressure. As we got into June and you look at the denim business, the men's denim business started to come back to us. It was actually men's denim in June was actually positive. And, you know, we've got as you know, because we look at the inventory in the stores together in Orlando, we've got some some new kind of increased inventory and styling from a Cody James perspective in men's denim. And we're we're pretty pleased with that performance certainly in the stores. And, of course, a slower start online because as we tried to build that brand those brands online, it takes a little bit longer. So, you know, our denim business has been has been decent. It's been better in men's than in ladies. We're happy about the Cody James denim business. We're we're happy about the moonshine spirit business on the men's side. And on the ladies side, I think Cheyenne and Eidlwind are doing well as well. Maybe just not quite as well on the as the, on the men's side. And then I'd be remiss not to ask an inventory question. Are you, like, are you shutting off some branded product now, or is the replenishment of that back on? So we're we're not shutting off anything. I I say this in in quotation marks. We're we're back to business as usual. We're we're selling product, replenishing it, sending orders back to vendors, And our vendor partners have just been fantastic in supporting us through this. First in deferring purchase orders or deferring receipts and, canceling some. And now as business started to get sequentially better, you know, the product was available and and we started writing orders. And we're trying to, frankly, return the favor and give them as best view as we possibly can into the future of our business so they can plan their business. And I think, you know, that the the motto of the current time is we're sort of all in this together. So they've really helped us out across the board in terms of getting through March and April, and we're trying to, partner with them and say, look, know, here's how we see the business going forward as best as we possibly can given, I think, everybody's crystal ball is extremely, blurry. So I think all of our vendors are quite pleased with where we're at right now. They're still getting some really healthy orders from us. And within our industry, we'll still be the largest. We'll still be growing with them. They'll still be quite pleased. And, you know, as as you had pointed out in in past calls, you know, we you were concerned that our inventory had gotten too high and was outpacing our growth in sales. And, you know, they they helped us get us right back in line. I mean, you you I I think even you would acknowledge that we're now sales to stock is couldn't be better. So, you know, the vendors are part of that. Well, you very much, and and, good luck, for the rest of the year. Thanks, Sam. Our next question is from Jeremy Hamblin with Craig Hallum. Please proceed with your question. Thanks. I wanted to come back to the store operations. And in terms of it sounds like you've had a lot of stores operating on kind of four to five hours fewer than typical. As we move forward here in the second half of twenty twenty and haven't seen trends bounce back fully, how do we think about how you're going to manage the store operating hours as we get into fall and then probably more importantly as we get towards the holiday season when hours sometimes expand, are you going to adapt really to the environment that you're seeing on sales? Is it something where that typical jump that you see in store payroll doesn't happen in nearly the same level simply because, you know, you're you're not operating top line at the same level. But how are you thinking about managing that aspect of operations? Hi, Jeremy. It's Greg. It's a great question. We are managing this on kind of a store by store basis. And as volume dictates, right, as the business returns to more normalized levels, we've been opening up for more hours. And, you know, with the with the slide backwards in a few states in in July, we've had to, you know, go back to kind of those base hours that we were operating within, say, May. So it's it's a pretty dynamic kind of store by store decision. I think as we get into holiday, perhaps, we'll we'll expand that a bit. But in the near term, we're just managing it very closely to make sure that that, we're getting the right productivity out of our out of our teams. So we haven't gotten to the, you know, decision of every store is gonna be open for fourteen hours in December. We'll probably get to a point where we have to make that call, but I do think that if the business dictates, we'll be open for those hours. And if it doesn't dictate, then we'll probably continue to operate on more modified hours, perhaps opening more than the seven or eight hours that were open today, but probably not, again, fourteen or sixteen hours that you might be opening open during really busy times during holiday. But at this point in time, is it fair to assume, you know, unless something truly dynamic changes in the environment, that you would maybe even expect your SG and A to be down as we get into that holiday season simply because the hours are going to be fewer than you would typically have, again, of something kind of magically happening in most of the country from a COVID perspective? I I think you could think about it that way. Again, we're not giving any specific guidance, but but, yeah, based on what I've described, I think you could come to that conclusion. Okay. Then moving on to unit growth, you had a kind of a quick comment on it, think, Jim. But in terms of the performance that you've seen, you opened five locations. That new unit productivity, can you give us a sense of what you're seeing there? And then the second part to the question, as we look forward into calendar 'twenty one and maybe getting back to a little bit more aggressive unit growth, is there kind of a target for where sales need to be to get back you know, your more typical 10% unit growth, or is it a level of profitability that you're looking for? Okay. On the on the second piece, getting back to 10% growth or perhaps even more than that, frankly, it's all external. Right? If if both everybody, you guys have heard it from a million companies, is is facing into challenges and adversity that none of have ever really seen before. So if we can get to the point where we don't think, you know, we think that the pandemic is easing considerably, we don't think that extending ourselves from a capital standpoint on additional stores as unnecessary risk, then we'll start to increase our our unit growth. The stores, in general, our new stores pay back in in better than three years. It's a great use of our capital. We've seen nice take up in new stores and new markets. The to give you a real read on the latest openings is another one of those statistics that's extremely hard to handicap because we have some stores that are just really exceeding our expectations and some that are falling a bit short. And you don't know, particularly on the downside, if those that are falling short are a bad location or are just being impacted by COVID. I I can tell you that when we when we look at the composition of the latest five or the latest 25 stores that have opened, we continue to feel great about our new store development program, the ability to continue to get three years or faster payback, and, the ability to essentially double the the store count going forward. It it's in terms of when we get back to more normalized or accelerated growth, it's it's almost entirely based on what's happening in the country from a from a pandemic standpoint. Thanks. Thanks, guys. Nice work in a tough environment. Thank you. Okay. Our next question is from Mitch Kummetz. Please proceed with your question. Hi, yes. Thanks for taking my questions. I guess I've got a few. I was hoping you could give us a little bit more specifics on Texas. I know in years past, you kind of broke it out when the oil patch was tough and it is your biggest market and it's kind of got the double whammy of COVID double whammy, I should say, of COVID and the oil patch right now. If there's any way you can kind of give us how that business is performing, particularly kind of Q2 to date since that's when we've had the resurgence of COVID in Texas plus the oil patch. So Sure. Sure. So the the quick answer is, well, West West Texas is under a lot more pressure than the rest of Texas. And if we if we were to normalize the business in Houston, Dallas, San Antonio, Austin, and sort of look at the the business prior to the resurgence, we'd say Texas was was doing pretty well. As we look at the business now, West Texas is still under a tremendous amount of downward pressure, and the big cities are are faced with the the unfortunately, to all too familiar, stay at home, wear a mask, you know, don't rob crowds, etcetera. And and that's just been hurting store traffic in some of our our biggest markets within the state of Texas. We we do think, of course, that's transitory. I don't know if that's two more weeks or two more months or hopefully not two more years, but that that will abate. And it it seems to what we've seen is the market seemed to have a knee jerk reaction and then sort of come back slowly. And what we have seen again, it's only been two and a half weeks since we saw the trough in mid July of the pullback in Texas, but we have seen those businesses start to come back slowly. And again, West Texas is still very difficult. But even with very difficult business in West Texas, just as a reminder, and I know you know this, Mitch, those stores will still be extremely profitable for us, just negative comps and a drag on comp. Got it. Then Hope it helps. Okay. And then when you look at your digital business, can you maybe speak a little bit to adoption? I'm wondering if you're seeing adoption pretty consistent across categories. I mean I just sort of generally think of the work boot business in particular as kind of a sit and fit business. And I'm wondering it's something your Work Boots business sounds like it's really good. So I'm wondering if you're seeing sort of outpaced adoption on the Work Boots. And if so, what does that mean for the business longer term, if anything? Well, you're right to call out that Work Boots has been a very strong business online. I think that's, you know, partly just given the environment, people have have gone online and those guys that are working out there that they you know, men and women that that need work product are defaulting to come to us often enough that we're we're getting some nice growth there. So we are we do think that is a a good place to build the business. On the on the Sheplers side, we we have a very healthy business on the sheplers.com site in Denham. So that's a a big a bigger portion of that site than either bootbarn.com or in boot barn stores. So, you know, our our goal is to, you know, try to introduce customers that are either squarely in the work industry or squarely in the western industry or one concentric circle outside of those businesses. And if they're online shopping, we're using paper quick advertising, social media advertising to try to convert them or at least get them to to browse the site. And we've seen a nice pickup in traffic in both of the sites and a a very nice increase in conversion. So I think people are motivated to purchase online and more hesitant to go to a store. Got it. And then Greg, last question. On the SG and A, I just want to probe a little bit. So your SG and A in dollar terms is down $8,000,000 roughly year over year. I was hoping you could say how much of that was a decline in store payroll? And then when you think about store payroll in Q2, should it be pretty even year over year just based on kind of all your stores being open? Or will it still be down based kind of reduced store hours? Or just a little bit more color there would be helpful. Right. So I'm not going to tell you how much the store payroll was of the $8,000,000 reduction, but it was the first one I listed, and I tend to talk about things in terms of order of magnitude. So at at least directionally, let you know it's the it was the biggest save year over year. And then in terms of how to look at q two, you know, based on the conversation about, you know, opening a little bit longer and being a little bit less productive, you can assume that, you know, the rate, if you will, is gonna go up a bit compared to q one. But I can't tell you that it's the dollars are going to be less because I don't know what the top line is going to look like. So I'm sorry I can't help you with that. Okay. All right. Thanks, guys. Good luck. Thanks, Mitch. Thanks, Mitch. We have reached the end of our question and answer session. I would like to pass the floor back to Jim Conroy for closing remarks. Very good. Thanks, everyone, for joining the call. Look forward to talking to you at the end of our second quarter. Take care. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.