I'm Dylan Carden. I'm the analyst here at Blair that covers Boot Barn. There are disclosures on our website. I believe that fulfills my duty in that regard. John Hazen and Jim Watkins, CEO, CFO of Boot Barn, respectively. I think there's a spiel you kind of want to lead in with.
Just a quick opening remarks. We've had a lot of questions since our call about business. I thought I'd just give a quick update. With four weeks remaining in our fiscal quarter, we're pleased with the trajectory of the business. We're tracking to the high end of our guidance, both in stores and online. It was a good start to the fiscal year, and that has continued since our last update.
Well, I mean, we can just stay there for a second. Comparisons are kind of even for the balance of this next two quarters, right? How are you feeling about I guess there's been a lot of comp volatility, right?
Sure.
I mean, you just did a seven after a six on a down six on a zero.
Right. After a 54%.
After a 54%-
That's right.
I mean, how far back do you want to go, right?
Right.
How are you feeling about sort of the composition of your comp? Is there some stability ahead as far as sort of the drivers?
Sure.
What are sort of the main drivers of the business?
Yeah, if we look back to fiscal 2026, there were seven weeks where we were up against double-digit comps, and we're through five of those seven weeks, which is great. If we look at when we've had the volatility in the comp, 2016, it was oil. We were much more oil-dependent. To your point, after the plus 54% year, there was a rebalancing. Outside of those anomalies, we kind of prove year after year that we can comp the comp. We feel quite good about the business and the guide that we put out. The business right now is being driven by AUR, it's more AUR than transaction-driven, as we said on the earnings call. Yeah, we are tracking nicely.
Is it now to the point where it's mostly a comp waterfall story? You've got the AUR that runs through, I guess, really the latter part of the years when you took price last year. Do you feel like we're at some level of stability?
I do. I think we are through the price increases. There's price increases every year, of course, but all of the tariff-related price increases, both from the third party and the repricing of our exclusive brands, that was all completed by the end of February, let's call it, and I've said it a few times, I think publicly, we're kind of back to business as usual.
Great. You heard it here first. Let's talk about the actual business. I know we're doing sort of fireside chat, and you've done this now for several years, and most people know you, but I still get fashion questions. I still get, how does Tractor Supply not eat your lunch? Can you just kind of broadly out there what you do, your competitive positioning?
Sure. Boot Barn, founded in 1978, is the dominant player in a relatively fragmented industry. We have 556 stores right now, and if you look at the composition of the business, the easiest way to look at it is the major merchandise categories. About 50% of our sales comes from boots, and then if you look at the remaining 50%, 35% of that is apparel, 10% women's, 20% men's, and then 5% in the work business. The remaining 15% of the business is made up of accessories, so boot care, cowboy hats, baseball caps, things of that sort.
Yeah.
We get this question often about the fashion piece of the business, and I like to remind folks that women's denim, which is what you go to when you think of fashion, is roughly 5% of the business that we do. Our top-selling products, many of our top 100 products have, almost all of them, have been in the line for over five years. We are a needs-based replenishment business for people working, whether in the trades, International Brotherhood of Electrical Workers, ranching, agriculture. We are much more of a needs-based business than a fashion-based business. The business does incredibly well when the weather is a little bit colder, and especially when it rains. People realize that their boots are leaking, and they need them to work, and they'll walk into a Boot Barn.
You come into a Boot Barn on a day when there's heavy rainfall, and you will see workers coming in to replace the boots on their feet.
Some of the vitals I always sort of anchor to, 75% auto-replenish, markdown risk inventory 10%-15%, 80%+ full-price selling. Those are all kind of still the.
Yeah, better than that. Right now, we are in as good a position from a markdown inventory standpoint than we have been outside of COVID, so we feel really, really good about our markdown inventory.
I think we're sitting at 7%, 7%, 8%?
Yeah. We typically say around 10% is our markdowns as a percent inventory, and we're doing better than that right now, and similar to what we were doing last year as far as markdown risk. As far as replenishment, the majority of what we sell is on replenishment. That number fluctuates over time, so we don't have a set number, but yeah, you're right on that.
Close enough.
Yeah.
That sort of bleeds into a conversation around sort of your core customer. I mean, you touch a very different piece, I think, of the market, but construction, agricultural, oil and gas, a lot of kind of cross-currents across those industries. How are they doing? Is oil and gas still sort of a boon to you when it's doing well?
Sure.
How do you think about?
For those new to the story, we break our customers down into really four segments. We have our Western customer. Think of somebody who wears a cowboy hat, who has worked with livestock, who has ridden a horse or worked with cattle. We have our work customer, which is more your traditional tradesman. We have our Just Country customer who is somebody who listens to country music, lives a rural lifestyle, but wears a baseball cap, likes country concerts and country radio stations, drives an F-150. That's kind of the picture of a Just Country customer. We have our fashion customer, which again, is a relatively small piece of our business, but we do target that younger fashion customer as well.
You look at the customer base right now between work and western, the oil business has been stable, as you see in the news every day, and this is all public, you can look up rig counts, there hasn't been a rush to drill in the U.S. with the elevated oil prices. I think the expectation in West Texas is this will moderate at some point. Oil and our oil markets have been doing well, there hasn't been any sort of rush out there. As a reminder, when oil dropped from $110- $30 a barrel in 2016, those oil stores made up a much larger piece of our base. It's like a third, right? Yep. Now those 40 or 50 stores refining in Permian Basin, Bakken, those sorts of things, again, less than 10% of our stores at this point.
Inversely, the agricultural customer, you read a lot about sort of the plight of the American farmer. What are you seeing in those markets? We spend a lot of time talking to our field team, our district managers, in the Central Valley of California, where much of that food is grown, and it seems to be stable right now. We're not hearing any real noise around drought conditions. We had that question a few times over the last couple of weeks. There was that heat dome, a temporary or transitory heat dome doesn't create drought conditions in California. Talking with the team, and I was up on the Central Coast this weekend and was going by the fields, and everyone was out there. The fields were full.
People were picking strawberries and everything else that they do in the Central Valley, and everything seems to be pretty stable from an ag standpoint.
Yeah. When we had some of the oil and other commodity pressure years ago, 10 years ago, at this point, the Midwest and some of those markets, we're seeing it, but we haven't called anything out in any of these markets that we've seen softness in the Midwest and, to John's point, in the California markets.
Is that just because it's such a needs-based product? Yeah. Have you looked at periods where you do see that kind of dislocation in those end markets, and is it more just you're still going to buy a pair of work boots? Is that the right way to think about it?
Yeah.
If you think of a consumer and the discretionary purchases that they make, the last products they will give up are the ones they need to work, which is the products we sell. Yeah. How are you speaking to these different customers? You were effectively a roll-up story. Then 2018, 2019, you kind of digested a lot of those acquisitions, and you really went back and looked at your go-to-market, your marketing, who you're speaking to, how you're speaking to them, with what product. How has that evolved coming out of the pandemic? I know your background sort of is uniquely suited for this.
Sure. Yeah. It was interesting when I came to Boot Barn roughly 10 years ago. It was the first retailer I had worked at.
My career had been on the brand side. I had run stores for those brands, True Religion, Hurley, Ring of Fire, others, but had never been truly on the retail side of things. As I got to know the brand and our exclusive brands, I realized that our exclusive brands are not private labels. They're not house brands. Boot Barn, with the marketing that was done over the last 10 years, had become a brand. When I started, Boot Barn was more akin to a Rug Barn or a Pottery Barn or another barn that you might see out there, right?
Boot Barn now, I was at a rodeo this weekend in the Central Valley of California in Santa Maria, and we had a giveaway, and we had 2,000 or 3,000 people all wearing Boot Barn-branded trucker hats, similar to what you see with Bass Pro as an example. Right. Boot Barn has truly become a brand on its own. What I've done over the last year and a half as one of my adjustments is start marketing our exclusive brands so we can story tell around those brands as well.
Let's stick with that then. How do those fit into the ecosystem? Particularly, why is 50% the right number? You're at, so what, 42%-ish now? What's the incremental there? You're now starting to put them out into the world on their own, right?
Mm-hmm.
Your sort of private label brand.com websites. Is that what gets you the extra eight percentage points, or why are you picking sort of the 50% level, let's start there?
Starting with the 50% level, we always have to be a house of brands. As a retailer, we have to provide and sell what the consumer wants to buy. One of the reasons we're only guiding 50 basis points of growth in exclusive brands this year is we're seeing great success with some of our third-party brands, particularly in the workspace. It's a little bit of a rebalancing year on the work side, and this happens in different categories every year. I think there's enough great third-party brands out there that 50% is the right number. Above 50%, it starts to feel skewed or unbalanced to me. I think 50% is what we can get to. 60% feels uncomfortable to me. We need to be a house of brands.
Yeah.
Some of our own brands are their own brands in their own right? Some people come into our competitors looking for some of our exclusive brands, not realizing that they're Boot Barn exclusive brands. I think having brands that are standalone brands that do so well on their own makes the 50% feel like something less than 50% just because they're l ike a third-party brand that's in our store.
The marketing will help the exclusive brands get to that 50%, but it's not going to be from the sales. If it happens, that'd be great, but it's not going to be from the sales. I don't expect it to be from the sales on those exclusive brand websites, codyjames.com, Shyanne, Idyllwind. The point of those sites is to tell the story of those brands, read about what makes that brand, the ethos of the brand, watch videos about the brand, follow the Instagram account, peruse the full breadth of that product in one place altogether, and then realize the best place to buy that product is inside of a Boot Barn store. Because our stores are where we deliver the best experience.
That is who we are as a company, the customer service from our partners, the assortment, the smell of the leather in the stores, all those things are what make the stores so great. I love that we're doing these sites. It was my idea, my adjustment, but it was around storytelling to drive people to the stores versus online sales.
Two questions that jump out of that is, one, are you leaving money on the table having your competitors not sell the brands?
I-
Strategic, and then they then have to come to you? I mean, is it?
Very unlikely that we would ever sell to our competitors. I do get the question often around wholesale, and I think about it. Cody James is our biggest exclusive brand on its own. It's likely the third or fourth biggest brand in Western, and at some point, we'll look to do wholesale, perhaps with an international distributor, or perhaps outside of the competition, outside of the true work in Western customer. I don't see a world where we'd sell it within the space.
Second one would be just simply if you're not talking about increasing your marketing budget, at least I haven't heard you talk about that. As you're thinking about seeding these other websites, if it's about storytelling, brand building, how are you kind of allocating those dollars?
Sure. We are kind of pegged to that 3% marketing spend, With the increase in sales from new stores as well as comp store growth, it gives us an extra roughly $12 million to spend this year from a marketing standpoint. We're taking much of that additional marketing dollars and pushing it into the digital spend. We're seeing really nice performance from Meta and TikTok on the digital side, both for Boot Barn and for our exclusive brands. We're going to take the digital spend up fivefold or more this year from a social and non-Google digital marketing spend.
The online business has been on fire. Is that really the best way to understand it? Is that you're sort of turning on a performance type of marketing that you've never really had before?
I think the online business is doing great. If I look at it, the new growth channels, the new sites are a piece of it for sure, it's also bootbarn.com, which is north of 75% of our online business. bootbarn.com is doing very well because of the omnichannel team. The search tools that they have put in place, which are now AI-driven, the new merchandising assortments on the site, what our planning and allocation teams are doing around inventory for e-commerce in particular. The new sites are a contributor to that, but not the majority of the growth we're seeing for online.
Switching to sort of the retail channel, 900-1,200 target, 15%-ish growth per year. Why are those the right numbers, I guess?
There were three things we did. We went through an additional TAM study with a third party. We had a third party look at designated census areas and figure out where we could and should put stores. Those were good things to do, and those were great studies. The third component that gave us the confidence was our head of stores and our head of real estate, who are very, very good at what they do. They went area by area and mapped out individually where they thought we could put stores, and they came up with a number that was very close to that 1,200 number.
Individual locations?
Yes.
Based on-
Individual locations.
By market.
By market.
Have you opened any of those that were incremental to the 900? Does that question make sense?
Not quite. Say it one more time.
Yeah. If there's a 300-location count difference, and that's new, have you opened any of those in the 300?
I couldn't tell you off the top of my head.
Yeah.
Yeah.
It's a cheeky question.
Yeah.
Where I'm going with that is if there's some chatter in and around, like, okay, you're opening in Paramus, New Jersey. I probably butchered that name, but you know better.
Paramus.
Paramus, thank you very much. Go Midwest. Does that store make sense, or are you kind of getting into markets that are sort of beyond your core customer, your core competencies?
Yeah, if we look at the stores we opened last year, or the stores we're planning on opening this year, it is broad-based in geography. It is in exurbs and rural areas as well as suburban areas, as well as more dense areas. We just opened in Pasadena and just south of downtown Los Angeles, were two stores that we opened in the last couple of months. It's in legacy markets of California and Texas. It's in new markets in New Hampshire, Maine, Alaska, and the performance has been very good from a broad-based standpoint. Nothing really to call out from a geography or new market versus legacy market.
Are they different customers? Is there sort of a construction versus agricultural component to it, or?
That was our thesis when we started in the Northeast pre-COVID. We had this vision of, we opened in Pennsylvania, and it was going to be six-inch lace-up work boots that we're going to be selling in that particular market. Ironically, it skewed as Western as our stores in legacy markets, if not slightly more, given the lack of competition.
I think we've learned that as we've continued to build stores, that we can do a little more rural than we thought, a little more metropolitan than we thought, a little more high density than we had originally thought. Back to your earlier question about Tractor Supply Company, a great company. We love those guys. We compete on a small portion of what they sell, but we also cover a different market. We are a little more urban than they are. They tend to be a little more rural than we are. They have such a great broad assortment of different categories where we focus on a broad assortment of what we sell and the western boots and apparel and that sort of thing. Yeah, the strategy, back to the real estate question, is working really well.
We don't tend to give a lot of information about where we're going in different markets and how they behave, just for competitive reasons.
Yeah, right.
We're pretty happy with what we're seeing.
Is there a different format through which you could tackle rural? Where I am, it's Lowe's, Walmart, Tractor Supply, Rural King, all in a row, and more people go to Rural King than Tractor Supply. Could it be then Boot Barn? Is there a format which you could go into some of those markets?
Yeah. We'll continue to study that. Again, we don't want to get into it on this public forum, but.
Sure.
there definitely is an opportunity for us.
I want to talk about tariffs in a different way. Is there anything that's changed in the competitive landscape coming out of tariff? Have you seen brands get really? You deal in a lot of smaller, less sophisticated brands.
No. It has been, as I said earlier, really business as usual post-tariffs. There hasn't been a lot of noise around the IEEPA refunds or anything of that sort. It does feel like business as usual.
Okay.
Yeah. Our third-party partners have done a really nice job navigating tariffs and trying to keep costs down. We've done the same thing with our own exclusive brands, trying to manage the pricing down as much as we can in this environment, and pretty happy with that.
Are you at all worried, I'm thinking about this more broadly from a consumer lens standpoint, are you worried that price hits a wall at some point here where there's just such an inaffordability to everything that not only can you not take price, you might even have to pull back on price?
I think John mentioned this earlier in his opening remarks, that the price increases that we saw last year, we're not anticipating that kind of a price increase this year. In some instances, some of our partners are holding prices flat this year and not even seeing the regular increase of a point or two percentage-wise of price increase. We'll have to see how things play out this summer, but everyone's trying to be as careful as possible on the price increases and keep them. I know some consumer product companies have reduced prices in certain categories.
Kroger.
Right.
PepsiCo.
We're not seeing that yet, but I think things are going to be more in check and a little more muted this year.
I want to make sure we spend enough time on margins because there's just so many puts and takes on the margin side this year. We've got a very high leverage point. It's increased in the last six months. Can you just walk through how you're thinking about both margin puts and takes, but also the pacing throughout the year?
Sure. Onto the leverage point, we think that this year that at a 3% comp, that we'll be able to get EBIT margin expansion, which we're pretty proud of given the 15% new unit growth, and those stores do open at a lower volume, so that does put some pressure on the occupancy rate of the company. Having some nice drivers on the merchandise margin expansion opportunities, 50 basis points is what we're planning on for merchandise margin expansion this year. The buying occupancy and distribution center costs, we expect those to deleverage around 70 basis points, and that's really a function of the number of stores that we're opening.
They open at 75% the volume of a mature store, so when you add 15% new units, and we've added about half of our stores in the chain have been opened in the last five years, and so that puts a little bit of pressure on the occupancy. Each of the stores in the chain make four-wall EBITDA profit, and so we're happy with that. On the SG&A side of things, we expect to see leverage there on a plus two comp. Planning on some nice leverage on SG&A to get us to 20 basis points of EBIT expansion on the high end of our range. Happy about that.
Is that the right way to think about sort of the growth targets that you're putting out there, that you're looking for growing at a speed that you're clearly taking aggressive market share and yet still making progression? Is that kind of how you're setting that?
Yes. It feels like we're kind of in as much of an algo year as we could be, right? A low-to-mid single-digit same-store sales growth and some nice merchandise margin expansion. Some deleverage on buying and occupancy, making it up with the merch margin expansion and the SG&A leverage, managing those expenses as tightly as we can, getting leverage on the fixed costs as we open more profitable stores each year. That kind of feels like the model as we look out over the next few years. The 20 basis points of EBIT margin expansion at the high end of our range this year would put us at 160 basis points of EBIT margin expansion over the last three years. We're really happy with that as we march towards a 15% EBIT margin over the next few years.
15% growth. You still feel like that's what?
On the new unit?
Yeah, sorry, on the new unit. Yeah.
Yes. We've said 12%- 15% this year. We've laid out a nice path to 15%. That'd be five years in a row, I believe, of 15% new units. Real estate market's a little tight to find good real estate, but we've seen some nice opportunity over the last few years, and so we're always a little cautious that, not committing to 15% every year for the next five years, but 12%- 15%, we feel pretty comfortable with that. Some people have asked, why don't we go faster? Some people say, "Why don't you slow it down a little bit?" We feel good about that. The team is doing a phenomenal job of getting those stores opened, and the field team, the real estate team, the merchandise planning team, the buyers, everybody's just doing a really nice job. The supply chain has been supporting that also.
If you can't find the site, you won't open the stores.
That's right.
Just-
We don't want to open subpar stores just to hit a number. That's where we've baked in that flexibility to the kind of the long-term algorithm.
What about tariffs in the margin conversation? I mean, how are you thinking about those through the year? I mean, they could even become a benefit, I guess.
Yeah. Are you talking about the tariffs that are on the table right now, the tariffs that could be on the table, and counterbalancing the tariff refunds? The way we're looking at tariffs is similar to how we did it last year. On the third-party product, as they raise prices, we need to raise prices to maintain that merchandise margin rate. As we talked about earlier, it seems like it's going to be a year where we won't see the price increases that we saw a year ago, and that things will be a little bit more muted as people are trying to keep costs down, and we like that. We want to create a nice value for our customers. Similar on the exclusive brands with the factories.
We have some great partners in overseas that have helped us kind of absorb some the hit of tariffs, and we've kept pricing in check. We've had some price increases that we've put in in our fourth quarter to cover the margin. To the extent we see tariffs go up again, we'll adjust our pricing accordingly. We turn our inventory twice a year, a little bit slower than that on our own exclusive brands, just given the supply chain. We have a little bit of time to react, if there are additional tariffs that come our way to preserve the model. If there aren't, then we don't have to take as much on price, and we like that as well.
What about on sourcing? Because you do have some initiatives in place to sort of improve sourcing on the-
private label. Several hundred basis points you think that you can kind of put back into some of that product margin. Is that still on the table? Is that part of the?
That is still ongoing. One of the first adjustments I made coming in as interim, November a year and a half ago was, and I said to the chair, "I want to build a sourcing department." Little did I know Liberation Day was coming down the pike, and so, a little bit of serendipity or luck there that we had started to build that department. This would've been tougher without the sourcing department. That team has spent the last year doing an incredible job navigating the tariff environment, which has been very fluid, to say the least. Now as this settles, they are pivoting back to growing margin, and working with our factories, re-costing. This will be more fiscal 2028 than fiscal 2027, given they got held back a year, dealing with the tariff situation.
Yes, we still think 100 to 200 basis points of exclusive brand margin improvement is possible as we look into FY 2028.
That's really just going direct to your own producers.
Correct.
Right.
Correct. Re-costing, raw material management, all of it.
What about speed to market? Because there's a lot of younger companies now that are coming out with sort of 30-day, 60-day lead times. Is that part of that sort of same initiative? Could you cut down some of your private label?
We are cutting down on our lead times, but we're cutting down from a long lead time to a slightly less long lead time. You look, of course, at the Quinces of the world or whoever it may be. They do an amazing job, but their business is changing so quickly in that world of fashion, and so much of what we sell is replenishment that the advantage of really trying to pivot that quickly, while possible, is not necessary, and I really don't think it'd be that beneficial at all to our business.
Yeah. Fair. Inventory turns is not something that you kind of target as a metric to improve upon because the business is so-
Correct
consistent.
Yeah. We would rather be in stock and be able to service a customer. It's part of the reason we had that plus 54 year when everybody else was inventory challenged, right?
You bought in June of 2020, right?
Right. That's exactly right.
You remember well. Which was crazy. All right. Great. Well, that's time. Thank you everyone for joining us.
Thank you, everyone.
There is a breakout, it is in room Richardson. Thank you.