Good day, everyone, and welcome to the Boot Barn Holdings, Inc. Second Quarter 2027 Earnings Conference Call. As a reminder, this call is being recorded. Now, I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Finance. Please go ahead, sir.

Thank you.

Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Second Quarter Fiscal 2027 Earnings Results With me on today's call are John Hazen, Chief Executive Officer, and Jim Watkins, Chief Financial Officer. The copy of today's press release, along with a supplemental financial presentation, is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company's website. I would like to remind you that certain statements we will make during this call 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 second quarter fiscal 2027 earnings release as well as our filings with the SEC reference 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 John Hazen, Groupon's Chief Executive Officer.

John? Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our second quarter fiscal 27 results, provide an update on current business, and discuss the progress we have made across each of our four strategic initiatives. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open the call for questions. I am pleased with our second quarter results, highlighted by a 15% increase in revenue, supported by continued new store expansion and positive same store sales growth. Consolidated same store sales increased 1.4% on top of 8.4% in the prior year period, while merchandise margin expanded 190 basis points. Our top line performance, combined with strong merchandise margin expansion and disciplined expense management drove a 26% increase in second quarter earnings per diluted share to $1.73, exceeding the high end of our guidance range by $0.08. At the midpoint of our fiscal year, revenue has increased 16% to date, and earnings per diluted share have increased 15%, excluding the impact of tariff refunds. These results reflect the strength of the Boot Barn brand the broad appeal of our merchandise assortment and our ability to resonate with customers across multiple segments. I would now like to provide an update on current business. Through the first four weeks of our fiscal third quarter, consolidated same-store sales were slightly positive. While I'm not satisfied with October's comp sales performance, we were lapping strong same-store sales growth of 9% last year, including 7% in stores and 24% online. while also navigating unseasonably warm weather across several key markets this year. Looking ahead, we have several initiatives underway to drive traffic and improve sales trends during the third quarter, with fiscal December representing over half of the quarter sales. These include a refresh of Our Lady's Boot assortment, an expanded national marketing campaign to reach more customers and more markets, and the relaunch of our B2B offering, Boot Barn Workforce. These initiatives, combined with the continued strength of our work group and apparel businesses and the performance of our new stores, give us confidence in our outlook for the holiday season and the balance of the fiscal year. Now let me turn to our four strategic initiatives, beginning with new store growth. During the second quarter, we opened 19 new stores, bringing our total store count to 584 locations across 49 states. Year-to-date, we have opened 46 stores, and over the past 18 months we have added 126 new locations representing approximately 20% of our current store base. Our new stores have consistently delivered strong results over the past several years and we are particularly pleased with the performance of our most recent group of 126 stores. These locations are on track to generate approximately $3.4 million in first year sales on average or roughly $200,000 above our original projections. This performance reflects the growing national recognition of the Boot Barn brand, our connection with the country western lifestyle and blue-collar customers, and the breadth and depth of our merchandise assortment. Our new stores continue to perform well across both new and established markets, demonstrating our ability to expand our national footprint and increase total market sales. Given the strength of our real estate pipeline, we are increasing our fiscal 27 new store opening plans from 70 stores to a range of 75 to 80 stores. While recent results demonstrate the opportunity to outperform our projections, we continue to underwrite new locations to approximately $3.2 million in first-year sales, consistent with our historical approach. With a long-term opportunity to expand to 1,200 locations nationwide, we remain confident in our ability to sustain new store growth for years to come. Moving to our second initiative, same-store sales. Second quarter consolidated same-store sales increased 1.4%, including a 1% increase in brick-and-mortar comp sales. Store comp growth was driven by a 2% increase in average unit retail, partially offset by a decline in transactions. From a merchandising perspective, we saw healthy demand across most of our major merchandise categories, reflecting the broad appeal of our assortment across multiple customer segments. Our men's and ladies apparel business continued to perform well with denim remaining a standout category. Despite cycling high teen comps in the prior year period, denim continues to deliver positive comp sales with our assortment remaining heavily weighted towards traditional bootcut styles. Our men's western boot comp sales were slightly negative in the second quarter as we cycled high single digit growth in the prior year period, and our cowboy hat and ball cap businesses delivered strong growth. Our Ladies Western Boot Business was a modest drag on second quarter comp sales as we lapped mid-teen growth in the prior year period. While the category will continue to cycle high single-digit growth in the third quarter, we are optimistic about the upcoming holiday season. We are refreshing our assortment with a broader selection of styles and colors and have selectively promoted slower-moving merchandise to make room for substantial new product arrivals. We believe these changes will resonate with our customers and help improve sales trends while maintaining overall markdown levels below the prior year. As part of our efforts to drive sales, we have made several changes to how we present merchandise in our stores. In denim, we have moved our premium assortment to the front of the store to provide a more elevated shopping experience and create opportunities to increase average unit retail, while repositioning our value offerings on the denim wall toward the back of the store. We are taking a similar approach in cowboy hats, refreshing our visuals and signage to make the category easier to shop. I have visited many stores recently, and the feedback from our teams has been extremely positive. We are also well prepared from an inventory perspective. Building on improvements made last year, we have further refined how we flow merchandise to stores, with product arriving earlier and more consistently. Our in-stock positions are strong, including ladies' boots, where we are introducing a substantial amount of new merchandise. From a store operations perspective, we are preparing for the holiday season by adding seasonal associates and focusing on converting customer traffic into sales. Our strong customer satisfaction scores reflect the dedication of our store teams and their commitment to providing a great shopping experience. On the work side of the business, we continue to see exceptional momentum in work boots and work apparel, with sales trends improving for the sixth consecutive quarter. This performance reflects our strong connection with the hardworking, blue-collar customer. During the second quarter, we began the relaunch of our B2B program, now branded Boot Barn Workforce. This initiative began over a year ago and represents a complete rebuild of our existing platform. Boot Barn Workforce generated approximately $100 million in sales last fiscal year, and we see a meaningful opportunity to expand from this base. We have transformed what was previously a largely manual process into a fully integrated platform featuring a sales dashboard, lead tracking, a portal for our customers' safety managers, digital vouchers, and a mobile app plan for the future. We have also expanded our national sales team to better serve existing customers and pursue new business opportunities. With significant investment underway in data centers, infrastructure, and other large-scale construction projects across the country, we believe Blue Barn Workforce is well-positioned to attract new customers and expand our share of the workwear market. I would also like to recognize our IT and omnichannel teams for their exceptional work developing the Boot Barn workforce platform internally. Their dedication, creativity, and ability to deliver such a comprehensive platform with minimal capital investment are a testament to the talent we have across this organization. From a marketing perspective, we are particularly excited about our holiday campaign, which celebrates family, tradition, and the special moments that bring people together during the Christmas season. This year we have expanded our reach by shifting from regional television advertising to a nationwide campaign. We expect to generate approximately 1 billion television impressions during the holiday season compared to 175 million last year, representing six times the exposure. Our holiday TV and radio campaigns will feature the voice of Riley Greene, a stagecoach, music festival headliner, and judge on NBC's The Voice. building on our successful partnership over the past several years. We are also pleased to announce that Boot Barn will once again serve as the presenting sponsor of his concert tour in 2027, further strengthening our connection with country music fans across the nation. Now moving to our third initiative, Omnichannel. During the second quarter, e-commerce same-store sales, which represented approximately 9% of total company sales, increased 5.2% on top of 14% growth in the prior year period. The moderation in e-commerce growth was largely driven by our Ladies Western Boot business, which represents nearly twice the sales mix online compared to our stores, and created an approximately 650 basis point headwind to online comps. In the prior year period, online ladies boot sales increased 25%, supported in part by deeper markdowns on clearance merchandise. This year, we have taken a more disciplined approach to promotions, which has also impacted sales in the category. Looking ahead, we expect e-commerce same-store sales to be slightly positive in the third quarter as we cycle exceptionally strong prior year growth throughout the period. Another important aspect of our omnichannel strategy is the integration of our growing store network with our digital business. With approximately half of our online orders fulfilled through our stores, we are able to provide customers with greater convenience while supporting growth across the entire business. Our digital channels also provide an efficient way to sell slower-moving merchandise across our store base, improving inventory recovery and creating room for new products while protecting merchandise margins. Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. I'm very pleased with our team's ability to consistently expand merchandise margin. Excluding the impact of tariffs, second quarter merchandise margin exceeded our expectations, increasing 150 basis points on top of 80 basis points of expansion in the prior year period. By the end of fiscal 27, we expect to have expanded merchandise margin by more than 1,000 basis points over the past 10 years, averaging over 100 basis points annually. This consistent progress reflects the strength of our merchandising strategy and our ability to find new ways to improve margins year after year. Building on this track record, we are raising our full-year merchandise margin outlook and now expect approximately 70 basis points of expansion, excluding tariff refunds. During the second quarter, exclusive brand penetration increased approximately 80 basis points across our merchandise categories, excluding work boots. while the strength of third-party work boot sales led to a modest decline in overall penetration. Given the current mix of our business, we now expect full-year exclusive brand penetration to be slightly below the prior year level. Importantly, despite the modest decline in exclusive brand penetration, our sourcing organization is beginning to deliver higher product margins through lower cost and improved efficiencies, enhancing the merchandise margin rate of our exclusive brand sales. With a proven track record and multiple opportunities for continued improvement, we remain confident in our ability to expand merchandise margin for years to come. I would like to now turn the call over to Jim.

Thank you. As Jon mentioned earlier, second quarter net sales increased 15% to $582 million, supported by new store growth and positive same-store sales. During the second quarter, gross profit rate increased 80 basis points, compared to the prior year, reflecting 190 basis points of merchandise margin expansion partially offset by 110 basis points of buying occupancy and distribution center cost deleverage. Merchandise margin expansion was driven by 130 basis points of lower freight expense, 40 basis points of tariff refunds, and 20 basis points of product margin improvement. For the first six months of fiscal 27, Merchandise margin increased 60 basis points compared to the prior year period, excluding tariff refunds. This improvement reflects 40 basis points of product margin expansion and 20 basis points of lower freight expense. Second quarter SG&A expense was $146 million or 25.1% of sales, an improvement of 10 basis points from the prior year period. Income from operations was $70 million or 12.1% of sales compared to $56 million or 11.2% of sales in the prior year period. Earnings for diluted share increased 26%, so $1.73 compared to $1.37 in the prior year period. On a consolidated basis, inventory increased 14% year over year to $975 million and increased 3% on a same store basis. The increase in total inventory reflects the growth needed to support new stores, exclusive brands, and inventory purchased at a volume discount. Turning to capital allocation, we continue to accelerate our share repurchase activity during the second quarter, repurchasing approximately 241,000 shares of common stock for $35 million under our existing $200 million authorization. This momentum has continued into the third quarter with approximately 190,000 shares repurchased for $23 million through the first four weeks and we anticipate repurchasing approximately $40 million of shares in total during the third quarter. Since initiating the program in fiscal 26, we have repurchased approximately 876,000 shares for a total of $133 million, representing approximately 3% of our outstanding shares. As announced in today's earnings release, our board of directors has approved an additional $400 million share repurchase authorization reflecting our confidence in the financial strength of the business and our ability to generate substantial cash flow. Based on our fiscal 27 outlook, we expect operating cash flow to more than adequately fund our new store expansion, other capital investments, and continued share repurchases. This expanded authorization provides additional flexibility to return capital to shareholders while maintaining our commitment to investing in the long-term growth of the business. As part of that commitment, we have approved plans to develop a second distribution center in Kansas City, which we expect to be operational in calendar 2028. This investment will expand our distribution capacity and enhance our ability to support our growing store base. The new facility represents another important step in building the infrastructure necessary to support our long-term growth opportunity of 1200 stores nationwide. We ended the second quarter with $97 million in cash and zero drawn on our $500 million line of credit, providing us with a strong balance sheet and significant financial flexibility to execute our growth and capital allocation strategies. Now turning to our outlook for fiscal 27. The supplemental financial presentation we released today outlines both the low and high ends of our guidance ranges for the full year and the third quarter. In my following remarks, I will focus on the high end of those ranges. Our updated outlook reflects recent sales trends and our expectations for the balance of the fiscal year while incorporating the benefits of merchandise margin expansion and new store growth. Our guidance also includes the benefit of tariff refunds. For the full year, at the high end of our guidance, we expect total sales of $2.6 billion, representing 15% growth over fiscal 26. We expect same-store sales to increase 2%, including a 1.7% increase in retail store comps and 4% growth in e-commerce comps. Merchandise margin rate is now expected to be approximately 52.3% of sales, representing a 140 basis point increase year-over-year, including 70 basis points from tariff refunds, 50 basis points of product margin expansion, and 20 basis points of freight improvements. We expect gross profit rate to increase by 50 basis points year-over-year to approximately 38.5% of sales, and we expect to achieve 20 basis points of SG&A leverage. We also expect income from operations of $362 million, or 14% of sales, an increase of 70 basis points over last year. Net income is projected to be $272 million, with growth and earnings per diluted share of 22% to $9. We expect the net capital expenditures to total $140 million and we anticipate an effective tax rate of 25.7% for the remainder of the fiscal year. Now turning to our third quarter guidance. We expect total sales at the hind of our guidance range to be $802 million and a consolidated same store sales increase of 1%. We expect merchandise margin of approximately 51.5% of sales representing a 90 basis point increase year over year. This guidance reflects 50 basis points of product margin expansion on top of 70 basis points of product margin expansion in the prior year period, a 30 basis point improvement in freight expense, and a 10 basis point benefit from tariff refunds. We expect gross profit rate of approximately 39.8% of sales, and we expect SG&A to be approximately 23.6% of sales. We expect income from operations of $130 million or 16.2% of sales and earnings for diluted share of $3.19 compared to $2.79 last year. Now I would like to turn the call back to John for some closing remarks.

Thank you, Jim. I would like to thank the entire Boot Barn team for their continued dedication, hard work, and commitment to our customers. I am extremely proud of what we continue to accomplish together. As we head into the holiday season, I look forward to seeing all of our preparations come together. We are building something truly special at Boot Barn, and I am excited about the long-term opportunities ahead for our people and our company. Now I would like to open up the call for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two. We ask that you limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our list. The first on our question queue is Matthew Boss of JP Morgan. Please go ahead.

Great, thanks. So, John, could you help bridge the comp moderation in the second quarter to 1% to 2% and then the drivers of the further step down in October. And larger picture, just given what you've seen, any change in your confidence for low to mid single digits as the baseline algorithm if you bottoms up build the drivers?

Yeah. Yeah, Matt, I will jump in first with kind of a quick summary of Q2 to give some color on that moderation that we saw in October. When we look at most major merchandise categories in the quarter, in Q2, we saw nice performance, not only in work, which we've talked about often, but in men's Western apparel, which is our largest merchandise category, women's Western apparel, in cowboy hats and Western ball caps as well. So the performance in Q2 was broad-based outside of men's and women's Western boots, which were softer. As we moved into October, the moderation was broad-based across all the same categories. We saw a step down of a point or two across all those major merchandise categories I just mentioned. So there wasn't something that changed or shifted in a particular category in a much more material way. And I think that the strength of the men's Western apparel, the women's Western apparel, all point to the strength of the Western lifestyle. I don't think there's any broad shift in Western lifestyle. I think we're just seeing a little bit of a different pattern across the assortment. And we can talk more about women's boots and how we're approaching that and the men's business as well. But I think the Western industry and the Western lifestyle still is incredibly strong and the model is intact. We've just got a couple of different challenges on the boot side. But I think the best indicator of how strong Western is is what we see in men's apparel, which is our largest merchandise category.

And we remain confident in the long-term algorithm. Don't see any changes to it at this point in time. And while it's too early to guide next year, Let me help maybe frame up how we're beginning to think about some of the drivers. And as you know, we typically will start building our budget with a low to mid single digit same store sales growth in mind. And we'll have to see what the sales trend at that point. But that is typically our starting point. And we'll adjust from there as necessary based off current business. And so while we're guiding slightly below that at a plus 2% for this year, we've historically outperformed that, including the last two years when we compromised. 5.5% two years ago and around 7% last year. And, you know, something to add to that, what John mentioned in his prepared remarks, while it's a small part of the business, the Boot Barn workforce should see some nice acceleration and growth as we move into next year, something to keep in mind as well. And then going down to P&L, I think was your question a little bit. We expect to continue to open 12% to 15% new units on the heels of five consecutive years of opening around 15% new units. Merchandise margin, while we have to keep an eye on freight rates, we're confident in our merchandise margin drivers heading into the next few years. As a reminder, excuse me. As a reminder, when modeling next year, we'll need to back out the 70 basis points of tariff refund benefit from the current year. But we do expect to continue to see nice buying economies of scale and margin benefits from the sourcing initiatives John just alluded to. And so as we typically start guiding a year around the merchandise margin of 30 to 40 basis points, We would expect something similar as we get into next year. We have grown merchant margin about 100 basis points on average for the last 10 years. So on the margin side, we're very confident there. And then we often talk about leverage points at a low to mid single digit comp. We'd expect to leverage operating margin. This year it was expected to leverage at a 3% comp and due to some outsized non-tariff refund merchandise margin benefits plus the outperformance of our new stores. We now expect to leverage operating margin at 2% for this year. So optimistic there. And then seeing some nice benefit from the EPS from the share repurchases. So I think the algorithm is still in place. We feel confident about it. Top line growth will ultimately determine the EPS growth. But it's in that 3% to 4%. growth range, we would expect to generate the 15% to 20% EPS growth if you exclude the $0.45 of tariff benefit refund this year.

That's great. Really helpful color. Thank you.

Thanks, Matt. Our next question comes from Steven Zaccone of Citi. Please go ahead.

Great. Good afternoon. Thanks very much for taking my question. I wanted to ask a bit more about the timeline to see improvement in some of the areas of weakness in Western. Workwear was an area where you had seen some weakness and you were focused on driving change. So maybe could you compare and contrast where you're at today in terms of the timeline to see improvement in Western? You talked about some of the changes you're making in stores, but just help us think through, is this a couple of months? Change, is it a couple quarters? Anything there would be very helpful.

Sure, Steve. Happy to answer that. I'm going to break it apart between men's boots and women's boots. On the women's side of the business, we saw a merchandising opportunity. Again, I've been in 20-ish stores over the last couple of months with our head merchant and looking through the challenges we've been having in women's Western boots. and the merchandising team deserve a lot of credit. They have moved very, very quickly to bring in fresh product, fresh colors, fresh silhouettes into the stores in time for the holiday season. So the answer is we are going to have a refreshed women's Western boot assortment in place as we come into the Christmas and the holiday season and we feel great about it. Our merchandising team feels great about it. When we look at some of the softness on the men's side of the business, that softness feels like a little more of some discretionary pressure, some macro pressure. As we look at the price points of the boots that are selling, we've recently done a survey of our customers to ask them, do you still intend to come back and buy men's Western boots? And the answer is was unequivocally yes, but the biggest pressure point was price. So I think there's a little more macro involved on the men's side, and that softness is much less than what we've seen on the ladies' side. But we feel great about the preparation and the inventory and the type of product that we will have in play for the holiday season.

And we are cycling... easier comps as we get through the balance of the quarter. And, you know, weather has been hot. And so as that turns, and as it's turned in certain markets, we've seen a benefit from weather just cooling off and some precipitation in certain markets. So that's on the horizon also.

Okay, great. A follow-up I had was on the rebranding of the B2B initiative. Can you help us understand the opportunity there in terms of magnitude? You've had one in place already, but maybe just help us understand timeline and sort of magnitude of what this could be.

Yeah, very excited about what we're doing with Boot Barn Workforce. Again, we were kind of order takers and it was all tied to each individual store for many years with paper vouchers. And we've had some commercial or B2B business that had developed organically and grown very nicely over the last several years. And as we looked at the competition and we looked at the opportunity, we realized that taking the ability of what the digital team can build and approaching this truly as a business where we go out and get leads and drive sales versus being order takers and digitizing the entire process It can be a great opportunity for us as we go into the back half of this year and into next year. It's been growing in the 20% range for the last couple of years, and we think that can get up to around 40, 50% growth.

Okay, thanks very much. Best of luck over the holidays.

Thanks, Steve. Our next question comes from Dylan Cardin of William Blair.

Please go ahead.

Thanks. I just want to understand those comments around men's western boots. Is that to say that you're seeing incremental price sensitivity? And I guess if you could sort of roll those thoughts up to the overall guide. You know, at the lower end, things would have to get a lot worse just on a static basis. And I know historically you've kind of guided more as per sort of what's going on right now. Is there anything sort of changed out there to give you a different view of the demand environment kind of heading into holiday? It sounds like the comments are net positive.

Yeah, the performance in the men's Western boot category, we're seeing some of the softness. It's on rubber-soled boots. And that can be, you know, we looked at what's selling by price. We conducted the survey I mentioned earlier to see what might be going on. in men's performance boots. And at the same time, you know, and we don't do this often, we do have to mention weather. It has been incredibly hot in the southwest and the west coast, just record-breaking through October. And I'd be remiss if I didn't mention that we believe a portion of that softness is coming from how extraordinarily hot it has been out west, and we see it in the business when we have days that are 100 degrees in October, which is very rare. We see the impact to the business in California in a product like the men's rubber sole boots.

Jim, on sort of guidance strategy here?

As far as the guidance for the balance of the quarter, we mentioned earlier that half of our business is done in our fiscal December between Thanksgiving and Christmas. And we feel confident in the guide that we put out there. We used the most recent three months to develop the guide for the balance of the quarter and the balance of the year using historical seasonality based off recent business. And so I think the way we've set that up, In addition to a little bit easier comps in November, December, we feel comfortable with where we've got it.

And then just to confirm, freight costs, it sounds like there's no real incremental thinking or impact for now. Did I get that right?

Correct. We've seen about 20 basis points of improvement for the first six months of the year, and we're guiding another 20 basis points of improvement year over year as we get into the back half of the year. container costs have gone up, as you all know, compared to where they were a year ago or even just a few months ago. But we're also seeing, and that gets capitalized and rolled out over our inventory turns, but we're also seeing some nice improvement for us with some of the rates we've negotiated on our outbound e-commerce domestic shipping which has provided us a nice benefit on freight. In fact, that was part of the improvement we saw versus the guide in our second quarter results.

Very good. Thank you.

Thanks, all. The next question comes from Peter Keith of Piper Sandler. Please go ahead.

Oh, thank you. Good afternoon. It sounds like you're taking up the merch margin expectations for the year. I just didn't catch what the drivers that are. Is that some of the new sourcing team or other factors in play that we should be thinking about?

Yeah, as we look to the full year guidance, you know, the buying economies of scale is still the big driver, right? The 50 basis points of Merch Margin Expansion on the full year, so continuing with the discounts from the vendors. And you're correct, Peter, the sourcing initiatives we have has been a contribution to that. As we looked at the most recent quarter, the driver of our product margin was more on the exclusive brand side than it was on the third-party side as far as the better margin or better product margin. and some of our tried and true product leading to lower markdowns compared to last year and just having some really clean inventory. So it's just refining that and continue to see these nice margin drivers that we've been experiencing.

Okay, great. Separately, I did want to ask about one of your key suppliers seeing a really emerging strength with Ariat, both in our survey work and they're showing up with national TV commercials. So generally think about Ariat growth is good for Boot Barn, but there is some investor concern out there with Ariat growing their own stores. Do you see any impact from that dynamic or do you like bigger Ariat is good for you?

Yeah, Ariat is a great partner for us. I was excited to see they recently got the arena in Fort Worth. It's going to be the Ariat Arena versus the Dickey's Arena, which I thought was very cool for them. And they're always willing to work with us, try out new product, new ideas. And they've always opened a few stores here or there. They have one on Ventura Boulevard in Los Angeles. They opened somewhat recently. But overall, they're a great partner and we're excited to work with them season in and season out. So no, I'm not concerned in any way.

Very good. Thanks so much. Thanks, Peter. Our next question comes from Janine Stichter of U.S. Bancorp.

Please go ahead.

Yeah, thanks for taking my questions. First, just to follow up a bit on the last question. As you think about product margins over the next few quarters and into next year, should we think about exclusive brands continuing to be down or normalize a bit after the strong growth you've had as we go into next year? And then as you benchmark your exclusive brands and their margin profiles versus other private label brands, where do you think you are in this journey? How much room is there to go there? And I also just wanted to ask about the occupancy leverage point. Is anything changing there with the acceleration of new stores? And I think you also mentioned a new D.C. opening. Thank you.

Sure.

So as far as the product margin, as we look forward into next year, as I mentioned earlier, we continue to see the drivers intact. And as we, I think we're still in the early innings on driving merchandise margin, despite the strong growth we've seen over the last decade or so. And so, you know, Buying economies of scale as we continue to grow and buy more volume from our vendors, that expectation continues to be with us. As far as the exclusive brand goes, the sourcing initiatives that we've had around exclusive brand purchases, those are still really early innings, and so we expect to see some continued traction there as we move into next year. As far as the exclusive brand penetration as we move into next year, this year it's projected to be flattish. It's a little early to say what it's going to do next year, but as we zoom out a little bit and look what we've done over the last several years, we're thrilled with where exclusive brands have come and the progress that they've made and designing and getting the product out to the stores. And so there's always a little bit of rebalancing that happens. We'll see what that looks like as we move into next year. But right now, we're pretty happy with that. And the fact that if the penetration isn't growing like it is in this year, but we're able to get the margin improvement within the penetration we do have, we're thrilled with that because it really is the focus of growing merchandise margin. And as far as the buying and the occupancy, A little early to say what it's going to be next year. The timing of some of the store openings we had this year pushed that leverage point up a little bit to 10%. I think it probably comes down a little bit. We'll have some more store openings as we get into next year, and that will continue to pressure it. As far as the new Kansas City Distribution Center, We'll start having some rent expense late in the next year, probably four or five months of rent expense, somewhere in the $300,000 or $400,000 a month or so. So a little bit of pressure in the next year, but not anything meaningful that I think would drive the leverage points up higher than what we saw this year.

Thanks very much. Thanks, Janine. Thanks.

The next question comes from Chris Nardone of Bank of America.

Please go ahead.

Thanks, guys. Good afternoon. Just want to clarify how you're thinking about volume versus price in your new full-year comp guidance. And I know you touched on some of this in your prepared remarks, but it would be great to get more information on what you're seeing from a promotional perspective, both your own business and then what you're seeing in the industry broadly.

Yeah, we... We've run a full-price business for many, many years. We've worked hard to get that business, and we're going to continue to do so. When we need to move through some merchandise, as with some of these women's boots, to make space for what we're very excited for this holiday season with the new assortment and new styles coming in, We will be promotional, but in a very pinpoint way. The nice thing about this industry is it continues to be very rational. We look at all of our competition. We adhere to a map policy in the Western space. Everyone is very good about adhering to that policy. And so even though there may be other retailers seeing some of the softness that we have seen in particular categories, We're not seeing anyone being irrational in any way from a pricing standpoint. So we're going to continue to run a full price business, manage our clearance, which is at historical levels. We're in a great place from a markdown inventory standpoint. And we'll run this holiday season very similar to how we ran it last year from a pricing standpoint with some exciting new things coming on the marketing side.

Thanks, Jon. And then just a quick follow-up. I understand the changes you're making on the merchandise side of Boots and then the strength you're articulating in the work business. But what's giving you confidence that this softness in Boots doesn't seep into the rest of the business if it's, in fact, weather macro-driven for the most part?

Yeah, one of the things that gives me great confidence is if we look at the October business, which again, moderated, we saw growth, nice growth in our biggest merchandise category, which is men's Western, and we saw it in the apparel as well as the denim. We also saw the women's Western apparel business hold up very well, and if there was something shifting in the trend of Western or the trend that people believe is there, you'd see the cowboy business Hat Business, of course, having a tough time, and we're just not seeing it there. The expertise and the experience of our chief merchant and her team and her view on the opportunity in women's western boots also gives me great confidence that this is something we can get after and get that business back on track. The one that is a little bit more puzzling, and I've said it a couple of times already, is what's going on with rubber-soled men's boots. It's not as soft as the women's business was, but that one feels slightly more macro or perhaps weather, and we feel like we have the right assortment in our men's Rubber Sold Western Boots. And so we're keeping a close eye on it and surveying customers and not doing anything from a price standpoint. But we feel like we're in a good spot from a merchandising and assortment standpoint. And again, we're not going to buy the business and get heavily promotional on that merchandise category just because it's a little soft.

Okay. Understood.

Thank you, guys. Good luck.

Thanks.

Our next question comes from Max Recklenko of TD Cohen.

Please go ahead.

Great. Thanks a lot, guys. So first, you called out the really strong guy, new store growth. So I'm just curious, what do you attribute that to as that seems to be stepping up and new stores are starting out of the gate even better than in the past? And then just how do you square that away with could there potentially be some cannibalization that's picking up a little bit or just anything else that potentially could be going on there?

Sure.

So we're really pleased with the new stores. I think the team is really gelling well and really has hit their stride as far as identifying the stores, building those stores. We've talked at length about The flexibility of our model, being able to go into a bigger box or a smaller box, depending on what's available and in which market they're in. And just given the geographies we've gone into and where we've built those stores, we're seeing some nice performance. And so confident that as we move forward, we'll continue to see nice performance in those new stores. We've also talked over the years that when we go into our real estate committee meeting here internally and we look at these deals and go to approve those deals. Depending on where the market is, I guess stepping back, if you look at our map, our roadmap of how we get to 1,200 stores, there are multiple stores in certain more mature markets or bigger, more urban markets and fewer stores in more rural markets. And so as we go into some of the bigger markets and we approve a store that's We already have stores in that existing market. We'll look at what impact a new store could have on an existing store and the new store has to overcome the sales that it might take from that store and cover it. And so as we build stores across the country, there is some of that where we're adding multiple stores to some of our higher populated markets, but not to the extent to where We feel it's having a meaningful impact on our comps. We really look at it as a growing the total market when we fill out these markets.

Okay, got it. That's helpful. And then when you guys lay out some of the initiatives centered around product and store layouts to reaccelerate comps, it does feel a little bit different than sort of what we've heard in the past. I'm curious, as you step back, how do you think either the customer profile or the product assortment has evolved? I just don't seem to recall more sort of these full-scale changes that you seem to be making to the stores now.

Yeah, I don't think there's been a change in the customer. The penetration of Western apparel and men's and women's has increased over the last few years. And I've said on prior calls that I think we've become a little bit more of a lifestyle retailer and people can get their everyday denim. But these are tweaks to how we merchandise in a lot of categories, to your point. So this is in denim, in Western hats, in outerwear. and I think it's really just a function of how much time I spend in stores. I'm in stores constantly and with the merchant team and the store operations team and I've got a strong opinion on how we can always merchandise better in stores and we work together and so we've been a little more nimble on some of these changes but they really are tweaks. We're not moving whole departments around inside the store. This is Hey, it's hard to figure out the sizing and the brand of cowboy hats. Let's change how we visually merchandise cowboy hats. Or, you know, should we have all of the Sherpa outerwear together versus having it separated by brand in stores as we go into the holiday season? So those are the sorts of tweaks we're making here. The biggest one, you know, the big one, if you remember a couple years ago, was re-merchandising the work boots by size versus by style. That was a massive undertaking for the stores, and I think it's a piece of of why the work boot business has been doing so well alongside the new third-party brands and some of the marketing the team's put together.

Got it. Thanks a lot, guys, and good luck. Thank you.

Our next question comes from Jonathan Comp of Baird.

Please go ahead.

Yeah. Hi. Good afternoon. I wanted to just follow up to understand the guidance changes. It doesn't appear consistent with your past, or at least not frequently, that you've had periods of comp slowdowns and have to lower guidance. So when you think about the changes to the year, would you say the approach is to lower once and not have to lower again, as we think about comparisons easing from October and some of the different explanations that you offered, why we maybe should not expect the current trend going forward?

Yes, I think that's a fair way to characterize that. I mean, the goal is to put out a guidance that we think is achievable and that we feel confident in hitting. And we don't like to change our guidance unless we're changing it up. And so it is unusual for us to lower this. But we feel like we've got something that's based off of recent sales trends. and it kind of flies a little bit in the face of maybe easier comps but having to lower the guidance. But we wanted to put something out there that heading into our busiest time of the year we felt good about.

That's really helpful. And then if I could circle back to e-commerce, you know, the changes there are more significant relative to your initial expectations. It's not entirely clear, you know, why that's trending today. If you could share a little more insight. And for a while, it seemed like you had a lot of success pulling different levers on different social channels, expanding the reach with some of your standalone exclusive brands, marketing those in a different way. Do you think there's a broader set of initiatives you need to sort of refill the bucket and re-energize growth there or any perspective on some of the e-commerce specific initiatives looking forward here?

Yeah, absolutely. The e-commerce business in Q3 of last year just had an exceptional quarter. We had our new chief digital officer on board, and he came in with a lot of new ideas, whether it be some of the viral TikTok products that took off, the way he went about some of the digital marketing. We had the CodyJames.com launch, which contributed to the e-com comp. and so in October it was a 24 as well as in November and then a plus 17 last December. So it's up against some very tough comps but at the same time we're not satisfied with a flat comp in e-commerce and the team is, using your term, kind of refilling that bucket. I was with them yesterday working on some new ways to attract new customers to the different sites They feel great about the approach on bootbarn.com for the holiday season and what that digital marketing looks like and how we can achieve the best ROAS possible. But they had such a standout year last year that I think a portion of this is being up against the stronger comps. But I have full confidence in the new ideas they've been walking me through over the last couple of weeks and very excited for what they have coming for the holiday season.

Okay, great. Thanks a lot. Thank you.

The next question comes from Jay Soule of UBS. Please go ahead.

Great. Thank you so much. Maybe can you give a breakdown of the comp trend in stores? Can you tell us traffic and maybe transactions? Give us a little idea about those metrics. Thank you.

Yeah, so in the second quarter, the transactions were down about 1.5%. The basket was up about 2.5%, comprised of AUR being up about 2%. And UPT, units per transaction, are actually up about 0.5%. And as we got into October, it looks almost identical with the exception of transactions being down 2% instead of 0.5%. So it's really the AUR is holding in there. UPT, the team, is doing a really nice job of growing units per transaction, growing the basket. It's just the transactions, which we see as an indicator of traffic, were down. And we do have traffic counters, and the traffic counters would say that traffic is also down. And the positive, the team has also been able to improve the conversion year over year. And so the sales teams, are doing really a nice job of growing the basket and converting the traffic that does come into the store.

Having the benefit of traffic counters, we can see that there's not something we've missed in terms of merchandising or the store experience or the customer service that is an issue inside the four walls. It is a traffic issue. The stores are doing an incredible job converting and driving up units per transaction, and their customer satisfaction scores are up materially year over year. So I couldn't be happier with the execution of the store's teams across everything from the traffic that they get inside of those four walls. But to Jim's point, it is a traffic issue, not an internal store operations issue.

Got it. John, that's helpful. Maybe can I ask you two more? One is just how do you think your market share changed in the quarter in men's and ladies' Western booths? And then if you just think back, you know, over the last five, 10 years of history at Boot Barn, like what does this current period remind you of if there is one and sort of where you've had this sort of slowdown in a particular category and, you know, steps and initiatives you've taken on to change it and then, you know, seeing it get back to where you expect it to be?

Yeah, sure. I've been with Boot Barn close to 10 years at this point, and the one it reminds me most of is there was a large slowdown right when we had the acquisition of Country Outfitters where white women's boots really slowed down, and it happened very quickly. And we quickly got out of those boots over a six-month period and reassorted the women's The women's category and we were back on track. So you do see occasionally a set of silhouettes or a color pattern change quickly in women's. And as I said a couple times on this call, I couldn't be more impressed with the merchandising team and how quickly they've gone after this inventory and it will be here for the holiday season.

And on the market share thing? On the market share, that's a tough one to answer.

I don't think we have lost significant market share. I think if we're facing into a shift in taste, the third-party vendors will always have the inventory before us, so perhaps there's some business that is with the third-party vendors that we buy from since they'll have the product up first and get the earliest read-throughs. But if we think about the rest of retail, whether it be the larger Western retailers, Farm and Ranch, the independents that are out there, my sense is we haven't lost market share to those folks. If it's anywhere, it would be with the third-party vendors as they get the product first.

Got it. Thank you so much. Thanks, Jay. The next question comes from John Tipor of Goldman Sachs.

Please go ahead.

Hey, guys. Good afternoon. Thank you for the question. So I'm trying to square some of the 4Q implied performance. It sounds to me like, I mean, if I did my math right, that same-source sales for 4Q were sort of implied to be around the same as in 3Q. But there was mention about... heavier discounting on boots to clear inventory so that there would be kind of a more impactful 4Q launch. I'm just wondering how to square that if the new launch doesn't kind of imply acceleration. And then if you have any sense of how much of the women's boots price sensitivity is maybe a category issue versus a macro issue, and if you could tell us how are performing in non-comp stores, just to get a sense of the overall health of those categories. Thanks.

Yeah.

So, John, just to clarify, so the fourth quarter is our fourth quarter, not holiday quarter that you're asking about? Right. Okay. Yeah, you're right. The fourth quarter is we've guided very similar, the same really as we did the third quarter. And, you know, we... You mentioned the discounting. The discounting we were talking about was really what's happened over the last couple of months to clear through certain styles within that ladies' western boot category. And so that's all happened or happening as these new boots and new styles are coming in in advance of the holiday season. So this is all kind of current in the next few months. We expect to see a very heavy full price selling holiday shopping season in our stores and Q4 as well. And this is not something new that we're just starting. This is something that we've done, that we're always doing. If a style is not working, we'll mark it down. And most of the emails that folks get around sales are, you know, a sale on clearance goods or on markdown product. And so it's really just more of the same as we've always done. We just wanted to kind of illustrate what is happening and what we're doing within that ladies Western boot category to get ready for holiday. And we're going up against a little bit easier comps, and we have a nice strategy that the team has developed to give a product to our customers that they want.

And then just in terms of in non-com stores, how you see the boot categories performing versus maybe a year ago in those new stores?

Yeah, it's interesting. So we've often talked about some of the stereotypes when we open a new store that the lady shoppers typically will find those stores first and the men's business is kind of slower to follow. and so what we're seeing is better results in the ladies business in the new stores compared to what we're seeing in comp stores and then on the work side of things you see quite the opposite where that worker the men's works customer is slower to go to those new stores so it's kind of playing into the stereotypes and what we've seen over the last several several years with the new stores. And so that could be having, or that is having a little bit, tiny bit of impact on the comp, on the ladies' boots if they're going to the new stores and markets where there happens to be another store.

Okay.

Thank you.

Thank you.

Our next question comes from Jeremy Hamblin of Craig Hallam Capital Group. Please go ahead.

Thanks for taking the question. So just wanted to go back over a couple of points here on the same store sales expectations. It looks like you maybe in October have seen, like on a two-year stack basis, a step up from September maybe by about 100 basis points. Just in terms of understanding the remainder of the quarter, it compares to get a little bit easier from here maybe by a few hundred basis points. Just in terms of understanding the expectation for the rest of the quarter, could you just remind me of the color on that? And then just secondly, on the EPS guide for the year, some noise, I think $0.45 related to tariffs. But I think net-net, it looks like you're still guiding to about a mid-teens EPS growth rate this year. And then I think what you said, I just want to clarify, Jim, If you had, let's say, a 3% comp next year, you'd be looking at kind of mid-teens growth again?

Yes. So maybe I'll start from the last and go back to the first. Yes, you're right on just talking through back to the leverage point for a second. I mean, at a and a 2% same-store sales this year, excluding the tariffs, we're going to be about flat on the EBIT rate year over year. And so that leverage point at a 2% same-store sales this year, as we look to next year, it's probably similar to what we saw the last couple of years at a 3% comp needed to leverage EBIT. And the growth rate on EPS this year, excluding the $0.45, is about 16%. So your math is perfect on that. As we look to next year, a lot of components, we haven't fully rolled up the budget yet, but yes, having a 3% comp next year should get us to something in that mid to high teens EPS growth next year.

Great. And then on the comp question,

And I should mention that's excluding the tariffs, right? So it's taking the $9 and making it $8.55, building off of that to a high-teens EPS growth. And then, sorry, what was your last question, Jeremy?

Yeah, just on the comps, right? So it looks like maybe October's seen a little bit of a step up in two-year stacks. But then in terms of you compare, it's getting a little bit easier, I think maybe a few hundred basis points. between November, December versus October. So just understanding in terms of expectations, it doesn't look like you're expecting any improvement. I think that's probably related to the portion of business that happens between, let's say, mid-November and December. And Christmas, can you just clarify for us?

Yeah, so we use the similar methodology of taking recent business and rolling that out, and you're right, that would imply kind of a deceleration on the two-year comp. The message we've tried to get out on this call is that we feel great about what we've done, positioning ourselves into holiday, and the fact that we do have easier comps coming up in fiscal December is really Thanksgiving through Christmas. just past Christmas. And so we think we're well positioned there, optimistic about what we, you know, our comps. And we do have easier comps, but we didn't want to stray from how we've been guiding, which is based off the more recent volume, you know, recent volume of business and how that plays out historically over the next couple of months.

Thank you so much.

Thanks, Jeremy. Thanks.

The next question comes from Ashley Owens of KeyBank Capital Markets.

Please go ahead.

Hi. Great. Good afternoon. Thanks for fitting me in here. Maybe just to start since, you know, we just talked about it a little bit here, but you mentioned a few times now that that EBIT leverage point has come down to 2% for the year. You mentioned that outperformances of the new stores is one of the reasons for that. Could you just help us understand if that's predominantly stemming from that better first year sales outperformance that you're seeing or is the new cohort also coming in at better four-wall margins than you originally planned for? And then just maybe on the holiday television with that impression number taking up six times, could you just maybe help us quantify any incremental marketing expense will be associated with that step up? Thank you.

Hi, Ashley. It's really on the EBIT leverage point for this year, it would be the non-comp stores driving a higher sales volume out the gate or in the first year. If they can generate more sales, then it takes pressure off the comp stores to drive sales dollars. And so that's helping the leverage point this year, in addition to the the merchandise margin coming in a little higher than what we had anticipated. So those two things in tandem are helping with that, help us get leverage at a 2% comp this year.

And then going back to the TV campaign for holiday, we had a pretty major shift in how we bought the TV media for holiday. We had traditionally gone to different dedicated regional buys and markets that made sense fiscally to us. And as an example, we would not go to a New York or a Los Angeles. It just did not make sense. And so we've moved to programmatic buying this year, and that's where we're able to get such an increase in impressions with not a material increase in marketing. Our marketing spend will continue to be 3% of sales. If there was anything outsized to call out in this quarter, we would have, but We've made no cutbacks. We've increased radio this year. We've increased our direct mail this year as well. So we feel great about everything we're doing this holiday season from a marketing standpoint. But a real Christmas campaign with a billion impressions featuring Riley Green is something I'm very excited about. I've seen the spot several times already. I think it's one of our best holiday or Christmas spots we've put together. So very, very excited.

Great. Appreciate the color and best of luck for the holiday.

Thank you.

And our next question comes from Sam Poser of Williams Trading.

Please go ahead.

Good evening. Thanks for taking my questions. I want to just follow up on sort of the buckets of stores. You have your non-comp stores, you have your newer comp stores, and then you have sort of more mature comp stores. Can you give us sort of like how the newer comp stores are comping versus the older ones? Because there's a lot more older ones now. And is that dragging down the comp? And then if so, what are you doing from like merchandise mix in those stores and all the other stuff you're doing to correct it?

Yeah, so I'll jump in there. I think we said on maybe a couple of calls ago that last year the stores opened in the previous five years added about 150 basis points to our comp last year. So our plus 7.2 last year, 150 basis points of that was from stores opened. including comp stores, right? Or the comp stores that weren't brand new stores added 150 basis points. That's probably a little bit lower this year. It's probably adding about a point a comp, that same group of stores. And so as far as the new stores, we've talked about how they've been outperforming our expectations and are on track to do a 3.4 million instead of 3.2 million. and so that's, you know, I guess a nice healthy cohort of stores. And then as far as the mature stores, the stores that were opened, you know, I guess half of the base that wasn't opened in the last five or six years, if those are, if the ones open in the last five years are adding about a point of comp, then those are probably flat just in this most recent quarter. So I don't know if that helps answer that question, Sam.

Thank you. And then secondly, you talked about you think the weather impact on the western boots, and you called out the southwest and the south. I believe that's what you said. Can you give us some idea of the comps of western boots by region, maybe for October or September, so we can sort of see maybe we can actually see the weather impact on that?

Yeah, we're not prepared to share that on this call. What we have seen is really like over a weekend where you get rain, where it's been really hot, we've seen not just the boots, but all categories or most categories spike up. And that's always been the case with this business. And so we bring that up just as we're heading into El Nino, which typically means that in California and Parts of the Southwest should see more rain. That's a positive that should be coming our way as far as driving conflict. We don't have that by region available to share at this point. Part of that is competitive in nature also.

Two last questions. One, what is the exclusive brand penetration? You may have said that's excluding work. And secondly, you called out the men's rubber-soled Western dress business. What percent is rubber sole of men's Pure Western versus leather sole?

Yeah, so excluding the work boots, our exclusive brand penetration was up about 80 basis points.

And on the performance side, rubber sole is slightly less than half.

Call it 40%.

So the leather-soled boots are holding in, and the rubber-soled boots aren't?

They're outperforming the rubber-soled boots, yes.

And is that true in women's as well?

Or is it generally true in women's because you don't have as many rubber-soled boots? It's actually the reverse in women, and I talked about this on the last call.

Okay, so the men's rubber sole boots are really being used for people to go to work in, and when it's hot, they're not wearing them out as fast. Is that sort of the way to think about it conceptually?

I think that's a good way to think about it, Sam. Thanks very much. Good luck.

Thank you, Sam.

This concludes our question and answer session and is the end of our call. Thank you for attending today's presentation. You may now disconnect.